MGM Resorts International

NYSE:MGM

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, and welcome to the MGM Resorts International First Quarter 2019 Earnings Conference Call. Joining the call from the Company today are Jim Murren, Chairman and Chief executive Officer; Corey Sanders, Chief Financial Officer; Bill Hornbuckle, President and Chief Operating Officer; Grant Bowie, CEO and Executive Director of MGM China Holdings Limited.

Participants are on a listen-only mode. After the Company's remarks, there will be a question-and-answer session. In fairness to all participants, please limit yourself to one question and one follow-up. Please note this conference is being recorded.

Now, I would like to turn the call over to Catherine Park. Please go ahead.

[Catherine Park, Executive Director, IR]

Thanks Chad, and good afternoon and welcome to the MGM Resorts International's first quarter 2019 earnings call. This call is being broadcast live on the Internet at investors.mgmresorts.com and we've also furnished our press release on Form 8-K to the SEC. On this call, we'll 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 materially differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise.

During the call, we'll also discuss non-GAAP financial measures in talking about our performance. You can find a reconciliation to the GAAP financial measures in our press release. Also, during today's call, we'll be reviewing slides 14 to 18 of our earnings presentation deck which is available on our website. Finally, this presentation is being recorded.

I'll now turn it over to Jim Murren.

[James Murren, Chairman & CEO]

Well, thank you, Kathy, and good afternoon, everyone.

We had a very busy and productive quarter here at MGM with a lot of changes happening all with an eye to the future. As you all remember, we announced MGM 2020 back in January and we've been executing on that plan over the past few months.

We've made changes to our leadership, announced the addition of a pioneering new digital leader who will oversee growth and revenue, and we are progressing with Phase 1 of MGM 2020, which is expected to deliver $200 million of EBITDA in 2020.

This is a time of meaningful transition. We're laying the foundation for a strong future and making a lot of changes that will have a significant impact on how we operate. Corey will discuss 2020 in further detail in a bit. But first, a few key points I'd like to make. The first quarter came in slightly better than our expectations with consolidated net revenues up by 13% and adjusted EBITDA up 5%.

The last time we were together we highlighted both low hold and a tough comp in our Las Vegas Baccarat business. This was the primary driver of our year-over-year Strip EBITDA decline in the quarter, and clearly something that the market felt as a whole with Las Vegas Baccarat DGR down 32% year-over-year.

Our U.S. Regional properties showed tremendous strength and we are starting to see the fruits of our labor in Macau which had a nice quarter with a continued ramp-up of MGM Cotai.

I want to first say right up front that there is no change in our full-year outlook. We expect a strong second half to the year as we begin to drive financial benefits from 2020 as well as a good convention calendar.

And lastly, our long-term strategy and our 2020 goals of $3.6 billion to $3.9 billion in consolidated adjusted EBITDA and consolidated free cash flow per share of $3.50 are unchanged. We also continue to work towards reducing our consolidated net leverage to 3 times to 4 times by year-end 2020. And we feel confident that we will meet these goals.

Let me get into the quarter a little bit. Here in Las Vegas, revenues were roughly flat year-over-year. Non-gaming revenues increased by 4%. We saw good performance in most areas including hotel with REVPAR up 3.7%. Food and beverage and entertainment were also robust, which we know speaks to the overall strength of the demand of the city at our properties.

Gaming revenues declined by 13% solely driven by high-end baccarat business. in fact, slots and non-bac table games had higher volumes and win year-over-year. Along with our non-gaming performance, this of course highlights the healthy environment we witnessed in the quarter.

We did mention in the fourth quarter call back in February that our baccarat business faced a very difficult comparison due to the timing of the holidays and a high hold comparison. Recall we had a record first quarter in baccarat last year, both in terms of volumes and win percentage.

Our baccarat business was lower this year due to fewer visits from certain Far East players and a much lower hold. The total impact to the quarter was approximately $35 million of EBITDA. This of course therefore was the main driver of our $46 million or 10% year-over-year decrease in Strip EBITDA.

Importantly, we're optimistic about the underlying health of Las Vegas. ARIA, which you know is not consolidated, for example, was particularly strong in the quarter with net revenues up 14% and Adjusted Property EBITDA up 29%. And including ARIA, we gained market share in overall table games.

We're also excited about the early performance of Park MGM as the property continues to ramp. It has already become a unique culinary destination and is bolstered by the programming at Park Theater and it's got of course a great location. Across the United States, we have many of the premier assets.

Our Regional properties continue to perform well in the first quarter with revenues up 21% and EBITDA up 24% benefiting from the inclusion of Springfield and Empire City. On a same-store basis, Regional revenues increased by 3% and Adjusted Property EBITDA was up 9%. Detroit had another great quarter with all-time record revenues and a record first quarter EBITDA.

Our Mississippi properties had an excellent quarter with EBITDA up 25%, as sports betting continues to drive visitation. National Harbor's EBITDA was up by 20% due to the strong reception of our expanded gaming floor and a continued focus on expense management. And Springfield ended up the quarter with a strong March and that property continues to ramp. MGM China's revenues grew by 23% to $734 million and Adjusted Property EBITDA was up 26% to $191 million.

