H World Group Ltd (NASDAQ:HTHT) Q2 2022 Earnings Conference Call August 29, 2022 9:00 PM ET Company Participants Jason Chen - IR Director Ji Qi - Founder & Executive Chairman Jin Hui - CEO Ye Fei - Deputy CFO & VP, Strategic Investment and Capital Market Conference Call Participants Billy Ng - Bank of America Merrill Lynch Simon Cheung - Goldman Sachs Group Sijie Lin - CICC Operator Good day, and thank you for standing by. Welcome to the H World Group Conference Call. I would now like to hand the conference ...

Financial Performance - In Q2 2022, hotel revenue decreased by 10.3% year-over-year to RMB 11.8 billion; excluding Steigenberger Hotels AG, the decline was 18.9%[4] - Revenue for Q2 2022 was RMB 3.4 billion (approximately $504 million), down 5.7% year-over-year, aligning with previous guidance of a 2% to 6% decline[4] - The net loss attributable to the company in Q2 2022 was RMB 350 million (approximately $52 million), compared to a net profit of RMB 378 million in Q2 2021[5] - Adjusted EBITDA for Q2 2022 was RMB 53 million (approximately $7 million), down from RMB 1 billion in Q2 2021[6] - Total revenue for Q2 2022 was RMB 3.382 billion (approximately $504 million), a year-over-year decrease of 5.7% but a quarter-over-quarter increase of 26.1%[13] - Revenue from the Legacy-DH segment in Q2 2022 was RMB 921 million, a year-over-year increase of 311.2% and a quarter-over-quarter increase of 126.8%[13] - Operating profit for Q2 2022 was RMB 8 million (approximately USD 1 million), a significant decrease from RMB 629 million in Q2 2021 and a loss of RMB 708 million in Q1 2022[21] - The operating profit margin for Q2 2022 was 0.2%, down from 17.5% in Q2 2021 and negative 26.4% in Q1 2022[22] - The company reported a basic loss per share of RMB 0.11 for the quarter ended June 30, 2022, compared to earnings of RMB 0.12 in the same quarter of 2021[43] Hotel Operations - As of June 30, 2022, the company operated 8,176 hotels with a total of 773,898 rooms[8] - The company opened 269 hotels in Q2 2022 while closing 86 hotels during the same period[8] - As of June 30, 2022, there were 2,236 hotels under development, including 2,199 from Legacy-Huazhu[8] - The average daily rate (ADR) for Legacy-Huazhu hotels in Q2 2022 was RMB 218, down from RMB 255 in Q2 2021[9] - The occupancy rate for all operating Legacy-Huazhu hotels in Q2 2022 was 64.6%, compared to 82.3% in Q2 2021[9] - The average daily rate was €110, up from €82 in Q2 2021 and €88 in Q1 2022[11] - The occupancy rate for all operating Legacy-DH hotels in Q2 2022 was 59.8%, compared to 24.4% in Q2 2021 and 38.0% in Q1 2022[11] - The company has paused providing full-year revenue and hotel opening guidance due to the impact of COVID-19 and related policies[31] Costs and Expenses - In Q2 2022, hotel operating costs were RMB 3 billion (approximately USD 443 million), an increase from RMB 2.7 billion in Q2 2021 and RMB 2.8 billion in Q1 2022[17] - For the first half of 2022, hotel operating costs totaled RMB 5.8 billion (approximately USD 864 million), compared to RMB 5.2 billion in the same period of 2021[18] - General and administrative expenses in Q2 2022 were RMB 368 million (approximately USD 55 million), compared to RMB 392 million in Q2 2021 and RMB 462 million in Q1 2022[19] - Total operating costs and expenses for the quarter ended June 30, 2022, were RMB 3,528 million, up from RMB 3,320 million in the same quarter of 2021[42] Cash Flow and Debt - Operating cash inflow for Q2 2022 was RMB 989 million (approximately USD 147 million)[27] - As of June 30, 2022, the total cash and cash equivalents amounted to RMB 4.6 billion (approximately USD 693 million), with restricted cash of RMB 38 million (approximately USD 6 million)[29] - The total debt balance as of June 30, 2022, was RMB 10.4 billion (approximately USD 1.6 billion), with available undrawn credit facilities of RMB 3 billion[29] - Cash and cash equivalents decreased from RMB 5,116 million at the end of 2021 to RMB 4,642 