Hilton Worldwide Holdings Inc.

Good morning and welcome to the Hilton Second Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note 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 Hylton'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 discussion of some of the factors that could cause actual results to differ, please see the risk factor section of our most recently filed Form 10-K. In addition, we'll refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed on 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 continued 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 REBPAR grew 1% as an elongated spring break window and easy year-over-year comparison supported leisure demand growth. Business transient REBPAR 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 non-government business demand. Group REBPAR 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 holidays and calendar shifts continuing to weigh on reported results. On an adjusted basis, we would expect modest REVPAR growth. For the full year, we continue to expect REVPAR growth of flat to up 2% with improving trends in the fourth quarter driven by modest increase in demand and easier year-over-year comparisons. As we think about our business over the intermediate term, I'm very optimistic. In our largest market, a more favorable regulatory environment, certainty on tax reform, expected settling down on global trade policy, continuation of very healthy corporate profits, and significant investments across a multitude of industries, including AI, AI-related and core infrastructure investment should accelerate economic growth and unlock meaningful increases in travel demand. This, matched with very limited industry supply growth, should drive stronger REVPAR growth over the next several years. Turning to development, during the quarter, we opened 221 hotels, totaling more than 26,000 rooms. representing a 52% year-over-year increase, excluding acquisitions and partnerships, and achieved net unit growth of 7.5%. Our luxury and lifestyle portfolios continued their extraordinary expansion around the world. During the quarter, we celebrated the opening of our 1,000th property in the luxury and lifestyle categories. We also announced our plans to welcome three new luxury and lifestyle hotels per week in 2025. None are more impressive and iconic than the Waldorf Astoria New York, which reopened its doors just last week, marking the beginning of a new era for the spectacular hotel that has been a quarterstone of New York City culture since 1931. The greatest of them all, as Conrad Hilton famously described the landmark property, recaptures the hotel's original grandeur, once again setting the benchmark for luxury hospitality globally. During the quarter, our conversion-friendly brands continue to gain traction with guests and owners, which helped fuel our growth in key international markets. LXR debuted in France with the opening of the SACS Paris, a landmark 18th century building transformed into a refined gathering place in the heart of Paris. We welcomed our first tapestry hotels in Northern Ireland and Turkey and Hawaii, while Curio debuted in Vienna, Austria. We also opened our first all-inclusive Curio resort in the Dominican Republic. Doubletree continued to be an important driver of conversions, reaching 700 hotels worldwide and entering its 60th country during the second quarter. Spark opened more than 40 hotels in the quarter, bringing its portfolio to more than 170 hotels across six countries, with roughly 200 more hotels in the pipeline. Overall conversions spanned 10 brands and accounted for over a third of our openings in the quarter. We remain confident in our ability to continue driving strong conversions thanks to the power of our existing brands, which have consistently delivered an industry-leading share of conversions in the U.S., and with the upcoming launches of exciting new conversion brands. In July, we also debuted the first hotel of our game-changing new extended stay brand, Livestart Studios. Grounded in extensive research and a deep understanding of the evolving needs of long-stay travelers and hotel owners alike, LiveSmart Studio represents the latest chapter in our growth strategy and reinforces our commitment to offering a Hilton experience for every traveler and every stay occasion. In addition to strong openings, we signed 36,000 rooms in the quarter, putting us on pace to deliver high single-digit growth and signings for the full year. We also increased our development pipeline to more than 510,000 rooms growing both year over year and sequentially versus the first quarter with expansion in strategic markets and across chain scales. We announced plans for Waldorf Astoria to debut in key destinations, including Helsinki, Bali, and New Delhi in the coming years, and we signed Nomad Hotels in Singapore and Detroit, which marked the brand's respective debuts in the Asia Pacific and America's region. We signed our first canopy hotels in Tokyo and Italy, our first Tempo in Canada, and in July, we signed our first tapestry in Saudi Arabia. We also further expanded our focus service pipeline to meet the growing demand for affordable upscale accommodations. During the quarter, we announced that Hampton will soon debut in Thailand, True will enter Vietnam, and Spark will open its first hotels in Saudi Arabia and Puerto Rico. We also committed to key growth milestones in emerging economies, including expanding our portfolio in India tenfold and tripling our portfolio in Africa in the coming years. We continued growth and construction starts. With continued growth and construction starts, tremendous international opportunities and a strong conversion story, we feel very confident in our ability to drive net unit growth solidly within our six to seven percent range for the full year. As you all know, we have an incredible skill set of identifying white space and developing and launching new brands. As I mentioned last quarter, the team is working hard behind the scenes on several new brands in the lifestyle space, in addition to a couple of new concepts in the alternative accommodation space, a number of which are conversion friendly. We have done the research with our customers and have already received tremendous feedback from our owners on these new brands, a couple of which will be launched by year end. Hilton Honors continues to perform extraordinarily well with more than 226 million members, up 16% year over year, with membership now evenly split between U.S. and international travelers. reflecting the strength of Hilton's global reach and a further testament to our success in delivering premium products and experiences for any stay occasion anywhere in the world our guests want to travel. Everything we do is underpinned by our award-winning culture, and our incredible family of Hilton team members continue to differentiate our brands from the competition. In July, Brand Finance named Hilton as the most valuable hotel brand for the 10th consecutive year. Additionally, just last week, our Hampton, Home 2, Suites, and True Brands were named Best in Category by J.D. Power for their respective segments in the U.S. During the quarter, we were also named the number one best workplace in Switzerland, Austria, the Netherlands, India, and Vietnam. adding to the 660 Great Place to Work awards and more than 70 number one wins around the world since 2016. Overall, we feel good about where we are and are very optimistic about the business. We have the best brands in the industry with more coming, the biggest development pipeline in our history, and the economy in our largest market is set up for better growth. all of which should continue to drive strong performance. Now I'm going to turn the call over to Kevin to talk a little bit more detail about the quarter and our expectations for the full year.

