Marriott Vacations Worldwide Q1 2025 Earnings Report

Marriott Vacations Worldwide EPS Results

• Actual EPS: $1.66
• Consensus EPS: $1.56
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $1.80

Marriott Vacations Worldwide Revenue Results

• Actual Revenue: $1.20 billion
• Expected Revenue: $1.21 billion
• Beat/Miss: Missed by -$13.51 million
• YoY Revenue Growth: +0.40%

Marriott Vacations Worldwide Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:30AM ET

Marriott Vacations Worldwide (NYSE:VAC), a vacation company, develops, markets, sells, and manages vacation ownership and related businesses, products, and services in the United States and internationally. It operates through two segments, Vacation Ownership and Exchange & Third-Party Management. The company manages vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, Hyatt Vacation Club, and Marriott Vacation Club Pulse brands. It develops, markets, and sells vacation ownership and related products under The Ritz-Carlton Destination Club brand; and holds right to develop, market, and sell ownership residential products under The Ritz-Carlton Residences brand. In addition, the company offers exchange networks and membership programs, as well as provision of management services to other resorts and lodging properties through Interval International, and Aqua-Aston business brands. Further, it provides financing consumer purchases of vacation ownership products, and renting vacation ownership inventory. The company sells its upscale tier vacation ownership products primarily through a network of resort-based sales centers and off-site sales locations. The company was founded in 1984 and is headquartered in Orlando, Florida.

Marriott Vacations Worldwide Q1 2025 Earnings Call Transcript

Key Takeaways

• Marriott Vacations reported a 6% increase in first-time buyer sales and a 3% rise in adjusted EBITDA in Q1, supported by >90% resort occupancy and strong forward bookings.
• The company’s modernization program remains on track to deliver $150–$200 million in run-rate EBITDA benefits by end of 2026, with an accelerated $35 million of cost savings targeted in the current year and $40–$50 million incremental savings expected.
• Investments in digital and operational efficiencies—including AI-powered phone agents, 70% online point bookings, and optimized housekeeping—are improving guest satisfaction while lowering costs.
• Full-year guidance was updated to reflect low single-digit tour growth and a VPG decline, leading to a lowered contract sales range, while adjusted EBITDA guidance was reaffirmed.
• A strong balance sheet with $865 million of liquidity and 4.1x leverage enabled $91 million of share buybacks (1.4% of shares) and $55 million of dividends in Q1, reflecting management’s view that the stock is undervalued.

Presentation

[Operator]

and welcome to the Marriott Vacations Worldwide First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Neal Goldner, Vice President, Investor Relations. Thank you. You may begin.

[Neal Goldner, Vice President, Investor Relations at Marriott Vacations Worldwide]

Thank you, Melissa, and welcome to the Marriott Vacations Worldwide First Quarter Earnings Conference Call. I am joined today by John Deller, our President and Chief Executive Officer and Jason Marino, our Executive Vice President and Chief Financial Officer. I need to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, which could cause future results to differ materially from those expressed in or implied by our comments. Forward looking statements in the press release, as well as comments on this call, are effective only when made and will not be updated as actual events unfold.

[Neal Goldner, Vice President, Investor Relations at Marriott Vacations Worldwide]

Throughout the call, we will make references to non GAAP financial information. You could find a reconciliation of non GAAP financial measures in the schedules attached to our press release and in our website. In response to investor feedback, we changed the presentation of revenue and profit on pages A7 and A8 A8 of the press release this quarter to facilitate easier year over year comparisons. Importantly, we have not removed any information that we previously provided. In addition, on page A7, we also added a bridge for profit to adjusted EBITDA.

[Neal Goldner, Vice President, Investor Relations at Marriott Vacations Worldwide]

With that, it's now my pleasure to turn the call over to John Deller.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Thanks, Neil. Good morning, everyone, and thank you for joining our first quarter earnings call. We had a strong beginning to the year, growing first time buyer sales and adjusted EBITDA, illustrating the power of our leisure focused business model. We are also making good progress on our modernization initiative to accelerate revenue growth, reduce costs, and enhance operational efficiencies. We remain on track to deliver $150,000,000 to $200,000,000 in run rate benefits by the end of twenty twenty six.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

