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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 145 added, 186 removed, 188 unchanged (64% 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 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.

These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements.

In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words.

Such forward-looking statements are subject to various risks and uncertainties including, among others, risks inherent to the hospitality industry, macroeconomic factors beyond our control, such as 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.

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, challenges due to labor shortages and supply chain disruptions and instability in the banking system as a result of several recent bank failures;

risks related to the impact of the COVID-19 pandemic (the "pandemic");

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 under "Part II—Item 1A.

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

Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 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 7,061 properties comprising 1,111,147 rooms in 123 countries and territories as of September 30, 2022.

Recent Developments

COVID-19 Pandemic

Although our results for the three months ended March 31, 2022 included a strong recovery from the pandemic when compared to the same periods in 2020 and 2021, the Omicron variant of COVID-19 limited the recovery of certain regions and segments of our business during that period, such that the results for the three months ended March 31, 2023 reflect notable improvement in comparison.

Adverse Developments Affecting the Financial Services Industry

In March 2023, certain U.S.

and international government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets.

While these events have not had a material direct impact on our operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the ability of our owners or our ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on our business, financial condition and results of operations.

Hilton is one of the largest hospitality companies in the world, with 7,215 properties comprising 1,133,277 rooms in 122 countries and territories as of March 31, 2023.

Our premier brand portfolio includes:

our luxury hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts and Conrad Hotels & Resorts;

our emerging lifestyle hotel brands, Canopy by Hilton, Tempo by Hilton and Motto by Hilton;

our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts, Curio Collection by Hilton, DoubleTree by Hilton and Tapestry Collection by Hilton;

our lifestyle hotel brands, Canopy by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton, Tempo by Hilton and Motto by Hilton;

our full service hotel brands, Signia by Hilton, Hilton Hotels & Resorts and DoubleTree by Hilton;

our focused service hotel brands, Hilton Garden Inn, Hampton by Hilton and Tru by Hilton;

our all-suites hotel brands, Embassy Suites by Hilton, Homewood Suites by Hilton and Home2 Suites by Hilton;

our premium economy brand, Spark by Hilton;

and our timeshare brand, Hilton Grand Vacations.

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.

March 31, 2023, we had 158 million members in our award-winning guest loyalty program, Hilton Honors, a 19 percent increase from March 31, 2022.

Segments and Regions

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The management and franchise segment provides services, including hotel management and licensing of our IP.

This segment generates its revenue from:

Revenues from this segment include:

(i) management and franchise fees charged to third-party hotel owners;

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

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

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

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As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and related commercial services, such as our reservation system, marketing and information technology services, while a third party manages or operates such franchised hotels.

The ownership segment primarily derives revenues from providing nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels.

The ownership segment primarily derives revenues from nightly hotel room sales, food and beverage sales and other services at our consolidated owned and leased hotels.

Geographically, we conduct business through three distinct geographic regions:

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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 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 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 March 31, 2023, 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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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.

As we enter into new management and franchise contracts, we expand our business with limited or no capital investment by us as the manager or franchisor, since the capital required to build and maintain hotels is typically provided by the third-party owner of the hotel with whom we contract to provide management services or license our IP.

Prior to approving the addition of new hotels to our management and franchise development pipeline, we evaluate the economic viability of the hotel based on its geographic location, the credit quality of the third-party owner and other factors.

By increasing the number of management and franchise contracts with third-party owners, over time we expect to increase revenues, overall return on invested capital and cash available to support our business needs.

see further discussion on our cash management policy in "—Liquidity and Capital Resources." While these objectives have not changed as a result of the pandemic, the current economic environment has posed certain challenges to the execution of our strategy, which have included and may continue to include delays in openings and new development.

We are focused on the growth of our business by expanding our global hotel network through our development pipeline, which represents hotels that we expect to add to our system in the future.

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 growth strategy, which have included and may continue to include delays in openings and new development.

In addition to our current hotel portfolio, 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

Nine Months Ended

September 30, 2022

Three Months Ended

March 31, 2023

Hotels Rooms (1)

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(1) Rounded to the nearest hundred.