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 $1.8 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 comparably 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. REF PAR growth to be at the lower end of our system-wide REF PAR range. In the Americas outside the U.S., second quarter REF PAR 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 REF PAR growth to be in the mid-single digits. In Europe, REF PAR 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 UK 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-X 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, particularly in Tier 2 and Tier 3 cities, and changes in government travel policies. For full year 2025, we expect REVPAR growth in Asia Pacific to be roughly flat, assuming modest rev par declines in China. Turning to development, as Chris mentioned, for the quarter we grew net units 7.5% and have more than 510,000 rooms in our pipeline, of which nearly half are under construction. Looking to the year ahead, we expect to deliver 6% to 7% net unit growth for the full year. Moving to our guidance, for the third quarter we expect system-wide rev par growth to be flat to modestly down. We expect adjusted EBITDA of between $935 million and $955 million, and diluted EPS adjusted for special items to be between $1.98 and $2.04. For the full year, we expect REVPAR growth of 0% to 2%, adjusted EBITDA of between $3.65 billion and $3.71 billion, and diluted EPS adjusted for special items of between $7.83 and $8.00. Please note that our guidance ranges do not incorporate future share repurchases. Moving on to capital return, we paid a cash dividend of 15 cents per share during the second quarter for a total of $73 million in dividends for the year. Our board also authorized a quarterly dividend of 15 cents per share in the third quarter. For the full year, we expect to return approximately $3.3 billion to shareholders in the form of buybacks and dividends. Further details on our second quarter results can be found in the earnings release we issued earlier this morning. This completes our prepared remarks. We would now like to open the line for any questions you may have. We would like to speak with as many of you as possible, so we ask that you limit yourself to one question. Michael, can we have our first question, please?

Absolutely. The first question comes from Sean Kelly with Bank of America. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. 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 three different segments, leisure, business, and group. And then specifically, what's it going to take organically to get a little bit better in the fourth queue? There is some concern in the fourth quarter about tougher comps just lapping some of the pent-up demand after the election last year. Thank you.

