MGM Resorts International - Q2 2023

Transcript

Operator (participant)

Good afternoon, and welcome to the MGM Resorts International Second Quarter 2023 Earnings Conference Call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President, Corey Sanders, Chief Operating Officer, Jonathan Halkyard, Chief Financial Officer and Treasurer, Hubert Wang, President and Chief Operating Officer of MGM China, and Andrew Chapman, Director of Investor Relations. Participants are currently in a listen-only mode, and after the company's prepared remarks, there will be a question and answer session. In fairness to all participants, please limit yourself to one question and one follow-up on today's call. Please also note that this event is being recorded. I would now like to turn the call over to Andrew Chapman.

Andrew Chapman (Director of Investor Relations)

Good afternoon, welcome to the MGM Resorts International Second Quarter 2023 Earnings Call. This call is being broadcast live on the internet at investors.mgmresorts.com. We've also furnished our press release on Form 8-K to the SEC. On this call, we will make forward-looking statements under the safe harbor provisions of the Federal Securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. As required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures in talking about our performance.

You can find the reconciliation to GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, this presentation is being recorded. I will now turn it over to Bill Hornbuckle.

Bill Hornbuckle (CEO and President)

Thank you, Andrew, and thank you all for joining us this afternoon. I'm happy to share that MGM Resorts posted an all-time record for consolidated net revenues in the second quarter. We achieved strong earnings across our domestic portfolio with near-record second-quarter adjusted property EBITDA results at MGM China and the first quarter of positive EBITDA at BetMGM. At a high level, we're seeing strong demand trends in Las Vegas with casino drop and handle up year-over-year, alongside increasing hotel revenues, with our fourth quarter hotel revenues forecasted to be the highest of all time. In our regional operations, we achieved year-over-year top line growth on a same-store basis, taking into consideration the sale of the Gold Strike Tunica, with profit margins in the range of prior quarters.

We are continuing to evaluate our business and evolve our products to ensure that we are maximizing profit while maintaining great customer service levels. Our second quarter results are a continued testament to our 75,000-plus employees and their commitment to offering world-class service and memories for our guests. Simply stated, our employees are the best in the business, and I want to thank them for helping us deliver another outstanding quarter in Las Vegas and our regional locations and ultimately in Macao. While we're certainly pleased with the results we've achieved in the first half of this year, we frankly are even more excited about what's to come in the back half, starting with the historic long-term agreement with Marriott International that we announced last month.

As part of this agreement, we've created a new MGM Collection with Marriott Bonvoy, allowing its more than 180 million members to book rooms and earn and redeem Marriott Bonvoy points at 17 MGM Resorts domestic properties. This agreement will enhance our profitability by driving lower customer acquisition costs and with a better mix in higher ADRs and on-property spend. By 2025, our expectation is that the Marriott customer base will represent a meaningful segment of our hotel mix at premium rates. Jonathan will expand further on this business case in his section. I'd like to personally thank Tony Capuano and his team for their partnership and collaboration throughout this effort, and we can't wait to get started in the fall. Looking into the third quarter, we have great programming, including Black Hat at Mandalay Bay, MAGIC at the Convention Center, and Beyoncé at Allegiant.

Bookings are strengthening for the remainder of the year as we get close to the Formula 1 in November. We've also got a great fall home schedule for the Raiders, which will have fans flocking into Vegas and Green Bay, Pittsburgh, Kansas City, and New England, among other cities that all travel well. For Formula 1, while still early, we already have 2x the occupancy on the books and at 4x the average rate compared to last year and with more than 70% of our ticket inventory already committed. A portion of these tickets will go to our gaming customers, early front money and credit data suggested Formula 1 is shaping up to be an all-time record casino event for the company.

Our pace into the second quarter of 2024 is also setting up quite well, excuse me, the first quarter, highlighted by the Super Bowl at Allegiant Stadium in February. We're already seeing stronger rates in a typical Super Bowl weekend, with exceptional early business from sponsors and media that has led to 3 to 4 times higher room rates on the books. Looking longer term, we're excited by the possibilities of welcoming the A's to Las Vegas, literally in our front yard at the current Tropicana site. The A's proposing a 30,000 seat stadium, representing an additional 2.4 million seats every year during the regular season. That should drive over 400,000 new tourists during the focus on midweek business.

The Raiders and the Stanley Cup champion Golden Knights have shown that Las Vegas is the go-to destination for away fans seeking a fun and entertaining getaway to see their favorite teams play, and when we think the A's will be no different. The A's Stadium, Allegiant, and T-Mobile represent 100,000 seats, holding 3 professional sports teams that are directly adjacent to one or more of our properties, with a possibility for multiple events on the same day. It's clear that Las Vegas has become the world's premier sports and entertainment destination. Turning to Macao, we posted another outstanding quarter of performance and adjusted property EBITDA, surpassing the second quarter of 2019.... margins were in the high 20s, a great story that we feel confident can be sustained for the long term.

Our outsized performance in Macau is a result of exceptional execution by the team at MGM China, who has done an incredible job positioning our properties to maintain share in the mid-teens. The market has seen significant increase in hotel supply during the quarter. Just a few weeks ago, we reconfigured and enhanced Pit Seven at MGM Macau and the Lotus Room at MGM Cotai. We expect to complete the deployment optimization in Q3 of our tables. In Macau, we are focused on 4 key priorities: activating our incremental 200 tables, making optimistic changes to our casino floor to maximize yield, taking care of our premium mass customers, and driving international customers to our property through our global branch office network. We're committed to helping shape the future of Macau as a global tourism destination through our concession commitments, with investments being beginning this year.

The Macau capital will cover a wide range of opportunities, including investments in art and culture, entertainment, and the expansion of our international customer base. I'd like to thank the Macau SAR government for their continued support. Turning now to BetMGM. As the team announced last week, we are on track for second half 2023 profitability, and we're pleased with the meaningful progress we've made towards Single Account, Single Wallet. In fact, this week, we expect to be live with this feature in 14 markets, which cover more than 50% of our database. Our partners announced acquisition of Angstrom is also a positive step towards improving BetMGM's product and refining our pricing tools, both of which we expect to drive customer satisfaction and ultimately margins.

