Good morning, and welcome to the Hilton First Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. After today’s prepared remarks, there will be a question-and-answer session. Please also note today’s event is being recorded. At this time, I would like to turn the conference call over to Jill Slattery, Vice President Investor Relations. Please go ahead.

Thank you, Jaime. Welcome to Hilton’s first quarter 2020 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 publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ, please see the Risk Factors section of our most recently filed Form 10-K supplemented by our Form 8-K filed on April 16, 2020. 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; Kevin Jacobs, our Executive Vice President and Chief Financial Officer, will then review our first quarter results. 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. As I think we can all agree and certainly probably have all been saying a lot lately, these are truly unprecedented times. COVID-19 has created challenges that our industry has never encountered before. On behalf of Hilton's entire leadership team, I'd like to express our deepest sympathies to those who have lost loved ones during this devastating pandemic. I'd also like to extend our sincere gratitude to the millions of workers on the frontlines across many industries and in many roles, working selflessly to help keep us all safe. I also want to thank our team members around the world for their remarkable dedication, hard work and sacrifice. Many of our own team members have been personally impacted by this crisis and yet, through this adversity, they've continued to spread the light and warmth of hospitality. Across every region, we've adapted quickly to provide hospitality in new ways in our communities. In London, several of our properties are hosting the National Health Service and other key workers. The Hilton Orlando has been hosting the National Guard and working to distribute essential items to community residents in need and over 500 hotels around the world are being used for recovery efforts. Our properties have also donated thousands of pounds of food and supplies to local food banks. Through the Hilton Effect Foundation, we are providing disaster response grants for organizations and communities fighting the spread of COVID-19. As part of this effort, our Hilton Honors members have donated more than 6.5 million points to these causes. In partnership with American Express and our ownership community, we committed to donating up to 1 million room nights to frontline medical professionals in the United States to support those who are putting their lives on the line to protect us. Since its launch just four weeks ago, tens of thousands medical professionals have booked hundreds of thousands of rooms through the program. Further building on this initiative, just this week, we and American Express announced a partnership with World Central Kitchen to deliver freshly prepared meals at no charge from restaurants and local communities to frontline responders staying at our hotels. Already active in three major markets, there are plans to expand this initiative in the coming weeks. Turning to the business, to ensure we effectively navigate this challenging time, we've focused our priorities on three core areas: protect our people; protect our core business; and prepare for recovery. While our long-term goal remains the same to drive loyalty across all of our stakeholders, the current situation requires greater levels of responsiveness and preparedness in the near term. With this in mind, we've worked closely with the industry association and the administration to advocate on behalf of our team members and hotel owners, and to help shape the broader recovery. Given our leadership team’s extensive crisis management experience, coupled with the global nature of our business, we had a relatively early glimpse of the impact this pandemic started to have in the Asia Pacific region. In response, we took swift action to protect our business and ensure that we have sufficient liquidity to operate in these unprecedented times. With travel demand at record lows, we currently have suspended operations at approximately 950 or 16% of our hotels globally, including approximately 10% of our hotels in the Americas, 60% of our hotels in Europe, the Middle East in Africa, and 15% of our hotels in Asia Pacific. At the hotel level, we acted quickly at the beginning of the crisis to make decisions to help our owners respond, including suspending hotel operations, temporarily suspending brand and operating standards, deferring capital expenditure requirements, eliminating quality assurance audits and allowing the use of FF&E reserves for operating expenses. Going forward, we are working closely with our ownership community to define the hotel operating model of the future with a goal of developing operating standards that will keep our customers safe and drive enhanced efficiency and profitability, while continuing to deliver products and service that customers will pay a premium for. At the corporate level, we've reduced executive salaries, furloughed nearly two-thirds of our corporate workforce, eliminated other non-essential expenses, including capital expenditures and suspended share buybacks and dividends. Further, as a precautionary measure to preserve financial flexibility, we drew down on the remaining amount under our credit facility, pre-sold Hilton Honors points to American Express and successfully executed a bond offering, all of which resulted in a pro forma cash position of $3.8 billion at the end of the quarter, which we believe has more than adequate liquidity to get us through the crisis. Turning to the quarter, RevPAR declined 23% with performance through February, largely in line with our expectations excluding the Asia Pacific region. RevPAR in March dropped 57%, as the virus spread across Europe and the U.S. Overall, we do not think our first quarter results provide clear insight into the current environment, as given the timing of the pandemic, we expect a much more dramatic impact on our second quarter results. With travel at a virtual standstill, we expect system-wide RevPAR to decline roughly 90% in April. With that being said, we are starting to see glimmers of travel resuming and economies reopening. In China, nearly all 150 hotels that have been closed due to the pandemic have since reopened with occupancies reaching more than 50% during the May Day holiday this past weekend, up significantly from 9% in early February. Additionally, the majority of our previously halted construction projects in China have restarted. In the U.S. and Europe, we're starting to see sensible and staged re-openings of economies. We think temporary hotel suspensions have plateaued and we are now seeing reopening requests. Our sales teams are engaged with customers on business for the back half of the year and into 2021 and beyond. In the last week alone, we booked tens of billions of dollars in Group business in the Americas. In addition, we are starting to see double-digit increases in digital traffic and booking activity across all segments. Global occupancy levels have gone from a low point of 13% to 23% currently. Assuming we start to see mobility and we don't have a significant recurrence, demand should slowly rebuild in the third quarter. These green shoots allow us to keep our eye on what the future of hospitality may look like. As we carefully consider what travelers' needs will be in a post-COVID-19 world, we are proud to announce a partnership with Lysol and the Mayo Clinic last week to introduce Hilton CleanStay, a new program that will deliver an industry-defining standard of cleanliness at all of our properties around the world. We believe this program is the first of many steps we can take to build on the trust and loyalty of our more than 106 million Hilton Honors members as they begin to travel again. A full recovery will take time, and it could take several years to return to the hotel demand levels we experienced in 2019. But as we shift our focus to the future, we are incredibly confident about the long-term prospects of the business and our model. Our industry-leading brands, powerful commercial engines, and innovative technology platforms should enable us to continue delivering incremental value to guests, owners, and shareholders for years to come. With that, I'll turn the call over to Kevin for details on the first quarter.

