Hilton Grand Vacations Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 9 speakers on the call.

Operator

Morning, and welcome to Hilton Grand Vacations First Quarter 2023 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 number 1373 5,179. 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. If using a speakerphone, please lift your handset to allow the signal to reach our equipment.

Operator

Please limit yourself to one question and one follow-up to allow the opportunity for everyone to ask questions. You may then reenter the queue to ask additional questions. I would now like to turn the call over to Mark Melnick, Senior Vice President of IR and G and A. Please go ahead, sir.

Speaker 1

Thank you, operator, and welcome to the Hilton Grand Vacations Q1 2023 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, 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.

Speaker 1

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 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 a period when To help you make more meaningful period to period comparisons, you can find details of our current and historical deferrals and recognitions And 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. The 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.

Speaker 1

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

Speaker 2

Good morning, everyone, and welcome to our Q1 earnings call. Today, we announced another quarter of strong results, and I'm pleased with our performance, Particularly in light of the difficult comparisons with last year, contract sales grew to 523,000,000 And EBITDA was $216,000,000 with margins at 23%. The key indicators Our business continued to demonstrate the resilience of travel related spending. Arrivals on the books are ahead of last year and point to further occupancy strength going forward. Year over year tour flow growth was the highest since the Q1 of last year with the number of tours nearly returning to 20 nineteen's level.

Speaker 2

We sold more preview packages this quarter than we ever have And at the same time, we also activated more packages than ever before. And our new buyer channel growth Has continued to outperform our owner channel, which is consistent with our strategic focus on long term value of the business. Early in the pandemic, we focused on servicing our owner base and maintaining their strong commitment to traveling with HGV. But our focus continues to be on restoring our historical mix, growing tours and new buyer sales, driving the long term health of the business and embedding future value. While we're seeing positive trends among our consumer base, We are also continuing to monitor the macroeconomic environment closely.

Speaker 2

For some time, we have been guiding to an Expected moderation of some of our KPIs as they return to more historical levels. This is the natural result of growing our tour volumes and seeing a wider variety of customers with more typical spending patterns. It's also the result of our focus on new buyers, which creates a mix effect since they carry lower initial KPIs and owners. So While we anticipated this moderation in our KPIs against the record highs of the past year, the positive leading indicators I mentioned before Before we get into the details of the quarter, let's start with an update on the integration and initiatives. It's been a year since we officially launched sales of HEB Max and we've welcomed over 90,000 members into the program in that time, Outperforming our expectations.

Speaker 2

We had a great response and we're pleased with how well the product is resonating with existing owners and legacy DRI members showcasing the broad appeal of HCV Max. And this year, we'll continue to evolve the program by activating additional features and adding new benefits. Turning to our experiential platform, HGV Ultimate Access, we continue to expand the popular program on the heels of a very successful launch year. This year, we expect to host nearly 100,000 members at Ultimate Access events, demonstrating considerable growth versus prior year. We're excited about the opportunity in front of us with Ultimate Access and I'm really proud of the team and the work they've done to And we're thrilled to have such a great set of brand ambassadors to provide our members with unique culinary, concert and event experiences.

Speaker 2

Turning to our Diamond property rebranding, We're making good progress and remain on schedule. Through the Q1, we've rebranded 22 resorts to Hilton Vacation Club, representing over 6,500 keys, over 40% of the acquired portfolio. We've completed 2 conversions so far this year and add another 11 properties by year end, bringing us to 33 resorts since acquisitions closed. On the rental side, those Hilton Vacation Club properties are benefiting From the improved economics of being part of the Hilton network, in the Q1 alone, we booked over 60,000 room nights And our rebranded resorts through hilton.com with higher ADRs and lower costs than before. And we've also seen strong demand for those rebranded properties from our members and marketing guests.

Speaker 2

With nearly 80,000 preview packages sold, it will generate marketing to our flow at those properties in the months ahead. To more effectively engage those marketing guests, we're continuing to enhance our use of data and analytics. The scoring models we've been using at HEV continue to help us better segment our marketing prospects. We've recently rolled that predictive modeling to legacy Diamond as well and expect to experience a similar positive result That should support sustainable improvements to close rates in VPG. Now let me take you through a more detailed look at our performance in the first Quarter contract sales growth was driven by strong improvement in tour flow, which more than offset the expected VPG declines.

