Hilton Grand Vacations Inc. Q1 FY2024 Earnings Call

Good morning, and welcome to the Hilton Grand Vacations First Quarter 2024 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, 13743185. 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 2024 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 our 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 in Table T-1 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. In a moment, our Chief Executive Officer, Mark Wang, will provide highlights from the quarter in addition to an update on our current operations and company strategy. After Mark's comments, our President and 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 CEO, Mark Wang. Mark?

Good morning, everyone, and welcome to our first quarter earnings call. Reported contract sales in the quarter were $631 million, and EBITDA was $270 million, with margins at 24%, which includes just over 2 months results from our recently closed Bluegreen acquisition. I'm happy with the results overall, and I'm even more encouraged when looking at the momentum that we've built over the course of the quarter. Recall that in the fourth quarter, we adjusted some marketing channels at our legacy business to optimize our tour flow, which we expected would create some follow-on effects in the first half of '24. We came into the year with a goal to dial up some of our marketing activities in a thoughtful way and accelerate package activations of our tour pipeline, and these efforts began to yield results as we moved through the quarter. While we started with a modest year-over-year decline in tours in January, we saw an acceleration each month of the quarter, exiting with a low single-digit positive tour growth in March, which put us solidly on track relative to our expectations for the full year. We also added more packages this quarter than any other quarter since mid-'22 and our mix of activated packages is back to record levels we saw in the first half of '23. These trends speak to a consumer that remains committed to travel despite some of the macroeconomic pressures that have built up, particularly in regards to inflation. While those pressures are still leading to some hesitancy at the sales tables, our sales teams have made adjustments to help highlight the value proposition of ownership, which should result in improved close rates as we move through the year. It's also important to note the continued resilience of our owner business, which saw an acceleration in tour growth compared to the fourth quarter, along with improved close rates. The repeat nature of our dedicated owner base is a key feature of our business that drives stability and embedded value creation in our model over time. Our owners love the level of HGV service and the benefits offered by our Max membership. They want to use the product more. And ultimately, that drives additional upgrade business. Nearly 1/3 of our members are HGV Max only 2 years after our launch, indicating how successful the program has been at attracting existing members as well as new buyers. And as we welcome our new Bluegreen owners into the HGV system over time, we're confident that the HGV Max benefit and service levels will resonate with them very well. Speaking of Bluegreen, since closing our acquisition in January, we've been hard at work on our rebranding plans and integration. A lot of great work has been done by our teams, and I'm very pleased with how they're executing and coming together over the last few months. There's still a lot of work left ahead of us, but the foundation of our business is better than ever. I'm also excited about our recently announced partnership with Great Wolf Lodge, which will create a new source of lead flow that we think will be a great fit with the HGV family of brands. So we have a number of positives coming out of the quarter that leaves us optimistic. While we're still a few quarters out from reaping the benefits of dialing up our activations over the last few months, I'm happy with the trends we're currently seeing out of the business and our team's execution, and we remain confident in our guidance for the year. Turning to our integration efforts. Let's start with a quick update on Diamond. Through the end of the first quarter, we rebranded 36 properties, representing over 9,600 or 2/3 of the total keys. We expect that we'll rebrand 12 properties this year for an additional 2,500 keys, bringing us to over 70% of the total by year-end. The remainder of the properties will be completed between 2025 and '26. We're happy with the results of the rebrand thus far. But more importantly, our guests are happy. We continue to receive positive feedback and our occupancy levels and package sales trends remain strong at those rebranded resorts. We're also making steady progress integrating our technology with several key module launches this year that will move us toward a unified system for our deed and trust product, which will also leverage as we move through the Bluegreen integration process. These enhancements will not only enable our sales teams to transition more seamlessly between product offerings, improving efficiency and the likelihood of conversion, but they'll also enable us to seamlessly grow in the future. And importantly, they'll also create a smoother customer experience, helping with engagement and retention. Moving to Bluegreen. As I mentioned, we've been working diligently to integrate our teams over the past several months. Throughout the process, I've been thoroughly impressed with the Bluegreen team at all levels of their organization. At the same time, we've been fully engaged to drive growth with our new partners, Bass Pro, Choice and NASCAR and have also continued working towards finalizing our rebranding plans ahead of a kickoff later this year. I also want to spend a minute talking about our new relationship that we announced a few weeks ago with Great Wolf Lodge. Partnerships are a critical component of our strategy to engage new customers and deepen the relationship with existing members through experiential offerings. And this partnership with Great Wolf furthers that proposition, serving over 10 million guests annually with a focus on families with young children, which is a priority growth segment for us. Together, we're able to engage a broader spectrum of vacations and age ranges as well as provide HGV families with increased flexibility in