Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Marriott Vacations Worldwide Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Neil Goldman, Vice President of Investor Relations for Marriott. Thank you. You may begin.

Thank you, and welcome to the Marri-Facations Worldwide Third Quarter Earnings Call. I am joined today by John Deller, our President and Chief Executive Officer, and Jason Marino, our Executive 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. Followed-looking statements on the press release as well as 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-GAF financial information. You can find a reconciliation of non-GAF financial measures in the schedules attached to our press release and on our website. With that, it's now my pleasure to turn the call over to John Geller.

Thanks, Neil. Good morning, everyone, and thank you for joining our third quarter earnings call. As you saw in our release last night, third quarter contract sales declined 4% year over year, a couple of points below our expectations. The shortfall relative to our expectations was driven by weakness in Orlando and Maui, two of our largest markets. Excluding those two markets, system-wide contract sales were approximately flat year over year. We're not satisfied with these results and have recently implemented meaningful changes that we believe will drive return to growth first we've adjusted our sales and marketing and setup plans to better align with our long-term objectives second we're working to curb third-party commercial rental activity by a small subset of owners which has depressed owner arrivals at some of our most attractive destinations in recent years by curbing this practice we expect to make more inventory available for occupancy by our owners, which should drive higher owner satisfaction and incremental arrivals at our most productive sales centers, benefiting tours and BPG. Third, we have implemented FICO scoring data for marketing purposes, which should result in higher BPGs and improved credit metrics. With respect to our modernization program, we continue to make strong progress towards the $150 to $200 million in run EBITDA benefit by the end of 2026. One of the most impactful steps we've taken thus far occurred in August when we reorganized a portion of our HR and finance and accounting functions and transition work to third-party providers. This change will save us 20 million dollars in annual costs that will fall to the bottom line going forward. In addition to these three operational changes I've already outlined, we're rolling out additional initiatives we expect to improve VPG as part of the modernization program. For example, we implemented initiatives to drive owner arrivals, offering owners bonvoy points to arrive at select resorts within a two-month window. This will help us drive incremental owner tours at and above average VPG. Our new owner experience initiative, which helps reduce rescissions and boost our tour pipeline is creating excitement at the sales table by giving buyers a pre-planned vacation to look forward to after their presentation. And with over 270,000 packages in our pipeline at the end of Q3, the impacts of these changes will be realized over the course of the coming year. In the quarter, we also expanded our presence in Asia Pacific with the opening of a new Marriott Vacation Club resort in Kau Lok, Thailand. And we have other resorts and sales centers in development that we expect to contribute more than 80 million dollars of annual contract sales within a few years after opening we have updated our full year expectations based on our third quarter results october vpgs were down less than they were in q3 and we expect occupancy to remain strong keys on the books for the balance of the year are consistent with the same time a year ago And we expect to drive tour capture rates for owners as we continue to roll out initiatives to drive future owner arrivals. We also have 270,000 packages in our pipeline, which is a good forward indicator. And loan delinquencies are down meaningfully year over year. In conclusion, despite our disappointing results this year, I still believe in the long-term growth potential of this business. And with the recent operational changes we've made in our continued modernization work, we have tremendous confidence in the future profitability growth. We will be hosting an Investor Day the morning of December 17th at the New York Stock Exchange, and I hope to see many of you there. It will also be webcast for those who won't be able to make it in person. With that, I'll turn the call over to Jason to discuss our results in more detail.

