Okay. Good morning. Good afternoon, everyone. Thanks for being here. We are going to kick off our timeshare segment here with Hilton Grand Vacations. We are thrilled to have Dan Mathewes here, CFO of Hilton Grand. Thanks for being here, Dan.
No, thanks for the opportunity. It is great to be here.
Awesome. Let us open up with your transformation. HGV has gone from a single-brand vacation ownership company into a much broader platform following the Diamond and Bluegreen acquisitions. As you think about the business today versus, let us say, five years ago, excluding COVID, of course, what do you believe has changed the most meaningfully about HGV and what is still underappreciated?
That is a great question. I think HGV is really transformed over the past five to six years. It is a different organization than it was when I joined the organization back in 2019. We have gone from a timeshare company that had 60 properties to a timeshare company that has over 200 properties. Most of that growth has been inorganic through those acquisitions of both Diamond and Bluegreen. Most notably, it is a change in the consumer base as well. Both the acquisition of Diamond and Bluegreen expanded the breadth of our product. It created a more entry-level product, if you will, and the opportunity for us to better harvest leads from our Hilton Honors relationship with, obviously, Hilton Corp. When you think about the organization today, we have tried to make it very simple from a consumer standpoint. We effectively sell three products.
The vast majority of what we sell is three products. It's Hilton Vacation Club, which is an entry price point, Hilton Grand Vacations, which is the legacy business before any of the acquisitions. Most of the acquisitions fit into the Hilton Vacation Club. Then we also sell Hilton Club, which is more of a luxury product. We've added more scale and more breadth to what we offer the consumer. From an investor standpoint, I think it's a material shift, most notably in the cash flow story of the business. Back in 2018, as an organization that was doing circa $400 million in EBITDA, we made inventory commitments of close to $1.8 billion. That translates into a very low, if even positive, adjusted free cash flow conversion rate.
Today, we're doing close to $1.2 billion in EBITDA, with an EBITDA conversion rate target in the range of 55%-65%, where we expect to be this year as well. It's much less focused on building new inventory and much more focused on capitalizing on more efficient just-in-time inventory from reacquired inventory. So a complete change in both the offerings, the reach, the cash flow story. It's really expanded the product offering, not just from price points. The average interval before the acquisitions was roughly $50,000. With the acquisition of Diamond and Bluegreen, that introduced an average interval, a median interval, if you will, of $25,000. But we've also really enhanced the product offering by expanding upon experiences with our HGV Ultimate Access platform, where we offer our guests the opportunity to participate in once-in-a-lifetime experiences. Most notably, we kick off the LPGA Tour event in early January.
We also sponsor the Formula 1. We also host a number of events with NASCAR, and if you talk to our HGV Ultimate Access team, they'll tell you the thousands of events we host annually to give our owners more than just a simple room and a vacation destination. It is also about experiences today.
Okay. Before we get into some of the specific initiatives on your docket here, I do want to take a step back and ask about the general volatility we're seeing in the geopolitical environment and how you're feeling about the consumer, given gas prices that are back to the highs of the year, inflation pressures weighing on consumers' wallets, airfare prices, and the like. What are you seeing there?
I was saying this earlier. I find it very interesting that we sit here today and we're in a literal shooting conflict with Iran, the consumer has held up well. Travel domestically, travel even in Europe and Japan, to Japan rather, is still fairly robust.
Sure.
Not trying to be dismissive. Gas going from $4 to $5 a gallon is meaningful to anyone. But at the same time, I think the structure of our organization has mitigated that risk to some degree. Well in excess of 75% of our owners live within a four-hour drive of one of our resorts. Gas going from $3 or $4 to $4 to $5 a gallon, does that change the decision to take a vacation with us?
I don't think so. From a credit standpoint, we've taken a number of actions to de-risk our mortgage portfolio, and what I mean by that is it dates back to as early as 2022. Post the Diamond transaction, we eliminated heavy risk credit opportunities. Diamond had a program where they had a low down payment program where you could literally come in, pay 1%, get access to the system, and ironically, by the time you used the system, you probably defaulted right after we paid the sales exec their commission.
