BLUEGREEN VACATIONS CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include all statements that do not relate strictly to historical or current facts and can be identified by the use of words such as "anticipates," "estimates," "expects," "intends," "plans," "believes," "projects," "predicts," "seeks," "will," "should," "would," "may," "could," "outlook," "potential," and similar expressions or words and phrases of similar import. Forward-looking statements include, among others, statements relating to our future financial performance, our business prospects, strategy and relationships, our anticipated financial position, liquidity and capital needs, economic and industry conditions and their impact on our business and future financial performance, and other similar matters. These statements are based on management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements as a result of various factors, including, among others:
?adverse trends or disruptions in economic conditions generally or in the vacation ownership, vacation rental and travel industries;
?risks relating to public health issues, including in particular the COVID-19 pandemic and the effects of the pandemic. These include required resort closures, travel and business restrictions, volatility in the international and national economy and credit markets, worker absenteeism, quarantines and other health-related restrictions; the length and severity of the COVID-19 pandemic and our ability to successfully resume full business operations thereafter; governmental and agency orders, mandates and guidance in response to the COVID-19 pandemic and the duration thereof, which is uncertain and will impact our ability to fully utilize resorts and re-open sales centers and other marketing activities; the pace of recovery following the COVID-19 pandemic; competitive conditions; our liquidity and the availability of capital; our ability to successfully implement our strategic plans and initiatives to navigate the COVID-19 pandemic; risks that our current or future marketing alliances may not be available to us in the future; risks that default rates may increase and exceed the Company's expectations; risks related to our indebtedness, including the potential for accelerated maturities and debt covenant violations; the risk of heightened litigation as a result of actions taken in response to the COVID-19 pandemic; the impact of the COVID-19 pandemic on our ability to pay dividends, including the risk that future dividends may not be paid at historical rates or at all; the impact of the CARES Act and our ability to obtain certain of the relief provided thereof; the impact of the COVID-19 pandemic on consumers, including their income, their level of discretionary spending both during and after the pandemic, and their views towards travel and the vacation ownership industries; the risk that our resort management fees and finance operations may not continue to generate recurring sources of cash during or following the pandemic to the extent anticipated or at all; ?adverse changes to, expirations or terminations of, or interruptions in, business and strategic relationships, management contracts, exchange networks or other strategic marketing alliances, and the risk that our business relationship withBass Pro under the revised terms of our marketing agreement and our relationship with Choice Hotels may not be as profitable as anticipated, or at all, or otherwise result in the benefits anticipated; ?the risks of the real estate market and the risks associated with real estate development, including a decline in real estate values and a deterioration of other conditions relating to the real estate market and real estate development; 27
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?decreased demand from prospective purchasers of vacation ownership interests ("VOIs");
?our ability to maintain inventory of VOIs for sale;
?the availability of financing and our ability to sell, securitize or borrow against our consumer loans at acceptable terms;
?adverse events or trends in vacation destinations and regions where the resorts in our network are located, including weather-related events;
?our indebtedness may impact our financial condition and results of operations, and the terms of our indebtedness may limit, among other things, our activities and ability to pay dividends, and we may not comply with the terms of our indebtedness;
?changes in our senior management;
?our ability to comply with regulations applicable to the vacation ownership industry or our other activities, and the costs of compliance efforts or a failure to comply;
?our ability to successfully implement our market strategies and plans and the impact they may have on our results and financial conditions, including that any increase in our efforts to increase our VOI sales may not be successful and may impact our cash flow;
?our ability to compete effectively in the highly competitive vacation ownership industry and against hotel and other hospitality and lodging alternatives;
?our ability to offer or further enhance theVacation Club experience for ourVacation Club owners and risks related to our efforts and expenses in connection therewith, including that expenses may be greater than anticipated; ?our customers' compliance with their payment obligations under financing provided by us, the increased presence and efforts of "timeshare-exit" firms and the success of actions which we may take in connection therewith, and the impact of defaults on our operating results and liquidity position;
?the ratings of third-party rating agencies, including the impact of any downgrade on our ability to obtain, renew or extend credit facilities, or otherwise raise funds;
?changes in our business model and marketing efforts, plans or strategies, which may cause marketing expenses to increase or adversely impact our revenue, operating results and financial condition, and such expenses as well as our investments, including investments in new and expanded sales offices, and other sales and marketing initiatives, including screening methods and data driven analysis, may not achieve the desired results; ?technology and other changes and factors which may impact our telemarketing efforts, including new cell phone technologies that identify or block marketing vendor calls;
?the impact of the resale market for VOIs on our business, operating results and financial condition;
?risks associated with our relationships with third-party developers, including
that third-party developers who provide VOIs to be sold by us pursuant to
fee-based services or just-in-time arrangements may not provide VOIs when
planned and that third-party developers may not fulfill their obligations to us
or to the homeowners associations that maintain the resorts they developed;
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?risks associated with legal proceedings and regulatory proceedings, examinations or audits of our operations, including claims of noncompliance with applicable regulations or for development related defects, and the impact they may have on our financial condition and operating results;
?audits of our or our subsidiaries' tax returns, including that they may result in the imposition of additional taxes;
?environmental liabilities, including claims with respect to mold or hazardous or toxic substances, and their impact on our financial condition and operating results; ?risks that public health issues and natural disasters, including hurricanes, earthquakes, fires, floods and windstorms may adversely impact our business and operating results, including due to any damage to physical assets or interruption of access to physical assets or operations resulting therefrom, and the frequency and severity of natural disasters may increase due to climate change or other factors; ?our ability to maintain the integrity of internal or customer data, the failure of which could result in damage to our reputation and/or subject us to costs, fines or lawsuits; ?risks related to potential business expansion or other opportunities that we may pursue, including that they may involve significant costs and the incurrence of significant indebtedness and may not be successful; ?the updating of, and developments with respect to, technology, including the cost involved in updating our technology and the impact that any failure to keep pace with developments in technology could have on our operations or competitive position, and our information technology expenditures may not result in the expected benefits;
?the impact on our consolidated financial statements and internal control over financial reporting of the adoption of new accounting standards; and
?other risks and uncertainties inherent to our business, the vacation ownership industry and ownership of our common stock, including those discussed in the "Risk Factors" section of, and elsewhere in, our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Terms Used in this Quarterly Report on Form 10-Q
Except as otherwise noted or where the context requires otherwise, references in this Quarterly Report on Form 10-Q to "Bluegreen Vacations ," "Bluegreen," "the Company," "we," "us" and "our" refer toBluegreen Vacations Corporation , together with its consolidated subsidiaries.
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q includes discussions of terms that are not recognized terms under generally accepted accounting principles inthe United States ("GAAP"), and financial measures that are not calculated in accordance with GAAP, including system-wide sales of VOIs, guest tours, sale to tour conversion ratio, average sales volume per guest, Adjusted EBITDA, and Segment Adjusted EBITDA. Refer to "Key Business and Financial Metrics and Terms Used by Management" below for further discussion of these financial metrics. In addition, see "Results of Operations" below for a reconciliation of Adjusted EBITDA to net income and system-wide sales of VOIs to gross sales of VOIs.