Speaker 2

Tours were up 32% despite lapping a difficult comparison in the prior year. Both owner tours and new buyer tours showed great growth the quarter, but new buyer tours were particularly strong, growing over 40% from the prior year and representing the highest mix since the pandemic began in the Q1 of 2020. In addition, our tour flow enabled us to drive robust transaction growth in Quarter. VPG for the quarter was nearly $4,000 with both owner and new buyer declining against Record VPGs from last year. Turning to our forward indicators, as I mentioned in my opening remarks, We're seeing continued positive trends.

Speaker 2

Occupancy in the quarter was 79%, up 400 basis points versus last year And the strongest Q1 since 2019. And our forward looking suggests continued strength in occupancy through the rest of the year. Our marketing pipeline grew to over 550,000 packages despite the significant amount of convergence during the quarter, indicating that consumers' intention to travel remains strong. And our mix of activated packages is now nearly a quarter of our pipeline, The highest since 2017 after total activated packages grew 65% versus the prior year. So we're happy with the investments we made in our marketing channels that are helping provide additional visibility and confidence in our tour flow for the year.

Speaker 2

Turning to our non real estate segments, higher spending activity among our members and rental guests drove solid top line growth in our club, resort, rental and ancillary segment. We ended the quarter with 519,000 members and a NOG of 3.3% on a combined basis. Our financing business also continues to perform well despite the recent shift toward higher cash purchases and prepayments. And from a credit perspective, our portfolio continues to exceed expectations. So as we look at the remainder of the year, we're optimistic about the path ahead.

Speaker 2

We're monitoring the strength of the consumer closely And we continue to see strong desire to travel as evidenced by our preview package pipeline and forward booking activity. HCV Max provides a tremendous value proposition that's really resonating with our consumers And we're activating more features and adding new benefits. When you combine the strength of our offerings With the new technology tools we're applying to our marketing, we expect to generate additional tour and add new MAX members. And these efforts have set the stage for sustainable efficiency improvements, driving additional free cash flow And long term value creation for our shareholders in addition to capital returns. With that, I'll turn it over to Dan who will walk you through the numbers.

Speaker 2

Dan?

Speaker 3

Thank you, Mark, and good morning, everyone. Before we start, note that our reported results for this quarter included $4,000,000 of sale recognitions, which increased reported GAAP revenue associated with the opening of another phase of our Maui project. We also recorded an associated $2,000,000 of 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. Turning to our results for the quarter. Total revenue in the Q1 was up 13% to $930,000,000 All segments showed year over year top line gains led by strength in our financing and rental and ancillary segments.

Speaker 3

Q1 reported adjusted EBITDA was $216,000,000 with margins 23%. Turning to our segments. Within Real Estate, total contract sales of $523,000,000 were up 3%, which is really encouraging given that we are lapping record levels for a number of KPIs in the Q1 of last year. We had very strong tour growth With total tours up 32% year over year, which is the highest tour growth we've seen since the Q1 of 2022. We saw a nice acceleration in our year over year owner tour growth, but I'm particularly pleased with our new buyer tours.

Speaker 3

They were up over 40% versus prior year and Highest mix of total tours since the Q1 of 2020 when the pandemic first started. Mark mentioned, we've seen very strong growth in both our number And mix of activated packages that drove robust new buyer tour flow in the quarter as well as visibility into our upcoming tour flow pipeline. VPG was just under 4,000 for the quarter, which was down against the record VPG of last year due to the expected moderation of our close rates along with a higher mix of new buyer contract sales. As we discussed, we're expecting those year over year declines to persist in 2023 as our VPG continues to moderate, particularly as we lap the tough comparisons in the first half. But we're still comfortable that our VPG will settle in the range of 10% to 15% ahead of 2019 before resuming a more normal pace of year over year growth.

Speaker 3

Process profit was 16% of net VOI sales for the quarter. Real estate sales and marketing expense was $239,000,000 for the quarter or 46 Our selling and marketing percentage remains elevated owing to the continued investments into growing our new buyer channel along with the flow through of lower VPG during the quarter. We expect Q1 to be the peak of our sales and marketing percentage. And as we move through the year And LAPTOS channel investments, we should see improvement in this metric. Real estate profit was $133,000,000 for the quarter with margins of 32%.