One of the meaningful benefits that MGM Resorts brings to BetMGM is the 37,000 rooms in Las Vegas that import new customers nightly. All of our resort guests are exposed to BetMGM marketing throughout their stay, and on average, BetMGM acquires 30,000 customers monthly who have originated or had a prior relationship with MGM Resorts, with half of those coming from Nevada. Excuse me. As we roll out Single Account, Single Wallet across the country, BetMGM will be able to truly activate our unparalleled footprint in Las Vegas as part of our omnichannel strategy. We expect acquisition and engagement metrics to grow as players get to enjoy a seamless experience using the BetMGM app across state borders. We're also focused on growing our international digital business through LeoVegas, and last quarter announced an acquisition of Push Gaming, a gaming content studio.

That acquisition is scheduled to close later this fall. We developed our digital presence internationally through improved content, technology, and distribution. Lastly, on the development front, excuse me, in New York, we hope to receive a license in the first half of 2024. In Japan, next step is entering into an implementation agreement with the central government, which we also expect in the fall. In closing, our agreement with Marriott, ongoing investments into our operations, and a fantastic sports and entertainment backdrop in Las Vegas position us well to create operating leverage by growing our EBITDAR against our fixed rent escalators. The stability of our domestic business will be supplemented by outsized earnings opportunities in Macau as that business ramps in the beginning of profitability in BetMGM. We also have longer-tail opportunities with our developments in Japan and New York and with our international digital strategy with LeoVegas.

When you connect each of these opportunities for cash flow generation together, add to it the strength of our balance sheet, and with more cash than debt than excluding MGM China, then consider the fact that we reduced our share count by approximately 30% since the beginning of 2021, we believe the company is tremendously positioned for growth as we accelerate our free cash flow yield. With that, I'll turn this over to Jonathan for more detail on the quarter. Jonathan?

Jonathan Halkyard (CFO and Treasurer)

Thanks very much, Bill, I too want to start my remarks by thanking our employees for all their hard work in delivering another robust quarter of results. Bill said our employees are the best in the business, I couldn't agree more. In the second quarter, we achieved strong earnings across our domestic portfolio and near second quarter all-time record adjusted property EBITDAR results at MGM China. Before I get into the results, let me begin with the financial benefits we believe the Marriott agreement brings to MGM. In Las Vegas, MGM Resorts fills roughly 12 million room nights a year. Based on data from The Cosmopolitan as well as Marriott, we believe we can replace approximately 5%-7% of our lowest-yielding rooms with Marriott direct bookings, representing 600,000-800,000 rooms per year.

Upgrading these lower-yielding room nights with Marriott brings a lower customer acquisition cost, higher ADR, and a higher-yielding customer with more on-property spend. Based on our research and our prior experience with The Cosmopolitan, we expect to increase profit per room by approximately $100 per night, driving $60 million-$75 million in annual profit once stabilized. This estimate doesn't include any further upside from our regional operations, group, or occupancy lift. All in all, we're excited about this agreement with Marriott and look forward to kicking things off in October. Turning to our results. Our consolidated businesses generated all-time record revenues of $3.9 billion, up 21% from last year, and adjusted EBITDAR of $1.1 billion. During the quarter, net cash from operating activities was $577 million. Less CapEx, free cash flow was $323 million.

It's important to note that $166 million in cash flow from operating activities and $14 million in CapEx related to MGM China were included in the quarter. Here in Las Vegas, revenues of $2.1 billion were steady compared to prior year, and adjusted property EBITDA was down 6% to $777 million. That's a good number for Las Vegas. On a same-store basis, excluding The Mirage and The Cosmopolitan, revenues were level and adjusted property EBITDA decreased 8%. Margins of 36% were well above 2019 levels. Second quarter occupancy was 96%, and ADR was $234, an increase of 4% year-over-year. Looking forward, our pace, which reflects on the books rooms, is up year-over-year for every month beginning in 2023 or remaining in 2023.

In terms of where we are seeing strength in Las Vegas, it's clear that it's coming from the luxury segment, which for this purpose, we define as our properties, which have a higher ADR than the strip average of $185, and that's our business. This segment represents approximately 65% of our rooms and over 80% of our EBITDA in the second quarter. In the regions, revenues of $926 million were down 3% compared to prior year, and adjusted property EBITDA was down 14% to $294 million. Of course, this quarter we did not have the results of the Gold Strike, so same-store revenues, excluding the Gold Strike, grew 2% with adjusted property EBITDA decreasing 7%. We continue to see stable trends in our regional operations.

While EBITDA was down year-over-year on a same-store basis, most of that decline is attributable to two properties, the Borgata and MGM Grand Detroit, both of which lead their highly competitive markets. Regional adjusted EBITDA margins were 32% in the quarter. As you will recall, in the third quarter of 2022, we brought back our normal service and amenity levels to our regional properties, which has led to consistent margins in the 32%-33% range since. Turning to Macau, our adjusted property, EBITDA of $209 million, was an increase of 21% versus the second quarter of 2019, with a 28% margin. Gross gaming revenues exceeded second quarter 2019 levels, led by our main floor win, which was 37% higher than 2019.

The flow-through created from net revenues to adjusted property EBITDA was over 100% when compared to 2019. We made progress in improving MGM China's credit profile with the July announcement of the amendment and extension of our two revolving credit facilities with a new maturity date in 2026. This was an important step in securing and extending our access to liquidity. In the first half of 2023, BetMGM generated net revenues associated with operations of $944 million, which is an improvement of 55% compared to the first half last year. BetMGM is well on track to achieve our forecast of $1.8 billion-$2 billion in net revenues from operations for the year. Our 50% of BetMGM's operating losses in the second quarter were $22 million.