Thanks, Chris, and good morning, everyone. In the quarter, system-wide RevPAR declined 23% versus the prior year on a comparable and currency neutral basis. RevPAR was down across all regions with the weakest results in Asia Pacific. Decreases were primarily driven by occupancy declines with rate pressure from the lower-rated business further impacting results. Adjusted EBITDA was $363 million in the first quarter declining 27% year-over-year. Results reflect significant reductions in travel demand and the temporary suspension of operations in a number of hotels across the world. While the decline was somewhat mitigated by greater cost control, more significant measures were largely implemented after the quarter-end. Management and franchise fees decreased 18% to $422 million driven by RevPAR declines and roughly flat license fees. Given the extremely challenging operating environment, which included the suspension of operations at 35 of our leased hotels during the quarter, our ownership segment posted a loss due to higher levels of operating leverage and fixed rent structures at some of our leased properties. Diluted earnings per share adjusted for special items was $0.74. During the quarter, we opened nearly 9,000 rooms meaningfully lower than prior expectations due to postponed openings driven by COVID-19. Approvals and construction starts increased ahead of our expectations, largely due to the signing of our largest development deal to-date, an agreement with Resorts World for a 3,500 room tri-branded hotel resort on the Las Vegas Strip. Much like the rest of our business, development activity for the balance of the year will depend on a number of factors. However, we do expect that our ultimate rate of net unit growth for the year will be significantly lower than our pre-crisis expectations, likely around half the rate or a bit better. Turning to liquidity, as Chris mentioned earlier, we've taken a number of actions to enhance our position and increase our financial flexibility, including executing on the bond transaction that Chris referenced earlier. We were very pleased with the outcome of that transaction through which we issued two $500 million tranches of senior notes at pricing that was very attractive relative to other transactions executed in the same timeframe. At the time, it also marked the first eight-year high yield financing done since the crisis, which allowed us to continue to enhance our maturity schedule. We continue to have no debt maturities prior to 2024 and a well-staggered maturity ladder thereafter. Factoring for the senior note issuance as well as the $1 billion Hilton Honors points presale, we ended the quarter with cash and cash equivalents of $3.8 billion on a pro forma basis, which we think should provide us with ample liquidity to navigate the current environment and prepare for recovery. Further details on our first quarter 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. Jaime, can we have our first question, please?

