MGM Resorts International (NYSE:MGM) Q4 2023 Earnings Call Transcript

MGM Resorts International (NYSE:MGM) Q4 2023 Earnings Call Transcript February 13, 2024

MGM Resorts International beats earnings expectations. Reported EPS is $1.06, expectations were $0.67. MGM Resorts International isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the MGM Resorts International Fourth Quarter and Full Year 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; Kenneth Feng, President and Executive Director of MGM China; and Andrew Chapman, Director of Investor Relations. Participants are in listen-only mode. After the Company’s remarks, there will be a question-and-answer session. In fairness to all participants, please limit yourself to one question and one follow-up. Please note this conference is being recorded. Now, I would like to turn the call over to Andrew Chapman.

Andrew Chapman: Good afternoon, and welcome to the MGM Resorts International fourth quarter and full year 2023 earnings call. This call is being broadcast live on the Internet at investors.mgmresorts.com. We’ve also furnished our press release and 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 periodic 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 to 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: Thank you, Andrew, and good afternoon, and thank you all for joining us today. Our MGM Resorts achieved outstanding results in 2023, delivering all-time high adjusted property EBITDAR in Las Vegas and at MGM China. Notably, seven of our domestic properties set individual records for adjusted property EBITDAR for the full year. These outstanding accomplishments underscore the resilience and the agility of our team in navigating a complex operating year. In fact, our employees earned record NPS scores from our customers throughout 2023. I want to thank all of our dedicated employees who consistently strive to deliver on world-class service to our guests. The strength and resiliency of Las Vegas market has been particularly impressive.

Strategically you’ve heard me talk a lot last year about the evolution of Las Vegas as a new sports and entertainment capital of the world. You saw that fact proven out again Sunday, as the city proudly hosted Super Bowl 58, right in our own backyard. The game was another strong hotel and casino event for us with ADRs near a thousand, and posting three of the top five room revenue days ever recorded and near-record event gaming volumes. The game weekend is typically a strong event for MGM Resorts, but having the game in town amplified those results dramatically. The game on Sunday followed our inaugural Formula 1 race in November which was also an incredible success as the largest city event in our history. Additionally, we glean valuable insights from the event, and specifically on how to better price and program all of our resorts and streamline the preparation work for future years.

We both F1 and Super Bowl, our brand was on full display. Our proximity to the Legion Stadium, the F1 track, and of course, T-Mobile Arena offered us the opportunity to expand our reach during the city wide events. We also have officially launched our partnership with Marriott, with impressive early results. Marriott Bonvoy customers can now seamlessly book rooms at select MGM properties in Las Vegas with 16 brands set to be introduced by the end of Q1. In Macau, we ended 2023 with an all-time record adjusted EBITDAR for the quarter and the full year. Our robust market share was comfortably in the mid-teens and continued its upward trend in January. The strategic addition of 200 table games, coupled with the agile operations of our team, and the reinvestment into many amenities have collectively driven these exceptional results.

In digital, BetMGM made it full-year 2023 targets in both net revenue and second-half profitability. They also made significant strides in the technology roadmap — with the launching of a new app design and was single account, single wallet capabilities being available now in most states. Looking ahead, our outlook remains strong. We’re encouraged by the metrics we’ve seen in our business, including room and rates on the books and in the year, group attendance and future bookings, as well as a robust event calendar for the city. Our Las Vegas operations represent within 70% of our US brick-and-mortar. Adjusted property EBITDAR in 2023 will benefit from a number of key initiatives in ’24. For example, our transient segment will grow as a result of the Marriott relationship, which will bring a new customer base that will be acquired at lower acquisition costs, higher rates and more spend on property.

On the Group side, the Mandalay Bay Convention Center refreshes nearly complete and we are poised to benefit from an increased 100,000 plus group room nights on the strip. With MGM’s casino segment, we will drive growth from the return of Far East baccarat play, which is still below 2019 levels. We will leverage our branch office network to drive customers to our resorts in Las Vegas, and expect to see further recovery of international inbound flights, which is still only 75% recovered from Asia. Later this week, we will host our Annual Chinese New Year celebration at Bellagio and Aria which is already seeing strong gaming demand — stronger gaming demand, excuse me, than last year. Our 2024 regional outlook anticipates demand to remain stable.

