Earnings call transcript: Hilton Grand Vacations misses Q3 2025 expectations

Hilton Grand Vacations (HGV) reported its Q3 2025 earnings, revealing a notable shortfall in both earnings per share (EPS) and revenue compared to forecasts. The company posted an EPS of $0.60, significantly below the anticipated $0.98, marking a 38.78% miss. Revenue reached $1.3 billion, falling short of the $1.37 billion forecast by 5.11%. In response, HGV's stock dropped 4.3% in regular trading hours and further declined 6.95% in pre-market trading, reflecting investor disappointment.

Key Takeaways

• EPS of $0.60 missed the forecast by 38.78%.
• Revenue fell short of expectations by 5.11%.
• Stock price decreased by 4.3% in regular trading and 6.95% pre-market.
• Record contract sales of $907 million, up 17% year-over-year.
• Ongoing integration of Bluegreen Vacations with achieved cost synergies.

Company Performance

Hilton Grand Vacations demonstrated mixed results in Q3 2025. While the company achieved record contract sales of $907 million, representing a 17% year-over-year increase, it struggled to meet EPS and revenue expectations. Total revenue grew by 12% to $1.3 billion, supported by a stable consumer environment and strong leisure travel demand. The company continues to benefit from strategic partnerships and a focus on mid to high-net-worth customer segments.

Financial Highlights

• Revenue: $1.3 billion, up 12% year-over-year
• Earnings per share: $0.60, down from forecasted $0.98
• Adjusted EBITDA: $302 million with 24% margins
• Free cash flow year-to-date: $342 million

Earnings vs. Forecast

Hilton Grand Vacations' Q3 2025 EPS of $0.60 fell short of the forecasted $0.98, a 38.78% miss. Revenue also failed to meet expectations, coming in at $1.3 billion against the forecast of $1.37 billion, a 5.11% shortfall. These results mark a significant deviation from expected performance, impacting investor sentiment.

Market Reaction

Following the earnings release, HGV's stock declined by 4.3% during regular trading hours and continued to drop by 6.95% in pre-market trading. This movement reflects investor concern over the earnings miss and revenue shortfall. The stock's current trading price is $41.09, down from a last close of $44.16, and remains within its 52-week range of $30.59 to $52.08.

Outlook & Guidance

Despite the Q3 earnings miss, Hilton Grand Vacations maintains its 2025 EBITDA guidance of $1.125-$1.165 billion. The company anticipates low to mid-single-digit tour flow growth in 2026, with a focus on achieving faster bottom-line growth compared to top-line growth. Strategic initiatives include continued capital returns to shareholders and expanding marketing channels.

Executive Commentary

CEO Mark Wang highlighted the success of the HGV Max membership program, stating, "Our MAX owners are reporting higher satisfaction rates and engagement scores." He emphasized the company's commitment to executing strategic initiatives, saying, "We're controlling the things we can control by executing against identified initiatives." Looking ahead, Wang expressed confidence in exceeding bottom-line growth rates.

Risks and Challenges

• Integration risks with Bluegreen Vacations could impact cost synergies.
• Macroeconomic pressures may affect consumer spending on leisure travel.
• Competitive pressures in the vacation ownership sector could impact market share.
• Potential fluctuations in tour flow growth could affect revenue projections.
• Any adverse changes in travel demand could impact occupancy rates and financial performance.

Q&A

During the earnings call, analysts inquired about the optimization of the financing business and stable delinquency rates across FICO score bands. The company also discussed investment in package sales and future tour flow, addressing concerns about maintaining growth momentum amidst economic uncertainties.

Full transcript - Hilton Grand Vacations Inc (HGV) Q3 2025:

Carrie, Call Moderator, Hilton Grand Vacations: Good morning and welcome to Hilton Grand Vacations third quarter 2025 earnings conference call. A telephone replay will be available for seven days following the call. The dial-in number is 844-512-2921 and enter PIN number 13751068. 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 you would like to ask a question, please press Star one on your touchtone phone to enter the queue. If at any point your question, star 0. If using a speakerphone, please lift your handset to allow the signal to reach our equipment. Please limit yourself to one question and one follow-up to allow the opportunity for everyone to ask questions. You may then re-enter the queue to ask additional questions. I would now like to turn the call over to Mark Melnyk, Senior Vice President.

