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

Good day, ladies and gentlemen, and welcome to the Sands Third Quarter 2024 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Daniel Briggs, Senior Vice President of Investor Relations. Sir, the floor is yours.

Thanks so much. Joining the call today are Rob Goldstein, our Chairman and CEO; Patrick Dumont, our President and COO; Dr. Wilfred Wong, Executive Vice Chairman of Sands China; and Grant Chum, CEO and President of Sands China and EVP of Las Vegas Sands Asia operations. Today's conference call will contain forward-looking statements. We will be making those statements under the safe harbor provision of federal securities laws. The company's actual results may differ materially from the results reflected in those forward-looking statements. In addition, we will discuss non-GAAP measures. Reconciliations to the most comparable GAAP financial measures are included in our press release. We have posted an earnings presentation on our website. We will refer to that presentation during the call. Finally, for the Q&A session, we ask those with interest to please pose one question and one follow-up so we might allow everyone with interest the opportunity to participate. The presentation is being recorded. I'll now turn the call over to Rob.

Thanks, Dan. Thanks for joining us today. The Macao market continues to grow. Total gain in revenue for the market grew 13% in the third quarter of 2024 when compared to the third quarter of 2023. Masking revenue grew 14% in the quarter compared to 1 year ago. We believe the Chinese economy will grow and flourish in the future, and we remain steadfast that Macao market will grow along with it. I believe that Macao market gross gaming revenues will exceed $30 million in 2025 and grow from there. The scale and quality of the assets we have built are second to none. We believe that our assets position us to grow faster than the market as growth expands beyond the premium customer segment. Our business strategy is predicated on investing in high-quality assets that also had scale. We've designed our capital investment programs to ensure that we will continue to be the market leader in the years ahead. We believe that our approach will enable us to grow faster in the long term, grow our share of EBITDA in the Macao market and generate industry-leading returns on invested capital. Turning to our results in Macao. We delivered solid EBITDA for the quarter despite material disruption at the Londoner, which peaked during the third quarter. We've opened the Londoner Grand Casino in the last week of September. We also opened 300 -- the first 300 Londoner Grand suites. We will introduce more Londoner suites throughout the next 3 quarters with a total of 1,300 Londoner suites and rooms in service by Lunar New Year 2025, with a full complement of 1,500 suites and 905 rooms in service by Golden Week 2025. SCL continues to lead the market in gaming and non-gaming revenue and in-market share of EBITDA. Our objective is to capture a high-value, high-margin tourism over the long term. We have a unique competitive advantage in terms of scale, quality and diversity of product offers. Upon completion of the second phase of the Londoner in 2025, our product advantage will be more pronounced than ever. We delivered another strong quarter in Singapore despite poor hold percentage. The results in Marina Bay Sands reflect the positive impact of our capital investment program and the growth of high-value tourism. The growing appeal of Singapore as a destination that's enhanced by the robust entertainment or lifestyle event calendar. As we complete the balance of our investment programs in the first half of 2025, there will be considerable runway for growth. Thank you for joining us. Let me turn it over to Patrick before we go to Q&A.

Thanks, Rob. Macau EBITDA was $585 million. If we had held as expected in our rolling program, our EBITDA would have been higher by $2 million. When adjusted for lower-than-expected hold in the rolling segment, our EBITDA margin from Macau portfolio of properties, excluding the Londoner, would have been 35.1% or down 110 basis points compared to the third quarter of 2023. Our margins at the lender were directly impacted by disruption of the Londoner Grand renovation. We closed the casino and had around 2,500 keys out of inventory during the quarter. Margin at the Venetian was 38.6%, and we expect margin improvement as the Venetian Cotai Arena comes back online in November, and as visitation to the market and growth in unrated play both increase in the future. Margin at the Plaza and Four Seasons was 39.7% for the quarter. As Rob mentioned, we continue to progress our Londoner Grand renovation program. As these products come online, our competitive position will be stronger than ever. We expect meaningful EBITDA growth and margin expansion in the future. Turning to Singapore. MBS' EBITDA came in at $406 million. Assuming expected hold on our rolling play, our EBITDA would have been approximately $78 million higher. The strong financial results reflect the impact of high-quality tourism investment and market-leading product and growth in high-value tourism overall. Had we held as expected in our rolling play segment, MBS EBITDA margin would have been 47.5% percent, 40 basis points higher than that of the third quarter of 2023. While we have made substantial progress on our $1.75 billion refurbishment program at MBS, we are still in the initial stages of realizing the benefits of these products, including from our Tower Gaming offering, which opened in September. The next phase of our capital investment program at Marina Bay Sands is scheduled to be completed during the second quarter of 2025. This will support further growth in 2025 and beyond. Also, please note on Page 44 of our earnings presentation, we have provided estimated costs for our Marina Bay Sands IR2 project. We couldn't be more enthusiastic about investing in the long-term growth of high-value leisure and business tourism in Singapore. The original concept was in effect an expansion of Marina Bay Sands, including Arena. Our new program creates a full-scale integrated resort development with a full suite of amenities, including gaming capacity. We look forward to discussing that long-term growth driver in the Q&A session. Turning our program to return capital to shareholders. We repurchased $450 million of LVS stock during the quarter, and our Board increased our repurchase authorization to $2 billion for future repurchases. We paid our recurring quarterly dividend of $0.20 per share in the quarter. In addition, our Board increased our annual dividend to $1 per share or $0.25 per quarter for the 2025 calendar year. We really look forward to continue to utilize the company's capital return program to increase returns to shareholders in the future. Thanks, again, for joining the call today. Now let's take some questions.

