HGV Quarter 2 2024 Investor Call Highlights

[dayooper]

HGV Investor Call 8-9-2024

2024 Q1 Investor Call
2023 Q4/Annual Earnings Call
2023 Q3 Earnings Call
2023 Q2 Earnings Call
2023 Q1 Earnings Call
2022 Q3 Earnings Call
2022 Q1 Earnings Call
2021 Q3 Earnings Call

Here is the highlights from the HGV 2024 Investor call

• Contract Sales was $757 Million with Bluegreen accounting for $189 million of that
• New buyers were 31% of total sales
• EBITDA of $270 Million (below expectations)
• April and May were on target, but June was very slow
• Saw slower sales in all brands in June
• Slower consumer discretionary spending (it really slowed in June)
• Maui and Ocean Tower did not meet sales expectations
• Had major restructuring of sales department with Bluegreen integration
• Wants a more centralized approach with large market
• Give tools to smaller markets to bring in more localized tours
• They have fixed or are fixing the sales issues, but may take time to move through the business model
• Tour and VPG (volume per guest) was down from last year
• 228,000 total tours with Bluegreen just under 66,000 of them
• Current owner sales say a mid single digit increase in each month of the quarter
• Current owner sales are up 15% from the same time in 2019
• New buyer tours are down
• VPG was $3,300 and that 10% up from 2019 levels
• Legacy HGV and Bluegreen VPG was down single digit percentages from last year
• Bad debt provisions was at 15% (actual rate was 9.68%)
• Real estate sales and marketing expense was $375 million (49%)
• Revenue was $171 million for the quarter and segment profit was $123 million
• Rental and ancillary revenues were $195 million in the quarter
• Revenue growth was driven by higher available room nights offset by slightly lower RevPAR (revenue per available room), expenses on low legacy business continued to be elevated due to the impact of additional inventory and developer maintenance fee expense, along with inclusion of Bluegreen's, much lower margins, rental business.
• Occupancy was 83%, a very acceptable level. They just need to sell to those travelers
• $370 million in free-cash flow, bought back 2.3 million shares ($100 million)
• Rebranded 40 resorts (9800 keys) and plan to rebrand 7 more (1300 keys)
• Combined the Legacy HGVC and Diamond member websites
• Members are using Great Wolf Lodge trips
• Hope to roll out Max to Bluegreen soon, but no timeline
• 702,000 combined members
• Asked about MF increases and referenced a competitor and the 15% - 20% increase. Said they are projected to be mid single digit increases

My take - This was a hard read. The deflection was evident in reasons why they underperformed this quarter. From lower consumer spending to the reorg and centralization of their sales department and underperforming resorts, they had an excuse for everything. The finance guy even did a figure taking away the sales of Ocean Tower and Maui. While it’s not as bad as other systems, it was a bad quarter. Hopefully this is just one time thing and they will rebound. One thing they did say was the strengthening Yen was going to help and they were already seeing some improvement in the Japanese market. Their new Japanese resort is completely booked and they predict they will see an increase in Japanese travel to Hawaii soon.

Last question was on the new appointed board member. The question was if they were qualified for the spot. Both Mark Wang and the finance person spoke of the new board member and said it was an Apollo hire, bit they were confident that she’s up to speed (she was in the first board meeting). She was involved in the DRI deal and knows the business.

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[HuskerATL]

Nice summary, thanks

 

[Chris-ATX]

Appreciate the summary.

 

[Chris-ATX]

Does this suggest more “deals”?

Doesn’t suggest softness in the resale market -> eg perhaps lower resale deep prices?

I know we’d like at least 1 more deed to our portfolio but we aren’t chasing anything right now. Sitting tight till the fall when we expect folks will be more amenable to a buyer-centric transition

 

[HuskerATL]

Does this suggest more “deals”?

Doesn’t suggest softness in the resale market -> eg perhaps lower resale deep prices?

I know we’d like at least 1 more deed to our portfolio but we aren’t chasing anything right now. Sitting tight till the fall when we expect folks will be more amenable to a buyer-centric transition

The veterans in TUG are always watching for the unicorns.... No hurry but watching for that great deal.

