HGV Q3 2020 Earnings

Call Details

• Call Title: Hilton Grand Vacations Q3 2020 Earnings Call
• Date: October 29, 2020 at 3:00 PM UTC
• Management Team:
  • Mark Melnyk (Vice President of Investor Relations)
  • Mark Wang (Chief Executive Officer)
  • Dan Mathewes (Chief Financial Officer)

Call Summary

Financial Performance

• Total third quarter revenue was $221 million, reflecting declines across segments due to COVID-19 impacts and suspended operations in several major markets.
• Q3 adjusted EBITDA was $27 million, which excludes net construction-related deferrals and recognitions and was reduced by $3.8 million of one-time restructuring and COVID-related charges.
• Net income for Q3 was $1 million and diluted earnings per share was $0.02, versus net income of $58 million and diluted EPS of $0.67 in Q3 2019.
• Real estate segment contract sales were $117 million in Q3, representing roughly one-third of prior-year levels as operations resumed at about three-quarters of resorts.
• Tours were down 75% year-over-year in the quarter while VPGs increased by 25% year-over-year, driven by higher owner sales mix.
• Financing segment third quarter margin was $27 million with a margin percentage of 67.5%, compared with $29 million and 67.4% margin percentage in the prior year.
• Gross financing receivables decreased to $1.2 billion with an allowance of $217 million, representing 17.7% of gross receivables.
• Adjusted free cash flow in Q3 was a net use of $99 million, which included $39 million of inventory spend and $90 million of cash use from non-recourse debt paydown.

Guidance

• The company now anticipates positive adjusted free cash flow for the full year of $40 to $50 million, updated from prior expectations of roughly break even.
• The liquidity cushion is estimated at 31 months assuming no improvement from September trends, based on $625 million of unrestricted cash, $39 million revolver availability, and $450 million warehouse capacity.
• Fourth quarter is expected to show only modest sequential growth in operating metrics and Hawaii distribution centers are not expected to be meaningful contributors to Q4 contract sales.
• There is no numeric 2021 EBITDA or FCF guidance provided; commentary emphasized uncertainty and that 2021 performance will depend on the pace of recovery and contractual inventory obligations.
• Inventory spend for 2020 was revised down to slightly less than $200 million from an original budget of approximately $400 million.
• Contractual inventory obligations for 2021 were stated to be roughly $200 million, reducing flexibility compared with 2020 obligations of roughly $25 million.