What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-04-27 · 183 added, 99 removed, 342 unchanged (45% of the section changed)

27 unchanged sentences

GAAP”), and financial measures that are not calculated in accordance with U.S.

GAAP, including earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”) and Adjusted EBITDA.

GAAP, including earnings before interest expense (excluding interest expense relating to our non-recourse debt), taxes and depreciation and amortization (“EBITDA”), Adjusted EBITDA, fee-for-service commissions and brand fees,

sales and marketing expense, net, sales revenue, real estate expense, and profits and profit margins for our real estate, financing, resort and club management, and rental and ancillary services.

Operational Metrics

This Quarterly Report on Form 10-Q includes discussion of key business operational metrics including contract sales, sales revenue, real estate profit, tour flow, and volume per guest (“VPG”).

See “Key Business and Financial Metrics and Terms Used by Management” and “Results of Operations” for a discussion of the meanings of these terms, the Company’s reasons for providing non-GAAP financial measures, and reconciliations of non-GAAP financial measures to measures calculated in accordance with U.S.

This Quarterly Report on Form 10-Q includes discussion of key business operational metrics, including contract sales, tour flow, and volume per guest (“VPG”).

See “Key Business and Financial Metrics and Terms Used by Management” and “Results of Operations” for a discussion of the meanings of these terms, the Company’s reasons for providing the applicable non-GAAP financial measures, and reconciliations of non-GAAP financial measures to measures calculated in accordance with U.S.

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

1 unchanged sentence

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

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

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

operating resorts and timeshare plans;

5 unchanged sentences

Our club offerings, including HGV Max, are collectively referred to as “Clubs”.

As of March 31, 2023, we have over 150 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada, and Japan.

As of June 30, 2023, we have over 150 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, Europe, Hawaii, California, Arizona, Nevada and Virginia and feature spacious, condominium-style accommodations with superior amenities and quality service.

As of March 31, 2023, we had approximately 519,000 members across our club offerings.

As of June 30, 2023, we had approximately 522,000 members across our club offerings.

Based on the type of Club membership, members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort, any property in the Hilton system of 22 industry-leading brands across approximately 7,000 properties, or affiliated properties, as well as numerous experiential vacation options, such as cruises and guided tours, or they have the option to exchange their VOI for various other timeshare resorts throughout the world through an external exchange program.

13 unchanged sentences

In general, purchasers of a VOI in a collection do not acquire a direct ownership interest in the resort properties in the Collection.

Rather 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 three months ended March 31, 2023, sales from fee-for-service and just-in-time inventory were 33%, and 17% of contract sales, respectively.

Rather 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, 2023, sales from fee-for-service and just-in-time inventory were 31%, and 15% of contract sales, respectively.

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

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 three months ended March 31, 2023, 69% of our contract sales were to our existing owners, compared to 73% for the three months ended March 31, 2022.

For the six months ended June 30, 2023, 69% of our contract sales were to our existing owners, compared to 71% for the six months ended June 30, 2022.

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

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% to 25% per annum.

Financing propensity was 59% and 65% for the three months ended March 31, 2023 and 2022, respectively.

Financing propensity was 61% and 62% for the six months ended June 30, 2023 and 2022, respectively.

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:

Three Months Ended March 31,

Six Months Ended June 30,

Weighted-average FICO score 736 737

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Our HOA management agreements provide for a cost-plus management fee, which means we generally earn a fee equal to 10% to 15% of the costs to operate the applicable resort.

As a result, the fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and our management fees are unaffected by changes in rental rate or occupancy.

As a result, the fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and our management fees are unaffected by changes in rental rate or

We are also reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services.

The original terms of our management agreements typically range fro m three to five years and

the agreements are subject to periodic renewal for one to three-year periods.

The original terms of our management agreements typically range fro m three to five years and the agreements are subject to periodic renewal for one to three-year periods.

Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term.

Since our inception, none of the management agreements relating to our owned or fee-for-service properties have been terminated or lapsed.

We also manage and operate the Clubs and exchange programs.

