MGM Resorts International

Good day and welcome to the 2025 VET MGM Q1 2025 Financial Update. Joining from the company today are Adam Greenblatt, Chief Executive Officer, and Gary Deutsch, Chief Financial Officer. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a 30-minute question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, press star 1 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to Adam Greenblatt. Please go ahead.

Good morning, everyone. Thank you for joining us today. 2025 is off to a strong start for BetMGM as our financial performance followed the course we had charted coming into the year. The strategy Gary and I outlined during our 2024 fiscal year results in February was the blueprint for achieving profitable and sustainable growth. As you'll remember, we started to deploy the strategy in the second half of 2024. To summarize the key elements, in iGaming, we will continue to invest assertively, and in sports, we're taking a more targeted and capital efficient approach to player acquisition and management. We are pleased to report that momentum coming out of 2024 has continued into 2025, with Q1 growth accelerating from Q4 levels, as well as delivering significant profitability. Q1 net revenue grew 34% year over year, reaching $657 million, and importantly, delivered EBITDA of $22 million, up approximately $154 million from the prior year. While Q1 2024 EBITDA was impacted by a number of headwinds, Our Q1 2025 result highlights the strength of our current strategy. The business is as healthy as it's ever been, and our year-to-date performance gives us increased confidence in achieving and potentially exceeding guidance. However, as we are still early in the calendar year, we are reaffirming our previously stated guidance at this point. One note on our positive Q1 EBITDA of $22 million. While there were some one-time accounting benefits, they were offset by the impact of poor sports results, so the net reported result is broadly representative of our underlying performance. Going deeper into the first quarter, both sides of the business experienced strong top line and underlying growth in player engagement and retention KPIs that exceeded our internal projections. In iGaming, our juggernaut continues to perform. with $443 million of net revenue, up 27% over last year, and delivered $133 million of contribution. Robust player metrics drove financial results, with average monthly actives up 44%, active player days up 27%, as well as improving our cross-sell from online sports to iGaming by an impressive 13 percentage points. We believe these levels of growth are ahead of the market, underpinned by successful key initiatives such as elevating our unparalleled library of content. Our players enjoy content that only BetMGM can offer through exclusive partnerships with iconic franchises such as The Wizard of Oz, which is one of our top performing slot titles and is offered both digitally and at MGM properties. we're creating the destination for all iGaming players, one that is unmatched in the U.S. regulated online gaming ecosystem. In online sports, net revenue surged 68% year over year, and we achieved positive contribution for the quarter despite customer-friendly results in March that impacted revenue to the tune of a little over $30 million. Our strong growth speaks to the work we've done to enhance the product, improve pricing, and target and retain higher value premium mass players. All key metrics are up, including handle, handle per active, bets per active, active player days, and bet mix from parlays. We significantly improved our NGR margin by over a full percentage point year over year, we are utilizing our unique position with MGM to build and deepen relationships with our most valuable players, rewarding our players with unrivaled premium experiences. Consistent with our plan, we are focused on the value of our players rather than just quantity. As planned, Q1 had fewer monthly sports actives than last year, but importantly, each active had significantly higher revenue. This outcome was driven by refinements to our player segmentation and management. Finally, in OSB, our Q1 results give us increased confidence of achieving full year contribution positive for 2025. So in summary, we had a very satisfying start to the year. I want to reiterate what I said just a couple of months ago. 2025 is the year we turn the corner to sustainable and growing profitability. We remain on pace to deliver what we guided to, $2.4 to $2.5 billion in full year net revenue and positive EBITDA. As I said earlier, the business is as healthy as it's ever been. We are seeing continued strong momentum and excellent payback economics from our refined approach to player acquisition and management. That said, we are only a quarter in and much of the year still lies ahead. For example, there may be opportunities for reinvesting incremental EBITDA upside behind the momentum we are seeing. So, we're going to monitor the landscape a little while longer before we consider updating our 2025 guidance. Lastly, be aware that revenue growth rates in future quarters will appear to moderate relative to our Q1 growth rates, given that we'll be lapping stronger 2024 quarters that began benefiting from the operational enhancements we've made To wrap up, we're very confident in the direction we're headed and we are focused on continuing to execute against our strategic plan. With that, I'll hand it over to the operator to open the line for questions.

As a reminder, to ask a question, please press star one on your telephone and wait for your name to be announced. To withdraw your question, press star one again. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question is from the line of Sean Kelly at Bank of America. Please go ahead.

Hi, good morning, and thanks for taking my question, everyone. Adam or Gary, appreciate you doing this, and it's obviously very timely. You know, there are a lot of concerns in the industry about just sort of the broader trajectory of handle growth that we're seeing out there, and while it doesn't appear by any of your metrics, you're seeing a lot in this quarter. Just wondering if you could talk about the prevailing sort of landscape out there and maybe – to a similar degree, if you could just comment on the broader promotional or CAC environment that you're seeing, because it may be related to that. Thank you very much.

Morning, Sean. Thanks for the question. Yep. I mean, start with the big one. I can only really speak to what I'm seeing at BetMGM, and what we're seeing is really rude health in the business. Our player KPIs are strong. We are not seeing any impact of of the macro environment on our players' behavior, not from an engagement perspective, nor from a value perspective. And that's obviously borne out in the numbers that we've delivered in the first quarter. And I can confirm that nothing has changed that we can see since the end of that quarter. As regards the promotional environment and acquisition costs, We're seeing them actually pretty stable in iGaming, and recently we've actually seen those customer acquisition costs moderate. So fairly stable, no indication of macro headwinds or concerns as we see it today.

Thank you so much. Sure.

Our next question comes from the line of Stephen Grambling with Morgan Stanley. Please go ahead.

Hey, thank you. So with the run rate running, I guess, above the maintain guide, how do you think about upside versus reinvestment, maybe more significantly given the moderating CAC? And then perhaps asking Sean's question in a different manner, what's embedded in your handle assumptions for the remainder of the year relative to where you've been running? Thanks.

We are just approaching approaching May now. So not 25%, but a third of the way through the year. And recent history tells us that things can go up, things can go down, the results environment can change quickly. So as we've said in our prepared remarks, I think at this stage, it behooves us to be rather cautious when commenting on the outlook for the rest of the year. we expect Handel as a year-on-year percentage to moderate as we get into the back end of the year, just as I said, because last year, 2024, got stronger as the impact of our investments in the early part of the year and the improvements that we made all through the year started to translate into a stronger performance in the later quarter. So we'll be lapping stronger quarters. So we anticipate Handel growth to moderate somewhat. And zooming out, That all distills into our reaffirming our current geo-guidance, but of course flagging the risk that if things don't change, if things continue, there is likely to be an upgrade required or possibly an upgrade required as we get into the back end of the year.

Hey Adam, I just want to make a point on the math. So as people focus on handle growth, remember as you get into an environment where there's going to be lower bonusing, lower promotions, promotions are a big inflator of handles. So as we tighten up on some of that and as our competitors do, that will naturally bring down the inflation that goes into the headline handle. The second thing is as players migrate more, and we talked about a product mix change to greater numbers of SGPs, greater numbers of parlays, those are lower handle, higher margin offerings. So you'll see no impact potentially on GGR and NGR but you will see a suppressive impact on handles. So it's just important to understand how the math on the handle works with those two factors.

That's great. Thank you.

Our next question will come from the line of Praveen Gondole with Barclays. Please go ahead.

Hi. Good morning. Thanks for taking my question. Can you just, previously you talked about sports business being contribution positive this year. After the Q1 performance, do you see potentially for this business to be a bit positive at some point this year? If not, then at what point do you think next year we can expect that? And then can you please share more color about the player segmentation and management that has helped you to deliver great sports results this quarter? Thank you.

Of course. Thank you for those two, Praveen. We're not going to comment on the time to OSB EBITDA profitability. Of course, some of our central costs benefit both parts of our business. So then we get into the discussion about what the appropriate allocation methodology is. At the moment, we're focusing on building as big a contribution base from that sports business as possible. And the key inflection point is positivity, which we've delivered in the first quarter this year and are therefore now even more encouraged and confident of delivering that full year positive contribution that we've guided to for that business. In terms of segmentation and management, it's probably worth just recapping our strategies. Now, what we said in February was that MGM will serve all our customers magnificently, you know, to the best of our ability. However, where we are focusing relatively, where we are focusing our capital are on our more valuable players. And we are focusing on bringing down our payback period And that means focusing on, as I said, more valuable players where our cost to acquire relative to the player value is more favorable to our business. What that means is we are playing to our strengths. What that means is we are elevating our brand in sports, leaning up market, and leaning higher value, which means from a player management perspective, we are... We are being more surgical about how we are reinvesting dollars into our players and putting those dollars into where they work hardest. In iGaming, it's somewhat different. We are an every man and every person brand. The MGM brand really represents premium gaming in the United States. And so we are leaning into that and have a very broad investment strategy. And Q1 results indicate that that's the correct way to go for us.

Thank you very much. That's really helpful.

Our next question comes from the line of Adrian de St. Hilaire with Bank of America. Please go ahead.

Yeah, thank you very much. Could you please comment on what you expect in terms of impact on your business from prediction markets? Do you see that as potentially a competitive threat, or do you see that as an opportunity maybe to enter states where online sports betting is not legalized today?

I mean, Darren?

And Mr. Deutsch, it looks like Adam is in the process of reconnecting his line at this time.

Operator? Adam, can you comment more? Are you back, Adam?

Sorry about that. My line got disconnected. I'm back. I'm sorry. I lost the last minute.

The question was just about the threat or opportunity from prediction markets.

Oh. Did you – I don't want to cut across something that you may have said. No, no. We waited for you.

Yeah, look, ultimately prediction markets live at the intersection between state rights and who has the jurisdiction to regulate gaming at a state level. This is going to be determined by the courts. So that's the first observation. Following the turning over of PASPA, the repeal of PASPA, I thought that had been clearly determined, but we have some more to go in that. Whether it represents a risk or an opportunity, I think there are elements of both, actually. But in our existing OSB states, it represents a degree of risk, a small risk, only because the markets that prediction markets serve would be lower margin for operators. You know, there would be no impediment to sports betting operators participating in in that market. So we wouldn't lose that business entirely. It would just come at less revenue for the operator. Having said that, effectively what the prediction markets are doing is presenting an exchange type sports betting product. And we know from other international markets that that is a relatively niche proposition. Things like The excitement of same-game parlays, the fully-featured, the rich sports betting experience that sports betting operators provide would not be available. There isn't an equivalent in that type of offering. So I think it certainly is something that we are monitoring. I think we are focused on building the best sports betting offering for our players and We'll participate if required. Otherwise, we're focusing on, as I said, just being the best sports betting operator in the current regulatory environment.

Thank you. Our next question comes from the line of Barry Jonas with Truist. Please go ahead.

Hey, guys. How should we think about tax creep risks for this year?

Thanks. Okay.

Thank you for that question. We, through the Sports Betting Alliance, continue to lobby for the most reasonable and appropriate rate, we believe, with our lawmakers. And we were explaining, as positively as we can, we're explaining to lawmakers that there are many downsides of a high tax rate. And so while there are instances of tax rates rising, We think this is not a contagion wave that we're seeing, rather it reflects specific politics at a state level. And while we do see perhaps some moderate increases of tax in select states this year, we don't believe that that would be sufficient to undermine either the business model or our current geo-guidance. Summary, we're working hard to educate our lawmakers on the risk of onerous tax rates. And what is helpful to us actually is that there's more and more data about the health, the size of the illegal market. And that's very helpful for the conversations that we're having with our lawmakers and our regulators, frankly. And in addition, we think that the current environment, there was a question about the macro environment earlier. We think that this actually has a potential benefit for the industry because if, as I said, I think in February, if the objective is maximizing tax dollars, then the best way to do that, of course, is through legalization, regulation, and taxing of iBabing. And so that's very much part of the conversation.

Got it. That's really helpful. And then just maybe as a related follow-up, any specific states we should be looking at in the near term? And with that, any updated timing on Missouri and Alberta?

Sure. The three states we're watching very, very carefully where there is some risk are New Jersey, Maryland, and Colorado. As regards Missouri and Alberta, still on track. Still moving towards a December 1st launch of sports betting in Missouri. We think that there's positive risk that that might actually Start a little bit earlier. We understand that there will be a pre-registration phase allowed, which will allow a fast start at the back end of the year for that market. So excited for that. And of course, particularly excited for Alberta, which looks still to be on track for a Q1 launch of both sports betting and iGaming. And that should be a province where BetMGM really does flex. its muscles, given the strength of our business in Ontario, where we have just got Q1 financial numbers from Ontario. And we have increased our market share. I won't tell you what it is. I'm not in a position to do that. But we have increased our market share in both sports and iGaming. And we remain the market leader in iGaming. So really excited, really optimistic for Alberta next year.

Perfect. Thank you, Adam.

Our next question will come from the line of Jamie Bass with Citi. Please go ahead.

Hi there. Yeah, thanks for taking my question. A quick one. How much more do you think free bet can rationalize as a percentage of handle moving forward? And if I can have one follow-up, it would just be on whether you care to find the extent of the one-offs in the EBITDA R&D ones.

Sorry, I didn't get the second part of your question.

It was about the one-off and the EBITDA.

Yes. Okay, Gary, you're going to take the one-offs and EBITDA, and then let me take free bets of the percentage of Handel first. What we're seeing, as you can see from our NGR margin percentage, year-on-year improvement of over 1% and 1.1% improvement, an NGO margin, we think that, well, we have over the last 12 months delivered much more efficiency in our approach to reinvestment. Now, there are two parts of that. One is we are... the progress of state launches. When we launch in a new state and it's a very, very high intensity player acquisition period, and there are lots of new players, your bonus investment is higher. When you get into steady state, you don't... And that's in the basket alongside just ongoing maintenance of your existing player base. So as the market matures, the weight of those new players in the basket reduces and the weight of the player reinvestment increases. That's the first point. So we're moving towards more maintenance rather than more growth in the basket. That's the first. The second is, well, what is the right ongoing promotional reinvestment amount? It really depends on the market. You know, players also become accustomed to a certain level of promotional intensity. And so the journey of moderation will take time because what we want to do is make sure that players are engaged and that promotional investment has a role to play in that ongoing re-engagement. In Australia, I think the number is somewhere between one and two percent of handle. Here in the US, you know where it is. It's much higher than that. So do I believe that there is opportunity for much further rationalization? Yes. In terms of timing, I'm not sure where we get to. I'm not sure. Gary, do you want to take the one-offs?

Yeah. The one-off number is low, and it's only really relevant just because of the nature of the number being the 22 on positive EBITDA. So the one-offs were about 10, so 10 good. There's some stuff that came in in the audit and like a settlement of a tax thing to our favor that we weren't sure when it was going to happen. You know, as Adam mentioned in the opening remarks, we figured we were at least 30 down on revenue on March Madness results. And, you know, the flow through of that to EBITDA would have been more than enough to cover the 10 good that we had on the one off. So we feel really comfortable that the 22 positive for the full company EBITDA is more than representative of the underlying health of the business in Q1.

That's very clear. Thank you.

Our next question comes from the line of Jordan Bender with Citizens. Please go ahead.

Hi, everyone. Good morning. Curious to get your thoughts on M&A and if you believe you're missing anything from a technology or product standpoint to be more competitive. And Gary, on my follow-up, whether it is for M&A or anything outside of that, can you just kind of set the parameters for what situations you would look to use the revolver? Thank you.

Thank you, Jordan.

I don't think we're missing out on anything. One of the advantages of being a 50% owned entity of Entain is that the entire suite of Entain's technology and product is available to BetMGM. You'll hear from Entain tomorrow. And Tain's been making tremendous progress. We've largely integrated Angstrom, which we talked a lot about. So from a product and technology perspective, we have made great strides already, and there continue to be a lot of exciting things ahead for BED MGM this year. we are focusing on more in-house games. The area of live, both in sports and iGaming, is a real area of focus. And of course, the hygiene factor, but the one that plays an enormously important role in our players' experience is speed and performance. And there are some really important structural changes coming through in the technology sector embed MGM's technology that will see the speed of our product improve dramatically. Other areas of focus from a product perspective, you know, of course, we've talked a lot about omnichannel, but betting offering, the process of discovery is an area of focus. And of course, given our focus on premium math in sports, our high value players, our important players, we want to give our players a really special premium experience. And so we're working on personalization features and tools to ensure that our premium players receive that very premium experience. Specifically to where your question started on M&A, there isn't something that we are actively pursuing at the moment. Obviously, with Entain and MGM Resorts behind us, financeability is not the thing. It's really, are there gaps? And as I say, I don't believe that there are at this stage. In terms of adjacencies, we're always monitoring for what might supercharge our core business. But winning in sports and iGaming is our primary focus.

Do you want me to take the cash question there, Adam? Yep, yep.

So from a cash standpoint, first of all, as the business gets bigger, that's sort of what I would call the pipeline inventory of cash that's needed to fill the pipes for different ways players withdraw cash. And for different scenarios, it gets larger. So that's part of the thesis by which we put the line into place. From an operational standpoint, we had been expecting we would hit it some in Q1. But given that we significantly beat our EBITDA projection, and we also have some delays on some CapEx and some favorable working capital timing that's a little bit better than we had projected, we haven't needed to hit it. So from the standpoint of going forward, it's really to provide us the comfort that we have, the cash resources we need. There can always be working capital fluctuations. There can always be really bad NFL weekends. There could always be decisions we make to go intense on marketing at one particular moment in time, such as the beginning of the NFL season. But, you know, as of now, you know, I wouldn't expect we would hit it until the end of the year if we hit it at all. And, you know, nevertheless, I always feel comfortable knowing that we have it and it's a safety plan.

Thank you very much.

Our final question will come from the line of Ben Shelley at UBS. Please go ahead.

Hello there. Can you, thanks for taking my question. Can you identify, can you quantify any structural hold margin expansion you had year on year in Q1 and how you think that can trend through the year?

Yes, thank you. Thanks Ben for the question. We are seeing, what's, Structural hold, as defined by our theoretical hold, improve year on year. There are two parts, again, to BetMGM's strategy, which are we're really enjoying the performance of our higher margin parlay players, as well as investing and focusing on on our really high-value premium sports players. Now, that second category, the really high-value sports players, are generally speaking more singles players, which are structurally lower margin. And obviously the parlay and same-game parlay heavier players have a much higher margin. And so where we are seeing the underlying theoretical margin, the fact that it is increasing notwithstanding the growth in our really higher value singles group is testament to the work that we're doing on underlying trading margin. Does that make sense?

Yes. Could you quantify the expansion in Q1 just for the numbers?

We think if you add back what we've guided on the impact of March Madness, you'll get to what we thought was our target GGR margin for the period.

Got it. Thank you. So $30 million plus. All right. Thank you, guys. Take care. There you go. Thanks, Ben.

And with that, I will conclude the Q&A session. Thank you for participating. You may now disconnect.