(2) Represents room additions, net of rooms removed from our system, during the period.

Contributed to net unit growth from 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 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.

(2) Represents room additions, net of rooms removed from our system, during the period, which contributed to net unit growth from March 31, 2022 of 4.4 percent.

(3) Hotels in our system were under development throughout 116 countries and territories, including 30 countries and territories where we did not have any existing hotels.

(4) In our development pipeline, as of March 31, 2023, 215,700 of the rooms were under construction and 246,200 of the rooms were located outside of the U.S.

Nearly all of the rooms in our development pipeline will be in our management and franchise segment.

We do not consider any individual development project to be material to us.

Recent Developments

COVID-19 Pandemic

The pandemic significantly impacted the global economy and strained the hospitality industry beginning in 2020.

Since the beginning of the pandemic, the pervasiveness and severity of travel restrictions and stay-at-home directives 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 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 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:

• 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;

• suspended all new development activity in Russia;

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

• 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 6,988 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 nine months ended September 30, 2022 and 2021.

Of the 7,133 hotels in our system as of March 31, 2023, 6,143 hotels were classified as comparable hotels.

Our 990 non-comparable hotels as of March 31, 2023 included 383 hotels, or approximately five percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they sustained substantial property damage, encountered business interruption, underwent large-scale capital projects or comparable results were otherwise not available.

Occupancy represents the total number of room nights sold divided by the total number of room nights available at a hotel or group of hotels for a given period.

Occupancy measures the utilization of our hotels' available capacity.

Occupancy measures the utilization of available capacity at a hotel or group of hotels.

Management uses occupancy to gauge demand at a specific hotel or group of hotels in a given period.

Occupancy levels also help us determine achievable ADR pricing levels as demand for hotel rooms increases or decreases.

Occupancy levels also help management determine achievable Average Daily Rate ("ADR") pricing levels as demand for hotel rooms increases or decreases.

ADR represents hotel room revenue divided by the total number of room nights sold for a given period.

ADR measures the average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels.

ADR is a commonly used performance measure in the industry, and

we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates charged to customers have different effects on overall revenues and incremental profitability than changes in occupancy, as described above.

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.

Revenue per Available Room ("RevPAR")

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

We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary and key drivers of operations at a hotel or group of hotels, as previously described:

We consider RevPAR to be a meaningful indicator of our performance as it provides a metric correlated to two primary

and key drivers of operations at a hotel or group of hotels, as previously described:

occupancy and ADR.

RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels.

References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of 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.

References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of March 31, 2023, 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, 2023 and 2022 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, 2023.

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 accounting purposes.

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 Nine Months Ended Change

September 30, 2022 2022 vs.

2021 September 30, 2022 2022 vs.

Three Months Ended Change

March 31, 2023 2023 vs.

Occupancy 68.6 % 6.5 % pts.

70.5 % 10.3 % pts.

ADR $ 159.67 10.0 %

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Occupancy 65.5 % 14.7 % pts.

63.0 % 23.1 % pts.

ADR $ 147.48 21.0 %

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Occupancy 62.1 % 15.3 % pts.

65.9 % 29.4 % pts.

ADR $ 142.42 27.0 %

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Occupancy 74.3 % 8.1 % pts.

63.9 % 17.2 % pts.

ADR $ 175.13 17.6 %

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Occupancy 65.8 % 24.1 % pts.

52.3 % 2.5 % pts.

ADR $ 116.18 21.3 %

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Occupancy 67.7 % 9.8 % pts.

67.6 % 11.9 % pts.

ADR $ 153.20 11.2 %

RevPAR $ 103.72 30.0 %

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.

All regions showed improvement in RevPAR, occupancy and ADR during the three months ended March 31, 2023 due to the continued recovery from the pandemic and the increase in travel, including the desire and ability to travel with the easing of cross-border travel restrictions that have occurred since the latter half of 2022, particularly in Japan, China and Canada.

