Hilton Grand Vacations Inc. (NYSE:HGV) (“HGV” or “the Company”)
today reports its third quarter 2020 results.
Third Quarter 2020 Results1
- Contract sales in the third quarter were $117 million.
- Net Owner Growth (NOG) for the 12 months ended Sept. 30, 2020,
was 1.9%.
- Total revenues for the third quarter were $208 million compared
to $466 million for the same period in 2019.
- Total revenues were affected by deferrals of $13 million and $15 million in the
current period and the same period in 2019, respectively.
- Net loss for the third quarter was ($7) million compared to $50
million net income for the same period in 2019.
- Net (loss) income was affected by net deferrals of $8 million for the current period and
the same period in 2019, respectively.
- Diluted EPS for the third quarter was ($0.08) compared to $0.59
for the same period in 2019.
- Diluted EPS was affected by net deferrals of $8 million, or $0.09 per share in the
current period and the same period in 2019, respectively.
- Adjusted EBITDA for the third quarter was $19 million compared
to $111 million for the same period in 2019.
- Adjusted EBITDA was affected by net deferrals of $8 million in the current period and
the same period in 2019, respectively.
- In addition to the adverse impact from the closure of HGV sales
centers and resort operations, the COVID-19 pandemic had the
following impacts on total revenues, net income (loss), diluted EPS
and Adjusted EBITDA:
- $7 million or $0.08 per share benefit from an employee
retention credit granted primarily under the CARES Act, primarily
related to payments made to employees as a result of operational
closures caused by the COVID-19 pandemic.
- ($1) million or ($0.01) per share impact related to the
refunding of club transaction fees to accommodate Club Members
impacted by the COVID-19 pandemic.
“We’re pleased to have resumed operations at the majority of our
resorts and delivered positive adjusted EBITDA in the quarter,”
said Mark Wang, president and CEO of Hilton Grand Vacations. “While
we expect the pace of improvement to vary across our different
resort destinations, we continue to make steady progress on the
path to recovery and remain focused on driving business efficiency
and maximizing our financial flexibility. As a result, we now
expect to deliver positive adjusted free cash flow for the
full-year 2020. Above all, we are committed to continuing to
provide our guests with the highest levels of safety and service
when they vacation with us.”
_______________________ 1
The Company’s current period results and
prior year results include impacts related to deferrals of revenues
and direct expenses related to the Sales of VOIs under construction
that are recognized when construction is complete. These impacts
are reflected in the sub-bullets.
COVID-19 Update
As disclosed in HGV’s press release dated March 16, 2020, the
Company has withdrawn its prior full-year 2020 Guidance due to the
increased uncertainty created by the impact of COVID-19.
The COVID-19 pandemic has created an unprecedented and
challenging environment. The Company’s current focus is on taking
critical actions that are aimed at positioning the Company in a
sound position from an operational, liquidity, credit access, and
compliance perspective for a strong recovery when the impact of
COVID-19 subsides. Management will continue to assess the evolving
COVID-19 pandemic, including the various government mandates and
orders that impact the re-opening of its properties and any new
recommended or required business practices, and will take
additional actions as appropriate.
As of October 2020, the Company has over three quarters of its
resorts and sales centers open and currently operating. However,
many of HGV’s resorts and sales centers are operating with
significant capacity constraints and subject to various safety
measures. As HGV responds to changes in tour flow, the Company
intends to adjust its sales operations accordingly while complying
with all applicable social distancing rules and its own safety
measures.
While HGV plans to continue to re-open its resorts and resume
business as conditions permit, the pandemic continues to be
unprecedented and rapidly changing, and has unknown duration and
severity. Further, various state and local government officials may
issue new or revised orders that are different than current ones
under which the Company is operating.
Accordingly, there remains significant uncertainty as to the
degree of impact and duration of the conditions stemming from the
ongoing pandemic on the Company’s revenues, net income (loss) and
other operating results, as well as its business and operations
generally.
Overview
For the quarter ended Sept. 30, 2020, diluted EPS was ($0.08)
compared to $0.59 for the quarter ended Sept. 30, 2019. Net loss
and Adjusted EBITDA were ($7) million and $19 million,
respectively, for the quarter ended Sept. 30, 2020, compared to Net
income and Adjusted EBITDA of $50 million and $111 million,
respectively, for the quarter ended Sept. 30, 2019. Total revenues
for the quarter ended Sept. 30, 2020, were $208 million compared to
$466 million for the quarter ended Sept. 30, 2019.
Net loss and Adjusted EBITDA for the quarter ended Sept. 30,
2020, included a net deferral of $8 million relating to sales made
at Ocean Tower at Hilton Grand Vacations Club Phase II and Maui Bay
Villas projects, which were under construction during the period.
