Marriott Vacations Worldwide Corporation Aktie

I believe it is the first time that we've had both, Matt and Mike, so welcome, first off.

Thank you.

Both of you have actually had a strong track record in the industry. As you started at the organization, and I realize that some of you had experience in the Board, what's maybe surprised you relative to what your perception was from both the outside and maybe from a Board standpoint, as we think about how you're thinking about effectuating change.

Sure. A couple of things. As you pointed out, it's 6 months for me, having stepped in, in November and in a more permanent way in February when we announced Mike joining us and me taking on that role. I would say 2 things. The surprise, but also sort of what the opportunity was. And we had some basic cultural things that we felt like we could improve. We needed, and this is a consistent both phrase and focus that we've had from day 1, which was to really provide a clarity of purpose as to what we're doing, allocate our resources accordingly, both as it relates to talent and capital.

And then thirdly, create a culture of both speed and yes, no decision-making. Speed matters, providing clarity to the organization matters. Human beings are really wired for -- you tell me, yes, and we'll get on it. You tell me no, I'll focus on the next thing. You tell me maybe, and then we lose time. And so that was a cultural focus day 1.

I think the next sort of observation is one of those that you sort of know is there. But once you're truly in it, you get a greater appreciation. And that is really the strength of the affinity and loyalty to our brands. We have the Marriott Organization, overall, will be celebrating 100 years next year. That plays into -- and you'll hear Mike talk more about opportunities within the Bonvoy database that we have based on a very good relationship with Marriott International. And in fact, we were just up there visiting them recently. So that gives us a really unique starting point. And that loyalty extends in our workforce, and it extends very much to our owner base. And we see and hear that very directly in communications from that owner base. And it's one of the things we'll talk more about this morning is that then manifests itself.

If you look at the amount of time that people in our category, our demographic have available to them. We have more opportunity for certainly total addressable market, but we've also got significant opportunity with share of wallet with our existing customers. So those were, I think -- and I would say, lastly, the -- we weren't winning, and we weren't performing for a couple of years, and people recognize that. People inside knew that. And the momentum we've been able to establish really over these last 6 months and in particular, the last 3 months, everyone wants to be a part of that.

No one doesn't want to win. And so it's been really gratifying to see the effect of that. You know it's true. But once you get in there and you really see it starting to take place. I think that's been particularly gratifying.

So the last piece I would tell you is we talked about this at our last call. We had some tough decisions to make, and those got made. And I'm a great believer in the benefits of continuity and longer-term culture, speaking shorthand. But I also believe the best organizations have a blend of that plus new ideas, new energy, new enthusiasm, different experiences, and we're really beginning to see that one plus one can equal 3.

I turn it over to Mike now. How about you? Anything that from, you're outside in and now that you've been at the organization, anything surprised you or inform you as you're thinking about the initiatives that you want to put in place?

Yes. I mean, I would say the greatest positive that I saw coming in from the outside was the richness of the Marriott Bonvoy database and the number of records that are in there, the number of records that are untouched and the amount of runway that we have before us, which is huge from a new member growth standpoint.

The other thing is the owner base, if you look at from a point standpoint, and you convert it to a week's equivalent. And then you look -- most of us know the average owner will buy 2.5 to 3x over the lifetime value. The delta between that is exceptionally large and much greater than I thought, which tells us that we have significant runway left in that owner base.

Is there any reason why your owner base would be either more attractive in terms of upgrades or less attractive in terms of upgrades relative to peers? Or what sets apart the Marriott owner base, we just heard from Travel + Leisure, obviously, they said there's a skew higher over time. What does yours look like?

Well, I think that the affinity, as Matt mentioned, to the Marriott family of brands is exceptional, and it's deep. And the aspiration -- what I've seen is the aspiration of our members and owners to really aspire to own more of our product has really got me excited. One of the things that we spoke about on our earnings call was that we rolled out our new owner benefit levels, which our loyalty tiers to use different nomenclature. And it's just been exceptional to see the owner's response to that.

We looked at the data, and we saw that 40% of our existing members' inventory resided in our top 2 tiers of our existing loyalty program. And so what that told us given the exceptionally long life of an owner's life cycle in the Marriott Vacations world, was that if we could go out and not only enhance the existing loyalty benefits or levels that existed, but add, and we did, we added a reserve level and a pinnacle level above what was there. We thought the data said that, that would be meaningful. And that's part of what drove the exceptional April that we talked.

Burying the lede a little bit, but yes, you referenced the 8% growth in April. We just heard from one of your peers that they think the strength has anything accelerated in 2Q. What have you seen in your business? Is that strength holding? And what are some of the drivers of that improvement?

Sure. We would tell you that we have been very pleased with May. And we feel that based on what we gave in the way of guidance, we're very comfortable with that. The trend has been very positive. I will tell you that in addition to the loyalty program that I spoke about, we also have what we call Tour Logistics, which is a very highly disciplined yield management platform that matches up the right salesperson with the right tour by using data to help make that decision.

And based on that, it has really been meaningful. The combination of that and the combination of our new loyalty program that we rolled out, we've seen over a $4,000 average transaction increase, which we've held close rate in the meantime. And so other than a little bit of variable cost associated with the incremental sales, that's highly accretive business that will flow through.

You kind of touched on a few of these just now with what sounds like the loyalty tiers as well as kind of yield management with the tours. What are some of the other major initiatives that you're working on, not only for this year, but as we look out over the next couple of years because sometimes there is a bit of a lead time of how you see the impact build?

No, it's a very fair question. We are going to June 8, next Monday, we -- and we've said this, we're going to launch what we call our premier vacations platform, and our premier vacations platform is a point-of-sale incentive that allows us to offer someone a new member or an existing owner that's purchasing an opportunity to get a premier vacation over and above what they're purchasing. But more than that, what it does is it keeps them in our ecosystem, and that incentive is intended to drive them back through the Marriott family of resorts. And based upon that, what we know from history is we know that this program will yield an extremely high tour rate when they come back, and it will be our top-performing VPG as far as all of the programs that we have.

I'd add one quick comment to that, Steve. If you look at what we're generating and talking about right now and talked about in May, is the lift in VPG. And Mike referenced the ability to raise average transaction price, while at the same time holding close. That's the most powerful math in this industry. That's what generates flow-through that can create improving margin over time. So you really can't understate that. But to do at the same time, what we're describing, everybody has some version of a first day benefit.

What we've done now is emphasize what will be a return emphasis to our properties. And that then begins to build that pipeline more so even next year. So there's enhanced value at the time of today's sale which can help with VPG. But there's also then the second wave pipeline that starts showing up in '27, '28. So we get asked that question about how you take these positive trends we're seeing, and then you're able to sustain that going forward.

Will that benefit certain locations more than others or first?

Right. When we designed this program, the engineering is designed to drive these premier vacation packages back to our highest VPG conversion locations. So our product development team works very hard on creating the best experience they can at the locations where we know that we have the highest conversion.

Highest conversion, not just price.

Strongest talent.

Okay. And is there any -- there was a lot of back and forth with sales folks? Are you at the right place in terms of having the team in place? Or is that always evolving now?

No, look, I will tell you that staffing in this industry is absolutely the key. It begins and ends with staffing because you can't properly performance manage, you can't properly segment, you can't properly run our tour logistics unless you're properly staffed. And so that is an opportunity for us. And more you asked about kind of long range, we're launching our event platform, Inner Circle on June 22. We've got Country Music Superstar, Lee Brice, that's going to kick off in Orlando.

We're going to do probably 40 to 50 of these events between now and the end of the year to get our Marriott team accustomed with how to produce these type of events. And this is all intended to drive incremental tour flow, because what we know, at Marriott, what I identified as a real opportunity is we are not at the level of our public company peer group when it comes to owner arrival to tour percentage. And so we've got a lot of low-hanging fruit, and that is really a key opportunity for us.

And by creating these events, we know that even when you're at run rate where you should be and where our other peers are at, you'll get an incremental 1,000 basis points or 10 percentage point increase if you have these events for folks that just wouldn't take a traditional tour, but they'll go see Lee Brice, bring their family to the show, and then they'll show up the next day at the sales gallery with an open mind.

Sounds like great Investor Day opportunities. I'm just going to throw a shameless plug in there.

We might have done that before.

It could be an owner opportunity. New owner opportunity, too. I guess one follow-up, maybe on that a little bit is do you find that those will also be a tool for them new owners as well as existing owners over time? And as part of that, how has the owner base -- we asked this to Travel + Leisure as well. How has the owner base evolved? And how do you see it evolving from here?

Yes. Well, first off, let me answer the first part of it. We have a laser focus on our first-time buyer. We like the mix that we're running at right now, which is in the 70-30 range, right, 70% existing, 30% first-time buyers. We have the ability to turn that dial whenever we want to ratchet that up, given the richness of the Marriott Bonvoy and the World of Hyatt database -- databases, I should say.

We're being very strategic and being very thoughtful about how we're going about this transformation. And the answer to the question as it relates to the Inner Circle platform, augmenting the first-time buyer, the answer is absolutely yes. The program is created for our owners and the intent is to help us increase the lifetime value. And if we do our job and make the customer journey better, then hopefully, we'll get to participate in a little bit more wallet share over that customer journey. But while we're doing that, we will absolutely add first-time buyers to these events.

And let me make one quick comment on that. We've talked about the owner benefit levels and now our events platform and the various things we're doing, and they all do feed and support one another. These events, they're going to be a limited seating. So these are not mass marketed. If you're in Orlando, you can come do this, this becomes the by invitation.

My Investor Day, I think...

And where you start is with those highest tier owners. And so -- and consumers like to differentiate themselves, and we're giving them more opportunities to do that and more rewards for doing that.

Yes. So going back to something that you said earlier about the strength of the Bonvoy database. How has that database changed over time? And do you envision that being the primary source for new customers? Or are there new opportunities that you see out there as well for new tour flow?

It's a great question. And as I have said a couple of times, we have a ton of runway inside both the Marriott Bonvoy database and the World of Hyatt database. But in addition to that, one of the things that we have not done in this company that our competitive peer group does very well is what I call partnership marketing opportunities, right? I think Bass Pro Shop would be a great example of that, and there are many others. And so we are in the process of building a team that will go out and look for the next incremental partnership opportunity.

We think that in our family of brands across the country, frankly, across the world, there is opportunity to be inside hotels that today we don't have sales galleries in, to basically sell what we would call our preview package to get people to come to 1 of our 120 resorts around the globe to take a presentation. We don't really capitalize on that opportunity today. So from a tour flow generation standpoint, the world is our oyster.

One quick comment. We actually -- with not only some new folks on our team as is evidenced today, but also some of our existing executives in different roles. We had the opportunity to go spend a day with Marriott in particular, to explore some of the things that they're doing and the partnerships that they have. And it was really clear leaving that day that those opportunities are significant, and we can do much more together and mine some of those relationships.

When you think about going after those new partnerships. Does that require any incremental investment in inventory to match that customer base? Or do you have enough inventory where you're flushed with it and so you'll be able to continue to add the owner base.

Yes. We've got good inventory to support the growth of our business. As you look through it, we came out over the last couple of years as a result of some of our sales that we actually think we have too much inventory now, and we're working to get that down to a lower level here over the next couple of years. And so if you even look at our cash flow last year, we had negative outflow of cash related to our inventory spending. And this year, we expect that to flip more to be neutral. So we're working to get that inventory down, but we feel good about our inventory position and our ability to support the growth that Mike and Matt are talking about.

And there was a comment made this morning, and we've made similar comments. As a 40-year-old enterprise in the industry. We have that same natural churn opportunity. So you have inventory coming back through that channel, and then strategically adding new inventory as we go forward. And we've talked about that. It's got to meet 2 tests. It's not just doors in the system, but it creates distribution.

One of the projects that we've highlighted is Nashville coming online in -- towards the end of '27. And we think it's going to be a highly demanded location for our owners to use for all the entertainment and those -- but we think it's also going to be very powerful as a 12-month a year distribution environment. And so when we look at new sites, we're looking at those that can do that.

Is there -- I guess there's a balancing act because on the one hand, I'm sure that you have some owners who have been in the system for a very, very, very long time. And probably have inventory that you want to be able to recapture. On the other hand, I also would think that you'd want to increase engagement in some cases and reduce churn. So what's the feedback mechanism you have from owners as you've maybe gone on a -- you can imagine a little bit of a tour of trying to talk to owners, what are you hearing from them to understand their level of satisfaction?

A couple of things. One, we've both gotten out in the field a lot. I've probably been to 16. We were at 2 more this past week on the road. And also, we get feedback directly. And one of the things you learn very quickly is I think I was on the job in November about 4 days before it was pretty clear. People were figuring out our e-mail system. So the e-mails that would come directly to my office start up pretty quickly. We have 700,000 owners, and we're going to hear from them. But what you see in our guest satisfaction scores are extraordinary. They're terrific within the brand measurement that Marriott and Hyatt have overall and terrific on both a nominal basis and relative basis.

So we hear from them every day, every week with regards to satisfaction, and we know we're delivering a terrific vacation experience. And then the second element, which, again, now these things speed as we now add in these very unique experiential events that become our inner circle type events, you're adding to the proposition of that sense of satisfaction and loyalty. And we're very focused on the things that we can do to constantly improve that. But we have plenty of feedback mechanisms for them to tell us how they're doing and how they see our product in their ongoing vacation lives, whether it's next-gen within their family or they've reached a natural sort of end-of-use cycle, and we've got an answer for that as well with them in our various programs that allow them to ultimately move out of their ownership, if that's what's best for them.

You asked me early on one of the things that has been kind of a surprise or one of the unique things that I've picked up on. Frankly, it's the lifetime value of how long the owner stays in the Marriott system. I've been in this industry a long time, workplaces. It's twice as long here as anywhere else I've ever seen. And that's very, very impressive. And the level of engagement is extremely high.

Frankly, I think we may be the only company in the industry that offers a resale service to our existing members when they want to get out of it. And it's a pretty large piece of our business. And I feel really good about the lifetime value, about the engagement of the customer, about the foundation that this company has built around making sure that they take care of the owner and a really, really nice thing.

Is there almost like an upper bound in terms of how much you can sell to the existing base as we think about amount of inventory you have or occupancy that's by them?

Yes. I'll just say a couple of things real quickly, and I'll turn it back to Mike. We run 90% occupancy, fundamentally system-wide in our 35,000 doors. So we have a terrific base of customers, both from our owners using the product and evidencing their satisfaction by their use as well as from a marketing perspective, obviously, being able to reach out and invite and be able to talk to those owners while on-site in their vacation environment. So that's a huge element of a part of that question. I'll let Mike go ahead and add some other comments in that regard.

No, no. No, I think you summed it up beautifully.

Is there any way to split out what -- of that 90%, what's kind of rentals and packages that are being used to market versus what's kind of true owner occupancy?

Our owner occupancy runs 65% to 70%, which is pretty high for the industry. And then we make up the additional components through what you talked about with some of the marketing packages as well as the transient rentals. So that gets you up to the 90%.

And how have you used the marketing packages similar or different versus historical? And are you seeing any change in trends in terms of people looking out, we think about it as an indication of demand going forward?

It's interesting. First of all, I'll talk about the demand topic 2 ways. One is, if you were to just step back and say, what is the role of experiences generally and experiential travel and everybody in this room, and your extended families. If you had over the last 20-plus years, that macro trend, do I want stuff or do I want experiences?

And I would say the shift towards experiences has been sustained and dramatic. And you see it in a lot of the macro travel trends that you'll be talking about over these couple of days. So that's sort of number one.

The other part is, from a demand standpoint, this is a ultimately direct marketed and direct sold product. So we're not sort of reliant on or dependent on somebody saying, today is the day I'm going to walk in and do this. We schedule that forward-leading pipeline. We know who's going to be on our properties from a reservation standpoint, and we're going to introduce them to a well-trained, well-motivated sales executive. So there is -- yes, there's a broader macro background of demand that I absolutely think exists and is going to go forward even stronger. And then there's that secondary core expertise that we have, which is direct marketing and direct sales.

Which -- and I will double click on that, and I thought that Mike Brown did a really nice job speaking to that this morning. We get a lot of questions about the macro economy, and we get a lot of questions about consumer sentiment. And for all the reasons that Matt just articulated, people are still going to take a preview discounted vacation. An owner has already prepaid their maintenance fee. We have 90% occupancy on a year-round basis. And that is really what sets this industry apart from the general hospitality industry.

I won't go as far as saying it's recession proof, but it's very resilient. And you can look back at the major significant events, whether it's 9/11, the Great Recession on and on. And this business was the first to bounce back every time in the greater hospitality space.

Also a very variable cost structure.

One of the other topics that came out of the first quarter was just around the health of the receivables portfolio for the whole industry, really. Wondering if you could just share and maybe this is for Jason, what KPIs you're looking at to assess the health of the portfolio? Are there any kind of leading indicators that you think about when you're looking at both delinquencies and provisions?

Yes. I think it's -- the portfolio is number one, performing very well. 80% of our customers, just even tying it back to our prior conversation, 80% of our customers don't have a loan. So this is really to support sales. The owner base is very stable. Delinquencies continue to perform well within our expectations, especially in the more recent vintages as we talked about on our first quarter call, and so that those trends continue.