Thanks, John. Today, I'm going to review our third quarter results, our balance sheet and liquidity position, and our outlook for the year. Contract sales were down 4% year-over-year in the quarter, driven by 5% lower VPG and a 1% decline in Tours. First-time buyer sales decreased 2%, while owner sales declined 5%. Delinquencies declined 100 basis points year-over-year and are now slightly below 2023 levels. Financing propensity increased 90 basis points from last year, which is good for the long-term growth given strong margins we get from our lending business. Due to the higher than expected financing propensity in the quarter, our sales reserve was 13% of contract sales, and we expected it to be 12.5% to 13% in the fourth quarter. Development profit declined $33 million compared to the prior year, reflecting lower contract sales and higher marketing and sales expense. total company rental profit declined 17 million dollars to 21 million dollars primarily driven by higher unsold maintenance fees and getaways at interval our recurring revenue businesses perform well management exchange profit increased 12 percent to 96 million dollars and financing profit increased five percent to 52 million dollars finally corporate gna decreased eight million dollars. As a result, adjusted EBITDA decreased 15 percent year-over-year to 170 million dollars. Moving to the balance sheet, during the quarter, we issued 575 million dollars of six and a half percent senior notes, which we'll use to repay our zero percent convertible debt when it matures in January. We ended the quarter with leverage of 4.1 times and 1.4 billion dollars in liquidity in anticipation of repaying those notes. We also terminated our delayed draw term loan. After January, our next corporate debt maturity isn't until December 2027, so our balance sheet is in good shape from a maturity perspective. Looking forward, we are updating our full year guidance to reflect our results year to date and our expectations for the fourth quarter. We now expect contract sales to decline 2% to 3% this year, with Tours flat to up slightly and VPG down. We still expect product costs as a percent of contract sales to be in line with last year. We now expect rental profit to decline around $30 million this year, which is slightly lower than our previous guidance due to lower Red Par expectations. We expect management exchange profit to be in the $380 million range and for financing profit to be around $210 million and corporate G&A to be flattened down slightly this year. We continue to make good progress in our modernization program and still expect to deliver $150 to $200 million in run rate benefit by the end of next year. For modeling purposes, we still expect to generate an incremental $60 to $80 million of benefit to flow to the bottom line in 2026, but the full run rate in 2027. As a result, we now expect adjusted EBITDA to be in the $740 to $755 million range this year. Moving to cash flow, we expect our adjusted free cash flow to be $235 to $270 million this year. This lower guidance is driven by lower adjusted EBITDA, higher 2026 unsold maintenance fees due in Q4, and the timing of tax refunds, which we now expect to receive next year. Our guidance also excludes roughly $100 million of one-time cash costs related to our modernization initiatives, which is consistent with our previous thinking. We are making good progress on our non-core asset and excess inventory dispositions and hope to dispose one asset this year and a couple next year. While we don't include proceeds from non-core asset sales and are adjusted from cash flow, any dispositions will provide cash we can use to either reduce debt or buyback shares. We ended the quarter with $1 billion of inventory on the balance sheet. As we discussed last quarter, we plan to restrict our new inventory spending to capital efficient arrangements where our cash outlay coincides with the start of sales as well as low-cost reacquired inventory. Our long-term goal remains to get close to one and a half to two years of inventory on the balance sheet over the next few years, which will free up cash over time. With that, we'll be happy to answer your questions. Operator?

Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your – excuse me, it may be necessary to pick up your handset before pressing the star keys. One moment, please, when we poll for questions. Our first question is from Ben Chaykin with Mizuho Securities.

Hey, thanks. Good morning. Either John or whoever wants to take this, you kind of threw a lot at us right off the bat in the beginning of the call. Maybe you could talk to us about the strategy to reinvigorate the top line, whether that's on VPG or on tours, and then what levels, levers are at your disposal. Or is this just kind of like a broader deceleration in the business?

