Marriott International, Inc. (MAR) Earnings Call Transcript & Summary

Welcome to the Marriott International Annual Meeting of Stockholders. At this time, I will turn the call over to the Executive Chairman and Chairman of the Board, Mr. Bill Marriott.

Good morning. It's my pleasure to welcome you to the 2020 Annual Meeting of Shareholders. Thank you for joining us today. This is our very first virtual meeting. Under the current global circumstances, we are grateful to be able to use technology to connect with you in such a nice way. While this certainly feels different than our traditional in-person meeting, this virtual form will allow us to reach a greater number of our shareholders. As is our custom, we will conduct the business portion of our meeting first and then answer questions at the end of the meeting. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible, and we will address any unanswered questions on our corporate website shortly after the meeting. With that, I'd like to officially call the meeting to order. The time is now 11:03 a.m. Eastern Time. Let me introduce the other members of the Board of Directors who are currently on the call with us. They're on mute, so you won't be able to hear their voices. First, there's Arne Sorenson, our CEO and President of the company. We also have Mary Bush, Bruce Duncan, Deborah Marriott Harrison, Frederick Henderson, Eric Hippeau, Larry Kellner, Debra Lee, Aylwin Lewis, Margaret McCarthy, George Muñoz, Steven Reinemund and Susan Schwab. In addition, our Corporate Secretary Bancroft Gordon and our Executive Vice President and General Counsel Rena Reiss are on the line as well. I'd like to start by acknowledging Mary, Steve and Bancroft, all of whom are retiring this year. Mary, who has been with us as a Director since 2008, and Steve, who has been a Director since 2007, they are retiring at the end of the meeting as they both have reached the mandatory retirement age of 72. Bancroft, who also joined us in 2007, will retire in July after 13 years with the company. Andrew Wright, who is also on the call, will be our new Corporate Secretary, as of the close of this meeting. Andrew has been with the company in the Legal department for the past 6 years and we're absolutely delighted to have Andrew in this new role. I want to thank Mary, Steve and Bancroft for your tireless service to Marriott. You helped us steer the course through some very bright days and some very challenging times. You will all be missed. Bancroft, I want to personally thank you for your terrific contribution in every way. I really will miss you. He's always been there for me and for the Board to answer all the questions effectively and honestly. Mary, you brought to the Board, the Audit Committee and our Compensation Policy Committee extensive financial international experience with the U.S. government. Your knowledge of public policy matters and capital markets as well as your perspective after serving 3 U.S. presidents has served us extremely well. We will always be grateful for your significant contribution to our success, and we will miss you, greatly. Steve, when I met you in 1978, you were a newly married MBA from the University of Virginia. And Marine, you graduated from the Naval Academy. You imbibe confidence, character and compassion. And from my perspective, you were a perfect fit for our business, which back in those days, was comprised of hotels, theme parks and restaurants and including our Roy Rogers restaurant division, where you started. My instinct wasn't wrong. Over the course of the 7 years, you grew your career with Marriott, and eventually became General Manager of the Roy Rogers division. We were sorry to lose you when you joined PepsiCo. But I was really proud of the way you challenged yourself to grow. I wasn't the least bit surprised to see you thrive at PepsiCo and become the CEO. Throughout your career, you have always advocated for diversity and inclusion. You did it at Pepsi, you did it as Dean of the School of Business at Wake Forest University and as Chairman of the National Minority Supplier Development Council. You have always understood the Marriott -- the importance at Marriott of looking out for others, as a marine officer, as a business leader and in your work in the community. After stepping down at PepsiCo, we were delighted when you returned to Marriott to join our Board as an Independent Director. We'll always be appreciative of your tireless efforts toward our success. Our Corporate Secretary has reported to me that in compliance with our bylaws, the mailing of the notice of this meeting began on April 8, 2020, to stockholders of record on March 13, 2020. He also reports a majority of the issued and outstanding shares are represented on this call. Accordingly, a quorum exists. As the first order of business, I'd like to discuss the matters to be voted upon. Only appropriate matters to be voted on in today's meeting were set forth in the proxy statement. Two such matters are proposals submitted by the AFL-CIO Reserve Fund and Trillium Portfolio 21 Global Equity Fund. I'll now call on Brandon Rees, who is representing the AFL-CIO Reserve Fund, to come and present his proposal. Brandon?

