Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
We make forward-looking statements throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”), based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among other things, the information concerning: our possible or assumed future results of operations, financial condition, leverage, liquidity, returns on investments, margins including financing profit and development profit margins; dividend payments; business strategies; financing plans; our competitive position; our plans to pursue growth opportunities; potential operating performance, including our expectations regarding contract sales, including contract sales from our Maui sales centers; our expectation regarding consumer financing interest expense; our expectation that inventory spending will exceed cost of sales for the remainder of 2024 and the impact of inventory repurchases; indemnification; capital requirements; taxes, including the impact of Pillar 2; our ability to securitize consumer loans and related default rates and reserve requirements; and the pace of originations of vacation ownership notes receivable compared to payoffs. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” “predict,” “potential,” “continue,” “may,” “might,” “should,” “could” or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. We caution you that these statements are not guarantees of future performance and are subject to numerous and evolving risks and uncertainties that we may not be able to predict or assess, such as: a future health crisis and responses to a health crisis, including possible quarantines or other government imposed travel or health-related restrictions and the effects of a health crisis, including the short and longer-term impact on consumer confidence and demand for travel and the pace of recovery following a health crisis; variations in demand for vacation ownership and exchange products and services; worker absenteeism; price inflation; difficulties associated with implementing new or maintaining existing technology; changes in privacy laws; the impact of a future banking crisis; impacts from natural or man-made disasters and wildfires, including the Maui wildfires; global supply chain disruptions; volatility in the international and national economy and credit markets, including as a result of the ongoing conflicts between Russia and Ukraine, Israel and Gaza and elsewhere in the world and related sanctions and other measures; our ability to attract and retain our global workforce; competitive conditions; the availability of capital to finance growth; the impact of changes in interest rates; the effects of steps we have taken and may continue to take to reduce operating costs; political or social strife; and other matters referred to under the heading “Risk Factors” contained herein and also in our 2023 Annual Report, and which may be updated in our future periodic filings with the U.S. Securities and Exchange Commission (the “SEC”).
All forward-looking statements in this Quarterly Report apply only as of the date of this Quarterly Report or as of the date they were made or as otherwise specified herein. We do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. You should not put undue reliance on any forward-looking statements in this Quarterly Report. We do not have any intention or obligation to update forward-looking statements after the date of this Quarterly Report, except as required by law.
The risk factors discussed in “Risk Factors” in our 2023 Annual Report could cause actual results to differ materially from those expressed or implied in forward-looking statements in this Quarterly Report. There may be other risks and uncertainties that we cannot predict at this time or that we currently do not expect will have a material adverse effect on our financial position, results of operations or cash flows. Any such risks could cause our results to differ materially from those we express in forward-looking statements.
Our Financial Statements (as defined below), which we discuss below, reflect our historical financial condition, results of operations and cash flows. However, the financial information discussed below and included in this Quarterly Report may not necessarily reflect what our financial condition, results of operations or cash flows may be in the future.
In order to make this report easier to read, we refer to (i) our Interim Consolidated Financial Statements as our “Financial Statements,” (ii) our Interim Consolidated Statements of Income as our “Income Statements,” (iii) our Interim Consolidated Balance Sheets as our “Balance Sheets” and (iv) our Interim Consolidated Statements of Cash Flows as our “Cash Flows.” In addition, references throughout to numbered “Footnotes” refer to the numbered Notes in the Interim Condensed Notes to Consolidated Financial Statements that we include in the Financial Statements of this Quarterly Report.
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Business Overview
We are a leading global vacation company that offers vacation ownership, exchange, rental and resort and property management, along with related businesses, products and services. Our business operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management.
Our Vacation Ownership segment includes a diverse portfolio of resorts that includes some of the world’s most iconic brands licensed under exclusive long-term relationships. We are the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, and Hyatt Vacation Club brands. We are also the exclusive worldwide developer, marketer and seller of vacation ownership and related products under The Ritz-Carlton Club brand, and we have the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand. We also have a license to use the St. Regis brand for specified fractional ownership products.
Our Vacation Ownership segment generates most of its revenues from four primary sources: selling vacation ownership products; managing vacation ownership resorts, clubs and owners’ associations; financing consumer purchases of vacation ownership products; and renting vacation ownership inventory.
Our Exchange & Third-Party Management segment includes an exchange network and membership programs, as well as the provision of management services to other resorts and lodging properties. Exchange & Third-Party Management revenue generally is fee-based and derived from membership, exchange and rental transactions, property and owners’ association management, and other related products and services. We provide these services through our Interval International and Aqua-Aston businesses.
Corporate and other represents that portion of our results that are not allocable to our segments, including those relating to consolidated property owners’ associations (“Consolidated Property Owners’ Associations”).
We routinely post important information, including news releases, announcements and other statements about our business and results of operations, that may be deemed material to investors on the Investor Relations section of our website, www.marriottvacationsworldwide.com. We use our website as a means of disclosing material, nonpublic information and for complying with our disclosure obligations under Regulation FD. Investors should monitor the Investor Relations section of our website in addition to following our press releases, filings with the SEC, public conference calls and webcasts. The information on our website is not part of, and is not incorporated by reference into this Quarterly Report.
