美高梅國際酒店集團 (MGM) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Mandalay Resort Group second quarter earnings conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

At that time, if you have a question, please press the 1, followed by the 4 on your telephone.

As a reminder, this conference is being recorded, Thursday, September 2nd, 2004.

I would now like to turn the conference over to Mr. Glenn Schaeffer, President and Chief Financial Officer.

Please go ahead, sir.

Thank you.

Good afternoon.

Welcome to Mandalay Resort Group's second quarter earnings call.

With me today are Les Martin, our Chief Accounting Officer and Treasurer; and Tony Alamo, our Senior Vice President of Operations.

Before we commence, let me rehearse the customary disclaimer.

Information we provide during this call, may include forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934.

They can be identified by the fact that they do not relate strictly to historical or current facts.

Our forward-looking statements will be based on our current expectations about future events, and may include statements related to: THEhotel and its expected results;

Mandalay Place and its expected results; the status of the development of our casino in Detroit; expectations regarding room rates, occupancy level, and RevPAR; future dividend policy; anticipated financing transactions; the status of our merger; anticipated capital spending levels; the potential impact of additional competition; the potential impact of changes in gaming taxes; estimates with respect to our future income taxes; and estimates regarding depreciation, interest expense, or capitalized interest.

The forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements.

Information concerning factors that could affect our future financial results is included under the caption "Factors That May Affect Our Future Results," Item 1 of our annual report on Form 10-K.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any further disclosures made on related subjects in our subsequent filings with the Securities and Exchange Commission should be consulted.

These foregoing statements have been provided as permitted by the Private Securities Litigation Reform Act of 1995.

Let me, also, at the outset say that our call today is a review of Mandalay's current performance and trends in the business, in our usual format.

We will not, however, discuss our cover details of the pending merger agreement between Mandalay Resort Group and MGM MIRAGE as to timing for closure, or other events.

I would otherwise refer you to our filed documents with the SEC.

Our second quarter results were strong.

Squarely in the up trend that Mandalay has established over the past year or more.

Our reported earnings per share was 85 cents.

Again, 67 cents a year ago.

Let's note as well that the reported figure the year before last was 41 cents in the second quarter.

On an operating basis, the respective results were 84 cents in the second quarter against 72 cents last year.

When that figure was then our all-time earnings quarter in the Company's history, and decidedly so.

That 72 cents a year ago, by the way, compared to 50 cents in the prior year.

In last year's second quarter, we achieved all-time highs in room rates and RevPAR across the board, on our five resorts in Las Vegas Strip throughout the summer season.

And in this quarter, we topped those marks by a blended 12% increase in RevPAR.

For the equivalent calendar quarter, the characterized -- it characterizes our prime competitors and that would end in June, our RevPAR rose 20% against their blended 12%.

It's fair to presume at this juncture that Mandalay Resort Group, on the Las Vegas Strip, will achieve double-digit increases in RevPAR in the fiscal year.

Somewhat above our previous expectations.

We endured a number of anomalous events in the second quarter, which taken into account, would suggest underlying operating performance of this Company that might lie a little closer to $1 a share than 85 cents.

For one thing, our health cost experience ran higher than normal, 7 cents per share above last year's experience in the second quarter.

Secondly, we posted a sub par hold percentage at Mandalay Bay, notably in the month of July that stuck us for 3 cents per share.

Sometimes the other side of the table has their day.

And we bore a higher book tax rate by roundly 200 basis points that cost us another 3 cents per share.

For now, on the balance of the year, merger expenses, which are not tax deductible will somewhat inflate our tax rate.

I would also comment that a light convention calendar in June and July, compared to a year ago, pretty much a factor across the city, made comparisons a bit tougher, and a consumer pause in July, which seemed to affect all of American retailing suppressed citywide room rate increases for that month.

On a brighter note, we have seen a resumption of the demand going into this fall that has distinguished the Las Vegas market for the preponderance of this year.

Operating cash flow at our 5 resorts in the Las Vegas Strip claimed a blended 14% in the quarter, off those all-time records a year ago, and profit margins were also up solidly.

For the year-to-date, Mandalay Resort Group, on the Las Vegas Strip has grown its operating cash flow margins by 300 basis points, to all-time highs of 33%.

We look from here, to be in a good position to achieve the 200 to 300 basis point increase in margins for the full year that we discussed at the beginning of this year.

A 10% uptick in operating cash flow margins that represents a breakout performance.

Mandalay Bay, Luxor and Excalibur, our big 3 on the strip, all reported record second quarter results.

Mandalay Bay, for its part, generated nearly 53 million in EBITDA against 48 million last year.

The aforementioned low hold percentage took us back about $2 million.

And in June last year, we hosted an 11,000-delegate convention that was not in the lineup this round, which amounted to a million -- a multi-million dollar revenue differential that's hard to make up for in a transition month like June.

The convention calendar at Mandalay Bay, meanwhile, will run distinctly ahead of last year's for the balance of this fiscal year.

RevPAR was flat, at Mandalay Bay for the quarter.

While casino revenues, despite the low hold were up 10%.

THEhotel in Mandalay Place continue to stimulate slot machine play on the west end of Mandalay Casino.

In August, for the first time, our blended occupancy rate at Mandalay Bay, including THEhotel will come in above the prior year's with higher rates into the fall than last year.

Luxor turned in 34.2 million in operating cash flow, against 29.7 million in the second quarter last year.

RevPAR in the quarter was up 10%, while casino revenues rose 14%.

Again, Mandalay Place in THEhotel facilitated better cross-flow of player -- of player traffic between our 2 premier resorts.

Excalibur, which happily posted its all-time record in July, achieved a 13% increase in RevPAR for the full second quarter, and a 19% increase in operating cash flow to 29.3 million in the quarter.

Circus Circus kept the faith by delivering a 20% increase in operating cash flow in the quarter, up to 21.7 million, as RevPAR ticked up 15%.

Monte Carlo, our joint venture with MGM MIRAGE, reported operating cash flow, up slightly to $22-1/2 million in the quarter, and RevPAR was up 14%.

Apart from the strip, we saw 12% increase in operating cash flow in our Nevada properties for the quarter, pretty much shared across Reno, Laughlin, and the highway.

In Elgin, our operating cash flow at the 50%-owned Grand Victoria was 16 million in the quarter.

That's down from 20.6 million in operating cash flow in the second quarter of last year.

This downturn was entirely attributable to higher gaming taxes on casino revenues, and that tax came in the place in the prior July to 70% tax rate above 250 million in casino revenues on an annual basis.

This tax increase second quarter to second quarter was a 4 cent negative effect to our earnings.

In Detroit, MotorCity Casino generated operating cash flow of 37.5 million.

That compares to 36 million a year ago.

And in Tunica, Mississippi, Gold Strike turned in results of 4 -- I'm sorry, 8.6 million in operating cash flow, versus 7.6 million.

Mandalay remains on a course to approximate $6 a share in free cash flow in this fiscal year.

In light of our proposed transaction with MGM MIRAGE, we have devoted, and will devote, our free cash to debt reduction in this year and into next.

In the first 6 months, we paid down more than $200 million in outstanding debt, and should cut another $150 million, in the second half of this year.

This free cash flow is above and beyond approximately $100 million of capital expenditures for this year.

In total, Mandalay will reduce its debt by roundly 12% in the fiscal year.

Our free cash flow tells a pretty dynamic story as to Mandalay's financial flexibility.

Our friends at MGM MIRAGE are poised to acquire a winner.

So with that overview, we'd be pleased to entertain your questions.

Thank you.

Ladies and gentlemen, if you'd like to register for a question, please press the 1, followed by the 4 on your telephone.

You will hear a 3-tone prompt to acknowledge your request.

If your question has been answered and you wish to withdraw your registration, please press the 1, followed by the 3.

If you're using a speaker phone, we ask that you please lift your headset before entering your request.

Our first question comes from the line of Joe Greff with Fulcrum Global Partners.

Please proceed with your question.

Hey, Glenn.

How are you?

Hi, Joe.

The first question here is on the health care costs, can you explain that a little bit?

Are they, kind of, one-time in nature, or is that sort of a permanent run rate increase.

I don't know that that's a permanent run rate increase.

I will let Les Martin give you, sort of, the color on it.

Yeah.

I mean, it's a combination.

As you know, health care costs are rising, generally.

We've also experienced, kind of, a -- a run of -- we'll call them catastrophic occurences that have, I think, contributed to that spike as much as anything.

And then we've also got, of course, more employees because of THEhotel.

So, you know, I think our expectation is the run rate will be less than that going forward, but it's depended on these catastrophics.

I would say, Joe, if you were saying, you know, what part's run rate and what part's, sort of, extraordinary?

It was about a nickel of that 7 cents, or at least half of it, you know, would not be, we think, recurrent.

So 5 cents of the 7 cents would not be recurring.

That would be our view in the second quarter.

Okay.

Great.

Can -- and then, Glenn, can you just talk about trends on the Strip?

How was August?

I think August was like July, but -- and then can you talk about, September, October?

And then, I also believe last conference call, you talked that you thought the third quarter would be higher than 10% RevPAR growth, and do you, kind of, still have those expectations?

Well, the best way to look at August, you're going to have to -- we'll have to put it together with September.

I mean August a year ago had Labor Day weekend in it, and 1 more weekend than we're experiencing this August.

That said, the RevPARs are up on the Strip, in August, even with the tough comps.

But, you know, September will look, I think, stronger than normal against last September, because you get Labor Day and you get your weekend back.

I -- it's too soon for to us predict what RevPAR experience is going to be, you know, in the quarter.

I would tell you that October is shaping up to be a quite strong month.

Okay.

And then as you look out into next year, do you still see the 30% growth in convention room nights sold that you talked about on the last conference call, going from somewhere in the low 30s to 40% at Mandalay Bay?

We do.

I believe -- I'll let Tony Alamo give you a little color on that.

I would say, Joe, it would be somewhere between 35 and 40% this year.

And as you know, we're going to be right at 30% this year.

Okay. 35 to 40% next year.

Probably be closer to 40, and we'll probably break 30 this year.

Yet, it's soft -- there's a little soft schedule for conventions in the summer across the city.

All right.

And then switching gears to Detroit, I know our friends at Greektown laid off some people to mitigate some of the increase in gaming taxes.

Have you guys done that?

I know you're -- you might be under some sort of a different dynamic than they are.

Well, like we do in Elgin, we run the business for customers.

You know, we've actually built our revenue in Elgin since they passed the tax increase there and we're building, you know, casino revenue in Detroit.

I don't see why that would change.

I mean, we're generating, I mean, you know, our slot machine win per unit's up almost $50 a unit, year-over-year in Detroit.

So, you know, we're not going to change our momentum.

I will tell you that -- that tax rate, which, I guess, kicked in yesterday, 24% against 18%, in the second half of the year, I mean that's probably 5 cents a share to us.

Okay.

And you don't expect to claw that back through cost saves or -- ?

We'll get some of that back.

But, I mean, I think I would still use that number.

I mean, you know, we're on a run rate to do roundly 150 million in EBITDA at that property.

Okay.

With the tax rate increase.

That's $150 million EBITDA without the tax increase.

No, with the tax increase.

With the tax increase.

And then my final question, and I'll pass on to somebody else.

Can you just run through cash debt and CapEx in the quarter?

Yes, cash debt --

At the end of the quarter?

-- in the quarter was 2 billion, 792 thousand?

No, 792 million.

And cash -- is that what you wanted?

Yep.

Cash is 190 million.

And did you say CapEx?

CapEx is just -- I don't know what it is in the quarter.

Les, what was it?

It was about 35 million.

Great.

Thank you, guys.

Thanks, Joe.

Our next question comes from the line of Harry Curtis with J.P. Morgan.

Please proceed with your question.

Joe got to all my questions.

Thank you.

Our next question comes from the line of Amy Marceau with Jefferies & Company.

Please proceed with your question.

And, it's actually me in hiding.

It's Larry Klatzkin.

How are you doing?

As far as Mandalay goes, you know, your margin in the second quarter was, you know, 35.6%.

The margin this quarter, even adding back the bad hold, was still, like, 27%.

Where -- this is a little ying yang.

Is it just that you had such a great opening in THEhotel, and would you expect a margin more in the 20s going forward?

Or was that 36% margin any indication all of anything possible?

Which margin are you looking at?

I'm looking at Mandalay Bay, the margin in the second -- the first quarter was 35.6%.

This quarter, after adding back the bad luck, was, like, 27%.

That'd be about right, yeah.

You're going to run, I think, over the course of a year relatively close to 30% margin at, you know, Mandalay.

Remember --.

Any reason why it fell so much in the quarter at that 1 property?

Yeah, third quarter might be a little higher.

I would say we'll blend it over the course of the year, you will be right at the 30% margin.

Okay.

Was there any reason behind the big run up and the run down?

You just get high room rates in the first quarter.

Okay.

Okay.

Are you -- ?

That's why it's margin revenue.

Are you -- are you capitalizing on your -- on your Actors Equity ticket to may -- start a major movie?

Nothing's turned up, as yet.

It's been a -- that's been a violent surprise to me, Larry, but there's always hope.

