Yahoo Finance MGM Resorts International (NYSE:MGM) Q1 2024 Earnings Call Transcript
MGM Resorts International (NYSE:MGM) Q1 2024 Earnings Call Transcript May 1, 2024
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 First Quarter 2024 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, Executive Director and President of MGM China Holdings; Hubert Wang, COO and President of MGM China Holdings; and Andrew Chapman, Director of Investor Relations. All participants are in a listen-only mode. After the Company's remarks, there will be a question-and-answer session. In fairness to all participants, we do ask that you please limit yourselves to one question and one follow-up. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Andrew Chapman.
Andrew Chapman: Good afternoon, and welcome to the MGM Resorts International first quarter 2024 earnings call. This call is being broadcast live on the Internet at investors.mgmresorts.com, and 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 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 a 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 Jonathan Halkyard.
Jonathan Halkyard: Thanks, Andrew, and good afternoon, and thank you, everyone, for joining our call. We've decided to change our approach to these calls in the New Year to give you a more focused recap of our results with additional color and commentary around our plans for the future. With that in mind, I'll start the call with a discussion of the quarter and our growth algorithm and then pass it over to Bill for his comments. As you saw from our press release, we delivered another record quarter across our Company's consolidated businesses, generating record net revenues of $4.4 billion, up 13% from last year, net income of $217 million, and adjusted EBITDAR of over $1.2 billion. During the quarter, cash provided by operating activities was $549 million and free cash flow was $377 million.
This includes MGM China's $215 million in cash flow from operating activities and $15 million in capital expenditures. In Las Vegas, we achieved 4% net revenue growth, supported by strong ADRs which were up 7% year-over-year. Our luxury resort offerings on the strip served as a distinct competitive advantage driving top-line growth, up 5% during the quarter. Looking ahead to the rest of the year, rate is pacing ahead of prior year for each of the remaining three quarters, and Group rooms on the books are up year-over-year. In the regions, it's no surprise that our businesses were broadly impacted by poor winter weather in January. That said, we experienced a quick recovery in February and acceleration into March. This also will be the last quarter where we need to adjust for same-store results as Gold Strike closed in February of last year.
In Macau, we lapped what was really the start of the recovery last year and achieved another record with net revenues up 71% year-over-year. MGM China earned its first-ever $300 million quarter in Adjusted Property EBITDAR, along with market share of 17%, surpassing the previous records set in the fourth quarter. Given the strength in MGM China's operating performance over the past 15 months, MGM China and MGM Resorts, both agreed there is no longer a need for MGM to support its liquidity. And in March, the subordinated loan agreement was terminated. Further, their revolving credit facility has been nearly paid down and dividend payments have been resumed with approximately $94 million to be paid to MGM Resorts in the second quarter, all very encouraging.
Aligned with our ongoing commitment to fortify our balance sheet and bolster liquidity, we recently completed the closing on the offering of $750 million of senior notes due 2032 at 6.5%. These proceeds were used to repay our 6.75% 2025 notes. Sarah Rogers and her team did an exceptional job and the refinancing not only extends our liquidity profile but reduces our interest expense annually. Finally, in Japan, along with our partner ORIX, our venture closed on the JPY530 billion project financing for MGM's Osaka Integrated Resort. This was the largest project financing ever in Japan and one of the most significant integrated resort financings globally. With this important milestone achieved, we'll continue to develop this soon-to-be iconic resort.
We also bought back over $500 million of shares in the quarter and as of yesterday, we've reduced our outstanding float to 313 million shares, 37% fewer than the start of 2021. I'll close with a summary of our financial growth algorithm. Our resort operations generate both significant and recurring cash flow. In 2023, cash provided by operating activities was $2.7 billion and free cash flow was $1.8 billion, of which MGM China accounted for $830 million of net cash from operating activities and $45 million of capital expenditures. This implies around $1 billion of free cash flow domestically. We expect to see benefits soon from our digital business with BetMGM beginning to generate significant free cash flow in the next couple of years and LeoVegas beginning to generate returns from its investment period.
This free cash flow generation will fund future growth and opportunities where I expect minimum mid-teens returns. This includes international and digital expansion as well as brick-and-mortar development. In the longer term, we have an enviable pipeline of limited license development projects in New York, Japan, and potentially the United Arab Emirates, which will drive free cash flow growth over the next decade while also diversifying our geographic reach and earnings sources. Any excess cash generated beyond these projects within the constraints of our financial policy will be returned to shareholders through share buybacks. Collectively, we see this algorithm as driving the compound annual growth rate of free cash flow per outstanding share to be the mid-teens through 2028, all while investing in the Japan Integrated Resort.