While occupancy improvement was driven by Asia Pacific, occupancy in the U.S.

was positively impacted by spring break travel, and Europe and MEA continued to experience strong international demand from the U.S., which contributed to the year-over-year and sequential quarter growth in system-wide ADR.

Additionally, all of our customer segments showed improvement from the same period in the prior year, particularly our group segment, with increased RevPAR, occupancy and ADR as business and group meeting demand continue to strengthen.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

(in millions)

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EBITDA 455 425

Loss on sale of assets, net — 8 — 8

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

Loss on debt extinguishment — — — 69

Loss on foreign currency transactions — 4

Loss on investments in unconsolidated affiliate (1)

FF&E replacement reserves 8 12

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Net other expenses (revenues) from managed and franchised properties

(7) (62) (73) 57

Other adjustments (2)

Adjusted EBITDA $ 641 $ 448

(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 Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

(1) Amount for the three months ended March 31, 2023 includes losses recognized related to equity and debt financing that we had previously provided to an unconsolidated affiliate with underlying investments in hotels that we currently or in the future will manage or franchise;

refer to Note 4:

Loss on Investments in Unconsolidated Affiliate in our unaudited condensed consolidated financial statements for additional information.

(2) All periods include net losses (gains) related to certain of Hilton's investments in unconsolidated affiliates, other than the loss included separately in "loss on investments in unconsolidated affiliate," severance and other items.

Three Months Ended Percent

March 31, Change

2023 2022 2023 vs.

(in millions) (in millions)

(in millions)

Franchise and licensing fees $ 508 $ 413 23.0

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Incentive management fees

52 26 100.0 132 60 NM (1)

Total management fees $ 145 $ 89 62.9

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

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 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 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 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.

Franchise and management fees increased as a result of increases in RevPAR at our comparable franchised and managed hotels of 23.5 percent and 50.7 percent, respectively, due to increased occupancy of 7.8 percentage points and 16.0 percentage points, respectively, and increased ADR of 9.4 percent and 13.5 percent, respectively.

Further, as new hotels enter our system, we expect such hotels to increase our franchise and management fees during the period.

Including new development and ownership type transfers, from January 1, 2022 to March 31, 2023, we added nearly 360 franchised and managed properties on a net basis, providing an additional 54,300 rooms to our management and franchise segment, which also contributed to the increases in franchise and management fees.

Additionally, licensing fees increased as a result of increases in fees from our strategic partnerships and HGV.

Increased fees from our strategic partnerships resulted from new cardholder acquisitions and increased cardholder spend under our co-branded credit card arrangements.

Increased fees from HGV resulted from increased timeshare revenues, including the impact of adding new timeshare properties to our system between the periods.

Incentive management fees increased as they are based on hotels' operating profits, which generally have improved from the prior year as increased consumer demand drove higher revenues and, ultimately, higher managed hotel profits.

Three Months Ended Percent

March 31, Change

2023 2022 2023 vs.

(in millions) (in millions)

Owned and leased hotel revenues

(in millions)

Owned and leased hotels revenues

$ 248 $ 150 65.3

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.

The increase in owned and leased hotels revenues included increases of $102 million and $11 million, on a currency neutral basis, 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.

The increase in revenues, on a currency neutral basis, from our comparable owned and leased hotels was the result of increased RevPAR of 110.7 percent, due to increases in occupancy of 24.9 percentage points and ADR of 26.7 percent, reflective of the ongoing easing of travel restrictions in the latter half of 2022, particularly in Japan.

The increase in revenues, on a currency neutral basis, from our non-comparable owned and leased hotels, which also benefited from increased RevPAR, included increases from leased hotels that were under renovation during 2022, which were partially offset by decreases from properties that exited our system after March 31, 2022.

Three Months Ended Percent

March 31, Change

2023 2022 2023 vs.

(in millions) (in millions)

(in millions)

Other revenues $ 35 $ 18 94.4

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 both the three and nine months ended September 30, 2022.

The increase in other revenues was primarily due to revenues from our purchasing operations.

