Hilton Grand Vacations, Inc. Aktie

Well, this is going to be the last fireside of the day and who better to round it out than Hilton Grand Vacations and President and CFO, Dan Mathewes. So Dan, thanks for doing this.

Thanks for having me. Really appreciate it.

Just from a long-term standpoint, you've articulated an algorithm, people always use algorithm for consistent top line growth, EBITDA growing faster and strong free cash flow conversion. What are some of the major puts and takes to think about within that, as we look at 2026 and the guidance that you've outlined, I think it's 8% at the midpoint after you raised your expectations after 1Q versus the kind of typical algorithm? Or is this -- is 2026, would you say a kind of normal year?

No, 2026 is definitely not a normal year. I think when you roll into '27, that's when we get to a more normalized algorithm. I think when you think about Hilton Grand Vacations, I think it's a very interesting time for us. This year, we're lapping the launch of HGV Max to the Bluegreener -- excuse me, the Bluegreen organization that we launched November 8, 2025.

So relatively tough comps, the first 3 quarters and then returning to growth into Q4 when you think about from a VPG perspective. But also just from an organization standpoint, over the past 5 or 6 years, we've acquired 2 organizations had a very robust inventory spend and coupled with a heavy level of integration work. So when you think about the organization today, the company has almost tripled in size, more stable environment. We're in an environment where the inventory spend is coming down materially from the neighborhood of $400 million to closer to $300 million.

In addition to that, integration spend, which last year was roughly $200 million is coming down to $150 million. Next year will drop to $75 million and then completely disappear. So this return to algorithm as well as a substantial source of cash flow from less investment in both inventory and integration, I think, is pretty meaningful. And I think it's a good time to look at HGV.

Yes, inflection in free cash flow sounds good. What -- when you think outside just the financials, what are some of the differences that you would describe or ascribe to Hilton Grand Vacations versus others in the timeshare industry or even if you look maybe more broadly at the lodging ecosystem?

Sure. Look, I would like to think about it more of the vacation space in general. And when you think about our project -- our product, I think we're uniquely positioned. People constantly or at least in the last year, I mean, the rhetoric about the K-shaped economy has been fairly robust. And our product is uniquely positioned to allow you to modulate between the high arc or the low arc. If it's a great year, you have the ability to fly lay flats all the way to Hawaii, stay in a great resort, go out to eat every night, spend money on every short version you possibly can think of and spend that $40,000 family vacation.

At the same time, if it is not that robust of a year for you and you're an existing owner, drive to Myrtle Beach, you use the kitchen, 90% of our units have kitchens, use the kitchen, have a very economical stay, sit by the swimming pool or the beach, have a great time, and you can do that year after year without changing your ownership whatsoever. So the value proposition and the flexibility and the optionality that our product provides, I think, puts us in a unique perspective within the industry itself, vacation industry itself. Within the industry, I think we're able to capitalize on our ultimate access, our experiential programs that we have out there to really provide a unique offering to our owner base.

So that all sounds good. So we went through the algorithm free cash flow inflection, sitting at the- top of the K-shape we can kind of pivot between different brands. What keeps you up at night? Or what do you think are the general risks or competitive threats that you try to think about facing the business and work around?

So naturally, I mean, I think people think about sales, right? I think as investors, they naturally look what is sales going to do? And I would tell you that our sales force is the best in the industry, and it's amazing what they can produce. When people ask me what keeps me up at night, it's really more tour flow than anything else. Where are those leads going to come from? And we have an amazing partnership with Hilton. The partnership is 100% variable. So what is good for us, it's good for them. So when we come with an idea that will help drive tour flow from that partnership, they are all ears.

We are also looking to expand partnerships. With the acquisition of Bluegreen, we acquired a JV with Bass Pro. We also acquired a sales and marketing agreement with Bass Pro. We're in virtually every Bass Pro store out there. That provides us another touch point with the consumer. This one, not a call transfer program, which is very much akin to what we have at Hilton, but an opportunity to see people face-to-face and sell them a package, which is also very consistent with the program that we run with Hilton.

If you go to a Hilton in a location where we're not located, in some cases, it's locations that we do have product, but you go to the concierge, it's not unlikely that at some point during that conversation after they help you getting a dinner reservation or whatever it might be, that they will attempt to sell you a package. That's because that's a Hilton Grand Vacation employee sitting in a Hilton hotel, driving another touch point.

We have other partnerships that are meaningful, Japanese airlines, Hawaii Airlines through Alaska Airlines now, also Great Wolf, but really expanding the opportunity to drive tour flow, in particular, new buyer tour flow to get more people into the system. That's a real focal point that we've had kind of in our DNA, so to speak.

I think you're a little over 70% existing owners in terms of contract sales currently. What is the right mix? And as you're thinking about that tour flow, should we anticipate that you're going to go after more of these partnerships? Or is it more about monetizing what you have?

Combination of both. So when you think about the mix, we're looking -- we would be happier with a mix of new buyers approaching 35% versus the 30% that we sit today. From a tour flow growth perspective, we are always looking for opportunistic partnerships that make sense on both ends. But again, we will look to monetize our existing owner base where it makes sense. And a great example of that is the recent transaction that we did with Blackstone, where we acquired Elara that came with 38,000 owners who had a lot of equity in that project itself.

In Elara, there was $1.9 billion worth of equity in that fee-for-service deal. With the closing of that transaction, those owners now have the ability to upgrade out. And just as importantly, we have owners outside of that ecosystem that can upgrade in. So holistically, it creates an interesting environment for us. So that's just another focal point of us.

Do you generally view that as kind of a better return profile than greenfield development? Are there other opportunities that look like that, that are out there that you could?

So that particular relationship, we had structured the deal to always allow us to step in and buy the tail of that -- that transaction, we stepped into that traction back in 2011. We own 25% of the entity. They own 75%. And as you can imagine, Blackstone is -- while they were in the business of timeshare using our name as a brand name, being in timeshare in perpetuity is not their core business. So it naturally made sense for us to step in and buy that.

Are there other opportunities like that? We do have other fee-for-service partners that we would probably look to buy out just given where they are in their life cycle, it's probably 5, 7 years away before we -- so there's a little bit of runway.

A lot of runway.

Yes. But I mean, today, fee-for-service makes up a dramatically smaller piece of our business than it did pre-COVID. Pre-COVID, it was closer to 50% today, prior to the Elara transaction, it was just under 20% post Elara transaction. It will be in the low double digits.

Are there opportunities to improve costs or even conversion rates as we think about existing versus new buyers?

Yes. No, absolutely. I mean that's part of some of the initiatives that we've kind of honed since the acquisition of Diamond in particular. But I think this speaks heavily to ultimate access. Ultimate Access is the experiential platform that we are using to curate and drive higher owner demand. Effectively, we provide an opportunity for owners to have a great experience. And when people come and stay with us and have a great experience, they tend to buy more. And the VPGs on owners that tour that have experience in Ultimate Access significantly outperform owners who tour who have not come on our experimental platforms.

Is there an upper bound in terms of how much -- how many upgrades you could have in the system or how to think about where you are in that life cycle of upgrades?

Sure. There's always a balancing act. I mean at some point, you can sell timeshare to someone to the point where it just doesn't economically make sense. So we try to be very cognizant of that. We're trying to sell a balance. When you come in, we cannot dictate what you're going to buy. We try to analyze what your position is in our particular ecosystem, what your likes are, what your dislikes are, and we sell you what you believe is the most opportune product for you or in many cases, of an owner, experience owner, they know exactly what they want to buy and happy to provide that.

How would you characterize the demand environment today? There's a lot of questions and concerns around fuel prices, interest rates, et cetera. Is that spilling over? I realize you're at the higher end of the K shape, there's probably some exposure to, as you said, higher airfare. But what are you seeing from a demand environment now? And then how might that compare as you think about it longer term?

Sure. So from a demand environment, what I would tell you is I think the acquisitions of both Diamond and to a lesser degree, Bluegreen have been very helpful from a risk perspective, in particular, on oil -- when I think about it and I think about oil going, pick your mark $3 -- gas going from $3 a gallon to $5 a gallon, is that impactful? I think it is. I'm not trying to be tone-deaf to it. But I do -- I am a big believer in the fact that if prices go up $2 per gallon, does that change your decision to take a vacation in particular to a drive-to market?

I think the answer is no. We're fortunate that about 70% of our owners live within a 4-hour drive of one of our properties, which I think is very helpful. Does it change your perspective? Does it allow you to modulate to get back to that first comment that we were talking about to change your perspective on do I go to Hawaii versus do I go to Gatlinburg or Virginia Beach or Myrtle Beach, Maybe. But it's all about optionality, and that's why we think we're...

One of the other announcements that you had was around inventory optimization. And this is something that one of your peers has also talked to. And I guess there's a little bit of a back and forth that I think about. One is that this has been a segment, think about club management that has been viewed as high visibility recurring. Then at the same time, we're removing some of these from the base, but it seems like it's a positive from an EBITDA standpoint. So help us understand kind of what drove that review and how you think about maybe the ideal portfolio composition from here?

Well, I think when you look at Hilton Grand Vacations over the last 5 years, we've been dealing with a lot of integration with the 2 right? One of -- part of that narrative that we've had since the beginning of the acquisition of Diamond is we acquired 92 resorts. Diamond was a culmination of, I believe, roughly 12 acquisitions. Not all of those resorts were of the same stature. Not all of those resorts were going to be rebranded. We've always talked about almost a couple of dozen not being rebranded. Some of those due to the fact that they just need -- the investment required to put the Hilton brand on that just did not make sense financially from our perspective.

So when we have a chance to breathe, doing a little bit more focal work on the inventory portfolio. And the first thing we did was, okay, let's look at properties that from a cash flow perspective, negative. Rental cannot offset rental combined with the resort management fee cannot offset the developer maintenance fees. We have any of those negative properties. Are they branded Hilton or are they not branded Hilton? If they're not, move up the chain on a decision point.

Is there a potential for a special assessment for those who actually do own those properties? Because in that kind of scenario, it doesn't really behoove them as well, those individual owners. Is it a property that is highly utilized by our owner base? If not, you also move up that decision -- so we identified 8 resorts that were kind of lack of a better term, low-hanging fruit, the easy ones to identify. And we've entered into an agreement with a third party to step into our shoes and ultimately sell those.

Now to avoid any confusion, this is not a growth strategy. This is truly an inventory optimization strategy. Cash flow beneficial to us, ultimately beneficial to owners, no special assessment. They're not being heavily utilized. So trying to maximize the experience for everybody involved. And again, these are properties that were not rebranded already and had no plans for future rebranding. So it's a specific subset when it comes to our particular...

You talked about having some of the best sales folks in the industry. There's been some commentary back and forth about, a, is there peers that are trying to get -- be more aggressive with getting salespeople? And are you seeing that impact your retention metrics? Or are you seeing any change in compensation structure associated with sales folks in the industry?

So are they in the room here because they are here somewhere at the conference. There has been one competitor...

Raise your hand.

Yes, exactly. There's been one competitor who's been very vocal about it. And look, what I would tell you is you can walk through any of our sales centers, and you'll find individuals who've worked for travel and leisure, who've worked for Marriott vacations. And I'm sure the same is if you walk through we want to protect and do we want to retain our best salespeople without a doubt. Will we take initiatives to do so? Of course, we will. But at the end of the day, ultimately, you see movement across the spectrum in any given day. So something that we focus on, of course, but it's normal course.

You talked to trying to drive incremental new tour flow, new owner flow. How distribution channels changed over time? And are there new ways that you're thinking about trying to go after the new owners that you see the biggest opportunities to improve?

So I think that goes back to our earlier conversation around driving new partnerships, et cetera. Now if you want to focus on one of our -- one of the most important partnership we have, which is with Hilton, if you go back to 2008 and progressed nicely through time frame, but just call transfer program with Hilton was very robust, a game changer in the industry without a doubt. But I'd also -- if I were to wager, I imagine everybody in this room, when is the last time we actually called a hotel. It's probably a lot fewer today than it was 5 years ago, definitely 10 years ago, et cetera.

So how do you capture those call transfers? Some of those methods are going to new forms or digital focused on that. And another way is looking at different ways to attack the same footprint. Back in 2015, we were not doing field package sales with Hilton. That's where we sit as their concierge. So you enhance programs like that to maximize package sales as well as the partnership program.

A follow-up to the -- making a call to a hotel, which is one of the last time anybody has called a hotel and not had to say representative almost immediately to try to get a human on the phone very quickly. Maybe -- turning to margins. What are the primary opportunities, both near term and long term to improve the real estate contribution margins as we think about cost of product versus marketing versus other costs?

Well, I think when you think about our inventory strategy going forward and you contrast that sharply to where we were in 2017 and 2018, at that point in time, we were an organization that did about $400 million in EBITDA, and we had an inventory program that at the time in 2018, we made a commitment to about $1.8 billion in inventory, all through construction and/or conversion.

What you see us focus on very much today is looking for a very capital-efficient doesn't mean that we're going to focus only on recaptured inventory, although that will be a very large component going forward. We still do new builds or conversions. One excellent example of that is a property that we've entered into an agreement with in Nashville. We've structured it. It's a just-in-time transaction where we can match cash inflows and outflows based on demand that we see for the product.

In this particular instance, we've also built in additional flexibility and where we can take that inventory as early as 2028 or defer it all to 2033. So having that kind of flexibility, I think, is -- again, focus on the recaptured inventory also drives a lower cost of product. Recaptured inventory, generally speaking, will have a cost of product in the neighborhood of 5%. Depending on certain nuances, it could be just south of 10%, but it's in that ballpark versus new construction, which typically speaking, in our experience, it has been closer to 25% to even as high as 30%.

What's like the natural churn of the owner base at this point?

Well, if you look at our annualized default rate, it's meaningfully higher than it was prior to acquisition, but that's very consistent with what the acquisitions were meant to accomplish. We have entry price point now, which is clearly geared towards a lower net worth, a lower household income demographic. That also comes with a higher delinquency and a higher default rate.

So it's part of the business. But when you think about the natural churn, I think about the annualized default rate. And prior to any acquisition, it was as high as 6%. And today, it's just slightly over 10%.

But that -- you have a large percentage of your owners have already paid off.

Yes, for sure. Including just the natural attrition. It's the natural attrition with legacy HCV was in the neighborhood of 2% to 3%, and it's probably north of 5% plus with the acquisitions.

You get to recapture?

And on that front, just to remind the audience, I mean, we are in a period of accelerated capture right now just because during COVID, both Diamond and to a lesser degree, Bluegreen paused their recapture. So we are catching up on those that were halted.

That's helpful. Since you're talking about defaults, let's turn to the financing portfolio a little bit. There's been some debate, it seems like over the trend line of delinquencies, even I think investors might be reading the Wall Street Journal and hearing about delinquencies for credit cards moving higher. What are you seeing in your portfolio that helps you think about the health of the consumer and the health of the financing receivables?

When you look at the environment today, I think you see a lot of a lot of strength in the consumer more so than I think you would have assumed you would have seen given all the dynamics that are going on today. But construction is strong. Unemployment is still low.

We -- as we talked about on our last call, we saw delinquencies. Typically, what we look for to be a leading indicator of future performance is that 30- to 60-day bucket. We saw those stable to even improving year-over-year.

We saw our annualized default rate year-over-year improve modestly, but an improvement nonetheless. So we see strength. We also are very focused on improving the underlying dynamics of that portfolio. So during the course of the last 12 months, we've actually changed our underwriting practices to enhance the equity at the table. One of the --

It's more?

It's been more. So not uncommon in the industry, but there was a program that Bluegreen was running where they allowed people to upgrade without any additional equity down. We eliminated that late last year Q2, and we're now requiring additional equity down. So...

Slippery slope with no equity down.

It's a slippery slope. You definitely see an increase in defaults. You'll see optics on the contract sales, but we'll pay for it later.

Yes, EBITDA with no free cash flow potential.

Exactly. So really requiring that extra equity down has helped us. In fact, cash down at the table for Bluegreen is 50% higher than where it was in 2024.

So with that all in mind, I guess there's the legacy portfolio, the new portfolio where you're changing things versus where it was before. What is the implication then for what the right kind of provision is for this combined portfolio and how that might evolve over time?

I think if you looked at the 3 companies separately and just did the math that what would the weighted average loan loss provision be on a basis or on an annualized basis rather, you would have seen that the combined entity would probably be close to 20%, plus or minus. Given the changes in the underwriting practices that we've made at both Diamond and Bluegreen, coupled with some enhancements from a sales practice standpoint, we feel that the appropriate loan provision is that mid-teens.

Great. You also articulated a financing optimization program where you're going to be targeting a 70%, 80%, I believe, securitization of receivables. Just remind us of how that structure works. What drove the change there and how it impacts liquidity and access to cash?

Yes. No, we historically at Hilton Grand Vacations not been as robust of an ABS issuer as some of our competitors. That started to change at the time of spend, and we've got a very robust platform now. Even today, we've been one of the innovators in particular, with -- you probably saw last year, we introduced timeshare securitizations to the Japanese financial market.

It was effectively creating a new financial instrument in Japan. And it was a healthy offering, JPY 9.5 billion or JPY billion USD 85 million. sounds better when you say than yes. But the interest rate is extremely favorable to the U.S. The interest rate on that deal is 1.4%. The most recent transaction that we did in the U.S., the $500 million deal in April, and that was at 5.13%. So clearly, the interest rate arbitrage on that front. And I'm sorry, I think I dodged your question completely.

No, no. So how does that lie?

The finance business optimization. So we're much more of a serial issuer today than we were, and we're actually at 70%, a little north of 70% of receivables securitized today. And it was really trying to annualize that where we're consistently at that level. And we've used that cash to fund integration as well as share repurchases. And we're effectively at that run rate. And by the end of the second quarter, we'll have that fully finalized.

