Las Vegas Sands Corp Q3 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to Las Vegas Sands for Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. I would now like to hand the conference over to your first speaker today, Mr. Dan Briggs. Sir, the floor is yours.

Thank you, Operator. Joining me on the call today are Rob Goldstein, our Chairman and Chief Executive Officer, and Patrick Dumont, our President and Chief Operating Officer. Also joining us on the call are Dr. Wilfred Wong, President of Sands China, and Grant Chum, Chief Operating President of Sands China. Before I turn the call over to Rob, please let me remind you that today's conference call will contain forward-looking statements that we're making under the safe harbor provision of federal securities laws. The Company's actual results could differ materially from the anticipated results in those forward-looking statements. In addition, we may discuss non-GAAP measures, a definition and a reconciliation of each of these measures to the most comparable GAAP financial measures is included in the press release. Please note that we have posted supplementary earnings slides in our Investor Relations website. We may refer to those slides during the Q&A portion of the call. Finally, for those who would like to participate in the Q&A session, we ask that you please respect our request to limit yourself to one question and one follow-up, so we might allow everyone with interest the opportunity to participate. Please note that this presentation is being recorded. With that, let me please turn the call over to Rob.

Thanks, Dan. Good afternoon and good morning to our colleagues in Asia, and thank you for joining our call today. I'll provide some brief comments then we'll go to the Q&A. Our results continue to reflect the pandemic's impact. Heightened restrictions directly impacted our results in both Macao and Singapore this quarter. We did generate positive EBITDA for the quarter in both markets. We remain confident in the eventual recovery in both Macao and Singapore. Singapore gaming operations were closed for a portion of the quarter, and enhanced restrictions were in place throughout the remainder of the quarter. The good news in Singapore is that travel corridors are being established with a number of source markets, which hopefully will contribute to the strong recovery over time. Our considerable investments in Macao continue to take shape. As the market recovers, we believe that the Four Seasons in London will present a growth opportunity in the future. The resilience of spending in Macao, particularly at the premium mass level from both gaming and retail, can be seen on pages 29 and 30 in your deck. We have great optimism about our ability to return to pre-pandemic levels once visitation has returned. Our Company is divided into three areas. Most importantly, our Asia portfolio in Macao and Singapore remains a priority, and we are confident we will return to strong positive cash flow in both regions as travel restrictions ease. The sale of our Las Vegas assets has created liquidity and optionality as we pursue large-scale land-based destination resorts in both the U.S. and Asia. We will continue to build out our digital presence and explore multiple opportunities, which we will achieve at the appropriate time in the future. So, thanks for your time again, and let's go to the questions. Dan?

Operator, we're ready to go.

Thank you. Your first question is coming from the line of Carlo Santarelli from Deutsche Bank. Your line is open.

Hey, everybody, hope everyone's well. Rob, obviously, not going to spend a lot of time discussing the results as we all know that numerous factors are impacting results right now. But what menu, when you think about the progress as it pertains to Macao and what you're hearing around potential usage of Visa stuff, whether it's on a province-by-province basis or whatever the latest you could share would be appreciated.

Sure. Let me defer that to Grant and Wilfred, as they are on the ground, living and breathing these issues every day.

Yes, let me do that. Thanks, Rob. The main point is that the Visa channels for individual gaming remain open. If you look at the quarter in the third quarter, what really impacted results during that quarter, month by month, was really the conditions on the ground in terms of domestic COVID cases. In July, we had a significant recovery in visitation and room occupancy for about three weeks. We were starting to gain good momentum for the summer after the issues we faced in the Guangdong outbreak in June. Then, as we moved into late July and early August, we experienced more local cases starting with the Nanjing airport outbreak. Early August brought four local cases, which immediately curtailed traffic. As we entered September, we were recovering well, especially in the second and third weeks, gearing up for the October Golden Week, but then local cases towards the end of September further reduced traffic due to additional restrictions around the border. This really explains how traffic flow evolved throughout the quarter.

Great. Thank you. That's helpful. As a quick follow-up, Rob, you disclosed, and I think this is different from how you've disclosed historically about capital expenditures in the period. The one line in there was $24 million of Corporate and Other. What exactly does that pertain to, and does that have anything to do with the comments you made on the digital piece of the business?

Sure. Pat, you want to take that?

