2017 FOURTH QUARTER. February 28, 2018

Transcription

1 2017 FOURTH QUARTER February 28,

2 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of federal securities laws, including statements about anticipated future events and expectations that are not historical facts. Such statements include, but are not limited to, statements regarding the impact of The Tax Cuts and Jobs Act, amendments to certain agreements with Marriott International and the adoption of ASC 606, and earnings trends, estimates, and assumptions. We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including volatility in the economy and the credit markets, supply and demand changes for vacation ownership and residential products, competitive conditions, the availability of capital to finance growth, and other matters referred to under the heading Risk Factors contained in our most recent annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the SEC ) and in subsequent SEC filings, any of which could cause actual results to differ materially from those expressed in or implied in this presentation. These statements are made as of February 28, 2018 and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. In this presentation we use certain financial measures that are not prescribed by United States generally accepted accounting principles ( GAAP ). We discuss our reasons for reporting these non-gaap financial measures herein, and reconcile the most directly comparable GAAP financial measure to each non-gaap financial measure that we report (identified by a double asterisk ("**") on the following pages). Although we evaluate and present these non-gaap financial measures for the reasons described in the Appendix, please be aware that these non-gaap financial measures have limitations and should not be considered in isolation or as a substitute for revenues, net income, earnings per share or any other comparable operating measure prescribed by GAAP. In addition, these non-gaap financial measures may be calculated and / or presented differently than measures with the same or similar names that are reported by other companies, and as a result, the non-gaap financial measures we report may not be comparable to those reported by others. 2

3 Investment Highlights Industry leader with exclusive rights to established brands Favorable long-term industry dynamics Recurring management and exchange company fee streams Strong free cash flow and liquidity position Diversified business model poised for future growth from new destinations Shareholder focused capital allocation strategy 3

4 Key Strategic Initiatives Earnings Growth: Grow contract sales with a focus on first time buyers by: - Adding new destinations with strong on-site sales - Growing tours at existing sales centers - Leveraging enhanced marketing capabilities from amended agreements with Marriott International Optimize development margin Focus on growth from our diverse lines of business Free Cash Flow Generation: Selectively utilize capital efficient structures to acquire new inventory Optimize investment in inventory Tax Cuts and Jobs Act of 2017 Balanced Capital Allocation: Pursue compelling new businesses opportunities Return excess capital to shareholders 4

5 Growth Strategy Same Store - VPG improvement from pricing and closing efficiency - Marketing programs (e.g., Call Transfer, Universal Encore, hotel linkage, etc.) - Focus on driving first time buyer tours New Destinations - Six new destinations opened in 2016, with potential for up to $200M of annual sales volume - First location in Bali opened in Q Commitment for first location in San Francisco with targeted opening in Q

6 2017 Full Year Highlights Contract Sales $803M 11% Growth North America Tours up 12% ~15% First Time Buyer Tour Growth North America VPG $3,565 3% Increase Adjusted EBITDA** $280M 7% Growth 6

7 Diverse Lines of Business Development Resort Management Margin up $12M, or 10% Adjusted development margin** of 19.6% Margin up $8M, or ~6% Stable recurring fee streams from management and exchange businesses Financing Margin up $8M, or ~9% Increasing returns from higher propensity and increased contract sales Rentals Margin down $10M Increased preview keys - lower rental revenues, but supports growing contract sales and development margin 7

8 New Destinations Fueling Growth San Francisco* 233 Units Capital Efficient Third Party Transaction San Diego 264 Units Capital Efficient Operating Hotel Conversion New York City* 176 Units Capital Efficient Third Party Transaction Bali, Indonesia 51 Timeshare Units Capital Efficient Turnkey Acquisition Surfers Paradise, Australia 88 Timeshare Units Capital Efficient Operating Hotel Acquisition Waikoloa, Hawaii 112 Units Capital Efficient Turnkey Acquisition Washington, D.C. 71 Units Capital Efficient Turnkey Acquisition Bali, Indonesia* 88 Timeshare Units Capital Efficient Turnkey Acquisition South Beach 49 Units Capital Efficient Operating Hotel Acquisition *We have entered in to, but have not yet closed on, commitments to acquire inventory at future dates in New York (currently in operation), San Francisco and a second property in Bali. 8

