Earnings Call Transcript - LVS Q2 2021

Operator, Operator

Good afternoon. My name is Sade, and I will be your event - conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands Second Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. I will now turn the call over to Mr. Daniel Briggs.

Daniel Briggs, Moderator

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 today are Dr. Wilfred Wong, President of Sands China; and Grant Chum, Chief Operating Officer 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 on our Investor Relations website and we may refer to those slides during the Q&A portion of this call. And finally, those who would like to participate in the question-and-answer session we ask that you please respect our request to limit yourself to one question and one follow-up question 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.

Rob Goldstein, CEO

Thank you, Dan, and good afternoon, and a very good early morning to our colleagues in Asia. Just a brief comment, then we’ll go right to Q&A. Our results continue to reflect the pandemic’s impact. We did generate positive EBITDA of $244 million for the quarter, about the same as the first quarter. Our Macao performance reflected sequential improvement, but pandemic-related travel restrictions continued to impact our performance. We do remain confident in the eventual recovery in both Macao and Singapore, and we cannot define the timing of the full recovery, but it’s underway and will continue in 2021. Singapore remains in the $500 million to $600 million range annually, although the second quarter was impacted by heightened pandemic-related restrictions for a portion of the quarter. We will also be subject to closures of both portions of MBS from today to August 5th as part of COVID-19-related protocols. This will obviously have a negative impact on Q3 results. In addition, there remains no visibility as to when air traffic will return in Singapore. Unlike Macao, it is difficult to project additional EBITDA from MBS until the resumption of air travel. Our considerable investment in Macao continues to take shape. As the market recovers, Four Seasons and the Londoner will represent growth opportunities, and we continue to have the largest footprint in this incredible market. China continues to demonstrate economic resilience. The spending in Macao is very strong at the premium mass level for both gaming and retail perspectives you may want to reference Pages 29 and 30 in your deck. We do have great optimism about our ability to perform to pre-pandemic levels once visitation returns, and our company is divided into three areas, the Asian portfolio in Macao and Singapore. While we believe Macao will accelerate in the second half of this year and lead the recovery, Singapore will follow upon the resumption of air travel. We are confident we’ll return to a $5 billion-plus EBITDA from Asia in the future. The sale of the Las Vegas assets creates liquidity and vast optionality to explore large land-based destination resorts in the United States and Asia. And finally, we’re in the early innings of building out our digital presence. We’re exploring multiple opportunities at present, and we are eager to have this effort become material to our company in the years ahead, and we’ll update you at the appropriate time. Let’s take some questions.

Operator, Operator

Your first question is from Robin Farley from UBS. Please go ahead.

Robin Farley, Analyst

Thank you for taking my question. I wanted to follow up on your announcement regarding your online strategy and B2B investments. Could you share how your brand will support these B2B efforts and what that means for Sands in a reciprocal way? Additionally, is this the full extent of your focus, or are you also considering B2C options in the online market? Thank you.

Rob Goldstein, CEO

Pat, do you want to take that?

Patrick Dumont, COO

Sure. Happy to. Thanks, Robin. So a few points. I think our brand is very strong. I think we have decades of established brand, high-quality operations, and a great relationship with customers. We think that’s very powerful to your point. One thing we’re thinking about is we’re really investing for the future. We take a very long-term approach. We’re still evaluating a lot of different opportunities. I think B2B presents a very significant opportunity for us. Davis has a great history and we’re really looking forward to him getting started, and we’re happy that he joined us. I think we’ll provide updates as we make progress. It’s still very early stages. But we’re looking forward to deploying capital over many years and really looking at this from the long-term and creating a lot of long-term shareholder value. And I think in the future, you’ll see us looking at other things and opportunities. As Rob said on other calls, we’re going to be very patient, prudent, and we’re going to look for opportunities where we see ways to create real value in the long term. So I don’t think this is the last thing you’ll see from us. But I think it’s really just the beginning, and we’re looking forward to seeing this evolve over time. So as we make progress, we’ll definitely provide more updates.

