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 our development pipeline; 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; our expectations regarding certain claims, legal proceedings, settlements or resolutions; our expectations regarding our acquisition of the citizenM brand and the addition of the citizenM hotels to our system; 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. 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 failure to satisfy the conditions to the consummation of the citizenM transaction; uncertainty resulting from economic, political or other global, national, and regional conditions and events, including related to tariffs, trade, travel and other policies; the risks and uncertainties we describe in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (“2024 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. 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 accounting criteria for separate disclosure as a reportable business segment, and as such, we include its results in “Unallocated corporate and other.” Under our asset-light business model, we typically manage or franchise hotels and other lodging offerings, rather than own them. Terms of our management agreements vary, but we earn a management fee that is typically composed of a base management fee, which is a percentage of the revenues of the hotel, and an incentive management fee, which is based on the profits of the hotel. In many cases (particularly in our U.S. & Canada, Europe, and CALA regions), incentive management fees are subject to a specified owner return. Under our hotel franchising arrangements, we generally receive an initial application fee and continuing royalty fees, which are typically based on a percentage of room revenues, plus for certain brands, a percentage of food and beverage revenues. We also have license and other agreements with third parties for certain offerings, such as for our timeshare properties, MGM Collection with Marriott Bonvoy, Design Hotels, and The Ritz-Carlton Yacht Collection, under which we receive royalty fees and certain other fees. Additionally, we earn fees for other uses of our intellectual property, including primarily co-branded credit card fees, as well as residential branding fees and certain other licensing fees. 14 Table of Contents Performance Measures We believe Revenue per Available Room (“RevPAR”), which we calculate by dividing property level room revenue by total rooms available for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues. 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 total rooms sold by total rooms available for the period, measures the utilization of a property’s available capacity. ADR, which we calculate by dividing property level room revenue by total rooms sold, measures average room price and is useful in assessing pricing levels. Unless otherwise stated, RevPAR, occupancy, and ADR statistics are on a systemwide basis for comparable properties, and all changes refer to year-over-year changes for the comparable period. Comparisons to prior periods are on a constant U.S. dollar basis, which we calculate by applying exchange rates for the current period to the prior comparable period. We believe constant dollar analysis provides valuable information regarding the performance of hotels in our system as it removes currency fluctuations from the presentation of such results. We define our comparable properties as hotels in our system that were open and operating under one of our brands since the beginning of the last full calendar year (since January 1, 2024 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 growth during the 2025 first quarter compared to the same period in 2024. For the 2025 first quarter, worldwide RevPAR increased 4.1 percent, reflecting ADR growth of 2.9 percent and occupancy improvement of 0.7 percentage points. The increase in RevPAR in the 2025 first quarter was primarily driven by year-over-year demand growth in nearly all of our regions. In the U.S. & Canada, RevPAR increased 3.3 percent in the 2025 first quarter, led by strong demand from our group customer segment. In our International regions, RevPAR grew 5.9 percent in the 2025 first quarter, reflecting higher demand in APEC with RevPAR growth of 10.9 percent, EMEA with RevPAR growth of 5.9 percent, and CALA with RevPAR growth of 7.2 percent. In Greater China, RevPAR decreased 1.6 percent in the 2025 first quarter driven by a decrease in ADR of 2.7 percent, reflecting lower domestic demand as a result of macro-economic conditions. In the U.S., we saw some softening of demand in certain customer segments in March, primarily in government business. We continue to monitor macro-economic conditions and impact on lodging demand. 