SECOND QUARTER 2016 HIGHLIGHTS
- Consolidated revenue increased to $297 million, and excluding cost reimbursements increased to $233 million
- Net income was $183 million and Diluted EPS was $1.87, including a non-cash gain on purchase associated with the acquisition of Vistana Signature Experiences (“Vistana”)
- Adjusted net income, which excludes the gain, was $35 million and adjusted diluted EPS was $0.36
- Adjusted EBITDA was $62 million, 48% higher compared to 2015
- Net cash from operating activities was $53 million and free cash flow was $45 million
- ILG repurchased 4.2 million shares at an average price per share of $14.54 for approximately $61 million, and paid $16 million in dividends, returning a total of $77 million to shareholders in the quarter
- On May 11, 2016 we completed the acquisition of Vistana, Starwood Hotels and Resorts’ vacation ownership business. As consideration for the acquisition, ILG issued 72.4 million shares to Starwood shareholders and paid $123 million, subject to post-closing adjustments.
“Our results for the second quarter and the first half of the year were on-target with our expectations. Vistana, the newest member of the ILG family, made a significant contribution in the quarter,” said Craig M. Nash, chairman, president, and CEO of Interval Leisure Group. “With a diversified and balanced portfolio, and the exclusive global licenses to three upper upscale brands in vacation ownership, we are very optimistic about the opportunities that lie ahead for the new ILG.”
Financial Summary & Operating Metrics (USD in millions except per share amounts)
|Three Months Ended|
|METRICS||Year Over Year %|
|Exchange and Rental revenue||140||125||12%|
|Vacation Ownership revenue||157||49||220%|
|Revenue excluding cost reimbursements||233||137||70%|
|Net income attributable to common stockholders||183||17||NM|
|Adjusted net income*||35||17||106%|
|Adjusted diluted EPS*||$0.36||$0.29||24%|
|BALANCE SHEET DATA||June 30, 2016||December 31, 2015|
|Cash and cash equivalents||127||93|
|Six Months Ended|
|CASH FLOW DATA||2016||2015|
|Net cash provided by operating activities||53||86|
|Free cash flow*||45||79|
* “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.
Second Quarter 2016 Consolidated Operating Results
Consolidated revenue for the quarter ended June 30, 2016 was $297 million, an increase of 71% compared to the second quarter of 2015. Excluding cost reimbursements, consolidated revenue increased 70% to $233 million.
In connection with the Vistana acquisition, ILG recorded a $197 million gain on purchase. This amount is provisional and subject to change. This non-cash gain is not subject to tax and caused our effective tax rate to decrease to 16.4% for the quarter ended June 30, 2016.
Net income attributable to common stockholders for the three months ended June 30, 2016 was $183 million, and diluted earnings per share (EPS) was $1.87. Impacting these results are a $160 million tax-effected gain on the Vistana acquisition and a $10 million after-tax increase in acquisition-related expenses.
Adjusted net income (defined below) for the quarter was $35 million, compared to $17 million in 2015. Adjusted diluted EPS was $0.36, compared to $0.29 in the prior year. Using a full year forecasted normalized tax rate of 37.7% that excludes the effect of the gain on purchase, adjusted net income would be $23 million and adjusted diluted EPS would be $0.24. This forecasted tax rate is slightly higher than ILG’s standalone full year 2015 rate, reflecting the combined business.
Business Segment Results
Exchange and Rental
Exchange and Rental segment revenue for the three months ended June 30, 2016 was $140 million, an increase of 12% compared to 2015. Excluding cost reimbursements, segment revenue was $116 million, an increase of 15% compared to 2015. The increase is primarily related to the inclusion of Vistana subsequent to the May 11, 2016acquisition.
Excluding Vistana and cost reimbursements, revenues decreased by 2% compared to the prior year as a result of lower membership fee and rental management revenue in the quarter. Membership fee revenue declined by $1 millioncompared to 2015, as a result of the continued shift in the percentage mix of Interval International’s membership base from traditional to corporate members and related fee compression from corporate accounts. Membership mix as ofJune 30, 2016 included 57% traditional and 43% corporate members, compared to 58% and 42% in the prior year. Rental management revenue decreased by $2 million, driven by lower available room nights in our Aqua-Aston business, partly offset by higher occupancy and rates.
Total Interval Network active members at June 30, 2016 were 1.8 million, relatively consistent with 2015. Average revenue per member for the second quarter of 2016 was $46.76, an increase of 6% compared to 2015 due to the inclusion of Vistana Signature Network (“VSN”) and 7% membership and transaction revenue growth in the Hyatt Residence Club.
Exchange and Rental segment adjusted EBITDA was $43 million in the second quarter, an increase of 23% from the prior year due to the inclusion of the VSN. Excluding Vistana, segment adjusted EBITDA was in-line with 2015.
Vacation Ownership segment revenue for the three months ended June 30, 2016 increased $108 million to $157 million principally resulting from the Vistana acquisition.
Excluding Vistana and cost reimbursements, revenue increased $2 million, or 5%, driven by higher resort operations and management fee revenues, as well as an increase in Hyatt Vacation Ownership (“HVO”) consolidated VOI sales compared to 2015.
