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Bluegreen Vacations Corporation Reports Second Quarter 2018 Results

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FORT LAUDERDALE, Fla., Aug. 03, 2018 (GLOBE NEWSWIRE) -- BBX Capital Corporation (NYSE: BBX) (OTCQX: BBXTB) ("BBX Capital"), announced that Bluegreen Vacations Corporation (NYSE: BXG), which is 90% owned by BBX Capital, issued the following press release.  Please see the Bluegreen press release below.

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BBX Capital Corporation Contact Info:
Investor Relations: Leo Hinkley, Managing Director, Investor Relations Officer
Phone: 954-940-5300
Email: LHinkley@BBXCapital.com

BLUEGREEN VACATIONS CORPORATION REPORTS SECOND QUARTER 2018 RESULTS

  • 2Q18 Earnings Per Share (“EPS”) Increases 6%

  • 3% Growth in System-Wide Sales of Vacation Ownership Interests

  • Selling and Marketing Expenses Decreases to 48% of System-Wide Sales

  • Cap-Light Revenue (1) Increases to 70% of Total Revenue

  • Commences Expansion of Resorts and Sales Offices; Acquires First Resort in Texas, Additional Fee-Based Service Contract in New Orleans and Exclusive Inventory and Resort Management Agreement for New York City Resort

BOCA RATON, Florida (August 2, 2018) – Bluegreen Vacations Corporation (NYSE: BXG) ("Bluegreen" or the “Company") today reported its second quarter 2018 financial results.

Shawn B. Pearson, Chief Executive Officer and President said, “We are pleased with our second quarter results, which saw a 6% increase in earnings per share highlighted by a 3% increase in system-wide sales of vacation ownership interests (“VOIs”) and reduction in selling and marketing expenses to 48% of sales, marking the third consecutive quarter we’ve generated improvement across these key growth metrics. We also benefited from a reduced effective income tax rate due to the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

“While our sales growth in the second quarter chiefly reflected same store sales increases, we made investments that we believe will contribute to growth in both sales and management revenues in the future. Most significantly, we added two outstanding resorts to our network, the Éilan Hotel & Spa in San Antonio, our first resort in Texas, and The Marquee in New Orleans, Louisiana.  We also entered into an exclusive agreement to acquire inventory and, by 2021, the resort management contract at The Manhattan Club in New York City. All three resorts have planned frontline sales centers which, in addition to six other currently planned new sales centers, will put Bluegreen on pace for sales capacity expansion, of over 80,000 square feet of prime sales center space to be open by summer 2019. 

“We believe Bluegreen is well-positioned for future growth in the exciting and fast-growing vacation ownership sector.   We believe that we will benefit from our unique resort offerings, which target middle-America and millennial consumers, our digital initiatives, and our robust strategic partnerships as we continue to grow VOI sales and pursue the creation of long-term value for our shareholders,” Pearson said.

Second Quarter 2018 Highlights:
(dollars in millions, except per share data)

               
  Three Months Ended
June 30,
  2018     2017     % Change
               
System-wide sales VOIs $  172.0     $  166.4      3  
Resort operations and
 club management revenue
$  41.3     $  36.1      14  
Income before non-controlling interest and              
 provision for income taxes $  39.4     $  42.8      (8 )
Net income attributable to shareholders $  26.7     $  24.0      11  
Earnings per share Basic and diluted $  0.36     $  0.34      6  
Adjusted EBITDA $  41.9     $  43.2      (3 )
Capital-light revenue(1) as a percentage of   70 %     68 %    
total revenue              
Selling and marketing expenses, as a percentage              
of system-wide sales of VOIs   48 %     52 %    
Effective income tax rate   26 %     39 %    


(1) Bluegreen's "capital-light" revenue includes revenue 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 other fee-based services revenue and cost reimbursements revenue.

Income before non-controlling interest and provision for income tax decreased $3.4 million or 8.0% in the second quarter of 2018 (“2Q18”) compared to the second quarter of 2017 (“2Q17”). This decrease was primarily a result of:

• Cost of VOIs Sold increased $5.0 million to 10% of Sales of VOIs in 2Q18 compared to 3% in 2Q17. In 2Q17, Bluegreen benefited from a $5.1 million reduction to Cost of VOIs Sold ($3.1 million net of income tax), in connection with the implementation of a revised pricing matrix, with no such comparable benefit in 2Q18.   Excluding this benefit from 2Q17, Adjusted EBITDA would have increased 5% and EPS would have increased $0.04 or 23%. 

• General and Administrative Expenses – Corporate & Other increased $4.4 million in 2Q18 compared to 2Q17, as a result of:

  • Higher self-insured health care costs;
  • Higher outside legal expenses in connection with a new focus on vigorously defending claims which the Company believes to be frivolous;
  • Increased depreciation expense in connection with information technology assets;
  • Executive severance expense related to continuing corporate realignment activities commenced in December 2017; and
  • Investor and public relations activities related expenses.

These increased expenses were partially offset by growth in profits from our Sales of VOIs and Financing segment as well as our Resort Operations and Club Management segment, more fully described below.

