Diamond Resorts Corporation Announcing Its Results for the Quarter Ended June 30, 2012

2012-08-15
  • Send
  • PDF
  • Print
  • Bookmark
  • Text Size:
  •  Repost This Article
  • Diamond Resorts Adjusted EBITDA for Diamond Resorts Parent, LLC and restricted subsidiaries1 increased $7.4 million, or 39.1%, to $26.5 million for the quarter ended June 30, 2012 from $19.1 million for the quarter ended June 30, 2011.

    Diamond Resorts Corporation, together with Diamond Resorts Parent, LLC and its subsidiaries (“Diamond” or the “Corporation”), today announced results for the quarter ended June 30, 2012. “We are pleased with the year over year improvement in our operating performance, and continue to remain focused on the growth of our core management and member services business, and our sales and marketing platform,” said David F. Palmer, President and Chief Financial Officer.

    “We are pleased with the year over year improvement in our operating performance, and continue to remain focused on the growth of our core management and member services business, and our sales and marketing platform”

    Quarter Ended June 30, 2012 Financial Results

    Adjusted EBITDA for Diamond Resorts Parent, LLC and restricted subsidiaries1 increased $7.4 million, or 39.1%, to $26.5 million for the quarter ended June 30, 2012 from $19.1 million for the quarter ended June 30, 2011.

    After including the impact of the unrestricted subsidiaries, Adjusted EBITDA for the consolidated operations of Diamond increased $10.0 million, or 65.9%, to $25.1 million for the quarter ended June 30, 2012 from $15.1 million for the quarter ended June 30, 2011.

    The growth is attributable to increased profitability associated with both Vacation Interest sales and the management of our members and resorts.

    Vacation Interest Sales Results for the Quarter Ended June 30, 2012

    Vacation Interest sales for Diamond increased $18.1 million, or 34.5%, to $70.6 million for the quarter ended June 30, 2012 from $52.5 million for the quarter ended June 30, 2011. This increase in Vacation Interest sales revenue was due to higher Vacation Interest sales on a same-store basis, as well as the revenue contribution from our Tempus sales center, which commenced operations in July 2011, and the PMR sales center, which commenced operations in May 2012. On a consolidated basis, we closed 6,006 Vacation Interest transactions and recorded a sales price of $12,347 per transaction for the quarter ended June 30, 2012, or 800 more transactions and $1,917 more per transaction as compared to the quarter ended June 30, 2011.

    Diamond’s advertising, sales and marketing expense as a percentage of Vacation Interest sales was 57.0% for the quarter ended June 30, 2012 compared to 63.3% for the quarter ended June 30, 2011. The decrease of such costs as a percentage of Vacation Interest sales revenue was primarily due to absorption of fixed costs through increased sales efficiencies. The advertising, sales and marketing costs incurred in previous years to generate additional tour flows continued to achieve their intended goals during the three months ended June 30, 2012.

    Management and Member Services Results for the Quarter Ended June 30, 2012

    Revenue from management and member services for Diamond increased $4.1 million, or 16.9%, to $28.3 million for the quarter ended June 30, 2012 from $24.2 million for the quarter ended June 30, 2011. Management fees increased as a result of increases in operating costs at the resort level, which generated higher same-store management fee revenue under our cost-plus management agreements, and the addition of the managed properties from the Tempus Resorts Acquisition and the PMR Acquisition. In addition, we entered into a sales and marketing fee-for-service arrangement with a third-party resort operator, which began to generate commission and management fee revenue toward the end of the second quarter of 2011.

    1 – Financial data for Diamond Resorts Parent, LLC and restricted subsidiaries excludes results of Diamond’s unrestricted subsidiaries. As of June 30, 2012 and December 31, 2011, the Unrestricted Subsidiaries were FLRX, Inc. and its subsidiaries, ILX Acquisition and its subsidiaries, Tempus Acquisition, LLC and its subsidiaries, and DPMA and its subsidiaries. As of June 30, 2011, the Unrestricted Subsidiaries were FLRX, Inc. and its subsidiaries, ILX Acquisition and its subsidiaries, and Tempus Acquisition, LLC and its subsidiaries. For purposes of the Senior Secured Note Indenture, the financial position, results of operations and statements of cash flow of Unrestricted Subsidiaries are excluded from the Company’s financial results to determine whether the Company is in compliance with the financial covenants governing the Senior Secured Notes. Accordingly, management believes that the following presentation is helpful to current and potential investors in the Senior Secured Notes, as well as others.

