Hyatt Hotels Corporation — Q1 2017 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2017, compared with the three months ended March 31, 2016. Hyatt operates, manages, franchises and licenses hotels and related properties worldwide. At quarter-end, its portfolio included 664 hotels with 172,261 rooms; properties operated in 56 countries.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / prior period |
|---|---|---|
| Total revenue | $1.187 billion | $1.089 billion; up 9.0% reported (9.5% excluding currency impact) |
| Net income attributable to Hyatt | $70 million | $34 million |
| Diluted earnings per share | $0.54 | $0.25 |
| Adjusted EBITDA (non-GAAP) | $228 million | $194 million; up 17.8% |
| Operating cash flow | $150 million | $51 million |
| Cash and cash equivalents | $374 million | $482 million at December 31, 2016 |
| Cash plus short-term investments | $426 million | $538 million at December 31, 2016 |
| Consolidated debt | $1.744 billion | $1.564 billion at December 31, 2016 |
| Net consolidated debt (non-GAAP) | $1.318 billion | $1.026 billion at December 31, 2016 |
- Management and franchise fees increased 14.2% to $122 million. Owned and leased hotel revenue rose 10.9% to $572 million, including growth from acquisitions and openings.
- Systemwide comparable RevPAR increased 4.4% reported and 4.7% in constant currency. Comparable owned and leased hotel RevPAR grew 1.9% reported; occupancy was 75.0% and ADR was $228.
- Operating cash flow benefited materially from $94 million of interest income received in connection with the Playa preferred-share redemption. Investing cash flow was an outflow of $94 million, including the Miraval acquisition and $50 million of capital expenditures. Financing cash flow was an outflow of $165 million, including share repurchases.
- Hyatt had $280 million outstanding on its revolving credit facility and approximately $1.2 billion of available capacity at March 31, 2017. The company reported compliance with applicable debt covenants.
Material changes and notable items
- Net income increased $36 million year over year. Other income, net was $40 million versus a $4 million loss a year earlier, primarily reflecting $94 million of interest income and $40 million of realized losses when Playa redeemed Hyatt’s preferred shares. These items materially benefited reported results and should be distinguished from recurring hotel operations.
- Hyatt acquired Miraval for approximately $239 million, subject to working-capital adjustments, adding wellness resorts and related brand assets. The acquisition was funded in part through $9 million of redeemable preferred shares issued by a consolidated venture; those shares carry a 12% return plus a redemption premium.
- Hyatt launched its World of Hyatt loyalty platform, replacing Gold Passport. The filing identifies ongoing implementation and guest acceptance as risks.
- Hyatt paid $300 million under an accelerated share repurchase agreement. It initially received 4,596,822 shares; delivery of shares associated with the remaining $60 million was unsettled at quarter-end. Total Q1 share repurchases were reported as 5,480,636 shares at a weighted-average price of $52.48.
- After quarter-end, the board authorized an additional $500 million share repurchase program on May 3, 2017. Approximately $509 million remained available under the authorization as of May 4, 2017.
Outlook, risks and contingencies
- The filing provides no specific numerical revenue, earnings or RevPAR guidance. Management said available cash, operating cash flow, revolver capacity and capital-market access should meet funding requirements and capital deployment objectives for the foreseeable future.
- Management described stronger group demand and ADR at Americas full-service hotels, while transient demand was softer in part because of Easter timing. Group revenue booked for 2017 stays and for future-year stays was lower than in the comparable prior-year period.
- Regional performance was mixed: ASPAC RevPAR growth reflected stronger occupancy, while ADR declined in most of the region. EAME/SW Asia results faced renovation impacts in France, soft demand in Switzerland and security-related demand weakness in Turkey.
- Performance guarantees had a remaining maximum exposure of $349 million, including $312 million related to four managed hotels in France. Recorded net performance-guarantee liabilities were $77 million. Debt-repayment guarantees had maximum potential future payments of $575 million and maximum exposure net of third-party recoveries of $266 million; hotel owners were current on debt service at quarter-end.
- Hyatt is disputing an IRS Notice of Deficiency concerning loyalty-program contributions for tax years 2009–2011. The asserted liability is $118 million, including estimated interest; Hyatt expects to petition the U.S. Tax Court and states it believes reserves are adequate. The company says most of the asserted tax would be offset by a deferred tax asset, with related interest affecting the effective tax rate if recognized.
- Other disclosed risks include hospitality cyclicality, economic and travel disruptions, labor and operating-cost pressures, foreign exchange and interest-rate movements, owner and franchisee financial condition, hotel performance guarantees, cyber and technology risks, and acquisition execution. Management reported no material change in previously disclosed risk factors and no expected material effect from ordinary-course litigation.
- Hyatt identified potential goodwill impairment of up to $17 million if assumptions used to estimate one reporting unit’s fair value changed by 4%; no impairment was recorded in Q1.
Most important facts for investors to verify
- How much of the earnings increase is repeatable after excluding Playa-related income and other unusual items.
- Whether RevPAR, booking trends and management/franchise fee growth continue, particularly given weaker forward group bookings and regional differences.
- The cash and debt implications of Miraval, the accelerated repurchase and the new share-buyback authorization, including settlement of the remaining $60 million under the ASR.
- Potential cash, tax and earnings consequences of the IRS dispute and Hyatt’s performance- and debt-guarantee exposures.
- The company’s non-GAAP Adjusted EBITDA and net-debt calculations alongside GAAP results; Hyatt cautions that these measures may not be comparable with similarly named measures at other companies.