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additional information regarding the split of contract sales, is included in “—Real Estate” below.

• Sales revenue represents Sales of VOIs, net , commissions and brand fees earned from the sale of fee-for-service intervals.

• Real estate profit represents sales revenue less the cost of VOI sales, sales and marketing costs, net of marketing revenue.

Real estate margin percentage is calculated by dividing real estate margin by sales revenue.

We consider this to be an important operating measure because it measures the efficiency of our sales and marketing spending and management of inventory costs.

• Tour flow represents the number of sales presentations given at our sales centers during the period.

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Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

See below under “Segment Results” for reconciliation of our EBITDA and Adjusted EBITDA to net income, our most comparable U.S.

GAAP financial measure.

Non-GAAP Measures within Our Segments

Within each of our two reportable segments, we present additional profit and profit margin information for certain key activities—real estate, financing, resort and club management, and rental and ancillary services.

These non-GAAP measures are used by our management team to evaluate the operating performance of each of our key activities, and to make day-to-day operating decisions.

We believe these additional measures are also important in helping investors understand the performance and efficiency with which we are able to convert revenues for each of these primary activities into operating profit, both in dollars and as margins, and are frequently used by securities analysts, investors and other interested parties as one of common performance measures to compare results or estimate valuations across companies in our industry.

Specifically—

• Sales revenue represents sales of VOIs, net, and Fee-for-service commissions and brand fees earned from the sale of fee-for-service VOIs.

Fee-for-service commissions and brand fees represents sales, marketing, brand and other fees, which corresponds to the applicable line item from our condensed consolidated statements of operations, adjusted by marketing revenue and other fees earned primarily from discounted marketing related packages which encompass a sales tour to prospective owners.

Real estate expense represents costs of VOI sales and Sales and marketing expense, net .

Sales and marketing expense, net represents sales and marketing expense, which corresponds to the applicable line item from our condensed consolidated statements of operations, adjusted by marketing revenue and other fees earned primarily from discounted marketing related packages which encompass a sales tour to prospective owners.

Both fee-for-service commissions and brand fees and sales and marketing expense, net, represent non-GAAP measures.

We present these items net because it provides a meaningful measure of our underlying real estate profit related to our primary real estate activities which focus on the sales and costs associated with our VOIs.

• Real estate profit represents sales revenue less real estate expense.

Real estate margin is calculated as a percentage by dividing real estate profit by sales revenue.

We consider real estate profit margin to be an important non-GAAP operating measure because it measures the efficiency of our sales and marketing spending, management of inventory costs, and initiatives intended to improve profitability.

• Financing profit represents financing revenue, net of financing expense, both of which correspond to the applicable line items from our condensed consolidated statements of operations.

Financing profit margin is calculated as a percentage by dividing financing profit by financing revenue.

We consider this to be an important non-GAAP operating measure because it measures the efficiency and profitability of our financing business in connection with our VOI sales.

• Resort and club management profit represents resort and club management revenue, net of resort and club management expense, both of which correspond to the applicable line items from our condensed consolidated statements of operations.

Resort and club management profit margin is calculated as a percentage by dividing resort and club management profit by resort and club management revenue.

We consider this to be an important non-GAAP operating measure because it measures the efficiency and profitability of our resort and club management business that support our VOI sales business.

• Rental and ancillary services profit represents rental and ancillary services revenues, net of rental and ancillary services expenses, both of which correspond to the applicable line items from our condensed consolidated statements of operations.

Rental and ancillary services profit margin is calculated as a percentage by dividing rental and ancillary services profit by rental and ancillary services revenue.

We consider this to be an important non-GAAP operating measure because it measures our ability to convert available inventory and unoccupied rooms into revenue and profit by transient rentals, as well as profitability of other services, such as food and beverage, retail, spa offerings and other guest services.

Each of the foregoing four profit measures is not a recognized term under U.S.

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

In addition, our calculation of such measures may not be comparable to similarly titled measures of other companies.

