Good morning, and welcome to the Hilton Second Quarter 2025 Earnings Conference Call. [Operator Instructions] This event is being recorded. I would now like to turn the conference over to Jill Chapman, Senior Vice President, Head of Development Operations and Investor Relations. You may begin.

Thank you, Michael. Welcome to Hilton's Second Quarter 2025 Earnings Call. Before we begin, we would like to remind you that our discussions this morning will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to update or revise these statements. For a discussion of some of the factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-K. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed in today's call in our earnings press release and on our website at ir.hilton.com. This morning, Chris Nassetta, our President and Chief Executive Officer, will provide an overview of the current operating environment and the company's outlook. Kevin Jacobs, our Executive Vice President and Chief Financial Officer, will then review our second quarter results and discuss expectations for the year. Following their remarks, we'll be happy to take your questions. With that, I'm pleased to turn the call over to Chris.

Thank you, Jill. Good morning, everyone, and thanks for joining us today. Our second quarter results continue to reinforce the power of our business model and the benefits of strong net unit growth, which drove great bottom line performance. Adjusted EBITDA for the quarter exceeded $1 billion, meaningfully beating expectations even with modestly negative system-wide RevPAR. Adjusted EPS also exceeded our expectations. Our strong portfolio of brands, powerful commercial engines and disciplined execution continued to drive meaningful free cash flow. Year-to-date, we've returned $1.7 billion to shareholders in the form of buybacks and dividends and remain on track to return approximately $3.3 billion for the full year. . Turning to results. The quarter turned out to be a bit noisier than expected, driving system-wide RevPAR down 50 basis points year- over-year. Performance was driven by continued strength in the Middle East, Africa region and Asia Pacific ex China but offset by softer trends in the U.S. and China. Adjusting for holidays and calendar shifts, system-wide RevPAR would have been modestly positive. In the quarter, leisure transient RevPAR grew 1% as an elongated spring break window and easy year-over-year comparison supported leisure demand growth. Business transient RevPAR decreased 2%, driven by the elongated holiday schedule, government spending declines, weaker international inbound business and broader economic uncertainty. While it's early in the third quarter, we have seen a pickup in nongovernment business demand. Group RevPAR was roughly flat with favorable trends in company meetings largely offset by soft convention business and social events. We did see positive momentum in lead volumes from corporates with month-over-month sequential growth throughout the quarter and '26 and '27 group position are up in the high single digits. As we look ahead to the third quarter, we expect RevPAR to be flat to modestly down again with…

Thanks, Chris, and good morning, everyone. During the quarter, system-wide RevPAR decreased 50 basis points versus the prior year on a comparable and currency-neutral basis, driven by declines in occupancy and modest rate growth. Adjusted EBITDA was $1.008 billion in the second quarter, up 10% year-over-year and meaningfully exceeding the high end of our guidance range. Outperformance was predominantly driven by timing of non-RevPAR items. Management franchise fees grew 8% year-over-year. For the quarter, diluted earnings per share adjusted for special items was $2.20. Turning to our regional performance. Second quarter comparable U.S. RevPAR decreased 1.5% largely driven by pressure across business transient and group as declines in government spend and softer international inbound demand weighed on performance. For full year 2025, we expect U.S. RevPAR growth to be at the lower end of our system-wide RevPAR range. In the Americas outside the U.S., second quarter RevPAR increased 3.8% year-over-year. driven by strength in the luxury and lifestyle portfolio, particularly in resort locations. For full year 2025, we expect RevPAR growth to be in the mid-single digits. In Europe, RevPAR grew 2% year- over-year driven by growth in Continental Europe supported by strong group business. For full year 2025, we expect low single-digit RevPAR growth given continued weakness in the U.K. and Ireland. In the Middle East and Africa region, RevPAR increased 10.3% year-over-year, driven by record-breaking months of travel around key events and holidays, including Eid, Hajj and Catholic and Orthodox Easter. For full year 2025, we expect RevPAR growth in the mid-single-digit range. In the Asia Pacific region, second quarter RevPAR was up 0.3% year-over-year. RevPAR in APAC ex China increased 5.2%, led by strong group trends in Japan and Korea. RevPAR in China declined 3.4% in the quarter, largely driven by continued weakness in corporate travel demand,…

The first question comes from Shaun Kelley with Bank of America.

