Hilton Grand Vacations Inc. · NYSE:HGV
Hilton Grand Vacations — Investor Presentation (January 2019)
36 slides from Hilton Grand Vacations's investor presentation, Jan 16, 2019
Slide 1: Investor Presentation January 15, 2019
0 Exhibit 99.1 INVESTOR PRESENTATION JANUARY 15, 20190 Exhibit 99.1 INVESTOR PRESENTATION JANUARY 15, 2019
Slide 2: Disclaimer
1 DISCLAIMER Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the federal securities laws (including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) and the Private Securi
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 LT O N W A I K O LO A V I LLA G E © 2018 Hilton Grand Vacations Inc. Proprietary3 NET OWNER GROWTH (NOG) DRIVEN STRATEGY H I LT O N W A I K O LO A V I LLA G E © 2018 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 – 71% MARGIN § Profits from existing loans and future owner upgrades § 65% 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 $100M) 600 3,500 3,300 Finance 1,000 900 -400 Club and 1,100 1,000 Resort Real 1,400 1,400 Estate 2017 Embedded value Embedded value NOG Embedde
Slide 8: Upgrades Have Accelerated
7 UPGRADES HAVE ACCELERATED – OWNERS ARE UPGRADING FASTER AND MORE OFTEN % of owners with additional purchase 30% of our new owners 50% make an additional purchase in 3 years 40% 30% 20% 10% 0% 5 10 15 20 25 Years of ownership 1 Existing owners are upgrading 5x quicker than the 90s Year first 2012 -
Slide 9: Our NOG Strategy Has Driven Industry Leading EBITDA Growth
8 OUR NOG STRATEGY HAS DRIVEN INDUSTRY LEADING EBITDA GROWTH Adjusted EBITDA ($M) NOG Revenue ASC 605, Percent of completion (POC) CAGR CAGR ('07-'17) ('07-'17) 500 CAGR 437 9% 10% +11% 400 395 390 360 338 300 299 1% -2% 260 2016 – 2017 flat due to 200 G&A buildout 213 1% 2% 100 0 1 4% 0% 2011 2012
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 The Hilton brand is a timeshare with HGV? with HGV? significant influencer 1. I was offered a tour package 1. I liked th
Slide 11: Highest VPG in the Industry Despite Half of Sales From New Customers
10 DESPITE HALF OUR SALES COMING FROM NEW CUSTOMERS, WE STILL HAVE THE HIGHEST VPG IN THE INDUSTRY 2017 Volume Per Guest $3,657 49% OF SALES TO NEW CUSTOMERS APPROX. $3,565 $4,200 34% OF SALES TO NEW CUSTOMERS $2,479 50% 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 200 75% 150 U.S. OWNERS 7% NOG 100 2011 2012 2013 2014 2015 2016 2017 © 2018 Hilton Grand Vacations Inc. Proprietary Owners (000s)11 OUR OWNER BASE IS
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 55 92% 2 AVG. OWNER AGE 2 HOMEOWNERS ~JP¥13M ~60K 3 AVERAGE INCOME OWNERS ($117K USD) 18% 64% OF NEW OWNERS COLLEGE 2 2 ARE MILLENNIALS EDUCATED 16 ~$150K 743 69% 3 LEISURE DAYS AVERAGE INCOME FICO COLLEGE EDUCATED 3 PER
Slide 14: We've Only Scratched the Surface
13 AND WE’VE ONLY SCRATCHED THE SURFACE TIMESHARE IS A FAST GROWING LEISURE CATEGORY WITH HIGH CONSUMER SATISFACTION nd § Timeshare is 2 fastest growing segment of the leisure industry 1 behind cruiselines § 50% timeshare industry sales APPROX. APPROX. APPROX. 0.5% 1 ~49M growth since 2010 128M 107M
Slide 15: Resiliency and Strength Through Multiple Cycles
14 RESILIENCY AND STRENGTH THROUGH MULTIPLE CYCLES O CE A N T O W E R B Y HI L T O N G RA ND V A CA T I O N S , W A I K O L O A , H AW AI I © 2018 Hilton Grand Vacations Inc. Proprietary14 RESILIENCY AND STRENGTH THROUGH MULTIPLE CYCLES O CE A N T O W E R B Y HI L T O N G RA ND V A CA T I O N S , W
Slide 16: Tours Have Grown Consistently and Conversion Rates Stable
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 © 2018 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 1 Sold packages Hilton Honors members Owners who have not Default rate upgraded 340K 71M 177K 5.7% 4.1% 4.1% 106K 122K 23M 2017 2008 2017 2008 2017 2008 2017 2008 2 In addition, 2017 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 between timeshare and hotels… from the traditional hotel model • Top timeshare companies are • Ve
Slide 21: Capital Efficient Inventory Strategy
20 CAPITAL EFFICIENT INVENTORY STRATEGY © 2018 Hilton Grand Vacations Inc. Proprietary20 CAPITAL EFFICIENT INVENTORY STRATEGY © 2018 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 sheet beginning of project Just-in-time Inventory reacquisition As
