Hyatt Hotels Corp

Good morning and welcome to the Hyatt Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star 1 on your telephone. As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President, Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for Hyatt's third quarter 2022 earnings conference call. Joining me on today's call are Mark Hoplamazian, Hyatt's president and chief executive officer, and Joan Botterini, Hyatt's chief financial officer. Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as is described in our annual report on Form 10-K. Quarterly reports on Form 10Q and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the financial reporting section of our investor relations link. and in this morning's earnings release. An archive of this call will be available on our website for 90 days. And with that, I'll turn the call over to Mark.

Thank you, Noah. Good morning, everyone, and welcome to Hyatt's third quarter 2022 earnings call. Before we begin, I would like to address Hurricanes Ian and Fiona. Guided by our purpose of care, the Hyatt family came together to support impacted colleagues and communities in both Florida and the Dominican Republic including funds provided by Hyatt, a colleague-created fund, and a donation by the Hyatt Hotels Foundation to the American Red Cross relief efforts. To all of our colleagues who continue to show unbelievable generosity and care, thank you. And to all of our colleagues who continue to require assistance, the Hyatt family is here for you. As we dive into our results, I'd like to first acknowledge an important milestone in the history of Hyatt that was reached during the quarter. our 65th anniversary since Hyatt's founding by the Pritzker family. From opening the first hotel in 1957 to opening our 1200th hotel this past quarter, we're reminded of our incredible transformation over this time. And our results in this quarter reflect the impressive momentum we are building. It is a point of pride for the entire Hyatt family that we honor this anniversary with the strongest third quarter in the company's history, building upon the record of performance that we delivered last quarter. The significant growth in our core business and the contribution from ALG continue to fuel our record results. Through the first nine months of this year, we have already generated $676 million of adjusted EBITDA plus $66 million of net deferrals and $48 million of net finance contracts. To put the magnitude of our growth into perspective, the sum of these three numbers is more than 40% above the $563 million of adjusted EBITDA we generated during the first nine months of 2019. The combination of the aggregate financial results, the significant shift in our mix of earnings, and the increasing levels of conversion of earnings into cash flow all demonstrate the success of our transformation towards an asset lighter business model and reflect excellent execution of our leaders and our teams globally. In addition to ALG continuing to perform well ahead of expectations, our legacy Hype business is also generating adjusted EBITDA at record levels when adjusting for the net impact of asset dispositions. And it's notable that these strong results have been achieved while group, business transient, and cross-border travel were in a state of limited recovery during the first half of this year, with system-wide rest power 14% below 2019 levels over that timeframe. However, as the third quarter demonstrates, all segments are rapidly improving. Meetings are back in full force. Corporate customers are traveling once again, and the vast majority of the world is now reopened to cross-border travel. Additionally, serving as a backdrop for our continued optimism, the sustained strength of demand from our leisure guests shows no signs of softening. It's clear that people are prioritizing experiences and connection. As we see in the upcoming festive season where our resorts are pacing 30% ahead of 2019 or the amount of group business being booked into 2023 at our America's Full Service managed properties, which is 30% higher than 2019 levels. There's ample room for further growth of travel spent as the underlying behavioral drivers of travel demand are powerful and durable. and will, in our opinion, propel travel back to its pre-pandemic share of wallet relative to the broader economy. Our performance this quarter reaffirms the earnings power of Hyde's unique positioning with our focus on the higher-end customer, our industry-leading growth, and our concentration of revenue derived from leisure and group segments, all amplified by the positive operating leverage in our business. The result is a model that is producing significant growth in earnings and free cash flow, allowing us to invest opportunistically to grow our fee business and, at the same time, buy back approximately $290 million worth of shares through the first 10 months of this year at attractive prices. In addition, the meaningful progress we have achieved toward our asset-light disposition goal has provided liquidity to reduce our outstanding debt by $836 million year to date through October, demonstrating our ongoing commitment to our investment grade profile. In summary, we are operating from a position of strength as we continue to extend our efforts to scale care for each of our stakeholders as we rapidly transform Hyatt in a way that we believe is truly differentiated from other players in the industry. our momentum remains extremely strong. Since our last earnings call, we announced three strategic deals that further transform Hyatt. And as a result of these announcements, and with special reference to Lindner Hotels, we are raising our full year 2022 net rooms growth guidance to approximately 6.5%. Let me take a moment to highlight these asset-like deals that broaden our representation in key markets and service platforms for growth into the future and create compelling experiences for our guests. First, our agreement with Lindner Hotels, which is a family-run German hospitality business. This agreement will significantly increase the number of franchise properties in Europe, bringing a collection of more than 30 vibrant hotels and 5,500 rooms into the GDB by Hyatt brand. with the majority of these hotels expected to join our system by the end of this year. Representing the next phase of our growth story in Europe, this deal expands our brand footprint into 15 new markets and meaningfully grows our scale across Germany, a key source market that will strengthen our network effect throughout Europe. With the inclusion of Lindner, we will have grown our room count in Europe by nearly 25,000 rooms and will have tripled in size over the past four years, and we are just getting started. Second is our joint venture with Kyaku to launch Atona, a new luxury hospitality brand of modern-style hot springs ryokans in Japan. This joint venture increases Hyatt's luxury footprint and fills a unique opportunity to be the first international company to enter the ryokan space. We are doing so through a scalable platform that will provide a deeply unique set of experiences for our guests. Development plans are underway and we expect to open the first Atona branded RioCons by 2025. Third is the addition of five all-inclusive resorts in Bulgaria, further strengthening our leadership position in the all-inclusive category as we grow in new markets in Europe. This announcement with a pre-existing Hyatt property owner marks the planned entry