MGM Resorts International — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. MGM operates casino resorts in Las Vegas, regional U.S. markets and Macau, and online gaming through LeoVegas and its 50%-owned BetMGM affiliate. Unless noted, amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $3.416bn | $2.708bn | $9.535bn | $6.623bn |
| Operating income (loss) | ($1.046bn) | $1.893bn | $1.441bn | $1.910bn |
| Net income (loss) attributable to MGM | ($577m) | $1.350bn | $1.189bn | $1.123bn |
| Diluted earnings (loss) per share | ($1.45) | $2.77 | $2.79 | $2.17 |
| Cash provided by operating activities | Not stated separately | Not stated separately | $1.333bn | $887m |
- Q3 revenue rose 26% year over year, led by Las Vegas Strip Resorts, but MGM China revenue fell 70% amid COVID-related travel restrictions and property disruption.
- Nine-month revenue increased 44%. Las Vegas Strip Resorts revenue rose 108%, Regional Operations rose 13%, and MGM China declined 44%.
- Q3 operating loss included $1.406bn of depreciation and amortization, up from $279m a year earlier. The increase primarily reflected accelerated amortization after MGM shortened the remaining useful life of its Macau gaming subconcession to December 31, 2022. The comparison also includes a $1.562bn CityCenter consolidation gain in Q3 2021.
- Nine-month operating income included a $2.278bn gain on the VICI transaction; the prior-year period included the $1.562bn CityCenter gain. Nine-month net income attributable to MGM increased to $1.189bn from $1.123bn.
- Segment Adjusted Property EBITDAR was $846m for Las Vegas Strip Resorts, $322m for Regional Operations and a loss of $70m for MGM China in Q3. MGM reported consolidated Adjusted EBITDAR of $950m, versus $2.540bn in Q3 2021; this non-GAAP measure excludes rent and other items and is not a substitute for GAAP earnings or cash flow.
- Las Vegas Strip hotel occupancy was 93% versus 82%; ADR was $227 versus $181, and RevPAR was $210 versus $148. Las Vegas Strip Adjusted Property EBITDAR margin was 36.8% versus 38.7%; Regional Operations margin was 33.1% versus 37.6%.
- Nine-month operating cash flow was $1.333bn. Investing activities provided $1.583bn, including VICI-related proceeds, while financing activities used $2.781bn, including $2.423bn of share repurchases. Capital expenditures were $457m.
- Cash and cash equivalents were $5.295bn at September 30, 2022. Principal debt was $8.6bn; the company also reported $25.2bn of operating lease liabilities. Its $1.675bn corporate revolver was undrawn, and management expected to repay $1.4bn of debt due in the next 12 months using cash on hand.
Material changes and transactions
- In April, VICI acquired MGP and MGM deconsolidated MGP. MGM received $4.4bn cash from redemption of most of its VICI OP units, retained an approximately 1% interest, entered into an amended master lease, and recorded a $2.278bn gain.
- MGM acquired The Cosmopolitan’s operations in May for approximately $1.7bn and leased its real estate. The property contributed $465m in revenue and $57m in operating and net income from acquisition through September 30.
- MGM acquired control of LeoVegas in September. Its results were consolidated from September 7; it contributed $31m in revenue and recorded a $3m operating loss through quarter-end.
- MGM agreed to sell The Mirage operations for $1.075bn and Gold Strike Tunica operations for $450m, subject to adjustments and closing conditions. The filing expected closings in Q4 2022 and Q1 2023, respectively. The related master-lease amendments would reduce annual cash rent by $90m and $40m.
Outlook, risks and unusual items
- Management estimated remaining-2022 capital expenditures of $355m–$365m domestically, including lease-required spending, and $10m–$20m in Macau; it also expected approximately $25m of further BetMGM contributions. These are spending estimates, not earnings guidance.
- Management cited approximately $1.9bn in annual cash rent due over the next 12 months, in addition to lease-related property costs, and expected consolidated cash interest payments of approximately $445m–$460m over that period.
- Macau’s new gaming law and concession tender are material uncertainties. MGM Grand Paradise submitted its bid on September 14; management believed it would obtain a concession but gave no assurance. Loss or modification of gaming rights could adversely affect MGM China and could trigger provisions in its debt arrangements. Existing subconcession rights were extended only through December 31, 2022.
- Macau’s “dynamic zero” COVID policy, travel restrictions and closures significantly hurt visitation and MGM China results. After quarter-end, a COVID case linked to MGM Cotai led to temporary suspension of operations through November 1, with limited operations expected to resume beginning November 3. Further restrictions or closures remained uncertain.
- Other risks include substantial debt and fixed lease commitments, competition, economic and travel conditions, regulatory changes, and potential impairment of assets. MGM identified possible future goodwill impairment risks if Macau operations or concession outcomes disappoint, or if Empire City does not obtain a commercial gaming license or achieve expected results.
- For the nine months, BetMGM generated a $187m share-of-operating-loss contribution to unconsolidated affiliates; MGM contributed $200m to the venture. MGM repurchased $2.423bn of shares during the period and another $183m after quarter-end. The board approved a $0.0025-per-share dividend payable in December.
Important facts for investors to verify
- Macau concession award timing and terms, and the resulting accounting and operating impact when the existing subconcession expires.
- Underlying Las Vegas and regional demand, margins, and performance excluding acquired properties and unusually large gains or charges.
- Cash available after debt maturities, interest, substantial lease payments, capital spending and planned buybacks.
- Completion and proceeds of the Mirage and Gold Strike sales, including the stated rent reductions.
- Whether Macau COVID restrictions, travel conditions, and MGM China’s losses persist or improve.