BBX - Bluegreen Vacations Corporation Reports Second Quarter 2018 Results

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.

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.

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.

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.

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