Q3 2021 Melco Resorts & Entertainment Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by.
Thank you for participating in the third quarter 2021 earnings conference call of medical adoption and entertainment.
At this time all participants are in a listen only mode. After the call. We will conduct a question and answer session. Today's conference is being recorded.
I would now like to turn the call over to Mr. Robin Good director of Investor Relations of Melco resorts and entertainment.
Please proceed.
Thank you operator, and thank you all for joining us today for our third quarter 2021 earnings call on the call are Lawrence Ho Jeffrey Davis, Evan Winkler, and our property presidents in Macau and Manila in 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.
And a reconciliation of each of these measures to the most comparable GAAP financial measures are included in the earnings release.
Finally, please note that our supplementary earnings slides are posted on our Investor Relations website.
With that I will now turn the call over to Mr. Hoh.
Thank you Robyn.
In the third quarter reflect the pandemic continue with impact in the subsequent restrictions at all.
Travel restrictions on our operations.
Despite the challenges this quarter, we managed to remain EBITDA positive in each of our geographies.
Once again, we would like to thank the Macau and mainland Chinese government for the handling of the COVID-19 situation.
Currently lighthouse citywide vaccination rate has reached over 60%, which represents a remarkable progress versus the 30% cited on our second quarter results call.
With a high level of immunity as a key focus in Macau, we believe that continued progress toward higher vaccination with levels is an important step towards border reopening in a faster pace of recovery.
Both melco and the government actively encouraging citizens and employees to get Jeff as soon as possible.
Here at VAALCO, we are ruled out employee vaccination incentive program to support the government's effort to meet its community vaccination goal driven.
Driven by our get the draft incentive program, we're proud to be approaching a 95% overall employee vaccination rate in Macau inclusive of those truly vaccinated with first shot.
As endorsed by the Macau government.
Vaccinated employees in Macau are required to undergo weekly.
Starting in October to protect our colleagues our guests and the broader community.
And our Macao operations, we remain EBITDA positive this quarter, despite a sequential decline as industry wide CAGR levels from the prior quarter.
Our cost control measures were a primary factor of our EBITDA.
We remain optimistic that our core business in Macau will recover back to pre pandemic levels once travel restrictions I E.
In the Philippines, our gaming and hospitality operations at city of Dreams, Manila experienced periods of closure when the government imposed stricter quarantine measures upon that new Covid cases.
Our gaming operations, we're close to the general public for 42 days from August to September <unk>.
We subsequently reopened at city of Dreams Manila.
With limited capacity.
Authority incrementally.
Quarantine measures.
Turning to Cypress, our casinos, who are fully open during the third quarter, which drove strong visitation over the summer months.
As a result, we quickly returned to positive EBITDA.
Expect further relaxation of Covid related restrictions that would commit up to Paul.
Got it.
Which will provide.
<unk> further support to the business.
We have discontinued our pursuit of an NDA.
Greater resort in Japan, and we will close our offices there.
Meanwhile, Melco remains committed to its global Capex development program.
And Mike how construction is studio city phase II remains on schedule.
We have recently talked up both tower structure.
Reaching an important milestone for the project.
We expect phase II construction to complete no later than September.
In Europe, the construction progress of city of Dreams Mediterranean is on track for opening in the second half of 2022.
Finally, I remain optimistic about <unk>.
Both medium and long term growth prospects.
Demand from our customers is there.
We will be ready to enthusiastic Lee.
Received once travel restrictions.
<unk>.
From a regulatory and policy perspective, we firmly believe that we are helping to build macau into an even bigger better more diversified international tourism.
With that I'll turn the call pretty fast.
Uh huh.
Thank you Lawrence.
In the third quarter of 2021, we reported group wide property EBITDA of approximately $32 million. While luck adjusted property EBITDA also came in at $32 million.
By region, each of our geographies, Macau and Manila and Cypress All reported positive EBITDA this quarter.
At studio City EBITDA was negatively affected by an unfavorable VIP win rate by approximately $4 million.
A favorable VIP win rate positively affected EBITDA at Cod, Macau, and Manila by approximately $2 million and $1 million respectively.
Overall results were not impacted as luck was neutral on a consolidated basis across our properties.
Details of these adjustments can be found in the supplementary earnings slides posted on our Investor Relations website.
At the end of September we had approximately $1 5 billion of consolidated cash on hand, when combined with our Undrawn revolver facilities in Macau and Manila of approximately 2 billion. This implies available liquidity of approximately $3 5 billion.
To provide more clarity on our capital structure Melco, excluding its operations at studio city, the Philippines, and Cypress had cash of approximately $620 million and gross debt of approximately $4 1 billion at the end of the third quarter of 2021.
The revolving credit facility in Macau contains requirements to comply with certain financial covenants. We currently have a waiver in place through the end of 2021 for these financial covenants and on November 5th we received confirmation that the majority of our lenders agreed to extend this waiver to the end.
December 22.
As of yesterday November eight we had received unanimous support from all of our lenders consenting. This waiver.
Through December of 2022.
Moving on to our shares we recently repurchased approximately $3 1 million <unk> for 31 million $2 1 million shares were purchased in the third quarter and approximately 1 million shares were purchased in the fourth quarter to date.
Recent volatility led to what we believe to be compelling valuations any share repurchases demonstrate the confidence we have in our company and in our long term prospects.
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 Corp.
Corporate expense is expected to come in at approximately $18 million to $20 million and consolidated net interest expense is expected to be approximately $85 million to $90 million, which includes finance lease interest of $7 million relating to city of dreams, Manila and $8 million to $10 million of capitalized interest.
That concludes our prepared remarks, operator back to you for the Q&A.
Certainly ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced if you wish to cancel your request you can press the pound or ASCII. Once again. It is star followed by one on your telephone keypad.
We wish to ask a question.
We have the first question is coming from the line of Joe Greff from Jpmorgan. Please go ahead.
Good evening everybody.
Laurence I would love to get your view on the Big picture topic on.
The mainland common prosperities.
Set of goals and initiatives.
How do you think that impact may be negatively impacts your higher end players in the future and if your answer is I don't think it does why is that.
Alright hydro.
Well I think.
Comment prosperity is as is the.
The key theme for the <unk>.
The party Congress, which is going on right now.
I don't think it impacts our higher end players.
A sense that premium mass I don't mean, VIP premium mass because at the end of the day.
They are still promoting they wanted to reduce the gap between.
The highest earning tears and the mineral peers, but at the same time they still want.
The middle class to grow.
And people to really common for severity refers more to getting people and one of the major achievements from the from the Communist Party over the past 100 years.
It is taking so many people out of poverty, especially in the last few years. So it's really about taking the lowest.
The lowest.
Income, earning people and then bringing them upstream. So I don't think it has any impact on the on the mass business, which is the future of it.
And also it wouldn't have a major impact on premium up VIP.
<unk> would be a different story, but in any case the VIP.
Lori in Macau is a structurally at parents story.
Great and thank you for that Laurence.
Jeff on.
The new consent that you got to.
Have some waiver covenant relief.
Is there anything that restricts buybacks going forward.
No, there's nothing that restricts buybacks going forward.
Great. Thank you both.
Thank you we have the next question is coming from the line of Ricardo Chinchilla from Deutsche Bank. Please go ahead.
Hey, guys. Thanks for taking my question.
In terms of.
<unk>.
When the announcement of the consultation process with announced.
Could you please share with us what kind of thing, causing you. Some concern on the boats insurance have been clarified now that you have.
Yes.
Two pronged.
Did the regulators.
Your vision is.
Did you see to phase two do you think that died.
No.
<unk> competitive advantage for us.
Your peers that might need to further impact as part of this consultation process.
Hi, Ricardo is Laura So I think the the Macau government has conducted a very.
Fair and transparent consultation.
Process.
And we have submitted our questions to ask.
I'll comment to them and also we really welcome how open they were.
The.
The conversations that we've had.
So we are going to be supportive and.
I think our all concerns were really just trying to get a little bit more framework on some of the issues about dividend and honestly I'm sure all of the other policy you've heard so far this earning season everybody has the same view.
So I think as an industry, we are aligned on that front and frankly I think after all conversation with the government we were.
We were assured and relief.
I think we will continue to work closely with the government as we progressed.
Great.
I know that it is targeting.
Targeting dented situations just like to move on.
When you think about the obviously the 15th to Macau, what kind of what kind of.
What are you hearing with regards to the potential easing of the visa situation.
Why do you guys are currently expecting with regards to the reopening or later do you see here and into 2022.
Well I think for us it is.
Really a function of the vaccination rates in Macau.
In today's newspaper the Macau Chief Executive is currently in Costco.
And he is talking about potentially hitting 80% Macau citywide that around 60%, 65%. So at 80% we feel that we had much more.
Ammunition to discuss.
Easing of some of these restrictions from China and.
So I think that will be key but as a company. We are prepared for the worst and as part of our budgeting and they're off.
Given COVID-19 zero I think we're really going to be range bound for the for the next.
Six to 12 months as long as China continues with the zero Covid path.
Yes.
We're going to assume that there is going to be paces I think as of right now almost half of the Chinese provinces have cases or close contact.
And that had the effect of travel as well.
No.
We're going to be Conservative next year is a very important year for China from the Olympics to the.
Hong Kong Chief executive election to the 25th anniversary of the handover of Hong Kong to of course, the Communist Party Congress next year, where president and CEO Ken.
<unk> third term. So there are really historic events happening next year and so those are all reasons for being Super Conservative in terms of opening up.
Got it if I might.
One in given that we were talking about the future do you still anticipate.
The consultation.
Sure we do a process to be ended in June of next year to your spread.
Short term extension and that's it for me. Thank you.
Well again, I think we're working closely with the government, but there is quite a process with <unk>.
They need to go to the Legislative Council and they need to change the law.
I suspect in a good outcome for us as operators would be we would have all the details ironed out but in terms of.
Starting the.
Starting the eyes and crossing the Ts with the government it might extend a little bit longer perhaps a year or two.
But anyway I would love to know the framework hopefully before June of next year.
Thank you so much.
Thank you.
Yeah.
The next question comes from Billy <unk> from Bank of America go ahead.
Thanks, Good evening.
Also two questions. The first one also related to license reward thoughtful.
Just wanted to ask Lawrence with you.
We understand that.
A lot of calls.
And if you need to look into some potential areas are there any.
Thank you changed it.
Potential change that will.
Also the long term return on the margin outlook for the question.
Hum.
We think there will be anything that will significantly change that outlook.
I don't think so really I think we're as a company and all of the executives. We are mid term to long term bullish and positive and we have seen even.
It is really bad luck that Golden week was wiped out in the whole month was lifestyle because of cases, but we certainly saw I think David can go into a bit later on we saw a lot of pent up demand even during golden week before everything got canceled.
So.
The long term trajectory for this industry in Macau I don't think its effective and in terms of the concession.
Re tendering process, none of the nine points.
When we looked at it have I believe when effect.
Our margin of course it continues to talk about I think the only area is.
More diversification and more investment in non gaming, but at the same time I do believe that.
That is going to be in the future because with the VIP sector is being impaired the way that it is going forward it is going to be.
<unk>.
It's going to be focused on mass and mass is going to need more amenities and more non gaming attractions.
Mhm.
And of course short term you just mentioned there should be pent up demand so.
First of all just wonder would you guys be able to provide some color on what happen. After October 19, when the quarantine requirements being removed what kind of ramp up.
And then secondly.
In the last few days, you probably hear about like the Hong Kong China potential.
What are we opening and normalization so what's your view on that about how would that impact Macau.
Hey, Bill its David So quickly maybe what we were set up for a really nice.
The Golden week, and Unfortunately, the week before the Golden week, we had obviously very high Occupancies, we have a lot of people that were scheduled to come.
It was kind of as Lawrence I was just kind of a kind of a kick to the guide here a little bit when this.
Unfortunately, the cases came back into Macau that being said as we came out of this and we were able to open up more fully after the 19th of October we experienced a nice rebound. So the last week of October was very good for us and very strong I think you saw that with the <unk>.
Numbers for for Macao in General I think the last week has been somewhat of a bit more muted I think one of the challenges that we had is when we have the hangover a little bit from people that had visas to come during the October Golden week, we've seen in the last let's say the last seven days or so is that we still haven't seen the dropping of the test right now you still have to get tested.
Every 48 hours, which wed love to see it go back to the seven day test. Additionally, as you look at it. We've also seen many of our customers now in these northern provinces as Lawrence said, probably half the provinces in China have had some sort of impact or some sort of cases, so right now to get into Macau, you have a two week quarantine coming.
Most of these northern provinces, now, which I think we're just counting just a little bit ago in the room, probably over 40 cities or districts that are prevented some coming into Macau without doing a two week quarantine first so there is somewhat of a hangover relative to just the quarantine and just other cases out there with a zero tolerance. So I think.
The month of November is probably going to be a bit more muted for us hopefully as these things start Corey we will start seeing us get back to more of that normal pattern like we've seen in the past we saw it in the first quarter of this year, we saw in the second quarter. Once we come out of these things things seems to go pretty fast, but again it is somewhat choppy as we go along here.
I see.
And sorry, and in terms of the Hong Kong border reopening how would that impact <unk>.
<unk> has always been.
15% to 20% of the business.
For my friends at Hong Kong people haven't gone anywhere.
So.
Is that the border was open between Hong Kong Macau people who'd be rushing to Macau. So I think we'll get a nice.
But at least the 15% to 20% fall.
But I think even the whole humping, there was news out in long haul today, where.
And I assume that once all client China opens up it means that all align with Palo Alto.
But the thing is they're all talking about a trial in Hong Kong in December.
If the trial's successful may be definitely expand the trial in February with.
Assuming everything goes right they might have the full opening in June so and Thats why we have come to the view that the next 12 months, we will continue to be difficult and range bound because.