Speaker 3

In our financing business, 1st quarter revenue was $74,000,000 and segment profit was $50,000,000 with margin of 68%. Combined gross receivables for the quarter were $2,500,000,000 or $1,800,000,000 net of allowance, and our interest income was $66,000,000 Our originated portfolio weighted average interest rate was 14.5%, while our acquired portfolio had a weighted average interest rate of 15.6% and includes a $3,600,000 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 $743,000,000 on that $2,500,000 receivable balance. Of these amounts, the acquired Diamond portfolio, which used Diamond's underwriting standards, was $325,000,000 on a portfolio balance of 663,000,000 Our annualized default rate for our consolidated portfolios, including the diamond acquired and underwritten portfolios, was 8.4%. This is generally consistent with where we ended 2022, which was down over 100 basis points from 2021, With both the acquired and originated portfolios continuing to demonstrate solid performance relative to our initial underwriting assumptions.

Speaker 3

Our provision for bad debt was $30,000,000 or 9% of our own contract sales. While we provide our new loans in the mid teens on a consolidated basis, Higher cash purchases and elevated prepayments coupled with generally good default performance continues to depress provision as a percent of contract sales. In our Resort and Club business, our consolidated member count was 519,000 and our consolidated NOG was 3.3% at the end of the Q1. Revenue of $131,000,000 was up 5% for the quarter and segment profit was $89,000,000 with margins of 68%. Our club expenses increased in the quarter as we ramped additional resources to further enhance our service levels for increased member activity.

Speaker 3

Rental and ancillary revenues were $158,000,000 in the quarter with segment profit of $6,000,000 As we mentioned last quarter, Q1 margins reflect the impact of a change in expense timing for member benefits at Diamond. During the Q1, This timing shift resulted in $7,000,000 year over year impact to the Q1 expenses. Looking at Q2, we expect the timing shift to cause $3,000,000 year over year impact to segment profit. In the back half of the year, we expect that this timing shift will drive a $10,000,000 year over year benefit to expenses, making the impact of the timing shift neutral to the full year. Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, Corporate G and A was $33,000,000 license fees were $30,000,000 and JV income was $3,000,000 Our adjusted free cash flow in the quarter was $33,000,000 which included inventory spending of $152,000,000 and excludes acquisition related costs of $25,000,000 This inventory spend included the final payment for the Central New York that had been deferred since the pandemic, which drove the use of cash.

Speaker 3

For the year, we still feel confident with an EBITDA to free cash flow conversion ratio that will be at the low end of our 50% to 60% target range. During the quarter, the company purchased 1,900,000 shares of common stock for $85,000,000 at an average price of $45.37 And through April 21, we have repurchased an additional 1,300,000 shares for $60,000,000 We currently have $83,000,000 remaining of the 500,000,000 plan approved by the Board in May of 2022, and we remain committed to enhancing the total return for our shareholders by returning capital via share repurchases. Turning to our outlook, we are reiterating our 2023 adjusted EBITDA guidance of $1,090,000,000 to $1,120,000,000 As of March 31, our liquidity position consisted of $389,000,000 of unrestricted cash, dollars 671,000,000 of availability under our revolving credit facility. Our debt balance at quarter end was comprised of corporate debt of $2,900,000,000 and non recourse debt balance of 1,100,000,000 At quarter end, we had $575,000,000 of remaining capacity on our warehouse facility, of which we had $312,000,000 of notes receivable To securitize and another $279,000,000 of mortgage notes, we anticipate being eligible following certain customary milestones such as first payment, Turning to our credit metrics at the end of Q1, the company's total net leverage on a TTM basis was 2.5 times.

Speaker 3

We will now turn the call over to the operator and look forward to your questions. Operator?

Operator

Thank you. And at this time, we will be conducting a question and answer session. We'll indicate your line is in the question Our first question comes from the line of Patrick Scholes with Chrous Securities. Please proceed with your question.

Speaker 4

Thank you, operator. Good morning, everyone.

Speaker 2

Good

Speaker 4

morning. A couple of questions here. It sounds like you're doing exceptionally well with new buyer tours. Without giving away the secret sauce to your competitors, from a high level, Where are you drawing these new buyers from? Is this through the Hilton Honors program or on-site Marketing initiatives.

Speaker 4

And then related to that, do you see most of these new buyer tours Going to sort of your legacy, more higher priced, Fulton product or is this going to the more Moderately priced diamond type of product. Thank you.

