MGM Resorts International (MGM) Earnings Call Transcript & Summary

All right. Good afternoon, everybody. We're continuing our fireside chat sessions with the team from MGM Resorts. To my immediate left is Bill Hornbuckle, Chief Executive Officer. To his immediate left is Jonathan Halkyard, Chief Financial Officer. Thank you, gentlemen, for joining us and Sarah Rogers, who runs IR and other areas of finance is also in the audience along with Andrew Chapman.

It would be beneficial to kind of start off sort of big picture. You talked to sort of about this more recently as well. Bill, Jonathan, as you enter into the balance of 2024, maybe you can highlight and talk about what your top strategic priorities are?

Sure. I'll kick it off and turn it over to Jonathan. So look, as we look at and think about our business, obviously, our core operations, our core brick-and-mortar is here in Las Vegas. And so when we think about Las Vegas, we think about the big picture and the long term. We recently launched a Marriott transaction that has been very accretive very quickly, and we can probably spend some time on that a little bit talking about that. We have the return of about 100,000 room nights this year over at Mandalay in the convention business. We think that's going to be very productive ultimately for us. We have like -- we've had every year for the last couple of years now between Allegion and all the other activity case, Formula 1, obviously, Super Bowl. The event activity, specifically around sports has been a key driver for the market. And ultimately, for us, as you think about our portfolio and the leverage up we have with luxury resorts and luxury properties. We have a robust regional business, generally speaking. And it's kind of interesting because I know there's questions, there have been questions, there will be questions around regional, what's going on in the general economy and market. We're looking up something the other day somebody mentioned something. I went and looked it up. In 2009, our regional business only went down like 9%, 10% in 2009. So there are fluctuations in business, whether this that the other thing, but regional business as a core business was pretty solid and remains pretty solid for us. And then really, our big push is digital. If you think about where we are in terms of growth, you talk about the immediacy of growth between BetMGM and its activity case here, which you'll approach $2.5 billion this year on top line. You think about LeoVegas and the activity case we have internationally, we're in 9 or 10 countries now. We just launched BetMGM UK, which has been extremely successful in terms of attracting attention and first-time depositors. And so we're excited about where that business goes. And then if you think about development and you think about companies and total portfolio, there are 4 or 5 places people talk about. There's Japan. Well, we won the license and we're in and we're under -- we're not under construction, but we're under land movement. So we are pushing forward with aggression and aggressively there for opening -- an opening in 2030. You think about New York Obviously, we own Yonkers. We think we're ideally positioned to ultimately end up with a license there and look forward to developing something special for that community. You think about UAE, we've been on the ground since 2015. We're in the midst of a non-gaming hotel project currently in Dubai, which ultimately, we think, is the epicenter of tourism for UAE and could possibly convert into a casino. And then you think about other markets, Thailand and other places, and we think we're ideally suited to go after and pursue. And so whether it's digital or development in terms of brick-and-mortar, we think we're in great shape to continue to expand the company. We think Las Vegas is in great shape, and we think the regionals are holding time.

Great. I'd love to talk about the Las Vegas strip and the regionals, and we can talk about that in a little bit. I think with how I kind of look at your opportunities is that you actually have several needle-moving development opportunities that not everybody in the industry possesses, which is a nice position to be in. Can you talk about each of those 4 opportunities in the order in which you talked about maybe starting with Japan. What needs to happen over the next 12 months to ensure that you're opening around 2030?

