Diamond Resorts International, Inc. (NYSE:DRII) (“Diamond” or
the “Company”), today announced results for the first quarter ended
March 31, 2015.
David F. Palmer, President and Chief Executive Officer, stated,
“The business is off to a record start in 2015 as our outstanding
financial performance demonstrates continued execution against our
long-term business strategy. We realized strong revenue and
earnings growth in our hospitality and management services
business, and our Vacation Ownership segment continued to benefit
from our unique and innovative marketing programs. In addition,
underscoring our confidence in our business model and value
proposition for consumers and the resorts we manage, we repurchased
$61.1 million in stock this quarter. As previously disclosed, in
January of 2015, we entered into agreements to eliminate our
external management structure with Hospitality Management &
Consulting, Inc., including the acquisition of certain rights from,
and termination of certain contractual relationships with, our
Chairman, Stephen J. Cloobeck. The contract termination included in
these transactions resulted in a one-time $7.8 million charge in
the quarter. As we look to the balance of the year, we believe we
are well-positioned for future growth. While our initial 2015
financial guidance did not take into consideration the charge
related to the contract termination, we are maintaining our 2015
financial guidance, inclusive of this charge.”
First Quarter 2015 Highlights
- Total revenue increased $16.3 million,
or 9.0%, to $197.5 million.
- Pre-tax income, excluding non-cash
stock based compensation and the one-time charge related to the
contract termination, increased $25.9 million, or 84.1%, to $56.7
million.
- Prior to share repurchases, debt
repayments, and the HM&C transactions, on a net basis from
operations, investing and financing activities we generated $39.4
million in cash. Additional uses of cash in the quarter included
spending $61.1 million in share repurchases, $20.8 million in debt
amortization, and $16.8 million in the HM&C transactions.
- Adjusted EBITDA, excluding the one-time
charge related to the contract termination, increased $10.2
million, or 15.2% to $77.1 million.
- As a result of the HM&C
transactions, HM&C is now a wholly-owned subsidiary of the
Company.
- The Company used $61.1 million in cash
during the quarter under its share repurchase program.
Approximately $18.2 million remains available after giving effect
to the repurchases to date.
Outlook
For the full year ending December 31, 2015, the Company is
providing the following guidance for its expected operating
results. Note that while the guidance ranges presented below are
the same as included in the guidance provided in our year-end
earnings release, it now includes the one-time $7.8 million charge
related to the contract termination which was not included in the
earlier guidance.
Guidance Year Ending December 31, 2015
($ in thousands)
Low High Pre-tax
income $ 159,000 $ 191,000 Corporate interest expense $ 28,000 $
26,000 Vacation interest cost of sales(a) $ 73,000 $ 63,000
Depreciation and amortization $ 38,000 $ 36,000 Other non-cash
items(b) $ 47,000 $ 44,000
For the year ending December 31, 2015, the Company anticipates
capital expenditures(c) to be between $25.0 million and $30.0
million. In addition, the Company anticipates its ordinary course
cash expenditures for the acquisition of inventory to be between
$50.0 million and $55.0 million, and its cash tax payments to be
between $17.0 million and $23.0 million.
Consistent with our capital allocation philosophy, we also
anticipate investing approximately $27.0 million of our cash in
projects expected to generate superior returns, including the
build-out of inventory at our Cabo Azul resort and other strategic
investments. We also intend to continue our share repurchase
program (of which approximately $18.2 million remains available
after giving effect to the repurchases to date), and pursuing other
opportunities to provide superior returns to our stockholders.
(a)
In accordance with ASC 978, the Company
records Vacation Interest Cost of Sales using the relative sales
value method (See Note 2 - Summary of Significant Accounting
Policies in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2014). This method requires the Company to make
a number of projections and estimates, which are subject to
significant uncertainty and retroactive adjustment in future
periods. These "true-up" adjustments may result, and for the
Company have resulted in prior periods, in major swings (both
positive and negative) in the Company's pre-tax income computed in
accordance with US GAAP that do not have a direct correlation to
the operating performance for the periods in which the "true-ups"
are made. It is difficult to predict with any degree of precision
what the projections and estimates used in connection with the
relative sales value method will be and what impact those
projections and estimates will have on the amount recorded in
future periods as Vacation Interest Cost of Sales. As a result,
guidance for Vacation Interest Cost of Sales (and as a result,
pre-tax income) covers a wide range of outcomes and does not impact
Adjusted EBITDA.
(b)
Other non-cash items include: stock based
compensation, amortization of loan origination costs, and
amortization of net portfolio discounts and premiums.
(c)
Principally for IT infrastructure and
sales center expansion/refurbishment. This does not include
expenditures for the acquisition of inventory, or resort-level
capital improvements which are paid by the homeowners
associations.
