Marriott International

To standby, your program is about to begin. If you need audio assistance during today's program, please press star zero. Good day, everyone, and welcome to today's Marriott International's third quarter 2022 earnings. At this time, all participants are in a listen-only mode. Later, there will be an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your touchtone phone. Please note, this call may be recorded. It is now my pleasure to turn today's program over to Jackie Burka, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Marriott's third quarter 2022 earnings call. On the call with me today are Tony Capuano, our Chief Executive Officer, Leni Oberg, our Chief Financial Officer and Executive Vice President, Business Operations, and Betsy Dahm, our Vice President of Investor Relations. I will remind everyone that many of our comments today are not historical facts and are considered forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties, as described in our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments. Statements in our comments and the press release we issued earlier today are effective only today and will not be updated as actual events unfold. Please also note that unless otherwise stated, our REVPAR occupancy and average daily rate comments reflect system-wide constant currency results for comparable hotels and include hotels temporarily closed due to COVID-19. REVPAR occupancy and ADR comparisons between 2022 and 2019 reflect properties that are defined as comparable as of September 30, 2022, even if they were not open and operating for the full year 2019, where they did not meet all the other criteria for comparable in 2019. Additionally, unless otherwise stated, all comparisons to pre-pandemic for 2019 are comparing the same time period in each year. You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks today on our Investor Relations website. And now I will turn the call over to Tony.

Thanks, Jackie, and thank you all for joining us this morning. We had an outstanding third quarter. Quarter rose above 2019 levels for the first time since the pandemic began, up nearly 2%. REVPAR compared to 2019 improved sequentially from the second quarter in every region around the world. Global occupancy rose to 69%, while ADR outpaced 2019 by a remarkable 10%. Compared to pre-pandemic levels, worldwide rev par in September reached a new monthly high watermark, increasing more than 4%, or nearly 7%, excluding greater China. During the quarter, leisure demand remained strong, well above 2019 levels. In the U.S. and Canada, full-service group revenue for the quarter showed continued growth, ending up 3% over the same quarter in 2019. Fourth quarter full-service group revenue is currently pacing up 4%, but is likely to improve further given the strong last-minute group bookings that we've seen all year. The trend towards last-minute bookings has led to meaningful compression in pricing power, helping group ADR for new bookings rise each quarter this year. At our managed hotels in the U.S., ADR for in-year 40-year group bookings made in the third quarter rose 17% compared to same-year bookings made in the 2019 third quarter, a significant jump from the 6% increase we saw in the first quarter. ADR for group bookings made in the third quarter for 2023 outpaced 2019 third quarter bookings for events in 2000 by 24%. Business transient demand also continued to improve during the quarter, although it still lags 2019 levels. Third quarter business transient room nights in the U.S. and Canada were 11% below 2019. We are currently in the midst of our special corporate negotiations for 2023 and are very pleased with how they are progressing. After two years of holding rates steady, the early results look positive for at least high single-digit year-over-year rate Third quarter day of the week trends continue to suggest that travelers are combining leisure and business trips. In fact, the average length of a transient business trip has increased meaningfully, and year-to-date is up more than 15% compared to 2019. With borders reopened in most countries around the world, rising cross-border travel helped spur demand during the quarter, especially in Europe and in the Caribbean and Latin America, or CALA regions. Cross-border guests accounted for 15% of our global room nights in the third quarter, an uptick from 12% in the first quarter of this year. In 2019, 18% of travel to our properties was from cross-border guests, so we anticipate additional upside from international travel, especially from greater China, once stringent travel restrictions are relaxed. Given rapidly rising interest rates and growing concerns about a possible global recession, we are closely monitoring consumer and macroeconomic trends. There is no doubt that the hospitality industry is impacted by economic cycles, and with transient booking windows averaging only about three weeks, trends could change relatively quickly. However, we have yet to see signs of a slowdown in global lodging demand. In fact, we've seen just the opposite. Booking trends remain very healthy. Given sustained high