MGM Resorts International

Good afternoon and welcome to the MGM Resorts International Third Quarter 2020 Earnings Conference Call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President, Corey Sanders, Chief Financial Officer and Treasurer, Hubert Wong, President and COO of MGM China, and Jim Freeman, SVP of Kappa Markets and Strategy. 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 call over to Jim Freeman. Please go ahead.

This call is being broadcast live on the Internet at investors.mgmresorts.com. We've also furnished our press release on Form 8K 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 use non-GAAP financial measures in talking about our performance You can find the reconciliation to gap financial measures in our press release and investor presentation, which are available on our website. Finally, the presentation is being recorded, and I'll turn it over to Bill Hornbuckle.

Thank you, Jim, and thank you all for joining us today. I hope you and your families continue to be safe and well. Over the course of the last several months, we have learned how to respond to the challenges posed by the virus, and I continue to be impressed by the resilience and the commitment of our team. We continue to believe the fundamentals of our business are strong and we're well positioned for the future. We saw sequential improvements in all of our markets in the third quarter and our regional properties have led the pace of recovery with several properties generating record operating performance. While we saw promising signs of confidence in recovery in the third quarter, we continue to stay focused on the broader environment. Our strategies are centered around several key priorities. First, the health and safety of our guests and employees remains our top priority. We know the success of our health and safety protocols is essential to building confidence among leisure and business travelers, and we talk about our new convene with confidence health and safety plans for meetings and conventions, entertainment, and sporting events, about which we are very optimistic. We remain laser focused on leveraging our operating model to effectively manage costs. Our efforts are evidenced by our declining cash burn rate, reduced corporate expense, and improving in our regional operating margins. We believe that many of these efforts are sustainable, and as we've stated in our last quarterly call, we identified $450 million of annualized costs when business returns to the 2019 levels, and we continue to believe this is achievable. Our liquidity position is strong, which we further bolstered earlier this month through an opportunistic debt offering. And lastly, sports betting and iGaming continue to gain momentum as states accelerate legalization and sports volumes ramp up. Ben MGM has gained significant market share and has already become a top three player in each of our markets where data is publicly available. We remain focused on executing on the online opportunities while also increasing our long-term presence in Asia. Let's go into the quarter's results. With the September 30th reopening of Park MGM and Nomad in Las Vegas, all of our domestic and international properties are now open. Our third quarter Las Vegas strip revenues were $481 million which grew 331 million sequentially from the second quarter. Our Las Vegas Strip property EBITDA was 15 million compared to 104 million loss in the second quarter. On a hold adjusted basis, our Strip EBITDA grew 134 million sequentially from Q2 to 21 million in Q3. In addition, the company extended benefits to our furloughed employees through September 30th and also negotiated certain union health benefit contributions collectively resulting in a $29 million one-time expense in the third quarter, of which $21 million was attributed to our Las Vegas strip properties, not including city center. Our third quarter hotel occupancy was 44%. While we continue to leverage our casino database as well as our transient and leisure segments to help offset the lack of group business, midweek occupancies remain challenged at 38%. Our results were bolstered, however, by stronger demand on the weekends were 60%, mostly by design, as we continue to maintain occupancy caps for appropriate social distancing and the quality of the overall guest experience. While much has been beyond our control, we are focused on what is within our control. As we have reopened properties, we have aggressively monitored our costs and managed variable labor to closely match demand. We have also continued to focus on creating a safe environment for all of our employees and guests. On September 29th, Governor Sisolak expanded Nevada's mass gathering limitations from 50 people to 250 people, opening the door to restarting meetings and live entertainment. Under the guidelines, we're able to host meetings with up to 1,000 people, so long as they are consistently separated into subgroups of no more than 250 people. Just last week, the governor also announced that we're working with the operators on a plan to increase this further to 50% capacity, hopefully by January 1st. We have proactively developed a comprehensive health and safety plan for meetings and events and entertainment and sporting events called Convene with Confidence. We believe these efforts will help rebuild confidence in safely bringing meetings, conventions, and live entertainment back to Las Vegas. Our Convene with Confidence program is built upon our seven-point safety plan. It is a comprehensive layered approach based on guidelines from health experts and addresses the entire guest experience from Ticketing and Planning to Rival and Food and Beverage Services. We are particularly proud of the new COVID-19 testing protocol, which we