their vacation options. In the coming months, HGV members will begin to vacation at Great Wolf Lodge resorts using their Club points while also benefiting from exclusive discounts during their stay. In addition, Great Wolf Lodge guests will have the opportunity to receive curated offers to explore HGV's network of properties. HGV will have a presence in 18 Great Wolf resorts with more locations to be added as Great Wolf continues their expansion. The partnership also includes call transfer and digital marketing programs, enabling us to generate new lead flow across multiple channels. Above all, these partnerships are about bringing people together to create memorable experiences, and I'm thrilled to be collaborating with CEO, John Murphy and the entire Great Wolf team who share a similar passion for hospitality and for delivering high-quality vacations that bring families together. Now let's take a look at our operational performance, assuming that we own Bluegreen for the entire quarter to make things simpler. Combined contract sales using that full quarter basis were $656 million with steady tour growth and a decline in VPG. Both HGV and Bluegreen demonstrated very similar growth trends for tours and VPG and were largely in line with our expectations. As I mentioned earlier, I was very pleased with the trajectory of our tour flow as the quarter progressed along with the resilience of our owners. And as we move into the back half of the year, we expect to see our pipeline continue to drive improved tour trends as well. Combined VPG for the full quarter was $3,575, down about 5%, driven by lower close rates. However, close rates in our legacy business improved from the fourth quarter, leaving us optimistic that our efforts and initiatives are producing results and leaving us on track for the year. Looking at our forward demand indicators, occupancy in the quarter was flat at 79%, although last year's numbers included the full complement of Maui rooms. As I mentioned, we made great progress with our package activations this quarter and our arrivals on the books for the rest of the year are ahead of '23 with strength in our marketing and rental arrivals, owing to our success in driving increased package activations. Moving to our non-real estate segments. We continue to see great trends in our transient rental business, led by higher available room nights and higher ADRs. Our rental nights on the books remained very strong through the rest of the year in some regions where we had seen softer trends, such as Orlando and Hawaii also showed signs of improvement this quarter, which also bodes well for future performance. In our recurring club and resort business, NOG at our legacy business was 2% and the addition of Bluegreen enabled us to reach a member count of 718,000, which led to another strong quarter of EBITDA generation. And our financing business had a solid quarter of growth with improved margins owing to the addition of the Bluegreen portfolio and good receivable generation. We also maintained our commitment to capital returns this quarter, repurchasing 2.3 million shares for $99 million. So all in all, I'm very pleased with this quarter. We performed in line with our expectations, and our trends through the quarter leave us optimistic that we're on track to achieve our guidance for the year. More importantly, I think we're really set up well for the long term. I believe that we're building the most talented team that we've ever had in my 25 years at HGV and I'm excited to share our Bluegreen integration plans with you as we get them finalized. Before I turn it over to Dan, I'd like to congratulate him on being named President along with continuing his duties as CFO. He's done a great job over these last 5 years, helping to navigate our business through markets that were turbulent at times, all while maintaining a commitment to shareholder value creation and risk management. And I know that he'll continue to maximize the value of our business and financial model in the years ahead. So 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, note that our reported results for this quarter included $2 million of sales recognitions, which increased reported GAAP revenue and were related to opening the most recent phase of our Sesoko project. We also recorded $1 million of associated direct expense recognitions. Adjusting for these 2 items would decrease the EBITDA reported in our press release by $3 million to $270 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. I'd also note that our results today also include the financial results of Bluegreen, which we acquired on January 17. Turning to our results for the quarter. Total revenue, excluding cost reimbursements in the first quarter, was $1.03 billion, and adjusted EBITDA was $270 million with margins of 26%, also excluding cost reimbursement. EBITDA included $11 million of Bluegreen cost synergies recognized during the quarter for a run rate of $53 million annualized, putting us nicely on the path of achieving a targeted $100 million of cost synergies within 24 months. Turning to our segments. Within real estate, reported contract sales were $631 million for the quarter, including a partial quarter of Bluegreen ownership. Assuming that we own Bluegreen for the entire quarter, contract sales would have been $656 million versus pro forma combined sales in the prior year of $692 million. Bluegreen produced $161 million of that $656 million in sales on the full quarter basis. New buyers comprised 27% of legacy contract sales in the quarter, improving nearly 200 basis points from the fourth quarter level. Reported tours for the first quarter were just over 174,000. Assuming a full quarter of Bluegreen ownership, tours of 182,000 were roughly flat in the quarter on a pro forma basis, with owner tours again growing in a solid mid-single-digit rate, offset by a decline in new buyer tours. As Mark mentioned, the decision to pull back on some channels in the fourth quarter also had an effect on our tour pace in this quarter. But having reaccelerated our packages and our tour efforts in Q1, we do expect to see a benefit from those efforts later this year as they cycle through our marketing pipeline. Bluegreen's tours for the full first quarter of just under 52,000 displayed similar trends to our legacy business during the quarter with flattish growth in tours driven by low single-digit owner tour growth, offset