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

Such limitations include the fact that these measures only include those revenues and expenses related to one of the four specified operating activities as opposed to on a consolidated basis, and other limitations that are similar to those discussed above under “EBITDA and Adjusted EBITDA.” See below under “ Reconciliation of Non-GAAP Profit Measures to GAAP Measure ” for reconciliation of these four profit measures to net income, our most comparable U.S.

GAAP financial measure.

Results of Operations

Three Months Ended March 31, 2023 Compared with the Three Months Ended March 31, 2022

Three and Six Months Ended June 30, 2023 Compared with the Three and Six Months Ended June 30, 2022

Segment Results

1 unchanged sentence

We do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment operating performance.

Three Months Ended March 31, Variance

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

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Total revenues $ 1,007 $ 948 $ 59 6.2 $ 1,941 $ 1,727 $ 214 12.4

(1) Refer to Note 16:

(1) See Note 16:

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

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 16:

Business Segments in our condensed consolidated financial statements.

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 table reconciles net income, 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 March 31, Variance

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance (1)

($ in millions) 2023 2022 $ % 2023 2022 $ %

3 unchanged sentences

Depreciation and amortization 52 64 (12) (18.8) 103 124 (21) (16.9)

Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates 1 — 1 100% 1 — 1 100%

EBITDA 212 213 (1) (0.5) 397 377 20 5.3

Other gain, net (1) (1) — —

Other (gain) loss, net (3) 2 (5) NM (4) 1 (5) NM

Share-based compensation expense 16 15 1 6.7 26 26 — —

Impairment expense — 3 (3) (100.0)

Impairment expense (reversal) 3 (3) 6 NM 3 — 3 100%

Acquisition and integration-related expense 13 17 (4) (23.5) 30 30 — —

2 unchanged sentences

Adjusted EBITDA $ 248 $ 273 $ (25) (9.2) $ 466 $ 475 $ (9) (1.9)

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

(2) These amounts include costs associated with restructuring, one-time charges, the amortization of premiums resulting from purchase accounting and other non-cash items.

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

Three Months Ended March 31, Variance

We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 16:

Business Segments in our condensed consolidated financial statements.

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

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(2) Excludes segment related share-based compensation, depreciation and other adjustment items.

Reconciliation of Non-GAAP Profit Measures to GAAP Measure

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

GAAP financial measure, to EBITDA and the total of our real estate, financing, resort and club management, and rental and ancillary services profit measures.

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance (1)

($ in millions) 2023 2022 $ % 2023 2022 $ %

Net income $ 80 $ 73 $ 7 9.6 % $ 153 $ 124 $ 29 23.4 %

Interest expense 44 35 9 25.7 88 68 20 29.4

Income tax expense 35 41 (6) (14.6) 52 61 (9) (14.8)

Depreciation and amortization 52 64 (12) (18.8) 103 124 (21) (16.9)

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

EBITDA 212 213 (1) (0.5) 397 377 20 5.3

Other (gain) loss, net (3) 2 (5) NM (4) 1 (5) NM

Equity in earnings from unconsolidated affiliates (2)

(3) (4) 1 (25.0) (6) (7) 1 (14.3)

Impairment expense (reversal) 3 (3) 6 NM 3 — 3 100%

License fee expense 34 32 2 6.3 64 57 7 12.3

Acquisition and integration-related expense 13 17 (4) (23.5) 30 30 — —

General and administrative 48 66 (18) (27.3) 90 108 (18) (16.7)

Profit $ 304 $ 323 $ (19) (5.9) $ 574 $ 566 $ 8 1.4

Real estate profit $ 144 $ 173 $ (29) (16.8) $ 269 $ 278 $ (9) (3.2)

Financing profit 52 42 10 23.8 102 87 15 17.2

Resort and club management profit 89 87 2 2.3 178 176 2 1.1

Rental and ancillary services profit 19 21 (2) (9.5) 25 25 — —

Profit $ 304 $ 323 $ (19) (5.9) $ 574 $ 566 $ 8 1.4

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

(2) Excludes impact of interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates of $1 million for the three and six months ended June 30, 2023.

