Earnings Call Transcript - LVS Q1 2021

Operator, Operator

Good afternoon. My name is Katrina, and I will be your conference operator today. I would like to welcome everyone to the Las Vegas Sands First Quarter 2021 Earnings Conference Call. I will now turn the call over to Mr. Daniel Briggs.

Daniel Briggs, Executive Vice President

Thank you, Katrina. 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 are Dr. Wilfred Wong, President of Sands China; and Grant Chung, Chief Operating Officer of Sands China. Before I turn the call over to Rob, I want to remind you that today's conference call will include forward-looking statements made under the safe harbor provision of federal securities laws. The company's actual results may differ significantly from the anticipated results in those statements. Additionally, we may discuss non-GAAP measures. A definition and reconciliation of each of these measures to the most comparable GAAP financial measures is included in the press release. We have also posted supplementary earnings slides on our Investor Relations website, which we will reference during the Q&A segment of the call. Please note that this presentation is being recorded. With that, I will turn the call over to Rob.

Robert Goldstein, CEO

Thanks, Dan, and good afternoon, and a very early good morning to our colleagues in Asia. Some brief comments then we'll move to Q&A. Our results reflect the pandemic's impact. We generated $244 million of EBITDA for the quarter. We continue to have a strong belief in the Macao recovery because the March numbers were very different from those in January and February, and the recent visitation numbers for April reflect continued acceleration. Obviously, we cannot predict the timing of the full recovery, but it's underway, and we will continue in 2021. At this time, Singapore is in the $500 million to $600 million range of annual EBITDA. There is no visibility as to when air traffic will return to Singapore. Unlike Macao, it's more difficult to project additional EBITDA from Marina Bay Sands until the resumption of significant air travel. Our investments in Macao continue to take shape as the market recovers; Four Seasons and Londoner will present large growth opportunities for us, and we continue to have the largest structure in this incredible market of Macao. China continues to demonstrate economic resilience. The spending in Macao is very strong at the premium mass level from both gaming and retail perspectives. But again, we have no reservations about our ability to perform at pre-pandemic levels once visitation returns. Our company today is sort of divided into three different areas: The Asia portfolio, Macao and Singapore. While we believe Macao will accelerate this year and lead the recovery, Singapore will follow upon the resumption of air travel and participate in the recovery as well, and we anticipate a return to a $5 billion-plus EBITDA from Asia in the future. The sale of our Las Vegas assets enables us to explore large-scale land-based destination works in both the United States and Asia. We are eager to establish a material digital presence in the future. We are exploring multiple opportunities at the present time. This is a departure from our historical approach, and we will update you at the appropriate time. So let’s go to Q&A and have the first caller, please.

Operator, Operator

First question, we have Carlo Santarelli from Deutsche Bank.

Carlo Santarelli, Analyst

Rob, I appreciate there's probably some sensitivity around it. But in your prepared remarks, you talked about some of the Asia opportunities. Clearly, upon the completion of the Las Vegas sale, which came at a very nice multiple for you guys, and I'm sure you're expecting nice proceeds coming out of it. How do you think about the use of those proceeds in light of some of the opportunities? You're obviously eyeing some in Asia relative to the return of a dividend, potential for buybacks longer term, potentially owning more in China, all of the above? How do you prioritize that pecking order while acknowledging you could pursue several of those things given the balance sheet's position?

Robert Goldstein, CEO

Sure. We’re looking at a great opportunity for returns. We continue to believe there will be something happening in Macao at some point in the future that will enable us to reinvest in Macao on a non-gaming basis. We're hopeful that will happen sooner than later. Our project in Singapore, our phase 2 project, is still ongoing. We continue to look at other large-scale Asian opportunities, and of course we think in the U.S., there may be some opportunities for us here as well. Lastly, digital. We evaluate everything individually, look at the returns, but our priority remains getting back on our feet in Asia and maintaining a $5-plus billion EBITDA, as that’s the backbone of our company. That’s what we’ll start with. If something opportunistic opens up in the U.S. or if something opens up digitally, we are working diligently to figure out how to deploy capital intelligently to achieve a return. There will be some nice opportunities in the future. As for the dividend, I’d like Patrick to address that issue.

