Market Overview

Hilton Grand Vacations Reports First-Quarter 2019 Results

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Hilton
Grand Vacations Inc.
(NYSE:HGV) ("HGV" or "the Company")
today reports its first-quarter 2019 results. Highlights include:

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Hilton Grand Vacations Inc. (NYSE:<a class=HGV) today reports its first-quarter 2019 results. (Graphic: Busin ... " src="https://mms.businesswire.com/media/20190501006014/en/719332/4/CRP-INFO-14001_Q1_2019_Earnings_Infographic.jpg">

Hilton Grand Vacations Inc. (NYSE:HGV) today reports its first-quarter 2019 results. (Graphic: Business Wire)

KEY HIGHLIGHTS

First-Quarter 2019 Results

  • Total revenues for the first quarter were $450 million compared to
    $367 million for the same period in 2018.
  • Net income for the first quarter was $55 million compared to $30
    million for the same period in 2018.
  • Diluted EPS for the first quarter was $0.58 compared to $0.30 for the
    same period in 2018.
  • Adjusted EBITDA for the first quarter was $102 million compared to $62
    million for the same period in 2018.
  • Contract sales in the first quarter were $322 million, a decrease of
    2.1% from the same period in 2018.
  • Net Owner Growth (NOG) for the 12 months ended March 31, 2019, was
    6.7%.
  • Completed the initial $200 million share repurchase authorization
    announced in November 2018, repurchasing 3.0 million shares in the
    first quarter for $97 million and an additional 0.9 million shares for
    $30 million through April 30, 2019.
  • Comparability of first quarter 2019 and 2018 results is affected by
    net construction-related deferrals of $37 million in the first quarter
    of 2018.

Outlook

  • Net income is now projected to be between $240 million and $255
    million, reflecting lower Adjusted EBITDA, higher interest expense
    primarily driven by borrowings used to fund share repurchases and an
    increase in share-based compensation expense.
  • Diluted EPS is now projected to be between $2.61 and $2.77.
  • Full-year 2019 contract sales are expected to increase from 5.0% to
    8.0% due to softer than anticipated contract sales growth in the first
    quarter and a project timing shift.
  • Adjusted EBITDA is projected to be between $445 million and $465
    million reflecting current inventory mix and a project timing shift.
  • Adjusted free cash flow is projected to be between $60 and $120
    million, unchanged from prior outlook.
  • The revised 2019 outlook does not reflect any additional share
    repurchases or construction-related deferrals or recognitions.

Overview

"HGV delivered strong Adjusted EBITDA and Net Owner Growth in the first
quarter," says Mark Wang, president and CEO of Hilton Grand Vacations.
"Our performance is a direct result of the significant value we have
embedded in the business by putting our owners on great vacations in
desirable properties every day. Underscoring our ongoing focus on
delivering shareholder value, we completed the initial $200 million of
the share repurchase program we announced in November and have
authorized an additional $200 million of capacity."

For the quarter ended March 31, 2019, diluted EPS was $0.58 compared to
$0.30 for the quarter ended March 31, 2018. Net income and Adjusted
EBITDA were $55 million and $102 million, respectively, for the quarter
ended March 31, 2019, compared to $30 million and $62 million,
respectively, for the quarter ended March 31, 2018. Total revenues for
the quarter ended March 31, 2019, were $450 million compared to $367
million for the quarter ended March 31, 2018.

Net income and Adjusted EBITDA for the quarter ended March 31, 2018, do
not include $37 million of revenues net of expenses relating to sales
made at Ocean Tower by Hilton Grand Vacations Club and The Residences by
Hilton Club projects that occurred during the quarter and were deferred
until the second (The Residences) and fourth quarters (Ocean Tower) of
2018 when construction of those projects were completed.

Segment Highlights First Quarter 2019

Real Estate Sales and Financing

For the quarter ended March 31, 2019, Real Estate Sales and Financing
segment revenues were $307 million, an increase of 27.4% compared to the
quarter ended March 31, 2018. Real Estate Sales and Financing segment
Adjusted EBITDA and Adjusted EBITDA margin was $80 million and 26.1%,
respectively, for the quarter ended March 31, 2019, compared to $44
million and 18.3%, respectively, for the quarter ended March 31, 2018.
Real Estate Sales and Financing results in first quarter 2019 improved
over the prior-year period as favorable comparisons against
construction-related deferrals offset lower contract sales.

