Thank you, Evanie. Welcome to Hilton Grand Vacations' Second Quarter 2018 Earnings Call.

Before we get started, I'd like to remind you that our discussion this morning will include forward-looking statements. Actual results could differ materially from those indicated by these forward-looking statements and the forward-looking statements made today are effective as of today.

We undertake no obligation to publicly update or revise these statements. For discussion of the factors that could cause actual results to differ, please see the Risk Factor section of our previously filed 10-K or our 10-Q, which we will file later today.

In addition, we will refer to certain non-GAAP financial measures in our call this morning. 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.

This morning, Mark Wang, our President and Chief Executive Officer, will provide highlights from the second quarter 2018 in addition to an overview of current operations and company strategy. Jim Mikolaichik, our Executive Vice President and Chief Financial Officer, will then provide more details on our second quarter and expectations for the balance of the year.

Following their remarks, we will open the line for questions.

Before I turn the call over to Mark, you may have noticed we have filed a revision to our earnings release this morning corrects a transposition error on our guidance table in the high end of our range for license fees and segment EBITDA. It affected no other areas of the release or guidance.

And with that, let me turn the call over to Mark.

Well, thank you, Bob, and good morning. And it's great to be with you today the strong trends that we saw earlier in the year caried over into the quarter, as our teams continued to execute and deliver exceptional growth with contract sales increasing 10.5% in the quarter, with capital-efficient inventory making up 78% of these sales.

Our resort and club segment also had another great quarter with expanding margins and double-digit EBITDA growth. With this continued momentum, we are raising our full year contract sales guidance to 9% to 11% from 8% to 10% as well as increasing our adjusted EBITDA and adjusted free cash flow guidance.

Jim will provide additional details during his overview.

Other highlights for the quarter. We opened The Residences in New York and announced Quinn and Cabo acquisition, started sales at our fee-for-service property Ocean Enclave and began presales in Odawara.

I'm especially pleased to announce that HGV is entering the Chicago market with a partial conversion of the DoubleTree Chicago Magnificent Mile. I'll provide more details on this exciting opportunity later in my remarks.

In our real estate business, first-time buyers and ownership showed continued confidence in our brand as each segment posted impressive results for the quarter. We continued to lead the industry in engaging new customers with first-time buyers generating half of our [indiscernible] contract sales.

Double-digit tour growth and higher conversion rates in this segment helped drive 7% NOG.

In fact, just last week, HGV hit a major milestone when our club membership surpassed 300,000. In 10 years, we've more than doubled our member base and no one has come close to this organic growth that we've achieved in the last decade.

And we know that today's new buyers become tomorrow's highly engaged owners. But our selling efficiency with owners, that's the great force multiplier behind our successful story.

If you take our $690 million of contract sales to existing owners over the last 12 months and divide it by our owner base a year ago, we generated approximately $2,500 of owner sales for each owner in our system. We believe that at least 1.5x the industry average.

Said another way, our owner base is 50% more efficient at generating owner sales than the competition. This premium demonstrates the level of embedded real estate value and potential financing profits that exists in our owner base.

When you combine this with a growing stream of recurring club and management fees, I believe the value of our NOG strategy will be fully appreciated over time.

Shifting gears, I'd like to spend a few minutes talking about Hawaii, particularly the Big Island. I joined HGV in 1999 specifically to launch of our Hawaii business.

So I lived and worked there until 2008, and I know this area very well. We're having a great year in Hawaii, led by continued enthusiasm for our new Ocean Tower property on the Big Island in Waikoloa.

We're pleased to report this because since the increased activity at the Kilauea volcano started making headlines today, there's been some confusion about its effects on tourism and our business.

For those unfamiliar, the Big Island is larger than all of the other Hawaiian islands put together. And our properties are 100 miles away from Kilauea, essentially the distance between New York and Philadelphia, so the volcano poses no direct threat.

Local tourism and air traffic had been resilient. And our Waikoloa sales center had a record second quarter.

Our resort and club side, owner usage and rental volumes were strong. And occupancy at our Waikoloa properties was up year-over-year.

As for Ocean Tower specifically, it's been one of our most successful resort ever. And sales for the first 6 of the year topped [$125 million] and our tour pipeline continues to build.

So the headlines don't match reality for us.

