MGM Resorts International (MGM) Earnings Call Transcript & Summary

Okay. So moving right along. We're happy to have the team from MGM here. We have CEO, Bill Hornbuckle on my left. And then on his left, we have Jonathan Halkyard, CFO. Thank you guys for being here.

Our pleasure.

I wanted to start off a little bit more high level and just kind of talk about what you're thinking in terms of your strategic priorities for this year and going forward?

Sure. Obviously, you've all seen the investment and the push we've made into digital and so I think if there's any single thing this year that will stand out, make a difference and I think where the company is highly focused is in our digital presence and the inflection in that business. I mean I think you'll see our BetMGM business at $2.5 billion, give or take. And I think you'll see our Internet interactive group go to about $0.5 billion with Brazil on the horizon. And so the inflection of that business is kind of priority one. Obviously, continue to stay focused on Las Vegas, all that it offers. I think where the market has gone, bodes to our strength in terms of youth of customer, average spend, millennial and when you think about our assets between Bellagio, Cosmopolitan and ultimately ARIA. And I think that leans into our strength, and we'll continue to do that. We feel our regionals are solid as a rock, irrespective of what's happening in Washington, D.C., that business continues to perform. And so we like our regional position and Macau continues to perform well. We've continued to hold share in the mid-teens, and that hasn't stopped. And so we'll continue to do the kinds of things that we do there. But I think singularly this year, it's an inflection in the interactive business and with BetMGM. And then obviously, our development cycle. New York is just around the corner this year. I'm heading to Japan next week to begin to put some ultimate pins in that program and pushing that forward. And so we're excited by all of it, but I think that's the biggest inflection point.

And if we think about kind of the demand you're seeing in Las Vegas in the first quarter on your fourth quarter earnings call, you talked about strong trends domestically in the first quarter. What do you think is kind of underlying that demand and driving that strong demand in the first quarter?

Yes. We -- we talked about it a bit on our earnings call in early February. We started out the year with an exceptionally strong January really coming from all quarters. And the gaming business was strong. Rates were strong, not only from the FIT and transient business, but also groups. February and March are playing out just as we expected they would. We've talked at length about the impact the Super Bowl had on our results back in 2024. Super Bowl, that event was very successful here in Las Vegas, but it's never the same as having it in Las Vegas, at least from a room perspective. But the first quarter is playing out exactly as we anticipated, strength from all sectors. The groups are performing well, in particular, toward the end of February into March, which are very strong group months across the system. So all in all, I think a pretty good start to the year. And as we look out to the balance of the year, our results as a company and here in Las Vegas, I think will get a little bit less choppy than they've been in the past couple of quarters because we won't have some of these comps year-on-year. And as Bill mentioned in his opening remarks, we expect to see this inflection in the results of digital businesses, which we've improved our disclosures a little bit more transparency to really show how those businesses are playing out.

And so you've identified $200 million of operational efficiencies, I think you've called out $150 million you would expect to realize this year. Can you remind us kind of where that's coming from, where you're most excited about?

Sure. When we use the word efficiency and excitement in one sentence, I don't know if that's exactly the right combination. But we are on track to do that. We've seen it already. About 35% of that is what we're charging folks to do various things, I'll go through a couple of those. And the other 65% is mostly efficiencies tied to labor and some other things that we've done throughout the organization. It wouldn't surprise you to know that our resort fees have gone up. It wouldn't surprise you note some of our parking fees have gone up. If you've bellied up to an ATM machine lately, it wouldn't surprise you to know that those fees have gone up. And so some of it is fee-based, based on general volumes, and we were under market in a couple of instances. And so I think we've positioned ourselves well and we're already seeing a return on that. And then a lot of it is just general best practice between the deployment of technology. This device, particularly on the front end, we went through something last year at New York-New York, where we push what we call the front desk of the future. If any of you have been over to the property, we used to have this massive desk with about 24 wickets. We're down to 5 around a corner. That desk has become a bar with slot machines in it literally. We have kiosks. We have people checking in on this device now. We now have it on the Internet for desktop. And so we continue to begin to push those functions. A couple of mornings ago, I ran into a robot roaming around the floor Bellagio cleaning carpets and so we continue to do those kinds of things with automation. And nothing's ever a lay out, but I think the $150 million is well within our site.