by a similar level of decline in new buyer tours. Reported VPG for the quarter was $3,600. Assuming a full quarter of Bluegreen ownership, VPGs were $3,575. For our legacy business, VPG was about 6% ahead of 2019 levels roughly in line with the trend that we saw in the fourth quarter. As Mark mentioned, our expectation is that we move through this year, we'll see an improvement in our VPG that will help to support low single-digit growth in VPG for the full year. Reported cost of product was 11% of net VOI sales for the quarter, and our provision for bad debt as a percentage of owned contract sales was 12% in the quarter. Real estate sales and marketing expense was $320 million for the quarter or 51% of contract sales. Sales and marketing dollars and percentage were elevated in the quarter owing to seasonality along with the addition of Bluegreen, but we expect to see operating leverage on this expense as we begin to recognize additional cost synergies through this year. Real estate profit for the quarter was $131 million, with margins of 26%. In our financing business, first quarter revenue was $104 million, and segment profit was $65 million with margins of 63%. Interest income and segment profit for the quarter were impacted by a $10 million contra revenue for the amortization of a noncash premium associated with the portfolio of receivables that we acquired from Bluegreen in the acquisition, in addition to the premium still being amortized for the Diamond transaction. Excluding this noncash amortization, interest income was $112 million and margins were 69%. Combined gross receivables for the quarter were $3.8 billion or $2.9 billion, net of allowance. Our originated portfolio weighted average interest rate was 15.1%. For context, our Diamond acquired portfolio had a weighted average interest rate of 15.7%, while our acquired Bluegreen portfolio had an average interest rate of 15.2%. Our total allowance for bad debt was $900 million on that $3.8 billion receivables balance or 23.6% of the portfolio. We continue to evaluate the Bluegreen allowance through our purchase accounting process and any additional changes to the allowance we expect to flow through the balance sheet as an opening balance sheet item. Our annualized default rate for our consolidated portfolio is inclusive of Bluegreen, stood at 9.7% for the quarter. As previously discussed, we continue to see normalizing credit trends with the termination of certain government stimulus plans, but we believe our current loan loss provision is adequate. Going forward, we expect our provision to migrate towards a mid-teens percentage of contract sales on a normalized basis. I also want to highlight our strong capital markets execution with our recent $240 million ABS deal of Bluegreen legacy collateral. The deal highlights the strength of our brand and market position as we nearly quadrupled Bluegreen Vacations historical investor base on HGV's first securitization of Bluegreen Vacation collateral. The total coupon was 6.42%. In our resort and club business, our consolidated member count was 718,000 and our legacy NOG was 2% at the end of the first quarter. Revenue was $166 million for the quarter and segment profit was $112 million with margins of 68%. Rental and ancillary revenues were $181 million in the quarter with segment profit of $8 million and margins of 4%, slightly ahead of last year. Revenue growth was driven by higher available room nights and RevPAR growth, underpinned by continued travel demand. As Mark mentioned, we continue to see strong arrivals through the rest of the year, which should support the continuation of trends. Expenses on our legacy business continued to be elevated due to the inclusion of developer maintenance fees on unsold inventory, along with the inclusion of Bluegreen's much lower-margin rental business. As you can see from the financial information we uploaded to the IR website last quarter, Bluegreen's rental business ran at a loss, but we believe this provides us an opportunity for improvement over time as we integrate them into the Hilton system. Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, corporate G&A was $35 million, license fees were $35 million. EBITDA from unconsolidated affiliates was $5 million and EBITDA attributable to noncontrolling interest was $3 million. Our adjusted free cash flow in the quarter was a use of $374 million, which included inventory spending of $105 million. I'd note that the cash flow usage this quarter was entirely the result of timing as we paid down the balances on our warehouse facility ahead of our most recent securitization as well as to capture capital market synergies by closing multiple ABS facilities associated with the acquisition. With the successful completion of that offering a few weeks ago and another one planned during the summer, we expect to see a cash flow benefit in the quarters ahead, and we're still expecting an EBITDA conversion rate slightly ahead of last year's 52%. During the quarter, the company repurchased 2.3 million shares of common stock for $99 million. And through April 30, we repurchased an additional 1 million shares for $47 million, leaving us with $213 million of remaining availability under the 2023 repurchase plan. We expect to continue our current trend of approximately $100 million in share repurchases per quarter. Turning to our outlook. We are reiterating our guidance for full year adjusted EBITDA of $1.2 billion to $1.26 billion. As of March 31, our liquidity position consisted of $355 million of unrestricted cash and $293 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $5.1 billion and a nonrecourse debt balance of approximately $1.5 billion. At quarter end, our legacy business had $460 million of remaining capacity in our warehouse facility, of which we had $455 million of notes available to securitize and another $321 million of mortgage notes we anticipate being eligible following certain customary milestones, such as first payment, deeding and recording. From a timing perspective, we expect to bring another deal to the market in the summer. Turning to our credit metrics. At the end of Q1 and inclusive of all anticipated cost synergies, company's total net leverage on a TTM basis was 3.74x. We are also recommitting to our long-term leverage target of 2x to 3x total net leverage. We will now turn the call over to the operator and look forward to your questions.

