What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-24 compared with 2023-10-25 · 133 added, 170 removed, 207 unchanged (59% of the section changed)

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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 or disputes and supply chain disruptions and recent events affecting the financial services industry;

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

macroeconomic factors beyond our control, such as inflation, changes in interest rates, challenges due to labor shortages or disputes and supply chain disruptions;

competition for hotel guests and management and franchise contracts;

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We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Recent Developments

COVID-19 Pandemic

Although our results for the nine months ended September 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 nine months ended September 30, 2023 reflect improvement in comparison to the nine months ended September 30, 2022, when considering the pandemic.

While certain regions and customer segments, particularly business and group travel, continue to recover from the impacts of the pandemic, our global growth when comparing periods in 2023 to 2022 is more normalized than it was during the height of the pandemic and our subsequent recovery.

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 and has in some local and regional banks created limitations on lending for new projects, including hotel construction.

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 7,399 properties comprising 1,159,785 rooms in 124 countries and territories as of September 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, Hilton Grand Vacations Club and Hilton Vacation Club.

As of September 30, 2023, we had 173 million members in our award-winning guest loyalty program, Hilton Honors, an increase of 19 percent from September 30, 2022.

Hilton is one of the largest global hospitality companies, with 7,626 properties comprising 1,197,329 rooms in 126 countries and territories as of March 31, 2024.

Our premier brand portfolio includes luxury, lifestyle, full service, focused service and all-suites hotel brands, as well as timeshare brands.

As of March 31, 2024, we had 188 million members in our award-winning guest loyalty program, Hilton Honors, an increase of 18 percent from March 31, 2023.

Segments and Regions

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(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.

(ii) licensing fees from our strategic partners, including co-branded credit card providers, and HGV;

and (iii) fees for managing the 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.

As a franchisor of hotels, we charge franchise fees in exchange for the use of one of our brand names and/or 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.

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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 68 percent of our system-wide hotel rooms as of September 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.

Although the U.S., which represented 67 percent of our system-wide hotel rooms as of March 31, 2024, 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 our hotel operating statistics in "—Results of Operations." 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 our hotel operating

statistics in "—Results of Operations." 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.

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

As we enter into new management and franchise contracts and enter into strategic agreements to complement our hotel portfolio, we expand our business with limited or no capital investment by us as the manager, franchisor or licensor, since the capital required to build, renovate and maintain hotels is typically provided by the third-party owners 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.

See further discussion on our cash management policy in "—Liquidity and Capital Resources." The current economic environment, including elevated levels of inflation and interest rates, 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, 2023

As of or for the

Three Months Ended

March 31, 2024

Hotels Rooms (1)

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

Net unit growth from September 30, 2022 to September 30, 2023 was 4.3 percent.

(3) The hotels in our development pipeline were under development throughout 119 countries and territories, including 29 countries and territories where we did not have any existing hotels.

(4) Of the total rooms in the development pipeline, 223,000 rooms were under construction and 257,200 rooms were located outside of the U.S.

Net unit growth from March 31, 2023 to March 31, 2024 was 5.6 percent.

(3) The hotels in our development pipeline were under development throughout 119 countries and territories, including 31 countries and territories where we had no existing hotels.

(4) Of the total rooms in the development pipeline, 229,700 were under construction and 267,900 were located outside of the U.S.

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

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and (iii) have not undergone large-scale capital projects, sustained substantial property damage, encountered business interruption or for which comparable results were not available.

Of the 7,312 hotels in our system as of September 30, 2023, 5,964 hotels were classified as comparable hotels.

Our 1,348 non-comparable hotels as of September 30, 2023 included 346 hotels, or less than five percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they underwent large-scale capital projects, sustained substantial property damage, encountered business interruption or comparable results were otherwise not available.

Of the 7,532 hotels in our system as of March 31, 2024, 6,347 hotels were classified as comparable hotels.

Our 1,185 non-comparable hotels as of March 31, 2024 included 421 hotels, or less than six percent of the total hotels in our system, that were removed from the comparable group during the last twelve months because they underwent large-scale capital projects, sustained substantial property damage, encountered business interruption 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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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.

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.

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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 September 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 nine months ended September 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 nine months ended September 30, 2023, respectively.