When we think about -- so clearly, you can get a little bit more consistency in terms of tapping that cash flow. Is there any change in terms of how to think about the cyclicality of your free cash flow then because of this? Like does this actually reduce cyclicality.

In the long term, it ultimately will. In the short term, you still have a nuance in between timing.

Is there any cost differential for this relative to just tapping the...

There is. And that's why we indicated when we originally launched this that this would cost us around $25...

And going back to the Japan comment because that's a lower cost structure. One, do you have to hedge that? And two, is that something that you'll pursue simultaneously with this and there's still opportunity to continue to build on it?

There's still an opportunity to build on it. We have about 75,000 owners in Japan. So we're well positioned to do that. What I would tell you is it's a bit of a competitive advantage today being able to tap that market, but that's not what we want it to be. We really want our peer set and group to issue securitizations in Japan. The more liquidity, the more knowledge about the product, the healthier it will be for all of us.

Now that being said, we recognize we have to be the pioneers just given our structure versus our competitive set. So we'll be back in the Japanese market this year. We're changing the structure of the original transaction. The original transaction was Japanese owners and borrowers for -- with Japanese asset backing that facility.

The next deal will be Japanese owners that have Japanese collateral as well as U.S. collateral. And ultimately, we're looking to bring in U.S. borrowers and U.S. collateral into that mix, too. And by the time we do the third or fourth deal, hopefully, some of our competitors will be coming into the market, too. The more liquidity, the better. So we're very excited about the opportunity.

Great. We haven't touched on the rental side of the house yet. Still running at a loss on that segment specifically. It used to be positive, but I know there's been some changes in terms of the dynamics there. So -- what should we be thinking about in terms of the trajectory of that business? What could profitability look like or even getting to breakeven?

Yes. No, I mean we're focused on getting to breakeven at this point. Most of the loss is associated with the developer maintenance. So things like asset dispositions will help optimize that. But the true driver of that is really selling through the available inventory that we have available for sale because that lowers obviously our obligation and becomes the owner's obligation. That's what will drive that.

Other elements that will help that is rebranding some of the properties. We're still in the process of rebranding some of the Diamond properties. To Hilton, those are predominantly European-based. But when we put the Hilton name on a property, we see an ADR lift. We also see a benefit from the cost side. We'll move away from OTAs and typically move towards hilton.com that has a lower cost structure for us. That all goes through the rental side of things.

And we acquired 50 properties with Bluegreen. To date, we've only rebranded 11. I think we're on #12 now. So there's still a lot of work to do on that front, too. I would look for the rental business to still run at a loss this year and probably next as well. But it's really the developer maintenance obligation that loss more so than anything.

What's the potential timing on additional conversions or how many conversions do you think you have left? And what's the decision process for...

Conversions from?

Sorry, converting to Hilton brand.

We will continue to convert to the Hilton brand through all of '27 and a few properties will slip into '28. There's several dozen left to go.

And that sounds like that's one of the big swing factors for the rental.

It's one of the swing factors. The biggest swing factor is the amount of inventory we have available. Look, when we acquired Diamond, we walked in with eyes open and we knew we acquired excess inventory, 4 years of excess inventory. So it takes selling through that and optimizing the inventory too.

What is your current owner occupancy and rental occupancy?

So when you look at our annualized occupancy rates, generally speaking, assume a resort has occupancy of 85 points. Owners will account for about 50 points of that 85 points. Out of the 35 points left, oversimplify it a bit, but roughly half are going to be associated with marketing packages, assuming it's a property with a sales center and the other half is basically FIT, typical hotel rent.

What do you think is like optimal occupancy for both?

No, I think that is where we're running. You can tweak it perhaps to a little bit more owner to drive owner sales, but it ebbs and flows between 45 and 50 -- but it depends on the market. Some markets without a sales center, you'll have more opportunity to rent rooms, but at the same time, if it's a desired location, you want to make sure the utility of the owner is there as well.

You just talked about this reduction in inventory, selling through the inventory over time. What's the right level? You kind of talked about this in the very beginning, but thinking about maintenance inventory spend, we look long term.

So we believe to support $3.5 billion in contract sales and growing that, that $300 million mark on average is probably where we would expect to be which again is obviously materially lower than where we were in 2018 and with a dramatically smaller entity at the time and clearly lower than where we've been in the past few years.

So turning to artificial intelligence has been a topic across this entire conference. How do you think about what the implications are for your business? And what are the ways that you're trying to leverage AI to either drive revenue, drive margins and which is a bigger opportunity?

I think there's opportunities on both fronts. Which one to talk about first? Part of it is also just lowering the friction with our owners, maintaining maximum utility of the product. What I would tell you is we're making a lot of investments. Part of the integration that we're doing, a lot of that investment is associated with technology infrastructure. And while this -- this is an example that I've probably given for about a year because I think it's very meaningful.

But a year ago, if you logged into our website and you wanted to go to Orlando week July 15, type it in, say, okay, book, can't go. And then you would have to randomly find a location. Today, if you do the same thing, it gives you Slide 15, you have x number of points, here's your top 3 suggestion.

The next opportunity is going to be, hey, we also have access to your Hilton Honors database. We know where you travel. We should be able to ascertain what is for vacation, what is for work travel. Those start to populate recommendation. And then at some point in time, assuming people opt in, we'll have access to social media, even love the golf.

That will properties with golf courses start to populate. So it's elements like that, to help drive utility for the owner, which I think will help decrease default rates, which will be hugely meaningful. There's clearly the opportunity on the cost side as well. What does the chatbot do today versus what does it do next week? How can you maximize that? I think it will be a bit of an evolution because I think to your point, I mean, you mentioned it earlier, how many people call and immediately say, agent, try to get a real person, right?

Now with AI handling some of the calls where you may very well be able to tell the operator is an agent, but they're actually being productive and solving a problem. I think the evolution you'll see is people being more willing to call in because their answers are being responded to, which will drive demand for that call, which will allow real people to handle the more complicated problems until such time AI can handle it all. So there will be efficiencies over time. I think it's an evolution.

Awesome. we're just about at time unless anybody wants to throw in a question. Brave Souls. All right. Well, please join me in thanking Dan and all the insights on Hilton Grand Vacations. Thank you.

Thanks. Appreciate the time.

Good morning, and welcome to the Hilton Grand Vacations First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Mark Melnyk, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacations First Quarter 2026 Earnings Call. Our discussion this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements. The 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're 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.

Please note that in our prepared remarks today, we'll only be referring to metrics that remove the impact of net deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period. To simplify our discussion today, we've uploaded slides to our Investor Relations site showing these metrics, which we'll be referring to on today's call. I'd urge you to view these slides on our website at investors.hgv.com.

On Slide 2 of these materials, you can see the deferral adjusted metrics that we'll be referring to on today's call. Reported results for the quarter do not reflect $25 million of net contract sales deferrals under ASC 606, which had the effect of reducing reported GAAP revenue and were related to presales of our Ka Haku project, partially offset by a recognition associated with our Kyoto project, which opened in March.

Also on Slide 2, we defer a net $7 million of direct expenses associated with these revenues. Adjusting for both these items would increase the adjusted EBITDA to shareholders reported in our press release by a net of $18 million to $267 million.

With that, let me turn the call over to our CEO, Mark Wang. Mark?

Good morning, everyone, and welcome to our first quarter earnings call. We're off to a strong start this year. And overall, we're pleased with how the quarter came together. The results we delivered in Q1 reflect disciplined execution by our teams across the business and a consistent focus on our strategic initiatives.

Contract sales met the expectations we laid out on our prior call and adjusted EBITDA exceeded expectations, growing 8% versus the prior year with 130 basis points of margin expansion. In addition, we drove great new buyer growth, along with cost efficiencies that supported healthy EBITDA flow-through.

These results reinforce our confidence that we're on track to achieve our long-term algorithm of consistent growth in sales and EBITDA, and strong free cash generation, along with a commitment to returning capital to our shareholders. We repurchased an additional $150 million of stock during the quarter, bringing the total to nearly $2.3 billion we've returned since becoming a standalone public company.

Next, taking a look at our consumer environment. Leisure travel demand among our members remained healthy. Arrivals were strong in the first quarter, and we see trends improving through the fall. And March was our strongest sales month of the quarter with momentum carrying into April.

At the same time, we're carefully monitoring the impact of the conflict in the Middle East and the potential broader effects on the leisure travel landscape. But our business model carries several advantages that should help us to navigate the environment.

Our members have prepaid their vacations for the year, making them less sensitive to travel costs and new buyers are attracted by the value proposition of our marketing package offerings. In addition, the efficiency initiatives that we already have underway, combined with the variable nature of our cost structure, leaves us well positioned.

So while we keep a close eye on the external risks, our focus remains on executing our strategic initiatives and controlling what we can control. Given the results of the first quarter and our purchase of the remainder of the Elara JV to take full control of the project, which I'll cover shortly, I'm pleased to report that we're raising our adjusted EBITDA guidance for the full year.

More broadly, the quarter and guidance reinforced the progress we're making as an integrated business and the consistency of our execution against our strategic priorities, which are operational excellence, attracting new customers, product evolution and innovation, and enhancing member lifetime value.

Operational excellence drove strong execution in the quarter. While tours outpaced VPG and we saw a higher mix of new owners, our teams effectively managed costs to drive improved EBITDA contribution, and we remain confident in our guidance to grow EBITDA for the full year.

We also did a great job of adding new buyers. The investments we made in our marketing pipeline last year supported high single-digit new buyer tour growth in Q1, maintaining the strong pace that we saw in the fourth quarter. In addition, solid conversion of those tours led to the highest level of first quarter new buyer transactions since 2023, up 8% versus the prior year, which is key to driving improved efficiency as well as growing our embedded value. Those new buyers helped to support 29% growth in our HGV Max member base over the prior year to 277,000 members.

On the product front, I'm happy to announce that we reached an agreement to purchase the development rights of Elara, our flagship resort in Las Vegas, allowing us to take full control of the project by moving it from a fee-for-service JV to an owned property.

As part of the natural progression with our fee-for-service projects, it provides us several significant benefits, including receiving the full economics of the real estate business as well as assuming the existing and future financing business associated with the project, along with providing additional inventory flexibility.

Elara has always been very popular with new buyers. But this transaction also unlocks our ability to better sell the project across our entire sales distribution network outside of Las Vegas, enabling owners to upgrade out of the project while simultaneously allowing any of our members to upgrade into Elara.

We're also making great progress with our inventory optimization initiative. We've identified a set of 8 properties that no longer fit with our portfolio. And we recently entered into an agreement with a third party for the disposition of our interest in these assets. At high level, dispositions allow us to proactively manage aging and noncore inventory, reduce long-term carry risk and ensure capital is continually recycled into higher-performing opportunities.

This discipline helps us to balance between growth, flexibility and profitability. From a strategic standpoint, dispositions support our broader goals by improving the mix and quality of inventory over time, creating capacity to reinvest into priority markets, products and experiences, and reinforcing a proactive rather than reactive approach to inventory management. Taken together with the financial benefits Dan will outline, these dispositions help us to optimize the portfolio and position the business for sustained growth.

Turning to the embedded value. We're continuing to expand our industry-leading HGV Max and HGV Ultimate Access offerings to enhance our value proposition and drive member engagement. We recently introduced additional enhancements to Hilton Honor points conversions within the MAX program to complement the suite of benefits that have proven so popular with our Max members.

Lastly, our Ultimate Access teams continue to expand our best-in-class experiential platform. In just the past few months alone, our members have enjoyed private concerts with #1 billboard artist Ella Langley, the legendary Beach Boys, and Grammy Award winner Kelly Clarkson. Our partnership with the LPGA provided members in-person access to our tournament and champions to see this year's winner, Nelly Korda, which was televised on NBC and the Golf Channel. HGV will also continue as an official event partner of Formula 1's Heineken Las Vegas Grand Prix, where members have access to exclusive trackside HGV Clubhouse suites and entertainment at Elara.

So HGV Ultimate Access is already the biggest and most comprehensive program of its kind, and this year will be even bigger and better. We've got new events planned for new members, including FIFA World Cup events, NASCAR and expanded summer concert series lineup and we'll also be announcing additional exciting programming to further enhance member experiences throughout the year.

So to sum it up, I'm happy with the performance at the start of the year. Owners and new buyers continue to respond well to our value proposition. We delivered on our target that we laid out, which allowed us to increase our full year EBITDA guidance. We're continuing to make incremental progress in our evolution as an integrated entity, and we're focused on consistent execution against our strategic priorities as we move through the rest of the year. None of this would be possible without the dedication of our team members and leadership who have built such a strong, innovative and people-first culture.

With that, I'll turn it to Dan for more details on the numbers. Dan?

Thank you, Mark, and good morning, everyone. We had great results in the quarter, achieving our contract sales forecast while also exceeding our expectations for EBITDA growth through cost controls that drove margin expansion. As Mark mentioned, the strong performance, along with the momentum that we're carrying into the second quarter, gave us the confidence to raise our full year adjusted EBITDA guidance.

Turning to our results for the quarter. Total revenue before cost reimbursements in the quarter grew 2% to $1.2 billion. Adjusted EBITDA to shareholders grew 8% to $267 million with margins, excluding reimbursements of 23%, up 130 basis points over the prior year.

Within our real estate business, contract sales of $719 million were down slightly, performing in line with the expectations we laid out on our prior call. The decline was the result of tough comparisons for our Bluegreen business as it normalized against a strong HGV Max launch period last year.

New buyer contract sales were over 26% of the total for the quarter, an increase of approximately 160 basis points from the prior year, as we benefited from continued strength in new buyer tours, along with solid execution from our sales teams that drove new buyer transactions to their best first quarter performance since 2023.

Tours grew 8.5% during the quarter to more than 189,000 with growth coming from both our new buyer and owner channels. Conversion of the package pipeline we built over the past year fueled new buyer growth, while the strong value proposition of HGV Max continues to drive owner to demand. VPG was nearly $3,800 for the quarter, declining 8% and in line with the expectations of a high single-digit decline we discussed last quarter.

As we indicated, the decline was driven by the normalization of owner close rates at Bluegreen due to the lapping of the record HGV Max launch period comparisons, along with higher mix of new buyer sales in the quarter, which carry lower VPGs. Cost of products in the period was 10%, which benefited from higher-than-expected sales mix of lower cost inventory during the quarter.

Real estate sales and marketing expense for the quarter was $352 million or 49% of contract sales, 260 basis points lower than the prior year. The strong margin performance was primarily the result of our efficiency initiatives, which the team did a great job executing against.

Real estate profit for the quarter was $152 million with margins of 28%, up 350 basis points versus the prior year. Overall, I'm very pleased with our performance this quarter as our focus on efficiency was able to more than offset the margin dilutive effect of lower VPG and higher new buyer mix.

In our financing business, first quarter revenue was $138 million and profit was $87 million. Excluding the amortization items associated with our acquired receivables portfolio, financing margins were 65%, up 510 basis points from the prior year.

Looking at our portfolio metrics, our weighted average interest rate for originated loans was 14.5%. Combined gross receivables for the quarter were $4.4 billion. Our total allowance for bad debt was $1.3 billion on that $4.4 billion receivable balance or 29% of the portfolio.

The portfolio remains in great shape overall. Our annualized default rate for our consolidated portfolios was 10.1% for the quarter, reflecting a slight improvement against the first quarter of the prior year. And as of quarter end, our 31 to 60-day delinquencies expressed as a percentage of the total portfolio remains broadly unchanged relative to the prior year at 1.48% compared with 1.49% a year ago.

When measured as a percentage of the total portfolio net of fully reserved loans, delinquency performance reflects a similar trend at 1.7% versus 1.72% in the prior year. Our provision in the first quarter declined sequentially to 14.9%, in line with the expectation we laid out on our prior call, and we continue to feel confident in our expectation of provision remaining in the mid-teens for the full year.

In our resort and club business, our consolidated member count was just over 720,000, reflecting strong new buyer additions offset by continued recaptured activity in the period. Revenue grew 1% to $185 million for the quarter and profit was $126 million with margins of 68%.

Our expenses were slightly elevated owing to program-related headcount additions, which reduced our margins when combined with our seasonally lower Q1 revenue. However, we expect those effects to diminish as we move into our seasonally stronger quarters of the year.

Rental and ancillary revenues were up 5% versus the prior year to $197 million. Revenue growth in the period was driven by higher available room nights and a slight increase in our overall portfolio RevPAR, reflecting continued healthy trends for our rental business.

Developer maintenance fees remain the largest driver of our rental and ancillary business profitability trends and were responsible for the $19 million loss in the period. Reducing the burden of developer maintenance fees is a key objective that we'll achieve through both consistent sales growth as well as our inventory optimization initiatives.

As Mark mentioned, regarding our inventory optimization, we have signed an agreement with a third party to begin the process for a set of properties that we've selected for disposition. Broadly speaking, we will trade off several revenue streams we currently receive from property HOAs and owners in exchange for savings on the associated carrying cost of the inventory with the net result being a positive contribution to adjusted EBITDA. There are minimum sales generated at these resorts and by transferring that torque flow to other sites within our sales distribution network, we don't expect to sacrifice any sales revenue.

We will lose property management fees from the resorts, along with the associated rental income from inventory available for monetization. However, more than offsetting that revenue loss will be a reduction in our developer maintenance fee expense that we are currently paying on unsold inventory at these properties. Our initial estimate for the net of these items is that on a run rate basis, they will benefit our adjusted EBITDA by $10 million to $12 million on an annual basis.

I'd note that the agreement is subject to customary closing conditions, and there remains work to be done to get to closing. Therefore, our 2026 adjusted EBITDA guidance does not currently include any contribution from these dispositions. This is subject to change as we move through the process. And in the coming months, we look forward to providing additional financial and timing-related details as they are finalized.

Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, JV EBITDA was $5 million, license fees were $53 million and EBITDA attributable to noncontrolling interest was $2 million. Corporate G&A was $40 million or 3% of pre-reimbursement revenue, in line with our run rate over the past year.

Our adjusted free cash flow in the quarter was a use of $37 million, including inventory spending of $71 million, reflecting the timing of our ABS deal activity in the year. We continue to expect our conversion rate for this year will remain in the lower half of our long-term range of 55% to 65%.

During the quarter, the company repurchased 3.3 million shares of common stock for $150 million. From April 1 through April 23, we repurchased an additional 904,000 shares for $41 million. And as of April 23, we had $237 million of remaining availability under our current share repurchase plan.

We remain committed to capital returns as a primary use of our free cash flow in 2026, and we remain on track to continue repurchasing our shares at a pace of approximately $150 million per quarter, subject to the repurchase activity not increasing our net leverage for the full year.

Turning to our Elara transaction. As Mark mentioned, we entered into an agreement to purchase the inventory tail of our Elara JV. This agreement is effective as of today. Given the scale of our Elara project versus prior tail purchases, I think it's important to lay out the effects on our financials in Q2 and beyond.

We have been a 25% owner of the JV, and thus, historically, we haven't consolidated their financials into ours. Rather, we reported our share of the JV's income through our EBITDA from unconsolidated affiliates line in our financial statements.

In addition, from a revenue perspective, we recognized fee-for-service commission package sales and other fees on our consolidated income statement. And on a KPI basis, contract sales from the project were classified as fee-for-service sales in our real estate business.

Given the transaction, as we fully consolidate Elara and recognize the project as owned in Q2 and beyond, you'll notice a reduction in each of those line items, which will be offset by additional sales of VOI, along with the benefits of a new stream of portfolio income in our financing business.

Our total initial outflow for the remaining 75% of the entity is approximately $130 million. The acquisition included approximately $85 million from the combination of unpledged eligible ABS collateral and short-term working capital, which we will monetize and will ultimately result in a net cash use of $45 million. This will be a deleveraging transaction and should slightly reduce our corporate net leverage level.

We currently expect Elara to contribute approximately $20 million for the remainder of the year, which was not included in our prior 2026 guidance. As Mark mentioned, Elara has been one of the marquee projects for many years and having full control of the asset will be a positive for HGV on a go-forward basis.

Turning to our outlook. For the quarter, we outperformed our prior guidance for Q1 adjusted EBITDA growth to be flat to down slightly by approximately $20 million. Due to our strong performance this quarter, along with the additional contribution of Elara, I'm pleased to announce that we're increasing our 2026 guidance for adjusted EBITDA before deferrals to be $1.225 billion and $1.265 billion from the prior $1.185 billion to $1.225 billion for an increase of $40 million at the midpoint. To be more specific, outside of the contribution of Elara's EBITDA, our performance and adjusted EBITDA assumptions in the second, third and fourth quarters remain the same as what was embedded in our initial guidance for the year.

From a sales perspective, our prior full year 2026 top line targets remain in place. As a reminder, those include low single-digit contract sales growth with low to mid-single-digit tour growth and VPG down slightly. On a quarterly basis, our expectation for VPG growth for the remainder of the year remain unchanged. We continue to expect VPG to be down slightly for the full year with Q2 and Q3 seeing low to mid-single-digit declines and returning to solid growth in the fourth quarter as we fully lap the Bluegreen Max launch period.

In addition, we continue to expect that our 2026 conversion rate will be in the lower half of our target 55% to 65% range as we wrap up spending on Ka Haku projects ahead of its anticipated opening later this year. In addition, despite Q1 outperformance, we still expect that our adjusted EBITDA on a dollar basis will increase sequentially each quarter. For the second quarter specifically, we expect to grow our adjusted EBITDA in the low to mid-single-digit range versus the prior year, which includes approximately $3 million contribution from Elara.

Moving on to our liquidity. As of March 31, our liquidity position was $852 million, consisting of $261 million of unrestricted cash and $591 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $4.8 billion, and a nonrecourse debt balance of approximately $2.6 billion.

At quarter end, we had $150 million of remaining capacity in our warehouse facility. We also had $929 million of notes that were current on payments but unsecuritized. Of that figure, approximately $370 million could be monetized through a combination of warehouse borrowings and securitization, while we anticipate another $367 million will become available following certain customary milestones such as first payments, dating and recording.

Turning to our credit metrics. At the end of the quarter, the company's total net leverage on a TTM basis was 3.9x. As you may have seen, just after the end of the first quarter, we also completed our first securitization of the year, an oversubscribed $500 million deal, upsized from $400 million as a result of stronger investor demand. The deal priced with an advance rate of 98% and an average coupon rate of 5.13%, which included a tranche. So despite some of the geopolitical noise, the securitization markets remain open and healthy, and we look forward to completing several more deals later this year.

We will now turn the call over to the operator and look forward to your questions. Operator?

[Operator Instructions] The first question is from Patrick Scholes from Truist Securities.

Dan, I think you made it pretty clear regarding trends in the loan loss provision and propensity to pay really no instability or whatever I think your [indiscernible]. Any additional color you'd like to provide of what you've seen with the new issuances?

And then secondly, a follow-up. If you can give us a little color on expectations compare and contrast tour growth versus VPG for 2Q and/or the rest of the year.

Yes. No, absolutely. So I'll jump in on the portfolio, and then I'm sure Mark has some thoughts on VPG and tour trends. But with regards to portfolio, we're really pleased with the performance. I mean, we have a very consistently strong performing portfolio. And if you think about the balance of the portfolio, it's increased year-over-year by almost 8%. The annualized default rates have decreased by about 10 basis points.

And as we talked about in our prepared remarks, the early-stage delinquencies are stable to improving. Specifically, even post quarter close, when we look at our early-stage delinquency rates by portfolio, HGV is performing even better. It's down 7% from a delinquency perspective. Diamond is down 10%. Bluegreen is stable and their early, early-stage delinquencies, that 0 to 30-day mark, is actually at a 4-year low and has improved 11% subsequent even quarter end. So that's with all the geopolitical noise, which is very encouraging.

And as you probably recall, mid-year last year, we changed the underwriting process for Bluegreen to allow for an enhancement in equity being put down initially. So the actual Bluegreen equity at the table is up 50% compared to 2024 levels. So really pleased with all that performance. So when we look at the provision, sequentially, we dropped from 18% to just under 15%, right in line with our expectations. We're right in that mid-teens level where we expect it to be. So we're really pleased with how that's all coming together.

Yes. And Patrick, on the VPG front, say, first of all, the teams are -- I think they're doing a great job and really in the right direction on the demand front. As we called out on the last call, we expected -- and we saw our VPG headwinds as we lap Max for Bluegreen. So any -- pretty much all of the VPG pressure was related to the Max and Bluegreen launch. So -- but importantly, the teams drove nice growth in new buyer sales and transactions through tour flow. We were up 8% year-over-year on new buyer transactions.

So anyways, VPG headwinds were offset by that healthy offset with the foot traffic. So -- and importantly, what we saw is margin expansion, which is really encouraging, especially in a quarter where some of the real estate KPIs would have suggested margin deterioration.

So as we focus for Q2 and beyond, our focus is really balancing healthy tour growth with sustainable VPG growth over time, and we expect that balance to improve as we move through the year with headwinds really until we lap the tough comps at the end of Q3. So all in all, pleased with how the teams have managed through the expected headwinds that we anticipated on our VPGs.

The next question is from Ben Chaiken from Mizuho.

This is Rita Chen going in for Ben. Could you please elaborate on the inventory optimization initiatives? And do you see more opportunities beyond the 8 resorts that's currently identified? And then as our follow-up, could you also elaborate on Elara, which adds $20 million to the '26 guide? And we would have thought there's a longer term inventory play from -- just benefiting from the mix of own inventory from fee-for-service. Any color there would be helpful.

Okay. Yes, definitely didn't sound like Ben, so thanks for introducing yourself. Look, very -- we're in a really strong inventory position following a decade of building quality and scale into our portfolio. And as we've talked about in the past, we picked up a lot of really good inventory in acquisitions in a lot of great markets. And the optimization that we laid out today and what we'll talk through today is really driven by financial considerations. It's driven by the rebranding, the ability to rebrand these properties, the investments required there that didn't make sense and market overlap. So consistent with what we said in the past, we knew that some of the acquired inventory in these acquisitions wouldn't fit.

From a deal standpoint, we've mentioned we entered an agreement on the disposition of the 8 properties. And there's a number of closing conditions, but we're confident that we'll get that achieved in Q3. The economic benefits really is about transferring the ongoing developer maintenance obligation, and Dan covered off on that $10 million to $12 million being run rate and net EBITDA benefit once completed. So that's -- again, that's run rate, and these deals won't be -- we won't get this finalized until probably sometime in the third quarter.

So yes, all in all, pleased with this. As far as talking about any future opportunities, we're really focused on executing this transaction, which will have a significant benefit for us. And we're going to continue to be very deliberate in our steps to optimize our portfolio. And this is not about shrinking. It's about upgrading the portfolio. We're monetizing lower quality inventory well, improving the margin and cash flow.

So on the Elara front, and I'll let Dan touch on the numbers here. But Elara is -- it's our flagship property in Las Vegas. And we have 38,000 owners and we operate and it's been super productive for us in a very productive and strategic market for us. And Las Vegas has been a core growth engine for the company for multiple decades. And we're excited about this. This is a classic tail acquisition at the right point in the asset's life cycle. And it strategically aligns tightly with our owner-centric and new buyer strategies. So -- and Elara has been very popular with new buyers.

And importantly, when you think about what this does, okay, this transaction allows us to unlock all those owners that are sitting within the Elara ownership base. And now they have the potential to upgrade out of that project because historically, over the last 15 years, they've been upgrading within the Elara project. Now they can upgrade outside of it. And simultaneously, it allows our members to upgrade into Elara. So anyways, super excited about this one.

And Dan, I don't know if you want to touch on any of the details on the numbers.

Yes. No, I can definitely add some color on that. I mean we talked about the benefit for the year being close to $20 million. But when you think about the transaction in general, we're also picking up from -- included in that $20 million, clearly, but we're also picking up a consumer note portfolio net of impaired that's north of $400 million. So a material increase to the portfolio balance.

When you think about other projects that are out there, we -- this is not our only fee-for-service transaction. But to Mark's earlier point, this is a single site transaction. We do have a partner that we've been working with for over a decade at this point in South Carolina with a series of resorts in Myrtle Beach, Charleston, South Carolina, even one here in Orlando. It's a different environment, though. So we're not close to acquiring the tail on that. That's probably anywhere from 4 to 7 years out, just depending on how that runs through. But it will change our fee-for-service percentage. We were in the mid-teens, and it will bring us below 10% with us closing on Elara.

The next question is from David Katz from Jefferies.

Recognizing that sometimes the press reports can overstate these things, but there definitely was some weather late in 1Q and early 2Q in Hawaii. How -- what are you seeing and/or hearing? Is some of that overstated? Is there some impact that we should be noting?

Yes. Look, definitely some unusual weather in the quarter for Hawaii. And look, I lived in Hawaii for 27 years. It's called the Kona Low, and you get these type of storms about every 20 years. But I can tell you, our teams did a really good job managing through the challenges to minimize the impact. The impact was larger on arrivals than it was for sales. And for instance, if you look at Maui, Maui, which got hit pretty hard, was actually one of our strongest performing sales markets this quarter. So again, the teams did a really good job.

But if you look at overall, the weather impact between the ice storms in the Northeast, some of the colder temperatures in Florida and Hawaii, the impact was about $5 million of revenue with the majority of that being contract sales and the balance in rentals. So -- yes, so I'd say not material for us, but I think the teams did a good job managing through it.

And just following that up, I assume that's -- that minimal impact is reflected in whatever guidance and you're not preparing for anything further or anything ongoing, it was a onetime thing?

That's correct. Yes.

The next question is from Trey Bowers from Wells Fargo.

This is Nick Weichel on for Trey. I just had a really strong new owner performance in the quarter. I was kind of just curious what's driving that? What are you guys doing that's resonating with your owner base, new buyers? And with this and the inventory optimization program and the rebranding cycle you're going through, do you think you're approaching a period where maybe you could put up like sustained positive NOG? Any detail would be great.

Yes. No. Well, first of all, really pleased with how the new buyer trends have been playing out. And we have consistently talked about that being a key focus of ours, and it's critical to the long-term health of the business. And so the trends we saw having 8% increase in transactions and our mix moving up 3 percentage points are all very, very positive. And then we've also talked about just absolute new buyers coming in the system. Over the course of the last 4 years, it has been pretty impressive on a relative basis when you look across the industry. One of the things that we've really been striving on and the teams have been doing a good job is around tour quality. And on the other side, the value proposition. And so all in all, I feel really good about that.

I think on NOG, NOG in the near term is more a mechanical outcome of recapture. And ultimately, that's going to improve our cash flow and returns. And what matters for us is EBITDA and lifetime value creation and both of which we continue to grow. So we'll get back to positive NOG at some point, but some of this recapture is healthy, but the trend on new buyers is -- we're pleased with.

The next question is from Stephen Grambling from Morgan Stanley.

Just wanted to go back to the -- effectively the disposition or the optimization of the clubs. Is this something that we should be thinking about more consistently going forward? Or is this more of a one-off? And when you were looking at these clubs, was the reason to think about the dispositions mainly because of changes in the individual market? Or is there something when you just think through the structural dynamic of the way these are set up where the HOAs just won't kind of cover the maintenance CapEx over time?

Yes. Look, there's a lot of considerations, a lot of analysis that goes into this, Stephen. And I'd say, first of all, the average age of these properties are 38 years old, right? And that in itself doesn't drive the decision. But when you look at the overlap, 4 of the 8 are in Orlando. And we have 19 properties in Orlando and some of those were picked up through the acquisitions. And so these are, I would say, are the smaller properties and the older properties that when you look from a rebranding perspective, just did not financially make sense.

And so -- and then when you look at just kind of the makeup of the inventory or the base of owners in here, the mass majority of the owners were in the trust. So they remain in the trust. So there is not a lot of legacy owners. There's less than 300 legacy owners in these properties. And we're going to be offering them. It's a compelling opportunity to remain into the club, but -- or join the club that these are legacy members and are not part of the club today. So really not a lot of work that had to be done to get past that.

I don't know, Dan, if you have anything to add.

Yes. I mean I think the only thing I'd add is very similar to Mark's earlier comments. We always viewed a number of resorts that were not going to be rebranded. So when you think about this, hey, is this a one-off or is this something that we're consistently going to be doing? I'd say it's somewhere in between in the sense that this is an initial set of properties that we've identified. But it's not something that you'll hear from us every single quarter on. Will there be more? Yes. Probably at some point in the next 12 or 24 months, there'll be more. But it's not something that you'll see us do on an annual basis consistently going forward.

Yes. And just to maybe finish up on this particular question. I think we're in a very good inventory position. We're above our long-term targets, which will support a lot of strong free cash flow going forward. But importantly, when you look at our brand stack and the way we're structured now, when you go from luxury, which with our Hilton Club brands, if you look at the property that we're selling right now in Ka Haku, we're getting $175,000 average per week. Now you go down to the other side of it, and that is really being sold to a much more mature customer, I'd say, bloomers, portions of the Gen X. These are people that have higher net worth.

And then we have the Bluegreen acquisition really gives us a really good product where we are attracting a lot of new younger buyers into the system. So we like our branding position. We like our inventory position. This is really -- as I mentioned before, it's not about cleaning. It's not about shrinking. It's about upgrading the overall portfolio to better fit on our strategy.

Got it. So maybe one quick follow-up just to make sure I understand. So if we think about the club and resort management side then, do you generally expect that segment to grow going forward over the long term? Because I guess this is always a segment that I think was touted as kind of, I don't want say bulletproof, but effectively a perpetuity because you just kind of have inflationary growth every single year. Is any of that changing? Or should we think that this as static?

No, I don't think you should think of this as static. This is going to be a segment that will continue to grow over time. I think we had a couple of onetime things this first quarter. But I don't know, Dan, if you want to jump into any of that. But we're expecting to grow this segment, and it's a high-margin part of our business. And so -- and we're very pleased with the way the teams that are managing that business for us.

Yes. No, I think that's right, Mark. I mean -- we don't look at this being static. We look at growth opportunities. The net result of this impacting resort club and rental is clearly a positive from a cash flow basis, and it's making the organization not only from a portfolio's perspective, but also from an owner's perspective, healthier and stronger position.

The next question is from Chris Woronka from Deutsche Bank.

I was hoping we could maybe zoom in for a minute on some of the issues that will impact your margins, which I think were maybe a little bit better than you expected in Q1. And really talk about kind of staffing levels and marketing. And maybe if you can just give us a few words on each of those? Are you satisfied with where the budgets are? Is there anything that you -- concerns you with staff attrition or turnover? Or is marketing in line with where you thought based on demand levels? And then I have a follow-up.

Sure. No, I mean when -- I think when you think about Q1 and you think about the outperformance and the margin expansion, there was some element of timing of certain expenses, but we had really strong performance, both in sales and marketing expense as well as the financing business. So some of that trending does carry forward into Q2, 3 and 4. What I would say is you also have -- there is a bit of a mix. So things are going to come in like we originally expected, just in a different way. Clearly, on the financing side, I think everyone would readily recognize that when we gave guidance, we did not anticipate the conflict that we currently see in Iran and its impact on interest rates. So that clearly is priced into our ABS deals going forward, a little bit higher than we originally anticipated this year. But we feel we're in a good strong position there. And from a personnel perspective, I also feel that we're in a good spot.