And our first question today comes from Joe Greff from JP Morgan. Please go ahead with your question.

I was hoping to get a better understanding of your operating sensitivities in this environment. It’s surprising to discuss the scale of these RevPAR declines. Considering the significant drops in RevPAR, how do you view the relationship between base and franchise fees? How do you perceive that connection, especially regarding the incentive management fee? What are your thoughts on your run rate for G&A going forward? Additionally, if you could provide some details on the components of your monthly cash burn, that would be beneficial for us.

Wow! That's about 20 questions in there, Joe. Good job.

Don't ask me to repeat it. I can't remember all of the questions.

I can't either. Yes, we can't provide guidance, but we'll answer what we can and discuss sensitivities at a high level. In terms of the RevPAR to EBITDA relationship, I think it's helpful to consider that up to around 30% RevPAR declines, the overall company's RevPAR to EBITDA is slightly better than 1-to-1. However, if RevPAR declines exceed 30%, the relationship becomes a bit worse than 1-to-1, although not significantly so. The base fee business performs better than 1-to-1 throughout that range. Higher declines do create some negative operating leverage, as there is a limit to how much we can reduce corporate costs while keeping the system running. In real estate, lower RevPAR impacts leased assets with fixed rent structures, presenting a small tailwind, but this portion of the business is minor overall. I've seen estimates from the industry suggesting declines around 50% for the year, which seems amusing given my decades of experience. Our EBITDA ratio would be just above 1-to-1, and the base fee business would perform even better. Regarding G&A on a GAAP basis, we have made significant mitigations, and we expect to see some recovery as we approach the third and fourth quarters. While it’s gradual, we are already experiencing an increase from 13% to 23%. We believe that once we surpass the peak of this health crisis, particularly as parts of the world, including the U.S., start reopening, we will see improvements in the second half of the year. Overall, G&A is likely to be 25% to 30% lower. It's important to note that our G&A has remained flat over the past three years, and we have always been disciplined in this area. Before COVID-19, we did anticipate a modest decline in G&A, but the adjustments made for the current operating environment have resulted in a much larger reduction than we expected, although still within the ranges mentioned. Regarding cash burn, we have previously shared information about our situation. Currently, in this environment, we are experiencing cash performance in the second quarter that we believe is not sustainable, and we expect the third quarter to be the worst. Even with performance around 80% to 90% off, we estimate having at least 24 months of liquidity. Based on the broader industry outlook discussed earlier, at this performance level, we expect to be slightly cash flow positive. This should provide a general trajectory, though we are not giving specific guidance. Kevin, did I miss anything from his extensive questions?

I think you've addressed most of it. Overall, the cash burn guidance includes a significant assumption regarding our ability to manage gross controllable expenses outside of G&A. We believe we can reduce about 60% of those gross controllable expenses throughout the year, and this reduction is factored into the cash burn assumption. You mentioned that the third quarter would be the worst, but we believe the second quarter will be.

Second quarter. I did say that?

Yes, second quarter. I've already skipped the quarter. Yes, second quarter recovery to a degree. Yes.

Our next question comes from Carlo Santarelli from Deutsche Bank. Please go ahead with your question.

Kevin, you mentioned that half of the 6 to 7 NUG you were previously anticipating for this year may be affected. Can you clarify how much of the 300 to 350 basis points of NUG erosion for this year is due to delays in the pipeline that we expect to see next year, and how much is related to projects that might have started earlier but now have a lower likelihood of completion? Also, if we take a broader view, when considering opportunities for conversions looking ahead to 2021, 2022, and 2023, do you still feel confident in a mid single-digit net unit growth baseline for those years?

