Q4 2022 Hilton Worldwide Holdings Inc Earnings Call

Speaker 1: Please signal a conference specialist by pressing the star key followed by zero.

Speaker 2: After today's prepared remarks, there will be a question and an answer session to ask a question you may press star than one on your touch time song. Please note, this event is being recorded. I would now like to turn the conference over to Jill Slattery Chapman, Senior Vice President, Investor Relations and Corporate Development. May begin. Thank you, Chad. Welcome to Hilton's fourth quarter and full year 2022 earnings call. Thank you.

Speaker 3: Before we begin, I would like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and forward-looking statements made today speak only to our expectations as of today.

Speaker 4: We undertake no obligation to update or revise these statements.

Speaker 5: This morning, Chris Nassada, our President and Chief Executive Officer, will provide an overview of the current operating environment and the company's outlook. Kevin Jacobs, our Chief Financial Officer and President Global Development, will then review our fourth quarter and full-year results and discuss our expectations for the year. Following their results, we will be happy to take your questions.

Speaker 6: and we continue to enhance our network through our strategic and discipline approach to development, enabling us to serve even more guests across more destinations for any stay occasion they may have.

Speaker 7: with margins of roughly 69% up more than 300 basis points here every year and more than 800 basis points over 2019 levels.

Speaker 8: Strong results and higher margins enabled us to generate the highest levels of free cash flow in our history and to return more than $1.7 billion to shareholders for the full year.

Speaker 9: Turning the results for the quarter system wide rep par group 24.8% year over year.

Speaker 10: An increase 7.5% compared to 2019 with performance improving sequentially versus the third quarter. We saw continued progression across all segments with leisure, business transient, and group rev par all exceeding 2019 levels.

Speaker 11: As expected, Leisure trends remained strong throughout the quarter, with RevParcer passing 2019 levels by approximately 12%, modestly ahead of third quarter performance. Strong Leisure trends demand.

Speaker 12: Small and medium-sized businesses remained an important and growing part of our business travel segment Accounting for roughly 85% of our segment mix and enhancing our overall resiliency

Speaker 13: Group saw the biggest quarter over quarter improvement with RevPar fully recovering to 2019 levels driven by both occupancy and ADR gains. Company meetings boosted performance improving more than seven points versus the third quarter.

Speaker 14: And aided by easy first quarter comps due to Omicron, meaningful recovery across Asia and solid growth in U.S. urban markets as group business continues to recover.

Speaker 15: Turning to the development side, we continue to deliver on our commitment to capital-like growth.

Speaker 16: Our rooms in the US are up nearly 100% and our international portfolio is now 3.5 times larger.

Speaker 17: Building on this commitment last month, we launched our newest brand, Spark by Hilton. A valued driven product that delivers our signature reliable and friendly service at an accessible price. Spark provides a simple, consistent,

Speaker 18: In comfortable stay with practical amenities and unexpected touches filling an open space in the industry by creating a new premium economy lodging option to meet the needs of even more guests and owners.

Speaker 19: focused on core guest elements and enables owners to leverage our industry-leading commercial engines and powerful network effect. To date, we have more than 200 deals in various stages of negotiation, almost all of which are conversions from third parties.

Speaker 20: Additionally, we've identified more than 100 US markets with no Hilton branded product, providing great opportunity for the brand and the company to expand its presence.

Speaker 21: We remain focused on ensuring Hilton has a positive impact on the communities we serve. For the sixth consecutive year, we were included on both the world and North America Dow Jones sustainability indices, the most prestigious ranking for corporate sustainability performance. And for the seventh consecutive year, we were included on both the world and North America Dow Jones sustainability performance.

Speaker 22: Thanks, Chris, and good morning, everyone. During the quarter, System Wide Reff par grew 24.8% versus the prior year on a comparable and currency neutral basis, and increased 7.5% compared to 2019.

