What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 164 added, 158 removed, 381 unchanged (46% of the section changed)

7 unchanged sentences

HGV cautions you that our forward-looking statements involve known and unknown risks, uncertainties and other factors, including those that are beyond HGV’s control, which may cause the actual results, performance or achievements to be materially different from the future results.

Any one or more of these risks or uncertainties could adversely impact HGV’s operations, revenue, operating profits and margins, key business operational metrics discussed under “— Operational Metrics” below, financial condition or credit rating.

For additional information regarding factors that could cause HGV’s actual results to differ materially from those expressed or implied in the forward-looking statements in this Quarterly Report on Form 10-Q, please see the risk factors

discussed in “Part I—Item 1A.

Any one or more of these risks or uncertainties could adversely impact

HGV’s operations, revenue, operating profits and margins, key business operational metrics discussed under “— Operational Metrics” below, financial condition or credit rating.

Risk Factors” and the Summary of Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as supplemented and updated by the risk factors discussed in “Part II-Item 1A.

23 unchanged sentences

We are a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand.

Our Company also owns and operates Diamond Resorts International ("Diamond") and are in the process of rebranding Diamond properties and sales centers to brands that meet Hilton standards.

Our Company also owns and operates Diamond Resorts International (“Diamond”) and is in the process of rebranding Diamond properties and sales centers to brands that meet Hilton standards.

Our operations primarily consist of:

selling vacation ownership intervals and vacation ownership interests (collectively, “VOIs”, "VOI") for us and third parties;

selling vacation ownership intervals and vacation ownership interests (collectively,

“VOIs”, “VOI”) for us and third parties;

financing and servicing loans provided to consumers for their timeshare purchases;

1 unchanged sentence

and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Legacy-HGV Club”) and Diamond points-based clubs.

As of June 30, 2022, we have 154 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada, and Japan.

As of September 30, 2022, we have 154 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada, and Japan.

A significant number of our properties and VOIs are concentrated in Florida, Nevada, Hawaii, Europe, California, Virginia and Arizona.

and feature spacious, condominium-style accommodations with superior amenities and quality service.

As of June 30, 2022, we have approximately 339,000 Hilton Grand Vacations Club and Hilton Club members.

As of September 30, 2022, we have approximately 344,000 Hilton Grand Vacations Club and Hilton Club members.

Legacy-HGV Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 18 industry-leading brands across approximately 7,000 properties, as well as numerous experiential vacation options, such as cruises and guided tours.

27 unchanged sentences

Purchasers of points generally do not acquire a direct ownership interest in the resort properties in our network.

For each Collection, one or more trustees hold legal title to the deeded fee simple real estate interests or the functional equivalent, or, in some cases,

leasehold real estate interests for the benefit of the respective Collection’s association members in accordance with the applicable agreements.

For the six months ended June 30, 2022, sales from fee-for-service, just-in-time, developed inventory and points-based sources were 28 percent, 13 percent, 23 percent and 36 percent, respectively, of contract sales.

For each Collection, one or more trustees hold legal title to the deeded fee simple real estate interests or the functional equivalent, or, in some cases, leasehold real estate interests for the benefit of the respective Collection’s association members in accordance with the applicable agreements.

For the nine months ended September 30, 2022, sales from fee-for-service, just-in-time, developed inventory and points-based sources were 28 percent, 14 percent, 21 percent and 36 percent, respectively, of contract sales.

See “Key Business and Financial Metrics and Terms Used by Management — Real Estate Sales Operating Metrics” for additional discussion of contract sales.

9 unchanged sentences

We use targeted direct marketing to reach potential members who are identified as having the financial ability to pay for our products and have an affinity with Hilton (Legacy-HGV only) and are frequent leisure travelers.

Tour flow quality impacts key metrics such as close rate and VPG, defined in “Key Business and Financial Metrics and Terms Used by Management—Real Estate Sales Metrics.” Additionally, the quality of tour flow impacts sales revenue and the collectability of our timeshare financing receivables.

For the six months ended June 30, 2022, 71 percent of our contract sales were to our existing owners.

Tour flow quality impacts key metrics such as close rate and VPG, defined in “Key Business and Financial Metrics and Terms Used by Management—Real Estate Sales Operating Metrics.” Additionally, the quality of tour flow impacts sales revenue and the collectability of our timeshare financing receivables.

For the nine months ended September 30, 2022, 71 percent of our contract sales were to our existing owners.

We provide financing for members purchasing our developed and acquired inventory and generate interest income.

Our timeshare financing receivables are collateralized by the underlying VOIs and are generally structured as 10-year , fully-amortizing loans that bear a fixed interest rate typically ranging from 2.5 percent to 25 percent per annum.