Robin Farley, Analyst

Okay. As a follow-up, regarding the B2B sector, many providers in that space are working with companies that could be seen as your competitors in the land-based market. How do you view Sands' role in the online business in terms of being perceived as a potential partner rather than a competitor? Thanks.

Patrick Dumont, COO

That's a very valid point. Interestingly, our company has undergone many changes over the past year. One aspect we've considered is that our operations will primarily focus on Singapore and Macao. From this perspective, the pool of true competitors is quite limited, especially in larger regions where a B2B services model could be effective. Overall, we feel somewhat neutral about our position. In many of the markets we aim to target, we lack land-based operations and do not have B2C operations to draw customers for a B2B business model. Therefore, we are quite optimistic about our situation.

Robin Farley, Analyst

Okay. Great. Thank you very much.

Rob Goldstein, CEO

Thanks, Robin.

Operator, Operator

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

Joe Greff, Analyst

Good afternoon, guys. Nice to hear your voices. We probably said it mostly, just in terms of Macao’s reliance on travel and mobility enhancing measures and timing there. So I am not going to waste my time on that. But I think that in the last call, Wilfred gave a decent amount of detail and I would say a decent amount of optimism in terms of your license potentially markets getting extended sometime in the middle of this year and that timeframe has sort of passed with it. But now I was hoping you could just give us an update on your conversations or your thinking renewal/extension process in Macao?

Rob Goldstein, CEO

Wilfred, are you there?

Dr. Wilfred Wong, President of Sands China

Yes, thank you. The situation remains unchanged. The extension is quite a complex matter that both the Macao and Chinese governments will need to carefully consider. Currently, the Macao Government is focused on ensuring the city’s safety against COVID-19 and is also preparing for the mixed legislative council election scheduled for September 12th. They plan to initiate public consultation on the concession renewal in the latter half of this year, likely after the election. It seems the government is not in a hurry to renew the license as they want to ensure everything is done properly. There are numerous legal matters they need to address, particularly concerning the concession and sub-concession, and they can only proceed to the legislative council once the new council is established. For now, our focus is on aligning our interests with the government by prioritizing investment opportunities, developing our properties, enhancing operational efficiencies, and maintaining a stable workforce, which is crucial during this pandemic. Ultimately, as we approach the concession's expiration, the government will need to consider extending it, but at this point, there are no official updates or insider information available.

Rob Goldstein, CEO

And just to follow-up, Joe, on Wilfred’s comments, we remain very comfortable with our position. We have to be patient, but there will be resolution. As you know, we’ve said numerous times, we’ve led the efforts in Macao for a diversified approach to development. We’ve gone above and beyond. Sheldon was the guy behind the Cotai development. We invested over $15 billion, and we continue to follow the government’s advice and direction. So we remain very confident and very patient waiting for the government’s decision. But no real change, nothing new, but we’ve not altered our belief that we’re in a very good position, very comfortable.

Joe Greff, Analyst

I appreciate the thoughts. Thank you, guys.

Rob Goldstein, CEO

Thank you.

Operator, Operator

Your next question is from Carlo Santarelli from Deutsche Bank. Your line is open.

Carlo Santarelli, Analyst

Hey, guys. Good afternoon and good morning. Rob, could you talk a little bit about the project at MBS, obviously, 2025 is the deadline or, sorry, is the expected opening. As you kind of have this amount of setbacks and acknowledging that you guys kind of pushed it earlier, given COVID back in 2020. Does 2025 still seem realistic as a target? And what are kind of the goalposts for some of the construction work along the way?

