Hilton Grand Vacations Inc. Q3 FY2025 Earnings Call

Good morning, and welcome to Hilton Grand Vacations Third Quarter 2025 Earnings Conference Call. A telephone replay will be available for 7 days following the call. The dial-in number is 844-512-2921 and the pin number is 13751068. I would now like to turn the call over to Mark Melnyk, Senior Vice President.

Welcome to the Hilton Grand Vacations Third Quarter 2025 Earnings Call. As a reminder, our discussion this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements and these statements are effective only as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our SEC filings. We'll also be referring to certain non-GAAP financial measures. You can find definitions and components of such non-GAAP numbers as well as reconciliations of non-GAAP and GAAP financial measures discussed today in our earnings press release and on our website at investors.hgv.com. Our reported results for all periods reflect accounting rules under ASC 606, which we adopted in 2018. Under ASC 606, we're required to defer certain revenues and expenses related to sales made in the period when a project is under construction and then hold off on recognizing those revenues and expenses until the period when construction is completed. For ease of comparability and to simplify our discussion today, our comments on adjusted EBITDA and our real estate results will refer to results excluding the net impact of construction-related deferrals and recognitions for all reporting periods. To help you make more meaningful period-to-period comparisons, you can find details of our current and historical deferrals and recognitions on Table T1 of our earnings release and the complete accounting of our historical deferral and recognition activity can also be found in Excel format on the Financial Reporting section of our Investor Relations website. With that, let me turn the call over to our CEO, Mark Wang. Mark?

