Good morning and welcome to the Hilton Grand Vacations fourth quarter and full-year 2017 earnings conference call. Today's call is being recorded and will be available for replay beginning at 2 PM Eastern Time today. The dial-in number is 888-203-1112 and enter pin number 51999320. 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. [Operator Instructions]. I would now like to turn the call over to Robert LaFleur, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Melinda. Welcome to the Hilton Grand Vacations fourth-quarter and full-year 2017 earnings call. Before we get started, we would like to remind you that our discussion this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements. And the forward-looking statements made today 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 previously filed 10-Q or our 10-K which we expect to file later today. In addition, we will refer to certain non-GAAP financial measures in our call this morning. 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 our website at investors.hgv.com. This morning, Mark Wang, our President and Chief Executive Officer, will provide highlights from the fourth quarter 2017 in addition to an overview of current operations and company strategy. Jim Mikolaichik, our Executive Vice President and Chief Financial Officer, will then provide more details on our fourth quarter and expectations for 2018. Following their remarks, we will open the line for questions. And with that, let me turn the call over to Mark.

Well, thank you, Bob. And good morning, everyone. It's hard to believe it's been a year since we held our first earnings call. And as I reflect on the year, I keep coming back to how proud I am of the way the HGV team came together through the spin process and through our first year as an independent company. The level of collaboration across HGV is the best I've ever experienced in my 19 years. In 2017, we reached significant milestones, laid a solid foundation for future growth and made progress in our ongoing commitment to create meaningful value. A strong fourth-quarter capped an even stronger 2017. Our sales teams delivered 8.3% contract sales growth in the quarter, which brought the year to 8.8%, exceeding the top end of our guidance range by 30 basis points. Asia-Pacific was had a stand-out year led by strong customer acceptance of The Grand Islander, which we opened in March. Our new properties of Hilton Head in Washington DC were also strong contributors. Our marketing team also delivered, with 8% tour growth, including double-digit gains in NOG-building new buyer tours. On top of this, we increased package sales by 16%, which builds a nice pipeline of tours for 2018 and beyond. Our operating teams had a great year in terms of their effectiveness and efficiency. On the effectiveness side, for the first time in our history, all HGV-managed properties received outstanding ratings in their annual quality assessments. Given the million customer service interactions that happen when taking care of nearly 300,000 owners and families each year, this was truly an exceptional achievement. On the efficiency side, our Resort operations and club management segment continues to produce industry-leading margin, which, again, exceeded 55% last year. Of course, our most meaningful measure of how well…

Thank you, Mark. And good morning, everyone. Before we discuss our fourth-quarter and full-year results, our 2018 guidance, I'd like to mention a few housekeeping items. As expected, we are now implementing accounting changes regarding revenue recognition that will affect our financial reporting and guidance going forward. Specifically, in our real estate business. We've provided additional disclosures in the press release and the 10-K that will help you with year-over-year comparisons and understanding the differences between the current and previous reporting methods. But the bottom line is that the operation and the economics of the business are unchanged and only the reporting is different. You may also notice a difference in our real estate margin calculations. In our year-end review, we made certain adjustments to better align the margin calculations to how we evaluate the business. We've provided you with comparative quarters to adjust your models. And finally, fourth quarter and 2017 results reflect the impact of recent changes in the tax code, which I'll discuss later in my remarks. So, with the housekeeping out of the way, let's jump to our results. As Mark highlighted, we're pleased with the results. We exceeded the high end of our contract sales guidance, finished at the midpoint of our elevated adjusted EBITDA guidance, and announced our first two projects in Japan. We have a full development pipeline and the company is well-positioned as 2018 gets underway. Fourth-quarter total company revenue was $447 million, an increase of 8% compared to last year. HGV's diversified business illustrated operational momentum with strong topline growth across our real estate and finance segment and our resort operations and club management segment. For the year, total company revenue increased 8% to $1.7 billion. Moving to net income, fourth-quarter and full-year results include a deferred tax benefit of approximately…

Thank you. [Operator Instructions] And we will go to Bradford Dalinka of SunTrust.

Hey, good morning, gentlemen. Just a few quick ones from me today. Appreciate you've long talked about investing in growth and inventory spending isn't really a surprise. But can you help bridge us from the $180 to $200 million of average annual cash flow you talked about last quarter to the $17 million to $37 million now. How much of those cash tax savings, how much of the inventory spend is incremental?

Brad, you broke up a little bit. Do you mind – the front end didn't quite come through. It was a little garbled.

Yeah, sorry about that. Can you hear me now?

Yeah.

Appreciate you've long talked about investing in growth and the inventory spending isn't really a surprise. But can you help bridge us from the $180 to $200 million of average annual cash flow in 3Q to the $17 million to $37 million you're talking about now. I know there's some cash tax savings in there and also some incremental inventory spend. Just the pieces would be great.