As you recall, MGM reports BetMGM one month in arrears, so our second quarter reporting reflects March through May, and that explains the variance to BetMGM's positive EBITDA in the calendar quarter. Let me close on capital allocation and valuation. As we just lapped the one-year mark at The Cosmopolitan and with The Mirage and Gold Strike transactions behind us, it's a good time to reflect on the impact of these portfolio moves on our financial picture. We committed a net $460 million of capital to our domestic OpCos, with the acquisition of The Cosmopolitan and the subsequent dispositions of The Mirage and the Gold Strike. On a trailing 12-month basis, the incremental adjusted property EBITDA generated from The Cosmopolitan, less the amount lost with the dispositions, was $258 million.

Backing out the change to cash rent with these transactions, results in a net increase of $188 million on $460 million of capital. This implies a creation multiple of 2.4x or set another way, an ROI of 41% for a property, The Cosmopolitan of Las Vegas, that is now the youngest in our Las Vegas portfolio with the attending low CapEx requirement. We take capital allocation seriously here, and we're proud of these moves and the execution of The Cosmopolitan, which made it all possible. This year, through today, we also returned capital to shareholders by purchasing over 28 million shares for $1.2 billion. We're currently trading at 30% higher than our average weighted cost of shares since the program resumed in early 2021, yet our valuation still remains very attractive.

In our earnings presentation posted this afternoon, I revisit our adjusted EBITDA multiple at current trading levels. Using consensus valuation estimates for our share of BetMGM and the current market value of MGM China, we're trading at five times trailing adjusted EBITDA. Bill, back to you.

Bill Hornbuckle (CEO and President)

Thanks, Jonathan. Hopefully, you've heard the business case come through loud and clear. MGM Resorts offers consistent earnings through our Las Vegas and regional properties, with near-term growth and diversification through BetMGM's shift to profitability and MGM China's rapid inflection, as well as long-term growth opportunities in international, digital, and to our expansion efforts in New York and Japan. A fortified balance sheet allows us the ability to make optimistic investments and acquisitions, as well as return capital to shareholders through share repurchases. As Jonathan mentioned, we believe our shares will still be priced in an attractive level.

As we stand today, I am certainly encouraged by our ability to grow free cash flow significantly and believe, as the sum of the parts evaluation, we included in the deck suggests our core business is trading at multiples well below our competitors, providing for future growth and value to our shareholders. With that, operator, we'll take questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, please press star, then 2. Again, as a reminder, please limit yourself to 1 question and 1 follow-up. Our first question today will come from Joe Greff with JPMorgan. Please go ahead.

Joe Greff (Equity Research Analyst)

Afternoon, Bill. Afternoon, Jonathan.

Bill Hornbuckle (CEO and President)

Hi, Joe.

Joe Greff (Equity Research Analyst)

You did a fairly thorough job talking about your current operations and the trend lines in Las Vegas and the regionals, Macau, as well as BetMGM. I have a couple of big picture questions, or one big picture question, and then sort of one thought on New York. My first question is, if you could just give us an update on any digital or any M&A aspirations in digital, how much of a strategic priority is that for you, both in international markets and in North America? Maybe for each, how big is too big? Is there a size constraint? My follow-up question relates to the three downstate licenses here in New York or New York, where I'm at.

Could, could the two existing facilities get licenses if there's contention or uncertainty around the third license? What's your expectation in terms of communication regarding the next steps in New York? I think, Bill, you may have been in New York fairly recently, so I'm sure you're current. That's all for me. Thanks.

Bill Hornbuckle (CEO and President)

Thanks, Joe. Let me take those. As it relates to digital, we're focused on working alongside our partners with a collective goal to maximize the growth and profitability of MGM and LeoVegas. I think we're making good progress on both those fronts. That's really all we're going to say. I think on the second one, it has been interesting. I'm hopeful in the next month or so that we're going to hear something from the commission and ultimately get the process rolling. As you know, we've submitted questions. I think we submitted, like, 84, 85 questions about the actual bill and the process. The moment they begin to return those questions to us, the 90-day starts. We've not got any specific indication, but we do believe it will happen shortly and are hopeful to that.

You know, that remains on track, I think, for some time in 2024, getting licensed and then pushing on from there would be our goal and our hope, but nothing definitive there either.

Joe Greff (Equity Research Analyst)

Thanks, guys.

Operator (participant)

Our next question will come from Shaun Kelley with Bank of America. Please go ahead.

Shaun Kelley (Managing Director and Senior Analyst)

Hi, good afternoon, everyone. Thanks for taking my questions. I just want to dig into sort of the, the Las Vegas outlook a little bit, but, but probably a little bit more through a margin or, or cost lens. I think, you know, across the quarter and certainly across lots of other, you know, leisure-oriented businesses, we're starting to see, you know, the top line just normalize a little, little bit, and it's pretty understandable after, you know, such a good year last year. Just, you know, could you help us think a little bit about, you know, what kind of revenue growth MGM needs in the back half or kind of moving forward, you know, to either hold margin or get a bit of cost leverage, you know, from a bit of a more normalized level?

I think in the back half, you know, ex Formula 1, you know, things are going to start to look a little bit more normal. Just help us think about what are you experiencing on the inflation front? What would you need? You know, could you lever a 2% or 3% growth rate? Would you need a little bit more than that, just given the existing inflationary environment? How do you kind of think about those puts and takes?

Bill Hornbuckle (CEO and President)

I'll, I'll kick it off and turn it over to my colleagues. Look, obviously, Formula 1 is a unique opportunity, and it sounds like one that's going to repeat itself for us often. You know, the economics around that are substantial. That being said, we relooked at our forecast for the second half of the year, and particularly on top line, driven by rooms and driven by luxury, feel really good about it, both individually, by property, and particularly as you go up the luxury spectrum and then ultimately overall. I think, you know, the big thing that's going to impact us is going to be ultimately wage. You all know the culinary and the company, or all of Las Vegas companies are now out in negotiating process, which is going well.

