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Item 2. Management’s Discussion and Analysis

2022-10-26 compared with 2022-07-27 · 123 added, 123 removed, 251 unchanged (49% of the section changed)

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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.

These statements include, but are not limited to, statements related to our expectations regarding the recovery of the travel and hospitality industry 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.

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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 6,983 properties comprising 1,098,321 rooms in 122 countries and territories as of June 30, 2022.

Hilton is one of the largest hospitality companies in the world, with 7,061 properties comprising 1,111,147 rooms in 123 countries and territories as of September 30, 2022.

Our premier brand portfolio includes:

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and our timeshare brand, Hilton Grand Vacations.

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.

As of September 30, 2022, we had 146 million members in our award-winning guest loyalty program, Hilton Honors, a 19 percent increase from September 30, 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:

Our operations consist of two reportable segments that are based on similar products and services:

(i) management and franchise and (ii) ownership.

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(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;

(ii) licensing fees from HGV and strategic partnerships, including co-branded credit card arrangements, for the right to use our IP;

and (iii) fees for managing hotels in our ownership segment.

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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 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 Americas region includes North America, South America and Central

America, including all Caribbean nations.

Although the U.S., which represented 69 percent of our system-wide hotel rooms as of September 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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System Growth and Development Pipeline

Our strategic objectives include the continued expansion of our global hotel network and fee-based business.

Our strategic objectives include the continued expansion of our global hotel network, as well as of our 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.

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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.

We are focused on the growth of our business by expanding our 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

Six Months Ended

June 30, 2022

Nine Months Ended

September 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 June 30, 2021 of 4.5 percent.

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

(3) Hotels in our system are under development throughout 112 countries and territories, including 29 countries and territories where we do not currently have any existing hotels.

(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.

(4) In our development pipeline, as of September 30, 2022, 204,200 of the rooms were under construction and 242,600 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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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, 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.

Since the beginning of the pandemic, the pervasiveness and severity of travel restrictions and stay-at-home directives varied by country and state;

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

While the pandemic negatively affected certain of our results for the three and nine months ended September 30, 2022 and 2021, we have experienced strong signs of economic recovery since early 2021 with comparable system-wide RevPAR in the third quarter of 2022 exceeding 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 in the future, yielding 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 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.

While this has affected our operations in Ukraine and Russia, our financial results for the nine months ended September 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 September 30, 2022 and, for all periods presented and 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:

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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 6,915 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.

Of the 6,988 hotels in our system as of September 30, 2022, 5,847 hotels were classified as comparable hotels.

Our 1,141 non-comparable hotels as of September 30, 2022 included 260 hotels, or less than four 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 and six months ended June 30, 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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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 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.

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

EBITDA and Adjusted EBITDA

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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:

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

Three Months Ended Change Six Months Ended Change

June 30, 2022 2022 vs.

2021 June 30, 2022 2022 vs.

Three Months Ended Change Nine Months Ended Change

September 30, 2022 2022 vs.

2021 September 30, 2022 2022 vs.

Occupancy 74.5 % 6.0 % pts.

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RevPAR $ 114.04 29.9 % $ 102.02 49.6 %

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.

We experienced significant improvement in our results during the three and nine months ended September 30, 2022 compared to the same periods in 2021 with the continued recovery of the travel and hospitality industry from the pandemic and the rebound of cross-border international travel.

All regions showed improvement in RevPAR, occupancy and ADR during the three and nine months ended September 30, 2022 as compared to the same periods in 2021.

Although ADR was the primary driver of the increase in RevPAR during the periods, the occupancy increase experienced during the United States summer

months continued beyond the Labor Day holiday, demonstrating continued recovery in business transient and group meeting travel, in addition to sustained leisure demand.

The three months ended September 30, 2022 was the first period, since the beginning of the pandemic, that system-wide RevPAR on a comparable and currency neutral basis exceeded system-wide RevPAR for the same period in 2019.

For the three months ended September 30, 2022, as compared to the same period in 2019 on a comparable and currency neutral basis, our system-wide RevPAR was up 5.0 percent due to an increase in ADR of 10.9 percent, partially offset by a decrease in occupancy of 4.1 percentage points.

For the nine months ended September 30, 2022, as compared to the same period in 2019 on a comparable and currency neutral basis, RevPAR was down 4.0 percent due to a decrease in occupancy of 7.2 percentage points, partially offset by an increase in ADR of 6.2 percent.