The Company anticipates recognizing these revenues and related
expenses in 2021 when it expects to complete these projects and
recognize the net deferral impacts.
Segment Highlights – Third Quarter 2020
Real Estate Sales and Financing
For the quarter ended Sept. 30, 2020, Real Estate Sales and
Financing segment revenues were $116 million, a decrease of 64.2%
compared to the quarter ended Sept. 30, 2019. Real Estate Sales and
Financing segment Adjusted EBITDA and Adjusted EBITDA margin as a
percentage of Real Estate Sales and Financing segment revenues were
$15 million and 12.9%, respectively, for the quarter ended Sept.
30, 2020, compared to $94 million and 29.0%, respectively, for the
quarter ended Sept. 30, 2019. Real Estate Sales and Financing
results in the third quarter of 2020 weakened due to a decrease in
contract sales related to the ongoing impact of the COVID-19
pandemic on travel demand, along with ongoing related resort
closures in several markets. As of Sept. 30, 2020, the Company had
reopened over three quarters of its resorts and sales centers.
Real Estate Sales and Financing segment Adjusted EBITDA reflect
the $8 million of net deferrals related to Ocean Tower Phase II and
Maui Bay Villas projects for the quarter ended Sept. 30, 2020, and
$8 million net deferrals related to The Central at 5th for the
quarter ended Sept. 30, 2019, as previously discussed.
Contract sales for the quarter ended Sept. 30, 2020, decreased
67.5% to $117 million compared to the quarter ended Sept. 30, 2019.
For the quarter ended Sept. 30, 2020, tours decreased 75.2% and VPG
increased 25.0% compared to the quarter ended Sept. 30, 2019. For
the quarter ended Sept. 30, 2020, fee-for-service contract sales
represented 57.3% of contract sales compared to 53.9% for the
quarter ended Sept. 30, 2019.
Financing revenues for the quarter ended Sept. 30, 2020
decreased by $3 million compared to the quarter ended Sept. 30,
2019. This was driven by an 11.2% decrease in the net timeshare
financing receivables portfolio offset by a 17 bps increase in the
weighted average interest rate the Company receives on the
portfolio compared to the same period in the prior year.
Resort Operations and Club
Management
For the quarter ended Sept. 30, 2020, Resort Operations and Club
Management segment revenue was $61 million, a decrease of 43.5%
compared to the quarter ended Sept. 30, 2019. Resort Operations and
Club Management segment Adjusted EBITDA and Adjusted EBITDA margin
as a percentage of Resort Operations and Club Management segment
revenue were $30 million and 49.2%, respectively, for the quarter
ended Sept. 30, 2020, compared to $62 million and 57.4%,
respectively, for the quarter ended Sept. 30, 2019. Compared to the
prior-year period, Resort Operations and Club Management results in
the third quarter of 2020 decreased primarily due to a decrease in
rental and ancillary services revenue related to the ongoing impact
of the COVID-19 pandemic on travel demand, along with an associated
reduction in usage-related fees from our members.
Inventory
The estimated contract sales value of the Company’s total
pipeline is approximately $10 billion at current pricing.
The total pipeline includes approximately $3 billion of sales
relating to inventory that is currently available for sale at open
or soon-to-open projects. The remaining $7 billion of sales is
inventory at new or existing projects that will become available
for sale in the future upon registration, delivery or
construction.
Owned inventory represents 80% of the Company’s total pipeline.
Approximately 32% of the owned inventory pipeline is currently
available for sale.
Fee-for-service inventory represents 20% of the Company’s total
pipeline. Approximately 57% of the fee-for-service inventory
pipeline is currently available for sale.
With 32% of the pipeline consisting of just-in-time inventory
and 20% consisting of fee-for-service inventory, capital-efficient
inventory represents 52% of the Company’s total pipeline.
Balance Sheet and Liquidity
Total cash and cash equivalents were $717 million as of Sept.
30, 2020, including $92 million of restricted cash.
As of Sept. 30, 2020, the Company had $1.262 billion of
corporate debt, net outstanding with a weighted average interest
rate of 3.08% and $837 million of non-recourse debt, net
outstanding with a weighted average interest rate of 3.17%.
As of Sept. 30, 2020, the Company’s liquidity position consisted
of $625 million of unrestricted cash and available capacity of $39
million on the revolving credit facility and $450 million on the
warehouse facility.
Free cash flow was $64 million for the nine months ended Sept.
30, 2020, compared to $104 million for the same period in the prior
year. Adjusted free cash flow was $156 million for the nine months
ended Sept. 30, 2020, compared to $142 million for the same period
in the prior year.
