Q3 2024 Melco Resorts & Entertainment Ltd Earnings Call
Speaker Change: Ladies and gentlemen, thank you for participating in the third quarter 2024 earnings conference call of Melco Resorts and Entertainment Limited.
Speaker Change: 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'll now turn the call over to Ms. Jeanny Kim, Senior Vice President, Group Treasurer of Melco Resorts and Entertainment Limited. Please go ahead.
Jeanny Kim: Thank you operator and thank you all for joining us today for our third quarter 2024 earnings call.
Jeanny Kim: On the call are Lawrence Ho, Geoff Davis, Evan Winkler, and our property presidents in Macau, Manila, and Cypress.
Jeanny Kim: Before we get started, please note that today's discussion may contain forward-looking statements made under the safe harbor provision of federal securities laws.
Jeanny Kim: Our actual results could differ from our anticipated results.
Jeanny Kim: 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.
Lawrence Ho: Thank you, Jeanny, and thank you all for joining us today.
Lawrence Ho: Our initiatives to activate areas throughout our properties and drive visitation are coming together.
Lawrence Ho: In September, we launched a revamped loyalty program, including the signature club for our premium mass customer base.
Lawrence Ho: As part of this relaunch, we also introduced a new tier for our highest level of premium mass player that offers exclusive benefits and personalized experiences.
Lawrence Ho: This renewed loyalty program is starting to show the benefits of increasing efficiency in our player reinvestment.
Lawrence Ho: We opened a new signature premium slot area at City of Dreams.
Lawrence Ho: And at Studio City, we opened the Dragon Zone, a highly themed slot area in partnership with Aristocrat Gaming.
Lawrence Ho: We are enhancing accessibility into City of Dreams, starting with the entrance on the corner across from the MGM COTAI and Wynn Palace, which benefits from the highest footfall.
Lawrence Ho: We completed a new light tunnel at that entrance, which is complemented by live performances.
Lawrence Ho: We also installed new large-scale interactive LED screens at Studio City to activate the area at the main entrance in front of the casino.
Lawrence Ho: The installation of RFID tables is progressing well and we have now converted all of the Baccarat tables at Studio City to RFID tables.
Lawrence Ho: Installation has gone relatively smoothly and we are just scratching the surface in terms of utilizing the data.
Lawrence Ho: We expect to complete the installation of RFID tables at City of Dreams within the first quarter of 2025.
Lawrence Ho: We have a pipeline of projects for 2025 to attract and retain high-quality, high-value patrons as the Macau gaming market continues to grow.
Lawrence Ho: Some of the projects planned include continued enhancement of accessibility and customer flow around City of Dreams.
Lawrence Ho: a revamp of Studio City's high-limit gaming area and, of course, the much-anticipated relaunch of the House of Dancing Water, which is currently expected in the second quarter of 2025.
Lawrence Ho: In Manila, despite added competition, City of Dreams' performance improved quarter-to-quarter.
Lawrence Ho: City of Dreams Mediterranean and our satellite casinos in Cyprus continue to face challenges with the ongoing conflict in the region, but have had solid increases in GGR and EBITDA through the third quarter.
Lawrence Ho: And finally, I'm excited to announce that City of Dreams Sri Lanka opened in October with the 687-key Cinnamon Life Hotel run by our partner John Hughes.
Lawrence Ho: The Casino and the Nuwa Hotel are on track to open in the second half of 2025. With that, I turn the call over to Geoff to go through some of the numbers.
Geoff: Thanks, Lawrence.
Geoff: Our group-wide adjusted property EBITDA for the third quarter of 2024 was approximately $323 million, a 7% increase compared to the second quarter.
Geoff: Favorable wind rates at COD Macau and Studio City had a positive impact on our property EBITDA by around 27 million.
Geoff: We have been focused on operational discipline, and our OPEX in Macau remains stable this quarter at approximately $2.9 million per day, excluding the cost of the Studio City Residency Concerts.