Yes. I mean what has to happen here is that we literally get into the ground with pylons. We are slated for mid-summer next year to begin that process. That will go on for about 3 years, by the way, while we do construction. It's a massive site that needs thousands of pylons. And so getting that going will be, I think, the key milestone. And once we get underway there, I think a path to 2030 is pretty clear and pretty straightforward. So I think between now and next summer is really a critical path and critical time. New York, what I can tell you, and this obviously continues to move. We hope this summer to hear something. As you know, there was 2 rounds of questions and the trigger on the second round, meaning when we get answers back to our question triggers a 90-day RFP process. We're waiting on that. We have decent reason to believe that sometime this spring, we'll get those and we'll get ourselves going. You need an entitlement there. We have already begun that process for entitlements. We've designed what we want to design. We've shared it with the community. We have support from that community, and we're going through the entitlement process now. If that were to go through and as we think about it, what we don't know is when potentially if Aquadeck would be in the same boat, we are the third license, when that goes through entitlements, we don't know it may take 9 months. It may take a year from this summer, so now you're in mid-'26. Does the government then say, well, you too go and we'll wait or do we wait all at once? But it would be our hope and desire to be sometime in early to mid-'26 under some form of construction on that one. UAE is fascinating. There is a decree that ultimately will allow gaming that's being proposed and being put forward. I think it will start with lottery. It will go into digital gaming for Abu Dhabi. And the -- probably the actual first license will be issued in Abu Dhabi followed potentially by what's happened with Wynn in [ Russia Kama ]. And then we would hope either through an opportunity in Abu Dhabi, which is something we will understand and pursue or in Dubai. We will go after one, realizing and recognizing that the ruler of each Emirate has to approve that. And so that is how that works.

And so the process for you to be part of Abu Dhabi, can you talk about what efforts you've made so far? What additional efforts you're making the competitive environment for you to get hooked up with the local folks there versus what I'm anticipating would be a great market and therefore, a lot of competition for it. What specifically are you doing there?

We've been on the ground there over 1.5 years. We think we know who the development partner is that the government will appoint that development partner. They've reached out to us and asks for proposals. We're in process with that, as I'm sure others are, as we speak. I think they will go quick in identifying a partner like months, not years like this coming summer. And ultimately, we'll go forward, presuming that the decree actually happens and the regs come out we would go forward very quickly from there or any nominee or any winner ultimately.

And you touched on this a little bit. I mean, where is the regulatory framework today versus where it needs to be to be I guess, finalized?

I think most of the folks know my former colleague, Jim Erin, is the Chair of the Gaming Commission. They've put together a robust group of regulators. The leadership of that comes from Missouri and ultimately, U.S. regulatory environment. They have several dozen people moving and acting as if they're going forward. And so we have not seen them yet. And so I can't speak to what they may or may not have. All that being said, we think and hope post Ramadan, we'll begin to see some of that activity or some of those There are some of those [indiscernible] I should say. .

Great. And then Thailand, maybe that's why it's probably new...

It's early, early days. I think the real question for all of us is going to be at least in the jurisdictions that we currently are in, will the regulatory regime be at a high enough level that it holds muster. And will the government participate in the proper way going forward. And we just -- until we see that, we can't speak to that.

And you mentioned earlier that Thailand you've had MGM people on the ground there. Can you talk about exactly what that means in...

We're like everyone. There's a host of the usual characters poking around. Looking for sites looking for partners...

Are those player development people? Are those relations people? Or are they development people?

Government relations and development people.

Got it. Excellent. And you have no other jurisdictions besides those sizable 4 ones that you can talk about, just kidding.

Well, someday, Texas may become a reality, but I'm never going to be a cowboy so.

Great. Maybe we can talk about digital in 2 parts. Maybe we'll start with the relatively easier one. LeoVegas. How are you thinking about growing that business? How important is additional M&A to grow that business?

So we started that a little over 2 years now. It was about a roughly $650-odd million acquisition. We -- it was in 9 countries. It was Nordic, principally, Sweden of note, and it had a great little business. We like the team. We really like the technology. It lived up in the cloud. It was expandable and it's proven to be the case universally. So we took that team. We went into U.K. with BetMGM. We wanted to prove out the brand. We wanted to prove that we could go to in a market, particularly a mature market and expand it. And we've been able to do that so far. It's very early days. But the activity, even it's last week through their super -- their big race called, Cheltenham has been magnificent -- I mean just truly magnificent. So that business continues to expand. We're looking for other markets now to bring BetMGM internationally, and that will be our next goal and our next aspiration. We also acquired as part of that push gaming. We did that last year. Push gaming is a -- be content provider and content creator, they make games. They continue to do that. They now make games for us. They've put a couple of games on not only our BetMGM and our LeoVegas sites, but they will offer up games for BetMGM Domestic in the U.S., MGM branded games. And again, that is doing exceptionally well. So we have the core PAM. We have the core casino operating kit with Leo. They use Kambi right now for sports. We have push gaming that's our content provider. So there's 2 things missing in my mind, sports betting and sports betting technology, which we are hot on the track of and we ultimately plan on securing on the next couple of months and then live dealer. We think our brand, our name's sake, and what we do is very relevant in that space, and we want to be in that business, broadcasting from Las Vegas and other markets. We currently do it with Evolution. Overtime, we'd like to do it for ourselves. And so there's 4 legs to that stool. We have 2 in play. We have 3 of them. The third one almost done. We have actually both of them almost on third and fourth leg. And so we see that business as scalable. So if you think about a place like Brazil or some other new markets in LatAm, we think we're positioned and ready to go after them and we're excited about that.