Year-to-Date 2018 Highlights:
(dollars in millions, except per share data)

               
  Six Months Ended
June 30,
  2018     2017     % Change
               
System-wide sales VOIs $  304.8     $  296.0      3  
Resort operations and
 club management revenue
$  82.8     $  74.1      12  
Income before non-controlling interest and              
 provision for income taxes $  70.2     $  73.7      (5 )
Net income attributable to shareholders $  47.7     $  41.6      15  
Earnings per share Basic and diluted $  0.64     $  0.59      8  
Adjusted EBITDA $  75.2     $  75.2      —  
Capital-light revenue(1) as a percentage of   72 %     69 %    
total revenue              
Selling and marketing expenses, as a percentage              
of system-wide sales of VOIs   49 %     52 %    
Effective income tax rate   26 %     38 %    


(1)  Bluegreen's "capital-light" revenue included revenue 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 other fee-based services revenue and cost reimbursements revenue.

Income before non-controlling interest and provision for income tax decreased $3.5 million or 5% in the first half of 2018 (“1H18”) compared to the first half of 2017 (“1H17”). This decrease was primarily a result of (i) Cost of VOIs Sold increased $3.7 million to 7% of Sales of VOIs in 1H18 compared to 4% in 1H17 (as indicated above, there was a $5.1 million benefit to Cost of VOIs Sold in 2Q17) and (ii)  General and Administrative Expenses – Corporate & Other increased $10.5 million in 1H18 compared to 1H17. 

These increased expenses were partially offset by growth in profits from our Sales of VOIs and Financing segment as well as our Resort Operations and Club Management segment, more fully described below.

Segment Results – Second Quarter 2018
(dollars in millions, except per guest and per transaction amounts)

Sales of VOIs and Financing Segment

               
   Three Months Ended
June 30,
  2018     2017     % Change
               
System-wide sales of VOIs $  172.0     $  166.4      3  
Financing revenue, net of financing expense
 relating to the sale of VOIs
$  15.2     $  15.3      (1 )
Net carrying cost VOI inventory $  1.7     $  0.7      133  
General and administrative expenses - sales and              
 marketing $  7.5     $  6.3      18  
Segment operating profit $  46.6     $  47.7      (2 )
Segment Adjusted EBITDA $  48.3     $  49.2      (2 )
Number of sales offices at period-end    24        23      3  
Average sales price per transaction $  15,442     $  15,475      —  
Guest tours    65,570        70,972      (8 )
Sale-to-tour conversion ratio   17.1 %     15.3 %    12  
Sales to the Company's existing owners as              
percentage of system-wide sales of VOIs   49 %     47 %    3  
Sales volume per guest ("VPG") $  2,646     $  2,366      12  
Provision for Loan Losses as a percentage of gross              
sales of VOIs   16 %     18 %    
Costs of VOIs sold as a percentage of sales   10 %     3 %    
Selling and marketing expenses, as a percentage              
of system-wide sales of VOIs   48 %     52 %    
Weighted-average interest rate on notes receivable              
at period end   15.4 %     15.5 %    
                   

The Company has continued its initiatives to screen the credit qualifications of potential marketing guests, which the Company believes has resulted in both increased VPG and a lower number of Guest Tours in 2Q18 compared to 2Q17.

2Q18 Selling and marketing expenses decreased as a percentage of System-wide sales due to the increased VPG noted above, the higher percentage of sales to the Company’s existing owners and the reduction of certain fixed selling and marketing expenses in connection with the “corporate realignment” initiative commenced during the fourth quarter of 2017.

The Company previously disclosed a dispute regarding commissions paid to Bass Pro, Inc. (“Bass Pro”) under a marketing and promotions agreement.  As previously disclosed, in order to demonstrate good faith, the Company paid $4.8 million to Bass Pro in October 2017 in connection with the dispute, pending future discussion and resolution of the matter. On July 23, 2018, Bass Pro again raised the same issue regarding the commission calculation since the $4.8 million payment and requested additional information regarding the commission calculation as well as other amounts payable under the agreements, including reimbursements paid to Bluegreen.  The issues raised by Bass Pro have not impacted current operations under the marketing agreement or relative to Bluegreen/Big Cedar Vacations, LLC, the Company’s 51%-owned joint venture with an affiliate of Bass Pro.  The Company intends to formally respond to Bass Pro with its view on these matters and intends to provide Bass Pro with all appropriately requested information. While the Company does not believe that any material additional amounts are due to Bass Pro as a result of these matters, any change in the payments or reimbursements made under the agreements could impact future results.

The decrease in Financing revenue, net of financing expense, was primarily attributable to the higher cost of borrowing and the lower weighted-average interest rate on notes receivable.  The decrease in the weighted-average interest rate was primarily attributable to the introduction of “risk-based pricing” pursuant to which borrowers’ interest rates are determined based on their FICO score at the point of sale.

Resort Operations and Club Management Segment
(dollars in millions)

               
   Three Months Ended
June 30,
  2018   2017   % Change
               
Resort operations and
 club management revenue
$  41.3   $  36.1    14
Segment operating profit $  13.3   $  10.7    25
Segment Adjusted EBITDA $  13.8      11.1    24
Resorts managed at quarter end    49      47    
               

Increases are primarily due to the two additional resort management contracts added since June 30, 2017.

