Hilton Worldwide Holdings Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, statements related to our expectations regarding the impact of and recovery from the pandemic, the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond our control, such as challenges due to labor shortages and supply chain disruptions, risks related to the impact of the pandemic, including as a result of new strains and variants of the virus and uncertainty of acceptance of the COVID-19 vaccines and their effectiveness, competition for hotel guests and management and franchise contracts, risks related to doing business with third-party hotel owners, performance of our information technology systems, growth of reservation channels outside of our system, risks of doing business outside of the U.S., risks associated with the Russian invasion of Ukraine and our indebtedness. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under "Part I—Item 1A. Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and "Part II—Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Overview Our Business Hilton is one of the largest hospitality companies in the world, with 6,892 properties comprising 1,082,728 rooms in 122 countries and territories as of March 31, 2022. Our premier brand portfolio includes: our luxury hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts and Conrad Hotels & Resorts; our emerging lifestyle hotel brands, Canopy by Hilton, Tempo by Hilton and Motto by Hilton; our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton, DoubleTree by Hilton and Tapestry Collection by Hilton; our focused service hotel brands, Hilton Garden Inn, Hampton by Hilton and Tru by Hilton; our all-suites hotel brands, Embassy Suites by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton; and our timeshare brand, Hilton Grand Vacations. As of March 31, 2022, we had 133 million members in our award-winning guest loyalty program, Hilton Honors, a 15 percent increase from March 31, 2021. Segments and Regions We analyze our operations and business by both operating segments and geographic regions. Our operations consist of two reportable segments that are based on similar products or services: (i) management and franchise and (ii) ownership. The management and franchise segment provides services, including hotel management and licensing of our IP. This segment generates its revenue from: (i) management and franchise fees charged to third-party hotel owners; (ii) licensing fees for the right to use our IP from HGV and strategic partnerships, including co-branded credit card arrangements; and (iii) fees for managing hotels in our ownership segment. As a manager of hotels, we typically are responsible for supervising or operating the hotel in exchange for management fees. As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing and information technology services, while a third party manages or operates such franchised hotels. The ownership segment primarily derives revenues from providing nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels. Geographically, we conduct business through three distinct geographic regions: (i) the Americas; (ii) Europe, Middle East and Africa ("EMEA"); and (iii) Asia Pacific. The Americas region includes North America, South America and Central 16 America, including all Caribbean nations. Although the U.S., which represented 70 percent of our system-wide hotel rooms as of March 31, 2022, is included in the Americas region, it is often analyzed separately and apart from the Americas region and, as such, it is presented separately within the analysis herein. The EMEA region includes Europe, which represents the western-most peninsula of Eurasia stretching from Iceland in the west to Russia in the east, and the Middle East and Africa ("MEA"), which represents the Middle East region and all African nations, including the Indian Ocean island nations. Europe and MEA are often analyzed separately and, as such, are presented separately within the analysis herein. The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific Island nations. System Growth and Development Pipeline Our strategic objectives include the continued expansion of our global hotel network and fee-based business. As we enter into new management and franchise contracts, we expand our business with minimal or no capital investment by us as the manager or franchisor, since the capital required to build and maintain hotels is typically provided by the third-party owner of the hotel with whom we contract to provide management services or license our IP. Prior to approving the addition of new hotels to our management and franchise development pipeline, we evaluate the economic viability of the hotel based on its geographic location, the credit quality of the third-party owner and other factors. By increasing the number of management and franchise contracts with third-party owners, over time we expect to increase revenues, overall return on invested capital and cash available to support our business needs; see further discussion on our cash management policy in "—Liquidity and Capital Resources." While these objectives have not changed as a result of the pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have included and may continue to include delays in openings and new development. We are focused on the growth of our business by expanding our share of the global hotel network through our development pipeline, which represents hotels that we expect to add to our system in the future. The following table summarizes our development activity: As of and for the Three Months Ended March 31, 2022 Hotels Rooms (1) Hotel system Openings 76 13,200 Net additions (2) 55 7,800 Development pipeline (3) Additions 176 22,200 Count as of period end (4) 2,730 410,400 ____________ (1) Rounded to the nearest hundred. (2) Represents room additions, net of rooms removed from our system, during