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Hilton Grand Vacations Reports First Quarter 2023 Results

Hilton Grand Vacations Inc. (NYSE: HGV) (“HGV” or “the Company”) today reports its first quarter 2023 results.

First quarter of 2023 highlights1

  • Total contract sales were $523 million.
  • Member count was 519,000. Consolidated Net Owner Growth (NOG) for the 12 months ended March 31, 2023, was 3.3%.
  • Total revenues for the first quarter were $934 million compared to $779 million for the same period in 2022.
    • Total revenues were affected by a net recognition of $4 million in the current period compared to a net deferral of $42 million in the same period in 2022.
  • Net income for the first quarter was $73 million compared to $51 million for the same period in 2022.
    • Adjusted net income for the first quarter was $90 million compared to $71 million for the same period in 2022.
    • Net income and adjusted net income were affected by a net recognition of $2 million in the current period compared to a net deferral of $22 million in the same period in 2022.
  • Diluted EPS for the first quarter was $0.64 compared to $0.42 for the same period in 2022.
    • Adjusted diluted EPS for the first quarter was $0.79 compared to $0.58 for the same period in 2022.
    • Diluted EPS and adjusted diluted EPS were affected by a net recognition of $2 million in the current period compared to a net deferral of $22 million in the same period in 2022, or $0.02 and $(0.18) per share in the current period and the same period in 2022, respectively.
  • Adjusted EBITDA for the first quarter was $218 million compared to $202 million for the same period in 2022.
    • Adjusted EBITDA was affected by a net recognition of $2 million in the current period compared to a net deferral of $22 million in the same period in 2022.
  • During the first quarter, the Company repurchased 1.9 million shares of common stock for $85 million. Through April 21, 2023, the Company has repurchased an additional 1.3 million shares for $60 million, and currently has $83 million remaining of the $500 million repurchase plan approved by the Board in May 2022.

Full Year 2023 Outlook

  • The Company is reiterating its 2023 guidance for Adjusted EBITDA excluding deferrals and recognitions to be in a range of $1,090 million to $1,120 million.

"We delivered a strong first quarter, driven by growing interest in our product from new buyers and an acceleration in our tour flow," said Mark Wang, president and CEO of Hilton Grand Vacations. "Our forward demand indicators leave us optimistic about the year ahead, with robust arrivals and record preview package sales indicating healthy future occupancy and tour flow trends – suggesting continued strength in the leisure travel environment."

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.

Overview

For the quarter ended March 31, 2023, diluted EPS was $0.64 compared to $0.42 for the quarter ended March 31, 2022. Net income and Adjusted EBITDA were $73 million and $218 million, respectively, for the quarter ended March 31, 2023, compared to net income and Adjusted EBITDA of $51 million and $202 million, respectively, for the quarter ended March 31, 2022. Total revenues for the quarter ended March 31, 2023, were $934 million compared to $779 million for the quarter ended March 31, 2022.

Net income and Adjusted EBITDA for the quarter ended March 31, 2023, included a net recognition of $2 million relating to the sales of intervals at Maui Bay Villas Phase III, which were completed during the period.

Consolidated Segment Highlights – First quarter of 2023

Real Estate Sales and Financing

For the quarter ended March 31, 2023, Real Estate Sales and Financing segment revenues were $550 million, an increase of $98 million compared to the quarter ended March 31, 2022. Real Estate Sales and Financing segment Adjusted EBITDA and Adjusted EBITDA profit margin were $169 million and 30.7%, respectively, for the quarter ended March 31, 2023, compared to $153 million and 33.8%, respectively, for the quarter ended March 31, 2022. Results in the first quarter of 2023 improved due to an increase in tour flow, vacation package sales, and fee-for-service fees versus the prior year along with a lower bad-debt provision.

Real Estate Sales and Financing segment Adjusted EBITDA reflects a benefit of $2 million due to the recognition of sales and related expenses of VOIs under construction at the Maui Bay Villas Phase III project for the quarter ended March 31, 2023, compared to $22 million of net deferral of sales related to the Maui Bay Villas Phase IB and The Beach Resort Sesoko Phase II projects for the quarter ended March 31, 2022, which reduced Adjusted EBITDA.