Got it. And then you have the MGM Grand renovation this year. What's the overarching strategy behind positioning the property, repositioning the property? And then what's next on the horizon?

Look, we hadn't touched those rooms in about 12 or 12 years, right, 12 plus. By the way, the vast majority of that furniture is ending its way over at the Excalibur. So while we're redoing the MGM, those rooms are getting repurposed at the Excalibur as we speak. And so it's an ongoing evolution, if you will. And we've continued to do that kind of thing, particularly for Luxor and Excalibur. We took Bellagio. And if you walk into a Luxor room, you'll see Bellagio furniture from a day gone by. As it relates to MGM, it is a significant step up. We put $300 million into those rooms. We were getting noise from our conference business and rightfully so. And so you'll see a good step up. And we've taken out the tubs in literally every -- and we had literally from the original MGM tubs and all the restrooms. And so a lot of it's infrastructure, isn't pleasant. It's nosier than most of our deals only because we're impacting plumbing. But we're attacking the infrastructure, the look. And if you see it, it's highly sophisticated, orientated towards group and leisure customers, and we're down -- we've got about 600 rooms done already or something of that effect.

Yes, more than that now.

And it's -- I would clearly invite you all to go see it because it is a marked difference from where the MGM has been, far more sophisticated, far more elegant, and we think a great product.

And this is a step, I mean it's a big step because of the magnitude of the property, but a step in a process, the company has been taking on since 2020 with the systematic renovation of all of our rooms here in Las Vegas. Very important because there wasn't much capital invested in the last decade in the rooms, but now we've gotten through basically all of the rooms at the Bellagio, all of New York-New York, Bill mentioned Luxor, Excalibur. Next year, we'll take on ARIA and then in '27, '28, Mandalay Bay and have done this really with very little disruption at all to our revenues. And this is important. We're going to reduce the average age of our rooms from about 9 -- since remodel from about 9 years, a few years ago to 4 or 5 years now, and that will enable us to sustain growth in ADR and retention and growth of this high-value group business among other things. So really important capital program but not crazy in terms of maintenance CapEx. We're still spending only about 4%, 4.5% of net revenue on maintenance CapEx in this market. And I think doing things responsibly, like Bill mentioned with Luxor and Excalibur, pretty skinny expense but still improving that room product while we're at it.

And you presumably have enough space around the strip that minimal to 0 disruption to any type of group activity.

Yes, not -- certainly not to groups. The MGM Grand that will have a bit of an impact on revenues this year just because it's -- at any time, we have 850 rooms out as we go through it. So that will be probably a $65 million impact for the year, one that we'll be able to cover with some of the efforts that Bill mentioned around our efficiency programs. In the past, though, I mean we got through New York-New York renovating that entire hotel with virtually 0 disruption to revenues.

And then in terms of your positioning in the Las Vegas overall market in kind of some of the nongaming stuff that's been added like the Sphere, and we're talking about the Tropicana potential spot for the Oakland A's. How does that benefit overall visitation in kind of your business?