As of Sept. 30, 2020, the Company’s net leverage ratio for
covenant purposes was 2.14 and its interest coverage ratio for
covenant purposes was 7.17.
Subsequent Events
On Oct. 15, 2020, HGV announced a workforce reduction plan in
response to the continuing adverse impact of the COVID-19 pandemic
and related government orders and mandates restricting travel and
operations on the Company’s business and the travel and leisure
industry in general. The reduction in force is expected to reduce
HGV’s workforce by approximately 1,600 team members and better
align the workforce with the evolving business needs.
The reduction in force is estimated to result in approximately
$10 million to $12 million in restructuring and related expenses
and charges, primarily related to employee severance, benefit and
related costs. The Company expects to incur a majority of these
costs during the last quarter of 2020. All restructuring and
related expenses and charges are expected to result in cash
expenditures.
Additionally, in October 2020, the Company repaid $100 million
under their revolving credit facility.
Total Construction Deferrals and/or Recognitions Included in
Results Reported Under Accounting Standards Codification Topic 606
(“ASC 606”)
The Company’s Adjusted EBITDA as reported under ASC 606 includes
construction-related recognitions and deferrals of revenues and
related expenses as detailed in Table T-1. Under ASC 606, the
Company defers revenues and related expenses pertaining to sales at
projects that occur during periods when that project is under
construction until the period when construction is completed.
T-1 Total Construction
Recognitions (Deferrals)
Three Months Ended September
30,
Nine Months Ended September
30,
($ in millions)
2020
2019
2020
2019
Sales of VOIs (deferrals)
$
(13
)
$
(15
)
$
(64
)
$
(49
)
Sales of VOIs recognitions
—
—
—
—
Net Sales of VOIs (deferrals)
recognitions
(13
)
(15
)
(64
)
(49
)
Cost of VOI sales (deferrals)(2)
(4
)
(5
)
(17
)
(16
)
Cost of VOI sales recognitions
—
—
—
—
Net Cost of VOI sales (deferrals)
recognitions(2)
(4
)
(5
)
(17
)
(16
)
Sales and marketing expense
(deferrals)
(1
)
(2
)
(9
)
(7
)
Sales and marketing expense
recognitions
—
—
—
—
Net Sales and marketing expense
(deferrals) recognitions
(1
)
(2
)
(9
)
(7
)
Net construction (deferrals) recognitions
(1)
$
(8
)
$
(8
)
$
(38
)
$
(26
)
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
Net income (loss)
$
8
$
(48
)
$
(7
)
$
—
$
(47
)
Interest expense
10
12
10
—
32
Income tax expense (benefit)
1
(8
)
(5
)
—
(12
)
Depreciation and amortization
12
11
11
—
34
Interest expense and depreciation and
amortization included in equity in earnings (losses) from
unconsolidated affiliates
1
—
1
—
2
EBITDA
32
(33
)
10
—
9
Other (gain) loss, net
(2
)
3
(1
)
—
—
Share-based compensation expense(3)
(2
)
6
6
—
10
Other adjustment items(4)
5
5
4
—
14
Adjusted EBITDA
$
33
$
(19
)
$
19
$
—
$
33
NET CONSTRUCTION DEFERRAL
ACTIVITY
Sales of VOIs, net
$
(47
)
$
(4
)
$
(13
)
$
—
$
(64
)
Cost of VOI sales(2)
(13
)
—
(4
)
—
(17
)
Sales, marketing, general and
administrative expense
(7
)
(1
)
(1
)
—
(9
)
Net construction deferrals
$
(27
)
$
(3
)
$
(8
)
$
—
$
(38
)
_______________________
(1)
The table represents deferrals and
recognitions of Sales of VOI revenue and direct costs for
properties under construction for the three and nine months ended
Sept. 30, 2020 and 2019.
(2)
Includes anticipated Costs of VOI sales
related to inventory associated with Sales of VOIs under
construction that will be acquired under a just-in-time arrangement
once construction is complete.
(3)
As of March 31, 2020, the Company
determined that the performance conditions for its 2018, 2019, and
2020 Performance RSUs are improbable of achievement therefore the
Company reversed $8 million of share-based compensation expense
recognized in prior years and ceased accruing expenses related to
Performance RSUs granted in 2018, 2019, and 2020, during the three
months ended March 31, 2020. As of Sept. 30, 2020, the Company
determined the performance conditions continue to be improbable of
achievement and therefore no expense was recognized for its
Performance RSUs in the current period.
(4)
For the three and nine months ended Sept.
30, 2020, these amounts include costs associated with
restructuring, one-time charges and other non-cash items.
