MGM Resorts International started the third quarter with strong momentum before a data breach in September temporarily threw performance off course.
During the company’s third-quarter earnings call, MGM Resorts President and CEO Bill Hornbuckle said that despite the disruption, MGM Resorts was able to achieve record average daily rates in Las Vegas and record regional net revenue in the quarter.
On Sept. 12, MGM Resorts disclosed a cybersecurity issue, which the company later revealed to be a data breach. A hacker gained access on Sept. 11 to personal information of some of MGM Resorts’ customers, including name, contact information, gender, date of birth and driver’s license number. Some customers’ Social Security numbers and/or passport numbers were included.
MGM Resorts shut down certain systems to mitigate the risk to customer information, creating disruptions at some properties, Hornbuckle said. Over the following weeks, the company restored and enhanced its systems and was fully operational by the end of September.
“Going forward, we do not anticipate any further operational disruptions from the incident, and we expect that insurance will cover the losses incurred,” he said.
The estimated impact to adjusted property earnings before interest, taxes, depreciation and amortization was $100 million in September, said Jonathan Halkyard, chief financial officer and treasurer. Most of that was from the loss of revenue from room cancellations in Las Vegas and service recovery efforts.
MGM Resorts expects the effects in the fourth quarter to be limited, Halkyard said. Some hotel bookings were lost in the first part of October.
MGM Resorts is examining its security architecture and considering a $30 million to $40 million investment in IT hardware sometime next year, Hornbuckle said.
Performance Trends and Expectations
MGM Resorts’ consolidated businesses generated net revenue of $4 billion, which was a 16% year-over-year increase, Halkyard said. It had net income of $161 million with adjusted EBITDA for real estate of $1.1 billion.
During the quarter, its net cash from operating activities was $694 million, and its free cash flow was $484 million, he said.
For MGM Resorts' Las Vegas properties, its net revenue of $2.1 billion was down $195 million compared to a year ago, Halkyard said. Its adjusted property EBITDAR was down 16% to $714 million. At the start of the quarter, in July and August, net revenues were flat compared to 2022. Occupancy was up 100 basis points during those months but dipped 5 percentage points in September before recovering to 95% in October.
The arrival of Las Vegas’ first Formula 1 race next week is expected to drive demand, Hornbuckle said. The company has sold out its Bellagio Fountain Club and Grandstand seats, and casino front money deposits indicate the race will be an all-time record casino event.
Looking at 2024, there’s strength in future bookings and group pace into the first half of the year, he said. There are encouraging tailwinds at play, including the launch of its partnership with Marriott International and its Bonvoy loyalty program in the first quarter. The fully renovated Mandalay Bay Convention Center is expected to return 100,000 primary midweek room nights that were lost in 2023.
There’s also high Super Bowl demand next year as well as a strong events calendar for the remainder of 2024, including the return of Formula 1 in the fall, he said. The company also completed the bridge connecting the Cosmopolitan City Center and Bellagio properties.
As of publication time, MGM Resorts' stock was trading at $38.65, up 15.3% year to date. The NYSE Composite Index was up 1.3% for the same period.
New Projects
MGM Resorts signed its implementation agreement with the city of Osaka in September, essentially a green light to begin work on its integrated resort, Hornbuckle said. The total project cost is 1.27 trillion Japanese yen ($8.4 billion), and MGM Resorts’ expected equity contribution is about 300 billion Japanese yen.
Costs have grown as the project has moved forward, but the budget has stayed the same by reducing minor aspects of the project that won’t have an effect on its returns as well as by locking in attractive foreign exchange rates, he said.
“We look forward to breaking ground in Osaka for it will be Japan’s first-ever integrated resort,” he said.
In New York, MGM Resorts and its joint-venture partner, Orix, submitted its second-round request for application questions to the state’s gaming commission, Hornbuckle said. The existing facility, brand recognition and strong ties with the community make the company a strong contender for one of the three available licenses, he said.
In Dubai, the company’s partner, Wasl Asset Management Group, has started construction on a luxury development that includes 1,400 hotel rooms under the MGM Grand, Bellagio and Aria brands, he said.