Thank you, Mr. Chairman. My name is Brandon Rees, and I hereby present our shareholder proposal on behalf of the AFL-CIO. First, let me express my best wishes for the health and safety of all Marriott employees and their families during these difficult times due to the COVID-19 pandemic. We hope that the hospitality industry can reopen it soon in a safe manner and that Marriott will recall furloughed hotel workers as quickly as possible. We welcome and encourage your efforts to implement health and safety standards to protect hotel workers and hotel guests from the risks of COVID-19. Our shareholder proposal urges Marriott to take all steps necessary, in compliance with applicable law, to remove the supermajority vote requirements in its bylaws and Certificate of Incorporation. The right for shareholders to act by a majority vote is an important corporate governance safeguard for corporate accountability. Supermajority requirements can allow company insiders to block shareholders from making needed changes. This is not democratic. Shareholders, overwhelmingly, favor majority voting. For example, the Council of Institutional Investors states that a majority vote of common shares outstanding should be sufficient to amend company bylaws or take other action that requires or receives a shareholder vote. Supermajority votes should not be required. At last year's shareholder meeting, a majority of Marriott's outstanding shares, and 77% of its voting shares, voted to support amending the company's governing documents to adopt majority voting. The proposal only narrowly failed to receive the required 66 2/3% votes of shares outstanding. In our view, a second attempt to amend Marriott's governing documents could be successful in achieving the necessary approval of shareholders if the company enhances its solicitation efforts. We note that over 10% of the voting power outstanding at the 2019 Annual Meeting were in the form of broker non-votes. Had the company taken additional steps to solicit votes from these beneficial shareholders who did not send in their voting instructions, the amendments may have passed. As the old adage goes, if at first you don't succeed, try, try again. For these reasons, we urge you to vote for this proposal. Thank you.

Thank you, Brandon. We appreciate your investment in the company and the issues expressed in your proposal. The Board opposes the proposal for the reasons stated in our proxy statement. I'll call on Susan Baker, who is representing Trillium Portfolio 21 Global Equity Fund to formally present their proposal. Susan?

Good morning, Mr. Chairman, members of the Board and fellow shareholders. My name is Susan Baker. I'm a Vice President of Trillium Asset Management. And on behalf of the Trillium ESG Global Equity Fund, I am here to move proposal #5. The proposal before you requests a report that provides comprehensive workforce composition data across gender, race and ethnicity, essentially one comparable to that which Marriott provides annually to the Equal Employment Opportunity Commission. Why comprehensive workforce diversity disclosure? From our conversations with management, it is clear that we all agree that diversity from entry-level to the Board are business and societal imperatives, embracing equal treatment, regardless of gender, race, age, veteran status, disability, sexual orientations is a critical attribute of any well-functioning organization. And Marriott's Board committee for excellence demonstrates a governance structure attuned to the critical aspects of diversity and inclusion in programs such as the Women's Leadership Initiative and the Emerging Leader program are appreciated and laudable. However, the current disclosures do not satisfy the needs of investors who require material quantitative disclosures to monitor progress. Demand for meaningful, environmental, social and governance data has accelerated in recent years, yet according to PwC, more than 92% of investors surveyed say companies are not disclosing ESG data in a way that makes it easy to compare it across companies. Shareholders have used the proxy to also communicate their views on this topic, and specifically, on the issue of diversity. For example, we saw in 2018, a majority of shareholders of Palo Alto Networks voted for a similar proposal, and the company responded by publishing a diversity and inclusion Report and full EEO-1 data. In 2019, the majority of shareholders of Travelers supported a like proposal, and the company now discloses full EEO-1 data. 56% of Newell Brands shareholders voted in favor of a proposal addressing diversity in its executive leadership ranks. And in the current proxy season, 2 proposals, seeking enhanced workforce diversity disclosure, received majority votes of 61% and 79%, respectively. And in the Board's opposition statement, yes, there is a promise of added disclosure. However, the written details of this promise presented to Trillium included just 4 data points: the percentage of women; and the percentage of minorities in the total workforce; and 3 and 4 being the percentage of women and percentage of minorities in management. A good first step, but it does not meet the needs of investors. Institutional Shareholder Services reached a similar conclusion. This independent proxy advisory service, used by Institutional Investors, wrote and I quote, "While Marriott provides some diversity-related disclosure, it does not publicly disclose comprehensive diversity-related data. Without further disclosure, it is difficult to assess the efficacy of Marriott's diversity programs. Workforce diversity can positively impact the company's long-term value creation as well as reduce its exposure to reputational and legal risks associated with discrimination." So what does this mean for Marriott? It means improving workforce diversity disclosure, and now is a good time to explore how to do that in a meaningful way. And finally, last August, Marriott received great accolades for committing, along with other business roundtable companies, to ensure it was providing value to its communities and employees. As the company works to reopen its properties under the watchful eye of the public and investors, it has the opportunity to prove that it can live up to that commitment, and we very much hope it does so. Thank you for your time and consideration. {c21}

