Q4 2024 Melco Resorts & Entertainment Ltd Earnings Call
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Speaker Change: Ladies and gentlemen, thank you for participating in the fourth 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.
Speaker Change: I would now like to turn the call over to Miss Jeanny Kim, Senior Vice President, Group Treasurer of Melco Resorts and Entertainment Ltd.
Thank you.
Thank you.
Speaker Change: Thank you, operator, and thank you, everyone, for joining us today for our fourth quarter 2024 earnings call. On the call are Lawrence Ho, Geoffrey Davis, Evan Winkler, and our property presidents in Macau, Manila, and Cyprus.
Speaker Change: 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. Our actual results could differ from our anticipated results.
Speaker Change: 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.
Speaker Change: Finally, please note that our supplementary earnings slides are posted on our Investor Relations website. With that, I'll turn the call over to Mr. Lawrence Hill. Thank you, Jeanny, and thank you all for joining us today. 2024 was a year of transition for us at Macau.
Lawrence Hill: We invested in our business with a focus on enhancing the customer experience and to build a stronger foundation for growth. The contributions from these initiatives are now evident, with our market share in the fourth quarter of 2024 growing month to month.
Lawrence Hill: We ended the year with a market share of approximately 15.6% in December, and property visitation exceeded pre-pandemic levels for the first time since reopening of the borders.
2025 is off to a great start.
Our market share year-to-date continues to grow from 4Q2024 levels.
Lawrence Hill: We had a solid Chinese New Year. Total GGR, excluding junkets, outpaced both 2024 and 2019. And property visitation was up 17% compared to last year.
Lawrence Hill: A single day within this year's Chinese New Year period placed within our top 10 all-time high mass drop and GGR days.
Lawrence Hill: With House of Dancing Water scheduled to reopen in May 2025 and other projects that we have in the pipeline.
Lawrence Hill: We expect Visitation to grow further, driving revenue and EBITDA, which will enhance our margins as we see the benefits of the operating leverage that we built through 2024.
Lawrence Hill: We will continue to invest in our properties in Macau. This year, our focus will be on increasing visibility and accessibility, with our primary objective to attract and retain high-quality, high-value customers.
Lawrence Hill: For example, at Studio City, we're nearing completion of the revamp of the High Limit Area.
Lawrence Hill: At City of Dreams, we will renovate the area outside the main casino entrance and activate spaces around this entrance to enhance the visual appeal and drive incremental traffic.
Lawrence Hill: All of our Baccarat tables in Macau will be smart tables by the end of March.
Lawrence Hill: Full deployment of this technology across our properties in Macau will enable us to further refine our approach to marketing and player reinvestment.
Lawrence Hill: In Cyprus, City of Dreams Mediterranean and our satellite casinos achieved solid results for the fourth quarter of 2024, despite the ongoing challenges that we faced in the region.
Lawrence Hill: In Sri Lanka, the fit-out of the casino at City of Dreams Sri Lanka is progressing well and we are on track to open in 3Q 2025.
Lawrence Hill: Turning to the Philippines, City of Dreams Manila continued its strong, solid performance with growth in EBITDA and market share quarter to quarter.
Lawrence Hill: We announced today that we will be exploring strategic alternatives in relation to COD Manila. We are very proud of the business that we have built together with our partners over the last 10 years.
Lawrence Hill: Our decision to explore strategic alternatives is part of our strategy to be asset light where we can, and capitalize on our investments and reallocate our resources.
Lawrence Hill: This will allow us to enhance financial flexibility, strengthen the balance sheet, and support our long-term growth initiatives. With that, I turn the call over to Geoff. Thanks, Lawrence.
Lawrence Hill: Our group-wide adjusted property EBITDA for the fourth quarter of 2024 was approximately $295 million.
Geoff: Adjusted for VIP hold, our property EBITDA would have been approximately $312,005% higher than that of 3Q2024.