million by June 30, 2022, a reduction of about 9.3%[40] - Short-term debt increased from RMB 6,232 million to RMB 6,707 million, reflecting a rise of about 7.6%[41] - Huazhu's long-term debt increased from RMB 3,565 million to RMB 3,696 million, representing a rise of approximately 3.7%[41] Market Strategy and Future Outlook - The company expects Q3 2022 revenue to grow by 13% to 17% year-over-year, or 5% to 9% excluding DH[6] - The company plans to accelerate the exit from the economy soft brand hotel market within the next one to two years to improve overall hotel quality[12] - The company has outlined growth strategies that include enhancing customer retention and leveraging brand strength, although specific numerical targets were not disclosed[39] - The company continues to explore new strategies for market expansion and product development[61] Non-GAAP Measures and Financial Metrics - The company emphasizes the importance of EBITDA as a financial metric, which reflects operational and financial performance before financing transactions and tax impacts[33] - Adjusted EBITDA is used to evaluate the operating performance of hotels, excluding stock-based compensation and unrealized gains or losses from equity securities[34] - The company believes that adjusted EBITDA provides a more accurate reflection of hotel performance capabilities[34] - The company uses non-GAAP financial measures to provide meaningful supplemental information about its performance[36] - The company believes that the use of non-GAAP measures enhances transparency in financial and operational decision-making[36] Impairment and Investment - The company experienced a substantial increase in impairment losses, reporting RMB 91 million for the six months ended June 30, 2022, compared to RMB 9 million for the same period in 2021[44] - The company reported a significant increase in investment income, with a profit of RMB 531 million for the six months ended June 30, 2022, compared to a loss of RMB 314 million for the same period in 2021[44]

Financial Performance - Hotel turnover decreased 10.3% year-over-year to RMB11.8 billion in Q2 2022, with a decrease of 18.9% excluding Legacy-DH[2]. - Revenue in Q2 2022 was RMB3.4 billion (US$504 million), a 5.7% year-over-year decrease, aligning with previous guidance of a 2% to 6% decrease[3]. - Net loss attributable to H World Group Limited was RMB350 million (US$52 million) in Q2 2022, compared to a net income of RMB378 million in Q2 2021[4]. - Adjusted EBITDA (non-GAAP) was RMB53 million (US$7 million) in Q2 2022, down from RMB1.0 billion in Q2 2021[6]. - Total revenue for the quarter ended June 30, 2022, was RMB 3,382 million, a decrease of 6% compared to RMB 3,587 million for the same quarter in 2021[84]. - Net income attributable to H World Group Limited for the quarter was a loss of RMB 350 million, compared to a profit of RMB 378 million in the same quarter of the previous year[84]. - Adjusted EBITDA for the quarter ended June 30, 2022, was RMB 53 million (approximately USD 7 million), a significant decrease from RMB 1,043 million in the same quarter of 2021[88]. - The company reported a loss from operations of RMB 700 million for the six months ended June 30, 2022, compared to a profit of RMB 54 million in the same period of 2021[92]. Operational Metrics - The average daily rate (ADR) for Legacy-Huazhu hotels was RMB218 in Q2 2022, down from RMB255 in Q2 2021[12]. - The occupancy rate for all Legacy-Huazhu hotels was 64.6% in Q2 2022, compared to 82.3% in Q2 2021[12]. - RevPAR in Q2 2022 recovered to 69% of the 2019 level, with April and May 2022 at 53% and 65% respectively, improving to 86% in June 2022 due to lifted lockdowns[60]. - In Q2 2022, DH experienced a RevPAR recovery, with March 2022 RevPAR at 35% lower than 2019 levels, while June 2022 RevPAR was only 1% lower than 2019 levels[62]. - The average daily room rate for leased and owned hotels decreased by 21.7% year-over-year to RMB 243 in Q2 2022[96]. - The