We've eliminated that program to enhance the credit underwriting. Also what we've seen from that is a material decrease in the defaults on the Diamond side. The defaults have improved by almost 700 basis points.
Some of it is actions like that. Some of it is also sales practices enhancing the product that we offer, capital investment in the various resorts. In addition to that, most recently, as recent as Q2 last year, we changed the underwriting practice, most notably on Bluegreen, but system-wide. On Bluegreen, they had a practice that was very similar, something that you see throughout the industry. You could come in and put zero down as an existing owner when you were upgrading, as long as your combined equity on the new ownership was in excess of 10%. Today, we've eliminated that program, so you are required to put an additional 10% down.
It's kind of de-risk that portfolio. When we look at the leading indicators for defaults, which in our case is early-stage delinquencies, 30 to 60 days.
We've seen improvement on the Bluegreen portfolio outpace the improvement that we've seen on Diamond, and we've seen HGV has always required, well, always in recent years required the 10% down.
Incremental down, hold steady. We're really pleased with that.
You are improving delinquencies on the Bluegreen side based on direct action. Diamond side is steady. Just thinking about the overall portfolio, how sensitive are delinquencies to the geopolitical events that we are going through now, and how are you feeling about the portfolio overall?
When we look, I think a good litmus test for that is when you take a step back and you look at the acquired portfolio, the most recent acquired portfolio that we have of material size is Bluegreen.
That acquired portfolio at this point is well in excess of two and a half year seasoned.
When we compare that to the originated portfolio of the Bluegreen trust product that we sell, that is any sales post January of 2024, so two and a half years or less, we see the originated portfolio outperforming the acquired portfolio.
Which I think just speaks volumes not only to the changes that we've made from a product delivery standpoint, but also the enhancements to the credit risk.
Okay. Back to the top of the funnel.
Sure.
You are in a large new owner tour/sales cycle right now. We all know that new owners are tomorrow's upgrade, high margin sales, so that's important of course. How do you think about this from a longer-term operational or financial planning perspective? I guess asked another way, should we expect these waves of new owners and then waves of harvesting those new owners with repeat sales, or are you trying to get this new large integrated business into something more algorithmic and balanced between new owners and repeat sales going forward?
Over the past few years, you've seen us introduce HGV Max to two unbranded timeshare companies, both Diamond and Bluegreen, and that comes with some ups and downs, some variability, obviously. As a reference point, our VPGs to our Bluegreen existing owner base were up 45% in Q2 of 2025. So obviously a tough comp. To your point, and I think it's really embedded in our DNA, we, I think we're the ones who coined the phrase Net Owner Growth, and we've been very focused on growing new buyers for a long time, ever since even the great financial crisis. One of our key aspects today is to drive new buyer transactions. Both Q1 and Q2, we had high single digit growth in new buyer transactions. That's critical for the long-term success for the business. It is ultimately translating into the high margin future sales.
How do we drive that? We are trying to get into a more algorithmic cadence. We have talked about this for some time, but the introduction of HGV Max obviously introduces a level of variability. As we move in and transition into 2027, in our mind, it is a more normalized comp year where we expect that long-term growth model to come into fruition. Low single digit tour flow growth.
VPG growth probably modestly trailing that, which will translate into low single digit to mid single digit contract sales growth, allowing us to leverage off the fixed cost side of the business for EBITDA growth to be mid single digits plus. That all coupled with cash flow inflection points. I talked about the heavy inventory spend that the company has had over the past few years, $400+ million. This year, we are on track for $375 million in inventory spend. Next year, that drops to a high watermark of $300 million.
A compression in inventory spend. Also over the past few years, we have had material integration spend. 2025, we have spent $200 million. 2026, we will spend $150 million. Next year, that will drop by $75 million to $75 million. Then in 2028, it becomes more of a finalization and more of a rounding error.
Okay.
