Good morning, and welcome to the Hilton Grand Vacations’ Second Quarter 2022 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 137-26010. 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 Mr. Mark Melnyk, Senior Vice President of Investor Relations, G&A and Productivity. Please go ahead, sir.

Thank you, Operator and welcome to the Hilton Grand Vacations’ Second quarter 2022 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, 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-Q and 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. Our reported results for all periods 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 of our earnings release. For ease of comparability and to simplify our discussion today, our comments on adjusted EBITDA and our real estate results, we will refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. A complete accounting of our historical deferral and recognition activity can be found in Excel format on the Financial Reporting section of our Investor Relations website. 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 and welcome to our second quarter earnings call. I’m happy to report that we produced another set of strong results for the quarter with contract sales and margins. Well ahead of our pro-forma combined 2019 numbers and EBITDA over 50% ahead of 2019. Our performance was consistent in each month of the quarter, which highlights both the compelling nature of our new offerings and the hard work that the integration teams have done. Our members and consumers remain very much in a travel mindset, despite the risk posed by higher fuel prices and recent travel disruptions. While these macroeconomic forces may create risks to consumer spending, we continue to see high demand for vacation packages, particularly at our new resorts and recently rebranded Hilton Vacation Club properties. Our close rates remain near the record levels we saw in last quarter, underscoring, the value proposition of vacation ownership. We are deepening our relationship with Hilton with the addition of Hilton Vacation Club collection, allowing us to engage with a wider customer base of high-quality Hilton honored members. And we have strengthened our business with the integration of Diamond, adding marketing scale, product flexibility and portfolio diversification that will help us to serve the travel preferences of our guests in every environment. Importantly, these factors continue to support solid trends and forward indicators today giving us confidence in our outlook throughout the rest of the year. Before I provide highlights for the quarter, let me start with an update on our strategy and integration progress. On our last call, we talked about our new HGV Max membership program. We are excited about the increased level of access and new benefits providing a streamlined way to engage our members. This is an important step in our journey to evolve what…

Thank you, Mark and good morning, everyone. Before we start, note that our reported results for this quarter included 10 million of sales deferrals impacting reported revenue related to pre-opening sales of our Maui project. We also recorded an associated six million of deferred direct expenses from those sales resulting in a net deferral impact of $4 million. In my prepared remarks, I will only refer to metrics, excluding the impact of deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period. Let’s review the results for the quarter. Total revenue in the second quarter was $958 million excluding the deferrals I mentioned. We saw strong sequential growth in our real estate and rental business as trends continued to improve from Q1 levels, while our recurring finance and club businesses were in line with the first quarter’s performance. Q2 reported adjusted EBITDA of 277 million was 51% ahead of a 2019 pro-forma combined level. EBITDA margins of 29% or nearly 800 basis points better than pro-forma in 2019, and a record for the second quarter performance. We continue to realize margin improvements from our synergy capture and efficiency initiatives elevated VPGs and favorable buyer mix along with provision below our normalized rate. For the quarter, our cost synergy run rate is 140 million versus 120 million reported last quarter, and our target of an annualized 150 million of cost synergies. We are really encouraged by the consistency of the results through the quarter, which underscores both the inherent synergies of the acquisition as well as the attractiveness of our new product offerings. Now let’s talk through the segment detail. Within real estate, total contract sales were 617 million and have fully recovered 2019 pro-forma combined levels as Mark noted. Owners made up 70% of…

Thank you. [Operator Instructions] And our first question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Hi good morning everyone. I think now you actually did some share repurchases in the quarter, did those continue into 3Q?

Yes. Just to touch base on capital allocation. As you recall, we have focused historically on organic growth and then secondarily on returning capital shareholders and then obviously looking at M&A transactions that are materially accretive to our shareholders as a third leg of the stool, so to speak. So through the end of the quarter, we did commit to 83 million in share repurchases cash going out the door actually translated into 78 just because of where the cash left. Our bank accounts, but through July we did continue, and we are right at about 120 million through July 31st. And when you think about capital allocation going forward, we do see returning capital to shareholders via that share purchase plan as the primary use of capital as of today. So I think, last quarter we talked about that 500 million being spread rather evenly across the two year period, which was 62.5 quarter. So we clearly exceeded that in the first quarter of it being available to us. And I would anticipate exceeding that mark going forward as well.

Okay. Thank you. You had given some encouraging thoughts about the back half of the year. Anything you can speak to about, how say first half of 2023 is trending at this point. Thank you.

