Good morning, and welcome to the Hilton Grand Vacations' Fourth Quarter 2019 Earnings Conference Call. A telephone replay will be available for seven days following this call. The dial-in number is 844-512-2921, and PIN is 13697040#. 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. [Operator Instructions] I would now like to turn the call over to Mark Melnyk, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator. Welcome to the Hilton Grand Vacations Fourth Quarter 2019 Earnings Call. Before we get started, please be reminded that 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 refer to the Risk Factors section of our 10-K. We will 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. As a reminder, our reported results for both periods in 2019 and 2018 reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we are 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 T-1 of our earnings release. Also, 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. Finally, unless otherwise noted, results discussed today refer to fourth quarter 2019, and all comparisons are accordingly against fourth quarter of 2018. 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 Mathewes, will go through the financial details for the quarter and our forward expectations. After that, Mark and Dan will make themselves available for your questions. With that, let me turn the call over to our President and CEO, Mark Wang. Mark?

Morning everyone. Earlier today, we released our fourth quarter results. Total revenues were up 3% and contract sales grew 1.4%. For the year, contract sales were flat and finished inline with the guidance we provided last quarter. NOG was 5.5% and marked our 27th consecutive year of net order growth. Adjusted EBITDA grew 18% to $124 million with margins at 25% up 320 basis points versus last year. For the year our adjusted EBITDA was up 7% to $453 million versus our revised guidance of 415 to $435 million. Our margins were 24%, up 85 basis points versus 2018. I think that says a lot about our team and our model that we were ultimately able to deliver solid EBITDA growth and margins during the transitionary period for our portfolio. It was no easy task and I applaud our teams for their efforts. Now, let's jump into what we saw in the quarter and the year. In our real estate segment, our Q4 contract sales growth was driven by 5% increase in tours offset by lower VPGs. Our fourth quarter close rates increased year-over-year as operational improvements and a continued focus on execution drove an acceleration in our transaction growth each quarter of 2019. Regionally, we saw growth in tourism both the Mainland and APAC and we saw close rates up in both regions as well contributing equally to the gain we saw in the quarter. Owner engagement remains strong with arrivals up 7% for the year, and our capital efficient mix increased 500 basis points to 83% of contract sales underscoring our commitment to efficient inventory sourcing. Our non real estate business continued to demonstrate strength, fueled by NOG. At our Club and Resort business the compounding benefits of growing our member base resulted in another solid quarter with…

Thank you Mark and good morning everyone. Before getting into the results, I'd like to cover a quick refresher on deferrals. As you will recall, our model allows us to pre-sale new projects up to two years in advance of opening. GAAP ASC 606 requires that we defer the revenue, cost of product and direct SG&A associated with those pre-sales until we open the property for occupancy. Put simply this requirement creates deferral items on our balance sheet that grows during the presale phase and consequently there's an artificial reduction to adjusted EBITDA during this period. Once we obtain a temporary certificate of occupancy for our project, we reverse those items in their entirety, creating a large positive income statement recognition that inflates EBITDA in that period. As these adjustments create misleading volatility in our revenues and EBITDA and the sales booked during the presale period generate cash flow, we manage our business internally by focusing on earnings, excluding deferrals and recognitions. Hence, all references to net income, adjusted EBITDA and real estate results on this call for current, prior and future periods, exclude the impact of deferrals and recognitions. This quarter deferrals were a drag of $19 million on our reported ASC 606 EBITDA. Further details can be found in tables T-1 and T-15 in our press release and a complete accounting of our historical deferral recognition activity can you found in Excel format on the Financial Reporting section of our Investor Relations site. We would encourage you to reach out to Mark Melnyk for additional help in understanding deferrals in your modeling and valuation work. Now let's turn to the results for the fourth quarter and full year 2019. Total fourth quarter revenues increased 2.9% to $503 million, reflecting growth in our Real Estate, Resort and Club and…

Thank you. [Operator Instructions] The first question come from the line of Brandt Montour of JPMorgan. Please proceed with your question.

Brandt, could you check if your phones on mute please?

I'm here. Can you hear me?

We can.

Sorry about that. Good morning. So, Mark, just qualitatively I was hoping you could maybe just give us a little bit of color on sort of the behavior of the Japanese consumer at this point in time, as much as you can, I guess tell us in terms of future packages, activity with regards to new bookings and cancellations and any other color you can give.

Sure. So, I can tell you, since the news broke early this year, we have had very minimal impact and I was checking as late as this morning. We've seen very few cancellations as far as arrivals go, owner's arrivals we have seen a bit of impact on our tour flow in Japan that was probably a little earlier on after the news hit. But, it's now picked up. So, right now the behavior is good and so we again, it's early on and things can move around and change swiftly, but right now, we're feeling like everything is fine. But, we keep hearing new news off every day.

Yeah. Thanks for that. And then I'm just kind of curious on tour growth in the quarter. Obviously a solid number but still makes the year-over-year growth in tours over the last couple of our years. Just curious if it's going on right now a lot of that kind of baked in several months in advance.

