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 March 31, 2021

or

☐ 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 April 23, 2021 was 85,542,182.

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	41
Item 4.		Controls and Procedures	42
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		43
Item 1A.	Risk Factors		43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 3.	Defaults Upon Senior Securities		52
Item 4.	Mine Safety Disclosures		52
Item 5.	Other Information		52
Item 6.	Exhibits		53
	Signatures		55

1

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

	March 31,		December 31,
	2021		2020
	(unaudited)
ASSETS
Cash and cash equivalents	$	400	$	428
Restricted cash		105		98
Accounts receivable, net of allowance for doubtful accounts of $17 and $20		111		119
Timeshare financing receivables, net		940		974
Inventory		720		702
Property and equipment, net		501		501
Operating lease right-of-use assets, net		48		52
Investments in unconsolidated affiliates		53		51
Intangible assets, net		80		81
Land and infrastructure held for sale		41		41
Other assets		115		87
TOTAL ASSETS (variable interest entities - $733 and $800)	$	3,114	$	3,134
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and other	$	260	$	252
Advanced deposits		114		117
Debt, net		1,156		1,159
Non-recourse debt, net		698		766
Operating lease liabilities		63		67
Deferred revenues		336		262
Deferred income tax liabilities		118		137
Total liabilities (variable interest entities - $703 and $771)		2,745		2,760
Commitments and contingencies - see Note 19
Equity:
Preferred stock, $0.01 par value; 300,000,000 authorized shares, none    issued or outstanding as of March 31, 2021 and December 31, 2020		—		—
Common stock, $0.01 par value; 3,000,000,000 authorized shares,   85,537,477 shares issued and outstanding as of March 31, 2021 and   85,205,012 shares issued and outstanding as of December 31, 2020		1		1
Additional paid-in capital		194		192
Accumulated retained earnings		174		181
Total equity		369		374
TOTAL LIABILITIES AND EQUITY	$	3,114	$	3,134

See notes to unaudited condensed consolidated financial statements.

2

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in millions, except per share amounts)

	Three Months Ended March 31,
	2021			2020
Revenues
Sales of VOIs, net	$	33		$	56
Sales, marketing, brand and other fees		53			106
Financing		37			44
Resort and club management		45			44
Rental and ancillary services		32			52
Cost reimbursements		35			49
Total revenues		235			351
Expenses
Cost of VOI sales		3			14
Sales and marketing		82			157
Financing		13			13
Resort and club management		8			12
Rental and ancillary services		31			37
General and administrative		36			21
Depreciation and amortization		11			12
License fee expense		14			22
Impairment expense		1			—
Cost reimbursements		35			49
Total operating expenses		234			337
Interest expense		(15	)		(10	)
Equity in earnings from unconsolidated affiliates		2			3
Other (loss) gain, net		(1	)		2
(Loss) income before income taxes		(13	)		9
Income tax benefit (expense)		6			(1	)
Net (loss) income	$	(7	)	$	8
(Loss) earnings per share:
Basic	$	(0.08	)	$	0.09
Diluted	$	(0.08	)	$	0.09

See notes to unaudited condensed consolidated financial statements.

3

HILTON GRAND VACATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in millions)

	Three Months Ended March 31,
	2021			2020
Operating Activities
Net (loss) income	$	(7	)	$	8
Adjustments to reconcile net (loss) income to net cash provided by    operating activities:
Depreciation and amortization		11			12
Amortization of deferred financing costs, contract costs, and other		6			4
Provision for financing receivables losses		16			37
Impairment expense		1			—
Other loss (gain), net		1			(2	)
Share-based compensation		4			(2	)
Deferred income tax benefit		(21	)		(8	)
Equity in earnings from unconsolidated affiliates		(2	)		(3	)
Net changes in assets and liabilities:
Accounts receivable, net		8			16
Timeshare financing receivables, net		19			(3	)
Inventory		(14	)		(10	)
Purchases and development of real estate for future conversion to inventory		(6	)		(5	)
Other assets		(27	)		(42	)
Accounts payable, accrued expenses and other		2			(42	)
Advanced deposits		(3	)		2
Deferred revenues		74			91
Net cash provided by operating activities		62			53
Investing Activities
Capital expenditures for property and equipment		(1	)		(3	)
Software capitalization costs		(4	)		(5	)
Net cash used in investing activities		(5	)		(8	)
Financing Activities
Issuance of debt		—			495
Issuance of non-recourse debt		—			195
Repayment of debt		(2	)		(57	)
Repayment of non-recourse debt		(69	)		(58	)
Debt issuance costs		(3	)		—
Repurchase and retirement of common stock		—			(10	)
Payment of withholding taxes on vesting of restricted stock units		(5	)		(2	)
Proceeds from stock option exercises		2			—
Other financing activity		(1	)		(1	)
Net cash (used in) provided by financing activities		(78	)		562
Net (decrease) increase in cash, cash equivalents and restricted cash		(21	)		607
Cash, cash equivalents and restricted cash, beginning of period		526			152
Cash, cash equivalents and restricted cash, end of period	$	505		$	759

See notes to unaudited condensed consolidated financial statements.

