Good morning, and welcome to Hilton Grand Vacations Third Quarter 2020 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 13697043. At this time, all participants have been placed in a listen-only mode.

The floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Mark Melnyk, Vice President of Investor Relations. Please go ahead, sir..

Thank you, operator, and welcome to the Hilton Grand Vacations third quarter 2020 earnings call. Before we get started, please note that we have prepared slides that are available to download from a link on our webcast and also on the main page of our website at investors.hgv.com.

We may refer to these slides during the course of our call for a question-and-answer session. As a reminder, our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements, and these statements are effective only as of today.

We undertake no obligation to publicly update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our 10-K as well as similar sections in our 10-Q, which we expect to file after the conclusion of this call and in any other applicable 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.

As a reminder, our reported results for both periods in 2020 and 2019 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 these revenues and expenses until the period when construction is completed.

To help you make more meaningful period-to-period comparisons, you can find details of our current and historical deferrals and recognitions in Table T-1 of our earnings release.

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.

Finally, unless otherwise noted, results discussed today refer to third quarter 2020 and all comparisons are accordingly against the third quarter of 2019. 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 Mathewes, will go through the financial details for the quarter. Mark and Dan will then make themselves available for your questions. With that, let me turn the call over to our President and CEO, Mark Wang.

Mark?.

buyer-owner mix and improvements in both our owner and new buyer close rates. We expect the segment close rates will trend towards historical levels and drive a moderation in our VPG growth. But we'll continue to see a benefit from a higher mix of owner sales in the quarters ahead. Owner sales were 67% this quarter versus 50% historically.

And that outperformance will likely continue as new buyer traffic takes longer to recover. Our financing in Club and Resort segments continued to provide an important source of stability to the company by generating solid results in cash flow.

Although, we did see a slight decline in our Club and Resort business due to lower activation fees and member usage fees, importantly, NOG was 1.9% as we continue to see growth in new buyers that will add to the embedded value of our business for years to come.

As we mentioned before, we revisited our strategic priorities at the onset of the pandemic, and we've kept making progress here. We now have a full quarter with implementation of the HGV Enhanced Care initiative and have received great feedback from our guests on the program.

Importantly, we haven't noticed any adverse effect from the initiatives on either our sales process or our resort operations as mask and social distancing have become a commonplace across the globe.

Maintaining our financial health has remained a critical focus throughout the pandemic, and we've continued our efforts to fortify our balance sheet and optimize our cash flow.

We found cost-savings across all levels of our organization, some of those have unfortunately required us to make tough decisions around our staffing levels, as you likely saw in our recent filing.

As a result, we believe we found sustainable cross savings and reset our cost structures to allow us to get back to our pre-COVID levels of EBITDA at a lower level of contract sales.

We've also, re-examined our inventory and project spending in light of the new environment, but we're well-positioned through the pandemic and beyond due to the inventory investments we've made over the past few years in the projects like Ocean Tower and Maui.

Due to these efforts, we now believe our adjusted free cash flow will be comfortably positive for the year, which has extended our tuition of available liquidity to 31 months assuming no further improvement from September trends. Throughout the pandemic, we kept sight of what's most important, our commitment to our owners and our team members.

Our teams have done a great job restarting our operations smoothly, both at a resort level and at our member service centers. And I want to take a moment to recognize them for their efforts. And we've provided our members with additional flexibility to roll their unused points in 2021 to preserve the value of their membership with HGV.

Our marketing teams had been successful, engaging potential new buyers, driving sequential package growth training at nearly 75% of last year's levels versus only 10% of the prior year back in April.

So it's clear to us that people have the desire to travel, but it's also clear to us that you can't force people to travel until they're comfortable doing so. However, the demand for prepaid vacation experiences gives us confidence that those travelers will ultimately choose to vacation and tour with us.

Looking ahead, our outlook reflects an acceptance that we're going to have to continue to contend with the impact of the virus as consumers define their individual level of comfort with travel. While we're seeing moderate week-over-week and month-over-month improvements, we expect the pace of recovery to vary across different markets.

But I'm confident in the long-term strength of our business model and our plan and I remain optimistic about our future. With that, I'll turn it over to Dan to walk you through the financial results.

Dan?.

Thank you, Mark and good morning, everyone. As Melnyk mentioned in his introduction to our call, our results for the quarter included $13 million sales deferrals impacting reported revenue and net deferrals of $8 million impact in both adjusted EBITDA and net income.