9 Diversified Business Model Drives Strong Adjusted Diversified Business Model Drives Adjusted EBITDA** Growth and Free Cash Flow** EBITDA Growth and Strong Free Cash Flow 2017 Revenues - ~$1.5 billion** 2017 Margins - $409 million** Development $728M (49%) Resort Management $306M (20%) Development $141M (35%) Resort Management $134M (33%) Rentals $323M (22%) Financing $135M (9%) Rentals $42M (10%) Financing $92M (22%) ($ in millions) Adjusted Free Cash Flow **, 1 ($ in millions) Adjusted EBITDA **, 1 $300 $250 $200 $150 $284 $229 $159 $253 $300 $250 $200 $150 $213 $213 $13 $200 $250 $250 $14 $236 $261 $261 $261 $280 $280 $280 Non-cash sharebased compensation expense adjustment Reported Adjusted EBITDA $ $ ** Revenues exclude cost reimbursements of $460 million. All margin dollars represent revenues, net of related expenses. Revenues and margins are adjusted for certain items and the results from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016, as itemized in the non-gaap financial measures contained within the Appendix. In addition, financing margin is net of consumer financing interest expense. See Appendix for additional information Adjusted Free Cash Flow included adjustments for borrowings available from the securitization of sellable vacation ownership notes receivable through the Warehouse Credit Facility at year end; we did not make similar adjustments in Beginning with 2016, Adjusted EBITDA includes an adjustment for non-cash share-based compensation expense; that adjustment to reported Adjusted EBITDA for prior years is shown above. 9

10 Benefits of Amendments to Agreements with Marriott International Reduction in annual royalty fee Immediate Financial Impact Additional co-marketing funds from Marriott International s new credit card agreements Reduced costs of Marriott Rewards points from planned system-wide reduction in the rates Marriott International charges its loyalty program members* $18 to $20 million of annualized benefit to MVW *Assurances from Marriott International to maintain reduced cost for two years 10

11 Highlights from Amendments Enhanced Call Transfer Digital Marketing Opportunities Exclusive timeshare call transfer partner for all Marriott and legacy Starwood call centers Extension of long-term contract Exclusivity to certain digital marketing capabilities with Marriott, to include marriott.com Potential Annual Contract Sales Contribution by 2021 $100 to $150 million Additional Hotel Linkage Enhanced exclusivity includes 15 Marriott and legacy Starwood brands (illustrated on following page) Exclusivity of these arrangements extends throughout the life of the remaining 73 year term and two 30 year extension periods 11

12 MVW Exclusive Marketing Linkage Agreements Under the original license agreement, MVW has exclusive access in all markets to the following 5 brands: Under the amended license agreement, MVW has exclusive access in all markets to these additional 10 brands: Legacy Marriott Legacy Starwood These three brands are subject to certain limited exceptions for Marriott s other timeshare licensee 12

13 Strong Returns and Free Cash Flow Generation $310M ~ $325M Adjusted EBITDA** guidance for 2018 $185M ~ $215M Adjusted Free Cash Flow** guidance for 2018 $126M Returned to Shareholders in 2017 $88M through share repurchases and $38M through dividends $775M of capital returned to shareholders over the last 4 years 13

14 Impact Diversified of New Business Items on Model 2018 Drives Outlook Adjusted EBITDA Growth and Strong Free Cash Flow The following chart reflects the estimated financial impact to 2018 for the implementation of the new revenue recognition standard (ASC 606), the amendments to the agreements with Marriott International and the Tax Cuts and Jobs Act of 2017: Amended Agreements Revenue Recognition and Other Changes in Tax Cuts and (ASC 606) Marriott Int'l Arrangements Jobs Act of 2017 Net income ($4) to ($3) $9 to $10 $29 to $32 Net cash provided by $ to $ $9 to $10 $47 to $51 operating activities Adjusted net income ** ($4) to ($3) $9 to $10 $29 to $32 Adjusted EBITDA ** ($5) to ($4) $11 to $12 $ to $ Adjusted free cash flow ** $ to $ $9 to $10 $47 to $51 NOTE: While a portion of the benefit to net cash provided by operating activities and adjusted free cash flow in 2018 from the Tax Cuts and Jobs Act of 2017 will be realized after 2018, roughly half of the total 2018 benefit relates to the timing of taking advantage of certain tax credits. ** Denotes non-gaap financial measures. Please see Appendix for additional information. 14