Real Estate Sales and Financing results for the quarter ended March 31,
2018, do not include the $37 million of construction-related deferred
revenues net of expenses referenced above. Please see Table T-1 for
additional details.

Contract sales for the quarter ended March 31, 2019, decreased 2.1% to
$322 million compared to the quarter ended March 31, 2018. For the
quarter ended March 31, 2019, tours increased 6.4% and VPG decreased
8.0% compared to the quarter ended March 31, 2018. For the quarter ended
March 31, 2019, fee-for-service contract sales represented 59.0% of
contract sales compared to 51.7% for the quarter ended March 31, 2018.

The decline in contract sales in first quarter 2019 reflects comparisons
against the strong launch of the Ocean Tower project in the first
quarter of 2018 and the effect of a limited mix and range of available
unit types in certain key markets that impacted conversion rates and
VPG. New inventory introductions throughout 2019 and 2020 are expected
to mitigate this situation.

Financing revenues were $41 million for the quarter ended March 31,
2019, an increase of 7.9% compared to the quarter ended March 31, 2018.
This reflects a 5.9% increase in interest income, which was driven by a
3.4% increase in the net timeshare financing receivables portfolio and a
10 bps increase in the weighted average interest rate we receive on the
portfolio. It also reflects a $1 million increase in other financing
revenue related to growth in servicing revenues related to our
third-party loan portfolios.

The weighted average FICO score of new loans made to U.S. and Canadian
borrowers at the time of origination increased to 751 for the three
months ending March 31, 2019, from 750 for the three months ending March
31, 2018.

For the three months ending March 31, 2019, 65.1% of HGV's sales were to
customers who financed part of their purchase, compared to 63.6% for the
three months ended March 31, 2018.

As of March 31, 2019, gross timeshare financing receivables were $1.3
billion with a weighted average interest rate of 12.3% and a weighted
average remaining term of 7.7 years. As of March 31, 2019, 93.0% of
HGV's financing receivables were current, compared to 93.8% as of March
31, 2018.

Resort Operations and Club Management

For the three months ended March 31, 2019, Resort Operations and Club
Management segment revenues were $110 million, an increase of 12.2%
compared to the three months ended March 31, 2018. Resort Operations and
Club Management segment Adjusted EBITDA and Adjusted EBITDA margin was
$65 million and 59.1%, respectively, for the three months ended March
31, 2019, compared to $59 million and 60.2%, respectively, for the three
months ended March 31, 2018. Compared to the prior-year period, Resort
Operations and Club Management results in the first quarter of 2019
benefitted from the additional club dues and transaction fees from the
more than 19,000 net new members added over the previous 12-month period.

Inventory

The estimated contract sales value of HGV's total pipeline is
approximately $10 billion at current pricing, which represents
approximately 7.1 years of sales at the current trailing 12-month sales
pace.

The total pipeline includes approximately 1.5 years of sales relating to
inventory that is currently available for sale at open or soon-to-open
projects. The remaining 5.6 years 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 77% of HGV's total pipeline. Approximately
15% of the owned inventory pipeline is currently available for sale.

Fee-for-service inventory represents 23% of HGV's total pipeline.
Approximately 44% of the fee-for-service inventory pipeline is currently
available for sale.

With 32% of the pipeline consisting of just-in-time inventory and 23%
consisting of fee-for-service inventory, capital-efficient inventory
represents 55% of HGV's total pipeline.

Balance Sheet and Liquidity

Total cash and cash equivalents was $222 million as of March 31, 2019,
including $64 million of restricted cash.

As of March 31, 2019, HGV had $800 million of corporate debt, net
outstanding with a weighted average interest rate of 4.89% and
$720 million of non-recourse debt, net outstanding with a weighted
average interest rate of 3.17%.

As of March 31, 2019, the company's liquidity position consisted of $158
million of unrestricted cash and available capacity of $509 million on
the revolving credit facility and $330 million on the warehouse facility.

Free cash flow was $4 million for the quarter ended March 31, 2019,
compared to $7 million in the prior period. Adjusted free cash flow was
($36) million for the quarter ended March 31, 2019, compared to ($32)
million in the prior period.

Share Repurchase and Subsequent Events

On Nov. 28, 2018, the Company announced that its board of directors
approved a $200 million share repurchase program. Under the program,
repurchases may be carried out through open-market purchases, block
trades or other transactions subject to customary restrictions through
November 2019.

