MGM Resorts International (MGM) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Thomas Allen, Morgan Stanley's U.S. gaming, lodging and leisure analyst. I'm very happy to have MGM Resorts joining me here. We have in front of you Bill Hornbuckle, the CEO; Corey Sanders, who just walked through the door, the CFO; and Jim Freeman, SVP of Strategy; and Cathy Park from IR. So thank you all for joining. Before I get into our discussion, I do have to read a disclosure if I can find it. Here it is. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So with that, we're going to get going. Bill, again, thank you very much.

So COVID has obviously had a meaningful impact on your business with every one of your properties closing down at one point. Now all reopened, which is great. Can you talk about what you were doing to get customers comfortable going back to your resorts?

Yes. Sure, Thomas. Good afternoon, everyone, and thank you. A lot of things. We put together a comprehensive 7-point safety plan. It was important. And I think if you reflect back now, we've been open since late May in Mississippi. We've transitioned our way all the way through Park in late September. We've not been the epicenter of any challenges. Our industry, I think, has treated this with reverence and respect. I think we've helped lead the way, put together a comprehensive 7-point plan, everything from social distancing to all the appropriate cleaning protocols. We put a lot of technology in play with digitization of checking in on a mobile device and other things that enabled us to -- while it hurt occupancy at times, particularly during the summer, we had restrictions around pool capacities and therefore hotel occupancies, I think we ended up in a good place in terms of safety. Obviously, we've all seen and are very focused on the last 3 weeks now, the rise in our various markets in terms of COVID, take it all very seriously. The other thing we focused on -- and we just actually hosted -- I think you maybe talked -- I talked about this in my last conference call. We hosted a group last week, 2 weeks ago now, with the Convene with Confidence program. And what it is, it's a testing protocol environment that we put on top of everything else that we're doing that we tested this group -- it was 220 members. They came in. They were tested on arrival. It was a partnership we put together with CLEAR. And so they had on their phone a pass. The pass was good for 24 hours. They got tested the following morning, then they were allowed to go back in to various meetings and conferences that they were hosting. It was amazing. It worked exceptionally well. And it's -- look, it's not going to bring back large-scale groups. Right now, the state is still restricted to 250, but it's clearly a step in the right direction. So staying focused, keeping our employees healthy and safe, ultimately putting things together like Convene with Confidence. We're in a better place. But as I think we all know, we got a long way to go.

I think New Jersey and Pennsylvania have been putting out stats on the number of employees that have actually caught COVID in the casino industry, and it's been remarkably low, like, I mean, under 1%. So the industry is obviously doing things to stop the spread. Can you just highlight a couple of those things?

Well, look, we do a massive tracing, tracking program. Well, let's go by if we find somebody who does -- and interesting, to your comment, got me thinking about it. Half the time, we find it's activity that occurs outside of the buildings, not the workplace, whether it's home, family, friends, other activities that some of our employees do. And half the time, it's potentially work-related. But staying focused on the protocols, every time they come in, their temperature is checked. They have to wear a mask. They have to wear -- in certain environments, we have Plexi everywhere if you haven't seen the casino floor of late. In terms of kitchens, in terms of restaurants, it's all socially distanced. You can't touch a paper product in a restaurant now. It's all mobile technology to order. Same with room service. The room service of old is basically it's a drop-and-go environment, mobilely order it. We drop -- we leave you -- it's mostly paper product or plastic product. But it's doing exceptionally well. It's actually changed the economics of that department, which is much needed, I might add.

Sure. So hopefully, one day, we will be an environment where COVID is no longer the main discussion point. And with recent updates, hopefully, it's sooner rather than later. Can you talk about some of the things that you think are going to last post-COVID, right? I mean I -- hopefully, we're not going to be having to get our room service dropped off in front of our rooms forever, and we're not going to have to wear a mask in casino forever. But some of the initiatives that you've put in place that you think are going to be long-lasting and will help the profitability of the company?

