MGM Resorts International (MGM) Earnings Call Transcript & Summary

Good afternoon, and welcome to the MGM Resorts International 2021 Annual Meeting of Stockholders. I'll now turn it over to Jim Freeman, Senior Vice President of Capital Markets and Strategy for MGM Resorts International.

Good afternoon. On behalf of the directors, officers and employees of our company, welcome to the Annual Meeting of Stockholders. This meeting has 2 parts. First, we will convene the official stockholders meeting; and second, we will hold a question-and-answer period. In order to ensure that the business of the meetings proceed in an orderly fashion, we ask that you please observe the meeting rules which are available on the meeting website. We've allocated time for Q&A in today's agenda. [Operator Instructions] Some of the comments and responses to your questions during today's meeting may include forward-looking statements under the safe harbor provisions of the federal securities laws. Such statements include -- involve a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements, and we assume no obligation to update them. Attending this meeting are members from our Board of Directors and the following members from management, Bill Hornbuckle, Chief Executive Officer and President; Corey Sanders, Chief Operating Officer; Jonathan Halkyard, Chief Financial Officer and Treasurer; and John McManus, Executive Vice President, General Counsel and Secretary, who will serve as Secretary of this meeting. And now I would like to welcome our Chairman, Paul Salem.

Thank you, Jim, and good afternoon, everyone. First, I wanted to start by thanking Roland Hernandez for his service on the Board. Roland has been a valuable Board member for almost 20 years, serving in various leadership roles during this time, including as lead Independent Director, Chairman of the Compensation Committee and Chair of the Audit Committee. We are grateful for the contribution Roland has made to this company and its shareholders over the years, and we wish him nothing but the best in his future endeavors. With that, I hereby call the 2021 Annual Meeting to order and welcome Bill Hornbuckle and John McManus, who will conduct the official portion of this meeting.

Thank you, Paul, and thank you to the rest of our Board as well as our stockholders who have joined us today. John, will you please cover the procedural formalities?

Thanks, Bill. I have the Notice of Annual Meeting of Stockholders, which is dated March 26, 2021, and the affidavit of mailing stating that on or about March 26, 2021, we mailed to record stockholders the appropriate proxy materials. Under the company's bylaws, notice of any stockholder proposal must have been provided no later than February 5, 2021. There are present, via proxy, stockholders entitled to cast in excess of a majority of all votes entitled to be cast at this meeting, and therefore, I declare a quorum to be present. To ensure that our meeting today is conducted in an orderly manner, we will follow the agenda and rules of conduct. Your cooperation in following the agenda and rules of conduct will allow us to treat all stockholders fairly and ensure an informative meeting for everyone. The polls are now open and will remain open while I read the resolutions for consideration at today's meeting. All stockholders entitled to vote at this meeting have the ability to do so online. If you are a stockholder entitled to vote and have not yet voted or if you want to change your previously cast vote, please do so via the website used to access this meeting. Please remember that if you've already voted via proxy, it is not necessary to vote again. After voting has been completed on all matters on the agenda, we will close the polls and provide the preliminary voting results. Today's first proposal is for the election of directors and resolution for this proposal is resolved that the following persons are nominated to serve as directors until the next annual meeting or until their respective successors have been appointed, Barry Diller, Bill Grounds, Secretary Alexis Herman, Bill Hornbuckle, Mary Chris Jammet, John Kilroy, Joey Levin, Rose McKinney-James, Keith Meister, Paul Salem, Greg Spierkel, Jan Swartz, Dan Taylor. The next proposal relates to the ratification of the company's selection of the independent registered public accounting firm for the year ending December 31, 2021. Ed Ricks of Deloitte & Touche is participating in today's meeting online and has indicated that Deloitte does not have any statements to make. He will be available to answer any stockholder questions during the question-and-answer period. The resolution for this proposal is resolved that the company's appointment of the firm of Deloitte & Touche LLP as its independent registered public accounting firm to audit the consolidated financial statements of the company for the year ending December 31, 2021, and to audit the company's internal control over financial reporting as of December 31, 2021, be and hereby is confirmed, ratified and approved. The third proposal, known as Say on Pay, enables our stockholders to vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in our proxy statement in accordance with the SEC rules. The resolution for this proposal is resolved that the stockholders of MGM Resorts International approve, on an advisory basis, the compensation of our named executive officers as disclosed in the company's proxy statement in accordance with Item 402 of Regulation S-K, including compensation discussion and analysis, the summary compensation table and related tables and disclosure. The final proposal relates to an amendment to the company's charter to authorize the issuance of 50 million shares of preferred stock. A copy of the revised charter was included as an appendix to the company's proxy statement. The resolution for this proposal is resolved that Article 4 of the amended and restated articles of incorporation of MGM Resorts International be amended by deleting the current Article 4 and replacing it with the form of Article 4 set forth in Appendix A to the company's proxy statement. As the resolutions have now been presented, this will conclude the items to be voted upon by stockholders, and the polls are now closed. I am pleased to announce that based on the count of the votes by the inspector of elections, Broadridge, the preliminary results of voting show the company's nominees for directors, as named in the proxy statement, have been duly elected as directors of the company to serve until the next annual meeting or until their respective successors have been appointed. Also, according to the preliminary voting results, the proposals for the appointment of Deloitte & Touche to serve as the independent registered public accounting firm for the year ending December 31, 2021, and the advisory vote on compensation of our named executive officers have been approved. The proposal to amend the company's charter to authorize the issuance of preferred stock was not approved. The final results of the voting will be filed with the SEC and the current report on Form 8-K. Thank you very much. Bill?