Performance Measures
We measure operating performance using the key metrics described below:
• Contract sales from the sale of vacation ownership products, which consists of the total amount of vacation ownership product sales under contracts signed during the period where we have generally received a down payment of at least ten percent of the contract price, reduced by actual rescissions during the period, inclusive of contracts associated with sales of vacation ownership products on behalf of third parties, which we refer to as “resales contract sales.” In circumstances where customers apply any or all of their existing ownership interests as part of the purchase price for additional interests, we include only the incremental value purchased as contract sales. Contract sales differ from revenues from the sale of vacation ownership products that we report on our income statements due to the requirements for revenue recognition and adjustments for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business.
• Total contract sales include contract sales from the sale of vacation ownership products including non-consolidated joint ventures.
• Consolidated contract sales exclude contract sales from the sale of vacation ownership products for non-consolidated joint ventures.
• Volume per guest (“VPG”) is calculated by dividing consolidated vacation ownership contract sales, excluding fractional sales, telesales, resales, and other sales that are not attributed to a tour, by the number of tours in a given period. We believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase.
• Development profit margin is calculated by dividing Development profit by revenues from the sale of vacation ownership products. We refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as Development profit. We believe that Development profit margin is an important measure of the profitability of our development and subsequent marketing and sales of VOIs.
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• Total active members is the number of Interval Network active members at the end of the applicable period. We consider active members to be an important metric because it represents the population of owners eligible to book transactions using the Interval Network.
• Average revenue per member is calculated by dividing membership fee revenue, transaction revenue, rental revenue, and other member revenue for the Interval Network by the monthly weighted average number of Interval Network active members during the applicable period. We believe this metric is valuable in measuring the overall engagement of our Interval Network active members.
• Segment financial results attributable to common stockholders represents revenues less expenses directly attributable to each applicable reportable business segment (Vacation Ownership and Exchange & Third-Party Management). We consider this measure to be important in evaluating the performance of our reportable business segments. See Footnote 16 “Business Segments” to our Financial Statements for further information on our reportable business segments.
NM = Not meaningful.
Consolidated Results
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
REVENUES
Sale of vacation ownership products $ 352 $ 375
Management and exchange 211 200
Rental 158 151
Financing 83 78
Cost reimbursements 391 365
TOTAL REVENUES 1,195 1,169
EXPENSES
Cost of vacation ownership products 53 58
Marketing and sales 223 210
Management and exchange 116 107
Rental 107 113
Financing 34 26
General and administrative 63 68
Depreciation and amortization 38 32
Litigation charges 3 3
Restructuring 2 —
Royalty fee 28 29
Impairment — 4
Cost reimbursements 391 365
TOTAL EXPENSES 1,058 1,015
Gains and other income, net — 21
Interest expense, net (40) (34)
Transaction and integration costs (15) (13)
Other (1) —
INCOME BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS 81 128
Provision for income taxes (35) (41)
NET INCOME 46 87
Net loss attributable to noncontrolling interests 1 —
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 47 $ 87
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Operating Statistics
2024 First Quarter
Three Months Ended
(Contract sales $ in millions) March 31, 2024 March 31, 2023 Change % Change
Vacation Ownership
Total contract sales $ 433 $ 444 $ (11) (2%)
Consolidated contract sales $ 428 $ 434 $ (6) (1%)
Joint venture contract sales $ 5 $ 10 $ (5) (49%)
VPG $ 4,129 $ 4,358 $ (229) (5%)
Exchange & Third-Party Management
Total active members at end of period (000's) 1,566 1,568 (2) —%
Average revenue per member $ 41.74 $ 42.07 $ (0.33) (1%)
Revenues
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Vacation Ownership $ 1,130 $ 1,097 $ 33 3%
Exchange & Third-Party Management 65 71 (6) (8%)
Total Segment Revenues 1,195 1,168 27 2%
Consolidated Property Owners’ Associations — 1 (1) NM
Total Revenues $ 1,195 $ 1,169 $ 26 2%
Earnings Before Interest Expense, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA
EBITDA, a financial measure that is not prescribed by GAAP, is defined as earnings, or net income attributable to common stockholders, before interest expense, net (excluding consumer financing interest expense associated with term securitization transactions), income taxes, depreciation and amortization. Adjusted EBITDA reflects additional adjustments for certain items, and excludes share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense associated with term securitization transactions because we consider it to be an operating expense of our business. We consider Adjusted EBITDA to be an indicator of operating performance, which we use to measure our ability to service debt, fund capital expenditures, expand our business, and return cash to stockholders. We also use Adjusted EBITDA, as do analysts, lenders, investors, and others, because this measure excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provisions for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. We believe Adjusted EBITDA is useful as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Adjusted EBITDA also facilitates comparison by us, analysts, investors, and others of results from our on-going core operations before the impact of these items with results from other companies.
EBITDA and Adjusted EBITDA have limitations and should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. In addition, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do or may not calculate them at all, limiting their usefulness as comparative measures. The table below shows our EBITDA and Adjusted EBITDA calculation and reconciles these measures with Net income attributable to common stockholders, which is the most directly comparable GAAP financial measure.