15 Impact Diversified of Revenue Business Recognition Model Drives Implementation Adjusted Detail EBITDA Growth and Strong Free Cash Flow 2017 Revenue Expense Eliminate Banking As Recorded M&S Costs Sales Reserve and As Reported at Closing as Incurred Range Borrowing Other Subtotal Adjusted Revenue Sale of vacation ownership products $ 728 $ 11 $ - $ (2) $ - $ 20 $ 29 $ 757 Resort management and other services (27) (27) 279 Financing Rental (61) (61) 262 Cost reimbursements Subtotal 1, (2) ,183 Expenses Cost of vacation ownership products (0) Marketing and sales (14) (14) 395 Resort management and other services (18) (18) 154 Financing Rental (7) (51) (58) 223 Other Cost reimbursements Subtotal 1, (0) (7) ,938 Interest expense (10) (10) Other Income Before Income Taxes (1) Benefit (provision) for income taxes (5) (5) Net Income $ 227 $ 8 $ - $ (1) $ 7 $ 0 $ 9 $ 235 Net Income $ 227 $ 8 $ - $ (1) $ 7 $ 0 $ 9 $ 235 Interest expense Benefit for income taxes (1) Depreciation and amortization EBITDA (1) Certain items before depreciation and income taxes Non-cash share-based compensation Adjusted EBITDA ** $ 280 $ 8 $ - $ (1) $ 7 $ 0 $ 14 $ 294 Other includes: Reclassifications of Settlement activity from Resort Management to Development (~$15M revenue), Preview activity from Rentals to Development ($2M net), Tour package revenues from Resort Management to Development ($5M revenue), and Resales activity from Resort Management to Development ($7M revenue). Elimination of cost allocation from Rentals to Development (~$11M) Marriott Rewards first day benefits reflected on a net vs. gross basis (~$9M) Gross-up of cost reimbursements ($290M). 15

16 2018 Diversified GrowthBusiness Model Drives Adjusted EBITDA Growth and Strong Free Cash Flow Excluding the impact of the new revenue recognition standard ( ASC 606 ), MVW is targeting 15% adjusted EBITDA growth in 2018, despite a roughly $7M negative impact from the ongoing impact from the 2017 hurricanes and about $5M impact from higher technology costs to grow our customer facing digital platforms Growth As Adjusted ASC 606 Excluding As Adjusted ASC 606 Excluding Excluding for ASC 606 Adjustments ASC 606 for ASC 606 Adjustments ASC 606 ASC 606 Adjusted EBITDA $ $ 14.0 $ $ $ (4.5) 2 $ % 1 Reflects mid-point of $310M to $325M guidance range provided on Feburary 27, Reflects mid-point of ($4M) to ($5M) guidance range provided on Feburary 27,

17 Key Strategic Initiatives Earnings Growth: Grow contract sales with a focus on first time buyers by: - Adding new destinations with strong on-site sales - Growing tours at existing sales centers - Leveraging enhanced marketing capabilities from amended agreements with Marriott International Optimize development margin Focus on growth from our diverse lines of business Free Cash Flow Generation: Selectively utilize capital efficient structures to acquire new inventory Optimize investment in inventory Tax Cuts and Jobs Act of 2017 Balanced Capital Allocation: Pursue compelling new businesses opportunities Return excess capital to shareholders 17

