Exhibit 99.2
| Investor Contact: | Media Contact: | |
Robert LaFleur | Erin Pagán | |
407-613-3327 | 407-613-3771 | |
Robert.Lafleur@hgv.com | Erin.Pagan@hgv.com | |
FOR IMMEDIATE RELEASE
CORRECTING and REPLACING Hilton Grand Vacations Reports Second-Quarter 2018 Results; Raises Guidance
CORRECTION...by Hilton Grand Vacations
ORLANDO, Fla. (Aug. 2, 2018) – Financial table FORWARD-YEAR ADJUSTED EBITDA RECONCILIATION of release dated August 1, 2018, under 2018 High Case column: License fee expense should be 98 (instead of 89) and Segment EBITDA should be 682 (instead of 673).
The corrected release reads:
Hilton Grand Vacations Inc. (NYSE:HGV) (“HGV” or “the Company”) today reports its second-quarter results. Highlights include:
| • | Diluted EPS was $1.10 and net income was $107 million for the second quarter. |
| • | Adjusted EBITDA was $175 million for the second quarter. |
| • | Contract sales for the second quarter increased 10.5 percent from the same period in 2017. |
| • | Net Owner Growth (NOG) for the 12 months ending June 30, 2018, was 7.2 percent. |
| • | Acquired the Quin in New York City for $176 million with plans to convert existing hotel rooms into 212 timeshare units. |
| • | Announced it made a $41 million deposit to purchase 87 of the 375 hotel rooms within the Hilton Los Cabos Beach and Golf Resort in Los Cabos, Mexico. |
| • | Opened The Residences by Hilton Club in New York City and began sales at Ocean Enclave in Myrtle Beach, South Carolina. |
| • | Adoption of ASC 606 increased second-quarter reported revenues and operating expenses compared to the previous accounting guidance. Under the previous accounting guidance, second quarter revenue, net income and adjusted EBITDA increased 8.9 percent, 27.5 percent and 12.3 percent respectively. |
Overview
For the three months ended June 30, 2018, diluted EPS was $1.10 compared to $0.51 for the three months ended June 30, 2017. Net income was $107 million for the three months ended June 30, 2018, compared to $51 million for the three months ended June 30, 2017, and adjusted EBITDA was $175 million for the three months ended June 30, 2018, compared to $106 million for the three months ended June 30, 2017.
Total revenues for the three months ended June 30, 2018, were $563 million, compared to $439 million for the three months ended June 30, 2017.
Adoption of ASC 606 increased revenue for the three months ended June 30, 2018, by $85 million compared to the previous accounting guidance. The comparable increase was $42 million to net income, $0.44 per diluted share to EPS and $56 million to adjusted EBITDA.
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“The solid execution of our teams in the U.S. and Japan has delivered consecutive quarters of strong operating performance, including contract sales, Net Owner Growth and strategic deployment of capital,” says Mark Wang, president and CEO, Hilton Grand Vacations. “As a result, we are raising guidance based on the momentum we’re experiencing across the company and from sales of our new Ocean Tower project, which demonstrates how the investments we’re making position us well to accelerate continued growth.”
Segment Highlights – Second Quarter
Real Estate Sales and Financing
Real Estate Sales and Financing segment revenue was $435 million in the second quarter of 2018, an increase of 34.7 percent, compared to the same period in 2017. Real Estate Sales and Financing segment adjusted EBITDA was $163 million in the second quarter of 2018, compared to $99 million in the same period in 2017. Real Estate Sales and Financing segment adjusted EBITDA margin as a percentage of Real Estate Sales and Financing segment revenues was 37.5 percent in the second quarter of 2018, compared to 30.7 percent for the same period in 2017.
Contract sales were $357 million in the second quarter of 2018, an increase of 10.5 percent compared to the same period in 2017. Fee-for-service contract sales represented 54.1 percent of total contract sales in the second quarter of 2018, compared to 51.4 percent in the same period in 2017. Tours increased 8.2 percent to 94,269 in the second quarter of 2018, compared to the same period in 2017. Volume Per Guest (VPG) for the second quarter of 2018 was $3,597, an increase of 2.7 percent compared to the same period in 2017.
Under the guidelines of ASC 606, sales of Vacation Ownership Intervals (VOIs) and all related direct expenses for projects under construction are deferred until construction is fully complete. In the second quarter of 2018, HGV completed construction at The Residences in New York City, and the property received its certificate of occupancy. As such, during the quarter, the Company recognized deferred revenues and expenses related to sales at The Residences that were made prior to May 2018, including sales that occurred prior to 2018 that had been recognized on a percentage of completion basis under the previous accounting guidance. As part of the adoption of ASC 606, those recognitions had been reversed at the beginning of 2018.
During the quarter, HGV also continued to defer recognition of revenues and direct expenses related to sales at its Ocean Tower property in Waikoloa, Hawaii, which remains under construction. The company expects to recognize these revenues and expenses in the fourth quarter of 2018.
Under ASC 606, HGV’s second quarter 2018 real estate margin reflects the net recognition of $87 million in sales of VOI revenue, $20 million of cost of VOI sales and $11 million of sales and marketing expense, net compared to the previous accounting guidance.
Additionally, second quarter of 2017 real estate results were positively impacted by a non-recurring benefit from forfeiture revenue realized on marketing packages, which reduced sales and marketing expenses by $10 million.
Financing revenues were $39 million in the second quarter of 2018, an increase of 8.3 percent compared to the same period in 2017.
The weighted average FICO score of new loans made to U.S. and Canadian borrowers at the time of origination was 749 for the six months ended June 30, 2018, compared to 745 for the six months ended June 30, 2017. For the six months ended June 30, 2018, 65.1 percent of HGV’s sales were to customers who financed part of their purchase.
As of June 30, 2018, gross timeshare financing receivables were $1.2 billion with a weighted average interest rate of 12.2 percent and a weighted average remaining term of 7.7 years. As of June 30, 2018, 2.2 percent of HGV’s financing receivables were more than 30 days past due and not in default.
Resort Operations and Club Management
Resort Operations and Club Management segment revenue was $98 million in the second quarter of 2018, an increase of 6.5 percent compared to the same period in 2017. Resort Operations and Club Management segment adjusted EBITDA was $58 million in the second quarter of 2018, compared to $52 million in the same period in 2017. Resort Operations and Club Management segment adjusted EBITDA margin as a percentage of Resort Operations and Club Management segment revenues was 59.2 percent in the second quarter of 2018, compared to 56.5 percent for the same period in 2017.
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Inventory
The estimated contract sales value of HGV’s pipeline of available inventory is approximately $7.8 billion at current pricing or approximately 5.8 years of sales at the current trailing 12-month sales pace. The estimated contract sales value of HGV’s pipeline of available owned inventory is approximately $5.1 billion or approximately 3.8 years of sales. The estimated contract sales value of HGV’s pipeline of available fee-for-service inventory is approximately $2.7 billion or approximately 2 years of sales.
Of the current pipeline of available inventory, 42 percent is considered just-in-time and 35 percent is considered fee-for-service. As such, the Company considers 77 percent of its pipeline of available inventory to be capital efficient.
Balance Sheet and Liquidity
As of June 30, 2018, HGV had $637 million of corporate debt outstanding with a weighted average interest rate of 5.2 percent and $604 million of non-recourse debt outstanding with a weighted average interest rate of 2.7 percent.
Total cash and cash equivalents was $203 million as of June 30, 2018, including $72 million of restricted cash.
Free cash flow, which the Company defines as cash from operating activities, less non-inventory capital spending, was ($163) million for the six months ending June 30, 2018, compared to $156 million for the six months ending June 30, 2017. Adjusted free cash flow, which the Company defines as free cash flow less non-recourse debt activity, net was ($143) million for the six months ending June 30, 2018, compared to $111 million for the six months ending June 30, 2017.
