Good morning and welcome to the Hilton Grand Vacations Second Quarter 2020 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 13697042. At this time all participant lines 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, Vice President of Investor Relations. Please go ahead sir.

Thank you, operator, and welcome to the Hilton Grand Vacations' second quarter 2020 earnings call. Before we get started, please note that we have prepared slides that are available to download from a link on our webcast and also on the main page of our website at investors.hgv.com. We may refer to these slides during the course of our call or question-and-answer session. 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 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 the factors that could cause actual results to differ, please see the Risk Factors section of our 10-K, as well as similar sections of our 10-Q, which we expect to file soon after the conclusion of this call and in any other applicable SEC filings. We will 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. As a reminder, our reported results for both periods in 2020 and 2019 reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we are 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 in our earnings release. 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. Finally, unless otherwise noted, results discussed today refer to second quarter 2020 and all comparisons are accordingly against the second quarter of 2019. 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?

Morning everyone. Earlier today, we released our second quarter results. Over the past several months, we acted decisively to respond to the global pandemic with an emphasis on protecting our owners, guest and team members along with making critical decisions to support our business model. We've re-opened many of our properties and are beginning to see positive signs that our customers are responding favorably as evidenced by recent conversion trends. Our contractual recurring revenue streams, continue to generate meaningful income and while we're cautiously optimistic, we're being prudent in our evaluation of travel environment and the fact that it will take time to fully recover. We're prepared to sustain the business during this period of uncertainty by effectively managing our cost structure to ensure we're protecting cash flow and by taking necessary actions to preserve our liquidity, and we kept an eye on the long-term to make sure we're well-positioned to lead the travel industry out of the crisis and return to a path to sustainable growth in cash generation. First, I'd like to cover the status of our resorts and sales centers along with some of the initial results that we've seen since opening. We reopened our first major resorts on May 21 welcoming guests back to our properties in South Carolina, Orlando in Utah and subsequently open their on-site sales centers in the weeks that followed. We heard great feedback on our HGV enhanced care initiative and our guests were overwhelmingly positive that the guidelines to make them feel safe without feeling constrained during their vacation. We saw solid levels of occupancy at our South Carolina and Utah resorts, particularly over the Memorial Day and 4th July holidays. Our South Carolina occupancy levels have consistently held in the 70% to 90% range since we reopened, and Utah has…

Thank you, Mark, and good morning everyone. As Mark mentioned in his introduction to our call, our results for the quarter included $4 million in sales deferrals impacting reported revenue, and net deferrals of $3 million impacting both adjusted EBITDA and net income. All references to the consolidated net income, adjusted EBITDA and real estate segment results on this call for the current and prior periods will exclude the impact of deferrals and recognitions. A complete accounting of our historical deferrals and recognition activity can be found in itself format on the financial reporting section of our Investor Relations site. Let's review the results for the quarter. Total second quarter revenue dropped to $127 million, reflecting declines in our real estate resort and club and rental and ancillary segments, while the finance businesses was flat year-over-year. This decline in revenue was due to the result of having our resorts closed for the majority of the quarter, due to the COVID-19 pandemic. Q2 adjusted EBITDA was a loss of $16 million as we incurred fixed operating expenses with little associated revenue in our real estate and rental divisions, as a result of the closures. Our EBITDA was also impacted by $5 million of one-time charges, primarily due to restructuring and COVID-related expenses during the period. In addition, as we laid out in our press release, there were another $3 million of COVID related charges that were not added back to EBITDA including $8 million of payroll cost, and $1 million of member fee refunds, offset by a $6 million benefit of payroll tax credits under the CARES Act. Net income was a loss of $45 million and diluted earnings per share was a loss of $0.53, compared to net income of $57 million and diluted earnings per share of $0.63 in…

[Operator Instructions] Our first question comes from the line of Jared Shojaian with Wolfe Research. Please proceed with your question.

Dan, I appreciate the commentary on the June trend that was helpful. Do you have the same data you can share for July on tours VPG and contract sales?

Yes so Jared, this is Mark. So directionally, things are improving in July and we continue to build off the early success we had in June and that momentum is I think as we look at ebb and flow on market-by-market basis with some choppiness around. The cases that are out there in the news flow and restrictions and obviously, consumer perception around the risk to travel, but overall I think the pace of recovery appears to be really correlated to travel trends right now. And I think we're in a really good position because we've got all this built in demand and we talked about in our prepared remarks. Our owners are - they want to travel. They're booking forward. We're activating new buyers. And so all in all, I think we continue to see things improve as we go through July, and it's going to be a bit choppy, but the demand is there, and people want to travel. And we've been very, very pleased with our conversion rates. I talked about those in my prepared remarks are up - what are PPG if you exclude any direct sales which is virtual sales, we're up 41% and we're seeing those trends. It's kind of - it's a mix between closing percentage and mix between owner and new buyers. We're seeing more owners in our mix, but both are new buyers and our owners are closing in much higher rates. So we're really pleased with how the consumers behaving.