Chris, you mentioned in your prepared remarks a little bit about some green shoots you're seeing. I think that's consistent with what we've heard from some of the airlines and other travel providers, but hoping you could elaborate a little bit what you're seeing across maybe the 3 different segments, leisure, business and group? And then specifically, what's it going to take organically to get a little bit better in the 4Q, there is some concern in the fourth quarter about tougher comps just lapping some of the pent-up demand after the election last year.

Yes. Good question, and I tried to cover some of it, Shaun, in prepared comments. So I'll try and do the first part of this briefly because some of it's redundant. I think if you sort of break it down the segments by quarter. What you saw in the second quarter, as I covered, was relative strength in leisure which you would expect, It was a little bit more than we thought simply because sort of the rolling nature of what went on between spring break and then the impact at the end of the quarter of 4th of July and the shift of 4th of July. If you put those two things together, it's sort of not surprising that you would have seen strength in leisure and weakness on the other segments of the business, which is what we saw. It was probably a touch different than we expected. I mean, obviously, we said relatively flat, which means it could be a little up, a little down. It was a little down. So it was pretty much in line with what we thought with maybe a little bit more impact from the rolling holiday shift, but generally in line. As you get into the third quarter, the -- you have a similar sort of situation given Jewish holiday shifts and the like that are -- I think, from a segment point of view, distort things again a little bit where you're going to probably see third quarter leisure be strongest in business and business transient and group being relatively weaker, which is not obviously up until the second quarter, what we've been seeing. I think when you get to the fourth quarter, that will reverse itself because you're going to get finally to a quarter that is a little…

And your next question comes from Stephen Grambling with Morgan Stanley.

Speaking of title shifts. You did mention that you're still expecting modest declines in China for RevPAR. Maybe pivoting to the development side, in that market? What development trends are you seeing there? And if we continue to see weakness in that market or other factors may be impacting development. Where do you see the biggest opportunities to backfill any pockets of weakness that could come up in that market, maybe looking around the world?

Yes. That's a great question. We do expect modest declines. I mean when we started the year, we had -- as you know, I think we talked about it on a prior call or two, we expected to have a little bit of growth in China same-store. I think we went to flat last time. And I think with what's going on in China at the moment, which is an austerity campaign to sort of make sure that they can get the real estate sector righted they can put themselves in a good position for whatever trade deals they need to make. At the moment, that is rippling through in a way that it's not dramatically impacting the business. But on the margin, we expect to be a little bit down. Having said that, I would say, listen, I wouldn't -- like right now, and I've said this on many calls and not that I'm in the middle of it, but I think we are sort of as two countries to a degree, inexorably linked to one another. . I think our Treasury Secretary said this morning on Bloomberg or I thought I saw somewhere like the idea isn't to decouple. It's just to have a different kind of agreement with one another. You can sort of see that we already have some of the trade deal done. I think you can see a path to a rational outcome with China from a U.S-China trade point of view, which I think then makes their dealings with the rest of the world, much, much easier. And so part of what's going on there, again, is austerity related to being braced for whatever might come. As those things sort of hopefully work themselves out, I think China's same-store business will pick up…

And your next question comes from Daniel Politzer with JPMorgan.

I just wanted to follow up on net unit growth. It sounds like, Chris, you're kind of reinforcing that 6% to 7%, which is, I think the term used was solidly in that range. This has been an area...

I did very intentionally. .

Yes, it seems emphatic. So I wanted to kind of go back to that. I guess what's driving the reinforced confidence there? Has there been a pivot in the conversations that you've had in the development community? Or is this more of a reflection of some of those brands coming online or just elevated conversions? If you can kind of parse that out.

Yes. I think it's a little bit of everything. Obviously, we're continuing to have really good success on conversions with a bunch of great conversion brands. We're going to add at least a couple more conversion brands probably by the end of the year that we think are going to add to that. The brands continue to perform really, really well. So the feedback from the owner community is strong. Things being sort of disrupted around the world is -- is maybe bad for new construction, but it's actually quite good for conversion activities. So we feel good about that. And I would say the increase -- we've been confident, I've been saying we will be in the 6% to 7% range, and I'm a little bit more emphatic because of that part of the story, but it's also starts. I mean our starts are going to be up 16%, 17% this year. And once they start, almost 99%, 100% of the time, they finish. And so we've seen those numbers even in a very challenging environment tick up. So that makes us feel really good. I mean we have the biggest pipeline in our history. Half of it is under construction. We continue to see more and more going under construction. The brands are performing well. And when we model it out, we feel like we're solidly in that zone and feel good about it.