As you think about KPIs, it is about that customer satisfaction, getting people on vacation to use their ownership. And that's really the most important thing that we can do. Mike's talked about the Inner Circle events and some of those new programs. Those are going to enhance the owner experience, keep people in the product longer. And so it's really -- as you think about the overall loan portfolio, it's really about getting people on vacation, using what they bought, us delivering on that brand promise, which we do a great job of to really make sure that people are happy with their ownership.

Is there anything that you do or could do different in terms of how you leverage the financing part of the business to try to either drive sales in the near term or improve the experience from a tour conversion standpoint?

Yes. Our product has been relatively stable for -- we offer a 10- and 15-year financing to consumers to buy at the portfolio, at the sales center. And that product has been well performing. It's a fixed rate product, freely prepayable at any time. So you can sign up. It enables an easier transaction at the table versus coming up with, let's say, the cash, and then you can go home and prepay it, and we have high prepayment rates, call it, in the first 18 months as people get home and decide to repay it, pay cash. So that's really how the product is envisioned in terms of the financing component.

Great. And then turning to margins. How should investors think about the right level of kind of long-term development profit margins?

Yes. So I think as you think about development profit margins and going back to what Matt said earlier, as we continue to leverage VPG, we should see some flow-through on the margins because at VPG, you have minimal -- a lower percentage variable cost against that in the form of commissions and credit card fees and things like that. So you will get better flow-through as we grow VPG versus, let's say, on the tour side.

Longer term, we talked about product cost may be going up a little bit. So that will be a little bit of an offset. We expect the provision to remain constant with what we've talked about in the past. So the leveraging the VPG should drive development profit up a little bit here over the next couple of years.

And you talked about some difficult decisions that were made to reduce costs and some capacity. Are there additional savings to be thought about or that are already being evaluated?

I think the short answer is yes. I mean we should always be doing that, and we talked about that as a leadership team, which is how do we most efficiently deliver what we need to deliver, both for the benefit of our owners, whether it's their HOE costs or whether it is ultimately for the benefit of our shareholders, how well we run that business. So we are always going to be intensely focused on that part of the business. Sort of the and in that is we're also flipping the mindset and performance of the company to that of a growth company.

Companies are either increasing their vitality and sense of growth or they're not. And I would tell you, that was an inflection point over this last 6 months was shifting that mindset. So I'm sure we'll have areas where we will need to invest to support the growth. Technology is one of those areas that you sort of feel like you can never be far enough ahead, but you also have to balance that with good ROIs for the things you want to go do. And just like everybody else, we're taking a look at where can AI make a difference in our businesses. And it is both clearly in a lot of those areas of where you're generating, manipulating and evaluating information. And that's clearly an area of focus for us.

And that information, be it from a financial and monitoring the business, or helping and driving what we do from a sales and marketing perspective, from an execution. We are in the top of the first inning of that. We're not even close to what that could potentially become. So I wouldn't even hazard a guess as to what its ultimate impact will be for us.

Do you think that it's more likely to be revenue versus margins? Even too early for that?

I would say it's a little bit too early for that. I think the drivers for revenue, we are very confident in. And as Mike has said in a number of settings, we have things that we have collectively done before. And you're looking at 70 years of experience in the business, and so we're very confident in the revenue. Clearly, AI ought to be able to help us on both the quality of information we make available to our leaders to make decisions and the cost to produce it. And those are a couple of areas we'll definitely be focused on.

Great. Similar to one of your peers that we got all the way to the end here, and I haven't really talked about the exchange part of the business, which has been a tougher area for the entire industry. Curious what do you think about as being the biggest opportunities to stabilize or even return that segment to growth?

The timing of your question is prescient last week, I actually spent a day down in Miami, with our leadership team at II. And that's the exact conversation we had, which is, so to the degree that the sort of total yield from transactions, deposits and exchange. That's the traditional model. If there is a sort of sense of longer-term atrophy in that part of the business. By the way, the reason is because companies like ours have brought more of that in-house. So it's not like they get vaporized.

In our case, we brought a lot of that into the Marriott business model. But we have a significant owner base there. We had a customer base. We have 1.5 million customers and the challenge that we're putting on the table is how do we better monetize that beyond our traditional means. The business model itself leads to some inefficiencies and unused inventory. So that's a high priority focus. So I would tell you that the emphasis on how we generate more opportunity beyond the traditional lens that everybody has thought about for a very long time is where the focus is, and they're excited about it.

Are there synergies from that business still being connected to ownership segment? Or would you say that this could be at some point, something where you think about could we separate these 2 businesses?

I think the short answer is it's more the latter than the former. So it is a business that can stand on its own.

Maybe one last one on capital allocation. Just to put it all together, how do we think about the long-term kind of conversion to free cash flow and then how you allocate that free cash?

Yes. So starting with the cash flow conversion, our target over the long term is call it that 50% number. This year, we'll be just over that based on our guidance, and we expect that to continue as we go forward. But I think that's the right ZIP code. And then the question is how do you deploy that cash. Right now, we're at about 4.2x leverage, so a little bit higher than we'd like to be.

So combination of EBITDA growth and debt repayment will get us kind of closer down below that 4x, and then we can be more aggressive buying back our shares, absent other investment opportunities. The nice thing about this business is when we talk about free cash flow and conversion, it is really after supporting the growth of the business and the inventory spending and things like that. So this business is self-sustaining, and still drives a significant free cash flow conversion, which allows us to deploy it. We do pay a 3.5% dividend. We feel comfortable paying a good return for shareholders as well.

And I wouldn't understate the capital allocation is rooted in the cash production, both from a growing business as well as what the team does in the ABL markets. This is a paper glass that has had a very long history of performing, team that we have that execute those transactions. We got very effective pricing and execution in our most recent transactions. So we're very confident in the ability to generate the capital and then further allocate it between those choices you identified.

On the -- you referenced free cash flow being available for all these different areas. But there's also some assets that were being sold over there. Maybe just remind us of what some of those were? And are there other opportunities to sell assets to then maybe accelerate that debt pay down and pivot to buyback?

Yes. So we did sell one asset earlier in the year, the Westin Cancun Hotel. We have a number of other assets that have been listed over $100 million that we expect to sell this year as part of that. And in total, excluding the $50 million that we've already closed on, we think that number is in the $200 million to $250 million range over the next 2 years. So that will also help with our debt repayment or share buyback strategy as we move forward. So you're right, that was in addition to that free cash flow conversion that we talked about.

Great. Well, we are a little bit over with that. That's a good way to end it. So please join me in thanking the entire Marriott Vacations team.

Thank you.

Thank you.

Thank you.

Thank you.

Greetings, and welcome to the Marriott Vacations Worldwide First Quarter 2026 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Neal Goldner, Vice President, Investor Relations. Thank you. You may begin.

Thank you, and welcome to the Marriott Vacations Worldwide First Quarter Earnings Conference Call. I am joined today by Matt Avril, our Chief Executive Officer; Mike Flaskey, our President and Chief Operating Officer; and Jason Marino, our 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, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in 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-GAAP financial information. You can find a reconciliation of non-GAAP 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 Matt.

Thank you, Neal, and good morning, everyone, and thank you for joining us. Each quarter, I will address our prior commitments, progress made and what lies ahead. Let me start this morning from where we left off on our February earnings call.

During that call, we laid out a clear set of priorities and how we expected the year to unfold. Our focus was on improving profitability and cash flow, accelerating growth, taking actions to lower costs and monetizing non-core assets. We also stated that 2026 would be a first half, second half type year. Let me begin by updating you on where we stand against those commitments.

We talked about aligning our organizational structure and leadership team, reduce the scale of our Asia business, which we've done, benefiting our current year capital spend and future margins, take actions to lower costs, monetize non-core assets and most significantly, initiate our commitment to revenue growth and operational excellence.

In the last 2 months, we've made demonstrable progress. We've made significant changes across the executive team and in key leadership roles to better drive overall performance, grow revenues, EBITDA and cash flow. In particular, the process began with hiring Mike as President and Chief Operating Officer, and in turn, we've added experienced leaders across sales and marketing. We have also successfully added direct frontline talent in our sales galleries.

The leadership decisions taken were deliberate and a priority set when I stepped in early in the year, and they are already beginning to show results in the business. I undertook a full assessment of where we needed to build on the best of our company and also the need to infuse it with new experience and talents from outside. These actions are about positioning the business for more consistent performance and stronger growth over time, now and ongoing, including the initiatives Mike will discuss shortly during the call.

We also implemented the workforce reductions we committed to on our last call, and we completed those in the middle of March. They will benefit the balance of the year and are contemplated in our guidance. We closed on the sale of the Westin Cancun hotel in January and listed additional non-core assets targeting more than $125 million gross in additional proceeds this year. We remain on track to generate $200 million to $250 million from asset sales by the end of 2027. With that context, let me turn to the first quarter.

Our first quarter was a period of significant transition. We stated in February that we expected contract sales and adjusted EBITDA to be down in the first quarter, and our results were consistent with that expectation. Adjusted EBITDA declined 16% to $161 million. Contract sales were down 2% versus last year with VPG increasing 1%. Tours were down 3%. Owner sales increased 3% compared to the prior year, driven by a 4% lift in VPG.

Marketing and sales costs increased 300 basis points year-over-year as a percentage of contract sales, reflecting the in-flight operating strategies from late 2025. Product costs increased 110 basis points on the same basis and was in line with our expectations. Finally, we generated $114 million of adjusted free cash flow, resulting from our deliberate actions to improve our cash generation and capital discipline.

Our focus remains unchanged, consistent execution, improving profitability, strong cash flow generation, disciplined capital allocation and a clear emphasis on near-term and sustainable growth in contract sales, EBITDA and cash flow. Our financing and management businesses continue to generate stable, recurring high-margin revenue and cash flow, underscoring the durability of our business model. Importantly, given the nature of our product, our owners have already purchased their future vacations. This provides a high level of visibility for our future tours that fuels our direct-to-consumer sales model and allows us to drive demand on site.

Our forward-looking indicators remain healthy. Resort occupancy is expected to be 88% to 90% in Q2 and for the full-year. 96% of our expected owner utilization for the second quarter is already on the books. We expect owner occupancy to increase as our new initiatives we are implementing begin to drive higher owner arrivals. These compelling occupancy levels reflect our strong commitment to delivering outstanding hospitality services and overall memorable vacation experiences to our owners.

Lastly, the nature of our preview packages provides a highly predictable source of future tours totaling approximately 110,000 for 2026 arrivals. We are confident in what is ahead. We have executed on capital discipline initiatives, taken steps on our cost and operating structure and more recently, implemented a series of hires in sales and marketing that are already driving results. During today's call, Mike and Jason will detail these initiatives and how they are reflected in our expectations and our April contract sales results.

In accepting the appointment to CEO in February of this year, it was important that I identify clear priorities and actions to be taken with respect to them. Principal among those have been the ongoing evaluation of our operating structure and personnel that started day 1 when I stepped in last November. I very much believe the best companies are able to benefit from continuity and experience in their organization and at the same time, being able to attract talent with different experiences and additive expertise to the business.

I have also been committed to driving improvements in our operating culture. Being able to act with speed and commitment and decisiveness is an imperative for our organization. We have dramatically improved the cadence of our decision-making. We have added talent. We are generating improved results as you will hear more of today. It was also clear that there would be a period of transition, and that was evident in our first quarter earnings.

Looking forward, we are very pleased by the significant traction we are seeing in April, during which our contract sales were up 8% year-over-year. We are increasing our contract sales guidance based on our recent trends and the impact of new initiatives underway. As we work through the first half of the year, there are certain expenses being incurred as we transition to our new operating priorities, principally in sales and marketing. Accordingly, we believe it is prudent to reaffirm our existing EBITDA guidance.

With respect to our future, I'm incredibly excited about what lies ahead for the company. Game-changing initiatives are underway. They are returning us to a path of revenue growth, product enhancement, energy and optimism that now exists inside our company. Momentum is an incredibly powerful force in either direction. I will say unequivocally, there is a tremendous positive momentum inside our company.

People are energized and committed. It is being built both with the infusion of new talent as well as the reinvigoration of our many associates in the workforce at Marriott Vacations Worldwide. We have long had the opportunity to represent the best brands in vacation ownership and unbelievably loyal and broad-based customer profile. The company has long enjoyed a premier position in the industry, and we look forward to reasserting that position.

With that context, I'll turn the call over to Mike.

Thanks, Matt, and good morning, everyone. I joined Marriott Vacations about 3 months ago. Since then, I have spent my time diving into the business, the team and the opportunity in front of us. I've been in the field with our associates and in many of our sales centers. I've also spent time speaking with investors.

What's clear to me is that we have a strong team, tremendous brands with very meaningful upside. What's encouraged me most is how much of the opportunity ahead of us is within our control, and we have already implemented several initiatives that are driving improvement. At a high level, our new operating framework is centered on improving contract sales by growing the right tour flow and strengthening our operating discipline. Expanding demand from new sources and driving incremental tours from our existing infrastructure, all while increasing average sales price.

As we look at the opportunities in front of us, we bifurcated them into both near term and long term. In the near term, we have a clear focus on improving our core operations, which are already impacting our results. First, we are building a high-performance organization designed to drive revenue growth by strengthening our sales processes and talent. To achieve that, we hired a new Chief Sales and Marketing Officer with a demonstrated track record of success that I've also worked with for years, and we have several other powerful sales and marketing leaders that we have added to the team.

We are also seeing a resurgence of top sales talent returning to the organization alongside exceptional new talent desiring to join us. Our transformation has the company excited, and we are seeing it across the organization.

Second, we reorganized our sales and our field marketing organization, positioning us to move faster and more effectively as we execute our growth initiatives. On May 1, we restructured our sales and marketing leadership compensation packages, aligning their incentives to revenue growth and net operating income, which better aligns their compensation with the company's revenue and adjusted EBITDA performance.

Third, we launched a new data-driven tour logistics initiative designed to better align tour flow with the right salesperson, improve conversion and enhance the overall selling experience through more effective use of sales center technology. We are already seeing results from this initiative.

I am very happy to report that global contract sales were up 8% in April on a year-over-year basis, as Matt mentioned, powered by North America, where we were up 11%. This is very encouraging on many levels, in particular, North America, which is offsetting our planned reductions in Asia. This is a significant indicator that our strategy has taken hold.

We also have several initiatives that will enable long-term sustainable growth that will meaningfully impact EBITDA in the second half of the year. For example, on May 1, we announced changes to our owner loyalty levels, adding 2 new tiers at the high end of the Marriott program. By the end of May, we will also be introducing a new buyer incentive called Dream Vacation Packages. Through these initiatives, we expect to drive a higher close rate and more predictable and quantifiable pipeline of future tours and higher VPGs company-wide.

On June 22, we plan to launch our experiential event marketing program to be called Inner Circle. In my experience, this type of event platform has proven to drive higher quality incremental tour flow and VPG, while strengthening engagement across the owner's life cycle and the team that we now have introduced this concept to our industry. We feel very confident in our ability to execute on it.

Importantly, Inner Circle supports our broader lifetime value strategy by enhancing the customer journey, extending owner longevity and creating opportunities for increased wallet share over time.

Let me pause on this for just a moment and explain what this means. The totality of these 3 programs incentivizes our owners to return to our properties and our sales galleries in a more predictable and managed way, driving higher tours and VPGs through increased average transaction size, thereby driving higher and more profitable contract sales.

Finally, we are building a national and local partnership marketing capability to expand our reach beyond our existing databases to drive incremental tour flow. This will also allow us to grow tours through affiliations with the proven Marriott Bonvoy and World of Hyatt loyalty programs. Some of these initiatives are more transformational and will take time to ramp up with meaningful benefits expected to begin later this year and into 2027.

Through the launch of these new initiatives, we are focused on growing our average transaction size and VPGs. We also have a unique opportunity with our points product to create multi-week vacation packages supported by our transformed owner benefit levels and powered by our world-class brands. To support these initiatives, we are applying data-driven tour logistics to better match the right guests with the right sales executive and upgrading our programs to create more compelling reasons for owner engagement while on vacation. Particularly through initiatives like the Dream Vacation Packages and Inner Circle.

To wrap up, to say I'm very encouraged by what I've seen so far is an understatement. We have a clear pathway to significantly improve our commercial performance in both the near term and the long term. The power of the talent that we've added to the company and the reenergized disposition of the existing team has improved operational execution across the board. Along with our new owner loyalty levels, the Dream Vacation incentive and our Inner Circle event platform, they have us set up nicely for a predictable and sustained growth trajectory.

With that, I'll turn it over to Jason to walk through the financials and provide more detail on the quarter.

Thank you, Mike. This morning, I'll walk through our first quarter results, then touch on the balance sheet, cash flow and our outlook for the year. First quarter contract sales declined 2% year-over-year to $411 million. Owner sales increased 3%, offset by lower sales to first-time buyers. Tours declined by 3%, driven primarily by our planned actions in Asia, which was restructured at the end of January to improve profitability and cash flow as well as our decision to reduce tours to consumers with FICO scores below 640 starting last year. Excluding Asia Pacific, contract sales declined 1%.

