Total Revenue up 18.1%Increases Cash
by $39.8 MillionAnnounces Debt Refinancing with Material
Cash Interest SavingsRaises 2014 Financial Guidance
Diamond Resorts International, Inc. (NYSE:DRII) (“Diamond” or
the “Company”), today announced results for the first quarter ended
March 31, 2014.
David F. Palmer, President and Chief Executive Officer, stated,
“Our business performed exceptionally well during the first
quarter. Our cost-plus hospitality and management services
business is delivering a recurring and growing income stream. We
are pulling the right levers in our Vacation Ownership Interests
sales and financing business to drive continued growth, highlighted
by the increases in the number of transactions and higher average
sales price per transaction we saw during the quarter. We are
taking advantage of the current attractive credit markets to
refinance our senior secured notes and certain inventory loans
relating to our ILX, Tempus and PMR acquisitions. We expect to
close on a new $445 million seven-year term loan and $25 million
revolving credit facility and redeem our senior secured notes in
the next week. This transaction, which will have an interest rate
of LIBOR plus 450 basis points with a 1% LIBOR floor, will result
in a material cash interest savings during the remainder of 2014
with the full-year impact starting in 2015. This transaction will
generate annual cash interest savings of approximately $22 million
when LIBOR is at or below 1%. In light of this transaction and our
strong results for the first quarter, we are raising our full year
2014 financial guidance.”
Highlights
- Total revenue increased $27.7 million,
or 18.1%, to $181.2 million for the first quarter of 2014 from
$153.5 million for the first quarter of 2013.
- Hospitality and Management Services
revenue grew by $5.4 million, or 12.4%, for the first quarter of
2014 compared to the first quarter of 2013. This growth was driven
mainly by increased management fees as a result of the inclusion of
the managed properties from the Island One and PMR Service
Companies acquisitions (completed in July 2013) and increased
revenues from club operations.
- Vacation Interest Sales, net grew by
$14.2 million, or 15.5%, for the first quarter of 2014 compared to
the first quarter of 2013. This growth was driven by a:
- 4.6% increase in tours to 46,552 from
44,499
- 6.3% increase in transactions to 6,556
from 6,169 (reflecting closing percentages of 14.1% for 2014 and
13.9% for 2013)
- 17.7% increase in average transaction
price to $18,321 from $15,565
- Advertising, sales and marketing for
the first quarter of 2014 included a non-cash charge of $0.9
million related to stock-based compensation. Excluding this charge,
advertising, sales and marketing as a percentage of Vacation
Interest sales revenue decreased 0.2 percentage points to 51.0% in
the first quarter of 2014, from 51.2% in Q1 2013. Including this
non-cash charge, advertising, sales and marketing as a percentage
of Vacation Interest sales revenue was, 51.8%.
- Pre-tax income for the first quarter of
2014 included non-cash charges of $4.7 million related to
stock-based compensation. Excluding these charges, pre-tax income
in 2014 would have been $30.8 million, an increase of $28.1 million
from pre-tax income of $2.7 million in the first quarter of 2013.
Including these items, pre-tax income in 2014 was $26.1
million.
- Net cash provided by operating
activities in the first quarter of 2014 was $33.7 million and was
the result of net income of $14.0 million and non-cash revenues and
expenses totaling $39.1 million, partially offset by other changes
in operating assets and liabilities that resulted in a net credit
of $19.5 million. Net cash provided by operating activities in the
first quarter of 2013 was $10.3 million and was the result of net
income of $2.3 million and non-cash revenues and expenses totaling
$13.9 million, partially offset by other changes in operating
assets and liabilities that resulted in a net credit of $5.9
million.
- Adjusted EBITDA for the Company and its
Restricted Subsidiaries increased $19.5 million, or 40.9%, to $67.1
million for the first quarter of 2014 from $47.6 million for the
first quarter of 2013. Adjusted EBITDA for the Company on a
consolidated basis increased $18.1 million, or 37.0%, to $66.9
million for the first quarter of 2014 from $48.8 million for the
first quarter of 2013.
Hospitality and Management Services
Total management and member services revenue in our Hospitality
and Management Services segment increased $6.6 million, or 21.0%,
to $38.2 million for the first quarter of 2014 from $31.6 million
for the first quarter of 2013. Management fees increased as a
result of the inclusion of the managed properties from our
acquisitions of Island One and the PMR Service Companies (both
completed in July 2013) during the period in 2014. The Company
experienced higher revenue from the clubs due to increased
membership dues and higher club member count during the period in
2014 compared to the period in 2013. These increases were partially
offset by the elimination of commissions earned on fee-for-service
agreements with Island One which were terminated in conjunction
with the Island One acquisition on July 24, 2013.
Management and member services expense decreased $0.8 million,
or 8.5%, to $9.0 million for the first quarter of 2014 from $9.8
million for the first quarter of 2013. The decrease was primarily
attributable to the elimination of the costs incurred under the
fee-for-service agreements with Island One that terminated in
conjunction with the Island One acquisition and an increase in the
absorption of certain resort management expenses to the HOAs that
we manage. Management and member services expense as a percentage
of management and member services revenue decreased to 23.4% during
the period in 2014 from 31.0% during the period in 2013.
Vacation Interest Sales and Financing
Vacation Interest sales, net, increased $14.2 million, or 15.5%,
to $105.9 million for the first quarter of 2014 from $91.7 million
for the first quarter of 2013. The increase in Vacation Interest
sales, net, was attributable to a $19.0 million increase in
Vacation Interest sales revenue, partially offset by a $4.8 million
increase in our provision for uncollectible Vacation Interest sales
revenue. The $19.0 million increase in Vacation Interest sales
revenue during the period in 2014 compared to the period in 2013
was generated due to an increase in the number of tours, number of
transactions and a higher average sales price per transaction. The
total number of tours increased to 46,552 during the period in 2014
from 44,499 during the period in 2013. The Company closed a total
of 6,556 Vacation Interest sales transactions during the period in
2014, compared to 6,169 transactions during the period in 2013. The
Company's closing percentage (which represents the percentage of
Vacation Interest sales transactions closed relative to the total
number of sales presentations at our sales centers during the
period presented) increased slightly to 14.1% during the period in
2014 from 13.9% during the period in 2013. Vacation Interest sales
price per transaction increased to $18,321 during the period in
2014 from $15,565 during the period in 2013 due principally to a
change in a focus on larger point packages and the success of the
sales and marketing initiatives implemented in association with
this strategy.