Segment Results – Year-to-Date 2018

Sales of VOIs and Financing Segment
(dollars in millions, except per guest and per transaction amounts)

               
   Six Months Ended
June 30,
  2018     2017     % Change
               
System-wide sales of VOIs $  304.8     $  296.0      3  
Financing revenue, net of financing expense
 relating to the sale of VOIs
$  29.9     $  30.8      (3 )
Net carrying cost VOI inventory $  4.2     $  2.4      75  
General and administrative expenses - sales and              
 marketing $  13.6     $  13.1      4  
Segment operating profit $  88.7     $  85.4      4  
Segment Adjusted EBITDA $  92.0     $  88.4      4  
Number of sales offices at period-end    24        23      4  
Average sales price per transaction $  15,351     $  15,675      (2 )
Guest tours    115,767        124,208      (7 )
Sale-to-tour conversion ratio   17.3 %     15.3 %    13  
Sales to the Company's existing owners as a              
percentage of system-wide sales of VOIs   51 %     49 %    4  
Sales volume per guest ("VPG") $  2,653     $  2,403      10  
Provision for Loan Losses as a percentage of gross              
sales of VOIs   15 %     17 %    
Costs of VOIs sold as a percentage of sales   7 %     4 %    
Selling and marketing expenses, as a percentage              
of system-wide sales of VOIs   49 %     52 %    
Weighted-average interest rate on notes receivable              
at period end   15.4 %     15.5 %    
                   

The average annual default rate for the twelve months ended June 30, 2018 was 8.43%, compared to 7.96% for the twelve months ended June 30, 2017.  The Company believes that a significant portion of the default increase is due to the receipt of letters from attorneys who purport to represent certain VOI owners and who have encouraged such owners to become delinquent and ultimately default on their obligations.

Resort Operations and Club Management Segment
(dollars in millions)

               
   Six Months Ended
June 30,
  2018   2017   % Change
               
Resort operations and
 club management revenue
$  82.8   $  74.1   12
Segment operating profit $  25.0   $  20.8   20
Segment Adjusted EBITDA $  25.8      21.6   19
Resorts managed at quarter end    49      47    

Balance Sheet and Liquidity
As of June 30, 2018, unrestricted cash and cash equivalents totaled $205.7 million. Bluegreen had availability of approximately $140.5 million under its receivable-backed purchase and credit facilities, inventory lines of credit and corporate credit line as of June 30, 2018, 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 $8.1 million for the six months ended June 30, 2018, compared to $18.6 million for the six months ended June 30, 2017. The decrease in free cash flow was primarily attributable to sales office expansions, increased information technology spending, acquisition of secondary market and just-in-time inventory, and decreased working capital, partially offset by lower income tax payments.  The Company believes the Tax Act will continue to have a favorable impact on income tax payments in the future.

On April 6, 2018, Bluegreen and Bluegreen/Big Cedar Vacations, LLC, a joint venture in which the Company owns a 51% interest, renewed their $50.0 million, revolving non-recourse VOI notes receivable purchase facility (the “Quorum Purchase Facility”) with Quorum Federal Credit Union (“Quorum”). The amendment to the Quorum Purchase Facility extended the purchase period from June 30, 2018 to June 30, 2020. In addition, pursuant to the amendment, Quorum has agreed to an interest rate of 4.95% per annum on advances made through September 30, 2018. The interest rate on advances made after September 30, 2018 will be set at the time of funding based on rates mutually agreed upon by all parties. The amendment also extended the maturity of the Quorum Purchase Facility from December 2030 to December 2032.  As of June 30, 2018, $29.7 million was outstanding under the Quorum Purchase Facility.  

Acquisition Activity
On April 17, 2018, as previously disclosed, the Company acquired the Éilan Hotel & Spa in San Antonio, Texas for approximately $34.3 million. The Company intends to open a 13,000 square foot sales office at the Éilan Hotel & Spa by the end of 2018. In connection with the acquisition, Bluegreen entered into a non-revolving acquisition loan which provides for advances up to $27.5 million, $24.3 million of which was used to fund the acquisition of the resort and up to an additional $3.2 million may be drawn upon to fund certain future improvement costs over a 12-month advance period.  The Company believes that this acquisition is consistent with its “drive-to” strategy; over 10% of Bluegreen Vacation Club owners live in Texas and surrounding states.

On May 10, 2018, as previously disclosed, the Company announced a fee-based service agreement with Marquee Developer, LLC (“Marquee Developer”), owner and developer, of The Marquee – also known as 144 Elk Luxury Lofts – in New Orleans, Louisiana. The resort will be open for Vacation Club guests in 2019. Under the agreement, Bluegreen will provide a suite of fee-based services that include vacation ownership sales and marketing, property management, and title and escrow services. Bluegreen will also provide design and development planning as well as consumer receivable servicing for the Marquee Developer, also on a fee-basis. This agreement will add 94 units of resort inventory which will be sold through The Bluegreen Vacation Club. Additionally, Bluegreen has plans to add frontline and in-house sales centers, which are expected to be operational by fourth quarter 2018.

On June 22, 2018, as previously disclosed, the Company announced that it has entered into an exclusive agreement to acquire inventory and, by 2021, the resort management contract at The Manhattan Club in New York City.  In addition to significantly expanding access to The Manhattan Club within the Bluegreen Vacation Club, Bluegreen is planning to open a 2,500-square foot sales center. The agreement provides Bluegreen the exclusive right, on a non-committed basis, to acquire the remaining timeshare inventory at The Manhattan Club under Bluegreen’s “capital-light” Secondary Market program through periodic purchases over time, and subject to the terms and conditions of the agreement, the exclusive right to acquire the management contract for The Manhattan Club resort in 2021.

Dividend
On July 18, 2018, Bluegreen’s Board of Directors declared a cash dividend payment of $0.15 per share of common stock. The dividend is payable on August 15, 2018 to shareholders of record on the close of trading on July 31, 2018.