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2024 First Quarter
Three Months Ended Change
($ in millions) March 31, 2024 March 31, 2023 % Change
Net income attributable to common stockholders
$ 47 $ 87 $ (40) (46%)
Interest expense, net 40 34 6 17%
Provision for income taxes 35 41 (6) (15%)
Depreciation and amortization 38 32 6 16%
EBITDA 160 194 (34) (18%)
Share-based compensation expense 7 7 — (13%)
Certain items 20 2 18 NM
Adjusted EBITDA $ 187 $ 203 $ (16) (8%)
Adjusted EBITDA Margin 23% 25% (2 pts)
The table below details the components of Certain items for the three months ended March 31, 2024 and March 31, 2023.
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
ILG integration $ — $ 9
Welk acquisition and integration 15 4
Transaction and integration costs 15 13
Purchase accounting adjustments 1 2
Litigation charges 3 3
Restructuring charges 2 —
Impairment charges — 4
Early redemption of senior secured notes — 10
Foreign currency translation 2 (2)
Insurance proceeds — (2)
Change in indemnification asset (2) (23)
Other — (4)
Gains and other income, net — (21)
Other (1) 1
Total Certain items $ 20 $ 2
Segment Adjusted EBITDA
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Vacation Ownership $ 213 $ 229 $ (16) (7%)
Exchange & Third-Party Management 32 37 (5) (14%)
Segment adjusted EBITDA 245 266 (21) (8%)
General and administrative (63) (68) 5 8%
Other
5 5 — (13%)
Adjusted EBITDA $ 187 $ 203 $ (16) (8%)
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The following tables present segment financial results attributable to common stockholders reconciled to segment Adjusted EBITDA.
Vacation Ownership
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Segment financial results $ 182 $ 205 $ (23) (11%)
Depreciation and amortization 25 23 2 11%
Share-based compensation expense 2 1 1 8%
Certain items 4 — 4 NM
Segment adjusted EBITDA $ 213 $ 229 $ (16) (7%)
The table below details the components of Certain items for Vacation Ownership segment financial results for the three months ended March 31, 2024 and March 31, 2023.
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
Purchase accounting adjustments $ 1 $ 2
Litigation charges 3 3
Impairment charges — 4
Insurance proceeds — (2)
Change in indemnification asset — (3)
Other — (4)
Gains and other income, net — (9)
Total Certain items $ 4 $ —
Exchange & Third-Party Management
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Segment financial results $ 25 $ 28 $ (3) (13%)
Depreciation and amortization 7 8 (1) (14%)
Share-based compensation expense — 1 (1) (11%)
Segment adjusted EBITDA $ 32 $ 37 $ (5) (14%)
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Business Segments
Our business is grouped into two reportable business segments: Vacation Ownership and Exchange & Third-Party Management. See Footnote 16 “Business Segments” to our Financial Statements for further information on our segments.
Vacation Ownership
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
REVENUES
Sale of vacation ownership products $ 352 $ 375
Resort management and other services 148 135
Rental 147 141
Financing 83 78
Cost reimbursements 400 368
TOTAL REVENUES 1,130 1,097
EXPENSES
Cost of vacation ownership products 53 58
Marketing and sales 223 210
Resort management and other services 71 64
Rental 110 116
Financing 34 26
Depreciation and amortization 25 23
Litigation charges 3 3
Royalty fee 28 29
Impairment — 4
Cost reimbursements 400 368
TOTAL EXPENSES 947 901
Gains and other income, net — 9
Other (1) —
SEGMENT FINANCIAL RESULTS BEFORE NONCONTROLLING INTERESTS 182 205
Net loss attributable to noncontrolling interests — —
SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 182 $ 205
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Sale of Vacation Ownership Products
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 % of Consolidated Contract Sales, Net of Resales March 31, 2023 % of Consolidated Contract Sales, Net of Resales Change % Change
Consolidated contract sales
$ 428 $ 434 $ (6) (1%)
Joint venture contract sales 5 10 (5) (49%)
Total contract sales 433 444 (11) (2%)
Less: Resales contract sales
(12) (11) (1)
Less: Joint venture contract sales
(5) (10) 5
Consolidated contract sales, net of resales 416 423 (7) (2%)
Plus:
Settlement revenue 8 2% 8 2% —
Resales revenue 5 1% 6 1% (1)
Revenue recognition adjustments:
Reportability (9) (2%) — —% (9)
Sales reserve (46) (11%) (38) (9%) (8)
Other (1)
(22) (6%) (24) (6%) 2
Sale of vacation ownership products $ 352 84% $ 375 88% $ (23) (6%)
Financing propensity
53.4% 54.2% (0.8 pts)
Average FICO Score (2)
737 738
(1) Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue and other adjustments to Sale of vacation ownership products revenue.
(2) For customers who financed a vacation ownership purchase and for whom a credit score was available, generally U.S. and Canadian residents.
Contract sales in the first quarter of 2024 declined due to a 5% decrease in VPG, partially offset by a 4% increase in tours primarily attributed to our Asia Pacific locations. The 5% decrease in VPG was due to lower performance in both North America and international sales operations, a larger mix of international tours, which carry a lower VPG than our North America business, and the on-going impact from our Maui sales centers. Excluding the $16 million decline in contract sales at our Maui sales centers, contract sales increased 3%. We expect that full year 2024 contract sales from our Maui sales centers will be generally in-line with 2023 results and that full year 2024 consolidated contract sales, net of resales will exceed 2023 results.
The revenue reportability adjustment for the first quarter of 2024 resulted from contracts that remained in the contractual rescission period at the end of the quarter.
