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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 129 added, 96 removed, 237 unchanged (49% of the section changed)

3 unchanged sentences

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

macroeconomic factors beyond our control, such as inflation, changes in interest rates, challenges due to labor shortages and supply chain disruptions and recent events affecting the financial services industry;

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

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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.

Although our results for the six months ended June 30, 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 the beginning of that period.

As such, the results for the six months ended June 30, 2023 reflect notable improvement in comparison to the six months ended June 30, 2022, when considering the pandemic.

Adverse Developments Affecting the Financial Services Industry

In March 2023, certain U.S.

In 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.

Hilton is one of the largest hospitality companies in the world, with 7,295 properties comprising 1,144,849 rooms in 123 countries and territories as of June 30, 2023.

Our premier brand portfolio includes:

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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.

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.

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

our all-suites hotel brands, Embassy Suites by Hilton, Homewood Suites by Hilton, Home2 Suites by Hilton and our newest brand with the working title Project H3;

and our timeshare brands, Hilton Club,

Hilton Grand Vacations Club and Hilton Vacation Club.

As of June 30, 2023, we had 166 million members in our award-winning guest loyalty program, Hilton Honors, an increase of more than 19 percent from June 30, 2022.

Segments and Regions

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As a manager of hotels, we typically are responsible for supervising or operating the hotel in exchange for management fees.

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

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 reservations system, marketing and information technology services, while a third party manages or operates such franchised 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:

We conduct business in three distinct geographic regions:

(i) the Americas;

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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.

Although the U.S., which represented 68 percent of our system-wide hotel rooms as of June 30, 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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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 growth strategy, which have included and may continue to include delays in openings and new development.

See further discussion on our cash management policy in "—Liquidity and Capital Resources." 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.

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As of and for the

Three Months Ended

March 31, 2023

Six Months Ended

June 30, 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, which contributed to net unit growth from March 31, 2022 of 4.4 percent.

(2) Represents room additions, net of rooms removed from our system, during the period, which contributed to net unit growth from June 30, 2022 of 4.2 percent.

(3) Hotels in our system were under development throughout 116 countries and territories, including 29 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.

(4) In our development pipeline, as of June 30, 2023, 217,000 of the rooms were under construction and 250,100 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.

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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 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.

Of the 7,212 hotels in our system as of June 30, 2023, 6,048 hotels were classified as comparable hotels.

Our 1,164 non-comparable hotels as of June 30, 2023 included 388 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.

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

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

References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2023, respectively.

EBITDA and Adjusted EBITDA

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

Three Months Ended Change

March 31, 2023 2023 vs.

Three Months Ended Change Six Months Ended Change

June 30, 2023 2023 vs.

2022 June 30, 2023 2023 vs.

Occupancy 75.9 % 1.3 % pts.

72.4 % 3.9 % pts.

ADR $ 169.31 3.8 % $ 164.74 6.2 %

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Occupancy 70.7 % 4.2 % pts.

68.3 % 9.5 % pts.

ADR $ 153.60 15.1 % $ 150.83 17.4 %

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Occupancy 75.4 % 4.1 % pts.

68.8 % 9.7 % pts.

ADR $ 181.74 19.3 % $ 164.28 20.2 %

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Occupancy 67.5 % 7.4 % pts.

70.8 % 7.8 % pts.

ADR $ 179.08 15.9 % $ 177.66 16.8 %

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Occupancy 69.9 % 20.9 % pts.

67.8 % 22.5 % pts.

ADR $ 111.88 25.4 % $ 113.94 23.6 %

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Occupancy 74.6 % 4.2 % pts.

71.3 % 7.0 % pts.

ADR $ 163.47 5.9 % $ 158.62 7.9 %

RevPAR $ 122.02 12.1 % $ 113.02 19.7 %

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.

All regions showed improvement in RevPAR during the three and six months ended June 30, 2023 driven by both ADR and occupancy gains.

Asia Pacific has significantly improved during 2023 and led performance on a regional basis during the three and six months ended June 30, 2023, primarily due to the removal of cross-border travel and COVID-19 restrictions since the latter half of 2022, particularly in Japan and China.

Additionally, Canada removed all COVID-19 travel restrictions in the fourth quarter of 2022, which contributed to the increase in RevPAR for the Americas (excluding U.S.).

During both periods, Europe benefited from travel demand with higher ADR from international travelers and at resort destinations, and both MEA and the U.S.

experienced improved ADR from holiday travel.

Additionally, all of our customer segments showed improvement, particularly our group segment, with increased RevPAR, occupancy and ADR as business and group meeting demand continued to strengthen during the three and six months ended June 30, 2023 compared to the same periods in 2022.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

(in millions)

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EBITDA 716 652 1,171 1,077

Loss on foreign currency transactions — 4

Loss (gain) on foreign currency transactions

Loss on investments in unconsolidated affiliate (1)

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Net other expenses (revenues) from managed and franchised properties

8 (36) 46 (66)

Other adjustments (2)

Adjusted EBITDA $ 811 $ 679 $ 1,452 $ 1,127

(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;

(1) Amount 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

(2) Amounts for the three months ended June 30, 2023 and the six months ended June 30, 2023 and 2022 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." All periods include severance and other items.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2023 2022 2023 vs.

