Good morning, and welcome to Hilton Grand Vacations Fourth 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 13714031. 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. [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 fourth 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 for a question-and-answer session. 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 the factors that could cause actual results to differ, please see the Risk Factors section of our 10-K which we expect to file after the conclusion of this call and in any other applicable 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. 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'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. 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. 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 fourth quarter 2020 and all comparisons are accordingly against the fourth 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?

Good morning everyone. Today I am pleased to share that our fourth quarter results improved sequentially for the second consecutive quarter and I'm incredibly proud of the way our team members responded to create a safe environment for our owners and guests and protect the health of our business throughout 2020. Over the past year we took decisive action to strengthen our balance sheet and position HGV for the future. We controlled our costs and increased our financial flexibility to achieve positive adjusted free cash flow for the year and our efforts highlighted the strong execution of our team and the value proposition of HGV ownership resulting in higher closing rates, positive net owner growth and strong member retention. Various markets again saw differing levels of impact from the COVID spike but there are some clear positive indicators that leave us optimistic that we're moving in the right direction. Our owners and guests are better informed about what to expect from their travel experience and protocols have become more standardized and consistent. The rollout of vaccines should be a positive for sentiment as they become more widely available over time. Taken together these developments make me optimistic that we're on the path to recovery though our view remains that the improvements will be more second half weighted. Now let me take a few minutes to talk about what we're seeing in our different markets and customer segments. Overall contract sales were 36% of prior year’s levels versus 32% last quarter. In markets where we were open for the full quarter we were covered the 50% of the levels that we saw in 2019. Our tour flow in those markets also grew sequentially in Q4 with strong performance in October, although we saw trends slow in November and December due to…

Thank you Mark, and good morning everyone. As Melnyk mentioned in his introduction to our call our results for the quarter included $21 million sales deferrals impacting reported revenue and net deferrals of $11 million impacting both adjusted EBITDA and net income. All references to consolidated income, adjusted EBITDA and real estate segment results on this call for current and prior periods will exclude the impact of deferrals and recognitions. The complete accounting of our historical deferral and recognition activity can be found in excel format in the financial reporting section of our investor relations website. Let's review the results for the quarter. Total fourth quarter revenue was $233 million up 5% sequentially from the third quarter. We saw sequential improvements in our real estate, club and resort management and rental and ancillary segment revenues partially offset by lower financing revenue due to smaller receivables portfolio balance. Q4 reported adjusted EBITDA was $35 million reflecting sequential top line improvement coupled with the benefits of our ongoing cost savings efforts. As we noted in our press release however there was also 3 million in COVID benefit in the quarter related to employee retention credit granted under the CARES Act that was included in adjusted EBITDA. Removing this benefit would put your comparable adjusted EBITDA for the quarter at $32 million. Despite the solid progress on revenue and EBITDA during the quarter net income was a loss of $143 million due to a $209 million non-cash impairment charge on unused land that we took during the fourth quarter. Let me take a moment to go into a little bit more detail on the write down. As part of our efforts to streamline our business we looked at several unused plots of land that have been on our books for a number of…

Thank you. We will now be conducting a question-and-answer session.[Operator Instructions] Our first question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Hi, good morning. A couple of questions for you. Right at the end there you noted that 4Q I mean, 1Q will be slightly lower or flat to slightly lower. Can you just rattle off again the reasons why that may be occurring?

Yes. Sure Patrick. This is Mark. Yes, I think quarter one really has some of the same challenges that we were faced in Q4 with the restrictions in COVID. A couple months in despite Q1 being seasonally lower from a travel standpoint than Q4 and the elevated restrictions in Japan that we talked about. Q1 is really looking very similar to slightly ahead of last quarter. I think what's important to note though is that we're seeing significant improvements in forward bookings for the next three quarters. Our net reservations are up a 100% in January and February versus November and December and on an absolute basis net reservations in January, February are almost on par with what we saw in 2019. I think we're at 90% of what we saw in 19. So that's really positive. Buyer behavior as we started off this year's continues to be very strong with strong closing percentages and VPGs we saw in Q4 for both owners and new buyers. I think as we mentioned in prepared remarks our owners are paying which I think is a great indicator that they're going to continue traveling and also we're starting to see some really good improvement in activation for new buyer packages going forward as our owners have recovered quicker than our new buyers. So all in all, some of the same challenges we saw in Q4 with COVID in the restrictions it's just going to be bumpy right now, but the positive signs is, all four metrics look very strong going forward.

And Patrick, it's Dan just to add to that point I think I had some of this in my commentary but from a rental perspective we did benefit on the cost side just from suspended operations. So Q4 had lower development maintenance fees as well. So some of those are going to kick back in as properties open back up. So there's a little cost pressure on that front and then on the financing side just keep in mind that we're still ramping back sales. So the portfolio is still in the process of building but until we get to more normalized levels. You have that balance still decelerating rather than accelerating and that puts pressure just from a high fixed cost business on the interest income that's coming across.