Speaker 23: Adjusted EBITDA was $740 million in the fourth quarter, up 45% year over year, and exceeding the high end of our guidance range. Outperformance was driven by better than expected figure-out, particularly in the Americas, Europe , and the Middle East, as well as roughly $30 million in COVID-related government subsidies, which benefited our ownership portfolio.

Speaker 24: Recovery in Japan following borders reopening in October also contributed to strong performance in ownership.

Speaker 25: For the fourth quarter, deluded earnings per share adjusted for special items was a dollar in 59 cents, increasing 121 percent year over year and exceeding the high end of our guidance range.

Speaker 26: All three segments showed quarter over quarter improvement as compared to 19 with performance continuing to be led by strong leisure demand.

Speaker 27: Performance was driven by strong leisure demand over the holiday travel season, particularly at resort properties where RevPAR was up over 60% versus peak levels.

Speaker 28: Performance benefited from continued strength in leisure demand and recovery in international inbound travel, particularly from the U.S. In the Middle East, an Africa region, ReFPA increased 26% year-over-year and 34% versus 2019.

Speaker 29: The region benefited from international inbound travel during the World Cup and Qatar. In the Asia Pacific region, fourth quarter of F-PAR was up 29% year-over-year and down 19% versus 2019.

Speaker 30: Demand is expected to gradually recover throughout the year, but remains volatile in the near-term Keyser

Speaker 31: The rest of the Asia Pacific region saw significant improvement with ReVPAR excluding China up 8% versus 2019.

Speaker 32: Turning to development, for the full year we grew net units 4.7% modestly lower than expected, largely due to the ongoing COVID environment in China, which weighed on fourth quarter openings. Conversion accounted for 24% of our gross openings for the year, and additionally our pipeline grew year over year, ending 2022 at more than 416 deaths.

Turning to balance sheet, in January , we completed an amendment to our revolving credit facility to increase the borrowing capacity under the facility to $2 billion and extend the maturity to 2028. As we look ahead, we continue to remain confident in the strength of our liquidity position and financial flexibility.

For full year 2023, we expect ref part growth between 4% and 8%. We forecast adjusted EBITDAV between $2.8 billion and $2.9 billion.

We forecast the LUTRIT EPS suggested for special items of between $5.42 and $5.68. Please note that our guidance ranges do not incorporate future share repurchases. Moving on to capital return, we pay the cash dividend of $0.15 per share during the fourth quarter for a total of $123 million in dividends for the year.

Further details on our fourth quarter and full year results can be found in the earnings release we issued earlier this morning.

Thank you. We will now begin the question and answer session to ask a question you may press star than one on your touch tone phone. If you're using the speaker phone, please pick up your handset before pressing the keys.

To withdraw your question, please press star then to. Our first question is from Carlos Santarelli with Deutsche Bank. Please go ahead. Hey guys, thank you and thanks for all the color you provided. Kevin or Chris, whoever wants to kind of tackle it, obviously, you know, given the strength in the first quarter and acknowledging their seasonality and it doesn't flow this simply. So, this simply.

which is our biggest market as an example, you know, equal to the lowest levels of supply that we've seen. Thankfully, we get more than our fair share, but overall in the market, very low levels of supply. And that continues to be met with very strong demand. And we have not seen for the record any weakening. We have not.

continue to see strength there. You know, on the business transient side, still good demand, very strong demand and growing demand, lots of pent up demand and as I mentioned in Mike.

prepared remarks. We finished, you know, the second half of last year on the group side as people really got comfortable. We were through COVID and they could start planning events. They've been planning them like crazy, you know, even the biggest groups, all the association stuff, that really starts to hit the second half of this year because of all of the planning. Some of that's happening. I've been in a lot of big events speaking out of Laley.

