Las Vegas Sands Corp. (LVS) Earnings Call Transcript & Summary

All right. Okay. I think we're good to go. Thank you, everyone. Thank you, everyone, for joining Las Vegas Sands fireside chat at the Bernstein SDC. I am Vitaly Umansky, Global Gaming Analyst for Bernstein. And with me, we have Rob Goldstein, who is Chairman and CEO of Las Vegas Sands. And with me also is as well as Patrick Dumont, who is now the President and Chief Operating Officer of LVS. Sands has been at our conference since I can remember, since -- at least 2014, but probably well before then. So this is my eighth time hosting you guys. So thanks, again, for agreeing to participate.

You're welcome.

I think, Rob, the best -- thanks, guys. I think, Rob, the best thing maybe just jump into questions unless you have any kind of opening statement you want to make?

No. That's good.

Why don't we just jump in? I'll try to do this kind of regionally, Macao, Singapore, talk a little bit about Vegas and what you're going to be doing out there and kind of future prospects, future potential investments that Sands is thinking about doing? But why don't we start with Macao? I think Rob and Patrick, both of you. I. think when we were sitting here a year ago, also doing this conference virtually, the expectations, I think, overall in the market, and I think from the company, from analysts was that Macao would be kind of at the forefront of the recovery with the COVID epidemic largely because Mainland China, Greater China, actually wasn't being impacted as much as the United States, for example, or Southeast Asia. Yet a year later, we're sitting here with the U.S. gaming industry back and full-fledged recovery. Las Vegas seems to be booming. The regional markets are doing well. And Macao is still stuck in, I would say, doldrums. There's been a bit of recovery but stuck in a doldrums. How surprised are you by the expected -- by the recovery that we've seen versus what the expectations were? And then we'll jump into a little bit of why that's happening.

Well, we're disappointed more than -- we were hoping for a quicker recovery. And obviously, we're pleased with what's happening in the U.S. And I think the same thing will happen. We'll mimic that in Asia, China, Macao, et cetera. But clearly disappointed that things have -- as you referenced, it's been a long year plus of disappointments in stops and starts, but it looks like they're making real progress in China right now. I think we saw a 20-plus million vaccinations daily, and the efficacy appears to be fine. So yes, disappointed that we're still struggling a bit. I think the May numbers indicate some demand is still there. And we have no concern about long-term demand, but we wish it would happen quicker. We wish this will be behind us, but it's not. So we accept it and move forward.

And one of the questions I keep getting and you're probably getting as well is, why hasn't there been a more material change in visitation policy since really the IVS was restarted back in August and September. Obviously, Macao has had no COVID cases domestically since April of last year. China, albeit, there are spikes here and there. We're in the middle of one right now, has been fairly low contagion. Yet, the visitation policy remains the same. Why do you think the government, both, I think, in Macao and China is being so conservative?

I think it's pretty simple. They're very cautious, and they have a 0-tolerance policy, and it's still cross-border. It's unfortunate, we're not inside the border. So we saw a -- these issuing still have a -- the governments are being super cautious, and that's their prerogative. And we're hitting much about it. Do we wish it was different? Sure. We think [ Macao's ] official trying to change that? Yes, we do. But until the Chinese government feels comfortable and opens that border up, we're stuck in this dilemma. Why they're doing it? Again, it is simple. They're uber cautious. And I think you've seen that with the IVS scheme, the need for testing. And there -- I think there's also discouragement inside China for people travel outside China. There's clearly been a policy that cross-border travel is questionable, and there's been a policy issuance. So it's not that hard to figure out in terms of the -- government has been very clear, they don't want people traveling and even though it seems like Macao is part of China, it's not. So until they change that. And when that day comes, I think we'll see a big change in visitation. We're not concerned about long-term appeal of the Macao. The other thing I think you should know is that there's a chance that China may open up that border. Hopefully, will open that border up to Macao. And we'll be -- have outsized demand because they're not going to be able to travel to Japan or to Europe or the U.S. so quickly. So it could be where the beneficiary behind the rule of maybe a more favorable policy vis-à-vis China-Macao border crossing. But right now, it is what it is, and we'll just have to live with it, accept the government's direction and guidance.

And Hong Kong also has been historically somewhat important for Macao, both for Hong Kong residents coming in and also for the cross travel from China into Hong Kong and....

Right.

