Bluegreen Vacations Corporation Reports Fourth Quarter and Full Year 2017 Results

Bluegreen Vacations Corporation (NYSE: BXG) (“Bluegreen” or the “Company”) has reported its fourth quarter and full year 2017 financial results.

Shawn B. Pearson, Chief Executive Officer and President said, “Following our successful initial public offering in November, we are pleased to report our fourth quarter earnings, which included a 5% increase in system-wide sales of vacation ownership interests (`VOIs’), net, and $66.5 million of net income attributable to our shareholders. We also continue to realize net new owner growth, which was 2% for the year ended December 31, 2017 as compared to December 31, 2016. Our Bluegreen Vacation Club offering, which delivers authentic local experiences to our owners and guests, continues to attract the differentiated and largest target demographic of middle America, with a focus on the Millennial generation. The vacation ownership industry is one of the fastest growing segments of the travel and tourism sector. We believe that we are well positioned to execute on our growth initiatives to provide long-term value for our shareholders with our flexible points-based vacation ownership product and a robust sales and marketing platform supported by our exclusive relationships with nationally-recognized brands such as Bass Pro Shops, Inc (`Bass Pro’) and Choice Hotels.”

Fourth Quarter 2017 Highlights:

Net income attributable to shareholders for the fourth quarter 2017 was $66.5 million, compared to $25.6 million for the same period in 2016;
EPS was $0.91, compared to $0.36 for the same period in 2016;
Total Adjusted EBITDA was $35.6 million, compared to $35.8 million for the same period in 2016;
Increased system-wide sales of VOIs, net by 5% to $154.0 million from $146.0 million during the fourth quarter of 2016;
Grew resort operations and club management revenue by 14% to $24.6 million from $21.6 million for the same period in 2016;
Capital-light revenue⁽¹⁾ was 67% of total revenue for the three months ended December 31, 2017, compared to 63% for the three months ended December 31, 2016;
Selling and marketing expenses, as a percentage of system-wide sales of VOIs, net, were 51% during the three months ended December 31, 2017, compared to 52% for the three months ended December 31, 2016;
Income tax benefit from the reduction of deferred tax liabilities as of December 31, 2017 as a result of the Tax Cuts and Jobs Act of 2017 was $47.7 million, or $0.66 per share.

Full Year 2017 Highlights:

Net income attributable to shareholders was $125.5 million for 2017, compared to net income of $75.0 million for 2016;
EPS was $1.76 for 2017, compared to $1.06 EPS for 2016;
Total Adjusted EBITDA grew 8% to $148.6 million for 2017, compared to $137.9 million for 2016;
Increased system-wide sales of VOIs, net by 2% to $616.7 million from $605.4 million during 2016;
Grew resort operations and club management revenue by 8% to $97.1 million from $89.6 million for 2016;
Capital-light revenue⁽¹⁾ was 67% of total revenue during 2017, compared to 60% for 2016;
Selling and marketing expenses, as a percentage of system-wide sales of VOIs, net, were 52% during 2017, which was consistent with 2016;
Income tax benefit from the reduction of deferred tax liabilities as of December 31, 2017 as a result of the Tax Cuts and Jobs Act of 2017 was $47.7 million, or $0.67 per share.

^{(1) Bluegreen’s “capital-light” revenue include revenues from the sales of VOIs under fee-based sales and marketing arrangements, just-in-time inventory acquisition arrangements, and secondary market arrangements, as well as its other fee-based services revenue.}

Financial Results – Fourth Quarter of 2017

For the three months ended December 31, 2017, net income attributable to shareholders was $66.5 million, or $0.91 per share, compared to $25.6 million, or $0.36 per share for the three months ended December 31, 2016. The increase is primarily attributable to a $47.7 million income tax benefit in the fourth quarter of 2017, as deferred tax liabilities were reduced as a result of the Tax Cuts and Job Act of 2017 (the “Act”). The Act reduced the statutory Federal income tax rate to 21% from 35%. As a result, the Company expects to pay lower income taxes on its deferred tax items in future years and is required to recognize the benefit for those lower taxes in the period when the new tax rates were enacted. The Company provisionally estimates that its effective combined Federal and state income tax rate will decrease from its typical historical rate of 39% to a range of 26% to 28% in 2018.

