Good morning, and welcome to the Hilton Grand Vacations First Quarter 2024 Earnings Conference Call. A telephone replay will be available for 7 days following the call. The dial-in number is (844) 512-2921 and enter pin, 13743185. [Operator Instructions] I would now like to turn the call over to Mark Melnyk, 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 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 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.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 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 T-1 of our earnings release, and the 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 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 CEO, Mark Wang. Mark?

Good 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 at 24%, which includes just over 2 months results from our recently closed Bluegreen acquisition. I'm happy with the results overall, and I'm even more encouraged when looking at the momentum that we've 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 adjustment 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…

Thank you, Mark, and good morning, everyone. Before we start, note that our reported results for this quarter included $2 million of sales recognitions, which increased reported GAAP revenue and were related to opening the most recent phase of our Sesoko project. We also recorded $1 million of associated direct expense recognitions. Adjusting for these 2 items would decrease the EBITDA reported in our press release by $3 million to $270 million. In my prepared remarks, I'll only refer to metrics, excluding net deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period. I'd also note that our results today also include the financial results of Bluegreen, which we acquired on January 17. Turning to our results for the quarter. Total revenue, excluding cost reimbursements in the first quarter, was $1.03 billion, and adjusted EBITDA was $270 million with margins of 26%, also excluding cost reimbursement. EBITDA included $11 million of Bluegreen cost synergies recognized during the quarter for a run rate of $53 million annualized, putting us nicely on the path of achieving a targeted $100 million of cost synergies within 24 months. Turning to our segments. Within real estate, reported contract sales were $631 million for the quarter, including a partial quarter of Bluegreen ownership. Assuming that we own Bluegreen for the entire quarter, contract sales would have been $656 million versus pro forma combined sales in the prior year of $692 million. Bluegreen produced $161 million of that $656 million in sales on the full quarter basis. New buyers comprised 27% of legacy contract sales in the quarter, improving nearly 200 basis points from the fourth quarter level. Reported tours for the first quarter were just over 174,000. Assuming a full quarter of Bluegreen ownership, tours of 182,000 were roughly flat…

[Operator Instructions] Our first question comes from the line of Patrick Scholes with Truist Securities.

Mark and Dan. My first question concerns the Bluegreen acquisition. You have about 4 months under your belt now, how would you say that's tracking versus your underwriting? And then related to that, you initially expected about $100 million of expected cost synergies and then expected $75 million to $100 million of future revenue synergies. Now do those seem realistic at this point, maybe too conservative? How are you tracking and thinking about all of those?

Yes. Sure, Patrick. So first of all, we closed quickly, right? We closed in January. So we've spent the last -- or the first couple of months really refining our plans, and we're really pleased with the progress and remain excited about the opportunities ahead. The main elements of the integration will be similar to the Diamond deal, cost savings, rebranding of our sales centers and properties and integrating them into the overall HGV system. And then there's the partnership piece, which is really a new element of the deal that Diamond didn't bring. So on the cost side, we've moved to execution phase beginning of March. And we're sitting here today. We've achieved nearly half of the $100 million cost target on a run rate basis. So we feel really confident there. The rebranding of the sales centers will come first, followed by the properties over the next number of years. And remember, we're still rebranding Diamond properties with -- and I mentioned it in the prepared remarks, where I think we have more than 10 planned for this year. And similar to what we did with DRI, it's going to take some time for us to design the rollout for HGV Max, which, as you recall, is our membership program. We're excited about that, but it will take some time. We have the Ultimate Access and it's really around working through some of the technology developments and legal requirements there. So we made great progress on the partnership front, very, very excited about the opportunity with Bass Pro. We had our Board up there yesterday. We had our Board meeting up there, and we had a chance to meet with the Founder and the Bass Pro management team. They're very engaged and we're very engaged and very aligned to growing that relationship. So -- but anyway, so taken together, I think the Bluegreen membership, the new distribution, significant pipeline, we're very excited about the revenue opportunities ahead. So all in all, feel really good. And I'll just add one last thing. We've been very pleased with the team members that we've inherited or we brought on board from Bluegreen. They've got a great culture, and we've seen that across the business.

