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

Good afternoon, ladies and gentlemen. For those who don't know me, I'm Richard Clarke, I'm the Global Hotels and Leisure analyst here at Bernstein. Very appropriate, I think, after a professional poker player at lunch, to follow up with the first session after lunch with Las Vegas Sands. I'm delighted to have Rob Goldstein, Chairman and CEO, with us here today.

If you want to ask any questions, we're using the pigeonhole system, we haven't -- those who aren't familiar with that, you can submit questions in there. You can also vote for any questions you like in there to be given more prominence and I'm trying to get to all of those alongside my own questions. But maybe just to start off with, obviously, the last few years, LVS has changed a reasonable amount. So maybe just as a little bit of a setup, what is Las Vegas Sands in 2023?

Actually it resembles, I think, 2019 quite a bit. The difference is we sold our Las Vegas assets in '21 to Apollo and VICI. But we're still dependent as we were -- previous sale was 90% of our income came out of Asia, primarily Macao and Singapore. And that's back the same situation say except in our own Las Vegas. But we're very fortunate Macao from a dead stop of being closed for 3 years is now doing quite well. Never thought in December of '22, I'll be sitting here saying this, but it feels like Macao's trajectory is actually recovering quicker than Singapore did. In Singapore, as you may know, where we've had some very strong $400-plus million EBITDA quarter. So the company feels a lot like you did. We're not an online gambling, we're not in sports betting. We are land-based operators, primarily, of course, now in Asia. And we are bidding on a couple of licenses here in the U.S., one in particular here in New York State. But the company remains a very strong balance sheet, very strong cash flow coming out of Asia. Numbers keep ticking up, and hopefully, you'll see the main Macao numbers will validate. The Macao continues to improve and get better by the day. So we're probably the most -- the biggest operator in Macao and certainly the most successful in Singapore.

Fantastic. So maybe we can just delve into maybe some of the demand numbers to start off with, and then we'll certainly get into some more strategic questions, et cetera. Maybe just give us an overall view of where is Singapore now fully recovered? Where is Macao on that sort of recovery trajectory maybe talk about the different parts of gaming, demand, air traffic? Is that all the way back to where you want it to be?

For Singapore, the EBITDA levels have recovered in '19 levels, and I think we're moving now towards -- we're hoping to -- I'm hoping one of these quarters, we posted a $500 million EBITDA a quarter. I believe Singapore has the ability to get to a $2 billion annualized EBITDA, the caveats being one. We're under huge construction, the room product in Singapore was never that good. We've made that room product now superb. It takes time and so we won't finish that renovation until the end of '24. We also haven't seen the -- we have seen the return of the super high-end Asian customer into Chinese customers, I should say, Mainland Chinese customer in Singapore has still been soft. The business is regionally great in Singapore. I think we did $400-plus million in Q1. I think we'll will be this fine the rest of the year towards tracking towards our goal, again, Singapore is $2 billion. How we get there? We get there with more Chinese visitation, and we get to buy more, buy better improved product, both in the hotel and the lodging and the gaming. But Singapore is a special market, but unique. We have unique relationship with the government. I think we're very in sync with their thinking. We've helped tourism grow not just for our building, but the buildings around us. So a nice participation there of benefit the whole town. And our business -- our building, as you know, is iconic, Moshe Safdie designed it many years ago. Macao. Again, Macao, a mere 4 months ago was shut. There was no business in Macao in late December, early January, and then zero COVID reversed itself. And we're now sitting on this very powerful market resurrecting for eyes. And the recovery is underway. Obviously, there's still issues of getting through the recovery of visas and approval to visit. But I was in Macao last week, we opened our new Londoner Hotel there. And you forgot about COVID for a moment because the place has more people. So we're very enthused about the future of Macao, just a question when it gets back to '19 levels.

What are the remaining barriers then? Is it the air traffic? Is it labor? Because I noticed that -- I think in your last quarter report, you said that 31% of your rooms are out of service.