Income before non-controlling interest and provision for income tax was $29.0 million for the fourth quarter of 2017, a decrease of 23%, compared to $37.6 million for the fourth quarter of 2016. This decrease is primarily a result of:

A $4.8 million payment to Bass Pro in connection with an issue raised by Bass Pro regarding the computation of prior sales commissions paid to Bass Pro pursuant to our marketing relationship. While we believe the amount of commissions originally paid was consistent with the terms and intent of the parties’ agreement and intend to continue discussions with Bass Pro regarding such payment, we made the $4.8 million payment and recognized the payment as a general administrative expense during the fourth quarter of 2017. The resolution of this issue could result in an increase to our marketing expense in the future.
A $2.2 million expense for severance costs related to a Company-wide initiative to streamline and realign operations to facilitate future growth and investment in innovation (the “Corporate Realignment Initiative”). The Corporate Realignment Initiative is expected to result in an estimated reduction in the Company’s annual salaries and benefits expense of $19.5 million. The Company expects to apply a portion of this savings to additional associates and expenditures for growth-driving initiatives in 2018.
A $6.6 million increase in estimated uncollectable VOI notes receivable. This increase was due to increased gross sales of VOIs and a $1.0 million charge for an increase in estimated uncollectable VOI notes receivable related to prior years’ sales in the fourth quarter of 2017 compared to a $3.4 million benefit for a reduction in estimated uncollectable VOI notes receivable in the fourth quarter of 2016.

The factors described above were partially offset by:
- The income associated with a 5% increase in system-wide sales, net;
- A reduction in selling and marketing costs as a percentage of system-wide sales of VOIs, net, to 51% from 52% in the three months ended December 31, 2016;
- A 14% increase in resort operations and club management revenue and a 10% increase in pre-tax profits from such activities during the three months ended December 31, 2017 compared to the same period in 2016.

Financial Results – Full Year 2017

For the year ended December 31, 2017, net income attributable to shareholders was $125.5 million, or $1.76 per share, compared to $75.0 million, or $1.06 per share, for the year ended December 31, 2016. The increase is primarily attributable to the $47.7 million income tax benefit recognized in connection with the Act, as discussed above.

Income before non-controlling interest and provision for income tax was $135.3 million for 2017, an increase of 8%, compared to $124.9 million for 2016. This increase is primarily the result of:

The income associated with a 2% increase in sales;
An 8% increase in resort operations and club management revenue and a 2% increase in pre-tax profits from such activities during 2017 compared to 2016;
A reduction in cost of VOIs sold to 7% of sales of VOIs in 2017 from 10% in 2016;
These factors were partially offset by:
- The $4.8 million payment to Bass Pro discussed above;
- Expense of $5.8 million related to severance costs associated with the Corporate Realignment Initiative and severance costs associated with the retirement of an executive in September 2017; and An increase in estimated uncollectable VOI notes receivable to 16% of gross sales of VOIs in 2017 from 14% in 2016.

Segment Results – Fourth Quarter 2017

Sales of VOIs and Financing

System-wide sales of VOIs, net were $154.0 million and $146.0 million during the three months ended December 31, 2017 and 2016, respectively. This increase was driven by an 11% increase in sales volume per guest (“VPG”), partially offset by a 7% reduction in sales tours. During 2017, we began screening the credit qualifications of potential marketing guests, resulting in the higher VPG and the lower number of tours in the three months ended December 31, 2017. The Company believes that this screening should result in improved efficiencies in its sales process and intends to continue refining its methodology. The VPG increased as the sale-to-tour conversion ratio increased 2%, partially offset by a 9% decrease in the average sales price per transaction for the three months ended December 31, 2017 compared to the three months ended December 31, 2016. In the second quarter of 2017, the Company reintroduced sales of low-pointed, introductory packages, which the Company had previously eliminated in 2016. The sales of these introductory packages improved VPG by increasing conversion rates, partially offset by lower average sales prices per transaction.