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 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. See Note 6 for additional information related to legal proceedings and investigations related to the Data Security Incident. System Growth and Pipeline At the end of the 2025 first quarter, our system had 9,463 properties (1,718,542 rooms), compared to 9,361 properties (1,706,331 rooms) at year-end 2024 and 8,861 properties (1,643,172 rooms) at the end of the 2024 first quarter. In the 2025 first quarter, we added roughly 12,200 net rooms. At the end of the 2025 first quarter, we had approximately 3,800 properties and over 587,000 rooms in our development pipeline, which included over 27,000 rooms approved for development but not yet under signed 15 Table of Contents contracts. Our development pipeline included nearly 244,000 rooms, or 42 percent, that were under construction or in the process of converting to our system at the end of the 2025 first quarter. Over half of the rooms in our quarter-end development pipeline are located outside U.S. & Canada. We currently expect full year 2025 net rooms growth to approach 5 percent, including the rooms associated with the citizenM brand acquisition discussed in Note 2. Properties and Rooms The following table shows our properties and rooms by ownership type. Properties Rooms March 31, 2025 March 31, 2024 vs. March 31, 2024 March 31, 2025 March 31, 2024 vs. March 31, 2024 Managed 1,981 1,969 12 1 % 567,896 566,944 952 — % Franchised/Licensed/Other (1) 7,293 6,716 577 9 % 1,120,634 1,049,173 71,461 7 % Owned/Leased 51 50 1 2 % 14,312 13,111 1,201 9 % Residential 138 126 12 10 % 15,700 13,944 1,756 13 % Total 9,463 8,861 602 7 % 1,718,542 1,643,172 75,370 5 % (1) In addition to franchised, includes our timeshare properties, MGM Collection with Marriott Bonvoy, Design Hotels, and The Ritz-Carlton Yacht Collection. 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, 2025 and Change vs. Three Months Ended March 31, 2024 RevPAR Occupancy Average Daily Rate 2025 vs. 2024 2025 vs. 2024 2025 vs. 2024 Comparable Company-Operated Properties U.S. & Canada $ 181.75 5.1 % 67.2 % 1.2 % pts. $ 270.49 3.2 % Europe $ 143.27 5.1 % 62.5 % 2.6 % pts. $ 229.10 0.8 % Middle East & Africa $ 146.94 4.5 % 70.1 % 0.3 % pts. $ 209.62 4.1 % Greater China $ 77.23 (2.1) % 64.3 % 0.6 % pts. $ 120.13 (3.1) % Asia Pacific excluding China $ 133.23 10.6 % 71.3 % 1.7 % pts. $ 186.86 8.0 % Caribbean & Latin America $ 244.14 10.8 % 70.0 % 2.0 % pts. $ 348.58 7.6 % International - All (1) $ 121.49 5.2 % 67.4 % 1.1 % pts. $ 180.32 3.5 % Worldwide (2) $ 146.49 5.2 % 67.3 % 1.2 % pts. $ 217.67 3.4 % Comparable Systemwide Properties U.S. & Canada $ 123.40 3.3 % 65.9 % 0.4 % pts. $ 187.37 2.7 % Europe $ 102.28 6.2 % 60.5 % 2.9 % pts. $ 169.09 1.1 % Middle East & Africa $ 134.86 5.4 % 68.9 % 0.6 % pts. $ 195.76 4.5 % Greater China $ 71.20 (1.6) % 63.2 % 0.8 % pts. $ 112.70 (2.7) % Asia Pacific excluding China $ 132.36 10.9 % 71.5 % 2.0 % pts. $ 185.08 7.7 % Caribbean & Latin America $ 150.67 7.2 % 64.8 % (0.2) % pts. $ 232.62 7.5 % International - All (1) $ 111.39 5.9 % 65.4 % 1.4 % pts. $ 170.44 3.7 % Worldwide (2) $ 119.38 4.1 % 65.7 % 0.7 % pts. $ 181.73 2.9 % (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 2025 first quarter compared to the 2024 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, 2025 March 31, 2024 Change 2025 vs. 2024 Base management fees $ 325 $ 313 $ 12 4 % Franchise fees 746 688 58 8 % Incentive management fees 204 209 (5) (2) % Gross fee revenues 1,275 1,210 65 5 % Contract investment amortization (28) (23) (5) (22) % Net fee revenues $ 1,247 $ 1,187 $ 60 5 % The increase in base management fees in the 2025 first quarter primarily reflected higher RevPAR. The increase in franchise fees in the 2025 first quarter primarily reflected higher RevPAR as well as unit growth ($18 million). Owned, Leased, and Other Three Months Ended ($ in millions) March 31, 2025 March 31, 2024 Change 2025 vs. 2024 Owned, leased, and other revenue $ 361 $ 357 $ 4 1 % Owned, leased, and other - direct expenses 296 286 10 3 % Owned, leased, and other, net $ 65 $ 71 $ (6) (8) % Cost Reimbursements Three Months Ended ($ in millions) March 31, 2025 March 31, 2024 Change 2025 vs. 2024 Cost reimbursement revenue $ 4,655 $ 4,433 $ 222 5 % Reimbursed expenses 4,722 4,501 221 5 % Cost reimbursements, net $ (67) $ (68) $ 1 1 % 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 hotel owners and certain other counterparties. Over the long term, our centralized programs and services are not designed to impact our economics, either positively or negatively. Cost reimbursements, net remained relatively unchanged in the 2025 first quarter as higher revenues were offset by higher expenses for many of our centralized programs and services. Other Operating Expenses Three Months Ended ($ in millions) March 31, 2025 March 31, 2024 Change 2025 vs. 2024 Depreciation, amortization, and other $ 51 $ 45 $ 6 13 % General, administrative, and other 245 261 (16) (6) % Restructuring and merger-related charges 1 8 (7) (88) % General, administrative, and other expenses decreased in the 2025 first quarter primarily due to lower compensation costs. 