First Quarter Earnings Summary
Hospitality and Management Services
Total management and member services revenue in our Hospitality
and Management Services segment increased $2.4 million, or 6.3%, to
$40.6 million for the first quarter of 2015 from $38.2 million for
the first quarter of 2014. Management fees increased as a result of
increases in operating costs at the resort level, which generated
higher management fee revenue on a same-store basis under our
cost-plus management agreements. In addition, effective January 1,
2015, the Company deconsolidated the operations of the two managed
resorts in St. Maarten; thus removing those resorts’ revenues and
expenses from our consolidated resort operations revenue and
expense, respectively, while recognizing the management fee income
earned in this line item. Revenue from our Club operations remained
relatively flat in the three months ended March 31, 2015, as
compared to the three months ended March 31, 2014.
Management and member services expense, which is recorded in our
Hospitality and Management Services segment, decreased $0.8
million, or 9.7%, to $8.1 million for the quarter ended March 31,
2015 from $8.9 million for the quarter ended March 31, 2014. For
the quarters ended March 31, 2015 and 2014, management and member
services expense included $0.3 million and $0.7 million,
respectively, of non-cash stock-based compensation charges related
to stock options. Excluding these non-cash stock-based compensation
charges, management and member services expense as a percentage of
management and member services revenue decreased to 19.2% for the
quarter ended March 31, 2015, compared to 21.6% for the quarter
ended March 31, 2014. The decrease was primarily attributable to
lower call center expenses resulting from improved efficiencies as
we continued to transition call centers from a third party provider
to an in-house operation. Including these non-cash stock-based
compensation charges, management and member services expense as a
percentage of management and member services revenue decreased to
19.9% for the quarter ended March 31, 2015 from 23.4% for the
quarter ended March 31, 2014.
Vacation Interest Sales and Financing
Vacation Interest sales, net, increased $16.7 million, or 15.7%,
to $122.6 million for the first quarter of 2015 from $105.9 million
for the first quarter of 2014. The increase in Vacation Interest
sales, net, was attributable to a $19.4 million increase in
Vacation Interest sales revenue, partially offset by a $2.7 million
increase in the provision for uncollectible Vacation Interest sales
revenue. The $19.4 million increase in Vacation Interest sales
revenue during the period in 2015 compared to the period in 2014
was generated due to an increase in our volume per guest (“VPG”).
VPG increased by $567, or 22.0%, to $3,147 for the first quarter of
2015 from $2,580 in the first quarter of 2014, as a result of a
higher average sales price per transaction and a higher closing
percentage (which represents the percentage of Vacation Interest
sales transactions closed relative to the total number of tours
during the period presented). The total number of tours decreased
to 44,481 during the period in 2015 from 46,552 during the period
in 2014, due in part to our efforts to improve efficiency in our
mix of tours and to the closure of our Cabo, Mexico sales center
following hurricane Odile. The Company closed a total of 6,778
Vacation Interest sales transactions during the period in 2015,
compared to 6,556 transactions during the period in 2014. The
Company's closing percentage increased to 15.2% during the period
in 2015 from 14.1% during the period in 2014. Vacation Interest
sales price per transaction increased to $20,652 during the period
in 2015 from $18,321 during the period in 2014. The increase in
average sales price per transaction and the higher closing
percentage (and as a result higher VPG) are due principally to a
change in our focus on selling larger point packages and the
success of the sales and marketing initiatives implemented in
association with this strategy.
Provision for uncollectible Vacation Interest sales revenue
increased $2.7 million, or 23.3%, to $14.1 million during the
period in 2015 from $11.4 million during the period in 2014,
primarily due to the increase in Vacation Interest sales revenue
and an increase in the percentage of financed Vacation Interest
sales during the period in 2015 as compared to the period in 2014.
The allowance for mortgages and contracts receivable as a
percentage of gross mortgages and contracts receivable was 21.7% as
of March 31, 2015, as compared to 21.6% as of March 31, 2014.
Advertising, sales and marketing expense for the first quarter
of 2015 and 2014 included non-cash charges of $0.4 million and $0.9
million, respectively, related to stock-based compensation.
Excluding these charges, advertising, sales and marketing expense
as a percentage of Vacation Interest sales revenue decreased 1.1
percentage points to 49.9% in the first quarter of 2015, from 51.0%
in the first quarter of 2014. This improvement was primarily due to
improved leverage of fixed costs through increased sales
efficiencies. Including the non-cash charges, advertising, sales
and marketing expense as a percentage of Vacation Interest sales
revenue was 50.1% for the first quarter of 2015, as compared to
51.8% for the first quarter of 2014.
Vacation Interest cost of sales decreased $11.8 million, or
91.2%, to $1.1 million for the quarter ended March 31, 2015 from
$12.9 million for the quarter ended March 31, 2014. This decrease
consisted of a $13.8 million decrease resulting from changes in
estimates under the relative sales value method, partially offset
by a $2.0 million increase related to the increase in Vacation
Interest Sales revenue. The changes under the relative sales value
method related to the recovery of a larger pool of low cost
inventory and an increase in the average retail sales price,
partially offset by a smaller pool of inventory becoming eligible
for capitalization in accordance with our inventory recovery
agreements during the three months ended March 31, 2015 compared to
the three months ended March 31, 2014. Vacation Interest cost of
sales as a percentage of Vacation Interest sales, net decreased to
0.9% for the three months ended March 31, 2015 from 12.2% for the
three months ended March 31, 2014.
