Hilton Grand Vacations Inc. (NYSE:HGV) Q3 2023 Earnings Call Transcript

Hilton Grand Vacations Inc. (NYSE:HGV) Q3 2023 Earnings Call Transcript November 6, 2023

Hilton Grand Vacations Inc. misses on earnings expectations. Reported EPS is $0.83 EPS, expectations were $0.91.

Operator: Good morning and welcome to the Hilton Grand Vacations Third Quarter 2023 Earnings and Acquisition Announcement Conference Call. A telephone replay will be available for seven days following the call. The dial-in number is 844-512-2921 and enter PIN number 13735180. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Mark Melnyk, Senior Vice-President of Investor Relations. Please go ahead, sir.

Mark Melnyk: Thank you, operator and welcome to the Hilton Grand Vacations third quarter 2023 and acquisition announcement call. Please note that we’ve updated slides to our Investor Relations website that are available for you to follow along. 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 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. 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.

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. The complete accounting of our historical deferral and recognition activity can be found in the Excel format on the Financial Reporting section of our Investor Relations website. In a moment Mark Wang, our President and Chief Executive Officer will provide highlights from the quarter in addition to an update of our current operations and company strategy and today’s acquisition announcement. After Mark’s comments, our Chief Financial Officer, Dan Mathewes will go through the financial details for the quarter.

Mark and Dan will then make themselves available for your questions. With that let me turn the call over to our President and CEO, Mark Wang. Mark?

Mark Wang: Morning, everyone and thanks for being flexible and joining our earlier call this morning. As you’ve seen from our announcement today, we have a lot of things to go through. The first is that I’m happy to announce our definitive agreement to acquire Bluegreen Resorts, along with a 10-year exclusive marketing and JV agreement with the nation’s premier outdoor and conservation company Bass Pro Shops. We’re really excited about this transaction and think that it will open up new avenues for growth while also enhancing the resilience of our business and building long-term value. We’ll get into those details shortly after I walk through our third quarter earnings. Before we get started, I’d like to extend my best wishes to our team members and the people of Maui as they continue their recovery efforts from the devastating wildfires in August.

We’re committed to providing our support to the local community during the rebuilding process, including our many team members who live and work on the island. Turning to our results; contract sales in the third quarter were $603 million and EBITDA was $276 million, with margins of 27%. Tours grew 15% for the quarter and our VPG was 10% ahead of 2019’s levels within our target range despite some of the unique challenges we saw in the quarter. The first was a devastating wildfires that impacted our Maui business directly. Additionally, we believe that the macroeconomic cross currents played more of a role in our Q3 results than they have in prior quarters. In the face of these challenges, our owner business was resilient during the quarter and has remained a source of strength for our business.

HGV Max has continued to resonate with our owners and our Max membership growth has exceeded our overall member growth as we attract more owners to upgrade into the program and deepen our member engagement. On the new buyer side, our performance for the quarter was solid in absolute terms with mid-teens growth in tours driving positive growth in transaction and contract sales. But after a solid start in July, we saw softening in the segment as we move through the quarter, resulting in tours of VPG and contract sales coming in short of our expectations. We believe the compounding effects of inflation and interest rates affected the mentality of our new buyers more than owners. However, the good news is that we still grew transactions as we saw more people touring and previewing our offerings.

We remain committed to growing our new buyer channel and believe that it’s the right thing to do for the long-term health of the business. That said, given some of these near-term headwinds, along with some ongoing Maui impact in Q4, we updated our guidance to better align our expectations with the trends we’re seeing. Dan will share more details on our outlook and here in a few minutes. Now, let’s take a look at our performance in the third quarter. Contract sales in the quarter were driven by growth in tours which offset the expected declines in VPG. Our new buyer tours again grew faster than our owner tours with year-over-year growth of more than 17%. And I’m really pleased with how our owner channels remain resilient despite the unforeseen headwinds from losing Tours in Maui for most of the quarter.