And I think, Patrick, the only thing to add there, just getting back to one of your initial questions. With the Diamond transaction, we -- when we announced it, we said, hey, cost synergies of $125 million plus. So we always thought there was a little bit more room there. The contrast that, just from a context perspective, for Bluegreen, we've always said, hey, run rate target of $100 million. It's a smaller organization. We -- to Mark's earlier point, we are at a run rate even through Q1 of just over -- or just about half of that run rate. And embedded in our guidance is realized synergies with the year -- within 2024 of $50 million to $55 million. So we're definitely on the right track. We're very confident we're going to get to the $100 million, but we're also doing a full evaluation of the talent and making sure that we have the right people in the right places to execute everything we need to execute on. So I would say, we're comfortable with the $100 million. We're confident we're going to get there, but it's not the same element that Diamond was. So I wouldn't look for us in the next couple of quarters to go, oh, it's going to move from $100 million to $110 million. We're, right now, very much focused on achieving the $100 million target.

Okay. Great. My follow-up question is on Maui, Mark, could you give us an update on how things are progressing there. And did you mention if there was an earnings impact in the quarter. And also, if you could again talk about how you see the rest of the year progressing for you folks [ in Maui ].

Yes, sure. Look, thankful. We're very fortunate neither of our properties sustained any physical damage. And our Maui Bay Villas properties up on the -- is in South Maui. So that is on the other side of the island. We're operating normal. And trends are continuing to improve. The Ka'anapali Beach property, which is on the west side, near the epicenter of the worst damage, operations are still impacted. We have some team members, FEMA and aid workers still staying within the property. So we said previously, we think occupancy will come back by the end of this year, but sales recovery will lag. And sales recovery is less about occupancy because occupancy now in Maui is around 90%, so slightly below our historical mid -- historical levels, which are usually in the mid- to upper 90s despite the headwinds. So ex the impact of the wildfire, Maui would have been around $90 million in sales in '23, and we're still down almost 15% versus prior year in Q1. So we expect roughly the same in Q2. We're expecting that the recovery of the build is really going to build in the second half of the year, but still below our trajectory pre-fire. So we expect to be fully back in 2025.

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

So Mark, I was hoping you could elaborate a little bit more on sort of the consumer, right? And so what you saw improved throughout the first quarter in terms of close rates. It sounds like there were some tweaks that you made. There might have been a little bit of a mix shift benefit from new owner tours to repeat owner tours. But if you strip all that out, what's the sort of sequential movement in hesitancy of the sales [ table -- tale ], we all know that interest rates and inflation are high and dragging on some consumers. So maybe you could opine on that, please.

Look, the positive news is we've seen stabilization, right? And when you look at the traffic, traffic continues to be good and its building. So all in all, I think around the consumer, there's some uncertainty around the margin, but it isn't trending negatively. And the behavior isn't really any different than what we've seen through previous cycles, new buyers have pulled back more than owners. And that makes sense, right? Owners have led the value proposition. They made a commitment and they've been committed for a number of years. And I'd say, across the segment, with the type of the quality a customer we're engaged with, it's less about income. It's more really about the uncertainty. They're reading the news every day as we are, and that's pushed up a bit of hesitancy for this type of purchase. But on the other side, the good news is we have a lot of visibility on the traffic in our sales centers and control over tour flow. So that's a lever that we've opened up. And we're growing tours while maintaining the quality of the consumer based on FICO and income and net worth. So I think we're also much better positioned today, Brandt, with our broader portfolio, including all the drive-to destinations and a much more affordable entry point. So all in all, we're very focused on continuing to promote the value proposition of the product and the experiential aspect of our club to our members. So basically, we're seeing stabilization. We're seeing some improvement, and we'll ramp tour flow as we go through the year.

That's helpful. And then maybe for Dan, and I apologize, it's in your prepared remarks. You might have answered this to some extent. But in loan loss provisions, I think we -- I think I asked this question last -- last quarter, we've been sort of waiting for this loan loss provision to move up towards this more punitive level of long-term target. And it looks like in the first quarter, it made it, maybe taking a step back a little bit, quarter-over-quarter, and I know this is now including Bluegreen for a couple of months. So I guess, yes, and again, we thought Bluegreen would have, again, pressed -- pushed that number higher. And so what's the reason for that? And sort of how should we think about that line going forward?

