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8-K - 8-K - ILG, LLCa18-18154_18k.htm

Exhibit 99.1

 

 

ILG REPORTS SECOND QUARTER 2018 RESULTS

 

Miami, FL, August 3, 2018 — ILG (Nasdaq: ILG) today announced results for the second quarter ended June 30, 2018.

 

SECOND QUARTER HIGHLIGHTS

 

·                  Consolidated revenue increased 5% to $461 million

 

·                  Consolidated revenue excluding cost reimbursements increased 11% to $396 million

 

·                  Net income attributable to common stockholders was $27 million, higher by 4%

 

·                  Adjusted net income* was $39 million, up 26%

·                  Diluted EPS and adjusted diluted EPS* were $0.21 and $0.31, respectively

·                  Adjusted EBITDA* was $90 million, higher by 13%

 

·                  Excluding the estimated impact of the hurricanes, our results would have been the following:

 

·                  Consolidated revenue of $479 million, up 9%

·                  Consolidated revenue excluding cost reimbursement increased 16% to $414 million

·                  Consolidated timeshare contract sales of $140 million, higher by 9%

·                  Net income attributable to common stockholders of $31 million, up 19%

·                  Adjusted net income of $42 million, higher by 35%

·                  Adjusted EBITDA of $95 million, up 19%

·                  Diluted EPS and adjusted diluted EPS of $0.24 and $0.34, respectively

 

·                  Net cash and restricted cash from operating activities in the six months ended June 30, 2018 was $184 million

 

·                  Free cash flow* was $95 million, compared to $23 million

 

·                  ILG paid $43 million in dividends in the six months ended June 30, 2018

 

“We are very pleased with our results for the second quarter. Excluding the estimated impact of the hurricanes, consolidated revenue excluding cost reimbursements and Adjusted EBITDA would have increased 16% and 19%, respectively,” said Craig M. Nash, chairman, president, and CEO of ILG. “Through the hard work of our dedicated associates we continue to successfully execute on our strategic plan”.

 


* “Adjusted net income”, “Adjusted diluted EPS”, “Adjusted EBITDA” and “Free Cash Flow” are non-GAAP measures as defined by the U.S. Securities and Exchange Commission (the “SEC”). Please see “Presentation of Financial Information,” “Glossary of Terms” and “Reconciliations of Non-GAAP Measures” below for an explanation of non-GAAP measures used throughout this release.

 



 

Hurricane Impact

 

In September 2017, Hurricanes Irma and Maria affected several Vistana and HVO resorts and sales centers, as well as nearly 300 properties within the Interval Network or managed by VRI or Aqua-Aston Hospitality. At June 30, 2018 our Westin St. John Resort Villas in the U.S. Virgin Islands and Hyatt Residence Club Dorado, Hacienda del Mar, in Puerto Rico were closed and expected to reopen early in 2019. Approximately 35 Interval Network properties on the hardest-hit islands remained closed at quarter end.

 

The table below summarizes our results for the second quarter of 2018 and provides the estimated impact of the hurricanes in these periods:

 

 

 

Three Months Ended June 30, 2018

 

 

 

(Dollars in millions, except per share data)

 

 

 

Reported

 

Hurricane
impact

 

Ex Hurricane

 

Revenues

 

461

 

18

 

479

 

Net income attributable to common stockholders

 

27

 

4

 

31

 

Adjusted net income*

 

39

 

3

 

42

 

Adjusted EBITDA*

 

90

 

5

 

95

 

Diluted EPS

 

0.21

 

0.03

 

0.24

 

Adjusted diluted EPS*

 

0.31

 

0.03

 

0.34

 

 

Second quarter consolidated operating results

 

Consolidated revenue was $461 million, and excluding the estimated hurricane impact, it would have been $479 million, up 9% over the prior year driven by strong performance in our vacation ownership segment.

 

Net income attributable to common stockholders was $27 million. Excluding the estimated impact of the hurricanes it would have been $31 million, up 19% compared to the prior year. Diluted earnings per share (EPS) was $0.21, compared to $0.20 in the prior year.

 

Adjusted net income was $39 million, higher by 26%. Excluding the estimated impact from the hurricanes, it would have been $42 million, up 35% compared to the prior year. Adjusted diluted EPS was $0.31. Excluding the impact from the hurricane it would have been $0.34, higher by 36%.

 

Adjusted EBITDA increased 13% to $90 million. Excluding the impact from the hurricane, it would have been $95 million, an increase of 19% compared to 2017.

 

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Business segment results

 

Vacation Ownership

 

Excluding cost reimbursements, Vacation Ownership segment revenue increased $37 million, to $263 million principally as a result of the following:

 

·                  $28 million increase in management fee and other revenue predominantly attributable to revenue from the consolidation of our HOAs starting in the fourth quarter of 2017. This increase is largely offset by a corresponding decrease in cost reimbursement revenue.

·                  $5 million increase in resort operations revenue primarily driven by higher available and occupied room nights and average daily rate resulting from the increase in the number of units which came on-line beginning in the second quarter of 2017.