[Operator Instructions] Our first question comes from Joe Greff with JPMorgan.

Congratulations on the results. One question, two-part, related to Macao. In the 3Q, if we look at contra gaming revenues as a percentage of gross gaming revenues, that percentage went down almost 200 basis points, how much of that is your managing the business differently, offering promotions differently than before? How much of that is just the market level of promotional activity is down? How much of that relates to mix between base, mass and premium mass? And then I have a follow-up.

So Joe, it's a great question. And I think it's something we've been focused on for a long time. If you realize what happened in the quarter and the quarter before that actually, in the first quarter, we've been impacted by disruption. And so we haven't really been able to manage our business with all of our capabilities. And so what we've been doing now is as things have been coming online, and we've been focusing on managing the business for the future, we've been looking to become more efficient. So we'll look to improve our margins to manage the business more closely. And what you're seeing is a direct result of that. I think one thing that did impact our margins this quarter and they would have looked better was the fact that we took so many rooms out of inventory. So the majority of our, let's call it, our margin change and decline was related to the fact that that's a very high-margin business, and we still didn't have it because the rooms were there. So I think what you're seeing is the beginning of the cost discipline and the pricing power because of the assets we've invested in slowly coming into place. So I think it's a good signal for the future in the way that we're going to manage the business with discipline. I would like to turn it over to Grant for any additional comments.

Yes. Thanks, Patrick. I think, Joe, it's more that last quarter, I think we mentioned that as we were preparing for the full closure of the old Pacifico Casino. We did deploy some tactical measures to manage the transition of customers to the other properties. And we did that very carefully during second quarter. But for the third quarter, we're really back to our core strategy, which is we compete on the basis of our products and the content that we bring despite the fact that, obviously, third quarter, our disruption actually increased, like Patrick referenced, with many more rooms out of inventory. But we stick to our core strategy. And we had a very strong quarter in how we managed customer reinvestments and still maintain market share relative to the second quarter despite rising disruption during the quarter. And despite the fact that the base mass did not recover as strongly as the summer months normally would indicate. So overall, it was a very strong margin performance. And obviously, we're very pleased that we managed to actually grow EBITDA sequentially despite the fact that the market GGR is down marginally against second quarter.

And my follow-up question related to Macao, obviously, Golden Week was pretty strong. October, for the most part, has been better than expected. Can you talk about what you think the drivers of that better-than-expected performance? I'm assuming it's probably better than expected for you guys as well. But how much of that is driven by the increases in equity prices locally? How much of that is seasonally strong events like Golden Week or New Year's typically see a step change? It's a little bit stronger than maybe typical seasonality. Any kind of comments about how the typical Macao consumer is behaving since the quarter ended, given all these generally more encouraging-than-not trends, thus far, in October?

Yes, Joe, I think we're not going to talk too much about the current quarter just because we have a policy of not doing that. But I think, directionally, we're very pleased about the quality of people we have coming into our buildings, both in Macao and in Singapore. And I think that there's some real opportunities going forward as our new product comes online, and people continue to spend in our buildings. And I think even with the disruption that you're seeing, you're finding that the consumer, high-frequent, high-value tourists is coming to our properties and recognizing that there's a great experience to be had there. Entertainment definitely plays a big part of that. Entertainment has been super important for us in both markets. And we continue to look to schedule entertainment and take advantage of entertainment as it occurs in the market, even if it's not scheduled by us.

