FIRST QUARTER 2016 HIGHLIGHTS
- Consolidated revenue increased to $185.9 million, and excluding pass-through revenue increased to $147.6 million.
- Adjusted EBITDA was $54.8 million, 3% higher compared to 2015
- Diluted EPS was $0.38 and Adjusted diluted EPS was $0.41
- Free cash flow was $33.5 million
- On April 20, 2016 ILG stockholders voted to approve the share issuance in connection with the acquisition of Vistana Signature Experiences, Starwood Hotels and Resorts vacation ownership business.
“ILG began the year slightly ahead of 2015 and in-line with our expectations. Our results reflect increased transaction volume and fees in the exchange business and higher sales at the HVO consolidated properties, as well as investments in the sales and marketing infrastructure at HVO,” said Craig M. Nash, chairman, president, and CEO of Interval Leisure Group. “For the remainder of 2016, we will continue to execute on our organic initiatives, as well as the integration of Vistana into our portfolio upon closing. With a strong balance sheet, enhanced long term growth, and robust free cash flow profile, the new ILG will be uniquely positioned to capitalize on emerging trends in the industry and create significant shareholder value.”
Financial Summary & Operating Metrics (USD in millions except per share amounts)
|Three Months Ended
|Exchange and Rental revenue||133.9||135.6||(1.2)%|
|Vacation Ownership revenue||52.0||48.9||6.3%|
|Revenue excluding pass-throughs||147.6||146.6||0.7%|
|Net income attributable to common stockholders||22.2||25.3||(12.2)%|
|Adjusted net income*||23.7||25.0||(5.1)%|
|Adjusted diluted EPS*||$0.41||$0.43||(4.7)%|
|BALANCE SHEET DATA||
|Cash and cash equivalents||96.9||93.1|
|Three Months Ended
|CASH FLOW DATA||2016||2015||
|Net cash provided by operating activities||40.1||64.7||(38.0)%|
|Free cash flow*||33.5||59.9||(44.0)%|
* “Adjusted net income”, “Adjusted EPS”, “Adjusted EBITDA” and “Free cash flow” are non-GAAP measures as defined by the U.S. Securities and Exchange Commission (the “SEC”). Please see “Presentation of Financial Information,” “Glossary of Terms” and “Reconciliations of Non-GAAP Measures” below for an explanation of non-GAAP measures used throughout this release.
First Quarter 2016 Consolidated Operating Results
Consolidated revenue for the quarter ended March 31, 2016 was $185.9 million, an increase of 0.7% compared to the first quarter of 2015.
Net income attributable to common stockholders for the three months ended March 31, 2016 was $22.2 million, lower by$3.1 million compared to 2015. Diluted earnings per share (EPS) was $0.38 compared to $0.44 in 2015. Impacting these results are $1.7 million of incremental after-tax interest expense due to the higher interest rate on the senior notes compared to the revolver, and an after-tax increase of $1.7 million associated with acquisition-related expenses. Also affecting the comparison is $0.9 million related to the estimated accrual for a European Union value added tax matter which positively impacted results in the first quarter of 2015.
Adjusted net income (defined below) for the quarter ended March 31, 2016 was $23.7 million. The incremental after-tax interest expense related to the refinancing of the revolver with the senior notes impacted diluted EPS by $0.03. Excluding this incremental expense, adjusted net income attributable to common shareholders would have been $25.4 million and adjusted diluted EPS would have been $0.43.
Business Segment Results
Exchange and Rental
Exchange and Rental segment revenue for the three months ended March 31, 2016 was $133.9 million, slightly lower than 2015 primarily due to lower rental management revenue and a decline in membership fee revenue, partly offset by higher transaction revenue in the quarter.
For the first quarter of 2016, transaction revenue (defined below) was $57.8 million, 2.6% higher than in the same period in 2015 driven by higher revenue from exchanges and getaways from a combination of increased volume and higher average transaction fee. Membership fee revenue was $30.6 million, a decrease of 5.1% partly attributable to the continued shift in the percentage mix of our membership base from traditional to corporate members and related fee compression from corporate accounts. Membership mix as of March 31, 2016 included 57% traditional and 43% corporate members, compared to 58% and 42% in the prior year.
Total active members at March 31, 2016 increased slightly compared to 2015 primarily driven by the bulk enrollment from a multi-site club. Average revenue per member for the first quarter of 2016 was $49.36, slightly lower than the comparable period in 2015.
During the quarter, the Interval Network affiliated 21 vacation ownership resorts in domestic and international markets.
Year-over-year, rental management revenue decreased by $1.7 million to $12.5 million driven primarily by lower available room nights, partly offset by increases in ADR. The decrease in available room nights and the ADR and RevPar increases are partly attributable to the exit of certain lower ADR mainland properties from the system.