So, you're talking about the pickup in the fourth quarter to the 309 or are you talking about year-over-year full year 2017 to 2018, how we're moving?

Year-over-year.

So, you'll recall we picked up a few items as we went through the year, going from roughly about $150 million, which is our average free cash flow guidance as we spun, and we picked one less – we had one less license fee payment because that was swept in 2016 before we got public. We moved some spending on Ocean Tower because we were still working through the model room, took us a little longer than initially expected. We always expected to complete the construction in 2018. We've probably moved about $35 million related to Ocean Tower from 2017 to 2018. And we also picked up, I think, roughly $65 million or so in tax deferrals related to Hurricane Irma. So, all of our estimated tax payments in Q3 and Q4 will be paid in Q1 and Q2 this year. So, if you put that all into the mixing bowl, that's really how we went from a guidance of about $150 million to that $300 million. There are a couple other odds and ends in there. As we moved to the next year, all of those items will have four license fee payments this year. So, we will pick up the one extra one. The Ocean Tower spending will all be made this year. And we intend to complete that first phase of that project construction by the end of 2018. We will pay the tax deferrals. So, that kind of rounds you out to the kind of $200 million or so spending on the inventory side. And then, if you add in the $300 million or so in undisclosed projects, that's how you get up to that $500 million mark. And, hopefully, that kind of reconciles you on free cash flow from year-to-year.

That was extremely helpful. I think I may have asked a little imprecisely. I'll follow-up offline. And then, just another one. Hopefully, this will actually be a quick one. If you guys were to enter another market, one of the $100 million plus contract sales potential things you guys target, what's a reasonable expectation for ramp-up? Just want to make sure we don't get too far in front of our skis here?

Yeah. Brad, every market is going to vary. So, it depends – if it's a market where Hilton has a tremendous amount of presence and we're able to create a strong ground game and be able to access customers sooner than later, that would help ramp up the market quicker. But there are markets out there that we're looking at where Hilton may not have a strong presence that we know strategically would benefit our overall value proposition for our owners and we also know from our current owners that there is some inherent demand and we think the real estate place is a positive one. So, it's really hard to pinpoint the ramp up. I think every market is going to vary. And this year guidance is largely same-store because the spending is out in front of us. We've announced a few projects and they move out into the future. Odawara will start seeing some modest incremental lift this year from – but, really, we're looking at the outer years as we get the spending done and the deals executed.

Got it. That's it from me. Thanks again for taking my questions.

Thank you.

And we'll next go to Stephen Grambling, Goldman Sachs.

Hey, thanks for taking the question. I guess, one kind of strategic question. At this point, do you have to pump the brakes on additional investment and/or development or do you still feel like you have ample capacity to look for additional development? Or is that equally as important as it was maybe a year ago?

Yeah. Stephen, I think we've been very, very surprised by how fast our teams have been able to accelerate some of these opportunities. And so, back in the late 2016, when we were spending – we had our investor day, we weren't expecting to be able to accelerate this quickly. So, some of this has come out as pretty quick. And we're really pleased about it because it's going to allow us to really move into the next phase of growth for us. That being said, I think we have – and I'll let Jim talk about the capacity. With that being said, we're out still looking at new markets continually and to fill our core markets and looking at opportunistic markets. Core markets are important because we've got to fill sequel projects. So, they're really, really important for us. Our new markets – this adds and creates additional distribution. And as you know, we're very narrow right now. We're really only in eight markets when our competitors are two, three, five times that. So, we have tremendous opportunity for expansion going forward. So, I would say that we're not going to slow down. But I would say that part of what you're looking at this year is part of it's carryover from last year, part of it is our development teams have been allocated maybe $75 million, $100 million and they got pretty excited about the opportunity that we've had more capital to spend this year. So, they went out and aggressively have done a good job identifying deals. Jim, maybe you can take him through the capacity question.

Stephen, we've got plenty of room on the capacity side right now. As I mentioned, we have $300 million in cash coming into the year. That capacity between the securitization market and our consumer receivables and our revolver is $500 million plus right now. We're putting off operating cash absent the inventory spend we discussed, around $300 million as well. And we've got net debt at 0.6 turns. So, a lot of room on the leverage side. A lot room and dry powder with cash. Operating cash flow is robust. And beyond that, it's still a really constructive debt market if we needed to go out for extra. So, I feel very comfortable with the spend we're making this year and feel we have room if we needed to do more.

Great. As you think about the faster-than-expected use of capital, how does that get reflected in some of the three-year targets that you outline at the investor event? I guess you've kind of hit the numbers this year. Next year, you've provided guidance. So, maybe it's more a question of what is the faster use of capital due to your 2019 and beyond numbers?

Well, we're not really prepared to provide any forward guidance, though. I think I stated in my prepared remarks that this year and last year were really build years and we're looking to ramp. So, depending on which projects get done this year, now we're pretty confident we'll be able to get all of these deals done. But if the get the conversion deals that we're looking at get done early enough this year, it means we will be able to put them in place next year, which means we could be accelerating our growth profile next year. So, it really depends on the timing of these deals. If we get them done early enough, then we can get them registered and converted into the market. Soon, it could benefit us starting next year.