During the first quarter, the Company repurchased 3.0 million shares for
$97 million at an average price of $31.92. Subsequent to the first
quarter, through April 30, 2019, the Company repurchased an additional
0.9 million shares for $30 million at an average price of $32.55. The
April 2019 repurchases substantially completed the company's $200
million capacity under the initial authorization. Between the board
authorization of the program in November 2018 through April 2019, the
Company repurchased a total of 6.5 million shares for $199 million,
representing an average repurchase price per share of $30.73.

On May 1, 2019, the Company announced that the board of directors
approved an additional $200 million of share repurchase capacity under
the existing authorization.

On April 25, 2019, the Company amended its $450 million timeshare
facility, extending the commitment period from March 2020 to April 2021.
The capacity of the amended facility remains $450 million and the terms
of the facility have been modified to reduce fees and provide additional
flexibility in the areas of international expansion, hedging and loan
concentrations.

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.

HGV deferred revenues and expense related to sales made at Ocean Tower
for the first three quarters of 2018 and recognized them in the fourth
quarter of 2018 when construction was complete. Likewise, HGV deferred
revenues and expense related to sales made at The Residences in the
first quarter of 2018 and recognized them in the second quarter of 2018
when construction was complete. These deferrals and recognitions of
sales made in 2018 offset and there was no net financial impact in 2018.

The $79 million net recognition impact for 2018 relates to the
recognition of revenues and expenses related to sales made at The
Residences prior to 2018 that were
recognized in the second quarter of 2018 when construction was complete.
A portion of these pre-2018 sales had been partially recognized in prior
periods under the previous accounting guidance, but as part of the
adoption of ASC 606 on Jan. 1, 2018, those recognitions were reversed
with a cumulative adjustment to retained earnings.

 

T-1

Total Construction Recognitions (Deferrals)

 
      2018
First     Second     Third     Fourth       Full
Quarter Quarter Quarter Quarter Year
Net income $ 30 $ 107 $ 41 $ 120 $ 298
Interest expense 7 8 7 8 30
Income tax expense 10 39 15 41 105
Depreciation and amortization 8 8 9 11 36

Interest expense and depreciation and amortization included in
equity in earnings from unconsolidated affiliates

  1   1   1   1   4
EBITDA 56 163 73 181 473
Other (gain) loss, net 1 (1 ) 1 1
Share-based compensation expense 3 5 5 3 16
Other adjustment items   2   8   1   2   13
Adjusted EBITDA $ 62 $ 175 $ 80 $ 186 $ 503
 
NET CONSTRUCTION DEFERRAL ACTIVITY
Sales of VOIs, net $ (66 ) $ 91 $ (45 ) $ 153 $ 133
Cost of VOI sales (21 ) 20 (13 ) 50 36
Sales, marketing, general and administrative expense   (8 )   11   (7 )   22   18
Net construction recognitions (deferrals) $ (37 ) $ 60 $ (25 ) $ 81 $ 79
 
2019
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
Net income $ 55 $ $ $ $ 55
Interest expense 10 10
Income tax expense 20 20
Depreciation and amortization 10 10

Interest expense and depreciation and amortization included in
equity in earnings from unconsolidated affiliates

  1         1
EBITDA 96 96
Other loss, net 1 1
Share-based compensation expense 5 5
Other adjustment items          
Adjusted EBITDA $ 102 $

$

$ $ 102
 
NET CONSTRUCTION DEFERRAL ACTIVITY
Sales of VOIs, net $ $ $ $ $
Cost of VOI sales

Sales, marketing, general and administrative expense

         
Net construction recognitions (deferrals) $ $ $ $ $
 

Conference Call

Hilton Grand Vacations will host a conference call on May 2, 2019, at 11
a.m. (EDT) to discuss first-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# 6391101. Participants are encouraged to dial into the
call or link to the webcast at least 20 minutes prior to the scheduled
start time. In the event of audio difficulties during the call on the
toll-free number, participants are advised that accessing the call using
the +1-323-794-2112 dial-in number may bypass the source of the audio
difficulties.

A telephone replay will be available for seven days following the call.
To access the telephone replay, dial 1-888-203-1112 in the U.S. or
+1-719-457-0820 internationally and use conference ID# 6391101.

