HYATT INVESTOR DAY TO HIGHLIGHT ASSET-LIGHT TRANSFORMATION AND EXPECTATIONS FOR SIGNIFICANT EXPANSION IN FREE CASH FLOW
Reinstates Quarterly Dividend, Initiates at $0.15 Per Share |
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HYATT INVESTOR DAY TO HIGHLIGHT ASSET-LIGHT TRANSFORMATION AND EXPECTATIONS FOR SIGNIFICANT EXPANSION IN FREE CASH FLOW
Reinstates Quarterly Dividend, Initiates at $0.15 Per Share |
Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2023-05-22
Announces $1,055 Million Increase in Share Repurchase Authorization, resulting in $1.5 Billion Total Share Repurchase Authorization
Provides Full-Year 2023 Financial Guidance inclusive of Net Income and Adjusted EBITDA; Outlines Illustrative Cumulative Free Cash Flow Expectations through 2025
At its Investor Day today, Hyatt Hotels Corporation (“Hyatt” or the “Company”) (NYSE: H) intends to highlight the strategic actions the Company has taken to position it to become the preferred hospitality brand for high-end travelers in each segment that it serves, and the Company’s plans to build on its strong momentum to drive further growth and shareholder value.
Mark S. Hoplamazian, President and Chief Executive Officer of Hyatt, said, "Over the past several years, we have taken decisive actions to drive faster and more profitable growth by positioning Hyatt to become the preferred brand for the high-end traveler in each segment that we serve. We have launched and scaled new brands in high-growth segments, acquired asset-light, fee-based platforms with a focus on Luxury, Lifestyle and Resort, and invested in digital capabilities, all through a culture of agility and underpinned by our purpose. Taken together with the successful sell-down of a significant portion of our owned and leased assets, we believe we have great business momentum driving industry leading growth in rooms, fee revenue, and loyalty membership. We believe we are well positioned to build on our strong momentum and capitalize on global macro trends.”
Joan Bottarini, Chief Financial Officer of Hyatt, said, “With substantial free cash flow generated from asset-light earnings, together with cash generated from continued asset dispositions, we believe we will continue to have significant flexibility to invest in growth and return capital to shareholders, while maintaining our investment grade profile. We are also pleased to reinstate our quarterly dividend and increase our share repurchase authorization.”
At today’s Investor Day, Hyatt plans to highlight its asset light transformation and strategy for continued industry-leading growth and value creation:
- The strategic transformation of Hyatt’s portfolio positions the Company to become the premier brand for the high-end guest in each segment and to benefit from global macro trends, including strong growth in and guest attraction to all-inclusive experiences, the durability of leisure travel and the growing momentum in group and business transient demand. Hyatt has focused its growth to position it to become the premier brand and the preferred loyalty program for high-end customers in each segment. Hyatt has increased its mix of Luxury, Lifestyle and Resort rooms to 44% of the portfolio in 2022, vs. 32% in 2017. The acquisitions of Miraval, Two Roads Hospitality, Apple Leisure Group, and Dream Hotel Group since 2017 have significantly increased Hyatt’s brand presence in the fast-growing categories of all-inclusive, lifestyle and wellbeing, and the planned acquisition of Mr & Mrs Smith, expected to close in the second quarter of 2023, will expand its brand presence in luxury. The end-to-end solutions and leading market share in luxury all-inclusive of Apple Leisure Group, the Company’s largest and most transformative acquisition, are fueling growth and loyalty. Hyatt is also strategically expanding its portfolio in Upper-Midscale and Upscale, including the recent announcement of the Hyatt Studios brand, to enable more travelers to choose Hyatt hotels in additional segments, for all of their travel needs. Hyatt’s strategy is working: Since 2017, Hyatt has grown loyalty members by 260%, more than double the growth of its next closest primary competitor during that period.
- Hyatt has taken decisive actions to position the Company as high-growth, asset-light, and free-cash flow generative. Hyatt has launched and scaled several new brands and acquired asset-light, high-growth platforms, while monetizing a significant portion of its owned and leased assets. Since the Company’s IPO in 2009, Hyatt has tripled its number of hotels, nearly tripled the number of hotel rooms and quadrupled the number of pipeline rooms. Over the same period, Hyatt has grown annual free cash flow to $473 million in 2022 from $60 million in 2009 and increased the percentage of asset-light earnings mix to 75% from 37%. Through continued disciplined execution of this strategy, Hyatt illustrates a path to $750M in free cash flow and more than 80% asset-light earnings mix by 2025. The Company’s asset-light, fee-driven model increases earnings strength and predictability while significantly reducing capital expenditures, which the Company expects will be reduced to a run-rate of approximately $100 million by 2025.