Lawrence Ho: With stable OPEX and growth in EBITDA, our EBITDA margin in Macau expanded sequentially. We expect this flow-through to EBITDA to continue as we drive revenue.
Lawrence Ho: Our liquidity position remains robust.
Lawrence Ho: As of September 30, 2024, we had approximately $1.2 billion of consolidated cash on hand, and over $3 billion in available liquidity.
Lawrence Ho: Melco, excluding its operations at Studio City, the Philippines, and Cyprus, accounted for approximately $665 million of the consolidated cash on hand.
Lawrence Ho: Total debt declined by approximately 60 million in the third quarter following the repurchases of the Studio City bonds due 2025.
Lawrence Ho: Melco also repurchased 20.7 million ADSs for approximately 12 million during the quarter.
Lawrence Ho: This is inclusive of the $38 million that was disclosed in August via a stock exchange filing.
Lawrence Ho: Of the ADSs repurchased, approximately 17.7 million have been cancelled.
Lawrence Ho: Both the bond and share repurchases were funded by Cash on Hand.
Lawrence Ho: As we normally do, we'll give you some guidance on non-operating line items for the upcoming fourth quarter of 2024.
Lawrence Ho: Total depreciation and amortization expense is expected to be approximately $135 to $140 million.
Lawrence Ho: Corporate expense is expected to come in at approximately $20 million.
Lawrence Ho: and consolidated net interest expense is expected to be approximately $120 to $125 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.
Lawrence Ho: and finance lease interest of approximately $6 million relating to City of Dreams Manila.
Lawrence Ho: That concludes our prepared remarks. Operator, back to you for the Q&A.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone.
Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Lawrence Ho: We will now take our first question from the line of George Choi from Citi. Please ask your question, George.
George Choi: Thank you very much. Firstly, congratulations on the strong set of results.
George Choi: First of all, I think October, obviously, was a very, very strong month for Macau as a whole. And if you can provide us with any color on how you did during Golden Week, that would be very much appreciated.
George Choi: and secondly on dividends. So we understand America's priority is to reduce gearing, but is there any estimated timeline for you guys to resume your dividends? Thank you very much.
Speaker Change: Hey, hi George and Lauren.
Speaker Change: So, why don't I, you know, start off with the Golden Week question and then maybe hand it off to Evan and, you know, Tim and Kevin to provide supplemental information. You know, I think everybody knows October was very strong. Golden Week was, you know, it was a great Golden Week.
Speaker Change: At Melco, you know, our mass crop was up more than 20% year-over-year. And also, more significantly, we had a number of record mass crop days at both City of Dreams and Studio City during that period. So we're very happy with it and, you know, the hard work that we put in over the last couple of quarters.
Speaker Change: since some of the management reshuffle is.
Speaker Change: starting, I think, at the very beginning to pay off.
Speaker Change: A lot of the improved accessibility and new attractions really came online in late September, so I think we'll continue to benefit from it.
George Choi: as the quarter develops and as we continue to reinvest in the properties and the businesses.
George Choi: and on the service, we'll benefit from that over, you know, the coming quarters. On dividend, you know, I think our number one priority as we've stated for the last probably 12, 18 months is still debt reduction. But I don't know if...
George Choi: You want to add a bit more color in terms of our divisive timeline, then we can go back to Evan and Kevin and Tim to provide a little bit more color on October and Golden Week.
Speaker Change: Thanks, Lawrence. Just to reiterate, debt reduction and de-levering is definitely the key and our priority focus.
Speaker Change: when we think about allocation of capital. However, we would like to return to being a dividend-paying company.
George Choi: We think it's potentially possible in the second half of next year, but, you know, subject to business conditions, etc. But, you know, eventually we do see ourselves coming back into a dividend-paying mode sometime in the second half of next year.
