Melco Resorts & Entertainment Limited (MLCO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for participating in the Second Quarter 2026 Earnings Conference Call of Melco Resorts & Entertainment Limited. [Operator Instructions] Today's conference is being recorded. I would now like to turn the call over to Ms. Jeanny Kim, Senior Vice President, Group Treasurer of Melco Resorts & Entertainment Limited.

Thank you, operator. Thank you, everybody, for joining us today for our second quarter 2026 earnings call. On the call are Lawrence Ho; Geoff Davis; Evan Winkler; and our Property Presidents in Macau, Manila and Cyprus. Before we get started, please note that today's discussion may contain forward-looking statements made under the safe harbor provisions of federal securities laws. Our actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures. Definitions and reconciliations of each of these measures to the most comparable GAAP financial measures are included in the earnings release. Finally, please note that our supplementary earnings slides are posted on our Investor Relations website. With that, I'll now turn the call over to Mr. Lawrence Ho.

Thank you, Jeanny, and thank you all for joining us today. We're confident in the long-term strength of our business and our outlook for the remainder of 2026 in Macau. Despite near-term headwinds that are reflected in our second quarter results, our priorities remain unchanged: to deepen customer engagement, attract high-quality visitation, and continue investing in our properties to anticipate the changing needs and preferences of our guests. The opening of REM marked an important milestone in the continued evolution of City of Dreams, delivering a distinctive new experience for our guests, which we believe is not available anywhere else in Macau. We continue to take steps to operate more efficiently and strengthen our business. Together with the phased opening of REM, these initiatives position us well to capture the growth in demand. We continue to enhance the gaming experience across our portfolio. We opened a new gaming area with 18 tables at City of Dreams near the Southwest entrance at the end of July. Its convenient location along the main Cotai Strip with easy accessibility is expected to attract incremental visitation, particularly from walk-in patrons. The benefits of the convenient access to games has been a proven success with our 15-table gaming area near the Grand Hyatt entrance, which we opened in October 2025. We're also commencing a revamp of the retail areas at City of Dreams in Macau. The redesign area will create a seamless loop across the property, introducing a more carefully curated mix of luxury offerings with differentiated elements. The completion of this retail revamp will allow us to deliver the full integrated resort experience at City of Dreams that will be uniquely Melco. Competition remains elevated, resulting in a demanding cost environment. We're focused on being disciplined as we align our resources with the highest return opportunities and protect the guest experience. Outside of Macau, our diversified portfolio continued to demonstrate resilience and growth potential. In the Philippines, City of Dreams Manila delivered property EBITDA of $31 million in the second quarter of 2026, representing a 9% year-over-year growth. In Cyprus, despite the disruption associated with the complex in the Middle East, property EBITDA at City of Dream Mediterranean and our satellite casinos rose 60% year-over-year in the second quarter of 2026. In Sri Lanka, our casino operations continue to ramp, recording positive EBITDA of $3.5 million in the second quarter of 2026. We remain focused on executing a disciplined ramp-up strategy and driving further operational progress throughout the remainder of the year. With that, I turn the call over to Geoff.

