Hilton Grand Vacations Inc. Q3 FY2022 Earnings Call

Good morning, and welcome to the Hilton Grand Vacations Third Quarter 2022 Earnings 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 13726011. 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. I would now like to turn the call over to Mark Melnyk, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator, and welcome to the Hilton Grand Vacations third quarter 2022 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 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 10-Q or other applicable 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 ASC606, which we adopted in 2018. Under ASC606 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 refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. A complete accounting of our historical deferral and recognition activity can be found in 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. After Mark's comments, our Chief Financial Officer, Dan Matthews will go through the financial details of 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?

Good morning, everyone, and welcome to our third quarter earnings call. Before I get started, I'd like to take a moment to express our heartfelt sympathies to our owners and team members, who were impacted by Hurricane Ian. We believe that all of our team members are safe, and that as a company, we did not suffer any material financial impact from the storm, but we know that is not the case for many other Floridians. We'll continue to provide assistance to our affected team members as they recover along with maintaining our partnership with the Red Cross to support those communities in need. Looking at the quarter's results, we had another strong performance with contract sales ahead of 2019, driven by solid improvement in tour flow. We produced a record $295 million of EBITDA in the quarter, over 37% ahead of pro forma 2019 with strong margins and we achieved our recently increased cost synergy goal well ahead of schedule. While our customers are not immune to the macroeconomic environment, our exclusive focus on leisure makes us a prime beneficiary of the resilience of the travel trends across the country. We see it in travel surveys, we see it at major airports serving markets throughout our portfolio, and importantly, we're seeing it at our properties and sales centers. So despite the tougher macro environment, we have several distinct advantages that have allowed us to outperform in this environment and maintain metrics ahead of 2019 across a number of KPIs. The prepaid nature of the product produces significant recurring revenues for our business, while also providing some insulation for our members against inflation. Additionally, our direct sales model allows us to actively engage with marketing guests in every environment, enabling us to leverage our relationship with Hilton and their growing pool of high-quality travel-minded Hilton members. And our compelling value proposition has been enhanced by HGV Max and Ultimate Access, which are key differentiators that are gaining tremendous traction with both owners and new buyers. So we feel confident in the strength of our offering and the momentum we've seen through October, and that confidence in the business enabled us to raise guidance again for the year. Before we get into the details, let me start with an update on our strategic initiatives and integration. We've made steady progress expanding our marketing channels to engage our owners and marketing guests. Our virtual tour channels showed notable growth again this quarter with tour volumes, close rates, VPG and contract sales all improving against Q2 at a lower cost than our traditional channels. And we've seen favorable responses from our owners and marketing guests on our virtual programs with a number of guests already returning for their second virtual tour since the program's inception. We've also continued to receive incredible responses from our members on our ultimate access exponential platform. We're really excited about the quality of the upcoming events we have planned for our guests and we expect that it will only get better as we continue to evolve the program. Turning to our rebranding, we're making great progress executing against our plan. We've completed the rebranding of our sales centers and are selling HGV Max across our network. More than 50,000 members have joined Max since we launched sales in the spring and we continue to roll out additional features and benefits to Max throughout '23 and beyond to further enhance the compelling value proposition. I'm impressed with how fast we were able to execute the Max launch in the midst of our overall integration, and we're getting great feedback from our members on the program. Since our last call, we also rebranded eight additional resorts bringing our total to 19 since the close. By the end of this year, we have rebranded 20 of our largest Diamond properties, representing over one-third of the total keys acquired. And we remain on schedule to have nearly all Diamond targeted properties rebranded by 2025. Now let me turn to the performance for the quarter. Contract sales were a record $621 million, driven by strong tour flow and continued strength in VPG. Our tours were at the highest level since 2019 with a particularly strong September as we've continued to make steady progress in our tour flow recovery. Owner tour flow pace has surpassed 2019 and I was very pleased with our new buyer trends. New buyer tour flow outpaced owners against the prior year and versus 2019 as our package pipeline conversion and marketing efforts have shown success. VPGs of just over $4,200 were nearly 28% ahead of 2019, but as we expected we’re seeing some moderation as our segment mix and close rates continued to normalize versus pandemic highs. Turning to demand indicators, our system occupancy improved to 83% with September occupancy equal to 2019, the first month we've reached pre-pandemic levels. We saw broad trend improvements across our network led by our Southern region and destination resorts along with the continued improvement in Hawaii. As we look to the fourth quarter, total room nights and arrivals for our owners and rentals are ahead of 2019 levels. Even as we monetize our package pipeline, we continue to see robust demand for new travel packages, which is another healthy sign for our business and the travel environment in general. We now have over 532,000 packages in our pipeline and the percentage of those packages with a set travel date is the highest since 2019. We'll continue to focus on monetizing our pipeline to support and drive embedded value in the business. As I mentioned earlier, the direct financial impact of Hurricane Ian was limited and our team members did a fantastic job of executing our protocols to minimize the storm's effects. We sustained damage at some of our sold-out legacy resorts that we manage in Southwest Florida, and we're working with our insurers to get those repairs done. We don't have any sales centers in the directly affected region and we estimate that the impact of the storm was immaterial to our EBITDA. Turning to other segments, NOG was 3.8% with Diamond adding 1,900 new members in the quarter, bringing our member base up to 515,000. That's well another quarter of revenue improvement in our resort and club business and our rental business also produced sequential revenue growth supporting our view that the leisure travel environment remains robust. Taken together, these factors produced a really strong EBITDA result in the quarter even after excluding a one-time benefit that Dan will get into. We also produced strong cash flow enabling us to not only invest in the business, but also to maintain our commitment to returning cash to our shareholders through repurchases that were well in excess of our prior guidance. So to sum up, I'm happy with our progress this quarter, the travel environment remained strong with arrivals on the books exceeding 2019 levels, demand for our new Max membership continues to be robust and our value proposition stands out more and more each day. We're seeing success in our marketing efforts with the expansion of our digital channels. The excitement around Ultimate Access Platform and our investment to monetize our package pipeline. We're generating more free cash flow than we ever have, allowing us to invest in our business and still return a substantial amount of cash to shareholders, and the momentum in our business gave us confidence to raise guidance again. With that, I'll turn it over to Dan to talk you through the numbers.