the period. Contributed to net unit growth from March 31, 2021 of 5.0 percent. (3) Hotels in our system are under development throughout 113 countries and territories, including 27 countries and territories where we do not currently have any existing hotels. (4) In our development pipeline, as of March 31, 2022, 199,900 of the rooms were under construction and 245,500 of the rooms were located outside of the U.S. Nearly all of the rooms in our development pipeline are within our management and franchise segment. We do not consider any individual development project to be material to us. Recent Developments COVID-19 Pandemic The pandemic significantly impacted the global economy and strained the hospitality industry beginning in 2020. Since the beginning of the pandemic, the pervasiveness and severity of travel restrictions and stay-at-home directives has varied by country and state; however, consistent with other countries, as of March 31, 2022, most of the states in the U.S., where the majority of our hotels are located, had completely lifted or eased restrictions. While the pandemic negatively affected our results of operations for the three months ended March 31, 2022 and 2021, we have experienced strong signs of economic recovery since early 2021, particularly in our management and franchise segment. Although all periods were impacted by the pandemic, none of these periods are considered comparable, and no periods affected by the pandemic are expected to be comparable to future periods. The continued spreading of COVID-19 and its related variants could result in travel and other restrictions being reinstated or demand for our hotel properties being reduced in the affected areas, yielding further negative effects on our operations. 17 Russian Invasion of Ukraine In February 2022, Russia commenced a military invasion of Ukraine. While this has affected our operations in Ukraine and Russia, our financial results for the three months ended March 31, 2022 were not materially affected by this conflict, as hotels in these countries represented less than 1 percent of our total managed and franchised hotels and, for the year ended December 31, 2021, contributed less than 1 percent of total management and franchise fee revenues. We are prioritizing the safety and security of our employees and the guests of these hotels and have taken the following actions in response to the current crisis: • donating up to 1 million room nights across EMEA to support Ukrainian refugees and humanitarian relief efforts, in partnership with American Express, #HospitalityHelps and our community of owners; • closed our corporate office in Moscow while ensuring continued work and pay for impacted employees; • suspended all new development activity in Russia; • pledged to donate any Hilton profits from business operations in Russia to the humanitarian relief efforts for Ukraine; and • contributing funds through our Hilton Global Foundation to World Central Kitchen and Project Hope to further assist with humanitarian aid. Key Business and Financial Metrics Used by Management Comparable Hotels We define our comparable hotels as those that: (i) were active and operating in our system for at least one full calendar year as of the end of the current period, and open January 1st of the previous year; (ii) have not undergone a change in brand or ownership type during the current or comparable periods reported; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results were not available. Of the 6,832 hotels in our system as of March 31, 2022, 6,069 hotels were classified as comparable hotels. Our 763 non-comparable hotels included 99 hotels, or approximately one percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they have sustained substantial property damage, business interruption, undergone large-scale capital projects or comparable results were otherwise not available. When considering business interruption in the context of our definition of comparable hotels, no hotel that had completely or partially suspended operations on a temporary basis at any time as a result of the pandemic was excluded from the definition of comparable hotels on that basis alone. Despite these temporary suspensions of hotel operations, we believe that including these hotels within our hotel operating statistics of occupancy, average daily rate ("ADR") and revenue per available room ("RevPAR"), if they would have otherwise been included, reflects the underlying results of our business for the three months ended March 31, 2022 and 2021. Occupancy Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period. Occupancy measures the utilization of our hotels' available capacity. Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period. Occupancy levels also help us determine achievable ADR pricing levels as demand for hotel rooms increases or decreases. ADR ADR represents hotel room revenue divided by the total number of room nights sold for a given period. ADR measures the average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates charged to customers have different effects on overall revenues and incremental profitability than changes in occupancy, as described above. 