Moving on, I'd like to spend a few minutes updating you on the progress we're making on our growth and investment strategy. The goal of separating from Hilton was to put us in a better position to allocate capital and pursue sales synergies that would maximize earnings growth, return on invested capital and ultimately free cash flow in order to drive long-term value for the shareholders.

Earlier this year, we made plans to invest approximately [$500 million] in inventory in new and existing markets. The reason for this are we're executing at a faster pace than we anticipated at time of spin.

We came into 2018 in a strong financial position. And we had compelling deals that shifted from [2017] into this year.

While we're investing in new and existing markets, we're taking distinct approaches and adopting different risk profiles in each. For example, the lion's share of our current spending is going into proven and established markets, like New York and Hawaii, markets we've been in for over 15 years.

These are high barrier-to-entry markets with long lead times that make inventory continuity vital.

In new markets, we're making smaller more tactical investments. New markets allow us to tap into new customer segments while increasing the value proposition of our club.

A good example is our new opportunity in Cabo. Hilton's property there is one of its premier resorts in North America.

We now have direct access to some of Hilton's best customers who have a demonstrated affinity for the Cabo market. This compliments a base of HGV owners with the same affinity for Cabo that today is using club points to book into non-HGV-affiliated resorts in the market.

So this new project in a new market will drive sales to new owners and improve the customer experience of existing owners, which stimulates additional owner sales.

Over the first half of this year, we articulated our increased investment fairly well. With that said, we could have done a better job of explaining how these investments would benefit our future growth and free cash flow.

So today, I'd like to put some numbers around our strategy. For each dollar of contract sales we shift from fee to owned, we should produce $0.10 to $0.12 of incremental real estate margin.

And given current portfolio averages, $0.37 of incremental financing revenue over 7 years following the sale. This should help accelerate our adjusted EBITDA growth over the next several years.

At our Analyst Day in December 16, we laid out a base case 3-year adjusted EBITDA growth to sales of 6% to 8% and we said that additional inventory investments could accelerate those growth rates.

We're already starting to see that with our investment in Ocean Tower. So in the near term, 2018 and '19, we expect to add 100 to 200 basis points to the base case growth scenario, consistent with our current guidance.

Beyond '19, we think we can accelerate to 300 to 400 basis points above the base case for several more years as our investments gain momentum.

As EBITDA grows and inventory spending stabilizes, we should see a nice ramp-up in adjusted free cash flow, starting at approximately $100 million next year and heading for $300 million by 2021. After that, we should stabilize around $300 million to $400 million.

But as I mentioned earlier, our strategy isn't just about accelerating operating growth, it's also about maximizing returns by making capital-efficient inventory investments and derisking those investments wherever possible, we can accelerate our earnings and still generate sector-leading returns on invested capital. When we combine our capital-efficient approach to inventory investment with our ongoing fee program, our ROIC should remain in the mid- to high 20s for the foreseeable future.

So let me walk you through some of the ways we approach derisking and capital efficiency in our inventory investment strategy. First, we tend to limit big-ticket projects to established markets and then target new markets with more bite-sized investments.

Then we focus mostly on conversions, third-party just-in-time deals or phased construction projects. with smaller capital outlays spread out over time and shorter intervals between investment and positive cash flow, these deal structures are more capital-efficient to produce higher returns than timeshare development deals.

You can see in our 2018 projects, 6 are conversions of [room blocks] in existing properties; and one, the Quin in New York, is a full conversion that we'll continue to operate as a hotel and generate cash flow throughout its phased renovation. Only one project is a greenfield development that we're rebuilding on a fully entitled site to meaningfully expedite our development timetable.

Beyond 2018, we have just-in-time projects in New York and Okinawa, with the option to build 100 cottages in phases at our [indiscernible] property.

And our fee-for-service business also remains an important part of our capital-efficient inventory program. This quarter, we successfully launched sales at our new Ocean Enclave property, a 300-unit fee-for-service deal at Myrtle Beach and our second new construction project there.

Including Hilton Head in Charleston, 4 of our 5 fee-for-service properties in South Carolina are new construction. This brings a -- I bring this up to point out that fee-for-service deals are not just a bear market phenomenon or the byproduct of broken real estate deals.

Fee-for-service works through the real estate cycle. Our 4 properties in South Carolina, The Grand Islander in Hawaii and our property in Tuscany, Italy are all purpose-built for HGV.