levels of employment, consumer trends prioritizing experiences versus goods, pent-up travel demand, and a high level of consumer savings, travel spending has been incredibly resilient. In October, demand remained strong across our regions, with the exception of greater China, where trends are still low. Our powerful Marriott Bonvoy program grew to 173 million members at the end of the third quarter. The program achieved record penetration levels in the quarter, reaching 60% in the U.S. and Canada and 53% globally. Members also continue to engage with our co-brand credit cards, which had another solid quarter. After recently making significant enhancements by adding new benefits to many of our U.S. cards, Sign-ups have well exceeded expectations. This led to record new cardholder acquisitions, as well as record spending for the first nine months of this year. We also introduced two mid-tier cards at the end of September, which should help drive strong growth going forward. While much smaller fee contributors than our U.S. co-brand cards, we have similarly seen record growth internationally this year in new card members and total card spec. This has been particularly driven by China, where we've had great traction after launching our first cards there in July. Our Bonvoy members have been increasingly interacting with the platform through our direct digital channels, which helps boost owner and franchisee profitability. Since 2019, our share of room nights booked through direct digital channels has increased more than 5 percentage points to 38%, while our distribution through OTAs has risen by less than a percentage point to 12%. The power of Bonvoy in our direct channels has also been evident in our latest offering, the Ritz-Carlton Yacht, which made its inaugural voyage from Barcelona last month. Remarkably, Around two-thirds of all bookings for this incredible brand extension have been through direct channels, which is many times above the rates most cruise companies experience. Additionally, Bonvoy members account for more than half of the yacht bookings. We look forward to more ships joining the portfolio in the future. Shifting to the development front, our pipeline grew for the fourth quarter in a row, totaling more than 502,000 rooms by the end of the third quarter. Signing activity in the quarter remained healthy in most regions of the world. Our development team continues to be laser-focused on conversions, a particularly bright spot in the development story. Conversions represented 21% of room signings and 27% of room openings in the quarter. We are very enthusiastic about the level of conversations on conversions, including for multi-unit conversion opportunities. Outside of Greater China, we were pleased to see new construction starts pick up nicely in the third quarter. While not yet back to 2019 levels, new construction starts in the U.S. reached the highest quarterly level since the pandemic began. For full year 2022, we now expect gross rooms growth for approximately 4.5% compared to our prior expectation of closer to 5%. The change is primarily a result of fewer expected openings in greater China, as the lockdowns there have extended construction timelines. The good news is that we have not seen deals in greater China or in any of our regions falling out of the pipeline at a higher than usual rate. With just two months left in the year, we now expect deletions at the bottom end of our prior guidance. Deletions could be about 1.5% for 2022, or 1% excluding the 50 basis point impact from our exit from Russia. So our net rooms growth for 2022 is likely to be around 3% or 3.5% before factoring in the deletions in Russia. We're always looking at opportunities that help broaden the offering for our guests, as well as our owners and franchisees. Last month, we announced our agreement to acquire the Citi Express brand portfolio. which is currently comprised of 152 hotels with over 17,000 rooms in the Cala region. We are quite bullish on the moderately priced mid-scale space, which has meaningful growth potential. Upon closing this transaction, we will immediately gain a significant foothold in this high-growth segment in Cala, while also becoming the largest hotel company in the region. We are incredibly excited about the opportunity to expand in this segment in Cala as well as other locations around the world. If the transaction closes before year-end, our 2022 growth rooms growth could be around 5.5%, and our net rooms growth could be approximately 4%. We really look forward to working with the CityExpress team. We expect solid rooms growth going forward, given the attractiveness of our portfolio of global brands, our powerful loyalty program, our momentum around conversions, and our industry-leading pipeline. While the exact timing will depend on how new construction starts trend from here, we remain confident that over the next several years, we will return to our pre-pandemic mid-single-digit net rooms growth. Now, before I turn it over to Leni, I just want to recognize and thank our associates around the world for their continued commitment, passion, and resilience. Leni?