Hilton Grand Vacations Inc

Good morning, and welcome to the Hilton Grand Vacations First Quarter 2024 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 13743185. 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 one 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 two. If you should require operator assistance, please press star zero. 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 any additional questions. I would now like to turn the call over to Mark Melnick, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacations first quarter 2024 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 the statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of our 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. 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. 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, and a 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, our Chief Executive Officer, Mark Wang, will provide highlights from the quarter in addition to an update of our current operations and company strategy. After Mark's comments, Our President and 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 CEO, Mark Wang. Mark?

Morning, everyone, and welcome to our first quarter earnings call. Reported contract sales in the quarter were $631 million, and EBITDA was $270 million, with margins of 24%, which includes just over two months' results from our recently closed Blue Green acquisitions. I'm happy with the results overall, and I'm even more encouraged when looking at the momentum that we built over the course of the quarter. Recall that in the fourth quarter, we adjusted some marketing channels at our legacy business to optimize our tour flow, which we expected would create some follow-on effects in the first half of 24. We came into the year with a goal to dial up some of our marketing activities in a thoughtful way and accelerate package activations of our tour pipeline. and these efforts began to yield results as we moved through the quarter. While we started with a modest year-over-year decline in tours in January, we saw an acceleration each month of the quarter, exiting with a low single-digit positive tour growth in March, which put us solidly on track relative to our expectations for the full year. We also added more packages this quarter than any other quarter since mid-22, and our mix of activated packages is back to record levels we saw in the first half of 23. These trends speak to a consumer that remains committed to travel despite some of the macroeconomic pressures that have built up, particularly in regards to inflation. While those pressures are still leading to some hesitancy at the sales tables, our sales teams have made adjustments to help highlight the value proposition of ownership which should result in improved close rates as we move through the year. It's also important to note the continued resilience of our owner business, which saw an acceleration in tour growth compared to the fourth quarter, along with improved close rates. The repeat nature of our dedicated owner base is a key feature of our business that drives stability and embedded value creation in our model over time. Our owners love the level of HEV service and the benefits offered by our MAX membership. They want to use the product more, and ultimately, that drives additional upgrade business. Nearly a third of our members are HEV MAX only two years after our launch, indicating how successful the program has been at attracting existing members as well as new buyers. And as we welcome our new Blue-Green owners into the HEV system over time, we're confident that the HEV max benefits and service levels will resonate with them all very well. Speaking of Blue-Green, since closing our acquisition in January, we've been hard at work on our rebranding plans and integrations. A lot of great work has been done by our teams, and I'm very pleased with how they're executing and coming together over the last few months. There's still a lot of work left ahead of us, but the foundation of our business is better than ever. I'm also excited about our recently announced partnership with Great Wolf Lodge, which will create a new source of lead flow that we think will be a great fit with the HCV family of brands. So, we have a number of positives coming out of the quarter that leaves us optimistic. While we're still a few quarters out from reaping the benefits of dialing up our activations over the last few months, I'm happy with the trends we're currently seeing out of the business and our team's execution. And we remain confident in our guidance for the year. Turning to our integration efforts, let's start with a quick update on Diamond. Through the end of the first quarter, we rebranded 36 properties, representing over 9,600, or two-thirds of the total keys. We expect that we'll rebrand 12 properties this year for an additional 2,500 keys, bringing us to over 70 percent of the total by year-end. The remainder of the properties will be completed between 2025 and 26. We're happy with the results of the rebrand thus far. But more importantly, our guests are happy. We continue to receive positive feedback, and our occupancy levels and package sales trends remain strong at those rebranded resorts. We're also making steady progress integrating our technology with several key module launchings this year that will move us toward a unified system for our deed and trust products, which we'll also leverage as we move through the Blue-Green integration