will be offering as an optional amenity to our meetings and events clients. MGM has partnered with biometric security identity company, Clear, to leverage in new health pass technology, including a real-time health questionnaire and COVID-related test results and temperature checks. This process was utilized in National Hockey League's successful return to play at the Stanley Club Playoffs in Toronto and Edmonton. As part of this protocol, MGM is partnering with QHealth to deploy their rapid portable molecular point of care COVID-19 test that deliver results in approximately 20 minutes and allows event organizers to create perimeters for their events and exhibitions. We recently conducted the first pilot at the MGM Grand Detroit with the Detroit Pistons, and they said our testing regime played, quote, a critical role and their ability to safely execute their workout program. We've also received encouraging feedback from meeting planners and existing group customers about our convened with confidence program. And in fact, we currently have a group in house using the testing protocols and we'll be able to share more of these details in the near future. Looking beyond the third quarter, we believe the market will continue to stabilize although seasonal challenges remain near term. Weekend booking demands remain solid in October but driving mid-week demand continues to be a challenge without the convention business. We also expect to see, as we do every year, seasonally lower leisure travel in between the holiday periods in November and December. As we enter the winter months, we are developing slow-period plans for the weekdays to minimize EBITDA losses. We are encouraged by the Governor's announcement on mass gathering limits and with our convene with confidence plan as the initial steps to bringing back larger meetings and conventions hopefully starting early next year. We also recently announced the return of seven of our live shows and the reopening of entertainment venues in Las Vegas. We are very optimistic that meetings and events at scale will eventually fully return. That being said, we continue to believe that the material recovery in Las Vegas is dependent on the return of larger scale conventions and entertainment platforms along obviously with significant air travel. Moving on to the U.S. regional performance, which continued to exceed our expectations and gain market share. Our regional revenues sequentially grew by $468 million from the second quarter to $557 million in the third quarter. Our regional property EBITDA was $146 million in the third quarter compared to an EBITDA loss of $112 million in the second quarter. Properties that were open for the entirety of the third quarter had a 15% revenue decline from the prior year period but delivered an adjusted property EBITDA growth of 7% with margins improving 768 basis points. Our drive-to regionals that were open for all of the majority of the greater quarter exhibit particular strength with margin improvements ranging anywhere from 600 to 1500 basis points. In fact, MGM Northfield Park, National Harbor, and Gold Strike each achieved all-time record EBITDARs in the quarter and MGM Springfield delivered a record third quarter EBITDAR. Our integrated regional destinations such as Bowe continue to ramp throughout the quarter despite impacting by two storms and the property also currently is closed due to the impact of Hurricane Zeta and our thoughts go out to the team and members and our customers in the region. MGM Grand Detroit and Borgata are performing well and operating under tight restrictions. and all in all, we saw an incredible result delivered by our best in class regional teams. We believe we are still benefiting from the lack of broader local entertainment alternatives available to consumers and our ability to capture an outside share of wallet. This combined with our focus on cost has driven margin improvements at our regional properties. We are encouraged to see the demand carry into October and we will maintain our intense operational focus as capacity limitations eventually ease and the broader business economy reopens over time. Turning to Macau, while the 14-day quarantine measures between Macau and mainland China have been lifted and the issuance of tourism visas has resumed, logistical hurdles and testing requirements have continued to impact the Macau market. As a result, third quarter market YGGR was down 93% year over year. MGM China's third quarter revenues and the adjusted property EBITDA were $47 million, and negative 96 million respectively, which improved sequentially from the second quarter. Market-wide daily visitation has been very steadily improving into October's golden week. And since the second week of the month, we are seeing improved volumes across all segments sequentially week on week. Month to date, we are encouraged that our properties have crossed property EBITDA break-even levels led by the recovery in the premium segments. We expect the rate of recovery will continue to be gradual We continue to believe in long-term success of Macau and will continue to invest in strengthening our market position there. Currently, construction of the additional suites in the south tower of MGM Cotai is underway and will be ready in mid-2021. We've also begun remodeling our MGM Macau Villas and the gaming space on Level 35. and at both properties we're also adding food and beverage options focused on the gaming floors and longer term we also have the ability and the desire to build another hotel tower at MGM Cotai along with meaningful entertainment assets to diversify our offerings. In an unprecedented and uncertain operating environment, liquidity remains of utmost importance. Our liquidity position remains strong. As of