Q3 2020 Hilton Grand Vacations Inc Earnings Call
Good morning, and welcome to Hell in Grand Vacations third quarter 2020, <unk> earnings Conference call a telephone replay will be available for seven days following the call.
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Please limit yourself to one question and one follow up question to allow the opportunity for everyone to ask question you. They then reenter the queue to ask additional questions I would now like to turn the call over to Mark Melnick, Vice President of Investor Relations. Please go ahead Sir.
Thank you operator, and welcome to the Hilton Grand Vacations third quarter 2020 earnings call before.
Before we get started please note that we have prepared slides that are available to download link on our webcast and also on the main page of our website at investors <unk> HCV Dotcom, we may refer to these slides during the course of our call question and answer session.
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.
<unk> discussion some of the factors that could cause actual results to differ please see the risk factor section of our 10-K as well as similar sections in our 10-Q, which we expect to file after the conclusion of this call and in any other applicable watch T. Farley.
Well 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 thought HCV Dot com that's.
As a reminder, our reported results for both periods in 2020, and 2019 reflect the accounting rules under 86, six which we've adopted in 2018.
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Prior to the first certain revenues and expenses related to sales made in a period. When a project is under construction and then hold off on recognizing these revenues and expenses until a period when construction is completed.
To help you make more meaningful peer to peer comparisons you can find details of our current and historical deferrals and recognitions and people T. One of our earnings release for ease of copper building and to simplify our discussion today, our comments on adjusted EBITDA and our real estate results.
EBITDA results, excluding the impact of construction related deferrals and recognition for all reporting periods finally.
Otherwise noted results discussed today refer to third quarter 2020, and all comparisons are accordingly against the third quarter of 2019.
In a moment Mark White, our president and Chief Executive Officer will provide highlights from the quarter. In addition to an update on our current operations of the company strategy. After Mark how much of our Chief Financial Officer, Dan Matthews, well 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 Wayne.
Mark Good morning, everyone. The results, we released today improve substantially as we return to a full quarter of operations at the majority of our resorts.
As we sit here today, we're optimistic about the future well be realistic about the president.
Our optimism stems from the fact that we continue to see improvements in demand for our owners reservations are prepaid vacation packages.
Which is an indication of pent up desire to travel.
Additionally in markets that are unconstrained. This consumer demand is driving strong resurgence in occupancy in contract sales.
I'm also encouraged that Hawaii, a key market for us.
Just restarted reopened and we continue to see resilience from our owners, who remain committed to HCV and are predisposed to travel.
However, this must be Dallas with the near term realities.
Massive improvement will depend on local markets, where we operate and many of our markets today remain closed or constraint for.
For example, Las Vegas, and Orlando, our largest markets represent nearly 40% of our contract sales last year still have capacity restrictions after important tourist attractions, coupled with reduced air travel.
And compared to our owners new buyers will likely take longer to recover as consumers continue to fight their level of comfort with travel.
Most importantly, though we've adjusted as a company and have the financial flexibility to manage through the near term environment and ultimately capitalize on the long term opportunities that what were turned over time.
Now let me take a few minutes to talk to you about what we're seeing in our different markets and consumer segments.
Since we restarted operations in late May we see monthly sequential improvements in our key operating metrics in the markets, where we're opening our contract sales have recovered to nearly staff at the levels that we produce that these properties last year.
[noise] Vpgs, an open markets improve substantially up over 80% versus prior year.
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And our consolidated six months forward bookings are tracking at over 60% a prior year levels.
Well this data is somewhat volatile as our booking in cancellation windows remain shorter than normal it indicates to us that there is a desire to travel.
And cancellation rates, which peaked in the mid 30% range. This summer have now fallen to under 10%.
Digging deeper into the trends that are open properties shows that these improvements have varied from market to market.
Our regional resorts, particularly outdoor oriented locations like South Carolina, California, and Utah has seen a rapid recovery.
South Carolina for example is trending 95% of contract sales pace. They did in the prior year, owing to strong close rate gains in occupancy rates in the 90%.