General and Administrative Expense
General and administrative expense for the first quarter of 2015
and 2014 included non-cash charges related to stock based
compensation of $2.5 million and $2.8 million, respectively. In
addition, during the quarter ended March 31, 2015, there was a
one-time $7.8 million cash charge related to the contract
termination related to the HM&C transactions. Excluding these
charges, general and administrative expense increased slightly to
$21.9 million during the period in 2015 compared to $21.4 million
during the period in 2014. Excluding the charges discussed above
general and administrative expense as a percentage of total revenue
would have decreased 0.7 percentage point to 11.1% in the first
quarter of 2015, from 11.8% in the first quarter of 2014. Giving
effect to these charges, general and administrative expense as
reported was $32.3 million during the period in 2015 compared to
$24.2 million during the period in 2014.
Pre-tax Income and Net Income
Pre-tax income for the first quarter of 2015 included a non-cash
charge related to stock-based compensation of $3.3 million and a
one-time charge of $7.8 million related to the contract termination
referenced above. Pre-tax income for the first quarter of 2014
included a non-cash charge related to stock-based compensation of
$4.7 million. Excluding the amounts discussed above, pre-tax income
in 2015 would have been $56.7 million, an increase of $25.9 million
from $30.8 million in the first quarter of 2014. Including these
items, pre-tax income for the first quarter of 2015 was $45.5
million compared to $26.1 million in the first quarter of 2014.
Net income for the first quarter in 2015 and 2014 were inclusive
of the non-cash and one-time charges discussed above. Net income
increased $12.0 million to $26.0 million during the period for 2014
from a net income of $14.0 million during the period in 2013.
Capital Resources and Liquidity
As of March 31, 2015, the Company had cash and cash equivalents
of $183.1 million and corporate indebtedness of $433.1 million.
During the three months ended March 31, 2015 the Company had a net
usage of $59.4 million in cash and cash equivalents.
During the three months ended March 31, 2015 and 2014, we used
cash of $17.4 million and $8.3 million, respectively, for
acquisitions of VOI inventory pursuant to inventory recovery
agreements and in open market and bulk VOI inventory purchases, for
capitalized legal, title and trust fees and for the construction of
VOI inventory. Of these total cash amounts, $1.9 million and $0.4
million during the three months ended March 31, 2015 and 2014,
respectively, were used for the construction of VOI inventory,
primarily related to construction of additional units at our
managed property in Mexico.
In addition, we had increases in unsold Vacation Interests, net,
that did not have an impact on our working capital during the
respective periods. Specifically, we capitalized $2.5 million and
$0.6 million during the three months ended March 31, 2015 and 2014,
respectively, related to inventory recovery agreements in the U.S.,
offset by an equal increase in due to related parties, net; where
cash will be used in future periods to settle these amounts. In
addition, the Company transferred $0.6 million and $0.1 million
during the three months ended March 31, 2015 and 2014,
respectively, from due from related parties, net, to unsold
Vacation Interests, net, as a result of our recovery of VOI
inventory pursuant to inventory recovery arrangements in Europe;
cash was used in prior periods when these amounts were recorded to
due from related parties, net. Furthermore, we transferred $1.6
million and $0.4 million from mortgages and contracts receivable,
net, to unsold Vacation Interests, net, during the three months
ended March 31, 2015 and 2014, respectively, as a result of our
recovery of underlying VOI inventory due to loan defaults.
Net cash provided by operating activities for the three months
ended March 31, 2015 was $45.8 million and was primarily the result
of net income of $26.0 million and non-cash revenues and expenses
totaling $41.2 million, partially offset by other changes in
operating assets and liabilities that resulted in a net credit of
$21.4 million. The significant non-cash revenues and expenses
included (i) $14.1 million in the provision for uncollectible
Vacation Interest sales revenue; (ii) $10.4 million in deferred
income taxes; (iii) $8.6 million in depreciation and amortization;
(iv) $3.3 million in stock-based compensation expense; (v) $3.1
million in amortization of net portfolio discounts; (vi) $1.4
million in amortization of capitalized financing costs and original
issue discounts; and (vii) $0.3 million in unrealized loss on
derivative instruments. Net cash provided by operating activities
for the three months ended March 31, 2014 was $33.7 million and was
the result of net income of $14.0 million and non-cash revenues and
expenses totaling $39.1 million, partially offset by other changes
in operating assets and liabilities that resulted in a net credit
of $19.5 million. Capital expenditures for the three months ended
March 31, 2015, primarily associated with information
technology-related projects and equipment, were $4.2 million, a
decrease of $1.5 million from $5.7 million for the three months
ended March 31, 2014.
