MGM Resorts International (NYSE:MGM) Q3 2023 Earnings Call Transcript
MGM Resorts International (NYSE:MGM) Q3 2023 Earnings Call Transcript November 8, 2023
MGM Resorts International beats earnings expectations. Reported EPS is $0.64, expectations were $0.59.
Operator: Good afternoon, and welcome to the MGM Resorts International Third Quarter 2023 Earnings Conference Call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President; Corey Sanders, Chief Operating Officer; Jonathan Halkyard, Chief Financial Officer and Treasurer; Hubert Wang, President and Chief Operating Officer of MGM China; and Andrew Chapman, Director of Investor Relations. [Operator Instructions] Please note, this conference is being recorded. Now I would like to turn the call over to Andrew Chapman. Please go ahead.
Andrew Chapman: Good afternoon, and welcome to the MGM Resorts International Third Quarter 2023 Earnings Call. This call is being broadcast live on the internet at investors.mgmresorts.com, we've also furnished our press release on Form 8-K to the SEC. On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today's press release and in our par filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.
During the call, we will also discuss non-GAAP financial measures when talking about our performance. You can find the reconciliation of GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, this presentation is being recorded. I will now turn it over to Bill Hornbuckle.
William Hornbuckle: Thanks, Andrew, and thank you all for joining us today. In the third quarter, we had a fantastic results as evidenced by our record consolidated net revenues. And despite the disruption across our portfolio, we achieved record same-store ADRs in Las Vegas as well as a record third quarter regional net revenues on a same-store basis. To say the least, we're off to a strong start prior to the cybersecurity issue. And to briefly summarize, on September 12, we disclosed that we identified a cybersecurity issue affecting certain of our U.S. systems. As a precautionary measure, we proactively shut down certain systems to mitigate risk to customer information, which resulted in disruption at some of our properties.
. Over the following weeks, we systematically restored to enhance these systems, and we're fully operational by the end of the month of September. Following the issues, we have seen incredible resiliency in our business to start the fourth quarter. Going forward, we do not anticipate any further operational disruptions from the incent as expected that insurance will cover the losses incurred. We expect to receive insurance reimbursements in the upcoming quarters and Jonathan will provide more detailed information on the quarterly financial impacts in his remarks. I want to express my deep appreciation once again to our employees for the response during a challenging few weeks. They showed resilience and professionalism but more importantly, a commitment to our culture of taking care of our guests and each other.
We've been humbled by the feedback from many of our guests who took the time to call out the exceptional service they received. We're coming out of this stronger as a team and as a culture with a focus on the culture of yes from both our guests and employees. One last thing on the employees. We continue to negotiate in good faith with the unions in both Las Vegas and Detroit with the goal of reaching agreement on new record contracts that work for everyone. In Las Vegas, as you know, Caesars Entertainment came to a new tenant of collective bargain agreement this morning, and we are literally in session as we speak, and I believe we will come to a deal today. We know from listening to our employees that they are looking for a pay increase, the combat inflation, as well as reduced workloads among other concerns.
This deal when announced, we'll do just that and will result in the largest pay increase in the history of our negotiations with the culinary union. As we shift our remarks to the fourth quarter, we anticipate the rival Las Vegas inaugural Formula one race next week. We are well prepared to welcome our guests for that what promises to be an exciting and enduring tent-pole event. We sold out our Bellagio Fountain Club and Grandstand seats. Cash roommates are several multiples have had of the same week in prior years, and the casino front money deposits indicate Formula One will be an all-time record casino event. As we look into 2024, we see strength in future bookings rate and group pace into the first half of the year, and we're encouraged by a number of tailwinds, including the launch of Marriott's direct bookings in the first quarter, a fully renovated Mandalay Bay Convention Center, which will return 100,000 primary midweek room nights lost in 2023, International Bacara play further coming back opportunities to enhance our omni-channel marketing offerings to bet MGM and MGM Rewards customers, improving cross-play between regionals and Las Vegas, exceptional high Super Bowl demand as well as a strong event calendar for the balance of the year, including the return of Formula one in the fall of '24.
And plus the recent completion of the bridge connecting the Cosmopolitan City Center and Bellagio. We've been diligently also working on deploying capital in meaningful ways of our existing resorts with numerous hotel restaurant and entertainment refreshes. Beyond these domestic operating tailwinds we are underway in Japan, we believe we are well positioned to be awarded a commercial gaming license in New York, and BetMGM is now on a positive path of more of those in just a moment. Turning to our regional operations. Top line trends were solid. In fact, as mentioned previously, we had a record third quarter same-store regional net revenues despite the disruption. Margins were expected in the low 30s. In the Macau market, it is clearly evident that business is booming.