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Critical Accounting Policies and Estimates
For a discussion of critical accounting policies, see "Significant Accounting
Policies" in our Annual Report on Form 10-K for the year ended
New Accounting Pronouncements
See Note 2 to our unaudited consolidated financial statements included in Item 1 of this report for a discussion of new accounting pronouncements applicable to us. Executive Overview We are a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations. Our resort network includes 45Club Resorts (resorts in which owners in ourVacation Club have the right to use most of the units in connection with their VOI ownership) and 23Club Associate Resorts (resorts in which owners in ourVacation Club have the right to use a limited number of units in connection with their VOI ownership). OurClub Resorts andClub Associate Resorts are primarily located in popular, high-volume, "drive-to" vacation locations, includingOrlando ,Las Vegas ,Myrtle Beach andCharleston , among others. Through our points-based system, the approximately 221,000 owners in ourVacation Club have the flexibility to stay at units available at our resorts and have access to over 11,350 other hotels and resorts through partnerships and exchange networks. We also have a sales and marketing platform supported by marketing relationships, such as withBass Pro and Choice Hotels. These marketing relationships have historically generated sales within our core demographic. The COVID-19 pandemic has been, and continues to be, an unprecedented disruption in theU.S. economy and the travel, hospitality and vacation ownership industries due to, among other things, government ordered travel restrictions and restrictions on business operations, including required resort closures. OnMarch 23, 2020 we temporarily closed all of our VOI sales centers; our retail marketing operations atBass Pro Shops ,Cabela's stores and outlet malls; and our Choice Hotels call transfer program. In connection with these actions we canceled existing owner reservations throughMay 15, 2020 and new prospect guest tours throughJune 30, 2020 . Further, some of our Club andClub Associate Resorts were closed in accordance with government mandates and advisories. We are currently developing a plan to reopen these operations including accepting guests as ofMay 16 and VOI sales centers and marketing operations beginningJune 2020 on a phased schedule. Prior to the COVID-19 pandemic, the Company started the year off strong and with system-side sales of vacation ownership interests up 16.5% throughFebruary 29, 2020 . As a result of the effect of the pandemic, we implemented several cost mitigating activities, including a reduction in workforce of over 970 positions and placed another 3,700 of our associates on temporary furlough and reduced work hours. As ofMarch 31, 2020 , as a result of the effect of the COVID-19 pandemic, we incurred$2.5 million in severance and$0.8 million of payroll expense relating to employees on temporary furlough or reduced work hours. These payments and expenses are included in selling, general and administrative expenses on our unaudited consolidated statement of operations for the three months endedMarch 31, 2020 . As a precautionary measure designed to provide us with additional liquidity, we drew down$60 million under our lines-of-credit and pledged or sold receivables under our various receivable backed facilities to increase our cash position. We also suspended our quarterly cash dividends on our common stock. We continue to actively pursue additional credit facility capacity, capital market transactions, and other alternatives and we hope that the steps we are taking will provide us with sufficient available cash for a sustained period of time. In addition, while there is no assurance this will be the case, we expect that our resorts management and finance operations will continue to generate recurring cash sources of income. For more detailed information see "Liquidity and Capital Resources" below. We have historically financed a majority of our sales of VOIs, and accordingly, are subject to the risk of defaults by our customers. GAAP requires that we reduce sales of VOIs by our estimate of uncollectible VOI notes receivable. The COVID-19 pandemic has had a material adverse impact on unemployment inthe United States and economic conditions in general and the impact may continue for some time. While the impact of the COVID- 19 pandemic throughMarch 31, 2020 was not yet reflected in our default or delinquency rates, we believe that the COVID-19 pandemic will have a significant impact on our VOI notes receivable. Accordingly, we recorded an additional
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allowance for loan losses of$12 million as ofMarch 31, 2020 , which includes our estimate of customer defaults as a result of the COVID - 19 pandemic based on our historical experience, forbearance requests received from our customers, and other factors, including but not limited to, the seasoning of the note receivable and FICO scores of the customers. The Coronavirus Aid, Relief, and Economic Securities Act ("CARES Act") was signed into law onMarch 27, 2020 in response to the COVID-19 pandemic in order to provide for economic support and stimulus. We will continue to review the relevant provisions of the CARES Act and intend to take advantage of certain provisions, including, but not limited to, the deferral of the employer portion of the tax withholding amounts and the employee retention tax credits.
VOI Sales and Financing
Our primary business is the marketing and selling of deeded VOIs, developed either by us or third parties. Customers who purchase these VOIs receive an annual allotment of points, which can be redeemed for stays at one of our resorts or at 11,350 other hotels and resorts available through partnerships and exchange networks. Historically, VOI companies have funded the majority of the capital investment in connection with resort development with internal resources and acquisition and development financing. In 2009, we began selling VOIs on behalf of third-party developers and successfully diversified from a business focused on capital-intensive resort development to a more flexible model with a mix of developed and capital-light inventory as determined by management to be appropriate from time to time based on market factors, economic conditions, available cash, and other conditions. Our relationships with third-party developers enable us to generate fees from the sales and marketing of their VOIs without incurring the significant upfront capital investment generally associated with resort acquisition or development. While sales of acquired or developed inventory typically result in greater Adjusted EBITDA contribution, fee-based sales typically do not require an initial investment or involve development financing risk. Both acquired or developed VOI sales and fee-based VOI sales drive recurring, incremental and long-term fee streams by adding owners to ourVacation Club and new resort management contracts. Fee-Based Sales comprised 45% and 52% of system-wide sales of VOIs during the three months endedMarch 31, 2020 and 2019, respectively. We expect this rate to continue to decrease upon the reopening of VOI sales centers planned to begin inJune 2020 as we intend to focus on selling Bluegreen owned inventory, including developed VOI inventory. However, we intend to remain flexible with respect to our sales of the different categories of our VOI inventory based on economic conditions, business initiatives and other considerations, and accordingly these trends may differ from current expectations. In conjunction with our VOI sales, we also generate interest income by originating loans to qualified purchasers. Collateralized by the underlying VOIs, our loans are generally structured as 10-year, fully-amortizing loans with a fixed interest rate ranging from approximately 12% to 18% per annum. As ofMarch 31, 2020 , the weighted-average interest rate on our VOI notes receivable was 14.8%. In addition, we earn fees for various other services, including title and escrow services in connection with the closing of VOI sales, and we generate fees for mortgage servicing. As described in further detail above, onMarch 23, 2020 , we temporarily closed all of our VOI sales centers and took other actions in response to the COVID-19 pandemic.
Resort Operations and Club Management
We enter into management agreements with the HOAs that maintain most of the resorts in ourVacation Club and earn fees for providing management services to those HOAs and our approximately 221,000Vacation Club owners. These resort management services include oversight of housekeeping services, maintenance, and certain accounting and administration functions. Our management contracts generally yield recurring cash flows and do not have the traditional risks associated with hotel management contracts that are generally linked to daily rate or occupancy. Our management contracts are typically structured as "cost-plus," with an initial term of three years and automatic one-year renewals. In connection with the management services provided to theVacation Club , we manage the reservation system and provide owner, billing and collection services. In addition to resort and club management services, we earn fees for various other services that generally produce recurring, predictable and long term-revenue, including construction management services for third-party developers. As described in further detail above, some of our Club andClub Associate Resorts were closed duringMarch 2020 in accordance with government mandates and advisories. 31
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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 VOIs purchased by us for sale as part of our JIT sales activities. 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 relating to VOIs sold by them. Resort Operations and Club Management Revenue. Represents recurring fees from managing theVacation Club and transaction fees for Traveler Plus and other member services. 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 generally 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.
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Financing Expense. Represents financing interest expense related to our receivable-backed debt, amortization of the related debt issuance costs and 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 theVacation Club , including payroll and related costs and other administrative costs to the extent not reimbursed by theVacation Club or HOAs.
General and Administrative Expense. Primarily represents compensation expense for personnel supporting our business and operations, severance payments, 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 uncollectible VOI notes receivable. In addition to the factors impacting system-wide sales of VOIs (as described below), 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 ourVacation 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 guest tours by the number of VOI sales transactions.
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, including charges severance plus incremental costs associated with
COVID-19. For purposes of the Adjusted EBITDA calculation for each period
presented, 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
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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.
