Q3 2023 Melco Resorts & Entertainment Ltd Earnings Call
Okay.
Operator.
Ladies and gentlemen, thank you for standing by.
Third quarter 2023 earnings conference call.
Melco resorts and entertainment limited 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 call is being recorded.
On the call over to MS. Julie Kim Senior Vice President and group Treasurer of Melco resorts <unk> Entertainment. Thank you.
Please go ahead.
Thank you operator, and thank you everybody for joining us today for our third 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 secure.
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 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 turn that over to Mr. Lawrence Ho.
Thank you Jamie Mckenzie recovery continue to grow from strength to strength into the third quarter of 2023, especially during the summer months with our property visitation and casino player hours benefiting from this growth.
We had solid performance over the October Golden week, and saw a robust recovery during the remainder of October so a G. G are excluding junkets, reaching close to 2019 levels.
Both gaming and non gaming revenues improved and this was reinforced by our commitment to invest in World Class Entertainment and then.
And enhance our non gaming amenities.
Market, leading designs than there was recognized last month by pre Versailles with Morpheus being the only hotel in the house without the honor of being included as one of the world's most beautiful hotels.
Studio City has been the center of entertainment for Us in Macau.
The opening of Phase two the addition of the ethics tower and W. Macau hotels, the residency concert and then ongoing schedule of events drove gaming volume and contributed to a 65% increase in adjusted property EBITDA quarter to quarter.
We expect further growth in studio city is phase II continues to ramp up.
In the Philippines City of Dreams Manila continues to generate solid earnings were very strong margin profile.
City of Dreams, Mediterranean and Cypress Hudson has been severely impacted by the conflict in Israel. Our teams are working on realigning our marketing marketing strategy, there with that I'll turn the call over to Jeff to go through some of the numbers. Thanks Laurence.
Our group wide adjusted property EBITDA for the third quarter of 2023 was approximately $281 million.
Luck adjusted group wide property EBITDA for the third quarter of 2023 came in at $291 million.
A favorable win rate had a positive impact on CRD Manila of around $9 million.
While in Macau unfavorable win rates at Cod and studio city had a negative impact of approximately $19 million.
Details of these adjustments can be found in the supplementary earnings slides posted on our Investor Relations website.
Macau Opex increased to approximately $2 5 million per day in the third quarter of 2023 from approximately $2 4 million per day in the second quarter.
The increase in Opex was largely due to the addition of full time employees across our properties, including the opening of the W. Mccowan September and increased marketing costs.
Despite the increase in cost our EBITDA margin increased slightly quarter to quarter.
Turning to our balance sheet.
We continue to focus on reducing debt and deleveraging.
We repaid $100 million in debt during the third quarter of 2023 and repaid another $100 million at the end of October.
We currently have approximately $1 2 billion drawn on our Rcs, which gives us around $750 million of Undrawn and available committed revolving credit facilities.
We will continue to closely monitor our free cash flow, which will drive further debt reduction.
As of September 32023, we had around $1 5 billion of consolidated cash on hand.
Melco, excluding its operations at studio city, the Philippines in Cyprus accounted for around $800 million.
Of this approximately $125 million was restricted as collateral required for the concession related guarantees issued to the Macau government.
As we normally do we'll give you some guidance on non operating line items for the upcoming fourth quarter of 2023.
Total depreciation and amortization expense is expected to be approximately $145 million to $150 million corn.
Corporate expense is expected to come in at approximately $20 million.
And consolidated net interest expense is expected to be approximately $130 million.
This includes finance liability interest of around $7 million relating to fees payable in relation to the Macau gaming concession and the Cypress gaming license and finance lease interest of approximately 6 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 if you'd like to ask a question. Please press star one on your telephone.
Wait for a name of meat to be announced.
If you would like to cancel your request. Please press star one again.
One moment for the first question.
First question comes from the line of George Choi of Citi. Please go ahead.
Thanks for the presentation I have a couple of questions if I may.