 

[WaikikiFirst]

1st time I ever read a HGV conf call transcript. WOW, that CEO talks a LOT. If it can be said in 30 words or 8 words, he knows exactly what 30 words to blah blah. CEOs are generally like that, but this M Wang guy is out of control. Things that were somewhat pithy or otherwise important:
1) CEO actually said "the bottom third of the new buyers is just falling apart for us". FALLING APART. Seldom hear CEOs say something like that about 1/3 of potential customers. Danger Will Robinson.
2) They seem to have canned the existing head of sales and promoted some guy from Bluegreen named Dusty. I can imagine that went over GREAT in the HGVC sales world.
3) CEO went out of his way to throw shade on the (departed?) ex-head of sales 3 or maybe 4 times. It was strange. Seemed personal. 1 example: "Some leaders were not focused necessarily on the execution." I get the idea the ex-head of sales always hung out in Hawaii, LV, Orlando & NYC and CEO didn't like it.
4) They claim July was much better than June, but did it alost as an aside about 70% of the way thru the call. Again, VERY strange. In the world of stocks I own, "How was the last month?" and CEO attempting to point out that last month was better than the crappy prev quarter are right up front. Strange.
5) 80% of lousy results and lousy guide due to lousy #Tours & lousy closing rate = lousy contract sales. 20% due to higher defaults and higher provisions for that
6) Q2 Real estate, contract sales =$757 M. Bluegreen contributing $189 M. I think I can find all the #s to know how BG did vs HGVC/Diamond did, but I haven't done it. Has anyone done that? And it seems like the SEC has already deleted BG's 10qs & Ks from edgar? Your tax $s at work
7) They blamed "new buyers" over & over again, but said this "New buyer = 31% of Q2 contract sales, 300 bps higher than in Q1". Huh? New buyers are the problem but they were actually relatively strong than in Q1. But the transcriber seemed to have trouble understanding the CEO sometimes, so not sure what he really said a half-dozen times. Maybe there?
8) Rental & ancillary revenues = $195 M. segment profit = $7 M, margin < 4%. Not sure important, but interesting they make almost no money on renting rooms
9) Following this idea that the reason for the acquisitions is to upgrade Diamond and BG owners to more expensive HGVC stuff, it seems like they promoted the BG guy to head of sales because they are going to throw resources at the "smaller sales offices". CEO even said "we've learned and also by looking at Bluegreen's model that we needed to reinforce critical mid-level leadership. We needed more dedication and greater oversight on these smaller sales centers"
10) somebody actually said (and I forget who said it) "with the acquisition of Bluegreen, I sat in a room for 90 days to identify the right talent and the right leaders for the right regions." and (not real quote here but this is what he said) "so sitting in the room, I forgot to hire anybody so we are understaffed in S&Mkt. Now we're hiring and maybe by the end of 2024, some of them will be productive." lmao
11) non-wealthy people (the bottom third) cannot afford our product so "Looking at ways to adjust our product to meet that bottom"
12) maybe more to come

 

[WaikikiFirst]

reading it, I kept thinking "COFFEE IS FOR CLOSERS"

 

[WaikikiFirst]

Does this suggest more “deals”?

HGV said existing owners are doing fine, esp the wealthier ones, ie HGVC.
They were telegraphing giving out a LOT more tours, esp to non-owners, and to "locals", though their definition of "locals" was something you'd have to read. ymmv

 

[GT75]

@dayooper,Thanks for the update. These investor calls are always an "interesting" read. I am always trying to figure out how they will impact us Legacy owners. I don't want to be squeezed in the change of policy.

Asked about MF increases and referenced a competitor and the 15% - 20% increase. Said they are projected to be mid single digit increases

This looks like good news for us. We will see how it unfolds. We won't have to wait too long to see if that statement is true.

Combined the Legacy HGVC and Diamond member websites

Isn't it actually a unified login but separate websites (but I guess we can get from one to the other)? I know that the backends are completely different systems because CS have referred to the software names on the phone to me). I assume that BG will be on another system.

 

[HuskerATL]

@dayooper,Thanks for the update. These investor calls are always an "interesting" read. I am always trying to figure out how they will impact us Legacy owners. I don't want to be squeezed in the change of policy.


This looks like good news for us. We will see how it unfolds. We won't have to wait too long to see if that statement is true.


