Operator:

Good day everyone and welcome to today's Marriott International Q2 2024 Earnings. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Senior Vice President, Investor Relations, Jackie McConagha.

Tony Capuano:

Thanks, Jackie, and good morning everyone. We delivered another strong quarter as travel demand remained robust in most markets around the world. And our net rooms grew by 6% year-over-year. Second quarter global RevPAR rose nearly 5%. Average daily rate increased around 3% and occupancy reached 73%, up about 150 basis points compared to last year's second quarter. RevPAR rose nearly 4% in the US and Canada, benefiting from the shift of the Easter holiday. All chain scales in the US and Canada, from select service to luxury, posted positive second quarter year-over-year RevPAR. RevPAR increased over 7% internationally, led by a remarkable 13% RevPAR gain in Asia Pacific excluding China or APEC. APEC benefited from strong macro trends and increased cross-border travel, especially from Mainland China. Growth in APEC was broad-based but particularly robust in Japan where RevPAR rose 21%. RevPAR grew nearly 10% in the EMEA region with continued strong regional and cross-border demand and about 9% in the CALA region. To date in 2024, the City Express portfolio has meaningfully outperformed the overall Mexican market as well as our own internal RevPAR expectation, and Bonvoy penetration of the hotels continues to improve steadily. RevPAR in Greater China declined roughly 4% in the quarter, as macroeconomic pressures led to softer domestic demand. The region was also impacted by an increase in outbound high-end travelers. Positive RevPAR growth in Tier 1 cities, Hong Kong, Macau, and Taiwan was more than offset by declines in all other markets, with Hainan seeing a meaningful RevPAR decline. Despite the adverse market conditions, we outperformed our peers and gained RevPAR index across the region in the second quarter. Our global RevPAR index, which is at a substantial premium, also rose again in the quarter. As we look ahead to the full year, we are narrowing our global RevPAR range to 3% to 4% growth, largely due to anticipated continued weakness in Greater China, as Leeny will discuss in more detail. On a global basis, in the second quarter, we saw RevPAR growth across all three of our customer segments, group, leisure transient, and business transient, with each segment experiencing increases in both room nights and average daily rate. Group, which comprised 24% of worldwide room nights in the quarter, remained the strongest customer segment. Compared to the year-ago quarter, group RevPAR rose 10% globally. Full-year 2024 worldwide group revenues were still pacing up 9% year-over-year at the end of the second quarter, with a 5% increase in room nights and a 4% rise in ADR. Business transient, which contributed 33% of global room nights in the quarter, saw a 4% increase in RevPAR. Leisure transient, which accounted for 43% of worldwide room nights in the quarter, posted a 2% rise in RevPAR. Within the business transient segment, demand from small and medium sized corporates, which now account for nearly 55% of business transient room nights, has grown significantly over the last few years. Earlier this month we announced Business Access by Marriott Bonvoy, a new comprehensive online booking travel program that we launched to ease and expand the booking experience and travel management process for these customers. While it is still early days, this new offering is already seeing great interest, and we're extremely pleased with the initial account signups and users of the platform, both of which have outpaced expectations. We continue to enhance our powerful Marriott Bonvoy loyalty program, which had over 210 million members at the end of June. We continue to see real success driving enrollments and engagement internationally, in part due to our Bonvoy partnerships with Rakuten in Japan, Alibaba in China, and Rappi in CALA. Member penetration of global room nights rose again, reaching new record highs in the second quarter at 71% in the US and Canada, and 65% globally. Our new collaboration with Starbucks is the latest example of how we're connecting our members with people, places, and passions that they truly love. We also remain laser focused on providing our guests with excellent experiences in our hotels and are pleased with our intent to recommend sports which have continued to steadily rise. Our leading global portfolio continues to grow meaningfully faster than overall industry supply and we added approximately 15,500 net rooms to end the quarter with nearly 1.66 million rooms. Global signing activity has remained strong. Record signings in APEC and Greater China for the first half of the year helped grow our pipeline to over 559,000 rooms around the world. Conversions, including multi-unit opportunities, remain a significant driver of growth as owners continue to value the depth and breadth of our brand portfolio and our powerful revenue engines. In the second quarter, conversions represented 37% of openings and 32% of signings. This conversion activity has been broad based with hotels converting into 23 different Marriott brands over the last 12 months. While still below 2019 levels, we're also pleased with the continued upward trend in monthly construction starts. In the second quarter, construction starts in the US and Canada rose 40% year-over-year. In June, we signed three marquee luxury conversion deals in the US. The renowned, The Resort at Pelican Hill in Newport Beach, California, and The Luxury Collection Hotel Manhattan Midtown have already joined our system. The iconic Turtle Bay Resort in Hawaii is joining the Ritz-Carlton brand today. We are thrilled to welcome these incredible properties as we further extend our global leading position in the high value luxury segment. Our momentum in the mid-scale space is excellent. Developers are showing significant interest in our new brands in the tier. City Express by Marriott, Four Points Express by Sheraton, StudioRes, and our latest transient conversion friendly brand in the US. In CALA, we continue to sign deals for City Express and are engaged in numerous discussions across the region. Our first Four Points Express opened in Turkey and over a dozen hotels from our recent multi-unit conversion deal in APEC are expected to join our system later this year. We're also in talks for StudioRes hotels in over 300 markets and we continue to execute on and pursue numerous types of opportunities, from large development deals to one-off projects. Before I turn the call over to Leeny to discuss our financial results, I want to say thank you to all of our associates around the world for the hard work they do each and every day to advance our business and help connect people through the power of travel. Leeny?

Operator:

Thank you. [Operator Instructions] And we will take our first question from Stephen Grambling with Morgan Stanley.

Leeny Oberg:

Sure. Thanks, Stephen. So a couple of things in that question. One is the reality that when we typically talk about 1 point of RevPAR being $50 million to $60 million in fees, that's assuming that that's equally across all markets around the world and doesn't have any FX impact. And so I think you are clearly seeing with the drop that we talked today that the impact of the change in our outlook for Greater China has a disproportionate impact. When I think about Greater China's mix between base fees and IMFs, it's obviously quite different than it is in the US where you have an owner's priority return. So for 1 point of RevPAR in Greater China, that is typically something more like $3 [million] (ph) in fees, which is going to be more heavily weighted towards IMFs than it would be in the US where it would have a dramatically smaller impact. So I think we really have to look at the geography rather than necessarily just thinking about it as being a half point overall because it is overwhelmingly related to Greater China with just a slight, truly a tad bit lower expectation in the US and Canada.

Leeny Oberg:

Yeah, no, we think you're absolutely right. We believe the algorithm absolutely holds up over time. You do have, as you described, the impact of certain elements changing unevenly. So in this particular situation, it is one market having a potentially large change in expected RevPAR for the rest of the year. But we've talked before about our expectation of fees per key as actually rising over time, especially as we think about also having our rapidly growing non-RevPAR fees. So we're very pleased with those continuing trends and do not believe that the fundamental algorithm is any different.

Operator:

Thank you. And we will take our next question from Shaun Kelley with Bank of America.

Leeny Oberg:

Hey, Shaun.

Leeny Oberg:

Yeah, thank you, Shaun, and you're right. We can point out that kind of an interesting distinction there between Q3 and Q4. With China only being roughly 10% of our rooms, that impact of the lowest quarter in the back half of the year being Q3 doesn't have that much of an impact on Q4. What's going on on Q4 is as we described that we are seeing a bit lower group bookings specifically in Q4 around the election, which is having an impact on the expectations for US and Canada in Q4 versus Q3, though as we described when we look at the entire back half of the year, we do expect to see really a similar sort of RevPAR growth number as you see in the first half of the year. And then on top of that, you've got your other international markets just continuing to normalize. So when I look at the first half of APEC and EMEA and CALA, I would expect that their back half is a little bit lower. And so in that regard, as you move towards Q4, you continue to see additional normalization, although still quite strong RevPAR in those markets. And you put all that together and that's where you get the bit lower outlook for RevPAR in Q4 than Q3.

Shaun Kelley:

Great, thanks. And just as my follow-up just to kind of hit on China specifically, obviously I think you gave us a little bit of the heads-up that this was softening last quarter. The real question, though, I expect we'll get some, is this bleeding it all into the development side, right? The signings and the development side was a highlight for the quarter broadly, but what do you think on the ground there, and is that softness at all starting to impact developer conversations or signing conversations in Greater China?

Leeny Oberg:

And the only thing I'll add is that I think with our continued strength in RevPAR index in Greater China, especially as you see demand softening over the past six months or so, we have seen increased owner appetite for being with the really strong brands that we have and across the full range of brands. So we're really pleased to see kind of from the limited service segment all the way up through luxury, the really strong demand for the brands, including conversions in China, I think really demonstrating that it's frankly in the weaker times that sometimes the brands can prove the most powerful.

Operator:

Thank you. And our next question comes from Smedes Rose with Citi.

Leeny Oberg:

Yeah, sure, Smedes, and yes, I think, I think Maui is definitely still seeing the slowest recovery. You still have the reality that the dollar is very strong, and Hawaii has been always been a very popular place for Japanese travelers. And so we overall in Hawaii, we've still not seen the level of Japanese travelers back in the state. But obviously, the tragedy in Lahaina has clearly had a huge impact on the island. And while we were there with Tony, with the senior team, a couple of weeks ago, and there's been fabulous progress, and it is really coming along well. But clearly still that island in particular is having a slower recovery than the other parts of Hawaii. But Hawaii overall is still feeling the impact of the strong dollar.

Leeny Oberg:

Sure, absolutely. So interestingly, it's the same percentage as a year ago in the second quarter. 26% of the hotels in the US are paying incentive fees in the second quarter. And just as a reference point, in China, in Greater China, we went from 86% to 80%. So you see that really large delta given the structure of the management agreements. Overall for managed contracts for Marriott, we went from 62% paying incentive fees last year in the second quarter to 61% this year. So you can see that in the US it's fairly steady and more limited to certain pockets geographically that weren't quite as strong.

Operator:

Thank you. And our next question comes from Joe Greff with JPMorgan.

Tony Capuano:

Good morning.

Joe Greff:

Good morning. Your gross fee guidance for the full year is lowered by about $50 million to $100 million versus what you gave in May. I was hoping you could break that out between the net impact from China, the election impact in the US, and FX.

Joe Greff:

Great. I think, Tony, your prepared remarks talk about construction starts in the US and Canada of 40% year-over-year. And we're hearing that from others as well. Can you talk about construction starts outside the US, how that has been trending?

Joe Greff:

Great. Thank you very much.

Operator:

Thank you. And our next question comes from David Katz with Jefferies.

Tony Capuano:

Yeah, it is. And I think the short answer is, I don't think it should cause you to think materially differently about our NUG, about the value of our NUG, about our fee structures. MGM was an extraordinarily exciting and unique opportunity to bring two powerhouse sets of brands together and that caused us to be creative on the deal structure. But the vast majority, almost the entirety of the pipeline, fits squarely in our traditional approach to managed and franchise deals.

David Katz:

That's really, really helpful. Can -- while we're on the subject, as my follow-up, could we just touch on the MGM deal and talk about how it's going, any data points or anything like that would be helpful? Thanks.

David Katz:

Excellent. Thank you. Appreciate it.

Leeny Oberg:

Thank you.

Brandt Montour:

Good morning everybody. Thanks for taking my question.

Brandt Montour:

Good morning, Leeny. So I want to talk about group pace for '25. Have you guys seen that pace remain consistent? Has it strengthened or softened quarter-over-quarter? And have you seen any booking hesitation from large groups for '25 in relation to the election and the uncertainty around the election?

Brandt Montour:

That's great, Tony. Thanks for that. And then just a second question on owned and leased. It looks like the 2Q came in nicely ahead of plan and you raised the full year -- maybe just highlight which region stood out there and then the second half outlook for owned and how that squares with your broader sort of shifting in thoughts for that portfolio? Thanks.

Brandt Montour:

Great. Thanks everyone.

Dan Politzer:

Hey, good morning, everyone. Thanks for taking my question.

Dan Politzer:

In terms of the unit growth, certainly pacing well, and you've given a lot of color in terms of both China as well as ex-China. As we think about kind of the exit pace for this year and the setup for next year, to what degree do you have confidence in achieving that 5% to 5.5% CAGR that you laid out at your Analyst Day last year?

Dan Politzer:

Got it. Thank you. And then just, I think, Leeny, you mentioned that leisure is still growing, albeit slowly. Can you maybe unpack that a bit and talk a little bit about the underlying trends there, either by chain scale or booking window or any changes you've seen in that customer base?

Tony Capuano:

And, Dan, just to provide a little more context. I mean Leeny referenced the strength we've seen in leisure. Remind yourself, leisure was the fastest customer segment to recover. And over the last five years, RevPAR and the leisure segment is up 40%. And so to continue to see quarter-over-quarter improvement in leisure RevPAR on the shoulders of that sort of recovery for us is quite encouraging.

Leeny Oberg:

And the last thing I'll say is we do expect for the full year, while it will not be the -- it will be relatively the slower growing segment compared to group and BT, we still do expect it to be up for the full year as well.

Operator:

Thank you. And our next question comes from Bill Crow with Raymond James.

Leeny Oberg:

No, not really. I think one thing that's just interesting is that ancillary spend around the world, US and Canada, and frankly, all of the other regions, ancillary spend was a hair softer than we anticipated. And I think it does show that the consumer in general is perhaps being a bit more judicious about the fancy dinner or going on that extra trip when they're on a vacation. And that is really the only thing. It's not trade down in any meaningful way. And as we pointed out, the resort RevPAR was sturdy. But that's really the only item that I can point to.

Bill Crow:

Yeah. Okay, thanks. If I could just follow up with a quick one about the balance of travel between inbound and outbound international. This was supposed to be the summer where it kind of equaled out and that's not happening. Can you just update us your thoughts on how you see that recovery playing out, especially inbound in the United States?

Bill Crow:

Okay. Thank you.

Ari Klein:

Thank you. Good morning. Going back to China, historically that region has been a sizable outsource of travel demand globally. And based on the commentary, that piece still appears to be largely holding, Why do you think that's the case and is that something you anticipate changing?

Ari Klein:

Sorry about that. Yeah, so just China has been a sizable outsourcer of travel demand globally, and based on the commentary that still appears to be holding. Why do you think that that's the case? And is that something you expect to change given the broader weakness in China?

Tony Capuano:

The only thing I would add are the other catalyst we've seen is the Chinese government has been more and more aggressive in striking visa deals with preferred destinations, removing one more layer of friction for outbound Chinese travelers, especially at the high end. And we're seeing that particularly in our results across APEC.

Leeny Oberg:

No. Overwhelmingly, our pipeline, as you might imagine, is overwhelmingly limited service in any event. And most of the full service deals that we're doing are conversions. So this is quite similar to 2019, where there are overwhelmingly select service new builds.

Operator:

Thank you. And our next question comes from Robin Farley with UBS.

Tony Capuano:

Yeah, it's definitely not churn. I mean we continue to see kind of historic low levels of dropout from the pipeline. I think here in the US, while we're encouraged by that pickup of 40%, you still -- and it's a bit ironic because when you talk to the lenders, often the hospitality component of their commercial real estate portfolios are the best subset of that portfolio. But the availability of construction debt is still relatively constricted to where we were in a pre-pandemic situation. And as a result, we're not back to where we were pre-pandemic in terms of shovels in the ground. Trends are going the right direction, but we're just not all the way back yet.