Firstly, how should we think about opex inflation in Macau going forward.
Naturally the favorable VIP math geek out ship means that there will be a boost to margins should we be worried about inflation in marketing cost plenty of investments or costs for upgrading non gaming offerings, including cancers.
I have a second question.
As regarding the delayed <unk> trends.
Share price is in Macau seem to be reflecting investors concerned about the sustainability.
And EBITDA recovery in Macau.
Do you guys see any signs of moderation in gaming demand and non gaming revenues. That's all for me. Thank you.
Hey, George its Lawrence Thanks for the question I think why don't I address the second question first and then we'll have Jeff.
Talk about the first question and maybe David can supplement on that as well on the second one obviously where fee.
Feeling good about Macau and <unk>.
Travel and tourism is the leading sector in China right now I think after three years.
Not being able to travel during COVID-19.
People are coming to Macau and for US and we have seen that October was the best month in Macau and also the best month for US since theory reopening. So we're feeling very good and even the rest of October has been good. It has not been solved and November has started off strong as.
Well.
So we're not concerned about it of course, we understand the.
Investor appetite over the last.
Six months of the year and the so called China risks or decoupling.
That's something we can't control.
We all we can do is really put our head down and make sure that.
We continue to deliver at their earnings.
I think on the first question maybe.
Hand, it off to Geoff Thank you Laurence I'll take the first part of the first question so on Opex.
We came in at about $2 five in Macau.
For the third quarter in line with the guidance that we had provided on our second quarter call. We anticipate in the fourth quarter that number looking more like two six.
As we think about how that could change going into next year. The one thing I would.
Light is the.
Reopening of the house of dancing water show.
And that would add about <unk>.
One per day, one that happens other than that.
Subject to decisions with respect to other entertainment et cetera, et cetera, I think thats, a pretty solid run rate.
Okay.
So I think the only other thing I'd, probably add to that as you look at some of the non gaming attractions and amenities that we have including house of dancing water coming back we have started to advertise a little bit more end market more and lets say Hong Kong or in China, again, where people now we have these assets out there. So that's been a bit of a change that we didn't have before.
As much other than the house of dancing water. So those concerts those attractions that we have that will continue but it will still stay within the number in the guidance that Jeff just gave you.
And then respect to.
Our savings initiatives.
We are a key focus during the COVID-19.
Years no.
No change in our guidance there, we still anticipate that 20% to 25%.
Savings will be permanent we've endeavored to make sure that they remain intact going forward.
With that inherent margin benefit.
Starting to show through.
Along with operating leverage going into next year as we continue to drive.
The business and drive incremental operating cash flow.
Thank you very much guys thats very good color. Thank you very much.
Okay.
Thank you for the question one moment for the next question.
Next question is from the line from Joe Greff of Jpmorgan. Please go ahead.
Hi, guys.
Thanks for taking my questions.
Lawrence just just going back to your comments about Golden week, and then the subsequent period in October.
Being close to 19, excluding the junket business does that imply EBITDA in October was was at least on a hold adjusted basis and excessive October 19 levels.
Hey, Robyn, it's Jeff Yeah, I think we had provided some.
Some guidance in the past that.
We would need to see mass and slots and non junket business returned to something more in the 115% range.
To be at par or parity with 2019, our pre Covid EBITDA.
Okay, and then just a broader question can you just talk about it either euro levels, where you think the market is in terms of premium mass reinvestment levels.
Does that compared to levels.
In 2019 is that slightly elevated.
Maybe David can talk about that sure. So Joe I think what we've seen a little bit analysis kind of come out of the let's say out of the Covid period, we've seen a lot more marketing going on whether that be with some of the other concessionaires relative to their new let's.
Let's say new hotel rooms, or other new assets that they've got Brian that's been brought online. Additionally, as we've kind of seen a shift in the business where it is right now it's very much a premium mass market driven.
Our economy basically what we're seeing is there's more comps related to that so the reinvestment rates have climbed a bit.