In the latter half of 2023, we increased our vacation ownership notes receivable reserve to reflect trends in delinquencies and default rates. We estimated the amount of the increase in our sales reserve primarily using a historical period of increased defaults. The additional reserves recorded in 2023 adjusted our future default rate estimate to reflect then-current macroeconomic conditions, including inflation outpacing wage growth, continuing high interest rates, mixed economic indicators and increased global insecurity. The sales reserve for the first quarter of 2024 continues to reflect these ongoing macroeconomic conditions and remains in-line with the reserve recorded in the fourth quarter of 2023.
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Development Profit
2024 First Quarter
Three Months Ended Change % Change
($ in millions) March 31, 2024 % of Revenue March 31, 2023 % of Revenue
Sale of vacation ownership products $ 352 $ 375 $ (23) (6%)
Cost of vacation ownership products (53) (15%) (58) (16%) 5 9%
Marketing and sales (223) (63%) (210) (56%) (13) (6%)
Development profit $ 76 $ 107 $ (31) (29%)
Development profit margin 21.5% 28.5% (7.0 pts)
The decrease in Development profit reflects higher marketing and sales costs, including $6 million of higher preview costs, and lower sales of vacation ownership products, including $8 million from the higher sales reserve and $7 million from unfavorable revenue reportability, partially offset by $2 million due primarily to the sale of lower cost inventory. We expect Development profit margin for the full year to decline slightly compared to 2023 results.
Resort Management and Other Services Revenues, Expenses and Profit
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Management fee revenues $ 52 $ 45 $ 7 15%
Ancillary revenues 65 61 4 7%
Other management and exchange revenues 31 29 2 7%
Resort management and other services revenues 148 135 13 10%
Resort management and other services expenses (71) (64) (7) (11%)
Resort management and other services profit $ 77 $ 71 $ 6 8%
Resort management and other services profit margin 51.8% 52.7% (0.9 pts)
Resort occupancy (1)
90.2% 88.9% 1.3 pts
(1) Resort occupancy represents all transient, previews, and owner keys divided by total keys available, net of keys out of service.
The increase in Other management and exchange revenues is attributed to higher club dues. The increase in Resort management and other services expenses reflects an increase in ancillary expenses of $4 million, and an increase in customer service and exchange company expenses of $3 million due to incremental headcount, wages, benefits, and other operating cost increases.
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Rental Revenues, Expenses and Profit
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Rental revenues $ 147 $ 141 $ 6 4%
Rental expenses (110) (116) 6 5%
Rental profit $ 37 $ 25 $ 12 47%
Rental profit margin 25.3% 17.9% 7.4 pts
Three Months Ended
March 31, 2024 March 31, 2023 Change % Change
Transient keys rented (1)
542,970 547,540 (4,570) (1%)
Average transient rate $ 286 $ 287 $ (1) —%
Rental occupancy (2)
72.7% 70.4% 2.3 pts
(1) Transient keys rented exclude plus points and preview stays.
(2) Rental occupancy represents transient and preview keys divided by keys available to rent, which is total available keys excluding owner usage.
Rental profit for transient keys, including plus points and excluding keys from owned hotels, increased due to higher plus points revenue of $11 million, a $6 million increase in costs allocated to marketing and sales expense for occupancy used for previews and $2 million of lower unsold maintenance fees associated with developer owned inventory. These changes were partially offset by $4 million of decreased profit due to fewer transient keys rented and higher tidy and variable costs and $3 million of increased costs associated with higher owner utilization of third-party vacation and other offerings. Rental profit for our owned hotels remained in-line with the first quarter of 2023.
Financing Revenues, Expenses and Profit
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Financing revenues $ 83 $ 78 $ 5 6%
Financing expenses (9) (10) 1 11%
Consumer financing interest expense (25) (16) (9) (50%)
Financing profit $ 49 $ 52 $ (3) (4%)
Financing profit margin 59.5% 65.7% (6.2 pts)
Financing propensity 53.4% 54.2% (0.8 pts)
Financing revenues reflect $5 million of higher interest income as a result of a higher average notes receivable balance and a slightly higher average interest rate. The higher average notes receivable balance was the result of new loan originations in excess of the repayment of existing vacation ownership notes receivable, which we expect to continue in 2024.
The increase in consumer financing interest expense is attributable to the higher average securitized debt at a higher average interest rate for our more recent term securitization transactions. We expect consumer financing interest expense to continue to remain higher than our average outstanding interest rates on existing securitization transactions as a result of higher interest rates until meaningful market interest rate declines occur. We do not adjust interest rates on consumer financing offerings at the same pace as, or in lock-step with, broader market interest rates; as a result, we expect our financing profit margin to continue to decrease in 2024, as we repay existing securitization transactions with lower interest rates and enter into new securitization transactions with higher interest rates.
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Royalty Fee
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Royalty fee $ 28 $ 29 $ (1) (4%)
Royalty fee expense decreased in the first quarter of 2024 due to higher sales of pre-owned inventory, which carry a lower royalty fee as compared to initial sales (one percent versus two percent).
Gains and Other Income
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Gains and other income, net $ — $ 9 $ (9) NM
During the first quarter of 2023, we recorded a $4 million gain associated with the earn out of additional proceeds from the 2019 disposition of a land parcel in Cancun, Mexico, a $3 million reduction in certain pre-acquisition contingencies associated with the ILG Acquisition and $2 million related to the receipt of business interruption insurance proceeds.