Thank you, Lawrence. Our group-wide adjusted property EBITDA for the second quarter of 2026 was approximately $304 million. Adjusted for VIP hold, our property EBITDA was approximately $312 million. An unfavorable win rate at COD Macau had a negative impact on our property EBITDA by approximately $9 million. The VIP win rate at COD Macau declined from 3.9% in the second quarter of 2025 to 2.7% in the second quarter of 2026. We continue to be disciplined in our cost management with total daily OpEx in Macau for the second quarter of 2026, remaining steady at approximately $3.4 million per day, inclusive of House of Dancing Water and in line with our prior guidance. Lower-than-expected visitation and lower hold relative to prior quarters placed pressure on margins in the second quarter of 2026. We are actively evaluating opportunities to incorporate greater flexibility across our operations to better align our cost base with evolving demand and business volumes. Turning to our balance sheet. Our liquidity position remains robust. We had available liquidity of approximately $2.8 billion with consolidated cash on hand of approximately $1 billion as of the end of the second quarter of 2026. Melco Resorts, excluding its operations at Studio City, the Philippines, Cyprus and Sri Lanka accounted for approximately $492 million of the consolidated cash on hand. Our strong liquidity position reflects the extension and upsize of Melco's revolving credit facilities, which was announced in June. The maturity date of the RCF was extended from April 2027 to June 2031, and the facility size increased by approximately $821 million, resulting in a total RCF size of $2.8 billion. This provides us with added financial flexibility as we think about our upcoming maturities. Additionally, in May, Studio City issued $300 million in senior secured bonds. The net proceeds from the issuance together with a $15 million drawdown from Studio City's revolver and cash on hand, was utilized to early redeem the Studio City senior secured notes due 2027. In July, Studio City redeemed an aggregate principal amount of $165 million of its outstanding 6.5% senior notes due 2028. The redemption was funded with a $150 million drawdown from Studio City's revolver, allowing for a reduction in interest expense. After cancellation of the redeemed notes, an aggregate principal amount of $335 million of the 2028 notes remain outstanding. From April 1 to August 12, 2026, we repurchased approximately 22.4 million of our ADSs for a consideration of approximately $121 million. This brings the total repurchases in 2026 to approximately 25 million ADSs for an aggregate consideration of approximately $134 million. We continue to take a disciplined approach to capital allocation thoughtfully balancing share repurchases, cash availability, prevailing market conditions and the long-term needs of the business. Share repurchases have been opportunistic when the market price of our ADSs falls far below levels that in our judgment, appropriately reflect the underlying value of our company. Having spent approximately $134 million on share repurchases in 2026, we currently expect to recommence dividends in 2027. As we normally do, we'll give you some guidance on non-operating line items for the upcoming third quarter of 2026. Total depreciation and amortization expense is expected to be approximately $140 million to $145 million. Corporate expense is expected to come in at approximately $20 million to $25 million and consolidated net interest expense is expected to be approximately $115 million to $120 million. This includes finance liability interest of around $6 million relating to fees payable in relation to the Macau gaming concession and the Cyprus gaming license 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.

[Operator Instructions] Your first question comes from George Choi with Citi.

My first one, perhaps for Lawrence. Glad to learn that REM is on schedule to open in the third quarter. In your view, how different this REM versus your existing non-gaming product offerings at City of Dreams? And my second question is perhaps for Geoff. On dividends, how should we think about your dividend policy?

George, so we've actually soft open REM already. We're easing into it. The grand opening is set for after Golden Week in October. And I think so far, the reception has been great. Macau has some of the nicest hotels in the world. So there's already an oversaturation in the luxury market. And I think we -- in the prepared remarks, we said REM is unlike anything in Macau. It's actually more like -- it's unlike anything in Asia, probably in the world. So it's a very unique product. It's a lot of fun. I think it's a luxury, but then it's highly differentiated from anything that's in the market or even at City of Dreams. So I think that complements our 5-star hotel offering very well. And so we're quite excited about REM and also about the rest of the City of Dreams Macau retail revamp, which there's a lot of hoarding right now, and we're going to have to suffer through the pains over the next few months. But once it's all completed, we are very excited. And I think that will probably put City of Dreams to be the nicest property in all of Macau.

So George, on the dividend policy, as I said in the prepared remarks, we have pushed that from towards the end of this year to sometime in 2027. We have redirected. And as we've always said and as we've demonstrated, when there's opportunities to buy our shares at what we think are highly discounted prices, we'll take advantage of that. We think in 2027, we will be in a position to recommence the dividend without providing any specific target on that. The intention is to commence the dividend when it can be substantive and meaningful. We're not interested in a nominal dividend. So hopefully, that gives you some direction on when and how we're thinking about the dividend policy.

Your next question comes from David Bain with Texas Capital.