Operating Expenses

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

Three Months Ended Percent

March 31, Change

2023 2022 2023 vs.

(in millions) (in millions)

Owned and leased hotel expenses

(in millions)

Owned and leased hotels expenses

$ 251 $ 185 35.7

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.

The increase in owned and leased hotels expenses included increases of $75 million and $9 million, on a currency neutral basis, from our comparable and non-comparable owned and leased hotels, respectively, which were partially offset by a $18 million decrease as a result of favorable fluctuations in foreign currency exchange rates.

The currency neutral increase in expenses from our non-comparable owned and leased hotels included increases in expenses from leased hotels that were under renovation during 2022, which were partially offset by decreases in expenses from properties which exited our system after March 31, 2022.

Our owned and leased hotels had currency neutral increases in certain operating expenses as a result of increased occupancy including labor costs, utilities and variable rent costs, which is generally based on a percentage of hotel revenues or profits, which increased as discussed in "—Revenues."

Three Months Ended Percent

March 31, Change

2023 2022 2023 vs.

(in millions) (in millions)

(in millions)

Depreciation and amortization expenses $ 37 $ 44 (15.9)

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Other expenses 21 11 90.9

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 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.

The decrease in depreciation and amortization expenses was primarily due to a decrease in amortization expense, driven by the full amortization of certain software project costs between the periods, partially offset by the amortization related to software additions between the periods.

The increase in other expenses was primarily due to costs associated with higher volume in our purchasing operations.

Non-operating Income and Expenses

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2022 2021 2022 vs.

Three Months Ended Percent

March 31, Change

2023 2022 2023 vs.

(in millions) (in millions)

(in millions)

Interest expense $ (116) $ (90) 28.9

Gain on foreign currency transactions

Loss on debt extinguishment — — NM (1)

— (69) (100.0)

Loss on foreign currency transactions

Loss on investments in unconsolidated affiliate (92) — NM (1)

Other non-operating income, net

10 6 66.7 32 16 100.0

Income tax expense

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

(93) (80) 16.3

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

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.

The increase in interest expense included increases related to the interest rate increase on the variable rate Term Loan and the amortization of previously dedesignated interest rate swaps.

"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.

The net 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 loss on investments in unconsolidated affiliate for the three months ended March 31, 2023 included:

(i) a $44 million other-than-temporary impairment loss on our investment in the Fund and (ii) $48 million of credit losses on financing receivables provided to the Fund.

"Loss on Investments in Unconsolidated Affiliate" and Note 6:

"Fair Value Measurements" in our unaudited condensed consolidated financial statements for additional information.

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.

Other non-operating income, net decreased primarily due to an $11 million gain recognized during the three months ended March 31, 2022 resulting from the remeasurement of certain investments in unconsolidated affiliates, whereas no such gain was recognized during 2023.

The loss related to our investment in the Fund is presented separately in "loss on investments in unconsolidated affiliate" in our unaudited condensed consolidated statement of operations for the three months ended March 31, 2023, as discussed above.

The decrease was partially offset by an increase in interest income due to increases in interest rates since March 31, 2022.

The increase in income tax expense was primarily attributable to the increase in income before income taxes and a valuation allowance provided on a deferred tax asset during the three months ended March 31, 2023 based on our assessment of the deductibility of capital losses based on future offsetting capital gain income.

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 before income taxes.

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.

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, as well as for further discussion of the increases in revenues from our owned and leased hotels, which are correlated to our ownership segment revenues.

In addition, refer to "—Operating Expenses" for further discussion of the increases in operating expenses at our owned and leased hotels, which, when netted with ownership segment revenues, results in our ownership segment operating losses.

Liquidity and Capital Resources

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.

