Q4 2020 Melco Resorts & Entertainment Ltd Earnings Call
Yeah.
Ladies and gentlemen, thank you for participating in the fourth quarter 'twenty and 'twenty earnings Conference call of Medical Research and Entrainment Ltd. At this time all participants are in listen only mode. After the cold and we will conduct the Q&A session. Today's conference call is being recorded I would like to turn.
The call over to Mr. Timothy Magic. Thank you. Please go ahead Sir.
Thank you for joining us today for our fourth quarter 'twenty and 'twenty earnings call on the call are Lawrence Ho, Geoff Davis, Evan Winkler, and our property presidents and Macau and Manila and Cyprus before we get started please note that today's discussion may contain forward looking statements made under the safe Harbor provision of Federal Securities Law.
Our actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures of definition and reconciliation of each of these measures to the most comparable GAAP financial measures is included in the earnings release and finally, please note that our supplementary earnings slides are posted on our Investor relations website with that I'll now.
I'll turn the call over to Lawrence.
Thank you for them and Hello, everyone.
During the fourth quarter and integrated resorts continue to experience of gradual recovery and business level.
The slight increase and Covid cases throughout the world for both in Macau, and the mainland Chinese government and measured and prudent approach towards the border of reopening.
Have not seen any locally transmitted COVID-19 cases and over 300 days.
Benefiting and it's gonna be with them kind of the visa issuer.
On the call mass table games operation, which contributed the vast majority of of our EBITDA pre COVID-19.
For the notable sequential improvement from the third quarter for the fourth quarter.
We reported.
The positive property EBITDA per Boe.
And the title of operations and our overall global operation.
We remain optimistic and the recovery and the power and continue to expect increased visitation and the near term.
Earlier this week with the removal of the remaining two cities on the cause of medium risk with all.
All corn and restrictions were lifted for the problem.
And from mainland China and the town.
More notably there are no quarantine restrictions for the main.
And then Chinese citizens, who are recurrent income accounts.
And Macau.
And while we continue to see improvement and our business volume.
And ensuring the safety and wellbeing of our colleagues customers and the communities and which we operate remains our highest priority.
We continue to expect a faster rebound and faster growth and both of the premium mass and premium direct segment.
Which will benefit and the Alco portfolio of luxury integrated.
Our current expectation is that we'll begin to see the benefits of pent up and there and starting in mid to late March.
The trends continue to improve and the Philippines and city of Dreams Manila generated positive property EBITDA for both gaming and hospitality operations running when the limited trial run basis for.
And why tackle.
While there will be the slippery kind of the domestic gaming demand and cyclic casinos and the third quarter of 2020.
And the increasing number of Covid cases that the Cyprus the government to announce the second locked down during the fourth quarter.
This resulted in a partial closure of a casino at the kind of November 13, and the full closure of from December 1st.
Despite the global pandemic Melco remains committed to its global development program.
Our next major project and metallic studio city phase two.
Construction is ongoing.
Upon completion of the phase two expansion will increase studio city's hotel room inventory by approximately 60%.
With two new hotel tower, offering approximately 900 and luxury hotel rooms and suites.
Gaming spaces will be expanded and new non gaming attractions will also be added including a send and flex one of the world's largest indoor and outdoor waterpark fine dining restaurants and state of the art Myspace.
To further strengthen our competitive edge and between me and the ethics and the path of.
Upgrade of work continue at city of Dreams.
And the fully renovated and it was expected to open at the end of March.
We plan to close the countdown and the near to medium term, reducing the teach out and transforming the power of into and all suite of lifestyle product with a targeted reopening and 2023.
The renovation at the accounts that will give us five style offerings across the board.
Sure.
Do you agree.
Further enhancing our position as the leading premium property in Macau.
And Cyprus of.
The development of the city of Dreams, Mediterranean and continues to progress.
After the completion it will be Europe largest integrated resort with over 500 luxury hotel room.
Approximately 10000 square meters of my day.
And also enter the theater.
Family Adventure call the variety of fine dining outlets and luxury retail.
Okay.
Turning to Japan, and we want to highlight our commitment to bringing a world leading IR there and.
And continue to pursue opportunities within the market.
While the process and the Japan has been delayed and remains complex.
It has renewed momentum and tourist fiction and initiating RFP processes.