Second Quarter 2018 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/bxg180802.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, risks relating to our ability to successfully implement our strategic plans and initiatives, generate earnings and long-term growth, risks relating to improving our digital capabilities, including our virtual reality technology, complete sales office expansions when planned or at all and that such expansions will be profitable, that marketing alliances will drive growth or be successful, and the 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, 2017 and Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2018, expected to be filed on or about August 3, 2018.  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 system-wide sales of VOIs, Adjusted EBITDA, adjusted EPS 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 215,000 owners, 69 Club and Club Associate Resorts and access to more than 11,100 other hotels and resorts through partnerships and exchange networks as of June 30, 2018. 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. For further information, visit www.BluegreenVacations.com.

About BBX Capital Corporation:
BBX Capital Corporation (NYSE: BBX) (OTCQX: BBXTB), is a Florida-based 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

Media Contact:
Brad Simon
Bradley.Simon@edelman.com
(305) 358-5291

BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
(In thousands, except for per share data)

                           
    For the Three Months Ended   For the Six Months Ended  
    June 30,   June 30,  
    2018     2017     2018     2017    
          *As Adjusted         *As Adjusted  
Revenues:                          
Gross sales of VOIs   $  82,027     $  72,738     $  146,187     $  136,183    
Estimated uncollectible VOI notes receivable      (13,454 )      (13,333 )      (21,473 )      (22,542 )  
Sales of VOIs      68,573        59,405        124,714        113,641    
                           
Fee-based sales commission revenue      60,086        63,915        105,940        109,069    
Other fee-based services revenue      30,391        29,935        58,415        56,056    
Cost reimbursements      14,059        11,893        30,260        26,563    
Interest income      21,118        21,991        42,240        44,377    
Other income (expense), net      710        244        891        (1 )  
Total revenues      194,937        187,383        362,460        349,705    
                           
Costs and expenses:                          
Cost of VOIs sold      6,789        1,749        8,601        4,908    
Cost of other fee-based services      16,634        15,374        34,045        31,481    
Cost reimbursements      14,059        11,893        30,260        26,563    
Selling, general and administrative expenses      109,580        107,488        203,129        197,323    
Interest expense      8,495        8,077        16,262        15,721    
Total costs and expenses      155,557        144,581        292,297        275,996    
                           
Income before non-controlling interest and                          
 provision for income taxes      39,380        42,802        70,163        73,709    
Provision for income taxes      9,353        15,292        16,554        25,903    
Net income      30,027        27,510        53,609        47,806    
Less: Net income attributable to
 non-controlling interest
     3,317        3,520        5,924        6,167    
Net income attributable to Bluegreen Vacations                          
 Corporation shareholders   $  26,710     $  23,990     $  47,685     $  41,639    
                           
Earnings per share attributable to
 Bluegreen Vacations Corporation
 shareholders - Basic and diluted
  $  0.36     $  0.34   (1) $  0.64     $ 0.59   (1)
                           
Weighted average number of common shares
 outstanding:
                         
Basic and diluted      74,734        70,998   (1)    74,734        70,998   (1)
                           
Cash dividends declared per share   $  0.15     $  0.28     $  0.30     $  0.28    

*See Note 2: Significant Accounting Policies within the June 30, 2018 quarterly report on Form 10-Q for further discussion.

(1)  The calculation of basic and diluted earnings per share were based on shares issued in connection with our initial public offering during November 2017 and give effect to the stock split effected in connection therewith as if the stock split was effected January 1, 2017. See Note 1: Organization and Basis of Presentation within the June 30, 2018 quarterly report on Form 10-Q for further discussion.

BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)

             
    For the Six Months Ended
    June 30,
    2018     2017  
          *As Adjusted
Operating activities:            
Net income   $  53,609     $  47,806  
Adjustments to reconcile net income to net cash provided            
by operating activities:            
Depreciation and amortization      7,597        7,012  
Loss on disposal of property and equipment      —        428  
Provision for loan losses      21,447        22,546  
Provision (benefit) for deferred income taxes      2,215        (4,077 )
Changes in operating assets and liabilities:            
Notes receivable      (24,236 )      (14,741 )
Prepaid expenses and other assets      (16,122 )      (17,397 )
Inventory      (25,770 )      (26,351 )
Accounts payable, accrued liabilities and other, and            
deferred income      4,475        8,795  
Net cash provided by operating activities      23,215        24,021  
             
Investing activities:            
Purchases of property and equipment      (15,105 )      (5,407 )
Net cash used in investing activities      (15,105 )      (5,407 )
             
Financing activities:            
Proceeds from borrowings collateralized            
by notes receivable      73,706        148,374  
Payments on borrowings collateralized by notes receivable      (68,531 )      (133,244 )
Proceeds from borrowings collateralized            
by line-of-credit facilities and notes payable      50,042        30,000  
Payments under line-of-credit facilities and notes payable      (24,671 )      (16,039 )
Payments of debt issuance costs      (187 )      (2,839 )
Dividends paid      (22,420 )      (20,000 )
Net cash provided by financing activities      7,939        6,252  
Net increase in cash and cash equivalents            
and restricted cash      16,049        24,866  
Cash, cash equivalents and restricted cash at beginning of period      243,349        190,228  
Cash, cash equivalents and restricted cash at end of period   $  259,398     $  215,094  
                 

BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)

                             
                    For the Six Months Ended
                    June 30,
                    2018   2017
                             
Supplemental schedule of operating cash flow information:                            
Interest paid, net of amounts capitalized                   $  14,250   $  13,071
Income taxes paid                   $  14,618   $  26,406


           
Supplemental schedule of non-cash investing and financing activities:          
Acquisition of inventory, property, and equipment for notes payable $  24,258   $  —
Restricted cash received on securitization, pending provision
 of additional collateral
$  —   $  14,578

* See Note 2: Significant Accounting Policies within the June 30, 2018 quarterly report on Form 10-Q for further discussion.

