Q2 2023 Melco Resorts & Entertainment Limited Earnings Call

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Ladies and gentlemen, thank you for participating in the second quarter of the 2020 Free Earnings Conference calls, Melco Resorts and Entertainment Limited. At this time, all participants are in listen-only mode. After the call, we will conduct a question-and-answer session.

Ladies and gentlemen, thank you for participating in the second quarter of the 2020 earnings conference calls, mail code results and entertainment limited. At this time, all participants are in listen-only mode. After the call, we will conduct a question and answer session. This conference is being recorded.

I'd now like to turn the call over to Ms. Jeannie Kim, Senior Vice President, Group Treasurer of Melco Resorts and Entertainment Limited. Thank you, operator, and thank you all for joining us today for our second quarter 2023 earnings call.

On the call are Lawrence Ho, Jeff Davis, Evan Winkler, and are properly presidents in Macau, 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 the federal securities laws. Our 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 common.

Thank you, Jeannie. The strength in our McCow Recovery is at the death in the 43% increase in GGR in the second quarter of 2023.

MassRob increased month to month and turnover in our premium direct VIP segment continued to exceed 2019 levels during the second quarter. MassRob further expanded into July , surpassing 2019 levels, and daily property visitation in July reached its highest point since Macau's reopening. Labor supply issues in Macau have been largely resolved. We have been able to provide our customers with Macau's full suite of services and amenities.

We expect to add another 560 hotel rooms to a portfolio with the opening of the W Macau at Suu City in September , and our well-precision to support the continuing increase of customers in Macau. The math segment is also leading the recovery in the Philippines, continuing to outperform 2019 levels in the second order of 2023.

In Cyprus, we opened the city of dreams Mediterranean to the public in July after a successful soft opening in June . And we are excited for its prospects as we ramp up our operations there. With that, I turn the call over to Jeff to go through some of the numbers.

In Cyprus, we opened the City of Dreams Mediterranean to the public in July after a successful soft opening in June , and we are excited for its prospects as we ramp up our operations there. With that, I turn the call over to Jeff to go through some of the numbers.

Our group-wide adjusted property EBITDA for the second quarter of 2023 was approximately $267 million, a 40% increase compared to our results in the first quarter of 2023. Luck adjusted group-wide property EBITDA for the second quarter of 2023 came in at $277 million.

A favorable win rate had a positive impact on COD Manila by around 2 million. While in Macau, unfavorable win rates at COD and Studio City had a negative impact of approximately 12 million. Macau OpEx increased to around 2.4 million per day in the second quarter of 2023 from around 2 million per day in the first quarter.

This increase was largely due to the cost of running the residency concert series at Studio City. If we were to exclude this cost, OpExper Day would have been around 2.1 million per day. As Lawrence mentioned in his remarks, labor supply issues have largely been resolved.

During our first quarter results call, we estimated that we would have approximately 2,000 fewer full-time employees compared to 2019, including Studio City Phase 2.

This outlook remains unchanged. This is expected to translate into continued cost savings that increased operating leverage as we move forward. This outlook remains unchanged. This is expected to translate into continued cost savings that increased operating leverage as we move forward.

Depreciation and amortization increased in the second quarter of 2023, due to the additional depreciation associated with the opening of Studio City Phase 2 and City of Dreams Mediterranean.

Similarly, the increase in interest expense during the quarter was related to lower capitalized interest after we completed construction of Studio City Phase 2 and COD Mediterranean.

Turning to our cash and liquidity, as of June 30, 2023, we had around $1.6 billion of consolidated cash on hand.

Melco excluding its operations at Studio City, the Philippines, and Cyprus accounted for at 800 million.

Of this, approximately 125 million was restricted as collateral required for concession-related guarantees issued to the Macau Governorate.

Our total debt balance remains stable from the first quarter to the second quarter of 2023 and net debt decreased by approximately 100 million.

We will continue to place priority on deleveraging with the excess cash generated as our operational cash flow expands.

As we normally do, we'll give you some guidance on non-operating line items for the upcoming third quarter of 2023.

Total depreciation and amortization expense is expected to be approximately $140 million.

Corporate expense is expected to come in at approximately $20 million.

Consolidated net interest expense is expected to be approximately $125 to $130 million. This includes finance liability interest of around $7 million relating to fees payable in relation to the McGough gaming concession and Cypress gaming license, and finance lease interest of $5 to $10 million relating to City of Dreams Manila.

That concludes our prepared remarks operator. Back to you for the Q&A. Thank you. We will now begin the question and answer session.

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Please stand by while we compile the Q&A roster.

Once again, that's Star 1-1 for questions.

Our first question comes from the line of George Choi from Citi. Please ask your question, George.

Thank you for taking my questions. I have a couple if I may. Firstly, on your last earnings call, you guys said you expect about 20% of the impacts you reduce during the COVID years to become permanent. Are you still standing by that guidance? And if so, how many percentage points and even the market improvement would that translate into?

