MARRIOTT VACATIONS WORLDWIDE CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Forward-Looking Statements

We make forward-looking statements in this Management’s Discussion and Analysis
of Financial Condition and Results of Operations, and elsewhere in this
Quarterly Report on Form 10-Q, 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; dividend payments; business strategies,
such as our plans to continue to increase our focus on sales of vacation
ownership products to first-time buyers and our expectations regarding resulting
increases in financing propensity; financing plans; competitive position;
potential growth opportunities; potential operating performance improvements,
including the expectations that contract sales, resort management, and resort
occupancies will continue to remain strong for the remainder of 2022 and that
interest income will increase in 2022; our expectations regarding availability
of inventory for Getaways and exchange transactions; inventory spending; the
effects of competition; and the ongoing effect of the COVID-19 pandemic and
actions we or others may take in response to the COVID-19 pandemic.
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: the continuing effects of
the COVID-19 pandemic or future health crises, including quarantines or other
government-imposed travel or health-related restrictions; the length and
severity of the COVID-19 pandemic or future health crises, including short and
longer-term impact on consumer confidence and demand for travel, and the pace of
recovery following the COVID-19 pandemic or future health crises, or as
effective treatments or vaccines against variants of the COVID-19 pandemic or
future health crises become widely available; variations in demand for vacation
ownership and exchange products and services; worker absenteeism; price
inflation; global supply chain disruptions; volatility in the international and
national economy and credit markets, including as a result of the COVID-19
pandemic or future health crises, and the ongoing conflict between Russia and
Ukraine 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 rising interest rates; the effects of steps we
have taken and may continue to take to reduce operating costs and/or enhance
health and cleanliness protocols at our resorts due to the COVID-19 pandemic or
future health crises; political or social strife, and other matters referred to
under the heading “Risk Factors” contained herein and also in our most recent
Annual Report on Form 10-K, and as 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 on Form 10-Q apply only
as of the date of this Quarterly Report on Form 10-Q 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, except as required by law. 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

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
on Form 10-Q 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 to our Financial Statements that we include in the
Financial Statements of this Quarterly Report on Form 10-Q.



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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 Residence Club brands, as well as under Marriott
Vacation Club Pulse
, an extension to the Marriott Vacation Club brand. We are
also the exclusive worldwide developer, marketer and seller of vacation
ownership and related products under The Ritz-Carlton Destination Club brand, we
have the non-exclusive right to develop, market and sell whole ownership
residential products under The Ritz-Carlton Residences brand and we have a
license to use the St. Regis brand for specified fractional ownership resorts.

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 exchange networks and
membership programs, as well as provision of management services to other
resorts and lodging properties. As of May 2022, we provided these services
through Interval International and Aqua-Aston. Exchange & Third-Party Management
revenue generally is fee-based and derived from membership, exchange and rental
transactions, property and association management, and other related products
and services. In April 2022, we disposed of VRI Americas after determining that
the business was not a core component of our future growth strategy and
operating model. This business was a component of our Exchange and Third-Party
Management segment through the date of the sale. See Footnote 3 “Acquisitions
and Dispositions” to our Financial Statements for further information regarding
this disposition.

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”).

Integration of Marriott-, Sheraton- and Westin- Branded Vacation Ownership

Part of the rationale for our acquisition of ILG in 2018 was to achieve
operating efficiencies and business growth by leveraging the brands licensed by
Marriott International and its subsidiaries to us and to ILG. In 2016, Marriott
International purchased Starwood Hotels and Resorts Worldwide, Inc., which at
the time exclusively licensed the Sheraton and Westin vacation ownership brands
to Legacy-ILG. In August 2022, we launched Abound by Marriott Vacations, a new
owner benefit and exchange program which affiliates the Marriott, Sheraton and
Westin vacation ownership brands to offer similar benefits to owners of our
products under these brands. Under this program, owners of Marriott-, Sheraton-
and Westin-branded vacation ownership interests can access over 90 Marriott
Vacation Club
, Sheraton Vacation Club and Westin Vacation Club resorts using a
common currency. The program also harmonizes fee structures and owner benefit
levels and allows us to transition most of our Legacy-ILG sales galleries to
sell our Marriott Vacation Club Destinations product. Later in 2022, we plan to
add certain Sheraton- and Westin- branded vacation ownership interests to the
Marriott Vacation Club Destinations product.