Results of Operations
Adjusted EBITDA for the three months ended
We consider Segment Adjusted EBITDA in connection with our evaluation of the operating performance of our business segments as described in Note 12: Segment Reporting to our unaudited consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. See above for a discussion of our definition of Adjusted EBITDA, how management uses it to manage our business and material limitations on its usefulness. The following tables set forth Segment Adjusted EBITDA, total Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP financial measure: For the Three Months Ended ?March 31, (in thousands) 2020 2019 Adjusted EBITDA - sales of VOIs ? and financing$ 13,376 $ 31,131 Adjusted EBITDA - resort operations ? and club management 14,588 13,234 Total Segment Adjusted EBITDA 27,964 44,365 Less: Corporate and other (16,979) (18,168) Total Adjusted EBITDA$ 10,985 $ 26,197 34
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For the Three Months Ended
?March 31,
(in thousands) 2020 2019
Net income attributable to shareholders $ 201 $ 15,153
Net income attributable to the ? non-controlling interest in ?Bluegreen/Big Cedar Vacations 736
1,716
Adjusted EBITDA attributable to the ? non-controlling interest ? inBluegreen/Big Cedar Vacations (906)
(1,781)
(Gain) loss on assets held for sale (44)
9
Add: Depreciation and amortization 3,899
3,365
Less: Interest income (other than interest ? earned on VOI notes receivable) (1,718)
(1,846)
Add: Interest expense - corporate and other 4,154
4,244
Add: Franchise taxes 17
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Add: Provision for income taxes 44
5,303
Add: Severance 4,496
-
Add: COVID-19 incremental costs 106 - Total Adjusted EBITDA$ 10,985 $ 26,197
The following table reconciles system-wide sales of VOIs to gross sales of VOIs, the most comparable GAAP financial measure.
For the Three Months Ended
?March 31,
(in thousands) 2020 2019
Gross sales of VOIs $ 75,481 $ 62,884
Add: Fee-Based sales 61,908 66,794
System-wide sales of VOIs $ 137,389 $ 129,678
As of and for the
?Three Months Ended
?March 31,
2020 2019
Other Financial Data:
(in thousands)
System-wide sales of VOIs $ 137,389 $ 129,678
Total Adjusted EBITDA $ 10,985 $ 26,197
Adjusted EBITDA - sales of VOIs and
? financing $ 13,376 $ 31,131 Adjusted EBITDA - resort operations
and club management$ 14,588 $ 13,234
Number of
Vacation Club Associate resorts
at period end 68 69 Total number of sale transactions 8,686 8,243
Average sales volume per guest
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For the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 Sales of VOIs and Financing For the Three Months Ended March 31, 2020 2019 % of % of ?System- ?System- ?wide sales ?wide sales Amount ? of VOIs (5) Amount ? of VOIs (5) (in thousands) Developed VOI sales (1)$ 87,577 64%$ 68,153 53% Secondary Market sales 67,916 49 59,153 45 Fee-Based sales 61,908 45 66,794 52 JIT sales 3,100 2 2,234 2 Less: Equity trade allowances (6) (83,112) (60) (66,656) (52) System-wide sales of VOIs 137,389 100% 129,678 100% Less: Fee-Based sales (61,908) (45) (66,794) (52) Gross sales of VOIs 75,481 55 62,884 48 Provision for loan losses (2) (30,353) (40) (11,153) (18) Sales of VOIs 45,128 33 51,731 40 Cost of VOIs sold (3) (4,099) (9) (3,848) (7) Gross profit (3) 41,029 91 47,883 93 Fee-Based sales commission revenue (4) 41,365 67 45,212 68 Financing revenue, net of financing expense 15,659 11 14,865 11 Other fee-based services - title operations, net 1,253 1 1,518 1 Net carrying cost of VOI inventory (7,914) (6) (7,687) (6) Selling and marketing expenses (74,140) (54) (65,222) (50) General and administrative expenses - sales and ? marketing (7,998) (6) (6,974) (5) Operating profit - sales of VOIs and financing 9,254 7% 29,595 23% Add: Depreciation and amortization 1,559
1,536
Add: Severance 2,563
-
Adjusted EBITDA - sales of VOIs and financing$ 13,376 $
31,131
(1)Developed VOI sales represent sales of VOIs acquired or developed by us. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales.
(2)Percentages for provision for loan losses are calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales (and not as a percentage 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 as a percentage 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 as a percentage 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.
Sales of VOIs. Sales of VOIs were$45.1 million and$51.7 million during the three months endedMarch 31, 2020 and 2019, respectively. Sales of VOIs were impacted by the factors described below in system-wide sales of VOIs. Gross sales of VOIs were reduced by$30.4 million and$11.2 million during the three months endedMarch 31, 2020 and 2019, respectively, for the provision for loan losses. The provision for loan losses varies based on the amount of financed, non-fee based sales during the period and changes in our estimates of future notes receivable performance for existing and newly originated loans. Our provision for loan losses as a percentage of gross sales of VOIs was 40% and 18% during the three months endedMarch 31, 2020 and 2019, respectively. The percentage of our sales which
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were realized in cash within 30 days from sale was 43% during the three months
ended
While the impact of COVID- 19 pandemic on our borrowers had not yet been reflected in our default or delinquency rates as ofMarch 31, 2020 , we believe that the COVID-19 pandemic will have a significant impact on our VOI notes receivable. Accordingly, as ofMarch 31, 2020 , we recorded an additional allowance for loan losses of$12.0 million , which includes our estimate of customer defaults as a result of the COVID - 19 pandemic based on our historical experience, forbearance requests received from our customers, and other factors, including but not limited to, the seasoning of the notes receivable and FICO scores of the customers. In addition to the COVID-19 pandemic impact discussed above, the provision for loan losses was impacted by an increase in the average annual default rates, which we believe was due in large part to the receipt of letters from third parties and attorneys who purport to represent certain VOI owners and who have encouraged such owners to become delinquent and ultimately default on their obligations. Defaults associated with such letters in the 2020 period increased 51.9% compared to the same period of 2019. See Note 9: Commitments and Contingencies to our unaudited consolidated financial statements included in Item 1 of this report for additional information regarding such letters and actions we have taken by us in connection with such letters. The impact of the COVID-19 pandemic is highly uncertain. As a result, actual defaults may differ from our estimates and the allowance for loan losses may not prove to be adequate. In addition to the factors described below 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.
The average annual default rates and delinquency rates (more than 30 days past due) on our VOI notes receivable were as follows:
For the Twelve Months Ended March 31,
2020 2019
Average annual default rates 9.31% 8.18%
As of March 31,
2020 2019
Delinquency rates 3.19% 2.89%
System-wide sales of VOIs. System-wide sales of VOIs were $137.4 million and
$129.7 million during the three months ended March 31, 2020 and 2019,
respectively. System-wide sales of VOIs increased during the three months ended
March 31, 2020 compared to the comparable period in 2019 due to an increase in
the sale-to-tour conversion ratio and higher average sales volume per guest.
Prior to the COVID-19 pandemic, the Company started the year off strong and with
system-side sales of vacation ownership interests up 16.5% through February 29,
2020 . The closures of all marketing operations and VOI sales centers as a result
of the COVID-19 pandemic is expected to significantly impact system-wide sales
of VOIs during the remainder of 2020, however the actual impact, including the
extent and duration of the impact, cannot be predicted at this time.