And your next question comes from David Katz with Jefferies.

Look, what I wanted to really get at is there's some building momentum on the luxury side of things. And if you could just give us some general commentary about what that implies about the economic intensity and the long-term potential volatility in RevPAR that, that brings your system? I'd love just some perspective on that.

Not sure I fully understand the question, but I'll answer what I think it is. David, and you can...

I can rephrase if you like.

No, you can course correct me. Listen, we are super focused in luxury and lifestyle. Obviously, luxury is a relatively smaller component. Lifestyle, we have a whole bunch of existing grains. We have a whole bunch of new brands. And the reason we're doing it, luxury while I've said many times, we're never going to -- that's not where the bulk of the profitability of the company is ever going to come from. It becomes an important part the whole halo effect of our broader network effect and Hilton Honors and loyalty and giving people the choices they want when they want those. And we feel super good about what we have going on in luxury. The SLH deal is working really, really well in terms of what the metrics that the owners are -- the benefit that the owners that SLH are getting and the benefit that our Hilton Honors members are getting that we anticipated our core luxury brands, particularly Waldorf, I talked about New York, by the way. If you haven't been in New York, go and see it, it's spectacular. I'm sure everybody that's in New York will eventually get through it, you'll be at some events there. But we're making tremendous progress with all our luxury brands, but particularly Waldorf, we have 36 open, 33 in the pipeline, we're going to open 6 Waldorfs this year. in some of the most -- New York, I would say, probably the most important luxury hotel, not just for us, but probably for anybody in the world. So we're making really good progress. Our customers like it. And we'll continue to grind and those are complicated. And as I said, they're part of the -- they help prime the pump of loyalty and other things, but I think…

And your next question comes from Steven Pizzella with Deutsche Bank.

Just wanted to try and expand on conversions a little more if we can. Can you talk about what you're seeing in the current environment, both domestically and internationally? How much key money is being used in addition, what do you view as the addressable market for conversions, including some of the more bulkier 500 to 1,000-plus unit deals?

Yes. I think it's a good question, Steve. I'll just give you some of the -- just some of the conversion stats. 33% of our deals in the quarter were conversions. That's up 50%. We expect it's going to be 40% for the year. That addressable market, there's -- look, if you think about parts of the world like Europe in particular, where there's a lot more unbranded hotels, then there are branded hotels and then you think about we take. I think at the end of the day, you have to come back to we take share. I mean, Chris implied this in his early answer, but how do you have confidence in 6% to 7%? How do you have confidence that you can fill in conversions when the new construction environment is a little bit slower. Well, part of it is that you fish where the fish are, right? Developers want to do deals. And when new construction gets a little bit harder, by the way, our new construction is fine. And our brands are more financeable than our competitors' brands. And so we take share in new construction. So that's a good story. I don't want to discount that. But then you talk about brands that are perform less well, particularly in a softer demand environment where people are seeking better performance and better RevPAR index driven by our network effect. The addressable market, I mean, we could do the math is huge, right, because you have all the independent hotels and then you have all the hotels where you have an existing brand where either the contracts coming due or the contracts coming due and it can perform better, right? And so we have a lot of confidence in our conversion strategy. Bigger hotels, you're starting…

Your next question comes from Robin Farley with UBS.

I'm trying to figure out which of my two questions to use for my one. I guess I'll go with that. Kevin, your comments -- I'm going to try and stick to it. Kevin, you had meant the timing of non-RevPAR fees. I wonder if you could just give a little bit of color around. I don't know if that sounds like something was pulled forward that you thought maybe would have come in the second half of the year, that kind of thing? Or just kind of quantify that a little? And also, I assume that your guidance probably had included the idea that you would have had a couple of resorts that were owned by Playa that you would get termination fees from. Was that in your guidance? Did that -- was that in Q2? Or would that more fall in Q3? So just some color around that fee piece.