Reconciliation of Non-GAAP Real Estate Measures to GAAP Measures

The following table reconciles our Sales, marketing, brand and other fees revenue, our most comparable U.S.

GAAP financial measure, to Fee-for-service commissions and brand fees, and Sales and marketing expense, our most comparable U.S.

GAAP financial measure, to Sales and marketing expense, net.

Fee-for-service commissions and brand fees and Sales and marketing, net, are used in calculating our real estate profit and real estate profit margin.

See “Real Estate Sales and Financing Segment—Real Estate” below.

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

Sales, marketing, brand and other fees $ 173 $ 161 $ 12 7.5 $ 331 $ 280 $ 51 18.2

Marketing revenue and other fees (1)

(62) (62) — — (113) (112) (1) 0.9

Fee-for-service commissions and brand fees $ 111 $ 99 $ 12 12.1 $ 218 $ 168 $ 50 29.8

Sales and marketing expense $ 336 $ 284 $ 52 18.3 $ 637 $ 527 $ 110 20.9

Marketing revenue and other fees (1)

(62) (62) — — (113) (112) (1) 0.9

Sales and marketing expense, net $ 274 $ 222 $ 52 23.4 $ 524 $ 415 $ 109 26.3

(1) 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 Sales and Financing

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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 March 31, Variance

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

($ in millions) 2023 2022 $ 2023 2022 $

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Net construction (deferrals) recognitions $ (4) $ (4) $ — $ (2) $ (26) $ 24

Real estate sales and financing segment revenues increased by $98 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to an $87 million increase in VOI sales and commissions earned on sales of fee-for-service properties resulting from increased tours and availability of new inventory compared to the same period in 2022.

Real estate sales and financing segment revenues increased by $18 million for the three months ended June 30, 2023, compared to the same period in 2022, primarily due to a $12 million increase in Fee-for-service commissions and brand fees driven by greater commissions earned on sales of fee-for-service properties partially offset by a $6 million decrease in Sales of VOI, net, resulting from a decrease in VPG partially offset by an increase in tours.

In addition, there

was a $12 million increase in financing revenue primarily related to an increase in our loan portfolio and an increase in the weighted average interest rate.

Real estate sales and financing segment revenues increased by $116 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to a $50 million increase in Fee-for-service commissions and brand fees driven by greater commissions earned on sales of fee-for-service properties and a $43 million increase in Sales of VOI, net, driven by a decrease in the net recognition of sales of VOIs under construction.

In addition, there was a $22 million increase in financing revenue primarily related to an increase in our loan portfolio and an increase in the weighted average interest rate.

Real estate sales and financing Adjusted EBITDA increased by $16 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to the revenue increases discussed above.

Real estate sales and financing Adjusted EBITDA decreased by $29 million and $13 million for the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to an increase in marketing costs due to our emphasis in adding new owners, which typically carry a higher cost per tour, partially offset by 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 $34 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to an increase in rental revenue.

The rental revenue increase was driven primarily by an increase in the average nightly rates charged as well as an increase in occupied room nights compared to the same period in 2022.

Resort operations and club management segment revenues increased by $17 million and $51 million for the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to an increase in rental revenue.

The rental revenue increase was driven primarily by an increase in occupied room nights compared to the same periods in 2022.

The additional increase in Resort operations and club management revenue was due to an increase in resort management revenue, primarily driven by an increase in fees.

Resort operations and club management segment adjusted EBITDA increased by $8 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to the increase in Resort and club management and rental revenues described above, partially offset by an increase in resort and club management expenses due to personnel-related costs incurred to service increased arrivals and transaction activity.

Resort operations and club management segment adjusted EBITDA increased by $4 million and $12 million for the three and six months ended June 30, 2023, compared to the same periods in 2022, primarily due to the increase in Resort and club management and rental revenues described above, partially offset by an increase in resort and club management expenses due to personnel-related costs incurred to service increased arrivals and transaction activity.

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.