While we've talked a lot about owned inventory lately, our fee-for-service program is still very active and will remain 1/3 or more of our sales mix going forward. And if you look at our pipeline today, you will see that it remains skewed towards capital-efficient projects with over 3/4 of the inventory sitting in either fee-for-service or just-in-time projects.

So at the end of the day, without layering a lot of incremental risk into the business, we are giving up some excess ROIC, which the market wasn't giving us credit for in exchange for more robust growth, which the market ultimately should give us credit for.

To sum up, our new Chicago project is a perfect example of our growth and investment strategy at work. Chicago is a great new market for us.

It's a prime destination for dining, shopping, theater, sports and entertainment. Our project is in an A+ location in a property undergoing a total renovation.

Chicago gives us access to untapped customer in a market, where the Hilton brand has a very strong presence. We already integrated our HGV market into 6 key Hilton properties in the market.

This is an amazing deal. The owner is renovating the top 6 floors of their hotel and converting R hotel rooms to 78 timeshare units to our brand standards.

We'll pay for the units in installments through 2022 for a total cost of approximately $50 million and the project should generates higher return. When you look at it for a [Year-1] investment of under $12 million, we get an access to a capital-efficient deal that nicely sums up our growth in investment strategy, incredible new market, expanding customer access, bite-sized investment, capital-efficient deal structure with strong returns.

In closing, the business had another great quarter as our teams continue to execute and engage our customers. We had a record quarter in Waikoloa despite headline chatter around the volcano.

Our Cabo, Quinn, and Chicago announcements demonstrate that our ’18 growth and investment strategy is on track. And while it’s easy to get distracted by short-term noise, we remain focused on the long-term and are confident that this the best way to create meaningful value for our team members, our owners and shareholders.

With that, I’ll turn things over to Jim.

Thank you, Mark, and good morning, everyone. We understand that AT&T is having some global issues with the call, so everything may not be coming through exactly clear for the listeners.

We'll work through right afterwards to get a raw transcript posted to our IR site so that everybody has it, once the call concludes.

As Mark highlighted, second quarter results were solid across the board. Volumes increased in our real estate business for both new buyers and existing owners with strong margins and bottom line growth in our finance, resort, club and rental businesses.

Our momentum continues and we're again raising guidance. We now expect contract sales to increase by 9% to 11% and we've tightened our [adjusted EBITDA] the range.

As a reminder, our results reflect new accounting rules under ASC 606. For better comparability and as required in this transition year, I will also discuss our results under the previous percentage of completion accounting or POC.

Tables T-18 through 23 in the press release reconcile our results between the old and new accounting views.

We completed construction on The Residences project in New York City. Under 606, we recognize all the deferred revenues and expenses on this project in the quarter.

Ocean Tower in Hawaii remains under construction. So we're continuing to defer revenues and expenses related to that project.

Under POC, total company revenues increased 9% in the second quarter to $478 million, reflecting growth in all business lines and total company revenue increased [28%] under 606. Under POC, net income increased 29.4% as this year's lower tax rate amplified the benefit of a 9% increase in pretax income.

With 606, second quarter net income more than doubled to [$107 million]. Under POC, total segment adjusted EBITDA increased 12% and margin expanded [ 60 ] basis points.

As we discussed in the last quarter, we only defer direct revenues and expenses for projects under construction. we don't defer indirect expenses, which causes a timing mismatch that depresses margins in quarters with net deferrals and inflates them in quarters with net recognitions.

As a result, under 606, total segment adjusted EBITDA margin expanded 510 basis points and segment adjusted EBITDA increased 46% to $221 million. However, removing these effects for the full year results, we expect margins to remain consistent with historical levels and in line with our raised annual guidance.

Second quarter real estate fundamentals were strong. As tours, VPG, pricing and close rates all trended positively.

Contract sales increased 10.5%. The Asia Pacific region had an outstanding quarter with double-digit sales growth in Hawaii and Japan.

And South Carolina and Washington, D.C., we're standouts on the Mainland. New York City continues to work with limited inventory through 2018 but is well-positioned into 2019 with 2 new projects coming online.

With the Ocean Enclave launch, fee-for-service contract sales increased [16%] in the quarter while owned contract sales were up 4.5%. Our fee-for-service mix in the quarter was 54% compared to 51% last year.

On a POC basis, which we detail on [T-22], real estate revenues were up [13%] and real estate margin increased 4% to [$94 million]. The margin percentage declined 280 basis points to 34.1% as last year, we received a $10 million benefit from a one-time recognition of marketing package forfeiture revenues.

