Hilton Grand Vacations Inc (HGV) Q2 2024 Earnings Call Highlights: Strong Cash Flow Amidst ...
Contract Sales: $757 million for the quarter.
EBITDA: $270 million with margins of 22%.
Adjusted Free Cash Flow: $370 million.
Revenue (excluding cost reimbursements): $1.1 billion.
VPG (Volume Per Guest): $3,320, 10% ahead of 2019 levels.
Occupancy Rate: 83% for the quarter.
Owner Count: Over 720,000 owners.
Share Repurchase: 2.3 million shares for $100 million during the quarter.
Debt Balance: Corporate debt of $4.9 billion and non-recourse debt of $1.7 billion.
Adjusted EBITDA Guidance: Lowered to a range of $1.075 billion to $1.135 billion.
Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Hilton Grand Vacations Inc (NYSE:HGV) reported contract sales of $757 million and adjusted EBITDA of $270 million, demonstrating strong financial performance despite challenges.
The company has successfully integrated Bluegreen into its operations, achieving $71 million in annualized cost synergies, on track for a $100 million target.
HGV's financing team effectively managed the higher rate environment, meeting strong ABS investor demand with well-subscribed note offerings.
The company produced $370 million in adjusted free cash flow, maintaining a strong cash flow conversion rate and repurchasing 2.3 million shares for $100 million.
HGV continues to expand its product offerings and geographic diversity, enhancing its market position and member base, with over 720,000 owners and a 1.7% net owner growth rate.
Negative Points
HGV experienced a broad-based pullback in consumer spending behavior, particularly affecting new buyer segments, leading to a reduction in guidance for the year.
The company faced execution challenges during the quarter, partly due to the integration process with Bluegreen, which disrupted sales and marketing operations.
There was a year-over-year decline in both tours and VPG, with new buyer tours remaining lower as the company rebuilds its tour pipeline.
The provision for bad debt increased to over 15% of owned contract sales, reflecting higher losses from some Bluegreen-originated loans.
HGV's restructuring efforts caused significant disruption, impacting staffing levels and limiting tour slot availability, which affected sales performance.
Q & A Highlights
Q: With respect to the guidance adjustment and isolating the discussion around execution issues, can you talk more about your comfort that you've got your arms around that? Also, can you provide an update on Maui? A: We expect continued macro pressure on consumer spending in the back half of the year, which is reflected in our lowered guidance. The pullback in guidance is primarily due to lower contract sales, particularly in the new buyer segment. Regarding Maui, both our resorts are fully operational, but new buyer tour generation locations remain shut down. The Maui Bay Village project is performing well and selling throughout our network. - Mark Wang, CEO
Q: With the Japanese yen strengthening, when might you expect to see increased demand for your Hawaii product? A: The strengthening yen is positive, but there will be a lag effect. Our Japanese members have been traveling to our property in Japan, which has high occupancy. We hope the yen's improvement will strengthen our new buyer Japanese business in Hawaii. - Mark Wang, CEO
Q: Can you give more color on the sales reorganization? Is it more about middle or senior level changes, or is it specific to acquisitions? A: We restructured our sales and marketing organization to support our larger scale and improve execution. We moved from two regions to five, with multiple subregions, and strengthened mid-level leadership. We also appointed a new Chief Sales and Marketing Officer, Dusty Tonkin, to lead the operations. - Mark Wang, CEO
Q: Why did you increase the loan loss provision percentage instead of taking a charge or increasing your sales reserve? A: Our bad debt provision is based on a robust static pool model using over 15 years of historical loss data. The increase in provision is due to higher losses from some Bluegreen originations. We expect a long-term run rate in the mid-10s percentage, which arrived sooner than expected. - Daniel Mathewes, CFO
Q: Are you considering a new product for the current environment, perhaps something that fits a smaller budget or shorter vacation? A: Our acquisitions have diversified our product offering and customer base. We are in a good position with our inventory and brand offering. We are looking at ways to adjust our product to meet the needs of the bottom third of new buyers. - Mark Wang, CEO
Q: Can you discuss the demand in local markets and how the reorganization addresses any softness? A: We've seen a pullback in local marketing, which accounts for 40% of our new buyer tour flow. This is more about execution challenges than macro factors. We are focused on improving this area and have hiring agendas in place to address it. - Mark Wang, CEO
Q: Do you have any initial indication of what maintenance fee growth might be for next year? A: We expect normal mid-single-digit increases in maintenance fees. We have consistently moved fees up in the mid-single digits, even during the pandemic, so there will be no surprises for our customers. - Mark Wang, CEO
Q: How are you tracking against your synergy targets for the Bluegreen acquisition? A: We are on track with our cost synergies, achieving a run rate of over $70 million. Revenue synergies are yet to start as we have not begun rebranding sales centers or resorts. We feel confident about the long-term benefits of the acquisition. - Daniel Mathewes, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.