Hilton Grand Vacations Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strong Execution: 17% growth in contract sales led to near double-digit EBITDA growth. Broad-based sales performance with double-digit VPG in all domestic geographic regions. Both owner and new buyer channels contributed to growth.
• Strategic Initiatives: Progress on lead generation initiatives with double-digit package sales growth. Product enhancement with HGV and HVC Resorts receiving Bluegreen Max members. Bluegreen integration with $94 million run rate cost synergies and rebranding of sales centers. Digital transformation with upgraded proprietary chatbot.
• Business Units: Member count near 722,000, with HGV Max surpassing 250,000 members. Rental business showing signs of stabilization in Las Vegas despite soft market, with teams reallocating room nights to adjust to demand.

Segment Performance

• Real Estate: Contract sales were up 17% to $907 million, a record pro forma. Adjusted EBITDA was $302 million with margins excluding reimbursements at 24%. Real estate margins had second consecutive quarter of meaningful expansion.
• Financing: Third quarter revenue was $128 million and profit was $75 million with margins of 59%. Excluding amortization items, financing margins were 62%. Originated weighted average interest rate was 14.7%, total gross receivables $4.2 billion, total allowance for bad debt $1.1 billion.
• Resort and Club: Consolidated member count was nearly 722,000. Revenue grew 8% to $193 million for the quarter due to fee increases and stable member activity rates, segment profit was $135 million with margins of roughly 70%. Rental and ancillary revenues were up 2% to $186 million, with a loss of $4 million driven by developer maintenance fees.

Guidance

• Maintained 2025 adjusted EBITDA guidance in the range of $1.125 billion to $1.165 billion. Expect high single-digit contract sales growth for 2025. Looking ahead to 2026, anticipate tour flow growth with moderated VPG and focus on leveraging costs to drive EBITDA growth, aligning package sales and tour flow more closely.

Risks

• Volatility in the policy landscape.
• Uncertainty in the rental business recovery, particularly in the Las Vegas market.
• Dependence on upfront marketing investments for future growth, with potential lag in tour flow conversion from package sales.

Question and Answer

• Q: Could you give initial high-level expectations for 2026 and thoughts on financing profit?

A: Focus on finishing 2025 strong. 2026 to see tour flow growth, with financing expecting headwinds but a growing portfolio and plans to attack the Japanese market again.

• Q: VPG up 15%, how is this achieved?

A: Due to new club launch, Max membership program driving upgrades and higher satisfaction among owners and new buyers, with broad geographic strength.

• Q: Flow-through, higher tour packages and rescission?

A: $7 million in higher marketing packages as upfront investment for future revenue, $8 million from rescission timing, and FDI impact contributing to flow-through compression.

• Q: First-time buyers segmentation?

A: Stable close rates across generations and income tiers, with focus on executing controllable factors in the stable consumer environment.

• Q: Rental business EBITDA recovery?

A: Driven by contract sales growth, recaptured inventory reducing net owner growth, brand conversions for ADR and cost benefits, and operational efficiencies.

• Q: Hawaii inventory mix?

A: Balanced mix, on track with inventory goals, aiming to reduce COP and balances to benefit the rental segment.

• Q: Delinquencies in sub-650 FICO?

A: Stable, due to focus on customer interaction, lesser exposure compared to some counterparts, and improving annualized default rates.

• Q: 2026 investment and growth?

A: Lower investment than 2025, with tour flow growth expected, moderated VPG, and focus on aligning package sales and tour flow to match revenue and expense.