Some of the operators have said in their earnings calls and heard the conversations that Hong Kong might be 25% or so of their business volumes. Are you in the same kind of position? Or do you think because of your scale, you're much more reliant on the Mainland customer?

The latter. They're much more important for us. And I also think for Macao, even if those who think Hong Kong is 25%, it's not important. Because at this point, it's not an option. We cannot risk opening up to Hong Kong until we get the Chinese approval. Because, obviously, all the -- even 25% or 30%, 70% plus have started out coming from China. Your primary market is still China. So you've got to defer to China. So I don't think that's an option you even discuss. In our case, obviously, as you alluded to, it's less. But the option are out on the table.

And when -- you mentioned this notion that Macao is obviously part of China. It is China. But it's separate, you need an IVS visa or group visa or some other visa to enter same as in Hong Kong. The recent -- well, now it's over a year long. The crackdowns that we've seen in China, the change in law with respect to marketing activity around gambling activity. If there's been this debate back and forth, but how impactful do you think that is on Macao, in particular?

I like to believe that, as you alluded to, Macao is not necessarily deemed by the Chinese government the same as say they deem with Philippines or Cambodia or true cross-border another country. I think Macao is a different category. But I think the rules remain the same. We must be very, very compliant. We're very cautious about our business with the utmost scrutiny and be very conservative and abide by the Chinese policies. So though I think it's impactful, it's hard to determine that until we get opening, isn't it? Because you don't know -- it's not transparent. What's happening in the Macao until business returns to pre-COVID levels. So do I think it's hurtful? Clearly, the government is focused in a certain kind of individual certain activity most of which doesn't take place. There is no internet gambling in Macao. There is no -- I think the focus the government, I believe, is beyond Macao. Having said that, we must be compliant, we must adhere to government direction. And I think we've done that very well over the years, which is why I think we're in a good position with Macao.

And by the way if anyone has -- [Operator Instructions]. There's been a couple of been submitted that overlap with mine as well. I'll keep going, but if anyone has questions, feel free to post those and we'll -- try to get to them. Rob, just back on this point, maybe just delving in a little bit more in terms of the pace of the recovery. Obviously, GGR is now back at 40% or so of 2019 levels. Mass is doing much, much better than junket VIP as we've discussed on prior earnings calls and the evidence that we're seeing in the monthly data. If we think about the level of recovery where we're at. If one were to ask, why is this not better than it could be, right, if the theoretical could be, because IVS visa is running? What do you think are the drivers of this? Is it people are still even though they can get an IVS, they just don't want to travel because of COVID. They have to get a COVID test. Is it because they're not able to come as frequently as they once did, because the IVS visas are taking longer to issue and maybe there's more of a time gap between when you can get an IVS? You can't get a group visa. So obviously, cities outside the IVS program can't participate or is it a liquidity issue, right? So is it kind of a liquidity issue? Or is it a demand issue constrained by COVID issues?

We've answered the question very well. It's not -- in my opinion, in our opinion, it's not a liquidity issue at all. It's an access issue for the reasons you stated, but also, I believe is also pushed back by government, pushback by private enterprise about, do you want to travel across border? And there is -- it's not a free-flowing situation. It's not that people don't want to come. It's not so simple. The COVID test is there. There's all kinds of impediments. Plus, I do believe there's a lack of awareness of how much Macao is open. There's a pushback by when government travel cross-border. I think this is a simple -- unfortunately, it's not that complicated at the end of the day, it's not simple to get the COVID test, or to get the visa. There was pushback by authorities, be it governmental or industry. And so travel has been clamped down on. It's not -- I think the day comes when Chinese government decides it's free flowing, and they can do it. Business return rather quickly. The mystery is always is that, why? Well, there's a lot of reasons why. You listed most of them. I think you said it well. The truth is, when this thing opens up at some point later this year, I think things will return normal rather quickly, just like we did here in Las Vegas. I mean coming in Las Vegas 6 months or even 3 months ago and walk in my office, today is night and day. And it's an amazing thing walking. The lines are around the front -- and it's strange, that's wonderful to see. The city is booming again. That's going to happen in Macao. So there's question, does it happen in 3 months, 6 months, but it's going to happen in Macao. They're going on their backs. This is so -- to me, it's so predictable based on the vaccination route they're taking. And the fact that the government doesn't want to -- I don't believe the government has any reason to hurt Macao. They want to see Macao boom. The one thing people aren't taking into consideration is the possibility Macao opens up. And that's going to become outsized visitation due to no place else to go. I don't see it opening up quickly in the rest of Asia or the rest of the U.S. So I think Macao may be the recipient of a lot of visitation just like Las Vegas right now, feels like -- I mean, you walk through these buildings, it is Jam packed and exciting. Fun to watch.

