美高梅國際酒店集團 (MGM) 2018 Q2 法說會逐字稿

Good morning, and welcome to the MGM Resorts International Second 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; 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.

Well, thank you, Kate, and good morning, and welcome to the MGM Resorts International Second Quarter 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 the 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 these forward-looking statements is contained in today's press release and in our periodic filings with the SEC.

Except as required by law, we undertake no obligation to update these statements as a result of new information, updates or otherwise.

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.

I will now turn the call over to Mr. Jim Murren.

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

Well, first, I want to say we, obviously, reported solid second quarter results.

The Strip revenues were up 2%, RevPAR up 2.8%, that was both consistent with our guidance.

Our Las Vegas EBITDA, excluding Park MGM, increased 3% year-over-year, and our margins came in a little bit better than expected.

They were down 82 basis points.

Excluding Park MGM, margins were just about flat at 31%.

We continued to see strong performance at our luxury properties.

Bellagio and Aria each produced over $120 million of EBITDA in the quarter and margins were at 37% and 38%, respectively.

In fact, Aria had an all-time record EBITDA quarter in the second quarter.

Our regionals again had a solid performance, and the star there was our newest property, MGM National Harbor.

Over in Macau, MGM China's EBITDA was $120 million in the quarter.

Unfortunately, there, we held low in both the main floor and VIP, which negatively impacted results by almost $40 million.

We just ended our month of July.

Fortunately, we've seen a strong pickup after the World Cup.

MGM Macau gross gaming revenues in July were up nearly 20% year-over-year and up over 40% on a month-to-month basis.

And since we opened our beautiful new property in Cotai, our team in Macau has been capturing opportunities in the marketplace.

And at the same time, we're fine tuning our offerings across the whole property portfolio, implementing those new initiatives and strategies to grow and yield our business, which brings us to what's happening soon there.

New amenities are coming online in the coming weeks and months to come.

MGM Cotai's VIP junket rooms will be open before October's Golden Week.

The Mansion, our high-end room product, is going to open up along with the President's Club, which is an exclusive gaming area for our premium mass customers.

They are both expected to debut in the fourth quarter.

And then, of course, we have a resident theater show.

It's called Destiny, and it's going to also be launched later this year.

As always, Grant's on the phone, and he can answer any of your questions.

So that's a good look of the second quarter.

Obviously, there's a lot of disclosure.

If you have any questions on that, please let us know.

Looking into the third quarter.

First, here in Las Vegas, we highlighted, as you recall that -- last call, that we had some, specifically, difficult comparisons in the third quarter.

And that's, of course, due to the fact that citywide's, and MGM particular, had a very strong convention calendar mix in the third quarter last year.

Of course, we had the 2 fights that we hosted.

We also held above our normal range.

But we also preview that we were seeing some discrete pockets of rate pressure.

That's driven by the lower citywide convention mix.

In May, when we saw you in Investor Day, we knew a lot.

We knew that citywide conventions in the market looked what they were going to look like.

We knew the third quarter was going to be down over 100,000 room nights in the third quarter.

We knew the fourth quarter, however, was going to be up around 77,000 room nights.

The idea then, with the thought we had, was to fill those gaps in the year, for the year, with some convention business, more so than we had done the prior year.

That did not come to fruition.

As you know, summer months are tough, particularly on the convention side, the booking windows are short.

And that's the quarter, the third quarter, where we generally have to rely more on leisure channels.

And these channels became very competitive over the last couple of months.

So MGM adjusted prices whenever it made sense, and we didn't when it did not, we did forego occupancy and have foregone occupancy in properties where we're not going to get our minimum pricing.

I have to say though in the other channels, we're seeing in this current quarter, the longer-term convention block, our FIT and casino blocks, all came in or coming in as expected.

The combination of the comparison and the less than expected in the year for the quarter small group business means that we believe that our RevPAR in the third quarter will be down here in Las Vegas between 5% and 7%.

That would mean our revenues would be down between 8% and 10%.

That would mean that our margins in the third quarter here would come in around 28%.

And if you exclude Park MGM, which is dragging our margins, the margins would be around 29%.

So let's size that.

About half the EBITDA decrease is simply driven by the tough table games comparison in Park MGM.

The rest is mainly driven by the hotel mix shift of this near-term dynamic we're talking about.

Based on what we've been seeing and based on a strong level of conservatism for the balance of the year, we now expect that our Strip revenues and EBITDA to be both down low single digits and our margins to be around 29% or 30% if you exclude Park MGM.

Now it's early, but we're starting to see much better paced trends later part of the fourth quarter, which we can get into, particularly on the group side.

And as we look out into 2019, we have been building a very solid base of convention business.

In fact, our production in the second quarter for future periods was up double digits, looking out.

We also see a very healthy backdrop in driving some of our group destination demand.

As many of you likely know, we've been recently back from New York where we've been busy on sports.

And we've made some, I think, very significant advancements.