Yes, Carlo, that's a good question. Most of the decline in our outlook for net unit growth this year is due to delays caused by COVID-19. Our guidance includes an assumption for conversions, which I will address, but the decline is mainly tied to these delays. At the start of the year, we expected any hotel set to open this year to be under construction now. Currently, about a third of the hotels we planned to open this year have experienced some form of suspension in the past month due to the crisis. Half of those that were suspended are now back under construction but with some delays. We believe that the other half will resume construction, and we expect nearly all projects to continue as planned over the remainder of the year. There may be a few exceptions where a deal may not be feasible, but typically, once construction begins, the hotel opens. This means that almost all of these projects will be pushed to next year. Therefore, we anticipate that this year will mark the lowest point, and we expect growth to begin from there. Once we return to normal, we are confident in a mid single-digit net unit growth rate. While conversion activity is currently limited, we are actively working on several projects and believe that the crisis may create more opportunities than challenges. I hope that provides the clarity you were seeking.

Yes. That did, Kevin, thank you very much. And then if I could just one quick follow up. When you guys think about the financial crisis and the resumption, obviously it was different circumstances and whatnot, but speaking specifically to the Group elements of the business, when you think about the recovery in that era, on the Group side relative to now, and based on obviously the positive traction you guys have had with re-bookings and some sales progress on future periods, et cetera, what are you hearing or what do you view as being kind of the key differentiators between that Group recovery and getting kind of adequate pricing back on the books, et cetera in this period relative to that period?

There will be many similarities, Carlo, along with some differences. I believe the economic fallout we will experience is likely to be greater this time. Additionally, there are mobility and health concerns, as people may be hesitant to gather in large groups until a vaccine or effective treatments are available. Being pragmatic and straightforward, it's clear that the group business typically recovers last. In my experience over the past 30 years, group travel has always taken longer to bounce back because it's a longer lead business. Given the current situation, I anticipate this recovery will take even longer than usual due to these factors. The economic impact seems greater than what we've seen in the past, and people will have to feel comfortable gathering again. I believe that in two or three years, the business will resemble how it was about 90 days ago, although getting there will require time and progression. The speed of recovery will depend on how we handle the reopening process and the fight against COVID-19, as well as the development of vaccines and treatments, which are still uncertain. In short, my view is that the recovery will follow a somewhat similar pattern to previous recoveries, but with some nuances: leisure travel is likely to rebound first, followed by business travel, and then group travel. Each of these segments will have distinct recovery paths due to the unique impact of COVID-19 on people and businesses. I anticipate that Q2 will be particularly challenging, but as the world and the U.S. reopen responsibly, we could begin to see recovery in Q3 and Q4. The initial signs of recovery may appear stronger than expected due to the very low levels in Q2. However, returning to the occupancy levels we experienced in 2019, which were historic highs in the low to mid 70s, will take time. There may be a small rebound from these low levels, but I expect a gradual recovery as individuals and businesses regain confidence and start hiring and investing again. In my opinion, it could take two or three years to return to those previous levels. While things are changing quickly, and there are many unknowns, that’s my perspective based on what I see and hear from numerous sources. It’s also why we haven't provided specific guidance; it’s simply too early to tell. Nonetheless, I remain optimistic about the long-term outlook for our industry and for Hilton. We just need to go through this time of rebuilding to return to where we were.

And our next question comes from Harry Curtis from Instinet. Please go ahead with your question.

Hi, Chris. Given your vast experience through prior recessions, let's go back to 2008 and ‘09 where there was a significant amount of handwringing about the impact of video conferencing on corporate travel. And it didn't really pan out. Do you think it pans out in the recovery and I know it's anybody's guess, but is it different this time do you think?