Tony Capuano:

Yeah. So again, as Leeny pointed out earlier, we're not quite ready to put a stake in the ground on specific guidance for ‘25, but we continue to see conversion volume at 30-plus-percent of both signings and openings. It feels like our momentum in conversions is accelerating, and it's really encouraging to see the way the owner and franchise community is gravitating towards the strength of our revenue engines.

Tony Capuano:

You're welcome.

Patrick Scholes:

Great. Good morning, everyone. My first question, how would you describe your visibility as far as bookings in China as opposed to the US? Even more granular, what would you say the typical booking window looks like for China versus over here? Thank you.

Patrick Scholes:

Okay. Thank you. And then a different topic here. I'm wondering if you could give us an update on your recent trends for spending key money to make development happen. Thank you.

Patrick Scholes:

Okay, thank you for the color.

Operator:

Thank you. And we will take our final question from Michael Bellisario with Baird.

Tony Capuano:

Good Morning.

Leeny Oberg:

Yeah, no. So good questions. I would say the lower ancillary spend is across the board. So a little bit, only a little bit, but a little bit everywhere, both leisure as well as group. And then on the non-RevPAR spend, overall we are still seeing credit card spend go up very nicely. We're still looking at credit card fees being up 10% in 2024. It is the average spent that has moderated a little bit in terms of a typical card holder in the US, but again, only a very, very small amount. And just as a reminder, the ancillary spend is related to credit card spend because obviously people use their credit cards to buy these things, but our ancillary revenues are going to come through the RevPAR line because those are earned at hotels. The non-RevPAR fees are entirely a function of what's going on, obviously, in residential and timeshare and in the credit cards. And that's where, to your point, we're seeing average spend moderate a bit. But again, overall, credit card spend will go out very nicely because we're really pleased with the adding of new card holders to our portfolio.

Leeny Oberg:

Yeah. So as we spoke about before, we are really pleased with the large number of multi-unit conversion deals that we've had under discussion and in some cases closed around the world. So that is great. And then we've talked about specifically in the mid-scale as having over 300 hotels under discussion with multi-unit developers. And we are seeing more of them actually put the shovels in the ground.

Operator:

Thank you. We have used up our allotted time for questions. I will now turn the call over to Tony for closing remarks.

Operator:

This does conclude today's Marriott International Q2 2024 earnings. Thank you for your participation. You may disconnect at any time.

Operator:

Good day, everyone, and welcome to today's Marriott International First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note today's call will be recorded, and I'll be standing by if you should need any assistance.

Jackie McConagha:

Thank you. Good morning, everyone, and welcome to Marriott's First Quarter 2024 Earnings Call. On the call with me today are Tony Capuano, our President and Chief Executive Officer; Leeny Oberg, our Chief Financial Officer and Executive Vice President, Development; and Betsy Dahm, our Vice President of Investor Relations.

Anthony Capuano:

Thanks, Jackie, and good morning, everyone. 2024 is off to a solid start, as Marriott continues to deliver great experiences to travelers around the world. First quarter global RevPAR rose 4.2% with ADR increasing around 3% and occupancy reaching almost 66%, up nearly 100 basis points year-over-year.

Operator:

[Operator Instructions] Our first question comes from Shaun Kelley with Bank of America.

Kathleen Oberg:

So let me answer the latter part first because that's very easy to point out, and that has absolutely no impact on the development front. Matter of fact, as Tony pointed out, we actually had a tremendous quarter of signings in Greater China in the first quarter as well as APAC for that matter. So really excellent continued demand for our brands and from owners there.

Anthony Capuano:

And Shaun, the only maybe qualitative observation I would share with you, and I'll try to underpin it with one statistic. I was there recently. I was in Shenzhen, I was in Hong Kong, I was in Macau. And while it certainly does not feel as balanced and populated with international visitors as maybe we were accustomed to pre-pandemic world, it felt better than when I was there a year ago.

Operator:

Our next question will come from Stephen Grambling with Morgan Stanley.

Kathleen Oberg:

Yes, sure. Absolutely. So again, I'm going to do one of the last ones first, and that is this does not -- this increase in fees does not reflect an increase in the non-RevPAR-related fees. We still do expect really strong growth as we talked about the 9% to 10% year-over-year in those fees, but not an increase in those from our prior guidance. I would say, Stephen, it's about 75% of the increase is from IMF really overwhelmingly essentially entirely from our international markets.

Joseph Greff:

Leeny, in your prepared remarks, you went through the 3 main customer segments going through your full year '24 outlook and you talked about leisure seeing slow but still positive RevPAR growth. I think that was on a worldwide global basis, what baked in for U.S. leisure RevPAR growth for the balance of the year?

Anthony Capuano:

Yes. Not yet, Joe. I mean I think it's so early. We just brought them on the platform. So it's more anecdotal than anything else. My guess is, Bill, and our friends at MGM will talk about it from their perspective as well. But having done these sorts of deals over the years, both parties have expectations about how quickly we'll start to get traction on booking volumes and Bonvoy penetration. And we make some assumptions as we do those deals. And I think it's safe to say from Marriott's perspective, those expectations have been exceeded in the early days.

Charles Scholes:

I wonder if you can talk a little bit about how 2025 and 2026 group revenue pace is looking. Maybe break that out both by occupancy and ADR. Certainly seeing a very good group business this year, but comps do get harder going forward. And I'm curious if you could give us some color on the future years with that segment?

Operator:

Our next question will come from Brandt Montour with Barclays.

Anthony Capuano:

Sure. So maybe I'll go follow Leeny's trend of going in reverse order. I'll talk a little bit about the pipeline and then let Leeny provide some insights on both developer sentiment and construction starts. I agree with your observation. I think the trends on the pipeline are really encouraging. And the thing that was really encouraging to me, if you look at the pipeline and just compare Q1 '24 to Q1 '23, because it's a decent apples-to-apples comparison because neither of those would have had MGM, were up 9% year-over-year on the pipeline. And I think that's reflective of some of the broad trends that Leeny described in her prepared remarks.

Anthony Capuano:

Yes. So certainly, I think that the strength of our luxury footprint is an area where we continue to lengthen our [ lead ]. We're pleased with RevPAR Index and the substantial premium that we enjoy really across the portfolio. I think the one maybe caveat I would give you is that as our scale continues to grow, I don't know that RPI is as informative as it might have been a decade or 2 ago.

Kathleen Oberg:

The only thing I'll add to it is that as we look over time, we are very pleased to see these RevPAR indices really globally and also generally in the -- within the continent at some of the strongest levels that we've seen over time. So I think it's a great sign of the power of Bonvoy and our brands to see that it's kind of consistently some of the strongest numbers that we've seen over time.

Operator:

Our next question comes from Richard Clarke with Bernstein.

Anthony Capuano:

Yes, it's a great question. I think the way I would answer it is to point to the comments I made at the outset about the Bonvoy penetration. It is not a coincidence against the backdrop of the environment you described that we set all-time records for Bonvoy penetration, both in the U.S. and globally. And to me, the strength of the loyalty platform, combined with the breadth of our footprint in the international destinations where our guests want to travel, I think does create a tailwind for us.

Richard Clarke:

Okay. Great. Maybe just as a follow-up on the loyalty comment there. One of your peers has been making I guess, a bit of noise out the fact that they think they will overtake you in terms of total loyalty members. Is that a relevant metric to you? And is any of that tech investment you're doing looking to engage a higher number of customers overall?

Kathleen Oberg:

I think the penetration is, obviously, critically important as you look at making sure that you are helping your customers understand the value of the program and of all the options that they have, whether it be going to 141 countries or actually thinking about things like Ritz-Carlton Yacht and things like the Bonvoy moments that Tony talked about. So a number is a number but I think it's -- it can actually not be a true guide for the power of a program.

Bennett Rose:

I just wanted to ask a little bit more about the trends you're seeing in the U.S. It sounds like you revised your U.S. expectations down a little bit, and it sounds like that's primarily due to the leisure component, maybe more people going abroad staying with your hotel there. And I get that your worldwide RevPAR outlook hasn't changed. But is there anything else you're seeing in the U.S. that you can share that maybe led you to expect a little bit lower coming out here nationwide for the year? Or is it all just because of what you're seeing on the leisure side?

Anthony Capuano:

Sure. No, it's global. And I think while we have a terrific track record of doing conversions across many of the brands in the portfolio, when we find ourselves in an environment like this where conversions are particularly important given some of the challenges in the debt markets. We feel like our transactors are very well armed with brands like the 3 soft brand platforms. So Luxury Collection, Autograph, Tribute. Great examples where they have a level of flexibility, not on quality, but on aesthetic that is particularly appealing to a broad cross-section of the owner and franchisee community.

Daniel Politzer:

Leeny, I think you mentioned that within group, the Fortune 100, you've seen the strongest quarter-over-quarter growth in quite some time. Can you maybe give a little bit additional color in how that maybe compares with the small and medium-sized business customers? And maybe remind us, which typically leads the other within the cycle?

Daniel Politzer:

Got it. And just for my follow-up, I think non-RevPAR fees, they were up maybe 6% in the quarter. I think you had been talking about them being down and credit card fees in there, I think you also said were up. So within that residence and timeshare and other bucket, was there a shift around in terms of the fees there from 1Q to maybe 2Q? Or is there something else that we should be aware of?

Operator:

Thank you. Our next question comes from Bill Crow with Raymond James.

Anthony Capuano:

Yes. That's a fair question. I might have a deeper concern if we were reporting to U.S. & Canada, negative RevPAR. The fact that we were up 1.5% in the quarter, even with the holiday timing impact that Leeny described gives me some comfort. And if you kind of tick through the segments, leisure was flat relative to last year's first quarter, but still meaningfully ahead of where we were back in 2019.

Kathleen Oberg:

I honestly couldn't quite hear the question.

Operator:

Our next question will come from David Katz with Jefferies.

Anthony Capuano:

Of course. I think, David, you and I have had the chance to talk in the past about our overarching growth strategy, and that strategy is really guided by this desire to make sure our portfolio offers the right product everywhere our guests want to travel for every trip purpose.

Kathleen Oberg:

And the only thing I would add is that a lot of this is both market research and conversations with our owners and franchisees. So when you think about the supply that's out there, where supply is growing and where it is not, we definitely believe that there is some great opportunity for us to add more new Bonvoy members, choices for them across the spectrum. And then frankly, also need owner and franchisee demand for Marriott product that allows for conversions in markets that over time may have moved and changed, et cetera.

Operator:

Our next question will come from Robin Farley with UBS.

Kathleen Oberg:

So a couple of things. I think, first of all, the algorithm absolutely works over time. You've got to be careful about looking quarter-to-quarter or kind of really looking at specifics that are happening in a printed number versus what the trend is over time because absolutely, over time, we believe then it proves out well.

Robin Farley:

Okay. And then just a follow-up question on conversions. I don't know what -- I don't know if you broke out the conversion percent outside of the MGM deal. Just sort of looking at the traditional conversions as a percent of total unit growth. I think that your guidance for next year assumes an acceleration in conversions as a percent of unit growth.

Kathleen Oberg:

So just as a reminder, conversions were roughly 30% of our signings this year in the first quarter, and we've got a very strong stream of conversions moving through the pipeline. So no, while we do see tremendous opportunity there, the kind of numbers that we've talked about and talked about last September did not include, assumed expectations, would be from this new brand on conversions. We said roughly 30% of the room adds ex-MGM would be from conversions, and we continue to believe that, but that's not really a change for us over the last couple of quarters.

Chad Beynon:

Two-parter for me on the -- or ahead of the domestic election. I recall last presidential election, there was a little bit of softness in D.C. as people were just kind of out hustling elsewhere. Does that factor into 4Q, should that be meaningful? Or is that meaningless? And then secondly, on that, -- is there anything kind of hinge on the election that you're looking at that could change the outlook in travel based on what you're seeing from the candidates?

Kathleen Oberg:

Right. And generally speaking, I would say we do see that there is a dip in government travel after Labor Day and that group and business transient, obviously, is going to not be traveling during election week. But our forecast incorporates the experiences that we've seen before in presidential elections.

Michael Bellisario:

Question on your owned assets. When might we see some of those hotels get sold, especially international? I think [ they come about ] an improved outlook would suggest maybe the market or at least the transaction backdrop is better there. And if not, could you expand on that? And then secondarily, any CapEx plans next year for the Sheraton in Chicago? Or should we expect a big year-over-year step down in owned CapEx?

Operator:

Our last question will come from Duane Pfennigwerth with Evercore ISI.

Anthony Capuano:

Yes. I think it's a little hard to look at maybe individual industries. Probably the one demand source we're keeping a close eye on is government-related business, which in that tier, is quite relevant.

Anthony Capuano:

Great. Well, thank you again for your participation and interest. We all hope to see you on the road soon. Safe travels.

Operator:

Good day, everyone and welcome to today's Marriott International Q4 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions]. Please note this call is being recorded and I'll be standing by should you need any assistance. It is now my pleasure to turn today’s program over to Jackie McConagha.

Anthony Capuano:

Thank you Jackie and good morning everyone. Our team produced fantastic results in 2023. We continued to experience strong momentum in our business around the world thanks to solid demand for travel and our diverse portfolio of 30 plus leading brands. Full year of global RevPAR rose nearly 15% and net rooms grew 4.7% leading to excellent earnings and cash flow growth. In the fourth quarter global RevPAR increased over 7% year-over-year driven by roughly equal gains in the ADR and occupancy. Group which comprised of 23% room nights was again the standout customer set. Compared to the year ago quarter Group revenues rose 9% globally and 7% in the U.S. and Canada. And Group is shaping up to have another solid year in 2024. At the end of last year, full year 2024 Group revenues were pacing up nearly 13% globally and 11% in the U.S. and Canada on a year-over-year basis, driven by robust increases in both room nights and ADR. Leisure transient accounted for 44% of global rooms nights in the quarter. This segment has by far grown the fastest coming out of COVID. With global leisure transient revenues in the fourth quarter, nearly 50% above the same quarter in 2019. Even with this strong growth, demand has remained resilient. Fourth quarter global room nights rose 5% over the year ago quarter, leading to a 6% leisure transient revenue growth worldwide. In the U.S. and Canada, leisure revenues were up 2%. Business transient contributed 33% of global room nights in the fourth quarter. Demand from small and medium-sized corporates remained robust, and while large corporates are still lagging, they continue to post volume increases. Solid gains in ADR drove business transient revenues of 7% globally and 3% in the U.S. and Canada. Our powerful Marriott Bonvoy loyalty program grew to over 196 million members at the end of the year. Member penetration of global room nights reached new highs in the fourth quarter at 69% in the U.S. and Canada and 62% global. Our digital channels and mobile in particular remain key drivers of growth at a lower cost to our owners. Our Marriott Bonvoy app contributed 22% more room nights in 2023 than in the prior year. We are focused on improving the customer experience across all our digital and other booking channels through the multi-year technology transformation we have underway. Enhancing engagement with our members outside of hotel stays through our numerous successful Marriott Bonvoy collaborations, including our co-branded credit cards also remains a priority. Our growing portfolio of 31 credit cards across 11 countries had record global card member acquisitions last year, and card spend for the year grew 11%. On the development front, despite a challenging financing environment in the U.S. and Europe, we signed a record 891 organic management, franchise, and license agreements in 2023, representing approximately 164,000 rooms. Additionally, we ended the year with a new high of roughly 573,000 rooms in our pipeline. We expect another year of strong global signings in 2024 and are already off to an incredible start. We also saw a meaningful acceleration in net rooms growth last year to 4.7%, the highest growth since 2019. Conversions helped again in 2023, accounting for 25% of organic room additions and 40% of organic room signings. For 2024, we anticipate net rooms growth of 5.5% to 6%. This includes around 37,000 rooms from MGM. The first set of these rooms at New York, New York became available on our Marriott channels at the end of January, with the remaining properties expected to be available by the middle of March. While it is very early days, we are incredibly pleased with the initial booking pace. We're excited about adding these amazing properties to our portfolio and enhancing our distribution in Las Vegas and other cities across the U.S. We remain confident in the three-year net rooms compound annual growth rate we discussed at our investor meeting in September of 5% to 5.5% from year-end 2022 to year-end 2025. As we focus on expanding our lodging offerings for owners, franchisees, and guests, we're making significant progress globally in the high-growth, mid-scale space. We are in numerous deal discussions for Citi Express in the Caribbean and Latin America, or CALA region, and for Four Points Express in Europe, the Middle East, and Africa. Here in the U.S. we celebrated the first groundbreaking for StudioRes in Fort Myers, Florida in January and have over 300 additional potential deals under discussion in around 150 markets. As we strive to offer more options for our stakeholders, we're also working on a new U.S. transient mid-scale brand for both new build and conversions. At the other end of the chain scale, our luxury distribution is currently over 50% larger than our next closest competitor and that lead is expanded. In 2023, we have record luxury signings with 58 new deals and we added 29 new luxury hotels to our portfolio. In closing, 2023 was a banner year for Marriott, and I am optimistic about what lies ahead. The demand for all types of travel remains strong, even as the rebound impact from the pandemic has waned. The fundamentals for our industry are outstanding, and we are determined to grow our industry-leading position. We remain focused on offering the best brands and experiences to the most valuable and engaged guests while expanding the broadest and deepest portfolio of global properties and offerings so we can continue to connect people around the world through the power of travel. I want to thank our Marriott teams around the world for their remarkable dedication and excellent work. And now, let me turn the call over to Leeny to discuss our financial results in more detail.

