Hilton(HLT) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - System-wide RevPAR declined 23% year-over-year on a comparable and currency neutral basis, with the most significant declines in Asia Pacific [17] - Adjusted EBITDA for Q1 was $363 million, a decrease of 27% year-over-year, reflecting reduced travel demand and temporary hotel suspensions [17] - Diluted earnings per share adjusted for special items was $0.74, with nearly 9,000 rooms opened during the quarter, significantly lower than prior expectations [19] Business Line Data and Key Metrics Changes - Management and franchise fees decreased 18% to $422 million, driven by RevPAR declines [17] - The ownership segment posted a loss due to higher operating leverage and fixed rent structures at leased properties [18] Market Data and Key Metrics Changes - RevPAR in March dropped 57% as the pandemic spread across Europe and the U.S., with expectations of a 90% decline in April [12] - In China, nearly all closed hotels have reopened, with occupancy reaching over 50% during the May Day holiday, up from 9% in early February [12] Company Strategy and Development Direction - The company is focused on three core areas: protecting employees, protecting the core business, and preparing for recovery [9] - Plans to define the hotel operating model of the future to enhance safety, efficiency, and profitability [11] - A partnership with Lysol and the Mayo Clinic was announced to introduce the Hilton CleanStay program, aimed at establishing a new standard of cleanliness [15] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in the long-term prospects of the business despite acknowledging that recovery will take time, potentially several years [16] - The company is seeing early signs of recovery with increased digital traffic and booking activity, and expects demand to slowly rebuild in the third quarter [15] - Management emphasized the importance of adapting to new traveler needs in a post-COVID-19 world [15] Other Important Information - The company ended the quarter with a pro forma cash position of $3.8 billion, which is deemed sufficient to navigate the current environment [20] - Significant actions were taken to enhance liquidity, including a bond offering and pre-selling Hilton Honors points [20] Q&A Session Summary Question: Understanding operating sensitivities in the current environment - Management discussed the relationship between RevPAR declines and EBITDA, indicating that up to 30% RevPAR declines, the relationship is better than 1-to-1, but worsens beyond that [25][26] Question: Net unit growth outlook - The decline in net unit growth for the year is primarily due to delays related to COVID-19, with expectations for recovery in subsequent years [34] Question: Franchisee conversations and fee relief - Management is actively engaging with franchise partners, providing flexibility in operations and discussing potential fee relief, though most fees are already aligned with current demand levels [51][57] Question: Working capital drag and reimbursed costs - There is an anticipated working capital drag due to the current revenue environment, but management believes the business will recover and receivables will be collected [60][62] Question: Financing market for new hotel construction - Lenders are expected to become more cautious post-crisis, but there will still be capital available for productive investments in hotel construction [65] Question: Managing brand standards during recovery - The company is aware of customer expectations and is working to balance relaxed brand standards with maintaining quality as recovery progresses [66]