Yeah, good question. And, you know, I tried to cover some of it, Sean, 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, you know, sort of break it down, the segments by quarter, what you saw in the second quarter, as I covered, was, you know, relative strength and leisure, which we, you know, you would expect it was a little bit more than we thought, simply because sort of the rolling – you know, 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, you know, 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. You know, it was probably a you know, a touch different than we expected. I mean, obviously we said, you know, 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. You know, but generally in line. As you get into third quarter, you know, 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 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 bit more normalized. The fourth quarter has a bit of a benefit from the Jewish holiday shift into the third quarter, but I think it's a little bit more normal quarter. And I think as a result, what you're going to see is pretty decent, we think, leisure growth, but comparable growth. business transient growth and then group, you know, sort of leading the way, which is what, you know, more recently we have been seeing. You know, that, you know, our view on the fourth quarter, which we spent a lot of time on and I mentioned in my prepared comments, is based on sort of a few green shoots that we're seeing, which I'll talk about. You know, particularly in the group space, as you look at the corporate group, you're starting to see uptick. As you look out in the 26 and 27, you see really strong position. What you've seen in group this year, you know, sort of post-liberation day, was just like a lot of the segments, everybody got rattled and everything kind of froze up. As I said on the last call, it's a little bit of a wait-and-see attitude. Will that affect all segments? It even affected leisure, but in second quarter that was distorted by spring break and 4th of July. As you get in the fourth quarter, we're starting to see the early signs that that is unfreezing, that people are getting out of the wait and see. Certainly, as you look at 26 and 27, you're seeing it. The other thing that's going on in the fourth quarter is the comps are just easier. I mean, if you think about last year, we had a lot going on. We had major strikes in many of our major markets around the country that, you know, that had a pretty significant impact. And we had a U.S. presidential election. Nobody will forget that. And that's not good for, you know, maybe good for Washington on occasion. But it's really broadly not good because people are, you know, are traveling a bit less around that. So, again, we're in a, you know, there's a lot of moving parts um, broadly. And so like last time we're doing our, you know, you know, as, as you know, a lot of people pulled guidance. We didn't, we, we tried to do our best. I think we were pretty, pretty darn close. I mean, we said plus or minus flat and I think we ended up there. I think we're, you know, we, we have decent sightlines in the Q3 feel good about that. And, uh, And for Q4, again, I gave you the underpinning of why we feel better. We feel pretty good about it. I mean, there's a lot of moving parts. I think, you know, the green shoots, you know, I talked about them are what we're seeing in booking behavior on the group side and what we're seeing, you know, very recently on the, you know, on the corporate, you know, business transient side, which is saying that the wait and see that it's thawing, you know, the freeze of, You know, April, May, and to a degree, June, we're starting to see a thaw. But it's really early, which is why my comments, and I know this is quite a filibuster I have going here, and so there'll be no more questions probably. But, you know, I wanted to lift up because there's so much noise in the system right now. politically and otherwise, and I'm not obviously going to get political, but if you really lift up and look at what's going on, I said in our largest market, the U.S., which is 75% of our business, you may hate or like what's going on, but it is, I think, pretty hard to deny that over the next several years, we're not going to end up in a condition where we're going to have incremental economic growth. And a lot of that is going to be coming in the form of in my opinion, in the area that has the highest correlation to growth and room nights for hospitality, which is NRFI, non-residential fixed investment. So you have a regulatory environment that is and going to continue to be much easier, tax environment where you have certainty, corporate profits that remain quite strong and resilient. huge amounts of investment still to come in the core infrastructure that got done in the last administration, very little of which has still been spent that is going to continue to be a gift that keeps giving. On top of that, you know, investment that's going on in terms of AI and related areas, data centers, energy around it, And the reshoring, not of everything that our population consumes, but some of the critical elements. Again, the chip spill, that's just getting rolling. And there are other critical elements from a national defense point of view where we are going to reshore some of these things. And all of those things require over the next two, three, four, probably the next five-plus years, But I think it's hard to look five years. Over the next two or three years, huge amounts of activity and investment. What we have found, again, a very high R-squared on a slight lag on non-residential fixed investment. My belief is you're going to start. I mean, whether it's in the fourth quarter, I don't know. I gave you the reasons why we feel better about the fourth quarter, and we've been pretty good at forecasting. So I'd say we feel pretty good about that. But as I think about 26th, 27th, 28, I think lifting up above all this crazy noise, I actually, I am an optimist, self-declared, but I think there are legitimate reasons to feel really, really good about demand. And then at the same time, while we outperform from the standpoint of our growth and our development story, which I'm sure we'll get to, so I won't get into that on my current filibuster, I'll wait, supply growth in the industry is at the lowest levels that we've really ever seen because all the noise in the system coming out of COVID meant there wasn't a lot of money available. And now all the noise in the system around what's been going on, you know, in the last six or 12 months between an election and tariff issues and tax uncertainty, these things are getting nailed down, but it, you know, there's a lag effect. And so you're going to be in a super cycle, continued super cycle of very, very low over the next several years increases in new supply. So, again, we can talk about cores. I know you have to. I know our investors, many of them care. Some care more than others. But my job, I think, is to like lift up above the noise and try and give you a sense of sort of the The real, what I see, the real title shifts. And I think the title shifts, you know, are hard to see when you have this much noise. But I think if you lift up, the title shifts feel awfully good to me.