Financing propensity 62 percent was 66 percent for the six months ended June 30, 2022 and 2021.

Financing propensity was 63 percent and 66 percent for the nine months ended September 30, 2022 and 2021.

We calculate financing propensity as contract sales volume of financed contracts originated in the period divided by contract sales volume of all contracts originated in the period.

2 unchanged sentences

and Canadian borrowers at the time of origination were as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Weighted-average FICO score 735 724

1 unchanged sentence

When a member defaults, we ultimately return their VOI to inventory for resale and that member no longer participates in our Clubs.

Some of our timeshare financing receivables have been pledged as collateral in our securitization transactions, which have in the past and may in the future provide funding for our business activities.

Some of our timeshare financing receivables have been pledged as collateral in our securitization transactions and our Timeshare Facility, which have in the past and may in the future provide funding for our business activities.

In these securitization transactions, special purpose entities are established to issue various classes of debt securities which are generally collateralized by a single pool of assets, consisting of timeshare financing receivables that we service and related cash deposits.

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• Volume per guest (“VPG”) represents the sales attributable to tours at our sales locations and is calculated by dividing contract sales, excluding telesales, by tour flow.

We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate.

We consider VPG to be an

important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate.

For further information see Item 8.

3 unchanged sentences

EBITDA, presented herein, is a financial measure that is not recognized under U.S.

GAAP that reflects net income (loss), before interest expense (excluding non-recourse debt), a provision for income taxes and depreciation and amortization.

GAAP that reflects net income, before interest expense (excluding non-recourse debt), a provision for income taxes and depreciation and amortization.

Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with:

5 unchanged sentences

EBITDA and Adjusted EBITDA are not recognized terms under U.S.

GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S.

GAAP and should not be considered as alternatives to net income or other measures of financial performance or liquidity derived in accordance with U.S.

In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

2 unchanged sentences

and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income, cash flow or other methods of analyzing our results as reported under U.S.

Some of these limitations are:

8 unchanged sentences

Results of Operations

Three and Six Months Ended June 30, 2022 Compared with the Three and Six Months Ended June 30, 2021

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Segment Results

3 unchanged sentences

For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses them to manage our business and material limitations on their usefulness, refer to “—Key Business and Financial Metrics and Terms Used by Management—EBITDA and Adjusted EBITDA.” The following tables set forth revenues and Adjusted EBITDA by segment:

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance (1)

Three Months Ended September 30, Variance (1)

Nine Months Ended September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

Real estate sales and financing $ 586 $ 194 $ 392 NM $ 1,038 $ 317 $ 721 NM

Resort operations and club management 303 107 196 NM 571 187 384 NM

Total segment revenues 889 301 588 NM 1,609 504 1,105 NM

Real estate sales and financing $ 745 $ 659 $ 86 13.1 $ 1,783 $ 976 $ 807 82.7

Resort operations and club management 299 216 83 38.4 870 403 467 NM

Total segment revenues 1,044 875 169 19.3 2,653 1,379 1,274 92.4

Cost reimbursements 82 58 24 41.4 215 131 84 64.1

1 unchanged sentence

(10) (5) (5) 100.0 (25) (13) (12) 92.3

Total revenues $ 948 $ 334 $ 614 NM $ 1,727 $ 569 $ 1,158 NM

Total revenues $ 1,116 $ 928 $ 188 20.3 $ 2,843 $ 1,497 $ 1,346 89.9

(1) NM - fluctuation in terms of percentage change is not meaningful.

1 unchanged sentence

Business Segments in our unaudited condensed consolidated financial statements for details on the intersegment eliminations.

The following table reconciles net income (loss), our most comparable U.S.

The following table reconciles net income, our most comparable U.S.

GAAP financial measure, to EBITDA and Adjusted EBITDA:

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance (1)

Three Months Ended September 30, Variance (1)

Nine Months Ended September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

Net income $ 73 $ 9 $ 64 NM $ 124 $ 2 $ 122 NM

Interest expense 35 17 18 NM 68 32 36 NM

Income tax expense (benefit) 41 3 38 NM 61 (3) 64 NM

Depreciation and amortization 64 12 52 NM 124 23 101 NM

Net income $ 150 $ 99 $ 51 51.5 $ 274 $ 101 $ 173 NM

Interest expense 37 42 (5) (11.9) 105 74 31 41.9

Income tax expense 54 49 5 10.2 115 46 69 NM

Depreciation and amortization 57 48 9 18.8 181 71 110 NM

Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates 2 — 2 100.0 2 1 1 100.0

EBITDA 213 41 172 NM 377 55 322 NM

EBITDA 300 238 62 26.1 677 293 384 NM

Other loss, net (2) 20 (22) (110.0) (1) 22 (23) NM

Share-based compensation expense 14 14 — — 40 32 8 25.0

Impairment reversal (expense) (3) — (3) 100.0 — 1 (1) (100.0)

