Company Posts 11th Consecutive
Quarter of Record Performance
Diamond Resorts International, Inc. (NYSE:DRII) (“Diamond”, “We”
or the “Company”), today announced results for the first quarter
ended March 31, 2016.
David F. Palmer, President and Chief Executive Officer, stated,
“This quarter marks our eleventh consecutive record quarter. Our
emphasis on operational excellence, hospitality, and customer
satisfaction enabled us to once again deliver strong financial and
operational results. I am very pleased with our performance and
confident in our full year guidance, which we are reaffirming
today.
While our team continues to focus on driving the growth of our
business, our Board continues to pursue the strategic alternatives
process we announced on February 24th with the objective of
maximizing shareholder value.”
First Quarter 2016 Highlights
- Total revenue for the first quarter
increased $36.3 million, or 18.4%, to $233.8 million, substantially
attributable to our “same store” sales locations and managed
resorts.
- Net income for the first quarter
increased $8.4 million, or 32.6%, to $34.4 million.
- Pre-tax income for the first quarter,
excluding non-cash stock based compensation and the one-time charge
relating to the termination of our service agreements with JHJM in
the first quarter of 2015, increased $5.9 million, or 10.4%, to
$62.5 million.
- Adjusted EBITDA increased $26.9
million, or 38.8%, to $96.2 million for the first quarter of 2016.
Excluding the one-time charge relating to the termination of our
service agreements with JHJM in the first quarter of 2015, Adjusted
EBITDA for the first quarter of 2016 would have increased $19.1
million, or 24.7%.
- For the first quarter, we generated
$25.2 million of free cash flow, which reflects, among other
things, net cash provided by operations of $42.0 million.
- In January 2016, we completed the
acquisition of the vacation ownership business of Intrawest Resort
Club Group from Intrawest Resorts Holdings, Inc. for $84.6 million.
This added nine vacation ownership resorts, a portfolio of notes
receivable, unsold vacation ownership interests and undeveloped
land.
Outlook
For the full year ending December 31, 2016, the Company is
re-affirming guidance for its expected operating results.
Guidance
Year Ending December 31, 2016 ($ in thousands)
Low High Pre-tax income $ 228,000 $ 265,000
Corporate interest expense $ 42,000 $ 40,000 Vacation interests
cost of sales(a) $ 93,000 $ 83,000 Depreciation and amortization $
36,000 $ 34,000 Other non-cash items(b) $ 31,000 $ 28,000
For the year ending
December 31, 2016, we anticipate capital expenditures(c) to be
between $35.0 million and $40.0 million. In addition, we anticipate
ordinary course cash expenditures for the acquisition of inventory
to be between $60.0 million and $70.0 million, cash tax payments to
be between $20.0 million and $30.0 million, and cash interest
payments on corporate facilities to be between $30.0 million and
$35.0 million. In addition, consistent with our capital
allocation philosophy, we anticipate investing approximately $29.0
million of our cash to build or acquire newly-constructed inventory
to support future growth in our VOI sales and hospitality
management businesses. (a) In accordance with ASC
978, the Company records Vacation Interests 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, 2015). This method requires the Company
to make a number of projections and estimates, which are subject to
significant uncertainty and retroactive adjustment in 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 U.S. 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 Interests cost of sales. As a result,
guidance for Vacation Interests cost of sales (and as a result,
pre-tax income) covers a wide range of outcomes and does not impact
Adjusted EBITDA. (b) Other non-cash items include: stock based
compensation, amortization of loan origination costs, and
amortization of net portfolio discounts and premiums. (c)
Principally for IT infrastructure and expansion/refurbishment of
our sales centers. This does not include expenditures for the
acquisition of inventory, or resort-level capital improvements
which are paid by the homeowners associations.
First Quarter Earnings Summary
Hospitality and Management Services
Total management and member services revenue increased $5.5
million, or 13.4%, to $46.1 million for the three months ended
March 31, 2016 from $40.6 million for the three months ended March
31, 2015. Management fees increased primarily as a result of the
inclusion of the managed resorts from the Gold Key Acquisition for
the entirety of the three months ended March 31, 2016 and of the
managed resorts from the Intrawest Acquisition since their
acquisition at the end of January, as well as increases in
operating costs at the resort level, which generated higher
management fee revenue on a same-store basis from 107 cost-plus
management agreements. We also experienced higher revenue from our
Club operations due to increased membership dues and higher
collection rate for the three months ended March 31, 2016, as
compared to the three months ended March 31, 2015.