Good morning, everyone, and thank you for joining our third quarter earnings call. This quarter, we experienced significant operational and financial success, achieving 17% growth in contract sales, which substantially improved our real estate business profitability compared to last year. These results led to nearly double-digit growth in our EBITDA for the period, while we maintained our commitment to returning significant cash to shareholders. I was particularly encouraged by the widespread strength of our sales performance, with increases in tour flow and VPG across both owner and new buyer channels. All domestic regions saw double-digit VPG gains, and we achieved mid-teens contract sales growth at both our legacy and Bluegreen businesses. Our teams have been diligently executing our strategic initiatives focused on growing lead flow, enhancing execution, and improving our value proposition, yielding positive results. The consumer environment remains stable overall, and forward indicators and member surveys indicate strong travel demand. Despite ongoing volatility in the policy landscape, our strategic focus remains steadfast. We are concentrating on controllable factors by executing our initiatives and promoting our value proposition in the short term while investing in long-term capabilities. There is still work to be done in expanding our new buyer mix and enhancing cost efficiencies, but our results bolster my confidence in our progress toward these goals and the sustainability of our value creation efforts. Looking ahead, we're maintaining our positive momentum as we approach year-end, reiterating our existing EBITDA guidance and expecting high single-digit contract sales growth. For the quarter, reported contract sales rose 17% to $907 million, a record for our business on a pro forma basis. Adjusted EBITDA was $302 million, with margins, excluding reimbursements, at 24%. I am pleased with our sales composition this quarter as well. Consolidated tour growth of 2% continues the positive trend we have seen this year, driven by contributions from both owner and new buyer channels. We achieved growth in new buyer tours at our legacy and Bluegreen businesses while effectively implementing our tour efficiency initiatives and enhancing the quality of the tour pipeline. VPG increased by 15% from the prior year, reflecting strong performance from both owners and new buyers. Gains were balanced across our legacy and Bluegreen businesses, with double-digit growth in all Mainland regions. Our forward demand indicators also stay healthy. Occupancy for the quarter matched last year at 83%. Consolidated arrivals for the fourth quarter are ahead of the prior year, and marketing and rental arrivals remain our strongest channels. Our package sales initiatives continue to perform well, showing double-digit growth once again, with a pipeline close to 750,000 packages. Regarding our other business units, our member count reached nearly 722,000 at the end of the quarter, reflecting an increased recapture rate that supports embedded value creation and enhances long-term cash flow generation. Our HGV Max members are highly engaged, and we are steadily adding new Max members, including upgrades from owners. We've added 70,000 members to HGV Max over the past year, surpassing the milestone of 250,000 Max members, which includes nearly 30,000 legacy Bluegreen members. The demand for the Max program remains robust, offering a compelling value proposition. In our rental business, sustained travel demand has spurred growth throughout much of our portfolio, although Las Vegas FIT rental market growth has been sluggish due to visitor numbers and competitive factors. However, our Vegas sales teams excelled in our sales centers this quarter, achieving nearly double-digit contract sales growth despite these market challenges. In our financing business, we continue to implement our optimization program aimed at enhancing long-term cash flow. During the quarter, we repurchased 3.3 million shares of stock for $150 million and remain on track to meet our objective of returning $600 million to shareholders through our repurchase this year. We are committed to returning excess capital to our shareholders. Looking to our initiatives and integration updates, we are making good progress in our lead generation efforts to drive package sales and activations. The packages sold in the first half of the year are beginning to convert into tours, contributing significantly to our positive new buyer tour growth this past quarter. We also achieved double-digit growth in the number of packages sold in Q3, surpassing our internal expectations for the second consecutive quarter. These packages will help expand our tour pipeline through 2026. Although our stronger-than-expected performance led to higher marketing spend in the period, impacting our flow-through, we see this investment as crucial for future growth. As these packages convert into tours and contract sales, we anticipate positive outcomes from new buyers entering the system, which will enhance lifetime value. Regarding our product enhancement initiatives, HGV and HVC Resorts have started receiving Max members from Bluegreen this month, allowing them to conveniently use their points for stays at our resorts across all brands. We also plan to introduce additional Hilton benefits for our newest Bluegreen Max members, including access to travel concierge services for their upcoming getaways. As for the Bluegreen integration, we continue to make significant strides, achieving $94 million in run rate cost synergies this quarter and remaining on track for our $100 million savings target. We have fully rebranded our Bluegreen sales centers and implemented our Envision sales technology within them. Following the rebranding of our Bass Pro kiosks, we now enjoy strong brand synergy across our marketing channels, which highlights Hilton Grand Vacations' quality and service. On the property front, we've rebranded our first seven Bluegreen properties, with a plan to complete targeted rebrands over the next three years. Our technology teams are also advancing our digital transformation, introducing new tools for our staff and enhancements to improve member experiences. This quarter, we upgraded our proprietary chatbot to provide personalized assistance powered by AI, tailored to members' profiles for booking and vacation needs. From a partnership standpoint, we are focused on strengthening our existing relationships. Through strategic alliances with Hilton, Bass Pro, and Great Wolf, we are reaching a broader, diverse audience. We actively collaborate with our partners to test new marketing strategies and increase our efficiency in converting leads into member transactions, ultimately driving lifetime value. In summary, I'm proud of our performance this quarter, particularly the broad success across our KPIs, channels, and regions. Our teams have executed well on the initiatives we outlined, yielding positive results. We are committed to improving our cost structure and flow-through while driving additional new buyer growth. I believe the investments we are making in the business will facilitate long-term value creation. Now, I’ll hand it over to Dan for further details on the numbers. Dan?