Labor is a nonevent. Labor is a tempest in a teapot. It goes away -- by this summer, the labor goes away, all the problems go away. We'll be at full capacity as far as the market and see the summer. That's not an issue. What is the issue in China is visas and opening the borders fully and getting more non-Guangdong and non-Hong Kong anticipation for visitation. Hong Kong is back strong, but you need China. And China need beyond the Guangdong province to recover. And that's not there yet. It's still coming. But I think you look at the main numbers that come out this week, you'll see -- again, the trajectory is very -- the way it should look, it's a nice -- it's not the U.S., which is as a hockey stick recovery. It's much more gradual. But it's inevitable. Macao is just too good a place for consumers to be denied, the retail there, the restaurants there, the entertainment. It's a very special place. I think it's just simply will get better and better with time. I don't have a crystal ball as to when it covers the '19 levels, but it certainly will recover. Whether it's next year, this year, I don't know. But it will recover. The summer should be interesting because the summer probably is the -- one thing that surprised me is the base mass has been less aggressive in terms of recovery as opposed to the premium mass. So that surprised me. The base mass retail customers and gaming customers at the high end, are very strong. Recoveries underway strong there. But on the base mass, it's been a little more lethargic.

Okay. And so that's why you're seeing your gaming revenues recover quicker than your visitation numbers is more the premium numbers.

Yes, it's premium.

Do you think that there is some -- is there some pent-up demand behind that? Is it -- what's sort of driving us to faster premium customer? Or is it actually that more base customers have become premium customers over the last few years.

Well, it's a little both. I think the big problem is just the visa, the transportation, the hangover from COVID. Just taking longer than we thought for base mass to get there. The premium mass when you look into our retail numbers, look into our gaming numbers, that recovery is frothing and growing. But we need because of our scale in Macao, we have the largest capacity in gaming and lodging. For our business to get back to $3-plus billion, we need base mass to recover as well because the margins are back in that segment. And so we're waiting to -- it's more important to us than most people there. Most people don't have the amount of tables slots and sleeping rooms and retail scale we do, where they have leaseholds there, so a huge retail presence. But with Macao again, it's just a question of time. The ascent of recovery in Macao is much stronger than it was in Singapore, simply about 3/4. This thing has already gotten back about 60% and going.

And as you're seeing Macao begin to reopen, is that having any impact on Singapore and the other direction, is Singapore benefiting from Macao being closed, or actually, you're able to see them both grow in lockstep now?

They're both fine. There's no -- it's not detrimental to Singapore if Macao recover. I know there's a theory out there that won't flocks to Macao, but if you could see our -- if you see our Singapore numbers, you won't have that problem.

Okay. Great. And then obviously, you're in the recovery trajectory that there is concerns out there about the Chinese consumer environment. Is there anything you're seeing in your data that makes you nervous about what eventual recovery looks like, let's say, or is the behavior pretty much as you would expect it for a strong start of this year.

Well, I think we're not -- you have to keep in mind that we -- again, a big place to turn a lot of people. We don't need [indiscernible] and [indiscernible] at the same time. So it's not -- it's -- we're a small portion of -- our customer base in China is still small relative to the overall size of the population economy. So I don't think -- I think the answer for us is more a question of getting there as far as transportation adhesives, once all that gets sorted out, I think you'll see Macao go in full recovery mode this year.

Okay. Fantastic. So maybe just talk about being a business that focus just on the moment in 2 cities. Why are those 2 cities the best cities to be in for gaming? And are there other Macaos and Singapores out there that you could potentially...

There will never be another Macao. It's like Las Vegas, it's irreplaceable. You'll never -- not in my lifetime, probably not even the youngest person, he won't see Macao replicating. You can't -- the scale of Macao in terms of the amount of capital that was put in there and the size -- and it's like Las Vegas. It's just irreplaceable. You can have gambling in other places, you can have eventually -- Japan will happen, I guess, maybe Thailand or -- there's always a new jurisdiction. It's under contemplation and consideration. But you'll never recreate the incredible scale and diversity of product. We opened -- we built The Venetian I think in 2007 May, it's been a long time. And since that, there's been tens and tens and tens of billions of dollars poured into Macao development. You're not going to get that in a place elsewhere in Asia. It's a unique set of assets. And that's why I say it's too powerful. We've got all the retail, all the restaurants, all the entertainment. It's very accessible now with the new bridge. And so you can't replicate Macao. Singapore is even -- it's an extraordinary place. I mean you're not going to -- I don't think you'll see more gambling there as far as licenses, but Singapore because it's this wonderful city state and kind of in that hugely populated region, and it's a phenomenal base for us to operate. We're very fortunate to be there with a very strategic government. So I think we are -- the reason those 2 cities are unique to unit points and hard to replicate. Yes, since the last -- we always saw when Singapore went to casino hotels. That like domino -- as a kid, they always talk about the communist of the domino theory, this country fell, that country fell. We thought Singapore would then lead to Japan, Korea, Thailand, all these countries. It didn't happen. And here we are many years later, and no places really come close to Singapore and Macao in terms of quality of experience, governments are honorable and they have regulatory environment. So we're very fortunate in both those locations. We'd love to find a third place in Asia that looks like Singapore or Macao. I don't see it today.

