Las Vegas Sands Corp. (NYSE:LVS) Q3 2023 Earnings Call Transcript

Las Vegas Sands Corp. (NYSE:LVS) Q3 2023 Earnings Call Transcript October 18, 2023

Las Vegas Sands Corp. beats earnings expectations. Reported EPS is $0.55, expectations were $0.53.

Operator: Good day, ladies and gentlemen, and welcome to the Sands Third Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on listen-only mode. We will open the floor for your questions and comments following the presentation. It is now my pleasure to turn the floor over to Mr. Daniel Briggs, Senior Vice President of Investor Relations at Sands. Sir, the floor is yours.

Daniel Briggs: Thank you, Paul. Joining the call today are Rob Goldstein, our Chairman and CEO; Patrick Dumont, our President and COO; Dr. Wilfred Wong, the President of Sands China, and Grant Chum, EVP of Asia Operations and COO of Sands China. 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 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 may refer to that presentation during the call.

An aerial view of a hotel, its roofs and balconies spread out before a beautiful landscape. Editorial photo for a financial news article. 8k. –ar 16:9

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. This presentation is being recorded. I’ll now turn the call over to Rob.

Robert Goldstein: Thanks, Dan, and thanks for joining us today. Macao diluted $630 million of EBITDA for the quarter and we are only eight months into our post-COVID reopen. These are early days. We began in Q1 with $400 million of EBITDA; Q2, we did $540 million of EBITDA; and Q3 is now at $630 million of EBITDA. Look forward to growth in both the gaming and non-gaming revenue to lift the entire market. SCL (ph) the largest share of non-rolling table win, rolling table win and slot ETG win. We’ve always believed that completed Londoner will meet perhaps exceed the earning power of the nation. Our future growth in Macao is tethered these powerful assets which have all the variables necessary to drive growth in years ahead. Whether it’s rooms, gaming capacity, retail, entertainment, food and beverage, we have stellar assets.

There is speculation about future growth of Macao. A relevant question is, can the market grow to $30 billion, $35 billion, $40 billion of GGR and beyond? We are firm believers that it will and may occur much — a much shorter timetable that anyone realizes. This underscores our confidence and the returns will be generated by our capital investment programs in our portfolio. We are staunch believers in the growth of Macao market near and long-term. LVS has invested $15 billion in Macao, which is the most important land-based market in the world. A few reference points to consider, third quarter EBITDA represents strong growth compared to previous quarters, as I mentioned. Our retail business in Macao has far exceeded pre-COVID numbers. I expect the gain portion of our business to follow the same trajectory as Singapore and accelerated 2024.

[Technical Difficulty] MBS and Singapore. Six quarters into a reopening, MBS delivered a $490 million quarter. The power of this building is evident based on the results despite the disruptive impact of our ongoing $1.75 billion renovation program. Disruption notwithstanding MBS is hitting on all cylinders from a gaming, lodging and retail perspective. Slots and ATG (ph) MBS are approaching $1 billion annually, non-rolling tables are exceeding $20 million of drop per day. The ADRs are escalating and our retail component is going far beyond pre-COVID numbers. MBS is a testament that quality assets prevail and validates the thesis that reinvesting in our assets will generate sustained returns. MBS has it all (ph), an iconic building with superb decor and service levels, which attract the most desirable customers in every segment.

At the completion of both phases of our refurbishment program, MBS will feature 770 suites. We used to have 200 suites before the refurbishment. There is no denies future. How far can MBS go? Our expectations starts with $2 billion or more in the future of annualized EBITDA. Finally, we’re bidding for a license in New York. We have secured the Nassau Coliseum (ph) and the process of gaining necessary selling requirements to move forward. We’re also receiving strong local support from the local community. The resort will cost in excess of $5 billion, but enables us to develop a five-star resort with unlimited appeal. This is simply an extraordinary opportunity. We are very excited about the prospect. Our bid is compelling, that we award the license who will be in the ground as quickly as possible.

Thanks for joining us again. I’m going to turn the call over to Patrick before we move on to some Q&A. Patrick?

