MGM Resorts International (MGM) Earnings

Management highlights

- Overall Business Performance * Q2 2026 profitability was significantly higher than Q1 2026, with positive cash flow generated despite intensified competition from both regulated and unregulated prediction market operators. * Management maintains a strategic focus on profitable growth, prioritizing value over volume of active players and discipline in marketing and capital allocation. * Net revenue and adjusted EBITDA grew year over year in the first half, with adjusted EBITDA less CapEx totaling $77 million for the first half. - Product and Expansion Updates * iGaming launched multiple popular exclusive titles in Q2, including a Game of Thrones franchise game in Ontario, with US rollouts planned for later in 2026. New omnichannel and branded titles were also released. * BetMGM successfully launched operations in Alberta, with early results positive; nearly 10% of new Alberta players already have an existing relationship with MGM Resorts, highlighting the value of the company's omnichannel strategy and brand partnership. * Product enhancements are planned for the remainder of 2026, including an expansion of jackpot products and continued development of differentiated live iGaming offerings. - Strategic Priorities * The company reallocated marketing spend away from low-return sports-only states to channels with more efficient customer acquisition costs (CPAs) and attractive payback periods, while maintaining full investment in high-return multi-product states and core iGaming markets. * Long-term growth is expected from continued iGaming legalization across additional US jurisdictions, which will expand the company's total addressable market.

Guidance

- Full year 2026 net revenue guidance is maintained at a range of $2.9 billion to $3.1 billion, and adjusted EBITDA guidance is maintained at $300 million to $350 million. Management now expects full year 2026 results to land towards the lower end of these ranges due to current challenging market conditions. - Management expects greater profit flow through in the second half of 2026, with over 100% flow through from cost efficiencies, driven by normalized tax rates after one-time first half tax impacts and reduced marketing spend in low-return sports-only markets. Full year 2026 profit flow through is expected to be 70% or higher, above the long-term normalized 40% target. - Management reaffirms the long-term target of achieving over $500 million in adjusted EBITDA, but notes the target will be extended beyond 2027. The target is achievable on BetMGM's existing footprint with current expected growth and cost discipline, at a normalized flow through rate of 40% to 45%. - Future iGaming expansion into new jurisdictions represents upside potential that is not included in current guidance.

Segment performance

Total Q2 2026 net revenue for BetMGM was $711 million, up 3% year over year, bringing first half 2026 net revenue to $1.4 billion, up 4% year over year. Adjusted EBITDA was $74 million for Q2 and $99 million for the first half. - iGaming: Generated $483 million in Q2 net revenue, up 8% year over year. This segment contributes 70% of BetMGM's total revenue, maintaining a leadership position in its active markets. - Online Sports Betting: Generated $228 million in Q2 net revenue, flat year over year. Handle per active grew 11% year over year, and NGR per active increased 9% amid a strategic reduction in lower-value active players. - Retail Sports Betting: Q2 net revenue declined year over year due to large premium player wins on high-stakes bets. Lower-staking retail players continue to migrate to digital platforms, driving margin volatility for the retail segment. Nevada in-state OSB handle increased 10% year over year in the first half of 2026.

Risks & headwinds

- Heightened competitive intensity: The industry faces rising competition from new iGaming entrants and large unregulated prediction market operators, which have increased marketing spend, driven up industry CPAs (iGaming CPAs are up over 15% year over year), and captured share of voice and consumer wallet share. - Consumer headwinds: Elevated gas prices and constrained consumer discretionary spending create additional pressure on revenue performance. - Regulatory risk: New regulatory requirements (such as updated KYC rules in Pennsylvania) add friction to the player acquisition process and increase operational complexity. Political uncertainty for iGaming legalization in individual states creates uncertainty for long-term TAM expansion. - Sports betting volatility: The customer base skews towards higher-value players, which leads to greater quarterly variability in hold and revenue, as seen in the Q2 2026 retail segment performance, though management expects this volatility to normalize over time.

Analyst Q&A

• Q: Can management discuss cost efficiency opportunities this year and next, and explain the expected stronger profit flow in H2 2026? /

  A: The largest cost categories are tax, marketing, payments and labor, so all these areas are the focus of efficiency efforts. Marketing spend has been reduced in low-return sports-only states, and the company is disciplined on labor costs. The first half of 2026 absorbed significant one-time tax changes that pressured margins. In H2, tax rates are normalized, and marketing cutbacks in low-return areas will flow directly to the bottom line, resulting in over 100% flow through. These efficiencies will also carry into 2027 planning.

• Q: Can you update on the importance of Nevada operations and how it contributes to the broader business? /

  A: Nevada is central to BetMGM's omnichannel MGM strategy, with a favorable competitive landscape and strong brand power from MGM Resorts' Las Vegas properties. Thousands of new players are recruited weekly in MGM properties, and a large share of these players are from other regulated states, where they can continue using the same single-account BetMGM app after returning home, creating long-term incremental value. Management is also focused on penetrating the underpenetrated Nevada locals market, which represents an untapped growth opportunity.

• Q: What additional impact beyond prediction markets has driven the downward shift in revenue expectations since February guidance? /

  A: Intensified overall industry competition is the main backdrop, and prediction market competition remains the primary headwind for sports betting revenue. Weakness in consumer discretionary income driven by elevated gas prices is an additional secondary factor, though it is difficult to fully disentangle its impact. Mechanically, last year's Q4 had exceptionally high sports margins, which creates a more difficult comparison for this year's Q4 that is incorporated into current guidance.

• Q: How has competitive intensity in iGaming developed since last quarter? /

  A: The iGaming market remains very competitive, with new serious entrants launching in large established states like Michigan over the past 6-9 months. These new entrants are spending heavily to acquire players, pushing iGaming customer acquisition costs up over 15% year over year. New regulatory constraints, such as updated KYC rules in Pennsylvania, have also added friction to the player acquisition process. Despite these challenges, management remains confident in its strategy and pleased with current segment performance.