By property, MGM Macau achieved EBITDA of $129 million, while Cotai continued its ramp with 18% growth quarter-over-quarter to $62 millions of EBITDA. We benefited from above average hold in the quarter of about $16 million in VIP. But nonetheless, we certainly showed good progress and gained market share for the third consecutive quarter.

And a big milestone for us was the extension of our sub-concession to June of 2022, which is now aligned with the rest of the market. We're grateful for the support of the Macau government and remain committed to the region's continued evolution into an international leisure and tourist destination.

In terms of our outlook for this year, it remains unchanged and we expect a good second half to the year as the benefits of MGM 2020 begin to materialize. Our trends other than baccarat have been positive. Convention bookings for the year remain in very good shape and we continue to benefit from the expansion at the MGM Grand convention center.

Our group business in 2020 is also shaping up well and this base on the books increases our confidence in Las Vegas. The entertainment calendar is exciting. T-Mobile will host Paul McCartney this summer and Canelo returns for the Cinco de Mayo fight this coming weekend. Park Theater is currently hosting Aerosmith and Janet Jackson is starting her Residency here in a few weeks. Of course, with the return of Lady Gaga and Bruno Mars later in the year, 2019 is looking outstanding.

Non-baccarat gaming trends also remain stable, and with respect to our Far East business, we've seen these dynamics before and we expect these trends to normalize over the coming quarters. We're focused on ramping up our new properties.

Late last month, we opened the Mansion villas at MGM Cotai to great response from our top players. This is similar to when we opened the Mansion here in Las Vegas back in 1998. We're seeing premium mass players who had not previously stayed at Cotai and they're staying longer too.

With all of our high-end amenities now operational, this will support growth in our VIP and premium mass business. We know we have more work to do there including fine tuning other elements such as F&B, retail and activating the spectacle. And we're also working on plans to build out some of the white space we have in the south tower, which could accommodate an extra 50 suites to 60 suites. We feel real great about Cotai and believe we will hit our ROI targets.

We will continue to ramp up Springfield and Park MGM and we have recently welcomed Empire City and Northfield Park into our portfolio. This strengthens our regional footprint and enhances our database and cross marketing strategy. We continue to see the benefit of increased diversification in our business and these highly targeted investments in both sports and technology.

We're a more balanced company than in any other time in our history with trophy assets in each of the markets in which we serve across the US and of course a meaningful and growing earnings contribution from Asia. We're excited about this balance and our ability to deliver for our shareholders because of it.

To ramp these assets is a key part of our plan to reach our $3.6 billion and $3.9 billion of consolidated adjusted EBITDA. The other major driver is MGM 2020. MGM 2020 is much more than a cost-cutting plan. It truly changes the way we operate and positions us for continued growth and success. One of the first changes we made as we started to implement MGM 2020 was promoting Corey Sanders to CFO.

As you all know, Corey has a tremendous history with MGM and in light of his operational expertise notably leading the profit growth plan, he is the right person to lead our efforts on MGM 2020.

And so with that, I'll hand it off to Corey to provide more details.

[Corey Sanders, CFO]

Thanks Jim.

And if I could turn people's attention to slides 14 through 18 in the earnings deck that has been posted on our website. Starting on Slide 14, we have been working on MGM 2020 for over a year now. When we announced the plan back in January, we set out to create a company that is streamlined and nimble and one that empowers leaders. In order to unleash innovation and support dynamic new ideas, we needed a new way of operating.

MGM 2020 is an evolution of our continuous improvement journey which began with the profit growth plan in 2015, now as you know is very successful, we targeted EBITDA enhancements of $300 million and ended up around $500 million. Between PGP and the announcement of MGM 2020, we have been busy standing up key centralized functions, redefining our service standards, training our employees on these standards, and opening four properties.

Through PGP, we laid the foundation for MGM 2020 as we installed the more centralized operating model which focused primarily on creating and sharing best practices across the enterprise. We also established our project management office.

MGM 2020 has two phases. Phase 1 of MGM 2020 is about scaling the centralized operating model to improve operational efficiency and effectiveness. We are moving certain key functions out of the properties and into corporate centralized groups called centers of excellence.

Phase 2 of MGM 2020 is about driving a customer-centric strategy to accelerate revenue growth. This will be accomplished through better leveraging digital technology and capabilities plus an enhanced loyalty program. We will talk more in detail about Phase 2 in upcoming months.

Turning to Slide 52, this is a - 15, I'm sorry - this is an earnings call. So let's talk about some numbers. For Phase 1 of MGM 2020, we are targeting $200 million of EBITDA uplift in 2020 and we expect one-third of that this year. We expect $100 million from labor savings, which will be $80 million in fixed labor and $20 million in variable, $50 million from procurement opportunities and another $50 million from revenue optimization.

For Phase 2, we're targeting an additional $100 million uplift in 2021, and in total, this gets us $300 million of adjusted EBITDA uplift in 2021 compared to when we launched the program. We feel very confident that we will hit these targets. We have done it before with PGP and we will do it again.

For procurement savings, we are exploring opportunities in IT, facilities, marketing, and other areas. We're reducing SKUs in hotel and in food and beverage even beyond what we did during PGP. For revenue optimization, we are dynamically yielding our food and beverage covers and entertainment offerings. This is not a simple exercise just to increase price.