·                  $3 million increase in sales of vacation ownership products principally attributable to higher consolidated contract sales

 

Vacation Ownership segment operating income more than doubled to $17 million and adjusted EBITDA was higher by $10 million to $41 million. Excluding the impact of the hurricanes, adjusted EBITDA would have increased $14 million to $45 million, 45% higher than 2017.

 

Exchange and Rental

 

Exchange and Rental segment revenue was $153 million dollars, relatively consistent with 2017. Excluding cost reimbursements, segment revenue was up 2% to $133 million dollars related to stronger club rental revenue resulting from the above-mentioned increase in available and occupied room nights and average daily rate.

 

Total Interval Network active members at quarter-end were 1.8 million, consistent with 2017, and average revenue per member was $48.14, up 2%.

 

Operating income for the segment was $35 million compared to $37 million in 2017 reflecting the adverse impact from the hurricanes and higher professional fees largely due to costs associated with our expected transaction with Marriott Vacations Worldwide. Adjusted EBITDA for the segment was $49 million, consistent with 2017. Excluding the estimated hurricane impact, adjusted EBITDA would have increased by 2%.

 

Capital Resources and Liquidity

 

As of June 30, 2018, ILG’s cash and cash equivalents totaled $143 million, compared to $122 million on December 31, 2017, and we had $242 million of eligible unsecuritized receivables.

 

The principal amount outstanding of long term corporate debt as of June 30, 2018 was $555 million consisting of $350 million 5 5/8% Senior Notes and $205 million drawn under our revolving credit facility.

 

ILG had $382 million available on its revolving credit facility, net of outstanding letters of credit as of June 30, 2018.

 

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Net cash and restricted cash provided by operating activities in the first six months of 2018 was $184 million compared to $82 million. The $102 million increase was principally due to lower inventory spend of $81 million due to development activities at the Westin Nanea Ocean Villas in the prior year period, to higher net cash receipts partly attributable to property insurance proceeds of $42 million related primarily to the damage caused by the 2017 hurricanes on our Westin St. John resort and to lower taxes paid of $4 million. The increases were partly offset by $4 million of higher interest paid (net amounts capitalized).

 

Net cash used in investing activities was $18 million primarily related to capex associated with resort operations and sales and marketing locations, as well as IT initiatives. Capex in the quarter includes an offsetting $3 million of insurance proceeds for hurricane property damage.

 

Net cash and restricted cash used in financing activities was $153 million, reflecting $86 million repayments on securitized debt, net payments of $15 million on our revolving credit facility, dividend payments of $43 million, and $9 million withholding tax on the vesting of restricted stock units and shares.

 

Free cash flow for the six months ended June 30, 2018 was $95 million, compared to $23 million in 2017.  The change is primarily a result of the increase in net cash provided by operating activities, and lower capital expenditures, partially offset by higher net securitization activities, including higher repayments on securitizations.

 

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Dividends

 

During the first six months of 2018, ILG paid $43 million, or $0.35 cents per share in dividends.

 

Combination with Marriott Vacations

 

On April 30, 2018, ILG announced it had entered into an agreement whereby Marriott Vacations Worldwide, Inc. (Marriott Vacations) will acquire ILG for a combination of cash and stock consideration which values the company at approximately $5.1 billion, based on Marriott Vacation’s closing price on April 27, 2018.

 

ILG shareholders will receive $14.75 per share in cash and the rest in newly issued shares of Marriott Vacations. The combination will result in ILG shareholders owning at closing approximately 43% of the company on a fully-diluted basis, based on a fixed exchange ratio.  Two ILG directors will be appointed to the board of the combined company.

 

The transaction, which is subject to shareholder approval and other customary closing conditions, is expected to close at the end of August. More information on the transaction can be found on the ILG website, ww.ilg.com.

 

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PRESENTATION OF FINANCIAL INFORMATION

 

ILG management believes that the presentation of non-generally accepted accounting principles (non-GAAP) financial measures, including, among others, EBITDA, adjusted EBITDA, adjusted net income, adjusted basic and diluted EPS, and free cash flow, serves to enhance the understanding of ILG’s performance. These non-GAAP financial measures should be considered in addition to and not as substitutes for, or superior to, measures of financial performance and liquidity prepared in accordance with generally accepted accounting principles (GAAP). In addition, adjusted EBITDA (with certain different adjustments) is used to calculate compliance with certain financial covenants in ILG’s credit agreement and indenture. Management believes that these non-GAAP measures improve the transparency of our disclosures, provide meaningful presentations of our results from our business operations and liquidity excluding the impact of certain items not related to our core business operations and improve the period to period comparability of results from business operations. These measures may also be useful in comparing our results to those of other companies; however, our calculations may differ from the calculations of these measures used by other companies. More information about the non-GAAP financial measures, including reconciliations of historical GAAP results to the non-GAAP measures, is available in the financial tables that accompany this press release.

