Marriott Vacations Worldwide Corporation — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2020. MVW operates through Vacation Ownership and Exchange & Third-Party Management segments, providing vacation ownership products, resort management, exchange, rental, financing and related services. Results were materially affected by the COVID-19 pandemic, including travel restrictions, resort and sales-center closures, lower occupancy and reduced consumer demand.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $649 million | $1,066 million | $2,139 million | $3,143 million |
| Net income attributable to common shareholders | $(62) million | $(9) million | $(238) million | $64 million |
| Diluted EPS | $(1.51) | $(0.21) | $(5.76) | $1.43 |
| Adjusted EBITDA | $35 million | $190 million | $163 million | $551 million |
| Cash flow from operations | Not separately provided | Not separately provided | $158 million | $180 million |
Q3 revenue declined 39%, while nine-month revenue declined 32%. Vacation Ownership revenue declined 39% in the quarter and 32% year to date; Exchange & Third-Party Management revenue declined 36% and 33%, respectively. Total contract sales declined 65% in Q3 to $141 million and 58% for the first nine months to $486 million.
Q3 Vacation Ownership development margin was $(7) million, compared with $82 million in the prior-year quarter. Vacation Ownership rental margin was $(40) million versus $24 million, reflecting resort closures and occupancy of 24.5% versus 87.7%. Exchange & Third-Party Management management and exchange margin was $26 million versus $49 million.
At September 30, 2020, cash and cash equivalents were $660 million, restricted cash was $368 million, and total cash, cash equivalents and restricted cash were $1.028 billion. The company reported $597 million of availability under its $600 million Revolving Corporate Credit Facility. Gross debt was approximately $4.5 billion, including $1.8 billion of non-recourse securitized debt; debt, net on the balance sheet was $2.680 billion.
Net cash provided by operating activities was $158 million for the first nine months, compared with $180 million in 2019. Investing activities used $24 million, and financing activities provided $195 million. The company ended the period with a $1.751 billion net securitized debt balance and $751 million of completed real estate inventory, plus $173 million of completed units classified within property and equipment.
Material changes versus the prior comparable period
- COVID-19 reduced contract sales, rental activity, resort occupancy, exchange activity and ancillary revenues. More than 95% of vacation ownership resorts and more than 90% of affiliated resorts and managed properties were open by September 30; more than 80% of sales centers had reopened.
- The company recorded a $225 million consolidated net loss for the first nine months, compared with $66 million of net income in 2019.
- Adjusted EBITDA fell $155 million in Q3 and $388 million for the first nine months. Vacation Ownership segment Adjusted EBITDA declined to $28 million in Q3 and $156 million year to date, while Exchange & Third-Party Management Adjusted EBITDA declined to $31 million and $91 million, respectively.
- The company recorded $98 million of impairment charges year to date, primarily related to Exchange & Third-Party Management goodwill and trademarks. No further goodwill impairment was identified in Q2 or Q3, but management stated that future impairment remains possible.
- Vacation ownership notes receivable declined to $1.913 billion from $2.233 billion at December 31, 2019. Reserves increased by $97 million year to date, including $52 million attributable to higher estimated COVID-19-related defaults.
- In May 2020, MVW issued $500 million of 6.125% senior secured notes due 2025 and used approximately $493 million of net proceeds to repay its revolving facility. In Q3, it completed a $375 million vacation ownership loan-backed securitization.
- Share repurchases and cash dividends were suspended because of the pandemic and the company’s credit agreement waiver. The company repurchased 769,935 shares for $82 million during the first nine months before the suspension.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide formal quantitative revenue or earnings guidance. Management stated that rental revenue should continue to improve as resorts reopen and that exchange transactions showed signs of pent-up demand. However, the duration and severity of COVID-19, renewed travel restrictions, resort or sales-center closures and the pace of recovery remain uncertain.
- A workforce reduction plan approved in September is expected to affect approximately 3,000 associates and is expected to generate $25 million to $30 million of restructuring and related charges. The company recorded $20 million of restructuring charges in the first nine months.
- Management believes liquidity is adequate to fund operations and debt service through at least 2021, even if sales centers and rental operations face renewed restrictions. The company must maintain minimum monthly liquidity of $300 million during the leverage-covenant waiver period, which may extend through March 31, 2021 or the end of the suspension period.
- The credit agreement waiver suspends the revolving facility leverage covenant for up to four quarters and restricts certain dividends and share repurchases. Failure to comply with leverage requirements after the suspension period could require further lender negotiations.
- Contractual obligations totaled $6.170 billion, including $5.451 billion of debt obligations, $432 million of purchase obligations and $244 million of operating lease obligations.
- Material commitments include $97 million for remaining New York property purchases, $88 million for the San Francisco property, potential $98 million for a Waikiki property, and $24 million for remaining Bali inventory purchases.
- Pending litigation includes claims involving Ritz-Carlton and Hyatt-related fractional ownership interests. The company has not accrued for the identified matters and cannot estimate potential losses; unfavorable rulings could materially affect results.
Investor verification checklist
- Verify the pace and sustainability of resort, affiliated-property and sales-center reopenings and the effect of any renewed COVID-19 restrictions.
- Review vacation ownership contract sales, sales reserves, default rates, delinquency trends and the $274 million originated-notes reserve at September 30, 2020.
- Assess liquidity against the $300 million minimum requirement, debt maturities, covenant-waiver expiration and access to future securitizations.
- Monitor the approximately $25 million to $30 million workforce-reduction costs and whether cost savings offset continued revenue weakness.
- Evaluate potential additional goodwill, trademark, inventory or notes-receivable impairments under prolonged travel disruption.
- Review the pending litigation, property-purchase commitments, rental guarantees and other contractual obligations for possible cash requirements.