Vacation Ownership segment adjusted EBITDA increased $12 million to $19 million in the second quarter, due to the inclusion of Vistana. Excluding Vistana, adjusted EBITDA decreased $1 million. Impacting these results are investments in the sales and marketing infrastructure at HVO consolidated properties and lower equity in earnings from its Maui joint venture reflecting a tough comparison from the second quarter of 2015.
CAPITAL RESOURCES AND LIQUIDITY
As of June 30, 2016, ILG’s cash and cash equivalents totaled $127 million, compared to $93 million as of December 31, 2015. Unsecuritized receivables were $570 million at period end.
The principal amount outstanding of long term corporate debt as of June 30, 2016 was $635 million consisting of our$350 million 5 5/8% Senior Notes and $285 million drawn under our revolving credit facility.
For the six months ended June 30, 2016, net cash provided by operating activities was $53 million compared to $86 million in 2015. The $33 million decrease was principally associated with $41 million of inventory spend at Vistana, higher income taxes paid of $13 million, a $10 million prepayment to Hyatt triggered by the Vistana acquisition, $9 million of higher interest paid (net of capitalized amounts), and the timing of certain cash disbursements. These cash outflows were partly offset by higher net cash receipts largely attributable to the inclusion of Vistana.
Net cash used in investment activities was $111 million principally associated with $77 million used in the Vistana acquisition (net of cash acquired) and $25 million of capital expenditures, related to IT initiatives as well as investments in sales galleries and other resort operation assets.
The definition of free cash flow was modified to reflect certain changes in our business model resulting from the Vistana acquisition, primarily related to securitization cash flows. It is now consistent with what we referred to as “Adjusted free cash flow” in the previously provided guidance. Free cash flow (defined below) for the six months ended June 30, 2016 was $45 million compared to $79 million in 2015. The decrease is principally attributable to lower cash from operating activities and higher capital expenditures compared to 2015 described above.
During the first half of 2016, ILG paid $23 million, or $0.24 cents per share in dividends.
In August 2016, our Board of Directors declared a $0.12 per share dividend payable September 21, 2016 to shareholders of record on September 7, 2016.
BUSINESS OUTLOOK AND GUIDANCE
Previous guidance assumed consolidation of Vistana as of May 1, 2016. ILG is updating its 2016 guidance to include Vistana’s results after the closing on May 11th and to revise the estimated impact of purchase accounting on revenue, as well as to reflect the current outlook for the business. The guidance assumes a $350 million securitization of mortgages receivable in the second half of 2016. However, there can be no assurance that we will be able to complete a securitization in this timeframe, for the targeted amount, or at all.
The 2016 Outlook schedule reconciles the non-GAAP financial measures in our 2016 full year guidance to the following expected GAAP results:
|Net cash provided by operating activities||$14||$29|
2016 Full year guidance
|Free cash flow||$155||$185|
* Includes an estimated $275 million of cost reimbursements
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.
Investors and analysts may participate in the live conference call by dialing (844) 832-7221 (toll-free domestic) or (973) 638-3062 (international); Conference ID: 53414922. 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: 53414922. 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) (NASDAQ: IILG) is a leading provider of professionally delivered vacation experiences and the exclusive global licensee for the Hyatt®, Westin®, and Sheraton® brands in vacation ownership. The company offers its owners, members, and guests access to an array of benefits and services, as well as world-class destinations through its international portfolio of resorts and clubs. ILG’s operating businesses include Aqua-Aston Hospitality, Hyatt Vacation Ownership, Interval International, Trading Places International, Vacation Resorts International, VRI Europe, and Vistana Signature Experiences. 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. In addition, ILG’s Vistana Signature Experiences, Inc. owns and manages the Westin Vacation Club and the Sheraton Vacation Club and uses related trademarks under license from Starwood Hotels & Resorts Worldwide, Inc. Headquartered in Miami, Florida, ILG has offices in 15 countries and approximately 10,000 employees. For more information, visit www.iilg.com.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this release, including statements regarding our future financial performance, our business prospects and strategy, anticipated financial position, liquidity, capital needs and other similar matters constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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) 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, (2) adverse changes to, or interruptions in, relationships with third parties, (3) lack of available financing for, or insolvency or consolidation of developers, (4) decreased demand from prospective purchasers of vacation interests, (5) travel related health concerns, (6) regulatory changes, (7) our ability to compete effectively and successfully and to add new products and services, (8) our ability to successfully manage and integrate acquisitions, including Vistana, (9) the occurrence of a termination event under the master license agreement with Starwood or Hyatt, (10) our ability to market VOIs successfully and efficiently, (11) impairment of ILG’s assets, (12) the restrictive covenants in our revolving credit facility and indenture; (13) business interruptions in connection with technology systems, (14) the ability of managed homeowners associations to collect sufficient maintenance fees, (15) third parties not repaying advances or extensions of credit, (16) fluctuations in currency exchange rates, (17) actions of Starwood or any successor of Starwood that affect the reputation of the licensed marks, the offerings of or access to Starwood’s brands and programs, and (18) our 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 expressly disclaims 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.
Source: Interval Leisure Group