Greetings, welcome to Marriott Vacations Worldwide Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I'll turn the conference over to Neal Goldner, Vice President of Investor Relations. Neal, you may now begin.

Thank you, Rob, and welcome to Marriott Vacations Worldwide fourth quarter 2021 earnings conference call. I am joined today by Steve Weisz, Chief Executive Officer; our President, John Geller; and Tony Terry, our new 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, as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the press release that we issued last night and the presentation we issued to our website this morning as well as our comments on this call are effective only when made and will not be updated as actual events unfold. Throughout the call, we will make references to non-GAAP financial information. You can find a reconciliation of non-GAAP financial measures referred to in our remarks in the schedules attached to our press release as well as the Investor Relations page of our website at ir.mbwc.com. It's now my pleasure to turn the call over to CEO, Steve Weisz.

Thanks, Neal. Good morning, everyone, and thank you for joining our fourth quarter earnings call. At the start of 2020, I couldn't have imagined we would still be navigating the landscape we have over the past two years. But despite the continued challenges of the COVID pandemic, the past two years proved people still enjoy going on vacation, arguably now more than ever. It also shows we have a resilient business model that's leisure-focused and that our owners, members and guests value the time they spend with us. I couldn't be more proud of our associates' continued dedication to our owners, guests and each other and how our organization performed this past year, culminating with our highest quarterly adjusted EBITDA since being spun off more than 10 years ago. As you know, we have a long history of supporting philanthropic efforts such as Children's Miracle Network Hospitals, Clean the World, and our Harvest for Hunger campaign. With that in mind, I'm very happy to say we are making an exciting commitment with Make-A-Wish to offer unique fellow stays and other memorable vacation experiences for deserving children and their families. We all know how vacations are restorative and invigorating, and we are honored to share our vacation destinations and experiences with those who need the most. With a strong recovery in our business, we were able to restart our long-standing history of returning excess cash to shareholders, returning nearly $100 million in the fourth quarter, including repurchasing nearly $74 million of our common stock and reinstating our dividend at pre-pandemic levels. And last week, our board approved a 15% increase to our quarterly dividend to $0.62 per share, and increased our share repurchase authorization, bringing our remaining capacity to approximately $445 million. Looking ahead, we see continued strength in our business and our products, which we expect will enable us to drive strong growth and free cash flow this year and for years to come. Before I turn the call over to John and Tony, I'd like to share what I think are some of the highlights of the quarter and I'll start with our vacation ownership business. Occupancies were again very strong despite the emergence of the Omicron variant late in the quarter, illustrating people's desire to go on vacation. In fact, many of our North American resorts had occupancies in line with or better than 2019. For example, we ran over 95% occupancy in Hawaii and our Florida beach resorts for the quarter. Occupancy in our Desert resorts which include Phoenix, Scottsdale and Palm Desert exceeded 90%. Orlando, another large market for us, ran over 85% and a couple of our urban locations have also come back nicely with San Diego running 85% occupancy and Boston running nearly 95%. With domestic occupancy