Geoff: Our OPEX in Macau during Q4 2024 increased to $3.2 million per day. This was, in part, due to new activations and additional programming through year-end and as more staff came on board during the fourth quarter.
Geoff: Despite the sequential increase in OPEX, the EBITDA margin in Q4 2024 on a CEO basis was fairly steady compared to that in the prior quarter.
Geoff: OPEX has been trending down so far in 2025. We expect run rate OPEX per day to decline to approximately 3.1 million within the first quarter and further down to 3.0 million as we exit the second quarter of 2025.
Geoff: We continue to remain disciplined in our approach to OPEX and reinvestment as we look to take advantage of operating leverage.
Geoff: Turning to our balance sheet, our liquidity position remains strong. We added another 250 million of liquidity with the closing of a 250 million revolving credit facility for Studio City in November 2024.
Geoff: This takes our available liquidity to $3.3 billion with consolidated cash on hand of approximately $1.3 billion.
Geoff: Melco, excluding its operations at Studio City, the Philippines, and Cyprus, accounted for approximately $700 million of the consolidated cash on hand.
Geoff: We have approximately $1.2 billion of debt coming due in 2025, but those maturities are covered. We have $1.8 billion in available capacity under Melco's RCF, which is more than enough to cover the $1 billion coming due at Melco.
Geoff: At Studio City, we expect to refinance the remaining bonds due in 2025 with a combination of operating cash and drawdown from the new $250 million credit facility.
Geoff: Debt reduction remains our key focus in terms of capital allocation. However, we believe our shares are significantly undervalued and are not trading at levels that reflect our current or future performance.
Geoff: We disclosed in our third quarter results that we had repurchased 112 million ADSs. And since then, we have repurchased another 20 million in MLCO shares.
Geoff: Corporate expense in 4Q2024 was $25 million. The increase compared to the prior quarter is primarily related to the payment of trademark license fees.
Geoff: We have shared service agreements in place across our properties to regulate the shared service we provide between Melco Group companies. These shared services can include corporate shared services such as IT or finance functions and also include the use of trademark licenses and brands.
Geoff: Melco Resorts has an agreement in place with Melco International, who owns certain trademarks and brands related to City of Dreams, and in 4Q2024, this was the first quarter that these fees were paid. These fees are paid on a monthly basis and based on a percentage of revenue.
Geoff: As we normally do, we'll give some guidance on non-operating line items for the upcoming first quarter of 2025.
Geoff: Total depreciation and amortization expense is expected to be approximately $135 to $140 million.
Geoff: Corporate expense is expected to come in at approximately $25 to $30 million.
Geoff: and consolidated net interest expense is expected to be approximately 100 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.
Geoff: and finance lease interest of approximately $5 million relating to City of Dreams Manila. That concludes our prepared remarks. Operator, back to you for the Q&A.
Geoff: Thank you. If you wish to ask a question please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request please press star 2. If you're on a speakerphone please pick up the handset to ask your question.
Speaker Change: Your first question comes from George Choi with City. Please go ahead.
Thank you.
George Choi: Thank you very much guys for taking my questions. I have a couple if I may.
George Choi: First of all, this is for Laurence, so GTR has been quite choppy in the early days this year and the trends around Chinese New Year were not as strong as anticipated. We would love to get your views on the overall market GTR growth process for this year if it is possible.
George Choi: And then secondly, in light of what you just announced on CDERA Greens Manila and the Asset Light Strategy, I'm just wondering what are the implications on Student City, please. Thank you very much.
Hey George, maybe I'll answer the second question first.
Speaker Change: You know, I think we all, as a group, committed to the asset-light strategy. We really started that with Sri Lanka and, you know, I think that is a model that we like going forward.
Speaker Change: At the end of the day, we are trying to shed weight at this stage. So, in terms of Studio City,
Speaker Change: taking on any more interest in there is really no longer a priority and frankly if Macau lets me do a REIT tomorrow I would do it.
