Hilton Worldwide Holdings Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Comparisons are with Q1 2023 unless noted. Hilton operates hotels through management, franchising, ownership and leasing, and IP licensing. At quarter-end, its system comprised 7,626 properties and 1,197,329 rooms in 126 countries and territories.
Financial and operating performance
- Revenue: $2.573 billion, up 12.2%. This includes $1.521 billion of revenue from managed and franchised properties, with corresponding costs largely reflected in expenses. Management and franchise segment revenue was $765 million, up from $667 million; owned and leased hotel revenue was $255 million.
- Profit: Operating income was $533 million, up from $498 million. Net income attributable to Hilton stockholders was $265 million, up from $206 million. Diluted EPS was $1.04 versus $0.77.
- Margins: Calculated operating margin was approximately 20.7% of reported total revenue, versus 21.7% in Q1 2023; net income attributable to Hilton stockholders was approximately 10.3% versus 9.0%. These ratios include substantial managed-property pass-through revenue and costs. Adjusted EBITDA, a non-GAAP measure, increased 17.0% to $750 million from $641 million.
- Hotel performance: Comparable system-wide RevPAR rose 2.0%, with ADR up 1.7%. U.S. RevPAR declined 0.4%; international regions reported growth, led by MEA at 14.8% and Europe at 9.7%.
- Cash flow: Operating cash flow was $346 million, compared with $330 million. Investing activities used $27 million; financing activities provided $238 million. Capital expenditures for property and equipment were $16 million, and capitalized software costs were $18 million.
- Liquidity and debt: Cash and cash equivalents were $1.346 billion, plus $74 million restricted cash. Debt was approximately $10.3 billion before deferred financing costs and discounts. The revolving credit facility had no borrowings and $1.913 billion of available capacity after letters of credit.
- Capital returns: Hilton repurchased 3.4 million shares for approximately $662 million and paid $39 million in dividends. Approximately $3.1 billion remained available under the repurchase program. The declared dividend was $0.15 per share.
Material changes and unusual items
- Hilton issued $1.0 billion of senior notes in March: $550 million of 5.875% notes due 2029 and $450 million of 6.125% notes due 2032. Proceeds partly repaid $200 million drawn on the revolver; remaining proceeds are for general corporate purposes, potentially including investments and acquisitions. Interest expense increased to $131 million from $116 million.
- Q1 2023 included a $92 million loss on an unconsolidated affiliate investment and related financing receivables; no comparable loss was recorded in Q1 2024. Q1 2024 instead included a $47 million loss on hotel debt guarantees, recorded in other non-operating loss, and $62 million of guarantee payments.
- In March, Hilton signed an agreement to acquire the Graduate Hotels brand and related contracts for $210 million in cash, expected to close in Q2 2024. In April, after quarter-end, it completed an all-cash acquisition of a controlling interest in Sydell Group, which owns the NoMad brand.
- Total deficit widened to $2.817 billion from $2.347 billion at December 31, 2023, reflecting in part share repurchases and other comprehensive loss.
Outlook, commentary and risks
- The filing provides no specific full-year financial guidance. Management said current cash and liquidity sources are expected to meet anticipated operating and other requirements for the foreseeable future, based on current conditions.
- Management cited inflation and elevated interest rates as challenges that may delay hotel development and openings. The development pipeline stood at 3,375 hotels and 472,300 rooms; net room growth from March 2023 to March 2024 was 5.6%.
- Risks highlighted include hospitality-industry and macroeconomic conditions, inflation, interest rates, labor and supply constraints, third-party hotel-owner risks, competition, technology and reservation-channel risks, international operations, geopolitical events and indebtedness. Hilton also noted business interruption at its leased hotel in Israel due to the ongoing military conflict.
- Remaining possible cash outlays under debt guarantees and letters of credit totaled $78 million, with expirations from 2025 to 2033. Performance guarantees had possible outlays of $9 million. Hilton stated pending litigation is not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
- Most variable-rate debt is exposed to changes in one-month SOFR; foreign exchange movements also affect results. Hilton uses derivatives for hedging, not speculation. It expects interest payments to increase compared with the prior year. No material debt maturity was identified before May 2025.
Investor verification points
- Review RevPAR and fee growth by region and segment, particularly the contrast between U.S. performance and international growth.
- Assess the effect of new debt, higher interest costs and variable-rate exposure on cash generation and debt service.
- Monitor hotel debt-guarantee losses, payments and remaining exposure, as well as the performance of affected hotel owners.
- Verify the timing, cash cost and integration impact of the Graduate and Sydell/NoMad transactions, including the Sydell acquisition completed after quarter-end.
- Compare repurchases and dividends with operating cash flow, investment needs and the company’s leverage and liquidity position.