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, 2023. 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, future financial results, 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," "forecasts," "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 or disputes and supply chain disruptions; the loss of key senior management personnel; 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 conflicts in Eastern Europe and the Middle East and other geopolitical events; 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, 2023. 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. Overview Our Business Hilton is one of the largest global hospitality companies, with 8,301 properties comprising 1,250,506 rooms in 138 countries and territories as of September 30, 2024. Our premier brand portfolio includes luxury, lifestyle, full service, focused service and all-suites hotel brands, as well as timeshare brands. As of September 30, 2024, we had 203 million members in our award-winning guest loyalty program, Hilton Honors, an increase of 17 percent from September 30, 2023. 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 strategic partner hotels, 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/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. 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 66 percent of our system-wide hotel rooms as of September 30, 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 17 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, 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, license our IP or provide access to our booking channels. 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 free cash flow. 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 in some cases 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 or for the Nine Months Ended September 30, 2024 Hotels Rooms (1) Hotel system Openings (2) 802 75,800 Net additions (3) 762 65,800 Development pipeline Additions (4) 1,166 120,000 Count as of period end (5) 3,525 492,400 ____________ (1) Rounded to the nearest hundred. (2) Openings include 400 hotels and over 18,800 rooms from strategic partner hotels. (3) Represents room additions, net of rooms removed from our system, 400 hotels and over 18,800 rooms of which were from strategic partner hotels. Net unit growth from September 30, 2023 to September 30, 2024 was 7.8 percent. (4) Additions include 411 hotels and over 19,300 rooms related to strategic partner hotels. (5) The hotels in our development pipeline were under development throughout 120 countries and territories, including 28 countries and territories where we had no existing hotels, with 235,400 rooms under construction and 280,700 rooms located outside of the U.S. Rooms under construction include rooms for hotels under construction or in the process of conversion to our system. Nearly all of the rooms in our development pipeline will be in our management and franchise segment upon opening. 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, have not undergone a change in brand or ownership type during the current or comparable periods and were open January 1st of the previous year; and (ii) have not undergone large-scale capital projects, sustained substantial property damage, encountered business interruption or for which comparable results were not available. We exclude strategic partner hotels from our comparable hotels. Of the 8,200 hotels in our system as of September 30, 2024, 400 hotels were strategic partner hotels and 6,150 hotels were classified as comparable hotels. Our 1,650 non-comparable hotels as of September 30, 2024 included (i) 844 hotels that were added to our system after January 1, 2023 or that have undergone a change in brand or ownership type during the current or comparable periods reported and (ii) 806 hotels that were removed from the comparable group for the current or comparable periods reported because they underwent or are undergoing large-scale capital projects, sustained substantial property damage, encountered business interruption or comparable results were otherwise not available. 18 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 and key drivers of operations at a hotel or group of hotels, as previously described: occupancy and ADR. RevPAR is also a useful indicator in measuring performance over comparable periods for comparable hotels. References to occupancy, ADR and RevPAR are presented on a comparable basis, based on the comparable hotels as of September 30, 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 and nine months ended September 30, 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 and nine months ended September 30, 2024, 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 our cost reimbursement revenues and expenses 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; and (iii) other items that are not reflective of our operating performance, such as amounts related to debt restructurings and debt retirements and reorganization and related severance costs, to enhance period-over-period comparisons of our ongoing operations. Further, Adjusted EBITDA excludes the net effect of our cost reimbursement revenues and expenses, classified in other revenues from managed and franchised properties and other expenses from managed and franchised properties, respectively, as we contractually do not operate the related programs to generate a profit or loss over the 19 life of these programs. The direct reimbursements from hotel owners are billable and reimbursable as the costs are incurred and have no net effect on net income (loss). 