美高梅國際酒店集團 (MGM) 2018 Q1 法說會逐字稿

Good morning, and welcome to the MGM Resorts International First Quarter 2018 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 event is being recorded.

Now I would like to turn the call over to Mr. Dan D'Arrigo. Please go ahead.

Thank you, Steve, and good morning, and welcome, everyone, to the MGM Resorts First Quarter 2018 Earnings Call. This call is being broadcast live on the Internet at www.mgmresorts.com, and we have furnished our press release on 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 statements. Additional information concerning factors that could cause actual results to materially differ from those forward-looking statements are 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 to GAAP financial measures in our press release, which is also available on our website.

Please note that during the first quarter, the new revenue recognition accounting rules have taken effect. We've restated the prior year to be consistent with the current year. And to help you navigate through some of those changes due to revenue recognition, we've included preliminary recasted quarterly 2017 stats and revenues as part of our supplemental earnings deck, which is posted on our website.

With that, I'll turn the call over to Jim Murren.

Well, thank you, Dan, and good morning, everyone. Thank you for joining us. We started out the new year delivering on results better than guidance in Las Vegas. In fact, Bellagio had its best first quarter on record. This, of course, was despite heading into the quarter facing some challenging comp comparisons with the first quarter of last year.

Importantly, we continue to execute on our strategy of accelerating our free cash flow generation. I think it's worth noting that we entered into agreement to sell both Grand Victoria and the Mandarin Oriental, and we'll be able to allocate those proceeds to higher return opportunities and to the shareholders. In fact, we returned over $430 million to the shareholders, both through an increased dividend and share buybacks. And since early 2017, we've returned over $1 billion to shareholders.

Of course, we've opened MGM Cotai in February. We just announced today, we're opening up MGM Springfield in a few short months and that marks the end of our current development cycle, which puts us into the exciting period of generating significant free cash flow.

As I mentioned, we announced MGM Springfield's opening today. It's going to open on August 24. A very unique asset, we're very, very excited about the role it has already played in Springfield and the economic opportunity for Springfield and MGM Springfield. It's going to drive tremendous traffic to that property and, of course, to our portfolio of MGM properties in the region, and we believe it's going to have a very solid return on investment.

Here in Las Vegas, we're very energized about what's happening in this market broadly. And our competitive edge is here. We know what's happening in terms of the long-term growth in tourism, in the convention business, in entertainment and, of course, in sports, all of which we are both a meaningful contributor to and a beneficiary of.

From a day-to-day perspective, we're very focused on executing on the strategies we've talk to you about, optimizing our customer mix, leveraging our casino database in a targeted way, driving more profitable business into our portfolio, and those strategies worked to our favor in the first quarter despite lapping that major citywide convention that we talked about.

In fact, on the casino business, the high end remains especially strong and, of course, you've seen that with the luxury properties that we and others own in Las Vegas. We all benefited in the first quarter from a later-than-usual Chinese New Year, and that allowed the market to separately host the Super Bowl events, as well as the Chinese New Year's events.

And because of that, our first quarter, Strip revenues were only down 2%, better than what we had said on our last call. We thought it would be down 3% to 5%. Our margins were down 125 basis points in the first quarter. We had predicted margins being down 250 basis points. Now RevPAR decline of 4.3% was at the tight end of the range we'd given of 4% to 6%.

Over at Monte Carlo, or soon to be Park MGM, that repositioning with the Sydell Group continues to progress, and those who've seen the public space, as you can see it's looking now more like the intended final product. We are finally coming to the completion of that at the end of this year.

It's worth noting we've never undertaken anything like this before. And when it's all said and done, we will have literally changed every square inch of the property while keeping it open. And the disruption that we've seen there is fairly obvious, and we completely underestimated the financial impact that, that would cause. We're going to continue to see that through the balance of this year until we finish the project, and it will be finished at the end of this year as we finish off the Strip part.

So with that on Monte Carlo, that will remain a challenge.

And I also have to cite Mandalay Bay. It's in a recovery mode. It has not recovered as rapidly as we had hoped. Again, this is a property that's undertaken a tremendous challenge, unprecedented, and we're getting our arms around what that has meant, but that has lagged behind what we had predicted in terms of its performance.

So taking Monte Carlo and Mandalay Bay into account specifically and looking at the second quarter, we could say that April so far has been strong in many respects, except on the casino side where we've had a very rugged table games hold percentage in April, lower than our normal range. We also are not going to have a fight that we all were very highly anticipating in May.

