What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-03 · 134 added, 110 removed, 415 unchanged (37% of the section changed)

5 unchanged sentences

Forward-looking statements include all statements that are not historical facts and may be identified by terminology such as the words “outlook,” “believe,” “expect,” “potential,” “goal,” “continues,” “may,” “will,” “should,” “could,” “would,” “seeks,” “approximately,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “future,” “guidance,” “target,” or the negative version of these words or other comparable words, although not all forward-looking statements may contain such words.

The forward-looking statements contained in this Quarterly Report on Form 10-Q include statements related to HGV’s revenues, earnings, taxes, cash flow and related financial and operating measures, and expectations with respect to future operating, financial and business performance, and other anticipated future events and expectations that are not historical facts.

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.

Any one or more of these risks or uncertainties, including those related to the proposed merger transaction between HGV and Bluegreen, 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.

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Generally Accepted Accounting Principles (“U.S.

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

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.

GAAP”), and financial measures that are not calculated in accordance

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, 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.

See “Key Business and Financial Metrics” 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.

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

As of June 30, 2023, we have over 150 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada, and Japan.

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

As of September 30, 2023, we had approximately 526,000 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 7,300 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.

In August 2023, a series of wildfires in Maui caused widespread property destruction, damage and loss of life.

The fires resulted in resort closures and travel restrictions, adversely impacting travel, including in the surrounding Hawaiian Islands.

We have 13 properties and six sales centers in the Hawaiian Islands, including two properties and sales centers in Maui.

While neither of our Maui properties sustained physical damage, the decline in tourism throughout the region has negatively impacted our business and financial results, and there continues to be a level of uncertainty as to the extent of our continued business interruption.

Therefore, we will continue to evaluate the overall impact of the wildfires on our operations through the remainder of the year and into 2024.

We operate our business across two segments:

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The fee-for-service agreements enable us to generate fees from the sales and marketing of the VOIs and Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs.

The just-in-time agreements enable us to source VOI inventory in a manner that allows us to correlate the timing of acquisition of the inventory with the sale to purchasers.

The just-in-time agreements enable us to source

VOI inventory in a manner that allows us to correlate the timing of acquisition of the inventory with the sale to purchasers.

Sales of owned, including just-in-time, inventory generally result in greater Adjusted EBITDA contributions, while fee-for-service sales require less initial investment and allow us to accelerate our sales growth.

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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 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.

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 nine months ended September 30, 2023, sales from fee-for-service and just-in-time inventory were 30%, and 17% of contract sales, respectively.

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

The estimated contract sales value related to our inventory that is currently available for sale at open or soon-to-be open projects and inventory at new or existing projects that will become available for sale in the future upon registration, delivery or construction is $11.6 billion at current pricing.

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We use targeted direct marketing to reach potential members who are identified as having the financial ability to pay for our products, are frequent leisure travelers, and have an affinity with our brands.

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 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.

Tour flow quality impacts key metrics such as close rate and VPG, defined in “ Key Business and Financial Metrics—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, 2023, 69% of our contract sales were to our existing owners, compared to 71% for the nine months ended September 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 61% and 62% for the six months ended June 30, 2023 and 2022, respectively.

Financing propensity was 62% and 63% for the nine months ended September 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.

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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 734 735

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Each of the HOAs is governed by a board of directors comprised of owner and developer representatives that are charged with ensuring the resorts are well-maintained and financially stable.

Our services include day-to-day operations of the resorts, maintenance of the resorts, preparation of books and financial records including reports, budgets and projections, arranging for annual audits and maintenance fee billing and collections and personal employment training and oversight.

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

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.

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

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Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties.

Key Business and Financial Metrics and Terms Used by Management

Key Business and Financial Metrics

Real Estate Sales Operating Metrics

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Results of Operations

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

Three and Nine Months Ended September 30, 2023 Compared with the Three and Nine Months Ended September 30, 2022

Segment Results

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

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) 2023 2022 $ % 2023 2022 $ %

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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) 2023 2022 $ % 2023 2022 $ %

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EBITDA 234 300 (66) (22.0) 631 677 (46) (6.8)

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

Other loss (gain) , net

1 (2) 3 NM (3) (1) (2) NM

Share-based compensation expense 12 14 (2) (14.3) 38 40 (2) (5.0)

