Hilton Grand Vacations Inc. Q2 FY2024 earnings call

• Reported contract sales in the quarter were $757 million, and EBITDA was $270 million with margins of 22%, which were below expectations. - Experienced a broad-based pullback in consumer spending behavior across all brands and customer segments, particularly acute in the new buyer segment. - Undertook an extensive restructuring of the sales and marketing organization as part of the integration with Bluegreen, including regionalization and staffing improvements. - Made progress on Diamond rebranding, with 40 properties rebranded and on track to rebrand another eight properties this year. - Integrated and enhanced technology platform, launching a unified member website and integrated sales tool. - Had strong traction with Great Wolf Resorts partnership and early interest in vacation packages. - Continued to make good progress with Bluegreen, tracking ahead of schedule on synergy realization. - Produced $370 million of adjusted free cash flow and repurchased 2.3 million shares of stock during the quarter for $100 million.

Real estate: Reported contract sales in the quarter were $757 million, with EBITDA of $270 million and margins of 22%. Bluegreen contributed $189 million of sales in the quarter. New buyer comprised 31% of contract sales. Tours for the quarter were over 226,000, and VPG for the quarter was $3,320, which was just over 10% ahead of 2019 levels. Financing: Second quarter revenue was $102 million and segment profit was $58 million with margins of 57%. Resort and club: Consolidated member count was 720,000 and NOG was 1.7% at the end of the second quarter. Revenue was $171 million for the quarter and segment profit was $123 million with margins of 72%. Rental and ancillary revenues were $195 million in the quarter, with segment profit of $7 million and margin to 4%.

• Lowered adjusted EBITDA guidance to a range of $1.075 billion to $1.135 billion, $425 million lower than prior guidance. - Primarily due to pressures on VPG and tour trends, and to a lesser extent, the continued headwind from bad debt normalization. - Anticipate the provision for bad debt to remain in the mid-10s with sequential uptick in the third quarter, followed by sequentially lower provision in the fourth quarter due to seasonal trends.

• Consumer hesitancy influencing purchase decisions. - Execution challenges during the integration with Bluegreen, including disruption in the sales and marketing organization. - Potential for bad debt increases, with higher losses seen from some Bluegreen originations underwritten prior to integration. - Macro-economic pressures affecting consumer spending and tour flow.

Q: With respect to the guidance adjustment and isolating the discussion around execution issues, can you talk a bit more about your comfort that you've sort of got your arms around that?

A: Mark Wang and Daniel Mathewes discussed that the pullback in guidance was majority driven by VPG, with tours having a minimal impact, and bad debt being a piece that is still consistent with mid-teen range but accelerated.

Q: What are your thoughts on with the Japanese yen now strengthening? When might you expect to see that show up in increased demand to your product?

A: Mark Wang said it's nice to see the yen strengthening, with pent-up demand, and hoped it would strengthen the Japanese business, noting owners have come back faster than general population.

Q: You had said that you had talked about a sales reorganization. Can you give us more color on that?

A: Mark Wang explained that they restructured the sales and marketing organization for the next wave of growth, moving from a centralized to regional basis, with 44 sales centers, five regions, and a new Chief Sales and Marketing Officer, Dusty Tonkin.

Q: When you look at the second half guidance for VPGs, but what I'm really trying to get to is close rates. Are you assuming something similar to what you saw in that July level?

A: Mark Wang said the guide for the back half of the year takes into consideration the VPGs experienced and nullifies Q2 performance, taking risk into consideration.

Q: Did you provide a mix between macro and execution issues? And then on the execution side, I guess I don't totally follow the sales and marketing adjustment commentary is the point simply that you're a bigger company today and need to align the sales force accordingly to maximize efficiency?

A: Mark Wang and Daniel Mathewes discussed that guidance breakdown is primarily 80% from contract sales notably VPG and 20% from bad debt with offset on COP, and the sales and marketing adjustment was to prepare for growth, realign for larger destination markets and smaller regions, and improve execution with proper oversight.