18 Thank you for your interest in Marriott Vacations Worldwide 18

19 Appendix 19

20 Adjusted EBITDA** and Free Cash Flow** 2018 Outlook (In millions) Current Guidance Low High Adjusted EBITDA Net income $ 182 $ 193 Interest expense Tax provision Depreciation and amortization EBITDA ** Non-cash share-based compensation Certain items Adjusted EBITDA** $ 310 $ Interest expense excludes consumer financing interest expense. 2 Certain items adjustment includes $3 million of acquisition costs. Adjusted free cash flow Net cash provided by operating activities $ 180 $ 205 Capital expenditures for property and equipment (excluding inventory): New sales centers 1 (10) (10) Other (27) (32) Borrowings from securitization transactions Repayment of debt related to securitizations (280) (290) Adjustments: Free cash flow** Net change in borrowings available from the securitization of eligible vacation - (2) ownership notes receivable through the warehouse credit facility Inventory / other payments associated with capital efficient inventory arrangements (38) (40) Change in restricted cash - 4 Adjusted free cash flow** $ 185 $ Represents the incremental investment in new sales centers. ** Denotes non-gaap financial measures. Please see Appendix for additional information about our reasons for providing these alternative financial measures and limitations on their use. 20

21 North America Timeshare Adjusted Development Margin** 2014 / 2015: Development margin improvements from VPG growth and lower product cost on modest contract sales growth / 2017: Contract sales growth driven by investment in same store tour growth and new sales distributions opened in throughout Contract Sales $750 ($ in millions) $700 $650 $600 $550 $500 $450 $620 $631 $645 $729 Development Margin $175 $165 $155 $145 $135 $ $125 Contract Sales development margin ** Development margin represents sale of vacation ownership products revenues, net of expenses (sale of vacation ownership products revenues less the cost of vacation ownership products expenses and marketing and sales expenses). Adjusted development margin is development margin adjusted for certain items and revenue recognition reportability. See Appendix for additional information. The 2014 margin presented here differs from the reported margin by excluding revenues and associated expenses related to residential sales. 21

22 Resort Management and Other Services Revenues Net of Expenses Management fees increase with the cumulative increase in vacation ownership interests sold, coupled with inflationary increases in costs to manage resorts. Exchange company fees increase with the cumulative increase in owners enrolled in the Marriott Vacations Club Destinations points program. $150 $125 $100 $75 $101 $112 $127 $134 $50 ($ in millions)

23 Rental Revenues Net of Expenses 2014 / 2015: Rental revenues net of expenses increased significantly due to: Increases in transient keys available and transient keys rented Increases in the average transient rate Rapid reduction in unsold maintenance fees with on-going completed inventory sell-down $60 $45 $53 $51 $ : Unsold maintenance fees begin to increase as new inventory comes on line, coupled with increased preview keys to support tour growth $30 $15 $ : Further increases in keys to support preview packages, as well as higher inventory costs from more owner exchanges $0 ($ in millions)

24 Financing Revenues Net of Financing Expenses and Consumer Financing Interest Expense 2014 / 2015: Revenues declined on a declining notes receivable portfolio, offset by a decreased overall average cost of funds (consumer financing interest expense) / 2017: Profits stabilized in 2015, growing thereafter on a larger notes receivable on higher propensity and higher sales portfolio, coupled with further reductions to the overall average cost of funds (over the near term). ($ in millions) $150 $120 $90 $60 $30 $ $129 $78 $78 $124 $126 $84 $ Financing Revenue Financing revenue, net of financing expenses and consumer financing interest expense $92 24

25 Fiscal Year 2017, 2016, 2015 and 2014 Net Income ($ in thousands) Fiscal Year Ended December 31, 2017 December 30, 2016 January 1, 2016 January 2, 2015 Revenues Sale of vacation ownership products $ 727,940 $ 637,503 $ 675,329 $ 647,488 Resort management and other services 306, , , ,517 Financing 134, , , ,909 Rental 322, , , ,307 Cost reimbursements 460, , , ,795 Total revenues 1,951,945 1,808,486 1,810,795 1,716,016 Expenses Cost of vacation ownership products 177, , , ,444 Marketing and sales 408, , , ,410 Resort management and other services 172, , , ,138 Financing 17,951 18,631 21,208 24,148 Rental 281, , , ,920 General and administrative 110, , , ,916 Organizational and separation related - - 1,174 3,438 Litigation settlement 4,231 (303) (232) 19,494 Consumer financing interest 25,217 23,685 24,658 26,464 Royalty fee 63,021 60,953 58,982 59,970 Impairment ,381 Cost reimbursements 460, , , ,795 Total expenses 1,720,663 1,583,215 1,592,792 1,559,518 Gains and other income 5,772 11,201 9,557 5,171 Interest expense (9,572) (8,912) (12,810) (11,692) Other (1,599) (4,632) (8,253) 614 Income before income taxes 225, , , ,591 Provision for income taxes 895 (85,580) (83,698) (69,835) Net income $ 226,778 $ 137,348 $ 122,799 $ 80,756 25

