“We are pleased with the results for the third quarter which, as expected, reflect a significant contribution from Vistana following the acquisition in May. Our branded vacation ownership sales and marketing platform delivered an increase of 14% in consolidated timeshare contract sales over their combined sales last year, and the successful execution of a $375 million securitization provides ample liquidity to support planned growth initiatives,” said Craig M. Nash, chairman, president, and CEO of ILG. “We recently launched our new corporate identity and are making progress on the Vistana integration as we continue to execute on our strategy, and build a solid foundation to drive long term shareholder value.”
THIRD QUARTER 2016 HIGHLIGHTS
- Consolidated revenue increased $244 million year over year to $418 million in the third quarter of 2016. Excluding cost reimbursements, consolidated revenue was $330 million, $194 million more than the prior year
- Net income was $32 million and diluted EPS was $0.25 in the quarter, compared to net income of $19 million and diluted EPS of $0.33 in 2015
- Adjusted net income was $49 million and adjusted diluted EPS was $0.39 in the third quarter, compared to adjusted net income of $19 million and adjusted diluted EPS of $0.32 in the prior year period
- Adjusted EBITDA was $80 million, an increase of $34 million over 2015
- Net cash from operating activities in the nine months ended September 30, 2016 was $74 million, compared to $135 million in the same period in 2015
- Free cash flow was $345 million, $222 million greater than the prior year
- In September, we issued $375 million of asset-backed notes in a term securitization transaction
- ILG repurchased 2.2 million shares for approximately $39 million, and paid $15 million in dividends, returning a total of $54 million to shareholders in the quarter
“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.
Third Quarter 2016 Consolidated Operating Results
Consolidated revenue for the quarter ended September 30, 2016 was $418 million, compared to $174 million in the third quarter of 2015 primarily due to the inclusion of Vistana following the May acquisition. Excluding cost reimbursements, consolidated revenue increased by $194 million to $330 million in the period, also due to the transaction. The results reflect a $7 million negative impact from purchase accounting on consolidated revenue.
In connection with the Vistana acquisition, ILG recorded a non-taxable gain on purchase in the second quarter of 2016 which resulted in an estimated effective tax rate for the year of 19%, at that time. The amount of the gain is provisional and subject to change during the measurement period. In the third quarter the gain was decreased by $9 million as a result of refinements to the purchase price allocation for Vistana. The estimated annual effective tax rate was decreased from 19% to 16%, in the third quarter, primarily due to a change in the projected proportion of income earned and taxed in various jurisdictions and the projected utilization of certain income tax credits that were previously not expected to be realized. This resulted in a $2 million income tax benefit in the third quarter of 2016, compared to an $11 million income tax provision in 2015.
Net income attributable to common stockholders for the three months ended September 30, 2016 was $32 million, an increase of 68% or $13 million, compared to 2015. Impacting these results are the inclusion of Vistana and the tax benefit, partly offset by $17 million of unfavorable items such as the decrease in gain on purchase, foreign currency remeasurements, the impact of purchase accounting, acquisition-related charges and restructuring costs. Diluted earnings per share (EPS) was $0.25 in the quarter, which also reflects the additional shares issued for the Vistana acquisition.
Adjusted net income for the quarter was $49 million, compared to $19 million in 2015, reflecting the inclusion of Vistana. Adjusted diluted EPS was $0.39, compared to $0.32 in the prior year. The results were affected by the lower estimated effective tax rate for the year due to the non-taxable gain on purchase. Using a normalized forecasted effective tax rate of 35%, net income and adjusted net income would be lower by $8 million and $18 million, respectively, and diluted EPS and adjusted diluted EPS would be reduced by $0.06 and $0.15, respectively.
Adjusted EBITDA in the quarter increased by $34 million, or 74%, to $80 million, reflecting the inclusion of Vistana.
Business Segment Results
Exchange and Rental
Exchange and Rental segment revenue for the three months ended September 30, 2016 was $151 million, an increase of 21% compared to 2015. Excluding cost reimbursements, segment revenue was $126 million, an increase of 25% compared to 2015. The increase is related to the inclusion of Vistana Signature Network (“VSN”) subsequent to the acquisition. The addition of this proprietary club drove the $22 million increase in club rental revenues and contributed to membership and transaction revenues.
Total Interval Network active members at September 30, 2016 were 1.8 million, consistent with 2015. Average revenue per member for the third quarter of 2016 was $46.35, an increase of 6% compared to 2015 due to the inclusion of VSN as well as membership and transaction revenue growth in the Hyatt Residence Club.