Included in system-wide sales are Fee-Based Sales, JIT Sales, Secondary Market
Sales and developed VOI sales. Sales by category are tracked based on which
deeded VOI is conveyed in each transaction. We manage which VOIs are sold based
on several factors, including the needs of fee-based clients, our debt service
requirements and default resale requirements under term securitizations and
similar transactions. These factors and business initiatives contribute to
fluctuations in the amount of sales by category from period to period. Fee-Based
Sales comprised 45% and 52% of system-wide sales of VOIs during the three months
ended March 31, 2020 and 2019, respectively. We expect this rate to continue to
decrease upon the reopening of VOI sales centers planned to begin June 2020 as
we intend to focus on selling Bluegreen owned inventory, including developed VOI
inventory. However, we intend to remain flexible with respect to our sales of
the different categories of our VOI inventory based on economic conditions,
business initiatives and other considerations, and accordingly these trends may
differ from current expectations.
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The following table sets forth certain information for system-wide sales of VOIs
for the three months ended
For the Three Months Ended
?March 31,
2020 2019 Change
(dollars in thousands)
Number of sales offices at period-end (1) 26 26 - %
Number of active sales arrangements
? with third-party clients at period-end 15 15 - %
Total number of VOI sales transactions 8,686 8,243 5 %
Average sales price per transaction $ 15,873 $ 15,796 - %
Number of total guest tours 40,665 48,138 (16) %
Sale-to-tour conversion ratio-
? total marketing guests 21.4% 17.1% 430 bp
Number of new guest tours 22,136 28,064 (21) %
Sale-to-tour conversion ratio-
? new marketing guests 17.3% 13.9% 340 bp
Percentage of sales to existing owners 59.7% 56.9% 280 bp
Average sales volume per guest $ 3,390 $ 2,705 25 %
(1)As previously described, during the last week of
Cost of VOIs Sold. During the three months endedMarch 31, 2020 and 2019, cost of VOIs sold was$4.1 million and$3.8 million , respectively, and represented 9% and 7%, respectively, of sales of VOIs. 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 (due to offered volume discounts, including consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method, including estimates of 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. Therefore, 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 than anticipated and the resulting change in estimate is recognized. Cost of VOIs sold as a percentage of sales of VOIs increased during the three months endedMarch 31, 2020 as compared toMarch 31, 2019 period, primarily due the increase in the provision for loan losses as a result of the COVID-19 pandemic described above. Fee-Based Sales Commission Revenue. During the three months endedMarch 31, 2020 and 2019, we sold$61.9 million and$66.8 million , respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of$41.4 million and$45.2 million , respectively, in connection with those sales. We earned an average sales and marketing commission of 67% and 68% during the three months endedMarch 31, 2020 , and 2019, respectively, which is net of a reserve for commission refunds in connection with early defaults and cancellations, pursuant to the terms of certain of our fee-based service arrangements. The decrease in sales of third-party developer inventory on a commission basis during the 2020 period was due primarily to a decision to focus on sales of Bluegreen owned VOIs. The decrease in sales and marketing commissions as a percentage of fee-based sales for the 2020 period as compared to the 2019 period is primarily related to the mix of developer sales at higher commission rates in the 2019 period as well as higher reserves for early defaults in the 2020 period, which we refund to the third-party developers in certain circumstances. Financing Revenue, Net of Financing Expense - Sales of VOIs. Interest income on VOIs notes receivable was$20.1 million and$20.0 million during the three months endedMarch 31, 2020 and 2019, respectively, which was partially offset by interest expense on receivable-backed debt of$4.7 million and$5.3 million , respectively. The increase in finance revenue net of finance expense in the 2020 period as compared to the 2019 period is primarily due to lower outstanding receivable backed debt balances coupled with higher notes receivable balances. Revenues from mortgage servicing during the three months endedMarch 31, 2020 and 2019 of$1.6 million and$1.5 million , respectively, are
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included in financing revenue, net of mortgage servicing expenses of
Other Fee-Based Services - Title Operations, net. During each of the three months endedMarch 31, 2020 and 2019, revenue from our title operations was$2.7 million , which was partially offset by expenses directly related to our title operations of$1.5 million in the 2020 period and$1.2 million in the 2019 period. Resort title fee revenue varies based on sales volumes as well as the relative title costs in the jurisdictions where the inventory being sold is located. Net Carrying Cost of VOI Inventory. The carrying cost of our inventory was$9.8 million and$9.3 million during the three months endedMarch 31, 2020 and 2019, respectively, which was partially offset by rental and sampler revenues of$1.9 million and$1.6 million , respectively. The increase in net carrying costs of VOI inventory was primarily related to increased maintenance fees and developer subsidies associated with our increase in VOI inventory partially offset by increased rentals of developer inventory. In certain circumstances, we offset marketing costs by using inventory for marketing guest stays. Selling and Marketing Expenses. Selling and marketing expenses were$74.1 million and$65.2 million during the three months endedMarch 31, 2020 and 2019, respectively. As a percentage of system-wide sales of VOIs, selling and marketing expenses increased to 54% during the three months endedMarch 31, 2020 from 50% during the three months endedMarch 31, 2019 , primarily attributable to higher costs per guest tour, higher fees to Bass Pro as well as a change in the timing of expense recognition under the settlement agreement with Bass Pro discussed below, additional costs related to our marketing operations in 21 newCabela's stores and additional costs associated with the COVID-19 pandemic. As previously described, due to the COVID- 19 pandemic, onMarch 23, 2020 we temporarily closed all of our marketing operations and VOI sales centers. Further, we implemented several cost mitigating activities including terminating certain marketing employees and placing a significant number of our sales, sales support and corporate associates on temporary furlough and reduced work hours. As ofMarch 31, 2020 , we had incurred$1.9 million in severance and$0.7 million of payroll expenses relating to sales and marketing employees on temporary furlough or reduced work hours as a result of the impact of the COVID-19 pandemic. Our agreement with Bass Pro previously provided for the payment of a variable commission upon the sale of a VOI to a marketing prospect obtained through the Bass Pro marketing channels. As previously disclosed, pursuant to the settlement agreement and amended marketing arrangement with Bass Pro, the settlement payment and a portion of the ongoing annual marketing fees are fixed costs and/or are subject to annual minimums regardless of the volume of VOI sales produced from the resulting marketing prospects generated from the amended agreement. If our amended agreement with Bass Pro does not generate a sufficient number of prospects and leads or is terminated or limited, we may not be able to successfully market and sell our products and services at anticipated levels or at levels required in order to offset the costs associated with our marketing efforts. In addition, the amended arrangement with Bass Pro is expected to result in an annual 9% increase in our marketing costs as a percentage of sales from the program, based on increases in program fixed costs and anticipated VOI sales volumes from this marketing channel. Should our VOI sales volumes be below expectations, the increase in cost of this marketing program would adversely impact our results of operations and cash flow. General and Administrative Expenses - Sales and Marketing Operations. General and administrative expenses, representing expenses directly attributable to sales and marketing operations, were$8.0 million and$7.0 million during the three months endedMarch 31, 2020 and 2019, respectively. As a percentage of system-wide sales of VOIs, general and administrative expenses directly attributable to sales and marketing operations were 6% and 5% during the three months endedMarch 31, 2020 and 2019, respectively. ? 39
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Resort Operations and Club Management
For the Three Months Ended
?March 31,
(dollars in thousands) 2020 2019
Resort operations and club management revenue $ 45,711 $ 43,884
Resort operations and club management expense (32,447) (31,015)
Operating profit - resort operations and club
?management 13,264 29% 12,869 29%
Add: Depreciation and amortization 190 365
Add: Severance 1,134 - Adjusted EBITDA - resort operations and ? club management$ 14,588 $
13,234
