Hilton(HLT) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2022, and 2021, reflecting a significant recovery in performance driven by the rebound in travel Condensed Consolidated Balance Sheet Highlights (As of March 31, 2022) | Account | March 31, 2022 (in millions) | Dec 31, 2021 (in millions) | | :--- | :--- | :--- | | Total Assets | $15,459 | $15,441 | | Cash and cash equivalents | $1,432 | $1,427 | | Goodwill | $5,061 | $5,071 | | Brands | $4,875 | $4,883 | | Total Liabilities | $16,156 | $16,260 | | Long-term debt | $8,720 | $8,712 | | Liability for guest loyalty program | $2,436 | $2,364 | | Total Deficit | ($697) | ($819) | Condensed Consolidated Statement of Operations Highlights (For the three months ended March 31) | Account | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Total revenues | $1,721 | $874 | | Operating income | $369 | $21 | | Net income (loss) attributable to Hilton stockholders | $212 | ($108) | | Diluted EPS | $0.75 | ($0.39) | Condensed Consolidated Statement of Cash Flows Highlights (For the three months ended March 31) | Activity | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $195 | ($171) | | Net cash used in investing activities | ($26) | ($16) | | Net cash used in financing activities | ($167) | ($624) | Note 1: Organization and Basis of Presentation Hilton is a global hospitality company with 6,892 properties across 122 countries, showing significant financial recovery in Q1 2022 compared to the prior year - As of March 31, 2022, Hilton's portfolio consisted of 6,892 properties (hotels, resorts, and timeshares) totaling 1,082,728 rooms across 122 countries and territories[19] - Financial results for Q1 2022 experienced significant recovery compared to Q1 2021, though the impact of the COVID-19 pandemic still makes comparisons to pre-pandemic periods difficult[21] Note 5: Debt As of March 31, 2022, Hilton's total long-term debt was approximately $8.72 billion, supported by a $1.75 billion revolving credit facility with $1.69 billion available Long-Term Debt Composition (As of March 31, 2022) | Debt Instrument | Amount (in millions) | | :--- | :--- | | Senior secured term loan facility | $2,619 | | Senior notes (various series) | $5,500 | | Finance lease liabilities | $188 | | Other debt of consolidated VIEs | $42 | | Total | $8,849 | | Less: unamortized costs & current maturities | ($129) | | Long-term debt, net | $8,720 | - As of March 31, 2022, the company had $1,690 million available for borrowing under its $1.75 billion Revolving Credit Facility[34] Note 11: Business Segments Hilton operates through Management and Franchise and Ownership segments, with the fee-based Management and Franchise segment driving profitability and the Ownership segment showing improved performance in Q1 2022 - The Management and Franchise segment included 740 managed hotels and 6,038 franchised hotels as of March 31, 2022[56] - The Ownership segment comprised 54 properties, with no hotels in this segment having suspended operations due to the pandemic in Q1 2022, compared to approximately 15 hotels in Q1 2021[57] Segment Operating Income (For the three months ended March 31) | Segment | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Management and franchise | $512 | $288 | | Ownership | ($37) | ($55) | | Total Segment Operating Income | $475 | $233 | Note 12: Commitments and Contingencies Hilton has performance guarantees and debt guarantees totaling $70 million, but management anticipates no material adverse effect from pending claims and litigation - As of March 31, 2022, Hilton had performance guarantees with potential cash outlays of $9 million and debt guarantees/letters of credit totaling $61 million[62][64] - Management expects that the ultimate resolution of all pending litigation will not have a material adverse effect on the company's consolidated financial position, results, or cash flows[65] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant recovery from the COVID-19 pandemic, with system-wide RevPAR increasing 80.5% in Q1 2022, continued net unit growth, and resumed share repurchases, while maintaining sufficient liquidity - System-wide net unit growth was 5.0% from March 31, 2021, with 55 net new hotels added in Q1 2022, and the development pipeline stands at 2,730 hotels, representing 410,400 rooms[75] - The Russian invasion of Ukraine has not materially affected financial results, as hotels in Russia and Ukraine represent less than 1% of total managed and franchised hotels and fee revenues, with the company suspending new development in Russia and pledging to donate profits from Russian operations to humanitarian