We're actually optimizing our inventory utilization by setting the right price to attract the right guest at the right time. This will result in increased covers and slow periods with gradual price increases during high demand periods. For variable labor within our labor initiative, we will enforce the new labor standards set by the COEs to optimize our labor costs and better utilize our existing workforce. We will also leverage technology for greater efficiencies.

These are fairly straightforward. So I want to spend more time discussing the profound change in our operating model. So, which brings us to Slide number 16, I mentioned earlier that we are scaling our operating model by moving certain key functions out of the properties and into corporate centers of excellence, which we refer to as COEs. We have 18 COEs including a COE for food and beverage, hotel, entertainment, casino, and marketing and revenue management among others.

Effectively leveraging our COEs will be the key to our operating model evolution, as we clearly defined and delineate the responsibilities of the COEs and the properties, to one, eliminate duplicate functions, to allow quicker decision making, to optimize our management spans and layers and to promote greater sharing and implementation of best practices across the company.

Under the old model, personnel at each property set and executed their own strategies and standards consistent with the overall company strategy. Under our new model, the COEs will set the strategy and standards. This allows properties to focus more time on execution and service. One of the implications of our new operating model is that we will need fewer managers on property creating labor savings.

Let's turn to Slide 17. And this will go more into detail in our new model. Our COEs now set business strategy for casino, hotel, food and beverage and other divisions that align with each property's brand and complements the portfolio. They perform market research and analytics for the portfolio and determine the approach to yielding our offerings.

Additionally, COEs working with the properties set standards for labor guidelines, service standards plus forecasting and accountability. The properties of course will have input into these decisions but the COEs will drive them. This structure allows the properties, specifically property leaders, to focus even more on guest service and employee engagement while driving cash flow at the properties.

On Slide 18, we thought it would be helpful to go through a few examples. Let's take food and beverage. Under the old model, labor standards, pricing, menu development, wine list were each set at each individual property. We have moved this to the Food and Beverage COE which allow us to continue to consistently execute these initiatives with a smaller team. In addition, the responsibilities at these properties have changed, so the level management running the division, the pay and the infrastructure needed at the properties will all be reduced.

On the casino side, decisions around machine and table mix, casino floor layout, minimum bets, labor standards have also moved to the COE. And much like food and beverage, the infrastructure needed at these properties has changed. In addition, overall, we believe there are opportunities at both property and corporate as we look at widening our span and control and reducing layers company-wide.

Before I turn it back to Jim, I want to let you know that we've made progress already. MGM 2020 is an extremely complex exercise, as this is not just a cost-cutting program. We are setting up the company to operate in a much more nimble way that will also support us in Phase 2 in the execution of our business transformation led with our digital - through our digital efforts. And with the help of consultants and through the leadership of our COEs, our portfolio presidents and property presidents, we have implemented the first wave of the operating model.

Throughout March, we've had approximately 35 of our senior leadership team take a voluntary retirement package. Before the end of the second quarter, we expect a total of nearly a thousand position reductions some of which were announced just last week. These changes will ensure we hit our targets for this portion of MGM 2020.

In the first quarter, we incurred $52 million in MGM 2020 cost including $41 million of restructuring charges related to our operating model work and other consultant and technology costs as part of Phase 2. Our consultants are experts in business transformation and we have worked with them before with successful outcomes.

While these costs have a short-term impact on our profitability, we believe they are an investment that will pay dividends in the future. These eliminations were identified after a comprehensive process and the impact is being felt across the company. This is a significant change that is meant to be transformative with a goal of minimizing impact on our customer experience and employee engagement.

And with any exercise of this nature, we are cognizant of impact to morale. So we have been very mindful with transparent communication and change management programs to guide our leaders, employees through this time. While change is hard, particularly change that involves headcount reductions, we are confident that this will make us a more efficient, nimble and effective enterprise going forward. This is also vitally important as we turn our attention to Phase 2 of MGM 2020 where we will focus on using new technology to target, attract, and retain new customers to grow our competitive advantage.

Now I will hand it back to Jim.

[James Murren, Chairman & CEO]

Thanks Corey.

As you've heard, we're committed to our long-term growth strategy and we're fully on track to achieve our stated goals of $3.6 billion to $3.9 billion in consolidated adjusted EBITDA by year-end 2020. Remainder of the key drivers remain the ramp-up of the open properties and the program Corey's talking about, MGM 2020.

We're also targeting free cash flow per share, as I said, of $3.50. We have dramatically, as you know, reduced our overall CapEx spend as all our major development projects are behind us. Our properties are all in excellent shape with no deferred CapEx.

We will continue to be focused on fortifying our balance sheet. Earlier this month, we raised a $1 billion in senior notes at a very attractive rate and use the proceeds to address our near-term maturities. We remain confident in our goal to get our consolidated net leverage to 3 times to 4 times by year-end 2020.

We did not buy stock in the quarter as we were focused on our debt issuance, the bond tenders, and funding our previously announced acquisitions. But our capital allocation strategy has not changed. We have a $1.4 billion remaining authorization of our share repurchase and we intend to use it over time.