All references to consolidated net income adjusted EBITDA and real estate segment results on this call for the current and prior periods will exclude the impact of deferrals and recognitions.

A 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. Let's review the results for the quarter.

Total third quarter revenue was $221 million, reflecting declines across our business segments due to the ongoing impact of global travel from COVID-19 pandemic, along with the absence of resorts in several major markets where we haven't yet resumed sale operations.

Q3 adjusted EBITDA was $27 million as our financing resort and club segment generated positive EBITDA, with flat EBITDA at our rental segment and a slight decline in real estate. Our EBITDA was also impacted by $3.8 million of one-time charges, primarily due to restructuring and COVID related expenses during the period.

In addition, as we laid out in our press release, there were another $6 million of COVID related items that were not adjusted from our EBITDA, including $7 million benefit from employee-related credits offset by a $1 million loss of club transaction fees that were refunded during the quarter for reservation charges associated with property closures Net income was $1 million and diluted earnings per share was $0.02 cents compared to net income of $58 million in diluted earnings per share of $0.67 cents in the third quarter of 2019.

Within real estate Q3 contract sales were $117 million or one-third of the prior year, reflecting operations resuming at roughly three quarters of our resorts. For the quarter tours were down 75% and VPG has grew by 25%. Our mix of owner contract sales remained elevated this quarter at over two-thirds of the total.

Our recovery was steady over the course of the quarter with absolute number and year-over-year growth rate of our tour flow improving sequentially each month. Close rates were once again up in each of the months for the quarter for both owners and new buyers, reflecting solid execution in driving our strong VPG.

As we progressed through the quarter, we saw an expected normalization of close rates from the elevated levels seen in Q2. We expect that trend to continue, although we anticipate VPG will settle at a higher level than pre-COVID in the short-term owning to shift for higher VPG owner sales. Our fee-for-service mix for the quarter was 57%.

On the consumer lending side, our provision for bad debt was $12 million and our overall allowance on the balance sheet was $217 million or 17.7% of gross financing receivables. SMG&A was $67 million reflecting both fixed expenses as well as a full quarter variable expenses as we resumed sales operations. Real estate margin was a loss of $1 million.

And our financing business third quarter margin was $27 million with a margin percentage of 67.5% versus a margin of $29 million and a margin percentage of 67.4% last year.

Margin was lower based on the declining receivables balance versus last year limiting portfolio income along with higher interest expense associated with the securitization completed in Q2. Our gross receivable balance decreased at $1.2 billion.

Our average down payment year-to-date is 11.8%, and our portfolio average interest rate increased to 12.6% from 12.4% last year. Over the past three months, we've seen an improvement in our delinquency rate to 3.35% of our receivables portfolio versus 3.5% at the end of the second quarter. But it is up from 2.5% at the end of 2019.

Our annualized default rate has increased to 5.96% versus 5.48% at the end of the second quarter and 5.14% for the end of 2019. The increase remains consistent with our expectations of seeing upward pressure on both our delinquencies and defaults over the near-term as we continue to cycle through the pandemic.

But we still believe we are adequately reserved at this time, we will continue to monitor our portfolio trends closely. The performance of our loans on a payment deferral has been strong.

Of the owners who utilized a deferment across our entire platform, which accounts for $27 million in loan balance or 2% of our portfolio, just under 80% were current today. Turning to our resort and club business. NOG for the 12 trailing months was 1.9% and we grew our member base to over 327,000.

Revenue of $39 million was down 13.3% from the prior year driven by lower transaction fees from reduced member activity, as well as additional one-time fee waivers and refunds related to COVID-19. Margin for Q3 was $30 million with a margin percentage of 76.9% versus margin of $34 million and margin of 75.6% last year.

Rental revenues were $20 million for the quarter, reflecting a resumption of operations and the realities of a global travel that is still feeling the impact of COVID pandemic. Expenses in the quarter were $24 million and were driven by expenses associated with Hilton honor point conversion activity and develop and maintenance fees.

Bridging the gap between segment adjusted EBITDA and total adjusted EBITDA, third quarter corporate G&A was $15 million, down $5 million or 25% versus the prior year, reflecting the benefits of our cost saving program and license fees for $11 million.

Regarding our cost savings, in the first quarter, we moved quickly to examine the cost structure and adapt to a rapidly changing business environment, including process improvements, spending cuts, temporary furloughs, and unfortunately permanent headcount reduction.

