美高梅國際酒店集團 (MGM) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Mandalay Resort Group third 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, December 2, 2004.

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

Please go ahead, sir.

Good afternoon and welcome to Mandalay Resort Group's third quarter earning's call.

With me today are Les Martin, our Chief Accounting Officer and Treasurer as well as Tony Alomar 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 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 expectations regarding room rates, occupancy levels, and REVPAR, estimates with respect to our future income taxes including cash taxes, estimates regarding depreciation, interest expense, capitalized interest or corporate expense, status of the development of our casino in Detroit, future dividend policy, future share repurchase activity, anticipated financing transactions, anticipated capital spending levels, anticipated debt levels, potential impact of additional competition, potential impact of changes in gaming taxes or other taxes.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Information concerning factors that could affect our future financial results is included in the caption of the same title in item 1 of our annual report on Form 10(K) for the year ended January 31, 2004.

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

As with our second quarter call let me also state that our purpose today is to review Mandalay Resort Group's current performance and trends in the overall business which we will cover in the usual format.

We will not discuss or comment on merger related details between our Company and MGM Mirage, whether timing of closure, the FTC review process, or any other related matters on legal or regulatory.

Our third quarter results were historic.

On a recurring operating basis our earnings for the quarter were $1.04 against 66 cents last year.

That's an increase of 58%.

This figure also represents a doubling of our earnings on the same operating basis for this same quarter within a two-year time frame.

The primary driver of these strong results was once again our REVPAR growth on the Las Vegas Strip which metric climbed 18% in the third quarter off a double-digit increase itself in last year's like quarter.

The biggest boost came in the month of October when we set this Companies best every comparative REVPAR month, rising 28% on the strip as a whole.

Again that's 28% off a double-digit uptick a year ago.

In the year when double-digit REVPAR increases on the Las Vegas Strip both for the general industry as well as for our Company seemed a mild stretch at the beginning it's become a definite reality.

Mandalay Resort Groups REVPAR in Las Vegas will score solidly in the double digits for this fiscal year.

I should point out that our third quarter carried a healthcare cost above normal experiences that happened in the second quarter, tallying about 4 cents a share on a quarter over quarter.

We also faced a higher tax rate for a full quarter in Detroit.

That was about 3 cents per share against the prior year.

Let the customers keep on coming.

Operating cash flow, or EBITDA, at our 5 resorts in the Las Vegas Strip, rose a blended 33% or $42 million in the third quarter.

Besides the surge in REVPAR we also collect a blended 14% increase in our casino revenues.

More hotel staying customers at distinctly better prices stimulate stronger casino results.

That's been an axiom here since we recast this corporation over the past couple of years.

Every 1 of our 5 resorts in the Las Vegas Strip posted its all time EBITDA for any third quarter by decided amounts.

At Mandalay Bay, we generated $66.2 million in operating cash flow in the quarter.

That's nearly 50% higher than a year ago.

Clearly THEhotel is a compelling producer of customer traffic and profits, arguabally the most innovative concept for the destination traveler, especially business travelers, anywhere in the past few years.

THEhotel ran 90% occupancy and about $232 average rate in the quarter and at Mandalay Bay as a whole we turned in 90% occupancy at $210 average rate.

Casino revenues at this resort jumped 13% that's the same figure as the REVPAR comparison despite a sudden normal hold in table gains down about 2 points.

Luxor for its part turned in operating cash flow of 40.3 million, up 28% from 31.5 million last year.

It's REVPAR was up 12% in the quarter but casino revenues rose 24%.

At Luxor it's clear that Mandalay Place is facilitating considerable bridge traffic between Mandalay Bay and Luxor particularly to the benefit of the Pyramid.

The Luxor by the way will close in on $150 million in EBITDA in this fiscal year.

At Excalibur, operating cash flow increased 22% to nearly 32 million.

That's against 26 million a year ago.

REVPAR rose by 16% while casino revenues grew by 12%.

At Circus Circus Las Vegas we earned 20 million roundly in EBITDA in the quarter, that's up 24% from a year ago.

Our REVPAR comparison up 16% as casino revenues grew by 8%.

And at Monte Carlo we own half with Mirage, with MGM Mirage, we reported nearly 31 million in operating cash flow, and that's a 28% increase from a year ago.

REVPAR Monte Carlo climbed by 15% and casino revenues were higher by 16%.

Elsewhere in Nevada, our combined operating cash flow in the Reno, Laughlin, and Highway markets combined grew by $2.5 million.

In Elgin, Illinois, we posted operating cash flow at our 50% owned Grand Victoria of 15.4 million in the third quarter.

That's up 14% from 13.5 million last year.

I'll note that this increase is largely an accounting adjustment due to the higher than normal accrual rate we absorbed last year in this third quarter to catch up for the increased tax on casino revenues in Illinois which went to 70% of gaming revenues above $250 million.

That took effect mid year 2003.

In Detroit our 53.5% owned MotorCity Casino delivered 35.5 million in operating cash flow.

That's against 32.5 million a year ago despite a hike in the tax rate on casino revenues effective I guess for two of the three months in the quarter.

In Tunica County, Mississippi, our Gold Strike reported 6.6 million in operating cash flow against 7.8 million in the quarter a year ago.

For the third quarter our EBITDA was $201 million, comparing against $167 million last year.

If you look at the nine months so far, the EBITDA margins at Mandalay Resort Group are up 200 basis points against a year ago.

On the balance sheet side of matters, we continue to retire debt.

We did so vigorously in the third quarter as of today our debt stands at 2 billion 640 million comparing against approximately $3 billion at the same point last year.

We projected long-term debt that would be below 2.7 million by year end and we have easily achieved this target.

This brings our key debt to EBITDA ratio below 3.5 times which is investment grade territory everywhere else in the world.

We certainly bear no compunction for the fact that this Company bought about $1 billion of stock back over the course of the past decade at an average price in the low 20s.

We will also this year achieve a free cash flow per share of approximately $6 which is in line with our previous statements.

So with that overview of the quarter and what we see for the rest of fiscal year we'd be happy to entertain questions.

Operator?

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Larry Klatzkin from Jefferies and Co.

Hi, Glenn, decent quarter.

I guess when you leave you always leave smiling, I guess.

A couple of questions, one, concentrics center bookings going forward, how is that looking for next year?

Well, we are on the same course we've been talking about all along which is next year, remember, we have compared to what we had a year ago since the 1100 new rooms at THEhotel, this Company should be in the range of close to 40% of its rooms sold to the convention market next year.

Okay.

And then can you talk at all about CapEx for next year, at least for updating slots on the floor or are you kind of waiting it out?

What--

Maybe somebody else's issue, I mean, this year through the third quarter we've spent about $100 million in capital spending and we'll continue to keep a fresh floor.

So nothing changes there.

All right.

I guess my last question is, I know you are not doing merger questions but do you turn your actors equity card over to Jim if he goes on TV now?

You have to earn your speaking parts in that business.

It's not as easy as it looks.

So we'll have to let him stand on his own legs there.

Thanks, Glenn.

Good crew with the Company.

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

Hi, Glenn.

Can you hear me.

Yes, I can.

Good, thanks.

So when you think about the occupancy of the convention center in 2005 versus 2004 what should that look like.

(UNIDENTIFIED SPEAKER IN BACKGROUND) 25% at the present time, we are looking at 35%

Yeah, if you look at it not every day is a day that you have paying dollar guests on the floor, of what we have for sale, we will be 60 or 70% occupied of days.

You are going to lose some days because of move in, move out, et cetera.

Second question, do you plan to continue retiring debt between now and the time that the transaction allegedly closes?

Yes, that would be the principal use of free cash flow from here.

The last question going back to your healthcare costs, would you consider these really one time healthcare expenses or should we be thinking about them as running at this higher level going forward?

Hard to say because of somewhat sort of catastrophic issues but I would say we are going to have a higher base of healthcare costs in this Company.

It's gone up this year, Harry, at about a 14% clip year-over-year.

We would hope it wouldn't goo up the same amount next year but it probably rises.

Okay.

Very good.

Thank you very much.

Our next question comes from the line of Robin Farley from UBS.

Thanks.

A couple of questions.

Can you explain what the change in the fixed jackpot reserve is, that accounting change?

I will let Les Martin answer that one, Robin.

I don't know if I can do it in 100 words or less but in essence in the industry there's a lot of different policies and within our Company we're the same way, different properties use different methodologies and under Sarbanes we are trying to standardize our policies and those fixed jackpots aren't a true liability.

In other words the state regulations allow us to take those fixed jackpots off the floor.

And there's also an upcoming casino auditing guide at the moment it appears they are going to mandate that you do not accrue for fixed jackpots so for all those reasons we were compelled to go ahead and standardized the policy by eliminating the accrual.

Okay.

All right.

Great.

And your corporate expense, I don't think it's broken out in the release, can you clarify what that is?

Go ahead, Les.

Yeah, corporate expense for the quarter was 19.9 million but, of course, 6.6 million I think of that was merger related costs.

Glenn, I know in your comments you mentioned that hold, I think, two-points and hold what would you estimate that was in EPS?

The impact of the low hold.

The impact on EPS is about 3 cents.

Okay.

And I guess that's about it.

I don't know if you made any comments about forward-looking trends, what you are seeing for the January quarter so far?

Well, I mean you still are in a high period here, Robin, a shift in what we see in customer demand today on the Las Vegas Strip is operating in record territory and we don't see any break in that momentum at present.

Would you expect the increases next year to be at the same rate though at this double-digit clip or once you've kind of anniversaried some of the big recovery quarters from this past year will it be more of the same--

It's hard for me to predict what consumers are going to do a year from now.

That's a long time, I'm not sure I can do that, Robin.

How about just the next two or three months?

As I said we don't see a break in the momentum in the next couple of months.

Including that double-digit.

Okay.

Yes.

Great.

Thanks.

Our next question comes from the line of Joe Greff from Bear Stearns.

Hello, Joe.

Hey, how are you Glenn?

Hi Tony and Les.

Can you talk about just broadly following up on current demand trends how New Year's Eve is looking on the strip and then can you talk against the first quarter of next year and just give some data points on the conventions which obviously are pretty strong?

And then also too, you mentioned that next year 40% of the room X sold at Mandalay, roughly 40% will be attributed to conventions.

Where do you end up with that property this year?

Is it still around 30%?

25% this year.

We are going to be under 30 this year and on our way to 40 next year.

You had about three or four questions there, Joe.

I am handling them in reverse order.

It's hard for to us predict what the REVPARs are going to be two quarters, three quarters hence.

I mean if the consumer doesn't change track or behavior here you are going to see more strength.

There's no question about that.

Then New Year's Eve on the Las Vegas Strip--

New Year's Eve is going to be, I think, certainly the holiday and the calendar fall right this year.

It's going to be up.

It's going to be strong compared to a year ago.

So we have high confidence about the New Year's holiday.

And I know your 4Q calendar is different than others in terms of how your fiscal year ends.

Do you see it kind of impacting more so, what would be sort of January results versus December results?

January is going to be a more important month for us and this Company than ever before.

We are going to have a record January in this corporation, that's just a fact.

Very strong convention month here at Mandalay Bay.

Great.

Thanks guys, good quarter.

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

Hi, Jay.

Jay?

I'm sorry, can you hear me now?

Yes.

Congratulations on a great quarter.

Thank you.

Most of my questions now have been answered.

I do have at least one here on that jackpot issue just so I understand it better.

Which properties, either Glenn or Les, were affected in the quarter?

I didn't catch that before.

I will let Les handle the questions that aren't so financial.

Go ahead, Les.

It was mostly the properties on the Las Vegas Strip but really it was across all of our properties.

We standardized the policy and most of our properties had some type of accrual for fixed jackpots but obviously there's a bigger concentration here on the Strip so that's where most of it was centered.

So basically maybe 1 to $2 million per property on the Strip and smaller elsewhere.

Yeah.

That's probably ballpark.

Okay.

And I guess one more, just to make sure I heard it right.

Glenn, did you say that Luxor should do this fiscal year, finishing out 150 or more in EBITDA, was that quote?

You said 150 or more, I said it would be pressing 150 million of EBITDA for the year.

Pressing 150.

Okay.

Excellent.

Thanks a lot.

Next question comes from the line of Dennis Forst from KeyBanc.

Good afternoon guys.

I had a couple of questions.

Tunica turned down in the quarter?

What happened there?

You were off to a good start the first part of the year.

It's kind of a flat market, Dennis.

I mean we were only off $1 million in operating cash flow one quarter to the other.

Okay.

Well, the first couple of quarters were up over $1 million, that was the only negative surprise I had to ask about.

We'll be relatively close to the number we produced last year in Tunica, well maybe, right at it.

For the full year you will be flattish?

Yes.

And then Detroit, you've been doing very well in Detroit on a monthly basis where the MGM has been running flat to down consistently the last few months.

Are you doing anything differently than them or is there any logical reason why?

You are beating me, Dennis.

We are continuing to drive more toward our -- win per slot machine.

We are up to $383 a day and if you look over last year it's continued to rise.

That's the principal contributor there.

Okay.

So the higher tax right is not influencing--

The higher tax rate, we overcame that which is about a penny a month.

It's a penny a month in earnings with the new tax rate there.

So, but that hasn't affected our ability to market.

Okay.

And then did you give the total debt, I must have missed that, I was writing somewhere?

The total debt in the quarter was 2.725 billion.

Total debt this morning in this Company was 2.640 billion.

Okay.

And then lastly as good as you guys are doing on the Strip, all the southern properties, Monte Carlo, Luxor, Mandalay, all doing record and I think you said they were going to all be super in this quarter, too, are we seeing that -- the October record month, are you seeing that across the whole Strip or is that more related specifically to Mandalay Resort Group?

I can't speak for the other guys because I don't work there.

If we say across the Strip, it's hard to think we could do this in isolation, you are not going to be up 28% in REVPAR by yourself.

You look at us on a comparable quarter, though, Dennis if you took us and said, okay, put us on a calendar quarter, we were up 11 or 12% in REVPAR against MGM Mirage at 10 and I think Caesars' at 8.

So we were still leading off course higher improvement in REVPAR a year ago than that.

No question that October really turned on the gas in terms of customers coming to Las Vegas.

We saw it again in November.

Is there no elasticity?

Is it a totally -- priced totally in elastic?

I don't know that answer.

It's a theoretical question.

I can tell you that can't get a better value from a standpoint of a vacation destination in a Las Vegas Strip and I can name 10 other cities where you still pay more to spend the night where you would rather less be than in Las Vegas.

Well, as usual your operating team is pushing that envelope much more successfully than just about anyone else.

My hats off to all the operating guys.

Thank you, Dennis.

Our next question comes from the line of David Anders from Merrill Lynch.

Les, do you have the cash at quarter end?

Cash at quarter end was 181.6 million.

Thank you.

Our next question comes from the line of Jeff Logsdon from Harris Nesbitt.

Glenn, it's been fun.

You know, you and I go back the furthest, isn't it?

I think my esteemed friend Dennis may have me by a little ways but it's pretty close.

I started in that work study program in high school, that's how I'm still maintaining this youthful look.

You do that well, too.

Two questions, number one, Elgin, should we keep our fingers crossed or should we keep our expectations high that tax rates are going to roll back July 1?

We will take them at their word but we can't predict what they are going to do.

We pay a lot of taxes there.

It seems like Napoleon moved from Louisiana up to Illinois.

Anyway, second question you are in a bright lights business, anything going on with energy costs?

They have continued to rise some but I think it's containable.

Great.

Well, it's been a pleasure.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of Luka Epilito from Chesapeake Partners.

Thank you, congratulations.

I wonder if you can give us a quick update on the regulatory process from your end?

As a resort, back to my preparatory statement at the beginning we can't comment on legal or regulatory issues.

Sorry, thanks.

Thanks, Luka.

We have no further questions at this time.

Thank you very much.

We are here to take questions or further commentary, Les, myself, Tony Alomar.

Thanks very much.

Ladies and gentlemen, that does conclude the conference call for today.

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