Outlook
Full-Year 2018
| • | 2018 guidance reflects the modified retrospective adoption of ASC 606 and may not be comparable to prior year presentations. |
| • | Net income is projected to be between $285 million and $300 million. |
| • | EPS is projected to be between $2.91 and $3.06. |
| • | Adjusted EBITDA is projected to be between $489 million and $504 million, which includes $67 million of net deferral impact related to a project under construction in 2017, due to the adoption of ASC 606. |
| • | Full-year contract sales are expected to increase between 9 and 11 percent. |
| • | Fee-for-service contract sales are expected to be between 50 and 55 percent of full-year contract sales. |
| • | Free cash flow is projected to be between ($240) million and ($280) million. |
| • | Adjusted free cash flow is projected to be between ($20) million and ($80) million.(1) |
| • | Inventory spending, which is included in cash flow from operating activities, is projected to be between $510 million and $530 million. In addition to ongoing and previously announced projects and initiatives, this amount includes approximately $140 million of anticipated spending on new projects during 2018 that have not yet been announced. |
| (1) | Adjusted free cash flow represents free cash flow less non-recourse debt activity, net. |
Transactions and Subsequent Events
During the second quarter, HGV acquired the Quin, a 208-room hotel located in New York City for $176 million. It plans to convert the existing rooms into 212 studios and one- and two-bedroom timeshare units. The property will remain open during renovations and, pending registration, sales are anticipated to begin in the fourth quarter of 2019. The Quin is the latest addition to HGV’s New York City portfolio of urban timeshare properties, which also includes The Residences by Hilton Club, The Hilton Club – New York and West 57th Street by Hilton Club.
HGV has made a $41 million deposit to purchase 87 of the 375 hotel rooms within the Hilton Los Cabos Beach and Golf Resort in Los Cabos, Mexico. It plans to convert the 87 rooms into 74 timeshare units. The total project investment is expected to be approximately $50 million, including the deposit, renovations and start-up costs. Pending completion of the condominiumization of the entire resort, HGV expects to obtain title and begin renovations to its 87 units in mid-2019, with sales expected to commence by
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the end of 2019. The AAA Four-Diamond oceanfront resort is situated on 11.3 acres along the San Jose-San Lucas corridor at the tip of the Baja California peninsula and offers access to one of the area’s only swimmer-friendly beaches.
Conference Call
Hilton Grand Vacations will host a conference call on Aug. 2, 2018, at 11 a.m. (EDT) to discuss second-quarter results. Participants may listen to the live webcast by logging onto the Hilton Grand Vacations’ Investor Relations website at http://investors.hgv.com/events-and-presentations. A replay and transcript of the webcast will be available on HGV’s Investor Relations website within 24 hours after the live event.
Alternatively, participants may listen to the live call by dialing 1-888-312-3049 in the U.S. or +1-323-794-2112 internationally. Please use conference ID# 2656130. Participants are encouraged to dial into the call or link to the webcast at least 20 minutes prior to the scheduled start time. A telephone replay will be available for seven days following the call. To access the telephone replay, dial 1-888-203-1112 or +1-719-457-0820 internationally and use conference ID# 2656130.
New Accounting Standards and Adjusted Results
HGV adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASC 606”), on Jan. 1, 2018, under the modified retrospective method of adoption. The following are some of the significant changes to the Company’s consolidated financial statements:
| • | Revenue and direct expense related to sales of VOIs under construction will be recognized when construction is completed, as opposed to recognizing revenue and related expenses under a percentage of completion method; |
| • | Revenue on prepaid discounted vacation packages will be recognized proportionately as packages are redeemed, as opposed to when the likelihood of redemption is considered remote; and |
| • | Revenue and expense related to certain sales incentives where HGV acts as the agent will be recognized on a net basis, as opposed to recognized on a gross basis. |
The following tables show the estimated impacts that the ASC 606 adjustments would have had to HGV’s quarterly and annual 2017 operating results, EBITDA and adjusted EBITDA, if HGV had adopted ASC 606 utilizing the full retrospective method of adoption.
T-1
| | 2017 Results Prior to ASC 606 | |
($ in millions, except per share data) | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Full Year | |
Total revenues | | $ | 399 | | | $ | 439 | | | $ | 426 | | | $ | 447 | | | $ | 1,711 | |
Total operating expenses | | | 316 | | | | 348 | | | | 350 | | | | 360 | | | | 1,374 | |
Net income | | | 50 | | | | 51 | | | | 43 | | | | 183 | | | | 327 | |
Earnings per share: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.51 | | | $ | 0.51 | | | $ | 0.43 | | | $ | 1.85 | | | $ | 3.30 | |
Diluted | | $ | 0.51 | | | $ | 0.51 | | | $ | 0.43 | | | $ | 1.83 | | | $ | 3.28 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 50 | | | $ | 51 | | | $ | 43 | | | $ | 183 | | | $ | 327 | |
Interest expense | | | 7 | | | | 7 | | | | 7 | | | | 6 | | | | 27 | |
Income tax expense (benefit) | | | 26 | | | | 33 | | | | 28 | | | | (103 | ) | | | (16 | ) |
Depreciation and amortization | | | 7 | | | | 7 | | | | 7 | | | | 8 | | | | 29 | |
Interest expense, depreciation and amortization included in equity in earnings from unconsolidated entities | | | — | | | | — | | | | 2 | | | | 1 | | | | 3 | |
EBITDA | | | 90 | | | | 98 | | | | 87 | | | | 95 | | | | 370 | |
Other (gain) loss, net | | | — | | | | — | | | | (1 | ) | | | 1 | | | | — | |
Share-based compensation expense | | | 3 | | | | 5 | | | | 5 | | | | 2 | | | | 15 | |
Other adjustment items (1) | | | 1 | | | | 3 | | | | 3 | | | | 3 | | | | 10 | |
Adjusted EBITDA | | $ | 94 | | | $ | 106 | | | $ | 94 | | | $ | 101 | | | $ | 395 | |
(1) | For the year ended Dec. 31, 2017, amount includes $8 million of costs associated with the spin-off transaction. |
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T-2
| | 2017 Results Adjusted for ASC 606 Adoption | |
(in millions, except per share data) | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Full Year | |
Total revenues | | $ | 387 | | | $ | 414 | | | $ | 411 | | | $ | 424 | | | $ | 1,636 | |
Total operating expenses | | | 307 | | | | 340 | | | | 342 | | | | 344 | | | | 1,333 | |
Net income | | | 47 | | | | 41 | | | | 39 | | | | 166 | | | | 293 | |
Earnings per share: | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 0.48 | | | $ | 0.41 | | | $ | 0.39 | | | $ | 1.67 | | | $ | 2.95 | |
Diluted | | $ | 0.48 | | | $ | 0.41 | | | $ | 0.39 | | | $ | 1.66 | | | $ | 2.94 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 47 | | | $ | 41 | | | $ | 39 | | | $ | 166 | | | $ | 293 | |
Interest expense | | | 7 | | | | 7 | | | | 7 | | | | 6 | | | | 27 | |
Income tax expense (benefit) | | | 26 | | | | 26 | | | | 25 | | | | (92 | ) | | | (15 | ) |
Depreciation and amortization | | | 7 | | | | 7 | | | | 7 | | | | 6 | | | | 27 | |
Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates | | | — | | | | — | | | 2 | | | | 1 | | | | 3 | |
EBITDA | | | 87 | | | | 81 | | | | 80 | | | | 87 | | | | 335 | |
Other (gain) loss, net | | | — | | | | — | | | | (1 | ) | | | 1 | | | | — | |
Share-based compensation expense | | | 3 | | | | 5 | | | | 5 | | | | 2 | | | | 15 | |
Other adjustment items (1) | | | 1 | | | | 3 | | | | 3 | | | | 5 | | | | 12 | |
Adjusted EBITDA | | $ | 91 | | | $ | 89 | | | $ | 87 | | | $ | 95 | | | $ | 362 | |
(1) | For the year ended Dec. 31, 2017, amount includes $8 million of costs associated with the spin-off transaction. |
The following table includes revenue and expenses expected to be recognized in the future related to sales of VOIs under construction as of June 30, 2018:
T-3
| | | | | | Expected Recognition Period | |
($ in millions) | | Remaining Performance Obligation | | | Q3 2018 | | | Q4 2018 | |
Deferred revenues | | | | | | | | | | | | |
Sales of VOI's under construction | | $ | 109 | | | $ | — | | | $ | 109 | |
Deferred expenses | | | | | | | | | | | | |
Cost of VOI sales | | | 37 | | | | — | | | | 37 | |
Sales, marketing, general and administrative expenses | | | 15 | | | | — | | | | 15 | |
The following tables provide supplemental information of sales of VOIs for project(s) under construction for six months ended June 30, 2018, and for the year ended Dec. 31, 2017, under the guidance of ASC 605, Revenue Recognition (“ASC 605”) and ASC 978-605, Real Estate – Time-Sharing Activities, Revenue Recognition, which is also referred to herein as the “previous accounting guidance.”
