Hilton Grand Vacations Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Dollar amounts are in millions, except per-share data and operating metrics. HGV develops, sells and finances vacation ownership interests (VOIs), manages resorts and operates vacation clubs. At quarter-end it reported 62 properties and approximately 328,500 club members.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $334 | $123 | $569 | $474 |
| Net income (loss) | $9 | $(48) | $2 | $(40) |
| Diluted EPS | $0.10 | $(0.56) | $0.02 | $(0.47) |
| Adjusted EBITDA (non-GAAP) | $70 | $(19) | $112 | $14 |
| Operating cash flow | Not separately provided here | $92 | $88 |
- Q2 revenue recovery reflected reopening and improved travel demand. For the six months, revenue increased 20% year over year. Q2 segment revenue was $194 in real estate sales and financing and $107 in resort operations and club management.
- Six-month contract sales, an operating metric rather than GAAP revenue, were $398, up 42.7%. Tour flow increased 15.8% to 84,293 and VPG rose 23.9% to $4,472. Q2 VPG was $4,385, down 8.4% from the unusually low-tour 2020 comparison period.
- Six-month real estate profit was $32 versus a $48 loss, with a 16.2% margin versus negative 32.9%. Financing profit declined 18% to $50 as financing revenue fell 14.9%, mainly reflecting a smaller receivables portfolio. Rental and ancillary services profit was $19 versus a $4 loss.
- Cash and cash equivalents were $318 at June 30; restricted cash was $1,462, including $1,350 of note proceeds held in escrow pending the Diamond acquisition. Total cash, cash equivalents and restricted cash was $1,780. Do not treat restricted cash as freely available liquidity.
- Balance-sheet debt, net, was $2,431 and non-recourse debt, net, was $650, compared with $1,159 and $766, respectively, at year-end 2020. Contractual debt and non-recourse debt principal totaled $3,116 before financing costs. HGV reported $189 of remaining revolver capacity and $450 under its non-recourse Timeshare Facility at quarter-end.
- Six-month investing cash use was $13 and financing cash inflow was $1,175, principally reflecting issuance of $1,350 of senior notes. The notes’ proceeds were escrowed for the planned acquisition and intended debt repayment.
Changes, outlook, risks and unusual items
- HGV attributed the sharp Q2 improvement against 2020 primarily to the reopening of nearly all resorts and sales centers and recovery in travel demand. Some locations still faced capacity limits, distancing rules and other safety measures. The company warned that renewed infections, variants or government restrictions could slow or reverse recovery.
- HGV agreed to acquire Diamond Resorts in a stock transaction valued at approximately $1.4 billion when announced. Former Diamond holders were expected to receive approximately 34.7 million HGV shares and own about 28% of the combined company on a fully diluted basis. HGV had issued $850 million of 5.00% notes due 2029 and $500 million of 4.875% notes due 2031 into escrow, and secured a commitment for a $1.3 billion, seven-year term loan B. HGV stockholders approved the share issuance on July 28; the filing expected closing in early August, subject to remaining conditions.
- Acquisition and integration costs contributed to higher general and administrative expenses; HGV reported $14 million for Q2 and $29 million for the six months as acquisition and integration costs in its Adjusted EBITDA reconciliation. Adjusted EBITDA is a non-GAAP measure and should not be viewed as cash available for debt service or investment.
- Inventory purchase commitments totaled $436 million over 10 years, including $269 million expected within 12 months; timing and amounts may change or be cancellable under certain terms. Litigation arose in the ordinary course; management did not expect pending or threatened matters to materially affect the financial statements, but said reasonably possible losses were not reasonably estimable.
- Management provided no specific numerical earnings or revenue guidance. It emphasized liquidity, operational readiness and recovery while noting material uncertainty around COVID-19 effects. The acquisition adds execution, integration, financing, dilution, brand-approval and elevated-debt risks. HGV reported compliance with applicable financial covenants at June 30.
- Subsequent July events included a $96 million Timeshare Facility borrowing, a $53 million purchase of the first phase of a development project and termination of a prior covenant waiver period. HGV also shifted certain Central at 5th inventory-payment timing from 2021–2022 to 2023.
Most important facts for investors to verify
- Whether the Diamond acquisition closed as expected, final consideration and share issuance, assumed debt, and actual post-close ownership and leverage.
- How much of reported cash is restricted or otherwise unavailable, and the availability and conditions of remaining revolver and Timeshare Facility capacity.
- Whether travel recovery, tour flow, contract sales and VPG trends persisted after Q2, including the effect of capacity restrictions and new COVID-19 developments.
- Timeshare receivables credit quality and loss assumptions: the allowance was $203 million against $1,130 million gross receivables, including $104 million at least 121 days past due.
- Execution of $436 million of inventory purchase commitments, the timing of near-term obligations, and the effect of acquisition financing and integration costs.