ORLANDO, Fla.--(BUSINESS WIRE)--Hilton Grand Vacations Inc. (NYSE:HGV) (“HGV” or the “Company”) today reported its fourth-quarter and full-year 2016 results. Highlights include:
- EPS was $0.38 for the fourth quarter and $1.70 for the full year
- Net income was $38 million for the fourth quarter and $168 million for the full year
- Adjusted EBITDA was $101 million for the fourth quarter and $402 million for the full year
- Real estate sales and financing segment Adjusted EBITDA was $89 million for the fourth quarter and $348 million for the full year
- Resort operations and club management segment Adjusted EBITDA was $50 million for the fourth quarter and $189 million for the full year
- Contract sales increased 14.2 percent for the fourth quarter and 9.7 percent for the full year
- Fee-for-service contract sales as percentage of total contract sales were 46 percent in the fourth quarter and 56 percent for the full year
- Net Owner Growth was 19,219, or 7.7 percent for the full year
- In 2016, HGV welcomed The District by Hilton Club in Washington, D.C., Ocean Oak Resort by Hilton Grand Vacations Club in Hilton Head, SC and Las Palmeras by Hilton Grand Vacation Club in Orlando, FL to the Company’s portfolio
Overview
For the three months ended December 31, 2016, EPS was $0.38 compared to $0.49 for the three months ended December 31, 2015. Net income was $38 million for the three months ended December 31, 2016, compared to $49 million for the three months ended December 31, 2015, and Adjusted EBITDA was $101 million for the three months ended December 31, 2016, compared to $103 million for the three months ended December 31, 2015.
For the 12 months ended December 31, 2016, EPS was $1.70 compared to $1.76 for the 12 months ended December 31, 2015. Net income was $168 million for the 12 months ended December 31, 2016, compared to $174 million for the 12 months ended December 31, 2015, and Adjusted EBITDA was $402 million for the 12 months ended December 31, 2016, compared to $373 million for the 12 months ended December 31, 2015.
Mark Wang, President and Chief Executive Officer of Hilton Grand Vacations, said, “We are pleased to begin this new phase as an independent, publicly traded company. In the past year we’ve welcomed more than 19,000 net new owners to the HGV family, representing net owner growth of nearly 8 percent. Contract sales grew 10 percent last year, again demonstrating the power of HGV’s sales and marketing platforms and the benefits of our strong alliance with Hilton. This year’s results continued to demonstrate we are a leader in capital efficiency in the timeshare industry, as almost three-quarters of our contract sales came from inventory developed by third parties in either fee-for-service or just-in-time arrangements. As we have successfully completed our transition to an independent, public company, we are well positioned to continue delivering on our value proposition to all stakeholders while finding innovative ways to deploy capital to extend our growth profile.”
Segment Highlights – Fourth Quarter
Real Estate Sales and Financing
Real estate sales and financing segment revenue was $300 million in the fourth quarter of 2016, an increase of 9.1 percent compared to the same period in 2015. Real estate and financing segment Adjusted EBITDA was $89 million in the fourth quarter of 2016, compared to $93 million in the same period in 2015. Real estate and financing segment Adjusted EBITDA margin as a percentage of real estate and financing segment revenues was 29.7 percent in the fourth quarter of 2016 compared to 33.8 percent for the same period in 2015.
Contract sales were $313 million in the fourth quarter of 2016, an increase of 14.2 percent compared to the same period in 2015. Fee-for-service contract sales represented 46 percent of total contract sales in the fourth quarter of 2016, compared to 51 percent in the same period in 2015. Tours increased 3.6 percent to 75,779 in the fourth quarter compared to the same period in 2015.
Financing revenues were $34 million in the fourth quarter of 2016, an increase of 6.3 percent compared to the same period in 2015.
Resort Operations and Club Management
Resort operations and club management segment revenue was $88 million in the fourth quarter of 2016, an increase of 7.3 percent compared to the same period in 2015. Resort operations and club management segment Adjusted EBITDA was $50 million in the fourth quarter of 2016, compared to $43 million in the same period in 2015. Resort operations and club management segment Adjusted EBITDA margin as a percentage of resort operations and club management segment revenues was 56.8 percent in the fourth quarter of 2016, compared to 52.4 percent for the same period in 2015.