And obviously, the second quarter is kind of a throwaway quarter here, just given the circumstances, but contract sales were actually a little bit better than your peers. I think that comes as a surprise to a lot of people. There was a view that you were maybe a little bit more disadvantaged with your Hawaii exposure, maybe the deeded weak based model and Japan it's another thing? Can you maybe talk about that, I guess maybe what you're seeing with cancellations or pricing or intra Japan may be performing a little bit better anything you can speak to you on that?

Yes, let me cover off on Japan first that Japan is actually recovering very well. We're actually pacing about 50% of last year's level. We actually never shutdown in Japan though there was a period of time where the business had dropped off considerably. But as you know the pandemic and the impact in Japan has not been to same extent as we've had here in the U.S., they've been able to control it a lot better. A couple of other advantages we have in Japan is most of our sales are off-site right. And what I mean by that, they are not on a property. And so, we have 12 different sales centers there and we can attract regional travel, and so we're not relying on people having to travel to one of our properties. So we’re essentially - we've brought our sales operations to the market and we can cater locally to them. So very pleased with the engagement there, as it relates to, I think you mentioned Hawaii. Interesting enough, Hawaii made up 35% of all the inventory we sold from April through July, and we are not even opened in Hawaii. So a lot of that's been sold out of Japan, and we're also selling that out of a number of our U.S. mainland operations. So all in all, pleased with initial results for Japan.

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

And I appreciate all the color today. So Mark, you talked about the large basket of unbooked packages that you have and I think you mentioned that you're starting to activate those and you could just add some color here, how big of a priority is it to activate them? Is it more efficient to wait until people are on the road and traveling more and we also know that you have a very non-exhausted owner base that you can tap instead? So I guess the question is, how big of a focus is that?

Yes look, it's a big focus for us and we've talked about our pipeline is very healthy. We've got over 400,000 customers who have committed to a future vacation with us to take a tour with us and. And so, you should know, we never shutdown our new generation for packages well, as you can imagine. Sales of new packages went down considerably. They went down, probably 95%. But today our marketing engines are all up and running. And we continue to invest in this - tour pipeline and our pace is now up to around 60%. The pre-covered level so where we're pre-selling packages for future tour. So we're really, really happy about how receptive. The customer has been out there and I think in this environment subsidized package at discounted vacation is important and I think in this recovery stage. The value proposition is playing out well. So very focused now the activation part of it, obviously, we're being very sensitive on activation. We understand that with all the restrictions and the mobility issues out there today and travel restrictions that - fewer people are going to be traveling right now. So we're trying to be very strategic and how we activate. We're looking at how we're out there promoting using Hilton additional cell non-points Hawaiian airline points to create some additional motivation to travel. We're really focusing our efforts around the drive to markets, as you can imagine to and we're going out and activating within a reasonable driving time. So all in all, very pleased with - our marketing team's effort I think they are executing at a high level. We really benefit with this relationship with Hilton and as Hilton's business is continuing to ramp up. We're starting to see better and better results there.

And then just maybe dig in a little bit deeper on the owner arrivals data that you provided, it looks like and I don't know if I'm splitting hairs. But it looks like the fourth quarter pace it fell below the pace, you were at as of 3 months ago and - but obviously your first quarter next year pace is really strong. So I guess I think you made a note that part - so half of that was from New York and Hawaii? Are these cancellations that have accelerated for those two markets. Have they - are those what's we booking were part of why 1Q was so strong and what's the other 50% I guess in terms of the adjustment?

Yes, look certainly, we're very encouraged by the booking data particularly against - the backdrop of everything that's going on right now. And I think this really indicates the underlying demand that we have for travel, and with our base of owners in Q4 of 2020 and Q1 of 2021. Bookings are running about 90% of prior level and as you mentioned Q1 is actually 30% up over last year. If you actually go back and you do the math, I think net-net, we have actually in the fourth quarter net bookings have gone up. But we had to take out a lot of reservations. Hawaii accounted for half of our cancellations since we last reported, and 95% of that travel was planned for 2020, Hawaii is a destination and a market that people book further in advance as you can imagine because of the airline lift requirement to get to Hawaii people book out further. So that we took a big hit mainly this quarter in the third quarter and to a certain extent in the fourth quarter, but we're getting pickup in other markets. So it's there is - for us it's less about cancellation and it's more about people pushing their vacations forward.