No, we're obviously focused on growth. I think, you know, as I hit on two of our larger markets, Orlando and Maui, we're down significantly year over year, about $20 million of contract sales in total. In the case of Orlando, you had owner arrivals down, which we've talked about this year more broadly has been a bit of a headwind, but we've offset a lot of that with higher capture rates on the tour side to kind of offset what we're seeing that. And I think that, you know, when you think about Orlando, in that market, we've got two Sheraton sales centers. So those sales centers average relative to a broader Marriott, you know, tend to have a lower income consumer. So we saw some softer BPGs in Orlando. A lot of the changes that I talked about making, you know, as we've looked at, especially in markets like Orlando, what the compensation for sales and marketing execs and bringing those and making sure we're competitive to drive not only retaining our top folks, but also recruiting and getting high performers as well. So, we're focused on that. We did see some higher turnover in Orlando on the sales exec side. So, you know, when you bring in a new sales exec, you know, off the bat, you typically have a lower VPG, you know, and it takes a while to ramp that up. So, retaining the best and bringing in new good talent is going to be key there. You know, we talked about the commercial rental activity, as they talked about, and we've about this earlier in the year you know as we continue to focus on lower owner arrivals uh a lot of that um or some of it i should say as we've dug into a lot of the details have we've seen kind of an uptick in commercial rental activity it's a small subset of the ownership base but um you know it does impact owners trying to get to where they want to go and we want to get their uh satisfaction higher we've got good owner satisfaction so it can only help there and then you know the flow through is more owners at at the sites you know better vpgs better tours so that that's another big initiative uh and you know we've ramped up uh sales training across the board at all our sites we're starting to see some benefits there in fact in october our vpgs uh were flattish so that that's a good trend to start the fourth quarter um but we still got to do more to continue to drive growth going forward.

Okay. Okay. And then stepping back, I guess just going back to the beginning of the call when you fired off a number of kind of a new initiatives, looking at the 26, you know, because I don't know if we've all digested kind of the moving parts that you guys are laying out here. Are there any curveballs we need to be aware of in any of the segments that stick out to you? I guess rentals comes to mind just because that's a little bit more of a black box for us typically. So again, I don't know if you have any visibility there or any other areas that some of these initiatives might impact. Thanks.

Yeah. Are you talking rentals next year or just in the fourth quarter?

I'm talking next year. I'm saying that there seems like there's a number of changes you're implementing today to drive top line. And I'm just trying to get ahead and see, are there any implications to the P&L in 26 from those changes? And the one that jumps out to me, because it's somewhat of a black box for us, is rentals.

Yeah, you know, obviously, we're still working on our, you know, budget and long-range plan, which we'll provide more detail in December. I think, you know, specific to rentals, you know, Jason hit on, we do have some higher unsold maintenance fees. We have more inventory, we expect, on our books going into 26 than we had this year. And, you know, that's inventory that we've taken back as well as Waikiki and some of the purchases we've made. So we will have higher unsold maintenance costs. The key is how do we offset that on the rental side and drive REVPAR. And so those are the details we're still working through. But on a baseline, we expect to have some higher costs. And the goal is to try and mitigate that as much as possible on the revenue side.

Our next question is from Patrick Scholes with Truist Security.

Good morning. Thank you. I have three questions to start with, and I have some more. I will jump back in the queue later on. First, very high-level question. When do you consider all strategic alternatives for the company, given the consistent underperformance, arguably mis-execution, and certainly share price underperformance? Any reason it shouldn't be now? Sure.

Yeah, no, we're constantly looking at all things and work with the board on that. So we're going to do everything we tend to increase shareholder value.

Okay. Number two, let's just talk about expectations for 4Q. We saw that guidance was really only reduced by the amount of the 3Q miss. you know, what gives you confidence that the issues in 3Q won't persist into 4Q?

Yeah, as I mentioned, at least early trends in October, you know, our VPGs, which were the big headwind in the third quarter, are trending more positive. So, still early days, but some of the initiatives I've talked about, things to drive owner arrivals in the near term, and as we look out and what packages and owner keys on the books and things like that, you know, we still got to drive tour flow as well as BPG, but, you know, what we've given you in the guidance is kind of based on what we're seeing, based on what we achieved in October and what we see on the books and the trends, you know, for November and December.

Okay. And then third question is about the comment that was included in the earnings release around curbing third-party commercial rental activity to drive higher owner arrivals and satisfaction. Was there an issue with rental bookings that hurt owner arrivals and VPG in 3Q?