18 RevPAR RevPAR is calculated by dividing hotel room revenue by the total number of room nights available to guests for a given period. We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels, as previously described: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels. References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of March 31, 2022, and references to ADR and RevPAR are presented on a currency neutral basis, unless otherwise noted. As such, comparisons of these hotel operating statistics for the three months ended March 31, 2022 and 2021 or 2019, use the foreign currency exchange rates used to translate the results of the Company's foreign operations within its unaudited condensed consolidated financial statements for the three months ended March 31, 2022. EBITDA and Adjusted EBITDA EBITDA reflects net income (loss), excluding interest expense, a provision for income tax benefit (expense) and depreciation and amortization expenses. Adjusted EBITDA is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including gains, losses, revenues and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings and retirements; (iv) furniture, fixtures and equipment ("FF&E") replacement reserves required under certain lease agreements; (v) share-based compensation; (vi) reorganization, severance, relocation and other expenses; (vii) non-cash impairment; (viii) amortization of contract acquisition costs; (ix) the net effect of reimbursable costs included in other revenues and other expenses from managed and franchised properties; and (x) other items. We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) these measures are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry. Additionally, these measures exclude certain items that can vary widely across different industries and among competitors within our industry. For instance, interest expense and income taxes are dependent on company specifics, including, among other things, capital structure and operating jurisdictions, respectively, and, therefore, could vary significantly across companies. Depreciation and amortization expenses, as well as amortization of contract acquisition costs, are dependent upon company policies, including the method of acquiring and depreciating assets and the useful lives that are used. For Adjusted EBITDA, we also exclude items such as: (i) FF&E replacement reserves for leased hotels to be consistent with the treatment of capital expenditures for property and equipment, where payments for such capitalized assets are depreciated over their useful lives; (ii) share-based compensation, as this could vary widely among companies due to the different plans in place and the usage of them; (iii) the net effect of our cost reimbursement revenues and reimbursed expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts; and (iv) other items, such as amounts related to debt restructurings and debt retirements and reorganization and related severance costs, that are not core to our operations and are not reflective of our operating performance. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives, either in isolation or as a substitute, for net income (loss) or other measures of financial performance or liquidity, including cash flows, derived in accordance with GAAP. Further, EBITDA and Adjusted EBITDA have limitations as analytical tools, including: • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; • EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; • EBITDA and Adjusted EBITDA do not reflect income tax expenses or the cash requirements to pay our taxes; • EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; • EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; 19 • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and • other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations. Results of Operations The hotel operating statistics by region for our system-wide comparable hotels were as follows: Three Months Ended Change March 31, 2022 2022 vs. 2021 U.S. Occupancy 61.8 % 14.1 % pts. ADR $ 144.32 36.4 % RevPAR $ 89.12 76.8 % Americas (excluding U.S.) Occupancy 50.7 % 21.7 % pts. ADR $ 126.05 35.7 % RevPAR $ 63.92 137.0 % Europe Occupancy 47.9 % 29.2 % pts. ADR $ 120.70 74.8 % RevPAR $ 57.77 348.8 % MEA Occupancy 66.2 % 26.0 % pts. ADR $ 159.07 34.6 % RevPAR $ 105.28 121.4 % Asia Pacific Occupancy 42.5 % (0.4) % pts. ADR $ 104.13 12.0 % RevPAR $ 44.28 11.0 % System-wide Occupancy 58.1 % 14.6 % pts. ADR $ 139.17 35.2 % RevPAR $ 80.84 80.5 % Although the pandemic continued to negatively impact our business and hotel operating statistics during the three months ended March 31, 2022, we experienced significant improvement in our results compared to the same period in 2021 with the continued recovery of the travel and hospitality industry and the rebound of cross-border international travel. All regions showed improvement in RevPAR during the three months ended March 31, 2022 as compared to the same period in 2021, and, compared to the same period in 2019, our system-wide RevPAR, occupancy and ADR were only down 17.0 percent, 11.4 percentage points and 0.7 percent, respectively, on a comparable and currency neutral basis. The Asia Pacific region experienced a more muted increase in RevPAR during the period than the other regions primarily due to certain restrictions in China, which included tightening of controls related to the Beijing Winter Olympics, as well as lockdowns in certain areas due to COVID-19 surges. 20 The table below provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA: Three Months Ended March 31, 2022 2021 (in millions) Net income (loss) $ 211 $ (109) Interest expense 90 103 Income tax expense (benefit) 80 (35) Depreciation and amortization expenses 44 51 EBITDA 425 10 Loss (gain) on foreign currency transactions 4 (2) Loss on debt extinguishment — 69 FF&E replacement reserves 12 4 Share-based compensation expense 37 39 Amortization of contract acquisition costs 8 7 Net other expenses (revenues) from managed and franchised properties (30) 64 Other adjustments (1) (8) 7 Adjusted EBITDA $ 448 $ 198 ____________ (1) Amount for the three months ended March 31, 2022 primarily includes a gain related to investments in unconsolidated affiliates. Both periods include severance and other items. Revenues Three Months Ended Percent March 31, Change 2022 2021 2022 vs. 2021 (in millions) Franchise and licensing fees $ 413 $ 242 70.7 Base and other management fees $ 55 $ 25 NM (1) Incentive management fees 34 13 NM (1) Total management fees $ 89 $ 38 NM (1) ____________ (1) Fluctuation in terms of percentage