Marriott Vacations Worldwide - Q1 2024
May 7, 2024
Transcript
Operator (participant)
Greetings, and welcome to the Marriott Vacations Worldwide Q1 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Neal Goldner, Vice President, Investor Relations for Marriott Vacations Worldwide. Thank you, you may begin.
Neal Goldner (VP of Investor Relations)
Thank you, Melissa, and welcome to the Marriott Vacations Worldwide Q1 Earnings Conference Call. I'm 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 that we issued last night, 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 referred to in our remarks 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.
John Geller (President and CEO)
Thanks, Neal. Good morning, everyone, and thank you for joining our Q1 earnings call. It was great to see so many guests enjoying time with their family and friends at our resorts, making lasting memories during the Q1. That's why they come back year in and year out, and with a system-wide occupancy running 90% in Q1, we grew contract sales by 3%, excluding Maui, despite having a difficult VPG comparison, with first-time buyer tours growing 9%. We also started taking reservations for our new Marriott Vacation Club Resort in Waikiki at the end of the quarter, which remains on track to open later this year, and reservations have been strong for this new property. Owners have consistently told us they wanted us to add a location in Waikiki, and this new resort is already bringing excitement to the system.
Concurrent with the resort opening, we plan to open a new sales gallery that we believe could be a meaningful contributor as it ramps up over a few years. With Japanese arrivals to Hawaii up almost 75% year-over-year in the Q1, the timing of this new resort couldn't be better. We've made good progress adding new marketing and sales executives in Maui and still expect contract sales to be up around $5,000,000 this year. International contract sales grew more than 25% year-over-year, driven by double-digit growth in Asia Pacific as the market continues to recover. I'm also happy to announce that we recently signed an agreement to develop a new 60-unit Marriott Vacation Club Resort in Thailand.
The resort will be co-located with an existing JW Marriott Hotel in Khao Lak and will include a new on-site sales gallery when it opens in a few years. This will be our seventh resort in the Asia Pacific region, and the team is busy working on other potential development opportunities around the world. Our Hyatt business also continues to progress nicely. By leveraging proven branded channels, we've been able to grow our Hyatt package pipeline while simultaneously replacing lower-quality tours with higher quality, more cost-effective tours. Our Hyatt Vacation Club owners continue to utilize and enjoy the new owner benefits that we rolled out last year through the Beyond program, and we continue to work toward launching a consolidated Hyatt product.
In our exchange and third-party management business, Interval International performed in line with our expectations for the quarter, with active members unchanged year-over-year and membership and getaway revenue increasing. As previously discussed, last year, we hired a new chief information officer to drive our IT transformation efforts, and he spent a considerable amount of time analyzing where our opportunities lie. While this is a multi-year journey, our IT efforts this year will continue to be centered around consolidating legacy systems, modernizing our software, and increasing automation while continuing to enhance our data and analytics capabilities to improve the efficiency of our marketing campaigns. Looking forward, we ended the quarter with 270,000 packages, and our team is working hard to get these customers on vacation.
At the same time, the consumer shift to experiences continues to benefit our business, with 84% of people recently surveyed planning to spend more or the same amount of money on travel this year compared to last year. International inbound travel to the US continues to recover and is expected to approach pre-pandemic levels this year. Meanwhile, although the economy remains on solid footing, consumers are concerned about elevated price levels, which could impact their spending. Finally, as we approach the important summer vacation months, keys on the books in both North America and internationally are up a few points year-over-year. With that, I'll turn the call over to Jason to discuss our results.
Jason Marino (EVP and CFO)
Thanks, John. Today, I'm going to review our Q1 results, our balance sheet and liquidity position, and our outlook for the rest of the year.