Operator:

Thank you. [Operator Instructions]. Now we'll take our first question from Joe Greff with J.P. Morgan. Your line is now open.

Leeny Oberg:

Yeah, sure. So it's really a modest amount of G&A but it's just worth noting in the year-over-year comparison in Q1, that as we expect all of those hotels to transition on to Marriott systems that will all be done in Q1. When we think about the same contribution, as we've talked about before, Joe, they will be coming on in Q1 and we expect that business to ramp up over the year. And there's not a particular number that I would give you now, but just a reflection that it is related to a percentage of the hotel revenue that fits into our franchise fee model as a result of a license agreement over the year.

Leeny Oberg:

Yeah, no, no, it's a good clarification question, Joe. That 500 million is cash out the door and we would expect that to occur in Q4 of 2024. But to help you understand what we're really considering capital investment, we wanted to clarify to say that 200 million of the 500 million relates to the purchase of the underlying land on the Sheraton Grand Chicago. And so that is in CAPEX, while the rest reflects a liability that we established on the balance sheets, frankly, years ago as part of the overall transaction. So it does obviously impact our available cash for the year, but it is in there. And when you think about unidentified capital expenditures in that number of the 1 to 1.2, which really is quite modest.

Operator:

Thank you. Your next question is from Shaun Kelley from Bank of America.

Anthony Capuano:

Oh, of course. So, as we mentioned in the prepared remarks on the heels of a record signings year, it's more anecdotal than anything else. But in terms of deal volume through the first month of the year it's really encouraging. And we're seeing strong momentum both on submissions for new build projects around the world as well as continued really encouraging momentum on the conversion side. In terms of the environment coming out of the Alice, I'm going to ramble here a little bit, because I think there are both some positives and negatives that we heard from the owner and franchisee community about their expectations for 2024. On the positive side of the ledger, as you point out, there is a sense that there will be continued relief on the interest rate side as we get in particularly the back half of 2024. There is an expectation maybe in parallel, but the hotel transaction market will start to be a bit more active in the back half of the year as well. And while there is still admittedly some gap in the bid and the ask between sellers and buyers, it feels like that gap is continuing to narrow, which will likely lead we expect to a little more active transaction environment, which has always historically been good news for us on the conversion front. When you pivot to the more challenging side of the ledger, you do still have lenders thinking about compliance with proposed regulatory environment that will perhaps impact their ability to really open the faucet in terms of the amount of debt to date and debt financing that they make available for new construction. But there again, it's one of the reasons we're so enthusiastic about our entry into midscale. When we talk to our franchise partners on the midscale front, they feel like the size of those commitments is something that they're going to have a decent measure of success in procuring debt. And then the last thing I would remind you is the obvious debt, while we stayed very focused on the availability of debt and its impact on our growth trajectory, that is largely a U.S., Canada, and Western Europe attribute. When you look at the pace of growth we're seeing across Asia Pacific, across the Middle East, that growth does not seem to be particularly impacted by the ups and downs, the availability of debt. I think you also had a question about construction costs and so maybe I'll expand my answer a little bit. When we think about potential impediments to growth, the availability of debt is the one that I think we're most focused on. Supply chain issues, which we were talking with you about a year ago, are not nearly as severe as we saw several quarters ago. Construction costs have come down a little bit and they're rising year-over-year at lower rates than we saw a year or two ago. So on that front, I think we're pretty encouraged. But it's really the ability to source debt for new construction is the area that Leeny and the team are most focused on.

Operator:

Thank you. We'll take our next question from Smedes Rose with Citi. Your line is now open.

Leeny Oberg:

Yes. No, thanks Smedes very much. No, I appreciate that. Yes, tax rate is probably the biggest item when you think about it. First of all, just remember that in 2023 there is the reality of this extra termination fee. So when you look at year-over-year growth, that then impacts how you look at 2024 over 2023. And so if you adjust out for the odd balls of both the litigation reserve and the performance, the termination fee, and you take into consideration that we've got probably about a one point higher book tax rate, and I do emphasize it's a book tax rate rather than cash. Our cash tax rate is essentially staying the same, thanks to the great work that the team has done in working through our global tax planning. But when you look at it from a book perspective, it's about a point higher overall. And you put those together and you can do your math there, and that is where you then get to something that looks from an adjusted EPS that looks on 2024 that looks close to double digits.

Anthony Capuano:

Yes, of course. So really, my comment was that, let me break it down into two buckets. When I talked about business transient, the small and medium sized corporates, the demand coming out of those groups continues to be quite robust. And my comment about large corporates lagging is really sort of in reference to a pre-pandemic environment. But with that said, we continue to see incremental growth even coming out of the large corporates quarter-over-quarter.

Smedes Rose:

Great, thank you, appreciate it.

Richard Clarke:

Thanks very much for taking my questions. Maybe just one on the SG&A cost. You gave some color on why it was a little bit higher. But just wondering whether you can just do the bridge from the 255 guidance you gave at Q3. What wasn't anticipated there, was it this IP restructuring, and why did that suddenly happen in Q4, and maybe some color on the bad debt, is there anything to read across from that as well?

Richard Clarke:

Okay, that makes sense. Maybe if I can just ask a follow-up. Just with the CMD you gave a RevPAR guidance for the two-year stack of 3 to 6, net unit growth guidance of 4 to 5. Obviously, both of those are going to have to accelerate into 2025 to kind of get to the midpoint. Is that what you're anticipating, that there are drivers to get RevPAR and acceleration in 2025?

Leeny Oberg:

And just a reminder that when we go through the process, a lot of what we're trying to do at the security analyst meeting is to help you understand a range from a modeling perspective, and it's done before we go through the budgeting process. So actually, as you know, we ended up with a really strong year in 2023. And when we look at it overall from a growth in our hotel revenue system, we're right where we would have expected to be and very pleased about the demand that we're seeing both on the arc [ph] and rate side as we look into 2024.

Anthony Capuano:

Thank you.

Stephen Grambling:

Right, good morning. I know you touched on the introductory remarks, but could you help us bridge the gap from thinking about room growth and RevPAR growth versus the gross management franchise fee growth, I mean, essentially, is this a mismatch that should continue beyond 2025 due to what you see in the pipeline or is it more to do with the MGM contribution and how that may ramp?

Stephen Grambling:

Great. And maybe one other quick follow-up to the last question, which was around the Investor Day in September. I guess just very, very big picture, what's changed from then to now as we think about that multiyear algorithm?

Anthony Capuano:

And I might just build on that a little bit. And as for those of you that have been covering us for a long time, you know there's a phrase that guides almost everything we do. That phrase being success is never final. And while we are very encouraged by the continued improvement in the G&A ratio, you can rest assured that as a principal focus area for the senior leadership team, with an eye towards continuing to improve that efficiency.

Operator:

Thank you. We'll take our next question from Chad Beynon with Macquarie. Your line is open.

Leeny Oberg:

Sure. So let me comment on a couple of things. First of all, when we think about special corporate rates, you've heard us talk about kind of continued building of that demand. And while it's not back to 2019 levels, it is continuing to at the margin grow a little bit faster. And we had high single-digit growth rate in that segment in 2023, and we're looking at strong mid-single-digit rate growth in that segment in 2024. So that is absolutely -- as you look at that, plus the group strength, which when I think about the group pace of that 11%, I would say, between rooms and ADR, that is probably two thirds, one third rooms and ADR. So you're still seeing some very nice growth there. So clearly, the premium segment is, I think, going to be the biggest beneficiary of that increase in demand. On the select service side, you saw that segment really come out of COVID the fastest and one that has moderated, as you've seen towards the end of this year. We would expect that to be Steady Eddy, but not really get the benefit of some of the things that I just mentioned. And then we continue to expect to see luxury continue to do really well. And so there is opportunity there, both on the rate and OCC side. But I think the two areas I mentioned before are probably the ones to highlight as you think about the tiers.

Chad Beynon:

Thank you, appreciate it. And then just a housekeeping, IMF at the end of the year, North American properties, what percentage were payers during the year maybe versus peak?

Chad Beynon:

Yes, year unless the exit rate is massively different.

Chad Beynon:

Great, thanks for all the details. Appreciate it.

Brandt Montour:

Hey, good morning everybody. Thanks for taking my questions. So, maybe for Tony. Just curious in terms of the development momentum going on in the ground in China today, what's sort of baked into the guidance in terms of China openings or maybe you could answer it qualitatively, has that market opening momentum changed now versus three or six months ago?

Brandt Montour:

Okay. That's encouraging. Go ahead.

Brandt Montour:

Okay, thank you for that. And then just as a follow-up also on development, just a longer-term question, sort of thinking about reflecting back on 2023 as a year where capital formation and debt financing was harder to come by and that sort of weighed on U.S. new hotel starts. Is this -- do you think we'll be looking back on 2023 when we get to sort of 2025 or 2026 and be talking about something of an air pocket in terms of new hotel openings because of 2023 or do you think it's not as meaningful and there's other things that will offset, how do you think about that when you do your longer-term planning?

Anthony Capuano:

And I might just build on that comment about mid-scale. It's -- Leeny and I tend to climb over each other with enthusiasm to talk about mid-scale. We think there's a tremendous market opportunity from a demand perspective. There is a deep appetite from our franchise community. We think the cost of developing mid-scale will help our partners navigate what is still a challenging financing environment. And the other thing that is exciting to us, you'll recall the last number of quarters, in select service broadly, we talked about a lengthening of the construction cycle. Leeny and I were both down in Fort Myers putting a shovel in the ground for the first StudioRes. And our partners there talked about an expectation of opening that hotel in at most 13 months with an eye trying -- towards trying to get it open in 12 months. And so the ability to get mid-scale deals signed, shovels -- financed, shovels in the ground and open more quickly than what we've seen with a lot of other tiers in our portfolio, is another factor in our enthusiasm for our entry into midscale.

Operator:

Thank you. We'll take our next question from Kevin Kopelman with TD Cowen. Your line is now open.

Anthony Capuano:

Yes. So Leeny and I were both in Las Vegas this past weekend for Super Bowl, and so I'll make a couple of comments. Number one, when you look at the vibrancy of that market, you look at how effectively the city was able to accommodate an event like that. You likely heard the NFL Commissioner talking about how anxious the league is to get back to Las Vegas. I think both of us left the market really enthusiastic about what this partnership is going to offer our guests around the world and our Bonvoy members. In terms of your specific question, as we talked about when we announced the transaction, it is a creative opportunity for us where I think you will continue to see lots of activity for us is in traditional conversions, but in the category of multiunit conversions. You heard us a quarter ago talk about a terrific multiunit conversion in Vietnam with a partner called Vinpearl, and our teams around the world are actively working on a number of multiunit conversions. To the extent, a unique opportunity like MGM presents itself, I think we'll roll up our sleeves and see if we can make sense of it. We're really excited about what MGM does for Bonvoy and if those sorts of opportunities present themselves, we are certainly open to pursuing.

Operator:

Thank you. We'll take our next question from Michael Bellisario with Baird. Your line is now open.

Leeny Oberg:

Well, some great questions. And as we have said for a long time, we've been very consistent in our message about really always being willing to entertain the way that we grow. We have grown very successfully, both in terms of tuck-in brand acquisitions as well as growing organic new brands, and growing that way around the world. We will continue to do that. We also are going to stay very price disciplined in terms of looking at both the price that you would be paying for the existing distribution as well as for the growth opportunities. We are really aware of looking at where something could add something unique to our portfolio, whether it is in a certain part of the world, as we did with the City Express deal, that really was a tremendous way for us to enter the mid-scale space in a really attractive market like Mexico, at an absolutely reasonable price. So I think in that regard, you got to look at all the elements. And what's out there, as you know, depends very much all the sellers' expectations of what they're looking for. I would say that, over time, we hope to see that those opportunities continue to be there and that we're going to remain as disciplined as we have before in looking at them.

Michael Bellisario:

Got it, that's helpful. And then just one quick follow-up on midscale. What's the owner profile there look like, thinking about the mix of existing Marriott franchisees versus new owners, and would you expect that mix to be similar for the new brand? Thanks.

Operator:

We'll take our next question from David Katz with Jefferies. Your line is now open.

Anthony Capuano:

Sure. So conversions have always been an important part of our growth story, in a climate where the debt markets for new construction are somewhat constricted, the importance of conversions is elevated. As we talked about in the opening, really compelling numbers in 2023 with 25% of our openings and 40% of our signings in the conversion category. They are coming in terms of type of project, pretty typical of what we've seen over the last number of years. A good mixture of conversions from other brands and with such a compelling stack of soft brands with Luxury Collection, Autograph, and Tribute. Lots of conversions coming from the world of independents as well. From a geographical perspective, not necessarily a shift in strategy, but we are seeing in, for instance, some of the Asia Pacific markets, which historically had been disproportionately new build, we are seeing some uptick in conversion activity. Our pursuit of conversion opportunities is quite deliberate, and it's resulting in deals like the one I mentioned earlier in Vietnam.

Patrick Scholes:

Hi, good morning everyone. I want to drill down a little bit on the credit card fees. It looks like you're expecting a big step-up in, if I understand it correctly, a step up in growth rate for 2024 which actually, I think you said 9% to 10%, which if I'm correct, is a little bit lower than the Investor Day of 12%. But specifically with that step up, are you expecting that from primarily new card sign-ups or more so from sort of same user spend? Thank you.