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 recognition of 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, and, therefore, the net effect of our cost reimbursement revenues and expenses is not used by management to evaluate our operating performance or make 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. 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; • 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, return to our stockholders through share repurchases and dividends or as measures of cash that will be available to us to meet our obligations. 20 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, 2024 2024 vs. 2023 September 30, 2024 2024 vs. 2023 System-wide Occupancy 75.3 % 0.3 % pts. 72.8 % 0.7 % pts. ADR $ 161.18 1.0 % $ 159.92 1.5 % RevPAR $ 121.40 1.4 % $ 116.37 2.4 % U.S. Occupancy 75.4 % 0.2 % pts. 73.5 % 0.3 % pts. ADR $ 169.59 0.8 % $ 167.83 0.9 % RevPAR $ 127.83 1.0 % $ 123.27 1.4 % Americas (excluding U.S.) Occupancy 72.7 % 0.4 % pts. 69.9 % 1.1 % pts. ADR $ 155.80 3.9 % $ 156.53 4.2 % RevPAR $ 113.22 4.4 % $ 109.46 5.9 % Europe Occupancy 81.3 % 2.3 % pts. 74.7 % 2.6 % pts. ADR $ 179.46 4.3 % $ 166.42 3.9 % RevPAR $ 145.89 7.3 % $ 124.34 7.7 % MEA Occupancy 70.5 % 2.3 % pts. 70.9 % 2.5 % pts. ADR $ 143.94 (0.1) % $ 176.25 6.3 % RevPAR $ 101.48 3.3 % $ 125.03 10.2 % Asia Pacific Occupancy 73.2 % (0.5) % pts. 69.5 % 0.6 % pts. ADR $ 107.81 (2.8) % $ 108.98 0.6 % RevPAR $ 78.97 (3.4) % $ 75.69 1.5 % System-wide RevPAR increased during the three and nine months ended September 30, 2024, supported by improvements in system-wide ADR, which included the impact of inflation, and increases in occupancy in most regions, which were driven by increases in group demand. The increases in RevPAR in the U.S. were driven by increases in weekday travel, primarily for groups, with consistent growth in business. The Americas region, excluding the U.S., continued to see improvement resulting from increases in inbound leisure travel in Mexico and the Caribbean and Latin America. The RevPAR increases in Europe were driven by continued growth in inbound international travel, which, during the periods, increased in several major cities that held large popular sporting events. MEA continued to benefit from increased demand driven by special regional events as well as more relaxed travel policies. The decrease in Asia Pacific during the three months ended September 30, 2024 was driven by tougher year-over-year comparisons in China, after the reacceleration in the prior year as a result of the removal of cross-border travel restrictions. The increase in Asia Pacific for the nine months ended September 30, 2024 was due to growth in countries outside of China across the region, as the result of less restrictive tourism policies and special events in the region, particularly in leisure travel. 21 The table below provides a reconciliation of net income to EBITDA and Adjusted EBITDA: Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 (in millions) Net income $ 344 $ 379 $ 1,034 $ 1,001 Interest expense 140 113 412 340 Income tax expense 147 169 413 417 Depreciation and amortization expenses 37 40 107 114 EBITDA 668 701 1,966 1,872 Loss (gain) on sales of assets, net 2 — (5) — Loss on foreign currency transactions 3 7 5 13 Loss on investments in unconsolidated affiliate (1) — — — 92 Loss on debt guarantees (2) — — 50 — FF&E replacement reserves 14 17 38 40 Share-based compensation expense 44 48 140 133 Amortization of contract acquisition costs 12 11 37 32 Net other expenses from managed and franchised properties 163 51 323 97 Other adjustments (3) (2) (1) 17 7 Adjusted EBITDA $ 904 $ 834 $ 2,571 $ 2,286 ____________ (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) 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 nine months ended September 30, 2024 primarily relates to restructuring costs related to one of our leased properties as well as transaction costs resulting from the amendment of our Term Loans and transaction costs incurred for acquisitions. Amounts for all periods include net losses (gains) related to certain of our investments in unconsolidated affiliates, other than the loss included separately in "loss on investments in unconsolidated affiliate," severance and other items. Revenues Three Months Ended Percent Nine Months Ended Percent September 30, Change September 30, Change 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 (in millions) (in millions) Franchise and licensing fees $ 698 $ 643 8.6 $ 1,958 $ 1,769 10.7 Base and other management fees $ 88 $ 81 8.6 $ 287 $ 247 16.2 Incentive management fees 66 63 4.8 204 197 3.6 Total management fees $ 154 $ 144 6.9 $ 491 $ 444 10.6 The increases in franchise and management fees