Segment Highlights – Full Year
Real Estate Sales and Financing
Real estate sales and financing segment revenue was $1,143 million for the 12 months ending December 31, 2016, an increase of 6.0 percent compared to the same period in 2015. Real estate and financing segment Adjusted EBITDA was $348 million for the 12 months ending December 31, 2016, compared to $329 million in the same period in 2015. Real estate and financing segment Adjusted EBITDA margin as a percentage of real estate and financing segment revenues was 30.4 percent for the 12 months ending December 31, 2016, compared to 30.5 percent for the same period in 2015.
Contract sales were $1,172 million for the 12 months ending December 31, 2016, an increase of 9.7 percent compared to the same period in 2015. Fee-for-service contract sales represented 56 percent of total contract sales for the 12 months ending December 31, 2016, compared to 57 percent in the same period in 2015. Tours increased 6.4 percent to 306,141 for the 12 months ending December 31, 2016, compared to the same period in 2015.
Financing revenues were $134 million for the 12 months ending December 31, 2016, an increase of 5.5 percent compared to the same period in 2015.
The weighted average FICO score of new loans made to U.S. and Canadian borrowers at the time of origination was 741 for the 12 months ended December 31, 2016, compared to 743 for the 12 months ended December 31, 2015. In 2016, 65% of HGV’s sales were to customers who financed part their purchase.
As of December 31, 2016, gross timeshare financing receivables were $1.1 billion with a weighted average interest rate of 12 percent and a weighted average remaining term of 7.6 years. As of December 31, 2016, 1.5% of HGV’s financing receivables were over 30 days past due and not in default compared to 1.7% as of December 31, 2015.
Resort Operations and Club Management
Resort operations and club management segment revenue was $339 million for the 12 months ending December 31, 2016, an increase of 10.4 percent compared to the same period in 2015. Resort operations and club management segment Adjusted EBITDA was $189 million for the 12 months ending December 31, 2016, compared to $162 million in the same period in 2015. Resort operations and club management segment Adjusted EBITDA margin as a percentage of resort operations and club management segment revenues was 55.8 percent for the 12 months ending December 31, 2016, compared to 52.8 percent for the same period in 2015.
Club membership was 269,119 as of December 31, 2016, an increase of 19,219 members, representing net owner growth (NOG) of 7.7 percent compared to December 31, 2015. As of December 31, 2016, 97.5% of HGV’s owners were current on their HOA assessments.
Inventory
At December 31, 2016, HGV’s pipeline of available inventory stood at approximately 163,000 intervals or approximately 6.9 years of sales at the current trailing 12-month sales pace. At December 31, 2016, HGV’s pipeline of available owned inventory stood at approximately 59,000 intervals or approximately 2.5 years of sales. At December 31, 2016, HGV’s pipeline of available fee-for-service inventory stood at approximately 104,000 intervals or approximately 4.4 years of sales.
Of the current pipeline of available inventory, nine percent is considered just-in-time and 64 percent is considered fee-for-service. As such, the Company considers 73 percent of the pipeline of available inventory as of December 31, 2016, to be from capital-efficient sources.
Balance Sheet and Liquidity
As of December 31, 2016, Hilton Grand Vacations had $490 million of corporate debt with a weighted average interest rate of 4.85 percent and $694 million of non-recourse debt outstanding with a weighted average interest rate of 1.95 percent.
Total cash was $151 million as of December 31, 2016, including $103 million of restricted cash.
Free cash flow, which the Company defines as cash from operating activities adjusted for share- based compensation, less non-inventory capital spending, was $132 million for the 12 months ending December 31, 2016, compared to $126 million for the 12 months ending December 31, 2015.
Outlook
Full-Year 2017
- Net income is projected to be between $170 million and $186 million
- EPS is projected to be between $1.72 and $1.88
- Adjusted EBITDA is projected to be between $390 million and $415 million
- Full-year contract sales are expected to increase between 5.0 percent and 7.0 percent
- Fee-for-service contract sales are expected to be between 52.0 percent and 57.0 percent of full-year contract sales
- Free cash flow is projected to be between $140 million and $160 million
Spin-Off Transactions and Other Events
On January 3, 2017, Hilton Worldwide Holdings, Inc. (“Hilton”) executed a tax-free spin-off of Hilton Grand Vacations. The spin-off was completed by way of a pro-rata distribution of HGV common stock to Hilton stockholders of record as of 5 p.m. EST on December 15, 2016, the spin-off record date. Each Hilton stockholder received one share of HGV common stock for every 10 shares of Hilton common stock held by such stockholder on the record date. On January 3, 2017, Hilton Grand Vacations became a separate, publicly traded company, and Hilton did not retain any ownership interest in HGV. HGV filed a Registration Statement on Form 10 describing the transaction with the U.S. Securities and Exchange Commission (the "SEC") and was declared effective on December 2, 2016 (as amended through the time of such effectiveness, the "Registration Statement on Form 10"). In connection with the completion of the spin-off, HGV entered into agreements with Hilton and other third parties, including a license agreement to use the HGV brand that did not exist historically.