Exchange and Rental segment adjusted EBITDA was $47.5 million in the first quarter, an increase of nearly 4% from the prior year driven by higher operating income in the period largely as a result of sales and marketing cost savings and lower employee related costs.
Vacation Ownership segment revenue for the three months ended March 31, 2016 was $52.0 million, including $24.7 millionof management fee revenue (defined below). The increase over the prior year of $3.1 million, or 6.3%, in segment revenue primarily reflects an increase of $3.2 million in vacation ownership sales and financing revenue resulting from higher sales of vacation ownership intervals at the HVO consolidated properties. This increase was partly offset by a 1.4% decrease in management fee revenue reflecting the negative currency impact in consolidating our VRI Europe business. In constant currency, management fee revenue would have been essentially flat compared to 2015.
Vacation Ownership segment adjusted EBITDA was $7.2 million in the first quarter, a decrease of 1.1% compared to 2015. Impacting these results are investments in the sales and marketing infrastructure at the consolidated properties and lower equity in earnings from unconsolidated entities reflecting the grand opening of the Hyatt Ka’anapali Beach, and corresponding higher level of sales, in the first quarter of 2015.
CAPITAL RESOURCES AND LIQUIDITY
As of March 31, 2016, ILG’s cash and cash equivalents totaled $96.9 million, compared to $93.1 million as of December 31, 2015.
The principal amount outstanding of long term debt as of March 31, 2016 was $412 million consisting of our $350 million 5 5/8% Senior Notes and $62 million drawn under our revolving credit facility.
For the first quarter of 2016, net cash provided by operating activities was $40.1 million from $64.7 million in 2015. The decrease of $24.6 million was principally due to the timing of certain cash receipts, most of which were collected after quarter-end, as well as the timing of certain cash disbursements. Capital expenditures, primarily related to IT, totaled $6.6 million, or 3.5% of revenue. Free cash flow (defined below) was $33.5 million.
During the first quarter 2016, ILG paid $7 million, or $0.12 cents per share in dividends.
In May 2016, our Board of Directors declared a $0.12 per share dividend payable June 21, 2016 to shareholders of record on June 7, 2016.
On October 28, 2015, ILG announced it had entered into an agreement to acquire Vistana Signature Experiences, Inc.(“Vistana”), the vacation ownership business of Starwood Hotels and Resorts Worldwide, Inc. (“Starwood”). The acquisition will be effected through a “Reverse Morris Trust” transaction pursuant to which Vistana, a wholly-owned subsidiary of Starwood, will be distributed to Starwood shareholders and immediately thereafter merge with a wholly-owned subsidiary of ILG, with Vistana surviving as a wholly-owned subsidiary of ILG. The combination will result in Starwood shareholders owning at closing approximately 55% of the combined company on a fully diluted basis, with existing shareholders of ILG owning approximately 45% of the combined company on a fully diluted basis, based on a fixed exchange ratio.
On April 29, 2016 ILG and Starwood announced a brief delay in the planned closing while both companies work to avoid unnecessary tax withholding under the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). Today we announced that ILG and Starwood have concluded that no withholding of tax under FIRPTA is required with respect to ILG common stock received by any person in ILG’s upcoming acquisition of Vistana. In addition, the parties are working with the Internal Revenue Service to confirm that any gain realized by a non-U.S. holder that is treated for tax purposes as owning 5% or less of the stock of Starwood and Vistana between and including the record date and the closing date will not be subject to FIRPTA tax on the disposition of Vistana stock in the transaction. Shareholders should consult their tax advisors as to the particular tax consequences to them of the transactions.
The transaction, which has received all necessary regulatory and shareholder approvals, is now expected to close by the end of this week, subject to satisfaction or waiver of customary closing conditions.
BUSINESS OUTLOOK AND GUIDANCE
While the closing date of the Vistana acquisition is expected by the end of this week, we are reaffirming our fiscal year 2016 guidance for ILG plus a full eight months of Vistana. This guidance assumes a $350 million securitization of mortgages receivable in the second half of 2016 and reflects the estimated impact of purchase accounting on revenue.
ILG plus 8 months of
|Adjusted free cash flow||$155||$185|
* Includes an estimated $300 million of pass-throughs
PRESENTATION OF FINANCIAL INFORMATION
ILG management believes that the presentation of non-generally accepted accounting principles (non-GAAP) financial measures, including, among others, EBITDA, adjusted EBITDA, adjusted net income, adjusted basic and diluted EPS, free cash flow and constant currency, serves to enhance the understanding of ILG’s performance. These non-GAAP financial measures should be considered in addition to and not as substitutes for, or superior to, measures of financial performance prepared in accordance with generally accepted accounting principles (GAAP). In addition, adjusted EBITDA (with certain different adjustments) is used to calculate compliance with certain financial covenants in ILG’s credit agreement and indenture. Management believes that these non-GAAP measures improve the transparency of our disclosures, provide meaningful presentations of our results from our business operations excluding the impact of certain items not related to our core business operations and improve the period to period comparability of results from business operations. These measures may also be useful in comparing our results to those of other companies; however, our calculations may differ from the calculations of these measures used by other companies. More information about the non-GAAP financial measures, including reconciliations of historical GAAP results to the non-GAAP measures, is available in the financial tables that accompany this press release.