The next question comes from Stephen Grambling with Morgan Stanley.

Maybe turning to Marina Bay Sands. It's been hovering from an EBITDA standpoint around $450 million to $500 million for the past couple of quarters. Can you just remind us of the cadence of disruption, some of the work going on to add suites and how that might subside and then build into next year?

Sure. So just to give you a sense, during the quarter, we had about 1,600 rooms available versus about [ 2,800 ] rooms available last year. So there's pretty substantial disruption going on just from a room count standpoint. We also have some casino floor work going on, which is disruptive. We did just open up some additional salon capacity there. So I think by end of September, we should have about 27 newly renovated salons. So there's just -- there's a lot of stuff happening. I think we did Tower 1, Tower 2. We did what we call our Paiza area. We just introduced Sky Gaming, which is something that we never had before, which was actually granted us as part of the development agreement for IR2. We've redone some dining and updated some retail. I think the biggest disruption is really Tower 3, that's ongoing. And hopefully, by the end of the quarter, we'll add another 150 rooms. We'll see how that goes. But our biggest disruption right now is we have a -- one of our casino floor areas is kind of mid-flight. And so that's disrupting a little bit the casino operation. But I would say that, by middle of next year, hopefully, we're going to stop talking about disruption. I think my dream not talking about disruption at this point.

I think, by Patrick's point, by May of '25, both Londoner and Singapore pretty much are clear sailing. We're going to stop telling you about the rooms [ undergoing ] all disruption or difficulties. It all comes to head and no more excuses. We'll start seeing, I think, some stellar results to reflect the end of disruption and the beginning of making more money both in Singapore and Macao. I think Singapore is -- it's gone to -- it's amazing how we've done despite of this. But Londoner hardly returned from that place. I can't wait to see the Venetian open, but the casino, of course, very, very exciting work done.

I would like to just point out, if you look at our earnings deck, you'd see some of the results renovation on Page 40, Page 41, you kind of see the quality of work there. I'd like to give a big shout out to our design team. We never really produced anything like this in our company's history. Our customers are taking notice. You can see that by the high-quality customers we have coming in, the ADR that we have, the demand we have, the reviews we have for these rooms, the customer feedback. Very proud of what we've done in Marina Bay Sands. And if this is what we're able to do with this level of disruption, we're very excited about the future and the trajectory of the business. It's really amazing how strong the market is, how quality of tourists is coming into Singapore, and the fact that they are really interested in coming to Marina Bay Sands. And so I think the investment has been very positive, and we're very happy about it. But unfortunately, we're still talking about disruption.

And maybe as a follow-up, just on Marina Bay Sands, realizing that you put out the number -- the updated numbers in terms of capital spend on IR2. I guess, has the scope changed at all? Are there any updated thoughts on how you think about the returns on that project potentially versus other projects, realizing that you'll probably get into this both later this year and next?

Well, obviously, the biggest change that we made aware of is a full casino amenities was built, no longer just a hotel supporting IR1. And so that's, obviously, the biggest change is that. And I think you'll see from the designing there, it is laser focused on the premium mass segment. So we believe it's a market that is growing to about $6.5 billion of GGR, probably in '24. We believe it can easily get to $11 billion by quarter-end. So this project reflects a lot of capital being directed at a very, very strong customer segment and a unique asset. It's a unique market that is stellar, and it's unique. There's barriers to entry. There's a proven market, guess who the customer is. They've been there for 14 years. So we feel very, very confident that these results are going to be terrific by we've told you before, we expect IR1 to get to $2.5 billion, and with this new building, can make in excess of $1 billion on top of that. So we're very confident that we've built the right thing in the market. And its unique location [ destination ] of our business today. You have a tested market. You know the competition, know the government, know the infrastructure, barriers to entry. So the biggest single change, obviously, is a full-blown casino as opposed to just a hotel.

Up next, we have Robin Farley with UBS.

Great. Last week, investors heard a bit about some pressure on luxury spend from the Chinese consumer. I wonder if you could talk about what you might be seeing there? And how much do you think -- how much overlap is that with your premium mass consumer?