The net result is that we believe we've identified $20 million to $25 million of savings across the organization that are reoccurring in nature.

As Mark mentioned earlier, Hawaii recently reached a major milestone in the reopening progress by removing the quarantine requirement for COVID negative travelers, but we are excited to be reopening one of our largest and most important markets in light of the staggered progression of the opens and the associated ramp period, is important to note that we do not anticipate Hawaii distribution centers to be meaningful contributors to our contract sales in Q4.

Thus our fourth quarter is expected to show on continued modest sequential growth in our operating metrics.

Our adjusted free cash flow in the quarter was a net use of $99 million, which included inventory spend of $39 million and cash used from non-recourse debt pay down of $90 million owing to the shift and timing of our securitization into Q2 from our typical third quarter timing.

For the year-to-date, our adjusted free cash flow was $156 million after inventory spend of $108 million. As a reminder, our inventory budget for this year was approximately $400 million. And we now expect to spend slightly less than $200 million.

Given this level of inventory spend and the expectations that Q4 will show a modest sequential growth in operations, we now anticipate that we will have positive adjusted free cash flow for the full year of $40 million to $50 million, which compared to our prior expectations of achieving roughly breakeven for the year.

We continue to maintain a strong balance sheet with low leverage and ample liquidity. Assuming that we saw no further improvement in real estate or rental business from September levels, we estimate that we would have 31 months of available liquidity.

As of September 30, our liquidity position consisted of $625 million of unrestricted cash, $39 million of availability under our revolving credit facility and $450 million of capacity in the warehouse. We currently have $100 million timeshare receivables available for collateralization.

On the debt front, we had roughly $1.3 billion in corporate debt and non-recourse debt balance of $837 million. Turning to our credit metrics, at the end of Q3, our net leverage – first lien net leverage for covenant compliance purposes stood at 2.14 times, and 1.11 times respectively.

Our interest coverage ratio for the covenant compliance purposes at the end of the quarter was 7.17 times. We will now turn the call over to the operator and look forward to your questions.

Operator?.

Thank you. [Operator Instructions] Our first question is from Jared Shojaian with Wolfe Research. Please proceed..

Hi everybody. Thanks for taking my question. On Hawaii, Dan, I appreciate your commentary that you're not expecting a meaningful contribution in the fourth quarter from Hawaii sales centers.

But can you just talk about what you've seen since the quarantine was removed? What have you seen with arrivals? What do you have on the books today versus this time last year? And then I know you've still been selling Hawaii at other locations and you've have some success with that.

Can you give us a sense for what Hawaii contract sales are currently run rating at right now on a year-over-year basis with obviously not being able to go to Hawaii in the third quarter?.

Yes, Jared. This is this Mark. I'll take part of that and I'll let Dan take part of that question. You had a few questions in that question, so we'll try to connect on everything, but I think – if we think about Hawaii, first of all excited that the quarantine enforcement is finally been lifted and that the state reopened on the 15 for domestic travel.

We're still waiting to hear on Japan and bounds that recent indications suggest that the State is probably going to be opening up for Japan visitors sometime in November. So happy about that. We also think Hawaii is going to be our next catalyst for the recovery as we enter 2021.

And we've talked about it numerous times, but we have amazing assets in prime locations there and historically Hawaii has been one of our highest demand of market for both our U.S. and Japanese numbers.

So as far as what we have going there – going on there right now, we have a few very small properties that are open, but really no sales going on in Hawaii right now, the plan is that we plan to open up our sales centers on the big Island by mid-November, and that we're going to open all of our properties and sales centers in mid-December and a Oahu.

So I think, you mentioned Japan and Hawaii inventory, we are having great success and had a great success in Japan during this crisis, they never really closed down though the business gets dropped back considerably early on when the pandemic first started.

But we mentioned, I think in our prepared remarks 34% of our sales for the quarter were Hawaii and compared to 37% last year, and that really has a lot to do with the work that our Japanese teams are doing. This month in October we’re training at about 75% prior year's levels.

So that's looking really good, as far as forward-looking bookings for next year we’re showing about 70% on the books at the same time last year. And I know we've had about a 15% pickup over the last four weeks as people have gotten a better line of sight on when we think we're going to be opening.

I don't know if there – are there anything else Dan that you….

Yes. I think just to quantify part of your question on Hawaii. Jared, if you look back to Q2, obviously, as we were coming out of the shutdown scenario, we did total contract sales of $35 million, just over $10 million of that was associated with Hawaii.