Is Macao now full, or is there room for more development to go in Macao?

Well, there is a physically, there's room physically. It could be if the government want to enable it. This -- if Macao were like Las Vegas, there would be 10 hotels under construction today. It was a free market you would want, but that's not going to Macao, you have to wait for the government's advice and their direction. And so Macao could continue to grow if the government deems it the right thing to do. So that's a government decision, and we have to wait and see. I'd love to see us build more Macao. I mean there's no place like it, the doorstep of China, you've got Hong Kong. I think Macao also has great international potential for the Korean market, Japanese market. I think it's going to grow and grow. There's just a very unique place in Macao culturally, accessibility, opportunity for shoppers is paralyzed, for food, people, they like to eat at the Venetian restaurants over there endless, and for entertainment. I mean it's just a very unique place. I think it's been a very popular destination for the rest of Asia in the years ahead, not just Chinese.

And we've got a specific question on here is what is the likelihood of view of developing gaming in Hainan? And is LVS positioning itself?

No, I don't see it.

Just Mainland China would just be off?

I just don't see it. I mean I've been talking about it for years, and I could be wrong. I've been wrong before. But I'd be -- I've heard no discussion. I've been in Macao 3 times in the last 4 months. There are no conversations about that happening. So I find that to be -- there's some hopeful people, especially people who own hotels in Hainan Island, just talk about it. We would love to be there, but I don't think that's realistic -- I don't think I'd put a lot of stock in that.

Okay. Yes. So maybe just talk about the move back to the U.S., the New York. You said there were 2 projects, obviously, Long Island.

Yes, one I won't talk about, there's something that came to us recently, it's very opportunistic, but it's very -- it's in its infancy. It's an extremely exciting project, but it's not ready for prime time. It's just something that's come along the last 2 months, it's extraordinary if it happens, and we'll be -- talk about maybe 3, 4 months down the road if it really develops further. New York we, as you may know, we bought the leasehold in Nassau at the Long Island, the old Long Island coliseum for hockey fans where the islanders used to play. And we have about 70-plus acres under control for 100 years there. So we have a huge site. We plan to build lots of -- be a first-class hotel or hotel with multiple retail restaurants, entertainment venue, we'll build a new version of coliseum. We love to be in New York. We think the opportunity is like Asia, it's a mote market. They're protected by licensures of a few. So we are very eager to see New York come to fruition. We never believed in the Manhattan. We think it just doesn't make sense to develop a small parcel and go vertical. We like to scale. We like large -- like multifaceted, good parking, good access. We love the access to the airports there. So we're big fans in New York. I don't know how long the process will take. I've been told this time next year, could be summer of '24. What I do know is the winner has really a great price because the opportunity to make money in New York is extraordinary, assuming the foundation of tax is fair. We only have 3 licenses here. MGM is here at Yonkers, Genting is up there in Queens. We'd love to have a third license in Nassau. And I think the market here is immense. It's heavily populated and extremely -- it's densely populated by ethnic and ethnics always help our business do well. So I'd like nothing more to build New York.

What do you think is the likelihood of completion? Do you think 100%, or what's the likely timing of...

I think they'll finish in '24. I don't know what quarter in '24. They'll make a decision in '24, I've been told. I don't know. I mean New York is -- they haven't even picked the gaming board select tours, the only 1 person, I believe. So we just wait to hear what Governor [indiscernible] and her team want to do. We're going to do it very aggressively. We're a big believer in the market. And it would be -- I think it's '24. I don't know what it is early '24, late '24, I don't know. I just don't know.

