Interval Leisure Group, Inc. (IILG)

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Interval Leisure Group (IILG)

Q3 2013 Earnings Call

November 04, 2013 4:30 pm ET


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


Patrick Sholes

Anto Savarirajan - Goldman Sachs Group Inc., Research Division

Stephen Altebrando - Sidoti & Company, LLC

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

Gary D. Steiner - Huber Capital Management LLC



Good afternoon. And at this time, I'd like to welcome everyone to the Interval Leisure Group earnings conference call. Please be advised that this call is being recorded on Monday, November 4, 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. Welcome to the Interval Leisure Group Third 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 third 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'd like to turn the call over to Craig Nash, our Chairman, President and Chief Executive Officer. Craig?

Craig M. Nash

Thanks, Jennifer, and good afternoon to everyone. Thank you for joining us today for the ILG third quarter earnings call. I'm pleased with the results for the quarter and energized by the growth opportunities and evolution of ILG's role in the nontraditional lodging space. Our long-term focus is on creating shareholder value through a prudent strategy that should strengthen our ability to drive cash generative fee-for-service revenue. In the third quarter, our priority was to move forward with our M&A activities and extend the reach of our organic initiatives while containing operating expenses in our existing businesses. We are accomplishing this goal. The strong free cash flow growth of more than 48% for the first 9 months of 2013 truly demonstrates the strength of our business model and capital structure. Year-to-date, we have increased consolidated revenue by approximately 4% and adjusted EBITDA by about 7%, which excludes acquisition-related costs.

For the third quarter, consolidated revenue grew by about 2%, led by growth in the Management and Rental segment and improvements in adjusted EBITDA, which was up 8.4%. Adjusted earnings per share increased by more than 50% when compared with the same period last year. On an apples-to-apples basis, this excludes the $18 million charge related to restructuring our debt that impacted third quarter 2012 earnings.

While we are still in the process of fully integrating VRI and TPI, the consistent top line growth and accretive EBITDA contribution from the Management and Rental business support our strategy to expand this segment. Overall, management fee revenue improve by 7.2%. Additionally, we are pleased with the continued improvement at Aston, where RevPAR was up 8.2% from last year. Aston continues to be recognized for its quality. 16 of its properties were awarded the TripAdvisor Certificate of Excellence for 2013, a distinction that is awarded to a select 10% of TripAdvisor's accommodations worldwide. And several of our properties earned the prestigious MLT Vacations Quality Assurance Award for 2013, in recognition of outstanding quality and customer service. The award is given to those accommodations achieving a 99% customer satisfaction index and 99% product delivery performance, and it is based upon data gathered from more than 1 million MLT vacation customers.

As we mentioned on our last earnings call, Aston added its first property in Florida, the Tuscana Resort Orlando. As you probably saw this morning, ILG closed on its VRI Europe joint venture with CLC. This transaction will meaningfully broaden our company's presence in Europe and provide the Management and Rental segment with an international platform to support future growth of this recurring fee-for-service revenue model.

Last week in Miami Beach, Interval International proudly sponsored the 15th annual Shared Ownership Investment Conference. The event was, once again, well attended by new and established developers. Howard Nusbaum, the President of ARDA, presented an update on key statistics that continue to make the timeshare market a vibrant opportunity. For example, occupancy rates at shared-ownership resorts are consistently at about 80%, while traditional resort hotels are approximately 65%. In fact, timeshare has outpaced traditional resort occupancy for years.

Additionally, the consumer loan portfolio for timeshare receivables, as of the second quarter 2013, was 91.4% current. This reflects one of the lowest default rates in consumer lending. Overall, speakers at the conference were optimistic about the economic environment for shared ownership and identified key trends in fee-for-service models, efficient distribution channels, as well as an emerging secondary market.

The Membership and Exchange segment continues to face some challenges inherent to an environment of slow sales to new timeshare owners. Interval International experienced the year-over-year membership decline of slightly more than 2% as a consequence of fewer new members entering the network. However, our Club Interval initiatives continued to grow. While it is a relatively small component of overall membership, Club Interval new member enrollments are up 81% year-to-date.

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