Thank you, Mark, and good morning, everyone. Before we start, please note that our reported results for this quarter included $86 million of sales, recognitions that added to reported GAAP revenue due to the opening of the second phase of our Maui project. We also recorded an associated $43 million of direct expense recognitions from those sales, resulting in a net benefit of $43 million to our reported EBITDA for the quarter. In my prepared remarks, I'll only refer to metrics excluding the impact of deferrals, which more accurately reflects the cash flow dynamics of our financial performance during the period. Now let's review the results for the quarter. Total revenue in the third quarter was just over $1 billion. We saw sequential revenue growth during the quarter led by gains in our Real Estate segment, building upon the strong improvement in Q2. Q3 reported adjusted EBITDA was $295 million with margins of 29%. It is important to point out that during the quarter, we released $16 million of reserves that had been built ahead of the recent exploration of several government stimulus programs. I'll get into those details shortly, but those would be considered a one-time benefit that dropped straight through to EBITDA. We reached cost synergy run rate of $150 million during the quarter, which met our recently increased target several quarters ahead of schedule. I'm really proud of the team for the efforts they have made during the integration to reach that milestone and we intend to maintain our cost discipline as we move forward. Despite the macroeconomic noise, we saw a solid performance across Q3 with September being the strongest month of the quarter. We think this speaks to the strength of our offering, as well as the advantages of our direct sales model, which enables us to engage with existing and prospective owners in any environment. Now let's walk through the segment details. Within real estate, total contract sales were $621 million. The strong improvement in new buyer tour flow continued this quarter with sequential and year-over-year tour growth again outpacing that of our owner channel. The strength of owner VPGs this quarter led owner contract sales mix to increase slightly to 71%, but we're very happy with the improvement that we've seen in our new buyer metrics as well. We'll continue to invest in our new buyer channel through the rest of this year and remain focused on driving toward our steady-state goal of 40% new buyer mix. VPG was just over $4,200 for the quarter, as we've discussed before, as new buyer tour flow continues to recover towards 2019 levels, we've seen an expected normalization of our VPGs from the historic highs we've seen over the past 24 months, but we continue to expect that VPGs will stabilize roughly 10% to 15% ahead of 2019 levels, due to our new product offering and efficiency initiatives. Cost of product was 17% of net VOI sales for the quarter below our target of roughly 20%. Real estate S&F expense of $233 million for the quarter was 38% of gross contract sales as we made investments in our new buyer channel to drive additional force. Real estate profit was $234 million for the quarter, with margins of 43%, as I mentioned earlier, we benefited from a lower provision for bad debt this quarter, which boosted our margins by roughly 300 basis points. In our financing business, third quarter segment profit was $43 million with margins of 63% combined gross receivables for the quarter were $2.5 billion or $1.75 billion net of allowance and our interest income was $61 million. Our originated portfolio weighted average interest rate was 14.2%, while our acquired portfolio had a weighted average interest rate of 15.7% and includes a $7 million contra revenue for the amortization of a non-cash premium associated with the portfolio of receivables that we acquired from Diamond during the acquisition. Our allowance for bad debt was $762 million on that $2.5 billion receivables balance. Both these amounts, the acquired Diamond portfolio which used their underwriting standards