Yeah. I think, again, tour flow was solid for the year and for the quarter, came down a little bit off of our pace for the year but a lot of that was really driven by some internal initiatives that we had around tightening up some of the qualifications. But, all in all, I thought it was a good quarter we're still just that particular point, we're still waiting for some inventory to get into the system. But I think right now if you look at where our packages are starting the year we're up 14% our package for pipeline. So, we've got well over 400,000 packages sitting in our pipeline, so we're in a good position as we start off the year.

The next question comes from the line of Patrick Scholes of SunTrust Robinson, Humphrey. Please proceed with your questions.

A question for you on the share repurchase authorization. It looks like the prior one expired. I believe back in November. Is there any sense of urgency to get a new authorization?

Hey Patrick it's Dan, so far it's going well today, with regards to share repurchases, we actually it hasn't actually expired we still have about $45 million. So we simply did not repurchase any shares in the fourth quarter of 2019. And, as we've discussed before, when we look at capital allocation our number one commitment was investing in inventory and we clearly did that starting in 2018 and we're still in the process of realizing all of those commitments. Number two was returning capital to shareholders. As you can imagine, there's a number of factors that come into play when we make those decisions. We did not repurchase any shares in Q4, but it remains the number two use of capital and our mindset and given where inventory is today is the number one use and we'll go back into the market when it's appropriate.

Okay, so the latest follow up, have you repurchased any shares this quarter? Doesn't sound like you have but curious if you have and if not, are you blacked out from doing so this quarter?

We have not and we are not to be discussing anything with regards to our blackout such as stock repurchases.

Our next question comes from the line of Jared Shojaian of Wolfe Research. Please proceed with your question.

So, if I appreciate the commentary on the Japanese space age, I can purchase a little bit differently. I think about 20% of your owners are from Japan. Can you give us a sense as to what percentage of your EBITDA that represents and I guess realizing that some of the earnings contribution is from maintenance fees and financing and things that probably wouldn't really be affected by corona virus anyway. And then if you could just help us understand what percent of your EBITDA is non-US non Japan? Thank you.

Yes, so you're correct 20% of our sales are derived out of Japan. And so, we talked about half of that actually comes from sales in Japan and half of it occurs in Hawaii for those visitors coming in. So, at the end of the day, for instance if for some reason the Japanese reduce travel to Hawaii and they decided they didn't want to do some of long haul trips, we still have the ability to sell them in Japan because we have approximately we have 12 sales centers over there. As far as the percentage of EBITDA goes, I don't know Dan if we have the exact percentage on that, but…

Yeah. No. I mean, look, just to take a step back, in our prepared remarks, we did comment on what the potential impact would be and I just want to make sure that we clarify that statement to the nth degree. So, if there was a 5% impact to our Japanese consumer base, it will translate into a 1% impact to overall contract sales and then translate further down the line to EBITDA roughly $5ish million. Now, that is clearly not an ongoing scenario. If there was a scenario where things were to be persistent, we would obviously make more dramatic measures with regards to cost and all items related to the Japanese base. So, that's meant to be just an indicator of kind of short-term impact. From an overall perspective, to Mark's earlier point, Japan does represent roughly 20% of our sales and from an EBITDA perspective, it would be slightly less than that just because they're focused on higher costs of product, business as well as sales and marketing and G&A for Japan is also slightly higher than average.

Yeah. And I just add to that, Dino, again, it's early days, still uncertain how this is all going to play out. But we've faced these kinds of challenges before. I can tell you from my past experience and in some of that past experience here with Hilton Grand Vacations. You know really due to the prepaid nature of our product and divested interests that our owners have to their properties that, historically, in these kinds of events, we've bounced back very fast and 9/11, we met our objections in that year and the following year. If you look back at SARS, we had a similar disruption with our Japanese customer, but ultimately we didn't see any meaningful impact on our contract sales. It only affected us for a couple of months. Another example that I watched firsthand was Hurricane Iniki in Kauai and -- and this is really kind of an example for what I think the whole sector will experience. Back in 92, they closed the entire Island, all the visitors, and when the Island reopened, first visitors to return were Time Charters and it was well documented event, that made timeshare very popular with the local communities and officials and it helped kick to start the economy back. But, so again, I think, it's early on. I think as far as our business goes, we're very well-positioned. We've spent now a decade selling to 50% new owners. So, we have a very healthy base of owners that are upgrading at record levels right now. We've got a lot of embedded significant recurring fees and predictable revenue. I mentioned earlier, pipeline is really strong. So, for some reason there's some delays in that pipeline we just push those customers out and so they're committed to traveling at some point. So, we feel really good that should this disruption last for a longer period of time, regardless we'll be able to bounce back quickly.

