Marriott Vacations Worldwide Reports Fourth Quarter and Full Year 2013 Financial Results and Provides 2014 Outlook

ORLANDO, Fla., Feb. 27, 2014 /PRNewswire/ -- Marriott Vacations Worldwide Corporation (NYSE: VAC) today reported fourth quarter and full year 2013 financial results and provided its outlook for 2014. Due to the company's reporting calendar, the fourth quarter and full year 2013 include the impact of an additional week of financial results as compared to 2012.

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Highlights for the fourth quarter of 2013, include:

  • Adjusted EBITDA totaled $38 million.
  • North America volume per guest (VPG) increased 6.8 percent year-over-year to $3,103.
  • North America contract sales, excluding residential sales, increased 9.9 percent to $179 million.
  • Company and North America adjusted development margin was 22.9 percent and 25.4 percent, respectively.
  • Adjusted fully diluted earnings per share were $0.32.
  • The company repurchased 505,023 shares of its common stock under its share repurchase program for a total of $25.6 million through the end of 2013 and has repurchased an additional 530,189 shares for a total of $26.3 million from January 4, 2014 through February 26, 2014. 
  • In February 2014, the company disposed of a golf course and adjacent undeveloped land in Orlando, Florida for $22 million of net cash proceeds.

Fourth quarter 2013 net income was $6 million, or $0.15 diluted earnings per share, compared to a net loss of $11 million in the fourth quarter of 2012. Reported development margin increased to 23.3 percent in the fourth quarter of 2013 from 19.8 percent in the fourth quarter of 2012. North America reported development margin increased to 26.0 percent in the fourth quarter of 2013 from 24.2 percent in the fourth quarter of 2012.

Full year 2013 highlights include:

  • Adjusted EBITDA totaled $175 million
  • Adjusted development margin increased to 19.8 percent from 16.1 percent in 2012. North America adjusted development margin increased to 21.8 percent from 18.6 percent in 2012.
  • Adjusted fully diluted earnings per share were $2.31.
  • The company generated adjusted free cash flow of $175 million.

Full year 2013 net income was $80 million, or $2.18 diluted earnings per share, compared to reported net income of $7 million in 2012, or $0.18 diluted earnings per share. Reported development margin increased to 21.2 percent for the full year 2013 from 14.0 percent in 2012. North America reported development margin increased to 22.1 percent for the full year 2013 from 18.2 percent in 2012. Net cash provided by operating activities was $162 million for 2013.

Adjusted EBITDA is defined as earnings before interest expense (excluding consumer financing interest expense), income taxes, depreciation and amortization, as adjusted for organizational and separation related costs in connection with the company's spin-off from Marriott International, Inc. (the "Spin-off") and other activity. Non-GAAP financial measures, such as Adjusted EBITDA, adjusted net income, adjusted development margin, and adjusted free cash flow are reconciled in the Press Release Schedules that follow. Adjustments are shown and described in further detail on schedules A-1 through A-20.

2014 Outlook highlights: 

  • Adjusted EBITDA of $185 million to $200 million.
  • Company contract sales growth (excluding residential) of 5 percent to 8 percent.
  • Adjusted company development margin of 20.0 percent to 21.0 percent.
  • Adjusted North America development margin of 22.0 percent to 23.0 percent.
  • Adjusted free cash flow of $135 million to $160 million.

Schedules A-1 through A-20 reconcile the non-GAAP financial measures set forth above to the following full year 2014 expected results: reported net income of $84 million to $93 million; reported company development margin of 19.4 percent to 20.4 percent; reported North America development margin of 22.0 to 23.0 percent; and net cash provided by operating activities of $160 million to $180 million.

"We closed the year on a positive note with strong fourth quarter performance. VPG in our key North America segment was up 6.8 percent in the quarter compared to 2012, driven by continued improvement in closing efficiency," said Stephen P. Weisz, president and chief executive officer. "Consistent results throughout the year contributed to another year of solid performance in 2013. For the full year, we drove 27 percent growth in adjusted EBITDA, and company adjusted development margin improved 370 basis points to 19.8 percent."

