Hilton Grand Vacations Inc

Good morning and welcome to the Hilton Grand Vacation's first quarter 2022 earnings conference call. The telephone replay will be available for seven days following the call. The dial-in number is 844-512-2921 and you'll enter PIN 13726009. 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 touchstone 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 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 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, Senior Vice President of IR, G&A and Productivity. Please go ahead, sir. Mark Melnick, Senior Vice President of IR, G&A and Productivity. Please go ahead, sir. Mark Melnick, Senior Vice President of IR, G&A and Productivity. Please go ahead, sir. Mark Melnick, Senior Vice President of IR, G&A and Productivity. Please go ahead, sir.

Mark Melnick, Senior Vice President of IR, G&A and Productivity. Please go ahead, sir. Mark Melnick, Senior Vice President of IR, G&A and Productivity. Please go ahead, sir. Mark Melnick, Senior Vice President of IR, G&A and Productivity. Please go ahead, sir. Mark Melnick, Senior Vice President of IR, G 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.hgv.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 discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of our 10-Q 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 earnest press release and on our website at investors.hgv.com. Our reported results for all periods reflect accounting rules under ASC 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 and 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. 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 first quarter 2022, and all comparisons are quarterly against the first quarter of 2021. 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 of 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.

Glad you're able to join us today to discuss our first quarter earnings results. We finished off Q1 with an exceptional two months to produce a really strong result for the quarter, despite getting off to a slow start in January due to the Omicron disruption. In fact, we produced a number of records this quarter, including record VPGs driven by record close rates, record sales to domestic U.S. buyers in Hawaii, and the biggest March contract sales ever at both HEV and Diamond, all of which supported another quarter of EBITDA above 2019's combined levels with very impressive margin gains. This is a testament to the hard work that the teams have put in throughout this integration process, which is beginning to pay off. And there's other positive news to share with you today. In early April, we officially launched our new integrated membership program, and we also opened our first set of rebranded diamond properties. In addition, the team's diligent work has enabled us to identify another $25 million in cost synergies to improve our long-term efficiencies. Taking these factors together gave us the confidence to raise our EBITDA and cash flow guidance for the year. And I'm very happy to announce that the Board approved a $500 million share repurchase plan, which was earlier than expected. We're conscious of the macroeconomic factors impacting certain parts of the consumer environment, but our direct-to-consumer model, loyal member base, and value propositions are built to provide a hedge against inflation, which gives us a competitive advantage in these changing landscapes. Our targeted owners are higher income consumers for whom travel occupies a special place in their list of spending priorities. And we're seeing some of the positive travel behaviors that emerged during the pandemic become the new normal, including longer vacations, a demand for larger family-oriented spaces, and more people relying on the flexibility to work remotely from vacation destinations. So overall, I think the timing of our Diamond acquisition couldn't have been better. With our new membership, rebranded resorts, and recent inventory additions, I think we're in a really great position to capitalize on the environment. Before we jump into the integration and quarterly results, let me talk a little about HVMAX, our newly launched membership program and what it means for us. HVMAX is a key to unlocking and evolving our membership into an immersive platform of experiences where owners can choose their own adventure based on their leisure needs and life stage through a simplified and flexible customer engagement model. and under the unified promise of the Hilton Grand Vacation service excellence. With H-U-V Max, members will be able to access a broader range of experiences and services through our new MaxPoint system, including the entire network of destinations and more than 150 properties across North America, Japan, and Europe, Our ultimate access portfolio of curated experiences selected and offered to our members based on their preferences and use occasions. And an ecosystem of partners ranging from complimentary travel providers to lifestyle brands where owners can use their points and enjoy exclusive benefits. Matching Hilton Honor status and a new set of exclusive benefits for stays at Hilton Hotels which is our owners preferred travel accommodation options after our properties the customer experience is designed with feedback from our owners in mind keeping the best of legacy hev and diamonds programs and enhancing the whole value proposition by creating more flexibility and point usage adding compelling new ownership chairs to incentivize more engagement at key points in the owner life cycle and simplifying the transaction process by bundling annual fees. This new program provides compelling and differentiated value, and we're confident that in addition to new buyers, many existing owners will decide to become MAX members. The enhanced value proposition will also allow us to meet the needs of a broader set of customers. We started offering MACs on April 4th in all of our HEV sales centers and 13 rebranded diamond sales centers. For reference, those locations generated nearly $2 billion in contract sales in 2019, or 85% of the pro forma combined contract sales produced that year. We'll continue making progress through the second quarter, adding new markets like Lake Tahoe in Palm Desert, California, and Kitty Hawk in North Carolina. And going forward, all new buyers and owners' purchases in rebranded sales centers will automatically become MAX members. We expect to have full program usage