September 30th, MGM had over $7.8 billion of consolidated liquidity, which included $1.4 billion at MGM China, $1.9 billion at MGP, and $4.5 billion at our domestic operations. Earlier this month, MGM Resorts opportunistically raised an additional $750 million of eight-year senior notes at 4.75%, further solidifying our already strong liquid position. Adjusting for this issuance, we had $5.2 billion of liquidity at our domestic operations, excluding MGM China and MGP. And we still also have the right to cause MGP to redeem $700 million of OP units for cash. Before we go to questions, I'd like to spend a few moments discussing our position in the rapidly evolving U.S. online sports betting and iGaming market. Over the past few months, we continue to gain significant momentum towards solidifying BetMGM as a leader in the space and we are very pleased with the results. BetMGM is now live in eight states, soon to be nine as of Sunday with our launch in Tennessee, which we announced earlier this morning and we expect to be in 11 states by the end of this year. We currently have market access in 20 states and are actively working to secure more, ideally positioning BetMGM to be front and center of the action from day one, which is critical if states continue to go live. From a market positioning standpoint, we believe BetMGM is now a top three player in all of the markets that it is in. In September, BetMGM estimated sports betting and iGaming market share was collectively around 18% in the stage in which it operates. We have demonstrated strong operating performance in iGaming with 23% market share in New Jersey and a growing position in West Virginia. and importantly, we also grew share in online betting as well and currently estimate our online sports betting market share to be around 9%. This is exciting considering we have doubled our market share since January. Finally, retail sports have regained momentum since our property reopenings in Michigan and Mississippi, which are especially driving great results. Our partnership with Yahoo Sports is also starting to pick up steam. Earlier this month, we launched a streamlined betting experience on Yahoo Sports. where by its 50 million average monthly users including its DFS users can directly link now to BetMGM's platforms from their Yahoo app, register or sign on and make a bet. We have more features planned in the near future and remain excited about this relationship. We know that an omni-channel customer who plays in the retail casinos, iGaming and sports betting is a higher value customer than a single channel customer. As such, we continue to believe that BetMGM's key competitive advantage is its exclusive access to MGM's physical destinations, its broad-based experiential offerings, and MLIFE loyalty program, which is to be leveraged as efficient and effective against customer acquisition tools as possible. Through a combination of strategic branding, direct marketing, on-the-ground brand ambassadors and hosts, as well as the integration of MLIFE with the BetMGM app, we have been aggressively working to introduce new customers to BetMGM. While we are still in the early innings, we are excited to see the early proof of concept in our ability to acquire higher quality customers at lower costs. On the flip side, and equally exciting to us, is our strong belief that BetMGM will naturally drive expansion in MGM's customer base as well, ultimately fueling growth in our brick and mortar business. In fact, we are already starting to see cross-marketing opportunities in the near term and believe this will only get better over time as BetMGM continues to expand its player base. Given the better-than-expected progress, BetMGM is now on track to deliver net revenues between $150 and $160 million in 2020, which is an increase from our original $130 million expectation. We continue to believe that this is the largest growth opportunity in U.S. gaming, and we think we have what it takes to be a long-term winner. We're very excited about our progress, but we know we have more work to do, and we remain focused on executing. Again, before I turn it to Q&A, A few closing thoughts. Over the past week, we've been watching COVID relative trends change across the globe, reminding us all that we're not out of the woods yet. While we have yet to see any incremental impact to our domestic business, we know we must remain diligent and disciplined as ever. I have a great confidence in our comprehensive health and safety protocols, which cover all aspects of the guest experience to which we have strictly and consistently adhered. These protocols and our commitment to health and safety have allowed us to operate successfully in the last crucial months, and we believe they will also successfully guide us to the future. While we recognize these near-term headwinds, we remain confident in the long term. This optimism is driven by our proven ability to react, to adapt, and ultimately to grow. Despite our challenges, MGM Resorts is a strong company, thanks to an early and unwavering commitment to the MGM 2020 plan and a new operating model, an extremely strong balance sheet, A high quality of our destinations and path to recover we are seeing led by our regional operations and of course our people who have simply been amazing through all of this and who continue to deliver safe, welcoming and entertaining experience for all of our guests. Looking forward to the future, we continue to make progress on all of our growth opportunities, developing BetMGM as a leader in the U.S. sports betting and iGaming, expanding our footprint in Macau and ultimately developing a world-class integrated resort in Osaka, with our partners in Oryx. With that, operator, I'll be happy to turn it over to questions.