Contract sales for the quarter ended March 31, 2023, increased $14 million to $523 million compared to the quarter ended March 31, 2022. For the quarter ended March 31, 2023, tours increased by 32.1% and VPG decreased by 18.2% compared to the quarter ended March 31, 2022. For the quarter ended March 31, 2023, fee-for-service contract sales represented 33.3% of contract sales compared to 25.3% for the quarter ended March 31, 2022.

Financing revenues for the quarter ended March 31, 2023, increased by $10 million compared to the quarter ended March 31, 2022. This was driven primarily by the increase in interest income from HGV'S timeshare financing receivables portfolio. The Company experienced an increase in the timeshare financing receivables balance along with an increase in the weighted average interest rate for the originated portfolio of 90 basis points as of March 31, 2023, compared to March 31, 2022.

Resort Operations and Club Management

For the quarter ended March 31, 2023, Resort Operations and Club Management segment revenue was $302 million, an increase of $34 million compared to the quarter ended March 31, 2022. Resort Operations and Club Management segment Adjusted EBITDA and Adjusted EBITDA profit margin were $109 million and 36.1%, respectively, for the quarter ended March 31, 2023, compared to $101 million and 37.7%, respectively, for the quarter ended March 31, 2022. Compared to the prior-year period revenue in the first quarter of 2023 increased due to growth in HGV's member base and strong rental performance. These improvements were more than offset by an increase in the Company's Rental and Ancillary segment operating expenses owing to a shift in the recognition timing of certain rental expenses, along with elevated developer maintenance fees as HGV sells through recently opened inventory.

Inventory

The estimated value of the Company’s total contract sales pipeline is $11.7 billion at current pricing.

The total pipeline includes $6.3 billion of sales relating to inventory that is currently available for sale at open or soon-to-open projects. The remaining $5.4 billion of sales is related to inventory at new or existing projects that will become available for sale in the future upon registration, delivery or construction.

Owned inventory represents 86% of the Company’s total pipeline. Approximately 54% of the owned inventory pipeline is currently available for sale.

Fee-for-service inventory represents 14% of the Company’s total pipeline. Approximately 52% of the fee-for-service inventory pipeline is currently available for sale.

With 24% of the pipeline consisting of just-in-time inventory and 14% consisting of fee-for-service inventory, capital-efficient inventory represents 38% of the Company’s total contract sales pipeline.

Balance Sheet and Liquidity

Total cash and cash equivalents were $752 million as of March 31, 2023, including $363 million of restricted cash.

As of March 31, 2023, the Company had $2,940 million of corporate debt, net outstanding with a weighted average interest rate of 6.40% and $1,095 million of non-recourse debt, net outstanding with a weighted average interest rate of 4.03%.

As of March 31, 2023, the Company’s liquidity position consisted of $389 million of unrestricted cash and $671 million remaining borrowing capacity under the revolver facility.

As of March 31, 2023, HGV has $575 million remaining borrowing capacity in total under the Timeshare Facility. Of this amount, HGV has $312 million of mortgage notes that are available to be securitized and another $279 million of mortgage notes that the Company expects will become eligible as soon as it meets typical milestones including receipt of first payment, deeding, or recording.

Free cash flow was $15 million for the quarter ended March 31, 2023, compared to $256 million for the same period in the prior year. Adjusted free cash flow was $33 million for the quarter ended March 31, 2023, compared to $159 million for the same period in the prior year. Adjusted free cash flow for the quarter ended both March 31, 2023 and 2022 includes add-backs of $25 million for acquisition and integration related costs.

As of March 31, 2023, the Company’s total net leverage on a trailing 12-month basis was approximately 2.50x.

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 below. 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

NET CONSTRUCTION DEFERRAL ACTIVITY

(in millions)

 

 

 

2023

NET CONSTRUCTION DEFERRAL ACTIVITY

 

First

Quarter

 

Second

Quarter

 

Third

Quarter

 

Fourth

Quarter

 

Full

Year

Sales of VOIs recognitions

 

$

4

 

 

$

 

$

 

$

 

$

4

 

Cost of VOI sales recognitions(1)

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Sales and marketing expense recognitions

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Net construction recognitions(2)

 

$

2

 

 

$

 

$

 

$

 

$

2

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

73

 

 

$

 

$

 

$

 

$

73

 

Interest expense

 

 

44

 

 

 

 

 

 