As a whole our regional markets are seeing similar improvements surpassing last year's contract sales levels in the month of September was strong occupancy rate.
On the other hand, our largest resorts in destination markets associated with local attractions that have capacity restrictions such as Orlando in Las Vegas has seen more measured progress occupancy levels have improved a roughly 50% in orlando versus 30% to 40% at opening in Las Vegas. This move.
Move to the range of 40% from 30%.
But while they approved at a slower pace. The appeal of these markets is time tested and were confident that they will ultimately come back as the local attractions return in air travel normalizes.
One market, we're excited to bring back as Hawaii, and we'll see we think we'll see great demand. There. It's an important market for us in 20 nights unit represented 22% of our total contract sales.
We've got nine high quality resorts in prime locations on a walk on the Big Island and our test resort in Maui is currently under construction and in Presales.
On October 15, the state of Hawaii officially move forward with its reopening plan.
It was met with a release of pent up demand from over 10000 travelers returning on the first day for about a third of the normal daily pace in inbound traffic.
We also continue to see notable enthusiasm for white product from our members as well in fact, despite having no operating sales centers huw.
Hawaii inventory made up 34% over inventory mix this quarter versus 37% last year.
A big driver that stability was our Japanese business, which again proved to be a key advantage to us this quarter.
Our network a regional off site sales centers in Japan remain operational through the pandemic. It has recovered to over 60% of last year's contract sales levels. The majority of it which was Hawaii product.
Well be reopening our resorts in sales centers as we progress through the quarter and as a result, they are unlikely to contribute to our consolidated results. This year.
However, we hope to be back to full operating capacity in Hawaii, and the first quarter and expect our properties to ramp through the first half of next year and be meaningful contributors again 2021.
Finally, our urban sale centers remain closed to New York, Chicago, and Washington, DC. These markets accounted for just over 11% of our contract sales last year and we expect they will be the last to recover.
Turning to our customer segments, we had another quarter of strong execution, our VPG benefited from two factors.
Fire on our mix and improvements in both our owner and new buyer close rates.
We expect the segment close rates will trend towards historical levels and drive a moderation in our VPG growth.
But we'll continue to see a benefit from a higher mix of owner sales in the quarters ahead.
Our sales were 67% this quarter versus 50% historically.
And that outperformance will likely continue as new buyer traffic takes longer to recover.
Our financing in clubs and resorts segments continued to provide an important source of stability to the company by generating solid results and cash flow. Although we did see a slight decline in our club resort business.
Due to lower Akt activation fees and member usage fees importantly, NOG was 1.9% as we continue to see growth in new buyers that will add to the embedded value for our business for years to come.
As we mentioned before.
We revisited our strategic priorities at the onset of the pandemic and we've kept making progress here.
We now have a full quarter of the implementation of the HCV enhance care initiative and have received great feedback from our guests on the program.
Importantly, we haven't noticed any adverse effect from all from the initiatives on either our sales process or our resort operations as Maskin, social distancing had become commonplace across the globe.
Maintaining our financial health has remained a critical focus throughout the pandemic and Weve continued our efforts to fortify our balance sheet and optimize our cash flow.
We found cost savings across all levels of our organization.
Some of those is unfortunately required us to make tough decisions around our staffing levels as you likely saw in our recent filings.
As a result, we believe we felt sustainable cost savings and reset our cost structures to allow us to get back to our pre coverage levels of EBITDA at a lower level of contract sales.
We've also reexamined, our inventory and project spending in light of the new environment.
But we're well positioned through the pandemic and beyond due to inventory investments we've made over the past few years and it projects like Ocean tower in Maui.
Due to these efforts we now believe our adjusted free cash flow will be comfortably positive for the year.
Which has extended our tuition of available liquidity to 31 months, assuming no further improvement from September trends.
Throughout the pandemic, we kept side, what's most important our commitment to our owners and our team members. Our teams have done a great job restarting our operation smoothly both at the resort level at our member service centers and I want to take a moment to recognize them for their efforts.