Patrick Dumont: Thanks, Rob. I would like to cover two important topics before we get on to your questions. The first is the long-term margin structure we expect in our Macao business. As the Macao market revenues continue to recover, our margins will naturally benefit from an improved business mix. This quarter, our Macao EBITDA reached $631 million at a 35.3% margin, which is an increase of 210 basis points compared to the second quarter of ’23. As revenues continue to grow, we expect our margin to exceed the 36% of Macao business in 2019. This quarter, the Malaysian Macao grew EBITDA to $290 million, with margins reaching 40.1%. This is an example of a property achieving strong revenue recovery with financial performance and margin that reflect the improved business mix.

The Londoner Macao grew EBITDA to $167 million during the quarter, with EBITDA margin expanding 660 basis points sequentially to reach 32.2%. The strong flow-through of revenue to EBITDA reflects the operating leverage of our business, once the fixed costs have been covered. The transformation to Londoner has created a world-class product that is a must see for visitors for Macao. We will naturally have some construction disruption in 2024, but we expect future EBITDA growth and margin expansion over time, so that’s Macao. The second item I wanted to cover is an update on our plans for the return of capital to shareholders. Our Board of Directors has authorized a $2 billion share repurchase through 2025, and we’re looking forward to restarting our share repurchase program.

In the nine-year period from 2012 to 2020, we returned over $22 billion of capital to [Technical Difficulty] shareholders in the form of dividends and repurchases, which was split roughly 80% dividends and 20% to share repurchases. As we consider our future capital return, we expect share repurchase will be more heavily weighted than dividends. We believe repurchases will be more accretive in dividends over time as they reduce the denominator. We fundamentally believe in the compounding long-term benefit of share repurchases. So that’s the capital return update. [Technical Difficulty] again today, and let’s move to Q&A.

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Q&A Session

Operator: Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And the first question today is coming from Carlo Santarelli from Deutsche Bank. Carlo, your line is live.

Carlo Santarelli: Hey, guys. Patrick, thank you for the additional color. Rob or anyone over in Macao maybe this one’s best for. But as you guys think about the base and the premium mass. It looks like in the quarter, you guys kind of converted some premium mass tables to base mass tables. And obviously, with the increases in visitation that makes sense. Is that something you expect to do going forward? Do you have what you need basically in terms of the premium mass footprint in terms of table count at this point?

Robert Goldstein: Yeah. The beauty of our business model is we’ve got plenty of capacity to do everyone. We will move to the market. As you saw in the quarter, we moved tables around to accommodate where we saw demand. But again, with the number of rooms and our table capacity, we can grow into any market in any segment that shows strength and that’s what happened here. The truth is, I expect that to both move forward in the future and show growth both in base and premium. But our assets are built to be just this, which is versatile, able to accommodate the market. Grant may have some color on that’s true of any market. The only difference in this market for me is, we did such a huge amount of table supply that we’re very nimble. Grant?

Grant Chum: Yeah. Thank you, Rob. Yeah. I think the repositioning this quarter for more towards base mass tables, that’s just a natural part of our optimization between the segments and of course, as you rightly referenced, the summer saw a big increase in visitation and the base mass business. So that was just a natural repositioning to optimize the table count. As you can see, sequentially, a win per unit increased substantially in premium mass up 19% and base mass, even though we reorientated the table count towards base mass, we also increased the win per unit by 7% sequentially. So I think that you can see very clearly that we actually did optimize pretty well for the quarter between the two segments in terms of table capacity and these numbers will change again as the market evolves depending on which segment is growing faster.

Carlo Santarelli: Great. And then — thank you for that. Patrick, if I could just kind of follow up on the Venetian and acknowledging that there was some high hold in the period on the VIP side. But it’s a relatively small number in terms of revenue. As you think about kind of the margin profile, the 40.1% margins in the period at the property kind of rivaled ’19 despite annualized third quarter net revenue being down, I think, close to 18% versus what you did in 2019. If we think about that gap, that odd $600 million flow-through, getting back to kind of ’19 net revenue levels at that property or any other property. How would you think about kind of the incremental flow-through on that incremental net revenue and perhaps we could obviously take it from there to get a sense for where margins could kind of prove out over time?