Speaker Change: And I'll just add, I think Lawrence said it well, we had a strong Golden Week. We felt good about both properties and how they're trending. Maybe to add a little bit more color, as Lawrence alluded to, we set some records.
George Choi: at COD, three of our top 10.
George Choi: all time for mass drop, so we had three of our top ten days in the history of the company of COD from a mass drop standpoint.
George Choi: at Studio City for the top 10 days.
George Choi: occurred during this last golden week. And that's not just post COVID, that's sort of throughout the history of the company. So we did see some very good volumes coming through the system at both properties. And I think coming out of October, we feel good about where the market is overall. And again, the traction that we're getting within our own business.
Speaker Change: All right, thank you. Our next question
Speaker Change: Hi, good afternoon, everyone. Thank you for taking my questions.
Speaker Change: Maybe one on the promotional environment. I think, you know, we ask you every quarter, but...
Speaker Change: as well as your peers. Curious if you could give us an update of your current thinking on the promotional environment. It sounds like, you know, it remains intense but stable. So, you know, curious if you have any opinions or updated thinking there.
Speaker Change: Hey John, sure, again maybe I'll let Evan elaborate more but I think we're past the peak promotional intensity and you know I think it's good that the market is becoming
Speaker Change: focus has always been on EBITDA, and so I think hopefully with, you know, the promotional environment stabilizing, you know, we'll continue to improve on our EBITDA margin.
Evan Winkler: Yeah, I think that's a good characterization. I don't think we've yet seen it really drop substantially, meaning we have seen lead up, but I think it's too early for us to say that it's, you know, on the glide path down.
Speaker Change: more beneficial levels, although that's where we ultimately hope to get it. I think from our standpoint
Speaker Change: We certainly aren't looking at any elevated promotional spending.
Speaker Change: We are looking at, through our new player launch, how do we best sort of retain our top players.
Speaker Change: How do we create an aspirational path for those mid-levels? And how do we spend dollars effectively on bringing new people into the system? So I think it's more of an allocation issue against the existing pool as we slowly bring it down, but no major changes in the overall level.
Speaker Change: Thanks, Evan Lawrence. That's helpful. Maybe one for Lawrence or Geoff, you just spoke a little bit about
Speaker Change: getting back to dividend-paying mode with the priority still being deleveraging, but they wanted to ask about your appetite for...
Speaker Change: further share repurchases, you know, next year, you know, given where the shares are trading at today and realizing you've, you know, have a finite pool of cash to allocate. How do you think about paying dividends versus buying back stock, you know, when you start to get to leverage levels that you're more comfortable with next year?
Speaker Change: Yeah, I think we've had a, you know, I guess Geoff can elaborate further, but, you know, I think over the past, you know, throughout the life of the company, we've returned capital to shareholders, whether it's through share buyback or in dividends.
Speaker Change: I think the recent share buyback in the Q3 was really a reaction to the extremely dislocated share price.
Speaker Change: I think we'll always be opportunistic and see what the best deployment of capital is.
Speaker Change: I wouldn't rule out share buybacks if we have another, you know, significant dislocation of, you know, equity values. I don't know, Geoff, if you want to...
Speaker Change: Yeah, the $112 million that we repurchased in the quarter was definitely opportunistic and reflecting the deep value that we saw in the shares.
Speaker Change: So, while we wouldn't rule it out, we're really unlikely to have programmatic sort of share repurchase, but looking forward to the extent we have opportunities, we'd keep that on the table of potential measures that we could take.
Speaker Change: Great, thanks for all the color guys, really appreciate it.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Ricardo Chinchilla from Deutsche Bank. Please go ahead, Ricardo.
Ricardo Chinchilla: Thank you so much for taking the question. A few weeks ago we heard that there was some pressure on luxury spend from the Chinese consumer.
Speaker Change: Obviously, we saw a very strong Golden Week visitation and spending.