Operator:

And we will take our next question from Robin Farley with UBS. Your line is now open.

Leeny Oberg:

Sure. So let me -- I'm going to do the last question first, and then, at some point, Tony, feel free to jump in to add more color. But let's first talk about Delemex [ph], which we're really excited about our relationship there, where there is a terrific large hospitality company in China, and we're looking forward to having the opportunity to convert a number of hotels. And we actually didn't give a time frame. So it would just be as part of our normal growth in China and as we look at our overall rooms growth, so there's not a particular kind of specific sort of 10, 20, 30, 40 basis points associated with the conversion of a number of those hotels into tributes. We are again really excited about working with them on the opportunity, but it's just part of our overall rooms growth. As I said, the signings that we're seeing in Greater China are very encouraging both in 2023 and as we move into 2024. That's really in addition to what you're talking to about the Delemex [ph] deal and that is where I talked about the rooms growth in Asia in the high single digits, which again is just a great reflection of the desire for our brands. When you ask about the basic CAGR for rooms growth relative to the Security Analyst Meeting that we made in September, I think you really have to kind of go back to what Tony said in his earlier comment, is that these deals can be lumpy, whether it's City Express, whether it's MGM, whether it's a large conversion deal that we do. And so you really need to think about the numbers that we gave that were 5% to 5.5% for the three-year CAGR, which we continue to be really confident and excited about. We ended up a little bit higher on our net rooms growth in 2023 than the 4.2 to 4.5 range that we gave. And that's really a reflection of the steady strong demand for our brands. So that then when we look at the MGM and the continuation of turning these rooms from our pipeline into openings, we actually see it as being essentially the same as where we were back at the SAM [ph]. And then again, you have to kind of be looking at it not solely within the context of one year.

Operator:

And we have reached our allotted time for questions. I would now like to turn the call back over to Tony for any additional or closing remarks.

Operator:

This does conclude today's conference. Thank you for your participation. You may disconnect at any time.

Operator:

Good day, everyone and welcome to today's Marriott International Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, today's call will be recorded and I'll be standing by if you should need any assistance. It is now my pleasure to turn the call over to Jackie McConagha. Please go ahead.

Tony Capuano:

Thanks, Jackie. Thank you all for joining us today. We recorded terrific third quarter results this morning. Global demand for travel has remained strong and worldwide RevPAR of the quarter rose 9% versus 2022. RevPAR increased over 4% in the US and Canada and 22% internationally, driven by significant gains across Asia Pacific. Robust RevPAR growth, combined with nearly 5% year-over-year rooms growth, resulted in adjusted EPS of $2.11, up 25% from 2022. The third quarter tends to see a seasonally higher level of leisure transient travel, which accounted for 45% of global room nights during the quarter, about 4 percentage points above the first half. Globally, demand in this segment was, again, quite strong, with room nights up 7% over the 2022 third quarter, leading to 9% leisure transient revenue growth. In the US and Canada, leisure revenues rose 4% from the year ago quarter, even as many domestic guests traveled to international locations, particularly in Europe and Asia Pacific. In the third quarter, leisure room nights from US and Canadian guests traveling outside the region were up nearly 25% over the last year when cross-border travel was still constrained by COVID-related restrictions. Business transient demand accounted for 32% of global room nights in the quarter, while certain industries like technology and finance saw nice sequential improvement in demand during the quarter. The overall growth per segment remained slow and steady, with business transient revenues rising 4% versus 2022 in the US and Canada. Global group room night-share stood at 23% in third quarter. Compared to the year ago quarter, group revenues rose 9% globally and 5% in the US and Canada. The performance of group coming out of the pandemic has been remarkable, and the segment is expected to continue to be a meaningful driver of revenue growth going forward. In the US and Canada, fourth quarter 2023 group revenues were pacing up 12% year-over-year at the end of September, leading to full year group revenue pacing up 19%. Of course, we have the most visibility in the group, given the longer booking windows. We're very pleased that as of the end of the third quarter, US and Canada group revenue on the books for 2024 were pacing up 14% versus 2023, driven by a 9% rise in room nights and a 5% increase in average rates. Cross-border travel continued to strengthen, helping drive RevPAR growth in the third quarter. Asia Pacific, again, saw the most meaningful quarterly increase in international visitors, aided by global events like the Women's World Cup and improved airlift. The percent of global room nights from cross-border guests was about 1 percentage point below 2019 levels of approximately 20%. The most upside is still expected to come in Asia Pacific as international airlift to China improves. International airlift in Greater China was roughly 50% of 2019 capacity at the end of the third quarter and is expected to improve to around 60% by the end of the year. Turning to our powerful Bonvoy loyalty program. We remain focused on driving membership and fostering engagement with our 192 million members. Through our multi-year company-wide digital and technology transformation, we are increasingly leveraging the power of our more modern platform to create more seamless, engaging digital experiences for our members. Adoption of our Marriott Bonvoy mobile app, which has become the channel of choice for the majority of our lead members, continues to grow, with third-quarter app downloads increasing 19% versus the same quarter last year. We also continue to drive engagements for our Bonvoy collaborations, including Uber, Eat Around Town and our co-branded credit cards, which are currently in 11 countries. We're very excited about the opportunities our Bonvoy customers will receive from our MGM strategic licensing arrangement, which is now expected to launch in early 2024. As we think about our net rooms growth, full year 2023 growth is now expected to be 4.2% to 4.5%, higher than our previous expectation, excluding the additional 37,000 MGMs. The MGM timing shift does not impact the three-year net rooms growth CAGR of 5% to 5.5% through 2025, that we lay down in our financial model at our September Analyst Day. We are pleased that over the next few years, our net rooms growth is anticipated to be squarely in the mid-single digit range. During the quarter our pipeline reached a new record high of nearly 557,000 rooms, a record even excluding the MGM rooms. Strong interest in conversions continues, including multi-unit opportunities. Conversions represented 20% of signings and nearly 30% of openings in the quarter. As we outlined in our Analyst Day, we are very excited about the global opportunity for mid-scale. We have real momentum with the Citi Express brand in CALA, Four Points Express in Europe, and StudioRes in the US, with terrific interest across the development community. We already have 10 signed letters of intent for City Express in CALA, nine of which are in new countries for the brand, four signed deals for Four Points Express in Turkey and in London. And we're in numerous additional discussions for both brands. And while we just recently issued the franchise disclosure documents for StudioRes, we are already in talks for deals in over 300 markets across the US. We expect there will be shovels in the ground for StudioRes projects in the next few months. As a global company, we are keenly aware that we are living in a time of highly geopolitical tension. We are heartbroken by the devastating loss of so many innocent lives in the Israel-Hamas conflict. Our thoughts are with everyone impacted by this tragic war, as well as the ongoing war in Ukraine, and we remain hopeful for peace. I will now turn the call over to Lee to discuss our financial results in more detail.

Operator:

[Operator Instructions] Our first question comes from Shaun Kelley with Bank of America. Please go ahead.

Tony Capuano:

Sure, Sean, I'll try to talk maybe macro and then I might ask Leeny to chime in with some perspective on the financing climate, particularly here in the US and maybe some perspective on Europe, because those tend to be the two markets where our development partners rely most heavily on, conventional debt financing and the markets where we're seeing the most constriction in the availability of financing for new construction. With that said, the ebb and flow of under-construction is both good and bad, right? As hotels open and we had a good quarter of openings. You see under-construction hotels leave the pipeline, because they enter the system that’s opening hotels, and that's good news for us. We have talked over the last couple of quarters about, albeit a steady increase in the number of construction starts, which is good news for us, but that constriction in the debt markets that I talked about, precluding us from getting back to where we were pre-pandemic in terms of the pace of new construction starts, particularly here in the US. At the same time, we are encouraged by the continued increase in the pace of conversion activity, both on individual conversions and portfolio conversions. And I think it's that increased pace, coupled with a steady improvement in construction starts that gives us confidence in reaffirming the multi-year net unit growth numbers we shared with you last month during the Security Analyst Conference. And maybe with that, I'll ask Leeny to just give a little more color on the financing environment.

Shaun Kelley:

Thank you very much.

Jackie McConagha:

Are you on mute, Joe? All right, let's go to the next question.

Stephen Grambling:

Hey there, can you hear me?

Stephen Grambling:

Good morning. I would love if you could put a little bit more meat on the bone for the 2024 RevPAR commentary, specifically if you can give any color on how you are thinking through North America versus other regions? And how these assumptions may impact incentive management fees or other fees in the next year? Thank you.

Stephen Grambling:

Helpful. Thanks so much.

Smedes Rose:

Hi, thanks. Given those comments you've made with sort of like a kind of a peak into 2024. I just wanted to ask you about maybe how we should think about capital return? Is it fair to assume that you would try to reach at least level seen in this year and maybe more, given cash flow and the average level still remain below longer-term targets?

Smedes Rose:

Great. Okay. Thank you.

David Katz:

Good morning, and thank you for taking my question early. I appreciate it. I wanted to ask something a bit more strategic because there's been so much noise around the lower end chain scales and the competitive landscape there, and the competition for conversions, and the launch of new brands, etc, that we've all heard. I'd love to talk about your strategy and where you are focusing more of your resources competitively. And is that just based on the assets that you have, is that strategic thought? Where are you putting more of your attention into your growth?

David Katz:

Thank you. Am I permitted to follow up? I would ask about the midscale stuff just to be clear that you're not finding -- you're not finding that you have to do more either in hard and soft cost in order to capture deals there and the competition level is not intensifying meaningfully or noticeably there at all, right?

David Katz:

Perfect. Thank you all so much.

Operator:

Thank you. Our next question will come from Robin Farley with UBS. Please go ahead.

Leeny Oberg:

Sure. So thanks, Robin. As we talked about in our comments and at the Security Analyst Meeting, I think when you've got a deal like MGM or City Express, things can be a little lumpy in terms of the specific year-over-year rooms growth. And so, I do think it's much more important to be looking more broadly at the two to three year CAGR sort of numbers. And there clearly with the 2.4% higher room count as a result of MGM, that's obviously going to help 2024's number a lot. And you saw that our 2023 number came down, although it actually went up apart from MGM compared to a quarter ago. So I think the main thing I would focus on is that, we continue to feel really good about the 5% to 5.5% net rooms growth over the 2022 through 2025 time period. And we will obviously, as we get to full budget details, when we get to February, we'll be more specific. But I think, again, the basic earnings equation and growth model of the company is exactly as we described in September at the Security Analyst Meeting.

Leeny Oberg:

Again, as I described, we have talked about continuing to feel very confident about the three-year 5% to 5.5% and are pleased to see the 2023 number move up a quarter of a point compared to a quarter ago. But we are in the middle of that process as we speak and we'll be able to be more specific when we get to February.

Operator:

Thank you. We'll take our next question from Richard Clarke with Bernstein. Please go ahead.

Leeny Oberg:

You're a little muddied on the actual call. So -- on some of your words. So, let me try to see what I can do with what you asked. On -- let's just talk, broadly speaking on IMFs, which is to say that, overall for the company we are up meaningfully in US And Canada year-to-date Q3, $194 million compared to $167 million -- sorry, to $221 million for the full year in 2022. So I would say we're going to end up higher and meaningfully higher than in 2019. And we were impacted as we talked about from the Maui fires in our IMFs by close to $10 million, which obviously are going to impact our IMF. So when I think about the percentage of hotels that are earning incentive fees in the US and Canada, we had, let's see, year-to-date, US and Canada is 31%, and that compares to year to date in 2022 of 26%. And so I think from that standpoint, we're really pleased with the margin work that's been done in the US and frankly around the world. The only other thing I'll point out is that, IMS for the year at $537 million year-to-date are higher than IMS for the full year in 2022 already, just through three quarters. So again, the margins there I think show really well. Was there a second question?

Richard Clarke:

That was my question. Thanks very much for clarifying.

Operator:

Thank you. We'll take our next question from Chad Beynon with Macquarie. Please go ahead.

Leeny Oberg:

So I'll talk about a couple stats and then Tony may want to add anything kind of from a more broad perspective. Just one thing that's worth noting is that, group is back to being about the same percentage of our business that it was pre-COVID. So very squarely, almost a quarter of the business is related to groups. So I think you are seeing it normalizing there. And the numbers that we've talked about in US and Canada of 14%, that's obviously on a business that is really settled down into more normal seasonal pattern rather than still having lots of revenge travel. I think one of the interesting things is there, while some of the special corporate business has not returned in exactly the same form that it was pre-COVID, I think there is also the reality that companies are recognizing the value of getting together and are doing it in groups, maybe not in quite the same way they were doing some business transient. So, when you look at the overall proportion of the business, it is really leisure and business transient that was swapped a little bit, while group remains quite consistent to the way it was pre-COVID.

Chad Beynon:

Thank you very much. Appreciate it.

Michael Bellisario:

Thank you. Good morning. I just want to dig into group a little bit more. Could you maybe pull out corporate group meetings and incentive travel? And are you seeing the same strengths there? Is there any change maybe in the booking window that reflects some more of the layoff announcements that we've seen recently more broadly? Thank you.

Michael Bellisario:

Thank you very much.

Bill Crow:

Good morning. Thanks. Tony, there's a difference between normalization in leisure demand and the consumer weakening? And I guess given your broad scope across price points and globally, where are you seeing the consumer weaken?

Leeny Oberg:

The only thing I would add is that, if this trend around experiences versus goods, which we continue to see a really positive element of demand. So whether it is for music concerts or professional sports games or for youth athletics or all of those pieces of people's lives, that continues to be a great driver of demand for travel and really is quite global. So again, kind of a realization on the part of people that travel is a fundamental part of life and one that is very much appreciated.

Bill Crow:

Great. Thank you very much.

Conor Cunningham:

Hi, everyone. Thank you. I just wanted to talk a little bit about your expectation for a recovery in large managed corporate. You talked about solid gains in lagging industries in the third quarter. Just curious on how your long-term expectation has changed on large manage? I realize that small and medium has been quite strong, but is a full recovery in large manage still possible at this point? Thank you.

Conor Cunningham:

Okay. I appreciate it. Thank you.

Meredith Jensen:

Good morning. I was wondering if you could discuss a little bit about partnerships like Rappi? And if that kind of collaboration might be a model for additional partnerships that we'll see going forward? And any color you could give to that and how that might compare to others? Thanks.

Meredith Jensen:

Great. Thank you.

Operator:

Thank you. At this time we have no further questions in queue. I'll now turn the call back over to Tony Capuano to close this out. Please go ahead.

Operator:

This does conclude today's call. We thank you for your participation. You may disconnect at any time.

Operator:

Good day, everyone, and welcome to today's Marriott International Q2 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session period. [Operator Instructions] Please note, this call may be recorded. I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Jackie McConagha, Senior Vice President of Investor Relations. Please go ahead.

