10-Q: MGM Resorts International Reports Mixed Q3 Results Amidst Revenue Growth and Increased Expenses

MGM Resorts International saw a 5% increase in consolidated net revenues for the third quarter of 2024, driven by growth in Macau and Las Vegas, but operating income decreased by 15% due to higher expenses.

Summary

• MGM Resorts International's consolidated net revenues increased by 5% to $4.18 billion for the three months ended September 30, 2024, compared to $3.97 billion in the same period last year.
• The revenue growth was primarily driven by a 14% increase at MGM China due to the recovery of operations in Macau, a 1% increase at Las Vegas Strip Resorts, and a 3% increase at Regional Operations.
• Consolidated operating income decreased by 15% to $314.86 million for the quarter, compared to $369.94 million in the prior year, due to increased payroll, gaming taxes, and promotional expenses.
• Net income attributable to MGM Resorts International was $184.58 million, or $0.61 per diluted share, compared to $161.12 million, or $0.46 per diluted share, in the prior year quarter.
• For the nine months ended September 30, 2024, consolidated net revenues increased by 9% to $12.89 billion, compared to $11.79 billion in the prior year period.
• Operating income for the nine-month period decreased by 19% to $1.20 billion, compared to $1.47 billion in the prior year period, primarily due to a $399 million gain from the sale of Gold Strike Tunica in the prior year.
• The company repurchased approximately 8 million shares of its common stock for an aggregate amount of $326 million during the three months ended September 30, 2024.
• The company repurchased approximately 30 million shares of its common stock for an aggregate amount of $1.3 billion during the nine months ended September 30, 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While revenue growth is positive, the decrease in operating income and the ongoing expenses related to the cybersecurity incident are concerning. The company's debt levels and future capital commitments also add to the uncertainty.

Positives

• Consolidated net revenues increased by 5% in Q3 2024 and 9% for the nine months ended September 30, 2024.
• MGM China's revenue saw a significant increase of 14% in Q3 2024 and 38% for the nine months ended September 30, 2024, indicating a strong recovery in Macau.
• Las Vegas Strip Resorts experienced a 7% increase in rooms revenue for both the three and nine months ended September 30, 2024.
• The company recognized $52 million of business interruption insurance proceeds related to the September 2023 cybersecurity issue.
• The company completed the February 2023 $2.0 billion stock repurchase plan.
• The company amended its senior secured credit facility to increase the facility to $2.3 billion and extend the maturity date to February 2029.

Negatives

• Consolidated operating income decreased by 15% in Q3 2024 and 19% for the nine months ended September 30, 2024.
• Las Vegas Strip Resorts casino revenue decreased by 13% for the three months ended September 30, 2024.
• Regional Operations casino revenue decreased by 1% for the nine months ended September 30, 2024.
• MGM China Adjusted Property EBITDAR margin was 25.5% for the three months ended September 30, 2024 compared to 27.8% in the prior year quarter.
• The company incurred expenses related to the September 2023 cybersecurity issue, the full scope of which has not been determined.

Risks

• The company faces risks related to its substantial indebtedness and significant financial commitments, including rent payments and guarantees.
• The company is subject to interest rate risk associated with its variable rate long-term debt.
• The company is exposed to foreign currency risk due to its worldwide operations.
• The company is subject to ongoing legal proceedings and investigations related to the September 2023 cybersecurity issue.
• The company's business is susceptible to global geopolitical events, such as terrorist attacks, acts of war, and outbreaks of infectious disease.
• The company's insurance coverage may not be adequate to cover all possible losses.
• The company's businesses are subject to extensive regulation and the cost of compliance or failure to comply with such regulations could adversely affect its business.
• The company faces risks associated with doing business outside of the United States and the impact of any potential violations of the Foreign Corrupt Practices Act or other similar anti-corruption laws.
• The company may not achieve its social impact and sustainability related goals or that its social impact and sustainability initiatives may not result in their intended or anticipated benefits.
• The company faces risks related to pending claims that have been, or future claims that may be brought against it.
• The company faces risks related to disruptions in the availability of its information and other systems (including its website and digital platform) or those of third parties on which it relies, through cyber-attacks or otherwise.

Future Outlook

The company continues to explore potential development or investment opportunities, such as expanding its global online gaming presence and pursuing a commercial gaming facility in New York. The company also has cash commitments to fund Osaka IR KK relating to the development of an integrated resort in Osaka, Japan.

Management Comments

• Management believes that while items excluded from Adjusted EBITDAR may be recurring in nature and should not be disregarded in evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends.
• Management believes excluding rent expense related to triple-net operating leases and ground leases provides useful information to analysts, lenders, financial institutions, and investors when valuing us, as well as comparing our results to other gaming companies, without regard to differences in capital structure and leasing arrangements.

Industry Context

The results reflect the ongoing recovery in the gaming and hospitality industry, particularly in Macau, following the easing of COVID-19 restrictions. The company's focus on expanding its online gaming presence and pursuing new development opportunities aligns with broader industry trends.

Comparison to Industry Standards

• MGM's performance in Las Vegas is consistent with other major operators on the strip, with occupancy rates around 94-95%.
• The increase in revenue in Macau is in line with the recovery seen by other operators in the region.
• The company's Adjusted Property EBITDAR margins are comparable to other large-scale casino operators, though the increase in expenses is a concern.
• The company's debt levels are significant, which is common among large casino operators, but the company's ability to manage its debt and interest payments is crucial.

Legal Proceedings

• The company is subject to consumer class actions in U.S. federal and state courts related to the September 2023 cybersecurity issue.
• The company is also the subject of investigations by state and federal regulators related to the September 2023 cybersecurity issue.

Related Party Transactions

• Operating lease cost includes $83 million for each of the three months ended September 30, 2024 and 2023 and $248 million for each of the nine months ended September 30, 2024 and 2023 related to the Bellagio lease, which is held with a related party.

Stakeholder Impact

• Shareholders may be concerned about the decrease in operating income and the ongoing expenses related to the cybersecurity incident.
• Employees may be affected by changes in the company's operations and financial performance.
• Customers may be impacted by the company's efforts to address the cybersecurity issue and improve its services.
• Suppliers and creditors may be affected by the company's financial performance and its ability to meet its obligations.

Next Steps

• The company will continue to explore potential development or investment opportunities.
• The company will continue to fund Osaka IR KK for its proportionate share of the unfinanced portion of the development project.
• The company will continue to monitor and address the ongoing legal proceedings and investigations related to the September 2023 cybersecurity issue.

Key Dates

Keywords

MGM Resorts International, casino, gaming, resorts, Las Vegas, Macau, revenue, EBITDAR, debt, cybersecurity, stock repurchase, integrated resort