Melco Resorts & Entertainment Limited Q1 2023 Earnings Call
Okay.
[laughter].
Ladies and gentlemen, thank you for participating in the first quarter 'twenty earnings conference call of Melco Resorts and Entertainment limited at this time, all participants on a listen only mode.
After the call we will conduct a question and answer session. Today's conference is being recorded.
I'd now like to turn the call over to MS Jeanie, Kim Senior Vice President.
Knock on wood.
Chairman limited. Please go ahead.
Thank you operator, and thank you everybody for joining us today for our first quarter 2023 earnings call on the call are Lawrence Ho, Geoff 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.
Actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures a definition and 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'll now turn the call over to Mr. Lawrence Ho.
Thank you Jamie we have seen a very encouraging start to the recovery in Macau during the first quarter of 2023 following the relaxation of border restrictions in early January and the recovery has progressed faster than we had anticipated.
We continue to see improving momentum into April and solid performance during the May Golden week.
Mass drop in Masstige yard during fiscal them week period exceeded the same period in 2019.
And the turnover in our premium direct segment more than doubled.
We launched some exciting new initiatives in April we started like house first ever series of residency concert that studio city.
And open studio city phase two.
Starting with the opening of ethnic hotel tower and the indoor Waterpark.
We also plan to open the W Hotel tower in September , which will round out our hotel portfolio in Macau.
These initiatives reinforce our long standing commitment to bringing unique world class Entertainment and hotel offerings to Macau.
We have a diverse range of events that are being planned for the future that we believe will continue to drive international tourism and precision in Macau as a leading destination for leisure and entertainment.
We are seeing strength in the Philippines with a solid recovery underway.
Adjusted property EBITDA at city of Dreams, Manila for the first quarter of 2023.
Surpassed the first quarter of 2019.
Performance in Cyprus has also been strong with both G. G R and adjusted property EBITDA exceeding 2019 levels.
The operational results of our temporary and satellite casinos have proven that there is strong demand in Cyprus.
We're excited to open city of dreams that our training in mid June and showcase our expertise with the first integrated resort of its kind in the region.
With that I'll turn the call over to Jeff to go through some of the numbers.
Thank you Lawrence our group wide adjusted property EBITDA for the first quarter of 2023 was approximately $191 million.
Luck adjusted group wide property EBITDA for the first quarter of 2023 came in at $197 million.
Favorable win rate.
Positive, we affected Manila by around $14 million.
In Macau.
Studio city were negatively affected by close to $20 million due to unfavorable win rates.
Property EBITDA at CRD Macau in studio City were also negatively affected by mass hold which was lower than our historical average.
If we normalize for both mass and VIP in.
Macau property EBITDA for <unk> 2023.
$192 million compared to our reported results of $121 million.
And the hold adjusted property EBITDA margin would have been approximately 28, 5%.
We have been able to achieve significant cost savings over the last few years and this continues to be a focus as we hire staff to support the recovery.
We estimate that we will have approximately 2000 fewer full time employees compared to 2019. Once we are fully ramped up including the ftes needed for the opening of epic the W and the Waterpark at studio City.
We remain disciplined on cost management and expect to retain at least 20% to 25% of the savings we achieved through the COVID-19 period as permanent savings.
Turning to our cash and liquidity as of March 31, 2023, we had close to $1 5 billion of consolidated cash on hand.
Melco, excluding its operations at studio city, the Philippines, and Cyprus accounted for around $750 million.
Of this approximately $125 million was restricted and includes cash collateral required for concession related guarantees issued to the Macau government.
Total debt declined by around $550 million during the first quarter of 2023 with the repayment of our revolving credit facility.
As we normally do we'll give you some guidance on nonoperating line items for the upcoming second quarter of 2023.
Total depreciation and amortization expense is expected to be approximately $140 million.
Higher amount compared to previous guidance is due to the recognition of the new Macao gaming concessions as an intangible asset on January one and the related amortization costs.
Corporate expense is expected to come in at approximately $20 million.
And consolidated net interest expense is expected to be approximately 120 to 125 million. This includes finance liability interest of around $5 million related to fees payable in relation to the Macau gaming concession finance lease interest of $5 million to $10 million relating to city of dreams.
Manila and around $5 million to $10 million of capitalized interest.
That concludes our prepared remarks, operator back to you for the Q&A.
Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
One moment please for questions.
And I'm showing we have a question coming from the line of George Choi with Citi.
Your line is open.
Hey, guys. Thank you very much for taking my questions.
On studio city phase to you any more color on how it has been doing since the opening would be very much appreciated and also would you. Please remind us of your target <unk> on phase III. Please thank you very much.
Hey, George it's Lawrence.
So I think we've been very pleased with the opening of studio city is a phase II, maybe I'll give.
You know, David and Kevin had chance to talk about the details.
Since we opened in early April which was around.
Around the same time as the start of their residency series.
We have seen.
Studio City overall is much busier and we see the gaming results of.
Correspondingly as well on the <unk>.