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 the
future of HGV, 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 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. The forward-looking statements contained in this press
release include statements related to HGV's revenues, earnings, taxes,
cash flow and related financial and operating measures, and expectations
with respect to future operating, financial and business performance,
and other anticipated future events and expectations that are not
historical facts.

HGV cautions you that its forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause the
actual results, performance or achievements of HGV to be materially
different from the future results, business performance or achievements
expressed or implied by its forward-looking statements. HGV's
forward-looking statements are not guarantees of future performance, and
you should not place undue reliance on such statements in this press
release. Factors that could cause HGV's actual results to differ
materially from those contemplated by its forward-looking statements
include risks associated with: the inherent business, financial and
operating risks of the timeshare industry, including limited
underwriting standards due to the real-time nature of industry sales
practices, and the intense competition associated with the industry;
HGV's ability successfully market and sell VOIs; HGV's development and
other activities to source inventory for VOI sales; significant
increases in defaults on HGV's vacation ownership mortgage receivables;
the ability of managed homeowner associations to collect sufficient
maintenance fees; general volatility in the economy and/or the financial
and credit markets; adverse economic or market conditions and trends in
the tourism and hospitality industry, which may impact the purchasing
and vacationing decisions of consumers; actions of HGV or the occurrence
of other events that could cause a breach under or termination of the
HGV's license agreement with Hilton that could affect or terminate our
access to the Hilton brands and programs, or actions of Hilton that
affect the reputation of the licensed marks or Hilton's programs;
economic and operational uncertainties related to HGV's expanding global
operations, including our ability to manage the outcome and timing of
such operations and compliance with anti-corruption, data privacy and
other applicable laws and regulations affecting our international
operations; the effects of foreign currency exchange; changes in tax
rates and exposure to additional tax liabilities; the impact of future
changes in legislation, regulations or accounting pronouncements; HGV's
acquisitions, joint ventures, and strategic alliances that may not
result in expected benefits, including the termination of material
fee-for-service agreements; our dependence on third-party development
activities to secure just-in-time inventory; HGV's use of social media
platforms; cyber-attacks, security vulnerabilities, and information
technology system failures resulting in disclosure of personal data,
company data loss, system outages or disruptions of online services,
which could lead to reduced revenue, increased costs, liability claims,
harm to user engagement, and harm to HGV's reputation or competitive
position; the impact of claims against HGV that may result in adverse
outcomes, including regulatory proceedings or litigation; HGV's credit
facilities, indenture and other debt agreements and instruments,
including variable interest rates, operating and financial restrictions,
our ability to make scheduled payments, and our ability to refinance our
debt on acceptable terms; the continued service and availability of key
executives and employees; and catastrophic events or geo-political
conditions including war, terrorist activity, political strife or
natural disasters that may disrupt HGV's operations in key vacation
destinations. 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 Dec. 31, 2018, and
those described from time to time other periodic reports that we file
with the U.S. Securities and Exchange Commission. 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. Except for HGV's ongoing obligations to disclose material
information under the federal securities laws, we undertake no
obligation to publicly update or review 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 310,000 club members. For more information, visit www.hgv.com
and 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;
  • EBITDA and Adjusted EBITDA may be calculated differently from other
    companies in our industry limiting their usefulness as comparative
    measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be
considered as discretionary cash available to us to reinvest in the
growth of our business or as measures of cash that will be available to
us to meet our obligations.

Real Estate Metrics

Contract sales represents the total amount of VOI products under
purchase agreements signed during the period where HGV has
received a down payment of at least 10 percent of the contract price.
Contract sales is not a recognized term under U.S. GAAP and should not
be considered in isolation or as an alternative to Sales of VOIs, net or
any other comparable operating measure derived in accordance with U.S.
GAAP. Contract sales differ from revenues from the Sales of VOIs, net
that HGV reports in its consolidated statements of operations due to the
requirements for revenue recognition as described in Note 2: Basis of
Presentation and Summary of Significant Accounting Policies in the
Company's audited consolidated financial statements, as well as
adjustments for incentives and other administrative fee revenues. HGV
considers contract sales to be an important operating measure because it
reflects the pace of sales in HGV's business.

Developed Inventory refers to VOI inventory source from projects
the Company develops.

Fee-for-Service Inventory refers to VOI inventory HGV sells and
manages on behalf of first-party developers.