We have decades of history with them on doing this. This town hasn't seen a strike since the eighties. I think we'll come to a reasonable resolve. There are issues there around housekeeping of note in their core constituency of people that we're going to need to address. Labor, I think, is the biggest in-- thing that sits out there. Again, the top line has been holding up exceptionally well. Corey, I'm going to turn it over to you.

Jonathan Halkyard (CFO and Treasurer)

Yeah, I'll, Jonathan, Shaun, I'll add a couple of comments. You know, year-over-year, we're experiencing some increases in, in, in Las Vegas, in the regional markets, in our FTE counts, not severe, low single-digit increases, and that's because of the dynamics we described during our prepared remarks, mostly around full staffing and in, in the regions around, actually a fairly dramatic increase in non-gaming revenues in our regional properties. As you look sequentially, as we go forward into the 3rd, 4th quarter, 1st quarter of next year, you know, I, I think we'll just need a, you know, a few percentage points of growth in order to, in order to maintain margins in and around these current levels.

Interestingly, in Las Vegas, you know, the 4th quarter has become a seasonal higher quarter for us with, of course, F1, the event schedule around the Raiders and other things that we're doing. So that, that tends to help margins as well. Corey?

Corey Sanders (COO)

I think you covered it, Jonathan.

Jonathan Halkyard (CFO and Treasurer)

All right.

Bill Hornbuckle (CEO and President)

Shaun, I would just for reaffirmation on margins. You know, we've now landed, I think, where we said we would land. I think that's pretty, history would say that, and we intend to stay there. You know, we'll continue to adjust the business accordingly, but, we understand the importance of the margins and where we are and where we need and want to be, and I think we're just about there.

Shaun Kelley (Managing Director and Senior Analyst)

That's super helpful, color. Thank you. as my follow-up, a small one, but, but Jonathan, thanks for the sort of extra detail on the Marriott agreement. you know, just sort of one specific one on that, but, you know, the $60 million-$75 million in annual profit you outlined, is that? Is a number like that net or gross? Meaning, is that, after the incremental cost to Marriott for that, so would that just be pure savings to, MGM, or, or do we have to net out whatever the costs are, the fees to Marriott, you know, as a, as a part of that?

Jonathan Halkyard (CFO and Treasurer)

No, we see that as net of net benefit to the company and also doesn't include benefits in the regional markets and in occupancy, recognizing we already operate at very high occupancies, but that's a net number.

Shaun Kelley (Managing Director and Senior Analyst)

Really encouraging. Thank you, everyone.

Operator (participant)

Our next question will come from David Katz with Jefferies. Please go ahead.

David Katz (Equity Research Analyst)

Hi. Afternoon, everyone. Thanks for taking my question. I wanted to talk about the regional business just a bit. You know, we've, we've seen, you know, a number of regional operators report so far, and, you know, there's been, you know, just some pressure, right, on, on the top and the bottom. Can you just give us your, you know, current state of the state of the regional business? Is this, you know, kind of a, a, a momentary, you know, pressure? Is it economically driven? You know, what is your outlook for, for that business, competitively, et cetera?

Corey Sanders (COO)

Yeah, David, it's, it's Corey. I think the business is fairly stable. As we look across all of our lines of business, the one area we're seeing a little bit of a decline in is our table games at a few of the properties that Jonathan mentioned earlier about the decline in our business. The non-gaming amenities are holding up extremely well and have been very strong this summer. On the labor front, I think we're pretty well dialed in there. We're still down significantly from our peak FTEs and have a good understanding of our costs. That business maintaining, I see is, is most likely happening in the future quarters.

David Katz (Equity Research Analyst)

Got it.

Corey Sanders (COO)

I'll

David Katz (Equity Research Analyst)

Please.

Jonathan Halkyard (CFO and Treasurer)

I was just going to add a couple of comments, which is that, you know, ours is a unique regional portfolio in that, not only are virtually all the properties have commanding market positions, but now with the conclusion of the, of the room renovation at the Water Club as well as the Beau Rivage, you know, these are properties which are, as a group, going to be extremely strong free cash flow generators for the enterprise, over the, you know, over the next several years with a lot of the major CapEx behind us. They, they play a very important part for the portfolio because of that.

David Katz (Equity Research Analyst)

understood. One of the topics we haven't talked about in a while, Jonathan, is, you know, focusing on digital investment and investment in the loyalty program, and MGM's loyalty program. Can you update us on, you know, what, what's going on there and what benefits you may be seeing or any ways to measure?

Jonathan Halkyard (CFO and Treasurer)

Sure. Most of our investments in the loyalty program have been around technology enablement for our MGM Rewards members so that they can make their reservations online, they can check in through mobile check-in, et cetera, and also introducing benefits to the program whereby they can redeem their MGM Rewards points for non-gaming as well as other amenities and earn the points on non-gaming amenities. All of these are seeing steady progress as we go through quarter to quarter. You know, it's an increasingly important part of the business. The capital investment requirement is fairly modest. It's more around operational standards and just increasing the awareness of our MGM Rewards customers, the benefits and the associated with the program.

Corey Sanders (COO)

Just a few other points, Jonathan. We just have changed our platforms, which will allow us to do gamification, which we think from a, a loyalty perspective, will help increase wallet share. Then we just announced that The Cosmopolitan in Las Vegas in February will shift to our loyalty program, so we're looking forward to the opportunities there also.

Bill Hornbuckle (CEO and President)

And maybe last comment. You know, our casino segmentation is up almost 10 points as a percentage of our mix. Generally, the program and all of its attributes have been a key driver in that. We've seen a good deal of pickup throughout the course of the last year. Even if I take out BetMGM, which is, as I said in my prepared comments, a huge driver of new signups. If you take that up, I want to, and I'm be off on the number here, but I think we have, like, 12% or 13% growth in that program.

Corey Sanders (COO)

And ultimately awareness. Obviously, going from M life to MGM Rewards-

Bill Hornbuckle (CEO and President)

... the awareness of the program and what it means across the portfolio has been beneficial.