BLUEGREEN VACATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except for per share data)

             
        December 31,
    June 30,   2017
    2018   *As Adjusted
ASSETS             
Cash and cash equivalents   $  205,745   $  197,337
Restricted cash ($20,959 and $19,488 in VIEs at June 30, 2018            
and December 31, 2017, respectively)      53,653      46,012
Notes receivable, net ($296,016 and $279,188 in VIEs            
at June 30, 2018 and December 31, 2017, respectively)      429,647      426,858
Inventory      327,897      281,291
Prepaid expenses      17,037      10,743
Other assets      61,996      52,506
Intangible assets, net      61,912      61,978
Loan to related party      80,000      80,000
Property and equipment, net      87,430      74,756
Total assets   $  1,325,317   $  1,231,481
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Liabilities            
Accounts payable   $  21,189   $  22,955
Accrued liabilities and other      86,009      77,317
Deferred income      14,442      16,893
Deferred income taxes      91,181      88,966
Receivable-backed notes payable - recourse      101,582      84,697
Receivable-backed notes payable - non-recourse (in VIEs)      325,512      336,421
Lines-of-credit and notes payable      149,651      100,194
Junior subordinated debentures      70,908      70,384
Total liabilities      860,474      797,827
             
Commitments and Contingencies             
             
Shareholders' Equity            
Common stock, $.01 par value, 100,000,000 shares authorized; 74,734,455            
shares issued and outstanding at June 30, 2018 and December 31, 2017      747      747
Additional paid-in capital      274,366      274,366
Retained earnings      140,785      115,520
Total Bluegreen Vacations Corporation shareholders' equity      415,898      390,633
Non-controlling interest      48,945      43,021
Total shareholders' equity      464,843      433,654
Total liabilities and shareholders' equity   $  1,325,317   $  1,231,481

*See Note 2: Significant Accounting Policies within the June 30, 2018 quarterly report on Form 10-Q for further discussion.

BLUEGREEN VACATIONS CORPORATION
ADJUSTED EBITDA RECONCILIATION
(In thousands)

                         
    For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
(in thousands)   2018     2017     2018     2017  
Net income attributable to shareholder(s)   $  26,710     $  23,990     $  47,685     $  41,639  
Net income attributable to the
 non-controlling interest in
 Bluegreen/Big Cedar Vacations
     3,317        3,520        5,924        6,167  
Adjusted EBITDA attributable to the
 non-controlling interest
 in Bluegreen/Big Cedar Vacations
     (3,292 )      (3,413 )      (5,884 )      (5,973 )
Loss (Gain) on assets held for sale      11        18        (9 )      40  
Add: depreciation and amortization      2,989        2,309        5,917        4,669  
Less: interest income (other than interest
 earned on VOI notes receivable)
     (1,381 )      (2,091 )      (2,816 )      (4,195 )
Add: interest expense - corporate and other      3,873        3,533        6,930        6,871  
Add: franchise taxes      43        28        124        55  
Add: provision for income taxes      9,353        15,292        16,554        25,903  
Corporate realignment cost      275        —        751        —  
Total Adjusted EBITDA   $  41,898     $  43,186     $  75,176     $  75,176  
                                 

BLUEGREEN VACATIONS CORPORATION
SEGMENT ADJUSTED EBITDA SUMMARY
(In thousands)

                         
    For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
(in thousands)   2018     2017     2018     2017  
Adjusted EBITDA - sales of VOIs
 and financing
  $  48,255     $  49,211     $  91,981     $  88,372  
Adjusted EBITDA - resort operations
 and club management
     13,750        11,068        25,829        21,632  
Total Segment Adjusted EBITDA      62,005        60,279        117,810        110,004  
Less: Corporate and other      (20,107 )      (17,093 )      (42,634 )      (34,828 )
Total Adjusted EBITDA   $  41,898     $  43,186     $  75,176     $  75,176  
                                 

BLUEGREEN VACATIONS CORPORATION
SALES OF VOIs AND FINANCING SEGMENT- ADJUSTED EBITDA 
(In thousands)

