Hilton Grand Vacations Inc (HGV) Q4 2024 Earnings Call Highlights: Record Free Cash Flow and ...

• Contract Sales: $837 million for the fourth quarter, driven by strong VPG performance.
• Adjusted EBITDA: $289 million with margins excluding reimbursements of 23%.
• VPG (Volume Per Guest): $4,026, over 20% ahead of pro forma 2019 levels.
• Occupancy Rate: 82% for the quarter.
• Member Count: 724,000 at the end of the quarter.
• Adjusted Free Cash Flow: Record $837 million for the year.
• Shareholder Returns: $432 million returned to shareholders, reducing diluted share count by 10%.
• Revenue Excluding Cost Reimbursements: $1.2 billion for the quarter.
• Real Estate Sales and Marketing Expense: $387 million, or 46% of contract sales.
• Financing Business Revenue: $153 million with segment profit margins of 61%.
• Rental and Ancillary Revenues: $174 million with a segment loss of $11 million.
• Non-Recourse Debt Balance: Approximately $2.3 billion at quarter end.
• Net Leverage: 3.77 times on a TTM basis.

• Warning! GuruFocus has detected 3 Warning Signs with HGV.

Release Date: February 27, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hilton Grand Vacations Inc (NYSE:HGV) successfully closed the Bluegreen acquisition, adding nearly 200,000 members and expanding its portfolio to over 200 properties.
• The company made substantial progress towards achieving $100 million in cost synergies, enhancing sales and marketing execution.
• HGV launched HGV Max to Bluegreen members, providing access to more properties and destinations, which led to growth in transactions and contract sales.
• Record free cash flow generation was achieved, with over $432 million returned to shareholders.
• Strong performance in the APAC region, particularly in Hawaii, with high demand for new properties like Ka Haku in Waikiki.

Negative Points

• The consumer environment remains challenging due to inflation and elevated interest rates impacting spending and sentiment.
• Back-to-back hurricanes in the southern US affected tour growth, causing nearly $23 million in lost contract sales and $11 million in EBITDA.
• The addition of Bluegreen's rental business has negatively impacted rental segment profitability, particularly in seasonally slower quarters.
• The financing optimization program will increase consumer finance interest expenses by $25 million, impacting adjusted EBITDA.
• The company faces a $30 million EBITDA headwind in 2025 due to changes in license fee rates for Diamond and Bluegreen sales.

Q & A Highlights

Q: How should we think about the growth rates between tour flow and VPG in your 2025 outlook? A: Mark Wang, CEO, explained that they expect strong top-line revenue driven by growth in contract sales, with initiatives like the rollout of HGV Max and Ultimate Access. They anticipate low to mid-single-digit growth in tours and VPG. Erin Day, Acting CFO, added that they expect mid to high single-digit overall growth, despite some unique expense headwinds impacting EBITDA.

Q: Can you explain the optimization program and its impact on cash flow and share repurchases? A: Erin Day, Acting CFO, described the program as increasing the pace of securitization, which will generate more cash flow for share repurchases. They anticipate generating $800 million in cash flow in 2025, with $600 million committed to share repurchases. The program will ramp over 18 months, targeting a non-recourse borrowing rate of 65% to 70% in 2025.

Q: How is the loan loss provision expected to trend in 2025 compared to 2024? A: Erin Day, Acting CFO, noted that while the provision bounced around in 2024, they expect it to stabilize in the mid-teens on an annualized basis in 2025. The provision typically ticks up throughout the year with a decline in the fourth quarter.

Q: What is the sales cycle length for Bluegreen HGV Max, and is there a tailwind for the next few quarters? A: Mark Wang, CEO, stated that the launch of HGV Max saw strong uptake, and it will take 18 to 24 months to get in front of all members. The sales cycle involves introducing HGV Max in sales centers, and it will take time to present the value proposition to all customers.

Q: What changes have you seen in customer behavior across different segments post-election? A: Mark Wang, CEO, mentioned that trends remain broadly the same, with pressure on cost of living due to inflation. However, leisure travel remains strong, and they saw improvements in VPGs and closing rates across all brands. The bottom third net worth customer has stabilized, and execution has improved.

Q: Can you provide an update on your geographic distribution and future growth areas? A: Mark Wang, CEO, highlighted that the company has expanded its geographic reach significantly since 2019, adding 44 new regional markets. Future growth opportunities include Nashville, Texas, and Japan, with a focus on incremental markets for high single-digit to low double-digit growth.

Q: How does the Bluegreen ownership convert to HGV Max, and what is the upgrade propensity? A: Mark Wang, CEO, explained that Bluegreen owners can upgrade to HGV Max with a conversion rate for their points. The upgrade propensity for Bluegreen is expected to be lower than HGV Legacy but still strong, with VPGs higher than historical levels.

Q: Why not do the securitization all at once instead of over 18 months? A: Erin Day, Acting CFO, stated that ramping the securitization over time allows for tighter spreads and is somewhat dependent on securitization market conditions. They expect to reach the full non-recourse percentage by the first half of 2026.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.