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Hilton Exceeds Fourth Quarter and Full Year Expectations; Provides 2018 Outlook

February 17, 2018 Financial No Comments Email Email

Hilton Worldwide Holdings Inc. (“Hilton” or the “Company”) (NYSE: HLT) today reported its fourth quarter and full year 2017 results. All results herein present the performance of Hilton giving effect to the spin-offs of Park Hotels & Resorts Inc. (“Park”) and Hilton Grand Vacations Inc. (“HGV”) on January 3, 2017 (the “spin-offs”), with the historical financial results of Park and HGV reflected as discontinued operations. Pro forma comparisons are presented as if the spin-offs occurred on January 1, 2016. Additionally, all share and share-related information presented herein for periods prior to January 3, 2017 have been retrospectively adjusted to reflect the 1-for-3 reverse stock split of Hilton’s outstanding common stock that occurred on January 3, 2017 (the “Reverse Stock Split”). Highlights include:

  • Diluted EPS was $2.61 for the fourth quarter and $3.85 for the full year, including, in each case, the provisional effect of tax reform; diluted EPS, adjusted for special items, was $0.54 for the fourth quarter and $2.00 for the full year; on a pro forma basis, diluted EPS, adjusted for special items, increased six percent from the fourth quarter of 2016 and 27 percent from full year 2016
  • Net income was $841 million for the fourth quarter and $1,264 million for the full year, including, in each case, a $665 million provisional tax benefit for tax reform that occurred in the fourth quarter
  • Adjusted EBITDA was $498 million for the fourth quarter, an increase of 10 percent from pro forma Adjusted EBITDA for the fourth quarter of 2016; Adjusted EBITDA was $1,965 million for the full year, an increase of 11 percent from pro forma Adjusted EBITDA for full year 2016
  • Adjusted EBITDA margin was 56.2 percent for the full year, an increase of 260 basis points from pro forma Adjusted EBITDA margin for full year 2016
  • System-wide comparable RevPAR increased 3.8 percent and 2.5 percent for the fourth quarter and full year 2017, respectively, on a currency neutral basis from the same periods in 2016
  • Added 18,400 net rooms in the fourth quarter, totaling 51,600 net rooms for the full year, representing 6.5 percent net unit growth
  • Approved 31,000 new rooms for development during the fourth quarter, growing Hilton’s development pipeline to 345,000 rooms, representing 11 percent growth from December 31, 2016
  • Repurchased 3.5 million shares of Hilton common stock for an aggregate cost of $266 million during the fourth quarter, bringing total capital return for the full year, including dividends, to approximately $1.1 billion
  • Full year 2018 net income is projected to be between $802 million and $837 million; Adjusted EBITDA, excluding the application of the new revenue recognition standard, is projected to be between $2,090 million and $2,140 million; Adjusted EBITDA, reflecting the application of the new revenue recognition standard, is projected to be between $2,030 million and $2,080 million, growing 6 percent to 9 percent
  • Cash available for capital return is projected to be between $1.2 billion and $1.6 billion; net unit growth is expected to be 6.5 percent

Overview

Christopher J. Nassetta, President & Chief Executive Officer of Hilton, said, “Our performance for the fourth quarter and full year exceeded the high end of our guidance for Adjusted EBITDA and diluted EPS, adjusted for special items. Given the strength of our brand portfolio, we continue to build momentum in both unit and pipeline growth and now have the largest number of rooms under construction in the industry. We feel great about our set up for 2018 and our ability to continue delivering record-setting results.”

For the three months and year ended December 31, 2017, system-wide comparable RevPAR grew 3.8 percent and 2.5 percent, respectively, driven by increases in both ADR and occupancy. In particular, strength at Hilton’s international hotels benefited results. Management and franchise fee revenues increased in both periods as a result of increases in RevPAR of 3.7 percent and 2.4 percent, respectively, at comparable managed and franchised hotels, as well as from the addition of new properties to Hilton’s portfolio.

During the three months ended December 31, 2017, the Company recognized an aggregate provisional tax benefit of $665 million related to the Tax Cuts and Jobs Act enacted in December 2017. The legislation had no effect on cash taxes for the quarter. See “Non-GAAP Financial Measures Reconciliations—Net Income and Diluted EPS, Adjusted for Special Items” for additional information.