Tony Capuano:

Thanks, Jackie, and thank you all for joining us today. Our terrific second quarter results demonstrate the strength of global lodging demand and the success of our growth strategies. I've experienced a robust demand for lodging firsthand as I've been on the road a lot this year and have had the privilege of visiting every one of our regions. It has been wonderful to spend time with our team of hard-working and dedicated associates at properties around the world and to see how quickly global travel has rebounded. Second quarter worldwide RevPAR rose 13.5% versus the 2022 quarter, led by another quarter of meaningful recovery in Greater China. Less than two quarters after travel restrictions were lifted, RevPAR in Greater China has now surpassed 2019 levels, primarily due to the surge in domestic demand. Worldwide occupancy in the quarter reached 72%, five percentage points higher than the year ago quarter. With our unwavering focus on maximizing revenues, global ADR grew 6% year-over-year. Global leisure demand and ADR remained robust. Second quarter leisure transient room nights and ADR each increased 5% year-over-year, yielding 10% revenue growth. In the US and Canada, leisure revenues rose 1% above last year's sensational second quarter. Demand in this market has been stabilizing on a year-over-year basis with travelers from the region increasingly taking vacations overseas now that pandemic-related travel restrictions are behind us. Leisure room nights from the US and Canadian travelers jumped 90% in Asia Pacific and over 20% in Europe compared to the same period last year. The group segment had another great quarter with revenues in the US and Canada growing 10% year-over-year, driven by both rate and occupancy. Group revenues are expected to remain strong going forward. At the end of June, group revenue for the back half of 2023 was pacing up 11% to last year. Meeting planners are beginning to book further out, a trend we're also seeing with transient customers. Group revenue for full year 2024 was pacing up 14% year-over-year at the end of the quarter, an improvement from up 9% just three months prior. Recovery in business transient demand remained slow, but steady with demand from our top corporate accounts progressing modestly in the quarter. In the US and Canada, ADR again rose nicely compared to 2022, thanks to high single-digit special corporate rate increases. This led to business transient revenues rising 12% year-over-year. Overall, cross-border travel demand also rose again in the quarter, primarily driven by an increase in international visitors to the Asia-Pacific region. The percent of total room nights from cross-border guests is now roughly one percentage point below 2019 levels of approximately 20%. Prior to the pandemic, international visitors accounted for nearly one quarter of room nights in Greater China. With the region's international airlift still only around 40% of 2019 capacity at the end of the second quarter, we believe there is still meaningful growth opportunity in and from Greater China. We remain keenly focused on strengthening our powerful Marriott Bonvoy loyalty program, which has over 186 million members. To further build engagement, we continued to enrich the platform with an enhanced booking experience, more choices for customers, and complementary products that drive more value and capture share of wallet, such as our co-branded credit cards and travel insurance. Our international credit cards had a record quarter, driving global card acquisitions up 25% and global card spend up 10% versus the year ago quarter. We are increasingly leveraging technology to enhance the guest experience, to drive profitability for our owners and to simplify processes for our associates. As we've mentioned previously, we are in the process of a major global transformation of our digital and core technology. We will be launching new reservations, loyalty and property management platforms over the next several years and look forward to the numerous capabilities these new systems will offer our key constituents. As we focus on paths for growth, we are adding new offerings and experiences in segments where we believe there is strong consumer interest beyond our current brands. A great example is our recent announcement of an exclusive 20-year strategic license agreement with MGM Resorts International and the creation of MGM Collection with Marriott Bonvoy. The collection, which will launch beginning in October, encompasses 17 resorts with 40,000 rooms. This deal will provide us with significant presence in Las Vegas, one of the most popular destinations in the country with fantastic properties like Bellagio, the MGM Grand, and ARIA, as well as additional distribution in five other key US cities. Beyond just hotels, our strategic agreement with MGM will also give our members access to more sports, music, culinary and entertainment experiences. We also recently announced our plans of new affordable mid-scale extended stay offering in the U.S. and Canada. Our deep experience and leading position in extended-stay lodging, coupled with the recent trends toward increased work flexibility and longer stay travel, make us very optimistic about our growth potential. While it is still early days, initial interest from the development community has been extraordinary. We are working on several hundred deals and hope to have our first deal signed by the end of this year. In the Caribbean and Latin America, we're very excited about the recent addition of City Express to our brand lineup. These mid-scale properties have started to join our distribution channels, and we are thrilled with the noticeable uplift in conversion rates, ADR and bookings so far. Our development team remains focused on driving conversions, especially multiunit opportunities, and interest from owners remains robust. In the first half of this year, convergence accounted for 21% of our organic room additions, including MGM, and conversions represented 63% of our organic signings through June. The MGM rooms entering our system beginning this fall will boost our rooms distribution in 2023 by 2.4%. With more than half the year behind us, we have refined our full year net rooms growth expectations to 6.4% to 6.7%. Driving valuable global growth is a top company priority, and we are very pleased with the strong rate at which we expect our industry-leading system to grow this year. We look forward to sharing more about many key aspects of our business, including our broad global portfolio of over 30 brands, their exciting growth prospects all over the world, Marriott Bonvoy, the brand that brings it all together, our technology transformation and our multiyear financial model at our Investor Day on September 27. Now I'll hand the call over to Leeny to discuss our second quarter financial results in more detail as well as our updated outlook for 2023. Leeny?

Operator:

[Operator Instructions] We will take our first question from Stephen Grambling with Morgan Stanley. Please go ahead.

Leeny Oberg:

Yes. No, we've got several years left on them, Stephen, and are really pleased with the continued growth in the credit card fees, and frankly, really particularly pleased with adding so many new countries. So I think when you look at credit card fees for the year, I think, broadly speaking, a double-digit growth rate is right. Now for total non-RevPAR fees, we've talked about a 4% to 7% growth in non-RevPAR fees because of the lumpiness of things like residential fees. And the reality, as you remember, our timeshare fees are overwhelmingly a flat payment that go up only slightly. So overall, I think we're looking at 4% to 7%. But again, on the credit card side, we continue to see really strong growth.

Tony Capuano :

Sure, Stephen, I'll try and take that one. I think, obviously, AI has already incorporated into how we think about running our business. It has been for a while. We continue to look for opportunities to leverage evolving technologies like AI to remove friction for our guests, to create capacity for our associates. But we do it in a way that is mindful, mindful of how rapidly the technology is evolving and mindful of some of the real important considerations around facets of evolving technology like privacy.

Leeny Oberg:

Stephen, the only thing I'll add -- Stephen, the only thing I'll add to that is the reality that at the end of the day, we do believe that it is the person-to-person and the experiential part of our business that makes it so unique. So being able to use generational AI in a way that enhances that service, we see as a real benefit, but never to take away from the fundamental people-to-people part of our business.

Leeny Oberg:

Right.

Tony Capuano:

Thanks, Steve.

Shaun Kelley:

Hi, good morning, everyone. Good morning, Tony and Leeny.

Shaun Kelley:

So we continue to get a lot of questions from investors on the net unit growth side of the equation, and I appreciate all the color that you gave. So maybe we could just dig in a little further. It looks like at the very high end of the range of what you provided previously, you trimmed that very modestly, excluding sort of the deal with MGM. So could you talk about just that change, and more broadly, what you're seeing in the environment? And then I think the second part of the follow-up would be as we look a little further out, and I don't want to steal too much thunder from the Analyst Day, but what are the preconditions necessary to think that maybe this year could actually be close to the trough. What would have to go right to see, let's call it, core growth ex City Express and ex MGM actually improve in 2024 or beyond?

Leeny Oberg:

So Shaun, the only other thing that I would add is the reality that you've heard us talk more and more about multiunit conversions, which does make things a little bit lumpier on the rooms growth. If you remember, when we added a big slug of all-inclusive rooms a couple of years ago, when you look at the MGM deal that we recently announced, I take your point that M&A would be looked at separately. But I do think on the conversion side, you should continue to see us chasing these lovely multi-unit conversion opportunities that can bounce the numbers around a little bit, but definitely give us confidence in our mid-single-digit net rooms growth number as we look forward.

Tony Capuano:

Thanks, Shaun.

Joe Greff:

Good morning, everybody.

Tony Capuano:

Hi, Joe.

Leeny Oberg:

So Joe, we can work through the per room. Obviously, we've got the reality that the system overall is about 11% bigger than it was in 2019. So those comparisons start to be a little bit less meaningful. But to your point about where IMF should be for the full year, I think what you've seen in what we reported today clearly points to the reality that we hope, assuming things continue the way our guidance predicts, is a number of IMF that exceeds our 2019 peak by a good amount. The amount of percentage of hotels earning incentive fees so far is 62% in Q2 versus 72% in 2019. So we're clearly getting much closer. And in Asia Pacific, it's in the mid-80s in both years. So I think it -- as you know, we've got a different structure of IMF in Asia Pacific. And as our growth has been outsized in that region, they have a very positive quality of behaving much more like base fees. So I think you should continue to see strong growth there. In Q2, we were looking at about 41% coming from the US and Canada and 30% coming from Asia Pacific. So we're getting much closer to our 2019 proportion of incentive fees. And again, as we talked about before, when we look for the rest of the year, we do see the reality that we expect IMF to be higher than our peak.

Tony Capuano:

Yes. So it may not surprise you, Joe. We're not going to go into granular detail on the economics of a specific deal. What I can tell you is the structure of the transaction is akin -- much more akin to a traditional franchise deal. We are getting paid on room revenue across their US portfolio of 17 resorts. It's not just some sort of loyalty lockup. It's structured to look a lot more like a franchise agreement. The reason is we talk about it as a strategic licensing agreement. It's more broad than what we had with the Cosmopolitan, which was, in fact, a straight franchise agreement. Here, we've got a much broader ability with the creation of the MGM Collection portfolio to make this a much bigger play for our 186 million Bonvoy members in terms of the ability to give them access to the wealth of content that MGM makes available, to link the 186 million Bonvoy members and the 40 million MGM Rewards members, and as a corollary, to be a loyalty partner with that MGM. So, we've called it a strategic licensing agreement because of some of those complexities. But in terms of the way we've structured the financial arrangements, you should think about it more through the lens of a more traditional franchise agreement structure.

Tony Capuano:

You're welcome.

Richard Clarke:

Good morning. Thanks for taking my question. I just got a question on the remaining occupancy slice you've got to get back. Your occupancy today is still sitting about 4% lower than it was in 2019. How much confidence you can get the rest of that back? And is there any need to cut prices to get that back in? Is there any price elasticity you need to drive to get the remaining bit of occupancy back in the system?

Tony Capuano:

Go ahead.

Tony Capuano:

No, I was just going to say, yes, you're right, Richard. We're still down about three points on a global basis. But we see some real opportunities for growth. As I mentioned in my prepared remarks, we continue to see steady recovery on the business transient side, which gives us some optimism. And we continue to see continued recovery on cross-border travel, which gives us another layer of optimism. And then I would say, third, as I mentioned, in Greater China, which is our second largest market, you've still only got about a 40% recovery of cross-border airline capacity. And so in terms of inbound and outbound international travel related to China, we think there's some real opportunity for occupancy recovery there as well. And then, lastly, you've heard us talk about this the last couple of quarters, but we continue to see in the data real legs to this phenomenon of blended trip purpose and we think that's going to continue to drive occupancy, particularly in the days of the week that historically we considered shoulder days.

A – Leeny Oberg:

So I'll jump -- I'll start, Tony, and feel free to jump in. So a couple of things. Certainly, we do attribute it to the reality that a year ago in Q2, there were meaningfully fewer choices for travel. They really were consistent restrictions for going overseas, last airlift, et cetera. And there's clear that when you look at the travel patterns this year that there is a big exodus of Americans going over to Europe and other places in the world. So that certainly had an impact. The other thing I would say is that on luxury in the U.S., we actually saw a strengthening in the metropolitan areas. And they, in general, have a little bit lower RevPAR than some of the resorts. So some of this is a bit of a mix shift. And as you saw, the rate hardly moved in U.S. and Canada in Q2, and that was off of a year last year in Q2 where luxury rates were extraordinary. So just as a reminder, luxury rates have -- in U.S. and Canada have actually outpaced inflation when you compare to '19 and that still is the case while the other segments are coming more and more in line with inflation-adjusted rates as they continue to gain, as you saw ADR up 4% in the second quarter. And as we also said in our prepared remarks, there is a normalization going on. There's definitely a more seasonal pattern to travel, and frankly, a nice sturdy mix of leisure, business transient and group that supports pricing going forward for the industry, we think.

Operator:

Thank you. We'll take our next question from David Katz with Jefferies.

A – Leeny Oberg:

Sure. Thanks for the question. You're right, the adjusted EBITDA and strong cash flow kind of move upward in our guidance has given us a view to increase our expected capital returns this year. And just in basic math, the midpoint of our EBITDA moved up approximately roughly $150 million, about half of it outperformance in Q2 and about half of it increased guidance in the back half of the year. And if you just kind of simply take that and lever it, it's pretty straightforward about how you see the increased capital returns. But I do want to go back to our first kind of the most important thing, which is that we first want to invest in our business to grow. And we want to do that in a way that provides returns that are attractive for our shareholders and do it in ways that kind of meet our strategic objectives. So that is always first on the list and then a consideration of how we see the business moving forward. We do have a more diversified earnings stream than we had before. We've got a more global earnings stream than we've had before. We've got strong operating leverage in the business. And so I would expect to continue to see this investing in the growth of our business, including our technology transformation. But then with the remaining cash, excess cash, being able to return it to our shareholders in this mix of a modest dividend and share repurchase.

Tony Capuano:

Sure. So your characterization is accurate. The SMEs, which represent about 60% of our business transient segment, they were first fully recovered a quarter ago and their demand continues to be quite robust. The large corporate room nights continue to be recovering a bit more slowly. In Q1, we saw slow and steady recovery, and that continues to be the pace. What we hear from them anecdotally on, from one perspective, they continue to meet a great deal as they hire new staff, as they immerse them in their culture and do training meetings. And we think that's one of the drivers of the strength we're seeing in the group segment. Their international travel has been probably the slowest component of their travel to recover. And so it's a segment that we're monitoring closely, but it is certainly recovering more slowly than the SMEs.

Tony Capuano:

Yeah. And Dave, maybe just one clarification and additional comment. On the recovery of the SMEs, we saw them fully recover in Q1 of 2022, not 2023, just to make sure I'm precise. The other thing I will tell you is while the recovery of the large corporates has been not as rapid as what we've seen with the SMEs, we do see strong enough demand even with the large corporates that it is giving us pretty good pricing power. As we talked about a couple of quarters ago, and one of the underpinnings of the rate growth we saw in the quarter was our ability to negotiate high single-digit special corporate rates for 2023. And as we start in earnest to go into corporate rate negotiations for 2024, we have every expectation that we will be emerging from that rate negotiation season, having achieved high single-digit rate negotiated rates for the second straight year.

Tony Capuano:

You’re welcome.

Smedes Rose:

Hi. Thank you. I just wanted to ask you a little bit about the loyalty program. And I'm sorry if you've shared this already, but what percent of occupancy came through loyalty members in the quarter. And could you just touch on maybe what you're seeing on direct bookings versus the percentage of bookings coming through OTAs?

Smedes Rose:

Okay, okay. Thank you. And then as just last on e, can you talk a little bit more about how you guys are thinking about credit card fee growth. And you mentioned it was up double digit. Is it -- I mean I don't know if you can say it, but is it driven by incremental spending sort of on a same-store basis, or is it more driven by more cards going out there? And maybe how would you think about the sort of longer-term growth rate in that fee stream?

Smedes Rose:

Well, I can attest that my kids are helping on the fee growth for you. Thanks.

Operator:

Thank you. We'll take our next question from Dori Kesten with Wells Fargo. Please go ahead.

