HGV Q2 2025: New Owner Pipeline Up 10% to 200K Packages
- Robust New Owner Sales & Pipeline Momentum: The Q&A highlighted that new buyer pipeline increased by 10% with 200,000 packages sold and a 20% improvement in owner upgrade curves, indicating strong demand and effective sales execution.
- Positive Fee‐for-Service Mix and Regional Outperformance: Despite a slight increase in fee‐for-service mix (from 15% to about 17% in Q2, targeting around 16% for the full year), the team’s performance in key regions like Myrtle Beach and Hilton Head was notably strong, reinforcing a bull narrative.
- Strong VPG Growth and Stable Operational Metrics: With VPG performance up 11% in Q2 and expectations for continued robust growth, along with stable loan book performance and manageable delinquency levels, the operating model shows resilience and efficiency.
- Increased Fee‐for‐Service Mix: The fee‐for‐service mix rose to about 17% in Q2 (up from 15% in Q1), which, because it only generates a commission rather than full margin dollar contribution, could pressure EBITDA margins over time.
- Softness in the Las Vegas Market: Q&A responses highlighted that visitation in Las Vegas is down and increased promotional activity has led to softer room rates and contract sales, potentially impacting revenue performance in that key market.
- Potential VPG Headwinds: Management noted that while Q3 VPG growth could be strong, competitive lapping effects from the HDD Max launch may result in declining VPG in Q4, compounded by anticipated rises in bad debt provisions, both of which could adversely affect profitability.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EBITDA Guidance | FY 2025 | no prior guidance [N/A] | $1,125,000,000 to $1,165,000,000 | no prior guidance [N/A] |
Adjusted Free Cash Flow Conversion | FY 2025 | no prior guidance [N/A] | 65% to 70% of adjusted EBITDA | no prior guidance [N/A] |
Adjusted Free Cash Flow Per Share | FY 2025 | no prior guidance [N/A] | $8 to $9 per share | no prior guidance [N/A] |
Capital Returns to Shareholders | FY 2025 | no prior guidance [N/A] | $150,000,000 per quarter, totaling $600,000,000 for the year | no prior guidance [N/A] |
Provision for Bad Debt | FY 2025 | no prior guidance [N/A] | Mid-teens rate | no prior guidance [N/A] |
Cost of Product | FY 2025 | no prior guidance [N/A] | 12% to 13% of net VOI sales | no prior guidance [N/A] |
Inventory Spending | FY 2025 | no prior guidance [N/A] | Approximately $450,000,000 | no prior guidance [N/A] |
Contract Sales Growth | FY 2025 | no prior guidance [N/A] | High single-digit growth | no prior guidance [N/A] |
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Fee Mix Impact
Q: Impact of fee mix on EBITDA?
A: Management noted fee-for-service mix was about 200 basis points higher in Q2 (17% vs. 15% in Q1) so while margins remain good, the commission-only nature leads to lower absolute dollars, with minimal drag on adjusted EBITDA. -
Fee Future
Q: Will fee mix drop below 10%?
A: They expect the mix to settle between 15%–17% over the full year, with only specific projects in the pipeline potentially ratcheting it down later rather than a near-term drop below 10%. -
New Owner Sales
Q: How are new owner sales evolving?
A: Management reported that new owner sales remain resilient, with new buyers accounting for about 30% of transactions and a 20% improvement in upgrade curves, indicating steady demand despite cost pressures. -
Vegas Softness
Q: Any concerns over the Las Vegas market?
A: They observed some softness in Las Vegas due to competitive promotions affecting room rates and contract sales, but emphasized strong VPGs and flexible room allocation to cushion the impact. -
Loan Book Performance
Q: How’s the loan book doing?
A: The loan book remains in good shape, with delinquency rates—especially in the 31–60 days bucket—staying stable or even improving compared to last year, reflecting robust credit performance. -
VPG Outlook
Q: What is the outlook for VPG growth?
A: For Q3, management expects mid to high single-digit VPG growth, boosted by the un-lapped HDD Max launch, while Q4 may see lower growth due to challenging comps. -
VPG Flow and Conversion
Q: How strong is VPG flow-through and conversion?
A: They foresee overall VPG flow-through above 50%—around 30% on core flow—with stable new owner tour conversion rates and historically robust performance since 2019.
Research analysts covering Hilton Grand Vacations.