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

Impairment expense — — — NM 3 — 3 100%

Acquisition and integration-related expense 12 19 (7) (36.8) 42 49 (7) (14.3)

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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 our segment Adjusted EBITDA to Adjusted EBITDA:

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

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—EBITDA and Adjusted EBITDA.” The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA:

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

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

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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)

Three Months Ended September 30, Variance (1)

Nine Months Ended September 30, Variance (1)

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

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Depreciation and amortization 53 57 (4) (7.0) 156 181 (25) (13.8)

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

Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates — 2 (2) (100.0) 1 2 (1) (50.0)

EBITDA 234 300 (66) (22.0) 631 677 (46) (6.8)

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

Other loss (gain), net

1 (2) 3 NM (3) (1) (2) NM

Equity in earnings from unconsolidated affiliates (2)

(2) (4) 2 (50.0) (8) (11) 3 (27.3)

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

Impairment expense

— — — 100% 3 — 3 100%

License fee expense 37 33 4 12.1 101 90 11 12.2

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(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.

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

Also excludes impact of aforementioned items of $2 million for both the three and nine months ended September 30, 2022.

Reconciliation of Non-GAAP Real Estate Measures to GAAP Measures

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

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) 2023 2022 $ % 2023 2022 $ %

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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) 2023 2022 $ 2023 2022 $

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Net construction (deferrals) recognitions $ (7) $ 43 $ (50) $ (9) $ 17 $ (26)

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.

Real estate sales and financing segment revenues decreased by $133 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to a $133 million decrease in Sales of VOI, net, resulting from a $98 million decrease in net deferrals of sales of VOIs under construction, $18 million decrease in contract sales driven by lower VPG and the impact of the Maui wildfires, and $14 million higher provision for financing receivable losses.

Sales, marketing, brand and other fees decreased $7 million driven by lower commissions earned on sales of fee-

for-service properties.

This was partially offset by a $7 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 decreased by $17 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a $90 million decrease in Sales of VOI, net, driven by a $48 million increase in net deferrals of sales of VOIs under construction, a 15.5% decrease in VPG, the impact of Maui wildfires, and $14 million higher provision for financing receivable losses.

Sales, marketing, brand and other fees increased $44 million driven by higher commissions earned on sales of fee-for-service properties.

In addition, there was a $29 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 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.

Real estate sales and financing Adjusted EBITDA decreased by $90 million and $103 million for the three and nine months ended September 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, in addition to the overall decrease in segment revenues described 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 $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.

Resort operations and club management segment revenues increased by $23 million and $74 million for the three and nine months ended September 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 $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.

For the nine months ended September 30, 2023, the additional increase in Resort operations and club management revenue was due to an increase in resort management revenue, primarily driven by higher fees.

Resort operations and club management segment adjusted EBITDA increased by $14 million and $26 million for the three and nine months ended September 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.

1 unchanged sentence

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

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

Three Months Ended September 30, Variance (1)

Nine Months Ended September 30, Variance (1)

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

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Reportability and other:

Net recognition of sales of VOIs under construction (2)

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

Net (deferral) recognition of sales of VOIs under construction (3)

(12) 86 (98) NM (14) 34 (48) NM

Fee-for-service sale upgrades, net 6 5 1 20.0 18 14 4 28.6

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VPG $ 3,656 $ 4,229 $ (573) $ 3,771 $ 4,463 $ (692)

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

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

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

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

Contract sales decreased by $18 million for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to a 13.5% decrease in VPG, and impact of Maui wildfires, partially offset by a 14.8% increase in tour flow.

Contract sales decreased by $9 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to a 15.5% decrease in VPG, and impact of Maui wildfires, partially offset by a 21.5% increase in tour flow.

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

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

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33.8 % 40.5 % 31.4 % 37.3 %

(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

(1) Excluding the marketing revenue and other fees adjustment, Real estate profit margin was 29.8% and 37.4% for the three months ended September 30, 2023 and 2022, respectively, and 27.8% and 33.5% for the nine months ended September 30, 2023 and 2022, respectively.

Real estate profit decreased by $93 million for the three months ended September 30, 2023, compared to the same period in 2022, driven by a decrease in Sales revenue of $151 million due to lower Sales of VOIs, net of $133 million driven primarily by net deferrals of sales of VOIs under construction and lower Fee-for-service commissions and brand fees of $18 million, partially offset by a decrease in Real estate expense of $58 million due to a decrease in the Cost of VOI sales.