Impairment expense — 1 (1) (100.0) — 2 (2) (100.0)

Acquisition and integration-related expense 19 54 (35) (64.8) 49 83 (34) (41.0)

1 unchanged sentence

7 13 (6) (46.2) 48 20 28 NM

Adjusted EBITDA $ 273 $ 70 $ 203 NM $ 475 $ 112 $ 363 NM

Adjusted EBITDA $ 338 $ 340 $ (2) (0.6) $ 813 $ 452 $ 361 79.9

(1) NM - fluctuation in terms of percentage change is not meaningful.

(2) For the three and six months ended June 30, 2022 and 2021 this amount includes costs associated with restructuring, one-time charges, and other non-cash items.

This also includes amortization of premiums resulting from purchase accounting.

(2) For the three and nine months ended September 30, 2022 and 2021 this amount includes costs associated with restructuring, one-time charges and other non-cash items.

This amount also includes the amortization of premiums resulting from purchase accounting.

The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA:

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance (1)

Three Months Ended September 30, Variance (1)

Nine Months Ended September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

1 unchanged sentence

Real estate sales and financing (2)

$ 218 $ 45 $ 173 NM $ 371 $ 72 $ 299 NM

$ 295 $ 280 $ 15 5.4 $ 666 $ 352 $ 314 89.2

Resort operations and club management (2)

119 61 58 95.1 220 103 117 NM

Adjusted EBITDA from unconsolidated affiliates 4 4 — — 7 7 — —

112 109 3 2.8 332 212 120 56.6

Adjusted EBITDA from unconsolidated affiliates 5 1 4 NM 12 8 4 50.0

License fee expense (33) (24) (9) 37.5 (90) (57) (33) 57.9

1 unchanged sentence

(41) (26) (15) 57.7 (107) (63) (44) 69.8

Adjusted EBITDA $ 273 $ 70 $ 203 NM $ 475 $ 112 $ 363 NM

Adjusted EBITDA $ 338 $ 340 $ (2) (0.6) $ 813 $ 452 $ 361 79.9

(1) NM - fluctuation in terms of percentage change is not meaningful.

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The following table represents deferrals and recognitions of Sales of VOI revenue and direct costs for properties under construction:

Three Months Ended June 30, Variance Six Months Ended June 30, Variance

Three Months Ended September 30, Variance Nine Months Ended September 30, Variance

($ in millions) 2022 2021 $ 2022 2021 $

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Net construction (deferrals) recognitions $ 43 $ 133 $ (90) $ 17 $ 93 $ (76)

(1) Includes anticipated Costs of VOI sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete for the three and six months ended June 30, 2022 and 2021.

Real estate sales and financing segment revenues increased by $392 million and $721 million for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, sales revenue primarily incr eased in these periods due to an increase in travel demand and a corresponding

increase in tour flow and sales transactions, in addition to a decrease in deferred sales of VOIs related to sales of projects under construction.

Sales revenue also increased as a result of the launch of new properties in the second half of 2021.

This increase was partially offset by a slight decrease in average transaction price compared to the same period in 2021.

Real estate sales and financing Adjusted EBITDA increased by $173 million and by $299 million for the three and six months ended June 30, 2022, compared to the same periods in 2021, primarily due to the revenue increases discussed above in addition to improvements in our real estate sales and financing profit margins .

(1) Includes anticipated Costs of VOI sales of VOIs under construction that will be acquired under a just-in-time arrangement once construction is complete for the three and nine months ended September 30, 2022 and 2021.

Real estate sales and financing segment revenues increased by $86 million and $807 million for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, sales revenue primarily increased in these periods due to an increase in travel demand and a

corresponding increase in tour flow and sales transactions;

partially offset by a net decrease in the recognition of deferred sales of VOIs related to projects previously under construction during the same periods in 2021.

Sales revenue for the nine months ended September 30, 2022 also increased as a result of the launch of new properties in the second half of 2021.

Real estate sales and financing Adjusted EBITDA increased by $15 million and by $314 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021, primarily due to the revenue increases discussed above.

Refer to “—Real Estate” and “—Financing” for further discussion on the revenues and expenses of the real estate sales and financing segment.

Resort Operations and Club Management

Resort operations and club management segment revenues increased by $196 million and $384 million for the three and six months ended June 30, 2022, compared to the same periods in 2021.

Resort operations and club management segment revenues increased by $83 million and $467 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, the increase in resort operations and club management revenues was driven by greater resort management revenue from the launch of new properties in the second half of 2021 as well as an increase in Club members.