References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of March 31, 2024, 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, 2024 and 2023 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, 2024.

EBITDA and Adjusted EBITDA

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The fees we recognize related to the indirect reimbursements may be recognized before or after the related expenses are incurred, causing timing differences between the costs incurred and the related reimbursement from hotel owners, with the net effect impacting net income (loss) in the reporting period.

However, the expenses incurred related to the indirect reimbursements are expected to equal the revenues earned from the indirect reimbursements over time, such that over time there is neither a positive nor negative impact on our results.

However, the expenses incurred related to the indirect reimbursements are expected to equal the revenues earned from the indirect reimbursements over time, and, therefore, the net

effect of our cost reimbursement revenues and expenses is not used by our management team to evaluate our operating performance or make day-to-day operating decisions.

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.

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• 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, return to our shareholders through share repurchases and dividends or as measures of cash that will be available to us to meet our obligations.

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, return to our stockholders through share repurchases and dividends 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 Nine Months Ended Change

September 30, 2023 2023 vs.

2022 September 30, 2023 2023 vs.

Three Months Ended Change

March 31, 2024 2024 vs.

Occupancy 67.2 % 0.2 % pts.

73.4 % 2.9 % pts.

ADR $ 154.91 1.7 %

RevPAR $ 104.16 2.0 %

Americas (excluding U.S.)

Occupancy 67.7 % (0.6) % pts.

70.1 % 7.0 % pts.

ADR $ 161.67 0.5 %

RevPAR $ 109.53 (0.4) %

Americas (excluding U.S.)

Occupancy 65.8 % 1.4 % pts.

72.3 % 6.9 % pts.

ADR $ 157.60 5.0 %

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Occupancy 64.9 % 3.1 % pts.

70.8 % 7.1 % pts.

ADR $ 141.99 4.5 %

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Occupancy 73.6 % 2.4 % pts.

70.1 % 18.9 % pts.

ADR $ 193.22 11.0 %

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Occupancy 65.2 % 1.3 % pts.

72.7 % 5.5 % pts.

ADR $ 114.90 5.7 %

RevPAR $ 74.95 7.9 %

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

The growth in ADR and occupancy in the U.S.

and Americas (excluding U.S.) during the periods was led by returning group and business travelers;

however, as travel patterns continue to normalize from the impacts of the pandemic, the growth period over period is less pronounced than prior period improvements.

Additionally, Canada removed all COVID-19 travel restrictions in the fourth quarter of 2022, which contributed to the increase in RevPAR.

Europe continued to benefit from inbound travel, with higher ADR, including the impact of inflation, driving the increase in RevPAR during the periods.

Increased business and leisure demand at our hotels in the United Kingdom and Ireland also contributed to the increase in occupancy in Europe.

Recovering business travel also contributed to MEA's increase in ADR during the periods, which drove improved RevPAR.

APAC continued the strength demonstrated in the first half of the year during the three months ended September 30, 2023, driven by the removal of cross-border travel and COVID-19 restrictions since the latter half of 2022, particularly in Japan and China.

System-wide RevPAR increased during the three months ended March 31, 2024, primarily due to an increase in ADR in all regions, which included the impact of inflation, and increases in occupancy across international regions.

The decrease in RevPAR in the U.S.

was driven by challenging comparisons due to weather and timing of holidays.

The Americas region, excluding the U.S., saw improvement resulting from an increase in inbound leisure travel in Mexico and the Caribbean and Latin America.

The RevPAR increase in Europe was driven by continued growth in international travel.

Both MEA and Asia Pacific benefited from increased holiday travel, conferences and special events in the regions.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Three Months Ended

(in millions)

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EBITDA 532 455

Loss (gain) on foreign currency transactions

Gain on sales of assets, net

Loss on foreign currency transactions

Loss on investments in unconsolidated affiliate (1)

Loss on debt guarantees (2)

FF&E replacement reserves 11 8

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Amortization of contract acquisition costs 12 10

Net other expenses (revenues) from managed and franchised properties

51 (7) 97 (73)

Net other expenses from managed and franchised properties

Other adjustments (3)

Adjusted EBITDA $ 750 $ 641

(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;

(1) Amount includes losses recognized related to equity and debt financing that we had previously provided to an unconsolidated affiliate with underlying investments in certain hotels that we manage or franchise;

refer to Note 5:

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

(2) Amounts for the three months ended September 30, 2023 and the nine months ended September 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 Nine Months Ended Percent

September 30, Change September 30, Change

2023 2022 2023 vs.

