Hilton Worldwide Holdings Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Hilton operates managed, franchised, owned and leased hotels and resorts. At quarter-end, its system comprised 6,983 properties and 1,098,321 rooms across 122 countries and territories.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $2.240 billion | $1.329 billion | $3.961 billion | $2.203 billion |
| Operating income | $598 million | $224 million | $967 million | $245 million |
| Net income attributable to Hilton stockholders | $368 million | $130 million | $580 million | $22 million |
| Diluted EPS | $1.32 | $0.46 | $2.07 | $0.08 |
| Adjusted EBITDA | $679 million | $400 million | $1.127 billion | $598 million |
- Q2 revenue increased 69% year over year; first-half revenue rose 80%. Reported total revenue includes reimbursed costs from managed and franchised properties ($1.267 billion in Q2), which are substantially offset by related expenses. Revenue excluding those reimbursements was $973 million in Q2.
- Q2 system-wide comparable RevPAR increased 54.3% year over year, driven by a 27.5% increase in ADR and a 12.3 percentage-point increase in occupancy. Versus Q2 2019, system-wide RevPAR remained 2.1% lower and occupancy 6.7 percentage points lower, while ADR was 7.1% higher.
- Regional recovery was uneven: Asia Pacific Q2 RevPAR declined 5.3% year over year, primarily due to COVID-related restrictions in China. Other reported regions improved.
- First-half operating cash flow was $528 million, versus cash used of $300 million in the prior-year period. Investing activities used $94 million; financing activities used $679 million. Cash, cash equivalents and restricted cash totaled $1.254 billion at June 30, 2022.
- Long-term debt was $8.7 billion on the balance sheet; total indebtedness before unamortized financing costs and discounts was approximately $8.8 billion. The $1.75 billion revolving facility had $1.690 billion available after $60 million of letters of credit. No material debt maturity was due before May 2025.
- Hilton reported a stockholders’ deficit of $789 million. It resumed share repurchases and quarterly dividends: first-half repurchases were $610 million and dividends paid were $41 million. The quarterly dividend declared was $0.15 per share.
Changes, outlook and risks
- Recovery and growth: Management attributed higher fees and hotel results to recovering travel demand, stronger occupancy and ADR, and system expansion. First-half net room additions were 21,100, contributing to 4.5% net unit growth; the development pipeline was 2,777 hotels and 413,200 rooms.
- Profit and tax: First-half income before tax was $804 million, compared with a $17 million loss in 2021. Income tax expense was $226 million, versus a $36 million benefit in the prior period. The 2021 period included a $69 million debt-extinguishment loss.
- Ownership segment: It returned to operating income in Q2 ($20 million), but recorded a $17 million operating loss for the first half, reflecting fixed rents and other costs.
- Outlook: The filing provides no specific numerical earnings or revenue guidance. Management said liquidity sources should meet anticipated requirements for the foreseeable future under current conditions, and expects American Express to continue purchasing Hilton Honors points for cash under the co-branded card arrangement.
- Risks and contingencies: Management cited COVID-19 and potential renewed restrictions, inflation, rising interest rates, labor shortages, supply-chain disruption, hospitality-industry conditions, competition, third-party owner exposure, foreign-exchange risk and the Russia-Ukraine conflict. Russia and Ukraine accounted for less than 1% of managed and franchised hotels and fee revenue, and the conflict had not materially affected first-half results. Potential cash outlays included $124 million under debt guarantees and letters of credit and $8 million under performance guarantees. Hilton said pending litigation was not expected to have a material adverse effect, while noting an unfavorable outcome could affect a particular period.
Important facts for investors to verify
- Whether the pace of RevPAR recovery, especially in Asia Pacific, continues and how results compare with pre-pandemic levels.
- How much of reported revenue growth translates into fee revenue and operating cash flow, given the large reimbursed-property revenue and expense amounts.
- Whether cash generation can support debt service, dividends and share repurchases; first-half shareholder returns contributed to financing cash outflows.
- Potential effects of inflation, interest rates, labor and supply constraints, renewed travel restrictions, and contingent guarantees on future results and liquidity.