The combination of that more steady growth combined with the cash flow inflection points, I think, presents an interesting opportunity.
Okay. That's helpful. I want to go a little more near term. We are one month on from the second quarter print. You highlighted execution issues at Bluegreen in just two markets, but two of your larger markets. You said those issues had been identified and fixed. It was implied to us that those issues were mostly on the personnel side. Would you characterize those as operational missteps by local leadership, local leadership leaving, rank and file leaving, a combination of all of the above? How would you give us a little bit more description on what exactly is going on in those two markets?
Well, I would start by saying, going into Q2, we were very aware of the tough comp that we had ahead of us. As I already alluded to, HGV Max, on the Bluegreen owner side, had VPGs up 45% prior year. But going into Q2, I think there were a couple of missteps. One, we could have executed better, just generally speaking.
So we underperformed our expectations when it came to even going up against that comp. In addition to that, we definitely had some execution-specific related issues, related to Myrtle Beach and Orlando, some self-inflicted, where we had to make a leadership change and some, probably more attuned to the competitive nature of the existing market in timeshare today. I do not think there is any need to point specific fingers. I think it is, in my mind, it is we could have executed better. We have made leadership changes specifically in those markets.
Unfortunately, whenever you make a leadership change, it is not turning on a light switch. These things take time. We said on the call, we reported late July, so I think that gives you a direct reference for Q3.
We talked about the revenue side coming down for the full year. We were able to maintain EBITDA guidance for the full year, but that was on the back of cost-saving initiatives, most notably bad debt and cost of product. Do we have a fix identified? Yes. Is it fixed? No. It is an evolution. It is a process. So, obviously disappointing for Q2, and clearly Q3. I mean, Q2, our VPGs were down 8.6%, and I would tell you to expect similar, if not more decrease in Q3.
Okay. Your only branded competitor, I guess we all know what that would be, is executing against a pretty steep operational turnaround in some of your markets. Has there been a fundamental shift in the competition over talent in some of those larger markets, and what steps have you taken against that? Are other markets at risk that haven't shown up yet from what we can see?
That's a great question. I would tell you this. Any given year, it's not uncommon for there to be a lot of back and forth, especially on the sales executive side between timeshare companies. It's not uncommon. You can walk through any of our sales distribution centers today and find people who have a resume that's filled with Holiday Inn, Marriott, Travel and Leisure-
et cetera, and I'm sure the same is for their sales distribution centers. Before there was a change in leadership at our branded competitor down the street-
last year, we lost four of our top salespeople in the New York market to that competitor.
Within 90 days, three of those individuals came back.
Going back and forth is not unusual. What I would say is a little bit different about 2026 is you do have someone who worked at one of our acquisitions now as a senior leader at that competitor. I would say it is probably more robust. These things tend to have a way of playing out over 6-18 months.
Okay.
I think we are halfway through it. Are we sitting by and just letting things happen? Absolutely not.
It is not unusual for us to change comp plans on a regular basis, but in situations like this, we will obviously take action where it is merited.
Okay. Okay, great. Then maybe taking a step back for guidance this year, not dependent on any one specific factor, but what hinges the top end versus the bottom end of your top line implied guidance? Just sort of normal close rate variability, or would you say you have built in cushion for other factors?
I would say it is normal close rate variability.
Okay. That is helpful. Maybe moving on to HGV Max. You mentioned that earlier in your comments. One of the headwinds, and this is well known for everyone in 2026, is the lapping of the rollout of HGV Max. But I do want to understand the mix dynamics of sort of lapping that, and is it really more selling less Max or more about you selling less repeat guests and more new owner, and is that really one and the same thing? So maybe you could break that out for us.