Awesome. Geoff and Lawrence, super excited to be back on these calls with you. And I guess my first question would be for you, Lawrence. Over the past few years, we've seen multiple go-privates and M&A transactions, just given intrinsic values, at least in RVs, exceeding public multiples. I think Melco is a clear example of that. I'm sure that opportunity, that type of transaction is not lost on you. You have a lot of corporate action optionality. Is there any kind of big picture thoughts on those type of opportunities? Is it fair to think about them when we look at shares and analyzing them?

Dave, good to talk to you again. We're always very open-minded. And I think if you look at our transactions over the years, we've been quite innovative. But I think at this point in time, our core focus is, I know it's been a few years since COVID, but we're still kind of digging out of the COVID hole that elevated our debt. And so I think the priority is still on debt repayment and really getting our -- improving the performance in Macau, and we opened Sri Lanka a year ago, learning the market there and really trying to crack the code on the Indian market. So there's still a lot of work -- a lot of stuff on our plates right now. But again, we're always very open-minded in watching the market and what other people are doing very closely.

Okay. Good enough. And then looking at the historical World Cups versus this one in 2Q '26, are there some reasons that this year may have been more impact than previous years? And maybe in reverse, are we seeing more event-oriented benefits in Macau? And if material, maybe you can discuss the entertainment calendar that could match up with the REM and the COD retail catalyst towards the end of the year and into next year?

Yes. Why don't you take, Evan?

Look, I mean, I think from our perspective, this year, World Cup probably had a larger impact relative to prior periods. It's a little bit hard to give you the exact as to why. Obviously, there are a lot more opportunities for customers to access different sports betting venues. And so I think this year, similar to the rest of the world, we experienced with a lot of our customers, pretty significant sports betting volumes with respect to the World Cup. And I think in June and July, I would say that our experience is likely that it was, to some degree, a substitute to some of their gaming activity. So we did see some reduced volumes and with players that came on board, some reduced level of play relative to their historical activity, which, again, we won't know for sure, but I think it's likely that during the World Cup period that, that took some of the gaming wallet.

Interesting. Okay. And anything on the back half entertainment calendar that you think is material? Is that something that we should be monitoring more in Macau relative to in the past?

Look, I think all of us are looking at different entertainment opportunities. We had a concert at the end of July that we really like the results of. And so we've seen individually that certain entertainment events have driven good volumes. And so we continue to look at opportunities that can drive gaming volume and gaming activity within the market. And so I think us and others continue to look at that as an opportunity to continue to push the market, but I don't have an individual thing to point you to.

No. But I think also the concert and entertainment calendar has become much more rational this year compared to previous year where you might have 5 or 6 events happening on a weekend. And I think all competitors and ourselves have learned that not all events are profitable. And so I think even this year, you're seeing -- I think at Galaxy and Sands, there's a 50% drop-off in terms of concerts and events in the second half of 2026.

Your next question comes from Joe Stauff with Susquehanna.

Lawrence and Geoff, I guess to start with, could you update how to think about the outlook for Macau-based OpEx per day over the next couple of quarters, right, with your new suite product launch and just thinking about that number in particular? And then wondering if you could comment just on, say, the post-World Cup trends that you're seeing in Macau and whether or not they -- you don't want to give numbers, I can appreciate, but are they in line, say, with pre-World Cup trends? Or have they strengthened? Just wondering how that level of demand is rebuilding after that World Cup impact?

Well, I guess, Evan and Geoff, do you guys want to talk about the OpEx one thing?

Sure. Look, I think from an OpEx perspective, obviously, we have REM opening and ramping up I think if we include REM and other activities, we're probably looking at something closer to $3.3 million to $3.4 million. If I look at activity on a post-World Cup basis, again, I think in the June, July period relative to other World Cup periods, I think, unfortunately, we were surprised that the impact probably was more significant this year than it has been in past years. Coming out of that period, as we get into the late July, early August period, I think we've seen a reversion to our normality. So we're seeing our customers come back. We're seeing normal plane volumes. And so I think that it's been a sort of dip in terms of activity that we think has now returned back to normalcy as we move forward into the back half of 2026.

Understand. I appreciate that. And the $3.3 million to $3.4 million, is that all in, including House of Dancing Water?