Rental and ancillary revenues also increased due to an increase in available rooms in addition to higher daily rates charged related to the aforementioned launch of new properties compared to the same periods in 2021.

Resort operations and club management segment adjusted EBITDA increased by $58 million and by $117 million for the three and six months ended June 30, 2022, compared to the same periods in 2021, primarily due to the increase in resort and club management and rental revenues described above, partially offset by a decrease in resort and club management profit margins associated with higher salaries and wages expense.

Resort operations and club management segment adjusted EBITDA increased by $3 million and by $120 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021, primarily due to the increase in resort and club management and rental revenues described above, partially offset by a by an increase in resort and club management expenses due to personnel-related costs incurred to service increased arrivals and transaction activity along with the launch of new club features and programs.

Refer to “— Resort and Club Management” and “—Rental and Ancillary Services” for further discussion on the revenues and expenses of the resort operations and club management segment.

1 unchanged sentence

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions, except Tour flow and VPG) 2022 2021 $ % 2022 2021 $ %

Contract sales $ 617 $ 259 $ 358 NM $ 1,126 $ 398 $ 728 NM

Contract sales $ 621 $ 433 $ 188 43.4 $ 1,747 $ 831 $ 916 NM

Fee-for-service sales (2)

(175) (124) (51) 41.1 (488) (289) (199) 68.9

Provision for financing receivables losses (40) (12) (28) NM (71) (28) (43) NM

Provision for financing receivables losses (32) (50) 18 (36.0) (103) (78) (25) 32.1

Reportability and other:

Net deferral of sales of VOIs under construction (3)

Net recognition of sales of VOIs under construction (3)

86 241 (155) (64.3) 34 167 (133) (79.6)

Fee-for-service sale upgrades, net 5 3 2 66.7 14 8 6 75.0

(27) (23) (4) 17.4 (69) (27) (42) NM

Sales of VOIs, net $ 361 $ 76 $ 285 NM $ 630 $ 109 $ 521 NM

(5) (15) 10 (66.7) (74) (42) (32) 76.2

Sales of VOIs, net $ 500 $ 488 $ 12 2.5 $ 1,130 $ 597 $ 533 89.3

Tour flow 142,647 97,628 45,019 375,507 181,921 193,586

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(2) Represents contract sales from fee-for-service properties on which we earn commissions and brand fees.

(3) Represents the net impact of deferred revenues related to the Sales of VOIs under construction that are recognized when construction is complete.

(3) Represents the net recognition of revenues related to the Sales of VOIs under construction that are recognized when construction is complete.

(4) Includes adjustments for revenue recognition, including amounts in rescission and sales incentives.

Contract sales increased by $358 million and by $728 million for the three and six months ended June 30, 2022, compared to the same periods in 2021.

Excluding the impac t of the Diamond Acquisition, the increase in these periods was

primarily due to an increase in tour flow and VPG corresponding with increases in travel demand and average transaction prices related to new inventory available for sale at resorts that were opened in the second half of 2021.

Contract sales increased by $188 million and by $916 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, the increase in these

periods was primarily due to an increase in tour flow corresponding with increases in travel demand related to new inventory available for sale at resorts that were opened in the second half of 2021.

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

Sales, marketing, brand and other fees $ 161 $ 81 $ 80 98.8 $ 280 $ 134 $ 146 NM

Marketing revenue and other fees 62 24 38 NM 112 45 67 NM

Sales, marketing, brand and other fees $ 177 $ 118 $ 59 50.0 $ 457 $ 252 $ 205 81.3

Marketing revenue and other fees 52 45 7 15.6 164 90 74 82.2

Commissions and brand fees 125 73 52 71.2 293 162 131 80.9

Sales of VOIs, net 361 76 285 NM 630 109 521 NM

Sales revenue 460 133 327 NM 798 198 600 NM

Cost of VOI sales 65 21 44 NM 105 24 81 NM

Sales of VOIs, net 500 488 12 2.5 1,130 597 533 89.3

Sales revenue 625 561 64 11.4 1,423 759 664 87.5

Cost of VOI sales 102 130 (28) (21.5) 207 154 53 34.4

Sales and marketing expense, net (2)

212 83 129 NM 398 142 256 NM

Real estate profit $ 183 $ 29 $ 154 NM $ 295 $ 32 $ 263 NM

246 174 72 41.4 644 316 328 NM

Real estate profit $ 277 $ 257 $ 20 7.8 $ 572 $ 289 $ 283 97.9

Real estate profit margin 44.3 % 45.8 % 40.2 % 38.1 %

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(2) Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers and revenue associated with sales incentives, title service and document compliance.