Absent that, margin would have increased 18% and the margin percentage would have expanded 130 basis points.

In the 606 view, real estate revenues increased 49%, mostly reflecting $91 million of revenue recognition and favorable rescission reportability. Real estate margin under 606 increased 67% and the margin percentage was 41.3%, reflecting a positive impact from revenue and expense timing on previous deferrals.

To wrap up real estate, we still expect to complete construction of Ocean Tower in the fourth quarter and recognize all remaining deferrals at that time.

Turning to our financing business. Margin increased 8% as modestly higher costs offset some of the revenue gains from growth in the receivables portfolio, a higher weighted average interest rate and higher servicing fees.

The consumer finance portfolio increased by $28 million in the quarter and our average interest rate increased by 2 basis points. The long-term allowance increased to 12.6% from 11.8% last quarter.

At a segment level on a POC basis, Real Estate Sales and Financing segment adjusted EBITDA increased 8% to $107 million and the margin contracted 10 basis points to 30.6%. Under the 606 view, Real Estate Sales and Financing segment adjusted EBITDA increased [65%].

Turning to resort and club, revenues increased 6%, aided by 7.2% NOG and margins remained strong at 70.3%. Rental and ancillary revenues increased [15%] as it continued to effectively yield-manage our rental inventory, fee-for-service inventory transitioned into our club rental program.

Costs were down slightly and rental and ancillary margin increased 44% to $23 million and the margin as percentage expanded 940 basis points. At a segment level, second quarter Resort Operations and Club Management segment adjusted EBITDA increased 12% to $58 million and margins expanded 270 basis points to 59.2%.

Bridging the gap between the segments and adjusted EBITDA, license fees increased $2 million to $25 million, G&A expenses were down $2 million and our JV reported a small loss in the quarter related to a purchase accounting adjustment on the loan portfolio. On a POC basis, adjusted EBITDA increased 12% to $119 million.

For the 606 view, adjusted EBITDA increased 65% to $175 million.

Turning to the balance sheet. Our corporate leverage at quarter-end was 1.5x or 1.2x on a net basis.

During the quarter, we drew $160 million on our bank revolver and $100 million on our receivables warehouse. We ended the quarter with $203 million in cash, including $72 million of restricted cash.

Debt was $637 million. We have $40 million of capacity on our revolver and $220 million of capacity on the warehouse.

We still expect to be in the market this quarter to upsize and extend our maturities on a new term loan and revolver. And we also expect to market an ABS deal around the same time.

And we continue to believe the market conditions remains favorable for both transactions.

Second quarter, adjusted free cash flow was negative $111 million compared to a negative $20 million last year. And the primary driver was the $176 million investment in the Quin in New York City, which was partially offset by a draw on the warehouse.

Before I get to the guidance details, I'd like to reiterate and expand on Mark's comments about our growth and investment strategy. As Mark indicated, we expect our adjusted EBITDA growth for both 2018 and '19 to accelerate to 100 to 200 basis points above our 6% to 8% investor day base case base case before accelerating to 300 to 400 basis points above base case for the subsequent 2-3 years.

As we get through this accelerated inventory investment period, $500 million this year and approximately $400 million for [‘19 and ‘20].

Ramping EBITDA should produce a rapid recovery in adjusted free cash flow. [indiscernible] inventory, we're building or acquiring timeshare units to sell.

We're not acquiring hotels or building ownerships to operate for multiple years. Inventory spending is a use of operating cash, not a traditional CapEx investing activity.

We recover part of inventory investment with each unit we sell as product cost. And cost of VOI on our P&L is a noncash expense.

It's an offset to inventory spending and operating cash. As such, ramping up inventory spending only has a short-term impact on operating cash flow.

$100 million next year, $300 million by 2021 and [ $300 million] after that. And as a reminder, this is after steady-state inventory spending and net securitization proceeds.

So this gives us the flexibility to return capital and/or pursue additional growth opportunities.

Turning to our 2018 guidance. We're raising full year contract sales guidance by 100 basis points to 9% to 11%.

We're also tightening our 2018 adjusted EBITDA guidance range to $489 million to $504 million from $405 million to $505 million for the 606 view. This includes $67 million of adjusted EBITDA related to [net deferrals] made at The Residences prior to 2018 recognized in 2016 and 2017 under the old POC rules.

