Marriott Vacations Worldwide Corporation: FY2021 Form 10-K Summary
Business context and reporting period
The filing is the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed March 1, 2022. It is not a standalone fourth-quarter filing, although management discusses fourth-quarter trends. Marriott Vacations Worldwide operates two reportable segments: Vacation Ownership and Exchange & Third-Party Management. Its businesses include vacation ownership sales and financing, resort management, rentals, vacation exchange, and third-party property management under Marriott, Sheraton, Westin, Ritz-Carlton, Hyatt, Interval International, and other brands.
The company completed the $405 million Welk Hospitality Group acquisition on April 1, 2021, including approximately $248 million of stock and $157 million of cash consideration, net of cash acquired. FY2021 includes Welk operating results for the last three quarters.
Financial performance and key metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $3.890 billion | $2.886 billion | Up 35% |
| Segment revenue | $3.859 billion | $2.839 billion | Up 36% |
| Net income attributable to common shareholders | $49 million | $(275) million | Returned to profit |
| Diluted EPS | $1.13 | $(6.65) | Improved |
| Adjusted EBITDA | $657 million | $235 million | Up 179% |
| Adjusted EBITDA margin | 24% | 13% | Up 11 points |
| Cash flow from operating activities | $343 million | $299 million | Up $44 million |
| Cash, cash equivalents and restricted cash | $803 million | $992 million | Down $189 million |
Reported total revenue included $1.153 billion from vacation ownership product sales, $855 million from management and exchange, $486 million from rental, $268 million from financing, and $1.128 billion of cost reimbursements. Cost reimbursements carry no added margin and should be distinguished from revenue-generating activities.
Vacation Ownership revenue was $3.539 billion, up 40%, and segment Adjusted EBITDA was $699 million, up 204%. Exchange & Third-Party Management revenue was $320 million, up 4%, and segment Adjusted EBITDA was $144 million, up 23%.
Total vacation ownership contract sales were $1.411 billion, up 111% from 2020 but below $1.569 billion in 2019. Consolidated contract sales were $1.374 billion. Development profit was $286 million, compared with $10 million in 2020, and development profit margin improved to 24.8% from 1.8%. Resort occupancy was 81.6%, versus 57.2% in 2020 and 88.1% in 2019. Vacation ownership rental profit was $52 million, compared with a $124 million loss in 2020.
Financing revenue was $268 million and financing profit was $180 million, with a 67.1% financing profit margin. Financing propensity increased to 53% from 51% in 2020, but remained below 63% in 2019. Vacation ownership notes receivable, net, totaled $2.045 billion at year-end, including $1.662 billion of securitized and $383 million of non-securitized receivables.
Liquidity, debt and capital allocation
At December 31, 2021, total gross debt was approximately $4.7 billion, comprising $1.9 billion of non-recourse securitized debt, $1.1 billion of senior notes, $0.8 billion of convertible notes, $0.8 billion under the corporate credit facility, and $83 million of finance lease obligations. Net balance-sheet debt amounts were $1.856 billion of securitized debt and $2.631 billion of other debt.
The company had no cash borrowings outstanding under its $350 million Warehouse Credit Facility and no borrowings under its $600 million Revolving Corporate Credit Facility at year-end, apart from $2 million of letters of credit under the revolving facility. The company reported $342 million of unrestricted cash and $461 million of restricted cash.
Material contractual and other obligations totaled approximately $5.999 billion, including $850 million payable within twelve months. A $230 million 2022 Convertible Notes maturity is scheduled for 2022. The company also has $1.034 billion of scheduled 2025 principal payments, consisting of the remaining 2025 Notes and Term Loan maturities.
During 2021, the company issued $500 million of 4.5% senior notes due 2029, redeemed all $750 million of 2026 Notes, redeemed $250 million of the 2025 Notes, issued $575 million of 0% convertible notes due 2026, and completed two $425 million vacation ownership receivable securitizations. It repurchased approximately $78 million of common stock and declared dividends of $1.08 per share for 2021.
Material changes versus prior comparable periods
- Results substantially recovered from the COVID-19 disruption in 2020, with nearly all sales centers, resorts, and other properties reopened by year-end.
- Revenue, contract sales, rental activity, occupancy, and Adjusted EBITDA improved materially from 2020, although several measures remained below 2019 levels.
- The company recorded no asset impairment charges in 2021, compared with $100 million in 2020, and no significant restructuring charge compared with $25 million in 2020.
- Interest expense increased to $164 million from $150 million, while transaction and integration costs increased to $110 million from $66 million, primarily due to the Welk acquisition and ongoing ILG integration.
- The company recorded $55 million of losses related primarily to early redemption of debt, partially offset by a $7 million true-up to a Marriott International indemnification receivable.
- Interval International active members declined 15% to 1.296 million, primarily following the non-renewal of one corporate customer. Average revenue per member increased 24% to $179.48.
- Goodwill increased to $3.150 billion from $2.817 billion, primarily due to the Welk acquisition and measurement-period adjustments. No goodwill impairment was recorded in 2021.
Guidance, outlook, commentary and risks
Management did not provide quantitative FY2022 revenue or earnings guidance in the filing. Management expects continued improvement in contract sales, rental occupancy, rental revenue, and interest income during 2022. The company expects to increase focus on first-time buyers, digital marketing, online tour packages, digital infrastructure, and customer experience. It also expects new loan originations to begin exceeding scheduled principal paydowns, supporting higher financing revenue.
Management expects continued integration of Welk and ILG, potential cost savings, and additional revenue opportunities. Welk resorts are intended to be rebranded as Hyatt-branded resorts once required approvals are obtained. On January 1, 2022, Interval International added affiliations with Disney Vacation Club, Welk Resorts, and El Cid, adding more than 300,000 members.
Key risks include renewed COVID-19 outbreaks and travel restrictions, changes in consumer confidence, labor shortages and wage inflation, inflation and higher interest rates, heavy regulation of timeshare sales and consumer lending, customer defaults, reduced access to ABS financing, securitization performance triggers, LIBOR transition risk, competition, cyber threats, severe weather and climate-related events, international and currency exposure, loss or termination of Marriott or Hyatt licenses, and litigation involving timeshare contracts, including Spanish proceedings.
The filing identifies $66 million of reserves for non-income tax issues related to acquisitions, with $5 million expected to be indemnified. The company also has a potential $104 million commitment in 2022 to purchase a Waikiki property if an alternative capital-efficient arrangement is not completed. Pending legal matters are not accrued because management believes unfavorable outcomes are not currently probable or estimable, but the filing states that adverse rulings could be material.
Important facts for investors to verify
- Whether the post-pandemic recovery reaches or exceeds 2019 levels in contract sales, occupancy, rental profit, and exchange membership.
- The company’s ability to refinance or repay the $230 million 2022 Convertible Notes and manage the $1.034 billion of scheduled 2025 principal payments.
- Future default, delinquency, and reserve trends in the $2.045 billion vacation ownership notes receivable portfolio.
- Availability and pricing of ABS securitization and warehouse financing, including compliance with securitization performance triggers.
- Integration costs, synergies, rebranding approvals, and operating contribution from Welk.
- Potential effects of labor costs, inflation, interest rates, LIBOR replacement, and renewed travel restrictions.
- Exposure from pending litigation, Spanish timeshare claims, tax audits, indemnification arrangements, and the possible Waikiki property purchase commitment.
- The impact of adopting ASU 2020-06 in 2022, including the expected increase in debt, reduction in additional paid-in capital, retained-earnings adjustment, and potentially lower diluted EPS.