Thank you very much.

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

Hey, thank you. 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 maybe 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?

Yeah, 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 is not dramatically impacting the business, but on the margin, you know, we expect to be, you know, a little bit down. Having said that, you know, 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, you know, 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 it 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 steam. China's a big population. We've talked about it a thousand times. They love to travel. you know, they want to travel. It's just right now they're sort of like clamping down on consumption in a bunch of different ways. I suspect that is a relatively short-lived experience. On the development side, we still see terrific activity. Again, you have to sort of, again, lifting way up. I mean, China will have ups and downs. By the way, the U.S. economy has ups and downs, you know, recessions. Like, they're a big, complicated economy. They're going to have they're going to have the same thing. But underneath it is that the capacity, meaning the number of hotel rooms per capita in China is like crazy lower than other large economies, including our economy, like a fraction of it. So they are undersupplied And what we do in other forms of real estate, you know, some of the resi, some of the commercial retail, they may be oversupplied, certainly in certain markets. But in our business, they are broadly undersupplied. So you have people, large population, want to travel, eventually will travel. They will also travel outside the United States or outside of China, which is a big deal. You have a, you know, very, you know, much more limited supply of hotels in that market. And importantly... You have a real estate market, which has been part of their problem, that needs to be reformatted. And we are becoming a really important part of the solution of taking, as we've talked about on prior calls, some of these ghost cities and buildings and turning them into active, productive uses. And so the net impact of all that is in the development world. Kevin can add whatever he wants to add. I mean, we're going to see all our metrics up year over year. We're going to sign more deals. We're going to start more under construction this year in China than we did last year. So we are continuing to see quite favorable conditions. And eventually, I do believe the same store will come back and support it. And You know, what we're hearing from owners in that market is the economics support it. And why would that be in a slower economy? Because it's under supply.

Great. Thank you.

And your next question comes from Dan Politzer with J.P. Morgan. Please go ahead.

Hey, good morning, everyone. Thanks for taking my question. I just wanted to follow up on net unit growth. You know, it sounds like, Chris, you're kind of reinforcing that 6% to 7%, which is, you know, I think the term you used was solidly in that range. You know, this has been an area where you've done a lot of work.

I did very intentionally.

Yeah, it seems emphatic. So I wanted to kind of go back to that. I guess what's driving the reinforced confidence there? You know, 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, you know, elevated conversions? If you can kind of parse that out.

Yeah, 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. You know, things being, you know, sort of disrupted around the world is maybe bad for new construction, but it's actually quite good for conversion activity. So we feel good about that. And I would say, The increasing – 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, you know, that makes us feel really good. I mean, we have the biggest pipeline in our history. Half of it's under construction. You know, we continue to see, you know, 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.

Thanks so much.

And your next question comes from David Katz with Jefferies. Please go ahead.

Morning, everybody. Thanks for taking my questions. 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. Thank you.