Okay. Perfect. And then maybe if we could just circle back for a moment to some of the LLP. I know you've answered a lot of questions on it. I think it all makes sense. But is there any way to maybe if we drill down a little bit to get more granularity on, are you seeing any change in trends, whether it's legacy Bluegreen or legacy Diamond, legacy HGV, are you seeing any trends with demographics or geographic areas? Just curious as to whether we can maybe put to bed some of these concerns about things that are concerns that are out there that haven't yet materialized or any trends you would call out on a more granular level?

Yes. I mean, look, I think there's 2 things worth highlighting here. One, it wouldn't be timeshare if it wasn't a little bit complicated. So when you think about our loan loss provision, it's always going to be dependent upon -- if you ignore macro for a second, for us and specifically, it's going to be dependent upon the mix of the product that we sell. So the more trust we sell, the higher the actual provision will be because that's our entry-level product, and that bears a higher provision. The more deed we sell, the lower the provision will be.

In this particular quarter, we had a higher mix of trust being sold, which led to a slightly higher provision especially if you look year-over-year. Sequentially, directionally and absolutely, it landed right in line where we expected it to be. So that always has a little give and take. Now you get a little benefit because the more trust we sell, it has a lower cost of product. So you'll see that we had a lower cost of product in Q1 year-over-year as well. So there's that dynamic.

But when you think about trending and the overall stats that we're seeing in the new originations as well as our historical originations, like I said, we are very -- our portfolio is performing extremely well. No deterioration. It's solid performance. And I think that is also well received in the ABS markets. The deal that we closed just a few weeks ago happened to be on one of the days that Trump was saying X, Y and Z, and we still increased the actual offering from $400 million to $500 million and had strong investor demand. Even with the D tranche, we priced just at 5.13 in that kind of environment. So that is all, in our minds, extremely encouraging.

This concludes the question-and-answer session. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

All right. Well, thank you again for joining the call today to our members and team members around the globe. Thank you for making HGV a part of your story. We look forward to updating you on our Q2 call. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to the Hilton Grand Vacations Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Mark Melnyk, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to Hilton Grand Vacations Fourth Quarter 2025 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 the 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're 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 to the period when projects construction is completed. The aggregate of these potentially overlapping deferrals and recognitions from various projects in any given period are known as net deferrals.

Please note that in our prepared remarks today, we'll only be referring to metrics that remove the impact of net deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period. To simplify our discussion today, we've uploaded slides to our Investor Relations site showing these metrics, which we'll be referring to on today's call. I'd urge you to view these slides on our website on investors.hgv.com.

On Slide 2 of these materials, you can see the deferral adjusted metrics that we'll be referring to. Reported results for the quarter do not reflect $61 million of contract sales deferrals under ASC 606, which had the effect of reducing reported GAAP revenue and were related to presales of our Ka Haku and Kyoto projects. Also as shown on Slide 2, we recorded deferred $29 million of direct expenses associated with these revenues. Adjusting for both of these items would increase the adjusted EBITDA to shareholders reported in our press release by a net $32 million to $324 million.

With that, let me turn the call over to our CEO, Mark Wang. Mark?

Good morning, everyone, and welcome to our fourth quarter earnings call. Before we begin, I'd like to take a moment to thank our team members around the world for their hard work and dedication over the past year to create memorable vacation experiences for our members and guests.

2025 was a year of meaningful progress for HGV. We consistently delivered against our strategic initiatives during the year, driving material growth in package sales, significantly improving our execution and further enhancing our HGV Max offering. As a result, we grew contract sales 10%, representing the highest growth since 2022, with EBITDA above the midpoint of our guidance.

We also made investments in our lead generation capabilities, opening 41 new marketing sites with our partners at Hilton, Bass Pro and Great Wolf to support our future tour flow. We grew HGV Max memberships by 35% through the recent introduction of Max to our Bluegreen members, along with the continued demand from new buyers and upgrades in our legacy member base; optimized our financing business to structurally improve our industry-leading cash flow generation, including opening a new low-cost financing market in Japan, the first of its kind for any U.S. timeshare operator. And it enabled us to return $600 million of capital to our shareholders, achieving the target we laid out.

Over the past 2 years, we returned over $1 billion to investors through share repurchases, and we remain committed to capital returns as the primary use of our free cash flow. Our strong 2025 results not only demonstrate the progress we made in integrating our business but they also underscore the advantages of our business model, backed by the strength of the Hilton brand with nearly 60% recurring segment EBITDA, a highly engaged base of over 720,000 members, including 266,000 Max members with substantial embedded value and an established differentiated experience platform in our HGV Ultimate Access.

As we look forward to the year ahead, we continue to see a stable consumer environment overall, one where travel remains a top priority within consumer discretionary spending. With that consistent backdrop and much of the integration work behind us, we're carrying significant momentum into '26, putting us further down the path to achieve our long-term algorithm of resilient, profitable growth and material recurring cash flow generation to enhance our shareholder value.

Our guidance today represents another step toward that goal, reflecting low single-digit contract sales with mid-single-digit EBITDA growth, along with strong cash flow conversion, which Dan will get into shortly.

Next, I'd like to provide an update on our strategic priorities and the progress we've made on our integration work. Our strong results were achieved through disciplined execution against our 4 strategic priorities, which continue to guide the organization as we've moved into the new year. First, attracting new customers in a cost-efficient manner; second, enhancing the lifetime value of our member base; third, product evolution and innovation; and finally, driving operational excellence.

Starting with the first priority of cost-efficient new member growth. We drove strong tour growth in the fourth quarter while expanding margins and maintaining our sales and marketing cost ratios. Consolidated tours grew nearly 9%, supported by strong package sales over the last several quarters, along with strong local arrival. Importantly, we surpassed our pro forma consolidated 2019 tour flow levels, which is a nice milestone. We continue to focus on tour quality as we leverage the strength of the Hilton brand across our portfolio, added new lead gen partners like Bass Pro and executed against our acquisition, integration and efficiency initiatives.

We also sharpened our data analytics and processes with a focus on optimizing cost per tour by customer segment and channel to maximize flow-through. And we continue to expect to drive new buyer growth in '26, which is embedded in our guidance. That new member focus ties directly into our second strategic priority, which is to grow the lifetime value of our member base.

The introduction of HGV Max has exceeded our expectations with sustained adoption that has driven a greater than 20% increase in lifetime value of a Max member versus a non-Max member. In the fourth quarter, we saw material growth from Bluegreen new buyers and owner upgrades. And importantly, 4 years after our initial launch, we've also continued to see our legacy club members upgrade into Max as well. We expect that demand to continue as we introduce new guests to our offerings and further enhance the value proposition of Max membership.

In addition, we strengthened our customer service and rolled out new AI-based tools to drive engagement and help members make the most of their ownership and vacation experiences.

Our third strategic priority is product evolution and innovation to position our brand for sustainable growth. One area where we're continuing to evolve is our scaled differentiated experience platform, HGV Ultimate Access. 2025 was our biggest and most successful year of Ultimate Access. We hosted over 137,000 attendees, a more than 15% increase in participation from the prior year. In 2026, you'll see us introduce several innovations across new categories of events, enhanced booking options and new pricing tiers to broaden accessibility to the Ultimate Access platform. In addition, we'll continue to enhance our HGV offerings with new features and benefits throughout the year.

The final strategic priority is driving operational excellence, which is at the core of everything we do at HGV. This focus was a driver of our performance in the fourth quarter and building upon that success to drive incremental operational and asset efficiencies will be a key focal point in '26 and beyond. Operational excellence also extends to our integration efforts. I'm happy to say we reached our $100 million in cost synergy target during the fourth quarter, several months ahead of schedule. It's a great achievement for our teams, and I'm proud of their hard work to hit that goal. And we remain committed to managing costs and further improving our efficiencies from here.

Branding front, we've now rebranded our targeted Bass Pro locations, including more than 125 this past year. In addition, we're well underway with the rebranding process for our Bluegreen Resorts with 8 properties completed in '25. We're on track to have roughly 10 additional rebrands completed this year and the remaining 10 in '27.

So in summary, I'm happy with our performance this past year. We continue to demonstrate the strength of our differentiated model, and we made a lot of progress on the path towards our long-term algorithm. Our teams are all executing well in the field. We continue to innovate and evolve our offerings, which is showing in our results. As I look forward to the year ahead, our focus is on growth, innovation and efficiency to drive additional progress this year.

So with that, I'll turn it to Dan for more details on the numbers. Dan?

Thank you, Mark, and good morning, everyone. 2025 was a year of strong progress for Hilton Grand Vacations. Contract sales grew by 10% for the full year with both our owner and new buyer channels contributing to a positive sales growth. Additionally, the growth was driven by a mix of both strong VPGs and tour flow growth, driving 140 basis points of margin expansion in our real estate business.

We achieved our goal of realizing $100 million of run rate cost synergies associated with the Bluegreen acquisition, slightly ahead of our 24-month post-close target. These factors, coupled with a strong fourth quarter performance, put us well into the upper half of our guidance range with adjusted EBITDA of $1.15 billion, growing 4% over the prior year.

In addition to our operating performance, we augmented the long-term cash flow generation of the business by executing on our finance business optimization. We ended the year with 73% of our current receivables securitized within our target range of 70% to 80% and compared to a 55% run rate prior to the program's inception.

As part of our optimization, we introduced timeshare ABS to the Japanese market, unlocking a new funding source at an attractive cost of capital. For the year, we generated adjusted free cash flow of $756 million or more than $8.25 per share, and we returned $600 million or 79% of that cash flow to our shareholders, repurchasing nearly 15 million shares to reduce our float by over 20%.

Turning to our results for the quarter. Total revenue before cost reimbursements in the quarter grew 1% to $1.3 billion. Adjusted EBITDA to shareholders grew 12% to $324 million with margins, excluding reimbursements of 26%, up 250 basis points over the prior year.

Within our real estate business, contract sales grew 2% to $852 million. We did a great job during the quarter of converting the package pipeline that we have built over the course of the year. Tours were up 9% year-over-year to 225,000, driven by growth in our new buyer as well as our owner channels. Our strong fourth quarter tour performance also enabled us to surpass our pro forma 2019 tour flow levels for the first time.

So I'm really pleased with the result of our efforts. New buyers represented 24% of contract sales mix in the quarter. As we anticipated, VPG of nearly $3,800 declined against the prior year, owing to a difficult comparison from the launch of HGV Max to Bluegreen owners as well as the strong performance of our Ka Haku project during the initial introduction. Cost of product was 12% of net VOI sales in the quarter, down 290 basis points from the prior year, but consistent with levels we've seen throughout 2025.

Real estate sales and marketing expense was 46% of contract sales, which improved slightly against the prior year. This reflects the monetization of some of the tour flow pipeline investments we made earlier this year as a portion of that expense was recognized when packages were actually sold in prior periods, but it also reflects the efficiency efforts the team has made during the quarter.

Given the increased contribution from tours this quarter, which carries higher marginal expense, I'm really proud that the teams were able to manage costs so effectively to maintain our cost ratio against the prior year. Real estate profit was $177 million in the quarter with margins of 28%, up 150 basis points over the prior year to the highest level we achieved since 2023.

In our financing business, fourth quarter revenues were $134 million and profit was $81 million with margins of 60%. Excluding the amortization items associated with our acquired receivables portfolio, financing margins were 63%.

Looking at our portfolio metrics, our weighted average interest rate for originated loans was 14.6%. Combined gross receivables for the quarter were $4.3 billion. Our total allowance for bad debt was $1.2 billion on that $4.3 billion receivables balance or 28.6% of the portfolio. The portfolio remains in great shape overall. Our annualized default rate for our consolidated portfolios was 9.86% for the quarter, reflecting another 24 basis points of improvement from the third quarter and marking our third straight quarter of sequential improvement in our default rate.

And as of year-end, our legacy HGV and DRI 31- to 60-day delinquencies are level with prior year, and our Bluegreen delinquencies are actually 28 basis points lower than the prior year, continuing the trend of credit outperformance on our originated platform.

In late summer, we made meaningful changes to strengthen and streamline our underwriting processes, focusing more on equity at the point of sale, which we see as the primary driver of defaults. The result has significantly increased the equity and cash from both new buyer and upgrades, which should further improve our loan portfolio performance as we look into 2026.

Fourth quarter provision of 18.1% of contract sales was slightly above our long-term target for a mid-teens rate and sequentially higher than Q3's level of just under 17%. This was largely a function of fourth quarter seasonally strong owner upgrade trends, particularly on the Bluegreen portfolio, where upgrades accounted for 76% of sales during the quarter. As owners upgrade out of the acquired portfolio, the provision release for the old loan shows up in the financing segment, which was the primary driver of margins in the finance segment being up over 700 basis points year-over-year despite an interest headwind from our previously disclosed financing business optimization program.

Assuming similar mix and economic backdrop, we expect the provision to be down sequentially in the first quarter of this year and feel good about the provision in mid-teens as a percent of contract sales for the full year of 2026. As a reminder, our expectations for the financing optimization program was that it would drive an increase in our consumer interest expense during both 2025 and 2026 as we achieve our run rate securitization target of 70% to 80%.

We have several ABS deals slated for the first half of this year, including another offering in the Japanese market, which will help us achieve our full targeted run rate of term securitization receivables on an annualized basis.

In our resort and club business, our consolidated member count was over 720,000. Revenue grew 6% to $219 million for the quarter, and segment profit was $160 million with margins of 73%, growing 170 basis points versus the prior year, reflecting the consistency of our recurring resort and club business.

Rental and ancillary revenues were up 2% versus the prior year to $178 million with a loss of $8 million driven by developer maintenance fees. Revenue growth in the period was driven by higher available room nights and an increase in our overall portfolio RevPAR. While we continue to see solid demand from our stand-alone rental business, developer maintenance fees remain the largest driver of our rental ancillary business segment profitability trends.

Inventory management is a priority for our teams this year. We're focused on reducing the burden of those developer maintenance fees by working down our inventory balance through a combination of organic as well as inorganic means.

Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, JV EBITDA was $3 million, license fees were $57 million and EBITDA attributable to noncontrolling interest was $5 million. Corporate G&A was $42 million or 3% of pre-reimbursement revenue, down slightly from the prior year. Our adjusted free cash flow in the quarter was $414 million, which included inventory spending of $103 million, representing an adjusted EBITDA conversion rate of 128%.

For the full year 2025, we converted 66% of our adjusted EBITDA into adjusted free cash flow or over $8.25 per share. As we discussed at this time last year, with the launch of our financing optimization, 2025's conversion rate would be above our target long-term rate of 55% to 65% before returning to that long-term range in 2026.

During the quarter, the company repurchased 3.5 million shares of common stock for $150 million to achieve our targeted $600 million of repurchases in 2025. January 1 through February 9, 2026, we repurchased an additional 1.9 million shares for $89 million. As of February 19, we had $339 million of remaining availability under our current share repurchase plan. We remain committed to capital returns as the primary use of our free cash flow in 2026 and believe our shares continue to represent a compelling value.

As we look at 2026, we expect to maintain a robust pace of repurchases of approximately $150 million per quarter with the aim of not increasing our leverage through those repurchases. This will enable us to continue to return capital to shareholders without adding additional corporate leverage to the business.

Turning to our outlook. We are establishing 2026 guidance of adjusted EBITDA before deferrals to be between $1.185 billion and $1.225 billion. Two important expense headwinds are taken into consideration in our 2026 guidance. The first item is regarding our license fees. During 2026, we will experience the annualization of the final rate step-up on our Diamond business as well as our second rate step-up on our Bluegreen business. We estimate that these items combined will be approximately $15 million to $20 million for the full year. With the Diamond step-up being fully realized by August, the majority of the headwind will be realized in the first 3 quarters of the year.

The second is the annualization of our finance business optimization. Consistent with our original expectations when we initiated the program, we expect that this will negatively impact the year by approximately $10 million to $15 million, with the majority of the impact being felt during the first half of the year. Our full year guidance also embeds low single-digit contract sales growth. As Mark mentioned, we expect this growth to be driven by tour flow this year. Specifically, our current expectation is that VPG for the full year will be down slightly as we lap the elevated growth rates from 2025. However, despite that increased mix of tours, which generally deliver lower flow-through than pure VPG changes, we still expect to maintain adjusted EBITDA margins consistent with where we ended 2025 due to continued execution against our efficiency initiatives.

In regards to the cadence of the year, our current expectation is that contract sales and EBITDA in the first quarter will be flat to slightly down as we lap the near-record VPGs in Q1 of the prior year that were driven by the strong initial launch periods for HGV Max and Ka Haku, along with the anticipated expense headwinds associated with the expected step-up in rates for our license fees as well as consumer finance interest expense as we analyze the ramp of our finance optimization program. We expect EBITDA to improve sequentially in each successive quarters, consistent with sales growth, execution against our efficiency initiatives and as the expense headwinds subside.

As I mentioned, our adjusted free cash flow conversion this year will fall within the long-term range of 55% to 65%. We expect that our 2026 conversion rate will be in the lower half of that range as we wrap up the spending on our Ka Haku project ahead of its anticipated opening later this year. But as our level of annual inventory spend trends towards a maintenance level in the upcoming years, we expect to move higher within that target range.

Moving to our liquidity. As of December 31, our liquidity position was over $1 billion, consisting of $239 million of unrestricted cash and $809 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $4.5 billion and nonrecourse debt balance of $2.7 billion. At quarter end, we had $235 million of remaining capacity in our warehouse facilities. We also had $943 million of notes that were current on payments but unsecuritized. Of that figure, approximately $374 million could be monetized through a combination of warehouse borrowing and securitization. While we anticipate another $388 million will become available following certain customary milestones such as first payment, deeding and recording.

Turning to our credit metrics. At the end of the quarter and inclusive of all anticipated cost synergies, the company's total net leverage on a TTM basis was 3.78x.