I mean how big could LeoVegas direct online EBITDA contribution be in a few years? You reported in sort of this other bucket sort of...

If Brazil takes off, and we gain a reasonable share, I'm talking like 10% to 15% market share, it's a $0.5 billion business, cash flow, it can be.

Maybe we could switch over to BetMGM. Obviously, you mentioned it's $2 billion in revenues last year, growing 25% or so this year, not that quite that big, but growing attractively this year. There has been change with your joint venture partner at their leadership level, recently making comments expressing their willingness to work at the joint venture level to ensure that results continue to move in a positive direction. What specifically can BetMGM do that's sort of more self-help related versus relying on growth of market dynamics to sort of turn into incremental EBITDA generation?

Well, maybe take a step back and put it in perspective. We're almost in any marketplace, whether it's iGaming or sports. And then in totality, we're basically the #3 operative in the U.S. And we're the only brick-and-mortar operator at that scale. And so we're -- frankly, we're proud and pleased of where we are. Having said that, we also recognize, particularly over the last 12 months or so, we had lost share. We lost share in sports betting, and I think a lot of the changes you've seen now in Entain is centered around other things, but this principal thing is that our product isn't and wasn't where it should be. And so they all have recognized it. We obviously have recognized it. We've gone out. They bought a group called Angstrom, which is a Quant House in London, and that will enable us to expand our parley product, which is really all -- if you look at FanDuel's and DraftKings offering of note, their margin is up maybe 200 or 300 basis points from ours because principally around their parley product, and they have other things, but that's the principal reason. So we're excited by that opportunity. Everyone is focused on it. We finally got the BetMGM app now in Nevada. You can -- when you load up your app here from Nevada today, it's the same app as everywhere else in the country. And we have single accounts, single wallet everywhere, but here come late spring, we hope -- we believe we'll have it here as well. And so the idea of now real omnichannel, you come here on the same app, you have a shared wallet, you can take home with you and vice versa. We think it's going to be very productive. So it's between product enhancements, the omnichannel piece, we think we can pick up on here of note, new markets over time that we think that business continues to expand.

And what about iCasino?

Well, it's a fascinating business. It -- we're in 5 of the 6 markets, 3 of those markets represent 60-odd percent of our total TGR in the whole company -- in that company. So it is a critical piece to that business. And so the expansion every single state is a big deal. And so as we think about -- if you could get to 10 or 12 states, that changes that whole dynamic in a meaningful way.

Great. Maybe we can switch over to your land-based operations and starting with Las Vegas, obviously, an important market, a market that you control or have a significant market share in -- how is seasonality today in Las Vegas versus the past? Is there less seasonality? And I always just think of the group business as sort of January through May and then it comes back in the fall, and then the other parts of the calendar year have sort of this lower shoulder impact on operating results. Is that changing at all?

Yes. Yes. I think it certainly has changed. And there's a lot of reasons for the change. Some are features of the market itself. Some are things that our company has done to just get quite a lot more sophisticated in terms of programming across the year. So I think now it certainly is true that there are some periods of the year that are heavier, more attractive for groups but we've done, I think, a very good job as a city and at MGM and programming those softer parts and some of them are very meaningful. We, of course, talked with this group at length about the impact that the Raiders games have on our campus here on the South strip, which really do drive not just a weekend but surrounding days of that. I think the Marriott arrangement is also going to help us just have yet another tool to drive occupancy in a way that's going to be more accretive than it's been in the past.

