Hyatt Hotels Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Amounts are in U.S. dollars. Hyatt operated or franchised a portfolio of 1,279 hotels with 306,494 rooms across 75 countries. Its businesses include owned and leased hotels, management and franchising, Apple Leisure Group travel distribution and destination management, and the Unlimited Vacation Club membership program.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $1.680 billion | $1.279 billion; up 31.3% |
| Net income (loss) attributable to Hyatt | $58 million; diluted EPS $0.53 | $(73) million; diluted EPS $(0.67) |
| Adjusted EBITDA (non-GAAP) | $268 million | $169 million; up $99 million, or 58.6% |
| Operating cash flow | $225 million | $180 million |
| Investing cash flow | $(149) million | $(110) million |
| Financing cash flow | $(133) million | $(14) million |
| Cash, cash equivalents and restricted cash at period end | $1.006 billion | $1.119 billion |
| Total debt | $3.102 billion | $3.113 billion at Dec. 31, 2022 |
| Net debt (non-GAAP) | $2.051 billion | $1.964 billion at Dec. 31, 2022 |
Revenue growth reflected higher hotel demand and average daily rates (ADR), stronger travel activity, and increased reimbursements for costs incurred on behalf of managed and franchised properties. These reimbursements were $729 million, with related costs of $749 million, and largely pass through without intended profit. Comparable system-wide RevPAR was $131, up 42.9%. Group room revenue rose 69%. The filing does not provide a clear consolidated operating-margin measure.
Net debt to total capital was 30.2%, versus 28.8% at year-end. Cash and cash equivalents were $948 million, short-term investments $103 million, and restricted cash $20 million on the balance sheet. Hyatt reported $1.496 billion of available revolver capacity, net of letters of credit, and no revolver borrowings. Capital expenditures were $30 million. Hyatt repurchased $106 million of shares during the quarter and a further $8 million in April; no dividends were paid in the quarter.
Material changes and notable items
- Net income improved by $131 million year over year, and Adjusted EBITDA increased across all operating segments. Demand and ADR gains, including recovery from Omicron-related travel disruption in early 2022, supported results.
- Other income, net was $48 million, compared with a $10 million loss a year earlier. It included $43 million of net unrealized gains, $17 million of interest income, and $7 million of Dream Hotel Group transaction costs. Market-related and other non-operating items contributed to the reported earnings improvement.
- Income tax provision was $47 million, compared with $2 million. The 2023 provision reflected higher earnings and uncertain foreign tax positions; Hyatt also recorded a $9 million benefit from releasing part of its U.S. valuation allowance.
- On February 2, Hyatt acquired Dream Hotel Group for $125 million cash and recorded $107 million of contingent consideration at fair value. Up to a further $175 million may be payable through 2028 if specified development milestones are achieved. The preliminary purchase accounting and contingent valuation remain subject to reassessment.
- Contract liabilities increased to $3.067 billion from $2.933 billion at year-end, principally reflecting paid membership and loyalty program deferred revenue. Hyatt reported about $500 million of contracted revenue remaining to be recognized; approximately 20% was expected to be recognized over the next 12 months.
Outlook, risks and contingencies
The filing provides no specific near-term revenue or earnings guidance. Management said it expects cash, investments, operating cash flow, revolver capacity, and capital-market access to meet funding needs and capital deployment objectives. Hyatt reiterated its aim to realize $2.0 billion of proceeds from net dispositions of owned assets by the end of 2024; it had realized $721 million as of May 4, 2023.
- Key risks cited include economic and travel-demand weakness, occupancy or ADR declines, inflation and labor costs, geopolitical events, climate or other disasters, renewed health crises, labor relations, competition, technology and cyber risks, and acquisition integration and execution risks.
- A pending U.S. Tax Court matter concerns the tax treatment of loyalty-program contributions. If the IRS position is upheld, Hyatt estimates a $239 million payment, including $81 million of estimated interest, for assessed years; $92 million would affect the effective tax rate if recognized. Hyatt says it has recorded an adequate uncertain tax liability, but cannot estimate the potential change in the next 12 months.
- At March 31, Hyatt reported $386 million of conditional commitments to lend, provide consideration, or invest; $119 million of remaining maximum exposure under performance guarantees; and $310 million of maximum potential debt-guarantee payments, with $219 million of exposure net of expected recoveries. Hyatt said it was not aware of guaranteed borrowers being delinquent on debt service.
- Hyatt cited an Indian service-tax assessment with maximum exposure not expected to exceed $18 million and no liability recorded because management did not believe a loss was probable. It does not expect ordinary-course litigation to materially affect its financial statements.
- Management identified interest-rate and foreign-exchange exposure. It reported no interest-rate swaps or outstanding interest-rate locks at quarter-end, and said its foreign-currency forwards are intended to offset related exposures.
Most important facts for investors to verify
- Whether demand, ADR, RevPAR and group-travel gains persist, particularly as Q1 comparisons were affected by early-2022 Omicron disruption.
- How much reported revenue growth reflects pass-through owner reimbursements versus fee-generating activity, and how the non-GAAP Adjusted EBITDA reconciliation compares with GAAP earnings and cash flow.
- The timing and funding of upcoming debt maturities, especially the $648 million current portion of long-term debt, alongside share repurchases and the disposition program.
- Developments in the loyalty-program tax litigation and potential tax exposure, as well as changes to Dream acquisition contingent consideration and purchase accounting.
- Changes in guarantee exposures, hotel-owner financial health, and the realization and collection of deferred membership and contract balances.