    Non-GAAP Financial Measures

    Presentation of Certain Financial Metrics

    We define Adjusted EBITDA as our income (loss) before provision (benefit) for income taxes, plus: (i) corporate interest expense; (ii) depreciation and amortization; (iii) Vacation Interest cost of sales; (iv) loss on extinguishment of debt; (v) impairments and other non-cash write-offs; (vi) loss on the disposal of assets; (vii) amortization of loan origination costs; and (viii) amortization of portfolio premium; less (ix) non-cash revenue outside the ordinary course of business; (x) gain on the disposal of assets; (xi) gain on bargain purchase from business combination; and (xii) amortization of portfolio discount. Adjusted EBITDA is a non-U.S. GAAP financial measure and should not be considered as an alternative to net income (loss), operating income (loss) or any other measure of financial performance calculated and presented in accordance with U.S. GAAP.

    We believe Adjusted EBITDA is useful to investors in evaluating our operating performance for the following reasons:

    • it and similar non-U.S. GAAP measures are widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods, book values of assets, capital structures and the methods by which assets were acquired;
    • by comparing Adjusted EBITDA in different historical periods, we can evaluate our operating results without the additional variations of interest income (expense), income tax provision (benefit), depreciation and amortization expense and the Vacation Interest cost of sales expense; and
    • several of the financial covenants governing the Senior Secured Notes and 2008 Conduit Facility, including the limitation on our ability to incur additional indebtedness, are determined by reference to our EBITDA as defined in the Senior Secured Notes, which definition approximates Adjusted EBITDA as presented here.

    Our management uses Adjusted EBITDA: (i) as a measure of our operating performance, because it does not include the impact of items that we do not consider indicative of our core operating performance; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) to allocate resources to enhance the financial performance of our business; and (iv) to evaluate the effectiveness of our business strategies.

    The following table presents a reconciliation of net income before benefit for income taxes to Adjusted EBITDA:

        Quarter Ended

    June 30,

    2012

       

    June 30,

    2011

    ($ in thousands)
     
    Income before benefit for income taxes $ 31,943 $ 1,648
    Plus: Corporate interest expense(a) 18,453 15,530
    Depreciation and amortization(b) 4,369 3,142
    Vacation interest cost of sales(c) (7,834 ) (5,681 )
    Impairments and other write-offs(b) - 240
    Gain on the disposal of assets(b) (24 ) (363 )
    Gain on bargain purchase from business combinations(b) (22,698 ) -
    Amortization of loan origination costs(b) 788 662
    Amortization of portfolio premiums (discount)(b)   60     (74 )
    Adjusted EBITDA - Consolidated(d) $ 25,057   $ 15,104  

    Adjusted EBITDA - Diamond Resorts Parent, LLC and Restricted Subsidiaries(d)

    $ 26,498 $ 19,053
    Adjusted EBITDA - Unrestricted Subsidiaries(d) 2,068 (3,958 )
    Adjusted EBITDA - Intercompany elimination(d)   (3,509 )   9  
    Adjusted EBITDA - Consolidated(d) $ 25,057   $ 15,104  
    (a)   Excludes interest expense related to non-recourse indebtedness incurred by our special purpose vehicles that is secured by our VOI consumer loans.
    (b) These items represent non-cash charges/gains.
    (c) We record Vacation Interest cost of sales using the relative sales value method in accordance with ASC 978, which requires us to make significant estimates which are subject to significant uncertainty. In determining the appropriate amount of costs using the relative sales value method, we rely on complex, multi-year financial models that incorporate a variety of estimated inputs. These models are reviewed on a regular basis, and the relevant estimates used in the models are revised based upon historical results and management’s new estimates. Small changes in any of the numerous assumptions in the model can have a significant financial statement impact as ASC 978 requires a retroactive adjustment back to the time of the Sunterra Corporation acquisition in the current period. Much like depreciation or amortization, for us, Vacation Interest cost of sales is essentially a non-cash expense item.
    (d)

    For purposes of certain covenants governing the Senior Secured Notes, our financial performance, including Adjusted EBITDA, is measured with reference to us and our Restricted Subsidiaries, and the performance of Unrestricted Subsidiaries is not considered. Therefore, we believe that this presentation of Adjusted EBITDA provides helpful information to readers of this quarterly report.

