Hilton Grand Vacations : HGV Q1 2025 Earnings Transcript

Published: 2025-05-05 15:01:20 ET HGV

Published on 05/05/2025 at 15:01

Hilton Grand Vacations Inc.

Q1 2025 Earnings Call

Thursday, May 1, 2025, 11:00 A.M. Eastern

Good morning, and welcome to the Hilton Grand Vacations First Quarter 2025 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 13751066.

At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question, please press star one on your touch-tone phone to enter the queue. If at any point your question has been answered, you may remove your question from the queue by pressing star two. If you should require Operator assistance, please press star zero. If you are using a speakerphone, please lift your handset to allow the signal to reach our equipment.

Please limit yourself to one question and one follow-up to allow the opportunity for everyone to ask questions. You may then reenter the queue to ask additional questions.

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. Welcome to the Hilton Grand Vacations first quarter 2025 earnings call. As a reminder, our discussion this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements. The statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our SEC filings.

Also we'll 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.huv.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 a 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 a simplified discussion today, our comments on Adjusted EBITDA and our real estate results will refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. To help you make more meaningful period-to-period comparisons, you can find details of our current and historical deferrals and recognitions in Table T1 of our earnings release, and a complete accounting of our historical deferral and recognition activity can also be found in Excel format on the Financial Reporting section of our Investor Relations website.

With that, let me turn the call over to our CEO, Mark Wang. Mark?

Morning everyone, and welcome to our first quarter earnings call. I'm happy to report another solid quarter of results today, driven by the team's hard work, in addition to the structural and

process improvements we carried out over the past several quarters. Those efforts have yielded positive results, producing an acceleration in transactions, VPG growth and sales growth in the quarter. I'm also pleased that we carried that momentum through April. On the book arrival trends and cancellation rates are generally consistent with the past several quarters, and vacation package sales have remained strong.

But while we've generated positive performance, thanks in large part to our initiatives, we also recognize that the macroeconomic environment has recently become more volatile and unpredictable. Although we have limited exposure to many of the recent policy announcements such as tariffs, they have potential to create additional consumer uncertainty, to which we're not immune. So while it's still too early to know the impact of these policies and when that impact may be felt, we're taking deliberate actions in areas that we can control, in order to insulate our business from this macroeconomic volatility. To that end, along with maintaining our disciplined approach to process and execution, we've redoubled our efforts on implementing additional programs that are visible, impactful and readily achievable this year. While these actions are designed to produce results in the near term, they'll also serve as ongoing drivers that will benefit our business over the long term.

In addition, our business model has several fundamental advantages that provide a buffer against macro volatility. Our direct marketing approach means that we create our own demand. We have the most diversified business in the industry, with a variety of brands, price points, product types and vacation destinations in both fly-to and drive-to markets. We have a dedicated member base who have prepaid their vacations, having paid their annual dues for the year, making them more likely to travel.

In addition, we have a natural hedge from our highly variable cost structure and we've demonstrated the ability to make further adjustments to our cost structure if the environment demands it. More than half of our EBITDA is contractually reoccurring in nature, and we convert 55% to 65% of our EBITDA into free cash flow, providing additional financial flexibility. These traits reinforce the strongest value proposition we've ever had, with the benefit of HGV Max and the quality and scale of our portfolio, backed by the power of the Hilton brand.

So I'm pleased with our results for the quarter and with the momentum that we've carried into Q2. We're maintaining our EBITDA guidance for the year, which Dan will take you through shortly. While it's certainly harder today to predict the future than it has been in the past, our focus is on being proactive with the initiatives we've identified and continuing to control what we can control to navigate to any potential uncertainty.

Looking at our results for the quarter, reported contract sales were up 10% to $721 million, and Adjusted EBITDA was $248 million with margins, excluding reimbursements, of 22%.

As we've seen in prior quarters, tour growth was impacted due to our efficiency programs, as we continue to utilize our scoring models to maximize the quality of the tours we bring in. Notably, our efficiency efforts are helping to drive improved close rates, transactions and VPG. VPG grew 15% to more than $4100, with growth in both our owners and new buyer channels. Owner VPGs were particularly strong in the quarter as they also benefited from the continued success of Ka Haku sales and the launch of HGV Max to Bluegreen members.

Looking at our demand indicators, occupancy in the quarter, which includes Bluegreen in both periods, was flat at 77%. Consolidated arrivals in the second quarter remain ahead of prior year,

and they're in line with the prior year when looking at the next six months. Our rental channels continue to indicate solid booking growth over the next several quarters, reflecting continued demand from independent leisure travelers. Our industry-leading marketing package pipeline remains robust at over 725,000 packages, and our package sales trends have remained healthy.