Isn't it actually a unified login but separate websites (but I guess we can get from one to the other)? I know that the backends are completely different systems because CS have referred to the software names on the phone to me). I assume that BG will be on another system.

yep....nothing unified about it, except a login page and then you select which account to bounce to....unless they are hinting at the login page and the ability for Max folks to be able to see property in the other system in one account. For Legacy, it is the same system...just a different login page.

 

[GT75]

ability for Max folks to be able to see property in the other system in one account.

Oh yes. That must be it. I guess if we would purchase Max then it would be unified for us.

 

[jp10558]

1) CEO actually said "the bottom third of the new buyers is just falling apart for us". FALLING APART. Seldom hear CEOs say something like that about 1/3 of potential customers. Danger Will Robinson.


11) non-wealthy people (the bottom third) cannot afford our product so "Looking at ways to adjust our product to meet that bottom"

I don't know what this means really - I always thought their bottom end was decidedly NOT bottom end in terms of demographics - IIRC they a few years ago wanted to see like $75,000 a year income on a potential customer. Which ties me into the whole Bluegreen as lower down the market - IDK anything about Bluegreen, but those who do - are they priced a lot cheaper with noticeably lower MFs? If say Bluegreen is going to target the timeshare equivalent of the Spark/Tru by Hilton hotels... Seems like it would need to come in at least ~35% lower on both?

My guesses is that it's more realistic to catch the people at Bluegreen that are already at HGVC average income levels that just for whatever reason bought into "downmarket" and try and convert them over to "upmarket" but IDK if HGVC would let / be able to trade in Bluegreen Deeds towards HGVC deeds. Other stuff I saw just made it seem like if Bluegreen isn't cheaper and can't really be made cheaper they'd be risking people trading in crap deeds for at least semi desirable deeds. Not that HGVC won't make money on the upsell up front, but have a lighter sort of "death spiral" in the Bluegreen brand where no one viable is holding on to those deeds.

Haven't they already had some issues where DRI is a massive drag because it's much harder to sell or at least has massive unsold inventory (and again might sell Max but won't want to trade those in for "upsells"). Doesn't DRI also have higher MFs than HGVC for similar units, and generally are considered lower market as well as less nice resorts?

Finally, they want to supposedly market BG -> DRI -> HGVC right? Maybe the "bottom third of the buyers" is falling apart because they're trying to sell them stuff thats both a worse deal overall than HGVC to people with less money, AND that up front costs the same. They're just artificially claiming they have a downmarket option, but the costs aren't downmarket costs.

How do you adjust to meet the bottom if you also have to massively invest to fix up or at least convert to Hilton branding? I think in reality they need to figure out a way to not make Bluegreen death spiral but force costs down a LOT so prices can come down. And DRI needs to go down a bit. Just claiming you have a lower end brand doesn't help with lower end buyers, you need lower end prices too.

2) They seem to have canned the existing head of sales and promoted some guy from Bluegreen named Dusty. I can imagine that went over GREAT in the HGVC sales world.

Seem's like they obviously don't want 3 separate sales systems. But IDK how Bluegreen sales were compared to HGVC sales - does it seem like they were markedly better for making sales?

3) CEO went out of his way to throw shade on the (departed?) ex-head of sales 3 or maybe 4 times. It was strange. Seemed personal. 1 example: "Some leaders were not focused necessarily on the execution." I get the idea the ex-head of sales always hung out in Hawaii, LV, Orlando & NYC and CEO didn't like it.

This one would need more context for me to understand it - To the extent the top level management could be anywhere, it seems like the big centers would be the correct place for them to go. Affect the most scale right?

5) 80% of lousy results and lousy guide due to lousy #Tours & lousy closing rate = lousy contract sales. 20% due to higher defaults and higher provisions for that

Realistically I'd love to know the closing rate on tours at all.

6) Q2 Real estate, contract sales =$757 M. Bluegreen contributing $189 M. I think I can find all the #s to know how BG did vs HGVC/Diamond did, but I haven't done it.

Yea, BG doesn't seem oversized here so why pick their sales strategy? But IDK percentages, maybe BG is actually like 10% of properties, tours, etc and then is overperforming?

7) They blamed "new buyers" over & over again, but said this "New buyer = 31% of Q2 contract sales, 300 bps higher than in Q1".