Well, and I know you've all seen and some of you, I'm sure, have experienced by now the transformation to sports. I mean what happened at T-Mobile in the heart, obviously, ultimately, what led to Allegiant. And if anyone's been to a game there, I'm sure many of you have, if you go to a Kansas City game at San Francisco pick a team, there are as many visitors as there are homebound, which is -- I'm sitting not far from Mark Davis. He's not happy and I'm loving it. And so a market increase. Look, we always fill the town. This has always been about and frankly, will continue to be about yield and what you bring in and what RevPOR is doing any particular event activity. Sports has been and will continue to be a key driver. I had an opportunity to meet with John Fisher last week. Baseball is coming. It will happen. What is around it? What ultimately Bally's decides to do, time to tell. But he shared with them, and I think you probably saw last week, they announced the park. They announced the final design. They announced a sponsorship, which is interesting, the first of its kind for baseball anyways with Las Vegas and the city of Las Vegas. So every time someone comes up to the bat on the left shoulder is a patch that says Las Vegas. If you're left handed, I think they get you put it on the right. And so all of that activity case is meaningful. And if you think about us, I call it the Golden Triangle, but we've got T-Mobile, Allegiant and now baseball. And within that group, our 36,000 rooms are literally no more than 700, 800 yards away. And so it's meaningful to us. Sometimes we don't -- and I'll give you a good example. Shakira I just saw in the billboard as I was coming over here for Allegiant. I could argue that Shakira should be at T-Mobile all day every day for economic reasons and otherwise. She wants to be there, God bless her, but it's our neighborhood. So people walk over the bridge and they come back, not the end of the day for any of us. I feel the same way about baseball. I wouldn't be surprised to see that ultimately, the stadium there becomes the home of NFR at some point and other activity that will really solidify not only it and baseball in that location, but it's literally in our front yard. And so we're pretty excited by all of that, and it continues to drive yield more than anything else.

Got it. Switching over to the digital side of things and maybe starting with BetMGM. The guidance that the team at BetMGM gave assumes $250 million of incremental EBITDA. I think the flow-through is a little bit higher than peers. Like what are you seeing from that perspective? I think if we look at the state reports, handle GGR share has all accelerated since some of these product improvements, but kind of talk about what you're seeing there?

Yes. Well, it pins itself to product improvement, full stop. Well, there's 2 sides. There's product improvement and I'll give you a simple example, like last year during the Super Bowl, not the Super Bowl, but the one year ago, we had a commercial. The commercial cost us was all said and done $13 million. Probably in retrospect wasn't the greatest idea. Frankly, nor was it a great commercial, to be honest. So other than that, it was fine. But our ability to pull back on macro, people know what BetMGM is now, particularly in the 28 states it's in for sports, our ability to pull back on marketing and really pump the product, single game parlay, omnichannel, a single wallet now, people can come here and take the money home with them and they do speed, just some of the simple things. We're not the fastest, but we're twice as fast as we were. And so I think we've stopped losing -- I don't think I know we've stopped losing share. I think we see a lot of green shoots, particularly in February -- January, February and March so far. And so everything we have seen would suggest that the projection we've given is real and that we think we can hit that target. The flow-through is about 70%. So you go, well, that's interesting. I would suggest historically, maybe we did some things that we've learned from and marketing-wise and expense-wise.

Makes sense. And then you recently launched the Nevada single wallet and can you kind of talk about the benefits that you're seeing there? I would imagine that it's pretty great considering that...

Yes, it is. Look, we're the only one that has it here. It's early days. And so to the extent I can come here and take my money home and continue in Colorado or any one of these other states that allow this is compelling. It speaks to omnichannel. We have a ways to go and tying the back end out from a rewards and a recognition perspective, but particularly for premium customers, we host at BetMGM, just like you host in any one of our brick-and-mortar casinos, players. They have a host assigned to them. They look after them, they take them here to the Super Bowl. We had a whole contingent come out for the Super Bowl that were just from BetMGM. And so after 4 years, we're dialing all of that in and beginning to make it, I think, more and more meaningful and starting to show.

And if we kind of look at what both you've said and what we can see from like the Illinois State data reports in terms of parlay mix, you've obviously done a lot there in terms of improving the product and getting your handle mix and bet mix up there. But how do you think about the live betting opportunity as a way to continue driving engagement?