Management and member services expense decreased $0.5 million,
or 5.4%, to $7.6 million for the three months ended March 31, 2016
from $8.1 million for the three months ended March 31, 2015. The
decrease in management and member services expense was primarily
due to the absorption of certain costs as a result of the addition
of new management agreements.
Vacation Interests Sales and Financing
Vacation Interests sales, net, increased $22.8 million, or
18.7%, to $145.4 million for the three months ended March 31, 2016
from $122.6 million for the three months ended March 31, 2015. The
increase in Vacation Interests sales, net was attributable to a
$30.3 million increase in gross Vacation Interests sales revenue,
partially offset by a $7.5 million increase in our provision for
uncollectible Vacation Interests sales revenue. The $30.3 million
increase in Vacation Interests sales revenue during the three
months ended March 31, 2016 compared to the three months ended
March 31, 2015 was generated by sales growth primarily attributable
to an increase in tours as well as in our volume per guest ("VPG,"
which represents Vacation Interests sales revenue divided by the
number of tours), and to a lesser extent, the Gold Key Acquisition,
as the first calendar quarter of the year is traditionally a low
sales season in Virginia Beach, Virginia and Outer Banks, North
Carolina. The Intrawest Acquisition, which closed at the end of
January, did not have a material impact on Vacation Interests sales
revenue for the three months ended March 31, 2016.
The number of tours increased by 9,975, or 22.4%, to 54,456 for
the three months ended March 31, 2016 from 44,481 for the three
months ended March 31, 2015. Our VOI sales transactions increased
by 1,169, or 17.2%, to 7,947 during the three months ended March
31, 2016, compared to 6,778 transactions during the three months
ended March 31, 2015, and VOI average sales price per transaction
increased by $1,408, or 6.8%, to $22,060 for the three months ended
March 31, 2016 from $20,652 for the three months ended March 31,
2015. Our VPG increased by $72, or 2.3%, to $3,219 for the three
months ended March 31, 2016 from $3,147 for the three months ended
March 31, 2015, as a result of a higher average sales price per
transaction. The increase in tours and transactions was primarily
attributable to growth in our existing sales locations, as well as
the addition of Gold Key and Intrawest sales centers. The increase
in average sales price per transaction and higher VPG were due
principally to the continued focus on moving customer transactions
towards our one-week equivalent sales price and the success of the
hospitality driven sales and marketing initiatives, which are based
upon the power of vacations for happier and healthier living. Our
closing percentage decreased to 14.6% for the three months ended
March 31, 2016 from 15.2% for the three months ended March 31, 2015
due to a lower closing percentage at the Gold Key sales centers
which have a greater focus on new member acquisition, as tours of
non-owners typically exhibit a lower closing percentage than tours
of existing owners.
The provision for uncollectible Vacation Interests sales revenue
increased $7.5 million to $21.6 million during the three months
ended March 31, 2016 from $14.1 million during the three months
ended March 31, 2015. The provision for uncollectible Vacation
Interests sales as a percentage of gross Vacation Interests sales
was 12.9% and 10.3% for the first quarters of 2016 and 2015,
respectively as compared to 11.5% for the full year 2015. This
increase was primarily due to an increase in Vacation Interests
sales and a change in the credit mix of our borrowers in 2016 to a
slightly lower average FICO score for loans originated during the
period. We provide a reserve for each loan we originate based on,
among other things, the FICO score of the borrower. A lower FICO
score results in a higher provision for uncollectable accounts
associated with such loans. The weighted average FICO credit scores
of loans written during the three months ended March 31, 2016 and
three months ended March 31, 2015 were 755 and 761, respectively.
In addition, a portion of the increase is a result of external
parties discouraging certain borrowers from remaining current on
their loan payments. We continue to focus on disciplined
underwriting and highly qualified borrowers. The allowance for
Vacation Interests notes receivable as a percentage of gross
Vacation Interests notes receivable decreased 0.8 percentage points
to 20.9% for the first quarter of 2016 from 21.7% in the first
quarter of 2015.
Advertising, sales and marketing expense for the first quarter
of 2016 was $86.7 million compared to $68.5 million in the first
quarter of 2015. Advertising, sales and marketing expenses as a
percentage of Vacation Interests sales revenue increased 1.8
percentage points to 51.9% from 50.1%. The increase in advertising,
sales and marketing expense as a percentage of gross Vacation
Interests sales was primarily due to expenses incurred during the
quarter in connection with the Diamond Resorts Invitational, a
nationally-televised golf and entertainment event that supported
our Events of a Lifetime program and generated substantial brand
awareness.