Bill, over to you.
William Hornbuckle: Thanks, Jonathan, and good afternoon and good evening, everybody. I am the color commentary that Jonathan spoke to in his opening comment. And what I want to do and what I hope to do in the future on these is go through some top-line thoughts as we think about the business and reiterate things that I think are important, obviously in what happened in the quarter, but more importantly, from a go-forward perspective. Obviously, when we use the word record first quarter, and if you look at and think about recent reporting, we're pretty excited and pretty pleased with that. It speaks to our diversity of our business and our four key pillars, Las Vegas, our regional properties, Macau, and we believe ultimately, our digital business.
We're obviously very excited and pleased by what's happened in China. Our EBITDAR is up almost 80% and it's 140% over 2019 levels, so it speaks to that market, and I think what we've been able to accomplish. In Las Vegas, our strength continues, particularly at the high end, we make roughly 75% to 80% of our Adjusted Property EBITDAR. The idea of a luxury campus and being focused on the epicenter of activity here has paid off and we feel will continue to. And Marriott is off to a great start. We've booked approximately 75% over our expectations. And to date, we've booked over 140,000 room nights. And the most surprising thing to date has been the Group business. The activity case in that segment was a little unexpected. They do know a lot of folks that we didn't know and we're quite pleased by that.
And again, as I always start these, a kudos to our team, our net promoter scores have never been higher. We're holding these scores on margins that have delivered. You saw the margin this past quarter at 37% for Las Vegas. And so, we're very excited by that. And I want to thank the team who was doing more with less and doing it better than they've ever done it. So, thank you. As it relates to capital allocation, you've heard Jonathan talk about the credit facility. That's about $3.6 billion in Japan. That represents the largest public -- private financing in Japan's history. And we've also been able to hedge about 60% of that project against what obviously has been a massively over-inflated yen in our favor over the last couple of years. And so, we're well into that positioning at 60% of that project hedged for the future.
And obviously, we continue to leverage the balance sheet. You heard Jonathan say we've bought back 37% of the Company and we'll continue to do so where we see value. If I think about Las Vegas first, again, another strong quarter, principally driven by the high end. Although we did see some signs of fatigue at the lower end of the market, overall ADR was up 7% in the first quarter and are expecting to hold that range into the second with increased occupancies looking at the second quarter and through the balance of the year. We're excited by the opening of connectivity between ourselves and Cosmopolitan. We finished the bridge that ties out Cosmopolitan, Vdara, and Bellagio. And next quarter, I'll talk to you more extensively about plans to do a similar thing in the front of Bellagio that will tie out the front end of the strip to the Cosmopolitan and creating what we truly hope is a luxury campus.
The other thing that's obviously beginning to materialize, we saw the closure of the Tropicana and the advent of the A's stadium is coming. And if you just take a moment and think about the positioning of us and all of these stadium/arenas between T-Mobile, Allegiant, and the new A's stadium within a mile and really at the epicenter of our resorts, we have over 1 million seats a month that are accessible to some sport or entertainment activity and programming. We had suggested in prior calls that our Convention business was returning and it is and it has, most notably from tech. Our Group forecast is up 6.5% for 2023 and our year-to-date production is up 29% for all future dates. And I will tell you that Mandalay Bay in April just had one of its most successful months in its history.
And so, we're excited and pleased by the team and the work that they've done down there. Despite all of this, we've continued to maintain the margins. And I want to remind something on the wage. Obviously, the wage impact this year was almost 11% in Las Vegas or actually across the Company if I think about some of the individualized properties, but particularly across Las Vegas. Come June 1, that begins to cycle. And overall, if you recall what we did, we did a 5.5-year deal with just over a 5% CAGR. And so those percentages now will begin starting in June, at least as an increase, begin to fall. And then if you think about Las Vegas, maybe my final comment, Tropicana has closed. Obviously, the Mirage is pending in what may or may not happen there, but we don't see any new inventory for a considerable period of time.
And obviously, we think that accretes favorably to us and ultimately our current players. You heard Jonathan's comments on the regions and I think you've heard from many others, the quarter started slow. There was bad weather, particularly in the North and the Northeast. Detroit was particularly impacted by weather, by strike, and still a hangover from the cyber, but each month has gotten progressively better. And in March, we returned with 47% market share. And so we are pleased by where that business is going directionally as well as the balance of our marginals. And Corey promised all of us a 30% margin and we hit it. And so, given the wage increases, I'm pleased with that team and excited by that as well. Macau, as you all know, for us in particular, but I think for the market is simply booming.
