Q2 2024 Hilton Grand Vacations Inc Earnings Call

Brandt Montour, Mark Melnyk, Daniel Mathewes, Mark Melnyk, Ryan Lambert, Ben85, Price, Francis Katz, Tina Makh HProad, Kevin Marber, Mark Melnyk, Mark Melnyk, Price, Dan Rams Always great company makes it all worthwhile.

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Speaker Change: Good morning and welcome to the Hilton Grand Vacations second quarter 2024 earnings conference call.

Operator: A telephone replay will be available for seven days following the call. The dial-in number is 844-512-2921, and the pin number is 137-431-87. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question, please press star 1 on your touchtone phone to enter the queue. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.

Speaker Change: A telephone replay will be available for seven days following the call. The dial-in number is 844-512-2921 and enter pin number 137-431-87.

Speaker Change: At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation.

If you would like to ask a question, please press star 1 on your touchtone phone to enter the queue.

If at any point your question has been answered, you may remove yourself from the queue by pressing star 2.

Operator: If you should require operator assistance, please press star zero. If using a speakerphone, please lift your handset to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up to allow the opportunity for everyone to ask questions. You may then re-enter the queue to ask additional questions. I would now like to turn the call over to Mark Melnyk, Senior Vice President of Investor Relations. Please go ahead, sir.

If you should require operator assistance, please press star zero.

If using a speakerphone, please lift your handset to allow your signal to reach our equipment.

Speaker Change: Please limit yourself to one question and one follow-up to allow the opportunity for everyone to ask questions. You may then re-enter the queue to ask additional questions.

mark melll: i would now like to turn the call over to mark melll senior vice president and best relations please go ahead sir

Mark Melnyk: Thank you, Operator, and welcome to the Hilton Grand Vacation Second Quarter 2024 Earnings Call. 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, and we undertake no obligation to publicly update or revise these statements.

Speaker Change: Thank you, operator, and welcome to the Hilton Grand Vacation's second quarter 2024 earnings call. As a reminder, our discussions this morning will include four looking statements.

Mark Melnyk: For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our SEC 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 reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.hgv.com. Our reporting results for all periods reflect the counting rules under ASC606, which we adapt in 20.

Speaker Change: 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.

Speaker Change: For discussion of some of the factors that could cause actual results to differ, please see the risk factors section of our SEC filing.

Speaker Change: We'll also be referring to certain non-definitional measures.

Speaker Change: you can find definitions and components of such a non-gaap numbers as well as reconciliations of non-gaap and gaap financial measures discussed today in ourearnings press release and on our website on investors stududy shouldvbe com

Speaker Change: Our reported results for all periods reflect accounting rules under ASD 606, which we adopted in 2018.

Mark Melnyk: Under ADC 606, we're 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. For eons of comparison and to simplify the discussion today, our comments on Adjusted Evangelion are real estate results or, for two results excluding the end impact of construction related to deferrals and recognitions for all reporting periods. So I'll be making more meaningful period to period comparisons.

Speaker Change: Under ASC 606, we're 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.

Speaker Change: For ease of comparability and to simplify our discussion today, our comments on adjusted EVADON on real estate results will refer to results excluding the net impact of construction related deferrals and recognitions for all reporting periods.

Speaker Change: to help you make more meaningful period of period comparons you can find tails of ourcurrent and historical deferrals and recogitions on table t one of our earnings rease

Speaker Change: and a complete accounting of our historical deferral and recognition activity.

Speaker Change: It can also be found in Excel format on the financial reporting section of our investor relations website.

Speaker Change: In a moment, our Chief Executive Officer Mark Wang will provide highlights from the quarter in addition to an update of our current operations and company strategy. After Mark's comments, our President and Chief Financial Officer Dan Matthews will go through the financial details for the quarter. Mark and Dan will then make themselves available for your questions.

Speaker Change: With that, let me turn the call over to our CEO , Mark Wang. Mark?

Mark Wang: morning everyone and welcome to our second quarter earnings call reported contract sales in the quarter were seven hundred and fifty seven million and even ait was two hundred and seventy million with margins of twenty-two percent which were below our expectations

Speaker Change: We had a solid start to the quarter, carrying in momentum we built as we exited Q1 and saw trends in both April and May improve from the first quarter.

Mark Wang: As we moved into June , however, we experienced a broad-based pullback in consumer spending behavior. This shift was evident across all our brands and customer segments, but it was particularly acute in our new buyer segment.

Mark Wang: This shift was evident across all our brands and customer segments, but it was particularly acute in our new buyer segment. We've noted on several prior calls a perception of increased consumer hesitancy, which continues to influence purchase decisions, and there's no question this played a role in our resolve. In addition, however, we also faced some execution challenges during the quarter.

Mark Wang: We've noted on several prior calls a perception of increased consumer hesitancy, which continues to influence purchase decisions, and there's no question this played a role in our results.

Mark Wang: In addition, however, we also faced some execution challenges during the quarter.

Mark Wang: As part of the integration process with Boo Green, we just completed an extensive restructuring of our sales and marketing organization to increase the flexibility with our new scale and improve our execution in two key areas, regionalization and staffing, in relation to the first area. While we'll continue using HGV's more centralized marketing approach to large destination markets hosting multiple HGV properties, we've also moved to empower those smaller regional markets with additional tools and resources to optimize their sales and marketing efforts at the local level, which we believe will generate both additional tours and improve VPGs.

Mark Wang: As part of the integration process with Blue Green, we just completed an extensive restructuring of our sales and marketing organization to increase the flexibility with our new scale and improve our execution in two key areas, regionalization and staffing.

Mark Wang: regarding the first area, while we'll continue using HGV's more centralized marketing approach to large destination markets hosting multiple HGV properties.

Mark Wang: We've also moved to empower those smaller regional markets with additional tools and resources to optimize their sales and marketing efforts at the local level, which we believe will generate both additional tours and improved VPGs.

Mark Wang: In addition, over the past year, we've been keenly focused on driving new bio tour flow, which creates significant lifetime embedded value for HEV. As part of our recent organizational design efforts, we've also re-evaluated optimal staffing levels to allocate additional resources to our new buyer sales lines, which should enable them to more effectively handle the current and future tour volume. So while we can't control the macro spending environment, we've moved quickly to address those execution issues as part of our new organizational design we rolled out across the business in June.

Mark Wang: In addition, over the past year, we've been keenly focused on driving new buyer tour flow, which creates significant lifetime embedded value for HGV.

Mark Wang: As part of our recent organizational design efforts, we've also re-evaluated optimal staffing levels to allocate additional resources to our new buyer sales lines, which should enable them to more effectively handle the current and future tour volume.

Mark Wang: So, while we can't control the macro spending environment, we've moved quickly to address those execution issues as part of our new organizational design we rolled out across the business in June .

Mark Wang: These changes will take some time to flow through our business, however, which, when combined with the quarter's result and the more challenging macro environment, led to us lowering our guidance expectation for the year. Now, let's turn to our operational performance during the quarter. Contract sales in the quarter were impacted by a year-over-year decline in both TORS and VPG.

Mark Wang: These changes will take some time to flow through our business, however, which, when combined with the quarter's results, a more challenging macro environment led to us lowering our guidance expectation for the year.

Mark Wang: Now let's turn to our operational performance during the quarter. Contract sales in the quarter were impacted by a year-over-year decline in both TORS and VPG.

Mark Wang: Looking at our TORS, our owner segment remained a relative bright spot with consistent positive low single-digit growth in each month of the quarter, supporting owner sales that remained 15% ahead of 2019 and demonstrating the resilience of our owner channel. Our new buyer tours remain lower as we rebuild our tour pipeline following the adjustments we made at the end of last year, in addition to seeing softer local marketing trends. New buyer tours from direct marketing packages will improve in the back half as the teams have done a great job rebuilding and activating the pipeline, but we also expect pressure on local marketing tours to continue in the back app as a result of our recent operational adjustment work through the organization. BPG for the quarter was just over $3,300 or 10% ahead of 2019 levels. Both the Legacy HEV and Blue-Green posted similar mid-single-digit declines versus their respective prior-year metrics.

Mark Wang: Looking at our tours, our owner segment remained a relative bright spot with consistent positive low single-digit growth in each month of the quarter supporting owner sales that remain 15% ahead of 2019 and demonstrating the resilience of our owner channels.

Mark Wang: Our new buyer tours remain lower as we rebuild our tour pipeline following the adjustments we made at the end of last year, in addition to seeing softer local marketing trends.

Mark Wang: New buyer tours from direct marketing packages will improve in the back half, as the teams have done a great job rebuilding and activating the pipeline.

Mark Wang: But we also expect pressure on local marketing tours to continue in the back half as our recent operational adjustments work through the organization. BPG for the quarter was just over $3,300 or 10% ahead of 2019 levels.

Mark Wang: Both Legacy HEV and Blue-Green posted similar mid-single-digit declines versus the respective prior year metrics.

Mark Wang: And on a consolidated basis, we also saw similar levels of year over year decline for both your owners and new bar channels, only due to the combination of factors we talked about earlier. But with the operational changes we've made, we still expect to maintain the low end of our target range of 10 to 15% ahead of 2019 3BG. Looking at our Ford Demand indicators, occupancy in the quarter was in line with last year at 83%.

Mark Wang: And on a consolidated basis, we also saw similar levels of year-over-year decline for both our new owners and new buyer channels, owing to the combination of factors we talked about earlier.

Mark Wang: But with the operational changes we've made, we still expect to maintain the low end of our target range of 10 to 15 percent ahead of 2019's VPGs.

Mark Wang: Looking at our forward demand indicators, occupancy in the quarter was in line with last year at 83%. And our marketing and rental arrivals on the books look strong for the back half, particularly in the fourth quarter.

Mark Wang: And our marketing and rental arrivals on the books look strong for the back half, particularly in the fourth quarter. So, as we've seen for a number of quarters, travel intentions remain strong among consumers, and we're focused on improving our ability to convert those tours into transactions. Moving to our non-realistic segments, our financing team continues to do a great job managing through the higher rate environment and meeting the strong ABS and best for the man requirements with several well-subscribed note offerings.

Mark Wang: So, as we've seen for a number of quarters, travel intentions remain strong among consumers and we're focused on improving our ability to convert those tours into transactions.

Speaker Change: Moving to our non-real estate segments, our financing team continues to do a great job managing through the higher rate environment and meeting the strong ABS investor demand with several well-subscribed note offerings.

Mark Wang: Our rental segment also continues to see healthy demand from travelers. And in our recurring club and resort business, we ended the quarter with over 720,000 owners and an NOG of 1.7%. I also think it's important to highlight our cash flow generation. This quarter, we produced $370 million of adjusted free cash flow.

Mark Wang: Our rental segment also continues to see healthy demand from travelers and in our recurring club and resort business, we ended the quarter with over 720,000 owners and NOG of 1.7%.

Speaker Change: i also think it's important to highlight our cash flow generation this quarter we produce three hundred seventy million of adjusted free cash flow so despite some of the near-term challenges our business is still able to produce a significant amount of cash

Mark Wang: So despite some of the near-term challenges, our business is still able to produce a significant amount of cash. And we're using that cash to support our commitment to capital returns, repurchasing 2.3 million shares of stock during the quarter for $100 million. Turning next to our integration efforts, we'll start with an update on Diamond. Through the end of the second quarter, we rebranded 40 properties, representing 9,800 keys, and we remain on track to rebrand another eight properties this year for an additional 1,300 keys, bringing us to 70% of our targeted total.