In fact, it was a third quarter net revenue adjusted property EBITDA record and surpassed 2019 and adjusted property EBITDAR mass GGR and visitation. Then to kick off the fourth quarter, we had an amazing Golden Week that led to a market share for October of over 15% and an all-time record adjusted property EBITDAR for the month. Results have been outstanding because of the ingenuity and execution of the team at the MGM China. Looking forward, we are still laser-focused on three key priorities: making opportunistic changes to our casino floor and existing room products to maximize yield, taking care of our mass and premium mass customers and driving international tourism. At MGM Cotai, we will start re-modeling of our platinum area for completion early next year.
And at the MGM Macau, we have begun planning for a villa upgrade and the addition of 6 new villas. BetMGM in the U.S. is now live in 28 markets. The team is making great progress with the integration of Angstrom in our sports products adding a merriment of betting options not offered before and single account, single wallet has launched in all the states, but Nevada. The BetMGM team will provide a comprehensive business update next month on their progress. Specific to our international digital efforts and September MGM Resorts and LeoVegas, launched a multimedia marketing supporting the BetMGM brand in the U.K. with Chris Rock leading the campaign. U.K. market is ideal for an initial launch due to its size and the brand recognition of MGM with U.K. customers.
Initial KPIs are very encouraging with the first time deposits much higher than expected. We will leverage our recent acquisition of Push gaming to bring innovative games to the U.K. and ultimately to BetMGM. We will also look for push to extend into further international markets through existing B2B relationships. On the development front, we signed our implementation agreement with the City of Osaka in September, and this is effectively our green light to begin the project. The total project cost of JPY 1.27 trillion of which MGM's expected equity contributions of approximately JPY 300 billion, which at current spot is roughly $2 billion, costs have inflated through the course of the progress -- process we have kept the budget unchanged by reducing minor scope around certain areas that will not impact the project returns and by locking in very attractive foreign exchange rates.
We look forward to breaking ground Osaka for it will be Japan's first ever integrated resort. In New York, we have submitted our second round RFA questions to the Gaming Commission and we're prepared to submit our application within 30 days of the date at which the Gaming Commission answers those questions. We believe our existing facility, brand recognition and strong ties for the anchors community, making us a great contender for one of those three available licenses. In Dubai, our partner Wassil, is under construction on a luxury development, including 1,400 hotel rooms with the MGM Grand, Bellagio and Aria brands. We currently have a hospitality management deal requiring no capital from us. That said, we do significantly -- we do see a significant opportunity if gaming were to be legalized, first in UAE and ultimately in Dubai.
We believe they have the best gaming hospitality brands in the world with the best location in Dubai and our existing project could include a world-class gaming component, if approved. And finally, we expect the launch of our strategic relationship with Marriott to begin in early 2024 when we will begin to start taking reservations. We have launched the official landing page, and we'll soon announce the exciting loyalty benefits we plan to offer to both MGM Rewards and Marriott Bonvoy members and its 180 million numbers. In closing, the stability of our domestic business and the focus on margins will be supplemented by BetMGM is approaching profitability as well as by outsized earnings opportunities in Macau as the business continues to ramp further.
We also have long-term drivers with our developments in Japan and New York and our international digital strategy with LeoVegas. When you connect each of these prospects for cash flow generation together, add to it a fortress balance sheet with more cash than debt when excluding MGM China and then considering the fact that we have reduced our current share count by approximately 31% in less than three years, and our Board recently approved an additional $2 billion share buyback authorization we are confident that the company is tremendously positioned to grow its free cash flow going forward. With that, and before I lose my voice completely, I will turn this over to Jonathan for more details on the quarter.
Jonathan Halkyard: Thanks, Bill. Before I get into the financial results, I, too, would like to commend the selfless efforts of all of our employees during our recent cyber security issue. I personally witnessed so many people on our teams go above and beyond to support their colleagues and take care of our customers. As you likely saw in the 8-K, we highlighted an estimated adjusted property EBITDAR impact from the cybersecurity event of approximately $100 million in September. Most of this impact was from a loss in revenue from room cancellations in Las Vegas and our service recovery efforts. We expect the Q4 impact to be limited. With some hotel bookings lost in the first part of October and a brief disruption to the direct mail cadence in our calendar, which affects the regionals more meaningfully than Las Vegas.
We remain confident that the losses will be covered by our cyber insurance. Now turning to the results for the quarter. Our consolidated businesses generated net revenues of $4 billion, up 16% from last year. Net income of $161 million and adjusted EBITDAR of $1.1 billion with significant contribution from MGM China. During the quarter, net cash from operating activities was $694 million and free cash flow was $484 million, it's important to note that $197 million in cash flow from operating activities and $8 million in capital expenditures related to MGM China and were included in the quarter. In Las Vegas, net revenues of $2.1 billion were down $195 million or 8% compared to the prior year. Adjusted property EBITDAR was down 16% to $714 million.