occupancy rate for leased and owned hotels was 62.9% in Q2 2022, down 18.1 percentage points from the previous year[96]. - Same-hotel RevPAR for economy hotels decreased by 34.8% year-over-year, from RMB 172 in June 2021 to RMB 112 in June 2022[99]. Cost and Expenses - Hotel operating costs in Q2 2022 were RMB2.97 billion (US$443 million), an increase from RMB2.74 billion in Q2 2021 and RMB2.81 billion in Q1 2022, primarily due to hotel network expansion and business recovery[32]. - In H1 2022, hotel operating costs totaled RMB5.8 billion (US$864 million), up from RMB5.2 billion in H1 2021, with Legacy-Huazhu segment costs representing 93.4% of revenue compared to 76.2% in 2021[33]. - Selling and marketing expenses in Q2 2022 were RMB142 million (US$21 million), a decrease from RMB161 million in Q2 2021 and RMB122 million in Q1 2022, with Legacy-Huazhu segment expenses at 2.6% of revenue[34]. - General and administrative expenses in Q2 2022 were RMB368 million (US$55 million), down from RMB392 million in Q2 2021 and RMB462 million in Q1 2022, with Legacy-Huazhu segment expenses at 10.8% of revenue[36]. - The company experienced a significant increase in personnel costs, which rose to RMB 899 million for the quarter, compared to RMB 757 million in the same quarter of 2021[84]. Cash Flow and Liquidity - Operating cash inflow in Q2 2022 was RMB989 million (US$147 million), while operating cash inflow in H1 2022 was RMB68 million (US$11 million), down from RMB281 million in H1 2021[57][58]. - As of June 30, 2022, the company had cash and cash equivalents of RMB4.6 billion (US$693 million) and total debt of RMB10.4 billion (US$1.6 billion)[59]. - The company reported a net cash provided by operating activities of RMB 989 million (approximately USD 147 million) for the quarter ended June 30, 2022, compared to RMB 1,238 million in the same quarter of 2021[85]. - The company reported a net cash used in investing activities of RMB 201 million (approximately USD 10 million) for the quarter ended June 30, 2022, compared to RMB 582 million in the same quarter of 2021[85]. - The net cash provided by financing activities for the quarter ended June 30, 2022, was RMB 146 million (approximately USD 22 million), a decrease from RMB (185) million in the same quarter of 2021[85]. Future Outlook - H World expects revenue in Q3 2022 to increase by 13% to 17% compared to Q3 2021, or by 5% to 9% excluding Legacy-DH[9]. - The company will suspend providing annual revenue guidance due to the unpredictable business performance caused by COVID-19 in China[63]. - DH is focusing on cash flow improvement measures, including efficiency improvements and re-negotiation of lease contracts[62]. Hotel Portfolio - As of June 30, 2022, H World had a total of 2,236 unopened hotels in its pipeline, including 2,199 from Legacy-Huazhu[10]. - As of June 30, 2022, H World operated 8,176 hotels with 773,898 rooms across 17 countries[78]. - H World operates 14% of its hotel rooms under lease and ownership models, and 86% under manachise and franchise models[79]. - The number of leased and owned hotels as of June 30, 2022, was 646, with a net addition of 5 hotels in Q2 2022[93]. - The total number of operational hotels as of June 30, 2022, was 8,051, with a total of 748,942 rooms[93]. - The company has 985 unopened hotels in the pipeline as of June 30, 2022[104]. - Five new hotels were opened in Q2 2022, contributing to a total of 125 hotels as of June 30, 2022[101].

Huazhu Group Limited (NASDAQ:HTHT) Q1 2022 Earnings Conference Call May 31, 2022 7:00 AM ET Company Participants Jason Chen - Investor Relations Director Ji Qi - Founder and Chairman Jin Hui - Chief Executive Officer Ye Fei - Deputy Chief Financial Officer Conference Call Participants Billy Ng - Bank of America Sijie Lin - CICC Simon Cheung - Goldman Sachs Operator Good day and thank you for standing by. Welcome to Huazhu Group Limited First Quarter 2022 Earnings Conference Call. At this time, all participa ...

