MGM Resorts International

Good afternoon and welcome to the MGM Resorts International Second Quarter 2020 Earnings Conference Call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President, Corey Sanders, Treasurer and Chief Financial Officer, Hubert Wang, President of Hospitality and CFO of MGM China Holdings Limited, and Jim Freeman, SVP of Capital Markets and Strategies. Participants are in a listen-only mode. After the company's remarks, there will be a question-and-answer session. In fairness to all participants, please limit yourself to one question and one follow-up. Please also note, this conference is being recorded. Now, I would like to turn the conference over to Jim Freeman. Sir?

Thank you. This call is being broadcast live on the Internet at investors.mgmresorts.com. and we have also furnished our press release on Form 8-K to the SEC. On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures in talking about our performance. You can find the reconciliation to the GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, the presentation is being recorded. And I'll now turn it over to Bill Hornbuckle.

Thanks, Jim. Thank you all for joining us today. I hope you and your families are safe and well. On the heels of our announcement yesterday, I am pleased and honored to be addressing you as the CEO and president of MGM Resorts. I'd particularly like to thank Paul Salem, our chairman, and the entire board of directors for placing their confidence in me and in our entire management team. This is a vote for them, for not only them, but also myself. They have stepped up during an incredibly challenging time. Our ability to reopen, remain operational, and provide world-class experiences is a tribute to our dedicated workforce and engage in support of board of directors, civic leaders across the nation, and a sincere commitment to health and safety by all of us at MGM Resorts and the broader gaming industry. While we are proud of the role we've played in helping to restore economic stability to the people and communities that depend on us, we know the public health crisis is far from over. We continue to evolve our seven point safety plan and our overall response to varying infection rates, including mandating masks at all of our domestic properties and continuing to manage hotel occupancies and facility capacity. We are committed to learning from each new opening and from each new operational challenge we face. We are focused on implementing both our MGM 2020 plan as our revised operating model and remain diligent in affecting and managing costs. We are proactively engaged with local governments, regulators, and public health experts, acting as an informed and sought-after voice in conversations about public health and safety trends, restrictions and protocols as they continue to change and evolve. And we remain focused on ensuring we maintain our strong balance sheet and an operating strategy designed to maximize cash flow despite these very difficult times. Necessarily, our focus is on operating with diligence and restoring stability in the short term. But for many of the reasons I just noted, and more detail we'll get into in a moment, I accepted the role of CEO believing our long-term outlook remains positive and that our future is strong. Our strategy remains unchanged with a discipline focused on operations and execution of targeted growth opportunities. With that, let's talk about the quarter and the state of the business. In the second quarter, we opened nine domestic properties, and we have subsequently reopened five more. Today, we have a total of 14 properties from our 18, if you count Vidar, at the start of the pandemic. Domestic properties that opened in the second quarter generated positive EBITDA faster than expected, and we saw significant growth in our domestic margins driven by optimizing our business to serve higher quality customers given the pent-up demand, primarily in our casino market side, Leveraging our MGM 2020 plan and operating model work to manage costs and discipline, and we remain selective in keeping lower margin amenities closed. In Las Vegas, revenues at reopened properties declined 50% year over year, adjusted property EBITDA declined 44, and our margins increased roughly 450 basis points over the same period. Despite the lack of conventions, shows, concerts, and sporting events, We leveraged our MLIFE database to drive better-than-expected demand in quality casino customers. We also had a higher-than-normal table games hold, which positively impacted our strip-adjusted property bidar by approximately $8 million in the quarter. Transient and wholesale leisure business also performed better than expected as we entered the summer pool season, and as expected, drive-in traffic levels are recovering faster than fly-in. Looking at the regional operations, second quarter revenues at Reopen Properties declined 31% year-over-year, and during that period they were open. Adjusted property EBITDA was down 14, but margins increased approximately 880 basis points during that same period. Our regional operations include larger integrated resort properties like those in Las Vegas, which rely on air travel and lodgers like Beaurevage and Borgata, and to drive markets, which are