MGM Resorts International — 2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. The filing also reports unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing. MGM operates casino, hotel, entertainment and related businesses in the United States and Macau. Its reportable segments are domestic resorts and MGM China. The company consolidates MGM Growth Properties (MGP), while CityCenter is an unconsolidated 50%-owned affiliate.
Financial performance and liquidity
| Metric | 2017 | 2016 | Change or context |
|---|---|---|---|
| Net revenue | $10.774 billion | $9.455 billion | Up 14% |
| Operating income | $1.715 billion | $2.080 billion | Down 18% |
| Net income attributable to MGM Resorts | $1.960 billion | $1.101 billion | Up 78%; 2017 includes a $1.4 billion tax benefit |
| Diluted EPS | $3.35 | $1.92 | 2017 benefited substantially from the tax item |
| Adjusted EBITDA | $2.837 billion | $2.796 billion | Up about 1.5%; non-GAAP measure |
| Cash from operating activities | $2.206 billion | $1.534 billion | Up $672 million |
| Capital expenditures | $1.864 billion | $2.262 billion | Focused on Cotai, Springfield and resort projects |
| Cash and cash equivalents | $1.500 billion | $1.447 billion | At year-end |
| Debt, including capital leases | $12.923 billion | $13.001 billion | At year-end; principal debt was approximately $13.0 billion |
Quarterly results: Fourth-quarter 2017 revenue was $2.597 billion, operating income $223 million, net income attributable to MGM Resorts $1.394 billion and diluted EPS $2.40. The quarter included the Tax Act benefit, reported as $1.4 billion for the year and $2.50 per share for the quarter.
Margins and segments: Domestic resorts Adjusted Property EBITDA was $2.515 billion, up 22%, including full-year contributions from Borgata and MGM National Harbor. Domestic same-store Adjusted Property EBITDA rose 6%, with margin increasing 141 basis points to 31.0%. MGM China revenue was $1.970 billion, up 3%; Adjusted EBITDA was $525 million versus $521 million, while its margin eased to 26.6% from 27.1%.
Interest and liquidity: Net interest expense was $669 million, down from $695 million. The year-end weighted-average interest rate was 5.2%, and approximately 27% of borrowings were variable-rate after hedging. The company cited $1.1 billion of available capacity under its senior secured credit facility. It estimated $710 million of cash interest and $820 million of term-loan principal payments due in the next 12 months, including approximately $774 million related to MGM China. Management said available cash, operating cash flow and revolving-credit availability should cover known obligations and planned capital expenditures for that period.
Material changes versus the prior year
- Revenue growth reflected a full year of Borgata and MGM National Harbor operations, higher domestic casino and room revenue, and an increase in MGM China casino revenue.
- Operating income declined despite revenue growth. 2016 included a $430 million Borgata acquisition gain and a $401 million gain related to CityCenter’s sale of The Shops at Crystals; 2017 did not. 2017 also included higher MGM Cotai preopening costs.
- Domestic same-store performance improved, supported by gaming and room revenue. Las Vegas Strip REVPAR increased 2%; occupancy fell to 91% from 93%, while ADR increased to $165 from $157.
- In Macau, market gross gaming revenue rose 19%. MGM China’s main-floor table revenue increased 5%, but VIP table revenue declined 3%.
- Operating cash flow increased, while investing outflows remained substantial due to development and property investment. The company paid $252 million in shareholder dividends and repurchased $328 million of shares; $672 million remained under its $1.0 billion repurchase authorization at year-end.
Outlook, commentary, risks and unusual items
- Projects: MGM Cotai opened February 13, 2018, after the reporting date. The filing estimated total development cost at approximately $3.4 billion, excluding specified fees, capitalized interest and land-related costs. MGM Springfield was expected to be completed in the third quarter of 2018, at an estimated cost of approximately $960 million on the same stated exclusions. Planned 2018 capital expenditures included about $455 million for Cotai and $375 million for Springfield.
- Outlook: Management described Macau’s market as stabilizing and growing, and expected long-term growth from mainland China visitation and infrastructure improvements. It also outlined plans for continued resort investment and operational improvement, but provided no consolidated earnings or revenue guidance in the supplied filing text.
- Tax Act: The $1.4 billion 2017 tax benefit was non-recurring and non-cash, primarily from remeasuring deferred taxes after the U.S. corporate rate reduction and reassessing foreign tax credit valuation allowances. Accounting for some Tax Act effects remained provisional. The company reported approximately $3.0 billion in foreign tax credit carryforwards and a $2.4 billion valuation allowance.
- Debt and lease commitments: The company has substantial debt, restrictive covenants and major maturities, including approximately $2.4 billion due in 2019. Its triple-net MGP master lease requires significant rent and property costs; annual rent reached $757 million after the MGM National Harbor transaction, with scheduled escalators. MGM China’s credit facility was scheduled to mature in April 2019; the company said it was pursuing an amendment to extend maturity and adjust amortization.
- Regulatory and operating risks: MGM China’s gaming subconcession was due to expire in 2020, and renewal, taxation and Macau regulatory outcomes were uncertain. Other material exposures include competition, economic and travel conditions, VIP gaming promoters and receivable collection, interest rates, labor negotiations, construction costs and timing, cybersecurity, and the concentration of major resorts on the Las Vegas Strip.
- Litigation: Lawsuits related to the October 1, 2017 Las Vegas shooting were at an early stage. The company considered liability reasonably possible but said it could not estimate a range; it believed losses in excess of insurance coverage were unlikely. Other routine litigation was not expected by management to have a material adverse effect.
- Other unusual items: 2017 included a $41 million NV Energy exit-fee modification gain, a $36 million Borgata property-tax settlement benefit, and $44 million of debt-retirement losses. Three significant Las Vegas union agreements were due to expire in the first half of 2018, with negotiations underway.
Most important facts for investors to verify
- How much of reported 2017 earnings and EPS is attributable to the non-cash Tax Act benefit, and whether foreign tax credit assumptions or valuation allowances change.
- MGM China’s refinancing progress, debt amortization and liquidity, alongside MGM Cotai’s opening performance and the 2020 subconcession-renewal process.
- Whether operating cash flow can sustain planned capital spending, debt service, rent obligations, dividends and any further repurchases.
- Actual construction costs and opening milestones for MGM Springfield, and the operating effect of Monte Carlo’s conversion to Park MGM and NoMad.
- Developments in the October 1 litigation, insurance coverage and union negotiations, including the cost of any settlements or labor agreements.