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:

This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20190501006014/en/

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
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