naturally performing better. During the period they were open, our drive to regional markets grew EBITDA by 18% with margin improvement by over 1400 basis points. We have been encouraged by the dedication of our teams to create high quality experiences for our guests that they can enjoy and believe that our messaging is resonating well in all of our marketplaces. We are diligently focused on managing costs while continuing to do everything necessary to ensure the health and well-being of our guests and our employees. During closures, we reduced 85% of our operating expenses. And as we reopen, we are managing variable labor to closely match demand. We also identified certain expenses and amenities that we believe we can eliminate as they are not essential to guest satisfaction or demand. And as such, we believe we can reduce our overall domestic operating and corporate costs by approximately $450 million compared with the 2019 levels. These savings are a combination of one, MGM's 2020 initiatives that were put in place at the end of 2019, and as you heard and remember, yielded tangible results in January and February before the nationwide shutdown. As well, new initiatives that were adopted in a post-COVID world is part of our revised operating model. Therefore, we believe when demand returns, we'll be in a much stronger company. In the near term, Some of these cost savings will be partially offset by approximately $100 million of annual health and safety expenses for a period of time. Further, as we mentioned last quarter, we remain disciplined on capital spend and have deferred or permanently reduced our domestic capex by 50% this year to approximately $200 million. Liquidity is of utmost importance, especially in current times, and we continue to take steps to further bolster our already strong liquidity positions. During the second quarter, MGM Resorts, MGM China, and MGP collectively raised $2.45 billion in the debt capital markets. As of June 30, MGM had over $8 billion of consolidated liquidity and $4.8 billion at our domestic operations, excluding MGM China and MGP. Our current stake in MGP is 57%, and in addition to our strong liquidity, we also have the right to have MGP redeem an additional $700 million of OP units under our current agreement for cash. And finally, we anticipated about $270 million of monthly cash overflows while our properties were closed, and we did a little better than that in April and May. With our properties beginning to reopen in June, we significantly reduced the cash burn rate, although it remains negative. Turning to our longer-term domestic outlook, all of our Las Vegas properties are open with the exception of Mirage and Park MGM Nomad, and six of the eight regional properties have opened. We just announced that MGM Grand Detroit will open to the public on August 7th, with VIP guests coming in a couple days before. And Empire City, as you presumably know, will be the last to open out of our regionals. Currently in Las Vegas, COVID-related headlines continue to have a meaningful impact on booking trends and cancellations. And candidly, our visibility is limited to booking windows that are currently less than a week. We are seeing slower occupancies on the weekdays, and we're offsetting this on the weekends with demand where the demand is far more robust. All of our reopened Las Vegas properties are burning less cash with the exception of Mandalay Bay are currently EBITDA positive. However, we continue to believe that material recovery will be dependent on the return of conventions, entertainment, and significant air travel. We continue to see results in July at all of our regional properties. We see strong results in July at all of our regional properties and our drive-to properties continue to show EBITDA growth and margin improvement and our integrated resort properties are simply just now ramping up. We're encouraged by the relative stability and demand that we have seen thus far. The current situation, however, is fluid. Further openings of our Las Vegas resorts as well as amenities across our domestic properties will continue to be based on expectations for demand and maximizing cash flow while balancing the needs of our guests, our employees, local regulator and other significant stakeholders. Despite the current challenges, there are two important assurances. First, we absolutely believe the fundamentals of our business and industry have not changed and will ultimately recover. And second, our cost-saving efforts are yielding tangible and seeable results. Taken together, this means we're poised to emerge from the crisis a stronger, more efficient, and sustainable company. Moving on to BED MGM, we are focused on targeting growth opportunities. We're excited to announce that just a few weeks ago that MGM and GBC have committed to an additional $250 million of capital in support of our sports betting vertical, BetMGM. This brings our total commitment of capital to $450 million and demonstrates our continued commitment to positioning BetMGM as a leader in sports betting and iGaming. BetMGM is a business that was created from scratch and is now showing strong momentum. Evidence of this can be seen in what we've been able to achieve in New Jersey with BetMGM's FedMGM has gained