Patrick Dumont, CFO

Thanks, Rob. We look very cautiously at the way we deploy capital and are very patient, looking to maximize returns for our shareholders. So when we think about the dividend, it was and hopefully will be, really the cornerstone of our return of capital program. Where we are today is that we’re looking for operations to return to baseline levels, get a sense of where operations are trending, and then we’ll assess that with the Board and management regarding our long-term potential for the dividend, considering our ability to reinvest and allocate capital to other higher-growth projects. It’s consistent with what you’ve heard us say before on these calls, and nothing has changed from that perspective.

Carlo Santarelli, Analyst

Great, guys. If I could, whoever wants to take this question, it’s more opinion-based. There is some concern in the investment community around the status of VIP in Macao and its direction going forward. There’s a perception that it could impact the premium mass segment. One could argue that VIP customers, who have a harder time accessing capital, might move to the premium mass segment, which wouldn't be the worst outcome. What's your view on this from your folks in Macao?

Robert Goldstein, CEO

I have a very strong view, but since I woke up Grant at 4:30 this morning, why don’t Grant take that call?

Grant Chung, COO of Sands China

Yes, thanks, Rob. On the question of VIP vs. premium mass, the segments have diverged in terms of recovery. Premium mass has made a significant recovery, already approaching 50% of pre-pandemic levels, while VIP is struggling at around 20% or sub-20%. We would expect these divergent trajectories to continue for the foreseeable future. Regarding spillover or migration, I don’t think those dynamics have changed. There is a structural shift where more new customers are dealing directly with casino operators. The great integrated resort assets that operators have built have attracted more consumers to our premium mass program, and we expect that trend to continue as non-gaming lifestyle assets attract more guests to join our programs.

Operator, Operator

Next question, we have Joe Greff from JPMorgan.

Joseph Greff, Analyst

When looking at your advanced bookings for the Golden Week holiday in Macao, do these bookings suggest or imply a further acceleration in visitation, or might the mix quality be tough on spend or GGR relative to April and March? Is there anything indicating that Macao patrons are anticipating any further easing of travel restrictions?

Robert Goldstein, CEO

I can't share our specific bookings for Golden Week, but I think January and February showed a solid recovery. Both visitation and revenue are growing, and we remain convinced Macao is in recovery mode already. We believe we are seeing gradual growth, rather than an immediate inflection point. The easing of restrictions is evident, and people are arriving, as shown by the numbers coming out of April. This gradual growth will continue unless there are any new virus cases. Grant, can you provide any further insight?

Grant Chung, COO of Sands China

Yes. What Rob said is absolutely correct. The recovery really started in March with meaningful rebounds in visitation. As you’ve seen from figures released by MGTO, this momentum has continued into April, with visitation reaching post-pandemic highs. We’re seeing broad-based recovery across premium mass, mass, and leisure guests as well as retail at the high-end. We've even noticed a return of MICE segment activity in March, with encouraging bookings for Q2.

Robert Goldstein, CEO

I'm not overly concerned if May numbers don't drastically improve. It’s a slow yet steady ascent. Las Vegas seems busy approaching pre-pandemic levels, and I believe Macao will similarly follow suit. While Las Vegas is ahead in group business recovery, I think China and Macao will continue progressing positively. I envision a gradual recovery in the latter half of the year.

Joseph Greff, Analyst

Just to follow up for everyone on the call, what’s your timing or process for the concession renewals? If the government was considering renewing or extending a year before the current ones expire, would they be having discussions with you already?