Our first question comes from Patrick Scholes with Truist Securities.

Mark and Dan. My first question concerns the Bluegreen acquisition. You have about 4 months under your belt now, how would you say that's tracking versus your underwriting? And then related to that, you initially expected about $100 million of expected cost synergies and then expected $75 million to $100 million of future revenue synergies. Now do those seem realistic at this point, maybe too conservative? How are you tracking and thinking about all of those?

Yes, of course, Patrick. We closed quickly in January and have spent the first couple of months refining our plans. We are pleased with the progress and excited about the upcoming opportunities. The main elements of the integration will resemble the Diamond deal, focusing on cost savings, rebranding of our sales centers and properties, and incorporating them into the overarching HGV system. A new aspect of this deal is the partnership piece that Diamond did not offer. On the cost side, we moved into the execution phase at the beginning of March and have achieved nearly half of the $100 million cost target on a run rate basis, which gives us confidence. The rebranding of the sales centers will happen first, followed by the properties over the coming years. We are still in the process of rebranding Diamond properties, planning over 10 for this year. Similar to what we did with DRI, designing the rollout for HGV Max, our membership program, will take time. We have the Ultimate Access, and we are addressing some technology and legal requirements. We’ve made significant strides in our partnership with Bass Pro, and we recently held a Board meeting there, where we met with the Founder and Bass Pro management. They are engaged, and we are aligned in our goal to grow that relationship. Overall, combining Bluegreen membership, new distribution, and a strong pipeline, we are very enthusiastic about the revenue opportunities ahead. In summary, we feel good and are pleased with the team members from Bluegreen, who have a great culture that we have observed across the business.