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

I can rephrase if you'd 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 brands. We have a whole bunch of new brands. And the reason we're doing it, you know, luxury, you know, 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 of the whole halo effect of our, you know, 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, you know, 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, you know, the benefit that the owners at SLH are getting and the benefit that our Hilton Honors members are getting that we anticipated. You know, 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 event there. But we're making tremendous progress, you know, with all our luxury brands, but particularly Waldorf. We have 36 open, 33 in the pipeline. We're going to open six Waldorf's this year, you know, in some of the most, you know, well, New York, I would say, probably the most important luxury hotel, not just for us, but probably for anybody in the world. So, you know, 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 they are never going to be a disproportionate piece of the puzzle in terms of bottom line profitability. But they're important, and that's why we focus on it. Lifestyle is a little bit different. I mean, lifestyle can span – you know, a collection brand that's upscale, you know, a micro urban brand like Motto, you know, all the way up to Nomad and Luxury Lifestyle and everything in between. And in the end, when you add it all up, lifestyle is a mega category. You know, it can be thousands of hotels, you know, that we have found like everybody else that, you know, there are customers, particularly younger customers, that love our core products and they stay in them, but they really want these, you know, sometimes for some of their needs, you know, for certain trip occasions. And so we've obviously been super focused on it. As I mentioned, we're going to have two or three more brands, you know, that I mentioned on the last call, sort of in the upscale, upscale plus areas of lifestyle that we think, you know, have potential. you know, real scalability opportunities. And, you know, what we're trying to do, not to, you know, again, I like to lift up, is just build the most powerful network effect. You know, I said when we went public, and I say it to our teams all the time, the more that we can serve any customer for any need they have anywhere in the world they want to be, the more powerful the system is, the higher we can drive market share, you know, the more loyalty members we get, the lower our distribution costs become. And so it goes. And so lifestyle, you know, we did 1,000 with luxury and lifestyle. You know, I think that the addressable market is into the many of thousands, not necessarily the luxury piece of it for the reasons I described, but, you know, with the broad range of lifestyle at different price points. And so we're super focused on it, super excited about it, and I think making terrific progress.

Thank you. And your next question comes from Steve Pizzella with Deutsche Bank. Please go ahead.

Good morning, everyone, and thank you for taking our questions. Good morning. 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?

Yeah, I think it's a good question, Steve. I'll just give you 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, look, if you think about parts of the world like Europe in particular, where there's a lot more unbranded hotels than 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 six to seven? 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 know, 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 you know, 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 contract's coming due or, you know, or the contract's 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 to see You'll see a couple between now and the end of the year that we can't talk about yet where there are larger hotels, right, you know, 700, 800-room hotels that are independent and sort of in this environment don't want to go it alone, so we're coming in and converting to our brand. So it's sort of all of the above, and we really believe that the strength of our brand, you know, gives us a leg up in conversions. And then key money. I'd say not really that much. It really hasn't changed all that much. It is a slightly more competitive environment. We have been very disciplined, right? Of our rooms under construction, we only use key money on 8% of the deals. And so that's sort of consistent with long-term trends, even in an environment where Our competitors are using a little bit more to try to claw back some of the share that we're taking from them. And so it's not – in the higher end, when you get into luxury and conversions of larger hotels, it does get competitive because you just have more brands chasing it. But I think overall, our ranges of use in terms of dollars and percentage of deals is going to remain very consistent.

Your next question comes from Robin Farley with UBS. Please go ahead.

Great. 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 mentioned the timing of non-REV PAR 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 to quantify that a little. 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 guide and was that in Q2 or was that more fall in Q3? So just some color around that fee piece. Thanks.

Yeah, that's all fair. I'll take the second part first because it's easier. Yes, the There were some termination fees that, you know, some of which has been highly publicized because it was part of a public transaction. That was timing from third quarter. We expected in third quarter, came in the second quarter, was all built into our guidance. You know, 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 know, you get termination fees, Some of the other ancillary lines of business, they're 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. Thanks. I don't know if you can break out 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.

Totally fair. Thank you.

Sure.

And your next question comes from Brant Montour with Barclays. Please go ahead.

Good morning. Thanks for taking my question. So I just wanted to drill in on SPARC. 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 SPARC are, quote, you know, 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, you know, is there any truth to that? And if so, you know, maybe just help us understand which conversion brands would make up for that.

