Hilton Worldwide Holdings Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021. Hilton operates, manages and franchises hotels and resorts and licenses its brands. At quarter-end, its system comprised 6,567 properties, 1,032,412 rooms and operations in 119 countries and territories. The COVID-19 pandemic continued to materially affect travel and results; Q1 2020 was also affected, but the company cautioned that pandemic-period comparisons are not fully comparable.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $874 million | $1,920 million |
| Operating income | $21 million | $68 million |
| Operating margin | 2.4% | 3.5% |
| Net income (loss) attributable to Hilton stockholders | $(108) million | $18 million |
| Diluted EPS | $(0.39) | $0.06 |
| Adjusted EBITDA | $198 million | $363 million |
| Net cash from (used in) operating activities | $(171) million | $129 million |
| Cash, cash equivalents and restricted cash, quarter-end | $2,447 million | $1,805 million |
Reported revenue fell 54.5%. This total includes substantial pass-through revenues and expenses from managed and franchised properties; management and franchise segment revenue was $288 million versus $431 million, while owned and leased hotel revenue was $56 million versus $210 million. System-wide comparable RevPAR declined 38.4% year over year; occupancy was 43.9% and ADR was $105.38.
At March 31, 2021, total debt, excluding unamortized financing costs and discounts, was approximately $10.1 billion. Balance-sheet cash and cash equivalents were $2.402 billion, with $45 million of restricted cash. The company reported $500 million of available borrowing capacity on its revolving facility. Total liabilities were $17.6 billion and total stockholders’ deficit was $1.6 billion.
Material changes versus the prior comparable period
- Revenue and operating income declined sharply as reduced travel, lower hotel occupancy and ADR, and temporary property suspensions weighed on fees and hotel operations.
- Q1 2021 recorded a $69 million loss on debt extinguishment. Hilton issued $1.5 billion of 3.625% notes due 2032 and redeemed $1.5 billion of 5.125% notes due 2026, paying a $55 million premium and recognizing $14 million of unamortized financing costs.
- Hilton repaid $500 million on its revolving credit facility. Net financing cash outflow was $624 million, compared with a $1.1 billion inflow in Q1 2020, when the facility was drawn and the company also repurchased shares and paid dividends.
- No dividends were declared in Q1 2021; dividends and share repurchases remained suspended. Q1 2020 included $42 million of dividends paid and $296 million of share repurchases.
- Q1 2020 included $112 million of impairment losses; none were recorded in Q1 2021. General and administrative expense rose to $97 million from $60 million, primarily reflecting share-based compensation expense versus a prior-year benefit.
Outlook, management commentary, risks and unusual items
- Management said the pandemic was expected to continue to significantly adversely affect near-term results, and its ultimate impact remained uncertain. System-wide occupancy, ADR and RevPAR improved sequentially from December 2020 through March 2021; March system-wide RevPAR was 23.2% higher than March 2020.
- As of April 28, 2021, 97% of global properties were open and approximately 175 were suspended. Hilton expected all properties to be open by year-end 2021. This is an operational expectation, not financial guidance; the filing provides no quantified earnings or revenue forecast.
- Management believed cash and available liquidity would meet anticipated requirements for the foreseeable future under current conditions. It noted that delayed fee collections and weaker operating cash generation remain relevant liquidity considerations.
- Five hotel performance guarantees carried possible cash outlays totaling approximately $20 million; $5 million was accrued. Other disclosed exposures included a $10 million loan guarantee and up to approximately $10 million of possible hotel capital-expenditure funding.
- Marketing and brand program costs exceeded amounts collected by $52 million at quarter-end, compared with $5 million collected in excess of costs at year-end 2020.
- Tax audits remain a material uncertainty. IRS proposed adjustments for 2006–2013 tax years would imply approximately $817 million of additional federal taxes, excluding interest, penalties and possible state taxes. Hilton disputes the assertions; it had recorded $93 million of unrecognized tax benefits related to the appealed issues. Total unrecognized tax benefits were $444 million.
- Other risks include high indebtedness, interest-rate and foreign-exchange exposure, hotel-owner and operating risks, and the uncertain course of COVID-19 and travel restrictions. Hilton said ordinary-course litigation was not expected to have a material adverse effect, while noting outcomes cannot be predicted with certainty.
Important facts for investors to verify
- Whether hotel demand, occupancy, ADR and RevPAR continue to recover across regions, and whether the year-end property reopening expectation is achieved.
- Cash flow, liquidity and fee collections, including the use of the revolving facility and capacity to service approximately $10.1 billion of debt.
- Progress and costs of debt refinancing, including maturities, interest expense and any further debt transactions.
- Developments in IRS appeals and the potential range and timing of tax liabilities, including interest and penalties.
- Whether program-cost shortfalls, performance guarantees or other hotel commitments require further cash funding or accruals.