Speaker 2

Yes, Patrick. Yes, so first of all, really pleased with Our momentum in selling these preview packages. And I think this is an area where we've had a Strong competitive advantage for years and part of that is just the relationship we have with Hilton and this goes back for Well over a decade in our ability to source customers through Hilton. So I would say the majority of our new buyer Growth is coming through that relationship and through a few other partnerships that we have out there, but still the majority is coming through The Hilton relationship and so our pipeline now sits at 550,000. But what's really important is While we were continuing to sell packages during the period of the pandemic and when COVID was going on, the activation These packages have really picked up.

Speaker 2

And we've seen a broader set of customers that are now willing to travel. So Really pleased with that. And there was some hesitancy, I think, around Some of the travelers early on, but those activations have been a top priority of ours. And the result of that As our activated packages ended up the end of Q1 was up 65% versus prior year and That really goes back to a period back to 2017 where we've had that level of activation. So really pleased with That and most importantly, it gives us a great line of sight into our future new buyer tour flow.

Speaker 2

And as we talked about In our prepared remarks, we were up 40% year over year, 2x of what we saw with owner TourFlow growing. So owner TourFlow was still healthy, but new buyer definitely Came in into play here and this is something we've been working on for considerable amount of time because we know it's extremely important to get new buyers into Now as far as where these packages are going, we've now sold approximately 80,000 packages into What we would call our diamond legacy market. So I think it's really benefiting us having this bigger platform And having new markets to offer the Hilton guest the opportunity to view one of our properties. So All in all, it is we are seeing a bit of a shift to the DRI properties, but still seeing strong demand into Our core HCV markets.

Speaker 4

Thanks. And just sort of talking out loud, I think that was probably part of the original intention with the Diamond acquisition because you had this huge marketing base and just needed more, Probably more mid scale type of product there to sell it to them. So, good to hear on that. And then lastly, Give us an update on Hawaii. I think your most recent comments where you expected it to be Yes, fully backed by hopefully by the end of this year.

Speaker 4

Is that still progressing? Thank you.

Speaker 2

Yes. Look, it's definitely making progress in Hawaii. In fact, we've seen our tour flow Recovery that was below 60% in Q1 'twenty two to it's nearly 85% of 'nineteen And Q1 and 2023 and all the forward bookings look encouraging. I think by the time we get out to The Q4, we're seeing about 90% of our Japanese owners back to Hawaii. That's what we're seeing on the books.

Speaker 2

TourFlow It's definitely recovering and it's nice that Japan has totally taken all the protocols around inbound travel or outbound travel Away. So all in all, very encouraging what we're seeing. In fact, approximately 25% All Japanese rivals to Hawaii right now are HGV related. So, you're seeing a Our owners are coming back at a faster pace than you're seeing with the general population of Japanese coming back to Hawaii. So All in all, pleased with the progress.

Speaker 2

Our expectations, it will still probably be kind of mid next year before we get back to full recovery. But in the meantime, we're really benefiting with our new property in Susoko In Japan, if you recall, we opened that up back in the end of 2021, and we have a lot of Japanese traveling there and sales to Soko has exceeded our expectations. So we're really pleased with the way that timed out and the way it helped us During this period of time where Japanese were more reluctant to travel to Hawaii.

Speaker 4

Okay. Thank you very much. All set.

Operator

Our next question comes from the line of Danny Adad with Bank of America. Please proceed with your question.

Speaker 5

Hi, good morning, Mark and Dan. Thanks for taking my question. So just on VPG, like we understand that part of that Slow down year on year is mix related. Are you able to parse out how much of that 18% decline is mix? And then are you able to give us any more color?

Speaker 5

Dan, I know in your prepared remarks you talked about close rates. Can you kind of give us any more, just like tidbits or data around that and kind of how that's been trending specifically?

Speaker 2

Yes. Okay. Danny, this is Mark. I'll take the first part. I'll let Dan jump in on the close rate.

Speaker 2

So look, We calculate about 2 thirds of the VPG change versus Q4 was due to mix. And Look, we've been saying for a number of quarters that we expected VPG to moderate, given Really the record post pandemic performance. And part of that was we had a lot of tailwinds. The release of The strong pent up demand for travel that occurred from COVID, obviously, a lot of excitement around the acquisition of Diamond. And we also saw our most committed owners coming back first.