Yeah, 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. 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 as it's largely starting out in 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-sized 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's 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, you know, we've got you know, we've got India that, you know, we've done a deal. We've got we mentioned Saudi Arabia. We mentioned, you know, Puerto Rico. Europe is just getting cranked up. You know, they're Latin America. You know, we're just getting cranked up. So, no, I'm not. I believe we are on course to deliver, continue to deliver a spectacular brand that will continue adding to our growth through conversions by driving extraordinary performance for those owners that sign up with us. Again, I'll go back to reinforce, that doesn't mean it's the only engine of growth. I think we have a bunch of others that continue to add value you know, significantly. Doubletree is obviously a huge contributor, as well as Tapestry, Curio, and we are, as I mentioned last time, in the putting the finishing touches on another collection brand in lifestyle that is sort of in the Tapestry zone, but is for more unique assets, and we think the addressable market there is very, very large, and we already honestly are out, you know, talking to owners and putting deals together. And we'll talk more about it when we have a name and a little bit more substance. But that gives you a sense of how excited ownership community is that we don't even have a name. We have the concept and they're willing to sign up. So it's a, you know, a multifaceted approach. It's not in any way over-dependent on SPARC, but SPARC's doing great and will continue to be a great contributor for many, many, many years to come.

Excellent. Thanks, Chris. And your next question comes from Lizzy Dove with Goldman Sachs. Please go ahead.

Morning. Thanks for taking the question. I guess also last year you did a couple, you know, 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, you know, like we're very happy with all three of those, SLH, you know, 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 in our core business that acquisition. And so we're super excited about you know, how those are going and the returns that we'll get on them. But, you listen, I've been here 18 years, and other than those, you know, two things really with SLH being a partnership, Nomad and Graduate, we've not acquired anything. You know, so it's not to say, you know, I 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 you know, 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 six to seven is that that does not imply we're going to go out and buy anything. That implies are existing and new brands are going to deliver that kind of growth.

Super clear. Thank you.

And your next question comes from Michael Bellisario with Baird. Please go ahead.

Thanks. Good morning. I just want to go back to fundamentals and your positive momentum comment. 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?

Thanks. You know, 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, you know, we're coming out of this very noisy period, and I think there's sort of a recovery period you know, we're in a recovery zone where things have definitely stabilized. You can, you know, 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, you know, 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. You know, it's, it's, 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, you know, you're, you know, I think it's undeniable sort of the bigger picture, the title movements that are going on, you know, exactly, you know, what month, you know, you start to see, you know, it light up or the after murders, so to speak, to go on. It's really, it's, that's very hard to judge, but, But we are seeing the thaw 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've got to plan in advance. And they are booking to a point where, you know, 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. Please go ahead.

Hi, thanks. I just wanted to ask you if you could provide any kind of updated thoughts on your presence in the all-inclusive space. You noted a handful of properties were transitioned out due to the 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?

Yeah, we feel – listen, we've been focused in the AI space, as has everybody else. I think it's a good growth business. I don't – you know, it's obviously only applicable in limited markets, 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 you know the playa thing obviously worked out in a way that everybody knows um which you know set up you know reduced the size by rooms of the portfolio that we opened some other things so we're not really particularly far off we're at five or six thousand rooms that we have open you know if you look at the pipeline and other things that we have sort of under discussion you know a similar 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 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 You know, it's a relatively small part of our business, and I think when we wake up in five or ten years, it'll be a lot bigger than it is today, but it's not going to be a super large percentage of the overall business.

Yeah, and I think, Smeeds, we'll do both new builds and conversions. I mean, Chris referenced the Curio in the Dominican. That's a new build, but we also converted Hilton on the beach in the hotel zone in Cancun. There was a big conversion, and so we'll do both. And I think, you know, 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.

Great. Thank you.

Sure.

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, you know, 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, you know, meet it or beat it. even with declining rev, modestly declining rev par, is able to sort of deliver great bottom line results. I think it's a testament to the strength and resiliency of our model. You know, on the development side, we're hitting on all cylinders. We're feeling incrementally better on the development, not worse, about delivering what, you know, 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, you know, that we have a reasonably to very good setup coming from a fundamentals point of view in our largest market here in the U.S. over the next two or three years. So, you know, notwithstanding a lot of noise, you know, 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.