Real estate profit increased by $154 million and by $263 million for the three and six months ended June 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, these increases were driven by greater travel demand and the reopening of nearly all of our resorts and sales centers by the end of the second quarter 2021.

Real estate profit increased by $20 million and by $283 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, these increases were driven by greater travel demand;

partially offset by a net decrease in the recognition of deferred sales of VOIs related to projects previously under construction.

The increase in real estate profit was also attributed to a higher mix of sales of VOIs at new properties and greater commissions earned on sales of fee-for-service properties compared to the same periods in 2021.

For the three and six months ended June 30, 2022, cost of VOI sales increased consistent with the increase in sales revenue.

For the same periods, marketing revenue and other fees also increased as a result of an increase in breakage rates on vacation packages.

For the three and nine months ended September 30, 2022, cost of VOI sales decreased primarily due to a net decrease in the recognition of deferred cost of VOI sales related to projects previously under construction during the same periods in 2021;

partially offset with an increase consistent with the increase in sales revenue.

For the same periods, marketing revenue and other fees increased as a result of increased sales of vacation packages.

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

5 unchanged sentences

11 8 3 37.5 26 22 4 18.2

Other financing expense 14 4 10 NM 26 10 16 NM

Other financing expense 14 11 3 27.3 40 21 19 90.5

Financing expense 25 19 6 31.6 66 43 23 53.5

2 unchanged sentences

(1) NM - fluctuation in terms of percentage change is not meaningful.

(2) For the three and six months ended June 30, 2022, this amount includes $11 million and $20 million, respectively, of amortization of the premium related to the acquired timeshare financing receivables resulting from the Diamond Acquisition.

(3) For the three and six months ended June 30, 2022, this amount includes $3 million and $6 million, respectively, of amortization of the premium related to the acquired non-recourse debt resulting from the Diamond Acquisition.

Fina ncing profit increased by $16 million and $37 million for the three and six months ended June 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, financing revenue increased due to an increase in the weighted average interest rate and a slight increase in the carrying balance of the timeshare financing receivables portfolio.

Financing expense also increased due to increased costs associated with loan

servicing in addition to an increase in consumer financing interest expense resulting from an increase in the balance of securitized non-recourse debt compared to the same periods in 2021.

(2) For the three and nine months ended September 30, 2022, this amount includes $7 million and $27 million, respectively, of amortization of the premium related to the acquired timeshare financing receivables resulting from the Diamond Acquisition.

(3) For the three and nine months ended September 30, 2022, this amount includes $2 million and $8 million, respectively, of amortization of the premium related to the acquired non-recourse debt resulting from the Diamond Acquisition.

Financing profit increased by $9 million and $46 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, financing revenue

increased due to an increase in the weighted average interest rate and an increase in the carrying balance of the timeshare financing receivables portfolio.

Financing expense also increased due to increased costs associated with loan servicing in addition to an increase in consumer financing interest expense resulting from an increase in the weighted-average interest rate compared to the same periods in 2021.

Resort Operations and Club Management Segment

1 unchanged sentence

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

Club management revenue $ 48 $ 42 $ 6 14.3 $ 150 $ 98 $ 52 53.1

Resort management revenue 73 19 54 NM 147 37 110 NM

Resort and club management revenues 124 48 76 NM 249 93 156 NM

Resort management revenue 82 57 25 43.9 229 94 135 NM

Resort and club management revenues 130 99 31 31.3 379 192 187 97.4

Club management expense 11 8 3 37.5 31 18 13 72.2

Resort management expense 27 6 21 NM 53 9 44 NM

Resort and club management expenses 37 11 26 NM 73 19 54 NM

Resort and club management profit $ 87 $ 37 $ 50 NM $ 176 $ 74 $ 102 NM

Resort management expense 34 18 16 88.9 87 27 60 NM

Resort and club management expenses 45 26 19 73.1 118 45 73 NM

Resort and club management profit $ 85 $ 73 $ 12 16.4 $ 261 $ 147 $ 114 77.6

Resort and club management profit margin 65.4 % 73.7 % 68.9 % 76.6 %

(1) NM - fluctuation in terms of percentage change is not meaningful.

Resort and club managemen t profit increased by $50 million and by $102 million for the three and six months ended June 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, the increases in resort operations and club management revenues were driven by greater resort management revenue from the launch of new properties subsequent to the second quarter 2021 as well as an increase in Club members.

Resort and club management expenses primarily increased due to the increases in resort and club management revenues described in addition to higher costs associated with salaries and wages.

Resort and club management profit increased by $12 million and $114 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, the increases in resort operations and club management revenues were driven by greater resort management revenue from the launch of new properties in the second half of 2021 as well as an increase in Club members and number of transactions;

partially offset by an increase in resort and club management expenses due to personnel related costs incurred to service increased transactions and the launch of new club features and programs.

