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Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-05-03 · 138 added, 99 removed, 236 unchanged (50% of the section changed)

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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.

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 inflation, changes in interest rates and 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 the acceptance and continued effectiveness of the COVID-19 vaccines, 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.

Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and under "Part II—Item 1A.

Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

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.

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.

Hilton is one of the largest hospitality companies in the world, with 6,983 properties comprising 1,098,321 rooms in 122 countries and territories as of June 30, 2022.

Our premier brand portfolio includes:

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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.

As of June 30, 2022, we had 139 million members in our award-winning guest loyalty program, Hilton Honors, a 17 percent increase from June 30, 2021.

Segments and Regions

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and (iii) Asia Pacific.

The Americas region includes North America, South America and Central

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 Americas region includes North America, South America and Central America, including all Caribbean nations.

Although the U.S., which represented 70 percent of our system-wide hotel rooms as of June 30, 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.

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As of and for the

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Hotels Rooms (1)

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(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.

Contributed to net unit growth from June 30, 2021 of 4.5 percent.

(3) Hotels in our system are under development throughout 114 countries and territories, including 29 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.

(4) In our development pipeline, as of June 30, 2022, 195,300 of the rooms were under construction and 246,400 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.

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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.

however, as of June 30, 2022, most of the countries we operate in had completely lifted or eased restrictions.

While the pandemic negatively affected our results of operations for the three and six months ended June 30, 2022 and 2021, we have experienced strong signs of economic recovery since early 2021, particularly in our management and franchise segment, with comparable system-wide RevPAR in the second quarter of 2022 nearing levels of performance achieved in the same period in 2019.

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.

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.

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;

While this has affected our operations in Ukraine and Russia, our financial results for the six months ended June 30, 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 as of June 30, 2022 and, for the year ended December 31, 2021, contributed less than 1 percent of total management and franchise fee revenues.

We continue to prioritize the safety and security of our employees and the guests of these hotels and, in March 2022, we took the following actions in response to this crisis:

• pledged to donate 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;

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• pledged to donate any Hilton profits from business operations in Russia to the humanitarian relief efforts for Ukraine;

• contributing funds through our Hilton Global Foundation to World Central Kitchen and Project Hope to further assist with humanitarian aid.

• contributed 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

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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.

Of the 6,915 hotels in our system as of June 30, 2022, 5,974 hotels were classified as comparable hotels.

Our 941 non-comparable hotels included 174 hotels, or less than three 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 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.

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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.

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.

RevPAR is calculated by dividing hotel room revenue by the total number of room nights available to guests for a given period.

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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.

References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2022, respectively.

EBITDA and Adjusted EBITDA

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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;

(i) FF&E replacement reserves for leased hotels to be consistent with the treatment of capital expenditures for property and equipment, where depreciation of such capitalized assets is reported within depreciation and amortization expenses;

(ii) share-based compensation, as this could vary widely among companies due to the different plans in place and the usage of them;

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The hotel operating statistics by region for our system-wide comparable hotels were as follows:

Three Months Ended Change

March 31, 2022 2022 vs.

Three Months Ended Change Six Months Ended Change

June 30, 2022 2022 vs.

2021 June 30, 2022 2022 vs.

Occupancy 74.3 % 10.4 % pts.

68.2 % 12.3 % pts.

ADR $ 162.16 26.8 % $ 154.12 30.1 %

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Occupancy 66.4 % 30.1 % pts.

58.6 % 25.9 % pts.

ADR $ 135.85 31.4 % $ 131.78 33.4 %

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Occupancy 72.0 % 40.7 % pts.

60.0 % 34.9 % pts.

ADR $ 151.58 66.2 % $ 139.10 67.8 %

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Occupancy 60.7 % 13.8 % pts.

63.8 % 20.0 % pts.

ADR $ 152.94 29.8 % $ 156.12 32.0 %

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Occupancy 49.7 % (6.2) % pts.

46.1 % (3.3) % pts.