We went into this proposition understanding that MGM Resorts has an opportunity to dominate sports betting in the United States.

We have the brands, we have the people, we have the markets.

What we were looking for in this race to market share was how to best provide the best experience for the gaming customer.

We knew we needed to have the best technology, proprietary, scalable.

We knew we needed to have outstanding in-game betting experience, which does not exist here in the United States, but, of course, it does throughout the world.

And we needed to have a partner that could help us build this business with a speed to market, and we found that partner in GVC.

We were proud to announce that joint venture.

We also know that we need to be in every market, in which a consumer can gamble on sports in the United States, and so we turned to our friends and partners at Boyd Gaming.

This provides our platform the opportunity to go in every state that MGM and Boyd operates in.

And in states where we do not operate in today, we'll simply do other market access deals with the people that have been calling us.

We also knew that data is everything.

And integrity and trust in the data is tantamount to success, which is why we're particularly proud of the unique partnership we just forged with the NBA where we are now the data receiver and the official gaming sponsor of the NBA and the WNBA.

Just launched, I think, in Mississippi, yesterday.

Mobile's coming in New Jersey in days, if not hours.

And we believe that this market is going to be large going forward, and it is a vehicle for a total interactive experience of not only sports betting, poker, casino, social as it is around the world and that will help our bricks and mortar business.

Before I turn over to questions, I want to just clarify, crystallize the strategies that guide us here at MGM Resorts, which I think are particularly important to remember in times of short-term market turbulence.

Number one, we have and we will continue to do everything we can to maximize the operating efficiency of all of our existing resorts regardless of what's going on in the market.

We have the market share leadership everywhere we operate.

That leads to higher margins than our regional competitors, and we're going to maintain that.

We're going to continue to drive innovation and transform the guest experience by leveraging what we own, the best assets in the industry with digital, technology and interactive businesses.

Obviously, our activities this week speak to that.

Because our properties are in outstanding condition and better than their peer group, we're going to be able to allocate a increasing mix of our future CapEx to technology over the next few years without changing our overall CapEx spending by $1.

With technology investments, we believe, we'll yield more higher margin, less capital intensive cash flows for the portfolio.

MGM Resorts will continue its path to be asset light, continue the path to be an operating management company, and that means, we will opportunistically look to sell the real estates of the owned assets of MGM Resorts.

We're very proud of MGM Growth Properties.

We expect to see healthy growth out of that enterprise, and we're going to help through the ROFO assets, and most likely from future transactions with MGP.

We want, at MGM Resorts, to reduce our ownership of MGP, and we want to be under 50% of an economic interest of MGP within the next 3 years.

We are going to successfully conclude all of our capital projects that we've been working on so hard and have -- that have worked so well like T-Mobile and National Harbor.

The ones that have yet to be finished will be finished this year.

We are going to achieve and then maintain a net leverage target of between 3 to 4x and that is through cash flow growth.

And we're setting a goal today.

We expect to generate $3.50 of consolidated free cash flow per share in 2020, which means we're affirming our 2020 guidance of cash flow we gave you on Investor Day.

We're going to use that free cash flow to the benefit of the shareholders.

We repurchased 595 million shares -- $595 million, excuse me, during the second quarter, and we have $1.7 billion remaining under the current authorization.

We have a target to get under 500 million diluted shares by 2020.

And we're going to opportunistically access new markets for sports and interactive by leveraging our brands and our relationship and our partnerships and our expertise.

We are not pursuing any regional gaming acquisitions in order to do it.

We'll look for market access deals if we want to be there.

And in fact, the only development opportunity we remain laser focused on is Japan, and I believe, like in the arena of sports, we've made great progress since we talked to you last quarter.

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

(Operator Instructions) The first question is from Harry Curtis of Instinet.

Just wanted to start in Las Vegas.

And Jim, as you sit in Vegas now and look at the balance of this year and the softness in group demand, if you could give us your perspective of what's behind that?

Do you think that Vegas has become somewhat less competitive given the greater attention being given to the group meeting by other cities?

What can you and Caesars collectively do on bringing in more entertainment consistently, so that we don't have these air pockets?

Sure, Harry.

You're about the only one that's old -- as old as I am.

So you know that the third quarter is always volatile in Las Vegas.

It hasn't been over the last couple of years.

The all-time record citywide in conventions was 2016.

The second record was last year.

The third record, since I can remember, will be this year.

This year, it's not a bad convention quarter, it's just up against these 2 incredible comps in the last couple of years.

But in the context of the last several years, it's pretty decent.

The challenge has been that we had -- we did not get as we hoped an acceleration of small group business to fill in the holes that we fully understood were there for the third quarter.

And because of that, the whole market started scrambling around to mix their rooms differently.

Now the higher end properties have little trouble in doing that.

Bellagio, Aria are luxury properties.

But when people are shifting around their decisions on stay, it does impact the main market properties, and it did in the third quarter.

We don't see that happening in the fourth quarter because of the base of business that we expect to see.