were largely attributable to increases in RevPAR at our comparable franchised and managed hotels. During the three months ended September 30, 2024, RevPAR at our comparable franchised and managed hotels increased 1.0 percent and 2.7 percent, respectively, contributing to currency neutral increases in franchise and management fees of $14 million and $7 million, respectively. The increases in RevPAR at our comparable franchised and managed hotels for the three months ended September 30, 2024 were due to increased occupancy of 1.3 percentage points at our managed hotels, and increased ADR of 0.9 percent at both our franchised and managed hotels. During the nine months ended September 30, 2024, RevPAR at our comparable franchised and managed hotels increased 1.4 percent and 5.4 percent, respectively, contributing to currency neutral increases in franchise and management fees of $43 million and $28 million, respectively. The increases in RevPAR at our comparable franchised and managed hotels for the nine months ended September 30, 2024 were due to increased occupancy of 0.2 percentage points and 2.4 percentage points, respectively, and increased ADR of 1.2 percent and 1.8 percent, respectively. 22 Further, franchise and management fees included net increases of $15 million and $4 million, respectively, during the three months ended September 30, 2024, and $40 million and $10 million, respectively, during the nine months ended September 30, 2024 as a result of net hotel additions between the periods. During the nine months ended September 30, 2024, franchise and management fees also increased as a result of increases of $8 million and $21 million, respectively, in termination fees received from hotels that exited our system. Licensing fees increased $23 million and $95 million during the three and nine months ended September 30, 2024, respectively, as a result of increases in fees from our strategic partnerships, primarily resulting from activity under our co-branded credit card arrangements, and branded residential fees. The increase for the nine months ended September 30, 2024 also included increased license fees from HGV timeshare revenues, inclusive of the impact of adding new timeshare properties to our system between the periods, including those acquired by HGV from third parties. Three Months Ended Percent Nine Months Ended Percent September 30, Change September 30, Change 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 (in millions) (in millions) Owned and leased hotels revenues $ 330 $ 335 (1.5) $ 922 $ 924 (0.2) Owned and leased hotels revenues decreased $5 million for the three months ended September 30, 2024 on a currency neutral basis. The $2 million decrease in owned and leased hotels revenues for the nine months ended September 30, 2024 included a $13 million decrease resulting from unfavorable fluctuations in foreign currency exchange rates, partially offset by a currency neutral increase of $11 million. Revenues from our comparable owned and leased hotels increased $8 million and $48 million, on a currency neutral basis, during the three and nine months ended September 30, 2024, respectively, due to increases in RevPAR at our comparable owned and leased hotels of 6.7 percent and 9.0 percent, respectively. The increases in RevPAR for the three and nine months ended September 30, 2024 were due to increases in occupancy of 2.5 percentage points and 3.1 percentage points, respectively, and ADR of 3.4 percent and 4.5 percent, respectively. The currency neutral decreases in revenues from our non-comparable owned and leased hotels of $13 million and $37 million for the three and nine months ended September 30, 2024, respectively, included decreases related to hotels undergoing renovations during the periods, a hotel that exited our system and the business disruption that occurred at our leased hotel in Israel due to the ongoing military conflict. Three Months Ended Percent Nine Months Ended Percent September 30, Change September 30, Change 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 (in millions) (in millions) Other revenues $ 58 $ 45 28.9 $ 179 $ 126 42.1 The increases in other revenues were primarily due to increased procurement volume and associated vendor rebates for purchases made by properties, including properties outside of our system, that participate in our purchasing programs. Operating Expenses Three Months Ended Percent Nine Months Ended Percent September 30, Change September 30, Change 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 (in millions) (in millions) Owned and leased hotels expenses $ 288 $ 301 (4.3) $ 833 $ 849 (1.9) Owned and leased hotels expenses decreased $13 million for the three months ended September 30, 2024 on a currency neutral basis. The $16 million decrease in owned and leased hotels expenses for the nine months ended September 30, 2024 included a $10 million decrease on a currency neutral basis and a decrease of $6 million from favorable fluctuations in foreign currency exchange rates. Expenses from our comparable owned and leased hotels increased $6 million and $23 million, on a currency neutral basis, during the three and nine months