4

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, 2020		84		$	1	$	192		$	181		$	374
Net loss		—			—		—			(7	)		(7	)
Activity related to share-based compensation		—			—		2			—			2
Balance as of March 31, 2021		84		$	1	$	194		$	174		$	369
						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

See notes to unaudited condensed consolidated financial statements.

5

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 and Hilton Club exchange program (collectively the “Club”). As of March 31, 2021, we had 62 properties, comprised of 499,616 VOIs, located in the United States (“U.S.”), Japan, the United Kingdom, Italy, Barbados and Mexico. A significant number of our properties and VOIs are concentrated in Florida, Hawaii, Nevada, New York, and South Carolina.

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 in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Although we believe the disclosures made are adequate to prevent information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed with the SEC on March 1, 2021.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Interim results are not necessarily indicative of full year performance.

Impact of the COVID-19 Pandemic

The novel coronavirus (“COVID-19”) pandemic that started in early 2020 significantly negatively impacted the hospitality, travel and leisure industries due to various mandates and orders to close non-essential businesses, impose travel restrictions, require “stay-at-home” and/or self-quarantine, and require similar actions. Such restrictions and directives have resulted in cancellations and significant reductions in travel around the world and caused various other negative global economic conditions. In response to these events, we closed substantially all of our resorts and sales centers during early 2020, but began a phased reopening of resorts and resumption of our business activities during the second quarter 2020 under new operating guidelines and with enhanced safety measures as mandates and orders for business closures, quarantine and travel restrictions began to ease. With the anticipated continuation of the pandemic receding, as well as COVID-19 vaccinations becoming more widespread, such mandates and orders have continued to ease, resulting in consumer confidence increasing to resume normal activities, including travel and leisure, and more businesses to continue to resume operations. Accordingly, the positive trends in leisure travel and stays at our properties have continued. For example, as of March 31, 2021, we have approximately 80 percent of our resorts and nearly all of our sales centers open and currently operating, although many are operating in markets with various capacity constraints, social distancing requirements and other safety measures, which are impacting consumer demand for resorts in those markets. We plan to continue to reopen our resorts and resume our normal business as conditions permit, but there can be no assurance that such positive trends will continue or that there will not be any increases of new infections or new variants that may impede or reverse recovery and such positive trends.

6

In response to the impact of COVID-19, we took a variety of actions in 2020 and to date in 2021 to ensure the continuity of our business and operations and to secure our liquidity position to provide financial flexibility. These actions include amending certain financial covenant ratios in the fourth quarter of 2020 through the third quarter of 2021, as may be needed due to the ongoing and uncertain future impact of the COVID-19 pandemic on our business and operations. We also furloughed team members beginning in the second quarter of 2020 and completed a workforce reduction plan in the fourth quarter of 2020 that impacted approximately 1,500 team members. As of March 31, 2021, 1,100 team members continue to be furloughed.  

Prior to re-opening our resorts and sales centers, we introduced the HGV Enhanced Care Guidelines, designed to provide owners, guests and team members with the highest level of cleaning protocols and safety standards recommended by the Center for Disease Control and Prevention and cleaning solutions approved by the Environmental Protection Agency in response to the COVID-19 pandemic.

While we hope that conditions in the hospitality and travel industries continue to reflect the improvement that we saw during the March travel season, the pandemic continues to be unprecedented and rapidly changing, and has unknown duration and severity. Further, various state and local government officials may issue new or revised orders that are different than current ones under which we are operating. Accordingly, there remains significant uncertainty as to the degree of continuing impact and duration of the conditions stemming from the ongoing pandemic on our revenues, net income and other operating results, as well as our business and operations generally.

Recently Issued Accounting Pronouncements

Adopted Accounting Standards

On January 1, 2021 we adopted Accounting Standards Update 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The adoption of ASU 2019-12 did not have a material impact on our condensed consolidated financial statements and related disclosures.

Note 3: Revenue from Contracts with Customers

Disaggregation of Revenue

The following tables show our disaggregated revenues by segment from contracts with customers. We operate our business in the following two segments: (i) Real estate sales and financing and (ii) Resort operations and club management. Please refer to Note 18: Business Segments below for more details related to our segments.

	Three Months Ended March 31,
($ in millions)		2021		2020
Real Estate and Financing Segment
Sales of VOIs, net	$	33	$	56
Sales, marketing, brand and other fees		53		106
Interest income		31		38
Other financing revenue		6		6
Real estate and financing segment revenues	$	123	$	206

	Three Months Ended March 31,
($ in millions)		2021		2020
Resort Operations and Club Management Segment
Club management	$	27	$	25
Resort management		18		19
Rental(1)		30		47
Ancillary services		2		5
Resort operations and club management segment revenues	$	77	$	96

⁽¹⁾ Excludes intersegment eliminations. See Note 18: Business Segments for additional information.

