ILG
#Thank you, operator, and welcome to everyone joining us for ILG's fourth quarter and full year 2015 earnings conference call.
I want to remind you that on our call today, we will discuss our outlook for future performance and other items that are not historical facts.
These forward-looking statements typically are preceded by words such as we expect, we believe, we anticipate, or similar statements.
These forward-looking statements are subject to risks, assumptions and uncertainties, and our actual results may differ materially from those ---+ these forward-looking statements and the views expressed today.
Some of these risks have been set forth in our fourth-quarter and full year 2015 press release issued earlier today in our 2015 Form 10-K, and in other periodic reports filed with the SEC.
In addition, ILG disclaims any intent or obligation to update these forward-looking statements, except as expressly required by law.
We will also discuss certain non-GAAP measures in connection with ILG's financial performance.
I refer you to our press release posted on our website at www.iilg.com for comparable GAAP measures and full reconciliations.
In connection with the proposed merger between a wholly-owned subsidiary of ILG and Vistana, ILG filed with the SEC a registration statement on Form S-4 containing a proxy statement prospectus which we urge you to read, along with all other relevant documents filed with the SEC because they contain important information about the proposed merger.
And now I'd like to turn the call over to <UNK> <UNK>, our Chairman, President and CEO.
<UNK>.
Thanks, <UNK>.
Good afternoon to everyone participating on our call today.
2015 was an extremely busy and productive year and we were able to deliver record results.
In constant currency, consolidated revenue was up 15.3% to $708.2 million.
And adjusted EBITDA was up more than 9% to $188.5 million.
More importantly, we continued to successfully execute on our strategy with diversifying our business to create a stronger ILG with a balanced portfolio of complementary businesses and a clear path for continued growth.
At this time last year, we laid out an ambitious plan for 2015 and I am pleased to report that we made great progress towards these ---+ those goals, as well as the most transformative action we've undertaken, the pending acquisition of Starwood's vacation ownership business, Vistana Signature Experiences.
First, let's discuss the performance of our business segments in 2015.
Specifically, within Exchange and Rental, Interval International implemented a number of initiatives which added high demand inventory to the system through relationships with developers and HOAs and enhanced inventory distribution from other ILG companies.
In 2015, we added 59 resorts in 18 countries to the Interval network.
We signed a master affiliation agreement with Vacation Internationale which has more than 44,000 owners at its resorts in the US, Canada and Mexico and is known for pioneering the points-based structure in North America.
We also expanded our network by adding properties in Mexico, the Philippines, South Africa, Panama, China and many other attractive destinations around the world.
In 2015, Interval International saw 16% growth in new members entering the system.
Roughly 11% was from developer point of sale with the remainder from our HOA initiatives and the addition of Anantara Vacation Club's corporate membership base.
As we've mentioned before, we are working diligently with HOAs to enroll owners that are purchased resales or reactivate owners whose memberships have lapsed.
It's important to note that this strong increase in new members negatively impacts the average revenue per member in the short term, given the HOA initiatives and the fact that new members contribute less revenue in their initial years.
We have also enhanced the inventory in the Interval network by distributing excess Hyatt Residence Club branded inventory, utilizing available room nights at Aqua-Aston properties for get-aways and exchanges.
In 2015, this initiative resulted in $1.5 million in incremental revenue to Interval International.
As we have indicated, with respect to the Vistana acquisition we believe the ability to distribute excess inventory represents an important synergy opportunity as the high-end branded resorts are strongly demanded in the network.
With regard to the proprietary club business, Hyatt Residence Club added 16% more new members year-over-year on 8.2% greater transaction volume.
This was primarily driven by increased sales at the award-winning Hyatt Ka'anapali Beach property in Maui that opened in late 2014.
In 2015, 77% of contract sales were to new buyers which resulted additional members to our HRC and Interval networks and provided a strong base for future upgrade sales.
Overall, system-wide originated contract sales in 2015 were up 8.5% over full year 2014 to almost $100 million.
With respect to HVO consolidated properties, our efforts have been focused on bolstering the sales and marketing infrastructure to make sure we have the optimal platform to drive meaningful improvement and ultimately substantial growth in the business.
Our first priority was to bring on board the right talent to lead the sales and marketing team at the consolidated properties.
We recently completed that exercise and are now focused on incorporating the appropriate sales and marketing personnel at the site level as well as investing in additional marketing channels.
To that end, we are pleased to announce that we have acquired a prime location in the heart of Key West for our new sales center.
This distribution point one block off the world famous Duvall Street will permit us to market more effectively to visitors.
In addition, this sales center will be an ideal showcase for our Pure Points Club.
We are working diligently on the creation of the club which will be a very valuable tool to enhance sales at the consolidated properties.