Speaker Change: And we're using that cash to support our commitment to capital returns, repurchasing 2.3 million shares of stock during the quarter for $100 million.

Mark Wang: We also continue to integrate an enhancer technology platform and have launched two major improvements that benefit our consumers and team members. We've recently combined our legacy HTV and Diamond customer-facing member websites into a unified experience, simplifying the booking process and management of their member points across our brand. On the partnership front, we launched an integrated sales tool that is now being used across all of our sales sites, enabling our sales teams to more seamlessly sell both deeded and trust products from a single platform.

Mark Wang: Turning next to our integration efforts, we'll start with an update on Diamond.

Mark Wang: Through the end of the second quarter, we rebranded 40 properties, representing 9,800 keys. And we remain on track to rebrand another eight properties this year for an additional 1,300 keys, bringing us to 70% of our targeted total.

Mark Wang: We also continue to integrate and enhance our technology platform and have launched two major improvements this year benefiting our consumers and team members.

Mark Wang: We recently combined our legacy HTV and Diamond customer-facing member websites into a unified experience simplifying the booking process and management of their member points across our brands.

Mark Wang: And we launched an integrated sales tool that is now being used across all of our sales sites, enabling our sales teams to more seamlessly sell both deeded and trust products from a single platform.

Mark Wang: We've had strong traction with Great Wolf out of the gate. We've already seen a number of our members using their points for stays with their families at Great Wolf Resort, and on the marketing front, early signs indicate strong interest in our vacation packages, like Greg Wolfgast, a cross called transfer, digital, and on-property ambassador program.

Mark Wang: On the partnership front,

Mark Wang: We've had strong traction with Great Wolf out of the gate. We've already seen a number of our members using their points for stays with their families at Great Wolf Resorts.

Mark Wang: And on the marketing front, early signs indicate strong interest in our vacation packages by Great Wolf guests across call transfer, digital, and on-property ambassador programs.

Dan Mathewes: Turning to blue-green, we continue to make good progress. The teams have now integrated into our corporate workflow, and we're tracking ahead of our schedule of synergy realization, as Dan will cover shortly. There's a lot of anticipation among the Blue Green member base and sales force about the launch of HEV Max, and we're working hard to get everything in place for the rollout. We call it until the launch of Max will continue to run Blue Green's great sales organization in parallel with ours, which is also why we think that addressing these execution challenges now will be key to ensuring that smooth sales integration during our rebranding.

Mark Wang: Turning to blue-green, we continue to make good progress. The teams have now integrated into our corporate workflow, and we're tracking ahead of our schedule of synergy realization, as Dan will cover shortly.

Dan: There's a lot of anticipation among the Blue Green member base and sales force about the launch of HEV Max, and we're working hard to get everything in place for the rollout.

Dan: Recall that until the launch of MAX, we'll continue to run Blue Green Sales organization in parallel with ours, which is also why we think that addressing these execution challenges now will be key to ensuring a smooth sales integration during our rebranding.

Dan Mathewes: While this has been a difficult quarter for us, we're maintaining our long-term perspective on the business while acting with a sense of urgency on what we can control in the near term. Despite these challenges, I'm confident that we've identified the issue and are working diligently to address it, and I'm optimistic that we'll improve from here. And, above all, I remain confident in our future path. We have a much stronger business model than we've ever had, with our best product offering. We've got more geographic diversity, we have a larger member base, and we're generating more free cash flow than ever before. So with that, I'll turn it over to Dan and walk you through the numbers. Dan?

Dan: While this has been a difficult quarter for us, we're maintaining our long-term perspective on the business while acting with a sense of urgency of what we can control in the near term.

Dan: Despite these challenges, I'm confident that we've identified the issue and are working diligently to address it, and I'm optimistic that we'll improve from here. And above all, I remain confident in our future path.

Dan: We have a much stronger business model than we've ever had. We have our best product offering.

Dan: We've got more geographic diversity, we have a larger member base, and we're generating more free cash flow than ever before. So with that, I'll turn it over to Dan and walk you through the numbers. Dan?

Dan Mathewes: Thank you, Mark, and good morning, everyone. Before we start, note that our reported results for this quarter included 13 million in sales deferrals, which reduced reported gap revenue and were related to pre-sales at our newest phases of our Maui Bay Villas and Ocean Tower project. We also recorded $5 million of associated direct expense deferrals. Adjusting for those two items would increase EBITDA recorded in our press release by $8 million to $270 million.

Dan: thank you markein good morning everyone before we start note that our reported results for this quarter included thirteen million or sales deferrals which reduced reported gaap revenes and were related todecrease sales on our newest phases of our maly bay villas and ocean totownwerour projects

Dan Matthews: We also recorded $5 million of associated direct expense deferrals. Adjusting for those two items would increase EBITDA recorded in our press release by $8 million to $270 million.

Dan Mathewes: I'm preparing the mark, so I only refer to metrics excluding net deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the area. I'd also note that our results today also include a full quarter of financial results for Blue Green, which we closed on January 17th. Turning to our results for the quarter, total revenue excluding cost reimbursements in the quarter was $1.1 billion, and adjusted EBITDA was $270 million, with margins of 24% excluding reimbursement. EBITDA included $14 million of blue-green cost synergies recognized during the quarter, or a run rate of $71 million annualized. On target was our plan for $100 million of cost synergies within 24 months.

Speaker Change: in my prepared remarks i only referred to metrics excluding that deferrals which more accurately reflects cash flow dynamics of our financial performance during the period

Speaker Change: I'd also note that our results today also include a full quarter of financial results for Blue Green, which we closed on January 17th.

Dan: Turning to our results for the quarter, total revenue excluding cost reimbursements in the quarter was $1.1 billion and adjusted EBITDA was $270 million with margins of 24% excluding reimbursements.

Dan: Ibadat included 14 million of blue-green cost synergies recognized during the quarter or a run rate of 71 million annualized on target with our plan for 100 million of cost synergies within 24 months.

Dan Mathewes: Turning to our segments, within real estate, contract sales were $757 million for the quarter, with Blue Green contributing $189 million of sales in the quarter. New buyers comprised 31% of contract sales in the quarter, improving over 300 basis points from the first quarter level. Force for the quarter was over 226,000, which was slightly below the prior year's performer level, and Blue Green contributed just under 66,000 tours for the quarter. Our owner tours had low single-digit growth in the quarter and remain at levels over 15% ahead of 2019, demonstrating the continued resilience of our owner channels that want to explore our expanded resort network and benefits of HEV Max. However, as Mark mentioned, New Buyer Tours remain pressured, as we're continuing to work to rebuild our New Buyer Tour pipelines, along with making operational adjustments to improve local marketing.

Dan: Turning to our segments, within real estate, contract sales were $757 million for the quarter with Blue Green contributing $189 million of sales in the quarter.

Dan: newbuyer provides thirty-one percent of contract sales in the quarter improving over three hundred basis points from the first quarter level

Dan: Tours for the quarter were over 226,000, which was slightly below the prior year's pro forma level, and Blue Green contributed just under 66,000 tours for the quarter.

Dan: Our owner tours had low single-digit growth in the quarter and remain at levels over 15% ahead of 2019, demonstrating the continued resilience of our owner channels that want to explore our expanded resort network and benefits of HCV Maxed.

Dan: However, as Mark mentioned, New Buyer Tours remain pressured as we're continuing to work to rebuild our New Buyer Tour pipelines along with making operational adjustments to improve local marketing.

Dan Mathewes: VPJ for the quarter was $3,320, which is just over 10% ahead of its 2019 level. Our owner and new buyer, VPG, declined by a similar amount, and both Core HCV and BlueGreen saw slight deterioration in year-over-year growth rates from Q1, owing to slightly lower close rates from the macro and execution factors that Mark mentioned earlier. Cost of Products was 14% of BRI sales for the quarter, and provisioned for bad debt as a percentage of own contract sales was just over 15% in the quarter. Real estate sales and marketing expense was $375 million for the quarter, or 49% of contract sales. Real estate profit for the quarter was $128 million, with margins of 22%.

Mark: BPG for the quarter was $3,320 which is just over 10% ahead of 2019 levels.

Speaker Change: Our owner and new buyer, VPG, has declined by a similar amount, and both core HCV and blue-green saw slight deterioration in year-over-year growth rates from Q1, owing to slightly lower close rates from the macro and execution factors that Mark mentioned earlier.

Dan: Cost of product was 14% of net VOI sales for the quarter and our provision for bad debt as a percentage of own contract sales was just over 15% in the quarter.

Dan: Real estate sales and marketing expense was $375 million for the quarter or 49% of contract sales. Real estate profit for the quarter was $128 million with margins of 22%.

Dan Mathewes: And our financing business's second quarter revenue was 102 million, and segment profit was 58 million, with margins of 57%. Interesting common segment profit for the quarter was impacted by a $28 million transfer revenue for the amortization of the non-cash premium associated with the portfolio of receivables that we acquired from Blue Green and the acquisition coupled with the non-cash premium still being mortals for the diamonds rent that. These items will continue to decline over time as our acquired portfolio pays down.

Dan: In our financing business, second quarter revenue was $102 million and segment profit was $58 million with margins of 57%.

Dan: Interest income and segment profit for the quarter were impacted by a $28 million contra revenue for the amortization of the non-cash premium associated with the portfolio of receivables that we acquired from Blue Green and the acquisition coupled with the non-cash premium still being amortized for the diamonds transaction.

Dan Mathewes: But to more clearly distinguish them from our core underwriting business, we've updated the tables for our financing business and our press release. Excluding the temporary impact of these adjustments, the core underwriting business had interest income of $116 million and margins of 68%. Going forward, we expect the non-cash premium amortization of these portfolios to continue to create some noise in reported financials, but the core business remains steady with the originated weighted average interest rate of 15.21 percent, up slightly from the first quarter. Additionally, the recent easing of benchmark rates should help reduce some of the interest cost pressure on the new ABS issuance.

Dan: these items will continue to decline over time as our acquired portfolio ps down but to more clearly distinguish them from our core underwriting business we've updated the tables for our financing business in our press release

Dan: Excluding the temporary impact of these adjustments, the core underwriting business had interest income of $116 million and margins of 68%.

Dan: going forward we expect the non-cast premium amortization of these portfolios to continue to create some noise and reported financials but the core business remains sety with the originated weighted average interest rate of fifteen point to one percent upslightly from the first quarter

Dan: Additionally, the recent easing of benchmark rates should help reduce some of the interest cost pressure on the new ABS issuances.

Dan Mathewes: The Bond grocery seat rules for the quarter were $3.85 billion, or 2.8 billion net of allowance. Our total allowance for bad debt was $1 billion on that $3.85 billion receivable balance, or 26.2% of the portfolio. Our annualized default rate for our consolidated portfolios, inclusive of blue-green, stood at 9.68% for the quarter. Our provision was 15.4% as a percent of contract sales in the quarter. Is this consistent with the expectations of a steady state provision level in the range of mid-teen?

