Hilton Worldwide Holdings Inc. — Q3 2021 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2021. Hilton operates, manages and franchises hotels and resorts, with a smaller owned and leased hotel business. At quarter-end it had 6,758 properties, 1,061,686 rooms and operations in 122 countries and territories. Results remained affected by COVID-19 and are not directly comparable with pre-pandemic periods. Reported total revenue includes substantial managed-property reimbursements and related expenses.
Financial and operating metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $1.749 billion | $933 million | $3.952 billion | $3.417 billion |
| Operating income (loss) | $432 million | $11 million | $677 million | $(223) million |
| Net income (loss) attributable to Hilton | $241 million | $(79) million | $263 million | $(491) million |
| Diluted EPS | $0.86 | $(0.29) | $0.94 | $(1.77) |
| Adjusted EBITDA | $519 million | $224 million | $1.117 billion | $638 million |
| Operating cash flow | Not separately stated here | Not separately stated here | $(22) million | $846 million |
Q3 system-wide comparable RevPAR was $90.39, up 98.7% year over year; occupancy was 64.3% and ADR was $140.57. RevPAR and ADR remained 18.8% and 2.5% below Q3 2019, respectively. For the nine months, system-wide RevPAR rose 47.6% year over year.
At September 30, cash and cash equivalents were $1.288 billion, with $99 million of restricted cash. Total indebtedness was approximately $8.9 billion, excluding unamortized financing costs and discounts. Hilton had $1.69 billion available on its revolving credit facility after repaying its outstanding balance; $60 million of letters of credit were outstanding. Current and long-term debt on the balance sheet totaled $8.767 billion.
Material changes versus prior comparable periods
- Q3 revenue and operating income improved substantially from the pandemic-affected 2020 quarter, led by recovery in travel, higher occupancy and fees, and fewer suspended hotels. Nearly all system properties were open at quarter-end.
- Nine-month operating cash flow fell to a $22 million outflow from $846 million provided in 2020. The comparison was affected by the $1 billion Hilton Honors points pre-sale cash receipt in 2020; increased contract acquisition costs also weighed on 2021 cash flow.
- Debt fell from approximately $10.6 billion at December 31, 2020 to $8.9 billion. Hilton issued $1.5 billion of 3.625% notes due 2032, redeemed $1.5 billion of 5.125% notes due 2026, and repaid $1.69 billion on its revolving facility. Debt extinguishment cost $69 million in the first nine months.
- Share-based compensation increased to $144 million for the nine months from $37 million, contributing to higher general and administrative expense. No dividends or share repurchases were made in the period.
Outlook, risks and unusual items
Management reported improving travel demand and expected nearly all hotels suspended due to the pandemic to be open by year-end 2021. Hilton said its cash position and available liquidity were expected to meet anticipated requirements for the foreseeable future based on current conditions. No quantified earnings or revenue guidance was provided. Hilton expected capital spending to rise as recovery progressed, and said dividends and repurchases could resume in future periods, subject to conditions and capital needs.
Key uncertainties include COVID-19 and new variants, travel restrictions, labor shortages, supply-chain disruption, hotel-owner and development risks, competition, foreign-exchange and interest-rate exposure, and the company’s indebtedness. Hilton cited approximately $817 million of proposed additional federal taxes, excluding interest, penalties and potential state taxes, in disputed IRS matters for 2006–2013; it had recorded $86 million of unrecognized tax benefits related to those issues. Total unrecognized tax benefits were $438 million. A U.K. tax-rate change generated a $30 million tax benefit in the nine-month period.
Other exposures include six hotel performance guarantees with possible cash outlays of approximately $20 million, a $10 million loan guarantee, and up to approximately $10 million of contingent hotel capital expenditure funding. Hilton stated it did not expect pending litigation to materially affect its consolidated position, results or cash flows, while noting an unfavorable resolution could affect a particular period. Its $8 million loss on asset sales was recorded in the nine months.
Investor verification priorities
- Assess recovery against Q3 2019 benchmarks, especially the remaining RevPAR gap and regional differences; Asia Pacific recovery was constrained by ongoing restrictions.
- Reconcile cash generation with reported earnings, including the impact of deferred revenues, loyalty-program liabilities and contract acquisition spending.
- Review debt maturities, interest costs, available revolver capacity and the company’s ability to sustain liquidity if recovery slows.
- Track the IRS dispute, unrecognized tax benefits and other tax audits, including potential interest, penalties and state-tax exposure.
- Monitor contingent guarantees and commitments, hotel reopening and development pipeline execution, and any restart of dividends or share repurchases.