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Hilton Grand Vacations Reports Record Third Quarter 2021 Results

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ORLANDO, Fla., November 09, 2021--(BUSINESS WIRE)--Hilton Grand Vacations Inc. (NYSE:HGV) ("HGV" or "the Company") today reports its third quarter 2021 results.

Third Quarter 2021 Results1

  • Contract sales in the third quarter were $433 million.

    • Legacy-HGV contract sales of $290 million were 81% of Q3 2019 contract sales.

    • Diamond contributed $143 million during the 59 days of HGV ownership.

  • Member count increased for the fifth straight quarter, and Net Owner Growth (NOG) for our Legacy-HGV business in the 12 months ended Sept. 30, 2021 is 1.2%.

  • Realized substantial cost synergy capture of $70 million on an annualized basis related to our acquisition of Diamond, achieving over half of our targeted 24-month, $125+ million synergy goal.

  • Total revenues for the third quarter were $928 million compared to $208 million for the same period in 2020.

    • Total revenues were affected by a recognition of $241 million in the current period compared to a deferral of $13 million in the same period in 2020.

  • Net income for the third quarter was $99 million compared to ($7) million net loss for the same period in 2020.

    • Net income was affected by a net recognition of $133 million in the current period compared to a net deferral of $8 million in the same period in 2020.

  • Diluted EPS for the third quarter was $0.90 compared to ($0.08) for the same period in 2020.

    • Diluted EPS was affected by a net recognition of $133 million in the current period compared to a net deferral of $8 million in the same period in 2020, or $1.22 and ($0.09) per share in the current period and the same period in 2020, respectively.

  • Adjusted EBITDA for the third quarter was $340 million compared to $19 million for the same period in 2020.

    • Legacy-HGV Adjusted EBITDA was $251 million for the quarter.

    • Diamond contributed $89 million to Adjusted EBITDA for the quarter.

    • Adjusted EBITDA and Legacy-HGV Adjusted EBITDA were affected by a net recognition of $133 million in the current period compared to a net deferral of $8 million in the same period in 2020.

"We’re off to a great start with the integration of our Diamond acquisition, which closed in early August," said Mark Wang, president and CEO of Hilton Grand Vacations. "Over the past few months, I’ve met with team members at our resorts around the country, and I’m thrilled about the level of excitement across the combined organization. The integration process is proceeding as planned, and I’m confident we’ll maximize the many benefits of this transformative acquisition moving forward, including the launch of our rebranding phase next year. I’m also incredibly proud of the team for continuing to execute during this busy time. In the third quarter, we generated strong EBITDA in line with 2019 levels, with record margins."

____________________

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.

Diamond Acquisition

On Aug. 2, 2021, HGV completed the acquisition of Dakota Holdings, Inc., the parent company of Diamond Resorts International ("Diamond"), (the "Diamond Acquisition"). The Company completed the acquisition by exchanging 100% of the outstanding equity interests of Diamond for shares of HGV common stock. Pre-existing HGV shareholders own approximately 72% of the combined company after giving effect to the Diamond Acquisition, with certain funds controlled by Apollo Global Management Inc. (the "Apollo Funds") and other minority shareholders, who previously owned 100% of Diamond, holding the remaining 28% after giving effect to the Diamond Acquisition.

Diamond also operates in the hospitality and VOI industry, with a worldwide resort network of global vacation destinations. Diamond’s portfolio consists of resort properties (the "Portfolio Properties") that Diamond manages, are included in one of Diamond's single- and multi-use trusts (collectively, the "Diamond Collections"), or are Diamond-branded resorts in which Diamond owns inventory. In addition, there are affiliated resorts and hotels, which Diamond does not manage, and which do not carry the Diamond brand but are a part of Diamond's network and, through THE Club® and other Club offerings (the "Diamond Clubs"), are available for its members to use as vacation destinations.

Diamond’s operations primarily consist of: VOI sales and financing which includes marketing and sales of VOIs and consumer financing for purchasers of the Company's VOIs; operations related to the management of the homeowners associations (the "HOAs") for resort properties and the Diamond Collections, operating and managing points-based vacations clubs, and operation of certain resort amenities and management services.

The financial results in this report include Diamond’s results of operations beginning on Aug. 2, 2021. The Company refers to Diamond's business and operations that were acquired as "Legacy-Diamond" or "Diamond," and HGV's operations as "Legacy-HGV," which is inclusive of operations that existed both prior to and following the Diamond Acquisition.

COVID-19 Update

As of Oct. 1, 2021, all of HGV's resorts and all but three of the Company's sales centers that were previously closed due to the COVID-19 pandemic are fully open and operating, although some are still operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets. The Company plans to continue its normal business as conditions permit, but there can be no assurance that such positive trends will continue or that there will not be any increases of new infections or new variants (such as the Delta variant) that may result in the reimposition of social distancing measures and/or restrictions in certain jurisdictions, as well as travel restrictions that may impede or reverse the Company's recovery.