I think it's real. We were part of and we BetMGM underwrite the purchase of Angstrom, which was a big quant house that basically sits in London. There's about 50 folks in the room who sit there all day every day looking at odds, playing with odds, giving us real product and comfort around that product. So our single-game parlay cards, our live card, it's as a percentage of our business has continued to increase like double digit every quarter. And so we're getting more and more excited by that. It is margin. You can appreciate at some point, the top line is going to begin to plateau or slow. So for our business, it's can we get to 11%, 12%, 13% margin, particularly on some of those products? And I think the answer is yes. As we hopefully wait for, and we think there's a couple more states left for iGaming in the near future. I won't say the immediate future. But I think for us, it is about margin, it's about product, and that is the key differentiator between where we were versus where I think we'll ultimately get to.

In terms of iGaming legislation, we've seen a lot of it proposed since Ontario went live in 2022. What do you think is the reason that it hasn't gotten past? Or what do you think needs to happen in order for some of these states to get over the finish line?

Well, I think it's somewhat when a state has a need for tax. And so we tend to look at the blue states, if you think about who actually allows it today, just by the way they're governed, the programs they put in play and the need for tax dollars. It wouldn't surprise me to see Maryland, New York, Illinois, hopefully, and ultimately, Alberta this year consider and put in play iGaming just for that very reason. It's not the panacea we had hoped. I think you all know this in our business, and I think just about our competitors, iGaming in 6 states, but arguably in 3 is 2/3 of our top line and a vast majority of the bottom line in terms of contribution. What happens in Michigan, Pennsylvania and New Jersey are meaningful. And so to the extent a single state comes on board, there are big numbers to be had there.

Makes sense. When we think about your wholly owned digital business, how do you think of growth there? I think you guided to a similar loss this year to last year, obviously contemplating the launch in Brazil. How do you think about same-state growth there from a revenue perspective and also next states on the horizon?

Look, well, remember, that business is not U.S.

Sorry, next countries.

I think there's 2 things we're trying to do -- there's 3 things we're trying to do. Tipico, which was the sports betting software we bought, just went in play this week -- excuse me, last week in Finland, operating slick and fast, which is great. Now Finland is not exactly the world's largest market, but it's up and it's operating. We're going to take that to the Netherlands. We're ultimately going to take it to Brazil this summer. And so the idea of converting off a Kambi to our own system it's just a margin game. I mean, we're paying 10%, 11%, 12% for Kambi, and now we're not going to be doing that. And it's a good product. As a matter of fact, it's a very good product. So we're excited for that. We got push gaming, the other acquisition we made with inside that business to now BetMGM. It's gotten licensed in the U.S. So BetMGM can begin to carry its products. And so that's a big deal and a big differentiator year-over-year. We're excited for them. Brazil, though, is the push. Brazil is really where it's all going to be about. We think initially, it's an $8 billion market. We have an amazing partner in Globo. I mean think about CBS, ABC and Disney combined in the context of media and eyeballs. And so as we begin to dial that up and we will begin to do so soon. The -- everyone is struggling within Brazil right now, getting people online. You have to have facial recognition and the -- to get through a sign-up process is extensive. We think we've found something very specific and special to us in Globo because of the way they sign up people for movie subscriptions and anything else in all their other products. We think there's leverage off of that database and off of those people, which I think ultimately will uniquely position us to really excel there because if you're not online already, it's laborious. And so we're excited about where that goes. We have to really begin to dial that up within the next 4 to 6 weeks. But I think Brazil will be that story. I think that business, as is BetMGM in a couple of more markets. U.K. is stabilizing, Brazil goes from $0.5 billion to $1 billion top line business.

And for those who follow our company's financial results closely, I'm sure most of you do. Just this past quarter, we began breaking out MGM Digital along with our other main reportable segments Las Vegas, the regions and MGM China. So we're doing that purposefully so that our shareholders and potential shareholders can see the progress that we're making in these digital businesses.