Thank you, Susan. We appreciate your investment in the company and the issues expressed in the proposal. The Board opposes the proposal for reasons stated in our proxy statement. Let's proceed with the ballot vote. As you know, shareholders were able to vote by mail, phone or online before today's meeting. You may also do so now online. If anyone wishes to vote at this time, please do so by using the click here to vote button. [Voting]

Polls are now closed. While we're waiting for the results to be tallied, Arne will share his thoughts with us. Arne?

Thank you, Bill. And let me add my welcome to our 2020 Annual Meeting of shareholders. Let me remind you that some of our remarks 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. For the last 8 years, I have had the privilege of presenting an overview of the state of our business at this meeting. And each year, it has been a story of strategic global growth, side-by-side with our owners and franchisees, elevated guest experiences and service of the customer during every step of their journey, a loyalty program that has grown to be not just the largest but also most lauded in the industry. And at the heart of it all, a culture that provides our associates with opportunity, community and purpose. The word of choice to describe what is happening around the world today is unprecedented, and the pandemic that has the world in its grip is certainly that. In terms of our business, COVID-19 is like nothing we've ever seen before. For a company that's 92 years old, that's borne witness to the Great Depression, World War II and many other economic and global crises, that's saying something. But here are the facts. COVID-19 is becoming the most significant event to ever impact our business, and that includes the 12-month period after 9/11 and the financial crisis of 2009. And while this virus has had a swift and meaningful impact on the industry and our company, there is also a story here of strategic mitigation, resilience and hope. Let me take a few minutes to talk a bit about what we saw in 2019 and then what we are seeing currently. We entered 2020 with a lot of momentum coming off a solid 2019. In 2019, gross fee revenue increased 5% over the prior year to reach $3.8 billion. Worldwide revenue per available room, or RevPAR, rose 1.3% compared to the prior year. And RevPAR index, which measures our hotel's revenue market share, increased by approximately 200 basis points year-over-year, adding to our already strong existing premium to competitors. We also had a phenomenal year in development. In 2019, we opened 516 properties with more than 78,000 rooms, including our 7,000th hotel, the stunning The St. Regis in Hong Kong. Nearly 20% of rooms added to our system were conversions from competitor brands. During 2019, our development team signed agreements for 815 additional properties with a record 136,000 rooms, pushing our total global pipeline to approximately 515,000 rooms at year-end 2019. This is the first time in our company's history that our pipeline has grown above 0.5 million rooms, and we have continued to sign new deals and open new hotels around the world in early 2020. Our financial results in January and February of this year were also strong in all regions, excluding Asia-Pacific, where the virus first appeared. However, as the virus continued to spread, there was a sharp sudden drop in demand in the rest of the world in March. March saw significant occupancy declines in all regions and increasing numbers of hotel closures. While there have been early signs of improving demand trends in Greater China, the negative trends in the rest of the world have not yet improved. We will announce our first quarter 2020 results on Monday, May 11. We cannot presently estimate the ultimate financial impact of this unprecedented situation, which is highly dependent on the severity and duration of the pandemic, but expect that it will continue to be material to the company's results. We move swiftly to take meaningful proactive measures to mitigate the negative financial and operational impacts to our company, our hotel owners and our guests and associates. One of our primary goals was to ensure we had sufficient financial liquidity to survive. To this end, we have taken numerous steps to reduce our near-term cash outlays. We suspended stock buybacks and dividends, and we raised approximately $1.6 billion by issuing new bonds. Earlier this week, we announced amendments to our existing co-brand credit card agreements with JPMorgan Chase and Co. and American Express, raising $920 million of additional liquidity. We also made significant and painful cuts to our spending by furloughing many of our associates around the world, and we have deferred or eliminated investment spending that was not already committed. For our owners -- hotel owners and franchisees, we have lowered their cash costs by deferring renovations, certain hotel initiatives and brand standard audits and lowering the reimbursable expenses we incur on behalf of our owners and franchisees to provide centralized programs and services, such as loyalty, reservations, marketing and sales. With steps like these, we can withstand this crisis. And when the time is right, reemerge with strength and momentum into a new era. Marriott International will mark its 93rd anniversary in 2 weeks. I know I speak for Bill when I say we are both humbled and honored to lead this great company. While it's impossible to know how long this crisis will last, I know we, as a global community, will come through the other side. And that when we do, our fellow citizens will be anxious to leave their homes and travel this beautiful world once again. When that day comes, we will be here to welcome them with the warmth and care we are known for the world over.