Yes. That's all fair. I'll take the second half first, because the second part first because it's easier. Yes, we -- there were some termination fees that some of which has been highly publicized because it was part of a public transaction, that was timing from third -- we expected in the third quarter, came in the second quarter. It was all built into our guidance. The reason we said predominantly timing is it was almost all built into our guidance, right? You had a little bit of movement here and there on FX and a couple of other things on RevPAR. But largely, it was timing of you get termination fees some of the other ancillary lines of business that are non- RevPAR driven and a little bit of corporate expense that we view as almost entirely timing, and that's why you saw us keep our guidance consistent for the year. .

Okay. Great. And I don't know if you can break out like the dollar amount that sort of shifted maybe into Q2 from Q3, and then I'll hop back in line for my other question.

No, I'm just going to keep it to what I said, Robin, which is largely timing.

And your next question comes from Brandt Montour with Barclays. .

So I just wanted to drill in on Spark. The prepared commentary is pretty clear, right? You have 170 open, 200 in the pipeline. I think there's a concern floating around out there that the first sort of wave of Spark are lower hanging fruit. And then the next wave would sort of take a little bit longer to get done and perhaps contribute less to net unit growth over sort of maybe the same period of time. Is there any sort of -- is there any truth to that? And if so, maybe you can just help us understand which conversion brands are going to -- would make up for that.

Yes. Well, the second part first, there's -- all our other conversion brands are performing well. And as I mentioned, we're going to have a couple more by the end of the year that we think will add meaningfully to growth. But that doesn't take anything away from Spark. I don't know what the noise out there is probably most likely coming from our competitors, and I'll leave it at that. But Spark's doing great. We -- as I said, we have 170 open, 200 in the pipeline. My goal is by the end of next year to have 400 of those plus open, I think we will. Why 400? because I think we can generally prove sort of semi scientifically that when you get a system size, if it's distributed, the right way, particularly here, it's largely starting out of the U.S., it starts to take on a life of its own. The key to being able to get there and keep the momentum is obviously performance always and market share. Spark is now the highest if you look at our comparable hotels, which now is gone from a very small set of hotels to a growing and decent size set. It's the highest market share brand that we have. So it is performing exceptionally well. I've also heard noise out from others in the market that Spark is not all it's cracked up to be performance-wise. That's a bunch of hooey. It's literally the highest market share brand, and we have some very high market share brands. So I feel very good about that. And as I mentioned in the prepared comments, we got a -- it's a big world out there, right? So we've got India that we've done a deal. We've got -- we mentioned Saudi…

And your next question comes from Lizzie Dove with Goldman Sachs.

I guess also last year, you did a couple of partnerships like with SLH and some inorganic things with NoMad and Graduate. I'm curious what your appetite is today and on the go forward into doing more of these and whether that kind of 6% to 7% unit growth that you're kind of talking about, if that's organic or if it includes any kind of other partnerships or small deals that you might do?

No. I think the way you should think about that is it's organic. And that -- like we're very happy with all three of those SLH. Now I view as organic, although the bulk of that came into the system last year. There'll be a little bit that comes in this year. With NoMad and Graduate, we're super excited about how those are going. We even have some things to continue to offshoots in the Graduate world and all the accommodations and other approaches to being able to monetize our core business, that acquisition. And so we're super excited about the -- how those are going and the returns that we'll get on them. But you listen for -- I've been here 18 years and other than those two things really with SLH being a partnership, NoMad and Graduate. We've not acquired anything. So it's not to say this, and I'm required to never say never we could. But that's not what our focus is. Our focus, which is why I put it in my comments, is on getting back to brand building the way we do it. Where we see legitimate white spaces that are opportunities to continue to build our network effect and add to our growth. So the entire organizational focus is there. we're not out sort of bounty hunting to do acquisitions. So the way you should think about the 6% to 7% is that, that does not imply we're going to go out and buy anything. That implies our existing and new brands are going to deliver that kind of growth.

And your next question comes from Michael Bellisario with Baird.

I just wanted to go back to fundamentals and your positive momentum comment. But are you seeing group leads actually convert to more signed contracts? Or is there still a gap there? And then similarly on BT. Are you seeing any momentum recently in terms of a pickup in demand or bookings?