And we provided our members with additional flexibility to roll their unused points in 2021 to preserve the value of their membership with HCV.
Our marketing teams have been successful engaging pin potential new buyers driving sequential package growth training at nearly 75% of last year's levels versus only 10% of the prior year back in April.
So it's clear to us that people have the desire to travel, but it's also clear to us that you can't force people to travel until they're comfortable doing so.
However, the demand for prepaid vacation experiences gives us confidence that those travelers will ultimately choose to vacation and tour with us.
Looking ahead, our outlook reflects an acceptance that we're going to have to continue to contend with the impact of the virus as consumers to find their individual level of comfort with travel.
So we're seeing moderate week over week and month over but the improvements we expect the pace of recovery to vary across different markets.
But I'm confident in the long term strength of our business model and our plan and I remain optimistic about our future with that I'll turn it over to Dan to walk you through the financial results Dan.
Debt.
Thank you Mark and good morning, everyone as Melnick mentioned in his introduction to our call. Our results for the quarter included 13 million sale sales deferrals impacting reported revenue and that deferrals of 8 million impacting both adjusted EBITDA and net income.
References to consolidated net income adjusted EBITDA and real estate segment results on this call for the current and prior periods will exclude the impact of deferrals and recognitions.
The complete accounting of our historical deferral in recognition recognition activity can be found in cell format from financial reporting section of our Investor Relations website.
Lets review the results for the quarter totaled.
Total third quarter revenue was 221 million, reflecting declines across our business segments due to the ongoing impact of global travel from Covidien high teens and Dominion long with the absence of resorts in several major markets, where we haven't yet doesn't sell off sales operations.
Q3, adjusted EBITDA was $27 million as our financings on clubs and generated positive positive EBITDA was flat EBITDA at a rental segment and a slight decline in real estate.
Our EBITDA was also impacted by 3.8 million of onetime charges, primarily due to restructuring related expenses during the period.
Addition, as we laid out in our press release, there were another $6 million of covered related items that were not adjusted from an EBITDA.
Couldn't 7 million a $7 million benefit from employee related credits offset by $1 million loss of club transaction fees that will be funded during the quarter reservation charges associated with property closure closures.
Net income was 1 million and diluted earnings per share was two cents compared to net income of 58 million diluted earnings per share of 67 cents in third quarter 2019.
Within real estate Q3 contract sales were 117 million or one third of the prior year, reflecting operations resuming at roughly three quarters of our resorts for the <unk>.
Quarter tours were down 75% and Vpgs grew by 25% our mix of our contract sales remained elevated this quarter.
Two thirds of the total.
A recovery with steady over the course of the quarter with absolute number and year over year growth rate of our tour flow improving sequentially. Each month close rates were once again up in each of the months for the quarter for both owners and Bose, reflecting solid execution in driving our strong VPG.
As we progressed through the quarter, we saw an expected normalization of close rates from the elevated levels seen in Q2 weeks.
We expect that trend to continue although we anticipate GPG will settle at a higher level than pre thought of it in the short term own owing to shift towards higher VPG on the sales.
Fee for service mix for the quarter was 57%.
Tumor lending side, our provision for bad debt was 12 million no overall allowance on the balance sheet was 217 million or 17.7% gross financing receivables.
Essence, DNA was 67 million, reflecting both fixed expenses as well as a full quarter of variable expenses as we resumed sales operations real estate margin was a loss of $1 million.
In our financing business third quarter margin was $27 million with a margin percentage of 67.5% versus a margin of 29 million in the margin percentage of 67.4% last year.
Margin was lower based on a declining receivables balance versus last year limiting portfolio income along with higher interest expense associated with the securitization completed in Q2.
Gross receivable balance decreased to 1.2 billion or average down payment year to date is 11.8% portfolio average interest rate increased to 12.6% from 12.4% last year.
Over the past three months, we've seen an improvement in our delinquency rate to 3.35% of our receivables portfolio versus 3.5% at the end of the second quarter, but.
But it is up from 2.5% at the end of 2019.
Annualized default rate has increased to 5.96% versus 5.48% at the end of the second quarter and 5.14% at the end of 2019.
The increase remains consistent with our expectations of seeing upward pressure on both our delinquencies and defaults over the near term as we continue to cycle through the pandemic.
But we still believe we are adequately adequately reserved at this time, we will continue to monitor our portfolio trends closely the performance of our loans on a payment deferral has been strong.
Those who utilize a deferment across our entire platform.
Which accounts for 27 million in loan balance or 2% of our portfolio just under 80% the current today.
Turning to our resort and club business not for the 12 trailing months was 1.9% and we grew our member base to over 327000.
Revenue of 39 million was down 13.3% from the prior year driven by lower transaction fees from reduced member activity as well as additional onetime fee waivers and refunds related to so that 19.
Margin for Q3 was 30 million with a margin percentage of 76.9% versus margin at $34 million and margin, 75.6% last year.
Rental revenues were 20 million for the quarter, reflecting a resumption of operations and the realities of the global travel that is still feeling the impact of Covance endemic.
Expenses in the quarter was 24 million and were driven by expenses associated with Hilton honors point conversion activity and develop and maintenance fees bridge.
Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA third quarter, corporate DNA was 15 million down $5 million or 25% versus the prior year, reflecting the benefits of our cost saving programs and license fees were $11 million.
Regarding our cost savings in the first quarter, we moved quickly to examine the cost structure and and adapt to rapidly changing business environment, including process improvements spending cuts temporarily temporary furloughs and unfortunately permanent head count reduction. The net result is that we believe we've identified 20 to 25 million in savings across the area.
Patients that are recurring in nature.
As Mark mentioned earlier, Hawaii recently reached a major milestone in the reopened brothers by removing the quarantine requirement for coated negative travelers.
While we are excited to be reopening one of our largest and most important markets in light of the staggered progression of the openings and the associated ramp here. It is important to note that we do not anticipate Hawaii distribution seems to be meaningful contributors to our contract sales in Q4 thus.
Thus our fourth quarter is expected to show only continued modest sequential growth in our operating metrics.
Our adjusted free cash flow in the quarter was a net use of $99 million, which included inventory spend the $39 million and cash used from nonrecourse debt pay down of 99 million owing to the shift in timing of our securitization into Q2 from a typical third quarter timing.
For the year to date, our adjusted free cash flow was 156 million after inventory spend of $108 million as a reminder, our inventory budget for this year was approximately $400 million and we now expect to spend slightly less than 200 million.
Given this level of inventory spend and the expectations that Q4 will show modest sequential growth in operations. We now anticipate that we will have positive adjusted free cash flow for the full year of $40 million to $50 million, which compared to our prior expectations achieving roughly breakeven for the year.
We continue to maintain a strong balance sheet with low leverage and ample liquidity assuming that we saw no further improvement in real estate or rental business from September levels. We estimate that we will have 31 months of available liquidity.
As of September Thirtyth, our liquidity position consisted of 625 million of unrestricted cash.
39 million of availability under our revolving credit facility.
$450 million of capacity in the warehouse. We currently have 100 million timeshare receivables available for Collateralization.
On the debt front, we had roughly 1.3 billion and corporate debt and nonrecourse debt balance of 837 million turn.
Turning to our credit metrics at the end of Q3, our net leverage in first lien net leverage for covenant compliance purposes. So that 2.14 times and 1.11 times, respectively. Our interest coverage ratio for covenant compliance purposes at the end of the quarter was 7.17 times.
We will now turn the call over to the operator and look forward to your questions operator.
Thank you again, if you would like to ask a question. Please press star one on your telephone keypad a confirmation tell the indicate your line is in the question. Ken You May Press Star two if you would like to remove your question from the Q and for participants using speaker equipment and may be necessary to pick up your handset before pressing list.
Sorry, Keith.
Our first question is from Jared Shojaian with Wolfe Research. Please proceed.
Hi, everybody. Thanks for taking my question.
On Hawaii, Dan I appreciate your commentary that you're not expecting a meaningful contribution in the fourth quarter from Hawaii sales centers, but can you just talk about what you've seen since the corn teen was was removed what have you seen with arrivals what do you have on the books today versus this time last year.
Okay, and then I know you're still you still been selling Hawaii at other locations and you've had some success with that can you give us a sense for what.
But Hawaii contract sales are currently run rating at right now on a year over year basis, Smith, obviously, not I'm not being able to go to Hawaii.
In the third quarter.
Oh, Yeah. Jerry. This is this is mark I'll take part of that how I'll, let Dan take part of that question you had a few questions in that question. So we'll try to connect on everything but I think you know we think about Hawaii first of all.
Yeah excited that the quarantine enforcement is finally been lifted and and you know that the state reopened on a 15 for domestic travel.
We're still waiting to hear on Japan imbalance that you know recent indications suggest that the state is probably going to be opening up.
For Japan visitors sometime in November so.
Happy about that.
We also think why is going to be our next catalyst for further recovery as we enter 21, and we've talked about it a numerous times that.
We have amazing assets in prime locations, there and and historically, Hawaii has been one of our highest demand market for both your U.S. The Japanese members. So so as far as what we have going there going on there right now we have a few.
Very small properties that are open, but really not no sales going on in Hawaii right. Now the plan is that we plan to open up our sales centers on the Big Island five mid November.
And that we're going to open all of our properties and sales centers in mid December and allahu. So.
So I'd.
I think you mentioned, Japan and quite inventory, we are having great success in fact, great success.
You know in Japan. During this this crisis, they never really close down a though you know the business did drop back considerably early on when the pandemic first started but we mentioned I think in our prepared remarks, 34% of our sales for the quarter were Hawaii and.
Compared to 37% last year and that really has a lot to do with with the the work that our Japanese teams are doing.
This month in October were trending at about 75% prior years level. So.
So that's that's looking really good as far as a forward looking bookings.
For next year, where we were showing about 70% on the books.
At the same time last year and I know, we've had about a 15% picked up over the last four weeks as people have gotten better.
Yeah line of sight on why we think we're going to be opening I don't know if there are there anything outstanding Yeah, I think just to quantify part of your question on Hawaii.
Jared if you look back to Q2, obviously as we were coming out of the shutdown scenario. We did total contract sales of 35 million just over $10 million that was associated with why if you look at Q3 that that number has jumped to just south of 40 million.
And we would anticipate that to be you know probably a hair better because we do believe operations to be open to some extent in Q4.
So we believe it will be slightly better than that in Q4, but no comparative run rate historically prior year. Yet you are looking at Q2 Q3 being close to 130 million, so still substantially down, but obviously, making traction in going into right direction.
Yeah, and then I just said just add one more thing I think when you think about Hawaii obviously.
You know airlift is really important and.
From what were seeing the airlines are starting to really get there left back in place and so there's a lot of choreographing that goes on when they open up why versus.
Other markets for us because of this flying component.
But you have to deal with the other thing you have to think about is it a number of our biggest resorts in our properties coexist on campus is that also.
Major hotel assets that park.
Resort owns so we have to we have to work in conjunction and get aligned with them around staffing and as such so.
Generally we think you know Hawaii is ghetto. We're happy is finally going to reopen we thought it was going to be reopened late in Q3. So it would benefit us in Q4, he got pushed back but at the end of the day. We're just we're just pleased that its going to reopen in hopefully.
You know they are the process. They put in place is going to endure and create a very safe environment for visitors that are going to Hawaiian and you know where we were very optimistic that our business is going to bounce back stronger.
Okay. Thank you that's very helpful. I think you got all that from my my convoluted question.
Just to switch gears here can you talk about how you're thinking about inventory spend for next year and I know a lot depends on the demand environment, but is it fair to think that next year is not going to be free cash flow year, and then by 2022, you're starting to just meaningfully ramp on.
Free cash flow is that the right way to think about it anything you can share there.
Hey, John its Dan.
Great question and I think we've talked about this all year I mean, just to take a step back as you know you've heard us say it on two calls now.
Original amount that we expected to spend in 2020 was north of 400 million, we've contracted that below 200 million and what I want to emphasize is that contraction is not just moving it from 2020 to 2021.
Contraction is really putting things to decide and allowing us to.
Analyze and make the best choice when it comes to of course of action on that inventory spend. The most notable example of that is cool hockey right. We've had a contraction in Hawaii in particular.
On sales and.
Now the question is when do you need coffee, which is the waikiki sequel to actually come online and will continue to analyze that when you fast forward to 2021.
Flexibility that we saw in 2020 is not the same in 2021 and 2020, our contractual obligations I.E. The just in time or projects that we had were roughly 25 night. When you look at 2021 of those contractual obligations are closer to $200 million now.
The thing to emphasize here as they are just in time projects are they from a capital efficiency standpoint, they've proved out to be.
Very good for us in particular as you can imagine right now we've got developers spending money on projects, most notably the Central New York insists OCO in Japan that otherwise would be on our balance sheet. So we have had the benefit of that but what you will see in 2021 is those obligations will start to kick in so that flexibility.
Contracting inventory spend does does come down and like I said, it's roughly 200 million in contractual obligations and 2021 when it comes to free cash flow.
Look it's all about the recovery how old is 2021 recover versus where we are in 2020, we see some nice trends now that you know some of our larger markets are honest.
On a steady march although albeit slower than we would like but on a steady march to recovery.
Hawaii is just about to open up so it's it's really going to be dictated around the recovery itself on what 2021 shows.
I think I'm trying to give you a lot of color, we're not trying to give specific guidance on 2021, but hopefully that context is helpful.
Yeah No. That's helpful. I appreciate that maybe just quickly follow up on that I mean, if we assume this recovery that we're seeing here.
10, using you kind of extrapolate that out through all of 2021. So the 2021 is kind of a transition year, you're still far below.
Keep levels that we're moving in the right direction, where improving under that scenario should we be assuming that next year is not a free cash flow. Your I guess I'm I'm really just trying to.
Help set that expectation on how you're thinking about it and then by 2022, assuming this recovery just continuing that you start to see that meaningfully build again is that under that context is that kind of how we should be thinking about it.
Say it a different way if you were to look at you know what a lot of the analysts are saying about the recovery in 2021 and built in that contractual and the not only contractual because keep in mind, there's contractual inventory payments and then there's also other projects that are under our control admittedly.
But they are also further inventory spend projects like mowing Ocean tower phase two there's flexibility there to come if the recovery then play out as we expect.
Expect.
But once you know if you go with analyst consensus so to speak in the building that kind of inventory spend you are looking at.
A cash and adjusted free cash flow neutral to down here with the path really building in 2022.
Okay Super helpful. Thank you very much.
Our next question is from Stephen Grambling with Goldman Sachs. Please proceed.
Hey, Thanks for taking the questions two quick ones first I know you referenced that with the cost cuts that you've announced you feel like you can get back to call. It prior levels of EBITDA without getting to prior levels of contract sales is there any more that you can provide in terms of quantifying that.
Perhaps I missed it earlier and then the second question, which is unrelated is just if you can give any more details on what you're seeing in terms of the demographic of new owners, arriving is that similar or different to what you saw pretty cold, but are you seeing.
Truly a different type of customer base younger maybe coming in.
Great questions I'll take the first one and then I'll turn it over to Mark on some of the different demographic information. So we did say in our prepared remarks.
That we have done a lot we have taken out various layers, we as we sit here today.
And you saw last week it might have in the week before what we filed an 8-K disclosing that we did do a reduction in force.
But over the course of 2020.
We took out a significant amount of costs initially with temporary furloughs now we've gone to a reduction for force. We also still have an excess of 2000 individuals furlough today.
But based on what we've seen today and the course of the recovery, we see now out of out of everything out of the all the actions. We've taken we believe that there is between 20 and 25 in recurring.
Cost savings associated with that reduction in force and other ancillary expense items.
Yeah Stephen.
Mark on the demographic side.
If you look at Q3.
Millennials made up 26% of our new buyers Genex, a 38% was approximately 65% of Oh.
Of our new domestic buyers.
And in Q3 were fit.
Fit in that Gen X. millennials.
[noise] age group.
And did that move materially year over year, and also I guess with.
The refrain from a sales center are you seeing any changes or making any changes.
In terms of thinking through digital sales.
Yeah No. Good question, what we as far as the year over year piece, Yeah that millennials continue to grow as Genex's do it and boomers are basically falling off and were seeing that sequentially really over the last three or four years and so millennials are building in Genex's are building.
As far as digital sales go up look weve. The teams have done a lot of good work around innovating on the digital side.
I just got to recording this morning that a you know we've done over a million dollars. A you know in the last couple of months in Japan on a pure virtual platform that we put in place.
We were also a used a lot more technology and ER and our club direct capabilities are improving we started seeing the benefit of selling dallied outweigh direct recep a direct sales represented about 60 million of our sales last year, we've now recovered or.
To up approximately about 70% of what we are doing last year. So that part of the business is recovering well and and while still a minor piece of our our business our capabilities are growing and we're excited about what that will mean for us in the future.
Great. Thanks, so much.
Okay. Our next question is from Patrick shows the true with Securities. Please proceed.
Hi, good morning, everyone.
Question concerns Orlando with your one of your larger markets.
We heard yesterday from a competitor, how orlando sort of pre booking.
Our next year are really coming on very strong curious what you folks are seen in that regard. Thank you.
Yeah, Patrick what you were seeing the same thing and in fact.
Just looking at the numbers. This morning, we've got nice steady weeks of improved pace.
In Orlando and Vegas, So yeah, we're seeing improved pace in in those markets and and.
We expect is the capacity.
Restrictions.
You know diminish and this market, what we'll see more and more visitors come here. So.
Orlando's tried and true market, it's going to come back it's just a matter of time.
And but we're seeing some very positive trends of late.
Okay. Good to hear and then my next question.
Hopefully you can answer this.
It's a bit of a follow up to the first question that was asked today.
On your earnings release, you noted that owned inventory represents 80% of your total pipeline, while only 32% of that old inventory pipeline is currently available for sale where would you expect.
That percentage by the end of the year to be that 32% and you know how how would that trend into one Q.
[noise] from a from a pipeline perspective, I want to see significant movement there.
Patrick from a sales mix perspective, you know as the owned inventory comes online you'll naturally see that compressed so that 57% should naturally come down and as you roll into 2021.
Depending on the pace of recovery, we would also see it fall and I would imagine [noise].
All right, we would expect it to fall below 50% in 2021, depending on what the recovery plays out I think what you see here today, where we are still in the high Fiftys on a fee for service mix is really.
Speaking to some of the locations are performed.
Really well and the coveted environments, such as Myrtle Beach, which is a fee for service.
Center, if you will but.
But hopefully that lays it out pretty well.
Okay. Thank you that's it for me.
Our next question is from Brad mentor with JP Morgan. Please proceed.
Good morning, everyone. Thanks for taking my question.
I was wondering if you could maybe give us be a year over year contract sales growth.
By month in the third quarter.
Yeah, So hey, Brad the smart.
Yes.
What we saw sales growth that we didn't have sales growth, but if you look at the performance on a sequential basis and markets that we were open.
We were down 59% in July down, 58% in August and down 47% in September.
So those are that's that's based on the markets that we're open to it.
Great. Thanks, and then just you know you gave us a great a snapshot on your cancellation rates now versus cancellation rates and in in spring and I think that I was just curious and I hate to split hairs and ask a really short term question, but just because were.
Sort of in the in the first or second stages of this broader uptick in infection rates and potentially sort of mobility slowing down. It's that moved work has it gotten worse over the past in the very in the very near term I guess, what I'm asking.