Yes. Thanks, Brandt. I mean it seems like I've been talking about this for a couple of years now, right? Ultimately, we do anticipate it to escalate to that mid-teens range. If you look year-over-year, there's a lot of factors that come into play with the absolute dollar amount, how many people, what's the propensity to borrow, how many people -- how much are they actually mortgaging, et cetera. If you look from a pure rate perspective, year-over-year, it was detrimental for the quarter, it probably cost us around circa $10 million. So we are seeing some level of elevation. I mean it was 12% of contract tours. We talked about it going from an average last year of 10% to an average this year of 13%. And I think we're seeing some of that escalation and we're kind of right on track with that. So it's pretty consistent with the headwind we talked about last quarter when we were thinking about headwinds hitting us this year, that $100 million number. A big chunk of that was associated with bad debt. The balance was COP and some other nuances with license fees, et cetera, but the majority was the bad debt, and we are seeing some of that movement. Now that being said, some items are still performing far better than what they were pre-acquisition. And most notably, it's still the Diamond paper. The Diamond paper had an annualized default rate close to -- depending on the quarter that you're looking at, but back in '19, it was between 17% and 19%. And that is still holding very strong from an improvement standpoint at sub -- well, depending on the quarter, it's between 11% and 12%. So significant improvement over pre-acquisition levels. And then when you look at the HGV side, it's fairly consistent, slightly higher than 2019 levels. So all in all, we feel pretty good, and we're pretty confident that ultimately, as we run the business, it will land in that circa 15% of contract -- of owned contract sales level.

That's perfect.

Our next question comes from the line of Ryan Lambert with JPMorgan.

I just wanted to tease out the impact of Bluegreen a little bit more. Did the weather have any sort of impact during the quarter, just given that owner base is a little bit more drive to in nature?

Yes. There was a little bit of impact. I think really the bigger impact probably is, first of all, a lot of excitement from the Bluegreen members and the team members around the acquisition of Hilton. And I think what we're seeing though very much like what we saw with DRI. We are seeing some -- we're seeing some maybe hesitation or anticipation of what the rollout of and what the combination of Hilton means to the Bluegreen members. And so they're excited. They love our brand. But right now, we're not introducing any of the Hilton or Hilton Grand Vacations or HGV Max elements to the program right now. So there's that anticipation right now. And so that, I think, is going to cause a little bit of hesitancy until we work through that, and that's really more technology-driven and legal-driven. And we expect that we're going to be able to announce that connection probably as we move into the fourth quarter of this year.

Great. And if we can switch gears real quick to the fee-for-service business. I think it came in a bit lower than we and I think the Street was -- were modeling. So how should we think about that business for the balance of the year? That's all for me.

Sure. On a pro forma basis, if you were to look at 2023 because there is a little bit of fee-for-service business at Bluegreen already. But on a pro forma basis, for 2023, fee-for-service accounted for about 24% annualized from a contract sales perspective. It's down to 16% in Q1 and what I would tell you is to assume the same level for the balance of the year. Just given the mix of the product that we have available to us, there shouldn't be a lot of movement in that throughout 2024.

And our next question comes from the line of Ben Chaiken with Mizuho.

Regarding Bluegreen, just back to one of the previous comments, I think you mentioned there was some anticipation/hesitation from the Bluegreen owners. Just to confirm, I think you were saying prior to introducing Max, there's some technical and legal items. Did I catch that right? Maybe just explain maybe a little bit, if possible, what those are? And then once connected in 4Q, assuming I caught all that right, will there be an active outreach? Or can you help us think about when you may start to see some of that sales leverage. I'm not sure if there's a delay. And then kind of related to that on Bass Pro, any color on how you may change or improve that experience from an in-store perspective to better leverage the Max product that's now available? And then I have one quick follow-up.