Those are the factors that lead us to lower our RevPAR expectations and our margin expectations for the second quarter. To be clear, it's isolated to those factors: lower-than-expected results out of Mandalay Bay; lower-than-expected results out of Monte Carlo; not having a fight that we had predicted the last time we talked to you; and so far, in April, a lower table games hold percentage.

So let's look as you've asked us and we continue to provide as much information as we can into the back half of the year. We know that it's important, as the proxy for Las Vegas, for MGM to do that. Also knowing that outside of 45 days, our perspectives are less clear than they are in the year for the year and in the quarter for the quarter. But given that into account, we could say that we see a strong second half, but a mix. The citywide convention business that all of us in Las Vegas will experience in the second -- in the third quarter will likely be down. The citywide conventions are projected to be down in the third quarter, but they are projected to be up nicely in the fourth quarter against, obviously, a very easy comparison.

If you were to take that into account, it looks like the second half of 2018 in Las Vegas for the market should be up mid- to high single digits. And as a result of that, we expect our own Strip revenues to be up slightly, and our margins still burdened by the recovery at Mandalay Bay and in the results at Monte Carlo. We expect for the year RevPAR will be up 1% to 3%. But again, this reflects this lower-than-expected ramp-up at Mandalay Bay and the Monte Carlo points that I mentioned. It would also be worth bearing mention the rest of our portfolio is doing extremely well and, of course, what's not reflected here is the great strength of Aria, which is not in these numbers, because we're talking about the wholly-owned properties.

In terms of 2019, I think you've heard this already with other companies, and we can confirm that the lead volumes for 2019 are strong. The booking base for '19 is also strong. We are pacing at MGM above in '19 versus '18. And from a citywide perspective, getting back to the citywide conventions, 2019 is looking better than 2018 as well.

How are we capitalizing on this? We're seeing that at Aria with the expanded convention space, which opened a couple of months ago. It's been extremely well occupied and we've been able to book larger groups there, which have higher catering margins. We expect also to see that when we finish the expansion to MGM Grand. As you know, we're adding 250,000 square feet to our convention center there, and that will be operational in the very early part of 2019, and the pre-bookings for that has been very positive.

And of course, there's a lot going on here in Las Vegas. We've got the Golden Knights tonight. We have WNBA starting soon. We have construction well underway for the Raiders. We have significant amount of money being invested in the Las Vegas Convention Center. We're seeing strong growth in local population. All of that is accruing to, in general, better macro trends in Las Vegas in '18 than we saw in '17. And of course, that's against the backdrop of a U.S. economy that seems to be positive for discretionary companies like MGM.

Over in Macau, Grant will speak to this in a moment, but we're very, very pleased that MGM Cotai is open. It opened in February. It has been very well received. And I think it exactly reflects the type of property that the Macau customer is looking for today. It's been obvious we're very early days, but we've been very encouraged by several things. Number one, MGM Macau has experienced almost no cannibalization, and that proves the stickiness of that particular property and, in fact, the peninsular customer and the loyalty of that customer. Secondly, it's clear that though we're going to have a ramp-up at MGM Cotai, as others have had in that market, because particularly we don't have the VIP operations coming online until later this year, our mass volumes and our production levels are running better than we had expected, and we're seeing very healthy player sign-ups. And finally, all of our nongaming amenities have been incredibly well-received. The spectacle is -- I was going to say spectacular. It's been extraordinarily well-occupied. All the F&B has been tremendously strong, and our first resident show is opening soon.

I think you know, but I think it's incredibly important to mention, the progress going on in Japan by the government. The LDP approved the IR Bill 2 days ago. It goes to the cabinet tomorrow, on Friday, where our experts are saying it will likely be approved. This is a very important milestone for the gaming industry. And as you know, MGM has been very committed to this market. We believe that we are a front-runner to participate in an IR should that be ultimately approved by the Diet. We think that because we've developed the right relationships, we have the right reputation, we have been there a long time, we have the right brands and we're developing and have developed a very strong consortium.

It also bears repeating that the company is very near the end of its development cycle. And of course, with Cotai already opened, with National Harbor already opened and Springfield opening in a couple of months, that turbocharges our free cash flow, which we intend to return to the shareholders in a more meaningful way than we've been able to do already.

And that brings us to the strategies of the company. One, maximizing the operating performance in whatever business environment that we're in. We have highly expert people in operations, in analytics, on digital to maximize whatever the dynamic marketplace has, both here and Las Vegas, and in our regional properties, which are all doing well.

We're going to continue to reinvest in our assets where we believe we could take assets and make them higher-returning assets, as I believe we're doing at Monte Carlo converting to Park MGM, and we will cull the portfolio and sell assets where we believe we cannot have either a competitive advantage or where the return on invested capital does not meet our standard. And that, of course, is reflected of the Grand Victoria sale and the Mandarin sale was to generate a tremendous amount of money for us and the shareholders.

