hgv-10q_20200630.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 June 30, 2020

☐	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 July 24, 2020 was 85,077,503.

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	25
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.		Controls and Procedures	43

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		44
Item 1A.	Risk Factors		44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 3.	Defaults Upon Senior Securities		47
Item 4.	Mine Safety Disclosures		47
Item 5.	Other Information		47
Item 6.	Exhibits		48
	Signatures		50

PART I FINANCIAL INFORMATION

Item 1.

Financial Statements

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	June 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
Cash and cash equivalents	$	733	$	67
Restricted cash		90		85
Accounts receivable, net of allowance for credit losses of $17 and $21		74		174
Timeshare financing receivables, net		1,053		1,156
Inventory		907		558
Property and equipment, net		484		778
Operating lease right-of-use assets, net		58		60
Investments in unconsolidated affiliates		48		44
Intangible assets, net		79		77
Other assets		109		80
TOTAL ASSETS (variable interest entities - $942 and $748)	$	3,635	$	3,079
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	237	$	298
Advanced deposits		116		115
Debt, net		1,263		828
Non-recourse debt, net		926		747
Operating lease liabilities		74		76
Deferred revenues		268		186
Deferred income tax liabilities		228		259
Total liabilities (variable interest entities - $931 and $750)		3,112		2,509
Commitments and contingencies - see Note 19
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of June 30, 2020 and December 31, 2019		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,077,503 shares issued and outstanding as of June 30, 2020 and 85,535,501 shares issued and outstanding as of December 31, 2019		1		1
Additional paid-in capital		180		179
Accumulated retained earnings		342		390
Total equity		523		570
TOTAL LIABILITIES AND EQUITY	$	3,635	$	3,079

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 June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues
Sales of VOIs, net	$	—		$	120		$	56		$	245
Sales, marketing, brand and other fees		13			145			119			286
Financing		43			43			87			84
Resort and club management		39			43			83			85
Rental and ancillary services		5			60			57			119
Cost reimbursements		23			43			72			85
Total revenues		123			454			474			904
Expenses
Cost of VOI sales		(1	)		32			13			68
Sales and marketing		61			186			218			356
Financing		13			12			26			25
Resort and club management		6			12			18			23
Rental and ancillary services		24			37			61			72
General and administrative		22			30			43			57
Depreciation and amortization		11			12			23			20
License fee expense		6			26			28			49
Cost reimbursements		23			43			72			85
Total operating expenses		165			390			502			755
Interest expense		(12	)		(11	)		(22	)		(21	)
Equity in earnings from unconsolidated affiliates		1			2			4			3
Other loss, net		(3	)		(1	)		(1	)		(2	)
Income (Loss) before income taxes		(56	)		54			(47	)		129
Income tax benefit (expense)		8			(15	)		7			(35	)
Net income (loss)	$	(48	)	$	39		$	(40	)	$	94
Earnings (Loss) per share:
Basic	$	(0.56	)	$	0.43		$	(0.47	)	$	1.02
Diluted	$	(0.56	)	$	0.43		$	(0.47	)	$	1.01

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

	Six Months Ended June 30,
	2020			2019
Operating Activities
Net income (loss)	$	(40	)	$	94
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		23			20
Amortization of deferred financing costs, contract costs, and other		9			8
Provision for financing receivables losses		45			38
Other loss, net		1			2
Share-based compensation		4			12
Deferred income tax benefit		(31	)		(9	)
Equity in earnings from unconsolidated affiliates		(4	)		(3	)
Net changes in assets and liabilities:
Accounts receivable, net		100			(3	)
Timeshare financing receivables, net		58			(42	)
Inventory		(36	)		(11	)
Purchases and development of real estate for future conversion to inventory		(19	)		(80	)
Other assets		(33	)		(27	)
Accounts payable, accrued expenses and other		(72	)		(3	)
Advanced deposits		1			7
Deferred revenues		82			68
Net cash provided by operating activities		88			71
Investing Activities
Capital expenditures for property and equipment		(4	)		(17	)
Software capitalization costs		(11	)		(10	)
Investments in unconsolidated affiliates		—			(2	)
Net cash used in investing activities		(15	)		(29	)
Financing Activities
Issuance of debt		495			410
Issuance of non-recourse debt		495			15
Repayment of debt		(60	)		(105	)
Repayment of non-recourse debt		(313	)		(79	)
Debt issuance costs		(6	)		(2	)
Repurchase and retirement of common stock		(10	)		(271	)
Payment of withholding taxes on vesting of restricted stock units		(2	)		(3	)
Proceeds from employee stock plan purchases		—			2
Other financing activity		(1	)		(2	)
Net cash provided by (used in) financing activities		598			(35	)
Net increase in cash, cash equivalents and restricted cash		671			7
Cash, cash equivalents and restricted cash, beginning of period		152			180
Cash, cash equivalents and restricted cash, end of period	$	823		$	187

Supplemental disclosure of non-cash operating activities:
Non-cash transfers from Inventory to Property and Equipment⁽¹⁾	$	301		$	—
Supplemental disclosure of non-cash financing activities:
Issuance of other debt	$	—		$	23

⁽¹⁾	See Note 8: 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, 2019		85		$	1	$	179		$	390		$	570
Net income		—			—		—			8			8
Activity related to share-based compensation		—			—		(5	)		—			(5	)
Repurchase and retirement of common stock		(1	)		—		(2	)		(8	)		(10	)
Balance as of March 31, 2020		84			1		172			390			563
Net loss		—			—		—			(48	)		(48	)
Activity related to share-based compensation		—			—		8			—			8
Balance as of June 30, 2020		84			1	$	180		$	342		$	523


						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

See notes to unaudited condensed consolidated financial statements.

HILTON GRAND VACATIONS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Organization

Our Business

Hilton Grand Vacations Inc. (“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) is a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand. Our operations primarily consist of: selling vacation ownership intervals (“VOIs”) for us and third parties; financing and servicing loans provided to consumers for their timeshare purchases; operating resorts; and managing our points-based Hilton Grand Vacations Club exchange program (collectively the “Club”). As of June 30, 2020, we had 60 properties, comprised of 9,595 units, located in the United States (“U.S.”), Japan, the United Kingdom, Italy and Barbados. A significant number of our properties and units are concentrated in Florida, Hawaii, Nevada, New York, and South Carolina, with particular concentration of our units in Florida, Hawaii and New York.

Note 2: Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows as well as all entities in which we have a controlling financial interest. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions and balances have been eliminated in consolidation.

The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been omitted