Leeny Oberg:

So I'll start -- I'll start, Tony, and then you jump in. I think you've heard us talk about our entry into the affordable mid-scale space since the acquisition of City Express in CALA and with our conversation about MidX Studios, which is a mid-scale extended stay product that we're very excited about in the US and are having great conversations with owners. And really, we look at that around the world as providing great opportunities for us in addition to growing all of our other brands. I mean I think it's important to note that we think there's lots of room for us to have growth across all segments around the world and our existing brands. But for example, we're excited about what we see as the possibility for a conversion mid-scale brand in EMEA and look forward to some announcements in the back half of the year regarding that. So we'll continue to look to try to meet our customers' needs and expand our distribution in a way that strengthens Bonvoy.

Operator:

Thank you. We'll take our next question from Bill Crow with Raymond James. Please go ahead.

Tony Capuano:

Yes. Good question, Bill. I'd point to a few things and maybe I'll try to answer you going segment by segment. I talked in my prepared remarks about the leisure segment being up in the quarter 10%. One of the things that was really encouraging to me in the leisure segment was that, that 10% improvement was split almost perfectly evenly by both occupancy and rate improvement. We saw a 5% improvement in ADR, which I thought was quite encouraging. Similarly -- and that was a global number. Pivoting to the US, which I think was your question. In the US and Canada, we talked a little bit about group. Some of the pricing power we're seeing in group as evidenced by the revenue pace we're seeing, not only in the back half of 2023, where we're pacing up 11% in revenue, but also where we're seeing in 2024, where we're now pacing up 14%, which is already up 5 points just three months since the last time we talked to you about group pace. And then as you heard from Leeny, when she was asking one of the earlier questions about business transient, you have 6% ADR growth in business transient in the US and Canada, which I think is another data point. When you throw all that in the blender together, all of that gives us some comfort that there is some opportunity. The only thing, I would say to you, and you heard Leeny referenced this, we do expect year-over-year ADR to moderate a bit given some of the comparisons, particularly as we get into year three -- or excuse me, Q3 and Q4 but we do expect ADR to continue to grow through the back half of the year.

Operator:

Thank you. We'll take our next question from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Tony Capuano:

Sure. So let me talk maybe a little bit about China, and then I'll let Leeny do the balance of the tour around the world. I talked in my prepared remarks about how encouraged we are about the recovery in China and the fact that Greater China as a market surpassed pre-pandemic RevPAR in the quarter. And it was able to achieve those results principally on the shoulders of domestic demand given some of the stats that I shared on the relatively modest recovery of international airline capacity. One of the stats that was really encouraging to me, if you look at Q2 RevPAR in Greater China, we were up almost 125% to last year. I think that speaks to the strength and pace of recovery in that market, but it also speaks to the quality of our distribution particularly in the major markets like Beijing and Shanghai. Leeny, you want to maybe talk a little about APAC and EMEA?

Duane Pfennigwerth:

Appreciate the detailed response. And maybe just a quick follow-up on MGM, does that effectively franchise agreement cover all of their revenue, or just revenue generated through your channels, through marriott. com, through Bonvoy, et cetera? Thanks for taking the questions.

Tony Capuano:

Go ahead, Leeny.

Duane Pfennigwerth:

Okay. Thank you very much.

Robin Farley:

Great. Thanks. Just circling back to the MGM deal, I guess, it was my understanding that even though it's a great partnership, that MGM would not be paying you franchise fees the way we would normally think about rooms in your pipeline paying 4% to 6% franchise fee. So I don't know if you can just clarify whether they would be paying franchisees the way we would normally think of your franchise fees being? And then my second question is the way the release is written, and I apologize if I'm interpreting this incorrectly, but it sounds like you're counting the MGM rooms in your rooms under construction. And I'm just wondering, is there some reason why you accounted them as new construction versus more of a conversion, if I'm interpreting that correctly? And then also, if I'm interpreting that correctly, your rooms under construction, excluding the MGM rooms, is like 30-something percent of your pipeline, whereas, historically have been in the high 40% range, closer to 50%? And just thinking about rooms like physically under construction as a percent of your pipeline being a bit lower, obviously, there's -- we know what's going on in the macro environment, but it seems like that would have implications for 2024 openings if the rooms under construction are, in fact, that low, if I'm interpreting it correctly from how you're counting MGM in the construction pipeline? Thanks.

Robin Farley:

Okay. Thanks. And just one quick clarification then. I wasn't counting when you gave rooms in your pipeline at quarter end, just since the MGM deal was announced in July. Are you including MGM in that number? It sounds like you are from the math you just walked us through. I just wanted to clarify.

Robin Farley:

It's included in your June 30 pipeline, even the--

Robin Farley:

Okay, great. Thank you.

Brandt Montour:

Great. Thanks for squeezing me in here. Just one for me, maybe for Tony. Maybe you could just give us a view into the development backdrop in China as it stands today, just sort of the latest lay of the land in terms of starts and construction progress and any sort of acceleration and sort of how things look on the ground, that would be helpful?

Brandt Montour:

Perfect. Thanks so much.

Operator:

Thank you. We'll take our next question from Ari Klein with BMO Markets. Please go ahead.

A – Tony Capuano:

Sure. So I'm going to ask Leeny to remind me the exact percentage. But historically, the percentage of inbound international into the U.S. market has historically always been relatively modest, I think, sub-5%, if memory serves. And so as borders open, you're starting to see that recover, but it is not nearly as impactful as outbound U.S. into some of these international markets, as we've talked about in the past. Now the exception to that I will tell you is if you look at a couple of individual cities, Aryeh. And so just to give you a flavor, we were just looking at this the other day, use New York as an example and that may not surprise you a great deal. If you go back to 2019, the international traveler's share of transient room nights in New York in 2019. was 12%. In the second quarter, we actually exceeded that. In the second quarter of this year, 13% of transient room nights in the New York were international inbound. That city really stands out. There's only a handful of other U.S. -- major U.S. cities that are double digits. Washington -- or excuse me, Miami, is 12% in the quarter. It was about 15% back in 2019. San Francisco was 11% back in 2019. It was actually 10% in the second quarter. Hawaii, the state of Hawaii as a destination, was 12% in 2019 and it was actually 10% in the second quarter. So hopefully, that gives you a bit of a flavor.

A – Leeny Oberg:

So I'll start, and Tony, jump in. So the old saying continues to be true that proven markets, proven brands, proven developers, proven owners always wins out. And that is still the case. So it really depends on the project. I will say that we've seen such great impact from renovated hotels that I think there is the reality that an existing hotel that is not a new development project, that's not kind of not earning money for quite a while, that those are easier to do, especially when they're turning it into a fantastic representation of a particular brand. And I think those are getting done. But I think the reality is that both with the level of interest rates and the loan-to-values that are being required is that it's tougher to make these deals penciled. So they are happening. They're getting done. They're just not getting done at the same pace that they were before.

Operator:

Thank you. We'll take our next question from Michael Bellisario with Baird. Please go ahead.

Tony Capuano:

Sure. So maybe I'll try at a high level, and then, Leeny, you might want to be a little more granular. Obviously, we think it's a huge win for our group customers. As you know, Michael, the way we sell group as we look at their multiyear rotational needs and for many of these particularly large groups, Las Vegas is always in their multiyear plan. While we had the ability to offer them the Cosmopolitan, the breadth of offerings we can now make available to them, particularly the largest of those groups that need very significant meeting space, we think we've got a terrific opportunity to keep them within the Marriott Group ecosystem much more effectively. Our sales teams will be collaborating closely, the Marriott and the MGM sales teams, to ensure we capture as much of that demand as possible. In terms of markets that might be impacted by that, most of those groups are rotating through Las Vegas as a destination anyway. And so I don't think we're deeply concerned that groups going there will be at the expense of those destinations. We just think we have a better probability of capturing that Las Vegas rotation within the Marriott ecosystem.

Tony Capuano:

Great. Well, thank you all for your interest this morning. I wish you safe travels, and we look forward to seeing all of you in Miami this September. Thank you.

Operator:

Good day, everyone, and welcome to today's First Quarter 2023 Earnings Call. [Operator Instructions] Please note, this call may be recorded. It is now my pleasure to turn the program over to Senior Vice President of Investor Relations, Jackie Burka.

Tony Capuano:

Thank you, Jackie, and thank you all for joining us this morning. We announced excellent first quarter results, reflecting continued momentum in our business around the world. While the timing of demand recovery has varied across regions, depending on COVID policies, it is clear that post-pandemic people have a deep appreciation for travel. As the largest global lodging company, with properties in 138 countries and territories, a diverse portfolio of amazing brands and our award-winning Marriott Bonvoy loyalty program, we are proud to connect people through the power of travel. First quarter global RevPAR rose 34% versus 2022, driven by significant recovery in Asia Pacific and strong growth across the rest of our regions. Worldwide occupancy reached 65%, up 11 percentage points higher than the year ago quarter. Global ADR grew 11%, demonstrating our continued focus on driving rate. While macroeconomic uncertainty persists, it has not weighed on travel demand to date. In fact, demand continued to rise across all customer segments in the quarter. Forward bookings are solid. Though our transient booking window is still short term at around three weeks, so trends could change relatively quickly. Global leisure demand and ADR are still incredibly robust. Following a year with leisure demand already well above pre-pandemic levels, first quarter transient room nights for the segment increased 12% with ADR rising 8% year-over-year. Group demand was also very strong in the quarter. In the U.S. and Canada, group revenue for full year 2023 was pacing up 26% to 2022 at the end of the quarter, a significant improvement from group pace at the end of last year. For the second through fourth quarter of this year, group room nights were pacing up 9% with rate up 7%, leading to revenues pacing up 16% year-over-year. U.S. and Canada business transient demand saw a modest additional recovery in the quarter. ADR rose meaningfully primarily due to solid special corporate rate increases. First quarter U.S. and Canada business transient revenues surpassed 2019 levels for the first time since the pandemic began. And [for] cross-border travel has continued to rise globally. However, it is still a few 100 basis points below 2019 when guests traveling abroad accounted for nearly 20% of total room nights. Additional upside is expected to come primarily from Asia Pacific given international airlift to and from China is still well below pre-pandemic levels. We are focused on strengthening our Marriott Bonvoy loyalty platform by continuing to grow our membership base, which reached 182 million members at the end of March and enhancing engagement with these valuable customers. Our co-branded credit cards with offerings in nine countries performed well again this quarter. Global Card acquisitions sorted 35% year-over-year while global card spend increased 16%. To engage with our customers, we are increasingly leveraging our digital platforms which are highly profitable channels for our owners. Those digital channels had a record first quarter. On a year-over-year basis, mobile app users grew 31%, digital room nights rose 17% and digital revenues climbed 26%. Turning to development. We still expect gross rooms growth of around 5.5% this year and net rooms growth of 4% to 4.5%. While we are keeping a close eye on the financing environment, as Leeny will discuss in her remarks, we do anticipate returning to a mid-single-digit net rooms growth in the next few years. We were pleased to close the City Express transaction just yesterday, welcoming roughly 17,000 rooms in the Caribbean and Latin American region, or CALA, into our portfolio. City Express is an incredible launchpad to jumpstart our entry into the high-growth moderately priced mid-scales. We see meaningful opportunity to expand the brand in CALA as well as in other locations around the world. Our industry-leading pipeline stood at approximately 502,000 rooms at quarter end, with 57% of those rooms in international markets and about 200,000 rooms under construction. Strong interest in conversions continues, including multiunit opportunities. Conversions represented nearly 30% of signings in the quarter and 25% of openings. I'll now turn the call over to Leeny to discuss our financial results in more detail.

Tony Capuano:

Thanks, Leeny. Before we open up for questions, I just want to pause for a moment and thank our team of associates around the world who continue to do such outstanding work and are a key reason that our year is off to such a strong start. They are remarkable. I'm also excited to let you all know that we plan to hold our first Analyst Day since early 2019 at the W South Beach in Miami on Wednesday, September 27. We will open registration for that event in June. And we look forward to seeing you in South Florida and sharing a deeper dive on our business with you this fall. So now Lenny and I are happy to answer your questions.

Joe Greff:

Good morning, guys. What's that to us was obviously the -- I mean it was a good quarter overall. What's that to us was the incentive management fee performance in 1Q. And the comment you made that it was driven or IMF outside of China or above 2019 levels, China just below. Can you talk about China IMF expectations for the balance of this year and how you think about IMF growth relative to these and franchise and other fees growth?

Tony Capuano:

And then, Leeny, the only thing I might add for Joe's benefits since his question was specific to China, we did see in the quarter, Joe, that Mainland China RevPAR was fully recovered to 2019 levels. But remember, the vast majority of that recovery was domestic demand. At the end of the quarter, only about 20% of the international airlift in China has recovered. I think by April, it was recovered about 40%. And so we do expect a stronger and stronger return of international demand in China through the balance of the year.

Leeny Oberg:

No, I think we always get requests for financial support, and we're happy to consider them. I do think, Joe, at the end of the day, the largest area of the capital stack, particularly in the U.S. that needs to be filled, is the senior loan. And so from that perspective, that is not a place where we typically get requests. And so around the edges, I would say there's a bit more request for whether they're debt service guarantees or operating profit guarantees, and that obviously is for managed properties. But I would say that, broadly speaking, the level of capital that we're putting into deals has not changed meaningfully. That this really is more about a temporary slowdown in the bank's willingness to get some of these financings over the finish line.

Operator:

We will take our next question from Stephen Grambling with Morgan Stanley. Your line is open.

Tony Capuano:

Sure. So as we think about not only the re-platforming of our major systems but also ongoing investment in our technology infrastructure, we always think about it through the lens of the impact on our associates, our guests and our owners and franchisees. I think from an associate perspective, particularly our future workforce is a workforce that has grown up opening an iPhone box with the understanding that there are no instructions and that, that technology will be intuitive and the design of our future technology will be similarly intuitive. So we think it will both be advantageous as we compete for talent, but it will also create capacity for them to more deeply engage with our guests. For our guests, we envision both at the property level and our customer engagement centers, making the breadth of information that we have about our guests available to our agents so that they can quickly and seamlessly address whatever questions or concerns or needs that those guests have. And then I think from the owner's perspective, there are both inherent operating efficiencies from new technologies that should be margin enhancing. And I also think from a revenue generation perspective, today, when you go to m.com you have the ability to book rooms. When our new systems roll out, the full breadth of products and services that we have to sell our customers, food beverage, spa, golf will be available at a single click. And we think that represents a very meaningful revenue upside.

Stephen Grambling:

That's helpful. And perhaps a quick follow-up on Joe's question about development and really focused on the pipeline. Given the strong growth in international markets in China, in particular, in the pipeline, how does that change the visibility as we think about translating to net unit growth from that particular part of the pipeline?

Tony Capuano:

And I might just build on that, Stephen, the -- we talked a little bit about this last quarter. Of course, the teams around the world continue to pursue individual asset conversions, but we are just as aggressively looking for portfolio conversions. You might remember that in the middle of last year we were delighted to announce an 8-hotel portfolio conversion in Vietnam that we referred to as Vinpearl. Just last month, we did Vinpearl Round 2, which was seven additional hotels, about 2,500 rooms, three of which are conversions that will open in calendar 2023. So I think that multi-unit portfolio conversion strategy is something you should reasonably expect to continue to be a focus area for our teams.

Operator:

We will take our next question from David Katz with Jefferies.