Speaker 2

And Yes. So at the end of the day, we've been expecting to get back our new owners. And in fact, Look, we view VPG really as an outcome. And while it's important for us to try to manage the best VPG we can, At the end of the day, it's not how we manage the business. Our focus is really on contract sales growth and the associated transaction growth that comes with it.

Speaker 2

And obviously, we execute to the best we can based on what the market gives us. But For us, historically, TorFlo has been the best predictor of growth for us. And in fact, when you go back and you look at our business from 'seven to 'nineteen, except for 'nine, we had contract sales growth. And in all cases but 1 year, We had tour flow growth. And during those years where we had tour flow growth, we had 5 years where we had VPG contraction.

Speaker 2

So At the end of the day, we're now focused very heavily to get back more new buyers because We know the lifetime value outweighs the short term drag. And then Dan, I don't know if you want to connect on the closing percentage.

Speaker 3

Yes, sure, Danny. So from a close rate perspective, still performing extremely well compared to historical levels in 2019. When you look at the just looking between new buyer and existing owner, existing owner is performing very strong, Again, relative to 2019, new buyer, as we would expect and as we've been talking about, it seems like forever now for about 8 quarters. Yes. With the increase in new buyers and having new buyers come through the system, we expected a bit of a contraction in new buyer close rate and we've seen that.

Speaker 3

But both are performing very well. And if you look at the pace through the quarter, we saw it actually improved from January through March across Both new buyers and existing owners.

Speaker 5

Got it. Thank you very much for the color. That's it for me.

Operator

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

Speaker 6

Hi, good morning, everyone. I appreciate all the commentary and the detail. When we start to think about the opportunities that May present as a result of financial markets tightening. I'm wondering what your thoughts are Potential M and A, presuming that it's more tuck in oriented than transformational, But would there be opportunities out there? And are you starting to see any that may make sense for you?

Speaker 2

Yes. Obviously, we value consider value the consolidation industry. Yes. We just undertook a major strategic transaction with Diamond. So and it's really allowed us to leverage our brand across A broader base of assets and accessing more owners and such.

Speaker 2

And so look, generally, This is something that we'll continue to monitor. Clearly, we believe it could be positive and beneficial. We've Seeing it play out very well with our acquisition. So but at the end of the day, there's We've talked about this before. There's it's fairly narrow Group of companies left out there, Diamond actually was a roll up company.

Speaker 2

Their strategy was roll up. They did 11 Acquisitions over there, history and so there's not a lot of potential out there, but this is definitely an area we'll continue to look at.

Speaker 6

Got it. Perfect. Thanks very much.

Operator

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

Speaker 7

Hey, guys. Thanks for taking my questions. Most of them answered. I just wanted to maybe ask about Maybe try and ask for some extra color on the quarterly cadence for VPG this year because I think you guys did a great job just sort of explaining to us the 1Q drawdown. It sounds like 2 thirds of its mix.

Speaker 7

I'm assuming that's both And from mix from both more diamond tours versus HG legacy HGV tours plus more new owners versus repeat owners. And That makes a lot of sense. And then the other third of it is, you mentioned close rates, Dan, going down or obviously going down as you bring up your 40% growth in new orders. Sorry, I know it's a big wind up. I guess the point is you guys have really The comparisons for VPG throughout the rest of the year are sort of even, but obviously much different than the first So anything you could help us on in terms of how we should think about those different factors that we've all just been talking about, How they sort of changed throughout the year?

Speaker 7

That might be helpful.

Speaker 3

Hey, Brandon, it's Dan. So, great question. When you think about the growth in new buyer tours, it makes it Probably a difficult question to answer, right? In Q1, we had just over 80,000 new buyer tours and we're looking to ramp that up sequentially. But if you look at historical seasonality for VPGs, going from Q1 to Q2, you typically see A decline in VPGs and then ramping back up with Q4 actually being the strongest quarter in the back half of the year.

Speaker 3

So that's how I would think about it. It's going to be an interesting mix this year just because of that ramp in new buyer tour flow.

Speaker 2

Yes. No, I think it's just more pronounced this year, right? Because our pipeline is so big, the activation It's very strong, as I mentioned now. Really excited about what's on the books. If you look at this summer, we're 10% above for owners' arrivals on the books, but we're 30% above our marketing arrivals.

Speaker 2

So again, I think it's just going to be more pronounced. We're really ramping up new buyer tour flow this year. But as Dan said, it does converge back in the Q4, Where you see that convergence and so we'll generate VPG tailwind as we close out the year.