Hotel Operations - As of March 31, 2022, the company operated 7,988 hotels with a total of 764,859 rooms[2] - Legacy-Huazhu opened 302 hotels in Q1 2022 while closing 140 hotels during the same period[5] - As of March 31, 2022, there were 2,271 hotels under development, including 2,226 from Legacy-Huazhu[5] - The total number of hotels as of March 31, 2022, remained at 5,225, with an average revenue per available room (RevPAR) of 131, reflecting an 8.9% year-over-year decline[50] - The economy segment includes 4,824 operating hotels with 388,174 rooms and 951 hotels planned[55] - The mid-range segment has 2,554 operating hotels with 281,168 rooms and 977 hotels in development[55] - The upscale segment consists of 115 operating hotels with 20,691 rooms and 62 hotels planned[55] - The company has 3,096 Hanting hotels with 277,885 rooms and 608 hotels in the pipeline[55] - The company has a total of 447 Haiyou hotels with 24,682 rooms and 117 hotels planned[55] - The company has 83 Nihao hotels with 5,772 rooms and 178 hotels in the pipeline[55] Financial Performance - In Q1 2022, hotel revenue increased by 16.4% year-over-year to RMB 9.5 billion, and excluding Steigenberger Hotels AG, revenue grew by 11.4%[2] - Total revenue for Q1 2022 rose by 15.2% year-over-year to RMB 2.7 billion (approximately USD 423 million), aligning with previous guidance of 11% to 15% growth[2] - The net loss attributable to Huazhu Group in Q1 2022 was RMB 630 million (approximately USD 99 million), compared to a net loss of RMB 248 million in Q1 2021[3] - Adjusted EBITDA for Q1 2022 was a negative RMB 333 million (approximately USD 53 million), worsening from a negative RMB 133 million in Q1 2021[4] - The operating loss for Q1 2022 was RMB 708 million (approximately USD 112 million), compared to an operating loss of RMB 575 million in Q1 2021[17] - The operating profit margin for Q1 2022 was -26.4%, compared to -24.7% in Q1 2021[17] - The company anticipates a revenue decline of 2% to 6% for Q2 2022 compared to Q2 2021, or a decline of 23% to 27% excluding DH[4] - In Q1 2022, the net loss attributable to Huazhu Group Limited was RMB 630 million (approximately USD 99 million), compared to a net loss of RMB 248 million in Q1 2021 and RMB 459 million in the previous quarter[19] - The adjusted basic and diluted loss per share for Q1 2022 was RMB 0.21 (approximately USD 0.03) excluding stock-based compensation and unrealized gains/losses on equity securities[20] Revenue Metrics - The average daily rate (ADR) for Legacy-Huazhu hotels in Q1 2022 was RMB 224, compared to RMB 209 in Q1 2021[6] - The occupancy rate for all operating Legacy-Huazhu hotels in Q1 2022 was 59.2%, down from 66.2% in Q1 2021[6] - Revenue from Legacy-Huazhu in Q1 2022 was RMB 2.3 billion, a year-over-year increase of 4.6% and a quarter-over-quarter decrease of 18.0%[11] - Revenue from Legacy-DH in Q1 2022 was RMB 406 million, showing a significant year-over-year increase of 165.4% but a quarter-over-quarter decrease of 29.0%[11] - Average revenue per available room (RevPAR) for Legacy-DH in April 2022 recovered to 80% of 2019 levels, up from 47% in January 2022[10] - The average revenue per available room (RevPAR) for leased and owned hotels was RMB 149, a decrease of 4.4% from RMB 156 in the same quarter of 2021[49] - The average daily rate (ADR) for leased and owned hotels was RMB 263, an increase of 8.0% compared to RMB 243 in the same quarter of 2021[49] - The midscale hotel segment saw a RevPAR decline of 9.4% to 164, with an ADR of 177, down 9.9%, and an occupancy rate decrease of 7.6 percentage points to 56.8%[50] Cost Management - Operating costs in Q1 2022 totaled RMB 3.434 billion, compared to RMB 2.931 billion in Q1 2021, reflecting an increase due to the expansion of Legacy-Huazhu and the recovery of Legacy-DH[14][15] - The company implemented cost control measures, including staff reductions and resource allocation to key strategies, in response to the challenges posed by the Omicron variant[10] - Management fees were deferred to support franchisees during difficult times, alongside legal support for rent negotiations and tax refund applications[10] - The company is implementing various cost and cash flow management measures to mitigate risks associated with the ongoing COVID-19 situation[24] Cash Flow and Liquidity - Operating cash outflow in Q1 2022 was RMB 921 million (approximately USD 144 