Resort Operations and Club Management Revenue. Resort operations and club management revenue increased 4% during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . Cost reimbursement revenue, which primarily consists of payroll and payroll related expenses for management of the HOAs and other services we provide where we are the employer, increased 12% during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . Net of cost reimbursement revenue, resort operations and club management revenues decreased 1% during the three monthsMarch 31, 2020 as compared to three months endedMarch 31, 2019 primarily as a result of lower retail operations and lower third-party rental commissions due to lower occupancy as a result of the COVID-19 pandemic. We managed 49 resort properties as of bothMarch 31, 2020 andMarch 31, 2019 . Resort Operations and Club Management Expense. During the three months endedMarch 31, 2020 , resort operations and club management expense increased 5% compared to three months endedMarch 31, 2019 . This increase was primarily due to higher reimbursement costs in the 2020 period as compared to the 2019 period. Corporate and Other For the Three Months Ended ?March 31, (dollars in thousands) 2020 2019 General and administrative expenses - ? corporate and other$ (19,234) $ (17,983) Adjusted EBITDA attributable to the ? non-controlling interest ? in Bluegreen/Big Cedar Vacations (906) (1,781) Other income, net 133 89 Franchise taxes 17 34 (Gain) loss on assets held for sale (44) 9 Add: Depreciation and amortization 2,150 1,464 Add: Severance 799 - Add: COVID-19 incremental costs 106 -
Adjusted EBITDA - Corporate and other
General and Administrative Expenses - Corporate and Other. General and administrative expenses directly attributable to corporate overhead were$19.2 million and$18.0 million during the three months endedMarch 31, 2020 and 2019, respectively. The increase in the 2020 period was primarily due to approximately$0.8 million in increased severance costs, of which$0.2 million was due to severance related to cost mitigation efforts attributable to the COVID-19 pandemic. Adjusted EBITDA Attributable to Non-Controlling Interest inBluegreen/Big Cedar Vacations . We include in our consolidated financial statements the results of operations and financial condition ofBluegreen/Big Cedar Vacations , our 51% owned subsidiary. The non-controlling interest in Adjusted EBITDA ofBluegreen/Big Cedar Vacations is
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the portion of
Interest Expense. Interest expense not related to receivable-backed debt was
Provision for Income Taxes. Our effective income tax rate was approximately 18% and 26% during the three months endedMarch 31, 2020 and 2019, respectively. Effective income tax rates for interim periods are based upon our current estimated annual rate. Our effective income tax rate varies based upon the estimate of taxable earnings as well as on the mix of taxable earnings in the various states in which we operate. As such, our effective income tax rate for the three months endedMarch 31, 2020 reflects our current estimate of the effect of the COVID-19 pandemic on our 2020 annual taxable earnings, state taxes, non-deductible items and changes in valuation allowances on deferred tax assets. For further information, see Note 10: Income Taxes to our unaudited Consolidated Financial Statements included in Item 1 of this report.
Changes in Financial Condition
The following table summarizes our cash flows for the periods indicated (in
thousands):
For the Three Months Ended
?March 31,
2020 2019
Net cash (used in) provided by operating activities
$ 10,942 Net cash used in investing activities (2,819)
(7,507)
Net cash provided by (used in) financing activities 52,614
(42,409)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$ 35,969
Cash Flows from Operating Activities
Our operating cash flow decreased$24.8 million during the three months endedMarch 31, 2020 compared to the three months endedMarch 31, 2019 due primarily to decreased net income, the$4.0 million payment made to Bass Pro inJanuary 2020 pursuant to the settlement agreement entered into inJune 2019 , an increase in the amount and changes in timing of certain incentive bonuses paid to certain associates during the 2020 period compared to the 2019 period and decreases in escrow deposits from customers reflecting the closure of VOI sales centers resulting from the COVID-19 pandemic. These decreases were partially offset by a reduction in income tax payments and$3.5 million in decreased spending on the acquisition and development of inventory during the 2020 period as compared to the 2019 period.
Cash Flows from Investing Activities
Cash used in investing activities decreased$4.7 million during the three months endedMarch 31, 2020 compared to the same period in 2019, reflecting decreased expenditures for property and equipment in the 2020 period.
Cash Flows from Financing Activities
Cash provided by financing activities increased$95.0 million during the three months endedMarch 31, 2020 compared to the same period of 2019, primarily due to the$80.0 million increase in net borrowings on lines-of-credit and notes payable, including,$60 million in borrowings on our lines-of-credit and various receivable backed facilities to increase our cash position in connection with the COVID-19 pandemic in an effort to ensure adequate liquidity for a sustained period. Additionally, dividend payments decreased by$3.0 million during the 2020 period as compared to the 2019 period. These increases in cash provided by financing activities during the 2020 period compared to the
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2019 period were partially offset by
For additional information on the availability of cash from existing credit facilities, as well as repayment obligations, see "Liquidity and Capital Resources" below.
Seasonality We have historically, and expect to continue to experience, seasonal fluctuations in our revenues and results of operations. This seasonality has resulted, and may continue to result, in fluctuations in our quarterly operating results. Due to consumer travel patterns, we typically have seen more tours and experience higher VOI sales during the second and third quarters. However, due to the closures of all marketing operations and VOI sales centers as a result of the COVID-19 pandemic, we anticipate significantly decreased sales of VOIs in the second and third quarters of 2020 as compared to the same quarters in prior years.
Liquidity and Capital Resources
Our primary sources of funds from internal operations are: (i) cash sales; (ii) down payments on VOI sales which are financed; (iii) proceeds from the sale of, or borrowings collateralized by, notes receivable; (iv) cash from finance operations, including mortgage servicing fees and principal and interest payments received on the purchase money mortgage loans arising from sales of VOIs; and (v) net cash generated from sales and marketing fee-based services and other fee-based services, including resort management operations. While the vacation business has historically been capital intensive and we may from time to time pursue transactions or activities which may require significant capital investment and adversely impact cash flows, we have generally sought to focus on the generation of "free cash flow" (defined as cash flow from operating activities, less capital expenditures) by: (i) incentivizing our sales associates and creating programs with third-party credit card companies to generate a higher percentage of sales in cash; (ii) maintaining sales volumes that focus on efficient marketing channels; (iii) limiting our capital and inventory expenditures; (iv) utilizing sales and marketing, mortgage servicing, resort management services, title and construction expertise to pursue fee-based-service business relationships that generally require less up-front capital investment and have the potential to produce incremental cash flows; and (v) more recently, by selling VOIs obtained through secondary market or JIT arrangements. We consider free cash flow to be a measure of cash generated by operating activities that can be used for future investing and financing activities, however, there is no assurance that we will generate free cash flow or that any generated will be used for such purposes. The COVID-19 pandemic has been and continues to be an unprecedented disruption in the economy and the timeshare industry due to government ordered travel restrictions and restrictions on business operations. While we are currently developing plans to reopen VOI sales centers and marketing operations beginningJune 2020 , onMarch 23, 2020 we temporarily closed all of our VOI sales centers; our retail marketing operations atBass Pro Shops ,Cabela's stores and outlet malls; and our Choice Hotels call transfer program. In connection with these actions, we canceled existing owner reservations throughMay 15, 2020 and new prospect guest tours throughJune 30, 2020 . We also implemented several mitigating activities in an attempt to better position our operations for the impact of the COVID-19 pandemic. We anticipate that as a result of these and other initiatives, our sales of VOIs for 2020 will be materially less than our 2019 sales of VOIs. We intend to continue to adjust our business to conditions as they change over the remainder of 2020. The ongoing goals of our mitigating activities are designed to preserve cash and reduce expenses by:
?Significantly reducing our workforce.
?Reducing overhead and increasing efficiency.
?Minimizing capital spending.
?Maintaining compliance under our outstanding indebtedness.
While there can be no assurance that these goals will be achieved, initial actions taken to date include the following:
?We temporarily ceased marketing programs.
?We reduced inventory acquisition and development expenditures.
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?We implemented a reduction in workforce of over 970 positions and placed another 3,700 of our associates on temporary furlough and reduced work hours.