Overview

For the quarter ended Sept. 30, 2021, diluted EPS was $0.90 compared to ($0.08) for the quarter ended Sept. 30, 2020. Net income and Adjusted EBITDA were $99 million and $340 million, respectively, for the quarter ended Sept. 30, 2021, compared to net loss and Adjusted EBITDA of ($7) million and $19 million, respectively, for the quarter ended Sept. 30, 2020. Total revenues for the quarter ended Sept. 30, 2021 were $928 million compared to $208 million for the quarter ended Sept. 30, 2020.

Net income and Adjusted EBITDA for the quarter ended Sept. 30, 2021, included a net recognition of $133 million relating to sales made at The Central at 5th, Ocean Tower Phase II, Maui Bay Villas, and The Beach Resort Sesoko projects, which were completed during the period.

Consolidated Segment Highlights – Third Quarter 2021

Real Estate Sales and Financing

For the quarter ended Sept. 30, 2021, Real Estate Sales and Financing segment revenues were $659 million, an increase of $543 million compared to the quarter ended Sept. 30, 2020. Real Estate Sales and Financing segment Adjusted EBITDA and Adjusted EBITDA profit margin were $280 million and 42.5%, respectively, for the quarter ended Sept. 30, 2021, compared to $15 million and 12.9%, respectively, for the quarter ended Sept. 30, 2020. Results in the third quarter of 2021 improved due to an increase in both tour flow and VPG related to an improvement in travel demand versus the prior year, as well as the reopening of properties that had paused operations last year due to the COVID-19 pandemic. They also reflect 59 days of ownership of Diamond, which contributed $100 million to Sales of VOI, net, and $54 million to segment Adjusted EBITDA for the quarter ended Sept. 30, 2021.

Real Estate Sales and Financing segment results reflect an increase of $133 million due to the recognition of all sales of VOIs under construction in the third quarter of 2021 which were in deferral for the three months ended Sept. 30, 2020. These recognitions are related to The Central at 5th, Ocean Tower Phase II, Maui Bay Villas, and The Beach Resort Sesoko projects for the quarter ended Sept. 30, 2021, and compare to $8 million net deferrals related to Ocean Tower Phase II and Maui Bay Villas projects for the quarter ended Sept. 30, 2020.

Contract sales for the quarter ended Sept. 30, 2021, increased $316 million to $433 million, including $143 million contributed by Diamond during 59 days of HGV ownership, compared to the quarter ended Sept. 30, 2020. For the quarter ended Sept. 30, 2021, tours increased by 283.0% and VPG increased 1.2% compared to the quarter ended Sept. 30, 2020. For the quarter ended Sept. 30, 2021, fee-for-service contract sales represented 29% of contract sales compared to 57% for the quarter ended Sept. 30, 2020.

Financing revenues for the quarter ended Sept. 30, 2021, increased by $13 million compared to the quarter ended Sept. 30, 2020. This was driven primarily by a $15 million increase related to interest income on the acquired timeshare financing receivables portfolio of Diamond, partially offset by a decrease related to interest income on the originated timeshare financing receivables portfolio. The interest income generated from the originated loan portfolio decreased, compared to the same period in 2020, due to a decrease in the timeshare financing receivables balance, partially offset by an increase in weighted average interest rate for the portfolio of 10 basis points as of Sept. 30, 2021. The addition of the Diamond portfolio contributed $16 million to revenue and $10 million to financing profit for the 59 days of HGV ownership during the third quarter of 2021.

Resort Operations and Club Management

For the quarter ended Sept. 30, 2021, Resort Operations and Club Management segment revenue was $216 million, an increase of $155 million compared to the quarter ended Sept. 30, 2020. Resort Operations and Club Management segment Adjusted EBITDA and Adjusted EBITDA profit margin were $109 million and 50.5%, respectively, for the quarter ended Sept. 30, 2021, compared to $30 million and 49.2%, respectively, for the quarter ended Sept. 30, 2020. Compared to the prior-year period, Resort Operations and Club Management results in the third quarter of 2021 increased due an increase in annual club dues along with an increase in the number of transactions compared to the same periods in 2020, which partially offset with the increases in segment operating expenses associated with segment performance discussed herein. Diamond contributed $102 million to revenue and $40 million to the total increase in segment Adjusted EBITDA for the quarter ended Sept. 30, 2021.

Inventory

The estimated contract sales value of the Company’s total pipeline is approximately $14 billion at current pricing.

The total pipeline includes approximately $4 billion of sales relating to inventory that is currently available for sale at open or soon-to-open projects at Legacy-HGV. Diamond has approximately $4 billion of developed inventory that is currently available for sale. The remaining approximately $6 billion 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 84% of the Company’s total pipeline. Approximately 55% of the owned inventory pipeline is currently available for sale.

Fee-for-service inventory represents 16% of the Company’s total pipeline. Approximately 81% of the fee-for-service inventory pipeline is currently available for sale. Diamond does not have a fee-for-service business.

With 22% of the pipeline consisting of just-in-time inventory and 16% consisting of fee-for-service inventory, capital-efficient inventory represents 38% of the Company’s total pipeline.