million)[22] - As of March 31, 2022, the total cash and cash equivalents amounted to RMB 4.1 billion (approximately USD 651 million) and restricted cash was RMB 240 million (approximately USD 4 million)[22] - The total debt balance as of March 31, 2022, was RMB 10.1 billion (approximately USD 1.6 billion) with available undrawn credit facilities of RMB 3 billion[23] - The company reported a net cash used in operating activities for Q1 2022 was RMB (921) million, compared to RMB 867 million generated in Q4 2021[40] - The company reported a net cash used in investing activities of RMB (201) million in Q1 2022, a decline from RMB (503) million in Q4 2021[40] - The financing activities resulted in a net cash inflow of RMB 146 million in Q1 2022, a recovery from a net outflow of RMB (598) million in Q4 2021[40] Strategic Focus - The company remains focused on long-term "lean growth" strategies, emphasizing customer, franchisee, and employee engagement[10] - The company plans to focus on expanding its market presence and enhancing its product offerings in the upcoming quarters[38] - The company is focusing on increasing its market share in the mid-range and upscale segments through new hotel openings and acquisitions[55] - The company is committed to enhancing its brand portfolio and improving operational efficiency across all segments[55]

Hotel Network Expansion - The company expanded its hotel network from 5,618 hotels as of December 31, 2019, to 7,830 hotels (including 124 Legacy DH hotels) as of December 31, 2021, with a compound annual growth rate of 18.1%[3] - As of December 31, 2021, the company had 7,830 operating hotels, including 738 leased and owned hotels and 7,092 managed and franchised hotels, totaling 753,216 hotel rooms[3] - The company is developing an additional 2,608 new hotels, including 46 leased and owned hotels and 2,562 managed and franchised hotels[3] - From December 31, 2019, to December 31, 2021, the company added a net total of 2,212 hotels (including 124 Legacy DH hotels), with 97.7% being managed and franchised hotels[8] - The company's hotel network has grown to 7,830 hotels as of December 31, 2021, covering 811 cities across 31 provinces and municipalities in Greater China and 16 other countries[13] - The company has 2,608 hotels under development, including 46 leased and owned hotels and 2,562 managed and franchised hotels[13] - In Greater China, the company operates 661 leased and owned hotels, 6,796 managed hotels, and 247 franchised hotels, with 2,552 hotels under development[15] - Outside Greater China, the company operates 77 leased and owned hotels, 28 managed hotels, and 21 franchised hotels, with 38 hotels under development[15] - The company has 1,702 hotels in the pre-conversion phase and 906 hotels in the conversion phase, totaling 2,608 hotels under development[18] - The company's hotel network expanded from 5,618 hotels as of December 31, 2019, to 7,830 hotels as of December 31, 2021, with a compound annual growth rate of 18.1%[134] - The company had 7,830 operating hotels as of December 31, 2021, including 738 leased and owned hotels and 7,092 managed and franchised hotels, totaling 753,216 hotel rooms[134] - The company is developing an additional 2,608 new hotels, including 46 leased and owned hotels and 2,562 managed and franchised hotels[134] - Total operating hotels increased from 5,618 in 2019 to 7,706 in 2021, with leased and owned hotels decreasing slightly from 688 to 662[145] - Total operating hotel rooms grew from 536,876 in 2019 to 728,143 in 2021, with leased and owned hotel rooms increasing from 87,465 to 91,284[145] - Available hotel room nights for sale rose from 171,660,048 in 2019 to 234,841,153 in 2021, with leased and owned hotels contributing 32,818,789 room nights in 2021[145] - As of December 31, 2021, the company had 46 leased and owned hotels under development[156] - The company had 2,562 managed and franchised hotels under development as of December 31, 2021[159] Membership Program - The company's membership program, Huazhu Club, had over 193 million members as of December 31, 2021, and accounted for approximately 75% of Legacy Huazhu's room nights sold in 2021[7] - Huazhu's loyalty program, Huazhu Club, had over 193 million members as of December 31, 2021, with approximately 75% of Legacy Huazhu's room nights sold to members in 2021[70] - The company's Huazhu Club had over 150 million members by 