And then from there, is that a new beachhead in to the wider United States? Are you going to grow back into that? Because you'll be back in Vegas at some point in the future.

We could be anywhere, but it's very few places that we want to be because we're not building -- like our company is -- our goal is to get back to $5 billion of EBITDA. In the near future, we want to go back to being a lean EBITDA producer in the space. So it doesn't allow us to go there. We get a lot of proposals. And unless it can make extraordinary amounts of money, we're not going places just to open casinos. We sold our Bethlehem property, made $160 million, because it didn't feel important enough for our portfolio. And I think we also has to worry about New York. We would go back to any place, but it's limited because in the U.S., we're not a regional player. So it has to be at scale. We've tried in Texas. We failed recently. We tried to get [indiscernible]. I do think Texas has this chance to happen this decade. But New York is extraordinary. Vegas is always extraordinary, but it has to be the right opportunity.

Okay. Fantastic. And then you mentioned in your prepared remarks, obviously, you focus on big sites, in-person gaming. Just thinking about that strategic decision, do you see -- are there no synergies with having a small regional presence to stick alongside the big presence? Other players may be going in a slightly different direction there. And then the online gaming, is there any upside you could ever see going in that direction? Or do you think you'd...

I don't see us in the regional business, land based at all. It's not -- again, you're making -- I think we'll get back to USD 5 billion in the near future. I don't know we can let you buy a whole company, I don't see regionals as being enough bang for our investor buck. Online, we stayed away from -- do I think there's a big future, it could be. But it's very confusing to me how it's developing the sports betting. I am lost in terms of the path to profitability, of real profitability is confusing. I think online gaming is a future. Obviously, there's a market there. The question is, how do you sort out the cost and how much did it grow? So we're not in that world. We like watching, we're rooting for the better. But it's not really our world at this point.

So I guess when one looks at the -- your Asian business, that your revenues are skewed towards gaming versus non-gaming if you compare it to maybe where you used to be in Vegas, just a bit more evenly split. What is that non-gaming opportunity? Is there -- you talked about great dining and other facilities, but is there more you can add on that side within your markets?

We have a retail business that this year probably will do, I don't know, maybe $70 million to $100 million of EBITDA. Not a developed business. We pay the bills on that. We have 800 leaseholds in Macao. We have huge stores in Singapore. And I see a retail business getting better and better because we deal in very high-end leaseholds, doing about the investor retailers of the world, the LVMHs, Chanel, Hermes. That's our core tenants in Macao and Singapore. They all want more space. We're very pleased to have that business. It's an incredible business, profitable on its own, obviously, very profitable. But also very strategic and synergistic with the customer who wants a lifestyle experience. So if you go into our places in Asia, you can shop in the finest stores, and they're big, these are massive stores. [indiscernible] 50,000 feet of Sands floor. And so these are very, very elegant, very huge stores and a very profitable business. We're much -- we're very much a lifestyle seller. We believe that the experience is paramount. So in our businesses, you can shop in the best places, eat in Michelin star restaurants, work out in terrific spas and gyms, go to see top-tier entertainment, both in Singapore and Macao. We believe in lifestyle. And so that people get confused you are non-gaming, so it's not profitable. Last time I checked, our hotel and retail business is well in excess of $1 billion of EBITDA contribution. That's profitable. So we believe that both as a business unto itself, but also as a synergistic builder of traffic in our casino. It all works in tandem. We're selling lifestyle. We're not just selling -- we're not just providing the regional gaming and casino operations. You walk in Macao, you walk in London, you see like the new beacon suites. They're extraordinary. You've given the casino that finishes their first tier and you walk into our Hermes or Chanel or Gucci or store you want, eat at the restaurants. It's a real lifestyle place. It's quite riveting. So we've done Macao and Singapore in terms of what used to be gambling centric business has now morphed into a lifestyle business.

So maybe you can talk a bit about the London, I mean it's the newest hotel. I mean what's the branding presumably is London, but it's -- how is that -- how does the modern Macao hotel sort of different from maybe what you would have been opening 20 years ago?