ended September 30, 2024, respectively, as a result of increased occupancy and cost inflation, primarily due to increases in payroll and other compensation costs. The $19 million and $33 million net decreases in owned and 23 leased hotels expenses, on a currency neutral basis, from our non-comparable owned and leased hotels during the three and nine months ended September 30, 2024, respectively, include decreases related to hotels undergoing renovations, a hotel that exited our system and the business disruption that occurred at our leased hotel in Israel due to the ongoing military conflict. Three Months Ended Percent Nine Months Ended Percent September 30, Change September 30, Change 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 (in millions) (in millions) Depreciation and amortization expenses $ 37 $ 40 (7.5) $ 107 $ 114 (6.1) General and administrative expenses 101 96 5.2 318 298 6.7 Other expenses 26 26 — 93 80 16.3 The decreases in depreciation and amortization expenses during the three and nine months ended September 30, 2024 were primarily due to decreases in amortization expense, driven by decreases of $10 million and $29 million for the three and nine months ended September 30, 2024, respectively, for certain intangible assets that became fully amortized during the three months ended December 31, 2023. These decreases were mostly offset by increases related to software and corporate and hotel assets placed in service 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 increase in other expenses for the nine months ended September 30, 2024 was primarily due to costs associated with higher procurement volume from our purchasing operations. Non-operating Income and Expenses Three Months Ended Percent Nine Months Ended Percent September 30, Change September 30, Change 2024 2023 2024 vs. 2023 2024 2023 2024 vs. 2023 (in millions) (in millions) Interest expense $ (140) $ (113) 23.9 $ (412) $ (340) 21.2 Loss on foreign currency transactions (3) (7) (57.1) (5) (13) (61.5) Loss on investments in unconsolidated affiliate — — — — (92) NM (1) Other non-operating income (loss), net 11 15 (26.7) (17) 38 NM⁽¹⁾ Income tax expense (147) (169) (13.0) (413) (417) (1.0) ____________ (1) Fluctuation in terms of percentage change is not meaningful. 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 SOFR plus 1.85% 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 2.10% (the "November 2023 Amendment"). The increases in interest expense during the three and nine months ended September 30, 2024 were primarily attributable to (i) increases related to the Term Loans of $8 million and $37 million for the three and nine months ended September 30, 2024, respectively, as a result of the modifications from the November 2023 Amendment, and for the nine months ended September 30, 2024, also as a result of increases in one-month SOFR for the comparable periods, and (ii) increases of $19 million and $36 million for the three and nine months ended September 30, 2024, respectively, due to the March Senior Notes issuance and the September Senior Notes issuance. The increase in interest expense for the nine months ended September 30, 2024 also included an increase of $11 million in variable rent for our hotels subject to finance leases, which is generally based on a percentage of hotel revenues or profits, which increased for our comparable hotels as discussed in "— Revenues." The increase for the nine months ended September 30, 2024 was partially offset by a decrease in interest expense of $16 million due to interest rate swaps used to mitigate floating interest rate risk, including an increase in the amortization of net swap gains released from accumulated other comprehensive loss from a designated interest rate swap to offset interest expense and a decrease in the amount of the net swap losses released from accumulated other comprehensive loss to interest expense related to a previous interest rate swap that was dedesignated in a prior period. 24 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: (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 5: "Loss on Investments in Unconsolidated Affiliate" in our unaudited condensed consolidated financial statements for additional information. The net change in other non-operating income (loss), net during the nine months ended September 30, 2024 was primarily driven by an increase in losses on debt guarantees for certain hotels that Hilton manages. See Note 13: "Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information. The decrease in income tax expense for the three months ended September 30, 2024 was primarily attributable to the decrease in income before income taxes. The decrease in income tax expense for the nine months ended September 30, 2024 was primarily attributable to increased excess tax benefits from share-based compensation, partially offset by an increase in income before income taxes. Segment Results As of September 30, 2024, our management and franchise segment included 820 managed and 7,431 franchised and licensed properties, which included 101 timeshare and 400 strategic partner hotels, consisting of 1,233,343 total rooms, and our ownership