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
Net income
$
55
$
39
$
50
$
72
$
216
Interest expense
10
11
12
10
43
Income tax expense
20
15
20
2
57
Depreciation and amortization
8
12
12
12
44
Interest expense and depreciation and
amortization included in equity in earnings (losses) from
unconsolidated affiliates
1
1
—
1
3
EBITDA
94
78
94
97
363
Other (gain) loss, net
1
1
1
—
3
Share-based compensation expense
5
7
6
4
22
Other adjustment items (1)
2
4
10
4
20
Adjusted EBITDA
$
102
$
90
$
111
$
105
$
408
NET CONSTRUCTION DEFERRAL
ACTIVITY
Sales of VOIs, net
$
—
$
(34
)
$
(15
)
$
(35
)
$
(84
)
Cost of VOI sales(2)
—
(11
)
(5
)
(11
)
(27
)
Sales, marketing, general and
administrative expense
—
(5
)
(2
)
(5
)
(12
)
Net construction (deferrals)
recognitions
$
—
$
(18
)
$
(8
)
$
(19
)
$
(45
)
_______________________
(1)
For the three and nine months
ended Sept. 30, 2019, these amounts include costs associated with
restructuring, one-time charges and other non-cash items.
(2)
Includes anticipated Costs of VOI
sales related to inventory associated with Sales of VOIs under
construction that will be acquired under a just-in-time arrangement
once construction is complete.
Conference Call
Hilton Grand Vacations will host a conference call on Oct. 29,
2020, at 11 a.m. (EDT) to discuss third quarter results.
To access the live teleconference, please dial 1-877-407-0784 in
the U.S./Canada (or +1-201-689-8560 internationally) approximately
15 minutes prior to the teleconference’s start time. A live webcast
will also be available by logging onto the HGV Investor Relations
website at https://investors.hgv.com.
In the event of audio difficulties during the call on the
toll-free number, participants are advised that accessing the call
using the +1-201-689-8560 dial-in number may bypass the source of
audio difficulties.
A replay will be available beginning three hours after the
teleconference’s completion through Nov. 5, 2020. To access the
replay, please dial 1-844-512-2921 in the U.S. (+1-412-317-6671
internationally) using ID# 13697043. A webcast replay and
transcript will be available within 24 hours after the live event
at https://investors.hgv.com.
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. Forward-looking statements convey management’s
expectations as to HGV’s future, and are based on management’s
beliefs, expectations, assumptions and such plans, estimates,
projections and other information available to management at the
time HGV makes such statements. Forward-looking statements include
all statements that are not historical facts, including those
related to HGV’s revenues, earnings, cash flow and operations, and
may be identified by terminology such as the words “outlook,”
“believe,” “expect,” “potential,” “goal,” “continues,” “may,”
“will,” “should,” “could,” “seeks,” “approximately,” “projects,”
predicts,” “intends,” “plans,” “estimates,” “anticipates” “future,”
“guidance,” “target,” or the negative version of these words or
other comparable words.
HGV cautions you that forward-looking statements involve known
and unknown risks, uncertainties and other factors, including those
that are beyond HGV’s control, that may cause its actual results,
performance or achievements to be materially different from the
future results. Factors that could cause HGV’s actual results to
differ materially from those contemplated by HGV’s forward-looking
statements include: the material impact of the COVID-19 pandemic on
HGV’s business, operating results, and financial condition; the
extent and duration of the impact of the COVID-19 pandemic on
global economic conditions; HGV’s ability to meet its liquidity
needs; risks related to HGV’s indebtedness; inherent business
risks, market trends and competition within the timeshare and
hospitality industries; HGV’s ability to successfully source
inventory and market, sell and finance VOIs; default rates on HGV’s
financing receivables; the reputation of and HGV’s ability to
access Hilton brands and programs, including the risk of a breach
or termination of its license agreement with Hilton; compliance
with and changes to United States and global laws and regulations,
including those related to anti-corruption and privacy; risks
related to HGV’s acquisitions, joint ventures, and other
partnerships; HGV’s dependence on third-party development
activities to secure just-in-time inventory; the performance of
HGV’s information technology systems and its ability to maintain
data security; regulatory proceedings or litigation; HGV’s ability
to attract and retain key executives and employees with skills and
capacity to meet its needs; and natural disasters or adverse
geo-political conditions. Any one or more of the foregoing factors
could adversely impact HGV’s operations, revenue, operating
margins, financial condition and/or credit rating.