In October 2016, Hilton announced HNA Group will acquire an approximate 25 percent interest in Hilton from affiliates of the Blackstone Group L.P., establishing an investment in Hilton and Hilton’s planned spin-offs, including Hilton Grand Vacations. As Hilton discussed in its earnings report on February 15, 2017, the transaction is expected to close during the first quarter of 2017.
Conference Call
Hilton Grand Vacations will host a conference call to discuss fourth-quarter and full-year 2016 results on March 2, 2017 at 11 a.m. EST. 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 1-866-491-9243 in the U.S. or 1- 719-785-1754 internationally. Please use conference ID 3338221. Participants are encouraged to dial into the call or link to the webcast at least 20 minutes prior to the scheduled start time. A telephone replay will be available for seven days following the call. To access the telephone replay, dial 1-888-203-1112 or 1-719-457-0820 and use conference ID 3338221.
Forward-Looking Statements
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including, among others, risks inherent to the timeshare industry, risks related to financing transactions expected to be consummated in connection with the spin-off, macroeconomic factors beyond our control, competition for timeshare sales, risks related to doing business with third-party developers, performance of our information technology systems, risks of doing business outside of the U.S. and our indebtedness, as well as those described under the section entitled “Risk Factors” in our information statement filed as part of the effective Registration Statement on Form 10, as filed with the Securities and Exchange Commission (“SEC”) on November 30, 2016. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Non-GAAP Financial Measures
The Company refers to certain non-GAAP financial measures in this press release, including Adjusted EBITDA, Adjusted EBITDA margins, Return on Invested Capital, and Free Cash Flow. Please see the schedules to the press release and “Definitions” for additional information and reconciliations of such non-GAAP financial measures.
About Hilton Grand Vacations Inc.
Hilton Grand Vacations Inc. (NYSE:HGV) is recognized as a leading global timeshare company. With headquarters in Orlando, Fla., Hilton Grand Vacations develops, markets and operates a system of brand-name, high-quality vacation ownership resorts in select vacation destinations. The Company also manages and operates two innovative club membership programs: Hilton Grand Vacations Club® and The Hilton Club®, providing exclusive exchange, leisure travel and reservation services for more than 260,000 Club Members. For more information, visit www.hgv.com and www.hiltongrandvacations.com.
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HILTON GRAND VACATIONS INC. |
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EARNINGS RELEASE SCHEDULE |
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TABLE OF CONTENTS |
| Consolidated Balance Sheets |
| Consolidated Statement of Operations |
| Consolidated Statement of Cash Flows |
| Free Cash Flow Reconciliation |
| Return on Invested Capital |
| Segment Revenue Reconciliation |
| Segment EBITDA to Net Income |
| Real Estate Margin Detail Schedule |
| Financing Margin Detail Schedule |
| Resort and Club Margin Detail Schedule |
| Rental and Ancillary Margin Detail Schedule |
| Real Estate and Financing Segment Adjusted EBITDA Reconciliation |
| Resort and Club Segment Adjusted EBITDA Reconciliation |
| Forward-Year Adjusted EBITDA Reconciliation |
| Definitions |
| HILTON GRAND VACATIONS INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (in millions, except share data) | ||||||||
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Cash | $ | 48 | $ | 4 | ||||
| Restricted cash | 103 | 75 | ||||||
| Accounts receivable, net | 123 | 89 | ||||||
| Timeshare financing receivables, net | 1,025 | 976 | ||||||
| Inventory | 513 | 412 | ||||||