Net cash used in investing activities for the three months ended
March 31, 2015 was $12.9 million, consisting of (i) $9.0 million,
inclusive of $0.3 million in transaction costs, used to acquire
intangible assets related to the HM&C transactions (ii) $4.2
million used to purchase property and equipment, primarily
associated with information technology related projects and
equipment and renovation projects at certain sales centers;
partially offset by (iii) $0.2 million in proceeds from the sale of
assets in our European operations. Net cash used in investing
activities for the three months ended March 31, 2014 was $5.7
million, which was used to purchase property and equipment.
Net cash used in financing activities for the three months ended
March 31, 2015 was $91.6 million, consisting of (i) $63.4 million
in repayments on our securitization notes and Funding Facilities;
(ii) $61.1 million in repurchases of our common stock including
$50.0 million in connection with the March secondary stock offering
and $11.1 million in open market purchases; (iii) $18.1 million in
repayments on the term loan portion of the Senior Credit Facility;
(iv) $9.2 million resulting from an increase in cash in escrow and
restricted cash; (v) $2.7 million in repayments on notes payable;
and (vi) $2.4 million in debt issuance costs; offset by (a) $63.2
million from the issuance of debt under our securitization notes
and Funding Facilities; (b) $1.8 million in proceeds from the
exercise of stock options; and (c) $0.4 million in excess tax
benefits from stock-based compensation. During the three months
ended March 31, 2014, net cash provided by financing activities was
$11.8 million, which consisted of (i) $45.9 million from the
issuance of debt under our securitization notes and Funding
Facilities; (ii) $14.6 million resulting from a decrease in cash in
escrow and restricted cash; (iii) $1.1 million from the issuance of
notes payable; and (iv) $0.2 million in proceeds from the exercise
of stock options; offset by (a) $45.1 million in repayments on our
securitization notes and Funding Facilities; and (b) $5.0 million
in repayments on notes payable.
Share Repurchase Program
On October 28, 2014, we announced a plan to repurchase up to
$100.0 million of our common stock. During the first quarter, we
used cash of $61.1 million to repurchase shares of our common
stock. Approximately $18.2 million remains available after giving
effect to the repurchases as of April 28, 2015.
First Quarter 2015 Earnings Call
The company will be conducting a conference call to discuss the
first quarter financial results at 5:00 p.m. Eastern Time on April
29, 2015, available via webcast on the Company's website at
http://investors.diamondresorts.com. A webcast replay will become
available within 2 hours of the call and will run for approximately
one year on the Company’s website. Alternatively, participants may
call into (888) 753-4238 from the United States, or (706) 643-3355
from outside the U.S. with conference ID 28716862; please dial in
fifteen minutes early to ensure a timely start.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements,
including the guidance for expected operating results presented
under “Outlook” above and other statements regarding the Company’s
current expectations, prospects and opportunities. These
forward-looking statements are covered by the "Safe Harbor for
Forward-Looking Statements" provided by the Private Securities
Litigation Reform Act of 1995. The Company has tried to identify
these forward looking statements by using words such as “expect,”
“anticipate,” “estimate,” “plan,” “will,” “would,” “should,”
“could,” “forecast,” “believe,” “guidance,” “projection,” “target”
or similar expressions, but these words are not the exclusive means
for identifying such statements. The Company cautions that a number
of risks, uncertainties and other factors could cause the Company's
actual results to differ materially from those expressed in, or
implied by, the forward-looking statements, including, without
limitation, adverse trends or disruptions in economic conditions
generally or in the vacation ownership, vacation rental and travel
industries; adverse changes to, or interruptions in, relationships
with the Company's affiliates and other third parties, including
termination of the Company's hospitality management contracts; the
Company's ability to maintain an optimal inventory of vacation
ownership interests for sale overall, as well as in specific
Collections; the market price of the Company's stock prevailing
from time to time; alternative uses of cash and investment
opportunities pursued by the Company from time to time; the
Company’s compliance with the financial and other covenants
contained in the credit agreement with respect to the Company’s
senior secured credit facility; the Company's ability to sell,
securitize or borrow against its consumer loans; decreased demand
from prospective purchasers of Vacation Interests; adverse events
or trends in vacation destinations and regions where the resorts in
our network are located; changes in the Company's senior
management; the Company's ability to comply with regulations
applicable to the vacation ownership industry; the effects of the
Company's indebtedness and its compliance with the terms thereof;
the Company's ability to successfully implement its growth
strategy; and the Company's ability to compete effectively. For a
detailed discussion of factors that could affect the Company's
future operating results, please see the Company's filings with the
Securities and Exchange Commission, including the disclosures under
“Risk Factors” in those filings. Except as expressly required by
the federal securities laws, the Company undertakes no obligation
to update or revise any forward-looking statements, whether as a
result of new information, changed circumstances or future events
or for any other reason.