Dan: com bin gross receivalles for the quarter were three point eight five billion or two point eight four billion net of allowance

Dan: our total allowounance for bad debt was one billion dollars on that three point eight five billion dollars recele balance or twenty-six point two percent of the portfolio our analyzed of fault rate for our consolidated portfolios inclusive of bluegreen od at nine point six eight percent for the quarter

Dan: Our provision was 15.4% as a percent of contract sales in the quarter. This is consistent with the expectations of steady state provision level in the range of mid-teens.

Dan Mathewes: Currently, we expect the year's provisions to remain in the mid-teens with sequential uptake in the third quarter followed by sequentially lower provision in the fourth quarter due to seasonal trends. It is important to note that this assumes similar levels of new buyer and owner mix. Recall that new buyers carry our higher provision levels than owners, which can impact provision levels in any given quarter. Digging deeper into the drivers of our provision, generally, the HEB underwritten deed and trust books are holding steady.

Dan: currently we expect the provision for the year to remain in the midteens with sequential uptick in the third quarter followed by sequentially lower provision in the fourth quarter due to seasonal trends

Dan: it is important to note that this assume similar levels of new buyer and owner mix recall the new buyers carry our higher provision levels than owners which can impact provision levels in any given quarter

Dan: Digging deeper into the drivers of our provision, generally the HEB underwritten deed and trust books are holding steady. Within the blue-green portfolio, we've seen higher losses from some originations that were underwritten prior to our integration and have increased our provision accordingly.

Dan Mathewes: Within the blue-green portfolio, we've seen higher losses from some originations that were underwritten prior to our integration and have increased our provision accordingly. While we've addressed much of this in our opening balance sheet process, we do expect some headwinds in the near term while we work through consolidating and aligning underwriting procedures, sales practices, and risk-based pricing, much like we did for Diamond. In our resort and club business, our consolidated member count was 720,000, and our NOG was 1.7% at the end of the second quarter.

Dan: while we've addressed much of this in our opening balance sheet process we do expect some headwinds in the near term while we work throughconsolidating allining underwriting procedures sales practices and risk-space pricing much like we did for diamond

Speaker Change: In our resort and club business our consolidated member count was 720,000 and our NOG was 1.7% at the end of the second quarter. Revenue was $171 million for the quarter and segment profit was $123 million with margins of 72%.

Dan Mathewes: Revenue was $171 million for the quarter, and segment profit was $123 million with margins of 72%. Rental and ancillary revenues were $195 million in the quarter, with segment profit of $7 million and margins of 4%. Revenue growth was driven by higher available room nights offset by slightly lower REVPAR. However, expenses on our legacy business continued to be elevated due to the impact of additional inventory and developer maintenance fee expenses, along with the inclusion of Blue Green's much lower margin rental business.

Speaker Change: Rental and ancillary revenues were $195 million in the quarter, with segment profit of $7 million and margins of 4%.

Speaker Change: Revenue growth was driven by higher available room nights offset by slightly lower REVPAR. Expenses on our legacy business continued to be elevated due to the impact of additional inventory and developer maintenance fee expense, along with inclusion of Blue Green's much lower margin rental business.

Dan Mathewes: Bridge the gap between segment-adjusted EBITDA and total-adjusted EBITDA, JV EBITDA added $5 million, offset by G&A expenses of $44 million, license fees of $40 million, and EBITDA attributable to non-controlling interest of $4 million. Our adjusted free cash flow in the quarter was $370 million, which included inventory spending of $86 million. Our cash flow conversion rate exceeded 130% this quarter, owing to the timing of inflows from our two recent ABS deals. And for the year, we anticipate that we will be able to maintain a conversion ratio that is roughly in line with our expectations, as well as last year's conversion in the low 50% range.

Speaker Change: riging the gap between segment adjusted ebitda and total adjustedebitda jv ebitda added five mion dollars offset by gna expenses of forty-four million licensse fees of forty million and ebitda attributable to non-controlling interest for four million dollars

Speaker Change: Our adjusted free cash flow in the quarter was $370 million, which included inventory spending of $86 million.

Speaker Change: our cash flow conversion rate exceed one hundred and thirty percent this quarter owing to the timing of inflows from our two recent ab fals

Speaker Change: And for the year, we anticipate that we will be able to maintain a conversion ratio that is roughly in line with our expectations as well as last year's conversion in the low 50% range.

Dan Mathewes: During the quarter, the company repurchased 2.3 million shares of common stock for $190 million. And through July 31st, we repurchased an additional 1.1 million shares for 46.3 million, leaving us with 114 million of remaining availability under the 2023 repurchase plan. We also received approval from our Board of Directors authorizing us to repurchase an aggregate of $500 million, which is in addition to the remaining amount of our 2023 authorization. We remain committed to capital returns as our primary use of excess free cash flow and will maintain our existing pace of approximately $100 million per quarter and share repurchase.

Speaker Change: During the quarter, the company repurchased 2.3 million shares of common stock for $100 million. And through July 31st, we repurchased an additional 1.1 million shares for $46.3 million, leaving us with $114 million of remaining availability under the 2023 repurchase plan.

Speaker Change: We also received approval from our Board of Directors authorizing us to repurchase an aggregate of $500 million, which is in addition to the remaining amount of our 2023 authorization.

Speaker Change: We remain committed to capital returns as our primary use of excess free cash flow and will maintain our existing pace of approximately $100 million per quarter and share repurchases.

Dan Mathewes: Turning to our outlook, as Mark mentioned, owing to the more challenging quarter and outlook, we are lowering our guidance for adjusted EBITDA to a range of $1.075 billion to $1.135 billion, or $125 million less than our prior guidance. This is due primarily to the pressures that we mentioned on our VPG and TOR trends and, to a lesser extent, the continued headwind from bad debt normalization that we had mentioned on prior calls As of June 30th, our liquidity position consisted of $328 million of unrestricted cash and $446 million of availability under our revolving credit facility.

Mark: Turning to our outlook, as Mark mentioned, owing to the more challenging quarter and outlook, we are lowering our guidance for adjusted EBITDA to a range of $1.075 billion to $1.135 billion, or $125 million lower than our prior guidance.

Speaker Change: Owing primarily to the pressures that we mentioned on our VPG and tour trends, and to a lesser extent, the continued headwind from bad debt normalization that we had mentioned on prior calls.

Speaker Change: As of June 30th, our liquidity position consisted of $328 million of unrestricted cash and $446 million of availability under our revolving credit facility.

Dan Mathewes: Our debt balance at quarter end was comprised of corporate debt of $4.9 billion and a non-recourse debt balance of approximately $1.7 billion. At quarter end, we had $750 million of remaining capacity in our warehouse facility, of which we had $647 million of notes available to securitize, and another $324 million in mortgage notes we anticipate being eligible following certain customary milestones such as first payment, dating, and recording. From a timing perspective, we anticipate coming to the market with another ABS deal this coming fall, which should provide incremental adjusted free cash flow in our second half.

Speaker Change: Our debt balance at the quarter end was comprised of corporate debt of $4.9 billion and a non-recourse debt balance of approximately $1.7 billion.

Speaker Change: At quarter end, we had $750 million of remaining capacity in our warehouse facility, of which we had $647 million of notes available to securitize, and another $324 million in mortgage notes we anticipate being eligible following certain customary milestones such as first payment, deeding, and recording.

Mark Wang: Morning everyone, and welcome to our second quarter of each call. Reported contract sales in the quarter were $757 million, and EBITDA was $270 million, with margins of 22%, which were below our expectations. We had a solid start to the quarter, carrying in the momentum we built as we exited Q1 and saw trends in both April and May improve from the first quarter. As we moved into June, however, we experienced a broad-based pullback and consumer spending behavior.

Speaker Change: From a timing perspective, we anticipate coming to the market with another ABS deal this coming fall, which should provide incremental adjusted free cash flow in our second half.

Dan Mathewes: And as I mentioned, we still feel comfortable with our prior assumption around our adjusted EBITDA to our adjusted free cash flow conversion ratio. Turning to our credit metrics, at the end of Q2 and inclusive of all anticipated cost synergies, the company's total net leverage on a TTM basis was 3.67 times as we continue to make progress toward our target leverage range of two to three times while still repurchasing shares. I'm also happy to report we successfully repriced our 2031 term loan fee from a spread of 275 basis points to a spread of 225 basis points, generating nearly $5 million per year in cash and interest savings. We will now turn the call over to our operator and look forward to your questions. Operator? Thank you.

Speaker Change: And as I mentioned, we still feel comfortable with our prior assumption around our adjusted EBITDA to our adjusted free cash flow conversion ratio.

Speaker Change: turning to our credit metrics at the end of q two and inclusive of all anticipated cost synergies the company's total net leverage on a tm basis was three point six seven times as we continue to make progress for our target leverage range of two to three times while still repurchasing shairres

Speaker Change: I'm also happy to report we successfully repriced our 2031 term loan fee from a spread of 275 basis points to a spread of 225 basis points.

Speaker Change: generating nearly five mill dollars per year and cash and interest savings

Operator: Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may requeue, and those questions will be addressed, time permitting. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: We will now turn the call over to our operator and look forward to your questions. Operator?

Speaker Change: Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you have additional questions, you may requeue, and those questions will be addressed, time permitting.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of David Katz with Jeffries. Please proceed with your question.

Speaker Change: Thank you. Our first question comes from the line of David Katz with Jeffries. Please proceed with your question.

David Katz: Hi, good morning, everybody. Thanks for taking my question. Two for me, please.

Speaker Change: to

David Katz: Hi, good morning everybody. Thanks for taking my questions.

David Katz: I mean, with respect to the guidance adjustment and, you know, isolating, you know, the discussion around execution issues, can you just talk a bit more about, you know, your comfort that you've sort of got your arms around it? And, you know, the question we'll all have is, you know, have you taken out enough, right? And, you know, how do we get comfortable that there isn't more? And the follow-up is, I'm not sure if you sort of updated or touched on Maui. And I love a little more sort of update on what you're seeing and sort of feeling.

David Katz: Two for me, please. I mean, with respect to the guidance adjustment and, you know, isolating.

Speaker Change: You know, the discussion around execution issues.

Speaker Change: Can you just talk a bit more about, you know, your comfort that you sort of got your arms around it and, you know, the question...

Speaker Change: will all have is, you know, have you have you taken out enough?

Speaker Change: Right, and you know, how do we get comfortable that there isn't more and the follow-up is I'm not sure if you sort of updated or touched on Maui and I Love a little more sort of update on what you're seeing and and sort of feeling there. Thank you

Mark Wang: Yeah, David, it's Mark. So look, I think, you know, obviously, we've spent a lot of time going through the, you know, from the bottom of my phone, the competitors that are going to drive the rest of the year's performance, and you know we expect, when you think about guidance, we expect continued macro pressure on the consumer in the back half of the year to be, you know, work. We're competing for their discretionary dollars, and given the outlook and the second quarter's performance... The pullback in the guidance really reflects lower contract sales versus what our expectations were. Right. And so it goes.