Vacation Interests cost of sales increased $8.1 million to $9.2
million for the first quarter of 2016 from $1.1 million for the
first quarter of 2015. The increase in cost of sales was primarily
due to the change in estimates under the relative sales value
method which is affected by various assumptions including the
average future selling price per vacation ownership point and
average cost per point based on inventory mix; both of these
factors resulted in a larger credit to cost of sales for the
quarter ended March 31, 2015 as compared to the quarter ended March
31, 2016. Additionally, the 18.7% increase in Vacation Interests
sales, net resulted in a $3.0 million increase in the cost of sales
for the three months ended March 31, 2016 as compared to the three
months ended March 31, 2015. Vacation Interests cost of sales as a
percentage of Vacation Interests sales, net increased to 6.4% for
the three months ended March 31, 2016 from 0.9% for the three
months ended March 31, 2015.
General and Administrative Expense
General and administrative expense of $27.7 million and $32.3
million for the first quarter of 2016 and 2015 included $2.8
million and $2.5 million of non-cash stock-based compensation
charges, respectively. Additionally, the first quarter of 2015
included a one-time charge of $7.8 million relating to the
termination of the JHJM service agreement. Excluding these charges,
general and administrative expense as a percentage of total revenue
decreased 0.4 percentage points to 10.7% in the first quarter of
2016 from 11.1% in the first quarter of 2015. The reduction of
general and administrative expense as a percentage of total revenue
reflects the improved leverage of fixed costs over a higher revenue
base. Including these charges, general and administrative expense
as a percentage of total revenue was 11.9% in the first quarter of
2016 as compared to 16.3% in the first quarter of 2015.
Pre-tax Income and Net Income
Pre-tax income for the first quarter of 2015 was $58.4 million
compared to $45.5 million in the first quarter of 2015 and included
non-cash charges of $4.1 million and $3.3 million, respectively,
related to stock-based compensation. Additionally, the first
quarter of 2015 included a one-time charge of $7.8 million relating
to the termination of the JHJM service agreement. Excluding these
amounts, pre-tax income in the first quarter of 2016 would have
been $62.5 million, an increase of $5.9 million from $56.6 million
in first quarter of 2015.
Net income for the first quarter in 2016 and 2015 were inclusive
of the non-cash item discussed above. Net income increased $8.4
million to $34.4 million during the period for 2016 from $26.0
million in 2015.
Capital Resources and Liquidity
As of March 31, 2016, the Company had cash and cash equivalents
of $228.1 million representing a net decrease of $62.4 million from
$290.5 million as of December 31, 2015, reflecting the $84.6
million we expended to complete the acquisition of the vacation
ownership business of Intrawest Resort Club Group.
During the quarter ended March 31, 2016 and 2015, we used cash
of $9.1 million and $17.4 million, respectively, for acquisitions
of VOI inventory pursuant to inventory recovery agreements and in
open market and bulk VOI inventory purchases, for capitalized
legal, title and trust fees and for the construction of VOI
inventory (exclusive of inventory acquired in the Intrawest
Acquisition).
As more fully described in the Consolidated Statements of Cash
Flows, net cash provided by operating activities for the quarter
ended March 31, 2016 was $42.0 million and was the result of net
income of $34.4 million and non-cash revenues and expenses totaling
$51.4 million, offset by other changes in operating assets and
liabilities that resulted in a net credit of $43.8 million. Net
cash provided by operating activities for the quarter ended March
31, 2015 was $45.1 million and was the result of net income of
$26.0 million and non-cash revenues and expenses totaling $41.2
million, partially offset by other changes in operating assets and
liabilities that resulted in a net credit of $22.1 million.
Net cash used in investing activities for the quarter ended
March 31, 2016 was $89.4 million, comprised of (i) $84.6 million
related to the purchase of assets in connection with the Intrawest
Acquisition; and (ii) $4.7 million used to purchase property and
equipment, primarily associated with information technology related
projects and equipment and renovation projects at certain sales
centers. Net cash used in investing activities for the quarter
ended March 31, 2015 was $12.9 million, consisting of (i) $9.0
million used to purchase intangible assets, primarily associated
with the HM&C transaction, through which the Company acquired
intangible assets from our Chairman, Stephen J. Cloobeck and
entities previously controlled by Mr. Cloobeck and terminated the
service agreement with JHJM; and (ii) $4.2 million used to purchase
property and equipment, primarily associated with information
technology related projects and equipment and renovation projects
at certain sales centers; partially offset by $0.2 million in
proceeds from the sale of assets in our European operations.
