Hilton Worldwide Holdings Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Hilton operates managed, franchised, owned and leased hotels and resorts. At quarter-end, its system included 7,215 properties and 1,133,277 rooms across 122 countries and territories.
Financial and operating performance
- Revenue: $2.293 billion, up 33.2% from $1.721 billion. Management and franchise fees increased with higher hotel demand, improved rates and system growth. Reported revenue includes $1.357 billion of revenues from managed and franchised properties, with corresponding expenses.
- Profit: Operating income was $498 million, up from $369 million. Net income attributable to Hilton stockholders was $206 million, versus $212 million; diluted EPS was $0.77, versus $0.75. Results included a $92 million loss on an unconsolidated affiliate investment and related receivables.
- Adjusted EBITDA: $641 million, compared with $448 million. This non-GAAP measure includes adjustments; Hilton cautions it is not a substitute for GAAP results or cash flow.
- Hotel trends: System-wide comparable RevPAR rose 30.0%, to $103.72, as occupancy increased 9.8 percentage points to 67.7% and ADR increased 11.2% to $153.20. RevPAR increased across all reported regions, led by Asia Pacific at 91.2%.
- Cash flow: Operating cash flow was $330 million, up from $195 million. Investing activities used $85 million and financing activities used $547 million. Cash, cash equivalents and restricted cash totaled $978 million at quarter-end, including $77 million restricted; unrestricted cash was $901 million.
- Debt and liquidity: Total indebtedness was approximately $8.8 billion before unamortized costs and discounts. The revolving facility had no borrowings, $60 million in letters of credit and $1.94 billion available. Hilton reported no material debt maturities before May 2025.
- Shareholder returns: Hilton repurchased approximately 3.2 million shares for $446 million and paid $41 million in dividends. It declared a $0.15 per-share dividend; approximately $2.7 billion remained available under its repurchase authorization.
- Balance sheet: Total assets were $15.211 billion and total liabilities were $16.624 billion, resulting in a $1.413 billion total deficit.
Changes versus Q1 2022
- Revenue grew substantially amid continued travel recovery, easing cross-border restrictions and stronger group and business demand. Net room additions were 5,300 for the quarter; net unit growth from March 2022 was 4.4%.
- Operating cash flow improved, though contract acquisition cost payments rose by $90 million year over year and partly offset the increase.
- Interest expense increased to $116 million from $90 million, reflecting higher rates on the variable-rate term loan and amortization of previously dedesignated interest-rate swaps.
- Net income declined slightly despite higher operating income, principally reflecting the affiliate-related loss and higher interest and income tax expense. The affiliate loss was $92 million: a $44 million impairment and $48 million of credit losses.
Outlook, risks and unusual items
- Hilton provided no specific financial guidance in this filing. Management said available cash, operating cash flow and revolving-credit capacity should meet anticipated requirements for the foreseeable future under current conditions.
- Management described continued hotel-network and fee-business growth as strategic priorities. The development pipeline was 2,926 hotels and 428,100 rooms; 215,700 pipeline rooms were under construction. Hilton noted that economic conditions may delay openings and development.
- Risks highlighted include hospitality-industry and macroeconomic conditions, inflation, interest rates, labor shortages, supply-chain disruption, banking-system instability, third-party hotel-owner exposure, foreign operations, competition, information technology and indebtedness. Hilton said further financial-institution instability could impair access to cash or financing.
- Commitments included approximately $7 million of possible cash outlays under hotel performance guarantees and $124 million under debt guarantees and letters of credit to hotel owners. Hilton said pending claims and litigation were not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
- In January, Hilton increased its revolving-credit-facility capacity from $1.75 billion to $2.0 billion and expects an extended maturity date of January 2028, subject to the agreement’s terms.
Important facts for investors to verify
- Whether RevPAR gains and demand recovery persist across regions and customer segments, and how they translate into fee growth and cash generation.
- The implications of the $92 million affiliate-related charge, including the Fund’s debt-agreement breach and any further exposure to affiliated financing or hotel owners.
- Interest-rate sensitivity of the variable-rate term loan, future interest expense and access to refinancing markets.
- Cash available after ongoing contract acquisition costs, hotel renovations, debt service, dividends and share repurchases.
- Progress in converting the development pipeline into openings, including any delays or changes in construction and owner financing.