Slide 23: Our Three Deal Structures 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 ($M) ROIC (%) 600 40 35 500 30 25 400 20 300 15 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 20
Slide 25: Inventory Spending Commitments in Proven and Strategic Markets
24 OUR INVENTORY SPENDING COMMITMENTS ARE IN PROVEN SEQUEL MARKETS OR STRATEGICALLY IMPORTANT NEW MARKETS Inventory spending ($ millions) Capital committed to strategic projects opening within 4 guidance years • Japan (Odawara – Bay Forest) 2018 520 • Hawaii (Ocean Tower) 2018 • New York (Quin) 2018
Slide 26: Current Project Pipeline
25 CURRENT PROJECT PIPELINE Inventory spend '18-'23 Project Sales start date Hawaii (Ocean Tower) $110 - $130M In Sales Japan (Odawara – Bay Forest) $4-5M In Sales Barbados (The Crane) $40 - $60M In Sales Myrtle Beach (Ocean Enclave) None (FFS deal) In Sales Hilton Head (Ocean Oak) None (FFS deal) I
Slide 27: Dynamic Capital Allocation Strategy Supported by Strong Financial Performance
26 DYNAMIC CAPITAL ALLOCATION STRATEGY SUPPORTED BY STRONG FINANCIAL PERFORMANCE H I L T O N H AW A I I A N VI L L AG E, O AH U , H AW AI I © 2018 Hilton Grand Vacations Inc. Proprietary26 DYNAMIC CAPITAL ALLOCATION STRATEGY SUPPORTED BY STRONG FINANCIAL PERFORMANCE H I L T O N H AW A I I A N VI L L
Slide 28: Dynamic Approach to Allocating Capital and Maximizing Returns
27 WE WILL TAKE A DYNAMIC APPROACH TO ALLOCATING CAPITAL AND MAXIMIZING RETURNS INVEST IN INVENTORY / PRODUCT FOR PROFITABLE GROWTH Average of $375 - $425M in investments per year over the next 3 years SHARE REPURCHASES STRATEGIC M&A AND DIVIDENDS Active pipeline management of Authorization to repur
Slide 29: Strong Fundamental Business Drivers
28 STRONG FUNDAMENTAL BUSINESS DRIVERS Tours (‘000) Members (‘000) +7% +8% +8% +8% Contract Sales ($M) Default Rate +12% +12% Note: CAGR shown for multi-year periods; y-o-y % growth shown for YTD comparisons. © 2018 Hilton Grand Vacations Inc. Proprietary 1. Domestic defaults as % of beginning balan
Slide 30: Healthy Revenue and Margin Growth
29 TRANSLATE INTO HEALTHY REVENUE AND MARGIN GROWTH Total Revenue ($M) Real Estate Margin ($M) Financing Margin ($M) +10% +6% +6% +9% +8% +6% Resort & Club Margin ($M) Rental & Ancillary Margin ($M) Adjusted EBITDA ($M) +38% +11% +5% +11% +7% +9% All figures POC Note: CAGR shown for multi-year perio
Slide 31: Nearly 70% of Adjusted EBITDA From Recurring or Predictable Sources
30 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 32: 2018 and 2019 Guidance
31 2018 AND 2019 GUIDANCE Guidance Metrics 2018 2019 Net income $288M - $298M $260M - $275M Earnings per share - diluted $2.94 - $3.04 $2.68 - $2.84 Adjusted EBITDA – GAAP (606) $494M - $504M $450M - $470M Adjusted EBITDA – 605 view $427M - $437M N/A Net cash provided by (used in) operating activiti
Slide 33: Long-Term Targets
32 LONG-TERM TARGETS 2022/2023 Metrics 2021 2018-2021 CAGR (average) CONTRACT $ 1.9-2.0B + 9-12% --- SALES ADJUSTED $ + 9-12% 560-590M $675-750M EBITDA ADJUSTED $ $ 250-300M N/A 425-500M FCF $ EPS 3.40-3.50 + 11-13% --- Note: No anticipated impact from deferrals. Information presented is not intende
Slide 34: Appendix
33 APPENDIX H I L T O N H AW AI I A N V I L L A G E, O A H U , H AW AI I © 2018 Hilton Grand Vacations Inc. Proprietary33 APPENDIX H I L T O N H AW AI I A N V I L L A G E, O A H U , H AW AI I © 2018 Hilton Grand Vacations Inc. Proprietary
Slide 35: Outlook Adjusted EBITDA and FCF Reconciliation
34 OUTLOOK ADJUSTED EBITDA AND FCF RECONCILIATION 2018E 2019E Low Case High Case Low Case High Case Net income 288 298 260 275 Income tax expense 106 108 97 103 Interest expense 31 29 30 27 Depreciation and amortization 34 32 42 39 Interest expense and depreciation and amortization from unconsolidat
Slide 36: Historical Adjusted EBITDA and FCF Reconciliation
35 HISTORICAL ADJUSTED EBITDA AND FCF RECONCILIATION For the year ending 12/31 1 1 1 1 1 1 1 (in millions) 2011 2012 2013 2014 2015 2016 2017 Total revenues $1,007 $1,172 $1,224 $1,317 $1,475 $1,583 $1,711 Net income 73 118 128 167 174 168 327 Interest expense 53 45 48 36 29 29 27 Income tax expense
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