We remain convinced that the kind of represents the best potential new gaming market globally.
At the same time.
Whenever they and patient and we'll maintain our disciplined approach with respect to all development activity.
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Finally.
And we remain confident and mouthful of medium and long term growth prospects.
I believe metallic fill of the most attractive integrated resort market and the world.
Our balance sheet was further strengthened by our recent capital market transactions, enabling us to overcome the near term challenges while investing for the future.
With that I'll turn the call over to Jeff the go through some of them.
Thanks Lawrence.
And the fourth quarter of 2020, we reported group wide property EBITDA of approximately $53 million, while luck adjusted EBITDA came in at $49 million.
The favorable VIP win rate positively affected EBITDA at.
Cody and Macau, and Manila by approximately $9 million and 1 million respectively.
At studio city, and the Alterra EBITDA was negatively affected by an unfavorable VIP win rate by approximately $4 million and $1 million respectively.
On a consolidated basis overall results were positively impacted by approximately 5 million day.
Details of these adjustments can be found and the supplementary earnings slides posted on our Investor Relations website.
In addition to the VIP win rate fluctuation. Our performance was also affected by our bad debt provision during.
During the fourth quarter of 2020, we incurred of bad debt charge of approximately $23 million. This compare to of bad debt charge of approximately $12 million and the fourth quarter of 2019.
On a year over year basis, the change and the bad debt provision negatively affected EBITDA by approximately $11 million.
Additionally, our fourth quarter 2020, EBITDA was positively impacted by a $16 million bonus reversal.
Turning to our balance sheet to optimize our capital structure in January the studio city issued $750 million of 5% senior notes due in 2029.
The proceeds were used to refinance the $600 million of seven and a quarter of senior notes due in 2020 for with the remainder of the proceeds raised to be used for phase II Capex and general corporate purposes.
The transaction reduced our average borrowing rate and extended our maturity profile with studio city's next material debt maturity not until 2025.
Also in January Melco utilize favorable market conditions to tap the $5 37, and 5% senior notes due 2029 for an additional $250 million the.
The tap was price at one of the three and a quarter of par, which resulted in an effective borrowing rate of approximately four 9%.
At the end of the December we had approximately $1 8 billion of cash on hand pro forma for the capital markets transactions in January our cash balance would have been approximately $1 9 billion.
When combined with our Undrawn revolver facilities, and Macau and Manila of approximately 2 billion. This implies pro forma available liquidity of approximately $3 9 billion at the end of December.
To provide more clarity on our capital structure Melco, excluding our operations at studio city, the Philippines, and Cyprus had cash of approximately $900 million and gross debt of approximately $4 1 billion at the end of the fourth quarter of 2020.
And as we normally do we'll give you some guidance on non operating line items for the upcoming quarter.
Total depreciation and amortization expense is expected to be approximately $145 million to $150 million.
Corporate expenses expected to come in at approximately 20% to $22 million and consolidated net interest expense is expected to be approximately $94 million to $98 million, which includes finance lease interest of $11 million relating to city of dreams, Manila and for millions of capitalized interest.
This concludes our prepared remarks, operator back to you for the Q&A.
And secondly.
Ladies and gentlemen, we will now begin the question and answer session.
Wish to ask the question. Please press star one on your two and the keypad and wait for me to be announced if you wish to cancel your request. Please press the pound.
Key.
We have the first question from the line of true from J P. Morgan. Please go ahead.
And.
Good evening to you guys. Thank you for taking my question.
Lawrence for your chain today is probably at least the Austin, the most optimistic and the.
The year and.
Your comments about your expectations for increased visitation and the near term.
And more.
More recovery and the mid to late part of March.
Our attention can you talk about what's rooting this increased optimism.
Relative to just three months ago, and and how much I mean, we obviously had some clear.
Clear positives.
And recently with throughout the travel.
Travel restrictions evening, how much of this optimism is needed and I.
And I guess more traction and we he's coming from.
And the issuance for mainland China.
Yeah.
For the hydro.
Why don't I give like the high level and I'll pass it onto the David to give more of the details.
And I think all of optimism really come from seeing what happened and what the tail end of Chinese new year and.
And seeing how strongly the kinds of demand coming back and even even last week.
And also as there are no more cities on the corn team that's for mainland China and.
Beginning of March is always the nature of political concession meetings I think after that.