Yeah, I mean, you know, it's a great question. I'm not sure you can quantify it other than we know we've seen some higher owner rentals. And let's be clear, our owners can rent the product. That is an option for the typical owner. What we're seeing is a small group of owners that appear to be running commercial businesses, right? And they're obviously going after the better inventory, the better weeks, and a lot of the higher-end markets to try and rent those and make money. That's the commercial rental activity. So anything we can do to make sure they're adhering to the rules, our points programs don't allow commercial rental activity, and we've employed some technology to track that, and we're working on how we're going to enforce those rules here going forward. So, that'll take a little bit of time to ramp up here, but we're focused on that. And if we can get more owners there, the read-through, right, is that should help owner satisfaction. They're getting on more vacations, you know, to their top choices. And when owners are happy and they're there, that should help us drive tours and better VPGs.

Okay, thank you. I'm going to hop back in the queue.

Okay.

Our next question is from Brant Montour with Barclays.

So on that point, John, I'm sorry. So can you just go over that one more time, the commercial third parties? This is something we haven't really heard about, at least on these calls. What sort of percentage of your inventory is being used by that? How long has this been a problem? Is it a bigger problem than the past? Maybe give us a little more context.

Yeah, no, you know, like I said, Brandi, owners can, in the normal course, rent their time. That's not prohibited. What you can't do for our documents, you know, with the points trust and all that, is run commercial business, run a rental, you know. And you see, if you go to Red Week, for example, you see a disproportionate amount of our weeks on there. I'm not saying, you know, those are all commercial businesses, but as we really dug into the data, you know, over the last year or so, you know, we have seen an increase in, you know, what we call our guest of owners. And so as we delve deeper into that, you know, with technology, we're able to kind of see where we've got. And once again, it's a pretty small subset of the overall ownership group, but the reservations they're booking are disproportionate, right, to what you would normally see. So, you know, we're going to put all the procedures in place, and if we can reduce that, that makes more inventory available more generally for owners to use to go on vacation.

Okay. All right. And then, you know, taking maybe a bigger step back, but on a similar topic, you know, when we look at some of your peers' reports, it wasn't any sort of surprise that new owner sales has been a bit weaker and repeat has been stronger, which is something that I think kind of happens when you have a bit of a softer leisure macro backdrop. But, you know, I think we're under the impression that the levers that you can pull to sell to owners are sort of there for you. Are you trying to tell us essentially that you didn't have the inventory available to make that pivot throughout this sort of maybe tougher than expected year? And then, you know, when you talk about what you can do to change and you said, if you think, how much of those are super short term? How much of those take a longer time? I mean, you mentioned retained talent and things like that, where you don't actually get the flexibility and maneuverability until 26.

Yeah, a lot in there. I'm not sure I got all the questions you're looking for. Let me try here. Yeah, as you know, we run a 90% year-round occupancy at our system-wide resort. So we run a high occupancy. You know, we talked about the commercial rental activity. You know, that's just a swap out of getting more owners versus renters and getting owners happier there. The near-term levers, which we started to do more in the second quarter, and we really ramped it up in the third quarter, are incentives. The Marriott Bond Boy Program points to incent owners, you know, for short-term bookings where I think places like Orlando or other bigger markets where we do have some near-term availability to get owners to arrive within two months and those end up being above average vpgs for the owners that were able to tour there so that that's a that's one of the near-term initiatives that we've been focused on here to improve i think when you talk about the commercial rental activity that that'll help more over time that you know that that's going to take some time to ramp up here over the next couple of quarters.

Our next question is from David Katz with Jeffries.

Good morning, everyone. Pardon the background noise, but it is what it is. What I wanted to get at is, you know, my, I think our understanding is that, you know, this is a Salesforce-driven business, right? That's at the heart of it. Can you just talk about sort of how the sales force is sort of being run today? Where was it 6 to 12 months ago, and how should we think about it 6 to 12 months from now? Unless I'm wrong, and I invite you to correct me, that seems to be kind of a critical piece of all of this and where the performance ultimately lands. Thanks.