process. These enhancements will not only enable our sales teams to transition more seamlessly between product offerings, improving efficiency, and the likelihood of conversion, but they'll also enable us to seamlessly grow in the future. And importantly, they'll also create a smoother customer experience, helping owners' engagement and retention. Moving to blue-green, as I mentioned, We've been working diligently to integrate our teams over the past several months. Throughout the process, I've been thoroughly impressed with the Blue-Green team at all levels of their organization. At the same time, we've been fully engaged to drive growth with our new partners, FastPro, Choice, and NASCAR, and have also continued working toward finalizing our rebranding plans ahead of the kickoff later this year. I also want to spend a minute talking about our new relationship that we announced a few weeks ago with Great Wolf Lodge. Partnerships are a critical component of our strategy to engage new customers and deepen the relationship with existing members through experiential offerings. And this partnership with Great Wolf furthers that proposition, serving over 10 million guests annually with a focus on families with young children, which is a priority growth segment for us. Together, we're able to engage a broader spectrum of vacations and age ranges, as well as provide HEV families with increased flexibility in their vacation options. In the coming months, HEV members will begin to vacation at Great Wolf Lodge Resorts using their club points, while also benefiting from exclusive discounts during their stay. In addition, Great Wolf Lodge guests will have the opportunity to receive curated offers to explore HEV's network of properties. HEV will have a presence in 18 Great Wolf resorts, with more locations to be added as Great Wolf continues their expansion. The partnership also includes call transfer and digital marketing programs, enabling us to generate new lead flow across multiple channels. Above all, these partnerships are about bringing people together to create memorable experiences, and I'm thrilled to be collaborating with CEO John Murphy and the entire Great Wolf team, who share a similar passion for hospitality and for delivering high-quality vacations that bring families together. Now let's take a look at our operational performance, assuming that we own Blue Green for the entire quarter, to make things simpler. Combined contract sales using that full quarter basis were $656 million with steady tour growth and a decline in VPG. Both HCV and BlueGreen demonstrated very similar growth trends for tours and VPG and were largely in line with our expectations. As I mentioned earlier, I was very pleased with the trajectory of our tour flow as the quarter progressed, along with the resilience of our owners. And as we move into the back half of the year, we expect to see our pipeline continue to drive improved tour trends as well. Combined VPG for the full quarter was $3,575, down about 5% driven by lower close rates. However, close rates in our legacy business improved from the fourth quarter, leaving us optimistic that our efforts and initiatives are producing results and leave us on track for the year. Looking at our forward demand indicators, occupancy in the quarter was flat at 79%, although last year's numbers included the full complement of Maui rooms. As I mentioned, we made great progress with our package activations this quarter. And our arrivals on the books for the rest of the year are ahead of 23 with strength in our marketing and rental arrivals owing to our success in driving increased package activations. Moving to our non-real estate segments, we continue to see great trends in our transient rental business led by higher available room nights and higher ADRs. Our rental nights on the books remain very strong through the rest of the year In some regions, where we had seen softer trends, such as Orlando and Hawaii, also showed signs of improvement this quarter, which also bodes well for future performance. In our recurring club and resort business, Nog and our legacy business was 2%, and the addition of BlueGreen enabled us to reach a member count of 718,000, which led to another strong quarter of EBITDA generation. And our financing business had a solid quarter of growth with improved margins owing to the addition of the blue-green portfolio and good receivable generation. We also maintained our commitment to capital returns this quarter, repurchasing 2.3 million shares for $99 million. So, all in all, I'm very pleased with this quarter. We performed in line with our expectations, and our trends through the quarter leave us optimistic that we're on track to achieve our guidance for the year. More importantly, I think we're really set up well for the long term. I believe that we're building the most talented team that we've ever had in my 25 years at HEV, and I'm excited to share our Blue-Green integration plans with you as we get them finalized. Before I turn it over to Dan, I'd like to congratulate him on being named president along with continuing his duties as CFO. He's done a great job over these last five years helping to navigate our business through markets that were turbulent at times, all while maintaining a commitment to shareholder value creation and risk management. And I know that he'll continue to maximize the value of our business and financial model in the years ahead. So with that, I'll turn it over to Dan to talk you through the numbers. Dan?