Mark: Yeah, David, it's Mark. So look, I think, you know, obviously we've spent a lot of time

Mark: You know going through the you know from the bottom up on the components that are going to drive

David Katz: the rest of the year's performance and we expect when you think about guidance so we expect to continued macro pressure

David Katz: on the consumer in the back half of the year as, you know, we're competing for their discretionary dollars and, you know, given the outlook and, you know, the second quarter's performance.

David Katz: The pullback in the guidance really reflects lower contract sales versus what our expectations were.

Mark Wang: When you look at the guidance, what's really been pressuring us has been our new buyer close. For the top two-thirds, and we look at the data constantly, when you look at the top two-thirds of our new buyers, VPG has stabilized, right? And I'm talking about looking at it from a net worth cohort. But the bottom third continues to underperform, and we've seen more variance than we have. Seen for quite a while between the top two thirds in the bottom third.

David Katz: When you look at the guidance, what's really been pressuring us has been our new buyer close.

Speaker Change: for the top two thirds and we look at we look at the data

David Katz: You know, constantly. When you look at the top two-thirds of our new buyers, that VPG has stabilized, right? And I'm talking about looking at it from a net worth cohort. But the bottom third continues to underperform, and we've seen more variance than we've...

Speaker Change: seen in quite a while between the top two thirds in the bottom third so we expect pressure on new buyer close rates

David Katz: As far as tour flow goes, we're expecting flattened by our tour flow as we continue to ramp up our direct marketing. Direct marketing, we're going to see growth in the back half of the year, but it will be offset by some softness in our local marketing.

Speaker Change: Thank you.

Speaker Change: From an owner perspective, you know, the business again is

Speaker Change: is intact and it's performing well and when we look at owners on the books we feel pretty good.

Mark Wang: Though we're seeing a normalization in owner conversion rates versus our prior expectations, and it's, you know, still above 2019. So still outperforming what we saw in the past, and so our owners are intact and doing well. But ultimately, you know, we see pressure on contract sales on the new buyer side. Dan, if you want to cover off on any additional components around the bad debt piece of it, Yeah, no, David, it's a great question, especially the logical one being, de-risked the guide to the extent that we need to.

Speaker Change: about the arrivals there. Though we're seeing a normalization in owner conversion rates versus our prior expectations and it's...

Speaker Change: You know, still above 2019, so still outperforming what we saw in the past since our owners are intact and doing well. But ultimately,

David Katz: You know, we see pressure on contract sales on the new buyer's side. Dan, if you want to cover off on any additional components around the bad debt piece of it. Yeah, no, David, it's a great question, especially the logical one being is have we...

Dan Mathewes: And I think just from a modeling perspective, the way to think about it when we were looking at it, and the pullback, was mostly driven by VPG. And as you know, that has a high level of flow through to the bottom line. Tours from our previous expectations did have a minimal impact, and then to, you know, the fact that we're pulling back contract sales, that will obviously have an impact on revenues associated with financing. Bad debt is a piece of it.

Dan Matthews: de-risked the guide to the extent that we need to. And I think just from a modeling perspective the way to think about it when we were looking at it and the pullback was majority driven by VPG and as you know that has a high level of flow through to the bottom line.

Dan Matthews: Tours, from our previous expectations, did have a minimal impact. And then to, you know, the fact that we're pulling back contract sales, that will obviously have an impact to revenues associated with financing.

Dan Mathewes: As we talked about, we've seen some increase in default delinquency rates, most notably on the blue-green side, and it's upping that provision accordingly. I would say that is consistent with where we ultimately always thought we were going to end up in that mid-teens range, but obviously accelerated. We previously thought that we'd probably exit this year or go into next year in that mid-teens range, and we're there today. So a bit of a pull forward on that front, and there's a little bit of savings on COP, but just generally speaking, if you were to look at the pull-down and guide, it's effectively 80% associated with contract sales, most notably on the VPG side, and 20% associated with bad debt with some offset from a lower cost of product.

Speaker Change: Thank you.

Speaker Change: Bad debt is a piece of it, as we talked about, we've seen some increase in defaults, delinquency rates, most notably on the Blue Moon side, and it's up that provision accordingly.

Speaker Change: i would say that is

Dan Matthews: You know, consistent where we ultimately always thought we were going to end up in that mid-teens range but obviously accelerated. We previously thought that we'd probably exit this year or go into next year in that mid-teens range and we're there today.

Dan Matthews: So a bit of a pull forward on that front.

Dan Matthews: but it

Dan Matthews: and there's a little bit of savings on cp but

Speaker Change: Just generally speaking, if you were to look at the pull-down and guide, it's effectively 80% associated with contract sales, most notably on the VPG side, and 20% associated with bad debt with some offset from a lower cost of product.

Dan Matthews: But we clearly tried to de-risk this guide.

Dan Mathewes: But we clearly tried to de-risk this guide, based on everything we are seeing as of today. And then, David, on the Maui update, so first of all, it's hard to believe, but today is the one-year anniversary of the tragic wildfire in Maui, and so there is still a lot of recovery happening there. On a positive note, both our resorts are fully operational. Now, you know, that being said, a lot of our new buyer poor generation were locations that were, for all intents and purposes, shut down, and those won't be reopening any time soon, but the owner business has come back.

Dan Matthews: based on everything we are seeing as of today, of course.

David Katz: And then, David, on the Maui update, so first of all, it's hard to believe, but today is the one-year anniversary.

David Katz: of the tragic wildfire in Maui, and so still a lot of recovery happening there. On the positive note, both our resorts are fully operational.

Speaker Change: Now, you know, that being said, a lot of our new buyer, poor generation, were locations that were, for all intents and purposes, are shut down.

Speaker Change: and those won't be reopening anytime soon. So, but the owner business has come back. It's still lagging where we thought it would be pre-fire.

Dan Mathewes: It's still lagging where we thought it would be pre-fire, but part of it is from a sales marketing standpoint, some of the pressure is really related to rehiring of staff, housing on Maui is challenged, especially for a property that's in West Maui near Lahaina, but I would say on the other side of the island in Kihei, Maui Bay Villas, where we're building new product there, that project is performing well, not only in Maui, but also selling well throughout our nation.

David Katz: But part of it is, you know, our sales from a sales marketing standpoint some of the pressure is really related to rehiring of staff Housing on Maui is challenged, especially For our property that's in West Maui near La Jolla

David Katz: But I would say on the other side of the island in Kihei, Maui Bay Villas, where we're building new product there, that project is performing well, not only in Maui, but also selling well throughout our network.

Mark Wang: Our next question comes from the line of Patrick Scholes with Trouest; please ask it with your question.

Speaker Change: Thank you very much.

Speaker Change: Our next question comes from the line of Patrick Scholes with Truist. Please proceed with your question.

Patrick Scholes: Hey, good morning, everyone. There are a number of questions here. I'll actually start out with a potentially positive one, then I'll move into some other questions. Mark, what are your thoughts on... with the Japanese yen now strengthening, you know, when might you expect to see that show up in increased demand for your Hawaii product? You know, having gone the other way for a year or so was a big headwind, but it really has changed directions. What are your thoughts on that and the possible impact?

Patrick Scholes: Hi. Good morning, everyone.

Patrick Scholes: A number of questions here. I'll actually start out with potentially a positive one, then I'll move into some other questions. Mark, what are your thoughts on

Patrick Scholes: With the Japanese Yen now strengthening, you know, when might you expect to see

Speaker Change: that show up in increased demand to your Hawaii product.

Speaker Change: again

Speaker Change: having gone the other way for a year or so was a big headwind, but really has changed directions. What's your thoughts on that and the possible impact? Thank you.

Mark Wang: Well, first of all, it's nice to see the younger strengthening, right? It's been quite a challenging period from a currency standpoint for our Japanese members and for Japanese tourism overall in Hawaii. Now the good news is, you know, our members, the timing was really good for us when we opened our property in Susoko in Japan, and owners are traveling there and using the property. We have very, very high occupancy rates there. But you know, I think there will be a lag effect as far as the, you know, strengthening goes.

Speaker Change: Yeah, well, first of all, it's nice to see the yen strengthening, right, and it's been quite a challenging period from a currency standpoint.

Speaker Change: for our Japanese members and for Japanese tourism overall for Hawaii.

Speaker Change: Now, the good news is, you know, our members, the timing was really good for us when we opened our property in Sissoko.

Speaker Change: in Japan, and owners are traveling there and using the property.

David Katz: We have very, very high occupancies there.

David Katz: But, you know, I think there will be a lag effect as far as the, you know, the end strengthening.

Mark Wang: But hopefully, you know, where we're really off on the Japanese business is the new buyer Japanese business from tourism that's coming into Hawaii. Our owners have come back, and they've actually come back faster than the general population that's coming back to Hawaii. And that's really because of the commitment level they've made to being an owner with us. But overall, we're hoping that this improvement in the yen will strengthen that part of the business.

David Katz: And, but hopefully, you know, where we're really off on the Japanese business is the new buyer Japanese business from the tourism that's coming into Hawaii. Our owners have...

David Katz: have come back, and they've actually,

David Katz: come back faster than the general population that's coming back to Hawaii. And that's really because of the commitment level they've made.

David Katz: and Dina Noer with us. But overall, we're hoping that this improvement in

David Katz: and the Yen will strengthen that part of the business.

Patrick Scholes: Okay, we will see. My next question is, I think you had said that specifically in some of your acquisitions, which tends to happen when you purchase companies. More color, please. Thank you.

Dina Noer: Okay, we will see.

Speaker Change: My next question...

Speaker Change: I think you had said that...

Speaker Change: We already talked about sales reorganization, can you give us more color on that, what exactly is that about and where within sales, is that more on the middle senior level or is that more on the middle senior level? Thank you. Great.

Speaker Change: Specifically, in some of your acquisitions, which tends to happen when you purchase companies. More color, please. Thank you.

Mark Wang: Yeah, sure. No, we, you know, we, there was... You know, quite a bit of disruption in the corner as we were, you know, as we integrated a blue ring. A very positive outcome of that is we spent a significant amount of time in the corner restructuring our sales and marketing organization, and it's really restructured for the next wave of growth, and importantly, with the acquisition of Blue Green, we're a much larger company with a much broader sales and marketing footprint. Just to give you a little historical data here, when you look at us historically, we were very centralized. In 19, we were doing 1.5 billion in contract sales. Rob

Speaker Change: Yeah, sure. No, we, you know, we, there was...

Speaker Change: You know, quite a bit of disruption in the quarter as we were, you know, as we're integrating a blue-green. And, and...

Speaker Change: A very positive outcome of that is we spent a significant amount of time in the corner restructuring our sales and marketing organization. And it's really restructured for the next wave of growth. And importantly,

Speaker Change: with the acquisition of Blue Green. We're a much larger company with a much broader sales marketing footprint.

Speaker Change: Just to give you a little historical data here.

Speaker Change: You know, if you look at us historically, we were very centralized. We had, you know, in 19 we were doing 1.5 billion in contract sales.

Mark Wang: 20% of that was outside of our five core markets. So it was really five distribution, smaller distribution centers outside of our five core markets. Today we're $3 billion in contract sales with 40% of our volume outside of that, uh... what we would call uh... big destination markets, so those destination markets have grown uh... uh... but sixty percent, uh... I mean the forty percent represents a move from five sales centers to 44 sales centers on a regional basis.