Yeah, no, absolutely. HGV Max, I think an important thing to take into consideration is the way we rolled it out under the Bluegreen acquisition into contrast with how we rolled it out under the Diamond acquisition. So Diamond was the first acquisition the company had made in its 30-year history. And the process was a little bit more systematic, a little bit more methodical in the sense that as we rebranded sales centers, they were done not necessarily one at a time, but throughout the course of a 12 to 15-month period. Part of that is a function of us wanting to get things right. Part of it is a function of Hilton, obviously we use Hilton's name under a license agreement. They were approving each sales center as we were rebranding it. And also a function of what Diamond was.
The culmination of multiple roll-ups, there was a lack of consistency across their sales centers, so we also wanted to make it more organic in nature. Contrast that with Bluegreen. Given the result of our sales rebranding of Diamond, Hilton was comfortable with us rebranding all sales centers on day one of the HGV Max launch. It was more of a big bang, if you will. From that standpoint, I think it really emphasizes what the comp comparison is, and it is really close rate associated with existing owners on the Bluegreen side where you see most of the pressure. That being said, HGV Max is still selling extremely well today. That is all we sell. If you come into any of our sales centers and you do not own and you are a new buyer, you will be sold HGV Max.
If you are an existing owner, you will be sold HGV Max. The other thing to take into consideration is HGV Max is not a membership that you buy online. You do not log on to hgv.com and buy HGV Max. It is a process. You go through a tour. Your average transaction price is equivalent of an upgrade, so circa $25,000. It is selling well. To date, north of 20% of the existing Bluegreen owner base has upgraded into HGV Max. When you contrast that compared to HGV and Diamond, they are well north of 40%.
Will we ever get 100% of everyone? No. High watermark is probably about two-thirds. It is a multi-year process, and I think we have got a good trajectory on that front.
Historically, the Hilton relationship has been one of the company's greatest advantages, and we have written about that. Increasingly, you have also discussed Bass Pro a lot. You have airline partnerships, other distribution channels you have mentioned. Now you have a range of channels, though I think your audience is probably most familiar with Hilton. Can you just paint a picture for us, sort of after all these deals, how you profile your owner base? It seems like from this conversation that you kind of think about them in different buckets, but I want to understand if there is starkly different behavior across these different cohorts or if all these customers are generally more similar than different, and if your longer-term vision slowly sort of migrates them toward a similar operating field.
I think when you look at the owner base, there is a segregation today more so than there was in the past, but it is really driven off of the individual consumer themselves. To some extent, the lead source, but predominantly it is driven by net worth and household income. Today, we provide a product that is really a true aspirational product. You have Hilton Vacation Club, which is your entry-level product, your core product being Hilton Grand Vacations, and Hilton Club being your luxury-level product. Regardless of the lead source, once you are into the system, we are trying to encapsulate you in the Hilton family and get you to move up that chain scale as appropriate. Will you act different? Absolutely, and again, it is driven by individual demographics more so than anything else.
Our goal is to get everyone to. I do not know if anyone from Hilton is here today, but I am sure they would love for me to say this, but our goal is to get them to become a Hilton Honors member. Our goal is for them to open a Hilton American Express card, and our primary goal is to deliver an amazing vacation experience for them and make them a long-time member of our system.
Okay. Ultimate Access is a program that has been running for many years now. You inherited that program from your acquisition of Diamond Resorts. It feels like it is a powerful program, and one of your peers is launching a similar program from scratch today. Where is that program in its life cycle for you? Is there more value to be built or mined from expanding that? What are the economics behind that program?
Definitely more runway in that program. We will start with the economics. If you were to look at VPGs of a standard owner coming through the door who is not involved in an Ultimate Access, they can be anywhere from 20%-100% less than someone involved in an Ultimate Access. So while the Ultimate Access program does come at a cost, and I have already talked about us hosting an LPGA event, we also sponsor an Formula 1 event. We also host bespoke concerts. There is a cost associated with that, but it is more than offset by higher VPGs. Have we fully scaled that out yet? No, I do not think so. Predominantly today, it is an existing owner program. Is there an opportunity for new buyers to participate in that for us to leverage some of the fixed cost associated with Ultimate Access? I think the answer is yes.