We will continue to have a very strong credit profile so that we can withstand any macroeconomic volatility. And we will pursue the few high-growth opportunities that may exist. And of course, Japan being top of the list.

But overarching all of that is our continued desire to continue to return this accelerating free cash flow to our shareholders in the form of dividends and share repurchase.

And so with that, I will turn it over to Steve. Operator?

(Operator Instructions) And our first question comes from Stephen Grambling with Goldman Sachs.

I guess, the first one, just you mentioned a number of factors that brought down the guidance. But it seems like there are some reasons to be more excited about the backdrop, both based on your results this quarter and some of your peer results. Are you embedding any of this in your guidance? Or is it simply changing for the few things that you mentioned lower?

I'll start that, and then I'll turn it over to my left and right. First off, we try and I think we failed here, because looking at the stock price, we have failed, and I apologize for that. But we have tried to balance what we see on the near-term basis with the questions we get in terms of a longer-term forecast. On a near-term basis, we are consistently highly confident now we can do in the current quarter. And in fact, we've been pretty accurate in terms of our RevPAR guidance for many years in terms of how we're doing in the current quarter. The 3 factors that made us bring the guidance down in the current quarter are: one, we just did not anticipate not getting the fight. I didn't know about tainted meat in Mexico. We didn't know, and this is on us, we didn't know how impactful the Monte Carlo disruption would be. We felt that we could manage around it, and we haven't been able to. And we didn't know exactly what it would take to basically relaunch Mandalay Bay. Those are on us, and that's on me, I know better. As it relates to going out beyond the current quarter, there are some of these dynamics that are very still unclear. The citywides could be refilled very easily. We just don't know what September is going to look like in the city, specifically. And in the city, specifically, what happens there will impact how MGM yields its own portfolio of 42,000 rooms. We do know that the fourth quarter is going to be very strong. We also know that there is good events in the second half of the year. We will, unless there's more meat on the horizon, have a really good fight in September. But we had 2 great fights in the third quarter of last year. There are some things we do know about the second half of the year. There are some we don't, but I feel like we probably should have done a better job of explaining the level of confidence we have in the current quarter versus answering the questions of what we see going out 6 to 12 months, which, obviously, has less data.

Fair enough. I guess, as a follow-up, can you elaborate a little bit more on what's going on with the Monte Carlo disruption? Is that delayed construction? Is that just a greater disruption from what is going on? And what's the latest time line or sequencing between kind of the base layer of renovations versus NoMad?

Yes, so I'll start and I'll turn it over to maybe Dan or -- I mean, to Corey or Bill Hornbuckle, who just got back. But one of the challenges that Monte Carlo has had for the last several months is it does not have a porte-cochere. It's kind of a tough thing when you go to a resort and you can't drive up to the front door. This is something we've always wrestled with at MGM Grand, for example. We'd always would like to improve the porte-cochere at MGM, but we just haven't figured out how to do that without massively disrupting traffic. Over at Monte Carlo, we knew we had to do it. We've done it and that we'd completely underestimated the negativity to that. Secondly, all the walking traffic from the Strip is closed because the Strip access is closed. That will be, it was intended to be and will be the last element of the expansion when we add Eataly there on the corner at the end of this year. So we missed the -- we underestimated what the impact would be there. The good news is that 90% of the rooms are done at Park MGM, the NoMad floors and the top Park MGM floors are closed right now for its remodel. The restaurants that are open are doing very well. The Sports Book Bar that's open is doing very well. So when we do release things to the public, we're getting very high returns. It's just been brutal in this process.

Stephen, what I would add, the challenge on the room side, in particular, is we're in a transition of changing the name to Park MGM, which will happen here fairly soon. So our websites are changing, everything is changing. There's confusion with the consumer. The ratings for the property in all the channels are negative because of all the construction that we've had. So what we've elected to do is we want to make sure that people, especially our most loyal customers, are able to experience the product. So we've been in [opaque] channels at lower rates filling that hotel in the interim period. But we feel really comfortable with our strategy. The other transition that will happen is our advertising campaign will go out later in the fall as we get closer to NoMad being complete and Eataly being complete. Now at that time, I think it will be really the first time we'll be able to market that property in the way that it needs to be marketed.

That's all helpful. And one last follow-up, if I can sneak it in, is just on capital allocation. I guess, what are your thoughts as CapEx comes down, but then you're thinking about some of these big chunky potential requirements from something like Japan, as well as just broader thoughts on some of the consolidation we're seeing in the broader industry?