For additional information regarding factors that could cause
HGV’s actual results to differ materially from those expressed or
implied in the forward-looking statements in this press release,
please see the risk factors discussed in “Part I—Item 1A. Risk
Factors” of HGV’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2019, as supplemented and updated by the risk
factors discussed in “Part II-Item 1A. Risk Factors” of HGV’s
Quarterly Reports on Form 10-Q, as well as those described from
time to time other periodic reports that it files with the SEC.
Except for HGV’s ongoing obligations to disclose material
information under the federal securities laws, HGV undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future
developments, changes in management’s expectations, or
otherwise.
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 tables 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,
Florida, Hilton Grand Vacations develops, markets and operates a
system of brand-name, high-quality vacation ownership resorts in
select 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 325,000 club members.
For more information, visit www.hiltongrandvacations.com.
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; and
- 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.
Free Cash Flow and Adjusted Free Cash Flow
Free Cash Flow represents cash from operating activities less
non-inventory capital spending.
Adjusted Free Cash Flow represents free cash flow less
non-recourse debt activities, net.
We consider Free Cash Flow and Adjusted Free Cash Flow to be
liquidity measures not recognized under U.S. GAAP that provides
useful information to both management and investors about the
amount of cash generated by operating activities that can be used
for investing and financing activities, including strategic
opportunities and debt service. We do not believe these non-GAAP
measures to be a representation of how we will use excess cash.
Real Estate Metrics
Contract sales represents the total amount of VOI
products (fee-for-service and developed) under purchase agreements
signed during the period where we have received a down payment of
at least 10 percent of the contract price. Contract sales differ
from revenues from the Sales of VOIs, net that we report in our
consolidated statements of operations due to the requirements for
revenue recognition, as well as adjustments for incentives. We
consider contract sales to be an important operating measure
because it reflects the pace of sales in our business and is used
to manage the performance of the sales organization. While the
presentation of contract sales on a combined basis (fee-for-service
and developed) is most appropriate for the purpose of the operating
metric, additional information regarding the split of contract
sales, included in “—Real Estate” below, is useful for investors
who are interested in the underlying capital structures of the
Company’s projects. See Note 2: Basis of Presentation and Summary
of Significant Accounting Policies in our audited consolidated
financial statements included in Item 8 in our Annual Report on
form 10-K for the year ended December 31, 2019, for additional
information on Sales of VOI, net.
Developed Inventory refers to VOI inventory that is
sourced from projects the Company develops.
Fee-for-Service Inventory refers to VOI inventory HGV
sells and manages on behalf of third-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.
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. The Company considers this to
be an important operating measure because it measures the
efficiency of our 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.
HILTON GRAND VACATIONS
INC. FINANCIAL TABLES
CONDENSED CONSOLIDATED BALANCE SHEETS
T-2
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
T-3
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
T-4
FREE CASH FLOWS RECONCILIATION
T-5
SEGMENT REVENUE RECONCILIATION
T-6
SEGMENT EBITDA AND ADJUSTED EBITDA TO NET
INCOME (LOSS)
T-7
REAL ESTATE SALES MARGIN DETAIL
SCHEDULE
T-8
CONTRACT SALES MIX BY TYPE SCHEDULE
T-9
FINANCING MARGIN DETAIL SCHEDULE
T-10
RESORT AND CLUB MARGIN DETAIL SCHEDULE
T-11
RENTAL AND ANCILLARY MARGIN DETAIL
SCHEDULE
T-12
REAL ESTATE SALES AND FINANCING SEGMENT
ADJUSTED EBITDA
T-13
RESORT AND CLUB MANAGEMENT SEGMENT
ADJUSTED EBITDA
T-14
T-2
HILTON GRAND VACATIONS
INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in millions, except share
data)
September 30,
December 31,
2020
2019
(unaudited)
ASSETS
Cash and cash equivalents
$
625
$
67
Restricted cash
92
85
Accounts receivable, net
109
174
Timeshare financing receivables, net
1,012
1,156
Inventory
933
558
Property and equipment, net
488
778
