hgv-10q_20190930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_________ to ________

Commission file number 001-37794

Hilton Grand Vacations Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	81-2545345
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

6355 MetroWest Boulevard, Suite 180,
Orlando, Florida	32835
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code (407) 613-3100

(Former Name, Former Address, and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, $0.01 par value per share		HGV		New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, as of October 25, 2019 was 85,469,804.

HILTON GRAND VACATIONS INC.

FORM 10-Q TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements	2
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.		Controls and Procedures	48

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		49
Item 1A.	Risk Factors		49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 3.	Defaults Upon Senior Securities		49
Item 4.	Mine Safety Disclosures		49
Item 5.	Other Information		49
Item 6.	Exhibits		50
	Signatures		51

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	September 30,		December 31,
	2019		2018
	(unaudited)
ASSETS
Cash and cash equivalents	$	113	$	108
Restricted cash		98		72
Accounts receivable, net of allowance for doubtful accounts of $19 and $14		137		153
Timeshare financing receivables, net		1,139		1,120
Inventory		518		527
Property and equipment, net		765		559
Operating lease right-of-use assets, net		62		—
Investments in unconsolidated affiliates		44		38
Intangible assets, net		87		81
Other assets		75		95
TOTAL ASSETS (variable interest entities - $799 and $647)	$	3,038	$	2,753
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	343	$	324
Advanced deposits		112		101
Debt, net		815		604
Non-recourse debt, net		795		759
Operating lease liabilities		78		—
Deferred revenues		165		95
Deferred income tax liabilities		236		254
Total liabilities (variable interest entities - $798 and $640)		2,544		2,137
Commitments and contingencies - see Note 19
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of September 30, 2019 and December 31, 2018		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,469,804 issued and outstanding as of September 30, 2019 and 94,558,086 issued and outstanding as of December 31, 2018		1		1
Additional paid-in capital		174		174
Accumulated retained earnings		319		441
Total equity		494		616
TOTAL LIABILITIES AND EQUITY	$	3,038	$	2,753

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues
Sales of VOIs, net	$	138		$	99		$	383		$	427
Sales, marketing, brand and other fees		143			152			429			423
Financing		43			40			127			117
Resort and club management		45			40			130			116
Rental and ancillary services		54			60			173			164
Cost reimbursements		43			36			128			110
Total revenues		466			427			1,370			1,357
Expenses
Cost of VOI sales		24			29			92			109
Sales and marketing		188			174			544			528
Financing		14			12			39			35
Resort and club management		11			11			34			33
Rental and ancillary services		36			37			108			95
General and administrative		28			31			82			84
Depreciation and amortization		14			9			37			25
License fee expense		26			25			75			73
Cost reimbursements		43			36			128			110
Total operating expenses		384			364			1,139			1,092
Interest expense		(12	)		(7	)		(33	)		(22	)
Equity in earnings from unconsolidated affiliates		1			1			4			—
Other loss, net		(1	)		(1	)		(3	)		(1	)
Income before income taxes		70			56			199			242
Income tax expense		(20	)		(15	)		(55	)		(64	)
Net income	$	50		$	41		$	144		$	178
Earnings per share:
Basic	$	0.59		$	0.42		$	1.61		$	1.82
Diluted	$	0.59		$	0.42		$	1.60		$	1.81

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

	Nine Months Ended September 30,
	2019			2018
Operating Activities
Net income	$	144		$	178
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		37			25
Amortization of deferred financing costs and other		7			4
Provision for financing receivables losses		60			50
Other loss, net		3			1
Share-based compensation		18			13
Deferred income tax benefit		(21	)		(21	)
Equity in earnings from unconsolidated affiliates		(4	)		—
Distributions received from unconsolidated affiliates		—			2
Net changes in assets and liabilities:
Accounts receivable, net		17			(39	)
Timeshare financing receivables, net		(79	)		(83	)
Inventory		(6	)		(15	)
Purchases and development of real estate for future conversion to inventory		(107	)		(299	)
Other assets		(22	)		(61	)
Accounts payable, accrued expenses and other		20			(15	)
Advanced deposits		11			13
Deferred revenues		70			42
Net cash provided by (used in) operating activities		148			(205	)
Investing Activities
Capital expenditures for property and equipment		(25	)		(29	)
Software capitalization costs		(19	)		(12	)
Return of investment from unconsolidated affiliates		—			11
Investments in unconsolidated affiliates		(2	)		(5	)
Net cash used in investing activities		(46	)		(35	)
Financing Activities
Issuance of debt		455			215
Issuance of non-recourse debt		365			663
Repayment of debt		(272	)		(168	)
Repayment of non-recourse debt		(327	)		(436	)
Debt issuance costs		(6	)		(6	)
Repurchase and retirement of common stock		(283	)		(112	)
Payment of withholding taxes on vesting of restricted stock units		(3	)		(4	)
Proceeds from employee stock plan purchases		2			—
Capital contribution		—			3
Other financing activity		(2	)		—
Net cash (used in) provided by financing activities		(71	)		155
Net increase (decrease) in cash, cash equivalents and restricted cash		31			(85	)
Cash, cash equivalents and restricted cash, beginning of period		180			297
Cash, cash equivalents and restricted cash, end of period	$	211		$	212

Supplemental disclosure of non-cash operating activities:
Cumulative effect of adoption of new accounting standard	$	—		$	38
Non-cash transfer from Other Assets to Inventory⁽¹⁾		2			—
Non-cash transfer from Inventory to Property and Equipment⁽²⁾		16			—
Non-cash transfer from Other Assets to Property and Equipment⁽²⁾		40			—
Supplemental disclosure of non-cash financing activities:
Issuance of other debt	$	23		$	—

⁽¹⁾	See Note 6: Inventory for more information.

⁽²⁾	See Note 7: Property and Equipment for more information.

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in millions)

						Additional			Accumulated
	Common Stock					Paid-in			Retained			Total
	Shares			Amount		Capital			Earnings			Equity
Balance as of December 31, 2018		94		$	1	$	174		$	441		$	616
Net income		—			—		—			55			55
Activity related to share-based compensation		—			—		1			—			1
Repurchase and retirement of common stock		(3	)		—		(5	)		(92	)		(97	)
Balance as of March 31, 2019		91			1		170			404			575
Net income		—			—		—			39			39
Activity related to share-based compensation		—			—		10			—			10
Repurchase and retirement of common stock		(5	)		—		(11	)		(163	)		(174	)
Balance as of June 30, 2019		86			1		169			280			450
Net income		—			—		—			50			50
Activity related to share-based compensation		—			—		6			—			6
Repurchase and retirement of common stock		(1	)		—		(1	)		(11	)		(12	)
Balance as of September 30, 2019		85		$	1	$	174		$	319		$	494