Acquisition of Welk

On April 1, 2023, we completed the Welk Acquisition, after which Welk became our
indirect wholly-owned subsidiary. We refer to the Welk business that we acquired
as “Legacy-Welk.” In April 2022, we introduced the Hyatt Vacation Club and
rebranded Welk’s vacation ownership program as the Hyatt Vacation Club Platinum
Program, enabling Legacy-Welk sales centers to sell a Hyatt-branded vacation
ownership product. Most Legacy-Welk resorts are now available for rental stays

COVID-19 Pandemic

The COVID-19 pandemic has caused significant disruptions in international and
U.S. economies and markets, and has had an unprecedented impact on the travel
and hospitality industries, as well as our Company. We discuss the impacts of
the COVID-19 pandemic and its potential future implications throughout this
report; however, the COVID-19 pandemic, and any recovery therefrom, continues to
evolve and further potential impacts on our business in the future remain



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Significant Accounting Policies Used in Describing Results of Operations

Sale of Vacation Ownership Products

We recognize revenues from the sale of vacation ownership products (also
referred to as vacation ownership interests or “VOIs”) when control of the
vacation ownership product is transferred to the customer and the transaction
price is deemed collectible. Based upon the different terms of the contracts
with the customer and business practices, control of the vacation ownership
product has historically transferred to the customer at different points in time
for each brand of VOIs. In the third quarter of 2022, we aligned our business
practices and contract terms, resulting in the prospective change in the timing
of the transfer of control to the customer for Marriott-branded vacation
ownership interests. Prior to these changes, control transfer occurred at
closing for Marriott-branded and Legacy-Welk vacation ownership products.
Subsequent to this alignment, transfer of control of Marriott-branded vacation
ownership products occurs at expiration of the statutory rescission period,
consistent with the historical timing of Sheraton-, Westin- and Hyatt- branded
transactions. Marriott-branded VOI sales contracts executed prior to these
modifications will continue to be accounted for with transfer of control of the
VOI occurring at closing. Control transfer for Legacy-Welk VOIs remains at

Sales of vacation ownership products may be made for cash or we may provide
financing. In addition, we recognize settlement fees associated with the
transfer of vacation ownership products and commission revenues from sales of
vacation ownership products on behalf of third parties, which we refer to as
“resales revenue.”

We also provide sales incentives to certain purchasers. These sales incentives
typically include Marriott Bonvoy points, World of Hyatt points or an
alternative sales incentive that we refer to as “plus points.” Plus points are
redeemable for stays at our resorts or for use in other third-party offerings,
generally up to two years from the date of issuance. Typically, sales incentives
are only awarded if the sale is closed.

Finally, as more fully described in “Financing” below, we record the difference
between the vacation ownership note receivable and the consideration to which we
expect to be entitled (also known as a vacation ownership notes receivable
reserve or a sales reserve) as a reduction of revenues from the sale of vacation
ownership products at the time we recognize revenues from a sale.

We report, on a supplemental basis, contract sales for our Vacation Ownership
segment. Contract sales consist of the total amount of vacation ownership
product sales under contract signed during the period where we have generally
received a down payment of at least 10% 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 a customer applies 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 described above. We consider contract sales
to be an important operating measure because it reflects the pace of sales in
our business.

Cost of vacation ownership products includes costs to develop and construct our
projects (also known as real estate inventory costs), other non-capitalizable
costs associated with the overall project development process and settlement
expenses associated with the closing process. For each project, we expense real
estate inventory costs in the same proportion as the revenue recognized.
Consistent with the applicable accounting guidance, to the extent there is a
change in the estimated sales revenues or inventory costs for the project in a
period, a non-cash adjustment is recorded on our income statements to true-up
costs in that period to those that would have been recorded historically if the
revised estimates had been used. These true-ups, which we refer to as product
cost true-up activity, can have a positive or negative impact on our income

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. Development profit margin is calculated by dividing Development profit
by revenues from the Sale of vacation ownership products.

Management and Exchange

Our management and exchange revenues include revenues generated from fees we
earn for managing each of our vacation ownership resorts, providing property
management, owners’ association management and related services and fees we earn
for providing rental services and related hotel, condominium resort, and owners’
association management services to vacation property owners.

In addition, we earn revenue from ancillary offerings, including food and
beverage outlets, golf courses and other retail and service outlets located at
our Vacation Ownership resorts. We also receive annual membership fees, club
dues and certain transaction-based fees from members, owners and other third



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Management and exchange expenses include costs to operate the food and beverage
outlets and other ancillary operations and to provide overall customer support
services, including reservations, and certain transaction-based expenses
relating to external exchange service providers.