Provision for uncollectible Vacation Interest sales revenue
increased $4.7 million, or 71.4%, to $11.4 million during the
period in 2014 from $6.7 million during the period in 2013,
primarily due to the increase in Vacation Interest sales revenue
and an increase in the percentage of financed Vacation Interest
sales during the period in 2014 as compared to the period in 2013.
The allowance for mortgages and contracts receivable as a
percentage of gross mortgages and contracts receivable has remained
consistent at 21.6% as of March 31, 2014 and March 31, 2013.
Advertising, sales and marketing for the first quarter of 2014
included a non-cash charge of $0.9 million related to stock-based
compensation. Excluding this charge, advertising, sales and
marketing as a percentage of Vacation Interest sales revenue
decreased 0.2 percentage points to 51.0% in the first quarter of
2014, from 51.2% in the first quarter of 2013. This improvement was
primarily due to improved leverage of fixed costs through increased
sales efficiencies. Including this non-cash charge, advertising,
sales and marketing as a percentage of Vacation Interest sales
revenue was 51.8%.
Vacation Interest cost of sales decreased $4.9 million, to $12.9
million for the first quarter of 2014 from $17.8 million for the
first quarter of 2013. Of this change, $3.3 million was an
increase related to the increase in Vacation Interest Sales during
the period in 2014 as compared to the period in 2013. The $3.3
million increase was offset by an $8.2 million decrease due to
the inclusion of the low-cost inventory purchased in connection
with the Island One Acquisition in July 2013 and a larger pool of
low-cost inventory becoming eligible for recovery and
capitalization pursuant to our inventory recovery agreements in
2014 as compared to 2013.
General and Administrative Expense
General and administrative expense for the first quarter of 2014
included a non-cash charge related to stock based compensation of
$2.8 million. Excluding this charge, general and administrative
expense would have decreased $1.4 million, or 6.3%, to $21.4
million during the period in 2014 from $22.8 million during the
period in 2013. Including the non-cash charge discussed above,
general and administrative expense as a percentage of total revenue
decreased 1.6 percentage points to 13.3% in the first quarter of
2014, from 14.9% in the first quarter of 2013. Giving effect to
this charge, general and administrative expense as reported was
$24.2 million during the period in 2014, representing 13.3% of
total revenue.
Pre-tax Income/Loss and Net Income / Loss
Pre-tax income for the first quarter of 2014 included non-cash
charges of $4.7 million related to stock-based compensation.
Excluding these charges, pre-tax income in 2014 would have been
$30.8 million, an increase of $28.1 million from pre-tax income of
$2.7 million in the first quarter of 2013. Including these items,
pre-tax income in 2014 was $26.1 million.
Net income for the first quarter in 2014 included the non-cash
charges discussed above. Net income increased $11.7 million to
$14.0 million during the period for 2014 from a net income of $2.3
million during the period in 2013.
Capital Resources and Liquidity
As of March 31, 2014, we had cash and cash equivalents of $75.8
million, corporate indebtedness of $375.3 million and non-recourse
debt of $18.3 million. Net cash provided by operating activities in
the first quarter of 2014 was $33.7 million and was the result of
net income of $14.0 million and non-cash revenues and expenses
totaling $39.1 million, partially offset by other changes in
operating assets and liabilities that resulted in a net credit of
$19.5 million. The significant non-cash revenues and expenses
included (i) $11.4 million in the provision for uncollectible
Vacation Interest sales revenue; (ii) $8.1 million in depreciation
and amortization; (iii) $4.7 million in stock-based compensation
costs; (iv) $2.0 million in amortization of capitalized loan
origination costs and portfolio discounts (net of premiums); (v)
$1.4 million in amortization of capitalized financing costs and
original issue discounts; (vi) $0.2 million in unrealized loss on
derivative instruments and (vii) $0.1 million loss on foreign
currency exchange. Net cash provided by operating activities in the
first quarter of 2013 was $10.3 million and was the result of net
income of $2.3 million and non-cash revenues and expenses totaling
$13.9 million, partially offset by other changes in operating
assets and liabilities that resulted in a net credit of $5.9
million. Capital expenditures for the quarter ended March 31, 2014
were $5.7 million, an increase of $3.2 million from $2.5 million
for the quarter ended March 31, 2013, which is primarily associated
with information related projects and equipment.
The indenture governing our 12% senior secured notes due 2018
includes covenants, and the new credit facility is expected to
include covenants, which are determined by reference to the
Adjusted EBITDA of Diamond and its “restricted subsidiaries.”
Adjusted EBITDA, as defined in the indenture, was $67.1 million for
the quarter ended March 31, 2014.
Outlook
For the full year ending December 31, 2014, the Company is
providing the following updated guidance for its expected operating
results. Note that the updated pre-tax income includes $47.0
million of cash and non-cash charges related to the refinancing of
the senior secured notes that was not included in the original
guidance.