Roy question, maybe I'll hand, it over to Jeff, but maybe David Kevin wanted to add some color to what you guys have seen it with phase II so far sure.
It's been a few things George I think one is we look at it obviously, we opened up on April six we opened up kind of software.
About 100 rooms, when we opened it up and then we've kind of gone out to at the end of the month right before the Golden week, we got it up to 338 rooms and suites again, we wanted to do exactly trying to get her in our our <unk> as a procedures and services. So they are all aligned and being in a really good place as.
As we've opened it that we've seen them really good feedback from our customers. It's a nice product differentiation for studio city. It strikes a really nice balanced with the epic tower between what we've done with Morpheus and what we have with new <unk>. So again, it's going to allow us to really grow our premium mass customers over at studio city as well as taking advantage of all the attractions and things will be developed over at studio.
City over the last few years. Additionally, we launched our resident and C series in April which has proven to be very very popular but we've seen right now between what we're doing with FX the indoor Waterpark and with a concert series, we've seen our volumes rise about 40%.
A drop standpoint, so again, we're quite pleased with the early results of what we've seen so far we're anticipating better results as we go forward.
That's very good color. Thank you very much.
Thank you and as a reminder, ladies and gentlemen, if you have a question. Please press star one one on your Touchtone telephone star one to ask a question.
And our next question coming from the line of.
Provincial Dara your line is open.
Alright, Thank you very much congratulations on great set of results.
May I ask about.
Mass market business that youre seeing in terms of premium versus base mass are you seeing the spending per capita to be better than 2019 are you seeing more customers coming in any color on.
Kind of customers, who are coming that will be useful and the second question is since Golden week is over have you seen.
Business tapering down as usual or it hasn't been holding on very strong. Thank you.
Hey, Praveen.
The question is Laurence so again, maybe I'll, let David add more color.
In terms of I think so far the recovery has exceeded all of our expectations has been much faster and better than we had hoped for.
But it's very much a premium mass led recovery because in terms of the visitation numbers I think across all of Macau, It's still down from 2019, but in terms of forego than weak, especially all of our key volume metrics at mass slots and premium direct.
Or exceeding 2019 levels. So I think naturally the spend per customer is higher than previously.
So we are quite pleased with that.
And I think as the infrastructure.
And when it becomes easier for people to come to Macau because right now.
The cost to travel here is still quite high I think that's when the base mass will come in.
And so we're very encouraged by that.
So I don't know if David you want to sure.
Sure.
Well I think it is a much is what I've said is a premium mass led recovery at this point until that infrastructure for the transportation kind of its great Guy here, we'll see that base mass coming through with that said the level of play that we've seen from our premium mass customers is that from a theoretical standpoint for players significantly higher than what we've seen.
2019, so again, we've been very pleased with the players that we've seen coming back the allows us quite a bit.
We think that will continue as we go forward here, we don't see any slowdown in that at this point.
Terms of the Golden week, typically obviously you got to these big holiday periods, you see it taper down for a little bit and then kind of recovered a normal we're kind of seeing that normal pattern that you look at the last week here in terms of as we got out of the Golden week, we are expecting things to pick up and we're seeing that somewhat and obviously in our reservations and the demands in some of the things that we have going.
Answer the rest of the month of May So we don't anticipate that will be down for very long again, it's just following the normal pattern.
Very helpful. Thank you can I just have a follow up on what you just mentioned.
In terms of the visitation running at 50% 60%.
Even though I'm asking is there anything thats much higher level.
What are the specific restrictions, which are not allowing us to go back to 100% of visitation southeast I understand here is not fully recovered and so on.
But the key question is do we expect.
Back to 2019 kind of visitation to Macao and if thats. The case would be expect mass revenue or EBITDA to go back to 120 130, 240%.
2019 level, assuming that spending per capita continues to remain higher Joe I'm not trying to I'm not asking for the projection just a thought that maybe recover in terms of visitation fully in the next several quarters. Thank you.
What provision is Laurence so I think the next key peer.
Period is going to be summer so around July August .
And if you look at the <unk>.
Air lift in Macau right now the Macao Airport is still only doing about 30% and so right now of course, the Guangdong province in the province that can visited Macau very easily all coming but in terms of provinces that require more.
More airplane and stuff like that and I think that's a that's a certainly a growth area.
And so far the recovery the first few months have been.
A lot of Hong Kong, Hong Kong is the bigger portion than usual.
No.
I, certainly think they're Macau will hopefully get back to <unk>.
Close to the visitation levels of the path in the next few months within this calendar year.
In which case just judging from where are now.
Math in Florida, and premium direct numbers are.
We will exceed that of 2019 sooner rather than later.
Extremely helpful. Thank you Laurence Thank you, David and all the best.
Okay.
Thank you and our next question coming from the line of Angus Chen with UBS. Your line is now open.
Hi, good evening Laurence.
Couple of questions on.