Patrick Dumont: So it’s a great question. I think for us, the first thing is, this is what happens if you cover your fixed cost base. So when we were 70% recovered, we had to cover our fixed cost base in Macao. And as the market recovered and as tourism and visitation continue to grow, we will reach our run rate margin levels, which we always felt was in this context. So what do you see the Venetian is a result of a great product that has, is really an example of a property reaching a more run rate level of operation post-pandemic and the performance in margins that result. And we feel very strongly that the Venetian Macao is going to run as mass visitation continues to return to the market. Remember, Macao visitation is still about 20% less than it was pre-pandemic, we’re down about 1 million visitors in the same period.

So we feel very strongly about the margin potential. We’re very proud about what’s going on to The Londoner. We think the market is starting to understand that product operate it is, and we’re starting to see the results in terms of productivity in terms of margin. But again, in that product as well, we think there’s more room to run. So I think it’s a great testament to the team there, the work they’ve done to grow these businesses. But to be fair, we think there’s strength in margins to continue as revenue continues to come into the market through visitation.

Carlo Santarelli: Great. Thank you very much guys. Appreciate it.

Operator: Thank you. The next question is coming from Joe Greff from JPMorgan. Joe, your line is live.

Joe Greff: Good afternoon, guys. Before COVID, you guys used to disclose department margin ranges for base mass table games and premium mass table game ranges. I think base was 35% to 45% and premium mass is 25%, 40%. Are those margin ranges or the midpoint and higher still viable or does The Londoner and that ramp and clearly is in ramp mode right now, does that cause those ranges to be more middle or the lower end of that range is in the aggregate in Macao?

Patrick Dumont: So I think for us, because of the mix of business and where we’re investing, we sort of run the business in aggregate. So what we’re looking at is the 40% margin that Venetian just put up in the quarter and the 660 basis point expansion in margin that The Londoner saw as the market discovered how great it was, and we started getting more visitation and more growth. So I think for us, that’s really how we’re looking at it. Departmentally, I think we manage the business overall. And as Rob said earlier, we’re going to shift assets to the segment that is most productive and provides the best returns. So I think for us, we’re not really looking at that as a guide. We’re really looking at overall productivity of our asset base in total.

I think one thing that’s interesting to consider is, so in Macao, room occupancy was 96% versus 95% in the same period in ’19. But the thing that’s interesting is we’re actually driving more daily casino nights at higher yields per room. And so in the premium mass segment, we’re seeing a recovery, but our base mass segment is starting to recover strongly. And this is really what you see is, the businesses that used to support Macao mass tourism continue to come back online after what was basically a three-year hiatus. So this increased visitation will drive base mass revenue growth, and we’ll start to see margin return to a more normal mix. So I wouldn’t look at the departmental. I would look at the recovery in the aggregate margin of the operating asset.

That’s kind of how we’re managing the business, and we’re trying to manage segments throughout.

Robert Goldstein: And then we look at EBITDA.

Patrick Dumont: And then we look at EBITDA, which is the most important effect. Thank you, Rob.

Joe Greff: Thanks. And then with respect to the buyback, that was great to see, Patrick. Do you look at that as more episodic or opportunistic? Or do you look at it as there’s a minimum consistent minimum level or a consistent level per quarter per year that you would look at?

Patrick Dumont: I think we’re going to be measured across time. I think we want to return capital through share repurchases in a meaningful way. We think there is a real benefit to reducing the denominator. We think it’s accretive. We think there’s a compounding effect in share repurchases. And so we’re looking forward to do it on a regular basis. The amounts to be determined. But for us, you see the size of the authorization, you see our balance sheet strength. You see the amount of cash flow we’re generating down in the business. And we’re going to go out and be aggressive. I think for us, we fundamentally believe in the dividend. But if you look at that split that we had, let’s call it, pre-pandemic of a return of capital story (ph), I think we’re looking to be majority share repurchases and get that benefit. And so if you look at how we’ve returned capital historically in a regular and repeatable way, I think we’re going to look to do that again.