We have some of the best brands in the vacation ownership industry and continue to see people prioritizing their vacations, running more than a 90% resort occupancy in the first quarter with forward bookings remaining strong. It's also important to remember that our owners prepay for a lifetime of vacations and typically pay their annual maintenance fees by the beginning of the year, so we know they will be vacationing with us. In addition, we offer a very attractive value proposition and create our own demand. About a quarter of our annual tours come from customers we target with subsidized packages, and we are leveraging data and analytics to improve the quality of our tours. Timeshare also remains a sole product that we sell face to face every day with around 80% of our sales happening on-site, which helps our business relative to others when customers have concerns about the broader macro environment, and we have several tools to employ when sales soften.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

For example, we adjusted our strategies helping drive 6% higher first time buyer sales. But with owners having fewer plus points coming into the year, we saw fewer owner arrivals this quarter than last year, which resulted in fewer owner tours. Some of our modernization initiatives are focused on driving more owner tours as well as higher VPGs. Most importantly, we are seeing owner arrivals improving as we progress through the year, so we feel confident about our updated contract sales guidance. We also continue to take actions to drive our package pipeline.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

For example, we recently launched a new program on Marriott.com that combines a bill of rental booking with a tour, and we have expanded our call transfer program with Marriott, which we expect to help drive higher tour package sales. We will also be implementing a new process to leverage data, which we expect will drive profit by increasing qualified tours and driving higher VPGs. We are making good progress on our comprehensive digital strategy, focusing on increasing product utilization, expanding e commerce and travel options, and introducing new digital capabilities as we strive to make digital the channel of choice while lowering costs. For example, our resort operations team is expanding the use of an AI powered phone agent that provides guests quicker responses, freeing up associate capacity. We are also optimizing room cleaning and scheduling processes to standardize housekeeping operations across sites.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Nearly 70% of Marriott Vacations points reservations for stays at our resorts are being booked online, a substantial jump from just a few years ago. We continue to expand our use of virtual voice agents to lower our costs at our call centers, and this summer we plan to launch the ability for our Marriott branded owners to seamlessly book directly into nearly any of Marriott's nine thousand plus hotels around the world using their vacation ownership points. All these initiatives are helping drive higher owner and guest satisfaction while lowering our costs. Our forward looking KPIs also give us comfort in our updated projections. Occupancy remains strong and total keys on the books for the summer remain solid.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Tours continue to grow and in house tour capture rates are higher than a year ago. Package sales have remained healthy and we ended the quarter with nearly 265,000 packages, 35% of which have already been activated to take a tour this year, slightly higher than the same time last year. And loan and maintenance fee delinquencies are better than last year. In terms of VPG, we made adjustments in March for first time buyers and we saw those VPGs grow 10% in April over last year. And we're making promotional adjustments to enhance the owner value proposition to drive owner VPGs.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

While this is the most volatile economic environment I've seen in a while, our consumer remains strong and our forward looking KPIs remain healthy. We are also focused on our initiatives to improve our tour flow and VPGs. But given the lower contract sales we experienced to start the year, we felt it was prudent to update our full year sales guidance. Looking out longer term, our business remains on solid footing with strong margins, positive free cash flow, a product that resonates with today's consumer, long term growth opportunities and the bulk of the benefits from our modernization program still ahead of us. We generate around 40% of our adjusted EBITDA contribution from very high margin recurring revenue streams, which makes our results more consistent.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Meanwhile, in the short term, we are focusing on what we can control, including providing our owners and guests great vacation experiences, reducing our costs, executing on our modernization program, and continuing to invest for the long term. With that, I'll turn it over to Jason to discuss our results in more detail.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Thanks, John. Today, I'm going to review our first quarter results, our balance sheet and liquidity position, our cost savings and efficiencies initiatives, and our outlook for the year. Total company revenue increased year over year, enabling us to deliver 3% higher adjusted EBITDA. In our development business, tours increased 1.5% and VPG was 4% lower, with half of the decline due to a higher mix of first time buyer sales, while owner sales declined year over year driven by lower arrivals and slightly lower VPG.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

As a result, total company contract sales declined 2% compared to the prior year. First time buyer sales increased 6% year over year, which is good for the long term health of the system, though it negatively impacted our reported VPG this quarter. Our sales reserve was 12% of contract sales in the quarter, in line with our expectations and prior guidance. As you might expect, we have been very focused on delinquencies given the decline in consumer confidence, but so far we've not seen any softness in our loan book. In fact, delinquencies at the end of the quarter improved 60 basis points on a year over year basis and were lower again in April.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Development profit increased 4% compared to the prior year with development margin increasing 70 basis points. As expected, total company rental profit declined 10% year over year to $46,000,000 with higher rental occupancy and increased transient revenue offset by higher unsold maintenance fees and other variable costs. Management exchange profit increased 4% to $98,000,000 with increased revenue on our vacation ownership segment partially offset by lower exchange revenue at Interval. Financing profit increased 6%, driven by higher interest income, partially offset by slightly higher consumer financing interest expense. And finally, corporate G and A decreased 3% compared to last year.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