Real estate profit decreased by $102 million for the nine months ended September 30, 2023, compared to the same period in 2022, driven by a decrease in Sales revenue of $58 million due to a decrease in Sales of VOIs, net, driven by a decrease in the net recognition of sales of VOIs under construction of $90 million.

This was partially offset by an increase in Fee-for-service commissions and brand fees of $32 million.

Additionally, there was a $44 million increase in Real estate expense due to an increase in marketing costs of $110 million, partially offset by a decrease in the Cost of VOI sales of $66 million.

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

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

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Financing profit margin 66.7 % 63.2 % 67.6 % 66.3 %

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 profit increased by $7 million and $22 million for the three and nine months ended September 30, 2023, compared to the same periods in 2022, driven by an increase of $7 million and $29 million in financing revenue.

For the nine months ended September 30, 2023, this was partially offset by a $7 million increase in Financing expense, 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.

Financing expense increased in line with the related revenues and due to the increased costs associated with loan servicing.

Financing expense increased in line with the related revenues and due to the increase in the weighted-average interest rate on our non-recourse debt.

Resort Operations and Club Management Segment

Resort and Club Management

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) 2023 2022 $ % 2023 2022 $ %

7 unchanged sentences

Resort and club management profit margin 68.8 % 65.4 % 67.9 % 68.9 %

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.

Resort and club management profit increased by $10 million for the three months ended September 30, 2023, compared to the same period in 2022, largely driven by a $8 million increase in Club management revenue due to an increase in reservation and maintenance fees.

Resort and club management expenses remained relatively consistent when compared to the three months ended September 30, 2022.

Resort and club management profit increased by $12 million for the nine months ended September 30, 2023, compared to the same period in 2022, largely driven by a $23 million increase in Resort and club management revenue, as a result of an increase in fee revenue for the period.

This was offset by a $11 million increase in Resort and club management expenses due to personnel related costs incurred to service the increased transactions for the period.

Rental and Ancillary Services

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

Three Months Ended September 30, Variance (1)

Nine Months Ended September 30, Variance

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

Rental revenues $ 160 $ 157 $ 3 1.9 $ 469 $ 436 $ 33 7.6

Ancillary services revenues 11 16 (5) (31.3) 22 28 (6) (21.4)

Ancillary services revenues 11 2 9 NM 33 30 3 10.0

Rental and ancillary services revenues 171 159 12 7.5 502 466 36 7.7

Rental expenses 144 141 3 2.1 431 401 30 7.5

Ancillary services expense 10 12 (2) (16.7) 19 22 (3) (13.6)

Ancillary services expense 10 3 7 NM 29 25 4 16.0

Rental and ancillary services expenses 154 144 10 6.9 460 426 34 8.0

1 unchanged sentence

Rental and ancillary services profit margin 9.9 % 9.4 % 8.4 % 8.6 %

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.

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

Rental and ancillary services profit for the three and nine months ended September 30, 2023 remained consistent with the same periods in 2022.

Rental revenues increased by $3 million and $33 million for the three and nine months ended September 30, 2023, respectively, primarily due to an increase in occupied room nights compared to the same periods in 2022.

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

Other Operating Expenses

Three Months Ended June 30, Variance (1)

Six Months Ended June 30, Variance

Three Months Ended September 30, Variance (1)

Nine Months Ended September 30, Variance

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

2 unchanged sentences

License fee expense 37 33 4 12.1 101 90 11 12.2

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.

Impairment expense

— — — 100% 3 — 3 100%

General and administrative expenses decreased by $10 million and $28 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily due to lower legal and professional fees and lower personnel related costs.

Depreciation and amortization decreased by $4 million and $25 million for the three and nine months ended September 30, 2023, respectively, primarily due to certain intangible assets being fully amortized.

License fee expense increased by $4 million and $11 million, respectively, for the three and nine months ended September 30, 2023 when compared to the same periods in 2022.

Acquisition and Integration-Related Expense

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) 2023 2022 $ % 2023 2022 $ %

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

For both the three and nine months ended September 30, 2023, acquisition and integration-related costs decreased by $7 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 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) 2023 2022 $ % 2023 2022 $ %

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Equity in earnings from unconsolidated affiliates (2) (2) — — (7) (9) 2 (22.2)

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

Other loss (gain), net

1 (2) 3 NM (3) (1) (2) NM

Income tax expense 44 54 (10) (18.5) 96 115 (19) (16.5)

(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.