?In an effort to ensure adequate liquidity for a sustained period, we drew down$60 million under our lines-of-credit and various receivable backed facilities to increase our cash position.
?We suspended the payment of dividends
We have$20.8 million of required contractual obligations coming due within one year, as well as certain facilities for which the advance period will expire in 2020. While there is no assurance that we will be successful, we intend to seek renewal or extend our debt and we believe that the implementation of our mitigating activities will best position us to address these matters with our lenders. The ability to sell and/or borrow against notes receivable from VOI buyers has been critical to our continued liquidity. A financed VOI buyer is generally only required to pay a minimum of 10% to 20% of the purchase price in cash at the time of sale; however, selling, marketing and administrative expenses attributable to the sale are primarily cash expenses that generally exceed a buyer's minimum required down payment. Accordingly, having financing facilities available for the hypothecation, sale or transfer of our VOI notes receivable has been critical to our ability to meet our short and long-term cash needs. We have attempted to maintain a number of diverse financing facilities. Historically, we have relied on our ability to sell receivables in the term securitization market in order to generate liquidity and create capacity in our receivable facilities. We have historically financed a majority of our sales of VOIs, and accordingly, are subject to the risk of defaults by our customers. While the impact of the COVID- 19 pandemic had not yet been reflected in our default or delinquency rates as ofMarch 31, 2020 , we believe that the COVID-19 pandemic will have a significant impact on our VOI notes receivable. Accordingly, we recorded an additional allowance for loan losses of$12 million as ofMarch 31, 2020 , which includes our estimate of customer defaults as a result of the COVID - 19 pandemic based on our historical experience, forbearance requests received from our customers, and other factors, including, but not limited to, the seasoning of the note receivable and FICO scores of the customers. The impact of the COVID-19 pandemic is rapidly changing and highly uncertain. Accordingly, and due to other risks and uncertainties associated with assumptions and changing market conditions, our allowance may not prove to be accurate and may be increased in future periods, which would adversely impact our operating results for those periods. Further, the COVID-19 pandemic has resulted in instability and volatility in the financial markets. Our ability to borrow against or sell our VOI notes receivable has historically been a critical factor in our liquidity. If we are unable to renew credit facilities or obtain new credit facilities, our business, results of operations, liquidity, or financial condition may be materially, adversely impacted. In connection with our capital-light business activities, we have entered into agreements with third-party developers that allow us to buy VOI inventory, typically on a non-committed basis, prior to when we intend to sell such VOIs, although there is no assurance that these third party developers will be in a position to deliver that inventory in the future. Our capital-light business strategy also includes secondary market sales, pursuant to which we enter into secondary market arrangements with certain HOAs and others on a non-committed basis, which allows us to acquire VOIs generally at a significant discount, as such VOIs are typically obtained by the HOAs through foreclosure in connection with maintenance fee defaults. Acquisitions of JIT and secondary market inventory during the remainder of 2020 is expected to be reduced to a range from$3.0 million to$5.0 million . During the three months endedMarch 31, 2020 , we paid a cash dividend of$0.13 per share on our common stock or$9.7 million in the aggregate. During the three months endedMarch 31, 2019 , we paid a cash dividend of$0.17 per share on our common stock or$12.7 million in the aggregate. OnApril 22, 2020 , our board of directors suspended quarterly cash dividends on our common stock due to the impact of the COVID-19 pandemic. InApril 2015 , one of our wholly owned subsidiaries provided an$80.0 million loan to BBX Capital. Amounts outstanding bore interest at a rate of 6% per annum, untilApril 17, 2020 , at which time the interest rate was reduced to 4% per annum. Payments of interest are required on a quarterly basis, with all outstanding amounts being due and payable at maturity. DuringMarch 2020 , the loan was amended to extend the maturity date untilApril 17, 2021 and reduce the interest rate to 4% per annum, effectiveApril 17, 2020 , as described above. BBX Capital is permitted to prepay the loan in whole or in part at any time, and prepayments will be required, to the extent necessary, in order for
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us to remain in compliance with covenants under our outstanding indebtedness. During each of the three months endedMarch 31, 2020 and 2019, we recognized$1.2 million of interest income on the loan to BBX Capital. Our level of debt and debt service requirements have several important effects on our operations, including the following: (i) significant debt service cash requirements reduce the funds available for operations and future business opportunities and increase our vulnerability to adverse economic and industry conditions, as well as conditions in the credit markets, generally; (ii) our leverage position increases our vulnerability to economic and competitive pressures; (iii) the financial covenants and other restrictions contained in indentures, credit agreements and other agreements relating to our indebtedness require us to meet certain financial tests and may restrict our ability to, among other things, pay dividends, borrow additional funds, dispose of assets or make investments; and (iv) our leverage position may limit funds available for acquisitions, working capital, capital expenditures, dividends and other general corporate purposes. Certain of our competitors operate on a less leveraged basis and have greater operating and financial flexibility than we do.
Credit Facilities for Receivables with Future Availability
We maintain various credit facilities with financial institutions which allow us to borrow against or sell our VOI notes receivable. As ofMarch 31, 2020 , we had the following credit facilities with future availability, all of which are subject to revolving availability terms during the advance period and therefore provide for additional availability as the facility is paid down, subject in each case to compliance with covenants, eligible collateral and applicable terms and conditions during the advance period (dollars in thousands): Borrowing Advance Period ?Limit as Outstanding Availability ?Expiration; of ?Balance as of ?as of
?Borrowing Borrowing Rate;
?March 31, ?March 31, ? March 31, ?Maturity as of ?Rate as of
2020 ?2020 ?2020 ?March 31, 2020 ?March 31, 2020
Prime Rate;
Liberty Bank June 2020; floor of 4.00%;
Facility $ 50,000 $ 23,184 $ 26,816 ?March 2023 4.75%
30 day
LIBOR+2.75%;
NBA Receivables September 2020; floor of 3.50%;
Facility 70,000 29,033 40,967 ?March 2025 3.74%
30 day
Pacific Western September 2021; LIBOR+2.75% to
Facility 40,000 28,256 11,744 ?September 2024 3.00%; 3.87%
30 day LIBOR or
KeyBank/DZ December 2022; CP +2.25%; 3.29%
Purchase Facility 80,000 60,899 19,101 ?December 2024 (1)
Quorum Purchase December 2020;
Facility 50,000 39,092 10,908 ?December 2032 (2)
$ 290,000 $ 180,464 $ 109,536
(1)Borrowings accrue interest at a rate equal to either LIBOR, a "Cost of Funds"
rate or commercial paper ("CP") rates plus 2.25%. As described in further detail
below, the interest rate will increase to the applicable rate plus 3.25% upon
the expiration of the advance period.
(2)Of the amounts outstanding under the Quorum Purchase Facility at March 31,
2020 , $2.7 million accrues interest at a rate per annum of 4.75%, $18.5 million
accrues interest at a fixed rate of 4.95%, $1.5 million accrues interest at a
fixed rate of 5.0%, $15.2 million accrues interest at a fixed rate of 5.10%, and
$1.1 million accrues interest at a fixed rate of 5.50%.