I sort of said it's a really good question, Michael. And I tried to address it in various comments I've made and I'll say it again. Yes, we are, but very early days. I mean we're coming out of this very noisy period. And I think there's sort of a recovery, we're in a recovery zone where things have definitely stabilized. You can go look at what all the airlines said and you can sort of get that same thing. Things have sort of stabilized. And if you look at very recent data trends, I think you could start to say what I said earlier that the great -- you're going from the great wait and see to the great thaw happening, but it's early. It is really early, which, again, not to be a pollyanna. That's why I said like it's happening. I mean, these things are happening I think it's undeniable, sort of the bigger picture, the title movements that are going on, exactly what month you start to see it light up or the afterburner, so to speak, to go on it. It's really -- that's very hard to judge. But I -- but we are seeing the far occur. It's clearly been stable, and now you're starting to see pockets and segments where people are booking. And that's why I gave the booking data for group in '26 and '27 because people have the confidence to say, "All right, I don't know what's going on right now, but I got a plan in advance." And they are booking to a point where we have high single-digit group position into '26 and '27. I think that's a super strong leading indicator of the psychology out there. But we're early in this reporting season, we're early in the third quarter, and we still have all this noise in the third quarter. I think it takes to the fourth quarter to get past some of the calendar shifts and holiday shifts.

And your next question comes from Smedes Rose with Citi.

I just wanted to ask you if you could provide any kind of updated thoughts on your presence in the all-inclusive space noted a handful of properties were transitioned out due to M&A, is that still a big kind of focal area for your leisure guests? Are you kind of more focused on getting kind of near-term conversion opportunities there? Just kind of how do you think about, I guess, maybe backfilling some of those rooms.

Yes. We feel -- listen, we've been focused in the AI space as everybody else. I think it's a good growth business. I don't -- it's obviously only applicable in limited market. So it's not the biggest growth opportunity that we see in the world, but it's an important one, which is why we focused on it. The Playa thing obviously worked out in a way that everybody knows, which set up reduced size by rooms of the portfolio. Although we opened some other things. So we're not really particularly far off we're at 5,000 or 6,000 rooms that we have open if you look at the pipeline and other things that we have sort of under discussion, a similar level of active discussions. And we have found, again, for certain markets, it's a good outlet for redemptions for some of our most loyal Honors members. So we will -- much like we've done in luxury and other areas, we will continue to move forward and continue to grow there. And we feel great about our performance and great about the growth opportunities we just opened in the Dominican Republic last week, a beautiful big new Curio and we have a bunch of others of those coming. So again, it's important, it's not relative to a big global business. It's a relatively small part of our business. And I think when we wake up in 5 or 10 years, it will be a lot bigger than it is today, but it's not going to be a super large percentage of the overall business.

Yes. And I think, Smedes, we'll do both newbuilds and conversions. I mean, Chris referenced the Curio in the Dominican, that's a new build, but we also converted a Hilton on the beach in the hotel zone in Cancun, that was a big conversion. And so we'll do both. And I think, as Chris said, that space is important to us and important to our network effect, but you're also getting some pretty good concentration out there in that space, which should yield some conversion opportunities over time. .

Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back to Chris Nassetta for any additional or closing remarks. .

Thanks, everybody. As always, we appreciate you spending an hour of your life with us to talk about it. As you can see in the dialogue today, obviously, coming out of Liberation Day and other things, there's been a decent amount of noise in the system. But I and we are very optimistic. I mean even in the middle of all that noise, we were able to give guidance sort of plus or minus meet it or beat it. Even with declining -- modestly declining RevPAR is able to sort of deliver great bottom line results. I think it's a testament to the strength and resiliency of our model. development side, we're hitting on all cylinders. We are feeling incrementally better on the development, not worse, about delivering what we've said we're going to deliver in the 6% to 7% range. The biggest pipeline, great brand performance, more brands coming. And I do believe that we have a reasonably very good setup coming from a fundamentals point of view in our largest market here in the U.S. over the next 2 or 3 years. So notwithstanding a lot of noise, we feel very good about where we are. We will look forward to catching up with you after our third quarter. And give you a little bit more insight as to what we see at that time. Thanks again, and enjoy the rest of the summer.

Thank you for attending today's presentation. This now concludes our 2025 second quarter investor conference call. You may now disconnect.