Sure. I'll tackle that. We have no plans on the horizon at all in terms of a major new project here in Las Vegas. The only major growth opportunity that would require a significant amount of capital would be if we were fortunate enough to win Japan, which is 3 to 4 years away before we would even know. And even there, we would like -- we would be part of a large consortium and therefore have only our share to contribute over some long period of construction time. We feel, at this point in time, that we're in a position to be very, very surgical in our capital investments where we will continue to put money to work to make the buildings that we own that we feel have a future more profitable. We will continue to look for higher return on investment opportunities within the buildings we have. And we have a few ideas around that in the nongaming space, particularly because of our belief that Las Vegas is really emerging as a dominant sports town. And we will continue to cull the portfolio. Probably, I think it's illustrative that we're selling with our joint venture partner a beautiful hotel for over $200 million. It's not that it's not a beautiful hotel, it's just that we believe that the return on that invested capital, that asset, is not high enough to warrant to continued ownership. And we could deploy that cash either back to the shareholders or in far higher ROI projects. We have no interest in embarking upon a major growth plan through M&A. We have no interest in branching into markets that we're unfamiliar with. We have a keen interest in continue to maximizing the advantages that we have in our key markets where we are literally the #1 market share property in almost every market in which we operate. And there are few strategic opportunities that may come our way because of our relationship with MGM Growth Properties, which is out there sourcing deals that could be very profitable for MGM Resorts' shareholders. But beyond that, the focus is returning the cash to the shareholders.

Our next question comes from Joe Greff with JPMorgan.

I have 2 buckets of questions. The first one is with regard to your Las Vegas Strip outlook. If we piece together your different comments and guidance items for the Strip today versus the last quarter, 2Q through 4Q of this year, EBITDA is down about $100 million versus what was implied in the prior guidance? And you cited those 4 things: Mandalay, Monte Carlo, the fight or lack of fight with Canelo, and now holds. How much of that $100 million do you portion to each of those 4 items?

Sure, Joe. I'll take it and maybe turn it over to Dan. I looked at this the last several days where the consensus is for Strip. We're talking about wholly-owns here because -- excluding Aria. But we were, up until today, within $50 million. We're a company that generates $1.7 billion, $1.8 billion of EBITDA a year and we were within $50 million of consensus as of this morning. So the factors that -- whatever the range is, whether it's $50 million that we see or $100 million that you see, the factors of the delta is almost exclusively isolated to the ones that we just talked about: Mandalay Bay; Monte Carlo; no flight; and so far, in 1 month, in the second quarter, lower hold.

If we were to exclude -- maybe I'll follow offline then. But if we were to exclude the impact from Mandalay Bay and Monte Carlo from your full year RevPAR guidance, that 1% to 3% would look more like what, Jim?

From RevPAR guidance? I think Mandalay, Joe -- this is Dan. I think Mandalay is at least 50 basis points and could be as high as 100 on that RevPAR guidance at Mandalay alone in that calculation.

And the fight alone was 50 basis points just in the quarter. The mix shift, because of the citywide show, we don't -- what we don't know yet is how the city in general will be able to refill the citywides in the third quarter. The mix shift in the third quarter is also a factor to lowering our second half of the year forecast. But as I've said earlier, here we are still in April, we could easily, and have in the past, refill those rooms profitably. We just don't know exactly what that's going to be at this time.

And then maybe -- and maybe, Joe, just to follow up on that point, really to Jim's point on the convention side, what we've seen over the past 30 to 45 days is an environment that has looked as it has over the past several quarters. But more recently, we've seen rate get cut in these lower periods. So we're seeing people be a little bit more aggressive on rate in the market during these lower convention base periods, and we are taking that into consideration in these forecasts. And that's real-time over the last 3, 4 weeks of activity that we're seeing, and we've tried to maintain rate and hold it. But that's affected our forward pace. And so we have had to react a little bit to that and we're taking that into consideration throughout the remainder of this year as well. Now if that subsides and changes, then we'll let you know and we'll be kind of coming back to you with that color. But this current guidance reflects this current last 30- to 45-day environment that we're seeing right now in the marketplace. In those periods where the convention base is not as strong as it was last year.

Okay, great. And then the second topic is on capital return. You bought back stocks a couple of times since the authorization. But I would characterize it as more kind of special situation with (inaudible) versus open market. Can you talk about your view on open market repurchases and maybe how that compares to anything in terms of acquisition of existing development and how you think that would be viewed by equity investors?