Our next question comes from the line of Stephen Grambling with Goldman Sachs. Please proceed with your question.

When you think about the better close rates on new owners, I guess what do you think has been the primary driver there, is it just better filtering the funnel, changes in sales practice, a change in consumer behavior where there is a change in preference for the product. And how does it change maybe your own thought process as we come out of this in terms of maybe being more efficient?

Yes no, great question. First of all, we are really, really pleased with the execution and what's happening in that and that part of the business. Obviously, that's - this business, it starts with tour flow and then you got to convert. The conversion part is going good. I think it's interesting, I think as we think about it, we think that the value proposition is really showing well in this environment and, and when 90% of our units have kitchens, we have spacious one- and two-bedroom units. These are units that are very desirable to travel in this environment. So, I think the value proposition is playing out. And I think our customers are looking at this going. You guys have put a lot into the protecting the customer when you get to the property. Our customers can see that they are very comfortable staying in the rooms and eating at home in this environment. So, I think that helps, clearly, I talked about the mix shift. We were historically been run at about 50% sales to owners 50% sales to new buyers and that's shifted to 70/30 70% to owners. So our owners are coming back. And I think our owner are coming back quicker because they've got a higher-level commitment with the prepaid aspect of the business, but they're just - they bought into the brand right. And they feel safe with that. And then I'd also echo what some of our competitors have also said. Look, we've brought back our best team members, right, and the teams are just doing a great job executing.

Great, and as an unrelated follow-up, you had referenced, it's maybe a little bit early to see fee for service sales start to hit the market. I guess when you look back over time, when does that typically happen and would you generally think that in this case would be more independent timeshare properties coming up or could we also see hotel conversions?

Yes look, I think obviously this, the impact on this pandemic on travel and lodging and resort condos is going to be significant. And those things - my prediction is that, obviously we're building a number of properties right now. My prediction is over the next 10 years, we're not have to build anything there is going to be a plentiful amount of inventory that's going to be repurposed. And I think the highest and best use, in a number of cases are going to be timeshare. That being said, we've got, we've got a good slate of inventory, we've got a good balance of inventory. We're getting ready to complete a number of deals right now that are not new deals, but deals that have been in the pipeline that we're finishing up. So overall, these things take time, Stephen as you know, the work through the process, but I think net-net our industry as a whole will benefit unfortunately from a, the dislocation that's going to occur from this pandemic.

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

You covered obviously quite a bit of detail, I wanted to just go back to the amount of tour flow involved. And I recognize that there is a number of factors that may cause yours to differ than what we've seen some of the other publics, talk about so far. But the tour flow was a bit slow. Would you mind just revisiting that matter and talk about what sort of went into the tour flow in the quarter?

Yes, look I think David covered off on the fact that our owners are making up a bigger percentage of the tour flow than we worked historically have seen in the past. And we're very, we're cautiously optimistic that this tour flow will continue to - improve our time though it's going to be choppy and it's going to obviously depend somewhat on mobility and especially on the shared mobility, on people willingness to get on planes and as such. But the good thing is we've got a strong pipeline and we talked about how we're working to activate. Now what's interesting is, we're seeing bookings in arrivals vary by market. And we have a couple of markets that are performing at 75% of historical levels, and we have other markets are performing at 20% of historical levels. And then of course, we've talked about Hawaii, New York and Chicago are still not open at this point. But I think as we look at where we're performing better, it's really around in markets that are perceived to be safer and are not as crowded. Beach resorts, our mountain resorts are all performing well, Orlando and Vegas where we rely on either entertainment to the theme parks or the entertainment that Vegas provide. Those markets are coming back, but they came back around 30%, 40% and it's kind of stabilized off at that point - that level right now. So, I think it really depends - it varies by market it's almost like we have these micro cycles that are going on right now and I think as we move forward these will improve, as conditions improve. I do believe once Hawaii opens there's going to be relatively strong demand, we have in the books it's going to be - perceived as a very safe place to travel to.

Thank you. We have no further questions at this time. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

Yes again, thank you for joining us this morning and I want to add - I've got a special thanks and call out to our team members who have been working so hard over the last few months. Very proud of the way you guys have navigated to change and the uncertainty while continuing to focus on what's most important and that's the safety and well-being of our owners, our guest and of course one another. We look forward to speaking to you over the coming weeks and updating you on our next call. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.