As I have said before, these strategic investments will have some impact in the near term but we are confident they will enable us to increase the velocity and efficiency of sales and result in long-term growth in the business.
We are also busy finalizing our plans for the expansion of the San <UNK>nio and Bonita Springs properties with construction slated to begin later this year.
We also made significant progress with respect to our goal of leveraging VRI and Trading Places relationships with HOAs in order to strengthen the financial base of our managed resorts.
Legacy resorts have a great need to recycle inventory that has defaulted over the years.
ILG has been working to provide properties that we manage a sales and marketing platform that can be part of the solution to this ongoing challenge.
To that end, I am pleased to announce that earlier this month we purchased a 50% stake in Great Destinations which is a startup fee-for-service real estate brokerage firm.
It specializes in reselling resort timeshare properties on behalf of independent homeowners associations at legacy or sold-out resorts.
Great Destinations has worked successfully with its clients for the past few years marketing and selling thousands of timeshare intervals on behalf of HOAs.
A Club Interval membership is part of each sale, which gives new purchasers the opportunity to exchange on a points basis through the Interval network.
This transaction provides more opportunities for us to assist our managed legacy resorts.
Finally, during 2015, we were focused on the acquisition of Vistana Signature Experiences which we announced at the end of October.
Upon consummation of the transaction, Vistana will have the exclusive world-wide rights to use the upper upscale Westin and Sheraton brands in vacation ownerships in addition to the license for existing St.
Regis and the Luxury Collection fractional properties.
Today, Vistana's network consists of 19 vacation ownership resorts and three fractional properties.
Vistana has been delivering memorable vacation experiences to owners, guests, and resort customers for over 35 years at world class resorts which we understand consistently achieve among the highest guest experience ratings within the Starwood system.
We are very excited about this transformational transaction which will create a leading integrated shared ownership company that has the scale, financial strength, sales and marketing infrastructure, as well as the product portfolio to excel and drive value for shareholders and clients alike.
As we have mentioned before, Vistana will have approximately $5.5 billion in expected sales value of inventory from a variety of sources including inventory on hand, rejected returns from defaults, expansions of existing resorts with a proven track record, the conversion of five hotels in unique high demand locations, and projected purchases from HOAs and other third-parties.
The diverse sources of this inventory and the phased development plan along with the addition of new distribution points will enable Vistana to grow for many years to come.
In addition, we plan to fund the development in a capital-efficient manner by using receivables already on the balance sheet as well as those generated from ongoing sales.
This will allow us to maintain a strong balance sheet and healthy cash flow profile.
As of December 31, 2015, Vistana had $443 million of unsecuritized receivables which we expect to begin securitizing shortly after closing.
Following the transaction which we expect to close in the second quarter, ILG will have an expansive portfolio of approximately 200 managed vacation ownership resorts encompassing over 500,000 owners and more than 10,000 employees.
With an even more diverse offering of leading properties and broader geographic reach, ILG will be stronger than ever both financially and in our ability to thrive in a rapidly evolving industry.
By any measure, we are creating a stronger, more competitive company.
We will have the exclusive global master licenses and vacation ownership for Westin, Sheraton and Hyatt, three of the top upper upscale brands in hospitality.
We will have improved scale, global reach, assets, inventory, and sales and marketing infrastructure to support increased growth.
This will be complemented by an enhanced financial profile with a strong balance sheet.
We will have substantial free cash flow from recurring fee-for-service revenue such as management fees and exchange and club revenues.
Additionally, there are significant strategic benefits to the transaction, including meaningful, achievable costs and revenue synergies.
We are very excited about the prospect of bringing together ILG and Vistana, two of the most respected names in the vacation ownership industry with long histories of commitment to quality and customer service.
Now I'll call ---+ I'll turn the call over to <UNK> to go through the financials.
And then I'll describe in more detail our plans for 2016.
Thank you, <UNK>.
Good afternoon, everyone.
I will address the full year numbers and give you an overview of the fourth quarter results.
Before I begin, I\
Thanks, <UNK>.
As we move forward in 2016, let me outline our goals for the year.
In the Exchange and Rental segment, Interval International is working diligently on the development of a number of proprietary fee-for-service initiatives that will enhance our membership exchange options, enabling us to capture more wallet share.
We expect some of these programs will be rolled out in the second half of the year.
Similar programs launched in recent years have been very well received by our clients and members and have become important revenue contributors with attractive margins as they leverage our existing IT and marketing platforms.
For example, in 2015 revenue from Club Interval and Platinum memberships approached $20 million.
Since they were introduced in 2011, these programs have generated nearly $60 million of revenue.