I don't get blaming buyers at all - such a weird cultural time where many things are "the customers fault". It's like everyone thinks "potential customers" should be customers and if they decline, those people are cheating the business or something.

8) Rental & ancillary revenues = $195 M. segment profit = $7 M, margin < 4%. Not sure important, but interesting they make almost no money on renting rooms

This one is almost the most confusing to me - it might well put the lie to the idea many on TUG have that the developers are driving owners out of renting by undercutting them or out advertising them or whatever. It might just be there's really soft rental demand. I also think the week concept is not where lots of peoples heads are. And the resort idea, especially something like HGVC is almost too upscale for many people - even if the Timeshare system makes it affordable, the concept doesn't seem affordable.

9) Following this idea that the reason for the acquisitions is to upgrade Diamond and BG owners to more expensive HGVC stuff, it seems like they promoted the BG guy to head of sales because they are going to throw resources at the "smaller sales offices". CEO even said "we've learned and also by looking at Bluegreen's model that we needed to reinforce critical mid-level leadership. We needed more dedication and greater oversight on these smaller sales centers"

I wonder if the idea is they're going to do more tour stay deals and VIP deals at smaller locations? Though then you're also competing against owners for limited capacity.

 

[ernststarhemberg]

Leisure travel across the board is softening and portends a rough intermediate future for timeshare retail sales.

Not only are the lower economic echelons tapped out, wealthy spenders are pulling back, too. I'd expect to see new sales drop but current ownership utilization increase as people opt to vacation at properties they've already bought into rather than shell out extra money for a vacation at a non-HGV vacation.

 

[dayooper]

@jp10558

The addition of BlueGreen fits in with what Mark Wang has been saying since they acquired/merged with Diamond; it’s all about the ownership path. BlueGreen is a lower cost/lower quality system. There are some nice resorts, but they pale in comparison to HGVC and even the nice, rebranded Diamond resorts. They cost less to acquire, but with trade in’s, they theoretically can continue to up sale all the way to Hilton Club.

As far as MF’s go, having HGVC with lower NF’s is a feature, not a bug. Sales can sell the lower MF’s of HGVC and get those trade in deeds and points. Interesting enough, BlueGreen was very, very active with their ROFR unless it was purchased through Pinnacle.

I’m not sure how this will all work, but the trade up with new money works great in getting owners to buy more, especially if they are sold a dog of deeds/points (usually in purpose). They can trade it in for better contract. Also, with BlueGreen and Diamond, HGVC takes over the management of the property so they get to collect the management fees. This is no small amount.

 

[Reddart]

I’m not sure how this will all work, but the trade up with new money works great in getting owners to buy more, especially if they are sold a dog of deeds/points (usually in purpose). They can trade it in for better contract.

I quickly looked over at the Bluegreen forum for an idea of their maintenance fees. If what I read was true (25000 BG points ≈ 15000 HGVC points), these are 3 legged blind and deaf dog of deeds. Makes a gold season HGVC deed look good. I guess that is the strategy.

 

[alwysonvac]

In their June 2024 investor overview presentation, they had a slide showing their delinquency process for handling missed loan payments (see below).
Hopefully the HOAs have a process outlined for owners with late maintenance fees (but no loan) otherwise we might see our maintenance fee grow to double digit increases over a short period of time.

From https://s27.q4cdn.com/757306400/files/doc_presentations/2024/Jun/29/final-hgv-general-deck-jun24.pdf

 

[GT75]

Hopefully the HOAs have a process outlined for owners with late maintenance fees (but no loan) otherwise we might see our maintenance fee grow to double digit increases over a short period of time.

It will also depend on which TS system they are in HGVC, HVC, HC or BG. For HGVC, it will then depend on which resort. I think that HGVC/HC MF delinquency rate was much lower prior to purchase of DRI and BG.

 

[WaikikiFirst]

IDK how Bluegreen sales were compared to HGVC sales - does it seem like they were markedly better for making sales?

they give enough data to make useful calcs

2q24	Legacy	BG	total
Tours	162000​	66000​	228000​
Contract Rev	$ 568	$ 189	$ 757	$M
Rev/Tour	$ 3,506	$ 2,864	$ 3,320	called "VPG"
	22%​		71%​

non-BG (Legacy) had $3500 VPG in Q2. BG's' was only $2864, Legacy is 22% higher, which makes sense giving the locations & price of the units.
What about Closing Rate? Well, since BG is about 1/4th of the biz (189/757) we would expect the Total VPG to be 75% of the way up between the low # of BG and the high # of Legacy. It is 71% of the way up. I think this means BG's close rate was slightly below the Legacy, but not by much.