- Hyatt has significant flexibility to continue to invest in growth and return capital to shareholders. Hyatt expects to generate approximately $3.0 billion of cash through the combination of Free Cash Flow and net cash generated from asset dispositions cumulatively from 2023 to 2025. The Company intends to deploy this cash to continue investing in high-growth, asset-light platforms and return capital to shareholders. Hyatt has reinstated the Company’s quarterly dividend, declaring a cash dividend of $0.15 per share for the second quarter of 2023, payable on June 12, 2023, to shareholders of record as of May 30, 2023. The Company also announced a $1,055 million expansion in the Company’s share repurchase authorization, resulting in a $1.5 billion total repurchase authorization. Share repurchases will be contingent on the pacing of asset sales and potential investment opportunities for growth. Hyatt remains committed to maintaining an investment grade profile.
Hyatt is pleased to showcase the results of the strong execution of its talented teams and an impressive illustrative long-term 2025 outlook that the Company believes will lead to continued value creation for shareholders.
2023 Outlook
The Company is reaffirming and expanding upon its previously provided outlook for full year 2023:
|
Full Year 2023 vs. 2022 |
|
| System-Wide RevPAR1 |
12% to 16% |
|
|
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|
|
Full Year 2023 vs. 2022 |
|
| Net Rooms Growth |
Approx. 6.0% |
|
|
|
|
| (in millions) |
Full Year 2023 |
|
| Net Income |
Approx. $225 |
|
| Adjusted EBITDA2 |
$1,020 – $1,070 |
|
| Net Deferrals |
Approx. $120 |
|
| Net Financed Contracts |
Approx. $60 |
|
| Capital Expenditures |
Approx. $200 |
|
| Total Adjusted SG&A2 |
$480 - $490 |
|
| One-Time Integration Costs3 |
Approx. $15 |
|
| Free Cash Flow2 |
Approx. $550 |
|
| 1 RevPAR is based on constant currency whereby previous periods are translated based on the current period exchange rate. RevPAR percentage for 2023 vs. 2022 is based on comparable hotels. |
| 2 Refer to the schedules attached to this release for a reconciliation of net income (loss) attributable to Hyatt Hotels Corporation to EBITDA and EBITDA to Adjusted EBITDA, selling, general, and administrative expenses to Adjusted selling, general, and administrative expenses, and net cash provided by operating activities to Free cash flow. |
| 3 One-time integration costs are related to acquisition activity and are included within Adjusted selling, general, and administrative expenses. |
| No disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the 2023 Outlook. The Company's long-term outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that the Company will achieve these results. |
About the Event and Live Webcast
The Company is hosting its 2023 Investor Day today at the luxury, all-inclusive Moxché Resort in Playa del Carmen, Mexico, with investors and analysts attending on site. Hyatt has created a highly personalized experience for its in-person guests enabling them to experience firsthand the Company’s purpose, to care for people so they can be their best. Additional stakeholders are invited to participate through the live webcast that can be accessed at Hyatt’s website investors.hyatt.com.
Webcast Replay
A replay of the meeting and the materials presented are available on the investor relations section of Hyatt’s website at investors.hyatt.com.
About Hyatt Hotels Corporation
Hyatt Hotels Corporation, headquartered in Chicago, is a leading global hospitality company guided by its purpose – to care for people so they can be their best. As of March 31, 2023, the Company’s portfolio included more than 1,250 hotels and all-inclusive properties in 75 countries across six continents. The Company's offering includes brands in the Timeless Collection, including Park Hyatt, Grand Hyatt, Hyatt Regency, Hyatt, Hyatt Residence Club, Hyatt Place, Hyatt House, Hyatt Studios, and UrCove; the Boundless Collection, including Miraval, Alila, Andaz, Thompson Hotels, Dream Hotels, Hyatt Centric, and Caption by Hyatt; the Independent Collection, including The Unbound Collection by Hyatt, Destination by Hyatt, and JdV by Hyatt; and the Inclusive Collection, including Hyatt Ziva, Hyatt Zilara, Zoëtry Wellness & Spa Resorts, Secrets Resorts & Spas, Breathless Resorts & Spas, Dreams Resorts & Spas, Hyatt Vivid Hotels & Resorts, Alua Hotels & Resorts, and Sunscape Resorts & Spas. Subsidiaries of the Company operate the World of Hyatt loyalty program, ALG Vacations, Unlimited Vacation Club, Amstar DMC destination management services, and Trisept Solutions technology services.