Speaker Change: So, you know, I think we are very focused on the asset-length strategy.
Speaker Change: In terms of your first question about the choppiness of the market, if anything, I think as a group, Melco had an amazing January. It's probably one of the best January we've had in recent years.
Speaker Change: And, you know, I know Chinese New Year wasn't as strong as people had hoped, but the tail has been much longer. I think every single, whether it's weekday or weekend in February, has been, you know, stronger than the prior year.
Speaker Change: and also from our services, we also don't want everybody to be gem-hacked.
and Macau within a seven-day period.
Speaker Change: For us at least, I think that's a healthy development that the business has spread throughout the month and onto the weekend. So, I think all in all, we're very happy with how 2025 has started.
Speaker Change: and I think maybe Evan can talk about a little bit of all the good stuff that we have been doing in 2024 where we're really seeing the results pay dividends.
Evan Winkler: Sure, I guess just in the context of what Lawrence was saying around the market, coming, our January was very strong, kind of across the board, and we've had
continued momentum into February.
Evan Winkler: I think from our perspective on the market and taking what you're saying it has been choppy in the past year but it feels like we've solidified we've got some strength under us and we're moving up
Evan Winkler: I feel like within that market, in the early part of this year, based on our activations, we've been able to take some share, and we've got good momentum here heading into 2025. At COD, if you've been by the property, we opened a new entrance.
Evan Winkler: going from the Kotai Strip directly into gaming. So we shortened substantially the amount of time it takes to get from the street into actual gaming space. We supported that pretty heavily here in Q4. We've had very strong take-up on that product.
Evan Winkler: We've now got over 30 tables in that space, and that looks like that's going to be a winner for us.
Evan Winkler: We've made improvements kind of throughout the property in different areas at COD, and we're now going to be riding as we go into Q2 here with House of Dancing Water coming on board, so I hope we're going from strength to strength.
Evan Winkler: Studio City has performed well, candidly, in spite of really a lot of challenges.
Evan Winkler: given the improvements that are being made. If you had been by Studio City, you'd notice there was hoarding.
almost across the entire front of the property.
Evan Winkler: We've just brought a lot of that down, but because of that we've got a new all-day dining where the hoarding's down but the inside hasn't been finished, but that's coming online in the next couple of months.
We've got an incredibly beautiful new...
Evan Winkler: Redemption Area and new sign-up area as you go right into the front of the property, which is also with our, as Kevin will tell you, we're about to move our six-ton
Evan Winkler: Chinese New Year snake, which did well in the front of the property and we're moving there.
Evan Winkler: And so, again, we've done a number of improvements. We've got more direct access now going directly from elevators in. We've got a new check-in area.
at Celebrity that's coming online.
Evan Winkler: So, I think a lot of the work that we've been doing on each property to kind of get the flow, get the momentum on that ground floor together has really started to pay off and we're seeing it in Q1. So, I think we feel pretty good here about what the quarter looks like and heading into 25.
Speaker Change: Thank you very much, Lawrence and Athens. Those are very good colors.
Speaker Change: Thank you. Your next question comes from Ricardo Chinchilla with Deutsche Bank. Please go ahead.
and Jeanny Kim.
Speaker Change: Hey, guys. Thank you so much for taking the question. I was hoping if you could provide a little bit of insight into your capital allocation strategy with the potential proceeds.
Speaker Change: from the Asset Disposition. Would you guys be more inclined to reduce leverage at the restricted group level? Or maybe perhaps do a combination between debt reduction and share buyback given that you view your share as undervalued?
Hey, Ricardo, it's Loren.
Speaker Change: No, you know, I think first of all, you know, we've had, you know, the COD Manila, we celebrated our 10th anniversary, and we really do like the asset, considering we spent, you know, $500 million on hard construction costs, and we've generated over $1.6 billion over the 10 years in property EBITDA, but, you know, I think for us, you know, maybe I'll let Geoff talk about some of the, you know, uses, potentially.