Starting with our vacation ownership segment. Coming into the year, we knew our most difficult sales comparison was going to be in Q1, so we feel very good about our Q1 results. Contract sales declined 1% due to Maui and the difficult VPG comp, while tours increased 4% year-over-year. As John mentioned, contract sales grew 3% year-over-year, excluding Maui. As expected, development margin declined year-over-year due to lower VPGs, higher marketing and sales costs, and a higher sales reserve, as well as unfavorable reportability. Delinquencies and defaults continue to run higher than history would suggest, which is a continuation of last year's trends. We continue to work hard to get delinquencies down, and we believe our reserve is currently at appropriate levels, though we do need to see loan performance improve.
Rental profit increased $12,000,000 year-over-year, driven by increased rental revenue and lower expenses as more preview nights were used for marketing purposes. Financing profit declined 4%, driven by higher interest expense, partially offset by higher financing revenue, while resort management profit increased 8%. As a result, Adjusted EBITDA on our vacation ownership segment declined 7% year-over-year, driven primarily by lower development profit, while margins remained strong at 29% in the quarter. Moving to our exchange and third-party management business. Adjusted EBITDA declined $5,000,000 compared to the prior year, with lower average revenue per member and exchange volume being partially offset by higher getaways at Interval, while profit at Aqua-Aston declined year-over-year due to softness in Hawaii. As a result, total company Adjusted EBITDA declined 8%. Moving to the balance sheet.
We returned $78,000,000 to shareholders during the Q1, repurchasing $24,000,000 of common stock and paying $54,000,000 in dividends. With the shares we've repurchased over the last 12 months, diluted shares outstanding declined 5% year over year. Given the seasonality of our cash flows, we ended the quarter with net debt to adjusted EBITDA of 3.9 times and $855,000,000 in liquidity. At the beginning of April, we refinanced our term loan, which was our only near-term maturity, extending it out to 2031. As a result, our next maturity isn't until Q1 2026. We also have nearly $1 billion of inventory on the balance sheet, including inventory and PP&E, enough to support more than two years of future sales.
We also completed our first securitization of the year, raising $430,000,000 at a blended interest rate of 5.5%, which is approximately 100 basis points below our last ABS deal. Moving to guidance. Our full-year adjusted EBITDA guidance remains unchanged at $760 million to $800 million. We still expect contract sales to grow 6%-9% this year, with our strongest sales growth coming in the H2 of the year as we lap the Maui wildfires, and for development margin to be down a few points, including in the Q2. Financing profit will continue to be a headwind to growth this year due to higher securitized debt costs. And while we do expect rates to be a headwind again next year, financing profit should increase.
Our rental business had a good Q1, and we're working hard to drive incremental demand and manage our cost. And management profit should show fairly consistent year-over-year growth over the balance of the year. In our exchange and third-party management business, we expect Interval members to be down slightly and for average revenue per member to increase. Finally, we still expect G&A expense to be slightly up slightly year over year. Moving to cash flow. We expect our adjusted free cash flow to be in the $400 million to $450 million range this year. Our plan is to deploy our free cash to repay some of our corporate debt, as well as return cash to shareholders through dividends and buybacks, while targeting to get our leverage back to 3x by the end of 2025. With that, we'll be happy to answer your questions.
Operator?
Operator (participant)
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Ben Chaiken with Mizuho Securities. Please proceed with your question.
Ben Chaiken (Equity Analyst)
Hey, good morning. Thanks for taking my question. Would love to dig into the strength in rentals. It sounds like, from the prepared remarks, there was more preview nights. Is that pretty lumpy through the year, or do you expect to stay elevated, for the rest of the year? And then, I guess, related, do the higher preview nights play a role in the higher VOI sales and marketing? If not, what drove that up? Thanks.
John Geller (President and CEO)
Sure. Hey, Ben. Yeah, I think as you look at rentals for the year and what happened in the Q1, you had a couple of things. You mentioned the preview nights, and given all the packages we have and what we're seeing on the books, we do expect those to, you know, continue to be much higher than the previews that we've done last year. So that obviously helps from a tour perspective on the sales side. And with that, as you also mentioned, it's a bit of geography on the P&L. There was about $6,000,000 of higher costs, right? We use rental inventory to supply those, and that cost gets charged over to marketing and sales.