As more fully described in the Consolidated Statements of Cash
Flows, net cash used in financing activities for the quarters ended
March 31, 2016 and 2015 was $14.9 million and $88.2 million,
respectively. The principal difference between these periods being
our decision not to place approximately $65 million in Vacation
Interest Notes Receivable in our existing warehouse facilities,
which would have generated in excess of $50 million of additional
cash during the quarter. With the growth of our Vacation Interest
Sales business, we are in the final documentation stages of a new
$100 million warehouse conduit facility with a major bank which we
anticipate closing in the second quarter.
Intrawest Resort Club Group Acquisition
On January 29, 2016, the Company completed its acquisition of
the vacation ownership business of the Intrawest Resort Club Group
from Intrawest Resorts Holdings, Inc. The Company acquired
management contracts, a portfolio of customer notes receivable
which had an outstanding balance as of the purchase date of $22.1
million (net of allowance and discount), of which 89% was less than
60 days past due, unsold vacation ownership interests and four
acres of undeveloped land, adding nine additional managed resorts
to the Company’s resort network, in exchange for an aggregate
purchase price of approximately $84.6 million. We used cash on hand
to complete the Intrawest Resort Club Group purchase.
Exploration of Strategic Alternatives
The Board of Directors previously announced that it had formed a
Committee of Independent Directors to explore strategic
alternatives to maximize shareholder value. That process is
continuing.
There is no assurance that this exploration will result in any
strategic alternatives being announced or consummated. The Company
does not intend to discuss or disclose further developments during
this process unless and until the Board has approved a specific
action or otherwise determined that further disclosure is
appropriate.
First Quarter 2016 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 4,
2016, 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 (888) 753-4238 from the United States, or (706) 643-3355
from outside the U.S. with conference ID 91624829; please dial in
fifteen minutes early to ensure a timely start.
Cautionary Notes Regarding Forward-Looking Statements
This press release contains forward-looking statements,
including the guidance for expected operating results presented
under “Outlook” above, statements related to the Company’s
exploration of strategic alternatives (including, without
limitation such statements under “Exploration of Strategic
Alternatives” above) and other statements regarding the Company’s
current expectations, 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 or 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 integrate operations and personnel associated
with its strategic acquisitions and any related increases in
expenses and disruption of the Company’s ongoing business; the
Company's ability to maintain an optimal inventory of vacation
ownership interests for sale overall, as well as in specific
Collections (including by building or acquiring new inventory in
reliance upon arrangements with third-party financial sponsors);
the market price of the Company's stock prevailing from time to
time; alternative uses of cash and investment opportunities pursued
by the Company from time to time; the Company’s compliance with the
financial and other covenants contained in the credit agreement
with respect to the Company’s senior secured credit facility; the
Company's ability to sell, securitize or borrow against its
consumer loans; changes in the default rates of our consumer loan
portfolio; 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.
With respect to the Company’s exploration of strategic
alternatives, there is no assurance that the process will result in
any transaction or other action by the Company, that any
transaction or other action will be consummated, or that any
transaction or other action will maximize stockholder value.
Potential risks and uncertainties related to strategic alternatives
include, among others, the impact of the announcement of the
exploration of strategic alternatives on the Company's business,
its financial and operating results and its employees, suppliers
and customers (in particular, HOAs and prospective purchasers of
vacation ownership interests); factors affecting the feasibility
and timing of any transaction or other action, including, without
limitation, required third-party consents and regulatory approvals;
the ability to identify and close any transaction; and risks
related to realization of the expected benefits of any transaction
or other action to the Company and its stockholders. 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® (NYSE: DRII), with its network of
more than 420 vacation destinations located in 35 countries
throughout the continental United States, Hawaii, Canada, Mexico,
the Caribbean, South America, Central America, Europe, Asia,
Australasia and Africa, provides guests with choice and flexibility
to let them create their dream vacation, whether they are traveling
an hour away or around the world. Our relaxing vacations have the
power to give guests an increased sense of happiness and
satisfaction in their lives, while feeling healthier and more
fulfilled in their relationships, by enjoying memorable and
meaningful experiences that let them Stay Vacationed™.
Diamond Resorts International® manages vacation ownership
resorts and sells vacation ownership points that provide members
and owners with Vacations for Life® at over 420 managed and
affiliated properties and cruise itineraries.
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 Interests 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 any such 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 the Senior Credit
Facility Agreement 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 measures calculated
in a manner similar to the calculation of Adjusted EBITDA. As a
result, we believe that supplementing our consolidated financial
statements presented in accordance with U.S. GAAP with this
non-U.S. GAAP measure provides investors with useful information
with respect to our liquidity. As of March 31, 2016, all of our
subsidiaries were designated as restricted subsidiaries, as defined
in the Senior Credit Facility Agreement.
In addition to its application under the Senior Credit Facility
Agreement, 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
certain personnel.
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;
- 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.