We continue to maintain, I think, an ex -- an outsized portion of share, we're at 17% for the quarter. Obviously, record EBITDAR. We paid our first dividend since 2019. We heard this week about visa reforms and I think some of the regions are opening up without needing visas at all. And so I think that accretes all to visitation and obviously in all of our favors. And if we recall, the market is probably back at about an 80% rate. So, we still see some uptick and some growth there. For us, in particular, we're excited by some of the enhancements. We're adding new Villas at MGM Macau and Suites in Cotai because we are under-suited in that market. We have a new show that was announced. Johnny Moe, the producer of the 2008 Beijing Olympics is producing a show for us, which we're very excited about.
And we have a world-class museum currently under construction at MGM Macau, which will begin to satisfy and speak to some of the cultural things that we promised the City and Macau in general that we'd do. And so overall, couldn't be more pleased with the team and the job. And I will make this comment. Margins there, if you'll see are 29% for the quarter. So, despite the hyperbole about all of the promotional activity, particularly aimed at us, at 29%, I just query that and I challenge that, and frankly, if we had retail to the extent of someone like two of our competitors, we'd be in the low-to-mid-30%s. And so, I'm excited by what the team continues to do there and obviously, we expect and see, and as we've seen again in April, that to continue.
Moving over, digitally, there are some challenges, obviously, in North America, we are focused with BetMGM on our product and Angstrom integration and we are working hard at that. We've launched single account, single wallet everywhere but Nevada and you will see that come to fruition between now and football season. And Angstrom has now begun to give us additional parlay offerings in in-play betting for Baseball and NBA, and we hope to bring that to fruition again with football this fall. So, lot of work to do there. We recognize the product efficiency, but I like the roadmap. I like the team. I like the focus, and I like where we're going. Outside of the US, LeoVegas, particularly now in Sweden has seen a return. There was a whole relicensing procedure there that cost everyone including us, and that was their primary market.
So, LeoVegas is on the rebound. BetMGM UK, which we spoke about last quarter, is doing exceptionally well. We've established a real presence there. And again, something we're excited by. And then yesterday, saw the first soft launch of BetMGM in the Netherlands. And so, the BetMGM brand will begin to extend itself throughout LeoVegas' network and beyond. Overall, our digital strategy remains the same. At some point, we want to be self-sustaining with all site features, including producing our own games and our own product. Some of the initial work by Push, we've mentioned before, is doing exceptionally well, and we're excited by that. You'll see live dealer up and operating between now and the end of summer here in Las Vegas. Very excited to understand that and the value that that could ultimately bring our digital business.
And the idea that we could do live dealing from Las Vegas and put it out into several global markets, I think is going to be interesting and fascinating for the business and a good brand builder of note. And we are also looking at two LeoVegas business, LatAm in South America and some additional Eastern Europe, are countries for exposure and for expansion. On the development pipeline, we've talked about this, but now that we have financing in place, we put our consortium in place, excited to be going forward with real construction and we hope to be in the ground sometime next spring, summer, driving pylons with a -- we still have an eye on a 2030 opening and nothing is to dissuade that at this point. So, we're excited by it. We're excited by the design, the development, and the fact that we've gotten this next most important phase behind us.
And so, we're pushing forward aggressively. You heard Jonathan talk about, we had UAE, we have an eye on Abu Dhabi in Dubai as that unfolds. And so to the extent something becomes meaningful, obviously, we'll keep you all posted. I will say we're somewhat disappointed with the process in New York, but we have been --we've been there since I think 2015 or '16. We will remain patient and we will remain focused. And the good news here for us is, we like our chances, the City of Yonkers has full support behind us. And so, we think that's meaningful as we come ultimately into the process that will entail. It sounds like next spring, if you will. And then like many others, we have an eye on Texas and Thailand. Time to tell what happens both in those two markets.
Obviously, it's a government process that's ongoing in both places. But we are there and we are just trying to understand those opportunities for what they may ultimately bring to the Company. In conclusion, you've heard me use this word in the past, and I think probably more than any other quarter, it came through in this quarter, the word diversification of our products and diversification of our business. Obviously, Macau did a great deal of lift this quarter. Las Vegas held its own. The regionals are recovering. And the digital business has been fully funded and we're looking forward to what it can do ultimately down the road. So, with all of that, I will turn this open to questions.
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