Good morning, and welcome to the Hilton Grand Vacations First 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 13735178. 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 Mark Melnyk, Senior Vice-President of IR and G&A. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacations first 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. 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 refer to results excluding the net impact of construction related deferrals and recognitions for all reporting periods. The complete accounting of our historical deferral and recognition activity can be found in the 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 Mathewes 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?

Good morning, everyone, and welcome to our first quarter earnings call. Today, we announced another quarter of strong results and I'm pleased with our performance, particularly in light of the difficult comparisons with last year. Contract sales grew to $523 million and EBITDA was $216 million with margins of 23%. The key indicators of our business continue to demonstrate the resilience of travel related spending, arrivals on the books are ahead of last year and point to further occupancy strength going forward. Year-over-year tour flow growth was the highest since the first quarter of last year with the number of tours nearly returning to 2019's level. We sold more [privy] (ph) packages this quarter that we ever had and at the same time, we also activated more packages than ever before. And our new buyer channel growth has continued to outperform our owner channel, which is consistent with our strategic focus on long-term value of the business. Early in the pandemic, we focused on servicing our owner base, and maintaining their strong commitment to traveling with HGV. But our focus continues to be on restoring our historical mix by growing tours and new buyer sales driving the long-term health of the business and embedding future value. While we are seeing positive trends among our consumer base, we're also continuing to monitor the macroeconomic environment closely. For some time, we've been guiding to an expected moderation of some of our KPIs, as they return to more historical levels. This is the natural result of growing our tour volumes and seen a wider variety of customers with more typical spending patterns. It's also the result of our focus on new buyers, which creates a mix effect, since they carry lower initial KPIs than owners. So while we anticipated this moderation in our…

Thank you, Mark, and good morning, everyone. Before we start, note that our reported results for this quarter included $4 million of sale recognitions, which increased reported GAAP revenue associated with the opening of another phase of our Maui project. We also recorded an associated $2 million of associated direct expense recognitions resulting in a net reduction of $2 million to our reported EBITDA for the quarter. In my prepared remarks, I'll only refer to metrics excluding the impact of deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period. Turning to our results for the quarter, total revenue in the first quarter was up 13% to $930 million. All segments showed year-over-year topline gains led by strength in our financing and rental and ancillary segments. Q1 reported adjusted EBITDA was $216 million with margins of 23%. Turning to our segments, within real estate total contract sales of $523 million were up 3%, which is really encouraging, given that we are lapping record levels for a number of KPIs in the first quarter of last year. We had very strong tour growth with total tours up 32% year-over-year, which is the highest tour growth we've seen since the first quarter of 2022. We saw a nice acceleration in our year-over-year owner tour growth, but I'm particularly pleased with our new buyer tours, they were up over 40% versus prior year and the highest mix of total tours since the first quarter of 2020, when the pandemic first started. Mark mentioned, we've seen very strong growth in both our number and mix of activated passengers that drove robust new buyer tour flow in the quarter, as well as visibility into our upcoming tour flow pipeline. VPG was just under 4,000 for the quarter, which was…

Thank you. And at this time we'll be conducting a question-and-answer session. [Operator Instructions] Our first question from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Thank you, operator. Good morning, everyone.

Good morning.

Couple of questions here. It sounds like you're doing exceptionally well with new buyer tours, without giving away the secret sauce to your competitors. From a high-level, where are you drawing these new buyers from this through the Hilton Honors Program or on-site marketing initiatives? And then related to that, do you see most of these new buyer tours, going into sort of your legacy more higher price Hilton product or is this going to the more moderately priced Diamond type of product? Thank you.