It's hard to say for sure. I've certainly had my fill of WebEx and Zoom meetings, and I'm not alone in feeling that way. After this call, the last thing I want is another video conference, and I'm hearing similar sentiments from many others. So, to be honest, I don't know what will happen. I do think that there will be occasions where some people, having adapted to virtual meetings out of necessity, might choose not to travel. However, I believe that the desire to connect in person, whether for personal reasons or business relationships, remains strong and is unlikely to change. Globalization is not going away, and the need for people to travel will persist. I'm confident that in a few years, we'll see customer behavior and demand patterns returning to what they were like just a few months ago, with some minor adjustments. While there may be some business travelers opting for virtual options, I think the overall demand to meet in person will remain high. There will be changes and developments that will enhance our offerings, like digital check-in and connected rooms, which I expect will gain significant acceptance. Digital technology is becoming increasingly important for us, and I see those trends accelerating. Despite my many concerns these days, I don't worry that people will lose their desire to meet and connect. On the contrary, I believe there's an even stronger case to be made that people will actually want to see each other even more, as they seek safety and comfort in their environments. History tells us that after events like 9/11, people found ways to travel again, and although video conferencing wasn't as advanced, they adapted. Fast forward a few years, and we learned how to manage the situation, returning largely to our previous behaviors. I think we're going to see something similar now. As we navigate this pandemic and recognize that viruses like COVID-19 are here to stay, we'll learn to live with them. Just as we manage the seasonal flu, we will find our way through this. Over time, we will likely have vaccines and better treatments, along with improved safety measures that protect vulnerable populations. When people feel safe again, I believe they will revert to their old habits, and I would bet a lot that history will prove me right.

And as a quick follow up, what are your peers in the airline industry telling you about the pace of their restart?

I have been speaking with many of my peers, and based on the data, I've noticed that every week seems to make a difference. While we are not currently seeing strong recovery trends, there are small signs of improvement in certain areas like China, but overall, the rest of the world is only making tiny progress. The airlines are lagging significantly; just looking at the passenger mile data and enplanements, it’s clear they are behind. People willing to travel are only going shorter distances from home. Our team is focusing heavily on recovery, and I recently held a Zoom call with all 500 of our commercial leaders globally. We discussed how we are retooling our approach to the market over the coming months, prioritizing local business and drive-to customers initially. Naturally, people want to move and feel safe, beginning with their neighborhoods before expanding to nearby regions and eventually traveling further, including flying. Most of the recent uptick in activity has been in drive-to travel. Fortunately, we have a wide portfolio of brands, including around 2,600 Hampton Inns and almost 4,000 limited-service hotels in the U.S., which are well-suited for local and drive-to business. There seems to be a disconnect that might last for a while, as we may experience a quicker recovery because we can support demands that don't require extensive travel. However, ultimately, we do need airlines and for people to be flying again to achieve more normalized patterns of demand. In the short term, we anticipate a greater reliance on local and drive-to travel, and being able to accommodate that business will position us ahead.

Our next question comes from Shaun Kelley from Bank of America. Please go ahead with your question.

So, Chris, I wanted to switch the subject a little bit to kind of the franchisee side of the world here. I was just wondering if you'd give us a little bit more color on how some of those conversations are going with your franchise partners. If it's possible, and I appreciate it's both early stage and it may be hard to give these numbers, but any sort of sense of magnitude of either asks of how many of your franchisees are looking for any form of fee relief or what that dialogue is kind of looking like right now?

We've been dedicating significant time and effort to engage with our franchise and ownership community, as they are crucial to our growth and key partners in our business. These are challenging times for everyone, but especially for them due to the lack of demand. Even with furloughs, they still must cover debt service, insurance, real estate taxes, and utilities. Our approach has been multi-tiered; primarily, we have been actively involved in discussions with the Federal Government to seek liquidity relief for our owners and frontline team members who have been furloughed. We have not sought any relief for Hilton itself. I’ve engaged with key figures, including the President and Secretary Mnuchin, regarding the PPP, which has been an effective program deserving of recognition for its rapid implementation. However, the program's complexity around ownership structures has made it less beneficial for our industry than it could be. We're optimistic that the upcoming Main Street Lending Program will provide greater support. Many of our owners have successfully accessed PPP, and we're hopeful for broader participation with the Main Street program. This support is vital as our owners need a bridge during this time. We've also suspended operations at 950 hotels, an unprecedented move for us. Additionally, we've relaxed many of our brand and operating standards, which has provided our owners significant operational flexibility. We're also focused on developing the future hotel operating model, collaborating with our franchisees to enhance efficiency. This effort is in an advanced stage, with input from our owner advisory councils, as we prepare for recovery and hopefully future stimulus. Regarding fee relief, some owners have expressed the need for it, but it's not widespread. Our fee structure is tied to revenue, so with revenue down significantly, fees have naturally decreased. While owners are seeking assistance, most recognize that our fee adjustments align with current demand levels. We're committed to exploring all options with our community, as they are our most important stakeholders and contribute significantly to our success. In my daily conversations with them, I have received positive feedback about our early and decisive actions to provide relief. Despite the difficulties, there is appreciation for the partnership we've established.