| Property and equipment, net | 256 | 51 | ||||||
| Intangible assets, net | 70 | 74 | ||||||
| Other assets | 42 | 43 | ||||||
| TOTAL ASSETS | $ | 2,180 | $ | 1,724 | ||||
| LIABILITIES AND EQUITY (DEFICIT) | ||||||||
| Accounts payable, accrued expenses and other | $ | 231 | $ | 208 | ||||
| Advanced deposits | 103 | 96 | ||||||
| Allocated Parent debt | - | 634 | ||||||
| Debt | 490 | - | ||||||
| Non-recourse debt | 694 | 502 | ||||||
| Deferred revenues | 106 | 103 | ||||||
| Deferred income tax liabilities | 389 | 287 | ||||||
| Total liabilities | 2,013 | 1,830 | ||||||
| Equity (Deficit): | ||||||||
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Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of December 31, 2016 and 2015 |
- | - | ||||||
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Common stock, $0.01 par value; 3,000,000,000 authorized shares, 98,802,597 issued and outstanding as of December 31, 2016; none issued and outstanding as of December 31, 2015 (1) |
1 | - | ||||||
| Additional paid-in-capital | 138 | - | ||||||
| Accumulated retained earnings | 28 | - | ||||||
| Parent deficit | - | (106 | ) | |||||
| Total equity (deficit) | 167 | (106 | ) | |||||
| TOTAL LIABILITIES AND EQUITY (DEFICIT) | $ | 2,180 | $ | 1,724 | ||||
| (1) Common stock issued and outstanding have been adjusted to reflect the stock split that occurred on January 3, 2017. | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (in millions, except per share amounts) | ||||||||||||||||
| Three months ended December 31, | Year ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenues | ||||||||||||||||
| Sales of VOIs, net | $ | 149 | $ | 137 | $ | 508 | $ | 492 | ||||||||
| Sales, marketing, brand and other fees | 117 | 105 | 499 | 457 | ||||||||||||
| Financing | 34 | 32 | 134 | 127 | ||||||||||||
| Resort and club management | 45 | 40 | 143 | 125 | ||||||||||||
| Rental and ancillary services | 38 | 39 | 173 | 164 | ||||||||||||
| Cost reimbursements | 32 | 28 | 126 | 110 | ||||||||||||
| Total revenues | 415 | 381 | 1,583 | 1,475 | ||||||||||||
| Expenses | ||||||||||||||||
| Cost of VOI sales | 42 | 29 | 152 | 173 | ||||||||||||
| Sales and marketing | 162 | 146 | 605 | 541 | ||||||||||||
| Financing | 8 | 8 | 32 | 32 | ||||||||||||
| Resort and club management | 11 | 9 | 36 | 32 | ||||||||||||
| Rental and ancillary services | 27 | 30 | 113 | 113 | ||||||||||||
| General and administrative | 31 | 16 | 92 | 57 | ||||||||||||
| Depreciation and amortization | 7 | 6 | 24 | 22 | ||||||||||||
| License fee expense | 19 | 19 | 80 | 74 | ||||||||||||
| Cost reimbursements | 32 | 28 | 126 | 110 | ||||||||||||
| Total expenses | 339 | 291 | 1,260 | 1,154 | ||||||||||||
| Allocated Interest Expense | (6 | ) | (7 | ) | (26 | ) | (29 | ) | ||||||||
| Interest Expense | (3 | ) | - | (3 | ) | - | ||||||||||
| Other loss, net | - | - | (1 | ) | - | |||||||||||
| Loss on foreign currency transactions | (2 | ) | - | - | - | |||||||||||
| Income before income taxes | 65 | 83 | 293 | 292 | ||||||||||||
| Income tax expense | (27 | ) | (34 | ) | (125 | ) | (118 | ) | ||||||||
| Net income | $ | 38 | $ | 49 | $ | 168 | $ | 174 | ||||||||
| Earnings per share:(1) | ||||||||||||||||
| Weighted average shares outstanding | 99 | 99 | 99 | 99 | ||||||||||||
| Basic and diluted | $ | 0.38 | $ | 0.49 | $ | 1.70 | $ | 1.76 | ||||||||
| (1) Basic and diluted earnings per share was calculated based on shares distributed to Hilton Grand Vacations' shareholders on January 3, 2017. |
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three months ended December 31, | Year ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Operating Activities | ||||||||||||||||
| Net income | $ | 38 | $ | 49 | $ | 168 | $ | 174 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
| Depreciation and amortization | 7 | 6 | 24 | 22 | ||||||||||||
| Amortization of deferred financing costs and other | 2 | 1 | 5 | 5 | ||||||||||||