Sure, I think paying down debt...
Geoff: is and will continue to be our primary objective for the foreseeable future.
Um...
Geoff: But in addition to that, I think there are other levers that we can pull.
and specifically if we look at capital light investment opportunities.
Geoff: That will also play a role in how we consider capital allocation going forward. We think there are going to be plenty of additional opportunities for new and attractive markets for Melco.
Geoff: to explore, and of course, with the shares trading where they are, we have been opportunistic and active in buying back MLCO shares, and to the extent we continue to see deeply discounted valuations.
Geoff: when we think about how to allocate excess capital to shareholders. So paying down debt is number one, but with the shares where they are, we're going to take a very hard look at buying back more stock.
Speaker Change: Thank you. I want to follow up on your comments with regards to Golden Week. Can we interpret from your comments that usually historically after a very strong Golden Week you had a couple of weeks where volumes declined significantly? Have these been less the situation after this year's Golden Week, and you guys have had less of a drop down from the Golden Week business volumes to the following couple of weeks?
Speaker Change: Yeah, Ricardo, we absolutely have seen, you know, overall February has been very strong. And, you know, I think post-Chinese New Year,
Speaker Change: You know, the weekends have been, you know, much stronger than prior year and even on a normal weekdays have also been stronger. So, I think all in all,
Speaker Change: We're having a very good start to 2025 and, you know, this is before a lot of the excitement comes into play that Evan talked about earlier on with House of Dancing Water returning in May.
Speaker Change: various property activations that we've had success on starting with last year or so. And the construction disruption being completely done at Studio City. So I think all in all, setting up to be a great year.
Speaker Change: Perfect. Last one for me. Could you please be so kind to provide, you know, detailed CAPEX guidance for the different parts of the business between University Group, Studio CD, and outside of the Research Group? Thank you.
Thank you. Bye.
Speaker Change: Sure. For 2025, we anticipate having about $415 million of total CapEx. About $80 million of that will be for Sri Lanka.
Speaker Change: 290 roughly for Macau, but of that 290, approximately 70 will be for Studio City.
Thank you. Thank you.
Thank you so much.
Speaker Change: The remainder of that will be of course in Manila and Cyprus.
Speaker Change: Thank you. Your next question comes from John Decree with CBRE. Please go ahead.
Hi everyone.
Thank you.
George Choi: Lawrence, I wanted to ask about the OPEX comments that you made coming down in 1Q and then again in 2Q. We've kind of always associated a little bit of an uptick in OPEX.
Speaker Change: with House of Dancing Water. So curious what's what's kind of driving the little bit of OPEX decline that you're seeing to start the year and then it's the follow-up would be
Speaker Change: Is that sustainable for the full year or would we see OPEC step up again in the back half of 25 around programming or whatever?
Speaker Change: This is Geoff before I hand over to Evan. Just one quick comment. The numbers that I provided in my prepared remarks are, of course, excluding.
Evan Winkler: House of Dancing Water. House of Dancing Water is still approximately 0.1 of incremental expense when that goes back online but I'll hand over to Evan for the color.
Evan Winkler: Sure, from an expense standpoint, as we were in Q4, expenses were higher than we anticipated.
Evan Winkler: Call it about 40% of the overage was probably in greater...
focus on
Activations, Advertising, Supporting the New Gaming Area.
Evan Winkler: Supporting with some more entertainment as we were going through a tougher period from a customer standpoint at Studio C where we had hoarding.
Evan Winkler: and pushing into the business. I think we feel pretty good about having spent that given the momentum that we saw December carrying into January.
Evan Winkler: About 30% of that was some sponsorships and some higher than anticipated maintenance costs.
Evan Winkler: And then about 30% of that was candidly creep as we've improved product and service sort of everywhere. We've had increase across the board.
Evan Winkler: and we were a little bit slower there, probably in getting some of the titration of getting those costs down, having looked now at sort of what works and what doesn't work. Tim, Kevin...