If you look at Q3 that number has jumped to just south of $40 million and we would anticipate that to be probably a hair better, because we do believe operations to be open to some extent in Q4. So we believe there'll be slightly better than that in Q4.

But compared to run rate historically prior year, you're looking at Q2 and Q3 being close to $130 million. So still substantially down, but obviously we’re making tracks and then going in the right direction..

Yes. And then I’d just add one more thing. I think when you think about Hawaii, obviously, airlift is really important and from what we're seeing the airlines are starting to get their airlift back in place.

And so there is a lot of choreographing that goes on when you open up Hawaii versus other markets for us because of this flying component that you have to deal with. The other thing that you have to think about is a number of our biggest resorts in our properties co-exist on campuses that also have major hotel assets that park, resorts own.

So we have to work in conjunction and get aligned with them around staffing and the such. So generally we think Hawaii is going to – we're happy, it's finally going to reopen, we thought it was going to be reopened late in Q3, so it would benefit us in Q4.

It got pushed back, but at the end of the day, we're just pleased that it's going to reopen and hopefully the process they put in place is going to endure and create a very safe environment for visitors that are going to Hawaii and we’re very optimistic that our business is going to bounce back stronger..

Okay. Thank you. That's very helpful. I think you got all that from my convoluted question.

Just switch gears here, could you talk about how you're thinking about inventory spend for next year? And I know a lot depends on the demand environment, but is it fair to think that next year is not going to be a free cash flow year and then by 2022, you're starting to just meaningfully ramp on free cash flow.

Is that the right way to think about it? Anything you can share there..

Hey, Jared, it's Dan. It's a great question. And I think we've talked about this all year. I mean, just to take a step back as you've heard us say it on two calls now. The original amount that we expected to spend in 2020 was north of $400 million, we've contracted that below $200 million.

And what I want to emphasize is that contraction is not just moving it from 2020 to 2021. That contraction is really putting things to the side and allowing us to analyze and make the best choice when it comes to a course of action on that inventory spend. The most notable example of that is cooptive right.

We've had a contraction in Hawaii in particular on sales, and now the question is when do you need cooptive, which is the Waikiki is equal to actually come online. And we'll continue to analyze that. When you fast forward to 2021, the flexibility that we saw in 2020 is not the same in 2021.

In 2020, our contractual obligations i.e., the just in time projects that we had were roughly $25 million. When you look at 2021, those contractual obligations are closer to $200 million. Now, the thing to emphasize here is they are just in time projects. So they – from a capital efficiency standpoint, they've proved out to be very good for us.

In particular, as you can imagine, right now, we've got developers spending money on projects, most notably the center on New York, and Suzuka in Japan, that otherwise would be on our balance sheet. So we have had the benefit of that, but what you will see in 2021 is those obligations will start to kick in.

So that flexibility and contracting inventory spend does come down and like I said, it's roughly $200 million in contractual obligations in 2021. When it comes to free cash flow, look, it's all about the recovery. How does 2021 recover versus where we are in 2020.

We see some nice trends now that – some of our larger markets are on a steady march although, albeit slower than we would like, but on the steady march to recovery, Hawaii is just about to open up. So it's really going to be dictated around the recovery itself on what 2021 shows.

I think I'm trying to give you a lot of color, we're not trying to give specific guidance on 2021, but hopefully that context is helpful..

Yes. No, that’s helpful. I appreciate that. Maybe just quickly follow-up on that. I mean, if we assume this recovery that we're seeing here continues and you kind of extrapolate that out through all of 2021, so that 2021 is kind of a transition year, you're still far below peak levels, but we're moving in the right direction, we're improving.

Under that scenario should we be assuming that next year is not a free cash flow year? I guess I'm really just trying to help set that expectation on how you're thinking about it.

And then by 2022, assuming this recovery is just continuing that, you start to see that meaningfully build again, is that under that context, is that kind of how we should be thinking about it?.

Yes. We’ll say in a different way, if you were to look at what a lot of the analysts are saying about the recovery in 2021 and build in that contractual and the – not only contractual, because keep in mind there is contractual inventory payments and then there is also other projects that are under our control, admittedly.

But they are also further inventory spend projects like Maui and Ocean Tower Phase 2. There is flexibility there, if the recovery then play out as we expect.