T-4
| | 2018 | |
($ in millions) | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Full Year | |
Sales of VOIs | | $ | 59 | | | $ | (87 | ) | | $ | — | | | $ | — | | | $ | (28 | ) |
Cost of VOI sales | | | (18 | ) | | | 20 | | | | — | | | | — | | | | 2 | |
Sales, marketing, general and administrative expense | | | (8 | ) | | | 11 | | | | — | | | | — | | | | 3 | |
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During the first quarter of 2018, the Company deferred revenue and related direct expenses from the sales of VOIs for two projects under construction until construction is completed. During the second quarter of 2018, the Company recognized revenue and related direct expenses for a completed project, partially offset by the deferred revenue and related direct expenses from the sales of VOIs for one project under construction.
T-5
| | 2017 | |
($ in millions) | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Full Year | |
Sales of VOIs | | $ | 9 | | | $ | 13 | | | $ | 11 | | | $ | 17 | | | $ | 50 | |
Cost of VOI sales | | | (5 | ) | | | (3 | ) | | | (3 | ) | | | (5 | ) | | | (16 | ) |
Sales, marketing, general and administrative expense | | | (1 | ) | | | (2 | ) | | | (2 | ) | | | (2 | ) | | | (7 | ) |
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on our management’s beliefs, expectations and assumptions and information currently available to our management, and are subject to risks and uncertainties. Actual results could differ materially because of factors such as: inherent business, financial and operating risks of the timeshare industry; adverse economic or market conditions that may affect the purchasing and vacationing decisions of consumers or otherwise harm our business; intense competition in the timeshare industry, which could lead to lower revenue or operating margins; the termination of material fee-for-service agreements with third parties; the ability of the Company to manage risks associated with our international activities, including complying with laws and regulations affecting our international operations; exposure to increased economic and operational uncertainties from expanding global operations, including the effects of foreign currency exchange; potential liability under anti-corruption and other laws resulting from our global operations; changes in tax rates and exposure to additional tax liabilities; the impact of future changes in legislation, regulations or accounting pronouncements; acquisitions, joint ventures, and strategic alliances that that may not result in expected benefits and that may have an adverse effect on our business; our dependence on development activities to secure inventory; cyber-attacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position; disclosure of personal data that could cause liability and harm to our reputation; abuse of our advertising or social platforms that may harm our reputation or user engagement; outages, data losses, and disruptions of our online services; claims against us that may result in adverse outcomes in legal disputes; risks associated with our debt agreements and instruments, including variable interest rates, operating and financial restrictions, and our ability to service our indebtedness; the continued service and availability of key executives and employees; and catastrophic events or geopolitical conditions that may disrupt our business. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.
You should not put undue reliance on any forward-looking statements in this press release. The risk factors discussed in our filings with the Securities and Exchange Commission, including “Part I—Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended Dec. 31, 2017, “Part II-Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, and those described from time to time in our future reports could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. We undertake no obligation to publicly update or review any forward-looking statement or information to conform to actual results, whether as a result of new information, future developments, changes in the Company’s expectations, or otherwise, except as required by law.
Non-GAAP Financial Measures
The Company refers to certain non-GAAP financial measures in this press release, including EBITDA, adjusted EBITDA, adjusted EBITDA margins, free cash flow and adjusted free cash flow. Please see the schedules in this press release and “Definitions” for additional information and reconciliations of such non-GAAP financial measures.
About Hilton Grand Vacations Inc.
Hilton Grand Vacations Inc. (NYSE:HGV) is recognized as a leading global timeshare company. With headquarters in Orlando, Fla., Hilton Grand Vacations develops, markets and operates a system of brand-name, high-quality vacation ownership resorts in select
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vacation destinations. The Company also manages and operates two innovative club membership programs: Hilton Grand Vacations Club® and The Hilton Club®, providing exclusive exchange, leisure travel and reservation services for more than 295,000 Club Members. For more information, visit www.hgv.com and www.hiltongrandvacations.com.
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HILTON GRAND VACATIONS INC.
TABLE OF CONTENTS
CONDENSED CONSOLIDATED BALANCE SHEETS | T-6 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | T-7 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | T-8 |
FREE CASH FLOWS RECONCILIATION | T-9 |
SEGMENT REVENUE RECONCILIATION | T-10 |
SEGMENT EBITDA TO NET INCOME | T-11 |
REAL ESTATE SALES MARGIN DETAIL SCHEDULE | T-12 |
FINANCING MARGIN DETAIL SCHEDULE | T-13 |
RESORT AND CLUB MARGIN DETAIL SCHEDULE | T-14 |
RENTAL AND ANCILLARY MARGIN DETAIL SCHEDULE | T-15 |
REAL ESTATE SALES AND FINANCING SEGMENT ADJUSTED EBITDA | T-16 |
RESORT AND CLUB MANAGEMENT SEGMENT ADJUSTED EBITDA | T-17 |
EFFECTS OF NEW ACCOUNTING STANDARD | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2018 | T-18 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30, 2018 | T-19 |
SEGMENT EBITDA TO NET INCOME – THREE MONTHS ENDED JUNE 30, 2018 | T-20 |
SEGMENT EBITDA TO NET INCOME – SIX MONTHS ENDED JUNE 30, 2018 | T-21 |
REAL ESTATE MARGIN – THREE MONTHS ENDED JUNE 30, 2018 | T-22 |
REAL ESTATE MARGIN – SIX MONTHS ENDED JUNE 30, 2018 | T-23 |
FORWARD-YEAR ADJUSTED EBITDA RECONCILIATION | T-24 |
SUPPLEMENTAL INFORMATION – REAL ESTATE MARGIN | T-25 |
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T-6
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
| | June 30, | | | December 31, | |
| | 2018 | | | 2017 | |
| | (unaudited) | | | | | |
ASSETS | | | | | | | | |
Cash and cash equivalents | | $ | 131 | | | $ | 246 | |
Restricted cash | | | 72 | | | | 51 | |
Accounts receivable, net | | | 138 | | | | 112 | |
Timeshare financing receivables, net | | | 1,089 | | | | 1,071 | |
Inventory | | | 544 | | | | 509 | |
Property and equipment, net | | | 411 | | | | 238 | |
Investment in unconsolidated affiliate | | | 33 | | | | 41 | |
Intangible assets, net | | | 73 | | | | 72 | |
Other assets | | | 117 | | | | 44 | |
TOTAL ASSETS | | $ | 2,608 | | | $ | 2,384 | |
LIABILITIES AND EQUITY | | | | | | | | |
Liabilities: | | | | | | | | |
Accounts payable, accrued expenses and other | | $ | 299 | | | $ | 339 | |
Advanced deposits | | | 95 | | | | 104 | |
Debt, net | | | 637 | | | | 482 | |
Non-recourse debt, net | | | 604 | | | | 583 | |
Deferred revenues | | | 226 | | | | 109 | |
Deferred income tax liabilities | | | 230 | | | | 249 | |
Total liabilities | | | 2,091 | | | | 1,866 | |
Commitments and Contingencies | | | | | | | | |
Equity: | | | | | | | | |
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of June 30, 2018 and December 31, 2017 | | | — | | | | — | |
