Hilton Grand Vacations Inc

Good morning and welcome to the Hilton Grand Vacations 4th Quarter 2020 Earnings Conference Call. The telephone replay will be available for 7 days following the call. The dial-in number is 844-512-2921 and enter pin number 13714031. At this time, all participants have been placed in the listen-only mode and the floor will be open for your questions following the presentation. If you'd like to ask a question, please press star 1 on your touch-tone 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 your equipment. Please limit yourself to one question and one follow-up 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, Robert, and welcome to the Hilton Grand Vacation's fourth quarter 2020 earnings call. Before we get started, please note that we've 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 those forward-looking statements, and these statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the risk factors section of our 10-K, 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 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 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 or and then hold off on recognizing those 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 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 fourth quarter 2020, and all comparisons are accordingly against the fourth 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?

Good morning, everyone. Today, I'm pleased to share that our fourth quarter results improved sequentially for the second consecutive quarter. And I'm incredibly proud of the way our team members responded to create a safe environment for our owners and guests and protect the health of our business throughout 2020. Over the past year, we took decisive action to strengthen our balance sheet and position HEV for the future. We controlled our costs and increased our financial flexibility to achieve positive adjusted free cash flow for the year. And our efforts highlighted the strong execution of our team and the value proposition of HEV ownership, resulting in higher closing rates, positive net owner growth, and strong member retention. Various markets again saw differing levels of impact from the COVID spike. but there are some clear positive indicators that leave us optimistic that we're moving in the right direction. Our owners and guests are better informed about what to expect from their travel experience and protocols have become more standardized and consistent. The rollout of vaccines should be a positive for sentiment as they become more widely available over time. Taken together, These developments make me optimistic that we're on the path to recovery, though our view remains that the improvements will be more second-half weighted. Now, let me take a few minutes to talk about what we're seeing in our different markets and customer segments. Overall, contract sales were 36 percent of prior year's levels versus 32 percent last quarter. In markets where we were open for the full quarter, we recovered to 50% of the levels that we saw in 2019. Our tour flow in those markets also grew sequentially in Q4 with strong performance in October, although we saw trends slow in November and December due to the COVID pickup. This late quarter slowdown wasn't caused by an increase in cancellation, but rather was due to lower inter-quarter bookings than we typically see at this time of year. The impacts continued to vary by market. In California, for instance, a new stay-at-home order that moved to a full lockdown in December impacted our occupancy and tour flow. But in Orlando, we saw occupancy rates increase sequentially in every month of the quarter, and December produced its highest tour volumes since the pandemic began back in March. Overall occupancy levels for Q4 neared 50%, and on a year-over-year basis, were down slightly less than what we saw in the third quarter. BPG in open markets was up 21% versus last year to nearly $4,300, driven by stronger close rates. So those who did come to our sales centers actually showed a higher propensity to purchase than what we saw in Q3. Additionally, our close rates on vacation package sales for future tours was also up year-over-year and each month of the quarter, meaning that we're yielding our Hilton leads more effectively to build a pipeline for future tours. We're optimistic that the positive trends of more vacation packages, improving occupancy, lower cancellations, and improved close rates should lead to better realization of contract sales, which ultimately should support continued sequential growth as we move through this year. Japan had another strong quarter and has recovered to 80% of 2019's levels. Our network of off-site sales centers has been key to maintaining interaction with our owners and new buyers. We also launched sales of our newest project in Okinawa during the quarter. This is a capital-efficient, just-in-time project that we're pre-selling today but won't make any payments on until we take delivery of the first phase when we open for occupancy later this year. Okinawa is a top leisure destination for Japanese and surrounding regions, and we believe it will allow HEV to further penetrate this robust regional leisure market. We're excited about the project, and we think it'll be an attractive vacation option for both owners and new buyers