With respect to HVO, as I mentioned in my opening remarks, we are focused on strengthening our sales and marketing infrastructure and channels as well as the launch of the Pure Points Club.
This club will combine inventory from the consolidated resorts in a form that can be more easily distributed through multiple sales centers.
We will continue to offer our home-week preference hybrid product for destinations such as Maui.
But a Pure Points Club will enable our sales to reach a wider demographic and to tack on smaller upgrade sales on a more frequent basis.
We are working diligently on the legal and operational details for the club with a goal to launch at year-end or early 2017.
This year, we also anticipate commencing construction at our Bonita Springs and San <UNK>nio resorts.
Additionally, we will continue our efforts to identify opportunities such as Great Destinations which enable us to broaden our role distributing inventory from legacy resorts.
But most importantly, in 2016 our team is working towards the closing and integration of Vistana.
In December, we received early termination of the HSR waiting period, one of the closing conditions to the acquisition.
We are waiting approval by the Mexican Competition Agency.
We have filed a registration statement with the SEC and once it's declared effective, we will mail the proxy statement to stockholders in advance of a special meeting.
As we have mentioned before, Liberty Interactive Corporation and certain ILG executive officers representing approximately 31% of ILG's shares outstanding have entered into voting and support agreements in favor of the transaction.
We expect to close in the second quarter.
As you can tell, we are investing in a number of meaningful initiatives from which we expect to see positive contributions beginning in the second half of 2016.
And finally, as <UNK> mentioned in the guidance discussion, the acquisition of Vistana will significantly transform our business.
The combined Company's scale, financial strength, and complementary product portfolio will position ILG as a quality leader in a rapidly consolidating industry.
And we'll be well-positioned for long-term growth.
With that, operator, please open the call for questions.
We gave guidance for the combined entity.
And we gave ---+ we also indicated that we expect our full year results to be relatively flat with the previous year.
Thank you, <UNK>.
Hi, <UNK>.
No, we're saying it's going to be consistent with 2015.
We have front-loaded expenses in the Hyatt sales and marketing infrastructure that we're investing in.
We also have some initiatives that are being built within the Interval International platform to be rolled out ---+ programs to be rolled out later in the year.
So we're saying that it will be consistent with.
We're hopeful that there'll be increases year-over-year.
But we're being conservative in our approach.
Yes.
Let's talk about Interval for a second.
So during the quarter we had an expiration of a reservation servicing agreement which was relatively thin margin but it has revenues.
Clearly a bit of a shift to corporates from traditionals is one of the features.
In addition, there was a 16% growth in new members as well as our HOA initiative which enrolls those owners at those HOA sold-out legacy resorts who have not renewed.
Or we get them back into the system at a low cost.
So that ---+ those ---+ the new member flow and the HOA initiatives in and of themselves are a lower revenue per member.
And there is a little bit of suppressed demand from the Mexican, Canadian, South American members because of the appreciation of the dollar.
We also [conked] up against the proprietary clause in the quarter which is part of the difference as well.
So that's on the Interval International side.
On the Hyatt side, we're doing a lot.
So we have hired the senior group in sales and marketing and training.
And we've completed that process.
They've all come from branded companies that have done significant volume before in their careers.
We also have acquired a great distribution point in Key West, which we'll be building out in concert with the roll out of the Pure Points Club.
We're working feverishly getting all the legal and operational and technology aspects of that club put together.
And at the same time, we are increasing other marketing channels for those properties.
So we feel like we're making great progress.
We've got the team.
We have to get more individual sales agents at the properties and marketing locally.
So that's the next phase of upgrading the group.
And we feel confident that this business with that tremendous brand is going to grow the business over the long term.
So we plan on getting some of the results back ---+ see some progress towards the middle of the year.
So it's a startup business.
We figure it's going to do about $10 million in HOA related sales on an annualized basis.
The bottom line contribution is not material as it's a startup.
They have a number of sales centers in California.
And so the goal would be to expand those sales centers into other regions to drive more velocity and obviously more scale.
Today, they are conveying on behalf of HOAs the weeks at properties that they have agreements with that are managed by either VRI or TPI.
And they couple a Club Interval membership to that week so that they can trade in a points currency through the Interval network.
In the future, we're looking at doing a Pure Points Club with the inventory.
But we have plenty of inventory for many, many years.
And this is an initiative that we've been looking to do for quite some time, as you know.
And we believe we found the right partner in Great Destinations.
And we can scale that as well as look at other vehicles that are in the same segment.
So it's going to being in our VO segment and we beli---+ we don't believe it'll be consolidated at this point.
Thank you.
Thanks, operator.
I want to thank you all for your questions and participation on today's' call.
We appreciate your continued interest in ILG and look forward to speaking to you in the near future.
Thank you very much.