Mark Melnyk, Senior Vice President, Hilton Grand Vacations: 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 a complete accounting of our historical deferral 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.

Mark Wang, CEO, Hilton Grand Vacations: Morning everyone and welcome to our third quarter earnings call. We had strong operational and financial execution this quarter with 17% growth in our contract sales driving material improvements in our real estate business profitability versus the prior year. Those results enabled a near double-digit growth in our EBITDA for the period, along with maintaining our commitment to returning substantial cash back to shareholders. I was particularly pleased with how broad-based our sales performance was. We grew our tour flow and VPG in both owner and new buyer channels. All of our domestic geographic regions produced double-digit gains in VPG, and we delivered mid-teens contract sales growth at both our Legacy and Bluegreen Vacations businesses. Our teams have been working hard on executing against our strategic initiatives to grow our lead flow, improve our execution, and enhance our value proposition, and those efforts are continuing to produce results.

The consumer environment has remained stable overall, and travel demand continues to be healthy when looking at forward indicators and member surveys. While recent events have highlighted the continued volatility in the policy landscape, our focus on our strategic priorities has not changed. We're controlling the things we can control by executing against identified initiatives and highlighting our value proposition in the short term while continuing to invest in building our capabilities for the long term. We still have work to do around growing our new buyer mix and improving our cost efficiencies, but our results reinforce my confidence that we're making progress toward achieving those objectives and that the investments we're making today will drive sustainable value creation in the business.

Looking ahead, we're carrying good momentum into the year end, and we're reiterating our existing EBITDA guidance for the year along with our expectation of achieving high single-digit contract sales growth. Turning to the results for the quarter, recorded contract sales were up 17% to $907 million, which was a record for the business on a pro forma basis. Adjusted EBITDA was $302 million with margins excluding reimbursements of 24%. As I mentioned, I'm encouraged by the composition of our sales in the quarter. Consolidated tour growth at 2% continued the consistent trend of improvement we've seen this year, with both owner and new buyer channels contributing to the growth. We grew new buyer tours at our Legacy and Bluegreen Vacations businesses, and we achieved that growth while executing on our tour efficiency initiatives and improving the overall quality of the tour pipeline.

VPG was up 15% against the prior year, with our performance also reflecting broad strength. Both owners and new buyers contributed to the growth. The gains were also relatively well balanced between our Legacy and Bluegreen Vacations businesses, and geographically we saw double-digit growth across every one of our mainland regions. Looking at our forward demand indicators, which also remain healthy, occupancy in the quarter was equal to the prior year at 83%. Consolidated arrivals in the fourth quarter are ahead of prior year, and our marketing and rental arrivals continue to be our strongest channels. Our package sales initiatives also continue to be successful, with another quarter of double-digit package sales growth and a pipeline that remains near 750,000 packages.

Moving on to our other business units, our member count was nearly 722,000 at the end of the quarter and reflected the increased rate of recapture we discussed last quarter, which will support both embedded value creation and improved long-term cash flow generation. Our HGV Max members are our most engaged and active members, and we're maintaining a very steady pace of Max additions with both new buyers and owner upgrades. We added 70,000 members to HGV Max over the past 12 months, and in doing so we achieved an important milestone, surpassing a quarter million HGV Max members, including nearly 30,000 Legacy Bluegreen Vacations members now enrolled in the program. We continue to see robust demand for the Max program and the compelling value proposition it offers in our rental business. Continued travel demand supported growth in much of our portfolio.

While the Las Vegas FIT rental market remains slow due to visitations and competitive dynamics, our Vegas sales teams did a tremendous job in our sales centers during the quarter, driving near double-digit contract sales growth despite market challenges. In our financing business, we continue to execute on our business optimization program that will enhance our cash flow over the long term. During the quarter, we repurchased 3.3 million shares of stock for $150 million. We're on track to hit our goal of returning $600 million to shareholders through our repurchase this year, and we remain committed to returning excess capital to shareholders. Turning next to an update on our initiatives and integration, we continue to make progress with our lead generation initiatives to drive package sales and activations.

The packages we sold in the first six months of the year are starting to convert into tours and were a key contributor to our return to positive new buyer tours growth this past quarter. We also generated double-digit growth in the number of packages sold in Q3, exceeding our internal forecast for the second.

Mark Melnyk, Senior Vice President, Hilton Grand Vacations: Quarter in a row.