relief[77] Reconciliation of Net Income to Adjusted EBITDA (For the three months ended March 31) | Metric | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net income (loss) | $211 | ($109) | | EBITDA | $425 | $10 | | Adjusted EBITDA | $448 | $198 | Results of Operations System-wide RevPAR grew 80.5% year-over-year, driven by increased occupancy and ADR across all regions, leading to a significant turnaround in net income System-Wide Comparable Hotel Operating Statistics (Q1 2022 vs Q1 2021) | Metric | Q1 2022 | Change vs. 2021 | | :--- | :--- | :--- | | Occupancy | 58.1% | +14.6 % pts. | | ADR | $139.17 | +35.2% | | RevPAR | $80.84 | +80.5% | - Franchise and licensing fees increased by 70.7% to $413 million, driven by improved travel demand and higher licensing fees from strategic partnerships like co-branded credit cards[91][93] - Owned and leased hotel revenues increased significantly to $150 million from $56 million, driven by a 301.1% increase in RevPAR at comparable properties[95] Liquidity and Capital Resources As of March 31, 2022, Hilton had $1.51 billion in cash, generated $195 million from operations, resumed share repurchases, and authorized a quarterly dividend, indicating strong liquidity - Total cash and cash equivalents were $1,510 million as of March 31, 2022[106] - Share repurchases resumed in March 2022, with $130 million of common stock repurchased, and approximately $2.1 billion remained available under the program[109] - In May 2022, the board of directors authorized a quarterly cash dividend of $0.15 per share, resuming payments that were suspended in 2020[109] - Net cash from operating activities was a positive $195 million, compared to a use of $171 million in Q1 2021, reflecting the business recovery[116][117] Item 3. Quantitative and Qualitative Disclosures About Market Risk Hilton is exposed to interest rate and foreign currency risks, which it hedges with derivatives, and reports no material changes to its market risk exposure since 2021 - Primary market risks are identified as changes in interest rates and foreign currency exchange rates[124] - The company's exposure to market risk has not materially changed from the disclosures in its 2021 Annual Report on Form 10-K[124] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[125] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[126] PART II OTHER INFORMATION Item 1. Legal Proceedings Hilton is involved in various claims and lawsuits in the ordinary course of business, for which management believes it has adequate reserves and expects no material adverse financial effect - Hilton is involved in various claims and lawsuits arising from the ordinary course of business, for which it believes it has adequate reserves[128] - The company does not expect the outcome of pending litigation to have a material adverse effect on its consolidated financial position[128] Item 1A. Risk Factors A supplemental risk factor addresses the potential adverse effects of the Russia-Ukraine war on the global economy and Hilton's business, despite immaterial direct operations in the region - A supplemental risk factor was added to address potential adverse effects from the Russia-Ukraine war on the global economy and the company's business[129] - Potential consequences include lower travel demand, cyberattacks, supply disruptions, and financial market volatility, even though direct operations in the conflict region are not material[130] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Hilton reported no unregistered sales of equity securities and resumed its stock repurchase program in March 2022, buying back $130.6 million in shares Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Value Remaining in Program (millions) | | :--- | :--- | :--- | :--- | | Jan 2022 | — | $— | $2,236 | | Feb 2022 | — | $— | $2,236 | | Mar 2022 | 907,048 | $143.89 | $2,106 | | Total | 907,048 | $143.89 | $2,106 | - The company resumed share repurchases in March 2022, which had been previously suspended to preserve cash during the pandemic[134] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[135] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[135] Item 5. Other Information There was no other information to report for the period - None[135] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q. These include the company's certificate of incorporation and bylaws, forms of employee compensation agreements, an amendment to the license agreement with Hilton Grand Vacations, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - The filing includes key corporate documents, compensation agreements, and required CEO/CFO certifications[137]