    We understand that, although measures similar to Adjusted EBITDA are frequently used by investors and securities analysts in their evaluation of companies, it has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results of operations as reported under U.S. GAAP. Some of these limitations are:

    • Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or VOI inventory;
    • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
    • Adjusted EBITDA does not reflect cash requirements for income taxes;
    • Adjusted EBITDA does not reflect interest expense for our corporate indebtedness;
    • Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements;
    • Although Vacation Interest cost of sales is also a non-cash item, we may in the future be required to develop or acquire new resort properties to replenish VOI inventory, and Adjusted EBITDA does not reflect any cash requirements for these expenditures; and
    • Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

    To properly and prudently evaluate our business, we encourage you to review our U.S. GAAP financial statements included elsewhere in this quarterly report, and not to rely on any single financial measure to evaluate our business.

    Results of Operations

    See the following tables for the determination of the operating results of the Company:

    DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

    CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

    For the quarters ended June 30, 2012 and 2011

    (Unaudited)

    (In thousands)

                   
    Quarter Ended June 30, 2012 Quarter Ended June 30, 2011

    Diamond

    Resorts

    Parent, LLC

    and Restricted

    Subsidiaries

     

    Unrestricted

    Subsidiaries

    Elimination Total

    Diamond

    Resorts

    Parent, LLC

    and Restricted

    Subsidiaries

     

    Unrestricted

    Subsidiaries

    Elimination Total
     
    Revenues:
    Vacation Interest sales $ 67,191 $ 3,385 $ - $ 70,576 $ 50,508 $ 1,962 $ - $ 52,470

    Provision for uncollectible Vacation Interest sales revenue

    (6,535) 833 - (5,702) (3,754) 1 - (3,753)
    Vacation Interest, net 60,656 4,218 - 64,874 46,754 1,963 - 48,717
    Management and member services 27,782 2,970 (2,457) 28,295 24,351 996 (1,139) 24,208
    Consolidated resort operations 7,336 1,291 - 8,627 7,012 230 - 7,242
    Interest 9,392 3,120 - 12,512 9,357 444 - 9,801
    Other 8,509 5,228 (6,601) 7,136 4,196 19 (396) 3,819
    Total revenues 113,675 16,827 (9,058) 121,444 91,670 3,652 (1,535) 93,787
    Costs and Expenses:
    Vacation Interest cost of sales (7,976) 142 - (7,834) (5,759) 78 - (5,681)
    Advertising, sales and marketing 38,765 1,689 (236) 40,218 32,009 1,332 (144) 33,197
    Vacation Interest carrying cost, net 8,270 1,632 (726) 9,176 6,360 1,161 (174) 7,347
    Management and member services 8,434 2,231 (2,205) 8,460 5,076 1,642 (1,030) 5,688
    Consolidated resort operations 6,935 1,289 - 8,224 6,838 268 - 7,106
    Loan portfolio 2,329 599 (545) 2,383 1,960 64 - 2,024
    Other operating 2,502 1,142 (1,837) 1,807 1,069 24 (231) 862
    General and administrative 17,410 4,791 - 22,201 15,742 2,892 35 18,669
    Depreciation and amortization 2,217 2,152 - 4,369 2,602 540 - 3,142
    Interest 16,917 6,302 - 23,219 18,655 1,253 - 19,908
    Impairments and other write-offs - - - - 230 10 - 240
    Gain on disposal of assets (24) - - (24) (363) - - (363)

    Gain on bargain purchase from business combination

    - (22,698) - (22,698) - - - -
    Total costs and expenses 95,779 (729) (5,549) 89,501 84,419 9,264 (1,544) 92,139

    Income (loss) before benefit for income taxes

    17,896 17,556 (3,509) 31,943 7,251 (5,612) 9 1,648
    Benefit for income taxes (1,216) (13,452) - (14,668) (795) (96) - (891)
    Net income (loss) $ 19,112 $ 31,008 $ (3,509) $ 46,611 $ 8,046 $ (5,516) $ 9 $ 2,539
     
     

    DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

    CONSOLIDATED BALANCE SHEETS

    As of June 30, 2012 and December 31, 2011

    (Unaudited)

    (In thousands)

                     

     

    June 30, 2012 December 31, 2011

    Diamond

    Resorts

    Parent, LLC

    and Restricted

    Subsidiaries

    Unrestricted

    Subsidiaries

    Elimination Total

    Diamond

    Resorts

    Parent, LLC

    and Restricted

    Subsidiaries

     