Ricardo Chinchilla: Is there some overlap that you're seeing between, you know, the pressure on luxurious brand and on the highest-end consumer and your premium mass customer in Macau?
Speaker Change: Traditionally, there was a strong correlation between
Ricardo Chinchilla: luxury retail in our industry.
Speaker Change: I think what we have seen post-COVID is...
Speaker Change: the mainland Chinese customers are more into experiences rather than on the luxury goods. I think we've seen in the last 12 months how the luxury retailers have struggled in China.
Speaker Change: So, no, I think we're very fortunate that, you know, people are still traveling, still enjoying the experiences and, you know, Macau nowadays, in addition to gaming, there are a lot of reasons to go to Macau with all the concerts and events happening.
Speaker Change: you know, the fiscal stimulus, I mean the monetary stimulus.
Ricardo Chinchilla: I think hopefully with more support from the Chinese government,
Ricardo Chinchilla: you know, supportive Chinese policy.
Ricardo Chinchilla: The Chinese economy will continue to recover and I think in that case our industry will continue to do well and hopefully, you know, retail is not as big a component of our business but longer term it would be great if everything was firing on all cylinders.
Speaker Change: Perfect, that's a great comment. I was also hoping if you could give us some guidance in terms of CAPEX for the rest of the year and maybe, you know, preliminary plans for next year.
Speaker Change: Sure, so for this year, in the fourth quarter, we are looking for total CAPEX of approximately $115 million.
Speaker Change: So, you know, from earlier guidance at the beginning of the year, we've pushed some of the CapEx from 24 into 25.
Speaker Change: So in 2025, while we're still going through the budgeting process now, we're targeting somewhere in the range of $400 million for CapEx next year.
Speaker Change: Thank you so much for taking my questions.
Speaker Change: Thank you and just one further piece of color, of that 400 about 70 to 75 will be for Sri Lanka.
Speaker Change: Perfect, thank you.
Speaker Change: Thank you. Our next question comes from
Speaker Change: Hi, thanks so much for giving me my question. And congratulations for quarterly growth.
Speaker Change: I have a couple of questions.
Speaker Change: The first question is about dividend. It's pleasing to hear that it could start in second half of 25. Is there a number on net debt to EBITDA we should look at that will trigger that saying we have delivered enough? So that's the first question.
Speaker Change: The second question I had was mostly the potential of the company. I look at in 2019 we used to make more than 400 million dollar of quarterly EBITDA in 3Q for example.
Speaker Change: So, compared to that, even after spending on Studio City,
Speaker Change: new assets. We are at below 70% of that number, suggesting that there's a lot of potential, a lot of potential in future. So just want to understand what is the blue sky? How should I think about it? So those are the two questions for me. Thank you.
Speaker Change: If you want to take the first one. Sure. So on the dividend question, I would say, no, we don't have a specific trigger.
Speaker Change: for net debt to EBITDA that would then unleash the dividend. It's more of a holistic decision-making process where, of course, we're looking at our leverage ratios, but also other factors, other opportunities, and just the outlook overall for the business. So while that's a significant component, we don't have a specific trigger in respect to leverage.
Speaker Change: Hey Praveen, on your second question you know I think the you know myself and the entire management team we totally agree with you there's significant potential and at the same time it also speaks to there's a lot more work for us to do to get back to the 2019 levels.
Speaker Change: with the additional investments that Studio City paid to and Cypress.
Speaker Change: So there's a lot more work for us to do, and I'm confident that the last couple of quarters
Speaker Change: the path that we're taking, reinvesting in the service, in the quality of the business, reestablishing our brand promise and the brand qualities that will ultimately take us back to the heights that we achieved back in 2019.
Speaker Change: But definitely, there's a lot of untapped potential that we haven't quite reached yet. And we're hoping that 2025 is really going to be the year where all of the hard work will start paying off.