All regions showed improvement in ADR during both the three and nine months ended September 30, 2022 when compared to the same periods in 2019 with the exception of Asia Pacific as a result of continued lockdowns in China limiting demand.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

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Interest expense 106 98 295 302

Income tax expense (benefit) 146 (1) 226 (36)

Income tax expense 181 100 407 64

Depreciation and amortization expenses 39 46 123 143

EBITDA 672 484 1,749 768

Loss (gain) on foreign currency transactions (8) 1 (4) (1)

Loss on sale of assets, net — 8 — 8

Gain on foreign currency transactions — — (4) (1)

Loss on debt extinguishment — — — 69

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Other adjustments (1)

(1) (1) (9) 6

Adjusted EBITDA $ 732 $ 519 $ 1,859 $ 1,117

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

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

Amounts for the three and nine months ended September 30, 2021 include costs recognized for certain legal settlements.

All periods include severance and other items.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

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Incentive management fees

Total management fees $ 121 $ 63 92.1 $ 210 $ 101 NM (1)

52 26 100.0 132 60 NM (1)

Total management fees $ 128 $ 75 70.7 $ 338 $ 176 92.0

(1) Fluctuation in terms of percentage change is not meaningful.

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.

During the three and nine months ended September 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 that began in early 2021 from the negative impacts of the pandemic.

Accordingly, on a comparable basis, franchise and management fees increased for the three months ended September 30, 2022 as a result of increases in RevPAR of 21.7 percent and 62.2 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 6.0 percentage points and 16.9 percentage points, respectively, and increased ADR of 11.9 percent and 21.4 percent, respectively.

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.

For the nine months ended September 30, 2022, on a comparable basis, franchise and management fees increased as a result of increases in RevPAR of 40.7 percent and 82.5 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 10.2 percentage points and 16.8 percentage points, respectively, and increased ADR of 20.3 percent and 30.9 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 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:

Including new development and ownership type transfers, from January 1, 2021 to September 30, 2022, we added over 570 managed and franchised properties on a net basis, providing an additional 89,600 rooms to our management and franchise segment, which also contributed to the increases in franchise and management fees.

Additionally, licensing fees increased $32 million and $103 million during the three and nine months ended September 30, 2022, respectively, primarily due to increases in 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

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 in line with the recovery from the pandemic and flow through of improved topline results to managed hotel profits.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

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(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 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 June 30, 2021.

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

Owned and leased hotel revenues

$ 295 $ 199 48.2 $ 727 $ 376 93.4

The increase in owned and leased hotel revenues during the three months ended September 30, 2022 was primarily due to a $128 million increase, on a currency neutral basis, from our comparable owned and leased hotels, which was partially offset by a $32 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 121.3 percent, due to increases in occupancy of 27.4 percentage points and ADR of 36.6 percent, reflective of the ongoing recovery that began in 2021 from the pandemic and has been particularly strong during 2022 in Europe where the majority of our owned and leased properties are located.

Revenues from our non-comparable owned and leased hotels were flat on a currency neutral basis as the increase in revenues that resulted from increased RevPAR at these hotels was offset by a $15 million decrease from properties which were sold or for which the lease agreements were terminated during 2021.

The increase in owned and leased hotel revenues during the nine months ended September 30, 2022 included increases of $384 million and $20 million, on a currency neutral basis, from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $53 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 primarily the result of increased RevPAR of 207.3 percent, due to increases in occupancy of 31.9 percentage points and ADR of 40.6 percent, reflective of the ongoing recovery from the pandemic, and was net of a $29 million decrease in COVID-19 relief subsidies from international governments.

The currency neutral increase in revenues from our non-comparable owned and leased hotels, which also benefited from an increase in RevPAR, was partially offset by a $25 million decrease from properties which were sold or for which the lease agreements were terminated during 2021.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

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Other revenues $ 28 $ 18 55.6 $ 71 $ 56 26.8

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 Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

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(in millions) (in millions)

Owned and leased hotels

Owned and leased hotel expenses

$ 263 $ 200 31.5 $ 705 $ 452 56.0

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

The increase in owned and leased hotel expenses during the three months ended September 30, 2022 was primarily due to a $94 million increase, on a currency neutral basis, from our comparable owned and leased hotels, which was partially offset by a $31 million decrease as a result of favorable fluctuations in foreign currency exchange rates, while expenses from our non-comparable owned and leased hotels were flat on a net basis.

The increase in owned and leased hotel expenses during the nine months ended September 30, 2022 included $294 million and $15 million of increases, on a currency neutral basis, from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $56 million decrease as a result of favorable fluctuations in foreign currency exchange rates.