During the three months ended December 31, 2017 and 2016, financing revenue, net of financing expense related to the sale of VOIs was $15.4 million and $16.1 million, respectively. The decrease was primarily attributable to the lower weighted-average interest rate on our notes receivable of approximately 15.3% at December 31, 2017 compared to 15.7% at December 31, 2016. The decrease in the weighted-average interest rate was primarily attributable to our introduction of “risk-based pricing” pursuant to which borrowers’ interest rates are determined based on their FICO score at the point of sale. As a result, the Company realized 2017 loan originations (after 30 day pay-offs, same as cash) with a weighted-average FICO score of 724 compared to 716 for 2016.

Operating profit for the Sales of VOIs and Financing segment was $37.0 million and $43.0 million for the fourth quarter of 2017 and 2016, respectively.

Adjusted EBITDA for the Sales of VOIs and Financing segment was $44.6 million for both the three months ended December 31, 2017 and 2016. Adjusted EBITDA for this segment was also impacted by the variance in estimated uncollectable VOI notes receivable, discussed above.

Resort Operations and Club Management

During the three months ended December 31, 2017 and 2016, resort operations and club management revenue was $24.6 million and $21.6 million, respectively, an increase of 14%. The resort properties Bluegreen manages increased from 46 as of December 31, 2016 to 48 as of December 31, 2017, due to new resorts under management in Charleston, South Carolina and Banner Elk, North Carolina.

Operating profit for the Resort Operations and Club Management segment was $9.9 million and $9.0 million for the fourth quarter of 2017 and 2016, respectively.

During the three months ended December 31, 2017 and 2016, Adjusted EBITDA for the Resort Operations and Club Management segment was $10.5 million and $9.4 million, respectively, an increase of 12%.

Segment Results – Full Year 2017

Sales of VOIs and Financing

System-wide sales of VOIs, net were $616.7 million and $605.4 million during the year ended December 31, 2017 and 2016, respectively, an increase of 2%. This increase was driven by a 10% increase in VPG, partially offset by an 8% reduction in sales tours. These changes reflect the impact of screening of potential marketing guests, discussed above. The VPG increased as the average sales price per transaction increased by 12%, partially offset by a 2% decrease in the sale-to-tour conversion ratio for the year ended December 31, 2017 compared to the year ended December 31, 2016.

During the years ended December 31, 2017 and 2016, financing revenue, net of financing expense related to the sale of VOIs was $61.7 million and $60.3 million, respectively. The increase is a result of a lower weighted-average cost of borrowing and an increase in our VOI notes receivable portfolio in 2017 as compared to 2016.

Operating profit for the Sales of VOIs and Financing segment was $164.9 million and $162.7 million for the years ended December 31, 2017 and 2016, respectively.

Adjusted EBITDA of Sales of VOIs and Financing was $180.3 million and $169.1 million for the years ended December 31, 2017 and 2016, respectively, an increase of approximately 7%. Adjusted EBITDA for this segment was also impacted by the decreased cost of VOIs sold and increased estimated uncollectable VOI notes receivable, discussed above.

Resort Operations and Club Management

During the years ended December 31, 2017 and 2016, resort operations and club management revenue was $97.1 million and $89.6 million, respectively, an increase of 8%.

Operating profit for the Resort Operations and Club Management segment was $37.7 million and $37.1 million for the years ended December 31, 2017 and 2016, respectively.

During the years ended December 31, 2017 and 2016, Adjusted EBITDA for the Resort Operations and Club Management segment was $39.6 million and $38.5 million, respectively, an increase of approximately 3%.

Balance Sheet and Liquidity

As of December 31, 2017, unrestricted cash and cash equivalents totaled $197.3 million. Bluegreen had availability of approximately $219.6 million under its receivable-backed purchase and credit facilities, inventory lines of credit and corporate credit line as of December 31, 2017, subject to eligible collateral and the terms of the facilities, as applicable.

