Hilton Grand Vacations Inc. · NYSE:HGV
Hilton Grand Vacations — Investor Presentation (May 2019)
35 slides from Hilton Grand Vacations's investor presentation, May 9, 2019
Slide 1: Investor Presentation May 2019
0 Exhibit 99.1 INVESTOR PRESENTATION M AY 2 0 1 90 Exhibit 99.1 INVESTOR PRESENTATION M AY 2 0 1 9
Slide 2: Cautionary Note Regarding Forward-Looking Statements
1 Cautionary Note Regarding Forward-Looking Statements DISCLAIMER This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements convey ma
Slide 3: Who We Are
2 WHO WE ARE 1 2 3 4 We have a winning Resilient and We manage for Our dynamic net owner growth proven business strong returns capital allocation driven demand model throughout through our unique strategy to strategy in a great economic cycles capital efficient maximize returns is industry that isn’
Slide 4: Net Owner Growth (NOG) Driven Strategy
3 NET OWNER GROWTH (NOG) DRIVEN STRATEGY H I L T O N W A I K O L O A V I L L A G E © 2019 Hilton Grand Vacations Inc. Proprietary3 NET OWNER GROWTH (NOG) DRIVEN STRATEGY H I L T O N W A I K O L O A V I L L A G E © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 5: NOG Is a Simple Yet Powerful Driver of Our Strategy
4 NOG IS A SIMPLE YET POWERFUL DRIVER OF OUR STRATEGY TO CREATE LONG-TERM SHAREHOLDER VALUE ADD RETAIN Net new existing Owner owners owners GROWTH Deliver exceptional NOG is the y-o-y % Create vacation experiences change in members demand Each new owner is a NOG increases the total We realize substa
Slide 6: Our NOG Strategy Embeds Substantial Value in Our Owner Base
5 OUR NOG STRATEGY EMBEDS SUBSTANTIAL VALUE IN OUR OWNER BASE FROM THREE HIGHLY PREDICTABLE AND/OR CONTRACTUAL SOURCES 1 FINANCING – 69% MARGIN § Profits from existing loans and future owner upgrades § 66% of buyers finance their purchases § Typically 10-year fixed-rate secured loans with average co
Slide 7: We Monetize Embedded Value in the Near Term, Then Embed More
6 WE MONETIZE EMBEDDED VALUE IN THE NEAR TERM, THEN EMBED EVEN MORE FUTURE VALUE BY ADDING NEW OWNERS Embedded value of owner base ($M) (Rounded to nearest $100M) 700 3,800 3,600 Finance 1,100 1,000 (500) Club and 1,200 1,100 Resort Real 1,500 1,500 Estate 2018 Embedded value Embedded value NOG Embe
Slide 8: Upgrades Have Accelerated
7 UPGRADES HAVE ACCELERATED – OWNERS ARE UPGRADING FASTER AND MORE OFTEN % of owners with additional purchase Over 30% of our new owners make an 50% additional purchase in 3 years 40% 30% 20% 10% 0% 5 10 15 20 25 Years of ownership 1 Existing owners are upgrading 5x quicker than the 90s Year first 2
Slide 9: Our NOG Strategy Has Driven Industry Leading EBITDA Growth
8 OUR NOG STRATEGY HAS DRIVEN INDUSTRY LEADING EBITDA GROWTH Adjusted EBITDA ($M) NOG Revenue ASC 605 CAGR CAGR ('08-'18) ('08-'18) 500 CAGR 435 8% 7% +11% 400 395 390 360 338 300 2 2 299 5% 4% 260 2016 – 2017 flat due to 200 G&A buildout 213 1% -1% 100 0 1 3% 2% 2011 2012 2013 2014 2015 2016 2017 2