Leeny Oberg:

Sure. I think you heard me talk about the 4% to 7% expectation for 2023, which is obviously a bit different as it relates to fees from RevPAR given what we're seeing in the lodging operations for the year. So I think overwhelmingly, as you know, the non-RevPAR fees are co-brand credit card fees. Those are the largest chunk. And they are going to tie to both the number of cardholders and the level of average spend. I think it won't surprise you that as you've seen people start to amount of COVID that we are seeing the average spend on credit card increases year-over-year moderate. But I will also say that the number of cardholders is growing very nicely. So I would say that it is relatively speaking, more growth coming from the increased base of cardholders than it is on the actual spend, but it is a great combination of the two of them. The other thing is on our resi fees, on our resi branding fees, they over a kind of three to five year time horizon, they've just been growing beautifully as there's great demand for that product of ours, but they are a bit lumpier in terms of when the actual residences open. And that, I think you should expect to see that it will continue to grow over time, but that it can vary quarter-to-quarter quite meaningfully given the onetime nature of those fees.

Tony Capuano:

Yes, of course. So as I mentioned in the opening remarks, on the long list of attributes that excite us about this transaction, it is a great way for the company to enter the midscale segment, which is not a segment where we have competed previously. When we have talked in the past about the breadth of our portfolio, we've often responded to questions by saying we love the breadth of that portfolio for the way in which, it satisfies the wants and needs of both our guests and our owners and franchisees. And mid-scale is a tier where we hear demands from both of those constituents. Mid-scale obviously is - as from a RevPAR perspective and a rate positioning perspective, positioned below brands like Fairfield that are in our current architecture. We think there is an immediate opportunity to accelerate the growth of City Express across the Caribbean and Latin American region. As we have done with many brands that we've either developed organically or acquired. We are indeed been exploring the applicability of the City Express platform, and its growth potential in other markets around the world. And in fact here in the U. S., we're just a few weeks away from announcing a simple, modern, streamlined, new build, extended state product that has very basic services and amenities for those looking for longer stays at our mid-scale price point, and you should expect to hear more about that in the coming weeks.

Tony Capuano:

Of course.

Robin Farley:

Great, thanks. Just circling back in your introductory remarks, you talked about business transient revenue being above 2019 levels. I wonder if you could tell us, because rate clearly seems to be the driver. What business transient nights are as kind of the percent change the delta to 2019 level?

Robin Farley:

Great, thank you. And I guess my other - the follow-up question would be I know you've talked about the strength you're raising RevPAR, so clearly you're seeing strong demand. But when we look at the broader market, the STR data, we see luxury and economy that the two sort of ends Both having kind of on a trailing at this point, I think it's seven weeks of trailing six to seven weeks of trailing showing down year-over-year for RevPAR for those two segments? And I realize you're much more focused than the upscale and upper upscale, but I wonder if you could just sort of like opine for a moment on whether that's something that you think will start to move into those other segments or how you view what's happening in those kind of upscale economy parts of the market? Thanks.

Leeny Oberg:

On economy which largely as you might imagine, I think we don't play very much there really in any meaningful way. I think it's not a surprise when you see that just generally speaking in economy, there tends to be less variability both up and down over time than you see in the highest end rates. But I think again, I will point out on luxury, Robin that we're still very, very pleased with what we see in terms of luxury demand. And frankly, when you think, for example, people having more opportunities of where they want to travel. It's one of the benefits of being the size and scale of our system, because they're actually may not be going to some places domestically, that they were going before, but can now actually go abroad.

Robin Farley:

Yes on that for year-over-year yes. Okay. Thank you. Thanks very much. Thanks.

Operator:

We will take our next question from Shaun Kelley with Bank of America. Your line is open.

Leeny Oberg:

Sure. I think it's a great question to be able to reinforce where we are, which is that we have been for some time continue to be and expect for the rest of this year to continue to be at the low end of the investment grade leverage targets. So the biggest chunk of all, of the chunk relative to the increase in capital return is from the increase in expected EBITDA and cash flow for the company. So if you think about broadly speaking, the midpoint of adjusted EBITDA going up between $250 million and $300 million, it's pretty straight math to see that that can get you to this increase of call it roughly $700 million of midpoint of capital return. So, we feel really strong about the way the business is operating, from a cash flow performance as well as the visibility that we've got, certainly in the near-term. But even at the lower end of the guidance that we provided, I think, we still feel really good about being at the low end of our leverage targets with the kind of capital return range that, we've given.

Tony Capuano:

Of course, so then the fundamental strategy has not shifted. You are right to point out that prior to Starwood, there was a fairly consistent cadence of what we always refer to as bolt-on acquisitions. But the bulk of those acquisitions had some common D&A. They often helped us gain a foothold in a geography where we were dissatisfied with the pace of organic growth. And they often - we often have the view that they represented a growth platform either regionally or potentially globally. AC acquisition would be perhaps the best illustration of that. Our industry leading scale gives us maybe the luxury of not needing to do M&A to gain scale. We enjoy scale. But we will continue to look at opportunities, if we believe there is a gap in the geography where our guests seek to travel and we're dissatisfied with our footprint or if we see a gap in our brand architecture. That was what guided the City Express transaction, a transaction that solidified the strength and leadership of our footprint in the CALA region and also filled in a gap our brand architecture by giving us entry into mid-scale. But the final bit of common D&A in every one of those transactions is the discipline around the valuation, and you should expect to see that same discipline as we evaluate. What I think will be a fair number of opportunities that will be floating around out, there in the market. And then maybe the last comment I would make is, as I reflect on the last decade or more of expansion of our platform. I'm delighted that we've expanded our brand architecture through a thoughtful blend of both M&A and organically generated platforms. When I look at the success, we've had with organic launches like Autograph and Moxy and I blend that with powerhouses like Residence Inn and Ritz-Carlton and AC which were added to the system through M&A., I really like that approach.

Tony Capuano:

Of course.

Smedes Rose:

Hi thanks. I just wanted to ask a little bit about, how you're thinking about occupancy as in you should hear. And I'm sort of asking in the context it looks like for you and for others, that we've seen reports from that occupancy just still sort of stubbornly below kind of pre-pandemic levels. I mean certainly, it's closed, but they're still below, obviously offset by rate? But I'm wondering do you have any just sort of updated thoughts on - is there some piece of business that's maybe kind of gone or people are being priced out or do you think occupancies can and will return to kind of pre-pandemic levels as we go through this year and into next year?

Leeny Oberg:

So the only thing, I'll add is it is interesting when you look at occupancy compared to 2019, and we do continue to make progress in that comparison. When I look at U.S. and Canada kind of moving through from January through March of this Q compared to '19, we're down to only two percentage points, difference by the time we're at March. And globally, actually, we're only two percentage points in March as well. I think there are a couple of things to note. Number one is the portfolios are pretty different. We've added 11% more rooms since 2019. So the comparison starts to be not completely apples-to-apples. And I think there's, also been some great learnings on the part of the industry about revenue management. And there, I think at the end of the day, we're trying to make sure that we're maximizing the returns on these real estate assets. And then as you've seen with group, for example, there's actually been some benefit over the reality that group is booking closer to the time of the actual event. So I think, we will eventually get back there. We are getting fairly close. But I think the best part is that you're seeing the fundamental business segments of business, transient leisure and group really all operating on full cylinders, not exactly the way they behaved in 2019, but still really in good shape.

Leeny Oberg:

Yes. On the penetration side - is that your question on Marriott?

Leeny Oberg:

Are you talking about digital channels or are you talking about Marriott?

Leeny Oberg:

Yes. So for the first quarter, globally, the member penetration was 53% and in the U.S., it was 60%.

Leeny Oberg:

No, that has stayed that's at about 11%, and that is quite similar to what was pre-COVID. I think the interesting part is that you look at either the digital channels which have grown 600 basis points since pre-COVID or if you look at all of Marriott's direct channels together. We've actually grown share about 100 basis points since pre-COVID, but the OTAs have remained roughly flat.

Operator:

We'll take our next question from Patrick Scholes with Truist Securities. Your line is now open.

Tony Capuano:

Good morning.

Tony Capuano:

Yes. So the way I'd answer that, Patrick, we've already been showing it. The discussions we've been having with the various jurisdictions are, just about making sure that the transparency of those disclosures is enhanced and crystal clear for our guests. It is not as if those were hidden somehow, we're simply further clarifying and enhancing that transparency. I will leave it to the state AGs around the rest of the country for the rest of the industry. But I am pleased, that we will lead the industry in terms of the transparency of our disclosure for our guests.

Tony Capuano:

Of course.

Richard Clarke:

Hi there, thanks for taking my questions. Just the first one, your comment was that the projects that are under construction or finance are not being affected. About 60% of your pipeline is not under construction. How would you clarify that? How much of that is finance of the construction has it started? And how much risk associated is there without 60% not under construction?

Richard Clarke:

Okay, thanks for that color. And just as a follow-up. You mentioned your credit cards now in nine countries, just how meaningfully are those eight non-U.S. countries so far. And what is the opportunity? Can we have a credit card in 200 countries eventually or is there some natural limit to how many countries you can launch it?

Richard Clarke:

Okay, thank you.

Dori Kesten:

Thanks, good morning.

Dori Kesten:

What percentage of your 200,000 rooms under construction are slated to open over the next three years?

Dori Kesten:

Okay. And I guess on to conversions, do you know - do you have a typical percentage that come as a result of sales versus just an owner choosing to switch?

Leeny Oberg:

And I'll just add one other point that may be as you try to come up with your own math, is just a reminder that for hotel construction and a limited service hotel is roughly speaking, two years under construction and a full-service hotel can be anywhere from three to four.

Operator:

We will take our next question from Brandt Montour with Barclays. Your line is open.

Tony Capuano:

Good morning.

Tony Capuano:

Yes. So I think the borders are just opening, the economy is just starting to really gear up. So it's a bit soon for new construction starts. What I can tell you is some of the in-flight construction projects that have been paused have restarted. Our approval volumes are accelerating, the volume of memorandums of understanding that we're negotiating and executing are accelerating. So all of the leading indicators that should drive construction starts are really encouraging, but probably a bit premature to have any really strong data for you.

Tony Capuano:

And maybe the last point I would add, because we're so heavily weighted to the most valuable quality tiers of our upscale and luxury, oftentimes when we engage with the owner, the project is well under construction. So unlike the U.S., where our conversations start with a greenfield site, they may come to us with a tower of 25 stories out of the ground. So it's a bit of an apples to orange comparison.

Leeny Oberg:

Yes, sure. Absolutely. So I do -- if you look at year-over-year Q1, you are right in pointing out that the U.S. IMF, which came close to doubling in Q1 from 42 to 85, actually did double, that growth was overwhelmingly driven by the premium hotels was the return of group and business transient to our premium hotels. We did continue to see growth in IMF from our luxury hotels, but the biggest chunk of growth came from those premium hotels. So I think with the strength of group that Tony pointed out, in his comments for the rest of the year that you should continue to see the strong growth in both U.S. and Canada IMFs as well as international.

Operator:

And we will take our next question from Duane Pfennigwerth with Evercore ISI. Your line is open.

Leeny Oberg:

Sure. So I'll start with the second question first, and then Tony will fill in also. And that is, yes, on the second question. While we actually have seen the dollar soften a little bit more than where we were relative to when we gave guidance earlier in February, the reality is that we are still seeing great demand for Europe hotels for the summer and very pleased with the booking patterns we see there. On Greater China, let me talk about a couple of things. First of all, cross-border, just a reminder of our comments earlier that roughly three quarters of the business typically is domestic. Well, right now, it's over 90% is domestic. So I think there is the reality that there's going to be more travel both in and out of Greater China as demand -- as the airlift improve. So we would expect to see that help both other parts of the world, but also that there's more travel into China. In terms of the segment, it's seeing the recovery in segments very similar to the way that we saw it in other parts of the world. The one difference being that on special corporate and business transient in China that is recovering much more quickly than it did in the U.S. For example, overwhelmingly, people are back in their offices in Greater China, while in the U.S., there's obviously much more of a hybrid mix. So we are actually seeing all of the segments recover more in line with each other rather than necessarily one after another the way it was in the U.S.

Duane Pfennigwerth:

Really interesting. Thank you.

Operator:

And we will take our next question from Chad Beynon with Macquarie. Your line is open.

Tony Capuano:

Yes. Not yet. I mean I think the best statistical data we have is the recovery by day of the week, and we continue to see strong recovery on Sundays and Thursdays, which is probably the most compelling empirical data we have that suggests that blended trip purpose continues to be strong. And then I would supplement that data with what we hear anecdotally when we're talking both with special corporate customers and with group customers who are talking to us as we re-platform our technology and encouraging us to make it easier for their business travelers or their group meeting attendees to book a single reservation that has both business and leisure purposes. So our sense is that, that trend shows no sign of slowing down. And as I've said in other forums, that's great news for our business.

Leeny Oberg:

Yes. I would probably consider it about the timing of the recovery. So a couple of broad comments. Generally speaking, lodging demand does have a high correlation with GDP growth. So when you think of emerging economies like India, as an example, where you're seeing 6% GDP growth, that's going to be very different than what you see in the U.S. where more typical GDP growth might be more like 2%, and so the impact of a recession can be different in that regard. But I think when I think about the guidance that we've given this year, it is much more tied to the pace of recovery. The U.S., for example, meaningfully farther along in its recovery from COVID than Asia Pacific, for example. And I think we're clearly seeing that now all restrictions are lifted in Asia Pacific and that both pent-up demand and return of demand is coming quite nicely, which will mean that should we see an economic slowdown, I think they will be impacted a bit less than, for example, in the U.S., where obviously in the U.S., if we see it, it's starting from a different point. So again, as we talked about, we would imagine that Q3 and Q4 and that slowdown does mean that there is a meaningful economic slowdown. I'm not sure I would call it a super sharp deep V. But clearly, a real meaningful economic slowdown that would get us to that roughly flat RevPAR in Q3 and Q4 compared to '22.

Operator:

We have reached our allotted time for questions. I will now turn the call back over to Tony Capuano for closing remarks.

Operator:

This does conclude today's program. Thank you for your participation. You may disconnect at any time. Have a wonderful day.

Operator:

Good day, everyone and welcome to today’s Q4 2022 Earnings. [Operator Instructions] It is now my pleasure to turn the conference over to Ms. Jackie Burka.