ILG will host a conference call today at 4:30 p.m. Eastern Daylight Time to discuss its results for the first quarter 2016, with access via the Internet and telephone. Investors and analysts may participate in the live conference call by dialing (844) 826-0618 (toll-free domestic) or (973) 638-3062 (international); Conference ID: 95946234. Please register at least 10 minutes before the conference call begins. A replay of the call will be available for 7 days via telephone starting approximately two hours after the call ends. The replay can be accessed at (855) 859-2056 (toll-free domestic) or (404) 537-3406 (international); Conference ID: 95946234. The webcast will be archived on Interval Leisure Group’s website for 90 days after the call. A transcript of the call will also be available on the website.
ABOUT INTERVAL LEISURE GROUP
Interval Leisure Group (ILG) is a leading global provider of non-traditional lodging, encompassing a portfolio of leisure businesses from vacation exchange and rental to vacation ownership. In its exchange and rental segment, Interval International and Trading Places International (TPI) offer vacation exchange and travel-related products to more than 2 million member families worldwide, while Hyatt Residence Club provides exchanges among its branded resorts in addition to its participation in the Interval Network. Aston Hotels & Resorts and Aqua Hospitality provide hotel and condominium rentals and resort management. In its vacation ownership segment, Vacation Resorts International, VRI Europe, Hyatt Vacation Ownership (HVO), and TPI provide management services to timeshare resorts and clubs, as well as homeowners’ associations. HVO also sells, markets, and finances vacation ownership interests. Through its subsidiaries, ILG independently owns and manages the Hyatt Residence Club program and uses the Hyatt Vacation Ownership name and other Hyatt marks under license from affiliates of Hyatt Hotels Corporation. Headquartered in Miami, Florida, ILG has offices in 16 countries and more than 5,000 employees. For more information, visit www.iilg.com.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this communication, including statements regarding our future financial performance, our business prospects and strategy, anticipated financial position, liquidity, capital needs and other similar matters, as well as financial estimates and statements as to the expected timing, completion and effects of the proposed merger between a wholly-owned subsidiary of Interval Leisure Group, Inc. (“ILG”) and Vistana Signature Experiences, Inc. (“Vistana”), which will immediately follow the proposed spin-off of Vistana from Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These estimates and statements are subject to risks and uncertainties, and actual results might differ materially. Such estimates and statements include, but are not limited to, statements about the benefits of the proposed merger, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of ILG and are subject to significant risks and uncertainties outside of ILG’s control.
Among the risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements are the following: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (2) risks that any of the closing conditions to the proposed merger, including Starwood’s spin-off of Vistana, may not be satisfied in a timely manner, (3) risks related to disruption of management time from ongoing business operations due to the proposed merger, (4) failure to realize the benefits expected from the proposed merger, (5) the effect of the announcement of the proposed merger on the ability of ILG and Starwood to retain and hire key personnel and maintain relationships with their key business partners, and on their operating results and businesses generally, (6) adverse trends in economic conditions generally or in the vacation ownership, vacation rental and travel industries, or adverse events or trends in key vacation destinations, (7) adverse changes to, or interruptions in, relationships with third parties unrelated to the announcement, (8) lack of available financing for, or insolvency or consolidation of developers, (9) decreased demand from prospective purchasers of vacation interests, (10) travel related health concerns, (11) ILG’s ability to compete effectively and successfully and to add new products and services, (12) ILG’s ability to successfully manage and integrate acquisitions, (13) the occurrence of a termination event under the master license agreement with Hyatt, (14) ILG’s ability to market vacation ownership interests successfully and efficiently, (15) impairment of ILG’s assets, (16) the restrictive covenants in ILG’s revolving credit facility and indenture; (17) business interruptions in connection with ILG’s technology systems, (18) the ability of managed homeowners associations to collect sufficient maintenance fees, (19) third parties not repaying advances or extensions of credit, (20) fluctuations in currency exchange rates and (21) ILG’s ability to expand successfully in international markets and manage risks specific to international operations. Discussions of additional risks and uncertainties are contained in ILG’s filings with the U.S. Securities and Exchange Commission. ILG is not under any obligation, and each expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise. Persons reading this announcement are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.
PRESS RELEASE SOURCE: Interval Leisure Group