It's night and day. We went to Macao, we opened the Sands back in the day and downtown peninsula, it was a gambling. So 50 rooms, no retail and a couple of mediocre restaurants. Today, the Londoner is -- I don't know how many restaurants, but too many to count. The rooms are so good that when you walk to Londoner, you get the stuff worth the quality of finishes and the stuff we've done there, same in the Four Seasons. These are extraordinary products. I mean there are no hotels in the world, anywhere other bid I've been a lot of hotels there as good as those hotels. Maybe the Ritz in Paris, maybe some of these extraordinary hotels. But the quality and scale we have in Londoner and Four Seasons is as good as it gets. Our smallest room in the Four Seasons is 1,500 feet. I guess, here in New York that's probably an apartment. But it's just -- the finishes are great. And unlike the hotel business where people aren't putting CapEx back in these hotels as evidenced by what we see in New York, we put extreme amounts of money back into finishes, and that's what makes these hotels relevant today. But the difference we built -- when [indiscernible] I think back, we first did the Sands it was 2004. It was basically a box with slots and tables, a couple of hotels, a couple of restaurants. It was old school Vegas. We've come to 20 years later, these are palaces. These are flat out palaces with every amenity you can think of. There's -- the most sophisticated traveler in the world who goes in our hotels in Macao and Singapore are going to be impressed. They're that good. And I'm not just -- not because I work for the company. It's a fact of life. I travel a lot, and I see some of the hotels, and I kind of chuckle. I always kid some of my friends in the hotel business they should be ashamed of what they charge for these products. We charge, I think, a very fair price for an extraordinary product in leisure.

And is there a sort of change there that you used to be obviously very focused on the gaming. You didn't almost want distractions from, but now you're trying to provide a wider brand.

Years ago at The Venetian in Las Vegas, we built that back in -- we opened that in '99. We put mini bars in the rooms there. And it sounds funny to tell you this. But in those days, I got a call from a guy, very famous hotel casino operator. You put in a minibar, order from a minibar, the Italian manufacturer said to me, I think it's illegal to put minibars in Las Vegas. I've never sold a minibar. I say it's not illegal, you can do it. And we put them in. People are aghast. A minibar, they're going to steal the orange juice. They're going to be drinking the soda, they won't go gamble. That was all fantasy and fiction. The fact is that our hotel guests want the same amenities that the sophisticated business shopper wants, and that was evidence of the power and success in Las Vegas. And so what we always do is elevate the game, it's synergistic. The better you are in the non-gaming amenities, the better the game you win. The days of putting slots in a box to table games and saying, come on and gamble, those days are over. Look at what's happening to The Peninsula business in Macao or even in Atlantic City. You must compete with a lifestyle product that's superb in order to be successful. The stuff I grew up on is long gone. You can't do it anymore. The markets are too tough, the consumers too demanding.

So maybe, I guess, you're in 2 slightly different battle routes. So in Singapore, you're near monopolistic or [indiscernible] scale.

We have -- yes. I mean -- yes, Genting is our competitor.

In that market. And then in Macao, a much more competitive market. How does that sort of manifest itself? Is it -- can you be much more profitable in Singapore because it's a duopoly or actually, is demand weigh in excessive supply in both?

The latter. The fact there's demand -- when Macao gets back to full stride, there's plenty for everybody. The tax rate should obviously, the tax structure are very different. So paying 40% from top in Macao or roughly 40% and a lot less than Singapore, almost 1/4. But the truth is the both amazing markets when we keep our playbook the same. We invest heavily. We spend billions of dollars making these products superb. I'm a big believer that product drives your business, and we're lucky to be in both markets. There's lots of business there, lots of high-end consumers, lots of money to be made. Our job, our fiduciary is to make sure the customer wants to be with us, that we provide services and products to make the path we want to come back. At this business, that regard hasn't changed. In all the years I've done it, the difference there is the level of finish, the level of expectation, cost to build, we built the Venetian Las Vegas, it was $1 billion, and I thought I went to bed every night worrying. $1 billion seems to be insurmountable. How we build -- we do renovations now for $1 billion. It's incredible. I built a nightclub with $200 million. It's a different world today and with inflation and demand. But what started out as a gambling-centric business in navy has become a -- it's a playground for experiences. And the better you provide the non-gaming experiences, the more money you make in casino, especially in Asia. Because the Asian consumer is younger, and he or she skews towards retail, restaurants, spa. They want a great experience. They want to shop in the fancy stores, they want to eat at a 3-star Michelin, they want to go see the top entertainers. They're very demanding, and they should be. They pay for the product.