As a result, total company adjusted EBITDA increased 3% to $192,000,000 and margins remained strong at 23%. Moving to the balance sheet, we ended the quarter with $865,000,000 in liquidity and no corporate debt maturities until early twenty twenty six. Our leverage was 4.1 times at the end of the quarter, which we expect to reduce longer term through organic growth and benefits from our modernization initiative once the upfront investment spending normalizes. First lien net leverage for covenant purposes was only 1.1 times at the end of the quarter, well below our 3.5 times requirement. We amended our revolving credit facility in March, upsizing it to $800,000,000 and reducing the interest rate by 25 basis points.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

And with our 0% convertible debt maturing in January, we added a $450,000,000 delayed draw term loan facility, enabling us to take advantage of the 0% interest rate for longer while providing us optionality as we look to refinance it later this year. We returned $91,000,000 in cash to shareholders in the first quarter. With our shares being materially undervalued, we increased our share buybacks, buying back 1.4% of our outstanding shares in the quarter. We also paid two dividends for $55,000,000 in total. And this week, we closed on our first securitization of the year, issuing $450,000,000 in ABS debt at a blended rate of 5.16% and a 98% advance rate. Looking forward, we are updating our full year contract sales guidance with tours still expected to grow in the low single digits, consistent with what we've seen this year, but for VPG to decline. And while we feel confident with the midpoint of our updated contract sales range, VPG would have to improve to hit the high end, which our initiatives are designed to do. We continue to expect total company rental profit to decline around $15,000,000 this year and now expect corporate G and A to be flat to down slightly. We are making great progress on our modernization, and we are able to accelerate some of our initiatives, increasing this year's savings to $35,000,000 from $15,000,000 to $25,000,000 previously. We've also adjusted our inventory mix and now expect this year's product cost increase to be more modest than we originally planned.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

We're also actively reducing costs elsewhere. In total, we now expect these changes to generate an incremental 40,000,000 to $50,000,000 in savings this year. As a result, we reaffirmed our adjusted EBITDA guidance for the year. We still expect to drive 75,000,000 to $100,000,000 of annual run rate cost savings and efficiencies over the next two years from our modernization initiative. The savings will primarily come from updating IT systems, increasing automation, lowering procurement costs, and reducing overhead costs as we continue to optimize our organizational structure.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

We also expect to generate $75 to $100,000,000 of adjusted EBITDA benefits from revenue initiatives that either improve VPGs, increase tours, increase occupancy, or drive higher ADRs, some of which John already discussed. Moving to cash flow. We expect our adjusted free cash flow to be in the $270,000,000 to $330,000,000 range this year, excluding roughly $100,000,000 of one time cash costs related to our modernization initiatives. We also have 150,000,000 to $200,000,000 of non core assets we plan to dispose of over the next few years, including the Sheridan Kauai Resort and a retail parcel in Waikiki. So to summarize, we had a strong first quarter despite the challenging operating environment, driving higher year over year adjusted EBITDA.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Our team also did a great job providing memorable vacations for our owners, members and other guests. Despite the external noise, our consumer remains strong. We're driving tour growth, occupancy remains high, and rental rates are holding up. We are also implementing a number of the revenue initiatives designed to improve VPG. It's times like this when I think the vacation ownership industry really shines, with a substantial portion of our profit and cash flow coming from high margin recurring revenue sources, as well as most sales coming from existing owners, preview packages, and on-site guests.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

And our product continues to be a great value, enabling people the ability to lock in a lifetime of family vacations at today's prices. We plan to participate in the Morgan Stanley, Stifel, and Jefferies conferences in June, and we hope to see some of you there. And as always, our IR team is only a phone call or an email away. With that, we'll be happy to answer your questions.

[Operator]

Thank you. Excuse me, thank you. Session. Our first question comes from the line of Ben Chaikin with Mizuho Securities. Please proceed with your question.

[Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.]