    Unrestricted

    Subsidiaries

    Elimination Total
    ASSETS
    Cash and cash equivalents $ 17,001 $ 875 $ - $ 17,876 $ 19,648 $ 249 $ - $ 19,897
    Cash in escrow and restricted cash 42,206 638 - 42,844 33,370 618 - 33,988

    Mortgages and contracts receivable, net of allowance of $52,184, $28,717, $0 $80,901, $50,519, $33,579, $0 and $84,809, respectively

    233,952 49,294 (4 ) 283,242 227,835 55,473 (6 ) 283,302
    Due from related parties, net 34,421 (6,127 ) (2,511 ) 25,783 33,687 (3,413 ) (2,009 ) 28,265
    Other receivables, net 17,650 7,173 16 24,839 32,579 2,455 19 35,053
    Income tax receivable 2,045 - - 2,045 629 - - 629
    Prepaid expenses and other assets, net 84,099 14,353 (1,074 ) 97,378 45,402 9,221 (1,146 ) 53,477
    Unsold Vacation Interests, net 254,722 74,760 (8,770 ) 320,712 225,375 34,634 (3,204 ) 256,805
    Property and equipment, net 28,990 22,829 - 51,819 25,943 22,234 - 48,177
    Assets held for sale 3,958 154 - 4,112 5,517 - - 5,517
    Intangible assets, net   32,614     76,495     -     109,109     34,050     34,059     -     68,109  
    Total assets $ 751,658   $ 240,444   $ (12,343 ) $ 979,759   $ 684,035   $ 155,530   $ (6,346 ) $ 833,219  
     
    LIABILITIES AND MEMBER

    CAPITAL (DEFICIT)

    Accounts payable $ 13,913 $ 2,257 $ - $ 16,170 $ 11,663 $ 690 $ - $ 12,353
    Due to related parties, net 70,926 41,161 (9,691 ) 102,396 28,684 36,450 (9,612 ) 55,522
    Accrued liabilities 76,605 5,697 (1,062 ) 81,240 68,316 3,153 (1,143 ) 70,326
    Income taxes payable 3,354 - - 3,354 3,491 - - 3,491
    Deferred revenues 70,196 1,721 - 71,917 70,743 31 - 70,774

    Senior secured notes, net of original issue discount of $8,997, $0, $0, $8,997, $9,454, $0, $0 and $9,454, respectively

    416,003 - - 416,003 415,546 - - 415,546

    Securitization notes and conduit facility, net of original issue discount of $913, $0, $0, $913, $1,054, $0, $0 and $1,054, respectively

    184,584 54,026 - 238,610 188,165 62,730 - 250,895
    Notes payable   4,396     125,545     -     129,941     1,871     69,643     -     71,514  
    Total liabilities   839,977     230,407     (10,753 )   1,059,631     788,479     172,697     (10,755 )   950,421  
     
    Member capital (deficit) 152,238 9,675 (9,675 ) 152,238 152,247 9,675 (9,675 ) 152,247
    (Accumulated deficit) retained earnings (222,516 ) 967 7,508 (214,041 ) (238,345 ) (26,140 ) 13,408 (251,077 )

    Accumulated other comprehensive (loss) income

      (18,041 )   (605 )   577     (18,069 )   (18,346 )   (702 )   676     (18,372 )

    Total member (deficit) capital

      (88,319 )   10,037     (1,590 )   (79,872 )   (104,444 )   (17,167 )   4,409     (117,202 )

    Total liabilities and member capital (deficit)

    $ 751,658   $ 240,444   $ (12,343 ) $ 979,759   $ 684,035   $ 155,530   $ (6,346 ) $ 833,219  
     
     

    DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF CASH FLOWS

    For the six months ended June 30, 2012 and 2011

    (Unaudited)

    (In thousands)

       
    Six Months Ended
    June 30,

    2012

        June 30,

    2011

    Operating Activities:
    Net income (loss) $ 37,036 $ (4,180 )

    Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    Provision for uncollectible Vacation Interest sales revenue 9,817 6,743