As there's no further business before the meeting, the official segment of this meeting is closed. Before we turn to questions, I want to take a moment and thank the thousands of MGM Resorts colleagues around the world who have helped work so hard over the past year. I, along with the other members of the senior management team and Board, am eternally grateful for the resilience and commitment that our employees have shown throughout this crisis. Together, we have faced and overcome numerous challenges from complete property closures to reopenings to adapting to a constantly changing operating environment. We have the best people in the business, and more than anything else, that gives us great confidence in our company's future success. Before we go to questions and answers, I'd also like to call out Jane Garcia. Jane, I see your live post on the Internet. I just want to continually thank you and all of our shareholders for your continued support. But without it and your passion, we wouldn't be the company that we are. So Jane, as always, thank you. We'll now proceed to answer any questions that were properly submitted. Jim, will you please begin with the first question?

Sure. Bill, this first one is for you. We've received numerous questions on the topic of sports betting and iGaming. What is MGM doing to drive revenues and market share in this space?

Thanks, Jim. Great question. We see the U.S. sports betting and iGaming market as one of the most exciting growth opportunities for MGM Resorts today and believe our joint venture BetMGM has the best attributes to be a long-term leader in this space. BetMGM has the backing of the MGM brand, strong community presence and market access in states where MGM has a physical property as well as differentiating omnichannel offerings that its top competitors can't provide, our joint venture partner Entain, who brings a technology platform, game library and proven experience in successfully operating in the online space. We believe that these competitive advantages have propelled BetMGM to become a leader in the market. It's the clear #1 U.S. iGaming operator. It has also solidified its position as a top 3 operator in the U.S. online sports betting. While BetMGM will remain an investment for the company for the next few years, we firmly believe in the significant value it has already created and that it will drive longer term and therefore also believe in the return on our invested capital will be attractive.

Thank you. John, the second question is for you. When will MGM's mask mandate be lifted?

Thanks, Jim. For the safety of our employees and guests, we will continue to require masks at MGM Resorts properties at this time. We will revisit the mask policy and other health and safety protocols consistent with guidance from health experts, changing regulatory requirements and the input from our guests and employees. We've already begun rolling back other measures including physical barriers like plexiglass, hand washing stations and others. This allows us to continue increasing capacity and accommodating the growing number of guests. This all goes back to one of our main priorities, supporting the vaccination of our workforce and communities. We believe vaccination is among the most important tools in ending the pandemic and returning to normal. As Nevada's largest employer, MGM has an opportunity to make a meaningful difference in vaccination efforts through our on-site vaccinations at Mandalay Bay. Our focus is on removing as many barriers as possible, making it easy and seamless as possible for folks to get vaccinated. In addition to our employees, we are vaccinating their families, entertainers and third-party vendors who work on our properties. The more people who are vaccinated, the more we can roll back COVID protocols and continue our return to normalcy.

Thanks, John. Paul, the next one is for you. We received several questions regarding the level of compensation paid to NEOs and our Board members. How do you justify that in light of the pandemic?

Thank you for that question. In response to the pandemic, we made several important changes to our compensation structure in 2020 in an effort to reduce cash compensation to our NEOs and preserve the company's liquidity position. First, we reduced the maximum annual bonus opportunity for each of our NEOs to 50% of their target bonus. Second, in connection with the new employment agreements for Bill, Corey and John, we reduced the amount of cash payable in favor of equity incentives. In addition, as a result of 2020 performance, our NEOs forfeited the RSUs granted to them as part of their 2019 annual grant as well as the PSUs granted to them as part of their annual grant in 2017. We also provided both our directors and executives the opportunity to take all or a portion of their remaining 2020 cash salaries in stock. Four directors opted to participate in this program, which does not include 3 directors that already elected to receive all of their 2020 cash compensation and stock as part of their annual deferral elections. Bill elected to receive 100% of his remaining 2020 salary and RSUs, and Corey and John each elected to receive 50% of their remaining salary and RSUs. In addition, the Compensation Committee of the Board has engaged F.W. Cook to evaluate and make recommendations regarding the competitiveness of our NEO and director compensation program. As part of this process, F.W. Cook reviews the compensation practices at the company's peer companies and general market trends to help inform the Board's compensation decisions.

The next question we've got is on diversity. What are the company's efforts to diversify both the management team and the Board? Paul, can you speak to the efforts at the Board level? And Bill, can you discuss from the management team's level?

