# Hilton Grand Vacations Inc. (HGV) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from Hilton Grand Vacations Inc.'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1674168/000162828024007940/hgv-20231231.htm Accession: 0001628280-24-007940 Filing date: 2024-02-29 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/HGV/ All MD&A years: /company/HGV/mda/ Previous year: /company/HGV/mda/fy2022/ (FY 2022) Next year: /company/HGV/mda/fy2024/ (FY 2024) ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. Forward-Looking Statements This disclosure includes forward-looking statements; and actual results and events may differ substantially from those discussed or highlighted in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.” Overview Our Business 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. During 2021, we acquired Diamond Resorts and are in the process of rebranding Diamond properties and sales centers to the Hilton Grand Vacations brand and Hilton standards. On January 17, 2024 (the "Bluegreen Acquisition Date"), we completed the Bluegreen Acquisition. Our operations primarily consist of 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; operating resorts and timeshare plans; and managing our clubs and exchange programs. As of December 31, 2023, we had over 150 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada and Asia. 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 December 31, 2023, we had approximately 529,000 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 7,500 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. We operate our business across two segments: (1) real estate sales and financing; and (2) resort operations and club management. Real Estate Sales and Financing Our primary deeded product includes the marketing and selling of fee-simple VOIs deeded in perpetuity and right to use real estate interests, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week on an annual or biennial basis, at the timeshare resort in which the VOI is located. Traditionally, timeshare operators have funded 100% of the investment necessary to acquire land and construct timeshare properties. We source VOIs through developed properties and fee-for-service and just-in-time agreements with third-party developers and have focused our inventory strategy on developing an optimal inventory mix. 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. 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. Both sales of owned inventory and fee-for-service sales generate long-term, predictable fee streams, by adding to the Club membership base and properties under management, that generate strong returns on invested capital. Our primary trust VOI product, which we acquired in the Diamond Acquisition, includes the marketing and selling of beneficial interests in one of our Collections, which are represented by an annual or biennial allotment of points that can be utilized for vacations at any of the resorts in that Collection. 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 year ended December 31, 2023, sales from fee-for-service and just-in-time inventory were 28% and 19% of contract sales, respectively. See “Key Business and Financial Metrics—Real Estate Sales Operating Metrics” for 52 Table of Contents 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 approximately $11.3 billion at current pricing. Capital-efficient arrangements, comprised of our fee-for-service and just-in-time inventory, represented approximately 35% of that supply. We believe that the visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering into new markets. We sell our vacation ownership products primarily through our distribution network of both-in-market and off-site sales centers. Our products are currently marketed for sale throughout the United States, Mexico, Canada, Europe and Asia. We operate sales distribution centers in major markets and popular leisure destinations with year-round demand and a history of being a friendly environment for vacation ownership. We have over 60 sales distribution centers in various domestic and international locations. A phased rebranding of sales centers that were acquired as part of the Diamond Acquisition began in late 2021. Our marketing and sales activities are based on targeted direct marketing and a highly personalized sales approach. 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—Real Estate Sales Operating Metrics.” Additionally, the quality of tour flow impacts sales revenue and the collectability of our timeshare financing receivables. For the years ended December 31, 2023, 2022 and 2021, 70%, 71% and 70% of our contract sales were to our existing owners, respectively. 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 63% and 62% for the years ended December 31, 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. The interest rate on our loans is determined by, among other factors, the amount of the down payment, the borrower’s credit profile and the loan term. The weighted-average FICO score for loans to U.S. and Canadian borrowers at the time of origination were as follows: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2023","","2022","","2021"],["Weighted-average FICO score","737","","","735","","","734"]] [[/GREPCENT_TABLE]] Prepayment is permitted without penalty. When a member defaults, we ultimately return their VOI to inventory for resale and that member no longer participates in our Clubs. Historical default rates, which represent annual defaults as a percentage of each year’s beginning gross timeshare financing receivables balance, were as follows: [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2023","","2022","","2021"],["Historical default rates(1)","8.56","%","","7.92","%","","8.93","%"]] [[/GREPCENT_TABLE]] (1)A loan is considered to be in default if it is equal to or greater than 121 days past due as of the prior month end. Some of our timeshare financing receivables have been pledged as collateral in our securitization transactions, which have in the past and may in the future provide funding for our business activities. In these securitization transactions, special purpose entities are established to issue various classes of debt securities which are generally collateralized by a single pool of assets, consisting of timeshare financing receivables that we service and related cash deposits. For additional information see Note 7: Timeshare Financing Receivables in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. In addition, we earn fees from servicing our securitized timeshare financing receivables and the loans provided by third-party developers of our fee-for-service projects to purchasers of their VOIs. Resort Operations and Club Management We enter into management agreements with the HOAs of the timeshare resorts developed by us or a third party. 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 employment training and personnel oversight. 53 Table of Contents 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. 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 from 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. We also manage and operate the Clubs and exchange programs. When owners purchase a VOI, they are generally enrolled in a Club which allows the member to exchange their points for a number of vacation options. In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system. We rent unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through our Club programs. We earn a fee from rentals of third-party inventory. Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties. Principal Components and Factors Affecting Our Results of Operations Principal Components of Revenues •Sales of VOIs, net represents revenue recognized from the sale of owned VOIs, net of amounts considered uncollectible and sales incentives. •Sales, marketing, brand and other fees represents sales commissions, brand fees and other fees earned on the sales of VOIs through fee-for-service agreements with third-party developers. All sales commissions and brand fees are based on the total sales price of the VOIs. Also included in Sales, marketing, brand and other fees are revenues from marketing and incentive programs, except for redemption of prepaid vacation packages and Club bonus points for stays at HGV properties, which are included in Rental and ancillary services. •Financing represents revenue from the financing of sales of our owned intervals, which includes interest income and fees from servicing loans. We also earn fees from servicing the loans provided by third-party developers to purchasers of their VOIs. •Resort and club management represents revenues from Club activation fees, annual dues and transaction fees from member exchanges. Resort and club management also includes recurring management fees under our agreements with HOAs for day-to-day-management services, including housekeeping services, maintenance, and certain accounting and administrative services for HOAs, generally based on a percentage of costs to operate the resorts. •Rental and ancillary services represents revenues from transient rentals of unoccupied vacation ownership units and revenues recognized from the utilization of Club points and vacation packages when points and packages are redeemed for rental stays at one of our resorts. We also earn fees from the rental of inventory owned by third parties. Ancillary revenues include food and beverage, retail, spa offerings and other guest services provided to resort guests. •Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer and insurance. The corresponding expenses are presented as Cost reimbursements expense in our consolidated statements of operations resulting in no effect on net income. Factors Affecting Revenues •Relationships with developers. We have entered into fee-for-service and just-in-time agreements to sell VOIs on behalf of or acquire VOIs from third-party developers. The success and sustainability of our capital-efficient business model depends on our ability to maintain good relationships with third-party developers. Our relationships with these third parties also generate new relationships with developers and opportunities for property development that can support our growth. We believe that we have strong relationships with our third-party developers, and we are committed to the continued growth and development of these relationships. These relationships exist with a diverse group of developers and are not significantly concentrated with any particular third party. 54 Table of Contents •Construction activities. We have entered into agreements with third parties to acquire both completed VOIs and property. At the same time, we have increased our own development activities to construct new properties that we will own and from which we are selling, and will continue to sell, units and VOIs. These activities, and in particular the development of real property into inventory, are subject to construction risks including, construction delays, zoning and other local, state or governmental approvals and failure by third-party contractors to perform. The realization of these factors could result in the inability to source inventory and ultimately lead to sales declines. •Registration activities. The registration of VOIs for sale requires time and cost, and in many jurisdictions the exact date of registration approval cannot be predicted accurately. The inability to register our products in a timely, cost-effective fashion could result in the inability to sell our products and ultimately lead to sales declines. •Relationship with Hilton. We are party to a license agreement with Hilton granting us the right to use the Hilton-branded trademarks, trade names and related intellectual property in our business for the term of the agreement. The termination of the license agreement or exercise of other remedies would materially harm our business and results of operations and impair our ability to market and sell our products and maintain our competitive position. For example, if we are not able to rely on the strength of the Hilton brands to attract prospective members and guest tours in the marketplace, our revenue would decline, and our marketing and sales expenses would increase. •Consumer demand and global economic conditions. Consumer demand for our products and services may be affected by the performance of the general economy, including the ability to generate high quality tours, and is sensitive to business and personal discretionary spending levels. Declines in consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence and adverse political conditions can subject and have subjected our revenues to significant volatility. •Marketing. We rely on call transfers from Hilton, execution of a successful digital marketing strategy, vacation traffic at key locations, and other critical marketing elements to increase tour flow, VPG, and VOI sales, thereby increasing our revenue. Any significant changes to one or more factors that adversely affect our marketing activities, such as changes in consumer behavior and preference for vacations, decreases in call transfers from Hilton due to increasing consumer reliance on digital tools, and declining quality and/or volume of tour flow may adversely and materially impact our revenue. •Interest rates. We generate interest income from consumer loans we originate and declines in interest rates may cause us to lower our interest rates on our originated loans, which would adversely affect our income generated on future loans. Conversely, if interest rates increase significantly, it would increase the cost of purchasing VOIs for any purchaser who is financing their acquisition and may deter potential purchasers from buying a VOI, which could result in sales declines. •Competition. We compete with other hotel and resort timeshare operators for sales of VOIs based principally on location, quality of accommodations, price, service levels and amenities, financing terms, quality of service, terms of property use, reservation systems and flexibility for VOI owners to exchange into time at other timeshare properties or other travel rewards. In addition, we compete based on brand name recognition and reputation. Our primary branded competitors in the timeshare space include Marriott Vacations Worldwide, Travel + Leisure Co., Disney Vacation Club, Holiday Inn Club Vacations, Westgate Resorts, and Bluegreen Vacations, which we acquired on January 17, 2024. Principal Components of Expenses •Cost of VOI sales represents the costs attributable to the sales of owned VOIs recognized, as well as charges incurred related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects. •Sales and marketing represents costs incurred to sell and market VOIs, including costs incurred relating to marketing and incentive programs, costs for tours, rental expense and wages and sales commissions. •Financing represents consumer financing interest expense related to our debt securitized by gross timeshare financing receivables (“Securitized Debt”) and Timeshare Facility, amortization of the related deferred loan costs and other expenses incurred in providing consumer financing and servicing loans. •Resort and club management represents costs incurred to manage resorts and the Clubs, including payroll and related costs and other administrative costs. 55 Table of Contents •Rental and ancillary services include payroll and related costs, costs incurred from participating in the Hilton Honors loyalty program, retail, food and beverage costs and maintenance fees on unsold inventory. •General and administrative consists primarily of compensation expense for our corporate staff and personnel supporting our business segments, professional fees (including consulting, audit and legal fees), administrative and related expenses. General and administrative also includes costs for services provided to us by Hilton. •Depreciation and amortization are non-cash expenses that primarily consist of depreciation of fixed assets such as buildings and leasehold improvements and furniture and equipment at our sales centers, corporate offices, and assets purchased for future conversion to inventory, as well as amortization of our trade names, management agreement contracts, club member relationship intangibles and capitalized software. •License fee expense represents the royalty fee paid to Hilton under a license agreement for the exclusive right to use the Hilton Grand Vacations mark, which is generally based on a percentage of gross sales volume of certain revenue streams. •Acquisition and integration-related expense represents direct expenses for the Diamond Acquisition and the Bluegreen Acquisition, including integration costs, legal and other