Speaker Change: 20% of that was outside of our five core markets. So it was really five distribution, smaller distribution centers out of our five core markets. Today, we're $3 billion in contract sales with 40% of our volume outside of that.

Speaker Change: what we would call big destination markets. So those destination markets have grown, but 60%

Speaker Change: I mean, the 40% represents a move from five.

Speaker Change: Thank you.

Speaker Change: sales centers to 44 sales centers on a regional basis. So our footprint in the makeup of our business has changed materially.

Mark Wang: So our footprint in the makeup of our business has changed materially. And to support that larger destination market and to support those smaller regions, we went from two regions to five regions and multiple sub-regions. We strengthened our mid-level leadership to really increase focus and execution and to create better oversight for the sales and marketing activities out there. We also named a new Chief Sales and Marketing Officer, Dusty Tonkin, who was leading Blue Green's operations. Dusty has a great background, great experience running large organizations, and so, all in all, a big move.

Speaker Change: And to support that larger destination market and to support those smaller regions, we went from two regions to five regions and multiple sub-regions. We strengthened our mid-level leadership to really increase focus and execution.

Speaker Change: and to create better oversight for the sales marketing

Speaker Change: activities out there. We also named a new chief sales and marketing officer, Dusty Tonkin, who was leading Blue Green's operations and Dusty has

Speaker Change: a great background, great experience running large organizations. And so all in all, a big move. It did create quite a bit of disruption as you can imagine. We rolled out the new structure in the middle of June.

Mark Wang: It did create quite a bit of disruption, as you can imagine. We rolled out the new structure in the middle of June, but, You know, I'm happy to say that the work has been done, and I think, you know, I'm very confident in Dusty as our new leader, and I'm very confident that this new structure will improve our execution going forward.

Speaker Change: I'm happy to say that the work has been done, and I think I'm very confident, as Dusty is our new leader, and I'm very confident this new structure will improve our execution going forward.

Dan Mathewes: Okay, thank you. I have one more question here before I get back in the queue. Question for Dan. When you're taking your percentage up on the loan loss provision, and maybe this is getting into the weeds and sausage making, but I think it's important, you know, why do you... You know, take the percentage up going forward as opposed to doing what your competitor did this quarter and a couple quarters ago, as opposed to increasing your sales reserve or taking a charge or whatever you want to call it. What's the decision making process and thoughts around all of that? I hope that makes sense.

Speaker Change: Okay, thank you. I'll ask one more question here before I get back in the queue. Question for Dan.

Dan Matthews: When you're taking your percentage up on the loan loss provision, and maybe this is getting into the weeds and sausage making, but I think it's important. Why do you...

Speaker Change: to take the percentage up going forward as opposed to doing what your competitor did this quarter and a couple quarters ago, as opposed to increasing your sales reserve or taking a charge or however you want to call it. What's the decision making and thoughts around?

Dan Mathewes: Yeah, no, that all makes sense. I mean, I think when we're talking about the bad debt provision, we could go into a lot of variables. I'll try to keep it as simple as I can.

Speaker Change: All of that. I hope that makes sense.

Speaker Change: Yeah, no, that all makes sense. I mean, I think there's, when we're talking about the bad debt provision, I mean, we could go into a lot of variables. I'll try to...

Dan Mathewes: First and foremost, what I would tell you is we have not fully integrated delivery yet, with this operating as a separate entity. The blue-green credit process is not fully integrated into the legacy HEV slash diamond process yet. We are also still in the realm of purchase accounting. But to put things in perspective, just as a level set, when you look at when we acquired Diamond, they had a reserve on their books that gave, that was roughly 30% of their portfolio.

Speaker Change: I'll try to keep it as simple as I can. First and foremost, what I would tell you is we have not fully integrated BlueGreen yet. BlueGreen is operating as a separate entity.

Speaker Change: The blue-green credit process is not fully integrated into the legacy HEV slash diamond process yet. We are also still in the realm of purchase accounting.

Speaker Change: But, to put things in perspective, just as a level set, when you look at when we acquired Diamond, they had a reserve on their books that gave...

Dan Mathewes: Once we completed our due diligence, acquired them, and then applied fair value to their portfolio, that reserve went from 30% to 37%. Similar to Blue Green, their reserve was post their last audit, which before we acquired them, which, as you recall, was early January. Their reserve was roughly, well, just under 30% was about 28, 29% and doing the same exercise that we did with Diamond. Their reserve is now about required portfolios, right at 36%. So very consistent with Diamond. So you have that component.

Speaker Change: But that was roughly 30% of their portfolio. Once we completed our due diligence, acquired them, and then applied fair value to their portfolio, that reserve went from 30% to 37%.

Speaker Change: Similar on Blue Green, their reserve was post their last audit which before we acquired them which as you recall was early January .

Speaker Change: Their reserve was roughly, well just under 30%, it was about 28, 29% and doing the same exercise that we did with Diamond, their reserve is now

Speaker Change: of that acquired portfolio is right at 36%. So very consistent with Diamond. So you have that component.

Speaker Change: The other thing I would tell you is when you look at...

Speaker Change: How we run our bad debt provision.

Speaker Change: I don't have insight to any of our competitors, but our BADDAD is based off of a very robust static pool model.

Speaker Change: utilizes in excess of 15 years of historical lost data that takes into consideration bylone, FICO, equity levels, and even country of origin.

Speaker Change: And those loss models are updated on a monthly basis.

Speaker Change: Any changes that occur this month are applied to the previously originated loans and then also are applied on a prospective basis.

Speaker Change: That helps to capture current trends quickly and mitigates wild swings in the future.

Speaker Change: and the provision to the extent we can.

Speaker Change: And then in addition to that, we account for various seizing items like prepayments and even later stage defaults, and that's the third bucket that goes in. And again, this is done on a monthly basis. Now, when it comes to blue-green, we alluded to it in our prepare comments.

Dan Mathewes: But the movement in blue-green, they've been upgrading in 2023 and 2022, to some extent. They were upgrading their owners a little bit quicker than they were previously, and the balances were getting larger. We knew those defaults and the delinquencies would increase. I think that's true for any timeshare operator. Whenever you upgrade people faster and increase loan balances, you can expect an uptick in delinquencies and defaults. I think it got here sooner than we originally expected, but we still anticipate that long-term run rate in the mid-teens percentage, but that did obviously impact our expectations for this year because we're there sooner than we expected. That was a very long-winded answer, but I think I covered everything you were looking for. I appreciate it.

Speaker Change: But the movement in blue-green, they've been upgrading.

Speaker Change: In 2023 and 2022, to some extent, they were...

Speaker Change: Upgrading their owners a little bit quicker than they were previously, the balances were getting larger. We knew those defaults and the delinquencies would increase. I think that's true for any timeshare operator. Whenever you upgrade people faster and increase loan balances, you can expect.

Speaker Change: uptick in delinquencies and defaults.

Speaker Change: I think it got here sooner than we originally expected, but we still anticipate that long-term run rate in the mid-teens percentage. But that did obviously impact our expectations for this year because we're there sooner than we expected.

Patrick Scholes: I appreciate it. From having gotten into the weeds on such things, I appreciate you keeping it high-level. I'm going to jump back in the queue with some more questions. Thank you.

Speaker Change: That was a very long-winded answer but I think I captured everything you were looking for.

Speaker Change: I appreciate it. I know from having gotten into the weeds on such things, I appreciate you keeping it high level. I'm going to jump back in the queue with some more questions. Thank you.

Operator: Our next question comes from the line of Brandt Montour with Barclays. Please proceed with your question.

Speaker Change: Our next question comes from the line of Brent Montour with Barclays. Please proceed with your question.

Brandt Montour: Good morning, everybody. Thanks for taking my question. So Mark, if we could just go back to the beginning of the year when you were exiting 23, the tone and the message was that you guys had sort of overwhelmed the sales resources and manpower at these smaller sales centers that were concentrated in the legacy diamond footprint. And so if we could sort of bridge that adjustment you made at sort of year-end going into 24 with this adjustment now, it seems like it's sort of an extension of the same problem, maybe compounde Is that how you would characterize it, or is it sort of a different element of the resources understaffing of those sales centers?

Brent Montour: Good morning, everybody. Thanks for taking my question.

Brent Montour: So Mark, if we could just go back to the beginning of the year when you were exiting 23.

Speaker Change: The tone and the message was that you guys had sort of overwhelmed the sales resources and manpower at these smaller sales centers that were concentrated in the legacy diamond footprint.

Speaker Change: It seems like it's sort of an extension of the same problem, maybe compounded by a deterioration in the lower third.

Speaker Change: In terms of purchasing propensity, is that how you would characterize it, or is it sort of a different element of the resources and understaffing of those of those of those sales centers?

Mark Wang: Yeah, Brad, I think that characterizes it pretty well. I think, you know, we... As I mentioned in the previous answer, we went through this rework, and performance was impacted by this integration work. And, you know, we worked through the quarter, we completed the redesign, and we rolled it back out in June. And this process, unfortunately, distracted a lot of our leadership teams until the final structure was rolled out. As you can imagine, you know, a lot of people are on pins and needles trying to figure out whether they're going to be on the team or what position they're going to play and where they're going to be living.

Speaker Change: Yeah, Brad, I think that characterizes it pretty well. I think, you know, we, you know, as I mentioned from a previous answer, you know, we had

Speaker Change: We went through this rework and the performance was impacted by this integration work.

Speaker Change: And, you know, we worked through the quarter, we completed the redesign, we rolled it back out in June .

Speaker Change: And this process, unfortunately, distracted a lot of our leadership teams until the final structure was rolled out. As you can appreciate...

Speaker Change: You know, a lot of people on pins and needles trying to figure out whether they're going to be on the team or what position they're going to play and where they're going to be living here. So, you have that.

Mark Wang: So you have that, and then, you know, from a staffing standpoint, it was kind of a knock-on effect from the disruption because it did lag in some of the hiring of sales and marketing staff, which then had a knock-on effect on eliminating...

Speaker Change: And then, you know, from a staffing standpoint, it was kind of a knock-on effect from the disruption because it did lag in some of the hiring of sales and marketing staff, which then had a knock-on effect in eliminating...

Mark Wang: Tour slot availability, and so really this disruption, we've identified what the issues are, and quite frankly, we're just behind on staffing, we're behind on hiring, we're behind on recruiting, but we have now got the organization and the structure to go fix those things, and then on top of that, coming out of last year, we did see stabilization from a customer standpoint for new buyers other than the bottom third. But the bottom third of the new buyers is just falling apart for us, and we've seen a lot of pressure there.

Speaker Change: limiting

Speaker Change: tour slot availability, and so

Speaker Change: Really, this disruption, we've identified what the issues are and quite frankly, we're just behind on staffing, we're behind on hiring, we're behind on recruiting, but

Speaker Change: We have now got the organization and the structure to go fix those things. And then on top of that, it's just, you know, coming out of last year, we did see stabilization.

Speaker Change: from a customer standpoint for new buyers.

Speaker Change: Other than the bottom third, but the bottom third of the new buyers is just falling apart for us, and we've seen a lot of pressure there.