Yes. Sure, Ben. Yes, I'll try to make this a little clearer. So First of all, very excited about the opportunity with Bluegreen and their members. They're very excited about the announcement. And historically, Bluegreen has not upgraded their members to the same degree as HGV or the industry more broadly. And when we launched HGV Max with DRI, we now have nearly 160,000 Max members now. We're confident that the brand, the Hilton benefits, expanded portfolio, the new experiences are going to resonate really well with the Bluegreen members. We saw that with DRI, and we saw it with our HGV members. And we're working hard on designing the program and getting it ready for launch. But it will take some time before we can offer it to the Bluegreen owner base. And as we saw with Diamond, we know there's a lot of demand and Bluegreen base is excited about it. So we have some technology work that we have to do. And more importantly, we have some legal work and some legal structuring work we had to do. Same thing happened with Diamond. It took a number of quarters to get there. Our expectations right now is a rollout beginning of the fourth quarter. It may come a little earlier. It may come a little later. We're not 100% sure. But all I can assure you that all the teams are working towards that. And our expectation is we'll see a nice bump up in activity and transactions, similar to the way we saw with DRI when that occurs.

Yes. And Ben, just the only thing I would add is, as you would imagine, and as Mark alluded to just now, we've seen this before. This is exactly how we walk through with Diamond. So as you would expect, this was all built into our underwrite when we acquired Bluegreen. So Q4 is not a delay. It's where we actually expected to start rolling this out right around that time frame anyway. It actually might have been a hair later. But in any case, it was all included in our underwrite of the deal.

That's very helpful. And then on the Bass Pro side, do you have any plans? Or can you share anything with us about how you may improve that or change or improve that experience just because you've now got a much broader product to introduce?

No. Yes. Super excited about Bass Pro. I think I mentioned just a minute ago. We had our Board meeting up there yesterday and had a good part of our Board up there, we had an opportunity to meet with Johnny. Morris, the Founder, his management team and Bass Pro is more than a retail store. It's really a destination unto itself. We were looking at some of the data that Bass Pro was showing us yesterday, 200 million visitors there a year, and it's not like they're going to a normal retail outlet in and out buying something quickly. They explore the store and it's designed to really keep you engaged while you're there. We are working right now with Bass Pro, and we brought in some outside consultants to think about how we can reimagine how we put these Hilton Grand Vacation brand in the store, Bluegreen did a nice job with what they were doing and -- over the years, but we think we can elevate that partnership and expand the opportunities to benefit our combined customers. And it's a great source of customer. When you look at really what's embedded in that Bluegreen member base, close to 50% of those members have been sourced through Bass Pro, either through new buyers or owners upgrading. And we think we're going to be able to expand and use different channels beyond the in-store, we think there's digital opportunities, and we love the diversification of the customers. So super excited. And I know Bass Pro is very excited, too. So we'll provide more information as we roll out new programs there.

Got it. And then just a very quick follow-up. On the sales and marketing side, you mentioned getting some more operating leverage moving forward, understanding that Bluegreen has higher sales and marketing. Could you maybe just dig into what maybe drove it higher in the 1Q and then why you would get more operating leverage going forward?

Sure. Actually, if you look at it on a pro forma basis, the sales and marketing percent year-over-year was relatively flat, right, at 51%. Some of the operating leverage you're going to see is as we expect in the back half of the year, you're going to see not only from the seasonality perspective, but some of the initiatives we've talked about with VPGs improving, you'll get a little bit of scale that will obviously offer some leverage and some benefit from a P&L perspective. And then also from a percentage basis, we basically -- and I'm going to oversimplify this because there's -- for some of the team members listening on the phone, I mean, they're doing a lot of work with regards to cost synergies and all of those type of items, and it's a bit of a heavy lift. So oversimplification, though, there's basically 2 tracks. Track 1 was focused primarily on G&A, which we started to execute on, and you can see those reflected in the numbers. And track 2 is really looking at the sales and marketing side. And as I alluded to earlier, making sure that we have the right talent, ample level of talent to make sure we can execute on everything that we need to get done. One other element that you see that's specific to Q1, now year-over-year would be the same, but we do have a large Ultimate Access event in Q1, and it's our LPGA event that's held in January. So that also elevates cost in Q1 relative to other quarters.

And our next question comes from the line of David Katz with Jefferies.