2017 vs. 2016 Pro Forma Results

For the three months ended December 31, 2017, diluted earnings per share (“EPS”) from continuing operations was $2.61 compared to a loss per share of $1.09 on a pro forma basis for the three months ended December 31, 2016. Diluted EPS, adjusted for special items, was $0.54 for the three months ended December 31, 2017 compared to $0.51 on a pro forma basis for the three months ended December 31, 2016. Income from continuing operations, net of taxes was $841 million for the three months ended December 31, 2017 compared to a loss of $355 million on a pro forma basis for the three months ended December 31, 2016. Adjusted EBITDA increased 10 percent to $498 million for the three months ended December 31, 2017 compared to $454 million on a pro forma basis for the three months ended December 31, 2016. Management and franchise fees for the three months ended December 31, 2017 increased 13 percent compared to the pro forma three months ended December 31, 2016.

For the year ended December 31, 2017, diluted EPS from continuing operations was $3.85 compared to $0.36 on a pro forma basis for the year ended December 31, 2016. Diluted EPS, adjusted for special items, was $2.00 for the year ended December 31, 2017 compared to $1.57 on a pro forma basis for the year ended December 31, 2016. Income from continuing operations, net of taxes was $1,264 million for the year ended December 31, 2017 compared to $127 million on a pro forma basis for the year ended December 31, 2016. Adjusted EBITDA increased 11 percent to $1,965 million for the year ended December 31, 2017 compared to $1,763 million on a pro forma basis for the year ended December 31, 2016. Management and franchise fees for the year ended December 31, 2017 increased 10 percent compared to the pro forma year ended December 31, 2016.

2017 vs. 2016 Actual Results

For the three months ended December 31, 2017, diluted EPS from continuing operations was $2.61 compared to a loss per share of $1.20 for the three months ended December 31, 2016. Diluted EPS, adjusted for special items, was $0.54 for the three months ended December 31, 2017 compared to $0.41 for the three months ended December 31, 2016. Income from continuing operations, net of taxes was $841 million for the three months ended December 31, 2017 compared to a loss of $388 million for the three months ended December 31, 2016. Adjusted EBITDA was $498 million for the three months ended December 31, 2017 compared to $401 million for the three months ended December 31, 2016.

For the year ended December 31, 2017, diluted EPS from continuing operations was $3.85 compared to a loss per share of $0.05 for the year ended December 31, 2016. Diluted EPS, adjusted for special items, was $2.00 for the year ended December 31, 2017 compared to $1.16 for the year ended December 31, 2016. Income from continuing operations, net of taxes was $1,264 million for the year ended December 31, 2017 compared to a loss of $8 million for the year ended December 31, 2016. Adjusted EBITDA was $1,965 million for the year ended December 31, 2017 compared to $1,543 million for the year ended December 31, 2016.

Development

In the fourth quarter of 2017, Hilton opened 123 hotels consisting of 19,100 rooms, achieving net unit growth of 18,400 rooms. During the full year 2017, Hilton opened 399 hotels consisting of 59,100 rooms, achieving net unit growth of 51,600 rooms.

As of December 31, 2017, Hilton’s development pipeline totaled 2,257 hotels consisting of approximately 345,000 rooms throughout 107 countries and territories, including 39 countries and territories where Hilton does not currently have any open hotels. Over 182,000 rooms in the pipeline, or more than half, are located outside the U.S. Additionally, over 174,000 rooms in the pipeline, or more than half, are under construction, representing the largest number of rooms under construction in the industry.

Hilton continues to grow its newest brands with nearly 20 percent of room openings for the year under the Canopy by Hilton, Curio – A Collection by Hilton, Tapestry Collection by Hilton, Home2 Suites by Hilton and Tru by Hilton brands.

Additionally, Hilton achieved several regional milestones including the opening of the 100th Greater China hotel with the Hilton Quanzhou, the 200th Asia Pacific hotel with the Waldorf Astoria Chengdu, the 100th Latin America hotel with the Hilton Rio de Janeiro Copacabana and 100,000 rooms trading in the Europe, Middle East and Africa region.

