MGM Resorts International — Q1 2014 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2014, compared with Q1 2013. MGM Resorts operates casino resorts, with two reportable segments: wholly owned domestic resorts and MGM China. MGM owns 51% of MGM China and 50% of CityCenter.
Key financial results
Amounts are in millions of dollars except per-share data and ratios.
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net revenue | $2,630 | $2,352 | +12% |
| Operating income | $413 | $302 | +37% |
| Net income | $192 | $23 | Higher |
| Net income attributable to MGM Resorts | $108 | $7 | Higher |
| Diluted EPS | $0.21 | $0.01 | — |
| Adjusted EBITDA | $626 | $524 | +19% |
| Cash from operating activities | $291 | $195 | +$96 |
| Capital expenditures | $193 | $97 | +$96 |
- Operating margin was approximately 15.7%, versus 12.8% a year earlier. Adjusted EBITDA was approximately 23.8% of revenue, versus 22.3%.
- Domestic resorts generated $1,570 million revenue and $403 million Adjusted Property EBITDA, up 5% and 12%, respectively. Domestic EBITDA margin rose about 150 basis points to 25.7%.
- MGM China revenue increased 26% to $941 million; Adjusted EBITDA rose 33% to $241 million, with margin up about 140 basis points to 25.6%. VIP and main-floor table-games revenue grew 21% and 45%, respectively.
- Las Vegas Strip occupancy was 92% versus 90%; ADR was $147 versus $132; and REVPAR was $135 versus $118. Domestic casino revenue declined 2%, in part due to lower table-games hold.
- Interest expense declined to $209 million from $225 million, reflecting prior debt repricing and repayments. The effective tax rate was (1.9%) versus 57.4%; the current-quarter tax benefit primarily reflected assumptions about future realization of foreign tax credits.
Financial position and liquidity
- At March 31, cash and cash equivalents were $1,115 million, down from $1,804 million at year-end. Current assets were $1,971 million and current liabilities $2,160 million; the current ratio was approximately 0.91.
- Long-term debt was $12,931 million, down from $13,447 million. The company repaid $509 million of 5.875% senior notes at maturity in February. It reported $1.2 billion of available capacity under its senior credit facility; estimated debt fair value was $14.7 billion.
- Operating cash flow of $291 million was more than offset by $214 million of investing outflows and $765 million of financing outflows, including the note repayment and $247 million of distributions to noncontrolling owners. Cash declined by $689 million.
- Variable-rate borrowings were 26% of total borrowings. A 100-basis-point increase in LIBOR was estimated to increase annual interest cost by $28 million; the same increase in HIBOR would add $6 million.
Material changes, outlook, and risks
- Management attributed improved domestic results chiefly to hotel and non-gaming growth amid stronger Las Vegas visitation and room rates. It cited Macau market growth and stronger VIP and main-floor gaming volumes. These are management observations, not formal earnings guidance.
- Planned investment remained substantial: approximately $500 million for MGM Cotai in 2014, plus about $70 million in MGM Macau improvements; $170 million including land costs for National Harbor; and $350 million at domestic resorts and corporate entities. A further $210 million was contemplated for Springfield if the company received the license. The arena project’s projected $75 million 2014 investment was contingent on permanent financing.
- MGM Cotai’s estimated total project budget was $2.9 billion, excluding specified development fees, capitalized interest, and land; completion is required by January 2018. National Harbor was estimated at $1.0 billion, and Springfield at $690 million, each excluding specified interest and land costs. The company warned that these plans and estimates are subject to approvals, financing, regulatory and construction risks.
- CityCenter construction litigation remains material. MGM estimated probable liability of $140 million for the non-Harmon settlement and remaining claims. Separately, it had funded $721 million under its completion guarantee and accrued $104 million, offset in part by $72 million of condo proceeds held in escrow. The company had not accrued for contingent Harmon-related payments. CityCenter settled its Harmon builder’s-risk claim for $55 million in April 2014; permission to demolish the Harmon was granted April 22, after quarter-end. Trial of remaining claims was scheduled for September 23, 2014.
- Other risks include substantial indebtedness and covenant limits, gaming regulation and competition, Macau concession and promoter dependence, development execution, and exposure to interest and currency movements. The company reported compliance with its credit-facility covenants at quarter-end. It also said there were no material changes to the risk factors in its 2013 Form 10-K.
- MGM China paid a $499 million special dividend in March; $245 million was distributed to noncontrolling interests and $254 million remained within the consolidated group. The board also recommended a roughly $128 million final 2013 dividend, subject to shareholder approval.
Important facts for investors to verify
- Whether operating and cash-flow gains persist, particularly given the quarter’s lower domestic casino revenue and increased capital spending.
- Debt maturities, available revolver capacity, covenant headroom, and funding needs for Cotai and other planned developments.
- Progress and final exposure in the Perini/CityCenter disputes, completion-guarantee obligations, and Harmon demolition costs.
- Assumptions supporting recognition of foreign tax-credit assets, including the expected Macau tax exemption and possible future valuation allowances.
- Licensing and financing outcomes for Springfield, National Harbor, and the arena project, and the actual costs and timing of each.