MGM Resorts International

Good afternoon and welcome to the MGM Resorts International fourth quarter and full year 2020 earnings conference call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President, Corey Sanders, Chief Operating Officer, Jonathan Halkyard, Chief Financial Officer, Adam Greenblatt, Chief Executive Officer, Bette MGM, Hubert Wang, President and COO of MGM China, and Jim Freeman, SVP of Capital 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 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, and we have 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 GAAP financial statements in our press release and our investor presentations, which are available on our website. Finally, this presentation is being recorded, and I'll now 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. Before we get to the details of our performance in the fourth quarter, I want to take a moment and thank the thousands of MGM Resorts colleagues around the world who have helped work so hard over the past several months. I along with the other members of the senior management team am eternally grateful for the resilience and commitment that our employees have shown throughout this crisis. I continue to be amazed by what we've accomplished together. We have adopted seamlessly to a rapidly changing environment, always putting the safety and enjoyment of our guests and our employees first and foremost. More than anything else, that gives me confidence in our company's future success. I'd also like to welcome the newest member of our executive team, our CFO, Jonathan Halkyard. Many of you know Jonathan from his tenure as CFO of Caesars. and most recently as the Chief Executive Officer of Extended Stay America. Over the past 20 years, Jonathan has built a well-earned reputation for integrity, developing people, driving strategy and delivering results for shareholders. I'm excited to have him here at MGM and even though it's only been a short time, I can assure you he's already having an impact. Welcome, Jonathan. At MGM, our long-term vision is clear and differentiated. Our goal is simple. to be the premier omnichannel gaming, hospitality, and entertainment company in the world. We will achieve this vision by investing in the development of our people, providing fun and inspiring entertainment experiences for our guests, delivering operational excellence at every level, and allocating our capital to drive the highest returns for our shareholders. During the quarter, we made progress on each of these fronts. As the pandemic unfolded over the past year, we had to take the unfortunate steps of furloughing many of our employees to match business levels. As the business begins to recover and operating restrictions abate, we expect to continue remobilizing our fantastic teams, rehiring and retraining them in order to serve our guests. Over the course of this year, we will do the same with our industry-leading entertainers across all of our properties. Our BetMGM sports betting and iGaming venture is growing at a historic rate, enabled by what I believe is digital gaming's most talented management and technology development teams. I believe our people are truly the best in this new industry. Operational excellence is a mantra here. Beginning in late 2019, we refined our operating model, increasing spans of control and simplifying organizational layers to accelerate decision making, bringing us all closer to our guests, and to reducing costs. These moves are already paying off. Our program of $450 million in domestic cost savings helped drive margin improvement, especially at our regional properties in the fourth quarter, and we should achieve the full target when business demands return to our 2019 levels. And finally, we're focused on being disciplined allocators of capital, always driven by the goal of creating value for our shareholders. In the first and second quarter of 2020, in the early days of the pandemic, It was critical to create and sustain the liquidity cushion for the company. With the top line still under pressure and the travel climate a bit uncertain, our fortified balance sheet is essential to protect equity value while enabling MGM to be aggressive when identifying opportunities to invest for growth. And invest for growth, we have. Even as we've been managing through the crisis before us, we have kept an unwavering focus on the future and particularly on several attractive ROI growth opportunities Thank you for joining us. With that, let's focus on obviously the fourth quarter's results. Our consolidated fourth quarter 2020 revenues were $1.5 billion, incrementally better than our third quarter by $1.1 billion. Our fourth quarter adjusted EBITDA has improved sequentially to a positive $97 million this quarter. Our full year 2020 revenues were $5.2 billion, about 40% of 2019 levels, and our full year 2020 adjusted EBITDA loss was approximately $148 million. The operating dynamics in Las Vegas and our regional properties were, however, quite different in the fourth quarter. Let's start with Las Vegas. Our fourth quarter Las Vegas strip revenues were $480 million, about flat from the third quarter. However, our strip's property EBITDA was $54 million, up from $15 million in the third quarter, driven almost entirely by October and the first half of