First half of 2023. What I would say Patrick is look, we are watching the pace and position, and all of our key metrics really well. I would say room nights and positions on the books continue to look very strong especially among our owners, and one of the advantages we have and in this sector is that we have a further side line around compared to lodging around our owners booking out. They book on average 200 days out. So that is compared to 75 days out for typical rentals. So we have got a really good sideline and owners continue to book up very well. I would say on the recurring revenue side, things are holding up very well. now, as far as 2023 goes our expectations is our club and management fees will be collected at the beginning of the year, like they were this year. So our expectations that will hold up very well. I think in Dan’s remarks, he mentioned delinquencies and defaults remain low on our portfolio. So that is good. And we are seeing owners upgrade at record levels. So, and especially with very strong interest in HGV Max. Our expectations is we are going to have about 75,000 new HGV Max members this year in total. So that rollout has gone really well. New buyer continue to pick up, we had a 45% increase in tour flow from Q1 to Q2, and the back half of the year looks better in that regard than the first half from a growth standpoint. So that is kind of that mix shift that we are looking at. That is going to put some pressure on VPG in our margins. But look, I think overall leisure travel looks really good, and our mainland contract sales were 120% of where they were in 2019. So the Mainland business continues to look really strong. We are just still waiting for the Japanese to come back and we are about 80% in APAC right now, but our expectations is hopefully by the middle of next year. We will start seeing a more normal cadence with the Japanese. So all-in-all feel good about where things are going.

Okay. Thank you.

Thank you. Our next question is from the line of Brandt Montour with Barclays. Please proceed with your question.

Hey good morning everybody and thanks for taking my questions. So, maybe just on the back of that we can dig in a little bit more on the VPG in the quarter and the outlook and your comments were well understood. Your VPGs were done a tiny bit sequentially a little bit year-over-year, and I get it is a mix shift. Maybe what would be helpful is just to break out sort of close rate trends near-term between new and repeat as well as between legacy HGV and Diamond.

Yes Brandt so actually, VPGs for Q2 while sequentially were down, they were still at 39% against 2019 versus and Q1, which was up 35% against 2019. So seasonality, created some of that pressure downward on VPG. So look, we don’t have a breakdown available that to go through the legacy HGV and Diamond, but I would say, across the board, owners are upgrading at record paces at a record pace. I mentioned HGV Max, I think has a substantial amount of value to our members. And so we are seeing a lot of trading up and at significant levels. And so we are really, really excited about what is going on there. I think, today’s environment, this inflationary environment, creating - it is enhancing or accentuating our value proposition. It is people are hedging the cost of their future vacations. So, I think today’s environment is really helping us in that regard. As far as new buyers go, we are really pleased with what we are seeing in on the new buyer’s side. Importantly, we have opened up a number of the markets to the Hilton customer base and we have booked over 32,000 packages to-date from Hilton customers going to the legacy Diamond locations, which are now being rebranded. So, all-in-all, great VPG performance and continued improvement in sequential tour flow.

Okay, great. thanks and if I was to interpret that as well as your reiteration of guidance for the back half of the year for the full-year. It does seem like you are baking in some mix shift. The question would be, I guess, do you think it is going to show up more in VPGs going a little bit softer sequentially, or is it going to show up more in the sales and marketing line as a percentage of gross contract sales?

Hey, Brand, it is Dan. It is actually going to be a combination of both. You are going to see compression on the VPG side due primarily to that mix. And then with the mix, new buyer tours are more costly. So what we would expect is a compression in the margin in the back half of the year, not material, but a couple hundred basis points potentially. When you think about our guidance, we came out at the beginning of the year with a midpoint of 925 million. We upped that to 975 million at the midpoint. And that is where we sit today. So it is really us taking into consideration the beat in Q1 and the beat in Q2 that kind of gets you to the midpoint of 960, the 990 to 975. And we feel as you heard in my prepared comments, that we feel there is some modest upside to that that gets us comfortable saying 975 to 990 in that ballpark, but just to walk you through our thought process there.

Super helpful. Thanks so much guys.

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

Hi good morning. Thanks for taking my question, and I will apologize up front for doubling back on some of the stuff you just talked about, but we have sort of had it come up a bunch this morning about looking into that back half of the year and it is entirely a function of mix shift and margin that is sort of the driver of a beat. And then keeping the back half of the year flattish, there is nothing in sort of loan loss or any other sort of one-off items in there. Just to make sure the issue is really beaten.