 

 

 

44

 

Income tax expense

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Depreciation and amortization

 

 

51

 

 

 

 

 

 

 

 

 

51

 

EBITDA

 

 

185

 

 

 

 

 

 

 

 

 

185

 

Other gain, net

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Share-based compensation expense

 

 

10

 

 

 

 

 

 

 

 

 

10

 

Acquisition and integration-related expense

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Other adjustment items(3)

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Adjusted EBITDA

 

$

218

 

 

$

 

$

 

$

 

$

218

 

T-1

NET CONSTRUCTION DEFERRAL ACTIVITY

(CONTINUED, in millions)

 

 

 

2022

NET CONSTRUCTION DEFERRAL ACTIVITY

 

First

Quarter

 

Second

Quarter

 

Third

Quarter

 

Fourth

Quarter

 

Full

Year

Sales of VOIs (deferrals) recognitions

 

$

(42

)

 

$

(10

)

 

$

86

 

 

$

(3

)

 

$

31

Cost of VOI sales (deferrals) recognitions(1)

 

 

(13

)

 

 

(5

)

 

 

30

 

 

 

(1

)

 

 

11

Sales and marketing expense (deferrals) recognitions

 

 

(7

)

 

 

(1

)

 

 

13

 

 

 

(1

)

 

 

4

Net construction (deferrals) recognitions(2)

 

$

(22

)

 

$

(4

)

 

$

43

 

 

$

(1

)

 

$

16

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

51

 

 

$

73

 

 

$

150

 

 

$

78

 

 

$

352

Interest expense

 

 

33

 

 

 

35

 

 

 

37

 

 

 

37

 

 

 

142

Income tax expense

 

 

20

 

 

 

41

 

 

 

54

 

 

 

14

 

 

 

129

Depreciation and amortization

 

 

60

 

 

 

64

 

 

 

57

 

 

 

63

 

 

 

244

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

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

EBITDA

 

 

164

 

 

 

213

 

 

 

300

 

 

 

192

 

 

 

869

Other loss (gain), net

 

 

(1

)

 

 

2

 

 

 

(2

)

 

 

2

 

 

 

1

Share-based compensation expense

 

 

11

 

 

 

15

 

 

 

14

 

 

 

6

 

 

 

46

Acquisition and integration-related expense

 

 

13

 

 

 

17

 

 

 

19

 

 

 

18

 

 

 

67

Impairment expense (reversal)

 

 

3

 

 

 

(3

)

 

 

 

 

 

17

 

 

 

17

Other adjustment items(3)

 

 

12

 

 

 

29

 

 

 

7

 

 

 

17

 

 

 

65

Adjusted EBITDA

 

$

202

 

 

$

273

 

 

$

338

 

 

$

252

 

 

$

1,065

(1)

Includes anticipated Costs of VOI sales related to inventory associated with Sales of VOIs under construction that will be acquired once construction is complete.

(2)

The table represents deferrals and recognitions of Sales of VOIs revenue and direct costs for properties under construction.

(3)

Includes costs associated with restructuring, one-time charges and other non-cash items. This amount also includes the amortization of premiums resulting from purchase accounting.

Conference Call

Hilton Grand Vacations will host a conference call on April 27, 2023, at 11 a.m. (ET) to discuss first 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 within 24 hours after the teleconference’s completion through May 4, 2023. To access the replay, please dial 1-844-512-2921 in the U.S. (+1-412-317-6671 internationally) using ID#13735179. A webcast replay and transcript will also 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 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,” “would,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “future,” “guidance,” “target,” or the negative version of these words or other comparable words, although not all forward-looking statements may contain such 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 our forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that are beyond HGV’s control, which may cause the actual results, performance or achievements to be materially different from the future results. Any one or more of these risks or uncertainties could adversely impact HGV’s operations, revenue, operating profits and margins, key business operational metrics, financial condition or credit rating.

For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in HGV’s most recent Annual Report on Form 10-K, which may be supplemented and updated by the risk factors in HGV’s quarterly reports, current reports and other filings HGV makes with the SEC.

HGV’s forward-looking statements speak only as of the date of this communication or as of the date they are made. HGV disclaims any intent or obligation to update any “forward-looking statement” made in this communication to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Non-GAAP Financial Measures

The Company refers to certain non-GAAP financial measures in this press release, including Adjusted Net Income or Loss, Adjusted Diluted EPS, EBITDA, Adjusted EBITDA, EBITDA profit margin, Adjusted EBITDA profit margin, 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.