Just-in-Time Inventory refers to VOI inventory primarily sourced
in transactions that are designed to closely correlate the timing
of the acquisition with HGV's sale of that inventory to purchasers.

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 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.

 

HILTON GRAND VACATIONS INC.

 

FINANCIAL TABLES

 
CONSOLIDATED BALANCE SHEETS           T-2
CONSOLIDATED STATEMENTS OF OPERATIONS T-3
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 T-7
REAL ESTATE SALES MARGIN DETAIL SCHEDULE T-8
FINANCING MARGIN DETAIL SCHEDULE T-9
RESORT AND CLUB MARGIN DETAIL SCHEDULE T-10
RENTAL AND ANCILLARY MARGIN DETAIL SCHEDULE T-11
REAL ESTATE SALES AND FINANCING SEGMENT ADJUSTED EBITDA T-12
RESORT AND CLUB MANAGEMENT SEGMENT ADJUSTED EBITDA T-13
FORWARD-YEAR ADJUSTED EBITDA RECONCILIATION T-14
 
 

T-2

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

 
      March 31,     December 31,
2019 2018
(unaudited)
ASSETS
Cash and cash equivalents $ 158 $ 108
Restricted cash 64 72
Accounts receivable, net 146 153
Timeshare financing receivables, net 1,111 1,120
Inventory 529 527
Property and equipment, net 644 559
Operating lease right of use assets, net 66
Investments in unconsolidated affiliates 40 38
Intangible assets, net 80 81
Other assets   123   95
TOTAL ASSETS $ 2,961 $ 2,753
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other $ 286 $ 324
Advanced deposits 106 101
Debt, net 800 604
Non-recourse debt, net 720 759
Operating lease liabilities 78
Deferred revenues 135 95
Deferred income tax liabilities   261   254
Total liabilities 2,386 2,137
Commitments and Contingencies
Equity:

Preferred stock, $0.01 par value; 300,000,000 authorized shares,
none issued or outstanding as of March 31, 2019 and December 31,
2018

Common stock, $0.01 par value; 3,000,000,000 authorized shares,
91,886,756 issued and outstanding as of March 31, 2019 and
94,558,086 issued and outstanding as of December 31, 2018

1 1
Additional paid-in capital 170 174
Accumulated retained earnings   404   441
Total equity   575   616
TOTAL LIABILITIES AND EQUITY $ 2,961 $ 2,753
 
 

T-3

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except share data)

     
Three Months Ended March 31,  
2019     2018  
Revenues
Sales of VOIs, net $ 125 $ 78
Sales, marketing, brand and other fees 141 125
Financing 41 38
Resort and club management 42 39
Rental and ancillary services 59 51
Cost reimbursements   42   36
Total revenues   450   367
Expenses
Cost of VOI sales 36 19
Sales and marketing 170 161
Financing 13 11
Resort and club management 11 11
Rental and ancillary services 35 28
General and administrative 25 23
Depreciation and amortization 10 8
License fee expense 23 23
Cost reimbursements   42   36
Total operating expenses 365 320
Interest expense (10 ) (7 )
Equity in earnings from unconsolidated affiliates 1 1
Other loss, net   (1 )   (1 )
Income before income taxes 75 40
Income tax expense   (20 )   (10 )
Net income $ 55 $ 30
Earnings per share:
Basic $ 0.59 $ 0.31
Diluted $ 0.58 $ 0.30
 
 

T-4

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 
      Three Months Ended March 31,
2019     2018
Operating Activities
Net income $ 55 $ 30
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10 8
Amortization of deferred financing costs and other 2 1
Provision for financing receivables losses 14 12
Other loss, net 1 1
Share-based compensation 5 3
Deferred income tax expense (benefit) 5 (8 )
Equity in earnings from unconsolidated affiliates (1 ) (1 )
Distributions received from unconsolidated affiliates 1
Net changes in assets and liabilities:
Accounts receivable, net 7 (5 )
Timeshare financing receivables, net (5 ) (15 )
Inventory (3 ) (19 )
Purchases and development of real estate for future conversion to
inventory
(63 )
Other assets (29 ) (51 )
Accounts payable, accrued expenses and other (31 ) (42 )
Advanced deposits 5 5
Deferred revenues 41 105
Other   1  
Net cash provided by operating activities   14   25
Investing Activities
Capital expenditures for property and equipment (6 ) (14 )
Software capitalization costs (4 ) (4 )
Return of investment from unconsolidated affiliates 9
Investments in unconsolidated affiliates     (5 )
Net cash used in investing activities   (10 )   (14 )
Financing Activities
Issuance of debt 195
Repayment of debt (23 ) (3 )
Repayment of non-recourse debt (40 ) (39 )
Debt issuance costs (2 )
Repurchase and retirement of common stock (92 ) (112 )
Payment of withholding taxes on vesting of restricted stock units (2 ) (1 )
Capital contribution     3
Net cash provided by (used in) financing activities   38   (154 )
Net increase (decrease) in cash, cash equivalents and restricted
cash
42 (143 )
Cash, cash equivalents and restricted cash, beginning of period   180   297
Cash, cash equivalents and restricted cash, end of period $ 222 $ 154
 

