Marriott International, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Comparisons are with Q1 2020 unless noted. Marriott operates, franchises, and licenses hotels and related properties, with most revenue generated from management, franchise, and licensing fees.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $2.316 billion | $4.681 billion | Down 51% |
| Net fee revenue | $428 million | $604 million | Down 29% |
| Operating income | $84 million | $114 million | Down 26% |
| Net income (loss) | $(11) million | $31 million | Declined $42 million |
| Diluted earnings (loss) per share | $(0.03) | $0.09 | — |
| Operating cash flow | $27 million | $514 million | Down $487 million |
| Capital and technology expenditures | $30 million | $59 million | Down $29 million |
Operating margin was approximately 3.6% of revenue, versus 2.4% in Q1 2020. The filing attributes the decline in revenue primarily to COVID-19-related reductions in hotel demand and lower reimbursements for centralized programs. Cost reimbursement revenue and reimbursed expenses both fell about 53%; these largely pass-through items are not designed to materially affect Marriott’s economics over time.
Operating performance and segments
- Worldwide comparable systemwide RevPAR fell 46% year over year and 59% versus Q1 2019. Worldwide occupancy rose from 31% in January to 45% in March.
- Greater China led the recovery: comparable systemwide RevPAR increased 77% year over year, though occupancy and average daily rate remained below Q1 2019 levels.
- U.S. & Canada segment profit was $143 million, down 9%; International segment loss was $23 million, compared with a $27 million loss.
- Owned, leased, and other revenue declined 61%; the related net result shifted to a $27 million loss from $8 million of income.
Financial position and liquidity
- Cash and equivalents were $628 million at March 31, 2021, versus $877 million at December 31, 2020. Cash, cash equivalents, and restricted cash totaled $642 million, down $252 million during the quarter.
- Total debt was $10.208 billion, including $822 million current and $9.386 billion long-term, compared with $10.376 billion at year-end. Marriott issued $1.1 billion of 2.85% notes due 2031 and had $400 million outstanding under its $4.5 billion revolving credit facility.
- Long-term debt had a 3.7% weighted average interest rate and approximately 6.6-year weighted average maturity. The current ratio was 0.5 to 1.0.
- Marriott reported $27 million of operating cash flow, $29 million of net cash used in investing activities, and $250 million of net cash used in financing activities. Operating cash flow fell primarily due to the net loss and an unfavorable change in working capital.
- The company said cash on hand, its Credit Facility, and capital-markets access were adequate for liquidity needs. The leverage covenant waiver was extended through Q4 2021, with a monthly minimum-liquidity covenant; Marriott reported compliance with its covenants.
Changes, outlook, and management commentary
- COVID-19 continued to materially depress results. Management cited improving demand in some markets and pent-up travel demand, but said the duration and financial impact of the pandemic remained uncertain. Leisure demand was expected to strengthen into summer; business transient and group recovery was expected to lag.
- For 2021, Marriott expected gross room growth of approximately 6%, or 3.0%–3.5% net of deletions. Its development pipeline totaled approximately 491,000 rooms.
- Expected 2021 capital expenditures and other investments were $575 million–$650 million, including approximately $220 million for maintenance capital spending and the new headquarters.
- Share repurchases and cash dividends remained suspended, and were restricted under the Credit Facility during the waiver period. No shares were repurchased and no dividends were declared in Q1.
- Marriott expected additional property-level restructuring charges. It recorded $19 million of such charges in Q1 and had incurred $268 million cumulatively for property-level programs through March 31.
- As of May 7, 2021, Marriott had received $132 million in Employee Retention Tax Credit refunds and expected another $34 million in 2021. It also expected $106 million of ARPA payments and credits related to continuation of health coverage.
Risks, contingencies, and unusual items
- Key risks include a prolonged or renewed pandemic, weak travel and group demand, hotel-owner and franchisee financial distress, agreement terminations, reduced access to financing, covenant restrictions, and additional impairment charges.
- Marriott reported $275 million of maximum potential future funding under specified guarantees and $138 million of recorded liabilities. Separately, it recorded a $300 million liability for the Sheraton Grand Chicago put option, exercisable by the owner in 2022.
- Litigation and government investigations related to the Starwood data security incident remained ongoing, apart from the resolved U.K. ICO proceeding. Marriott said additional losses were reasonably possible but could not estimate any loss or range beyond amounts already incurred; future legal, regulatory, security, and compliance costs were expected.
- Other notable items included a $127 million accrued liability for eligible former and furloughed associates’ health coverage, partly offset by a $106 million receivable for expected ARPA credits, and a $19 million increase in the allowance for credit losses to $223 million.
Important facts for investors to verify
- Whether RevPAR, occupancy, and travel-demand recovery continue across regions, especially in business transient and group travel.
- Whether Marriott meets its liquidity covenant and manages debt maturities as the leverage covenant waiver ends.
- Actual room growth, pipeline openings and deletions, and capital spending relative to management’s expectations.
- The timing and amount of restructuring costs, tax-credit receipts, and any cash flows passed through to hotel owners.
- Developments in Starwood incident litigation and investigations, guarantee exposures, and the 2022 Sheraton Grand Chicago put option.