Free cash flow, which the Company defines as cash flow from operating activities, less capital expenditures, was $51.9 million for the year ended December 31, 2017, compared to $94.5 million for the year ended December 31, 2016. The decrease in free cash flow is primarily attributable to higher inventory expenditures, including the acquisition of secondary market and just-in-time inventory, as well as higher income tax payments in 2017. The Company believes the Act will have a favorable impact on income tax payments in the future.

Initial Public Offering

On November 17, 2017, the initial public offering of Bluegreen Vacations’ common stock was consummated. Bluegreen sold 3,736,723 shares in the initial public offering and BBX Capital Corporation (NYSE: BBX) (OTCQX: BBXTB) sold 3,736,722 shares as selling shareholder including 974,797 shares sold during December 2017 in connection with the underwriters exercise of its option to purchase additional shares. Bluegreen’s net proceeds from the offering were approximately $47.3 million, after deducting underwriting discounts and commissions and offering expenses. Bluegreen did not receive any proceeds from the sale of shares by BBX Capital. Bluegreen’s common stock began trading on the New York Stock Exchange on November 17, 2017 under the symbol “BXG”. BBX Capital now owns approximately 90% of Bluegreen’s outstanding common stock.

Dividend Establishment

On January 3, 2018, Bluegreen announced that its Board of Directors declared a cash dividend payment of $0.15 per share of common stock. The dividend was paid on January 23, 2018 to shareholders of record on the close of trading on January 16, 2018. Bluegreen currently intends to continue to pay quarterly cash dividends on its common stock of $0.15 per share, but such dividends are at the discretion of the Board of Directors and are dependent on many factors, including provisions of Bluegreen’s debt.

Fourth Quarter 2017 Webcast

The Company has provided a pre-recorded business update and management presentation via webcast link, listed below, on the Investor Relations section of its website at ir.bluegreenvacations.com. A transcript will also be available simultaneously with the webcast.

Webcast link: https://services.choruscall.com/links/bxg180306.html

Forward-Looking Statements:

Certain statements in this press release are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact, are forward-looking statements. Forward-looking statements are based on current expectations of management and can be identified by the use of words such as “believe”, “may”, “could”, “should”, “plans”, “anticipates”, “intends”, “estimates”, “expects”, and other words and phrases of similar impact. Forward-looking statements involve risks, uncertainties and other factors, many of which are beyond our control, that may cause actual results or performance to differ from those set forth or implied in the forward-looking statements. These risks and uncertainties include, without limitation, additional risks and uncertainties described in Bluegreen’s filings with the Securities and Exchange Commission, including, without limitation, those described in the “Risk Factors” section of Bluegreen’s Annual Report on Form 10-K for the year ended December 31, 2016. Bluegreen cautions that the foregoing factors are not exclusive. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Bluegreen does not undertake, and specifically disclaims any obligation, to update or supplement any forward-looking statements.

Non-GAAP Financial Measures:

The Company refers to certain non-GAAP financial measures in this press release, including Adjusted EBITDA and free cash flow. Please see the supplemental tables and definitions attached herein for additional information and reconciliation of such non-GAAP financial measures.

About Bluegreen Vacations Corporation:

Bluegreen Vacations Corporation (NYSE: BXG) is a leading vacation ownership company that markets and sells vacation ownership interests (VOIs) and manages resorts in top leisure and urban destinations. The Bluegreen Vacation Club is a flexible, points-based, deeded vacation ownership plan with approximately 213,000 owners, 67 Club and Club Associate Resorts and access to more than 11,000 other hotels and resorts through partnerships and exchange networks as of December 31, 2017. Bluegreen Vacations also offers a portfolio of comprehensive, fee-based resort management, financial, and sales and marketing services, to or on behalf of third parties. Bluegreen is 90% owned by BBX Capital Corporation (NYSE: BBX) (OTCQX: BBXTB), a diversified holding company.

About BBX Capital Corporation:

BBX Capital Corporation (NYSE: BBX) (OTCQX: BBXTB), is a diversified holding company whose activities include its 90% ownership interest in Bluegreen Vacations Corporation (NYSE: BXG) as well as its Real Estate and Middle Market Divisions. For additional information, please visit www.BBXCapital.com.