Weisz concluded, "We expect another year of top-line and bottom-line growth in 2014 as we continue to focus on improving development margins, while seeking out exciting new locations for our Marriott Vacation Club Destinations program that will provide new sales distribution."

Fourth Quarter 2013 Results
Due to the company's reporting calendar, fourth quarter 2013 financial results included the impact of an additional week compared to the fourth quarter of 2012. Fourth quarter 2013 adjusted net income totaled $12 million, a $6 million decrease from $18 million of adjusted net income in the fourth quarter of 2012. Fourth quarter 2013 adjusted net income reflects a $10 million increase in pre-tax income that resulted from the exclusion of $5 million of organizational and separation related costs, $5 million for litigation settlement charges in the company's Europe segment, and a $1 million charge in connection with the company's interest in an equity method investment in a joint venture project in its North America segment, partially offset by the exclusion of $1 million of pre-tax income related to the impact of extended rescission periods in the company's Europe segment. Fourth quarter 2012 adjusted net income reflects a $44 million increase in pre-tax income that resulted from the exclusion of $39 million of litigation settlement charges in the company's former Luxury segment, $7 million of organizational and separation related costs, and $6 million related primarily to the closing of off-site sales locations in its Asia Pacific segment and severance in its Europe segment, partially offset by an $8 million gain from the sale of a golf course and spa. In addition, adjusted development margin for both periods is adjusted, as appropriate, for the impact of revenue reportability.

Total company contract sales were $213 million, an $18 million increase from the fourth quarter of 2012, driven by $22 million of higher contract sales in the company's North America segment, including approximately $9 million of contract sales from the additional week in the quarter. For the fourth quarter of 2013, total revenues from the sale of vacation ownership products were $200 million, a decrease of $2 million from the prior year period. 

Adjusted development margin was $45 million, a $13 million increase from the fourth quarter of 2012. Adjusted development margin percentage increased 5 percentage points to 22.9 percent in the fourth quarter of 2013. Reported development margin was $47 million, a $7 million increase from the fourth quarter of 2012. Reported development margin percentage increased 3.5 percentage points to 23.3 percent in the fourth quarter of 2013. 

Resort management and other services revenues totaled $81 million, a $4 million increase from the fourth quarter of 2012. Resort management and other services revenues, net of expenses, were $23 million, a $5 million increase over the fourth quarter of 2012. Results reflected improvements in ancillary operations and higher management fees.

Rental revenues totaled $69 million, an $11 million, or 17.2 percent, increase from the fourth quarter of 2012. These results reflect a 15 percent increase in transient keys rented as well as a 10 percent increase in average transient rate driven by stronger consumer demand and a favorable mix of available rental inventory. Rental revenues, net of expenses, were a loss of $13 million in the quarter compared to a loss of $9 million in the fourth quarter of 2012, reflecting higher costs associated with the company's exchange offerings within its MVCD program and $1 million of higher redemption costs associated with Marriott Rewards points issued prior to the Spin-off.

General and administrative expenses were $33 million in the fourth quarter of 2013, a $6 million increase from the fourth quarter of 2012, reflecting $3 million of higher personnel related costs, $3 million of higher legal related expenses, and $1 million related to the 53rd week in the 2013 fiscal reporting calendar, partially offset by $1 million of savings related to organizational and separation related efforts in the human resources, information technology and finance and accounting areas.

Adjusted EBITDA was $38 million in the fourth quarter of 2013, a $10 million decrease from the fourth quarter of 2012.

Segment Results
Effective December 29, 2012, the company combined the reporting of the financial results of its former Luxury segment with its North America segment based upon its decision to scale back separate development activity for the luxury market and to aggregate future marketing and sales efforts for upscale and luxury inventory. Existing service standards and on-site management remain unaffected by these reporting changes. Prior year amounts have been recast for consistency with current year's presentation.

North America
VPG increased 6.8 percent to $3,103 in the fourth quarter of 2013 from $2,904 in the fourth quarter of 2012, driven by higher pricing and improved closing efficiency. Total North America contract sales were $186 million in the fourth quarter of 2013, an increase of $22 million over the prior year period, including approximately $9 million related to the additional week in the quarter. Contract sales in the quarter included $7 million related to the disposition of residential inventory primarily at the company's Ritz-Carlton Club and Residences, San Francisco project as compared to $1 million of residential sales in the fourth quarter of 2012.