As part of [indiscernible] 606, we had to unbook those profits at the beginning 2018 and wait until we finished construction in the quarter to rebook them.

To get to a POC view of our 2018 guidance, you can subtract [ $67 million] from our EBITDA guidance range, which would get you to $422 million to $437 million. This range would offer an apples-to-apples comparison to the $395 million of adjusted EBITDA we reported in 2017.

So on a POC basis, we're guiding to 7% to 11% growth. For reference, our previous 2018 adjusted EBITDA guidance under POC was $407 million to $437 million.

Also as you refine your 2019 earnings estimates, you should apply 2019 growth rates to our POC view of adjusted EBITDA, not the 606 view. We don't expect to carry any deferrals into 2019 from 2018.

While we're not going to change our quarterly guidance policy, we know modeling has been tough this year with the transition to 606. To help get through the rest of the year, I'll walk you through the deferrals and recognitions that form the $67 million full-year bridge between POC and 606 adjusted EBITDA views.

We have net deferral of $33 million in Q1 and a net recognition of $56 million in Q2. For the balance of the year, we expect the deferral of approximately $24 million in Q3 and a net recognition of approximately $68 million in Q4.

That should result in a full-year net benefit of $67 million.

And before closing, I have one last bit of housekeeping. We're planning on an Investor Day for [early December], which will be 2 years since our initial event.

Our intention is to take a deeper dive in some critical areas of our business, provide more details about our long-term strategy and update our long-term financial outlook. And we will provide more details as the event gets closer.

That completes the prepared remarks. And I'll now turn the call back over to the operator, and we look forward to your questions.

Thanks for the incremental color on the long-term growth outlook. That's helpful.

I have a question on the accounting changes. Just kind of given this -- the impacts that we're seeing, has this changed the way that you're potentially planning some deals?

I'll put it another way, are you doing anything to sort of try and minimize the future reportability nuances at all?

Yes, this is Mark. We're not changing the way we run our business.

We've had this reportability nuances in the past. But obviously, these new changes created some bigger swings.

The impact is more timing-related and it's not related to value. So our focus is to continue using the same discipline around growth and returns on investment.

And so we're not going to sacrifice and invest in high-return deals based on timing. That said, there are some opportunities to try to time some things better.

But at the end of the day, we're not going to shy away from really good investments. I mean, if the timing [indiscernible] doesn't fall within a [indiscernible] completion doesn't fall within a particular quarter.

I think as we move forward, we are required to reconcile this year between POC and 606. Everything will be out in the wash by the end of the end of the year and all deferrals will be recognized, and removing the $67 million that I referenced from the 606 guidance should give you a good jumping off point for 2019 moving forward.

As we get that all through the system, our intention is probably to come out with something that is more of an economic model so that any construction that we do that has the opportunity to potentially carry over a year doesn't at all impact the way you look at the business, which is the way we basically look at the business internally.

That's helpful. And just broadly on capital allocation, I was wondering if you could just give us an update on your capital allocation strategy, kind of more broadly on investment spend now that you're 1.5 years as a stand-alone company.

And would you, I guess, the board potentially revisit [indiscernible] the weakness you've seen in your shares recently?

Well, I think, Brandt, we continue to believe that our strategy for growth is on the right track. And I think I'm not sure what's happening with the share price.

As you can see from this quarter's results, we've had really great operating performance and execution. And I think when you -- I think when you look back -- and some of the questions we're getting is, are we investing into potential end of the cycle or shift in the macro conditions?

And I think historically, our industry has done a lot better in downturns. And we've demonstrated -- we demonstrated, HGV demonstrated the resiliency through the worst conditions, in '09 and '10, we actually grew through the financial crisis.

And probably the best example I can provide is our peak investment inventory prior this year was 2007 when we had $400 million in 3 projects in Hawaii, New York and Orlando, all of which were very successful and ultimately met our financial goals. And they also contributed substantial cash flow that went up to Hilton during that period of time.

And in fact, in that period of time, our business outpaced the lodging side of Hilton from '09 to '12. So there's a big difference in our models.

And they tend to get kind of bunched together with the, I'd say, lodging model, crews, casinos are kind of bunched more into the traditional supply-and-demand model. And the big difference for us is we're built around demand creation.

And so it's not the conventional supply-and-demand model. And I think we're in a much better place today than we were in 2008.