Rob Goldstein, CEO

I am going to give it to Patrick, except for one. I’ll say this before Patrick jumps in. We remain very committed to Singapore to withstand our presence and footprint. Obviously, COVID has thrown a big monkey wrench into this whole thing. But this is an extraordinary market. We are going to invest in Singapore. We’ve done very well there, and the addition is going to happen. I think the timeframe really depends on the ability to go back to work in the construction area and getting things back in line. I think we’ve lost 2021, we’re heading to 2022. So again, we’re committed, and I’ll ask Patrick to provide more color because he’s dealt with the government directly.

Patrick Dumont, COO

Thanks, Rob. I think the key thing is what Rob just said, which is there’s a certain amount of uncertainty around the timing and availability of when we can actually get things done. A lot of the early parts of this project required us to work with certain government agencies to seek their approval and to work with them collaboratively to ensure that we fulfill the obligations and their desires as part of this project. It’s a very tight site. It’s eight acres. There’s a lot of programming, density, and a lot of things that have to be worked through, and a lot of things have to be integrated into the current environment to make it right. And so we’re starting to work with some of those things. But as a practical matter, the nature of the construction project of this complexity and size would always be challenging in a normal environment. So I think we’re just trying to be cautious and make sure that we understand all of the different parameters around labor and construction timelines before we say that this is a schedule that is not achievable or is achievable. I think a lot of it depends on the environment and how things go in terms of COVID recovery over the next couple of months. We’ll have a much better view at that time. But right now, I think we’re cautiously optimistic. We’re going to continue to work with the government and hopefully have an opportunity to get going sooner rather than later.

Carlo Santarelli, Analyst

Great. Thanks, Rob and Patrick. If I could just one quick one, has there been any thought, obviously, now given that the sale of Venetian Las Vegas and the proceeds that are on the comp for that, can you potentially revisit the bidding process in Japan?

Rob Goldstein, CEO

Not at this time, Carlo. We’ve had inquiries from a lot of parties there. We tried very hard. There’s a lot of money and a lot of human capital spent there in the last 10 years, 15 years, and we left with the feeling that there was just too much uncertainty for us. We can always revisit something based on a change in circumstance, but at this point, we remain on the sidelines.

Carlo Santarelli, Analyst

Understood. Thanks, Rob.

Rob Goldstein, CEO

Thank you.

Operator, Operator

Your next question is from Stephen Grambling from Goldman Sachs. Your line is open.

Stephen Grambling, Analyst

Hey, thanks. Could you just talk a little bit about some of the different expansion opportunities for land-based resorts in the U.S. or even other broader markets that we haven’t touched base on so far and how you prioritize to evaluate those different markets?

Rob Goldstein, CEO

Well, in the U.S., you know of our efforts in New York, which we shut down because New York did not resolve that issue. So that’s not available at this time. Texas, we remain very committed to pursuing. I think it’s a couple years away. But I think there’s a real chance down the road back in Texas doing something down there. There’s some recent news there in Florida. We put a new order in Florida. If we can get some opportunity, we’re going to look past there in 2022, because we’re successfully gathering signatures to get a vote in the fall of 2022 for a land-based opportunity. In the U.S., that’s all at this point we’re looking at. Obviously, we’ve discussed Japan previously. Our best opportunities are to reinvest in Macao and Singapore because those places have proven huge successes. And I think when you’re as fortunate as we are to have made $5 billion-plus when we built out there, who knows what, but there’s a lot of potential in both Singapore and Macao. Frankly, they remain our biggest focus because they’re so extraordinary and hard to duplicate anywhere in the world. And I think that’s our focus right now is getting MBS things to up, and hopefully, late in the fall, we can invest more in Macao. The Londoner will be completed later this year or 2022, Four Seasons. We would love to deploy more capital in Asia. I think the broad opportunity is interesting. We’ll see when we have the ability to get there. But it’s hard to find things as extraordinary as the two places we operate today.

Stephen Grambling, Analyst

Makes sense. Thanks so much. I’ll jump back in the queue.

Rob Goldstein, CEO

Sure. Thank you.

