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).
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Hilton Grand Vacations Inc. today reports its second-quarter 2018 results. (Graphic: Business Wire)
The corrected release reads:
HILTON GRAND VACATIONS REPORTS SECOND-QUARTER 2018 RESULTS; RAISES
GUIDANCE
Hilton
Grand Vacations Inc. (NYSE:HGV) (“HGV” or “the Company”)
today reports its second-quarter results. Highlights include:
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.
“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.
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
(1)
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 $50 million,
including the deposit, renovations and start-up costs. Pending
completion of the condominiumization of the entire resort, HGV expects
to obtain title and begin renovations to its 87 units in mid-2019, with
sales expected to commence by the end of 2019. The AAA Four-Diamond
oceanfront resort is situated on 11.3 acres along the San Jose-San
Lucas corridor at the tip of the Baja California peninsula and offers
access to one of the area’s only swimmer-friendly beaches.
Conference Call
Hilton Grand Vacations will host a conference call on Aug. 2, 2018, at
11 a.m. (EDT) to discuss second-quarter results. Participants may listen
to the live webcast by logging onto the Hilton Grand Vacations’ Investor
Relations website at http://investors.hgv.com/events-and-presentations.
A replay and transcript of the webcast will be available on HGV’s
Investor Relations website within 24 hours after the live event.
Alternatively, participants may listen to the live call by dialing
1-888-312-3049 in the U.S. or +1-323-794-2112 internationally. Please
use conference ID# 2656130. Participants are encouraged to dial into the
call or link to the webcast at least 20 minutes prior to the scheduled
start time. A telephone replay will be available for seven days
following the call. To access the telephone replay, dial 1-888-203-1112
or +1-719-457-0820 internationally and use conference ID# 2656130.
New Accounting Standards and Adjusted Results
HGV adopted Accounting Standards Update 2014-09, Revenue from
Contracts with Customers (“ASC 606”), on Jan. 1, 2018, under the
modified retrospective method of adoption. The following are some of the
significant changes to the Company’s consolidated financial statements:
The following tables show the estimated impacts that the ASC 606
adjustments would have had to HGV’s quarterly and annual 2017 operating
results, EBITDA and adjusted EBITDA, if HGV had adopted ASC 606
utilizing the full retrospective method of adoption.
T-1
($ in millions, except per share data)
Full Year
Interest expense, depreciation and amortization included in equity
in earnings from unconsolidated entities
(1)
T-2
(in millions, except per share data)
Interest expense, depreciation and amortization included in equity
in earnings from unconsolidated affiliates
(1)
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
($ in millions)
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
($ in millions)
First Quarter
expense
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
($ in millions)
First Quarter
expense
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 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 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.
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
Distributions received from unconsolidated affiliates
Interest expense, depreciation and amortization included in equity
in losses from unconsolidated affiliates
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 21 for additional
information.
T-14
(1) Net Owner Growth over the last twelve months.
T-16
37.5
%
Supplemental Information on the Adoption of ASC 606
Effects of ASC606
PreviousAccountingGuidance
Three MonthsEnded June 30,2017
T-19
Effects of ASC606
PreviousAccountingGuidance
Six MonthsEnded June 30,2017
Effects ofASC 606
PreviousAccountingGuidance
Three MonthsEnded June 30,2017
Interest expense, depreciation and amortization included in equity
in losses from unconsolidated affiliates
(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.
Effects ofASC 606
PreviousAccountingGuidance
Six Months EndedJune 30, 2017
Interest expense, depreciation and amortization included in equity
in losses from unconsolidated affiliates
NEW ACCOUNTING STANDARD ADOPTION – EFFECT ON THE THREE MONTHS
ENDED JUNE 30, 2018
Effect ofASC 606
PreviousAccountingGuidance
Three MonthsEnded June 30,2017
NEW ACCOUNTING STANDARD ADOPTION – EFFECT ON THE SIX MONTHS
ENDED JUNE 30, 2018
As Reported
Effect ofASC 606
PreviousAccountingGuidance
Six MonthsEnded June 30,2017
2018Low Case
2018High Case
Interest expense and depreciation and amortization included in
equity in earnings from unconsolidated affiliates
98
682
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:
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.
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.
Full Year
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