Speaker 3

Right. So if you think about it just mathematically, Q1 compared to Q1 of 2019 came in over 11% higher on a VPG front. I'd look for something similar When comparing Q2 to Q2 of 2019, and then we've always said that we felt these things that VPGs would stabilize Somewhere in the range of 10% to 15%, and we look for the back half of the year, probably slightly outperform what you would expect in Q1 and Q2 Sorry, what I said in Q1.

Speaker 7

Yes, that's super helpful guys. Thanks for that. And then just a quick follow-up, one of your competitors yesterday Called out a little bit of a wobble in the second half of March that coincide with the sort of Concerns are with SVB failure and sort of the concerns maybe closer to people on the West Coast regarding that event. It doesn't sound like you saw anything like that, but do you have any thoughts on that? Did you see anything like that?

Speaker 2

No. We really didn't see, I would consider any type of wobble or anything like that. I think, look, at the end of the day, There is a backdrop continues to change, right? And at the end of the day, I think The good part is we're seeing people want to travel and their desire to travel is super high and we've talked about it in our forward looking pipeline. So at the end of the day, we're really excited about what the rest of the year looks like.

Speaker 2

And We're just going to be in a naturally, we expect VPGs to moderate. But ultimately, I think The consumer is in that mindset to continue traveling and that for us in this environment, it's about traffic through your sales centers, right? And I talked about it earlier before. For us, we win if we can win with traffic through the sales center. You're going to have your ups and downs over the years and within quarters and within given months.

Speaker 2

But at the end of the day, it's If we can win on the tour flow front, that's one lever that we have more control over. That gives us A lot more confidence in our ability to continue driving contract sales growth and transaction growth.

Speaker 7

Perfect. Thanks so much for all the color.

Operator

And our next question comes from the line of Ben Chaikin with Credit Suisse. Please proceed with your question.

Speaker 8

Hey, how's it going?

Speaker 6

All good.

Speaker 8

Hey, maybe just adding somewhat to the first question where I think you were Mark suggesting some very healthy trends From your Hilton, honors base. I guess related, is there any color on the DRI owner reception of Max Post the sales center rebrand, is that a metric you track, like I. E. The origin of ownership? And if so, how is it trending?

Speaker 2

Yes. So Ben, I don't have the detail sitting in front of me, but I can tell you, I think it's gone really well. We had a record year. I think we talked about in our prepared remarks, we have 90,000 Max members today, and we launched in April of last year. We had a record year last year as far as Owner transactions go, and we saw very positive response on MAX from both the Legacy HGV and Diamond members, I don't have a breakdown of the differences.

Speaker 2

But at the end of the day, I think With the transformation of the sales centers and as we continue to evolve The turnover of the properties, I think we've got 22 converted over to HVC now and we've got another 10 or 11 scheduled for the rest of this year. But as that continues to happen, that should only improve that engagement. But All in all, I think the engagement from both ownership groups have been very positive around the value proposition for HED Maths.

Speaker 8

Got it. That's really helpful. And then, just in the quarter, you called out sales and marketing a little higher than normal. I think that was expected. Is this related to the launch of HGV MAX?

Speaker 8

I guess just a little more color on specifically what makes you comfortable This will come down through the year and then is it fair to say it will normalize at your historical levels, whatever that is, kind of low 40s? Thanks.

Speaker 3

Yes, absolutely. So Q1 is a bit unusual in the sense that seasonality perspective, from a contract sales perspective, it's typically the lowest that obviously from a percentage Has an impact, but it also is stemming from primarily a continued investment in that new buyer. So as we sell packages, engaging with employees And hiring individuals to do actually do that coupled with some unusual items that you see in Q1 just from a seasonality perspective, A lot of our ultimate access, some of our larger, in particular, a golf tournament that we host in Q1, Has an impact on that as well. So as we play out through the year, we start to lap some of those initial investments and obviously Ultimate access is not as heavily weighted that will help contract that sales and marketing expense as a percent of contract sales coupled with of course Growth in contract sales.

Speaker 8

Okay. Got it. Thank you.

Operator

And we have reached the end of the question and answer session. And before we end, I'll turn the call back over to Mark Wang for any closing remarks. Mr. Wang?

Speaker 2

All right. Well, thanks everyone for joining us today. I want to give a special thanks to our team members for going

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