The Company refers to Adjusted EBITDA guidance excluding deferrals and recognitions, which does not take into account any future deferrals of revenues and direct expenses related to the sales of VOIs under construction that are recognized, only on a non-GAAP basis, as the quantification of reconciling items to the most directly comparable U.S. GAAP financial measure is not readily available without unreasonable effort due to uncertainties associated with the timing and amount of such items. These items may create a material difference between the non-GAAP and comparable U.S. GAAP results.

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. As one of Hilton’s 19 premier brands, Hilton Grand Vacations has a reputation for delivering a consistently exceptional standard of service, and unforgettable vacation experiences for guests and more than 515,000 members. Membership with the Company provides best-in-class programs, exclusive services and maximum flexibility for our Members around the world. For more information, visit https://corporate.hgv.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) other gains, including asset dispositions and foreign currency transactions; (ii) debt restructurings/retirements; (iii) non-cash impairment losses; (iv) share-based and other compensation expenses; and (v) other items, including but not limited to costs associated with acquisitions, restructuring, amortization of premiums and discounts resulting from purchase accounting, and other non-cash and one-time charges.

EBITDA profit margin, presented herein, represents EBITDA, as previously defined, divided by total revenues. Adjusted EBITDA profit margin, presented herein, represents Adjusted EBITDA, as previously defined, divided by total revenues.

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.

Adjusted Net Income or Loss and Adjusted Diluted EPS

Adjusted Net Income or Loss and Adjusted Diluted EPS, presented herein, is calculated as net income further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with costs associated with acquisitions, restructuring, amortization of premiums and discounts resulting from purchase accounting, and other non-cash and one-time charges.

Adjusted Net Income or Loss and Adjusted Diluted EPS 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 definition may not be comparable to similarly titled measures of other companies.

Adjusted Net Income or Loss and Adjusted Diluted EPS is useful to assist our investors in evaluating our ongoing operating performance for the current reporting period and, where provided, over different reporting periods.

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 further adjusted to exclude net non-recourse debt activities and other one-time adjustment items including, but not limited to, costs associated with acquisitions.

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, just-in-time, developed, and points-based) 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 condensed 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, just-in-time, developed, and points-based) 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: Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 in our Annual Report on form 10-K for the year ended December 31, 2022, for additional information on Sales of VOIs, 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.

Points-Based Inventory refers to VOI sales that are backed by physical real estate that is contributed to a trust.

NOG or Net Owner Growth represents the year-over-year change in membership.

Real estate profit represents sales revenue less the cost of VOI sales and sales and marketing costs, net of marketing revenue. Real estate profit margin is calculated by dividing real estate profit 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 fee-for-service commissions and brand fees earned from the sale of fee-for-service intervals.

Fee-for-service commissions and brand fees, net represents commissions and brand fees earned from the sale of fee-for-service intervals net of related reserves.

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

T-7

REAL ESTATE SALES PROFIT DETAIL SCHEDULE

T-8

CONTRACT SALES MIX BY TYPE SCHEDULE

T-9

FINANCING PROFIT DETAIL SCHEDULE

T-10

RESORT AND CLUB PROFIT DETAIL SCHEDULE

T-11

RENTAL AND ANCILLARY PROFIT DETAIL SCHEDULE

T-12

REAL ESTATE SALES AND FINANCING SEGMENT ADJUSTED EBITDA

T-13

RESORT AND CLUB MANAGEMENT SEGMENT ADJUSTED EBITDA

T-14

ADJUSTED NET INCOME AND ADJUSTED DILUTED EARNINGS PER SHARE - DILUTED (Non-GAAP)

T-15

 

T-2

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

 

 

March 31,

2023

 

December 31,

2022

 

(unaudited)

 

 

ASSETS

 

 

 

Cash and cash equivalents

$

389

 

$

223

Restricted cash

 

363

 

 

332

Accounts receivable, net

 

503

 

 

511

Timeshare financing receivables, net

 

1,754

 

 

1,767

Inventory

 

1,300

 

 

1,159

Property and equipment, net

 

797

 

 

