Hilton Grand Vacations Inc

Good morning and welcome to Hilton Grand Vacations second quarter 2022 earnings conference call. The telephone replay will be available for seven days following the call. The dialing number is 844-512-2921 and enter pin number 13726010. At this time all participants have been placed in 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 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 should require operator assistance, please press star 0. If you're 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 Mr. Mark Melnick, Senior Vice President of Investor Relations, G&A, and Productivity. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacation second quarter 2022 earnings call. 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 a discussion of some of the factors that could cause actual results to differ, please see the risk factors section of our 10Q or any other applicable SEC filings. We will 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. Our reported results for all periods 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 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 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. 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, and welcome to our second quarter earnings call. I'm happy to report that we produced another set of strong results for the quarter with contract sales and margins well ahead of our pro forma combined 2019 numbers and EBITDA over 50% ahead of 2019. Our performance was consistent in each month of the quarter, which highlights both the compelling nature of our new offerings and the hard work that the integration teams have done. Our members and consumers remain very much in a travel mindset despite the risk posed by higher fuel prices and recent travel disruptions. While these macroeconomic forces may create risks to consumer spending, we continue to see high demand for vacation packages, particularly at our new resorts and recently rebranded Hilton Vacation Club properties. Our close rates remain near the record levels we saw in the last quarter, underscoring the value proposition of vacation ownership We're deepening our relationship with Hilton with the addition of Hilton Vacation Club collection, allowing us to engage with a wider customer base of high-quality Hilton-honored members. And we've strengthened our business with the integration of Diamond, adding marketing scale, product flexibility, and portfolio diversification that will help us to serve the travel preferences of our guests in every environment. Importantly, these factors continue to support solid trends and forward indicators today, giving us confidence in our outlook throughout the rest of the year. Before I provide highlights for the quarter, let me start with an update on our strategy and integration progress. On our last call, we talked about our new HEV MAX membership program. We're excited about the increased level of access and new benefits providing a streamlined way to engage our members. This is an important step in our journey to evolve what it means to be an HEV member and provide an even greater value proposition through membership. We're meeting the expectations of today's travelers through enhanced benefits, simplicity, omni-channel engagement, and focus on experiences. And our strong VPG and sales performance confirm these offerings are resonating with our members and guests. So today, I want to expand on two important capabilities that support these strong results, our Ultimate Access events platform and our virtual sales channel. HCV Ultimate Access is a collection of premier experiences exclusively for Hilton Grand Vacation members and guests, including a private concert series, access to sporting events, culinary experiences, and more. We believe these events deepen the relationship between our members and HEV brand because we've seen that engaging experiences inspire our members to create more memories, build relationships, and enhance the overall travel and hospitality experience we offer. I'm really proud of how our teams have expanded on this events platform. And this year, we're on track to deliver a 15% participation rate for members we've offered this experience to, with a goal of achieving over 25% in the coming years and growing from there. All properties are expected to participate in the program, and we're conducting successful events in major cities to maintain our owners' connection to HEV even when they're not traveling or staying in one of our properties. We're also seeing a high correlation between member VPG and ultimate access participation. As we expand, we're collecting a significant amount of data that will allow us to further sharpen our ability to engage with more members. Additionally, we're already running successful tests with prospects who are Hilton Honor members, expanding on our universe of potential customers. The other new capability where we've made significant progress is in virtual sales. Diversifying how we reach our customers is a critical function, especially as we expand on our suite of products and experiences. It's become an integral part of how we engage with our members and prospects as a way to drive incremental sales outside of our traditional sales channels. We're re-engineering the approach across the marketing sales process. For example, we now use AI to provide real-time support to our agents, drive consistency, and adhere to our compliance standards. We're thinking about this channel as both additive and supportive of the strength of our sales centers, and we expect to drive over 50 million of contract sales to our virtual channels this year. Turning to our rebranding, we continue to make excellent progress. The vast majority of our sales network has now been rebranded and is selling HEV at max and we expect this work to be materially completed by the end of the third quarter, which is ahead of schedule. Since our last call, we completed the rebranding of nine more sales centers, seven of which are in markets that are new to HGV. On the property rebrand side, we added several additional properties to the Hilton Club collection in Scottsdale, Lake Tahoe, and Virginia Preach, bringing our total property rebrands to eight this year. And we're on track to deliver on our target of having one-third of our legacy diamond room keys rebranded by year end. Along with rebranding our physical assets, we're also continuing to improve on the service standards at our resorts, ensuring we provide a high-quality and consistent guest experience across our portfolio that our HEV members and guests expect from us, we're also executing on our cost energy capture. Dan will get into more details, but we remain confident in our ability to realize the upsize 150 million of cost synergies that we laid out on our last call. So overall, I'm very pleased with the progress of our integration. Now let me turn to our performance for the quarter. Contract sales were 617 million, or 105% of 2019's Performa combined sales. First, it's great to set a new milestone to move us past referencing 2019 as a prior peak. But we're also pleased with the quality of the growth we saw this quarter. We had broad-based improvements in tour flow, recovery pace across all segments and geographies, led by the mainland region and new buyer demand. And we maintain close rates within 60 basis points of the record close rates we produced last quarter. As I mentioned earlier, we saw consistency in our sales with a steady cadence of growth in each month of the quarter. And I'm encouraged that our product continues to resonate with our tour guests despite negative macroeconomic news flows. Turning to our demand indicators, occupancy for the quarter was 83% versus 75% in the first quarter and at the highest levels since the end of 2019. In another positive sign of returning to a more normal business cadence, we witnessed a very typical seasonal trend through Q2 with April stronger than May and June having the highest occupancy of the quarter. Looking out to the rest of the year, our owner arrivals continue to show solid trends through the fall. Our rental arrivals are showing a similar trend with particular strength in the fourth quarter. And in total, room nights on the books for the rest of the year are on par with where we were in 2019. We also continue to see exceptionally strong package sales demand, giving us visibility into our future new buyer tour flow. In fact, despite converting some of our pipeline in Q2 to drive improvements in new buyer tours, we still grow our package pipeline for the quarter, which now is up to a half a million packages. So it's a great indicator that travel demand continues to be robust in the face of economic headwinds, and it should support our investment efforts to drive additional new buyer growth in the second half of the year. BPG of nearly $4,500 remained strong, even as we saw some normalization of our owner, New Buyer Megs. New Buyers drove growth in our member base, which is now nearly 508,000. Our HEV NOG was 3.2%, and Diamond added 1,400 net new members in the quarter. Those members fueled steady performance in our club and resort business, which alongside our financing business contributed nearly half of our EBITDA. Our rental business had strong growth in the quarter, fueled by higher travel volumes and continued strength in ADRs. The combination of those consistent segment results, along with our synergies and efficiency initiatives, produced EBITDA of $277 million, with margins ahead of last quarter and well ahead of 2019. So overall, we had a solid quarter. We saw consistent improvement across the organization and a return to a more normal cadence of business. The strength of our offering helped us to deliver great results and gives me confidence that we're well-positioned to withstand macroeconomic noise. We just added new high-quality inventory to HCV. We have a very strong new buyer pipeline. We've diversified our portfolio with the addition of 92 Diamond Resorts, and we have a loyal base of dedicated members who have prepaid for their future vacations. Last week marked the one-year anniversary of closing of the acquisition. I'm thrilled with the progress we've made to date, and I'm also proud of how hard our teams have worked to get us here. Looking forward, we're focused on making further progress ramping Hilton Vacation Club collection, HCD Max, and our Ultimate Access program, all of which are strong catalysts for continued growth. With that, I'll turn it over to Dan to walk you through the numbers. Dan?