Mark Wang: And we've seen more variability in that performance in the bottom third than we've seen in a long time. Now, the good news is that we saw some stabilization, and as it relates to July performance, BPG, and contract trends stabilized in July, more in line with what we saw in April and May. So I think once we got this reorg past us, it helped stabilize some of what we were seeing from just the disruption standpoint.

Speaker Change: And we've seen more variability in that performance on the bottom third than we've seen in a long time.

Speaker Change: Now, good news is we saw some stabilization, and as it relates to July ,

Speaker Change: Performance of BPG and contract trends stabilized in July , more in line with what we saw in April and May. So I think once we got this reorg past us, it helped stabilize some of what we were seeing.

Mark Wang: But there is pressure on the consumer, pressure to make commitments at the level of discretionary spend that is required to be part of our club. And talking to the sales teams, there's just increased customer hesitancy. I think people are taking a more wait-and-see approach. But that being said, we continue to work hard, and I think we've identified some of the issues, and we're going to improve them. But with the current macro situation, we just felt it was important to bring our guidance down for the rest of the year.

Speaker Change: from just the disruption standpoint, but there is pressure on the consumer, pressure to make commitments at the level of discretionary spend that are required to be part of our club, and in talking to the sales teams, there's just

Speaker Change: You know, increased customer hesitancy, I think.

Speaker Change: You know, people are taking a more wait-and-see approach, but that being said, you know, we continue to work hard, and I think we've identified some of the issues, and we're going to improve them.

Speaker Change: With the current macro situation, we just felt it was important to bring our guidance down for the rest of the year.

Mark Wang: Okay, thanks for that. That's actually a good segue into my next question, which is really a follow-on to David's question earlier. When you look at the second half guidance for VPGs, but what I'm really trying to get to is close rates, you know, are you assuming something similar to what you saw in that July level, or did you bake into that back half VPG something more conservative?

Speaker Change: Okay, thanks for that. That's actually a good segue into my next question, which is really a follow-on to David's question earlier. When you look at the second half guidance,

Speaker Change: for VPGs, but what I'm really trying to get to is close rates, you know, are you assuming something similar to what you saw in that July level, or did you bake into that back half VPG something more conservative?

Brandt Montour: With regard to the guide, the back half of the year takes into consideration the VPGs that we had been experiencing. It didn't assume an uptick and outperformance. It didn't, let me say that another way, it didn't nullify what we saw happen in Q3. So it does take risk into consideration.

Speaker Change: With regards to the guide, the back half of the year takes into consideration the VPGs that we had been experiencing. It didn't assume uptick and an outperformance. It didn't, let me say that a different way, it didn't nullify what we saw happen in Q2.

Mark Wang: Thanks, everyone.

Speaker Change: So it does take risk into consideration.

Operator: Our next question comes from the line of Ben Chaiken with Mizuho. Please proceed with your question.

Speaker Change: Okay, thanks everyone

Speaker Change: Our next question comes from the line of Ben Chaiken with Mizuho. Please proceed with your question.

Ben Chaiken: Hey, thanks for taking my questions. Sorry, there's a lot going on this morning.

Ben Chaiken: So just want to clarify something. For the guidance cut, did you provide a mix between macro and execution issues? And then on the execution side, I guess I don't totally follow the sales and marketing adjustment commentary. Is the point simply that you're a bigger company today and need to align the sales force accordingly to maximize efficiency?

Ben Chaiken: Hey, thanks for taking my questions. Sorry, there's a lot going on this morning. So just want to clarify something

Ben Chaiken: For the guidance cut, did you provide a mix?

Speaker Change: between macro and execution issues.

Speaker Change: And then on the execution side, I guess I don't totally follow the sales and marketing adjustment commentary. It's the point simply that you're a bigger company.

Speaker Change: today, and need to align the sales force accordingly to maximize efficiency, and then just one follow-up.

Dan Mathewes: Yeah, with regard to the guidance cut, we did not break it down between macro and, you know, I think we've referenced it as disruption to the sales force, and ultimately, there are macro pressures, and it's, you know, clearly difficult to estimate specific amounts that are built in just because of macro. Ultimately, I think you probably heard us say just from a breakdown, it's driven primarily by VPGs, which have a high flow through to your bottom line, and to a lesser extent, bad debt, with a little bit of offset on COP. So, just the breakdown that we want to talk about is really the 80-20 split. Contract sales, notably BPG, and the 20% being, a little offset.

Speaker Change: Yeah with regards to the guidance cut we did not break it down between macro and you know I think we've referenced it as disruption on the sales force and ultimately there's macro pressures and

Speaker Change: It's clearly difficult to estimate specific amounts.

Speaker Change: that are built in just because of macro. Ultimately, I think you probably...

Speaker Change: heard us say just from a breakdown, it's driven primarily by VPGs, that has a high flow through to your bottom line, and to a lesser extent, bad debt.

Speaker Change: With a little bit of offset on COP so just the the breakdown that we want to talk about is really the 80-20 split between Contract sales notably BPG and the 20% being about that little offset on COP

Mark Wang: Yeah, then Ben, on the execution side of things... We restructured the organization, number one, to prepare ourselves for the next wave of growth, but importantly, to really improve the overall execution. When you look at our business, again, I talked about our big destination markets. They're outperforming the regional markets, and again, we went from five regional markets, five regional sales center markets, and 19 to 44 today, right? And I think we've learned over the last couple of years and also looking at Blue Green's model that we needed to reinforce in critical mid-level leadership areas.

Speaker Change: Yeah, Ben, on the execution side,

Speaker Change: We restructured the Ork, number one, to prepare ourselves for the next wave of growth, but importantly

Speaker Change: to really improve the overall execution. When you look at our business, again, I talked about our big destination markets.

Speaker Change: They're outperforming the regional markets and again, we went from five regional markets, five regional sales center markets.

Speaker Change: and 19 to 44 today, right? And...

Speaker Change: I think we've learned over the last couple of years and also looking at Blue Green's model that we needed to reinforce critical mid-level leadership areas. We needed more dedication and greater oversight on these smaller sales centers.

Mark Wang: We needed more dedication and greater oversight in these smaller sales centers, and we also made the decision to realign all of our sales organizations under one leader. So in execution, part of the execution problem was disruption because of all the noise around the restructuring, but part of it was also around just lagging in certain key areas that are important for our sales organization and our marketing organization to perform well, and that's around staffing levels.

Speaker Change: and

Speaker Change: And we also made the decision to realign all of our sales organizations under one leader.

Speaker Change: So, in the execution, part of the execution problem was disruption because of all of the noise around the restructuring, but part of it was also, you know, around, you know, the

Speaker Change: Just lagging in certain key areas that are important for our sales organization, our marketing organization to perform well, and that's around staffing levels. We got out of sequence on our ratios.

Mark Wang: We got out of sequence on our ratios, and we lost efficiency. And so those are things that we identified and we're working on, and I think some of that, the Miss there and the Miss steps that occurred there will not occur with this new structure because now we have the solution.

Speaker Change: and we lost efficiency. And so those are things that we identified and we're working on and I think some of that, you know,

Speaker Change: The mists there and the missteps that occurred there will not occur with this new structure because now we have the proper oversight.

Mark Wang: Okay, I guess related, sorry, was this restructuring planned and the rollout was choppy or is this something you noticed inter-corridor and then needed to kind of scramble and react to? This was a, let's put a number of people in a room for 90 days and figure this thing out and so it was planned and we spent a lot of time, there was a lot of thoughtful work that went into this, so there were a lot of leaders that were not focused necessarily on the execution while we're going through this because, you know, it took a lot of discussion and a lot of work to get to the optimal design, so I would say, you know, again, the, you know, again, April and May were decent, June just kind of fell apart and, but the re-work was announced, I think, on June 11th and, again, we saw it bounce back in July, so actually, July, from a sequential standpoint, was as good a month as we've had, so we feel good about that. Now, that being said, you know, we're still being pressured on the new buyer's side with particularly the lower wealth cohorts out there.

Speaker Change: Okay, I guess related. Sorry, was this restructuring planned and the rollout was choppy, or is this something you noticed in trick order and then needed to kind of scramble and react to?

Speaker Change: This was a let's put a number of people

Speaker Change: in a room for 90 days and figure this thing out. And so it was planned and we spent a lot of time. There was a lot of thoughtful.

Speaker Change: that went into this. So there were a lot of leaders that were not focused necessarily.

Speaker Change: on the execution while we're going through this because you know it took a lot of discussion and a lot of work to

April: to get to the optimal design. So I would say, you know, again, the, you know, again, April , May were decent. June just kind of fell apart.

April: But the RE-ORC was announced, I think, on June 11th, and again, we saw it bounce back in July .

Speaker Change: um

Speaker Change: Actually, July , from a sequential standpoint, was as good a month as we've had.

Speaker Change: So we feel good about that now that being said, you know, we're still being pressured on the new buyer side with particularly the lower

Mark Wang: And look, just to add something to that, just some additional color, I think it's also worth comparing methodologies compared to Diamond. When we acquired Diamond, and we closed on Diamond, we did a restructuring literally on day one. We had the sales leaders picked out, we had the headcount picked out, everyone knew where they stood on day one. With the acquisition of Blue Green, to Mark's earlier point, there was a team that sat in a room for 90 days to identify the right talent and the right leaders for the right business.

Speaker Change: Thanks everyone.

Speaker Change: Literally on day one.

Speaker Change: We had the sales leaders picked out, we had the headcount picked out, everyone knew where they stood on day one. With the acquisition of Blue Green, to Mark's earlier point, there was a team that oversimplified and sat in a room for 90 days to identify the right talent and the right leaders for the right region.

Mark Wang: Now, what that does is it's a bit of a distraction, as Mark alluded to, but ultimately, you should end up in a better-run business because you've identified clearly the right talent to run the consolidated entity. So I don't know if I would call it choppy. I would say, hey, this was a more thoughtful process. But when you run thoughtful processes, sometimes you have a bit of disruption as you complete them.

Speaker Change: Now, what that does is it's a bit of a distraction as Mark alluded to, but ultimately you should end up in a better run business because you've identified clearly the right talent to run the consolidated entity.

Mark: So I don't know if I would call it choppy. I would say, hey, this was a more thoughtful process. But when you run thoughtful processes, sometimes you have a bit of disruption as you complete the process.

Ben Chaiken: And then, really quick follow-up, so it sounds like you've got some new leadership and some new mid-managers, if I understand you correctly. What does the ramp-up of those positions look like?

Speaker Change: that's

Speaker Change: And then really quick follow-up. So it sounds like you've got some new leadership and some new mid managers if I interpret you correctly.

Mark Wang: Is this something that's going to percolate through the rest of the year, or into 2025, or any color at all? Everybody's been named, and we do have some people that are still... and Paul Williams. Still dealing with UHA getting stuff moved, but there's a relocation that's involved here. But most of the people that have been identified and put in the new positions are in place. There's still been a little disruption with their family moves and stuff like that, but for the most part, that's all been good.

Speaker Change: What does the ramp-up of those positions look like? Is this something that's going to percolate through the rest of the year, or into 2025, or any color? Everybody's been named, and we do have some people that are still...

Speaker Change: You know, still dealing with U-Haul, getting stuff moved, but there's relocation that's involved here.

