Q3 2023 Hilton Grand Vacations Inc Earnings Call

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Speaker 1: I would now like to turn the call over to Mark Melnick, Senior Vice President of investor relations. Please go ahead.

Speaker 2: Thank you, operator, and welcome to the Hilton Grand Vacation's third quarter of 2023 and acquisition announcement call. Please note that we've uploaded slides to our investor relations website that are available for you to follow along. As a reminder, our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements. These statements are effective only as of today. We undertake no obligation to publicly update or revise any of the following documents.

Speaker 2: For discussion of some of the factors that could cause actual results to differ, please see the risk factors section of our S&C filing. We'll also be referring to certain non-GAAP financial measures. You can find definitions and components of such non-GAAP numbers as well as reconciliation of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.huv.com.

Speaker 2: reported results for all periods reflect the county rules under a 606 which we adopted

Speaker 2: under 86606 will require to defer certain revenues and expenses related to sales, maintenance period when a project is under construction and then hold off on recognizing those revenues and expenses until the period when construction is under construction.

Speaker 2: 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.

Speaker 2: of comparability into simple fire discussion today. Our comments on adjusted EVA DOT and our real estate results are referred to results excluding the net impact of construction related deferrals and recognitions for all reporting period.

Speaker 2: complete accounting of our historical deferral and recognition activity can be found in Excel format on the financial reporting section of our aggressive relations website.

Speaker 2: In a moment, Mark Wang, our President Chief and Executive Officer, will provide highlights from the quarter in addition to an update of our current operations and company strategy in today's equity.

Speaker 2: After Mark's comments, our Chief Financial Officer, Dan Matthews, will go through the financial details for the quarter. When'll the restaurant be open?!

Speaker 2: With that, let me turn the call over to our President and CEO , Mark Wang. Mark.

Speaker 3: Morning everyone and thanks for being flexible and joining our earlier call this morning.

Speaker 3: As you've seen from our announcement today, we have a lot of things to go.

Speaker 3: The first is that I'm happy to announce our definitive agreement to acquire blue-green resorts along with a 10-year exclusive marketing and JV agreement with the nation's premier outdoor and conservation company Bass Pro Shop.

Speaker 3: We're really excited about this transaction and think that it will open up new avenues for growth, while also enhancing resilience of our business and building long term value.

Speaker 3: We'll get into those details shortly after I walk through our third quarter.

Speaker 3: Before we get started, I'd like to extend my best wishes to our team members and the people of Maui as they continue their recovery efforts from the devastating wildfires in August .

Speaker 3: We're committed to providing our support to the local community during the rebuilding process, including our many team members who live and work on the island.

Speaker 3: Turning to our results, contract sales in the third quarter were $603 million and EBITDA was $276 million with margins of 27%. TORS grew 15% for the quarter and our VPG was 10% ahead of 2019's levels within our target range despite some of the unique challenges we saw in the quarter.

Speaker 3: The first was the devastating wildfires that impacted our Mallee business directly.

Speaker 3: Additionally, we believe that the macroeconomic crosscurrents played more of a role in our Q3 result than they have in prior quarters.

Speaker 3: In the face of these challenges, our owner business was resilient during the quarter and has remained a source of strength for our business.

Speaker 3: HED Max has continued to resonate with our owners and our max membership growth has exceeded our overall member growth as we attract more owners to upgrade into the program and deepen our member engagement.

Speaker 3: On the new buyer side, our performance with a quarter was solid in absolute terms, with mid-teens growth in tours driving positive growth in transaction and contract sales.

Speaker 3: But after a solid start in July , we saw softening in the segment as we move through the quarter, resulting in tours, VPG and contract sales coming in short of our expectations.

Speaker 3: We believe the compounding effects of inflation and interest rates affected the mentality of our new buyers more than owners.

Speaker 3: However, the good news is that we still grew transactions as we saw more people touring and previewing our offer.

Speaker 3: We remain committed to growing our new buyer channel and believe that it's the right thing to do for the long term health of the business.

Speaker 3: That said, given some of these near-term headwinds, along with some ongoing Maui impact in Q4, we updated our guidance to better align our expectations with the trends we're seeing.

Speaker 3: Again, we'll share more details on our outlook in here in a few minutes.

Speaker 3: Now let's take a look at our performance in the third quarter. Contract sales in the quarter were driven by growth in tours, which offset the expected declines in VPG. Our new buyer tours again grew faster than our owner tours with year-over-year growth of more than 17%.

Speaker 3: And I'm really pleased with how our owner channels remain resilient despite the unforeseen headwinds from losing tours in Malley for most of the quarter. Owner tours showed an acceleration in growth versus Q2 on a year-over-year basis, as well as further exceeding our pace against 2019.

Speaker 3: As I mentioned earlier, we saw softening of our tour trends as we move through the quarter, particularly in August , although trends stabilize in September .

Speaker 3: BPG for the quarter was just over $3,600, which was within our expected range despite the loss of high BPG Maui sales.

Speaker 3: and our close rates were roughly in line with Q2 levels and remained nicely ahead of 2019.

Speaker 3: Turning to our demand indicators occupancy for the quarter was 81%.

Speaker 3: Our arrivals in the fourth quarter are ahead of the prior year and are currently indicating a step up and grow in the first half of next year that will support occupancy levels.

Speaker 3: I'm also encouraged that our marketing pipeline inactivations remain near record highs to build a solid base of tour flow growth going forward.

Speaker 3: Moving to our non-reliced statements, our rental club finance business showed solid growth in the quarter. Rental revenues were nearly on par with the seasonally stronger second quarter, and we maintain double digit margins. Club profits continue to benefit from both improved revenue and margins along with new member growth. And our financing team executed on an oversubscribed securitization with great pricing.

Speaker 3: And finally, during the quarter, we repurchase $64 million worth of shares, demonstrating our ongoing commitment to returning capital to our shareholders.

Speaker 3: With that, I'll turn it over to Dan to talk you through the numbers.

Speaker 3: Thank you, Mark, and good morning, everyone. Before we start, note that our reported results for this quarter included 7 million of net deferrals related to presales of the newest phase of our Sosokho project, which reduced reported evoducts.

Speaker 2: Adjusting for these deferrals would increase the EBITDA reported in our press release by $7 million to $276 million.

Speaker 4: In my prepared remarks, I will only refer to metrics excluding net deferrals, which more accurately reflect the cash flow dynamics of our financial performance during the period.

Speaker 4: Total revenue excluding cost reimbursements in the quarter was down about 2% against the prior year at $933 million.

Speaker 4: We saw strong growth in our financing, resort and club, and rental and ancillary businesses that was offset by a reduction in real estate revenue.

Speaker 4: Q3 reported adjusted EVA was $276 million with margins of 27% or 30% when excluding cost reimbursed.

Speaker 4: Coming to our segments, within real estate, total contract sales of $603 million were down 3% versus the prior year. Tours were up 15% against another tough comparison, despite the loss of over 2,000 tours directly attributable to property closures in Maui.

Speaker 4: And our new buyer channel continued to show tour strength with tours up 17% in the quarter and positive contract sales growth versus the prior year, reflecting just over 30% of total sales in Q3.

Speaker 4: VPG was just over $3,650 for the quarter and 10% ahead of 2019 levels. Still within our expected range, despite the drag from losing roughly 15 million of high VPG now he sales during...

Speaker 4: Cost of product was 12% of net VLI sales for the quarter, lower versus last quarter, and last year owing to favorable sales.

Speaker 4: Real-stage sales and marketing expense was $273 million for the quarter, or 45% contract sales. This is in line with the sales and marketing expense ratio in Q2, and was higher than our expectations due to carrying the same level of fixed expense in our mowing operations with no offsetting revenue, along with new buyer sales that were below our expectations, which created operating and delivery on our marketing expense for the quarter.

Speaker 4: That being said, we are still expecting a sequential improvement in our sales and marketing expense ratio in Q4. Real estate profit of $167 million had margins of 34%, which improved against our Q2 and first-half 2023 margins despite some of the headwinds in the quarter.

Speaker 4: Combined gross receivables for the quarter are $2.52 billion or $1.82 billion net of allowance and our interest income was $68.

Speaker 4: Our allowance for bad debt of $731 million included $258 million related to the acquired diamond portfolio, which has a balance of $539 million.

Speaker 4: Our annualized default rate for our consolidated portfolios, including the diamond acquired and underwritten portfolios, was 8.53% compared to 8.68% in the prior quarter.

Speaker 4: Our provision for bad debt was 46 million or 11% of them contracts failed.

Speaker 4: Previously discussed, we continue to see normalizing credit trends with determination of certain government stimulus plans, but we believe our current low-loss provision is at.

Speaker 4: In our resort and club business, our consolidated number count was 526,000 and our consolidated NOG was 2.1% at the end of the third quarter.

Speaker 4: Revenue of 138 million was up 6% for the quarter and second profit was 95.

Speaker 4: margins of 69% showing 200 basis points of improvement.

Speaker 4: Brenton Ancillary Revenue for 171 million in the quarter, with segment profit of 17 million and margins of 10% versus 9% last.

Speaker 4: Revenue growth was driven by ADR gains in most markets, offset by slightly lower occupancy and the loss of high dollar rental ruinites in our mow-y properties due to the wildfire.

Speaker 4: Originally the gap between segment and just the EBWA and total just the EBWA, corporate GNA was $27 million, license fees were $37 million, and JV at just the EBWA was $2 million.

Speaker 4: Our adjusted free cash flow in the quarter was $257 million, which included inventory spending of $36 million and excludes acquisition related costs of $25 million.

Speaker 4: The adjusted free cash flow conversion rate for the quarter was 93% due to the timing of cash flows associated with our recent securitization.

Speaker 4: And we remain confident in achieving the low end of our target, 50 to 60% conversion range for the year.

Speaker 4: During the quarter, the company repurchased 1.5 million shares of comments tax for $64 million.

Speaker 4: And through October 30th, we have repurchased an additional 690,000 shares for $26 million, leaving us with $432 million of remaining availability under our 2023 repurpose.

Speaker 4: Here today we have repurchased an average of $19.99 per quarter, which is in line with a total of roughly $100 million.

Speaker 4: Turning to our outlook, as you saw in the press release, we are lowering our 2023 adjusted EGOdive guidance to $1 billion to $1.02 billion. From a prior guidance of $1.098 billion, we are lowering our 2023 adjusted EGOdive guidance to $1.02 billion.

Speaker 4: There are two drivers of the adjustment, the impact of the Maui wildfires in Q3 of 10 million, along with an expected further drag of 7 to 10 million in Q4, for a total impact of 17 to 20 million, including...

Speaker 4: and an adjustment to our expectation of contract sales growth for the fourth quarter.

Speaker 4: As of September 30th, our liquidity position consists of 227 million of unrestricted cash and 866 million of the availability under our revolving credit.