Updated Guidance Year Ending
December 31, 2014 ($ in thousands)
Low
High Pre-tax income $ 44,700 $ 77,200 Corporate interest
expense(a) $ 43,300 $ 41,300 Loss on extinguishment of debt(b) $
47,000 $ 47,000 Vacation interest cost of sales(c) $ 76,000 $
66,000 Depreciation and amortization $ 32,000 $ 30,000 Other
non-cash items(d) $ 22,000 $ 18,500
Original
Guidance Year Ending December 31, 2014 ($
in thousands)
Low High Pre-tax income $
65,000 $ 92,500 Corporate interest expense $ 56,500 $ 54,500 Loss
on extinguishment of debt $ — $ — Vacation interest cost of
sales(c) $ 79,500 $ 69,500 Depreciation and amortization $ 32,000 $
30,000 Other non-cash items(d) $ 22,000 $ 18,500
For the year ending December 31, 2014, the Company anticipates
cash expenditures for the acquisition of inventory, excluding
inventory from acquisitions, to be between $30.0 million and $35.0
million. In addition, the company anticipates capital
expenditures(e) to be between $18.0 million and $20.0 million.
(a) Reflects an annualized cash interest
savings of $22 million based on the terms of our new $445 million
seven-year term loan and $25 million revolving credit facility (the
“New Bank Loan”) and the redemption of the $374 million principal
amount outstanding of our senior secured notes and repayment of
certain other debt assuming LIBOR at or below 1%. (b) Reflects
non-cash charges of approximately $16.5 million for the write-off
of unamortized debt issuance costs and original issue discount
relating to the refinancing of the senior secured notes, revolving
line of credit, and inventory loans and approximately $30.5 million
for the bond premium related to the redemption of the senior
secured notes which is financed with a portion of the proceeds from
the new term loan. (c) In accordance with ASC 978, the Company
records Vacation Interest Cost of Sales using the relative sales
value method (See Note 2 - Summary of Significant Accounting
Policies in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2013). This method requires the Company to make
a number of projections and estimates, which are subject to
significant uncertainty and retroactive adjustment in the future
periods. These "true-up" adjustments may result, and for the
Company have resulted in prior periods, in major swings (both
positive and negative) in the Company's pre-tax income computed in
accordance with US GAAP that do not have a direct correlation to
the operating performance for the periods in which the "true-ups"
are made. It is difficult to predict with any degree of precision
what the projections and estimates used in connection with the
relative sales value method will be and what impact those
projections and estimates will have on the amount recorded in
future periods as Vacation Interest Cost of Sales. As a result,
guidance for Vacation Interest Cost of Sales (and as a result,
pre-tax income) covers a wide range of outcomes. (d) Other non-cash
items include: stock based compensation, amortization of loan
origination costs, and amortization of net portfolio discounts and
premiums. (e) Principally for IT infrastructure and sales center
expansion/refurbishment. This does not include expenditures for the
acquisition of inventory, or resort-level capital improvements
which are paid by the homeowners associations.
First Quarter 2014 Earnings Call
The company will be conducting a conference call to discuss the
first quarter financial results at 5:00 p.m. Eastern Time on May 1,
2014, available via webcast on the Company's website at
http://investors.diamondresorts.com. A
webcast replay will become available within 2 hours of the call and
will run for approximately one year on the Company’s website.
Alternatively, participants may call into (866) 562-5561 from the
United States, or (706) 679-1894 from outside the U.S. with
conference ID 31191660; please dial in fifteen minutes early to
ensure a timely start. A call replay will be available from 8:00
p.m. Eastern Time on May 1, 2014 through May 8, 2014 and can be
accessed by dialing (800) 585-8367 with conference ID 31191660.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements,
including the guidance for expected operating results presented
under “Outlook” above, statements regarding the Company’s new
credit facility and related refinancing transactions, and other
statements regarding the current expectations of Diamond Resorts
International, Inc. (the “Company”) about its prospects and
opportunities. These forward-looking statements are covered by the
"Safe Harbor for Forward-Looking Statements" provided by the
Private Securities Litigation Reform Act of 1995. The Company has
tried to identify these forward looking statements by using words
such as “expect,” “anticipate,” “estimate,” “plan,” “will,”
“would,” “should,” “could,” “forecast,” “believe,” “guidance,”
“projection,” “target” or similar expressions, but these words are
not the exclusive means for identifying such statements. The
Company cautions that a number of risks, uncertainties and other
factors could cause the Company's actual results to differ
materially from those expressed in, or implied by, the
forward-looking statements, including, without limitation, adverse
trends or disruptions in economic conditions generally or in the
vacation ownership, vacation rental and travel industries; adverse
changes to, or interruptions in, relationships with the Company's
affiliates and other third parties, including termination of the
Company's hospitality management contracts; the Company's ability
to maintain an optimal inventory of vacation ownership interests
for sale overall, as well as in specific Collections; the Company's
ability to sell, securitize or borrow against its consumer loans;
decreased demand from prospective purchasers of Vacation Interests;
adverse events or trends in vacation destinations and regions where
the resorts in our network are located; changes in the Company's
senior management; the Company's ability to comply with regulations
applicable to the vacation ownership industry; the effects of the
Company's indebtedness and its compliance with the terms thereof;
the Company's ability to successfully implement its growth
strategy; and the Company's ability to compete effectively. For a
detailed discussion of factors that could affect the Company's
future operating results, please see the Company's filings with the
Securities and Exchange Commission, including the disclosures under
“Risk Factors” in those filings. Except as expressly required by
the federal securities laws, the Company undertakes no obligation
to update or revise any forward-looking statements, whether as a
result of new information, changed circumstances or future events
or for any other reason.
About Diamond Resorts International®
Diamond Resorts International®, with its network of 303 vacation
destinations located in 34 countries throughout the continental
United States, Hawaii, Canada, Mexico, the Caribbean, South
America, Central America, Europe, Asia, Australia and Africa
provides guests with choices and flexibility as they design their
dream vacation, whether they're traveling an hour away or around
the world. Our hassle-free, relaxing vacations give guests a truly
memorable experience every time, for a lifetime.
Diamond Resorts International® owns, operates and manages
vacation ownership resorts and, through resort and partner
affiliation agreements, provides members and owners with access to
93 managed resorts, 154 affiliated resorts, 52 affiliated hotels
and four cruise itineraries through THE Club® at Diamond Resorts
International®. To learn more, visit Diamondresorts.com.