 

ABOUT ILG

 

ILG (Nasdaq: ILG) is a leading provider of professionally delivered vacation experiences and the exclusive global licensee for the Hyatt®, Sheraton®, and Westin® brands in vacation ownership. The company offers its owners, members, and guests access to an array of benefits and services, as well as world-class destinations through its international portfolio of resorts and clubs.  ILG’s operating businesses include Aqua-Aston Hospitality, Hyatt Vacation Ownership, Interval International, Trading Places International, Vacation Resorts International, VRI Europe, and Vistana Signature Experiences. Through its subsidiaries, ILG independently owns and manages the Hyatt Residence Club program and uses the Hyatt Vacation Ownership name and other Hyatt marks under license from affiliates of Hyatt Hotels Corporation. In addition, ILG’s Vistana Signature Experiences, Inc. is the exclusive provider of vacation ownership for the Sheraton and Westin brands and uses related trademarks under license from Starwood Hotels & Resorts Worldwide, LLC. Headquartered in Miami, Florida, ILG has offices in 15 countries and more than 10,000 associates. For more information, visit www.ilg.com.

 

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

 

Information included or incorporated by reference in this communication, and information which may be contained in other filings with the Securities and Exchange Commission (the “SEC”) and press releases or other public statements, contains or may contain “forward-looking” statements, as that term is defined in the Private Securities Litigation Reform Act of 1995 or by the SEC in its rules, regulations and releases. These forward-looking statements include, among other things, statements of plans, objectives, expectations (financial or otherwise) or intentions.

 

Forward-looking statements are any statements other than statements of historical fact, including statements regarding ILG, Inc.’s (the “Company”) and Marriott Vacations Worldwide Corporation’s (“MVW”) expectations, beliefs, hopes, intentions or strategies regarding the future.  Among other things, these forward-looking statements may include statements regarding the proposed combination of the Company and MVW; our beliefs relating to value creation as a result of a potential combination of the Company and MVW; the expected timetable for completing the transactions; benefits and synergies of the transactions; future opportunities for the combined company; and any other statements regarding the Company’s and MVW’s future beliefs, expectations, plans, intentions, financial condition or performance. In some cases, forward-looking statements can be identified by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or other words of similar meaning.

 

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in, or implied by, the forward-looking statements.  Factors that might cause such a difference include, but are not limited to, general economic conditions, our financial and business prospects, our capital requirements, our financing prospects, our relationships with associates and labor unions, our ability to consummate potential acquisitions or dispositions, our relationships with the holders of licensed marks, and those additional factors disclosed as risks in other reports filed by us with the Securities and Exchange Commission, including those described in Part I of the Company’s most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K as well as in MVW’s most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K and in the joint proxy statement/prospectus included in the registration statement on Form S-4 filed by MVW with the SEC, and any amendments thereto.

 

Other risks and uncertainties include the timing and likelihood of completion of the proposed transactions between the Company and MVW; the possibility that the Company’s stockholders may not approve the proposed transactions; the possibility that MVW’s stockholders may not approve the issuance of the MVW shares to be issued in connection with the proposed transactions; the possibility that the expected synergies and value creation from the proposed transactions will not be realized or will not be realized within the expected time period; the risk that the businesses of the Company and MVW will not be integrated successfully; the potential impact of disruption from the proposed transactions making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; the ability to retain key personnel; the availability of financing; the possibility that the proposed transactions do not close; as well as more specific risks and uncertainties. You should carefully consider these and other relevant factors, including those risk factors in this communication and other risks and uncertainties that affect the businesses of the Company and MVW described in their respective filings with the SEC, when reviewing any forward-looking statement. These factors are noted for investors as permitted under the Private Securities Litigation Reform Act of 1995.  We caution readers that any such statements are based on currently available operational, financial and competitive information, and they

 

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should not place undue reliance on these forward-looking statements, which reflect management’s opinion only as of the date on which they were made. Except as required by law, we disclaim any obligation to review or update these forward-looking statements to reflect events or circumstances as they occur.

 

NO OFFER OR SOLICITATION

 

This communication is for informational purposes only and is not intended to and does not constitute an offer to buy, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote or approval in any jurisdiction pursuant to or in connection with the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law.  No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, and otherwise in accordance with applicable law.

 

IMPORTANT INFORMATION AND WHERE TO FIND IT

 

The proposed transactions involving the Company and MVW will be submitted to the Company’s stockholders and MVW’s stockholders for their consideration.  In connection with the proposed transaction, on July 19, 2018, MVW filed with the Securities and Exchange Commission (the “SEC”) an amendment to the registration statement on Form S-4 that included a joint proxy statement/prospectus for the stockholders of the Company and MVW and was filed with the SEC on June 6, 2018. The registration statement was declared effective by the SEC on July 23, 2018. The Company and MVW mailed the definitive joint proxy statement/prospectus to their respective stockholders on or about July 25, 2018 and each of the Company and MVW intend to hold the special meeting of the stockholders of the Company and MVW on August 28, 2018. This communication is not intended to be, and is not, a substitute for such filings or for any other document that the Company or MVW may file with the SEC in connection with the proposed transaction.  SECURITY HOLDERS ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS, CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.  The registration statement, the joint proxy statement/prospectus and other relevant materials and any other documents filed or furnished by the Company or MVW with the SEC may be obtained free of charge at the SEC’s web site at www.sec.gov.  In addition, security holders will be able to obtain free copies of the registration statement and the joint proxy statement/prospectus from the Company by going to its investor relations page on its corporate web site at www.ilg.com and from MVW by going to its investor relations page on its corporate web site at www.marriottvacationsworldwide.com.