But given the fact that this was unusually slow over the last couple of months, we've taken a very conservative approach to the balance of the year.

We think there is no reason to do anything otherwise.

And then so what I would say, and then, I'll turn over to Corey, is we saw a deterioration in some of the in-the-year, for-the-year.

We moved business around where it made sense.

The marketplace has been in that place, and now we're starting to see a little bit of strength, but....

And Harry, on the overall shape of the convention market, we've come up 2 record third quarters.

And even this quarter's mix that we're expecting, 4 years ago, we would've taken that mix any day of the year.

We understand where a lot of those conventions went and some of them are rotational, especially the citywides.

We also had a few big rotational ones.

But as we look, especially, in 2019 and 2020 what's on the books now, we don't see the softness in the convention market coming to Las Vegas.

Is there more competition out there with the other cities?

Absolutely.

We're geared up for it, and I think that Las Vegas, us, Caesars, and even Wynn, could create an experience that no other city can and can house conventions that no other city can because of their -- our scale.

I guess, my question though is with these air pockets, is there any way to -- for the city and the 2 leaders in the city to become more proactive, so that you have a more consistent base and don't have to rely on the OTA channels that really are killing pricing at least in the near term?

I think, we -- it's something we have to work on and think about.

Usually, the event calendar has a tiny bit to do with that.

We had a little bit of unfavorable third quarter.

But in general, it's just creating -- we here at MGM, we create our own events for our customers and components like that.

But traditionally, even I've been around 23 years, 24 years, and summers have always been a challenge.

This one's probably a little bit more challenging than others, but it's always been reliant on the transient leisure market, and we will constantly look at ways to get less reliant on that.

But in general, that's the way -- we're definitely going to strategize on how to try to address that.

And I would just say, again, this is a third quarter phenomenon.

It has been a third quarter phenomena.

And the way we're going to address it -- we have been addressing it is to continue to bring content to Las Vegas.

I -- we brought the Las Vegas Aces, the game last night.

We are sponsoring the Summer League, which was last month, that is going to be much bigger as an event next year than it even was this year.

We're going to bring more content to T-Mobile.

The Raiders are going to finish the stadium in 2020.

There's an awful lot going on and there is no cause to change the strategy when it has been working.

What we need to do is when we have these pockets, do the best we can without degrading the customer experience.

Because if we do that, then people won't come back.

Very good.

I just wanted to ask a quick question of Grant then, related to the ramping of junkets at -- on Cotai.

Can you give us some outlook on -- or expectations on how that ramp should look?

So as we stand right now, we've signed the agreements with the operators that we'll be opening, and it looks like we're going to be opening them in 2 tranches to try and balance it -- to balance it out, starting, as we currently sit, in early September to give them a few -- an operating period prior to October.

So as we speak here, we're probably only 4 weeks away from seeing the first operators open up and they're the bigger operators.

So everything's going positively for us at the moment.

The next question is from Joe Greff of JPMorgan.

Just, Jim, on the comments about discrete pockets of rate pressure in the 3Q in Las Vegas.

I mean, you kind of talked about what that means exactly.

But can you talk about it, is it persistent what you're planning or anticipating seeing in both August and September, I'm presuming, certainly, July, you have a sense of?

And then how broad is it?

Is it at the higher-end properties versus the lower-end properties, how broad based?

And then when did these discrete pockets of rate pressure, when did you first see that emerge?

And then like why would you buy that $600 million worth of stock in front of -- an outlook that perhaps would give you better opportunity to buy the stock?

For God's sake, you guys get so worked up about a few weeks.

This is unreal.

Let's start with the quarter again.

In May, we talked about what we saw happening.

We wanted to fill some of those holes with smaller group business.

We thought we would, we did not.

We bought back stock, and we will continue to buy back stock because we think our stock is ridiculously undervalued.

And it is a good allocation of our free cash flow.

Do we think that there's anything going on in Las Vegas, structurally, that would cause us concern?

The answer is no.

Because we see what's going to happen in the fourth quarter, which starts in about a month.

So I appreciate the concern, I guess, around a couple month period of time.

If I shared that concern, I would tell you, but we have the benefit of having the data in front of us knowing that we're going to be stronger in the fourth quarter and going into '19.

So what we did know, what we do know is, there was pressure around the city everywhere, not just 2 companies, everywhere.

And we see that pressure abating going into September and October.

And what I would say, Joe, is the biggest pressure really is on that -- really that short-term booking window.

So the other channels that we're seeing are booking the way we like to see them book.

Actually, they're pretty healthy.

Our FIT channels and our casino channels, it's that real short-term booking window that has been very challenging.

To answer the question, the least -- the Bellagios in the world there are seeing less of an impact.

People are trading up, and we've seen that before in the past also.

So the -- probably the biggest impact when you get into these pricing pressures are the core properties and probably the lower end of the core properties, like the Excaliburs and the Circuses.