Litigation Charges
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Litigation charges $ 3 $ 3 $ — 2%
Litigation charges during the first quarter of 2024, as well as the first quarter of 2023, relate primarily to business in Europe.
Exchange & Third-Party Management
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
REVENUES
Management and exchange $ 52 $ 56
Rental 11 10
Cost reimbursements 2 5
TOTAL REVENUES 65 71
EXPENSES
Management and exchange 31 30
Depreciation and amortization 7 8
Cost reimbursements 2 5
TOTAL EXPENSES 40 43
SEGMENT FINANCIAL RESULTS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 25 $ 28
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Management and Exchange Profit
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Management and exchange revenue $ 52 $ 56 $ (4) (9%)
Management and exchange expense (31) (30) (1) (3%)
Management and exchange profit $ 21 $ 26 $ (5) (21%)
Management and exchange profit margin 40.6% 47.1% (6.5 pts)
The decrease in management and exchange revenue reflects a $2 million decline in Aqua-Aston management revenues resulting from fewer available nights for rent and a lower average daily rate in the Hawaii market due to changes in demand. Interval International management and exchange revenues declined $2 million or 5% primarily attributed to lower exchange transaction volume.
The decrease in management and exchange profit was primarily attributed to lower revenues and higher information technology costs.
Rental Revenues
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Rental revenues $ 11 $ 10 $ 1 7%
Results reflect a 2% increase in volume of transactions and a 4% increase in average fee per transaction.
Corporate and Other
Corporate and Other consists of results that are not allocable to our segments, including company-wide general and administrative costs, corporate interest expense, transaction and integration costs, and income taxes. In addition, Corporate and Other includes the revenues and expenses from Consolidated Property Owners’ Associations.
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
REVENUES
Resort management and other services $ 11 $ 9
Cost reimbursements (11) (8)
TOTAL REVENUES — 1
EXPENSES
Resort management and other services 14 13
Rental (3) (3)
General and administrative 63 68
Depreciation and amortization 6 1
Restructuring 2 —
Cost reimbursements (11) (8)
TOTAL EXPENSES 71 71
Gains and other income, net — 12
Interest expense, net (40) (34)
Transaction and integration costs (15) (13)
FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS (126) (105)
Provision for income taxes (35) (41)
Net loss attributable to noncontrolling interests 1 —
FINANCIAL RESULTS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (160) $ (146)
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Consolidated Property Owners’ Associations
The following table illustrates the impact of certain Consolidated Property Owners’ Associations under the relevant accounting guidance and the changes attributed to the deconsolidation of individual Consolidated Property Owners’ Associations.
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
REVENUES
Resort management and other services $ 11 $ 9
Cost reimbursements (11) (8)
TOTAL REVENUES — 1
EXPENSES
Resort management and other services 14 13
Rental (3) (3)
Cost reimbursements (11) (8)
TOTAL EXPENSES — 2
FINANCIAL RESULTS BEFORE INCOME TAXES AND NONCONTROLLING INTERESTS — (1)
Net loss attributable to noncontrolling interests 1 —
FINANCIAL RESULTS ATTRIBUTABLE TO COMMON STOCKHOLDERS
$ 1 $ (1)
General and Administrative
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
General and administrative $ 63 $ 68 $ (5) (8%)
The change in General and administrative expenses is due to $4 million of lower wages and benefits and $2 million of lower insurance expense, partially offset by $1 million of higher other expenses.
Gains (Losses) and Other Income (Expense)
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Gains and other income, net $ — $ 12 $ (12) (101%)
In the first quarter of 2024, we recorded $2 million of foreign currency translation losses, offset by $2 million of non-income tax related adjustments to the receivable for the indemnification we expect to receive from Marriott International for indemnified tax matters.
In the first quarter of 2023, we recorded a $20 million increase in our receivable from Marriott International for indemnified tax matters (the true-up to the offsetting accrual is included in the Provision for income taxes line) and $2 million of foreign currency translation gains, partially offset by $10 million attributed to the redemption premium and write-off of unamortized debt issuance costs resulting from the early redemption of our senior secured notes.
Interest Expense
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Interest expense, net $ (40) $ (34) $ (6) (17%)
The increase in Interest expense, net is attributed to $2 million associated with higher borrowings and higher variable interest rates on both the Warehouse Credit Facility and the Revolving Corporate Credit Facility, $2 million of higher variable interest expense on the Term Loan, and $2 million of interest expense related to leased assets.
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Income Tax
2024 First Quarter
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023 Change % Change
Provision for income taxes $ (35) $ (41) $ 6 15%
Our effective tax rate was 43.0% and 32.3% for the three months ended March 31, 2024 and March 31, 2023, respectively.
The effective tax rate for the three months ended March 31, 2024 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items, including $11 million primarily related to a $20 million increase to remove the permanent reinvestment assertion for certain non-U.S. entities offset by a $9 million decrease for the expiration of statutes of limitation on certain unrecognized tax benefits. The effective tax rate for the three months ended March 31, 2023 differed from the blended statutory tax rate for the same period due to income tax adjustments for discrete items including $9 million primarily related to an increase in uncertain tax benefits of $20 million for new unrecognized tax benefits in a foreign jurisdiction, offset by decreases in stock compensation of $7 million and $4 million related to prior year true-up adjustments.