Owner tour showed an acceleration in growth versus Q2 on a year-over-year basis as well as further exceeding our case against 2019. As I mentioned earlier, we saw softening of our tour trends as we moved through the quarter, particularly in August, although trends stabilized in September. VPG for the quarter was just over $3,600 which was within our expected range despite the loss of high VPG Maui sales. And our close rates were roughly in line with Q2 levels and remain nicely ahead of 2019. Turning to our demand indicators; occupancy for the quarter was 81%. Our arrivals in the fourth quarter are ahead of the prior year and are currently indicating a step-up in growth in the first half of next year that will support occupancy levels. And I’m also encouraged that our marketing pipeline and activations remain near record highs to build a solid base of tour flow growth going forward.

Moving to our non-real estate segments; our rental Club finance business showed solid growth in the quarter. Rental revenues were nearly on par with the seasonally stronger second quarter and we maintained double-digit margins. Club profits continued to benefit from both improved revenue and margins, along with new member growth and our financing team executed on an oversubscribed securitization with great pricing. And finally, during the quarter, we repurchased $64 million worth of shares, demonstrating our ongoing commitment to returning capital to our shareholders. With that, I’ll turn it over to Dan to talk you through the numbers. Dan?

Dan Mathewes: Thank you, Mark and good morning, everyone. Before we start, note that our reported results for this quarter included $7 million of net deferrals related to presales of the newest phase of our Sesoko project which reduced reported EBITDA. Adjusting for these deferrals would increase the EBITDA reported in our press release by $7 million to $276 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. Turning to our results for the quarter. Total revenue, excluding cost reimbursements in the quarter was down about 2% against the prior year at $933 million. We saw strong growth in our financing, resort and club and rental and ancillary businesses that was offset by a reduction in real estate revenue.

Q3 reported adjusted EBITDA was $276 million with margins of 27% or 30% when excluding cost reimbursements. Coming to our segments. Within real estate, total contract sales of $603 million were down 3% versus the prior year. Tours were up 15% against another tough comparison despite the loss of over 2,000 tours directly attributable to the property closures in Maui. And our new buyer channel continued to show tour strength with tours up 17% in the quarter and positive contract sales growth versus the prior year, reflecting just over 30% of total sales in Q3. VPG was just over $3,650 for the quarter and 10% ahead of 2019 levels, still within our expected range despite the drag from losing roughly $15 million of high VPG Maui sales during the quarter.

Cost of product was 12% of net VOI sales for the quarter, lower versus last quarter and last year owing to favorable sales mix. Real estate sales and marketing expense was $273 million for the quarter or 45% of contract sales. This is in line with the sales and marketing expense ratio in Q2 and was higher than our expectations due to carrying the same level of fixed expense in our Maui operations with no offsetting revenue along with new buyer sales that were below our expectations which created operating deleverage on our marketing expense for the quarter. That being said, we are still expecting a sequential improvement in our sales and marketing expense ratio in Q4. Real estate profit of $167 million at margins of 34% which improved against our Q2 and first half 2023 margins despite some of the headwinds in the quarter.

In our financing business, third quarter revenue was $75 million and segment profit was $50 million with margins of 67% versus margins of 63% in the prior year. Combined gross receivables for the quarter were $2.52 billion or $1.82 billion net of allowance and our interest income was $68 million. Our allowance for bad debt of $731 million included $258 million related to the acquired Diamond portfolio which has a balance of $539 million. Our annualized default rate for our consolidated portfolios, including the Diamond acquired and underwritten portfolios was 8.53% compared to 8.68% in the prior quarter. Our provision for bad debt was $46 million or 11% of owned contract sales. As previously discussed, we continue to see normalizing credit trends with the termination of certain government stimulus plans that we believe our current loan loss provision is adequate.