professional fees. Integration costs include technology-related costs, fees paid to management consultants and employee-related costs such as severance and transition. •Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer and insurance. The corresponding revenues are presented as Cost reimbursements revenue in our consolidated statements of operations resulting in no effect on net income. Factors Affecting Expenses •Costs of VOI sales. In periods where there is increased demand for VOIs, we may incur increased costs to acquire inventory in the short-term, which can have an adverse effect on our cash flows, margins and profits. In addition, the registration of inventory for sale requires time and cost, and in many jurisdictions the exact date of registration approval cannot be predicted accurately. As we encourage owners to upgrade into other products, we incur expenses when owners upgrade from an interval in a project we developed into fee-for-service projects, on which we earn fees. In periods where more upgrades are occurring and we are not generating increased sales volume on unsold supply, we could see an adverse effect on our cash flows, margins and profits. Furthermore, construction delays, zoning and other local, state or federal governmental approvals, particularly in new geographic areas with which we are unfamiliar, cost overruns, lender financial defaults, or natural or man-made disasters, as well as failure by third-party contractors to perform for any reason, could lead to an adverse effect on our cash flows, margins and profits. •Sales and marketing expense. A significant portion of our costs relates to selling and marketing of our VOIs. In periods of decreased demand for VOIs, we may be unable to reduce our sales and marketing expenses quickly enough to prevent a deterioration of our profits and margins on our real estate operations. •Rental and ancillary services expense. These expenses include personnel costs, rent, property taxes, insurance and utilities. We pay a portion of these costs through maintenance fees of unsold intervals and by subsidizing the costs of HOAs not covered by maintenance fees collected. If we are unable to decrease these costs significantly or rapidly when demand for our unit rentals decreases, the resulting decline in our revenues could have an adverse effect on our net cash flow, margins and profits. •General and administrative. Increases in general and administrative expenses associated with operating as a publicly traded company in a competitive and dynamic timeshare industry, regulatory filings and professional fees may affect our net cash flows, margins and profits. •Interest rates. Increases in interest rates would increase the consumer financing interest expense we pay on the Timeshare Facility and could adversely affect our financing operations in future securitization or other debt transactions, affecting net cash flow, margins and profits. 56 Table of Contents Key Business and Financial Metrics Real Estate Sales Operating Metrics We measure our performance using the following key operating metrics: •Contract sales represents the total amount of VOI products (fee-for-service, just-in-time, developed, and points-based) under purchase agreements signed during the period where we have received a down payment of at least 10% of the contract price. Contract sales differ from revenues from the Sales of VOIs, net that we report in our consolidated statements of operations due to the requirements for revenue recognition, as well as adjustments for incentives. While we do not record the purchase price of sales of VOI products developed by fee-for-service partners as revenue in our consolidated financial statements, rather recording the commission earned as revenue in accordance with U.S. GAAP, we believe contract sales to be an important operational metric, reflective of the overall volume and pace of sales in our business and believe it provides meaningful comparability of our results to the results of our competitors which may source their VOI products differently. We believe that the presentation of contract sales on a combined basis (fee-for-service, just-in-time, developed and points-based) is most appropriate for the purpose of the operating metric, additional information regarding the split of contract sales, is included in “—Real Estate” below. See Note 2: Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 in this Annual Report on form 10-K, for additional information on Sales of VOIs, net. •Tour flow represents the number of sales presentations given at our sales centers during the period. •Volume per guest (“VPG”) represents the sales attributable to tours at our sales locations and is calculated by dividing contract sales, excluding telesales, by tour flow. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the closing rate. EBITDA and Adjusted EBITDA EBITDA, presented herein, is a financial measure that is not recognized under U.S. GAAP that reflects net income, before interest expense (excluding non-recourse debt), a provision for income taxes and depreciation and amortization. Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) other gains, including asset dispositions and foreign currency transactions; (ii) debt restructurings/retirements; (iii) non-cash impairment losses; (iv) share-based and other compensation expenses; and (v) other items, including but not limited to costs associated with acquisitions, restructuring, amortization of premiums and discounts resulting from purchase accounting, and other non-cash and one-time charges. EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income, cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are: •EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; •EBITDA and Adjusted EBITDA do not reflect our interest expense (excluding interest expense on non-recourse debt), or the cash requirements necessary to service interest or principal payments on our indebtedness; •EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes; 57 Table of Contents •EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; •EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; •EBITDA and Adjusted EBITDA do not reflect any cash requirements for future replacements of assets that are being depreciated and amortized; and •EBITDA and Adjusted EBITDA may be calculated differently from other companies in our industry limiting their usefulness as comparative measures. 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 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 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 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 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 consolidated statements of operations. Rental and ancillary services profit margin is calculated as a percentage by 58 Table of Contents 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. GAAP. 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. GAAP. 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. 59 Table of Contents Results of Operations Year Ended December 31, 2023 Compared with Year Ended December 31, 2022 The following discussion and analysis of our financial condition and results of operations is for the year ended December 31, 2023 compared with the year ended December 31, 2022. Discussions of our financial condition and results of operations for the year ended December 31, 2022 compared to December 31, 2021 that have been omitted under this item can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 1, 2023. Segment Results The following tables present our revenues by segment for the year ended December 31, 2023, compared to the years ended December 31, 2022, and 2021. We do not include equity in earnings from unconsolidated affiliates in our measures of segment revenues. [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Revenues:"],["Real estate sales and financing","$","2,357","","","$","2,378","","","$","1,451","","","$","(21)","","","(0.9)"],["Resort operations and club management","1,291","","","1,197","","","700","","","94","","","7.9"],["Total segment revenues","3,648","","","3,575","","","2,151","","","73","","","2.0"],["Cost reimbursements","386","","","297","","","202","","","89","","","30.0"],["Intersegment eliminations(1)","(56)","","","(37)","","","(18)","","","(19)","","","51.4"],["Total