    Amortization of capitalized financing costs and original issue discounts

    3,082 3,334

    Amortization of capitalized loan origination costs and portfolio discount

    600 1,145
    Depreciation and amortization 8,174 6,312
    Impairments and other write-offs (11 ) 323
    Gain on disposal of assets (96 ) (372 )
    Gain on bargain purchase from business combination (22,749 ) -
    Deferred income taxes (13,453 ) -
    Loss (Gain) on foreign currency exchange 56 (17 )
    Gain on mortgage repurchase (19 ) (120 )
    Unrealized gain on derivative instruments - (79 )
    Gain on insurance settlement - (3,535 )
    Changes in operating assets and liabilities excluding acquisitions:
    Mortgages and contracts receivable (8,689 ) 5,898
    Due from related parties, net 6,763 (305 )
    Other receivables, net 13,080 18,497
    Prepaid expenses and other assets, net (42,891 ) (35,151 )
    Unsold Vacation Interests, net (25,842 ) (28,287 )
    Accounts payable 3,775 842
    Due to related parties, net 51,352 43,297
    Accrued liabilities 11,166 7,225
    Income taxes (receivable) payable (1,589 ) 947
    Deferred revenues   1,028     (8,494 )
    Net cash provided by operating activities   30,590     14,023  
     
    Investing activities:
    Property and equipment capital expenditures (6,107 ) (3,304 )
    Disbursement of Tempus Acquisition note receivable - (3,493 )
    Purchase of assets in connection with PMR Acquisition (51,635 ) -
    Proceeds from sale of assets   320     2,004  
    Net cash used in investing activities $ (57,422 ) $ (4,793 )
     
     

     DIAMOND RESORTS PARENT, LLC AND SUBSIDIARIES

    CONSOLIDATED STATEMENTS OF CASH FLOWS —Continued

    For the six months ended June 30, 2012 and 2011

    (Unaudited)

    (In thousands)

           
    Six Months Ended
    June 30,

    2012

    June 30,

    2011

    Financing activities:
    Changes in cash in escrow and restricted cash $ (8,857 ) $ (3,285 )
    Proceeds from issuance of securitization notes and funding facilities 45,885 80,554
    Proceeds from issuance of notes payable 64,125 3,200
    Payments on securitization notes and funding facilities (58,311 ) (81,510 )
    Payments on notes payable (15,516 ) (4,397 )
    Payments of debt issuance costs (2,594 ) (2,740 )
    Proceeds from issuance of common and preferred units - 10,151
    Repurchase of a portion of outstanding warrants - (10,151 )

    Payments of costs related to issuance of common and preferred units

      (9 )   (76 )
    Net cash provided by (used in) financing activities   24,723     (8,254 )
    Net (decrease) increase in cash and cash equivalents (2,109 ) 976
    Effect of changes in exchange rates on cash and cash

    equivalents

    88 313
    Cash and cash equivalents, beginning of period   19,897     27,329  
    Cash and cash equivalents, end of period $ 17,876   $ 28,618  
     
    SUPPLEMENTAL DISCLOSURES OF CASH FLOW

    INFORMATION:

    Cash paid for interest $ 39,062   $ 35,220  
    Cash paid for taxes, net of tax refunds $ 1,347   $ (340 )
     
    Purchase of assets in connection with PMR acquisition

    based on a preliminary report:

    Fair value of assets acquired $ 89,704 $ -
    Gain on bargain purchase recognized (22,880 ) -
    Cash paid (51,635 ) -
    Deferred tax liability   (13,453 )   -  
    Liabilities assumed $ 1,736   $ -  
     
    SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING

    AND FINANCING ACTIVITIES:

    Priority returns and redemption premiums on preferred units $ -   $ 8,412  
    Insurance premiums financed through issuance of note payable $ 7,573   $ 5,713  
    Assets held for sale reclassified to unsold Vacation Interests $ 1,315   $ 3,082  
    Assets held for sale reclassified to other intangibles $ 187   $ -  
     
     

    About Diamond Resorts Corporation

    Diamond Resorts Corporation and its subsidiaries develop, own, operate and manage vacation ownership resorts and, through resort and partner affiliation agreements, provide owners and members with access to 74 managed resorts and 164 affiliated resorts and four cruise itineraries through THE Club® at Diamond Resorts International®.



    Logos, product and company names mentioned are the property of their respective owners.

  • Send
  • PDF
  • Print
  • Bookmark
  • Go Back
  • Text Size:

  • comments powered by Disqus
    Ads by Nevistas

    Newsletters
    Travel
    News
     
    Airline
    Industry News
     
    Hospitality
    Newsletter
     
    Hospitality
    Trends
     
    Your Email Address
     
    Advertise Here