Hilton Grand Vacations Inc

Good morning and welcome to Hilton Grand Vacations third quarter 2020 earnings conference call. A telephone replay will be available for seven days following the call. The dial in number is 844-512-2921 and enter the pin number 13697043. At this time all participants have been placed in a listen only mode. The floor will be open for your questions following the presentation. If you would like to ask a question, please press star 1 on your touchtone phone to enter the queue. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. If you require operator assistance, please press star 0. If using a speakerphone, please lift your handset to allow the signal to reach our equipment. Please limit yourself to one question and one follow-up question to allow the opportunity for everyone to ask questions. You may then re-enter the queue to ask additional questions. I would now like to turn the call over to Mark Melnick, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator, and welcome to the Hilton Grand Vacation's third quarter 2020 earnings call. Before we get started, Please note that we have prepared slides that are available to download from a link on our webcast and also on the main page of our website at investors.hgb.com. We may refer to these slides during the course of our call or question and answer session. As a reminder, our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements, and these statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For discussion of some of the factors that could cause actual results to differ, please see the risk factor section of our 10-K, as well as similar sections in our 10-Q, which we expect to file after the conclusion of this call, and in any other applicable SEC filings. We'll also be referring to certain non-GAAP financial measures. You can find definitions and components of such non-GAAP numbers, as well as reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.hgv.com. As a reminder, our reported results for both periods in 2020 and 2019 reflect accounting rules under ASC 606, which we've adopted in 2018. Under ASC 606, we're required to defer certain revenues and expenses related to sales made in the period when a project is under construction, and then hold off on recognizing these revenues and expenses until the period when construction is completed. To help you make more meaningful period-to-period comparisons, you can find details of our current and historical deferrals and recognitions in Table T1 of our earnings release. For ease of comparability and to simplify our discussion today, our comments on adjusted EBITDA and our real estate results will refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. Finally, unless otherwise noted, results discussed today refer to third quarter 2020 and and all comparisons are accordingly against the third quarter of 2019. In a moment, Mark Wang, our President and Chief Executive Officer, will provide highlights from the quarter in addition to an update of our current operations and company strategy. After Mark's comments, our Chief Financial Officer, Dan Matthews, will go through the financial details for the quarter. Mark and Dan will then make themselves available for your questions. With that, let me turn the call over to our President and CEO, Mark Wang.

Mark? Mark? Morning, everyone. The results we released today improved substantially as we returned to a full quarter of operations at the majority of our resorts. As we sit here today, we're optimistic about the future while being realistic about the present. Our optimism stems from the fact that we continue to see improvements in demand for our owners' reservations and prepaid vacation packages, which is an indication of pent-up desire to travel. Additionally, in markets, that are unconstrained, this consumer demand is driving strong resurgence in occupancy and contract sales. I'm also encouraged that Hawaii, a key market for us, has just restarted to reopen, and we continue to see resilience from our owners who remain committed to HEV and are predisposed to travel. However, this must be balanced with the near-term realities. The path of improvement will depend on local markets where we operate, and many of our markets today remain closed or constrained. For example, Las Vegas and Orlando, our largest markets that represent nearly 40% of our contract sales last year, still have capacity restrictions at their important tourist attractions, coupled with reduced air travel. And compared to our owners, new buyers will likely take longer to recover as consumers continue to define their level of comfort with travel. Most importantly, though, we've adjusted as a company and have the financial flexibility to manage through the near-term environment and ultimately capitalize on the long-term opportunities that will return over time. Now let me take a few minutes to talk to you about what we're seeing in our different markets and consumer segments. Since we restarted operations in late May, we've seen monthly sequential improvements in our key operating metrics. In the markets where we're open, our contract sales have recovered to nearly half of the levels that we produced at these properties last year. BPGs and open markets improved substantially, up over 80 percent versus prior year to about $4,200. And our consolidated six-month forward bookings are tracking at over 60 percent of prior year levels. While this data is somewhat volatile, As our booking and cancellation windows remain shorter than normal, it indicates to us that there's a desire to travel. And cancellation rates, which peaked in the mid-30% range this summer, have now fallen to under 10%. Digging deeper into the trends at our open properties shows that these improvements have varied from market to market. Our regional resorts, particularly outdoor-oriented locations like South Carolina, California, and Utah, have seen a rapid recovery. South Carolina, for example, is trending 95 percent of contract sales pace they did in this prior year, owing to strong close rate gains and occupancy rates in the 90 percent. As a whole, our regional markets have seen similar improvements, surpassing last year's contract sales levels in the month of September with strong