About Diamond Resorts International®
Diamond Resorts International® (NYSE: DRII), with its network of
more than 330 vacation destinations located in 34 countries
throughout the continental United States, Hawaii, Canada, Mexico,
the Caribbean, South America, Central America, Europe, Asia,
Australasia and Africa, provides guests with choice and flexibility
to let them create their dream vacation, whether they are traveling
an hour away or around the world. Our relaxing vacations have the
power to give guests an increased sense of happiness and
satisfaction in their lives, while feeling healthier and more
fulfilled in their relationships, by enjoying memorable and
meaningful experiences that let them Stay Vacationed.™
Diamond Resorts International® manages vacation ownership
resorts and sells vacation ownership points that provide members
and owners with Vacations for Life® at over 330 managed and
affiliated properties and cruise itineraries.
Reconciliation of GAAP to Non-GAAP Measures
We believe supplementing our consolidated financial statements
presented in accordance with U.S. GAAP with non-U.S. GAAP measures
provides investors with useful information regarding our liquidity
and short-term and long-term trends.
We define Adjusted EBITDA as our net income, plus: (i) corporate
interest expense; (ii) provision (benefit) for income taxes; (iii)
depreciation and amortization; (iv) Vacation Interest cost of
sales; (v) loss on extinguishment of debt; (vi) impairments and
other non-cash write-offs; (vii) loss on the disposal of assets;
(viii) amortization of loan origination costs; (ix) amortization of
net portfolio premiums; and (x) stock-based compensation; less (a)
gain on the disposal of assets; (b) gain on bargain purchase from
business combination; and (c) amortization of net portfolio
discounts. Adjusted EBITDA is a non-U.S. GAAP financial measure and
should not be considered in isolation, or as an alternative to net
cash provided by operating activities or any other measure of
liquidity, or as an alternative to net income, operating income or
any other measure of financial performance, in any such case
calculated and presented in accordance with U.S. GAAP. Additional
information regarding our calculation of Adjusted EBITDA is
provided below.
We present Adjusted EBITDA primarily because the Senior Credit
Facility Agreement includes covenants which are determined by
reference to the Adjusted EBITDA of the Company and its “restricted
subsidiaries,” and other of our debt-related agreements include
covenants that are determined by reference to measures calculated
in a manner similar to the calculation of Adjusted EBITDA. As a
result, we believe that supplementing our consolidated financial
statements presented in accordance with U.S. GAAP with this
non-U.S. GAAP measure provides investors with useful information
with respect to our liquidity. As of December 31, 2014, all of our
subsidiaries were designated as restricted subsidiaries, as defined
in the Senior Credit Facility Agreement.
In addition to its application under the Senior Credit Facility
Agreement, our management uses Adjusted EBITDA: (i) for planning
purposes, including the preparation of our annual operating budget;
(ii) to allocate resources to enhance the financial performance of
our business; (iii) to evaluate the effectiveness of our business
strategies; and (iv) as a factor for determining compensation for
certain personnel.
We understand that, although measures similar to Adjusted EBITDA
are frequently used by investors and securities analysts in their
evaluation of companies, it has limitations as an analytical tool,
including:
- Adjusted EBITDA does not reflect our
cash expenditures or future requirements for capital
expenditures;
- Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital
needs;
- Adjusted EBITDA does not reflect cash
requirements for income taxes;
- Adjusted EBITDA does not reflect
interest expense for our corporate indebtedness;
- although depreciation and amortization
are non-cash charges, the assets being depreciated or amortized
will often have to be replaced, and Adjusted EBITDA does not
reflect any cash requirements for these replacements;
- we make expenditures to replenish
Vacation Interests inventory (principally pursuant to our inventory
recovery agreements and in connection with our strategic
acquisitions), and Adjusted EBITDA does not reflect our cash
requirements for these expenditures or certain costs of carrying
such inventory (which are capitalized); and
- other companies in our industry may
calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.
In this release, we present Adjusted EBITDA excluding the
one-time cash charge related to the contract termination referenced
above; because management excludes this charge from its forecasts
and evaluation of our operational performance and because we
believe that Adjusted EBITDA including this item is not indicative
of our core cash flows or operating results.
The following tables present Adjusted EBITDA, excluding the
one-time charge related to the contract termination, reconciled to
each of (i) our net cash provided by operating activities and (ii)
our net income for the periods presented.
($ in thousands) (Unaudited) Quarter
Ended March 31, 2015 2014 Net cash
provided by operating activities $ 45,778 $ 33,663 Provision for
income taxes 19,525 12,047 Provision for uncollectible Vacation
Interest sales revenue(a) (14,096 ) (11,433 )
Amortization of capitalized financing
costs and original issue discounts(a)
(1,402 ) (1,437 ) Deferred income taxes(b) (10,447 ) (11,260 ) Loss
on foreign currency(c) (98 ) (88 ) Gain on mortgage purchase(a) 96
49 Unrealized loss on derivative instruments(d) (258 ) (199 )
Unrealized loss on post-retirement benefit plan(e) (43 ) (43 )
Corporate interest expense(f) 7,686 13,246
Change in operating assets and liabilities
excluding acquisitions(g)
21,404 19,473 Vacation Interest cost of sales(h) 1,138
12,902 Adjusted EBITDA - Consolidated $ 69,283 $ 66,920
One-time charge related to the contract termination 7,830 —
Adjusted EBITDA excluding the one-time charge related to the
contract termination $ 77,113 $ 66,920
(a)
Represents non-cash charge or gain.