It's got to be done with balance. It's got to be done intentionally making sure that if it is offered to new buyers, it's those that fall into a high propensity to buy with us. We do not want to restrict owner access off a potentially lower close rate individual. But we've enhanced it since we acquired Diamond Resorts, and we will continue to enhance it as we go forward.
Okay. You mentioned earlier some numbers around inventory spend. A few years ago, the discussion around inventory was largely securing enough supply to drive growth, and you took us back to 2018 when it was a totally different company from that respect. Now the focus is inventory optimization, it seems. So as you become much more large, much larger and become more mature, what is the philosophy around the right level of inventory spend to support the growth that you want, and what is the mix of that inventory spend ideally in terms of types?
When you think about our inventory spend today, it is definitely dramatically different than it was in 2019. And what I mean by that is, it is very much focused on reacquired inventory, more so than it used to be. It's not to say that we will not have new build projects. It's not to say that we're not looking for interesting dots on the map, so to speak, for our owners to experience or have the opportunity to experience new things. If you dig through our Qs and Ks, which I'm sure you've done, you'll see that we recently disclosed a project in Nashville.
Yeah.
But I think this underscores our philosophy, especially even on new builds. The Nashville project is structured as such, where we can take delivery of that project as early as 2028, or we can defer taking delivery and importantly, paying for the product until 2033.
Really trying to match cash outflows with cash inflows, i.e., supply and demand, basic economics.
That being said, with the trust product and the level of inventory we have today, we are also extremely focused on reacquired inventory that we can purchase for amounts that are, in some cases, well below 5% of retail value.
From an inventory spend level, not only is it coming down from the peak levels of inventory spend of that 400 mark to circa 300 million mark, roughly a third of that, if not more, will be focused on reacquired inventory, where if you go back to 2018, 2019, it was sub-$25 million.
Mm-hmm. Okay. Let's talk a little bit about Elara. That transaction is clearly more than just the incremental EBITDA benefit that you get by owning it. Those owners largely operated within a separate ecosystem. Now they can upgrade to the broader HGV platform, and then existing HGV members can use Elara. How should we think about the strategic value of that acquisition in terms of increasing the connectivity across the system?
I think it's fairly robust. When you're talking about 30,000 owners having access to the remainder of the system and being able to upgrade out of Elara, it's pretty powerful. And meaningfully so, the Elara property also, just given its breadth and scale, also operates extremely efficiently.
From a maintenance fee perspective, it is also very desirable by existing owners and other projects who are looking to upgrade into a project to maximize the point maintenance fee ratio.
It's a relatively low maintenance fee that provides an opportunity for individuals to upgrade into Elara. To your point, it's both sides of the coin. I think it's a very interesting opportunity, and the fact that we were able to acquire it from Blackstone for net cash outflow of about $45 million, I think it's going to be a very good investment for us. It's also, despite being an acquisition, it's deleveraging in the first year and EBITDA positive in the first year, so we're very pleased with that.
Remind us what the mix of your customer in the U.S. is in terms of drive to versus fly to, if you have that data. With all the volatility between gas prices and airfare, have you seen any shift in behavior differential between those two subsets?
No material shift. The majority of our destinations, and I may have alluded to this earlier, well in excess of 75% of our owners live within a four-hour drive. So having those drive to markets, that transformation that really came with the Diamond acquisition, that was expanded with the Bluegreen acquisition, I think really behooves us in a dynamic that we see ourselves in today.
I'd say from a travel perspective, the one notable item, and I wouldn't put this associated with the price of fuel. I think this has been a detriment to us for some time now, and it's more Yen based than anything else, but the new buyer construct in Japan traveling to Hawaii is still not back to where it was pre-COVID.
But again, I think that's more Yen based than anything else. Hawaii seems to be holding up well.
Would you correlate that Japanese inbound with currency movements? I know that was one thing we were watching for a couple of years there, but we haven't heard much about it recently. What's the last 12 months look like in terms of Japanese inbound?
Japanese inbound, over the last 12 months, from our perspective, relatively consistent. That means no real improvement.
