MGM Q1 Results Cramped by COVID-19, Mulls Taking CARES Act Cash

Posted on: April 23, 2020, 10:19h. 

Last updated on: April 23, 2020, 11:24h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

MGM Resorts International (NYSE:MGM) was likely net income negative in the first quarter, excluding one-time items, as revenue tumbled 29 percent because of gaming property closures forced by the coronavirus.

MGM Q1 Results
If not for the MGM Grand/Mandalay Bay deal, MGM would have lost money in Q1. (Image: Bloomberg)

The Las Vegas-based company is scheduled to report results for the first three months of the year on April 30. But it gave investors a taste of what to expect in a form 8-K filing with the Securities and Exchange Commission (SEC) released earlier today.

The Mandalay Bay operator notched first-quarter net income of $807 million, up from $31 million a year earlier. But the bulk of this year’s figure is attributable to the previously announced sale of the MGM Grand and Mandalay Bay on the Las Vegas Strip to an entity controlled by MGM Growth Properties (NYSE:MGP) and Blackstone Real Estate Income Trust (BREIT) for $4.6 billion.

Without that one-time item, the gaming company probably lost money in the January through March period, something Wall Street is expecting, as the consensus analyst forecast on MGM is a loss of 17 cents a share.

The company is likely to report revenue of $2.3 billion, a 29 percent decline, and a 61 percent drop in earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) to $295 million.

On the Las Vegas Strip where MGM is the largest operator, the company is projecting a 21 percent revenue decrease to $1.1 billion while EBITDAR is expected to drop 34 percent to $268 million. All Nevada casinos have been closed more than a month because of COVID-19.

Reversing Course on CARES Act

Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27 and initially, it appeared as though MGM would not participate in that program. The SEC filing indicates the company is rethinking that position.

We intend to continue to review and consider any available potential benefits under the CARES Act for which we qualify,” according to the document. “We cannot predict the manner in which such benefits or any of the other benefits described herein will be allocated or administered, and we cannot assure you that we will be able to access such benefits in a timely manner or at all.”

The Excalibur operator said it had $6 billion in cash and $11.8 billion in liabilities as of March 31. Excluding the MGM Growth Properties (NYSE:MGP) and MGM China units, MGM Resorts has no debt coming due before 2022.

Noting that it continues facing significant fixed costs, MGM said it’s slashing at least 50 percent of planned 2020 capital spending, implementing a hiring freeze, and that “certain senior executives and directors voluntarily elected to receive all or a portion of their remaining base salary during 2020 in the form of restricted stock units in lieu of cash.”

The company is asking the board to approve a token quarterly dividend increase of one cent a share, or less if possible, according to the 8-K.

No Better in Macau

MGM China, the operator of MGM Cotai and MGM Macau, is on course to report a first-quarter revenue slide of 63 percent to $272 million. The Las Vegas-based entity owns about 56 percent of the China gaming concern.

Macau casinos were temporarily shuttered for 15 days in February and though those venues are now open, business is far from normal and concessionaires there, including MGM China, are burning significant amounts of cash on a daily basis.

“Our Macau properties are incurring cash operating expenses, exclusive of rent, interest, variable gaming taxes, corporate expense and expected capital expenditures, of approximately $1.5 million per day, which is significantly in excess of amounts being earned at those properties,” the company noted in the SEC document.