Hilton Worldwide Holdings Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include, but are not limited to, statements related to our expectations regarding the 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 recent events affecting the financial services industry; 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, 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. Recent Developments COVID-19 Pandemic 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 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. Overview Our Business 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: our luxury hotel brands, Waldorf Astoria Hotels & Resorts, LXR Hotels & Resorts and Conrad Hotels & Resorts; 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, 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, 15 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 We analyze our operations and business by both operating segments and geographic regions. Our operations consist of two reportable segments that are based on similar products and services: (i) management and franchise and (ii) ownership. The management and franchise segment provides services, including hotel management and licensing of our IP. Revenues from this segment include: (i) management and franchise fees charged to third-party hotel owners; (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. 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 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. We conduct business in three distinct geographic regions: (i) the Americas; (ii) Europe, Middle East and Africa ("EMEA"); and (iii) Asia Pacific. The Americas region includes North America, South America and Central America, including all Caribbean nations. 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. Europe and MEA are often analyzed separately and, as such, are presented separately within the analysis herein. The Asia Pacific region includes the eastern and southeastern nations of Asia, as well as India, Australia, New Zealand and the Pacific Island nations. System Growth and Development Pipeline Our strategic objectives include the continued expansion of our global hotel network, as well as of our fee-based business. 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." 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. 16 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 Six Months Ended June 30, 2023 Hotels Rooms (1) Hotel system Openings 156 23,200 Net additions (2) 127 16,500 Development pipeline (3) Additions 491 60,900 Count as of period end (4) 3,064 440,900 ____________ (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 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 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. We do not consider any individual development project to be material to us. Key Business and Financial Metrics Used by Management Comparable Hotels We define our comparable hotels as those that: (i) were active and operating in our system for at least one full calendar year as of the end of the current period, and open January 1st of the previous year; (ii) have not undergone a change in brand or ownership type during the current or comparable periods reported; and (iii) have not sustained substantial property damage, business interruption, undergone large-scale capital projects or for which comparable results were not available. Of the 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 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 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 management determine achievable Average Daily Rate ("ADR") pricing levels as demand for hotel rooms increases or decreases. ADR ADR represents hotel room revenue divided by the total number of room nights sold for a given period. ADR measures the average room price attained by a hotel, and ADR trends provide useful information concerning the pricing environment and the nature of the customer base of a hotel or group of hotels. ADR is a commonly used performance measure in the industry, and we use ADR to assess pricing levels that we are able to generate by type of customer, as changes in rates charged to customers have different effects on overall revenues and incremental profitability than changes in occupancy, as described above. 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 17 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 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 EBITDA reflects net income (loss), excluding interest expense, a provision for income tax benefit (expense) and depreciation and amortization expenses. Adjusted EBITDA is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including gains, losses, revenues and expenses in connection with: (i) asset dispositions for both consolidated and unconsolidated investments; (ii) foreign currency transactions; (iii) debt restructurings and retirements; (iv) furniture, fixtures and equipment ("FF&E") replacement reserves required under certain lease agreements; (v) share-based compensation; (vi) reorganization, severance, relocation and other expenses; (vii) non-cash impairment; (viii) amortization of contract acquisition costs; (ix) the net effect of reimbursable costs included in other revenues and other expenses from managed and franchised properties; and (x) other items. We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) these measures are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and (ii) these measures are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry. Additionally, these measures exclude certain items that can vary widely across different industries and among competitors within our industry. For instance, interest expense and income taxes are dependent on company specifics, including, among other things, capital structure and operating jurisdictions, respectively, and, therefore, could vary significantly across companies. Depreciation and amortization expenses, as well as amortization of contract acquisition costs, are dependent upon company policies, including the method of acquiring and depreciating assets and the useful lives that are assigned to those depreciating or amortizing assets for accounting purposes. For Adjusted EBITDA, we also exclude items such as: (i) FF&E replacement reserves for leased hotels to be consistent with the treatment of capital expenditures for property and equipment, where depreciation of such capitalized assets is reported within depreciation and amortization expenses; (ii) share-based compensation, as this could vary widely among companies due to the different plans in place and the usage of them; (iii) the net effect of our cost reimbursement revenues and reimbursed expenses, as we contractually do not operate the related programs to generate a profit over the terms of the respective contracts; and (iv) other items, such as amounts related to debt restructurings and debt retirements and reorganization and related severance costs, that are not core to our operations and are not reflective of our operating performance. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as alternatives, either in isolation or as a substitute, for net income (loss) or other measures of financial performance or liquidity, including cash flows, derived in accordance with GAAP. Further, EBITDA and Adjusted EBITDA have limitations as analytical tools, including: • EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; • EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; • EBITDA and Adjusted EBITDA do not reflect income tax expenses or the cash requirements to pay our taxes; • EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; • EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; 18 • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and • other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations. Results of Operations The hotel operating statistics by region for our system-wide comparable hotels were as follows: Three Months Ended Change Six Months Ended Change June 30, 2023 2023 vs. 2022 June 30, 2023 2023 vs. 2022 U.S. Occupancy 75.9 % 1.3 % pts. 72.4 % 3.9 % pts. ADR $ 169.31 3.8 % $ 164.74 6.2 % RevPAR $ 128.51 5.6 % $ 119.20 12.4 % Americas (excluding U.S.) Occupancy 70.7 % 4.2 % pts. 68.3 % 9.5 % pts. ADR $ 153.60 15.1 % $ 150.83 17.4 % RevPAR $ 108.66 22.4 % $ 103.01 36.2 % Europe Occupancy 75.4 % 4.1 % pts. 68.8 % 9.7 % pts. ADR $ 181.74 19.3 % $ 164.28 20.2 % RevPAR $ 136.96 26.2 % $ 113.00 40.0 % MEA Occupancy 67.5 % 7.4 % pts. 70.8 % 7.8 % pts. ADR $ 179.08 15.9 % $ 177.66 16.8 % RevPAR $ 120.85 30.2 % $ 125.79 31.2 % Asia Pacific Occupancy 69.9 % 20.9 % pts. 67.8 % 22.5 % pts. ADR $ 111.88 25.4 % $ 113.94 23.6 % RevPAR $ 78.19 79.0 % $ 77.30 84.7 % System-wide 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 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. 19 The table below provides a reconciliation of net income to EBITDA and Adjusted EBITDA: Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 (in millions) Net income $ 413 $ 367 $ 622 $ 578 Interest expense 111 99 227 189 Income tax expense 155 146 248 226 Depreciation and amortization expenses 37 40 74 84 EBITDA 716 652 1,171 1,077 Loss (gain) on foreign currency transactions 6 (8) 6 (4) Loss on investments in unconsolidated affiliate (1) — — 92 — FF&E replacement reserves 15 15 23 27 Share-based compensation expense 52 47 85 84 Amortization of contract acquisition costs 11 10 21 18 Net other expenses (revenues) from managed and franchised properties 8 (36) 46 (66) Other adjustments (2) 3 (1) 8 (9) Adjusted EBITDA $ 811 $ 679 $ 1,452 $ 1,127 ___________ (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) 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. Revenues Three Months Ended Percent Six Months Ended Percent June 30, Change June 30, Change 2023 2022 2023 vs. 2022 2023 2022 2023 vs. 2022 (in millions) (in millions) Franchise and licensing fees $ 618 $ 545 13.4 $ 1,126 $ 958 17.5 Base and other management fees $ 86 $ 75 14.7 $ 166 $ 130 27.7 Incentive management fees 69 46 50.0 134 80 67.5 Total management fees $ 155 $ 121 28.1 $ 300 $ 210 42.9 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. 20 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. 2022 2023 2022 2023 vs. 2022 (in millions) (in millions) Owned and leased hotels revenues $ 341 $ 282 20.9 $ 589 $ 432 36.3 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. 2022 2023 2022 2023 vs. 2022 (in millions) (in millions) Other revenues $ 46 $ 25 84.0 $ 81 $ 43 88.4 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 Six Months Ended Percent June 30, Change June 30, Change 2023 2022 2023 vs. 2022 2023 2022 2023 vs. 2022 (in millions) (in millions) Owned and leased hotels expenses $ 297 $ 257 15.6 $ 548 $ 442 24.0 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." 21 Three Months Ended Percent Six Months Ended Percent June 30, Change June 30, Change 2023 2022 2023 vs. 2022 2023 2022 2023 vs. 2022 (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 33 11 NM (1) 54 22 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 Six Months Ended Percent June 30, Change June 30, Change 2023 2022 2023 vs. 2022 2023 2022 2023 vs. 2022 (in millions) (in millions) Interest expense $ (111) $ (99) 12.1 $ (227) $ (189) 20.1 Gain (loss) on foreign currency transactions (6) 8 NM (1) (6) 4 NM (1) 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 (155) (146) 6.2 (248) (226) 9.7 ____________ (1) Fluctuation in terms of percentage change is not meaningful. 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. See Note 5: "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 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. See Note 4: "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 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 22 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: "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" 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 income (loss). Liquidity and Capital Resources Overview 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. Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including: (i) costs associated with the management and franchising of hotels; (ii) 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 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; (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: (i) scheduled debt maturities and interest payments on our outstanding indebtedness; (ii) lease payments under our finance and operating leases; (iii) committed contract acquisition costs; (iv) capital improvements to the hotels within our ownership segment; (v) corporate capital and information technology expenditures; (vi) dividends as declared; (vii) share repurchases; and (viii) commitments to owners in our management and franchise segment made in the normal course of business for which we are reimbursed by these owners through program fees to operate our marketing, sales and brands programs. There were no material changes to our contractual obligations from what we previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. 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. See Note 12: "Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information on our commitments that were outstanding as of June 30, 2023. 23 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 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. After considering our approach to liquidity and our available sources of cash, we believe that our cash position and sources of liquidity will meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and other compensation costs, taxes and compliance costs and other commitments for the foreseeable future based on current conditions. The objectives of our cash management policy are to maintain the availability of liquidity while minimizing operational costs. We may from time to time issue or incur or increase our capacity to incur new debt and/or purchase our outstanding debt through underwritten offerings, open market transactions, privately negotiated transactions or otherwise. Issuances or incurrence of new debt (or an increase in our capacity to incur new debt) and/or purchases or retirements of outstanding debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Sources and Uses of Our Cash and Cash Equivalents The following table summarizes our net cash flows: Six Months Ended Percent June 30, Change 2023 2022 2023 vs. 2022 (in millions) Net cash provided by operating activities $ 794 $ 528 50.4 Net cash used in investing activities (154) (94) 63.8 Net cash used in financing activities (1,031) (679) 51.8 Operating Activities 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 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; (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 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. dollar. 24 Financing Activities 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 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: "Debt" in our unaudited condensed consolidated financial statements. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to reduce capital expenditures or issue additional equity securities. However, we do not have any material indebtedness outstanding that matures prior to May 2025. Our ability to make scheduled principal payments and to pay interest on our debt depends on our future operating performance, which is subject to general conditions in or affecting the hospitality industry that may be beyond our control. 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, 2022, and, during the six months ended June 30, 2023, there were no material changes to those critical accounting estimates that were previously disclosed.