Fantastic. And so maybe just moving on to -- in your presentation, you talked about a unique MICE-based business model, delivering industry-leading returns. I mean I guess I look at a lot of companies that do a lot of meetings. I'm just wondering what is unique about your products? And where are we in recovery in that? And what's the opportunity for that within Macao and Singapore?

The problem is in Asia is that the FIT business has gotten so good, pushed MICE back a bit. If we did that in Las Vegas in the '90s. It would change the game in Las Vegas. When we got Las Vegas and most of you probably don't know the story, but people are gaming-centric. The idea of a MICE -- people in rooms like this 25 years ago fell down last and the idea would be we exceed room rates, ADRs, higher than Steve wins Mirage and midweek, we get higher rates because it was a MICE-based formula. Sheldon saw something no one else saw. He saw Las Vegas as the best MICE space in the world. And he was right. And today, that revelation that -- the prediction has been fulfilled. Vegas, is probably the first and the best MICE space in the world by far. The problem in Asia, our MICE business is there's so much demand in FIT that MICE doesn't play as prominent role. But what we did in Las Vegas was revolutionary. And we do the same thing in Long Island. We believe very much means conventions or fill the rooms midweek. The idea was midweek was the convention customer weakened with the FIT gaming customer and that was the playbook in Las Vegas, it worked very well. It was brilliant, and I'm very proud of being part of that what Sheldon prophesied came to be the norm. And I laugh when I see the wind build 500,000-foot meeting facility or MGM that we got there, no one believed in that. No one. So it's been fun to watch. In Asia, it's not quite the same because while mice plays a role, the FIT demand is so great that it's pushed the MICE demand to the side a bit.

Okay. Makes sense. So talking a little bit more longer term, and you mentioned some parts of this, but I guess, I saw a sort of recent survey of younger travelers in China that Macao is still high up the list but a little bit further down the list of sort of most wanted destinations. Are you seeing any -- is there any...

No, I think what's great about Asia is young people, 30s and 40s, 20s shop in Macao. I mean, I'm amazed last week at the amount of people who were there with the opening. And maybe helped us get celebrities there, we got David Beckham there, Angela Baby. But the young people, it was -- I looked at the audience to the open United 6,000 people, predominantly young people. I mean it was -- young people in Asia gravitate instead of gamble. Unlike the U.S., they really enjoy the whole lifestyle than you have at the Venetian and in Singapore as well. So I don't think it's -- in the U.S., I agree, it's an older market. The demographic in the U.S. tends years older. But in Asia, our core customer gets younger all time. I mean we have a lot of people in the 30s who are essential to our business.

And is that -- have you had to adjust the offer to attract them -- or is that part of what you...

You have to adjust in retail and food and beverage. -- in the entertainment section. I mean, these young Asian pop acts are extremely important to us. We're busy in our arenas 40, 50 weeks a year. We have Asian pop acts, and we've had to adjust our thinking. The retail experience is in -- I was laughing last I was seeing with a retail group wants to build 3 maisons in the second level of Four Seasons, 6,000-foot stores, the highest fashion in the world, imitation-only. And they say, our customer is 32 years old, and he or she doesn't want to shop it. They want imitation, the average spend $50,000, $60,000 a visit. We're building 3 extraordinary stores in 3 of the top 2 retailers. 20,000 feet isolated by itself, private elevator just for that customer. It's a different world. And I think it's -- I was laughing I felt so old because I said the person, I said, don't you want mass traffic? She said, no, we want customers who we want. So we've had to adapt and adopt their philosophy and it pays off quite well.

And then you mentioned earlier on about trying to increase Macao as a sort of wider Asia destination Korean, Japanese. How significant are they today? And is the product the same? Or is it again, you need some kind of adoption.