Development profit declined $24 million year-over-year to $55 million due to lower contract sales, lower reportability and higher product costs, all of which were in line with our expectations. In addition, marketing and sales costs increased year-over-year, primarily due to increased training costs and higher salaries, which are being addressed with the initiatives Mike mentioned.

Sales reserve was 12.3% of contract sales in the quarter, lower than Q4. 120-day delinquencies were up 17 basis points compared to the prior year and were down 45 basis points compared to 2024 levels. Defaults were unchanged from prior year, and our rigorous reserve process continues to indicate that we are adequately reserved given our overall loan performance.

Importantly, our more recent 2025 receivable originations are performing in line with our expectations, giving us further confidence in our reserve. As expected, rental profit declined $10 million year-over-year due to higher inventory levels and associated unsold maintenance fees. Management and exchange profit declined $2 million, largely attributable to lower profit at Aqua-Aston. Finally, excluding the change in the presentation of interest expense in our warehouse credit facility, financing profit increased $2 million. As a result, adjusted EBITDA declined 16% year-over-year to $161 million and adjusted EBITDA margin declined 370 basis points to 19%.

Turning to the balance sheet. We finished the quarter with $3.3 billion of net corporate debt and leverage of approximately 4.2x. From a maturity perspective, we are well positioned with no corporate debt maturities until December 2027, providing us with meaningful financial flexibility. Our adjusted free cash flow was $114 million in the quarter, an increase of $74 million over last year, driven by lower inventory and capital spending as well as the $50 million of proceeds we received from the sale of the Westin Cancun.

In April, in the midst of market volatility and increasing uncertainty, we completed our first securitization of the year, raising $460 million at a blended interest rate of 4.86% and an advance rate of 98%, further strengthening our liquidity and demonstrating continued access to the ABS market.

Before turning to guidance, I want to briefly address capital allocation. We remain focused on reducing leverage over time while continuing to return capital to shareholders. As cash flow from operations and disposition proceeds materialize, we will balance debt reduction, dividends and opportunistic share repurchases within a framework to reach leverage levels below 4x.

Turning to guidance. We now expect contract sales to increase 3% to 7%, which is above our original guidance, driven by the new revenue initiatives Mike discussed. We expect tours to decline in the 1% to 3% range this year, driven by the intentional reduction in Asia and for VPG to increase in the mid- to high single digits. As we highlighted in our press release this morning, we are reaffirming our EBITDA guidance for the year, reflecting our higher contract sales and higher operating expenses over the short term to support these new initiatives. We expect our operating expenses as a percent of revenue to decline sequentially over the balance of the year as we leverage growth in our revenues.

In terms of quarterly cadence, contract sales and adjusted EBITDA growth remains weighted toward the second half of the year as new revenue initiatives ramp with our first Inner Circle events targeted for later this quarter. For the second quarter, we expect contract sales to be up 4% to 8% year-over-year as our new revenue initiatives start to work through the system and adjusted EBITDA to be $197 million to $202 million.

Finally, our expectations for management and exchange profit, rental profit and G&A are largely unchanged from our previous guidance. From a cash flow perspective, we continue to expect adjusted free cash flow for the full-year to be between $375 million and $425 million compared to $145 million last year, and we expect free cash flow conversion this year to be in the mid-50% range.

We continue to make good progress on our non-core asset dispositions, listing multiple assets that we expect to generate more than $125 million of proceeds this year on our way to disposing $200 million to $250 million in total by the end of 2027. Any proceeds from these sales will be excluded from our adjusted free cash flow.

As I wrap up our prepared remarks, I couldn't be more optimistic about MVW's long-term future. The organization is energized by our new leadership team, our April sales results, the launch of new programs and culture of accountability. The transition to EBITDA and profitability growth is beginning. Our momentum is increasing, and we look forward to the second half.

With that, we will be happy to answer your questions. Operator?

[Operator Instructions]. Our first question comes from David Katz with Jefferies.

I feel like, quite frankly, I have about 10 questions. What I'd like to just get from the team is really just a big picture perspective on how confident are you versus where you were a few months ago when we first started talking about this in the long-term earnings power? I think that's been made clear by the incentives that you've laid out, not just near term, but longer term. What has to go right for you to achieve that long-term big picture earnings power?

David, it's Matt. Thanks for the question and for joining us. I think the simple direct answer is we have to continue to enhance the experiential value proposition to our owners, drive their engagement rooted in our guidance for the rest of the year and things we're already seeing is lifting our tour flow opportunities with our owners at our properties. We have tremendous occupancy levels, and there is a lot of runway for us to do that.

Secondly, as I said at the beginning of my remarks today, in any situation from my perspective, like the one when I stepped in, is you assess who and then you go assess what. I will tell you that we are, from my personal perspective, well ahead of where I could have hoped we would be a little over 2 months ago, stepping in and taking on the role in a more permanent way. We needed to have an infusion of talent, expertise and blending that into a terrific in-place workforce in order to accelerate how we put things into play in the field in our business. As we've alluded to, to see that take place in the way that it already has in April has been really gratifying and probably faster than I could have expected during that period of time.

Then in terms of how you sustain that over time, there is sort of that inherent flywheel, which is as we build and create more value experientially in particular, for our owners, give them more reason for us to have more share of wallet for their travel and their vacation. It's the nature of the product that our best customers do travel and travel more, and we're committed to earning more of that share of wallet.

Then over time, we'll continue to add new owners to the top of the funnel as well. The team has been assembled and is being assembled each and every day. We've been in very good shape on the team, the initiatives to add attractiveness to owning the product and experiencing it. That's the big picture that I would provide.

Appreciate it. One just a very quick follow-up. Since the Street is hyper-focused on this, and it's -- we always need something to worry about. Is there anything noteworthy with respect to loan loss or delinquencies and it may be difficult to tell at this stage in the turnaround, but just checking in.

Yes, David, this is Jason. Thanks for the question. Yes, at this point, we feel really good about where the portfolio is. We ran through a bunch of metrics on the call in our prepared remarks, and we feel really good with our process and what we're seeing, especially as it relates to the near-term delinquencies, which are the majority of the book in terms of the nearer-term vintages, sorry, and so we feel good.

The next question comes from Patrick Scholes with Truist Securities.

Question for you regarding expectations for development profit. I believe on the prior earnings call, you had expected development profit for the year to be up. It was down quite a bit in Q1. Is your -- in light of that, do you still expect it to be up for the full-year?

Yes, Patrick, this is Jason. That's right. As we move through the year, we expect our development profit will grow as we -- based on the implied guidance that we've given, that is the big growth driver in our business. That's what Mike is driving throughout with the higher contract sales. We expect product costs similar to the guidance we gave on the last call, we'll be up a bit year-over-year, but consistent with where we were in Q1.

Then as we go through the year, we'll continue to leverage our marketing and sales costs and drive higher development profit as we move through the year, so that is our expectation.

The next question comes from Ben Chaiken with Mizuho.

I would love to hear about some of the changes in sales and marketing, specifically on the event side. I think, Mike, you kind of suggested it actually doesn't start -- doesn't launch until later this summer. Is that correct? Then anything you can share here would be helpful. Then is it fair to say that the contract sales acceleration you've seen has not even kind of like touched that event/Inner Circle side? I guess the implication being that it's all related to changes in sales personnel. I guess I'm kind of alluding to the success in April. Then one follow-up.

Yes. Thanks, Ben. Look, from April standpoint, if you think about it, we need to be great at what we're supposed to be great at. What you saw and what Matt alluded to and I alluded to in the prepared remarks about our contract sales growth in April was from doing just that, fundamentally going in and being better at operating the business. To use an analogy like a sports team, we had to eliminate the penalties. We had to get in shape to play the fourth quarter. We had to do the basic fundamentals to win a few more games, which is what you saw.

Now as we start introducing the things that we talked about like the new loyalty levels May 1, the Dream Vacation incentives towards the end of the month and then specifically your question, Inner Circle coming in June, we should really see that just turbocharge the momentum that we've already built. As you know and as you've written about, we're -- we know the event business, and we know it very well. The team that's here created the event business for the entire industry. We've never had brands like this to power it, so it's incredibly exciting, not only to our first customer, which is our sales and marketing executives, but it's also going to be a big hit with the owners.

Then I guess on the contract sales guidance, this is maybe a multiparter, but I guess, a, how much did you -- and I guess we can all -- we have some implication or some inference could you give us April, but how much did you bake in for these for Inner Circle specifically in broad strokes without getting like too hyper specific?

Then question 2 would be, how did you think about the change in contract sales guide and no change in EBITDA? Could you maybe just help us out a little bit on that? Was there something on the cost side that you're assuming that's different than prior? Or is it just some conservatism? I know in the prepared remarks, you mentioned some sales -- some higher sales and marketing expense. If we could just open that up a little bit, I think it would be very helpful.

Ben, this is Matt. Thanks again for the questions. I'll sort of do it in reverse order. From a guidance perspective, you're right in my prepared comments, I talked about sort of the word prudent. We clearly have terrific momentum, and we've got great traction raising the guidance level. I acknowledge both some of the transition costs that we're already absorbing relative to the first quarter's performance, some transition costs as we have brought on the new teams and launching the events platform, the Dream Vacations and the owner benefit levels. There's a lot of internal work that has gotten done at an accelerated rate to support those rollouts.

I think our guidance being in the range simply reflects that dynamic to the degree it ultimately may turn out to be conservative. I'll tell you, we're very focused on delivering actual. The decision on guidance was simply balancing the -- what we would acknowledge is the more recent trend, but the enthusiasm and optimism and the visibility we have to what's coming on the revenue side, and we're going to work really hard on the cost side to maximize that flow-through. It was a bit of balancing those 2 competing forces, if you will.

Your other question, Ben, on the front end, please remind me.

Yes. It was basically just how did you think about -- obviously, there's been some acceleration in contract sales from the start of the year. Then how did you balance that versus layering in the Inner Circle dynamic? I don't know to the extent how much that actually contributes to '26. Maybe it's maybe the back half.

Yes, fair question, Ben. We feel like we've got a number of factors and certainly events is platform and the attractiveness of that is part of it. They all combine to drive one of our underlying metrics that are contributing to that contract sales acceleration is our increased tour flow from our owners on property and increasing the experiential aspect, those events are geared towards our best customers and our owners on site. It is embedded in that acceleration. I wouldn't do an attribution waterfall chart, if you will, this much of the increase is this, this, this. It is the totality of all of the things that we're rolling out simultaneously.

The next question comes from Brandt Montour with Barclays.

I apologize for my connection here. Can you just maybe break out that April metric and give us a sense of how much of that was close rate, how much of that was expanding purchase price, if there's mix benefit in terms of repeat versus new owner? Just trying to get a sense for how much of that is blocking and tackling and how much of that is mix?

Brandon, it's Mike here. Our VPGs in April were up $450, just over $450 or about 12.7% versus prior year. Our tour flow was exactly as planned with our reduction in Asia. North America tour flow was right on par. Asia was down as planned. That's kind of the mix and average transaction size is a key focus point for us going forward. In the month of April, it was actually a balance of close and average transaction size.

Then maybe another one for you, Mike. You spoke about getting the right tours Take us back a little bit, when you got there, what kind of tours were you guys getting before? What kind of tours are you getting now? Why do you think it's going to be low-hanging fruit that you can use your assets to hone in on those higher hit rate tours?

Right. Well, it's a combination of things. First, by far, in my career, this is the most robust data pool that we've had to generate leads with the Marriott Bonvoy and the World of Hyatt, and we have significant runway left for first-time buyers in those databases. Let's start there.

What I observed when I got here was that this company significantly underperformed versus the industry on owner arrival to tour rates, and so we have a serious opportunity to enhance that and the flow-through on those for every 1 percentage point is significant. We're very, very excited about that and that comment about the right tours was tied to that.

Subsequently, when I talk about tour logistics, one of the things that we have worked diligently on in the past and that we're implementing here is kind of our proprietary model where we make sure we understand the VPG by guest type of every tour that's coming into our sales galleries and then also knowing our individual sales executives VPGs by guest type and then using logistics to match that up so that we give ourselves the highest propensity for close. That is something that really was just starting to take hold in the month of April and has significant runway for the business.

The next question comes from Lizzie Dove with Goldman Sachs.

I just wanted to see if you could expand on the new owner side of things, what you're seeing there in terms of new owner VPG versus existing and what you're kind of baking in for contract sales in terms of any mix shift in terms of new owners for the rest of the year?

I'll take the first part, Lizzie, it's Mike, and then I'll let Jason talk about the guidance. As a volume, we were at 28% in the first quarter of first-time buyers as our mix. On a contract basis, it would be higher than that. We believe that we have significant opportunity within the business to increase first-time buyer tour flow and first-time buyer sales. We're going to be very prudent about how we do that.

As I just mentioned in answering Brandt's question, we have significant runway in front of us on our owner arrival to tour. It's really going to be a yield management exercise of being smart about how we grow our tour flow and balancing it as we go forward. Jason?

Yes, Lizzie, we ran, as Mike said, about 70% existing owner sales in Q1. We've been in that range for a bit, and so I think that's a good range, plus or minus for the rest of the year, depending on some of the things that Mike talked about with trying to drive that owner VPG and the owner capture and driving contract sales.

Over the long term, we do expect to grow our first-time buyer tours, and that's something for the long term, but this year, I think that 70-30 mix is probably where we'll wind up.

Then I just wanted to touch on Hawaii. I know there's been some inclement weather there over the last couple of months, and I think you have a reasonable amount of exposure there. Anything that you're seeing there or that we should be noting going forward on that?

Lizzie, this is Matt. Thanks for the question. Certainly, the adverse weather there in the last 3.5 weeks of March was disruptive. We do have a significant presence on Maui. Candidly, just from a call perspective and how we talk about things internally, the benefit of our business model is our direct marketing and being able to bring people in. We're going to not lean on weather or disruptions or other things like that.

When we talk about our results, we certainly prefer better weather. Hawaii is a tremendously important market to us, and we think there is for the reasons that Mike has outlined in our system overall are very applicable to Hawaii. We're excited about what's ahead of us in Maui and all the islands where we operate out there, and bad weather or those kinds of events are going to happen from time to time, and we get paid to work through them.

The next question comes from Trey Bowers with Wells Fargo.

A couple of questions. First one, just a point of clarity. I think you guys said in the prepared remarks that the asset dispositions would not be included in the adjusted free cash flow calcs. Then there was -- it looks like there was $50 million of add-back in the adjusted free cash flow in the press release. I just wanted to make sure I understand the build of that line item.

Yes, Trey, that's right. Going forward, any future dispositions would not be included. When we gave the guidance for this year, we did say that we would include the sale of the Westin Cancun because that was slated as inventory in the future. That is the way that we did it for that first quarter. In connection with that sale, we also entered into a purchase commitment for future inventory in Puerto Vallarta, and that was another reason that we put in adjusted free cash flow because that inventory spend in the future will obviously hit free cash flow down the road.

Then just any update on the modernization efforts? Any change to the expectation for the dollar value there? Then maybe just if you guys could just dig in a little bit on what about those modernization efforts are transitory in nature as an operating expense?

This is Matt. A couple of comments on that. As we chatted last quarter, we are incorporating benefits from modernization as well as management waking up every day how to improve the business in our guidance and in our actual results. I would say the other way to also look at modernization, there was a lot of what I would call design and architecture and trying to identify things in last year's work. This year's work is really in the implementation of those that we have identified, and that work is underway. We identify it from both an expense and capital spend perspective.

We're not going to call out separately those dollars as they're showing up in our P&L, but they are benefiting our business today, and we expect them to benefit going forward. There will be other initiatives that we're layering into just call it, our project management and improve the business daily mantra. Those are a couple of brief comments I would add. There's been a big shift from assessment and evaluation to implementation on those initiatives we have emphasized and prioritized. For those that we have deferred, the benefits of that is reducing the cash flow associated with the deferred items.

[Operator Instructions]. Our next question comes from Stephen Grambling with Morgan Stanley.

Actually, 2 follow-ups. First, peers have culled their management base recently in terms of their -- the properties they're managing. Do you have a similar opportunity that you're looking at? Are there any properties where you still have low occupancy or even pent-up maintenance CapEx that you could look to potentially optimize?

Stephen, this is Matt. Fundamentally, that is not an area of focus or need from our perspective. In our portfolio of resorts, we're excited about all of them. We've got 1 or 2 that we'll look at from time to time, but from a systemic, we've got a clear demonstrable batch of resorts, if you will, and respecting each of us have arrived in our portfolios through different mechanisms, whether how much has been purpose-built how much people may have acquired over time, I can understand why it was a priority elsewhere. I would tell you, no, that is not a high-priority opportunity for us. Our opportunity is with the quality of our resorts that we have, the high GSS scores and the high levels of occupancy that we experienced throughout our portfolio.

Then as you're thinking about ramping up sales and trying to incentivize owners, I guess, are you changing the way that you underwrite or even as you think about the percentage that you allow people to put down, is there any change in that requirement as you look at either existing owners who maybe have built up equity or new?

Yes, Stephen, this is Jason. We're not changing any of our financing programs in terms of down payments. We've had the minimum debt 10% down payment now for a while, consistent with the industry, and so we're not changing anything in that regard. Owners can use their existing upgrade, again, common within the industry to use their existing equity and their existing ownership to use that as partial down payments or full down payments if they have enough in new deals, so that's not a change though.