Many pieces that are getting incrementally better and what the vaccine rollout happening in China and the rest of the world I honestly see.
And I think a year ago, and we did the call for the Q for 2029, and we were the very first one to say this is going to be very very slow and very very gradual.
And so I think finally, we are seeing the light at the end of the funnel and.
When we look at the consumption behavior and China. It is.
Very impressive given how successful the Cline.
And also of Macau has control of the survey.
Alright, so I think with all of those pieces together and even today there was a little bit of news that <unk> has resumed its.
Yes.
The route between Taiwan, and the trial. So all of these little pieces added together.
And I think the main thing we're seeing how strong the tail end of the Chinese new year I don't know.
A couple of things.
And one other things and as Lawrence mentioned and the talent of Chinese new year.
Going and we've got pretty well expectations on what was going to happen because of the restrictions that Macau and put out there.
And as these restrictions started dropping.
Just the weight of rivals that came in for Chinese new year, it's pretty incredible what's more than we thought was going to happen and.
And then the quality and quite and we saw the king of the Chinese new year. So.
We were seeing the buildup in the fourth quarter, then the restrictions and started pointed in the right after that first and for January.
What I've seen and kind of drop off but how fast the return once the restrictions of drop and how fast the players started coming back.
And the Ibs coming back and as the other diseases and other things start coming into play.
The other customers want to come and I just wanted to other things we're doing.
Pretty happy that we started seeing a lot more customers coming in from Guangdong and that region, which we hadn't seen before we also saw customers that we hadn't seen before and our opinions of rest of at least of year. So we know the demand is out there for people want to come here.
And so.
If these things continue to improve bikes and things are going to have the vaccine rollout and for vaccines rollout has the.
And the number of travelers youre able to comment and starting to make it so it's easier for them to come and we know that the things are going to improve so again, we think that hopefully you can turn the corner here.
And Joe one other thing I'll add onto and David reminded me of that day and.
And then speaking to various levels of the government. They all are very proactively.
Talking to China and the relevant.
Zero.
In terms of restarting the E channel for the for the visa.
And we starting to move towards so there is a lot of incremental positive that they're working on and with the with Covid being under.
Under control and China.
We do think that once the visitation and returns and it's easier for people to get into the fall of the appetite.
And at least that and we fall sort of SaaS.
Yes.
Great. Thank you very much for thoughts.
Thank you.
We have our next question from the line of the Liang from Bank of America. Please go ahead.
Hi, good evening, and thanks, a lot of for hosting the call and.
I think just wanted to follow up with.
The previous comment regarding the board of normalization.
And I know the situation is still quite fluid, but lois.
Laura would you mind to give us some of your.
Personal thoughts about like the following.
Both of the normalization timing of the calling for the Av.
No Bryan station, including the E Channel that you mentioned Hong Kong Macau, the connection and also like the other type of pieces, including group travel and concept to ease of.
What should we expect in terms of seeing a bit more relaxation and would that be a bit like the next couple of months all of it will be more realistically is still features ex went away.
But again it really I think we were.
Very we've been the most realistic and.
For the last year, we probably feel like the most pessimistic and Debbie Downer.
And I honestly believe seeing how the vaccine rollout and China, Hong Kong and at the end of the day. If you look at the Pal Greater China, and Hong Kong, Macau and Taiwan.
And China is over 90% of our business. So I think that's the key to the to restock.
And I feel like the the.
And the restarting some of the E channel and stuff and again. This is this ultimately up to the.
And the discussion between the current and the Chinese government.
Assuming that team of rollout is going smoothly and and.
And the counterpart at Hong Kong and Salt.
And I do think there's really two or three months rather than.
For the last year, we've been looking.
Longer and longer and so I do think and it's probably two or three months. So hopefully sometime in Q2, maybe end of Q2, we'll see some normalization and.
And the Commvault and China has taken a very scientific and health, so even Hong Kong, which is about 20% of over 20% of all business.
Well I think the power of clearly pulled Hong Kong that if they start having of health the health coach the thing the metallic plan of sharing right now.
And that they have fewer than I think 10.
Daily low core transmitted cases, I think that corridor, where we open.
And so there are a lot of incremental positive because of Hong Kong and pretty close to that number now.
And again.
For the first time, and really 12 months, we see a lot more positives and negatives.