(2) Amount includes losses on debt guarantees for certain hotels that we manage;

refer to Note 13:

"Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information.

(3) Amount for the three months ended March 31, 2024 primarily relates to transaction costs incurred for acquisitions.

Amounts for both 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

2024 2023 2024 vs.

(in millions) (in millions)

(in millions)

Franchise and licensing fees $ 571 $ 508 12.4

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Incentive management fees

63 52 21.2 197 132 49.2

Total management fees $ 176 $ 145 21.4

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 September 30, 2023, RevPAR at our comparable franchised and managed hotels increased 4.5 percent and 13.5 percent, respectively, due to increased occupancy of 1.1 percentage points and 6.0 percentage points, respectively, and increased ADR of 3.0 percent and 4.2 percent, respectively, which included increases due to inflation.

During the nine months ended September 30, 2023, RevPAR at our comparable franchised and managed hotels increased 11.0 percent and 26.8 percent, respectively, due to increased occupancy of 3.9 percentage points and 10.5 percentage points, respectively, and increased ADR of 5.1 percent and 7.6 percent, respectively, which included increases due to inflation.

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 September 30, 2023, we added 538 franchised and managed hotels on a net basis, providing an additional 79,800 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 nine months ended September 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 during the three and nine months ended September 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 Nine Months Ended Percent

September 30, Change September 30, Change

2023 2022 2023 vs.

Franchise and licensing fees increased due to an increase in license fees from our strategic partnerships, primarily attributable to new cardholder acquisitions and increased cardholder spend under our co-branded credit card arrangements.

Licensing fees from HGV also increased as a result of increased timeshare revenues, inclusive of the impact of adding new timeshare properties to our system between the periods, including those acquired by HGV from third-party companies.

During the three months ended March 31, 2024, RevPAR at our comparable franchised hotels decreased 0.2 percent due to a decrease in occupancy of 0.7 percentage points, which was partially offset by an increase in ADR of 0.8 percent.

However, franchise fees increased during the period due to the addition of 417 franchised hotels on a net basis, resulting in an additional 58,100 rooms from new development and ownership type transfers between January 1, 2023 to March 31, 2024.

The increase in management fees was primarily the result of an increase in RevPAR at our comparable managed hotels as well as termination fees received from hotels that exited our system.

During the three months ended March 31, 2024, RevPAR at our comparable managed hotels increased 8.2 percent, due to increased occupancy of 3.1 percentage points, and increased ADR of 3.3 percent.

The increase in managed hotels in our system between the periods also contributed to the increase in management fees.

Including new development and ownership type transfers, from January 1, 2023 to March 31, 2024, we added 31 managed hotels on a net basis, providing an additional 9,300 rooms to our management hotel portfolio.

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

Three Months Ended Percent

March 31, Change

2024 2023 2024 vs.

(in millions) (in millions)

(in millions)

Owned and leased hotels revenues

$ 255 $ 248 2.8

The $40 million increase in owned and leased hotel revenues during the three months ended September 30, 2023 included a $34 million increase on a currency neutral basis and a $6 million increase resulting from favorable fluctuations in foreign currency exchange rates.

The $197 million increase during the nine months ended September 30, 2023 included a $212 million increase on a currency neutral basis, which was partially offset by a $15 million decrease resulting from unfavorable fluctuations in foreign currency exchange rates.

Revenues from our comparable owned and leased hotels increased $39 million and $213 million, on a currency neutral basis, during the three and nine months ended September 30, 2023, respectively, reflective of the ongoing easing of travel restrictions in the latter half of 2022, particularly in Japan, and the increases in RevPAR of 18.7 percent and 41.6 percent, respectively.

The increases in RevPAR were due to increases in occupancy of 6.6 percentage points and 13.9 percentage points, respectively, and ADR of 8.7 percent and 14.3 percent, respectively, which included increases due to inflation.