David Katz (Equity Research Analyst)

Thank you, everyone.

Operator (participant)

Our next question will come from Barry Jonas with Truist Securities. Please go ahead.

Barry Jonas (Equity Research Analyst)

Hey, good afternoon. Appreciate the commentary on margins. You've previously talked about 400-600 basis points of margin improvement on 2019 for the domestic properties. I believe you've been exceeding that. Just curious if that's still the right range, that 200 basis point range, or if you think it's a little tighter now?

Jonathan Halkyard (CFO and Treasurer)

No, I, I'm still comfortable with that range, and I appreciate the observation. We look at it very closely, where we get very specific in terms of where that margin improvement is coming from. Then again, you know, 2019 was a long time ago. We're focusing on the business as it is now, but we're still comfortable with that as a benchmark.

Barry Jonas (Equity Research Analyst)

Okay, understood. Then just as a follow-up, you know, you've given a lot of great color on the Marriott deal. Can you talk a little bit more about any integrations with BetMGM and how you could see upside there?

Bill Hornbuckle (CEO and President)

Ultimately, it's our ability to market to their customers and then their customers, you know, having an opportunity to, to do BetMGM in its, in its context. We have a program, I think, that's gonna motivate, you know, Bonvoy points for those folks, ultimately. It sits independent with BetMGM today, I think it'll be a key driver. When you have 180 million people aware of a product, we think it's pretty significant and interesting, and they can get rewarded in Bonvoy points and ultimately do things, both inside that organization and ultimately back within our own. It's a pretty straightforward deal, where there's a fee for acquisitions for us, and then they open up the benefits programming to all of their members and our members to each other.

Barry Jonas (Equity Research Analyst)

Perfect. Thank you so much.

Operator (participant)

Our next question will come from Carlo Santarelli with Deutsche Bank. Please go ahead.

Carlo Santarelli (Managing Director and Senior Analyst)

Hey, hey, guys. I was just hoping maybe if we could kind of look at the, the same store results in Las Vegas, and, and maybe you guys could kinda help me better understand, some of the ins and outs. I, I thought if you look at, you know, the, the margins on the same store portfolio, down 350 basis points, but still kind of within a range of, of what you guys talked about relative to 2019. For starters, what-- was that there was no reference to, to hold or anything, so I wanted to ask if that was normal?

And secondly, I wanted to ask, with the union contracts, upcoming, is there any kind of booking of potential incremental labor increases that took place in the quarter and might take place in the third quarter as well, given the contracts and ended at the end of May?

Jonathan Halkyard (CFO and Treasurer)

The in terms of the margin performance year-on-year, again, it was, it was fairly consistent with what we experienced in the second quarter in 2022 in terms of margin performance in Las Vegas. As we look on year-on-year, a lot of the difference is coming from labor. You know, as we came out of this-- came into the second quarter in 2022, we weren't yet fully staffed, and so we were comping against a lighter lair- labor load in the second quarter of 2022. Then it was a mixed bag of, of a number of small items, none of which are, you know, I think are worth going into. hold was not a significant factor, and that-- those all contributed to it.

Like you noted at the, in the premise of your question, we're, we're kind of in that margin zone that we anticipated getting to and have been now for a couple of quarters.

Carlo Santarelli (Managing Director and Senior Analyst)

Okay, thanks. Just getting back to the accounting for BetMGM and obviously, the EBITDA loss in the quarter, given the different calendar accounting. You know, clearly, June was a positive month based on that. July and August tend to be seasonally softer months, I would say, within the sports calendar, et cetera. Is it possible that that kind of 3Q, which is generally a weaker quarter in general from an EBITDA perspective, could actually be break even to slightly positive prior to obviously what would be expected to be a stronger 4Q?

Jonathan Halkyard (CFO and Treasurer)

I mean, I'd prefer not to parse the quarters.

Carlo Santarelli (Managing Director and Senior Analyst)

Yeah.

Jonathan Halkyard (CFO and Treasurer)

I think you're, you know, you're directionally correct in terms of the relative strength of the different quarters. I think the second quarter calendar result was terrific, and we, you know, we stand by that second half profitability comment.

Carlo Santarelli (Managing Director and Senior Analyst)

Okay. Sorry, just so I'm clear, that's obviously, you guys are thinking aggregate second half as reported positive, but not necessarily each quarter positive. Is that the right way to interpret that?

Bill Hornbuckle (CEO and President)

Yes.

Carlo Santarelli (Managing Director and Senior Analyst)

Yes.

Bill Hornbuckle (CEO and President)

You've got football obviously kicking up in the third quarter, so the answer is yes.

Carlo Santarelli (Managing Director and Senior Analyst)

Yep. All right. Thank you, guys.

Operator (participant)

Our next question will come from Stephen Grambling with Morgan Stanley. Please go ahead.

Stephen Grambling (Equity Research Analyst)

Hey, thanks. Maybe one more on BetMGM. I know, I know you didn't disclose, or BetMGM didn't disclose the EBITDA exactly. From what we can tell, it looks like the margin there may be a little bit lower than one of your closest peers, but I know there's some puts and takes to try to compare these things. Anything that you can call out to, to help investors as they try to compare and benchmark?

Bill Hornbuckle (CEO and President)

Yeah, look, I think, and we've said this on a prior call, and I think the great news is we finally got Single Wallet in motion. I think the opportunity with Angstrom will drive more product, more parlay, more frequency and recency around bets, in-game and otherwise. Those are big margin businesses. If you look at, you know, I think gross, we're a little over 9%. I know there's a goal to break through 10, once we get Angstrom fully deployed, which will probably come in a couple of phases through football and then post-football.

I think if you looked at the businesses, that's the biggest delta between the, the two, is the product offering, and more importantly, the type of products that potentially someone like a FanDuel or DraftKings will offer versus the velocity of things that we offer. We're simply gonna have more high-margin bets available for customers as we deploy Angstrom.