Speaker Change: Raymond, myself, the team in Macau has been pretty laser focused on that over the last few weeks. We've already put it in place.
A number of things to bring those costs down.
Speaker Change: and so I think we feel very confident that we can bring
those down to that level.
Speaker Change: We've also got the benefit here as we're looking now at the next phase going into Q2 to bring it down further.
Speaker Change: where Walker is going to sort of be fully online. We're already seeing some of those benefits.
Speaker Change: and we're using that to be more surgical in what we're doing from a gaming reinvestment standpoint and how we're modifying those programs which is going to drive a lot of the rest.
Speaker Change: And I think that's why we're confident we can bring them back to what we think is a healthy level here going into
The end of Q2.
Speaker Change: The one caveat I will say on that, it does feel like we've kind of hit, I would say, the rational moment in Macau. I don't feel...
Speaker Change: You know, what could you do more, more, and more, and I think that's all settled and is going in the right direction.
I don't think it's going to be...
Speaker Change: incredibly rapid, but I think certainly the highs are behind us.
Speaker Change: and I think us and everyone else as we look now into the later part of the year that you're going to see some gradual easing up.
Speaker Change: On that, as all of us have looked at what we're doing and added a bit more rationality into that. So when we look at those factors, I think we feel good about being able to bring those down to the level that we think is appropriate.
Speaker Change: Great, thanks Evan. I think you probably answered my next two questions, so I appreciate that.
Jo Storf: Thank you. Your next question comes from Jo Storf with Susquehanna. Please go ahead.
Jo Storf: Thank you, good morning. I just wanted to follow up on that answer. That was really helpful on the daily OPEX, but so in the fourth quarter of the overage,
40% really due to
Jo Storf: you know, higher spending given some of the new projects and products that you had. Is it fair to say that was a tactical decision, meaning
Jo Storf: You know you knew you had new product you wanted to spend behind it to get a return
and essentially, I think I heard you...
Jo Storf: suggest that, you know, it looks as though early or year-to-date, that's paying off, just to clarify.
Jo Storf: I think that's correct, meaning we knew we were going to be above where we were.
Jo Storf: If you've been out to Macau, we extended some activations we were doing from the Kotai Strip into the property.
Jo Storf: We've extended promotions and giveaways. We went a little heavier into advertising promotion. We went a little heavier on entertainment. We did some last-minute calls in terms of...
Jo Storf: of Concerts and some other spends in terms of bringing people into the property. We wanted to make sure it was vibrant in what we're doing.
Jo Storf: and we saw sort of a benefit in a couple of ways. One, in the case of COD,
We just brought a lot more people onto property.
Thank you.
Jo Storf: Now, not all of them ended up as rated players. Your percentage, you know, conversion of that is still fairly low, but it does help the property, does help the ecosystem. And even at the conversion percentage we were getting, we were bringing in about a thousand new people a day. So meaningful in terms of what we were able to accomplish there.
Jo Storf: On Studio City, again, I think we were a little bit more defensive, trying to make sure with everything going on there that we held. I think we felt emboldened.
Jo Storf: When we did our first kind of reconstruction works on the gaming floor where we were knocking out the marble and we had limited hoarding We seemed a little bit immune from the players having an adverse reaction. So I think we we thought we would be
Jo Storf: better off than we were but the hoarding was so extensive this time and it was really an access issue directly from the front of the property and from the street that the impact was a little more profound.
Jo Storf: And so when that happened, we again decided to step on the gas a little bit. So in that part, deliberate, I think we feel good about that. And again, feel good about the momentum it's given us here going into Q1.
Got it. Makes a lot of sense.
I mean with, with.
Jo Storf: The effort again to cut, you know, in Macau in particular to
Speaker Change: Do you feel as though you're there in terms of what you need to operate with going forward, or are there still some tweaks that you feel you need to do in terms of, again, your head count and the people that you think you need?