The change in non-operating expenses for the three and nine months ended September 30, 2023, compared to the same periods in 2022, was primarily due to a decrease in income tax expense of $10 million and $19 million, partially offset by an increase in interest expense of $8 million and $28 million, respectively.

For the three and nine months ended September 30, 2023, the increase in interest expense was driven by an increase in weighted-average interest rates and an increase in net proceeds from debt.

For the three months ended September 30, 2023, the decrease in income tax expense was driven by the overall change in our earnings which was partially offset by discrete items, primarily unrecognized tax benefits.

For the nine months ended September 30, 2023, the decrease in income tax expense was driven by a change in earnings mix of our worldwide income and discrete items, primarily 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 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.

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

• During the nine months ended September 30, 2023, we repurchased $269 million of shares under our share repurchase programs.

• In August 2023, we completed a securitization of approximately $293 million of gross timeshare financing receivables.

The proceeds were used to pay down in part some of the existing debt and for other general corporate purposes.

Debt and Non-Recourse Debt for additional information.

• As of September 30, 2023, we had total cash and cash equivalents of $227 million and restricted cash of $308 million.

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.

• As of September 30, 2023, we had $866 million remaining borrowing capacity under the revolver facility.

• As of September 30, 2023, we had an aggregate of $750 million remaining borrowing capacity under our Timeshare Facility.

Of this amount, we have $395 million of mortgage notes that are available to be securitized and another $359 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, 2023, our inventory-related purchase commitments totaled $57 million over 2 years .

As of September 30, 2023, our inventory-related purchase commitments totaled $56 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:

Six Months Ended June 30, Variance

Nine Months Ended September 30, Variance

($ in millions) 2023 2022 $

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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.

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.

Net cash provided by operating activities was $312 million for the nine months ended September 30, 2023, compared to $763 million in the same 2022 period in the prior year.

The decrease was primarily due to purchase of inventory from a third party developer, increases in cash utilized for working capital, and a decrease in net income during the nine months ended September 30, 2023.

The following table summarizes our VOI inventory spending:

Six Months Ended June 30,

Nine Months Ended September 30,

($ in millions) 2023 2022

3 unchanged sentences

Total VOI inventory spending $ 210 $ 109

(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.

(1) For the nine months ended September 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 $11 million and $6 million recorded in Costs of VOI sales for the nine months ended September 30, 2023 and 2022, respectively.

Investing Activities

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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 $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.

Net cash used in investing activities was $47 million for the nine months ended September 30, 2023 compared to $51 million for the nine months ended September 30, 2022.

The decrease was primarily due to decreased capital expenditures.

Financing Activities

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.

Net cash used in financing activities for the nine months ended September 30, 2023 was $270 million compared to net cash used in financing activities of $644 million for the same period in 2022.

The decrease was primarily due to net proceeds from debt of $378 million and lower net repayments of non-recourse debt of $93 million compared to 2022, partially offset by $106 million increase in share repurchases when compared to 2022.

1 unchanged sentence

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, 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.

As of September 30, 2023, we were committed to approximately $5,114 million in contractual obligations over 9 years, $167 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.

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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 $356 million as of June 30, 2023, which primarily consist of escrow and subsidy related bonds.

We have commitments from surety providers in the amount of $548 million as of September 30, 2023, which primarily consist of escrow, construction 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.

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.

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) June 30,

($ in millions) September 30,

Cash and cash equivalents $ 138

20 unchanged sentences

Total liabilities $ 4,614

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

($ in millions) Nine Months Ended September 30, 2023

Total revenues - transactions with non-guarantor subsidiaries $ 25

2 unchanged sentences

Net income 132

Subsequent Events

On November 5, 2023, we entered into a merger agreement with Bluegreen Vacations Holding Corporation (“Bluegreen”) to acquire Bluegreen.

Subject to the terms and conditions of the merger agreement, upon the consummation

of the transaction, we will acquire all of the shares of Bluegreen for $75.00 per share in an all-cash transaction, representing total consideration of approximately $1.5 billion, inclusive of net debt.

Consummation of this transaction is subject to customary conditions and receipt of regulatory approvals.

The transaction is anticipated to close during the first half of 2024.

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