Speaker 4: Our debt balance at quarter end was comprised of corporate debt of $2.7 billion and a non-recourse debt balance of approximately $1 billion.

Speaker 4: At quarter end, we had $750 million of remaining capacity in our warehouse facility, of which we had $395 million of notes available to securitize, and another $359 million of mortgage notes we anticipate being eligible following certain customary milestones, such as first payment, deeding, and recording.

Speaker 4: Turning to our credit metrics, at the end of Q3, the company's total net leverage on an LTM basis was $2.56 billion.

Speaker 4: With that, I'll turn the call back over to Mark to walk through this morning's transaction announcement. Mark.

Speaker 3: All right, thanks Dan. And now that we discuss our results, I'm excited to share our other announcement today. And that's our definitive agreement to acquire Blue Green Resorts along with a 10 year exclusive marketing and JV agreement with the nation's premier outdoor and conservation company Bass Pro Shop.

Speaker 3: This acquisition gives us the unique opportunity to create the industry leader in vacation ownership and experiential travel.

Speaker 3: Blue Green is the highest quality, independently granted vacation ownership operator, and it's one more critical piece of the strategic journey of expansion and diversification that we started two years ago with the acquisition of Dynos.

Speaker 3: with nearly 50 resorts and over 200,000 members will add scale that would have taken us a decade of growth to do organics.

Speaker 3: It will enable us to solidify our leadership in the industry, while positioning us to win in the experiential membership space, where we see a growing convergence between the travel and leisure sector.

Speaker 3: And it will create value for our shareholders, adding resiliency to the business by increasing recurring EBITDA and adjusted free cash flow.

Speaker 3: Starting on slide two, let me take a moment to walk you through the key highlights of the transaction.

Speaker 3: First, we'll add scale to the business and drive additional growth.

Speaker 3: BlueGreen has a large base of loyal members, many of whom haven't yet upgraded, that we think would be a great fit with our HGV brand.

Speaker 3: This acquisition will also expand our reach with enhanced sales distribution in new key locations enabling us to engage additional new buyers with attractive price points at an earlier stage in their lives, providing additional opportunities for upgrades and improving lifetime value.

Speaker 3: and with our robust suite of brands backed by the power of our Hilton partnership.

Speaker 3: will give members plenty of options to upgrade through their years of membership with H-E-B.

Speaker 3: Second, our partnership with Bass Pro allows us to expand our lead generation, which is critical to driving tour flow, net owner growth, and ultimately embedded value.

Speaker 3: And importantly, it also adds a source of leads that is not levered to lodging, diversifying our lead generation, and improving our resilience across site.

Speaker 3: We see this transaction as a perfect complement to the business evolution that we have undergone over the last two years and it will enable us to fully leverage all the amazing programs and infrastructure we created with our Hilton Vacation Club brand, HEV-MAX membership program, and ultimate access experiential platform.

Speaker 3: On the cost front, we expect to generate $100 million in cost synergies within the first two years of operation.

Speaker 3: We have a proven track record of executing on synergy capture as demonstrated by outperforming our synergy estimates with the diamond acquisition and doing it earlier than expected.

Speaker 3: And finally, Luke Ring's trust structure, an efficient and metroid model, will also add additional recurrent ebita and strengthen our free cast flow conversion.

Speaker 3: further improving the resilience of our business and financial model.

Speaker 4: I'll turn it over to Dan to walk you through the transaction on the next slide, Dan. Thanks, Mark. Let me start with a quick overview of the transaction.

Speaker 4: This is an all-cash deal and we're acquiring blue green for $1.5 billion. We're six times the pro forma EBITDA including identified costs.

Speaker 4: The HEV Management team will run the combined entity with Mark Wang at CEO , Gordon Gernick at COO, and myself as CFO . And the composition of the board will remain un...

Speaker 4: This transaction is double digit accretive on an adjusted free cash flow per share basis.

Speaker 4: Pro former leverage as of 930 was 3.4 times and we will return to our target range of 2 to 3 times within 18 months of close.

Speaker 4: We also expect to realize $100 million in run rate cost synergies within two years of transaction close, along with future revenue synergy opportunities.

Speaker 3: Regarding timing, we anticipate closing the transaction in the first half of 2024. I'll now turn it back to Mark to talk a little bit more about BlueGreen. All right. Well, thanks, Dan. So looking at slide four, we view BlueGreen as a highly successful operator that has achieved unique scale in the vacation ownership marketplace, and we believe it will be a great complement to H-E-V's overall brand portfolio.

Speaker 3: They have a large geographically diverse base of over 218,000 members. Over 75% who are Gen X or younger with strong FICO scores.

Speaker 3: And blue-green has historically also stood out with the industry for its focus on new buyers, which has also been a key strength of HEV.

Speaker 3: They've outshone others with their innovative marketing programs. Through their network of partnerships, they've built a robust pipeline of over 165,000 vacation preview packages to enhance visibility and support tour growth, which will build upon the nearly 550,000 packages that we have at HEV.

Speaker 3: If you turn to the next slide, we have 48 resorts throughout the country, including 14 geographies in 8 states that will be new to H-E-V.

Speaker 3: Nearly 90% of their members live within a four-hour drive of a blue-green resort, which complements our portfolio with additional drive-to property.

Speaker 3: We've been impressed with the consistent high quality nature of the resource and we believe they'll be readily able to confer over to HEV Brand.

Speaker 3: And as you see on slide six, once rebranded, the additional blue-green will enable us to span the entire breadth of the Hilton offering, providing us with additional scale and creating synergy with our key partner and their Hilton Honors membership.

Speaker 3: From a people perspective, we believe their teams will be a great cultural and business fit and we think they'll quickly integrate into the cultured here at HEV.

Speaker 3: They're focused on providing exceptional experiences through a commitment to service and quality, as we see throughout our interactions with their leadership. So what's like to have-

Speaker 3: very synergistic to HGV, adding scale to our member base, package-plied buying and resort network, while enabling us to leverage our key partnerships to drive additional growth, reinforcing our leadership position in the vacation ownership space.

Speaker 3: Now, if you turn to slide eight, as I mentioned, a key contributor to Blue Green's organic growth has been their partnership with leading brands, including Choice Hotels, NASCAR, and most importantly, with Bass Pro, the nation's leading outdoor retailer.

Speaker 3: Bass Pro currently has over 200 destination superstores across the US, where they serve more than 200 million visitors per year.

Speaker 3: and their customer base is a dedicated group of outdoor enthusiasts for whom the outdoors is very much a lifestyle.

Speaker 3: Bass Pro's passion about their product, culture, service, and dedication to their customers drives tremendous loyalty and engagement, and it aligns with the values that guide us here at H-E-B.

Speaker 3: That's why I'm also really excited to announce a new 10-year strategic partnership with BassPro, along with the extension of the Blue Green Joint Venture featuring four high-end wilderness resorts under the Big Cedar Lodge brand.

Speaker 3: This partnership will provide us with a source of high quality leads from a loyal customer base.

Speaker 3: and will generate that lead flow outside the lodging channel, providing us with additional diversification in our marketing app.

Speaker 3: Looking at this strategic rationale for this deal, it really enhances the vision that we had with the Diamond Acquisition, leadership and not just vacation ownership, but also providing unforgettable experiences for our members.

Speaker 3: It's a strategy that drives engagement and builds loyalty with our members by catering to more than just a great stay.

Speaker 3: Additionally, looking at slide 9, our focus will be expanding on the aspects of our relationship with BassPro. We'll benefit from the growth in their store network and customer base with increased and diversified lead flow that's incremental to our existing channels with hill.

Speaker 3: And our relationship with Bass Pro also enhances our credibility and experience offerings in the outdoor space, opening up a new avenue of growth for our Ultimate Access platform, and increasing the attractiveness of the HEV membership for the adventure-seeking traveler.

Speaker 3: We've already seen great success with ultimate access, and we think that providing unique and memorable experiences to our guests is a key differentiator that tries on our engagement and supports the health and long-term value of business.

Speaker 3: We know that the HEV's quality of service and network of properties will be appealing to best customers, and we know that we can go further expand the program by combining an elevated in-store experience with our digital marketing analytics capability.

Speaker 3: We also see a lot of potential in the JB, building on the four existing properties, and adding new locations with a club formula that highlights best-grows connection to the outdoor lifestyle and targets the outdoor experiential market. I've met several times.

Speaker 3: And we're both excited about bringing together the quality of HVs offering and the power they helped brand with the outdoor expertise of Best Pro to create a high quality platform of experiences for their customers and our members.

Speaker 3: On the next few slides, you'll see how we'll benefit from the programs and processes we've already developed, de-risking the integration process while enabling additional growth by leveraging their proprietary platform.

Speaker 3: Over the past two years, we've transformed our business, launching a new brand with Hilton Vacation Club, a new membership club with HEV Max, and a new experiential platform with Ultimate Access.

Speaker 3: We've also integrated our sales forces, team members, and systems, and built the capabilities to sell deed and trust across a wide range of price points.

Speaker 3: The acquisition of Blue Green furthers this evolution, leveraging the strength of the Hilton brand with these best-in-class offerings and differentiated capabilities, including our marketing expertise, enabling better personalization of offerings, and driving net owner growth.

Speaker 3: We'll also add scale by building upon the solid foundation that Blue Green's team has laid out through their years of steady organic growth and focus on new buyers.

Speaker 3: As I mentioned earlier, blue-green space of over 200,000 owners is less penetrated than ours from an upgrade perspective, and we see a lot of opportunity to leverage our key partnership with Hilton and the compelling value proposition of HEV-Max and Ultimate Access to realize that embedded value. Our Washington, D.C. agency holds an impactful graduate, representative of thegeon general stays from the

Speaker 3: We'll also add additional distribution by expanding into new states and destinations.

Speaker 3: which has our third largest member base yet where we don't currently have resort or sales presence, along with sought out leisure destinations like Nashville, Vail, Colorado and additional beach locations along Florida and the East Coast.

Speaker 3: will leverage its transformative infrastructure to accelerate the integration of blue green and unlock additional sources of growth that would have been difficult to achieve without the benefit of those programs and capability.

Speaker 4: Now I'll turn it over to Dan to talk you through some of the financial merits of the acquisition. Dan? Thanks, Mark. Looking at slide 12, we've identified $100 million in cost energies in this transaction, with savings in G&A and headcount, along with additional operational and financial efficiency and financial efficiency.

Speaker 4: Given our recent track record, we are very confident in our ability to realize those synergies and expect to do so within 24 months of closing the acquisition.

Speaker 4: In addition, if we turn to the next slide, we think there are a number of attractive financial aspects of this transaction. First, Blue Green's robust member base and financing business create additional sources of recurring EBITDA, which will further enhance the resilience of our business.

Speaker 4: Next, as blue green is a trust product, it carries many of the same attractive capital efficient features as we noted when we acquired diamonds.

Speaker 4: In general, the inventory carries a lower cost of product and increased pricing incrementality, enabling us to offer more attractive price points to consumers.