In our resort and club business, our consolidated number count was $526,000 and our consolidated NAV was 2.1% at the end of the third quarter. Revenue of $138 million was up 6% for the quarter and segment profit was $95 million, with margins of 69%, showing 200 basis points of improvement sequentially. Rental and ancillary revenues were $171 million in the quarter, with segment profit of $17 million and margins of 10% versus 9% last year. Revenue growth was driven by ADR gains in most markets, offset by slightly lower occupancy and the loss of high dollar rental room nights in our Maui properties due to the wildfires. Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, corporate G&A was $27 million, license fees were $37 million and JV adjusted EBITDA was $2 million.

Our adjusted free cash flow in the quarter was $257 million which included inventory spending of $36 million and excludes acquisition-related costs of $25 million. The adjusted free cash flow conversion rate for the quarter was 93% due to the timing of cash flows associated with our recent securitization. And we remain confident in achieving the low end of our target 50% to 60% conversion range for the year. During the quarter, the company repurchased 1.5 million shares of common stock for $64 million. And through October 30, we have repurchased an additional 690,000 shares for $26 million, leaving us with $432 million of remaining availability under our 2023 repurchase plan. Year-to-date, we have repurchased an average of $90 million per quarter which is in line with our goal of roughly $100 million per quarter.

Turning to our outlook, as you saw in the press release, we are lowering our 2023 adjusted EBITDA guidance to $1 billion to $1.02 billion from our prior guidance of $1.90 billion to $1.12 billion. There are 2 drivers of the adjustment. The impact of the Maui wildfires in Q3 of $10 million, along with an expected further drag of $7 million to $10 million in Q4 for a total impact of $17 million to $20 million, including the Q3 impact and an adjustment to our expectation of contract sales growth for the fourth quarter. As of September 30, our liquidity position consisted of $227 million of unrestricted cash and $866 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $2.7 billion and a nonrecourse debt balance of approximately $1 billion.

At quarter end, we had $750 million of remaining capacity in our warehouse facility, of which we had $395 million of notes available to Securitas and another $359 million of mortgage notes we anticipate being eligible following certain customary milestones, such as first payment, leading and recording. Turning to our credit metrics. At the end of Q3, the company’s total net leverage on an LTM basis was 2.56x. With that, I’ll turn the call back over to Mark to walk through this morning’s transaction announcement. Mark?

Mark Wang: All right. Thanks, Dan. And now that we discuss our results, I’m excited to share our other announcement today and that’s our definitive agreement to acquire Bluegreen Resorts, along with a 10-year exclusive marketing and JV agreement with the nation’s premier outdoor and contribution company, Bass Pro Shops. This acquisition gives us the unique opportunity to create the industry leader in vacation ownership and experiential travel. Bluegreen is the highest quality independently branded vacation ownership operator and it’s one more critical piece of the strategic journey of expansion and diversification that we started 2 years ago with the acquisition of Diamond. With nearly 50 resorts and over 200,000 members, we add scale that would have taken us a decade of growth to do organically.

It will enable us to solidify our leadership in the industry, while positioning us to win in the experiential membership space where we see a growing convergence between the travel and leisure sector. And it will create value for our shareholders, adding resiliency to the business by increasing recurring EBITDA and adjusted free cash flow. Turning on Slide 2. Let me take a moment to walk you through the key highlights of the transaction. First, we add scale to the business and drive additional growth. Bluegreen has a large base of loyal members, many of whom haven’t yet upgraded that we think would be a great fit with our HGV brand. This acquisition will also expand our reach with enhanced sales distribution in new key locations, enabling us to engage additional new buyers with attractive price points at an earlier stage in their lives, providing additional opportunities for upgrades and improving lifetime value.

And with our robust suite of brands backed by the power of our Hilton partnership, we’ll give members plenty of options to upgrade through the years in membership with HGV. Second, our partnership with Bass Pro allows us to expand our lead generation which is critical to driving tour flow, net owner growth and ultimately embedded value. And importantly, it also adds a source of leads that is not levered to lodging, diversifying our lead generation and improving our resilience across cycles. We see this transaction as a perfect complement to the business evolution that we have undergone over the last 2 years and it will enable us to fully leverage all the amazing programs and infrastructure we created with our Hilton Vacation Club brand, HGV Max membership program and ultimate Access experiential platform.