alike. While our recovery has been strong in Japan, the government has recently elevated its state of emergency lockdown protocols through March. We believe that the government will aggressively work to manage the spread of the pandemic as they seek to host the Olympics this summer. which could be a headwind to further recovery in the region in the short term. In Hawaii, we reopened our resorts and sales centers in mid-December and saw initial occupancy levels ahead of what we had seen in the mainland this past summer. And our forward bookings show improvements in projected occupancy levels as we enter the summer months, which we expect to continue as airlift to the islands improves. Hawaii products still made up nearly a third of the inventory sold during the quarter without any material contribution from our onsite sales centers. So clearly, people are excited to return to the islands and they continue to purchase Hawaii inventory from our other markets. Domestic inbound visitation to Hawaii has improved since the state reopened in mid-October. However, strict return protocols by the Japanese government have continued to limit the number of Japanese tourists visiting the islands. So, with fewer Japanese arrivals anticipated in the first half of the year, our Hawaii on-site sales center performance will be led by U.S. gaps. We continue to expect that we'll ramp back up in Hawaii over the next several quarters, setting this up for a stronger second half and a solid run rate exiting this year. Moving to our customer segments, we saw sequential improvements from both owners and new buyers during the quarter. Close rates drove an improvement in VPG in each month of the quarter with a particularly strong December. We believe the value proposition of timeshare is resonating now more than ever. Our owners have always appreciated the extra space, full kitchen, in-room laundry, and a sense of safety provided by the enhanced care initiatives that gives them a second home feel during their stay. But we've also seen an increased appreciation of these unique timeshare attributes from new buyers. In fact, our new buyer close rate was the strongest we've seen in well over a decade, and that trend has continued through January. So, I'm particularly proud of our teams who did such a great job on execution this quarter and remained focused on growing our NOG, which was up just under 1%. Our financing business was relatively steady this quarter and should return to growth as sales trends normalize and we add more receivables back into the portfolio. Our club business didn't see the typical seasonal pickups in revenue this quarter as we allowed our owners to preserve the value of their club points into 2021 at no additional cost. That said, our strong cost controls offset this impact and drove a solid improvement in margins during the quarter. These businesses have been a stable source of recurring income throughout 2020, producing solid EBITDA and cash flow to demonstrate their resilience during this otherwise challenging period. Turning to our strategic priorities, we took further steps in Q4 to streamline and protect our business and our owners. We secured additional financial flexibility in our credit facility, as Dan will speak to, and we now have 35 months of available liquidity. We took a number of proactive steps over the course of this year to provide flexibility for our owners to push their points of vacation usage forward and ensure no loss in value, which has been well received by our members. To that end, we're really pleased that through January, we collected $418 million of annual dues and management fees versus $415 million last year before COVID took hold. We think that's a testament to the actions we've taken throughout the pandemic to protect our owners' safety and the value of their ownership. And it also underscores the quality of our owner base and their commitment to the HCV brand. So when you look at what's happening now versus six months ago, it feels like there's some light at the end of the tunnel. We've seen more consistent positive signs in our business, close rate gains, strong new buyer trends, a continued decline in cancellation rates, and solid summer bookings. We've restarted our operations in Hawaii, and we're positioning ourselves for return to growth by opening four new markets, Maui, Cabo, Okinawa, and a fee-for-service property in Charleston. While there's still a ways to go, we remain cautiously optimistic that the recovery is in sight. We've all been shouldering the burden of this disruption for a long time now, some of us more than others, like our frontline workers. And it's caused people to examine the things in life that they really appreciate and miss, and I truly believe that travel is one of the top things people are missing. We believe there's strong pent-up demand for leisure travel that will begin to materialize in earnest in the latter half of the year. And our priorities in 2021 will be focused on ramping Hawaii and our new locations, along with opening our remaining markets in New York and Chicago. Before I turn it over to Dan, I'd like to thank our teams who work every day with our customers and our resorts and sales centers around the globe as we bring memorable vacation experiences to our owners and guests. With that, Dan will walk you through our financial details.