Dan Mathewes : Hey, Patrick, it’s Dan. Thanks. That’s a great question. I was a little bit vague, the disclosure in our Form-K under Item 9 today, we’ll be a little bit more transparent. But we’ll be more transparent. But just to give you an example or maybe some background. As you know, Diamond was taken private in 2016 and to be perfectly honest, there’s a lack of investment in infrastructure associated with internal controls. As you would expect, that’s very typical of any private organization. One of the items, just to give an example was a shortfall in user access controls associated with their property management system as well as their tour system, et cetera. So what we had to do was literally go in and clean up every single user that had access to find the roles and responsibility of every single user and those controls need to be in place for a specific amount of time in order to avoid a material weakness, if you will.
And they were not in place for the specified amount of time, and we’re working through a remediation plan. But this in no way impacts the financials, no way impacts the processes of selling a contract. There’s no restatements. No one — don’t confuse me. I’m not trying to be dismissive. No one wants to have a material weakness, but this is the one that you would take, especially since it has no financial impact. But it should be — we fully expect to be on track with regard to internal controls at both HGV. Keep in mind, no material weakness on the legacy HGV side. This was strictly Diamond. And we believe both entities will be in a solid position for this year’s audit that progresses — starts to progress in Q2.
Patrick Scholes: Okay. Would a way of maybe summing that up would be they didn’t follow the required best practices where you folks do have the best practices, you identified it and you are working on rectifying it. Is that a good summary?
Dan Mathewes : That would be a nice summary, yes.
Patrick Scholes: Okay, okay. Good. Okay. Then just a couple of other follow-up questions. You had in our conversation earlier, I had mentioned close rates, can you tell us what the close rates were either year-over-year and/or versus 2019? Thank you.
Dan Mathewes : Yes. So look, we’re — what we can tell you is that our close rates have been running approximately 400 bps ahead of where they were in 2019. And that’s been pretty — that was consistent. It happened pretty quickly right after the reopening. Again — and it’s interesting, because our close rates, if you go back over multiple decades, have been pretty stable. And for us, clearly, we benefited from the pent-up demand. I don’t know if you want to really call it revenge travel or what? Clearly, the consumer’s balance sheets were in really good shape. And so — but at the end of the day, our expectation is those close rates would moderate that down. Just like our VPG and VPG is really an outcome of close rate an average transaction price.
So at the end of the day, our expectations of close rates will moderate back down, especially as we shift our mix back to more new buyer tours. So all-in-all, our expectation is it won’t go back to where it was in 2019. It will still hover above that as we think our overall value proposition has improved. We’ve added new products in new markets, and we continue to really enhance our precision around finding the best customer that fits our product.
Patrick Scholes: Okay. Thank you. And then one last question, I promise here. The provision, did you say you’re trying to take it sub-10%, but I remember my notes, you said targeting 15% to 16%. Can you clarify where you are and where you want to be with that? Thank you.
Dan Mathewes: Yeah. Patrick. So the provision in 2022 was we had, as you may recall, a benefit in Q3. All in, it was right around that 10% level. With regards to where is it going, at some point in time, you’re going to have a more normalization in credit trends, right? Now we haven’t seen that to date. And what I — what we’re very happy about is that we look at our default rate on the legacy Diamond side and the delinquency rate on the legacy Diamond side pre-our acquisition to post-our acquisition, where our underwriting and sales practicing standards have kicked in. It is materially down. It’s outperforming — our underwrite anticipated that provision on a consolidated basis to be north of 15%, not ready to ring the bell that where we’ve changed things permanently, but it’s significantly outperforming the underwriting.
On the HGV side, we see the delinquency rates and the default rate is very consistent with 2019, which we’re also pleased with. Ultimately, you’re going to see that provision as a percent of contract sales increase this year. We anticipate it to increase this year. I don’t think it will fully get to 16% or 15%, but it will begin to normalize, we believe.
Patrick Scholes: Okay. Thank you. I got one last question here, a modeling question. Anything we should think about with sort of quarter-to-quarter volatility and expected recognition of net deferrals when we’re modeling the deferral — excuse me, adjusted EBITDA by quarter? Thank you.
Dan Mathewes: Yeah, Patrick. We’ve actually — I think we may have discussed this before. We’ve actually shied away from giving specifics because it also — it’s all associated with the timing of specific feed projects that are sold. And as I mentioned earlier, we do allow the consumer to choose exactly what they want to buy, right? So I would assume just zero by quarter and well that plays out.
Patrick Scholes: Okay. No, that’s great. I recall a number of years ago that definitely created a lot of volatility. So it’s great to hear that. I am all set. Thank you.
Dan Mathewes: Thank you.
Mark Wang: Thanks, Patrick.
Operator: This will conclude our question-and-answer session. But before we end, I will turn the call back over to Mark Wang for any closing remarks. Mr. Wang?
Mark Wang: Well, thanks, everyone, for joining us today. I want to give a special thanks to our team members for going above and beyond to deliver outstanding vacation experiences to our members and guests. We look forward to speaking with you again soon. Have a great day. Thanks.
Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time, and thank you for your participation.