The Organization for Economic Co-operation and Development has proposed a global minimum tax of 15% of reported profits (“Pillar 2”) that has been agreed upon in principle by over 140 non-U.S. countries. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 differently than the model rules and/or on different timelines. While we continue to monitor legislative developments, we do not anticipate Pillar 2 will have a material impact on our 2024 or long-term financial results.
Liquidity and Capital Resources
Typically, our capital needs are supported by cash on hand, cash generated from operations, our ability to access funds under the Warehouse Credit Facility and the Revolving Corporate Credit Facility, our ability to raise capital through securitizations in the ABS market, and, to the extent necessary, our ability to issue new debt and refinance existing debt. We believe these sources of capital will be adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, satisfy debt service requirements, fulfill other cash requirements, and return capital to stockholders. We continuously monitor the capital markets to evaluate the effect that changes in market conditions may have on our ability to fund our liquidity needs.
At March 31, 2024, our corporate debt, net of cash and equivalents, to Adjusted EBITDA ratio was 3.9, above our targeted range of 2.5 to 3.0, and we remain committed to reducing this ratio to 3.0 by the end of 2025.
In April 2024, we amended the Corporate Credit Facility to provide for a new $800 million term loan facility that is scheduled to mature on April 1, 2031. The proceeds were used to refinance in full the Term Loan, which was scheduled to mature on August 31, 2025. As of May 1, 2024, as a result of refinancing the Term Loan, we have no maturities of corporate debt until 2026.
As of March 31, 2024, after considering the impact of interest rate hedges and excluding finance leases, the interest rate applicable to approximately 78% of our corporate debt was effectively fixed. The weighted average interest rate of our total corporate debt as of March 31, 2024, excluding finance leases and including the impact of interest rate hedges, was 4.0%. Excluding the impact of the interest rate hedges, 68% of our corporate debt was fixed as of March 31, 2024.
Sources of Liquidity
Cash from Operations
Our primary sources of funds from operations are (1) cash sales and down payments on financed sales, (2) cash from our financing operations, including principal and interest payments received on outstanding vacation ownership notes receivable, (3) cash from fee-based membership, exchange and rental transactions, and (4) net cash generated from our rental and resort management and other services operations.
Vacation Ownership Notes Receivable Securitizations
We periodically securitize, without recourse, through bankruptcy remote special purpose entities, the majority of the notes receivable originated in connection with the sale of vacation ownership products to institutional investors in the ABS term securitization market. These vacation ownership notes receivable securitizations provide liquidity for general corporate purposes. In a vacation ownership notes receivable term securitization, several classes of debt securities issued
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by a special purpose entity are generally collateralized by a single pool of transferred assets, which consist of vacation ownership notes receivable. In connection with each vacation ownership notes receivable securitization, we may retain all or a portion of the securities that are issued. Typically, we receive cash at inception of the term securitization transaction for the amount of notes issued less fees and monies held in reserve and we receive cash during the life of the transaction in amounts reflecting the excess spread of interest received on the related vacation ownership notes receivable less the interest payable on the ABS securities, less administrative fees and amounts from related vacation ownership notes receivable that default.
Each of the securitized vacation ownership notes receivable transactions contains various triggers relating to the performance of the underlying vacation ownership notes receivable. If a pool of securitized vacation ownership notes receivable fails to perform within the pool’s parameters (default or delinquency thresholds vary by transaction), transaction provisions effectively redirect the monthly excess spread of interest accruing on the related vacation ownership notes receivable less the interest accruing on the ABS securities and fees we would otherwise receive from that pool (attributable to the interests we retained) to accelerate the principal payments to investors (taking into account the subordination of the different tranches to the extent there are multiple tranches) until the performance trigger is cured. During the first quarter of 2024, and as of March 31, 2024, we had 14 term securitization transactions outstanding, all of which were in compliance with their respective required parameters. Since 2000, we have issued approximately $9.4 billion of debt securities in securitization transactions in the term ABS market, excluding amounts securitized through warehouse credit facilities or private bank transactions.
On an ongoing basis, we have the ability to use our Warehouse Credit Facility to securitize, on a revolving non-recourse basis, eligible consumer loans derived from certain vacation ownership sales. Those loans may later be transferred to term securitization transactions in the ABS market, which typically occur twice a year. At March 31, 2024, we had no borrowings outstanding on our Warehouse Credit Facility.
As of March 31, 2024, $61 million of gross vacation ownership notes receivable were eligible for securitization.
Revolving Corporate Credit Facility
Our Revolving Corporate Credit Facility, which expires on March 31, 2027, provides for up to $750 million of aggregate borrowings for general corporate needs, including working capital, capital expenditures, letters of credit, and acquisitions. At March 31, 2024, $160 million of borrowings and $33 million of le tters of credit were outstanding on our Revolving Corporate Credit Facility.
Uses of Cash
We minimize our working capital needs through cash management, strict credit-granting policies, and disciplined collection efforts. Our working capital needs fluctuate throughout the year given the timing of annual maintenance fees on unsold inventory we pay to owners’ associations and certain annual compensation-related outflows. In addition, our cash from operations varies due to the timing of repayment by owners of vacation ownership notes receivable, the closing or recording of sales contracts for vacation ownership products, financing propensity, and cash outlays for inventory acquisitions and development.
