MGM Resorts International — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results. MGM owns and operates casino resorts in Las Vegas, regional U.S. markets and Macau. The quarter was dominated by COVID-19 closures, restricted reopenings and severely reduced travel and customer demand.
Financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $289.8 million | $3.223 billion | $2.543 billion | $6.400 billion |
| Operating income (loss) | $(1.035) billion | $371.5 million | $216.3 million | $741.7 million |
| Net income (loss) attributable to MGM | $(857.3) million | $43.4 million | $(50.4) million | $74.7 million |
| Adjusted EBITDAR | $(492.2) million | $764.3 million | $(197.1) million | $1.512 billion |
| Cash flow from operations | Not separately presented for the quarter | $(1.086) billion | $967.8 million |
Q2 revenue fell 91% year over year; first-half revenue fell 60%. Segment revenue declined 90% at Las Vegas Strip resorts and regional operations, and 95% at MGM China in Q2. First-half Adjusted Property EBITDAR margins were 12.7% for the Strip and 4.9% for regional operations; MGM China recorded an Adjusted Property EBITDAR loss. These non-GAAP measures exclude significant costs and should not be treated as cash flow or GAAP earnings.
First-half operating income includes a $1.492 billion net gain from the MGM Grand Las Vegas and Mandalay Bay real-estate transaction. Without that unusual gain, reported operating income would have been materially weaker. Q2 included a $49 million expense for the October 1 shooting settlement, $20 million of restructuring costs, and a $26 million noncash impairment charge on an equity-method investment.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $4.836 billion at June 30, 2020, up from $2.330 billion at year-end 2019. The increase reflected asset-transaction proceeds and financing; it does not indicate positive operating cash generation.
- Long-term debt, net, was $11.340 billion; principal debt was approximately $11.4 billion. MGM reported no debt maturing before 2022. Operating lease liabilities were $8.413 billion; lease obligations are separate from reported long-term debt.
- Cash used in operations was $1.086 billion in the first half, versus $968 million provided a year earlier. Investing activities provided $2.341 billion, principally reflecting $2.456 billion of proceeds from the Mandalay Bay/MGM Grand transaction. Financing activities provided $1.248 billion.
- At quarter-end, borrowings included $550 million on MGM’s $1.5 billion revolver, $200 million on the Operating Partnership’s $1.35 billion revolver and $484 million on MGM China’s $1.25 billion revolver. A separate $400 million MGM China facility was undrawn, subject to conditions.
- COVID-related amendments waived certain financial maintenance covenants through periods extending into 2021 and imposed restrictions, including a $600 million minimum monthly liquidity test for MGM’s borrower group. MGM stated it was compliant with applicable covenants at June 30.
Material changes and transactions
- In February, MGM contributed the real estate of Mandalay Bay and MGM Grand Las Vegas to the MGP-BREIT venture. Consideration included $2.5 billion cash, $1.3 billion of assumed debt and an equity interest. MGM leased the properties back under a 30-year lease with initial annual rent of $292 million and escalators, and provided a shortfall guarantee on venture debt.
- MGM issued $750 million of 6.75% notes due 2025; the Operating Partnership issued $800 million of 4.625% notes due 2025; MGM China issued $500 million of 5.25% notes due 2025. MGM also tendered $750 million of notes, recording early-retirement losses.
- MGM repurchased $354 million of shares in the first half, with no repurchases in Q2. The board reduced the quarterly dividend to $0.0025 per share; the July-approved next-quarter dividend was also $0.0025 per share.
Outlook, risks and contingencies
- MGM said most properties had reopened or were reopening with limited amenities, while several remained closed; properties could close again. Management could not estimate when demand or pricing would return to pre-pandemic levels and expected a material COVID-19 impact during 2020 and potentially thereafter. The filing provides no earnings or revenue guidance.
- Management targeted remaining-2020 capital expenditures of approximately $120–$140 million domestically and $85–$105 million at MGM China, and expected to invest approximately $170 million in Roar Digital over the next 12 months. It estimated consolidated cash interest payments of $665–$675 million over the next 12 months.
- Cost and cash measures included reducing or deferring at least 50% of planned 2020 domestic capital spending, workforce reductions and furloughs, and reduced amenities. MGM warned these measures could affect guest loyalty, staffing and labor relations.
- MGM estimated CARES Act benefits including a $225–$250 million federal tax refund expected in Q2 or Q3 2021, $95–$105 million of permanent employer payroll-tax savings and $60–$70 million of payroll-tax deferrals. These were estimates, not guaranteed receipts.
- The October 1, 2017 shooting settlement was accrued at $800 million, with a $751 million insurance receivable and $49 million net expense. Settlement participation and claims administration were still being reviewed; some claims may fall outside the settlement, and the filing said the potential range for unresolved litigation was not clear.
- Fixed rent obligations, venture-debt guarantees, substantial debt, continued Macau travel restrictions, possible renewed closures, uncertain recovery and potential future impairment charges are significant risks. MGM China’s gaming subconcession runs through June 2022; renewal and related tax arrangements remain relevant uncertainties.
Key facts for investors to verify
- Whether reopened properties sustain demand and cash generation, and whether further closures or restrictions occur.
- Cash burn, available borrowing capacity, compliance with the $600 million liquidity test and the terms and duration of covenant relief.
- Settlement participation, final October 1 settlement funding and the adequacy and collectability of insurance coverage.
- Lease payments, venture guarantees and the financial impact of the real-estate sale-and-leaseback transactions.
- Actual CARES Act tax benefits, Macau visitation recovery and the status of the gaming subconcession and tax arrangements.