Sure. There's a bunch of stuff in there. Some of it relates to digital, but some of it pertains to Capex associated with moving forward.

Got it. Could you just update your latest thoughts on the learnings of the last couple of months, quarters as it pertains to the digital initiative to any degree, Patrick?

Yeah, sure, happy to do it. For us, we take a long-term approach. We mentioned it last quarter; this is something we're going to invest in over quarters and years. We're truly investing for the future. We want to be mindful of how we deploy capital. We've always had a history of investing in areas that we think yield a very high level of returns in the long term. So right now, we're just moving along slowly, and when we have more to share we will. We're very confident we have capital to deploy against that, and we're excited about the future. We have more things to discuss, but right now, it's still in the early stages.

Understood. Thank you, guys.

Thank you, Carlo.

Thank you. Your next question is from the line of Stephen Grambling from Goldman Sachs, your line is open.

Hey, thank you. Changing gears to look at Singapore, it looks like that market was impacted this quarter, particularly in VIP. If we look out further once restrictions ease, how do you think about the potential EBITDA of that asset if VIP in Macao remains pressured? What kind of overlap do you typically see in Singapore from the Chinese traveler, and could that be impacted if VIP is permanently restricted?

Sure. The fascinating part to me is we operate in three markets, and Las Vegas serves as the blueprint during the recovery of Asia. About a year ago, I was told here in Las Vegas we wouldn’t see normal returns until ’24 or ’25. And look, we’re already in the fall of ’21, and the market is wide open. I think the path is pent-up demand and vaccinations leading the way. Vaccinations in Asia are progressing. If you look at Singapore, Malaysia, Japan, China, and Korea, the vaccination rates are above the U.S. Additionally, the government wants to open Singapore as evidenced by their actions. I think you'll see a significant turn in '22. Your recovery will begin in '22. When do we get back to 1.7 and maybe beyond that EBITDA? I can't tell you the exact date, but I believe '22 is going to see a lot more improvements if the government continues its thoughtful leadership and vaccination rates keep rising. The travel and demand figures in Las Vegas have shown to be very instructive. Why wouldn't that happen in Asia? Singapore remains an important market for us. Our business is dependent on access to the Chinese market, but it is not solely reliant on it. We can still generate strong profits without heavy Chinese input, especially with reopened markets in Korea, Malaysia, and Japan. I believe the scene will open up throughout '22. If vaccination rates pick up and governments increase confidence while reopening travel, we will see a strong recovery in Singapore in '22, though I won’t predict the extent. We're confident it will get back to pre-COVID levels or better. There’s no reason why Singapore can’t thrive again once doors reopen.

That's helpful. As a follow-up, can you provide any additional color on the consultation process in Macao? What key points of clarification are you monitoring for the strategic position of the business?

I've been involved in this market for over two decades. We’ve seen it all since 20 years ago, when people said you can’t do business in Macao or that Cotai wouldn’t be successful. We’ve faced economic crises and restrictive regulations, but we have always succeeded. We believe our investments speak for themselves. I trust the process; they treat us fairly, and we’ve made the largest investments in any gaming market in the world. We believe in our history of success as a blueprint for navigating the future of our business in Macao.

Fair enough. Thanks so much.

Sure. Thank you.

Your next question is from the line of Joe Greff from JPMorgan. Your line is open.

Hello, everybody. Rob and team, on Macao's recovery and the potential for increased travel and mobility between Mainland China and Macao, do you sense from conversations with the government that this is likely to happen after the Beijing Olympics in February?

I'll defer to Grant and Wilfred for more insight. I don’t think we can predict exactly when travel will reopen, but we know it will reopen at some point. I think '22 is going to be a pivotal year. However, I will refrain from suggesting a specific date. I'd rather let the government determine that timeline. We’ve been through too many predictions in the past that have turned out incorrect. Grant and Wilfred, do you have any other thoughts?

I agree. We see strong underlying demand persisting when the opportunity arises. While opportunities may be brief, we see strong demand across all segments, validating your point about pent-up demand that Rob mentioned regarding Las Vegas.

Wilfred?

I believe that China will open up to the world when they feel confident they can control community outbreaks. That depends largely on vaccination rates, which currently are at around 80%. They are testing multiple medicinal methods, including Chinese herbal approaches, with significant research ongoing. We are quite hopeful as they are vaccinating at a rate of 1.3 million to 1.4 million people per day. If this continues, we could see 10% of the population vaccinated within another 200 days. As China's vaccination rate increases, so does government confidence, which we believe will translate into Macao's reopening.