The Q1 results I guess very strong results that we see and I think it's above expectations can you can you talk about the phasing of that I suppose March will be the strongest month in April for the improved just based on I guess the industry gaming revenue.
Numbers.
I guess secondly, what.
Are you restricted.
In terms of capacity in Q1 and therefore.
Q2 that we look for.
Both in capacity on a Q on Q basis. Thank you.
Angus So again, let me hand, it off to David.
To add more color.
But yes, youre right I think every month, starting after Chinese new year ever every subsequent months, we have seen increases I think thats why we.
I think not just every months kind of every weekend, we're seeing kind of a uplift.
From the previous weekend.
And so very encouraged by that.
But maybe David can share more.
Details on the ground share so.
So do you kind of look at in terms of where we've been impacted announced is probably our availability with hotel rooms. When we started off in the first quarter essentially we were working to basically get back to 70% to 80% of our availability of the hotel rooms. Some of that was due to just we've lost some staff during the pandemic that it took time to hire staff back get them trained up again.
Just kind of working our way back to the systems and it takes time as you know in Macau because of DSA Alan some of the waiver.
Constraints that we have in the process in terms of you go back and you bring the wafer into the market. So thats had a constraint on us.
Impacted us this summer and I think you've probably heard that on some of the other calls and obviously through some of the other concession areas as well the good news for US is we've got basically back to about 70%. We're about 80% in April and May for the Golden week with up to 90%, we're looking to be about 100% back of our availability or our hotels, including obviously the epic now with our <unk>.
338 rooms, and suites by the end of June So we're moving through that pretty quickly. The government has been really helpful. In terms of asset getting staff and they've been very very cooperative with us. So we've been very fortunate and working to get our staff back and the key part for US now is to get everybody trained up get the service levels, where they need to be and move forward here for us.
Okay got it. Thank you can I can I just clarify so you mentioned that you're starting about 70% in January and then ramping up to expecting 100% by end of June is that correct.
Yes, I would say, 70% through the first quarter, Angus and then basically get into 100% by basically back to understanding our ability by the time, we get to the end of June .
Perfect. Thank you very much.
And then of course, a angus as Lawrence.
Of course, <unk> open and September before Golden week in October .
That's going to be another for us at least another 550 plus rooms.
Rooms and suites.
Again.
Changer for us in the demographics.
The people that will attract so about 25 to 35 year old aircraft.
So we're very excited as well.
Okay.
Great. Thank you. Thank you.
Thank you and our next question coming from the line of Simon Cheung with Goldman Sachs. Your line is now open.
Hi, everyone. Thanks for taking my question.
I have two questions I remember in the Wheaton call earlier. This morning, there were some comments by management, saying that.
If the industry jargon going to like $26 $5 billion than they would see that EBITDA back to historical level.
And there's a lot of presumptions on.
How.
The mix as far as the cost saving but hearing that Jeff was saying that you'd be able to maintain about <unk>, 5% of the cost saving.
I'm wondering if you can give us a sense perhaps.
Not to that extent, maybe what solar mass market <unk> would you need in order to to get your EBITDA back to diesel collateral and maybe also on that point, perhaps you can Geoff maybe you can share with us what your daily Opex in the quarter as well. Thank you.
Yes.
Sure.
So the first question, what sort of mass <unk> as a percentage of 2019 do we need to get through today.
Similar EBITDA for 2019.
In the ballpark of 110% to 115%.
And then.
And Opex perspective for the first quarter of 2023, where.
We were at about 2.0.
Up from one seven in the fourth quarter.
Okay. That's great and then I have one more question I think that so laurence.
We've been being asked by Mr. About Youre two layer structures, you're only assuming the Melco International and then.
Melco international into MFC all.
I also understand that the parent company Melco International do need some cash in from time to time, and we have seen <unk> been doing that would be the share buyback to update some of the cash to the parent company.
How are you how are you thinking about the structure for the time being and how are you thinking of.
The <unk>.
<unk> two layer structure resulted in maybe some of the cash being in a.
We retained an emotional level would you be considering dividend earlier than expectation or some of them are.
The way to maybe get some cash out to support T. Pan company. Thank you.
Hey, Simon So I think.
With the transactions that were done earlier this year and also last year I think nalco doesn't melco international it doesn't have any immediate cash needs.
Given the strong recovery in.
In Macau business.
Our primary focus is really on paying down debt at Melco resorts and also.
Hoping to restart the dividend so thats by far that's our number one one and only.
Motivation and objective right now.
Of course at the same time, if we have more breathing room, we would have.
We look at how do we simplify our structure I think that's always that.
It's always a.
Nice to have.
But again I think in the immediate near term, they're still paying down debt and hoping to restart dividends.
Yes.
Okay. That's clear thanks, a lot for taking my questions.
Okay.
Thank you and I'm showing no further questions in the queue I will now turn the call back over to Ginny Kim.
Thank you operator, and thank you for joining us for the call today, we'll see you next quarter. Thank you.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
Okay.
[music].
Okay.
[music].
Okay.