Thank you very much, Arne. Before I report the results of the voting, Arne and I would be happy to answer your questions. Some questions were submitted before the meeting. You're also invited to submit them now by typing them into an ask question box and hitting submit. Bancroft will read the questions that were sent in, in advance. Bancroft?

Thank you, Mr. Chairman. The first question is from an unnamed stockholder, and she -- he or she says, considering the situation with the pandemic, would you consider or look into using ultraviolet lights to clean the rooms in hotels? Maybe a good standard going forward.

Thank you very much for the question. Last month, we launched the Marriott international Global Cleanliness Council, which includes leaders within the company and also experts outside the company to help us answer this general question. We know for certainty that both our associates and our guests have anxiety today about COVID-19. And as they consider traveling, some already are traveling, but as those who are traveling and those who are considering traveling in the future, we know that the way we deal with COVID-19 and cleanliness are super important issues to them. And so I believe that we have got to make sure that we are taking changes that both enhance cleaning and that reduce contacts or risk of transmission of the virus between guests and between associates and guests. We have looked at UV technology specifically. We're also looking at using electrostatic sprayers, which we believe will be a useful tool in making sure rooms are cleaned adequately between guests. We'll also be looking at enhancing digital check-in and modifying the check-in process so that we reduce the level of personal contact there, at least in the near-term. And believe that with these tools as well as enhanced cleaning, mask wearing, hand disinfectant distributed through the hotel and the like, we can meet the anxiety that is out there and make sure that people understand that it is safe to travel and safe to stay with us in our hotels. Thank you for the question.

Bancroft?

The next question is from an unnamed stockholder, and it says, when does the company foresee reinstating the dividend or a portion of it?

That question depends on the state of recovery from COVID-19 and the state of recovery of our business. Obviously, we have suspended the dividend for the foreseeable future because of the depth of the impact of COVID-19 on our business. We did pay the last dividend, which we had declared, some months back because the declaration itself, we believed, obligated us to pay that dividend. And had we not been obligated, that dividend would have been suspended too, so that we could be certain we have the resources necessary in order to navigate through this crisis. One technical matter. We did have to obtain a waiver of a debt covenant that is in our principal corporate revolver. That waiver precludes us from issuing additional dividends until the waiver of the covenant is no longer needed. And so that will be one requirement we'll have to meet. I think in many respects, it is superfluous because until we meet that requirement, we would not feel like we have the resources to recommence the dividend. But of course, we look forward to getting past COVID-19 to a place where business is more normal. And the financial capacity of the company is rebuilt and get back to doing what we've long believed, which is that the shareholders own the company, and they're entitled to a portion of the income that the company generates. And certainly, if it is not needed to invest in the business, it should be returned to shareholders. So thank you.

Thank you, Arne. Bancroft? Bancroft?