26 Non-GAAP Financial Measures In this presentation we use certain financial measures that are not prescribed by United States generally accepted accounting principles ( GAAP ). We discuss our reasons for reporting these non-gaap financial measures herein, and reconcile the most directly comparable GAAP financial measure to each non-gaap financial measure that we report (identified by a double asterisk ("**")). Although we evaluate and present these non-gaap financial measures for the reasons described in this Appendix, please be aware that these non-gaap financial measures have limitations and should not be considered in isolation or as a substitute for revenues, net income, earnings per share or any other comparable operating measure prescribed by GAAP. In addition, these non-gaap financial measures may be calculated and / or presented differently than measures with the same or similar names that are reported by other companies, and as a result, the non-gaap financial measures we report may not be comparable to those reported by others. Adjusted Net Income. We evaluate non-gaap financial measures including Adjusted Net Income, Adjusted EBITDA and Adjusted Development Margin, that exclude certain items incurred in the fiscal years ended December 31, 2017, December 30, 2016, January 1, 2016, and January 2, 2015, because these non-gaap financial measures allow for period-over-period comparisons of our on-going core operations before the impact of certain items in each period. These adjustments are itemized below and on the following pages. These non-gaap financial measures also facilitate our comparison of results from our on-going core operations before these items with results from other vacation ownership companies. Certain items Fiscal year ended December 31, In our Statement of Income for the fiscal year ended December 31, 2017, we recorded $6.8 million of net pre-tax items, which included $8.7 million in net insurance proceeds related to the settlement of business interruption insurance claims arising from Hurricane Matthew, $6.5 million of variable compensation expense related to the impact of the 2017 hurricane activity, $4.2 million of litigation settlement expenses, $1.8 million of acquisition costs, a charge of $1.3 million associated with the estimated property damage insurance deductibles and impairment of property and equipment at several of our resorts, primarily in Florida and the Caribbean, that were impacted by Hurricane Irma and/or Hurricane Maria, $1.2 million of variable compensation expense related to the impact of Hurricane Matthew and $0.4 million of miscellaneous losses and other expense. Certain items Fiscal year ended December 30, In our Statement of Income for the fiscal year ended December 30, 2016, we recorded $5.0 million of net pre-tax items, which included $11.2 million of gains and other income not associated with our on-going core operations, $4.9 million of acquisition costs, $1.4 million of Hurricane Matthew related expenses, $0.2 million of losses (including $0.5 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016, and a $0.3 million reversal of litigation settlement expense. Certain items Fiscal year ended January 1, In our Statement of Income for the fiscal year ended January 1, 2016, we recorded $4.3 million of net pre-tax items, which included $9.6 million of net gains, of which $9.5 million was associated with the sale of undeveloped land and the sale of a golf course and adjacent undeveloped land, $5.9 million of development profit from the disposition of units in Macau as whole ownership residential units rather than through our Marriott Vacation Club, Asia Pacific points program, a $0.3 million reversal of an accrual associated with a 2014 golf course disposition because actual costs were lower than expected, and nearly $0.3 million of income (including $1.3 million of depreciation) from the operations of the property we acquired in Australia in 2015 that we sold in the second quarter of 2016, partially offset by $8.4 million of adjustments for transaction costs, a $1.8 million adjustment for refurbishment costs at a project in our North America segment, nearly $1.2 million of organizational and separation related costs, a more than $0.3 million impairment associated with a project in our North America segment, and less than $0.1 million of net litigation related matters. Certain items Fiscal year ended January 2, 2015 In our Statement of Income for the fiscal year ended January 2, 2015, we recorded $18.8 million of net pre-tax charges which consisted of a $23.8 million non-cash loss associated with the disposition of partially developed land, an operating golf course, spa and clubhouse and related facilities at a former resort in our North America segment and settlement of related litigation, a $3.0 million accrual for a litigation settlement in our North America segment and a $0.3 million accrual for a litigation settlement in our Corporate and other segment, $3.4 million of organizational and separation related costs, $1.4 million of non-cash impairment charges associated with projects in our North America segment and $0.4 million of severance charges in our Europe segment, partially offset by $7.6 million of income associated with the settlement of a dispute with a former service provider in our North America segment, $5.2 million of net gains primarily associated with the sale of undeveloped and partially developed land, an operating golf course and related assets, the sale of a golf course and adjacent undeveloped land, the sale of an undeveloped parcel of land, and the disposition of a project, a $0.5 million reduction to the reserve for remaining costs we expect to incur in connection with our interest in an equity method investment in a joint venture project in our North America segment and a $0.2 million reversal of a severance accrual in our Europe segment because actual costs were lower than expected. 26