At this time, I would like to turn the floor back to Matt Avril for closing remarks.

Thank you for joining us on our call this morning. It's been 6 months since I joined, and we've made significant progress executing our plans. During the first quarter, we implemented a series of actions to improve our performance. As we move forward with our plans, we will begin to see stronger contract sales, profitability, cash flow and EBITDA growth. I want to specifically thank our Marriott Vacations associates throughout the company. It has been a period of rapid and substantial change, and our teams are rallying to the vision and priorities we have.

On behalf of all of our associates, owners, members and customers around the world, I want to thank you for your continued interest and support of the company.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Greetings, and welcome to the Marriott Vacations Worldwide Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Neal Goldner, Vice President, Investor Relations. Thank you, sir. You may begin.

Thank you, Maria, and welcome to the Marriott Vacations Worldwide Fourth Quarter Earnings Conference Call. I am joined today by Matt Avril, our Chief Executive Officer; Mike Flaskey, our President and Chief Operating Officer; and Jason Marino, our 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, which could cause future results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in 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-GAAP financial information. You can find a reconciliation on non-GAAP financial measures in the schedules attached to our press release and on our website.

With that, it's my pleasure to turn the call over to Matt.

Thank you, Neal, and good morning, everyone. To begin, I want to briefly acknowledge the recent events in Mexico. I'm pleased to report we've had no safety or property incidences related to our associates or guests.

From a business perspective, our operations in Mexico include 4 resorts. And last year, they generated approximately 3% of our worldwide contract sales. So our exposure is relatively small, and we certainly are looking forward to improving dynamics in Mexico.

Having made the decision to join Marriott Vacations Worldwide in a permanent capacity, I'm truly excited to be part of the management team as we move the organization forward. We appreciate all of you joining us on the call this morning. And I also want to thank Jason and Neal and their teams for all the hard work as we prepare for this particular call.

Further, it is my pleasure to welcome Mike Flaskey to the company as our new President and Chief Operating Officer. I've known Mike for many years. He brings a wealth of broad industry experience, energy and a passion for execution of our commercial operations, particularly in our sales and marketing disciplines.

I'm looking forward to working closely with him as we transform our operational effectiveness and begin to realize the full potential of our brands and our company overall.

I'd like to invite Mike to make a few introductory comments.

Thanks, Matt. I'm honored and humbled to be joining Marriott Vacations Worldwide at such an important moment for the company. This is a portfolio of iconic brands, with a strong foundation.

I am also thrilled to be reconnected with the Westin, Sheraton and St. Regis brands from my years at Starwood Vacation Ownership. I am excited to work alongside our team to foster a high-performance and values-driven culture, all while creating exceptional experiences for our owners and guests.

My focus will be on driving commercial performance from growing tour flow at the top of the funnel to increasing owner engagement, ultimately resulting in revenue and EBITDA growth. These initiatives will position the company for sustainable growth through enhancing both the customer journey and lifetime value proposition for our owners.

Thanks, Mike. It's been a busy 4 months since joining the company in November. During that time, I have been rapidly getting up to speed on both the challenges we face and the opportunities we have. This period has also allowed me to meet many of our shareholders and analysts that cover our company.

Additionally, along with a number of our senior leaders, we have visited more than a dozen of our resorts, including those in Maui, Orlando, Las Vegas and our Scottsdale markets. This has allowed me to have direct engagement and feedback with our teams in the field throughout all of our operating disciplines. While Jason will cover the numbers in detail, I'll briefly review the fourth quarter and full year results.

As you saw in our release last night, fourth quarter contract sales declined 4% year-over-year with VPG down 60 basis points, and our adjusted EBITDA was at $186 million. For the year, we generated $1.8 billion in contract sales, which was down 3% from the prior year due to lower system-wide VPG. Adjusted EBITDA was $751 million for the year as we implemented cost-saving actions to offset lower sales.

I'm also aware that 2 topics drew significant attention on our last earnings call, and I'll touch on them briefly. The first topic we introduced was a loss of sales talent and its effect on our results. It is worth noting that, a relatively small number of sales executives can affect our performance in a significant way.

Immediately following that call, we implemented an initiative to actively recruit high-performing sales executives who had left and adjust certain underlying root cause compensation structure dynamics.

As we sit here today, I'm encouraged that many of the top performers who left us previously have returned and are ramping up with our company now. Attracting, training and retaining top sales talent is an ongoing area of emphasis for our business every day.

On the second topic, commercial rentals. This issue isn't unique to us. During 2025, one of our competitors addressed this issue very publicly. On our call, we noted this had also emerged as an issue for us. Accordingly, we recently implemented new reservation procedures, which will reduce the problem of commercial rental activity. It will also provide greater inventory access for our owners. Frankly, the attention this topic garnered on the last earnings call was greater than its impact on the business.

Now, let's turn our attention to what's ahead, starting with our priorities. Over the last 4 months, we have emphasized internally the need to return our focus to improving profitability and free cash flow. They are the key components to building a vibrant and growing business as well as the ability to reinvest and return cash to our shareholders.

As we will discuss this morning, we have taken actions to improve our profitability, lower inventory investment and other capital spending this year. We are also evaluating organizational alignment, reducing costs and further resetting our priorities. We have markedly increased the pace of decision-making, removing bottlenecks, and I am encouraged by the early progress we're making.

I want to review 3 basic ways we have to drive higher cash flow. The first is through better operational performance. Operationally, we all know VPG is the single most important metric in determining profitability in our industry, all other things being equal resulting from average sales price and closing efficiency.

While VPG is a critical metric, we are looking forward to returning to a growth in our top line revenue overall. In addition to improving core VPG, we can grow when we generate more tours from our high occupancy resorts, when we look to generate more travel packages, better utilize our existing sales facilities and close more efficiently. We are intensely focused on each of these.

While in past cycles, growth in the industry was typically associated with more doors, i.e., more resorts, we are at a stage where we believe there is significant growth potential in a much more capital-efficient manner. We have also made changes in our Asia Pacific business over the past few months. This will reduce our tours this year, but help our profitability and cash flow.

As background, we entered the Asia market 25 years ago and over the last 3 years, had expanded with new resorts and new sales centers. In our review of our business and our overall plans, we made the decision to deliberately reduce tours this year and adjust our staff accordingly.

Having made these adjustments, we are comfortable with the scope of our business in the region. I want to thank the leadership in Asia Pacific for taking on this reset challenge, which they have already implemented.

This brings us to the second way in which we can drive higher cash flow, disciplined capital allocation. Today, our cumulative inventory expenditures have exceeded the amounts needed to support our future sales. This has resulted in us generating substantially lower free cash flow conversion.

As part of changing our Asia strategy to drive higher profitability and cash flow, we eliminated one project that was scheduled for 2026 and deferred spending on another for 2 years. This change will allow us to focus our resources on markets with the greatest potential and drive better profitability and higher cash flow.

Additionally, we have also decided not to develop our previously announced Hyatt-branded Vacation Ownership resort in Orlando at this time, particularly given our overall current inventory levels. We are also reducing overhead across the organization. In total, these actions will reduce capital spending this year by $70 million to $80 million.

The third manner in our ability to generate cash flow is to monetize assets that are no longer strategic to the business. Over the past 4 months, we have rigorously evaluated our balance sheet for potential dispositions, resulting in substantially higher contribution to free cash flow in 2026.

Jason will discuss how we have updated our non-core asset list. These assets bring the total monetizable value to approximately $200 million to $250 million in addition to the $50 million we already raised this year by selling our Westin Cancun hotel. This will enable us to deliver substantially higher free cash flow in the coming years compared to our recent experience, which we can then use to either reduce debt and/or return cash to shareholders more quickly.

I also want to make a few comments about our modernization program. There has been substantial work done under this initiative over the past year, with clear benefits to the P&L. Our 2025 results include approximately $35 million of adjusted EBITDA, specifically from these initiatives, and our guidance this year includes additional benefits being realized.

Going forward, we are going to provide guidance that includes the revenue and cost benefits of all of our initiatives without separating them from our core operational improvements, or from benefits specifically from this program. Consolidating all of our future guidance and our actual results going forward will simplify how we manage the process improvement activities internally, and how we report them externally.

To close my comments, stepping into this role, my simple commitment to the Board and our associates was to provide clarity of strategy, prioritization of resources, and quick yes, no decision-making and to be intensely engaged in that process.

We are looking at our business objectively and critically when necessary. We're challenging past assumptions and requiring fresh perspective from our leadership team. Our company has much to be proud of, and we have a long history of success, and I'm personally honored to join it.

We also have a responsibility to improve our business operations every day. Growth is the engine that can fuel opportunities for our associates, enhance the experience for our owners and guests and drive enhanced returns for our shareholders.

Our immediate focus is simple, improve our profitability, generate increased cash flow, and importantly, return the business to a trajectory of growth. I cannot overstate the importance of fostering an environment of growth throughout the company.

We believe we have the best platform in the industry with exceptional resorts at great locations, a compelling employee career opportunity, substantial recurring revenues and a commitment to win. We have already implemented changes that will drive long-term sustainable shareholder value.

And it is important to note at this stage, we are in the early stages of significant transition. I would be personally remiss, if I did not acknowledge the impact of the rate of change across the organization. I want to take this opportunity to thank our associates for all their hard work thus far and for what remains ahead of us.

We are moving with a sense of urgency and making tough decisions where necessary, all with a focus on improving profitability, cash flow and long-term growth. We expect to see the first half of the year could easily be a little bumpy. We are certainly committed to beginning to see the benefits of our work in the second half of the year.

I want to thank all 22,000 of our associates throughout our system, who deliver our experiences to our guests and are on the journey for Marriott and for our performance going forward.

With that, I'm going to turn the call over to Jason to discuss our Q4 results and guidance for 2026.

Thank you, Matt. Today, I'm going to review our fourth quarter results, our balance sheet and liquidity position and our outlook for the year.

In the fourth quarter, we reported $186 million of adjusted EBITDA. We ran nearly 90% system-wide occupancy. Sales were up in Las Vegas, Hilton Head and Myrtle Beach, but that was offset by declines in Orlando and Hawaii, 2 of our biggest regions as well as Asia Pacific as we started reducing sales to certain customer channels as part of our revised Asia strategy.

As a result, contract sales were down 4% year-over-year, with international sales down 10%. VPG declined 60 basis points compared to last year and tours were down 3%. Total owner sales declined 2% year-over-year, although owner VPG increased for the first time since 2024.

First-time buyer sales decreased 9%, primarily due to lower performance in key regions. We ended 2025 with a pipeline of 2 7,000 packages with 1/3 of these already activated to take their tour this year. We've also added 100,000 new first-time buyers over the past 5 years, providing us future built-in upgrade potential.

Delinquencies declined again this quarter compared to last year, and we are close to 2022 levels. Financing propensity increased to 56% in the quarter and sales reserve was 12.7% of contract sales, in line with our previous guidance.

Product costs as a percentage of development revenue decreased 90 basis points, while marketing and sales costs increased 200 basis points year-over-year. As a result, development profit declined 8% to $94 million.

Total company rental profit declined 26% to $25 million in the quarter due to higher inventory costs. Management and exchange profit increased 9% to $92 million, while our financing profit increased 10% to $53 million, reflecting the consistent and resilient nature of these high-margin revenue streams.

Moving to the balance sheet. We ended the quarter with $3.2 billion -- in net corporate debt. In January, we repaid our $575 million convertible notes using available cash and revolver borrowings. We ended the quarter with leverage of 4.2x, above where we want to be long term, but manageable given our cash flow.

Our next corporate debt maturity isn't until December 2027, so we are in good shape from a maturity perspective. We returned $171 million to shareholders last year in dividends and share repurchases, including $25 million of share repurchases in November and December last year.

As you saw in our release last night, we recorded $546 million in non-cash impairments in the quarter. These impairments relate to 3 broad areas.

First, we recorded $202 million related to inventory and other assets, reflecting the write-down of carrying values of future phases of existing projects that we no longer expect to complete, as well as legacy Welk inventory and our revised Asia strategy.

Second, as part of our plan to monetize $200 million to $250 million of excess assets, not core to our strategy, we recorded a $160 million charge to reflect the estimated realizable value. And third, $184 million primarily related to goodwill and intangibles from our acquisition of ILG.

Looking forward, we expect contract sales to be up 1% at the midpoint of the range this year and adjusted EBITDA to be $755 million to $780 million. We expect tours to decline in the mid-single digits, primarily driven by an intentional 30% reduction in our Asia Pacific business.

Our focus on tour quality and utilization of FICO scores to optimize tours, will also impact tour growth this year, but that will be offset by higher VPGs.

Based on trends to date, we expect contract sales to be down a few percentage points in the first quarter. As Matt mentioned, we have numerous initiatives designed to improve VPG contract sales and revenues this year and expect trends to build as the year progresses.

We also recorded positive reportability in last year's first quarter, and this year, we expect it to be negative, which is more typical for the first quarter. We also expect rental profit to be a headwind this year due to increased carrying cost of unsold inventory. And as a result, we expect adjusted EBITDA to be down in the first quarter compared to last year.

For the full year, we expect sales reserve to be consistent with last year, product cost to increase and marketing and sales costs to decline, driving an increase in development profit compared to last year.

As we indicated in our press release, beginning in the first quarter, we started including interest expense on our warehouse credit facility as a component of consumer financing interest expense. This is consistent with how we treat warehouse interest on our securitizations.

Interest expense on warehouse borrowings was $13 million last year, and we expect it to be similar this year. As a result, we expect financing profit to decrease year-over-year, but excluding this change, financing profit would have been flat. Importantly, while this change will reduce EBITDA, it has no impact on net income or cash flow.

Moving on, we expect management and exchange profit to increase compared to last year and for rental profit to decline 15% to 20% due to higher cost of owned inventory in our VO business.

G&A is expected to be flat to up slightly, and we are taking additional expense actions beginning this quarter, which will benefit the second half of the year.

Finally, our adjusted EBITDA guidance for the year includes both the $10 million product cost benefit from our impairments as well as the negative $10 million to $15 million impact from the change in treatment of warehouse interest expense.

Moving to cash flow. We expect our adjusted free cash flow to be $375 million to $425 million this year, and for our adjusted free cash flow conversion to be in the 50% to 55% range, including roughly $100 million of cash inflows related to the sale of our hotel in Cancun and monetization of our dollar-denominated Asian notes receivable. We expect inventory spending to be $160 million to $170 million this year, which includes $55 million for prior commitments.

We had a $14 million inventory commitment due later this year for inventory in Bali that we have eliminated, and we deferred another $33 million payment until 2028 for the next phase of our Khao Lak project. These changes, taken with additional actions related to inventory, will collectively increase free cash flow by $70 million to $80 million this year versus our prior expectations.

We will continue to incur costs this year that are more onetime in nature that are related to our modernization initiative and not indicative of our long-term cash generation and believe it is appropriate to continue to carve that out of our reported results.

Our adjusted free cash flow guidance excludes approximately $75 million of onetime after-tax costs, which is a reduction from our original plans and is principally technology spending and some severance costs.

As we have talked about in the past, we have a number of assets that we plan to sell. And in January, we took a meaningful step in fulfilling that promise, selling The Westin Resort & Spa in Cancun for $50 million, which will be recorded as a reduction in inventory in the cash flow statement.

In connection with the sale, we agreed to acquire 64 purpose-built timeshare units co-located with the Marriott Puerto Vallarta Resort & Spa when construction is complete in late 2028 for $46 million. This transaction provides us 2 benefits.

First, it eliminates our having to invest significant capital to convert the Cancun hotel into timeshare units, and it adds a new resort in Puerto Vallarta, adding excitement to our Marriott system, and we will open a new sales center there, our first in that market.

As part of our broader business review, we have also updated our asset disposition list to include additional properties. And as a result, we now believe we can generate $200 million to $250 million of cash over the next 2 years from asset sales, incremental to the $50 million we generated from the sale of the Westin, Cancun. We always continue to work on optimizing our future inventory spending.

To summarize, we closed 2025 on a strong note and are starting 2026 focused on driving higher profitability and stronger cash flow. Over the past 4 months, we have taken decisive actions to rightsize our Asia Pacific business, reviewed every asset in the portfolio to maximize our value, begun implementing actions to reduce overhead across the company and added new leadership to drive long-term growth in our business.

I and many of our associates are energized by the focus Matt has brought to the company and are excited by the opportunity in front of us to grow this great platform.

With that, Matt and I will be happy to answer your questions. Maria?

[Operator Instructions] Our first question comes from Ben Chaiken with Mizuho.

I'd love to double down on the sales force commentary, Matt. Maybe you could talk about where the sales force was when you started the role, where you are today and where you think you'll be in 3 months? And then kind of related, what were some of the specific actions you took to rebuild the platform?

Thanks, Ben. A couple of things. I'll give you some overall comments and then double-click as you are asking on some of those specific dynamics. We have roughly 1,000 sales executives today across the system, principally in North -- our North America and Mexico operation. We obviously have additional sales operations internationally that were really unaffected by that particular topic.