market share and significant growth in the iGaming revenues. Driven by this success, FedMGM is now on track to generate over $130 million of net revenues this year. We have secured access in 19 states, are live in 7 states, and expected to be live in 11 by year end. We also feel that our omni-channel experience is unmatched and a significant competitive advantage in this space. BetMGM offers a consistent experience through its web, mobile, and desktop platforms, as well at all of our U.S. land-based resorts, a clear differentiating factor that nobody else can claim. The new BetMGM app officially started to roll out last fall in New Jersey and launched in Las Vegas and Michigan right before the shutdown in March. Equally as important is that we believe BetMGM will allow us to more frequently engage with our guests and drive deeper loyalty to the MGM brand. To that end, BetMGM achieved a major milestone last week when we integrated our MLife customer loyalty program with the BetMGM platform. Players will now be able to view their MLife tier status, earn tier credits over time, and ultimately redeem credits for MGM experience beyond sports betting and iGaming. In addition to our $34 million MLife database, we also believe we have the right partners to drive efficient customer acquisition. For various professional sports leagues and team partnerships, as well as exclusive deals with Buffalo Wild Wings and Yahoo Sports. In fact, we just launched to Yahoo's 64 million monthly active users last week. We made a lot of progress, but there's a lot more to be done. And since launching, we have become convinced that the market opportunity is larger and will develop more rapidly in the US. We believe that we have the assets to be a long-term winner in this space, and we are focused on execution to unlock true value. We continue to believe strongly that this is the largest growth opportunity in U.S. gaming. Having covered the U.S., let's spend a few moments on Macau. While MGM China's properties were open in the second quarter, the Macau market continued to experience significant year-over-year declines driven by border and travel restrictions, driving second quarter market-wide GDR down 96% and visitation nearly down 100%. A couple of weeks ago, the 14-day mandatory quarantine between Guangdong and Macau was lifted to certain major cities within Guangdong, and yesterday it was extended to the entire province. Today, we heard that mainland China was resuming the issuance of visas, with the exception of tourist visas, starting on August 12th. These are initial steps in an encouraging direction. However, Hong Kong borders remain shut, and the IBS and tour visa programs have not yet restarted, which we believe is necessary for a meaningful recovery. MGM China's monthly cash outflow are currently about 65 million a month and with 1.5 billion of liquidity, they have over 22 months of buffer in a near revenue scenario. We continue to believe that this market can recover quickly once the current restrictions are lifted and we have an experienced leadership team who is ready when that time comes. Speaking of leadership, we recently announced the departure of Grant Bowie as CEO of MGM China. Grant was with the company for over 12 years and the industry for longer, and he had deep experience and knowledge in the marketplace. While he is no longer involved in the day-to-day, he's on retainer to help us with key strategic opportunities over the next couple of years. We've had a seamless transition with joint presidents both Hubert Wang and Kenneth Fang taking on new leadership roles last year as COO and CFO, respectively, in preparation for this development. The MGM China team is in great hands, Pansy as co-chair, and I as chair will continue to be deeply involved, providing additional continuity and strategic leadership. In closing, our long-term outlook remains fundamentally unchanged and I draw confidence from five key advantages. One, strong MGM 2020 plan implemented even before COVID and our revised operating model work has created 450 million in permanent cost savings to our business, meaning when we recover from this crisis, we will be a stronger company. Two, our proven ability to learn quickly and adapt swiftly. Our skill as sophisticated and experienced operators has been affirmed by this crisis. Three, the high quality of our assets and our market leadership across the U.S. where we have a significant presence. Four, and maybe most notably, our people who despite extraordinary stress and hardship have shown up to deliver safe, welcoming, and entertaining experience for our guests, and finally, An amazingly strong balance sheet that will help us weather the storm. Furthermore, while we are currently focused on day-to-day operations, we continue to make progress in our key growth opportunities, developing BetMGM as a leader in U.S. sports betting and iGaming, expanding our footprint in Macau and our re-licensure, and developing a world-class integrated resort in Osaka with our partner Oryx, which we remain excited about and committed to. For these reasons and many more, I was proud to lead MGM Resorts through this period of uncertainty towards a more promising future. With that, we'll be happy to take your questions. Thank you.