                     
    For the Three Months Ended June 30,
    2018     2017  
    Amount   % of
System-
wide sales
of VOIs (5)
  Amount   % of
System-
wide sales
of VOIs (5)
(in thousands)                    
Developed VOI sales (1)   $  80,715     47 %   $  65,214     39 %
Secondary Market sales      55,258     32        40,316     24  
Fee-Based sales      89,934     52        93,612     56  
JIT sales      15,314     9        17,490     11  
Less: Equity trade allowances (6)      (69,260 )   (40 )      (50,282 )   (30 )
System-wide sales of VOIs      171,961     100 %      166,350     100 %
Less: Fee-Based sales      (89,934 )   (52 )      (93,612 )   (56 )
Gross sales of VOIs      82,027     48        72,738     44  
Provision for loan losses (2)      (13,454 )   (16 )      (13,333 )   (18 )
Sales of VOIs      68,573     40        59,405     36  
Cost of VOIs sold (3)      (6,789 )   (10 )      (1,749 )   (3 )
Gross profit (3)      61,784     90        57,656     97  
Fee-Based sales commission revenue (4)      60,086     67        63,915     68  
Financing revenue, net of financing expense      15,160     9        15,270     9  
Other fee-based services - title operations, net      2,060     1        4,597     3  
Net carrying cost of VOI inventory      (1,650 )   (1 )      (707 )   0  
Selling and marketing expenses      (83,323 )   (48 )      (86,672 )   (52 )
General and administrative expenses - sales and
 marketing
     (7,511 )   (4 )      (6,345 )   (4 )
Operating profit - sales of VOIs and financing      46,606     27 %      47,714     29 %
Add: Depreciation      1,649            1,497      
Adjusted EBITDA - sales of VOI and financing   $  48,255         $  49,211      


(1) Developed VOI sales represent sales of VOIs acquired or developed by us as part of our developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales.
(2) Provision for loan losses is calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales (and not of system-wide sales of VOIs).
(3) Percentages for costs of VOIs sold and gross profit are calculated as a percentage of sales of VOIs (and not of system-wide sales of VOIs).
(4) Percentages for Fee-Based sales commission revenue are calculated as a percentage of Fee-Based sales (and not of system-wide sales of VOIs).
(5) Represents the applicable line item, calculated as a percentage of system-wide sales of VOIs, unless otherwise indicated in the above footnotes.
(6)  Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs.
   

BLUEGREEN VACATIONS CORPORATION
SALES OF VOIs AND FINANCING SEGMENT- ADJUSTED EBITDA
(In thousands)

                     
    For the Six Months Ended June 30,
    2018     2017  
    Amount   % of
System-
wide sales
of VOIs (5)
  Amount   % of
System-
wide sales
of VOIs (5)
(in thousands)                    
Developed VOI sales (1)   $  128,246     42 %   $  138,544     47 %
Secondary Market sales      131,547     43        78,979     26  
Fee-Based sales      158,618     52        159,793     54  
JIT sales      18,683     6        23,068     8  
Less: Equity trade allowances (6)      (132,289 )   (43 )      (104,408 )   (35 )
System-wide sales of VOIs      304,805     100 %      295,976     100 %
Less: Fee-Based sales      (158,618 )   (52 )      (159,793 )   (54 )
Gross sales of VOIs      146,187     48        136,183     46  
Provision for loan losses (2)      (21,473 )   (15 )      (22,542 )   (17 )
Sales of VOIs      124,714     41        113,641     38  
Cost of VOIs sold (3)      (8,601 )   (7 )      (4,908 )   (4 )
Gross profit (3)      116,113     93        108,733     96  
Fee-Based sales commission revenue (4)      105,940     67        109,069     68  
Financing revenue, net of financing expense      29,923     10        30,831     10  
Other fee-based services - title operations, net      3,506     1        6,128     2  
Net carrying cost of VOI inventory      (4,167 )   (1 )      (2,381 )   (1 )
Selling and marketing expenses      (149,006 )   (49 )      (153,924 )   (52 )
General and administrative expenses - sales and
 marketing
     (13,644 )   (4 )      (13,099 )   (4 )
Operating profit - sales of VOIs and financing      88,665     29 %      85,357     29 %
Add: Depreciation      3,316            3,015      
Adjusted EBITDA - sales of VOIs and financing   $  91,981         $  88,372      


(1) Developed VOI sales represent sales of VOIs acquired or developed by us as part of our developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales.
(2) Provision for loan losses is calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales (and not of system-wide sales of VOIs).
(3) Percentages for costs of VOIs sold and gross profit are calculated as a percentage of sales of VOIs (and not of system-wide sales of VOIs).
(4) Percentages for Fee-Based sales commission revenue are calculated as a percentage of Fee-Based sales (and not of system-wide sales of VOIs).
(5) Represents the applicable line item, calculated as a percentage of system-wide sales of VOIs, unless otherwise indicated in the above footnotes.
(6)  Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs.
   

BLUEGREEN VACATIONS CORPORATION
SALES OF VOIs AND FINANCING SEGMENT
SALES AND MARKETING DATA

                                 
    For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
    2018     2017     % Change   2018     2017     % Change
                                 
Number of sales offices at period-end      24        23      4        24        23      4  
Number of active sales arrangements
 with third-party clients at period-end
     14        13      8        14        13      8  
Total number of VOI sales transactions      11,235        10,851      4        20,004        19,040      5  
Average sales price per transaction   $  15,442     $  15,475      —     $  15,351     $  15,675      (2 )
Number of total guest tours      65,570        70,972      (8 )      115,767        124,208      (7 )
Sale-to-tour conversion ratio–
 total marketing guests
    17.1 %     15.3 %    12       17.3 %     15.3 %    13  
Number of new guest tours      41,628        47,197      (12 )      71,507        80,613      (11 )
Sale-to-tour conversion ratio–
 new marketing guests
    14.8 %     12.5 %    18       14.8 %     12.6 %    17  
Percentage of sales to existing owners     49.0 %     47.4 %    3       51.2 %     49.2 %    4  
Average sales volume per guest   $  2,646     $  2,366      12     $  2,653     $  2,403      10  
                                             