Corey Sanders (COO)

If, Stephen, it's Jonathan Halkyard. If you look at our second quarter, some of the KPIs that we called out in the earnings presentation, I mean, as leading indicators, we're very excited about them for the profitability of the business, you know, lower customer acquisition costs, higher margin on online sports betting, increased play by our loyal known customers, and then, you know, all of our pre-2023 markets now contribution positive. I mean, all those things bode very well for improving profitability in the future.

Stephen Grambling (Equity Research Analyst)

That's super helpful. One follow-up just on, kind of BetMGM, but also the, the regional properties. It looks like the properties that were in the states with legalized iGaming had a little bit weaker gross gaming revenue than those without, any color on how to assess cannibalization from iGaming or BetMGM, specifically?

Bill Hornbuckle (CEO and President)

Well, I, I, I think in macro, it's beginning to be a slight factor. I think, you know, if you look at it in aggregate, obviously, what's happened in a place like Michigan, where it's gone, you know, almost 100% more than brick and mortar, it's meaningful to the business and meaningful collectively. We continue to hold our market share. I don't know, Corey, recently, what it is, 48 or whatever it is?

Corey Sanders (COO)

Forty-six.

Bill Hornbuckle (CEO and President)

64%. You know, in totality, we think it's to our betterment, and we're excited by it long term. Again, I think once we get more of this omnichannel in play, we can begin to motivate back into the property level with tournaments and other activity cases that will drive people back into brick and mortar.

Stephen Grambling (Equity Research Analyst)

Makes sense. Ultimately, free cash flow margin accretive.

Bill Hornbuckle (CEO and President)

Yes, clearly.

Stephen Grambling (Equity Research Analyst)

Thank you.

Operator (participant)

Our next question will come from Dan Politzer with Wells Fargo. Please go ahead.

Dan Politzer (Equity Research Analyst)

Hey, good afternoon, everyone. I guess a high level one on Vegas. You know, you've done a good job laying out the near term and medium-term outlook, but I guess as we look past the Super Bowl into 2024, can you maybe highlight some of the key events that you have on the calendar or, you know, I guess, where you are in terms of the group and convention pacing, versus where you typically are? Just any color as we kind of look further out into the demand picture, would be great. Thanks.

Bill Hornbuckle (CEO and President)

I'll get started, Corey.

Corey Sanders (COO)

Yeah. From a convention booking perspective, 2024 looks really positive for our company. We'll be up about 6% in room nights. Just as a reminder, Mandalay Bay has been under remodel, so that's impacted the number of convention room nights we've had in the second and third quarter here. We have been a little bit down on the convention side, which puts some pressure on the legacy properties in the midweek. As we look at 2024, we, in the pace that we're seeing and where those rooms are being booked, it should make up the difference that we saw in the last few quarters.

Bill Hornbuckle (CEO and President)

You know, if you think just more macro in terms of events, event activity, the great news is we're still the net beneficiary of where carriers like to bring their aircraft. I think we're sitting at 115% or 116% of inventoried seats over where we were pre-pandemic. That, that's been great news. Conventions, as Corey mentioned, will pick pace. We have yet to see the full return of international business to Las Vegas, particularly from Asia. I think that'll take some pace. We're excited by what we think Marriott can do from a, if not a displacement, but probably a little bit of both, you know, a higher value customer against an occupancy creep up, because we've seen what's happened to The Cosmopolitan. If we stretch it across the portfolio, we think that's meaningful.

We have several bids in for several NCAA tournaments, the College Football Tour Championship game, the Final Four, Frozen Four, not Frozen, whatever they call their Final Four for hockey. I think it's called Frozen Four. The programming, you know, Allegiant, and the opportunity it provides, has proven to be highly successful for whether it's a Beyoncé that's coming in later this month or others. You know, selling out in Las Vegas is almost a given, given the nature of the activity. It's not a three-hour event, it's a three-day event. We keep getting more than our fair share of, of looks at all of those things as a community, and we as individual properties, obviously with T-Mobile in our portfolio, et cetera. You know, overall, pretty excited by all of it.

Corey Sanders (COO)

Then you have the Sphere with U2, which, you know, at 20,000 people a night, has to help the entire city. You know, I think boxing is definitely coming back. We just hosted a fight last weekend, and that was spectacular for us, so.

Dan Politzer (Equity Research Analyst)

Got it. Thanks for all the color. Just pivoting to, to digital and BetMGM, obviously, if we, we look through your slides and we see the data, you know, share has kind of, kind of edged downwards a bit. Maybe can you talk about the, the priorities at the, at the JV level as it relates to growth and market share versus profitability, which obviously is selected here in the calendar 2Q?

Bill Hornbuckle (CEO and President)

It's 2 things, you kinda touched on both of them. You know, a drive to profitability, you know, we see cohorts maturing in 24 to 36 months, particularly in sports, hopefully a little sooner in iGaming. Well, not hopefully, they are maturing a little sooner in iGaming. We've seen our CPAs come down from 400s down below 300s. There's, you know, there's active maturity there in the context of how we're marketing and to whom. We're more disciplined about all of that. Candidly, it's back what I said earlier, our product is not where we want it to be.

I think the moves that we're now making, though, with Entain, our partner, with the moves we're going to make with Angstrom as a part-- or as a onboarded partner for BetMGM, will get us to a place where we'll be back in that game in a meaningful way, and hopefully, you know, begin to gain some share back. On the casino side, it's simply sports bettors, about 30% of them migrate over to the casino. If you take that out of the equation, if you leave that in the equation, it's the part of the reason iGaming has come down a couple of points, but we continue to dominate. We're not naive that they're not coming after us in that, in that forum, but we continue to innovate. We've got new games going on the floor.

Go back to the question we just had around, you know, is it hurting brick-and-mortar that have jackpots that extend from digital over to brick-and-mortar and vice versa? So we're continuing to figure out ways to tie both products together to promote both ends of the spectrum.