Robin, well, just talking about that for a second. I think we're -- I think everyone should be impressed with the resilience of Macao. We all know what's happening in China and very confident that we'll turn to a stronger place in the near future. But the fact is Macao is performing, showing growth and strong growth, I think, despite the economic environment there. Hopefully, we'll see more insights and the government's perspective on the economy in the near future. But unlike retail, which you're right, has struggled, and we struggled as well our top end retail. Retail, in general, in Asia, there's no disputing. And you saw the [indiscernible] base numbers, [indiscernible] numbers, carrying numbers, but it has not been a similar path for gaming in Macao. Macao is showing growth, double-digit growth in the quarter. It's very exciting as this continues, I think it will. I think it will exceed $30-plus billion next year. We're waiting the day when the base mass returns. And so our current assets speak very well to the -- I mean, the Londoner completion and the Venetian will be talking to each other, and I think creates 2 impressive assets in the market by far, making billions of dollars in the future for us. But the real kicker comes when the base mass does return because, as you know, power assets are built for scale and built a huge throughput. So I think when that happens, the world turns very, very sunny for us. But in the interim, unlike retail, unlike other consumer spending businesses, Macao has proved to be very resilient and very powerful, and we're grateful for it. And you saw the numbers coming out of the market. The numbers for October looked awfully good for the industry where we saw the first weeks of October. So it's a very positive story relative to other businesses operating in Macao -- in China.

Great. That's really helpful. And maybe just 1 quick follow-up is, with some of the stimulus that was announced a few weeks ago, did that change your expectation for timing of recovery in the base mass? Or in other words, where should investors maybe look to see that show up if you -- in fact, if you think it will show up?

I think -- I was in Beijing 2 weeks ago, I think, first of all, it's very well received by everyone. To see the government stepping in, at least, wonderful, and hopefully, it continues. But I think it's too early to predict where and when and how quickly. Again, I think what's great to see is that before this stimulus, Macao continues to show strong growth. And with our product offering, they will participate in that. When this thing, though, shows up, how it impacts the customer, we hope it would be sooner than later, and it will be all segments, but I think time will tell. We have -- I don't think we have the insights. Grant or Wilfred, do you feel differently about that?

Yes, Rob. I think the main point here, which you referenced just now, is the Macao GGR remains very resilient before any of these stimulus measures have the chance to take impact. And I think that's very clear in the premium segment. And I think any economic tailwind we get as a market from these stimulus measures over time, obviously, will help the other segment, in particular, I think, base mass and retail, which are 2 very important segments for us. So overall, we should acknowledge this Macao GGR, Macao gaming is a very big outperformer in the whole consumer universe, in the region right now. And that's powered by the premium segment, where we are extremely well placed with the great products that we bring online. But of course, as the economy gets better, as some of these measures have positive impact over time, we obviously expect the other segments, which are also important to us, will follow through and give us a further boost to what these assets can actually deliver into 2025 and beyond.

To add a couple of points. The first thing is that the economic stimulus measures introduced by China are still unfolding, but the directional development is welcoming. We have confidence in the Chinese Mainland's economic future, and we'll continue to invest in Macao's future. The second point is that, in 2024, Macao has been rated by the Chinese tourists as the most desired destination out of the Chinese market. So we see that Macao will stand to benefit once economic activities return to normal.

The next question comes from Shaun Kelley with Bank of America.

I wanted to go back to IR2 to start. Thank you for the additional just numbers and disclosure there. Rob, whoever is right, obviously, an increase in the casino scope and capacity in what's always been a supply-constrained market is pretty interesting. Any details that you can provide there in terms of how many positions or what form some of the gaming expansion may take? Or imagine if it's too early, when might we look forward to hearing some additional details like that?

We're going to publish the final details over the next coming months, but the idea is that it has Casino Gaming in the podium and Sky Gaming in the tower. Look, our goal with this tower is to make it something very different. This is going to be the most important gaming and hospitality building in the world. It's going to be the best hotel in the world. That's our goal, the best service, the best experience, the best F&B. Our goal is to create something that is really extraordinary and helps address the Singapore market, which we know quite well now, and has been consuming some of our highest-end products over the last 14 years. And so we're very aware of the market segments that we're addressing. And so we feel like this is a project that will be very accretive to our overall portfolio and create substantial value to us in the long term. What I can tell you is that it's a very robust program. So it will have great food and beverage, great other amenities. It will have a public access component. It will have a Sky Park, as you can see, its own version of the Sky Park. It will have MICE space. So it's going to be a very important, globally significant asset for tourism, but it's going to be very specific to a very high-end segment that we're dealing with today. And so hence, the investment.