(b)
Represents the deferred income tax
liability as a result of the provision for income taxes recorded
for the three months ended March 31, 2015 and 2014.
(c)
Represents net realized losses on foreign
exchange transactions settled at unfavorable exchange rates and
unrealized net losses resulting from the devaluation of foreign
currency-denominated assets and liabilities.
(d)
Represents the effects of the changes in
mark-to-market valuations of derivative liabilities.
(e)
Represents unrealized loss on our
post-retirement benefit plan related to a collective labor
agreement entered into with the employees of our two resorts in St.
Maarten.
(f)
Represents corporate interest expense;
does not include interest expense related to non-recourse
indebtedness incurred by our special-purpose subsidiaries that is
secured by our VOI consumer loans.
(g)
Represents the net change in operating
assets and liabilities excluding acquisitions, as computed directly
from the statements of cash flows. Vacation Interest cost of sales
is included in the net changes in unsold Vacation Interests, net,
as presented in the statements of cash flows.
(h)
We record Vacation Interest cost of sales
using the relative sales value method in accordance with ASC 978,
"Real-estate Time-Sharing Activities," which requires us to make
significant estimates which are subject to significant uncertainty.
In determining the appropriate amount of costs using the relative
sales value method, we rely on complex, multi-year financial models
that incorporate a variety of estimated inputs. These models are
reviewed on a regular basis, and the relevant estimates used in the
models are revised based upon historical results and management's
new estimates.
($ in thousands) (Unaudited)
Quarter Ended March 31, 2015
2014 Net income $ 25,975 $ 14,010 Plus: Corporate interest
expense(a) 7,686 13,246 Provision for income taxes 19,525 12,047
Depreciation and amortization(b) 8,640 8,061 Vacation Interest cost
of sales(c) 1,138 12,902 Impairments and other non-cash
write-offs(b) 5 7 Gain on disposal of assets(b) (34 ) (4 )
Amortization of loan origination costs(b) 3,042 2,064 Amortization
of net portfolio premiums (discount)(b) 11 (109 ) Stock-based
compensation(d) 3,295 4,696 Adjusted EBITDA -
Consolidated $ 69,283 $ 66,920 One-time charge related to the
contract termination 7,830 — Adjusted EBITDA
excluding the one-time charge related to the contract termination $
77,113 $ 66,920
(a)
Corporate interest expense does not
include interest expense related to non-recourse indebtedness
incurred by our special-purpose vehicles that is secured by our VOI
consumer loans.
(b)
These items represent non-cash
charges/gains.
(c)
We record Vacation Interest cost of sales
using the relative sales value method in accordance with ASC 978,
which requires us to make significant estimates which are subject
to significant uncertainty. In determining the appropriate amount
of costs using the relative sales value method, we rely on complex,
multi-year financial models that incorporate a variety of estimated
inputs. These models are reviewed on a regular basis, and the
relevant estimates used in the models are revised based upon
historical results and management's new estimates.
(d)
Represents the non-cash charge related to
stock-based compensation due to stock options issued in connection
with and since the consummation of the IPO.
The following tables present a reconciliation of (i)
advertising, sales and marketing expense as reported to
advertising, sales and marketing expense after excluding non-cash
stock-based compensation; (ii) general and administrative expense
as reported to general and administrative expense after excluding
non-cash stock-based compensation and the one-time cash charge
related to the contract termination referenced above; and (iii)
income before provision for income taxes to income before provision
for income taxes after excluding non-cash stock-based compensation
and the one-time cash charge related to the contract termination.
We exclude these non-cash and one-time items because management
excludes them from its forecasts and evaluation of our operational
performance and because we believe that the U.S. GAAP measures
including these items are not indicative of our core operating
results.
($ in thousands) (Unaudited) Quarter
Ended March 31, 2015 2014
Advertising, sales and marketing expense $ 68,513 $ 60,775
Stock-based compensation (369 ) (927 ) Advertising, sales and
marketing expense after excluding stock-based compensation $ 68,144
$ 59,848
($ in thousands)
(Unaudited) Quarter Ended March 31, 2015
2014 General and administrative expense $
32,256 $ 24,192 Stock-based compensation (2,514 ) (2,827 ) One-time
cash charge related to the contract termination (7,830 ) —
General and administrative expense after excluding stock-based
compensation and one-time cash charge related to the contract
termination $ 21,912 $ 21,365
($ in thousands) (Unaudited) Quarter Ended March
31, 2015 2014 Income before
provision for income taxes $ 45,500 $ 26,057 Stock-based
compensation 3,295 4,696 One-time cash charge related to the
contract termination 7,830 — Income before provision for
income taxes after excluding stock-based compensation and one-time
cash charge related to the contract termination $ 56,625 $
30,753
To properly and prudently evaluate our business, we encourage
you to review our U.S. GAAP consolidated financial statements
included in this press release, and not to rely on any single
financial measure to evaluate our business. The non-U.S. GAAP
financial measures included in this press release should not be
considered in isolation, or as an alternative to net cash provided
by operating activities or any other measure of liquidity, or as an
alternative to net income, operating income or any other measure of
financial performance, in any such case calculated and presented in
accordance with U.S. GAAP.