 

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PARTICIPANTS IN THE SOLICITATION

 

The Company, MVW, their respective directors and certain of their respective executive officers and employees may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction.  Information about the Company’s directors and executive officers is set forth in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on March 1, 2018 and in its definitive proxy statement filed with the SEC on May 7, 2018, and information about MVW’s directors and executive officers is set forth in its Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the SEC on February 27, 2018, and in its definitive proxy statement filed with the SEC on April 3, 2018.  These documents are available free of charge from the sources indicated above, and from the Company by going to its investor relations page on its corporate web site at www.ilg.com and from MVW by going to its investor relations page on its corporate web site at www.marriottvacationsworldwide.com. Additional information regarding the interests of participants in the solicitation of proxies in connection with the proposed transactions is presented in the definitive joint proxy statement/prospectus included in the registration statement on Form S-4 filed by MVW with the SEC, and may be included in other relevant materials that the Company and MVW file with the SEC.

 

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ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except share and per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

 

2018

 

2017

 

2018

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

Service and membership related

 

$

148

 

$

119

 

$

300

 

$

247

 

Sales of vacation ownership products, net

 

121

 

118

 

244

 

223

 

Rental and ancillary services

 

104

 

97

 

222

 

204

 

Consumer financing

 

23

 

22

 

47

 

43

 

Cost reimbursements

 

65

 

85

 

131

 

168

 

Total revenues

 

461

 

441

 

944

 

885

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of service and membership related sales

 

67

 

33

 

132

 

68

 

Cost of vacation ownership product sales

 

22

 

28

 

61

 

54

 

Cost sales of rental and ancillary services

 

70

 

78

 

142

 

155

 

Cost of consumer financing

 

7

 

7

 

15

 

14

 

Cost reimbursements

 

65

 

85

 

131

 

168

 

Royalty fee expense

 

11

 

11

 

22

 

21

 

Selling and marketing expense

 

81

 

76

 

159

 

145

 

General and administrative expense

 

65

 

58

 

124

 

112

 

Amortization expense of intangibles

 

5

 

5

 

10

 

10

 

Depreciation expense

 

16

 

15

 

31

 

30

 

Total operating costs and expenses

 

409

 

396

 

827

 

777

 

Operating income

 

52

 

45

 

117

 

108

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

1

 

 

1

 

 

Interest expense

 

(7

)

(7

)

(15

)

(12

)

Other income expense, net

 

(5

)

(2

)

 

8

 

Gain on bargain purchase

 

 

2

 

 

2

 

Equity in earnings from unconsolidated entities

 

 

1

 

1

 

3

 

Total other income (expense), net

 

(11

)

(6

)

(13

)

1

 

Earnings before income taxes and noncontrolling interests

 

41

 

39

 

104

 

109

 

Income tax provision

 

(13

)

(13

)

(33

)

(38

)

Net income

 

28

 

26

 

71

 

71

 

Net income attributable to noncontrolling interests

 

(1

)

 

(2

)

(1

)

Net income attributable to common stockholders

 

$

27

 

$

26

 

$

69

 

$

70

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

$

0.21

 

$

0.56

 

$

0.56

 

Diluted

 

$

0.21

 

$

0.20

 

$

0.55

 

$

0.55

 

Weighted average number of shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

124,241

 

124,384

 

124,033

 

124,191

 

Diluted

 

125,874

 

126,141

 

125,813

 

125,862

 

Dividends declared per share of common stock

 

$

0.175

 

$

0.15

 

$

0.350

 

$

0.30

 

 

 

Adjusted net income(1)

 

$

39

 

$

31

 

$

85

 

$

72

 

Adjusted earnings per share(1):

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

$

0.25

 

$

0.69

 

$

0.57

 

Diluted

 

$

0.31

 

$

0.25

 

$

0.68

 

$

0.57

 

 


(1) “Adjusted net income” and “Adjusted earnings per share” are non-GAAP measures as defined by the SEC. Please see “Reconciliations of Non-GAAP Measures” for a reconciliation to the comparable GAAP measure.