Thanks, that's very helpful.
And my second question is just wanted to get a bit more color about the Chinese new media topic.
And since you guys just mentioned the some of the new customers or customers that haven't been back for quite some time and also the spending power can.
Can you tell us a bit more.
And it seemed like the reason coffee and compared to the Golden week.
And you see.
And spend a lot more of a lot.
The same type of customers.
But they they just spend the behavior change a bit.
Or is that different type of customers.
Any color that you can share would be appreciated.
I think like.
David wanted to VITAS.
We compare very favorably favorably to Golden week.
And especially the last week, but definitely the standard the Goldman defeat of the Golden week in October of 2020, I think maybe a couple of things to take away.
Obviously this is being led right now because of that.
Our premium segments, both the plenty of announcing our premium direct.
We've not seen the math math return, yet and you can see that obviously and the visitation numbers of the government and posted but it's been on the premium I think one maybe one other than the takeaway for method.
You look at the room nights and the work filled out and our hotels, but if you look at our occupied room nights and the theoretical per room and the players that we had coming and it's the best we've seen since the fourth quarter of 2019.
So again, we're optimistic as we look out into the future here, we think things are freeing up more and more like I've said before and many calls we know that the customers want to come and we know the demand is there they just need to be allowed to come and we think.
And things will just jump from there. So it was pretty amazing when you go back and look as they started dropping and the number of cities and provinces have they started moving them off the list and the number of people that came and traditionally.
And Macau has got a very late booking window, we had so many day of arrivals and players that had either canceled or who said they weren't coming in and then ended up coming.
And it was pretty extraordinary for us so again workflow the out what price. It normally was the part of Chinese new year, but it was much better than we've seen at the October of <unk>.
And weak and we think Theres again, and the room for optimism as we go forward here, we know the customers want to come.
And.
And then that's very helpful.
Okay.
Thank you.
Our next question from the line of.
Probably and Chowdhry from Morgan Stanley. Please go ahead.
Thank you.
Hi, Lawrence Hi, Jeff.
Yes.
And also high David quick question for me one is on the Hong Kong opening, which I think is the most important and.
Near term to help Macao and.
And then second I have some numerical questions.
On Hong Kong opening and.
In December we were trying to open up with Singapore, and there were some comments made that Hong Kong needs to show.
Zero number of local cases.
Indicative of seven days before either in Macau, or China and could you just update us.
Change or the.
Things are looking a lot better because of the vaccination.
And what's your realistic assumption of.
All of the people of Hong Kong, and Macau getting vaccinated is that when we get a full fledged.
Access to these two regions piece and then I'll have some numerical questions.
Hey, Praveen I didn't hear the question perfectly and so let me try to.
Guess, what no I think what has changed between Hong Kong and the college.
For like How's the angle and and in my prepared remark.
How is nearing the first anniversary of zero locally transmitted cases, so kind of Macau government and.
And I am all 150 per cent of agreement with them is the.
The most important bloodline lifelines and Macau is obviously, the mainland Chinese market and.
And so and like how is that going to address.
And that.
With Hong Kong, and and the definition and Asia and greater China about.
Controlling COVID-19 is very different from the west <unk>.
Controlling COVID-19 at the thought there was almost of the elimination of it and the West I think it's always going to be like the cold or flu.
So even though the kind of I mean.
Even though Hong Kong had.
Under 100 cases that was considered way through March for both China and Macau.
And so like I wasn't going to and risks.
The closing of the China auto for all of them that way, but I think given some of the more.
Drastic measures at the Holdco and government has taken and the last thing and want to control their so called for Hawaii.
I think now that the numbers are coming down and Thats why for the kind of at home all of them, having the discussions and.
Again as I read of area.
As the various scientific approach in terms of how they looked at it so again, given the numbers and hopefully help all of them to have any other net.
Major outbreak and with Vivek vaccination program started and I think that addresses what David talked about which is.
And if people can't Tom.
Certainly as the apparent to us now that they will come and so there isn't any.
And.
Permanent change in behavior and people are still longing for that excitement and entertainment that Macau after all of them.
That's great, Thanks, Laurence and and I agree with you on that point.
And sorry, greetings to Ivan as well. So my question on the numbers for Jeff would be three questions could you tell us about the cash flow from Manila, I would assume that even though it's EBITDA positive and maybe the cash flow was negative. The second question was opex number for fourth quarter versus third quarter as it.