| Provision for loan losses | 12 | 10 | 49 | 39 | ||||||||||||
| Other loss, net | - | - | 1 | - | ||||||||||||
| Loss on foreign currency transactions | 2 | - | - | - | ||||||||||||
| Deferred income taxes | 11 | 23 | 23 | 20 | ||||||||||||
| Net changes in assets and liabilities: | ||||||||||||||||
| Restricted cash | (7 | ) | 9 | (24 | ) | (21 | ) | |||||||||
| Accounts receivables, net | (2 | ) | 1 | (30 | ) | (6 | ) | |||||||||
| Timeshare financing receivables, net | (46 | ) | (34 | ) | (98 | ) | (88 | ) | ||||||||
| Inventory | 17 | (8 | ) | 7 | (38 | ) | ||||||||||
| Other assets | 3 | 5 | (4 | ) | 2 | |||||||||||
| Accounts payable, accrued expenses and other | 11 | 5 | 28 | 18 | ||||||||||||
| Advanced deposits | 1 | (1 | ) | 7 | (1 | ) | ||||||||||
| Deferred revenues | (7 | ) | (19 | ) | 3 | 3 | ||||||||||
| Other | - | 2 | (1 | ) | 2 | |||||||||||
| Net cash provided by operating activities | 42 | 49 | 158 | 131 | ||||||||||||
| Investing Activities | ||||||||||||||||
| Capital expenditures for property and equipment | (10 | ) | (2 | ) | (26 | ) | (12 | ) | ||||||||
| Software capitalization costs | (3 | ) | (3 | ) | (8 | ) | (6 | ) | ||||||||
| Net cash used in investing activities | (13 | ) | (5 | ) | (34 | ) | (18 | ) | ||||||||
| Financing Activities | ||||||||||||||||
| Issuance of non-recourse debt | 300 | - | 300 | - | ||||||||||||
| Repayment of non-recourse debt | (25 | ) | (28 | ) | (110 | ) | (125 | ) | ||||||||
| Issuance of debt | 200 | - | 200 | - | ||||||||||||
| Debt issuance costs | (4 | ) | - | (10 | ) | - | ||||||||||
| Change in restricted cash | (6 | ) | 2 | (4 | ) | 8 | ||||||||||
| Allocated debt activity | - | (11 | ) | 111 | (87 | ) | ||||||||||
| Net transfers from (to) Parent | (453 | ) | (3 | ) | (567 | ) | 95 | |||||||||
| Distribution to Parent | - | (2 | ) | - | (2 | ) | ||||||||||
| Net cash provided by (used in) financing activities | 12 | (42 | ) | (80 | ) | (111 | ) | |||||||||
| Net increase in cash | 41 | 2 | 44 | 2 | ||||||||||||
| Cash, beginning of period | 7 | 2 | 4 | 2 | ||||||||||||
| Cash, end of period | $ | 48 | $ | 4 | $ | 48 | $ | 4 | ||||||||
| FREE CASH FLOW RECONCILIATION | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three months ended December 31, | Year ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Cash Flow from operations | $ | 42 | $ | 49 | $ | 158 | $ | 131 | ||||||||
| Share-based compensation expense | 1 | 2 | 8 | 13 | ||||||||||||
| Capex for property and equipment | (10 | ) | (2 | ) | (26 | ) | (12 | ) | ||||||||
| Software capitalization costs | (3 | ) | (3 | ) | (8 | ) | (6 | ) | ||||||||
| Free Cash Flow | $ | 30 | $ | 46 | $ | 132 | $ | 126 | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||
| RETURN ON INVESTED CAPITAL | ||||||
| (in millions) | ||||||
| December 31, | ||||||
| 2016 | 2015 | |||||
| Adjusted EBITDA | $ | 402 | $ | 373 | ||
| Consumer financing interest expense | 12 | 13 | ||||
| Depreciation and amortization | 24 | 22 | ||||
| ADJUSTED EBIT | $ | 366 | $ | 338 | ||
| Allocated Parent debt | $ | - | $ | 634 | ||
| Debt | 490 | - | ||||
| Deferred revenues | 106 | 103 | ||||
| Deferred income tax liabilities | 389 | 287 | ||||
| Total equity (deficit) | 167 | (106) | ||||
| INVESTED CAPITAL | $ | 1,152 | $ | 918 | ||
| Average invested capital | $ | 1,035 | $ | 818 | ||
| ROIC | 35.4% | 41.3% | ||||
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| SEGMENT REVENUE RECONCILIATION | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three months ended December 31, | Year ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenues: | ||||||||||||||||
| Real estate sales and financing | $ | 300 | $ | 275 | $ | 1,143 | $ | 1,078 | ||||||||
| Resort operations and club management | 88 | 82 | 339 | 307 | ||||||||||||
| Segment revenues | 388 | 357 | 1,482 | 1,385 | ||||||||||||
| Cost reimbursements | 32 | 28 | 126 | 110 | ||||||||||||
| Intersegment eliminations | (5 | ) | (4 | ) | (25 | ) | (20 | ) | ||||||||