And when we think about Brazil, obviously, there's not a ton of information on kind of how the market is trending so far. But I think if you think about it from your perspective and what you've seen. Is it similar to in Ontario because we had kind of a gray market here before it officially went legal? Or it sounds like you're saying that it's going to be much better, it could be much better.

It will be bigger for sure. I believe it will be bigger. Put for sure, take it for granted. But it will be bigger. Yes, look, as you know, it is a great market. So Betano and a lot of these other brands had been there and continue to go forward. Unlike in some markets they didn't make them reset so they could just keep going, which is what it is. So we've got catch-up to do, particularly all the new legit license brands have catch up to do. But I think we will get there. When Globo has on television, a betting odd show with the top guy I'm trying to put an equivalent to it here in America. But just pick your favorite Fox Sports show, promoting the site, promoting gaming, promoting activity, promoting odds, promoting well how he has a view on certain games, I mean it is a big deal there. And we are everywhere there right now in terms of brand because of their exposure. And so again, I mean, we'll see, but I think it's Ontario plus over the long haul.

Got it. Moving on to maybe talking a little bit about Macau, yourselves as well as peers kind of talked about a longer tail to the Chinese New Year this year. Is there anything underlying that you think drove the longer tail?

I think there was an active understanding from the government in Beijing and the Xi administration to extend some spend and spending. And so I think they were promoting that in general, and Macau was a benefactor to that of note. And so the tail was long. And what we've seen is not new. I mean, we saw that last 2 years ago last year and now this year, they have extended stay. And it goes -- particularly last year and this year, the first 3 days are kind of at home family friends and then they show up in a place like Macau and they'll extend for a week. And so we saw, for lack of a better word, an additional week from what historically you would call the Chinese New Year period. And so it was great. Macau has continued to perform well. You've all seen, I think you all on top of these numbers, February, I think we almost pushed 18% share. We're holding our own in March. We held -- clearly held 16-and-change in January. So I hope and I believe after a couple of years now, we're a mid-teen share place, full stop. And I believe that. I believe the things we've done there in terms of product offerings, incentives have worked well given our scale. Remembering, we're the smallest keyed licensee there. We have 2002 keys and then everyone else is well above us in some instances, and we're holding real share. And so I'm proud and pleased with what they've done there. And they particularly understand their customers, the premium mass and how to cater to them, and I think it's working.

It's something like high single-digit room count share, correct?

Yes.

And it's about 12%, 12.5% table game share, and we're routinely doing 15%, 16% revenue share. I think it speaks to their focus on that segment and just some of the technology advantages that we have and the execution of the management team there. It's exceptional. And I also remind everybody that -- what really matters also to MGM shareholders is the dividend flow from MGM China to MGM Resorts last year between the dividends and our license fees around $200 million and then just the equity value of MGM China, probably about $10 a share when it comes to MGM Resorts shareholders. So real value there that we don't see entirely reflected in our share price. One of the reasons we're such aggressive repurchasers of our own stock. I always try to get my commercial for sure.

It was good.

And from a market perspective, I think a lot has been done outside of COVID to try to get people back into the market, but we're still missing a certain percentage of visitation. What do you see the market doing in terms of being able to drive incremental visitation from here?