averaging nearly 90% in the quarter, strong sequential tour growth and VPG 23% higher than two years ago, we delivered $406 million in contract sales exceeding 2019 levels for the first time since the pandemic began. First-time buyers represented 28% of contract sales, which was a 600 basis point improvement from last year's fourth quarter. As I've mentioned in the past, growing first-time buyers is a key part of our overall strategy, as they historically double their revenue contribution within the first five years of ownership. So I'm excited to see the progress we're making in this area. In addition, our digital booking tool that enables guests to buy preview packages online, and in many cases book their vacation dates, is now live and positively impacting our package sales growth. We're also making good progress integrating Welk into our vacation ownership business. Interval International successfully welcomed Welk owners as members effective January 1. Our plan to rebrand Welk's points program to Hyatt in the second quarter is progressing. This will enable our former Welk sales centers to start selling a Hyatt-branded vacation ownership product. In the second quarter, the resorts are also expected to be added to the Hyatt Reservation System, giving us the ability to list our rental inventory on hyatt.com. We also plan to implement new owner benefits, including enabling Welk owners the ability to trade their points for World of Hyatt points, and later this year, we will begin rebranding the individual resorts which we expect to complete next year. So 2022 is looking to be a very busy and exciting year for our Hyatt business. Moving to our Exchange and Third-Party Management business, in December, we announced an agreement affiliating Disney Vacation Club with Interval with nearly 270,000 members. Disney Vacation Club is one of the largest brand names in the vacation ownership business, and this agreement further solidifies Interval's position as the premier exchange company in the industry, representing some of the highest quality and most sought-after resorts in the business. Interval also welcomed more than 38,000 new Welk members in January, as well as nearly 12,000 new members from El Cid resorts. Interval also entered into a long-term agreement with RCD Hotels to affiliate their newest project Nobu Residences Los Cabos, which is expected to open later this year. So let's talk about the coming year. Our marketing team continues to do a great job growing our tour package pipeline; we ended the year with nearly 224,000 tours in our pipeline, which was 5% higher than where we stood at the end of the third quarter, and roughly in line with year-end 2019. This puts us in a great position to drive tours and sales this year. In a recent survey, 70% of leisure travelers said they plan to spend more money on travel in 2022 than they have in any of the past five years. In a separate survey, 81% of people said they plan to take at least one vacation with family members this year and two-thirds of our owner survey said they're likely to travel in the next three months. The past two years have proven that people appreciate their time with family and friends and want to go on vacation. As a company whose sole purpose is providing travelers great vacation experiences, we couldn't be in a better position. We also have a lot of new things we've been working on to grow our business long-term, which we will discuss in more detail during our June 17 Investor Day. From launching a new unified product combining our Westin, Marriott and Sheraton branded products into one new offering, to investing to provide more personalized experiences for our customers, to using data analytics in new and exciting ways to further enhance our business. We are in a great position to grow our company this year and for many years to come. With that, I'll turn the call over to John.