We will now turn the call over to the operator and look forward to your questions. Operator?

[Operator Instructions] The first question is from Patrick Scholes from Truist Securities.

Question, then I'll have a follow-up question here. You did briefly talk about quarterly cadence for 1Q, but I'm wondering if you could touch on, if possible, quarterly cadence expectations for the other quarters and also specifically within that expectations by quarter for tour growth and VPG.

Sure. Thanks, Patrick. Yes, let me kind of frame it up a little bit, and then I'll have Dan kind of jump into some of the details here. But I think, first, I'd say we made really good progress in '25 on both operational and from a financial perspective. When you think about the investments we made in our lead flow, that gives us a lot of confidence about our tour flow coming in this year, controlled our costs, especially you saw that in the second half of the third quarter and fourth quarter, grew both contract sales and EBITDA and grew both our tours and MVPGs and our real estate margins, which really led to this leading industry cash flow generation over $756 million.

So -- and then as we've been talking about, we continue to buy back shares, and we had a record $600 million last year. So as I take just a step back here, as you look at how we're tracking against our targeted algorithm of consistent top line growth with EBITDA growing a bit faster and strong free cash flow, I think we're on a really good path. I'd say in '25, we were a bit below that algorithm with strong contract sales growth, but EBITDA growing more slowly due to the investments we put in the business. But as we look into '26, our guidance today really reflects us tracking better and closer to that algorithm with EBITDA that we expect to grow slightly ahead of sales for the year. So -- and that really is about the tour flow generation.

And with that, we expect strong cash flow generation. So anyways, so I think we're tracking really well towards unlocking our earnings and cash flow power of the business and getting us set up on the right path toward that long-term algorithm we've been working on. I don't know, Dan, if you want to hit on some specifics on the VPG and EBITDA for the year.

Yes. No, absolutely, Patrick. I know we talked about it a little bit in our prepared remarks. But when you think about Q1 specifically, we're looking at high single-digit growth on the tour flow side, mitigated by high single-digit decline on the VPG side, which is as expected and very consistent with what we saw in Q4 given the tough comps.

As we look on the cost side, there are some pressures. I mentioned the license fee pressure as well as the financing business optimization. The one thing I'd also point out is from a provision perspective, we look to return to that mid-teens level for the full year of 2026. And if you look at year-over-year, Q1 was favorable to that last year. So there's a little pressure on that side. Those components really yield to that slightly down EBITDA in Q1.

But when you think about it sequentially throughout the year, we're really going to capitalize on all the package pipeline work that we did last year. You'll recall, we saw some outsized package performance, in particular, in Q2 and Q3 last year. Those will be playing out this year. And we see strong tour flow growth, coupled with easier comps as we progress out the year. Clearly, Q1 being the toughest comp with the first full quarter launch of HGV Max to the Bluegreen owner base.

And as we progress throughout the year, those headwinds, in particular, the license fee with the Diamond being fully ramped starts to fall away in Q3. And then the optimization of the financing business should be fully annualized by the time we hit midyear. So it helps sequential growth for EBITDA from quarter-to-quarter to quarter-to-quarter throughout the year. So that's how we see it playing out. So a lot of details in there. So if you have any follow-up, happy to address those.

Okay. And then actually, my follow-up question is to you, Dan. Just with that uptick in the 4Q loan loss provision, you called out it having to do with upgrades to legacy existing Bluegreen owners. Can you -- there, I say, talk a little bit more about the sausage making into that. There's definitely a little bit of confusion out there of why such a step up. And if you could just help clear the air a little more color and detail around that.

Yes. No, absolutely. Very important question. And it's one of those scenarios where purchase accounting still is coming into play since that acquisition is relatively recent. First, though, what I would like to say is the portfolio in general is performing extremely well. I talked about in my prepared remarks, about us making meaningful changes from the underwriting process. A little bit of an oversimplification, but a key aspect of that was eliminating a program that Bluegreen had in place. We've accomplished this about midyear in 2025, where we're now requiring additional capital down -- additional deposits down from the consumer as they upgrade in particular.

Previously, Bluegreen allowed for a no cash upgrade option. And what we've seen is material upticks in the deposits, especially in the Bluegreen side that have yielded strong performance on those originated loans. So those are -- that performance is improving. We talked about the 31- to 60-day delinquency rates. On the HGV and the Diamond side, they're holding steady year-over-year, even sequentially, and the Bluegreen has actually improved by 20 basis points, which is good to see. And we expect that improvement to continue, especially with the change in the underwriting.

Now from just a geography purchase accounting item and how you saw an uptick in Q4, the -- how it works from an accounting perspective is when someone in the acquired portfolio upgrades into an originated portfolio, the release of the reserve associated with that original loan actually goes through financing to the extent there's not already a reserve in place. And then you fully reserve the new loan into the real estate business, and that goes into the percentage count. So you're effectively reserving a full balance on the new loan even though you're only recognizing incremental contract sales, which yielded an optic -- uptick to that provision rate.

But just to avoid any confusion, we're very happy where our portfolio sits and fully expect to be in that mid-teens range in 2026. So we'll see that tick down in Q1 and remain lower throughout the year in 2026, obviously, assuming no material deterioration in the macro environment.

The next question is from Ben Chaiken from Mizuho.

I think maybe stepping back a little bit, excess inventory has been a headwind on the rental side for you guys, but also the entire industry broadly driven by the developer maintenances. If I caught you correctly, I think you mentioned there were -- and maybe I'm conflating 2 comments you made, but I think you were referencing some organic and inorganic ways to bring down that inventory again, if I caught you. One of your peers recently took some strategic action. Would it make sense to streamline some of your assets and locations? Why or why not? And then again, did I hear you correctly?

Yes. No, I think you heard us correctly. we've got through a very thorough financial brand and market analysis on the properties that we have in our portfolio. And we picked up a lot of really good inventory in the acquisitions and a lot of great markets. But ultimately, we're looking to try to optimize the portfolio for both our members and our shareholders. And as we've discussed in the past, some of the inventory that we acquired just doesn't align with our long-term vision for the portfolio.

So I think as we get closer to making a final decision on our plans, we'll provide a lot more detail. But I think you've heard it from our competitors and you're hearing it from us. This is really nothing related to legacy HGV. That product is in great shape, and we feel like we've put the best new product in the market within our sector over the last decade. So that's in great shape. It's just really when you acquire 2 companies like that, there are properties that just meet the portfolio requirements. So we're looking at it, and we'll give you an update as soon as we have a final plan.

Got it. And recognizing you may not want to bite on this one, but any way you could maybe ballpark a range of number of assets?

No, I think we're still in the middle of the analysis. Look, we've been working on this for a while, but I prefer to wait and give you the bigger picture and a more concise program that we're looking to move on.

Okay. And then just as a quick follow-up, just any thought process on -- or maybe more color on your philosophy around buybacks. Is $150 million a quarter kind of the right number? Why not more, just given kind of the amount of free cash flow generated and your valuation?

That's definitely a fair question. It clearly is our primary directive when it comes to -- well, primary choice of use of capital these days as the stock is a compelling value at these levels. And we anticipate continuing at $150 million per quarter. What I would say from our mindset is we're not of the mindset that we want to increase our leverage ratio to repurchase shares. We're very comfortable with the leverage that we're operating at today, which is actually a downtick from where we were prior quarter and year-over-year. But at the same time, levering up the company to buy back shares, given the robust level of the share repurchase program that we currently have in place is not what we're looking to do. That's why we are very comfortable at the $150 million level per quarter.

The next question is from Stephen Grambling from Morgan Stanley.

I may have missed this in some of the opening remarks, so apologies. But I think this is the first year where NOG turned slightly negative. And that was kind of like a hallmark, I think, of the story relative to some of the peers. Maybe if you could just shed some light on some of the underlying dynamics there. Obviously, on the last comment about maybe club management, does that have any impact on owner growth that we should be anticipating? And do you expect it to maybe stabilize at some point going forward?

Yes. No, Steve, this is Mark. First, I'd say that I think when you look at our business right now, and it got a lot mature with these acquisitions, right? With the Diamond acquisition, that was -- the strategy was a roll-up strategy, and they acquired 11 companies over time and some of those companies go way back and -- as far as 40, 45 years back. And so you have a situation where some of these owners, some of these members have been in the system for a long time. And we continue to work with them to exit them out appropriately based on a one-by-one analysis of that. So we have some pressure on that side.

I'd say the good news is we have generated -- when you look at Max since we rolled out, we've got 266,000 new Max members in less than 4 years. And of that, 175,000 are new buyers, meaning they bought within the last 4 years. So we continue to bring new members in the system. And we've talked about it, I think, on the last call, a new member, the lifetime value is 6x what a member that's been in the system for 15 years. So -- and when you look at our Max membership base, 50% of that base is -- the tenure of ownership or membership with us is 5 years or less and nearly 70% are 10 years or less. So we continue to build lifetime value into the business and more recurring revenue. And so it's just part of the equation. It's part of the business.

And for HGV, when we were stand-alone before the acquisitions, we were a younger company, I'd say, only in the business for around 30 years versus we acquired some of these companies that have owners that have been in the system longer. So look, our focus continues to be on driving new buyers on an absolute basis. We believe we've been driving more new buyers on an absolute basis into our system than anybody in our sector, and we'll continue to stay focused on that.

The next question is from David Katz from Jefferies.

I wanted to just talk about the sales force a bit. Such an important driver in this business. Where are you, would you say, in terms of having the force where you want it? Are there any sort of strategic changes or personnel changes or anything like that, compensation structures, et cetera? Give us a kind of lay of the land there, please.

Yes. So first of all, a big shoutout to our sales force because they do an amazing job. If you think about 2024, we broke through a barrier, $3 billion barrier in contract sales, and that wasn't good enough. They grew at 10% last year, right? So I don't know of any other company that's ever hit $3 billion nor grew at 10% at that level. So we got a great sales force. Dusty Tonkin leads our team there. We've got great leadership with Mike Reilly under him, a great team out there. So we feel really good about our teams.

It's -- are we exactly where we want to be? Absolutely not. You always want to be improving. One of the things that you have to think about for us, and we're still continuing to evolve is -- we went from a business back in 2019, where 85% of our business was generated out of 7 markets. Now we're in 40 markets. So we historically were very focused on large markets, and I think we continue to dominate in those large markets. But we also are now -- have developed a lot of mid and small markets. And so those are markets where we continue to build our teams and our capabilities, but I'm very, very pleased with the progress we're making. We've got a great team, and they continue to drive results.

[Operator Instructions] There are no further questions at this time. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

All right. Well, thank you for joining the call today and another thank you to our team members for the strong year of execution and, most importantly, for taking care of our members and guests. I'm extremely proud of what you've accomplished, and we look forward to updating you on our Q1 call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to Hilton Grand Vacations Third Quarter 2025 Earnings Conference Call. A telephone replay will be available for 7 days following the call. The dial-in number is (844) 512-2921 and enter pin number 13751068. [Operator Instructions]

I would now like to turn the call over to Mark Melnyk, Senior Vice President.

Welcome to the Hilton Grand Vacations Third Quarter 2025 Earnings Call.

As a reminder, our discussion 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. We'll also be referring to certain non-GAAP financial measures. You can find definitions and components of such non-GAAP numbers as well as reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.hgv.com.

Our reported results for all periods reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we're 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.

For ease of comparability and to simplify our discussion today, our comments on adjusted EBITDA and our real estate results will refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. To help you make more meaningful period-to-period comparisons, you can find details of our current and historical deferrals and recognitions on Table T1 of our earnings release and the complete accounting of our historical deferral and recognition activity can also be found in Excel format on the Financial Reporting section of our Investor Relations website.

With that, let me turn the call over to our CEO, Mark Wang. Mark?

Good morning, everyone, and welcome to our third quarter earnings call. We had strong operational and financial execution this quarter with 17% growth in our contract sales driving material improvements in our real estate business profitability versus the prior year. Those results enabled a near double-digit growth in our EBITDA for the period, along with maintaining our commitment to returning substantial cash back to shareholders.

I was particularly pleased with how broad-based our sales performance was. We grew our tour flow and VPG in both owner and new buyer channels. All of our domestic geographic regions produced double-digit gains in VPG, and we delivered mid-teens contract sales growth at both our legacy and Bluegreen businesses. Our teams have been working hard on executing against our strategic initiatives to grow our lead flow, improve our execution and enhance our value proposition, and those efforts are continuing to produce results.

The consumer environment has remained stable overall and travel demand continues to be healthy when looking at forward indicators and member surveys. While recent events have highlighted the continued volatility in the policy landscape, our focus on our strategic priorities has not changed. We're controlling the things we can control by executing against identified initiatives and highlighting our value proposition in the short term while continuing to invest in building our capabilities for the long term. We still have work to do around growing our new buyer mix and improving our cost efficiencies, but our results reinforce my confidence that we're making progress toward achieving those objectives and that the investments we're making today will drive sustainable value creation in the business.

Looking ahead, we're carrying good momentum into the year-end, and we're reiterating our existing EBITDA guidance for the year, along with our expectation of achieving high single-digit contract sales growth.

Turning to the results for the quarter. Reported contract sales were up 17% to $907 million, which was a record for the business on a pro forma basis. Adjusted EBITDA was $302 million with margins, excluding reimbursements of 24%. And as I mentioned, I'm encouraged by the composition of our sales in the quarter. Consolidated tour growth of 2% continued the consistent trend of improvement we've seen this year with both owner and new buyer channels contributing to the growth.

We grew new buyer tours at our legacy and Bluegreen businesses, and we achieved that growth while executing on our tour efficiency initiatives and improving the overall quality of the tour pipeline. VPG was up 15% against the prior year with our performance also reflecting broad strength. Both owners and new buyers contributed to the growth. The gains were also relatively well balanced between our legacy and Bluegreen businesses. And geographically, we saw double-digit growth across every one of our Mainland regions.

Looking at our forward demand indicators, which also remained healthy. Occupancy in the quarter was equal to the prior year at 83%. Consolidated arrivals in the fourth quarter are ahead of prior year, and our marketing and rental arrivals continue to be our strongest channels. Our package sales initiatives also continue to be successful with another quarter of double-digit package sales growth and a pipeline that remains near 750,000 packages.

Moving on to our other business units. Our member count was nearly 722,000 at the end of the quarter and reflected the increased rate of recapture we discussed last quarter, which will support both embedded value creation and improved long-term cash flow generation. Our HGV Max members are our most engaged and active members, and we're maintaining a very steady pace of Max additions with both new buyers and owner upgrades. We added 70,000 members to HGV Max over the past 12 months. And in doing so, we achieved an important milestone, surpassing 0.25 million HGV Max members, including nearly 30,000 legacy Bluegreen members now enrolled in the program. So we continue to see robust demand for the Max program and the compelling value proposition it offers.

In our rental business, continued travel demand supported growth in much of our portfolio. While the Las Vegas FIT rental market remained slow due to visitations and competitive dynamics. Our Vegas sales teams did a tremendous job in our sales centers during the quarter, driving near double-digit contract sales growth despite market challenges.

And in our financing business, we continue to execute on our business optimization program that will enhance our cash flow over the long term. During the quarter, we repurchased 3.3 million shares of stock for $150 million. We're on track to hit our goal of returning $600 million to shareholders through our repurchase this year, and we remain committed to returning excess capital to shareholders.

Turning next to an update on our initiatives and integration. We continue to make progress with our lead generation initiatives to drive package sales and activations. The packages we sold in the first 6 months of the year are starting to convert into tours and were a key contributor to our return to positive new buyer tours growth this past quarter. We also generated double-digit growth in the number of packages sold in Q3, exceeding our internal forecast for the second quarter in a row. Those packages will in turn help us to build out our tour pipeline into 2026.

So while stronger-than-expected performance resulted in proportionately elevated marketing spend in the period and weighed on our flow-through, we view this investment as an important driver of future growth. As those packages convert into tours and ultimately into contract sales, we'll see the benefit of new buyers entering the system and adding additional lifetime value.

Regarding our product enhancement initiatives, HGV and HVC Resorts began receiving Max members from Bluegreen this month with those members now able to easily use their points for stays at our resorts across all of our brands. And we plan to launch additional Hilton benefits for our newest Max members from Bluegreen, along with access to travel concierge service to help with the planning and making the most out of their next getaway.

Turning to the Bluegreen integration, we continue to make good progress. We reached $94 million in our run rate cost synergies this quarter and remain on track with the targeted $100 million in savings. We fully rebranded our Bluegreen sales centers and rolled out our Envision sales technology in each of them. And with the recent completion of our Bass Pro kiosk rebrands, we have great brand synergy across our marketing channels, highlighting Hilton Grand Vacations quality of product and service backed by the Hilton brand. On the property front, we've rebranded our first 7 Bluegreen properties with the goal of having our targeted rebrands completed over the next 3 years.

Our technology teams also continue to make great progress on our digital transformation path, rolling out additional tools for our teams while also introducing new enhancements to improve our member experience. This quarter, we've upgraded our proprietary -- my explorer chatbot to provide our members a personalized AI-powered tool tailored to their membership profile to help them with their booking and vacation needs.

From a partnership perspective, we've been focused on executing and deepening our existing relationships. Through strategic alliances with Hilton, Bass Pro Choice and Great Wolf, we reach a broad, diverse and growing audience. And we're constantly working with those partners to test new marketing programs and increase the efficiency of our funnel to convert leads to new member transactions and drive lifetime value.

So to sum it up, I'm proud of our performance this quarter, and I'm especially pleased with how broad-based our performance was across our KPIs, channels and geographies. Our teams have done a great job executing against the initiatives we laid out, and their hard work is producing results. We're focused on further improving our cost structure and flow-through along with driving additional new buyer growth. And I believe that the investments we're making in the business are setting us up for long-term value creation.