Great. Thank you Mark, actually answered my second question. I was going to ask you about airline and hotel bookings over say the last two or three weeks for Hawaii. Certainly I have seen in my forward date, I have seen a very noticeable uptick in that it sounds like certainly you have to over at least the last several weeks. I'm going to shift gears then. You had an expense, you took expense of 209 million for unused parcels of excess land. Can you just tell us where those are? Thank you.

Yes. Absolutely. So Patrick, there's really three pieces of land. One in Orlando. One in Las Vegas and one on the big island of Hawaii and I think what's important to know that these tranches of land have been on our books since pre-2008. So they've been on there for in excess of a decade and since we've spun from Hilton back in 2017 these tranches of land although they're developable they've never been in our pipeline. So the combination of them being there the impact that COVID had on our sales allowed us to take a step back and look at what's the best use for this land. So we're investigating a sale of those properties. We will see if we actually realize itself because we're not by any stretch of the imagination trying to do anything from a fire sale type perspective. We still want to maximize value here, but just entering that process led to the impairment charge that you saw and so it's really an impairment of land and some embedded infrastructure but that's your 209 million between those three pieces.

Okay.

And it's effectively evenly split Hawaii is slightly less but it's order of magnitude they're very similar.

Yes Patrick, just a little bit more color on that as Dan said these were pieces of land that were part of the master plan and they were all pre-financial crisis, but post-financial crisis there were a number of opportunities that came about that were much more capital efficient for us. In Vegas we picked up 1,200 rooms that was part of a foreclosure that Center Bridge picked up so we did a fee for service deal. Orlando we ended up working with Goldman on a kind of hotel that they took back and then when we spun from Hilton provided us the ocean tower which was a 600 room built hotel that all we had to do is convert. So at the end of the day we just ended up with better capital strategies, more efficient capital strategies to execute in those markets.

And Patrick just a quick clarification, I think I said it backwards those impairments they ranged from parcel to parcel between 60 million and 80 million. Hawaii was actually the largest with Las Vegas being the smallest. Just to give you color on that.

Okay and that's non-EBITDA producing land correct?

That's correct.

Cash infusion takeaway and EBITDA. Okay thank you.

Thank you.

Our next question is from the line of Ben Chaiken with Credit Suisse. Please proceed with your questions.

Hey, how's it going? Thanks for taking my questions. I think Waikiki is paused right now not to get ahead of ourselves but just curious on your thought process concerning the decision to restart that property if ever? I guess, I asked it just because it seems like Hawaii in particular is likely or hopefully has some outsized pent-up demand not only because it's a great destination but also because some of the more stringent travel restrictions felt there. So just curious how you think about that development?

Yes, we paused that development in Waikiki number one because with the slowdown and activity due to COVID, we had plenty of inventory that would allow us to continue meeting the demands for that market. So at this point, it's a pause we haven't made a decision of when we're going to restart, but I can tell you that we're very bullish on Hawaii. We think that the market is coming back particularly looking strong in the back half of the year. We've got some really good assets in that market so and then I think on top of that the addition of Susoco or Okinawa property allows us to move some of that demand over to that property from the Japanese that have been buying Hawaii over the years. So we're in a good position right now and we will start to make some decisions from a timing standpoint when we need to bring that property back online.

Got that. That's helpful. I appreciate it and then I think a few months ago, we talked about some potential opportunity to efficiently acquire from hotels who may have a different view of corporate convention moving forward. I think maybe you were referencing 08, 09 and basically surmising that a similar event could occur. Just curious how many conversations have gone there and if that view still holds?

Yes. Look as we talked about in the past we've benefited significantly on the back half of the financial crisis and it allowed us to really develop our fee for service and our just in time JV programs and we're always looking for investments that have the highest and best use. Clearly there's going to be some opportunities. We've had a lot of conversations but at this point. We're in a really good position from an inventory standpoint. We feel really good where we sit today. We've got four new markets that we're opening this year which is a record for us. So we're in a good place. I think over time we'll continue to evaluate the opportunities out there but as these opportunities take some time to kind of make their way through the process, but opportunities around right-sizing hotels going forward could be a really good place in space for us but at this point we don't have anything that we're prepared to talk about.

And Ben and just to add a little bit of color to that definitely I agree with Mark, but when you take a step back and you look at our inventory pipeline obviously we have some large capital commitments over the next couple years. For 2021 it's a little bit north of 225 million and just firm commitments. It starts to ratchet down 2022 is about 115 million and then it drops to 60 to 40 in the next two years. So what I would say is just to echo Mark's comments, if there are opportunities with existing hotels it would not be, unless there's obviously dramatic increases in demand it would not be something that would be incremental to what we see spending on inventory in the next few years. It would be more of a substitution that makes sense and ultimately benefits us from a cash flow basis.

