Marriott Vacations Worldwide Corporation — Q1 2021 Form 10-Q
Business Context and Reporting Period
The filing covers the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Marriott Vacations Worldwide operates through Vacation Ownership and Exchange & Third-Party Management segments, providing vacation ownership, exchange, rental, financing, and resort and property management services. Results remained materially affected by the COVID-19 pandemic and related travel restrictions.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $759 million | $1,010 million | Down 25% |
| Net loss attributable to common shareholders | $28 million | $106 million | Loss improved by $78 million |
| Loss per share, basic and diluted | $0.68 | $2.56 | Improved |
| Adjusted EBITDA | $69 million | $138 million | Down 50% |
| Cash flow from operating activities | $(60) million | $(122) million | Outflow improved by $62 million |
| Cash, cash equivalents and restricted cash | $1.178 billion | $1.020 billion | Up $158 million year over year |
| Total assets | $9.187 billion | $8.898 billion at Dec. 31, 2020 | Up $289 million |
| Total debt, net | $4.456 billion | $4.268 billion at Dec. 31, 2020 | Up $188 million |
Revenue declined across the principal categories: vacation ownership product sales were $163 million, management and exchange revenue was $193 million, rental revenue was $89 million, financing revenue was $59 million, and cost reimbursements were $255 million. Cost reimbursements have no added margin and were matched by corresponding expenses.
Segment Adjusted EBITDA was $68 million for Vacation Ownership, down from $147 million, and $41 million for Exchange & Third-Party Management, broadly unchanged from the prior-year period. The Vacation Ownership development profit was $14 million, versus $28 million, implying a development profit margin of approximately 8.6% versus 10.9%.
Material Changes Versus the Prior Comparable Period
- Total contract sales declined 26% to $232 million; consolidated contract sales declined 26% to $226 million.
- Vacation ownership product revenue fell 37%, primarily because of lower contract sales, unfavorable revenue reportability timing, and the continuing pandemic impact. Lower sales-reserve activity partly offset the decline.
- Vacation Ownership rental profit fell to a $19 million loss from $15 million of profit. Transient keys rented declined 28%, resort occupancy fell to 66.7% from 79.7%, and the average transient key rate declined 6%.
- Resort management and other services profit increased to $59 million from $56 million, with the margin improving to 63.0% from 50.5%, primarily because expense reductions exceeded the decline in revenue.
- Exchange and management profit declined to $29 million from $32 million, while exchange transactions increased 17%. Interval International active members declined 10% to 1.479 million, but average revenue per member increased 14% to $47.13.
- General and administrative expense declined 35% to $46 million due to synergy savings, workforce actions, and lower discretionary spending, partly offset by higher bonus expense.
- The prior-year period included $95 million of impairment charges, including $73 million related to goodwill and $18 million related to trade names, plus substantial COVID-19-related reserves and other charges. No impairment charge was recorded in Q1 2021.
- Interest expense increased to $43 million from $33 million following the issuance of the 2025 Notes and 2026 Convertible Notes.
Liquidity, Debt and Financing
- Cash and cash equivalents were $643 million at March 31, 2021; restricted cash was $535 million, including $152 million held by a third party in advance of the Welk acquisition.
- Gross debt was approximately $4.6 billion, including $1.4 billion of non-recourse securitized debt, $1.1 billion of senior unsecured notes, $0.8 billion under the Corporate Credit Facility, $0.8 billion of convertible notes, and $0.5 billion of senior secured notes.
- The Company repaid $100 million of its Term Loan during the quarter. It had no borrowings outstanding under its $600 million Revolving Corporate Credit Facility at March 31, 2021.
- The leverage-covenant waiver under the Corporate Credit Facility was extended through the end of 2021. The Company must maintain minimum monthly liquidity of $300 million during the applicable suspension period and is restricted from certain dividends and share repurchases.
- The Company issued $575 million of 0.00% Convertible Senior Notes due 2026 and received approximately $530 million of net proceeds after issuance costs, convertible note hedges, and warrant proceeds. The notes had a $442 million net carrying amount and an estimated fair value of $684 million at quarter-end.
- Cash used for inventory spending in excess of cost of sales was $125 million, including $99 million for purchases of vacation ownership units for future transfer to inventory.
Guidance, Outlook, Risks and Unusual Items
- Management expected contract sales and rental occupancies to continue improving throughout 2021 as sales centers and resorts reopened and travel restrictions eased. The filing provides no formal full-year revenue or earnings guidance.
- Management planned to increase focus on first-time buyers, which it expected would raise financing propensity and support growth in new vacation ownership note originations. Financing propensity was 46% in Q1 2021 versus 57% in Q1 2020.
- The Company completed the $485 million Welk Hospitality Group acquisition on April 1, 2021, after quarter-end, including approximately 1.4 million shares of common stock. The transaction was not reflected in the March 31 balance sheet except for restricted cash set aside before closing.
- During the quarter, the Company acquired vacation ownership units and related assets in Costa Rica for $14 million, New York for $98 million, and San Francisco for $34 million.
- COVID-19 remains the principal uncertainty, affecting travel demand, resort occupancy, sales, rental activity, consumer confidence, defaults, staffing, and access to capital. Management stated that the duration and ultimate financial impact remain uncertain.
- Vacation ownership notes receivable were $1.769 billion net of reserves. No additional COVID-19-related reserve increase was recorded in Q1 2021, but estimated default rates and consumer credit performance remain important sensitivities.
- Pending litigation includes matters involving Ritz-Carlton and Hyatt-related fractional interests, management practices, and the MVCD program. No accrual was recorded for the described matters, and the Company cannot estimate potential losses; unfavorable outcomes could materially affect results.
- Outstanding commitments included $295 million of purchase obligations, $231 million of operating lease obligations, and $85 million of surety bonds. The Company also had potential property purchase commitments, including up to $98 million for a Waikiki property under specified conditions.
Most Important Facts to Verify
- Post-quarter-end integration, financing, synergies, and dilution from the Welk acquisition.
- Recovery in contract sales, revenue reportability, resort occupancy, rental profitability, and first-time-buyer financing propensity.
- Compliance with the $300 million minimum liquidity requirement and the terms of the leverage-covenant waiver.
- Debt maturities, refinancing capacity, interest costs, and the impact of the 2026 Convertible Notes and related warrants.
- Future defaults and reserve adequacy for the $1.769 billion vacation ownership notes receivable portfolio.
- Potential exposure from pending litigation, property commitments, guarantees, and continuing COVID-19-related disruptions.