The next question is from Shaun Kelley of Bank of America.

It's hard not to just sort of stay with this topic, and I don't know how to position it to help everyone.

But here's the way I look at it, right.

When we look at the guidance or -- and the pricing environment for Q3, like this is the worst RevPAR number on a growth rate basis that you guys are going to -- ever printed since 2009.

It's the worst margin number you guys ever printed since 2009.

And that includes quarterly seasonality and convention shifts and CON/AGG moving in and out.

So I guess, the question we look at is, is there something bigger in the competitive landscape now, maybe with Caesars coming out of bankruptcy, with more competition there or something else that may have been exacerbating the issues that we're seeing in this period?

And how can people gain confidence that it's not giving the kind of the very short-term visibility that we really do seem to have in the business?

Well, we're going to look at your margin assumption.

But on RevPAR, yes, it's the lowest year-over-year against the comps that we're talking about.

Our margins have gone up dramatically over the last several years.

So it can't possibly be...

It's the year-over-year performance, Jim.

Just down 450 basis points would be, again, minor tweaks aside, would be the lowest number we've seen since 2Q '09.

Okay.

And -- but the margin itself is what, much higher.

So...

Of course.

Right.

So I mean, at -- we're running the company on margin and on profit.

So what we've seen is that short-term pressure we talked about, what we're seeing in the fourth quarter is not that.

So yes, against the comps that we had last year, because RevPAR is almost all profit, when RevPAR declines, your margins are going to go down unless you want to dramatically reduce your cost structure to a point where it's going to affect service, and we did not do that.

Okay, understood.

And just to completely shift gears, I mean, you gave a lot of strategic updates that were very important, Jim, in your prepared remarks.

One of those being reducing the ownership in MGP to under 50% within 3 years.

Could you just talk, I mean, obviously, at a high level that can involve probably M&A, that's hard for you to talk about, but could you just give us a sense of what kind of things would be along the path to being able to make that reduction?

And would you consider potentially distributing or selling additional shares in MGP?

We'd consider everything.

We believe -- we've said, but we now have put a perimeter around it that we should own less of MGP.

We think MGP is going to grow.

We know it's the premier triple net in this space.

We know we have the best management team.

We know they've the best prospects for acquisitions with third-party operators, and they're working on several of them.

So that will happen.

Secondly, we would be more than willing at the right price to reduce our equity ownership in MGP through the sale of OP units.

And thirdly, MGP has the opportunity to transact with MGM in ways that would probably further, if done properly, reduce our equity ownership in MGP.

So I think everything's on the table.

But the goal is to reduce our equity ownership because we believe that number one, there's great value, very valued arbitrage there.

And number two, we think MGP would benefit from expanded shareholding base.

The next question is from Felicia Hendrix of Barclays.

So Jim on your guidance.

Your RevPAR guidance for the full year down low single digits kind of implies a wide range for the fourth quarter.

You did sound more optimistic for the fourth quarter.

So I was just wondering, fourth quarter RevPAR, given the guidance, could be negative, it could be positive.

Will it be positive?

It'll be positive.

Okay.

And just getting to guidance.

I think what a lot of people are also frustrated by is, and this is what I'm wondering, is how you -- you explained very clearly, you gave the guidance in April, what happened in May, what happened since then.

But I think what's frustrating is how could you previously base second half guidance based on convention business or group business you were trying to get, but didn't have yet knowing that summer would be a challenge.

So maybe you can address the thought process there?

Yes.

I'll answer, Felicia.

I mean, the way we always forecast is, we plan -- we work with our sales team, and we plan on not only what's on the books, but what we think we can because we want to make sure we're filling the rooms the right way.

It just didn't come up to fruition this year.

And so what you're seeing on our latest guidance is we have been probably more on the conservative side and pulled out most of that just because it didn't come to fruition this year.

Yes.

And I think that that's helpful and appreciate the conservatism.

And hopefully, that practice continues because it just seems to give to not kind of put in that kind of probability of uncertainty into your guidance I think gets you into these sorts of situations.

It will.

And we're as frustrated as you because we -- we're getting very weary of talking about RevPAR, which is not the metric we measure ourselves on here.

I know it's what everyone wants to talk about.

But we measure ourselves on cash flow and profitability.

And yes, we were down in that -- in those metrics because of the factors we talked about.

But we hear the message loud and clear from the Street.

We're getting a little weary of talking about specific RevPAR guidance, but we're going to use tremendous conservatism in the future.

And Corey, are there -- I mean, I know -- I understand adding amenities, attractions, different things to bring people in during the quieter times of the year is helpful, and hopefully, in the future, will be very additive, but I'm also wondering if there's any kind of systems or improvement internally you can employ to help the company be less reactive to the ebbs and flows of demand in the slower periods?

Well, we are -- the way we forecast our labor and everything is very much tied to our forecast, our 7-day forecast.

So we're able to adjust our labor and expenses for that.