Well, we think it's far more likely that share repurchase will be done in the open market rather than in individual transactions going forward. Just based on what we're thinking right now, so that's number one. Number two, equity investors, we seem to get about a split between people that like us to buy back stock and people that want us to more rapidly increase the dividend. So we're going to do both.

And where does your view, Jim, on buying existing development that's out there, maybe a market that you're currently building in?

I think that it's a balance. But if we find something that's opportunistic that we think is enduring that could either be done particularly with MGP because we believe in the future of MGP as well. If it's something that has a very high return for the MGM Resorts opco and the MGM Resorts shareholders. We would take a hard look at it. And we have been looking at situations with MGP. But that is, I would call it, opportunistic and episodic, whereas returning capital to the shareholders in the form of buying back stock and dividends is normal course of business now for us.

(Operator Instructions) And our next question comes from Harry Curtis with Nomura Instinet.

I wanted to delve a little bit more into the issues at Mandalay Bay. Can you give us a little bit more detail? Have you been seeing more cancellations? What are your group managers telling you about their struggles in marketing Mandalay Bay? And what changes that?

So hi, Harry, it's Corey. With regards to Mandalay Bay, we had the one cancellation in February, another one moved actually to one of our sister properties, and then we've had a few small cancellations. What we're seeing, in particular as we get near the later in the year were this property would book within the year for the year, it's a little bit challenged especially in that -- near that anniversary date. So I think what we're seeing is that meeting planner still wants to go to the property, probably is going to take off a little bit on 2018, especially in the back half of the year. What we're seeing in '19, though, is that meeting base is pretty good. Also at Mandalay Bay, when that meeting base is not there, the transient leisure customer is -- some are electing to stay away. And for us to run that property, we need to run that at north of 90 to make some money. And so we are filling some of that with our lower packaged business, which is draining -- putting a drain on the RevPAR also.

And Harry, what I would point out and to add on to Corey's comment is when we look at the entirety of our Vegas portfolio here in terms of in the year for the year, when you exclude Mandalay Bay, we're either at or better than where we were last year in terms of in the year for the year. So this is an isolated Mandalay Bay issue we're dealing with when we look at the entirety of the portfolio.

And then shifting gears over to Cotai. Grant, can you give us some sense of the timing of junkets and the (inaudible)? And then, overall, what do you think is working well so far? And what do you think needs to work better?

I'm sorry, on the timing, we will have the junkets ready by the next Golden Week. We're obviously aiming for August, September. So that's our target. (inaudible) will come on after that, but the critical point is to get the junkets up and running, as you know. In terms of the business itself, what I think worked well was the property, and that's always a challenge when you open. And I guess, where we're focused now is building momentum. And so we were very clear that we didn't want to move business from Macau, as Jim indicated, and that hasn't happened, but there's some really fascinating and positive things that's happened from our existing customer base without seeing any diminution in value of customer spend in Macau. We've seen increased spend for most customers in Cotai. And at the same time, we're actually seeing significant reactivation of customers that we hadn't seen for some time, which appears that they went to Cotai and as soon as we put a property into Cotai, they came and played with us. And that's been some very positive things. The other thing that's positive is that we went from basically 0 occupancy to 90% occupancy straight out of the gate. And I don't think any of the properties have seen such demand. And some of that was we created trial, because to get momentum, you've got to get trial. And so that was -- that's another facet that's been very positive. And as again Jim indicated, the acceptance of the food and beverage, it is acknowledged that we've put in a food and beverage program that is very different, that's new and it's actually created a lot of opportunity. So what's next? Well, the key is, is this traffic flow. And so now we're just getting back down into the simple things of blocking and tackling and making sure we get visibility out there, prepare ourselves for the next holiday period, which is coming up next week. Bookings are looking strong and the tile looks very strong, both in Macau and in Cotai. So I guess, simplistically, Harry, the critical point for us is the property is well-received, the brand recognition is well-received, thus our job is now getting into the trenches with that simple, hard effort, tactical execution to drive traffic because we're being positive in being able to avoid any cannibalization and making sure the business moves forward. So drive traffic, drive traffic, build up more of our database. We've got twice as many sign-ups in Cotai as we have in Macau, and we have one of the higher sign-up rates. And the quality of the customer on the mass floor now is continuing to tick up steadily and positively. We like to see it grow faster. That momentum will come.

Our next question comes from Shaun Kelley with Bank of America.

Just to go back, and I'm going to try and tackle the question slightly differently, but the key question we've gotten from investors this morning remains on sort of the margin inflection here, right. So if we look at it this way and thought about RevPAR was down close to 4% in Q1. It's still going to be positive in Q2. But you're sort of arriving at the same type of margin degradation in both quarters. Is it really all explained by there's obviously going to be very big flow-through on hold and then just significant mix shift between Monte Carlo and Mandalay. It would seem like the Mandalay drag would already be there in Q1. So that's why I'm kind of pushing on this point a little bit.

Fair question. I would say the 2 factors would be no fight, which has a big impact on drop, on win percentage, on our luxury properties. I think that would be the biggest one between -- for the margin. And so far, in April, so far, a lower than expected hold.

Okay. And then, I guess, to hit on the strategy point then. I think you were pretty clear on the big merger side, Jim, but like -- another question and one that's been bounced around in kind of press out there a lot is speculation around kind of medium-term opportunity in Massachusetts, just given what's going on in that market. So could you specifically address that one or comment on that? And within the context of, to the extent, if you were going to take on a new or bigger property there, it could have a very material impact on the kind of free cash flow profile of the company if it was an uncompleted project.

Right. Well, the -- of course, the answer I have to give is we don't comment on rumors. But I would, again, reinforce a couple of things to be as helpful as I can. Number one, we're opening up in Springfield in a couple of months. I think people will be incredibly positively surprised on not only the execution of that resort and its returns. And we're committed to that city. We've been there for many years. We believe in it and we think we're going to make a lot of money there, and we think that the people of Springfield are going to be very, very happy. The other general point I would make is we have been very clear in terms of our free cash flow strategy. Very clear. We embarked upon a couple of very strong projects: Cotai, MGM National Harbor and Springfield. Collectively, that was a tremendous amount of capital expenditures that we have deployed and we're pleased that we did that. We think that grows the company going forward. But during that period of time, we have always mapped out the inflection point of free cash flow and why that is important to the owners of the company, many of which are on the phone, including many of which are in this room, including me. We are going to run this company for free cash flow, cash flow margin. And it would have to be an extraordinary opportunity to take a step back and start burdening this company with more construction in progress. I just don't see it. I don't think it's likely. It would have to be an extremely unique situation. And as I said earlier, opportunistic and episodic, but not daily course of business like we believe the free cash flow story should play out as.

Our next question comes from Felicia Hendrix with Barclays.

So Jim, I want to go back to something you said earlier on the call, and just you were talking about the challenges of forecasting your business just given the lack of visibility. It's easier to forecast in the quarter, but then it gets harder as you look forward. And I'm just wondering if internally you guys have explored going back to your old methodology of not giving out your guidance. I know you've been working really hard to improve transparency and we all appreciate that, but honestly, given the track record over the past few quarters, I'm just wondering if you've thought about that.

We have. We're trying to do our best. And again, that's why I said on the onset, this is on me, I've been around a long time, this is now my 81st conference call with this company over 20 years of being here. And what we've been trying to do is we're trying to provide information, Felicia. But we also understand that we're a proxy for Las Vegas. It would be easy to brag about Bellagio and the fact that it has higher margins than its competitors. It would be easy just to talk about one property like our competitors do. It would be easy to combine results together, like another large competitor does, so you don't have any idea what's going on in each individual property nor what's going on in the market. But that's not our nature. Our nature is to try to provide as much information as possible. I think where we have fallen down is not being very clear on the level of information we have in the current quarter versus 2, 3, 4 quarters away. And that's again on me. We'll talk about it. We started this journey a while ago because we were getting overwhelming questions from the sell-and-buy side about Las Vegas, and we feel as the dominant player here we need to provide as much information as we can. But clearly, it has hurt us. It hurt us today, as an example. And it hurts our credibility, which impacts our margins, which impacts the morale at this company and the 78,000 men and women that are working their ass off to produce the kind of results that we've been producing over the last several years. So it's a time of reflection for sure. I'm highly confident in the guidance we have given today in the current quarter. And as I have been in many quarters over many years, I am more confident about the year now that we're over 4 months into it than we were when we gave the annual guidance last quarter. I regret giving the guidance for the year last quarter, that it was a mistake that I made as the CEO. But we will continue to provide information. And I think what we're also going to do, and we'll get to this, is that we're going to provide a lot of color around what we're seeing over the next couple of years on our Investor Day, which we hope you guys are all going to be out for.

Okay. So well, I look forward to that. Just moving on to Vegas. You also mentioned, or maybe Dan did, that in periods where there weren't any convention base business, you're seeing lower demand in pricing accordingly come down. So in line with that comment, I was just wondering if you could talk as a whole about what you're seeing in terms of domestic demand in the market. We heard from Las Vegas Sands and Wynn that they benefited from international visitation. And I'm assuming that some of that drove the record in Bellagio this quarter. But as you look at the rest of the portfolio, are you seeing a change in demand at all? And then just, this might be nitpicky but I'm just wondering if you could tell us what happened at Mirage in the quarter. It really underperformed our estimate.

