Hilton Grand Vacations Inc

Good morning and welcome to the Hilton Grand Vacations 4th Quarter 2021 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 PIN number, pound sign, 137-26008. At this time, all participants have been placed in a listen-only mode, and 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 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 should require operator assistance, please press star zero. 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 to allow the opportunity for everyone to ask questions. You may then re-enter the queue and 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 Vacations fourth quarter 2021 earnings call. Before we get started, please note that we prepared slides that are available to download from a link on our webcast and also on the main page of our website at investors.hev.com. You 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, 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 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.hgb.com. As a reminder, our reported results for all periods reflect accounting rules under ASD 606, which we adopted in 2018. Under ASD 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 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 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 refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. A complete accounting of our historical deferral and recognition activity can be found in Excel format on the financial reporting section of our investor relations website. Finally, unless otherwise noted, results discussed today refer to fourth quarter 2021, and all comparisons are accordingly against the fourth quarter of 2020. 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? Morning, everyone.

I'm happy to report our results for our first full quarter as a combined organization. We closed out 2021. On a solid note, fourth quarter EBITDA exceeded 2019's pro forma combined levels for the second quarter in a row, driven by strong margins. And our Q4 North American contract sales were nearly back to 2019's levels, despite the emergence of the Omicron variant, which showed up late in the quarter. But I'm proud to say that neither the Omnicron nor any of the other challenges faced throughout the year prevented us from exceeding our expectations, which is a testament to the flexibility and adaptability of our teams, the commitment of our owners, the power of our brand, and the strength of our business model. Looking ahead, 2022 is going to be a transformational year that will lay the groundwork for the long-term success of HCV. We're making great progress on the integration of Diamond Resorts. We held our first leadership summit as a combined company, where we laid out a common set of strategic goals to achieve our integration targets, while also ensuring our HEV culture is embraced across the company. And in January, we hosted our inaugural LPGA Tournament of Champions event under the HEV brand, which was our first major integrated event catering to both HCV and Diamond members. We're also encouraged by the strong forward demand indicators we're seeing of late, which leaves us optimistic about the trends for this year. That gave us the confidence to establish a 2022 EBITDA goal that's ahead of our prior target, as we noted in this morning's release. At the same time, our focus on building a more efficient business over these past months has also given me confidence in the long-term health of the company as well, which is why we're also raising our target leverage ratio today. Let me start with the update on the integration progress. We're moving with a sense of urgency toward the rebrand launch, and I'm pleased with the progress we've made in such a short period of time. The dedicated integration teams are working extremely hard in coordination with our business teams on our major costs and revenue initiatives, and we remain on track with the timing we initially laid out. If you recall, there were three key components to our revenue synergy plan, rebranding Diamond sales centers, launching our new HEV membership program, and converting the Diamond properties over to the Hilton Vacation Club brand. The sales center's upgrades and new membership launch will work in conjunction with one another to unlock the bulk of our revenue synergies, while the property renovations will ensure a high-quality and consistent experience for our members and also provide some rental revenue synergies over time. The rebrand of our sales centers will enable us to sell our new membership across our entire sales network. We've already upgraded the look and technology at a handful of Diamond's largest sales centers, with nearly a dozen sales centers scheduled to be renovated by early April. And we'll have nearly all of our sales centers rebranded by the end of the year. To anyone that's been to a Diamond sales center before, I can tell you these are night and day improvements to the prior experience. They feature a more modern, comfortable, and private layout, upgraded furnishings, and enhanced technology, including our proprietary Envision sales technology. I know our sales team members are blown away, and I think our guests will also be very pleased with the changes. Turning to the new membership program, we're making solid progress finalizing the program's benefits and, importantly, fortifying the technology necessary to service the combined member base across all of our functions, from marketing and sales to club and financing, ensuring a consistent experience. Our expectation is to officially launch sales of our new membership in early Q2, which is an