Seasonality
Our cash flow from operations fluctuates during the year due to the timing of certain receipts and contractual and compensation-related payments. Significant changes in cash flow can result from the timing of our collection of maintenance fees, club dues, and other customer payments, which typically occurs in either the fourth quarter or the first quarter of each year. Generally, cash outflows related to our payment of maintenance fees associated with unsold inventory occurs in the fourth quarter for our points-based products, and in the first quarter for our weeks-based products. In addition, during the first quarter of each year, we typically have significant variable compensation-related cash outflows associated with payment of annual bonuses.
Operations
In addition to net income and adjustments for non-cash items, the following are key drivers of our cash flow from operating activities:
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Inventory Spending Less Than Cost of Sales
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
Inventory spending $ (25) $ (22)
Purchase of property for future transfer to inventory — (8)
Inventory costs 42 46
Inventory spending less than cost of sales $ 17 $ 16
Although we have significant inventory on hand, we intend to continue selectively pursuing growth opportunities by targeting high-quality inventory that allows us to add desirable new destinations to our systems with new on-site sales locations. Where possible, we will structure transactions to limit our up-front capital investment and allow us to purchase finished inventory closer to the time it is needed for sale. These capital efficient vacation ownership transaction structures may consist of the development of new inventory, or the conversion of previously built units, by third parties. In addition, we may develop inventory on our balance sheet in key markets where we believe the opportunities will generate acceptable risk adjusted returns.
Through our existing VOI repurchase program, we proactively acquire previously sold VOIs from owners’ associations and individual owners at lower costs than would be required to develop new inventory. Among other reasons for repurchasing inventory, we expect these repurchases will stabilize the future cost of our vacation ownership products.
Our spending for real estate inventory in the first quarter of 2024 was lower than cost of sales and was primarily related to purchases under our VOI repurchase programs. Purchase of property for future transfer to inventory in 2023 included the acquisition of property in Charleston, South Carolina. We expect inventory spending to exceed cost of sales for the remainder of 2024, due to our remaining commitment to acquire property in Waikiki.
Vacation Ownership Notes Receivable Collections Less Than Originations
Three Months Ended
($ in millions) March 31, 2024 March 31, 2023
Vacation ownership notes receivable collections — non-securitized $ 9 $ 48
Vacation ownership notes receivable collections — securitized 151 113
Vacation ownership notes receivable originations (200) (225)
Vacation ownership notes receivable collections less than originations $ (40) $ (64)
We expect vacation ownership notes receivable originations to continue to outpace vacation ownership notes receivable collections in 2024 due to sales growth.
Repurchase of Common Stock
The following table summarizes share repurchase activity under our current share repurchase program:
($ in millions, except per share amounts) Number of Shares Repurchased Cost Basis of Shares Repurchased Average Price
Paid per Share
As of December 31, 2023 25,141,073 $ 2,405 $ 95.65
For the first quarter of 2024 279,577 24 87.37
As of March 31, 2024 25,420,650 $ 2,429 $ 95.56
See Footnote 13 “Stockholders' Equity” to our Financial Statements for further information related to our current share repurchase program.
Payment of Dividends to Common Stockholders
We distributed cash dividends to holders of common stock during the first quarter of 2024 as follows:
Declaration Date Stockholder Record Date
Distribution Date Dividend per Share
December 7, 2023 December 21, 2023 January 4, 2024 $0.76
February 15, 2024 February 29, 2024 March 14, 2024 $0.76
We currently expect to pay quarterly dividends in the future, but any future dividend payments will be subject to the approval of our Board of Directors, which will depend on our financial condition, results of operations and capital requirements, as well as applicable law, regulatory constraints, industry practice, and other business considerations that our Board of Directors considers relevant. In addition, our Corporate Credit Facility and the indentures governing our
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senior notes contain restrictions on our ability to pay dividends, and the terms of agreements governing debt that we may incur in the future may also limit or prohibit the payment of dividends. The payment of certain cash dividends may also result in an adjustment to the conversion rate of our convertible notes in a manner adverse to us. Accordingly, there can be no assurance that we will pay dividends in the future at any particular rate or at all.
Material Cash Requirements
The following table summarizes our future material cash requirements from known contractual or other obligations as of March 31, 2024:
Payments Due by Period
($ in millions) Total Remainder
of 2024 2025 2026 2027 2028 Thereafter
Debt (1)(2)
$ 3,281 $ 87 $ 883 $ 635 $ 793 $ 373 $ 510
Securitized debt (1)(3)
2,850 218 287 282 277 267 1,519
Purchase obligations (4)
446 128 148 122 26 17 5
Operating lease obligations (5)
125 18 23 21 14 10 39
Finance lease obligations (5)
543 13 17 14 12 13 474
Other long-term obligations
28 23 3 1 1 — —
$ 7,273 $ 487 $ 1,361 $ 1,075 $ 1,123 $ 680 $ 2,547
(1) Includes principal as well as interest payments and excludes unamortized debt discount and issuance costs.
(2) In April 2024, we amended the Corporate Credit Facility to provide for a new $800 million term loan facility that is scheduled to mature on April 1, 2031. The proceeds were used to refinance in full the Term Loan, which was scheduled to mature on August 31, 2025.
(3) Payments based on estimated timing of cash flow associated with securitized notes receivable.
(4) Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Amounts reflected herein represent expected funding under such contracts and primarily relate to future purchases of vacation ownership units and information technology assets (hardware and software). Amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.