So, maybe if I ask the question another way, how should we be thinking about the returns of these projects versus history? And how has tax reform generally impacted your post tax returns on projects? Thanks.

Our return parameters are generally in the mid-teens on these projects. Some like the Odawara project was high-teens, could even push above 20 depending on how we leverage the project and what the cash flow return is on them. But I think about most of the returns and our hurdle rates being sort of in the mid-teen range.

And that's after-tax. Tax will give us a slight boost on that, but – you'll recall – we're also impacted just on – we've used installment method on that also. So, tax is as much of a near-term driver, given the fact that a lot of these are mortgages and are paid over time.

That's helpful. Thanks. I'll jump back in the queue.

And we'll next go to Brandt Montour, J.P. Morgan.

Good morning, guys. Thanks for taking the questions. So, on the inventory spend, just kind of one more there. Kind of given the magnitude of the outlay, I just wanted to understand maybe the mix of what this is. This is just-in-time versus developed? And then, how your philosophy has kind of changed there, if at all? And then, a follow-up on that quickly will be how many kind of deals are implied in the $390 million?

It's really across the spectrum. We haven't change our strategy as it relates to being capital efficient. So, we're looking at a number of different deal types here. I would say mainly – the majority are conversions. What we're really excited about is the majority are new markets. And when you look at the deal types, just-in-time and take-down, our preferred – we do have a greenfield deal in here that would require a ground-up build. So, anyways, it's kind of across the board, but we haven't change our philosophy and trying to do very capital efficient deals.

And it's tough to put an exact number on the amount of deals in there right this second. As Mark said, they're moving around a little bit, but there is a handful of them. And we do have a mix of fee-for-service, just-in-time and developed.

Got it, great. That's helpful. And then, shifting gears a little bit to kind of top line contract sales. Now that you sort of fully lapped those tougher VPG comparisons you had in the back half of last year, can you just tell us where you see the majority of contracts sales growth coming from in 2018, more from the tour growth side or the VPG side? Thanks. And that's it for me.

Yeah. It's weighted more to tour flow. our VPGs are, I think, the highest in the industry, though I have to say we've gotten off to a really good start this year. Feel really good about the customer. Pleased with our results last year. So, all in all, I think demand creation is strong. We're seeing solid traffic to our sales center. And the conversions are good too. But it's still going to be weighted more to tour flow.

That's great. Thanks, again, guys.

[Operator Instructions]. We'll go to a follow-up from Stephen Grambling, Goldman Sachs.

I'm back. Just on the strong tour flow, any color you can give on the source of where those are coming from or the demographics of that customer? Are you seeing any change in types of customers essentially? Thanks.

Stephen, we're not seeing any really difference in the quality of the customer. I think we've been pretty consistent. Our relationship with Hilton has some really strong benefits for us. And we continue to source customers from Hilton. Beyond that, we'll continue to expand our footprint in Japan. And that footprint is yielding really strong results not only from Hilton, but from third parties that we're working with there. And really excited about the opportunity in Japan in a few years. If you think about what we're doing in Japan today, we've got nine existing sales offices, but all of our product that we're selling is at Hawaii. So, everything is off-site. If you look at where we are in the US, 95% of our sales occur at the property level. So, there's a big opportunity. Once we start opening up product in resorts in Japan, we'll be able to start yielding sales on an on-site basis, which typically drives even higher VPGs.

And one last one, do you have any latest thoughts on consolidation in timeshare, whether there's an opportunity for that from your standpoint or not?

I think we expect to see some more consolidation. The field is narrow. We'll evaluate opportunities and we'll do what we think will maximize our shareholders' returns. But that being said, it's a narrow market, but we do expect that you'll see some more.

And how do you think about the synergies that you would be able provide or bring to a transaction?

Well, I think we're uniquely positioned as really an aggregator because we've got, we believe, the best-in-class new customer acquisition model, right? We're highly – we have a very effective inventory sourcing structure. So, I think – at the end of the day, though, you've got to address the brand affiliation and sometimes that's very, very challenging. And you also have to address the expectations out there on what these companies think they're worth. But that being said, we'll continue looking at the field and seeing if there's a fit for us.

Awesome. Thanks for all the time. Best of luck this year.

Thank you.

Ladies and gentlemen, at this time, we will conclude the question-and-answer session. I would now like to turn the call back to Mr. Mark Wang for any additional comments and closing remarks. All right. Well, thanks, everyone, for joining us this morning. 2018 is shaping up to be a very exciting year for us and we're looking forward to sharing more information with you in the months to come, especially around our new projects. Thank you for your continued interest in HGV and look forward to speaking to you after Q1.

And this concludes today's call. Thank you for your participation. You may now disconnect.