| Total revenues | $ | 415 | $ | 381 | $ | 1,583 | $ | 1,475 | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| SEGMENT EBITDA TO NET INCOME | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three months ended December 31, | Year ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Adjusted EBITDA: | ||||||||||||||||
| Real estate sales and financing(1) | $ | 89 | $ | 93 | $ | 348 | $ | 329 | ||||||||
| Resort operations and club management(1) | 50 | 43 | 189 | 162 | ||||||||||||
| Segment Adjusted EBITDA | 139 | 136 | 537 | 491 | ||||||||||||
| Less: | ||||||||||||||||
| General and administrative(2) | 19 | 14 | 55 | 44 | ||||||||||||
| License fee expense | 19 | 19 | 80 | 74 | ||||||||||||
| Adjusted EBITDA | 101 | 103 | 402 | 373 | ||||||||||||
| Other loss, net | - | - | (1 | ) | - | |||||||||||
| Loss on foreign currency transactions | (2 | ) | - | - | - | |||||||||||
| Share-based compensation expense | (1 | ) | (2 | ) | (8 | ) | (13 | ) | ||||||||
| Other adjustment items(3) | (14 | ) | (2 | ) | (35 | ) | (4 | ) | ||||||||
| EBITDA | 84 | 99 | 358 | 356 | ||||||||||||
| Non-recourse debt interest expense | (3 | ) | (3 | ) | (12 | ) | (13 | ) | ||||||||
| Allocated Parent interest expense | (6 | ) | (7 | ) | (26 | ) | (29 | ) | ||||||||
| Interest expense | (3 | ) | - | (3 | ) | - | ||||||||||
| Income tax expense | (27 | ) | (34 | ) | (125 | ) | (118 | ) | ||||||||
| Depreciation and amortization | (7 | ) | (6 | ) | (24 | ) | (22 | ) | ||||||||
| Net income | $ | 38 | $ | 49 | $ | 168 | $ | 174 | ||||||||
| Adjusted EBITDA margin % | 24.3 | % | 27.0 | % | 25.4 | % | 25.3 | % | ||||||||
| EBITDA margin % | 20.2 | % | 26.0 | % | 22.6 | % | 24.1 | % | ||||||||
| (1) Includes intersegment eliminations and other adjustments. |
| (2) Excludes share-based compensation and other adjustment items. |
| (3) For the three months and year ended December 31, 2016, amounts include $14 million and $30 million, respectively of costs associated with the spin-off transaction. |
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| REAL ESTATE SALES MARGIN DETAIL SCHEDULE | ||||||||||||||||
| (in millions, except Tour Flow and VPG) | ||||||||||||||||
| Three months ended December 31, | Year ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Contract sales | $ | 313 | $ | 274 | $ | 1,172 | $ | 1,068 | ||||||||
| Tour flow | 75,779 | 73,133 | 306,141 | 287,855 | ||||||||||||
| VPG | $ | 3,875 | $ | 3,548 | $ | 3,596 | $ | 3,508 | ||||||||
| Owned contract sales mix | 54 | % | 49 | % | 44 | % | 43 | % | ||||||||
| Fee-for-service contract sales mix | 46 | % | 51 | % | 56 | % | 57 | % | ||||||||
| Contract sales | $ | 313 | $ | 274 | $ | 1,172 | $ | 1,068 | ||||||||
| Less adjustments: | ||||||||||||||||
| Fee-for-service sales(1) | 145 | 139 | 657 | 611 | ||||||||||||
| Loan loss provision | 12 | 10 | 49 | 39 | ||||||||||||
| Reportability and other(2) | 7 | (12 | ) | (42 | ) | (74 | ) | |||||||||
| Sales of VOIs, net | 149 | 137 | 508 | 492 | ||||||||||||
| Sales, marketing, brand and other fees | 117 | 105 | 499 | 457 | ||||||||||||
| Less: | ||||||||||||||||
| Marketing revenue and other fees | 35 | 29 | 122 | 108 | ||||||||||||
| Sales revenue | 231 | 213 | 885 | 841 | ||||||||||||
| Less: | ||||||||||||||||
| Cost of VOI sales | 42 | 29 | 152 | 173 | ||||||||||||
| Sales and marketing expense, net(3) | 133 | 116 | 489 | 437 | ||||||||||||
| Real estate margin | $ | 56 | $ | 68 | $ | 244 | $ | 231 | ||||||||
| Real estate margin percentage | 24.2 | % | 31.9 | % | 27.6 | % | 27.5 | % | ||||||||
| (1) Represents contract sales from fee-for-service properties on which we earn commissions and brand fees. |
| (2) Includes adjustments for revenue recognition, including percentage-of-completion deferrals and amount in rescission, and sales incentives, as well as expenses related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects. |
| (3) Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers. |