The decreases in revenues from our non-comparable owned and leased hotels included currency neutral decreases from properties that exited our system after September 30, 2022.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2023 2022 2023 vs.

The $7 million increase in owned and leased hotels revenues included a $9 million currency neutral increase, partially offset by a $2 million decrease resulting from unfavorable fluctuations in foreign currency exchange rates.

Revenues from our comparable owned and leased hotels increased $20 million, on a currency neutral basis, due to the increase in RevPAR at our comparable owned and leased hotels of 12.4 percent.

The increase in RevPAR was due to increases in occupancy of 3.9 percentage points and ADR of 6.0 percent.

The $11 million currency neutral decrease in revenues from our non-comparable owned and leased hotels included decreases related to hotels undergoing renovations during the period and the business interruption that occurred at our leased hotel in Israel due to the ongoing military conflict.

Three Months Ended Percent

March 31, Change

2024 2023 2024 vs.

(in millions) (in millions)

(in millions)

Other revenues $ 50 $ 35 42.9

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.

The increase in other revenues was primarily due to increased procurement volume and vendor rebates for purchases made by properties that participate in our purchasing programs, including properties outside of our system.

Operating Expenses

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2023 2022 2023 vs.

Three Months Ended Percent

March 31, Change

2024 2023 2024 vs.

(in millions) (in millions)

(in millions)

Owned and leased hotels expenses

$ 247 $ 251 (1.6)

The $38 million increase in owned and leased hotels expenses during the three months ended September 30, 2023 included a $31 million increase on a currency neutral basis and a $7 million increase resulting from unfavorable fluctuations in foreign currency exchange rates.

The $144 million increase during the nine months ended September 30, 2023 included a $160 million increase on a currency neutral basis, which was partially offset by a $16 million decrease resulting from favorable fluctuations in foreign currency exchange rates.

Expenses from our comparable owned and leased hotels increased $23 million and $139 million, on a currency neutral basis, during the three and nine months ended September 30, 2023, respectively, as a result of increased occupancy driving higher labor costs, utilities and other operating expenses, as well as an increase in rent expenses and cost inflation.

Additionally, the increases in owned and leased hotels expenses from our non-comparable owned and leased hotels included increased expenses for FF&E replacement reserves related to hotels undergoing renovations, which were partially offset by decreases from non-comparable owned and leased hotels that exited our system after September 30, 2022.

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2023 2022 2023 vs.

Expenses from our comparable owned and leased hotels increased $5 million, on a currency neutral basis, as a result of increased occupancy and cost inflation both driving higher labor costs and other operating expenses, partially offset by decreases in utilities and property taxes.

The $9 million net decrease in owned and leased hotels expenses, on a currency neutral basis, from our non-comparable owned and leased hotels is primarily driven by the business interruption that occurred at our leased hotel in Israel.

Three Months Ended Percent

March 31, Change

2024 2023 2024 vs.

(in millions) (in millions)

(in millions)

Depreciation and amortization expenses $ 36 $ 37 (2.7)

General and administrative expenses 104 91 14.3

Other expenses 26 13 100.0 80 35 NM⁽¹⁾

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

The decrease in depreciation and amortization expense during the nine months ended September 30, 2023 was primarily due to a decrease in amortization expense, driven by the full amortization of certain software project costs, 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.

Other expenses 30 21 42.9

The decrease in depreciation and amortization expenses during three months ended March 31, 2024 was primarily due to a decrease in amortization expense, driven by certain intangible assets that became fully amortized during the three months ended December 31, 2023.

This decrease in amortization expense was mostly offset by an increase related to software and corporate and hotel assets placed in service between the periods.

The increase in general and administrative expenses was primarily due to increases in costs related to payroll and other compensation costs, as well as transaction costs incurred for acquisitions.

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

Non-operating Income and Expenses

Three Months Ended Percent Nine Months Ended Percent

September 30, Change September 30, Change

2023 2022 2023 vs.

Three Months Ended Percent

March 31, Change

2024 2023 2024 vs.