was $388 million on a portfolio balance of $803 million. Our annualized default and delinquency rates for our originated portfolio have continued to outperform levels achieved in 2019, and remain lower than our expectations for normalization of credit trends as we head into 2023. Our provision for bad debt was $32 million or 7% of owned contract sales, adjusting for the one-time reserve release that I mentioned earlier, this ratio was in double digits, which is up sequentially from Q2, but still below our steady-state expectation of a normalized provision in the mid to high teens. In our resort and club business, our consolidated member count was 515,000. Looking at HGV's legacy business, NOG was 3.8% at the end of the quarter. Diamond also added 1,900 net new members during the quarter. Revenue was $130 million for the quarter and segment profit was $85 million with margins up 65%. It's worth noting, Q3 was the first quarter close where we fully integrated Diamond into HGV's general ledger system. In conjunction with this, we've finalized the detailed mapping of Diamond's chartered accounts resulting in certain one-time year-to-date true-ups impacting our resort and club business for the quarter. Excluding these true-ups, resort and club showed operational growth both on the top line and profit basis with margins approximately historical norms of roughly 70%. Rental and ancillary revenues were $159 million in the quarter with segment profit of $16 million. Our ancillary revenues and expenses were similarly impacted by the previously mentioned true-ups, resulting in certain one-time impacts that reduced our margins for the quarter. For the full year, we still anticipate rental and ancillary margins to be in the low double digits and we still expect that rental and ancillary margins will continue to gradually improve each year as we sell through our inventory pipeline, reducing our developer maintenance fees and continuing to rebrand Diamond properties bringing both revenue and cost synergies as the rooms are rented out. Bridging the GAAP between segment adjusted EBITDA and total adjusted EBITDA, corporate G&A was $41 million, license fees were $33 million and JV income was $5 million. Our adjusted free cash flow in the quarter was $393 million, which included inventory spending of $23 million and excludes acquisition-related costs of $34 million. Our adjusted free cash flow conversion rate in Q3 was well over 100% in the quarter, owing to the timing of cash flows from our August securitization. In Q4, you will see the impact of higher contracted inventory spend, cash tax payments and regular seasonality of our business driving negative adjusted free cash flow in the quarter. So our year-to-date EBITDA to cash flow conversion rate is 82%. We still feel confident with being well within our guidance of 50% to 60% conversion for the year. During the quarter, we repurchased 2.3 million shares of common stock for $89 million; through November 9, the company has repurchased an additional 1.1 million shares for $38 million and currently has $290 million remaining of the $500 million repurchase plan approved by the Board in May of 2022. Turning to our outlook, we are raising our guidance again for the year, this time to $1.25 billion to $1.45 billion. As of September 30, our liquidity position consisted of $319 million of unrestricted cash, $218 million of escrow deposits on VOI sales and $1 billion of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $2.6 billion and non-recourse debt balance of $1.2 billion. At quarter-end, we had $750 million of remaining capacity in our warehouse facility, of which we had $178 million of notes available to securitize and another $324 million of mortgage notes, we anticipate being eligible following certain customary milestones such as first payment deeding and recording. Turning to our credit metrics, at the end of Q3, the company's total net leverage on a pro forma TTM basis was 2.1 times. We will now turn the call over to the operator and look forward to your questions.