Yeah, in terms of managing our on-site sales force, I think the, you know, the bigger changes and some of the things we've talked about is we've leaned in on training more recently to train, especially our newer sales folks. You know, some of the things I mentioned earlier, you know, in certain highly competitive timeshare markets, you know, you do see that seem to have, you know, more turnover, people moving around. And that's where, as we talked about, adjusting our comp programs to focus on not only retaining, but also getting really good new talent. That's been a focus here. And, you know, like I think I talked about earlier, when you do have turnover and you bring in, you know, maybe a non-experienced timeshare exec, there's a bit of a ramp up on getting their VPGs up. So everything we can do to retain the best talent and recruit in the best talent, that's the focus. And so there's no, you know, wholesale change overall other than really focusing on the talent. But you're right. You know, the sales force, you know, you got somebody who can do a six or seven thousand dollar BPG on average versus four thousand. That's that's a big difference. There's higher BPGs flow through the bottom line. And as we really focus in on this, it should help drive higher BPGs going forward.

So if I may follow that up and if it was in there and I missed it, I apologize. But have there been, you know, some sort of departures in, you know, leadership or management within the sales force? of the recent past? Are any changes worth noting?

Well, not, you know, there's always normal turnover, David. I think in certain markets, when you get down to the frontline sales execs, you know, the highly competitive markets, like I said, I think Orlando, you know, maybe to some extent Vegas, those types of things. There's, you know, a lot of people looking for talent on the sales side. And that's where in a few of the markets, we have seen some higher turnover more recently of our better sales folks.

And David, when you think about the comments that John made in the script about Maui, some of this is sales related. So we are still recovering from the wildfires. And as you think about sales execs that had to move an hour and a half or two hours away because they lost their home and there was no housing they did the commute for a while and then you know call it more recently over the last six months or so have found other opportunities closer to home it's a tough commute to make that drive every day and so that did impact us a little bit in Maui that's not necessarily fixable overnight but that is something that is related but you know specific to Maui understood thank you our next question is from Sean Kelly with thank you, America.

Hi, good afternoon, and thanks for taking my question. A lot of ground has been covered, but I did want to go back to the commercial piece that you've been talking about throughout. And I just want to make sure I understand what's happening here, but just to be clear, so are people basically arbitraging the point system to some degree and either kind of rent or re-renting that on third-party websites? Is that what's really going on? And then what's your ability today as we sit here to kind of track and control that? Like what systems do you use or how familiar are you with this? Because it would seem like you should be pretty aware of this. But again, I think for many of us, this is either the first or maybe second time we've ever heard of this.

No, I think the way you described it, yes. You know, at a lot of our resorts, given the markets they're in, you can rent those weeks for more than, call it your annual maintenance fees, right, if that's what you're talking about, arbitrage. But, yes, you can make money, if you will, just on your annual fees. And, as I mentioned, owners in the normal course are allowed to do, you know, rental activity. It's really where, and this is where, yes, we're tracking in the systems. We're identifying unusual high bookings by a smaller number and then doing the work to make sure that this is commercial and shutting those down. So it's a constant, you know, just because you shut one down, then there could be others. So we're going to continue to look at it and do the best we can to make people adhere to the rules and stop the commercial rental activity.

Got it. Thanks. And then just sort of one super high-level question would be, going back to the core business just on the VOI sales, just big picture, obviously the trend line is a little different than what we're hearing from other operators in this space. So in your own estimation, how much of this is macro and how much of this is idiosyncratic to your portfolio, be it some of the just continued headwinds in Maui or the Salesforce thing?