Thank you, Mark, and good morning, everyone. Before we start, note that our reported results for this quarter include $99 million of sales deferrals, which reduced reported GAAP revenue and were related to presales of our Ka Haku and Kyoto projects. We also recorded $42 million of associated direct expense deferrals. Adjusting for these two items would increase the adjusted EBITDA to shareholders reported in our press release by a net $57 million to $302 million. In my prepared remarks, I'll only refer to metrics excluding net deferrals which more accurately reflects the cash flow dynamics of our financial performance during the period. We had a strong sales performance this quarter reflected across our channels, KPIs and geographies, leading to contract sales growth of 17%. That fueled an acceleration in both our top line and EBITDA growth with strength in our real estate, financing and club and resort businesses. Real estate margins had their second consecutive quarter of meaningful expansion and our recurring finance and club and resort businesses continue to demonstrate consistent growth. While we still have work to do on the rental business and our overall cost efficiency, I think we made solid progress in the quarter overall. We finished the quarter with 69% of our current receivables securitized as we continue to execute against our financing business optimization. And while our cash generation was lower this quarter due to the timing of securitization activity, we remain confident in our 65% to 70% cash flow conversion target for the year. Year-to-date, we've produced $342 million in adjusted free cash flow, and we're expecting to generate a material amount of cash in the fourth quarter, along with our final securitization deal of the year. Turning to the results for the quarter, total revenue before cost reimbursement in the quarter grew 12% to $1.3 billion, and adjusted EBITDA to shareholders was $302 million with margins, excluding reimbursements of 24%, roughly in line with the prior year. We've recognized $94 million of run rate cost synergies from our Bluegreen acquisition and are within sight of our goal of $100 million of run rate savings. Within our real estate business, contract sales were a record $907 million, up 17% versus the prior year. As Mark mentioned, the composition of our sales performance was encouraging with gains in both our owner and new buyer channels. New buyer mix remained steady at 27% of contract sales during the quarter. Tours were up 2% year-over-year to $232,000 with growth in owner and new buyer channels. We expect to see an acceleration in our fourth quarter tour growth, supported in part by our package sales performance in the first half of the year. Turning to VPG, our tour efficiency initiatives, HGV Max and Ka Haku launches underpinned an acceleration in growth to $3,900, up 15% year-over-year. As was the case with tours, both our owner and new buyer channels saw a step-up in growth from the second quarter rate. Cost of product was 12% of net VOI sales in the quarter, in line with the prior year. Real estate sales and marketing expense was 46% of contract sales, a 300 basis point improvement from the prior year. Similar to last quarter, we outperformed our package sales estimates, which will help support future tour growth. Due to the nature of timeshare marketing, the expenses related to that outperformance are realized upfront and will convert to EBITDA as we tour those package guests in the coming quarters. In Q3, the additional marketing expense was roughly $7 million. Despite the additional expense, however, real estate profit was $178 million in the quarter with margins of 27%, up 300 basis points over the prior year. In our financing business, third quarter revenue was $128 million and profit was $75 million with margins of 59%. Excluding the amortization items associated with our acquired receivable portfolios, financing margins were 62%. Looking at our portfolio metrics, our originated weighted average interest rate was 14.7%. Combined gross receivables for the quarter were $4.2 billion or $3.1 billion net of allowance. Our total allowance for bad debt was $1.1 billion on that $4.2 billion receivable balance or 27% of the portfolio. Our annualized default rate for the consolidated portfolios was 10.1% for the quarter, slightly better than our second quarter level. Our third quarter provision was 17% of owned contract sales in the quarter, a 100 basis points improvement from the prior year. Delinquency rates across all portfolios are trending at or below last year. We continue to monitor our 31- to 60-day delinquency trends very closely as an early indicator and have not seen any signs of increased stress within our portfolio in recent weeks. In our Resort and Club business, our consolidated member count was nearly 722,000, reflecting recapture activity during the quarter. And as Mark mentioned, we crossed over 250,000 members in HGV Max, which is a great milestone. Revenue grew 8% to $193 million for the quarter due to fee increases and stable member activity rates and segment profit was $135 million with margins of roughly 70%. Rental and ancillary revenues were up 2% versus the prior year to $186 million, with a loss of $4 million driven by developer maintenance fees. Revenue growth in the period was driven by higher available room nights and relative stability in RevPAR across the portfolio as a whole. The Las Vegas rental market continues to remain soft, although recent trends have shown signs of stabilization. We'll continue to leverage our ability to reallocate room nights between marketing and rental in Vegas to adjust to rental demand dynamics. And as Mark mentioned, our team did a great job in that market driving strong contract sales with mid-teens growth in our Vegas VPGs. Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, JV EBITDA was $5 million, license fees were $56 million, and EBITDA attributable to noncontrolling interest was $4 million. Corporate G&A was $43 million or 3% of pre-reimbursement revenue, roughly in line with Q2 and last year. Our adjusted free cash flow in the quarter was $23 million, which included inventory spending of $77 million. Our cash flow was lower this year owing to the timing of our ABS deals. For the full year, we still anticipate that our conversion rate of adjusted EBITDA into adjusted free cash flow will be in the range of 65% to 70%, which would imply a material amount of adjusted free cash flow generation in the fourth quarter and a conversion rate that will be in excess of 100%. Using our third quarter ending share count of just under 87 million shares, this implies we'll generate $8 to $9 of adjusted free cash flow per share for the year, and we'll continue to return the majority of that cash flow to shareholders. During the quarter, the company repurchased 3.3 million shares of common stock for $150 million. From October 1 through October 23, we repurchased an additional 1.1 million shares for $47 million. Including these shares, we've repurchased a total of 12.4 million shares year-to-date for $497 million, representing nearly 18% of our public float coming into the year. We remain committed to capital returns as a primary use of our free cash flow and believe our shares continue to represent a compelling value. As of October 23, we had $531 million of remaining availability under our current share repurchase plan. Turning to our outlook. We are maintaining our 2025 adjusted EBITDA guidance to be in the range of $1.125 billion to $1.165 billion, which assumes that the environment remains consistent with what we see today. Moving on to our liquidity. As of September 30, our liquidity position consisted of $215 million of unrestricted cash and $632 million of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $4.7 billion and a nonrecourse debt balance of approximately $2.5 billion. At quarter end, we had $300 million of remaining capacity in our warehouse facility. We also had $1.1 billion of notes that were current on payments but unsecuritized. Of that figure, approximately $586 million could be monetized through a combination of our warehouse borrowing and securitization. But we anticipate another $358 million will become available following certain customary milestones such as first payment, deeding and recording. Despite volatility in some portions of the credit market, our ABS market remains open and functioning. This fact, coupled with our $850 million warehouse gives us confidence we can execute on our previously discussed finance optimization strategy. Turning to our credit metrics. At the end of Q3 and inclusive of all anticipated cost synergies, the company's total net leverage on a TTM basis was 4.0x.