So I just wanted to see Chris, if you could talk about what's embedded in the second half of this year's guidance with respect to U.S. occupancy and the impriscing changes on a year of your basis.

question, we do continue to believe we will have good pricing power, you know, at least through this year, simply because there is no capacity addition really coming into the market. In you asked the question about the US market and we do have these both cyclical and secular tailwinds that are giving us increases in demand that we think are going to allow us to continue to have pricing power.

structural things that are going to help the business globally that I talked about and help the business in the US in terms of spending patterns, group demand, and Pence up demand on certain categories of business travel. Great and this is my follow-up, Chris Orkett and

Yeah, I think look historically, or right now historically over the last few years it's been less volatile, right? So if if Rev Par was up 45% for the year this year, you know, those fees were up something less than that Although still very robustly and you know, H.V.s public so you can look at what they've what they've grown

And so, you know, largely dependent on spend, although, you know, our credit card programs set a record for spend in the fourth quarter and for the full year, it would spend about 50% higher than it was even in 2019. So that program's doing quite well, although it should be, you know, it should grow better than rent part over time, but it'll be a little bit less ball, although then it's been just given what's been going on in the world.

Hi, good morning everyone. I'm Morton.

is we have been thinking about something in this space for a long, long time. Almost the entire time I've been at the company. We had a lot of obviously we've doubled the size of our brand portfolio, so it's not like we've been sitting around doing nothing. We had not entered that zone, but three years ago or so.

And the sooner you get them into the system and building loyalty with them, the better off you are. So as always, when we look at brands, it starts with a customer acquisition and a network, we're, you know, continuing to build the network effect for existing customer base. So...

You know, we were confident, you know, when we started looking at it three years ago, that there were a lot of reasons to be serious about it. Then comes the hard part of trying to figure out how do we engineer something at this price point that really works, that it works for customers, meaning that the experience they have with us is going to be great, you know, friendly, reliable, consistent.

time will tell this will be the most disruptive thing we've done in terms of brand space because it is very ripe for disruption. If you go look at hotels at this price point in this segment, you will find a very high beta situation in terms of the physical attributes.

customer point of view, we are going to give them a high quality, consistent experience at this price point that does not exist in the market because of the way we've engineered the retrofit of these properties. And this will ultimately take some time, but it can happen quickly. It'll be thousands, it's the biggest segment in the U.S., it's the biggest segment in Europe , I mean it will be thousands, it should be a...

It will come to life quite quickly as Kevin said. We will have sparks open this year. We'll have a two terribly big impact on this year's numbers, but as we get into next year and beyond, we think it will have a meaningful impact. And as they said, ultimately, I look at these as opportunities as a consumer-branded company to think about a new product.

at this point. Thank you very much.

Hey, good morning. I just wanted to ask you a little bit on the owned and lease portfolio. I think you mentioned 30 million COVID-related subsidies. I think during the quarter and I just wondering, should we just assume that those start to kind of dissipate as they go through 2000 and 23 or they just all gone at this point or?

Any change in the way that Hilton is thinking about using key money in order to maintain a growth share or potentially learn to developers at this point? No, no. As I commented on in my prepared remarks, if you look at the whole pipeline, more than 90% of it has no key money, no financial support, we have not changed our view on that if you look at the...

the opportunity to grow as you know very strong and without the use of our balance sheet and that ultimately is driven by what you would guess it is. Everybody investing in our portfolio of brands is doing it to get a return and our brands are the highest performing brands.

in individual segments, but overall when you aggregate them together and people are continuing to want to invest with us in that way. So a long way to say no, we don't say anything. In fact, I think that trend line for us overall in key money, I'm looking at Cavity runs development too, so make sure he agrees with this. But...