27 Non-GAAP Financial Measures Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses). We evaluate Adjusted Development Margin (Adjusted Sale of Vacation Ownership Products Net of Expenses) as an indicator of operating performance. Adjusted Development Margin adjusts Sale of vacation ownership products revenues for the impact of revenue reportability, includes corresponding adjustments to Cost of vacation ownership products expense and Marketing and sales expense associated with the change in revenues from the Sale of vacation ownership products, and may include adjustments for certain items as itemized in the discussion of Adjusted Net Income above. We evaluate Adjusted Development Margin because it allows for period-over-period comparisons of our on-going core operations before the impact of revenue reportability and certain items to our Development Margin. Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA. EBITDA is defined as earnings, or net income, before interest expense (excluding consumer financing interest expense), income taxes, depreciation and amortization. For purposes of our EBITDA and Adjusted EBITDA calculations, we do not adjust for consumer financing interest expense because the associated debt is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and is generally non-recourse to us. Further, we consider consumer financing interest expense to be an operating expense of our business. We consider EBITDA and Adjusted EBITDA to be indicators of operating performance, which we use to measure our ability to service debt, fund capital expenditures and expand our business. We also use EBITDA and Adjusted EBITDA, as do analysts, lenders, investors and others, because these measures exclude certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. Adjusted EBITDA reflects additional adjustments for certain items, as itemized in the discussion of Adjusted Net Income above, including, beginning with the first quarter of 2016, the exclusion of non-cash share-based compensation expense to address considerable variability among companies in recording compensation expense because companies use share-based payment awards differently, both in the type and quantity of awards granted. Prior period presentation has been recast for consistency. We evaluate Adjusted EBITDA as an indicator of operating performance because it allows for period-over-period comparisons of our on-going core operations before the impact of the excluded items. Together, EBITDA and Adjusted EBITDA facilitate our comparison of results from our on-going core operations before the impact of these items with results from other vacation ownership companies. Free Cash Flow and Adjusted Free Cash Flow. We evaluate Free Cash Flow and Adjusted Free Cash Flow as liquidity measures that provide useful information to management and investors about the amount of cash provided by operating activities after capital expenditures for property and equipment, changes in restricted cash, and the borrowing and repayment activity related to our securitizations, which cash can be used for strategic opportunities, including acquisitions and strengthening the balance sheet. Adjusted Free Cash Flow, which reflects additional adjustments to Free Cash Flow for the impact of organizational and separation related, litigation, and other cash charges, allows for period-over-period comparisons of the cash generated by our business before the impact of these items. Analysis of Free Cash Flow and Adjusted Free Cash Flow also facilitates management's comparison of our results with our competitors' results. Total Revenues Excluding Cost Reimbursements. Cost reimbursements revenue includes direct and indirect costs that property owners' associations and joint ventures we participate in reimburse to us, and relates, predominantly, to payroll costs where we are the employer. As we record cost reimbursements based upon costs incurred with no added markup, this revenue and related expense has no impact on net income attributable to us because cost reimbursements revenue net of reimbursed costs expense is zero. We consider total revenues excluding cost reimbursements to be a meaningful metric as it represents that portion of revenue that impacts net income attributable to us total revenues $ 1,951,945 Less: 2017 cost reimbursements (460,001) 2017 total revenues excluding cost reimbursements $ 1,491,944 27