In some of our conversations and in my comments, we indicated it does not take a lot to move that needle. So the -- I would literally say in the 35 to 50 range, the impact of top performers leaving shows up in the numbers. It also shows up in just the overall cadence of the gallery itself. We got after that immediately after that call. We have recruited back in the 35 range now, and they're ramping up. Some of them had to complete their year-end obligations, et cetera, elsewhere. Some of them had left the industry, others were at competitors, and we reached out to all of them.

So we're pleased with the recruiting effort that went on. And -- but beyond that, we're out there recruiting every day. So I would sort of stand down on that question at this point unless you've got further.

No, maybe just a related -- you made a new hire recently at the beginning of the call, you introduced Mike. Maybe if you could talk about kind of high level, some of the things you hope to accomplish here and build on and maybe related, some of the things that maybe VAC was lacking is the right word, but softer on that Mike can help with.

Listen, first of all, I appreciate the question. And clearly, one of my responsibilities early on was to evaluate where I thought we could improve the company overall. And reaching out and identifying and reconnecting with Mike and the cadence, energy, passion and the experience he has.

Mike, obviously, has been a CEO in this business. He has a long, rich history and grew up in the sales and marketing aspect of the business in a way that he brings an authenticity and energy and a passion for our commercialization activities, very specifically in our sales and marketing arena. But overall, we think there is a real value to bringing all of those commercial activities in our rental, how we yield all of the opportunities we have in the system.

So yes, I would tell you that as we look at the execution of our business, across all of our commercialization activities, simply put, where there is a revenue opportunity that needs to be integrated and thought about holistically, Mike's role overseeing all of that part of the business, combined with his personal attributes around the energy and the viewing of the challenges that we have in some respects, as he says, nothing but opportunity. And so that is in place. It's been in place for a week now. And I'm really excited about the addition that Mike brings to our business.

Our next question comes from Lizzie Dove with Goldman Sachs.

I appreciate all the detail. Wondering if you could just go on to the Vacation Ownership business. You mentioned tours down mid-single digit, but VPG kind of stronger to offset some of that. Maybe you could talk about some of those initiatives you kind of called out and to what extent you're thinking new buyers can kind of increase and whether there's any mix shift impact there?

Thanks, Lizzie. This is Matt. A couple of things. We have -- towards the end of the year, we have implemented investment in our training, particularly of new hires as we bring them on to the system. Certainly, mix is part of it as we looked at improving the quality of the tour flow that we had in our pipeline from packages. That has been getting implemented through the latter half of 2025.

And I would say, in addition to the plan that we've got and the guidance that we've got, we will begin looking at immediately how we grow the opportunities. I alluded to this earlier in my comments about how you grow cash flow and the various tools to do it.

We are going to be focused on improving the VPG in our core operation, but we are going to immediately begin looking at how we expand the opportunities to grow our tour flow and take better advantage of our fixed infrastructure today. We've got 770,000 owners. We talk to a lot of them. We can talk to more of them.

We have facilities that can take on more packaged tours, and we're going to be looking at that again, immediately. Those take a little longer to bleed into the system. But we are focused on day-to-day core execution in terms of VPG dynamics. But we're also looking to return an overall environment of growth to the business.

Got it. That makes sense. And I guess going a little deeper into that. You've been in this role for a few months now. And you talked about maybe first half could be a little bumpy, but there's clearly a lot of opportunity here. Like how do you think about what's kind of low-hanging fruit versus what takes a little bit longer to kind of turn around and specifically kind of on the cost side as well?

Well, I'll go backwards on your question. Clearly, when you look at the cost structure of the business, first thing we have to do is be respectful of what the run rate of the business had been. And those are never easy discussions or decisions to make. We have been at that pretty rigorously over the last several months.

I alluded to in my comments that we expected to implement further cost reductions before the end of the quarter, and we'll be doing that. We are looking at prioritizing the activities that we have internally. But simply put, overall, the cadence of the business and what our cost structure had become over the years.

So when I joined the company, I said 2 things that everything was on the table, and everything had to earn its right in our business plan going forward. You heard Jason allude to that in some of our disposition strategies, and you have heard us refer to that directly and indirectly with regards to better managing our cost structure for the business needs going forward. So those things have been underway. They are underway, and we look forward to getting them behind us as quickly as possible.

Our next question comes from Patrick Scholes with Truist Securities.

Mike, welcome, I guess, to your next event of a lifetime as we might say. A couple of questions here. First, you have a pretty lofty target here that was put out a week or 2 ago to get to that $950 million of EBITDA in, I believe, 3 years. How should we think about the balance or the mix as far as cost cut versus revenue growth to get there from a high level to start with.

Sure. First of all, thank you, Patrick. Appreciate the question. We certainly recognize that, that got some attention. And when Mike and I made the decision -- I made the decision to take on the role permanently that I had held on an interim basis and Mike made the decision to accept our offer to join the company, we were both very motivated, and I've alluded to this a little bit in my answer to Lizzie, with regards to the growth opportunity.

Certainly, we are after the cost structure right now as we should be. Going forward, it is certainly going to be rooted far more in the growth opportunities I alluded to and the efficiency with which we can do that from a cash flow perspective.

There are -- and I alluded to them just a moment ago, numerable ways we can grow nominal EBITDA by growing the number of tours, the number of people that we can talk to. And we have in place infrastructure to do that. We have far more owners on site than we talk to over the course of the year. So that's simply increasing the penetration rate with which we do that.

You alluded to, and I appreciate it, the Mike's personal next event of a lifetime. But clearly, to be direct about that, from an overall perspective, increasing our engagement with our owners, bringing increased experiential dynamics to them also increases our opportunity to talk to them in different ways than we have traditionally in our offers to come hear more about Marriott. And it's a setting that creates that engagement. They enjoy the experiences and creates more sales opportunity.

Additionally, from a pipeline perspective, there are a lot of underlying building blocks, if you will, how we house our guests, the length of different packages that we may offer, utilizing our existing doors, perhaps complemented by off-site facilities. But when you look at the scope of our marketing capabilities, our ability to build even a broader and bigger distribution channel that we're requiring -- will require in places additional sales talent. And -- but we have facilities that we're not fully maximizing from a sales facility and distribution now.

So I think the thing that excited both Mike and I, this doesn't require buying 5 more resorts or opening up 8 more resorts in order to drive those kinds of numbers. It is rooted in execution of the business and looking how we can expand and take advantage of the assets we have with a broader lens, and it all comes down to the number of people that we're able to talk to, the quality of the product offerings we bring to them and our ability to grow our sales executives, both nominally and capability-wise to take advantage of those additional opportunities in terms of tour flow. And we're fully committed to doing that.

Listen, there are costs that should be adjusted and reflected and we're after that right now. But clearly, the way you get there is a culture of growth and waking up every day looking at the commercial and revenue opportunities that are embedded in this business that we are not fully realizing today.

That's actually a great answer. One follow-up question here, and then I'll hop back in the queue. Concerning the impairment and expectations for product cost, should we expect that those impairments should help keep lower product cost for the next several years? Any relation between those?

Yes, Patrick, there's a small relation. We -- in my prepared remarks, we indicated about $10 million of benefit will be realized in 2026. That's included in our guidance. We do still expect product cost to increase this year a little bit, but there is about $10 million of benefit reflected in our guidance this year from some of those inventory impairments that we took.

Our next question comes from David Katz with Jefferies.

Matt, what I wanted to get at is on your to-do list, Marriott is -- corporate is going through some digital transformation. I wanted to get a sense for where on your list technology initiatives might be for Marriott Vacations. Obviously, it takes a partnership to move those things forward, and that's always been a discussion point. Where does that fit on your to-do list?

Thank you, David, for the question and for joining us this morning. We alluded to some of our ongoing modernization spending in 2026. And you are right on top of where the majority of that activity is, which is in our technology from both a digital, we are working on mobile app dynamics, but a portion of that spend is, in fact, to better connect with the Marriott platform and the required capabilities that we have to be part of that system.

So clearly, the opportunities broadly from a technology standpoint, digital, in particular, we enjoy a great relationship with the team at Marriott. And in fact, we'll be meeting with them in the not-too-distant future to better explore all the ways in which we can further create value for both our company and Marriott International overall.

So we've got a great relationship. There is technology spend that is the focus of the modernization activity this year. So I appreciate the question, and you're right on point.

And if I may, have you been able to put some dollar opportunity or earnings opportunity specifically around the technology side of it? I'm really just trying to get a sense for how much catching up there might be to do? And/or is most of the dollar opportunity that you've laid out other than sort of the asset divestitures, the non-core assets, is most of it really technology driven?

And just to make sure I'm following the question, David, when you say the dollar opportunity, are you talking about in our near-term cash flow? Are you talking about our '26 results? I just want to make sure I'm answering the right question.

No, I really intended it from a long-term untimed perspective. Like how much is there really out there if you can just catch your technology up to where you think it should be?

Candidly, I would say that is an enabler of the business overall. And I would tell you the primary -- the improvement that we can see, candidly, is at this stage in the core execution and fundamentals of our business rooted in broadening our perspective around growth to say that X percent of the growth opportunity that Patrick referred to earlier is rooted X percent in the technology spend. I would tell you that's -- we certainly expect that to occur, but I would not say I can bracket X dollars of the growth belief that we have over these next 3 years.

Yes, David, just to add on a little bit to what Matt said. One of our key initiatives this year is on the mobile app. If you -- when you look at where our mobile app sits today versus customer expectations of a mobile app, it's not meeting those expectations. That allows a lot of additional business benefits, hard to quantify, but we know they're real in terms of engagement with the owners when they're on property, near-term booking opportunities filling extra inventory, things like that. So those capabilities exist today through the web, but not in that device that we carry in our pocket and are addicted to.

So as we can enhance those capabilities, that's more of the longer-term future, and we're spending on that this year. So that's one of our key initiatives on the technology side related to that.

Our next question comes from Chris Woronka with Deutsche Bank.

You guys, with the contract sales guidance, I think, up 4% for the year at the midpoint. I think you exited Q4, I guess, down 4%. I know you expect Q1 to be down a little bit. Is there any, is there anything you can add to give us a little conviction or what's your conviction level in getting to that midpoint? Is that kind of a hard target for you? Is it more aspirational? Is there anything you could point to in terms of package activations or something like that in the remaining 3 quarters after Q1 that might add confidence to that?

Just so we're clear, when we -- the guide for the year at the midpoint was 1% contract sales increase. I think you may have said 4%. I just want to clarify...

Oh, right. I'm sorry, sorry, Jason. Yes, correct. Sorry about that. Yes, 1%.

No worries, Chris. We just wanted to make sure we were on the -- we were sort of referring to the same numbers. So with that target in mind and recognizing the transition we're in right now, there is clearly a -- as direct as I can say it, as we are both focused on this overall culture of growth as -- you guys can't see them, I'm looking to my left.

Mike is sitting here in the room with us, and there's a reason for that. And so the ability to both drive tour flow opportunities and performance throughout the system, I would tell you that, that cadence increased a week ago, and it will increase tomorrow morning, and it will increase Saturday and Sunday. We're after this in a really intense 7-day a week manner. So that's part of what gives me the confidence in it.

And yes, you referred to some of the tools we have. We've got a great pipeline. We do have tools to activate that in different ways. And I would tell you that is absolutely one of the ways in which we would look to do that. And also, we can begin some of the things that we're going -- tools that we'll have in place to increase our penetration of our on-site guests.

Jason alluded to the fact that our properties run 90% occupied system-wide throughout our resorts. And the opportunity to reach more of them, provide our product features is going to increase. The number of people we'll talk to will go up.

Okay. Understood. And the follow-up is kind of related to that, which is I know in the past, there's been a bit of a narrative, I think it's maybe partly fair that the funnel of customers that Marriott gets to you is maybe changing a little bit in terms of composition based on their push into more select service. So what you're talking about talking to more customers, it sounds like that's coming from maybe non-Marriott funnel channels, if that makes sense. Can you maybe elaborate a little bit on what some of those newer channels are to talk to more folks?

I'll answer it a couple of ways. Listen, I will not say that, I can refer to every comment that may have been made in the history of the company with regards to what you're alluding to. What I will say is the Marriott broad customer base, there is runway for us there and how Marriott grows that -- their member base is nothing ultimately, but upside for us. There is more to do in the database that we have access to today. That's number one.

Number two, are there other databases in the world that we ought to be looking at to be more creative about and look to partner with, explore to bring into our funnel, as Mike alluded to in his comments, there's no question about it.

And then as we look to either grow that package pipeline and/or reaching out and accessing our owner base either on-site or through some of our direct virtual and telephone oriented, there's owners that we don't see every year or every couple of years and being more strategic about how we activate them, get them to return to our resorts or reach them in that interim time is a big focus for the business going forward.

Our next question comes from Patrick Scholes with Truist Securities.

Great. A question for you, Jason, or the team. Has there been any reassessment of what your specific long-term net debt-to-EBITDA target is? I know in the past, you've called out trying to reach 3x as an ideal metric.

Yes, Patrick, I think over the long term, we'd like to be in the 3s. Obviously, you got to be in the 3s before you can get down to kind of the lower 3s. So we're really focused on cash flow generation, making sure we deploy that capital effectively. I'd like to see the debt come down a little bit more. It gives us a lot more flexibility in terms of share repurchases and other opportunities that we may have. So that's kind of the answer there.

Just let's get us under 4x, be generating that cash flow, show that path, and then we'll have a little bit more flexibility with deploying the cash.

Okay. And then the final question. Any thoughts about rescheduling that Investor Day? Or is it too soon to start to think about that?

Yes, Patrick, you're right. It's a little bit too soon. We've got a lot of work ahead of us, but it's definitely top of mind, but a little too soon right now.

Our next question comes from Stephen Grambling with Morgan Stanley.

On your comments about talking to existing owners more, can you perhaps remind us of how many owners have never had an upgrade since their initial purchase? And then secondarily, how do you think about the trajectory of overall owner growth as part of your plans to drive sustainable free cash flow growth long term?

Yes, Stephen, I don't have a number in terms of how many owners in our system have never upgraded. We did -- we have sold 100,000 new owners over the last 5 years. And so that does have some embedded growth potential there. As we think about new owner growth, that's key to our future growth.

And so obviously, as Mike has gotten on board, that's going to be a key initiative for us going forward, not necessarily in the guide that we just gave you, but that's top of mind in terms of growing the funnel, growing first-time buyers and really making sure that we have a long-term sustainable growth profile here as we move forward.

And then one other clarification because I thought that I heard Matt say that going forward, you're going to have kind of clean results fully kind of embedding some of the costs. So does your guidance, particularly on a free cash flow basis, just if you can help us understand what that includes or excludes as it relates to additional modernization and other costs and any way to help frame maybe real cash impact from those things as we look at 2026?

Yes. So I would say, simplistically, the cash flow guide starts with our adjusted EBITDA that we guided to, which would include any benefits from all of our initiatives that Matt alluded to. It does not include any of the asset sales that we talked about, the $200 million to $250 million of asset sales that we're working on, and it does not include roughly $75 million of after-tax costs related to technology and severance related to that continuation of that work.

So it's really what we're trying to do is guide the core business operations. I did allude in my comments to 2, call it, onetime positives, the sale of the Cancun hotel, which will be reflected as a reduction to inventory as well as the monetization of our dollar-denominated Asian notes, which is about $50 million in that cash flow guide. So it does have those 2 things in it. Hopefully, that's helpful clarification.

[Operator Instructions] We have reached the end of our question-and-answer session as there are no further questions at this time. I would now like to turn the floor back over to Matt Avril for closing comments.

I'd like to thank everyone for joining our call today. There's no question at times, it's been a very hectic first 4 months on the job, but they've been incredibly beneficial and personally rewarding. There's a lot of great people here that I have enjoyed getting the chance to either reconnect with, meet and spend time with.

We have the organization focused on what drives shareholder value, which is profitability, cash flow and long-term growth. We made a number of difficult strategic decisions, including changing our scope of our activity in Asia.

We brought Mike on board to help transform our operational effectiveness. We've also accelerated our plan to monetize excess inventory and any other assets, which we plan to redeploy in debt reduction and returns to shareholders.

The next few months will be critical for the organization as we work through our transition. We fully expect the second half of the year, where we will begin to see improvements in our results.

Finally, on behalf of all of our associates, owners, members and our Board of Directors and customers around the world, I want to thank you for your continued interest in our company. Thanks for joining us today.

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

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Marriott Vacations Worldwide Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Neal Goldner, Vice President, Investor Relations for Marriott. Thank you. You may begin.

Thank you, and welcome to the Marriott Vacations Worldwide Third Quarter Earnings Call. I am joined today by John Geller, our President and Chief Executive Officer; and Jason Marino, our 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, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in 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-GAAP financial information. You can find a reconciliation of non-GAAP 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, Neal. 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, 2 of our largest markets. Excluding those 2 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 incentive 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 VPG.

Third, we have implemented FICO scoring data for marketing purposes, which should result in higher VPGs and improved credit metrics. With respect to our modernization program, we continue to make strong progress towards the $150 million to $200 million in run rate 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 in annual costs that will fall to the bottom line going forward. In addition to these 3 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 2-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 preplanned 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 [ Kallo ], Thailand. And we have other resorts and sales centers in development that we expect to contribute more than $80 million 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 and our continued modernization work, we have tremendous confidence in the future profitability growth. We will be hosting an Investor Day, the morning of December 17 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 the 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 expect 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 to $21 million, primarily driven by higher unsold maintenance fees and getaways at Interval.