798

Operating lease right-of-use assets, net

 

71

 

 

76

Investments in unconsolidated affiliates

 

75

 

 

72

Goodwill

 

1,416

 

 

1,416

Intangible assets, net

 

1,244

 

 

1,277

Other assets

 

566

 

 

373

TOTAL ASSETS

$

8,478

 

$

8,004

LIABILITIES AND EQUITY

 

 

 

Accounts payable, accrued expenses and other

$

1,089

 

$

1,007

Advanced deposits

 

174

 

 

150

Debt, net

 

2,940

 

 

2,651

Non-recourse debt, net

 

1,095

 

 

1,102

Operating lease liabilities

 

88

 

 

94

Deferred revenues

 

304

 

 

190

Deferred income tax liabilities

 

656

 

 

659

Total liabilities

 

6,346

 

 

5,853

 

 

 

 

Equity:

 

 

 

Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of March 31, 2023 and December 31, 2022

 

 

 

Common stock, $0.00 par value; 3,000,000,000 authorized shares, 112,515,473 shares issued and outstanding as of March 31, 2023 and 113,628,706 shares issued and outstanding as of December 31, 2022

 

1

 

 

1

Additional paid-in capital

 

1,559

 

 

1,582

Accumulated retained earnings

 

543

 

 

529

Accumulated other comprehensive income

 

29

 

 

39

Total equity

 

2,132

 

 

2,151

TOTAL LIABILITIES AND EQUITY

$

8,478

 

$

8,004

T-3

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share and share data)

 

 

Three Months Ended March 31,

 

2023

 

2022

Revenues

 

 

 

Sales of VOIs, net

$

318

 

 

$

269

 

Sales, marketing, brand and other fees

 

158

 

 

 

119

 

Financing

 

74

 

 

 

64

 

Resort and club management

 

131

 

 

 

125

 

Rental and ancillary services

 

158

 

 

 

136

 

Cost reimbursements

 

95

 

 

 

66

 

Total revenues

 

934

 

 

 

779

 

Expenses

 

 

 

Cost of VOI sales

 

50

 

 

 

40

 

Sales and marketing

 

301

 

 

 

243

 

Financing

 

24

 

 

 

19

 

Resort and club management

 

42

 

 

 

36

 

Rental and ancillary services

 

152

 

 

 

132

 

General and administrative

 

42

 

 

 

42

 

Acquisition and integration-related expense

 

17

 

 

 

13

 

Depreciation and amortization

 

51

 

 

 

60

 

License fee expense

 

30

 

 

 

25

 

Impairment expense

 

 

 

 

3

 

Cost reimbursements

 

95

 

 

 

66

 

Total operating expenses

 

804

 

 

 

679

 

Interest expense

 

(44

)

 

 

(33

)

Equity in earnings from unconsolidated affiliates

 

3

 

 

 

3

 

Other gain, net

 

1

 

 

 

1

 

Income before income taxes

 

90

 

 

 

71

 

Income tax expense

 

(17

)

 

 

(20

)

Net income

$

73

 

 

$

51

 

Earnings per share(1):

 

 

 

Basic

$

0.65

 

 

$

0.42

 

Diluted

$

0.64

 

 

$

0.42

 

(1)

Earnings per share is calculated using whole numbers.

T-4

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Operating Activities

 

 

 

Net income

$

73

 

 

$

51

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

51

 

 

 

60

 

Amortization of deferred financing costs, acquisition premiums and other

 

7

 

 

 

12

 

Provision for financing receivables losses

 

30

 

 

 

31

 

Impairment expense

 

 

 

 

3

 

Other gain, net

 

(1

)

 

 

 

Share-based compensation

 

10

 

 

 

11

 

Equity in earnings from unconsolidated affiliates

 

(3

)

 

 

(3

)

Net changes in assets and liabilities:

 

 

 

Accounts receivable, net

 

8

 

 

 

(107

)

Timeshare financing receivables, net

 

(24

)

 

 

(11

)

Inventory

 

(101

)

 

 

26

 

Purchases and development of real estate for future conversion to inventory

 

(2

)

 

 

(1

)

Other assets

 

(244

)

 

 

(264

)

Accounts payable, accrued expenses and other

 

84

 

 

 

290

 

Advanced deposits

 

24

 

 

 

14

 