No problem. Outside of the VPG on the real estate side, other thing that you do see and what we have anticipated, and we have tried to reiterate this multiple times, but from a loan loss provision, we are well below historical averages for legacy HGV let alone the combined entity. We are sub 10% on that provision level. And we expect to be at some point in the mid-teens and high teens, and we expect that to ramp. Now that would probably ramp over the next - between 12-months and 18-months in that timeframe. Part of that is driven by pure accounting reasons. For instance, we acquired Diamonds portfolio at the time of that opening balance sheet, we put a large reserve against those existing loans. So we are not - that provision does not hit our PNL today. As we continue to sell Hilton Vacation Club and legacy Diamond product, obviously that will start to impact the provision. And then in addition to that, what we have seen over the last - I want to say it is been three quarters now is a lower propensity to borrow from in particular new buyers and to a certain extent owners, we feel that that is driven by a lot of the government stimulus that has been ramping down from COVID. So as that continues to ramp down, we believe that propensity to borrow will increase, but at the lower levels, you obviously have lower loans, which also lower your provision as a percent of own contract sales. So those two dynamics will come into the back half of the year to - from a financing perspective. But that combined with real estate is really what it is. So effectively David, the same story we have been saying for the last, I want to say three quarters.

Got it. okay I think that is it for me. I may jump back in the queue. Thanks.

Okay. Thanks.

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

Hey thanks for taking my question. I guess, for the - you kind of gave some color on the 32 - I think you said 32,000 packages for sold to Hilton Honors members. But I guess just stepping back a little bit, is there for the sales centers you have rebranded, can you talk about some of the early results of selling HGV Max? Like are you seeing that the product, but I guess also the sales centers resonate with the Diamond customers, and I’m kind of talking about a Diamond customer upgrading into the HGV Max portfolio. Then I have one or two others.

Yes. So I would say that we are seeing very positive results across the board from sales, both in HGV legacy and Diamond legacy or those that have been converted over. And so one of the things Ben, so we have not moved on doing a lot of cross selling. And that is something we will be doing down the road. Obviously, we have had a significant amount of change for the organization in propping all of this up and getting Max started up, and all the technology. And so we have kept our teams focused on what they have been doing best historically. But both deed and trust are selling very well. And we are seeing a little bit of cross-selling and where we are allowing some of that cross-selling to happen. We are seeing very strong desire to upgrade into deeded product. And on the other side, we are seeing some really strong demand on the trust product from our HGV Legacy sales centers. But we are only testing that in a few areas. Ultimately, if you think about it, we moved everything into a single currency earlier in the year before we launched [Max] (Ph). And so our points worked great across both deed and the trust product right now. So all-in-all, I think the product is resignating with each of our guests very well. And I think as we get farther out into 2023, 2024, when we allow more cross selling it to occur we think that will be another potential tailwind for us.

Got you. And then this maybe a little bit hard to pinpoint, but I think you mentioned 32,000 packages being sold to Hilton honors members, primarily to the legacy Diamond product. Is there any way to think about - just help us maybe like bracket, like the timeframe that is likely be used over and then how to think about, I guess, like package conversion? I don’t know if that possible, but -.

Sure, yes. So anyway, so we saw just on the package side, the 32,000 were into eight markets. So, those are markets that have been rebranded and typically the travel time after you sell the packages around six months and so it is still very early on. So we haven’t seen that many of those Hilton customers coming through the door yet. But we are very confident that the sales centers have been upgraded, the technology’s been upgraded and is pretty much identical to what your HGV Legacy sales centers, and the product that has been rebranded is a bit of a step down in some cases, but still really meets that Hilton Vacation Club quality that we put out there. So our expectations are that sales are going to go well to those customers. And as it relates to the pipeline, our package pipeline now sits at a record amount of 500,000. Activations continue to pick up. As I mentioned, we saw new by our tour flow was up 45% in Q2 versus Q1 and all indications from what we can see is that momentum continues to pick up, throughout the back half of the year, which is part of that mix shift that we have talked about earlier today.

Got you and then one very quick one, I think you mentioned new owners were 70% of the mix versus 73% and 1Q, just to be clear, is that sales dollars or is that transactions?

Yes, that is sales dollars. So if you think about where we are, HGV Legacy is historically used to run around 50/50, and it was running more around 60/40 before the pandemic that has come back pretty well we are still running about 55/35, it is legacy Diamond when we acquired Diamond there running about 80/20. And the opportunity there is again, those 32,000 packages and as we sell additional packages every month, and as we start propping up new marketing opportunities to drive new customers, new Hilton type customers through those sales centers, that mix will shift. And our goal is to get back to 60/40 across the company, but pleased with the NOG we had in HGV Legacy, we are back up to 3.2%. And net we gain about 1400 Diamond or 1400 new members through the Diamond legacy sales centers.

And Hey, Ben, just for clarification, I think you said 70% new buyers, it is actually 70% owners just to make sure.

Got it. Thank you very much.

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

Alright. Well, thanks everyone for joining us today. I want to give a special thanks to our team members for going above and beyond to meet our owners’ needs by delivering outstanding vacation experiences. And I also want to thank our owners who make vacation a priority and being trusts us and allowing us to create memorable experiences for themselves and their families. So have a great day.

This concludes safe conference. You may disconnects your lines at this time. Thank you for your participation.