Yes, Patrick. Yes, so first of all, really pleased with our momentum in selling these preview packages and I think this is an area where we've had strong competitive advantage for years and part of that is just the relationship we have with Hilton, and this goes back for well over a decade in our ability to source customers through Hilton. So I would say the majority of our new buyer growth is coming through that relationship and through a few other partnerships that we have out there, but still the majority is coming through, the Hilton relationship and so our pipeline now sits at 550,000, but what's really important is while we were continuing to sell packages during the period at the pandemic and when COVID was going on, the activation of these packages have really picked-up. And we've seen a broader set of customers that are now willing to travel. So we are really pleased with that. And there was some hesitancy, I think around some of the travelers early on, but those activations have been a top priority of ours and the result of that is our activated packages ended-up at the end of Q1 was up 65% versus prior year. And that really goes back to a period back to 2017 where we've had that level of activation. So really pleased with that. Most importantly, it gives us a great line of sight into our future new buyer tour flow and as we talked about in our prepared remarks, we were up 40% year-over-year. Two acts of what we saw with owner tour flow growth, owner tour flow was still healthy but new buyer definitely came in into play here. And this is something we've been working on for a considerable amount of time because we know it's extremely important to get new buyers into the system. Now as far as where these packages are going we've now sold approximately 80,000 packages into, what we would call our Diamond legacy markets. So, I think it's really benefiting us having this bigger platform and having new markets to offer the Hilton guest the opportunity to view one of our properties. So all-in all, we are seeing a bit of a shift to the DRI properties, but still seeing strong demand into our core HGV markets.

Thanks. And just sort of talking out loud. I think that was probably part of the original intention with the Diamond acquisition, because you had the huge marketing base and just needed probably more mid-scale type of products there to sell it to them. So, good to hear on that. And then lastly, just give us an update on Hawaii. I think your most recent comments where you expected it to be fully back hopefully by the end of this year, is that still progressing? Thank you.

Yes, look. It's definitely making progress in Hawaii. In fact we've seen our tour flow recovery that was below 60% in Q1 ‘22, it's nearly 85% of ‘19 and in Q1 ‘23 and all the forward bookings look encouraging. I think by the time we get out to the fourth quarter, we're seeing about 90% of our Japanese owners back to Hawaii, that's what we're seeing on the books. Tour flow is definitely recovering and it's nice that Japan is totally taking all the protocols around in-bound travel or outbound travel away. So all-in all very encouraging what we're seeing, in fact, approximately 25% of all Japanese arrivals to Hawaii right now are HGV related, so you're seeing our owners are coming back at a faster pace than you're seeing with the general population of Japanese coming back to Hawaii. So all-in all, pleased with the progress, our expectations, it will still probably be kind of mid next year before we get back to full recovery, but in the meantime we are really benefiting with our new property in Shizuoka. In Japan, if you recall, we opened that up back in the end of ‘21 and we have a lot of Japanese traveling there and sales to Shizuoka has exceeded our expectations. So we're really pleased with the way that timed out and the way it helped us during this period of time where Japanese were more reluctant to travel to Hawaii.

Okay, thank you very much. All set.

Our next question comes from the line of Dany Asad with Bank of America. Please proceed with your question.

Hi, good morning. Mark and Dan, and thanks for taking my question. So just on VPG, like I understand that part of that slowdown year-on-year is mix related. Are you able to parse out how much of that 18% decline is mix and then are you able to give us any more color? Dan, I know you in your prepared remarks you talked about close rates. You kind of give us anymore, just like tidbits our data around that, and kind of how that's been trending specifically.

Okay, Dany, this is Mark, I'll take the first part of that, I will let Dan jump in on the close rates. So, look, we calculate about two thirds of the VPG change versus Q4 was due to mix. Look, we've been saying for a number of quarters that we expected VPG to moderate given really the record post-pandemic performance and part of that was we had a lot of tailwinds. The release of the strong pent-up demand for travel that occurred from COVID, obviously lot of excitement around the acquisition of Diamond. And we also saw our most committed owners coming back first. And so at the end of the day, we've been expecting to get back our new owners. And look, we view VPG really is an outcome and in and well, it's important for us to try to manage the best VPG we can, at the end of the day it's not how we manage the business. Our focus is really on contract sales growth in the associated transaction growth that comes with it. And obviously we execute to the best we can, based on what the market gives us. But for us historically, tour flow has been the best predictor of growth for us and in fact, when you go back and you look at our business from ‘07 and ‘19 except for ‘09, we had contract sales growth and in all cases but one year we had tour flow growth and during those years where we had tour flow growth we had five years where we had VPG contraction. So the other day, we're now focused very heavily to get back more new buyers because we know the lifetime value outweighs the short-term drag. And then Dan, I don't know if you want to connect on the closing percentage.