That doesn't mean that as we see more of that mass mass kind of coming back in kind of a smoothing smoothing out of things has thought of this new product comes online in the market that we don't see a return back to let's say more of what we saw in the fourth quarter or throughout 2019, but for right now it is a bit more elevated than we've seen in the past I think again its for the reasons I just mentioned.
Got it and then David the mass market table game hold percentage at <unk> in the third quarter was 32, 1% do you look at that is as sustainable as normal or you think of that as sort of with the mix between premium mass and mass.
As something that's outside the range of normal.
Net table games hold percentage.
No I think were within the normal range of a mass table game hold percentage when we haven't seen yet is kind of that complete mass mass coming back to kind of smooth things out a little bit, but I think we were within our normal range there might be a little bit higher sometimes but again, we're probably one that lets say that 31% to 33 like we've talked about before but were right within that normal range.
Great. Thanks, guys.
Thank you for the questions.
One moment to the next question.
Next question comes from the line of Ricardo Chinchilla from Deutsche Bank. Please go ahead.
Hey, guys. Thank you so much for taking my question.
I was just wondering if you could comment a little bit more on the promotional environment and how you guys started reacting do you guys think that the current reimbursement levels are sustainable or is it because there's a lot of you know as you mentioned.
Your competitors trying your clients.
Clients do test some of their product before going back to <unk>.
Video games or how do you guys envision the promotional environment and if there is a lot of <unk>.
Try even versus going back to what they liked.
Yes, so riccardo it's David So look I think youre spot on when you say I think there's a lot of.
People going out there being a little more promiscuous than going out and trying other properties understanding what may be out there. So that's kind of contributed a little bit to that would say rise in.
The promotion of our reinvestment rates also with some of the new products and some of the other things out there I think.
Again that in order to get people into that new price a little bit to get people to try that product whether that's actually the other concessionaires you also need to probably be a little bit more aggressive.
We've seen too is that we've had a lot of pent up demand relative to a lot of our room product, particularly at studio city, where now we have the opportunity that we did before because we had far fewer room.
Additionally, approximately 900 rooms, that's given us the opportunity to go deeper into our database to go out and build more aggressive which is also driving some of our reinvestment rates as well, but I think over time that will moderate as I said and we'll probably get back to those 2019 levels.
Got it you guys provided great color on operating expenses for the Mccalip ratio was wondering if you could detail US you know how much of that amount is related to did your CD just for our modeling like what should we out of it.
Some of the cost that you are adding back how much is specifically related to CBD.
Well maybe to highlight the the delta.
On studio city, we do anticipate that the incremental cost of having a full quarter of the <unk> in the quarter.
Should be roughly similar to.
The reduction in residency concert series expenses.
So that largely washes out at about.
0.2 per day.
Of expense.
Got it. Thank you so much for taking my questions.
Thank you for the questions.
For the next questions.
Next question is we have the line from John decree from CBRE. Please go ahead.
Hi, everyone. Thank you for taking my questions.
You may have just started to touch on this but I'm wondering if you could provide a little bit more color on that.
The ramp at the W. And then even maybe back to epic tower opening are you starting to be able to improve segmentation.
How has customer reception been to the new the new hotel towers, and pricing et cetera, as you kind of think about using those to.
To work through and yield up your mix.
Hey, John It's Lauren I think we're very excited about.
Sirio cities as too but at the same time, we've the reason we've opened kind of piecemeal as we're gradually rolling more and more product into the market and.
Anybody who has been through studio city right now knows there is a major retail renovation going on and over the next two to three months most of those retail tenants will be open. So we've been waiting for that and I think in due course, probably sometime in the first quarter of next year or early second quarter, we will.
Try to do a major property relaunch phase two opening.
I think that is an area that we're continue ramping.
Ramping up on so I think maybe David can add more color or pattern sure. So look I think from when we opened up epic back in April finally allowed us kind of a really nice product to go out and develop that premium mass and some more VIP business set with quite frankly really didn't have with the star tower at studio city, so the opportunity to really.
Start putting more of those premium players in shipping.
Some of that business away from some of our competitors and bringing that into studio city.
So I mean, it's pretty exciting for us and the team over there continues to do a good job as we build that business.
Regards to the Debbie what we've seen from the start as we start off at about 70% occupancy during the month of September. We're now in October we probably got ended up 80%, we're working to try to build that back up until let's say the low ninety's by the time, we get to December but that's kind of a mixed there is a little bit different between what we would have let's say, it's probably about a 15% cacique.
In our business, 85% cash, where we're really looking to try to rely on the Marriott bagua system to bring in some different players have different customers for us.
W. Also skews to a much different demographic is particularly popular with women. So we think again that this hopefully over time will allow us to continue to expand our database allow us to continue to.
Track, new customers that ultimately those customers will grow into that premium mass segment and become long term customers for us, but again the allows us both epic and with W. We've seen a nice pickup within our business and we continue to see growth and in fact for the month of October It was our biggest drop month ever for studio city as well as are we.
Our biggest <unk>.
And month as well with regards to slot. So again, we've seen a nice pickup we're absorbing the product well said, we look forward as we go forward into December and beyond.
Awesome color really appreciate that maybe maybe a follow up on October you guys give us a little bit of color, which is really helpful. Im curious if you made any observations relative to 19 about.
Seasonality or customer behavior before the holiday week. After the Halloween is are seeing their customers kind of behaving. The way you would expect or is it is a little different now that we're 2023 and post pandemic.
Thoughts on that would be helpful and Thats all for me. Thank you good luck.
Yes, so look when we got into the Golden week typically.
A little bit early because it started on the 13th of September and kind of rolled into that let's say those first five days of October so a little bit different than we normally see in terms of that but it was pretty typical as we got towards the end of the Golden week, where you typically see a drop off and then about a few days after that it starts picking up again as you get into that next weekend. So it's pretty much played like.
We thought it would.
Whats been nice, though is again not so much of a surprise, but again kind of a return to normal where we saw that continue to play an action going through the whole month and actually coming into the month of November as well now so it dropped off a little bit like it used to and then picked right back up again, which is again very similar to what we would have seen in 2019.
I think October.
Our studio city drop was the all time high.
And the history of the property, so and coin in as well and coin in as well. So I think we are seeing the traction with the water Park and the new hotels and I think once the property is.
Completed an audit we're quite excited about it.
Great. Thanks, so much guys congratulations on the on the ramp of the quarter.
Thank you for the questions.
Next question comes from the line probably in charter rate from Morgan Stanley. Please go ahead.
Hey, thanks, so much.
Jeff David.
To hear Thats Mackay recoveries ongoing. Thank you for taking my question I have three quick questions.
First one is simple did you give a timeline for household dancing water opening is it first half 'twenty for Q2 24.
That's the first one the second question is about.
But the spending per capita trend.
Two data points, one buckets to our numbers are coming up strongly after being very.
Slow initially and then some of them said that in October 2nd half.
Visitors dropped off hotels are easily available versus daytrippers.
So do you choose suggesting grind might be doing a little bit better than premium so love to hear your thoughts and the last question is again Laurence.
What's going on in Thailand, and how is it different from Japan from your perspective, if you want to put new money. There. Obviously, it's not next year's question, but Im sure Youre working on it. Thank you.
Hey, Praveen, maybe I'll take the my memory sucks, So I'll take the last question first.
I think Thailand, we've been looking at it for many many years, but after the Japan experience and.
They're pretty unpleasant experience.
I think we're going to be very conservative and we will see.
Thailand, Dave.
We established another gaming committee to look at it we'll continue to.
To analyze it and see what we can do but certainly I think at this stage we're.
We're not going to be spending too much resources and definitely no money whatsoever on that.
But if it does open up it.
Other than Japan is probably the most exciting market out there.
Because at the end of the day for US after three years of Covid. Our main focus is going to be on delevering and reducing debt. That's our number one objective and number two objective is.