Operator, Operator

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

Shaun Kelley, Analyst

Hi. Good afternoon, everyone. Maybe a question for either Grant or Wilfred, but I was wondering, I think we have a pretty good sight line on the core premium mass market and how that’s performing and how the spending behavior is going. But I was wondering if there’s any color insights you guys have gleaned just from what you’re seeing on more of the base mass or the lower end mass market. I am sure the sample set is small, just kind of curious on how the customer is behaving when they are in the market and what you’ve seen in some of your properties if you could provide anything there?

Rob Goldstein, CEO

Grant?

Grant Chum, COO of Sands China

Yeah. Hi, Shaun. Good morning. I think the trends have been pretty consistent in the last six months. You see, I think, very strong consumption propensity, great strength in spending power for those who have returned to Macao for leisure trips, and I think that applies across the different segments. But, obviously, clearly, the premium mass, the segment has returned in greater volume, greater number of patrons. But when you go farther down to mid-level and the base mass, the spending power is definitely prominent. However, we can see from the visitations, they are still around, let’s say, low 20% of where we were before the pandemic. So the base mass is clearly impacted by just the drastic reduction in the number of people visiting. But the people who are coming are actually staying longer and in most cases, spending more. And I think what was encouraging, sequentially, although June was somewhat of a temporary hiccup, what was encouraging was we saw the greatest amount of sequential growth in the base mass in the FRT segments versus Q1. Although premium mass continued to cover. The bigger bounce back was actually in the base mass. So we hope to see some of those makes encouraging trends continue into the summer holidays and beyond.

Shaun Kelley, Analyst

Great. And maybe change here for a quick follow-up on the online topic, if I could. For Patrick or Rob, just kind of want to get your quick sense on maybe the build versus buy equation, right? So, obviously, some of these technologies and things are out there, but they could be quite expensive. Just how do you kind of weigh maybe some of the options that are around acquisitions and sizing relative to possibly things that could be done maybe more organically?

Rob Goldstein, CEO

Patrick?

Patrick Dumont, COO

So it’s a very interesting question. It’s something that we’ve been looking at for a while and we continue to look at. It’s an interesting comment about valuations. I think there’s been a lot of optimism in the market, call it, the last six months to 12 months, and valuations have definitely moved around a lot in the last few weeks. I think the key thing for us is we’re really building for the long term and so when we look at things we’re really going to take a long-term view of value, and if we do acquire something, it’s going to be for the reason that it fits into a much larger broader strategy and something where we see long-term value creation by owning it. I also think we’re not necessarily looking to take big bites right away. I think this is something we’re going to look to develop over time in a prudent manner and sort of build more and then maybe buy where it makes sense. I don’t think you’ll see us go out and make a splash by using Las Vegas sale proceeds in any large transformational acquisition unless there’s some compelling reason why we have to do it. But that’s not our focus. Our focus is to build the product, get the culture right, get the opportunity right, and then make acquisitions as they fit in with the overall strategy.

Shaun Kelley, Analyst

Thank you very much.

Operator, Operator

Your next question is from Thomas Allen from Morgan Stanley. Your line is open.

Thomas Allen, Analyst

Yeah. Patrick, just a follow-up to that question. Respect that you’re not going to do a transformational deal, but how are you thinking about the size of the deal, like, are you thinking of being kind of an incubator for startups or are you thinking of like hundreds of millions, low billions, how are you thinking about the sizes?

Patrick Dumont, COO

It’s a pretty broad range. I’ll tell you that our goal is really, I don’t know that we provide a lot of value at the angel stage. We might be able to help some people, but I am not really sure that’s where we provide the most value. I think from our standpoint, if we can get kind of earlier-stage and mid-stage, but again fitting into a larger strategy, that’s where we’ll look to be really effective. I think things that are much larger that would be transformational in the $1 billion range, we would have to have a really good reason to do it, and I think we would want to be operating for a while to understand why that would make sense for us. But I don’t think we’re going to buy our way into a business. I think we’re going to develop our way into a business and look to see how acquisitions help enhance that approach.