In this release, we present Adjusted EBITDA excluding the
one-time cash charge related to the termination of certain
contractual relationships with Mr. Cloobeck because management
excludes this charge from its forecasts and evaluation of our
operational performance and because we believe that Adjusted EBITDA
including this charge is not indicative of our core cash flows or
operating results.
The following tables present Adjusted EBITDA, excluding the
one-time charge related to the contract termination reconciled to
each of (i) our net cash provided by operating activities and (ii)
our net income for the periods presented. These tables further
reconcile to Free Cash Flow for the periods presented.
We define Free Cash Flow as our Adjusted EBITDA, as further
adjusted for: (i) cash interest paid on corporate indebtedness;
(ii) impact of receivables financing; (iii) cash spent for
acquisitions of VOI inventory pursuant to inventory recovery
agreements and in open market and bulk VOI inventory purchases, for
capitalized legal and title and trust fees; (iv) cash spent for
corporate capital expenditures; and (v) other changes in net
working capital. In arriving at Free Cash Flow, we also adjust for
certain net changes in working capital.
We believe that Free Cash Flow is an important measure of our
operating performance and, more specifically, that our presentation
of Free Cash Flow provides useful information regarding our
generation of cash from our operations and our ability to execute
our business and growth strategies (including potential strategic
transactions) from a financial perspective. Free Cash Flow is
incorporated into the factors used to determine compensation for
certain of our employees.
(In thousands)
(Unaudited) Quarter Ended March 31, 2016
2015 Net cash provided by operating activities $
42,019 $ 45,060 Provision for income taxes 23,947 19,525 Provision
for uncollectible Vacation Interests sales revenue(a) (21,559 )
(14,096 )
Amortization of capitalized financing
costs and original
issue discounts(a)
(2,027 ) (1,402 ) Deferred income taxes(b) (8,940 ) (10,822 )
Excess tax benefits from stock-based compensation(c) — 375 Loss on
foreign currency(d) (349 ) (98 ) Gain on Vacation Interests notes
receivable purchase(a) 107 96 Unrealized loss on derivative
instruments(e) (131 ) (258 ) Unrealized loss on post-retirement
benefit plan(f) — (43 ) Loss on investment in joint venture(a) (123
) — Corporate interest expense(g) 10,218 7,686
Change in operating assets and liabilities
excluding
acquisitions(h)
43,770 22,122 Vacation Interests cost of sales(i) 9,242
1,138 Adjusted EBITDA - Consolidated 96,174 69,283 One-time
charge related to the contract termination(j) — 7,830
Adjusted EBITDA excluding the one-time charge related to the
contract termination 96,174 77,113 Less: One-time charge related to
the contract termination(j) — (7,830 ) Cash interest paid on
corporate indebtedness(k) (8,060 ) (6,094 ) Impact of receivables
financing(l) (38,147 ) (4,956 ) Cash spent on inventory
purchases(m) (7,982 ) (15,536 ) Cash spent on corporate capital
expenditures(n) (4,732 ) (4,160 ) Other changes in working capital,
net(o) (12,069 ) (2,306 ) Free Cash Flow $ 25,184 $ 36,231
Common shares outstanding - as of the respective quarter end
69,712 73,323 (a) Represents non-cash charge
or gain. (b) Represents the deferred income tax liability,
primarily related to current favorable tax laws regarding
recognition of income from financed Vacation Interests sales and
the utilization of our NOLs (c) Represents the amount of excess tax
benefit that arises when stock-based compensation recognized on our
tax return exceeds stock-based compensation recognized in our
condensed consolidated statement of income and comprehensive income
(loss). (d) Represents net realized loss on foreign exchange
transactions settled at unfavorable exchange rates and unrealized
net loss resulting from the devaluation of foreign
currency-denominated assets and liabilities. (e) Represents the
effects of the changes in mark-to-market valuations of derivative
assets and liabilities. (f) 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; this plan was deconsolidated during the quarter ended
September 30, 2015. (g) Represents corporate interest expense; does
not include interest expense related to non-recourse indebtedness
that is secured by our VOI consumer loans and is included in
Adjusted EBITDA. (h) Represents the net change in operating assets
and liabilities excluding acquisitions, as computed directly from
the statements of cash flows. Vacation Interests cost of sales is
included in the net changes in unsold Vacation Interests, net, as
presented in the statements of cash flows. (i) We record Vacation
Interests 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. (j) Represents a
one-time cash charge related to the termination of certain
contractual relationships with Mr. Cloobeck. (k) Represents cash
interest paid on corporate indebtedness. (l) Represents the net
impact of all receivables-backed financing activities, including
securitization and funding facilities collection and reserve cash,
Vacation Interests notes receivable, provision for uncollectible
Vacation Interests sales revenue and proceeds from issuance of
securitization notes and funding facilities, net of payments made
on securitization notes and funding facilities. (m) Represents cash
spent on (i) acquisitions of VOI inventory pursuant to inventory
recovery agreements and in open market and bulk VOI inventory
purchases; and (ii) capitalized legal, title and trust fees. (n)
Represents cash spent on property and equipment capital
expenditure, primarily related to information technology related
projects and equipment and renovation projects at certain sales
centers. (o) Represents net changes in other working capital items
not specifically mentioned above. Working capital items are
primarily timing differences and may vary significantly from period
to period.