 

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ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

 

 

 

June 30, 2018

 

December 31, 2017

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

143

 

$

122

 

Restricted cash and cash equivalents

 

215

 

227

 

Vacation ownership mortgages receivable, net

 

77

 

79

 

Vacation ownership inventory

 

486

 

496

 

Prepaid income taxes

 

36

 

58

 

Other current assets

 

236

 

218

 

Total current assets

 

1,193

 

1,200

 

Restricted cash and cash equivalents

 

4

 

3

 

Vacation ownership mortgages receivable, net

 

657

 

658

 

Vacation ownership inventory

 

72

 

60

 

Investments in unconsolidated entities

 

54

 

55

 

Goodwill and intangible assets, net

 

992

 

1,004

 

Property and equipment, net

 

606

 

616

 

Other non-current assets

 

83

 

91

 

TOTAL ASSETS

 

$

3,661

 

$

3,687

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Accounts payable, trade

 

$

46

 

$

46

 

Deferred revenue

 

177

 

162

 

Current portion of securitized debt from VIEs

 

128

 

146

 

Other current liabilities

 

320

 

287

 

Total current liabilities

 

671

 

641

 

Long-term debt

 

548

 

562

 

Securitized debt from VIEs

 

361

 

429

 

Deferred revenue

 

82

 

76

 

Other long-term liabilities

 

262

 

262

 

TOTAL LIABILITIES

 

1,924

 

1,970

 

Redeemable noncontrolling interest

 

1

 

1

 

Total ILG stockholders’ equity

 

1,697

 

1,679

 

Noncontrolling interests

 

39

 

37

 

TOTAL EQUITY

 

1,736

 

1,716

 

TOTAL LIABILITIES AND EQUITY

 

$

3,661

 

$

3,687

 

 

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ILG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

 

 

 

Six Months Ended June 30, 

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

71

 

$

71

 

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

 

 

 

 

 

Amortization expense of intangibles

 

10

 

10

 

Bad debt expense

 

4

 

1

 

Depreciation expense

 

31

 

30

 

Allowance for losses on originated loans

 

23

 

15

 

Allowance for impairment on acquired loans

 

3

 

5

 

Accretion of mortgages receivable

 

2

 

3

 

Non-cash compensation expense

 

11

 

12

 

Deferred income taxes

 

10

 

13

 

Equity in earnings from unconsolidated entities

 

(1

)

(3

)

Gain on bargain purchase of Vistana acquisition

 

 

(2

)

Changes in operating assets and liabilities and other

 

20

 

(73

)

Net cash and restricted cash provided by operating activities

 

184

 

82

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(22

)

(48

)

Purchases of trading investments

 

4

 

 

Net cash used in investing activities

 

(18

)

(48

)

Cash flows from financing activities:

 

 

 

 

 

Borrowings on revolving credit facility, net

 

(15

)

71

 

Payments on securitized debt

 

(86

)

(66

)

Purchases of treasury stock

 

 

(3

)

Dividend payments to stockholders

 

(43

)

(37

)

Withholding taxes on vesting of restricted stock units

 

(9

)

(5

)

Net cash and restricted cash used in financing activities

 

(153

)

(40

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(3

)

3

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

10

 

(3

)

Cash, cash equivalents and restricted cash at beginning of period

 

352

 

244

 

Cash, cash equivalents and restricted cash at end of period

 

$

362

 

$

241

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

21

 

$

17

 

Income taxes paid, net of refunds

 

$

12

 

$

16

 

 

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OPERATING STATISTICS

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

 

2018

 

% Change

 

2017

 

2018

 

% Change

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vacation Ownership(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated timeshare contract sales (in millions)

 

$

132

 

3

%

$

128

 

$

266

 

6

%

$

250

 

Volume per guest

 

$

2,863

 

(6

)%

$

3,036

 

$

3,037

 

(3

)%

$

3,144

 

Tour flow

 

45,391

 

9

%

41,689

 

86,151

 

10

%

78,465

 

Exchange and Rental

 

 

 

 

 

 

 

 

 

 

 

 

 

Total active members at end of period (000’s)

 

1,800

 

(1

)%

1,812

 

1,800

 

(1

)%

1,812

 

Average revenue per member

 

$

48.14

 

2

%

$

47.39

 

$

101.38

 

2

%

$

99.75

 

 


(2) As part of the continued integration of our VO business, in the fourth quarter of 2017 we harmonized and clarified the calculation of total timeshare contract sales and consolidated timeshare contract sales to report all sales gross of incentives. In order to aid comparability, we have recast prior periods.

 

SEGMENT REVENUES

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

 

2018

 

% Change

 

2017

 

2018

 

% Change

 

2017

 

 

 

(In millions)

 

(Dollars in millions)

 

Vacation Ownership

 

 

 

 

 

 

 

 

 

 

 

 

 

Resort operations revenue

 

$

58

 

9

%

$

53

 

$

124

 

13

%

$

110

 

Management fee and other revenue

 

61

 

85

%

33

 

116

 

81

%

64

 

Sale of vacation ownership products, net

 

121

 

3

%

118

 

244

 

9

%

223

 

Consumer financing revenue

 

23

 

5

%

22

 

47

 

9

%

43

 

Cost reimbursement revenue

 

45

 

(24

)%

59

 

90

 

(23

)%

117

 

Total revenue

 

$

308

 

8

%

$

285

 

$

621

 

11

%

$

557

 

Vacation Ownership gross margin

 

45

%

7

%

42

%

44

%

2

%

43

%

Vacation Ownership gross margin without cost reimbursement revenue

 