revenues","$","3,978","","","$","3,835","","","$","2,335","","","$","143","","","3.7"]] [[/GREPCENT_TABLE]] (1)Refer to Note 22: Business Segments in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for details on the intersegment eliminations. We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 22: Business Segments in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses them to manage our business and material limitations on their usefulness, refer to “—Key Business and Financial Metrics—EBITDA and Adjusted EBITDA.” The following table reconciles net income, our most comparable U.S. GAAP financial measure, to EBITDA and Adjusted EBITDA: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022(1)"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Net income","$","313","","","$","352","","","$","176","","","$","(39)","","","(11.1)"],["Interest expense","178","","","142","","","105","","","36","","","25.4"],["Income tax expense","136","","","129","","","93","","","7","","","5.4"],["Depreciation and amortization","213","","","244","","","126","","","(31)","","","(12.7)"],["Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates","2","","","2","","","1","","","\u2014","","","\u2014"],["EBITDA","842","","","869","","","501","","","(27)","","","(3.1)"],["Other (gain) loss, net","(2)","","","1","","","26","","","(3)","","","NM"],["Share-based compensation expense","40","","","46","","","48","","","(6)","","","(13.0)"],["Impairment expense","3","","","17","","","2","","","(14)","","","(82.4)"],["Acquisition and integration-related expense","68","","","67","","","106","","","1","","","1.5"],["Other adjustment items(2)","54","","","65","","","33","","","(11)","","","(16.9)"],["Adjusted EBITDA","$","1,005","","","$","1,065","","","$","716","","","$","(60)","","","(5.6)"]] [[/GREPCENT_TABLE]] (1)NM - fluctuation in terms of percentage change is not meaningful. (2)For the years ended December 31, 2023, 2022 and 2021, this amount includes costs associated with restructuring, one-time charges, other non-cash items, and amortization of fair value premiums and discounts resulting from purchase accounting. 60 Table of Contents The following table reconciles our segment Adjusted EBITDA to Adjusted EBITDA. [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Adjusted EBITDA:"],["Real estate sales and financing(1)","$","754","","","$","865","","","$","537","","","$","(111)","","","(12.8)"],["Resort operations and club management(1)","504","","","463","","","353","","","41","","","8.9"],["Adjustments:"],["Adjusted EBITDA from unconsolidated affiliates","14","","","15","","","11","","","(1)","","","(6.7)"],["License fee expense","(138)","","","(124)","","","(80)","","","(14)","","","11.3"],["General and administrative(2)","(129)","","","(154)","","","(105)","","","25","","","(16.2)"],["Adjusted EBITDA","$","1,005","","","$","1,065","","","$","716","","","$","(60)","","","(5.6)"]] [[/GREPCENT_TABLE]] (1)Includes intersegment transactions, share-based compensation, depreciation and other adjustments attributable to the segments. (2)Adjusts for segment related share-based compensation, depreciation and other adjustment items. Reconciliation of Non-GAAP Profit Measures to GAAP Measure The following table reconciles net income, our most comparable U.S. GAAP financial measure, to EBITDA and the total of our real estate, financing, resort and club management, and rental and ancillary services profit measures. [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022(1)"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Net income","$","313","","","$","352","","","$","176","","","$","(39)","","","(11.1)"],["Interest expense","178","","","142","","","105","","","36","","","25.4"],["Income tax expense","136","","","129","","","93","","","7","","","5.4"],["Depreciation and amortization","213","","","244","","","126","","","(31)","","","(12.7)"],["Interest expense, depreciation and amortization included in equity in earnings from unconsolidated affiliates","2","","","2","","","1","","","\u2014","","","\u2014"],["EBITDA","842","","","869","","","501","","","(27)","","","(3.1)"],["Other (gain) loss, net","(2)","","","1","","","26","","","(3)","","","NM"],["Equity in earnings from unconsolidated affiliates(2)","(14)","","","(15)","","","(11)","","","1","","","(6.7)"],["Impairment expense","3","","","17","","","2","","","(14)","","","(82.4)"],["License fee expense","138","","","124","","","80","","","14","","","11.3"],["Acquisition and integration-related expense","68","","","67","","","106","","","1","","","1.5"],["General and administrative","194","","","212","","","151","","","(18)","","","(8.5)"],["Profit","$","1,229","","","$","1,275","","","$","855","","","$","(46)","","","(3.6)"],["Real estate profit","575","","","691","","","402","","","(116)","","","(16.8)"],["Financing profit","208","","","164","","","118","","","44","","","26.8"],["Resort and club management profit","392","","","373","","","260","","","19","","","5.1"],["Rental and ancillary services profit","54","","","47","","","75","","","7","","","14.9"],["Profit","$","1,229","","","$","1,275","","","$","855","","","$","(46)","","","(3.6)"]] [[/GREPCENT_TABLE]] (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 $2 million, $2 million and $1 million for the years ended December 31, 2023, 2022 and 2021, respectively. 61 Table of Contents Reconciliation of Non-GAAP Real Estate Measures to GAAP Measures The following table reconciles our Sales, marketing, brand and other fees revenue, our most comparable U.S. GAAP financial measure, to Fee-for-service commissions and brand fees, and Sales and marketing expense, our most comparable U.S. GAAP financial measure, to Sales and marketing expense, net. Fee-for-service commissions and brand fees and Sales and marketing, net, are used in calculating our real estate profit and real estate profit margin. See “Real Estate Sales and Financing Segment—Real Estate” below. [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Sales, marketing, brand and other fees","$","634","","","$","620","","","$","385","","","$","14","","","2.3"],["Less: Marketing revenue and other fees(1)","(241)","","","(208)","","","(149)","","","(33)","","","15.9"],["Fee-for-service commissions and brand fees","$","393","","","$","412","","","$","236","","","$","(19)","","","(4.6)"],["Sales and marketing expense","$","1,281","","","$","1,146","","","$","653","","","$","135","","","11.8"],["Less: Marketing revenue and other fees(1)","(241)","","","(208)","","","(149)","","","(33)","","","15.9"],["Sales and marketing expense, net","$","1,040","","$","938","","$","504","","","$","102","","","10.9"]] [[/GREPCENT_TABLE]] (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 Real estate sales and financing segment revenues decreased by $21 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to a $75 million decrease in Sales of VOIs, net, driven by a $66 million increase in net deferrals of sales of VOIs under construction, a 15% decrease in VPG, and a $29 million increase in provision for financing receivable losses, offset by a $49 million decrease in fee for service sales. Sales, marketing, brand and other fees increased $14 million driven by higher commissions earned on sales of fee-for-service properties. In addition, there was a $40 million increase in financing revenue primarily related to an increase in our loan portfolio combined with an increase in the weighted-average interest rate. Real estate sales and financing Adjusted EBITDA decreased by $111 million compared to the same period in 2022, primarily due to an increase in marketing costs due to our emphasis in adding new owners, which typically carry a higher cost per tour, in addition to the overall decrease in segment revenues described above. Refer to “—Real Estate” and “—Financing” for further discussion on the revenues and expenses of the real estate sales and financing segment. In accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), revenue and the related costs to fulfill and acquire the contract (“direct costs”) from sales of VOIs under construction are deferred until the point in time when construction activities are deemed to be completed. The real estate sales and financing segment is impacted by construction related deferral and recognition activity. In periods where Sales of VOIs and related direct costs of projects under construction are deferred, margin percentages will generally contract as the indirect marketing and selling costs associated with these sales are recognized as incurred in the current period. In periods where previously deferred Sales of VOIs and related direct costs are recognized upon construction completion, margin percentages will generally expand as the indirect marketing and selling costs associated with these sales were recognized in prior periods. 