Sure. I'll take the first part. I can speak to the Board first and let Bill provide the management side. Over the years, we've been very mindful of ensuring diversity and fresh perspectives at the Board level. In fact, 4 of our 14, or 29% of our directors, are female, which is higher than the S&P average last year, and half our Board are new directors since 2017. We also believe that our MGM Board, comprises a diverse skill set, has aligned and evolved with our corporate strategy over time. With the creation of MGM Growth Properties, we brought on John Kilroy with extensive real estate experience. Furthermore, Barry Diller and Joey Levin bring significant digital experience to the Board as sports betting and online game become a key growth opportunity for the company. Finally, as we look to our director succession planning efforts, I can assure you that diversity will remain one of the key factors of any director candidates we consider in the future.

On the management side, MGM Resorts is firmly committed to building a diverse workforce and sustaining an inclusive culture. As of April 2021, our racially and ethnically diverse employees comprised 72% of our workforce in the U.S. and 44% of management. Over the past year, we have introduced a number of initiatives to help improve diversity at management levels with the goal of folding -- holding our leaders accountable to our commitment. By way of example, we have launched HR workforce and diversity dashboards for each of our property leaders and the heads of each of our Centers of Excellence. We've also put in place a system of robust data and tracking for gender and racial diversity across the workforce and at all management levels. Further, in September of 2020, we introduced a new accelerated leadership development program for a high potential talent. Participants were drawn from our VP and executive director levels, and the cohort: 40% are female and 39% are diverse. Even though our succession planning progressed, we are strongly focused on gender and racial diversity and ensure the majority of our slates have diverse benches.

Thank you. John, the next question is for you. What are the requirements for someone to be on the Board of Directors? And also, are shareholders allowed to nominate people to be considered for nomination?

Thanks, Jim. The Board is committed to identifying diverse nominees with substantial professional accomplishments that are leaders within their industries. In evaluating potential nominees, the Board considers their skills, backgrounds and personal characteristics in light of the perceived means of the company at the time. In addition, the Board has established process for stockholders to nominate candidates for consideration in accordance with the terms of our bylaws. For detailed information on how to nominate candidates, please refer to the notice concerning stockholder proposals and nominations section of our proxy statement, which is available on the company's website.

John, we'll stay with you for the next question. Why do Directors Diller, Levin and Taylor not directly own any shares in MGM while they are compensated for serving on the Board?

Thanks for the question. While Mr. Diller and Mr. Levin do not personally own shares in MGM, they represent the largest shareholder, IAC, which owns 12% of the company or 59 million shares. They have also elected not to receive any fees for their service on the Board. In addition, Mr. Taylor has accumulated almost 80,000 deferred stock units, well in excess of the director ownership guidelines. Using yesterday's stock price, that reflects $3.2 million in value that he has invested in this company.

Jonathan, the next question is for you. Will MGM bring dividends back to pre-COVID levels?

Returning cash to our shareholders is a critical component of our long-term approach to capital allocation. Naturally throughout the last year, preserving our liquidity was of utmost importance as we navigated the crisis. Now with an improving backdrop in our core domestic business and a solid path to sustained positive free cash flow, we've progressively begun to shift our posture from capital preservation to capital allocation. And in the first quarter, we resumed our program of capital returns to shareholders through share repurchases. As we move forward, the management team and the Board will continue to evaluate how we return capital to shareholders, whether through dividends and buybacks, and it will also likely be measured against our future growth opportunities.

Corey, you have the next question. Will parking still be free for locals after the pandemic has subsided?

Thanks, Jim. Our service and business needs are changing rapidly as Las Vegas continues its recovery. As demand grows and visitation continues to rise, we are evaluating amenities we are bringing back, and we're pleased that we can expand our workforce to accommodate the increasing number of guests. Our self-parking and valet amenities are included in such offerings that are currently under evaluation, and we have yet to make a decision. We understand that implementing paid parking is not one of more -- the most popular decisions we made as a company. That being said, when paid parking was in place, we were able to improve the overall parking experience for our guests, and this has had a positive impact on our company's performance. We are focused on maintaining a customer-centric operating model, and we'll be thoughtful in whatever we ultimately do.

And finally, Bill, this last question is for you. Are there any plans to build a new resort or a major retheming of a current one?

Thanks, Jim. Our growth opportunities are targeted in line with our long-term vision of being the premier gaming entertainment company in the world. This includes investing in the sports betting and iGaming space through BetMGM as well as our continued efforts in enhancing our strategies around customer loyalty through our digital journey. In terms of new development here in Las Vegas, we like our portfolio of assets and don't currently have any plans for another new resort at a major -- or a major retheming. However, we may look to invest some capital in Empire City in the event that we are awarded a full casino license in New York. And furthermore, our long-stated goals are to diversify into Asia. We're working together winning a casino license in Osaka, Japan with our consortium, with ORIX, a very well-known Japanese financial services company. Before we close, we'd like to thank you, our stockholders, for joining us today, and thank you for your continued commitment to this company. This concludes our meeting. Thank you all, and we look forward to hosting you next year.