Mark Wang, CEO, Hilton Grand Vacations: Those packages will in turn help us to build out our tour pipeline into 2026. While stronger than expected performance resulted in proportionately elevated marketing spend in the period and weighed on our flow through, we view this investment as an important driver of future growth as those packages convert into tours and ultimately into contract sales. We'll see the benefit of new buyers entering the system and adding additional lifetime value. Regarding our product enhancement initiatives, Hilton Grand Vacation Club and Hilton Vacation Club Resorts began receiving HGV Max members from Bluegreen Vacations this month, with those members now able to easily use their points for stays at resorts across all of our brands.

We plan to launch additional Hilton benefits for our newest HGV Max members from Bluegreen Vacations along with access to travel concierge service to help with the planning and making the most out of their next getaway. Turning to the Bluegreen Vacations integration, we continue to make good progress. We reached $94 million in our run-rate cost synergies this quarter and remain on track with the targeted $100 million in savings. We fully rebranded our Bluegreen Vacations sales centers and rolled out our envisioned sales technology in each of them. With the recent completion of our Bass Pro kiosk rebrands, we have great brand synergy across our marketing channels highlighting Hilton Grand Vacations, quality of product and service backed.

Unnamed Executive, Executive, Hilton Grand Vacations: By the Hilton brand.

Mark Wang, CEO, Hilton Grand Vacations: On the property front, we've rebranded our first seven Bluegreen Vacations properties with the goal of having our targeted rebrands completed over the next three years. Our technology teams also continue to make great progress on our digital transformation path, rolling out additional tools to our teams while also introducing new enhancements to improve our member experience. This quarter we've upgraded our proprietary My Explorer chat box to provide our members a personalized AI-powered tool tailored to their membership profile to help them with their booking and vacation needs. From a partnership perspective, we've been focused on executing and deepening our existing relationships through strategic alliances with Hilton, Bass Pro Shops, and Grey Wolf.

We reach a broad, diverse, and growing audience, and we're constantly working with those partners to test new marketing programs and increase the efficiency of our funnel to convert leads to new member transactions and drive lifetime value. To sum it up, I'm proud of our performance this quarter and I'm especially pleased with how broad-based our performance was across our KPIs, channels, and geographies. Our teams have done a great job executing against the initiatives we laid out, and their hard work is producing results. We're focused on further improving our cost structure and flow through along with driving additional new buyer growth, and I believe that the investments we're making in the business are setting us up for long-term value creation. With that, I'll turn it over to Dan for more details on the numbers.

Dan, CFO, Hilton Grand Vacations: Deb, 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 pre-sales of our Kohaku 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 reflect 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. 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 Vacations 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 was 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 Kohaku 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 up front 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 point 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 and 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 will continue to leverage our ability to reallocate room nights between marketing and rental in Vegas to adjust to rental demand dynamics.

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 non-controlling 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 will generate $8 to $9 of adjusted free cash flow per share for the year and will 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 have 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 a revolving credit facility.

Our debt balance at quarter end was comprised of corporate debt of $4.7 billion and a non-recourse 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, while 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 a 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 4.0 times. We will now turn the call over to the operator and look forward to your questions.

Carrie, Call Moderator, Hilton Grand Vacations: Operator, thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press STAR on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press STAR two if you would like to remove your question from the queue. Again, please limit yourself to one question and one follow up question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the STAR keys. Our first question comes from Charles Patrick Scholes with Truist Securities.

Mark Wang, CEO, Hilton Grand Vacations: Hi, good morning everyone.

Patrick Scholes, Analyst, 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, you know, expectations for financing profit. Certainly we've seen the last couple 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. Thank you. If you can.

Dan, CFO, Hilton Grand Vacations: Sure.

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah, Patrick, thanks. You know, of course we want.

Mark Wang, CEO, Hilton Grand Vacations: We're very focused on finishing the year.

Unnamed Executive, Executive, Hilton Grand Vacations: That's first and foremost.

Dan, CFO, Hilton Grand Vacations: But.

Unnamed Executive, Executive, Hilton Grand Vacations: As usual, we'll provide guidance on our first call next year. At a high level, I think we're really well set up with momentum heading into 2026 and expect to get to the growth a bit differently than before.

Mark Wang, CEO, Hilton Grand Vacations: We did this year. From a top line standpoint, we're continuing.