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 96,897,051 issued and outstanding as of June 30, 2018 and 99,136,304 issued and outstanding as of December 31, 2017 | | | 1 | | | | 1 | |
Additional paid-in capital | | | 170 | | | | 162 | |
Accumulated retained earnings | | | 346 | | | | 355 | |
Total equity | | | 517 | | | | 518 | |
TOTAL LIABILITIES AND EQUITY | | $ | 2,608 | | | $ | 2,384 | |
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T-7
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in millions, except per share amounts)
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Revenues | | | | | | | | | | | | | | | | |
Sales of VOIs, net | | $ | 250 | | | $ | 143 | | | $ | 328 | | | $ | 261 | |
Sales, marketing, brand and other fees | | | 146 | | | | 144 | | | | 271 | | | | 274 | |
Financing | | | 39 | | | | 36 | | | | 77 | | | | 71 | |
Resort and club management | | | 37 | | | | 35 | | | | 76 | | | | 71 | |
Rental and ancillary services | | | 53 | | | | 47 | | | | 104 | | | | 93 | |
Cost reimbursements | | | 38 | | | | 34 | | | | 74 | | | | 68 | |
Total revenues | | | 563 | | | | 439 | | | | 930 | | | | 838 | |
Expenses | | | | | | | | | | | | | | | | |
Cost of VOI sales | | | 61 | | | | 34 | | | | 80 | | | | 67 | |
Sales and marketing | | | 193 | | | | 169 | | | | 354 | | | | 321 | |
Financing | | | 12 | | | | 11 | | | | 23 | | | | 21 | |
Resort and club management | | | 11 | | | | 10 | | | | 22 | | | | 20 | |
Rental and ancillary services | | | 30 | | | | 31 | | | | 58 | | | | 58 | |
General and administrative | | | 30 | | | | 29 | | | | 53 | | | | 52 | |
Depreciation and amortization | | | 8 | | | | 7 | | | | 16 | | | | 14 | |
License fee expense | | | 25 | | | | 23 | | | | 48 | | | | 43 | |
Cost reimbursements | | | 38 | | | | 34 | | | | 74 | | | | 68 | |
Total operating expenses | | | 408 | | | | 348 | | | | 728 | | | | 664 | |
Interest expense | | | (8 | ) | | | (7 | ) | | | (15 | ) | | | (14 | ) |
Equity in losses from unconsolidated affiliates | | | (2 | ) | | | — | | | | (1 | ) | | | — | |
Other gain, net | | | 1 | | | | — | | | | — | | | | — | |
Income before income taxes | | | 146 | | | | 84 | | | | 186 | | | | 160 | |
Income tax expense | | | (39 | ) | | | (33 | ) | | | (49 | ) | | | (59 | ) |
Net income | | $ | 107 | | | $ | 51 | | | $ | 137 | | | $ | 101 | |
Earnings per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 1.10 | | | $ | 0.51 | | | $ | 1.40 | | | $ | 1.02 | |
Diluted | | $ | 1.10 | | | $ | 0.51 | | | $ | 1.39 | | | $ | 1.02 | |
10
T-8
HILTON GRAND VACATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
| | Three Months Ended | | | Six Months Ended | | |
| | June 30, | | | June 30, | | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | | |
Operating Activities | | | | | | | | | | | | | | | | | |
Net income | | $ | 107 | | | $ | 51 | | | $ | 137 | | | $ | 101 | | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 8 | | | | 7 | | | | 16 | | | | 14 | | |
Amortization of deferred financing costs and other | | | 2 | | | | 2 | | | | 3 | | | | 3 | | |
Provision for loan losses | | | 18 | | | | 16 | | | | 30 | | | | 27 | | |
Share-based compensation | | | 5 | | | | 5 | | | | 8 | | | | 8 | | |
Deferred income (benefits) taxes | | | 2 | | | | (5 | ) | | | (6 | ) | | | 1 | | |
Other gain, net | | | (1 | ) | | | — | | | | — | | | | — | | |
Equity in losses from unconsolidated affiliates | | | 2 | | | | — | | | | 1 | | | | — | | |
Distributions received from unconsolidated affiliates | | | 1 | | | | — | | | | 2 | | | | — | | |
Net changes in assets and liabilities: | | | | | | | | | | | | | | | | | |
Accounts receivable, net | | | (21 | ) | | | (8 | ) | | | (26 | ) | | | — | | |
Timeshare financing receivables, net | | | (33 | ) | | | (31 | ) | | | (48 | ) | | | (35 | ) | |
Inventory | | | 30 | | | | 16 | | | | 11 | | | | 22 | | |
Purchase of operating property for future conversion to inventory | | | (176 | ) | | | — | | | | (176 | ) | | | — | | |
Other assets | | | (7 | ) | | | 10 | | | | (58 | ) | | | (19 | ) | |
Accounts payable, accrued expenses and other | | | — | | | | — | | | | (42 | ) | | | 36 | | |
Advanced deposits | | | 3 | | | | (7 | ) | | | 8 | | | | (3 | ) | |
Deferred revenues | | | (101 | ) | | | (14 | ) | | | 4 | | | | 22 | | |
Other | | | 2 | | | | — | | | | 2 | | | | — | | |
Net cash (used in) provided by operating activities | | | (159 | ) | | | 42 | | | | (134 | ) | | | 177 | | |
Investing Activities | | | | | | | | | | | | | | | | | |
Capital expenditures for property and equipment | | | (6 | ) | | | (7 | ) | | | (20 | ) | | | (15 | ) | |
Software capitalization costs | | | (5 | ) | | | (4 | ) | | | (9 | ) | | | (6 | ) | |
Return of investment from unconsolidated affiliates | | | 2 | | | | — | | | | 11 | | | | — | | |
Investment in unconsolidated affiliates | | | — | | | | — | | | | (5 | ) | | | — | | |
Net cash used in investing activities | | | (9 | ) | | | (11 | ) | | | (23 | ) | | | (21 | ) | |
Financing Activities | | | | | | | | | | | | | | | | | |
Issuance of debt | | | 160 | | | | — | | | | 160 | | | | — | | |
Issuance of non-recourse debt | | | 100 | | | | — | | | | 100 | | | | 350 | | |
Repurchase and retirement of common stock | | | — | | | | — | | | | (112 | ) | | | — | | |
Repayment of non-recourse debt | | | (41 | ) | | | (51 | ) | | | (80 | ) | | | (395 | ) | |
Repayment of debt | | | (2 | ) | | | (2 | ) | | | (5 | ) | | | (5 | ) | |
Debt issuance costs | | | — | | | | — | | | | (2 | ) | | | (5 | ) | |
Proceeds from stock options exercises | | | — | | | | 1 | | | | — | | | | 1 | | |
Payment of withholding taxes on vesting of restricted stock units | | | — | | | | — | | | | (1 | ) | | | — | | |
Capital contribution | | | — | | | | — | | | | 3 | | | | — | | |
Net cash provided by (used in) financing activities | | | 217 | | | | (52 | ) | | | 63 | | | | (54 | ) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | | | 49 | | | | (21 | ) | | | (94 | ) | | | 102 | | |
Cash, cash equivalents and restricted cash, beginning of period | | | 154 | | | | 274 | | | | 297 | | | | 151 | | |
Cash, cash equivalents and restricted cash, end of period | | $ | 203 | | | $ | 253 | | | $ | 203 | | | $ | 253 | | |
| | | | | | | | | | | | | | | | | |
Supplemental disclosure of non-cash operating activities: | | | | | | | | | | | | | | | | | |
Cumulative effect of adoption of new accounting standards | | $ | — | | | $ | — | | | $ | 38 | | | $ | — | | |
11
T-9
HILTON GRAND VACATIONS INC.
FREE CASH FLOWS RECONCILIATION
(in millions)
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Cash Flow (used in) provided by operations | | $ | (159 | ) | | $ | 42 | | | $ | (134 | ) | | $ | 177 | |
Capital expenditures for property and equipment | | | (6 | ) | | | (7 | ) | | | (20 | ) | | | (15 | ) |
Software capitalization costs | | | (5 | ) | | | (4 | ) | | | (9 | ) | | | (6 | ) |
Free Cash Flow | | | (170 | ) | | | 31 | | | | (163 | ) | | | 156 | |
Non-recourse debt activity, net | | | 59 | | | | (51 | ) | | | 20 | | | | (45 | ) |
Adjusted Free Cash Flow (1) | | $ | (111 | ) | | $ | (20 | ) | | $ | (143 | ) | | $ | 111 | |
(1) | Adjusted free cash flow represents free cash flow less non-recourse debt activity, net |
T-10
HILTON GRAND VACATIONS INC.
SEGMENT REVENUE RECONCILIATION
(in millions)
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Revenues: | | | | | | | | | | | | | | | | |
Real estate sales and financing | | $ | 435 | | | $ | 323 | | | $ | 676 | | | $ | 606 | |
Resort operations and club management | | | 98 | | | | 92 | | | | 196 | | | | 180 | |
Segment revenues | | | 533 | | | | 415 | | | | 872 | | | | 786 | |
Cost reimbursements | | | 38 | | | | 34 | | | | 74 | | | | 68 | |
Intersegment eliminations | | | (8 | ) | | | (10 | ) | | | (16 | ) | | | (16 | ) |
Total revenues | | $ | 563 | | | $ | 439 | | | $ | 930 | | | $ | 838 | |
12
T-11
HILTON GRAND VACATIONS INC.