That being said, we are committed to consistently improving our operational model, sustained margins and foster steady generation of free cash flow. Our regional portfolio has historically proven to be highly defensive thanks to the exceptional high-quality assets we operate, the diverse set of non-gaming amenities we offer, our strong market-share positioning and overall customer loyalty. Looking ahead in Macau, our exceptional results for 2023 have carried into the first 45 days of 2024, driven by successful events, including a Bruno Mars concert at the MGM Cotai, driving strong visitation to our properties. Demand in our properties for Chinese New Year, which is also going on now is also very strong. As we look further into the year, the Macau government has set a target of track 33 million visitors in 2024, reflecting a 17% increase year-over-year.

It’s the testament to our team’s continuous innovation in craft and compelling experiences for our predominantly premium mass clientele. Our focus is on the New Year in Macau remained on three priorities, implementing strategic adjustments to our casino floor and existing room offerings to optimize yield, prioritizing the needs of our mass and premium mass customers, and actively driving international tourism. Turning to BetMGM. In 2024, we will soon be live in 29 markets with the launch of North Carolina next month. We had a noteworthy technology achievement in January with the approval and subsequent migration of the Entain platform in Nevada. This sets the stage for integration of a single account and single wallet in Nevada later this spring, which is critical to our omnichannel thesis with fully unlocked — and will fully unlock one of the key differentiators for BetMGM by fully leveraging our Las Vegas properties.

Within our international digital space, in the UK, LeoVegas BetMGM’s KPIs have exceeded our initial projections, demonstrating again the strength of MGM’s brand. In fact, by leveraging the MGM Resorts balance sheet, we now offer the highest jackpot payouts amongst all competitors in the US, making our offers even that much more compelling. Turning to our development pipeline. In Osaka, we successfully began liquefaction countermeasures in the fourth quarter, maintaining our trajectory to commence preparatory construction efforts in 2025 on time for 2030 opening. Additionally, in New York. The request for proposal process is currently underway. We anticipate submitting our full application to the government by the middle of this year with a decision expected shortly thereafter.

Putting it all together, our Company is in a great position to generate free cash flow through 2028. We will deploy this free cash strategically to the development projects such as Japan and New York, we’ll reinvest in our existing portfolio through maintenance and growth CapEx, which we are specifically focused on enhancing and expanding our luxury-oriented offerings and the repurchase of shares at attractive levels and investment, which we believe will still continue to generate strong returns. Jonathan, over to you.

Jonathan Halkyard: Thanks, Bill. And before I dig into the financial results, I’d like to join Bill in thanking our employees at MGM Resorts for an outstanding quarter and a truly great year. Well, I certainly focus on our exceptional financial results, we accomplish that and so much more together. Our consolidated businesses in the fourth quarter generated net revenues of $4.4 billion, up 22% from last year, net income of $202 million and adjusted EBITDAR of $1.2 billion. During the quarter, net cash from operating activities was $716 million and free cash flow was $387 million. It’s important to note that $283 million in cash flow from operating activities and $18 million in capital expenditures related to MGM China, and they were included in the quarter.

For the full year of 2023, free cash flow was $1.8 billion. In Las Vegas, same-store net revenues, which excludes Mirage from the prior year period was $2.4 billion, up 10% over last year. On previous calls, we’ve talked about the fact that our operations in Las Vegas skewed towards the high-end with approximately 80% of our Strip adjusted property EBITDAR coming from our luxury properties. Interestingly, this year’s revenues from our luxury properties increased mid-teens for the quarter and the year, representing approximately 90% of our absolute top line growth. And this further highlights the prominence of the higher-end segments in our business here in Las Vegas. Same-store adjusted property EBITDAR increased 3% or $29 million year-over-year.

Margins were about 36% in the quarter, well within our expected range in the mid-30s. In the regions, same-store revenue, which excludes Gold Strike was down 7% year-over-year, with same-store adjusted property EBITDAR decreasing $64 million, or 22%. It’s important to note that approximately $60 million of the decrease year-over-year came from Detroit and National Harbor, where those properties were impacted by disruptions related to a strike and some high-end play not returning, respectively. There was also some lingering cyber incident challenges that specifically impacted the regional portfolio given the promotional offers were not available to our customers for the first half of October. Beyond these specific property circumstances in the fourth quarter, the regional property trends remained stable.

As we look to drive future growth within our domestic portfolio, our centers of excellence and property leaders have identified opportunities to increase our share of customer spend and drive organic growth. We see plenty of both near-term and medium-term opportunities to enhance revenue per occupied room night even beyond the benefits of the Marriott partnership. For example, adaptive pricing will maximize throughput within our high-demand outlets and will further enhance our ability to drive upsells and new product offerings. This includes bundled packages with room, show and food and beverage offerings. We expect these initiatives to drive RevPAR growth in 2024. Improved segmentation will allow us to increase personalization and enhance the guest experience while driving increased NPS and overall customer lifetime value.