As of March 31, 2023, we had total cash and cash equivalents of $978 million, including $77 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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(i) costs associated with the management and franchising of hotels;

(ii) costs, other than compensation and rent that are noted separately, associated with the operations of owned and leased hotels, including, but not limited to, utilities and operating supplies;

(iii) corporate expenses;

(iv) payroll and compensation costs;

(v) taxes and compliance costs;

(vi) scheduled debt maturities and interest payments on our outstanding indebtedness;

(vii) lease payments under our finance and operating leases;

(ii) corporate expenses;

(iii) payroll and compensation costs;

(iv) taxes and compliance costs;

(v) scheduled debt maturities and interest payments on our outstanding indebtedness;

(vi) lease payments under our finance and operating leases;

(vii) costs, other than compensation and rent that are noted separately, associated with the operations of owned and leased hotels, including, but not limited to, utilities and operating supplies;

(viii) committed contract acquisition costs;

(ix) dividends as declared;

(x) share repurchases;

(xi) capital expenditures for required renovations and maintenance at the hotels within our ownership segment.

(ix) capital and maintenance expenditures for required renovations and maintenance at the hotels within our ownership segment;

(x) dividends as declared;

and (xi) share repurchases.

Our known long-term liquidity requirements primarily consist of funds necessary to pay for:

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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.

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, 2022.

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.

During the three months ended March 31, 2023, we repurchased approximately 3.2 million shares of our common stock for $446 million.

As of March 31, 2023, approximately $2.7 billion remained available for share repurchases under our stock repurchase program.

In circumstances where we have the opportunity to support our strategic objective of growing our global hotel network, we may provide guarantees or other commitments, as necessary, to owners of hotels that we currently or in the future will manage or franchise or other third parties.

"Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information on our commitments that were outstanding as of March 31, 2023.

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 September 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 intend to finance our business activities primarily with cash on our balance sheet as of March 31, 2023, 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:

Nine Months Ended Percent

September 30, Change

Three Months Ended Percent

March 31, Change

2023 2022 2023 vs.

(in millions)

Net cash provided by (used in) operating activities $ 1,199 $ (22) NM (1)

Net cash provided by operating activities $ 330 $ 195 69.2

Net cash used in investing activities (85) (26) NM (1)

Net cash used in financing activities (1,230) (1,814) (32.2)

Net cash used in financing activities (547) (167) NM (1)

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

Operating Activities

As we recover from the negative impacts of the pandemic and our system-wide RevPAR increases, we are returning to a position where cash flows are being generated from our operations, which for the nine months ended September 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 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.

The increase in cash provided by operating activities was 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 29.1 percent.

The increase in cash provided by operating activities was partially offset by a $90 million increase in payments of contract acquisition costs due to the timing of certain strategic hotel developments supporting our growth, as well as a $19 million decrease in the cash inflows related to net income tax refunds.

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.

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

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, 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.

Net cash used in investing activities included cash flows related to:

(i) capitalized software costs that were related to various systems initiatives for the benefit of both our hotel owners and our overall corporate operations;

(ii) capital expenditures for property and equipment related to corporate property and the renovation of certain hotels in our ownership segment;

and (iii) equity and debt financing that we provided to unconsolidated affiliates and owners of hotels that we currently or in the future will manage or franchise to support our strategic objectives.

Additionally, our investing activities include the net cash inflows and outflows related to our undesignated derivative financial instruments that we have in place to hedge against changes in foreign currency exchange rates, which, for both periods, were primarily the result of changes in the exchange rates for the Great British pound to the U.S.

Financing Activities

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.

Net cash used in financing activities primarily related to the return of capital to shareholders, including share repurchases, which resumed in March 2022, as well as quarterly dividend payments for the three months ended March 31, 2023, which resumed in June 2022, after both programs were suspended in 2020.

Debt and Borrowing Capacity

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:

As of March 31, 2023, our total indebtedness, excluding the deduction for unamortized deferred financing costs and discount, was approximately $8.8 billion, and we had no borrowings and $60 million of letters of credit outstanding under our Revolving Credit Facility, resulting in an available borrowing capacity of $1,940 million.

For additional information on our total indebtedness and guarantees on our debt, refer to Note 5:

"Debt" in our unaudited condensed consolidated financial statements.

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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 nine months ended September 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 nine months ended September 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, 2022, and, during the three months ended March 31, 2023, 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