As always, we're excited about the opportunities in Japan, in sports, and in the digital space. And to that end, we recently hired Atif Rafiq, who will be our President of Commercial and Growth, where he will develop new customer experiences business models and revenue streams. He comes to us from Volvo where he was overseeing the research on the next generation of automobiles and he was previously responsible for the global digital transformation at McDonald's, very experienced digital leader. We're very excited to see the changes he will bring when he arrives mid-May.

On Japan, our Company has had a team there for roughly six years. We continued to deploy exceptional resources to that market and we expect to win and get a great return on all of it. Just recently, I've met with both the Mayor and the Governor of Osaka and was honored to inform them that MGM has adopted an Osaka-first strategy focusing our Company's considerable resources on creating a breathtaking resort that will celebrate the entire Kansai region.

We've been clear from day one that we believe that it is essential to work in collaboration with Japanese companies to develop a uniquely Japanese integrated resort. And we have found a like-minded and natural partner in ORIX.

We're forming a robust consortium that is anchored by but not exclusive to ORIX, who is a leader in consortium building in Japan. ORIX is a leading Osaka-based Japanese company with its roots and a significant asset base in Osaka and Kansai. And it shares with MGM a strong passion to develop a Kansai-focused integrated resort that will deliver a huge boost to the region's economy.

Over the past two decades, MGM has developed and assembled our industry's most successful portfolio of premier real estate in the US. During this time we have executed on strategies to highlight this value and have been focused on unlocking long-term value for our shareholders. And to that end, our Ad hoc Real Estate Committee has made progress in evaluating numerous strategies to maximize the value of our assets, and working with outside advisers, has narrowed their analysis to a small handful of options.

While there's no fixed timetable for their recommendation to the Board, I expect it will take months, not quarters. We're going to let the committee continue to do its work and present its recommendation we're not going to get ahead of them. So I appreciate you limiting your questions on this topic.

And finally, while the industry may be on the cusp of another round of consolidation and change, I want to be clear that our path to creating shareholder value does not depend on M&A. We're undergoing meaningful change ourselves internally with MGM 2020 and we remain committed to our strategy focused on our core operations and maintaining the stability at the top levels of management. We believe that our efforts today will ultimately result in a stronger company with greater competitive positioning in the industry.

Thank you. Now we'll turn it over to Q&A.

[Operator]

[Operator Instructions] The first question will be from Joe Greff with JPMorgan. Please go ahead.

[Joe Greff, JPMorgan]

My first question relates to the Baccarat segment in Las Vegas. How did that gaming patron and your views and outlook there compare presently to the outlook they had on February 13th when you reported fourth quarter results? As you look ahead, are there any signs to be optimistic given what we're seeing in terms of China macro and the prospects of US-China trade resolutions? And then I have a follow-up.

[Bill Hornbuckle, President and COO]

Joe, hi, this is Bill Hornbuckle. Good afternoon. Look, I think we're seeing some of the same signs, but I think it's important to keep it relevant. First and foremost, remembering and go back on Jim's comments, '18 was an exceptional year. Our market share as it relates to Las Vegas has not deterred, I mean in fact we're mid 40s and we lead the marketplace here, and it was tied to a handful of customers.

I think as you look at the balance of the year, it's important to understand that as of the first quarter, 30% to 40% of our net baccarat revenues have been had, if you will, given the cycle of how the year works in that marketplace, and if you look at our lineup and things that we have going forward and our ability to continue to attract, they're meaningful.

Of note, Jim mentioned we have - in May we have Canelo, in June we have a Tyson Fury fight, in July we have Manny Pacquiao, and we also have Paul McCartney coming in June, all things that attract the Asian business and things we think and we know can motivate folks coming here.

I think the other thing to keep in broad perspective given our diversification is that the net impact of all of this is mid single digits in terms of our EBITDA. Fundamentally, the business hasn't changed. We think we're in good shape, we're market leading, we think we've got an event calendar that will be meaningful and continue to drive the business.

[James Murren, Chairman & CEO]

And Joe, this is Jim, just to answer the question, the baccarat trends are exactly what we had thought we would see when we gave you guidance in February.

[Joe Greff, JPMorgan]

And Corey, you gave us a lot of details and information on 2020. You may have said this or you may have said this and I think Catherine you may have said it in a different way, but can you give us maybe as of, I don't know, the end of March or as of now I guess maybe the kind of year-to-date the tally on labor savings where we stand now and then how do you see that cadence in the 2Q in the back half of the year?

[Corey Sanders, CFO]

Yes, Joe, as I mentioned, we're looking to achieve $80 million in fixed labor savings. Most of that will be done by the end of Q2 and you'll start seeing that starting to flow through in Q3 and Q4.

[Operator]

The next question will be from Shaun Kelley with Bank of America. Please go ahead.

[Shaun Kelley, Bank of America]

Maybe, Corey, just to stick with the same comments since you gave us so much detail on a 2020 plan, you know, as we get into this, is there - and there is some real big shuffles happening at the management levels, is there any risk of sort of near-term disruption to core operations in your view, anything that might be sort of revenue touching and then on that also we've seen some big systems implementations happen in the past and also create some dislocation out there for some companies that have gone through meaningful transitions. So anything on the systems side that investors should be aware of or could cause any disruption there?

[Corey Sanders, CFO]

So, Shaun, I'll answer the technology stuff and I'll team up with Bill on the operational stuff since we both have a pulse on it, but he's dealing with this real-time every day. On the technology side, we are implementing the ERP in the finance area, we have a very thoughtful plan also through our PMO office that I think will mitigate any type of transformation there.

All the other technology that we're investing in I think will only enhance the customer experience and the employee's ability to service the customer. On the operational side, I'll turn it over to Bill to get his comments.

[Bill Hornbuckle, President and COO]

Shaun, look, I'm looking in the room. We have three new Group Presidents here with us. Between their exposure and experience, my own, we were - this weekend was the first weekend we were in this new operating mode. We are all over the business. We all went to numerous properties. We have a great deal of faith than when left alone to operate the business and service our customers at the operating levels, at the property levels, we're going to be in great shape. Obviously, change is not easy.

We're going to be going through a bunch of change dynamics, but again, we've been looking at this thing since late third quarter of last - excuse me, early third quarter of last year and we've thought through a lot of the opportunities that something like this would create and we think we're really well positioned to take care of them.

[Shaun Kelley, Bank of America]

And just my follow-up would just be on Park and Springfield. Jim, I think in your comments in the prepared remarks, you said that both are ramping well. Can you just give us a little bit more color on those. I mean we now have some hard numbers for both. Are these you know in line with your underwriting or are they going to ramp to your levels by the second half or when do you think will be at run rates that are consistent with what you're expecting to see there for each?

[James Murren, Chairman & CEO]

Well, I think I would point to maybe National Harbor is a good example or other new properties that we have developed. Park MGM is really a new property. It certainly probably would have been easier to build a new property. But it is a new property today and we're exceptionally proud of the execution of the delivery of the product and the quality of the product.

The financial returns are tracking what we had underwritten as long as they continue to ramp which we expect that they will. Springfield's start off slower than we had predicted, but is still on the trajectory that we had also predicted. So I believe that you're going to see - we expect to see at Springfield a ramp-up along the lines from a trajectory that we saw at National Harbor. But I can turn it over to Bill if you had any more --

[Bill Hornbuckle, President and COO]

Maybe a little more color on Springfield to start. Obviously, it's seasonal. Northeast Corridor, particularly spring, will bring more business. It's happened throughout Connecticut and throughout the region, we anticipate that. We're in full leverage mode on entertainment, Sher, A. O. Smith, Steve Martin all come to Springfield in the near future.

And so our opportunity to put programming in there to continue to expand it, we feel pretty good about, and March by far, and even if you look back on January, February, and March, March was our best month by far so far in the young history of the property.

More on Park, it's beginning already to act like a luxury property, our ability to leverage rooms and particularly entertainment and food and beverage, Corey talked about yielding, but the grosses we're seeing with Gaga and Bruno are unheard of in the industry given the scale. And so we're pretty excited by what all that's going to bring us long term.

[Operator]

The next question comes from Harry Curtis with Instinet. Please go ahead.

[Harry Curtis, Instinet]

First in - in Vegas, there are an awful lot of moving parts, the numbers in Vegas and it includes volumes and hold and also the charges that you've been incurring. So when you try and normalize that, how would you describe your business? Is it on an adjusted basis, do you think that the EBITDA is actually in a growth phase in 2019 or is it just going to take another two or three quarters to see that?

[James Murren, Chairman & CEO]

You want me to start and then turn over to my colleagues. Hi, Harry. I think what we saw when we talked to you on the fourth quarter is what we're seeing right now. We expect that the market will be up this year in Las Vegas and that we expect at MGM Resorts to maintain if not build our share and we can get into some of the macros around that, you get a lot of information from either the LVCVA or airlines et cetera.

And Corey and Bill can speak to that more, but the overall trends on Las Vegas as a market are the same as we saw in February, and 2020 looks really outstanding, which gives us the comfort to build our book, our base of business. Bill mentioned the entertainment side, we are clearly focused on that because we know it drives a lot of business.

So that is a positive trend for '19 and then into 2020 because of the Raiders coming and the other activities that are going to have a major impact on visitation. The fact that our slot in non-bac table business is growing is an important data point.

That's why we highlighted that it generally does speak to the overall health of the market and the fact that we're able to quickly absorb the capacity of the MGM conference center and actually make it profitable for us also speaks to the overall tone of the market. So from a high level, we feel very constructive on Las Vegas in '19 and '20 and then maybe I'll turn it to you Corey --

[Corey Sanders, CFO]

And what I would say here is, you know, as Jim mentioned, the trends that we're seeing other than the baccarat trends are positive and even that the hold impact from this year to prior year was pretty significant. We were held at the higher range last year and this year we're below the midpoint. But when you look at the first half of the year, we did mention that it would be a little bit more challenging and that the back half would be positive. And with our implementation of the 2020 efforts, it even gives us that much more confidence in growing our cash flow in the back half of the year.

[Harry Curtis, Instinet]

And then I wanted to ask a question to Grant. Grant, if you would touch on a couple of topics including the - over the last 3 months to 6 months the direction of your market share, the contribution of the Mansion. And then just the mindset of VIP, the VIP junket and premium mass customers, kind of going back to Joe's question, in Macau, are you seeing any green shoots there in their behavior?