Great. Thank you. Patrick, regarding investments in digital initiatives, can you elaborate on your vision for the size of those investments over the next couple of years? Are we discussing relatively small, modest investments, or could we see allocations in the hundreds of millions or billion-dollar range depending on what opportunities arise?

We often discuss this internally. Some investments will relate to the value of the opportunity we identify. Currently, our perspective is focused on early-stage or mid-stage ventures. However, this fits into our larger strategy, aiming for long-term value creation. We may pursue transformational opportunities in the future, depending on market developments. The good news is we have substantial firepower and a strong management team with extensive expertise in the industry. We aim to be opportunistic and will assess how to proceed, but for now, we will start small and build from there.

Thank you.

Your next question is from the line of Robin Farley from UBS. Your line is open.

Great. Thanks. I wanted to ask about a proposal in the new legislation requiring government approval for dividends. If enacted, would this make you hesitant about investing, considering the chance that you might not be approved to receive returns on those investments? How concerning would that be for you?

Patrick, would you like to take that?

From our standpoint, we are focused on building on our past. Our investments in Macao and non-gaming amenities speak for themselves. We are confident that the results from this process will yield a positive outcome for us. We are eagerly waiting for instructions on how to proceed. Macao remains the best gaming market globally, and we remain excited about its long-term potential.

Over two decades, we have always found the government to be thoughtful. They will review these issues reasonably. We are not concerned about this process. We want to reinvest in Macao. We assume it will be a fair and equitable process and that they want us to invest for further growth.

That's helpful. Just a quick follow-up. Regarding the timing or potential extension of your existing concession, at what point do you think it indicates that it will be extended for at least another 12 months? Given the timeline already seems challenging to do anything before June of '22, can we safely assume it won't be coming up for bidding before then?

We won’t speculate on the timing. We'll respect their timeline. We have a solid two-decade history with this government, and negotiations have been good throughout. Our Company has constructed a great business in Macao, with ups and downs along the way. The government has always been reasonable, thoughtful, and fair in our dealings, and we don’t harbor any concerns about their process.

Okay. Great. Thank you very much.

Thank you.

Your next question is from the line of Shaun Kelley from Bank of America. Your line is open.

Hi, good morning and afternoon, everyone. I wanted to follow up on the licensing process. There's been discussion about the requirement for potential capital investments in Macao, including in non-gaming amenities or possibly in Greater Mainland China. What are your thoughts on the desire and ability to invest directly in Mainland China? Would that be something you’re prepared to undertake?

We possess the capability to invest based on our strong balance sheet. We have the appetite and a proven track record; we invested 15 billion and even a few billion right before the pandemic, which raised some eyebrows at the time. We remain eager to reinvest in Macao and possibly elsewhere; we're just waiting for the right moment.

We take great pride in Sheldon's long-term vision for Macao and our Company's past achievements. We've poured significant investment into high-quality assets and non-gaming amenities. All of our tourism innovations align with the original goals of the first concession. We're optimistic about the future and ready to support the government’s long-term initiatives.

Great. As a follow-up, could you help us understand the timing of investments in Singapore? When do you expect to move forward with the additional hotel tower and expansion you committed to?

We are excited about this opportunity. It supports Singapore's growth and represents a significant capital deployment in one of the world's premier cities. Singapore was already expanding before the pandemic, and their public health initiatives during it have been commendable. We would love to start as soon as possible, but they are prioritizing higher matters for now. We have a long-term partnership with the Singapore government and look forward to resolving remaining items so we can commence. Our plan is to begin as soon as the conditions permit.

Thank you very much.

Your next question is from Ben Chaiken from Credit Suisse. Your line is open.

Hey, everyone. There's been much discussion about digital investments and those required in Singapore and Macao. However, you’ve also mentioned pent-up demand, making share buybacks at current levels potentially a more attractive ROI. How do you balance the optionality of those decisions?

