Hilton Worldwide Holdings Inc. — 2024 Q1

Sure. Happy to cover that. That's a broad array of topic so really -- really artful questions, Stephen. I would say when you flush it all out, obviously, and Kevin covered it in his prepared comments, the first quarter from a RevPAR point of view is a little bit lighter than we thought, but sort of easily explained on the basis of what Kevin already talked about. We had a lot more under construction than we had anticipated, which is a good thing, but not enough rooms out of inventory in a lot of those assets, particularly in our limited service brands to take it out of the comp set. So that weighed on is weather, definitely, we didn't anticipate what was going on -- what happened in the Northeast at the beginning of the year.

Yes, modestly. I mean we think they will be lower in performance, but we think our forecasting and outlook is they will be positive but modestly so. And those were impacted in the first quarter by the things -- more dramatically by the things that I described. And by the way, comparability because the first -- if you look broadly in the first quarter over the last year, from the standpoint of how we perform relative to the industry overall, we had a much better performance than the industry, and that was really driven by the select service brands. And so they have lapped in the first quarter over very, very difficult comps. That gets easier, pretty difficult comps in Q2 for the record as well, but we think that gets much easier in the second half of the year from a comp issue. And so our expectation is they would be positive but lower than other higher chain scales.

Yes. Taking one at a time. In terms of Group and BT versus '19, they are both eclipsing from a revenue point of view, but from a demand occupancy point of view, they're both below business transient modestly, pretty minor. Group a little bit more so, I think, like 500 basis points or something like that is from memory. They can, in fact, check me. And that has -- so let me cover in reverse order business transient is, I mean Group is just a function of gestation period for this to ramp up. I think by the time you get to the second half of the year, and certainly, by the end of the year, Group demand will be finally back to where -- just based on the underlying strength in that space.

Yes. Thanks. I'm going to ask Kevin to take that.

Yes, Shaun, I'll take this one. I think, yes, in the U.S., we're seeing so far is in line with our expectations, right? The Easter calendar shift is flipping back the way we thought April is in line with what we thought. And so if you think about our 2% to 4% guide for the whole company, I think the U.S. will be at the lower end of that range, but I think you'll see the U.S. go back to positive I think around the rest of the world, I said it in my prepared remarks, but Europe remains really resilient, up 10% in the quarter. There's a lot of noise in the economy in various European economies and war and whatever else is going on, it still seems to push through, and we still seem to get pretty good performance. APAC, the same thing.

Yes. The other thing -- I think that's all perfect, I would add on relative to China is we are also, while people aren't coming into China, we are starting to see that shift. There are a lot more flights that are going to start in the second and third quarter that are going to be going from major destinations, including the United States into China, which is going to help. But we are also seeing is the Chinese customer and as much as we think will sort of be flattish this year because there was a huge surge in Chinese were staying in China and traveling all over China, and now they're leaving. We are a net beneficiary of that and other parts of Asia.

Yes, sure. I mean, part of it is, as you said, it's a mix. I mean, in parts of the world where we have more managed hotels is driving more management fees and incentive management fees. We had good performance in license fees, as we mentioned, were up ahead of the broader business. And then our purchasing business has been really strong as it continues to grow. And that you see showing up in other -- that business has continued to take share even outside of our system, it continues to take rate, and it's performing really well. So that's been a positive driver there as well.

Yes. I mean we did say last time that we were going to incorporate SLH into it, and that is incorporated into our 6% to 6.5%. We ultimately will add in Graduate, but just we think the better convention is to add both the EBITDA and earnings impact and the net NUG impact once closed so that is not in that. I think the way to think about it going forward is the SLH is going to be probably coming into our system over the next couple of years. It's early days, but so far, we really like what we're seeing. We're getting a very, very high percentage of existing SLH members in the markets that we have been out and with SLH marketing to sign up and want to come into the system. And we have no reason to believe that won't continue, getting the technology and all that done, which is people are working on both sides very, very diligently on. We'll start to get us to the other side and incorporating assets and the ability for our customers to book through our channels and honors, earn and burn and all of that, sometime probably middle or late summer so I mean, it's a little bit of a moving feast.

Yes, sure. I mean I think the percentage under construction is from both. I don't have the breakdown right in front of me, but it's definitely from both and then somewhat driven by slightly higher. We've been talking about a slightly higher percentage of conversions. So those go under construction more quickly. And so as you do those, it moves the percentage of the pipeline that's under construction a little bit. I think in terms of the atmospherics, I think, look, you hear -- we all hear from a lot of developers, you probably talk to developers. It's still challenging the labor cost side of it and the raw materials cost side of it, those dramatic increases that we saw during COVID have leveled off. So that's a good news story.

Yes. I mean timing will be -- it will largely reverse in the second quarter. It's not huge. It's sort of $5 million to $10 million of timing items in the first quarter. And then to sort of just finish the story at the risk of doing modeling live on the call. But we did increase our guidance at the midpoint by $45 million, but that has a headwind -- an incremental headwind in and of about $10 million to $15 million, closer to $15 million of FX over the course of the year. So we did, in fact, carry through a little bit more than the beat in terms of our outlook for the year.