I think it's important to add that regarding the Diamond transaction, when we announced it, we mentioned cost synergies of over $125 million. We always believed there was potential for even more. For context, with Bluegreen, we've consistently stated a run rate target of $100 million since it is a smaller organization. As Mark previously pointed out, we are currently running at just about half of that target, even through Q1. Our guidance includes realized synergies in 2024 estimated at $50 million to $55 million. We are on the right path and confident we will reach the $100 million target. However, we are also thoroughly assessing our talent to ensure we have the right team in place for execution. We are comfortable with the $100 million target and confident we will achieve it, but it differs from what we experienced with Diamond. Therefore, I wouldn't expect any upward revision from $100 million to $110 million over the next couple of quarters. Our primary focus right now is on meeting the $100 million target.

Okay. Great. My follow-up question is on Maui, Mark, could you give us an update on how things are progressing there? And did you mention if there was an earnings impact in the quarter? And also, if you could again talk about how you see the rest of the year progressing for you folks.

Yes, certainly. Fortunately, neither of our properties experienced any physical damage. Our Maui Bay Villas are located in South Maui, which is on the opposite side of the island, and we are operating normally with improving trends. The Ka'anapali Beach property, situated on the west side near the area most affected by the damage, is still facing operational challenges. Some of our team members, along with FEMA and aid workers, are still residing at the property. As we mentioned earlier, we anticipate occupancy levels will recover by the end of this year, but sales recovery will lag behind. This sales recovery is less influenced by occupancy, which is currently around 90% in Maui, slightly below our historical levels that typically range in the mid- to upper 90s despite the challenges. Without the impact from the wildfire, Maui would have generated about $90 million in sales in 2023, and we're still nearly 15% down compared to the previous year in Q1. We expect a similar trend in Q2. We believe the recovery will start to gain momentum in the second half of the year, though it will still fall short of our pre-fire trajectory. We anticipate being fully back by 2025.

Our next question comes from the line of Brandt Montour with Barclays.

So Mark, I was hoping you could elaborate a little bit more on sort of the consumer, right? And so what you saw improved throughout the first quarter in terms of close rates. It sounds like there were some tweaks that you made. There might have been a little bit of a mix shift benefit from new owner tours to repeat owner tours. But if you strip all that out, what's the sort of sequential movement in hesitancy of the sales? We all know that interest rates and inflation are high and dragging on some consumers. So maybe you could opine on that, please.

Look, the positive news is we've seen stabilization, right? And when you look at the traffic, traffic continues to be good and it's building. So all in all, I think around the consumer, there's some uncertainty around the margin, but it isn't trending negatively. And the behavior isn't really any different than what we've seen through previous cycles, new buyers have pulled back more than owners. And that makes sense, right? Owners have led the value proposition. They made a commitment and they've been committed for a number of years. And I'd say, across the segment, with the type of the quality customer we're engaged with, it's less about income. It's more really about the uncertainty. They're reading the news every day as we are, and that's pushed up a bit of hesitancy for this type of purchase. But on the other side, the good news is we have a lot of visibility on the traffic in our sales centers and control over tour flow. So that's a lever that we've opened up. And we're growing tours while maintaining the quality of the consumer based on FICO and income and net worth. So I think we're also much better positioned today, Brandt, with our broader portfolio, including all the drive-to destinations and a much more affordable entry point. So all in all, we're very focused on continuing to promote the value proposition of the product and the experiential aspect of our club to our members. So basically, we're seeing stabilization. We're seeing some improvement, and we'll ramp tour flow as we go through the year.

That's helpful. Dan, I apologize as this is mentioned in your prepared remarks. You may have addressed this to some degree, but regarding loan loss provisions, I think I raised this question last quarter. We've been waiting for this provision to rise closer to the long-term target level. It seems that in the first quarter, it reached that level, but perhaps pulled back slightly quarter-over-quarter, and I know this now includes Bluegreen for a couple of months. We anticipated that Bluegreen would increase that figure, so what’s the reason for this? How should we consider that line moving forward?