In addition, the portion of our pipeline with confirmed travel dates was up nicely from the fourth quarter to its highest level in a year.

So, as I mentioned earlier, while we're cognizant of the broader environment and news flow, we haven't yet seen any material shifts in our forward demand indicators.

Turning to our other business units, our member count was 725,000 at the end of the quarter with NOG of just under 1%. HGV Max growth continues to outperform, as members appreciate the benefits that Max membership brings. Our research shows that our Max members have our highest satisfaction scores across every ownership tenure. We're now over 215,000 Max members, with Bluegreen contributing nearly 13,000 members to that total, in only a handful of months since the launch.

Our Rental businesses continued to show consistent top line growth, and while trends have remained consistent, we're monitoring them closely for any signs of deterioration.

In our Financing business optimization continues to benefit our cash flow, enabling us to repurchase $150 million worth of stock during the quarter.

Turning next to our update on our initiatives and integration progress. Over the last few quarters, we've spoken about several key efforts, mainly optimizing our staffing levels in our sales centers and evolving our scoring models to help identify and prioritize tours with a higher likelihood of closing. When combined with our introduction of HGV Max into the Bluegreen system and the launch of Ka Haku, these programs have helped produce positive results since implementation, supporting strong transaction, VPG growth and contract sales.

Building upon that success, we're implementing additional initiatives that we bucketed into three main categories. The first is enhanced lead generation. This includes directing more resources toward package sales and activations, along with introducing new marketing campaigns, particularly for owners and guests that have previously toured with us before. We're also accelerating our digital marketing integration efforts with our partners. The second bucket is execution-related. This includes further refinement of our scoring models, along with new pre-tour qualifying to ensure that we're touring our highest-propensity guests.

In addition, we'll be offering more flexible financing options to allow members to enter and stay within the HGV system.

The last bucket is product enhancements, which includes the previously mentioned enhancements to our Max products slated for later this year. And we're adding additional features aimed at driving incremental engagement and encouraging additional Member stays at our property.

Collectively, we believe these initiatives can support our EBITDA and cash flow goals regardless of the macro environment. Over the long term, they'll continue to generate a positive impact by

improving the efficiency of the business, strengthening our value proposition, and improving member engagement.

Turning to the Bluegreen integration, we've reached $89 million of cost synergies and are confident in achieving our target of $100 million this year. We're just ahead of launching Bluegreen property rebrand program, with the expectation that we'll complete 10 to 12 rebrands in each of the next three years.

On the partnership front, we added nine new Great Wolf locations and rebranded 79 Bass Pro locations, and we opened a number of sales centers dedicated to servicing our Choice customers.

So to sum up, we've had another strong quarter and that momentum has continued into Q2. The combination of our new offerings and our efficiency initiatives enabled us to drive an acceleration in transactions, VPG growth and contract sales. While market volatility and uncertainty have increased in recent weeks, we continue to take a proactive approach, with additional initiatives to ensure we sustain our momentum. We're focused on controlling the things that we can control, but will continue to adapt as needed to protect and grow the long-term value of the business.

So with that, I'd like to extend a warm welcome back to Dan, who will take you through the numbers. Dan?

Thank you Mark, and good morning everyone.

Before we start, note that our reported results for this quarter included $126 million of sales deferrals, which reduced reported GAAP revenue and were related to pre-sales of our newest project, Ka Haku. We also recorded $58 million of associated direct expense deferrals. Adjusting for these two items would increase the Adjusted EBITDA reported in our press release by a net

$68 million to $248 million.

In my prepared remarks, I'll only refer to metrics excluding net deferrals, which more accurately reflect cash flow dynamics of our financial performance during the period.

As Mark discussed, Q1 was characterized by strong operating performance, driven by a focus on tour efficiency, combined with the continuation of HGV Max being offered to the Bluegreen member base, and the continued success of Ka Haku. These items helped drive a 15% increase in pro forma VPGs, resulting in contract sales growing 10% year-over-year on a pro forma basis.

In addition to strong operating performance, we made significant strides in advancing the optimization of our financing business, with approximately 70% of our current receivables securitized at the end of the quarter. This is within our target of securitizing 70% to 80% of current receivables on a steady state basis. The higher securitized position helped drive our adjusted free cash flow conversion rate of 75% of our Adjusted EBITDA for Q1 2025. We anticipate being in the ABS markets this coming summer as we seek to term out our receivables securitized through the warehouse at quarter end.

Earlier in the quarter, we also successfully recast our $1 billion revolver and repriced all of our outstanding term loans, resulting in reduced pricing spreads and expanded covenants. Maturities for these facilities and our senior notes have now been extended to 2028 through 2032.

Disclaimer

Hilton Grand Vacations Inc. published this content on May 05, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 05, 2025 at 18:53 UTC.