Yes. I think -- well, there's several different fundamentals. Again, I mentioned to you earlier, 40% of our customers now are checking in on a cell phone. So we've managed to digitize that. It ultimately becomes your room key. But if you really think about that, we now have direct connectivity with 40% of our customers. At a place like Park MGM this past week -- and it was literally over 50. As you skew younger in demo, there's more people using mobile devices. I think when we get the business and convention environment back, it will even grow more. And so now it kind of got you. And so now when you talk about things like wallet share and you talk about how I can connect to you, when you talk about personalized offerings in terms of what I know you like to do and how I can reach you while you're here, Las Vegas average visitation is 1.2 times a year, give or take. I might not be able to get you back quick enough, but I can absolutely drive to you while you're here. And so we're highly focused on that. We think that will last forever. Virtual queuing is another great bonus. You don't wait in line anymore -- not that there's a lot of buffets open but any restaurants. We virtually queue you, which means you go wander around the casino. We've seen that be productive. Obviously, mobile gaming, sports betting -- we'll talk about that hopefully a little bit -- have all taken off. We're all -- we're absolutely 110% behind all of that. And so we see a lot of things. Yes, you'll be able to get room service, but it will be different. It will be -- you'd be staying in a high-end resort. You'd be staying in a suite. If you stay in a value property, it will probably stay drop and go for a very long time. I think the day of the buffet, with a couple of exceptions, has come and gone, and they were cash burns for all of us. And then we've been very focused on the crime of this year, and there are many. Anyway, February for us was a great start. Our margins have begun to return. 2020 was working. The additional programs we've now put in play during COVID, on top of 2020, we let go another 80-odd senior executives. So we now work in an environment where one property lead oversees 2 actual properties. And we've spread that across the organization. And what it's also done is it's forced their reliance and need to use our centers of excellence. And then we've tightened all of those up. So when we get out of this, and fundamentally, we will, we believe that, we think we're going to be much better shaped economically. So if you just put all this together, it just adds up, we think, to a great difference.

So with the third quarter results you just put out for your regional properties, the non-destination regional properties, your revenue was down about 15%, your EBITDA was up about 7%, your margins were up about 770 basis points, right? I mean those are pretty amazing numbers given everything that's going on. Can you talk about how you're generating those kinds of results?

Look, well, couple of things. At top of the funnel, obviously, there's not a lot to do in various markets. So people are coming in and spending more time on device, more time in the environment. Labor, labor, labor. We've been extremely focused on labor. And frankly, we've only offered services and amenities that are ultimately very meaningful to today's environment. And so we question down the road -- as we think about entertainment, as we think about the phases, as we think about some of the ancillary things we do, do we continue them? Do we modify them? And do we stop them? And frankly, there's some that fall in each one of those buckets as we go forward. We've learned a lot in -- places like Tunica, Mississippi are off the charts right now. Springfield was actually making some money for the first time, which was encouraging. That's all about labor. And so we've learned a lot about what we can do, how we can tighten up the floor, how we can tighten up the times around games, restaurants and activity case. And we hope to push -- I don't hope. We're going to push that forward into the future.

And the other piece, Thomas, is just the marketing efficiencies...

We can't really hear you.

Yes, sorry. Let me move closer. The marketing efficiencies especially in the regional properties. From everything -- it used to be older customers snail mail to now mailing through electronic forms, not having to do all the events that we would have had in the -- not putting the reinvestment in because these are some of our better customers. They're still getting the investment they used to get to some degree, but they're the most profitable customers we have, the higher-spending customers. That marketing efficiency has helped the margin also.

So as we think forward, you obviously have a really big presence in Vegas, and you have taken costs out of that. But I'm often asked the question, where will there be a bigger opportunity long term compared to history, Vegas or regional markets? How would you answer that question?

Look, when you're at 47 million visitors, obviously, we're going to rely on some organic growth. And I said it earlier, I'll say it again, fundamentally, I think conventions come back. The need for people that want to come to a destination like this and be entertained at large scale all comes back. We're not ultimately worried about that. Matter of fact, to the contrary. But there's only so far this marketplace can go and grow. There are some regional markets that continue to entertain, to attract us, if you will. There's not a lot of them. We're not going to replicate the model -- I'm looking at my window at Caesars -- I think that you see in that environment. But there are some opportunities that exist out there. But to me, the growth is really in 2 different verticals, and it doesn't have either to do with Las Vegas or regionals. It's really about Asia. It's ultimately about taking a bigger piece of digitization of gaming, sports betting, iGaming. We've launched BetMGM. We're excited that we're literally third in every marketplace that we're in now, which is 8 of them. We just launched in Tennessee. We're doing exceptionally well in Indiana now. And so we see that as a large-scale future opportunity for the company domestically and over time, hopefully, globally. So we think the real growth, the growth that's going to move our needle when we're doing $3-point-something billion is going to come from Asia, places like regrowing back and growing more into Macau and ultimately, hopefully, Japan, and pushing hard on sports betting initiatives, iGaming initiatives domestically and in other places around the world. We think that has some real long-term potential.

