Hilton Grand Vacations Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context and comparability
HGV develops, sells, finances and manages timeshare interests and resorts. It reported 154 properties across the U.S. and several international markets. The results include Diamond Resorts from its August 2, 2021 acquisition; therefore, Q1 2022 reported growth versus Q1 2021 is not a like-for-like comparison. For context, unaudited pro forma Q1 2021 results assuming Diamond had been acquired at the start of that period were revenue of $490 million and a net loss of $49 million.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $779 million | $235 million |
| Income (loss) before tax | $71 million | $(13) million |
| Net income (loss) | $51 million | $(7) million |
| Diluted EPS | $0.42 | $(0.08) |
| Operating cash flow | $270 million | $62 million |
| Investing cash flow | $(14) million | $(5) million |
| Financing cash flow | $(133) million | $(78) million |
Management’s non-GAAP Adjusted EBITDA was $202 million, compared with $42 million. Segment Adjusted EBITDA was $153 million for Real Estate Sales and Financing and $101 million for Resort Operations and Club Management. Adjusted EBITDA is company-defined and is not a substitute for GAAP earnings or cash flow.
- Revenue mix: VOI sales, net, $269 million; sales, marketing, brand and other fees, $119 million; financing, $64 million; resort and club management, $125 million; rental and ancillary services, $136 million; cost reimbursements, $66 million.
- Real estate sales: Contract sales were $509 million; tour flow was 98,601 and volume per guest was $4,849. Real estate profit was $112 million, with a 33.1% margin, versus $3 million and 4.6% in Q1 2021.
- Other segment margins: Financing profit was $45 million with a 70.3% margin; resort and club management profit was $89 million with a 71.2% margin. Rental and ancillary services profit was $4 million, a 2.9% margin.
- Cash and liquidity: Cash and cash equivalents were $514 million and restricted cash was $303 million, totaling $817 million. Operating cash flow included substantial working-capital movements, including a $264 million use of cash from other assets and a $290 million source from accounts payable, accrued expenses and other.
- Debt: Balance-sheet debt, net, was $2.913 billion and non-recourse debt, net, was $1.203 billion. Gross contractual debt and non-recourse debt totaled $4.180 billion. The company reported $699 million of remaining revolver capacity and $439 million of capacity under its Timeshare Facility and conduit facilities at quarter-end.
- Balance sheet: Total assets were $8.442 billion and total liabilities were $6.377 billion. Timeshare financing receivables, net, were $1.718 billion; inventory was $1.215 billion.
Material changes and unusual items
- Reported revenue increased $544 million year over year, principally reflecting Diamond’s inclusion in 2022, stronger travel demand and reopened resorts and sales centers. HGV also cited higher tour flow, transaction prices and revenues from properties launched in 2021.
- Depreciation and amortization rose to $60 million from $11 million, mainly due to acquired Diamond intangible assets. Interest expense increased to $33 million from $15 million, reflecting debt issued in 2021. Acquisition and integration expense was $13 million, versus $15 million.
- HGV recorded a $31 million provision for financing receivable losses in Q1 2022, compared with $16 million in Q1 2021. The acquired Diamond portfolio had $382 million of gross receivables at least 121 days past due; this is a gross delinquency measure, not the net carrying value.
- Diamond acquisition accounting remained provisional. A measurement-period adjustment increased goodwill by $26 million, primarily related to the valuation of insurance receivables and associated deferred taxes. Goodwill was $1.351 billion at March 31, 2022.
- HGV accrued approximately $117 million for legal matters. About $92 million related to a judgment against Diamond; HGV also recorded a $92 million insurance claim receivable. The company cautioned that litigation outcomes remain uncertain.
Outlook, liquidity, and risks
The filing provides no specific earnings or revenue guidance. Management described liquidity as supported by cash, operating cash generation, credit facilities and timeshare receivable securitizations. It reported $329 million of inventory and land purchase commitments over nine years, and $5.501 billion of total contractual obligations over nine years. The filing states that timing and amounts of certain commitments may change or be cancellable under their terms.
Key disclosed risks include execution and costs of Diamond integration and rebranding; ongoing effects of COVID-19 and broader economic conditions; consumer demand and timeshare loan defaults; significant indebtedness and ability to meet liquidity needs; interest-rate and foreign-exchange exposure; litigation and regulatory matters; and reliance on inventory sourcing, third parties and Hilton brand access. HGV had variable-rate obligations tied to LIBOR and was evaluating the transition to replacement reference rates. Management said disclosure controls were effective as of quarter-end; integration-related changes to internal controls were underway.
Subsequent events: On April 21, HGV completed a $246 million timeshare receivables securitization at a 4.30% weighted-average rate, using proceeds in part to repay a $115 million conduit facility. On May 3, it amended the Timeshare Facility, increasing capacity from $450 million to $750 million. On May 4, the board authorized repurchases of up to $500 million of common stock over two years; the company is not obligated to repurchase shares.
Important facts for investors to verify
- Assess underlying growth apart from Diamond’s consolidation, using segment results and the disclosed pro forma comparison.
- Review the quality and sustainability of operating cash flow, particularly the significant working-capital movements.
- Monitor timeshare receivable delinquencies, credit-loss provisions and securitization availability, including refinancing and facility maturities.
- Track Diamond integration, rebranding costs, provisional purchase accounting and whether expected benefits are realized.
- Confirm the resolution, insurance recovery and ultimate exposure related to the $92 million judgment and broader litigation accruals.
- Evaluate the terms and actual use of the share repurchase authorization alongside debt, commitments and liquidity needs.