53

%

(0

)%

53

%

51

%

(6

)%

54

%

Exchange and Rental

 

 

 

 

 

 

 

 

 

 

 

 

 

Transaction revenue

 

$

50

 

2

%

$

49

 

$

109

 

1

%

$

108

 

Membership fee revenue

 

35

 

(3

)%

36

 

71

 

0

%

71

 

Ancillary member revenue

 

2

 

0

%

2

 

4

 

(20

)%

5

 

Total member revenue

 

87

 

0

%

87

 

184

 

0

%

184

 

Club rental revenue

 

29

 

7

%

27

 

62

 

9

%

57

 

Other revenue

 

6

 

20

%

5

 

12

 

20

%

10

 

Rental management revenue

 

11

 

0

%

11

 

24

 

(8

)%

26

 

Cost reimbursement revenue

 

20

 

(23

)%

26

 

41

 

(20

)%

51

 

Total revenue

 

$

153

 

(2

)%

$

156

 

$

323

 

(2

)%

$

328

 

Exchange and Rental gross margin

 

59

%

2

%

58

%

59

%

4

%

57

%

Exchange and Rental gross margin without cost reimbursement revenue

 

68

%

(2

)%

69

%

68

%

(0

)%

68

%

 

13



 

RECONCILIATIONS OF NON-GAAP MEASURES

 

 

 

Six Months Ended June 30, 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

 

 

 

(In millions)

 

 

 

 

 

Operating activities before inventory spend

 

$

232

 

$

233

 

 

 

 

 

Inventory spend

 

(39

)

(120

)

 

 

 

 

Net changes in operating-related restricted cash

 

(9

)

(31

)

 

 

 

 

Net cash and restricted cash provided by operating activities

 

184

 

82

 

 

 

 

 

Repayments on securitizations

 

(86

)

(66

)

 

 

 

 

Net changes in financing-related restricted cash

 

2

 

20

 

 

 

 

 

Net securitization activities

 

(84

)

(46

)

 

 

 

 

Net changes in operating-related restricted cash

 

9

 

31

 

 

 

 

 

Capital expenditures

 

(22

)

(48

)

 

 

 

 

Acquisition-related and restructuring payments

 

8

 

4

 

 

 

 

 

Free cash flow

 

$

95

 

$

23

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

(In millions, except per share data)

 

Net income attributable to common stockholders

 

$

27

 

$

26

 

$

69

 

$

70

 

Acquisition related and restructuring costs

 

8

 

4

 

9

 

8

 

Other non-operating foreign currency remeasurements

 

5

 

2

 

 

(8

)

Impact of purchase accounting

 

 

1

 

 

(2

)

Other special items

 

3

 

 

9

 

 

Asset impairments

 

2

 

2

 

4

 

5

 

Income tax impact of adjusting items(3)

 

(6

)

(4

)

(6

)

(1

)

Adjusted net income

 

$

39

 

$

31

 

$

85

 

$

72

 

Earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.21

 

$

0.21

 

$

0.56

 

$

0.56

 

Diluted

 

$

0.21

 

$

0.20

 

$

0.55

 

$

0.55

 

Adjusted earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.31

 

$

0.25

 

$

0.69

 

$

0.57

 

Diluted

 

$

0.31

 

$

0.25

 

$

0.68

 

$

0.57

 

Weighted average number of common stock outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

124,241

 

124,384

 

124,033

 

124,191

 

Diluted

 

125,874

 

126,141

 

125,813

 

125,862

 

 


(3) All adjusting items were tax effected using the applicable projected annual effective tax rate since none of the adjustments were discrete to the periods.

 

14



 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

(In millions)

 

Sales of vacation ownership products, net

 

$

121

 

$

118

 

$

244

 

$

223

 

Provision for loan losses

 

14

 

8

 

22

 

15

 

Other items and adjustments(4)

 

(3

)

2

 

 

12

 

Consolidated timeshare contract sales

 

$

132

 

$

128

 

$

266

 

$

250

 

 


(4) Includes adjustments for incentives, certain GAAP deferrals, cancelled sales, trial vacation package sales, fractional sales and other items.

 

15



 

 

 

Three Months Ended June 30, 

 

 

 

2018

 

2017

 

 

 

Vacation
Ownership

 

Exchange and
Rental

 

Consolidated

 

Vacation
Ownership

 

Exchange and
Rental

 

Consolidated

 

 

 

(In millions)

 

Net income attributable to common stockholders

 

 

 

 

 

$

27

 

 

 

 

 

$

26

 

Net income attributable to noncontrolling interest

 

 

 

 

 

1

 

 

 

 

 

 

Net income

 

 

 

 

 

28

 

 

 

 

 

26

 

Income tax provision

 

 

 

 

 

13

 

 

 

 

 

13

 

Other special items (gain on bargain purchase)

 

 

 

 

 

 

 

 

 

 

(2

)

Equity in earnings from unconsolidated entities

 

 

 

 

 

 

 

 

 

 

(1

)

Other non-operating expense, net

 

 

 

 

 

5

 

 

 

 