Same-store net revenues, which excludes Mirage from last year were down 2% and same-store adjusted property EBITDAR was down 11%. And Las Vegas adjusted property EBITDAR margins were 34%, and we estimate about 200 basis points of margin impact in Las Vegas was related to the cybersecurity issue. At the start of the third quarter, trends were solid in Las Vegas. July and August combined net revenues on a same-store basis were essentially flat versus 2022. Occupancy for the first two months was up 100 basis points year-over-year and then fell to 88% in September, down 6 percentage points year-over-year. That being said, we drove a sharp recovery in October with occupancy back up to 95% in Las Vegas. Importantly, while we're still working to negotiate a new collective bargaining agreement with the Culinary union, we have been accruing for an increase since June 1.
We will not provide the full details of that accrual at this time given that we're still in active negotiations, and we'll look to technology and process improvements to help offset the incremental labor costs we expect. Turning to the regions. In September, the cybersecurity event also affected the regional properties. Prior to this incident, July and August had a strong start to the third quarter with a 2% increase in same-store net revenues versus last year. Full third quarter revenues of $925 million though were down 5% compared to the prior year, and adjusted property EBITDAR was down 9% to $293 million. Same-store revenues, which exclude Goldstrike were up 1% and same-store adjusted property EBITDAR was down just 2% or $6 million even with the impact of the cyber incident.
In Macau, our adjusted property EBITDAR of $226 million was a 23% increase compared to the third quarter of 2019. We achieved 28% margins helps them what, by a benefit of $18 million from hold in the quarter. Casino revenues exceeded third quarter 2019 levels, primarily driven by our main floor win. And discounts and incentives as a percentage of gross win were 600 basis points lower compared to 2019, mainly due to the shift from VIP to mass. BetMGM is well on pace to achieve its forecast of $1.8 billion to $2.0 billion in net revenues from operations for the year. Our 50% share of BetMGM's operating income in the third quarter was $13 million, marking our first quarter of profitability at BetMGM. We now anticipate fourth quarter corporate expense to be roughly $115 million bringing full year corporate expense less share-based compensation to approximately $450 million.
This upward adjustment relates to incentive fees in Japan related to the signing of the implementation agreement IT and cybersecurity issue related expenses as well as costs related to the integration of the Cosmopolitan. On the development front, in Japan, we expect to commit approximately $2 billion over the next five years. Our New York expansion, if approved, will be an all-in project estimated also at $2 billion, of which $1.5 billion will be invested on improvements and $500 million expected for the license fee. We plan to fully fund these projects through free cash flow generated by our operations. I'll conclude with an overview of our free cash flow per share growth algorithm and it's pretty straightforward. First, we're committed to growing EBITDAR by improving our core operational performance, deploying growth capital and high-return projects and by focusing on margins.
We create operating leverage by growing our EBITDAR more than our fixed 2% rent escalators. Second, we'll continue to buy back our shares as evidenced by the new $2 billion share repurchase program authorized by our Board. In addition to returning share -- or cash to our shareholders, these repurchases turbocharge our free cash flow per share growth. And there is more free cash flow growth on the horizon as we're making significant progress with BetMGM, and we have those two exciting growth projects in the pipeline. With that, Bill, back to you.
William Hornbuckle: Thanks, Jonathan. And just some open comments before we talk questions. I'm reminded about the resiliency of this market in our company and our employees. Candidly, this quarter, we went to hell in back with what we all went through with Cybertech. And I'm proud of what we've accomplished, put ourselves back on track. But more importantly, I think as an indicator of this market, fundamentals have changed. We've gone from a month ago in distress to getting ready for the biggest event on one of the second worst weekends as City has ever seen in its ongoing history of occupancy to the biggest event we've ever seen with Formula 1. And so fundamentally, this marketplace has changed. Macau continues to do exceptionally well.
Very proud of that team. You've seen the market share that it has gained and it will keep. And given that we ultimately have about 3% of the suite product I think we're kicking on all cylinders there and doing the right things, and we're going to look to correct that. If I think about the future, I think about development in Japan in the long haul, hopefully, New York in the midterm, and next year, I think about the ability to unleash 180 million Bonvoy members and Marriott, I get very excited. And then ultimately, the balance sheet. I think we've been very good fiduciaries. I think the company, Jonathan of note, has done a great job managing it. And we find ourselves in a great position to think about the future and things to do and invest in.
And with that, operator, I will open this up for questions. So thank you.
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