And sports betting and online gambling is an exciting topic and the big growth avenue in U.S. gaming for sure. Can you talk about some of the things you're doing to drive the success you're realizing?

Sure. Look, it's going to be interesting. Our general view is there'll be a series of maybe 4 or 5 winners in this space at scale. And you've already -- obviously, you guys follow it very well, so you know it intimately. We got a slow start, although a big start in that we partnered with GVC, obviously a scalable international brand. We gave the business attention, but we almost hurt it more than we helped it in the beginning. And at the end of last year, beginning of this year, we revised our approach. We started thinking about it more, and we went at it aggressively. We both got -- we, GVC and ourselves, got behind the business. We're now investing up to $450 million into it, and presumably, we'll invest more. We like the positions that we've been able to take. We like what it has done in the context of omnichannel for customers. We've already begun to see customers going back and forth. I spit out a couple of statistics last time. We talked about this on the earnings call. In New Jersey, simple example, there are 167,000 customers sitting in BetMGM that have not been at the property within over 3 years. And some we've never -- most of them, we never knew. Inverse of that, the folks that -- we've put 25% of the customers through MGM M life into BetMGM. Then you look at the spend that those people take, and it's 10, 11, 12x more if they're present in every channel. And so we're excited by what all that could bring and what it means. We think it's a long haul. We think we're going to have to invest for the next couple of years in this business. And ultimately, in '24, '25, you'll begin to see some returns. It won't be for the faint of heart. You're going to need real platforms and real differentiation. We think we have that. Our retail experiences, whether it's in sports betting alone or ultimately the opportunity to enjoy these resorts, is pretty compelling. And we think our ability to tie that all out is a differentiator that puts us above and beyond most others. And I also believe as the market stretches beyond 32-year old males who are heavily dependent on sports betting and it stretches itself out when you start thinking about in-play betting and other activity, where my wife starts to play and my grandmother and just people getting excited by a casual bet, much like the lottery, we're positioned as a brand and as a company to really take advantage of that. So we're excited by it. iGaming is even more exciting. For now, we're the lead in New Jersey. We hope to replicate that in every state that it becomes available. Margins on that business are great. Customers last longer. And so we're excited by what that ultimately brings. And obviously, we know that space really, really well, and there's an easy connectivity between those customers and our own brick-and-mortar.

So you have obviously the brick-and-mortar side of your business, and you talked a lot about the omnichannel approach. You also have a lot of partnerships you've made with companies like Yahoo!. Can you talk about where you think -- where you are in that -- in all that integration? Are you in the early innings? Are there good anecdotes you can use of what you've done and success stories?

Yes. Look, I think we're in the very early innings. Yahoo! is just getting integrated. Now for the first time you can -- literally, within the last month, go on the Yahoo Fantasy app, click on it and end up in BetMGM. You just had -- you had to go find it before. So the integration of all of that activity is really just now beginning. Same with M life. You now get signed up as an M life customer for the first time in both applications. We have all of the apps now on one app save Nevada because of regulatory. And so ultimately, we'll have a common app and, I think more importantly, a common wallet that you can come to places like here and go -- if your state allows it, go home to your state, use the same wallet and be able to enjoy activity not only while you're here but ultimately back at home. And so we're pushing aggressively in all of that. You've seen us out marketing in every state we're in. We don't do a national campaign -- we can't, which is kind of interesting compared to some of the competitive set, with Fantasy. But we're heavily aggressive in New Jersey, ultimately in the other states, Colorado, that we're in, and we're taking share. And we like what we're doing. We've seen the valuations and what it means ultimately for particularly FanDuel and DraftKings. We've seen what it's done for Penn with Barstool. And we know we have great product. GVC has been doing this for a decade. They have over 350 games on the iGaming side alone. And so product is there. Technology platform is there. And our ability ultimately to connect things like an e-wallet where you can use it here and in sports betting and iGaming and universally have it and then potentially take it home with you, it's something we think will be very meaningful in the long run. So we like the share. We like the increases. We've seen them in every state that we've been in. We hit the ground now in the last 4 states day 1 that just opened. So our platforms, our people, our environment, our regulatory environment is ready to go day 1. And we hope to continue to do that as we think about -- 3 more states just came online, as you know -- or are going to come online, I should say. And so we hope to be there first and make a difference.