Thomas Allen, Analyst

Helpful color. That makes sense. And then just on Macao and Singapore, respecting that the majority of your business and the majority of your future is really around the mass market. VIP came in really light. Only $600 million of rolling chip volumes in Singapore stood out. Just can you talk about what’s going on there and your expectations?

Rob Goldstein, CEO

Well, I think you’re saying, you’re looking at Singapore as opposed to Macao, you said right, Thomas? I think…

Thomas Allen, Analyst

I think Macao was down quarter-over-quarter too, Rob, so like, I mean, Singapore was what really stood out, but just talk about VIP in general and kind of your expectations there?

Rob Goldstein, CEO

Currently, VIP is limited to local markets, primarily serving residents of Singapore, including those who have relocated there during the pandemic. While some additional activity may come from individuals staying in Singapore temporarily, it's challenging to draw significant conclusions about future performance based on current numbers. The slot business has exceeded expectations, which is surprising given its historical performance. Many individuals are unable to leave Singapore, particularly at the high end. Consequently, making future predictions is complicated. These trends appear to be anomalies that will persist until air travel returns to normal. Thus, it is difficult to analyze Singapore's current results and predict a clear direction, especially considering that initial confusion around slot performance has now revealed that many travelers remaining in Singapore are gambling. This situation likely applies to high-end Chinese nationals as well. Therefore, we should be cautious about inferring long-term trends from the current situation in Singapore.

Patrick Dumont, COO

One additional point that may be useful is our perspective on the importance of investment in our product. Throughout the pandemic, we dedicated significant time and resources to enhancing our offerings. This positions us better for recovery, as we will have improved capacity and a more competitive product. The industry is driven by our products, and our focus on long-term growth is reflected in the investments we made during this period. Instead of focusing on current rolling volumes, it's essential to recognize our successful capital deployment that has resulted in higher quality products and customer experiences, ultimately strengthening our position moving forward. This is the mindset we are adopting.

Thomas Allen, Analyst

Helpful. Thank you.

Operator, Operator

Your next question is from Steve Wieczynski from Stifel. Your line is open.

Steve Wieczynski, Analyst

Good afternoon, everyone. I’d like to direct this question to Wilfred. For many Americans and investors we engage with, it’s challenging to grasp the current status of China's vaccination efforts. While case counts appear to be improving, China still seems to be facing challenges. Is the issue related to the availability of vaccines, the effectiveness of the vaccines in use, or is there something else at play? I’m looking for more clarity on this situation.

Rob Goldstein, CEO

Well, thank you for the question. Actually, China is not lacking in vaccines. Actually, they export quite a lot of vaccines. But the truth, if you look at the statistics, China today has already administered 1.5 billion doses of the vaccine. Now, that really means that over 50%, 60% of the population has been vaccinated, and if you assume everyone has two doses, then that represents 53%. And they are still vaccinating at over 10 million doses a day. So what it means is every 25 days, they can increase that vaccination rate by 10%. Now that is also true for Hong Kong and Macao. Hong Kong already administered 5 million doses and its vaccination rate is already over 40%. Macao administered 460,000 doses. That’s also over 40% of the population. So we’re quite confident that if China continues at that rate, and with the increase of vaccination rate by about 10% per 25 days, when you come to winter, almost the whole population like 90%, 80%, would be vaccinated. Now I think once we reach that level, that travel bubble within China, including Hong Kong and Macao is really possible. Now what you have seen in the news is that because China adopts a non-tolerance policy towards COVID, so whenever there’s some outbreak in certain areas in the country, it’s widely reported, and they immediately go back to lockdown. And that’s why I think the best scenario in the short-term is a travel bubble between China, Hong Kong, and Macao, because they are so concerned about the importation of COVID cases, especially with the variant cases.