In our Vacation Ownership segment and Consolidated Property Owners’
Associations, we refer to these activities as “Resort Management and Other


We offer financing to qualified customers for the purchase of most types of our
vacation ownership products. The average FICO score of customers who were U.S.
citizens or residents who financed a vacation ownership purchase was as follows:

                                     Nine Months Ended
                      September 30, 2023            September 30, 2023
Average FICO score           733                           731

The typical financing agreement provides for monthly payments of principal and
interest with the principal balance of the loan fully amortizing over the term
of the related vacation ownership note receivable, which is generally ten to
fifteen years. While we adjust interest rates from time to time, such changes
are typically not made in step with the timing and magnitude of changes in
broader market rates. We may use incentives to encourage our customers to choose
our financing. Included within our vacation ownership notes receivable are
originated vacation ownership notes receivable and vacation ownership notes
receivable acquired in connection with the ILG Acquisition and the Welk

The interest income earned from our vacation ownership financing arrangements is
earned on an accrual basis on the principal balance outstanding over the
contractual life of the arrangement and is recorded as Financing revenues on our
Income Statements. Financing revenues also include fees earned from servicing
the existing vacation ownership notes receivable portfolio. The amount of
interest income earned in a period depends on the amount of outstanding vacation
ownership notes receivable, which is impacted positively by the origination of
new vacation ownership notes receivable and negatively by principal collections.
We calculate financing propensity as contract sales volume of financed contracts
originated in the period divided by contract sales volume of all contracts
originated in the period. We do not include resales contract sales in the
financing propensity calculation. Financing propensity was 59% in the third
quarter of 2022 and 60% in the third quarter of 2021. We expect to continue
offering financing incentive programs throughout the fourth quarter of 2022 and
into 2023. Growing sales to first-time buyers, who are more likely to finance
their purchases, remains an integral part of our overall marketing and sales

Acquired vacation ownership notes receivable are accounted for using the
purchased credit deteriorated assets provision of the current expected credit
loss model. The estimates of the reserve for credit losses on the acquired
vacation ownership notes receivable are based on default rates that are an
output of our static pool analyses and estimated value of collateral securing
the acquired vacation ownership notes receivable.

In the event of a default, we generally have the right to foreclose on or revoke
the underlying VOI. We return VOIs that we reacquire through foreclosure or
revocation back to inventory. As discussed above, for originated vacation
ownership notes receivable, we record a reserve at the time of sale and classify
the reserve as a reduction to revenues from the sale of vacation ownership
products on our Income Statements. Revisions to estimates of variable
consideration from the sale of vacation ownership products impact the reserve on
originated vacation ownership notes receivable and can increase or decrease
revenues. In contrast, for acquired vacation ownership notes receivable, we
record changes to the reserves, net of collateral value, as adjustments to
Financing expenses on our Income Statements.

Historical default rates, which represent defaults as a percentage of each
year's beginning gross vacation ownership notes receivable balance, were as
                                           Nine Months Ended
                            September 30, 2023            September 30, 2023
Historical default rates           3.3%                          3.3%

Historical default rates reflect the stabilization in the performance of our
vacation ownership notes receivable portfolio subsequent to the increased
default rates experienced in 2020 as a result of the COVID-19 pandemic. As a
result of the unification of the Company’s Marriott-, Sheraton- and Westin-
branded vacation ownership products under the Abound by Marriott Vacations
program and stabilization of defaults, in the third quarter of 2022, we combined
and aligned our reserve methodology on vacation ownership notes receivable for
our Marriott-, Sheraton- and Westin- brands. See Footnote 6 “Vacation Ownership
Notes Receivable” to our Financial Statements for further information.



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Financing expenses include consumer financing interest expense, which represents
interest expense associated with the securitization of our vacation ownership
notes receivable, costs to support the financing, servicing and securitization
processes and changes in expected credit losses related to acquired vacation
ownership notes receivable. We distinguish consumer financing interest expense
from all other interest expense because the debt associated with the consumer
financing interest expense is secured by vacation ownership notes receivable
that have been sold to bankruptcy remote special purpose entities and is
generally non-recourse to us.