Balance Sheet and Liquidity

As of December 31, 2017, Hilton had $6.7 billion of long-term debt outstanding, excluding deferred financing costs and discount, with a weighted average interest rate of 4.2 percent.

Total cash and cash equivalents were $670 million as of December 31, 2017, including $100 million of restricted cash and cash equivalents. No borrowings were outstanding under the $1.0 billion revolving credit facility as of December 31, 2017.

During the fourth quarter of 2017, Hilton repurchased 3.5 million shares of its common stock at a cost of approximately $266 million and an average price per share of $74.67. From the inception of Hilton’s share repurchase plan in March 2017 through December 31, 2017, Hilton repurchased 13.5 million shares for approximately $891 million at an average price per share of $65.76. In 2018, through February, Hilton repurchased 1.3 million shares of common stock for approximately $110 million at an average price per share of $84.01, bringing buybacks since the program’s inception in 2017 to over $1 billion. In November 2017, Hilton’s board of directors authorized an additional $1 billion for this program.

In December 2017, Hilton paid a quarterly cash dividend of $0.15 per share on shares of its common stock, for a total of $48 million. Hilton paid a total of $195 million of dividends during 2017. In February 2018, Hilton’s board of directors authorized a regular quarterly cash dividend of $0.15 per share of common stock to be paid on or before March 29, 2018 to holders of record of its common stock as of the close of business on March 2, 2018.

Outlook

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) using the full retrospective approach. The adoption will initially be reflected in the Company’s Quarterly Report on Form 10-Q and earnings press release as of and for the three months ending March 31, 2018, with adjustments to prior comparable periods. The provisions of this ASU will not affect the Company’s cash flow or cash available for capital return. The significant changes to the Company’s revenue recognition as a result of the provisions of ASU 2014-09 include the following:

  • application, initiation and other fees, charged when: (i) new hotels enter Hilton’s system, (ii) there is a change of ownership or (iii) contracts are extended, will be recognized over the term of the franchise contract, rather than upon execution of the contract;
  • certain contract acquisition costs related to management and franchise contracts are recognized over the term of the contracts as a reduction to revenue, instead of as amortization expense;
  • incentive management fees are recognized to the extent that it is probable that a significant reversal will not occur as a result of future hotel profits or cash flows, as opposed to recognizing amounts that would be due if the management contract was terminated at the end of the reporting period;
  • revenue related to the Hilton Honors guest loyalty program will be recognized upon point redemption, net of any reward reimbursement paid to a third party, as opposed to recognized on a gross basis at the time points are issued in conjunction with the accrual of the expected future cost of the reward reimbursement; and
  • indirect reimbursable fees related to management and franchise contracts will be recognized as they are billed, as opposed to when Hilton incurs the related expenses.

The changes in revenue recognition for contract acquisition costs will not affect the Company’s net income and the changes for incentive management fees will not affect the Company’s net income for any full year period. Upon adoption, the provisions of this ASU will affect certain key metrics reported in the Company’s earnings release as follows, applying a statutory tax rate on the adjustments, which does not reflect the provisional effect of tax reform:

  • Full year and first quarter 2017 net income is expected to be reduced by $105 million and $27 million, respectively.
  • Full year and first quarter 2017 Adjusted EBITDA is expected to be reduced by $56 million and $14 million, respectively.
  • Full year and first quarter 2017 diluted EPS, before special items, is expected to be reduced by $0.32 and $0.08, respectively.
  • Full year and first quarter 2017 diluted EPS, adjusted for special items, is expected to increase by $0.06 and $0.02, respectively.

Refer to “Management and Franchise Fees, Reflecting Application of ASU 2014-09” and “Adjusted EBITDA and Pro Forma Adjusted EBITDA” in the schedules to this earnings release for additional details of the effect of this ASU on the Company’s results.

Hilton’s outlook for the first quarter and full year 2018 includes the effect of ASU 2014-09 discussed above. Share-based metrics in Hilton’s outlook do not include the effect of potential share repurchases.