So it was a headwind on the development margin, but a benefit to about $6,000,000 on the rental side of the business. The other area that outperformed a little bit in the Q1 over last year were our usage of plus points. So those are the single-use points we give out as incentives. They were up in terms of the timing of those usage, and so that also benefited the Q1 year-over-year. So as we set up for the balance of the year,
.you know, we feel better about rentals and where we're heading. The other thing I should mention, too, on the rental side, our RevPAX was up about 3%. So, you know, the actual rentals we are mostly through occupancy rate was relatively flat, but we're able, through a lot of our marketing campaigns, to continue to get those rentals on the books. We talked about overall occupancies being up a couple points as we go into the summer months. So, people want to get on vacation and we're seeing that in our rental results.
Ben Chaiken (Equity Analyst)
Gotcha and then just a quick follow-up. In Maui, it sounds like demand is coming back. I think your baseline expectation is limited year-over-year growth. In Maui, you mentioned $5,000,000 of contract sales or so. Is the major headwind still on the sales side, like, meaning the personnel side? And then, if so, what's being done to alleviate that? How do you think about the business going forward? Thanks.
John Geller (President and CEO)
Sure. Yeah, in Maui, it's a couple things. One, resort occupancies in the Q1 were in the low 90s, so not back. You know, typically in Maui, we're running 97% type occupancies. So occupancies are coming back, so that's obviously, you know, a bit of a headwind just in terms of in-house tour flow. But we expect to hopefully see that continue to come back over the balance of the year and get back to more pre-fire levels. And then it is on the, you know, the sales and marketing talent. We've made good progress in terms of, you know, replacing some of the talent we lost. We're not completely back to fully staffed yet.
You know, the trade-off a little bit is, you know, you're bringing in, you know, potentially new talent, right, versus losing experienced talent, so there is a bit of a ramp-up time, getting those salespeople up to, you know, kind of that normal production. But, you know, the setup right now is pretty good. We expect it to continue to get better as we go through the year. And as you mentioned, and then I talked about in my remarks, we should be up year over year. And obviously, we got, you know, easier comps in the H2 of the year in Maui with the impact of the wildfires last year.
Ben Chaiken (Equity Analyst)
Understood. Thank you, nice quarter.
John Geller (President and CEO)
Thanks, Ben.
Operator (participant)
Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Hi, good morning.
John Geller (President and CEO)
Morning, Patrick.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
I want to follow up on what I thought was a bit of a cryptic comment in the prepared remarks. This concerned the loan loss provision. You talked about needing to see performance improve. I assume that means if it does, am I correct to interpret that if it doesn't improve, you would have to take another charge? Maybe you can flesh out, talk a little bit more about that-
John Geller (President and CEO)
Sure.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
-specific.
John Geller (President and CEO)
Yeah. I'll give you some comments, and then Jason can add, too. You know, when we took the reserve last year in the Q3, obviously, we were seeing higher delinquencies, higher defaults, and we took an estimate as to how those would kind of play out. But we said at the time, you know, the expectation would be over the next three, four quarters, right, we'd start to see the improvement, some of the timing and what we thought was the impact of the defaults really coming from some of the higher CPI, inflation, things like that, that were impacting some of the customers.
So, the good news in the Q1 was, while delinquencies were higher than they were last year, over the course of the quarter, we saw those delinquencies improve sequentially. And even through April here, we saw some more improvement. So the trends are still good, but yeah, if our delinquencies, I guess, Patrick, to answer your point, if your delinquencies never came down from what we were experiencing, yeah, that would potentially be, you know, more loan loss reserves we'd have to take. We feel good about where we're at in the trajectory, but we still need to see some more improvement here over the next quarter or two, to get back to more normalized delinquency trends.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Okay, thank you. And then, some follow-up questions on, Maui. You know, starting in August, you'll be lapping the, you know, the horrible fires of last year. You know, John, in your view, do you think that sets you up for, you know, proverbial easy year-over-year comparison? Or do you think Maui is still gonna be struggling, where you wouldn't necessarily refer to it as a easy year-over-year comparison beginning in August?