62 Table of Contents The following table represents deferrals and recognitions of Sales of VOIs revenue and direct costs for properties under construction: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022"],["($ in millions)","2023","","2022","","2021","","$"],["Sales of VOIs (deferrals)","$","(39)","","","$","(67)","","","$","(112)","","","$","28"],["Sales of VOIs recognitions","4","","","98","","","245","","","(94)"],["Net Sales of VOIs (deferrals) recognitions","(35)","","","31","","","133","","","(66)"],["Cost of VOI sales (deferrals)","(10)","","","(22)","","","(36)","","","12"],["Cost of VOI sales recognitions","1","","","33","","","74","","","(32)"],["Net Cost of VOI sales (deferrals) recognitions","(9)","","","11","","","38","","","(20)"],["Sales and marketing expense (deferrals)","(6)","","","(10)","","","(17)","","","4"],["Sales and marketing expense recognitions","1","","","14","","","36","","","(13)"],["Net Sales and marketing expense (deferrals) recognitions","(5)","","","4","","","19","","","(9)"],["Net construction (deferrals) recognitions","$","(21)","","","$","16","","","$","76","","","$","(37)"]] [[/GREPCENT_TABLE]] Resort Operations and Club Management Resort operations and club management segment revenues increased $94 million for the year ended December 31, 2023, compared to the same period in 2022, primarily driven by greater Rental and ancillary revenue as a result of increased average daily rates. The segment revenue increase is also attributable to higher Resort management revenues, primarily driven by higher fees as well as an increase in Club members. Resort operations and club management segment Adjusted EBITDA increased $41 million for the year ended December 31, 2023 compared to the same period in 2022, primarily due to the increase in resort and club management and rental revenues described above, partially offset by an increase in resort and club management expenses due to personnel-related costs incurred to service increased arrivals and transaction activity. Refer to “—Resort and Club Management” and “—Rental and Ancillary Services” for further discussion on the revenues and expenses of the resort operations and club management segment. Real Estate Sales and Financing Segment See “Reconciliation of Profit Measures to GAAP Measure” above. Real Estate [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance (1)"],["($ in millions, except Tour flow and VPG)","2023","","2022","","2021","","$","","%"],["Contract sales","$","2,310","","","$","2,381","","","$","1,352","","","$","(71)","","","(3.0)"],["Adjustments:"],["Fee-for-service sales(2)","(644)","","","(693)","","","(424)","","","49","","","(7.1)"],["Provision for financing receivables losses","(171)","","","(142)","","","(121)","","","(29)","","","20.4"],["Reportability and other:"],["Net (deferral) recognition of sales of VOIs under construction(3)","(35)","","","31","","","133","","","(66)","","","NM"],["Fee-for-service sale upgrades, net","19","","","18","","","14","","","1","","","5.6"],["Other(4)","(63)","","","(104)","","","(71)","","","41","","","(39.4)"],["Sales of VOIs, net","$","1,416","","","$","1,491","","","$","883","","","$","(75)","","","(5.0)"],["Tour flow","608,367","","","517,117","","","298,044","","","91,250"],["VPG","$","3,760","","","$","4,432","","","$","4,332","","","$","(672)"]] [[/GREPCENT_TABLE]] (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. (3)Represents the net recognition of revenues related to the Sales of VOIs under construction that are recognized when construction is complete. (4)Includes adjustments for revenue recognition, including amounts in rescission and sales incentives. 63 Table of Contents Contract sales decreased $71 million for the year ended December 31, 2023, compared to the same period in 2022, primarily due to a 15.2% decrease in VPG, and partially offset by a 17.6% increase in tour flow. [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Sales of VOIs, net","$","1,416","","$","1,491","","$","883","","$","(75)","","","(5.0)"],["Fee-for-service commissions and brand fees","393","","412","","236","","(19)","","","(4.6)"],["Sales revenue","1,809","","1,903","","1,119","","(94)","","","(4.9)"],["Less:"],["Cost of VOI sales","194","","274","","213","","(80)","","","(29.2)"],["Sales and marketing expense, net","1,040","","938","","504","","102","","","10.9"],["Real Estate expense","1,234","","1,212","","717","","22","","","1.8"],["Real Estate profit","$","575","","$","691","","$","402","","$","(116)","","","(16.8)"],["Real Estate profit margin(1)","31.8","%","","36.3","%","","35.9","%"]] [[/GREPCENT_TABLE]] (1)Excluding the marketing revenue and other fees adjustment, Real estate profit margin was 28.0%, 32.7% and 31.7% for the years ended December 31, 2023, 2022 and 2021, respectively. Real estate profit decreased by $116 million for the year ended December 31, 2023, compared to the same period in 2022, driven by a decrease of $94 million in Sales revenue due to lower Sales of VOIs, net of $75 million driven primarily by net deferrals of sales of VOIs under construction and lower Fee-for-service commissions and brand fees of $19 million. Additionally, Real estate expense increased by $22 million due to an increase in payroll expense from additional employee headcount and increases in wage rates as a result of competitive labor conditions experienced in most geographical markets. Financing [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Interest income","$","273","","$","235","","$","157","","$","38","","","16.2"],["Other financing revenue","34","","32","","26","","2","","","6.3"],["Financing revenue","307","","267","","183","","40","","","15.0"],["Consumer financing interest expense","48","","47","","30","","1","","","2.1"],["Other financing expense","51","","56","","35","","(5)","","","(8.9)"],["Financing expense","99","","103","","65","","(4)","","","(3.9)"],["Financing profit","$","208","","$","164","","$","118","","$","44","","","26.8"],["Financing profit margin","67.8","%","","61.4","%","","64.5","%"]] [[/GREPCENT_TABLE]] Financing profit increased by $44 million for the year ended December 31, 2023, compared to the same period in 2022, driven by an increase of $40 million in financing revenue, accompanied by a decrease in financing expense of $4 million. Financing revenue increased by $40 million primarily due to interest income driven by an increase in our loan portfolio and an increase in the weighted-average interest rate. Financing expense decreased by $4 million due to a decrease in bank fees partially offset by higher compensation costs due to increased headcount. 64 Table of Contents Resort Operations and Club Management Segment Resort and Club Management [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Club management revenue","$","240","","$","227","","$","168","","$","13","","","5.7"],["Resort management revenue","329","","307","","172","","22","","","7.2"],["Resort and club management revenues","569","","534","","340","","35","","","6.6"],["Club management expense","60","","42","","28","","18","","","42.9"],["Resort management expense","117","","119","","52","","(2)","","","(1.7)"],["Resort and club management expenses","177","","161","","80","","16","","","9.9"],["Resort and club management profit","$","392","","$","373","","$","260","","$","19","","","5.1"],["Resort and club management profit margin","68.9","%","","69.9","%","","76.5","%"]] [[/GREPCENT_TABLE]] Resort and club management profit increased by $19 million for the year ended December 31, 2023, compared to the same period in 2022, driven by an increase of $35 million in resort and club management revenue and partially offset by an increase of $16 million in resort and club management expenses. The increases in resort operations and club management revenues were driven by an increase in license fee revenue and maintenance fees for the period. The increase in resort and club management expenses is primarily due to personnel related costs incurred to service the increased