change is not meaningful. During the three months ended March 31, 2022, revenue recognized from fees increased primarily as a result of improved demand for travel and tourism, including the ability and desire of our customers to travel, due to the ongoing recovery from the negative impacts of the pandemic. Accordingly, on a comparable basis, franchise and management fees increased for the three months ended March 31, 2022 as a result of increases in RevPAR of 71.3 percent at our comparable franchised properties and 115.7 percent at our comparable managed properties, respectively. These increases in RevPAR at our comparable franchised and managed properties were the result of increased occupancy of 13.8 percentage points and 16.9 percentage points, respectively, and increased ADR of 32.5 percent and 42.3 percent, respectively. Further, as new hotels are part of our system for full periods, we expect such hotels to increase our franchise and management fees during the period. Including new development and ownership type transfers, from January 1, 2021 to March 31, 2022, we added nearly 420 managed and franchised properties on a net basis, providing an additional 64,200 rooms to our management and franchise segment, which contributed to the increase in franchise and management fees. Additionally, licensing fees increased $41 million primarily due to increases in licensing fees from our strategic partnerships and HGV, which were the result of increased co-branded credit cardholder spend and timeshare revenues, respectively, both resulting from the rise in travel and tourism, as well as increased overall consumer spending. Incentive management fees increased during the period as they are based on hotels' operating profits, which have improved from the prior year as a result of increased demand at our properties, in line with the recovery from the pandemic. 21 Three Months Ended Percent March 31, Change 2022 2021 2022 vs. 2021 (in millions) Owned and leased hotels $ 150 $ 56 NM (1) ____________ (1) Fluctuation in terms of percentage change is not meaningful. The increase in owned and leased hotel revenues included, on a currency neutral basis, $89 million and $11 million of increases from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $6 million decrease as a result of unfavorable fluctuations in foreign currency exchange rates. The currency neutral increase in revenues from our comparable owned and leased hotels was the result of increased RevPAR of 301.1 percent, due to increases in occupancy of 25.4 percentage points and ADR of 35.0 percent, due to the ongoing recovery from the pandemic. The currency neutral increase in revenues from our non-comparable owned and leased hotels, which also benefited from an increase in occupancy, was net of a decrease from properties that were sold or for which the lease agreements were terminated after March 31, 2021. Three Months Ended Percent March 31, Change 2022 2021 2022 vs. 2021 (in millions) Other revenues $ 18 $ 17 5.9 The increase in other revenues was primarily due to increased revenues from our purchasing operations related to improved hotel demand resulting from the rise in travel and tourism during the period. Operating Expenses Three Months Ended Percent March 31, Change 2022 2021 2022 vs. 2021 (in millions) Owned and leased hotels $ 185 $ 110 68.2 The increase in owned and leased hotel expenses included, on a currency neutral basis, $73 million and $10 million of increases from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by an $8 million decrease as a result of favorable fluctuations in foreign currency exchange rates. Our owned and leased hotels had currency neutral increases in certain operating expenses as a result of increased occupancy during the three months ended March 31, 2022, including variable rent costs, which are generally based on a percentage of hotel revenues or profits, as well as increased expenses related to FF&E replacement reserves. Additionally, the currency neutral increase in expenses from our non-comparable owned and leased hotels was net of a decrease from properties that were sold or for which the lease agreements were terminated after March 31, 2021. Three Months Ended Percent March 31, Change 2022 2021 2022 vs. 2021 (in millions) Depreciation and amortization expenses $ 44 $ 51 (13.7) General and administrative expenses 91 97 (6.2) Other expenses 11 10 10.0 The decrease in depreciation and amortization expenses was due to a decrease in amortization expense, primarily resulting from the full amortization of certain software project costs between the periods. 22 The decrease in general and administrative expenses was primarily due to lower severance costs and legal expenses, as well as a decrease in bad debt expense attributable to improved collections related to recovery from the pandemic. These decreases were partially offset by an increase in corporate operating expenses, which aligns with the recovery from the pandemic. The increase in other expenses was primarily due to our purchasing operations related to improved hotel demand. Non-operating Income and Expenses Three Months Ended Percent March 31, Change 2022 2021 2022 vs. 2021 (in millions) Interest expense $ (90) $ (103) (12.6) Gain (loss) on foreign currency transactions (4) 2 NM (1) Loss on debt extinguishment — (69) (100.0) Other non-operating income, net 16 5 NM (1) Income tax benefit (expense) (80) 35 NM (1) ____________ (1) Fluctuation in terms of percentage change is not meaningful. The decrease in interest expense included the decrease resulting from the February 2021 issuance of new senior unsecured notes and the use of such proceeds for the redemption of previously outstanding senior unsecured notes, which reduced the weighted average interest rate on our outstanding senior unsecured notes. Additionally, while the Revolving Credit Facility was partially drawn during the three