Hilton Grand Vacations Inc

Good morning and welcome to the Hilton Grand Vacations fourth quarter 2023 earnings conference call. A telephone replay will be available for seven days following the call. To dial a number is 844-512-2921 and enter pin number 13743184. 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 touchtone phone to enter the queue. If at any point your question has been answered, you may remove your question 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 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. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacations fourth 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. 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.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. 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. To help you make more meaningful comparisons, you can find details of our current and historical deferrals and recognitions in Table T1 in our earnings release. Any complete accounting of our historical deferral and recognition activity can also be found in Excel format on the financial reporting section of our investor relations website. In a moment, Mark Nguyen, 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 fourth quarter earnings call.

Contract sales in the quarter were $572 million, and EBITDA grew 12% to $282 million, with margins of 27%, improving 200 basis points from the prior year. For the year, EBITDA of $1.26 billion was slightly ahead of our revised guidance of $1 billion to $1.2 billion with margins of 26%. Tour flow grew 7% for the quarter with growth in arrivals and improved occupancy levels. Our owner channels again proved to be resilient with tours remaining above 2019 levels. But while tour flow was solid overall, it nevertheless came in modestly below our expectations, reflecting some lingering hesitancy in consumer behavior. particularly on the new buyer side, which we also saw in the early part of this quarter. That said, we're entering 24 with a strong pipeline of booked vacation packages, giving us confidence that the willingness to travel remains steady. BPGs declined 14% in the quarter, roughly on the same trend of mid-teen declines that we've seen all year as we lap tough comparisons from 22. but it also reflects the effects of continued disruption in our Maui market, along with a temporary system outage that impacted our legacy deeded sales system early in the quarter. The issue was fully remedied, and we subsequently enhanced our backup systems to mitigate any future risk, but it did create a modest drag on our sales and BPG results in the quarter, which Dan will get into in a minute. In that context, I'm happy with our underlying EBITDA performance despite these issues, which highlighted the adaptability of our business along with the benefit of our recurring EBITDA. On the cost front, we have a natural hedge due to our largely variable expense base, and we also implemented additional short-term cost saving measures to protect our margins. Looking at sales, we adjusted the use of some of our more expensive marketing channels to improve our efficiency, and we made changes to some sales processes and new sales incentives to focus on our highest quality tours and help improve our tour outcomes and VPGs. So, we have a lot of leverage to pull in this business to support our margins and ultimately our free cash flow generation. Our confidence in our business model is reflected in our 24 guidance we issued today, which shows growth in our EBITDA supporting even faster growth in our cash flow per share. While our current expectations is that the consumer softness will persist through the first half of the year, our costs and our tour efficiency initiatives will still enable us to grow our EBITDA. In addition, we're also expecting EBITDA growth at blue-green this coming year, along with the recognition of some initial cost synergies. Regarding the acquisition of BlueGreen, after a smooth review process and great execution on our financing, I'm happy to announce we officially closed the transaction on January 17th, much earlier than our initial expectations. We're really excited about this transaction, and we think BlueGreen will be a great complement to HEV, enabling us to reinforce our position as the premier vacation ownership and experience company, We're adding scale and diversity to our existing offerings through Gorilla Green's member base and additional geographies. We're also expanding and diversifying our lead flow with the addition of new world-class strategic partners and lead flow channels. And we'll also explore new avenues for growth through our joint venture relationship with one of those partners, Bass Pro Shops. In addition, we'll de-risk the integration process by leveraging the infrastructure and experience we developed with the diamond acquisition, we'll realize material synergies, and importantly, we'll further strengthen the resiliency of our business with additional recurring EBITDA and free cash flow. Along with today's release, we've provided some additional financial details for Blue Green on our investor relations website, but I'm happy to say they finished out 23 with solid momentum, growing contract sales 4% in the quarter to $193 million, and generating EBITDA of $46 million with margins of 17%, improving nearly 500 basis points year-over-year. Our teams have already begun the integration process, and we formed working groups throughout the organization to collaborate with our new Blue Green team members as well as our new strategic partners. We intend to support Blue Green's momentum during the integration by operating their sales organization in parallel with HEV over the course of the coming months. At the same time, we'll also be working closely with Bass Pro and our other strategic partners to develop a roadmap for successful integration and expansion of our marketing efforts. So we're hitting the ground running with our integration efforts. On the heels of the Diamond integration, our teams are well versed in the processes and procedures that we need to ensure a smooth transition. And we're excited to share our progress with you over the coming quarters. Now let's take a look at our operational performance. Remember that these fourth quarter results refer to a standalone HEV. We just closed the blue-green acquisition here in the first quarter, and we'll report operations as a combined entity beginning in Q1 24 results. As has been the case throughout the year, contract sales in the quarter were driven by growth in tours, offset by a decline in BPG. The 152,000 tours generated in Q4 were up 7% and maintained the trend of tour growth with new bar tours growing slightly faster than our owner channel. BPG for the quarter was $3,730, continuing the pace of normalization we've seen through the year. Close rates also remained ahead of 2019's levels led by the strength of owner channel, which are still above 2019 by several hundred basis points. And, as we've now lapped the tough VPG comparisons from last year, our expectation is to return to a more normal pace of VPG growth in 24. Turning to our demand indicators, our package pipeline remains robust at well over 500,000 packages And we've entered 24 with a record number of those packages dated for travel, which should support additional tour flow growth this year. Fourth quarter occupancy of 82% was 300 basis points ahead of last year, with strong improvements in November and December. And we continue to see arrivals this year trending ahead of last year's, pointing to additional gains in 24. We also capped off a strong year for our experiential platform, HCV Ultimate Access. We hosted over 3,600 events during the year for more than 120,000 members and guests, and we're already off to a strong start in 24. Our marquee Ultimate Access event, the Hilton Grand Vacation Tournament of Champions, built upon last year's strength with attendance and media exposure setting new records. and our teams have put together a rich list of programming for the year ahead that will surpass last year's performance. We believe that differentiated offers like ultimate access drive increased owner engagement and loyalty, strengthening the value proposition of HEV's ownership. Moving to our non-real estate segments, transient travel demand remains strong in the quarter, leading to gains in both occupancy and rate and driving growth in our rental business despite having more room nights allocated toward owner stays and fewer available nights in Maui. In our recurring club and finance business, Nod grew 2% and capped off another year of member growth. We ended the year with nearly 529,000 members, including more than 144,000 max members. That means we added 70,000 max members this year, both through new member additions and upgrades from existing owners. which nearly equaled the number of MAX members we added during last year's strong launch period. Our financing business also continued to perform well, even after controlling for a one-time expense adjustment made in the fourth quarter of last year. During the quarter, we repurchased 2.6 million shares of stock, bringing the total to 8.7 million shares for the year. And since we spun out as an independent public company in 2017, We've repurchased over a billion dollars of stock for 30 million shares. We remain committed to returning capital to enhance our total shareholder returns. And with the addition of BlueGreen, we're on a path to enhance that commitment as we further improve our cash flow generation. Looking back to 2023, I'm proud of the progress we made, and I'm excited about the year ahead. As we continue our integration of diamond assets and turn our attention toward BlueGreen this year, our goal is to solidify our position as the premier vacation ownership and experience company. We have the widest offering of products and price points in the industry, the most accessible and featured PAC member club with HEV Max, and the largest experience platform with HEV Ultimate Access. With the addition of BlueGreen and our new partners, we'll also be able to reach a wider audience than we've ever had before. Our goal this year will be to ensure a smooth integration of Blue Green and engagement with our new club members, team members, and partners. And we'll maintain our focus on driving long-term value creation and free cash flow generation along with capital returns. With that, I'll turn it over to Dan to talk you through the numbers. Dan?