HGV Q3 2023 Earnings

Call Details

• Call Title: Hilton Grand Vacations Q3 2023 Earnings Call
• Date: November 6, 2023 at 4:00 PM UTC
• Management Team:
  • Mark Melnyk (Senior Vice President of Investor Relations)
  • Mark Wang (Chief Executive Officer)
  • Dan Mathewes (Chief Financial Officer)

Call Summary

Financial Performance

• Contract sales in Q3 were $603M and reported adjusted EBITDA was $276M with margins of 27%.
• Total revenue excluding cost reimbursements in Q3 was $933M, which was down about 2% versus the prior year.
• Real estate profit for the quarter was $167M with margins of 34% versus Q2 and the first half of 2023.
• Real estate sales and marketing expense was $273M, or 45% of contract sales for the quarter, which was higher than expectations.
• Adjusted free cash flow for the quarter was $257M, which included $36M of inventory spending and excluded $25M of acquisition-related costs.
• Quarter adjusted free cash flow conversion rate was 93% and the company stated confidence in achieving the low end of its 50% to 60% annual conversion target.

Guidance

• The company lowered 2023 adjusted EBITDA guidance to $1.00B to $1.02B from prior guidance as stated on the call.
• The reduction in guidance includes a $10M Q3 impact from the Maui wildfires and an expected $7M to $10M further drag in Q4 for a total Maui impact of $17M to $20M.
• Dan reported pro forma leverage as of 9/30 of 3.4x and stated an expectation to return to the 2.0x to 3.0x target range within 18 months of closing the Bluegreen acquisition.
• The company expects the Bluegreen transaction to close in the first half of 2024 and to be double-digit accretive on adjusted free cash flow per share on a pro forma basis.
• The company stated that Q4 real estate sales expectations were adjusted lower and that sales and marketing expense ratio was expected to improve sequentially in Q4.
• The company reiterated confidence in the adequacy of its loan loss provision and disclosed an annualized default rate of 8.53% in Q3 versus 8.68% in the prior quarter.