Yes, sure, Dany. So from a close rate perspective still performing extremely well compared to historical levels in 2019. When you look at just looking between new buyer and existing owner, existing owner is performing very strong, again relative to ‘19 new buyer. As we would expect and as we've been talking about, it seems like forever now for about eight quarters, now with the increase in new buyers and having new virus coming through the system, we expected a bit of a contraction in new buyer close rate and we've seen that, but both are performing very well. And if you look at the pace through the quarter, we saw we actually improved from January through March, across both new buyers and existing owners.

Got it, thank you very much for the color. And that's it from me.

Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

Hi, good morning, everyone. I appreciate all the commentary and the detail. When we start to think about the opportunities that may present as a result of financial markets tightening. I'm wondering what your thoughts are on potential M&A presuming that it's more tuck-in oriented than transformational. But would there be opportunities out there and are you starting to see any of that make sense for you?

Yes, obviously, we value and see the value in consolidation and industry, and we just undertook a major strategic transaction with Diamond, so and it's really allowed us to leverage our brand across a broader base of the assets and accessing more owners and such. And so look generally this is something that we will continue to monitor are clearly, we believe it's to be positive and beneficial. We've seen it play-out very well with our acquisition. So but at the end of the day, there is, we've talked about this before. There is -- it's fairly narrow group of companies left out there. Diamond actually was a roll-up company, their strategy was roll-up, they did 11 acquisitions over their history and so there's not a lot of potential out there, but this is definitely an area we'll continue to look at.

Got it. Perfect. Thanks very much.

Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your question.

Hey guys, thanks for taking my questions. Most of them were answered. I just wanted to maybe ask about maybe try and ask for some extra color on the quarterly cadence for VPGs this year, because I think you guys did a great job just, sort of, explaining to us the 1Q drawdown like two-thirds of its mix. I'm assuming that's both mix and from mix from both more Diamond tours versus HGV, Legacy-HGV tourist plus more new owners versus repeat owners and is that makes a lot of sense, the other third of it is you mentioned close rates, Dan, going down or obviously going down as you bring up 40% growth in the order. Sorry I know it's a big wind-up. I guess the point is, you guys have really, the comparison for VPG throughout the rest of the year are sort of even, but obviously much different than the first quarter last year. So anything you can help us on in terms of how we should think about those different factors that we've all just been talking about how they, sort of, changed throughout the year that might be helpful.

Hey Brandt, it's Dan. So great question. When you think about the growth in new buyer tours, it makes it probably a difficult question to answer, right. In Q1, we had just over 80,000 new buyer tours and we're looking to ramp that up sequentially, but if you look at historical seasonality for VPGs going from Q1 to Q2, you typically see a decline in VPGs. And then ramping back up with Q4 actually being the strongest quarter in the back half of the year. So that's how I would think about it, it's going to be an interesting mix this year just because of that ramp and new buyer tour flow.

Yes, I think it's just more pronounced this year, right, because your pipeline is so big activation is very, very strong, as I mentioned now, really excited about, what's on the books. If you look at this summer, we're 10% above for owners arrivals on the books. But we're at 30% above our marketing arrivals. So again, I think it's just going to be more pronounced. We're really ramping up new buyer tour flow this year, but as Dan said, it does converge back in the fourth quarter where you see that convergence and so we'll generate. VPG tailwind as we close out the year.