And we're really well set up for the future. And I think we'll be able to endure any type of downturn and I actually think we'll be able to continue growing through the downturn.

Why are we -- why do I think we're in a better place today than 2008? We have a high-quality base of owners, right?

They're super, super loyal. We've doubled that base of owners since 2008.

We've got the value of this net owner growth. And we have 25 years of that.

And we've got -- so we've got a lot of recurring fees. In fact, just the last 5 years, we've seen our club and resort EBITDA double.

And we also have this embedded up-sell for our owners. And I talked earlier in the prepared remarks how we're yielding much better than the industry average.

So we know, based on -- there's 25 years of data that the behavior of our owners, we believe we'll continue to be strong during any shift in the macros. And so we feel comfortable.

We've got 50% of our sales are covered off there. And then we have this tremendous untapped opportunity with Hilton customers.

Today, our owner base represents only 0.5% of the owner base. And then on top of that, all of our margins in our business lines are very, very strong.

And if we need to pull back on inventory investment for whatever reason, we have ample inventory going forward to really carry us through a downturn. So I think there -- perhaps there's a concern that we're investing [indiscernible] into this cycle.

But we're very confident that we're doing the right thing and that this is all going to play out very positive for us.

Thanks again for free cash flow commentary. As we think about the $300 million to $400 million run rate, which I think you said was in 2022, is that a stabilized free cash flow number?

Or are there other investment and one-time items in there? And can you maybe help reconcile that range with the nearly $300 million in free cash flow in 2017, think about the incremental return on the $500 million-plus you're putting out?

The $300 million in 2017 was -- essentially, it had a couple of things embedded in it. There's tax deferrals.

And as Mark said earlier, we pushed some inventory spend from '17 to '18. So '17 was an elevated amount.

And what we said at the start of Investor Day in 2016 is that a steady state run rate in the current business environment, absent the investments we're making, was about $150 million to $200 million, which is approximately what we would have had if you change that inventory scenario from the tax deferrals last year. After making the investments, we think we're going to ramp free cash flow and adjusted free cash flow on the back end to a steady state with [indiscernible] $300 million to $400 million and potentially above that as we push forward.

So we do think that's a steady-state run rate on a bigger business after we make these investments.

That's very helpful. And then you alluded to having some flexibility in the inventory that you're deploying.

I guess, how much of the inventory investment to get that step-up in free cash flow has already been spent? And how much of what is still to come is just-in-time or has looser kind of capital commitments?

Most of the upfront commitments happening this year, so you -- we just announced the Quin and we have one or two other projects that would increase the spend to $500 million that we quoted. The spend that we have in the next few years is partially related to construction on developed projects and partially related to just-in-time phased inventory.

And it's probably -- it's a mix, but there is some flexibility on the construction side and we do have things paced out on the just-in-time side in the next several years.

Yes. And just to follow up, Steve, I think one important thing that hopefully people are hearing out there is that we're not making a move away from capital efficiency.

We're still -- we still believe that these 4 pipeline, I think I mentioned 78% of our sales in the first -- the second quarter were capital-efficient. Our pipeline is building to a very capital-efficient pipeline.

What we're really looking at is we're looking at shifting some of these fee deals that we've been doing and shifting them into just-in-time deals. And as we've alluded to, we think there's some really strong benefits of mix shift.

And it makes a lot of sense for us at this point in time.

Great. Maybe one last one.

Are you seeing any change in consumer behavior or even any change in trends among the new customers, the new owners, I guess, that you're signing up by market?

Yes. Look, I think trends right now are really good across the board.

This year, not only are we seeing improvements in just flow-through of more customers coming through the door, but we're seeing conversion rates go up. We're seeing transaction rates go up.

The performance in our Hawaii and Japan region has been extremely strong. But I'd say across the board, it's been really strong.

I think the one exception is New York, it's been flat. We've talked about that.

That's really due to the inventory. We see that fixing itself towards the end of [2018].

But all in all, if anything, we've seen a trend up in the add-on sales for buyers who bought over the last 5 years. I think at Investor Day, we're talking $1 for $1.

Now we're seeing -- we saw a trend up to $1.10 for $1. And it's actually still trending up a bit from there.

So the consumer side is really, really good. And our demand strategy continues to play out really well.

Just a couple of questions here. Why don't you consider share repurchases at this level?