Hubert Wang (President and COO)

Got it. Really helpful. Thanks for the color.

Operator (participant)

Our next question will come from Brandt Montour with Barclays. Please go ahead.

Brandt Montour (Analyst)

Good evening, everybody. Thanks for the question. I was wondering if in the regionals, if you wanted to-- if you were able to give us a little more color on what happened in at the Borgata and in Detroit this quarter, and if it's fair to assume that if you adjusted for that, you would have ended up comfortably in that 32%-33% margin range that you talked about, Jonathan?

Jonathan Halkyard (CFO and Treasurer)

Sure. Yeah, it at the Borgata, it was a matter of a couple of pretty significant table game events moving from June into July. MGM Detroit, it was some issues around hold for the property in the quarter. As you know, again, going forward, we're comfortable being in that range.

Bill Hornbuckle (CEO and President)

Borgata was the big dragger.

Jonathan Halkyard (CFO and Treasurer)

Yeah.

Bill Hornbuckle (CEO and President)

of the margin.

Brandt Montour (Analyst)

Okay, great. That's helpful. Over in Macau, you know, as you look at the market's recovery and, and where, where you guys think the recovery is coming from here, and, you know, looking at your own capacity and your own sort of expertise, you know, can you tell us what gives you confidence that you'll be able to hold the market share gains that you've gotten, and how you, you sort of think that can trend from here?

Bill Hornbuckle (CEO and President)

Well, I'll, I'll kick it off and turn it over to Hubert, who obviously lives this every day. Look, we are uniquely positioned in the way we've historically shaped for decades, our marketing organization around knowing our own customers and delivering them to our properties. Obviously, now, with the demise of Junkets, we've seen that network go to work, and frankly, we're expanding on that network. We've, we've opened a couple more offices, and so that's been meaningful and helpful. Then I think it is interesting to us that the moves that we made on the casino floor itself and the reconfigurations and the velocity, and the way we offer up games and the proximity to each other, others have now begun to replicate.

You know, that's real, and it, it may or may not take its course, but here we are. July was yet a record month. Here we are, seven months into this, and we continue to hold share, where I think you've seen almost 10,000 hotel rooms open up in the marketplace. Look, there's always tomorrow. We're not overly cocky about it, but we do think we've done a good job deploying the 200 tables we got. There's about 150 in play with 50 more to go, and I think that'll help our share story as we get to the second half of the year. Hubert, anything to add?

Hubert Wang (President and COO)

Yeah, thank you, Bill. Other than the table and floor optimization you talked about, I think that we're also looking at sales team expansion. Obviously, I think that this is going to be very important for our customer acquisition. Another thing is that we're going to leverage our networks that MGM Resorts has internationally to push the overseas market. I think that we have already made a lot of progress, and we're going to open more offices and double our headcounts, sales and marketing people in these areas. Other than that, I think capital projects and enhancement remain a very important element to improve our customers' experience, particularly at the premium mass side.

We are looking at, for example, at MGM Macau side, we're going to do a villa renovation in the coming months and the quarters. There are also a lot of non-gaming programs and products that, that we're going to either renovate or build under the retendering concession commitment. There are a lot of things that we are doing and focusing on to defend our market share. Just to give you some color on the recovery, I think our July results are very strong, robust, and it's, it's showing continuous improvement on a lot of fronts and a lot of KPIs vis-à-vis second quarter. Whether it's the daily GGR or mass GGR recovery rates and even EBITDA recovery rates. We're, also we're looking at higher numbers than the second quarter.

I'm very optimistic, on the balance of the year in terms of recovery and the financial results. Thank you.

Brandt Montour (Analyst)

Great. Thanks, everyone, for the color.

Operator (participant)

Our next question will come from Robin Farley with UBS. Please go ahead.

Robin Farley (Equity Research Analyst)

Great, thanks. I just wanted to follow up on the Marriott agreement. It seems like a great distribution agreement. They describe it as a franchise agreement, which would suggest that you're paying a share of rooms revenue from, you know, you mentioned you, you expect them to fill maybe 5%-7% of the lowest rooms. Are you paying a share of room revenues from the other, you know, 90%-plus of rooms, in the agreement? Thanks.

Bill Hornbuckle (CEO and President)

Robyn, the whole agreement is basically a hybrid, given the nature of Las Vegas, given our occupancies. Yes, we're paying fees on some rooms, not all. Look, I think you long understand the nature of the story here and what we've been able to do. Whether it was Hyatt was more of just a loyalty program. This goes a little deeper and longer, which we're excited by, but it is rewarded on performance. The more room nights they drive and the more room nights they bring us, the better they do, and ultimately, I think the better we will do. It's a hybrid deal. It wouldn't be in the general context of how you think about a franchise agreement.

Robin Farley (Equity Research Analyst)

So not a share of revenues on the rooms that, you know, you already fill your, yourself. Is that the way to think about it?

Jonathan Halkyard (CFO and Treasurer)

We're not gonna go into the details of the agreement. We actually, you know, feel like we've been pretty transparent in terms of what we think they'll deliver, what they think they'll deliver in terms of rooms and the incremental value associated with those rooms on a net basis. That's as far as we're gonna go in terms of describing the transaction.

Robin Farley (Equity Research Analyst)

Okay. Thank you. Thanks for the color.

Operator (participant)

Our next question will come from John DeCree with CBRE. Please go ahead.

John DeCree (Analyst)

Good afternoon, everyone. Thanks for taking my questions. You know, in your, in your prepared remarks, you've, you've mentioned about the A's in the backyard for you guys. You know, maybe a little bit further looking, but are there, you know, potential reinvestment opportunities on the south end of the Strip for your properties that, you know, might make ROI sense now that, that maybe didn't previously? Is there, you know, things that you're starting to consider and that you might be able to do, you know, with that, with that potential anchor down there in your backyard?