Our first question comes from Patrick Scholes with Truist Securities.

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

Sure. Thank you, Patrick. We are very focused on finishing the year strong. As usual, we will provide guidance on our first call next year. However, I believe we are well positioned with momentum heading into 2026 and anticipate achieving growth differently than we did this year from a top-line perspective. We continue to see solid demand for leisure travel despite some challenges and expect good growth in tour flow next year, driven by the investments we made this year, which will be the primary factor for contract sales growth next year. It's important to note that we are comparing against the Max launch with Bluegreen and the Ka Haku property we opened in Hawaii. Additionally, the new buyer tour flow growth may slightly impact our VPG, making it a lesser contributor to contract sales growth next year. We will remain focused on leveraging our fixed costs and expect some improvements in operational costs. Overall, we believe we will continue to generate strong free cash flow and remain committed to returning capital to our shareholders. We look forward to sharing more details on our next call. Now, I'll let Dan address the financing profitability aspect you inquired about.

Thanks, Mark. And Patrick, yes, absolutely. I mean, as Mark underscored, I think we're well positioned for 2026. When it comes to the financing business, one element that we will see in 2026 is some headwinds on that front just as we continue to maximize our finance business optimization program. As you recall, we expected that to take about 18 months, so that will run into next year. Now that will be slightly offset by a growing portfolio. And as you will recall, last quarter, we announced the first securitization in the Japanese market. We'll be looking to attack that market again next year, too. So hopefully, with the combination of all those things, you'll see margin hold despite the headwind and potentially grow seeing how rates play out but you can expect us to take full advantage of all those opportunities.

I have a follow-up question regarding the very strong VPG results in the third quarter, which increased by 15%. I track many travel and leisure companies, and not many are experiencing growth like this right now. Could you summarize how you are achieving 15% growth when most of the travel sector is not seeing much growth at all? Please boil it down for me.

