HGVC 2023 Quarter 2 Earnings Call Transcript Highlights

[dayooper]

Moderator added Previous Earnings Calls:
2023 Q1 Earnings Call
2022 Q3 Earnings Call
2022 Q1 Earnings Call
2021 Q3 Earnings Call

I read over the transcript and here are what I think are the highlights:

• HGV had an 83% occupancy for the quarter
• 1/3 of all sales presentations are digital. They like the tailoring to the potential client
• Increased total tour growth by 21%
• Made $612 million in contract sales in quarter 2 (EBITDA was $252 Million)
• Total of 522,000 members with 100,000 of them being Max
• The repurchased $121 million in HGV stock. Since they started in 2022, they have bought back around $500 million (11 million shares)
• The default rate of their financing, including acquired DRI loans was 8.68%
• 32% of the revenue is from first time buyers. Their goal is 40%. Before the merger, DRI was sitting at 20%.
• The Japanese travel is up within Japan and the Okinawa resorts is very busy
• 16% of all Japanese Hawaii travel is HGV related. Pre-Pandemic is was about 10%. They would like it to be the 25% it was a “few calls ago.” They do a “good amount of business there.”
• A guest analyst describes HGV as doing well for a domestic leisure company.
• They have eliminated their low-down payment option. There is a required 10% down payment for any purchase. (My note, I like this).
• In 2019, the ratio was around 9 tours to make 1 new buyer sale, it’s now up to 10 (way to go TUG!).

My Thoughts:

In general, HGV is doing well. They raised their EBITDA projection $300 million (from $1.09 billion to $1.12 billion). In relation to their competitors, they seem to be doing slightly better. I think the shiny new Max is still drawing in clients and they can spin all of the DRI/HVC properties while many of the desirable ones are not really available. One thing I found interesting is that 2/3 of the revenue in the ownership cycle comes after the initial sale (obviously different for resale buyers). This includes club fees and recurring financing.



Link to the transcript: https://seekingalpha.com/article/46...ions-inc-hgv-q2-2023-earnings-call-transcript

 

[WaikikiFirst]

Total of 522,000 members with 100,000 of them being Max

Wow. given the comments on it here, wow. 20% uptake so quickly has to be considered a big success. Was that $7K/member?

 

[WaikikiFirst]

16% of all Japanese Hawaii travel is HGV related

what does that mean? numerator is? denominator is?

 

[WaikikiFirst]

$300 million (from $1.09 billion to $1.12 billion

?$30 M?

 

[WaikikiFirst]

the financing talk makes myhead spin. Not only do people pay 10x or 20x for something than they need to pay, but they don't actually have the money so they borrow it. Ouch. rubbing sand in the wound

 

[HuskerATL]

In addition to what you put, here are a few interesting bullets:

• So we've refocused our post-pandemic efforts on driving new buyers in order to build a base of future high-margin
• And the remainder are generated from follow-up upgrade sales, which come with substantially better margins than the initial sale.
• And finally, the investments we're making in expanding the capabilities of HGV Max will enhance its attractiveness
• This brought our mix of new buyer tours to two-thirds of the total, which was the highest level since the third quarter of 2019
• Finally, we had solid results from our club and financing business, which are recurring source of more than half of our total EBITDA
• Finally, in the quarter, we repurchased $121 million of shares, which is ahead of our pace from last quarter. On a cumulative basis, since restarting our repurchase programs in the spring of 2022, we bought back 11 million shares, nearly $0.5 billion of our stock
• Total revenue in the second quarter grew 6% versus the prior year to just over $1 billion
• For the quarter, new buyer contract sales made up 32% of the total, which was the highest mix of new buyer sales since the third quarter of 2019
• Our owners are booking. Our owners are up 108%. Our marketing packages are up 114%, and that's really due to the great work our teams have done, activating our package pipeline. We have the industry-leading pipeline of over 560,000 packages sold to-date
• Approximately 32% of our revenue is captured on that first sale. So in essence, we get 68% of the value add owner that's tied to -- after that initial sale, and we know it's really important to continue driving those new buyers through the system
• we're seeing a recovery both in Japan and our Japanese coming to Hawaii. Now I made a -- I provided a data point, I think, a call or two calls ago that we were seeing about 25% of all Japanese arrivals into the Island of Oahu were HGV-related. This last quarter, it was 16%. Pre-pandemic, it was at just under 10
• And even if you look sequentially on default greater than 30-days on the Diamond portfolio, it's actually improved, not much. It's relatively flat, but you see improvement sequentially

 

[ernststarhemberg]

Very curious to see the default rate (and maybe some good resale deals ) if the broader economy stumbles over the next several months.

 

[GT75]

Thanks @dayooper for the update. You are much better at reading this than me.