The currency neutral increases in expenses from our non-comparable owned and leased hotels during the three and nine months ended September 30, 2022 were net of $10 million and $21 million currency neutral decreases, respectively, from properties which were sold or for which the lease agreements were terminated during 2021.

Our owned and leased hotels had currency neutral increases in certain operating expenses as a result of increased occupancy during the three and nine months ended September 30, 2022, including variable rent costs, which are generally based on a percentage of hotel revenues or profits, which increased in line with the recovery from the pandemic, as well as increased expenses related to FF&E replacement reserves, which are generally computed as a percentage of hotel revenues.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

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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.

The decreases in general and administrative expenses were primarily due to continued cost control, as well as costs recognized during the three and nine months ended September 30, 2021 for certain legal settlements, for which no such expenses were recognized during 2022.

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

Non-operating Income and Expenses

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

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Interest expense $ (106) $ (98) 8.2 $ (295) $ (302) (2.3)

Gain (loss) on foreign currency transactions

Gain on foreign currency transactions

Loss on debt extinguishment — — NM (1)

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Other non-operating income, net

6 5 20.0 22 10 NM (1)

Income tax benefit (expense)

(146) 1 NM (1)

10 6 66.7 32 16 100.0

Income tax expense

(181) (100) 81.0 (407) (64) NM (1)

(1) Fluctuation in terms of percentage change is not meaningful.

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.

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.

The changes in interest expense during the three and nine months ended September 30, 2022 included increases related to the interest rate increase on the variable rate Term Loan during the periods, as well as the amortization of previously dedesignated interest rate swaps.

Additionally, the decrease for the nine months ended September 30, 2022 included a decrease related to our Revolving Credit Facility, which was partially drawn during the nine months ended September 30, 2021, but was fully repaid as of June 30, 2021, as well a 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.

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

The gains and losses on foreign currency transactions primarily 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 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.

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

Other non-operating income, net for the nine months ended September 30, 2022 included an $11 million gain resulting from the remeasurement of certain investments in unconsolidated affiliates.

The increases in income tax expense during the three and nine months ended September 30, 2022 were primarily attributable to the increases in income before income taxes, as well as losses in certain foreign entities where we do not expect to recognize a tax benefit.

Further, during the nine months ended September 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

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 increases in revenues from our managed and franchised properties, which are 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 income (loss).

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

As of September 30, 2022, we had total cash and cash equivalents of $1,362 million, including $80 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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(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 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 June 30, 2022.

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.

Since they were resumed, as of September 30, 2022, we had repurchased approximately 8.5 million shares of our common stock for $1,107 million.

As of September 30, 2022, approximately $1.1 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, 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 objective of 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 September 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 June 30, 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 September 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:

Six Months Ended Percent

June 30, Change

Nine Months Ended Percent

September 30, Change

2022 2021 2022 vs.

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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 six months ended June 30, 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 $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.

primarily due to the increase in cash inflows generated from our management and franchise segment, largely as a result of the increase in RevPAR at our comparable managed and franchised properties of 48.1 percent.

Additionally, there was a $99 million decrease in payments of contract acquisition costs based on the timing of certain strategic hotel developments

supporting our net unit growth.

The increase in cash provided by operating activities was partially offset by a $174 million increase in cash paid for income taxes.

In April 2020, we pre-sold Hilton Honors points to American Express and, before the end of the second quarter of 2022, all of those points had been used by American Express.

As such, American Express resumed purchasing Hilton Honors points with cash in connection with a co-branded credit card arrangement with them, which also contributed to the increase in our operating cash flows during the period.

We expect American Express to continue to purchase points with 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.

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.

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, as well as capital expenditures for property and equipment related to our corporate facilities and the renovation of certain hotels in our ownership segment.

Net cash used in investing activities was partially offset by the net cash inflows resulting from our undesignated derivative financial instruments that we have in place to hedge against changes in foreign currency exchange rates, primarily as a result of the British pound depreciating against the United States dollar during the nine months ended September 30, 2022.

Additionally, during the nine months ended September 30, 2022, we provided equity and debt financing to unconsolidated affiliates and owners of certain hotels that we will in the future or do currently manage or franchise to support our strategic objectives.

Financing Activities

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.

Net cash used in financing activities during the nine months ended September 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 were suspended in 2020.

Net cash used in financing activities during the nine months ended September 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 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.

As of September 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 six months ended June 30, 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 six months ended June 30, 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 nine months ended September 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