Yes. First of all, I want to commend our team for their excellent execution. We achieved our results across various regions, with significant growth in the East, West, Mid-Atlantic, South, and even a 10% increase in Las Vegas despite challenges in the market. Orlando, New York, and Hawaii also reported double-digit gains. This success can be attributed to the new club we launched, which represents a significant innovation in our offerings, and Max is performing exceptionally well, serving as a catalyst for both existing owners and new buyers. We reached 250,000 members in just over four years, a milestone that took our legacy club 25 years to achieve. Importantly, our Max owners report higher satisfaction levels and engagement, and our sales advisers continue to provide excellent vacation solutions. Owners are upgrading earlier and more frequently, contributing to record vacation points generated. We observe legacy club members upgrading to Max and new Max members from the last few years also making upgrades. With 250,000 Max members, there have been 360,000 transactions. Much of this performance results from our team's effective rollout of the new membership program, which significantly enhances our value proposition and integrates more Hilton benefits for our members. Just over 50% of our Max members have been with us for less than five years, meaning they have 90% of their potential lifetime value ahead of them, while nearly 70% have less than ten years of tenure, with 50% of their lifetime value still to come. Overall, the rapid growth in the Max segment is promising for our business, showcasing great execution.

Our next question comes from Ben Chaiken with Mizuho Securities.

I want to discuss flow-through further. You mentioned it in the prepared remarks, but I'd like to explore it a bit more. The top line was strong, but it seems like there are a couple of factors working against you. You referred to higher tour packages, indicating this was worth $7 million. Just to clarify, these are expenses incurred in the quarter for which you will receive revenue later. The $7 million represents the amount exceeding normal business operations. Is that correct? Additionally, it appears there were higher precision and reportability along with other adjustments. Is there anything specific you would highlight in the P&L? If you can quantify it, that would be helpful.

Sure. Let me address some of that, and then I'll have Dan provide additional details. There's always a certain level of investment in the business for growth, and we are consistently investing in advanced solutions to reach a larger audience. This year, 2025, has been marked by above-average investment in acquiring future customers, and that was intentional. On the personal engagement side, we have strong partnerships, having added 41 new marketing sites this year across Hilton, Great Wolf, and Bass Pro. We are also continuing to invest in our digital channels, which require initial investments in staffing and technology. The outcomes have been impressive, showing a 10% year-over-year growth in package sales for two consecutive quarters. However, as mentioned, this growth is only partially visible in our tour flow since it typically takes 9 to 12 months for a package holder to travel to one of our properties. We anticipate seeing more of that growth in Q4 and beyond. We believe these initial investments will lead to steady growth in the future. Additionally, as we look toward next year, we aim to create a more consistent relationship between our package sales and tour flow, and we expect that the level of investment will be better aligned with revenue. Dan, you might have a few other points to add.

Yes. No, definitely, Ben, I'll just address some of your specific questions. To your point, the marketing packages activity, that $6 million or $7 million it rounds to $7 million is above the ordinary course of business. As you'll recall, those are packages that will be traveling in the future. That's when we'll recognize the package revenue, but the cost is upfront. And obviously, as they come to the properties, their tour and we will recognize contract sales to the extent we sell them. So that's a piece of it. To your question on reportability, there is a piece associated with reportability. It's actually not a bad story. It's a good story. So during the last 10 days, if you look year-over-year, just from a rescission perspective, we sold more contract sales the last 10 days of this year compared to last year. That's roughly $8 million. So that's really effectively timing, just getting past that rescission period that consumers have. And then in addition to that, and this is part of the investment as well, from an FDI perspective, we have rolled out some of the higher cost FDIs to the entire system. That yielded a elevated level of FDIs in Q3. As you know, it's one of the tools we use to close a transaction. And it's a bit of a balancing act. But I would tell you that this quarter was elevated on an FDI perspective by probably 1 point to 1.5 points. So all of those things yielded some compression on the flow-through.

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

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

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

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

Okay, that's meaningful. Got it. Now, shifting focus a bit. As we consider free cash flow conversion in 2026, can you share your thoughts on the factors to consider? We’ve mentioned before the possibility of reducing some inventory spending, which is definitely beneficial for free cash flow conversion. Also, I'm wondering if there are any significant benefits we should be aware of. Specifically, regarding EBITDA, what’s the expected free cash flow conversion in 2026? Would that be a reasonable estimate?