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| FINANCING MARGIN DETAIL SCHEDULE | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Interest income | $ | 31 | $ | 30 | $ | 122 | $ | 117 | ||||||||
| Other financing revenue | 3 | 2 | 12 | 10 | ||||||||||||
| Financing revenue | 34 | 32 | 134 | 127 | ||||||||||||
| Consumer financing interest expense | 3 | 3 | 12 | 13 | ||||||||||||
| Other financing expense | 5 | 5 | 20 | 19 | ||||||||||||
| Financing expense | 8 | 8 | 32 | 32 | ||||||||||||
| Financing margin | $ | 26 | $ | 24 | $ | 102 | $ | 95 | ||||||||
| Financing margin percentage | 76.5 | % | 75.0 | % | 76.1 | % | 74.8 | % | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| RESORT AND CLUB MARGIN DETAIL SCHEDULE | ||||||||||||||||
| (in millions, except for Members and Net Owner Growth) | ||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Members | 269,119 | 249,900 | ||||||||||||||
| Net Owner Growth (NOG) | 19,219 | 20,249 | ||||||||||||||
| Net Owner Growth % (NOG%) | 7.7 | % | 8.8 | % | ||||||||||||
| Club management revenue | $ | 32 | $ | 28 | $ | 92 | $ | 78 | ||||||||
| Resort management revenue | 13 | 12 | 51 | 47 | ||||||||||||
| Resort and club management revenues | 45 | 40 | 143 | 125 | ||||||||||||
| Club management expense | 8 | 6 | 23 | 20 | ||||||||||||
| Resort management expense | 3 | 3 | 13 | 12 | ||||||||||||
| Resort and club management expenses | 11 | 9 | 36 | 32 | ||||||||||||
| Resort and club management margin | $ | 34 | $ | 31 | $ | 107 | $ | 93 | ||||||||
| Resort and club management margin percentage | 75.6 | % | 77.5 | % | 74.8 | % | 74.4 | % | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| RENTAL AND ANCILLARY MARGIN DETAIL SCHEDULE | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Rental revenues | $ | 33 | $ | 33 | $ | 149 | $ | 140 | ||||||||
| Ancillary services revenues | 5 | 6 | 24 | 24 | ||||||||||||
| Rental and ancillary services revenues | 38 | 39 | 173 | 164 | ||||||||||||
| Rental expenses | 23 | 25 | 90 | 91 | ||||||||||||
| Ancillary services expense | 4 | 5 | 23 | 22 | ||||||||||||
| Rental and ancillary services expenses | 27 | 30 | 113 | 113 | ||||||||||||
| Rental and ancillary services margin | $ | 11 | $ | 9 | $ | 60 | $ | 51 | ||||||||
| Rental and ancillary services margin percentage | 28.9 | % | 23.1 | % | 34.7 | % | 31.1 | % | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| REAL ESTATE AND FINANCING SEGMENT ADJUSTED EBITDA RECONCILIATION | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Sales of VOIs, net | $ | 149 | $ | 137 | $ | 508 | $ | 492 | ||||||||
| Sales, marketing, brand and other fees | 117 | 105 | 499 | 457 | ||||||||||||
| Financing | 34 | 32 | 134 | 127 | ||||||||||||
| HOA services | - | 1 | 2 | 2 | ||||||||||||
| Real estate sales and financing segment revenues | 300 | 275 | 1,143 | 1,078 | ||||||||||||
| Cost of VOI sales | (42 | ) | (29 | ) | (152 | ) | (173 | ) | ||||||||
| Sales and marketing | (162 | ) | (146 | ) | (605 | ) | (541 | ) | ||||||||
| Other financing expense | (5 | ) | (5 | ) | (20 | ) | (19 | ) | ||||||||
| Share-based compensation expense | - | 1 | 2 | 2 | ||||||||||||
| Restructuring costs | 1 | - | 1 | - | ||||||||||||
| Nonrecurring Below EBITDA expense | 2 | - | 2 | - | ||||||||||||
| Marketing package sales | (5 | ) | (2 | ) | (23 | ) | (17 | ) | ||||||||
| Model unit rental | - | (1 | ) | - | (1 | ) | ||||||||||
| Real estate sales and financing segment adjusted EBITDA | $ | 89 | $ | 93 | $ | 348 | $ | 329 | ||||||||
| Real estate sales and financing segment adjusted EBITDA margin | 29.7 | % | 33.8 | % | 30.4 | % | 30.5 | % | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||||||||||||
| RESORT AND CLUB SEGMENT ADJUSTED EBITDA RECONCILIATION | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Resort and club management revenues | $ | 45 | $ | 40 | $ | 143 | $ | 125 | ||||||||
| Rental and ancillary services revenues | 38 | 39 | 173 | 164 | ||||||||||||
| Marketing package sales | 5 | 2 | 23 | 17 | ||||||||||||