Fourth quarter 2013 North America segment financial results were $93 million, a $30 million increase over the fourth quarter of 2012. The increase was driven by a $39 million litigation settlement in the fourth quarter of 2012 at the company's Ritz-Carlton Club and Residences, San Francisco project, $5 million of higher sales of vacation ownership products net of expenses and $5 million of higher resort management and other services net of expenses. These increases were partially offset by a $9 million gain mainly from the sale of a golf course and spa in the fourth quarter of 2012, a $6 million decrease in rental revenues net of expenses, $2 million of lower financing revenues, and $2 million of higher royalty fee and other charges.

Revenues from the sale of vacation ownership products increased $3 million to $176 million in the fourth quarter, resulting primarily from $22 million of higher contract sales and $4 million of lower sales reserve activity, partially offset by $22 million of lower year-over-year revenue reportability. Development margin was $46 million, a $5 million increase from the fourth quarter of 2012. Adjusted development margin was $44 million, a $16 million increase from the prior year quarter. Adjusted development margin percentage increased 6.1 percentage points to 25.4 percent in the fourth quarter of 2013. Reported development margin percentage increased 1.8 percentage points to 26.0 percent in the fourth quarter of 2013. The impact of revenue reportability is illustrated on schedule A-12.

Asia Pacific
Asia Pacific contract sales declined $1 million to $13 million in the fourth quarter of 2013 and total revenues declined $4 million to $20 million, reflecting the impact of the closure of two under-performing off-site sales centers in the fourth quarter of 2012. Segment financial results were $3 million, $3 million higher than the fourth quarter of 2012.

Europe
Fourth quarter 2013 contract sales declined $3 million to $14 million as the Europe segment continued to sell through its remaining developer inventory. Europe adjusted segment financial results were $3 million, flat to the fourth quarter of 2012. Reported segment financial results were down $3 million from the fourth quarter of 2012 to a loss of $1 million, due primarily to a $5 million litigation settlement charge in the fourth quarter of 2013.

Full Year 2013 Results
Full year 2013 adjusted net income totaled $85 million, a $38 million increase from $47 million of adjusted net income for the full year 2012. Full year 2013 adjusted net income reflects an $8 million increase in pre-tax income that resulted from the exclusion of $12 million of organizational and separation related costs, $4 million for litigation settlement charges mainly in the company's Europe segment, $3 million for severance and an impairment charge in the company's Europe segment, and $1 million charge in connection with the company's interest in an equity method investment in a joint venture project in its North America segment, partially offset by the exclusion of $12 million of pre-tax income related to the impact of extended rescission periods in the company's Europe segment. Full year 2012 adjusted net income reflects a $60 million increase in pre-tax income that resulted from the exclusion of $41 million of litigation settlement charges in the company's former Luxury segment, $16 million of organizational and separation related costs, $6 million related primarily to the closing of off-site sales locations in its Asia Pacific segment and severance in its Europe segment, and $1 million related to costs associated with removing the Ritz-Carlton brand from one of the company's properties, an $8 million gain from the sale of a golf course and spa, $2 million of non-cash impairment reversals, and the inclusion of $6 million of pre-tax income related to the impact of extended rescission periods in the company's Europe segment. In addition, adjusted development margin for both periods is adjusted, as appropriate, for the impact of revenue reportability.

For the full year, total company contract sales were $694 million, up $6 million from $688 million in 2012, including approximately $9 million of contract sales from the additional week in 2013. North America contract sales were $623 million, up $40 million from 2012, driven by an 8 percent increase in VPG to $3,200, and $9 million of contract sales from the additional week in 2013. Full year 2013 adjusted development margin increased to 19.8 percent in 2013 from 16.1 percent in 2012. Adjusted EBITDA in 2013 totaled $175 million, at the high end of the company's guidance range of $165 million to $175 million, and $37 million higher than 2012.