Basis of Presentation
On July 24, 2013, Diamond closed the initial public offering
(“IPO”) of its common stock. Prior to the consummation of the
initial public offering, Diamond was a newly-formed Delaware
corporation that had not conducted any activities other than those
incident to its formation and other actions in connection with the
IPO. Diamond was formed for the purpose of changing the
organizational structure of Diamond Resorts Parent, LLC (“DRP”)
from a limited liability company to a corporation. Immediately
prior to the consummation of the IPO, DRP was the sole stockholder
of Diamond. In connection with, and immediately prior to the
completion of the IPO, various reorganization transactions were
effected ultimately with DRP merging with and into Diamond. See
“Organizational Structure-Reorganization Transactions” in the
Registration Statement on Form S-1 filed by Diamond with the
Securities and Exchange Commission for additional information
concerning these reorganization transactions. References in this
press release to “Diamond,” “the Company,” ”DRII,” “we,” “us” and
“our,” refer to Diamond Resorts International, Inc. and its
subsidiaries, after giving effect to those reorganization
transactions, and our consolidated financial statements and other
historical financial data included in this press release for
periods prior to July 24, 2013 are those of DRP and its
subsidiaries after giving effect to the reorganization
transactions.
Reconciliation of GAAP to Non-GAAP Measures
We believe supplementing our consolidated financial statements
presented in accordance with U.S. GAAP with non-U.S. GAAP measures
provides investors with useful information regarding our liquidity
and short-term and long-term trends.
We define Adjusted EBITDA as our net income, plus: (i) corporate
interest expense; (ii) provision (benefit) for income taxes; (iii)
depreciation and amortization; (iv) Vacation Interest cost of
sales; (v) loss on extinguishment of debt; (vi) impairments and
other non-cash write-offs; (vii) loss on the disposal of assets;
(viii) amortization of loan origination costs; (ix) amortization of
net portfolio premiums; and (x) stock-based compensation; less (a)
gain on the disposal of assets; (b) gain on bargain purchase from
business combination; and (c) amortization of net portfolio
discounts. Adjusted EBITDA is a non-U.S. GAAP financial measure and
should not be considered in isolation, or as an alternative to net
cash provided by operating activities or any other measure of
liquidity, or as an alternative to net income, operating income or
any other measure of financial performance, in each case calculated
and presented in accordance with U.S. GAAP. Additional information
regarding our calculation of Adjusted EBITDA is provided below.
We present Adjusted EBITDA primarily because, as indicated
above, the indenture governing our 12% senior secured notes due
2018 includes covenants which are determined by reference to the
Adjusted EBITDA of the Company and its “restricted subsidiaries,”
and other of our debt-related agreements include covenants that are
determined by reference to Adjusted EBITDA. The new credit facility
will also include covenants based on Adjusted EBITDA. As a result,
we believe that supplementing our consolidated financial statements
presented in accordance with US GAAP with this non-GAAP measure
provides investors with useful information with respect to our
liquidity.
In addition to its application under the Indenture for our
senior secured notes, our management uses Adjusted EBITDA: (i) for
planning purposes, including the preparation of our annual
operating budget; (ii) to allocate resources to enhance the
financial performance of our business; (iii) to evaluate the
effectiveness of our business strategies and (iv) as a factor for
determining compensation for personnel employed by the Company.
We understand that, although measures similar to Adjusted EBITDA
are frequently used by investors and securities analysts in their
evaluation of companies, it has limitations as an analytical tool,
including:
- Adjusted EBITDA does not reflect our
cash expenditures or future requirements for capital expenditures
or Vacation Interest inventory;
- Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital
needs;
- Adjusted EBITDA does not reflect cash
requirements for income taxes;
- Adjusted EBITDA does not reflect
interest expense for our corporate indebtedness;
- although depreciation and amortization
are non-cash charges, the assets being depreciated or amortized
will often have to be replaced, and Adjusted EBITDA does not
reflect any cash requirements for these replacements;
- we make expenditures to replenish
Vacation Interests inventory (principally pursuant to our inventory
recovery agreements and in connection with our strategic
acquisitions), and Adjusted EBITDA does not reflect our cash
requirements for these expenditures or certain costs of carrying
such inventory (which are capitalized); and
- other companies in our industry may
calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.
The following tables present Adjusted EBITDA for us and our
restricted subsidiaries, as calculated in accordance with, and for
purposes of covenants contained in, the Notes Indenture, reconciled
to each of (i) our net cash provided by operating activities and
(ii) our net income for the periods presented.
Quarter Ended March 31, 2014
2013 ($ in thousands) Net cash provided by
operating activities $ 33,668 $ 10,338 Provision for income taxes
12,047 438 Provision for uncollectible Vacation Interest sales
revenue(a) (11,433 ) (6,672 ) Amortization of capitalized financing
costs and original
issue discounts(a)
(1,437 ) (1,874 ) Deferred income taxes(b) (11,260 ) — Loss on
foreign currency(c) (88 ) (61 ) Gain on mortgage purchase(a) 49 —
Cash to be received on insurance settlement — 2,203 Unrealized loss
on derivative instruments(d) (199 ) — Unrealized loss on
post-retirement benefit plan(e) (43 ) — Corporate interest
expense(f) 13,246 20,764 Change in operating assets and liabilities
excluding
acquisitions(g)
19,468 5,852 Vacation Interest cost of sales(h) 12,902
17,846 Adjusted EBITDA - Consolidated 66,920 48,834 Less:
Adjusted EBITDA - Unrestricted Subsidiaries(i) 7,433 7,974 Plus:
Intercompany elimination(j) 7,611 6,751 Adjusted
EBITDA - Diamond Resorts International, Inc. and Restricted
Subsidiaries $ 67,098 $ 47,611 (a)
Represents non-cash charge or gain. (b) Represents
the deferred income tax liability as a result of the provision for
income taxes recorded for the three months ended March 31, 2014.