17 Table of Contents Non-Operating Income (Expense) Three Months Ended ($ in millions) March 31, 2025 March 31, 2024 Change 2025 vs. 2024 (Losses) gains and other income, net $ (2) $ 4 $ (6) (150) % Interest expense (192) (163) (29) (18) % Interest income 9 10 (1) (10) % Equity in earnings 1 — 1 nm* * Percentage change is not meaningful. Interest expense increased in the 2025 first quarter primarily due to higher debt balances driven by Senior Notes issuances, net of maturities ($37 million). Income Taxes Three Months Ended ($ in millions) March 31, 2025 March 31, 2024 Change 2025 vs. 2024 Provision for income taxes $ (99) $ (163) $ 64 39 % Provision for income taxes decreased in the 2025 first quarter primarily due to the current year release of tax reserves ($86 million). BUSINESS SEGMENTS The following discussion presents an analysis of the operating results of our reportable business segments for the 2025 first quarter compared to the 2024 first quarter. Also see the “Business Trends” section above for further discussion. Three Months Ended ($ in millions) March 31, 2025 March 31, 2024 Change 2025 vs. 2024 U.S. & Canada Segment net fee revenues $ 689 $ 665 $ 24 4 % Segment profit 644 625 19 3 % EMEA Segment net fee revenues 114 115 (1) (1) % Segment profit 74 81 (7) (9) % Greater China Segment net fee revenues 60 65 (5) (8) % Segment profit 45 51 (6) (12) % APEC Segment net fee revenues 97 86 11 13 % Segment profit 80 72 8 11 % Properties Rooms March 31, 2025 March 31, 2024 vs. March 31, 2024 March 31, 2025 March 31, 2024 vs. March 31, 2024 U.S. & Canada 6,280 6,013 267 4 % 1,048,111 1,019,920 28,191 3 % EMEA 1,320 1,150 170 15 % 236,698 220,113 16,585 8 % Greater China 606 533 73 14 % 175,114 160,972 14,142 9 % APEC 637 578 59 10 % 144,447 132,480 11,967 9 % In the 2025 first quarter, segment profits grew in U.S. & Canada and APEC, compared to the same period in 2024, primarily driven by higher net fee revenues as a result of higher RevPAR and unit growth (see the Lodging Statistics and Properties and Rooms tables above for more information). 18 Table of Contents 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 2025 first quarter, including the effect of interest rate swaps, our long-term debt had a weighted average interest rate of 4.6 percent, a weighted average maturity of approximately 5.8 years, and a ratio of fixed-rate to total long-term debt of 0.9 to 1.0. Sources of Liquidity Our Credit Facility We are party to a $4.5 billion multicurrency revolving credit agreement (as amended, the “Credit Facility”). Available borrowings under the Credit Facility support our commercial paper program and general corporate needs. U.S. dollar borrowings under the Credit Facility 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 over the next 12 months and thereafter for the foreseeable future. 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 $546 million at March 31, 2025, an increase of $121 million from year-end 2024, primarily due to long-term debt issuances, net of repayments ($1,608 million) and net cash provided by operating activities ($647 million), partially offset by net commercial paper repayments ($1,002 million), share repurchases ($751 million), dividends paid ($174 million), capital and technology expenditures ($135 million), and financing outflows for employee stock-based compensation withholding taxes ($109 million). Our ratio of current assets to current liabilities was 0.5 to 1.0 at the end of the 2025 first quarter. We have significant borrowing capacity under our Credit Facility should we need additional working capital. Capital Expenditures and Other Investments We made capital and technology expenditures of $135 million in the 2025 first quarter and $109 million in the 2024 first quarter. We expect capital expenditures and other investments will total approximately $1,355 million to $1,455 million for the 2025 full year, including capital and technology expenditures, loan advances, contract acquisition costs, and other investing activities. This estimate includes $355 million of investment spending related to the citizenM brand acquisition discussed in Note 2, which we expect to close later in 2025, but excludes any 19 Table of Contents additional potential property or brand acquisitions, which we cannot forecast with sufficient accuracy and which may be significant. Our anticipated capital and technology expenditures include higher than typical spending on our worldwide technology systems transformation, the overwhelming portion of which we expect to be reimbursed over time, and renovations of hotels in our owned and leased portfolio. Share Repurchases and Dividends We repurchased 2.8 million shares of our common stock for $0.8 billion in the 2025 first quarter. Year-to-date through April 29, 2025, we repurchased 3.9 million shares for $1.0 billion. For additional information, see “Issuer Purchases of Equity Securities” in Part II, Item 2. On February 13, 2025, our Board of Directors declared a quarterly cash dividend of $0.63 per share, which was paid on March 31, 2025 to stockholders of record on February 27, 2025. 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 2025 first quarter, other than with respect to our agreement to purchase the citizenM brand discussed in Note 2, there have been no material changes to our cash requirements as disclosed in our 2024 Form 10-K. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2024 Form 10-K for more information about our cash requirements. Also, see Note 7 for information on our long-term debt. At March 31, 2025, projected Deemed Repatriation Transition Tax payments under the 2017 Tax Cuts and Jobs Act totaled $135 million, which was paid in April 2025. 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 2024 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, 2024. See Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2024 Form 10-K for more information on our exposure to market risk.