months ended March 31, 2021, we had repaid the entire outstanding balance by June 2021, resulting in a decrease in the related interest expense for the three months ended March 31, 2022. See Note 5: "Debt" in our unaudited condensed consolidated financial statements for additional information on our indebtedness. The gains and losses on foreign currency transactions included the impact of changes in foreign currency exchange rates on certain intercompany financing arrangements, including short-term cross-currency intercompany loans, and other transactions denominated in foreign currencies. Loss on debt extinguishment related to the February 2021 redemption of senior unsecured notes and included a redemption premium of $55 million and the accelerated recognition of unamortized deferred financing costs on those senior unsecured notes of $14 million. Other non-operating income, net consists of interest income, equity in earnings (losses) from unconsolidated affiliates, certain income and costs related to our defined employee benefit plans and other non-operating gains and losses. Other non-operating income, net for the three months ended March 31, 2022 primarily related to an $11 million gain resulting from the remeasurement of investments in unconsolidated affiliates. The increase in income tax expense was primarily attributable to the increase in income before income taxes. For additional information, see Note 7: "Income Taxes" in our unaudited condensed consolidated financial statements. Segment Results Refer to Note 11: "Business Segments" in our unaudited condensed consolidated financial statements for reconciliations of revenues for our reportable segments to consolidated total revenues and of segment operating income to consolidated income (loss) before income taxes. Refer to "—Revenues" for further discussion of the increase in revenues from our managed and franchised properties, which is correlated to our management and franchise segment revenues and segment operating income. Refer to "—Revenues" and "—Operating Expenses" for further discussion of the increases in revenues and operating expenses at our owned and leased hotels, which are correlated with our ownership segment revenues and segment operating losses. Although we saw significant improvement in revenues from our ownership segment during the three months ended March 31, 2022 compared to the prior year, due to the nature of the fixed rent commitments and other fixed operating costs at our leased hotels, our ownership segment continued to experience an operating loss for the three months ended March 31, 2022. 23 Liquidity and Capital Resources Overview As of March 31, 2022, we had total cash and cash equivalents of $1,510 million, including $78 million of restricted cash and cash equivalents. The majority of our restricted cash and cash equivalents is related to cash collateral and cash held for FF&E reserves. Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including: (i) costs associated with the management and franchising of hotels; (ii) costs, other than compensation and rent that are noted separately, associated with the operations of owned and leased hotels, including, but not limited to, utilities and operating supplies; (iii) corporate expenses; (iv) payroll and compensation costs; (v) taxes and compliance costs; (vi) scheduled debt maturities and interest payments on our outstanding indebtedness; (vii) lease payments under our finance and operating leases; (viii) committed contract acquisition costs; (ix) dividends as declared; (x) share repurchases; and (xi) capital expenditures for required renovations and maintenance at the hotels within our ownership segment. Our known long-term liquidity requirements primarily consist of funds necessary to pay for: (i) scheduled debt maturities and interest payments on our outstanding indebtedness; (ii) lease payments under our finance and operating leases; (iii) committed contract acquisition costs; (iv) capital improvements to the hotels within our ownership segment; (v) corporate capital and information technology expenditures; (vi) dividends as declared; (vii) share repurchases; and (viii) commitments to owners in our management and franchise segment made in the normal course of business for which we are reimbursed by these owners through program fees to operate our marketing, sales and brands programs. There were no material changes to our contractual obligations from what we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. In March 2022, we resumed share repurchases, which we had previously suspended in an effort to preserve cash during the pandemic, and, since they resumed, we repurchased approximately 907,000 shares of our common stock with available cash for $130 million as of March 31, 2022. As of March 31, 2022, approximately $2.1 billion remained available for share repurchases under our $5.5 billion stock repurchase program. Additionally, although dividend payments were suspended beginning in 2020, in May 2022, Hilton's board of directors authorized a quarterly cash dividend of $0.15 per share of common stock to be paid during the second quarter of 2022, with the expectation to continue regular quarterly cash dividends in the future. In circumstances where we have the opportunity to support our strategic objectives by growing our global hotel network, we may provide performance or debt guarantees or loan commitments, as necessary, for hotels that we currently or plan to manage or franchise, as applicable, as well as letters of credit that support hotel financing or other obligations of hotel owners. See Note 12: "Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information on our commitments that were outstanding as of March 31, 2022. We have a long-term investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments and returning available capital to stockholders through dividends and share