Sure. A couple of macros. Corey is going to pull them out, but -- are the air traffic, domestic traffic is up. We have obviously a good relationship, great relationship, probably the best with Southwest, we talk to them daily. That looks good on the domestic side for this year. LVCVA reporting outside of the citywides. Their visitation numbers domestically are up. In terms of the Mirage, there's 3 customers that beat the pants off of us. And then I'll turn it back to Corey on other macros domestically.

Sure. On domestic seats, they are up, Felicia, and so are international, and we're also seeing that in the next 4 months. Into the town, we expect it to be up about 3.5%. The hole in the first quarter was really convention room nights, and what we're doing is we're replacing those convention room nights with that lower base of business, which I'm sure most of the town is. So we're all fighting for the same type of business, but there's actually -- my feeling is there's more of that business. It just isn't at the rate that the convention business is at.

Okay. All right. So to summarize, really no change. Just kind of a mix issue.

Yes.

And no change in '19 as well.

Our next question comes from Thomas Allen with Morgan Stanley.

So look, I mean, your longer-term margin guidance for the Strip has been up 50 to 100 basis points. One, are you sticking with that? And when we think about 2019, if you're guiding it down 50 basis -- 50 to 100 basis points this year, do you expect to recover that full amount in 2019?

Say, do you want me to do it or do you want to do it?

No, do it.

Yes, that is still our long-term guidance. Absolutely.

And Thomas, as far as making up-ground, I think the important factor here is to look at the past performance. We've actually outperformed and been ahead of our previous guidance. So I think when you look at the cumulative effect of what we've been able to accomplish and how we've been able to drive margins, even with a down year, we're still ahead by the end of '18 where we thought we would be when we look at the last 3 years of margin improvement and we're going to continue to stay focused on driving margins and improving the profitability of the business, for sure.

And I guess, just looking at it. You will have this, but just to remind ourselves, our margins were 26.3% in 2015, 29.6% in 2016, 31% in 2017. And obviously, we talked about what the challenges are here in '18. But we're not standing still. Our FTEs are down 3% year-on-year right now. We see a lot more opportunity in procurement. We have a lot more going on in the digital space, which is going to -- we believe have very high-margin returns, very little capital intensity. We're going to get a lot of into that a lot on the Investor Day. But this is a company that we believe has mid-30s margin capacity, and we intend to get there.

Helpful. And can I just understand, you talked about how there's a bunch of nongaming investments you want to make and I expect that we'll get more elaboration on that at the Investor Day. But then you've also been talking about how there's been more disruption at Monte Carlo than expected. So how are you going to balance that going forward? I mean, what have you learned from Monte Carlo for future Strip investments?

Sure. One example of a nongaming investment is we own Mandalay Place between Mandalay Bay and Luxor. If we did anything there, that's where the monorail, by the way, is going to land. That's where people are going to go on the monorail when they're going to a Raider's game. That's where they're going to pregame when they walk across the bridge into a $2 billion stadium. And that's where they're going to come back after the Raider's win. And whatever we do there is completely isolated to that area. It would have no disruption to Mandalay Bay or Luxor. And that's an example. What we have learned is that it is painful, but I don't regret doing it because I'm back to Monte Carlo. That is the center of the Strip. We think we're going to get very high returns next year on that capital. We couldn't be in a better position with the Park, the Plaza, T-Mobile and New York-New York. And I don't envision a complete redo of a property. Remember how unique Monte Carlo was. It had the worst brand identity in our portfolio. We knew that a simple remodel there would not be the right long-term strategy. All of our other properties have very high brand awareness and identity, even all the other core properties. So I look at refreshes, I look at incremental CapEx, but I don't look at a rebranding, a complete redo of a property like we did at Monte Carlo.

The next question comes from Carlo Santarelli with Deutsche Bank.

As you think about kind of your outlook for the rest of this year, you guys had talked a little bit about or a lot about kind of the disruption at Monte Carlo as well as some lingering softness at Mandalay Bay being both a function of the lower RevPAR guidance as well as some of the margin revisions. When you think about your portfolio as a whole, do you see yourselves just kind of losing those customers as they come through mgm.com or whatever it may be? Or are the other properties not kind of seeing any pickup from maybe some of the demand disruption at those assets?

