Marriott Vacations Worldwide Corporation — Q3 2021 Form 10-Q
Business context and reporting period
The filing covers the three and nine months ended September 30, 2021. MVW operates Vacation Ownership and Exchange & Third-Party Management segments, providing vacation ownership, exchange, rental, resort management, financing and related services. Results include Welk Hospitality Group from its April 1, 2021 acquisition.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $1,052 million | $649 million | $2,790 million | $2,139 million |
| Income (loss) before taxes | $58 million | $(72) million | $57 million | $(316) million |
| Net income (loss) attributable to common shareholders | $10 million | $(62) million | $(12) million | $(238) million |
| Diluted EPS | $0.23 | $(1.51) | $(0.28) | $(5.76) |
| Adjusted EBITDA | $205 million | $35 million | $438 million | $163 million |
| Operating cash flow | Not separately provided | Not separately provided | $303 million | $158 million |
- Revenue increased 62% in Q3 and 30% for the first nine months, driven primarily by vacation ownership sales, higher rental activity, business reopening and the Welk acquisition.
- Vacation ownership contract sales were $392 million in Q3 and $996 million for the first nine months, up from $141 million and $486 million, respectively. Consolidated contract sales increased 103% year to date.
- Vacation Ownership Adjusted EBITDA was $215 million in Q3 and $465 million year to date; Exchange & Third-Party Management Adjusted EBITDA was $35 million and $113 million, respectively.
- Vacation Ownership development profit was $93 million in Q3 versus a $7 million loss, and $172 million year to date versus $2 million. Resort management and other services profit margins were 55.9% in Q3 and 60.2% year to date.
- Vacation Ownership rental profit was $24 million in Q3 and $20 million year to date, compared with losses of $40 million and $100 million, respectively. Q3 resort occupancy was 85.0% versus 24.5%.
- Cash, cash equivalents and restricted cash totaled $882 million at September 30, 2021, including $448 million of unrestricted cash, compared with $992 million at December 31, 2020.
- Gross debt was approximately $4.6 billion, including $1.6 billion of non-recourse securitized debt. Balance-sheet debt, net of discounts and issuance costs, was $2.795 billion, and securitized debt was $1.594 billion.
- Debt maturities included $230 million of 2022 convertible notes, $1.034 billion due in 2025 including the remaining term loan and 2025 Notes, and $575 million of 2026 convertible notes. The company had a $600 million revolving credit facility with no borrowings outstanding and $2 million of letters of credit outstanding.
Material changes versus the prior comparable period
- The company returned to quarterly profitability as operating activity recovered from the COVID-19 disruption. Year-to-date net loss attributable to common shareholders narrowed to $12 million from $238 million.
- Welk contributed $53 million of Q3 revenue and $10 million of Q3 net income; the acquisition consideration was $405 million, consisting of $157 million of cash, net of cash acquired, and approximately 1.4 million MVW shares valued at $248 million.
- The company issued $575 million of 0.00% convertible notes, issued $500 million of 4.5% 2029 Notes, redeemed all $750 million of 2026 Notes, and repaid $100 million of its term loan. It also redeemed $250 million of 2025 Notes after quarter end.
- Q3 included $36 million of charges for the early redemption of the 2026 Notes. Transaction and integration costs were $27 million in Q3 and $75 million year to date.
- 2020 included substantially higher impairment and restructuring charges, including $98 million of impairment and $20 million of restructuring expense for the first three quarters; 2021 had $5 million of impairment and no reported restructuring expense for the period.
- The Board authorized a $250 million share repurchase program through December 31, 2022. The company repurchased approximately 29,000 shares for $4 million during the first nine months, leaving $246 million available at September 30, 2021. It declared a $0.54 per share dividend in Q3.
Guidance, outlook, risks and unusual items
- Management expected sequential improvement in contract sales, resort occupancy and rental activity to continue through the fourth quarter of 2021. It also expected financing propensity to reach 60% or higher as the company refocused on first-time buyers, supporting future interest income.
- Management stated that contract sales and financial results remained below pre-pandemic levels. The Delta variant negatively affected late-Q3 contract sales and may affect revenue timing.
- COVID-19 remains the principal uncertainty, including potential effects on travel demand, consumer confidence, operations, staffing, government restrictions, vaccine effectiveness and credit performance.
- Vacation ownership notes receivable totaled $2.026 billion net. The estimated future default rate for Legacy-ILG and Legacy-Welk pools increased to 17.13% from 14.63% at year-end 2020; COVID-related reserve increases were not recorded during the first three quarters of 2021.
- Pending legal matters were not accrued because the company could not estimate potential losses. Management believes it has meritorious defenses, but unfavorable outcomes could materially affect results.
- Material commitments included $104 million for a potential 2022 Waikiki property purchase, $25 million in 2022 and $32 million in 2023 for a San Francisco property, $23 million for Bali inventory expected in 2022, and $123 million of surety bonds.
- Preliminary Welk purchase-accounting valuations remain subject to adjustment, potentially materially, during the measurement period.
Important facts for investors to verify
- Whether the post-pandemic recovery and management’s expected Q4 sequential improvement continued, particularly in contract sales, occupancy and financing originations.
- The sustainability of the sharp improvement in Adjusted EBITDA after excluding acquisition, integration, debt-redemption and other unusual items.
- Actual credit performance and reserve adequacy for the $2.026 billion vacation ownership notes receivable portfolio.
- Liquidity and refinancing capacity around the 2022 convertible-note maturity and 2025 debt maturities, including the effect of subsequent debt redemptions.
- Final purchase-accounting values and integration results for Welk, including goodwill and acquired loan performance.
- Restrictions on future dividends and share repurchases under debt agreements and the company’s ability to execute the $250 million authorization.
- Developments in pending litigation, COVID-19-related claims, and unaccrued potential liabilities for which the filing does not provide a clear loss range.