Hyatt Hotels Corporation
Reconciliation of Non-GAAP Financial Measure: Outlook: Income (Loss) Attributable to Hyatt Hotels Corporation to EBITDA and EBITDA to Adjusted EBITDA
No additional disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the 2023 Outlook. The Company's 2023 outlook and 2025 illustrative outlook are based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that the Company will achieve these results.
| (in millions) |
2023 Outlook Ranges |
|
|
Low Case |
|
High Case |
| Net income |
$197 |
|
$255 |
|
Interest expense |
127 |
|
127 |
|
Provision for income taxes |
141 |
|
154 |
|
Depreciation and amortization |
386 |
|
386 |
| EBITDA |
$850 |
|
$922 |
|
Contra Revenue |
45 |
|
45 |
|
Costs incurred on behalf of managed and franchised properties, net of revenues for the reimbursement of costs |
82 |
|
72 |
|
Equity (earnings) losses from unconsolidated hospitality ventures |
- |
|
- |
|
Stock-based compensation expense |
68 |
|
68 |
|
(Gains) on sales of real estate |
- |
|
- |
|
Asset impairments |
2 |
|
2 |
|
Other (income), net |
(89) |
|
(109) |
|
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA |
61 |
|
69 |
| Adjusted EBITDA |
$1,020 |
|
$1,070 |
|
|
|
|
|
|
Net Deferrals |
$120 |
|
$120 |
|
Net Financed Contracts |
$60 |
|
$60 |
| (in millions) |
2025 Illustrative
Outlook Ranges |
|
|
Low Case |
|
High Case |
| Net income |
$251 |
|
$419 |
|
Interest expense |
130 |
|
130 |
|
Provision for income taxes |
222 |
|
316 |
|
Depreciation and amortization |
336 |
|
336 |
| EBITDA |
$939 |
|
$1,201 |
|
Contra Revenue |
58 |
|
58 |
|
Costs incurred on behalf of managed and franchised properties, net of revenues for the reimbursement of costs |
54 |
|
24 |
|
Equity (earnings) losses from unconsolidated hospitality ventures |
- |
|
- |
|
Stock-based compensation expense |
74 |
|
74 |
|
(Gains) on sales of real estate |
- |
|
- |
|
Asset impairments |
- |
|
- |
|
Other (income), net |
(79) |
|
(119) |
|
Pro rata share of unconsolidated hospitality ventures Adjusted EBITDA |
63 |
|
71 |
| Adjusted EBITDA |
$1,110 |
|
$1,310 |
|
|
|
|
|
| Net Deferrals |
$120 |
|
$120 |
| Net Financed Contracts |
$70 |
|
$70 |
Hyatt Hotels Corporation
Reconciliation of Non-GAAP Financial Measure: Outlook: SG&A Expenses to Adjusted SG&A Expenses
No additional disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the forecast. The Company's outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that the Company will achieve these results. Results of operations as presented on the condensed consolidated statements of income (loss) include expenses recognized with respect to deferred compensation plans funded through rabbi trusts. Certain of these expenses are recognized in SG&A expenses and are completely offset by the corresponding net gains (losses) and interest income from marketable securities held to fund rabbi trusts, thus having no net impact to our earnings (losses). SG&A expenses also include expenses related to stock-based compensation. Below is a reconciliation of this forecasted measure excluding the impact of our rabbi trust investments and forecasted stock-based compensation expense.
| (in millions) |
2023 Outlook Ranges |
|
|
Low Case |
|
High Case |
| SG&A Expenses |
$546 |
|
$556 |
|
Less: Rabbi Trust Impact (a) |
- |
|
- |
|
Less: Stock Based Compensation Expense |
(66) |
|
(66) |
| Adjusted SG&A Expenses |
$480 |
|
$490 |
|
|
|
|
| (a) Impact of rabbi trust is not forecasted for the year ended December 31, 2023 as performance of underlying invested assets is not estimable. |
Hyatt Hotels Corporation
Reconciliation of Non-GAAP Financial Measure: Outlook: Net cash provided by operating activities to Free cash flow
No disposition or acquisition activity beyond what has been completed as of the date of this release has been included in the 2023 Outlook. The Company's 2023 outlook and 2025 illustrative outlook are based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company's expectations may change. There can be no assurance that the Company will achieve these results.