2019[126] Financial Performance - The company's total revenue for 2019, 2020, and 2021 was RMB 11,212 million, RMB 10,196 million, and RMB 12,785 million (USD 2,006 million), respectively[9] - The company reported net losses attributable to Huazhu Group of RMB 2,192 million in 2020 and RMB 465 million (USD 73 million) in 2021[9] - Adjusted EBITDA (non-GAAP) for 2019, 2020, and 2021 was RMB 3,349 million, negative RMB 244 million, and RMB 1,571 million (USD 247 million), respectively[9] - Net cash generated from operating activities for 2019, 2020, and 2021 was RMB 3,293 million, RMB 609 million, and RMB 1,342 million (USD 210 million), respectively[9] - Total revenue for 2019, 2020, and 2021 was RMB 11,212 million, RMB 10,196 million, and RMB 12,785 million (USD 2,006 million), respectively[135] - Net profit attributable to Huazhu Group was RMB 1,769 million in 2019, a net loss of RMB 2,192 million in 2020, and a net loss of RMB 465 million (USD 73 million) in 2021[135] - Adjusted EBITDA (non-GAAP) for 2019, 2020, and 2021 was RMB 3,349 million, negative RMB 244 million, and RMB 1,571 million (USD 247 million), respectively[135] - Total revenue increased by 25.4% from RMB 10,196 million in 2020 to RMB 12,785 million (USD 2,006 million) in 2021, driven by the recovery from COVID-19 in China[182] - Revenue from leased and owned hotels increased by 17.5% from RMB 6,908 million in 2020 to RMB 8,118 million (USD 1,274 million) in 2021, primarily due to the easing impact of COVID-19 in China[183] - Legacy Huazhu's total revenue from leased and owned hotels (excluding government requisitioned hotels) increased by 22.7% to RMB 6,674 million (USD 1,047 million) in 2021 compared to 2020[183] - Legacy Huazhu's total revenue in 2021 was RMB 11,247 million (USD 1,765 million), a 29.8% increase from 2020[182] - Operating profit (loss) was RMB 164 million (USD 26 million) in 2021, compared to a loss of RMB 1,686 million in 2020[180] - Net profit (loss) attributable to Huazhu Group Limited was a loss of RMB 465 million (USD 73 million) in 2021, compared to a loss of RMB 2,192 million in 2020[180] - Total operating costs and expenses increased to RMB 13,607 million (USD 2,135 million) in 2021, representing 106.4% of total revenue[180] - Hotel operating costs accounted for 88.3% of total revenue in 2021, amounting to RMB 11,282 million (USD 1,770 million)[180] - General and administrative expenses increased to RMB 1,545 million (USD 242 million) in 2021, representing 12.1% of total revenue[180] - Total revenue from managed and franchised hotels increased by 40.4% from RMB 3,136 million in 2020 to RMB 4,404 million (USD 691 million) in 2021, driven by the easing impact of COVID-19[184] - Legacy Huazhu's revenue from managed and franchised hotels reached RMB 4,342 million (USD 681 million) in 2021, a 40.4% increase compared to 2020[184] - Legacy-DH's revenue from managed and franchised hotels increased by 44.2% to RMB 62 million in 2021, attributed to the strong recovery of leisure travel, particularly in Egypt[184] - Other income rose by 73.0% from RMB 152 million in 2020 to RMB 263 million in 2021[184] - Total operating costs and expenses increased by 14.1% from RMB 11,925 million in 2020 to RMB 13,607 million (USD 2,135 million) in 2021[184] - Hotel operating costs increased by 16.0% from RMB 9,729 million in 2020 to RMB 11,282 million (USD 1,770 million) in 2021, primarily due to higher rental costs for upscale hotels and CitiGO hotels, increased employee costs, and impairment losses related to Legacy DH[184] - Sales and marketing expenses increased by 7.4% from RMB 597 million in 2020 to RMB 641 million (USD 101 million) in 2021, but decreased as a percentage of total revenue from 5.9% to 5.0%[185] - General and administrative expenses rose by 22.7% from RMB 1,259 million in 2020 to RMB 1,545 million (USD 242 million) in 2021, mainly due to investments in development teams, IT, and upscale hotel segments[185] - Operating profit for 2021 was RMB 164 million (USD 26 million), compared to an operating loss of RMB 1,686 million in 2020, with Legacy Huazhu contributing an operating profit of RMB 891 million (USD 140 million)[186] - EBITDA (non-GAAP) for 2021 was RMB 1,366 million (USD 215 million), a significant improvement from a negative RMB 631 million in 2020, with adjusted EBITDA (non-GAAP) reaching RMB 1,571 million (USD 247 million)[192] - Total revenue decreased by 9.1% from