Segment Reporting
The Company presents its results of operations in two segments:
(i) Hospitality and Management Services, which includes operations
related to the management of resort properties and the Diamond
Collections, revenue from its operations of the Clubs and the
provision of other services; and (ii) Vacation Interest Sales and
Financing, which includes operations relating to the marketing and
sales of Vacation Interests, as well as the consumer financing
activities related to such sales. While certain line items
reflected on the statement of operations and comprehensive income
fall completely into one of these business segments, other line
items relate to revenues or expenses which are applicable to more
than one segment. For line items that are applicable to more than
one segment, revenues or expenses are allocated by management,
which involves significant estimates. Certain expense items
(principally corporate interest expense and depreciation and
amortization) are not, in management's view, allocable to either of
these business segments as they apply to the entire Company. In
addition, general and administrative expenses are not allocated to
either of these business segments because, historically, management
has not allocated these expenses for purposes of evaluating the
Company's different operational divisions. Accordingly, these
expenses are presented under Corporate and Other.
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS BY BUSINESS
SEGMENT For the Quarters Ended March 31, 2015 and 2014
(In thousands) (Unaudited)
Quarter Ended March 31, 2015
Quarter Ended March 31, 2014 Hospitality and
Management
Services
Vacation
Interest Sales
and Financing
Corporate
and
Other
Total Hospitality and
Management
Services
Vacation
Interest Sales
and Financing
Corporate
and
Other
Total Revenues: Management and member services
$ 40,639 $ — $ — $ 40,639 $ 38,224 $ — $ — $ 38,224 Consolidated
resort operations 3,209 — — 3,209 8,723 — — 8,723
Vacation Interest sales, net of
provision of $0, $14,096, $0, $14,096, $0,
$11,433, $0 and $11,433, respectively
— 122,566 — 122,566 — 105,897 — 105,897 Interest — 18,416 386
18,802 — 15,257 417 15,674 Other 1,893 10,411 —
12,304 2,161 10,546 — 12,707
Total revenues 45,741 151,393 386
197,520 49,108 131,700 417 181,225
Costs and Expenses: Management and member services
8,081 — — 8,081 8,947 — — 8,947 Consolidated resort operations
3,701 — — 3,701 7,771 — — 7,771 Vacation Interest cost of sales —
1,138 — 1,138 — 12,902 — 12,902 Advertising, sales and marketing —
68,513 — 68,513 — 60,775 — 60,775 Vacation Interest carrying cost,
net — 10,368 — 10,368 — 7,875 — 7,875 Loan portfolio 334 2,403 —
2,737 242 2,248 — 2,490 Other operating — 5,011 — 5,011 — 5,537 —
5,537 General and administrative — — 32,256 32,256 — — 24,192
24,192 Depreciation and amortization — — 8,640 8,640 — — 8,061
8,061 Interest expense — 3,918 7,686 11,604 — 3,369 13,246 16,615
Impairments and other write-offs — — 5 5 — — 7 7 Gain on disposal
of assets — — (34 ) (34 ) — — (4 ) (4 )
Total costs and expenses 12,116 91,351 48,553
152,020 16,960 92,706 45,502 155,168
Income (loss) before provision for income
taxes
33,625 60,042 (48,167 ) 45,500 32,148 38,994 (45,085 ) 26,057
Provision for income taxes — — 19,525 19,525
— — 12,047 12,047 Net income
(loss) $ 33,625 $ 60,042 $ (67,692 ) $ 25,975
$ 32,148 $ 38,994 $ (57,132 ) $ 14,010
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS As of March 31,
2015 and December 31, 2014 (In thousands, except share
data) March 31,
2015
(Unaudited)
December 31, 2014
(Audited)
Assets: Cash and cash equivalents $ 183,093 $ 242,486 Cash
in escrow and restricted cash 90,049 80,914
Mortgages and contracts receivable, net of
allowance of $135,701 and $130,639, respectively
509,001 498,662 Due from related parties, net 61,668 51,651 Other
receivables, net 36,511 59,821 Income tax receivable 472 467
Deferred tax asset 613 423 Prepaid expenses and other assets, net
161,111 86,439 Unsold Vacation Interests, net 283,926 262,172
Property and equipment, net 70,617 70,871 Assets held for sale
1,177 14,452 Goodwill 30,642 30,632 Intangible assets, net 182,606
178,786 Total assets $ 1,611,486 $ 1,577,776
Liabilities and Stockholder's Equity: Accounts
payable $ 18,177 $ 14,084 Due to related parties, net 107,822
34,768 Accrued liabilities 140,916 134,680 Income taxes payable 120
108 Deferred income taxes 57,924 47,250 Deferred revenues 109,775
124,997
