Hilton Worldwide Holdings Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods unless noted. Amounts are in U.S. dollars.
Business context
Hilton operates a predominantly management-and-franchise hospitality model, alongside owned and leased hotels. At quarter-end, its system comprised 7,061 hotels and resorts, 1,111,147 rooms, and 146 million Hilton Honors members. Its development pipeline included 2,812 hotels and approximately 415,700 rooms.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenues | $2.368 billion | $1.749 billion | $6.329 billion | $3.952 billion |
| Operating income | $623 million | $432 million | $1.590 billion | $677 million |
| Net income attributable to Hilton stockholders | $347 million | $241 million | $927 million | $263 million |
| Diluted EPS | $1.26 | $0.86 | $3.32 | $0.94 |
| Adjusted EBITDA (non-GAAP) | $732 million | $519 million | $1.859 billion | $1.117 billion |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $1.199 billion | $(22) million |
Q3 revenue rose 35%, operating income 44%, and adjusted EBITDA 41%. Total revenue includes reimbursements from managed and franchised properties, with corresponding expenses; those pass-through amounts should be distinguished from fee revenue when assessing underlying growth. Q3 operating income was 26.3% of reported total revenue, a calculated ratio affected by those reimbursements.
System-wide comparable RevPAR rose 29.9% year over year in Q3, with occupancy up 8.7 percentage points and ADR up 14.5%. Q3 RevPAR was 5.0% above Q3 2019 on a comparable, currency-neutral basis, although occupancy remained 4.1 percentage points below that period. Nine-month 2022 RevPAR was 4.0% below the comparable 2019 period.
Cash, debt, and capital allocation
- Cash and cash equivalents were $1.282 billion, plus $80 million of restricted cash, at September 30, 2022. Combined cash and restricted cash was $1.362 billion.
- Total debt, before unamortized financing costs and discounts, was approximately $8.8 billion. The balance sheet reported $8.692 billion of long-term debt and $39 million of current maturities. Hilton reported $1.690 billion of available revolving-credit capacity after $60 million of letters of credit.
- Nine-month investing cash outflow was $98 million; financing cash outflow was $1.230 billion, including $1.092 billion of share repurchases and $82 million of dividends paid. Hilton resumed repurchases in March and regular dividends in June 2022.
- Hilton said it had no material indebtedness maturing before May 2025 and believed available liquidity would meet anticipated requirements for the foreseeable future, based on current conditions.
Changes, outlook, and risks
- Management attributed the recovery to stronger travel demand and the return of cross-border travel. All reported regions improved year over year; Europe recorded particularly strong RevPAR growth.
- Hilton added 211 hotels net, or 33,200 rooms, during the first nine months; net unit growth from the prior-year period was 4.5%. Management noted that economic conditions may delay openings and new development.
- The filing provides no specific numerical earnings or RevPAR guidance. Management cautioned that pandemic-affected interim periods may not indicate future performance.
- Risks highlighted include inflation, higher interest rates, labor shortages, supply-chain disruptions, renewed pandemic impacts, competition, third-party hotel-owner exposure, foreign-exchange movements, and geopolitical risks. Russia and Ukraine represented less than 1% of managed and franchised hotels and fee revenue; the conflict had not materially affected nine-month results.
- Potential cash outlays included $8 million under hotel performance guarantees and $124 million under debt guarantees and letters of credit. Hilton said pending litigation was not expected to materially affect its consolidated position, results, or cash flows, while noting an unfavorable outcome could affect a particular period.
- The company reported that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Investor verification points
- Separate recurring management, franchise, and licensing fees from reimbursed property revenue and expenses when evaluating revenue growth and margins.
- Assess the sustainability of the RevPAR recovery, especially the remaining occupancy gap versus 2019 and continued weakness in Asia Pacific associated with China restrictions.
- Monitor interest costs on the variable-rate term loan, debt service capacity, and the $1.69 billion undrawn revolver capacity.
- Review the pace and price of share repurchases, dividend commitments, and their effect on cash and shares outstanding.
- Track development-pipeline conversion, opening delays, hotel-owner guarantees, and the effects of inflation, labor availability, and foreign exchange.