But once – if you go with analyst consensuses speak and you building that kind of inventory spend, you are looking at cash and adjusted free cash flow neutral to down here with the path really building in 2022..

Okay. Super helpful. Thank you very much..

Our next question is from Stephen Grambling with Goldman Sachs. Please proceed..

Hey, thanks for taking the questions. Two quick ones. First I know you referenced that with the cost cuts that you've announced, you feel like you can get back to call it prior levels of EBITDA without getting to prior levels of contract sales.

Is there any more that you can provide in terms of quantifying that and perhaps I missed it earlier? And then the second question, which is unrelated is just, if you can give any more details on what you're seeing in terms of the demographic of new owners arriving? Is that similar or different to what you saw pre-COVID, are you seeing a truly a different type of customer base younger maybe coming in?.

Great questions. I'll take the first one and then I'll turn it over to Mark on some of the demographic information. So we did say in our prepared remarks that we have done a lot, we have taken out various layers.

We – as we sit here today, and you saw last week, it might have been the week before where we found 8-K disclosing that we did do a reduction in force. But over the course of 2020, we took out a significant amount of costs. Initially temporary furloughs, now we've gone to a reduction in force.

We also still have an excess of 2,000 individuals furloughed today. But based on what we've seen today and the course of the recovery we see now out of everything – out of all the actions we've taken, we believe that there's between 20 and 25 in recurring cost savings associated with that reduction in force and other ancillary expense items..

Yes, Stephen. I’m Mark, on the demographic side, if you look at Q3, millennials made up 26% of our new buyers Gen X 38%. So it's approximately 65% of our new domestic buyers in Q3. We're fit in that Gen X millennial age group..

And did that move materially year-over-year? And also, I guess, with the restraints on the sales centers, are you seeing any changes or making any changes in terms of thinking through digital sales?.

Yes, good question. Well, as far as the year-over-year PCO, the millennials continue to grow as Gen Xs do, and boomers are basically falling off. And we're seeing that sequentially really over the last three or four years. And so millennials are building and Gen Xs are building.

As far as digital sales go, look, we've – the team has done a lot of good work around innovating on the digital side. I just got a report in this morning that we've done over $1 million in the last couple months in Japan on a pure virtual platform that we put in place.

We're also using a lot more technology and our cloud direct capabilities are improving. We started seeing the benefit of selling Maui that way direct sales represented about 60 million of our sales last year. We've now recovered to approximately about 70% of what we were doing last year. So that part of the business is recovering well.

And while it's still a minor piece of our business, our capabilities are growing and we're excited about what that'll mean for us in the future..

Great. Thanks so much..

Okay. Our next question is from Patrick Scholes with Truist Securities. Please proceed..

Hi, good morning, everyone. My first question concerns Orlando, one of your larger markets. We heard yesterday from a competitor, how Orlando sort of pre-bookings for next year are really coming on very strong, curious what you folks are seeing in that regard? Thank you..

Yes, Patrick. We're seeing the same thing. And in fact, just looking at the numbers this morning, we've got nine steady weeks of improved pace in Orlando and in Vegas. So, we're seeing improved pace in those markets and we expect is the capacity restrictions diminish in this market. We'll see more and more visitors come here.

So Orlando is a tried and true market. It's going to come back. It's just a matter of time. And but we're seeing some very positive trends of late..

Okay. Good to hear. And then my next question, hopefully you can answer this, it's a bit of a follow-up to the first question that was asked today. On your earnings release, you noted that owned inventory represents 80% of your total pipeline while only 32% of that owned inventory pipeline is currently available for sale.

Where would you expect that percentage by the end of the year to be that 32%? And how would that trend into 1Q?.

From a pipeline perspective, I want to see significant movement there, Patrick, from a sales mix perspective, as the owned inventory comes online, you'll naturally see that compress so that 57% should naturally come down. And as you roll into 2021, depending on the pace of recovery, we would also see it fall.

And I would imagine, or we would expect it to fall below 50% in 2021, depending on what the recovery plays out.

I think what you see here today, where we are still in the high 50s on a fee for service mix is really speaking to some of the locations that have performed really well in a COVID environment, such as Myrtle Beach, which is a fee for service center, if you will. But hopefully that lays that out for you pretty well..

Okay. Thank you. That's it for me..

Our next question is from Brandt Montour with JP Morgan. Please proceed..

Good morning, everyone. Thanks for taking my question.