Bill Hornbuckle (CEO and President)

John, thanks for the question. I think the answer is yes, to a degree. I mean, we're gonna keep, you know, the velocity of capital we spend in Las Vegas when we're sitting here, particularly on that corner, when we own all three properties in measure. Having said that, you know, it's a $1.5 billion stadium that's gonna deliver hundreds of thousands of new folks. MGM is 30 years old and needs some love anyways. We're not crazy about the way it all connects right now, so we'd like to work on connectivity on that corner. We'd like to work on, particularly the front end of MGM. We think, you know, frankly, the further you get away from the elevators, the worse the property gets, not the better. We'd like to think our front door could be enhanced, and I know it can.

This will be a catalyst to that dialogue of where we go and how much time to tell. Yeah, we do think there's an opportunity there.

John DeCree (Analyst)

Thanks, Bill. Maybe one more also circling back to the, the prepared remarks. If you could, you know, provide a little bit of, of color. There's obviously been strength on the strip at, at the luxury properties that you, you gave us some color on, but, you know, the smaller piece of the business, perhaps the non-luxury properties, if you could, you know, give us a little color as to what you're seeing there, in terms of just differential from, from luxury properties, if you'd call it softness and, and what opportunities are there? Is it, is it economic? Is it still just that midweek occupancy that, that needs to come back as conventions, you know, roll in and, and citywide fill ups? You know, kind of how are you thinking about those, those other properties that could, you know, maybe see some opportunities?

Bill Hornbuckle (CEO and President)

Hey, John, I'll kick it off and turn it to Corey because he knows this more intimately, but I would say this, Park MGM is enjoying its best year ever by far. It sits in the epicenter with T-Mobile of activity. We, you know, and we see bleed over from Luxor when conventions are there. Obviously, we'll see bleed over Luxor, Excalibur, when football kicks back up. New York, New York is enjoying a decent year, it's a little bit of a mixed bag, but generally, Corey?

Corey Sanders (COO)

Yeah, I, I think in general, that there's plenty of demand to fill the properties. It, it just comes to the rate on midweeks, and in particular, when you look at Luxor and Excalibur, they've been impacted by Mandalay's construction going on over there. They haven't had the flow over from those convention room nights. When there are conventions in town, we have pricing power, even at those properties. The summer's been a little bit low on the convention business, not just for us, but from what we've heard from other, some of our competitors. We're still happy with the occupancy we're seeing in there.

John DeCree (Analyst)

Great. Thanks so much, guys.

Operator (participant)

Our next question will come from Chad Beynon with Macquarie. Please go ahead.

Chad Beynon (Analyst)

Afternoon. Thanks for taking my questions. First, wanted to ask about your share repurchases, $15 million in the quarter. That was the highest in 4 quarters. Just wondering how you're thinking about the pace of repurchases as we get through the back half of the year and then beyond. Thanks.

Jonathan Halkyard (CFO and Treasurer)

Yeah, thank, thanks for the question. This is an important part of our capital allocation program. It has been now for over two years. We, you know, we try to be consistent, but also opportunistic, depending upon where we see the shares and as compared to our own estimated value of the company. You know, this, this quarter was aggressive, although not terribly more so than the first quarter. This will continue to be a part of our capital allocation.

Bill Hornbuckle (CEO and President)

... approach, the pace will be dictated by the market, as well as some of the other opportunities that we have before us. We do have close to $2 billion still of excess cash on the balance sheet. One of the best, we think, at our, our valuation right now, one of the best homes for that capital is repurchasing our own shares.

Chad Beynon (Analyst)

Great, thanks. Then wanted to go back to Macau, to Hubert. Nice to hear about the quarter and that July is trending in the right direction. We've seen that the State Council recently published, you know, a 20-point measure to, to potentially expand consumption in China. I think we've all been waiting for a resumption of that farther out traveler or visitor, you know, non-Guangdong, to come back to the market. So two-part question on that: first off, do you think this could be the catalyst that gets them going? And, and, and, you know, what would be? Then secondly, do you need that customer to come back, or given your results that you're showing right now, you know, are you pretty happy with the current customers that you have in your properties? Thanks.

Hubert Wang (President and COO)

Yeah, I think that's a great question. I think the stimulation package that the government institute in, in China, I think it's gonna be another push for the mass segment, and particularly at the mid to lower end of the mass. This market, frankly, I think that is so far driven by the premium mass segment. I think the longer term recovery or growth will be a broad spectrum, much broad spectrum than just that. Particularly with all the non-gaming programs that all the concessionaires are implementing. I think that the demand will come from. A lot of that will come from the lower to mid-end of the mass. I think that, again, bodes well for everybody in the market.

For MGM, actually, we, we talk about recovery, but for us, I think we are already moving beyond recovery. We are talking about growth. We are focusing on all segments. Of course, premium mass, given the profit footprint, et cetera, I think we focus on that. A lot of program, a lot of programs will be supported by every segment of the mass. I think that bodes well for us as well, in the coming months and quarters for the business growth.

Chad Beynon (Analyst)

Thank you very much. Appreciate it.

Operator (participant)

Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Bill Hornbuckle for any closing remarks.

Bill Hornbuckle (CEO and President)

Thank you, operator. Just quickly before you all go. Look, I, I think you've heard, we continue to have a really strong top-line story in Las Vegas. It's led by event activity, it's led by luxury, which we, you know, again, to Jonathan's comment, 80% of our earnings are coming from a luxury segment and sector. You heard us talk about Marriott. Think about what we just did. We've just partnered with the world's largest hospitality organization, and with 180 million members, directly tied to our programs and ultimately to our properties. You know, BetMGM is now at inflection point. You heard us talk about margin retention and margin stabilization going forward.

I think we're at the numbers we should and want to be, both in Las Vegas and regional, and we'll continue to work towards that end. You heard about our balance sheet being in great shape, and the value that it presents to shareholders, particularly given the trading multiple that we're at, remains very opportunistic in our view, but it sits there loud and clear. For that, I thank you for all your support and your ear, and have a great evening.

Operator (participant)

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.