And the only thing I would add is, just an additional data point through the end of February, the impact that we've seen or what we can see today and keep in mind, while the U.S. has been hypersensitive to this over the last 14 days, and clearly this has been top of mind issue for Asia for an excess of two or three months, and I'm sure it will continue, but through the end of February, the impact from a contract sales perspective is a couple of million dollars at this point.

Great. Thank you for all of that color. And then I guess, as we look at the guidance for 2020, it looks like economic EBITDA you're expecting to grow kind of at a low single digit pace, I guess below the contract sales growth below some of the growth you had in 2019, despite all the challenges in the year, so can you talk about what may be driving that to be a little bit lower than, than those factors. And then you had mentioned you'll be at a strong rate of growth on contract sales by the end of the year a strong run rate, I think there's a terminology we use. Can you help us understand what that means. I mean, are you thinking by the end of this year, you could be back to call that double digit pace you were at a couple years ago and obviously this is entirely before coronavirus. But when you can just help me understand how you're thinking about both of those pieces?

I'll talk briefly about the EBITDA growth and I'll turn it back over to Mark with some additional color. The one thing I do want to point out and I think we highlighted in our prepared remarks. But just to be clear, in Q4 we did have some items that are unique to 2019 that will not be carried forward. So, in that $453 million of EBITDA in 2019 roughly it's slightly north of $8 million of items that we really got a bump from in Q4. One was a change in certain employee benefits that was about $4 million. In fact, the G&A and also the segment levels, and then there was also a $4 million benefit from refining of the static pool models. So, when you take that step back, you're looking at a base either closes EBITDA that's posted a 4.5 so that for 4.5 grown into the midpoint of the range just shy of 5%, which I think is just shy of 5% of the midpoint in the range of two systems mid-point of the range, excuse me with the contract sales growth. From an overall continuation, I'll turn it back over to Mark to add any color.

Yes, no Jared, you're right with look, we're excited. We're returning back to growth in 2020. We've got a number of new projects, we talked about Cabo and Maui we're not going to be opening on site on those properties this year, but we'll be able to start selling the inventory and so we expect sales are going to ramp throughout the years as inventory comes online we just give you kind of a sense on timing, and maybe it'll be helpful as we think about this sales evolution of a typical project, it can take a full year for property to become available across our entire sales network. So, for instance if we get a project approved for sales, typically it's available and about 20% of our network, you get about six months out, it runs out to about 50%. As we get registrations in the various jurisdictions and then year out we're 100% available out there. So, as we look back when we started '19 and if you look at kind of the inventory, is inventory on the shelf we're at a all time low of inventory on the shelf. Now as we look forward into 2020, we're restocking our inventory on those shelves. So, as we get out through the year, the inventory become more plentiful help us meet a number of upgrade opportunities with our owners and help us also meet some of the new buyer opportunities, so excited about where we're at we spent the good part of two years getting this inventory prepared, and we're excited that it's finally coming about and as far as getting back to double digit growth, I think, you can expect it will be nearing that amount as we move into '21.

Our next questions come from the line of David Katz with Jeffries. Please proceed with your question.

Hi. Good morning everyone. This is still morning. I wanted to sort of take a different tack here and avoid asking more about the near-term virus impact, because there is, as you point out, a refocus on growth. I've thought of HGV in terms of the locations, where it could be over time such as Caribbean or Morse Key et cetera. How should we think about the longer-term opportunities and how long we might have to wait before we'd see you're getting into a little more geographic distribution?

Yeah. Well, we have been expanding, especially from a geographic standpoint. When you think about Cabo and Maui, those are new markets we moved into. Charleston, we just started selling that. We opened up in Chicago. So, we have been expanding and we continue to look for new opportunities. We're looking at some new product forms as well as that and with those new product forms, we think there's an opportunity to really prop up a mid tier opportunity, which we think will broaden our base of customers that we can address today. So, there's been a lot of expansion and we continue to look at new opportunities. We also, I forgot to in my list, we did opened a new property in the Caribbean last year, in Barbados. So, that's the first time we've been in the Caribbean. And then if you look international, we've got a new project under construction in Okinawa. That's a just in time deals that Mori Trust is building on our behalf.

We're excited about our expansion and the opportunities in front of us.

Right. And in terms of how those growth opportunities should roll? Should we think of those more as capital light model or should we expect them to consume capital or really depends.

You're going to see as we think about some of these new opportunities. We're going to be extremely capital efficient. And so, we've got a great mix of fee for service. We're the only ones that have really, I feel perfected a fee for service model that we can do with multiple developers out there at scale. This year we're still looking at 47% to 53% of our mix to be fee-for-service. We expected to drop around 40% to just a little below that in '21. But you can expect is we look at some of these mid tier product that we would probably be looking at a trust format and we'd be looking at one of our partners to help us stand that up.

[Operator Instructions]. There are no further questions at this time. Before we end, I would like to turn the call back over to Mr. Mark Wang for any closing remarks. Mr. Wang?

All right. Well, thanks everyone for joining us this morning. We look forward to speaking with you over the next couple of weeks, and updating you on our next call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.