(in millions) (in millions)

(in millions)

Interest expense $ (131) $ (116) 12.9

Gain (loss) on foreign currency transactions

(13) 4 NM (1)

Loss on foreign currency transactions

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

Other non-operating income (loss), net

(36) 12 NM (1)

Other non-operating income, net

15 10 50.0 38 32 18.8

Income tax expense

1 unchanged sentence

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

Interest expense increased during the three and nine months ended September 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 loss related to interest rate swaps that we used to mitigate floating interest rate risk, including swaps that were dedesignated in prior periods.

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

In November 2023, we amended the credit agreement governing the Term Loans to convert $1.0 billion of the outstanding Term Loans to a new tranche with an interest rate of the Secured Overnight Financing Rate ("SOFR") plus 185 basis points and $1.6 billion of the outstanding Term Loans, along with $500 million of new aggregate principal amount, into a new tranche with an interest rate of SOFR plus 210 basis points.

The increase in interest expense was primarily driven by both the increase to the weighted average fixed spread on the overall variable rate on the Term Loans and the increase in the outstanding balance by $500 million.

The increase in interest expense also resulted from an increase in one-month SOFR, the benchmark for the Term Loans' interest rate, as well as an increase in variable rent for our finance leases, which is generally based on a percentage of hotel revenues or profits, which increased as discussed in "— Revenues." These increases were partially offset by a decrease in interest expense due to interest rate swaps used to mitigate floating interest rate risk, including an increase in the amortization of net gains from accumulated other comprehensive loss from a designated interest rate swap and a decrease in the release of net losses from accumulated other comprehensive loss related to a previous interest rate swap that was dedesignated in a prior period.

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 nine months ended September 30, 2023 included:

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 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 nine months ended September 30, 2023, as discussed above.

The increases in other

non-operating income, net included increases in interest income resulting from increases in interest rates for the periods in 2023 when compared to the same periods in 2022.

The decrease in income tax expense during the three months ended September 30, 2023 was primarily attributable to losses in certain foreign entities where we did not recognize such a tax benefit during the three months ended September 30, 2022, partially offset by an increase in income before income taxes.

The increase in income tax expense during the nine months ended September 30, 2023 was primarily attributable to an increase in income before income taxes, partially offset by losses in certain foreign entities where we did not recognize such a tax benefit during the nine months ended September 30, 2022.

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

Other non-operating income (loss), 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.

The net change during the period was primarily driven by an increase in losses on debt guarantees for hotels that Hilton manages.

"Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information.

The increase in income tax expense was primarily attributable to the increase in income before income taxes, partially offset by a valuation allowance provided on a deferred tax asset during the three months ended March 31, 2023.

Segment Results

As of September 30, 2023, our management and franchise segment included 787 managed hotels and 6,474 franchised hotels consisting of 1,127,020 total rooms, and our ownership segment included 51 hotels consisting of 17,490 total rooms.

As of March 31, 2024, our management and franchise segment included 809 managed and 6,766 franchised properties consisting of 1,179,837 total rooms, and our ownership segment included 51 hotels consisting of 17,492 total rooms.

Refer to Note 12:

"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 and management fees charged by our management and franchise segment, results in our ownership segment operating income (loss).

For the three months ended March 31, 2024, refer to "—Revenues" for further discussion of the increases in our franchise and licensing fees and total management fees, which reflect our management and franchise segment revenues and segment operating income, as well as for further discussion of the increase in revenues from our owned and leased hotels, which reflect our ownership segment revenues.

In addition, refer to "—Operating Expenses" for further discussion of the decrease in operating expenses at our owned and leased hotels, which, when netted with ownership segment revenues and management fees charged by our management and franchise segment, results in our ownership segment operating income (loss).

Liquidity and Capital Resources

As of September 30, 2023, we had total cash and cash equivalents of $779 million, including $81 million of restricted cash and cash equivalents.

As of March 31, 2024, we had total cash and cash equivalents of $1,420 million, including $74 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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(x) dividends as declared;

and (xi) share repurchases.

(xi) share repurchases;

and (xii) costs related to the acquisition of the Graduate Hotels brand and the associated contracts and the acquisition of a controlling financial interest in the Sydell Group.

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.

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 nine months ended September 30, 2023, we repurchased approximately 11.0 million shares of our common stock for $1.6 billion.

As of September 30, 2023, approximately $1.5 billion remained available for share repurchases under our stock repurchase program.