John Geller (President and CEO)
Well, you know, simply, yes, it'll be an easier year-over-year comparison because for a period of time, obviously, we're shut down, right? We're running 90%+ occupancies, as I mentioned right now. You know, we're back. We've got most of our sales force replaced. Hopefully, as we get to August, right, a lot of those newer salespeople will be, you know, hitting more normalized production levels for sales people. And so, yeah, at an absolute basis, we should do much better August forward than we did last year, just given the trajectory of where we're at right now.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Okay. That does make sense.
John Geller (President and CEO)
Yep.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Then, just last question on Maui. John, you probably saw there was some news about some increased regulations around Airbnb.
John Geller (President and CEO)
Yep.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Can I get your initial take on that? You know, could that really be a needle mover for you folks? Certainly, regulations in New York City have really helped the hotel industry, but, you know, is this a non-event, or could, again, could this be, you know, potential needle mover for legacy properties like yourselves?
John Geller (President and CEO)
Yeah, I think what you're referring to is the governor signed some legislation that kind of gives the, I think, the power to the mayors of each island to potentially, and this is where we don't really know yet exactly what the outcome could be or how it might impact us positively or negatively, but you know, have greater decision-making around short-term rentals. So, we're obviously watching it. We'll one, make sure we understand exactly what what's in the legislation, how it could potentially impact us. But part of it'll be actually what actually the mayors decide to do, right? So, kind of early days. At this point, I don't necessarily see anything, hopefully, that'll impact us in the nearer term, but we're gonna keep an eye on it.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Okay, thank you. I'm all set for the moment.
John Geller (President and CEO)
Great.
Operator (participant)
Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.
Chris Woronka (Research Analyst)
Hey, good morning, guys.
John Geller (President and CEO)
Hey, Chris.
Chris Woronka (Research Analyst)
Hey, John. So, you mentioned the new development you're gonna be doing in Thailand. I think you said it's part of a JW complex that already exists. And so I'm curious, looking forward, are you seeing more opportunities to do things on sites of existing hotels, whether domestic or international? Because I think we're starting to see transactional activity pick up a little bit in the States, so I'm curious whether that's gonna be an opportunity going forward.
John Geller (President and CEO)
Yeah, great question, Chris. The short answer is yes in both locations. We've always had more opportunity just given resort development, I'd say, in Asia Pacific, right? More opportunities, more resorts still getting done over there, brand-new construction. But we've got some opportunities we're looking at here currently in the US as well. So I would expect us to potentially do some more of those deals here in both locations as we go forward. But yeah, the development is coming back. It's just a little bit location by location. And, you know, as you know, the co-located ones actually work well, where we can leverage, you know, in-house across the co-located hotel. At the same time, we've got our units and leverage the amenities in the facility.
So, it'll be a little bit facts and circumstances, but there are some good opportunities out there right now.
Chris Woronka (Research Analyst)
Okay, good to hear. Thanks, John. The follow-up is on kind of the loan portfolio, but in a different direction, which is I'm curious what you're seeing on, you know, current day originations. Is the propensity to finance or down payment or any of that on new loans changing at all? And would that affect your, you know, how you think about that going forward?
Jason Marino (EVP and CFO)
Yeah, Chris, this is Jason. We haven't seen too much, you know, too many changes in sort of day one behavior. Propensity was down a little bit in the quarter, a couple points, but Q1 is always seasonally our lowest propensity quarter, just given the mix of buyers. We're 70%, first-time buyers... Sorry, 70% existing owners in Q1 this quarter. So that sometimes could just goes with that mix as well, but nothing else really different.
Chris Woronka (Research Analyst)
Okay, very good. Thanks, guys.
John Geller (President and CEO)
Thanks, Chris.
Operator (participant)
Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.
David Katz (Managing Director)
Hi, good morning, everyone.
John Geller (President and CEO)
Morning, David.