Yes. I don't have the data point in my head, but I do know this. Yes, it's building for '25, '26. I believe both years are sort of high single, low double-digit increases relative to where we've been in the past. So yes, I mean, they're putting the data in front of me. So my memory is right, 13% and 15% up in '25 and '26.

Yes. Look, we think it will -- it is a very strong brand. There's a reason why we wanted to partner with them/controlling interest in that company. It is small today, but it's been a little bit bigger over time, such a well-known brand in the community. And we think that brand will compete really effectively combined with our engines and the strength of our system, compete really effectively with the other luxury lifestyle brands that are out there, and we think it can be upwards of 100 hotels over time. And so most of those will be -- there'll be some conversions, but a lot of them will be new build. So it will be a little bit longer burn, and it's a little bit smaller segment than some of our other scale brands, but we think it will fit in nicely and contribute positively to our NUG over time.

And what we really love about it is we did as I've talked about, it seems like time and eternity, luxury lifestyle. We did a huge amount of work because one of the options was to do this on our own, which you know we are pretty good at and like to do historically. And as we did the work over the last bunch of years, sort of like because this is always benefit in the skunk works, and I'm not exaggerating, this is sort of the ethos of what Andrew Zobler and his team have created a sort of bull's-eye for what we think is modern luxury lifestyle today and going forward in terms of what customers are looking for.

Sorry, Duane, I didn't quite catch the first part of your question.

Yes, I think it's a bit of both without getting into too much detail. There was a touch of the timing was in fees, but a lot of it is strength. And like I said earlier in one of my answers, in the parts of the world where our managed business is bigger and the segments in the U.S. with urban hotels where our managed business is bigger, we think incentive management fees will continue to be a strong contributor over the course of the year, and that's sort of all baked into our guidance. So no anomalies in there.

Yes. Honors occupancy was, I think, at our historical high 64% and change up like 300 to something -- a little over 300 basis points year-over-year. And so Honors is working. Our customers are engaged more than I think any other program that is out in the industry. We do have a bunch of things that we are doing. Some of them you've seen that are -- what we're doing with SLH, what we're doing with AutoCamp, you should expect to see more not like Graduate type things, but more partnerships particularly in the experiential area. I think I talked about it on the last call so more AutoCamps, I think areas like safaris and yachts and other riverboat cruises and other things because we know that our customers -- those are adjunct sort of travel experiences that connect to our business that gives our base of customers, incremental things to engage with us that they want to do and is not in conflict in any way with our business, but we think is synergistic.

Yes. I mean we do think the Olympics will be a nice positive for Europe broadly and obviously, for Paris and France. I mean our -- it's not going to dramatically impact our numbers just because Europe is a pretty big part of our portfolio. But if you look at France, while we're present in a lot of markets in France. We're not -- it's not a large portion of our portfolio. So it will be great, and it will help, but it's not going to help as much as if it was in New York City or summer where we had a huge density hotels.

I think you answered it, large. That has more to do with seasonality than anything. And the calendar shift because remember, Leisure is sort of 25% or 30% of our business and because of the calendar -- because of the holiday shift, it ended up being a big leisure quarter, which meant Leisure was good, but the reality is then 70%, 75% of the business was not. And so I think it's a seasonal plus the compounding impact of the movement of the holiday. So I do think -- I mean, listen, we sort of got -- we got pretty close in December. So I mean, by the fourth quarter of last year, we were pretty tight on 2019 levels.

Yes, Conor. It sort of depends on -- it's sort of a little bit deal dependent, right? Sometimes it often depends on which flags are available in that particular market. It depends on where you are at the upper end in luxury, there's a lot more competition because there's just more brands. And then when you get into the sort of the middle tiers and below, there's us and a couple of others that -- not to be competitive that sort of maybe fight for second place when we're not available. So yes, we do really well. I think for the full year last year, in the U.S., we did 40% of all conversion deals that were done in the U.S.

Yes. I think it's really across the board. They're seeing the same dynamics. The Group demand is strong, business, Leisure, particularly with the strength of the dollar that sort of buys more for leisure travelers going over there, it's really been across the board.

A little bit, but I think it's good blocking and tackling. And we -- our flow-through of revenue to EBITDA, we think, is consistent with what we've been saying and outlining 50 -- low 50s and what we described at Investor Day. So Q1 is, I think, a good demonstration of great discipline in running the business even when top line was a little bit lighter than what we had hoped for.

Yes. And again, I think I said this before, but when it comes from fees, right, I mean, that's obviously our highest margin business. And so an incremental dollar of fees and IMF drops straight to the bottom line. So when the strength comes from the fee segment, which probably will continue to because that's our largest segment and our fastest-growing segment, you're going to continue to see better flow-through and margin growth.

Thanks, everybody. As always, we appreciate you dedicating this much time as we've described. We feel good about the business, good about momentum, good about where broadly economies are to deliver the results that we've talked about and super good about the momentum we have on the development side. And we will look forward to talking to you this summer after we complete Q2. Thanks again and talk soon.