Got you. Totally makes sense. I appreciate it. Thank you.

Our next question is from the line of David Katz with Jefferies. Please proceed with your questions.

Hi, morning gentlemen. I just wanted to maybe go in another direction with respect to allocating capital and talk about more operating avenues such as digital investments and other kinds of ways that over the long term you might be able to drive some efficiencies and margin growth that way what thoughts do you have to that end?

Yes. David, Mark. Look digital is we've been investing in digital really over the last four or five years and we're incorporating digital channels and engagements across many parts of our business and when you look at some of the things we're doing today, we continue to use our digital channels to promote our vacation package offerings and we're heavily aligned with Hilton as they continue to build out their digital capabilities and while it's still small it's an increasing percentage of the tours that we're looking at and performance it continues to improve. It's a low-cost channel for us so obviously that's important and then from a sales standpoint our sales teams increasingly are interacting virtually with our owners in a more meaningful way for example with owners who can't travel or cancel or who for some reason don't want to take a physical tour. We've added digital presentations and we have a more centralized digital sales group adding remote sales executives. They're allowing us to do a really good job around reaching those customers. So all of these things are important for us especially as we go forward and while again still make up a small percentage of what we're doing. They make up a growing percentage of what we're doing it and we expect over time they will be a more meaningful source of revenue for us at high margin.

Got it. And if I can just follow up, I know that there's been quite a bit of discussion and we've heard from peers and lots of other leisure endeavored companies and it would seem that the obvious takeaway is that there's just so much pent-up demand for leisure activities and travel in the back half of the year. Is there, talk me off the ledge, is there some unobvious counter argument to any of that or is this just going to be a back half of the year to remember in a positive way as much as the past year or so has been negative? What are we missing? Is there anything we're missing or we should be mindful of?

Well, I don't think any of us know for a 100% of how the pandemic is going to finally play out but it sure does feel like the vaccine has become the stimulus here and as we see the vaccine continue to rollout in a more broader manner, we believe that there are significant pent-up demand. We are seeing it in our numbers I just in answering Patrick's question last 60 days our reservations have gone up 100% compared to November and December. So we've seen significant uplift and if you kind of look at the full year when you get to the fourth quarter we're bumping up against the historical highs. So the trends are really-really promising and the fact that we have made an investment back into our owners last year and allowed them to carry their points over to ensure they didn't lose anything in their value proposition that's going to play out well because we've got more owners with more to use than we've ever had in the system. And then I think when you look at within leisure timeshare owners I believe are going to be the one of the first ones to break out based on their high propensity to travel. I know we've shared this data before but our owners on average travel 26 days a year for leisure. They've made that upfront investment in pre-paying their vacations. As we said in our prepared remarks we've collected more of our annual dues this year than we did last year and I think with our brand and our customers are really confident that we're going to provide a safe environment for them to enjoy their sales when they go out and so look I think on a more macro level while people have been felt the brunt of this pandemic, we've also heard many consumers in a really great place with historic levels of savings. So I think all of this when you take all of that and then you take our direct-to-consumer model that allows us to leverage this relationship with Hilton we feel pretty darn good that it's going to play out very well as we get to the back half of this year into 2022.

Okay. Sounds good. Good luck. Thank you very much.

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

Good morning everyone. Thanks for taking my questions. I actually want to follow up on that discussion that's helpful positive data, Mark on the bookings into the fourth quarter. I'm just curious the lead time with respect to the package sales pipeline and anything else that specific to timeshare that would be an impediment to getting to something close to what you might call normal that early on. Is there anything else or is that and anything else that we should be thinking about that sort of just takes a little bit longer that will before you can get back to normal tour rates?

Yes. Good question. So what I would say Brandt is that, clearly we're seeing our owners return and recover quicker. So we're seeing a really good response toward the back half of the year for our owners. Where there is some lag for us is not rental. Rentals also performing very well and I think it has something to do with the fact that the HGV brand within the Hilton system has become known as a product that has multiple bedrooms, kitchens and provides a really good space. Where the real lager is right now is our new buyer customers. It doesn't have anything to do with our pipeline. Our pipeline is built really well and we've never turned it off and so it's fresh. We continue to activate it, but the activation levels right now are 50% of what where they were but if you look back in December at our activations compared to February activations have improved 30%. So we're seeing a trend in new buyer activation move forward but they're still lagging behind both our owners and renters.