Slide 10: Hilton Is the World's Most Valuable Hotel Brand
9 1 HILTON IS THE WORLD’S MOST VALUABLE HOTEL BRAND AND WE LEVERAGE KEY MARKETING BENEFITS FROM OUR RELATIONSHIP Why did you consider purchasing a Why did you purchase a timeshare T h e H i l t o n b r a n d i s a timeshare with HGV? with HGV? s i g n i f i c a n t i n f l u e n c e r 1. I was offer
Slide 11: Despite Half Our Sales Coming from New Customers, Highest VPG
10 DESPITE HALF OUR SALES COMING FROM NEW CUSTOMERS, WE STILL HAVE THE HIGHEST VPG IN THE INDUSTRY 2018 Volume Per Guest $3,743 48% OF SALES TO NEW CUSTOMERS APPROX. $3,666 $4,300 35% OF SALES TO NEW CUSTOMERS $2,642 48% OF SALES TO NEW Effective VPG if we sold CUSTOMERS 35% of sales to new customer
Slide 12: Our Owner Base Is Globally Diverse and Growing
11 OUR OWNER BASE IS GLOBALLY DIVERSE AND GROWING 350 5% OTHER INT’L OWNERS 300 (PRIMARILY WESTERN EUROPE AND CANADA) 250 20% JAPANESE OWNERS 8% NOG CAGR 200 75% 150 U.S. OWNERS 8% NOG CAGR 100 2012 2013 2014 2015 2016 2017 2018 © 2019 Hilton Grand Vacations Inc. Proprietary Owners (000s)11 OUR OWNE
Slide 13: Strong US Owner Base and Unique Strength in Japan
12 STRONG US OWNER BASE AND UNIQUE STRENGTH IN JAPAN 20% 75% JAPAN U.S. OWNERS 56 92% 2 AVG. OWNER AGE 2 HOMEOWNERS ~JP¥13M 61K+ 4 AVERAGE INCOME OWNERS ($117K USD) 22% 64% OF NEW OWNERS COLLEGE 2 2 ARE MILLENNIALS EDUCATED 16 ~$150K 749 69% 3 5 LEISURE DAYS AVERAGE INCOME FICO 4 COLLEGE EDUCATED 4
Slide 14: And We've Only Scratched the Surface
13 AND WE’VE ONLY SCRATCHED THE SURFACE APPROX. ~49M APPROX. APPROX. 0.5% 49M $75K+ 128M 107M $75K+ penetration in Household households in from age Household targeted US income 1 America 25-74 income APPROX. market 225K HGV owners in the US Source: 2017 US census data 1. Assumes one HGV owner per ho
Slide 15: Resiliency and Strength Through Multiple Cycles
14 RESILIENCY AND STRENGTH THROUGH MULTIPLE CYCLES O C E A N T O W E R B Y H I L T O N G R A N D V A C A T I O N S , W A I K O L O A , H A W A I I © 2019 Hilton Grand Vacations Inc. Proprietary14 RESILIENCY AND STRENGTH THROUGH MULTIPLE CYCLES O C E A N T O W E R B Y H I L T O N G R A N D V A C A T
Slide 16: Tours Have Grown and Conversion Rates Remained in a Tight Range
15 TOURS HAVE GROWN CONSISTENTLY AND CONVERSION RATES HAVE REMAINED IN A TIGHT RANGE EVEN IN RECESSIONARY TIMES Tours (K) Conversion rate (%) 400 15 300 10 200 5 100 0 0 2001 Great Tours Conversion rate recession recession Source: HGV internal data © 2019 Hilton Grand Vacations Inc. Proprietary 2000
Slide 17: Last Major Inventory Investment Period Was 2007-2008
16 OUR LAST MAJOR INVENTORY INVESTMENT PERIOD WAS 2007-2008 WHEN WE INVESTED $810 MILLION IN FOUR PROJECTS WE OPENED FOUR PROPERTIES DURING THE GREAT RECESSION Annual inventory spend ($M) 600 GRAND WAIKIKIAN (opened 2008) Honolulu, Hawaii § 80% Sold by 2012 400 TH WEST 57 ST. (opened 2009) New York,
Slide 18: We've More Than Doubled Our Sales and Market Share Since 2007
17 WE’VE MORE THAN DOUBLED OUR SALES AND MARKET SHARE SINCE 2007 5% 13% Net sales through recession HGV market share (2007-2017) Trailing 12-month sales, relative to 2007 HGV has captured more than 20% of the entire growth of the timeshare industry since 2009 250% HGV 200% 150% Market yet to fully r
Slide 19: Better Positioned for a Potential Slowdown Than in 2008
18 TODAY WE ARE EVEN BETTER POSITIONED FOR A POTENTIAL SLOWDOWN THAN WE WERE IN 2008 4.1% 1 Sold packages Hilton Honors members Owners who have not Default rate upgraded 372K 85M 185K 5.7% 4.7% 106K 122K 23M 2018 2008 2018 2008 2018 2008 2018 2008 2 In addition, 2018 owner base is % of gross sales g
Slide 20: Timeshare Business Model Is Different from Traditional Hotels
19 WHILE THERE ARE SOME SIMILARITIES, THE TIMESHARE BUSINESS MODEL IS FUNDAMENTALLY DIFFERENT FROM TRADITIONAL HOTELS There are some high level similarities …but many key fundamentals are very different from between timeshare and hotels… the traditional hotel model • Top timeshare companies are • Ve
Slide 21: Capital Efficient Inventory Strategy
20 CAPITAL EFFICIENT INVENTORY STRATEGY © 2019 Hilton Grand Vacations Inc. Proprietary20 CAPITAL EFFICIENT INVENTORY STRATEGY © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 22: Diversified, Capital-Efficient Inventory Sourcing Strategy
21 DIVERSIFIED, CAPITAL-EFFICIENT INVENTORY SOURCING STRATEGY Traditional Capital efficient development deals development deals Fee for service Development deals Asset always sits on partner's balance Asset sits on balance sheet from beginning sheet of project Just-in-time Inventory reacquisition As
Slide 23: Our Three Deal Structures Each Offer Attractive Returns
22 OUR THREE DEAL STRUCTURES EACH OFFER ATTRACTIVE RETURNS BUT SCALE AND TIMING OF RETURNS AND CASH FLOWS WILL VARY Cumulative Adj. EBITDA ($M) Cumulative Cash Flow ($M) Cash generated ($M) & ROIC (%) $80 $60 $70 $40 $57 M $60 $50 M $20 $50 $40 $0 $30 1 Cash invested in project : $26 M Developed: ~$
Slide 24: Optimizing Mix of Owned and Capital Efficient Deals
23 BY OPTIMIZING MIX OF OWNED AND CAPITAL EFFICIENT DEALS WE CAN MAXIMIZE ADJUSTED EBITDA GROWTH AND STILL DRIVE ROIC Note: based on actual committed pipeline and feasibility projects Adjusted EBITDA ($M) ROIC (%) 600 40 35 500 30 25 400 20 300 15 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 20
Slide 25: Inventory Spending Commitments in Proven or Strategic Markets
24 OUR INVENTORY SPENDING COMMITMENTS ARE IN PROVEN SEQUEL MARKETS OR STRATEGICALLY IMPORTANT NEW MARKETS Inventory spending ($ millions) Capital committed to strategic projects 1 guidance opening within 4 years Project Sales Start Opening Japan (Bay Forest - Odawara) In Sales Opened 497 Hawaii (Oce
Slide 26: Dynamic Capital Allocation Strategy
25 DYNAMIC CAPITAL ALLOCATION STRATEGY SUPPORTED BY STRONG FINANCIAL PERFORMANCE H I L T O N H A W A I I A N V I L L A G E , O A H U , H A W A I I © 2019 Hilton Grand Vacations Inc. Proprietary25 DYNAMIC CAPITAL ALLOCATION STRATEGY SUPPORTED BY STRONG FINANCIAL PERFORMANCE H I L T O N H A W A I I A
Slide 27: Dynamic Approach to Allocating Capital and Maximizing Returns
26 WE WILL TAKE A DYNAMIC APPROACH TO ALLOCATING CAPITAL AND MAXIMIZING RETURNS INVEST IN INVENTORY / PRODUCT FOR PROFITABLE GROWTH Average of $375 - $425M in investments per year over the next 3 years SHARE REPURCHASES STRATEGIC M&A AND DIVIDENDS Authorization to repurchase Maintain flexibility sho
Slide 28: Strong Fundamental Business Drivers
27 STRONG FUNDAMENTAL BUSINESS DRIVERS Tours (‘000) Members (‘000) +8% +8% Contract Sales ($M) Default Rate +12% Note: CAGR shown for multi-year periods; y-o-y % growth shown for YTD comparisons. © 2019 Hilton Grand Vacations Inc. Proprietary 1. Domestic defaults as % of beginning balance; 2. % of G
Slide 29: Translate into Healthy Revenue and Margin Growth
28 TRANSLATE INTO HEALTHY REVENUE AND MARGIN GROWTH Total Revenue ($M) Financing Margin ($M) Real Estate Margin ($M) +10% +8% +6% Resort & Club Margin ($M) Rental & Ancillary Margin ($M) Adjusted EBITDA ($M) +11% +16% +7% All figures ASC 605 Note: CAGR shown for multi-year periods; y-o-y % growth sh
Slide 30: Nearly 70% of Adjusted EBITDA from Recurring Sources
29 1,2 NEARLY 70% OF OUR ADJUSTED EBITDA COMES FROM RECURRING SOURCES OR HIGHLY PREDICTABLE OWNER UPGRADES Segment adjusted EBITDA Segment adjusted EBITDA ($M) Real estate EBITDA from 10% -15% new owners 1,000 Rental & ancillary EBITDA 15% - 20% Real estate and transaction EBITDA from existing 32% -
Slide 31: 2019 Guidance
30 2019 GUIDANCE Guidance Metrics 2019 Net income $240M - $255M Earnings per share - diluted $2.61 - $2.77 Adjusted EBITDA $445M - $465M Net cash flow provided by operating activities $85M - $125M Adjusted free cash flow $60M - $120M Contract sales growth 5% - 8% FFS as % of contract sales 48% - 54%
Slide 32: Appendix
31 APPENDIX H I L T O N H A W A I I A N V I L L A G E , O A H U , H A W A I I © 2019 Hilton Grand Vacations Inc. Proprietary31 APPENDIX H I L T O N H A W A I I A N V I L L A G E , O A H U , H A W A I I © 2019 Hilton Grand Vacations Inc. Proprietary
Slide 33: Outlook Adjusted EBITDA and FCF Reconciliation
32 OUTLOOK ADJUSTED EBITDA AND FCF RECONCILIATION 2019E Low Case High Case ($ millions) Net income $240 $255 Income tax expense 89 95 Interest expense 40 37 Depreciation and amortization 45 42 Interest expense and depreciation and amortization from unconsolidated affiliates 1 2 EBITDA $415 $431 Shar
Slide 34: Historical Adjusted EBITDA and FCF Reconciliation
33 HISTORICAL ADJUSTED EBITDA AND FCF RECONCILIATION For the year ending 12/31 1 1 1 1 1 1 1 1 (in millions) 2011 2012 2013 2014 2015 2016 2017 2018 Total revenues $1,007 $1,172 $1,224 $1,317 $1,475 $1,583 $1,711 $1,904 Net income 73 118 128 167 174 168 327 247 Interest expense 53 45 48 36 29 29 27
Slide 35: Hilton Grand Vacations
HILTON GRAND VACATIONS.
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