Thanks, Steve, and good morning, everyone. Today, I'm going to review our fourth quarter results and highlight the continued strong recovery we've seen across our businesses. After that, I'll turn the call over to Tony to discuss the strength of our balance sheet and liquidity position and discuss our 2022 expectations. Starting with our vacation ownership business, despite the emergence of the Omicron variant in the fourth quarter, occupancies remained very strong, averaging nearly 90% for the quarter, despite lower occupancies at our European and Asian resorts, and tours grew sequentially. With our product continuing to resonate very well with customers and our tour channel optimization work, VPG increased slightly on a sequential basis and remained well above pre-pandemic levels. As a result, we ended the year on a strong note, growing contract sales by 7% sequentially in the fourth quarter to $406 million, exceeding our 2019 levels for the first time since the pandemic started. We grew adjusted development profit by 13% sequentially to $111 million. Adjusted development profit margin expanded sequentially by 160 basis points to 31%, the highest margin in our 10 years since becoming a public company, highlighting the benefits of more efficient marketing and sales spending, lower inventory costs and our synergy savings. Turning to our vacation ownership rental business, as I've mentioned previously, as the pandemic progressed and leisure travel began to return, we chose to allocate more of our rental keys to owners and make sure they had ample opportunity to get on vacation. But despite that, we grew rental profit by 26% to $32 million in the quarter with average revenue per key increasing 14% sequentially. The stickier revenue businesses within our vacation ownership segment also performed well in the quarter. Resort management revenue increased 1% compared to the third quarter; however, profit declined $8 million as we wrote off $7 million of management fee receivables related to our capital-efficient arrangement in San Francisco, one of our few locations that has not fully recovered from COVID. Excluding that, resort management profit would have been relatively flat compared to the third quarter and margin would have been roughly 56%. Financing profit increased 26% from the prior year, primarily due to the inclusion of Welk. As a result, total adjusted EBITDA in our vacation ownership segment increased 8% sequentially to $234 million. The quarter benefited from strong contract sales growth and adjusted development margins, higher rental profit, and the impact of our business transformation initiatives, enabling us to deliver margins that were 130 basis points higher than two years ago. The quarter also benefited from the addition of Welk, which contributed $27 million of contract sales and $14 million of adjusted EBITDA in the fourth quarter. Turning to the exchange and third-party management segment, active members at Interval declined slightly on a sequential basis and average revenue per member was largely unchanged. As a result, adjusted EBITDA at our exchange and third-party management segment declined roughly $4 million sequentially. Looking forward, with the addition of Disney, Welk, and El Cid members that joined in January, we expect to see solid growth in our exchange and third-party management segment this year. Finally, our corporate G&A expense remained relatively in line with the third quarter as we continue to closely manage our expenses. For the total company, adjusted EBITDA increased 6% in the quarter on a sequential basis to $219 million and margin improved nearly 250 basis points compared to the fourth quarter of 2019, demonstrating the strength of our leisure-focused business model and the benefits of our synergy and transformation initiatives. With that, I'll turn the call over to Tony to discuss our balance sheet, cash flow and 2022 guidance. Tony?