Senior Credit Facility, net of unamortized
original issue discount of $1,976 and $2,055, respectively
422,690 440,720 Securitization notes and Funding Facilities, net of
unamortized original issue discount of $141 and $156, respectively
508,983 509,208 Derivative liabilities 258 — Notes payable 10,364
4,612 Total liabilities 1,377,029 1,310,427
Stockholders' equity: Common stock $0.01 par
value per share; authorized - 250,000,000 shares, issued -
75,847,838 and 75,732,088 shares, respectively 758 757 Preferred
stock $0.01 par value per share; authorized 5,000,000 shares — —
Additional paid in capital 488,142 482,732 Accumulated deficit
(154,527 ) (180,502 ) Accumulated other comprehensive loss (22,698
) (19,561 ) Subtotal 311,675 283,426 Less: Treasury stock at cost;
2,525,282 and 642,900 shares, respectively (77,218 ) (16,077 )
Total stockholders' equity 234,457 267,349 Total
liabilities and stockholders' equity $ 1,611,486 $ 1,577,776
DIAMOND RESORTS INTERNATIONAL, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS For the Quarters ended March 31, 2015 and 2014
(In thousands) (Unaudited)
Quarter Ended March 31, 2015 2014
Operating Activities: Net income $ 25,975 $ 14,010 Adjustments to
reconcile net income to net cash provided by operating activities:
Provision for uncollectible Vacation Interest sales revenue 14,096
11,433 Amortization of capitalized financing costs and original
issue discounts 1,402 1,437 Amortization of capitalized loan
origination costs and net portfolio discount 3,053 1,955
Depreciation and amortization 8,640 8,061 Stock-based compensation
3,295 4,696 Impairments and other write-offs 5 7 Gain on disposal
of assets (34 ) (4 ) Deferred income taxes 10,447 11,260 Loss on
foreign currency exchange 98 88 Gain on mortgage repurchase (96 )
(49 ) Unrealized loss on derivative instrument 258 199 Unrealized
loss on post-retirement benefit plan 43 43 Changes in
operating assets and liabilities excluding acquisitions: Mortgages
and contracts receivable (27,418 ) (19,122 ) Due from related
parties, net (4,729 ) 8,295 Other receivables, net 22,910 13,582
Prepaid expenses and other assets, net (73,787 ) (80,512 ) Unsold
Vacation Interests, net (10,915 ) 4,828 Accounts payable 4,397 (249
) Due to related parties, net 74,912 52,595 Accrued liabilities
7,247 (13,941 ) Income taxes payable 7 570 Deferred revenues
(14,028 ) 14,481 Net cash provided by operating activities
45,778 33,663 Investing activities: Property
and equipment capital expenditures (4,160 ) (5,711 ) Purchase of
goodwill and other intangible assets (8,993 ) — Proceeds from sale
of assets 236 — Net cash used in investing activities
$ (12,917 ) $ (5,711 )
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued
For the Quarters ended March 31, 2015 and 2014
(Unaudited) (In thousands) Quarter Ended
March 31, 2015 2014 Financing activities: Changes
in cash in escrow and restricted cash $ (9,221 ) $ 14,632
Proceeds from issuance of securitization notes and Funding
Facilities 63,206 45,909 Proceeds from issuance of notes payable —
1,113 Payments on Senior Credit Facility (18,109 ) — Payments on
securitization notes and Funding Facilities (63,446 ) (45,134 )
Payments on notes payable (2,740 ) (5,027 ) (Payment) adjustment of
debt issuance costs (2,368 ) 70 Excess tax benefits from
stock-based compensation 375 — Common stock repurchases under the
share repurchase program (61,141 ) — Proceeds from exercise of
stock options 1,816 236 Net cash (used in) provided
by financing activities (91,628 ) 11,799 Net
(decrease) increase in cash and cash equivalents (58,767 ) 39,751
Effect of changes in exchange rates on cash and cash equivalents
(626 ) 80 Cash and cash equivalents, beginning of period 242,486
35,945 Cash and cash equivalents, end of period $
183,093 $ 75,776 SUPPLEMENTAL DISCLOSURES OF
CASH FLOW
INFORMATION:
Cash interest paid on corporate indebtedness $ 6,094 $
22,852 Cash interest paid on securitization notes and
Funding Facilities $ 3,897 $ 3,411 Cash paid for
taxes, net of cash tax refunds $ 11 $ 218
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES: Insurance premiums financed through issuance of notes
payable $ 8,492 $ 6,173 Assets held for sale
reclassified to unsold Vacation Interests $ 13,159 $ —
Media:Diamond Resorts International®Stevi Wara,
702-823-7069media@diamondresorts.comorInvestors:Sloane and
CompanyJoshua Hochberg, 212-486-9500jhochberg@sloanepr.com
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