David Katz (Managing Director)
Morning. Thanks for taking all the commentary and taking my question. John, you made what seemed like maybe a passing comment about you know, pricing and consumers' behavior toward pricing. Could you just go back to that and elaborate a bit more on sort of how that's showing up or, you know, what the sort of basis is, you know, for that? You know, hearing bits and pieces of it, you know, through earnings season in different ways and wanted to make sure we get yours right.
John Geller (President and CEO)
Yeah, sure. Yeah, as you, as you saw, even adjusted for Maui, our, our VPGs were down slightly in the Q1. I would argue, you know, go back to last year, we, we had a strong Q1, so it was, you know, a tough comp. As we went through last year, we did see a little bit more normalization, for lack of a better description, of VPGs, and then things, you know, for the most part, as we got through the third and Q4, kind of stabilized, right? So, that's where we see it, you know, at the end of the day, David, is, is a little bit in the VPGs.
I would say, you know, the broader macro, while the overall economy is still, you know, headlines are pretty good, as we've talked about, no different than we've seen on the loan portfolio, right? Higher costs, you know, I think at some level, and you see it in other businesses, right, there's some stress on the consumer. I think the good news, as I also said in my prepared remarks, is people seem, you know, in terms of their wallet spend, they're prioritizing experiences and vacations, right? And that's what we're seeing are on the books or up as, you know, and they were strong last year, right, going into the summer, and they're up a bit, right?
People are getting on vacation, people are spending, and so that, that's a positive dynamic for us, the business we're in and where people wanna spend their money, and that is, as we've always talked about, a bit of the kind of post-COVID, right? People have kind of shifted to how they want to spend their disposable income and get on vacation. So that, that's a good tailwind for us.
David Katz (Managing Director)
Understood. And one more, if we're, you know, triple-clicking on this, apologies, but the depreciation change that's embedded in the guidance, could we just be clear about, right, it sort of changing the EPS guide, but not the EBITDA? And I just wanted to make sure we totally understand that.
John Geller (President and CEO)
Sure, David. At a high level, we changed some estimates versus our guidance in terms of the timing of depreciation, just when some newer assets were, you know, going online, estimated useful lives of assets. So it's not a cash flow impact by any means. It's just the timing of some of the depreciation versus what we estimated, you know, at the beginning of the year from a guidance, just fine-tuning that a bit.
David Katz (Managing Director)
Okay, fair enough. Thank you.
John Geller (President and CEO)
All right. Thanks, David.
Operator (participant)
Thank you. Our next question comes from the line of Shaun Kelley with Bank of America. Please proceed with your question.
Shaun Kelley (Managing Director/Research Analyst)
Hi, good morning, everyone.
John Geller (President and CEO)
Morning, Sean.
Shaun Kelley (Managing Director/Research Analyst)
Good morning, John. Thanks for taking my question. I just want to go back to the loan loss commentary for a minute and or the provision commentary. And, I'm just kind of trying to follow the, you know, more just the expectation that you guys have embedded here. So, you know, obviously, there was an increase last year, and I think the way you packaged it in the answer to the former question was that the expectation was that would normalize a little bit after we kind of got through some issues last year with the consumer. But as we just kind of look at it on a percentage basis, it looks like it's actually continuing to increase sequentially.
So my question is sort of what level of normalization were you kind of embedding or are you embedding today? And, you know, what if, if we were to stay at the current run rate, and just sort of current behavior, you know, what would that imply or, or how big of an impact would that have?
Jason Marino (EVP and CFO)
Yeah, Shaun. So to your first question, what we, when we looked forward as of Q3 last year and looked at the environment that we were in, we knew it was going to take some time for those delinquencies and then ultimately the defaults to kind of run through the system. So we're seeing that today, and it's, you know, continuing as we thought. So I think when we provided the guidance here in February, we indicated that the loan loss was going to be higher year-over-year in Q1, and that's what we're seeing. So really, as we look forward in terms of estimating any kind of future delinquencies and defaults, it's hard to give you an estimate as to what the impact could be.