(c) Represents net realized losses on foreign exchange transactions
settled at unfavorable exchange rates and unrealized net losses
resulting from the devaluation of foreign currency-denominated
assets and liabilities. (d) Represents the effects of the changes
in mark-to-market valuations of derivative liabilities. (e)
Represents unrealized loss on our post-retirement benefit plan
related to a collective labor agreement entered into with the
employees of our two resorts in St. Maarten. (f) Represents
corporate interest expense; does not include interest expense
related to non-recourse indebtedness incurred by our
special-purpose subsidiaries that is secured by our VOI consumer
loans. (g) Represents the net change in operating assets and
liabilities excluding acquisitions, as computed directly from the
statements of cash flows. Vacation Interest cost of sales is
included in the net changes in unsold Vacation Interests, net, as
presented in the statements of cash flows. (h) We record Vacation
Interest cost of sales using the relative sales value method in
accordance with ASC 978, "Real-estate Time-Sharing Activities,"
which requires us to make significant estimates which are subject
to significant uncertainty. In determining the appropriate amount
of costs using the relative sales value method, we rely on complex,
multi-year financial models that incorporate a variety of estimated
inputs. These models are reviewed on a regular basis, and the
relevant estimates used in the models are revised based upon
historical results and management's new estimates. (i) Represents
the Adjusted EBITDA of unrestricted subsidiaries as defined in, and
calculated in accordance with, the Notes Indenture. (j) Represents
the elimination of revenues and expenses related to agreements
entered into between our restricted and unrestricted subsidiaries.
The agreements include service agreements for sales and marketing
management (terminated on July 24, 2013), resort management,
reservation services and portfolio management, whereby certain
restricted subsidiaries operate these functions on behalf of the
unrestricted subsidiaries for a fee. In addition to these service
agreements, we have also entered into intercompany sales
agreements, whereby certain restricted subsidiaries purchase unsold
Vacation Interests from unrestricted subsidiaries.
Quarter Ended March 31, 2014
2013 ($ in thousands) Net income $ 14,010 $ 2,273
Plus: Corporate interest expense(a) 13,246 20,764 Provision for
income taxes 12,047 438 Depreciation and amortization(b) 8,061
6,254 Vacation Interest cost of sales(c) 12,902 17,846 Impairments
and other non-cash write-offs(b) 7 79 Gain on disposal of assets(b)
(4 ) (50 ) Amortization of loan origination costs(b) 2,064 1,182
Amortization of net portfolio (discount) premiums(b) (109 ) 48
Stock-based compensation(d) 4,696 — Adjusted EBITDA -
Consolidated 66,920 48,834 Less: Adjusted EBITDA - Unrestricted
Subsidiaries(e) 7,433 7,974 Plus: Adjusted EBITDA - Intercompany
elimination(f) 7,611 6,751 Adjusted EBITDA - Diamond
Resorts International, Inc. and Restricted Subsidiaries $ 67,098
$ 47,611 (a) Corporate interest
expense does not include interest expense related to non-recourse
indebtedness incurred by our special-purpose vehicles that is
secured by our VOI consumer loans. (b) These items represent
non-cash charges/gains. (c) We record Vacation Interest cost of
sales using the relative sales value method in accordance with ASC
978, which requires us to make significant estimates which are
subject to significant uncertainty. In determining the appropriate
amount of costs using the relative sales value method, we rely on
complex, multi-year financial models that incorporate a variety of
estimated inputs. These models are reviewed on a regular basis, and
the relevant estimates used in the models are revised based upon
historical results and management's new estimates. (d) Represents
the non-cash charge related to stock-based compensation due to
stock options issued in connection with and since the consummation
of the IPO. (e) Represents the Adjusted EBITDA of unrestricted
subsidiaries as defined in, and calculated in accordance with, the
Notes Indenture. (f) Represents the elimination of revenues and
expenses related to agreements entered into between our restricted
and unrestricted subsidiaries. The significant agreements include
service agreements for sales and marketing management, resort
management, reservation services and portfolio management, whereby
certain restricted subsidiaries operate these functions on behalf
of the unrestricted subsidiaries for a fee. In addition to these
service agreements, we have also entered into intercompany sales
agreements, whereby certain restricted subsidiaries purchase unsold
Vacation Interests from unrestricted subsidiaries.
The following tables present a reconciliation of (i)
advertising, sales and marketing expense as reported to
advertising, sales and marketing expense after excluding non-cash
stock-based compensation; (ii) general and administrative expense
as reported to general and administrative expense after excluding
non-cash stock- based compensation,; and (iii) income before
provision for income taxes to income before provision for income
taxes after excluding non-cash stock-based compensation for the
periods presented below. We exclude these non-cash items because
management excludes them from its forecasts and evaluation of our
operational performance and because we believe that the GAAP
measures including these items are not indicative of our core
operating results.
Quarter Ended March 31, 2014
2013 ($ in thousands) Advertising, sales and
marketing expense $ 60,775 $ 50,359 Stock-based compensation (927 )
— Advertising, sales and marketing expense after excluding
stock-based compensation $ 59,848 $ 50,359
Quarter Ended March 31, 2014
2013 ($ in thousands) General and administrative
expense $ 24,192 $ 22,800 Stock-based compensation (2,827 ) —
General and administrative expense after excluding stock-based
compensation $ 21,365 $ 22,800
Quarter Ended March 31, 2014
2013 ($ in thousands) Income before provision for income
taxes $ 26,057 $ 2,711 Stock-based compensation 4,696 —
Income before provision for income taxes after excluding
stock-based compensation $ 30,753 $ 2,711
To properly and prudently evaluate our business, we encourage
you to review our U.S. GAAP consolidated financial statements
included in this press release, and not to rely on any single
financial measure to evaluate our business. The non-U.S. GAAP
financial measures included in this press release should not be
considered in isolation, or as an alternative to net cash provided
by operating activities or any other measure of liquidity, or as an
alternative to net income, operating income or any other measure of
financial performance, in any such case calculated and presented in
accordance with U.S. GAAP.