transactions. Rental and Ancillary Services [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Rental revenues","$","623","","$","586","","$","315","","$","37","","","6.3"],["Ancillary services revenues","43","","40","","27","","3","","","7.5"],["Rental and ancillary services revenues","666","","626","","342","","40","","","6.4"],["Rental expenses","573","","544","","242","","29","","","5.3"],["Ancillary services expense","39","","35","","25","","4","","","11.4"],["Rental and ancillary services expenses","612","","579","","267","","33","","","5.7"],["Rental and ancillary services profit","$","54","","$","47","","$","75","","$","7","","","14.9"],["Rental and ancillary services profit margin","8.1","%","","7.5","%","","21.9","%"]] [[/GREPCENT_TABLE]] Rental and ancillary services profit increased by $7 million for the year ended December 31, 2023, compared to the same period in 2022, driven by an increase of $40 million in rental and ancillary services revenue primarily due to an increase in occupied room nights compared to the same period in 2022. This was partially offset by an increase of $33 million in rental and ancillary expenses, consistent with the aforementioned increase in rental revenue. Other Operating Expenses [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance"],["($ in millions)","2023","","2022","","2021","","$","","%"],["General and administrative","$","194","","","$","212","","","$","151","","","$","(18)","","","(8.5)"],["Depreciation and amortization","213","","","244","","","126","","","(31)","","","(12.7)"],["License fee expense","138","","","124","","","80","","","14","","","11.3"],["Impairment expense","3","","","17","","","2","","","(14)","","","(82.4)"]] [[/GREPCENT_TABLE]] The change in other operating expenses for the year ended December 31, 2023, compared to the same period in 2022, was driven by decreased general and administrative costs and decreased depreciation and amortization expense. General and administrative expenses decreased by $18 million, primarily related to decreased legal and professional fees. Depreciation and amortization decreased by $31 million due to decreased amortization of trade names, management 65 Table of Contents contracts, and club member relationships acquired as a part of the Diamond Acquisition. License fee expense increased by $14 million due to improved results related to increased travel demand. Impairment expense decreased by $14 million due to fewer assets deemed unrecoverable in 2023 compared to the same period in 2022. Acquisition and Integration-Related Expense [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Acquisition and integration-related expense","$","68","","","$","67","","","$","106","","","$","1","","","1.5"]] [[/GREPCENT_TABLE]] For the year ended December 31, 2023, acquisition and integration-related costs remained consistent compared to the same period in 2022. Acquisition and integration-related costs incurred consisted of professional fees related to the Diamond Acquisition and the Bluegreen Acquisition in 2023 and solely related to the Diamond Acquisition in 2022. Non-Operating Expenses [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022Variance (1)"],["($ in millions)","2023","","2022","","2021","","$","","%"],["Interest expense","$","178","","","$","142","","","$","105","","","$","36","","","25.4"],["Equity in earnings from unconsolidated affiliates","(12)","","","(13)","","","(10)","","","1","","","(7.7)"],["Other (gain) loss, net","(2)","","","1","","","26","","","(3)","","","NM"],["Income tax expense","136","","","129","","","93","","","7","","","5.4"]] [[/GREPCENT_TABLE]] (1)NM - Fluctuation in terms of percentage change is not meaningful. The change in non-operating expenses for the year ended December 31, 2023 compared to the same period in 2022, was primarily due to a $36 million increase in interest expense driven by an increase in interest rates and draws on our revolver credit facility to support operations and a $7 million increase in income tax expense primarily due to non-recurring state tax benefits recognized in the prior year. Liquidity and Capital Resources Overview Our cash management objectives are to maintain the availability of liquidity, minimize operational costs, remit 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 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. Our primary source of funding to satisfy these requirements is derived from sales and financing of vacation ownership intervals, management of our resorts and Clubs, and rentals of available inventory. See Item 1. Business for more information on our reportable segments and sources of revenue. 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. The following highlights certain matters that impacted our liquidity for the year ended December 31, 2023: •In January 2023, we acquired inventory associated with a property in New York for $136 million from a third-party developer. •In August 2023, we completed a securitization of $293 million of gross timeshare financing receivables. The proceeds were primarily used to pay down in part some of the existing debt and for other general 66 Table of Contents corporate purposes. See Note 7: Timeshare Financing Receivables and Note 15: Debt and Non-recourse Debt for additional information. •In December 2023, we completed the Grand Islander Acquisition for $117 million. •During the year ended December 31, 2023, we repurchased $368 million of shares under our share repurchase programs. •As of December 31, 2023, we had total cash and cash equivalents of $589 million and restricted cash of $296 million. Restricted cash primarily consists of escrow deposits received on VOI sales and reserves related to non-recourse debt. •As of December 31, 2023, we have $553 million remaining borrowing capacity under the revolver credit facility. •As of December 31, 2023, we have $350 million remaining borrowing capacity under our Timeshare Facility, and an additional $1 million remaining borrowing capacity under the Grand Islander Timeshare Facility. Of this amount, we have $155 million of mortgage notes that are available to be securitized, and another $317 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 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 $454 million as of December 31, 2023, which primarily consist of escrow, construction and subsidy related bonds. We believe that these actions, together with drawing on available borrowings under our revolver and preserving our capacity under our Timeshare Facility as described above, will provide adequate capital to meet our short- and long-term liquidity requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs, additional costs related to complying with various regulatory requirements and to finance our long-term growth plan and capital expenditures for the foreseeable future. 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 December 31, 2023, our inventory-related purchase commitments totaled $37 million over 1 year. Sources and Uses of Our Cash The following table summarizes our net cash flows and key metrics related to our liquidity: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","2023 vs 2022"],["($ in millions)","2023","","2022","","2021","","$"],["Net cash provided by (used in):"],["Operating activities","$","312","","","$","747","","","$","168","","","$","(435)"],["Investing activities","(158)","","","(97)","","","(1,631)","","","(61)"],["Financing activities","183","","","(782)","","","1,636","","","965"]] [[/GREPCENT_TABLE]] Operating Activities Cash flow provided by operating activities is primarily generated from (1) sales and financing of VOIs and (2) net cash generated from managing our resorts, Club operations and providing related rental and ancillary services. Cash flows used in operating activities primarily include spending for the purchase and development of real estate for future conversion to inventory and funding our working capital needs. Our cash flows from operations generally vary due to the following factors related to the sale of our VOIs; the degree to which our owners finance their purchase and our owners’ repayment of timeshare financing receivables; the timing of management and sales and marketing services provided; and cash outlays for VOI inventory acquisition and development. Additionally, cash flow from operations will also vary depending upon our sales mix of VOIs; over time, we generally receive more cash from the sale of an owned VOI as compared to that from a fee-for-service sale. 67 Table of Contents The change in net cash flows provided by operating activities for the year ended December 31, 2023, compared to the same period in 2022 was primarily due to increases in cash utilized for working capital and purchase of inventory from a third party developer. The following table exhibits our VOI inventory spending for the years ended December 31, 2023, 2022 and 2021. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["($ in millions)","2023","","2022","","2021"],["VOI spending - owned properties(1)","$","243","","","$","161","","","$","200"],["VOI spending - fee-for-service upgrades(2)","16","","","13","","","10"],["Purchases and development of real estate for future conversion to inventory","39","","","8","","","33"],["Total VOI inventory spending","$","298","","","$","182","","","$","243"]] [[/GREPCENT_TABLE]] (1) For the years ended December 31, 2023, 2022, and 2021, our VOI inventory spending on owned properties relates to properties that are classified as Inventory on our consolidated balance sheets. (2) Includes expense related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects of $12 million, $9 million and $7 million recorded in Costs of VOI sales for the years ended December 31, 2023, 2022 and 2021, respectively. Investing Activities Our capital expenditures include spending related to technology and buildings and leasehold improvements used to support sales and marketing locations, resort operations and corporate activities. We believe the renovations of our existing assets are necessary to stay competitive in the markets in which we operate. The change in net cash used in investing activities for the year ended December 31, 2023, compared to the same period in 2022 was primarily due to the Grand Islander Acquisition partially offset by decreased capital expenditures. Financing Activities The change in net cash flows used in financing activities for the year ended December 31, 2023, compared to the same period in 2022 was primarily due to net proceeds from debt of $658 million and lower net payments of non-recourse debt of $395 million compared to 2022, partially offset by $96 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 December 31, 2023, we were committed to $5,790 million in contractual obligations over 9 years, $563 million of which will be fulfilled in 2024. This amount includes $1,074 million of interest on our debt and non-recourse debt, of which $224 million will be incurred in 2024. 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. See Note 15: Debt and Non-recourse Debt, Note 17: Leases and Note 23: Commitments and Contingencies, in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K 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 $454 million as of December 31, 2023, which primarily consist of escrow, construction and subsidy related bonds. Guarantor Financial Information Certain subsidiaries, which are listed on Exhibit 22 of this Annual Report on Form 10-K, have guaranteed our obligations related to our senior unsecured 2029 Notes and 2031 Notes (together, "the Notes"). The 2029 Notes were issued in June 2021 with an aggregate principal balance of $850 million, an interest rate of 5.000% and maturity in June 2029. The 2031 Notes were issued in June 2021 with an aggregate principal balance of $500 million, an interest rate of 4.875%, and maturity in July 2031. The Notes were co-issued by Hilton Grand Vacations Borrower LLC and Hilton Grand Vacations Borrower Inc. (the “Issuers”) and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Hilton Grand Vacations Inc. (the “Parent”), Hilton Grand Vacations Parent LLC, the Issuers, and each of the Issuer’s existing and future wholly owned domestic restricted subsidiaries (all entities that guarantee the Notes, collectively, the “Obligor group”). 68 Table of Contents 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. The guarantee of each guarantor subsidiary is limited to a maximum amount, subject to applicable U.S. and non-U.S. laws. The guarantees can also be released upon the sale or transfer of a guarantor subsidiary’s capital stock or substantially all of its assets, becoming designated as an unrestricted subsidiary, or upon its consolidation into a co-Issuer or another subsidiary Guarantor. The following tables provide summarized financial information of the Obligor group on a combined basis after elimination of (i) intercompany transactions and balances between the Parent and the subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries and unconsolidated affiliates: [[GREPCENT_TABLE]] [["($ in millions)","December 31,"],["Assets","2023"],["Cash and cash equivalents","$","456"],["Restricted cash","167"],["Accounts receivable, net - due from non-guarantor subsidiaries","90"],["Accounts receivable, net - due from related parties","19"],["Accounts receivable, net - other","377"],["Timeshare financing receivables, net","500"],["Inventory","1,268"],["Property and equipment, net","727"],["Operating lease right-of-use assets, net","60"],["Investments in unconsolidated affiliates","71"],["Goodwill","1,416"],["Intangible assets, net","1,158"],["Other assets","279"],["Total assets","$","6,588"],["Liabilities"],["Accounts payable, accrued expenses and other - due from non-guarantor subsidiaries","$","90"],["Accounts payable, accrued expenses and other - other","761"],["Advanced deposits","174"],["Debt, net","3,049"],["Operating lease liabilities","76"],["Deferred revenues","155"],["Deferred income tax liabilities","564"],["Total liabilities","$","4,869"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["($ in millions)","2023"],["Total revenues - transactions with non-guarantor subsidiaries","$","40"],["Total revenues - other","3,509"],["Operating income","414"],["Net income","153"]] [[/GREPCENT_TABLE]] 69 Table of Contents Subsequent Events On January 17, 2024, we completed the Bluegreen Acquisition in an all-cash transaction for 100% of the outstanding voting equity interests of Bluegreen, with total consideration of approximately $1.6 billion, inclusive of net debt assumed. The Bluegreen Acquisition will be considered a business combination and accounted for using the acquisition method. Due to the close proximity of the Bluegreen Acquisition Date and the Company's filing of its Annual Report on Form 10-K for the year ended December 31, 2023, the initial accounting for the business combination is incomplete, and therefore we are unable to disclose the information required by ASC 805, Business Combinations. We will include relevant disclosures as required in the first quarter of 2024. In connection with the Bluegreen Acquisition, we executed the following transactions: •Completed an offering of $900 million aggregate principal amount of the escrow issuers’ 6.625% senior secured notes due 2032 issued by our wholly-owned subsidiaries, Hilton Grand Vacations Borrower Escrow, LLC and Hilton Grand Vacations Borrower Escrow, Inc. The proceeds were used to finance the Bluegreen Acquisition, repay certain outstanding indebtedness and pay related fees, costs, premiums and expenses in connection with these transactions. •Entered into Amendment No 4, dated January 17, 2024, to the Credit Agreement, dated as of August 2, 2021 (the “Amendment”) and incurred $900 million of new term loans that will mature on January 17, 2031. Under the Amendment, the related interest rate is SOFR plus 2.75%, Proceeds were used to pay the Bluegreen Acquisition consideration, fees and expenses incurred in connection with the Amendment and to refinance the repayment of certain indebtedness of Bluegreen and its subsidiaries. Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures in the consolidated financial statements and accompanying footnotes. We believe that of our significant accounting policies, which are described in Note 2: Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, the following accounting policies are critical because they involve a higher degree of judgment, and the estimates required to be made are based on assumptions that are inherently uncertain. As a result, these accounting policies could materially affect our financial position, results of operations and related disclosures. On an ongoing basis, we evaluate these estimates and judgments based on historical experiences and various other factors that are believed to reflect the current circumstances. While we believe our estimates, assumptions and judgments are reasonable, they are based on information presently available. Actual results may differ significantly from these estimates due to changes in judgments, assumptions and conditions as a result of unforeseen events or otherwise, which could have a material effect on our financial position or results of operations. Revenue Recognition In accordance with ASC 606, revenue is recognized upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. To achieve the core principle of the guidance, we take the following steps: (i) identify the contract with the customer; (ii) determine whether the promised goods or services are separate performance obligations in the contract; (iii) determine the transaction price, including considering the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract based on the standalone selling price or estimated standalone selling price of the good or service; and (v) recognize revenue when (or as) we satisfy each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. For arrangements that contain multiple goods or services, we determine whether such goods or services are distinct performance obligations that should be accounted for separately in the arrangement. When allocating the transaction price in the arrangement, we may not have observable standalone sales for all the performance obligations in these contracts. In order to estimate the standalone selling prices for products other than trust products, we primarily rely on the expected cost-plus margin and adjusted market assessment approaches. We estimate stand-alone selling price for trust products based on historical information, including expected breakage in contracts with multiple performance obligations, and allocate the remainder of the transaction price to the sale of points-based VOIs due to the variability in observable historical prices for traditional VOI sales. We then recognize the revenue allocated to each performance obligation as the related performance obligation is satisfied. See Note 2: Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information. 70 Table of Contents Inventory and Cost of Sales We use the relative sales value method of costing our VOI sales and relieving inventory, which requires us to make estimates subject to significant uncertainty. The estimates include future sales prices, timing and volume, provisions for financing receivables losses on financed sales of VOIs, sales incentives, projected future cost and volume of recoveries, including inventory reacquired from our upgrade programs. We aggregate these factors to calculate total net cost of sales of VOIs as a percentage of net sales of VOIs and apply this ratio to allocate the cost of sales to recognized sales of VOIs. The effect of changes in these estimates over the life of a project are recognized on a retrospective basis through corresponding adjustments to inventory and cost of sales in the period in which the estimates are revised. Due to the application of the retrospective adjustments, changes in any of our estimates, including changes in our development and sales strategies could have a material effect on the carrying value of certain projects and inventory. We monitor our projects and inventory on an ongoing basis and complete an evaluation each reporting period to ensure that the inventory is stated at the lower of cost or fair value less cost to sell. In addition, we continually assess our VOIs inventory and, if necessary, impose pricing adjustments to modify sales pace. See Note 2: Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information. Business Combinations We account for our business combinations in accordance with the acquisition method of accounting. We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. For each acquisition, we recognize goodwill as the amount in which consideration transferred for the acquired entity exceeds the fair values of net assets. The fair value of net assets is the fair value assigned to the assets acquired reduced by the fair value assigned to liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, we use various recognized valuation methods including the income, cost and sales and market approaches, which also include certain valuation assumptions such as discount rates, and the amount and timing of future cash flows. We utilize independent valuation specialists under our supervision for certain of our assignments of fair value. When financial assets are acquired, we evaluate whether those acquired financial assets have experienced a more-than-insignificant deterioration in credit quality since origination. Financial assets that were acquired with evidence of such credit deterioration are referred to as purchased credit deteriorated (“PCD”) assets and reflect the acquirer’s assessment at the acquisition date. The evaluation of PCD assets is a qualitative assessment requiring management judgment. We record the net assets and results of operations of an acquired entity in our consolidated financial statements from the acquisition date through period-end. We expense acquisition-related expenses as incurred and include such expenses within Acquisition and integration-related expense on our consolidated statements of operations. See Note 2: Summary of Significant Accounting Policies and Note 3: Acquisitions in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information. Allowance for Financing Receivables Losses The allowance for financing receivables losses is related to the receivables generated by our financing of VOI sales, which are secured by the underlying timeshare properties. We determine our financing receivables to be past due based on the contractual terms of the individual mortgage loans. We use a technique referred to as static pool analysis as the basis for determining our general reserve requirements on our financing receivables. The adequacy of the related allowance is determined by management through analysis of several factors requiring judgment, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio, including historic and assumed default rates. Although the allowance includes several factors requiring judgment, the static pool model is not highly uncertain as it relies upon historical metrics. Changes in the estimates used in developing our default rates could result in a material change to our allowance. A 0.5% increase to our projected default rates used in the allowance calculation would increase our allowance for financing receivables losses by approximately $18 million. See Note 2: Summary of Significant Accounting Policies in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information. Income Taxes We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using currently enacted tax rates. We regularly review our deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets that we believe will not be ultimately realized. In performing this review, we make estimates and assumptions regarding projected future taxable income, the expected timing of reversals of existing temporary differences and the implementation of tax planning strategies. A change in these assumptions may increase or decrease our valuation allowance resulting in an increase or decrease in our effective tax rate, which could materially affect our consolidated financial statements. 71 Table of Contents We use a prescribed more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return if there is uncertainty in income taxes recognized in the financial statements. Assumptions and estimates are used to determine the more-likely-than-not designation. Changes to these assumptions and estimates can lead to an additional income tax expense or benefit, which can materially change our consolidated financial statements. Legal Contingencies We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. An estimated loss from a loss contingency should be accrued by a charge to income if it is probable and the amount of the loss can be reasonably estimated. Significant judgment is required when we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially affect our consolidated financial statements. See Note 23: Commitments and Contingencies to our consolidated financial statements included in this Annual Report on Form 10-K.