Marriott International, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results reflect the material impact of COVID-19 on global lodging demand. Marriott operates, franchises, and licenses hotel, residential, and timeshare properties, primarily under an asset-light model.
Key financial results
| Metric ($ millions, except per-share amounts) | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | 2,254 | 5,284 | 8,399 | 15,601 |
| Operating income | 252 | 607 | 212 | 1,526 |
| Net income (loss) | 100 | 387 | (103) | 994 |
| Diluted earnings (loss) per share | $0.31 | $1.16 | $(0.32) | $2.95 |
| Net fee revenue | 349 | 939 | 1,166 | 2,804 |
| Operating cash flow | Not provided separately | Not provided separately | 1,623 | 1,190 |
Q3 revenue declined 57% year over year and operating income declined 58%. Nine-month revenue fell 46%; operating income fell 86%, and Marriott reported a nine-month net loss. Q3 operating margin was approximately 11.2%, versus 11.5% a year earlier; nine-month operating margin was approximately 2.5%, versus 9.8%. Revenue includes substantial cost-reimbursement revenue and corresponding reimbursed expenses, so total-revenue margins should be interpreted accordingly.
Worldwide comparable systemwide RevPAR fell 65.9% in Q3 and 59.0% for the first nine months. Q3 occupancy was 35.1%, down 40.8 percentage points, and ADR was $117.44, down 26.4%. Performance improved from April’s lows but weakened or plateaued toward quarter-end in many markets.
Liquidity, debt, and cash flow
- Cash, cash equivalents, and restricted cash were $1.590 billion at September 30, 2020, up $1.337 billion from year-end 2019. Operating cash flow was $1.623 billion for the first nine months; capital expenditures were $97 million.
- Total debt was $10.995 billion, including $1.316 billion current and $9.679 billion long-term, compared with $10.940 billion at year-end 2019. Long-term debt had a 3.5% weighted-average interest rate and approximately 5.3-year weighted-average maturity. The current ratio was 0.6.
- Marriott issued $3.6 billion of senior notes, repurchased or redeemed near-term notes, and ended the quarter with $900 million outstanding under its $4.5 billion revolving credit facility. Commercial paper issuance was suspended.
- The facility’s leverage covenant was waived through Q1 2021, subject to a monthly liquidity covenant and other tighter restrictions, including limits on dividends and share repurchases. Marriott reported compliance with applicable covenants.
- Operating cash flow benefited from loyalty-program cash receipts, including $920 million received under amended U.S. co-brand card agreements, as well as working-capital and tax effects. The company suspended dividends and share repurchases pending improved conditions.
Material changes and unusual items
- Gross fee revenue fell 58% in Q3 and 56% year to date, mainly because of lower RevPAR and incentive fees; owned, leased, and other revenue declined 70% and 62%, respectively.
- Marriott recorded $305 million of restructuring charges in the first nine months, including $109 million for global above-property restructuring and $196 million at property level and owned or leased hotels. Additional property-level charges were expected.
- Year-to-date results included $105 million of operating-lease and property impairment charges and a $122 million provision for credit losses, primarily reflecting COVID-related economic conditions.
- The ICO issued a final £18.4 million fine related to the Starwood data-security incident; Marriott did not intend to appeal. The related accrued liability was $23 million at September 30. Further losses from associated litigation and investigations were considered reasonably possible but not estimable.
- In March 2020, a separate incident potentially involved information for approximately 5.5 million guests through an application using franchise employees’ credentials; related lawsuits and investigations are disclosed.
Outlook, management commentary, and risks
Management expected year-over-year revenue declines to continue through the remainder of 2020 and stated that prior levels of business might not return until after 2021. It expected full-year 2020 net rooms growth of 2.5%–3% and capital expenditures and other investments below $400 million. More than 6% of hotels were closed as of November 4, compared with 25% in May. Demand was led by leisure travel; business and group demand had not meaningfully returned. Management cited rising infections and renewed restrictions as risks to recovery.
Marriott reported more than 496,000 rooms in its development pipeline, including approximately 228,000 under construction. It expected COVID-19 to delay openings and reduce new room additions and contract signings. Other material risks include owner and franchisee financial distress, agreement terminations, additional guarantee funding, impairment of goodwill or hotel assets, financing and covenant constraints, and continuing cybersecurity litigation and regulatory exposure. Management believed available cash, the credit facility, and capital-market access were adequate for liquidity needs, while emphasizing that the pandemic’s duration and financial impact remained uncertain.
Investor verification priorities
- Track RevPAR, occupancy, business and group travel, hotel closures, and the pace of recovery by region.
- Verify liquidity, debt maturities, credit-facility covenant compliance, and access to commercial-paper and capital markets.
- Assess the sustainability and composition of operating cash flow, particularly loyalty-program advances and other timing-related cash receipts.
- Monitor further restructuring, credit-loss provisions, impairments, owner support, and guarantee funding.
- Follow the Starwood incident and the separate 2020 guest-data incident, including litigation, regulatory outcomes, insurance recoveries, and potential additional costs.
- Compare actual room growth and investment spending with management’s stated outlook.