As John mentioned, as I mentioned on the call, too, we do need those delinquencies to improve here, and that's what we've been seeing over kind of the end of the Q1 and here into April. So,
John Geller (President and CEO)
So, Sean, the only other thing I'd add there, I think in terms of a more normalized run rate, we did talk about, because the way the models work on the, on the defaults, right? If you have higher defaults, that goes into your static pools, and therefore, you're using that to predict the future. So you know, we talked about our, run rate loan loss for this year and, and going forward could be 100-150 basis points higher, right, in terms of higher, more normalized loan loss. So that does get kind of embedded into the future in terms of new loans.
That, you know, that's embedded in our overall development margin, and what we've talked about is that we are going to need to continue to provide for new loans at a slightly higher rate than we've done historically because of the higher defaults we've experienced.
Shaun Kelley (Managing Director/Research Analyst)
So, John, just to recite that back to you then, sort of 100, 150 basis points off of, let's call it a normalized level, would, you know, would be what's kind of embedded in, in the outlook as you see it today. We're obviously a little bit above that percentage. I think if we look at it year on year, it's like closer to 200 basis points. Is that, am I, am I kind of in the ballpark of how, how to think about it?
Jason Marino (EVP and CFO)
Yeah. Yeah, that's right. And remember, the Q1 of last year was before we started seeing some of this increased delinquency activity. So Q1 last year was lower than the rest of the year. So that's why the Q1 looked year-over-year, worse than kind of the guidance for the full year.
Shaun Kelley (Managing Director/Research Analyst)
Yeah. Okay, I follow that, Jason. Thank you. And then my follow-up would be just sort of the puts and takes between development and rental margins as you outlined it. So if I caught it correctly, I mean, I thought coming into the year that with rental, the issue was going to be that you were going to have higher HOA fees, and then that was going to be a bit of a headwind on the cost side because you were having to pay, you know, to support some of that inventory that you hadn't sold yet. Perhaps I-
Jason Marino (EVP and CFO)
Yeah
Shaun Kelley (Managing Director/Research Analyst)
...misunderstood that, but you know, where does that kind of net out today? Because obviously, you're able to utilize some of this rental pool and move some of those dollars between. But on an aggregate basis for the year, including Q1 now, how do you think about that rental profit? And then, I think development, you just said a couple hundred basis points for the year, below last year. Is that kind of the right ballpark for those two line items? Thanks.
John Geller (President and CEO)
Sure. Yeah, on the development margin side, yeah, for the full year, we expect, you know, the development margin, and we talked about this in our original kind of guidance for the year, to be down 200 basis points, year-over-year. You know, some of that is, you know, the higher loan loss reserves, right? That's a deduct from revenue and impacts your margin, and some higher marketing and sales costs. Yes, on the preview packages, as we do more preview packages and allocate the rental income, you are charging because of the higher unsold maintenance fees and costs of that inventory, you are charging over to marketing and sales, a slightly higher cost, but there's also a lot more keys getting used in the previews.
So that was the $6,000,000 or so I mentioned earlier, which is just a bit of geography, right? That's improving the rental profits. It's an impact on your development margin a little bit. Yeah, for the full year for rentals, we're feeling better, just given as, you know, Q4 shaping up as I talked about. Our occupancy was up, you know, call it about 2.5-3% year-over-year, and you know, as we've also talked about, when you think about the cost of our rentals overall, you know, about 85% is a bit fixed coming into the year.
So for us to, you know, really drive better profitability, and that's what we did in the Q1, we got occupancies up, right? And we were able to keep, you know, the average rate, you know, fairly flat year over year. So, our setup for the year is looking better, you know, still a bit early days, but we're hopeful that, you know, maybe rentals, you know, could be where we're at last year or maybe a little bit better. So we'll, we'll see how the year goes, but, we got off to a good start here in the Q1.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Thanks so much.
John Geller (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Ryan Lambert with JP Morgan. Please proceed with your question.
Ryan Lambert (VP of Sell-Side Equity Research)
Hey, good morning.