Okay. Got it. Okay. I want to talk about capital allocation. If you could run through the way that you think about capital allocation and especially M&A. We have seen some M&A in timeshare this year, smaller stuff than what you guys are used to. You guys did some very large deals. Where is your appetite now for M&A? Where does it slot in in your capital allocation priorities, if at all, and what kind of deals over the next handful of years would be interesting for you at this point in the company's life cycle?
Sure. When we think about capital allocation, we basically try to bucket it into three different areas. One, M&A, two, organic growth, which would be, in our case, primarily inventory spend, and then obviously return of capital to shareholders.
From a traditional and when you look at M&A, really bifurcated into two segments. You have the Elara type of M&A, and that is where we have a partner that is the developer on a project that we are selling on their behalf. It behooves us to actually acquire the tail of those type of investments at some point. I would not say that is traditional M&A, but that is exactly what Elara was. Are there other opportunities with us like that? There are. We have a partner that operates out of South Carolina that is the developer on a number of projects in Myrtle Beach. Would there be an opportunity there?
Maybe at some point, but not in the next handful of years. Then you have your more traditional M&A, what we have done in the past, Bluegreen, Diamond, et cetera. When you think about the large opportunities that are out there or the large players that are out there, nothing really fits the bill of what we are looking to do. If you look at Westgate, if you look at Holiday Inn, we have, I hate to say zero, but I will say zero appetite from that standpoint, and even on the regional player basis. I think we are in a position now from an inventory standpoint that we do not need any additional robust increase in our inventory base. So we are happy where we are at. I would say very limited, if any, and that is just me hedging appetite for M&A.
You have given us a longer-term algorithm to think about for the business. You have given us a summary of longer-term free cash flow generation and your priorities for capital uses. If you could leave the audience with one takeaway about HGV, I already said the underappreciated question, so I cannot say that again, but what would you want to leave the audience with regarding the company's outlook and proposition for owning shares here?
There is a myriad of things, Brandt.
We have got a couple of minutes.
Yeah. What I would say in timeshare in general, what we hear consistently these days is the K-shaped economy. What I think is lost on individuals, and this will rapidly translate into a Hilton Grand Vacations specific comment, but I think what is lost on individuals is the way you can modulate amongst our product, right? Our product, once you are our owner, if you are having an amazing year, you can fly to Hawaii, you can do every excursion under the sun and spend $50,000 on a family-based vacation.
At the same time, if you are not having a good year and you are already an owner, you can stay in Myrtle Beach, you can use the kitchen for every meal, you can sit by the pool, sit on the beach, and have a very economical vacation, all at the same time without having to do any transaction with us.
That is a user that has got full utility of the system.
I can't think of another product that allows you to do that. If you go this year and you're having a great year and you stay at the Four Seasons, next year you're not having a great year, the Four Seasons is not going to change the rate for you. You can change the product that you have to buy, but it's just not the same. When it comes to Hilton Grand Vacations, one of the outstanding benefits that we have is our partnership with Hilton. It's by far our most valuable partnership and the Hilton name. There is no one who protects the brand name more than Chris Nassetta than ourselves. We take that very seriously. That gives a level of trust to the consumer, and it drives a high propensity to buy us over regional players for sure.
Outside of that, when you think from an investment standpoint, Hilton Grand Vacations is a very interesting crossroads at this front. We've talked about it already, but it's worth repeating. We've got a declining inventory spend level from $375 million to $300 million. We've got a declining integration spend level from $150 million to $75 million just over the next year. That coupled with the variability of the introduction of HGV Max being more normalized and being more algorithmic, that more consistent growth in future years, I think drives a very compelling story, especially with the backdrop of a very robust share repurchase program that's already returned in excess of $2 billion to our shareholders and is very programmatic with us spending close to $600 million on share repurchases annually today. I think that sums it up.
Excellent. Well done. Thank you, Dan, for being here.
Thanks for the time.
Appreciate it.
Appreciate it.