Unnamed Executive, Executive, Hilton Grand Vacations: To see solid demand for leisure travel despite some of the noise out there. We expect good tour flow growth next year resulting from the investments we made during the year, which is.

Mark Wang, CEO, Hilton Grand Vacations: Going to be the primary driver for contract sales growth next year.

Unnamed Executive, Executive, Hilton Grand Vacations: You have to remember we're lapping, you know, the HGV Max launch with Bluegreen Vacations and the Kohaku property that we opened up or launched in launch sales in Hawaii.

Mark Wang, CEO, Hilton Grand Vacations: So.

Unnamed Executive, Executive, Hilton Grand Vacations: Of course, the new buyer tour flow growth is going to weigh.

Mark Wang, CEO, Hilton Grand Vacations: A little bit on our VPG.

Unnamed Executive, Executive, Hilton Grand Vacations: It'll be less of a driver.

Mark Wang, CEO, Hilton Grand Vacations: On contract sales growth next year.

Unnamed Executive, Executive, Hilton Grand Vacations: But.

Mark Wang, CEO, Hilton Grand Vacations: We're going to stay very focused.

Unnamed Executive, Executive, Hilton Grand Vacations: On leveraging our fixed cost and expect some operational cost improvements. All of that said, we believe we're.

Mark Wang, CEO, Hilton Grand Vacations: Going to be able to continue to.

Unnamed Executive, Executive, Hilton Grand Vacations: Drive strong free cash flow, and we're.

Mark Wang, CEO, Hilton Grand Vacations: Still very committed to returning capital to our shareholders.

Unnamed Executive, Executive, Hilton Grand Vacations: We look forward to sharing more details on our next call. I think I'll let Dan jump in and talk about the financing profitability that you ask on the second part of that question.

Dan, CFO, Hilton Grand Vacations: Thanks, Mark and Patrick. Yeah, 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. That will run into next year. That will be slightly offset by a growing portfolio. As you recall, last quarter we announced the first securitization in the Japanese market. We'll be looking to attack that market again next year too. Hopefully, with a combination of all those things, you'll see margin hold despite the headwind and potentially grow, seeing how rates play out.

Unnamed Executive, Executive, Hilton Grand Vacations: You can expect us to take.

Dan, CFO, Hilton Grand Vacations: Full advantage of all those opportunities.

Patrick Scholes, Analyst, Truist Securities: Okay, if I could ask just a follow up question here actually.

Mark Wang, CEO, Hilton Grand Vacations: To do with the VPG.

Patrick Scholes, Analyst, Truist Securities: The very strong VPG results in 3Q, up 15%.

Mark Wang, CEO, Hilton Grand Vacations: Certainly.

Patrick Scholes, Analyst, Truist Securities: You know, I follow a lot of travel and leisure companies, and we don't see much of anything growing 15% at the moment. If you had to, you know, and you kind of did this in your prepared remarks, just boil it down and summarize how you're doing something that's growing 15% versus sort of the rest of the travel world not growing much of anything.

Mark Wang, CEO, Hilton Grand Vacations: What?

Patrick Scholes, Analyst, Truist Securities: You know, boil it down for me. Thank you.

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah. So Patrick, first of all, I'd say our teams did a great job, great execution. When you look at where and how we accomplish this, it's really a similar story from a geographic perspective. East, West, Mid Atlantic, South, Vegas was even up 10% in a market that's struggling from a fit standpoint. Orlando, New York, Hawaii, all double-digit gains across the business. Why do we think we're seeing this? I think it really is a testament to the new club that we launched. We innovated and launched a brand new club. It was a reinvention of what we've done. MAX is performing extremely well. It's been a catalyst for both owners and new buyers. We reached 250,000 members in just over four years. If you go back and you look at HGV Legacy Club, it took us 25 years to reach that mark.

What's happening is, and most importantly, our MAX owners are reporting higher satisfaction rates and engagement scores, and our sales advisors continue to deliver on great vacation solutions. Owners are upgrading earlier and more frequent than we have in the past and driving record VPGs. We're seeing that from our Legacy Club members upgrading into MAX, and we're also seeing existing MAX members who've joined over the last three to four years upgrade. In fact, I talked about the 250,000 MAX members. We actually have 360,000 transactions in MAX. I really attribute a lot of the performance to the great work our teams did rolling out this new membership program. It really has improved our value proposition. We've added a lot more Hilton benefits to connect our members to the broader Hilton ecosystem.