(5) Includes interest.
In the normal course of our resort management business, we enter into purchase commitments on behalf of owners’ associations to manage the daily operating needs of our resorts. Since we are reimbursed for these commitments from the cash flows of the owners’ associations, these obligations have minimal impact on our net income and cash flow. These purchase commitments are excluded from the table above.
Supplemental Guarantor Information
The 2028 Notes are guaranteed by MVWC, Marriott Ownership Resorts, Inc. (“MORI”), and certain other subsidiaries whose voting securities are wholly owned directly or indirectly by MORI (such subsidiaries collectively, the “Senior Notes Guarantors”). These guarantees are full and unconditional and joint and several. The guarantees of the Senior Notes Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.
The following tables present consolidating financial information as of March 31, 2024 and December 31, 2023, and for the three months ended March 31, 2024 for MVWC and MORI on a stand-alone basis (collectively, the “Issuers”), the Senior Notes Guarantors, the combined non-guarantor subsidiaries of MVWC, and MVW on a consolidated basis.
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Condensed Consolidating Statement of Income
Three Months Ended March 31, 2024
Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated
($ in millions) MVWC MORI
Revenues $ — $ 302 $ 625 $ 279 $ (11) $ 1,195
Expenses (12) (333) (576) (204) 11 (1,114)
Benefit from (provision for) income taxes — 8 (1) (42) — (35)
Equity in net income (loss) of subsidiaries 59 120 — — (179) —
Net income (loss) 47 97 48 33 (179) 46
Net loss attributable to noncontrolling interests — — — 1 — 1
Net income (loss) attributable to common stockholders $ 47 $ 97 $ 48 $ 34 $ (179) $ 47
Condensed Consolidating Balance Sheet
As of March 31, 2024
Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated
($ in millions) MVWC MORI
Cash and cash equivalents $ — $ 22 $ 85 $ 130 $ — $ 237
Restricted cash — 25 87 201 — 313
Accounts and contracts receivable, net 31 160 113 122 (4) 422
Vacation ownership notes receivable, net — 123 161 2,052 — 2,336
Inventory — 226 298 113 — 637
Property and equipment, net — 329 719 251 — 1,299
Goodwill — — 3,117 — — 3,117
Intangibles, net — — 807 32 — 839
Investments in subsidiaries 3,390 3,853 — — (7,243) —
Other 128 139 342 186 (128) 667
Total assets $ 3,549 $ 4,877 $ 5,729 $ 3,087 $ (7,375) $ 9,867
Accounts payable $ 27 $ 38 $ 91 $ 65 $ — $ 221
Advance deposits — 72 88 16 — 176
Accrued liabilities 10 112 149 113 — 384
Deferred revenue — 9 228 270 (25) 482
Payroll and benefits liability — 111 73 25 — 209
Deferred compensation liability — 128 41 4 — 173
Securitized debt, net — — — 2,205 (27) 2,178
Debt, net 1,133 1,801 176 1 — 3,111
Other — 1 209 17 — 227
Deferred taxes — 128 244 36 (80) 328
MVW stockholders' equity 2,379 2,477 4,430 336 (7,243) 2,379
Noncontrolling interests — — — (1) — (1)
Total liabilities and equity $ 3,549 $ 4,877 $ 5,729 $ 3,087 $ (7,375) $ 9,867
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As of December 31, 2023
Issuers Senior Notes Guarantors Non-Guarantor Subsidiaries Total Eliminations MVW Consolidated
($ in millions) MVWC MORI
Cash and cash equivalents $ — $ 20 $ 96 $ 132 $ — $ 248
Restricted cash — 25 153 148 — 326
Accounts and contracts receivable, net 30 106 142 120 (13) 385
Vacation ownership notes receivable, net — 121 176 2,046 — 2,343
Inventory — 186 336 112 — 634
Property and equipment, net — 265 736 259 — 1,260
Goodwill — — 3,117 — — 3,117
Intangibles, net — — 822 32 — 854
Investments in subsidiaries 3,421 3,943 — — (7,364) —
Other 122 126 279 118 (132) 513
Total assets $ 3,573 $ 4,792 $ 5,857 $ 2,967 $ (7,509) $ 9,680
Accounts payable $ 55 $ 30 $ 196 $ 81 $ — $ 362
Advance deposits — 65 83 16 — 164
Accrued liabilities 5 95 137 113 (7) 343
Deferred revenue — 7 169 213 (7) 382
Payroll and benefits liability — 91 86 28 — 205
Deferred compensation liability — 126 39 3 — 168
Securitized debt, net — — — 2,121 (25) 2,096
Debt, net 1,131 1,736 177 5 — 3,049
Other — 2 229 18 — 249
Deferred taxes — 124 242 19 (105) 280
MVW stockholders' equity 2,382 2,516 4,499 350 (7,365) 2,382
Total liabilities and equity $ 3,573 $ 4,792 $ 5,857 $ 2,967 $ (7,509) $ 9,680
Recent Accounting Pronouncements
See Footnote 2 “Significant Accounting Policies and Recent Accounting Standards” to our Financial Statements for a discussion of recently issued accounting pronouncements, including information on new accounting standards and the future adoption of such standards.
Critical Accounting Policies and Estimates
Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our 2023 Annual Report. Since the date of our 2023 Annual Report, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.
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