28 Non-GAAP Financial Measures Fiscal Year 2017, 2016, 2015 and 2014 North America Timeshare Adjusted Development Margin ** ($ in thousands) Contract sales North America Contract Sales to Sale of Vacation Ownership Products Fiscal Year Ended December 31, 2017 December 30, 2016 January 1, 2016 January 2, 2015 Vacation ownership $ 728,712 $ 645,277 $ 631,403 $ 619,688 Residential products ,514 Total contract sales 728, , , ,202 Revenue recognition adjustments: Reportability 1 3,632 (3,453) (841) (12,911) Sales Reserve 2 (43,091) (39,298) (26,077) (24,753) Other 3 (26,829) (30,221) (17,711) (18,757) Sale of vacation ownership products $ 662,424 $ 572,305 $ 586,774 $ 577,781 1 Adjustment for lack of required downpayment or contract sales in rescission period. 2 Represents allowance for bad debts for our financed vacation ownership product sales, which we also refer to as sales reserve. 3 Adjustment for sales incentives that will not be recognized as Sale of vacation ownership products revenue. ($ in thousands) December 31, 2017 December 30, 2016 January 1, 2016 January 2, 2015 Sale of vacation ownership products $ 662,424 $ 572,305 $ 586,774 $ 577,781 Less: Cost of vacation ownership products 157, , , ,012 Marketing and sales 356, , , ,302 Development margin 148, , , ,467 Residential products 2 (2,430) - - (2,807) Revenue recognition reportability adjustment 2,914 1, ,798 Adjusted development margin** $ 149,245 $ 136,014 $ 134,674 $ 140,458 Development margin percentage % 23.4% 22.9% 23.4% Adjusted development margin percentage 22.7% 23.6% 22.9% 24.4% ** Denotes non-gaap financial measures. Please see Appendix for additional information about our reasons for providing these alternative financial measures and limitations on their use North America Timeshare Adjusted Development Margin Fiscal Year Ended Please see Appendix for additional information. Represents adjustment to remove residential products results from total development margin to reconcile to timeshare development margin. Development margin percentage represents Development margin divided by Sale of vacation ownership products. Development margin percentage is calculated using whole dollars. 28

29 Non-GAAP Financial Measures Fiscal Year 2017, 2016, 2015 and 2014 Adjusted Net Income ** and Adjusted EBITDA ** ($ in thousands) ADJUSTED NET INCOME Fiscal Year Ended December 31, 2017 December 30, 2016 January 1, 2016 January 2, 2015 Net income $ 226,778 $ 137,348 $ 122,799 $ 80,756 Less certain items: Acquisition costs 1,806 4,881 8,440 - Variable compensation expense related to the impact of hurricanes 6,540 1, Operating results from the sold portion of the Surfers Paradise, Australia property - (275) (1,595) - Litigation settlement 4,231 (303) (232) 19,494 Gains and other income (5,772) (11,201) (9,557) (5,171) Impairment activity Asia Pacific bulk sale - - (5,915) - Severance North America project refurbishment costs - - 1,767 - Organizational and separation related - - 1,174 3,438 Certain items before depreciation and provision for income taxes 1 6,805 (5,456) (5,594) 18,754 Depreciation on the sold portion of the Surfers Paradise, Australia property ,341 - Income tax benefit from the 2017 Tax Cuts and Jobs Act (65,179) Benefit from change in France income tax rate (5,304) Income tax effect from certain items (2,785) 1, ,986 Adjusted net income ** $ 160,315 $ 134,323 $ 118,912 $ 101,496 ($ in thousands) EBITDA AND ADJUSTED EBITDA Fiscal Year Ended December 31, 2017 December 30, 2016 January 1, 2016 January 2, 2015 Net income $ 226,778 $ 137,348 $ 122,799 $ 80,756 Interest expense 2 9,572 8,912 12,810 11,692 Tax (benefit) provision (895) 85,580 83,698 69,835 Depreciation and amortization 21,494 21,044 22,217 18,682 EBITDA ** 256, , , ,965 Non-cash share-based compensation 3 16,286 13,949 14,142 13,376 Certain items before depreciation and provision for income taxes 1 6,805 (5,456) (5,594) 18,754 Adjusted EBITDA ** $ 280,040 $ 261,377 $ 250,072 $ 213,095 ** Denotes non-gaap financial measures. Please see Appendix for additional information about our reasons for providing these alternative financial measures and limitations on their use. 1 Please see Appendix for additional information regarding these items. The certain items adjustment for the Adjusted EBITDA reconciliation excludes depreciation and the provision for income taxes on certain items included in the Adjusted Net Income reconciliation. 2 3 Interest expense excludes consumer financing interest expense. Beginning with the first quarter of 2016, non-cash share-based compensation expense is excluded from our Adjusted EBITDA, and prior period presentation has been recast for consistency. Please see Appendix for additional information. 29