And I guess, maybe this is a difficult question to answer. But from a marketing perspective, with the change in law and attitude in China with respect to gambling, have you had to rethink how you go-to-market to that customer base? Or are you still following the same strategy you've always had?

No. We've always been -- from day 1, going back to the Macao, we've always been extremely careful, compliant. Our junket activities are always were very -- the first one is in force, I think, I believe, that U.S. system -- in regulatory system back in the day. And we remain very compliant, very careful because you have to be. It's a privileged license. We're lucky to be there. It's been a great run for this company. It's going to continue for years to come. But we never alter our approach from a marketing perspective. We never had to be told to do. We know what to do. And we remain steadfast in the belief that we're doing our business properly. And maybe lose some customers, because of me when I was aggressive, as well people, that's okay. We're very comfortable. And I don't think the new changes don't really affect us because we've already been adherent to those policies before they were stated.

And just on this topic, I'm going to jump to Singapore, just on this topic. Singapore obviously relies on a significant amount of international business and business coming out of China. Any impact from this law? Obviously, there's no travel to Singapore right now, but any impact in terms of how Marina Bay Sands will be dealing with Mainland Chinese customers?

Pat, why don't you take that, since you're on the call, too?

Sure. Happy to take it. And it's a very interesting point. I think one thing to note is that Singapore has a very diverse catchment area. So if you look back in history to the 2014, 2015 time period, where there's some cyclicality and performance in Macao, Singapore continues to produce. And I think the key thing that sort of underpins the strength of Marina in Marina Bay Sands is the diversity of offering there. The fact that it really is a premium mass-focused and, call it, mass-focused building from the catchment area around Singapore. So we do well with a lot of different feeder markets. And so we've always been very compliant there, as Rob mentioned, we invested a significant amount of compliance and following the rules there. Our strategy is not going to change. But I think what's key is that, Singapore's growth out of, call it as level where it's at today is going to be based on a further opening of markets in the surrounding catchment area. So countries that it used to have free and open exchange with of people and a trade need to open back up for Marina Bay Sands to perform. So we're sort of correlated with the overall opening of Singapore in its economy. And that will allow us to sort of return back to normal operation. But in terms of specific China operations, I think we've always been very cautious with customers from that area, and I think we'll just continue to do the same thing.

Great. Just jumping back to Macao. In terms of the new product offering, you've done -- you're finishing up the Londoner renovation fully rebranding, fully -- the Four Seasons Tower suites or Grand Suites have now opened. Obviously, demand is still soft in Macao. But how receptive is the customer base? What are you hearing from your marketing hosts, from customers with respect to the product itself?

We saw the product prior to the pandemic, we did see the Four Seasons, and it came out, the room product was extraordinary. We haven't seen the gambling product. But the images we get, the feedback we get in the Four Seasons have been beyond our expectations. I don't think people in the market would understand we've done there, how much money we put in that building and how great it came out. It's 290 keys. It's superb quality. It's scale. Also the size of suites are terrific. We think it's going to be a very important product in the premium mass space. Londoner is still a work in progress, and we don't have -- we have visuals. We've seen it, haven't been there in person, obviously, for quite a while. But I think we're equally excited about it. We think the Londoner could compete on the same level we hope with the Venice across the street. It's at the epicenter of Macao. It's got 6,000 keys or there about high 5s. It's going to have a revamped look, a feel that's going to give us a lot of -- we never got visitation from mass at the old product. It never have the appeal for the mass from a retailer gaming perspective. This Londoner product could be awfully good. And the facades are being completed this year, open by the end of the year. So the only positives whole pandemic might be for this company is we were able to do most work at Londoner without having people walk through it, we have to fuss with all that. So that may be one of the few positives. I can always say we are beyond excited about both these products. One is a pure mass niche type product with a high-end component. One is a pure high-end premium mass component. But I think both of them are going to repeat very, very well. I don't people have given us much credit what could happen over there. When the border crossing has come easy. We're back at pre-pandemic level, we think our portfolio is much, much enhanced by the investment we made there.

