MGM Studios 3Q13 Update

| About: MGM Holdings, (MGMB)

MGMb reported 3Q13 results yesterday, and the conference call and earnings release can be found at here and here. Thanks to continued benefits from The Hobbit and Skyfall, revenues were up 43% year over year, to $243mm in 3Q13 vs $141mm in 3Q12. EBITDA rose 133% to $64mm, vs $28mm in the prior year period. LTM EBITDA now stands at $420mm, and $272mm in the nine month period ended 3Q13. So, we're well on track to meet or exceed the top end of the range ($310mm) implied by management's adjusted EBITDA guidance.

On December 13th, MGM will release the second installment of The Hobbit, and will recognize the promotion and advertising expense from the film inside the same quarter. Given the success of the first Hobbit film, this second of the three part series may also crest the $1bn mark at the box office. See the trailer for the Hobbit 2, it looks super good.

The company had zero debt and $51mm of cash at quarter end. After the close of the quarter, it held onto its $51mm of cash and used $55mm of revolver availability to repurchase stock. The board upsized the existing $75mm buyback authorization to $150mm. With the $55mm repurchase conducted after the close of the quarter, and some subsequent buyback activity, the company now has $93mm remaining on the buyback authorization.

RoboCop and Hercules are completed and ready for release, and Poltergeist, If I Stay and 22 Jump Street are in production. MTV has picked up a fourth season of Teen Wolf (recall that after a 5th season the show can go into syndication). According to the company, the market for traditional television services has improved and the explosion of digital platforms has helped to build demand for MGMs content library.

At year end, MGM plans to begin providing detail on cash generated from the library. They had provided this data up until 2011 and then suddenly stopped in 2012 - now they intend to resume. If you were the CEO, why would you resume reporting library results…..because you intend to stay private? Not likely, you increase transparency because you plan to go public or to sell.

When asked directly on the 3Q13 conference call about plans for an IPO or a sale, management could not comment but was clear about the fact that it was diligently reviewing all options.

This stock was $55 when I first posted, and it's now $67, on the way to $95. I see this business going public in 1Q14.

Disclosure: I am long OTC:MGMB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclosure: I am/we are long MGMB.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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