And does it have to go up as volume goes up and the third question is not every company reports bad debt number but you do.
Although these numbers look a little bit on the high side can you just explained.
Why are these numbers on a sequential I mean, and the last three four quarters had been a bit on the high side. Thank you so much.
Sure. So for the last one first on our bad debts. As you know we provide that every every quarter just to provide some transparency to you and our investors.
And yes, it's definitely elevated from what you can call maybe normal levels and Thats just the reflection of the operating conditions, we have on the ground.
And Macau over the last year as you know it's been very challenging.
So I would say that we'll begin to.
Normalize that.
Bad debt provision going into into 2021 and.
And over the course of 2021.
I think your second question was on.
Macau Opex right.
Yes.
So the.
The daily cash Opex number in the third quarter was approximately $1 7 million.
That did increase as volumes returned into the fourth quarter at about one nine and is.
With the backdrop that was provided recently by by Lawrence.
As the business continues to improve.
Yes, I would expect Opex to continue to increase as the volume returns and some of those.
Variable.
Business driven.
Costs come back into the system.
And then there was last question on cash flow from Manila. Thank you.
So cash flow from vanilla, you're right. The the property the property level number of about $17 million.
Once you get through some of the charges against that rent payments et cetera et cetera.
Yes after that the.
The net number.
After the recharge as profit share of rental et cetera.
It is slightly less and breakeven.
Great. Thank you so much of an early minimal yep. Thank you.
Yes.
Thank you we have our next question from the line of Simon Cheung from Goldman Sachs. Please go ahead.
Hi, everyone the pencil.
My question and I have two questions one and Lawrence you all of you sound quite optimistic.
And given all of the chapel.
For the travel restriction and beliefs.
Obviously, the normalized season and is one thing, but wanted to get a sense of how you think about the pent up demand.
If you were to pull the lumber and OSB assessment of the pent up demand, but we see maybe some of the scheming the demand would have some 70% going out of kind of going.
And they'll be coming back of 30% and they'll be coming back.
First question and then and then the second question and then given the also the current situations. How would you think about the studio city phase two O U.
And the flexibility to speed up the.
And the constructions.
And see whether you of any update on that as well. Thank you. Thanks for that.
Hey, Paul and I and let me answer your second license for the third for studio City Phase two we haven't slowed down at all.
And because we do think that around the end of <unk>.
And in 'twenty two.
Beginning of 2023, the the market would've been fully recovered and and then zone and so we think thats a great timing to open the new property and.
And and so we haven't slowed down.
And to working with the government on the development period.
Given the Covid.
The late.
So we're very happy with it and and then is there.
Anything that the building is the fuel cell towers are already up to seven and Florida.
And so hopefully by the end of 2021 before the end of 2021, and we will help all of the building and we'll spend the.
Bulk of 2022 and doing.
As well.
So, but I do think by the end of 2021 and the market should be all for ratings.
And closed to like for quarter of 2019 and levels.
Of course, the other than the VIP segment, which is.
Which is another story.
Okay. That's very helpful. Thanks for the insight.
I appreciate thank you.
Thank you.
We have the next question from the line of Shane <unk> from American century. Please go ahead and.
Alright. Thank you for taking my question just the follow up on your previous comments about more optimism heading into this year could you kind of give us a sense of how you are looking at historical G. G ours and annual visitations exiting the Sir please thank you.
Yeah.
And you wanted to take that.
Sure and Evans here, if he has the having anything and add uhm.
We definitely anticipate without of specific number of sort of our run rate or even for a full year, we definitely expect over the course of this year both visitation.
And G G R.
The ramp up meaningfully from where we are today as part of a continuation of of the ramp up the we started to see towards the tail end of last year. So with all of the the factors that the Lawrence is discussed.
We absolutely believe that 2021 for the market and for Malka will be of rebuilding year, as we see visitation and jgr ramp up.
Got it thank you.
Thank you and.
And is there no for the questions I would like to have the call back to gym.
Thank you for participating in our and our conference call today, and we look forward to speaking with you again next quarter.
[laughter].
Yeah.
Thank you.
Ladies and gentlemen, the best concludes the contents for today. Thank you for participating in the one disconnect no. Thank.
Thank you.
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