Thank you, Brandt. I've been addressing this issue for a couple of years now. We expect it to rise to the mid-teens range. When looking year-over-year, several factors influence the overall dollar amount, including the number of borrowers and their mortgage amounts. From a rate perspective, this quarter was challenging, costing us around $10 million. There has been some increase; for instance, it was 12% of contract tours, and we noted an average rise from 10% last year to 13% this year. This increase aligns with the headwinds we discussed last quarter, which we expected to impact us this year, with a $100 million number where a significant portion is linked to bad debt. While some areas have underperformed, certain items are doing much better than before the acquisition, specifically the Diamond paper. Its annualized default rate in 2019 was between 17% and 19%, and now it has improved significantly to between 11% and 12%. The HGV side is also performing consistently, slightly above 2019 levels. Overall, we feel optimistic and are confident that, as we manage the business, it will settle around 15% of owned contract sales.

That's perfect.

Our next question comes from the line of Ryan Lambert with JPMorgan.

I just wanted to tease out the impact of Bluegreen a little bit more. Did the weather have any sort of impact during the quarter, just given that owner base is a little bit more drive to in nature?

Yes, there was some impact. However, the excitement surrounding the acquisition of Hilton among Bluegreen members and team members is significant. Similar to our experience with DRI, we are noticing some hesitation or anticipation regarding the rollout and what the integration of Hilton means for Bluegreen members. They are enthusiastic and loyal to our brand, but currently, we are not introducing any elements from Hilton, Hilton Grand Vacations, or HGV Max into the program. This anticipation may lead to some hesitancy until we address these concerns, which are primarily driven by technological and legal factors. We expect to announce that connection as we approach the fourth quarter of this year.

Great. And if we can switch gears real quick to the fee-for-service business. I think it came in a bit lower than we and I think the Street was modeling. So how should we think about that business for the balance of the year?

Sure. On a pro forma basis, if you were to look at 2023 because there is a little bit of fee-for-service business at Bluegreen already. But on a pro forma basis, for 2023, fee-for-service accounted for about 24% annualized from a contract sales perspective. It's down to 16% in Q1 and what I would tell you is to assume the same level for the balance of the year. Just given the mix of the product that we have available to us, there shouldn't be a lot of movement in that throughout 2024.

And our next question comes from the line of Ben Chaiken with Mizuho.

Regarding Bluegreen, just back to one of the previous comments, I think you mentioned there was some anticipation/hesitation from the Bluegreen owners. Just to confirm, I think you were saying prior to introducing Max, there's some technical and legal items. Did I catch that right? Maybe just explain maybe a little bit, if possible, what those are? And then once connected in 4Q, assuming I caught all that right, will there be an active outreach? Or can you help us think about when you may start to see some of that sales leverage. I'm not sure if there's a delay. And then kind of related to that on Bass Pro, any color on how you may change or improve that experience from an in-store perspective to better leverage the Max product that's now available? And then I have one quick follow-up.

Yes. Sure, Ben. Yes, I'll try to make this a little clearer. So first of all, very excited about the opportunity with Bluegreen and their members. They're very excited about the announcement. And historically, Bluegreen has not upgraded their members to the same degree as HGV or the industry more broadly. And when we launched HGV Max with DRI, we now have nearly 160,000 Max members now. We're confident that the brand, the Hilton benefits, expanded portfolio, the new experiences are going to resonate really well with the Bluegreen members. We saw that with DRI, and we saw it with our HGV members. And we're working hard on designing the program and getting it ready for launch. But it will take some time before we can offer it to the Bluegreen owner base. And as we saw with Diamond, we know there's a lot of demand and the Bluegreen base is excited about it. So we have some technology work that we have to do. And more importantly, we have some legal work and some legal structuring work we had to do. Same thing happened with Diamond. It took a number of quarters to get there. Our expectations right now is a rollout beginning of the fourth quarter. It may come a little earlier. It may come a little later. We're not 100% sure. But all I can assure you that all the teams are working towards that. And our expectation is we'll see a nice bump up in activity and transactions, similar to the way we saw with DRI when that occurs.