Look, I believe it's clearly stabilized. $30 billion is not -- is a real number. And I think it's only north of that from here. Obviously, China will continue to keep a watchful eye on the market and what it's doing. The days of $45 billion plus in growth, we may not see that for a while, frankly, or if ever. But they have willingly and openly let it continue to grow. And we have not seen any real concern around border crossings, visas, holdbacks for 3 years now. I mean coming out of the pandemic, it was -- there was issues. We haven't seen anything now for -- this is the third year, particularly through Chinese New Year's, it was not a significant issue. Will it double? No. But will it continue to grow rationally? I think the answer is yes. And as long as it's a rational growth, I think everyone, including most notably the government, will be happy and satisfied with where we are and where it's going. And I know you all know this, but this is a good example. We've all been asked to push into those things, both from a capital and operating expense perspective that motivate nongaming travel. So we've done 2 things of note there. We have a world-class museum and a partnership with a group called Poly. They're the cultural museum institute of China, really the government. We just put 0.5 million people through since the first of the year in our new museum. And so a big deal. We just opened a show last month, 1.5 months ago now with Johnny Mo. Johnny Mo was the guy who created the '08 Olympics opening ceremony. He did a show called 2049, which is the year that Macau gets turned back over to China, by the way, if you're running like 2049. And so we continue to do those kinds of things that draw in additional visitors, not necessarily tailored specifically towards gamers, but like Las Vegas, even though they say they don't come to game, they do game.

So what is some of these nongaming investments? What effect do they have on margins longer term?

Well, I think you'll see -- you've seen most of it. I think it's appropriate to think of those properties in the mid-20s and continue to do that. I don't know that we'll be over 30% with some of that overhead. But I think 25%, 26%, 27% margins in those properties for the foreseeable future is very real and very obtainable.

And let's switch over to Japan. Could you give us an update on progress there?

I'm literally heading there Sunday. We're at a point where it's time for finalization of construction contracts, pricing and real green light, and I will come away from that with that understanding this week. But it's slated for April going in the ground with pylons. And the build cycles through the middle of 2025. So none of that has really changed. And so we'll be out next week, sitting down with all the final contractors, understanding final pricing, et cetera.

And as far as -- from where we are right now, you are the only operator in terms of a competitive market for the time being.

Yes.

What about some other areas of opportunity? There's been a lot of talk about Thailand and regulations seem to be discussed quite frequently. What's your latest take there?

I think something happens there. I think it won't go as fast as they would like to think it will. There's just once you get into it, as you all know, there's a lot to it. Now I don't think it needs to take as long as it did in Japan, but there's a lot to it. But I would like to think by first part of next year, first or second quarter, there's real legislation and there's a real process that's been identified. They've talked about 5 locations, 2 in Bangkok and 3 other locales. We've stated publicly that if we did anything there, it would be through our MGM China entity, and that's still the plan and/or the point of access, if you will, in an amazing marketplace. I say nothing is cheap to build anymore, but cheap to build, like it's $0.35 to $0.40 on the dollar compared to anything here and even cheaper to operate. And so if you were lucky enough to get a license and build something of substance, it's a meaningful market, and I think the margin in that business would be pretty extensive.

And the MGM China balance sheet is really under levered 4compared to the performance of that business, and we think it's prospects. So that's the appeal potentially of using that balance sheet as a vehicle to develop property in Thailand.

And looking at the consolidated balance sheet, you guys have obviously purchased, I think, 40% of your float since 2021. What's kind of the sustainability of the pace of share repurchases there? And what are your other capital priorities in terms of the balance sheet?

Well, it really -- it does depend in part on the trading value of the stock. I normally would have said that we would be coming to the end of that program. But at these levels, we feel as though it's about as attractive an opportunity for capital allocation that we have is buying the company. We know best at these valuations. So we bought over $2 billion of stock, I think, back in 2023 and almost that much in 2024. I don't think that those amounts are necessarily going to continue. But at these levels, we think it's a very attractive use of our capital. Other priorities for capital allocation will be investment in our properties here in Las Vegas, not only maintenance but some growth capital investments. Unfortunately, with as optimistic as we are about the prospects for these digital businesses to inflect this year to profitability, they won't require any additional capital investment. BetMGM has its own credit facility now, probably won't even need to draw on that much and the wholly owned digital businesses we think are well capitalized and won't require any additional capital to get to where they need to go.

And then maybe one last one quickly. Is there anything that you would -- any type of asset that you would consider noncore that you would consider selling at some point?

Yes. Yes.

All right. Thank you very much.

Thank you.

All right. Thanks, everybody.