Good morning. Thanks my questions. I guess, can you talk about contract sales in March or April to the extent you have that handy? I guess, the 1Q result based on how you started the quarter, it looks like contract sales were down around 4% in March. Is that directionally correct?

[Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.]

And then what are your assumptions for the remainder of the year?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Yes, that's correct, about 4% in March. And we saw similar in April, as we talked about with some of the first time buyer initiatives we put into place. The good news in April was we saw VPGs and contract sales up for first time buyers in April. With owners, the VPGs were down a little bit, but very manageable, and it was more tour flow, as I talked about. We had slightly less owner arrivals in April, but we see that ramping up as we go through the year so that we'll get that tour flow going from a first time buyer.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

And owners are buying, and we are going to adjust some of the promotions here on the owner side to offset some of the lower VPGs that we had seen more recently.

[Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.]

Got it. And then obviously you guys held EBITDA guide for the full year and in some of the prepared remarks, you talked about some of the cost saves that you had. I think you said 15,000,000 to $25,000,000 of cost saves in the year that were kind of part of the original plan, I guess. Then also maybe a lower assumption for cost of product, maybe we could hit on that, what it's driving at. And then I believe there was a third piece thrown in there, which was another $35,000,000 of efficiencies.

[Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.]

If I caught that right, could we maybe dive into that 35,000,000 Is that also cost related? Is that revenue related? Thanks.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

I'll kick it to Jason here. The 15,000,000 to $25,000,000 in the year savings from the modernization was what we said last time. We think that will now be closer to $35,000,000 of in the year savings. And then to your question, which you kind of answered, product cost is we expect to be better than we originally anticipated. I have Jason talk a little bit about that.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Yeah, Ben, the product cost is really driven by some of the actions we took to adjust the mix of the inventory that we're selling, as well as some of the additional lower cost repurchases that we're doing in the year are flowing through. So that's really how we're able to drive the product costs a little bit lower than our initial expectations this year.

[Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.]

Got it. And maybe just a lot of thing.

[Neal Goldner, Vice President, Investor Relations at Marriott Vacations Worldwide]

there wasn't another your question. There wasn't another $35,000,000 that you called out by the way to break that through.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

35 plus the additional product cost stuff that gets you the, you know, closer to the 40 to 50,000,000.

[Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.]

Yep. Totally understood. Appreciate it. Then on the contract sales side, just revisiting that, is there anything outside the consumer getting better that you guys are doing internally that would accelerate revenue? And if so, maybe what are some of the items that would help in the year?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Sure. Sure. Yeah, no, we're focused on continuing to drive tour flow, right, with different initiatives and incentives there. And then at the sales table, to enhance the offer, drive the value proposition from a consumer standpoint. And as we do that, that should with VPGs as well.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

So the teams are super focused. Regardless of the broader economic turmoil and things that we're seeing, we've got these different offerings and initiatives we're focused on to continue to drive DPG improvement.

[Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.]

Thanks.

[Operator]

Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

[C. Patrick Scholes, Managing Director - Lodging & Leisure Equity Research at Truist Securities]

Great. Good morning, everyone. Thank you. Good morning. On the prepared remarks, you had noted adjusting inventory mix.

[C. Patrick Scholes, Managing Director - Lodging & Leisure Equity Research at Truist Securities]

Can you explain a little bit what exactly that means and how you plan to go about that? Thank you.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Yeah. Thanks, Patrick. This is Jason. So as we just sort of talked about, it's a combination of lower cost repurchases that are coming in this year, as well as some of the inventory that we have. We can modulate to sell different products, whether it's in Asia or The US, our points products versus some of the newer inventory and things like that.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

So it's really changing the mix of what we're selling. Everyone's got the same usage right through the abound program. So to the customer, it's not really transparent, but we're allowed we modulate that to drive the cost down a little bit since we had cheaper inventory available to sell.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

And Patrick, this is something we always do. We're always looking to get the best product cost, And so we're focused on that. We've been focused on that for the last ten years, right, in terms of driving better product costs.

[C. Patrick Scholes, Managing Director - Lodging & Leisure Equity Research at Truist Securities]

Understood. And just a couple of follow-up questions here. How do you feel about availability of new inventory at this point? I know if we go back a year or two, I believe it was the Weston brand had been a bit light on inventory. How are you feeling about availability of product across all your brands new products today?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Thank you. Yeah, no, we're in a good position on inventory. As we talked about a few years ago, we did shift a lot of our sales centers to the Marriott Vacation Points product, regardless of brand. But we still have inventory in the other trusts. And we continue to do upgrades and buybacks and things like that of some of the legacy Weston and Sheraton and resell the MVCD.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

So there's inventory in all the products, so we're able to get the owner what they want to buy.