I think we're all, you know, still struggling a little bit with trying to kind of balance, you know, what's been a bifurcated consumer environment and that underlying trend line with what's kind of happening in VAC's business. yeah yeah you know i think if you want to start at the macro level like i mentioned a little bit earlier i do think in orlando and you know in some of our resorts where you know the mix of of income is trends towards the lower end versus our our higher end resorts things like that we've probably seen uh some impact at at that lower end of our household income so we do see a little bit that but you know i think some of the the bigger things that we've talked about you know which we talked about earlier in the year which is owner arrivals that in in some of the commercial rental activity uh is probably a little bit with us we'll we'll solve that move that forward um you know on arrivals this year versus last year and we talked about this earlier last year benefited from more plus points and and things that were burning off so um the goal was to continue to drive owner rivals and to offset that this year, like we talked about, notwithstanding owner rivals being down, we've done a much better job of what we call capture rate, getting those owners that do show up, touring them at a higher percentage to really drive that. And we've got programs to continue doing that going forward. Yes, Maui, you know, pre-fires was 10 percent of our contract sales. We're the largest, I think, in West Maui by far. it's a big part of our business versus our competitors. And the recovery has been choppy over the last couple of years. Jason talked a little bit on the sales exec side, and I think we've talked about this before. We do a lot of packages into Maui. So when the fires hit, we stopped selling packages, right? It just didn't make sense and people weren't going to buy them. And so that pipeline started to get depleted. People that had packages started to come back over time and then we started to sell packages again so we have seen lower package arrivals just because of that but those are starting to ramp back up and then owners they they've started to come back to Maui but they're being respectful as well to the messaging that's come out of Maui over the last couple years so that one is you know probably specific to us yeah I think high level as you look at our competitors too they're they're in a different spot, obviously, you know, with acquisitions on the HTV side and how they're upgrading owners and selling into those products and T&L's launch new brands and new resorts. So they're at a different life cycle a little bit here in the New York term. And I think that's offsetting, you know, for them any headwinds. They've got some good things that they're selling at the table.

Thank you so much. Our next question is a follow-up from Patrick Scholes for Jewish securities.

Thank you for taking my follow-up questions. I have some questions just specifically for Jason. Jason, any costs or expenses for next year that you'd like to point out when we're modeling that we initially should be aware of? Thank you.

Yeah, John talked a little bit about unsold maintenance fees in response to one of the earlier questions. I think the other item that we've talked about in the past, and just to make sure everyone's on the same page, is higher product costs as we go forward. You did see an increase, as we expected, from Q2 to Q3 due to the mix of inventory, and we think that'll go up again next year. We've talked about that in the past. We have the higher product costs coming from Cowluck inventory in Asia that we're going to sell through next year, as well as the mix of inventory we expect to sell next year uh domestically so i i would point to really those two obviously we're working hard on the modernization we did um you know take some costs out of the organization in august which are going to you know we are about 20 million in total on an annual run rate basis spread throughout the p l so some of it will be in gna some of it will be in other uh lines as we were that was done in august so um you know we'll get more guidance out you know later but as we work through everything but i would those would be the ones that i would

call out okay and then uh jason just specifically on the rental business certainly we saw the profit down uh this year and i think earlier in this call it was noted higher costs for next year is it the expectation um that profit next year for the rental business will grow yeah patrick we're still working through that, as we talked about.

We have a good sense of the unsold maintenance fees going up. Generally, depending on the markets in which that inventory exists, we don't always cover our unsold maintenance fees. As John talked about, some of the markets where we would, but in markets like Orlando and the desert where we do have a significant amount of inventory, the ADRs don't cover that. And that's largely due to the reserves that's common in the timeshare business. So there could be some headwinds related to that higher unsold maintenance fees. And that's what we're working through here as we kind of finalize the year in the budget. You did see in Q3 a pretty significant decline in the rental business from Q2. A lot of that is seasonality with lower ADRs in that market. Those markets have continued to struggle a little bit. We do expect that to pick up in Q4, but that would be what I would highlight.

Okay. Thank you. I look forward to the Investor Day, and if you'd be so kind, just at the Investor Day to talk a little bit more in granularity about that last topic of expectations for rental business.

I'm all set. Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. Now let's turn the call back to John Geller for closing remarks.

Thank you, everyone, for joining our call today. As I said Right at the outset, we acknowledge that this has been a challenging year. We believe recent targeted changes address some of the root causes of our sales softness in recent periods, particularly in Orlando. These changes, combined with continued progress on the $150 to $200 million in adjusted EBITDA benefit through our modernization program by the end of 2026, will position us to return to consistent, profitable growth. On behalf of all of our associates, owners, members, and guests around the world, I want to thank you for your continued interest in our company and hope to see you on vacation soon. Thank you.

This concludes today's conference. You may disconnect your lines at this time.