ADR $ 97.52 6.5 % $ 100.63 9.1 %

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Occupancy 70.8 % 12.3 % pts.

64.6 % 13.5 % pts.

ADR $ 154.92 27.5 % $ 147.87 30.1 %

RevPAR $ 109.62 54.3 % $ 95.47 64.4 %

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.

The table below provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:

Three Months Ended

Although the pandemic continued to negatively impact our business and hotel operating statistics during the three and six months ended June 30, 2022, we experienced significant improvement in our results compared to the same periods in 2021 with the continued recovery of the travel and hospitality industry and the rebound of cross-border international travel.

All regions except Asia Pacific showed improvement in RevPAR and occupancy during the three and six months ended June 30, 2022 as compared to the same periods in 2021 on a comparable and currency neutral basis.

Compared to the same periods in 2019 on a comparable and currency neutral basis, our system-wide RevPAR and occupancy were down 2.1 percent and 6.7 percent,

respectively, for the three months ended June 30, 2022, and 9.0 percent and 8.9 percent for the six months ended June 30, 2022, respectively.

All regions showed improvement in ADR, with our system-wide ADR increasing 7.1 percent and 3.6 percent for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2019 on a comparable and currency neutral basis.

The Asia Pacific region experienced decreased RevPAR during the three months ended June 30, 2022 compared to the same period in 2021 primarily due to certain restrictions in China, which included lockdowns in certain areas due to COVID-19 surges.

The table below provides a reconciliation of net income to EBITDA and Adjusted EBITDA:

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

(in millions)

Net income (loss) $ 211 $ (109)

Net income $ 367 $ 128 $ 578 $ 19

Interest expense 99 101 189 204

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Net other expenses (revenues) from managed and franchised properties

(36) 55 (66) 119

Other adjustments (1)

(1) (1) (9) 6

Adjusted EBITDA $ 679 $ 400 $ 1,127 $ 598

(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.

Three Months Ended Percent

March 31, Change

(1) Amount for the six months ended June 30, 2022 primarily includes a gain related to investments in unconsolidated affiliates.

All periods include severance and other items.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2022 2021 2022 vs.

(in millions)

2021 2022 2021 2022 vs.

(in millions) (in millions)

Franchise and licensing fees $ 545 $ 369 47.7 $ 958 $ 611 56.8

Base and other management fees $ 55 $ 25 NM (1)

Base and other management fees $ 75 $ 42 78.6 $ 130 $ 67 94.0

Incentive management fees

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(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.

During the three and six months ended June 30, 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 June 30, 2022 as a result of increases in RevPAR of 44.9 percent and 86.7 percent at our comparable franchised and managed properties, respectively.

These increases in RevPAR at our comparable franchised and managed properties were the result of increased occupancy of 10.5 percentage points and 16.8 percentage points, respectively, and increased ADR of 24.2 percent and 35.9 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.

Three Months Ended Percent

March 31, Change

For the six months ended June 30, 2022, on a comparable basis, franchise and management fees increased as a result of increases in RevPAR of 55.1 percent and 97.8 percent at our comparable franchised and managed properties, respectively.

These increases in RevPAR at our comparable franchised and managed properties were the result of increased occupancy of 12.2 percentage points and 16.8 percentage points, respectively, and increased ADR of 27.0 percent and 38.0 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 periods.

Including new development and ownership type transfers, from January 1, 2021 to June 30, 2022, we added 500 managed and franchised properties on a net basis, providing an additional 77,500 rooms to our management and franchise segment, which contributed to the increases in franchise and management fees.

Additionally, licensing fees increased $30 million and $71 million during the three and six months ended June 30, 2022, respectively, primarily due to increases in licensing fees from:

(i) our strategic partnerships, which resulted from new cardholder acquisitions and increased cardholder spend under our co-branded credit card arrangements, and (ii) HGV, which resulted from increased timeshare revenues, both driven by the rise in travel and tourism, as well as increased overall consumer spending.

