Hilton Grand Vacations Inc

Good morning and welcome to the Hilton Grand Vacations third quarter 2022 earnings conference call. A telephone replay will be available for seven days following the call. The dialing number is 844-512-2921 and enter PIN number 137-26011. At this time, all participants have been placed in a listen-only mode. and the floor will be opened 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 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, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator, and welcome to the Hilton Grand Vacation's third 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 discussion of some of the factors that could cause actual results to differ, please see the risk factors section of our 10-Q or 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. 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 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 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, and welcome to our third quarter earnings call. Before I get started, I'd like to take a moment to express our heartfelt sympathies to our owners and team members who were impacted by Hurricane Ian. We believe that all of our team members are safe and that as a company, we did not suffer any material financial impact from the storm, but we know that is not the case for many other Floridians. We'll continue to provide assistance to our affected team members as they recover, along with maintaining our partnership with the Red Cross to support those communities in need. Looking at the quarter's results, we had another strong performance with contract sales ahead of 2019 driven by solid improvement in tour flow. We produced a record $295 million of EBITDA in the quarter, over 37% ahead of pro forma 2019 with strong margins. And we achieved our recently increased cost synergy goal well ahead of schedule. While our customers are not immune to the Our exclusive focus on leisure makes us a prime beneficiary of the resilience of the travel trends across the country. We see it in travel surveys. We see it at major airports, serving markets throughout our portfolio, and importantly, we're seeing it at our properties and sales centers. So despite the tougher macro environment, we have several distinct advantages that have allowed us to outperform in this environment and maintain metrics ahead of 2019 across a number of KPIs. The prepaid nature of the product produces significant recurring revenues for our business, while also providing some insulation for our members against inflation. Additionally, our direct sales model allows us to actively engage with marketing guests in every environment, enabling us to leverage our relationship with Hilton and their growing pool of high-quality, travel-minded Hilton Honor members. And our compelling value proposition has been enhanced by HEV Max and Ultimate Access, which are key differentiators that are gaining tremendous traction with both owners and new buyers. So, we feel confident in the strength of our offering and the momentum we've seen through October, and that confidence in the business enabled us to raise guidance again for the year. Before we get into the details, let me start with an update on our strategic initiatives and integration. We've made steady progress expanding our marketing channels to engage our owners and marketing guests. Our virtual tour channels showed notable growth again this quarter with tour volumes, close rates, VPGs, and contract sales all improving against Q2 at a lower cost than our traditional channels. And we've seen favorable response from our owners and marketing guests on our virtual programs with a number of guests already returning for their second virtual tour since the program's inception. We've also continued to receive incredible response from our members on our ultimate access experiential platform. We're really excited about the quality of the upcoming events we have planned for our guests. and we expect that it will only get better as we continue to evolve the program. Turning to our rebranding, we're making great progress executing against our plan. We've completed the rebranding of our sales centers and are selling HEV Macs across our network. More than 50,000 members have joined Macs since we launched sales in the spring. And we continue to roll out additional features and benefits to Macs throughout 23, and beyond to further enhance the compelling value proposition. I'm impressed with how fast we were able to execute Mac's launch in the midst of our overall integration, and we're getting great feedback from our members on the program. Since our last call, we also rebranded eight additional resorts, bringing our total to 19 since the close. By the end of this year, We have rebranded 20 of our largest diamond properties, representing over one-third of the total keys acquired. And we remain on schedule to have nearly all diamond targeted properties rebranded by 2025. Now let me turn to the performance for the quarter. Contract sales were at a record $621 million, driven by strong tour flow and continued strength in BPG. Our tours were at the highest level since 2019 with a particularly strong September as we've continued to make steady progress in our tour flow recovery. Owner tour flow pace has surpassed 2019 and I was very pleased with our new buyer trends. New buyer tour flow outpaced owners against the prior year and versus 2019 as our package pipeline conversion and marketing efforts have shown success. BPGs of just over $4,200 was nearly 28% ahead of 2019. But as we expected, we've seen some moderation as our segment mix and close rates continue to normalize versus the pandemic highs. Turning to demand indicators, our system occupancy improved to 83%, with September occupancy equal to 2019. the first month we've reached pre-pandemic levels. We saw broad trend improvements across our network, led by our southern region and destination resorts, along with a continued improvement in Hawaii. As we look to the fourth quarter, total room nights and arrivals for our owners and rentals are ahead of 2019's levels. Even as we've monetized our package pipeline, we continue to see robust demand for new travel packages which is another healthy sign for our business and the travel environment in general. We now have over 532,000 packages in our pipeline, and the percentage of those packages with a set travel date is the highest since 2019. We'll continue to focus on monetizing our pipeline to support NOG and drive embedded value in the business. As I mentioned earlier, The direct financial impact of Hurricane Ian was limited, and our team members did a fantastic job of executing our protocols to minimize the storm's effects. We sustained damage at some of our sold-out legacy resorts that we manage in southwest Florida, and we're working with our insurers to get those repaired. We don't have any sales centers in the directly affected region, and we estimate that the impact of the storm was immaterial to our EBITDA. Turning to other segments, NOD was 3.8%, with Diamond adding 1,900 new members in the quarter, bringing our member base up to 515,000. That drove another quarter of revenue improvement in our resort and club business, and our rental business also produced sequential revenue growth, supporting our view that the leisure travel environment remains robust. Taken together, These factors produced a really strong EBITDA result in the quarter, even after excluding a one-time benefit that Dan will get into. We also produced strong cash flow, enabling us to not only invest in the business, but also to maintain our commitment to returning cash to our shareholders through repurchases that were well in excess of our prior guidance. So to sum up, I'm happy with our progress this quarter. The travel environment remains strong with arrivals on the books exceeding 2019's levels. Demand for our new max membership continues to be robust, and our value proposition stands out more and more each day. We're seeing success in our marketing efforts with the expansion of our digital channels, the excitement around ultimate access platform, and our investment to monetize our package pipeline. We're generating more free cash flow than we ever have, allowing us to invest in our business and still return a substantial amount of cash to shareholders. And the momentum in our business gave us confidence to raise guidance again. With that, I'll turn it over to Dan to talk you through the numbers. Dan? Thank you, Mark, and good morning, everyone.