Rental and Ancillary Services

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

Rental revenues $ 155 $ 50 $ 105 NM $ 279 $ 80 $ 199 NM

Ancillary services revenues 16 4 12 NM 28 6 22 NM

Rental and ancillary services revenues 171 54 117 NM 307 86 221 NM

Rental expenses 138 32 106 NM 260 61 199 NM

Ancillary services expense 12 4 8 NM 22 6 16 NM

Rental and ancillary services expenses 150 36 114 NM 282 67 215 NM

Rental revenues $ 157 $ 104 $ 53 51.0 $ 436 $ 184 $ 252 NM

Ancillary services revenues 2 8 (6) (75.0) 30 14 16 NM

Rental and ancillary services revenues 159 112 47 42.0 466 198 268 NM

Rental expenses 141 77 64 83.1 401 138 263 NM

Ancillary services expense 3 7 (4) (57.1) 25 13 12 92.3

Rental and ancillary services expenses 144 84 60 71.4 426 151 275 NM

Rental and ancillary services profit $ 15 $ 28 $ (13) (46.4) $ 40 $ 47 $ (7) (14.9)

1 unchanged sentence

(1) NM - fluctuation in terms of percentage change is not meaningful.

Rental and ancillary services profit increased by $3 million and $6 million for the three and six months ended June 30, 2022, compare d to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, rental and ancillary services revenue increased in both of these periods due to an increase in average nightly rates charged in addition to an increase in rooms available for rent corresponding with the launch of new properties in the second half of 2021 compared

to the same periods in 2021.

Rental and ancillary services profit decreased by $13 million and $7 million for the three and nine months ended September 30, 2022, compared to the same periods in 2021.

Excluding the impact of the Diamond Acquisition, rental and ancillary services revenue increased in both of these periods due to an increase in average nightly rates charged in addition

to an increase in rooms available for rent corresponding with the launch of new properties during the second half of 2021.

Rental and ancillary services expense increased consistent with the aforementioned launch of new properties.

1 unchanged sentence

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

General and administrative $ 66 $ 30 $ 36 NM $ 108 $ 51 $ 57 NM

Depreciation and amortization 64 12 52 NM 124 23 101 NM

General and administrative $ 50 $ 41 $ 9 22.0 $ 158 $ 92 $ 66 71.7

Depreciation and amortization 57 48 9 18.8 181 71 110 NM

License fee expense 33 24 9 37.5 90 57 33 57.9

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(1) NM - fluctuation in terms of percentage change is not meaningful.

The change in other operating expenses for the three and six months ended June 30, 2022, compared to the same periods in 2021 was driven by increased costs subsequent to the Diamond Acquisition and increases in expenses related to share-based compensation.

The change in other operating expenses for the three and nine months ended September 30, 2022, compared to the same periods in 2021 was driven by increased costs subsequent to the Diamond Acquisition and increases in expenses related to share-based compensation.

General and administrative expenses increased by $9 million and $66 million compared to the same periods in 2021, primarily due to increased salaries and wages expenses corresponding with an increase in team members associated with the Diamond Acquisition.

General and administrative expenses also increased due to expenses incurred associated with Performance RSUs during the three and six months ended June 30, 2022, that were not incurred in the same periods in 2021 due to certain performance targets that were not expected to be achieved during that period.

General and administrative expenses also increased due to expenses incurred associated with Performance RSUs during the three and nine months ended September 30, 2022, that were not incurred in the same periods in 2021 due to certain performance targets that were not expected to be achieved during that period.

Depreciation and amortization increased due to additional amortization expense recognized related to management contracts, club member relationships and trade names acquired as a part of the Diamond Acquisition.

License fee expense increased during the three and six months ended June 30, 2022, compared to the same periods in 2021 due to improved segment results related to increased travel demand discussed above.

License fee expense increased during the three and nine months ended September 30, 2022, compared to the same periods in 2021 due to improved results related to increased travel demand.

Acquisition and Integration-Related Expense

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

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Integration costs include technology-related costs, fees paid to management consultants and employee-related costs such as severance and retention.

For the three and six months ended June 30, 2022, acquisition and integration-relat ed costs increased by $3 million and $1 million, respectively, due to increased legal and professional fees incurred compared to the same periods in 2021.

For the three and nine months ended September 30, 2022, acquisition and integration-related costs decreased by $35 million and $34 million, respectively, due to decreased legal and professional fees incurred com pared to the same periods in 2021.