Operating lease right-of-use assets,
net
55
60
Investments in unconsolidated
affiliates
49
44
Intangible assets, net
80
77
Other assets
101
80
TOTAL ASSETS
$
3,544
$
3,079
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and
other
$
264
$
298
Advanced deposits
119
115
Debt, net
1,262
828
Non-recourse debt, net
837
747
Operating lease liabilities
70
76
Deferred revenues
261
186
Deferred income tax liabilities
209
259
Total liabilities
3,022
2,509
Commitments and contingencies
Equity:
Preferred stock, $0.01 par value;
300,000,000 authorized shares, none issued or outstanding as of
September 30, 2020 and December 31, 2019
—
—
Common stock, $0.01 par value;
3,000,000,000 authorized shares, 85,086,548 shares issued and
outstanding as of September 30, 2020 and 85,535,501 shares issued
and outstanding as of December 31, 2019
1
1
Additional paid-in capital
186
179
Accumulated retained earnings
335
390
Total equity
522
570
TOTAL LIABILITIES AND EQUITY
$
3,544
$
3,079
T-3
HILTON GRAND VACATIONS
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in millions, except share
data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Revenues
Sales of VOIs, net
$
24
$
138
$
80
$
383
Sales, marketing, brand and other fees
52
143
171
429
Financing
40
43
127
127
Resort and club management
39
45
122
130
Rental and ancillary services
20
54
77
173
Cost reimbursements
33
43
105
128
Total revenues
208
466
682
1,370
Expenses
Cost of VOI sales
8
24
21
92
Sales and marketing
79
188
297
544
Financing
13
14
39
39
Resort and club management
9
11
27
34
Rental and ancillary services
24
36
85
108
General and administrative
22
30
65
87
Depreciation and amortization
11
12
34
32
License fee expense
11
26
39
75
Cost reimbursements
33
43
105
128
Total operating expenses
210
384
712
1,139
Interest expense
(10
)
(12
)
(32
)
(33
)
Equity in (losses) earnings from
unconsolidated affiliates
(1
)
1
3
4
Other gain (loss), net
1
(1
)
—
(3
)
(Loss) Income before income
taxes
(12
)
70
(59
)
199
Income tax benefit (expense)
5
(20
)
12
(55
)
Net (loss) income
$
(7
)
$
50
$
(47
)
$
144
(Loss) Earnings per share:
Basic
$
(0.08
)
$
0.59
$
(0.55
)
$
1.61
Diluted
$
(0.08
)
$
0.59
$
(0.55
)
$
1.60
T-4
HILTON GRAND VACATIONS
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Operating Activities
Net (loss) income
$
(7
)
$
50
$
(47
)
$
144
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization
11
12
34
32
Amortization of deferred financing costs,
contract costs and other
4
4
13
12
Provision for financing receivables
losses
12
22
57
60
Other (gain) loss, net
(1
)
1
—
3
Share-based compensation
6
6
10
18
Deferred income tax benefit
(19
)
(12
)
(50
)
(21
)
Equity in losses (earnings) from
unconsolidated affiliates
1
(1
)
(3
)
(4
)
Net changes in assets and liabilities:
Accounts receivable, net
(35
)
20
65
17
Timeshare financing receivables, net
29
(37
)
87
(79
)
Inventory
(23
)
5
(59
)
(6
)
Purchases and development of real estate
for future conversion to inventory
(8
)
(27
)
(27
)
(107
)
Other assets
8
3
(25
)
(24
)
Accounts payable, accrued expenses and
other
24
23
(48
)
20
Advanced deposits
3
4
4
11
Deferred revenues
(7
)
2
75
70
Net cash (used in) provided by operating
activities
(2
)
75
86
146
Investing Activities
Capital expenditures for property and
equipment
(2
)
(8
)
(6
)
(25
)
Software capitalization costs
(5
)
(7
)
(16
)
(17
)
Investments in unconsolidated
affiliates
(2
)
—
(2
)
(2
)
Net cash used in investing activities
(9
)
(15
)
(24
)
(44
)
Financing Activities
Issuance of debt
—
45
495
455
Issuance of non-recourse debt
—
350
495
365
Repayment of debt
(2
)
(167
)
(62
)
(272
)
Repayment of non-recourse debt
(90
)
(248
)
(403
)
(327
)
Debt issuance costs
(2
)
(4
)
(8
)
(6
)
Repurchase and retirement of common
stock
—
(12
)
(10
)
(283
)
Payment of withholding taxes on vesting of
restricted stock units
(1
)
—
(3
)
(3
)
Proceeds from employee stock plan
purchases
1
—
1
2
Other financing activity
(1
)
—
(2
)
(2
)
Net cash (used in) provided by financing
activities
(95
)
(36
)
503
(71
)
Net (decrease) increase in cash,
cash equivalents and restricted cash
(106
)
24
565
31
Cash, cash equivalents and restricted
cash, beginning of period
823
187
152
180
Cash, cash equivalents and restricted
cash, end of period
$
717
$
211
$
717
$
211
T-5
HILTON GRAND VACATIONS
INC.
FREE CASH FLOWS
RECONCILIATION
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Net cash (used in) provided by
operating activities
$
(2
)
$
75
$
86
$
146
Capital expenditures for property and
equipment
(2
)
(8
)
(6
)
(25
)
Software capitalization costs
(5
)
(7
)
(16
)
(17
)
Free Cash Flow
(9
)
60
64
104
Non-recourse debt activity, net
(90
)
102
92
38
Adjusted Free Cash Flow
$
(99
)
$
162
$
156
$
142
T-6
HILTON GRAND VACATIONS
INC.