SEGMENT EBITDA TO NET INCOME
(in millions)
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Net Income | | $ | 107 | | | $ | 51 | | | $ | 137 | | | $ | 101 | |
Interest expense | | | 8 | | | | 7 | | | | 15 | | | | 14 | |
Income tax expense | | | 39 | | | | 33 | | | | 49 | | | | 59 | |
Depreciation and amortization | | | 8 | | | | 7 | | | | 16 | | | | 14 | |
Interest expense, depreciation and amortization included in equity in losses from unconsolidated affiliates | | | 1 | | | | — | | | | 2 | | | | — | |
EBITDA | | | 163 | | | | 98 | | | | 219 | | | | 188 | |
Other gain, net | | | (1 | ) | | | — | | | | — | | | | — | |
Share-based compensation expense | | | 5 | | | | 5 | | | | 8 | | | | 8 | |
Other adjustment items (1) | | | 8 | | | | 3 | | | | 10 | | | | 4 | |
Adjusted EBITDA | | $ | 175 | | | $ | 106 | | | $ | 237 | | | $ | 200 | |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA: | | | | | | | | | | | | | | | | |
Real estate sales and financing (2) | | $ | 163 | | | $ | 99 | | | $ | 207 | | | $ | 182 | |
Resort operations and club management (2) | | | 58 | | | | 52 | | | | 117 | | | | 103 | |
Segment Adjusted EBITDA | | | 221 | | | | 151 | | | | 324 | | | | 285 | |
Adjustments: | | | | | | | | | | | | | | | | |
Adjusted EBITDA from unconsolidated affiliates | | | (1 | ) | | | — | | | | 1 | | | | — | |
License fee expense | | | (25 | ) | | | (23 | ) | | | (48 | ) | | | (43 | ) |
General and administrative (3) | | | (20 | ) | | | (22 | ) | | | (40 | ) | | | (42 | ) |
Adjusted EBITDA | | $ | 175 | | | $ | 106 | | | $ | 237 | | | $ | 200 | |
Adjusted EBITDA margin % | | | 31.1 | % | | | 24.1 | % | | | 25.5 | % | | | 23.9 | % |
EBITDA margin % | | | 29.0 | % | | | 22.3 | % | | | 23.5 | % | | | 22.4 | % |
(1) | Includes costs associated with the spin-off transaction of $5 million and $2 million for the three months ended June 30, 2018 and 2017, respectively, and $7 million and $3 million for the six months ended June 30, 2018 and 2017, respectively. |
(2) | Includes intersegment eliminations and other adjustments. |
(3) | Excludes share-based compensation and other adjustment items. |
13
T-12
HILTON GRAND VACATIONS INC.
REAL ESTATE SALES MARGIN DETAIL SCHEDULE
(in millions, except Tour Flow and VPG)
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Contract sales | | $ | 357 | | | $ | 323 | | | $ | 686 | | | $ | 610 | |
Tour flow | | | 94,269 | | | | 87,114 | | | | 171,969 | | | | 159,519 | |
VPG | | $ | 3,597 | | | $ | 3,503 | | | $ | 3,778 | | | $ | 3,609 | |
Owned contract sales mix | | | 45.9 | % | | | 48.6 | % | | | 47.1 | % | | | 44.4 | % |
Fee-for-service contract sales mix | | | 54.1 | % | | | 51.4 | % | | | 52.9 | % | | | 55.6 | % |
Sales of VOIs, net | | $ | 250 | | | $ | 143 | | | $ | 328 | | | $ | 261 | |
Adjustments: | | | | | | | | | | | | | | | | |
Fee-for-service sales (1) | | | 193 | | | | 166 | | | | 363 | | | | 339 | |
Loan loss provision | | | 18 | | | | 15 | | | | 30 | | | | 26 | |
Reportability and other: | | | | | | | | | | | | | | | | |
Deferrals of Sales of VOIs under construction | | | (91 | ) | | | — | | | | (25 | ) | | | 1 | |
Fee-for-service sale upgrades | | | (11 | ) | | | (10 | ) | | | (19 | ) | | | (26 | ) |
Other (2) | | | (2 | ) | | | 9 | | | | 9 | | | | 9 | |
Contract sales | | $ | 357 | | | $ | 323 | | | $ | 686 | | | $ | 610 | |
Sales of VOIs, net | | $ | 250 | | | $ | 143 | | | $ | 328 | | | $ | 261 | |
Sales, marketing, brand and other fees | | | 146 | | | | 144 | | | | 271 | | | | 274 | |
Less: | | | | | | | | | | | | | | | | |
Marketing revenue and other fees | | | 33 | | | | 43 | | | | 60 | | | | 75 | |
Sales revenue | | | 363 | | | | 244 | | | | 539 | | | | 460 | |
Less: | | | | | | | | | | | | | | | | |
Cost of VOI sales | | | 61 | | | | 34 | | | | 80 | | | | 67 | |
Sales and marketing expense, net (3) | | | 152 | | | | 120 | | | | 278 | | | | 231 | |
Real estate margin | | $ | 150 | | | $ | 90 | | | $ | 181 | | | $ | 162 | |
Real estate margin percentage | | | 41.3 | % | | | 36.9 | % | | | 33.6 | % | | | 35.2 | % |
(1) | Represents contract sales from fee-for-service properties on which the Company earns commissions and brand fees. |
(2) | Includes adjustments for revenue recognition, including amounts in rescission and sales incentives. |
(3) | Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers. In Dec. 2017, HGV revised its definition of Sales and marketing expense, net to include revenues associated with sales incentives, title service and document compliance revenue to better align with how the Company evaluates the results of its real estate operations. This adjustment was retrospectively applied to prior period(s) to conform with the current presentation. See Supplemental Information Real Estate Margin on page 24 for additional information. |
T-13
HILTON GRAND VACATIONS INC.
FINANCING MARGIN DETAIL SCHEDULE
(in millions)
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Interest income | | $ | 34 | | | $ | 32 | | | $ | 68 | | | $ | 64 | |
Other financing revenue | | | 5 | | | | 4 | | | | 9 | | | | 7 | |
Financing revenue | | | 39 | | | | 36 | | | | 77 | | | | 71 | |
Consumer financing interest expense | | | 6 | | | | 6 | | | | 10 | | | | 10 | |
Other financing expense | | | 6 | | | | 5 | | | | 13 | | | | 11 | |
Financing expense | | | 12 | | | | 11 | | | | 23 | | | | 21 | |
Financing margin | | $ | 27 | | | $ | 25 | | | $ | 54 | | | $ | 50 | |
Financing margin percentage | | | 69.2 | % | | | 69.4 | % | | | 70.1 | % | | | 70.4 | % |
14
T-14
HILTON GRAND VACATIONS INC.
RESORT AND CLUB MARGIN DETAIL SCHEDULE
(in millions, except for Members and Net Owner Growth)
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Members | | | | | | | | | | | 298,383 | | | | 278,368 | |
Net Owner Growth (NOG) (1) | | | | | | | | | | | 20,015 | | | | 18,756 | |
Net Owner Growth % (NOG%) | | | | | | | | | | | 7.2 | % | | | 7.2 | % |
Club management revenue | | $ | 23 | | | $ | 20 | | | $ | 46 | | | $ | 41 | |
Resort management revenue | | | 14 | | | | 15 | | | | 30 | | | | 30 | |
Resort and club management revenues | | | 37 | | | | 35 | | | | 76 | | | | 71 | |
Club management expense | | | 7 | | | | 6 | | | | 13 | | | | 11 | |
Resort management expense | | | 4 | | | | 4 | | | | 9 | | | | 9 | |
Resort and club management expenses | | | 11 | | | | 10 | | | | 22 | | | | 20 | |
Resort and club management margin | | $ | 26 | | | $ | 25 | | | $ | 54 | | | $ | 51 | |
Resort and club management margin percentage | | | 70.3 | % | | | 71.4 | % | | | 71.1 | % | | | 71.8 | % |
(1) | Net Owner Growth over the last twelve months. |
T-15
HILTON GRAND VACATIONS INC.
RENTAL AND ANCILLARY MARGIN DETAIL SCHEDULE
(in millions)
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Rental revenues | | $ | 46 | | | $ | 40 | | | $ | 91 | | | $ | 81 | |
Ancillary services revenues | | | 7 | | | | 7 | | | | 13 | | | | 12 | |
Rental and ancillary services revenues | | | 53 | | | | 47 | | | | 104 | | | | 93 | |
Rental expenses | | | 25 | | | | 25 | | | | 48 | | | | 48 | |
Ancillary services expense | | | 5 | | | | 6 | | | | 10 | | | | 10 | |
Rental and ancillary services expenses | | | 30 | | | | 31 | | | | 58 | | | | 58 | |
Rental and ancillary services margin | | $ | 23 | | | $ | 16 | | | $ | 46 | | | $ | 35 | |
Rental and ancillary services margin percentage | | | 43.4 | % | | | 34.0 | % | | | 44.2 | % | | | 37.6 | % |
15
T-16
HILTON GRAND VACATIONS INC.