Thank you. Our next question comes from Ben Chaiken with Credit Suisse. Please proceed with your question.

Hey, good morning. So it sounds like you guys completed the rebranding of the sales centers, can you just talk about the receptivity of Max with the Diamond customers? Any color there would be super helpful.

Yes. Sure, Ben this is Mark. Look, really pleased with the reception we've received with Max. As a reminder, this is the first new membership program that we've rolled out in decades and feedback has been very positive, not only with the Diamond members, but also very good feedback from our HGV members. So just to remind you, we've added a lot of flexibility around the program, a lot of new features. But most importantly, we added the destinations, right, and so when we recalibrated our point levels for HGV, we created a common currency, which allowed any Max members to go across the different portfolios, go across the HGV portfolio and to Hilton Vacation Club portfolio. So we added new destinations like Lake Tahoe, Arizona, Virginia Beach, those are locations that HGV members didn't have before in our portfolio. And the same for the Diamond members can now get in New York, Washington D.C. and Oahu and Hawaii. So anyways, good reception so far, we've got some new benefits in there from Hilton, which has also been positively received and since the rollout we've achieved more than 50,000 members since April and we expect it to achieve nearly 70,000 by year-end. So all in all, feel really good about the rollout. And most importantly, I'm really pleased with how fast our teams were able to get this done. If you think about we closed in August and we were able to roll it out in April, that was a big, big hurdle that we had to achieve and the teams did a really great job with it.

That's really helpful. Just one more quick question; it sounds like you provided some insights about the pipeline package. Am I understanding this correctly? In 2022, there was a higher exposure to existing owners, which limited your occupancy for rentals and packaged tours. As we look towards 2023 and occupancy increases, should we expect a positive impact on tours in 2023 compared to 2022 because of the buildup in the package pipeline? Is that an accurate way to view it?

I believe that our packages are a strong sign of significant demand. Our activations during the quarter reached their highest level in recent years, with more people having actual dated reservations than since 2019. We’ve seen considerable sequential growth from Q1 to Q2 to Q3. Alongside the increase in activations, our pipeline has also grown, allowing us to take advantage of the existing demand in the leisure market. We continue to collaborate with Hilton to create those tours and are investing in this area through staffing and enhancing our tools to activate these packages. In terms of room availability, we are in a strong position, and should demand exceed our current room supply, we can access tens of thousands of rooms from Hilton each year. This gives us ample capacity to capitalize on our pipeline. Overall, I feel very positive about our current trajectory and the path we are on to attract new buyers.

Thank you. Our next question comes from the line of David Katz with Jefferies. Please proceed with your question.

Good morning, everyone. Thanks for taking my question. Dan, did you talk at all about securitizations for the rest of the year or the near-term? Apologies if I missed it, but do you expect to do more deals and any thoughts on what those could look like?

Hey, David, thanks. I did not speak specifically to the timing of the next deal, but given where we are in available collateral and the fact that we just completed securitization just over a month ago, we do not plan to do another deal this year, so it would roll into probably Q2 of next year, would be where we anticipate it to fall. Fortunately enough for us, from a securitization basis, we had some great execution earlier this year, and quite frankly, some great timing. We've done two deals both sub-5%, the most recent one at 4.83% with a 96% advance rate. There is still a lot of demand for ABS timeshare without a doubt. I'm sure you've noticed some of our competitors just recently completed the deal clearly at higher rates just given where interest rates have gone. But if we wanted to get a deal done or anyone in timeshare, to be quite honest, they're clearly getting done. So it's still very robust demand where the interest rates have gone, that clearly would lead to some compression in margin, but we do have a little bit of wiggle room from our perspective when we look at rates, so what we charge the consumers, we're not going to be able to mitigate that fully, it's more of a partial offset, and we look at this on at least quarterly basis, but we will most likely be looking to raise rates normally to our consumers in the near future as well.

Could you provide an estimate of the potential rate increases? Additionally, I wanted to ask about the loan loss, which you mentioned was positively impacted by a one-time event this quarter. It seems like the rate would typically be low double-digits, and you're anticipating a return to normal levels. Can you elaborate on what's contributing to that figure? I assume it includes the involvement of Diamond. Is there any evolution or insights we can gain from this situation, despite the noise in this quarter?

