MGM Resorts International — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results. MGM operates casino resorts in Las Vegas, regional U.S. markets and Macau, and owns 50% of online betting joint venture BetMGM.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3.265 billion | $2.268 billion | $6.119 billion | $3.916 billion |
| Operating income | $2.381 billion | $264 million | $2.487 billion | $17 million |
| Net income (loss) | $1.623 billion | $90 million | $1.588 billion | ($246 million) |
| Net income (loss) attributable to MGM | $1.784 billion | $105 million | $1.766 billion | ($227 million) |
| Diluted EPS | $4.20 | $0.14 | $4.02 | ($0.56) |
Reported operating income and earnings included a $2.278 billion gain on the VICI/MGP transaction; therefore, reported profit is not a clean measure of recurring operations. Q2 revenue increased 44% year over year and first-half revenue increased 56%, aided by acquisitions and domestic recovery. MGM’s share of losses from unconsolidated affiliates was $56 million in Q2 and $102 million in the first half, including BetMGM losses.
Segment performance: Q2 Las Vegas Strip revenue was $2.137 billion, up 113%; Regional Operations revenue was $960 million, up 12%; and MGM China revenue was $143 million, down 54%. Adjusted Property EBITDAR margins were 38.6% for Las Vegas Strip Resorts and 35.4% for Regional Operations in Q2; MGM China reported a $52 million Adjusted Property EBITDAR loss. These segment measures exclude significant costs, including rent, and are not equivalent to GAAP operating margins.
Cash flow, debt and liquidity
- First-half operating cash flow was $933 million, versus $368 million in 2021. Investing activities provided $2.227 billion, including $4.374 billion of proceeds related to the VICI transaction, partly offset by the $1.598 billion net cash acquisition of The Cosmopolitan. Financing activities used $2.539 billion, including $2.116 billion of share repurchases.
- Cash and cash equivalents were $5.784 billion at June 30, 2022, including $886 million held by MGM China. The filing reports $8.406 billion of principal debt (approximately $8.357 billion net carrying value); $1.250 billion was current. MGM had $1.675 billion undrawn on its main revolver; MGM China had drawn $1.156 billion of its $1.25 billion facility.
- MGM expected to repay $1.25 billion of debt maturing within 12 months using cash on hand. Estimated consolidated cash interest for the next 12 months was $460–$470 million. Expected cash rent under triple-net leases for the next 12 months was approximately $1.8 billion; operating lease liabilities totaled $25.2 billion.
- First-half capital expenditures were $237 million. Total stock repurchases were $2.116 billion for the six months; $1.1 billion remained available under the March 2022 repurchase authorization at quarter-end.
Material changes and unusual items
- VICI transaction: Completed April 29. MGM received $4.4 billion cash for most of its VICI OP units, retained an approximately 1% interest, deconsolidated MGP and recognized the $2.278 billion gain. MGM entered an amended master lease with VICI.
- The Cosmopolitan: MGM acquired the operating business on May 17 for approximately $1.7 billion and began leasing the real estate. It contributed $151 million of revenue and $18 million each of operating and net income from acquisition through June 30. Purchase-price allocation remained preliminary.
- Operating lease costs and rent obligations increased following the VICI, Aria and Cosmopolitan lease arrangements. Debt declined partly because MGP’s debt was removed from consolidation; MGM also repaid $1.0 billion of notes at maturity.
- MGM repurchased approximately 56 million shares in the first half. Shares outstanding fell to 398.4 million from 453.8 million at year-end 2021.
Outlook, risks and contingencies
- Macau: MGM China’s operations faced severe travel restrictions and COVID-related weakness. Macau gaming operations were temporarily suspended July 11–23, 2022, after quarter-end, and resumed under safeguards, with many food, beverage and retail outlets still closed. MGM Grand Paradise’s subconcession was extended only through December 31, 2022. MGM cannot assure it will secure a new concession, although management believes it will succeed. Failure to secure one could materially affect operations and may trigger debt-related rights or defaults.
- The new Macau gaming law led MGM to shorten the remaining useful life of its existing gaming subconcession intangible to December 31, 2022, accelerating amortization. MGM identified an impairment trigger but reported no impairment based on estimated undiscounted cash flows, which depend on assumptions including successful future concession awards.
- Management anticipated $525–$535 million of domestic capital expenditures and $30–$40 million at MGM China over the remainder of 2022, plus approximately $75 million of BetMGM contributions. It also expected continued share repurchases. The filing does not provide a consolidated earnings or revenue forecast.
- Pending transactions included the sale of The Mirage for $1.075 billion, expected in Q4 2022, and Gold Strike Tunica for $450 million, expected in Q1 2023, both subject to conditions and approvals. Each sale would reduce annual VICI cash rent. MGM’s LeoVegas offer was valued at approximately $583 million; closing was expected in Q3 2022 subject to approvals, tender and other conditions. MGM held 23% of LeoVegas at June 30.
- Other risks include substantial debt and fixed lease payments, COVID-19 and travel disruption, gaming regulation, competition, interest-rate exposure and currency risk. A 1% weakening of the Hong Kong dollar against the U.S. dollar was estimated to result in a $28 million foreign-currency transaction loss. Management said it was in compliance with applicable credit-facility and lease covenants at June 30; routine litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Separate recurring resort performance from the one-time VICI gain, acquisition effects and lease-related costs; review segment and same-store results.
- Track Macau concession tender outcomes, the December 31, 2022 subconcession deadline, and the financial effects of restrictions or further closures.
- Assess the ability to meet debt maturities, interest, lease payments and planned capital spending while continuing buybacks and BetMGM funding.
- Confirm closing, proceeds and lease adjustments for The Mirage, Gold Strike and LeoVegas transactions, and any changes to their timing or conditions.
- Evaluate the assumptions supporting the Macau impairment assessment and the preliminary Cosmopolitan purchase-price allocation.