We consider this extensively. We evaluate potential returns vigorously as a management team. We are exceptionally optimistic about various prospects and want to channel our capital into new projects for the best shareholder returns. That has always been our foundational approach. Rob and the team examine various development opportunities in diverse jurisdictions. While returning capital through share repurchase is something we've historically done, our current focus is on real growth opportunities. The equity is indeed compelling, but we have significant opportunities ahead that could yield high returns as well. So, we’re looking to create that balance.

Thanks.

Thank you.

Your next question is from the line of Dan Politzer from Wells Fargo. Your line is open.

Hey, everyone. Good afternoon. Thanks for taking my questions. On Singapore, how do you foresee margins for this property evolving over the next couple of years? There is a higher tax rate coming into effect, and we might see some impacts from construction disruptions in addition to the costs you've optimized over the last 18 months. How do you foresee that playing out in light of expectations for pent-up demand in 2022?

Firstly, it’s important to observe Las Vegas' recovery. What was projected as a four-year recovery took less than a year. Singapore mirrors that progress. The current market in Singapore shows resilience, especially as the government moves to open borders. I believe our margins will return just fine. We chose not to furlough or lay off staff; we stood by our employees. Our business in Singapore will ultimately return to pre-COVID levels and likely surpass them. If Las Vegas serves as a benchmark, the anticipated demand in Asia will be immense. We'd be remiss to think Singapore won't bounce back strongly.

Got it. Thanks. One more on Macao. When Macao eventually recovers, how do you think your share of GGR will evolve considering the opening of the London area, which we didn’t have in 2019? Also, how do you foresee any impact from Lisboa Palace on your properties?

Grant, are you still here?

Yes, Rob. Historically, when we have new large-scale and high-quality products entering Cotai, it helps the entire market. The demand will return, benefiting the market and the industry as a whole. The new openings, including Lisboa Palace, will also draw traffic. We believe that as demand returns, we'll achieve good market share. But it's crucial to note that our focus will always be on growing the overall market. We don't see the new openings as detrimental; rather, they will be growth drivers across various market segments.

Got it. Thanks so much, guys.

Thank you.

Your next question is from David Katz from Jefferies. Your line is open.

Hi, David.

David, are you there?

David? It seems we lost Mr. Katz.

Okay. We'll go to the next question, which is from Steve Wieczynski from Stifel. Your line is open.

Hey, guys. Good afternoon. Just one question. Rob, I realize you're likely tired of responding to hear-say regarding the renewal process, but do you see a scenario where you wouldn't operate any casino assets in Macao in the near future? I know it's blunt, but it's a concern many investors are pondering.

I see no chance of that whatsoever. We have a proven track record; this entire Cotai development is due to Sheldon's vision and investment. We built a stellar business over two decades with consistent profitability. Every indication we've received is to the contrary regarding our future in Macao. We remain proud of our achievements, investments, and contributions to the community. We will continue to foster strong relationships in the region.

Okay, great. Thanks, Rob.

Sure. Thank you.

Your final question is from the line of David Katz from Jefferies. Your line is open.

Hi, can you hear me now?

Yeah. We thought you fell asleep on us since you’re in Macao.

There is no sleeping at Jefferies. I wanted the team’s perspective on VIP gaming, as we’ve discussed this with various investors and on the ground. What does the future of VIP business look like, given the pressures and changes in currency that may impact it?

Let Grant take a stab at that. You’re referring to the total VIP market in Macao, correct?

Yes.

Okay. So, as for historical perspective, we've endured skepticism throughout the last 20 years. A belief that revenues might diminish or segments might collapse has never materialized. Naturally, I remain a firm believer in all market segments. Our core has been premium mass, which drives most of our business currently, but we believe VIP will resurface in some form. Gamblers will continue supporting the sector, and we’ve seen it evolve over the years. Grant, feel free to add.

We need to recognize that the proportion of profit derived from the VIP segment, especially referencing junket segment, is very small. Our focus has been on large-scale destination resorts targeting premium mass, mass, and leisure markets, guiding our reinvestment strategies. Our growth is driven by lifestyle, top-notch entertainment, retail, and invigorating dining experiences.

Grant is right; the driving factors for the market are lifestyle and extraordinary amenities. We’ve built attractions with a clear focus on the luxury experience, complemented by offerings like the London. The Four Seasons is perfect for the high-end premium mass clientele. Overall, we’re confident that the demand for visits to Macao is unwavering, and we are eager to get back into business.

Thank you, speakers. There are no more questions, and ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may disconnect.