With with travel restrictions and with zero tolerance to Covid.
There is always going to be these openness shot open in shock cases, but once everything opens up again.
That.
I'm sure we're going to follow the path that we've seen in other jurisdictions around the world where people are just dying to be entertained.
Thanks, a lot. Thank you.
The next question comes from the line of bromine Chowdhry from Vulcan.
Morgan Stanley. Please go ahead.
Thank you so much thanks for taking my question I have two questions if I may.
The first one is about buybacks so very pleased to see the buyback clearly the stock the whole industry is.
Cheap.
Wanted to understand if the share buyback.
We will.
<unk> considering you are saying for the next 12 months it could be range bound.
So there should not be any rush to buy the stock at this level or.
I'm getting a little bit of disconnect here, if I may or maybe it's a long term basis. It doesn't matter because it's so cheap you want to use some cash, especially because net debt.
Rising and so using the share buyback I wanted to understand a little bit more. The second question I have is on online gaming gaming business again, a pleasing result were in Manila that hasn't started wanted to understand if you can disclose how big was that in Q3 and what's the outlook. It seems like it's only for local.
Patrons and so currently maybe smaller but just wanted to see next couple of years, how does it evolve and the competitive landscape. Thank you so much.
Alright. Thanks for the question I guess and then just you guys want to take those two questions.
Sure. Thanks Laurence.
Yes.
Go ahead.
So within the Philippines, obviously that there is a version of online which we are currently engaged in and that's allowed.
I would characterize it more as a hybrid versus sort of what you think of with online gaming and then integrates obviously.
Into the existing player system and into the existing sort of.
Offline brick and mortar infrastructure.
That is going to continue it is nice to have add on.
To our business there during the Covid period.
I think in terms of what it means going forward, we anticipate for the near term that will continue to be allowed.
We are working with the government in the hopes that it will continue to be.
An opportunity for us to potentially longer term, but it is a little bit early for us to comment on what it will mean.
Longer term for us coming out of Covid.
Given that the permission was given sort of under a set of special circumstances.
So on the share repurchase.
So.
Storage, we've always been very opportunistic when it comes to share repurchases and over time.
<unk> done about $1 8 billion of share repurchases.
We've got out of our $500 million authorization, obviously, we have around $469 million of that remaining.
We will continue to be judicious and opportunistic as we consider additional share repurchase this quarter and into next year.
But.
We're not in any rush will continue to be selective on when and how much will be back into the market.
Jeff. Thanks, So much would you be able to disclose the average cost for the buyback in Q3 and Q4 separately.
Pretty similar just under $10.
And both parents.
Thank you very much and good luck.
Thanks Praveen.
Yeah.
Thank you. The next question comes from Simon Cheung from Goldman Sachs. Please go ahead.
Hi, Thanks for taking my question I have two questions one.
Relation to Algeria, I remember last quarter, you guys talk about you know.
We ramping the property and we have seen a nice turnaround on the EBITDA.
Perhaps can you shed, we watch whats going on over there and some sort of guidance.
In terms of the medium term.
Tal generations on that property.
A question and then second questions on on Japan, and obviously Yoko Ahmad now.
Dropped the idea of having IOL in the near future, what's your latest thoughts about Japan.
Even though the oversea expenses thank.
Thank you.
So Simon.
Simon why don't I take the first one and we'll go from there.
Sure.
Implemented our plans at the end of the second quarter, where we've reduced our cost dramatically and we transferred most of our VIP business over to city of Dreams of studio City that process has gone very well. We also transferred a lot of the personnel to get our cost structure more in line as we go forward here, we're looking to probably do the final set of <unk>.
The answers, which would coincide with the opening of studio city phase two we're trying to bring more people over there to get our cost structure down to where we really want it to be on a go forward basis. Our breakeven now has gotten to be a much lower level now and we think as the market continues to recover and we see a sustained recovery, we think our ability to generate a profit over there.
On the mass business is very good going forward here.
Hey, Simon.
On your second question clearly.
The Japan opportunity didn't work out for us.
Given the impact of Covid.
The prices isn't over yet and by the end of it probably would've affected two to three years of business. So I think for the next two to three years. Our primary focus is really.
On rebuilding our balance sheet and then of course, we still have a city of dreams Mediterranean Europe to open at the end of next year second half of next year, and then studio city phase two so thats all I think we have a plateful put.
For the next two to three years.
Yeah.
Thank you we have no further questions at this moment I would like to turn the conference to Mr. Robinson for any ending remarks sequels.
Thank you operator, thank you all for participating in our conference call today.
Look forward to speaking with you again for next quarter.
Thank you, ladies and gentlemen that concludes our conference call for today. Thank you all for your participation you may disconnect now.
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