MGM Resorts International — 2023 Q3
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
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.
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.
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.
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 wi start remodeling 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.
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.
Thanks, Jonathan. And just some open comments before we talk questions.
[Operator Instructions] And our first question is from Joe Greff with JPMorgan.
Congratulations on the results. Maybe this is a question for Corey, but for anybody who wants to take it. I kind of think the Mandalay Bay Convention Center coming back is underappreciated as a driver for growth for next year. Can you talk about the group mix for next year and where you think you'll end up for the group mix for this year in Las Vegas?
Yes, Joe, this is Corey. We also think it is a big deal. The convention space will be fully renovated by the second quarter of next year. We expect to pick up about 100,000 extra rooms there next year with still opportunities to increase it. And the beauty of that is that's at a high single-digit ADR increase compared to where we are today. So I think, all in all, strategically, as that building goes, it fills the South Strip, which fills Excalibur and Luxor, which is to the benefit of us as a company.
Great. And then I think I might know how you're going to answer this one, Bill, regarding F1. Last night, the Red Rock guys thought that certain casino operator internal expectations for F1 had come down more recently. Can you talk about what you're expecting for F1, if any internal expectations, at least directionally, have been ratcheted down? And I know Caesars in the past had said they thought in isolation F1 would be an incremental 5% of quarterly EBITDAR, if you kind of want to take a stab at maybe where you think the contribution could end up being for F1 for you guys in Las Vegas? And that's all for me.
Thanks, Joe. I appreciate the question, because if someone wasn't going to ask it, I was going to answer it anyways. We sold over 10,000 tickets to F1. We've sold out a really cool experience with the Bellagio Fountain Club. I think something extremely unique anywhere in the whole sport, but particularly given its location. Our average rate is over $900 for the company. We're going to do over $60 million in incremental hotel revenue for the weekend. And it is 50% above, 50% above any other event we've had in terms of theoretical win.
Joe, what I would add is this is truly a luxury event, and our properties are completely geared up for that. They're in the right location, we have the right database to make this a premium event for our company.
The next question is from Carlo Santarelli with Deutsche Bank.
Bill, you talked a lot about kind of the outlook for next year and obviously a lot of favorable drivers. As you look at the business today, and kind of looking at the nonevent times, how do those -- and I get it, in the quarter, obviously, a lot of disruption from the cyber stuff and whatnot, but how do those periods look relative to, say, last year?
Look, and you know how this works, Carlo, better than most. We have a short window in terms of FIT, but we do know events. And so when I think about the Super Bowl, I think about Formula 1 coming back, I think about the fact that we have an NFL team in town that's going to guarantee us at least 8 games, et cetera, it is fundamentally a foundation for business going forward that we haven't had. And back to Corey's further -- or prior question around convention, it continues to grow. We continue to get back to the market mix that we were, about 18%, 19% of our base in convention, which is obviously the premium rate.
That's super helpful. And then just if I could follow up. Obviously, Las Vegas table hold, which we saw in the Nevada filings throughout the quarter, was very high for the industry on the baccarat side. You guys held well -- so kind of a 2-part question. Any help quantifying the EBITDA impact in the period from the higher hold?
Well, I'll take the second one first and turn it over to either Jonathan or Corey on the broader one, although I don't want to give because we won or because we lost. But having said that, look, we have more domestic baccarat business than we've ever had. There are 3 now prop bets, basically, in every baccarat game that people are taking advantage of because they're fun and exciting. But no surprise out there, they're to the house advantage. A couple of the bets are 10% bets on behalf of the house.
And as it relates, Carlo, to the financial impact of these swings, we've at least domestically tried to get out of the business of giving the puts and takes related to hold. We did, as you noted in my prepared remarks, around Macau, but in the domestic business, we're not going to get into that detail.
Next question is from Shaun Kelley with Bank of America.
I just want to dig into the sort of the domestic margins a little bit more if it was possible. Obviously, a lot going on between hold, which we just talked about, the impact on cyber and everything else, but I think if we try and adjust for some of these, including the union approval, it looks to us like the margin performance was very good, if we kind of stripped this out, both in regional and in Vegas, when we just look at it versus what happened last quarter.
Shaun, it's Jonathan. We agree. We think, both in the Las Vegas market and in the regional markets when adjusting for the impact of the cyber incident, whether you look at it year-over-year or sequentially from the second quarter to the third quarter, that our margins were flat to up in those comparisons.
Great. As my follow-up, just quickly, if I could. We've heard more and more about just promotional levels picking up a bit in Macau. And I was wondering if yourselves are -- I don't know if Hubert's on the line or somebody could comment a little bit more on just what you're seeing over there?
Hubert, since we have you up, why don't we kick it to you.
Sure. Thank you, Bill. Yes. Shaun, I think for the most part, the marketing programs, promotion programs in the market remain pretty rational. We haven't seen irrational behavior among all the operators. And in terms of our own reinvestment, it stays pretty stable quarter after quarter even at the premium mass level. So that's what I see in general. There are a lot of concerts and events that draw a lot of people into the town. And I think that from that perspective it's incremental to the GGR, not only to the market but also to us as well. So I leave it at that.