Incentive management fees increased during the periods 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.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2022 2021 2022 vs.

(in millions)

2021 2022 2021 2022 vs.

(in millions) (in millions)

Owned and leased hotels

$ 282 $ 121 NM (1)

$ 432 $ 177 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 increase in owned and leased hotel revenues during the three months ended June 30, 2022 included, on a currency neutral basis, $167 million and $9 million of increases from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $15 million decrease as a result of unfavorable fluctuations in foreign currency exchange rates and a $25 million decrease in COVID-19 relief subsidies from international governments.

The currency neutral increase in revenues from our comparable owned and leased hotels was the result of increased RevPAR of 347.5 percent, due to increases in occupancy of 42.8 percentage points and ADR of 57.2 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

The increase in owned and leased hotel revenues during the six months ended June 30, 2022 included, on a currency neutral basis, $256 million and $20 million of increases from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $21 million decrease as a result of unfavorable fluctuations in foreign currency exchange rates and a $25 million decrease in COVID-19 relief subsidies from international governments.

The currency neutral increase in revenues from our comparable owned and leased hotels was the result of increased RevPAR of 331.5 percent, due to increases in occupancy of 34.1 percentage points and ADR of 49.3 percent, due to the ongoing recovery from the pandemic.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2022 2021 2022 vs.

(in millions)

2021 2022 2021 2022 vs.

(in millions) (in millions)

Other revenues $ 25 $ 21 19.0 $ 43 $ 38 13.2

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.

The increases in other revenues were primarily due to increased revenues from our purchasing operations related to improved hotel demand resulting from the rise in travel and tourism during the periods.

Operating Expenses

Three Months Ended Percent

March 31, Change

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2022 2021 2022 vs.

(in millions)

2021 2022 2021 2022 vs.

(in millions) (in millions)

Owned and leased hotels

$ 257 $ 142 81.0 $ 442 $ 252 75.4

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

The increase in owned and leased hotel expenses during the three months ended June 30, 2022 included, on a currency neutral basis, $127 million and $5 million of increases from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $17 million decrease as a result of favorable fluctuations in foreign currency exchange rates.

The increase in owned and leased hotel expenses during the six months ended June 30, 2022 included, on a currency neutral basis, $200 million and $15 million of increases from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $25 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 and six months ended June 30, 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 increases in expenses from our non-comparable owned and leased hotels during the periods were net of decreases from properties that were sold or for which the lease agreements were terminated after June 30, 2021.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2022 2021 2022 vs.

(in millions)

2021 2022 2021 2022 vs.

(in millions) (in millions)

Depreciation and amortization expenses $ 40 $ 46 (13.0) $ 84 $ 97 (13.4)

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Other expenses 11 9 22.2 22 19 15.8

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.

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.

The decreases in depreciation and amortization expenses were primarily due to decreases in amortization expense, driven by the full amortization of certain software project costs between the periods.

The increase in general and administrative expenses for the three months ended June 30, 2022 was primarily due to an increase in corporate operating expenses which aligns with the recovery from the pandemic.

The increases in other expenses were primarily due to our purchasing operations related to improved hotel demand.

Non-operating Income and Expenses

Three Months Ended Percent

March 31, Change

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2022 2021 2022 vs.

(in millions)

2021 2022 2021 2022 vs.

(in millions) (in millions)

Interest expense $ (99) $ (101) (2.0) $ (189) $ (204) (7.4)

Gain (loss) on foreign currency transactions

Loss on debt extinguishment — (69) (100.0)

Loss on debt extinguishment — — NM (1)

— (69) (100.0)

Other non-operating income, net

6 5 20.0 22 10 NM (1)

Income tax benefit (expense)

(146) 1 NM (1)

(226) 36 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.

The decreases in interest expense during the three and six months ended June 30, 2022 included decreases in interest expense related to our Revolving Credit Facility, which was partially drawn during the three and six months ended June 30, 2021 but fully repaid as of June 30, 2021 and had no amounts outstanding during the three and six months ended June 30, 2022.