Robert Goldstein, CEO

We don’t want to speculate. We’re not privy to government insights. But as we’ve stated previously, we remain confident in our position; our $15 billion investment in Cotai and the non-gaming assets we’ve built are important. Renewals will happen. We’re very confident in our standing.

Wilfred Wong, President of Sands China

All six concessionaires are eagerly waiting for the government to announce their intentions as we approach the expiration. We stand ready to cooperate with the government when the timeline is revealed.

Operator, Operator

Next question, we have Stephen Grambling from Goldman Sachs.

Stephen Grambling, Analyst

As a follow-up to Carlo’s question on Las Vegas proceeds, where would raising your ownership in Sands China factor into that list? Could you remind us of any process or limitations on that?

Robert Goldstein, CEO

Sure. Pat, do you want to tackle that?

Patrick Dumont, CFO

We feel very strongly about the long-term future of Macao as a leading leisure and tourism destination. We’re interested in investing more there, particularly in non-gaming segments. However, we still don’t have the proceeds yet and are considering all options. Ultimately, our focus will be on maximizing returns, so raising ownership in Sands China is something we will consider.

Stephen Grambling, Analyst

Just to clarify, is there a maximum ownership percentage that you can acquire in Sands China?

Patrick Dumont, CFO

Technically, they want to maintain 25% of the float outstanding for the exchange, but there are exceptions.

Stephen Grambling, Analyst

Got it.

Patrick Dumont, CFO

Grant, do you confirm that?

Grant Chung, COO of Sands China

Yes, that’s correct.

Stephen Grambling, Analyst

That’s helpful. As we consider the model going forward, is the quarterly corporate expenses run rate appropriate, or might there be future adjustments after the sale?

Patrick Dumont, CFO

Corporate expenses will adjust after the sale. We will continue to maintain a corporate office that manages the activities of the entire enterprise. No noise in the current numbers, but expect changes going forward post-sale.

Operator, Operator

Next question, we have Thomas Allen from Morgan Stanley.

Thomas Allen, Analyst

On Marina Bay Sands, the property’s performance improved quarter-over-quarter, despite the lack of Chinese visitors. What are some of the drivers?

Robert Goldstein, CEO

Our slot business has been exceptional; we haven't seen this type of performance in the slot floor before. The market is adapting well to our offerings. However, the high-end table business is still lagging without foreign visitation, which impacts our premium mass segment. Unlike Macao, I believe Singapore will see gradual improvements through summer and fall.

Patrick Dumont, CFO

While pandemic-related restrictions have eased, there’s also a general uptick in activity as things slowly return to normal as public health initiatives progress. This has benefited us.

Thomas Allen, Analyst

That makes total sense. As a follow-up, it seems like you’re getting serious about your digital strategy. Can you elaborate on that?

Robert Goldstein, CEO

Our digital strategy is in early stages. We are assessing many opportunities and our appetite is strong. The market is still developing, and we’re considering various aspects, not just sports or gaming, but digital overall. We're not ready to disclose details, but we will update you on our plans in 2021 and 2022.

Operator, Operator

Next question, we have Shaun Kelley from Bank of America.

Shaun Kelley, Analyst

Going back to possible reinvestments in Asia, there has been some media discussion around potential investments in the broader Greater Bay area being criteria for the concession process. Would LVS consider investing in non-gaming in that broader region?

Robert Goldstein, CEO

Positively. We are committed to Macao's rebound, and if the government engages us in investment opportunities in the region, we're open to it. We have the capital and appetite for more investment in Macao, and we expect growth there despite distractions.

Shaun Kelley, Analyst

As a follow-up, what are your thoughts on Hong Kong's potential reopening, given the positive case counts?

Wilfred Wong, President of Sands China

It’s encouraging that case counts have dropped significantly. The governments of Hong Kong and Macao are considering opening borders if zero cases continue for 14 days. The Hong Kong government is working diligently towards this outcome, which would greatly benefit our business.

Operator, Operator

Next question, we have Chad Beynon from Macquarie.