Our recurring revenue businesses performed well. Management and exchange profit increased 12% to $96 million and financing profit increased 5% to $52 million.

Finally, corporate G&A decreased $8 million. As a result, adjusted EBITDA decreased 15% year-over-year to $170 million.

Moving to the balance sheet. During the quarter, we issued $575 million of 6.5% senior notes, which we will use to repay our 0% convertible debt when it matures in January. We ended the quarter with leverage of 4.1x and $1.4 billion 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 RevPAR 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 flat to down slightly this year. We continue to make good progress in our modernization program and still expect to deliver $150 million to $200 million in run rate benefit by the end of next year. For modeling purposes, we still expect to generate an incremental $60 million to $80 million of benefit to flow to the bottom line in 2026, with the full run rate in 2027. As a result, we now expect adjusted EBITDA to be in the $740 million to $755 million range this year.

Moving to cash flow. We expect our adjusted free cash flow to be $235 million 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 onetime cash costs related to our modernization initiatives, which is consistent with our previous thinking. We are making good progress on our noncore 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 noncore asset sales in our adjusted free cash flow, any dispositions will provide cash we can use to either reduce debt or buy back 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 1.5 to 2 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?

[Operator Instructions] our first question is from Ben Chaiken with Mizuho Securities.

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 level levers are at your disposal? Or is this just kind of like a broader deceleration in the business?

Yes. No, we're obviously focused on growth. I think as I hit on, 2 of our larger markets, Orlando and Maui, were 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 -- when you think about Orlando, in that market, we've got 2 Sheraton sales centers. So those sales centers average relative to our broader Marriott tend to have a lower income consumer. So we saw some softer VPGs in Orlando. A lot of the changes that I talked about making, 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 when you bring in a new sales exec off the bat, they typically have a lower VPG 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. We talked about the commercial rental activity, as I talked about, and we talked about this earlier in the year, as we continue to focus on lower owner arrivals, a lot of that -- or some of it, I should say, as we've dug into a lot of the details that we've seen kind of an uptick in commercial rental activity. It's a small subset of the ownership base, but it does impact owners trying to get to where they want to go, and we want to get their satisfaction higher. We've got good owner satisfaction, so it can only help there. And then the flow-through is, more owners at the sites, better VPGs, better tours. So that's another big initiative. And we've ramped up sales training across the board at all our sites. We're starting to see some benefits there. In fact, in October, our VPGs were flattish. So that -- that's a good trend to start the fourth quarter, 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 new initiatives. Looking out to '26, 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 to 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.

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

I'm talking next year. I'm saying that there -- it 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.

Yes. Yes. Obviously, we're still working on our budget and long-range plan, which we'll provide more detail in December. I think specific to rentals, 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 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 Securities.

I have 3 questions to start with, and I have some more. I will jump back in the queue later on. First, a very high-level question. When do you consider all strategic alternatives for the company given the consistent underperformance, arguably miss-execution and certainly share price underperformance. Any reason it shouldn't be now?

Sure. Yes. No, we're constantly looking at all things and work with the Board on that. So we're going to do everything we can 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. What gives you confidence that the issues in 3Q won't persist into 4Q?

Yes. As I mentioned, at least early trends in October, 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. We still got to drive tour flow as well as VPG. But 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 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?

Yes. I mean 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 will 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 to their top choices. And when owners are happy and they're there, that should help us drive tours and better VPGs.

Our next question is from Brandt 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.

Sure. Yes. Like I said, Brandt, owners can, in the normal course, rent their [ time ]. That's not prohibited. What you can't do for our documents with the Points trust and all that is run commercial business, run a rental -- and you see, if you go to [ rent week ], for example, you see a disproportionate amount of our weeks on there. I'm not saying those are all commercial businesses, but as we really dug into the data over the last year or so, we have seen an increase in what we call our guest of owners. And so as we delve deeper into that, 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 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 taking a [indiscernible] step back, but on a similar topic. 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 I think we're under the impression that the levers that you can pull to sell to owners are sort of there for you. Is it -- 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 when -- then when you talk about what you can do to change, and you said a few things, how much of those are super short term? How much of those take longer time? I mean you mentioned retaining talent and things like that, where you don't actually get the flexibility and maneuverability until '26.

Yes, a lot in there. I'm not sure I got all the question you're looking for. Let me try here. Yes, as you know, we run a 90% year-round occupancy at our system-wide resorts. So we run a high occupancy. We talked about the commercial rental activity. 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 Bonvoy program points to incent owners for short-term bookings where think places like Orlando or other bigger markets where we do have some near-term availability to get owners to arrive within 2 months. And those end up being above-average VPGs for the owners that were able to tour there. So 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 will help more over time. 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 Jefferies.

Pardon for background noise, it is what it is. What I wanted to get at is my -- I think our understanding is that this is a Salesforce driven business, right? That's at the heart of it. Can you just talk about sort of how the Salesforce 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.

Yes. Yes. In terms of managing our on-site Salesforce, I think 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. Some of the things I mentioned earlier, in certain highly competitive timeshare markets, you do see that seem to have 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 I think I talked about it earlier, when you do have turnover and you bring in maybe a non-experienced timeshare exec, there is 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 wholesale change overall other than really focusing on the talent. But you're right, the Salesforce, you got somebody who can do a $6,000 or $7,000 VPG on average versus $4,000. That's a big difference, as higher VPGs flow through to the bottom line. And as we really focus in on this, this should help drive higher VPGs 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 some sort of departures in leadership or management within the Salesforce. Over the recent past or any changes worth noting?

Well, not -- there's always normal turnover, David. I think in certain markets, when you get down to the frontline sales execs, the highly competitive markets, like I said, think Orlando, maybe to some extent, Vegas, those types of things. There's 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 1.5 hours or 2 hours away because they lost their home and there was no housing, they [ did ] to commute for a while. And then, call it, more recently over the last 6 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 specific to Maui.

Our next question is from Shaun Kelley with Bank of America.

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 rerenting 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 like 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.

Yes. No, I think the way you described it, yes. 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 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 -- just because you shut 1 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. 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 still struggling a little bit with trying to kind of balance, what's been a bifurcated consumer environment and that underlying trend line with what's kind of happening in [ VAC's ] business?

Yes. Yes. I think if you want to start at the macro level, like I mentioned a little bit earlier, I do think in Orlando and some of our resorts where the mix of income is trends towards the lower end versus our higher-end resorts, things like that, we've probably seen some impact at that lower end of our household income. So we do see a little bit of that. But I think some of the bigger things that we've talked about, which we talked about earlier in the year, which is owner arrivals that in some of the commercial rental activity is probably a little bit with us. We'll solve that and move that forward. Owner arrivals this year versus last year, and we talked about this earlier, last year benefited from more plus points and things that were burning off. So the goal was to continue to drive own arrivals. And to offset that this year, like we talked about, notwithstanding owner arrivals 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, pre-fires was 10% 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. But -- 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'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 of years. So that one is probably specific to us. And I think high level, as you look at our competitors, too, they're in a different spot, obviously, with acquisitions on the [ HGV ] side and how they're upgrading owners and selling into those products and [ T&Ls ] launch, new brands and new resorts. So they're at a different life cycle a little bit here in the near term. And I think that's offsetting for them any headwinds. They've got some good things that they're selling at the table.

Our next question is a follow-up from Patrick Scholes with Truist Securities.

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?

Yes. 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 is 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 will go up again next year. We've talked about that in the past. We have the higher product costs coming from [indiscernible] 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 domestically. So I would point to really those 2. Obviously, we're working hard on the modernization. We did take some costs out of the organization in August, which are going to -- 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 G&A, some of it will be in other lines as we [indiscernible] that was done in August. So we'll give more guidance out later, but as we work through everything, but I would -- those would be the ones that I would call out.

Okay. And then, Jason, just specifically on the rental business, certainly, we saw the profit down this year. And I think earlier in this call, it was noted, higher costs for next year. Is it the expectation that profit next year for the rental business will grow?

Yes, 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. 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 granularity about that last topic of expectations for rental business.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I'd like to turn the call back to John Geller for closing remarks.

Thank you, everyone, for joining our call today. As I said 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 million 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.

Greetings, and welcome to the Marriott Vacations Worldwide Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce you to your host, Neal Goldner, Vice President, Investor Relations.

Thank you, Neil. You may begin.

Thanks, Alicia, and welcome to the Marriott Vacations Worldwide Second Quarter Earnings Call. I am joined today by John Geller, our President and Chief Executive Officer; and Jason Marino, our 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, which could cause future results to differ materially from those expressed in or implied by our comments. Forward-looking statements in 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-GAAP financial information. You can find a reconciliation of non-GAAP 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 second quarter earnings call. We delivered $203 million in adjusted EBITDA in the quarter and reiterated our full year guidance reflecting the continued demand for leisure travel, the resilience of our business model and the hard work of our associates around the world.

First half of the year was certainly interesting. Yet despite all the external noise, leisure customers continue to prioritize vacation and our team focused on what it could control. providing great experiences for our owners, members and guests while executing on our modernization program. Exiting the first half of the year, our business is well positioned.

We're the only vacation ownership company focused solely on the upper upscale part of the market. Our owners have a median annual income of $150,000 and more than 80% of them do not have a loan on their timeshare. So we are confident they will be vacationing with us, and our exchange business includes most of the top-tier names in the timeshare industry.

Quickly reviewing the quarter, we delivered nearly 90% resort occupancy with strength seen in Maui, Coastal Florida and the Caribbean, while Vegas was relatively weak. We made further progress on our monetization initiative and remain on track to deliver $150 million to $200 million in run rate benefits by the end of 2026.

We with half coming from revenue initiatives and the other half coming from cost savings and efficiencies. As we've talked about, the second quarter started off soft, but trends improved as we progressed through the quarter. As a result, contract sales were down less than 1% for the quarter, an improvement compared to Q1.

First-time buyer sales were up year-over-year, our fourth consecutive quarter of higher year-over-year first-time buyer sales. and I'm particularly excited about this trend as new owners tend to buy additional points over time. First-time buyers represented 1/3 of total contract sales in the quarter up 200 basis points from a year ago, reflecting the success of our new owner strategies.

Owner sales were down year-over-year due to lower VPGs while owner tours were flat. As you know, late last year, we announced a modernization program that we believe can deliver an incremental $150 million to $200 million in adjusted EBITDA benefits on a run rate basis by the end of next year.

The reason for pursuing this initiative is to speed decision-making across the 2 organizations, rightsize our cost structure, optimize our IT platforms and provide the foundation to drive growth in our leisure-focused business. We expect half of the benefit to come from cost savings and efficiencies, while the other half will come from revenue initiatives.

And while most of the expected benefit is still ahead of us, we are making great progress. For example, during the second quarter, we launched and expanded a number of revenue initiatives, including expanding our enhanced call transfer program across the Marriott system, resulting in our best package sales quarter since the pandemic. This should help drive future sales.

We also increased our use of nontraditional channels through a combination of roadshows, virtual tours and other events, accounting for over 13% of our total contract sales in the quarter. We expanded our new owner experiences campaign, which contributed to higher first-time buyer VPGs. We also implemented a campaign to drive additional near-term owner stays driving incremental tours. And soon, we plan to start using FICO Score data for marketing purposes, which should result in higher VPGs and improved credit metrics.

With our data and analytics and marketing and sales teams working together, we built and deployed an AI-based propensity model, focusing on renters most likely to become owners, which we believe will help drive higher sales. We are also using internally developed advanced analytic predictive models to better support our sales execs, and we are also rolling out new sales training.

And we introduced the refundable Getaway pricing option at Interval International, which we will believe -- which we believe will drive higher rentals and profitability over time. In total, we expect these and other revenue-enhancing initiatives will help us deliver $75 million to $100 million in incremental EBITDA by the end of the next year on a run rate basis.

We also expect to deliver another $75 million to $100 million from cost savings and efficiencies. We expect significant savings to come from retiring legacy technology debt, which will lead to efficiencies in how we run the business, eliminating manual processes and taking costs out that are currently required to maintain these legacy systems. We also expect to deliver substantial benefits from increasing automation, lowering procurement costs, reducing overhead costs, including corporate G&A and optimizing our organizational structure.

And while not part of our expected $150 million to $200 million EBITDA benefit, Early indications suggest maintenance fees on our points-based products may be flattish next year, partially due to our monetization initiatives, which enhances the overall value proposition for our owners as well as our first-time buyers. But just as important as the momentum we've built and our early successes, we're changing how things get done, increasing the speed of decision-making and driving accountability, and I'm pleased with the way our associates have embraced the new ways of working.

Looking forward, occupancy is expected to remain high. Poor capture rates are increasing and owner keys on the books for the second half of the year looks strong. A majority of owner villa reservations are now being done online, and we expect that to grow further. Loan delinquencies continue to trend down. Guest satisfaction scores remain strong and we ended the quarter with nearly 270,000 packages in our pipeline with almost 30% scheduled to take a tour in the second half of the year, providing us good tour visibility.

Contract sales increased slightly in July compared to June on higher tours and stable VPGs, and the team is focused on ramping up a number of new sales initiatives scheduled to launch in August as well as increasing investment in sales training. Looking out longer term, despite the noisy environment, leisure consumers continue to prioritize travel and timeshare remains a great value for many of them. As the only upper upscale player in the industry with the best collection of brands, we believe our company is uniquely positioned for long-term growth. offering a product that resonates with today's consumer that is looking for space and experiences combined with brands they trust.

Despite some ups and downs, our long-term financial model hasn't changed. We think we can grow tours and VPG in the low single digits, lever our fixed costs to improve margins and use our free cash flow to reduce leverage and buy back shares. Over time, that should result in high single-digit to low double-digit EPS growth. And with the bulk of our modernization benefits still ahead of us, we should be able to do better than that for the next few years.

With that, I'll turn the call over to Jason to discuss our results in more detail.

Thanks, Jan. Today, I'm going to review our second quarter results, our balance sheet and liquidity position and our outlook for the year. Contract sales were down less than 1 point with 2% higher tours, offset by lower VPG. First-time buyer sales increased 6%, driven by higher tourists and higher VPG, while owner sales declined 4% on lower VPG. As you know, first-time buyers typically carry a lower VPG than owners, so the growth in first-time buyer sales negatively impacted VPG in the quarter.

Our sales reserve was 13% of contract sales in the quarter, with delinquencies declining 50 basis points sequentially and 110 basis points year-over-year to the lowest levels in 2 years. For the full year, we expect our sales reserve to be in the 12.5% range. Development profit more than doubled compared to the prior year, reflecting last year's $57 million net sales reserve adjustment. Excluding that, development profit declined 11% year-over-year due to lower VPGs and higher marketing and sales cost partially offset by lower product costs as a percent of revenue.

Total company rental profit declined $7 million or 16% to $35 million, driven by increased unsold maintenance fees and marketing expense partially offset by higher ADRs. Management and exchange profit increased 3% to $98 million, with increased revenue in our Vacation Ownership segment, partially offset by lower exchange revenue at interval. Financing profit increased 7% to $53 million. Corporate G&A was flat, excluding the $7 million of lower variable compensation related to the sales reserve adjustment last year. And adjusted EBITDA increased 29% to $203 million, with margins improving 360 basis points as we lap last year's sales reserve adjustment.

Moving to the balance sheet. We ended the quarter with leverage of 3.9x and $800 million in liquidity. Our 0% convert matures in January next year, and we've already backstopped the majority of it with a delayed draw term loan facility, providing us optionality as we look to refinance it later this year. We were precluded from buying shares during most of the quarter, but you should expect us to be opportunistic buyers of our own shares in the future as benefits from the modernization are realized.

Looking forward, we are maintaining our full year contract sales and adjusted EBITDA guidance. We expect product cost this year to be flat as a percent of contract sales, reflecting our first half results. We now expect rental profit to decline around $20 million to $25 million due to the higher cost of rental inventory, and we also expect corporate G&A to be flat to down slightly this year. Our modernization program is progressing well, and we still expect to deliver $150 million to $200 million in run rate benefit by the end of next year.

For modeling purposes, we still expect to generate $35 million in P&L benefit this year with an additional $60 million to $80 million coming next year and the full run rate in 2027. Moving to cash flow. We still expect our adjusted free cash flow to be $270 million to $330 million this year, excluding roughly $100 million of onetime cash costs related to our modernization initiatives, We acquired 52 completed timeshare units [indiscernible] Thailand or $43 million during the quarter. We still have a number of noncore assets we plan to dispose of over the next few years, which we estimate could be worth $150 million to $200 million, and our team has been working hard to monetize them.

The $200 million of spending already designated to the modernization program through the end of next year, we plan to use proceeds from any asset dispositions to repurchase shares and reduce leverage. We ended the quarter with $1 billion of inventory on the balance sheet. Looking ahead, we have $310 million of inventory commitments due over the next few years, including payments for Waikiki, our second phase of [indiscernible] additional units in Vale and a new Nashville resort, which is scheduled to open in 2027. Beyond that, we plan to restrict our inventory spending to low-cost reacquired inventory as well as capital-efficient arrangements, where we don't pay for the inventory until we start sales and where we can add a new sales gallery, which helps drive future sales.