7

Contract Balances

The following table provides information on our accounts receivable from contracts with customers which are included in Accounts receivable, net on our condensed consolidated balance sheets:

	March 31,		December 31,
($ in millions)	2021		2020
Receivables	$	69	$	64

The following table presents the composition of our contract liabilities.

	March 31,		December 31,
($ in millions)	2021		2020
Contract liabilities:
Advanced deposits	$	114	$	117
Deferred sales of VOIs of projects under construction		201		169
Club activation fees, annual dues and other		120		77
Club Bonus Point incentive liability(1)		41		48

⁽¹⁾ Amounts related to the Club Bonus Point incentive liability are included in Accounts payable, accrued expenses and other on our condensed consolidated balance sheets. This liability is comprised of unrecognized revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements.

Revenue earned for the three months ended March 31, 2021 that was included in the contract liabilities balance at December 31, 2020 was approximately $35 million. 

Our accounts receivables that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations (“HOA”) management agreements and are settled when the related cash is received. Accounts receivable are recorded when the right to consideration becomes unconditional and is only contingent on the passage of time. Refer to Note 6: Timeshare Financing Receivables for information on balances and changes in balances during the period related to our timeshare financing receivables.

Contract liabilities include payments received or due in advance of satisfying our performance obligations. Such contract liabilities include advance deposits received on prepaid vacation packages for future stays at our resorts, deferred revenues related to sales of VOIs of projects under construction, club activation fees and annual dues and the liability for Club Bonus Points awarded to our customers for purchase of VOIs at our properties or properties under our fee-for-service arrangements that may be redeemed in the future.

Transaction Price Allocated to Remaining Performance Obligations

Transaction price allocated to remaining performance obligations represents contract revenue that has not yet been recognized. Our contracts with remaining performance obligations primarily include (i) sales of VOIs under construction, (ii) Club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) Club Bonus Points that may be redeemed in the future.

8

The following table represents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction as of March 31, 2021:

	March 31,		December 31,
($ in millions)	2021		2020
Sales of VOIs, net	$	201	$	169
Cost of VOI sales(1)		60		50
Sales and marketing expense		29		25

⁽¹⁾ Includes anticipated Cost of VOI sales related to inventory associated with Sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete.

We expect to recognize the revenue, costs of VOI sales and direct selling costs upon completion of the projects throughout the remainder of 2021.

The following table includes the remaining transaction price related to Advanced deposits, Club activation fees and Club Bonus Points as of March 31, 2021:

($ in millions)	Remaining Transaction Price		Recognition Period	Recognition Method
Advanced deposits	$	114	18 months	Upon customer stays
Club activation fees		62	7 years	Straight-line basis over average inventory holding period
Club Bonus Points		41	24 months	Upon redemption

Note 4: Restricted Cash

Restricted cash was as follows:

	March 31,		December 31,
($ in millions)	2021		2020
Escrow deposits on VOI sales	$	76	$	69
Reserves related to non-recourse debt(1)		29		29
	$	105	$	98

⁽¹⁾  See Note 11: Debt & Non-recourse Debt for further discussion.

Note 5: Accounts Receivable

The following table represents our accounts receivable, net of allowance for credit losses. Accounts receivable within the scope of ASC 326 are measured at amortized cost.

($ in millions)	March 31, 2021
Fee-for-service commissions(1)	$	22
Real estate and financing	12
Resort and club operations	27
Tax receivables	41
Other receivables(2)		9
Total	$	111

⁽¹⁾ Net of allowance.

⁽²⁾ Primarily includes individually insignificant accounts receivable recognized in the ordinary course of business, the allowances for which are also individually insignificant.

Our accounts receivable are all due within one year of origination. We use delinquency status and economic factors such as credit quality indicators to monitor our receivables within the scope of ASC 326 and use these as a basis for how we develop our expected loss estimates.

9

We sell VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees.  We use historical losses and economic factors as a basis to develop our allowance for credit losses. Under these fee-for-service arrangements, we earn commission fees based on a percentage of total interval sales.  Additionally, the terms of these arrangements include provisions requiring the reduction of fees earned for defaults and cancellations.

The changes in our allowance for fee-for-service commissions were as follows:

($ in millions)	March 31, 2021
Balance as of December 31, 2020	$	18
Current period provision for expected credit losses	1
Write-offs charged against the allowance		(5	)
Balance as of March 31, 2021	$	14

Note 6: Timeshare Financing Receivables

Timeshare financing receivables were as follows:

	March 31, 2021
($ in millions)	Securitized			Unsecuritized(1)			Total
Timeshare financing receivables	$	730		$	417		$	1,147
Less: allowance for financing receivables losses		(54	)		(153	)		(207	)
	$	676		$	264		$	940

	December 31, 2020
($ in millions)	Securitized			Unsecuritized(1)			Total
Timeshare financing receivables	$	805		$	380		$	1,185
Less: allowance for financing receivables losses		(63	)		(148	)		(211	)