BLUEGREEN VACATIONS CORPORATION
RESORT OPERATIONS AND CLUB MANAGEMENT SEGMENT- ADJUSTED EBITDA
(In thousands)

                                         
    For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
(in thousands)   2018         2017         2018         2017      
Resort operations and
 club management revenue
  $  41,275         $  36,091         $  82,812         $  74,065      
Resort operations and club management expense      (27,928 )          (25,420 )          (57,781 )          (53,237 )    
Operating profit - resort
 operations and club management
     13,347     32 %      10,671     30 %      25,031     30 %      20,828     28 %
Add: Depreciation      403            397            798            804      
Adjusted EBITDA - resort operations
 and club management
  $  13,750         $  11,068         $  25,829         $  21,632      
                                                 

BLUEGREEN VACATIONS CORPORATION
CORPORATE AND OTHER - ADJUSTED EBITDA
(In thousands)

                         
    For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
(in thousands)   2018     2017     2018     2017  
General and administrative expenses -
 corporate and other
  $  (18,870 )   $  (14,461 )   $  (40,462 )   $  (29,960 )
Adjusted EBITDA attributable to the
 non-controlling interest
 in Bluegreen/Big Cedar Vacations
     (3,292 )      (3,413 )      (5,884 )      (5,973 )
Other income (expense), net      710        244        891        (1 )
Add: Financing revenue - corporate and other      1,460        2,167        2,968        4,356  
Less:  Interest income (other than
 interest earned on VOI notes receivable)
     (1,381 )      (2,091 )      (2,816 )      (4,195 )
Franchise taxes      43        28        124        55  
Loss (Gain) on assets held for sale      11        18        (9 )      40  
Depreciation and amortization      937        415        1,803        850  
Corporate realignment cost      275        —        751        —  
Corporate and other   $  (20,107 )   $  (17,093 )   $  (42,634 )   $  (34,828 )
                                 

BLUEGREEN VACATIONS CORPORATION
FREE CASH FLOW RECONCILIATION
(In thousands)

             
    For the Six Months Ended
June 30,
(in thousands)   2018     2017  
Net cash provided by operating activities   $  23,215     $  24,021  
Purchases of property and equipment      (15,105 )      (5,407 )
Free Cash Flow   $  8,110     $  18,614  
                 

BLUEGREEN VACATIONS CORPORATION
SYSTEM-WIDE SALES OF VOIs RECONCILIATION
(In thousands)

                         
    For the Three Months Ended
June 30,
  For the Six Months Ended
June 30,
    2018   2017   2018   2017
Gross sales of VOIs   $  82,027   $  72,738   $  146,187   $  136,183
Add: Fee-Based sales      89,934      93,612      158,618      159,793
System-wide sales of VOIs   $  171,961   $  166,350   $  304,805   $  295,976
                         

BLUEGREEN VACATIONS CORPORATION
OTHER FINANCIAL DATA
(In thousands)

                           
    For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
    2018     2017       2018     2017  
Financing Interest Income   $  19,658     $  19,824       $  39,272     $  40,021  
Financing Interest Expense      (4,622 )      (4,544 )        (9,332 )      (8,850 )
Non-Financing Interest Income      1,460        2,167          2,968        4,356  
Non-Financing Interest Expense      (3,873 )      (3,533 )        (6,930 )      (6,871 )
Mortgage Servicing Income      1,471        1,256          2,916        2,417  
Mortgage Servicing Expense      (1,347 )      (1,266 )        (2,933 )      (2,757 )
Title Revenue      3,175        5,737          5,863        8,554  
Title Expense      (1,115 )      (1,140 )        (2,357 )      (2,426 )
                                   

BLUEGREEN VACATIONS CORPORATION
DEFINITIONS

Principal Components Affecting our Results of Operations

Principal Components of Revenues

Fee-Based Sales.  Represent sales of third-party VOIs where we are paid a commission.

JIT Sales.  Represent sales of VOIs acquired from third parties in close proximity to when we intend to sell such VOIs.

Secondary Market Sales.  Represent sales of VOIs acquired from HOAs or other owners, typically in connection with maintenance fee defaults. This inventory is generally purchased at a greater discount to retail price compared to developed VOI sales and JIT sales.

Developed VOI Sales.  Represent sales of VOIs in resorts that we have developed or acquired (not including inventory acquired through JIT and secondary market arrangements).

Financing Revenue.  Represents revenue from the financing of VOI sales, which includes interest income and loan servicing fees. We also earn fees from providing mortgage servicing to certain third-party developers to purchasers of their VOIs.

Resort Operations and Club Management Revenue.  Represents recurring fees from managing the Vacation Club and transaction fees for certain resort amenities and certain member exchanges. We also earn recurring management fees under our management agreements with HOAs for day-to-day management services, including oversight of housekeeping services, maintenance, and certain accounting and administrative functions.

Other Fee-Based Services.  Represents revenue earned from various other services that produce recurring, predictable and long-term revenue, such as title services.