occupancy rates. On the other hand, our largest resorts and destination markets associated with local attractions that have capacity restrictions, such as Orlando and Las Vegas, have seen more measured progress. Occupancy levels have improved to roughly 50 percent in Orlando versus 30 to 40 percent at opening, and Las Vegas has moved to the range of 40 percent from 30 percent. But while they've improved at a slower pace, the appeal of these markets is time-tested, and we're confident that they will ultimately come back as the local attractions return and air travel normalizes. One market we're excited to bring back is Hawaii, and we think we'll see great demand there. It's an important market for us. In 2019, it represented 22% of our total contract sales. We've got nine high-quality resorts in prime locations on Oahu and the Big Island, and our 10th resort in Maui is currently under construction and in pre-sales. On October 15, the state of Hawaii officially moved forward with its reopening plan. It was met with a release of pent-up demand from over 10,000 travelers returning on the first day, or about a third of the normal daily pace in inbound traffic. We also continue to see notable enthusiasm for Hawaii product from our members as well. In fact, despite having no operating sales centers, Hawaii inventory made up 34% of our inventory mix this quarter versus 37% last year. And a big driver of that stability was our Japanese business, which again proved to be a key advantage to us this quarter. Our network of regional off-site sales centers in Japan remained operational through the pandemic and has recovered to over 60% of last year's contract sales levels, the majority of it which was Hawaii product. We'll be reopening our resorts and sales centers as we progress through the quarter, and as a result, they're unlikely to contribute to our consolidated results this year. However, we hope to be back to full operating capacity in Hawaii in the first quarter and expect our properties to ramp through the first half of next year and be meaningful contributors again in 2021. Finally, our urban sales centers remain closed in New York, Chicago, and Washington, D.C. These markets accounted for just over 11% of our contract sales last year, and we expect they will be the last to recover. Turning to our customer segments, we had another quarter of strong execution. Our VPGs benefited from two factors, higher owner mix and improvements in both our owner and new buyer close rates. We expect the segment close rates will trend towards historical levels, and drive a moderation in our VPG growth, but we'll continue to see a benefit from a higher mix of owner sales in the quarters ahead. Owner sales were 67% this quarter versus 50% historically, and that outperformance will likely continue as new buyer traffic takes longer to recover. Our financing and club and resort segments continue to provide an important source of stability to the company by generating solid results in cash flow. Although we did see a slight decline in our club and resort business due to lower activation fees and member usage fees, importantly, NAWG was 1.9% as we continued to see growth in new buyers that will add to the embedded value of our business for years to come. As we mentioned before, we revisited our strategic priorities at the onset of the pandemic and we've kept making progress here. We now have a full quarter of the implementation of the HCV Enhanced Care Initiative and have received great feedback from our guests on the program. Importantly, we haven't noticed any adverse effect from the initiatives on either our sales process or our resort operations, as mask and social distancing have become a commonplace across the globe. Maintaining our financial health has remained a critical focus throughout the pandemic, and we've continued our efforts to fortify our balance sheet and optimize our cash flow. We found cost savings across all levels of our organization. Some of those have unfortunately required us to make tough decisions around our staffing levels, as you likely saw in our recent filing. As a result, we believe we found sustainable cost savings and reset our cost structures to allow us to get back to our pre-COVID levels of EBITDA at a lower level of contract sales. We've also reexamined our inventory and project spending in light of the new environment, but we're well positioned through the pandemic and beyond due to the inventory investments we've made over the past few years into projects like Ocean Tower in Maui. Due to these efforts, we now believe our adjusted free cash flow will be comfortably positive for the year, which has extended our cushion of available liquidity to 31 months, assuming no further improvement from September trends. Throughout the pandemic, we kept sight of what's most important, our commitment to our owners and our team members. Our teams have done a great job restarting our operations smoothly, both at the resort level and at our member service centers. And I want to take a moment to recognize them for their efforts. And we've provided our members with additional flexibility to roll their unused points in 2021 to preserve the value of their membership with HCV. Our marketing teams have been successful, engaging potential new buyers, driving sequential package growth, trending at nearly 75% of last year's levels versus only 10% of the prior year back in April. So it's clear to us that people have the desire to travel, but it's also clear to us that you can't force people to travel until they're comfortable doing so. However, the demand for prepaid vacation experiences gives us confidence that those travelers will ultimately choose to vacation and tour with us. Looking ahead, our outlook reflects an acceptance that we're going to have to continue to contend with the impact of the virus as consumers define their individual level of comfort with travel. While we're seeing moderate week-over-week and month-over-month improvements, we expect the pace of recovery to vary across different markets. But I'm confident in the long-term strength of our business model and our plan, and I remain optimistic about our future. With that, I'll turn it over to Dan to walk you through the financial results.