 

2

 

Interest expense

 

 

 

 

 

7

 

 

 

 

 

7

 

Interest income

 

 

 

 

 

(1

)

 

 

 

 

 

Operating income

 

$

17

 

$

35

 

52

 

$

8

 

$

37

 

45

 

Other non-operating income (expense), net

 

(7

)

2

 

(5

)

(2

)

 

(2

)

Other special items (gain on bargain purchase)

 

 

 

 

 

2

 

2

 

Equity in earnings from unconsolidated entities

 

 

 

 

1

 

 

1

 

Net income attributable to noncontrolling interest

 

(1

)

 

(1

)

 

 

 

Depreciation expense

 

11

 

5

 

16

 

10

 

5

 

15

 

Amortization expense of intangibles

 

2

 

3

 

5

 

2

 

3

 

5

 

EBITDA

 

22

 

45

 

67

 

19

 

47

 

66

 

Other special items

 

2

 

1

 

3

 

1

 

(1

)

 

Impact of purchase accounting

 

 

 

 

(1

)

 

(1

)

Asset impairments

 

2

 

 

2

 

2

 

 

2

 

Acquisition related and restructuring costs

 

5

 

3

 

8

 

4

 

 

4

 

Less: Other non-operating (income) expense, net

 

7

 

(2

)

5

 

2

 

 

2

 

Non-cash compensation expense

 

3

 

2

 

5

 

4

 

3

 

7

 

Adjusted EBITDA

 

$

41

 

$

49

 

$

90

 

$

31

 

$

49

 

$

80

 

 

 

 

Six Months Ended June 30, 

 

 

 

2018

 

2017

 

 

 

Vacation
Ownership

 

Exchange and
Rental

 

Consolidated

 

Vacation
Ownership

 

Exchange and
Rental

 

Consolidated

 

 

 

(Dollars in millions)

 

Net income attributable to common stockholders

 

 

 

 

 

$

69

 

 

 

 

 

$

70

 

Net income attributable to noncontrolling interest

 

 

 

 

 

2

 

 

 

 

 

1

 

Net income

 

 

 

 

 

71

 

 

 

 

 

71

 

Income tax provision

 

 

 

 

 

33

 

 

 

 

 

38

 

Other special items (gain on bargain purchase)

 

 

 

 

 

 

 

 

 

 

(2

)

Equity in earnings from unconsolidated entities

 

 

 

 

 

(1

)

 

 

 

 

(3

)

Other non-operating income, net

 

 

 

 

 

 

 

 

 

 

(8

)

Interest expense

 

 

 

 

 

15

 

 

 

 

 

12

 

Interest income

 

 

 

 

 

(1

)

 

 

 

 

 

Operating income

 

$

35

 

$

82

 

117

 

$

23

 

$

85

 

108

 

Other non-operating income (expense), net

 

 

 

 

10

 

(2

)

8

 

Other special items (gain on bargain purchase)

 

 

 

 

 

2

 

2

 

Equity in earnings from unconsolidated entities

 

1

 

 

1

 

3

 

 

3

 

Net income attributable to noncontrolling interest

 

(2

)

 

(2

)

(1

)

 

(1

)

Depreciation expense

 

21

 

10

 

31

 

20

 

10

 

30

 

Amortization expense of intangibles

 

4

 

6

 

10

 

4

 

6

 

10

 

EBITDA

 

59

 

98

 

157

 

59

 

101

 

160

 

Other special items

 

5

 

2

 

7

 

1

 

(1

)

 

Asset impairments

 

4

 

 

4

 

 

 

 

Impact of purchase accounting

 

 

 

 

(5

)

 

(5

)

Acquisition related and restructuring costs

 

6

 

3

 

9

 

7

 

 

7

 

Less: Other non-operating (income) expense, net

 

 

 

 

(10

)

2

 

(8

)

Non-cash compensation expense

 

5

 

6

 

11

 

7

 

5

 

12

 

Adjusted EBITDA

 

$

79

 

$

109

 

$

188

 

$

64

 

$

107

 

$

171

 

 

16



 

GLOSSARY OF TERMS

 

Acquisition related and restructuring costs - Represents transaction fees, costs incurred in connection with performing due diligence, subsequent adjustments to our initial estimate of contingent consideration obligations associated with business acquisitions, and other direct costs related to acquisition activities. Additionally, this item includes certain restructuring charges primarily related to workforce reductions, costs associated with integrating acquired businesses and estimated costs of exiting contractual commitments.

 

Adjusted earnings per share (EPS) is defined as adjusted net income divided by the weighted average number of shares of common stock outstanding during the period for basic EPS and, additionally, inclusive of dilutive securities for diluted EPS.

 

Adjusted EBITDA - EBITDA, excluding, if applicable: (1) non-cash compensation expense, (2) goodwill and asset impairments, (3) acquisition related and restructuring costs, (4) other non-operating income and expense, (5) the impact of the application of purchase accounting, and (6) other special items. The Company’s presentation of adjusted EBITDA may not be comparable to similarly-titled measures used by other companies.