Can you talk about that in greater detail because I think many investors understand it and very non-deep way, but can you talk about exactly what you're getting out of it, what the consumer gets out of it? What you're sort of replacing that Marriott related business with and how that incrementally benefits your P&L?

Sure. This -- I'll be brief, but this is really an important driver for our company in '24 and beyond. So this really was hatched out of our diligence around the acquisition of the Cosmopolitan where Marriott was a key contributor on the order of 15% or so of room nights to the Cosmopolitan and they had some very interesting data about what those customers spent while on property at the Cosmopolitan. And we've been at work as many companies have for a long time trying to move the transient guest from the non or OTA channels over to our proprietary channels with some success. So we looked at this and said and Bill and Tony Capuano, who said, let's look at this with potential for expanding this to our portfolio, the entire MGM portfolio. So basically, what it is, is that now is Bonvoy members are 185 million. Bonvoy members can book our hotels here and in the regions through the Bonvoy app, earn their points with those stays and redeem their points to stay with MGM properties and only MGM properties. We underwrote this as driving between 600,000 and 700,000 room nights per year for MGM here in Las Vegas. That's against about 12 million room nights per year. So call it 5% or 6% of our room nights. Currently, about 20% of our room nights come through OTAs. If we do our jobs well, those room nights will be both incremental occupancy and take a bite out of the OTA channel with 2 benefits. Number one, it will cost us less to drive those room nights from MGM versus the OTA channel. Number 2, and most importantly, they spend -- they'll book at higher rates and spend more while they're on property. Bill mentioned this has gotten underway now. This is live at all of our properties, and it's delivering in excess. Now it's early, but it's delivering in excess of our base case for that in terms of reservations. Now overtime, we'll understand what these customers are spending on property, but I don't think it's inconceivable that this relationship could deliver 1 million room nights a year to MGM Resorts and be very accretive. And we think it delivers about $100 incremental EBITDA per room night, both from higher rate, lower commission and higher on property spend.

Great. Excellent. The F1 was a success this past November, particularly at the higher end, which is great because that's 3 quarters of your Las Vegas EBITDAR is at the higher end. At the lower price point or at properties that aren't adjacent or on the track, there's less -- noticeably less of an impact there. How can F1 be modified to be beneficial for more than just the top tier properties.

We've had extensive conversations with them. The bottom line is we all got very aggressive last year universally, meaning not just in Bellagio, but all the way down to Excalibur, we were aggressive, not knowing how ticket sales would work, not knowing how they came in. And last year, they released ticket sales over several different periods. And so we didn't know until you didn't know, and it was already into July. This year, it's all going to be released, I think it's next week. They actually go on sale, if I'm remembering correctly. All of them are going on sale. We've priced based on what we now know, which is premium is premium, and we can and when it happen, and we'll get paid for what we believe but places that are south further away from the track down here in the South and the strip will not be at the rate structures they were last year. Because what ended up happening was the crowd that came was great, and we did very well with it, but south end of the strip places like Downtown were hurt by it. And it's the only citywide event I can remember in decades that came that didn't help the totality of the city. And so we've all -- we think we hope we've structured this thing differently. There are single-day tickets now versus 3-day tickets. They're cheaper tickets. The way we've all thought about rooms and packages is different. And so we think we'll go into this with a whole different -- not a whole different, but a different mindset that will ultimately be productive for us.

Great. Macau is not an insignificant part of your company or part of your equity value, your recovery relative to '19 on the mass side of thing, on that side of things has been in excess of your peer group there. Can you talk about what you've done and what you are continuing to do to outperform that market?

Sure. I think a couple of things. A, where we started, we had never really launched Cotai before COVID hit. We launched it, but it never took traction. And so we now, obviously, given time, have now fully launched the Cotai product. During COVID, we recognized we were under suited. And so we went in and we began to add suite products. So in the Cotai property, we added some very high end villa premium suites. We converted some villas and some gaming areas into villas in the Macau property. We converted a couple of restaurants. We have the advantage of historically, we have always had branch offices to feed our network even as far back as 30 years here. When the junkets went away, those branches were still in play. Those people are still in play. That database is still in play, and it's given us a noted advantage. We won the lottery, if you will, in the context that we were ranked first and who got relicensed and what that enabled us to do is ask for and get 200 more tables. And so that has been a major differentiator. And we've reconfigured the casinos in such a way that we think has been accretive to play. Customers have enjoyed and I think now others are replicating. And so you put that together with some pretty aggressive sales on the floor programming. And we've seen -- we've been as high as 20%. That's not sustainable. But I'm proud of what the team has done. We're sitting still only in about 3.5% of our mix of suites. We're going to continue down that track and continue to modify some of the casino floor layouts. And so I like where we are, and I think we'll continue generally in that same direction.