Thanks, John. And good morning, everyone. I too am very happy with our strong results this quarter. Starting with our balance sheet: we ended the year with nearly $1.1 billion in liquidity, including $342 million of cash, gross notes receivable eligible for a securitization of $113 million and almost $600 million of available capacity under our revolver. We also had $4.5 billion of debt outstanding, including $1.9 billion of non-recourse debt related to our securitized notes receivable. Given our strong performance in October, we repaid $250 million of our 6.875% notes due in 2025. We also returned nearly $100 million in cash to shareholders in the fourth quarter, including the repurchase of $74 million of our shares and paying our first dividends since the pandemic started. In addition, we used $59 million of cash to acquire the remaining San Francisco units to fulfill our commitment for this capital-efficient arrangement. Now let's turn to our 2022 guidance. As you saw in our press release last night, despite the softness we experienced in January and early February due to Omicron, we expect full-year contract sales to grow 22% to 29% this year compared to 2021, with growth coming from a combination of higher tours and continued strong VPG. With that growth, our channel optimization work and our ability to leverage fixed marketing and sales costs, I would expect our adjusted development margin to remain well above 2019 levels this year. Moving to our rental business, given the strong leisure travel demand environment, we expect transient keys rented and average revenue per key to be up compared to last year. This should drive a year-over-year increase in our rental profit. However, similar to last year, we do expect to allocate a portion of our rental inventory for owner use to provide them with increased opportunity to book their vacation. In our financing business, with our notes balance currently approaching our average note balance for 2019 and contract sales expected to grow double-digits this year, financing profit should increase by more than 15% compared to last year. In our exchange and third-party management segment, the addition of Disney Vacation Club, Welk and El Cid brought us over 300,000 new Interval members at the beginning of this year, a more than 20% increase compared to where we ended in 2021. With average revenue per member expected to remain relatively flat compared to last year, we expect our exchange and third-party management segment to post mid-teens adjusted EBITDA growth this year. In total, we expect to generate $860 million to $920 million of adjusted EBITDA this year, or more than 35% year-over-year growth at the midpoint, and just as importantly 17% higher than 2019. With that we expect adjusted EBITDA margins to improve roughly 250 basis points compared to last year at the midpoint of the range, with the biggest increases expected to come from our rental and development businesses. Our adjusted EBITDA guidance also includes roughly $25 million to $30 million of incremental in-year synergy savings as we work to achieve our total $200 million run-rate savings. Inflation is obviously in the news today, so let me spend a few minutes talking about the impact of inflation on our business. Generally speaking, higher inflation is not good for the consumer or the economy as a whole, since it can decrease purchasing power. However, our business has some natural mitigants against inflation. For example, our target customer has a median annual income of around $130,000 and a self-reported net worth of around $1.5 million, so their disposable income is typically less impacted. Wages and other expenses at the property level are borne by the homeowners' associations. While many of our marketing and sales positions are commissioned and incentive-oriented based on production, we have the ability to drive price per point, as well as higher pricing in our ancillary and rental businesses, allowing us to offset the potential impact to our margins in a higher cost environment. In addition, higher pricing in the rental business often translates to a better value proposition to our customers given the increased cost of alternative products. We have ample inventory on the balance sheet, the ability to reacquire low-cost inventory, and no material construction underway. So our exposure to inflation on the development side of the business is limited over the next few years. And from an interest expense perspective, roughly 90% of our corporate funding debt is fixed and increases in ABS cost would only impact future issuances. So while we're not completely immune from higher inflation, our exposure is manageable. While we are not providing quarterly guidance, we do expect the softness we saw towards the beginning of the year due to Omicron to impact our first quarter results. It's also important to remember that given the normal seasonality and contract sales growth, our first and second quarters are typically negatively impacted by revenue reportability. For example, in first quarter 2019 our adjusted EBITDA was negatively impacted by $21 million of reportability. For this year's first quarter, I would expect it to be in a similar range. As a reminder, this is only timing as the revenue and profit will get reported as we go through the year with most of the deferral being recovered in the fourth quarter. I would also like to point out that our guidance includes the adoption of a new accounting standard regarding convertible debt, requiring us to change our accounting for convertible notes and impacting the calculation of diluted earnings per share. As a result, diluted earnings per share no longer includes imputed interest on the convertible notes, and assumes the $805 million notes were converted into shares of common stock on January 1, 2022. This results in the addition of approximately 5 million shares of common stock to the diluted earnings per share calculation and in excess of $30 million in lower interest expense. With the strong adjusted EBITDA growth we're expecting this year, we should generate substantial free cash flow. We ended 2021 with nearly $600 million of excess inventory, and we expect to spend more than $100 million on reacquired low-cost inventory this year. In addition, given our previously reported pay down of outstanding debt, we expect our 2022 cash interest expense to be around $20 million lower than 2019. As a result, we expect our free cash flow conversion to be in the 65% to 70% range this year, and we expect to generate adjusted free cash flow of between $560 million and $640 million, highlighting the continued benefits of our capital-efficient development model and the benefit of our excess inventory. Outside of our normal free cash flow, we still have roughly $100 million to $125 million of potential cash proceeds from non-strategic real estate assets that we're working to dispose of over the next couple of years. Consistent with our past approach, we will look to use free cash flow to invest in growing the business organically or through strategic acquisitions. In the absence of compelling acquisitions, our best use of excess free cash flow remains returning capital to shareholders through dividends and share repurchases. In summary, we finished the year strong and we expect 2022 to be a strong growth year for the company. As always, we appreciate your interest in Marriott Vacations Worldwide. With that, we will be happy to answer your questions. Operator?