of our all-inclusive resorts, all under ALG brands, into a third European country, joining locations in Spain and Greece, and enables us to attract a diverse group of travelers seeking immersive, all-inclusive resort experiences. We expect the majority of the resorts to open under our brands in 2023. The deals share the common thread of driving asset-like growth and enriching the breadth of experiences for our guests. The third parties in these deals have chosen to work with us because of our expertise and proven track record in lifestyle and all-inclusive brands. We're cultivating a unique portfolio that drives deepening loyalty, leading to stronger connectivity and engagement with our members. This is further evident when looking at the World of High program, where membership has increased by 20% in the past 12 months alone. It's not just our guests who are taking notice. The World of Hype program was recently named the world's number one best hotel rewards program by U.S. News & World Report. Looking ahead, we're pursuing other asset-like platform opportunities beyond our ongoing organic growth through individual development deals. The unique nature of these opportunities is driven by both the positive attributes of our network that I just described and the realization by many owner-operators that the financial commitment and complexity to successfully scale a brand and management platform are increasingly formidable. As always, we'll stay highly disciplined both in terms of quality and economic value creation and look forward to keeping you informed of our progress in this area. Moving to our latest business trends, comparable system-wide REVPAR for our legacy-high business was up 2% in the third quarter compared to 2019. We're up 5% when excluding greater China. The strength and breadth of our recovery has been remarkable. On a comparable system-wide basis, our managed and franchised hotels generated 40% more in rooms and food and beverage revenue in the third quarter as compared to the first quarter of this year. Redfar has strengthened across the world with nearly all of our major geographic areas outside of Asia Pacific now trending well ahead of 2019 levels. In the third quarter, we experienced extraordinary growth in Europe, South Asia, Latin America, and the Caribbean, all of which were more than 20% ahead of 2019 levels. The United States continued to strengthen with REFAR growth of 3% in the third quarter versus 2019. Asia Pacific was the only region that continued to lag in the recovery, though we remain encouraged. From a segmentation perspective, we experienced another record quarter of leisure transient revenue, which was up 20% to 2019 levels on a comparable system-wide basis. Outsized leisure demand has continued into the fall, and we see no meaningful shifts in booking behavior to suggest that this is changing. Leisure transient revenue is pacing more than 20% ahead of 2019 for the remainder of 2022 and into the first quarter of 2023. Group room revenue also experienced momentum during the third quarter, finishing approximately 3% below 2019 levels with very strong bookings during the quarter for future periods. We anticipate that October, typically our busiest group buff of the year, will finish ahead of 2019 levels. Further, bookings into 2023 have been robust. In the third quarter, we booked 30% more in group business into 2023, for our America's full service managed properties as compared to the same booking period in 2019. And the rates at which we are booking business are more than 17% higher. In addition, adding to our optimism is the recent experience of our sales leaders at IMEX, a top meeting planner conference. The tone from the top 1500 US meeting planners was enthusiastic and optimistic and we've seen continued strength in near-term demand. There is strong pent-up demand, and we expect to see a continued acceleration in group business. As for business transient, we've been pleased to see a notable acceleration in demand with revenue trending at approximately 80% of 2019 levels in the post-Labor-Day period in September, with further improvement into October. We're seeing strong recovery in certain sectors that have previously lagged, such as tech, manufacturing, and entertainment. Given our conversations with customers and executives, we expect Business Transient to continue this positive trajectory in the months ahead. Turning to ALG, I'd like to take a moment to recognize the one-year anniversary of our acquisition, which established Hyatt as having the largest portfolio of luxury all-inclusive resorts in the world and accelerated our asset-light transformation and net rooms growth. This quarter, ALG performed exceptionally well with net package REVPAR for all inclusive properties managed by ALG in the Americas up 29% in the third quarter compared to 2019. Looking ahead, gross package revenue, which typically has a longer booking window, is pacing approximately 30% ahead of 2019 for the remainder of the year and as we look into the first quarter of 2023. It's very encouraging to see PACE more than 16% ahead of 2022, suggesting continued strength across the ALG portfolio next year. In summary, as we assess overall business trends, we maintain our optimistic outlook. Future bookings remain strong, and the performance of our hotels post-Labor Day has exceeded our expectations, with Group and Business Transient showing encouraging momentum. Conversations with corporate customers continue to suggest further recoveries ahead for Group and Business Transient, and Leisure Transient shows no sign of slowing, as evidenced by the strong bookings at our resorts through the first quarter of 2023. Moving to real estate transactions, in October, we sold the High Regency Greenwich in Connecticut, resulting in gross proceeds of $40 million. And as we have consistently done in the sale of our hotel assets, we entered into a long-term agreement to maintain our brand, in this case, with Hyatt continuing to manage the hotel. In addition, we sold the entity that was the lessee of the Hyatt Regency Mines in Germany and entered into a long-term franchise agreement. With these transactions, we've realized $721 million in proceeds from asset sales at an average multiple of 15 times towards our $2 billion sell-down commitment net of the $135 million acquisition of Hotel Irvine we announced last quarter. We continue to pursue the sale of one existing small asset, and we've launched a marketing process for the sale of one additional hotel. We continue to be very focused on realizing the most attractive valuations and securing durable long-term management or franchise agreements. and we remain highly confident in achieving our sell-down commitment. To be very clear, our sell-down commitment is net of any acquisition activity. In closing, it was another tremendous quarter, both in terms of our financial results and progress towards our strategic goals. The asset-light deals we announced will materially expand our presence at high barrier to entry markets and are expected to provide platforms for future growth for years to come. Lastly, despite an uncertain macroeconomic backdrop, we continue to see demand accelerating with no signs of slowing as our guests and our business customers prioritize experiences and connection. We remain very optimistic and are thrilled with the transformation that is underway. I'll now turn it over to Joan to provide additional details on our operating results. Joan, over to you.