Look, I'll start with the taxes. Obviously, like every other operator out there, we're trying to take full advantage of what's in the big beautiful bill. But I think generally speaking, I would look for cash taxes to be roughly in that mid-teens level as a percentage of EBITDA, so call it, 13% to 16%, somewhere in that realm. To the degree we can take advantage, we will. From a cash flow and an investment perspective on inventory, last time I think we've talked about this, it's worth highlighting again. Right after the Bluegreen acquisition, we expected to be in a position where we would need to invest between $350 million and $450 million in inventory on an annualized basis. Since then, we're obviously capitalizing to a great degree on recaptured inventory, and that's going to allow us to lower that long-term level of investment from $350 million to $450 million down to roughly $300 million. Now we've been talking about this for a few years because we did push off inventory investments during COVID. So we're still wrapping up some of those larger investments, most notably Ka Haku and Maui and Hawaii. So this year, we will spend just under $400 million. That will be a similar level next year, and then you'll get to that average run rate of roughly $300 million on an annual basis, which includes new projects as well as recaptured inventory.

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

I wanted to discuss first-time buyers and whether you could provide insights on how they differ across your various brands. You mentioned that all metrics for first-time buyers are improving, but do you notice any distinctions between first-time buyers sourced from Bluegreen and those from HGV, especially regarding close rates or VPG? Can you identify any trends that differentiate first-time buyers from existing ones?

Yes. I have a few data points to share regarding our commitment to new buyers. We are really pleased with the progress our teams are making. We are sourcing more new buyer tours to our sales centers and driving more transactions than anyone else in our sector, which has been true for the last 15 years. We remain focused on this area. I mentioned earlier the investments we've made this year to enhance our efforts going into 2026. On the VPG front, the new buyer close rate has reached its highest level since the second quarter of 2023, and we are encouraged by this improvement. Generationally, Gen X, Millennials, and Gen Z accounted for 70% of our tour flow, with an improved close rate across all these groups. Furthermore, from an income perspective, close rates remained steady in the low net worth tier while increasing among middle and high-tier net worth customers. Overall, we see that consumers are stable, and we are focused on executing all the aspects within our control.

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

Yes. No, absolutely. So, a lot of the momentum that we need to do is really driven off of contract sales. So, as we sell more and we get through the recapture bubble, that will allow us to lower the developer maintenance fee. That will contribute heavily to improvement on the rental side. Now we've talked about this last quarter to some degree. From a recaptured inventory standpoint, that is going to yield lower net owner growth over the next 24 to even 36 months. As you saw this quarter, it's relatively flat and it will go negative. But that's a big component of it. The other component that should help drive margin improvement, holding all else equal, which I know is a big assumption, especially when you think about ADR rates, but it's converting properties over to the Hilton brand. We do realize ADR benefits from that standpoint, and we also realize cost benefits from an OTA perspective. But it's really a combination of all those components, and it is a long-term process to get there. Yes. And then I'd just add on to that, that I think our teams have done a really thorough job this year in the resort operations side, really looking for improved efficiencies in our operations. And I think we're going to see our members are going to see that the increases that we're looking for next year are by average standard we're going to be below what we've historically seen. And then I'd also say, look, we picked up a lot of good inventory in the acquisition. But we do have some of that inventory that's non-branded. And quite frankly, there's just not a investment case of putting the dollars in to get them to the standard we want. And so there may be some inorganic options here and what I mean by that, where we have maybe oversupply or a product that doesn't really fit the portfolio, where in the future, we can figure out a way to move that inventory off our balance sheet and move along to somebody else that can better utilize it.

And moving next to Brandt Montour with Barclays.