Speaker Change: Thanks so much, Lawrence. Just to follow up on that last point,
Speaker Change: Are you saying that in 2025 you can get back to 2019 level or are you saying that in 2025 you would try to get back to top three casino or number three and get the market share back to where you deserve based on your CapEx and the assets quality?
Speaker Change: That's funny because I always, that's one of my main complaints in terms of number of hotel rooms and capex.
Speaker Change: I think that's definitely the goal, to get back to number 3 in 2025 in terms of...
Speaker Change: There are some of our competitors have new hotel rooms and new product coming online as well in 2025. So I don't think we've set ourselves a, the long-term target is certainly get back to the market share in Macau of 2019. I don't know if we're gonna get there in 2025.
Speaker Change: achievable but again a lot of work
Speaker Change: Thank you. Noah, we wish you all the best. Thank you.
Noah: Thank you.
Speaker Change: Our next question comes from the line of Simon Cheung from Goldman Sachs, please go ahead, Simon.
Simon Cheung: Thank you.
Simon Cheung: Hi everyone, thanks for taking my question. I have two questions. Lawrence, earlier on you mentioned a re-ramp of your promotional program to attract more payers. Can you just perhaps elaborate a bit more on that? And you also did mention that you saw very strong performance during the Golden Week holiday. In terms of the volume, perhaps if you can share with us some of the other qualitative trends that you've observed. I'm not sure whether it's the pay account or anything you observed on the ground that gives you more comfort that your market share is starting to stabilize or improve. That would be great. That's the first question. And then my second question is more like a housekeeping question.
Simon Cheung: on the daily OPEX. I hear that, Geoff, you mentioned it was quite steady on a quarter-on-quarter basis. Wondering whether you can, you know, give us some guidance in the coming one or two quarters, in particular with the advancing waters or coming back online by second quarter next year. Thank you.
Speaker Change: Geoff, do you want to take the second one and then maybe Evan, to the support of Tim and Kevin, can take the first one?
Geoff Davis: Sure, thanks Lauren. So we can reiterate the guidance we provided on our second quarter call which was We think that we could see off X per day creep up to 3.0 By the end of the year, obviously, we were stable from the second quarter sequentially into the third But that that guidance remains intact
Speaker Change: And the next step function change that we see to our daily OPEX is with the opening of the House of Dancing Water sometime in the second quarter, and that also remains consistent with prior guidance, that that will be 0.1 per day.
Speaker Change: Sir, on the promotional system in mid-September, we relaunched the FLAIR program.
Speaker Change: Essentially what we've done is we've given a series of guaranteed benefits to our best players.
Speaker Change: and so they better understand our value proposition and we're investing in that player category to make sure that we're continuing to retain and to grow the best players in the system.
Speaker Change: The other focus is around
Speaker Change: New promotional offerings for people that are just coming in, so we're spending a little bit more there. So you have a little bit of a reallocation around the curve.
Speaker Change: with the idea of bringing people into the system and then creating that aspirational environment so they move up the chain as they want to get towards the top so you have all the benefits that you get when you reach these higher categories.
Speaker Change: in terms of Golden Week.
Speaker Change: I think the other statistics are commensurate with the ones that Lawrence already alluded to, so in addition to drop being up by over 20%, you know, we saw player hours up, we saw traffic up at all the properties.
Speaker Change: And so I think, candidly consistent with the market, there was a very sort of solid golden week in customer environment going on during that time. So I don't know that there's...
Speaker Change: A lot more that we could share other than the ones that I gave you, but we had good drop and we also achieved record drop throughout both properties. So, again, feeling very good about what we achieved there and how we are coming out of October.
Speaker Change: Great. Thanks for the call. Thank you.
Speaker Change: Thank you.
Speaker Change: We have reached the end of the question and answer session. Thank you all very much for your questions. I will now turn the conference back to Ms. Jeanny Kim for closing comments.
Jeanny Kim: All right, thank you for participating in our call today and we look forward to speaking to you in the next quarter. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.