Deferred revenues

 

114

 

 

 

158

 

Net cash provided by operating activities

 

26

 

 

 

270

 

Investing Activities

 

 

 

Capital expenditures for property and equipment (excluding inventory)

 

(5

)

 

 

(8

)

Software capitalization costs

 

(6

)

 

 

(6

)

Net cash used in investing activities

 

(11

)

 

 

(14

)

Financing Activities

 

 

 

Proceeds from debt

 

438

 

 

 

 

Proceeds from non-recourse debt

 

175

 

 

 

155

 

Repayment of debt

 

(153

)

 

 

(3

)

Repayment of non-recourse debt

 

(182

)

 

 

(277

)

Repurchase and retirement of common stock

 

(85

)

 

 

 

Payment of withholding taxes on vesting of restricted stock units

 

(14

)

 

 

(8

)

Proceeds from stock option exercises

 

5

 

 

 

1

 

Other

 

(1

)

 

 

(1

)

Net cash provided by (used in) financing activities

 

183

 

 

 

(133

)

Effect of changes in exchange rates on cash, cash equivalents & restricted cash

 

(1

)

 

 

(1

)

Net increase in cash, cash equivalents and restricted cash

 

197

 

 

 

122

 

Cash, cash equivalents and restricted cash, beginning of period

 

555

 

 

 

695

 

Cash, cash equivalents and restricted cash, end of period

 

752

 

 

$

817

 

Less: Restricted cash

 

363

 

 

 

303

 

Cash and cash equivalents

$

389

 

 

$

514

 

T-5

HILTON GRAND VACATIONS INC.

FREE CASH FLOW RECONCILIATION

(in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

Net cash provided by operating activities

 

$

26

 

 

$

270

 

Capital expenditures for property and equipment

 

 

(5

)

 

 

(8

)

Software capitalization costs

 

 

(6

)

 

 

(6

)

Free Cash Flow

 

$

15

 

 

$

256

 

Non-recourse debt activity, net

 

 

(7

)

 

 

(122

)

Acquisition and integration-related expense

 

 

17

 

 

 

12

 

Other adjustment items(1)

 

 

8

 

 

 

13

 

Adjusted Free Cash Flow

 

$

33

 

 

$

159

 

(1)

Includes capitalized acquisition and integration-related costs.

T-6

HILTON GRAND VACATIONS INC.

SEGMENT REVENUE RECONCILIATION

(in millions)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

 

2022

 

Revenues:

 

 

 

 

Real estate sales and financing

 

$

550

 

 

$

452

 

Resort operations and club management

 

 

302

 

 

 

268

 

Total segment revenues

 

 

852

 

 

 

720

 

Cost reimbursements

 

 

95

 

 

 

66

 

Intersegment eliminations

 

 

(13

)

 

 

(7

)

Total revenues

 

$

934

 

 

$

779

 

T-7

HILTON GRAND VACATIONS INC.

SEGMENT EBITDA AND ADJUSTED EBITDA TO NET INCOME

(in millions)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Net income

$

73

 

 

$

51

 

Interest expense

 

44

 

 

 

33

 

Income tax expense

 

17

 

 

 

20

 

Depreciation and amortization

 

51

 

 

 

60

 

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

 

 

 

 

 

EBITDA

 

185

 

 

 

164

 

Other gain, net

 

(1

)

 

 

(1

)

Share-based compensation expense

 

10

 

 

 

11

 

Acquisition and integration-related expense

 

17

 

 

 

13

 

Impairment expense

 

 

 

 

3

 

Other adjustment items(1)

 

7

 

 

 

12

 

Adjusted EBITDA

$

218

 

 

$

202

 

 

 

 

 

Segment Adjusted EBITDA:

 

 

 

Real estate sales and financing(2)

$

169

 

 

$

153

 

Resort operations and club management(2)

 

109

 

 

 

101

 

Adjustments:

 

 

 

Adjusted EBITDA from unconsolidated affiliates

 

3

 

 

 

3

 

License fee expense

 

(30

)

 

 

(25

)

General and administrative(3)

 

(33

)

 

 

(30

)

Adjusted EBITDA

$

218

 

 

$

202

 

Adjusted EBITDA profit margin

 

23.3

%

 

 

25.9

%

EBITDA profit margin

 

19.8

%

 

 

21.1

%

(1)

Includes costs associated with restructuring, one-time charges and other non-cash items. This amount also includes the amortization of premiums resulting from purchase accounting.

(2)

Includes intersegment transactions, share-based compensation, depreciation and other adjustments attributable to the segments.

(3)

Excludes segment related share-based compensation, depreciation and other adjustment items.

 

T-8

HILTON GRAND VACATIONS INC.

REAL ESTATE SALES PROFIT DETAIL SCHEDULE

(in millions, except Tour Flow and VPG)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Tour flow

 

130,268

 

 

 

98,601

 

VPG

$

3,969

 

 

$

4,849

 

Owned contract sales mix

 

66.7

%

 

 

74.7

%

Fee-for-service contract sales mix

 

33.3

%

 

 

25.3

%

 

 

 

 

Contract sales

$

523

 

 

$

509

 

Adjustments:

 

 

 

Fee-for-service sales(1)

 

(174

)

 

 

(129

)

Provision for financing receivables losses

 

(30

)

 

 

(31

)

Reportability and other:

 

 

 

Net recognition of sales of VOIs under construction(2)

 

4

 

 

 

(42

)

Fee-for-service sale upgrades, net

 

5

 

 

 

4

 

Other(3)

 

(10

)

 

 

(42

)

Sales of VOIs, net

$

318

 

 

$

269

 

Plus:

 

 

 

Fee-for-service commissions and brand fees, net

 

107

 

 

 

69

 

Sales revenue

 

425

 

 

 

338

 

 

 

 

 

Cost of VOI sales

 

50

 

 

 

40

 

Sales and marketing expense, net(4)

 

240

 

 

 

186

 

Real Estate expense

 

290

 

 

 

226

 

Real Estate profit

$

135

 

 

$

112

 

Real Estate profit margin

 

31.8

%

 

 

33.1

%

 

 

 

 

Reconciliation of fee-for-service commissions:

 

 

 

Sales, marketing, brand and other fees

$

158

 

 

$

119

 

Less:

 

 

 

Marketing revenue and other fees

 

51

 

 

 

50

 

Fee-for-service commissions and brand fees, net

$

107

 

 

$

69

 

(1)

Represents contract sales from fee-for-service properties on which we earn commissions and brand fees.

(2)

Represents the net recognition of 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, title service and document compliance.

T-9

HILTON GRAND VACATIONS INC.

CONTRACT SALES MIX BY TYPE SCHEDULE

 

 

 

Three Months Ended March 31,

 

 

2023

 

2022

Just-In-Time Contract Sales Mix

 

17%

 

14%

Fee-For-Service Contract Sales Mix

 

33%

 

25%

Total Capital-Efficient Contract Sales Mix(1)

 

50%

 

39%

(1)

Diamond contract sales are related to developed properties and therefore are not included in capital efficient contract sales.

T-10

HILTON GRAND VACATIONS INC.

FINANCING PROFIT DETAIL SCHEDULE

(in millions)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Interest income(1)

$

66

 

 

$

55

 

Other financing revenue

 

8

 

 

 

9

 

Financing revenue

 

74

 

 

 

64

 

Consumer financing interest expense

 

11

 

 

 

7

 

Other financing expense

 

13

 

 

 

12

 

Financing expense

 

24

 

 

 

19

 

Financing profit

$

50

 

 

$

45

 

Financing profit margin

 

67.6

%

 

 

70.3

%

(1)

For the three months ended March 31, 2023, this amount includes $4 million of amortization of the premium related to the acquired timeshare financing receivables resulting from the Diamond Acquisition.

T-11

HILTON GRAND VACATIONS INC.

RESORT AND CLUB PROFIT DETAIL SCHEDULE

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

 

 

Twelve Months Ended March 31,

 

2023

 

2022

Total members

518,925

 

502,304

Consolidated Net Owner Growth (NOG)(1)

16,621

 

6,728

Consolidated Net Owner Growth % (NOG)(1)

3.3 %

 

2.1 %

(1)

Consolidated NOG is a trailing-twelve-month concept for which the twelve months ended in 2023 and 2022 includes member count for Legacy-HGV, Legacy-DRI, and HGV Max members on a consolidated basis.