Great. And then as my follow-up, if I could just turn to Macao. Obviously, it was encouraging to see a bit of the market-wide recovery in visitation. And I was just wondering if somebody could provide a little bit more color on how sort of visitation played out through the quarter. I think, as we look back, second quarter, things were light and kind of a little soft relative to kind of where we stood in 2019. Clearly, sequentially, that improved. So just what was behavior like as things improved? And what were you seeing from sort of the customer patterns on the visitation front?

Grant, do you want to take that?

I'll take that. Yes. Thanks for the question, Shaun. Yes, as you rightly pointed out, visitation improved in terms of the recovery rate in third quarter relative to second quarter. So we're up to about 93% recovery versus 2019 third quarter. And actually, August, the visitations exceeded 2019 levels. This quarter, it was primarily -- especially when you look at it on a year-on-year basis, primarily driven by day trip visitor increase. And partly as a result of that, but partly, I think as the general macro conditions didn't translate as much as you would have expected into the actual spending, especially in the base mass and retail. So what we saw in the third quarter is actually a continuation of the strength in the premium segments. We had better visitations, yes, but that didn't necessarily translate into the base mass business or help the retail business to any great extent. But it's encouraging to see the interest and desirability of consumers to come to Macao. Clearly, the Sheraton's keys being 2,400 fewer rooms available versus the prior summer. It didn't help us, but also, frankly, didn't help the market as a whole because that's a very large amount of inventory to be out of the market. So overnight visitors, that obviously hampered that segment. And overnight visitors typically spend multiple times what a day tripper spend. But like I think Wilfred mentioned, Macao remains very desirable as a tourist destination for the region. And I think it's encouraging to see that come through just in the volume of visitations for the quarter.

The next question comes from Carlo Santarelli with Deutsche.

Basically, just 1 question, but maybe 2 parts to it. I don't know if Grant wants to take this, but just thinking about the cadence of rooms coming back online in Macao relative from where we are today, what the total room count will be, acknowledging some regular rooms got compressed to suites come Golden Week of next year. And then kind of bucketing the rooms out of service and thinking about the impact they've had on a good slide that you guys have in your deck that kind of shows EBITDA share in 2019 of about 34%, and that trending at roughly 30% kind of this year, how much of that 400 basis point delta do you think returns with the rooms coming back online?

Grant, do you want to take it? Yes, please.

Yes. I think on the construction and the delivery of the new rooms, I mean, first of all, I think the team has done a fantastic job in delivering the assets back the way they have by the end of September, where we opened a new casino, Londoner Grand Casino, as well as the -- get licensed for 300 -- the first 300 suites in Londoner Grand. I think it's important to understand that, in the fourth quarter, we actually go down further in the total number of keys available during the quarter versus third quarter because we will be losing the rest of the Sheraton rooms. And we will be staying in terms of licensed new suites at this 300 number for pretty much the whole quarter. So we will actually reduce further in terms of key count by about 600 to 700 rooms in the fourth quarter relative to the third quarter. So it's really only until January that we start to get a significant uplift in critical mass of new suites, and we hope to be above 1,000 new suites by January, at least by Chinese New Year in January. And then it just ramps up from there until May or middle of the second quarter to the full inventory of 2,400 keys. And by then, we'll be back up to over 10,600 keys or just under 11,000 or thereabouts by the second quarter. Obviously, the room inventory being out by so much does impact our EBITDA and EBITDA share. And to your question on the prospect for the EBITDA share recovery, I think we're very confident that Londoner Grand and the whole Londoner Macao will deliver as we roll out the -- what is really, I think, top product at unprecedented scale. This Londoner Macao will be 4,400 suites hotel with about over 60% of the keys being suites. There's really no building like it in our industry in terms of that scale of quality and the offerings it has between the F&B and the Arena inside the actual building. So we're very positive about how this will help to drive our EBITDA and, ultimately, our share of EBITDA as it ramps up and 2025 unfolds, and hopefully, with some of these tailwinds that we just referenced earlier in the call. So yes, we are very excited about how this asset will deliver for us. And to Rob's point, between Venetian and Londoner Macao, I think you've got 2 amazing assets that's really going to deliver for us, but also deliver for our customers.

Next question comes from Brandt Montour with Barclays.

So first question in Singapore, the ADR reported RevPAR but ADR specifically of $900 was staggering. I'm just curious, I know there was a lot of rooms out. It was sort of the trough. It seems like in terms of rooms out of service. When we look at that ADR, I'm trying to figure out, was it -- is there a compression happening in that ADR because there were rooms out -- or is that number sort of illustrative of the quality and the sort of higher-level product that you're coming out with for that asset?