Speaker Change: I think we feel, generally speaking, very good about the team that we have on the field in terms of who we've recruited. Look, there's some things that we always look for. We always look for exceptional salespeople. We always look if there's an exceptional culinary talent, kind of in any market. But in terms of...
Speaker Change: What we need to do to fill out both on the executive side from a functionality standpoint and then also the incremental headcount for product and service.
We feel good. I also think, as we're now...
Speaker Change: Looking at every aspect that we improved and looking at the ones that have been most meaningful to the guests and the ones that we think have been less meaningful, we're going to allow some of that increase to actually kind of move out by attrition.
Speaker Change: And so on some of these areas you do have employee turnover, and as we're having some people drop off, we're looking at which areas we want to continue and to keep and which areas we can cut back on a little bit now that our product and service is really back where we want it to be.
Got it. Understood. Thanks a lot.
Speaker Change: Thank you. Your next question comes from Praveen Choudhary with MS. Please go ahead.
Thank you.
Speaker Change: It's Lawrence. How are you? A couple of questions from me. First of all, congratulations that I see the positive trend in the market share. The two questions I have is...
Speaker Change: The first one is, you mentioned that Melco, MLCO, has been paying a certain amount of money to 200HK for the first time.
Speaker Change: I just wanted to get the run rate going forward, or is it too small?
Speaker Change: And what changed after, you know, 20 years of this business? I know LBS and VIN, et cetera, all this space. So if you can tell us a little bit about that, I'll be helpful. And the second question was on asset-light strategy that you're going to employ in Philippines.
Speaker Change: Could we extrapolate that to Cyprus, as well as if you are interested in Thailand? Thank you so much.
Speaker Change: Hey Praveen, maybe I answered the second question first, and you know I think the Acid Light strategy is one that we are committed to.
Speaker Change: And, you know, I think Thailand is a generational opportunity, probably happens once.
every century.
Speaker Change: So I think, but it's still early days in Highland. We've done a lot of studies, we've made a lot of trips, we've opened an office.
Speaker Change: We've done a whole bunch of stuff there, but I haven't experienced this pen.
Speaker Change: I think we're in the very early innings in Highland right now, so we'll keep a very close eye to it, and we're always very open-minded with structures and, you know, partners anyways.
Speaker Change: But, you know, if Thailand, you know, I think Geoff mentioned it earlier on, for these exceptional growth opportunities, we might make exceptions.
Speaker Change: So I think that's on the asset life part of it. And I think on the trademark licensing fee, I think maybe...
Speaker Change: Sure, so that is reflected in our corporate expense and the incremental amount is provided in the corporate guidance that we have provided.
Speaker Change: We definitely took a look at and surveyed some of what our competitors are doing in the market in respect to IP fees.
But we felt it was the appropriate time
Speaker Change: to institute these fees going forward, but the level is at a considerably lower level.
percentage of revenue than what we see from our competitors.
Speaker Change: Oh, thanks very much for the clarification. If I could have one follow-up. I see that you're guiding for...
Speaker Change: guiding for lower OPEX quarter-over-quarter, but obviously higher market share quarter-over-quarter.
Speaker Change: It sounds like we could get much higher level of quarterly run rate going into Q1 and House of Dancing Order may be higher. So again, without boxing you in a number, it sounds like 300, a quarter kind of number can be achieved.
Speaker Change: If the current momentum stays, is that a good way to think about it?
Thank you. Thank you.
Thank you.
Speaker Change: Directionally, I think that that's accurate. We're looking to rationalize our opex and at the same time build off the foundation we've built in 2024 to enhance our assets to drive more market share.
Thank you and all the best.
Thank you for tuning in. We'll see you next time.
Thank you, Brie.
Speaker Change: There are no further questions at this time. I'll now hand back to Jeanny for closing remarks.
Jeanny Kim: Thank you for participating in the call today and we look forward to speaking to you again next quarter. Thank you.
том Tom Phil hi Tom Tom
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