Certainly. The first part of your question regarding the increase in interest rates indicates that it’s not a large increase, but rather in the range of 25 to 50 basis points. This somewhat offsets the changes we’ve observed in the ABS markets. Regarding our portfolio, the positive news is that it continues to outperform not just last year but also the levels seen in 2019. When we analyze delinquency rates compared to 2019, the Diamond segment is performing over 100 basis points better, while HGV is around 60 basis points better. In terms of defaults, Diamond is approximately 600 basis points better, and HGV is nearly 100 basis points better than in 2019. Overall, our portfolio is performing exceptionally well despite the pressures from demographics. We anticipate that in 2023 there may be a gradual return to historical performance levels, influenced by the dynamics of acquisition and integration, although this is yet to be confirmed. Currently, we are in a favorable position. The recent release of reserves is linked to the end of certain government stimulus programs that had affected our mortgage portfolio. The $16 million reserve release is a one-time occurrence for this quarter, representing the last significant portion of reserves we set up at the beginning of COVID, which were based on employment levels from previous downturns like in 2008. While some small amounts may still remain, this is the final substantial release you should expect to see.

Got it. So we still want to be mid-teens out into next year and onwards?

I think ultimately building up to mid-teens, that's correct.

Thank you. Our next question comes from the line of Patrick Scholes with Truist Securities. Please proceed with your question.

Hey, good morning, everyone.

Good morning, Patrick.

Good morning, Mark. Could you share your latest thoughts on the slow return of the Japanese customer? It's certainly progressing more slowly than we initially anticipated, but there are signs of improvement. What are your recent observations on this? Thank you.

Yes, sure. So look, we expect a nice recovery from our Japan owners in recent months. We're estimating that approximately one out of five guests traveling to Hawaii are from Japan are HGV related, and that compares to one out of 10 back in 2019, which shows not only our continued dominance really in that market, but the desire for those who really invested in a great quality of product that we have in that market to get back to their Hawaii homes and it's been 2.3, 3 years now. Well, demand is not entirely back, the positive move to lift all the restrictions on October 11 has really had a beneficial impact for what we're seeing. So all of that said, we expect the slope to full recovery will take about 12 months as we await the necessary airlift return; we really need to get to airlift and that is coming, it's on its way. We've also rolled out some initiatives to help our Japan owners return in light of the continuing weakness in the yen, but when you look at where we're at, we were arrivals were about 50% of ‘19's in Q3 and right now what we have on the books is 67%. So clearly, we're not back, but the good news is it's all moving in the right direction, this was with the restrictions, it was an artificial push back on demand and demand has been there, we've seen it over the years, even during COVID, our Japanese members are making reservations, but they would cancel them due to the restrictions. But all-in-all, really pleased with how the teams will change it and our expectations is we get through and well into ‘23, we'll get back to a more normal cadence there.

Okay, great. And then one follow-up question, and you talked about achieving the $150 million run rate cost synergies. Is it possible that you could go above and beyond the $150 million? Thank you.

Yes, I'm really pleased with our ability to achieve the cost synergies we initially outlined. We originally projected $125 million in the first 24 months after closing, but we increased that to $150 million and reached that goal three quarters earlier than expected. Additionally, we took $25 million in savings realized early in the pandemic into account. Overall, we are now a much more efficient business, and our teams are more productive than ever. Dan, do you want to add anything?

Yes, it's truly impressive what the teams have accomplished. It's important to recognize that going through experiences like COVID and shutting down all of our resorts changes your perspective. Additionally, with the acquisition and our commitment to significant cost savings, the level of discipline within the organization has notably shifted. While this may affect our plans moving forward, the business is now more integrated, making it challenging to attribute any specific outcomes to the acquisition. There are still benefits yet to be realized that will enhance our projected savings of $150 million. As we rebrand the resorts and feature them on booking.com, we'll reduce expenses associated with OTAs, leading to more bookings at a lower cost on hilton.com. While it may be hard to pinpoint contributions specifically from the acquisition, we will highlight anything substantial if it arises. The key takeaway is our increased discipline regarding cost initiatives and maintaining focus as a streamlined organization moving forward.

Okay, thank you for the clarity on that. I'm all set.