Returning money back to shareholders, whether it's through dividends or buybacks at these levels is becoming very attractive, but we are very disciplined in the goal of reducing debt at this current stage.
I think on the.
The first and second question.
Maybe I'll hand, it off to David sure Greg.
Right now we're looking to open up house dancing water for the relaunch are probably late in the fourth quarter of 2024, we're just now going through the process that <unk> been doing a lot of work on the house of dancing water theater to get it up and ready. We just started doing our first shows that we're doing that production right now with Zhejiang television, where we're doing some musical.
And they're right now on a weekly basis and towards the Middle of November we will get back out of that and it started back on the <unk> for the house of dancing water.
Maybe go through your other question regarding room rates in room availability I think a lot of them inventory has come into the market whether that be with what we brought in with epic we brought in with W. Or now we've seen new product coming in with the Galaxy guys with Amdocs and with.
Again.
Skipping me right now the name of the hotel, but with the new product coming in as well I think there is opportunity.
For these other hotels to kind of go through and to poach customers from some of the other hotels, so where you may be seeing some availability maybe in some of the other hotels, let's say the <unk>.
Lack of five star hotels out there.
So I think again, we've not seen that problem, we have been able to backfill our hotels with existing and as I said, we've gone to have 80% occupancy now with the W. We expect that to get into the low 90 days as we get to the end of the year. We've had no trouble filling epic our hotels continue to be very strong and we continue to maintain very high occupancy.
Percentages.
Okay.
So much this is a very detailed very helpful. I appreciate it.
Yeah.
Thank you for the questions.
One moment for the next questions.
Our next question comes from the line of Antonio Luis Gomez from 91. Please go ahead.
Hi, Thank you for your time.
I just wanted to understand on the DG also Macau figure it seems like.
On a quarter on quarter basis, it was pretty similar to the previous quarter.
From my understanding of looking at your presentation. It seems like it came from city of Dreams, VIP GTR, but I just kind of wanted to understand what the barriers are to the growth somewhat flat.
Below the average industry GTR levels relative to 2019 levels.
Sure.
Yeah.
So I think from the barrier standpoint, as we're going through here a little bit I think.
We're kind of in a.
Kind of a strange world here, a little bit where because we've seen there is fewer players now in the sense for the VIP business. So that's created a lot more volatility we have a tendency to have much larger players.
Our property so that does create more volatility. So if we get one sided on that that does have an impact on it sometimes from quarter to quarter, where years ago. When we had the junkets that would offset that and basically.
How us to not see those those impacts quite as much as we see them a little bit more now so I think that will continue for a long time here I don't think thats going to change because the ICT market has fundamentally changed now without the junkets to submit those things out but long term I think you'll see us get back to beyond where we were in 2019 at least.
Premium direct standpoint from the VIP business.
Okay. So going forward. The next couple of quarters do you expect it to kind of normalize relative to industry averages maybe beat is that kind of the expectation.
Brian to your expectations will return back to our historical averages, which again is that right around that 3% level, but again the volatility will remain some time. So the next quarter it could be a bit higher it could be again, a bit lower but I think over the long term view, we will get back to that 3%.
Okay, and then everything else seems to be ticking along regardless.
From your perspective.
Yes, I think everything is moving forward again as we get.
Growth of the database as we get more customers and as Macau continues to recover and we get more airlift and the transportation quarter. It gets a little bit better. All these things will contribute to the market just getting stronger and stronger, but I think we're well on our way and we'll just continue and we think theres a lot more juice left in this thing to keep going well beyond where we are today and into the next year in <unk>.
John.
Okay great.
Alright, thank you.
Thank you for the questions.
No further question at this time I'd like to turn the call back to MS. Jeanie Kim for his closing remarks.
Thank you for participating in our call today, we look forward to speaking with you again next quarter. Thank you.
Ladies and gentlemen that does conclude today's conference call. Thank you for your participation you may now disconnect your lines.
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