Real Estate Sales and Financing Segment

Three Months Ended March 31, Variance (1)

See “Reconciliation of Profit Measures to GAAP Measure” above.

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

($ in millions, except Tour flow and VPG) 2023 2022 $ % 2023 2022 $ %

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Net recognition of sales of VOIs under construction (2)

(6) (10) 4 (40.0) (2) (52) 50 (96.2)

Fee-for-service sale upgrades, net 7 5 2 40.0 12 9 3 33.3

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VPG $ 3,728 $ 4,452 $ (724) $ 3,835 $ 4,620 $ (785)

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

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

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

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

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

Contract sales increased by $14 million for the three months ended March 31, 2023, compared to the same period in 2022, primarily due to the increase in tour flow, partially offset by a decrease in VPG, and new inventory available for sale at our resorts during 2023.

Three Months Ended March 31, Variance

Contract sales decreased by $5 million for the three months ended June 30, 2023, compared to the same period in 2022, primarily due to a 16.3% decrease in VPG, partially offset by a 21.0% increase in tour flow.

Contract sales increased by $9 million for the six months ended June 30, 2023, compared to the same period in 2022, primarily due to a 25.7% increase in tour flow, partially offset by a 17.0% decrease in VPG.

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

Sales, marketing, brand and other fees $ 158 $ 119 $ 39 32.8

Marketing revenue and other fees 51 50 1 2.0

Commissions and brand fees 107 69 38 55.1

Sales of VOIs, net $ 355 $ 361 $ (6) (1.7) $ 673 $ 630 $ 43 6.8

Fee-for-service commissions and brand fees 111 99 12 12.1 218 168 50 29.8

Sales revenue 466 460 6 1.3 891 798 93 11.7

1 unchanged sentence

Sales and marketing expense, net 274 222 52 23.4 524 415 109 26.3

240 186 54 29.0

Real estate expense $ 322 $ 287 $ 35 12.2 $ 622 $ 520 $ 102 19.6

1 unchanged sentence

Real estate profit margin (1)

Real estate profit increased by $23 million for the three months ended March 31, 2023, compared to the same period in 2022, driven by an increase of $87 million in Sales revenue and offset by an increase in Real estate expense of $64 million.

These increases are primarily due to an increase in Sales of VOIs, net, driven by the recognition of deferred properties under construction and an increase in commissions and brand fees earned on sales of fee-for-service properties for the three months ended March 31, 2023, compared to the same period in 2022.

Real estate expenses increased in line with the increases in the related revenues.

Three Months Ended March 31, Variance

30.9 % 37.6 % 30.2 % 34.8 %

(1) Excluding the marketing revenue and other fees adjustment, Real estate profit margin was 27.3% and 33.1% for the three months ended June 30, 2023 and 2022, respectively, and 26.8% and 30.5% for the six months ended June 30, 2023 and 2022, respectively.

Real estate profit decreased by $29 million for the three months ended June 30, 2023, compared to the same period in 2022, driven by an increase in Real estate expense of $35 million due to an increase in marketing costs, partially offset by an increase in Sales revenue of $6 million due to higher Fee-for-service commissions and brand fees, offset by a decrease in Sales of VOIs, net, driven by net deferrals of sales of VOIs under construction.

Real estate profit decreased by $9 million for the six months ended June 30, 2023, compared to the same period in 2022, driven by an increase in Real estate expense of $102 million due to an increase in marketing costs, partially offset by an increase in Sales revenue of $93 million due to higher Fee-for-service commissions and brand fees and increase in Sales of VOIs, net, driven by a decrease in the net recognition of sales of VOIs under construction.

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

7 unchanged sentences

Financing profit margin 68.4 % 65.6 % 68.0 % 68.0 %

Financing profit increased by $5 million for the three months ended March 31, 2023, compared to the same period in 2022, driven by an increase of $10 million in financing revenue, partially offset by an increase in financing expense of $5 million.