SEGMENT REVENUE
RECONCILIATION
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Revenues:
Real estate sales and financing
$
116
$
324
$
378
$
939
Resort operations and club management
61
108
209
332
Total Segment revenues
177
432
587
1,271
Cost reimbursements
33
43
105
128
Intersegment eliminations
(2
)
(9
)
(10
)
(29
)
Total revenues
$
208
$
466
$
682
$
1,370
T-7
HILTON GRAND VACATIONS
INC.
SEGMENT EBITDA AND ADJUSTED
EBITDA TO NET INCOME (LOSS)
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Net (loss) income
$
(7
)
$
50
$
(47
)
$
144
Interest expense
10
12
32
33
Income tax (benefit) expense
(5
)
20
(12
)
55
Depreciation and amortization
11
12
34
32
Interest expense and depreciation and
amortization included in equity in (losses) earnings from
unconsolidated affiliates
1
—
2
2
EBITDA
10
94
9
266
Other (gain) loss, net
(1
)
1
—
3
Share-based compensation expense(1)
6
6
10
18
Other adjustment items(2)
4
10
14
16
Adjusted EBITDA
$
19
$
111
$
33
$
303
Adjusted EBITDA:
Real estate sales and financing(3)
$
15
$
94
$
16
$
243
Resort operations and club
management(3)
30
62
100
193
Segment Adjusted EBITDA
45
156
116
436
Adjustments:
Adjusted EBITDA from unconsolidated
affiliates
—
1
5
6
License fee expense
(11
)
(26
)
(39
)
(75
)
General and administrative(4)
(15
)
(20
)
(49
)
(64
)
Adjusted EBITDA
$
19
$
111
$
33
$
303
Adjusted EBITDA margin %
9.1
%
23.8
%
4.8
%
22.1
%
EBITDA margin %
4.8
%
20.2
%
1.3
%
19.4
%
_______________________
(1)
As of March 31, 2020, we determined that
the performance conditions for our 2018, 2019, and 2020 Performance
RSUs are improbable of achievement therefore we reversed $8 million
of share-based compensation expense recognized in prior years and
ceased accruing expenses related to Performance RSUs granted in
2018, 2019, and 2020, during the three months ended March 31, 2020.
As of September 30, 2020, we determined the performance conditions
continue to be improbable of achievement and therefore no expense
was recognized for our Performance RSUs in the current period.
(2)
For the three and nine months ended
September 30, 2020 and 2019, this amount includes costs associated
with restructuring, one-time charges, and other non-cash items.
(3)
Includes intersegment transactions,
share-based compensation, depreciation and other adjustments
attributable to the segments.
(4)
Excludes segment related share-based
compensation, depreciation and other adjustment items.
T-8
HILTON GRAND VACATIONS
INC.
REAL ESTATE SALES MARGIN
DETAIL SCHEDULE
(in millions, except Tour Flow
and VPG)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Tour flow
25,488
102,911
98,263
287,267
VPG
$
4,205
$
3,363
$
3,763
$
3,464
Owned contract sales mix
42.7
%
46.1
%
45.5
%
45.6
%
Fee-for-service contract sales mix
57.3
%
53.9
%
54.5
%
54.4
%
Contract sales
$
117
$
360
$
396
$
1,045
Adjustments:
Fee-for-service sales(1)
(67
)
(194
)
(216
)
(569
)
Provision for financing receivables
losses
(12
)
(22
)
(57
)
(60
)
Reportability and other:
Net deferral (recognition) of sales of
VOIs under construction(2)
(13
)
(15
)
(64
)
(49
)
Fee-for-service sale upgrades, net
4
15
13
39
Other(3)
(5
)
(6
)
8
(23
)
Sales of VOIs, net
$
24
$
138
$
80
$
383
Sales, marketing, brand and other fees
$
52
$
143
$
171
$
429
Less:
Marketing revenue and other fees
11
34
40
102
Commissions and brand fees
41
109
131
327
Sales of VOIs, net
24
138
80
383
Sales revenue
65
247
211
710
Less:
Cost of VOI sales
8
24
21
92
Sales and marketing expense, net(4)
66
145
247
415
Real estate margin
$
(9
)
$
78
$
(57
)
$
203
Real estate margin percentage
(13.8
)%
31.6
%
(27.0
)%
28.6
%
_______________________
(1)
Represents contract sales from
fee-for-service properties on which the Company earns commissions
and brand fees.
