hgv-10q_20200930.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, 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 October 23, 2020 was 85,106,483.

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	26
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.		Controls and Procedures	46

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		47
Item 1A.	Risk Factors		47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 3.	Defaults Upon Senior Securities		50
Item 4.	Mine Safety Disclosures		50
Item 5.	Other Information		50
Item 6.	Exhibits		51
	Signatures		53

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,
	2020		2019
	(unaudited)
ASSETS
Cash and cash equivalents	$	625	$	67
Restricted cash		92		85
Accounts receivable, net of allowance for credit losses of $18 and $21		109		174
Timeshare financing receivables, net		1,012		1,156
Inventory		933		558
Property and equipment, net		488		778
Operating lease right-of-use assets, net		55		60
Investments in unconsolidated affiliates		49		44
Intangible assets, net		80		77
Other assets		101		80
TOTAL ASSETS (variable interest entities - $866 and $748)	$	3,544	$	3,079
LIABILITIES AND EQUITY
Liabilities:
Accounts payable, accrued expenses and other	$	264	$	298
Advanced deposits		119		115
Debt, net		1,262		828
Non-recourse debt, net		837		747
Operating lease liabilities		70		76
Deferred revenues		261		186
Deferred income tax liabilities		209		259
Total liabilities (variable interest entities - $842 and $750)		3,022		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 September 30, 2020 and December 31, 2019		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares, 85,086,548 shares issued and outstanding as of September 30, 2020 and 85,535,501 shares issued and outstanding as of December 31, 2019		1		1
Additional paid-in capital		186		179
Accumulated retained earnings		335		390
Total equity		522		570
TOTAL LIABILITIES AND EQUITY	$	3,544	$	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 September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues
Sales of VOIs, net	$	24		$	138		$	80		$	383
Sales, marketing, brand and other fees		52			143			171			429
Financing		40			43			127			127
Resort and club management		39			45			122			130
Rental and ancillary services		20			54			77			173
Cost reimbursements		33			43			105			128
Total revenues		208			466			682			1,370
Expenses
Cost of VOI sales		8			24			21			92
Sales and marketing		79			188			297			544
Financing		13			14			39			39
Resort and club management		9			11			27			34
Rental and ancillary services		24			36			85			108
General and administrative		22			30			65			87
Depreciation and amortization		11			12			34			32
License fee expense		11			26			39			75
Cost reimbursements		33			43			105			128
Total operating expenses		210			384			712			1,139
Interest expense		(10	)		(12	)		(32	)		(33	)
Equity in (losses) earnings from unconsolidated affiliates		(1	)		1			3			4
Other gain (loss), net		1			(1	)		—			(3	)
(Loss) Income before income taxes		(12	)		70			(59	)		199
Income tax benefit (expense)		5			(20	)		12			(55	)
Net (loss) income	$	(7	)	$	50		$	(47	)	$	144
(Loss) Earnings per share:
Basic	$	(0.08	)	$	0.59		$	(0.55	)	$	1.61
Diluted	$	(0.08	)	$	0.59		$	(0.55	)	$	1.60

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,
	2020			2019
Operating Activities
Net (loss) income	$	(47	)	$	144
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		34			32
Amortization of deferred financing costs, contract costs, and other		13			12
Provision for financing receivables losses		57			60
Other loss, net		—			3
Share-based compensation		10			18
Deferred income tax benefit		(50	)		(21	)
Equity in earnings from unconsolidated affiliates		(3	)		(4	)
Net changes in assets and liabilities:
Accounts receivable, net		65			17
Timeshare financing receivables, net		87			(79	)
Inventory		(59	)		(6	)
Purchases and development of real estate for future conversion to inventory		(27	)		(107	)
Other assets		(25	)		(24	)
Accounts payable, accrued expenses and other		(48	)		20
Advanced deposits		4			11
Deferred revenues		75			70
Net cash provided by operating activities		86			146
Investing Activities
Capital expenditures for property and equipment		(6	)		(25	)
Software capitalization costs		(16	)		(17	)
Investments in unconsolidated affiliates		(2	)		(2	)
Net cash used in investing activities		(24	)		(44	)
Financing Activities
Issuance of debt		495			455
Issuance of non-recourse debt		495			365
Repayment of debt		(62	)		(272	)
Repayment of non-recourse debt		(403	)		(327	)
Debt issuance costs		(8	)		(6	)
Repurchase and retirement of common stock		(10	)		(283	)
Payment of withholding taxes on vesting of restricted stock units		(3	)		(3	)
Proceeds from employee stock plan purchases		1			2
Other financing activity		(2	)		(2	)
Net cash provided by (used in) financing activities		503			(71	)
Net increase in cash, cash equivalents and restricted cash		565			31
Cash, cash equivalents and restricted cash, beginning of period		152			180
Cash, cash equivalents and restricted cash, end of period	$	717		$	211

Supplemental disclosure of non-cash operating activities:
Non-cash transfers from Property and Equipment to Inventory⁽²⁾	$	301		$	—
Non-cash transfers from Other Assets to Inventory⁽¹⁾					2
Non-cash transfers from Inventory to Property and Equipment⁽²⁾					16
Non-cash transfers from Other Assets to Property and Equipment⁽²⁾					40
Supplemental disclosure of non-cash financing activities:
Issuance of other debt	$	—		$	23

⁽¹⁾	See Note 7: Inventory for more information.

⁽²⁾	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
Net loss		—			—		—			(7	)		(7	)
Activity related to share-based compensation		—			—		6			—			6
Balance as of September 30, 2020		84			1	$	186		$	335		$	522


						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	)