Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Melco Resorts and Entertainment Ltd (MLCO, Financial) reported a group-wide adjusted property EBITDA of approximately $303 million for Q2 2024.
- Rolling chip win rates increased to more normal levels of approximately 3% in the second quarter.
- City of Dreams Mediterranean and satellite casinos in Cyprus saw luck-adjusted EBITDA grow more than 30% quarter to quarter.
- The partnership with John Keells Group for City of Dreams Sri Lanka is progressing well, with the hotel and banquet facilities expected to open in Q4 2024.
- Melco Resorts and Entertainment Ltd (MLCO) has a robust liquidity position with around $1.3 billion of consolidated cash on hand and over $3 billion in available liquidity as of June 30, 2024.
Negative Points
- Operational expenses in Macau increased from approximately $2.7 million per day to $2.9 million per day, primarily due to increased labor costs.
- The promotional environment in Macau remains highly competitive, which could impact margins.
- Retail sales in Macau, similar to Hong Kong and the rest of China, remain weak, affecting non-gaming revenues.
- The company faces headwinds in Manila due to the phasing out of POGOs and increased supply in the market.
- The reopening of the House of Dancing Water show has been delayed to Q1 2025 due to technological challenges, impacting future operational costs.
Q & A Highlights
Highlights of Melco Resorts and Entertainment Ltd (MLCO) Q2 2024 Earnings Call
Q: Would you please share your view on the cumulative effect of illegal cash exchange activities? And do you think it hits GGR materially? Also, can you provide details about the upgrades at City of Dreams Macau?
A: Illegal cash exchange activities have been a known issue for over a year and have a minor impact on liquidity. The softness in June was more related to the Euro Cup and delayed Chinese school holidays. We are optimistic about future growth. Regarding upgrades, we are reinvesting in the gaming floor to reestablish our premium mass leadership position. By Q4, we aim to have the nicest VIP slot area and reactivate the entrance facing MGM Cotai.
Q: Can you provide some color on the promotional environment in Macau and how it has evolved in July and August?
A: We remain disciplined in our player reinvestment, focusing on service quality and resort amenities. While the promotional environment remained high in Q2, we have refined our offerings to target premium players with higher quality food and beverage options. We expect to continue this approach into Q3 without significantly increasing aggregate spend.
Q: Have we seen the peak of OpEx, or should we expect additional investments as new amenities open?
A: The majority of our product and service enhancements are complete, with only minor incremental costs expected. House of Dancing Water will add to our costs when it reopens next year, but it is an EBITDA-positive element. Residency show costs will decrease in Q4, and we expect OpEx to stabilize around $3.0 million per day by year-end.
Q: How are retail sales performing in Macau, and what is your CapEx outlook for the remainder of the year?
A: Retail sales in Macau are weak, similar to Hong Kong and China. We have adjusted our retail strategy at Studio City to focus on high-volume, affordable options. For the remainder of the year, we expect CapEx of about $255 million, with $170 million allocated to Macau and smaller amounts for other regions.
Q: What are your high-level thoughts on capital allocation, especially regarding share repurchases and dividends?
A: Our primary focus remains on debt reduction and deleveraging. However, given the current undervaluation of our shares, we are considering diverting a small percentage of our free cash towards share repurchases. We are closely monitoring the situation and will maintain our discipline in capital allocation.
Q: Can you provide an update on the House of Dancing Water and employee costs?
A: House of Dancing Water is being updated with new elements and advanced technology. We aim to reopen it by Q1 next year. Employee costs have increased due to incremental FTEs across various departments to enhance service quality. We expect these investments to drive higher returns and better guest experiences.
Q: What is your outlook on the Manila market, considering the phase-out of POGOs and increased supply?
A: Despite the phase-out of POGOs and increased supply, we remain optimistic about Manila. The market has strong mass business and benefits from increased international capacity and government commitment to tourism. We expect these factors to support our long-term growth in the region.
Q: What is the rollout schedule for smart gaming tables at City of Dreams and Studio City?
A: We currently have 30 smart tables at Studio City and plan to have all 215 tables operational by the end of October. At City of Dreams, we aim to complete the rollout by the end of March next year. The initial rollout has been successful, and we are confident in continuing the deployment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