When you look at our base and members in MAX, just above 50% of our MAX members have a tenure in our system of less than five years. What does that mean? That means that those members that are in our system for less than five years have 90% of their lifetime value sitting ahead of them. Nearly 70% of our MAX members have a tenure of less than 10 years on our system, so those members have 50% of their lifetime value sitting ahead of them. The rapid growth of MAX's base really bodes well for our business and just great execution.

Carrie, Call Moderator, Hilton Grand Vacations: Our next question comes from Benjamin Nicolas Chaiken with Mizuho Securities USA LLC.

Unnamed Executive, Executive, Hilton Grand Vacations: Hey, good morning.

Dan, CFO, Hilton Grand Vacations: We'd love to touch on flow through.

Mark Wang, CEO, Hilton Grand Vacations: Kind of.

Ben Chaiken, Analyst, Mizuho Securities: You touched on it in the prepared remarks, but I want to dig in a little further. Top line was strong, but it just feels like there's a couple things working against you. You mentioned higher tour packages. I think you said this was worth $7 million. Essentially, just to confirm, these are expenses incurred in the quarter of which you get revenue in the future. This $7 million would be the amount above the normal course of business, I guess. Is that fair? It also looks like you had higher rescission and reportability and other adjustments. Just anything you would flag in the P&L, and to the extent you could quantify it, that'd be great.

Carrie, Call Moderator, Hilton Grand Vacations: Thanks.

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah, let me touch on some of that, and then I'll let Dan jump into some more detail here. There's always a level of investment in the business for growth, right? We continue to invest in high tech and high touch solutions really to reach a bigger audience. 2025 has been a year of above average investment in future customer acquisition, and that was by design. On the high touch side, we've got great partners, right? We added 41 new marketing sites across Hilton, Great Wolf, and Bass Pro this year, and we continue to invest in our digital channels. These initiatives require upfront investment in staffing and technology. The results have been great.

Mark Wang, CEO, Hilton Grand Vacations: 10% year-over-year package sales growth.

Unnamed Executive, Executive, Hilton Grand Vacations: For two consecutive quarters now, as you alluded to, that growth is still only partially reflected in our tour flow as it takes sometimes 9 to 12 months on average for a package holder to actually travel to one of our properties. We're going to start seeing that growth in Q4 and beyond. We expect the upfront investment will bring us some steady.

Mark Wang, CEO, Hilton Grand Vacations: Level growth in the future.

Unnamed Executive, Executive, Hilton Grand Vacations: More importantly, as we move forward and we go into next year, we want to get on a more consistent cadence between our package sales and tour flow. Our expectations next year are that the level of investment will be more closely matched to the revenue. Dan, I think there's probably a couple other.

Dan, CFO, Hilton Grand Vacations: Yeah, no, definitely. Ben, just to address some of your specific questions, to your point, the marketing packages activity at $6 million or $7 million, it rounds at $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 up front. Obviously, as they come to the properties, they're tour and we will recognize contract sales to the extent we sell them. 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. 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.

That's really effectively timing, just getting past that rescission period that consumers have. 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 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. I would tell you that this quarter was elevated on an FDI perspective by probably a point to a point and a half. All of those things yielded some compression on the flow through.

Ben Chaiken, Analyst, Mizuho Securities: Got it.

Unnamed Executive, Executive, Hilton Grand Vacations: That's helpful.

Ben Chaiken, Analyst, Mizuho Securities: The rescission, that $8 million that basically dropped straight to EBITDA, is that fair or how do I think about that $8 million in the flow through associated with it?

Dan, CFO, Hilton Grand Vacations: There's some deferral, but we'll recognize all that as we flow into Q4.

Ben Chaiken, Analyst, Mizuho Securities: Got it. 1 to 2 points on the FDI. Sorry, is that 1 to 2 million or when you say points? I didn't totally see that.

Dan, CFO, Hilton Grand Vacations: That's FDI as a percentage of owned contract sales or contract sales, call it.

Ben Chaiken, Analyst, Mizuho Securities: Got it.

Dan, CFO, Hilton Grand Vacations: That would equal between $9 million and, on the higher end, $15 million for the quarter.