On the cost front, we expect to generate $100 million in cost synergies within the first 2 years of operations. We have a proven track record of executing on synergy capture as is demonstrated by outperforming our synergy estimates with the Diamond acquisition and doing it earlier than expected. And finally, Bluegreen’s trust structure and efficient inventory model will also add additional recurring EBITDA and strengthen our free cash flow conversion, further improving the resilience of our business and financial model. I’ll turn it over to Dan to walk you through the transaction on the next slide, Dan.

Dan Mathewes: Thanks, Mark. Let me start with a quick overview of the transaction. This is an all-cash deal and we’re acquiring Bluegreen for $1.5 billion or 6x the pro forma EBITDA, including identified cost synergies. The HGV management team will run the combined entity with Mark Wang, our CEO; Gordon Gurnik, as COO; and myself as CFO and the composition of the Board will remain unchanged. This transaction is double-digit accretive and adjusted free cash flow per share basis. Pro forma leverage as of 9/30 was 3.4x and we will return to our target range of 2 to 3x within 18 months of close. We also expect to realize $100 million in run rate cost synergies within 2 years of transaction close, along with future revenue synergy opportunities. Regarding timing, we anticipate closing the transaction in the first half of 2024. I’ll now turn it back to Mark to talk a little bit more about Bluegreen.

Mark Wang: All right. Well, thanks, Dan. So looking at Slide 4, we view Bluegreen as a highly successful operator that has achieved unique scale in the vacation ownership marketplace and we believe it will be a great complement to HGV’s overall brand portfolio. We have a large geographically diverse base of over 218,000 members, over 75% who are Gen X or younger with strong FICO scores. And Bluegreen has historically also stood out with the industry for its focus on new buyers which has also been a key strength of HGV. And perhaps most importantly, they’ve out shown others with their innovative marketing programs. Through their network of partnerships, they’ve built a robust pipeline of over 165,000 vacation preview packages to enhance visibility and support to our growth which will build upon the nearly 550,000 packages that we have at HGV.

You turn to the next slide. We have 48 resorts throughout the country, including 14 geographies in 8 states that will be new to HGV. Nearly 90% of their members live within a 4-hour drive of a Bluegreen resort which complements our portfolio with additional Drive-to properties. We’ve been impressed with the consistent high-quality nature of the resorts and we believe they’ll be readily able to convert over to HGV brands. And as you see on Slide 6, once we brand it, the additional Bluegreen enable us to span the entire breadth of the Hilton offering, providing us with additional scale in creating synergy with our key partner and their Hilton Honors membership. From a people perspective, we believe our teams will be a great cultural and business fit and we think they’ll quickly integrate into the culture here HGV.

Their focus on providing exceptional experiences through a commitment to service and quality as we’ve seen throughout our interactions with their leadership. So on Slide 7. We see this acquisition as very synergistic to HGV, adding scale to our member base, package pipeline and resort network while enabling us to leverage our key partnerships to drive additional growth, reinforcing our leadership position in the vacation ownership space. If you turn to Slide 8, as I mentioned, a key contributor to Bluegreen’s organic growth has been their partnership with leading brands, including Choice Hotels, NASCAR and most importantly, with Bass Pro, the nation’s leading outdoor retailer. Bass Pro currently has over 200 destination superstores across the U.S. where they serve more than 200 million visitors per year.

And their customer base is a dedicated group of outdoor enthusiasts for whom the outdoors is very much a lifestyle. Bass pro’s passion about their product, culture service and dedication to their customers drives tremendous loyalty and engagement and it aligns with the values that guide us here at HGV. And that’s why I’m also really excited to announce a new 10-year strategic partnership with Bass Pro, along with the extension of the Bluegreen joint venture featuring 4 high-end wilderness resorts under the Big Cedar launch brand. This partnership will provide us with a source of high-quality leads from a loyal customer base. And we’ll generate that lead flow outside the lodging channel, providing us with additional diversification in our marketing efforts.