incredible accomplishment given all the work involved. We know from our owner research that having access to more vacation destinations through the enhanced membership was the number one most cited benefit of the transaction. Taken together, we expect to start seeing the benefits from the upgraded sales centers and the new membership program in the second half of this year. And I'm confident that when combined with the power of the Hilton Grand Vacations brand and our sales process, we'll have the foundation for long-term success. Regarding our property regrants, we've already established IT connectivity at a number of Diamonds properties in anticipation of bringing the first set online in early Q2. And while we know our owners are excited to experience these properties, we're also getting considerable interest from Hilton Honor members. We just began selling packages for the first five rebranded properties, and we've already sold nearly 10,000 packages for arrivals starting in April. All told, we're on track to bring approximately 5,000 keys into the Hilton Vacation Club collection this year. To put this into perspective, that represents a more than 40% increase in the number of keys available versus our legacy HEV resort portfolio. But most importantly, many of these properties will be in new markets for us in destinations like Virginia Beach, Williamsburg, Scottsdale, Gatlinburg, Lake Tahoe, and the island of Kauai. In addition, as these properties are rebranded, they'll become eligible for booking through the Hilton.com reservation platform, providing broad access to the entire Hilton Honors member base, which will enable us to capture rental synergies over time as these new branded properties are rented out at improved pricing with a more efficient cost structure. There are a few other integration accomplishments I'd like to highlight. the most important of which relates to our team members. All of our legacy HEV and North American Diamond team members are now collaborating using a common set of technology tools, which is critical to supporting the integration process. And from an HR perspective, we've harmonized our benefits across the organization, which is an important step to fully welcoming our Diamond team members into HEV. We've also continued to roll out our company-wide training suite, allowing our various team members to learn the HPV approach to the sales process and the high standards we have for serving our guests. As I mentioned earlier, we also hit a major milestone in January when we kicked off the LPGA season with our first Hilton Grand Vacations Tournament of Champions here in Orlando. We hosted LPGA professionals, celebrity players, and brand ambassadors for a week of exciting events and concerts for both HEV and Diamond members. We're very excited about our new partnership with the LPGA and aligned around their mission of supporting women's golf, and I don't think we could have found a better partner to work with. The tournament was a huge success, and the amount of media coverage that we received was beyond our expectations. Our brand received major network television coverage over the four days of the tournament, and we had over 240 million social media impressions with a 98% positive mention score. Our ticket sales were three times higher than the previous record, and we had over 140 sponsors for the event, generating sponsorship revenue that exceeded any prior tournament champions. This was also the first major event that we'd done with both groups of owners, and it gave us real-world evidence highlighting several key elements that made the Diamond deal so attractive to us. Specifically, applying the power the Hilton Grand Vacation brand is incredibly attractive to both Diamond owners and salespeople alike, And for HEV owners, the appeal of the experiential platform provides additional value to their membership. On that note, throughout the tournament week, we hosted exclusive concerts for our members with artists including Sheryl Crow, the Goo Goo Dolls, Leanne Rimes, and Boyz II Men, along with additional events featuring our celebrity guests and ambassadors. Experiences like these are part of the Diamonds Events of the Lifetime platform, which we've rebranded as HGV Ultimate Access. Ultimate Access will become a key feature of our sales and marketing program with more than 3,000 experiences already planned throughout the year. Whether it's through concerts under HGV Live Banner, Private dining events with our members table or excursions and other events under HEV Presents will continue to build upon the success of the program by incorporating feedback from our combined member base to keep the offering relevant. So I'm incredibly pleased with how our integration is going. We've made a lot of progress over the past six months on our three main rebranding initiatives. and we expect to see the benefits of the revenue synergies ramp as we move through the year. We also did a lot of heavy lifting this quarter to integrate our workforce, but most importantly, after seeing the potential of the combined model and the strong demand for new markets, I'm even more confident in this transaction, and I'm excited for what's to come. Now let's take a few minutes to look at this quarter's performance. Contract sales for the quarter were $521 million, or 85% of 2019's performer combined sales, demonstrating continued progress in our return to normalized levels. Our North America business had Q4 sales that were 91% of 2019's levels, and legacy HGV North America contract sales fully recovered to 2019's levels. The speed of that recovery speaks to the level of commitment from our owners