The next question is from David Katz with Jefferies.
I wanted to just talk about updated thoughts on leverage on a lease adjusted basis and how you think about that in the context of returning capital. We just have many discussions with management teams about where they'd like to be, whether it's 3 to 4, 4-plus, in most cases lower -- some cases lower than that. And I would just love your perspective.
Sure. It's Jonathan. And I appreciate the question. It's something we think about a great deal. Right now on a lease-adjusted basis, suggesting the lease payments by a multiple of 8x, our leverage is about 3.5x. It's a full turn below what we've talked about as our leverage cap.
Understood. And if I can, just as my follow-up, we also have a number of discussions with management teams around how they're thinking about dividends among your peers, and how they should be sized and their importance and relevance. And I'd love your thoughts there, too.
Yes. We've made -- and our Board has made the determination that at least for the time being, and I think probably into 2024, that returning cash to our shareholders through share repurchases is going to be the predominant method of doing that. And that's the best way for us to do it right now as opposed to the dividends. So I don't expect to see our dividend policy changing in the next -- certainly in the next 12 months. But the Board will ultimately [ decide ].
The next question is from Dan Politzer with Wells Fargo.
First, just following the cybersecurity incident in the quarter, any updated way to think about investments in your IT infrastructure or OpEx related to this as we think about next year?
Dan, let me kick it off. As it relates to the -- obviously, we've done a whole lot to lock down systems now. But we're going to look at architecture and how we're designed and how we go forward. And so we're probably looking at some time into next year a $30 million or $40 million capitalization in terms of IT hardware and Cap that goes into it.
Got it. That's helpful. And then -- just turning bigger picture and longer term, I guess, as you think about Dubai, I mean do you see a realistic path to getting gaming legalized there?
Yes. I mean, look, we think so. Obviously, we've got boots on the ground. I think you all understand our former CEO is now chair of the gaming commission there, which is very real. And so they've taken a swag at it. You all know what Wynn is doing. We like Dubai for all the obvious reasons. There's 20-odd million visitors, they've got 140,000 hotel rooms. That sounds familiar. The current structure we have is hospitality management only. To the extent we actually get into casino, it's obviously we're not a management company for a casino.
The next question is from Robin Farley with UBS.
I had a question about, if I'm understanding the slides correctly, you talked about the decline in Vegas and you said $80 million was due to the cyber issue. And I guess total EBITDA was down $91 million and maybe would have been more without some hold. I know it's -- you won't quantify it, but if we -- so if we're thinking about that other $10 million, is that -- is there anything else you would call out, because it looks like, I guess, same-store EBITDA would have been down a little bit even without the cyber issue. So just anything else you'd call out there?
Not in particular, only just differences year-over-year that occur. Sometimes it's in gaming results, sometimes it's in other cost elements, but other than the things that we called out, nothing in particular that we would...
Programming. And I think obviously 2022, particularly third quarter, was an all-time quarter. And so just as an equal comparative, you've got to keep that in perspective.
Okay. Great. Helpful. And then just as a follow-up, looking at the level of repurchase. I know -- I think at times during the third quarter, you talked about sort of potentially looking at different international iGaming opportunities. And should we conclude, given the amount of repurchase, if you continue with this rate, you will have kind of used up -- maybe, I think you even call it excess liquidity or something in your slides -- that that will be down to just a couple of hundred million by the end of the year if you kind of maintain the same rate of repurchase that we saw here. Should we think about that as a sign that you're less interested in making an acquisition in iGaming internationally?
Well, look, if you're referencing Entain, which I think you are, our position has not changed. If we think about iGaming and the platform, obviously we've gotten aggressive in U.K. and we're excited by what that opportunity brings. Obviously, it's a highly developed market, but we've taken some share. We've got a meaningful brand, and it's good to see our LeoVegas team go up against I think some of the best and see how they can do.
And I thought that you might -- last week Entain said something about how they expect to invest more in the joint venture next year even though you guys have talked about being EBITDA positive. And you didn't necessarily call that out, but would we assume that you would invest equally, in other words, that you would maintain that 50% -- if they're talking about investing more, you're thinking about doing the same thing for BetMGM? And then -- that's it.
Okay. Thanks, Robin. And look, I'd love them to invest more than us, but that's not the way it's going to work. So yes, we'll invest side -- purposely side by side. We believe in that business, we recognize, particularly as it relates to sports, that our product over the last 18 months wasn't where it needed to be. And you've seen us do a great deal of work around single account, single wallet. Entain bought Angstrom, which we think will be a very -- not will be, is, and becoming a very good push for us with parlay product for odds, the quantum of odds that we set, the amount that we can put out there. And so we're excited by that acquisition and what that's brought to the business.
The next question is from Barry Jonas with Truist Securities. Mr. Jonas, perhaps your phone is on mute.
I appreciate the commentary on F1, but curious if you can provide any additional color or metrics on how Super Bowl is shaping up?