Ben Chaiken, Analyst, Mizuho Securities: Okay, that's meaningful. Okay, got it. Switching gears a little bit, as we think about free cash flow conversion in 2026, can you help us think about the puts and takes I think we've talked about in the past? Maybe reducing some inventory spending, which obviously is a good guy for free cash flow conversion. I'm not sure if you have any big beautiful bill benefits, but just again as a percentage of EBITDA. EBITDA, free cash flow conversion at 2026. What's kind of.

Unnamed Executive, Executive, Hilton Grand Vacations: Is there a good ballpark?

Dan, CFO, Hilton Grand Vacations: 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. I think generally speaking I would look for cash taxes to be roughly in that mid-teens level as a percentage of EBITDA. 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 talked about this, it's worth highlighting again. Right after the Bluegreen Vacations 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 investment from $350 million to $450 million down to roughly $300 million. We've been talking about this for a few years because we did push off inventory investments during COVID. We're still wrapping up some of those larger investments, most notably Kohaku and Maui in Hawaii. 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.

Carrie, Call Moderator, Hilton Grand Vacations: Moving on to our next question, Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst, Deutsche Bank: Hey guys, good morning. I was hoping we could maybe talk for a minute about your first time buyers and not sure if you want to maybe segment them across the different brands or some other way, but just how they're performing. I know you said all the metrics are up for first timers, but you know, is there any difference you see between maybe a, you know, a Bluegreen Vacations source first time buyer and HGV depending on how you source them? Just thinking about in terms of close rate or VPG or things like that, is there any way to segment any kind of trends for first time buyer versus an existing buyer?

Mark Wang, CEO, Hilton Grand Vacations: Thanks.

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah, I've got a few data.

Mark Wang, CEO, Hilton Grand Vacations: Points here I'll share with you.

Unnamed Executive, Executive, Hilton Grand Vacations: As you know, we're fully committed to new buyers, and really pleased with the progress the teams are making. On an absolute basis, we're sourcing more new buyer tours to our sales centers and driving more transactions than anybody in our sector. That's really been the case for the last 15 years. We continue to be very, very focused, and we talk about the investment. I talked earlier about the investments we've made this year to even bolster that going into 2026. What I'd say is, number one, on the VPG front, new buyer close rate reached its highest level since Q2 2023, and we're really pleased to see that movement there. From a generational standpoint, Gen X, millennials, and Gen Z made up 70% of our tour flow, and close rate improved across all of those generations.

When you look at it from an income tier standpoint, close rates were steady in the low net worth tier, and they increased in the middle and high tier net worth customers. We're seeing it right now. The consumer is stable, and we're very focused on executing on all the things that we can control.

Chris Woronka, Analyst, Deutsche Bank: Okay, thanks Mark. Very helpful follow-up question. How should we think about kind of getting that rental business back to zero or better from an EBITDA standpoint? I know some of the challenges and unsold inventory. Maybe you can give us a little bit of a walkthrough in terms of what has to happen and timing and how we should think about that for the next couple years. If it's a step function or more of a grind.

Unnamed Executive, Executive, Hilton Grand Vacations: Thanks.

Dan, CFO, Hilton Grand Vacations: Yeah, no, absolutely. A lot of the momentum that we need to do is really driven off of contract sales. As we sell more and we get through the recapture bubble, that will allow us to lower the developer maintenance fee, which will contribute heavily to improvement on the rental side. We 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, big assumption, especially when you think about ADR rates, is converting properties over to the Hilton.

Unnamed Executive, Executive, Hilton Grand Vacations: Brand.

Dan, CFO, Hilton Grand Vacations: We do realize ADR benefits from that standpoint, and we also realize cost benefits from an OTA perspective. It's really a combination of all those components, and it is a long-term process to get there.

Unnamed Executive, Executive, Hilton Grand Vacations: 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. 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 standards, going to be below what we've historically seen. 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. Quite frankly, there's just not an investment case putting the dollars in to get them to the standard we want. There may be some inorganic options here.

What I mean by that is where we have maybe oversupply or 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 it along to somebody else that can better utilize it.

Carrie, Call Moderator, Hilton Grand Vacations: Moving next to Brandt Antoine Montour with Barclays Bank PLC.

Unnamed Executive, Executive, Hilton Grand Vacations: Good morning, everybody.

Dan, CFO, Hilton Grand Vacations: Thanks for taking my question. There's been a lot.

Unnamed Executive, Executive, Hilton Grand Vacations: Of talk across consumer land this earnings.