John Geller (President and CEO)
Good morning.
Ryan Lambert (VP of Sell-Side Equity Research)
Thanks for taking my question, and congrats on some of the progress you're seeing with demand at your new Waikiki property. In terms of some of the puts and takes with guidance changes, it looked like, at least to me, and correct me if I'm wrong, a little bit more spend this year on inventory. I'm wondering if that's just a function of timing or if you're seeing anything on the development side with higher input costs.
Jason Marino (EVP and CFO)
Yeah, Ryan, this is Jason. What you're really seeing there is the add back from net income or Adjusted EBITDA. So it's really we had a little bit lower product cost, and we think that's gonna continue versus our initial expectations. So it's not necessarily on the spending side, it's really on the add back, and really impacted by a little bit lower product cost than we had originally anticipated.
Ryan Lambert (VP of Sell-Side Equity Research)
Okay, great. And, following up on some of the rental comments, it sounds, you know, a lot more positive for this year. When you look into next year with some additional inventory, is that... Are your expectations for 2025 incrementally better, or would that just be kind of a continuation of the trends you're seeing in 2024?
John Geller (President and CEO)
Yeah, it's a great question. It's a little early for 25, I guess, in terms of working through all that. But, given Waikiki coming online, that, to your point, I think, will give us, you know, additional keys, right? Some of those will obviously be used by owners and all that, but that'll create other rental availability at other properties, depending on where people stay. So, I think, you know, we'll know more as we get through the year. Like every year, the way to go rentals, right, is, you know, driving your RevPAX every year. And also big focus this year on keeping maintenance fee increases back to more historical levels, which will help on the cost of that inventory, given our unsold maintenance fees we have.
So, but yeah, if you know, we're able to continue to drive some rate and occupancy as we go into 2025, on potentially, you know, some more keys, if you will, with some of the new inventory coming online, that should bode well.
Ryan Lambert (VP of Sell-Side Equity Research)
Great. Thank you.
John Geller (President and CEO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Hi, good morning again. Hello?
John Geller (President and CEO)
Yeah, you're breaking up a little bit. Go ahead, Patrick.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Okay. Can you hear me okay?
John Geller (President and CEO)
We can, yeah.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Yeah, great. So I'm just wanting to follow up a little bit on the Abound sales program. You know, had been a issue last summer. You know, can you, I guess, safely say sort of those hiccups have been put to rest here? And, you know, how, how has the-- I believe the challenges were with the legacy Westin customer. You know, how, how is that going with that customer at this point? Thank you.
John Geller (President and CEO)
Yeah, sure. Yeah, as we talked about on the last call, yeah, you know, the transitions are behind us, right? You know, the impact we saw, you know, in more in the Q2, because if we recall, Q3 last year, we actually saw VPGs improve significantly off of what we kind of saw at the transition site in the Q2. You know, was really around just the marketing sales teams selling the product, getting up to speed better and getting confidence in selling the new product. It was a different sell, selling the system and all the Abound exchange opportunities. But we also talked about the fact that more people in the legacy Vistana systems, your Westin and Sheraton, are now enrolled in Abound. They're using the product, right?
There's that getting familiarity with the benefits of the program and actually using it. So those two things, you know, continue to go well. And, you know, we've seen those VPGs, you know, over the balance of last year, really kind of come back to where we were before we launched Abound. So, it's behind us, like we said last call, I don't expect any, you know, impact going forward.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Okay, good. And then just a last follow-up question here. On last year, you had announced two new Westin Club projects, Charleston and Savannah. Do you have opening dates? Is that next year or the following? And then related to that, are those gonna be part of the Abound trust? Do those go into the trust system-
John Geller (President and CEO)
Yeah
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
... or will those be separate?
... Thank you.
John Geller (President and CEO)
Those will go into the trust, into the, you know, now Marriott Vacation Club Trust, right? As we've talked about, feeding all kind of new US inventory into that trust. So, both of those will create points in the trust. You know, from an opening date perspective, I think we've got Charleston in 2026, and then Savannah's 2027.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Okay. And did I hear correctly, previously, the Waikiki new Marriott Vacation Club Resort, is that, that's still scheduled to open in the back half of this year and the sales center, correct?