And maybe it's hard to quantify, but when you think about the amount of capital put into Macao for the Londoner and for the Four Seasons expansion. Are you still confident around your ROIs that you're expecting when you originally decided to [indiscernible] mid-teens or...

I have to tell you, from our standpoint, we couldn't be more confident. From our standpoint, the original thesis was in the premium mass area, turning this building and taking its great fundamentals and investing in theming and other amenities that we know are really designed to target our deepest and most valuable customer segment. And we think we've accomplished that. We think there's just an unbelievable product that we've unveiled in Macao, and unfortunately, no one can see it yet. And so we're very excited about it. So we think the level of design, the level of call it, thoughtfulness and the layouts and the way we set up the gaming areas, the amenity areas and the rooms really is beyond expectation, and we're very excited about it. So we think when Macao returns, our gearing will be better to actually produce better cash flow with a better mix of customers than we've ever had before because of the quality of the Londoner and the results in both the room product and all the amenities around it. So we think it's going to be very additive. Rob mentioned that it made 1 day rival the Venetian. We're hopeful. We think it's just a really great add for us as a company, and we think the investment was well spent. And we're looking forward to see it produced. But we're very confident about the results for Londoner.

And does the work that you've done on Londoner and the Four Seasons expansion kind of I say, upscaling the property, creating better hotel rooms, larger hotel rooms. Does that point to the direction of Parisian needing future redevelopment and Venetian having redevelopment? Or are those products good the way that they are right now?

I hope so. We do so well with Four Seasons and still we're at Londoner we want to go back and spend more capital and upgrading. I mean we always want to upgrading this business. Depreciation is a real number. We've always said that. We're big believers in Macao in our future. Nothing to be more pleasing to invest more money into Macao. Parisian is a pretty successful product. Could it be better? Things always get better. If the Londoner blows the doors down and the Four Seasons does its job, I'd love you to go back and rethink how to make the niche better, although a product that made $1.6 billion, $1.7 billion pre-COVID isn't a bad little hotel. We can always enhance it and do better. So -- and the Parisian is always things you can do. So let's see if we're right about our optimism. And if we're right about it, we'd like to go back and spend more money in Macao. Still the best land-based market in the world. And when this COVID thing finally goes away, hopefully, later this year, like to we all say, we're right about our opportunity.

And Rob, if you look back at 2019, Macao was running at roughly 92%, 93% occupancy rates. Weekends effectively were sold out for most properties. My thesis on Macao has always been that Macao is always capacity constrained, right? Obviously, there's bubbles here and there, but it's capacity constrained. But when we look out at the capacity expansion that we're sure of in Macao over the next 3, 4 years, we have more of some of your product, we have Galaxy opening up, Bethlehem opening up, it's a fairly limited supply. I think it annualizes to 4% room increase annualized over the next 4 years. Is that enough to have kind of mass market grow at what, I think, most investors are hoping for which is kind of 10-plus percent mass market growth in the market?

It's enough, but it's not enough. And what I mean by that is, I think Macao, with Galaxy and our expansions was the primary source of new capacity, it can grow. But I think you and I both know that the -- it's underserved vis-à-vis the Greater China population. The penetration is still sub-2% in terms of China. And I think it's going to come roaring back quickly. And I think the population want to come there, especially if they can't get to other places in Asia and can't get outside China for a while. But even having said that, Macao gets better and better. The bridge is extraordinary, Hong Kong Airport access. I mean Macao is underserved because demand is -- they're keep growing. We know that. And the question is, how do you trade up customers? The only way to get that growth you're referencing is trading up. You've got to get better, higher-paying customers, higher room rates, more gambling because you are absolutely a Macao capacity constrained. If Galaxy and us, if -- really experience you have, it's not sufficient to handle what's going to happen post-pandemic. It's going to grow, but it could grow by a lot more of it and more capacity. Look at Las Vegas, sort of in '90s. So what's happened in all these land-based markets, you know it's there. The government wants to do more investment, and hopefully, they will, Macao could grow and grow. And it needs more rooming space, for sure. I mean the rooms are, it's underserved. And we hope they'll consider that when they do relicensing. But until then, we've got to wait until it happens.