But as long as I've been here and especially before the convention business was here in the summer, these ebbs and flows, especially for that 3-month period when it's 120 degrees outside.

It's a challenge that we just get, fight our way through for that short-term period.

We are looking at creatively how we may repackage certain things in the summer, looking at some of the competition for summer travel.

As you look at, whether it's different industries or different cities, we constantly are looking at that and looking for better ways to, maybe, package how we do our business.

The next question is from Carlo Santarelli of Deutsche Bank.

When you guys think about the business more broadly, if I recall a convention mix is -- for this year is roughly close to flat, I believe, despite having some holes to fill.

But what it seems is that, that leisure FIT is just not firming up the way that it should and when you think about bigger picture, U.S. macro, domestic lodging, performance, et cetera, what is it that you think is kind of keeping that business a little bit more subdued?

As I would imagine, that with the forward visibility that you do have and seeing some of the guidance revisions, a lot of this has to relate to that, that shorter booking window business as Corey just mentioned.

So what is it that you think some of that domestic kind of core customer softness is stemming from?

Carlo, our FIT channels are actually hanging in pretty well.

It's really the OTA channels that are probably a little bit more challenging.

But I also think if you look at the macro components here, the city had 6.6 million convention attendees last year, which was a record by over 300,000.

If everyone's trends are similar to us, we'll be down a little bit in mix, so you're probably looking at 400,000, 500,000 extra rooms that have to be sold in that channel.

You add in the room supply, which has increased slightly, I think, probably because of rooms being put on the market that were out of order, and you're probably looking about 600,000 extra rooms that are trying to get sold just for this year.

I don't think that's this year experience, because what we're seeing for next year, what's on the books and what we're hearing from our competitors, they're having similar trends of convention rooms on the books.

There'll be less reliance on that channel.

Great.

And then, Jim, if I could just follow up.

You mentioned earlier in response to a question about potentially purchasing -- or selling, sorry, OP units to kind of net down that MGP exposure -- or sorry, ownership.

My recollection is that there are some tax consequences related to that.

Has anything changed in terms of the ability to do that in a tax-efficient manner?

We have a lot of options available to us.

We can -- I brought it up as one of the many options that we have in order to reduce our ownership.

Do you want to take...

Yes.

I mean, Carlo, there are still low basis in some of those units and a higher basis in others depending on the assets and when they were contributed into the branch.

Obviously, things like National Harbor and Borgata will have a higher basis for us in terms of the OP units during those transactions versus the lower basis of some of the original strip assets that went in upon formation.

So there is some tax issues to kind of work through, but we learned long ago from Mr. Kerkorian that we don't let kind of the -- the tax tail wag the dog too much from that perspective, and if it makes sense to do and maximizing shareholder value, then we will look at it and take the tax into consideration.

The next question is from Thomas Allen of Morgan Stanley.

So we're coming up to the anniversary of the terrible shooting on October 1. Is that having a disproportionate impact on that time of year just given it is the anniversary and maybe some experiences from last year?

You want to tackle that first, Corey, or do you want?

Thomas, it's Dan.

Mandalay is still recovering as a property, and it's not fully back yet.

We do see in kind of September, October, some of which is calendar driven, but some of it is probably around the event timetable.

We do see a little bit of softness around the event timetable in group.

But we do have a pretty strong loyal base at Mandalay as well that is being very supportive and will continue to be supportive.

So we do see a little bit of weakness around that time period, later summer into the fall.

But Mandalay, as a property itself for 2019, is up quite nicely in terms of its pace and that's good to see for the property longer term.

Yes.

I would say, the rest of the portfolio is pretty much back.

And Mandalay is probably about 80% back.

Helpful.

And then, just on the Borgata.

There's, obviously, new competition coming into the market.

Can you just frame how you're thinking about -- or there has been new competition?

Can you frame how it's gone so far and how you're modeling the impact to that property?

Yes.

There has been a little bit of impact.

Borgata, obviously, has clearly been the market leader by a mile for a long time in that market, maybe a few miles.

And we did expect, obviously, some increased competition with the 2 new properties and just the new capacity coming online.

But it's early days right now, but I can tell you that we saw some initial impact in the first couple of weeks.

Their business has recovered, but we do think just because of the capacity in the market that Borgata will be down a little bit.

And we think that's probably in the kind of 10%, 15% range roughly.

But thus far, the property has been performing well.

We're watching and looking at the covers, looking at a lot of the volume, metrics.

And after the first couple of weeks, we're actually seeing those start to come back.

So looks like people are kind of testing out the new product, but realizing Borgata is still a great property and has all the amenities that it needs.

So we do expect some impact just because of the capacity in the market, but Borgata is holding up well.

The one thing we'll want to really watch, July, the first month, and actually I was over there.

There's a lot of activity with a lot of concerts both at Hard Rock and Borgata had their 15-year anniversary.

So as a lot of that activity goes away, we'll have to see where the shift works out, but Borgata is very well positioned to maintain its market share there.