Right, so if you think about it just mathematically Q1, compared to Q1 of ‘19 came in over 11% higher on the VPG front, I'd look for something similar when comparing Q2 to Q2 of 2019. And then we've always said that we felt that VPGs would stabilize somewhere in the range of 10% to 15% and we look for the back half of the year, probably slightly outperform what you would expect in Q1 and Q2 per what I've said for Q1.

Yes, that's super helpful guys. Thanks for that. And then just a quick follow-up, one of your competitors yesterday called out a little bit of a wobble in the second half of March that coincided with the sort of concerns over the HGV failure and through the concerns maybe closer to people on the West Coast regarding that event. It doesn't sound you saw anything like that, but do you have any thoughts on that. Did you see anything like that?

No. We really didn't see. I would consider any type of wobble or anything like that. I think, look, at the end of the day, there is a backdrop continues to change, right, and at the end of the day I think the good part is, we're seeing people want to travel and the desire to travel super high and we've talked about it in our forward-looking pipeline. So at the end of the day, we're really excited about what the rest of the year looks like and we're just going to be naturally, we expect VPGs to moderate. But ultimately, I think the consumer is in that mindset to continue traveling and that. For us in this environment. It's about traffic through your sales centers, right. And I talked about earlier before, for us we win if we can win with traffic through the sales centers. You're going to have your ups and downs over the years and within quarters and within given months. But at the end of the day, if we can win on the tour flow that's one lever that we have more control over that gives us a lot more confidence in our ability to continue driving contract sales growth and transaction growth.

Perfect, thanks so much for all the color.

And our next question comes from the line of Ben Chaiken with Credit Suisse. Please proceed with your question.

Hey, how is it going?

All good.

Hey, maybe just adding somewhat to the first question where I think you were, Mark, suggesting some very healthy trends from your Hilton Honors base. I guess, related, is there any color on the DRI Owner reception of Max post-sales center rebranded. Is that a metric you track like, i.e., the origin of ownership, and if so, how is the trend.

Yes, so. Ben. I don't have the detail sitting in front of me, but I can tell you. I think it's gone really well. We had a record year. I think we talked about in our prepared remarks, we have 90,000 Max members today and we launched in April of last year. We had a record year last year as far as owner transactions go, and we saw very positive, response on Max from both the legacy HGV and Diamond members. I don't have a breakdown of the differences, but at the end of the day I think with the transformation of the sales centers and as we continue to evolve the turnover of the properties, I think we've got 22 converted over to HVC now and we've got another 10 or 11 scheduled for the rest of this year. But as that continues to happen, that should only improve that engagement, but all-in-all. I think the engagement from both ownership groups have been very positive around the value proposition for HGV Max.

Got it, that's really helpful. And then just in the quarter, you called out, sales and marketing a little higher than normal. I think that was expected. Is this related to the launch of HGV Max? I guess a little more color on specifically what makes you comfortable this will come down through the year. And then is it fair to say it will normalize at your historical levels, whatever, that kind of low-40s. Thanks.

Yes, no, absolutely. So, Q1 is a bit unusual in the sense that you from a seasonality perspective, from a contract sales perspective, it's typically the lowest that obviously from a percentage has an impact, but it also is stemming from primarily a continued investment in that new buyer. So as we sell packages, engaging with employees and hiring individuals to do -- actually do that, coupled with some unusual items that you see in Q1 from a seasonality perspective, a lot of our Ultimate Access, some of our larger in particular, golf tournament that we host in Q1 has an impact on that as well. So as we play out through the year, we start to lap some of those initial investments and obviously Ultimate Access is not as heavily weighted that will help contract that sales and marketing expense as a percent of contract sales coupled with of course growth in contract sales.

Okay, got it. Thank you.

And we have reached the end of the question-and-answer session. And before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

All right, well thanks everyone for joining us today. I want to give a special thanks to our team members for going above and beyond to deliver outstanding vacation experiences to our members and guests and we look forward to speaking with you soon again. Thank you.

And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.