MGM Resorts International — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; filed August 7, 2019. Unaudited results compare with the corresponding 2018 periods. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $3.223bn | $2.859bn | $6.400bn | $5.681bn |
| Operating income | $371.5m | $363.1m | $741.7m | $722.8m |
| Net income | $76.2m | $140.4m | $142.3m | $406.7m |
| Net income attributable to MGM | $43.4m | $123.8m | $74.7m | $347.2m |
| Diluted EPS | $0.08 | $0.21 | $0.13 | $0.60 |
| Adjusted EBITDA | $755.9m | $695.3m | $1.496bn | $1.397bn |
- Revenue rose 13% in both periods; operating income rose 2% in Q2 and 3% year to date. Net income attributable to MGM fell substantially, reflecting higher interest and other expense, restructuring costs, and less favorable tax results.
- Q2 adjusted EBITDA increased about 9%; six-month adjusted EBITDA increased about 7%. These are non-GAAP measures and are not substitutes for operating income, net income, or cash flow.
- Segment adjusted property EBITDA: Las Vegas Strip fell 4% in Q2 and 7% year to date; Regional Operations rose 34% and 29%; MGM China rose 43% and 33%, respectively. Q2 margins were 28.5% for Las Vegas Strip, 28.0% for Regional Operations, and 24.2% for MGM China.
- Las Vegas Strip gaming was pressured by lower table-game win and baccarat activity: Q2 table-games win fell 22%, with hold at 21.1% versus 25.2%. Las Vegas rooms revenue rose 4% in Q2, with REVPAR up 3% (reported ADR and occupancy were $163 and 95%). Growth in Regional Operations and MGM China reflected new or acquired operations and MGM Cotai’s ramp-up; casino hold also supported MGM China’s increase.
Cash flow, debt, and liquidity
- Six-month operating cash flow was $967.8m, down from $1.093bn. Investing cash outflow was $877.6m, including $535.7m for Empire City; financing cash outflow was $457.8m. Cash declined $366.2m from year-end to $1.161bn.
- Capital expenditures were $321.6m, versus $861.8m in the prior-year half, as major development projects neared completion. Operating cash flow less capital expenditures was approximately $646m; this is a simple calculation, not a company-reported free-cash-flow measure.
- At June 30, cash was $1.161bn; current assets were $2.040bn and current liabilities $2.787bn. Reported debt was $14.662bn net of discounts and issuance costs; principal debt was approximately $14.8bn. The company reported $14.8bn of principal indebtedness and $1.1bn drawn on its $2.3bn senior facility, $2.3bn drawn on the Operating Partnership’s $3.6bn facility, and $701m drawn on MGM China’s $1.6bn facility.
- During the half, MGM and affiliates issued $3.25bn of debt, repaid or tendered existing debt, and MGM China used new notes to repay term loans and reduce revolver borrowings. Interest expense was $431.9m, up from $349.4m; cash interest paid was $415.2m. The company and relevant subsidiaries reported compliance with credit-facility covenants at quarter-end.
- Share repurchases were $281.8m in the first half; approximately $1.1bn remained under the $2.0bn authorization at June 30. Dividends paid were $138.2m. After quarter-end, MGM repurchased another $173m of shares.
Material changes, outlook, and risks
- Acquisitions and property arrangements: MGM acquired Empire City in January for approximately $865m; its reported contribution from acquisition through June was $91m revenue, $9m operating income, and $20m net income. MGM acquired Northfield’s operating business from MGP in April. Empire City and Park MGM/NoMad lease transactions, plus Northfield, increased annual master-lease rent to $946m from $770m at the start of 2019. The lease is with consolidated subsidiary MGP; related transactions eliminate in consolidated reporting.
- Accounting change: MGM adopted ASC 842 leases on January 1, 2019, recording $656m of operating lease right-of-use assets and $580m of lease liabilities at adoption. Comparative periods were not recast, limiting balance-sheet comparability.
- Management outlook: The MGM 2020 Plan targets $300m of annualized Adjusted EBITDA benefit by the end of 2021: $200m of cost reductions by end-2020 and $100m from digital transformation by end-2021. These are targets, not assurances. Expected capital investment was $375m–$425m domestically and $250m–$260m at MGM China; no full-year earnings or revenue guidance was provided in the supplied filing text.
- Contingency: Mediation continued over lawsuits related to the October 1, 2017 Las Vegas shooting. MGM said a settlement of about $735m was reasonably possible, potentially rising to $800m with full claimant participation. Insurers agreed to fund $751m of available coverage. No settlement was finalized in the filing; participation, additional claims, and any exposure if settlement fails remain uncertain.
- Other notable items: Restructuring costs were $43.0m in Q2 and $84.1m for the half. The first-half results also included a $53.2m debt-retirement loss. The six-month effective tax rate was a 36.9% provision, affected by Macau deferred-tax assumptions, Empire City-related state taxes, and foreign tax-credit valuation allowances. MGM China’s gaming subconcession was extended to June 26, 2022; the company paid approximately $25m to Macau and applied for an extension of its complementary-tax exemption.
- Principal risks highlighted: substantial debt and fixed master-lease rent; competition and economic conditions; gaming regulation and Macau concession/tax outcomes; reliance on gaming promoters in Macau; interest-rate and foreign-exchange exposure; execution of MGM 2020; litigation and insurance coverage; and construction, labor, cyber, and operating risks.
Investor verification priorities
- Check subsequent disclosures for the October 1 litigation settlement, claimant participation, insurer funding, and any uncovered claims.
- Track whether MGM 2020 delivers its stated savings and digital-growth targets, including implementation costs and restructuring charges.
- Assess debt maturities, refinancing costs, interest expense, facility availability, and the cash burden of the $946m annual master-lease rent.
- Separate organic performance from acquisitions and ramp-ups; monitor Las Vegas table-game trends, Regional Operations, and MGM Cotai’s sustained profitability.
- Verify planned capital spending, remaining closeout costs, and the effect of Macau concession and tax-exemption decisions.