Principal Components of Expenses

Cost of VOIs Sold.  Represents the cost at which our owned VOIs sold during the period were relieved from inventory. In addition to inventory from our VOI business, our owned VOIs also include those that were acquired by us under JIT and secondary market arrangements. Compared to the cost of our developed VOI inventory, VOIs acquired in connection with JIT arrangements typically have a relatively higher associated cost of sales as a percentage of sales while those acquired in connection with secondary market arrangements typically have a lower cost of sales as a percentage of sales as secondary market inventory is generally obtained from HOAs at a significant discount to retail price. Cost of VOIs sold as a percentage of sales of VOIs varies between periods based on the relative costs of the specific VOIs sold in each period and the size of the point packages of the VOIs sold (primarily due to offered volume discounts, and taking into account consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method, including estimates of projected sales, future defaults, upgrades and incremental revenue from the resale of repossessed VOI inventory, are reflected on a retrospective basis in the period the change occurs. Cost of sales will typically be favorably impacted in periods where a significant amount of secondary market VOI inventory is acquired or actual defaults and equity trades are higher and the resulting change in estimate is recognized. While we believe that there is additional inventory that can be obtained through the secondary market at favorable prices to us in the future, there can be no assurance that such inventory will be available as expected.

Net Carrying Cost of VOI Inventory.  Represents the maintenance fees and developer subsidies for unsold VOI inventory paid or accrued to the HOAs that maintain the resorts. We attempt to offset this expense, to the extent possible, by generating revenue from renting our VOIs and through utilizing them in our sampler programs. We net such revenue from this expense item.
Selling and Marketing Expense.  Represents costs incurred to sell and market VOIs, including costs relating to marketing and incentive programs, tours, and related wages and sales commissions. Revenues from vacation package sales are netted against selling and marketing expenses.

Financing Expense.  Represents financing interest expense related to our receivable-backed debt, amortization of the related debt issuance costs and other expenses incurred in providing financing and servicing loans, including administrative costs associated with mortgage servicing activities for our loans and the loans of certain third-party developers.  Mortgage servicing activities include, amongst other things, payment processing, reporting and collection services.

Resort Operations and Club Management Expense.  Represents costs incurred to manage resorts and the Vacation Club, including payroll and related costs and other administrative costs to the extent not reimbursed by the Vacation Club or HOAs.

General and Administrative Expense.  Primarily represents compensation expense for personnel supporting our business and operations, professional fees (including consulting, audit and legal fees), and administrative and related expenses.

Key Business and Financial Metrics and Terms Used by Management

Sales of VOIs.  Represent sales of our owned VOIs, including developed VOIs and those acquired through JIT and secondary market arrangements, reduced by equity trade allowances and an estimate of our provision for loan losses. In addition to the factors impacting system-wide sales of VOIs, sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third-parties on a commission basis, which are not included in sales of VOIs.

System-wide Sales of VOIs.  Represents all sales of VOIs, whether owned by us or a third party immediately prior to the sale. Sales of VOIs owned by third parties are transacted as sales of VOIs in our Vacation Club through the same selling and marketing process we use to sell our VOI inventory. We consider system-wide sales of VOIs to be an important operating measure because it reflects all sales of VOIs by our sales and marketing operations without regard to whether we or a third party owned such VOI inventory at the time of sale. System-wide sales of VOIs is not a recognized term under GAAP and should not be considered as an alternative to sales of VOIs or any other measure of financial performance derived in accordance with GAAP or to any other method of analyzing our results as reported under GAAP.

Guest Tours.  Represents the number of sales presentations given at our sales centers during the period.

Sale to Tour Conversion Ratio. Represents the rate at which guest tours are converted to sales of VOIs and is calculated by dividing the number of sales transactions by the number of guest tours.

Average Sales Volume Per Guest (“VPG”).  Represents the sales attributable to tours at our sales locations and is calculated by dividing VOI sales by guest tours. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with the sale-to-tour conversion ratio.

Adjusted EBITDA.  We define Adjusted EBITDA as earnings, or net income, before taking into account interest income (excluding interest earned on VOI notes receivable), interest expense (excluding interest expense incurred on debt secured by our VOI notes receivable), income and franchise taxes, loss (gain) on assets held for sale, depreciation and amortization, amounts attributable to the non-controlling interest in Bluegreen/Big Cedar Vacations (in which we own a 51% interest), and items that we believe are not representative of ongoing operating results. For purposes of the Adjusted EBITDA calculation, no adjustments were made for interest income earned on our VOI notes receivable or the interest expense incurred on debt that is secured by such notes receivable because they are both considered to be part of the operations of our business.
We consider our total Adjusted EBITDA and our Segment Adjusted EBITDA to be an indicator of our operating performance, and it is used by us to measure our ability to service debt, fund capital expenditures and expand our business. Adjusted EBITDA is also used by companies, lenders, investors and others because it excludes certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company’s capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. Adjusted EBITDA also excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies.
Adjusted EBITDA is not a recognized term under GAAP and should not be considered as an alternative to net income (loss) or any other measure of financial performance or liquidity, including cash flow, derived in accordance with GAAP, or to any other method or analyzing our results as reported under GAAP. The limitations of using Adjusted EBITDA as an analytical tool include, without limitation, that Adjusted EBITDA does not reflect (i) changes in, or cash requirements for, our working capital needs; (ii) our interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness (other than as noted above); (iii) our tax expense or the cash requirements to pay our taxes; (iv) historical cash expenditures or future requirements for capital expenditures or contractual commitments; or (v) the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations or performance. Further, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements. In addition, our definition of Adjusted EBITDA may not be comparable to definitions of Adjusted EBITDA or other similarly titled measures used by other companies.

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Source: BBX Capital Corporation; Bluegreen Vacations Corporation