Speaker 4: growing H-E-V's member base, and fueling embedded value creation.

Speaker 4: It also allows efficient recapture of inventory, reducing the level of maintenance inventory, spending required to drive sales growth. Those two factors will support increased conversion of EBITDA into adjusted free cash.

Speaker 4: That cash flow will allow rapid deleverage following the close of the transaction.

Speaker 4: Proformal leverage is 3.4 times and we expect to reduce our leverage to under 3 times within 18 months. And we are maintaining our target leverage of 2.5 times.

Speaker 4: And importantly, this transaction will not impact our ability to return cash to shareholders, to share reports.

Speaker 4: preserving our capital allocation strategy, and enabling us to maintain our focus on maximizing shareholder value. How to

Speaker 3: All right, well, thanks, Dan. So in conclusion, with this acquisition,

Speaker 3: Blue Green has a complimentary asset that will add scale to our business.

Speaker 3: Our strategic partnership with Bass Pro will expand and diversify our lead flow channels, opening new avenues for growth. We'll unlock additional upside by leveraging the strong value proposition of HEV max and ultimate access. And we'll improve the financial resilience of the business by strengthening our sources of recurring EBITDA and our free cash flow generation.

Speaker 3: We have a track record of achieving our cost energies and building upon the processes and tools from our successful integration of diamond resorts. We're confident in our ability to execute on this transaction.

Speaker 3: So with that, I'll turn the call back over to the operator to open the line for questions.

Speaker 1: Thank you. At this time, we'll be conducting a question and answer session.

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Speaker 1: Our first question today is from the line of Patrick Shulls with Jewish Securities. Please just see with your question.

Speaker 5: Hi, good morning everyone. I suspect I'll probably be reentering the queue here with any questions. But Mark, congratulations on the acquisition and Alan, I believe you're on the line. Congratulations as well. Mark, first let's talk about the acquisition. Certainly, with the recent Diamond acquisition, is it fair to almost categorize this as

Speaker 5: now that you've done Diamond, that this would be called, you know, something plug and play for you at this point. And then related to that, you know, if you could summarize maybe your top two or three lessons learned from the Diamond acquisition that you would be applying to this. Thank you.

Speaker 3: Sure, well thanks Patrick and yeah, so we're very, very excited about today's announcement.

Speaker 3: And we think it's the perfect complement to what we've built at HGV. And it is clearly an evolution of where we've been focused on in the last two years and what we've been able to accomplish with the diamond acquisition.

Speaker 3: With Blue Green, we get what we think is a great and very innovative company. We've known them, obviously, for a long time.

Speaker 3: I've known Alan for a long time. The industry is very aware of Blue Green and what they've done. We think from a strategic standpoint it made a lot of sense for us to pursue this opportunity and you know, obviously the scale the diversity is is

Speaker 3: is important, right? And with over 200,000 members.

Speaker 3: An additional 50 properties, that really improves our overall scale. We're getting new distribution. We're going to have over 10 new distribution centers in 8 new states.

Speaker 3: And this partnership, you know, the partnership, you know, these guys have been super innovative. No one, when you think about their pipeline of new buyers, they've got 160,000.

Speaker 3: people on their pipeline for new buyers. That's the third largest in our space. And you add that to our 550,000.

Speaker 3: We have 700,000 new buyers in our pipeline on a collective basis.

Speaker 3: And they've really been able to do this with third parties because they haven't been able to leverage like the help

Speaker 3: database like we have. So Bass Pro clearly has been the biggest generator of those, but they also have a relationship with Choice and NASCAR. But Bass Pro, super excited to work with them.

Speaker 3: and we have some really big plans, you know, I think I had with them. But anyways, I think it fits perfectly. As I said, I think it's, you know, it's evolution of what we've achieved. And as you mentioned, Patrick, it really plugs in to all the things that we did to stand up, Dynasties.

Speaker 3: We were fortunate to be able to create a new brand with Hilton under Hilton Vacation Club. We created a whole new membership program which we'll be able to apply to this acquisition.

Speaker 3: And ultimate access, our experiential platform, we're gonna be able to expand that, especially with this BASPRO. New announcement with a new agreement with BASPRO. So all in all, it really de-risked our deal. And when I look at blue green, I really look at blue green as kind of like legacy HDV. You know, very focused on new buyers. They've been very, I think,

Speaker 3: strategic in their growth, their properties are very consistent. So all in all, very, very happy. Look, I think always lessons learned when you do a transaction. I think a lot of the lessons that

Speaker 3: You know, we've learned through the Diamond transaction, we can apply here.

Speaker 3: I think the biggest one is just continuing to work extremely hard to integrate the teams.

Speaker 3: I think we did a good job with Diamond and we're going to even do a better job with Blue.

Speaker 5: Okay, thank you. Has this...

Speaker 3: been approved by SILFIN Corporation or does it need to be approved? It does need to be approved and it was approved yesterday. So we're really thankful for Helton's cooperation and most importantly their investment into this transaction. We're very aligned with Helton. They are our biggest partner and will always be our biggest partner and we appreciate dollars.

Speaker 5: Okay, let's move on to the quarter and to the guidance. You know, you called out.

Speaker 5: macroeconomic and cross-current concerns beginning, I think it was after August .

Speaker 5: Um, you know specifically where are you seeing this? Is this going to be in your sort of your legacy higher end business or More of the mass market diamond um, you know, is this are you seeing this in a hit to your tour flow your

Speaker 5: Close rate your BPG, you know, where, where, you can drill down a little bit more on that. Thank you.

Speaker 3: Yeah, so in the third quarter, new buyer sales and transactions actually rose year over year, right? And tour flow grew by 15% versus where we were last year for new buyers. And that said, though, we had high expectations, and we had high expectations for the second half of the year. Look, I think the consumer's now finally behaving more in line with what we saw in the last quarter. So, we're going to see a lot of growth in the market.

Speaker 3: you'd expect given the rapidly rising interest rates and sustained inflationary periods. And then obviously the unexpected pressure we've had from Maui.

Speaker 3: in that unfortunate situation. But we're focused on controlling what we can control and that's our execution.

Speaker 4: And maybe I'll have Dan kind of walk you through a little bit more detail on that. Thanks, Mark. So, the other thing I would add, Patrick, is when you take a look at the portfolio.

Speaker 4: We've seen actually some good trends. Sequentially just trying to break it out against the legacy diamond portfolio versus the HEV portfolio. HEV is in line slightly ahead of where we were in 2019. We've seen some modest movement up.

Speaker 4: nothing material, but nonetheless a little bit of movement up. Now when you look at the diamond, we've talked historically at various points in time about how they have been significantly underperforming 2019 levels. And that holds true today as well. Sequentially they've actually modestly improved. So you're not seeing from an annualized default rate.

Speaker 4: material movements between the different consumer bases.

Speaker 4: from the guidance. To Mark's point, a lot of this, what you're seeing is, we are still.

Speaker 4: anticipating heavy tour flow growth on the new buyer side that clearly

Speaker 4: and causes compression in upon itself that coupled with the macro size is really driving a lot of this. When you look at the balance of the segments, you'll see some margin compression in finance because as you saw, you know, just recently we completed a new securitization and that's just under 60% but that will clearly impact financing margins in Q4. You know, on the benefit side though, Q4 for resort and club is really strong because that's when a lot of transactions...

Speaker 4: come into play. So Q4 historically has always been our strongest on that front. And then when it comes to rental, you'll have some seasonality. So it'll be in line with prior margin levels.

Speaker 4: slightly down to where we finished Q3. So when you look at Q4, the implied guidance obviously gives you a number that's lower than the previous guide, but we've got a lot of things going on in addition to the Maui-type.

Speaker 5: Okay, and I have a follow-up question on that, and then I'll come back and put myself back in the queue. One of the other major players here had a sizable charge in the loan loss provision. Am I correct? It didn't sound like that you were seeing similar issues and delinquencies. Is that correct? Or am I correct that you did not take any?

Speaker 4: material charge at this point? No, we definitely didn't take a material charge at this point. If we look at delinquencies and we look at the annualized default rates, they're very consistent with the trends that we've been talking about all year, some modest reversion to the mean. Our provision as a percent of contract sales was just north of 10%. We do not see at this time any reason to take a material charge against our port.

Speaker 5: Okay. And you know, another major trend here, sort of long-lines normalization, do you think it- is clearly done because I could w Native them.

Speaker 5: you know, just sort of normalization, also being caused by Americans.

Speaker 5: traveling abroad, you know, you're primarily a domestic company or you know taking cruises, you know, do you think that?

Speaker 5: Also like driver that that was maybe more impactful than you initially thought

Speaker 3: You know, I think Patrick the bottom line is we, our expectations was an acceleration into the back half of the year and what we saw is we saw some softening of rest in front of our hand.

Speaker 3: but still strong arrivals, better than we saw in the previous year.

Speaker 3: And as I mentioned earlier, I think there's some compounding effects with the consumer right now around just all the information out there. So there's been a moderation in the...

Speaker 3: in our VPGs and our conversion rates. And we expected that moderation that not to the level that we saw now, we saw stabilization early in October , and we also saw it in the back half of September . So yeah, all in all, you know, I think it was just very high expectations still.

Speaker 3: performing well from a relative standpoint when you look at overall transactions in tour flow. But I think at the end of the day was just very high expectations.

Speaker 5: I'll hop back in the queue for others to ask questions.

Speaker 1: The next questions come from the line of Brant Montour with Barclays. Please see with your questions.

Speaker 6: Hey, good morning everybody and congrats on the announcement. So I curious on how, if you willing to share Mark or Dan, how you sort of got to the price, premium, and if there was sort of a process that was ran for Blue Williams or how that sort of came together between you two organizations.

Speaker 3: Oh yeah, there was a process and...

Speaker 3: You know, I think, you know, when we went through that process and been...

Speaker 3: You know, we've known Blue Green for a long time and as I mentioned earlier, we think they're a very innovative operator and we think this deal has a lot of strategic value for us and I talked about a lot of the value, you know, the pipelines, the new buyer, the Bass Pro deal, et cetera. You know, we valued the business on a future cash flow in EBITDA, you know, inclusive of the $100 million in cost synergies.

Speaker 4: So that's how we got to the basis on the value. But Dan, if you want to lean in here. Yeah, Brian , just to add a little color to that. Look, when you look at Blue Green Stockhouse, it's historically traded. They've got the AB structure, which always has some kind of impact to where it trades. When we went through evaluation process, it was...

Speaker 4: based on the classic discounted cashflow structure. That then translates into the multiple that we've disclosed today on the signature implementation of today's signature Alg embry.

Speaker 4: But as you can see, the synergies play a key role in the valuation. I think we're very happy where we landed at 6 times LTM 930.

Speaker 4: on a synergized basis and it's actually almost...