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Club management revenue

$

51

 

 

$

51

 

Resort management revenue

 

80

 

 

 

74

 

Resort and club management revenues

 

131

 

 

 

125

 

Club management expense

 

15

 

 

 

10

 

Resort management expense

 

27

 

 

 

26

 

Resort and club management expenses

 

42

 

 

 

36

 

Resort and club management profit

$

89

 

 

$

89

 

Resort and club management profit margin

 

67.9

%

 

 

71.2

%

T-12

HILTON GRAND VACATIONS INC.

RENTAL AND ANCILLARY PROFIT DETAIL SCHEDULE

(in millions)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Rental revenues

$

147

 

 

$

124

 

Ancillary services revenues

 

11

 

 

 

12

 

Rental and ancillary services revenues

 

158

 

 

 

136

 

Rental expenses

 

143

 

 

 

122

 

Ancillary services expense

 

9

 

 

 

10

 

Rental and ancillary services expenses

 

152

 

 

 

132

 

Rental and ancillary services profit

$

6

 

 

$

4

 

Rental and ancillary services profit margin

 

3.8

%

 

 

2.9

%

T-13

HILTON GRAND VACATIONS INC.

REAL ESTATE SALES AND FINANCING SEGMENT ADJUSTED EBITDA

(in millions)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Sales of VOIs, net

$

318

 

 

$

269

 

Sales, marketing, brand and other fees

 

158

 

 

 

119

 

Financing revenue

 

74

 

 

 

64

 

Real estate sales and financing segment revenues

 

550

 

 

 

452

 

Cost of VOI sales

 

(50

)

 

 

(40

)

Sales and marketing expense, net

 

(301

)

 

 

(243

)

Financing expense

 

(24

)

 

 

(19

)

Marketing package stays

 

(13

)

 

 

(7

)

Share-based compensation

 

3

 

 

 

3

 

Other adjustment items

 

4

 

 

 

7

 

Real estate sales and financing segment adjusted EBITDA

$

169

 

 

$

153

 

Real estate sales and financing segment adjusted EBITDA profit margin

 

30.7

%

 

 

33.8

%

T-14

HILTON GRAND VACATIONS INC.

RESORT AND CLUB MANAGEMENT SEGMENT ADJUSTED EBITDA

(in millions)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Resort and club management revenues

$

131

 

 

$

125

 

Rental and ancillary services

 

158

 

 

 

136

 

Marketing package stays

 

13

 

 

 

7

 

Resort and club management segment revenue

 

302

 

 

 

268

 

Resort and club management expenses

 

(42

)

 

 

(36

)

Rental and ancillary services expenses

 

(152

)

 

 

(132

)

Share-based compensation

 

1

 

 

 

1

 

Resort and club segment adjusted EBITDA

$

109

 

 

$

101

 

Resort and club management segment adjusted EBITDA profit margin

 

36.1

%

 

 

37.7

%

T-15

HILTON GRAND VACATIONS INC.

ADJUSTED NET INCOME AND

ADJUSTED DILUTED EARNINGS PER SHARE - DILUTED (Non-GAAP)

(in millions except share data)

 

 

Three Months Ended March 31,

 

 

2023

 

 

 

2022

 

Net income

$

73

 

 

$

51

 

Income tax expense

 

17

 

 

 

20

 

Income before income taxes

 

90

 

 

 

71

 

Certain items:

 

 

 

Other gain, net

 

(1

)

 

 

(1

)

Impairment expense

 

 

 

 

3

 

Acquisition and integration-related expense

 

17

 

 

 

13

 

Other adjustment items(1)

 

7

 

 

 

12

 

Adjusted income before income taxes

$

113

 

 

$

98

 

Income tax expense

 

(23

)

 

 

(27

)

Adjusted net income

$

90

 

 

$

71

 

 

 

 

 

Weighted average shares outstanding

 

 

 

Diluted (millions)

 

114

 

 

 

122

 

Earnings per share(2):

 

 

 

Diluted

$

0.64

 

 

$

0.42

 

Adjusted diluted

$

0.79

 

 

$

0.58

 

(1)

Includes costs associated with restructuring, one-time charges and other non-cash items. For the three months ended March 31, 2023 and 2022, this amount also includes the amortization of premiums resulting from the Diamond Acquisition.

(2)

Earnings per share amounts are calculated using whole numbers.

 

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