Hilton Grand Vacations Inc. (HGV) Earnings

Management highlights

- Core Demand & Tour Growth: Total quarterly tours grew 6% year-over-year, marking the fourth consecutive quarter of consolidated tour growth. New buyer tours grew at a high single-digit rate year-over-year, matching the strong pace seen since fall 2025, and new buyer transactions also grew high single-digit. This growth has been supported by prior marketing investments and strong lead generation channel performance. - Member Ecosystem & Product Innovation: MAX membership now covers 40% of the firm's total member base (nearly 300,000 members), growing 24% year-over-year. HCV Ultimate Access, the firm's experience platform, now operates at scale, hosting over 137,000 guests annually and driving strong contract sales and member satisfaction. The firm added new member tools for increased flexibility and customization of vacation plans via the platform, establishing Ultimate Access as a core strategic pillar. The Blue Green integration continues to progress, with MAX member count at Blue Green more than doubling year-over-year to nearly 22,000. - Capital Return & Inventory Optimization: The firm closed on the previously announced non-core asset disposition during the quarter. This transaction reduces long-term inventory carrying costs, improves portfolio quality, and allows the firm to recycle capital into higher-value opportunities. On a run-rate basis, the disposition will reduce annual EBITDA burden from developer maintenance fees by $10-12 million. The firm repurchased 3.1 million common shares for $150 million during the quarter, with an additional $25 million of repurchases completed by July 23, 2026, and maintains a commitment to returning excess free cash flow to shareholders via share repurchases. - Operational Execution & Cost Management: The firm's cost efficiency programs delivered 40 basis points of overall margin expansion in the quarter, even as sales came in below expectations. The portfolio performance for financing receivables remains strong, with 31-90 day delinquencies down 9 basis points from year-end 2025, driven by last year's implementation of higher required equity at point of sale for Blue Green loans.

Guidance

- Full-year 2026 adjusted EBITDA guidance before deferrals is maintained at $1.225 billion to $1.265 billion. Management expects the recently implemented sales execution improvement initiatives and ongoing cost discipline to offset the Q2 sales gap and keep full-year results within the guided range. - Full-year tour growth guidance is maintained at positive low to mid single digits, with Q3 2026 tour growth expected to be low single digits. - Full-year VPG guidance has been revised from flat to slightly down to a low to mid single-digit year-over-year decline. Q3 2026 VPG is expected to decline in the high single digits. - Full-year contract sales guidance has been revised from a slight year-over-year gain to flat to slightly down year-over-year. Q3 2026 contract sales are expected to decline in the mid single digits. - Full-year bad debt provision is still expected to land in the mid-teens range, with back-half provision rates expected to improve marginally as higher-equity loans make up a larger share of the loan pool. - Full-year adjusted free cash flow conversion rate is still expected to land in the lower half of the 55% to 65% long-term target range. - Share repurchase activity is expected to continue at a pace of ~$150 million per quarter for 2026, provided net leverage does not increase for the full year.

Segment performance

1. Real Estate Segment: Total contract sales were $810 million, a 3% decline year-over-year. New buyer contract sales contributed 28% of total volume, an increase of 70 basis points from the prior year. Total tours grew 6% to 239,000 units. Value per guest (VPG) fell 9% year-over-year to ~$3,400. Cost of product was 10% of sales, consistent with Q1 2026 and down 130 basis points year-over-year. Real estate sales and marketing expense was $397 million (49% of contract sales), 40 basis points lower than the prior year. Segment profit grew 7% to $173 million, with segment margins expanding 220 basis points to 28%. 2. Financing Segment: Total revenue was $144 million, and segment profit was $86 million. Excluding amortization items from the acquired receivables portfolio, segment margins hit 62%, up 100 basis points year-over-year. Combined gross receivables totaled $5 billion, with a bad debt allowance of $1.4 billion (28% of the portfolio). Weighted average interest rate on originated loans was 14.4%. Second quarter bad debt provision was 17% of own contract sales, within the firm's targeted mid-teen range. 3. Resort and Club Segment: Total consolidated member count was 722,000. Segment revenue grew 3% to $189 million, and segment profit was $128 million, with segment margins of 68%. Rental and ancillary revenues rose 8% year-over-year to $210 million, driven by REVPAR growth and increased room nights. The segment recorded a $10 million loss in the quarter tied to developer maintenance fees on non-core assets. 4. Corporate & Other Adjustments: JV EBITDA was $2 million, license fees were $58 million, non-controlling interest EBITDA was $4 million, and corporate G&A was a consistent $40 million (3% of pre-reimbursement revenue). Total adjusted EBITDA to shareholders grew 5% year-over-year to $293 million, with an overall margin of 23% (up 40 basis points year-over-year). Adjusted free cash flow for the quarter was $180 million, representing a 61% conversion rate from adjusted EBITDA.

