Business Context and Reporting Period
Marriott Vacations Worldwide Corporation filed its Form 10-K for the fiscal year ended December 31, 2020. The company operates vacation ownership, exchange, rental, resort management and related businesses through two reportable segments: Vacation Ownership and Exchange & Third-Party Management. Results were materially affected by the COVID-19 pandemic, including resort and sales-center closures, travel restrictions and weaker consumer demand.
Vacation Ownership generated $2.530 billion of segment revenue, or approximately 89% of segment revenue. Exchange & Third-Party Management generated $309 million. The company had more than 100 resorts, over 650,000 owner families and approximately 18,000 associates at year-end.
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $2.886 billion | $4.259 billion | Down 32% |
| Net loss attributable to common shareholders | $275 million | $138 million net income | Decline of $413 million |
| Basic and diluted EPS | $(6.65) | $3.13 / $3.09 | Unfavorable |
| Adjusted EBITDA | $235 million | $758 million | Down 69% |
| Adjusted EBITDA margin | 13% | 24% | Down 11 percentage points |
| Operating cash flow | $299 million | $382 million | Down $83 million |
| Capital expenditures excluding inventory | $41 million | $46 million | Down $5 million |
| Cash and cash equivalents | $524 million | $287 million | Up $237 million |
Vacation Ownership contract sales declined 57% to $669 million, while consolidated contract sales declined 57% to $654 million. Vacation ownership product sales revenue fell 60% to $546 million. Development margin declined to $10 million from $310 million, and development margin percentage fell to 1.8% from 22.9%.
Vacation Ownership segment revenue declined 33% to $2.530 billion and segment Adjusted EBITDA declined 71% to $229 million. Exchange & Third-Party Management revenue declined 32% to $309 million and segment Adjusted EBITDA declined 36% to $119 million. Interval International active members decreased 9% to 1.518 million, and average revenue per member fell 14% to $144.97.
Rental revenue declined 52% to $276 million on lower occupancy and resort closures. Vacation Ownership rental margin became negative at $(124) million, compared with positive margin of $122 million in 2019. Vacation Ownership resort occupancy declined to 57.2% from 88.1%.
Financing revenue was $267 million, down slightly from $275 million. Financing margin declined to $159 million from $182 million, and financing propensity fell to 51% from 63%. Historical default rates increased to 6.3% from 4.5%, primarily because of the pandemic.
Total assets were $8.898 billion, including $1.840 billion of net vacation ownership notes receivable, $759 million of inventory and $2.817 billion of goodwill. Total liabilities were $6.216 billion and shareholders’ equity was $2.651 billion.
Material Changes Versus the Prior Comparable Period
- COVID-19 caused substantially lower sales, rental activity, exchange transactions and resort occupancy beginning in March 2020.
- Sales centers were closed in March; more than 80% had reopened by year-end. More than 95% of vacation ownership resorts and more than 90% of affiliated resorts and managed properties had reopened by year-end.
- The company recorded $100 million of impairment charges, including $73 million for Exchange & Third-Party Management goodwill, $18 million for trade names and trademarks, and additional property and inventory impairments.
- The company recorded $25 million of restructuring charges and expected total restructuring and related charges of approximately $30 million to $35 million. Approximately 3,000 associates were affected by the workforce reduction plan.
- Vacation ownership notes receivable reserves increased materially. The company recorded $150 million of reserve expense and reduced vacation ownership product revenue by $79 million due to changes in estimated variable consideration, including pandemic-related default expectations.
- General and administrative expense declined 38% to $154 million due to cost reductions, furloughs, lower compensation and reduced travel, technology and other spending.
- The company issued $500 million of 6.125% senior secured notes in May 2020 and used the proceeds to repay borrowings under its revolving credit facility. The company also completed a $375 million vacation ownership receivable securitization.
Liquidity, Debt and Capital Allocation
At December 31, 2020, gross debt was approximately $4.3 billion, consisting primarily of $1.6 billion of non-recourse securitized debt, $1.1 billion of senior unsecured notes, $884 million of term-loan principal, $500 million of senior secured notes and $230 million of convertible notes. Net securitized debt was $1.588 billion and other net debt was $2.680 billion.
The company reported $597 million of availability under its $600 million revolving corporate credit facility and $524 million of cash and cash equivalents. The company drew on and repaid revolving borrowings during the year, ending with no cash borrowings outstanding under the revolving facility other than $3 million of letters of credit.
A debt covenant waiver suspended the leverage covenant through the end of 2021, subject to maintaining minimum monthly liquidity of $300 million. The waiver also restricts dividends and share repurchases. The share repurchase program expired December 31, 2020, and cash dividends were suspended after a $0.54 per share dividend paid in March 2020.
Subsequent to year-end, the company issued $575 million of 0.00% convertible senior notes due 2026 and entered into an agreement to acquire Welk Resorts for approximately $430 million, including approximately 1.4 million shares of common stock. The acquisition was expected to close in early the second quarter of 2021.
Outlook, Management Commentary, Risks and Unusual Items
Management did not provide quantitative full-year 2021 revenue or earnings guidance in the filing. Management stated that demand began improving as resorts and sales centers reopened, including increased exchange activity in the second half of 2020, but recovery remained dependent on the duration of the pandemic, travel restrictions, consumer confidence and the pace of vaccination and economic recovery.
Management expects interest income to begin increasing when new vacation ownership loan originations exceed principal amortization, most likely in 2022. It also expects approximately $5 million to $10 million of additional restructuring charges in 2021, although the broader filing describes total restructuring and related charges of approximately $30 million to $35 million.
- Key risks include renewed resort or sales-center closures, prolonged weakness in travel demand, higher customer defaults and pressure on securitization markets.
- Debt service, covenant compliance and refinancing requirements remain significant, including the $230 million convertible notes due in 2022 and scheduled maturities under the term loan and senior secured notes.
- Asset-backed securitizations contain performance triggers that can redirect excess cash flow if default or delinquency thresholds are breached. No securitized receivable pools were out of compliance at year-end.
- Pending litigation includes claims relating to Ritz-Carlton and Hyatt fractional interests, the Marriott Vacation Club Destinations program and management practices. No accrual was recorded for the described matters, and potential losses could not be estimated.
- The company faces regulatory, tax, cyber-security, foreign exchange, climate, natural disaster, brand-license and Spanish timeshare litigation risks.
- Goodwill and indefinite-lived intangible assets remain sensitive to assumptions about recovery, revenues, discount rates and market conditions.
Most Important Facts for Investors to Verify
- Whether resort occupancy, contract sales, rental activity and exchange transactions return toward pre-pandemic levels.
- Actual customer delinquency and default trends versus the company’s reserve assumptions.
- Compliance with the $300 million minimum liquidity requirement and the terms of the extended debt covenant waiver.
- Liquidity and refinancing capacity ahead of the 2022 convertible notes and 2025 secured debt maturities.
- The closing, financing, integration costs and expected synergies of the Welk Resorts acquisition.
- Potential further impairment of goodwill, trademarks or other resort-related assets.
- Outcomes and possible financial exposure from pending litigation, Spanish timeshare claims and tax matters.
- Whether suspended dividends and share repurchases can resume without weakening liquidity or violating debt restrictions.