In our Vacation Ownership segment, we operate a rental business to provide owner
flexibility and to help mitigate carrying costs associated with our inventory.
We generate revenue from rentals of inventory that we hold for sale as interests
in our vacation ownership programs, inventory that we control because our owners
have elected alternative usage options permitted under our vacation ownership
programs and rentals of unregistered inventory and owned-hotel properties. We
also recognize rental revenue from the utilization of plus points under our
points-based products when the points are redeemed for rental stays at one of
our resorts or in other third-party offerings, or upon expiration of the points.
We obtain rental inventory from unsold inventory and inventory we control
because owners have elected alternative usage options offered through our
vacation ownership programs. For rental revenues associated with vacation
ownership products which we own and which are registered and held for sale, to
the extent that the revenues from rental are less than costs, revenues are
reported net in accordance with ASC Topic 978, “Real Estate - Time-Sharing
Activities” (“ASC 978”). The rental activity associated with discounted vacation
packages requiring a tour (“preview stays”) is not included in transient rental
metrics, and because the majority of these preview stays are sourced directly or
indirectly from unsold inventory, the associated revenues and expenses are
reported net in Marketing and sales expense.

In our Exchange & Third-Party Management segment, we offer vacation rental
opportunities at managed properties. We also offer vacation rental opportunities
known as Getaways to members of the Interval International network and certain
other membership programs. Getaways allow us to monetize excess availability of
resort accommodations within the applicable exchange network, as well as provide
additional vacation opportunities to members. Resort accommodations typically
become available as Getaways as a result of seasonal oversupply or underutilized
space in the applicable exchange program. We also source resort accommodations
specifically for the Getaways program. Rental revenues associated with Getaways
are reported net of related expenses.

Rental expenses include:

•Maintenance and other fees on unsold inventory;

•Costs to provide alternative usage options, including Marriott Bonvoy points,
World of Hyatt points and offerings available as part of third-party offerings,
for owners who elect to exchange their inventory;

•Marketing costs and direct operating and related expenses in connection with
the rental business (such as housekeeping, labor costs, credit card expenses and
reservation services); and

•Costs to secure resort accommodations for use in Getaways.

Rental metrics, including the average daily transient rate or the number of
transient keys rented, may not be comparable between periods given fluctuation
in available occupancy by location, unit size (such as two bedroom, one bedroom
or studio unit), owner use and exchange behavior. In addition, rental metrics
may not correlate with rental revenues due to the requirement to report certain
rental revenues net of rental expenses in accordance with ASC 978 (as discussed
above). Further, as our ability to rent certain luxury and other inventory is
often limited on a site-by-site basis, rental operations may not generate
adequate rental revenues to cover associated costs. Our Vacation Ownership
segment units are either “full villas” or “lock-off” villas. Lock-off villas are
units that can be separated into a primary unit and a guest room. Full villas
are “non-lock-off” villas because they cannot be separated. A “key” is the
lowest increment for reporting occupancy statistics based upon the mix of
non-lock-off and lock-off villas. Lock-off villas represent two keys and
non-lock-off villas represent one key. The “transient keys” metric represents
the blended mix of inventory available for rent and includes all of the combined
inventory configurations available in our resort system.

Cost Reimbursements

Cost reimbursements include direct and indirect costs that are reimbursed to us
by customers under management contracts. All costs reimbursed to us by
customers, with the exception of taxes assessed by a governmental authority, are
reported on a gross basis. We recognize cost reimbursements when we incur the
related reimbursable costs. Cost reimbursements consist of actual expenses with
no added margin.



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Interest Expense

Interest expense consists of all interest expense other than consumer financing
interest expense, which is included within Financing expense.

Transaction and Integration Costs

Transaction and integration costs include fees paid to change-management
consultants and technology-related costs associated with the integration of ILG
and Welk and charges for employee retention, severance and other termination
related benefits. Transaction and integration costs also include costs related
to the ILG and Welk Acquisitions, primarily for financial advisory, legal, and
other professional service fees, as well as certain tax related accruals.

Other Items

We measure operating performance using the key metrics described below.

•Contract sales from the sale of vacation ownership products:

•Total contract sales include contract sales from the sale of vacation ownership
products including joint ventures. and

•Consolidated contract sales exclude contract sales from the sale of vacation
ownership products for non-consolidated joint ventures.

We consider contract sales to be an important operating measure because it
reflects the pace of sales in our business.

•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 at a sales location, by the number
of tours at sales locations 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.

•Total active members is the number of Interval International network active
members at the end of the applicable period. We consider active members to be an
important metric as it provides the population of owners eligible to book
transactions using the Interval International 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 members.

•Segment financial results attributable to common shareholders 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 17 “Business Segments” to our
Financial Statements for further information on our reportable business

NM = Not meaningful.


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