Excluding VSN and cost reimbursements, revenues decreased by 3% compared to the prior year 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.
Exchange and Rental segment adjusted EBITDA was $47 million in the third quarter, an increase of 24% from the prior year due to the inclusion of VSN. Excluding VSN, segment adjusted EBITDA was relatively in-line with 2015.
Vacation Ownership segment revenue for the three months ended September 30, 2016 increased $218 million to $267 million principally resulting from the Vistana acquisition. Excluding cost reimbursements, Vacation Ownership segment revenue was higher by $169 million, to $204 million in the quarter, also reflecting the transaction. This reflects an increase of $89 million in sales of vacation ownership interests and a $48 million increase in resort operation revenues, which primarily include rentals at our vacation ownership resorts and owned hotels. Higher consumer financing and management fee revenue were also important contributors.
Excluding Vistana and cost reimbursements, revenue increased $3 million, or 10%, driven by higher resort operations revenues, as well as an increase in Hyatt Vacation Ownership (“HVO”) consolidated VOI sales compared to 2015.
Vacation Ownership segment adjusted EBITDA increased $25 million to $33 million in the third quarter, due to the inclusion of Vistana. Excluding Vistana, adjusted EBITDA decreased $1 million, in part reflecting investments in the sales and marketing infrastructure at HVO consolidated properties.
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 2016, ILG’s cash and cash equivalents totaled $158 million, compared to $93 million as of December 31, 2015.
The principal amount outstanding of long term corporate debt as of September 30, 2016 was $425 million consisting of our $350 million 5 5/8% Senior Notes and $75 million drawn under our revolving credit facility.
For the nine months ended September 30, 2016, net cash provided by operating activities was $74 million compared to $135 million in 2015. The $61 million decrease was principally associated with $103 million of inventory spend at Vistana since the acquisition, higher income taxes paid of $41 million, $10 million of higher interest paid (net of capitalized amounts), a $10 million royalty pre-payment to Hyatt triggered by the acquisition 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 $128 million primarily related to $77 million (net of cash acquired) associated with the Vistana acquisition and $42 million in capital expenditures related to IT initiatives as well as investments in sales galleries and other resort operation assets.
On September 20, 2016, Vistana completed a term securitization transaction involving the issuance of $375 million of asset-backed notes. The notes were backed by vacation ownership loans and had an overall weighted average coupon of 2.56%. Of the $375 million in proceeds, $19 million is being held in escrow until the associated special purpose subsidiary purchases all or a portion of the remaining loans or, if not used for that purpose, returned to investors. Approximately $33 million was used to repay the outstanding balance on Vistana’s 2010 securitization and the remainder was used to pay transaction expenses, fund required reserves, pay down a portion of the borrowings outstanding under our revolving credit facility and for general corporate purposes.
Free cash flow (defined below) for the nine months ended September 30, 2016 was $345 million compared to $123 million in 2015. The increase is principally attributable to net borrowings and repayments on securitizations, partly offset by lower cash from operating activities and higher capital expenditures compared to 2015 as described above, as well as a $26 million increase in financing-related restricted cash.
Dividends and Stock Repurchases
In November 2016, our Board of Directors declared a $0.12 per share dividend payable December 20, 2016 to shareholders of record on December 6, 2016.
In the nine months ended September 30, 2016 ILG repurchased 6.4 million shares for $100 million at an average share price of $15.53 and paid $0.36 cents per share for a total of $37 million in dividends, returning $137 million to shareholders. Today ILG announced the Board of Directors authorized the repurchase of up to $50 million of ILG common stock.
BUSINESS OUTLOOK AND GUIDANCE
The 2016 Outlook schedule reconciles the non-GAAP financial measures in our full year 2016 guidance to the following expected GAAP results:
|Net income attributable to common stockholders||$280||$297|
|Net cash provided by operating activities||$19||$34|
2016 Full year guidance
|Free cash flow||$175||$200||$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: 2908653. 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: 2908653. The webcast will be archived on ILG’s website for 90 days after the call. A transcript of the call will also be available on the website.
ILG (Nasdaq: ILG) is a leading provider of professionally delivered vacation experiences and the exclusive global licensee for the Hyatt®, Sheraton®, and Westin® 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 Sheraton Vacation Club and the Westin Vacation Club and uses related trademarks under license from Starwood Hotels & Resorts Worldwide, LLC. 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.
PRESS RELEASE SOURCE: ILG