Certainly, the stock gets a little overdone today and [indiscernible] you have the balance sheet there to add more leverage. What's stopping you?

Yes. Look, I think, Patrick, we said from the beginning the first couple of years that we were going to put our money into the business to help grow the business.

And right now, as you've heard, we're investing in growth and we continue to be very disciplined around that. So we're looking at deals today that are generating 15% to 20% after-tax unlevered IRRs.

So these are really, really good deals. And a lot of them are just-in-time.

So we see the investment that we're making now is really going to be a catalyst for strong growth. That being said, as we ramp up our cash flow, and Jim put it to this more stable state of $300 million to $400 million, at that point, we're going to be a much bigger business with a lot more cash flow and we have the flexibility.

And clearly, our board and, I think, management will be open to that conversation at that point.

Okay. Second question, and you may have touched on this earlier in the call, Hawaii didn't sound like to date really as far as sales, the volcano has impacted things.

But how about future tour volumes and reservations made for that property on the Big Island? How is -- how have those been tracking?

Really well. And I think that's -- I was trying to really to get across that the volcano, while it is -- that volcano has been active for 25 years, the activity has really stepped up.

But the business has been exceptional. And when we look forward, we continue to see forward bookings remain strong.

And this success we're having with Ocean Tower, Patrick, we had a budget of $64 million for the year of Ocean Tower. And we're sitting here midyear at $125 million.

We're actually very, very pleased with how that's going. And so all in all, I can tell you that, I think, business on the Big Island is well.

Air traffic is up year-over-year and tourism seems to be strong there. So at the end of the day, we think right now, unless something changes, it will continue to be strong in the rest of the year.

Questions for Mark, perhaps, to start. When you sit down with your third-party developers, are they starting to see financial terms tighten for development?

And is that perhaps why you're bringing some of this inventory spend forward?

No, we haven't heard any of that out there. And I know -- we're hearing some of that on the lodging side.

I think the economics in our projects are different. It's a different profile.

And when they underwrite deals, the model is really generating a lot more cash flow upfront. And we've had such success with our third-party partners.

We're really excited to be working with the Related group and Chartres on this new deal in Chicago. So I guess, to answer your question, we have not had any pushback or hearing that at this point in time.

The inventory spend we're making, it's really because we found some really good values. We're able to be opportunistic in a couple areas and we jumped on them.

Yes. And I'd follow up on Chicago, a really great point for us is we're seeing opportunities on conversions where replacement cost is higher than what we can convert at.

So there's an opportunity for us to take advantage of that right now.

Fantastic. And then one follow-up if I may, slightly bigger picture.

I mean, the upper-upscale segment of timeshare is going from the 3 companies to 2. Are there any changes or impacts that you foresee?

We don't see really any changes at all. I mean, we were competing against those 2 [businesses] as separate companies.

And again, we're in this demand creation business that we basically control the demand creation. And Marriott and ILG together, they're basically working off their database, the combined [Marriott] and

Starwood and we have our own database. We have tremendous amount of data out there.

I think I mentioned earlier, we've only kind of traded at 0.5% of the Honors members today. So the opportunities in front of us are strong.

So we don't see that, the 3 going out to 2, having any impact on us at all.

So can you just remind me, at the end of this year, after you spend the $520 million on inventory, how many years of contract sales will you have in fee-for-service inventory and also in owned inventory?

Yes, you broke up a little bit. I think we're looking at right now, we've got about [5.8] years of sales.

That bakes in pretty much -- that bakes in everything we've announced. I think when we spun [5] years, so we've been actually absorbing because of our limited spending over the first 18 months, we've been absorbing inventory.

Okay. Yes, I'm sorry, we're just having some phone issues.

It's still breaking up. But I think if I heard you correctly, you said 5 years in total for both owned and fee-for-service.

Is that correct?

Yes, it's 5.8 for both. That's correct.

And that's based on our current sales pace. It's based on our trailing 12-month pace.

So in reality, it's less than that because our sales continue to accelerate.

Got it. And is there a specific targeted level that you guys want to be at?

I mean, how do we think about that over the longer term?

I think for us, one of the benefits we have is 35%, 40% of the inventory sits on somebody else's balance sheet. That being said, in these core markets, we need to make sure, we're -- in these core markets, we're selling $200 million, $300 million a year, we need to make sure we have enough inventory out in front of us.