Dan, CFO, Hilton Grand Vacations: Season as well as in travel.

Unnamed Executive, Executive, Hilton Grand Vacations: Right, about the high end versus low end.

Dan, CFO, Hilton Grand Vacations: You are seeing it on the strip.

Unnamed Executive, Executive, Hilton Grand Vacations: You are seeing it elsewhere in different travel verticals.

Mark Wang, CEO, Hilton Grand Vacations: You know, Mark, you gave some great.

Patrick Scholes, Analyst, Truist Securities: Stats and you kind of cut it.

Unnamed Executive, Executive, Hilton Grand Vacations: Up a bunch of different ways. It didn't sound like you're seeing anything.

Patrick Scholes, Analyst, Truist Securities: If you just look at close.

Unnamed Executive, Executive, Hilton Grand Vacations: Rates for new owner, new owner sales.

Dan, CFO, Hilton Grand Vacations: Across your properties and you look at.

Unnamed Executive, Executive, Hilton Grand Vacations: The smaller properties, a lot of those were legacy Diamond versus maybe some of.

Dan, CFO, Hilton Grand Vacations: The bigger ones in Orlando or other markets.

Patrick Scholes, Analyst, Truist Securities: Do you see any divergence that would?

Dan, CFO, Hilton Grand Vacations: Sort of track that theme at all?

Unnamed Executive, Executive, Hilton Grand Vacations: I think, Brandt, that 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 2023. I talked about it a number of quarters ago around a low net worth tier customers. That tier is really stabilized. It really hasn't come back to the historical levels. What we've seen, Brandt, is that middle to higher net worth tier really improve. 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. At the end of the day, we're trying to be much more effective in sourcing our customers.

We're really focused on trying to steer our, trying to put our money and our focus to that mid to higher tier net worth customer than the lower tier right now. Like I said, they've stabilized, but they really haven't recovered to the levels we've historically seen.

Dan, CFO, Hilton Grand Vacations: 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 as a leading indicator from a performance standpoint. We dice that data to the nth degree. 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. Even on that front, we see positive trends in totality. Okay, thank you very much.

Carrie, Call Moderator, Hilton Grand Vacations: David Katz with Jefferies has our next question.

Mark Wang, CEO, Hilton Grand Vacations: Hi everybody. Thanks for taking my question. I appreciate all the detail around you.

Dan, CFO, Hilton Grand Vacations: Some of the.

Mark Wang, CEO, Hilton Grand Vacations: You know, momentary or pedestrian investments and growth as well as some of the timing issues that seem a bit more momentary also. How do we think about, in a general sense, 2026?

Dan, CFO, Hilton Grand Vacations: Right.

Mark Wang, CEO, Hilton Grand Vacations: Is that an investment year to some degree also, or should we think about modeling this as kind of a year to reap what you've invested here?

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah, David, I think as I just said a few minutes ago, I think what you're going to see next year is the big lift in investment for really broadening and building out our new buyer marketing channels. On the digital side, there'll be some investment there, but it won't be at the same level.

Mark Wang, CEO, Hilton Grand Vacations: Put into this year.

Unnamed Executive, Executive, Hilton Grand Vacations: Our expectations are next year we're going to be looking at tour flow growth that exceeds what we had this year. We're looking more in that kind of low to mid single digit tour flow growth with a little bit more moderated VPG next year. The investments on the package side are going to really get into a cadence where the growth on the package side is going to align much better to the growth on the tour flow side. We start seeing the revenue generation more closely matched up to the expense side. That's our expectation next year. Our goal for next year is to be able to exceed bottom line growth rate or grow the bottom line at a faster rate than our top line.

Dan, CFO, Hilton Grand Vacations: Yeah, I mean, another way to think about it is just, you know, from 2025 to 2026, it's kind of bridging to that long-term algorithm that we've historically talked about. Low single digit tour flow growth, low single digit growth in VPG to mid, translating into mid single growth in contract sales, and then a focus on leveraging cost to drive hopefully higher adjusted EBITDA growth. Very helpful, thank you.

Carrie, Call Moderator, Hilton Grand Vacations: Our next question comes from Stephen White Grambling with Morgan Stanley.

Mark Wang, CEO, Hilton Grand Vacations: Hey, thanks. Just wanted to follow up on some.

Unnamed Executive, Executive, Hilton Grand Vacations: Of the inventory and sales details, and specifically maybe digging into Hawaii and some of that inventory.