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Liberty Bank Facility. Since 2008, we have maintained a revolving VOI notes receivable hypothecation facility (the "Liberty Bank Facility") with Liberty Bank which provides for advances on eligible receivables pledged under the Liberty Bank Facility, subject to specified terms and conditions, during the revolving credit period throughJune 2020 . The Liberty Bank Facility matures inMarch 2023 . Subject to its terms and conditions, the Liberty Bank Facility provides for advances of (i) 85% of the unpaid principal balance of Qualified Timeshare Loans assigned to agent, and (ii) 60% of the unpaid principal balance of Non-Conforming Qualified Timeshare Loans assigned to agent, during the revolving credit period of the facility. Maximum permitted outstanding borrowings under the Liberty Bank Facility are$50.0 million , subject to the terms of the facility. All borrowings outstanding under the facility bear interest at an annual rate equal to theWall Street Journal ("WSJ") Prime Rate, subject to a 4.00% floor. Subject to the terms of the facility, principal and interest due under the Liberty Bank Facility are paid as cash is collected on the pledged receivables, with the remaining balance being due by maturity. OnFebruary 11, 2020 , the Liberty Bank Facility was amended solely to extend the revolving credit period fromMarch 12, 2020 toJune 10, 2020 . NBA Receivables Facility.Bluegreen/Big Cedar Vacations has a revolving VOI hypothecation facility (the "NBA Receivables Facility") withNational Bank of Arizona ("NBA"). The NBA Receivables Facility provides for advances at a rate of 85% on eligible receivables pledged under the facility, subject to eligible collateral and specified terms and conditions, during a revolving credit period expiring inSeptember 2020 and allows for maximum borrowings of up to$70 million . The maturity date for the facility isMarch 2025 . The interest rate applicable to future borrowings under the NBA Receivables Facility is equal to the 30-day LIBOR plus 2.75% (with an interest rate floor of 3.50%). Subject to the terms of the facility, principal and interest payments received on pledged receivables are applied to principal and interest due under the facility, with the remaining outstanding balance being due by maturity. Pacific Western Facility. We have a revolving VOI notes receivable hypothecation facility (the "Pacific Western Facility") withPacific Western Bank , which provides for advances on eligible VOI notes receivable pledged under the facility, subject to specified terms and conditions, during a revolving credit period. Maximum outstanding borrowings under the Pacific Western Facility are$40.0 million subject to eligible collateral and customary terms and conditions. The revolving advance period expires inSeptember 2021 and the Pacific Western Facility matures inSeptember 2024 (in each case, subject to an additional 12-month extension at the option ofPacific Western Bank ). Eligible "A" VOI notes receivable that meet certain eligibility and FICO score requirements, which we believe are typically consistent with loans originated under our current credit underwriting standards, are subject to an 85% advance rate. The Pacific Western Facility also allows for certain eligible "B" VOI notes receivable (which have less stringent FICO score requirements) to be funded at a 53% advance rate. All borrowings outstanding under the Pacific Western Facility accrue interest at an annual rate equal to 30-day LIBOR plus 3.00%; provided, however, that a portion of the borrowings, to the extent such borrowings are in excess of established debt minimums, will accrue interest at 30-day LIBOR plus 2.75%. Subject to the terms of the facility, principal repayments and interest on borrowings under the Pacific Western Facility are paid as cash is collected on the pledged VOI notes receivable, subject to future required decreases in the advance rates after the end of the revolving advance period, with the remaining outstanding balance being due by maturity. The facility has limited recourse not to exceed$10.0 million .KeyBank /DZ Purchase Facility. We have a VOI notes receivable purchase facility (the "KeyBank /DZ Purchase Facility") withDZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main ("DZ"), andKeyBank National Association ("KeyBank") which permits maximum outstanding financings of up to$80.0 million and provides for an advance rate of 80% with respect to VOI receivables securing amounts financed. OnDecember 27, 2019 , theKeyBank /DZ Purchase Facility was amended to extend the advance period toDecember 2022 fromDecember 2019 and amend the interest rate on borrowings under the facility as described below. TheKeyBank /DZ Purchase Facility will mature and all outstanding amounts will become due 24 months after the revolving advance period has expired, or earlier under certain circumstances set forth in the facility. Interest on amounts outstanding under the facility is tied to an applicable index rate of the LIBOR rate, in the case of amounts funded byKeyBank , and a cost of funds rate or commercial paper rates, in the case of amounts funded by or through DZ. Pursuant to theDecember 2019 amendment, the interest rate payable under the facility is the applicable index rate plus 2.25% until the expiration of the revolving advance period (a decrease from 2.75% prior to the amendment) and thereafter will equal the applicable index rate plus 3.25% (a decrease from 4.75% prior to the amendment). Subject to the terms of the facility, we will receive the excess cash flows generated by the VOI notes receivable sold (excess meaning after payments of customary fees, interest and principal under the facility) until the expiration of the VOI notes receivable advance period, at which point all of the excess cash flow will be paid to the note holders until the outstanding balance is reduced to zero. While ownership of the VOI notes receivable included in the facility is transferred and sold for 45
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legal purposes, the transfer of these VOI notes receivable is accounted for as a secured borrowing for financial reporting purposes. The facility is nonrecourse.
Quorum Purchase Facility.Bluegreen/Big Cedar Vacations has a VOI notes receivable purchase facility (the "Quorum Purchase Facility") withQuorum Federal Credit Union ("Quorum"), pursuant to which Quorum has agreed to purchase eligible VOI notes receivable in an amount of up to an aggregate$50.0 million purchase price, subject to certain conditions precedent and other terms of the facility. OnMarch 17, 2020 , the Quorum Purchase Facility was amended to extend the advance period toDecember 2020 fromJune 2020 . The interest rate on each advance is set at the time of funding based on rates mutually agreed upon by all parties. The maturity of the Quorum Purchase Facility is inDecember 2032 . Of the amounts outstanding under the Quorum Purchase Facility atMarch 31, 2020 ,$2.7 million accrues interest at a rate per annum of 4.75%,$18.5 million accrues interest at a fixed rate of 4.95%,$1.5 million accrues interest at a fixed rate of 5.0%,$15.2 million accrues interest at a fixed rate of 5.10%, and$1.1 million accrues interest at a fixed rate of 5.50%. The Quorum Purchase Facility provides for an 85% advance rate on eligible receivables sold under the facility, however Quorum can modify this advance rate on future purchases subject to the terms and conditions of the Quorum Purchase Facility. Eligibility requirements for VOI notes receivable sold include, among others, that the obligors under the VOI notes receivable sold be members of Quorum at the time of the note sale. Subject to performance of the collateral, we orBluegreen/Big Cedar Vacations , as applicable, will receive any excess cash flows generated by the VOI notes receivable transferred to Quorum under the facility (excess meaning after payment of customary fees, interest and principal under the facility) on a pro-rata basis as borrowers make payments on their VOI notes receivable. While ownership of the VOI notes receivable included in the Quorum Purchase Facility is transferred and sold for legal purposes, the transfer of these VOI notes receivable is accounted for as a secured borrowing for financial reporting purposes. The facility is nonrecourse.
Other Credit Facilities
Fifth Third Syndicated Line-of-Credit and Fifth Third Syndicated Term Loan. InDecember 2016 , we entered into a$100.0 million syndicated credit facility withFifth Third Bank , as administrative agent and lead arranger, and certain other bank participants as lenders. InOctober 2019 , we amended the facility and increased the facility to$225.0 million . The amended facility includes a$100.0 million term loan (the "Fifth Third Syndicated Term Loan") with quarterly amortization requirements and a$125.0 million revolving line of credit (the "Fifth Third Syndicated Line-of-Credit"). Borrowings under the amended facility generally bear interest at LIBOR plus 2.00% - 2.50%, depending on our leverage ratio, are collateralized by certain of our VOI inventory, sales center buildings, management fees, short-term receivables and cash flows from residual interests relating to certain term securitizations, and will mature inOctober 2024 . As ofMarch 31, 2020 , outstanding borrowings under the facility totaled$207.5 million , including$97.5 million under the Fifth Third Syndicated Term Loan with an interest rate of 3.61%, and$110.0 million under the Fifth Third Syndicated Line of Credit with an interest rate of 3.32%. As ofMarch 31, 2020 , we had$15.0 million available under the Fifth Third Syndicated Line of Credit.