And my second question is an accounting one. I see the corporate expense being a little higher than usual. Was there any one timer in that figure? Thank you very much.

Hey, Jeff, you wanted to take both of those?

Sure, so I recall that our guidance on the first quarter call was that 20 to 25% of our cost savings during COVID we believe will be translated into permanent savings. We are still comfortable with that guidance.

that translates into approximately, conservatively, 200 basis points of margin improvement.

I think that covers your first question George and then on the second question for corporate, we do anticipate that coming down in the third quarter to approximately 20 million. The increase in the second quarter was related to some one-off aviation expense as well as a legal cost as well.

All right, thank you, George.

Our next question comes from the line of a joint decree from CBRB Securities. Please go ahead, John . Hi, I'm relevant of my client, and I should

Hi, can you guys hear me?

Haven't had a chance to go to go through all the financials yet. Was that all VIP? I know in the one queue you had quite a headwind in mass market hold as well. So just curious about the trends you're seeing there. Yeah, thank you for that question. All of our hold adjustment is strictly on VIP. So we haven't made any adjustment for mass. Got it. Thanks, Jeff. And then maybe a follow up on the residency concert series at COD. So there's been a bit of discussion about you know, entertainment customers and attracting more entertainment customers. I'm curious if you could

And Jeff or Lawrence, give us a little bit of color on how well you think the concert series is doing in terms of driving additional visitation and what that looks like going forward.

Hey John , it's Lawrence. Thanks for the question. We're very happy with the residency series that just ended last weekend. Maybe David or Kevin can provide more color, but it has been, it checked all the boxes for us. So while it doesn't work out, we'll still probably stock up on what we've seen this

you know, the Macau government wants the operators to have more entertainment, sporting events, and so that was a key one. But more importantly for us internally, and for Studio City in particular, it has raised the awareness of Studio City and we have seen firsthand.

Sure, Lawrence. So, look, in terms of what we've seen with the, you know, we've done 34 shows between what we did with Joey, Leon Lye, and with Aaron Clark that just ended this last weekend, as Lawrence said. But if you look at the number of covers that we've drawn in all our restaurants, the number of visitation numbers have gone up quite a bit. We've seen a lot of impact with our hotel rooms and the packages that we've sold. We've seen the spending patterns go up considerably now with the customers that are coming in. So, it's been a really nice lift for us. As Lawrence said, I think the level of awareness that's been built now will continue to drive that level of visitation forward as we go into the third and fourth quarters here.

Great, appreciate all the color. Thanks for taking my questions and nice quarter everyone. Thank you.

Our next question comes from the line of Praveen Choudhury from Morgan Stanley . Please ask your question, Praveen.

Hi, can you hear me?

Yep, we can hear you.

Hey, thanks. Thanks, Jeff. Thanks, Lawrence. Just a quick question for Jeff. What will be the OPEX when your W will be open in September ? So let's just say fourth quarter OPEX compared to 2.4 million. That's the first question. The second question is assuming that your mass revenue is already running at higher than 2019 level.

and you just mentioned the cost is much lower. Can I assume that in July you're already making more than 2019 level of EBITDA or there are some other drivers or issues that we should be aware of? And then the last question for Lawrence is a lot of people are worried that

the mass, grind mass side of the business has not picked up as much as the premium mass. And I understand that you are playing in the premium side. But for overall Macau, do you have any thoughts of plateauing at this level versus keep improving every month?

Sure, so on OPEX I can share, call it an outlook for where we think that will settle in for the third quarter. So on a reported basis I think you'll see that in around the 2.5 million per day range. If we make the same adjustment that we did for second quarter by excluding the concert series, I would say that number normalizes into around 2.3 to 2.4 million per day.

Do you have any further questions?

So sorry, let me, you know, I haven't answered Raveen's question yet. The grind mask and the mask mask question.

The transportation infrastructure is still coming online. It hasn't fully recovered. So if you look at the airlift going into Macau right now, it's probably at around 50%. And Macau over the last six months since the recovery has started.

has become very much a weekend market. So going forward, when the infrastructure improves, transportation infrastructure improves, we believe that the grind mass will probably fill out more of the weekday business and the tour groups. So the tour groups are finally starting, but there haven't been any changes.

haven't fully recovered yet. And so far the recovery has exceeded everybody's expectation, but it's been driven really by premium mass. So once the grind mass layer comes in, I think that will give us incremental growth.

Thanks, Lawrence. I have one more follow-up for you, but also a Jeff question was also there that we were asking about July being massed better, cost lower. Are we already at higher than 2019? So maybe Jeff can answer that. But one question for you, Lawrence, is on the non-gaming side.

Is it correct that all the six players have submitted their non-gaming proposal and that has not been approved and we are going back and forth in terms of what exactly government wants? Can you give a little bit more detail of what exactly are you working on and what will be the final outcome? Thank you.