[Grant Bowie]

So let's go for the first one about market share. So we've continued to increase the share. So we've added about 1%, 100 basis points in the quarter and we continue to look forward to what we saw as a more appropriate level for us.

In terms of, if I can now jump to the VIP in the market, I think we need to understand that Macau is maturing into a very defined segments. So the VIP business, which is both in-house and junket, the junket is a little contracted at the moment, they went through a very big growth curve.

It seems very flat and I think, as everyone says, that market looks like it's going to be down for the rest of the year. In terms of the mass business and then some of that in-house VIP business, before we opened the Mansion, we were already starting to see a positive uptick, but since we've launched the Mansion and More, and also what we call Mansion One which is the gaming area, which came on stream actually in fourth quarter, we're seeing some really positive signs and re-emergence of customers that we have not had in the property.

And frankly, we hadn't overly targeted them for Cotai because until we had the Mansion and we had the products and services that we know the demand, it was somewhat inappropriate for us to invite them and very dangerous. So they are coming back in and I can give you a general indication to this week that demand for the Mansion and the property is looking very strong for the Golden Week which starts here tomorrow.

So in terms of our positioning, we're seeing positive indicators, we're seeing new customers, we're seeing existing customers return. In terms of the market, I would - we would see the mass business continuing probably in that upper single digit. I think the rest of the year is going to be challenging for junkets. And I think we also need to put it in context for Macau and for China, there's a lot of issue - a lot of things going on with the 20th anniversary of Macau, there's big celebrations - a big Issue - big meetings and activities going on in China.

So I'd say that at the junket end, it maybe a little challenging, but I'm very confident very positive and most importantly very positive about our product relative to the balance of the share.

[Operator]

The next question comes from Felicia Hendrix of Barclays. Please go ahead.

[Felicia Hendrix, Barclays]

So, Jim, I know you reiterated your outlook for the full year and you gave us some things to think about for the second quarter in the deck, like you say high hold and you're going to have costs, I think it's $11 million in the second quarter. Are you - and then so you gave us that, but I'm wondering, are you facing any headwinds in terms of group business in the second quarter? I think something might have rotated out in June of this year and I know you're not giving particularly guidance, but when you look at Strip consensus EBITDA of almost $450 million in the second quarter and REVPAR of a little more than 2%, is that something you're comfortable with?

[Corey Sanders, CFO]

Yes, I'll answer that Felicia and we're not going to go into the REVPAR, but on the convention business in the second quarter, it's going to be a good quarter for us. We do have a tough comparison because last second quarter - last year second quarter is pretty solid. And in particular, June, we have a little bit of an impact at one of the properties, but we feel confident - comfortable where the rest of the year is and that the following year actually is even in a better place than this year.

[James Murren, Chairman & CEO]

Yes, June, we had a good convention rotate out. It happens all the time. It happened this June, but overall tone we feel good about and more importantly for the year we haven't seen any change at all year in terms of the fundamentals, they remain very strong.

[Felicia Hendrix, Barclays]

And then I think it was today actually Wynn announced that they're no longer going to charge for parking fees. Wondering how you guys are thinking about that?

[Bill Hornbuckle, President and COO]

Hi Felicia, this is Bill. Look, we spend a lot of time, energy, money with technology, we think we have the right policy and the right program, their independent decision won't change ours going forward.

[Operator]

The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

[Carlo Santarelli, Deutsche Bank]

Bill, you mentioned earlier, you talked a little bit about I think you said 30% to 40% of the baccarat revs in the first quarter and if you just look at - if I just look at the data from the Nevada Gaming Commission, on average, if I look at the first quarter as a percentage of the year just volumes it's basically 25% to 26% over the last few years and I understand you guys have had hold benefits last year and a little bit of a hold headwind this year, but is it the expectation that that seasonality this year within the baccarat segment will be pretty similar, as that would imply you know kind of like a 15% to 20% decline Strip wide in bac obviously starting from a tough spot here from the first quarter where a lot of that that seasonality gets built up but you guys see this first quarter being emblematic of the rest of the year to any extent?

[Bill Hornbuckle, President and COO]

Look, I don't know that we're going to change our overall guidance for the year for sure. The first query is always the biggest quarter coming off the domestic New Years and Chinese New Year's. Our programming, although exciting, I mean, we've consistently had major events going forward, you know, hoping Pacquiao's fight data somebody we all know and love, could change the dynamic, but short of that, we think it's going to fall in line with the rest of history.

[Carlo Santarelli, Deutsche Bank]

And then just one more if I could follow-up on that. Of the $35 million you guys called out the year-over-year negative EBITDA headwind from the baccarat shortfalls, how much of that do you think stems from just maybe the higher end being a little bit softer relative to the confluence of New Years, Chinese New Years and the Super Bowl dates being less favorable in '19 relative to '18?

[James Murren, Chairman & CEO]

You know, Carlo, as usual, that's half a dozen customers give or take. As you mentioned, Super Bowl last year was 12 days apart. This year, it was literally two. So the two events fell on top of each other. So that had a lot to do with it. Obviously, looking forward, we think we can continue to drive the kinds of activity we always have. Our marketing groups are as strong as they've ever been in terms of people and positioning. I think Grant's growth and market share there has always been to our benefit here in Las Vegas.

