Interval Leisure Group Reports Third Quarter 2012 Results

Interval Leisure Group (Nasdaq: IILG) (“ILG”) has announced results for the three months ended September 30, 2012.

THIRD QUARTER 2012 HIGHLIGHTS

  • ILG consolidated revenue increased year over year by 9.8%
  • The Company generated third quarter adjusted diluted earnings per share of $0.19
  • Interval International added 27 new resort affiliations and increased member count by 3.6%
  • Management fee and rental revenue improved by 51.8%
  • ILG free cash flow of $53.7 million year to date
  • Redeemed our $300 million, 9.5% senior notes on September 4, 2012 by drawing on our $500 million revolving credit facility at an initial interest rate of LIBOR plus 1.75%.

“Interval Leisure Group continues to diversify its fee-for-service offerings in the non-traditional leisure market. Consolidated revenue grew by nearly 10% over last year as a result of growth in the management and rental segment,” said Craig M. Nash, Chairman, President and Chief Executive Officer of Interval Leisure Group. “We continue to execute our long term strategy to broaden ILG’s footprint and position the Company for long term success.”[member]

Financial Summary & Operating Metrics (in millions, except per share amounts and percentages)

Three Months EndedSeptember 30, QuarterOver Quarter
Metrics 2012 2011 Change
Revenue $117.2 $106.7 9.8%
Membership and Exchange revenue $86.1 $86.2 (0.2)%
Management and Rental revenue $31.1 $20.5 51.8%
Gross profit $75.5 $72.0 4.8%
Net income attributable to common stockholders $0.1 $11.4 (98.7)%
Adjusted net income* $11.0 $11.4 (3.4)%
Diluted EPS $0.00 $0.20 (100.0)%
Adjusted diluted EPS* $0.19 $0.20 (5.0)%
Adjusted EBITDA* $38.1 $38.3 (0.6)%
Balance sheet data September 30,
2012
December 31,
2011
Cash and cash equivalents $132.0 $195.5
Debt $290.0 $340.1
Nine Months EndedSeptember 30, YearOver Year
Cash flow data 2012 2011 Change
Net cash provided by operating activities $64.1 $76.9 (16.6)%
Free cash flow* $53.7 $66.9 (19.8)%

* “Adjusted net income”, “Adjusted diluted EPS”, “Adjusted EBITDA” and “Free cash flow” are non-GAAP measures as defined by the Securities and Exchange Commission (the “SEC”). Please see “Presentation of Financial Information,” “Glossary of Terms” and “Reconciliations of Non-GAAP Measures” below for an explanation of non-GAAP measures used throughout this release.

DISCUSSION OF RESULTS

Third Quarter 2012 Consolidated Operating Results

Consolidated revenue for the third quarter ended September 30, 2012 was $117.2 million, an increase of 9.8% from $106.7 million for the third quarter of 2011. The increase was driven by the incremental revenue contribution from our Management and Rental segment, primarily reflecting the February 2012 acquisition of Vacation Resorts International (VRI).

Net income for the three months ended September 30, 2012 was $0.1 million, which reflects a $17.9 million non-cash, pre-tax loss associated with the early extinguishment of our $300 million, 9.5% senior notes on September 4, 2012. Excluding the impact of this non-cash loss, adjusted net income (defined below) for the three months ended September 30, 2012was $11.0 million, a decrease of $0.4 million from net income of $11.4 million for the same period of 2011.

The year-over-year decrease in adjusted net income was driven by lower Membership and Exchange segment pre-tax income which includes an unfavorable variance of $1.1 million in our estimated accrual for European Union Value Added Tax (EU VAT), due to a change in estimate recorded in the third quarter of 2011, higher health and welfare insurance expense of $1.0 million and unfavorable non-operating foreign currency fluctuations of $3.4 million primarily as a result of our foreign subsidiaries holding U.S. dollar denominated cash balances. This was partly offset by stronger Management and Rental pre-tax income of $2.0 million, which reflects the incremental contribution from VRI, improved results at Aston and a favorable net change in the estimated fair value of contingent consideration related to an acquisition. Additionally, our operating results benefitted from lower interest expense of $2.2 million in the quarter due to the early extinguishment and refinancing of our indebtedness.

Excluding the impact of the non-cash loss on the early extinguishment of our senior notes, adjusted diluted earnings per share (defined below) were $0.19 in the third quarter of 2012 compared to diluted earnings per share of $0.20 for the same period of 2011. Additionally, excluding the after-tax impact of unfavorable non-operating foreign currency fluctuations of $0.6 million in the third quarter of 2012 and favorable fluctuations of $1.7 million in the third quarter of 2011, adjusted diluted EPS in the current quarter would be $0.20 compared to $0.17 in the prior year.

Adjusted EBITDA (defined below) was $38.1 million for the quarter ended September 30, 2012, compared to Adjusted EBITDA of $38.3 million for the same period of 2011. Adjusted EBITDA for the quarter excludes the impact of non-cash compensation as well as other non-operating income and expenses primarily consisting of non-operating foreign currency exchange net gains and losses and the $17.9 million non-cash loss on the early extinguishment of our senior notes.

Business Segment Results

Membership and Exchange

Membership and Exchange segment revenue for the three months ended September 30, 2012 was $86.1 million, comparable to $86.2 million for the same period in 2011.

For the third quarter of 2012, transaction and membership fee revenue were $46.6 million and $32.5 million, respectively, a decrease of 0.5% and an increase of 1.0% over the same period in 2011.

Total active members at September 30, 2012 were 1.86 million, approximately 3.6% higher than total active members atSeptember 30, 2011. Average revenue per member for the third quarter of 2012 was $43.54, a decrease of 3.6% from the third quarter of 2011. The decrease in average revenue per member was impacted by a shift in the percentage mix of our membership base from traditional to corporate memberships, in part related to the affiliation of two corporate accounts during the first half of 2012 which drove the increase in members.

During the third quarter of 2012, Interval International affiliated 27 new vacation ownership resorts located in 9 countries.

Membership and Exchange segment adjusted EBITDA was $33.7 million in the third quarter, a decrease of 7.1% from the segment’s adjusted EBITDA of $36.3 million in 2011. Membership and Exchange segment adjusted EBITDA reflects lower gross profit of $1.1 million, primarily resulting from higher call center and related member servicing and fulfillment costs in part attributable to the on-boarding of new members into our Interval Network related to the two previously mentioned corporate account affiliations. The year-over-year change in this segment’s adjusted EBITDA was also adversely affected by the unfavorable variance in our EU VAT accrual as well as higher health and welfare insurance expense, partly offset by this segment’s share of the favorable net change in the estimated fair value of contingent consideration related to an acquisition, as previously discussed.

To read the full report, please click here. [/member]