Just that you covered a lot of details, but I'm just curious, when we look at the 2 acquisitions that you've added to your system in the past few years and the corporate orientation that includes a meaningful amount of Hawaii. Just curious, of those 2 owner groups that have added to your system, how inclined are they? And are they participants in the Hawaii market and to what degree relative to their sort of activities kind of on the mainland?

Yes. So well, Diamond had a -- I think, 3 properties -- yes, it was 3 properties. We have a total of 12 properties now in Maui, or Hawaii soon to be 13. They had 3 properties there. So the Diamond members were already participating in Hawaii. And so -- and occupancy in Hawaii -- overall Hawaii occupancy, I think, is right around 90%. Yes. Oahu and the Big Island are in the mid-90s and in line with what we did in 2019. And I mentioned Maui's low 90s right now and still below historical levels back in '19. So great participation in Hawaii from that Diamond member base. But I think the Bluegreen -- when I looked at Bluegreen and we looked at Bluegreen for a number of years, we coveted that business, and especially around some of their great partnerships and their organic growth they've had with their membership program. The one missing element for Bluegreen, I always felt was Hawaii. And I can tell you that the teams and the members at Bluegreen are super excited about the opportunity now to be able to experience Hawaii. Now that won't occur until we get HGV Max rolled out, and that won't occur until the latter part of this year. But we think, as I talked about historically, Bluegreen hasn't upgraded the same degree as the rest of the broader industry. We think Hawaii is going to help move that upgrade along -- as well as the HGV Max and all the Hilton benefits. So yes, Bluegreen, I know the team members are super excited to be able to talk about Hawaii in their presentation going forward.

Excellent. And if I can just follow up on the interesting Bass Pro commentary. Obviously, not fishing for details we can't have. But when we think about Bass Pro as a partner and potential sort of new structure of the deal, is that something that's this year dynamic or this year conversation where we might get some more detail?

Yes. We'll provide more detail as we move forward. I mean, we have a JV -- there's 2 parts of the Bass Pro deal, right? We have the marketing agreement and we have the JV agreement, and we were looking at a number of opportunities from a JV standpoint really creating this experiential outdoor type of enthusiast brand. And so we have some plans, and it's too early to discuss them at this point. But as we move through the year or into next year, we're going to be excited to announce some of these new JV properties. And also, as I talked about on a previous from -- when I'm speaking to Ben, we're going to talk more about some of the program developments that we're going to be doing within the stores.

And our next question comes from the line of Patrick Scholes with Truist Securities.

Mark, a follow-up question, not dissimilar to what I asked last quarter. On the Park Hotels earnings call, they really came out quite optimistic on the Japanese -- return of the Japanese customer again. And I think when I asked a similar question last quarter, I think you were a bit more -- I would characterize as subdued about the return of the Japanese customer. What are your latest thoughts on that since certainly, we've seen a sizable increase in year-over-year in returning of the Japanese customers so far that kind of [indiscernible]?

Yes. So look, I think there's a couple of pieces for us, right? When you look at the Japan business. The good news for us is our owners are coming back and they are back -- pretty much back to '19th levels. The other good news is if you look at the owners that are going to Sesoko, our new property in Japan, when you combine that, those arrivals in Hawaii and the arrivals in Japan, they're well over what we saw in '19. So our members are traveling at a very good rate. Now when you think about new buyers, Japanese new buyers, we're still down. When you look at the data today, I think -- in '23, arrivals from Japan were 63% below '19. Now year-to-date, they're 53% below '19. So it's getting better. Now our new buyer Japan tours within Japan, because we have 13 offices over there, those are back almost to '19th level. So the good news, our Japanese members are traveling, they're staying at our properties. The good news is that the new buyer Japanese are traveling -- are back in Japan. We're still waiting for those new buyers to come back to Hawaii from the general transient business. And our expectations right now are that it's still going to take a number of years, but it's moving in the right direction.

Thank you. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

Yes. Before we wrap up, I'd like to thank all of our team members for their continued service and dedication to our owners and guests to create memorable vacation experiences. Thank you for joining us today, and we look forward to speaking with you again soon. Have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.