Yes. And Ben, just the only thing I would add is, as you would imagine, and as Mark alluded to just now, we've seen this before. This is exactly how we walk through with Diamond. So as you would expect, this was all built into our underwrite when we acquired Bluegreen. So Q4 is not a delay. It's where we actually expected to start rolling this out right around that time frame anyway. It actually might have been a hair later. But in any case, it was all included in our underwrite of the deal.

That's very helpful. And then on the Bass Pro side, do you have any plans? Or can you share anything with us about how you may improve that or change or improve that experience just because you've now got a much broader product to introduce?

No. Yes. Super excited about Bass Pro. I think I mentioned just a minute ago. We had our Board meeting up there yesterday and had a good part of our Board up there, we had an opportunity to meet with Johnny. Morris, the Founder, his management team and Bass Pro is more than a retail store. It's really a destination unto itself. We were looking at some of the data that Bass Pro was showing us yesterday, 200 million visitors there a year, and it's not like they're going to a normal retail outlet in and out buying something quickly. They explore the store and it's designed to really keep you engaged while you're there. We are working right now with Bass Pro, and we brought in some outside consultants to think about how we can reimagine how we put these Hilton Grand Vacation brands in the store, Bluegreen did a nice job with what they were doing over the years, but we think we can elevate that partnership and expand the opportunities to benefit our combined customers. And it's a great source of customer. When you look at really what's embedded in that Bluegreen member base, close to 50% of those members have been sourced through Bass Pro, either through new buyers or owners upgrading. And we think we're going to be able to expand and use different channels beyond the in-store, we think there's digital opportunities, and we love the diversification of the customers. So super excited. And I know Bass Pro is very excited, too. So we'll provide more information as we roll out new programs there.

Got it. And then just a very quick follow-up. On the sales and marketing side, you mentioned getting some more operating leverage moving forward, understanding that Bluegreen has higher sales and marketing. Could you maybe just dig into what maybe drove it higher in the 1Q and then why you would get more operating leverage going forward?

Sure. If you examine the pro forma data, the sales and marketing percentage year-over-year remained stable at 51%. We expect to see some operating leverage in the latter half of the year due to seasonality and improvements from initiatives we've discussed regarding VPGs, which will provide some scale and contribute positively to our profit and loss statement. Simplifying it, there are essentially two main areas of focus. The first track is aimed at general and administrative expenses, which we have begun to address, and you can see the impact in our numbers. The second track focuses on sales and marketing, ensuring we have the right level of talent to effectively execute our plans. Additionally, it's worth noting that in the first quarter, we have a significant event, the Ultimate Access event associated with the LPGA, occurring in January, which does increase our costs in that quarter compared to others.

And our next question comes from the line of David Katz with Jefferies.

Just that you covered a lot of details, but I'm just curious, when we look at the 2 acquisitions that you've added to your system in the past few years and the corporate orientation that includes a meaningful amount of Hawaii. Just curious, of those 2 owner groups that have added to your system, how inclined are they? And are they participants in the Hawaii market and to what degree relative to their sort of activities kind of on the mainland?

Yes. Diamond had three properties in Hawaii, and we currently have a total of 12 properties in Maui, soon to be 13. The Diamond members were already participating in Hawaii, where overall occupancy is around 90%. Oahu and the Big Island are in the mid-90s, consistent with our performance in 2019, while Maui is in the low 90s, still below the historical levels of 2019. There is strong participation in Hawaii from the Diamond member base. Regarding Bluegreen, we've been interested in that business for several years, particularly because of their excellent partnerships and organic growth in their membership program. However, I always felt that Hawaii was the one element missing for Bluegreen. The teams and members at Bluegreen are very excited about the opportunity to experience Hawaii. This won't happen until we officially launch HGV Max, which is expected to be in the latter part of this year. Historically, Bluegreen hasn't upgraded at the same rate as the broader industry, and we believe that Hawaii will facilitate that upgrade, along with HGV Max and all the Hilton benefits. The team members at Bluegreen are eager to discuss Hawaii in their future presentations.

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

Yes. Before we wrap up, I'd like to thank all of our team members for their continued service and dedication to our owners and guests to create memorable vacation experiences. Thank you for joining us today, and we look forward to speaking with you again soon. Have a great day.

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