And then maybe a little bit more of a specific one for Kevin, I guess. Kevin could you outline for us a little bit more on maybe just this kind of point in time working capital drag that we could potentially see as it relates to mismatching on reimbursed costs. Primarily I think it's the system fund but anything else that maybe investors should be aware of just given the situation we're in when the music stops and drops as much as it is, kind of where cash could be trapped for a period of time and then how you expect to recover that down the road?

Yes, sure. This is a question many people are considering. To take a step back, we have three main categories of receivables. In the hotels we manage, which make up a small portion of our system—about 70% is franchised—the hotel owners are responsible for working capital and related obligations, some of which we cover initially and later get reimbursed for. There's potential there. Then we have license fees and system charges, as Chris mentioned earlier. In terms of the scale of these receivables, it's still early to make accurate assessments. The crisis really began in March, and it takes time to build these figures and then allow 30 days for payment. So, we're just starting to see the impacts, and anything we say would be speculative. However, we have indicated that there is a working capital drag in our discussions. Assuming the current conditions persist, with revenue down around 90%, we’re equipped with at least 24 months of liquidity based on our cash balance. You can calculate that if the situation remains the same, there could be a significant cash drag, potentially amounting to hundreds of millions of dollars. Of course, this will depend on how long the cycle lasts. Ultimately, as Chris explained, we believe the business is strong, will recover, and when it does, we expect to be compensated.

And our next question comes from Anthony Powell from Barclays. Please go ahead with your question.

So, longer term, how do you think this event changes the financing market for new hotel construction? Do you think lenders may require higher equity contributions or higher cash reserves? And could it be a headwind for construction and your net unit growth over the medium to longer term?

Yes. That's a good question, Anthony. And the reality is, we don't really know. But what I think is that, generally when you come out of these crises, lenders get appropriately more cautious. Although I would say that, even pre-COVID, we were pretty deep into an economic cycle. And so, you were starting to see caution. That said, over the long-term, I would say, for construction, most of the hotels that get built in our system are not actually even financed aggressively. When you're talking about like big full service hotels and luxury hotels, sometimes they use more leverage, but the lion's share of the hotels that get built in our system are not actually financed all that aggressively. You're talking about like 50% loan to cost. And I would say, personally I think that when the business recovers, the lending community will be there and as long as hotels are productive and profitable investments that they'll be able to be financed. And then I think the last thing I'd add is, you have to remember the amount of liquidity that is in the system. Pre-COVID you're talking about like tripling plus of the money supply from quantitative easing and then even more capital being injected into systems globally. There's going to be plenty of capital looking for productive yields. And I would say, for some period of time it will be a distressed environment and then as it always does, it will recover back to normal.

Got it. And then just one more. You mentioned that you’ve relaxed brand standards across the board which helped owners. How do you manage that with customer expectations as you start to see recovery? Hilton Honors has been known for a very consistent experience across the board, customers are going to be returning to see no breakfast buffets or whatnot. How do you manage that going forward?

It's a really good question. In the short term, as we've been engaging with customers, everyone understands the current global situation, and they're quite lenient. Unfortunately, we haven't served many customers, but those we have, primarily in recovery efforts, have accepted the necessary changes to our services. The work I'm referring to is focused on creating an efficient operating model and continuing to capture premium market share, which we currently hold and plan to maintain. The challenge lies in determining what to reinstate in our standards as we move from the intermediate to the long term. I don't have a definitive answer yet, as we're currently working on this. We will explore various options during this intermediate phase when customer expectations are more flexible, all with the aim of delivering premium products and services to enhance our market share while also promoting efficiency. The short-term is straightforward, and I see the intermediate term as a significant opportunity for experimentation in a relatively low-demand environment where customers are more accepting of changes. What we learn during this period will help us establish our long-term standards. I believe we will implement a variety of more efficient strategies for the future, but there will also be certain standards that customers will expect to see reinstated once things normalize.

Our next question comes from Stephen Grambling from Goldman Sachs. Please go ahead with your question?

I have two related follow-ups. First, regarding the working capital drag you mentioned, which could be in the hundreds of millions of dollars. You noted that it depends on how long this situation lasts. In terms of the cash burn and monthly liquidity from the debt deal, were you assuming that this would be a consistent drag each quarter, or is there a chance it could lessen even if conditions remain weak? Secondly, could you provide more insight into consumer behavior related to the loyalty program? Specifically, how your partnerships might influence your model during this period, and what strategies you are implementing to maintain customer engagement so that you can leverage this asset and capture market share during the eventual recovery?

Regarding working capital, Stephen, the assumptions we shared publicly indicate that we expect a timeline of 18 to 24 months, which was calculated before the bond deal, and we ultimately increased the size of that deal. This contributes to reaching the longer end of that timeline. I would note that in the early stages of a crisis, conditions tend to be more extreme. Therefore, I would characterize the first month of the second quarter of this year as likely the most challenging, after which we expect improvements. However, the assumption...

The assumption to reach 24 months or at least 24 months is essentially that you have little or no...

Yes, you stay that way.

And from that perspective, again, I said it would be a little bit harsher at the beginning and then it would be relatively flat again in that under those assumptions, with any kind of recovery curve, it gets better from there.

Yes. We have made several significant changes. First, our Honors occupancy, although modest, has significantly increased. It was already high, and now it has risen even more, as it seems Honors members are more willing to travel than non-members. During this time, we have focused on building loyalty in a challenging travel environment. We were among the first in the industry to offer significant cancellation flexibility, allow people to maintain their status, and ensure points do not expire. We have communicated regularly with our Honors members, showing that we understand their inability to travel is not their fault and we won't penalize them for it. Our community efforts, such as providing one million free room nights to first responders and supporting organizations like World Central Kitchen, aim to enhance our brand perception while people are confined at home. Our marketing team's metrics, such as purchase intent and Net Promoter Score, have increased during this crisis, indicating that customers appreciate our efforts. Historically, it is challenging to stand out when times are good, but during tough times, we have a chance to distinguish ourselves. My view is that while we must secure our core business and manage our liquidity—something Kevin and the team have handled exceptionally well—we are intensely focused on listening to our customers, particularly Honors members, and supporting our owners. We are also actively engaged in our communities, as this helps foster loyalty. Additionally, we are ensuring we treat our team members properly during these tough times. Although the situation is painful, what we do now will shape our future. We are committed as a team and company to differentiate ourselves for all our stakeholders and emerge from this crisis stronger, especially for our Honors members. So far, I believe we are doing an excellent job of this.

Our next question comes from Bill Crow from Raymond James. Please go ahead with your question.

Based on your discussion, it seems that your perspective is that the main barrier to travel is not the hotel but the airline. If that's correct, is it fair to say that regardless of fare discounts, the impact may not be as significant as it has been in previous downturns? Additionally, does this imply that the larger coastal markets will recover much later than the rest of the country?

Yes, to some extent, but let me clarify. I believe that the airlines are a key factor in achieving full recovery. People need to feel comfortable flying, and flights have to be operational, especially in major markets. While we can see significant recovery before reaching that point, many variables are involved, including the status of vaccines, treatments, human behavior, and comfort levels. I am advocating for increased testing, which includes antibody testing, to provide clearer data. Although the virus is serious and impacts lives, it has infected more people than we realize, and the mortality rate is lower than previously thought. A small portion of the population is truly at risk. As more testing data becomes available, particularly for those not at risk, comfort levels will rise. The introduction of vaccines or therapeutics would change the game significantly. I believe recovery will happen gradually, starting with localized travel and some air travel. People will adapt by following safety measures. Over time, as awareness of the true mortality rate increases and therapeutic advancements are made, more individuals will feel inclined to travel. In a couple of years, conditions will likely be much closer to how they were three months ago, influenced by many uncertain variables. However, I am confident we will see growth in travel, particularly this summer as airline numbers improve. We may not reach pre-pandemic levels, but I expect to see a noticeable increase in travelers compared to now. Overall, it's going to be a progression.

I hope you're right. Chris, if I can just follow up with one other question that I'm not sure you can answer. But as you look out, you talked about two, three, four years out using this period for innovation and whatnot. Do you think the operating cost or cost per occupied room will be lower or higher as we start to stabilize this industry?

Lower, for sure. Lower. I mean just because all the things that we're working on, I can't tell you how much lower, because I don't have the answer yet. But clearly, I mean, there are a few things Bill as you might guess that, that are going to cost a little bit more like our CleanStay standard working with Lysol and Mayo. Yes, Lysol products may be a little more expensive than some of the products, that's relatively insignificant. Other things that we're thinking about in terms of garnering efficiencies vastly outweigh that. So I think when we wake up on a stabilized basis, operating costs are going to go down.

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

Great. Thank you. Most of my questions have been asked, but I did want to follow up on the unit growth question and I appreciate how difficult it is to have visibility on this. You were talking about financing that there will be capital available. But I guess just thinking about from a perspective of owner appetite and when you look at historic downturns, anything under construction as you pointed out would open and the decline or like a slower rate of growth typically in supplies would usually come a year or two later because of those new projects. So, I wonder if you could talk about kind of owner appetite. It seems like given even what you're saying about how it could take a couple of years to get back to 2019 levels, that may be an owner or developer that hasn't put a shovel in the ground yet, would be rethinking anything that's not under construction. And then, we would see something much lower than mid single-digit growth in terms of pipeline kind of a year or so out from now?

Yes, that’s a valid point. Generally, last time it followed a certain pattern, although it wasn't entirely straightforward. The first year after the financial crisis was the lowest point, and things began to improve from there. In 2012, there was a slight decline due to the factors you mentioned. This time, however, the situation is different and delayed. It's a unique crisis, and construction projects are on hold, which will prolong the process. Additionally, we are nearing the end of a cycle, with many recent deliveries and existing hotels, leading to a temporary decrease in demand. We anticipate an increase in demand for our services, which should result in a higher number of conversions moving forward. We believe there will be a growth trend from this point on. Time will tell, but that’s our outlook.

No, that's accurate. That's accurate. We think removals will be very normal.

And our next question comes from Thomas Allen from Morgan Stanley. Please go ahead with your question.

In regard to buybacks, I wanted to mention that although Hilton has formally suspended its buyback program, the program is still authorized and share purchases can be resumed at any time in the future. How do you view the buyback program and the appropriate leverage levels? Any insights you could share would be appreciated.

Yes, that's a great question. It's a bit early for us to make definitive statements about it. For the short term, we won't be initiating dividends or buybacks, which we've clearly communicated. As we move towards recovery and a more normalized environment, I don’t believe our capital allocation strategy will fundamentally change. While we find ourselves in a solid liquidity position due to prudent planning both before and after the crisis, we anticipated reaching the end of a business cycle and prepared accordingly. This has positioned us well, even though we couldn't foresee COVID-19. I would consider this situation the ultimate test for our balance sheet, and it’s hard to imagine a more challenging scenario than what’s occurred. We feel confident in our ability to navigate through this with our liquidity and credit profile intact. When we reach a normalized environment, I don't foresee a significant shift in our perspective. While there may be discussions about potentially maintaining lower leverage than before, this isn't the time to reach conclusions. Ultimately, we intend to resume our capital allocation strategy where we left off when conditions stabilize. Okay. I think that's it. Well, it's an interesting call and interesting times. We appreciate everybody's time. I know, we've been talking with lots of people sort of as this has been going on obviously, happy to continue doing that as we work our way through this. As we said in our comments second quarter will not be pretty, but hopefully third quarter and fourth will be back on the road to recovery. So, everybody stay safe, stay well and we're going to keep working awfully hard to do the right things here and we'll look forward to catching up with you and updating you on where we are after the second quarter.

Ladies and gentlemen, with that, we will conclude today's conference. We do thank you for joining. You may now disconnect your lines.