John Geller (President and CEO)
Yeah, I was just out there visiting our teams in Hawaii. I got to see and tour the new Waikiki property. It's coming along great, and it'll open up. We started taking reservations already, beginning in October. So, we're on track there.
Patrick Scholes (Managing Director of Lodging and Leisure Equity Research)
Great. I think that's it for me. Thank you.
John Geller (President and CEO)
Thanks, Patrick.
Operator (participant)
Thank you. Our next question is a follow-up from the line of Ben Chaiken with Mizuho Securities. Please proceed with your question.
Ben Chaiken (Equity Analyst)
Hey, thanks for taking these calls.
John Geller (President and CEO)
Hey, Ben.
Ben Chaiken (Equity Analyst)
I appreciate it. Thank you. I think you said in the prepared remarks, the management business profit should be constant through the year, if I heard you correctly. Just to kind of, like, double-click on that, are you referring to the management profit within VO that was +8%, or are you referring to kind of like the consolidated P&L management and exchange profit that was +2%? Just to, you know, clarify-
Jason Marino (EVP and CFO)
Yeah-
Ben Chaiken (Equity Analyst)
Which one?
Jason Marino (EVP and CFO)
That was really a comment on the vacation ownership management business.
Ben Chaiken (Equity Analyst)
The +8 management business within VO, correct?
Jason Marino (EVP and CFO)
Yes.
Ben Chaiken (Equity Analyst)
Great, and then would love to dig back into Maui, I guess. Going back to kind of one of the previous answers, what do you think closes the gap between the 90% and 97% occupancy? The 90% that you're experiencing today and the 97% that you've had historically. And then, kind of part two, on the sales personnel side, not to belabor the point, but do you have all the bodies in place? Is this just a function of learning and ramping, or are you still trying to hire and onboard? Just would love to kind of, like, learn more about that process. Thanks.
Jason Marino (EVP and CFO)
Yeah, Ben, just on the occupancy, we were running call it 93%, 94% in Maui, so just a couple points off. I think what closes the gap is, you know, just people continuing to go to Maui, talking about how great it is and things like that. You know, John was just there, and the devastation is still quite real around the properties, and that's gonna take several years to come back. So, we do think it comes back, but, you know, how fast it gets back from 93% to 94% to 97%, you know, time will tell. And then your second question was about the sales exit-
Ben Chaiken (Equity Analyst)
Sales per-
Jason Marino (EVP and CFO)
Can you repeat the second part?
Ben Chaiken (Equity Analyst)
Yeah, I was saying on the sales personnel side, it sounds like there's still a ramp. My question was, do you have everyone in place? Like, do you have all the hires that you want, and you're just in term, now they're just learning and ramping, or are you still trying to source sales personnel?
John Geller (President and CEO)
Yeah, for the little tour flow that we have, because, you know, we're still down a little bit. Yes, we've got the teams in place. We need to get, you know, a little bit more on the sales side, as occupancies continue to ramp and tours continue to ramp. So we're in a good spot relative to handling the demand for tours right now, but we still aren't back to kind of 100%, if you will. So we'll continue to manage through that, as occupancy and tours come back.
Ben Chaiken (Equity Analyst)
Got it. Thank you. Appreciate it.
John Geller (President and CEO)
Thank you.
Operator (participant)
Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Geller for any final comments.
John Geller (President and CEO)
Thank you, everyone, for joining our call today. As I hope you can tell, we feel very good about the way the year has started. We ran 90% occupancy in the quarter, contract sales grew 3% excluding Maui, and first-time buyer tours grew by 9%. And with a pipeline of 270,000 packages, international inbound travelers returning to the US, and reservations on the books for the summer months up a few points, we feel good about the balance of the year. On behalf of all of our associates, owners, members, and customers 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.
Operator (participant)
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.