(In thousands)
(Unaudited) Quarter Ended March 31, 2016
2015 Net income $ 34,433 $ 25,975 Plus: Corporate
interest expense(a) 10,218 7,686 Provision for income taxes 23,947
19,525 Depreciation and amortization(b) 10,560 8,640 Vacation
Interests cost of sales(c) 9,242 1,138 Impairments and other
non-cash write-offs(b) — 5 Gain on disposal of assets(b) (318 ) (34
) Amortization of loan origination costs(b) 3,923 3,042
Amortization of net portfolio premiums(b) 20 11 Stock-based
compensation(d) 4,149 3,295 Adjusted EBITDA -
Consolidated 96,174 69,283 One-time charge related to the contract
termination(e) — 7,830 Adjusted EBITDA excluding the
one-time charge related to the contract termination 96,174 77,113
Less: One-time charge related to the contract
termination(e)
— (7,830 ) Cash interest paid on corporate indebtedness(f) (8,060 )
(6,094 ) Impact of receivables financing(g) (38,147 ) (4,956 ) Cash
spent on inventory purchases(h) (7,982 ) (15,536 ) Cash spent on
corporate capital expenditures(i) (4,732 ) (4,160 ) Other changes
in working capital, net(j) (12,069 ) (2,306 ) Free Cash Flow $
25,184 $ 36,231 Common shares outstanding - as of the
respective quarter end 69,712 73,323 (a)
Corporate interest expense does not include interest expense
related to non-recourse indebtedness that is secured by our VOI
consumer loans. (b) These items represent non-cash charges/gains.
(c) We record Vacation Interests 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 expense. (e) Represents
a one-time cash charge related to the termination of certain
contractual relationships with Mr. Cloobeck. (f) Represents cash
interest paid on corporate indebtedness. (g) Represents the net
impact of all receivables-backed financing activities, including
securitization and funding facilities collection and reserve cash,
Vacation Interests notes receivable, provision for uncollectible
Vacation Interests sales revenue and proceeds from issuance of
securitization notes and funding facilities, net of payments made
on securitization notes and funding facilities. (h) Represents cash
spent on (i) acquisitions of VOI inventory pursuant to inventory
recovery agreements and in open market and bulk VOI inventory
purchases; and (ii) capitalized legal, title and trust fees. (i)
Represents cash spent on property and equipment capital
expenditure, primarily related to information technology related
projects and equipment and renovation projects at certain sales
centers. (j) Represents net changes in other working capital items
not specifically mentioned above. Working capital items are
primarily timing differences and may vary significantly from period
to period.
The following tables present a reconciliation of (i) general and
administrative expense as reported to general and administrative
expense, excluding non-cash stock-based compensation and the
one-time cash charge related to the contract termination referenced
above; and (ii) income before provision for income taxes to income
before provision for income taxes, excluding non-cash stock-based
compensation and the one-time cash charge related to the contract
termination. We exclude these non-cash and one-time items because
management excludes them from its forecasts and evaluation of our
operational performance and because we believe that the U.S. GAAP
measures including these items are not indicative of our core
operating results.