Non-Operating Expenses

Three Months Ended

June 30, Variance (1)

Six Months Ended

June 30, Variance (1)

September 30, Variance (1)

Nine Months Ended

September 30, Variance (1)

($ in millions) 2022 2021 $ % 2022 2021 $ %

Interest expense $ 35 $ 17 $ 18 NM $ 68 $ 32 $ 36 NM

Interest expense $ 37 $ 42 $ (5) (11.9) $ 105 $ 74 $ 31 41.9

Equity in earnings from unconsolidated affiliates (2) (1) (1) 100.0 (9) (7) (2) 28.6

Other loss, net 2 1 1 100.0 1 2 (1) (50.0)

Income tax expense (benefit) 41 3 38 NM 61 (3) 64 NM

Other (gain) loss, net (2) 20 (22) (110.0) (1) 22 (23) (104.5)

Income tax expense 54 49 5 10.2 115 46 69 NM

(1) NM- fluctuation in terms of percentage change is not meaningful.

The chang e in non-operating expenses for the three and six months ended June 30, 2022, compared to the same periods in 2021 was primarily due to an increase in interest expense as a result of the issuance of our senior secured credit facility and senior notes in the second half of 2021, in addition to an increase in income tax expense driven by an increase in income before taxes.

Debt and non-recourse debt and Note 16:

Income Ta xes for additional information.

The change in non-operating expenses for the three and nine months ended September 30, 2022, compared to the same periods in 2021 was primarily due to a year over year increase in interest expense as a result of the issuance of our senior secured credit facility in the third quarter of 2021, in addition to an increase in Other (gain) loss, net resulting from a loss on debt extinguishment of certain corporate indebtedness in the third quarter of 2021.

Income tax expense also increased consistent with the increase in income before income taxes in the same periods.

Liquidity and Capital Resources

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• In April 2022, we completed a securitization of $246 million of gross timeshare financing receivables.

The proceeds were primarily used to pay down one of our conduit facilities in full, which totaled $115 million, and for general corporate purposes.

The proceeds were primarily used to pay down one of our conduit facilities in full and for general corporate purposes.

Debt and Non-Recourse Debt for additional information.

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Timeshare Financing Receivables for additional information.

• As of June 30, 2022, we had total cash and cash equivalents of $374 million, including $292 million of restricted cash.

• As of June 30, 2022, we had $824 million remaining borrowing capacity under the revolver facility.

• As of June 30, 2022, we had an aggregate of $874 million remaining borrowing capacity in total under our Timeshare Facility and conduit facility due in 2025 and 2023, respectively.

• In August 2022, we completed a securitization of $269 million of gross timeshare financing receivables.

The proceeds were primarily used to pay down the remaining borrowings of our Timeshare Facility and general corporate operating expenses.

Debt and Non-recourse Debt for additional information.

• As of September 30, 2022, we had total cash and cash equivalents of $425 million, including $319 million of restricted cash.

• As of September 30, 2022, we had $999 million remaining borrowing capacity under the revolver facility.

• As of September 30, 2022, we had an aggregate of $750 million remaining borrowing capacity in total under our Timeshare Facility due in 2025.

Of this amount, we have $178 million of mortgage notes that are available to be securitized and another $324 million of mortgage notes that we expect will become eligible as soon as they meet typical milestones including receipt of first payment, deeding, or recording.

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We have made commitments with developers to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand.

As of June 30, 2022, our inventory-related purchase commitments totaled $271 million over 9 years.

As of September 30, 2022, our inventory-related purchase commitments totaled $270 million over 8 years.

Sources and Uses of Our Cash

The following table summarizes our net cash flows and key metrics related to our liquidity:

Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

($ in millions) 2022 2021 $

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over time, we generally receive more cash from the sale of an owned VOI as compared to that from a fee-for-service sale.

The change in net cash flows provided by operating activities for the six months ended June 30, 2022, compared to the same period in 2021 was primarily driven by increased sales and operating performance compared to the prior year, as discussed above, in addition to an increase in net working capital from operations.

The change in net cash flows provided by operating activities for the nine months ended September 30, 2022, compared to the same period in 2021 was primarily driven by increased sales and operating performance compared to the prior year, as discussed above, in addition to an increase in net working capital from operations.

The following table summarizes our VOI inventory spending:

Six Months Ended June 30,

Nine Months Ended September 30,

($ in millions) 2022 2021

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Total VOI inventory spending $ 109 $ 189

(1) Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $4 million and $3 million recorded in Costs of VOI sales for the six months ended June 30, 2022 and 2021, respectively.

(1) For the nine months ended September 30, 2022 and 2021, our VOI inventory spending on owned properties relates to deeded properties that are classified as Inventory on our unaudited condensed consolidated balance sheets.

(2) Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects from developed projects of $6 million and $4 million recorded in Costs of VOI sales for the nine months ended September 30, 2022 and 2021, respectively.