segment included 50 hotels consisting of 17,163 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. For the three and nine months ended September 30, 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 decreases 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 decreases 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 Overview As of September 30, 2024, we had total cash and cash equivalents of $1,655 million, including $75 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 25 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. In June 2024, we amended the credit agreement governing our Term Loans pursuant to which (i) $1.0 billion of outstanding Term Loans due June 2028 were replaced with $1.0 billion of incremental Term Loans due November 2030, aligning their maturity with the outstanding $2.1 billion tranche of Term Loans due November 2030 and (ii) the entire balance of the Term Loans was repriced with an interest rate of SOFR plus 1.75%. In September 2024, we issued $1.0 billion of 2033 Senior Notes and intend to use the proceeds for general corporate purposes. Refer to Note 6: "Debt" in our unaudited condensed consolidated financial statements for additional information. Except for the March and September Senior Notes issuances and the amendment to the credit agreement governing our Term Loans in June 2024, 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 nine months ended September 30, 2024, we repurchased approximately 10.2 million shares of our common stock for $2,113 million. As of September 30, 2024, approximately $1.7 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 13: "Commitments and Contingencies" in our unaudited condensed consolidated financial statements for additional information on our commitments that were outstanding as of September 30, 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, 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, current maturities of long-term debt and other commitments for the foreseeable future based on current conditions. 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. 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: Nine Months Ended Percent September 30, Change 2024 2023 2024 vs. 2023 (in millions) Net cash provided by operating activities $ 1,431 $ 1,481 (3.4) Net cash used in investing activities (367) (228) 61.0 Net cash used in financing activities (274) (1,744) (84.3) Operating Activities 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 decrease in net cash inflows during the period was primarily due to a 26 $50 million increase in the net cash outflows related to income tax payments, primarily due to income tax refunds received during the nine months ended September 30, 2023 and an outflow of $77 million for debt guarantee payments. The decrease in cash provided by operating activities was partially offset by the increase in cash inflows generated from our management and franchise segment, discussed in "—Revenues," largely as a result of an increase in RevPAR at our comparable managed and franchised hotels as well as revenues from new hotels added, net of hotels removed, and a $77 million decrease in payments of contract acquisition costs due to the timing of certain strategic hotel developments supporting our growth during the nine months ended September 30, 2023. Investing Activities Net cash used in investing activities primarily included cash flows related to: (i) the acquisitions of (a) the Graduate brand and the associated franchise contracts and (b) a controlling financial interest in the Sydell Group, both completed during the nine months ended September 30, 2024, (ii) capitalized software costs that were related to various systems initiatives for the benefit of both our hotel owners and our overall corporate operations, and (iii) 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 for the nine months ended September 30, 2023. Financing Activities The decrease in net cash used in financing activities was primarily attributable to a $2.0 billion increase in cash inflows from the March and September Senior Notes issuances. This increase in cash inflows was partially offset by a $532 million increase in cash outflows for share repurchases. Debt and Borrowing Capacity As of September 30, 2024, our total indebtedness, excluding the deduction for unamortized deferred financing costs and discounts, was approximately $11.3 billion. No debt amounts were outstanding under the Revolving Credit Facility as of September 30, 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: "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. We do not have any material indebtedness outstanding that matures prior to 2027 other than the May 2025 Senior Notes due in May 2025, and we believe that we have sufficient sources of liquidity and access to debt financing to address the repayment of the May 2025 Senior Notes at or prior to their 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. 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, 2023, and, during the nine months ended September 30, 2024, there were no material changes to those critical accounting estimates that were previously disclosed.