Financing profit increased by $10 million and $15 million for the three and six months ended June 30, 2023, compared to the same periods in 2022, driven by an increase of $12 million and $22 million in financing revenue, partially offset by an increase in financing expense of $2 million and $7 million for the three and six months ended June 30, 2023.

compared to the same periods in 2022.

Financing revenue increased primarily due to interest income driven by an increase in our loan portfolio and an increase in the weighted-average interest rate.

2 unchanged sentences

Resort and Club Management

Three Months Ended March 31, Variance

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

7 unchanged sentences

Resort and club management profit margin 66.9 % 70.2 % 67.4 % 70.7 %

Resort and club management profit for the three months ended March 31, 2023 remained consistent with the same period in 2022.

The increase in Resort management revenues were driven by an increase in fee revenue.

The increase in Resort and club management expenses is primarily due to personnel related costs incurred to service the increased transactions for the period.

Resort and club management profit for the three and six months ended June 30, 2023 remained consistent with the same periods in 2022.

The $7 million and $13 million increase in Resort management revenues for the three and six months ended June 30, 2023, respectively, were driven by an increase in fee revenue.

The $7 million and $13 million increase in Resort and club management expenses for the three and six months ended June 30, 2023, respectively, is primarily due to personnel related costs incurred to service the increased transactions for the period.

Rental and Ancillary Services

Three Months Ended March 31, Variance

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

7 unchanged sentences

Rental and ancillary services profit margin 11.0 % 12.3 % 7.6 % 8.1 %

Rental and ancillary services profit increased by $2 million for the three months ended March 31, 2023, compared to the same period in 2022, driven by an increase of $22 million in rental and ancillary services revenue, partially offset by an increase of $20 million in rental and ancillary expenses.

Rental and ancillary services revenue was primarily due to an increase in rental revenue driven by an increase in the average nightly rates charged as well as increase in occupied room nights compared to the same period in 2022.

Rental and ancillary services profit decreased by $2 million for the three months ended June 30, 2023 and remained consistent for the six months ended June 30, 2023, when compared to the same periods in 2022.

The decrease for the three months ended June 30, 2023 compared to the same period in 2022 was driven by an increase of $4 million in rental and ancillary expenses partially offset by an increase of $2 million in rental and ancillary services revenue.

Rental revenues increased by $7 million and $30 million for the three and six months ended June 30, 2023, respectively, primarily due to an increase in rental revenue driven by an increase in occupied room nights compared to the same periods in 2022.

Rental and ancillary services expense increased consistent with the aforementioned increase in rental revenue.

Other Operating Expenses

Three Months Ended March 31, Variance

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance

($ in millions) 2023 2022 $ % 2023 2022 $ %

2 unchanged sentences

License fee expense 34 32 2 6.3 64 57 7 12.3

Impairment expense — 3 (3) (100.0)

General and administrative expenses for the three months ended March 31, 2023 remained consistent with the same period in 2022.

Depreciation and amortization decreased by $9 million, primarily due to decreased amortization expense of intangible assets.

License fee expense increased by $5 million, primarily due to increased applicable revenues.

Impairment expense (reversal) 3 (3) 6 NM 3 — 3 100%

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

General and administrative expenses decreased by $18 million for both the three and six months ended June 30, 2023 compared to the same periods in 2022, primarily due to less legal and professional fees in 2023.

Depreciation and amortization decreased by $12 million and $21 million for the three and six months ended June 30, 2023, respectively, primarily due to certain intangible assets becoming fully amortized.

License fee expense increased by $2 million and $7 million for the three and six months ended June 30, 2023, respectively, primarily due to increased travel demand.

Impairment expense increased by $6 million and $3 million for the three and six months ended June 30, 2023, respectively, primarily due to certain assets that were not deemed recoverable.

Acquisition and Integration-Related Expense

Three Months Ended March 31, Variance

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

($ in millions) 2023 2022 $ % 2023 2022 $ %

2 unchanged sentences

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

For the three months ended March 31, 2023, acquisition and integration-related costs increased by $4 million due to rebranding fees incurred, co m pared to the same period in 2022 .