That's helpful. Thanks for that and then I wanted to maybe dig into this your existing inventory as well as the inventory that's unfinished that you guys mentioned in your relationship 4 billion of contract sales for finished inventory of 6 billion of contract sales worth of unfinished inventory in the pipeline and Dan you talked about the capital commitments and they're decelerating in terms of what's firm. I guess the question is just reconciling those two numbers; how much do you need to spend on an annual basis to fulfill that 6 billion and how long would it take? I'm not trying to squeeze a longer term CapEx guidance out of you guys. I just want to sort of understand it's a very large number and I want to understand how much capital on your part it would take to bring that to fruition.

Yes I know. I completely understand and it really varies by project because some of the projects as you can imagine are multi-multi-year and Maui is a great example of that. So Maui Bay Village is a series of low-rise buildings which we have and which we can continue to spend in a very moderate sequential way to make sure that we match demand with actual cash outflows. That particular project spans well beyond 2025 even and then you have projects that are firm commitments like the central or Susoco and those projects from a contractual basis are spent over the next few years. When you take a step back and you look at the projects that we have, being built right now and the remaining amount of spend which goes through above and beyond even 2024 you're talking about a remaining spend of close to a billion dollars across all those projects. Now that includes projects like Kahaku which are not contractual and Kahaku and upon itself is north of 225 and 240 at this point. That is obviously paused but that also includes contractual obligations such as Susoco and the Central and New York. So all meaningful projects and it's very multi-year. If you look from a normalized inventory spend assuming we get back to a normalized level you're talking about inventory spend that's probably going to be in the range of 200 to 250 probably ebbs and flows a little bit higher a little bit lower given on the year but that's probably your steady state if you will again assuming that we get back to 2019 levels. If we don't obviously we'll make the appropriate actions.

Very helpful. Thanks guys.

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

Good morning.

Good morning.

One of the things I guess we keep hearing from folks across the leisure space is also this eating up of the promotional environment whether that's in the regional casinos or the museum parks. As you think about timeshare, I guess how much do you usually spend on marketing that isn't directly tied to a tour and separately as you look at the promotions that you were offering specific to a tour, how has your pricing behavior and the overall promotional environment evolved over the past few months?

Yes. Stephen, Mark. I don't know that we spent a lot that's not related to a tour. I mean if you think about our rental it's really promoted through Hilton.com. We do some at OTA. So I guess you would say we've got some OTA costs but the majority well over the majority of our rental is really driven through our activities through Hilton.com which is a another big benefit of the license agreement that we have with Hilton. As far as promotional for tour flow we really haven't done anything outside of the ordinary from a standpoint of attracting both our owners and new customers. Now we're doing some promotions with our owners around discounting some points for certain times of the year to drive some demand but that in itself is not a cash outlay. So yes, so I'd say that I guess very little at this point.

And Stephen, I think the only thing I'd add to that is from a promotional standpoint we do when you take a step back you look at the timeshare inventory we have it's very durable. If we don't sell today we believe we're going to sell tomorrow. So there's not a ton of discounting going on but it's not unusual for us to run promotions to either drive owners to low cost of product inventory or for various different reasons. As you know, we do have some property in Vegas that Trump is associated with. So as you can imagine recently that's had more promotions than it probably did five years ago. But those are normal course of business and nothing out of the ordinary in recent months or even during the past year to be perfectly honest with you.

And Stephen, I think unlike pure logic we're not impacted by the price point. So we're not discounting to create demand around selling our intervals. Our business model has always had some type of subsidy for vacations for those who want to experience one of our properties. So the base demand for our owners really serves and allows us to yield with a smaller rental room count. So we really haven't had to take a lot of discounting to even move our rental.

And then, on some of the new product that is hitting the market I guess what's the underlying assumption around how long it will take to sell those through and what do the initial sale tell you could transpire relative to that assumption or is it maybe it's too early?

Yes. Look. First of all I'd say we're in a really good place with inventory and that's something I couldn't have said a few years ago and the good thing is we've got really good assets and proven markets and so and as Dan alluded to a significant portion of those are just-in-time deals. So they are capital efficient and we've gotten a lot done in the last three years and we've now begun to sell those that inventory and importantly we're opening up sales centers with them. So sales right now the initial sales for Maui, for Okinawa, for Cabo all been really well received and so we're really excited about that. The slowing during the pandemic has obviously impacted overall sales and overall initial sales, but we continue to believe that we've got the right product in the right markets and very-very pleased with where we sit today versus a couple years ago.

Yes and Stephen just to attack on to that when it comes to the new project to Mark's point, we're very pleased with how those sales kicked off. Clearly it's not the environment we expected to be in when those kicked off. So underlying returns while it's directionally in the right direction it's still a little early to tell it's going to be driven like everything else on how the recovery plays out.

Awesome. Thanks so much. I'll jump in the queue.

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

Alright. Well thanks everyone for joining us this morning and a special thanks for all of our team members for their hard work and dedication to providing our guests with safe and memorable experiences when they're traveling with us. We look forward to speaking with you over the coming weeks and updating you on our next call. Have a great day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.