MGM Resorts International — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts below are in U.S. dollars; financial statement amounts are rounded to the nearest million unless otherwise stated.
Business context
MGM operates casino resorts, hotels and entertainment businesses in the United States and Macau, as well as online gaming businesses. Its reportable segments are Las Vegas Strip Resorts, Regional Operations and MGM China. All properties were open without COVID-19 operating restrictions at quarter-end. Macau’s remaining travel restrictions were removed in February 2023.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $3,973 million | $3,416 million | $11,789 million | $9,535 million |
| Operating income (loss) | $370 million | ($1,046 million) | $1,472 million | $1,441 million |
| Net income (loss) | $212 million | ($1,061 million) | $935 million | $527 million |
| Net income (loss) attributable to MGM | $161 million | ($577 million) | $829 million | $1,189 million |
| Diluted EPS | $0.46 | ($1.45) | $2.28 | $2.79 |
- Revenue and segment performance: Q3 revenue rose 16% year over year, principally on Macau’s reopening and recovery. MGM China revenue increased 829% to $813 million; Las Vegas Strip revenue fell 8% to $2,106 million and Regional Operations revenue fell 5% to $925 million. Nine-month revenue increased 24%.
- Segment operating measure: Q3 Adjusted Property EBITDAR was $714 million for Las Vegas Strip Resorts (down 16%), $293 million for Regional Operations (down 9%), and $226 million for MGM China, compared with a $70 million loss in the prior-year quarter. Strip margin fell to 33.9% from 36.8%; Regional margin fell to 31.7% from 33.1%. Management cited the cyber incident and higher payroll costs among the pressures.
- Cash flow: Nine-month operating cash flow was $1,975 million, versus $1,333 million a year earlier. Investing used $421 million, including $603 million of capital expenditures; financing used $4,177 million. Cash, cash equivalents and restricted cash ended at $3,403 million; balance-sheet cash and cash equivalents were $3,316 million.
- Debt and liquidity: Long-term debt, net, was $6,506 million at September 30, down from $7,433 million at year-end 2022. The company reported $6.5 billion of principal debt, including $3.3 billion related to MGM China. Its $1.675 billion corporate revolver was undrawn; MGM China had $536 million drawn on its first revolving facility and its second facility was undrawn. The company said it was compliant with applicable credit covenants.
- Lease obligations: Operating lease liabilities totaled $25.2 billion, in addition to debt. MGM estimated $1.8 billion of cash rent payments under triple-net leases over the next 12 months; these leases also require payment of property-level costs.
Changes versus the prior comparable periods
- Macau’s reopening drove a substantial recovery at MGM China. Nine-month MGM China revenue rose to $2,171 million from $499 million, and Adjusted Property EBITDAR moved to $604 million from a $148 million loss.
- Q3 consolidated operating results improved sharply from the prior-year loss, but the comparison is significantly affected by $1.4 billion of prior-year amortization of the Macau gaming subconcession. That asset was fully amortized by December 31, 2022.
- Nine-month operating income was broadly higher, despite the prior year including a $2.3 billion gain on the VICI transaction; 2023 included a $399 million gain on the Gold Strike Tunica sale. MGM-attributable nine-month income declined to $829 million from $1,189 million.
- Las Vegas Strip results benefited from a full period of The Cosmopolitan’s operations in the nine-month comparison, while The Mirage and Gold Strike Tunica were sold in December 2022 and February 2023, respectively. MGM sold Gold Strike for $450 million cash consideration ($474 million net of adjustments and transaction costs) and reduced annual VICI lease rent by $40 million.
- Q3 repurchases totaled approximately 13 million shares for $572 million. Nine-month repurchases were approximately 39 million shares for $1.7 billion, reducing shares outstanding. The company suspended regular dividends in February 2023.
Outlook, commentary and risks
- The filing provides no specific consolidated earnings or revenue guidance. Management estimated remaining-2023 capital expenditures of $300–$350 million domestically and $10–$15 million at MGM China.
- Management estimated cash interest payments over the next 12 months of $385–$395 million consolidated, including MGM China. It anticipated $1.8 billion in triple-net lease cash rent over the same period.
- MGM expects its share of Osaka integrated-resort funding to be approximately 306 billion yen, or about $2.0 billion at the September 30 exchange rate, funded approximately pro rata over five years. Total project development cost was stated as 1.27 trillion yen, or about $8.5 billion. MGM also disclosed guarantees related to the project, including an uncapped funding guarantee for completion and opening.
- MGM said it was exploring a potential New York commercial gaming facility; if successful, it estimated project cost at approximately $2 billion, including a $500 million license fee. These are contingent opportunities, not committed near-term earnings guidance.
- Cybersecurity incident: Unauthorized access to certain U.S. systems in September exposed some customers’ personal information, and a limited number of Social Security and passport numbers. MGM said it did not then believe passwords, bank account numbers or payment card information were obtained; its investigation continued. System shutdowns disrupted domestic operations and negatively affected September Adjusted Property EBITDAR at the Strip and Regional Operations. MGM faces consumer class actions; potential losses could not be estimated. It expected insurance to cover expenses but said coverage and total costs were not yet determined.
- Other exposures: Significant fixed lease and debt obligations, gaming and privacy regulation, Macau concession risks, labor and operating costs, foreign exchange and interest-rate movements, and the performance of travel and gaming markets. MGM disclosed $3.01 billion of Bellagio landlord debt and $3.0 billion of Mandalay Bay/MGM Grand Las Vegas landlord debt subject to shortfall guarantees; the guarantees’ recorded fair value was described as immaterial.
- The CEO and CFO concluded disclosure controls were effective as of September 30, 2023; the filing reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How the cybersecurity incident affects operating trends, litigation exposure, remediation costs and insurance recoveries.
- Whether Macau’s post-reopening revenue and profitability are sustained, and the future cash needs and economics of MGM China’s gaming concession.
- Cash generation after required lease payments, interest, capital expenditures and the planned Osaka funding commitment; assess total lease obligations alongside reported debt.
- Whether Las Vegas and Regional Operations margins recover from cyber-related disruption, payroll, insurance and other cost pressures.
- Future capital allocation: the February 2023 repurchase plan had $806 million of capacity remaining at quarter-end; the company announced a further $2.0 billion authorization in November 2023. Dividends remained suspended.
- Progress, financing and contingent obligations for the Osaka project and any potential New York gaming facility.