I just listened to a recording of the 1Q 2018 Marriott Vacations Worldwide earnings call. There was obviously a lot of discussion about the ILG merger. They hope to close by the end of September 2018. Below are some of the more interesting quotes from the call, copied from the transcript. Apologize for the length. The most interesting comments were from the questions, particularly the last two - one about the potential to expand the MVC inventory repurchase model to ILG locations, and the last one about how the merger will impact their plans to spend on building out new legacy MVC inventory.
Steve Weisz: We see tremendous potential from the combination of the Marriott Vacation Club brands with Vistana Signature Experiences, not only from the additional linkage opportunities those will provide but also from our ability to maximize tour generation from our call transfer program across the broader portfolio. Additionally, while we are already optimistic about the future contract sales growth potential of the digital transfer opportunity we will begin soon with Marriott, the additional marketing opportunities of our combined company creates even more ability to generate incremental sales volume.
Question from Analyst: So you outlined a few of the opportunities for revenue synergies. As you're thinking about those, which ones do you think you might tackle first, offering the biggest opportunity? And what kind of timetable do you expect in terms of reviewing ILG and assessing best practices?
Steve Weisz: First of all, as you might imagine, through due diligence, we were able to get through kind of the top-level review, and we have some ideas along the way. I'll share some of those with you. As far as specific timing, we're still a little early on in that. But as you might imagine, we'll get to that as quickly as we possibly can, post closing. So here are a couple of obvious things. Obviously, linkage opportunities, which, today, we have exclusivity on in the vacation ownership space. As soon as the businesses are combined, that exclusivity will now include everything under the Vistana Signature Experiences area, which really gives us exclusive marketing rights into 15 of the Marriott lodging brands. If we think about call transfer, once again, where we have an exclusive -- we will certainly add the Westin and vacation locations from the VSE portfolio into the call transfer program. And then the other thing that we're probably as excited, if not more excited about, rather than calls transfer, is the whole digital idea. Keep in mind what that is. This is essentially taking the digital-analog to call transfer, where people are calling into a reservation center to either make or change a reservation, where we eventually see if we can speak with them about scheduling a tour, which -- you now do it in the digital space, where, as you well know, the Marriott website is one of the top 10 retail websites in the world as it exists today, before you combine it with the Starwood platform, et cetera. And so we think as more and more people transact with Marriott in a digital space, that we will get the benefit of that coming to us in terms of the effective -- without a different word, the effectiveness of digital call transfer versus physical call transfer. So we see those things. I mean there are some other things that we see kind of right on the top of the line. We think we can actually have some influence to grow financing propensity between the businesses. We've had some great success in our portfolio by virtue of some of the things that we've done lately. We think there are some ways in which we can continue to grow revenues that way. Those are just some examples. And obviously, we're going to continue to work hard on trying to quantify as much of this as we can between now and the time of closing, which we hope to be at the end of September. But that's the approach we're going to take.
Question from Analyst: You may be aware of a little bit of chatter out there about would it makes sense for RCI and then the Interval exchange network to combine. And, perhaps dating myself here, but I recall quite a few years ago that CUC and Cendant had to spin out II due to antitrust issues. Do you think antitrust issues would be an issue today given the changes in that part of the industry in the last 15 years to 20 years?
Steve Weisz: I certainly don't have a lot of purview as to what -- how the FTC might think about that. Let's just say that, at this point in time, we have no plans to spin off the Interval International business or combine it, but I guess all things are possible.
Later in the call Weisz came back to clarify this point:
Steve Weisz: I want to make sure I didn't give anybody the wrong impression on Interval International. We have absolutely no plans to sell or spin off that business. I mean, to be honest, you took me a little bit by surprise because when you mentioned that there was chatter out there about RCI and II coming together, I'll be honest, that's the absolute first time I've ever heard that. So I want to make sure that everybody understands that we put great value on the Interval business, and we think it's a very attractive business with great cash flow profile and a relatively low CapEx profile to it. And so we have no intentions to move in that direction.
Question from Analyst: One thing I think about is you folks have grown your inventory repurchase program considerably and it's a little bit of an unknown what's going on with ILG. I'm wondering how your repurchase program compares to ILG's?
Steve Weisz: We think ours is a little bit more robust than what we see in the ILG space, and we think the volumes that we put through the -- our repurchase program is a little higher than what we see in the ILG side. There may be opportunities there. Obviously, one of the benefits of that is it allows people that have been very happy owners an exit path that we think is appropriate. Plus it allows us to recycle some inventory at a very reasonable inventory cost.
John Geller: The Points product that we have really enables us to be very effective in reselling it because we put it into the Points product and sell it. And historically, they've sold more of a weeks-based product. They've gone to the Points now, which actually will help facilitate that, but they, to Steve's point, I'm not sure they've done a lot of that. And as we've talked about, because with the weeks-based, when you repurchase those, you don't have certainty to get that into the system and resell it. So folks that sell weeks-based product have a much harder time efficiently recycling that weeks-based product.
Question from Analyst: A large part of the Interval's -- the ILG story was all of the inventory for sale coming up in the next couple of years. Certainly, they had a massive amount. With this acquisition and that large amount of inventory, does that change how you think about your -- or the legacy Marriott Vacations spend on inventory the next couple of years?
John Geller: One of the nice benefits that we get, which is never captured in anybody's EBITDA multiple, is ILG has made significant investments in their inventory pipeline and have -- I believe it's 700, 800 of completed units now -- they have obviously down in Cabo, plus their Nanea project. So that's great for us because that's a lot of good inventory. We don't need to go out...I think over time, we would look to do a very similar model like we do today, which is we're looking to add new flags, add new sales distributions, and time the spending of our inventory to replace what we're selling off the shelf each year. And so that's strategy long term. In the near term, we're going to have the opportunity, because of a lot of great locations they've built, to look at near-term opportunities on our inventory spend. So obviously, we'll be updating you on that as our plans get a little bit clearer and we determine what we're doing.
We're going to be working on that in terms of our longer-term integration plans and how we're going to position products, which will obviously drive our inventory needs. But what I'd say on a combined basis, as I mentioned, the ILG and the inventory they've built out, we're in a good spot there. And maybe potentially the ability to leverage some of that inventory as we think about our Marriott because under our -- combined for the Marriott licensed brands, that's all on the table, if you will, in terms of how we think about that inventory. So we definitely need to do that work here, and obviously, we'll be back with more updates as we progress through and talk about all the great opportunities that this combination, we think, brings for us.