(in millions)

2022 2023 2022 2023 vs.

(in millions) (in millions)

Franchise and licensing fees $ 618 $ 545 13.4 $ 1,126 $ 958 17.5

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Incentive management fees

69 46 50.0 134 80 67.5

Total management fees $ 155 $ 121 28.1 $ 300 $ 210 42.9

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.

The increases in franchise and management fees were primarily the result of increases in RevPAR at our comparable franchised and managed hotels.

During the three months ended June 30, 2023, RevPAR at our comparable franchised and managed hotels increased 8.5 percent and 23.3 percent, respectively, due to increased occupancy of 2.6 percentage points and 9.3 percentage points, respectively, and increased ADR of 4.7 percent and 6.9 percent, respectively.

During the six months ended June 30, 2023, RevPAR at our comparable franchised and managed hotels increased 14.9 percent and 34.9 percent, respectively, due to increased occupancy of 5.3 percentage points and 12.7 percentage points, respectively, and increased ADR of 6.5 percent and 9.5 percent, respectively.

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

Including new development and ownership type transfers, from January 1, 2022 to June 30, 2023, we added nearly 440 franchised and managed hotels on a net basis, providing an additional 65,500 rooms to our management and franchise segment, which also contributed to the increases in franchise and management fees.

Additionally, licensing fees increased during the three and six months ended June 30, 2023 as a result of increases in fees from our strategic partnerships and HGV.

Increased fees from our strategic partnerships primarily 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

Incentive management fees increased during the three and six months ended June 30, 2023 as they are based on hotels' operating profits, which generally have improved from the prior periods as increased consumer demand drove higher revenues and, ultimately, higher managed hotel profits.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2023 2022 2023 vs.

(in millions)

2022 2023 2022 2023 vs.

(in millions) (in millions)

Owned and leased hotels revenues

$ 341 $ 282 20.9 $ 589 $ 432 36.3

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

Owned and leased hotels revenues increased $65 million and $178 million, on a currency neutral basis, during the three and six months ended June 30, 2023, respectively, which were partially offset by decreases of $6 million and $21 million, respectively, resulting from unfavorable fluctuations in foreign currency exchange rates.

On a currency neutral basis, revenues from our comparable owned and leased hotels increased $72 million and $174 million during the three and six months ended June 30, 2023, respectively, reflective of the ongoing easing of travel restrictions in the latter half of 2022, particularly in Japan.

During the three months ended June 30, 2023, RevPAR increased 37.8 percent at our comparable owned and leased hotels, due to increases in occupancy and ADR of 10.6 percentage points and 18.6 percent, respectively.

During the six months ended June 30, 2023, RevPAR increased 59.7 percent at our comparable owned and leased hotels, due to increases in occupancy and ADR of 17.7 percentage points and 18.9 percent, respectively.

On a non-comparable basis, the changes in revenues from our non-comparable owned and leased hotels during the periods included decreases from properties that exited our system after June 30, 2022.

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2023 2022 2023 vs.

(in millions)

2022 2023 2022 2023 vs.

(in millions) (in millions)

Other revenues $ 46 $ 25 84.0 $ 81 $ 43 88.4

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

The increases in other revenues were primarily due to increased revenues from our purchasing operations, including increased procurement volume from properties outside of our system that participate in our purchasing programs.

Operating Expenses

Three Months Ended Percent

March 31, Change

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2023 2022 2023 vs.

(in millions)

2022 2023 2022 2023 vs.

(in millions) (in millions)

Owned and leased hotels expenses

$ 297 $ 257 15.6 $ 548 $ 442 24.0

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

Owned and leased hotels expenses increased $45 million and $129 million, on a currency neutral basis, during the three and six months ended June 30, 2023, respectively, which were partially offset by decreases of $5 million and $23 million, respectively, resulting from favorable fluctuations in foreign currency exchange rates.

On a currency neutral basis, expenses from our comparable owned and leased hotels increased $41 million and $116 million during the three and six months ended June 30, 2023, respectively.

Additionally, the changes in owned and leased hotels expenses from our non-comparable owned and leased hotels during the periods included decreases from properties that exited our system after June 30, 2022.

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

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2023 2022 2023 vs.

(in millions)

2022 2023 2022 2023 vs.

(in millions) (in millions)

Depreciation and amortization expenses $ 37 $ 40 (7.5) $ 74 $ 84 (11.9)

General and administrative expenses 111 103 7.8 202 194 4.1

Other expenses 21 11 90.9

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.

Other expenses 33 11 NM (1)

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

The decreases in depreciation and amortization expenses during the periods were primarily due to decreases 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 increases in general and administrative expenses were primarily due to increases in costs related to payroll and other compensation costs.