So with that, I'll turn it over to Dan for more details on the numbers. Dan?

Thank you, Mark, and good morning, everyone.

Before we start, note that our reported results for this quarter include $99 million of sales deferrals, which reduced reported GAAP revenue and were related to presales of our Ka Haku and Kyoto projects. We also recorded $42 million of associated direct expense deferrals. Adjusting for these two items would increase the adjusted EBITDA to shareholders reported in our press release by a net $57 million to $302 million. In my prepared remarks, I'll only refer to metrics excluding net deferrals which more accurately reflects the cash flow dynamics of our financial performance during the period.

We had a strong sales performance this quarter reflected across our channels, KPIs and geographies, leading to contract sales growth of 17%. That fueled an acceleration in both our top line and EBITDA growth with strength in our real estate, financing and club and resort businesses. Real estate margins had their second consecutive quarter of meaningful expansion and our recurring finance and club and resort businesses continue to demonstrate consistent growth. While we still have work to do on the rental business and our overall cost efficiency, I think we made solid progress in the quarter overall.

We finished the quarter with 69% of our current receivables securitized as we continue to execute against our financing business optimization. And while our cash generation was lower this quarter due to the timing of securitization activity, we remain confident in our 65% to 70% cash flow conversion target for the year. Year-to-date, we've produced $342 million in adjusted free cash flow, and we're expecting to generate a material amount of cash in the fourth quarter, along with our final securitization deal of the year.

Turning to the results for the quarter, total revenue before cost reimbursement in the quarter grew 12% to $1.3 billion, and adjusted EBITDA to shareholders was $302 million with margins, excluding reimbursements of 24%, roughly in line with the prior year. We've recognized $94 million of run rate cost synergies from our Bluegreen acquisition and are within sight of our goal of $100 million of run rate savings. Within our real estate business, contract sales were a record $907 million, up 17% versus the prior year. As Mark mentioned, the composition of our sales performance was encouraging with gains in both our owner and new buyer channels. New buyer mix remained steady at 27% of contract sales during the quarter. Tours were up 2% year-over-year to $232,000 with growth in owner and new buyer channels. We expect to see an acceleration in our fourth quarter tour growth, supported in part by our package sales performance in the first half of the year.

Turning to VPG, our tour efficiency initiatives, HGV Max and Ka Haku launches underpinned an acceleration in growth to $3,900, up 15% year-over-year. As was the case with tours, both our owner and new buyer channels saw a step-up in growth from the second quarter rate.

Cost of product was 12% of net VOI sales in the quarter, in line with the prior year. Real estate sales and marketing expense was 46% of contract sales, a 300 basis point improvement from the prior year. Similar to last quarter, we outperformed our package sales estimates, which will help support future tour growth. Due to the nature of timeshare marketing, the expenses related to that outperformance are realized upfront and will convert to EBITDA as we tour those package guests in the coming quarters.

In Q3, the additional marketing expense was roughly $7 million. Despite the additional expense, however, real estate profit was $178 million in the quarter with margins of 27%, up 300 basis points over the prior year.

In our financing business, third quarter revenue was $128 million and profit was $75 million with margins of 59%. Excluding the amortization items associated with our acquired receivable portfolios, financing margins were 62%. Looking at our portfolio metrics, our originated weighted average interest rate was 14.7%. Combined gross receivables for the quarter were $4.2 billion or $3.1 billion net of allowance. Our total allowance for bad debt was $1.1 billion on that $4.2 billion receivable balance or 27% of the portfolio.

Our annualized default rate for the consolidated portfolios was 10.1% for the quarter, slightly better than our second quarter level. Our third quarter provision was 17% of owned contract sales in the quarter, 100 basis points improvement from the prior year. Delinquency rates across all portfolios are trending at or below last year.

We continue to monitor our 31- to 60-day delinquency trends very closely as an early indicator and have not seen any signs of increased stress within our portfolio in recent weeks.

In our Resort and Club business, our consolidated member count was nearly 722,000, reflecting recapture activity during the quarter. And as Mark mentioned, we crossed over 250,000 members in HGV Max, which is a great milestone. Revenue grew 8% to $193 million for the quarter due to fee increases and stable member activity rates and segment profit was $135 million with margins of roughly 70%.

Rental and ancillary revenues were up 2% versus the prior year to $186 million, with a loss of $4 million driven by developer maintenance fees. Revenue growth in the period was driven by higher available room nights and relative stability in RevPAR across the portfolio as a whole. The Las Vegas rental market continues to remain soft, although recent trends have shown signs of stabilization. We'll continue to leverage our ability to reallocate room nights between marketing and rental in Vegas to adjust to rental demand dynamics. And as Mark mentioned, our team did a great job in that market driving strong contract sales with mid-teens growth in our Vegas VPGs.

Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, JV EBITDA was $5 million, license fees were $56 million, and EBITDA attributable to noncontrolling interest was $4 million. Corporate G&A was $43 million or 3% of pre-reimbursement revenue, roughly in line with Q2 and last year. Our adjusted free cash flow in the quarter was $23 million, which included inventory spending of $77 million. Our cash flow was lower this year owing to the timing of our ABS deals. For the full year, we still anticipate that our conversion rate of adjusted EBITDA into adjusted free cash flow will be in the range of 65% to 70%, which would imply a material amount of adjusted free cash flow generation in the fourth quarter and a conversion rate that will be in excess of 100%.

Using our third quarter ending share count of just under 87 million shares, this implies we'll generate $8 to $9 of adjusted free cash flow per share for the year, and we'll continue to return the majority of that cash flow to shareholders. During the quarter, the company repurchased 3.3 million shares of common stock for $150 million. From October 1 through October 23, we repurchased an additional 1.1 million shares for $47 million. Including these shares, we've repurchased a total of 12.4 million shares year-to-date for $497 million, representing nearly 18% of our public float coming into the year. We remain committed to capital returns as a primary use of our free cash flow and believe our shares continue to represent a compelling value. As of October 23, we had $531 million of remaining availability under our current share repurchase plan.

Turning to our outlook. We are maintaining our 2025 adjusted EBITDA guidance to be in the range of $1.125 billion to $1.165 billion, which assumes that the environment remains consistent with what we see today.

Moving on to our liquidity. As of September 30, our liquidity position consisted of $215 million of unrestricted cash and $632 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $4.7 billion and a nonrecourse debt balance of approximately $2.5 billion. At quarter end, we had $300 million of remaining capacity in our warehouse facility. We also had $1.1 billion of notes that were current on payments but unsecuritized. Of that figure, approximately $586 million could be monetized through a combination of our warehouse borrowing and securitization. But we anticipate another $358 million will become available following certain customary milestones such as first payment, deeding and recording.

Despite volatility in some portions of the credit market, our ABS market remains open and functioning. This fact, coupled with our $850 million warehouse gives us confidence we can execute on our previously discussed finance optimization strategy.

Turning to our credit metrics. At the end of Q3 and inclusive of all anticipated cost synergies, the company's total net leverage on a TTM basis was 4.0x.

We will now turn the call over to the operator and look forward to your questions. Operator?

[Operator Instructions]. And our first question comes from Patrick Scholes with Truist Securities.

I wonder if it's possible you could give us some initial high-level expectations or thoughts for 2026? And then specifically within that, talk about expectations for financing profit. Certainly, we've seen the last couple of years given the unfavorable direction of interest rates and the net spreads where that margin has been squeezed, given that, that seems to be going the other way, I'd like to hear just sort of high level for financing as well. If you can.

Sure. Yes. Patrick, thanks. Of course, we want -- we're very focused on finishing the year strong. So that's first and foremost. But -- and as usual, we'll provide guidance on our first call next year. But at a high level, I think we're really well set up with momentum heading into '26 and expect to get to the growth a bit differently than we did this year from a top line standpoint. We're continuing to see solid demand for leisure travel despite some of the noise out there and we expect good tour flow growth next year, resulting from the investments we made during the year and which is going to be the primary driver for contract sales growth next year.

You have to remember, we're lapping the Max launch with Bluegreen and the Ka Haku property that we opened up or launched in launch sales in Hawaii. So -- and then, of course, the new buyer tour flow growth is going to weigh a little bit on our VPG. So it will be less of a driver on contract sales growth next year. But we're going to stay very focused on leveraging our fixed cost and expect some operational cost improvements. All of that said, we believe we're going to be able to continue to drive strong free cash flow. And we're still very committed to returning capital to our shareholders.

So we look forward to sharing more details on our next call. I think I'll let Dan jump in and talk about the financing profitability that you asked on the second part of that question.

Thanks, Mark. And Patrick, yes, absolutely. I mean, as Mark underscored, I think we're well positioned for 2026. When it comes to the financing business, one element that we will see in 2026 is some headwinds on that front just as we continue to maximize our finance business optimization program. As you recall, we expected that to take about 18 months, so that will run into next year. Now that will be slightly offset by a growing portfolio.

And as you will recall, last quarter, we announced the first securitization in the Japanese market. We'll be looking to attack that market again next year, too. So hopefully, with the combination of all those things, you'll see margin hold despite the headwind and potentially grow seeing how rates play out but you can expect us to take full advantage of all those opportunities.

And if I can ask just a follow-up question here, actually has to do with the VPG -- the very strong VPG results in 3Q, up 15%. Certainly, I follow a lot of travel and leisure companies, and we don't see much of anything growing 15% at the moment. If you had to -- and you kind of did this in your prepared remarks. But just boil it down and summarize how you're doing something that's growing 15% versus sort of the rest of the travel world not growing much of anything? Boil it down for me.

Yes. So Patrick, first of all, I'd say our team did a great job, great execution. And when you look at where and how we accomplished this. It's really a similar story from a geographic perspective. East, West, Mid-Atlantic, South, Vegas was even up 10% in a market that's struggling from an FIT standpoint. Orlando, New York, Hawaii, all double-digit gains across the business.

And so why do we think we're seeing this? I think it really is a testament to the new club that we launched. We innovated and launched a brand-new club. And it was a reinvention of what we've done, and Max is performing extremely well. And it's been a catalyst for both owners and new buyers. We reached 250,000 members in just over 4 years. if you go back and you look at HGV legacy club, it took us 25 years to reach that mark, right?

So -- and what's happening is -- and most importantly, is our Max owners are reporting higher satisfaction rates and engagement scores. And our sales advisers continue to deliver on great vacation solutions. So owners are upgrading earlier and more frequent than we have in the past and driving record VPGs.

So -- and we're seeing that from our legacy club members upgrading into Max, and we're also seeing existing Max members who've joined over the last 3 to 4 years upgrade. In fact, I talked about the 250,000 Max members. We actually have 360,000 transactions in Max. So -- so I really attribute a lot of the performance to the great work our teams did rolling out this new membership program. It really has improved our value proposition. We've added a lot more Hilton benefits to connect our members to the broader Hilton ecosystem.

And when you look at our base of members in Max, just above 50% of our Max members have a tenure in our system of less than 5 years. So what does that mean? That means that those members that are in our system for less than 5 years have 90% of their lifetime value sitting ahead of them. And then nearly 70% of our Max members have a tenure of less than 10 years in our system. So those members have 50% of their lifetime value sitting ahead of them. So anyways, the rapid growth in Max space really bodes well for our business and just great execution.

Our next question comes from Ben Chaiken with Mizuho Securities.

I would love to touch on flow-through. You kind of -- you touched on it in the prepared remarks, but I want to dig in a little further. So top line was strong, but it just feels like there's a couple of things working against you. You mentioned higher tour packages. I think you said this was worth $7 million. So essentially, just to confirm, these are expenses incurred in the quarter, of which you get revenue in the future. And the $7 million would be the amount above the normal course of business. I guess, is that fair?

And then it also looks like you had higher precision and reportability and other adjustments. Just anything you would flag in the P&L. And then to the extent you could quantify it, that would be great.

Yes. Let me touch on some of that, and then I'll let Dan jump in with some more detail here. But there's always a level of investment in the business for growth, right? And we continue to invest in high-tech and high-touch solutions really to reach a bigger audience. And -- and '25 has been a year of above-average investment in future customer acquisition. And that was by design.

On the high-touch side, we've got great partners, right? We added 41 new marketing sites across Hilton, Great Wolf and Bass Pro this year. And we continue to invest in our digital channels. So these initiatives require upfront investment in staffing, technology. So the results have been great. 10% year-over-year package sales growth for 2 consecutive quarters.

Now as you alluded to, that growth is still only partially reflected in our tour flow as it takes sometimes 9 to 12 months on average for a package holder to actually travel to one of our properties. And we're going to start seeing that growth in Q4 and beyond. So anyways, we expect the upfront investment will bring us some steady level growth in the future. And more importantly, as we move more forward out and we go into next year, we want to get on a more consistent cadence between our package sales and tour flow. And our expectations next year is that the level of investment will be more closely matched to the revenue.

And then Dan, I think there's probably a couple of other...

Yes. No, definitely, Ben, I’ll just address some of your specific questions. To your point, the marketing packages activity, that $6 million or $7 million it rounds to $7 million is above the ordinary course of business. As you'll recall, those are packages that will be traveling in the future. That's when we'll recognize the package revenue, but the cost is upfront. And obviously, as they come to the properties, their tour and we will recognize contract sales to the extent we sell them. So that's a piece of it.

To your question on reportability, there is a piece associated with reportability. It's actually not a bad story. It's a good story. So during the last 10 days, if you look year-over-year, just from a rescission perspective, we sold more contract sales the last 10 days of this year compared to last year. That's roughly $8 million. So that's really effectively timing, just getting past that rescission period that consumers have.

And then in addition to that, and this is part of the investment as well, from an FDI perspective, we have rolled out some of the higher cost FDIs to the entire system. That yielded a elevated level of FDIs in Q3. As you know, it's one of the tools we use to close a transaction. And it's a bit of a balancing act. But I would tell you that this quarter was elevated on an FDI perspective by probably 1 point to 1.5 points. So all of those things yielded some compression on the flow-through.

Got it. That's helpful. And then the rescission, that $8 million, that basically drops straight to EBITDA. Is that fair? Or how do I think about that 8 and the flow-through associated with it?

There's some deferral, but we'll recognize all that as we flow into Q4.

Got it. And 1 to 2 points on the FDI side, is that $1 million to $2 million? Or when you say points, I didn't totally call that.

So that's FDI as a percentage of owned contract sales or contract sales, call it. That would equate to between $9 million and on the higher end, $15 million for the quarter.

Okay. That's meaningful. Okay. Got it. And then switching gears a little bit. As we think about free cash flow conversion in '26, can you help us think about the puts and takes? I think we've talked about in the past maybe reducing some inventory spend, which obviously is a good guide for free cash flow conversion. And then I'm not sure if you have any big beautiful bill benefits. But just again as a percentage of EBITDA, so EBITDA free cash flow conversion in '26. What's kind of like -- is that a good ballpark?

Look, I'll start with the taxes. Obviously, like every other operator out there, we're trying to take full advantage of what's in the big beautiful bill. But I think generally speaking, I would look for cash taxes to be roughly in that mid-teens level as a percentage of EBITDA, so call it, 13% to 16%, somewhere in that realm.

To the degree we can take advantage, we will. From a cash flow and an investment perspective on inventory, last time I think we've talked about this, it's worth highlighting again. Right after the Bluegreen acquisition, we expected to be in a position where we would need to invest between $350 million and $450 million in inventory on an annualized basis. Since then, we're obviously capitalizing to a great degree on recaptured inventory, and that's going to allow us to lower that long-term level of investment from $350 million to $450 million down to roughly $300 million.

Now we've been talking about this for a few years because we did push off inventory investments during COVID. So we're still wrapping up some of those larger investments, most notably Ka Haku and Maui and Hawaii. So this year, we will spend just under $400 million. That will be a similar level next year, and then you'll get to that average run rate of roughly $300 million on an annual basis, which includes new projects as well as recaptured inventory.

And moving on to our next question, Chris Woronka with Deutsche Bank.

I was hoping we could maybe talk for a minute about your first-time buyers and not sure if you want to maybe segment them across the different brands or some other way. But just how they're -- I know you said that all the metrics are up for first timers. But is there any difference you see between maybe a Bluegreen sourced first-time buyer and HGV depending on how you source them? Just thinking about in terms of close rate or VPG or things like that. Is there any way to segment any kind of trends for first-time buyer versus an existing buyer?

Yes. So, I've got a few data points here I'll share with you that -- as you know we're fully committed to new buyers, right? And really pleased with the progress the teams are making. On an absolute basis, we're sourcing more new buyer tours to our sales centers and driving more transactions than anybody in our sector. And that's really been the case for the last 15 years.

So, we continue to be very, very focused. And we talked about the investment. I talked earlier about the investments we've made this year to even bolster that going into '26. And so, what I'd say is, number one, on the VPG front, new buyer close rate reached its highest level since Q2 of '23, and we're really pleased to see that movement there. From a generational standpoint, Gen X, Millennials and Gen Z made up 70% of our tour flow and close rate improved across all of those generations. And then when you look at it from an income tier standpoint, close rates were steady in the low net worth tier, and they increased in the middle and high-tier net worth customers. So, we're seeing it right now, the consumer is stable and we're very focused on executing on all the things that we can control.

Okay. Very helpful. And then a follow-up question. How should we think about kind of getting that rental business back to 0 or better from a EBITDA standpoint? I know some of the challenges in unsold inventory. Maybe you could give us a little bit of a walk-through in terms of what has to happen and timing and how we should think about that for the next couple of years, if it's a step function or more of a grind?

Yes. No, absolutely. So, a lot of the momentum that we need to do is really driven off of contract sales. So, as we sell more and we get through the recapture bubble, that will allow us to lower the developer maintenance fee. That will contribute heavily to improvement on the rental side.