Looking at the strategic rationale for this deal, it really enhances the vision that we had with the Diamond acquisition – leadership and not just vacation ownership but also providing unforgettable experiences for our members. It’s a strategy that drives engagement and builds loyalty with our members by catering to more than just a great stay. Additionally, looking at Slide 9, our focus will be expanding on the aspects of our relationship with Bass Pro, will benefit from the growth in their store network and customer base with increased and diversified lead flow that’s incremental to our existing channels with Hilton. And our relationship with Bass Pro also enhances our credibility and experience offerings in the outdoor space opening up a new avenue of growth for our ultimate access platform and increasing the attractiveness of the HGV membership for the adventure-seeking traveler.

We’ve already seen great success with Ultimate Access and we think that providing unique and memorable experiences to our guests is a key differentiator that drives owner engagement and supports the health and long-term value of the business. We know that the HGV’s quality of service and network of properties will be appealing to Bass Pro customers and we know that we can go further expand the program by combining an elevated in-store experience with our digital marketing analytics capabilities. We also see a lot of potential in the JV, building on the 4 existing properties and adding new locations with a club formula that highlights Bass Pro’s connection to the outdoor lifestyle and targets the outdoor experiential market. I’ve met several times with their founder, Johnny Morris and we’re both excited about bringing together the quality of HGV’s offering and to power the Hilton brand with the outdoor expertise of Bass Pro to create a high-quality platform of experiences for their customers and our members.

On the next few slides, you’ll see how we’ll benefit from the programs and processes we’ve already developed, de-risking the integration process, while enabling additional growth by leveraging their proprietary platforms. Over the past 2 years, we’ve transformed our business, launching a new brand with Hilton Vacation Club, a new membership club with HGV Max and a new experiential platform with Ultimate Access. We’ve also integrated our sales forces, team members and systems and built the capabilities to sell deed and trust across a wide range of price points. The acquisition of Bluegreen furthers this evolution, leveraging the strength of the Hilton brand with these best-in-class offerings and differentiated capabilities, including our marketing expertise, enabling better personalization of offerings and driving that owner growth.

We’ll also add scale by building upon the solid foundation that Bluegreen’s team has laid out through their years of steady organic growth and focus on new buyers. As I mentioned earlier, Bluegreen space of over 200,000 owners is less penetrated than ours from an upgrade perspective. And we see a lot of opportunity to leverage our key partnership with Hilton and the compelling value proposition of HGV MAX and Ultimate Access to realize that embedded value. We’ll also add additional distribution by expanding into new states and destinations; states like Texas which has our third largest member base yet where we don’t currently have a resort or sales presence, along with sought-out leisure destinations like Nashville, Val Colorado and additional beach locations along Florida and the East Coast.

What leverage is transformative infrastructure to accelerate the integration of Bluegreen and unlock additional sources of growth that would have been difficult to achieve without the benefit of those programs and capabilities. Now, I’ll turn it over to Dan to talk you through some of the financial merits of the acquisition. Dan?

Dan Mathewes: Thanks, Mark. Looking at Slide 12, we’ve identified $100 million in cost synergies in this transaction with savings in G&A and head count along with additional operational and financial efficiencies. Given our recent track record, we are very confident in our ability to realize those synergies and expect to do so within 24 months of closing the acquisition. In addition, if we turn to the next slide, we think there are a number of attractive financial aspects of this transaction. First, Bluegreen’s robust member base and financing business create additional sources of recurring EBITDA which will further enhance the resilience of our business. Next, as Bluegreen is a trust product, it carries many of the same attractive capital-efficient features as we noted when we acquired Diamond.