An omnichannel purchase behavior by our MGM Rewards members will be enhanced by a single account, single wallet in Nevada later this year. Once in action, our customers will be able to open an account here in Las Vegas and bring that wallet home to continue their experience with MGM Resorts, allowing us to drive targeted marketing and outreach to further cross-sell our digital and physical assets. Moving over to MGM China. Our record adjusted property EBITDAR of $262 million was a 42% increase compared to the fourth quarter of 2019. This was driven by casino revenue which increased 31% versus the fourth quarter of 2019, and more specifically, our main floor segment table games win, which increased 74% from 2019. Margins were in line with the first three quarters of the year at 27%.

Market share was an all-time record in the fourth quarter over 16%, and for the full year, our market share exceeded 15%, which is 600 basis points above our 2019 performance and 300 basis points above our table fair share. On the digital side, BetMGM successfully met its 2023 targets by reporting positive EBITDA in the second half of the year, and reaching the upper limit of its net revenue from operations guidance of $1.8 billion to $2 billion. And let me close with as usual with a brief walk-through of our capital allocation strategy and our valuation. First off, we successfully closed on an amendment and extension of our senior secured credit facility this week. This expands our capacity by approximately $600 million to $2.3 billion, and extends the maturity of that facility to 2029.

The commitment from our relationship banks allows us to sustain our financial policy of a minimum $3 billion in liquidity, while deploying incremental cash for further high-return investments, including share repurchases. As Bill mentioned, we expect to fully fund the equity contribution in Japan and the commercial gaming expansion in New York with our free cash flow. Domestically, we intend to invest maintenance capital of approximately $600 million this year, or 4% of revenue, which is consistent with our historical trend. Major maintenance capital projects this year focus on luxury-oriented offerings, examples being the remodeling of the Bellagio Tower Suite, the Cosmopolitan Chelsea Tower Penthouses, and the MGM Main — Grand main tower rooms.

As of the end of 2023, we had liquidity of $4.5 billion when excluding MGM China. Excluding the cash that we keep on hand to operate our business and keeping with our policy, we have $1 billion in excess cash, which will be allocated to international digital acquisitions, high ROI capital projects, and share repurchases. We continue to see great value in our shares, and during the year, with a $2.3 billion repurchase of our shares, we reduced our share count by 14%. To close, I would briefly like to discuss our enterprise valuation and why we still believe share repurchases are a remunerative use of our capital. Consider the following. As of yesterday, our share price was $47, and we had 320 million shares outstanding. This equates to a market capitalization of $15.1 billion, and if we add our quarter-end domestic net debt and subtract the market value of our 56% stake in MGM China, and analyst consensus estimates for the value of our 50% of BetMGM, then we have the enterprise value of our operations, less China and BetMGM of $10.6 billion.

Divide this by our 2023 EBITDA adjusted for corporate expense and we calculate and implied current trailing trading multiple just 4.9 times. We think this multiple represents a discount to the value that we see in our future cash flows, which provides us further conviction and returning capital to shareholders by repurchasing our shares at these levels. Bill, back to you.

William Hornbuckle: Thanks, Jonathan. Before I open it up for questions, maybe just some general comments on the year. And you’ve heard me say this and use this word resilient and luxury a couple of times. If you think about particularly this last quarter, we were on our heels with the cyber-attack. You all understood what that did to us, and so as we entered October to think we’d end up having the quarter we had, I just — I couldn’t be proud of the organization. And it particularly shown through in luxury. Bellagio after 25 years had its best quarter in its history and its best year in its history. And so it does prove that continuing to invest in these properties in the right place at the right time does make a difference.

And so we’re very excited by thinking about that as we continue to go forward. I think about what happened with BetMGM and ultimately our database. MGM Rewards database now has over 44 million participants driven by BetMGM and ultimately, the omnichannel effect of that long-term we think to pay dividends. Macau is doing amazingly well. I know some of our competitors are wondering what we’re doing. Kenny and the team broke through 20% in the month of January for market share. I’m not suggesting that’s sustainable, but I will tell you, I think we have repositioned those two properties and we’re prepared to compete on an equal basis with anybody in the marketplace. When I think about BetMGM, the original goal five years ago was to get into the top three because we thought it mattered and we have.