I was wondering if you could maybe give us the year-over-year contract sales growth by month in the third quarter?.

Yes. So hey, Brandt, this is Mark. What we saw sales growth – we didn't have sales growth but if you look at the performance on a sequential basis, in markets that we were open, we were down 59% in July, down 58% in August and down 47% in September. So those – that's based on the markets that were open in..

Great. Thanks. And then just you gave us a great snapshot on your cancellation rates now versus cancellation rates in the spring.

And I think that – and I was just curious, and I hate to split hairs and ask a really short-term question, but just because we're sort of in the first or second stages of this broader uptick in infection rates and potentially sort of mobility slowing down is that moved – is it gotten worse over the past – in the very near-term, I guess is what I'm asking?.

Yes, no, a great question. I can tell you that we're just not seeing the same correlation between cancellation and spikes in COVID that we did over this summer. And look, when we look at our owner arrivals on the books, they remain strong indicating that there continues to be strong demand.

I think when you look at our package – marketing package, our new buyer pipeline, the majority of the consumers who are making changes or travel dates with us are rebooking for a later period of time.

So right now, again, obviously there's a lot of activities, a lot of uncertainty out there around the infection rates but we're not seeing the same type of spikes and activities that we have in the past. And I think part of it is just, people are adapting to this situation and they're – I kind of look at it.

Either people are looking at travel or they're not looking to travel right now. And those that are looking to travel are adapting to ways to travel safely. And when you look at the entire sector, the travel sector, I think the entire travel sector is doing a really good job.

And from the airlines to our properties in the Hilton brands of collectively working together. And I think that is making a difference in the consumer confidence to travel.

And but I think in the near-term absent, containment of the virus, I think the pre-testing requirements like we're seeing in Hawaii could also encourage a lot of people that start flying. And so there's a lot going on.

Everybody's working together collectively to make travel, especially leisure travel open up again and so we're going to have to see it, we're going to have to watch it closely, the reality is, this is a dynamic situation. But right now, I can't say that we're seeing any spikes right now.

Sorry for the long-winded answer, but a lot to think about there..

Yes. Very helpful. Thanks a lot, everyone and good luck..

Thank you..

Our next question is from David Katz with Jefferies. Please proceed..

Hi, morning and thanks for including my question. Number one I just wanted, and I apologize if you've touched on this a bit, but I wanted to get just a clear update on your capital allocation philosophies. There's always discussion around the company in terms of returning capital versus not. And then I have one quick follow-up..

Hey, David, it’s Dan. Look, from a capital allocation strategy, we've been fairly consistent on this. We talked about investing in inventory. We've clearly done that.

We're in the process of that and you can see us further taking, we took a pause in 2020 and reanalyzing what the best way to use that inventory spend is, the second would be return capital to shareholders, and obviously M&As are always on the books.

It's always interesting to me when we report a quarter where contract sales are down quite dramatically, right. And people want to talk about capital allocation. So we're focused on it. I went and look for us to be in the market repurchasing shares in the immediate future, but I think that lays out our plans..

Thank you for that. Go ahead. Sorry..

No, sorry. I just wanted to say very consistent with how we've always spoken about it..

That's correct. And I was not trying to imply that you should be in the market, buying back your stock as necessarily as a choice avenue. From a much longer term perspective, as so much of our coverage is focused on attracting younger and younger consumers.

Do you have any updated thoughts on shorter duration product offerings or any sort of alternative structures that might attract that group in a more fulsome way?.

Yes, no, great question. And look, we have and I think we've mentioned it in the past that we are experimenting with some shorter term product. And as you can imagine, we're very focused on getting the business back in order and getting that trajectory back in order so that the focus has really been around our core business.

But we believe that there's a great opportunity to expand our offerings and introduce term products. And some of that's being tested right now as we speak, but it's really too early to provide any guidance, especially in this reduced volume environment. But we'll make sure to keep you posted as we move forward..

I appreciate that. Thank you very much..

We have reached the end of our question-and-answer session. But before we end, I’d like to turn the call back over to Mark Wang for closing remarks..

Well, thanks everyone for joining us this morning. And I know I mentioned in my prepared remarks, but I want to give another special thanks to all of our team members for their hard work and dedication to providing our guests with a safe and memorable experiences when traveling with us.

We look forward to speaking with you over the coming weeks and updating you on our next call. Have a great day. Thanks..

Thank you. This does conclude today's conference. You may disconnect your lines at this time..