The next question is from Robin Farley of UBS.

Just to understand a little bit better, you talked about the Q3 phenomenon, you called it as the fewer group events.

But it looks like Q4 RevPAR guidance sort of implied is down at least sort of 500 basis points as well.

So it seems like it's something beyond just this comping and the difficult seasonality of Q3.

Is it -- I mean, you mentioned that you took out the assumption about smaller group business coming in closer to the time.

Is that all -- is that responsible for like a 500 basis point swing in the RevPAR outlook in Q4?

I don't know.

I'm not sure where you get the 500 basis points.

But we've been very conservative on our Q4 forecast to put in the trends that we're seeing now.

Do we think those will continue?

No.

But that's how we have forecasted Q4.

Yes.

And our numbers don't show that level of decline.

We're actually showing our RevPAR to be up in the fourth quarter.

I just -- I meant the 500 basis point decline versus your -- what your previous guidance had suggested.

So in other words, previous guidance would have implied something at maybe mid-single digits and now sort of closer to flat again, now you're saying still positive.

So I just meant that delta -- that -- the change in your outlook being that couple hundred basis points.

So is that the -- is that driven by that smaller group business, that level of change in the outlook?

Our group business in the fourth quarter looks pretty good.

But as Corey said, we're just being a little bit more conservative given the current trends in the environment we're in right now.

And as we get into and deeper into the fourth quarter, we see those trends changing.

Our event calendar is stronger in the fourth quarter, particularly at our arenas.

So hopefully, there's upside to the number, but right now we just built in a little bit of conservatism from the standpoint of what that growth will look like.

Yes.

And I'll just add to that, Robin.

Over many years, we've been trying to be very granular on what our RevPAR is going to be every quarter.

And when we meet it or exceed it, everyone says that's fine, big deal.

And when we miss it, it's like a big disaster.

And we're just not going to take that type of forecasting hit anymore.

So we are going to, including right now, be very conservative with a lot of cushion in our RevPAR guidance, and it is what it is.

And we give more information than others.

We're going to continue to do that.

We're going to do that with the idea that we're going to be conservative.

We're not going to predict what we cannot predict.

We're going to predict what we see happening in the marketplace right now.

Do we expect that we'll be able to add business in the fourth quarter that would improve this guidance?

Yes, we do.

But we're guiding to this number because that's what we've seen coming off of this very tough pricing environment in the summer.

And that's reflected in the fourth quarter.

And that's what we're going with right now.

I appreciate the color.

Maybe just one follow up.

You were talking about kind of convention outlook in 2019 and 2020, that it's -- you said it's not soft, that it's -- I don't know if you used the word strong or up or something, but it sounded like you're implying that 2019 and 2020 were better in terms of convention on the books.

I guess, given the delta here that can be caused by maybe the small group meetings, like kind of on the margin, it seems like those small group in the year -- for the year make a pretty significant difference, and I guess have much less visibility on a forward outlook.

What does this -- the sort of early view that you're implying about 2019 and 2020?

Were you thinking that convention mix will grow again in 2019?

Or is it -- because I would think, at least, you'd have large conventions that would be on the books already, you'd have some visibility on that?

I'll take that.

I think everyone's focused on the convention base and that's where the biggest miss was.

The actual biggest adjustment to the RevPAR is in that land package.

And 80% of it was in that land package.

However, in looking at what's on the books, like I mentioned, we are up pretty good in '19, almost 15%, but even more so.

We don't talk a lot about this, but the convention calendar and how dates fall and how holidays fall are pretty favorable in '19.

For example, Thanksgiving is at the end of November, on 28th.

That gives us one extra week to book.

The holidays are a little bit more favorable.

Some of them are on weekends, the Jewish holidays.

So that gives us a few more days to book.

So all of those things are positive.

CES, which floated out a week last year, is going back right after New Year's.

All that will help as we try to drive our RevPAR.

Yes.

And I would just add to that.

So one, convention business has been strong.

Two, as we said, we tried to fill in the third quarter some small group business, which we didn't -- we weren't getting, so we went to the land package.

And the land package was where the pricing impacted our RevPAR.

It was in the land package.

Looking into the fourth quarter.

Obviously, we -- as we said, we see a better convention mix of business and the pace for our conventions, of whether they're large or small are up in '19 versus '18.

And so that's what we were trying to suggest.

That's what was happening in the third quarter.

When we veered out of the small group business when it wasn't coming in to the land business, that's where we had the rate compression.

But going into the fourth quarter, we've lowered all that small business down because we're not getting -- we don't know if we're going to get it, and we took a cut on '19, and even with that, as Corey says, we expect to be up next year.

And Robin, I just want to clarify something.

Our in-the-year, for-the-year is actually flat year-over-year.

We were just forecasting it to be up.

But it's flat.

So the -- our mix, overall, will be down a little bit year-on-year.

Obviously, CON/AGG in last year kind of plays a big part in that.