Speaker 4: actually a full-torn less than what we required diamond for on a synergized basis and when you look at R2 transactions they are by far the lowest multiple pay for any entity in the last five to seven.

Speaker 4: So we're pretty pleased with where we made it up.

Speaker 6: That's excellent color guys, thanks for that. And then on this energy number, how do we think about the 750 million odd blue-green LTM sales BOI and how would that, how do we calculate fees to Hilton on that hitting the system and is that included in the 100 million cost energy?

Speaker 7: The cost energies does not include the license fees. Okay, so there's a couple components here, right? So cost energies of roughly $100 million and then there's revenues energy opportunity between $75 and $100 which more than offset the license fee increase to help.

Speaker 7: The license fee increase at the low end of that revenue synergy would be floating around the mid 40s, just to give some color on that perspective. Mark mentioned earlier that Hilton did invest in this transaction and they did it in a very similar fashion that they did with the diamond transaction and that's with the fee ramp. And to oversimplify it, because there's a lot of ins and outs, but to oversimplify it, it's effectively a four year ramp.

Speaker 3: at 3%, 3%, 4%, 5%, which is consistent when you hit run rate where we are today. There's some ins and outs on different pieces, but that's where it boils down to. And we also invested in Huerta and today we built it intoiery copper impersonallly, we're

Speaker 3: Bass Pro and other partnership relationships where

Speaker 3: We have a lower license fee for those partnerships, because they're obviously a cost related to those partnerships that drive.

Speaker 3: drive the deal. I think the actual performance we've seen with Diamond obviously informed us around these estimates especially around the cost side.

Speaker 1: Any questions come from the line of Chris Soronco with Durchbank. Please visit with your questions.

Speaker 8: Hey, good morning guys and also congratulations on the, on the announcement.

Speaker 8: I guess a higher level question for you, Mark, is when you looked at this, you know, when you look

Speaker 8: Blue Green and the customer and kind of similar to what you did a few years back with Diamond. Is there any, I guess, correlation with the fact that Hilton is also kind of shifting some of it.

Speaker 8: Unicroath initiatives into the, I guess what we call kind of the more mid-scale area of the lodging business. I mean, is that kind of where you see the biggest buyer pool opportunity growing, if that makes sense? Yeah, no, great question. I think...

Speaker 3: Look, when we looked at this deal, one of the things that was very attractive to us was...

Speaker 3: the demographics, right? It's a younger owner.

Speaker 3: 75% of the members at Blue Green or Gen X are younger. Still a very good FICA score above 725.

Speaker 3: you know for us attracting you know solid customers earlier in the stage of their their life is uh... is important and we have you know with hb match and ultimate access we have over time the ability to grow them through our system and move them uh... through our brand portfolio um... you know from a property perspective you know that one thing that we really like about blue green is just the the consistency of the quality

Speaker 3: And they do fully align with the growth of Hilton's portfolio, as you mentioned earlier, as well as the auto member base.

Speaker 3: And, you know, Hilton, as you know, they christen in Kevin announced last week, you know, they have a now 173 million members. It's still the fastest growing hotel away to the program. So.

Speaker 3: We thought it made a lot of sense strategically and it will really support our net owner growth and allow us to continue to build embedded value in the business.

Speaker 8: OK, appreciate that that color mark and then kind of another, I guess, somewhat theoretical question or higher level question for you. Obviously, Bass Pro, that's a very unique asset, but at a higher level, you know,

Speaker 8: Do you think maybe going forward there's more of a focus on some of these retail partnerships with companies that maybe have that, whether it's an outdoor angle or travel angle? It seems like this is kind of becoming a new way to source customers in a maybe in an indirect way. But any thoughts on that as to whether that's going to be a new, I guess, secondary avenue for customer acquisition?

Speaker 3: Yeah, look, well, look, Best Pro is extremely unique in itself, right? And I don't know if you've had the opportunity to visit one of their destination superstores, but they are destination unto themselves, right? And, you know, as I mentioned earlier, I've had, you know, the opportunity to meet with Johnny and his team.

Speaker 3: And they've done amazing work at their big cedar lodges, in their stores, the quality of commitment, their focus on conservation. It's just so impressive.

Speaker 3: And for us, we think it's just a massive opportunity.

Speaker 3: with the marketing pipeline and now being able to leverage our brand with them and they're excited about that. And we believe we're going to be able to do much more with Bass Pro than Blue Green was because of our portfolio and...

Speaker 3: diversification of our platform and then our ultimate access experiential platform.

Speaker 3: Yeah, there could be other opportunities out there.

Speaker 3: But we think we have found or and are acquiring the best one for sure.

Speaker 8: Okay, fair enough. Thanks. Thanks, Mark. Just a, I guess, kind of a quick follow up to the quarter now if I could.

Speaker 8: Is there any common theme and this is probably more as we look out the fourth quarter then then kind of dissect third quarter but You know on the lower outlook for q4

Speaker 8: Very common theme geographically, or if you look at the customer, where they're not showing off, or where the conversion rate is lower, whatever it might be, and maybe we need to strip Hawaii out of that, even though it's obviously a big piece.

Speaker 8: Just try to get a sense as to whether there's anything you can pinpoint to identify one specific area of softness.

Speaker 3: Yeah, I would say that where land has been, has been off.

Speaker 3: We had expected, right? There's been some softening there, and I...

Speaker 3: partially just driven around, just some of the noise around does the end.

Speaker 3: and what's going on there. But overall, when you look at our mainland business though, it is strong. Torflow has essentially recovered and we're at historical levels for owners' BPGs.

Speaker 3: The real impact, one of the drags for us is, unfortunately, has been the impact. And we've talked about Maui, so I won't dive into that. But we're also continuing the way for the Japanese to come back to Hawaii.

Speaker 3: is really important. Now, our owners are coming back pretty well. And, but the Japanese in general are still down, you know, 65, 70% from pre-pandemic. And really part of that is, you know, it's less about the pandemic now. It's more about the currency.

Speaker 3: Uh, so, you know, all in all, I would say our mainland business is generally in good shape other than a little softness in Orlando. It's really more around our, our impact.

Speaker 3: It'll come back and it's just gonna take longer than we expected. Okay.

Speaker 1: Any questions or follow up from the line of Patrick Scholz with Truist? Please, here's your question.

Speaker 5: Okay, thank you.

Speaker 3: Blue Green has a licensing agreement with Choice Hotels. How much longer does that agreement last for, and is it realistic to expect when that expires you'll be dropping that agreement? Yeah, we're not going to talk about the agreement and the agreement.

Speaker 3: and detail here, but I would say, look, we're excited to work with choice. And, you know, we believe they've been a good source of incremental and diversified lead flow for blue grain. And we've been in active discussions with them about the structure, and we look forward to sharing more.

Speaker 3: with you as we get closer to the deal closing. But Blue Green formed a nice partnership with them and they built a nice little pipeline of TourFlow. On a relative basis, put it in context of the combined company, you know, it's...

Speaker 3: Small, it's about 5 to 6% of what the combined company will be. But we've got a plan to accommodate those legions and we're gonna have the appropriate guardrails in place around the customer and the brand. And all the partners are aware of the structure. And again, we'll share more Patrick as we go further down the road.

Speaker 5: Okay, fair enough. And then my last question here, you know, I would say the other major competitor last week talked about their maintenance fees going up.

Speaker 5: You know, for next year and that will, you know, be a higher cost for them for any on-sold inventory. Curious what you think your maintenance fees might be going up next year, and would that be a similar challenge for you folks?

Speaker 7: Look, we anticipate maintenance fees going up driven by various cost pressures, most notably property insurance, but ours will not be going up mid-teens, probably mid-single digits plus in that part.

Speaker 5: Okay, so more in line with inflation as opposed to much higher than inflation. That's correct.

Speaker 9: Okay, I think I'm all set for the moment. Thank you. Great. Thank you.

Speaker 1: Are any questions different follow up from the line of brand mentor with Barclays? Please let me know with your questions.

Speaker 6: Hi, everybody. So I just had another one. I wanted to dig in a little bit more on the synergies.

Speaker 6: The cost synergies of 100 million versus, and I think Diamond was 125 at announcement in March.

Speaker 6: kind of made it sound like you feel a little bit better about these ones this time around because you know you have the integration platform ready to go you've got all these learnings and like and like and like someone else said it was more plug and play but but is the but it also sounds like the blue green system is the owner base is undersold whereas we could probably argue that diamond was oversold

Speaker 6: And so that's an interesting sort of dichotomy. Is that firmly on the revenue synergy side, I would expect though. So I guess if you agree with that assessment.

Speaker 3: No, yeah, I totally agree that the revenue synergy opportunity really lies in...

Speaker 3: VPGs around owners. Their new buyer VPGs actually hold up pretty well against ours. When I think about you know RVPGs to owners are almost double what

Speaker 3: Blue green is generating today, and you know we're not looking to double those we're taking a kind of a conservative approach and somewhere in between that.

Speaker 3: You know, on the cost synergy side, I think, uh. You know, you know, we think.

Speaker 3: These cost synergies are achievable in 18 to 24 months, and we have a pretty good track record now of being able to achieve those.

Speaker 3: through the diamond acquisition and we've looked at it very, very carefully and and I think we've been very thoughtful in our approach.

Speaker 7: Yeah, I think the only thing I'd add, Frank, is going through the diamond transaction, obviously we learn different lessons, but when we talk about a rough...

Speaker 7: with regards to blue green. You know, cost energy still require a lot of work, right? And you have to have a thoughtful process, but roughly 65% of the cost energy is driven by head count, which when you think about cost energy, it's probably the easier one to garnish, if you will.

Speaker 7: But the thought process around who is, where the redundancy is identified, that's where the diamond history plays in well, right? Now we've learned, hey, in diamond situations, we had made certain estimates where we got too deep here and not too much there, and we applied those learnings here and we're really comfortable that we're gonna get to that 100 million in cost energies. Really confident, so that's good.

Speaker 6: you know for those of us that don't cover blue green or maybe know that asset as well

Speaker 6: Is it fair to say that there's no friction that you expect from the removal of the blue green brand from the consumer process? Right? The consumer is always sensitive to confusion and brands changing around. But the Bass Pro is really where the consumer affinity lay.

Speaker 6: And so Hilton sort of cutting blue-green out of that process.

Speaker 6: is sort of a no-risk situation. Is that right?

Speaker 3: Yeah, we believe when, you know,

Speaker 3: the members at Blue Green understand that.

Speaker 3: they're being acquired by Hilton that they're going to be very excited.

Speaker 3: what that means for them and what that means for their club going forward uh... when you think about you know how it's just such an iconic

Speaker 3: lodging brand and Blue Green has done a great job taking care of their customers, building loyalty within their brand. But when you think about the opportunity to be able to improve your value proposition, and this kind of goes back to the revenue synergy question.