In general, the inventory carries a lower cost of product and increased pricing incrementality, enabling us to offer more attractive price points to consumers, growing HGV’s member base and fueling embedded value creation. It also allows efficient recapture of inventory, reducing the level of maintenance inventory spending required to drive sales growth. Those 2 factors will support increased conversion of EBITDA into adjusted free cash flow. That cash flow will allow rapid deleverage following the close of the transaction. Pro forma leverage is 3.4x and we expect to reduce our leverage to under 3x within 18 months and we are maintaining our target leverage of 2x to 3x. And importantly, this transaction will not impact our ability to return cash to shareholders through share repurchases, preserving our capital allocation strategy and enabling us to maintain our focus on maximizing shareholder value.

Mark?

Mark Wang: All right. Well, thanks, Dan. So in conclusion, with this acquisition will not only solidify our position as a leader in the vacation ownership industry but we’ll also expand our corporate vision to providing exclusive memorable experiences to our members. Bluegreen has a complementary asset that will add scale to our business. Our strategic partnership with Bass Pro will expand and diversify our lead flow channels, opening new avenues for growth, will unlock additional upside by leveraging the strong value proposition of HGV Max and Ultimate Access and will improve the financial resilience of the business by strengthening our sources of recurring EBITDA and our free cash flow generation. We have a track record of achieving our cost synergies and building upon the processes and tools from our successful integration of Diamond Resorts.

We’re confident in our ability to execute on this transaction. And with that, I’ll turn the call back over to the operator to open the line for questions. Operator?

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Q&A Session

Operator: Thank you. At this time, we’ll begin back to a question-and-answer session. [Operator Instructions] And our first question today is from the line of Patrick Scholes with Truist Securities.

Patrick Scholes: I suspect I’ll probably be re-entering the queue for any questions. But Mark, congratulations on the acquisition. And Dan, I believe you’re on the line. Congratulations as well. Mark, first, let’s talk about the acquisition. Certainly, with the recent Diamond acquisition. Is it fair to almost categorize this as now that you’ve done Diamond that this would be called something plug and play for you at this point? And then related to that, if you could summarize maybe your top 2 or 3 lessons learned from the Diamond acquisition that you would be applying to this?

Mark Wang: Yes, so we’re very, very excited about today’s announcement and — and we think it’s a perfect complement to what we’ve built at HGV. And it is clearly an evolution of where we’ve been focused on in the last 2 years and what we’ve been able to accomplish with the Diamond acquisition. With Bluegreen, we get what we think is a great and very innovative company. We’ve known them, obviously, for a long time. I know them now for a long time. The industry is very aware of Bluegreen and what they’ve done. We think from a strategic standpoint, it made a lot of sense for us to pursue this opportunity. And obviously, the scale and diversity is important, right? And with over 200,000 members and an additional 50 properties, we — that really improves our overall scale.

And we’re getting new distribution. We’re going to have over 10 new distribution centers in 8 new states and this partnership, the partnership — these guys have been super innovative. No one — when you think about their pipeline of new buyers, they’ve got 160,000 people in their pipeline for new buyers. That’s the third largest in our space. And you add that to our 550,000. We have 700,000 new buyers in our pipeline on a collective basis. So — and they’ve really been able to do this with third parties because they haven’t been able to leverage like the Hilton database like we have. So Bass Pro clearly has been the biggest generator of those but they also have a relationship with Choice and NASCAR. With Bass Pro, super excited to work with them.

And we have some really big plans, I think, ahead with them. But anyways, I think it fits perfectly. As I said, I think it’s an evolution of what we’ve achieved. And as you mentioned, Patrick, it really plugs into all the things that we did to stand up Diamond. We were fortunate to be able to create a new brand with Hilton under Hilton Vacation Club. We created a whole new membership program which we’ll be able to apply to this acquisition. And Ultimate Access, our experiential platform, we’re going to be able to expand that, especially with this Baas Pro new announcement with a new agreement with Bass Pro. So all in all, it really de-risks our deal. And when I look at Bluegreen, I really look at Bluegreen as kind of like legacy HGV. Very focused on new buyers.