Mr. Marriott, I'm here. I was reading the question. It's from Peter. And the question is, when does Marriott -- when will Marriott ban cruel and dangerous wild animal displays at its property?

Okay. Well, thank you for the question. In May of last year, we published our first formal Animal Welfare Position Statement, which, of course, represented an initial step in our journey to raise the standard of animal welfare across our global operations and supply chain. Since then, we've taken additional steps to assess our operations and develop tools for associates and other stakeholders, like suppliers and vendors, as we continue to advance our animal welfare practices and responsible product sourcing. We've learned through those operational assessments that wild animal displays that are managed in franchised hotels globally occur in very limited circumstances. While we have not prohibited wild animals on property, we continue to work with our partners to better understand customer and cultural expectations and best practices to ensure we're continuing to make progress in meeting the needs of our varying stakeholders. Thank you for the question.

Thank you. Anything else, Bancroft?

Yes. Chester Charles expresses his regret at not seeing you live, and has a question. Are there markets still or already reopened that you can count on internationally for revenue and some optimism?

Chester, thank you, and we miss seeing you in person, too. The -- I think the 2 things that we can say about this. One is -- and this is mostly a global comment, I think, although country to country, COVID-19 is taking a somewhat different course, so it can't be said universally. But generally, we have -- seem to have formed the bottom. Whether you look at level of business in our hotels or you look at the number of hotels that are closed, it looks like the trend lines down have stopped. And we're sitting at bottom and maybe starting to see some signs of life. I think where the signs of life are the most positive are China, where this virus obviously began in late 2019 or certainly as it arose in our business, in late January of 2020. We saw business decline in late January in China by about 90% for our 350 hotels. We've seen now similar numbers in the rest of the world. But as we look back to China, we have seen occupancy grow from a bottom of maybe 7% or 8% in our hotels to last month in the 25% range. And we think the month of May probably will be maybe 10 points higher than that. And so there is a recovery underway there that gives us hope, obviously, for state of business in China, and maybe a path forward for the rest of the world. I think it's too early for us to say that we're seeing a recovery anywhere else yet, but I think as states in the United States and governments in some other markets around the world begin to look at loosening some restrictions on travel inevitably, but subject, of course, to what happens with the virus, that will be positive for our business. Thank you.

Thank you. Anything else, Bancroft?

Yes. The final -- we have 3 comments, I probably would defer to the Chairman as to whether you want them read or not. But the only other question we have is, has management and the Board taken pay cuts to help at the bottom line?

I can answer that. The answer is yes. Arne's not taking any pay this year and neither am I. And then it goes down from there. Many of our senior managers are taking as much as 80% cut. So we are on board with doing the very best we can to preserve the company and get back on track.

And every one of my direct reports has taken a 50% cut in pay, in addition.

Okay. Anything else?

I would close by saying that the Carpenters Pension Fund says, great job. Sorry, I missed you. An employee, Barbara Brassman, says big thumbs up for the way you're handling the current crisis. And someone, David Johnson, says consider putting the entire Annual Meeting online every year. Great -- it's a great improvement.

Yes, and we agree.

Thank you very much.

Is that it? Thank you.

Yes.

All right. Before I report the results of voting, we're all ready for that now. Thank you for your questions and your interest in the company. Additional questions submitted will be answered at the Marriott International website, the Investor Relations page. Questions and answers may be -- topic and similar questions will be grouped together and answered at one time. We reserve the right to edit or reject any questions that we deem inappropriate. Here are the final results of the voting. Based on preliminary voting results, each of the directors of the nominees was elected; Item 4, the AFL-CIO Reserve Fund stockholder proposal, approved. And Item #5, the Trillium Portfolio 21 Global Equity Fund stockholder proposal was not approved. We'll provide additional result figures once the numbers are finally and confirmed by Computershare. I'll now entertain a motion to adjourn.

I move.

Is there a second?

Andy?

Second.

Okay. Great.

Okay. The 2020 Annual Meeting of Marriott International's stockholders is now adjourned. I want to thank all of you for your support, investing in the company and for being a member of our loyalty program or simply by staying with us. We consider you all a part of the extended Marriott family. We will travel again, and we can't wait to welcome you back. Until then, stay healthy and stay positive. Thank you for the great meeting.