Hilton Grand Vacations Inc

Good morning and welcome to the Hilton Grand Vacations second quarter 2023 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 13735180. 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 enter 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 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 and GNA. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacations second quarter 2023 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 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. 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 were referred 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 Wayne. Mark?

Good morning, everyone, and welcome to our second quarter earnings call. I'm happy to report we had another solid set of results. Contract sales were $612 million. and EBITDA was $252 million with margins of 25%. Tour flow growth of 21% continues to stand out in this environment, which is critical to growing our member base and embedding future value into the business. And our investment to drive new buyer demand is paying off with new buyer transactions and the mix of tours at their highest level since the beginning of the recovery. Forward demand indicators also remain robust, suggesting ongoing support for leisure travel. Arrivals remain ahead of last year and should support further occupancy improvements in the back half of the year. We've made additional progress with our package sales, setting new records in both the size of the pipeline and the number of activated packages. And the growth in new buyer tours continues to outpace that of owner channel. So, the demand indicators that we see in our business remain healthy and point to the prioritization of leisure travel and a growing share of consumer wallet. The consumer macro environment is a bit more uncertain today, but with our large base of members and ability to source from the growing Hilton Honors database, we have the advantage of generating our own tour flow from a high-quality source. And we're further refining our approach to driving additional tour growth with new initiatives, like the expansion of our digital sourcing capabilities and HEV MAX platform. So overall, I remain confident in our focus on driving tour growth at NOG, and I'm really happy with the execution and our ability to adapt to the environment. Before we get into details of the quarter, let's start with an update on our strategy and integration initiatives. As I've mentioned previously, a key pillar of our strategy has always been focused on generating new buyers and driving positive NOG, which supports the embedded value of the business. This is critical to our long-term success since we estimate that nearly two-thirds of the revenue generated in the lifecycle of our owner comes after the initial sale. Nearly 25 points of that comes in the form of recurring financing and club fees, which provide us with a steady high-margin EBITDA streams. And the remainder are generated from follow-up upgrade sales, which come with substantially better margins than the initial sale. We've refocused our post-pandemic efforts on driving new buyers in order to build a base of future high margin and recurring value through the contribution of those downstream elements. We've also talked on previous calls about the investments we're making in new technology and experiences in order to increase our member base, drive engagement, and ultimately improve the lifetime value of our members. With that, Let me provide some additional context around those investments and how they're helping us expand our marketing funnel. Digital marketing was already our fastest growing lead channel, with a 50% increase in the number of tours driven through digital since 2019. And since the acquisition of Diamond, we've significantly increased our reach through both social and earned media, leveraging our celebrity brand ambassadors, and our sponsorship of signature events like the Tournament of Champions and the upcoming Formula One race in Las Vegas. Our digital offers are also more personalized based on demographics, propensity to purchase, and real-time consumer behavior to drive a higher response rate and improve our tour outcomes. Our data shows that this type of personalization and targeting is critical in the first years of membership, where driving engagement and usage of the product is key to turning a new member into a lifetime promoter. And we're increasingly deploying an omnichannel marketing model, maximizing lower cost channels at the top of the funnel while leveraging higher cost channels for retargeting and activation. We're also applying this approach to sales with virtual and in-person options allowing guests to interact with us when and how they want. Moving down the funnel, over one-third of our vacation package activations are digital today. This makes it easier for our customers to select their preferred dates, improves package conversion, and allows us to leverage our inventory more effectively. And finally, the investments we're making and expanding the capabilities of HEV Max will enhance its attractiveness, not only improving our conversion rates, but also maximizing the lifetime value of our member once they do JOY. We're also continuing to enhance HEV Ultimate Access, our leading platform of curated experiences and events. The activities and experience market is still highly fragmented, and we've chosen an integrated and high touch approach to tailor the customer experience. We're expanding our programming based on member interest and feedback, which is important because it introduces an element of continuous newness to the value that members get from the brand. It allows us to attract new customer segments that are approaching vacation ownership for the first time through experiences, and it also provides an additional opportunity to engage with existing owners supporting increased member lifetime value and loyalty. So our investments are focused on evolving the core elements of our business, expanding the lead generation funnel, maximizing the efficiency of tour flow, and offering a compelling portfolio of properties and membership features to drive additional tour flow and ultimately member growth. Now let me take you through a more detailed look at our performance in the second quarter. Contract sales were driven by another strong improvement in tour flow, which offset the moderation of VPG against last year's difficult comparisons. Tour growth in the quarter was again led by strength in new buyer tour flow, which was more than double that of our owner tour growth. This brought our mix of new buyer tours to two-thirds of the total, which was the highest level since the third quarter of 2019. I'm also pleased that we were able to generate double-digit growth in our owner tour flow despite lapping the launch of HEV Max last spring, which generated a large amount of owner interest and activity. BPG for the quarter was just over $3,700, still well ahead of 2019 levels, and on our expected path of moderation. Looking at Q2 versus Q1, our strong new buyer performance was again a significant driver of the VPG change, with nearly two-thirds of the delta due to the higher mix of new buyers. Turning to our demand indicators, occupancy for the quarter was 83% and the strongest we've seen since 2019. Our forward bookings remain well ahead of the same period last year and in 2019, which will support occupancy and tour growth through the rest of the year. And our total marketing pipeline expanded again this quarter to nearly 560,000 vacation packages, indicating strength in consumers' willingness to travel over the near term. Looking at our non-real estate segments, this travel demand also drove another quarter of top-line growth in our rental business, along with an improvement in our profit contribution. Finally, we had solid results from our club and financing business, which are a recurring source of more than half of our total EBITDA. Nod was 2.8% in Q2 and brought us to 522,000 members at quarter end. We surpassed over 100,000 HCV MAX members during the quarter, which is a great achievement for the team and another significant milestone for HCV. We also had another solid quarter from our financing business, despite the changing interest rate environment. Finally, in the quarter, we repurchased $121 million of shares, which is ahead of our pace from last quarter. On a cumulative basis, since restarting our repurchase programs in the spring of 2022, we've bought back 11 million shares, nearly half a billion dollars of our stock. So to wrap up, I'm really pleased with our execution. While we continue to monitor the changes in macro environment, the teams have done a great job in adapting to these changes while remaining focused on our priorities. We've been successful in driving new buyer tour flow, generating NOG, and growing our member base. We're refining and augmenting our lead flow channels to bring in more efficient tours through additional investments in technology, And at the same time, we're adding additional features to MAX to further strengthen the compelling value proposition it offers. These efforts remain focused on driving long-term value of the business and generating sustainable free cash flow and returns for our shareholders. With that, I'll turn it over to Dan to talk you through the numbers.