Organizational and Separation Plan
During the fourth quarter of 2013, the company incurred $8 million of costs in connection with its continued organizational and separation related efforts, of which approximately $3 million was capitalized during the quarter. Remaining spending for these efforts of approximately $5 million to $8 million is expected to be incurred by the end of 2014.

These costs primarily relate to establishing the company's own information technology systems and services, independent accounts payable functions and reorganization of existing human resources and information technology organizations to support the company's stand-alone public company needs. Once completed, these efforts are expected to generate approximately $15 million to $20 million of annualized savings, of which approximately $10 million has been realized cumulatively to date, including $5 million reflected in the company's full-year 2013 financial results.

Share Repurchase Activity
During the fourth quarter of 2013, the company repurchased 505,023 shares of its common stock at an average price of $50.75 per share for a total repurchase amount of $25.6 million. The company has repurchased an additional 530,189 shares subsequent to the end of the fourth quarter of 2013 through February 26, 2014 at an average price of $49.65 per share.

Subsequent Event
As part of its strategy to dispose of excess land and inventory, the company completed the sale of a golf course and adjacent undeveloped land in Orlando, Florida in February, resulting in $22 million of net cash proceeds for an estimated gain of approximately $2 million

Balance Sheet and Liquidity
On January 3, 2014, cash and cash equivalents totaled $200 million. Since the end of 2012, real estate inventory balances declined $17 million to $864 million, including $369 million of finished goods, $151 million of work-in-process and $344 million of land and infrastructure. The company had $718 million in debt outstanding at the end of the fourth quarter of 2013, flat compared to year-end 2012, including $674 million in non-recourse securitized notes and $40 million of mandatorily redeemable preferred stock of a subsidiary of the company. As of January 3, 2014, the company had $199 million in available capacity under its revolving credit facility after taking into account outstanding letters of credit and had $78 million of vacation ownership notes receivable eligible for securitization.

Outlook

For the full year 2014, the company is providing the following guidance:



Adjusted EBITDA

$185 million to $200 million

Adjusted company development margin

20.0 percent to 21.0 percent

Adjusted North America development margin

22.0 percent to 23.0 percent

Adjusted free cash flow

$135 million to $160 million

Company contract sales growth (excluding residential)

5 percent to 8 percent

Adjusted net income

$87 million to $96 million

Adjusted fully diluted earnings per share

$2.41 to $2.67

North America contract sales growth (excluding residential)

4 percent to 7 percent

Schedules A-1 through A-20 reconcile the non-GAAP financial measures set forth above to the following full year 2014 expected results: reported net income of $84 million to $93 million; reported company development margin of 19.4 percent to 20.4 percent; reported North America development margin of 22.0 to 23.0 percent; and net cash provided by operating activities of $160 million to $180 million.

Fourth Quarter and Full Year 2013 Earnings Conference Call
The company will hold a conference call at 10:00 a.m. EST today to discuss fourth quarter and full year 2013 results as well its outlook for 2014. Participants may access the call by dialing (866) 225-8754 or (480) 629-9835 for international callers. A live webcast of the call will also be available in the Investor Relations section of the company's website at www.marriottvacationsworldwide.com.

An audio replay of the conference call will be available for seven days and can be accessed at (800) 406-7325 or (303) 590-3030 for international callers. The replay passcode is 4666198. The webcast will also be available on the company's website.

About Marriott Vacations Worldwide Corporation
Marriott Vacations Worldwide Corporation is a leading global pure-play vacation ownership company. In late 2011, Marriott Vacations Worldwide was established as an independent, public company focusing primarily on vacation ownership experiences. Since entering the industry in 1984 as part of Marriott International, Inc., the company earned its position as a leader and innovator in vacation ownership products. The company preserves high standards of excellence in serving its customers, investors and associates while maintaining a long-term relationship with Marriott International. Marriott Vacations Worldwide offers a diverse portfolio of quality products, programs and management expertise with more than 60 resorts and approximately 420,000 Owners and Members. Its brands include: Marriott Vacation Club, The Ritz-Carlton Destination Club and Grand Residences by Marriott. For more information, please visit www.marriottvacationsworldwide.com.