Speaker Change: Most of the people that have been identified and put into new positions are in place. There's still a little disruption with their family moves and stuff like that, but for the most part, that's all behind us.

Operator: Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka: Hey guys, good morning.

Chris Woronka: Thanks for taking the question. I was hoping maybe we could spend a minute and talk about kind of buyer behavior on the financing side. And obviously, generally, it's more a question about first-time buyers. And so are you seeing any change there? I mean, are you trying to alter your strategy? Are you offering lower deposits, initial deposits, or anything like that? I'm trying to figure out, you know, is this trying to get someone over the finish line, or are they not getting anywhere close to the finish line, and financing incentives don't matter?

Chris Woronka: Hey guys, good morning. Thanks for taking the question. I was hoping maybe we could we can spend a minute talking about kind of the

Chris Woronka: buyer behavior on the financing side and obviously

Speaker Change: generally more a question about first-time buyers and so are you seeing any change there I mean are you are you trying to alter your strategy are you offering lower

Speaker Change: Deposits' initial deposits or anything like that, try to figure out, you know, is this trying to get somewhere over the finish line or, or are they, you know, not getting, not getting anywhere close to the finish line. And, you know, financing incentives are, are, don't matter at that point.

Dan Mathewes: Yeah, it's a great question, Chris. So from time to time, and it's not, I would say it's fairly routine where we run various promotions to see if it moves the needles. Sometimes it helps; sometimes it depends on which sales distribution center you're looking at, if one promotion works or one doesn't. I'd say when it comes to the new buyer, that the financing element has worked in some cases and hasn't worked in others.

Speaker Change: No, it's a great question Chris. So you know from time to time and it's not I would say it's fairly routine where we'll run various promotions

Speaker Change: has worked in some cases and hasn't in others. It's not a definitive

Dan Mathewes: It's not a definitive, a definitive answer when it comes to deposit. We really do not drive a lower deposit required because we definitely want our owners to have a level of equity that's meaningful as they take over, as they step into ownership. It also has implications for REV REC because, in our internal policies, we defer REV REC until 10% is down. So we always look for that bare minimum.

Speaker Change: a definitive answer that when it comes to, you know, deposits.

Chris Woronka: Really do not drive a lower deposit required, because we definitely want our owners.

Chris Woronka: to have a level of equity that's meaningful.

Chris Woronka: As they take over, as they step into ownership. It also has implications for a rev rec, because our internal policies, we defer rev rec until 10% is down. So we always look for that bare minimum.

Dan Mathewes: When it comes to upgrades, there's different metrics we'll run as well, just from the potential where existing owners might not have to put additional equity down depending on how much equity they've built, etc. So I don't think that is the definitive solution to increase new buyer close rates, but from time to time, we run them, and they can be

Chris Woronka: When it comes to upgrade, there's different metrics we'll run as well, just from a...

Chris Woronka: a potential where existing owners might not have to put additional equity down depending on how much equity they've built, et cetera. So I don't think that is the definitive solution to uptick.

Chris Woronka: New buyer, close rate, but from time to time we run them and they can be helpful.

Chris Woronka: Okay, that's that is helpful. Thanks. Thanks, Dan.

Chris Woronka: Okay, that's that is helpful. Thanks. Thanks, Dan.

Speaker Change: I guess as a follow-up, do you think as you evaluate all these

Speaker Change: you know, changes you've made in the sales centers.

Chris Woronka: And then just as a follow-up, do you think as you evaluate all these changes you've made in the sales centers, kind of post-blue green, and you know, obviously, there's a little bit more you want to do. But does that make you think you need a new product for this current environment? You know, whether kind of a, you know, something that fits into a smaller budget or, you know, implicitly, kind of a shorter vacation, which we hear from other travel companies is something like that on the table if we're going to be in this environment for a while? Well,

Speaker Change: kind of post-blue-green and, you know, obviously there's a little bit more you want to do.

Speaker Change: But does it make you think you need a new product for this current environment? You know, whether it's kind of a, you know, something that fits into a smaller budget or, you know, implicitly kind of a shorter vacation, which we hear from other...

Chris Woronka: Travel companies is something like that on the table if we're going to be in this environment for a while

Mark Wang: Well, actually, Ben, I think the acquisitions that we made actually really put us in a great position. We've widened our product offering, and, or Chris, I apologize, Chris, we've diversified our product, right, and we've widened our scale, and So, I think we're in a really good place from an inventory standpoint and our brand offerings. So, and we got a broader customer base. And, importantly, we've diversified our lead flow with some of these world-class partners out there.

Chris Woronka: Well, actually, Ben, I think the acquisitions that we made, actually,

Chris Woronka: really puts us in a great position. We've widened our product offering, and, or Chris, I apologize, Chris. We've diversified our product, right? And we've widened our scale and

Speaker Change: And so I think we're in a really good place from an inventory standpoint and our brand offerings. And we've got a broader customer base.

Speaker Change: And importantly, we diversified our lead flow with some of these world-class partners out there. You know, I do want to make a comment on the new buyer side.

Mark Wang: You know, I do want to make a comment on the new buyer side, that, you know, the new buyers. The top third of our cohort is still performing well, and the middle is performing okay. And if you look back, we've been taking good prices on this, where our average transaction price for a new buyer today is 19% higher than it was in 2019. So, it's not like the new buyer market is falling apart, and the top cohort is still intact.

Speaker Change: The new buyers, the top third of our cohort is still performing well.

Chris Woronka: and the middle is performing okay. And if you look back, we've been taking good pricing on this where our average transaction price for a new buyer today is 19% higher than it was in 2019.

Chris Woronka: So, it's not like the new buyer is falling apart and the top cohort is still intact.

Mark Wang: It's really the biggest challenge has been that bottom third, and when the bottom third falls apart, it makes it challenging. And so, we are looking at ways to adjust our product to meet that bottom third, but right now we believe once we get the blue-green system in our overall system, when we roll out max, that will make a big difference, because there is some hesitancy, on the blue-green business right now as they're waiting for communication from us on what this means, what this open acquisition of blue-green means, and at this point, of course, we're communicating to them, but there's a process that we have to go through, and that introduction will probably not be made until we get toward the end of the year, as we've got a number of legal steps that we have to walk through, and we have a number of other considerations that we have to walk through to make this a successful rollout.

Chris Woronka: It's really the biggest challenge has been that bottom third, and when the bottom third falls apart...

Chris Woronka: and makes it challenging.

Chris Woronka: And so, you know, we are looking at ways to...

Chris Woronka: adjust, you know, our product to meet that bottom third. But right now, we believe once we get the blue-green system in our overall system, when we roll out max, that will make a big difference. Because there is some hesitancy.

Chris Woronka: on the blue-green business right now.

Chris Woronka: as they're waiting for communication from us on what this means.

Chris Woronka: What this Hilton acquisition of blue-green means, and at this point,

Chris Woronka: Of course, we're communicating to them.

Chris Woronka: But there's a process that we have to go through.

Chris Woronka: And that introduction will probably not be made until we get toward the end of the year as we've got a number of legal steps that we have to walk through and we have a number of other considerations that we have to walk through to make this a successful rollout.

Chris Woronka: Okay, that's great. I appreciate all the perspective. Thanks, Mark.

Chris Woronka: Okay. That's great. I appreciate all the perspective. Thanks, Mark.

Operator: Our next question is a follow-up question from Patrick Scholes with Trois. Please answer your question.

Mark: Thank you.

Speaker Change: Our next question is a follow-up question from Patrick Scholes with Truist. Please proceed with your question.

Patrick Scholes: Thank you. I do have a number of follow-up questions here, uh... mark again a little bit more about some of the demand in local markets or if you're seeing, you know, is there some of this related to local market softness? And if so, how does the reorganization address that?

Patrick Scholes: Great, thank you. I do have a number of follow-up questions here.

Speaker Change: Let's talk, Mark and Dan, a little bit.

Patrick Scholes: More about some of the...

Speaker Change: Demand in local markets or if you're seeing, you know, is there some of this related to local market softness?

Mark: And, you know, if so, how does the reorganization address that? Thank you.

Mark Wang: Thank you.

Mark Wang: Yeah, no, that's a really good question, Patrick. So, you know, we've talked a lot about our owner business, our owner pipeline, and, you know, what we see on the books. We talk about our direct marketing pipeline, which is related to new buyers. Well, 40% of our tour flow for new buyers actually comes through local marketing. And we have seen a pullback there, and I think it's less about the current macro and more about some of the execution challenges we've had and this is an area that we can do better and we're very focused on right now. And just to give you a definition of what local marketing is. It's our guests that are rental guests staying on the property; it's guests that are frequenting the markets that we're in.

Speaker Change: Yeah, no, that's a really good question Patrick. So it's

Speaker Change: You know, we've talked a lot about our owner business, our owner pipeline, and what we see on the books.

Mark: We talk about our direct marketing pipeline, and our direct marketing pipeline is related to new buyers. Well, 40% of our tour flow for new buyers actually comes through local marketing.

Mark: And we have seen a pullback there, and I think it's less about the current macro and more about...

Chris Woronka: Some of the execution challenges we've had, and this is an area that we can do better and we're very focused on right now. And just to give you a definition of what local marketing is, it's...

Chris Woronka: It's our guests that are rental guests staying on the property, it's guests that are frequenting the markets that we're in.

Chris Woronka: This is an area that we saw softness in the first half. We've identified it, and as I talked about, we've been lagging on some of our hiring, but all of those hiring areas have been identified.

Chris Woronka: You know agendas are in place and so we believe we'll get that turned around as we move into the back half of the year But it will take a little bit of time

Patrick Scholes: Okay, thank you. I do have three more questions here. First one, from a high level. Have you... Have you... Any initial indication of what maintenance fee growth might be for next year? And the reason I bring this up.

Speaker Change: Okay, thank you. I do have three more questions here. First one, from a high level, have you

Mark Wang: Your competitor had a very large maintenance fee increase for this year, 15-ish percent and some resorts over 20 percent, and I've sort of come to the belief that when you put a very large, surprising maintenance increase in, it's going to cause a certain number of Customers to just quit using your product and. Loan Losses and Shocks and Surprises. Any initial indication of what yours might be, is it, you know, would you expect it sort of just the normal mid-single digits next year?

Speaker Change: Any initial indication what maintenance fee growth might be for next year?

Speaker Change: bring this up. Your competitor had a very large maintenance fee increase...

Speaker Change: for this year, and 15-ish percent, and some resorts over 20 percent, and I've sort of come to the belief that when you put a very large, surprising maintenance increase in, it's going to cause a certain number of problems.

Speaker Change: Customers to just quit, quit your product and, you know, result in...

Speaker Change: Loan losses and shocks and surprises. Any initial indication what yours might be? Is it, you know, would you expect it's sort of just the normal mid-single digits next year?

Mark Wang: Yeah, we're expecting normal mid-single digits, and, you know, I'm not sure what the competitors are doing, but we consistently... utilized even during the pandemic we during COVID, we continue to move our maintenance fees up kind of that mid single digit. So there's no catch up requirement now. So we're not going to be surprising anybody with anything more than a mid-single-digit increase this coming year.

Speaker Change: Yeah, we're expecting normal mid-single digits and, you know, I'm not sure what the competitors are doing, but we consistently...