And I think you guys are doing a little bit more in non-Greater China business than peers. Can you talk about that and how that's come about?

Yes. And cats a little out of the bag on this. So I guess I'm not saying anything that the competitors don't really know or do. So we put in a chip in-chip program several years ago, which basically every chip is tracked. And the benefit of that at the time was no errors to the game. You knew exactly where to put your labor. There was a bunch of back-end benefits in terms of accounting, finance, et cetera. And it was meaningful. . When the new regs came out and the marketplace is asking for international business outside of Greater China, which means Hong Kong, Taiwan and China, the only way to track that effectively because it was a different tax bracket was to put it in independent private rooms. And so that meant everyone from Thailand, go over to that little room over there and gamble in there, where customers didn't like it. The one thing that chip and chip enabled us to do and still enables us to do, and we got a huge head start on this, is let people go anywhere they want because we can track their every move and their every play. And so Mr. Jones can go anywhere, probably not a very good time name. But Mr. Jones can go anywhere and we can track every movement. And so it's been a real advantage because customers do not want to be isolated and told where to go.

And what's the feedback been from the DICJ there on this specific initiative?

They enjoy it, they love it because they can see it. They can understand it. It's truly trackable. And now others are -- you've read, you've seen others are now trying to see how quickly they can get to the same piece of technology.

If we were talking about MGM's balance sheet 15 years ago, we'd be having a much different conversation. If we assume there's no more -- if there are no incremental buybacks this year. And based on our numbers of what you generate from a free cash flow perspective domestically, you'll have as much cash as debt in the U.S. What's the appropriate level of excess cash on the balance sheet, Jonathan. How do you see using free cash flow and your cash hoard, particularly in light of the potential development activity coming down the pike?

Well, Bill, at the top of this discussion took us through our strategic priorities. Certainly, my top priority is disciplined capital allocation for this company. I came into this role the company having begun its journey from a traditional bank of Mon Capital structure to an opco/propco lease capital structure. We completed that journey and freed up about $9 billion or $10 billion worth of cash, which we used roughly $7 billion to buy back about 40 -- almost 35%, 40% of the company and the other $2.5 billion we've used to retire debt of the company. So you're correct that right now, there's about zero net debt or thereabouts on the company. So my job is -- it's a fun job, but it's difficult in terms of planning for some of these development opportunities that Bill went through. We expect to drive a healthy free cash flow return from not only BetMGM where the capital is largely invested now and then also reserving capital for New York and Japan, we can fund these investments out of free cash flow. So I think we still have the ability to repurchase shares. But over time, our ambition is to grow free cash flow from operations see these potential future generators of free cash flow, like LeoVegas, BetMGM, Japan, New York, et cetera, while continuing to reduce the share count modestly so that's basically the way that we think about it.

Great. I'll now open it up to any questions from the audience. You are the first person today to ask a question. Make it a good one.

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Look, we like the partnership we're in. I think -- and the good news is, I think with Stella, there's been a bunch of transparency, anyone who listened to our call the other day, recognizing the challenges in front of them, which is you got to recognize the problem to solve a problem. So we like that. There's a new CEO coming. There's a keen focus. We have Adam Greenblatt, who runs BetMGM heading to India in a week to understand exactly the platform, what's going on in the context of how they isolate and get and solved for some of our product needs, if you will. So we like what the relationship is. We obviously follow very closely what's happening with Entain. It's kind of hard to miss. But for now, we're going to stay focused on driving the business that exists today. And ultimately, the other side of BetMGM, which is our LeoVegas business and the rest of world. And we'll take it one day at a time.

Any other questions? Great. Thank you, Bill. Thank you, Jon. Thank you, everybody.

Thank you.