available for members by later this summer. And by year end, we'll have all of our sales centers rebranded to have MAX available across our entire distribution network, which is well ahead of the schedule that we contemplated in our acquisition proxy materials. I'm proud of our team for their efforts, particularly in light of the tight supply chain environment. Recall that rebranding the Diamond Sales Centers is the primary driver to unlocking our revenue synergies because it enables us to sell both HEV Macs across all three of our brand collections. Turning to the rebranding of our properties, in April, we opened our first five Hilton Vacation Club collection resorts in new markets of Scottsdale, Sedona, Williamsburg, and Virginia Beach, as well as in our existing Orlando market. We've heard great feedback from our guests, and we've seen a nice pickup in our forward ADRs and booking activities at the rebranded locations. Those resorts are also now part of the Hilton Honors Network and are available to book through Hilton.com. We're already capturing some of the synergies from the rebranding efforts as we move away from Diamond's third-party-centric platform and on to Hilton.com. We expect to see similar benefits with several more properties planned for rebrand in the second quarter, and we remain on track to meet our goal of having over one-third of our identified keys rebranded by the end of this year. We've also made solid progress on our cost synergies, ending the quarter at a run rate of $120 million in savings versus the $74 million run rate last quarter. And we've identified an additional $25 million of synergies, bringing our total cost synergy target to $150 million. And finally, as you recall from last quarter, we've seen success out of the gate with our ultimate access experiential platform. We've continued to receive positive feedback and inbound requests from our members about the offering. As we roll out ultimate access to our entire member base, we think it will not only enhance our overall experience, but it will provide us with additional consumer data that will allow us to further tailor the events we offer and the tour guests we select. So overall, I'm very pleased with how our integration has progressed and the work our teams have been doing in a relatively short period of time. Now let's take a look at this quarter's performance. Contract sales for the quarter were $509 million, or 96% of 2019's pro forma combined sales. Legacy HCV showed further recovery in contract sales for the fourth quarter, and Diamond finished with contract sales a couple points ahead of 2019's levels, a marked improvement from Q4. Last quarter, I mentioned that we had a lot of heavy lifting from a personal perspective at Diamond, and today's results show how well they've adapted to those integration changes as well as how quickly they've come together as part of HEV's team. Looking at demand indicators, we finished the quarter with occupancy levels of 75%. We saw our occupancy gap against 2019 grow in January around Omicron and its various challenges, followed by a sharp narrowing of the gap in February and March as the wave passed and travel trends rebounded. Our consolidated on arrivals on the books through the rest of the year are in line with 2019, and our rental arrivals are pacing ahead of where we were in 2019 with particular strength in the back half. As it relates to our new buyer demand, our Q1 new buyer package pipeline saw sharp acceleration in year-over-year growth and was up 23% versus the prior year. The heavily subsidized nature of our vacation packages makes the value proposition stronger than ever in this high ADR environment and is a good forward indicator of future new buyer demand. Importantly, Our mix of packages with a set tour date was at its highest level since 2019, and the number of these data packages in our pipeline is up 42% from December, which was double the rate from when we last reported. We're very focused on converting our package pipeline into TourFlow, and we're making investments in our marketing channels to build that tour pipeline to support growth in the back half and into next year. BPGs for the quarter was nearly $4,900, a record level that increased both sequentially and year-over-year. Average transaction price again increased year-over-year, due in part to the contribution of our new projects. But the improvement in close rate was the largest driver of BPG gains we saw in the quarter. I think there's a few factors that contributed to this outsized BPG growth. Consumer ballot sheets remain strong and spending continues to shift from goods to experiences. New resort product and anticipation of the improvements from our diamond acquisition has drawn a lot of interest. The loyalty of our owners has continued to show throughout the pandemic. And the enhancements we made to our customer scoring models has optimized the quality of the tour flow that we're seeing through our sales centers. The high flow through from our VPG gains underpinned our strong EBITDA results for the quarter, with margins 500 basis points ahead of both 2019 and 2021, along with strong free cash flow conversion. Our new buyer, Tour Flow Mix, improved to the highest level we've seen since the pandemic began, and we expect that the investments we're making to activate our package pipeline will further improve in the back half of the year. For the quarter, our legacy HCV NOG improved to 2.1%, and Diamond also added nearly 1,600 new members. That growth in new owners supported the strong trend in our finance and resort and club business, with EBITDA from those two recurring segments making up half of our segment EBITDA in the quarter. And finally, our rental business top line continues to benefit from improved occupancy and strong industry ADRs driven by the robust travel environment. So to sum things up, After a slow start, we had a really impressive finish to our quarter, and we see this momentum continuing. This performance, along with gaining line of sight into additional cost synergies, underpins our confidence in the increased EBITDA guidance for the year. With the launch of HCV Max and our first wave of property rebrands, we've passed some of the biggest milestones on our integration journey. and our focus for the rest of this year is to execute on our rebranding plans and to capture the revenue synergies that we see ahead. I'll now turn the call over to Dan to take you through our financial details. Dan?