REAL ESTATE SALES AND FINANCING SEGMENT ADJUSTED EBITDA
(in millions)
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Sales of VOIs, net | | $ | 250 | | | $ | 143 | | | $ | 328 | | | $ | 261 | |
Sales, marketing, brand and other fees | | | 146 | | | | 144 | | | | 271 | | | | 274 | |
Financing | | | 39 | | | | 36 | | | | 77 | | | | 71 | |
Real estate sales and financing segment revenues | | | 435 | | | | 323 | | | | 676 | | | | 606 | |
Cost of VOI sales | | | (61 | ) | | | (34 | ) | | | (80 | ) | | | (67 | ) |
Sales and marketing | | | (193 | ) | | | (169 | ) | | | (354 | ) | | | (321 | ) |
Financing | | | (12 | ) | | | (11 | ) | | | (23 | ) | | | (21 | ) |
Marketing package sales | | | (8 | ) | | | (10 | ) | | | (16 | ) | | | (16 | ) |
Share-based compensation | | | 1 | | | | — | | | | 2 | | | | 1 | |
Other adjustment items | | | 1 | | | | — | | | | 2 | | | | — | |
Real estate sales and financing segment adjusted EBITDA | | $ | 163 | | | $ | 99 | | | $ | 207 | | | $ | 182 | |
Real estate sales and financing segment adjusted EBITDA margin percentage | | | 37.5% | | | | 30.7 | % | | | 30.6 | % | | | 30.0 | % |
T-17
HILTON GRAND VACATIONS INC.
RESORT AND CLUB MANAGEMENT SEGMENT ADJUSTED EBITDA
(in millions)
| | Three Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Resort and club management | | $ | 37 | | | $ | 35 | | | $ | 76 | | | $ | 71 | |
Rental and ancillary services | | | 53 | | | | 47 | | | | 104 | | | | 93 | |
Marketing package sales | | | 8 | | | | 10 | | | | 16 | | | | 16 | |
Resort and club management segment revenue | | | 98 | | | | 92 | | | | 196 | | | | 180 | |
Resort and club management | | | (11 | ) | | | (10 | ) | | | (22 | ) | | | (20 | ) |
Rental and ancillary services | | | (30 | ) | | | (31 | ) | | | (58 | ) | | | (58 | ) |
Share-based compensation expense | | | 1 | | | | 1 | | | | 1 | | | | 1 | |
Resort and club segment adjusted EBITDA | | $ | 58 | | | $ | 52 | | | $ | 117 | | | $ | 103 | |
Resort and club management segment adjusted EBITDA margin percentage | | | 59.2 | % | | | 56.5 | % | | | 59.7 | % | | | 57.2 | % |
16
Supplemental Information on the Adoption of ASC 606
The following tables provide supplemental information on our condensed consolidated statement of operations, Adjusted EBITDA and real estate margin for the three and six months ended June 30, 2018, compared to the previous accounting guidance.
T-18
HILTON GRAND VACATIONS INC.
NEW ACCOUNTING STANDARD ADOPTION – EFFECT ON THE THREE MONTHS ENDED JUNE 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
| | Three Months Ended June 30, 2018 | | | | | |
($ in millions) | | As Reported | | | Effects of ASC 606 | | | Previous Accounting Guidance | | | Three Months Ended June 30, 2017 | |
Revenues | | | | | | | | | | | | | | | | |
Sales of VOIs, net | | $ | 250 | | | $ | (87 | ) | | $ | 163 | | | $ | 143 | |
Sales, marketing, brand and other fees | | | 146 | | | | 2 | | | | 148 | | | | 144 | |
Financing | | | 39 | | | | — | | | | 39 | | | | 36 | |
Resort and club management | | | 37 | | | | — | | | | 37 | | | | 35 | |
Rental and ancillary services | | | 53 | | | | — | | | | 53 | | | | 47 | |
Cost reimbursements | | | 38 | | | | — | | | | 38 | | | | 34 | |
Total revenues | | | 563 | | | | (85 | ) | | | 478 | | | | 439 | |
Expenses | | | | | | | | | | | | | | | | |
Cost of VOI sales | | | 61 | | | | (20 | ) | | | 41 | | | | 34 | |
Sales and marketing | | | 193 | | | | (9 | ) | | | 184 | | | | 169 | |
Financing | | | 12 | | | | — | | | | 12 | | | | 11 | |
Resort and club management | | | 11 | | | | — | | | | 11 | | | | 10 | |
Rental and ancillary services | | | 30 | | | | — | | | | 30 | | | | 31 | |
General and administrative | | | 30 | | | | — | | | | 30 | | | | 29 | |
Depreciation and amortization | | | 8 | | | | — | | | | 8 | | | | 7 | |
License fee expense | �� | | 25 | | | | — | | | | 25 | | | | 23 | |
Cost reimbursements | | | 38 | | | | — | | | | 38 | | | | 34 | |
Total operating expenses | | | 408 | | | | (29 | ) | | | 379 | | | | 348 | |
Interest expense | | | (8 | ) | | | — | | | | (8 | ) | | | (7 | ) |
Equity in losses from unconsolidated affiliates | | | (2 | ) | | | — | | | | (2 | ) | | | — | |
Other gain, net | | | 1 | | | | — | | | | 1 | | | | — | |
Income before income taxes | | | 146 | | | | (56 | ) | | | 90 | | | | 84 | |
Income tax expense | | | (39 | ) | | | 14 | | | | (25 | ) | | | (33 | ) |
Net income (loss) | | $ | 107 | | | $ | (42 | ) | | $ | 65 | | | $ | 51 | |
Earnings per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 1.10 | | | $ | (0.43 | ) | | $ | 0.67 | | | $ | 0.51 | |
Diluted | | $ | 1.10 | | | $ | (0.44 | ) | | $ | 0.66 | | | $ | 0.51 | |
17
T-19
HILTON GRAND VACATIONS INC.
NEW ACCOUNTING STANDARD ADOPTION – EFFECT ON THE SIX MONTHS ENDED JUNE 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
| | Six Months Ended June 30, 2018 | | | | | |
($ in millions) | | As Reported | | | Effects of ASC 606 | | | Previous Accounting Guidance | | | Six Months Ended June 30, 2017 | |
Revenues | | | | | | | | | | | | | | | | |
Sales of VOIs, net | | $ | 328 | | | $ | (28 | ) | | $ | 300 | | | $ | 261 | |
Sales, marketing, brand and other fees | | | 271 | | | | 6 | | | | 277 | | | | 274 | |
Financing | | | 77 | | | | — | | | | 77 | | | | 71 | |
Resort and club management | | | 76 | | | | — | | | | 76 | | | | 71 | |
Rental and ancillary services | | | 104 | | | | — | | | | 104 | | | | 93 | |
Cost reimbursements | | | 74 | | | | — | | | | 74 | | | | 68 | |
Total revenues | | | 930 | | | | (22 | ) | | | 908 | | | | 838 | |
Expenses | | | | | | | | | | | | | | | | |
Cost of VOI sales | | | 80 | | | | (2 | ) | | | 78 | | | | 67 | |
Sales and marketing | | | 354 | | | | 3 | | | | 357 | | | | 321 | |
Financing | | | 23 | | | | — | | | | 23 | | | | 21 | |
Resort and club management | | | 22 | | | | — | | | | 22 | | | | 20 | |
Rental and ancillary services | | | 58 | | | | — | | | | 58 | | | | 58 | |
General and administrative | | | 53 | | | | — | | | | 53 | | | | 52 | |
Depreciation and amortization | | | 16 | | | | — | | | | 16 | | | | 14 | |
License fee expense | | | 48 | | | | — | | | | 48 | | | | 43 | |
Cost reimbursements | | | 74 | | | | — | | | | 74 | | | | 68 | |
Total operating expenses | | | 728 | | | | 1 | | | | 729 | | | | 664 | |
Interest expense | | | (15 | ) | | | — | | | | (15 | ) | | | (14 | ) |
Equity in losses from unconsolidated affiliates | | | (1 | ) | | | — | | | | (1 | ) | | | — | |
Income before income taxes | | | 186 | | | | (23 | ) | | | 163 | | | | 160 | |
Income tax expense | | | (49 | ) | | | 5 | | | | (44 | ) | | | (59 | ) |
Net income | | $ | 137 | | | $ | (18 | ) | | $ | 119 | | | $ | 101 | |
Earnings per share: | | | | | | | | | | | | | | | | |
Basic | | $ | 1.40 | | | $ | (0.18 | ) | | $ | 1.22 | | | $ | 1.02 | |
Diluted | | $ | 1.39 | | | $ | (0.18 | ) | | $ | 1.21 | | | $ | 1.02 | |
18
T-20
HILTON GRAND VACATIONS INC.