repurchases. Within the framework of our investment policy, we currently intend to continue to finance our business activities primarily with cash on our balance sheet as of March 31, 2022, cash generated from our operations and, as needed, the use of the available capacity of our Revolving Credit Facility. Additionally, we have continued access to debt markets and expect to be able to obtain financing as a source of liquidity as required and to extend maturities of existing borrowings, if necessary. After considering our approach to liquidity and our available sources of cash, we believe that our cash position and sources of liquidity will meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and other compensation costs, taxes and compliance costs and other commitments for the foreseeable future based on current conditions. The objectives of our cash management policy are to maintain the availability of liquidity while minimizing operational costs. We may from time to time issue or incur or increase our capacity to incur new debt and/or purchase our outstanding debt through underwritten offerings, open market transactions, privately negotiated transactions or otherwise. Issuances or incurrence of new debt (or an increase in our capacity to incur new debt) and/or purchases or retirements of outstanding debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. 24 Sources and Uses of Our Cash and Cash Equivalents The following table summarizes our net cash flows: Three Months Ended Percent March 31, Change 2022 2021 2022 vs. 2021 (in millions) Net cash provided by (used in) operating activities $ 195 $ (171) NM (1) Net cash used in investing activities (26) (16) 62.5 Net cash used in financing activities (167) (624) (73.2) ____________ (1) Fluctuation in terms of percentage change is not meaningful. Operating Activities As we recover from the negative impacts of the pandemic and our system-wide RevPAR increases, we are returning to a position where cash flows are being generated from our operations, which for the three months ended March 31, 2022 was primarily due to the increase in cash inflows generated from our management and franchise segment, largely as a result of the increase in managed and franchised RevPAR of 79.2 percent. Additionally, there was a $28 million decrease in payments of contract acquisition costs, as well as a decrease in cash paid for income taxes of $69 million, which was primarily due to a federal income tax refund received during the three months ended March 31, 2022 for prior year losses. While we did not have any operating cash flows for the three months ended March 31, 2022 and 2021 for the sale of Hilton Honors points to American Express as a result of the 2020 Honors Points Pre-Sale, we expect for the remaining balance of such pre-sold Hilton Honors points to be used by the end of the second quarter of 2022, after which we expect our operating cash flows to increase as American Express resumes purchasing Hilton Honors points from us in connection with a co-branded credit card arrangement. Investing Activities Net cash used in investing activities included capitalized software costs that were related to various systems initiatives for the benefit of both our hotel owners and our overall corporate operations and to capital expenditures for property and equipment related to our corporate facilities and the renovation of certain hotels in our ownership segment. Additionally, during the three months ended March 31, 2022, we invested in an unconsolidated affiliate to support our strategic objectives. Financing Activities Net cash used in financing activities during the three months ended March 31, 2022 primarily related to share repurchases, which resumed in March 2022 after being suspended since 2020. Net cash used in financing activities during the three months ended March 31, 2021 primarily comprised the repayment of $500 million of the outstanding debt balance on our Revolving Credit Facility, as well as the debt issuance costs and redemption premium associated with the issuance of new senior unsecured notes and the use of such proceeds for the redemption of previously outstanding senior unsecured notes. Debt and Borrowing Capacity As of March 31, 2022, our total indebtedness, excluding unamortized deferred financing costs and discount, was approximately $8.8 billion, and we had $60 million of letters of credit outstanding under our Revolving Credit Facility. For additional information on our total indebtedness, availability under our Revolving Credit Facility and guarantees on our debt, refer to Note 5: "Debt" in our unaudited condensed consolidated financial statements. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures or issue additional equity securities. However, we do not have any material indebtedness outstanding that matures prior to May 2025. Our ability to make scheduled principal payments and to pay interest on our debt depends on our future operating performance, which is subject to general conditions in or affecting the hospitality industry that may be beyond our control. Although the pandemic negatively impacted our cash flows from operations as compared to periods prior to the onset of the pandemic, we are returning to a position where we are generating cash flows from our core operations as reflected in our cash flows provided by operating activities during the three months ended March 31, 2022. 25 Critical Accounting Estimates The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed the estimates and assumptions that we believe are critical because they involve a higher degree of judgment in their application and are based on information that is inherently uncertain in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and, during the three months ended March 31, 2022, there were no material changes to those critical accounting estimates that were previously disclosed.