November. The fourth quarter started relatively strong here in Las Vegas. with hotel occupancies of about 46% during October. And in fact, October was our strongest month since the beginning of the pandemic. But public health concerns dampened visitation over the course of the quarter, and this has obviously continued at least till now through February. Our fourth quarter hotel occupancy finished at 38%, with weekends running at 52% and midweek at 31%. Our MLIFE loyalty members continue to drive visitation with our casino segment contributing to total room nights improving by about 13 points over the last year. And our casino customers and new MLIFE members sign-ups also continue to skew towards higher worth and younger customers during this quarter. It's our belief these headwinds will continue into the near term. With current Nevada gathering guidelines in effect and public health sentiment where it is, we expect midweek business will be challenged throughout the first quarter. In this demand environment, we have remained flexible to minimize our cash usage and ultimately maximize our portfolio-wide profitability. In the fourth quarter, we closed our hotel towers at Mandalay Bay and Park MGM during the midweek. And in early January, we also announced the full closure of Mirage during the midweek. We remain diligent in closely aligning labor needs to demand. The good news is the approved vaccines appear highly effective for vulnerable populations and we are monitoring the rollout closely. As the burden of our healthcare system eases, gathering travel restrictions are being lifted. Assuming that most of the population is willing to resume normal activity, which we certainly saw glimpses of last summer, then we believe the demand for travel and visitation to Las Vegas could be robust later in the year. In fact, our gross bookings in January was the strongest since the start of the pandemic and guests are increasingly booking 90 plus days out. I'm also looking forward to the coming pool season with much optimism. While the return of the larger groups will ultimately depend on the easing of gathering guidelines and other factors, we remain bullish on the long-term demand. We still have significant rooms on the books for the third quarter and have more on the fourth quarter than we had at this time last year. Both 2022 and 2023 are approximately one on pace compared with prior years. And it's interesting, the LBCBA recently conducted a survey which indicated that 91% of those surveys missed the face-to-face nature of meetings and the majority were also just simply burnt out from virtual meetings. The survey also indicated that business travelers believe Las Vegas is more prepared than other leading business destinations to safely host in-person events. Data points like these tell me that the fundamental drivers of Las Vegas as a tourism and meeting destination remain firmly intact. We remain bullish in its proven ability to drive demand and believe the markets will return to pre-pandemic levels over time. Now let's move on to our regional performance. Our regional operations performed exceptionally well in the fourth quarter, despite being subject to a series of operating restrictions. Our fourth quarter regional operations revenues were $595 million, up 7% sequentially versus the third quarter, and adjusted property EBITDA was up 9% sequentially from the third quarter to $159 million. As in Las Vegas, we are highly encouraged that our performance was led by a higher level of casino spend by a younger demographic. Gaming volumes were approximately 70% of last year's fourth quarter, but our regional properties delivered 129 basis points year-over-year EBITDA margin growth to 27%. We achieved this despite the statewide restrictions, including the full closure of Detroit for a month, as well as the week-long exposure and extended hurricane repairs at the Beau Rivage. Adjusting for these headwinds and other state-by-state restrictions, we expect our margins for the quarter would have been up 580 basis points year over year. These continued cost improvements, predominantly in labor and marketing efficiency, are largely sustainable. I expect continued strong regional margins as revenues return towards our 2019 levels. Finally, I know we are all encouraged by the state's lifting operating mandates over the past couple of weeks. No doubt this will Thank you for joining us today. It is now currently live in 12 states and we expect to be in 20 states by the end of 2021 with access to approximately 40% of the U.S. adult population. As each state rolls out, MGM is securing a leading market share position. In the fourth quarter, MGM's market share was 17% in its retail and online markets and 19% if you exclude Pennsylvania, which were only open for a part This is a testament to BetMGM's successful execution and strong management teams as it continues to enter new states on day one and gain share in its existing markets. Consider the venture's entry into Michigan just a couple of weeks ago. We had a fully operational iGaming and online sports betting offering on day one and pre-launch registration efforts to build momentum into Go Live Day. Between December and January, BetMGM registered 138,000 new customers. In the first 10 days of launch, BetMGM generated $13 million in GGR. That's especially impressive is that our iGaming GGR per day in January was higher than in New Jersey, where BetMGM is the number one operator. Michigan is a market where we knew we had the right format to win. We have an MGM branded retail presence with a loyal customer base. The ability to go live on day one with both iGaming and sports betting, a compelling product, and an attractive target demographic. While it's still very early, we're extremely pleased with these results thus far. Our leadership positions have proven sustainable. BetMGM was the number one iGaming operator in the US in the fourth quarter, and we expect to continue growing our market share. On the sports wagering side, BetMGM delivered impressive online sports betting results in two of its newest markets, Colorado and Tennessee. In the fourth quarter, BetMGM had market shares of 31% and 34% respectively. These share gains led to $178 million of net gaming revenues associated with BetMGM in 2020, well above its target of $150 million. And in fact, in the fourth quarter, BetMGM's net revenues doubled the previous quarter. The convergence between BetMGM and MLIFE has been monumental. In the fourth quarter, 17% of BetMGM signups have come from MGM, and 39% of the new MLife signups have come from BetMGM. BetMGM's key competitive advantage is its ability to lever MGM's destinations, our broad-based experiential offerings, and our MLife loyalty program as efficient and effective customer acquisition tools. Once engaged, we know that omni-channel customers have vastly greater value to our company than single-channel customers, and again, While we're still in the early days in Michigan, we are already proving this out. We are currently seeing customer acquisition costs below the $200 range. In 2021, we and our partners in Tain expect new revenue associated with BetMGM to grow well over 100%. In fact, preliminary estimates of January's net gaming revenues associated with BetMGM operations was $44 million. On Super Bowl Sunday, The number of online bets placed with BetMGM was 11 times last year's online bets and the online handle was 17 times last year's handle. That is why we remain aligned on investing aggressively to fund the growth of this business and we expect to continue doing so this year in pursuit of this market opportunity. Let me conclude now with our performance in Macau. This market continued to steadily improve sequentially with fourth quarter market-wide GGR declining 70% year-over-year compared with 93% year-over-year decline in the third quarter. MGM China's fourth quarter revenues were $305 million, up sequentially from the third quarter's $47 million. An adjusted property bidar was also up sequentially from a $96 million loss in the third quarter to $41 million in the fourth quarter. This included a $23 million bonus accrual reversal during the quarter. We are pleased to finally see that MGM China is back in the black, driven by strong market share gains as well as continued cost mitigation efforts. Better yet, we think the evolving market structure of Macau's gaming squarely meets our strengths in the market. MGM China has always been geared to the premium mass segment. Between our branch office infrastructure, our product design, and our marketing capabilities, we've always had an advantage in this segment. and our growing market share is evidence of this evolution. There is no question that with the recently reemerged COVID cases and government warning of limited travel during the Chinese New Year holiday seasons have impacted demand in the near term. But we expect the broader rate of recovery will continue to be gradual and driven by the premier mass market. I like our opportunities for a creative investment in Macau. 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 adding F&B options focused on the gaming floors. And in longer terms, we've also had the ability to build another hotel tower at MGM Cotai, along with meaningful entertainment assets to diversify our offerings. For the past 13 years, MGM China has been committed to supporting Macau as a world tourism destination. We again look forward to working with the government through the licensing renewal process in hopes to further our support for many more years to come. Switching on to our liquidity, it remains extremely strong and has served as a strong foundation from which to navigate the crisis with an eye towards our longer-term goals. As of December 31st, MGM had $8.8 billion of consolidated liquidity, which included $2 billion at the MGP operating partnerships and $1.2 billion at the MGM China, leaving our domestic operations liquidity at over $5.6 billion. Before I turn this over to Q&A, I'd like to close just with a few final thoughts. We remain diligent in navigating the near-term operating environment, aggressively managing our operating model and our cost structure. I am optimistic about the long-term recovery of all of our markets and believe that MGM is well positioned to gain share. I'm also excited by BetMGM's position in the rapidly growing U.S. sports and iGaming betting market, and we are confident that despite near-term headwinds, our balance sheet delivers a strong foundation upon which to build the future of our company. With that, I'll be happy to open this up to any of your questions. Thank you.