| Model unit rental | - | 1 | - | 1 | ||||||||||||
| Resort and club segment revenue | 88 | 82 | 339 | 307 | ||||||||||||
| Resort and club management | (11 | ) | (9 | ) | (36 | ) | (32 | ) | ||||||||
| Rental and ancillary services | (27 | ) | (30 | ) | (113 | ) | (113 | ) | ||||||||
| HOA services | - | (1 | ) | (2 | ) | (2 | ) | |||||||||
| Share-based compensation expense | - | - | 1 | 1 | ||||||||||||
| Restructuring costs | - | 1 | - | 1 | ||||||||||||
| Resort and club segment adjusted EBITDA | $ | 50 | $ | 43 | $ | 189 | $ | 162 | ||||||||
| Resort and club segment adjusted EBITDA margin | 56.8 | % | 52.4 | % | 55.8 | % | 52.8 | % | ||||||||
| HILTON GRAND VACATIONS INC. | ||||||||
| FORWARD-YEAR ADJUSTED EBITDA RECONCILIATION | ||||||||
| (in millions) | ||||||||
| 2017 | 2017 | |||||||
| Low Case | High Case | |||||||
| Contract Sales | 5 | % | 7 | % | ||||
| Fee-for-service as % of contract sales | 52 | % | 57 | % | ||||
| Adjusted EBITDA | $ | 390 | $ | 415 | ||||
| Less: | ||||||||
| Share based comp | 16 | 14 | ||||||
| Other items(1) | 11 | 11 | ||||||
| EBITDA | 363 | 390 | ||||||
| Less: | ||||||||
| Non-recourse debt interest expense | 18 | 18 | ||||||
| Corporate debt interest expense | 27 | 27 | ||||||
| Allocated parent interest expense | - | - | ||||||
| Depreciation and amortization | 27 | 27 | ||||||
| Income tax expense | 121 | 132 | ||||||
| Net Income | $ | 170 | $ | 186 | ||||
| Cash flow from operating activities | $ | 174 | $ | 191 | ||||
| Share based compensation | 16 | 14 | ||||||
| Non-inventory capex | (50 | ) | (45 | ) | ||||
| Free cash flow | $ | 140 | $ | 160 | ||||
| (1) Represents adjustments for one-time public company costs. | ||||||||
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, before interest expense, 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, HGV’s definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors about HGV and its financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by HGV’s management team to evaluate its 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 the timeshare 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 HGV’s 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, HGV’s working capital needs;
- EBITDA and Adjusted EBITDA do not reflect HGV’s interest expense, or the cash requirements necessary to service interest or principal payments on its indebtedness;
- EBITDA and Adjusted EBITDA do not reflect HGV’s tax expense or the cash requirements to pay the Company’s 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 the Company considers not to be indicative of its future operations;
| i. | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and | |||||||||
| ii. | other companies in the timeshare industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures. |
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to HGV to reinvest in the growth of its business or as measures of cash that will be available to HGV to meet its obligations.
Real Estate Metrics
Capital efficiency ratio represents the ratio of cost of VOI sales to VOI inventory spend, including fee-for-service upgrades. HGV considers this to be an important operating measure because capital efficiency allows HGV to reduce inventory investment requirements while continuing to generate growth in revenues and cash flows.
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 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.
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.
Return on invested capital ("ROIC") represents Adjusted EBITDA less non-recourse debt interest expense and depreciation and amortization ("Adjusted EBIT"), divided by average invested capital. Invested capital includes debt, deferred revenues, deferred income tax liabilities and total equity (deficit).
Free cash flow represents cash from operating activities adjusted for share based compensation, less non-inventory capital spending.
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.