We've taken our marketing troops and implemented them more fully into like we've done here in Las Vegas into the Macau environment. And so you know we hope to, A, control our own market share which is you know again in the mid 40s and be continue forward progressively.

[Operator]

The next question comes from Thomas Allen with Morgan Stanley.

[Thomas Allen, Morgan Stanley]

Question for Grant. Your mass market hold increased pretty considerably and that mirrors one of your peers when they reported last week. Anything changing fundamentally with mass market hold?

[Grant Bowie]

No. But other than - other than it seems to be moving up and it's staying there, which is a positive thing which I think recognizes sort of a broadening and maturation of the market. Obviously, when you start bringing new customers and broadening the base, you seem to see the hold move forward and we're seeing that as a sort of almost like a market trend and holds in Cotai in particular in mass do seem to be a little bit higher. So I think that's just a coincidence of the market and I think it's a positive thing that we're seeing as we move forward.

[Thomas Allen, Morgan Stanley]

And then just on Japan, the RFC for soccer was launched last week. Any updated thoughts on timing and then potential spend there? Thank you.

[Bill Hornbuckle, President and COO]

This is Bill again. So obviously, they've issued it. It will be due in late August. They don't give a specific date. It's open for questions, then over the next couple of weeks, it is a full - they call it RFC but the (technical difficulty)

[Operator]

This is the Operator. Apparently we have a technical difficulty with our speaker's location, one moment please, stay on the line. Once again, please stay connected. We'll reconnect our presenters here in just one moment. Thank you very much.

Thank you. I have reconnected our presenters' location for the call. Thank you very much.

[Catherine Park, Executive Director, IR]

Hi, everyone. Apologies for that, we're in the middle of a huge thunderstorm here and it looks like we were dropped, but we're back on now.

[Bill Hornbuckle, President and COO]

Next question operator.

[Operator]

Next question will be from Stephen Grambling with Goldman Sachs. Please go ahead.

[Stephen Grambling, Goldman Sachs]

I guess just one broader question, then I'll have a more specific question. But turning to sports betting as one of your target opportunities, can you talk about the trends you've seen in New Jersey and I think you even alluded to Mississippi. How should we anticipate your share evolving in these markets and maybe how the initial trajectories in these markets instruct your thoughts on future markets and strategy?

[Bill Hornbuckle, President and COO]

This is Bill. So look, overall, we're really excited where we are, the GVC platform is just coming into play. We've now put the stadium which is their primary product in Borgata. We are finalizing and we'll open with permanent retail outlets in time for football in New Jersey and in Mississippi, in both those locations. And we've gotten through some of our earlier challenges around getting our mobile apps up. So I intend that we will gain share. We are obviously in this for the long haul. We have a massive partner with GVC.

Obviously, our networks with all of the leagues have been and will continue to be very productive force in the long run. And then the interesting thing is, if you looked at Beau and Tunica's results, I think EBITDA in Beau is up 17% and Tunica was up 38% and a goodly portion of that was driven solely by people coming in for sporting events and then the general activity cases around that. So we see significant upside not only in retail but ultimately in mobile.

The other affirmative thing is - and look I don't want to jinx this here, but it looks like Mass, Ohio and Michigan are all strong movers for 19 legislation and we like where those bills stand in terms of our ability to exercise on them and get full benefit from them. So overall we're fairly - we're very optimistic. We recognize on mobile in New Jersey even though we got off to a slow start, but I promise you, we will catch steam in a hurry here.

[Stephen Grambling, Goldman Sachs]

And as an unrelated follow-up, Mandalay Bay revenue looked like it was down year-over-year on what seemed like an easier comparison. How much of that would you attribute to hold versus convention calendar or other factors that we should keep in mind?

[James Murren, Chairman & CEO]

I can attribute it to the convention calendar. I think we've struggled with a particular group compared to year-over-year, but again, it's cyclical. I think overall Mandalay continues to heal. I'd say you know we're about 90% where we want to be, and we like where we're going, we're pushing forward. And remember, I think the real catalyst for change there is the Raiders.

When that opens next August of 2020, the programming is going to change that whole south end of the Strip. It's literally in our backyard overharvesting end and it's a pedestrian walkway that will be converted Game Day and Event Day. And so we think it'll be substantive for the property.

[Operator]

Our next question comes from John DeCree with Union Gaming. Please go ahead.

[John DeCree, Union Gaming]

Two quick ones for me maybe to start for Jim or Grant. Jim, I think in your prepared remarks, you've talked about maybe tweaking the offering at Cotai and you mentioned an opportunity to maybe add 50 or 60 suites. Is there a more formal thought process there and given some of the demand dynamics in Macau, I mean how quick could you get rooms online? And is that - is that's something you're thinking about now that the Mansions and some of the VIP products are online?

[James Murren, Chairman & CEO]

Yes, I think I'll turn it over to Grant on the ground there and I can add to it.

[Grant Bowie]

I think as many of you know we actually held back setting up the top tier of the south tower and that's what the white box is. We're actually in the planning phases where we're appointing architects. It'll probably take us into the end of next year, it's probably 15-month to 16-month, 18 months, 17 months buildout. The critical point for us was to work out exactly what we wanted.