So HGV added 3K new members and 10K HGV Max members (7K upgrades to Max) in this quarter. This means that 19.15% are currently HGV Max members. I just wonder if/when HGV Max runs out of gas.

 

[geist1223]

I was wondering what percentage of HGC MAX purchases come from HGVC Members and what percentage comes from DRI Members?

 

[holdaer]

I was wondering what percentage of HGC MAX purchases come from HGVC Members and what percentage comes from DRI Members?

Good question. I was wondering the same thing.

 

[dayooper]

what does that mean? numerator is? denominator is?

How I read this is that 16% of all Japanese travel to Hawaii is HGV related. I see it as using points, deeds, sales presentations or rentals. I could very well be wrong.

I wonder if they are included all Hilton travel as they can market in the Hilton Hotels. I wouldn’t put it past any company to have some wiggle room in their presentation. They changed his they were reporting a certain aspect of the books. Although they cited more transparency, I always wonder if the timing was to hide something they didn’t want to show. I’m not saying it’s that (they reported that it would have been better than last quarter if they reported it the old method).

 

[drucifer]

If all new HGVC and all new DRI sales are Max, and say the average owner sticks around for 15 years or so, isn't the percentage of Max members a pretty average performance? Assuming that everyone who bought or upgraded, in the last 18 months on either side came in with Max, then that number seems maybe slightly above average.

Does anyone know how long the average deed is owned by an owner before being sold/transferred?

 

[geist1223]

I believe it has been discussed but I am having a Senior Moment (almost 70) does MAX Transfer with a resell?

 

[HuskerATL]

I believe it has been discussed but I am having a Senior Moment (almost 70) does MAX Transfer with a resell?

No. Neither Max nor Elite transfer with a resale.

 

[GT75]

If all new HGVC and all new DRI sales are Max, and say the average owner sticks around for 15 years or so, isn't the percentage of Max members a pretty average performance? Assuming that everyone who bought or upgraded, in the last 18 months on either side came in with Max, then that number seems maybe slightly above average.

Good question of which I don't know the answer. I know the big push from HGV is to sell to new members (eg. victims). This way they will be able to upgrade them several times because of the terrible first sale.

 

[ocdb8r]

I didn't see much coverage of the Marriott Vacations call, but listening to it myself now. I find it interesting how much better HGVC seems to be executing. Marriott Vacations missing expectations and struggling to sell Abound despite taking much longer to rollout compared to MAX and offering (what I think) is a superior product to MAX (the integration to me seems better on Abound). HGVC seems to be getting good sales legs moving on a product they rolled out much quicker (and to me still feels half-baked).

 

[pedro47]

Numbers sounds to good to be totally true.

 

[escanoe]

Numbers sounds to good to be totally true.

The legal penalty for mistaking the truth in an investor call is enough to keep them from lying (not that they are totally honest).They slice it, dice it, pick what sounds the best, and present things in the light most favorable to them.

It is the corporate version of what a good, smart timeshare sales weasel would say if s/he knew they were being recorded.

 

[dayooper]

I didn't see much coverage of the Marriott Vacations call, but listening to it myself now. I find it interesting how much better HGVC seems to be executing. Marriott Vacations missing expectations and struggling to sell Abound despite taking much longer to rollout compared to MAX and offering (what I think) is a superior product to MAX (the integration to me seems better on Abound). HGVC seems to be getting good sales legs moving on a product they rolled out much quicker (and to me still feels half-baked).

While I think that purchasing from the developer is usually not a good idea, I wonder if HGVC’s method is better than MVC’s (at least for revenue). Just an opinion, but MVC’s system has more realistically bookable locations and just as or even more luxurious accommodations than standard HGVC. MVC should be doing better.

MVC just sells points. There’s really no need to purchase unless you want or need more points. The price is outrageous and all the points are all same.

HGVC’s method is to keep up selling deeds for more points and/or better MF ratio. Trade in your deed and spend more. Want to go to Oahu on a regular basis? Trade in your deed and buy Hawaii. Just seems like HCVC always has something to sell their owners. Then they can resell those trade ins as shiny brand new deeds.

 

[jabberwocky]

While I think that purchasing from the developer is usually not a good idea, I wonder if HGVC’s method is better than MVC’s (at least for revenue). Just an opinion, but MVC’s system has more realistically bookable locations and just as or even more luxurious accommodations than standard HGVC. MVC should be doing better.

MVC just sells points. There’s really no need to purchase unless you want or need more points. The price is outrageous and all the points are all same.

HGVC’s method is to keep up selling deeds for more points and/or better MF ratio. Trade in your deed and spend more. Want to go to Oahu on a regular basis? Trade in your deed and buy Hawaii. Just seems like HCVC always has something to sell their owners. Then they can resell those trade ins as shiny brand new deeds.

I like how you’ve formulated this and identified what is probably a very good point.