and and the great execution by our teams throughout the year. Our APAC business finished the fourth quarter with sales at 70% of 2019's levels, up about five points from Q3, despite the restrictive travel environment in Japan that remained in place during the fourth quarter. But a strong improvement in our local Japan tour flow coupled with higher domestic travel to the islands helped to drive the sequential sales improvement in the region. There are some recent positive news from Japan starting March 1st or today that the government will eliminate the quarantine requirements for international travel with COVID negative proof. Our expectations is that there will be a lag to get to a full recovery as airline capacity is restored to previous levels so we still don't expect to see material return of the Japanese to Hawaii until the second half of the year. In any case, this is very positive news as the Japanese have waited for two years to return to the islands. As I mentioned in my opening remarks, we started to see some impact from Omicron in December. While this variant seemed to be fitting the pattern of prior waves, with a smaller impact up front and quicker rebound, it also brought its own set of unique dynamics. From a consumer perspective, the milder severity of the strain meant that people were less hesitant to be out and traveling as evidenced by our strong occupancy and package sales in the quarter. But the rapid spread meant more of our team members were impacted and needing to quarantine, including some of our sales team members. This staffing disruption became more acute in January post-holiday period, creating some challenges with accommodating tour flow that weighed on our contract sales in the month. But I'm happy to say that we're past that peak of the wave and are back to previous staffing levels and have seen solid rebounds in our forward demand indicators. February's preliminary contract sales are nearly in line with 2019's level, with Diamond actually pacing slightly ahead of 2019. And our daily net booking pace grew sequentially in Q4 despite the challenges. And we're seeing even stronger booking pace year-to-date in 2022. Turning to occupancy levels, trends remained strong throughout the quarter at roughly 80% in line with where we were in Q3. Orlando was again a standout with occupancy rates that met 2019's levels. And we saw strong performance out of our southwestern and California regional markets. There were some extreme weather events that suppressed travel in several of our regional markets, including devastating wildfires in Colorado and Utah and severe flooding and wind events that amplified the normal seasonality in the Carolinas and Tennessee. but the resilience of our overall occupancy demonstrated the advantage of having a larger, more diversified portfolio since the acquisition. BPGs of nearly $4,300 was up sequentially and was supported by another strong gain in our average transaction price. We've seen great performance out of our new projects in Maui, Sissoko, Cabo, and New York, which is a real validation of the inventory investments that we've made over the past few years. that VPG performance, coupled with our synergies and overall expense controls, generated another quarter of record EBITDA margins of over 30% along with strong adjusted free cash flow. I note that this isn't just a result of finding synergies within Diamond, but rather it reflects the broader initiatives to drive efficiencies across the organization using the lessons we've learned operating through the pandemic. Turning to the customer segmentation, we saw sequential improvements in both owner and new buyer recovery pace. Although our owner business is still leading the way, our owner performance has been benefiting from the improved workflow coupled with strong VPG gains that were supported by the increased average transaction price I just mentioned. And our new buyer contract sales also continued to show encouraging signs and have recovered to nearly three-quarters of their normalized levels. For the quarter, those new buyer sales drove NOG of 1.6 percent, along with the addition of 1,600 new members at DRI. And as we look further into the year, We'll continue to invest in driving new buyer growth by activating packages from the substantial pipeline that we've built. Those membership gains fueled another strong quarter of club and resort business, which finished the quarter with $113 million of segment profit and margins of over 76%. It's really encouraging to see such great trends in a recurring piece of our business that carries such impressive margins. Turning to our financing segment, the resumption of growth in our receivable book led to sequential top line and profit growth, which provides us with another stable source of recurring high margin income. And finally, our rental division saw another quarter of impressive top line growth as travelers returned and ADRs expanded. To sum up, I'm really encouraged with how we closed out 2021. and with the momentum that we have carrying into 2022. We're continuing to make progress on our sales trends, and we drove another quarter of impressive EBITDA performance. Our integration plan is proceeding smoothly, and the key elements of our acquisition are playing out well. Whether it's the great success we had at the Tournament Champions, the fast progress we're making on rebranding our sales centers and properties, Or are team members coming together quickly to cement the HEV culture? I'm more confident than ever in the future path we've laid out before you. I'll now turn the call over to Dan to take you through the financial details. Dan?