Mark Wang, CEO, Hilton Grand Vacations: Specifically, I guess, how would you compare?

Unnamed Executive, Executive, Hilton Grand Vacations: Contrast the mix of the inventory that's left to kind of sell specifically in Hawaii and when you think you'd be kind of sold through that over the rest, as we think about next year and even maybe beyond.

Ben Chaiken, Analyst, Mizuho Securities: Thank you.

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah, Steven, as far as a mix standpoint, we have been doing this for a long time and we're very, very focused on a balanced mix. We're very much on track to be able to utilize the benefit of Kohaku for a number of years. I'd say the same thing around Maui and also on the Big Island. We're still converting parts of that hotel into units, so we're in a really good position from a deeded standpoint. Ideally, on a long term basis, we want to be at about two and a half years of deeded inventory, and right now we're running a little bit over that, so we're in a good position there. In the long run, our goal is to bring our COP down and bring our balances down, and as Dan alluded to earlier, that'll benefit our rental segment.

All in all, I think we're in a really good position from an inventory standpoint, and especially that high end inventory that has a lot of demand across the whole network. We're very measured in how we release that inventory to make sure it's balanced over a number of years. That's great. That's it for me.

Chris Woronka, Analyst, Deutsche Bank: Thank you.

Carrie, Call Moderator, Hilton Grand Vacations: Moving on to Daniel Mathewes with Bank of America.

Patrick Scholes, Analyst, Truist Securities: Hey, good morning guys. Dan and I think it was to Brandt's question, you called out or you mentioned that the delinquencies, when it comes to the FICOs that are below 650, have been stable. At the same time, we're reading about subprime auto delinquencies ratcheting up and to Brandt's point, other pockets of the consumer struggling. I guess how do you square, specifically how the sub 650 bands of timeshare loans are stable here and there's no, from a delinquency standpoint, and then other places where it's kind of not.

Dan, CFO, Hilton Grand Vacations: Yeah, no, look, that's a great question. I think there's a twofold answer there. First and foremost, I would say we are very focused on, when it comes to the consumer's mindset, on maximizing their desire to pay. That comes down to how we interact with them from the starting point at the sales table, actually from selling them a package to the sales table and the experience they receive at that property. There is a certain emotional attachment to timeshare and vacationing, so I think that element holds strong. To be quite blunt, the subprime FICO scores are not our core either. We probably have, to a degree, lesser exposure than some of our counterparties who are having a larger problem with it. Sequentially, we've held up well and the trending is positive on that below 650.

Even when I think about annualized default rates, again in total, annualized default rates sequentially have improved from even last quarter, and year over year they've actually improved more than they improved sequentially. As we sit here today, we're seeing everything hold stable to positive.

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah, Danny, I'd just add too, I think Dan touched on this a little bit and I mentioned it earlier. Our MAX owners are reporting much higher satisfaction rates and engagement scores. I think it is a testament to our club team and all of those that are touching our customers across the network, not just the upfront sales process. As I mentioned, I gave some stats on the tenure within the MAX program and it's pretty impressive how young a base we have in the MAX program. I think you can't, you know, I can't underestimate or overstate the fact that high satisfaction and engagement scores are super important in people's willingness to want to pay.

Ben Chaiken, Analyst, Mizuho Securities: Got it.

Patrick Scholes, Analyst, Truist Securities: Just as a follow up, you know 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 either like Q4 or 2026?

Unnamed Executive, Executive, Hilton Grand Vacations: Yeah.

Dan, CFO, Hilton Grand Vacations: No, I think that's accurate, and I think we're effectively there at this point.

Ben Chaiken, Analyst, Mizuho Securities: Got it.

Patrick Scholes, Analyst, Truist Securities: Thank you very much.

Carrie, Call Moderator, Hilton Grand Vacations: 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?

Dan, CFO, Hilton Grand Vacations: All right.

Unnamed Executive, Executive, Hilton Grand Vacations: Thank you, Carrie. Thank you, everyone, for joining us today. I want to thank all of our team members, with 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. I also want to thank our members for trusting Hilton Grand Vacations with what matters most, moments with friends and family and experiences designed to inspire and connect you to the world.

Mark Wang, CEO, Hilton Grand Vacations: Thank you, everyone.

Carrie, Call Moderator, Hilton Grand Vacations: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

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