Thank you. Our next question comes from Brandt Montour with Barclays. Please go ahead with your question.

Hey, everybody. Good morning. Thanks for taking my questions. So first one would be on tour flow, it looks like you had a really nice lift quarter-over-quarter on tour flow and you were talking about Japan coming back in ‘23 and maybe to work our way backwards, when Japan comes all the way back in ‘23 or at when Japan all comes all the way back, is tour flow going to be very similar looking to ‘19 in absolute numbers? Or is there some channel churn or channel calling that we should, sort of, expect on the Diamond side or anywhere else that aren't going to come back versus ‘19?

Yes, that's a good question. To start, if you examine our tour flow and the recovery trend, our main goal initially was to bring our owners back, as they have made a long-term commitment to our brand. We invested significant time and effort into supporting our owners during the pandemic, which is now paying off, as we are surpassing the number of owners returning compared to 2019. Regarding new buyers, as you mentioned, the Japanese market is slowly returning, and we expect it to reach more normal levels by the second half of 2023. One area where we're seeing recovery in new buyers is on the Diamond side. Diamond eliminated 40,000 less effective tours prior to the acquisition during the initial phase of the pandemic. We have since sold 50,000 packages to legacy Diamond locations that are now branded as Hilton Grand Vacations, and we're beginning to see those tours at our sales centers. Overall, new buyer tour flow has increased and is currently outpacing our owner tour flow growth. Despite converting our pipeline to boost new buyer tours this quarter, we have also expanded our pipeline, indicating more opportunities ahead. We have also made investments in staffing and digital tools, and improved our processes to activate those packages. We plan to keep investing and working hard to attract new buyers, and our expectations are that we will exceed our 2019 owner numbers and return to new buyer levels in 2023.

Great, that's great. Thanks for that. And then Dan maybe for you on VPG, reiterated the 10% to 15% level that you're, sort of, looking to hold. Can you remind us when you think about that 10% to 15%, what's in there, right, versus '19? Is it close rates, is it pricing, is there anything, what's sort of the makeup of that number and why is that number where you guys are confident you can hold as things normalize?

Yes, you know, thanks for that. You know, with regards to the 10% to 15% it's driven across several metrics, right? HGV as a standalone, some of the product that we were bringing online little higher transaction price. Marley, Cabo, Charleston in Sesoko club level product that combined with the revenue synergies, which were notably transferred through be close rate with the acquisition are also supporting that 10% to 15% over 2019.

I would also like to add that we have gained better insight into our customers than ever before, and our algorithm has become much more advanced. We understand who is spending and who is not, who is traveling and who is not, and we are focusing our resources on those who are traveling. Overall, we've improved our ability to precisely identify the customers we want to target. Additionally, the value proposition of incorporating HGV Max and Ultimate Access, along with what Dan mentioned, enhances our overall offering. Ultimately, I believe we now have a significantly better value proposition and a more effective way to identify our customers.

Okay, that's great. If I could ask one more question about loan loss provisions, Dan, it seems like the mid to high teens expectation assumes a full return of delinquency rates to previous cycle levels. However, it sounds like you indicated that might not happen if the portfolio continues to perform well. Do you believe the portfolio is doing well because you’ve added significant value to the system and the product, making your customers less inclined to part with it compared to the previous cycle? Could that factor possibly play a positive role when you reach a normalization point?

I definitely do. I think it's crucial for people to understand that just because we brand something doesn't mean there won't be defaults. There are many factors at play, including how we handle customer interactions, the sales process, and whether we fulfill the promises made to our customers. We take our brand seriously and strive to uphold high standards. As we implement these changes and our consumers start to experience them, I see potential for positive outcomes from our vision. However, it's important to note that we are only 12 months into the integration, which is why we are cautious about our current position, reflected in just under 11% provision, excluding a $16 million benefit, where we may ultimately return to the 15% to 16% range.

Okay. Thanks for everything guys. Good quarter.

Thanks.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Wang for any final comments.

All right. 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. I'm also proud that we were named fifth in Newsweek's top 100 most loved workplaces and number one for the most values-driven company. It's the dedication and passion of our team members that really creates our unique and amazing culture here at HGV and we appreciate all that you do. Thank you, and have a great day.

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