Segment Reporting
The Company presents its results of operations in two segments:
(i) Hospitality and Management Services, which includes operations
related to the management of resort properties and the Collections,
operations of the Clubs, operations of the properties located in
St. Maarten for which the Company functions as the HOA, food and
beverage venues owned and managed by the Company and the provision
of other services; and (ii) Vacation Interest Sales and Financing,
which includes operations relating to the marketing and sales of
Vacation Interests, as well as the consumer financing activities
related to such sales. While certain line items reflected on the
statement of operations and comprehensive income fall completely
into one of these business segments, other line items relate to
revenues or expenses which are applicable to more than one segment.
For line items that are applicable to more than one segment,
revenues or expenses are allocated by management, which involves
significant estimates. Certain expense items (principally corporate
interest expense and depreciation and amortization) are not, in
management's view, allocable to either of these business segments
as they apply to the entire Company. In addition, general and
administrative expenses are not allocated to either of these
business segments because, historically, management has not
allocated these expenses for purposes of evaluating the Company's
different operational divisions. Accordingly, these expenses are
presented under Corporate and Other.
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS BY BUSINESS
SEGMENT For the Quarters Ended March 31, 2014 and 2013
(In thousands) Quarter Ended March
31, 2014
Quarter Ended March 31, 2013
Hospitality
andManagementServices
VacationInterest Salesand
Financing
CorporateandOther
Total
Hospitality
andManagementServices
VacationInterest Salesand
Financing
CorporateandOther
Total Revenues: Management and member
services $ 38,224 $ — $ — $ 38,224 $ 31,587 $ — $ — $ 31,587
Consolidated resort operations 8,723 — — 8,723 8,620 — — 8,620
Vacation Interest sales, net of provision
of $0, $11,433, $0, $11,433, $0, $6,672, $0 and $6,672,
respectively
— 105,897 — 105,897 — 91,668 — 91,668 Interest — 15,257 417 15,674
— 12,858 397 13,255 Other 2,161 10,546 —
12,707 3,490 4,832 — 8,322 Total
revenues 49,108 131,700 417 181,225
43,697 109,358 397 153,452
Costs and
Expenses: Management and member services 8,947 — — 8,947 9,779
— — 9,779 Consolidated resort operations 7,771 — — 7,771 7,722 — —
7,722 Vacation Interest cost of sales — 12,902 — 12,902 — 17,846 —
17,846 Advertising, sales and marketing — 60,775 — 60,775 — 50,359
— 50,359 Vacation Interest carrying cost, net — 7,875 — 7,875 —
8,237 — 8,237 Loan portfolio 242 2,248 — 2,490 246 2,259 — 2,505
Other operating — 5,537 — 5,537 — 368 — 368 General and
administrative — — 24,192 24,192 — — 22,800 22,800 Depreciation and
amortization — — 8,061 8,061 — — 6,254 6,254 Interest — 3,369
13,246 16,615 — 4,078 20,764 24,842 Impairments and other
write-offs — — 7 7 — — 79 79 Gain on disposal of assets — —
(4 ) (4 ) — — (50 ) (50 ) Total costs and
expenses 16,960 92,706 45,502 155,168
17,747 83,147 49,847 150,741 Income
(loss) before provision for income taxes 32,148 38,994 (45,085 )
26,057 25,950 26,211 (49,450 ) 2,711 Provision for income taxes —
— 12,047 12,047 — — 438
438 Net income (loss) $ 32,148 $ 38,994
$ (57,132 ) $ 14,010 $ 25,950 $ 26,211 $
(49,888 ) $ 2,273
Consolidating Financial Statements - Restricted and
Unrestricted Subsidiaries
The following consolidating financial statements present the
financial position, results of operations, and statements of cash
flow for (1) those subsidiaries of the Company which have been
designated "Unrestricted Subsidiaries" for purposes of the Senior
Secured Note Indenture; and (2) the Company and all of its other
subsidiaries. As of March 31, 2014 and March 31, 2013,
the Unrestricted Subsidiaries were FLRX Inc. and its subsidiaries,
ILX Acquisition Inc. and its subsidiaries, Tempus Acquisition, LLC
and its subsidiaries, DPM Acquisition, LLC and its subsidiaries and
Aegean Blue Holdings Plc and its subsidiaries.