Thank you. We will now be conducting a question-and-answer session. Thank you. Now our first question will be coming from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Hi, Pat. Good morning.

Good morning. Several questions here. I know you folks have talked about in the past the trajectory of VPG going down. Is that still the case here going forward? How should we think about that trajectory over the next several years? Thank you.

Arithmetically, one would assume that as you increase the number of first-time buyers, which traditionally have a lower VPG, mixing with existing owners would result in a reduction in VPG. I will say to you that we had been expecting that turn to materialize even as early as the second half of last year and into the first part of this year, and it has not happened. Even though our first-time buyer sales have grown very nicely, we still maintain a very robust VPG with our existing owners. By the way, the first-time buyer VPG has actually grown. So between those two things, it has not declined. I would expect, however, that as we get more first-time buyers and a higher percentage of the mix as we go further, that you'll see some decline. However, we fully expect that VPG for the full year will still materially outpace what we did in, say, 2019.

Okay, thank you. Just a question regarding the share count as it relates to the convertibles. The implied share counts for this year backing into it is about 48.6 million. You do have some convertibles that expire or roll off this year, the 2022s. What would that—if we're modeling, say, '23 or '24 EPS, what would the implied share count be once those 2022s expire because you still have the 2026 left in there?

Yes, the impact of the 2022 notes is about 1.7 million shares. In total, there's about 5 million due to the change in the accounting rules of shares that go into our diluted count. To give a little history, under the existing accounting through the end of 2021, we always took a discount, and notwithstanding, interest on the $230 million was 1.5% and on the $575 million notes at zero interest, interest expense was imputed up to the 5% and that's what hit GAAP. The dilution impact was only if the convert was in the money. It was only the $230 million at times that had been in the money and it was a couple hundred thousand shares of dilution impact. Under the new rules, the accounting changes, the whole discount for GAAP goes away. So essentially cash runs through your GAAP net income, you're getting the benefit of higher net income. However, the rule says you have to assume that you converted the debt as of the first of the year it was outstanding. That's why we put the 5 million shares in there. But you also think about it from a capital perspective: if you're assuming that higher share count, you also have $805 million less debt, and your capital stack changes accordingly. So it's different accounting, but that's where the accounting rules take everyone for convertible debt as of January 1.

Understood, appreciate the update, I'll go back and adjust the models accordingly. I'm all set. Thank you.

Yes, thanks, Patrick.

Thank you. Our next question is from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Good morning.

Hey, good morning, guys. So you talked a little bit in the prepared comments about the increased attractiveness of timeshare with hotel rates, especially resorts going where they are. Have you formally changed the marketing— I know you like to run through the math with people— have you been able to formally change those formulas yet to make that argument even more convincing?

When you say marketing, I assume you're talking about when you're talking to a prospect about becoming an owner. Is that right?

Yes, that's right. Kind of that formal process where we walk through the math.

Sure. Typically, every conversation we have with a prospect is very much based on a discovery process and things we accentuate vary by the individual, so no two presentations are identical. Generally speaking, one of the things we talk about is the relative value of owning timeshare over time versus spending time in hotel rooms on a similar type of vacation. Examples we've used in the past are, if you were here in Orlando and staying at the JW Marriott at Grande Lakes, and you and your family had occupied a couple of rooms, and it was $300 or $350 a night, which now might be $400 a night based on inflationary trends, you might be spending $800 a night on just your accommodations, arguably with less square footage than we'd have in one of our units. Then contrast a week stay there, which for arithmetic's sake might be $5,000, and at the end of the day you're left with a receipt and perhaps credit card points. If you bought, call it, 2,500 points from us, currently that would cost you about $32,000 plus or minus. Do the quick arithmetic and say that in a six or seven-year timeframe, when you include the maintenance fee you'll pay every year, you're paid off. Then your cost of staying in the system, not just here in Orlando but across our network, is largely the annual maintenance fee. Some people are more sensitive to that payback discussion and do the mental gymnastics of looking for the number of years, others are not. Our demographic tends to skew higher wealth, so many are less sensitive to the payback period. There is no question that when the cost of alternative stays goes up, it makes the argument about buying a timeshare interest more compelling.

Okay, I appreciate that, Steve. And then I guess the follow-up: you mentioned in the comments you do think VPG for 2022 will still be above 2019 as you are building back order flow. Based on what you've seen in the past three to six months as the recovery gains steam, are you seeing higher VPG relative to pre-COVID? Are first-time buyers spending more or are returning existing owners spending more relative to what they spent? I know it's a tough question to compare apples-to-apples.

That's a very good question because I have a statistic to point to. In the fourth quarter of 2021 versus the fourth quarter of 2019, our VPG for first-time buyers is up roughly $500 over what it was in 2019. Our VPG for owners is up about $800 compared to the fourth quarter of 2019. So we are seeing VPG improvement for both owners and first-time buyers, which is partly due to our channel optimization and continued sales execution. The economic backdrop prior to recent geopolitical events was favorable, and for all those reasons we are very bullish about how VPG will play out for 2022 and potentially into subsequent years.

And Chris, to add that Steve mentioned, it's a 21% increase in VPG for first-time buyers and a 17% increase for owners. So first-time buyers are increasing VPG at a faster rate, which is pretty interesting as well.

Okay, yes, that's terrific. Thanks, guys. Very helpful.

Thank you.

The next question is from the line of Farshid Javar with Jefferies. Please proceed with your question.

Hey, good morning. How is it going? Are you guys able to expand on the long-term opportunity for Welk and Hyatt, maybe in terms of relative size of the revenue or EBITDA contribution to the company?