Balance Sheet and Liquidity

Total cash and cash equivalents were $564 million as of Sept. 30, 2021, including $230 million of restricted cash.

As of Sept. 30, 2021, the Company had $2,929 million of corporate debt, net outstanding with a weighted average interest rate of 4.11% and $1,290 million of non-recourse debt, net outstanding with a weighted average interest rate of 2.93%.

As of Sept. 30, 2021, the Company’s liquidity position consisted of $334 million of unrestricted cash and $499 million remaining borrowing capacity under the revolver facility. In addition, HGV has $629 million remaining borrowing capacity in total under the Timeshare Facility, and conduit facilities due in 2023 and 2024. HGV has $180 million of securities that are available to be securitized, and another $149 million of securities are expected to become eligible as soon as they meet typical milestones including receipt of first payment, deeding, or recording.

Free cash flow was ($68) million for the quarter ended Sept. 30, 2021, compared to ($9) million for the same period in the prior year. Adjusted free cash flow was ($33) million for the quarter ended Sept. 30, 2021, compared to ($99) million for the same period in the prior year. Adjusted free cash flow for the quarter ended Sept. 30, 2021 includes add-backs of $55 million related to the Diamond Acquisition.

As of Sept. 30, 2021, the Company’s total net leverage on a pro-forma trailing 12-month basis was approximately 4.2x, not giving effect to anticipated synergies. Inclusive of anticipated synergies, we are currently at 3.6x total net leverage on a pro-forma trailing 12-month basis.

Subsequent Events

In Oct. 2021, the Compensation Committee of the Board of Directors (the "Compensation Committee") approved modifications to the short-term incentive program performance periods and targets covering fiscal year 2021, and in Nov. 2021, the Compensation Committee approved modifications to the long-term incentive performance targets for performance-vesting restricted stock units covering fiscal years 2019 through 2022. The modifications were made to reflect the projected effects of the Diamond Acquisition on applicable metrics. There is no financial impact of these modifications and any awards earned under either the 2021 Short-Term Incentive Program or the Performance RSUs will be subject to the terms and conditions applicable to such awards.

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.

T-1

Total Construction Recognitions (Deferrals)

Three Months Ended
September 30,

Nine Months Ended
September 30,

($ in millions)

2021

2020

2021

2020

Sales of VOIs (deferrals)

$

$

(13

)

$

$

(64

)

Sales of VOIs recognitions

241

167

Net Sales of VOIs recognitions (deferrals)

241

(13

)

167

(64

)

Cost of VOI sales (deferrals)(2)

(4

)

(17

)

Cost of VOI sales recognitions

73

50

Net Cost of VOI sales recognitions (deferrals)(2)

73

(4

)

50

(17

)

Sales and marketing expense (deferrals)

(1

)

(9

)

Sales and marketing expense recognitions

35

24

Net Sales and marketing expense recognitions (deferrals)

35

(1

)

24

(9

)

Net construction recognitions (deferrals)(1)

$

133

$

(8

)

$

93

$

(38

)

2021

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Full
Year

Net (loss) income

$

(7

)

$

9

99

$

$

101

Interest expense

15

17

42

74

Income tax (benefit) expense

(6

)

3

49

46

Depreciation and amortization

11

12

48

71

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

1

1

EBITDA

14

41

238

293

Other loss, net

1

1

20

22

Share-based compensation expense

4

14

14

32

Acquisition and integration-related expense

15

14

54

83

Impairment expense

1

1

2

Other adjustment items(3)

7

13

20

Adjusted EBITDA

$

42

$

70

$

340

$

$

452

NET CONSTRUCTION DEFERRAL ACTIVITY

Sales of VOIs, net

$

(32

)

$

(42

)

$

241

$

$

167

Cost of VOI sales(2)

(10

)

(13

)

73

50

Sales, marketing, general and administrative expense

(4

)

(7

)

35

24

Net construction deferrals

$

(18

)

$

(22

)

$

133

$

$

93

2020

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Full
Year

Net income (loss)

$

8

$

(48

)

$

(7

)

$

(154

)

(201

)

Interest expense

10

12

10

11

43

Income tax expense (benefit)

1

(8

)

(5

)

(67

)

(79

)

Depreciation and amortization

12

11

11

11

45

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

1

1

2

EBITDA

32

(33

)

10

(199

)

(190

)

Other (gain) loss, net

(2

)

3

(1

)

(3

)

(3

)

Share-based compensation expense

(2

)

6

6

5

15

Impairment expense

209

209

Other adjustment items(3)

5

5

4

12

26

Adjusted EBITDA

$

33

$

(19

)

$

19

$

24

$

57

NET CONSTRUCTION DEFERRAL ACTIVITY

Sales of VOIs, net

$

(47

)

$

(4

)

$

(13

)

$

(21

)

$

(85

Cost of VOI sales(2)

(13

)

(4

)

(6

)

(23

)

Sales, marketing, general and administrative expense

(7

)

...