(2)
Represents the net impact of deferred
revenues related to the Sales of VOIs under construction that are
recognized when construction is complete.
(3)
Includes adjustments for revenue
recognition, including amounts in rescission and sales
incentives.
(4)
Includes revenue recognized through our
marketing programs for existing owners and prospective first-time
buyers and revenue associated with sales incentives and document
compliance.
T-9
HILTON GRAND VACATIONS
INC.
CONTRACT SALES MIX BY TYPE
SCHEDULE
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Just-in-time Contract Sales Mix
20
%
15
%
22
%
17
%
Fee-For-Service Contract Sales Mix
57
%
54
%
55
%
54
%
Total Capital-Efficient Contract Sales
Mix
77
%
69
%
77
%
71
%
T-10
HILTON GRAND VACATIONS
INC.
FINANCING MARGIN DETAIL
SCHEDULE
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Interest income
$
34
$
37
$
108
$
109
Other financing revenue
6
6
19
18
Financing revenue
40
43
127
127
Consumer financing interest expense
9
8
23
22
Other financing expense
4
6
16
17
Financing expense
13
14
39
39
Financing margin
$
27
$
29
$
88
$
88
Financing margin percentage
67.5
%
67.4
%
69.3
%
69.3
%
T-11
HILTON GRAND VACATIONS
INC.
RESORT AND CLUB MARGIN DETAIL
SCHEDULE
(in millions, except for
Members and Net Owner Growth)
Twelve Months Ended September
30,
2020
2019
Total members
327,558
321,539
Net Owner Growth (NOG)
6,019
17,147
Net Owner Growth % (NOG%)
1.9
%
5.6
%
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Club management revenue
$
23
$
28
$
70
$
80
Resort management revenue
16
17
52
50
Resort and club management revenues
39
45
122
130
Club management expense
6
6
18
20
Resort management expense
3
5
9
14
Resort and club management expenses
9
11
27
34
Resort and club management
margin
$
30
$
34
$
95
$
96
Resort and club management margin
percentage
76.9
%
75.6
%
77.9
%
73.8
%
T-12
HILTON GRAND VACATIONS
INC.
RENTAL AND ANCILLARY MARGIN
DETAIL SCHEDULE
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Rental revenues
$
19
$
48
$
71
$
153
Ancillary services revenues
1
6
6
20
Rental and ancillary services revenues
20
54
77
173
Rental expenses
23
30
77
89
Ancillary services expense
1
6
8
19
Rental and ancillary services expenses
24
36
85
108
Rental and ancillary services
margin
$
(4
)
$
18
$
(8
)
$
65
Rental and ancillary services margin
percentage
(20.0
)%
33.3
%
(10.4
)%
37.6
%
T-13
HILTON GRAND VACATIONS
INC.
REAL ESTATE SALES AND
FINANCING SEGMENT ADJUSTED EBITDA
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Sales of VOIs, net
$
24
$
138
$
80
$
383
Sales, marketing, brand and other fees
52
143
171
429
Financing
40
43
127
127
Real estate sales and financing segment
revenues
116
324
378
939
Cost of VOI sales
(8
)
(24
)
(21
)
(92
)
Sales and marketing
(79
)
(188
)
(297
)
(544
)
Financing
(13
)
(14
)
(39
)
(39
)
Marketing package stays
(2
)
(9
)
(10
)
(29
)
Share-based compensation
1
2
4
4
Other adjustment items
—
3
1
4
Real estate sales and financing segment
adjusted EBITDA
$
15
$
94
$
16
$
243
Real estate sales and financing segment
adjusted EBITDA margin percentage
12.9
%
29.0
%
4.2
%
25.9
%
T-14
HILTON GRAND VACATIONS
INC.
RESORT AND CLUB MANAGEMENT
SEGMENT ADJUSTED EBITDA
(in millions)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020
2019
2020
2019
Resort and club management
$
39
$
45
$
122
$
130
Rental and ancillary services
20
54
77
173
Marketing package stays
2
9
10
29
Resort and club management segment
revenue
61
108
209
332
Resort and club management
(9
)
(11
)
(27
)
(34
)
Rental and ancillary services
(24
)
(36
)
(85
)
(108
)
Share-based compensation
1
1
1
2
Other adjustment items
1
—
2
1
Resort and club segment adjusted
EBITDA
$
30
$
62
$
100
$
193
Resort and club management segment
adjusted EBITDA margin percentage
49.2
%
57.4
%
47.8
%
58.1
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201029005282/en/
Investor Contact: Mark Melnyk 407-613-3327
mark.melnyk@hgv.com
Media Contact: Lauren George 407-613-8431
lauren.george@hgv.com
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