For the three months ended June 30, 2023, acquisition and integration-related costs decreased by $4 million when compared to the same period in 2022.

The decrease was primarily driven by a decrease in professional fees.

For the six months ended June 30, 2023, acquisition and integration-related costs remained consistent when compared to the same period in 2022.

Non-Operating Expenses

Three Months Ended March 31, Variance

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance (1)

($ in millions) 2023 2022 $ % 2023 2022 $ %

1 unchanged sentence

Equity in earnings from unconsolidated affiliates (2) (4) 2 (50.0) (5) (7) 2 (28.6)

Other gain, net (1) (1) — —

Other (gain) loss, net (3) 2 (5) NM (4) 1 (5) NM

Income tax expense 35 41 (6) (14.6) 52 61 (9) (14.8)

The change in non-operating expenses for the three months ended March 31, 2023, compared to the same period in 2022 was primarily due to an increase in interest expense of $11 million, partially offset by a $3 million decrease in income tax expense.

For the three months ended March 31, 2023, Interest expense increased by $11 million driven by an increase in interest rates and net proceeds from debt, compared to the same period in 2022.

Income tax expense decreased due to discrete items for the three months ended March 31, 2023, primarily unrecognized tax benefits, compared to the same period in 2022.

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

The change in non-operating expenses for the three and six months ended June 30, 2023, compared to the same periods in 2022, was primarily due to an increase in interest expense of $9 million and $20 million, partially offset by a $6 million and $9 million decrease in income tax expense.

For the three and six months ended June 30, 2023, the increase in interest expense was driven by an increase in interest rates and drawings to support operations that occurred in 2022.

For the three and six months ended June 30, 2023, the decrease in income tax expense was driven by the change in earnings mix of our worldwide income and discrete items, primarily related to unrecognized tax benefits.

Liquidity and Capital Resources

Our cash management objectives are to maintain the availability of liquidity, minimize operational costs, make debt payments and fund future acquisitions and development projects.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including payroll and related benefits, legal costs, operating costs associated with the operation of our resorts and sales centers, interest and scheduled principal payments on our outstanding indebtedness, inventory-related purchase commitments, and capital expenditures for renovations and maintenance at our offices and sales centers.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including payroll and related

benefits, legal costs, operating costs associated with the operation of our resorts and sales centers, interest and scheduled principal payments on our outstanding indebtedness, inventory-related purchase commitments, and capital expenditures for renovations and maintenance at our offices and sales centers.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, inventory-related purchase commitments and costs associated with potential acquisitions and development projects, including rebranding.

We finance our short- and long-term liquidity needs primarily through cash and cash equivalents, cash generated from our operations, draws on our revolver credit facility, our non-recourse revolving timeshare credit facility (“Timeshare Facility”), and through periodic securitizations of our timeshare financing receivables.

• During the three months ended March 31, 2023, we acquired a property in New York for $136 million from a third-party developer for inventory.

• As of March 31, 2023, we had total cash and cash equivalents of $752 million, including $363 million of restricted cash.

• As of March 31, 2023, we had $671 million remaining borrowing capacity under the revolver facility.

• As of March 31, 2023, we had an aggregate of $575 million remaining borrowing capacity under our Timeshare Facility.

• During the six months ended June 30, 2023, we acquired a property in New York for $136 million from a third-party developer for inventory.

• During the six months ended June 30, 2023, we repurchased $206 million of shares under our share repurchase programs.

• As of June 30, 2023, we had total cash and cash equivalents of $588 million, including $336 million of restricted cash.

Restricted cash primarily consists of escrow deposits received on VOI sales and reserves related to non-recourse debt.

• As of June 30, 2023, we had $671 million remaining borrowing capacity under the revolver facility.

• As of June 30, 2023, we had an aggregate of $710 million remaining borrowing capacity under our Timeshare Facility.

Of this amount, we have $299 million of mortgage notes that are available to be securitized and another $291 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.

We believe that our capital allocation strategy provides adequate funding for our operations, is flexible enough to fund our development pipeline, securitizes the optimal level of receivables, and provides the ability to be strategically opportunistic in the marketplace.

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 March 31, 2023, our inventory-related purchase commitments totaled $57 million over 2 years.

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, 2023, our inventory-related purchase commitments totaled $57 million over 2 years .

Sources and Uses of Our Cash

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

Three Months Ended March 31, Variance

Six Months Ended June 30, Variance

($ in millions) 2023 2022 $

12 unchanged sentences

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

Net cash provided by operating activities was $26 million for the three months ended March 31, 2023, compared to $270 million in the same 2022 period in in the prior year.

The change was primarily due to our purchase of inventory from a third party developer, and increases in cash utilized for working capital, which is partially offset by an increase in net income during the three months ended March 31, 2023.

Net cash provided by operating activities was $220 million for the six months ended June 30, 2023, compared to $530 million in the same 2022 period in the prior year.

The decrease was primarily due to purchase of inventory from third party developer and increases in cash utilized for working capital, partially offset by an increase in net income during the six months ended June 30, 2023.

The following table summarizes our VOI inventory spending:

Three Months Ended March 31,

Six Months Ended June 30,

($ in millions) 2023 2022

3 unchanged sentences

Total VOI inventory spending $ 174 $ 86

(1) For the three months ended March 31, 2023 and 2022, 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 $3 million and $2 million recorded in Costs of VOI sales for the three months ended March 31, 2023 and 2022, respectively.

(1) For the six months ended June 30, 2023 and 2022, 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 six months ended June 30, 2023 and 2022, respectively.

Investing Activities

1 unchanged sentence

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

Net cash used in investing activities was $11 million for the three months ended March 31, 2023 compared to $14 million for the three months ended March 31, 2022.

Net cash used in investing activities was $25 million for the six months ended June 30, 2023 compared to $35 million for the six months ended June 30, 2022.

The decrease was due to decreased capital expenditures.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2023 was $183 million compared to net cash used in financing activities of $133 million for the same period in 2022.

The change is an increase of $316 million.

The increase was primarily due to an increase the net proceeds from debt of $288 million and lower repayments of

non-recourse debt of $115 million compared to 2022, partially offset by $85 million of share repurchases in the current year.

Net cash used in financing activities for the six months ended June 30, 2023 was $152 million compared to net cash used in financing activities of $518 million for the same period in 2022.

The decrease was primarily due to net proceeds from debt of $413 million and lower net repayments of non-recourse debt of $73 million compared to 2022, partially offset by $128 million increase in share repurchases when compared to 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 March 31, 2023, we were committed to approximately $5,111 million in contractual obligations over 9 years, $363 million of which will be fulfilled in the remainder of 2023.

As of June 30, 2023, we were committed to approximately $4,861 million in contractual obligations over 9 years, $248 million of which will be fulfilled in the remainder of 2023.

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.

Commitments and Contingencies and Note 10:

Debt and Non-recourse Debt in our condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Debt and Non-recourse Debt for additional information.

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 $344 million as of March 31, 2023 which primarily consist of escrow and subsidy related bonds.

We have commitments from surety providers in the amount of $356 million as of June 30, 2023, which primarily consist of escrow and subsidy related bonds.

Guarantor Financial Information

5 unchanged sentences

(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.

future indebtedness claims of holders of preferred stock and other liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.

The guarantee of each guarantor subsidiary is limited to a maximum amount, subject to applicable U.S.

2 unchanged sentences

Summarized Financial Information

($ in millions) March 31,

($ in millions) June 30,

Cash and cash equivalents $ 144

20 unchanged sentences

Total liabilities $ 4,950

($ in millions) Three Months Ended March 31, 2023

($ in millions) Six Months Ended June 30, 2023

Total revenues - transactions with non-guarantor subsidiaries $ 14

2 unchanged sentences

Net income 57

Subsequent Events

Management has evaluated all subsequent events through April 27, 2023, 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.

Critical Accounting Policies and Estimates

1 unchanged sentence

GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures.

We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2022.

We have discussed those policies

and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2022.

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