Speaker 3: Part of the reason we think there's going to be good revenue synergies on the owner's side is the ability to move across 200 properties versus 50 properties and the ability to move into the Hilton ecosystem and utilize those properties. Those are powerful, right? And then you put on top of that the ultimate access.

Speaker 3: program and those are really compelling for them. The other thing I would say...

Speaker 3: brand is blue green is actually simpler.

Speaker 3: business model, the diamond was. And I say that because blue green has one trust.

Speaker 3: And Diamond had like seven trucks.

Speaker 3: And so there was a lot more complexity. And the reason Diamond had so many more trust product is because.

Speaker 3: Strategy was acquisition of various companies, right, so that it was M&A and tuck-in.

Speaker 3: And Blue Green has been 100% organic from day one. They weren't acquiring any other companies. So in a way, the company is much, I wouldn't say cleaner, it's just a lot simpler. And it's a lot more in tune to way HGV was born. And with one club at one point starting forward, it's just gonna be a lot simpler for us to connect this all together. Great.

Speaker 1: And next questions, follow up from the line of Chris Soronko with Deutsche Bank. This is your first question.

Speaker 8: Hey guys, thanks. Just a quick follow up and apologize if I may have missed it. Is it possible to know what percentage of blue green owners today are already health monitors members and maybe how that compares to what percentage of diamond members were? Honors members at the time of that announcement or acquisition.

Speaker 3: No, we don't have that information in front of us and we really haven't looked into that.

Speaker 3: But, you know, there's obviously going to be some crossover when you have when Hilton has 173 million members out there. And as you know, people are.

Speaker 3: Typically, our members of various host-quality and loyalty programs, but our goal, I was going to be getting all of those blue-green members to be built-in-honor members going forward and yep. Sure, okay.

Speaker 3: Before we end, I will turn the call back over to Mr. Mark Wain, for any closing remarks. Mr. Wain. Thank you. I want to reiterate how excited I am about the opportunity in front of us and my confidence in our strategy. I want to also thank Alan LeVan, Ray Lopez, and his entire leadership.

Speaker 3: I also want to thank the Blue Green team and we look forward to working with you. I'd also say thank you to Johnny Morris and the entire Bass Pro Shops for their warm welcome.

Speaker 3: We look forward to an exciting future working with these great organizations and thanks everyone for joining us this morning.

Speaker 1: This will conclude today's conference. Thank you for your participation. You may now disconnect your line to just...

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I would now like to turn the call over to Mark Melnyk Senior Vice President of Investor Relations. Please go ahead Sir.

Thank you operator, and welcome to the Hilton Grand Vacations third quarter, 2023 and acquisition announcement call.

Note that we've updated slides to our Investor Relations web site that are available for you to follow along.

Our discussions. This morning will include forward looking statements actual results could differ materially from those indicated by these forward looking statements. 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 SEC filings.

It will 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 <unk> Dot 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.

To help you make more meaningful period to period comparisons you can find details of our current and historical deferrals and recognitions in table one of our earnings release for ease of comparability and to simplify our discussion today our comments on adjusted EBITDA in our real estate results will refer to results. Excluding the net impact of construction related deferrals and recognitions for all reporting periods are complete accounting of our historic.

<unk> 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 and todays acquisition announcement after Mark's comments, our chief financial Chief Financial Officer, Dave Matthews will go through the financial details for the quarter, Mark and Dan will then make themselves available for your questions.

Let me turn the call over to our President and CEO Mark Wang Mark.

Good morning, everyone and thanks for being flexible and joining our earlier call. This morning.

As you've seen from our announcement today, we have a lot of things that go through the first is that I am happy to announce our definitive agreement to acquire Blue Green resorts, along with a 10 year exclusive marketing and JV agreement with the nation's premier outdoor and conservation company bass pro shops.

We're really excited about this transaction and think that it will open up new avenues for growth, while also enhancing the resilience of our business and building long term value.

We'll get into those details shortly after I walk through our third quarter earnings.

Before we get started I'd like to extend my best wishes to our team members and the people of Mali as they continue their recovery efforts from the devastating wildfires in August.

We're committed to providing our support to the local community during the rebuilding process, including our many team members, who live and work on the island.

Turning to our results contract sales in the third quarter were $603 million and EBITDA was $276 million with margins of 27% tours grew 15% for the quarter and our V. P. G was 10% ahead of 2019 levels within our target range. Despite.

Some of the unique challenges we saw in the quarter.

The first was the devastating wildfires that impacted our Maui business directly.

Additionally, we believe that the macroeconomic cross currents played more of a role in our Q3 results than they have in prior quarters.

In the face of these challenges our owner business was resilient during the quarter and has remained a source of strength for our business.

HED Max has continued to resonate with our owners and our Max membership growth has exceeded our overall member growth as we attract more owners to upgrade into the program and deepen our member engagement.

On the new buyer side, our performance for the quarter was solid in absolute terms with mid teens growth in tours driving positive growth in transaction and contract sales.

But after a solid start in July we saw softening in this segment as we move through the quarter, resulting in tours V. P G and contract sales coming in short of our expectations.

We believe the compounding effects of inflation and interest rates affected the mentality of our new buyers more than owners.

However.

The good news is that we still grew transactions as we saw more people touring and previewing our offerings.

We remain committed to grow in our new by our channel and believe that it's the right thing to do for the long term health of the business.

That said given some of these near term headwinds along with some ongoing Maui impact in Q4, we updated our guidance to better align our expectations with the trends we're seeing.

Dan will share more details on our outlook in here in a few minutes.

Now, let's take a look at that our performance in the third quarter contract sales in the quarter were driven by growth in tours, which offset the expected declines in V. P. G. Our new buyer tours again grew faster than our owner tours with year over year growth of more than 17%.

And I'm really pleased with how our owner channels remain resilient, despite the unforeseen headwinds from losing towards O'malley for most of the quarter.

Owner tours showed an acceleration in growth versus Q2 on a year over year basis as well as further exceeding our case against 2019.

As I mentioned earlier, we saw a softening of our tour trend as we move through the quarter, particularly in August although trends stabilized in September.

<unk> for the quarter was just over $3600, which was within our expected range. Despite the loss of high V. P. G Maui sales.

And our close rates were roughly in line with Q2 levels and remain nicely ahead of 2019.

Turning to our demand indicators occupancy for the quarter was 81% are arrivals in the fourth quarter are ahead of the prior year and are currently indicating a step up in growth in the first half of next year that will support our tenancy levels.

And I'm also encouraged that our marketing pipeline and Activations remain near record highs to build a solid base of tour flow growth going forward.

Moving to our non real estate segments, our rental club finance business showed solid growth in the quarter rental revenues were nearly on par with the seasonally stronger second quarter and we maintained double digit margins club profits continued to benefit from both improved revenue and.

Margins, along with new member growth.

And our financing team executed on an oversubscribed securitization with great pricing.

And finally during the quarter, we repurchased $64 million worth of shares demonstrating our ongoing commitment to returning capital to our shareholders.

With that I'll turn it over to Dan to talk you through the numbers Dan.

Thank you Mark and good morning, everyone before we start note that our reported results for this quarter included $7 million of net deferrals related to pre sales of the newest phase of our <unk> project, which reduced reported EBITDA.

Adjusting for these deferrals will increase the EBITDA reported in our press release by 7 million to $276 million.

In my prepared remarks, I will only refer to metrics, excluding that deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period.

Turning to our results for the quarter.

Total revenue excluding cost reimbursements in the quarter was down about 2% against the prior year at $933 million, we saw strong growth in our financing resort and club and rental and ancillary businesses that was offset by a reduction in real estate revenue.

Q3 reported adjusted EBITDA was $276 million with margins of 27% or 30% when excluding cost reimbursements.

Turning to our segments within real estate total contract sales of $603 million were down 3% versus the prior year.

Tours were up 15% against another tough comparison, despite the loss of over 2000 tourists directly attributable to the property closures in Maui.

And our new buyer channel continued to show a tour strength with tours up 17% in the quarter and positive contract sales growth versus the prior year, reflecting just over 30% of total sales in Q3.

<unk> was just over $3650 for the quarter and 10% ahead of 2019 levels still within our expected range. Despite the drag from losing roughly $15 million of Hy Vee P. G Maui sales during the quarter.

Cost of product was 12% of net VOI sales for the quarter lower versus last quarter and last year, owing to favorable sales mix.

Real estate sales and marketing expense was $273 million for the quarter or 45% of contract sales.

This is in line with the sales and marketing expense ratio in Q2 and was higher than our expectations due to carrying the same level of fixed expense and our Maui operations with no offsetting revenue along with new buyer sales that were below our expectations, which created operating deleverage on our marketing expense for the quarter.

That being said, we are still expecting a sequential improvement in our sales and marketing expense ratio in Q4.

Real estate profit of $167 million and margins of 34%, which improved against our Q2 and first half 2023 margins. Despite some of the headwinds in the quarter.

In our financing business third quarter revenue was $75 million and segment profit was 50 million with margins of 67% versus margins of 63% in the prior year.

<unk> gross receivables for the quarter, a $2 five 2 billion or 182 billion net of allowance and our interest income was $68 million our allowance for bad debt of $731 million included $258 million related to the acquired Diamond portfolio, which has a balance of $539 million.

Our annualized default rate for our consolidated portfolio, including the Diamond acquired an underwritten portfolios was 853% compared to 868% in the prior quarter.

Our provision for bad debt was $46 million or 11% of owned contract sales as previously discussed we continue to see normalizing credit trends with the termination of certain government stimulus plans, but we believe our current loan loss provision is adequate.

In our resort and club business, our consolidated number count was 526000 and a consolidated NOG was two 1% at the end of the third quarter.

Revenue of $138 million was up 6% for the quarter and segment profit was $95 million with margins of 69% showing 200 basis points of improvement sequentially.

Rental and ancillary revenues were $171 million in the quarter with segment profit of $17 million and margins of 10% versus 9% last year.

Revenue growth was driven by ADR gains in most markets offset by slightly lower occupancy and the loss of high dollar rental room nights and our Maui properties due to the wildfires.

Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA corporate G&A was $27 million license fees were $37 million in JV adjusted EBITDA was $2 million.

Our adjusted free cash flow in the quarter was $257 million, which included inventory spending of 36 million and excludes acquisition related cost of $25 million.

The adjusted free cash flow conversion rate for the quarter was 93% due to the timing of cash flows associated with our recent securitization and.

And we remain confident in achieving the low end of our target, 50% to 60% conversion range for the year.

During the quarter the company repurchased one 5 million shares of common stock for $64 million.

Through October 30, we have repurchased an additional 690000 shares for $26 million, leaving us with $432 million of remaining availability under our 2023 repurchase plan.

Year to date, we have repurchased at an average of $90 million per quarter, which is in line with our goal of roughly $100 million per quarter.

Turning to our outlook as you saw in the press release, we are lowering our 2023 adjusted EBITDA guidance to $1 billion to one point or $2 billion.

From our prior guidance of a $1 billion 92, 1 billion $1 20.

There are two drivers of the adjustment the impact of the Maui wildfires in Q3 of $10 million, along with an expected further drag of $7 million to $10 million in Q4 for a total impact of $17 million to $20 million, including the Q3 impact.

And an adjustment to our expectation of contract sales growth for the fourth quarter.

As of September 30th our liquidity position consisted of $227 million of unrestricted cash and $866 million of availability under our revolving credit facility.

Our debt balance at quarter end was comprised of corporate debt of $2 7 billion and nonrecourse and a nonrecourse debt balance of approximately $1 billion.

At quarter end, we had $750 million of the remaining capacity in our warehouse facility of which we had $395 million and thats available to securitize and another $359 million of mortgage notes, we anticipate being eligible following certain customary milestones such as first payment dealing and recording.

Turning to our credit metrics at the end of Q3, the company's total net leverage on an LTM basis was 256 times.

I'll turn the call back over to Mark to walk through this morning's transaction announcements mark.

Alright, Thanks, Dan and now that we discuss our results I am excited to share our other announcement today and Thats, our definitive agreement to acquire Blue Green resorts, along with a 10 year exclusive marketing and JV agreement with the nation's premier outdoor and conservation company bass Pro shop.

<unk>.

This acquisition gives us the unique opportunity to create the industry leader in vacation ownership and experiential travel.

Blue Green is the highest quality independently granted vacation ownership, operator, and it's one more critical piece of the strategic journey of expansion and diversification that we started two years ago with the acquisition of Diamond.

With nearly 50 resorts and over 200000 members.

I'll add scale that would have taken us a decade of growth to do organically.

It will enable us to solidify our leadership in the industry, while positioning us to win in the experiential membership space, where we see a growing convergence between the travel and leisure sector.

And it will create value for our shareholders, adding resilience each of the business by increasing recurring EBITDA and adjusted free cash flow.

Turning now to slide two let me take a moment to walk you through the key highlights of the transaction.

First we will add scale to the business and drive additional growth.

Blue Green has a large base of loyal members many of whom haven't yet upgraded that we think would be a great fit with our HCV brands.

This acquisition will also expand our reach with enhanced sales distribution and new key locations, enabling us to engage additional new buyers with attractive price points at an earlier stage in their lives, providing additional opportunities for upgrades and improving lifetime value.

And with a robust suite of brands backed by the power of our Hilton partnership.

We will give members plenty of options to upgrade to a new year's and membership with HCV.

Second our partnership with bass Pro allows us to expand our lead generation, which is critical to driving tour flow net owner growth and ultimately embedded value and.

And importantly, it also adds a source of leads theres not levered to lodging diversifying our lead generation and improving our resilience across cycles.

We see this transaction is a perfect complement to the business evolution that we have undergone over the last two years and it will enable us to fully leverage all of the amazing programs and infrastructure, we created with our Hilton vacation club brand HCV matched membership program and ultimate access experience.

Actual platform.

On the cost front, we expect to generate $100 million in cost synergies within the first two years of operation.

We have a proven track record of executing on synergy capture and as demonstrated by outperforming our synergy estimates with the diamond acquisition and doing it earlier than expected.

And finally, <unk> trust structure and efficient inventory model will also add additional recurring EBITDA and strengthen our free cash flow conversion.

Further improving the resilience of our business and financial model.

I'll turn it over to Dan to walk you through the transaction on the next slide Dan. Thanks.

Thanks, Mark let me start with a quick overview of the transaction.

This is an all cash deal and we're acquiring blue-green for $1 5 billion.

Or six times, the pro forma EBITDA, including identified cost synergies.

The HEV management team will run the combined entity with Mark Wang our CEO Gordon Garnock, as CFO and myself as CFO and the composition of the board will remain unchanged.

This transaction is double digit accretive on an adjusted free cash flow per share basis.

Pro forma leverage as of 930 was three four times and we will return to our target range of two to three times within 18 months of close.

We also expect to realize $100 million and run rate cost synergies within two years of transaction close along with future revenue synergy opportunities.

Guarding timing, we anticipate closing the transaction in the first half of 2024, I'll now turn it back to Mark to talk a little bit more about blueprint alright, well. Thanks, Dan So looking at slide four.

We view Blue Green is a highly successful operator that has achieved unique scale in the vacation ownership marketplace and we believe it will be a great complement to Hcv's overall brand portfolio.

A large geographically diverse base of over 218000 members over.

Over 75%, who are Gen X or younger with strong FICO scores.

In Blue Green has historically also stood out with the industry for its focus on new buyers, which has also been a key strength of H T V.

And perhaps most importantly.

Tape outs shown others with their innovative marketing programs through their network of partnerships they've built a robust pipeline of over 865000 vacation preview packages to enhance visibility and support to our growth, which will build upon the nearly 550000.

<unk> that we have at H T V.

Turning to the next slide 40.

48 resorts throughout the country, including 14 geographies in eight states that will be new to HCV.

Nearly 90% of their members live within a four hour drive of a blue Green resort, which complements our portfolio with additional drive two properties.

We've been impressed with the consistent high quality nature of the resorts and we believe there'll be readily able to convert over to HCV brands.

And as you see on slide six once we branded the additional blue Green will enable us to span the entire breadth of the Hilton offering providing us with additional scale and creating synergy with our key partner.

And their Hilton honors membership.

From a people perspective, we believe their teams will be a great cultural and business fit and we think they'll quickly integrate into the culture here at H T V.

Their focus on providing exceptional experiences to our commitment to service and quality as we've seen throughout our interactions with their leadership.

So on slide seven.

We see this acquisition is very synergistic to H D V, adding scale to our member base package pipeline and resort network, while enabling us to leverage our key partnerships to drive additional growth reinforcing our leadership position in the vacation ownership space.

Now if you turn to slide eight as I mentioned, a key contributor Blue Greens organic growth has been their partnership with leading brands, including choice hotels, NASCAR and most importantly, with bass pro the nation's leading outdoor retailer.

Bass Pro currently has over 200 destination superstores across the U S, where they serve more than 200 million visitors per year.

And their customer base is a dedicated group of outdoor enthusiasts for whom the outdoors is very much a lifestyle.

<unk> passion about their product culture of service and dedication to their customers drives tremendous loyalty and engagement and it aligns with their values guide us here at H T V.

That's why I'm also really excited to announce a new 10 year strategic partnership with bass pro along with the extension of the Blue Green Joint venture featuring four high end wilderness resorts under the big Cedar large brand.

This partnership will provide us with a source of high quality leads from our loyal customer base.

And we will generate that lead flow outside the lodging channel, providing us with additional diversification and our marketing efforts.

Looking at the strategic rationale for this deal it really enhances the vision that we had with the Diamond acquisition leadership and not just vacation ownership, but also providing unforgettable experiences for our members.

It's a strategy that drives engagement and build loyalty with our members by catering to more than just a great day.

Additionally, looking at slide nine.

Our focus will be expanding on the aspects of our relationship with bass pro will benefit from the growth in their store network and customer base with increased and diversified lead flow that is incremental to our existing channels with Hilton.

And our relationship with bass Pro also enhances our credibility and experience offerings in the outdoor space opening up a new avenue of growth for our ultimate access platform and increasing the attractiveness of the HEV membership for the adventure seeking traveler.

We've already seen great success with ultimate access and we think that providing unique and memorable experiences to our guests is a key differentiator that drives owner engagement and supports the health and long term value of the business.

We know that the Hev's quality of service and network of properties will be appealing to bass pro customers and we know that we can go further expand the program by combining an elevated in store experience with our digital marketing analytics capabilities.

We also see a lot of potential in the JV building onto it for existing properties and adding new locations with a club formula that highlights bass pro's connection to the outdoor lifestyle and targets the outdoor experiential market.

I have met several times with their founder Johnny Morris.

And we're both excited about bringing together the quality of Hev's offering and the power of the Hilton brand with the outdoor expertise a bass pro to create a high quality platform of experiences for their customers and our members.

On the next few slides, you'll see how we will benefit from the programs and processes. We've already developed derisking the integration process, while enabling additional growth by leveraging their proprietary platforms.

Over the past two years, we've transformed our business launching a new brand with Hilton vacation club, a new membership club with HCV, Max and a new experiential platform with ultimate access. We've also integrated our sales forces team members and systems and built the capabilities to sell deed in trust across the wide range.

Your price points.

The acquisition of Blue Green Furthers this evolution leveraging the strength of the Hilton brand with these best in class offerings, and differentiated capabilities, including our marketing expertise, enabling better personalization of offerings and driving net owner growth.

We'll also add scale by building upon the solid foundation that Blue Greens team has laid out through their years of steady organic growth and focus on new buyers as.

As I mentioned earlier Blue Green space of over 200000 owners is less penetrated than ours from an upgrade perspective.

And we see a lot of opportunity to leverage our key partnership with Hilton and the compelling value proposition of HCV, Max and ultimate access to realize that embedded value.

We'll also add additional distribution by expanding into new states and destinations.

It's like Texas, which has our third largest member base, yet where we don't currently have a resort or sales presence along with sought out leisure destinations like Nashville.

Colorado, and additional beach locations, along Florida, and the East Coast.

Leverages transformative infrastructure to accelerate the integration of Blue Green and unlock additional sources of growth that would have been difficult to achieve without the benefit of those programs and capabilities.

Now I'll turn it over to Dan to talk you through some of the financial merits of the acquisition yet thanks.

Thanks, Mark looking at Slide 12, we've identified $100 million in cost synergies in this transaction with savings in G&A in head count along with additional operational and financial efficiencies.

Given our recent track record we are very confident in our ability to realize those synergies and expect to do so within 24 months of closing the acquisition.

In addition, if we turn to the next slide we think there are a number of attractive financial aspects of this transaction first blue Greens robust member base and financing business create additional sources of recurring EBITDA, which will further enhance the resilience of our business.

Next is blue Green as a trust product that carries many of the same attractive capital efficient features as we noted when we acquired diamond in general the inventory carries a lower cost of product and increased pricing incrementally, enabling us to offer more attractive price points to consumers' growing HEV member base and fueling embedded value creation.

It also allows efficient recapture of inventory, reducing the level of maintenance inventory spending required to drive sales growth.

Those two factors will support increased conversion of EBITDA into adjusted free cash flow.

That cash flow will allow rapid deleverage following the close of the transaction pro forma leverage is three four times and we expect to reduce our leverage to under three times within 18 months and we are maintaining our target leverage of two to three times.

And importantly, this transaction will not impact our ability to return cash to shareholders through share repurchases preserving our capital allocation strategy and enabling us to maintain our focus on maximizing shareholder value Mark alright.

Well, thanks, Dan So in conclusion with this acquisition.

We will not only solidify our position as a leader in the vacation ownership industry, but will also expand our corporate vision to providing exclusive memorable experiences to our members.

Blue Green has a complementary asset that will add scale to our business.

Our strategic partnership with bass pro will expand and diversify our lead flow channels opening new avenues for growth will unlock additional upside by leveraging the strong value proposition of HCV, Max and ultimate Axis <unk>.

And we will improve the financial resilience of the business by strengthening our sources of recurring EBITDA and our free cash flow generation.

We have a track record of achieving our cost synergies and building upon the processes and tools from our successful integration of Diamond resorts, we're confident in our ability to execute on this transaction.

So with that I'll turn the call back over to the operator to open the line for questions.

Later.

Thank you.

At this time, we'll be conducting a question and answer session.

If you'd like to ask a question at this time. Please press star one from your telephone keypad.

<unk> told them indicate your lines in the question queue.

You May press Star two if you like to remove your question from the queue.

Just since using speaker equipment may be necessary to pick up your handset before pressing the sarkies.

We ask you please limit yourself to one question and one follow up to a lot of the opportunity for everyone to ask questions.

And then reenter the queue to ask additional questions.

Thank you.

Yeah first of all your first question today is from the line of Patrick <unk> with <unk> Securities.

Please proceed with your questions.

Hi, good morning, everyone.

Suspect I'll, probably be re entering the queue.

And your question.

But Marc congratulations on the acquisition and Alan I believe Dan Malone, Congratulations as well.

Mark first let's talk about the <unk>.

Musician.

Certainly.

With the recent Diamond acquisition is it fair to.

Almost categorize that.

Now that you've done diamond would be called something plug and play for you at this point and then.

Related to that you know if you could summarize maybe your top two or three lessons learned.

From the Diamond acquisition that you would be applied to this thank you.

Sure well, thanks, Thanks, Patrick and yes, so were we.

We're very very excited about today's announcement and <unk>.

And we think it's a perfect complement to what we built it it HCV and it is clearly an evolution of where we've been.

Focused on in the last two years and what we've been able to accomplish with the Diamond acquisition.

With Blue Green, we get what we think is a great and very innovative company, we've known them, obviously for a long time.

I've known Allan for a long time, the industry is very aware of Blue Green and what they've done we think from a strategic standpoint. It made a lot of sense for us to pursue this opportunity.

And.

Obviously, the scale and diversity is as.

As important right and and with over 200000 members.

You know on an additional 50 properties, where that really improves our overall scale and we're getting new distribution, we're going to have over 10, new distribution centers and eight new states.

And this partnership.

The partnership you know these guys have been Super innovative no. One when you think about their pipeline of new buyers if they've got 160000.

People on their pipeline for new buyers, that's the third largest in our space and you add that to 550000.

700000.

New buyers in our pipeline on a collective basis so.

They've really been able to do this with third parties because they haven't been able to leverage like the Hilton database like we have so bass pro clearly has been the biggest generator of those but they also have a relationship with choice of NASCAR.

But bass pro are super excited to work with them in.

And we have some really big plants.

I think I had with him but anyways.

Anyway, I think it fits perfectly as I said I think it's a.

You know, it's the evolution of what we've achieved in and as you mentioned.

Patrick It really plugs into all the things that we did the standup diamond.

We were fortunate to be able to create a new brand with Hilton under Hilton vacation club, we created a whole new membership program, which will be able to apply to this acquisition.

And ultimate access.

Our experience experiential platform, we're going to be able to expand that especially with this bass pro our new announcement with a new agreement with bass pro So all in all it really de risked our deal.

And when I look at Blue Green I really look at Blue Green is kind of like legacy HGV I'm very focused on new buyers are they've been very.

I think strategic and their growth their properties are very consistent so all in all very very happy look I think we you know always lessons learned when you when you do a transaction.

I think a lot of the lessons that.

We've learned through the Diamond transaction, we can apply here I think the biggest one is just continuing to work extremely hard to integrate the teams I think we did a good job with diamond and we're going to even do a better job with Blue Green.

Okay.

Thank you.

Yes.

<unk> been approved by Hilton Corporation, or it doesn't need to be approved.

It does need to be approved and it was approved yesterday. So we're really thankful for Hilton.

You know cooperation and most importantly, their investment into this transaction Nate we're very aligned with Hilton are there. They are our biggest partner and will always be our biggest partner and we appreciate all your support.

Okay.

Let's move on to the quarter end to the guidance.

You called out.

Macroeconomic and cross Alright concerns are beginning I think it was after August.

Specifically, where are you seeing this is this going to be in your sort of your legacy higher end business or more of the mass market Diamond.

Is this are you seeing this in a hit to your tour flow your.

Close rates your BTG, where.

Where are you can you can drill down a little bit more on that thank you.

Yeah. So.

So.

In the third quarter, new buyer sales and transactions actually rose year over year right in and tour flow grew by 15% versus where we were last year for new buyers and that said, though we had high expectations and we had high expectations for the second half of the year.

Look I think the consumers now finally behavior more in line with what.

You would expect given the rapidly rising interest rates and sustained inflationary periods and then obviously the unexpected pressure we've had from from Maui and that unfortunate situation.

But we're focused on controlling what we can control and that's our execution and maybe I'll have Dan kind of walk you through a little bit more detail on that thanks, Mark. So the other thing I would add Patrick and so when you take a look at the portfolio.

We've seen we've seen actually some good trends sequentially, just trying to break it out against the legacy Diamond portfolio versus the HIV portfolio. HCV is in line slightly ahead of where we were in 2019 sequentially some modest movement up.

Nothing material, but nonetheless, a little bit of movement up now when you look at the Diamond we've talked historically yet.

Various points in time about how they have been significantly underperforming 2019 levels and that holds true today as well sequentially. They are actually a modestly improved so youre not seeing from an annualized default rate.

<unk> movement between.

The different consumer basis, if you will.

From from the guidance to Mark's point, a lot of this and what Youre seeing is we are still.

Anticipating heavy tour flow growth on the new buyer side that clearly.

[noise] causes compression in upon itself that coupled with a macro side is really driving a lot of this when you look at the balance of the segments you will see some margin compression in finance because as you saw just recently, we completed a new securitization and Thats, just under 6%, but that will clearly impact financing margins in Q4.

Yes on the benefit side, though Q4 for our resort and club is really strong because thats when a lot of transaction fees come into play. So Q4, historically has always been our strongest on that front and then when it comes to the rental you'll have some seasonality so it'll be.

In line with prior year margin levels.

Slightly down to where we finished Q3.

So when you look at Q4 implied guidance, obviously gives you a number that's.

The lower than the previous guide, but we've got a lot of things a lot of things going on in addition to the Maui fires right.

And I have follow up question on that and then I'll come back and myself back in the queue.

Yes.

One of the other major players here had a sizable charge in the loan loss provision.

It didn't sound like.

That you're seeing similar issues in delinquencies is that correct or am I correct that you did not take any.

Material charge at this point no we definitely didn't take a material charge at this point I mean, if we look at delinquencies and we look at the annualized default rates are very consistent with the trends that we've been talking about all year, some modest reversion to the mean or provision as a percent of contract sales was just north of.

10%.

We do not see at this time any reason to take a material charge against our portfolio.

Okay.

Another major trend here sort of along the lines of normalization here do you think.

Just sort of normalization.

Also being caused by American.

Helane abroad, primarily a domestic company or taking cruises do you think that.

Also a driver of that that was maybe more impactful than you.

We thought.

I think I think Patrick the bottom.

Bottom line is we our expectations was an acceleration into the back half of the year.

And what we saw is we saw some softening in <unk>.

Arrivals, but still strong arrivals are better than we saw in the previous year.

And.

And as I mentioned earlier I think there's some compounding effects with the consumer right now around just all all the information out there. So so theres a bit of moderation in the.

And our V. P. G span our conversion rates and we expected that moderation, but not to the level that we saw now we saw stabilization early in October and we also saw it in the back half of September so yeah.

All in all I'd say it was just very high expectations are still performing well from a relative standpoint, when you look at our overall transactions in tour flow, but.

I think at the end of the day was.

Just very high expectations.

Okay. Thank you I'll hop back in the queue all others to ask questions. Thank you alright. Thank you.

Our next questions come from the line of Frank on tour with Barclays. Please proceed with your question.

Hey, good morning, everybody and congrats on the announcement.

So I'm curious on how if you're willing to share Mark O'meara, Dan how you sort of got to the price premium and if there was sort of a.

Process.

That was ran for blue means or how that sort of came together between between your two organizations.

Oh, yes, there was a process and.

I think you know.

As you know when we went through that process and we've known <unk> for a long time and.

As I mentioned earlier, we think theyre very innovative operator, and and we think there's still has a lot of strategic value for us and I talked about a lot of the value you know the pipeline's new buyer of that.

<unk> pro deal et cetera.

We valued the business on our future cash flow and EBITDA inclusive of the $100 million in cost synergies.

So that's how we that's how we got to the basis on the value, but Dan if you want to yeah, Brian just to add a little color to that.

Look when you look at Blue Green stockpile, historically would tell you that they've got the AB structure, which always have some kind of impact where it trades. When we went through evaluation process. It was.

Based on our classic a discounted cash flow structure.

That then translates into the multiple that we disclosed today on our synergize spaces, but as you can see the synergies play a key role in the valuation.

We're very happy where we landed at six times LTM 930 on a synergize basis and it's actually almost.

A full turn less than what we are.

<unk> diamond for on the synergize spaces and when you look at our two transactions. They are by far the lowest multiple paid for any entity in the last five to seven years. So we're pretty we're pretty pleased with where we've ended up.

That's excellent color guys. Thanks for that and then.

Then.

On the synergy number is.

Is the how do we think about the 750.

<unk> 50 million odd.

Green LTM sales.

And how that would.

You know how how would that.

How do we calculate fees to Hilton on that hitting the system and is that included in the 100 million cost synergies.

The cost synergies does not include the license fees. There is okay. So there's couple of components here right. So cost synergies of roughly $100 million and then there's revenue synergy opportunities between 75, and 100, which more than offset the license fee increase to Hilton.

Our license fee increase at the low end of that revenue synergy would be floating around the mid forty's just to give some color on that perspective.

<unk> mentioned earlier that Hilton did invest in this transaction and they did it in a very similar fashion that they did with the diamond transaction and that's what the fee ramp and to oversimplify. It because theres a lot of engine out to oversimplify. It is effectively a four year ramp.

At 3%, 3%, 4% and 5%, which is consistent when you hit run rate, where we are today, there's some ins and outs on different pieces, but that's that's where it boils down to you know they also invested.

And you know the the.

The bass pro and other partnership relationships, where we.

We have a.

Lower license fee.

For those those are those partnerships because they're obviously a cost related to those partnerships that drive.

Drive the deal and and I think the actual performance we've seen with Diamond obviously informed us around these estimates are especially around the cost side.

Great. Thank you best of luck.

Thank you. Thank you.

Our next questions come from the line of Chris Morocco with Deutsche Bank. Please proceed with your question.