Steve Wieczynski, Analyst

That’s great color. Appreciate it. Thanks, guys.

Operator, Operator

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

David Katz, Analyst

Hi, good afternoon. Thank you for taking my question. You've addressed many topics. I'm interested in a broader question regarding what LVS might look like in three to five years. What is your vision for the company during that timeframe? I'd love to hear your thoughts on this.

Rob Goldstein, CEO

Well, it’s pretty simple from our perspective. I mean, first and foremost, we return to $5 billion or $6 billion EBITDA in our Macao and Singapore markets. We see a renewed investment in both Macao and Singapore to grow that from $5 billion to $6 billion and beyond. We still see one or two land-based facilities in the United States, maybe Florida and Texas, and lastly, we have a strong regional presence. And reflecting our balance sheet, we have the ability to do all these things. I think we’re convinced in Asia that the most important thing in this company is the timing is uncertain of a return to a more normal environment in Asia, but the outcome is not uncertain, it’s going to happen. And I think it reflects what happened here in Las Vegas, which is people flock to these casinos, will make more money than pre-COVID, and our business will boom again. And I think you are asking clearly about timing, but not about the outcome. And also, we’re not going to invest heavily in both those places because that’s our best path to $6 billion, $7 billion, $8 billion EBITDA. We have been very clear in both Texas and Florida and perhaps other larger jurisdictions in the U.S. We have the balance sheet and the optionality to pursue those, and as Pat just outlined, we are very involved in the digital strategy. It’s pretty slow to get there. But I think three years to five years from now, you’ll see a real positive outcome. And that’s where we think we end up. We feel pretty confident. We’ve been derailed the last 18 months by this horrific virus, this pandemic. But I think it’s clear we’re heading, to me it’s very obvious that we’re going to be patient and stay the course, and I think we’re doing that. We have ample liquidity to do anything we want to do anywhere on a large scale. So that would be my thought three years to five years from now. Patrick, just go ahead.

Patrick Dumont, COO

I couldn’t agree with you more, and I think that the great thing about it is we have a lot of opportunity in front of us, right? I can’t tell you which one of these options will hopefully all become available, but probably. And the great thing is that we’ve just invested $2.2 billion in Macao. We feel very strongly about the market and the potential to invest more post-concession renewal. We feel very strongly about the expansion in Singapore and our long-term commitment. Singapore is a very unique tourist destination and a high quality of earnings potential that we’ll get from Singapore. And then looking to the U.S., these are just great locations. And looking at the digital opportunity, we feel really strongly about the returns and the potential growth that’s in this area. So from a company standpoint, five years from now, we could be looking like a very different company in terms of our scale. And to Rob’s point earlier, I think our balance sheet and the capability that the liquidity from the sale of Las Vegas presents allows us to pursue all these opportunities. So we’re very bullish about it.

David Katz, Analyst

I would like to follow up on the digital strategy. Is the idea to integrate it with the company as it currently stands and keep the same branding, or is it leaning more towards being a separate entity, or could it still be either option at this stage? Thank you.

Patrick Dumont, COO

Rob, if you’re okay, I’ll grab that one.

Rob Goldstein, CEO

Yeah. Please do.

Patrick Dumont, COO

So I think the key thing to note is we have a very skilled team and a great platform. We have a very strong corporate culture. We have just the ability to execute on a variety of different things, and I think we have the capital to have patience and invest for the long term. And so I think this is going to be a business that will require separate people, separate infrastructure, and be distinct. That being said, it will benefit from being part of our larger organization. So much like Singapore and Macao are part of a global team, they have things that are specific to them that they have to deal with, and so will this business. But it will benefit from being part of the larger organization.

David Katz, Analyst

Thank you very much. Appreciate it.

Rob Goldstein, CEO

Thank you, David, as always. Dan?

Operator, Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.

Rob Goldstein, CEO

Thank you.