Yeah, no great Great question I can tell you that we're just not seeing the same correlation between cancellation and spikes and covered that we did over the summer or.
And you know when we look at our own arrivals on the books. They remain strong indicating that you know there continues to be strong demand.
I think when you look at our package marketing package in our Oh, our new buyer pipeline.
The majority of the consumers who are.
Making changes or traveldays.
With us are Rebooking for later period of time. So so right now again, you know obviously, there's a lot of activities a lot of uncertainty out there are around you know the infection rates.
We're not seeing the same type of spikes in activity that we have in the past and I think I think part of it is just you know people are adapting to this situation in there you know I kind of look at it either people are looking to travel or they're not looking to travel right now and.
Those that are looking to travel our.
Wrapping up to ways to travel safely and and when you look at the entire sector. The travel sector. A I think the entire travel sectors is is doing a really good job and and you know from the airlines too you know.
Our properties and the Hilton brands.
Have collectively working together and I think that is making a difference in the consumer confidence to travel.
And.
You know I think in the near term absent container the virus and I think that pretty testing requirements like we're seeing in Hawaii. It also creates a lot of people that start flight and so there's a lot going on everybody's working together collectively to to make travel, especially leisure travel.
You know.
Open up again, and so we're going to have to see we're going have to watch it closely.
The reality is you know.
If this is a dynamic situation, but right now I can't say that we're seeing any spikes right now.
It was sorry for the long winded answer, but a lot to think about there.
Yeah very helpful. Thanks, a lot everyone and good luck.
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Our next question is from David Katz with Jefferies. Please proceed.
Hi.
Morning, and thanks for including my question.
You know number one I just wanted and I apologize if you've touched on this a bit but I wanted to get just a clear update on your capital allocation philosophies.
You know, there's always discussion around the company in terms of returning capital versus not a and then I have one quick follow up.
Hey, David It's Dan look from a capital allocation strategy.
Weve been fairly consistent on this we've talked about investing in inventory. We've clearly done that we're in the process of that and you can see US no. Further taking you know we took a pause in 2020 and I mean that I reanalyzing, what the the best way to use that inventory spend it or the second would be returned.
Capital shareholders, and obviously M&A is always on the books, it's always interesting to me when we report a quarter where contract sales are down quite dramatically right and people want to talk about capital allocation sense.
We're focused on it.
I wouldn't look for us to be in the market repurchasing shares in the immediate future, but I think that lays out our plans.
Okay very good. Thank you for that I go ahead, sorry, no sorry, I just wanted to say very consistent with how we've always spoken about it.
Yeah, that's correct and I was not trying to imply that you should be in the market you know buying back your stock as it necessarily it necessarily as a choice Avenue.
From a much longer term perspective, you know as a you know so much of our coverage is focused on attracting younger and younger consumers.
Do you have any updated thoughts on you know shorter duration product offerings or any you.
You know sort of alternative structures that.
You know might attract that group and are more fulsome way.
Yeah, No that's a great great question and and AH you look we have I think we mentioned it in the past that we are experimenting with some shorter term product and you know as you can imagine.
We're very focused on.
On a on a you know getting the business back a in an order or getting the trajectory back in order. So the focus has really been around our core business, but we believe that there's a great opportunity to two.
To expand our offerings in and introduce term products and in some of that's being tested right now as we speak but it's really too early to provide any.
Guidance, especially in this reduced the volume environment, but.
Well well make sure to keep you posted as we move forward.
Appreciate that thank you very much.
We have reached the end of our question and answer session, but before we end I would like to turn the call back over to Mark Lee for closing remarks.
Well, thanks, everyone for joining us this morning, and I know I mentioned in my prepared remarks, but I want to give another special thanks to all of our team members for their hard work and dedication to providing our guest.
Well, the safe and memorable experiences when traveling with us.
Look forward to speaking with you over the coming weeks and updating you on our next call.
Great day. Thanks.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.