And so we pro forma these to make sure that we have enough inventory upfront. So I don't know that there's any magic number on that.

But we continue to pursue a flexible spectrum of just-in-time, fee-for-service, hybrid deals. So we feel good about our balance now.

We'll probably add a little bit more to that. As we're adding more, we're burning inventory off.

I think with what we guided in terms of cash flow and inventory spending through the next few years with what we see earmarked on developed just-in-time deals. On the back of that, I think you can look for us to be turning back towards our fee-for-service as a couple of our bigger projects will start to sell.

So we've always kept it at about [50-50] mix. Historically, we see that continuing for the next couple of years.

And then as the projects come on and the spending normalizes, we can turn back to fee-for-service and try to place inventory out, there are a couple of big projects in Hawaii and Las Vegas start to sell off. So we should be set up really well for a number of years off of the spend that we have earmarked for the next few years and see a really good crescendo to our free cash -- adjusted free cash flow off of the back end, leveraging our inventory models in a really balanced way going forward.

Okay. And I may have missed this earlier on the call as it was cutting in and out.

But how are you thinking about the cadence of contract sales growth next year and into the following years? And if we go back to Analyst Day before the spend, you were talking about sort of a 5% to 7% sort of 3-year outlook.

You've obviously surpassed that, running at around 9% in the last 2 years. So maybe you can just help me understand the new 3-year outlook as this cadence sort of ramps with the inventory spending.

Our [indiscernible] is to give a new 3-year and 5-year look at the Investor Day later in the year. But given the growth rates that Mark and I illustrated, you can expect contract sales to pose a similar model with what we're saying on the adjusted EBITDA side.

So that 6% to 8%, getting 100 to 200 basis points, 300 to 400 basis points again in the outer years. And I would expect contract sales to follow a similar model, maybe even a slightly elevated model because some of the new products that we're bringing on has slightly higher cost of product.

So we may need to generate a little bit more on the contract sales side to generate the growth. But all in, it should follow a similar trajectory to what we're saying on the bottom line.

Regarding your discussions with the development partners, how are they feeling about like the current economic cycle and their future development plans? And has that interest in new deals changed at all over the past, say, a year or 2?

Yes, I think we've got a lot of opportunities that we're looking at and talking about. We're being very, very selective on deals because at the end of the day, we talk a lot about inventory, but it's really about the demand creation matching up to new inventory and to new markets, right?

And so I think, as I said earlier, we've got a couple negotiations that are going on. I think people feel pretty good.

And those that understand our business and understand it's not the normal supply and demand model that we control a lot more the destiny of how a project performs, they're very comfortable with the discussion of continuing to do new deals with us.

And we just announced the Charleston deal. And as Mark said, we have a few other fee deals that we're currently negotiating.

And ultimately, if we do see some headwind or recessionary indicators, I think those are the times where we make [indiscernible] because those are times when our partners step in and have the capital because of who they are, to work with us on deals that create broken deals and even cheaper sources of inventory. So I think the fact that we're spending sort of on our own balance sheet today with the backstop on the fee side to have our partners step in, similar to what we did in the last recession, can step in on some broken deals and generate even more inventory opportunities.

And then have you seen any shift in preference from fee-for-service to JIT as your developers kind of get more comfortable with them?

No, I think at the end of the day, these deals come to us. We have a couple developers that we've been exclusive fee partner.

And we've -- now shift to this hybrid, where we're doing fee deals and then investing side-by-side with them, [indiscernible] benefit from some of the real estate and financing economics. But our preference again is in some new markets where there's more risk, we prefer to initially go in as a fee deal.

And then markets that are more core, more proven with less risk, really put more of our money into those markets.

That's helpful. And then lastly, does the strong dollar have any impact on your sales to your Japanese client base?

We haven't seen any impact. We've been selling to Japanese for 18 years and we've kind of sold through the -- a fairly wide range, from the [ 80s to 125s ].

And so right now, as I said earlier, our sales in APAC, which is partially in Japan. And then we also sell to a lot of the Japanese that are traveling to Hawaii.

It remained very, very strong.

Well, thank you, everyone, for joining us this morning. We're having a great 2018.

The business is performing well and our growth strategy is unfolding as we expected. We believe that capital-efficient investment we are making today and exciting new projects are going to yield meaningful in our EBITDA growth and free cash flow production.

And as always, we appreciate your continued interest in HGV and look forward to speaking to you next quarter.