[C. Patrick Scholes, Managing Director - Lodging & Leisure Equity Research at Truist Securities]

Okay, so you feel comfortable on that. Shifting to buybacks, but in another variety, that being share repurchase buybacks, looks like you bought back about 1% in the quarter, which is certainly a step up. I know you had been the priority had been to get the balance sheet back closer to target. How do you think about that for the rest of the year here? Will you continue to see modest, I would call modest amounts of share repurchases going forward?

[C. Patrick Scholes, Managing Director - Lodging & Leisure Equity Research at Truist Securities]

We don't really how should we think about that? What's your expectation in comparing and contrasting getting back to target leverage as well? Thank you.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Yeah, I think, Patrick, that's right. I mean, as we saw the share prices decline here in March and then obviously continue in April, as we said in the prepared remarks, we think it's materially undervalued for what we're doing with the business and the long term prospects of growth as well as cash flow generation. So obviously, comfortable operating in this leverage. We've talked about that for a few quarters now up at the four times area long term. And the goal is still to get that leverage closer to three times.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

But the opportunity here is the shares, in our opinion, cheap. And so we're going have to balance all of those capital priorities as we move forward.

[Operator]

Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

[David Katz, Managing Director at Jefferies]

Hi, good morning. Thanks for taking my questions. Appreciate it. So a lot from the remarks I wanted to touch on. You mentioned that you're getting a little better tour flow activation.

[David Katz, Managing Director at Jefferies]

I'm just curious sort of what you're maybe doing to drive that or is there something different about the packages? And I would ask the same question. I think Jason mentioned some less expensive acquisitions, I think was the comment. And I'm just curious if you're doing something to drive that or it's just sort of happening more organically.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Yeah, no, it's a lot of the data and analytics work. We continue to leverage targeting the right people that are going to be the best tours, the highest propensity to buy, and then even evaluating our packages after they're sold to prioritize and how we rank the different packages and likelihood to buy. So that's been an ongoing focus. We can continue to get better at that. And we're rolling out some additional data and analytics to continue to improve.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Like we've always said, it's making that right offer to the right person at the right time, and that's where having the right data and being able to do that to improve the package pipeline who we're making those offers to. And then on Jason.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Yeah, David, inventory side, it's really where we've taken a fresh look at some of our repurchase programs that we have from owners and we're changing some of cost of that as operate it to the owners. So still giving owners an off ramp, but we're modulating the prices on how we buy some of that inventory back to drive that cost lower.

[David Katz, Managing Director at Jefferies]

Understood. And if I can just ask about the comment about non core asset sales. I know you've done some of that in the past, this seems to be incremental or new. Would you mind just talking about that process and what's being sold and how we got there?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Sure. We've got a number of assets. Two of the larger ones, which Jason mentioned, is in the ILG acquisition, we got a hotel in Kauai, beautiful hotel Sheraton. For a lot of reasons, we've been contractually working through getting that position to sell, so we're going to get that on the market. But that was one that we had always identified as an excess asset, if you will, from that acquisition.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

And then the other bigger one is in Waikiki, the resort that we opened last year. First couple of floors are retail, and so we've got the option. There's no reason to own the retail, and that's another big disposition that we're focused on right now. And then there's a handful of other things that we've gotten in the acquisitions that are smaller that we are positioning and can get those out to the market as well.

[David Katz, Managing Director at Jefferies]

Okay, thanks very much. Appreciate it.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Stephen Grambling with Morgan Stanley. Please proceed with your question.

[Stephen Grambling, Managing Director at Morgan Stanley]

Hey, thank you. I may have missed this even in the remarks or somewhere in the release, but I mean, I guess given all the focus on new owners, any details on kind of where owner growth has been trending? And is there any kind targets in terms of where you think owner growth should be?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Just so I understand you, when you say where owner growth should be, in terms of I just want to make

[Stephen Grambling, Managing Director at Morgan Stanley]

sure I much new you need to add to basically offset any kind of attrition, natural attrition?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Yeah. We're continuing, as we said, to drive that mix. We've done it the last couple of quarters. I expect us to continue to do it. Get it above that 35%, forty % would be awesome. The more first time buyers, as we've always talked about for the long term health of the system, is very important. So we don't have a set number.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

We're going to continue to do the best to drive the mix towards first time buyers, but also drive our development margin. As you know, VPGs for first time buyers are less than what they are an owner. So it's a higher customer acquisition cost if you think about it that way, but it's the right thing to do, and we're going to continue to focus in on that.