Yes, I'll kick it off, but Corey -- it's interesting, where we've seen a great deal of international single visitation on F1, Super Bowl, maybe not to your surprise, is about corporate America. And so it is showing up in multiples, in terms of multiple groups taking -- Corey, if you'd take -- just a great deal of inventory.
Yes. If you look at the large -- the groups that have booked for programs for F1, we're actually about double in Super Bowl. So we're seeing some really strong demand there. It's driving ADR. We're pretty optimistic about what Super Bowl will bring for us from a casino and leisure side.
Great. Great. And then just as a follow-up, as you look across your markets or other parts, maybe parts of the database, are you seeing any noticeable impact from the macro environment we're in?
No, we're not really seeing any -- we continue to book at the elevated ADRs, the regional trips and rated days customer values seem to be where they've been in the past.
Barry, I think the discussion will ultimately come down to the regionals, not necessarily top line but bottom line in margin. And just keeping those things going strong. obviously, we'll wait and see what happens in Detroit here, but we'll come out of that like we always do. And then it will be about regional margins, I think, in bottom line more than top line, at least as -- anything we can see suggests that.
The next question is from John DeCree with CBRE.
Maybe one more to shift back to Macau, if Hubert's still with us. The trends in recovery in Macau are still trucking along nicely for the market as a whole. There's obviously a lot of discussion about macroeconomic issues in China. So there seems to be a decoupling.
Go ahead, Hubert.
Yes. Thanks, John, for your question. I think that, first of all, I think Macau, I believe that the recovery is going to continue. The government issued their forecast for next year during their budget session. And we are looking at a GGR number for next year around USD 27 billion for the entire year. And this is quite consistent with our belief, our own expectation and the market consensus as well.
Yes, Hubert, that's great. I appreciate that commentary, very helpful. Maybe one for Bill or Jonathan back on the U.S. as a follow-up. Couple of different questions on OpEx inflation, and property insurance being a big one that a lot of folks have talked about, Bill, you've just commented on that. But maybe looking ahead, excluding labor, which we've talked about, is it your visibility on OpEx, does it feel like the inflationary impacts have been borne already? Or what do you expect going forward, I guess, kind of your outlook for cost inflation over the next couple of months from where you have visibility?
Yes, setting -- it's Jonathan. Thanks, John. Setting labor cost aside for a moment, and even insurance, which is -- in a way, it's more pronounced in a couple of our regional properties than it is in our Las Vegas businesses, we expect inflation in our -- some of our core inputs to be low single digits. And -- but at the same time, Corey and his team have dozens of initiatives against our cost structure so that we can minimize the impact on that overall and maintain margins in our Las Vegas businesses in the range that they've been for the past several quarters.
The next question is from Chad Beynon with Macquarie.
I know a few calls ago, we spent a lot of time on the Marriott strategic partnership, and Bill, you talked about that as a catalyst for '24 when that launches. Can you just give us an update, since it was slightly delayed, just in terms of how we're thinking about the overall impact kind of replacing those lower-yielding rooms to Marriott direct customers, if we should start to see that real benefit in '24? Or does it just appear that the city is busy enough right now where maybe we're not getting that full benefit, and this will be more of a '25 and beyond positive for you guys?
No. I think it's '24, because I think the booking cycle for Las Vegas, even with this group, because we've seen it obviously mirrored at the Cosmopolitan is pretty much in line with everything else. They go a little earlier because they want to make sure they can use their points, et cetera. But there's a clear window over the next couple of months.
Okay. Great. Another one with respect to '24 in terms of Lunar New Year. I believe Lunar New Year and Super Bowl are coinciding over the same periods. Have you seen any indication just in terms of bookings from some of that international bacc play? Does that come in a little bit closer to that event? And given that Super Bowl is around the same time, should we expect a lower positive from that?
Well, yes, they do line up, so I can't change that. It's one of the few years that they do. So what I think you'll see, we've seen increasing international bacc play as year has gone on, and I think we'll see it, hopefully, and believe it will continue into 2024. I think we're going to see a lot of folks at a football game who don't necessarily know football very well, but are inviting guests or want to see a spectacle. And so yes, there's some overlap to it.
And for that holiday, it does expand for a little bit over a week. So we will separate the party from the Super Bowl to make sure that we maximize both opportunities.
Hopefully, there's a compounding effect. I appreciate it.
And the last question today is from Jordan Bender with JMP Securities.
We've talked about in past calls just on the A's relocation and if there is a CapEx requirement maybe as part of that. But does it make sense to maybe potentially expand the asset base on the south end of the strip just given your liquidity position?
So update, I literally was with their team and their owner yesterday. They are excited to be coming. The vote is, I think, on the 16th for the owners. And obviously, they have to get through that. They won their court case this week, which was important. There was a petition here in Nevada to slow them down. And so -- and they actually showed me the design, which was spectacular, I might add. So we're all excited by that.
Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Hornbuckle for any closing remarks.
Thanks, operator. I made my comments earlier. Again, I just want to call out to our staff here for getting us through this cyber attack. I appreciate everyone's patience with us. I appreciate your trust in us, and ultimately, anyone coming next week, let's go racing, because I want to have some fun for once, I'm tired of this. Thank you all.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.