Investing Activities

The following table summarizes our net cash used in investing activities:

Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

($ in millions) 2022 2021 $

Acquisition of Diamond, net of cash and restricted cash acquired $ — $ (1,585) $ 1,585

Capital expenditures for property and equipment (25) (11) (14)

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Net cash used in investing activities $ (51) $ (1,610) $ 1,559

Our capital expenditures include spending related to technology and buildings and leasehold improvements used to support sales and marketing locations, resort operations and corporate activities in addition to capitalized costs associated with rebranding Legacy-Diamond properties as a result of the Diamond Acquisition.

associated with rebranding Legacy-Diamond properties as a result of the Diamond Acquisition.

We believe the renovations of our existing assets are necessary to stay competitive in the markets in which we operate.

The change in net cash used in investing activities for six months ended June 30, 2022, compared to the same period in 2021, was primarily d ue to costs associated with the rebranding of Legacy-Diamond properties.

The change in net cash used in investing activities for nine months ended September 30, 2022, compared to the same period in 2021, was primarily d ue to costs associated with acquisition of Diamond in the third quarter of 2021.

Financing Activities

The following table summarizes our net cash (used in) provided by financing activities:

Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

($ in millions) 2022 2021 $

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Other financing activity (2) (2) —

Net cash used in financing activities $ (518) $ 1,175 $ (1,693)

The change in net cash provided by financing activities for six months ended June 30, 2022, compared to the same period in 2021, was primarily driven by an increase in repayments of non-recourse debt acquired and corporate debt drawn in connection with the Diamond Acquisition, in addition to the launch of our share repurchase program in the first half of 2022.

Net cash (used in) provided by financing activities $ (644) $ 1,612 $ (2,256)

The change in net cash provided by financing activities for nine months ended September 30, 2022, compared to the same period in 2021, was primarily driven by corporate debt drawn in connection with the Diamond Acquisition in the third quarter of 2021, in addition to the launch of our share repurchase program in the first half of 2022.

Contractual Obligations

Our commitments primarily relate to agreements with developers to purchase or construct vacation ownership units, operating leases, and obligations associated with our debt, non-recourse debt and the related interest.

As of June 30, 2022, we were committed to approximately $5,091 million in contractual obligations over 9 years, $422 million of which will be fulfilled in the remainder of 2022.

As of September 30, 2022, we were committed to approximately $5,054 million in contractual obligations over 9 years, $312 million of which will be fulfilled in the remainder of 2022.

The ultimate amount and timing of certain commitments is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances.

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Leases in our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information.

We also intend to rebrand Diamond properties to brands that meet Hilton standards pursuant to the Amended and Restated License Agreement with Hilton.

We also intend to rebrand Diamond properties to brands that meet Hilton standards in accordance with the Amended and Restated License Agreement with Hilton.

We utilize surety bonds related to the sales of VOIs in order to meet regulatory requirements of certain states.

The availability, terms and conditions and pricing of such bonding capacity are dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing the bonding capacity, general availability of such capacity and our corporate credit rating.

We have commitments from surety providers in the amount of $293 million as of June 30, 2022 which primarily consist of escrow and construction related bonds.

We have commitments from surety providers in the amount of $303 million as of September 30, 2022 which primarily consist of escrow and construction related bonds.

Guarantor Financial Information

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(the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Hilton Grand Vacations Inc.

(the “Parent”), Hilton Grand Vacations Parent LLC, the Issuers, and each of the Issuer’s existing and

future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes, collectively, the “Obligor group”).

(the “Parent”), Hilton Grand Vacations Parent LLC, the Issuers, and each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes, collectively, the “Obligor group”).

The Notes rank equally in right of payment with all of the Issuers’ and each guarantor’s existing and future senior indebtedness, are subordinated to all of the Issuers’ and guarantors’ existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness, including the Senior Secured Credit Facilities, rank senior in right of payment to all of the Issuers’ and guarantors’ future subordinated indebtedness and other obligations that expressly provide for their subordination to the notes and the related guarantees, and are structurally subordinated to all existing and future indebtedness claims of holders of preferred stock and other liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.

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Summarized Financial Information

($ in millions) June 30,

($ in millions) September 30,

2022 December 31,

22 unchanged sentences

Total liabilities $ 4,600 $ 4,542

($ in millions) Six Months Ended June 30, 2022

($ in millions) Nine Months Ended September 30, 2022

Total revenues - transactions with non-guarantor subsidiaries $ 9

3 unchanged sentences

Subsequent Events

Management has evaluated all subsequent events through August 9, 2022 the date the unaudited consolidated financial statements were available to be issued.

Management has evaluated all subsequent events through November 9, 2022 the date the unaudited consolidated financial statements were available to be issued.

The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustments to our disclosures in the unaudited financial statements.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis