美高梅國際酒店集團 (MGM) 2017 Q2 法說會逐字稿

Good morning, and welcome to the MGM Resorts International Second Quarter 2017 Earnings Conference Call.

Joining the call from the company today are Jim Murren, Chairman and Chief Executive Officer; Dan D'Arrigo, Executive Vice President and Chief Financial Officer; Bill Hornbuckle, President; Corey Sanders, Chief Operating Officer; Grant Bowie, CEO and Executive Director of MGM China Holdings Limited.

(Operator Instructions) Please note, this conference is being recorded.

I would now like to turn the conference over to Mr. Dan D'Arrigo.

Well, thank you, Stephen, and good morning, and welcome to the MGM Resorts Second Quarter 2017 Earnings Call.

This call is being broadcast live on the Internet at www.mgmresorts.com, and we have furnished our press release and Form 8-K to the SEC this morning.

On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws.

Actual results may differ materially from those contemplated in these forward-looking 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.

During the call, we will also discuss non-GAAP financial measures in talking about our performance.

You can find the reconciliation of GAAP financial measures in the press release, which is also available on our website.

Please also note that our supplemental earnings deck is posted on our website, which we hope you will continue to find helpful.

And with that, I'll turn the call over to Jim.

Well, thank you, Dan, and good morning, everyone.

We're quite proud of the results we recorded this morning, and I think it's a tribute to what we've discussed many times before in terms of our focus on margin, profitability and the very hard work of the men and women that have brought incredible operational efficiencies to this organization.

As you know, our cash flows rose in the quarter, and on a hold-adjusted basis EBITDA would have been up 10%.

We have guided you when, we talked about the second quarter, to lower gaming revenue, higher nongaming revenue and margins that would be up slightly.

We met that guidance and, in fact, did better than we expected in terms of profitability and margin as a result of our initiatives.

Our margins grew 82 basis points to just over 31%, and that was despite the fact that we were down almost 5 percentage points year-over-year in table games hold.

On a hold-adjusted basis, as I said, cash flows would have been up 10% and our margins would have been up over 200 basis points on the Strip alone.

CityCenter had another outstanding quarter.

Its revenues and cash flows grew 10% and 36%, respectively.

And our focus on margin has driven operational efficiencies in every single department in which this company operates.

We have achieved this despite the fact that we're investing in the future.

As you know, we're dramatically transforming MGM's Monte Carlo property into Park MGM.

That's been disruptive and will remain so throughout this year.

And despite that, we're very comfortable where we see the Street in terms of earnings for the year.

Regionally, our properties continue to dramatically outperform their competitors.

MGM Detroit had an all-time record in terms of revenue and EBITDA.

National Harbor is already the market leader in Maryland and, of course, Borgata continues to perform at an outstanding rate, and that is a tribute to Tom Ballance, retiring today from Borgata and moving into corporate, and the rest of the great team at Borgata.

Obviously, the results in Macau as a market have been impressive.

We are anxiously awaiting the opening of Cotai that will happen us dramatically.

That resort opens in a couple of months.

Grant will talk more about it.

But suffice to say that it would help not only drive more business to our MGM property on the peninsula, but we believe it will be very dynamic and very successful in Cotai.

We have had a very strong year this year in Las Vegas, both in the first and in second quarter.

We just had another record at McCarran Airport in June.

And the company has focused on maximizing the opportunities that are in front of us.

And that means maximizing the revenue per occupied room in all of our resorts.

That is the reason why our margins were up more than we expected.

It's also the reason why REVPAR was below what our guidance was, as we consciously moved some occupancy away from higher ADR but lower revenue per total occupied room into a different channels, which resulted, as you can see, in higher profitability and higher margin.

We expect that going forward.

We see a very good third quarter underway.

We have many challenges in the quarter because of a huge citywide convention quarter last year.

And we held very well as we indicated in the third quarter of '16.

But despite that, because we have an epic fight coming up in a couple of weeks and because we have good business on the books, we expect to see profitability increase again and margins also increase again.

We believe that, going forward, that the second quarter -- the second half of the year will remain strong, and that we'll continue to be able to improve our profitability and margins, and in fact we're raising our margin guidance from what we have said earlier because we see more opportunities to increase margin going forward, already the industry-leading margin and certainly here in Las Vegas.

This could be the second biggest fight of all time, and it will certainly drive millions of people to watch Las Vegas, watch T-Mobile and watch Mayweather and McGregor.

We intend to maximize every penny of profitability opportunity there, and we are working very hard to accomplish that.

I think we'll be very successful.

We have a lot to look forward to in the second half of the year, not only the opening of Cotai in the fourth quarter, but the improvements that we're making to all of our operations, which we see as accelerating our margin.

We're running this company for cash flow.

And in fact, has not been clear in the past, certainly was in this quarter, and we will continue to do so going forward because we believe that's the best way to drive value to our shareholders.

And we intend to continue to be competitive in the marketplace when we find opportunities on the horizon, and I think the opportunity currently on the horizon is Japan, where I would say that we are one of the leaders in terms of contenders in that marketplace.

I have to say that I'm proud of what we've done, but I believe that our best days are ahead of us.

And what we see today is more confidence in our business than we've seen in the last 10 years.

So with that, I'd like to turn it over to the operator so we can get to your questions.

(Operator Instructions) And our first question comes from Joe Greff with JPMorgan.

Jim, Dan, as can imagine we're getting a lot of calls and e-mails on your REVPAR commentary and change from a quarter ago.

Can you talk about the 100 basis points of revision?

How much of that relates, Jim, to what you talked about, intentional focus on lowering occupancy?

How much of it might relate to more disruption at Monte Carlo?

Can you talk about how much of it relates to just maybe greater price elasticity for the consumer in Las Vegas?

How -- what led you to revise downwardly your REVPAR guidance?

Sure, Joe.

It's almost exclusively business decisions that we are making here.

It does not reflect at all the health of the market, and certainly does not reflect our perspective of the market in the second half of the year.

When we started PGP, we were focused on many of the nonhotel areas where we could drive margin profitability, not only in terms of table games margins and overall casino margins, but in our nongaming areas in terms of driving margin there.

The Hotel divisions of many of these resorts, including ours, have been run more independently and have been focused on driving REVPAR.

We know that that's not the right approach in a casino hotel environment.

That's not how you drive profitability.

No one here in this room that I'm aware of is bonused on REVPAR.

We're bonused on profits.

We made a decision when we moved from PGP to continuous improvement to dig in more on our hotel yielding and do it more holistically.

We actually started that in the beginning of the year.

It had a minimal impact on the first quarter because we had such a strong convention calendar in the first quarter.

It had more of an impact in terms of REVPAR in the second quarter, but we drove more profitability throughout the resorts in the second quarter.

That's why revenue per occupied room in the second quarter was actually up over 5%.

That's the important metric.

In terms of looking forward, we feel very strongly and we know this business pretty well, the way to drive increased margin and increased profitability is to yield the total resort from a standpoint of driving revenue into the resort.

And that will have a dampening impact on REVPAR, and that's okay, because we're trying to drive more profits.

There was -- the only macro point, I would say, in the quarter with a little bit of weakness, a little bit of softness in the early part of June.

It was literally like a 2-week period of time, and it bounced back right at the end of the month.

But really, that had minimal impact.

And also, we probably underestimated impact of the disruption at Monte Carlo a little bit.

But these are just fringe things, it's not the overall point.

I think the overall point is, on REVPAR, as we're talking about it, a 1% difference in REVPAR.

So in other words, instead of if we did 2.2% instead of 1.2% for our portfolio.

A 1% delta is only $2 million of profit.

A 1% increase in our margin, just on the Strip, is $14 million.

We made a decision which we'll continue to make the focus on profitability and margin, and that really was the total story in terms of REVPAR in the second quarter and the reason why we want people to be more focused on this in the third and fourth quarters.

We're going to have a good third quarter, very strong despite the big city-wides that we saw last year and a 10% increase in REVPAR that we had last year.

And we're going to have that because of a Mayweather-McGregor fight, a GGG-Canelo fight, and some good convention business, but more importantly, I think, we're going to be able to drive margins in the third quarter more than we had predicted when we began the year.

Great.

Helpful.

And then just a quick question on Macau in the 2Q margins there were a bit lower versus the last 4 quarters.

Was there anything one-time there other than -- that drove that margin performance?

Grant, can you tackle that?

Sure, thanks.

The answer is there is a mix of changes we've seen particularly in the some of the premium end of the business.

So we've seen some margins slightly depressed.

But overall, we're starting to see growth in the mid-margin -- the mid business range.

But some of this, as Jim was indicating, is preparing ourselves for running the business for (inaudible) coming onstream.

So yes, there was some reduction in margin and that was also a little bit of an effect -- slight effect on the premium end.

But by and large it's just part of the process of transforming and getting ready for the (inaudible).

The last comment I'll make about that is that we are seeing some constraints in terms of room inventory.

And as Jim indicated, getting Cotai onstream for us is really important in terms of building out capacity and our ability to drive more volume.

Our next question comes from Felicia Hendrix with Barclays.

So just to stick out the quarter REVPAR for a second, I just think it would be helpful if we could just bridge from, say, maybe the midpoint of your guidance to the actual results.

So here what you're saying you have -- like there's certain headwinds on REVPAR in the quarter, but then you said that they had a minimal impact.

So maybe if you could adjust for the disruption -- the greater than disruption at Monte Carlo, maybe like where would have REVPAR come in?

I'm just having a hard time still understanding where the miss came from?

Sure.

So if we had just adjust just for Monte Carlo, REVPAR would've been 1.8%.

Okay.

And then is there anything else in there like should we think about maybe an increase in resort fees that offset that or...

No.

No, we had predicted what we have in terms of resort fees in that number and in our prior guidance.

So really -- the difference is Monte Carlo being a little tougher than we thought in a very short period of time in June.

But I really want to emphasize the fact that we're moving away in Micah's team and our hotel yield team away from focusing on maximizing REVPAR.

It's just we've all known about this, both the sell side, the buy side, us at management, that that's not really the best way of running our business.

But we haven't -- we didn't have the tools, frankly, Felicia, earlier in our process until this year in terms of analytics, in terms of intelligence to yield these resorts in a more holistic way.

And that's a manifestation of continuous improvement.

We have people doing this now that we didn't have before, hired from other companies, and it will have an impact on total revenue per occupied room in a very positive way, we think.

Great.

That's helpful.

And then just if I may step back for a minute and ask you a big-picture question, because I think that there's an emerging kind of narrative coming out of this earnings season amongst some investors about the economy maybe perhaps slowing a bit.

Certainly Leisure is doing well, but on the business side we've kind of seen in lodging and maybe some of the statistics that are coming out of Vegas, seeing some muted results.

I mean the June just came out today and the gaming results were better than we had expected.

But again, this narrative is emerging.

So when you look at your business, which is a really nice mix of leisure and business, wondering are you seeing any yellow flags at all from the consumer?

What are your group meeting planners telling you?

Is there any kind of comments you might want to make on what you're seeing economically right now?

On the business side, Felicia, we see convention partners changing somewhat their convention practices.

For example, some of the larger companies are consolidating some conventions.

They might have 5 in a given year of a certain size, and they're consolidating them down to 3 or 4. That has kind of volatility around some of the convention markets around the United States, and I think a little bit to a lesser extent here in Las Vegas.

But we've seen that trend occurring.

The reality to that is they're actually driving a lot more delegates per convention, obviously, as they consolidate the number of conventions.

So we see bigger spikes in convention attendance rather than what we had seen before.

As an example, we literally last week just finished Microsoft.

They were in here.

It was amazing for better part of a week.

That's a convention, as you know, we didn't have last July.

And it was highly successful for us.

So I think the only -- and I'll turn it over to others if they see anything differently, but the only thing we see a little bit differently is how companies are handing their convention business.

Every other segment -- and by the way, we're still going to be up in conventions and we're still doing extremely well and Las Vegas, I think, is the beneficiary of this because we're a better value destination.

Every other segment is up.

Leisure for us, we're driving more people through our own channels, which is more profitable to us.

Our FIT business, the casino was very strong.

And that's why total revenue per occupied room was up nicely in the quarter.

I would add, Felicia, that what we're seeing in customers and especially because of our intentional shift in some -- out of some of our lower-end areas and into our higher-end areas is that their spend is up, and we're seeing that in entertainment, we're seeing that in food and beverage, we're seeing it across the portfolio slots.

So we don't really sense that the economy is suffering.

That's really helpful.

Dan, a quick housekeeping.

Was there any -- were there any bad debt provision benefits in the quarter in either Las Vegas or Macau?

I'll let Grant speak to Macau.

As far as here in Las Vegas, we had a slight benefit of about $4 million in the quarter on a year-over-year basis.

And Grant, in Macau?

And from Macau, really nothing significant.

Less than $1 million.

And our next question comes from Harry Curtis with Nomura Instinet.

I wanted to catch Grant while he's still awake.

I wondered how you plan to position the Cotai property.

It is competitive.

How will it be different from your experience on the Peninsula?

And what are your views on the competitive advantages that the building has?

I'm wide awake.

I think what's important is although we may be last to open, we also have the advantage of watching everybody else come on board.

And I think we've been clear right from the outset that we understand that the Cotai market is very different from the Macau market.

But we also accept that we have certain characteristics that we're stronger in terms of particularly the mass business.

We also need to develop, for Cotai, the VIP business over time.

In terms of the property itself, the thing that's the most important for us is capacity.

We keep on saying this over and over again.

Getting more rooms, getting more capacity in that marketplace.

One of the things we have focused on most importantly as it's not just a question of being able to expand based on our current pool of customers, we understand that we need to tap into new customers that, to us, who may already be in Cotai.

And I'm not saying specifically share shift but about allocation of wallet.

And so we're very focused on being in additional resources, people with specific experience in the Cotai market.

And also making sure we build strong relationships with the tour and travel marketplace in China about moving premiums, leisure travel market.

So I guess it's critical -- the critical point for us is still purely maintain the intensity in the Macau property, getting the increased capacity but understanding that we need to spend and we are spending a lot of time building the volume of traffic in our -- the pool of customers for us for Cotai.

We're very excited about the physical attribute.

I think everybody acknowledges that the building design is iconic.

And we're very excited, as we progressively release to the market, that the facilities that we're bringing in.

We're nearly finished launching all the food and beverage.

Now it's starting to introduce the customer base for the entertainment products.

The nature of the interactive spaces that we're creating, which allows the consumers to basically build a lot of their own experiences.

That will become more visible as we actually launch more of the products as we work our way up to the opening.

Anticipate, just as an -- just as one point of interest, we'll start our road shows into China for the leisure markets and for the tour and travel business in September.

So that's really a progressive development and build out of that.

We understand that we appreciate that our properties will take time to ramp up, and that we need to make sure that we maintain our cost control and we don't get too carried away that we don't overstaff ourselves on early days, but can build capacity and build volume before we avoid too many the overhead.

Sorry that's a bit long, but I hope that covers what you're interested in, Harry.

It did.

I did have just 2 quick follow-ups.

The first is, there's been -- gotten a couple of questions on whether or not you will entertain the idea of a partial opening?

We obviously want to open as much as we possibly can.

And if everything was up to our standards and we thought that we could drive sufficient volumes to support it, we would open everything.

But we're pragmatic.

Our target is to get everything as far as we can.

We previously announced that The Mansion product would be delayed.

But in terms of all of our other facilities, we're hoping to be able to make the decision operationally whether we're comfortable to support everything.

At this moment, room inventory, the rooms are looking pretty good, we're punching all those things through.

So we would like to have as much online as we possibly can, but openings are always challenging.

We're pragmatic enough to know that we just work to know we're able to present the best image of our brand and our product on day 1.

And last question, is any -- can you narrow for us the projected timing of the opening?

I think Jim was pretty clear that within the next 2 to 3 months we'll -- certainly will be opening.

We're aiming for that, the construction is going well, our manning's going well and we all understand, however, that we do have to follow the regulatory procedures laid out by the government.

And at the end of the day, once that's all been completed, then we'll get our permits to operate.

But we're all pretty comfortable, we're ready to go as soon as we get that permitting in place.

(Operator Instructions) And our next question comes from Shaun Kelley with Bank of America.

Jim, can you maybe just build the whole kind of discussion around REVPAR and some of the tweaks and mix.

So just wondering if you or someone can elaborate a little bit more on -- sort of a little bit more specifically what exactly are you doing in terms of these tweaks.

Is it more channel related, meaning sort of optimization of OTA versus direct book versus other things and cutting down on customer acquisition costs?

Or is it more comp and cash mix?

And maybe just elaborating on any of the tools that you're using to make some of those changes.

That would be really helpful.

Sure, I'll turn it over to Corey for that.

Shaun, as part of our continuous improvement, one of the things we really focused on is identifying our channels and then really doing an in-depth study on the profitability of those channels.

All of our channels and our partners are very important to us.

But there is certain channels that are actually making a lot less profit, sometimes anywhere from 20% to 50% less than other channels.

So it's been more of a channel switch than anything else.

On the casino side, we continue to use our M Life database and the regional database.

But what we've be able to see is we've been able to -- we have been able to, for the first time in a while, actually shift some of that lower-end channel into our own transient database.

So that's something that, I think, when we looked at it going into the year and when we made that decision, we felt the demand for Las Vegas was really solid.

And if there was a time to do it with the dynamics, this was the right time to do it.

And Corey, is there software or tools or we know there's some optimization things -- the things you're using and all that across the enterprise, what phase are we in on that?

That's kind of -- any color there?

We're at the beginning stage, and when I say that I'm pretty critical of ourselves.

I think there's a lot more opportunities to maximize what tools and artificial intelligence and things like that.

So I'm pretty excited about what the future has to bring in this area.

Yes, and we have -- I'll just add to that part, Corey, obviously, we are well aware of the CRM softwares that are out there, salesforce.com being one that Caesars is using, and other companies have different techniques.

We have our own CRM.

It's going to evolve.

And one of the things that has been a benefit of the Borgata acquisition has been they've had a very strong CRM process in place at Borgata.

And we're taking that learning, and Tom Ballance, who's now in corporate with us, is leading the team with Anton Nikodemus and a variety of our best leaders here, including Marcus Glover, who's going to be running Borgata, to make it a company-wide decision on improving analytics and artificial intelligence and CRM.

But that's exactly what Corey is referring to by changing the channels on the nongaming side this year and being able to do more process marketing on the gaming side we've been able to increase our revenue per occupied room, which is why you see really good slot handle.

And you see good table volume that would've been more evident if we had just held normally.

But even with the lower hold, it benefited us.

And our next question comes from Stephen Grambling with Goldman Sachs.

Maybe on the capital allocation front.

What is the latest progress in pursuing some of the various asset sales that you've alluded to in the past, whether it's noncore, like CityCenter or National Harbor?

And where does MGP fit in?

It's a good way to kind of step back and look at what we're trying to accomplish here.

One is, obviously, to drive free cash flow.

And I will get into that more.

But certainly we're accelerating our free cash flow generation in our operations this year versus last, and we think next year significantly more.

But adding to free cash flow comes the other levers that we have.

One of the major levers that we have is MGP.

We were really clear when we brought MGP public a couple of Aprils ago that National Harbor, which has the ROFO, it would be an asset that we would like to transact with, with MGP.

We also said that we'd like to have a few quarters under National Harbor's belt before we entered into those negotiations.

Well, we have a few quarters under our belt right now.

So I would think that it would be logical to assume that a transaction would be more in the near term than the long term between MGM and MGP.

That, if done properly, and we expect it would if we do it, would have a profoundly positive impact on MGM Resorts in terms of its liquidity and its cash.

And it squarely fits with the overall arching (sic) [overarching] belief that we need to return cash to our shareholders.

MGP is out on the prowl on a variety of other transactions, some of which will not involve MGM, but others very likely could.

And recall that we're opening up Springfield, Massachusetts next year, I think in September or August.

And that, obviously, is a candidate for MGP as well.

The other lever that we have is clearly through asset sales.

There has been a significant level of interest on the Strip right now.

There is really strong chatter around the Fontainebleau being sold with a hotel flag that will be put on it.

We're not involved, to be clear.

But that would be a good sign for the market if people are willing to invest a lot of money to try to bring that property to life.

And we own assets as well.

We own Circus Circus, we own The Mandarin at CityCenter, and several other assets that we always look to find out what we should do in terms of our best interest.

In terms of other levers that we have, clearly CityCenter itself with another record quarter, is generating a significant amount of cash.

We will continue to return that cash to its shareholders.

Infinity World and MGM and, of course, once we open up in Cotai, MGM China should turn into a significant free cash flow generator beginning next year.

So the levers that we have in front of us that we're constantly trying to maximize are, number one, free cash, because our CapEx is going to the roll over and be very minimal going forward; two, asset sales or other ways of monetizing assets; three, dividends from our ventures.

So that's all helpful.

I guess as a follow-up, do you think about allocating cash proceeds from asset sales in different than operational cash flow?

And more broadly, do your priorities change as that cash flow inflects?

Maybe any type of development projects that you can see out there that we should be thinking about?

That's a good question.

It hasn't been asked of us before.

But yes, I feel like if there is -- I've got to talk to our board about this.

But if there is a significant onetime event that would generate a tremendous amount of cash to MGM Resorts, that would impact our decision making versus free cash flow that is steadily and rapidly growing.

And yes, we've been very clear on capital allocation and shareholder returns.

We started with dividends -- quarterly dividends.

We expect that we'll be able to increase our quarterly dividend over time.

But that share repurchase also will be part of our discussion at the board level.

And if we have a significant windfall, which I think we will over 1 or 2 of them over the next couple of years, we'd be more immediate in our transferring that windfall to shareholders than rapidly growing free cash flow.

Our next question comes from Carlo Santarelli with Deutsche Bank.

Corey, if I could, just -- you spoke a lot about kind of the continuous improvement and the mix that you're trying to do to kind of utilized to drive that improved profitability and using more of those improved channels.

If you could just kind of maybe silo stuff for us in terms of what the mix is today, be it with group convention, leisure, transient, casino, et cetera?

And kind of what the optimal for profitability based on what you guys have identified would be as we go forward?

Yes, Carlo.

I don't think we've really gone into mix that much.

Obviously, the convention is our base and we build off of that.

We -- then we use some of the other channels to also help build the base and yield from there.

The goal would be really to -- if we could keep shifting a few percent into the transient probably from the leisure base, that would be where we could gain the most profitability.

And so that -- and I think we're starting to see that happen probably for the first time since probably before the recession that we've been able to actually make that change happen.

Yes, and I think -- I don't mean to cut you off, Dan, but I think that that's exactly right.

Because our convention mix is growing and becoming more profitable to us and because we see a strong convention calendar in '18 and '19, and because we're expanding our convention facilities right now at Aria and at MGM, and you weave that together with the expansion already at Mandalay, that sets up a much stronger foundation for us to look at the rest of our rooms.

From the rest of our rooms' perspective, we're becoming more intelligent about how we can shift leisure into transient.

And that requires software that we're deploying, it requires a different philosophy, which we're also deploying.

But it also is a result of the fact we're more confident in our overall occupancies than before.

And that's, I guess, the point that should be always made is that all of us out here, our competitors and ourselves, run these resorts at mid-90s occupancy.

It's not about -- that's why REVPAR is still misleading.

It's not about occupying the buildings.

It's about occupying the buildings in a way that will generate the most profit to the resorts, not just the hotel department of the resorts.

The combination of this and the loyalty CRM marketing, that's going to have an impact -- increasing impact on the casino side, is going to provide revenue and profit growth that we did not anticipate when we started this about a year ago.

And the one area where we have given pretty good direction is the convention side.

We are around that 19% with the additional space.

If we grew an extra percent, it would really help on yielding the base.

But I think that's about where we want to be in that area.

Great.

That's helpful.

And then, Jim, you mentioned earlier some commentary around Fontainebleau.

It sounds like something is closer, obviously, with that asset.

Just from your experience and what you guys know about kind of the asset, its current state, how long do you imagine it would take for someone to come in and get that asset viable and kind of up and running?

I guess 3 years.

2.5 is the earliest.

But I would say 3 years.

And what -- I guess the point I'd make, and I love this town, we don't have as many rooms in Las Vegas as Macau, but we do hold our own.

That it would be more hotel-centric than anything else.

And obviously, up near a expanding and upgraded convention center, that would be very positive for the town and positive for our northern properties, like Mirage and Circus Circus, of course.

And I think that knowing what we know about our own portfolio, the level of interest we're getting on assets that are not already owned by MGP is very high.

And we're a transactional company.

And so I do expect that there will be opportunities like we did with Crystals opportunistically to sell that asset, a very attractive cap rate.

I think there will other opportunities to monetize without changing the overall trajectory of what we're trying to accomplish here.

Our next question comes from Thomas Allen with Morgan Stanley.

Just in terms of the gaming environment in Vegas.

On the first quarter, I think table volumes were up 2% and slot volumes were flat this quarter.

Table drop was down 3.5% and slot volumes were up 3.5%.

So can just you talk about kind of the general environment for gaming volumes?

Sure.

Do you want to start, Corey, or do you want me to go?

Tom, actually if you kind of look at our entire enterprise, including Aria, our table games volumes were actually flattish just like the (inaudible).

Yes, I think we're really happy where our volumes are coming off really a monster quarter of the year before.

The -- when we look at our business, our international business is actually up, led by Far East, which is up very nicely.

A little bit offset by Latin, but most of our premium play comes from the Far East.

The national side was up against a very tough comparison.

So that would be down a little bit.

But we're expecting to recover a lot of that because we expect to see many of those players that we know weren't here for the second quarter.

We expect to see them in about a month.

Yes, I mean that obviously -- yes, one, I think we should start talking about our Aria as part of our family more.

I mean, people look at Aria as like a separate than the rest of our portfolio.

But we run Aria as we run any other property in terms of moving our business around and having customers make their decisions.

So that, I think Cathy's point a good one.

But we anticipated a tough comp, that's what we had said in the second quarter that our gaming revenue was likely going to be down.

We didn't anticipate 500 basis point decrease in hold year-over-year.

But we're going to have a tremendous amount of gaming volume coming in, in August.

If people don't understand the impact of fights, and this is not just a fight but a spectacle, just kind of watch TV.

It -- we got a people that said we're coming in August that we did not come in June or July, they're coming in August.

So that will help.

So I think that our feeling about gaming volumes here in town in terms of our own and our competitors is quite solid, particularly on the Far East side.

And the standpoint of looking at what drives that our events, and to have 2 flights in 1 quarter is something we've never had before.

So we're hopeful that that has a gaming impact that we could be proud of.

I think it will.

That's helpful.

And just as a follow-up.

Now that we're in the second half of '17, can you just talk a little bit about how you're thinking about 2018 on the Strip?

Sure.

I'll start, and then anyone jump in.

One, is our convention business looks like it will be at least as good if not better in '18 versus '17.

That's the base that I was referring to, and it's the manifestation of some conventions that I was alluding to before that have shifted from '17 into '18 as some of the big companies have consolidated some of their convention business.

That's going to actually help us in '18, that's the first point.

Second point is we'll have the benefit of the expansions of our conference facilities at Aria and emerging at MGM.

That certainly helps capture as much of the incremental business as we can.

Thirdly, we're converting Monte Carlo, which has been at our lower end of our REVPAR, our ADR spectrum, into Park MGM and NoMad, which will be at the upper end of our ADR spectrum in our portfolio.

That will have a very, I think, nice impact, not only on that resort, but the neighborhood, and we own the neighborhood.

And so driving higher ADRs in New York, New York, driving better mix throughout that campus will be effective.

The third, I would not ignore the fact that we're having our first professional sports team start in a couple of months.

The Golden Knights will be playing late this year throughout early '18, which sets up for very strong sports calendars that we expect to have in '18 and beyond, increasing sporting events to Las Vegas, whether it's more college and/or more pros will have a big impact on the market, and we should do better than most on that.

The airlines are -- they're talking positively about '18 in terms of coming into McCarron.

And the convention center itself, the Las Vegas Convention Center, is also talking about a better year.

So those are some of the macros that I know, I don't know if you have any others?

Yes, just a few maybe offsets are CON/AGG won't be in.

Good point.

Good point.

There's a shift of CES about a week, which will have a little bit of an impact because usually it's right after New Year's.

But in general, we have strategies to attack both of those situations.

That was a good point, Corey.

Anything else, Dan, on that?

No, I'm afraid not.

Just on the margin front, are we still feeling good about margin rev?

Yes.

We're actually -- to be clear, we had said -- what was our prior guidance?

50 to 100 basis points.

50 to 100 basis points.

That's 25 basis points higher now.

We feel like we know, and you've seen it in the current quarter or currently reported quarter, our margins are ahead of pace.

I think they will remain ahead of pace.

And remember, in Las Vegas, I said it earlier, but every 1% increase in margin in Las Vegas is $14 million a profit.

So we expect margins to be continue to grow and to be up again in '18, and our target is to get into the mid-30s in terms of margin and we're obviously -- we think we're well on our way there.

And remember that margin growth is on top of the disruption we're experiencing at Monte Carlo.

So we're fighting through that and still growing margins.

And I think we always will, Dan.

I think the point that we've made to folks is that when you own 42,000 hotel rooms here, and you're driving this business for cash flow and to try to increase revenues going forward, you're going to, within the CapEx contours that we have stated, which we would reaffirm, we're able to reposition properties within a couple of year of period of time as we straddle years in terms of CapEx to dramatically increase profitability.

It does have an impact in the near term at the property itself, like it is at Monte Carlo.

But we have the benefit of having 10 resorts out here.

And so we feel like we can drive revenue margin growth, profitability, even when one property is undergoing this type of transformation, and it won't be the last one we do.

If we are as successful in converting Monte Carlo to Park MGM as we expect and get the kind of returns on investment that are going to be outsized relative to other investments that we can make, we'll look at another property to tackle in the out years.

And so I think that's part of portfolio management in terms of trying to drive revenue, profitability and long-term growth while you are focusing on free cash.

Our next it comes from Robin Farley with UBS.

I wanted to ask just thinking about convention mix and things.

And there was a comment that maybe Dan had made about like 19% mix that maybe that sort of kind of where you want to be.

So is -- is the idea that you're not necessarily going to grow convention mix next year?

And I'm just wondering if you have an idea of how many conventions Las Vegas maybe sort of borrowed from the Moscone Convention Center in San Francisco this year since that's like fully closed in Q3 and partially closed for the full year?

Just there's a benefit this year, but maybe they move back when that reopens next year.

And then just also to clarify your comments about the distribution channel shift.

Is it just sort of comping more rooms to gaming customers because you mentioned shifting some percentage into transient from leisure, but that, I would think, would actually raise REVPAR.

So I'm trying to think about what channels shift would make REVPAR -- would dampen it, to use your words, and if that's just sort of comping more rooms to the casino channel?

Sure.

They're bunch in there.

We can all jump in, in different ones.

One is, we haven't -- we usually don't borrow conventions.

We steal and keep them.

And I think it unlikely that we'll lose anything back to Moscone Center.

In fact, we haven't so far.

So we'll see.

But that's -- once people get here and they see the value proposition and they see the delegation attendance up 20%, 30% versus the other host city, they tend to only not -- generally do not leave.

But we'll see.

The 19% reflects the fact CON/AGG is not here next year, so actually that we would say would be a very good outcome for our company.

And it's not the ceiling to it, it's just what our projection is at this point in time because of what we see on the books and the fact that we're expanding our convention facilities.

You want to take the REVPAR one, Corey or would Dan?

Sure.

So in the second quarter, our convention mix was actually down a little bit.

And so that, at a higher rate compared to the business that replaced it would have an impact on rate.

We were actually down a little bit in casino room nights for the quarter.

That was also purposely done.

We went, once again -- in maximizing profitability, we took the lower end of that database and we changed the way we reinvested them.

But that would be the color of why the REVPAR -- why the rate would have been down at the bit from that perspective.

And so the ADR, I mean the REVPAR connection between REVPAR, Robin was asking, and profitability, want to explain that.

I mean it's -- the margin on the incremental nongaming room is higher because of our channel's shift.

Sure.

Even the gaming room plus the shift alone has probably got anywhere from a 25% to 50% profitability improvement by shifting at those lower profitability channels.