Risks & headwinds

- Sales execution underperformance in high-volume locations (specifically Orlando and Myrtle Beach Blue Green sites) created a larger-than-expected headwind to Q2 2026 contract sales and VPG. - VPG moderation following the 2025 successful launch of HGV Max at Blue Green occurred faster than management predicted, creating unexpected year-over-year comparability pressure. - Developer maintenance fees on legacy non-core assets continue to create a drag on profitability, though the recent disposition will eliminate this drag on a run-rate basis. - Industry-wide competition for sales talent creates ongoing turnover risk at high-volume sales locations, though management notes this is a long-standing industry dynamic rather than a new structural risk.

Analyst Q&A

• Q: Analyst Patrick Scholes asked to confirm that the year-over-year 400 basis point jump in loan loss provision was accurate, and if management still expected full-year provision to land in the mid-teens range. /

  A: CFO Dan confirmed the 17% Q2 provision is accurate, noting the increase comes from higher customer financing propensity and a shift to more trust product sales (which carry higher provisioning than traditional deeded sales) rather than portfolio deterioration. All three loan portfolios have stable or improving delinquency, with Blue Green delinquency improving meaningfully from last year's higher down payment underwriting change. Dan said even with higher financing propensity, back-half provision will improve, keeping full-year results solidly in the mid-teens range.

• Q: Analyst Ben Chaikin asked for specific details on the execution issues at the Orlando and Myrtle Beach Blue Green sites, and why the faster-than-expected VPG moderation after the 2025 Max launch came as a surprise, given management knew the tough comp going into the quarter. /

  A: CEO Mark Wang explained that the underperformance was isolated to leadership issues at those two specific locations, not broader market or integration issues: HGV legacy operations in both markets grew year-over-year, and tour flow and occupancy were up at the Blue Green sites as well. Management has already replaced leadership at the locations and added recruiting and training investments, with improvements already visible, and expects performance to return to target by Q4. The VPG moderation itself was expected, but its pace was faster than management predicted.

• Q: Analyst Nick, filling in for Trey Bowers, asked whether the VPG miss came from lower close rates or lower average transaction size. /

  A: Mark Wang explained the main VPG headwind was mix: the quarter had a higher share of trust sales and new buyer transactions, both of which carry lower average transaction prices than traditional owner deeded sales. This mix shift creates short-term VPG pressure, but is long-term positive because it adds new members to the Max ecosystem, expanding future upgrade opportunities and recurring revenue. The additional VPG pressure came from the Blue Green lapped comp and the isolated execution issues at the two high-volume sites.

• Q: Analyst Chris Ronca asked whether the execution issues in Orlando and Myrtle Beach were tied to industry-wide sales staffing turnover and poaching, and what the current state of staffing is across the firm's sales centers. /

  A: Mark Wang noted that talent competition and turnover are long-standing, normal features of the industry, not a new structural risk. The Q2 underperformance was an isolated operational issue, not a systemic staffing problem, and management's overall sales and marketing organization remains a core competitive advantage for the firm. The issues have already been addressed with leadership changes, and improvements are already starting to show.