But just to be clear, in-the-year, for-the-year is pacing exactly as it was last year.

We were just anticipating to kind of grow that part of the business a little bit and that's the piece that we just fell a little short of.

The next question is from John DeCree of Union Gaming.

Wanted to kind of shift gears a little bit.

Jim, you had made 2 pretty good announcements over the week as it relates to sports and sports betting.

And I think I've 2 questions.

One, in markets where sports betting is not quite authorized yet or we don't have legislation, is there an opportunity or initiative with your partner to get up and running on some type of interactive communication with your customer, whether it's kind of free play gaming or something of that nature that you could start to engage folks before even sports betting legislation is passed?

Yes.

That's a good question.

The first, as the states are going to roll out and you probably -- everyone's probably doing their own modeling of this, but we would expect some very active legislative activity next year in high population states like Massachusetts and New York and a couple others.

And of course, we'll be at the forefront of that with our Springfield property and when we close on Empire.

From a standpoint of states that we cannot access because the legislative process will be slower, there's a social gaming opportunity that we're working on with GVC.

So we'll be able to -- because they're a omnichannel provider, very different than simply a B2B supplier, we're going to be able to, we believe, talk to customers more robustly in more states than we, otherwise, could.

If I could follow up on that, Jim, as it relates to an earlier question.

I think early in the call about kind of filling demand in Las Vegas on off-peak or shoulder season.

With Yonkers coming into the portfolio, Springfield opening in a high population dense state like Massachusetts and then the digital channel that's now on the horizon for you.

If I think about the M life loyalty program and the expansion that you should see in that database over the next 12-plus months, how important is that to -- to generating incremental demand in Las Vegas?

And how do you think about that opportunity going forward?

Well, I think it will help.

I think it's certainly incremental to what we, otherwise, are seeing.

But as I've said, I think that we are going to be -- we are well positioned for next year anyway.

Bringing more content to the town will benefit our competitors, and of course, ourselves.

But being able to bring more opportunities to pound on the interactive side will, I think, on an outside basis help us.

So whether it's on esports or an interactive or working with the NBA leading into the Summer League and the activities we can generate throughout the year with that league, working with other professional leagues, working in other areas of the interactive space.

The idea here is to: number one, maximize the profitability of our existing resorts, managing our expenses and going for the higher margins that we put into our deck, the 32% EBITDA margin goal we have in our deck.

Number two, amplifying the existing buildings through the interactive and sports space.

And three, becoming more asset light as we can opportunistically sell some of our physical assets and continue to operate them.

The interactive space is going to be very large in the United States, and I don't think we've all fully grasped what the potential can be over the next several years, not just in sports itself, but what that will do as a vehicle for the other digital channels.

And John, also, as I mentioned, our casino block's actually pretty healthy right now, still below our competitors.

And I think that has to do a lot with Borgata going on to M life, National Harbor.

And it's not just going to be Yonkers, but Springfield's also going to open.

So I think all of those are healthy.

And as Jim mentioned on the interactive side, our deals with our partners are to expand our database and to convert the interactive customer into our brick and mortar buildings.

The last question is from Stephen Grambling of Goldman Sachs.

Just to follow-up on that line of questions and answers.

As you dissect all of your customer data across the strip and the regional markets, how is the softer leisure trend during the downtimes manifesting itself in locals markets?

In other words, can you see if leisure consumers are just reallocating dollars to local markets, and then perhaps tie that into your response, how that frames your strategy and perspective on sports and online betting longer term?

So in the regionals, the things that we look at, in particular, are slot volumes and everything just to see the health of the customer.

Detroit had just literally had their second best -- the best quarter they had ever.

Borgata slot revenue, which is one of the big drivers, there was a record second quarter.

National Harbor, obviously, has market share.

And as we look at the markets and the market share, those are pretty healthy.

So I think that consumer -- I think what we're seeing here in Vegas is consumers are looking for alternative places for entertainment.

And so it's not necessarily that there's a weaker consumer, but there's alternative options for them.

So we have to replace some of that option.

Let's say they went to Europe, which we understand there's been a lot of travel to Europe this year.

That's where we're trying to adjust there.

But in general, the regionals are doing good.

We believe -- just to give you an idea, Borgata's sports book is about 20% of our total company's volume in about a month.

And so we think that we're not seeing anything there that would indicate that it would impact sports.

Yes.

And in fact -- I mean, adding to that, the regional properties are going to be big online gaming customer properties.

And we're days away from New Jersey.

So we'll be able to see that data pretty quickly in other states that we operate or through Boyd's market access we will operate in very quickly.

And I think also what's important and that's why I know we're all frustrated on RevPAR, but we are a gaming, hotel company.

Our market share in the second quarter on the Strip was up in every metric, our slot market share, table market share, baccarat market share.

And going into next year, we expect it to continue to grow, which is a big driver of our cash flows and profitability.

