Hilton Grand Vacations Inc. Common Stock 2026 Q3 Earnings Call

Please go ahead, sir. Thank you, operator, and welcome to the Hilton Grand Vacations third quarter 2026 earnings call.

Our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements, and these statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our SEC filings. Our reported results for all periods reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we are required to defer certain revenues and expenses related to sales made in the period when a project is under construction and then hold off on recognizing those revenues and expenses until the period when construction is completed.

The aggregate of these potentially overlapping deferrals and recognitions from various projects in any given period are known as net deferrals and recognitions. Please note that in our prepared remarks today, we will only be referring to metrics that remove the impact of net deferrals and recognitions, which more accurately reflects the cash flow dynamics of our financial performance during the period. To simplify our discussion today, we have uploaded slides to our investor relations site showing these metrics, which we will be referring to on today's call. I would urge you to view these slides on our website at investors.hgv.com. During the third quarter of 2026, we obtained a certificate of occupancy for our Ka Haku project. The receipt of that certificate triggered the recognition of previously deferred revenues and direct expenses associated with prior sales of the project's inventory, resulting in a net recognition for the period.

On slide 2 of these materials, you can see the recognition-adjusted metrics that we'll be referring to on today's call. Reported results for this quarter reflect $536 million of net contract sales recognitions under ASC 606, which had the effect of increasing reported GAAP revenue. Also shown on slide 2, we recognized a net $240 million of direct expenses associated with these revenues. Adjusting for both of these items would decrease the adjusted EBITDA to shareholders reported in our press release by a net of $296 million to $313 million. With that, let me turn the call over to our CEO, Mark Wang.

Mark? Morning, everyone, and thank you for joining our third quarter earnings call.

This was a challenging quarter for us, and our results in Q3 fell short of our expectations and outlook provided on our last call. Although the underlying business model, recurring revenue streams, and cash flow generation of the business remained resilient, the 11% reduction in contract sales was below our forecast for a mid-single-digit decline. While we implemented a series of initiatives at the end of Q2 to address sales execution, primarily at our Bluegreen locations, we expected those efforts would take time to drive significant improvement. Trends at both our Legacy and Bluegreen brands weakened further in August before gaining traction across the business late in the quarter. To be clear, we're not satisfied with this outcome, and we're moving with an increased sense of urgency to return to sales growth and deliver long-term shareholder value.

The contract sales decline in the quarter was driven by sales execution challenges, particularly our closing rates. We've identified key drivers of that conversion rate softness, namely the need for incentive alignment to drive higher transactions, along with a more dynamic headcount environment in certain markets requiring enhanced recruiting and retention programs. While they have taken longer to ramp, our initiatives are designed to address those underlying drivers. From a macro perspective, while travel intentions remain resilient, we believe that sustained elevated pressure on the consumer are having marginally more impact on the purchase decisions versus a quarter ago. We also faced final difficult comparisons of 17% from our successful Bluegreen Max launch period this quarter, although those were headwinds that we anticipated and not an incremental driver of softness. Importantly, we don't see this as an issue of willingness to travel.

Tour flow for the quarter was consistent with our expectations, as it's been all year, and our arrivals on the books, occupancy levels, and package pipelines remain favorable. But we didn't convert those tours into transactions at the level we should have. We continue to have the strongest value proposition, product, and inventory that we've ever had, and we need to execute more consistently across the system to take advantage of those strengths. That said, in light of our Q3 results, we're reducing our guidance to reflect a more realistic view on the timing and ramp of the near-term sales in EBITDA growth. Last quarter, we discussed targeted initiatives around incentive alignment, training, and recruiting, along with organizational initiatives with the goal of improving our execution and conversion rates. Here are some of the direct actions we took.

In Bluegreen Orlando property, we put a new leader in place, rebuilt the team, and returned to growth in September. In Bluegreen's Myrtle Beach property, we also made leadership changes that stabilized the business, and while it will take time to ramp, we are encouraged by their progress. We tested updated incentive plans that generated a positive outcome, and we are in the process of delivering them to other key markets based on these early results. As I mentioned earlier, the cadence of the quarter demonstrated some early signs of positive traction from those initiatives. August marked the low point for sales, and in September, we narrowed the gap considerably with several of our key sales centers returning to positive growth for the month, demonstrating a trend of measured improvement that continued into October.

Controlling for the effect of those tougher year-over-year comparisons, contract sales growth trends improved materially in each month of the quarter on a two-year stacked basis. While the monthly trends give us confidence that we are on the right track, our results make it clear that we still have more work to do. As a result, we are expediting our pace of rollout across our brands. We made further incentive changes to enhance alignment across the business, ensuring we are positioned competitively in key markets. We brought additional sales talent into the organization through productive recruiting efforts, including a mix of former HGV team members and new employees. We have seen further improvements in October as a result. In a separate release this morning, we announced a change to our sales leadership.

Mike has a track record of driving growth throughout his career, including 15 years of consistent execution at HGV across multiple markets and brands, and I am confident he is the right leader to renew our sales momentum and oversee our next phase of growth. In addition, we have an opportunity to dedicate additional energy toward improving conversions in our new buyer channel, which is critical to the long-term value creation in our industry. First, our robust tour flow and diversity of lead channels provides us with the opportunity to further focus our resources on channels with the highest profitability, as well as the customers with the highest propensity to close. By improving our channel efficiencies, we will generate higher transactions and higher profit contribution from a smaller set of tours.

Second, we have identified areas where we have the ability to provide additional value and enhance accessibility to certain segments of our customer base with new products and price tiers, further improving our value proposition in driving transactions. This will enable us to continue to adapt our product and our approach to meet the customers where they are, and with a product that fits their needs while preserving their future upgrade path as owners. These additional actions are about making every tour count, driving improved conversion rates, and increasing the transactions that are critical to growing embedded value, as the majority of a member's lifetime value is generated within the first 5 to 10 years of ownership. That embedded value extends beyond our real estate business, fueling our recurring club and resort and financing business that represents well over half of our segment profit.

For the quarter, our financing business revenues grew 16% while expanding margins, and our club and resort business continues to demonstrate consistent growth while producing our highest margins. That performance has been aided by the 20% growth of our HGV Max member base, which has now surpassed 300,000 members. These are high margin, predictable earning streams anchored by our Max membership base, and they have supported EBITDA and cash flow generation despite the pressure on contract sales. They demonstrate the resilience of our operating model as a whole, supporting our robust cash flow generation and capital returns. This quarter, we repurchased another 2.4 million shares for $110 million as part of our ongoing commitment to returning excess cash flow to shareholders, and we continue to expect and meet our target of returning $600 million for the full year.