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 Hilton Honors and program fees to operate our Hilton Honors program, marketing, sales and brands programs and shared services.

In March 2024, we issued a total of $1.0 billion of 5.875% 2029 Senior Notes and 6.125% 2032 Senior Notes and used $200 million of the net proceeds to repay the outstanding balance under the Revolving Credit Facility.

We intend to use the remaining net proceeds for general corporate purposes, which may include investments and acquisitions.

Refer to Note 6:

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

We expect that interest payments on our outstanding indebtedness will increase compared to the prior year as a result of the amendment and increase to the amount outstanding under the Term Loans in November 2023 and the issuance of the 5.875% 2029 Senior Notes and the 6.125% 2032 Senior Notes in March 2024.

Except for the issuance of the 5.875% 2029 Senior Notes and the 6.125% 2032 Senior Notes, 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, 2023.

During the three months ended March 31, 2024, we repurchased approximately 3.4 million shares of our common stock for $662 million.

As of March 31, 2024, approximately $3.1 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 September 30, 2023.

"Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information on our commitments that were outstanding as of March 31, 2024.

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 September 30, 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 March 31, 2024, 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.

The objectives of our cash management policy are maintaining the availability of liquidity and 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.

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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

2024 2023 2024 vs.

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Net cash provided by operating activities $ 346 $ 330 4.8

Net cash used in investing activities (228) (98) NM (1)

Net cash used in financing activities (1,744) (1,230) 41.8

Net cash used in investing activities (27) (85) (68.2)

Net cash provided by (used in) financing activities 238 (547) NM (1)

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

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 14.4 percent increase in RevPAR at our comparable managed and franchised properties.

The increase in cash provided by operating activities was partially offset by a $103 million increase in payments of contract acquisition costs due to the timing of certain strategic hotel developments supporting our growth, as well as a $96 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 nine months ended September 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.

Cash flows from operating activities were primarily generated from management, franchise and licensing 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 a net increase in the number of hotels in our system between the periods and an increase in RevPAR at our comparable managed hotels, and a $68 million decrease in payments of contract acquisition costs due to the timing of certain strategic hotel developments supporting our growth.

The increase in cash provided by operating activities were partially offset by a $43 million increase in the net cash outflows related to income tax payments, due to income tax refunds received during the three months ended March 31, 2023, and an outflow of $62 million for debt guarantee payments during the three months ended March 31, 2024.

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.

Net cash used in investing activities primarily 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 and (ii) capital expenditures for property and equipment related to corporate property and the renovation of certain hotels in our ownership segment, which decreased between the periods due to the timing of certain corporate and hotel capital expenditure projects.

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 were primarily the result of changes in the exchange rates for the Pound Sterling to the U.S.

dollar during the three months ended March 31, 2023.

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.

During the nine months ended September 30, 2023, the increase in net cash used in financing activities was partially offset by the increase in cash inflows related to settlements of our interest rate swap with a financing component for which we receive a variable rate and pay a fixed rate, due to the increase in interest rates during the period.

The increase in cash provided by financing activities was primarily attributable to a $1.0 billion increase in cash inflows from the issuances of the 5.875% 2029 Senior Notes and the 6.125% 2032 Senior Notes.

These increases were partially offset by a $214 million increase in cash outflows for the return of capital to shareholders, which includes dividends and share repurchases.

Debt and Borrowing Capacity

As of September 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 September 30, 2023, which had an available borrowing capacity of $1,940 million after considering $60 million of outstanding letters of credit.

As of March 31, 2024, our total indebtedness, excluding the deduction for unamortized deferred financing costs and discounts, was approximately $10.3 billion.

No debt amounts were outstanding under the Revolving Credit Facility as of March 31, 2024, which had an available borrowing capacity of $1,913 million after considering $87 million of outstanding letters of credit.

For additional information on our total indebtedness and guarantees on our debt, refer to Note 6:

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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.

We do not have any material indebtedness outstanding that matures prior to May 2025, and we believe that we have sufficient sources of liquidity and access to debt financing to address the debt maturing in May 2025 prior to its maturity date.

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.

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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 nine months ended September 30, 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, 2023, and, during the three months ended March 31, 2024, 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