| (in millions) |
|
|
|
|
|
|
|
|
|
2009 |
|
2022 |
| Net Cash Provided by Operating Activities |
$276 |
|
$674 |
|
Capital Expenditures |
(216) |
|
(201) |
| Free Cash Flow |
$60 |
|
$473 |
| (in millions) |
2023 Outlook Ranges |
|
|
Low Case |
|
High Case |
| Net Cash Provided by Operating Activities |
$725 |
|
$775 |
|
Capital Expenditures |
(200) |
|
(200) |
| Free Cash Flow |
$525 |
|
$575 |
| (in millions) |
2025 Illustrative |
| Outlook Ranges |
|
|
Low Case |
|
High Case |
| Net Cash Provided by Operating Activities |
$750 |
|
$950 |
|
Capital Expenditures |
(100) |
|
(100) |
| Free Cash Flow |
$650 |
|
$850 |
Hyatt Hotels Corporation
Definitions
Adjusted Earnings Before Interest Expense, Taxes, Depreciation, and Amortization (Adjusted EBITDA) and EBITDA
We use the terms Adjusted EBITDA and EBITDA throughout this earnings release. Adjusted EBITDA and EBITDA, as we define them, are non-GAAP measures. We define consolidated Adjusted EBITDA as net income (loss) attributable to Hyatt Hotels Corporation plus our pro rata share of unconsolidated owned and leased hospitality ventures' Adjusted EBITDA based on our ownership percentage of each owned and leased venture, adjusted to exclude the following items:
- interest expense;
- benefit (provision) for income taxes;
- depreciation and amortization;
- amortization of management and franchise agreement assets and performance cure payments, which constitute payments to customers (Contra revenue);
- revenues for the reimbursement of costs incurred on behalf of managed and franchised properties;
- costs incurred on behalf of managed and franchised properties that we intend to recover over the long term;
- equity earnings (losses) from unconsolidated hospitality ventures;
- stock-based compensation expense;
- gains (losses) on sales of real estate and other;
- asset impairments; and
- other income (loss), net.
We calculate consolidated Adjusted EBITDA by adding the Adjusted EBITDA of each of our reportable segments and eliminations to corporate and other Adjusted EBITDA.
Our board of directors and executive management team focus on Adjusted EBITDA as one of the key performance and compensation measures both on a segment and on a consolidated basis. Adjusted EBITDA assists us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operations both on a segment and on a consolidated basis. Our President and Chief Executive Officer, who is our chief operating decision maker, also evaluates the performance of each of our reportable segments and determines how to allocate resources to those segments, in part, by assessing the Adjusted EBITDA of each segment. In addition, the compensation committee of our board of directors determines the annual variable compensation for certain members of our management based in part on consolidated Adjusted EBITDA, segment Adjusted EBITDA, or some combination of both.
We believe Adjusted EBITDA is useful to investors because it provides investors with the same information that we use internally for purposes of assessing our operating performance and making compensation decisions and facilitates our comparison of results with results from other companies within our industry.
Adjusted EBITDA excludes certain items that can vary widely across different industries and among companies within the same industry, including interest expense and benefit (provision) for income taxes, which are dependent on company specifics, including capital structure, credit ratings, tax policies, and jurisdictions in which they operate; depreciation and amortization, which are dependent on company policies including how the assets are utilized as well as the lives assigned to the assets; Contra revenue, which is dependent on company policies and strategic decisions regarding payments to hotel owners; and stock-based compensation expense, which varies among companies as a result of different compensation plans companies have adopted. We exclude revenues for the reimbursement of costs and costs incurred on behalf of managed and franchised properties which relate to the reimbursement of payroll costs and for system-wide services and programs that we operate for the benefit of our hotel owners as contractually we do not provide services or operate the related programs to generate a profit over the terms of the respective contracts. Over the long term, these programs and services are not designed to impact our economics, either positively or negatively. Therefore, we exclude the net impact when evaluating period-over-period changes in our operating results. Adjusted EBITDA includes costs incurred on behalf of our managed and franchised properties related to system-wide services and programs that we do not intend to recover from hotel owners. Finally, we exclude other items that are not core to our operations, such as asset impairments and unrealized and realized gains and losses on marketable securities.