And that's -- so that's why I think you'll start seeing the increase in margin, that rate probably did replace the convention rate that we lost for the quarter.

And also these customers, not only gaming, but these customers spend a lot more money in entertainment, whether it's in our nightlife or food and beverage, our shows in general.

They're becoming more sports-oriented, which is the focus of ours, event-driven, Park Theater.

So it's not only improving the gaming side without having -- our comp levels haven't been changed, by the way, Robin, on that point.

But it's improving our nongaming nonhotel revenue.

And it's also, Robin, being disciplined in the approach, right?

Because as Jim mentioned earlier, those 2 weeks in June, 2 years ago, we may have reacted differently based on the information we had at hand.

So instead of chasing that nonprofitable business in that softer 2-week period, we stuck to our guns and, as you saw in our ADRs, they were all up across the Strip except for Monte Carlo, and getting to chase kind of that lower end business in that short time period, which is really in those lower-end channels that, to Corey's point, is where you find that really not profitable piece of business.

Our next question comes from David Katz with Telsey Group.

It is not my actual question, but I am curious whether if a fight only last 45 seconds, do people gamble more or less?

Depends on who won.

I really wanted to ask about Borgata.

And I want to make sure that I'm not missing something in that $101 million EBITDA number.

As I recall, the best year that, that property had historically was a little over $200 million.

The margin seems fairly high.

Is there's something in that $101 million that we should be backing out?

And what can we reasonably expect out of that property going forward?

David, this is Dan.

The quarter Borgata benefited from a onetime property tax settlement of about $36 million.

So excluding that number it was about $65 million of true operating profit from the core business.

So that is a onetime item in the quarter.

You're right, Borgata, I think at its peak, did about $250-ish million, plus or minus, in terms of overall EBITDA when it was part of a -- the joint venture.

But the team there has done an extraordinary job both in the marketplace and working with our corporate team and integrating Borgata, as you saw in the release.

In mid-June, we just brought them online and M life, which I think is going to be a big positive for both them and the M life program.

So we continue to expect some big things out of Borgata in that property going forward.

And what I would add, David, the other thing we did when we came in is we took our profit growth plan initiatives and applied a lot of those to Borgata, and we have seen some benefit from those also.

Care to call it early innings?

I'd say that's fair.

We'll take the last question.

And our next question comes from Chad Beynon with Macquarie.

Just one for me on Macau, so either for Grant or anyone from Las Vegas.

How should we think about the table application process as we near the opening of Cotai?

I think we've learned a lot over the last year that the government wants something new and diversification of offerings, which you guys are offering in your product.

But how do you think about that?

And if you don't get your request, how should we think about some table shifts?

I'll start, and maybe Grant, if in case Grant is asleep.

We have not made our...

I'm not asleep yet.

Go ahead.

Oh I knew it, okay.

We've not made our submission yet in terms of tables.

That's something you do toward the end of the process.

We have focused a lot, and you can see it in our investor deck on the nongaming components to Cotai, which we believe are transformational in that market, very unique, particularly on the entertainment side, which we're noted for.

All that plays into the government's decision around table allocations.

And we're going to do the best we can on that.

And based on what we get, Grant will decide how to move tables around.

So I'd just like to wrap up and say that thank you for joining us.

I'm proud of the effort in the second quarter in terms of executing on our plan.

We're excited about the current quarter, having the second biggest fight of all time.

It's kind of fun.

I'm excited about how in-shape Mayweather is, I saw him in his gym a couple of nights ago.

And I'm excited about what we have happening in the second half of the year.

We're very clear on our direction here at the company in terms of maximizing our free cash flow.

Our capital expenditures are defined and declining and are unchanged from what we've discussed with our community several times.

We believe that results in significant growth in free cash, and we intend to return that free cash to our shareholders.

We have multiple levers ahead of us, and some of them are imminent.

And that will enhance the overall return on capital to our shareholders as it relates to transactions that we talked about today.

National Harbor couldn't be doing better from our perspective, and is perfectly positioned to ultimately be owned by MGP.

CityCenter is performing at an outstanding level, and also is well positioned to return more capital to its owners, and perhaps provide more asset opportunities in terms of disposition.

Macau is right around the corner in terms of the opening of Cotai and the impact of having such a beautiful property that we think will be very successful, the impact that will have to the MGM China shareholders.

We will continue to build the company for the long term, but continue to reward our shareholders throughout this journey, and we will do so in the ways that we have articulated.

And I think that, that will increase the value of the enterprise significantly over time.

And with that, I'd like to say thank you very much for joining us today.

We're excited about the back half of the year and into 2018 and beyond.

And as always, we're ready to take any of your questions, so please give us a call.

Thank you.

The conference has now concluded.

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