And so as we are going through this period where we had the knowns that we've discussed at length and then we had the strategy of trying to fill those holes, which we did not, could not and put it into the land-based model, which was at lower prices than we hoped, we're seeing that starting to improve in the fourth quarter.

And we expect it to improve, but because of what we've seen the last couple of months, we just took a very conservative approach, which we will do forevermore because I don't like calls like this, and so we're going to continue to be conservative on the RevPAR guidance because there's no -- there's really no upside in us for doing anything other than that.

It's not how we run our business.

It's not what we see is going to happen in the fourth quarter in Las Vegas where we dominate.

It's not what we see on the books for next year.

We had foreshadowed a tough third quarter 3 months ago.

It came in worse than we thought, but at least we saw what was happening in the citywides.

So you can take that information into the fourth quarter where we see the citywides up.

And we see what we see in our books in the fourth quarter as being up.

And since we have over 40,000 hotel rooms here, it's probably going to be the case for Las Vegas.

And going into 2019, we've seen no unusual cancellations at all.

We're seeing bookings coming on.

We see our pace being up in every channel.

We're not going to forecast as much in-the-year, for-the-year in our RevPAR forecasting in the future because there is no merit in that for us.

We're going to continue to drive revenues everywhere, not just in the hotel business, which is but one of our many cash registers, but in all of our businesses, in our entertainment, our food and beverage, our gaming.

We're going to drive more gaming revenue and we think more profit because of our leadership position in technology, interactive and digital.

And we're almost done with CapEx.

We're going to open up Springfield this month.

We're opening up all the product that Grant talked about in Macau this year.

And as we go into 2019, the free cash flow that we're already generating is going, we believe, to dramatically accelerate to a point where we think we're going to be generating $3.50 of free cash flow in 2020.

We're going to harvest that free cash flow to the benefit of the shareholders.

And, yes, we will continue to buy back stock.

We think our stock is a tremendous opportunity for us and far better use of our capital than any acquisition on the global gaming horizon.

We're going to continue to get to that leverage goal through driving our cash flow.

And we're going to continue to work to build the foundation to win in Japan, the single greatest potential growth opportunity this industry has seen in a decade.

And so I understand where we are.

I'm particularly proud of the people that work here.

The leadership of the properties, the men and women of MGM Resorts.

We've dealt with a business situation that we're resolving in the marketplace.

And we're seeing improvements going into the balance of this year, and we're confident of what's happening in '19 and beyond.

And we're putting our money where our mouth is in the form of returning the value to the shareholders, continuing to be the shareholder-oriented company that we are, continue to use the levers that we have in front of us to allow MGP to continue to grow, grow rapidly with a good balance sheet and see MGM Resorts ownership of that enterprise decline.

We continue to see what we can do in our existing portfolio, and we continue the goal of becoming less capital intensive and asset light.

And fortunately for MGM because we have an outstanding balance sheet at 4.5x leverage with one of the simplest capital structures you can have, we have an awful lot almost a vast amount of financial flexibility to not only deal with the choppiness of a month or 2, but also to take advantage of market opportunities where we have that choppiness.

And you're going to that when we finish Park MGM, and you're going to see a very different resort by the time the Golden Knights hit the ice again this coming season.

And that's going to drive a lot of incremental cash.

And to be clear, looking at our cash flows over the next couple of years and the ramp-up of it, all we need to do is do what we've done, finish projects and have them perform well like we have done with MGM National Harbor, which, obviously, immediately became the market leader.

All we have to do is continue to do that, open up MGM Springfield and have it shine, and it will and it'll be very profitable and it's going to be there when sports betting's approved in the commonwealth.

All we have to do is finish all the amenities that will drive cash flows in Cotai, and all we have to do is finish Monte Carlo's conversion to Park MGM and then we sit back and reap the rewards of many years of development in a large capital spending that will set the foundation for much more rapid growth of cash flow in the future.

And finally, to be also clear, we have a very clear idea of our capital spending.

It is going to remain in a very tight range for the next several years.

And so that free cash flow that will come from improving the operational efficiencies of the buildings that we have, battling out when we do have market softness like we had and driving our additional free cash flows through these new properties, that's going to go toward the shareholder, as it has been and as it will in the future.

And finally, I think this is an important point.

In our CapEx guidance that we've given and we'll continue to give, because we were ahead of the pack in terms of improving all of our buildings, and we undoubtedly have the highest quality assets by a mile in every market in which we operate, and all you need to do is go to any place in the United States to understand that, we're going to be able to without spending any more CapEx, on those properties than what we normally do from a maintenance perspective, put money into exciting technology-related areas that we believe will drive incremental cash flow, greater productivity and result in less capital intensity in the complex in the future.

So I appreciate you spending the time with us today.

We look forward to taking all your questions, look forward to seeing you out here as the summer months, thankfully, are coming to an end.

And as we get into the fall and football season, play MGM because that sport betting app will be the dominant leader.

Thank you all very much, and we'll talk to you soon.

The conference has now concluded.

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