We realized there’s focus on product. There’s some things we need to do to maintain and keep market share. And we think moves by that team with Angstrom and other things have done that for us. We realize particularly this quarter there is pressure on regional margins. We know what they did. But remember what Jonathan said, $60 million of the $64 million was tied to two events, the Detroit Strike and ultimately a player in our National Harbor company didn’t come back at year-over-year. We find ourselves we’re one of the best balance sheets in the industry, which well positions us to invest in places like Japan and New York. We are looking aggressively at the UAE. And Gary Fritz and the digital team has constant things in front of us in terms of growing the balance of our worldwide digital business.

And so we’re excited by all of that. And then obviously, if again you follow Jonathan’s math, like every CEO, we think we’re under-traded at 4.9 times, but obviously, you all will be the judge of that. So with that, operator, I will open it up for questions.

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Q&A Session

Operator: Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Joe Greff with JPMorgan. Please go ahead.

Joseph Greff: Good afternoon, everybody. Starting off with Las Vegas, Bill, Jonathan, and whoever else is in the room there, can you talk about maybe isolating in the fourth quarter, the EBITDA contribution from F1? And then you might be still counting the money from the Super Bowl, but do you think the Super Bowl event in Las Vegas is of a larger magnitude than what the EBITDA contribution from F1 was in the fourth quarter? And then sticking to the topic of F1, Bill, you mentioned about maybe had a better price F1 this year and in coming years. Do you think year two can be bigger than year one? Or does it have to level off before it can grow?

William Hornbuckle: Let me give some broad stroke and then Corey and Jonathan both kick in. Look, F1, when you balance it out year-over-year was $50 million to $70 million. It was actually a $70 million increase year-over-year. But if I neutralize the year before, it was about $50 million. We didn’t run lucky the year before. Super Bowl was amazing. It did — we were always concerned. We do great Superbowl parties here. Will it be the kind of event that will drive given the additional expense of the tickets, et cetera, the answer was hands down, yes, and particularly rooms. And it roll them across the board, unlike where F1 was isolated to our premium properties. Super Bowl drove it across the board. We had thousands of people in all of our ballrooms in the MGM Grand Garden enjoying the game and enjoying the festivities.

And so it was a really successful universal event. Las Vegas showed up, and I think we all did a tremendous job hosting it. And where I was skeptical going in, I would look to clearly want to host this again. I think on pricing when it comes to Formula 1, we’re going to be more cautious at some of the outlier properties that we have. We got paid for Bellagio, Aria, Cosmopolitan along the track and we got paid well. I think if you go further away you’ve got from the track with a couple of exceptions, MGM held in there well because of its adjacency to the panic, there’s opportunity to do that better and get more and get more people back into the town.

Corey Sanders: What I would add, Joe, on the F1 in particular, the South Strip in particular, we would treat that probably more like a normal weekend going forward because of the lack of activation there. So we think there’s opportunity there. And on Super Bowl, I mean every cash register from food and beverage entertainment was ringing. So it was much more widespread at every property compared to F1, which was isolated to the luxury.

Joseph Greff: Great. And Bill, maybe this is a good chance for you to revisit any updated thinking and the Board’s thinking on any kind of large-scale digital M&A. Has anything really changed or evolved since the last time you made public commentary on it?

William Hornbuckle: No. Look, I was at ICE last week, I met with Stella, our partner. We’re still very focused on making sure everyone focuses on BetMGM. And particularly, this is a critical year I think for all of us. So it’s about product, product, product and focus. And so that remains the focus for now.

Joseph Greff: Thank you very much.

Operator: The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Carlo Santarelli: Hey, guys, thank you. And I respect that you’ve talked about this previously and not really breaking out kind of impacts from hold. But clearly, in Las Vegas in the third and fourth quarter, you’ve experienced much higher than at least what we’re accustomed to hold percentages. And I was wondering if a) you could perhaps provide some impact in the fourth quarter in Las Vegas from the hold and b) maybe just talk about more quantitatively what’s driving it and how sustainable? Or what you would think if you had to go back and do it again normalized hold is in the current environment?

Jonathan Halkyard: Hey, Carlos. It’s Jonathan. Yeah, we’ve tried to get out of the business of giving of quantifying hold impacts because as you know, there’s a lot of things that cut both ways when trying to isolate the impact of hold. It is — it’s certainly true that we experienced a good hold in the fourth quarter, but I would also say that, first of all, with this customer segment that drove some of those results, you know, the nature of the play is such that it can lead to a higher hold anyway. So the whole idea of what a normal hold is a little bit different. And then second of all you know there are expenses associated with these customer segments including of course the normal complementary, as well as in certain cases discounts in order to induce more rapid retirement of markers and the like.