People's deals blew up and we were able to sweep in on some very strategic things You know at a moment in time and those those were lumpy, but you know But we you know that we always have opportunities to work on but I think that those lumpy thing They're gonna be fewer of those lumpy things So I think honestly I think in an aggregate dollar sense over the next few years the trend line is is down not up

Hi everyone, thanks for taking my question. Following on some of the earlier discussions about thoughtful conservatism baked into the guidance, could we talk about the capital returns a bit and just how you thought about pulling that together and is that necessarily a firm number in view of how the guidance filmed, keeping

and then use it for buybacks and so. So that's the range for now. Yeah, the only thing I would add, all of that, I agree wholeheartedly. The only thing I would add to that is that's not, our longer range views on the balance sheet and return a cap will haven't changed. We've been very consistent since the beginning of time. It feels like saying we want to be three to three and a half times, we're at the low end or a little bit below the low end of the range.

If we do our job, we're going to sort of come in plus or minus, you know, 20 percent below true, which would still probably be above if you look on average. It will be above where most of the folks in the existing segment are. That's why, like we like to do, we're a branding company. You know, we've made up a segment. We called it premium economy. So our view would be, you know, it is above the traditional economy space. It will price above.

do you have a view about Kale? I mean, I think it may be a bit of conservatism on our part. I do think we can get that. By the way, Robin, we can get back there tomorrow if we wanted. But we could separate that because we could occupy ourselves up. But we don't want to do that. We're actually managed, as you can see with the rate growth, we are trying to manage in this cycle, particularly given the environment and pollution and everything else.

Whether it was just opening delayed by a few weeks or sort of a broader issue with the unit growth in China, if starts are also behind. I think it's both Robin. I mean, the environment is creating a drag, both created a drag in the fourth quarter on openings and also has created a drag on starts because it's just broadly when...

we don't give you quarterly guidance so we're not going to get into like when those hotels are going to open but I think you can assume they're going to open on a delay.

would not support that theory. Okay, maybe just a quick follow up. The reasonable size adjustment in the net other expenses from Managed and Franchise, the the past through cost that had been negative through the rest of the year, looking how maybe you were clawing back some of the losses through COVID, so just wondering if there's some specific program that's pivoted that the other way in Q4. No, there's always timing issues in terms of those line items. In the end, in the end,

you to hear about in terms of the, from the Fed's reporting. Obviously very strong in the experiential category on travel and lodging. So do you believe this is peaked when you talk to, you know, your partners, kind of your builders? What are they saying just in terms of the labor market and then secondarily, how does that factor into how you're thinking about, you know, IMFs and kind of profits in the back half?

banking also through retail where people had really staffed up, you know, thinking that the COVID retail demand was going to be maintained and it hasn't and so, you know, there are a lot of people that are getting pushed back out into the job market and that's allowing, affording us the opportunity to get the labor that we need.

level the rate of increase has diminished substantially. In terms of how we think about IMF, we feel good about IMF. I think for the year we expect IMF to add significantly to the growth rate. We think this year, and we expect it will get over our prior high water marks.

is going to be significantly below that. Yeah, I think we do think it would be within that range. We continue to see strength. We do expect all the segments that you will see some plateauing as a result of a slower macro environment in the second half of the year. We still feel very good about it. The demand trends.

and getting more nervous and so that would be a behavior set that would say that maybe they pull back a little bit but the reality is we're not seeing it and I think part of the reason we're not seeing it okay and time will tell is because of the phenomena that I described earlier in the call which is they're shifting their spending so not only do they still have incremental savings in their pockets and feel realistic panorama.

expect a leisure to be in those ranges. Yeah, thanks. If I could address my follow-up question on Spark, which is really an intriguing product, does it kind of take care of two problems that are out there for the industry? And one is, obviously, a lot of deferred cap-ax over the last several years. But the other one is.

I think we said what we said for a reason, brand not to be sort of cagey about it, but there's a lot can go one way or the other in the world. We still feel great about getting back to 6 to 7%. I don't, Chris may have a different view. I don't feel differently today than I did three months ago about that. I think the world's coming our way a little bit, but we don't expect.

another really good year and we appreciate the sport we appreciate the time we'll look forward to catch it up with everybody after the first quarter to give you more sight lines into what we're seeing then so thank you and have a great day