NEW ACCOUNTING STANDARD ADOPTION – EFFECT ON THE THREE MONTHS ENDED JUNE 30, 2018
SEGMENT EBITDA TO NET INCOME
(in millions)
| | Three Months Ended June 30, 2018 | | | | | |
| | As Reported | | | Effects of ASC 606 | | | Previous Accounting Guidance | | | Three Months Ended June 30, 2017 | |
Net Income | | $ | 107 | | | $ | (42 | ) | | $ | 65 | | | $ | 51 | |
Interest expense | | | 8 | | | | — | | | | 8 | | | | 7 | |
Income tax expense | | | 39 | | | | (14 | ) | | | 25 | | | | 33 | |
Depreciation and amortization | | | 8 | | | | — | | | | 8 | | | | 7 | |
Interest expense, depreciation and amortization included in equity in losses from unconsolidated affiliates | | | 1 | | | | — | | | | 1 | | | | — | |
EBITDA | | | 163 | | | | (56 | ) | | | 107 | | | | 98 | |
Other gain, net | | | (1 | ) | | | — | | | | (1 | ) | | | — | |
Share-based compensation expense | | | 5 | | | | — | | | | 5 | | | | 5 | |
Other adjustment items (1) | | | 8 | | | | — | | | | 8 | | | | 3 | |
Adjusted EBITDA | | $ | 175 | | | $ | (56 | ) | | $ | 119 | | | $ | 106 | |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA: | | | | | | | | | | | | | | | | |
Real estate sales and financing (2) | | $ | 163 | | | $ | (56 | ) | | $ | 107 | | | $ | 99 | |
Resort operations and club management (2) | | | 58 | | | | — | | | | 58 | | | | 52 | |
Segment Adjusted EBITDA | | | 221 | | | | (56 | ) | | | 165 | | | | 151 | |
Adjustments: | | | | | | | | | | | | | | | | |
Adjusted EBITDA from unconsolidated affiliates | | | (1 | ) | | | — | | | | (1 | ) | | | — | |
License fee expense | | | (25 | ) | | | — | | | | (25 | ) | | | (23 | ) |
General and administrative (3) | | | (20 | ) | | | — | | | | (20 | ) | | | (22 | ) |
Adjusted EBITDA | | $ | 175 | | | $ | (56 | ) | | $ | 119 | | | $ | 106 | |
Adjusted EBITDA margin % | | | 31.1 | % | | | 65.9 | % | | | 24.9 | % | | | 24.1 | % |
EBITDA margin % | | | 29.0 | % | | | 65.9 | % | | | 22.4 | % | | | 22.3 | % |
_____________________
(1) | For the three months ended June 30, 2018 and 2017, amounts include $5 million and $2 million, respectively, of costs associated with the spin-off transaction. |
(2) | Includes intersegment eliminations and other adjustments. |
(3) | Excludes share-based compensation and other adjustment items. |
19
T-21
HILTON GRAND VACATIONS INC.
NEW ACCOUNTING STANDARD ADOPTION – EFFECT ON THE SIX MONTHS ENDED JUNE 30, 2018
SEGMENT EBITDA TO NET INCOME
(in millions)
| | Six Months Ended June 30, 2018 | | | | | |
| | As Reported | | | Effects of ASC 606 | | | Previous Accounting Guidance | | | Six Months Ended June 30, 2017 | |
Net Income | | $ | 137 | | | $ | (18 | ) | | $ | 119 | | | $ | 101 | |
Interest expense | | | 15 | | | | — | | | | 15 | | | | 14 | |
Income tax expense | | | 49 | | | | (5 | ) | | | 44 | | | | 59 | |
Depreciation and amortization | | | 16 | | | | — | | | | 16 | | | | 14 | |
Interest expense, depreciation and amortization included in equity in losses from unconsolidated affiliates | | | 2 | | | | — | | | | 2 | | | | — | |
EBITDA | | | 219 | | | | (23 | ) | | | 196 | | | | 188 | |
Share-based compensation expense | | | 8 | | | | — | | | | 8 | | | | 8 | |
Other adjustment items (1) | | | 10 | | | | — | | | | 10 | | | | 4 | |
Adjusted EBITDA | | $ | 237 | | | $ | (23 | ) | | $ | 214 | | | $ | 200 | |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA: | | | | | | | | | | | | | | | | |
Real estate sales and financing (2) | | $ | 207 | | | $ | (23 | ) | | $ | 184 | | | $ | 182 | |
Resort operations and club management (2) | | | 117 | | | | — | | | | 117 | | | | 103 | |
Segment Adjusted EBITDA | | | 324 | | | | (23 | ) | | | 301 | | | | 285 | |
Adjustments: | | | | | | | | | | | | | | | | |
Adjusted EBITDA from unconsolidated affiliates | | | 1 | | | | — | | | | 1 | | | | — | |
License fee expense | | | (48 | ) | | | — | | | | (48 | ) | | | (43 | ) |
General and administrative (3) | | | (40 | ) | | | — | | | | (40 | ) | | | (42 | ) |
Adjusted EBITDA | | $ | 237 | | | $ | (23 | ) | | $ | 214 | | | $ | 200 | |
Adjusted EBITDA margin % | | | 25.5 | % | | | 104.5 | % | | | 23.6 | % | | | 23.9 | % |
EBITDA margin % | | | 23.5 | % | | | 104.5 | % | | | 21.6 | % | | | 22.4 | % |
_____________________
(1) | For the six months ended June 30, 2018 and 2017, amounts include $7 million and $3 million, respectively, of costs associated with the spin-off transaction. |
(2) | Includes intersegment eliminations and other adjustments. |
(3) | Excludes share-based compensation and other adjustment items. |
20
T-22
HILTON GRAND VACATIONS INC.
NEW ACCOUNTING STARNDARD ADOPTION – EFFECT ON THE THREE MONTHS ENDED JUNE 30, 2018
REAL ESTATE MARGIN
(in millions)
| | Three Months Ended June 30, 2018 | | | | | |
| | As Reported | | | Effect of ASC 606 | | | Previous Accounting Guidance | | | Three Months Ended June 30, 2017 | |
Sales of VOIs, net | | $ | 250 | | | $ | (87 | ) | | $ | 163 | | | $ | 143 | |
Sales, marketing, brand and other fees | | | 146 | | | | 2 | | | | 148 | | | | 144 | |
Less: | | | | | | | | | | | | | | | | |
Marketing revenue and other fees | | | 33 | | | | 2 | | | | 35 | | | | 43 | |
Sales revenue | | | 363 | | | | (87 | ) | | | 276 | | | | 244 | |
Less: | | | | | | | | | | | | | | | | |
Cost of VOI sales | | | 61 | | | | (20 | ) | | | 41 | | | | 34 | |
Sales and marketing expense, net | | | 152 | | | | (11 | ) | | | 141 | | | | 120 | |
Real estate margin | | $ | 150 | | | $ | (56 | ) | | $ | 94 | | | $ | 90 | |
Real estate margin percentage | | | 41.3 | % | | | 64.4 | % | | | 34.1 | % | | | 36.9 | % |
T-23
HILTON GRAND VACATIONS INC.