 

Adjusted net income is defined as net income attributable to common stockholders, excluding the impact of (1) acquisition related and restructuring costs, (2) other non-operating foreign currency remeasurements, (3) the impact of the application of purchase accounting, (4) goodwill and asset impairments, and (5) other special items.

 

Ancillary member revenue - Other Interval Network member related revenue including insurance and travel related services.

 

Average revenue per member - Membership fee revenue, transaction revenue and ancillary member revenue for the Interval Network, Vistana Signature Network and Hyatt Residence Club for the applicable period, divided by the monthly weighted average number of Interval Network active members during the applicable period.

 

Club rental revenue — Represents rentals generated by the Vistana Signature Network and Hyatt Residence Club mainly to monetize inventory to provide exchanges through hotel loyalty programs.

 

Consolidated timeshare contract sales — Total timeshare interests sold at consolidated projects pursuant to purchase agreements, gross of incentives and net of actual cancellations and rescissions, where we have met a minimum threshold amounting to a 10% down payment of the contract purchase price during the period. For upgrade sales, we include only the incremental value purchased.

 

Consumer financing revenue — Includes interest income on vacation ownership mortgages receivable, as well as loan servicing fees from unconsolidated entities.

 

17



 

Cost reimbursements - Represents the compensation and other employee-related costs directly associated with managing properties that are included in both revenue and cost of sales and that are passed on to the property owners or homeowner associations without mark-up. Cost reimbursement revenue of the Vacation Ownership segment also includes reimbursement, without mark-up, of sales and marketing expenses, and in some cases certain other expenses pursuant to contractual arrangements. Management believes presenting gross margin without these expenses provides management and investors a relevant period-over-period comparison.

 

EBITDA - Net income attributable to common stockholders excluding, if applicable: (1) non-operating interest income and interest expense, (2) income taxes, (3) depreciation expense, and (4) amortization expense of intangibles.

 

Free cash flow — is defined as cash and restricted cash provided by operating activities less capital expenditures, plus net changes in financing-related restricted cash and net borrowing and repayment activity pertaining to securitizations, and excluding changes in operating-related restricted cash and certain payments unrelated to our ongoing core business, such as acquisition-related and restructuring costs.

 

Impact of the application of purchase accounting — represents the difference between amounts derived from the fair value remeasurement of assets and liabilities acquired in a business combination versus the historical basis. We believe generally this is most meaningful in the first year subsequent to an acquisition.

 

Management fee revenue — Represents vacation ownership property management revenue earned by our Vacation Ownership segment exclusive of cost reimbursements.

 

Membership fee revenue — Represents fees paid for membership in the Interval Network, Vistana Signature Network and Hyatt Residence Club.

 

Net leverage — Long term debt (excluding issuance costs) minus cash and cash equivalents divided by Adjusted EBITDA.

 

Other special items — consist of other items that we believe are not related to our core business operations. For the three and six months ended June 30, 2018 and 2017, such items include (as applicable to the respective period): (i) costs related to non-ordinary course litigation matters described in the notes to our financial statements, (ii) impact to our financial statements related to natural disasters, including Hurricane Irma and other named storms, and (iii) costs related to our Board of Director’s strategic review.

 

Other revenue — includes revenue related primarily to exchange and rental transaction activity and membership programs outside of the Interval Network, Vistana Signature Network and Hyatt Residence Club, sales of marketing materials primarily for point-of-sale developer use, and certain financial services-related fee income.

 

Rental and ancillary services revenue — Includes our rental activities such as Getaways, club rentals and owned hotel revenues, as well as associated resort ancillary revenues.

 

Rental management revenue — Represents rental management revenue earned by our vacation rental businesses within our Exchange and Rental segment, exclusive of cost reimbursement revenue.

 

Resort operations revenue — Pertains to our revenue generating activities from rentals of owned vacation ownership inventory (exclusive of lead-generation) along with ancillary resort services, in addition to rental and ancillary revenue generated by owned hotels.

 

18



 

Sales of vacation ownership products, net — Includes sales of vacation ownership products, net, for HVO and Vistana.

 

Service and membership revenue — Revenue associated with providing services including membership-related activities and exchange transactions, as well vacation ownership and vacation rental management businesses.

 

Total active members - Active members of the Interval Network in good standing as of the end of the period. All Vistana Signature Network and Hyatt Residence Club members are also members of the Interval Network.

 

Tour flow — Represents the number of sales presentations given at sales centers (other than at unconsolidated properties) during the period.

 

Transaction revenue — Interval Network, Vistana Signature Network and Hyatt Residence Club transactional and service fees paid primarily for exchanges, Getaways, reservation servicing and related transactions.

 

Volume per guest — Consolidated timeshare contract sales excluding telesales, divided by tour flow during the period.

 

ILG, Inc.

 

Investor Contact
Lily Arteaga, 305-925-7302
Investor Relations
Lily.Arteaga@ilg.com

 

Or

 

Media Contact
Christine Boesch, 305-925-7267
Corporate Communications
Chris.Boesch@ilg.com

 

19