 

[WaikikiFirst]

I'd love to know the closing rate on tours at all.

given the $3320 VPG, I think it must be about 10%, but I'm not thinking hard about so maybe I'm missing something. Does "avg" purchase cost $33K?
Whatever "avg Purchase" is, Close Rate must be VPG/AvgPurch, no?

 

[WaikikiFirst]

BG doesn't seem oversized here so why pick their sales strategy? But IDK percentages, maybe BG is actually like 10% of properties, tours, etc

in Q2, BG was 29% of tours and 25% of Contract Rev $s. Properties? idk. Seemed to me HGV is "picking their sales strategy" because upgrading the BG installed base is / was a key part of the acquisition strategy. Who knows the BG installed base better than the head of BG sales, whom HGV just promoted to head of all sales.
I think dayooper has it right. I had heard that before and after reading that transcript I believe it even more.

 

[CalGalTraveler]

Was the head of sales that the CEO blamed From Diamond or HGVC? (FWIW...Not uncommon for sales heads to roll when they don't produce - so nothing unexpected here).

#11 "low end buyers cannot afford our product "- ya think?

BTW...MVC is also struggling.

 

[Chris-ATX]

Great discussion everyone. Appreciate the comments and perspectives.

Agree tourism is down, hospitality is also down > even though prices remain stubbornly high for many things.

 

[ernststarhemberg]

even though prices remain stubbornly high for many things.

Much to my frustration! I've been wanting a Class B campervan for the past four years, but they skyrocketed in price in 2020 and haven't come down since. There is some softening in the prices right now but two and three year-old used ones are still selling for more than a new one in 2020, even with interest rates being as high as they are. There is a glut in RV inventory everywhere you turn yet prices are holding firm! Between the price and the interest rate something's gotta give, but I'm stuck in the corner waiting until that happens.

 

[jp10558]

Much to my frustration! I've been wanting a Class B campervan for the past four years, but they skyrocketed in price in 2020 and haven't come down since. There is some softening in the prices right now but two and three year-old used ones are still selling for more than a new one in 2020, even with interest rates being as high as they are. There is a glut in RV inventory everywhere you turn yet prices are holding firm! Between the price and the interest rate something's gotta give, but I'm stuck in the corner waiting until that happens.

I honestly think this is also the continuing follow on to the "forced" wage increases. You can insist your inventory is worth some arbitrary amount, but especially with things like campervans, they depreciate over time just sitting there, you presumably pay storage costs, likely your own loans for inventory etc. And there's few things as discretionary as buying a campervan for most people. There's little reason to not wait, especially as I'm seeing so many RVs and camper trailers for sale on the side of the road - someone will eventually offer a good price just to be rid of the thing.

It seems to me retail timeshares are even more discretionary and there's just a limit, even with all the "loan sleaze in the world" won't make a palatable monthly payment for someone. People can be enticed to go for longer than they should loan terms etc, but at some point, more and more people will just say - I literally cannot make that monthly payment. When that comes up in the room you lose the sale. Also, at least IME, timeshares do some shady things to originate the loans, but they're not "buy here pay here" - they still do some sort of credit check and if your credit is frozen, they won't lend to you. Presumably there's a credit score they won't loan to also then.

HGV / BG can dance around this all they want, they don't have a product priced for the bottom third. What may be worse is I'm not sure one can have a product priced there. The entire market for timeshares might just be smaller now.

 

[ernststarhemberg]

"Priced for the bottom third," if it even exists, probably just means EOTY dog deeds at the lowest-tier resorts with the highest vacancies. The people least able to afford a timeshare are now buying into the most disadvantageous rung of the timeshare ladder that they'd be better off not buying into at all.

Timeshares aren't (and shouldn't be) for everybody. It's when they adopt the "everyone should have X" mentality that we start treading into dangerous waters.

Hope HGV is planning on beefing up its bad debt provision.