Carlo, this is Dan. We do see a pickup at some of the other assets. Obviously with the disruption at Monte, I think New York-New York has benefited. Some of our other core properties and mid-tier properties has benefited. And as Corey pointed out earlier, with one of the conventions moving from Mandalay to one of our sister properties, they obviously benefited. So we are keeping some of that business within the portfolio. But it is kind of dragging on some of the RevPAR and margin metrics from those 2 properties.

Yes, I was just going to say at Monte Carlo. Monte Carlo was a complete value customer. They would shop, they had little to no loyalty to Monte Carlo. So some of them did, I agree with you, Dan, go over to New York-New York. But a lot of them walked across the street or they're going to some of the other very underwhelming inventory that is in Las Vegas right now. So what I would say, we've lost a lot of those traditional Monte Carlo customers to -- not to our own company, but to some of our competitors. As it relates to Mandalay Bay, we did get that shift on a convention or 2. But again, I think, also at Mandalay, we lost some of that to competitors as well.

That makes sense. And that's helpful. And if I could just one follow-up. Obviously, some of your competitors have talked about you strengthened the high end on the gaming floor and obviously we're seeing that in your results at Bellagio and your higher-end assets. Barring the hold issues that you talked about in April, could you talk a little bit about kind of where you're seeing that customer? Is it largely on the Baccarat side, Far East play, et cetera?

Yes. Far East is actually up almost 26% for the first quarter. So it's very strong and it continues to be strong as we see players come in constantly. Even national, which had a tough first quarter challenge, was actually up in drop in and handle. So the whole high-end segment feels pretty good. I know we don't focus on it because it's an non-consolidated affiliate, but you're really -- looking at Aria's volumes, I mean, again, that's another data point that the luxury properties, the hold wasn't there, but the volumes are incredible in the luxury properties, all of them, ours and our competitors certainly so far this year.

Maybe the last question?

Our next question comes from Chad Beynon with Macquarie.

Just one more on Vegas. I think we've exhausted a lot of questions, but with the fight moving out of the second quarter and obviously the Knights making a run in the playoffs, you had a couple of home games in the first series against kind of a local competitor and the next round starting. I guess, first question, are you seeing any incremental business on those Knights? And could that kind of help the second quarter if the Knights continue to make a run in the playoffs? Or is it just not meaningful enough, particularly compared against like a big fight weekend?

Yes. I think what we are seeing is that mid-tier player, we are seeing pickup there. It won't be enough to make up some of the whales that come in for a fight, but it is pretty solid. If they advanced further into the playoffs in the Stanley Cup area, I think it has potential to get some high-end customers, especially people that are traditional hockey fans. I would envision -- what we're hearing a lot of is the Knights are the second favorite team of almost everyone in hockey. So most of these Canadian cities have adopted that team and we think that there's probably potentially good pickup there if they continue to advance.

Okay. And then one point of clarification on the RevPAR guidance, does that include the higher resort fees? I believe there were some increases after January 1. Does that 1% to 3% include the higher resort fees and then maybe also some extra early check-in fees that had been added to the system as well?

It does include...

Yes, it does. Yes.

This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Well, thank you. Clearly, we had a lot to talk about today. I believe in what we're doing here in Las Vegas. If you added up the billions of dollars that's being invested in stadiums, in the convention center and otherwise, it bodes well for the market.

We've just talked about sports. It does have an impact. And I think on that point, I think there should be great emphasis on what might happen at the Supreme Court. Our legal experts seem very confident that PASPA will be overturned. And having spent decades building trust with the regulators, with sports books here in Nevada, with our -- really our singular dominance in sports so far, we believe and we intend to be the biggest beneficiary of commercial sports betting should the Supreme Court overturn PASPA as early as June.

We also believe in -- and we'll talk to that in great detail at our Investor Day. And as it relates to the broad concept of sports, not just in this sense, but in terms of esports, relationships that we have globally with leagues and teams.

We also believe in Japan. We think that, that has not been fully understood. This is a seminal event that has occurred this week alone, and we intend to fight for a right to be in that country.

And thirdly, we believe in Las Vegas. We know that it's been choppy this year as it relates to what we've talked about and certainly in terms of our guidance being lowered today. But we do believe in '18, '19, '20 and in macro backdrop. And our friends in the industry and our competitors support that view.

And finally, we believe in the strategy of returning cash to our shareholders, buying back stock, increasing our dividend, returning capital where we do not find the kinds of returns that we feel acceptable and where we do find opportunities to prune the portfolio. I think it should be noted and reflected upon that we are doing that now and can do that more in the future.

And so with that, I hope to see you all in a couple of weeks' time at our Investor Day. And we'll have a lot more to talk about. And as always, if you have any questions, please reach out to any of us. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.