($ in thousands)
(Unaudited) Quarter Ended March 31, 2016
2015 General and administrative expense $ 27,723 $
32,256 Less: Stock-based compensation (2,821 ) (2,514 ) Less:
One-time cash charge related to the contract termination —
(7,830 ) General and administrative expense after excluding
stock-based compensation and one-time cash charge related to the
contract termination $ 24,902 $ 21,912
($
in thousands) (Unaudited) Quarter Ended March 31,
2016 2015 Income before provision for income taxes $
58,380 $ 45,500 Stock-based compensation 4,149 3,295 One-time cash
charge related to the contract termination — 7,830
Income before provision for income taxes after excluding
stock-based compensation and one-time cash charge related to the
contract termination $ 62,529 $ 56,625
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 Diamond
Collections, revenue from its operations of the Clubs and the
provision of other services; and (ii) Vacation Interests 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 income 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, depreciation and amortization and
provision for income taxes) 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 CONSOLIDATING STATEMENTS OF INCOME BY BUSINESS
SEGMENT For the Quarters Ended March 31, 2016 and 2015
(In thousands) (Unaudited)
Quarter Ended
March 31, 2016 Quarter Ended March 31, 2015
Hospitality
and
Management
Services
Vacation
Interest Sales
and
Financing
Corporate
and
Other
Total
Hospitality
and
Management
Services
Vacation
Interest Sales
and
Financing
Corporate
and
Other
Total Revenues: Management and member services
$ 46,096 $ — $ — $ 46,096 $ 40,639 $ — $ — $ 40,639 Consolidated
resort operations 4,475 — — 4,475 3,209 — — 3,209
Vacation Interests sales, net
of provision of $0, $21,559,$0, $21,559, $0,
$14,096, $0 and $14,096, respectively
— 145,448 — 145,448 — 122,566 — 122,566 Interest — 22,187 326
22,513 — 18,416 386 18,802 Other 1,839 13,425 —
15,264 1,893 10,411 — 12,304
Total revenues 52,410 181,060 326
233,796 45,741 151,393 386 197,520
Costs and Expenses: Management and member services
7,645 — — 7,645 8,081 — — 8,081 Consolidated resort operations
3,782 — — 3,782 3,701 — — 3,701 Vacation Interests cost of sales —
9,242 — 9,242 — 1,138 — 1,138 Advertising, sales and marketing —
86,725 — 86,725 — 68,513 — 68,513 Vacation Interests carrying cost,
net — 5,114 — 5,114 — 10,368 — 10,368 Loan portfolio 431 3,450 —
3,881 334 2,403 — 2,737 Other operating 15 5,981 — 5,996 — 5,011 —
5,011 General and administrative — — 27,723 27,723 — — 32,256
32,256 Depreciation and amortization — — 10,560 10,560 — — 8,640
8,640 Interest expense — 4,848 10,218 15,066 — 3,918 7,686 11,604
Impairments and other write-offs — — — — — — 5 5 Gain on disposal
of assets — — (318 ) (318 ) — — (34 )
(34 ) Total costs and expenses 11,873 115,360 48,183
175,416 12,116 91,351 48,553
152,020
Income (loss) before provision
for income taxes
40,537 65,700 (47,857 ) 58,380 33,625 60,042
(48,167 ) 45,500 Provision for income taxes
23,947
19,525 Net income
$ 34,433
$ 25,975
DIAMOND RESORTS INTERNATIONAL,
INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As
of March 31, 2016 and December 31, 2015 (In thousands,
except share data)
March 31,
2016
(Unaudited)
December 31,
2015
(Audited)
Assets: Cash and cash equivalents $ 228,146 $ 290,510 Cash
in escrow and restricted cash 80,591 98,295
Vacation Interests notes receivable, net
of allowance of $168,998 and $165,331, respectively
657,469 622,607 Due from related parties, net 41,653 42,435 Other
receivables, net 37,969 55,786 Income tax receivable 5 147 Deferred
tax asset 480 577 Prepaid expenses and other assets, net 177,748
76,454 Unsold Vacation Interests, net 367,681 358,278 Property and
equipment, net 102,878 95,361 Assets held for sale 1,544 1,672
Goodwill 129,103 104,521 Intangible assets, net 243,640
222,190 Total assets $ 2,068,907 $ 1,968,833
Liabilities and Stockholders' Equity: Accounts
payable $ 20,852 $ 15,144 Due to related parties, net 112,497
54,778 Accrued liabilities 220,086 221,662 Income taxes payable
7,557 346 Deferred income taxes 106,103 92,829 Deferred revenues
120,035 119,720
Senior Credit Facility, net of unamortized
original issue discount of $4,548 and $4,735,
respectively, and debt issuance cost of $11,334 and $11,515,
respectively
558,784 558,416
Securitization notes and Funding
Facilities, net of unamortized original issue
discount of $92 and $103, respectively, and debt
issuance costs of $11,846 and $12,678, respectively
601,017 630,080 Derivative liabilities 277 146 Notes payable 11,939
4,750 Total liabilities 1,759,147 1,697,871
Stockholders' equity:
Common stock $0.01 par value per share;