They’ve been very, I think, strategic in their growth. Their properties are very consistent. So all in all, very, very happy. Look, I think always lessons learned when you do a transaction. I think a lot of the lessons that we’ve learned through the Diamond transaction we can apply here I think the biggest one is just continuing to work extremely hard to integrate the teams. I think we did a good job with Diamond and we’re going to even do a better job with Bluegreen.

Patrick Scholes: Okay. Has this been approved by Hilton Corporation or does it need to be approved?

Mark Wang: It does need to be approved and it was approved yesterday. So we’re really thankful for Hilton’s cooperation and most importantly, their investment into this transaction. We’re very aligned with Hilton there. They are our biggest partner will always be our biggest partner and we appreciate all their support.

Patrick Scholes: Okay. Let’s move on to the quarter and to the guidance. You called out some macroeconomic and cross current concerns beginning, I think it was after August. Specifically, where are you seeing this? Is this going to be in your legacy higher-end business or more of the mass market Diamond? Is this — are you seeing this in a hit to your tour flow, your close rates, your VPG, — where — if you can drill down a little bit more on that.

Mark Wang: Yes. So in the third quarter, new buyer sales and transactions actually rose year-over-year, right? And tour flow grew by 15% versus where we were last year for new buyers. And that said, though, we had high expectations and we had high expectations for the second half of the year. Look, I think the consumer is now finally behaving more in line with what you’d expect given the rapidly rising interest rates and sustained inflationary periods. And then obviously, the unexpected pressure we’ve had from Maui in that unfortunate situation. But we’re focused on controlling what we can control and that’s our execution. And maybe I’ll have Dan kind of walk you through a little bit more detail on that.

Dan Mathewes: Yes. Thanks, Mark. So the other thing I would add, Patrick, is when you take a look at the portfolio, we’ve seen actually some business — sequentially, just trying to break it out against the legacy Diamond portfolio versus the HGV portfolio. HGV is in line, slightly ahead of where we were in 2019. Sequentially, some modest movement up nothing material but nonetheless, a little bit movement up. Now when you look at the Diamond, we’ve talked historically at various points in time about how they have been significantly underperforming 2019 levels. And that holds true today as well sequentially, they’ve actually modestly improved. So you’re not seeing from an annualized default rate material movements between the different consumer bases, if you will.

From the guidance, to Mark’s point, a lot of this, what you’re seeing is we are still anticipating heavy tour flow growth on the new buyer side. That clearly causes compression in upon itself. That coupled with the macro side is really driving a lot of this. When you look at the balance of the segments, you’ll see some margin compression in finance because as you saw just recently, we completed a new securitization and that’s just under 6% but that will clearly impact financing margins in Q4. On the benefit side, though Q4 for Resort and Club is really strong because that’s when a lot of transaction fees come into play. So Q4 historically has always been our strongest on that front. And then when it comes to rental, you’ll have some seasonality.

So it will be in line with prior year margin levels slightly down to where we finished Q3. So when you look at Q4, the implied guidance, obviously, gives you a number that’s lower than the previous guide but we’ve got a lot of things going on in addition to the Maui fires.

Patrick Scholes: Right. And I have a follow-up question on that and then I’ll come back and myself back in the queue. One of the other major players here had a sizable charge in the loan loss provision. Am I correct, it didn’t sound like that you’re seeing similar issues in delinquencies? Is that correct? Or — and am I correct that you did not take any material charge at this point?

Dan Mathewes: No, we definitely didn’t take a material charge at this point. I mean, if we look at delinquencies and we look at the annualized deal rates, they’re very consistent with the trends that we’ve been talking about all year, some modest reversion to the mean. Our provision as a percent of contract sales was just north of 10%. We do not see, at this time, any reason to take a material charge against our portfolio.