NEW ACCOUNTING STARNDARD ADOPTION – EFFECT ON THE SIX MONTHS ENDED JUNE 30, 2018
REAL ESTATE MARGIN
(in millions)
| | Six Months Ended June 30, 2018 | | | | | |
| | As Reported | | | Effect of ASC 606 | | | Previous Accounting Guidance | | | Six Months Ended June 30, 2017 | |
Sales of VOIs, net | | $ | 328 | | | $ | (28 | ) | | $ | 300 | | | $ | 261 | |
Sales, marketing, brand and other fees | | | 271 | | | | 6 | | | | 277 | | | | 274 | |
Less: | | | | | | | | | | | | | | | | |
Marketing revenue and other fees | | | 60 | | | | 6 | | | | 66 | | | | 75 | |
Sales revenue | | | 539 | | | | (28 | ) | | | 511 | | | | 460 | |
Less: | | | | | | | | | | | | | | | | |
Cost of VOI sales | | | 80 | | | | (2 | ) | | | 78 | | | | 67 | |
Sales and marketing expense, net | | | 278 | | | | (3 | ) | | | 275 | | | | 231 | |
Real estate margin | | $ | 181 | | | $ | (23 | ) | | $ | 158 | | | $ | 162 | |
Real estate margin percentage | | | 33.6 | % | | | 82.1 | % | | | 30.9 | % | | | 35.2 | % |
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T-24
HILTON GRAND VACATIONS INC.
FORWARD-YEAR ADJUSTED EBITDA RECONCILIATION
(in millions, except share data)
| | 2018 Low Case | | | 2018 High Case | |
Contract Sales | | | 9.0 | % | | | 11.0 | % |
Fee-for-service as % of contract sales | | | 50 | % | | | 55 | % |
| | | | | | | | |
Net Income | | $ | 285 | | | $ | 300 | |
Income tax expense | | | 105 | | | | 107 | |
Pre-tax income | | | 390 | | | | 407 | |
Interest expense | | | 31 | | | | 29 | |
Depreciation and amortization | | | 34 | | | | 32 | |
Interest expense and depreciation and amortization included in equity in earnings from unconsolidated affiliates | | | 5 | | | | 5 | |
EBITDA | | | 460 | | | | 473 | |
Share-based compensation expense | | | 18 | | | | 18 | |
Other adjustment items | | | 11 | | | | 13 | |
Adjusted EBITDA under ASC 606 | | | 489 | | | | 504 | |
Net deferral impact | | | (67 | ) | | | (67 | ) |
Adjusted EBITDA under previous accounting guidance | | $ | 422 | | | $ | 437 | |
| | | | | | | | |
Adjusted EBITDA | | $ | 489 | | | $ | 504 | |
General and administrative | | 88 | | | 86 | |
License fee expense | | 96 | | | 98 | |
Adjusted EBITDA from unconsolidated affiliate | | | (4 | ) | | | (6 | ) |
Segment EBITDA | | $ | 669 | | | $ | 682 | |
| | | | | | | | |
Diluted shares | | 98 | | | 98 | |
Earnings per share - diluted | | $ | 2.91 | | | $ | 3.06 | |
| | | | | | | | |
Cash flow from operating activities (1) | | $ | (220 | ) | | $ | (190 | ) |
Non-inventory capex | | | (60 | ) | | | (50 | ) |
Free Cash Flow | | | (280 | ) | | | (240 | ) |
Net proceeds from securitization activity | | | 200 | | | | 220 | |
Adjusted Free Cash Flow | | $ | (80 | ) | | $ | (20 | ) |
(1) | Inventory spending, which is included in cash flow from operating activities, is projected to be between $510 million and $530 million. In addition to ongoing and previously announced projects and initiatives, this amount includes approximately $140 million of anticipated spending on new projects during 2018 that have not yet been announced. |
22
HILTON GRAND VACATIONS INC.
DEFINITIONS
EBITDA and Adjusted EBITDA
EBITDA, presented herein, is a financial measure that is not recognized under U.S. GAAP that reflects net income (loss), before interest expense (excluding non-recourse debt), a provision for income taxes and depreciation and amortization. Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs, including severance and relocation costs; (vi) share-based and certain other compensation expenses; (vii) costs related to the spin-off; and (viii) other items.
EBITDA and adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and adjusted EBITDA may not be comparable to similarly titled measures of other companies.
HGV believes that EBITDA and adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry. EBITDA and adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:
| • | EBITDA and adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; |
| • | EBITDA and adjusted EBITDA do not reflect our interest expense (excluding interest expense on non-recourse debt), or the cash requirements necessary to service interest or principal payments on our indebtedness; |
| • | EBITDA and adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes; |
| • | EBITDA and adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; |
| • | EBITDA and adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; |
| • | EBITDA and adjusted EBITDA do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized; |
| • | EBITDA and adjusted EBITDA may be calculated differently from other companies in our industry limiting their usefulness as comparative measures. |
Because of these limitations, EBITDA and adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Real Estate Metrics
Contract sales represents the total amount of VOI products under purchase agreements signed during the period where HGV has received a down payment of at least 10 percent of the contract price. Contract sales is not a recognized term under U.S. GAAP and should not be considered in isolation or as an alternative to Sales of VOIs, net or any other comparable operating measure derived in accordance with U.S. GAAP. Contract sales differ from revenues from the Sales of VOIs, net that HGV reports in its consolidated statements of operations due to the requirements for revenue recognition as described in Note 2: Basis of Presentation and Summary of Significant Accounting Policies in the Company’s audited consolidated financial statements, as well as adjustments for incentives and other administrative fee revenues. HGV considers contract sales to be an important operating measure because it reflects the pace of sales in HGV’s business.
Developed Inventory refers to VOI inventory source from projects the Company develops.
Fee-for-Service Inventory refers to VOI inventory HGV sells and manages on behalf of first-party developers.
Just-in-Time Inventory refers to VOI inventory primarily sourced in transactions that are designed to closely correlate the timing of the acquisition with HGV’s sale of that inventory to purchasers.
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NOG or Net Owner Growth represents the year-over-year change in membership.
Real estate margin represents sales revenue less the cost of VOI sales and sales and marketing costs, net of marketing revenue. Real estate margin percentage is calculated by dividing real estate margin by sales revenue. HGV considers this to be an important operating measure because it measures the efficiency of the Company’s sales and marketing spending and management of inventory costs.
Sales revenue represents sale of VOIs, net and commissions and brand fees earned from the sale of fee-for-service intervals.
Tour flow represents the number of sales presentations given at HGV’s sales centers during the period.
Volume per guest (“VPG”) represents the sales attributable to tours at HGV’s sales locations and is calculated by dividing Contract sales, excluding telesales, by tour flow. The Company considers VPG to be an important operating measure because it measures the effectiveness of HGV’s sales process, combining the average transaction price with closing rate.
Free cash flow represents cash from operating activities adjusted for share based compensation, less non-inventory capital spending.
Adjusted free cash flow represents free cash flow less non-recourse debt activities, net.
Resort and Club Management and Rental Metrics
Transient rate represents the total rental room revenue for transient guests divided by total number of transient room nights sold in a given period and excludes room rentals associated with marketing programs, owner usage and the redemption of Club Bonus Points.
T-25
SUPPLEMENTAL INFORMATION
REAL ESTATE MARGIN
(in millions)
| | 2017 | |
| | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | | Full Year | |
Sales of VOIs, net | | $ | 118 | | | $ | 143 | | | $ | 145 | | | $ | 142 | | | $ | 548 | |
Sales, marketing, brand and other fees | | | 130 | | | | 144 | | | | 127 | | | | 143 | | | | 544 | |
Less: | | | | | | | | | | | | | | | | | | | | |
Marketing revenue and other fees | | | 32 | | | | 43 | | | | 34 | | | | 36 | | | | 145 | |
Sales revenue | | | 216 | | | | 244 | | | | 238 | | | | 249 | | | | 947 | |
Less: | | | | | | | | | | | | | | | | | | | | |
Cost of VOI sales | | | 33 | | | | 34 | | | | 40 | | | | 41 | | | | 148 | |
Sales and marketing expense, net (1) | | | 112 | | | | 120 | | | | 132 | | | | 128 | | | | 492 | |
Real estate margin | | $ | 71 | | | $ | 90 | | | $ | 66 | | | $ | 80 | | | $ | 307 | |
Real estate margin percentage | | | 32.9 | % | | | 36.9 | % | | | 27.7 | % | | | 32.1 | % | | | 32.4 | % |
| | | | | | | | | | | | | | | | | | | | |
(1) | Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers. For the year ended Dec. 31, 2017, HGV revised its definition of Sales and marketing expense, net to include revenues associated with sales incentives, title service and document compliance revenue to better align with how the Company evaluates the results of its real estate operations. This adjustment was retrospectively applied to prior period(s) to conform with the current presentation. |
24