And as you hear today, we've clearly defined as to the suite product and that's just working through it. And then on the notion of product and tailoring product, whenever you open a new property, we always know that we do our best to get it right, but we always work out if things have changed during the buildout phase. But our focus is to bring in more food and beverage.

And we're working through that process. We're starting work on our another dining space straight after the holiday in the casino space and we're now seeking out and locking down a series of new food and beverage concepts, not large, hopefully smaller. And at the same time, as part of the activation spectacle, we're looking for even pop-up solutions that we can do so simply to animate and develop.

And for someone like yourselves in Union Gaming, very focused on the Macau market, you understand that all the properties are now looking at lots of new initiatives, particularly in the food and beverage space. So that's really our focus over the next few months. Jim, anything you want to add.

[James Murren, Chairman & CEO]

Yes, I would just add Grant that what you've told me several times and how constructive and bullish we are on the market itself and how we've been frustrated at MGM that we haven't been able to deliver the entire suite of products that people expect of us, particularly in the high end. Now with the Mansion open, the Mansion villas as well as the gaming areas, we feel like it's - now we're finally on our footing that we can really grow some significant share in a very strong market.

So it's important to us in Asia as of course is our efforts in Japan and I think somebody - we've got cut off on Carlos when we were talking about Japan. Can I turn over to you Bill for a second?

[Bill Hornbuckle, President and COO]

I don't know if it was Carlos or Tom, but just to reiterate, the RFC has come out. We have sometime in August. They haven't been exactly definitive for when the RFC is done - due in Osaka. It's robust. It is extensive and it feels like an RFP which I think plays to our favor between ourselves and our partner in ORIX.

We've literally spent a half a dozen years on the ground there and we're going to be ready for this thing with a great deal of velocity and programming. But from there, we hope by next spring to be in full-on RFP process with the national government and look forward from there.

[Operator]

And that question comes from Robin Farley with UBS. Please go ahead.

[Robin Farley, UBS]

Thank you for fitting another one in. I know you commented on your M&A strategy or I'm sorry that your growth strategy doesn't depend on M&A and obviously I think you've talked before about how properties with a lot of regional exposure don't make sense, but can you comment on, would a single asset - a single property asset in Vegas makes sense in your portfolio given all the tremendous synergies it seems like it would have especially that what you're doing this year in terms of furthering that. So any comment on that? And then I was just going to as a follow-up also ask about what convention mix you expect in 2019 because you probably have most of it on the books at this point itself. Can you handle all that? Thanks.

[James Murren, Chairman & CEO]

Sure Robin. So the standard answer is not to comment on M&A, but a couple of thoughts on your question. I think that something is happening in Las Vegas right now, it's very exciting, very good for the home team. There's a tremendous amount of interest in Las Vegas real estate, both non-gaming and gaming real estate and certainly there's a tremendous interest in a luxury property that is being marketed for sale right now.

What that is doing is bringing a lot of attention both in terms of operators and in terms of real estate owners and investors to Las Vegas to look at the Valley and of course we own about half of the Valley and so it's good for us from the standpoint of having some good discussions and it'll be interesting to watch what plays out. There hasn't been a significant transaction in about a decade on the Strip. So we love what we own and operate. We look at things all the time.

However, as I said, you know we are very focused on what we do have. And I think we can execute and we'll over deliver on our 2020 plans and our free cash flow with the team we have in place and the properties we have.

So I would say it's topical. It's valuable. It's actually positive for MGM that there's interest in Las Vegas as a market. But our focus is on executing on these plans because this is within our control. We've done this before with PGP. We're confident that we can do it here. We've got the right team to do it. And if we over deliver on our expectations here, that's the simplest way, the clearest way of increasing shareholder value and we're not going to let anything detract, distract us from that. You had another question, Robin?.

[Robin Farley, UBS]

On the convention mix.

[James Murren, Chairman & CEO]

Convention, who's going to tackle that.

[Corey Sanders, CFO]

I have in front of me if I did. Robin, we think it just north of 18%.

[Robin Farley, UBS]

And then I imagine you expect that would go up next year just with [ConAg] rotating back in?

[Corey Sanders, CFO]

It arguably it should, yes.

[James Murren, Chairman & CEO]

And in closing, I just want to thank you all, sorry for that brief drop off with a rare thunderstorm here in Las Vegas we didn't expect, but we're very confident of the Las Vegas market both in terms of this year and moving forward. I hope you can firmly grasp that the baccarat issue is we believe an isolated event, not permanent in nature.

We've been around a long time. We've seen this movie before. We have no change in the outlook. We talked about this in February, here we are in April, and we feel very confident on our full-year outlook and what's going to happen in the second half. We're well under way, a lot of progress has been made on the 2020 plan. A lot of momentum has been developed and we're confident that we're going to hit our targets.

And I can't emphasize enough our long-term strategy and the goals that are unchanged, the 2020 targets, winning in Japan, dominating in sports betting and continue to allocate capital in a disciplined fashion, now that our major development cycle is behind us and our annual CapEx number is highly known to us which would yield significant and growing free cash flow, which we'll use the way we've described.

And with that, I want to thank you all for joining us. And as always, reach out with any questions that you may have.

[Operator]

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.