Our goal is to get closer to the 1.5 to 2 years of inventory on the balance sheet. So to summarize, we ended the quarter strong. And while the environment is still somewhat fluid, we remain focused on what we can control, including ensuring our owners, members and guests have great vacation experiences while also executing on our modernization program.

With that, we'll be happy to answer your questions. Alicia?

[Operator Instructions] Thank you. Our first question comes from the line of Ben Chaiken with Mizuho.

Just would love to dig in on contract sales for a moment. From what we can tell just based on some of the commentary you gave last quarter and intra quarter, seems like June contract sales were positive, maybe in the low single-digit range. Was there I guess, is that correct? And then was there -- is that a sequential acceleration versus May and that -- or was it more comp related? And then just to confirm, did you say July was better than June. Did I get that right?

Yes. The July contract sales were up slightly from June. Going back to your other question, yes, June was up about 3% year-over-year. And sequentially, it clearly improved because as we had talked about, we were down 4% in April. We said that on our last call, and we were down 3% in May, which we didn't say how much, but we had said we had gotten a little bit better. So there was some acceleration. June was a bit of an easier comp year-over-year. I would say that, if you remember last year, where we saw some of the first-time buyer headwinds. But net-net, good acceleration as we came through the quarter and down a little bit less than 1%.

Got it. Understood. And then I believe in the prepared remarks, you mentioned a 12.5% loan loss provision is the expectation for the year. Can you just remind us, how does that compare to your previous expectation? And then maybe parallel to that? I believe you mentioned it the maintenance fees should be flattish in '26 in part because of some of the modernization initiatives. Do you think that will show up in, I guess, like theoretically should that show up in an improvement in loan loss provision? .

Yes, Ben. So the 12.5% is about 0.5 point higher than our previous guidance, which was about [indiscernible] for the full year. The modernization and the lower maintenance fees, we certainly -- if you go back a couple of years, I think some of the delinquencies that we had were attributable to the higher than normal inflationary increases and higher inflation. So we do think that will help going forward. But the loan book is in good shape, as we talked about, with delinquencies down to really the lowest levels in 2 years, both on a sequential and a year-over-year basis being down pretty materially 110 basis points year-over-year on the delinquency. So we feel good about where the loan book is.

Yes. The -- keeping the maintenance fees not flattish. Just big picture, that obviously helps with the value proposition, right? Maintenance fee is a component of the long-term cost of prepaying or buying timeshare. So everything we can do to continue to enhance the value proposition. We think it helps from a sales perspective, hops from an owner satisfaction perspective, should have some impact, hopefully positive on our loan loss. So it is and will continue to be a focus. .

Our next question comes from the line of Patrick Sol with Tourist Securities.

Certainly, flattish maintenance fees. -- welcome news after -- I think I was up mid-teens a couple of years ago, but definitely attest to the value proposition there. A couple of questions. I've seen some headlines here. about an expanded owner benefit that ability to use club points to directly book stays thousands of hotels around the globe. Is that -- is that an earnings needle mover for you folks? Will that actually show up in EBITDA growth? Or how do we think about that...

Yes. No, it's really more optionality for our owners, Patrick. But before, we had a couple of hundred Marriott hotels that we offered people to use their ownership points to book into. It was a bit of a manual process, you had to call. And this really automates that. But more importantly, opens up most of the Marriott system or resorts where, like I said, it was limited. Nobody -- I've said this before, exchange options give people additional ways to vacation, they're never going to be the best value option for an owner. That's always going to be staying within our 120-ish resorts around the world because, right, you've got a take those weeks pay for the vacation and then we've got to rent it to offset the cost of the owner's vacation.

So there's value leakage from an owner perspective. But it does give the owner just more options if they want to stay outside the vacation ownership system.

Okay. So try to add that into the value proposition of the product? .

Yes.

Follow-up question, and then I'll hop back in the queue. I think I heard you mentioned you were precluded from buying shares in the most recent quarter. Can you provide any color on why that was?

Yes. No. Like any time, there can be blackout periods for different things. So we've never publicly -- we've had them in the past. We've never publicly commented on when we're in the market. when we're not in the market, we just thought because early on in the quarter, obviously, the stock price was very low on a relative basis, and we were blacked out at that point. So going forward. We'll continue to be opportunistic blacking out -- or excuse me, buying back shares as we look at the right opportunities. .

Our next question comes from the line of Brandt Montour with Barclays.

I wanted to circle back on the contract sales commentary earlier in the guidance. sorry, the June, July commentary. And I think that, that was pretty clear what you were saying, John, about June through July. But it did feel like -- it did feel like trends got better the contract guidance -- contract sales growth guidance you guys gave was unchanged. Just curious if that -- if you feel any better about that guidance range or was that just the sort of acceleration month-to-month that you had already sort of baked in?

We felt at the midpoint of, call it, down 1.5%. That's where halfway through the year, we're still down, obviously, we were down in the second quarter. So we're hoping we do better as we move through the year, but -- there is still some broader macro uncertainty. Obviously, the jobs report stuff last week, things like that, that probably keep us a little bit on -- we got to continue to move through the year and deliver on the contract sales. .

Okay. And then maybe for Jason, and maybe I missed this earlier, I think you did say that loan loss provision guidance went up 50 basis points from 12% to 12.5%. I'm just trying to sort of square that against the commentary in the quarter where you said delinquencies were at a 2-year low and that they got better. So why did -- I guess why did the loan loss provision go up for the year unless I missed something there?

Yes. So what we're seeing is a little bit long-term trends, obviously, all going in the right direction, which is great, and we're happy to see, and we've been working really hard at that for obviously the last couple of years. If you look at the second quarter, we did have -- we were kind of up in that 13% range due to -- about half of that was due to higher propensity. There's a little bit of seasonality in there. then we did have a little bit of higher defaults in our Asia business, about $2.5 million in the quarter. So not big dollars at $2.5 million, but that is about 60 basis points on a contract sales basis. So I guess, for overall context, as we expand our loan book -- as we expand our Asia business, that loan book right now is about $150 million on gross notes of about $3 billion. So it's still a relatively small portion of the overall book. So that's what we saw in the second quarter. And that informs some of the guidance going forward of the $12.5 million.

And we continue to focus, as Jason mentioned, delinquencies are down. They're at a 2-year low, which is all positive, but they're still not kind of back to where we'd like them to be. So hopefully, the trends continue and we can continue to get the delinquencies back down to more or '22 level before we started seeing some of the issues, that will give us more confidence to take a look at the overall reserve going forward.

Our next question comes from the line of Stephen Grambling with Morgan Stanley.

I just want to clarify, you made this comment about being more efficient around inventory and taking down the amount years on hand. What are the implications to cost of not just this year, but as we look maybe further out, should we be assuming that, that cost of DOI actually as a percentage of contract sales will come down? Or what are some of the puts and takes to think through?

So as we -- I think you're referring maybe that the cash flow guidance came down about $10 million on the inventory spending. I think you highlighted that in your note. And then -- we've been consistent in saying that we want to get our inventory levels down to that 1.5 to 2 years on hand. So I think all of that is consistent with our -- kind of how we've talked about inventory and how we think about it going forward. Also, as we've talked about it, we do see our cost of inventory ticking up slightly over the next few years as the mix of inventory changes incorporating some of the new inventory that we're purchasing like Waikiki and some of the projects in Asia.

So -- that's what we see over the long term. Again, it's not going to rise very quickly, but we do see, over the next 3 to 5 years, probably a slight increase in our product cost going forward, and that's pretty consistent with how we talked about it in the past.

Got it. Okay. I thought that was maybe something new on the efficiency there. One other unrelated question. Harley-Davidson just signed a partnership with KKR and PIMCO to basically sell a portion of its financing receivables for 1.75x book and also rather than securitize, actually sell to them at a premium I guess I'm curious, how do you think about the value of your financing receivables relative to book value and maybe the rise of private credit markets and maybe potential other opportunities to maybe be more efficient on the securitization front.

Yes. I'll start and Jason can add anything here as well. we're always looking, whether it's our financing business or anything, how do we maximize the long-term value for our shareholders. So we've looked at a lot of stuff with the financing business over the year, and we'll continue to look at it. What I can tell you, high level, I think our securitizations are a lot more efficient than maybe what you Harley-Davidson was doing. I mean we got a 98% advance rate. And I think the real question is how you think about that is bringing in a third party, they've got a cost of capital.

What's that going to cost you versus maximizing our profits on our balance sheet. And we'll continue to evaluate all those opportunities. And if it makes sense from a shareholder value creation, we would definitely take a look at it.

Our next question comes from the line of David Katz with Jefferies.

I know this was discussed a bit earlier, but I just want to go a little further, frankly, getting some questions and some of my own on this with respect to the 50 basis point increase on the loan loss, right? I mean some of the other external data we see seems to be moving in a positive direction -- and I think part of the answer earlier suggested more propensity, right? But are you just being conservative in there or a bit more conservative than you were the last time we talked about it. What -- could we just elaborate a bit more?

Yes. David, you say conservative, I think there is a bit of unknown. Like I was saying earlier, while delinquencies continue to trend better, and we're seeing them as low as they've been in 2 years, they're still higher, right, than they were back in '22. We want to see continued improvement. And then I think if we get that continued improvement, then we'll look at our reserve going forward. So I don't know if you want to say that conservative it's not really being conservative per se, as much as reacting to what we're seeing and getting our delinquencies back down to where we've seen them historically. .

Our next question comes from the line of Ben Chakan with Mizuho.

Thanks for sneak back in here. you had some positive commentary on Maui in the prepared remarks. I guess what are you seeing from a sales perspective? We haven't talked about this in a while because I don't think there's been much to share, but is there any maybe quantitative way to frame where we are versus maybe pre fire or where we are in the recovery process. Just some way to gauge .

Sure. Sure. Well, I'll start overall with Hawaii. I had a strong quarter year-over-year. with contract sales were up VPG tours. So is 1 of our brighter spots in the quarter. So that's good. I'd say on Maui, a couple of things. I think on the -- on the transient side, occupancies were up year-over-year, which was good and rate was up 9%. So that was all positive on the rental side. Sales in Value were kind of flat versus last year. And some of the lingering stuff we have talked about, which is our owners coming in back into Maui are getting better, but still kind of below where they were as well as some of the packages.

And then also -- we've got that repiping project at the Maui Ocean Club, which is taking units out, that will get wrapped up, call it, first half of next year. So a bit of noise out there. And I'm happy to say there was a wildfire that occurred yesterday in Maui that was put out fairly quickly, but that risk is still out there and have everybody is safe out there. But did impact us. We had to close sales for the day, and there were some power outages and stuff. So something we continue to pray for the best out there. But overall, Hawaii was pretty strong in the quarter on a relative basis.

All right. I think that does it for the questions. So thank you, everyone, for joining our call today. We delivered another solid quarter with strong occupancies and increased first-time buyer sales. Our modernization initiatives are taking root, and we have a lot of new plans scheduled for the second half of the year. so we are well positioned to deliver on our guidance this year.

We're also making good progress on our monetization program and remain on track to deliver $150 million to $200 million in incremental run rate adjusted EBITDA by the end of next year. 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.

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

All right. Everybody, we're going to jump into our next session, which is with Marriott Vacations Worldwide. I'm joined by John Geller, who is the President and CEO; and Jason Marino, who is the CFO.

Just to start things off, and we had a conversation to start the day with one of your peers. And I think one of the things that people often get either confused by or they -- there is a misconception around timeshare in general and vacation ownership is that it's highly discretionary, highly cyclical. Maybe talk to us a little bit about how you think about the cyclicality of your business model? And maybe help dispel some of that thought process.

Sure, sure. So while it is a discretionary purchase, right, your upfront purchase of timeshare, it is an investment as we talk to folks into your future vacation. So it's not about just purchasing for this year, right? It's the value you're going to get over the lifetime of vacations. And I think half our business is -- and when you talk about the management portion, management fees, our membership, you get -- even our financing business, right, good recurring cash flows, where you potentially see some volatility as if on the broader consumer, right, there was some hesitancy to buy for whatever reason.

They like the product, but they just decide not the right time to write on average, $25,000, $30,000 check or finance it with us. And so we saw a little bit of that as we went through the first quarter. Like I say, if you're a glass half full, the fact that given all the macro volatility, our VPGs, whether those were for first-time buyers or owners were down roughly 2%, right? So people are still buying, right? They're making that long-term investment. And quite frankly, if you think there's going to be higher inflation and things like that, it might be a good time to buy because once again, this is for -- you're locking in on a price today that is going to go up over time. We take our price per point up, but if it's a highly inflationary market, right, it's going to get more...

We're making it think that we need to do a tour at the end of this day for everybody.

But it is -- the other thing, and you've heard this, I'm sure, from a number of people you talk to in terms of the pure leisure side, coming out of COVID, people have put much greater priority on experiences, and that's what we offer. So we continue to see that. Our resorts this year will be 90-plus percent occupied year-round across all our vacation ownership resorts. We run a very high occupancy. And we see that as we look through the balance of the year. So people are going to show up. For us, it's about informing them about the benefits of that lifetime of vacations and getting people to buy.

And one other follow-up on that question would just beyond just the demand, which maybe we'll dig into the demand side further, but what about from a business model standpoint or maybe remind folks of how much operating leverage or lack thereof there is? And what are the main levers that you have to pull to kind of navigate if things go both positive or negative?

Yes. Yes. Like I said, 40% of our EBITDA is recurring, and it typically grows every year, our financing profit, notwithstanding higher securitization rates. We're starting to see growth in our financing profit as we been securitizing at higher rates. And the lower rates have kind of cycled through the management fee business and even the membership side of that, both on the VO as well as the interval side, we see good, consistent great cash flow. The volatility comes, and we talked about this a little bit on our first quarter call was if people are a little bit hesitant in buying and that's where we'll manage that, and that's where we can offer some what we call first day benefits, higher incentives to make the value proposition a little bit sweeter and get people to buy. And that worked and we rolled out in March. For first-time buyers, we rolled out some incentives, and you saw the increase. I think we were of our competitor set, our mix of first-time buyers is the only one that went up. Our competitors went the other way in the first quarter in terms of the mix of owner and first-time buyer sales. And then on the owner side, we did roll out some promotions here in May. So we're starting to see the benefits of that as well in terms of closing efficiencies.

So I guess to follow up on that. So if you see kind of deviations in the consumer environment, one of the levers, the first lever that you would pull in terms of like the playback -- playbook that you would follow would be promoting to try to drive demand. It sounds like you saw some of that. Is that I guess, are we seeing -- should we be anticipating then that there's a temporary kind of pressure point on margins before they then re-expand because of...

The goal in -- when you think about our margins, obviously, we have a broader monetization project to take costs out of the business, which should help improve margins across the business. But it's really about getting VPG growth, right? So your cost to get all the tours and everything is fixed. If you can get a slightly higher closing efficiency, you're going to get better margins, better flow-through in that. So we're focused. And we had finally started coming out of COVID, which was kind of an all-time high for VPGs in '22 with a lot of pent-up demand, that had continue to kind of still way above 2019, but you saw the VPGs coming down. And then finally, in the second half of last year, we really saw the stabilization in the fourth quarter was -- I think our first quarter where we grew VPGs year-over-year. And as we talked about on our call, we saw January get off to a good start. And then you had a lot of the more macro noise kind of kick in, in February and March, and that's where we saw some of that softness. So we don't make those decisions day to day, right? You're looking at it over a couple of weeks, what are the trends, what are we hearing at the sales table to kind of sweeten that offer and then we'll make adjustments. And so -- the good news is, at least knock on wood here, more recently, there's not as much volatility in the day-to-day that could change. But if we're successful, get that VPG growing again, that's going to help with your development profit and leveraging your marketing and sales costs.

So maybe to make sure I reframe correctly, it sounds like there was bit of a step down from the volatility, but it feels like maybe on firmer footing.

Yes, it definitely stabilized. What we saw and we talked about on the call, we were down, VPGs were down. Our sales were down roughly 3% in March. And then April, which with all the tariff stuff, we saw more volatility down 4%. And for May, we're still down, but not down as much. So we saw some improvement with some of the initiatives and that continues to be the focus. How do we get that VPG going the other way.

So maybe looking long term, the other kind of area of pushback that we hear from folks is that it's for a different generation. It's not going to be able to attract the younger consumer. What do you see in your business that would give you confidence that the next generation is going to be as much an owner of your timeshare as the prior?