Hey, good morning, guys and also congratulations on the on the announcement.

I guess a higher level question for you Mark is when you looked at this.

You know when you looked at Blue Green and the customer and kind of similar to what you did a few years back with Diamond is there any I guess correlation with the fact that Hilton is also kind of shifting some of its.

Unit growth initiatives into the I guess, what we call kind of the more midscale area of the lodging business. I mean is that kind of where you see the biggest buyer pool opportunity growing if that makes sense yeah. No. It's a great question I think.

Look when we looked at this deal one of the things that was very attractive to US was the demographics right. It's a younger owner.

As you know 75% of the members of that Blue Green or Gen X are younger still very good FICO score above 725.

So you know.

For us attracting solid customers earlier in the stage of their life is is important and we have you know with HEB match and ultimate axis, we have over time, the ability to grow them through our system and move them.

Through our brand portfolio.

From a property perspective.

One thing that we really liked about blue Green is just the the.

<unk> of the quality of the properties and they do fully align with the growth of health portfolios, you mentioned earlier as well as the auto member base, So and Hilton as you know, Chris and Kevin announced last week.

How about now 173 million.

Members, it's still the fastest growing hotel loyalty program. So we.

We thought it made a lot of sense strategically and it will really support our net owner growth to.

And allow us to continue to build the embedded value of the business.

Okay I appreciate that color Mark and then kind of another I guess somewhat theoretical question higher level question for you, obviously bass pro that's a that's a very unique asset.

But at a higher level.

Yeah do you think maybe going forward, there's more focus on some of these retail partnerships with.

Companies that maybe have that whether it's an outdoor angle or travel angle. It seems like this is kind of becoming a new way to source customers and maybe in an indirect way, but any thoughts on that as to whether that's going to be you know a new I guess secondary avenue for customer acquisition.

Yeah look well look best pro is extremely unique in itself right and I don't know if you've had the opportunity to visit one of their destination Super stores, but they are a destination unto themselves right and you know.

As I mentioned earlier I have had the opportunity to meet with Johnny and his teams in <unk>.

And they've got an amazing work at their big Cedar lodges in their stores.

The quality of commitment there focus on conservation. It's just it's so impressive.

And for US we think it's just a massive opportunity.

With the marketing pipeline and now being able to leverage our brand with them and Theyre excited about that and we believe we're going to be able to do much more with bass pro than Blue Green was because of our portfolio and our diversification.

All of our platform and then our ultimate access experiential platform. So yes, there there could be.

Other opportunities out there and but we think we have found and are acquiring the best one for sure.

Okay fair enough. Thanks, Thanks, Mark just I guess kind of a quick follow up to the quarter now if I could.

Is there any common theme and this is probably more as we look out the fourth quarter than kind of dissect third quarter, but you know.

The lower outlook for Q4 is there any common theme geographically Europe, if you look at the customer.

They're not showing up for where the conversion rate is lower or whatever it might be and maybe we need to strip Hawaii out of that even though it's obviously a big piece I'm.

Just trying to get a sense as to whether it's anything you can pinpoint.

Identifies the one specific area of softness.

I would say that Orlando has been has been off more than.

We had expected right theres been some softening there.

We think it's.

Partially just driven around just some of the noise around Disneyland.

And what's going on there but.

Overall, when you look at our mainland business, though it is strong.

Tour flow was essentially recovered it and were at historical levels for the owners of the Gs.

The real impact you know one of the drags for US is unfortunately spend APAC and we've talked about now so I won't dive into to that but we're also.

Continuing to wait for the Japanese to come back to Hawaii, which is really important our owners are coming back pretty well.

And but the Japanese in general are still down 65, 70% from pre pandemic and really part of that is it's less about the pandemic now it's more about the currency.

So all in all I would say our mainland business is generally in good shape other than a little softness in Orlando.

It's really more around our our APAC business and and it'll come back and it's just going to take it's just going to take longer than we expected.

Okay very good very helpful. Thanks, guys. Thank you.

Our next questions are follow up from the line of Patrick Sholl Suntrust. Please proceed with your question.

Okay. Thank you.

Right now.

Blue Green has a licensing agreement with.

Choice hotels, one how long how much longer does that agreement last for and is it realistic to expect when that expires, you'll be dropping that agreement.

Yeah, we're not going to talk about the.

The agreement.

Yeah and detail here, but I would say look we're excited to work with choice and.

We believe there they've been a good source of incremental and diversified lead flow for Blue Green and.

And we've been in active discussions with them about the structure and we look forward to sharing more.

With you is as we get closer to the deal closing in Blue.

<unk> formed a nice partnership with them and they've built a nice little pipeline of a tour flow and <unk>.

On a relative basis.

Put it in context of the combined company.

It's small it's about 5% to 6% what it what the combined company will be but we've got a plan to accommodate those legion and and we're going to have the appropriate guardrails in place around you know the customer and the brand and and you know all the partners are aware of this structure and again we will.

Sure more Patrick.

As we go further down the road here.

Okay Fair enough and then my last question here.

Yeah, I would say the other a major competitor last week talked about their maintenance speeds.

Going up mid teens.

For next year and that will.

It'll be a higher cost for them for any unsold inventory I'm curious what you think your maintenance fees might be going up next year and would that be a similar.

The challenge for you folks as.

Thanks.

Well, we anticipate maintenance fees going up driven by various cost pressures, most notably property insurance.

But ours will not be going up mid teens, probably mid single digits plus in that ballpark.

Okay. Okay, so more more in line with inflation.

Opposed to.

Much higher than inflation.

That's correct.

Okay.

I think I'm all set for the moment. Thank you alright, thanks Patrick.

Our next question a follow up from the line of Brent mature with Barclays. Please proceed with your question.

Hi, everybody.

So I just had another one I wanted to dig in a little bit more on the on the synergies.

On the.

Cost synergies of $100 million versus anything.

Diamond was 125 at announcement in March.

It sounds like you feel a little bit better about these ones. This time around because you had the integration platform ready to go you've got all these learnings and like and like that.

And like someone else said it was more plug and play but is the but it also sounds like the blue Green system is.

Owner base undersold, whereas we could probably argue that diamond was oversold and so that's an interesting sort.

Sort of dichotomy is that firmly on the revenue synergy side I would expect though.

So I guess do you agree with that.

With that assessment.

No.

No I totally agree that the the revenue synergy opportunity.

Really lies.

And ppg's around owners are they're they're they're new buyer of btg's actually hold up pretty well against ours.

When I think about our you know our V. P. G to owners are almost double what a blue green is generating today and you know we're not looking to double those where we're taking a kind of a conservative approach and somewhere in between that.

You know on the cost synergy side I think.

We think the.

These cost synergies are achievable in 18 to 24 months and.

We have a pretty good.

Track record now of being able to achieve those through the diamond.

Acquisition, and we've looked at it very very carefully.

And I think we've been very thoughtful in our approach.

I think the only thing I'd add France as you know.

Going through the Diamond transaction, obviously, we learn different lessons.

<unk>.

When we talk about a roughly 100 million in cost synergies with regards to Blue Green.

Cost synergies still require a lot of work right and it's got and you have to have a thoughtful process, but it's roughly 65% of the cost synergies is driven by head count, which when you think about cost synergies, it's probably the easier ones to.

Garnish, if you will.

But the thought process about the thought process around who is where.

Where the the redundancies identified that's where the diamond history plays in well right now we we've learned in diamond situations. We had made certain estimates, where we cut too deep here and not too much there and we applied those learnings here and we're really comfortable that we're going to get to that $100 million in cost synergies.

Really confidence so that's good.

Okay. That's helpful and then.

For those of us that don't cover Blue Green or maybe know that asset as well in again contrasts with with diamond.

Is it fair to say that Theres no.

There is no friction that you expect from the removal of the Blue Green brand from the consumer process right and the consumer is always always sensitive to sort of confusion and brands change around but the bass pro is really where the.

The consumer affinity le and so Hilton sort of cutting blue-green out of that process is probably <unk>.

Sort of a no risk situation is that is that right. Yeah, we believe a win.

The the members at blue-green understand it they're being acquired by Hilton that theyre going to be very excited about what that means for them and what that means for their club going forward.

When you think about Hilton, it's just such an iconic lodging brand and the blue.

Blue Green has done a great job taking care of their customers building loyalty within their brand, but when you think about the opportunity to be able to improve your value proposition in this kind of goes back to the revenue synergy question part of the reason, we think theres going to be a good revenue synergies on the owner side.

Is the ability to move across 200 properties versus 50 properties and the ability to move into the Hilton.

Ecosystem and utilize those properties those are powerful right and then you put on top of that the ultimate axis.

Program and and those are those are really compelling.

For them and the other thing I would say our.

Brent is blue Green is actually simpler.

Our business model and Diamond was <unk>.

And I say that because blue Green has one trust.

And Diamond had like seven trust.

And so there was a lot more complexity in the recent diamond had so many more trust product just because.

Diamonds.

Strategy was acquisition of various companies right. So that was M&A and tuck in.

And Blue Green has been 100% organic from day, one they werent acquiring any other companies sort of way we are.

The company is much.

So it cleaner it just <unk>.

Simpler and it's a lot more in tuned away HCV.

<unk> was born in it with one club at one point starting forward, it's just going to be a lot simpler for us to to connect this altogether.

Great. That's all for me Thanks, Ken.

Thank you.

Our next question follow up from the line of Chris <unk> with Deutsche Bank. Please proceed with your question.

Hey, guys. Thanks, just a quick follow up and apologize if I may have missed it but is it possible to know.

What percentage of blue-green owners today are already a Hilton honors members and maybe how that compares to what percentage of Diamond members were.

<unk> members at the time of that announcement of our acquisition.

No I don't.

We don't have that information in front of us and Oh, we haven't we really haven't looked into that so.

But you know, there's obviously going to be some crossover when you have when Hilton has $173 million.

Members out there and as you know people are.

<unk>.

Typically our members of various hospitality and loyalty programs, but are you.

And our our goal, though is gonna be getting all of those blue Green members to be Hilton honors members going forward.

Yeah.

Sure Okay fair enough thanks, guys.

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

Well. Thank you I wanted I want to reiterate how excited I am about the opportunity in front of us.

My confidence in our strategy I want to also thank Allama van Ray Lopez and his entire leadership team I also want to thank the Blue Green team and we look forward to working with you I'd also say, thank you to Johnny Morris and the entire bass pro shops for their warm welcome.

We look forward to an exciting future working with these great organizations.

<unk> everyone for joining us this morning.

This will conclude today's conference. Thank you for your participation you may now disconnect your lines at this time.

Conference Center. The next available comfort specialist will be with you momentarily.

Okay.

Okay.

[music].

Huffington or May I have your name please.

Okay.

Okay.

And this is for.

Hilton Grand was really are today, they're both done.

The next one I have coming up is Graham Corporation and the number that you came in on.

Mhm.