RMB 11,212 million in 2019 to RMB 10,196 million in 2020, primarily due to the impact of COVID-19 on hotel occupancy and average daily rate (ADR), as well as temporary closures of many hotels in China[193] - Revenue from leased and owned hotels decreased by 10.5% from RMB 7,718 million in 2019 to RMB 6,908 million in 2020, with ADR dropping from RMB 240 in 2019 to RMB 166 in 2020[194] - Revenue from managed and franchised hotels decreased by 6.2% from RMB 3,342 million in 2019 to RMB 3,136 million in 2020, with ADR dropping from RMB 188 in 2019 to RMB 146 in 2020[195] - Total operating costs and expenses increased by 29.1% from RMB 9,236 million in 2019 to RMB 11,925 million in 2020, primarily due to the consolidation of Deutsche Hospitality[195] - Hotel operating costs increased by 35.3% from RMB 7,190 million in 2019 to RMB 9,729 million in 2020, with the cost-to-revenue ratio rising from 64.1% in 2019 to 95.4% in 2020[196] - Sales and marketing expenses increased by 40.1% from RMB 426 million in 2019 to RMB 597 million in 2020, with the expense-to-revenue ratio rising from 3.8% in 2019 to 5.9% in 2020[198] - General and administrative expenses increased by 18.7% from RMB 1,061 million in 2019 to RMB 1,259 million in 2020, with the expense-to-revenue ratio rising from 9.5% in 2019 to 12.3% in 2020[198] - Pre-opening expenses decreased by 42.6% from RMB 502 million in 2019 to RMB 288 million in 2020, with the expense-to-revenue ratio dropping from 4.5% in 2019 to 2.8% in 2020[199] - The company recorded a goodwill impairment loss of RMB 437 million in 2020 related to the acquisition of Deutsche Hospitality[199] - Net interest expense increased from RMB 155 million in 2019 to RMB 414 million in 2020, primarily due to increased bank borrowings and the issuance of 2026 notes[199] COVID-19 Impact - Approximately 98% of Legacy Huazhu hotels in China (excluding those requisitioned by the government) had resumed operations by December 31, 2021[20] - As of December 31, 2021, 147 hotels in China were requisitioned by the government for COVID-19 related purposes[20] - All Deutsche Hospitality hotels in Europe that were temporarily closed due to COVID-19 had resumed operations by December 31, 2021[20] - The company's occupancy rate (excluding requisitioned hotels) dropped to approximately 59% in March 2022 due to COVID-19 outbreaks and city lockdowns in China[77] - As of March 31, 2022, 1,299 Legacy Huazhu hotels were requisitioned by the government for quarantine and medical purposes[78] - The average RevPAR (Revenue per Available Room) for Deutsche Hospitality hotels recovered to 65% of 2019 levels in March 2022, up from 47% in January 2022[80] - Over 2,000 hotels were temporarily closed during the peak of the COVID-19 outbreak in February 2020[77] - The company implemented cost-saving measures, including rent reductions, deferred payments, and workforce optimization, to mitigate COVID-19 impacts[79] - Deutsche Hospitality hotels resumed operations by December 31, 2021, after temporary closures due to COVID-19[79] - The company provided smart non-contact services and financial support to franchisees, including low-interest loans, to maintain hotel operations[78] - Government relief measures, such as wage subsidies and insurance compensations, partially offset the negative impacts of COVID-19 on operations[79] - The company secured exemptions from bank agreements and additional low-interest credit facilities to manage financial challenges during the pandemic[80] - COVID-19-related travel restrictions and lockdowns in Europe disrupted the recovery of Deutsche Hospitality's operations in Q4 2021[79] - Due to COVID-19, 610 hotels in China were temporarily closed in Q1 2020, and 147 hotels in China were requisitioned by the government as of December 31, 2021[142] - Legacy Huazhu's available room nights, excluding requisitioned or temporarily closed hotels, were 234.8 million as of December 31, 2021[142] - Legacy DH's available room nights, excluding a small number of hotels temporarily closed for reasons unrelated to COVID-19, were 8 million as of December 31, 2021[143] Franchise and Management Agreements - The company charges franchisees an initial franchise fee ranging from RMB 80,000 to RMB 1,000,000 per hotel and a monthly franchise fee of approximately 3% to 6.5% of the total revenue generated by each managed franchised hotel[26] - The company's franchise and