But look, it was — it positively contributed to the results. There’s no question about that. And but I would also highlight that there were offsets to that, including player-related expenses as well as some other things we incurred in the quarter.

Carlo Santarelli: Okay, good enough. I appreciate that, Jonathan. And then just one follow-up on Macau and perhaps kind of how you’re thinking about things there. Obviously, the results are very good. The market share results continue to be very good. The flow-through in the period was — if we look at it on a sequential basis was a little lower and I’m wondering if that has anything to do with, which is kind of expenses that you’re incurring, or if it’s concession-related programming, things of that nature. If you can give some color on how we should think about 2024 through the context of flow-through and top line growth.

William Hornbuckle: Let me kick it off. Kenny, I’ll turn it over to you. Some of this is simple activity case, to your point. I mean, we have done like all the operatives a good job going after some of the — I’ll use our concert that we just had is a great example of an expansion and overhead item, but to drive overall tourism with Bruno Mars , et cetera. So part of it’s adhering to that. Kenny, why don’t you give some more color there?

Kenneth Feng: Yeah. Thanks for the question. And actually like as you can see like Q4 was a record-high in MGM China’s history. We are happy to see our January performance has continued to grow. So actually, our January performance has exceeded even October levels across all segments, including EBITDA and market share. Currently, we are in the middle of Chinese New Year, or basically which has about eight days celebration to the city as to MGM — as to the visitation to the city has reached about 90%, 95% of 2019 same period levels. As to MGM China, two properties combined, the visitation, the players count, the table drop, that slot handle as well as VIP turnover have all well exceeded 2019 same period levels. So we are confident and we are optimistic with the Chinese New Year as well as the rest of this quarter.

William Hornbuckle: And I might add — Kenny, I just might add. Look, contracts are growing as our high volume continues to increase because again that’s on us versus a junket operative in the middle of that. And I remind everybody on our margins, in particular, we do not — I wish we did, but we do not have a large retail segment, which obviously, there is a massive amount of flow-through if you’re making a $100 million a year in rent, which I know some of our competitors are, the flow-through on that is a lot. We don’t have that luxury so it does impact some of our margins.

Carlo Santarelli: Absolutely. Sorry, because you mentioned it in terms of the contra revenues, it looks like they were 21%, 22% at each of the properties, respectively, in the period. Is that kind of a level that you expect to maintain as long as business mix as it stands today maintain?

Kenneth Feng: Yes, that’s right. Like we are pretty like — like we are — the reinvestment rate actually is pretty flat over the quarters for the past year.

Carlo Santarelli: Got it. Thank you all.

Operator: The next question is from David Katz with Jefferies. Please go ahead.

David Katz: Thank you. Good evening, everyone, and thanks for taking my question. I want to just go back to BetMGM. Obviously, there is a keen focus on product in 2024 as it’s been in 2023. Should we still think about 2024 as more of an investment year for that entity and if 2025 is one where we can start to sort of realize some profits? If you could just talk through the puts and takes for what might cause that trajectory to change this year, next year, that would be helpful.

William Hornbuckle: Sure, David. I’ll take that. Look, I think the answer is yes, you’re spot-on. This will be a reinvestment year. Obviously, you’ve seen we’ve lost share, literally, in both instances. And the two folks that sit above us were being outspent 2, 2.5 to 1 in terms of raw marketing spend in dollars. We want and need to get our product in a better and different shape. We want more parlays. Obviously, the acquisition of Angstrom by our partner will be a big add to that. We’ll be able to stick out more product, we’ll have more confidence in it, speed to market will be better, et cetera. And so that’s part of what will be developed starting with baseball this year. We hope by the time we hit football next year, a lot of the product differentiators we hope to have will be in play.

We hope to have a single wallet in play, as I mentioned in my prepared comments, this spring here. But ultimately, a development year this year, begin to see making some cash next year, and I’m suggesting that by 2026, we’re going to have a very strong first year of — this is where this business is going and should be.

David Katz: And look, it’d be silly for me to ask, as my follow-up, will you or won’t you, and so I’m not. But if you could just help us frame out the puts and takes around whether BetMGM could at some point or how it thinks about controlling that entity and being able to drive the trajectory of that product advancement that makes perfect sense that would be helpful. So it’s obviously a matter that’s discussed pretty actively.

William Hornbuckle: David, I would only echo what I said. Look, with Stella as the interim CEO, the focus on the team for product for BetMGM is the focus. I don’t want to comment on any other further discussion with them at this point. I don’t think it’d be prudent.