Sure, I think on the non-gaming, first of all, the investment proposal, the original investment proposal was agreed by the Macau government when we bid for the licenses last November and December . So that was the first approval. And then I think by May, and David can probably.

supplement and gives more of a detailed account. I think it was approved again by May, but what we're seeing right now is that there's a lot of reporting on all of the operators part, monthly reporting, quarterly reporting.

So I think there's a lot of negotiations and discussions on do you do this, do you do that. I guess maybe David you can provide a bit more color.

Sure, so obviously there's two types of things that we're doing related to the tender that was approved for our initial plan. There's certain capital costs that were done for the casino that we're obviously executing on and again it's pretty well documented in terms of what we would normally do as we upgrade the casino or replace certain items or things as we're going to do.

events, concerts, sporting events, things that we're sponsoring. So everything we've said we're going to do with the government, we've done and we're executing on. As Lauren said, there's a very significant measure that goes along in terms of whether it be a quarterly measurement with the DICJ or MGTO or IPIM.

or something that we do on a monthly basis, but they're monitoring it quite closely, trying to make sure everyone's doing what they're saying. But additionally, as we're going along, there's sometimes where things may not make sense that we said we were gonna do back in 2022. So we worked with the government to go back and make adjustments and find other things into programs or things that...

help kind of support some of the things the government's trying to do as we try to attract a lot more international visitation or try to build the mice business in Macau. But I think the most important thing for us as an operator is

We're going to stick to the number per the investment proposal that we put in when we got our license last December .

So we might make changes in terms of events or things that we're going to put in, but we're going to stick to that number.

That's very clear, David. Thank you, Lawrence, for clarifying this. Can I still get the answer on the at the day in July , considering mass and cost, please?

from Jeff. Yep, circling back around to me, Praveen. So I don't want to get ahead of ourselves in respect to the third quarter results. I'm confident that we have taken share from the second quarter into July , but we are not quite at the levels of GGR.

to get us back to 2019 levels of EBITDA. Very helpful. Thank you very much and congratulations. This is a good result.

Thank you. Thank you.

Thank you.

As a reminder to ask a question, please press star 1, 1 on your telephone keypad.

Our next question comes from the line of Simon Jerm from Goldman Sachs. Please ask your question, Simon.

Okay, thanks everyone. Thanks Lawrence, thanks Jeff. In relation to what you mentioned about the success of hosting all these residential and residential zones, I wanted to see whether you can help us to perhaps quantify some of the numbers.

Perhaps on the visitation number or even any retail sales number you can actually share with us. That would be helpful. That's on the first question. And also in relation to that, obviously you have done quite well and done quite a lot on the Studio City. How are you seeing the potential opportunity to...

maybe further driving visitation and market share at COD. We've been hearing a lot more competitions or people are giving out a lot of reinvestment in, for example, the Listboro Palace and the other properties. We've been hearing whether you can also comment about the competitions among the premium MOS segments as well. Thank you.

Hey Simon, so maybe I'll talk about the competition on premium masks and then hand it over to David to to supplement. We're, you know, obviously first quarter we started out slow, but I think we've gained some meaningful share in the second quarter and so far.

Beginning the third quarter in July , we've had the best months. You know, just like the entire Macau, we've had the best months since the reopening. I think on mass drop and on premium direct roll, we are at over 100% of the total.

Q2 2019 level, so we're quite happy with that. In the market, there are competitors, especially some...

newer ones who are probably more aggressive in terms of the reinvestment and the referral fees that they pay. But at the same time, we are very comfortable with the product that we have, and our sales team and the structure that we've built. But I guess maybe David can talk more about that.

Sure, thanks, Lawrence. So I think if you kind of look at what's happened with the residency concept series, one thing we've seen is a really nice pickup, obviously, on the visitation to the property, particularly Studio City. That visitation, as I said before, has driven certainly a huge number of covers for us on both on that as we go through on that weekend, but even up to the time leading up to

We're running in the high 90s to sometimes where we're completely sold out. This is also happening during a lot of the weekdays is that a level of awareness has been built. Further, we're starting to see more traffic in our retail areas. I don't have the specifics on that in terms of how much our retail sales have gone up. But we are seeing more traffic, more customers going in and spending. We're seeing a lot more traffic in a lot of our, let's say, our food and beverage outlets.

that are, let's say, our third party outlets that hold those restaurants. They've seen a huge increase in the number of covers and they're quite happy. I think one of the nice things that we've seen now as well is it's really kind of ignited our water park as well. The water park during the month of July was running at over 1,900 people a day. So, again, we've seen a really nice lift in overall in terms of the visit.

back in April . We've also seen a nice increase in the players that are coming in as well as we started seeing a recapture of some of the market share to where we're now over 4% of market share with studio cities. So again, just a nice level of increase. We think that'll continue to build as we get into the second or quality.

Great. Thanks. Thanks a lot. Congrats on a good set of results.

Thank you.

I am sharing notes for the questions. I'll now like to turn the conference back to Jeannie for closing remarks.

Thank you and thank you all for participating in our conference call today. We look forward to speaking with you again next quarter. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.