The increases in other expenses were primarily due to costs associated with higher volume in our purchasing operations, including increased procurement volume from properties outside of our system that participate in our purchasing programs.

Non-operating Income and Expenses

Three Months Ended Percent

March 31, Change

Three Months Ended Percent Six Months Ended Percent

June 30, Change June 30, Change

2023 2022 2023 vs.

(in millions)

2022 2023 2022 2023 vs.

(in millions) (in millions)

Interest expense $ (111) $ (99) 12.1 $ (227) $ (189) 20.1

Loss on foreign currency transactions

Gain (loss) on foreign currency transactions

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

(92) — NM (1)

Other non-operating income, net

11 6 83.3 23 22 4.5

Income tax expense

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

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.

Interest expense increased during the three and six months ended June 30, 2023 primarily due to the interest rate increases during the periods on the variable rate Term Loan and our variable rate finance leases.

These increases were partially offset by decreases in interest expense due to the net effect of the amortization of gains (losses) from accumulated other comprehensive income related to interest rate swaps that we have used to mitigate floating interest rate risk, including for previously dedesignated swaps.

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

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:

The net gains and losses on foreign currency transactions are the result of changes in foreign currency exchange rates, including on certain intercompany financing arrangements, such as short-term cross-currency intercompany loans, as well as transactions denominated in foreign currencies.

The loss on investments in unconsolidated affiliate for the six months ended June 30, 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.

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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 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.

Other non-operating income, net increased during the periods primarily due to increases in interest income resulting from increases in interest rates for the periods in 2023 when compared to the same periods in 2022.

The increase during the six months ended June 30, 2023 was partially offset by an $11 million gain recognized during the six months ended June 30, 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 six months ended June 30, 2023, as discussed above.

The increases in income tax expense during the three and six months ended June 30, 2023 were primarily attributable to the increases in income before income taxes.

Segment Results

As of June 30, 2023, our management and franchise segment included 781 managed hotels and 6,380 franchised hotels consisting of 1,112,716 total rooms, and our ownership segment included 51 hotels consisting of 17,485 total rooms.

Refer to Note 11:

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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 March 31, 2023, we had total cash and cash equivalents of $978 million, including $77 million of restricted cash and cash equivalents.

As of June 30, 2023, we had total cash and cash equivalents of $883 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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(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;

(vii) costs, other than compensation and lease payments 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;

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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.

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.

During the six months ended June 30, 2023, we repurchased approximately 6.5 million shares of our common stock for $916 million.

As of June 30, 2023, approximately $2.2 billion remained available for share repurchases under our stock repurchase program.

In circumstances where we have the opportunity to support our strategic objectives, 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 June 30, 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 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.

Within the framework of our investment policy, we intend to finance our business activities primarily with cash on our balance sheet as of June 30, 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:

Three Months Ended Percent

March 31, Change

Six Months Ended Percent

June 30, Change

2023 2022 2023 vs.

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Net cash provided by operating activities $ 794 $ 528 50.4

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

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

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

Net cash used in investing activities (154) (94) 63.8

Net cash used in financing activities (1,031) (679) 51.8

Operating Activities

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 contributed to the increase in our operating cash flows during the period when compared to the same period in the prior year.

Cash flows from operating activities were primarily generated from management and franchise fee revenue and operating income from our owned and leased hotels.

The increase during the period was primarily due to the increase in cash inflows generated from our management and franchise segment, largely as a result of the 19.0 percent increase in RevPAR at our comparable managed and franchised properties.

The increase in cash provided by operating activities was partially offset by a $98 million increase in payments of contract acquisition costs due to the timing of certain strategic hotel developments supporting our growth, as well as a $103 million increase in the net cash outflows related to income tax payments.

In April 2020, we pre-sold Hilton Honors points to American Express and, in 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 contributed to the increase in our operating cash flows during the six months ended June 30, 2023 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 cash flows related to:

Net cash used in investing activities for both periods 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;

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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.

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 the impact of fluctuations in foreign currency exchange rates on certain of our intercompany loan and cash balances, which, for both periods, were primarily the result of changes in the exchange rates for the Pound Sterling to the U.S.

Financing Activities

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.

Net cash used in financing activities for both periods primarily related to the return of capital to shareholders, including dividends, which resumed in the second quarter of 2022, as well as share repurchases, which resumed in March 2022, after both programs were suspended in 2020.

Debt and Borrowing Capacity

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.

As of June 30, 2023, our total indebtedness, excluding the deduction for unamortized deferred financing costs and discount, was approximately $8.8 billion.

No debt amounts were outstanding under the Revolving Credit Facility as of June 30, 2023, which had an available borrowing capacity of $1,940 million after considering $60 million of outstanding letters of credit.

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

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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, 2022, and, during the three months ended March 31, 2023, 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 six months ended June 30, 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