We also have outstanding obligations under various credit facilities and securitizations that have no remaining future availability as the advance periods have expired.
Commitments
Our material commitments include the required payments due on our
receivable-backed debt, lines-of-credit and other notes payable, junior
subordinated debentures, commitments to complete certain projects based on our
sales contracts with customers, subsidy advances to certain HOAs, inventory
purchase commitments under JIT arrangements and commitments under non-cancelable
operating leases.
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The following table summarizes the contractual minimum principal and interest payments required on all of our outstanding debt, non-cancelable operating leases and inventory purchase commitments by period due date, as ofMarch 31, 2020 (in thousands): Payments Due by Period Unamortized Less than 1 - 3 4 - 5 After 5 ? Debt Issuance Contractual Obligations ?1 year ?Years ?Years ?Years ?Costs Total Receivable-backed notes payable $ -$ 34,943 $ 106,430 $ 283,076 $ (4,752)$ 419,697 Lines-of-credit and notes payable 10,275 26,134 188,750 - (1,374) 223,785 Jr. subordinated debentures (1) - - - 110,827 - 110,827 Noncancelable operating leases (2) 6,495 10,355 4,773 11,543 - 33,166 Bass Pro Settlement (3) 4,000 8,000 4,000 - - 16,000 Total contractual obligations 20,770 79,432 303,953 405,446 (6,126) 803,475
Interest Obligations (4)
Receivable-backed notes payable 15,706 29,977 26,787 76,254 - 148,724 Lines-of-credit and notes payable 7,798 14,209 9,753 - - 31,760 Jr. subordinated debentures 7,122 14,243 14,243 77,459 - 113,067 Total contractual interest 30,626 58,429 50,783 153,713 - 293,551 Total contractual obligations$ 51,396 $ 137,861 $ 354,736 $ 559,159 $ (6,126)$ 1,097,026
(1)Amounts do not include purchase accounting adjustments for junior
subordinated debentures of
(2)Amounts represent the cash payment for leases and includes interest of
(3)Amounts represent the
(4)Assumes that the scheduled minimum principal payments are made in accordance with the table above and the interest rate on variable rate debt remains the same as the rate atMarch 31, 2020 . InDecember 2019 , our President and Chief Executive Officer resigned. In connection with his resignation, we agreed to make payments totaling$3.5 million over a period of 18 months,$2.9 million of which remained payable as ofMarch 31, 2020 . Additionally, during 2019 we entered into certain agreements with other executives related to their separation from Bluegreen or change in position. Pursuant to the terms of these agreements, we agreed to make payments totaling$2.5 million throughNovember 2020 . As ofMarch 31, 2020 ,$1.0 million remained payable under these agreements. In lieu of paying maintenance fees for unsold VOI inventory, we may enter into subsidy agreements with certain HOAs. We paid$1.9 million in subsidy payments in connection with these arrangements during each of the three months endedMarch 31, 2020 and 2019, which are included in cost of other fee-based services. As ofMarch 31, 2020 , we had$3.3 million accrued for such subsidies, which is included in accrued liabilities and other in the unaudited Consolidated Balance Sheet as of such date. As ofDecember 31, 2019 , we had no accrued liabilities for such subsidies. We intend to use cash on hand and cash flow from operations, including cash received from the sale/pledge of VOI notes receivable, and cash received from new borrowings under existing or future debt facilities in order to satisfy the principal payments required on contractual obligations. While there is no assurance that we will be successful, we believe that we will be successful in renewing certain debt facilities and/or obtaining extensions. Based on this and the actions implemented in an effort to mitigate the impact of the COVID-19 pandemic, we believe that we will be in a position to meet required debt payments when we expect them to be ultimately due, however there is no assurance that this will be the case. 47
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We believe that our existing cash, anticipated cash generated from operations, anticipated future permitted borrowings under existing or future credit facilities, and anticipated future sales of notes receivable under existing, future or replacement purchase facilities will be sufficient to meet our anticipated working capital, capital expenditure and debt service requirements, including the contractual payment of the obligations set forth above, for the foreseeable future, subject to the success of our ongoing business strategies, the ongoing availability of credit and the success of the actions we have taken in response to the COVID-19 pandemic. We will continue our efforts to renew, extend or replace any credit and receivables purchase facilities that have expired or that will expire in the near term. We may, in the future, also obtain additional credit facilities and may issue corporate debt or equity securities. Any debt incurred or issued may be secured or unsecured, bear interest at fixed or variable rates and may be subject to such terms as the lender may require and management believes acceptable. There can be no assurance that our efforts to renew or replace credit facilities or receivables purchase facilities which have expired or which are scheduled to expire in the near term will be successful or that sufficient funds will be available from operations or under existing, proposed or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet our cash needs, including debt service obligations. To the extent we are unable to sell notes receivable or borrow under such facilities, our ability to satisfy our obligations would be materially adversely affected. Our receivables purchase facilities, credit facilities, indentures and other outstanding debt instruments include what we believe to be customary conditions to funding, eligibility requirements for collateral, cross-default and other acceleration provisions and certain financial and other affirmative and negative covenants, including, among others, limits on the incurrence of indebtedness, payment of dividends, investments in joint ventures and other restricted payments, the incurrence of liens and transactions with affiliates, as well as covenants concerning net worth, fixed charge coverage requirements, debt-to-equity ratios, portfolio performance requirements and cash balances, and events of default or termination. In the future, we may be required to seek waivers of such covenants, but may not be successful in obtaining waivers, and such covenants may limit our ability to raise funds, sell receivables or satisfy or refinance our obligations, or otherwise adversely affect our financial condition and results of operations, as well as our ability to pay dividends. DuringApril 2020 , our board of directors suspended quarterly cash dividends on our common stock due to the impact of the COVID-19 pandemic. In addition, our future operating performance and ability to meet our financial obligations will be subject to future economic conditions and to financial, business and other factors, many of which may be beyond our control. Pursuant to a settlement agreement we entered into with Bass Pro and its affiliates duringJune 2019 , we paid Bass Pro$20.0 million and agreed to make five annual payments to Bass Pro of$4.0 million , which commenced inJanuary 2020 . Additionally, in lieu of the previous commission arrangement, we agreed to pay Bass Pro a fixed annual fee of$70,000 for each Bass Pro andCabela's retail store that we are accessing (excluding sales at retail stores which are designated to provide tours toBluegreen/Big Cedar Vacations , or "Bluegreen/Big Cedar feeder stores"), plus$32.00 per net vacation package sold (less cancellations or refunds within 45 days of sale). We also agreed to contribute to theWonders of Wildlife Foundation $5.00 per net package sold (less certain cancellations and refunds within 45 days of sale), subject to an annual minimum of$700,000 . Subject to the terms and conditions of the settlement agreement, we will generally be required to pay the fixed annual fee with respect to at least 59 Bass Pro retail stores and a minimum number ofCabela's retail stores that increases over time to a total of at least 60Cabela's retail stores by the end of 2021. InJanuary 2020 , we paid$5.2 million for this fixed fee, of which$4.1 million was prepaid and is included in our unaudited consolidated balance sheet as ofMarch 31, 2020 . We had marketing operations at 21Cabela's stores atMarch 31, 2020 and are required to begin marketing operations in at least 25 more stores byDecember 31, 2020 . Notwithstanding the foregoing, the minimum number of Bass Pro andCabela's retail stores for purposes of the fixed annual fee may be reduced under certain circumstances set forth in the agreement, including as a result of a reduction of traffic in the stores in excess of 25% year-over-year. InMarch 2020 as a result of the COVID-19 pandemic, we temporarily closed our retail marketing operations atBass Pro Shops andCabela's stores. We are currently developing a plan to reopen these operations.
Off-balance-sheet Arrangements
As of
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