Speaker Change: Even during the pandemic, during COVID, we continued to move our maintenance fees up kind of that mid-single digit, so there's no catch-up requirement now, so we're not going to be surprising anybody with anything.

Patrick Scholes: Okay, good. Then two more questions here. Yeah, you talked about the bottom third not doing well. Does this unfortunately imply that? you're underwriting for Blue Green is tracking behind initially at this point, and related to that, you know, where do you stand with your synergies versus your targets for that acquisition? Thank you.

Speaker Change: More than a mid-single-digit increase this coming

Speaker Change: Okay, good. Then two more questions here. You know, you talked about the bottom third really not doing well. Does this unfortunately imply that

Speaker Change: You're underwriting for...

Speaker Change: Blue Green is tracking behind initially at this point and related to that, where do you stand with your synergies versus your targets for that acquisition? Thank you.

Mark Wang: Yeah, so I'll take the front end of that, and I'll let Dan talk to you about the synergy. So, look, we're looking at our KPIs and VPGs across all the brands, and you know, HEV, Diamond Legacy, and everything is here, moved down on a similar basis. So there's really no discernible difference or decline across any of the businesses. I would say that there is some pressure on the Blue Green customer, as I just mentioned a few minutes ago, around just kind of waiting and seeing what HCV is going to roll out that's going to benefit the Blue Green members, and that we'll be announcing later this year. As far as synergies are concerned, Dan, maybe you can take us through where we're at on that.

Speaker Change: So I'll take the front end of that and I'll let Dan talk to you about the synergy. So look, we're looking at our KPIs and VPGs across all the brands.

Dan Matthews: You know, HEV, Diamond Legacy, and everything is...

Dan Matthews: moved down on a similar basis, so there's really no discernible difference or declines across any of the businesses.

Dan Matthews: I would say that there is some pressure on the blue-green customer, I think I just mentioned that a few minutes ago, around just kind of waiting and seeing what...

Speaker Change: HGV is going to roll out that's going to benefit

Speaker Change: The Blue Green members, and that we'll be announcing later this year. As far as synergies, Dan, maybe you can take us through where we're at on that. Yeah, no, absolutely. When it comes to cost synergies, we are right on track.

Dan Mathewes: Yeah, no, absolutely. When it comes to cost synergies, we are right on track from our original expectations. We're at a run rate of 71-ish, 70 plus million on run rate from cost synergies as of today. That includes, you know...

Dan Matthews: We're at a run rate of 71-ish, 70 plus million on run rate from a cost synergies as of today. That includes, you know...

Dan Mathewes: The primary item that you think of when you think of cost synergies, headcount reduction, etc. So for the balance of the year, I don't expect that run rate to materially change. We'll be driving towards that $100 million more in 2025 when you consolidate such items. I'm going to start realizing the savings from consolidation of office space, things like that, but that's more of a 25-year issue. From a revenue synergies perspective, keep in mind we have yet to even start rebranding any sales centers or resorts at this point, which is in line with our original expectations. So although it's not a bit, it's a zero, which is in line with expectations. So I think we're on track and actually in a good place from a synergy perspective as of June.

Dan Matthews: The primary

Dan Matthews: item that you think of when you think of cost synergies, headcount reduction, etc. So for the balance of the year, I don't expect that run rate to materially change. We'll be driving towards that $100 million more in 2025 when you consolidate such items as health benefits, when you

Speaker Change: start realizing the savings from consolidation of office space, things like that. But that's more of a 25 issue. From a revenue synergies perspective, keep in mind we have yet to even start rebranding any sales centers or resorts at this point.

Speaker Change: which is in line with our original expectations. So although it's not a bit, it's a zero, it's in line with expectations. So I think we're on track and actually in a good place from a synergy perspective as of June 30th.

Mark Wang: And then, Patrick, I'd just add that, first of all, we feel really good about both deals that we did and the long-term benefit that they're going to provide the company. We've talked about our ability to leverage our brand across these non-branded resorts. And when you think about it, I talked about just the scale of our distribution network, how much larger it's become, and importantly, how much we've diversified our lead sources, especially with the Blue Green acquisition and Bass Pro and the partners there.

Speaker Change: And then, Patrick, I'd just add on that first of all.

Patrick Scholes: We feel really good about both deals that we we did and the long-term benefit that it's going to provide the company. We we've talked about our ability to leverage our brand across you know these non-branded resorts.

Patrick Scholes: And when you think about, I talked about the, just the scale of our distribution network, how

Patrick Scholes: Much larger it's become

Patrick Scholes: and, importantly, how much we've diversified our lead sources, especially with the Blue Green acquisition and Bass Pro and the partners there. We feel great about these acquisitions. We've tripled our resort size.

Mark Wang: We feel great about these acquisitions. We've tripled our resort size. We've got all this built-in demand. We've got 700,000 members and over 700,000 direct marketing packages. We've increased our recurring EBITDA from 42% to 57% today. And, as you know, our free cash flow conversions moved from 15% to above 50% today. So ultimately, we feel really good that this really supports a great return of capital to our shareholders. This additional cash flow is going to return a lot more capital to our shareholders throughout the cycle.

Speaker Change: We've got all this built in demand, we've got 700,000 members, over 700,000 direct marketing packages.

Speaker Change: We've increased our recurring EBITDA from 42 percent.

Speaker Change: to 57% today.

Speaker Change: And as you know, our free cash flow conversions moved from 15% above 50% today. So ultimately, we feel really good that...

Speaker Change: This really supports a great return of capital to, you know, this additional cash flow is going to return a lot more capital to our shareholders throughout the cycle.

Patrick Scholes: Okay, thank you. And then, I'll preface this with... It's a question I don't think I've ever quite asked before on an earnings call, but I have received a number of inbound calls regarding this topic this morning. And this, you know, really is around questioning the qualifications and experience of that new board member announcement this morning. You know, how would you respond to those concerns? Or, alternatively, was that person joining your board really not under your control? Thank you.

Speaker Change: Okay, thank you. And then one last question here, and I'll preface this with...

Mark Wang: Well, you know, at the end of the day, Apollo has the right to have two board seats, and we believe, and we did the background check, and we believe that the new board member that we just announced this morning is more than qualified. She's been a strong leader within Apollo, but importantly, she was very active in the Diamond Deal, and understands our business. We had our first board meeting with her yesterday. She was in her first board meeting with us yesterday, and she was very thoughtful in her approach and, quite frankly, very up to speed on the business. So we think Apollo made a really good choice.

Speaker Change: Yeah, it's a question I don't think I've ever quite asked before on an earnings call, but I have received a number of inbounds...

Speaker Change: regarding this topic this morning, and this really is around

Speaker Change: questioning the qualifications and experience of that new board member announcement.

Speaker Change: this morning. How would you respond to those concerns? Or alternatively, was that person joining your board really not in your control? Thank you.

Speaker Change: Well, you know, at the end of the day, Apollo has the right to to have two board seats. And we we believe and we we did the background check. And we believe that the new board member

Speaker Change: that was, we just announced this morning, is more than qualified. She has been a...

Speaker Change: A strong leader within Apollo, but importantly, she was very active in the Diamond Deal, understands our business.

Speaker Change: We had our first board meeting with her.

Speaker Change: Yesterday, she was in her first board meeting with us yesterday, and she was very thoughtful in her approach, and quite frankly, very up to speed on the business. So we think...

Dan Mathewes: Yeah, and I can only echo the sentiments. I think just to add a little bit more. She has been involved. We have known her since 20, even going back to 2019, so she's been involved in the industry for a number of years. She's very much engaged, so we're excited that she's on the board.

Speaker Change: I think we think Apollo made a really good choice. Yeah, and I can only echo the sentiments. I mean, I think just to add a little bit more,

Speaker Change: She has been involved, we have known her since 20, even going back to 2019. So she's been involved in the industry for a number of years. She's very much engaged. So we're excited that she's on the board.

Patrick Scholes: Okay, thank you. That's good to hear. I think that'll alleviate some of the... folks who had reached out to me this morning with those concerns. Thank you.

Speaker Change: Okay, thank you. That's good to hear. I think that'll alleviate some of the folks who had reached out to me this morning with those concerns. Thank you.

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

Speaker Change: Thank you. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

Mark Wang: All right. Well, thank you. Before we wrap up, I'd be remiss not to acknowledge that today is the one-year anniversary of the tragic wildfires in Maui. As we mark this somber occasion, I'd like to thank all of our team members for their hard work and service to the community, to our guests, and to one another. They showed tremendous courage and resolve as we worked through the initial tragedy, but we know that it will take time for West Maui to fully recover, and we will be there to support our teams and local communities for the long term. Again, thank you for joining us today, and we look forward to speaking to you soon. Thank you.

Mark Wang: Alright, well thank you. Before we wrap up, I'd be remiss not to acknowledge that today is the one year anniversary of the tragic wildfires in Maui.

Mark Wang: As we mark this somber occasion, I'd like to thank all of our team members for their hard work and service.

Speaker Change: to the community.

Mark Wang: To our guests and to one another, they showed tremendous courage and resolve.

Mark Wang: As we work through the initial tragedy, but we know that it will take time for West Maui to fully recover, and we will be there to support our teams and local communities for the long term. Again, thank you for joining us today, and we look forward to speaking to you soon. Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Mark Wang: So we expect pressure on new buyer close rates. As far as tour flow goes, we're expecting flattened by our tour flow as we continue to, you know, ramp up our direct marketing. Through direct marketing, we're going to see growth in the back half of the year, but it will be offset by some softness in our local marketing. From an owner perspective, you know, the business, again, is intact, and it's performing well. And when we look at the owners on the books, we feel pretty good about the arrivals there.

Mark Wang: And this is an area that we saw softness in the first half. We've identified it, and as I talked about, we've been lagging on some of our hiring, but all of the hiring. You know, agendas are in place, and so we believe we'll get that turned around as we move into the back half of the year. But it will take a little bit of time.

Mark Melnyk: You can find details of our current and historical deferrals and recognitions in table T1 of our earnings release. And a complete accounting of our historical deferral recognition activity can also be found in Excel format in the financial reporting section of our investor relations website. In a moment, our chief executive officer, Mark Wang, will provide highlights from the quarter and an update on our current operations and company strategy. After Mark's comments, our President and Chief Financial Officer, Dan Mathewes, will go through financial details for the quarter. Mark and Dan will then make themselves available for your questions. With that, let me pass the call over to our CEO, Mark Wang. Mark.

Dan Mathewes: The other thing I would tell you is when you look at how we run our bad debt provision, and I don't have insight into any of our competitors, but our bad debt is based on a very robust static pool model that utilizes in excess of 15 years of historical loss data that takes into consideration by loan, fight, go, and ask levels by even country of origin. And those loss models are updated on a monthly basis.

Dan Mathewes: And... Any changes that occur this month are applied to the previously originated loans and then also applied on a prospective basis. That helps to capture current trends quickly and mitigates wild swings, revision to the extension recovery tree, discovery of the south facing panorama guitar tree, or research, and then, in addition to that, we account for very significant items like pre-famous and even later stage defaults, and that third bucket that goes in, and again, this is done over a month. Now when it comes to blue-green, we alluded to it in our prepared comment.