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS For the
Quarters Ended March 31, 2014 and 2013 (In thousands)
(Unaudited) Quarter Ended March 31,
2014 Quarter Ended March 31, 2013
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Revenues: Management and member services $ 36,601 $ 6,048 $
(4,425 ) $ 38,224 $ 31,098 $ 5,093 $ (4,604 ) $ 31,587 Consolidated
resort operations 7,866 857 — 8,723 6,863 1,757 — 8,620
Vacation Interest sales, net of provision
of $10,780, $653, $0, $11,433, $6,402, $270, $0 and $6,672,
respectively
99,833 6,064 — 105,897 85,947 5,721 — 91,668 Interest 14,880 794 —
15,674 10,717 2,538 — 13,255 Other 13,131 12,554
(12,978 ) 12,707 9,667 9,806 (11,151 ) 8,322
Total revenues 172,311 26,317 (17,403 )
181,225 144,292 24,915 (15,755 ) 153,452
Costs and Expenses: Management and member services
9,750 2,385 (3,188 ) 8,947 10,980 2,492 (3,693 ) 9,779 Consolidated
resort operations 7,228 543 — 7,771 6,376 1,346 — 7,722 Vacation
Interest cost of sales 10,748 2,154 — 12,902 17,790 56 — 17,846
Advertising, sales and marketing 58,505 3,674 (1,404 ) 60,775
48,114 3,139 (894 ) 50,359 Vacation Interest carrying cost, net
3,976 4,288 (389 ) 7,875 7,171 2,122 (1,056 ) 8,237 Loan portfolio
2,472 415 (397 ) 2,490 2,475 792 (762 ) 2,505 Other operating 6,181
3,738 (4,382 ) 5,537 1,090 1,877 (2,599 ) 368 General and
administrative 20,571 3,653 (32 ) 24,192 18,701 4,099 — 22,800
Depreciation and amortization 4,159 3,902 — 8,061 2,586 3,668 —
6,254 Interest 11,889 4,726 — 16,615 16,599 8,243 — 24,842
Impairments and other write-offs 7 — — 7 79 — — 79 Gain on disposal
of assets (1 ) (3 ) — (4 ) (50 ) — — (50 )
Total costs and expenses 135,485 29,475 (9,792 )
155,168 131,911 27,834 (9,004 ) 150,741
Income (loss) before provision (benefit)
for income taxes
36,826 (3,158 ) (7,611 ) 26,057 12,381 (2,919 ) (6,751 ) 2,711
Provision (benefit) for income taxes 12,686 (639 ) —
12,047 396 42 — 438 Net income
(loss) $ 24,140 $ (2,519 ) $ (7,611 ) $ 14,010 $
11,985 $ (2,961 ) $ (6,751 ) $ 2,273
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS As of March 31,
2014 and December 31, 2013 (In thousands, except share
data) (Unaudited) March 31,
2014 December 31, 2013
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Assets:
Cash and cash equivalents
$ 69,592 $ 6,184 $ — $ 75,776 $ 26,680 $ 9,265 $ — $ 35,945
Cash in escrow and restricted cash
76,185 1,437 — 77,622 90,363 1,868 — 92,231
Mortgages and contracts receivable, net of
allowance of $101,715, $7,047, $0, $108,762, $98,549, $7,041, $0,
and $105,590, respectively
394,724 16,525 1 411,250 388,538 16,915 1 405,454
Due from related parties, net
244,899 12,044 (213,039 ) 43,904 261,422 11,463 (226,623 ) 46,262
Other receivables, net
38,199 2,929 — 41,128 50,422 4,166 — 54,588
Income tax receivable
25 17,602 (17,602 ) 25 25 16,706 (16,706 ) 25
Prepaid expenses and other assets, net
116,012 31,534 319 147,865 53,388 14,460 410 68,258
Unsold Vacation Interests, net
283,844 68,808 (58,999 ) 293,653 276,717 72,750 (51,357 ) 298,110
Property and equipment, net
43,341 19,694 — 63,035 40,359 20,037 — 60,396 Assets held for sale
1,170 9,455 — 10,625 1,206 9,456 — 10,662 Goodwill 30,632 — 30,632
30,632 — — 30,632 Intangible assets, net 77,018 116,615
— 193,633 78,550 120,082 —
198,632 Total assets $ 1,375,641 $ 302,827
$ (289,320 ) $ 1,389,148 $ 1,298,302 $ 297,168
$ (294,275 ) $ 1,301,195
Liabilities and Stockholders' equity
(deficit):
Accounts payable $ 11,150 $ 3,272 $ — $ 14,422 $ 11,798 $ 2,831 $ —
$ 14,629
Due to related parties, net
45,852 271,892 (221,132 ) 96,612 15,750 263,377 (234,483 ) 44,644
Accrued liabilities 95,009 9,622 (161 ) 104,470 106,570 10,993 (128
) 117,435 Income taxes payable 1,508 140 — 1,648 1,069 — — 1,069
Deferred income taxes 39,871 11,395 (17,602 ) 33,664 27,715 11,395
(16,706 ) 22,404 Deferred revenues 116,144 9,403 — 125,547 103,745
7,147 — 110,892
Senior Secured Notes, net of unamortized
original issue discount of $6,290, $0, $0, $6,290, $6,548, $0, $0,
and $6,548, respectively
368,150 — — 368,150 367,892 — — 367,892
Securitization notes and Funding
Facilities, net of unamortized original issue discount for $208,
$0, $0, $208, $226, $0, $0, $226, respectively
387,534 4,526 — 392,060 386,501 4,766 — 391,267 Derivative
liabilities 199 — — 199 — — — — Notes payable 7,150 18,257
— 25,407 3,302 19,848 —
23,150 Total liabilities 1,072,567 328,507
(238,895 ) 1,162,179 1,024,342 320,357
(251,317 ) 1,093,382
Stockholders' equity (deficit):
Common stock $0.01 par value; authorized -
250,000,000 shares; issued and outstanding - 75,475,402, 0, 0 and
75,475,402, 75,458,402, 0, 0 and 75,458,402 shares
755 — — 755 755 — — 755 Additional paid-in capital 467,926 9,675
(9,675 ) 467,926 463,194 9,675 (9,675 ) 463,194 Accumulated deficit
(149,816 ) (34,935 ) (41,198 ) (225,949 ) (173,722 ) (32,416 )
(33,821 ) (239,959 )
Accumulated other comprehensive (loss)
income
(15,791 ) (420 ) 448 (15,763 ) (16,267 ) (448 ) 538
(16,177 )
Total stockholders' equity (deficit)