T-5

HILTON GRAND VACATIONS INC.

FREE CASH FLOWS RECONCILIATION

(in millions)

 
      Three Months Ended

March 31,

2019     2018
Cash Flow provided by operations $ 14 $ 25
Capital expenditures for property and equipment (6 ) (14 )
Software capitalization costs   (4 )   (4 )
Free Cash Flow 4 7
Non-recourse debt activity, net   (40 )   (39 )
Adjusted Free Cash Flow $ (36 ) $ (32 )
 
 

T-6

HILTON GRAND VACATIONS INC.

SEGMENT REVENUE RECONCILIATION

(in millions)

 
      Three Months Ended
March 31,
2019     2018
Revenues:
Real estate sales and financing $ 307 $ 241
Resort operations and club management   110   98
Segment revenues 417 339
Cost reimbursements 42 36
Intersegment eliminations   (9 )   (8 )
Total revenues $ 450 $ 367
 
 

T-7

HILTON GRAND VACATIONS INC.

SEGMENT EBITDA AND ADJUSTED EBITDA TO NET INCOME

(in millions)

 
      Three Months Ended March 31,
2019     2018
Net Income $ 55 $ 30
Interest expense 10 7
Income tax expense 20 10
Depreciation and amortization 10 8

Interest expense, depreciation and amortization included in equity
in earnings from unconsolidated affiliates

  1   1
EBITDA 96 56
Other loss, net 1 1
Share-based compensation expense 5 3
Other adjustment items (1)     2
Adjusted EBITDA $ 102 $ 62
 
Adjusted EBITDA:
Real estate sales and financing (2) $ 80 $ 44
Resort operations and club management (2)   65   59
Segment Adjusted EBITDA 145 103
Adjustments:
Adjusted EBITDA from unconsolidated affiliates 2 2
License fee expense (23 ) (23 )
General and administrative (3)   (22 )   (20 )
Adjusted EBITDA $ 102 $ 62
Adjusted EBITDA margin % 22.7 % 16.9 %
EBITDA margin % 21.3 % 15.3 %
 

__________________

(1)     Includes costs associated with the spin-off transaction of $2
million for the three months ended March 31, 2018.
(2) Includes intersegment eliminations, share-based compensation
attributable to the segment and other adjustments.
(3) Excludes share-based compensation 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 March 31,
2019     2018
Contract sales $ 322 $ 329
Tour flow 82,644 77,700
VPG $ 3,677 $ 3,997
Owned contract sales mix 41.0 % 48.3 %
Fee-for-service contract sales mix 59.0 % 51.7 %
Sales of VOIs, net $ 125 $ 78
Adjustments:
Fee-for-service sales (1) 190 170
Provision for financing receivables losses 14 12
Reportability and other:
Deferrals of sales of VOIs under construction(2) 66
Fee-for-service sale upgrades, net (14 ) (8 )
Other (3) 7 11
Contract sales $ 322 $ 329
Sales of VOIs, net $ 125 $ 78
Sales, marketing, brand and other fees 141 125
Less:
Marketing revenue and other fees   30   27
Sales revenue 236 176
Less:
Cost of VOI sales 36 19
Sales and marketing expense, net (4)   131   126
Real estate margin $ 69 $ 31
Real estate margin percentage 29.2 % 17.6 %
 

__________________

(1)

    Represents contract sales from fee-for-service properties on which
the Company earns commissions and brand fees.
(2) Includes $59 million cumulative effect of applying ASC 606 for the
three months ended March 31, 2018.
(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.