And then just one other thing on Macao, and then we'll switch over to Singapore and then kind of the rest of the company. Concessions, it's always -- this is always a question that comes up, it's always almost impossible to answer. But I think if we think about the COVID situation with Macao really being negatively impacted. Now what's really going to be a 2-year time period? The gaming operators are really stepping up, working with the government, making sure that employees were taken care of, et cetera. Is there a view that the concessions in terms of what the rebidding is going to look like is, somehow going to benefit the operators as a result of COVID? That's a question that keeps coming up. What are your thoughts around that?

I don't know the answer to that. I do believe that, again, we go back to the same enhancement we've had for the last, I don't know, 15, 16 years, and that is we pre-COVID, during COVID and post-COVID, we work very closely with the government. They've asked us for outsized contribution to nongame. We've obviously done that. We were the authors of lots of rooms, lots of convention space, lots of entertainment, lots of retail and at a time when no one else believed in that, and we led that in parade. Now everyone is jumping on that parade once you part of it, too. I believe that our, our strategy day 1, Sheldon prophesized 16, 17, 18 years ago, holds up today. And I believe that's the better card to play is what have you done for us pre-COVID? Do I think the COVID thing influences? I don't know. I have no way of knowing that. The government has never alluded to that. We just don't know if that's a factor or not. But I think Macao did perform admirably to all the hotels and we stepped up, we do -- all of us did a good job with that. So it doesn't hurt us. Does it really matter in the end? I don't know the answer to that. I rely more on our a $15 billion investment are strong, and this is nongaming. Our leadership in rooms, our leadership in retail, our leadership in restaurants, we did all the right things back when it was very unpopular. It's been almost 14, 15 years, we've built the Venetian. And at the time, people just couldn't believe we're going to spend all that money out in Cotai, all that convention space, a big arena. People thought that was hilarious. And it worked out okay, I think. And I believe the government will not forget that.

And I guess, again, this is a difficult question. You probably can't answer it, but I have to ask it. Singapore decided to raise taxes. Obviously, there was a law in discussion with the government. You were able to expand your capacity significantly over the next couple of years, but taxes did go up. Is there a risk that the government focuses more on the tax aspects of what they really want out of these concessions? Or is the government really focused on other things like capital investment, employment, et cetera? Where do you think the government's objectives are?

Pat, you want to take that.

Sure. I'm not sure if you're speaking specifically about Singapore or Macao or both in general.

I'm speaking more about Macao and kind of looking at the fact that Singapore did raise taxes and then also gave you the ability to expand, is that a model that may happen in Macao? Or do you think Macao government has other objectives?

It's very difficult to obviously make any comment about what the government's intents are. I will say that they're very sophisticated. They studied this business model very carefully in understanding what's going on in competitive markets. There is a large disparity in tax rates between Singapore and other markets, and that's something that they may have looked at the time. Recognizing that the higher the tax rate, the less investment you can make. So I think these are sophisticated governments. They do research. They look at other markets. They look at returns, they look at the growth in their own economies and they look at the tax revenues that they're generating, and they recognize that it's competitive. And so I think you just have to look at it in the context of making sophisticated decisions for the long-term and their track record in doing so, which has been very successful. So that's what gives us comfort. And that's the reason why we're willing to invest billions of dollars in front of the concession renewal because we have faith in the continuity of government and their capacity to make sound judgments based on history and based on their future objectives.

And then one other question on Macao, touching on Macao. Obviously, online gaming, and I'll get to your views on that in the U.S. in a minute. But in terms of Asia, there's always speculation, will China allow some form of online gaming? Will other markets across Asia allow online gaming? Right now, basically, online gaming is illegal in almost every market in Asia. It operates in a black market, and it's quite large. Do you think this is something that's feasible in the next 5 years or some time frame that's within an investor's horizon of having some form of online gaming legalized for really the Greater China market?

I don't. I don't believe that. I don't think that's in Chinese best interest how they view the world. And I could be wrong. No one -- again -- these are speculative answers because the question is beyond that. I just don't see -- I think they're in support in Macao. I think they're going to ask us to invest more, and they're going to grow Macao. I don't think based on their recent communications about cross-border and about Internet gambling, I don't see them changing direction. So I remain steadfast, my belief that China will not open up to legalize online gambling. I just can't see it. Can't see it.

Yes. I'm with you on that. That's been my answer consistently for a while. I just don't see it happening. Maybe just jumping back to Singapore. Singapore, I think surprised most people over the last 1.5 quarter, 2 quarters about how strong the local market has been, right? We saw our slot business and Marina Bay Sands basically back to normal in the first quarter, principally on local demand?