303,074 (25,680 ) (50,425 ) 226,969 273,960
(23,189 ) (42,958 ) 207,813
Total liabilities and stockholders' equity
(deficit)
$ 1,375,641 $ 302,827 $ (289,320 ) $ 1,389,148
$ 1,298,302 $ 297,168 $ (294,275 ) $ 1,301,195
DIAMOND RESORTS INTERNATIONAL, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS For the Quarters Ended March 31, 2014 and 2013
(In thousands) (Unaudited)
Quarter Ended March 31, 2014 Quarter Ended March
31, 2013
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Operating Activities:
Net income (loss) $ 24,140 $ (2,519 ) $ (7,611 ) $ 14,010 $ 11,985
$ (2,961 ) $ (6,751 ) $ 2,273
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Provision for uncollectible Vacation
Interest sales revenue
10,780 653 — 11,433 6,402 270 — 6,672
Amortization of capitalized financing
costs and original issue discounts
1,388 49 — 1,437 1,569 305 — 1,874
Amortization of capitalized loan
origination costs and net portfolio discounts
1,955 — — 1,955 1,182 48 — 1,230
Depreciation and amortization
4,159 3,902 — 8,061 2,586 3,668 — 6,254 Stock-based compensation
4,696 — — 4,696 — — — —
Impairments and other write-offs
7 — — 7 79 — — 79 Gain on disposal of assets (1 ) (3 ) — (4 ) (50 )
— — (50 ) Deferred income taxes 12,156 — (896 ) 11,260 — — — —
Loss (gain) on foreign currency
exchange
90 (2 ) — 88 163 (102 ) — 61 Gain on mortgage repurchase (1 ) (48 )
— (49 ) — — — —
Unrealized loss on derivative
instruments
199 — — 199 — — — —
Unrealized loss on post-retirement benefit
plan
43 — — 43 — — — —
Gain on insurance settlement
— — — — (2,203 ) — — (2,203 )
Changes in operating assets and
liabilities excluding acquisitions:
Mortgages and contracts receivable
(18,908 ) (207 ) — (19,115 ) (18,941 ) 2,884 (1 ) (16,058 )
Due from related parties, net
22,268 (411 ) (13,584 ) 8,273 (7,505 ) 195 9,399 2,089 Other
receivables, net 12,362 1,237 — 13,599 11,676 517 — 12,193
Prepaid expenses and other assets, net
(63,556 ) (17,091 ) — (80,647 ) (49,834 ) (14,654 ) 81 (64,407 )
Unsold Vacation Interests, net
(6,779 ) 3,960 7,642 4,823 6,387 72 6,751 13,210 Accounts payable
(671 ) 423 — (248 ) (3,554 ) 1,670 — (1,884 ) Due to related
parties, net 30,706 8,424 13,585 52,715 25,730 19,384 (9,562 )
35,552 Accrued liabilities (12,516 ) (1,422 ) — (13,938 ) (6,189 )
3,218 (80 ) (3,051 ) Income taxes payable 433 (756 ) 896 573 1,089
— — 1,089 Deferred revenues 12,285 2,212 —
14,497 12,948 2,467 — 15,415
Net cash provided by (used in) operating
activities
35,235 (1,599 ) 32 33,668 (6,480 ) 16,981
(163 ) 10,338 Investing activities:
Property and equipment capital
expenditures
(5,636 ) (85 ) — (5,721 ) (2,392 ) (132 ) — (2,524 )
Net cash used in investing activities
$ (5,636 ) $ (85 ) $ — $ (5,721 ) $ (2,392 ) $ (132 ) $ —
$ (2,524 )
DIAMOND RESORTS INTERNATIONAL,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF
CASH FLOWS—Continued For the Quarters Ended March 31, 2014
and 2013 (Unaudited) (In thousands)
Quarter Ended March 31, 2014 Quarter Ended
March 31, 2013
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination
Total
Diamondand
RestrictedSubsidiaries
UnrestrictedSubsidiaries
Elimination Total Financing activities:
Changes in cash in escrow and restricted
cash
$ 14,197 $ 440 $ — $ 14,637 $ (14,456 ) $ 267 $ — $ (14,189 )
Proceeds from issuance of securitization
notes and Funding Facilities
45,909 — — 45,909 126,967 713 — 127,680
Proceeds from issuance of notes
payable
— 1,113 — 1,113 — 1,319 — 1,319
Payments on securitization notes and
Funding Facilities
(44,894 ) (240 ) — (45,134 ) (96,605 ) (8,546 ) — (105,151 )
Payments on notes payable (2,323 ) (2,704 ) — (5,027 ) (2,566 )
(7,250 ) — (9,816 )
Refunds (payments) of debt issuance
costs
70 — — 70 (1,974 ) — — (1,974 ) Proceeds from exercise of stock
options 236 — — 236 — — —
—
Net cash provided by (used in) financing
activities
13,195 (1,391 ) — 11,804 11,366 (13,497
) — (2,131 )
Net increase (decrease) in cash and cash
equivalents
42,794 (3,075 ) 32 39,751 2,494 3,352 (163 ) 5,683
Effect of changes in exchange rates on
cash and cash equivalents
118 (6 ) (32 ) 80 (1 ) (702 ) 163 (540 )
Cash and cash equivalents, beginning of
period
26,680 9,265 — 35,945 16,963
4,098 — 21,061 Cash and cash equivalents, end
of period $ 69,592 $ 6,184 $ — $ 75,776
$ 19,456 $ 6,748 $ — $ 26,204
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 21,635 $ 4,628 $ — $
26,263 $ 28,382 $ 4,307 $ — $ 32,689
Cash paid for taxes, net of cash tax
refunds (cash tax refunds, net of cash paid for taxes)
$ 120 $ 98 $
—
$ 218 $ (698 ) $ 42 $ — $ (656 )
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Insurance premiums financed through
issuance of notes payable
$
6,173
$
—
$
—
$
6,173
$
5,914
$
—
$
—
$
5,914
Media:Diamond Resorts International®Stevi Wara,
702-823-7069media@diamondresorts.comorInvestor:Sloane and
CompanyJoshua Hochberg, 212-486-9500jhochberg@sloanepr.com
DIAMOND RESORTS INTERNATIONAL, I (NYSE:DRII)
Historical Stock Chart
From Jun 2024 to Jul 2024
DIAMOND RESORTS INTERNATIONAL, I (NYSE:DRII)
Historical Stock Chart
From Jul 2023 to Jul 2024