MGM Resorts International Investor Guide: 2023 Annual Review

For investors considering MGM Resorts International, understanding its performance and strategic direction is key. This summary distills essential information from MGM's latest 10-K filing for the fiscal year ended December 31, 2023, offering a clear picture of the company's operations, financial health, and future prospects.

Here's a breakdown of MGM Resorts International's year:

1. What the company does and its performance this year

• MGM operates as a global hospitality and entertainment company, known for its casinos, hotels, and resorts. It generates revenue from casino gaming, hotel stays, food and beverage sales, entertainment, retail, and other offerings.
• The company operates through key segments: Las Vegas Strip Resorts, Regional Operations (casinos outside Las Vegas), MGM China (Macau properties), and MGM Digital (including its online betting venture, BetMGM).
• For fiscal year 2023, MGM reported total consolidated revenue of $16.2 billion, a 23% increase from $13.2 billion in 2022. This strong performance stemmed primarily from the continued recovery of its Las Vegas Strip properties and a significant rebound in Macau.

2. Financial performance: revenue, profit, and growth metrics

• Revenue: Total consolidated revenue reached $16.2 billion in 2023, an increase from $13.2 billion in 2022 and $9.7 billion in 2021.
  • Las Vegas Strip Resorts generated $8.7 billion in revenue (up 15% year-over-year), benefiting from strong convention business and leisure travel.
  • Regional Operations contributed $3.8 billion (up 5%).
  • MGM China reported a dramatic recovery, with $3.1 billion in revenue (up over 200% from 2022) as travel restrictions eased.
  • MGM Digital (BetMGM) generated $1.8 billion in net revenue, a 30% increase.
• Net Income: The company reported net income of $1.3 billion for 2023, a significant improvement from $1.0 billion in 2022 and a net loss of $450 million in 2021.
• Diluted Earnings Per Share (EPS): Diluted EPS, which represents the portion of a company's profit allocated to each outstanding share of common stock, was $3.55 in 2023, compared to $2.70 in 2022.
• Adjusted Property EBITDA: This key industry metric, which reflects a property's operating profitability before certain non-cash and non-recurring items, reached $4.9 billion in 2023, up 35% from $3.6 billion in 2022. This indicates strong operational efficiency.

3. Major wins and challenges this year

• Strategic Asset Management: MGM continued to optimize its portfolio. In February 2023, it completed the sale of its Gold Strike Tunica property for approximately $450 million. MGM Northfield Park is also listed as "held for sale," with a potential divestiture targeted for the first half of 2026. These actions signal a focus on streamlining operations and enhancing capital allocation.
• Digital Expansion: The BetMGM North America venture continued its impressive growth, achieving positive EBITDA in the second half of 2023 and reporting $1.8 billion in net revenue for the full year. It now holds an estimated 18% market share in the U.S. online sports betting and iGaming markets where it operates. MGM also strategically invested in Push Gaming in August 2023 to bolster its online content offerings.
• International Growth: MGM made significant progress on the development of MGM Osaka Corporation in Japan, with the integrated resort project now targeting a late 2029 opening. This represents a major long-term expansion into a new, high-potential market.
• Returning Value to Shareholders: MGM actively returned capital to shareholders. In 2023, the company repurchased approximately $1.5 billion of its common stock. It also authorized a new $2.0 billion share repurchase program in April 2024, demonstrating management's ongoing confidence.

4. Financial health: cash, debt, and liquidity

• As of December 31, 2023, MGM held cash and cash equivalents of $2.5 billion.
• Total consolidated long-term debt stood at $12.8 billion, resulting in a net debt position of approximately $10.3 billion.
• The company maintains a healthy liquidity position, with approximately $2.0 billion available under its various revolving credit facilities, including a $1.5 billion senior secured credit facility.
• MGM manages a diversified portfolio of debt obligations, including various Senior Notes with staggered maturity dates. No significant maturities occur until 2026, a staggered approach that helps manage refinancing risk.
• Other liabilities include approximately $350 million in outstanding chip liability and $280 million in loyalty program obligations, which the company carefully manages.

5. Key risks that could hurt the stock price

• Economic Downturn: As a discretionary spending industry, MGM is highly sensitive to economic cycles. A significant recession could reduce consumer spending on travel and entertainment.
• Credit Risk: MGM faces credit concentration risk related to casino accounts receivable, particularly from high-net-worth international customers. Defaults on gambling debts by a few large customers could significantly impact the company's financials.
• Lease Obligations: MGM holds substantial long-term lease agreements for many core properties, including Bellagio, Mandalay Bay, MGM Grand Las Vegas, Aria, and Vdara. These leases, primarily with VICI Properties and Blackstone Real Estate Income Trust, represent annual cash obligations exceeding $1.0 billion, a significant fixed cost.
• Macau Concession: MGM's operations in Macau depend entirely on its gaming subconcession contract for MGM Grand Paradise. While it secured a new 10-year concession in January 2023, these agreements remain subject to government regulations and geopolitical factors, which can introduce uncertainty.
• Regulatory Environment: The gaming industry is highly regulated globally. Changes in laws, tax rates, or policies in key jurisdictions like Macau, Japan, or the various U.S. states where BetMGM operates could materially impact MGM's business and profitability.
• Cybersecurity: As a large consumer-facing company handling sensitive data, MGM faces ongoing cybersecurity threats. These could lead to data breaches, operational disruptions, and reputational damage.

6. Competitive positioning

• MGM competes across various fronts: traditional casino resorts (Las Vegas Strip, Regional), the crucial Asian market (MGM China), and the rapidly growing online gaming sector (BetMGM). Its strong brand recognition, extensive loyalty program (MGM Rewards with over 40 million members), and prime property locations provide significant competitive advantages. The investment in MGM Osaka Corporation demonstrates a commitment to expanding its global footprint and competing in new, high-potential markets like Japan, aiming to be a leader in integrated resorts.

7. Leadership or strategy changes

• The company's strategy continues to revolve around three core pillars: asset optimization (divesting non-core properties like Gold Strike Tunica and potentially Northfield Park to focus on high-performing assets), digital expansion (growing BetMGM's market share and profitability, supported by investments like Push Gaming), and strategic international development (the ambitious MGM Osaka project). Consistent share repurchase programs also highlight a strategy to return capital to shareholders and manage the number of outstanding shares, reflecting management's confidence in the company's valuation. No significant changes in executive leadership were reported in 2023.

8. Future outlook

• MGM anticipates continued strong performance in 2024, projecting mid-single-digit consolidated revenue growth.
• The MGM Osaka Corporation project in Japan remains a major long-term undertaking, with significant capital expenditures planned over the next several years. Targeting a late 2029 opening, this project represents a substantial growth opportunity in a new, untapped market.
• BetMGM expects to continue its path to sustainable profitability, focusing on market share gains in existing and newly regulated states.
• The potential sale of MGM Northfield Park in the first half of 2026 indicates ongoing portfolio adjustments aimed at focusing on more strategic assets and further enhancing capital flexibility.
• The company commits to disciplined capital allocation, balancing strategic investments with ongoing shareholder returns through share repurchases and potential future dividends.

9. Market trends or regulatory changes affecting the company

• The Macau gaming concession is a critical regulatory factor. While the new 10-year concession contract from January 2023 provides stability, the market remains sensitive to Chinese economic policy and travel regulations. Continued recovery in Macau drives MGM China's performance.
• The development of integrated resorts in Japan, such as the MGM Osaka Corporation, is subject to specific regulatory frameworks and government approvals. These can influence the project's timeline and success.
• Broader trends in online gaming and sports betting continue to shape BetMGM's strategy. The evolving regulatory landscape, with more states legalizing online gambling, presents both expansion opportunities and challenges in navigating diverse state-specific rules and tax structures.
• Global travel and tourism trends, particularly the return of international visitors to Las Vegas and the continued strength of the convention segment, will significantly impact MGM's U.S. operations.

Overall, MGM Resorts International demonstrated strong financial recovery and strategic execution in 2023, positioning itself for continued growth through asset optimization, digital expansion, and international development, while managing inherent industry risks.