All right.

Convention utilization for the -- for the quarter, what are you up to at this point?

I will let Tony answer that question.

As you know, we went from 3,200 rooms to 4,300 rooms.

So right now, combined blended hotel and the resort, we are at 20%, versus 30% last year.

No, I meant at the Convention Center itself.

How much are you utilizing that?

Oh, the Convention Center is being utilized this quarter about 20%, but on the average basis for this year, should be a little over 30%.

Okay.

Glenn, are you still thinking you could utilize that Convention Center 50% on the longer term?

Yeah.

We'll get there.

All right.

And last question, what's the name of your new wine?

Morgan Leigh.

You asking all these questions.

These are forward-looking statements.

I forgot to put them in a disclaimer, Larry.

All right.

No, I just -- you know, the Mandalay was, kind of, a disappointment at that 1 property.

But, okay, Glenn, thanks a lot.

It's good having with you speak to us over the years.

Ladies and gentlemen, as a reminder, to register for a question, please press the 1, followed by 4 on your telephone.

Our next question comes from the line of J. Cogan with Banc of America Securities.

Please proceed with your question.

Yeah, hi.

Good afternoon.

Hi, J.

I've got a few questions.

Most of them have been answered, but maybe asking some of these a couple of different ways.

With respect to the softest convention calendar for June and July, can -- is there any way to quantify the relative difference year-over-year, or is that too tough to do?

It is tough to do, but I will give you 1 example.

I mean, we had, in June a year ago, an 11,000-delegate convention that we were host to.

And, you know, it just -- these things rotate.

It wasn't here this year.

It's very difficult in that month to go out and sell, you know, and make up for all of those rooms at a price that would be, you know, close to what you get in the convention market.

And it was probably in the month of June the differential was several millions of dollars.

I mean, it could have been have been, you know, $4 million.

Gotcha.

And a lot of that's profit.

So, you know, next year, you could probably throw it back in, but that -- you know, it's a challenging -- you know, when you have a show that big in June, you don't have the next year, it's a challenge.

Gotcha.

And then, in terms of your room rates, you actually hit the numbers, I guess we're all us that are looking at our, you know, individual surveys and all, for what those are worth.

You actually hit where we thought you were going to be, but the occupancy was way off.

So, I remember when you first opened the Mandalay property, you know, what, 5 years ago, almost, now -- well more that that -- you were very tight on the room rates, as well, even despite the weak occupancy.

Should we expect that to continue, going forward?

Or, I mean, how should we think about occupancies for the remainder of this year?

Well, we're going to -- we should finish with occupancies closing in on 90%.

I mean, THEhotel is now running middle 80s, with a higher room rate than we projected at the beginning of the year.

Given where we are, I mean, this is the summer quarter and we're doing $225 average rate.

So we will exceed the average rate that we expected for the year.

We're going to exceed the occupancy we thought we'd get, which was 80%.

And in August, this is the first month with THEhotel in there, we beat our occupancy rate from a year ago.

And by the way, guys, remember, July, August, and September were very strong months last year.

So it's working.

So in -- is there any way you can give us -- I know you gave us the calendar quarter, 20%, is there any way you can give us the individual months of May, June, and July, just for what it's worth?

I suppose and off the top of my head by property.

Call Les after this.

Okay.

We can do that.

And then when you you say -- you think you can approximate $6 a share, still, in free cash flow, just from a rounding error standpoint, what does "approximate" mean in your mind relative to where expectations were before, i.e., is this a 1 quarter situation here, or -- I mean, I know you discussed the health care costs and all that?

I want to be clear on what the expectations should be, going forward, in terms of, maybe, some differences in models now versus before.

I don't think there's any difference in the models at all.

I mean, I don't know if people thought we were going to make $3 in the first 6 months of the year, but if you look at what we talked about in the first quarter, approximating $6 of free cash flow per share, there's no change in that, J. I mean, if you look at this quarter, even with some, as I said, these anomalous events, in terms of what I think people's expectations are for the year, there's no change.

I mean if you make a dollar every quarter, you'd be over $4.

I don't think anybody has that estimate.

Understood.

Okay.

Thanks.

Mm-hmm.

Mr. Schaeffer, there are no further questions at this time.

I'll turn the call back over to you.

Please go ahead.

All right.

Well, thank you.

Tony and Les and I will be around to answer any further questions.

Thank you.

Ladies and gentlemen, this concludes the conference call for today.

We thank you for your participation, and ask that you please disconnect your lines.