Now we've talked about this last quarter to some degree. From a recaptured inventory standpoint, that is going to yield lower net owner growth over the next 24 to even 36 months. As you saw this quarter, it's relatively flat and it will go negative. But that's a big component of it. The other component that should help drive margin improvement, holding [all else equal], which I know is a big assumption, especially when you think about ADR rates, but it's converting properties over to the Hilton brand. We do realize ADR benefits from that standpoint, and we also realize cost benefits from an OTA perspective. But it's really a combination of all those components, and it is a long-term process to get there.

Yes. And then I'd just add on to that, that I think our teams have done a really thorough job this year in the resort operations side, really looking for improved efficiencies in our operations. And I think we're going to see our members are going to see that the increases that we're looking for next year are by average standard we're going to be below what we've historically seen.

And then I'd also say, look, we picked up a lot of good inventory in the acquisition. But we do have some of that inventory that's non-branded. And quite frankly, there's just not a investment case of putting the dollars in to get them to the standard we want. And so there may be some inorganic options here and what I mean by that, where we have maybe oversupply or a product that doesn't really fit the portfolio, where in the future, we can figure out a way to move that inventory off our balance sheet and move along to somebody else that can better utilize it.

And moving next to Brandt Montour with Barclays.

So, there's been a lot of talk across consumer land this earnings season and as well as in travel, right, about the high end versus low end and you're seeing it on the strip and you're seeing it in elsewhere in different travel verticals. Mark, you gave some great stats and you kind of cut it up a bunch of different ways. It doesn't sound like you're seeing anything. But if you just look at close rates for new owner sales across your properties and you look at the smaller properties, a lot of those were legacy Diamond versus maybe some of the bigger ones in Orlando or other markets. Do you see any divergence based that would sort of track that theme at all?

Well, I think Brandt, I think the divergence really is more execution than it is from a consumer standpoint. Like I said, our new buyer close rate reached its highest amounts or highest rate since the second quarter of '23. And I talked about it a number of quarters ago around the low net worth tier customers. That tier has really stabilized. It really hasn't come back to the historical levels.

But what we've seen, Brandt, is that middle to higher net worth tier really improve. And we have spent a lot of time this year on optimizing our tour. And we continue to evolve how we use our data and analytics and our marketing to drive new buyers and really sharpening our qualifications and the discovery process to just gather better information early on.

So, at the end of the day, we're trying to be much more effective in sourcing our customers. And so we're really focused on trying to steer trying to put our money and our focus to that mid- to higher tier net worth customer than the lower tier right now. And like I said, they've stabilized, but they really haven't recovered to the levels we've historically seen.

And the only thing I'd add to that, just from a performance standpoint is when we look at our portfolio, as you can imagine, one of the things we look at on an almost daily basis is delinquency rates between 31 and 60 days is a leading indicator from a standpoint. And we slice that data to the end degree, but just to oversimplify it to some extent, if we look at those with FICO scores greater than 650 versus those with lower than 650, what I can tell you is sequentially and generally speaking, it's been trending actually positive greater than 650 and below 650 has been very stable. So even on that front, we see positive trends in totality.

David Katz with Jefferies has our next question.

I appreciate all the detail around some of the momentary or pedestrian investments and growth as well as some of the timing issues that seemed a bit more momentary also. How do we think about, in a general sense, 2026, right? Are -- is that an investment year to some degree also? Or should we think about modeling this as kind of a year to reap what you've invested here?

Yes. David, I think as I mentioned just a few minutes ago, I think what you're going to see next year is the big lift in investment for really broadening and building out our new buyer marketing channels and on the digital side, there'll be some investment there, but it won't be at the same level and -- that we put into this year. And so our expectations are next year, we're going to be looking at tour flow growth that exceeds what we had this year. And we're looking more in that kind of low to mid-single-digit tour flow growth and with a little bit more moderated VPG next year.

And so the investments on the package side is going to really -- we're going to get into a cadence where the growth on the package side is going to align much better to the growth on the tour flow side. So we start seeing the revenue generation more closely match up to the expense side. And so that's our expectation next year. And our goal for next year is -- our goal is to see -- is to be able to exceed bottom line growth rate or grow the bottom line at a faster rate than our top line.

Yes. I mean another way to think about it is just from '25 to '26, it's kind of bridging to that long-term algorithm that we've historically talked about. Low single-digit tour flow growth, low single-digit growth in VPG to mid -- would translate into mid single growth in contract sales and then a focus on leveraging cost to drive hopefully higher EBITDA growth.

Our next question comes from Stephen Grambling with Morgan Stanley.

Just wanted to follow up on some of the inventory and sales details, and specifically maybe digging into Hawaii and some of that inventory specifically. I guess how would you compare and contrast the mix of the inventory that's left to kind of sell specifically in Hawaii? And when you think you'd be kind of sold through that over the rest of -- as we think about next year and even maybe beyond?

Yes, Stephen, no, we're -- as far as a mix standpoint, we've been doing this for a long time, and it's -- we're very, very focused on a balanced mix. And so we're -- I think when we think about it, we're very much on track to be able to utilize the benefit of Ka Haku for a number of years. And I'd say the same thing around Maui and also on the Big Island. We're still converting parts of that hotel into units. So we're in a really good position from a deeded standpoint. Ideally, on a long-term basis, we want to be at about 2.5 years of deeded inventory. And right now, we're running a little bit over that. So we're in a good position there.

In the long run, our goal is to bring our COP down and bring our balances down. And as Dan alluded to earlier, that will benefit our rental segment. So all in all, I think we're in a really good position from an inventory standpoint and especially that high-end inventory that has a lot of demand across the whole network. We're very measured in how we release that inventory to make sure it's balanced over a number of years.

Moving on to Danny Asad with Bank of America.

Dan, and I think it was to Brandt's question, you called out or you mentioned that the delinquencies when it comes to the FICOs that are below 650 have been stable. Look, at the same time, we're reading about subprime auto delinquencies ratcheting up and like to Brandt's point, other pockets of the consumer is struggling. So I guess how do you square specifically how like the sub-650 bands of timeshare loans are stable here and there's no -- from a delinquency standpoint and then other places where it's kind of not.

Yes. No, look, that's a great question. I think there's a twofold answer there. First and foremost, I would say, we are very focused on, when it comes to the consumers' mindset, on maximizing their desire to pay, right? And that comes down to how we interact with them from the starting point at the sales table, actually from selling them a package to the sales table and the experience they receive at that property. So there is a certain emotional attachment to timeshare and vacationing. So I think that element holds strong.

And then to be quite blunt, the subprime FICOs are not our core either. So we probably have, just to a degree, lesser exposure than some of the -- some of our counterparties who are having a larger problem with it. But sequentially, we've held up well and the trending is positive on that below 650. And then even when I think about annualized default rates, again, in total, but annualized default rates sequentially have improved from even last quarter and year-over-year, they've actually improved more than they improved sequentially. So we're seeing -- as we sit here today, we're seeing everything hold stable to positive.

Yes, Danny, I'd just add too. I think Dan touched on this a little bit. And I mentioned it earlier. Look, our Max owners are reporting much higher satisfaction rates and engagement scores. And I think it's a testament to our club team and all of those that are touching our customers across the network, not just the upfront sales process. And as I mentioned, I gave some stats on the tenure within the Max program. And it's pretty impressive how young a base we have in the Max program. And I think you can't -- I can't underestimate or overstate the fact that high satisfaction and engagement scores are super important in people's willingness to want to pay.

Got it. And just as a follow-up, in the past, you've talked about a mid-teens expectation for loan loss provisions. Based on kind of what you're looking at and those trends, is that still where we're trending right now for either like Q4 or 2026?

Yes. No, I think that's accurate. And I think we're effectively there at this point.

And that does conclude our question-and-answer session. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

All right. Thank you, Carrie, and thanks, everyone, for joining us today. I want to thank all of our team members, but a special shout out to our resort operations teams at our 200 resorts for delivering heartfelt hospitality and elevated experiences to our members and guests and to our members for trusting HGV with what matters most, moments with friends and family and experiences designed to inspire and connect you to the world. Thank you, everyone.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

Good morning, and welcome to the Hilton Grand Vacations Second Quarter 2025 Earnings Conference Call. A telephone replay will be available for 7 days following the call. The dial-in number is (844) 512-2921 and enter pin# 13751067. [Operator Instructions]

I would now like to turn the call over to Mark Melnyk, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacations Second Quarter 2025 Earnings Call. As a reminder, our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements. 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.

We'll also be referring to certain non-GAAP financial measures. You can find the definitions and components of such non-GAAP numbers, as well as reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.hgv.com. Our reported results for all periods reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we're 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.

For ease of comparability and to simplify our discussion today, our comments on adjusted EBITDA and our real estate results will refer only to results excluding the net impact of construction related deferrals and recognitions for all reporting periods. To help you make more meaningful period-to-period comparisons, you can find details of our current and historical deferrals and recognitions in Table T1 of our earnings release and a complete accounting of our historical deferral and recognition activity can also be found in Excel format on the Financial Reporting section of our Investor Relations website.

With that, let me turn the call over to our CEO, Mark Wang. Mark?

Good morning, everyone, and welcome to our second quarter earnings call. We produced solid results for the quarter, led by the continued strength of our HGV Max offering, the outperformance of our owner business, and progress on the initiatives we laid out on our prior call. Through those initiatives, we expanded our lead flow and grew the top of our sales funnel, improved our execution, which drove sustained transaction growth, and rolled out additional features to further enhance the value proposition of Max membership. Thanks to the efforts of our teams, we produced double-digit contract sales growth, driven by strong VPG expansion, and tour flow trends that improved compared to the first quarter. We built momentum as we moved through the quarter, culminating in a strong June performance that carried into July. And our demand indicators remain encouraging with on-the-book arrivals outpacing prior year, along with strong package pipeline. While the policy landscape remains volatile, the consumer environment has been relatively stable. We're continuing to monitor those trends closely, and we remain focused on executing against our initiatives to help insulate us from macro noise. Looking ahead, our performance in the second quarter gives us confidence in our business, and I'm pleased to reiterate our guidance for the year. While I'm pleased with our progress thus far on our initiatives and integration work, we still see significant value creation opportunities ahead of us.

Looking at the results for the quarter. Reported contract sales were up 10% to $834 million, and adjusted EBITDA was $278 million with margins excluding reimbursements, of 23%. As I mentioned, we built sales momentum as we moved through the quarter with VPG, close rates and contract sales improving each month from April to June. Similar to last quarter, tours were slightly lower in Q2 as we continued to ramp our efficiency initiatives that prioritize our highest propensity tours. However, that decline was more than offset by the continued VPG strength, which is a favorable trade-off in our view. Volume per guest was up 11% to $3,690, led by our owner business with our Max offering and sales of Ka Haku contributing to another double-digit VPG quarter.

Looking at our demand indicators, occupancy in the quarter was equal to the prior year at 83%. Consolidated arrivals in the third quarter and back half are even with the prior year, with particular strength in our marketing and rental arrivals indicating favorable travel demand. In addition, our efforts to grow the top of the funnel through increased package sales and activations have been successful. We added over 20,000 packages to our pipeline, more than doubling the additions we had in the first quarter. And we also made great progress on our package activations to support our tour flow pipeline.

Moving on to our other business. Our member count was nearly 725,000 at the end of the quarter, and we ended with over 233,000 HGV Max members, including nearly 21,000 legacy Bluegreen members who have joined the program. We've continued to see very consistent monthly growth in our Max membership driven by new member growth and owner upgrades. And we expect to retain this momentum as we introduce additional benefits that further enhance the value proposition of Max.

Net owner growth for the quarter was 0.6%. This reflects our continued success in adding new members to Max, but it also reflects the netting effect of increased activity from our inventory recapture program. We've spoken a number of times about the efficiency of our recapture model, which carries several key advantages. First, it provides a source of low-cost inventory and reduces the need to spend on additional inventory in the future, supporting lower cost of product and future cash flow growth. And second, we embed additional value into our membership base, adding engaged active members with a high lifetime value while replacing members who are not actively vacationing at the same levels they used to.

With the acquisition of Diamond and Bluegreen, our member base has grown substantially and our average ownership tenure across the system has also increased. Having a more mature system provides us additional opportunities for strategic inventory recapture as we continue to refine our inventory sourcing strategy. While we expect the effect of this recapture activity will continue to have an impact on NOG, it ultimately supports the embedded value of our owner base while also improving our free cash flow over the long term. Our Max members are the most active, have the highest satisfaction rates, and have the highest embedded value, and we'll continue to focus on enhancing the value of that membership and driving the growth of our Max members. Moving on, demand in our rental business has remained stable with higher RevPAR supporting results for the quarter, Solid rental performance across the broader portfolio was offset by softness in Las Vegas, where lower market-wide international and convention business is creating increased competitive promotional activity.

Turning to financing. As you likely saw a few weeks back, our team successfully closed on a JPY 9.5 billion timeshare securitization in Japan, the first of its kind for a U.S. operator, with a very favorable cost of capital. This deal not only supports our financing business optimization and capital return goals this year, but it opens up an entirely new market to provide a source of low-cost funding to support our business and capital allocation goals as we grow this new platform. It's a testament to our decades of effort to develop our market-leading position in Japan through our commitment of providing quality and service excellence to our 75,000 Japanese members. And this is a significant milestone for HGV, so I'm very proud of the team.

From a cash flow perspective, our financing optimization helped us generate over $135 million in adjusted free cash flow for the quarter. We expect to complete spending on our Ka Haku project in 2026, marking the end of a major inventory investment cycle that we announced back in 2018. As we return to a normalized level of annual inventory spending and realize the benefits of the financing optimization program, we're transitioning toward a sustainable model of strong cash flow generation. And we remain committed to returning excess cash to our shareholders. We returned $300 million to our shareholders this year, including $150 million for the quarter, and we're confident in our goal of returning $600 million this year.

Turning next to an update on our initiatives and integration progress. Our initiatives helped to support our solid operational performance during the quarter. First, regarding the top of the funnel, as I mentioned earlier, we had strength in our package sales during the quarter, and the efforts that the teams put forward to optimize our package activations led to a considerable increase in our activation pace, which should support tours in the second half of the year. Second on the execution side, we implemented our newest prescreening models in several more package sales channels and sales sites, which has allowed us to better prioritize our tour flow and support improved VPGs. Our third initiative was around product enhancements. We continue to expand our experience platform and recently made Bluegreen's successful hosted trips program available to all of our members. This popular program has had high guest satisfaction scores and a high level of repeat business, and we think it will be a great addition to the services we offer our members and guests.

In addition, earlier this month, we also rolled out cross-booking capabilities to our HGV Max members, giving them the ability to easily use their points across the entire system of resorts. And we have several other enhancements slated for rollout later this year, which will continue to drive engagement and enhance the value proposition of Max. On the project front, I'm also excited to announce that we held our topping off ceremony for our Ka Haku property last week, and we remain on track to begin welcoming guests in 2026.

Turning to our Bluegreen integration. We remain on track with our goals. We've nearly achieved our stated cost saving target and remain confident in our ability to reach our $100 million goal this year. We've rolled out our Envision sales technology to the majority of our Bluegreen sales centers, and we expect to be completed by the end of this quarter. And we're also in the process of integrating Ultimate Access into the Bluegreen resort network. In a few weeks, we'll begin our Bluegreen property rebrand program, which we expect to have completed over the next 3 years. On the partnership front, we've completed the rebranding of our Bass Pro locations, and we continue to make great progress with our partners toward implementing digital marketing programs with them to further expand our lead flow.

So to sum it up, I'm happy with our performance this quarter. The value of HGV Max has continued to resonate with our owners and guests, and we've built momentum over the course of the quarter as we executed on our initiatives. We're generating and returning significant cash flow with our financing business optimization, and opening up the Japan securitization market should provide us with a new avenue of cost-efficient adjusted free cash flow generation in the future. As we cross over the halfway point of the year, our focus remains on executing our initiatives as well as continuing our integration work. We've made steady progress, and we still have significant opportunity ahead.

So with that, I'll turn it over to Dan for more details on the numbers. Dan?

Thank you, Mark, and good morning, everyone. Before we start, note that our reported results for the quarter included $82 million of sales deferrals, which reduced reported GAAP revenue, and were related to presales of our newest projects, Ka Haku and Kyoto. We also recorded $37 million of associated direct expense deferrals. Adjusting for these 2 items would increase the adjusted EBITDA to shareholders reported in our press release by a net $45 million $278 million. In my prepared remarks, I'll only refer to metrics excluding net deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period.

As Mark mentioned, we had another solid quarter driven by gains in our VPG, which were aided by our initiatives and continued success of HGV Max. And it translated into 10% contract sales growth and improvement in our real estate margins. Our financing business optimization has also continued to be a meaningful positive driver to cash flow. We finished the quarter with 73% of our current receivables securitized, remaining within our target range of 70% to 80% on a steady state basis.

In addition, as part of our optimization, I am very pleased to announce that we executed on our first securitization of Japanese receivables with JPY 9.5 billion issuance at an attractive 1.41% borrowing rate. This is a significant milestone for us and represents the first and only timeshare securitization in the Japanese market, and it builds off our decades of leadership in that market. And while this initial deal was relatively small, over time, we plan to scale our presence in that market to provide us with another option to generate additional adjusted free cash flow at an attractive cost of capital. You may have also noticed we filed a 15G earlier this week and expect to be in the market with an ABS deal of approximately $400 million shortly as we continue to focus on efficiently monetizing our financing business.

Turning to our results for the quarter. Total revenue, excluding cost reimbursement, in the quarter grew 9% to $1.2 billion, and adjusted EBITDA to shareholders was $278 million with margins, excluding reimbursements of 23%. In addition, since the close of the Bluegreen acquisition, we've achieved $92 million of run rate cost synergies, nearing our goal of $100 million of run rate synergy savings. Within our real estate business, contract sales were $834 million, up 10% versus the prior year. New buyers represented 28% of our contract sales during the quarter, improving sequentially from the first quarter by 300 basis points. Tours were down about 50 basis points year-over-year to 225,000, which again reflected the tour efficiency initiatives that Mark mentioned earlier, along with ongoing sales center closures related to the hurricane this past fall.