FINANCING MARGIN DETAIL SCHEDULE

(in millions)

 
      Three Months Ended March 31,
2019     2018
Interest income $ 36 $ 34
Other financing revenue   5   4
Financing revenue   41   38
Consumer financing interest expense 7 4
Other financing expense   6   7
Financing expense   13   11
Financing margin $ 28 $ 27
Financing margin percentage 68.3 % 71.1 %
 
 

T-10

HILTON GRAND VACATIONS INC.

RESORT AND CLUB MARGIN DETAIL SCHEDULE

(in millions, except for Members and Net Owner Growth)

 
      Three Months Ended March 31,
2019     2018
Members 311,614 292,120
Net Owner Growth (NOG) (1) 19,494 19,251
Net Owner Growth % (NOG%) 6.7 % 7.1 %
Club management revenue $ 26 $ 23
Resort management revenue   16   16
Resort and club management revenues   42   39
Club management expense 7 6
Resort management expense   4   5
Resort and club management expenses   11   11
Resort and club management margin $ 31 $ 28
Resort and club management margin percentage 73.8 % 71.8 %
 

__________________

(1)     Net Owner Growth over the last twelve months.
 
 

T-11

HILTON GRAND VACATIONS INC.

RENTAL AND ANCILLARY MARGIN DETAIL SCHEDULE

(in millions)

 
      Three Months Ended March 31,
2019     2018
Rental revenues $ 52 $ 45
Ancillary services revenues   7   6
Rental and ancillary services revenues   59   51
Rental expenses 29 23
Ancillary services expense 6 5
Rental and ancillary services expenses   35   28
Rental and ancillary services margin $ 24 $ 23
Rental and ancillary services margin percentage 40.7 % 45.1 %
 
 

T-12

HILTON GRAND VACATIONS INC.

REAL ESTATE SALES AND FINANCING SEGMENT ADJUSTED EBITDA

(in millions)

 
      Three Months Ended
March 31,
2019     2018
Sales of VOIs, net $ 125 $ 78
Sales, marketing, brand and other fees 141 125
Financing   41   38
Real estate sales and financing segment revenues 307 241
Cost of VOI sales (36 ) (19 )
Sales and marketing (170 ) (161 )
Financing (13 ) (11 )
Marketing package sales (9 ) (8 )
Share-based compensation 1 1
Other adjustment items     1
Real estate sales and financing segment adjusted EBITDA $ 80 $ 44
Real estate sales and financing segment adjusted EBITDA margin
percentage
26.1 % 18.3 %
 
 

T-13

HILTON GRAND VACATIONS INC.

RESORT AND CLUB MANAGEMENT SEGMENT ADJUSTED EBITDA

(in millions)

 
      Three Months Ended
March 31,
2019     2018
Resort and club management $ 42 $ 39
Rental and ancillary services 59 51
Marketing package sales   9   8
Resort and club management segment revenue 110 98
Resort and club management (11 ) (11 )
Rental and ancillary services (35 ) (28 )
Share-based compensation   1  
Resort and club segment adjusted EBITDA $ 65 $ 59
Resort and club management segment adjusted EBITDA margin percentage 59.1 % 60.2 %
 
 

T-14

HILTON GRAND VACATIONS INC.

FORWARD-YEAR ADJUSTED EBITDA RECONCILIATION

(in millions, except share data)

 
     

2019(1)
Low Case

 

   

2019(1)
High Case

 

Contract Sales 5.0 % 8.0 %
Fee-for-service as % of contract sales 48 % 54 %
 
Net Income $ 240 $ 255
Income tax expense   89   95
Pre-tax income 329 350
Interest expense 40 37
Depreciation and amortization 45 42

Interest expense and depreciation and amortization included in
equity in earnings from unconsolidated affiliates

1 2
EBITDA 415 431
Share-based compensation expense 28 30
Other adjustment items   2   4
Adjusted EBITDA $ 445 $ 465
 
Diluted shares 92 92
Earnings per share - diluted $ 2.61 $ 2.77
 
Cash flow from operating activities $ 85 $ 125
Non-inventory capex   (65 )   (55 )
Free Cash Flow 20 70
Net proceeds from securitization activity   40   50
Adjusted Free Cash Flow $ 60 $ 120
 

__________________

(1)     2019 Guidance assumes no full-year impact from construction-related
revenues or expenses deferrals.
 

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