Yes. I mean it's a couple of things. If you look at our first-time buyers, I think millennial, Gen X about 60%, right? So I've always said it's a bit of a life stage product, right? But at the same time, you also look at how the product has evolved over time back when we used to sell specific week at a certain property and you didn't have all the options. As the product has evolved with the point system and all the things you can do outside of just staying in one of the villas exchange for cruises, African Safari, there's a lot more opportunity for folks to get on vacation in different ways. And then also for younger travelers, we've added a lot more city experiences. And we call our city collection. And so we're going to continue to enhance the offering and it will become, I think, more and more relevant to folks. But given the size of our units, 2 bedrooms, typically 1,200 square feet, full kitchen amenities, things like that, they do kind of trend towards people with families. But -- and that's where I call it more of a life stages. You start to travel if you have kids and staying in a couple of hotel rooms -- different than maybe some of the short-term rentals where you can rent a home or a villa, these are all brand standards, right? And so for our customer, it is about the value proposition, knowing that you're going to get a very comfortable bed, and the units are going to be clean and all that stuff that consistency is big. In terms of as you get older, right, you don't -- you're willing to pay a little bit more for that consistency and not have the variability in your vacation. So it continues to resonate as -- and we haven't seen the demographics change over the last 20 years in terms of average age of a first-time buyers, early 50s. Average age of our owners are about 60 or so. So it's not like you're seeing that age trend change as people and how they want a vacation and what we have to offer, it resonates.

Two follow-ups on that. One is, just remind us from a customer demographic, what's the average kind of income and household worth? And then secondarily, as the new buyers have maybe -- they're not younger, but -- could their behavior shift in terms of upgrades? Or has that been pretty consistent as well?

So for the first part of your question, average household income, we target in that $125,000, $150,000 a year. Average self-reported net worth is about $1.5 million for our owners. So -- and that's been very consistent over the last 15, 20 years in terms of who we're targeting. In terms of the upgrades, what we see is a first-time buyer typically 40-ish percent will upgrade. And that hasn't changed much either. They -- as they're -- they like the product, they want to make it more of their, I'll call it, vacation wallet, right, buy more points, have more time at our resorts, they add more over time. So...

So one of the sourcing channels is clearly kind of the existing customer base for new customers or new owners, I should say. Remind us what are the primary sources. And what are some of the initiatives that you have to potentially either expand or enhance those?

Yes, yes. So historically, given our licensing agreements with Marriott and Hyatt, we do a lot of marketing into the Bonvoy in the World of Hyatt. And we've got probably 28, 30 data points that help us focus in based on what we learned historically of who's most likely to buy, who to make offers to, things like that. It's interesting, more recently on the Marriott side, for example, there are a lot of people that book at a Marriott Hotel, but aren't a Bonvoy member. And historically, we'd say, well, they're not going to be a good marketing prospect. And what we have found as we've kind of looked and tested different channels is actually if they've got the other data points in there, they actually are a pretty good target. So we're always looking to kind of call it, expand the marketing funnel, try different ways of making offers to people that maybe historically, we hadn't tried or we thought for whatever reason. But with all the data and analytics and things that we've been doing, it helps, right, in terms of expanding that funnel.

I think you mentioned that was it 70% growth in online as a source. Is that mainly e-mail that they're coming through and clicking through, do you know or...

Well, that -- I think what you're referring to is owners are booking 70% of their villa stays now online. Like 3 or 4 years ago, that was about 30%. And so people would call our owner services, our call centers to book their villa stays. And as we've enhanced the technology, but you also got to remember that there's more opportunity there because about 20%, 25% of people use their ownership points each year to book outside of villas. And right now, to book those type of vacation packages you have to call. And the goal is, over time, no matter however you want to use your points, right, in a villa, going to cruise, all that -- yes, move more online. And GenAI becomes a real opportunity with some of that, too, in terms of how people want to plan and book their vacations and so, a lot of great work as part of our modernization to continue to move off.

And we use AI today. We've rolled it out in our call centers over the last couple of years, whether that's a virtual voice. So lot of questions, you don't even need to talk to a live operator. They can handle and then we've got chatbots and things like that, that we continue to enhance what they can handle. And that's where, once again, with GenAI, and you start to get the real opportunities there over time, they'll be able to handle more and more without ever talking to an operator.

But I guess I was also thinking about then that can also, I would imagine, over time, tie into how you even get people to tour, how to sell packages...

Yes, absolutely.

Maybe remind us where -- what percentage of your tours come from packages? And then what could that be?

Yes, it's about 25%. And typically, those were first-time buyers, that were potential first-time buyers. We want to -- first and foremost, I said we're around a 90% resort occupancy. We want to get our owners happy with the product as they potentially buy more. So we want to make sure they get their vacation needs met. But we also get a big chunk of inventory every year for people that exchange to go outside the system or inventory that we own that we haven't sold yet. And that's where we typically -- that's the inventory we use for packages because we could otherwise rent it. But -- and so for us, when you run at 90% occupancy, and definitely high-demand locations like Hawaii, where you might run a 97%, 98% year-round occupancy. It's more the supply of rooms to put those packages in, it becomes a bit of a limiting factor in terms of driving more package growth over time. So we'll continue to do it because while, yes, you make a little bit of money on the rentals, the opportunity to make sales, right, is more than worth it. So it's always trying to maximize that value.

You talked about the consistency in owner upgrades. I guess what percentage of owners have upgraded at this point?

That, I don't know if -- Yes. I mean we used to talk about in terms of weeks, but on average, that hasn't changed much. An owner owns on average about 1.5 weeks of timeshare, right? And so one of the things that we do with our Points program and we -- on the Marriott side, have been in business now over 40 years is people that have gotten a lifetime of vacations aren't traveling as much, recycle that. So we're taking people out that wouldn't otherwise buy more and replacing those with first-time buyers and that opportunity to buy more an upgrade over time. So -- we do know, like I said, first-time buyers on average, in the first, call it, 10 years, 40% of them will buy more. And that might be half a week, a week, it could be a couple of weeks, right? That's where depending on the owner.

When you were referencing the volatility in the demand, was that centered on any particular sales center or geographies?

No. It was generally kind of across the system. Like I said, in the first quarter, VPGs for first-time buyers and for owners were down 2%. So -- while there could be a little bit in one sales center versus another, it was pretty much kind of across the system that you saw that just high-level general softness and closing efficiencies.

Right. So you mentioned the outset that you have a master plan effectively for modernization. That could be an opportunity. I mean, it is an opportunity for margin enhancement. Maybe give us an update on where you are on that and where to get -- where the savings are going to come from, not only now, going forward?

Yes. Yes. So yes, we've targeted $150 million to $200 million, call it incremental EBITDA above just normal growth that we expect to get over the next couple of years with the idea that $150 million and $200 million run rate will be in place by the end of next year. When we came out this year in our original guidance, we said this year should have, call it, $15 million to $25 million. As we've gotten into the program and have been able to accelerate initiatives, we took that up to about $35 million this year, which also pulled forward more savings and revenue opportunities next year from what we originally said. And -- the teams are working hard to do more, right? Like I've said, as important as getting the revenue growth and the efficiencies, it's also about changing our culture on how work gets done, the agility. We're already starting to refill the pipeline of future opportunities and things like that. So -- while we talk about the program in terms of 2 years, the idea is we kind of, I call it, muscle, build that agility and muscle and how the organization moves quickly. How we hold outcomes and accountability and deliver on that and really change the speed at which we move going forward.

One of the other areas that you had some improvement on was the cost of VOI to start the year. Maybe talk about what changed there? Was that a more efficient buying? Or are there tools that are going to drive a sustainable -- sustainably lower cost of VOI?

Yes.

Yes. So it's really two things as we think about just -- not just the first quarter, but the rest of the year and then the out year. So for a number of years now, we've talked about slowly increasing our cost of VOI, which we sometimes call product cost. Just as we look at the mix of how much is repurchased inventory that we're recycling from owners as well as the cost of new inventory. And so where we sit today in the first quarter, we were a little bit lower, and that really had to do with the mix of the product that we sell. So we try to sell owners kind of what they want. We have Sheraton, we have Westin. We've got Marriott owners and they all have slightly different product costs within them. And so as the mix of customers changes, that has some impact on it.

And then as we thought about the rest of the year, as we brought our contract sales guidance down, the mix of the inventory that will sell more repurchase inventory this year. So it's really just a mix of products that we'll sell this year as we move forward.

Does that mean that next year, we should be assuming that maybe that goes up, but it's going to be coming at the same time that these other initiatives kind of fully kick in?

Yes. I don't think it really impacts next year as you go forward. Next year, we'll have a different set of assumptions, and we were going to have the higher product costs next year anyway. So I don't think it really does anything on an absolute basis to plan for next year. As we've talked about it over the last few years, the last couple of years, we've guided towards having this higher product cost over time in each and every year, as we get into our repurchase programs and tweak those on the margin to try and continue to drive lower costs on the repurchase side, we've been able to offset some of that increase that we've been foreshadowing for a number of years. So this is really just a continuation of those efforts.

Is that more purchasing of existing inventory, meaning just recaptured inventory relative to new inventory? And then how do you think about the right inventory level and the right mix of inventory?

Yes. It's a lot of the continuation of that. If you go back over the last 15 years, we've done a lot of good things on the product cost side from that repurchase inventory, whether it's the deals that we strike with our COAs. Because the COAs are responsible for the maintenance fee delinquencies and defaults in terms of that's their bad debt. We repurchased that inventory from COA. So we've adjusted our pricing to them. And as we exercise the right of first refusal on inventory that trades in the secondary market, we've gotten involved in that. So we're always looking to do the best that we can for the company as well as the owners on that side in terms of letting folks out.

Makes sense. So maybe thinking about the credit book mentioned last quarter that delinquencies improved despite everything that was going on in the macro. And I think some of that followed some initiatives that were put in place. So perhaps talk to how you're getting delinquencies to kind of buck that trend? And is there further opportunity there to improve the credit book in the portfolio?

Yes. So we're always working to enhance our collection procedures and things like that. I think one of the bigger drivers that really we associated with the delinquency -- rises in delinquencies over the last couple of years was really the increases in the maintenance fees that we had in '23 as well as '24. We had almost a 25% collective increase for the 2 years combined. And so it's really important for us to keep those maintenance fee increases for '25 down to more of that historical low single-digit number. And we achieved that being in the low 3% for our points-based products. So we think that had definitely something to do with the performance we know from owners calling us up about maintenance fees. Those calls are down about 30% year-over-year. But then in addition, more proactive outreach, e-mail campaigns, making it easier for folks to pay online as we talk about the modernization and better technology. So a lot of the tools that are available in the market. We've also implemented over the last 9 months as this -- the delinquencies rose. And so we feel really good. Year-end is always our highest delinquency quarter. So there is some seasonality in terms of delinquencies, but the year-over-year improvement through the quarter and into April continue to get better as well. So delinquencies right now are approximately where we were in 2023. So we've kind of gone through that peak of '24, and we're back down and we feel good about it. And also as it relates to the overall loan book. We've increased our reserve percentage about 2 points on a balance sheet basis, so -- versus where we were 2 years ago. So we're continuing to reserve at a higher percentage, but we feel pretty comfortable with the portfolio as it currently stands.

Just a couple of follow-ups on that. One, the delinquencies that you did see last year and then the improvement this year, is that specific to certain geographies or customer types or even within the brands?

As we think about it, we did see more stress at the lower FICO score bands as you might expect, but there's nothing really geographical or -- to really point to. So it was really more FICO band oriented than it was anything else.

And from a brand perspective, we've seen improvements across all the different brands as well. So those have come down pretty consistently across brands still...

From a delinquency basis.

Correct.

And your FICO scores then by brand, there's a lot of mix that's happening, but if we look independently at those. Have they improved as well? And then how should that inform as to where your provision should go?

Yes. We do -- we use FICO as a primary indicator of credit risk. Our overall FICOs for first time -- for originations, not first-time buyers, but originations is about [ 7 35 ]. That's up a little bit over the last several years. The most improvement that we've had has really been on the Sheraton consumer when we acquired ILG in 2018, we really focused on eliminating some of the lower-quality channels like OPC and things like that. So we've moved the FICO scores up since we acquired ILG in 2018. So it's up about 10 points or so in that front.

Have you changed what percentage needs to be put down? Or are you seeing any change in what people are willing to put down?

No. Our product has largely always been a 10% down product. We do drive for higher down payments. But generally, it's a 10% down requirement to purchase for financing.

Got it. If folks have questions, I'll go out to the audience. I've got a couple of others. People need their caffeine pick up the afternoon. One of the -- it's a smaller portion of your business and EBITDA, but good free cash flow business is the exchange third party. What are the major initiatives and changes that you're implementing or contemplating to shore up the trajectory of the top and bottom line in that business?

Yes. High level, it's about -- a little bit more about wallet share. So our overall member count in that business has been pretty steady over the last couple of years. But I think, Stephen, as you know, as timeshare on the Vacation Ownership side has changed and more people like us on the branded side, expand their club offerings, less people are changing, right? They're more of those playing in their own corporate club versus that kind of week-for-week exchange. So for us, it is how do we continue to get owners -- deposit time in market and do those types of things. But from a wallet share perspective, we offer getaway vacations, which are rentals with third parties where we have inventory and things like that, and it's enhancing those offerings. So for example, those have typically been nonrefundable. And so we are going to expand that offering to have a refundable offer. And so those are the things that -- if it's not refundable, you might be like, "Well, I'm not going to book that." But if I got a refundable opportunity and all the stats would say, typically, 80% of the refundable stuff will stick, right? And so you have some optionality. It's also -- we've got a lot of legacy systems there that we got when we bought Interval. It's about enhancing that more dynamic pricing in terms of what's going on. It's very kind of static and manual right now in terms of how we adjust offerings on the rental side. So it is about -- we've got this 1.6 million members, right? How can you bring different offerings besides pure exchange, and that's what we've got some real opportunity to add that over time.

So let's change gears and look at capital allocation and your free cash flow. One, just give us a sense of where free cash flow conversion has been and where it should be longer term?

Yes. So historically, our free cash flow conversion has been really well north of the 50% mark, 55%, 60%. There was a couple of years there during COVID when we really -- coming out of COVID had really high VPGs and inventory spending was lower that we -- I think we achieved 70% one year. This year will be kind of in that low 40% range, and that's driven by a couple of things. We do have a little bit higher inventory spend on a relative basis than we've had -- as you think about how we think about inventory over cycles, we always think over the long term, you're to have a little bit of growth in the business, you need to grow your inventory relative to your cost of product each and every year. Inventory is not -- we're not selling widgets. We're selling physical units and resorts and the development is a little bit more than bite-sized sometimes. And we're always planning it 3 to 5 years out. So as you go back in time, we had expected to have a little bit higher contract sales. So our inventory spending is a little bit higher. And then during COVID, we had contracted to buy a property in Waikiki that somebody was developing, a third party was developing. So now we're acquiring that a few years later. But we do our best to modulate that and keep that consistent with our product cost as we go forward. And if you look back over the last 15 years, most years, we've had really positive inventory, cash flows from inventory. But longer term, we do think it will be slightly negative. Right now, we're sitting with about 3 years of inventory on our balance sheet. That's a little bit more than we would like. We'll work to get that down to 2 years. So there is a little bit of embedded tailwind there over the next several years from a cash flow perspective as we work our way through some of these commitments. And then obviously, we have the repurchase program, which is running about $80 million, $90 million a year as well.

And you sold some non-core assets recently. I guess, are there other opportunities for that? And do you think about how you allocate that capital different than what's generated from the internal business?

Well, we don't included in our free cash flow, right, as we talk about it, right?

Understood.

But yes, in the near term, as you mentioned, we got about $150 million, $200 million of call, biggest one being the Sheraton Kauai Hotel that can't be converted to timeshare. It generates EBITDA. It's good, but we're not a long-term owner of hotels. And so we've had to work through some of the agreements there, and it's on a ground lease. And so it's taken a little bit longer since we bought ILG to sell that. But that's the biggest opportunity. And then Waikiki, there's a retail component of that. And so selling -- we don't need to own that retail, and we've got parking garage in San Francisco, just things as part of the projects that are excess. And we're going to -- in the near term, what we've talked about is got, call it, $200 million plus or minus of investment related to getting these modernization benefits of $150 million to $200 million is really to kind of offset some of that here in the near term from an overall cash flow perspective.

Makes sense. We're almost out of time, but I've got more of a hypothetical question. That's going to be -- I always throw these ones out at you, but I guess if I think about -- you said you're not a long-term owner of hotels and resorts. But theoretically, you could recapture and you would own all of your properties eventually.

Well, the trust will own.

Correct. You trust the owner.

Yes. The owners -- yes, the owners own a beneficial interest in that trust. So at the end of the day, they still own real estate, but maybe not a week specific.

But I guess I'm getting at the value of your stock, the enterprise value of your stock should probably be in some way, shape or form, tied to the value of that underlying property, meaning how many rooms do you have again?

24,000 villas, I believe.

24,000 villas, that's rooms -- individual rooms, roughly?

Yes, [indiscernible] on average, yes.

Typical hotel development, how much of that cost per key?

Probably $1 million per key now today to rebuild that. And to your point, we're in locations like...

Substantial discount to NAV right there.

Yes. West Maui, we've got a couple of Westins, Marriott and Hyatt. And there's no new timeshare going into West Maui and Ka'anapali Beach where we're at, right? So in a lot of locations, there's no new product coming online, especially from a timeshare perspective. So -- yes, you got a lot of opportunity.

Could you -- I guess because it's in the trust, you can't theoretically carve out an individual asset if you were to recapture almost the entire asset. Well, that was my thought process for the day. We're right at the end here. So please join me in thanking Marriott Vacations team for all the time.

Thank you.