Full Year 2018

  • System-wide RevPAR is expected to increase between 1.0 percent and 3.0 percent on a comparable and currency neutral basis compared to 2017.
  • Diluted EPS, before special items, is projected to be between $2.49 and $2.60.
  • Diluted EPS, adjusted for special items, is projected to be between $2.49 and $2.60.
  • Net income is projected to be between $802 million and $837 million.
  • Adjusted EBITDA is projected to be between $2,030 million and $2,080 million, growing 6 percent to 9 percent.
  • Management and franchise fee revenue is projected to increase between 8 percent and 10 percent compared to 2017.
  • Capital expenditures, excluding amounts reimbursed by hotel owners, are expected to be between $175 million and $200 million.
  • Cash available for capital return is projected to be between $1.2 billion and $1.6 billion.
  • General and administrative expenses are projected to be between $400 million and $425 million.
  • Net unit growth is expected to be approximately 6.5 percent.

First Quarter 2018

  • System-wide RevPAR is expected to increase between 1.0 percent and 3.0 percent on a comparable and currency neutral basis compared to the first quarter of 2017.
  • Diluted EPS, before special items, is projected to be between $0.43 and $0.47.
  • Diluted EPS, adjusted for special items, is projected to be between $0.43 and $0.47.
  • Net income is projected to be between $138 million and $152 million.
  • Adjusted EBITDA is projected to be between $410 million and $430 million.
  • Management and franchise fee revenue is projected to increase between 8 percent and 10 percent compared to the first quarter of 2017.

Conference Call

Hilton will host a conference call to discuss fourth quarter and full year 2017 results on February 14, 2018 at 10:00 a.m. Eastern Time. Participants may listen to the live webcast by logging on to the Hilton Investor Relations website at http://ir.hilton.com/events-and-presentations. A replay and transcript of the webcast will be available within 24 hours after the live event at http://ir.hilton.com/financial-reporting/quarterly-results/2017.

Alternatively, participants may listen to the live call by dialing 1-888-317-6003 in the United States or 1-412-317-6061 internationally. Please use the conference ID 6928460. Participants are encouraged to dial into the call or link to the webcast at least fifteen minutes prior to the scheduled start time. A telephone replay will be available for seven days following the call. To access the telephone replay, dial 1-877-344-7529 in the United States or 1-412-317-0088 internationally using the conference ID 10115659.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, but are not limited to, statements related to the expectations regarding the performance of Hilton’s business, financial results, liquidity and capital resources and other non-historical statements, including the statements in the “Outlook” section of this press release. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond Hilton’s control, competition for hotel guests and management and franchise contracts, risks related to doing business with third-party hotel owners, performance of Hilton’s information technology systems, growth of reservation channels outside of Hilton’s system, risks of doing business outside of the United States of America (“U.S.”) and Hilton’s indebtedness. Additional factors that could cause Hilton’s results to differ materially from those described in the forward-looking statements can be found under the section entitled “Part I—Item 1A. Risk Factors” of Hilton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission (“SEC”), as such factors may be updated from time to time in Hilton’s periodic filings with the SEC, including in Hilton’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which is expected to be filed on or about the date of the press release, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this press release and in Hilton’s filings with the SEC. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Non-GAAP Financial Measures

The Company refers to certain financial measures that are not recognized under U.S. generally accepted accounting principles (“GAAP”) in this press release, including: net income, adjusted for special items; diluted EPS, adjusted for special items; Adjusted EBITDA; Adjusted EBITDA margin; net debt; and net debt to Adjusted EBITDA ratio. See the schedules to this press release including the “Definitions” section for additional information and reconciliations of such non-GAAP financial measures.

Pro Forma Financial Information

This press release includes pro forma financial information for Hilton adjusted to reflect the spin-offs, including: unaudited pro forma condensed consolidated statements of operations; pro forma net income and diluted EPS, adjusted for special items; pro forma Adjusted EBITDA; pro forma Adjusted EBITDA margin; and pro forma net debt to Adjusted EBITDA ratio. The unaudited pro forma financial information has been prepared to reflect the spin-offs as if they had occurred on January 1, 2016. See “Definitions—Pro Forma Adjustments” for additional details. The unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of what Hilton’s results of operations would actually have been had the spin-offs occurred on the date indicated.

In addition to the pro forma financial information herein, refer to Hilton’s Current Report on Form 8-K filed with the SEC on January 4, 2017 for additional information.

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