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

Well, I think Brandt, I think the divergence really is more execution than it is from a consumer standpoint. Like I said, our new buyer close rate reached its highest amounts or highest rate since the second quarter of '23. And I talked about it a number of quarters ago around the low net worth tier customers. That tier has really stabilized. It really hasn't come back to the historical levels. But what we've seen, Brandt, is that middle to higher net worth tier really improve. And we have spent a lot of time this year on optimizing our tour. And we continue to evolve how we use our data and analytics and our marketing to drive new buyers and really sharpening our qualifications and the discovery process to just gather better information early on. So, at the end of the day, we're trying to be much more effective in sourcing our customers. And so we're really focused on trying to steer trying to put our money and our focus to that mid- to higher tier net worth customer than the lower tier right now. And like I said, they've stabilized, but they really haven't recovered to the levels we've historically seen.

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

Our next question comes from David Katz with Jefferies.

I appreciate all the detail regarding some of the short-term investments and growth, as well as some timing issues that also seemed temporary. How should we generally view 2026? Is that year more about making investments, or should we see it as a time to benefit from the investments made?

Yes, David. As I mentioned earlier, next year we expect a significant increase in investment aimed at expanding and enhancing our new buyer marketing channels. There will be some investment in digital, but it won't match the level we invested this year. We anticipate that tour flow growth will exceed this year's figures, aiming for low to mid-single-digit growth, along with a more moderate VPG. We plan to align the growth in package offerings more closely with tour flow growth, allowing our revenue generation to better match our expenses. Our objective for next year is to achieve a bottom line growth rate that outpaces our top line growth.

Yes. Another way to think about it is that from 2025 to 2026, we are bridging to the long-term growth goals we've previously discussed. Low single-digit growth in tour flow and low single-digit growth in VPG would lead to mid-single-digit growth in contract sales, while also focusing on cost management to potentially achieve higher EBITDA growth.

Our next question comes from Stephen Grambling with Morgan Stanley.

I wanted to ask about the inventory and sales details, specifically regarding Hawaii. How do you view the remaining inventory available for sale in Hawaii? When do you anticipate that inventory will be sold through as we look towards next year and beyond?

Yes, Stephen, we've been managing our inventory mix for a long time and remain focused on maintaining a balanced approach. We are on track to leverage the advantages of Ka Haku for several years. The same applies to Maui and the Big Island, where we are still converting parts of the hotel into units. Our current position regarding deeded inventory is strong, and ideally, we aim for about 2.5 years of deeded inventory in the long term, and we are slightly exceeding that right now. Our long-term goal is to reduce our cost of operations and bring down our balances, which, as Dan mentioned earlier, will support our rental segment. Overall, we are in a favorable position with our inventory, especially with high-end options that are in high demand throughout our network. We are careful in how we release this inventory to ensure it remains balanced over the years.

Moving on to Danny Asad with Bank of America.

Dan, in response to Brandt's question, you noted that delinquencies for FICOs below 650 have remained stable. At the same time, we're seeing reports of increasing subprime auto delinquencies, which ties into Brandt's point about other segments of consumers facing challenges. How do you reconcile the stability of sub-650 timeshare loans with the delinquency issues present in other areas?

That's a great question. There are two parts to the answer. First, we are very focused on maximizing consumers' willingness to pay, which starts at the sales table and involves the experience they receive at our properties. There is a strong emotional connection to timeshare and vacationing. To be clear, subprime FICOs are not our main concern, so we likely have less exposure than some of our competitors dealing with larger issues. Overall, we've held up well, and the trends for FICOs below 650 are positive. Annualized default rates have improved both sequentially from last quarter and year-over-year, showing greater improvement than sequentially. As of now, we see stability to positive trends in our results.

Yes, Danny, I would like to add that Dan touched on this a bit, and I mentioned it earlier. Our Max owners are reporting significantly higher satisfaction rates and engagement scores. This reflects well on our club team and everyone who interacts with our customers throughout the network, not just in the initial sales process. As I indicated, I provided some statistics on the tenure within the Max program, and it's quite impressive how young our base is in the Max program. It's crucial to emphasize that high satisfaction and engagement scores play a significant role in people's willingness to pay.

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

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

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

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

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