IILG

Interval Leisure Group, Inc. (IILG)

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Interval Leisure Group (IILG)

Q2 2013 Earnings Call

August 07, 2013 4:30 pm ET

Executives

Jennifer Klein Trager

Craig M. Nash - Chairman, Chief Executive Officer, President and Member of Executive Committee

William L. Harvey - Chief Financial Officer and Executive Vice President

Analysts

Charles Patrick Scholes - SunTrust Robinson Humphrey, Inc., Research Division

Stephen Altebrando - Sidoti & Company, LLC

Nikhil Bhalla - FBR Capital Markets & Co., Research Division

Presentation

Operator

Good afternoon. At this time, I would like to welcome everyone to the Interval Leisure Group earnings conference call. Please be advised that this call is being recorded on Wednesday, August 7, 2013. [Operator Instructions] I would now like to turn the call over to Ms. Jennifer Klein, Investor Relations for Interval Leisure Group. Ma'am, you may begin your conference.

Jennifer Klein Trager

Thank you, operator, and good afternoon to everyone on the call. Welcome to the Interval Leisure Group's Second Quarter 2013 Earnings Conference Call. I want to remind you that on our call today, we will discuss our outlook for future performance. 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 and uncertainties, and our actual results can differ materially from the views expressed today. Some of these risks have been set forth in our second quarter 2013 press release issued earlier today and in our 2012 Form 10-K and other periodic reports filed with the SEC. We will also discuss certain non-GAAP measures. I refer you to our press release posted on our website at www.iilg.com for all comparable GAAP measures and full reconciliation.

And now, I would like to turn the call over to Craig Nash, our Chairman, President and Chief Executive Officer. Craig?

Craig M. Nash

Thanks, Jennifer, and hello, everyone. Thank you for joining us this afternoon. Interval Leisure Group was very busy during the first half of 2013, exploring options to expand our business and use our strong balance sheet to participate in strategic opportunities. We are pleased to be able to discuss the latest initiative, before mention of VRI Europe, the joint venture management company with the CLC World. As I'm sure you saw in our press release on Monday. ILG will have a 75.5% ownership stake in the new entity, which will manage 21 resorts with more than 1,500 units in the U.K., Spain, France and Portugal.

This joint venture provides a meaningful opportunity to collaborate with one of Europe's most successful resort developers, while we continue to expand our footprint in the shared ownership management space. We expect this deal to close in the fourth quarter.

Now, let's turn to the second quarter financials. ILG GAAP results, which Bill will discuss in more detail, reflect the onetime immaterial out of period correction that positively impacted the revenue for the quarter. Excluding this item, ILG revenue grew by about 2% from the second quarter of 2012. However, gross profit improved by nearly 3%. Net income went from $10.1 million a year ago, to $18.5 million this quarter, with earnings per share up 78%. And adjusted EBITDA was up by 2.4%. While our overall membership count is down from last year, the number of Club Interval enrollments have increased by 50% and Platinum memberships are up by 45%.

Interval affiliated 14 resorts during the quarter. This includes an agreement with Global Access Exchange, the owner and operator of Holiday Inn club, for the multi-year affiliation of Colonial Crossings resort in Williamsburg, Virginia. This developer recently acquired the 120-unit resort and plans to add it to the Holiday Inn Club vacations brand early next year. Interval looks forward to providing its quality benefits and services to existing and new owners.

And Aston added Hotel Renew in Waikiki to its portfolio. Additionally, in the Management and Rental segment, management fee and rental revenue, which excludes pass-throughs, improved by more than 4% for the quarter. And without the incremental professional fees that are attributable to both the VRI Europe joint venture and Aston IT projects, segment adjusted EBITDA would have been up 5.4%.

At Aston, RevPAR continue to improve. According to the Hawaii Tourism Authority, visitor arrivals by air to Hawaii increased 4.1% from the second quarter of 2012. The increase in visitors correlates with an overall increase of 9.5% in revenue for available room at our Hawaii properties.

On the technology front, Aston successfully completed the installation of a new property management system that should improve efficiencies across its portfolio of properties. Additionally, the Aston brands of operating systems, such as DVDNow, that are expected to enhance guest experiences and drive incremental revenue per state. As you can see, ILG had a busy quarter as our team continue to focus on our organic and strategic growth initiatives.

With that, I'll pass the call to Bill, and he will give a more comprehensive review of the financials. Following Bill's remarks, I will return to provide some closing comments. Bill?

William L. Harvey

Thank you, Craig, and hello to everyone. I hope that you have a copy of the press release with our results for the second quarter. I think the details on the numbers will provide a bit of color around key items. Interval Leisure Group results for the second quarter of 2013, including $4.1 million of revenue and $600,000 of certain membership expenses from the Membership and Exchange segment, reflecting an immaterial noncash net understatement for the period commencing January 1, 2011 through March 31, 2013. Excluding these items, second quarter 2013 revenue was $120.9 million, an increase of about 2%. The prior period items are included in the GAAP numbers in the press release and for purposes of this call, I will be speaking to the non-GAAP figures, which exclude these items in order to provide clarity with regarding the operating results for the quarter versus the prior year. We had top line growth in both segments of just under 2%.

Read the rest of this transcript for free on seekingalpha.com