Adjusted EBITDA and EBITDA are not substitutes for net income (loss) attributable to Hyatt Hotels Corporation, net income (loss), or any other measure prescribed by GAAP. There are limitations to using non-GAAP measures such as Adjusted EBITDA and EBITDA. Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income (loss) generated by our business. Our management compensates for these limitations by referencing our GAAP results and using Adjusted EBITDA supplementally.
Asset Light Earnings Mix
Asset-Light Earnings Mix is calculated as Adjusted EBITDA from the Americas Management and Franchising Segment, ASPAC Management and Franchising Segment, EAME Management and Franchising Segment, and Apple Leisure Group Segment plus Net Deferrals and Net Financed Contracts divided by Adjusted EBITDA, excluding Corporate & Other and Eliminations, plus Net Deferrals and Net Financed Contracts. Our management uses this calculation to assess the composition of the Company’s earnings.
Adjusted Selling, General, and Administrative (SG&A) Expenses
Adjusted SG&A expenses, as we define it, is a non-GAAP measure. Adjusted SG&A expenses exclude the impact of deferred compensation plans funded through rabbi trusts and stock-based compensation expense. Adjusted SG&A expenses assist us in comparing our performance over various reporting periods on a consistent basis because it removes from our operating results the impact of items that do not reflect our core operations, both on a segment and consolidated basis.
Revenue per Available Room (RevPAR)
RevPAR is the product of the average daily rate and the average daily occupancy percentage. RevPAR does not include non-room revenues, which consist of ancillary revenues generated by a hotel property, such as food and beverage, parking, and other guest service revenues. Our management uses RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a regional and segment basis. RevPAR is a commonly used performance measure in our industry.
RevPAR changes that are driven predominantly by changes in occupancy have different implications for overall revenue levels and incremental profitability than do changes that are driven predominantly by changes in average room rates. For example, increases in occupancy at a hotel would lead to increases in room revenues and additional variable operating costs, including housekeeping services, utilities, and room amenity costs, and could also result in increased ancillary revenues, including food and beverage. In contrast, changes in average room rates typically have a greater impact on margins and profitability as average room rate changes result in minimal impacts to variable operating costs.
Net Financed Contracts
Net Financed Contracts represent Unlimited Vacation Club contracts signed during the period for which an initial cash down payment has been received and the remaining balance is contractually due in monthly installments over an average term of less than 4 years. The Net Financed Contract balance is calculated as the unpaid portion of membership contracts reduced by expenses related to fulfilling the membership program contracts and further reduced by an allowance for future estimated uncollectible installments. Net Financed Contract balances are not reported on our consolidated balance sheets as our right to collect future installments is conditional on our ability to provide continuous access to member benefits at ALG resorts over the contract term, and the associated expenses to fulfill the membership contracts become liabilities of the Company only after the installments are collected. We believe Net Financed Contracts is useful to investors as it represents an estimate of future cash flows due in accordance with contracts signed in the current period. At March 31, 2023, the Net Financed Contract balance not recorded on our condensed consolidated balance sheet was $203 million.
Net Deferrals
Net Deferrals represent the change in contract liabilities associated with the Unlimited Vacation Club membership contracts less the change in deferred cost assets associated with the contracts. The contract liabilities and deferred cost assets are recognized as revenue and expense, respectively, on our condensed consolidated statements of income (loss) over the customer life, which ranges from 3 to 25 years.
Free Cash Flow
Free cash flow represents net cash provided by operating activities less capital expenditures. We believe free cash flow to be a useful liquidity measure to us and investors to evaluate the ability of our operations to generate cash for uses other than capital expenditures and, after debt service and other obligations, our ability to grow our business through acquisitions and investments, as well as our ability to return cash to shareholders through dividends and share repurchases. Free cash flow is not necessarily a representation of how we will use excess cash. Free cash flow is not a substitute for net cash provided by operating activities or any other measure prescribed by GAAP. There are limitations to using non-GAAP measures such as free cash flow and management compensates for these limitations by referencing our GAAP results and using free cash flow supplementally.
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