As Mark mentioned, during the quarter, we continued rolling out our prescreening and efficiency programs. This allowed us to tour higher propensity guests through our sales centers and along with continued success of HGV Max helped to drive another quarter of strong VPGs, which were up 11% year-over-year to nearly $3,700. We still anticipate high-single-digit contract sales growth for the year. However, given the year-to-date trends, we now expect flat tour growth and high-single-digit VPG growth to be the driver that gets us to that sales target.

Cost of product was 11% of our net VOI sales in the quarter, down nearly 100 basis points from the prior year. Real estate sales and marketing expense was $412 million, or 49% of contract sales, flat to the prior year. Real estate profit was $162 million in the quarter, with margins of 26%, up 300 basis points over the prior year. In our financing business, second quarter revenue was $126 million and segment profit was $72 million, with margins of 57%. Excluding the amortization items associated with our acquired receivable portfolios, financing margins were 61%.

Looking at our portfolio metrics, our originated weighted average interest rate was 15%. Combined gross receivables for the quarter were $4 billion, or $3 billion net of allowance. Our total allowance for bad debt was $1.1 billion on that $4 billion receivable balance, or 27% of the portfolio. Our annualized default rate for the consolidated portfolio stood at 10.2% for the quarter, equal with the first quarter's levels. Our originated portfolio delinquencies continue to outperform a much more seasoned acquired portfolio, which is a testament to the strength of the HGV brand, increased value proposition of HGV Max, and the continued rollout of the best-in-class sales and underwriting practice. As a result, our second quarter provision was 14% of owned contract sales, down from 15% in the same quarter of the prior year. Delinquency rates for both the HGV and legacy DRI portfolios are running at or below last year. And while we expect the provision rate to build throughout the year given the current operating environment and seasonal trends, we still expect all-in provision in the mid-teens for the full year, consistent with our previous guidance.

We also monitor our 31-to 60-day delinquency trends very closely as an early indicator and have not seen any signs of increased stress within our portfolio in recent weeks, but we continue to monitor the situation closely. In our resort and club business, our consolidated member count was nearly 725,000. And over the trailing 12 months, the Max membership has grown by nearly 65,000 members. Revenue grew 7% to $183 million for the quarter, owing to our increased member count and solid member activity during the quarter, and segment profit was $127 million with margins of 69%. Rental and ancillary revenues were flat to the prior year at $195 million in the quarter, with segment loss of $8 million. Revenue growth was driven by higher ADR with available room nights roughly the same as the prior year. On the whole, we saw improvements in both rate and occupancy across the portfolio, although Mark mentioned softer trends in the Las Vegas market. On the expense side, developer maintenance fees continue to be the largest driver of our rental and ancillary margins.

Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, JV EBITDA was $7 million, license fees were $52 million, and EBITDA attributable to noncontrolling interest was $5 million. Corporate G&A was $42 million, or 3.4% of prereimbursement revenue, which was 50 basis points better than last year's expense rate. Our adjusted free cash flow in the quarter was $135 million, which included inventory spending of $77 million. For the full year, we still anticipate that our conversion rate of adjusted EBITDA into adjusted free cash flow will be in the range of 65% to 70%. During the quarter, the company repurchased 4.1 million shares of common stock for $150 million. From July 1st through July 24, we repurchased an additional 626,000 shares for $29 million. We remain committed to capital returns as the primary use of our free cash flow and believe our shares continue to represent a compelling value. We currently have $98 million of remaining availability under our share repurchase plan. In addition, as you saw in our press release, we just obtained a new authorization from the Board of Directors for an additional $600 million of share repurchases for a total of roughly $700 million between the 2 programs.

Turning to our outlook. We are maintaining our 2025 adjusted EBITDA guidance to be in the range of $1.125 billion to $1.165 billion, which assumes that the environment remains consistent with what we see today. As I mentioned earlier, we expect to convert 65% to 70% of that EBITDA into cash flow. Using our second quarter ending share count of just under 90 million shares, this implies we'll generate approximately $8 to $9 of adjusted free cash flow per share for the year. And we'll continue to return the majority of that cash flow to our shareholders. We remain committed to returning an average of $150 million per quarter to shareholders this year through share repurchases or $600 million in total, representing the vast majority of our adjusted free cash flow.

Moving to our liquidity. As of June 30, our liquidity position consisted of $269 million of unrestricted cash and $794 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $4.6 billion and a nonrecourse debt balance of approximately $2.5 billion. At quarter end, we had $120 million of remaining capacity on our warehouse facility. We also had $937 million of notes that were current on payments but unsecuritized. Of that figure, approximately $429 million could be monetized through either warehouse borrowings or securitizations, while we anticipate another $260 million will become available following certain customary milestones such as first payment, deeding and recordings. Despite market volatility, ABS markets remain open and functioning. This fact, coupled with our $850 million warehouse, give us confidence we can execute on our previously discussed finance optimization strategy. Turning to our credit metrics. At the end of Q2, and inclusive of all anticipated cost synergies, the company's total net leverage on a TTM basis was 3.9x.

We will now turn the call over to the operator and look forward to your questions. Operator?

[Operator Instructions] Your first question comes from Ben Chaiken with Mizuho Securities.

One thing that kind of stuck out as we were going through the release is the higher mix of fee-for-service in the quarter relative to 1Q and relative to what we were expecting, especially in the context of your overall inventory on the balance sheet being above 90% owned. Is there any way to approximate -- I guess, a, did this have a drag on EBITDA? I would think that it would. And then is there any way to approximate the impact of converting contract sales to fee-for-service versus traditional owned, if that question makes sense? If not, I can rephrase it.

Ben, it's Dan. So to your point, yes, fee-for-service mix was a little bit higher in Q2 than it was in Q1. I think it was about 200 basis points higher, 17% versus 15%. For the full year, there's a little ebb and flow here, right? The fee-for-service work is associated with our deeded product. So where demand is, is where we'll obviously entertain the customers' point of view on what they want to buy. So it really depends on who's coming through the door. And then there's some motivation on our side with different fee structures that we have in place to maximize what we can earn with our fee partners. I think to answer your question for the full year, if you think about that mix, I think we're going to end up right in the middle of Q1 and Q2, right around 16%. But it's going to be in that range, 15% to 17%. It shouldn't be a significant amount of movement. Now, to your point, when you think about fee-for-service, we clearly only retain a commission for those sales. While the margin is good, from an absolute dollar perspective, the flow-through is less.

Yes, Ben, I'd just say that the teams in South Carolina, Myrtle Beach, Hilton Head, they really had -- they had a great quarter. They've been having a great year. So pretty much outperforming most of the regions out there. So that's part of it. And as Dan alluded to, look, we've got people in Myrtle Beach and Hilton Head that are interested in the product, which we have extremely good product with our third-party partner there. We're going to continue entering them into our system there.

Got it. And then just as a quick follow-up, directionally, should your fee-for-service go to 10% or under 10%? I'm kind of just using what's implied on the press release today regarding your inventory balance? Or is there something else that could change that over long term, I mean, next year, 2 years from now, et cetera?

Yes. No, that makes sense. You should see it start to ratchet down. In fact, if we think about our pipeline, the only project that's fee-for-service in our pipeline is a subsequent project that we have in Myrtle Beach with our partners there, but that's a few years away.

Okay. Got it. And then just would love to hear more on what you're -- on the demand side from Bluegreen upgrade sales to Max. Are these inbound sales? Are you reaching out to customers to upgrade? And then any help with cadence as we move through the year, either on tours, VPG, contract sales, just whatever you want or whatever you can provide?

Yes. So Max has really taken hold. And when you look at our upgrade curve for our members, it's up 20% since the launch of Max. And it's been strong. Even if you go back to our legacy HGV members, DRI members still 4 years out, we continue to see really good activity there, and the program has really resonated on the value proposition and just the bigger network. As it relates to Bluegreen, great response for Bluegreen. So we expect that, that's going to continue on. And I think we've got about 20-some thousand Bluegreen members who've joined Max since the middle of November when we launched it. So again, it's great to see what Max has done. The teams did a really good job designing this new program with people upgrading quicker and with greater frequency. So it's a testament to what the teams have done, and it's a testament to our brand and our ability to take our brand and leverage that brand across the 2 acquisitions. So that's going well.

And as far as the rest of the year, I think what we're seeing is a consumer environment that remains, I'd say, very stable, right? And so, our expectations are very consistent for the rest of the year is what we've seen at the beginning of the year. And then July, as we went into July, we saw the same kind of performance we saw as we exited Q2, which that quarter ramped up through the quarter, with June being the best month. So pleased with what the teams are doing and the demand creation that's out there, and I'd say a much more stable environment than we've seen in a while. And look, obviously, still we got a policy environment that remains fluid, but we feel pretty good based on just looking at our forward indicators that people continue to want to travel.

Next question, Brandt Montour with Barclays.

Mark, I want to dig in a little bit deeper on the new owner side. I think you guys said you leaned on where you had really good owner sales, and I know you're focusing on the owner side for Bluegreen. But I think what we've kind of heard from peers were more worried about in this environment is new owner sales. And so maybe if you could just talk about how the new owner sales effort has evolved throughout the year, especially on Diamond, where I know there was a big effort by you guys to push new owner sales in those sales centers last year?

Yes. So what I'd say, Brandt, around new owners is, I think if you recall back in Q2 of '24, we saw some degradation, especially if you look at, let's just say, 6 cohorts, the bottom cohort of that group. But I can tell you, across the board, we've seen stabilization in all of our cohorts. So pleased with what's happening there, and we continue to build momentum. And we talked about in our prepared remarks, our pipeline -- our new buyer pipeline was up 10%. We sold 200,000 packages in the quarter. And we also saw great progress around activation. So the momentum really is looking good around new buyers. And so, when you look at it from a transactional mix, we had about 30% new buyers from a transactional standpoint. But part of that is that mix is we're seeing very high performance on our owners. And I mentioned that in the previous answer that the upgrade curve has improved 20%. So from a mix perspective, part of the transactional mix being at 30% versus potentially 35% has just been the outperformance on the owner side. But all in all, I think we're making great momentum. The teams did a great job on executing. It did put some pressure on cost during the quarter. When you think about the cost, right, when we oversold our budget on package sales, just to remind everybody, those guests typically don't travel until 6 to 18 months out, but we take the majority of the expense in the quarter. So it did put some pressure on flow-through.

But we're not going to not going to not create the demand when it's there. And I think that's another good indicator out there. When you think about the consumer that we sold 200,000 packages in what some may call a bit more uncertain time. But for us, we're seeing a lot of activity and the teams continue to do a great job. We've rebranded all our Bass Pro shop stores. We saw 20% increase in package sales there. Our Hilton partners -- between Hilton, Bass Pro, and Choice percent of our tour stores for new buyers, other than what we do at the property level and our local marketing, are coming through those 3 big partners.

That's great to hear. And then I do want to get your thoughts on what's going on in Vegas. Obviously, you heard from some of the strip gaming operators. But when you look at your forward indicators for that market, do you see anything that would suggest this isn't just sort of summer leisure-related softness? Anything that concerns you maybe into the back end of the year when that market is supposed to be maybe a little bit more on a sounder footing from a seasonal perspective?

Yes. So look, visitations are down, right? And some of the pressure from us is just the promotional activity that's coming from the mainly casino operators out there, right? But in the interim -- so that pressure has put some pressure on our room rates, especially what is considered a seasonally low period to begin with, right? But one of the big advantages for us, Brandt, is we don't have a fixed rental night capacity. And what do I mean by that? We can strategically allocate additional room nights to club, to marketing, to help drive additional sales. So we continue to make those adjustments to help insulate us from some of the recent softness in that particular market. And as it relates to contract sales in Las Vegas, we saw some softness relative to our other core markets, but the good news is owner VPGs in Vegas remain extremely strong.

Next question, Patrick Scholes with Truist Securities.

Dan, can you talk to the performance of your loan book as the quarter progressed and into July?

Yes. No, absolutely. The loan book is in good shape. Year-over-year, we're seeing delinquency rates across the 3 brands be stable to improve with the exception of Diamond, but I think I'd say that's just a nominal move. We're talking about 5 to 10 basis points. Nothing material. That's more of a -- depending on what time of the day you take it, right? But if you look at year-to-date movement on delinquencies, in particular, the 31-to 60-day delinquencies, which we look to as being leading indicators. across the 3 there, going into July, they're below 2024 levels. So I think we find ourselves in a good position.

Okay. Good. One more question here on VPGs. Last quarter, you had noted an expectation for mid-to-high single-digit VPG growth for the remainder of the year. You did about 11% in 2Q. For the back half of the year, would you still expect to do mid-to-high single-digit growth for VPGs?

I think when you think about the back half of the year, there's 2 distinct stories there, right? When you think about VPGs in Q3, we still have not lapped the launch of HGV Max. So we should see strong VPG growth in Q3. But when you think about Q4, it is lapping the launch of HGV Max through the Bluegreen owners, which happened, I want to say it was November 8, 2024. So we would envision VPGs to be down in Q4 year-over-year because of that tough comp primarily.

Next question, Stephen Grambling with Morgan Stanley.

Just maybe another follow-up on VPG. I just want to make sure that I heard you correctly. It sounded like, Mark, you had said that you were pretty happy with the VPG performance in the quarter and you take VPG over maybe tour flow. Can you just remind us of what the typical flow-through is on 1 point of VPG versus tour flow? And then as you look at new owner VPG, I know you touched on this a little bit, but are you seeing any change in conversion rates for new owners coming through tours?

Yes. So Stephen, first of all, I'd say owner VPGs remain extremely strong, year-over-year and even when you go back and you compare it to where we were in '19. On the new buyer side, the new buyer side has been very stable. We saw very little movement between -- over the last couple of quarters. So it's remained very stable. So I think, again, the rebranding efforts that we have going forward with Bluegreen, which will begin in earnest in the next couple of months here and will take about 3 years to rebrand the properties. That will be a benefit for us going forward. I think the Bluegreen launch of Max to new buyers is taking place. And so we have some opportunities there. And we're still a ways away before we can really capture the opportunity around the integration of our product across sales centers as we wait for the technology to be built. So all in all, I'd say owner VPGs are extremely strong. I'd say new buyer VPGs are very stable.

Yes. And just to tack onto that, Stephen, and you're probably going to get more than you asked for here. But when you think about VPGs, the flow-through for every dollar, we anticipate -- and there's a lot of moving pieces which I'll get into in a minute. But the flow-through should be somewhere in the 50-plus range, and on tour flow, it's materially less because you have incremental costs, right, and that'd be closer to 30%.

Now, when I say there's a lot of moving parts, I mean, you saw in the second quarter that our real estate margin was up 300 basis points year-over-year. Where does bad debt go? Where does cost of product go, et cetera? And some of that is seasonal when it comes to the provision for bad debt. We were sub-14%, 13.7% in the second quarter. Due to seasonality, we and our expectations for the balance of the year, we see that provision increasing closer to -- in Q3, north of 16%, just around 17% and then coming back down in a seasonally stronger Q4 period, closer to 15.5%. On the cost of product front, it really depends on the mix of product you're selling. As you saw in Q2, we had a favorable mix, and it came in around 11%. Q1 was north of 12%. And for the full year, we think it's going to be a little bit better than we originally expected for the year, but still in that 12% to 13% range. But I think this also underscores the benefit that we're realizing from the acquisitions.

And I know this is a long answer for VPGs, but I think it's worth reiterating. When you think about legacy HGV before any of the acquisitions, our cost of product was 25-plus percent. Following the acquisition of Diamond, we originally anticipated cost of product to fall in the low 20s. After working with the Diamond Trust for a couple of years, we've lowered those expectations to the high teens. And with the acquisition of Bluegreen, more recaptured inventory at a very favorable cost levels have us anticipating cost of product being in that 13% to 16% range, right, in that mid-teen range.

Now, mix is going to matter from quarter-to-quarter, but that's how we view it long term. But most notably, I think, and this is very important that I think we need to underscore probably more on our side is what does that mean for future development? What does that mean for future inventory spend. As you know, our inventory spend this year is going to be roughly $450 million. It's going to be of a similar nature next year. These are really associated with those commitments Mark alluded to earlier, Ka Haku and Maui, some of the commitments we made in 2018. But now with the Bluegreen Trust, the Diamond Trust, we look at our longer-range inventory spend to be at $300 million.

Now to put that in perspective, right after the acquisition of Bluegreen, our vision of inventory spend on a stabilized basis was closer to $350 million to $450 million. So from a high point range, we've brought that down fairly substantially from that $450 million down to $300 million. So I know that's beyond your VPG question, but I think all those components come into play and make a meaningful difference to the future of the business.

No, that's super helpful. It just also leads into one potentially quicker one, which is just as you think about that adjusted free cash flow at 65% to 70%, but then you have this longer-term benefit to potentially cost of VOI and also inventory spend. Could that drift higher as well?

My only hesitation on saying, hey, it could drift higher is because I can tell you where I anticipate having our inventory spend over the next 5 years. What I cannot tell you for even next year is what's the political rhetoric going to do with tax rate, right? That obviously comes into play. So holding everything else equal, ideally we'd be at the higher end of that range, but there's a lot of nuances on puts and takes.

Thank you. Before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

All right. Well, thanks, everyone, for joining us today. I want to thank our team members for going above and beyond to meet our owners' needs and deliver outstanding vacation experiences. And I want to thank our owners who make vacationing a priority and entrust us with creating those memorable experiences for themselves and their families. Have a great day. Thank you.

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