authorized - 250,000,000 shares, issued - 71,934,002 and
71,928,002 shares, respectively
719 719 Preferred stock $0.01 par value per share; authorized
5,000,000 shares — — Additional paid in capital 385,708 381,475
Retained earnings (accumulated deficit) 3,409 (31,024 ) Accumulated
other comprehensive loss (20,019 ) (20,151 ) Subtotal 369,817
331,019 Less: Treasury stock at cost - 2,222,383 and 2,222,383
shares, respectively (60,057 ) (60,057 ) Total stockholders' equity
309,760 270,962 Total liabilities and stockholders'
equity $ 2,068,907 $ 1,968,833
DIAMOND RESORTS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Quarters
Ended March 31, 2016 and 2015 (In thousands)
(Unaudited) Quarter Ended
March 31, 2016 2015 Operating Activities: Net
income $ 34,433 $ 25,975 Adjustments to reconcile net income to net
cash provided by operating activities: Provision for uncollectible
Vacation Interests sales revenue 21,559 14,096 Amortization of
capitalized financing costs and original issue discounts 2,027
1,402 Amortization of capitalized loan origination costs and net
portfolio discount 3,943 3,053 Depreciation and amortization 10,560
8,640 Stock-based compensation 4,149 3,295 Excess tax benefits from
stock-based compensation — (375 ) Impairments and other write-offs
— 5 Gain on disposal of assets (318 ) (34 ) Deferred income taxes
8,940 10,822 Loss on foreign currency exchange 349 98 Gain on
Vacation Interests notes receivable repurchase (107 ) (96 )
Unrealized loss on derivative instrument 131 258 Unrealized loss on
post-retirement benefit plan — 43 Loss on investment in joint
venture 123 — Changes in operating assets and liabilities excluding
acquisitions: Cash in escrow and restricted cash 319 (718 )
Vacation Interests notes receivable (38,148 ) (27,418 ) Due from
related parties, net 8,296 (4,729 ) Other receivables, net 19,139
22,910 Prepaid expenses and other assets, net (96,533 ) (73,787 )
Unsold Vacation Interests, net 748 (10,915 ) Accounts payable 5,571
4,397 Due to related parties, net 58,646 74,912 Accrued liabilities
(7,668 ) 7,247 Income taxes receivable/payable 7,492 7 Deferred
revenues (1,632 ) (14,028 ) Net cash provided by operating
activities 42,019 45,060 Investing activities:
Property and equipment capital expenditures (4,732 ) (4,160 )
Purchase of intangible assets in
connection with the HM&C Master Agreement
— (8,993 ) Cash acquired in connection with the Intrawest
Acquisition (84,613 ) — Proceeds from sale of assets — 236
Net cash used in investing activities $ (89,345 ) $ (12,917
)
DIAMOND RESORTS INTERNATIONAL,
INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS—Continued For the Quarters Ended March 31, 2016
and 2015 (Unaudited) (In thousands)
Quarter Ended March 31, 2016 2015 Financing
activities: Changes in restricted cash $ 17,383 $ (5,770 ) Proceeds
from issuance of securitization notes and Funding Facilities 62,002
63,206 Payments on Senior Credit Facility — (18,109 ) Payments on
securitization notes and Funding Facilities (91,908 ) (63,446 )
Payments on notes payable (1,866 ) (2,740 ) Payments of debt
issuance costs (573 ) (2,368 ) Excess tax benefits from stock-based
compensation — 375 Common stock repurchases under the share
repurchase program — (61,141 ) Proceeds from exercise of stock
options 84 1,816 Net cash used in financing
activities (14,878 ) (88,177 ) Net decrease in cash and cash
equivalents (62,204 ) (56,034 ) Effect of changes in exchange rates
on cash and cash equivalents (160 ) (626 ) Cash and cash
equivalents, beginning of period 290,510 255,042 Cash
and cash equivalents, end of period $ 228,146 $ 198,382
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash interest paid on corporate indebtedness $ 8,060 $ 6,094
Cash interest paid on securitization notes and Funding
Facilities $ 4,911 $ 3,897 Cash paid for taxes, net
of cash tax refunds $ 437 $ 11 Purchase of
assets in connection with the Intrawest Acquisition: Fair value of
assets acquired $ 73,349 $ — Goodwill acquired 24,086 — Cash paid
(84,613 ) — Deferred tax liability (4,419 ) — Liabilities
assumed $ 8,403 $ — SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES: Insurance premiums
financed through issuance of notes payable $ 9,055 $ 8,492
Unsold Vacation Interests, net reclassified to property and
equipment $ 5,702 $ — Assets held for sale
reclassified to unsold Vacation Interests $ — $ 13,159
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160504006738/en/
Media Contact:Diamond Resorts International®Stevi Wara,
702-823-7069media@diamondresorts.comorInvestor Contact:Sloane and
CompanyJoshua Hochberg, 212-486-9500jhochberg@sloanepr.com
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