[Stephen Grambling, Managing Director at Morgan Stanley]

And so just to be clear, so as we think about the guidance for the rest of the year, you're still anticipating basically the new owner growth to stay in that higher range, but also accelerate VPGs based on some of the initiatives that you're talking to. That's the balance?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

That's right.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

As we talked about, even in our prepared remarks, we're not assuming huge VPG growth on a year over year basis from here, right? So we did assume VPG was down for the rest of the year at the midpoint. At the higher end, it's probably closer to flat to up a little bit.

[Stephen Grambling, Managing Director at Morgan Stanley]

And so just to be clear, would your net of attrition to owner growth be flat at that pace? Or would it still be slightly down?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

It should be up, net net.

[Stephen Grambling, Managing Director at Morgan Stanley]

Okay, great. That's helpful. Thank you.

[Operator]

Thank you. Our final question this morning comes from the line of Shaun Kelley with Bank of America. Please proceed with your question.

[Shaun Kelley, Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch]

Hi, good morning everyone. Thanks for taking my question. Just two for me. So first off, just to kind of finish off on Stephen's point, just a level set for contract sales for the year. The change in the contract sales roughly $100,000,000 at the midpoint, is that just higher first time buyer mix, lower VPG?

[Shaun Kelley, Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch]

Is that the assumption that kind of we should now be using?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

That's a component of it. It's really more also, as we talked about, just how we started the year for the first three or four months and being down a little bit. Net net to get to the midpoint or to the higher room, we're going to drive higher VPGs, increase more owner sales than we did in the first quarter. That's in the mix as well. But the overall mix of first time buyers to owners, right?

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

I expect that to continue to remain higher, right? As we got a strong package pipeline, we're seeing good VPGs from owners, which is typically where you would see softness, right? So we're continuing to drive that first time buyer.

[Shaun Kelley, Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch]

Great. And then just going back to the inventory point, I just want to be crystal clear on this. So what you're doing is, are you just paying owners who when you're recycling inventory and buying back, are you just paying them less and then that is effectively lowering your weighted average product cost? And I'm just trying to understand relative to the size of your inventory, how quickly does that flow through? It seems like that would be very fast for you to be able to make a change in a relatively short period of time that would affect all of your weighted average product cost. I just don't quite understand the mechanic.

[Jason Marino, Executive VP & CFO at Marriott Vacations Worldwide]

Yeah, that's a component of it. It's also, as we talked about, shifting the mix of what we're selling as well. And so it's kind of twofold.

[Shaun Kelley, Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch]

Okay, thank you.

[Operator]

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Giller for any final comments.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

Thank you, everyone, for joining our call today. We had a solid start to the year with adjusted EBITDA exceeding our expectations and first time buyer contract sales growing 6%. We're also making good progress on our modernization initiative, which we expect to generate 150,000,000 to $200,000,000 of adjusted EBITDA benefit by the end of twenty twenty six on a run rate basis. Our business modernization is running ahead of plan, and we have accelerated initiatives to drive more of the savings into the current year. We are also focused on cash flow and optimizing inventory as well as corporate CapEx spending.

[John Geller, CEO, President & Director at Marriott Vacations Worldwide]

And while the current economic environment could stay around for a while, our business and customers remain strong and 40% of our adjusted EBITDA contribution comes from sticky recurring revenue sources, high margins, positive free cash flow and strong owner satisfaction scores. On behalf of all of our associates, owners, members and customers around the world, I thank you for your continued interest in the company. I hope to see you on vacation soon. Thank you.

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Neal Goldner, Vice President, Investor Relations
• John Geller, CEO, President & Director
• Jason Marino, Executive VP & CFO

Analysts

• Benjamin Chaiken, Equity Analyst at Mizuho Financial Group, Inc.
• C. Patrick Scholes, Managing Director - Lodging & Leisure Equity Research at Truist Securities
• David Katz, Managing Director at Jefferies
• Stephen Grambling, Managing Director at Morgan Stanley
• Shaun Kelley, Senior Research Analyst & MD - Gaming, Lodging & Leisure Equities at Bank of America Merrill Lynch