At a 30,000-foot level, when all of our Welk properties are effectively rebadged and rebranded as Hyatt, we will have increased the size of the portfolio by roughly 50% and increased the number of owners substantially—my recollection is an increase of roughly 80% to 90%. We will also have additional sales centers that will come into the high-end portfolio, which were previously Welk centers. We are in the process of repositioning those sales centers and the channels they play in, similar to what we did with the Vistana sales centers in terms of channel optimization and exiting some high-cost, low-yield channels. If you're looking for a specific dollar number, I'll ask John to add color.

Just a little background: when we underwrote and bought Welk, pre-COVID numbers were roughly $30 million in EBITDA. On an apples-to-apples basis, where we could drive development margin improvement, better rental profits, and grow contract sales by leveraging the Hyatt brand, we underwrote a target of roughly $60 million to $70 million of EBITDA, though it would take a few years to get there. Steve walked through in his prepared remarks all the initiatives we're launching this year with Welk. As we start the rebranding process, initially we're still selling a Welk product today, but in the second quarter the goal is to rebrand the Welk points program to the Hyatt brand and then start to sell that product branded Hyatt at the legacy Welk sales centers. Over time we'll unlock owner benefits and execute the resort rebranding. We haven't seen a lot of the rebranding benefits yet. What I can report for 2021 is that, pro forma for the first quarter, we delivered about $50 million of EBITDA last year versus where we want to get to the $60 million to $70 million target, so we're well on our way. We haven't yet unlocked the full benefits because much of that will come as we bring properties onto hyatt.com and integrate rental inventory and owner benefits. So I think we're a little ahead of where we thought we'd be at this point, and we're on track with the rebranding timing, but many of the benefits will manifest over the coming quarters.

Great, thank you. And then can I also ask what you guys are seeing today or expect to see with respect to the ABS market for securitization deals given the rising-rate environment?

We're monitoring market conditions and talking to banks. Rates are slightly higher and change daily, but they're still in the low two percent range for securitizations today. We still expect to do a couple of ABS deals this year, and that is in our plan. We also have a warehouse facility available if market conditions dictate using that alternative.

To add perspective, remember the deals we did last year were in the 1.5% to 1.6% range—some of the best deals we've done. Rates have increased, but to put it in perspective, at the end of the year our weighted average securitization rate was roughly 2.7% to 2.8%. So even if rates rise another 100 basis points, if you did a deal in the high 2% to 3% range, you're still largely replacing what's coming off your balance sheet. In terms of excess spread, we would remain in a comparable position.

Appreciate it. Thanks for the time.

Thank you.

At this time, we've reached the end of the question-and-answer session. I'll turn the call over to Steve Weisz for closing remarks.

Thanks, Rob. And thanks everyone for joining our call today. 2021 proved to be quite an eventful year for our company. Among our many accomplishments, we delivered nearly $1.4 billion in contract sales, invested in new digital initiatives to drive growth in the future, acquired Welk, substantially improved margins, and started to return cash to shareholders again. And we ended the year on a strong note. In our vacation ownership business, we grew contract sales by 7% sequentially in the fourth quarter, exceeding our 2019 levels for the first time since the pandemic started, despite the emergence of the Omicron variant in the fourth quarter. We're also adding new first-time buyers, which is a key part of our strategy, and have nearly 224,000 tours in our pipeline, which puts us in a great position to drive tours and sales this year. In our exchange and third-party management segment, we signed a number of new customers including Disney Vacation Club, and in total added more than 300,000 new members in 2022. We returned more than $100 million in cash to shareholders in 2021. And just last week, our Board approved a 15% increase to our quarterly dividend and increased our share repurchase authorization. We're also investing to provide more personalized experiences for our customers, and using data analytics in new and exciting ways to further enhance our business. You've got to love an Apple Watch; I apologize for the interruption. As the past two years have proven, people want to go on vacations, and as a company whose sole purpose is providing travelers great vacation experiences, we couldn't be in a better position. As always, thank you for your interest. Take care of yourselves and finally to everyone on the call and your families: stay safe and enjoy your next vacation.

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