The decrease in interest expense during the six months ended June 30, 2022 also reflected 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.

The decreases in interest expense for the three and six months ended June 30, 2022 were partially offset by increases in

the interest rate on our Term Loan during the periods and interest rate swap amortization.

"Debt" in our unaudited condensed consolidated financial statements for additional information on our indebtedness.

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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.

Other non-operating income, net consists of interest income, equity in earnings (losses) from unconsolidated affiliates, certain income and costs related to our employee defined benefit pension plans and other non-operating gains and losses.

Other non-operating income, net for the six months ended June 30, 2022 primarily related to an $11 million gain resulting from the remeasurement of investments in unconsolidated affiliates.

The increases in income tax expense during the three and six months ended June 30, 2022 were primarily attributable to the increases in income before income taxes.

For additional information, see Note 7:

"Income Taxes" in our unaudited condensed consolidated financial statements.

Further, during the three and six months ended June 30, 2021, we recognized benefits as a result of the change in tax rate implemented as part of the United Kingdom's Finance Act 2021.

Segment Results

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"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.

Refer to "—Revenues" for further discussion of the increases in revenues from our managed and franchised properties, which are correlated to our management and franchise segment revenues and segment operating income.

We saw significant improvement in revenues from our ownership segment during the three and six months ended June 30, 2022 compared to the prior year, and our ownership segment experienced operating income for the three months ended June 30, 2022.

However, 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 six months ended June 30, 2022.

Liquidity and Capital Resources

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.

As of June 30, 2022, we had total cash and cash equivalents of $1,254 million, including $79 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.

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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.

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 4.5 million shares of our common stock with available cash for $610 million as of June 30, 2022.

As of June 30, 2022, approximately $1.6 billion remained available for share repurchases under our $5.5 billion stock repurchase program.

In June 2022, we resumed payment of regular quarterly cash dividends, declared in May 2022, which we had also previously suspended in an effort to preserve cash during the pandemic.

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.

"Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information on our commitments that were outstanding as of March 31, 2022.

"Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information on our commitments that were outstanding as of June 30, 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.

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 June 30, 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.

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The following table summarizes our net cash flows:

Three Months Ended Percent

March 31, Change

Six Months Ended Percent

June 30, Change

2022 2021 2022 vs.

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Net cash provided by (used in) operating activities $ 528 $ (300) NM (1)

Net cash used in investing activities (26) (16) 62.5

Net cash used in investing activities (94) (14) NM (1)

Net cash used in financing activities (679) (1,818) (62.7)

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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 62.7 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.

Additionally, there was a $74 million decrease in payments of contract acquisition costs, offset by an increase in cash paid for income taxes of $88 million.

The remaining balance of the pre-sold Hilton Honors points, related to the 2020 Honors Points Pre-Sale, was used during the three months ended June 30, 2022, and American Express resumed purchasing Hilton Honors points in cash from us in connection with a co-branded credit card

arrangement, which began to increase our operating cash flows during the period.

We expect American Express to continue to purchase points in cash under the co-branded credit card arrangement in future periods.

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.

Net cash used in investing activities also included the net cash flows from undesignated derivative financial instruments.

Additionally, during the six months ended June 30, 2022, we provided equity and debt financing to unconsolidated affiliates and owners of certain hotels that we will or currently manage or franchise 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.

Net cash used in financing activities during the six months ended June 30, 2022 primarily related to the return of capital to shareholders, including share repurchases, which resumed in March 2022, and quarterly dividend payments, which resumed in June 2022, after both programs had been suspended in 2020.

Net cash used in financing activities during the six months ended June 30, 2021 primarily comprised the full repayment of the $1.69 billion 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.

As of June 30, 2022, our total indebtedness, excluding the deduction for 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:

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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.

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.

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 six months ended June 30, 2022, there were no material changes to those critical accounting estimates that were previously disclosed.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis