MARRIOTT INTERNATIONAL INC /MD/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement All statements in this report are made as of the date this Form 10-Q is filed with the U.S. Securities and Exchange Commission (the “SEC”). We undertake no obligation to publicly update or revise these statements, whether as a result of new information, future events or otherwise. We make forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report based on the beliefs and assumptions of our management and on information available to us through the date this Form 10-Q is filed with the SEC. Forward-looking statements include information related to future demand trends and expectations; our expectations regarding rooms growth; our expectations regarding our ability to meet our liquidity requirements; our capital expenditures and other investment spending and reimbursement expectations; our expectations regarding future dividends and share repurchases; and other statements that are preceded by, followed by, or include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “foresees,” or similar expressions; and similar statements concerning anticipated future events and expectations that are not historical facts. 13 Table of Contents We caution you that these statements are not guarantees of future performance and are subject to numerous evolving risks and uncertainties that we may not be able to accurately predict or assess, including the risks and uncertainties we describe in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 Form 10-K”), Part II, Item 1A of this report, and other factors we describe from time to time in our periodic filings with the SEC. BUSINESS AND OVERVIEW Overview We are a worldwide operator, franchisor, and licensor of hotel, residential, timeshare, and other lodging properties under more than 30 brand names. Under our asset-light business model, we typically manage or franchise hotels, rather than own them . We discuss our operations in the following reportable business segments: (1) U.S. & Canada, (2) Europe, Middle East & Africa (“EMEA”), (3) Greater China, and (4) Asia Pacific excluding China (“APEC”). Our Caribbean & Latin America (“CALA”) operating segment does not meet the applicable criteria for separate disclosure as a reportable business segment, and as such, we include its results in “Unallocated corporate and other.” Terms of our management agreements vary, but our management fees generally consist of base management fees and incentive management fees. Base management fees are typically calculated as a percentage of property-level revenue. Incentive management fees are typically calculated as a percentage of a hotel profitability measure, and, in many cases (particularly in our U.S. & Canada, Europe, and CALA regions), are subject to a specified owner return. Under our franchise and license agreements for most properties, franchise fees are calculated as a percentage of property-level revenue or a portion thereof. Additionally, we earn franchise fees for the use of our intellectual property, including primarily co-branded credit card fees, as well as timeshare and yacht fees, residential branding fees, franchise application and relicensing fees, and certain other non-hotel licensing fees, which we refer to as “non-RevPAR related franchise fees.” Performance Measures We believe Revenue per Available Room (“RevPAR”), which we calculate by dividing room sales for comparable properties by room nights available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties. RevPAR may not be comparable to similarly titled measures, such as revenues, and should not be viewed as necessarily correlating with our fee revenue. We also believe occupancy and average daily rate (“ADR”), which are components of calculating RevPAR, are meaningful indicators of our performance. Occupancy, which we calculate by dividing occupied rooms by total rooms available at comparable properties, measures the utilization of a property’s available capacity. ADR, which we calculate by dividing property room revenue at comparable properties by total rooms sold, measures average room price and is useful in assessing pricing levels. RevPAR, occupancy, and ADR statistics are on a systemwide basis for comparable properties, unless otherwise stated. Unless otherwise stated, all changes refer to year-over-year changes for the comparable period. Comparisons to prior periods are on a constant U.S. dollar basis. We calculate constant dollar statistics by applying exchange rates for the current period to the prior comparable period. We define our comparable properties as our properties that were open and operating under one of our hotel brands since the beginning of the last full calendar year (since January 1, 2023 for the current period) and have not, in either the current or previous year: (1) undergone significant room or public space renovations or expansions, (2) been converted between company-operated and franchised, or (3) sustained substantial property damage or business interruption. Our comparable properties also exclude MGM Collection with Marriott Bonvoy, Design Hotels, The Ritz-Carlton Yacht Collection, and timeshare properties. Business Trends We saw solid global RevPAR improvement during the 2024 first quarter compared to the same period in 2023. For the 2024 first quarter, worldwide RevPAR increased 4.2 percent compared to the 2023 first quarter, reflecting 14 Table of Contents ADR growth of 2.8 percent and occupancy improvement of 0.9 percentage points. The increase in RevPAR was primarily driven by strong year-over-year demand growth in our International regions. In the U.S. & Canada, where demand has normalized, RevPAR increased 1.5 percent in the 2024 first quarter, led by strong group business. In EMEA, RevPAR growth of 10.1 percent in the 2024 first quarter was driven by strong demand in most countries across the region, reflecting strength across most customer segments. In Greater China, RevPAR increased 6.0 percent with growth in demand and ADR. In APEC, RevPAR grew 16.5 percent, driven by growth in leisure and business travel, including an increase in inbound travel into the region compared to the 2023 first quarter. In CALA, RevPAR grew 11.6 percent, driven by strong leisure demand at resorts in the Caribbean and Mexico. Starwood Data Security Incident On November 30, 2018, we announced a data security incident involving unauthorized access to the Starwood reservations database (the “Data Security Incident”). We discontinued use of t he Starwood reservations database for business operations at the end of 2018 . We are currently unable to reasonably estimate the range of total possible financial impact to the Company from the Data Security Incident in excess of the expenses already recorded. However, we do not believe this incident will impact our long-term financial health. Although our insurance program includes coverage designed to limit our exposure to losses such as those related to the Data Security Incident, that insurance may not be sufficient or available to cover all of our expenses or other losses (including monetary payments to regulators and/or litigants) related to the Data Security Incident. In addition, certain expenses by their nature (such as, for example, expenses related to enhancing our cybersecurity program) are not covered by our insurance program. We expect to incur ongoing legal and other expenses associated with the Data Security Incident in future periods, and we believe it is reasonably possible that we may incur additional monetary payments to regulators and/or litigants in excess of the amounts already recorded and costs in connection with compliance with any settlements or resolutions of matters. See Note 5 for additional information related to legal proceedings and governmental investigations related to the Data Security Incident. System Growth and Pipeline At the end of the 2024 first quarter, our system had 8,861 properties (1,643,172 rooms), compared to 8,785 properties (1,597,380 rooms) at year-end 2023 and 8,353 properties (1,534,072 rooms) at the end of the 2023 first quarter. In the 2024 first quarter, we added roughly 46,000 net rooms, including the addition of approximately 37,000 rooms from our exclusive, long-term strategic licensing agreement with MGM Resorts International. At the end of the 2024 first quarter, we had over 3,400 hotels and nearly 547,000 rooms in our development pipeline, which includes roughly 27,000 rooms approved for development but not yet under signed contracts. More than 202,000 rooms in the pipeline, or 37 percent, were under construction at the end of the 2024 first quarter. Over half of the rooms in our development pipeline are located outside U.S. & Canada. We currently expect full year 2024 net rooms growth of approximately 5.5 to 6.0 percent. 15 Table of Contents Properties and Rooms The following table shows our properties and rooms by ownership type. Properties Rooms March 31, 2024 March 31, 2023 vs. March 31, 2023 March 31, 2024 March 31, 2023 vs. March 31, 2023 Managed 1,969 1,993 (24) (1) % 566,944 561,197 5,747 1 % Franchised/Licensed/Other (1) 6,716 6,192 524 8 % 1,049,173 947,119 102,054 11 % Owned/Leased 50 52 (2) (4) % 13,111 13,865 (754) (5) % Residential 126 116 10 9 % 13,944 11,891 2,053 17 % Total 8,861 8,353 508 6 % 1,643,172 1,534,072 109,100 7 % (1) In addition to franchised, includes timeshare, The Ritz-Carlton Yacht Collection, and certain license and other agreements. Lodging Statistics The following table presents RevPAR, occupancy, and ADR statistics for comparable properties. Systemwide statistics include data from our franchised properties, in addition to our company-operated properties. Three Months Ended March 31, 2024 and Change vs. Three Months Ended March 31, 2023 RevPAR Occupancy Average Daily Rate 2024 vs. 2023 2024 vs. 2023 2024 vs. 2023 Comparable Company-Operated Properties U.S. & Canada $ 170.75 2.6 % 66.0 % 0.3 % pts. $ 258.76 2.1 % Europe $ 147.12 5.5 % 61.6 % 1.2 % pts. $ 238.86 3.4 % Middle East & Africa $ 146.26 12.2 % 70.3 % 3.4 % pts. $ 207.97 6.9 % Greater China $ 82.48 6.0 % 65.2 % 2.3 % pts. $ 126.42 2.3 % Asia Pacific excluding China $ 123.78 16.1 % 72.0 % 5.5 % pts. $ 171.86 7.2 % Caribbean & Latin America $ 221.29 9.6 % 68.0 % 2.0 % pts. $ 325.25 6.4 % International - All (1) $ 122.00 10.4 % 67.8 % 3.2 % pts. $ 179.99 5.1 % Worldwide (2) $ 142.87 6.3 % 67.0 % 2.0 % pts. $ 213.20 3.2 % Comparable Systemwide Properties U.S. & Canada $ 119.61 1.5 % 65.5 % (0.3) % pts. $ 182.63 1.9 % Europe $ 105.64 7.6 % 59.0 % 3.5 % pts. $ 179.02 1.2 % Middle East & Africa $ 134.09 13.3 % 68.5 % 2.7 % pts. $ 195.75 8.8 % Greater China $ 76.87 6.0 % 64.4 % 2.3 % pts. $ 119.33 2.2 % Asia Pacific excluding China $ 123.02 16.5 % 71.3 % 5.1 % pts. $ 172.51 8.2 % Caribbean & Latin America $ 185.36 11.6 % 69.7 % 3.7 % pts. $ 265.96 5.6 % International - All (1) $ 114.88 11.1 % 65.9 % 3.4 % pts. $ 174.24 5.3 % Worldwide (2) $ 118.13 4.2 % 65.6 % 0.9 % pts. $ 179.99 2.8 % (1) Includes Europe, Middle East & Africa, Greater China, Asia Pacific excluding China, and Caribbean & Latin America. (2) Includes U.S. & Canada and International - All. CONSOLIDATED RESULTS The discussion below presents an analysis of our consolidated results of operations for the 2024 first quarter compared to the 2023 first quarter. Also see the “Business Trends” section above for further discussion. 16 Table of Contents Fee Revenues Three Months Ended ($ in millions) March 31, 2024 March 31, 2023 Change 2024 vs. 2023 Base management fees $ 313 $ 293 $ 20 7 % Franchise fees 688 639 49 8 % Incentive management fees 209 201 8 4 % Gross fee revenues 1,210 1,133 77 7 % Contract investment amortization (23) (21) (2) (10) % Net fee revenues $ 1,187 $ 1,112 $ 75 7 % The increase in base management fees in the 2024 first quarter primarily reflected higher RevPAR. The increase in franchise fees in the 2024 first quarter primarily reflected unit growth ($22 million), higher RevPAR, and higher non-RevPAR related franchise fees ($11 million). Non-RevPAR related franchise fees of $208 million in the 2024 first quarter increased primarily due to higher co-branded credit card fees ($14 million). The increase in incentive management fees in the 2024 first quarter primarily reflected higher profits at International managed hotels. Owned, Leased, and Other Three Months Ended ($ in millions) March 31, 2024 March 31, 2023 Change 2024 vs. 2023 Owned, leased, and other revenue $ 357 $ 356 $ 1 — % Owned, leased, and other - direct expenses 286 281 5 2 % Owned, leased, and other, net $ 71 $ 75 $ (4) (5) % Cost Reimbursements Three Months Ended ($ in millions) March 31, 2024 March 31, 2023 Change 2024 vs. 2023 Cost reimbursement revenue $ 4,433 $ 4,147 $ 286 7 % Reimbursed expenses 4,501 4,136 365 9 % Cost reimbursements, net $ (68) $ 11 $ (79) (718) % Cost reimbursements, net (cost reimbursement revenue, net of reimbursed expenses) varies due to timing differences between the costs we incur for centralized programs and services and the related rei mbursemen ts we receive from property owners and franchisees. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. The decrease in cost reimbursements, net in the 2024 first quarter primarily reflected higher Loyalty Program expenses, as well as lower revenues, net of expenses, for our centralized programs and services. Other Operating Expenses Three Months Ended ($ in millions) March 31, 2024 March 31, 2023 Change 2024 vs. 2023 Depreciation, amortization, and other $ 45 $ 44 $ 1 2 % General, administrative, and other 261 202 59 29 % Merger-related charges and other 8 1 7 700 % General, administrative, and other expenses increased in the 2024 first quarter primarily due to higher compensation costs. 17 Table of Contents Non-Operating Income (Expense) Three Months Ended ($ in millions) March 31, 2024 March 31, 2023 Change 2024 vs. 2023 Gains and other income, net $ 4 $ 3 $ 1 33 % Interest expense (163) (126) (37) (29) % Interest income 10 15 (5) (33) % Equity in earnings — 1 (1) (100) % Interest expense increased in the 2024 first quarter primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($30 million). Income Taxes Three Months Ended ($ in millions) March 31, 2024 March 31, 2023 Change 2024 vs. 2023 Provision for income taxes $ (163) $ (87) $ (76) (87) % Provision for income taxes increased by $76 million in the 2024 first quarter primarily due to the prior year release of tax reserves ($103 million), which was mostly due to completion of a tax audit, partially offset by the decrease in operating income ($28 million). BUSINESS SEGMENTS The following discussion presents an analysis of the operating results of our reportable business segments for the 2024 first quarter compared to the 2023 first quarter. Also see the “Business Trends” section above for further discussion. Three Months Ended ($ in millions) March 31, 2024 March 31, 2023 Change 2024 vs. 2023 U.S. & Canada Segment net fee revenues $ 665 $ 656 $ 9 1 % Segment profit 625 657 (32) (5) % EMEA Segment net fee revenues 115 102 13 13 % Segment profit 81 78 3 4 % Greater China Segment net fee revenues 65 57 8 14 % Segment profit 51 46 5 11 % APEC Segment net fee revenues 86 66 20 30 % Segment profit 72 56 16 29 % Properties Rooms March 31, 2024 March 31, 2023 vs. March 31, 2023 March 31, 2024 March 31, 2023 vs. March 31, 2023 U.S. & Canada 6,013 5,880 133 2 % 1,019,920 968,919 51,001 5 % EMEA 1,150 1,059 91 9 % 220,113 207,811 12,302 6 % Greater China 533 480 53 11 % 160,972 148,434 12,538 8 % APEC 578 514 64 12 % 132,480 119,432 13,048 11 % In the 2024 first quarter, net fee revenue grew across all segments, compared to the same period in 2023, primarily reflecting higher RevPAR and unit growth. (See the Lodging Statistics and Properties and Rooms tables above for more information.) Segment profits also reflected higher general, administrative, and other expenses, primarily due to higher compensation costs, compared to the 2023 first quarter . Additionally, U.S. & Canada 18 Table of Contents segment profit reflects $24 million of lower cost reimbursement revenue, net of reimbursed expenses compared to the 2023 first quarter . LIQUIDITY AND CAPITAL RESOURCES Our long-term financial objectives include maintaining diversified financing sources, optimizing the mix and maturity of our long-term debt, and reducing our working capital. At the end of the 2024 first quarter, our long-term debt had a weighted average interest rate of 4.5 percent and a weighted average maturity of approximately 5.3 years. Including the effect of interest rate swaps, the ratio of our fixed-rate long-term debt to our total long-term debt was 0.9 to 1.0 at the end of the 2024 first quarter. Sources of Liquidity Our Credit Facility We are party to a $4.5 billion multicurrency revolving credit agreement (the “Credit Facility”). Available borrowings under the Credit Facility support our commercial paper program and general corporate needs. Borrowings under the Credit Facility generally bear interest at SOFR (the Secured Overnight Financing Rate) plus a spread based on our public debt rating. We also pay quarterly fees on the Credit Facility at a rate based on our public debt rating. We classify outstanding borrowings under the Credit Facility and outstanding commercial paper borrowings (which generally have short-term maturities of 45 days or less) as long-term based on our ability and intent to refinance the outstanding borrowings on a long-term basis. The Credit Facility expires on December 14, 2027. The Credit Facility contains certain covenants, including a single financial covenant that limits our maximum leverage (consisting of the ratio of Adjusted Total Debt to EBITDA, each as defined in the Credit Facility) to not more than 4.5 to 1.0. Our outstanding public debt does not contain a corresponding financial covenant or a requirement that we maintain certain financial ratios. We currently satisfy the covenants in our Credit Facility and public debt instruments, including the leverage covenant under the Credit Facility, and do not expect the covenants will restrict our ability to meet our anticipated borrowing and liquidity needs. We monitor the status of the capital markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to fund our liquidity needs. We believe the Credit Facility, and our access to capital markets, together with cash we expect to generate from operations, remain adequate to meet our liquidity requirements. Commercial Paper We issue commercial paper in the U.S. Because we do not have purchase commitments from buyers for our commercial paper, our ability to issue commercial paper is subject to market demand. We do not expect that fluctuations in the demand for commercial paper will affect our liquidity, given our borrowing capacity under the Credit Facility and access to capital markets. Sources and Uses of Cash Cash, cash equivalents, and restricted cash totaled $448 million at March 31, 2024, an increase of $82 million from year-end 2023, primarily due to Senior Notes issuances ($1,468 million) and net cash provided by operating activities ($779 million), partially offset by share repurchases ($1,144 million), net commercial paper repayments ($685 million), dividends paid ($151 million), financing outflows for employee stock-based compensation withholding taxes ($121 million), and capital and technology expenditures ($109 million). Net cash provided by operating activities decreased by $108 million in the 2024 first quarter compared to the 2023 first quarter, primarily due to lower net income (adjusted for non-cash items) and working capital changes driven by accounts receivable timing. Our ratio of current assets to current liabilities was 0.4 to 1.0 at the end of the 2024 first quarter. We have significant borrowing capacity under our Credit Facility should we need additional working capital. 19 Table of Contents Capital Expenditures and Other Investments We made capital and technology expenditures of $109 million in the 2024 first quarter and $95 million in the 2023 first quarter. We expect capital expenditures and other investments will total approximately $1.0 billion to $1.2 billion for the 2024 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities (including approximately $250 million for maintenance capital spending). Our anticipated capital and technology expenditures include $200 million of spending related to our option to purchase the land underlying the Sheraton Grand Chicago, which we discuss in Note 5. Share Repurchases and Dividends We repurchased 4.8 million shares of our common stock for $1.2 billion in the 2024 first quarter. Year-to-date through April 26, 2024, we repurchased 6.2 million shares for $1.5 billion. For additional information, see “Issuer Purchases of Equity Securities” in Part II, Item 2. On February 8, 2024, our Board of Directors declared a quarterly cash dividend of $0.52 per share, which was paid on March 29, 2024 to stockholders of record on February 22, 2024. We expect to continue to return cash to stockholders through a combination of share repurchases and cash dividends. Material Cash Requirements As of the end of the 2024 first quarter, there have been no material changes to our cash requirements as disclosed in our 2023 Form 10-K. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2023 Form 10-K for more information about our cash requirements. Also, see Note 6 for information on our long-term debt. At March 31, 2024, projected Deemed Repatriation Transition Tax payments under the 2017 Tax Cuts and Jobs Act totaled $243 million, of which $108 million is payable within the next 12 months from March 31, 2024. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those policies and estimates that we believe are critical and require the use of complex judgment in their application in our 2023 Form 10-K. We have made no material changes to our critical accounting policies or the methodologies or assumptions that we apply under them. Item 3. Quantitative and Qualitative Disclosures About Market Risk Our exposure to market risk has not materially changed since December 31, 2023. See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2023 Form 10-K for more information on our exposure to market risk.