managed franchise agreements typically have an initial term of 8 to 10 years, which can be extended upon mutual agreement between the company and the franchisee[26] - For Deutsche Hospitality's managed franchised hotels, the company charges a base fee of 0.5% to 3.5% of the hotel's revenue and an incentive fee of 6% to 10% of the hotel's adjusted total operating profit[27] - The company is gradually revising the terms of Deutsche Hospitality's franchise and management agreements to align with those of its other managed franchised hotels[27] - The company's franchise agreements for franchised hotels typically have an initial term of 8 to 10 years, which can be extended upon mutual agreement between the company and the franchisee[29] - Deutsche Hospitality franchisees typically pay a franchise fee of 0.5% to 4.0% of total room revenue or turnover, with some international hotels charged a fixed fee ranging from €40,000 to €150,000 annually[30] - The company charges franchisees an upfront franchise fee ranging from RMB 80,000 to RMB 1,000,000 per hotel for Legacy Huazhu managed franchise hotels, with monthly franchise fees of approximately 3% to 6.5% of total revenue generated by each hotel[161] - For Deutsche Hospitality managed franchise hotels, franchisees historically pay a base fee of 0.5% to 3.5% of the hotel's revenue and an incentive fee of 6% to 10% of the hotel's adjusted total operating profit[162] - The company is gradually adjusting the terms of Deutsche Hospitality's franchise and management agreements to align with those of other managed franchise hotels[162] - For Legacy Huazhu franchise hotels, the company charges fees similar to those for managed franchise hotels, but does not appoint hotel managers or charge monthly management service fees[163] - For Deutsche Hospitality franchise hotels, franchisees historically pay a franchise fee of approximately 0.5% to 4.0% of the hotel's total room revenue or turnover, with some hotels outside Germany paying a fixed annual franchise fee ranging from EUR 40,000 to EUR 150,000[164] Technology and Innovation - The company has implemented a proprietary, scalable technology infrastructure, leveraging advanced technologies like AI, big data, and IoT to enhance operational efficiency and profitability[61] - A global business integration plan was launched in 2021 to combine the company's rapid growth and digital expertise with Deutsche Hospitality's service excellence and international network[61] - The company's CRM system tracks member data, including booking history, spending patterns, and loyalty points, to provide targeted promotions and improve customer loyalty[61] - The company's Central Reservation System (CRS) operates 24/7, enabling real-time inventory management and improving booking efficiency, customer satisfaction, and profitability[62] - The Central Revenue Management System (RMS) automatically adjusts room rates across the hotel network in minutes, optimizing average daily rate (ADR) and occupancy rates[62] - The Central Procurement System (CPS) is one of the largest in China's hospitality industry, enabling cost-effective bulk purchasing of supplies[63] - The Cloud Property Management System (Cloud-PMS) integrates with CRS and CRM, enhancing operational efficiency and profitability across the hotel network[64] - The "Easy Room" digital system reduces the time between check-out and check-in, improving room turnover efficiency[65] - The company has deployed AI-driven smart robots in hotels to enhance operational efficiency and guest experience[65] - The AI-powered smart assistant, integrated into the mobile app, improves guest interaction and experience[66] - The company's payment systems comply with PCI DSS standards, and it holds ISO27001 and ISO27701 certifications for data security[67] -

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to OR ☐ SHELL COMPANY REPORT PURSUANT TO SECT ...

Huazhu Group Limited (NASDAQ:HTHT) Q4 2021 Earnings Conference Call March 23, 2022 9:00 PM ET Corporate Participants Jason Chen - Investor Relations Director Ji Qi - Founder and Chairman Jin Hui - Chief Executive Officer Ye Fei - Deputy Chief Financial Officer Conference Call Participants Billy Ng - Bank of America Sijie Lin - CICC Lina Yan - HSBC Bruce Lee - UBS Operator Ladies and gentlemen, thank you for standing by. And welcome to the Huazhu Group 2021 Q4 and Full Year Earnings Conference Call. Please b ...