The MVC hard product is excellent. It’s the “soft components” that really need some work. HGVC in general has a great product that is accessible, IT that works well and a simple program. It just doesn’t have the locations of MVC.

In the MVC earnings they pointed out that sales are down mainly in the Vistana segments. To me this makes complete sense:

1) like HGVC owners, Vistana owners have become adept at doing upgrades when their portfolio doesn’t meet their needs at a reasonable cost. Vistana would regularly buy back a deed at the original purchase price as a credit against something else (of course more expensive). At a couple of Vistana presentations we’ve been told that MVC does not do trade-ins now that they are running Vistana.

2) MVC week deeds lose all points privileges upon resale unless you pay a huge amount ($40-50k apparently) to bring them into the points system. HGVC points are attached to the deeds so it wasn’t as big of a deal. Many resale Vistana deeds did lose their StarOptions upon resale; however, it was quite reasonable to being a resold unit back into the system with a minimum $10k purchase for the first deed plus $5k for additional deeds. Without this in place or just pushing Abound points it’s not surprising Vistana site sales are down.

I agree HGVC does seem to be doing better than MVC with selling their new program, at least early on as it has some new products to sell. MVC is just trying to sell the same overpriced (and quite frankly confusing) product they’ve been selling for a decade to a client base who was more value conscious and valued simplicity.

 

[hurnik]

While I think that purchasing from the developer is usually not a good idea, I wonder if HGVC’s method is better than MVC’s (at least for revenue). Just an opinion, but MVC’s system has more realistically bookable locations and just as or even more luxurious accommodations than standard HGVC. MVC should be doing better.

MVC just sells points. There’s really no need to purchase unless you want or need more points. The price is outrageous and all the points are all same.

HGVC’s method is to keep up selling deeds for more points and/or better MF ratio. Trade in your deed and spend more. Want to go to Oahu on a regular basis? Trade in your deed and buy Hawaii. Just seems like HCVC always has something to sell their owners. Then they can resell those trade ins as shiny brand new deeds.

I thought that with MVC not all points are equal (resale vs. developer), unlike HGV. Don't you have to pay some extra fee with MVC to convert/whatever resale points to be able to use them like developer points? And doesn't MVC also have some weird Marriott-Marriott Exchange via Interval that you have to do, unlike HGV, so it matters more where you buy with Marriott (IMO) vs. HGV?

 

[dayooper]

I thought that with MVC not all points are equal (resale vs. developer), unlike HGV. Don't you have to pay some extra fee with MVC to convert/whatever resale points to be able to use them like developer points? And doesn't MVC also have some weird Marriott-Marriott Exchange via Interval that you have to do, unlike HGV, so it matters more where you buy with Marriott (IMO) vs. HGV?

All points are equal with MVC, sort of. When you purchase resale trust points, you have to pay a huge fee (~$3 a point with a $3000 minimum). Once that transaction takes place, they are treated exactly the same as developer bought points. Again, once you have the amount of points you want, there’s no need to purchase more.

Marriott owns Interval Interval and uses that system to allow their deeded owners that aren’t enrolled into the trust system to have prioritized trading with other MVC properties. It does depend on where you purchase, but it’s either for trading power or a location where you want to go. The thing is anybody that owned a deed, even resale deeds, on or before 2010 (there’s an exact date) still can enroll their deeds into the MVC system and can exchange their week for points in the system.

Another point is that MVC absorbed Vistana fully into the Abound program. There was no reason to make a purchase to get access to the other side where HGVC is forcing a purchase to get the other side.

 

[sponger76]

Many resale Vistana deeds did lose their StarOptions upon resale; however, it was quite reasonable to being a resold unit back into the system with a minimum $10k purchase for the first deed plus $5k for additional deeds. Without this in place or just pushing Abound points it’s not surprising Vistana site sales are down.

You can still do this on the Vistana side; I just did it a couple of months ago.

I thought that with MVC not all points are equal (resale vs. developer), unlike HGV. Don't you have to pay some extra fee with MVC to convert/whatever resale points to be able to use them like developer points? And doesn't MVC also have some weird Marriott-Marriott Exchange via Interval that you have to do, unlike HGV, so it matters more where you buy with Marriott (IMO) vs. HGV?

For resale MVC points, you pay (currently $3/point, minimum $3,000) to fully enroll points in Abound. If that fee is not paid, you can only book up to 60 days in advance of check-in.

If you have a week that is enrolled in Abound, you can elect to exchange that week for Abound points for a specific use year to book another MVC/Abound stay. Or you can exchange via Interval. Within Interval, if the week is enrolled in Abound and you exchange it for another MVC/Vistana resort, there is no exchange fee. Unenrolled weeks pay a $164 fee to exchange into other MVC/Vistana resorts. Plus MVC weeks have an advantage via the Marriott preference period. When an MVC week is deposited into II, only other MVC weeks can see/exchange into it for up to three weeks.