Tony Capuano:

Thanks, Jackie and good morning, everyone. 2022 was a very strong year for Marriott. After achieving global RevPAR recovery in June, we finished the year on a real high note, with RevPAR versus 2019, up 7% in December and up 5% in the fourth quarter. Each quarter saw sequential improvement in global occupancy and ADR compared to 2019. We ended the year with fourth quarter occupancy down just 5 percentage points and ADR up 13%. With Asia-Pacific, excluding China, or APAC surpassing pre-pandemic levels in the fourth quarter, all regions, except Greater China, have now more than fully recovered. It is abundantly clear that people love to travel. Globally, leisure demand has remained robust. In the fourth quarter, leisure transient room nights increased 7% versus 2019. And we continued driving leisure ADR, which rose 22%. Our group business experienced the most meaningful improvement in 2022. In the U.S. and Canada, fourth quarter group revenues increased 10% above the same quarter in 2019. Group revenue for 2023 is already pacing up 20% year-over-year, with room night and rate gains each quarter. Given strong lead generation and increased rate quotes, especially for in-the-year, for-the-year bookings, we expect group revenues this year to strengthen further. In 2022, around half of group room nights were booked in the year compared to just one-third in 2019. U.S. and Canada business transient demand remained steady from the third to the fourth quarter at around 90% recovery. For 2023, we are pleased to have negotiated special corporate rate growth in the high single-digits after holding these rates steady the last 2 years. Our day-of-the-week trends in the U.S. and Canada continue to point to the blending of business and leisure trips. In the fourth quarter, midweek occupancy was still down mid single-digit percentage points versus 2019, while occupancy on shoulder and weekend nights was down the low single-digits. Additionally, the average length of a business transient trip in the U.S. has risen by more than 20% versus 2019. Rising cross-border travel also helped spur overall demand growth during the quarter, though we believe there is still further upside in 2023, especially now that China’s borders have reopened. Guests traveling outside their home country accounted for 16% of transient room nights globally in the 2022 fourth quarter, 1 percentage point higher than the prior quarter, yet still 3 percentage points lower than 2019. With more than 177 million members, our powerful Marriott Bonvoy program has also been a key driver of demand for our hotels and other lodging offerings and for adjacent products like our Bonvoy co-branded credit cards. Our growing portfolio of credit cards, now in 9 countries following our November card launch in Saudi Arabia, had record global card member acquisitions and card spend last year. Product innovation and engagement with our members remain key focus areas, especially through investments in our Marriott Bonvoy app and other digital products. We have made great gains in contributions from our digital platforms, which are highly profitable channels for our owners and anticipate many additional enhancements over the next couple of years. In 2022, our mobile app users were up 32% year-over-year, digital room nights rose 27%, and digital revenues climbed 41%. The financing environment for new projects and hotel sales remains challenging, especially here in the U.S. given higher interest rates and uncertainties surrounding a potential economic downturn. However, other industry headwinds like supply chain disruptions, construction costs and availability of labor have improved. Given strong local operating trends, overall developer sentiment improved in 2022 and we had another year of strong signing activity. Our global development team signed franchise and management agreements for nearly 108,000 rooms last year. In addition, upon the anticipated closing of the transaction, the City Express portfolio should add around 17,000 rooms in the moderately priced mid-scale space. We are excited about the opportunity to expand in this segment in the Caribbean and Latin America or CALA region as well as in other locations around the world. We also recently announced Apartments by Marriott Bonvoy, a new 1 to 3-bedroom serviced apartment brand that we plan to launch in the upper-upscale and luxury segments. We have already received a great deal of initial interests from owners and developers. Momentum in conversions continues, including in multi-property opportunities, thanks to the breadth of our roster of convergent-friendly brands across the chain scales. The meaningful top and bottom line benefits associated with being part of our portfolio make these brands very attractive to owners. Conversions represented nearly 20% of room signings and 27% of room additions in 2022. We added a total of 394 properties last year, representing more than 65,000 rooms and grew our industry leading system 4.4% on a gross basis or 3.1% net year-over-year. Excluding the impact from our exit of Russia, our net rooms growth was 3.6%. For 2023, we are forecasting gross rooms growth of around 5.5%, including around 1 percentage point from the anticipated addition of the City Express rooms to our franchise system. Assuming deletions of 1% to 1.5%, net rooms could grow 4% to 4.5%. I’d like to pivot now and share a few highlights of our recent ESG efforts. ESG is an integral part of our company’s culture and strategy, and our company is dedicated to making a positive and sustainable impact wherever we do business. In June, we committed $50 million to support historically underrepresented groups in the journey to hotel ownership through our new program here in North America called Marriott’s Bridging The Gap. This program should help us reach our goal of having at least 3,000 diverse and women-owned hotels in our system by 2025. In December, we announced that over 1 million Marriott associates have taken our human trafficking training, which we have also donated to the wider hospitality industries. In terms of workforce diversity and inclusion, our aim is to achieve global gender parity in the company’s leadership by 2023 and have people of color hold 25% of U.S. executive positions by 2025. We also continue our work to set science-based emissions reduction targets, with more details expected to come later this year. I am proud of these accomplishments and all that we have achieved in 2022. As we look ahead to full year 2023, there is meaningful uncertainty about global economic growth. Lodging is a cyclical business and it’s not immune to downturns in the macroeconomic environment. To-date, however, we have not seen signs of demand softening. Certainly, trends could change relatively quickly given our average transient booking window is around 3 weeks. But 1.5 months into 2023, booking demand and pricing remains strong. As Leeny will discuss in her remarks, we are optimistic that global RevPAR will grow year-over-year even if the global economy softens in the back half of this year. Before I turn the call over to Leeny, I’d like to thank our associates around the world for their hard work and commitment in navigating the last few challenging years and in helping the company achieve these record financial results. I also want to make a couple of statements regarding two of my senior team members. I am sure you saw the news in December that Stephanie Linnartz has been appointed Under Armour’s new President and CEO, a role that she will assume at the end of this month. Also, after a 35-year career with Marriott that has spanned the globe, Craig Smith, our Group President, International, has informed me of his decision to retire from the company later this month. Craig has developed and mentored hundreds of hotel general managers and above property leaders around the world and has helped us meaningfully accelerate the growth of our international business. I want to thank both Stephanie and Craig for their decades of dedication and countless contributions to Marriott. While I will personally miss these two excellent senior executives, I am proud that we have such an incredibly deep management bench. I look forward to sharing more details about new leadership appointments soon. Now, let me turn the call over to Leeny. Leeny?

Operator:

[Operator Instructions] We will take our first question from Stephen Grambling with Morgan Stanley.

Tony Capuano:

Good morning.

Stephen Grambling:

I wanted to start off on capital allocation actually. I guess given the moving parts within the rate environment, how are you thinking about the right leverage ratio? And how rate may actually dictate the outcome in terms of that capital allocation that you were referencing or returning cash to shareholders?

Stephen Grambling:

Great. And then maybe a little bit of a different follow-up. We've been seeing some volatility in the corporate booking data on our end. And I guess I'm wondering if you could discuss what you're seeing across large corporate demand versus small and medium-sized business, perhaps tie this into how it might influence the strong IMF that we’ve been seeing?

Leeny Oberg:

Stephen, the other thing I’ll add is I hesitate to call that a trend yet, but it’s just worth mentioning that in January, we saw our top special corporate accounts improve another 9 points relative to ‘19. So in the classic areas of accounting and consulting or defense or healthcare, we are continuing to see good progress there. but we are only a month into ‘23 so far.

Stephen Grambling:

Makes sense. Thank you.

Operator:

And we will take our next question from Shaun Kelley with Bank of America.

Tony Capuano:

Good morning.

Shaun Kelley:

Tony, when you – good morning. I wanted to talk a little bit more about sort of the demand side. So obviously, we know the visibility is a little short in the industry from time to time. But obviously, it looks like everything you’re seeing coincidentally is pretty strong. So could you help us just unpack a little bit? Your January trends look well above STR averages, even in North America. And then – so what’s kind of powering that? And then specifically, as we kind of work our way through the year, could you just talk about – a little bit more about what you’re seeing on maybe the lead generation side group and how you’re underwriting China, just to help us kind of bridge the full year outlook?

Leeny Oberg:

And I’ll jump in on China, Shaun, and that is – well, two things. One, to your point about January being particularly strong, if you remember, Omicron was particularly pronounced, right, as we got into January. And obviously, there is a significantly water degree of comfort this year as we moved into Q1. So I think you saw the momentum that was building in Q4 and really all throughout ‘22 continue into January as we saw all parts of the business firing on all cylinders. And then when you think about China, we saw tremendous leisure demand associated with the Chinese New Year, but we are really pleased with the overall pace of demand that we’re seeing there. And just to give you a rough sense, we could see – in Greater China, we could see that RevPAR for the year ‘23 over ‘22 is over 30% increase. And obviously, the biggest increase will be in the first quarter.

Tony Capuano:

Thanks, Shaun.

Joe Greff:

Good morning, everybody.

Joe Greff:

Tony, can you talk about what’s going on with pipeline signings in China presently? And how much of a, I guess, of a disruption, whether it be in the first quarter given what’s been going on there? And then when you look back at the fourth quarter, and the development pipeline was down a little bit sequentially. There have been quarters in the last 4 years, where it’s down sequentially. It doesn’t mean anything necessarily. How much of the sequential pipeline in the fourth quarter was explained by disruption in China signings?

Leeny Oberg:

And Joe, the only thing that I’ll add is there was the obvious challenges for opening hotels in China tied to the shutdown in China that impacted permits and getting the teams trained and up and running. And so from that respect, we certainly saw a few drift from where we had expected them opened in Q4 to open in Q1. And I think that was clearly to be expected as they saw the shutdown continue. But again, as things open up, we look forward to them increasing.

Tony Capuano:

Thanks. Joe.

Robin Farley:

Great. Thanks. My question is on the unit growth outlook, and there is some acceleration embedded in there. You mentioned China, obviously, is one of the drivers of that. And I guess the City Express acquisition. So just wondering if you have any other acquisitions in that unit growth guidance, just to clarify that?

Robin Farley:

And then – okay. Great. Perfect. Thank you. And then my other question was on City Express because you’ve talked about using that to grow in other regions. And I’m curious you haven’t mentioned potentially using it in the U.S. There are others out there sort of looking to grow units in the more limited service segments in the mid-scale and economy segments, and that hasn’t been a big focus for Marriott. I’m just curious if you have any thoughts on those segments, and then also sort of why or why not use of this new brand that is more – is further down the chain scale and some of your other brands in the U.S. market as well? Thanks.

Robin Farley:

Great. Thank you. And just one quick follow-up, if I could. Just – is there anything you would call out with termination fees? Is it a big part of the growth in that line item? How is that compared to termination fees for pre-pandemic? Or just anything going on there that you would call out? Thanks.

Robin Farley:

Great. Thank you very much.

Operator:

We will take our next question from Richard Clarke with Bernstein.

Tony Capuano:

Good morning.

Leeny Oberg:

Yes, sure, absolutely. So just – while Q4 was spectacular, and we really had a wonderful performance in our incentive fees. The reality is they are still meaningfully lower than they were in 2019, while the rest of our fees have grown quite nicely, our basin franchise fees as rooms have grown, RevPAR has recovered as well as the non-RevPAR fee growth has increased. So when you look at IMF as a percentage of total fees compared to ‘19, they have actually gone down. And we would expect them to continue to be a little bit lower than they have historically been. And they do, obviously, reflect a little bit riskier fee stream for us than comparing to the classic base in franchise fees. But when you look at kind of where we are in terms of hotel’s earning incentive fees, I think there are a couple of interesting statistics. And that is that in ‘22, 61% of our managed hotels earned an incentive fee that compares to 72% in 2019. And in the U.S., 39% of our full-service hotels earned an incentive fee versus 45% in 2019. And I break – I don’t include MSB because there is a very big difference in the managed limited service hotel portfolio between ‘22 and ‘19, so it’s not as relevant a number. And as you know, many of our Asia Pacific incentive fees are not back to ‘19 levels as a result of their RevPAR recovering a bit later than the U.S. So I think we’re thrilled with the performance of our operating team, very proud of the work that they have done, especially given wage increases. And I think to one point that you’re raising; we’re excited about what we see in ‘23 and the years ahead for the IMF potential for our hotels.

Leeny Oberg:

Well, again, I want to make sure we certainly include City Express. When we think about our rooms growth, that’s a very important component of how we think strategically about how we’re growing around the world. So when I think about accelerating rooms growth that is a part of it. And then when I think of the timing, we’ve clearly got the reality that construction starts over the past couple of years in the U.S. are having an impact in ‘23, in particular, in the U.S. for room openings. But again, otherwise, with the signings that you heard Tony talking about, we’re very enthused about what we see going forward and then conversions have been a big component as well.

Operator:

We will take our next question from Smedes Rose with Citi.

Leeny Oberg:

Yes. No, Smedes, I thought you might ask this question. So I definitely think it would be helpful to break it down. So if you use, kind of roughly speaking, a midpoint of what I talked about, about $900 million and you take out the renovation projects at the W Union Square and Barbados as well as the $100 million for City Express, you’re down to $650 million. Then you’ve got higher spend on tech systems that will overwhelmingly be reimbursed to us from the system of, call it, another $150 million in ‘23 that’s higher than typical. That then gets you down to $500 million, which is quite similar to this year’s $500 million. I think when you think about key money being, again, in the ballpark of perhaps $200 million, $225 million in ‘23, that actually lines up quite well with our historical kinds of numbers for the growth of the system. And as you know, many, many of the deals that we signed do not require any capital investment on the part of Marriott.

Smedes Rose:

Thanks. And can I just follow-up on Robin’s question about City Express or just in general? With your largest, I guess U.S. competitor making a move on what’s being termed, premium economy, do you feel that it’s important for Marriott to also be in that segment in terms of sort of capturing, I guess, a wider range of customers? I mean traditionally, you haven’t really dipped down below, I guess we call it like upper-mid scale. I mean I guess sort of thinking strategically, is that something that you need to be more attentive to or maybe not so much?

Smedes Rose:

Okay. Thank you. Appreciate it.

Operator:

We will take our next question from Patrick Scholes with Truist Securities.

Tony Capuano:

Good morning.

Leeny Oberg:

Yes. So, broadly, you heard us talk about 47% to 49% for international in the first quarter. And as you think about kind of around the world, I would expect Asia Pacific, both APAC, in particular, outside of China to be meaningfully above that, Greater China, probably somewhere in that ballpark. You clearly saw that EMEA will also be kind of in that very high sort of range. With particularly Europe being a real outlier, very high given where they were a year ago in the first quarter. So, I think the easiest way to think about it is where Omicron was having the greatest impact is where you will see these outsized performances, because for example, a year ago, EMEA, the Middle East was not as impacted by Omicron. So, their year-over-year increase will not be as strong. I think one of the messages that we want you to hear is that in this current environment, when you think about kind of moving from Q4 into Q1, we are still seeing good opportunities for continued strength and growth in occupancy and rate apart from any normal seasonal variation.

Tony Capuano:

Of course, I might repeat myself a little bit in the comment I made earlier about City Express. When we make these sort of operating protocol decisions, we are guided by both the evolving expectations of our guests and the economic realities of our owners and franchisees weighing both of those sets of expectations and needs. What we have said is we will have modified housekeeping protocols by quality tier. So, in our luxury portfolio, we are essentially back to pre-pandemic full daily housekeeping. In the upper upscale tier, we have daily tidy, so not a full cleaning, but making the bed, changing the tearing [ph], cleaning the trash, etcetera. And in our select service, or MSB portfolio, we have every other day tidy. What we hear from our guests, if you give us optionality, which we do both in the booking path and a check-in. And if you give us something we can count on consistently, you will meet our needs. And this blended approach captures a lot of the economics that we created during the pandemic for our owners and franchisees.

Tony Capuano:

Sure.

Dori Kesten:

Thanks. Good morning Tony and Leeny.

Dori Kesten:

You mentioned higher technology costs this year. We have heard that you have some pretty interesting plans on that front that owners are looking forward to. Can you just walk through what the changes are that we may see over the next several years?

Dori Kesten:

Prefect. Thank you.

David Katz:

Hi. Good morning everyone. Thanks for taking my question. So, I wanted to just look into the owned and leased profit within the guidance versus what you just reported. It looks like it is flattish or down a bit. And I just wondered was there something in ‘22 that lifted it up, or are there some – if you could help us unpack that a little bit.

David Katz:

Okay. Perfect. Thank you. And as my follow-up, I wanted to just touch on deletions quickly, because I – and I apologize if it sounds like a negative question. There has just been a lot of discussion about the NUG. But this 1 to 1.5 deletions going forward, is that what we should think about as kind of a normal course number?

David Katz:

Got it. Okay. Thank you very much. Appreciate it.

Operator:

We will take our next question from Bill Crow with Raymond James.