Chad Beynon, Analyst

I know it's early on the Londoner opening of phase 1, but can you discuss the makeup of the customer mix between Londoner and Venetian? Are there significant demographic differences, and how are comps being handled?

Robert Goldstein, CEO

Yes, on Londoner, we opened the first product in Four Seasons, which has received excellent feedback. It primarily targets the premium mass segment and long-stay leisure guests. As for the Londoner, the north side is now open, while the south side is still under construction. Thus, we're emphasizing premium mass and leisure guests. We're looking forward to strengthening our offerings throughout the year with upcoming openings.

Chad Beynon, Analyst

Regarding your retail mall in Asia, you've noted a decrease in rental concessions sequentially. Should we expect significant changes moving forward in terms of the turnover versus base rent structure, or for profits to mirror pre-pandemic levels?

Robert Goldstein, CEO

We absolutely expect our retail profits to recover strongly, mirroring pre-pandemic levels. Affluent individuals are driving impressive numbers from luxury spending. We want to see rent corrections followed by a return to mass traffic, which we believe is achievable. Singapore will likely lag behind, but Macao should return to pre-pandemic performance quickly.

Operator, Operator

Next question, we have Robin Farley from UBS.

Robin Farley, Analyst

Several of my questions have been answered. However, I am curious about your online strategy. Given the competitive landscape, do you foresee your strategy leaning more towards M&A rather than building from scratch?

Robert Goldstein, CEO

We can pursue both M&A and organic growth; we're still evaluating all options. While there is a lot happening in the online space, we want to be strategic. We're approaching this carefully, mindful of how this integrates with our existing business. Our appetite for digital is strong, and we believe it will be lucrative, but it’s essential to be thoughtful in our approach.

Operator, Operator

Next question, we have Steve Wieczynski from Stifel.

Steve Wieczynski, Analyst

Could you provide updates on vaccination progress in your key feeder markets like Macao, Hong Kong, and Guangdong?

Wilfred Wong, President of Sands China

China has started its vaccination program, but there is no urgency due to low case numbers. Macao has seen no incidents for over 380 days, which contributes to a wait-and-see attitude among its residents regarding vaccinations. However, awareness of the importance of vaccinations is slowly increasing, particularly for those looking to travel internationally.

Steve Wieczynski, Analyst

I have heard some rumors about Macao considering a move to a digital currency to combat money laundering. Do you have thoughts about this and its potential impacts?

Robert Goldstein, CEO

I am not concerned. We believe a digital currency offers additional liquidity. It's not aimed at disrupting existing currencies but rather providing more options. Our business model isn’t directly linked to anti-money laundering efforts, and we focus predominantly on mass and premium mass clientele. We see more avenues to generate business, and a digital currency could be beneficial as it further integrates us into China and broadens our consumer base.

Grant Chung, COO of Sands China

The topic is complex, but it's about China's broader digital currency strategy, which Macao will adapt to ensure compliance. This is still early in the process, focusing on legislation adjustments.

Robert Goldstein, CEO

The perception that digital currency implementation would be negative is misplaced. We treat it as an additional form of currency and are optimistic about its effects on business. Our priority remains attracting mass and premium mass visitors, ensuring ongoing growth in our operations.

Operator, Operator

Our last question is from David Katz from Jefferies.

David Katz, Analyst

Rob, you mentioned a voracious appetite for digital. What insights do you have that indicate your customer base, particularly in the U.S., is prepared for this?

Robert Goldstein, CEO

Our digital strategy shows that we are enthusiastic about the market’s potential. We're assessing the best approach, whether organic growth or M&A. The U.S. is a viable market, but we are also exploring opportunities globally. With our recent Las Vegas sale, we have increased capital to explore these areas. We will approach this with strategic intent and ensure we’re well-prepared when we enter.

Operator, Operator

Everyone, that’s all the time we have for today. Thank you all for participating. You may now disconnect. Have a great day.