30 Non-GAAP Financial Measures 2018 Adjusted Net Income ** Outlook ADJUSTED NET INCOME OUTLOOK (In millions) Fiscal Year Fiscal Year 2018 (Low) 2018 (High) Net income $ 182 $ 193 Adjustments to reconcile Net income to Adjusted net income Certain items Provision for income taxes on adjustments to net income (1) (1) Adjusted net income** $ 184 $ 195 Certain items adjustment includes $3 million of acquisition costs. ** Denotes non-gaap financial measures. 30

31 Non-GAAP Financial Measures Non-GAAP Financial Measures 2017, 2016, 2015, and 2014 Adjusted Free Cash Flow ** 2014, 2013 and 2012 Adjusted Free Cash Flow (In millions) Net cash provided by operating activities $ 291 $ 109 $ 140 $ 142 Capital expenditures for property and equipment (excluding inventory): Organizational and separation related capital expenditures (3) (4) - - Other (12) (32) (35) (26) Investment in operating portion of Surfers Paradise hotel that will be sold 1 - (47) - - Change in restricted cash (24) Borrowings from securitization transactions Repayment of debt related to securitizations (230) (278) (323) (293) Free cash flow** Adjustments: Organizational and separation related, litigation and other charges (1) Proceeds from sale of operating portion of Surfers Paradise hotel Accelerated payment of liability for Marriott Rewards customer loyalty program Borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility 3-68 (5) 45 Change in restricted cash (15) Adjusted free cash flow** $ 284 $ 229 $ 159 $ 253 ** Denotes non-gaap financial measures. NOTE: 2015 and 2016 Adjusted free cash flow included adjustments for borrowings available from the securitization of sellable vacation ownership notes receivable through the Warehouse Credit Facility at year end; we did not make similar adjustments in Beginning in fiscal year 2017, we now present the change in restricted cash as an adjustment to free cash flow, rather than including the change in restricted cash in free cash flow, but have not restated prior year presentation for this change. 1 Represents the estimated investment in, as well as the proceeds from the subsequent sale of, the operating portion of the Surfers Paradise hotel. 2 Represents the portion of the Q liability for Marriott Rewards customer loyalty program payment that was accelerated in to Q Represents the net change in borrowings available from the securitization of eligible vacation ownership notes receivable through the warehouse credit facility between year ends. 31

32 Who We Are and What We Do Marriott Vacations Worldwide Corporation (NYSE: VAC) is an industry leader in the upscale and luxury vacation ownership segments Over 30 year history Approximately 400,000 owners Over 65 global vacation and resort destinations Exclusive rights to the Marriott and The Ritz-Carlton Destination Club brand names for the vacation ownership business Diversified revenue sources Sell vacation ownership products Nearly half of revenues derived from lines of business other than sales of vacation ownership products Rent vacation ownership units Finance consumer purchases of our vacation ownership products Manage resorts and provide services for Owners and Members 32

33 Total annual sales ($ in billions) Favorable Industry Dynamics The size of the target demographic market 1 and current number of vacation owners imply a 7% penetration rate with potential for meaningful upside $16 8 $14 7 $12 $10 $8 $6 $5 $6 $7 $8 $9 $10 $11 $10 $6 $6 $7 $7 $8 $8 $9 $ Cumulative intervals sold (in millions) $4 $3 $3 $4 $4 2 $2 $0 $0 $0 $0 $0 $0 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $1 $2 $2 $2 $2 1 0 Source: 2017 ARDA State of the Industry Report Recessions Total annual sales Cumulative intervals sold 1 Defined as number of households in the U.S. 33