Earnings Call Transcript - LVS Q4 2020

Operator, Operator

Good afternoon. My name is Katrina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands Fourth Quarter 2020 Earnings Conference Call. I will now turn the call over to Mr. Daniel Briggs.

Daniel Briggs, Chairman

Thank you. Joining on the call today are Rob Goldstein, our Chairman and Chief Executive Officer; and Patrick Dumont, our President and Chief Operating Officer. Also joining on the call 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 are making under the safe harbor provision of federal securities laws. The company’s actual results could differ materially from the anticipated results in these forward-looking statements. In addition, 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. Please note that we have posted supplementary earnings slides on our Investor Relations website. We may refer to those slides during the Q&A portion of the call. 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. Good afternoon, everyone, and thank you for joining us today. The last two weeks have been the most difficult in our company’s history as we mourn the loss of our Founder, Sheldon Adelson. Sheldon, as you know, was a visionary. He led the transformation of not one but three integrated resort markets: Las Vegas, Macao, and Singapore. He offered the MICE-based Integrated Resort model in Las Vegas. He pioneered the development of the Cotai Strip in Macao and reimagined the skyline of Singapore to the iconic Marina Bay Sands. His audacity to challenge the status quo transformed the entire market. In Las Vegas, Sheldon originated the convention-based Integrated Resort model when no one, and I mean no one, believed in its viability or sustainability. Today, Las Vegas conventions are synonymous with success. In the Macao community, it’s not easy to forget how Sheldon’s vision for Cotai defied the consensus thinking at that time. Every element of Venetian Macao was questioned by skeptics, and I mean every element. A 3,000 room all-suite hotel when the overnight tourist market almost didn’t exist and existing hotel inventory was very limited. The Grand Canal Shoppes with over 300 retail stores in a market that had virtually no retail, a 15,000-seat arena, and a 1.2 million square foot convention center. He dreamt big, but he also delivered, developing a critical mass of world-class integrated resorts at record speed. Before others had even dared to dream, he completed the Venetian Macao in 2007 and was the fifth year of our company’s 20-year concession. His determination in pushing forward diversification and investment in non-gaming in Macao was unwavering and breathtaking to witness. Our total investment today exceeds US$15 billion. We know that Sheldon was a big believer in a strong, healthy, and cordial U.S.-China relationship. He believed it was to the benefit of both countries to maintain a bilateral relationship based on mutual respect. The company, the Board, and the family are absolutely committed to continuing Sheldon’s efforts in this regard. Sheldon is irreplaceable as the visionary founder of our unmatched portfolio of integrated resort assets, and the management team he assembled will continue to operate and expand the business in the future. The DNA of the company that Sheldon founded will remain ever-present. The company, with the full and wholehearted support of the Board and the family, will continue to honor Sheldon’s vision to protect and enhance his legacy. We look forward to the future with a lot of confidence and optimism. While the pandemic continues to impact our business adversely, we achieved positive EBITDA in both Macao and Singapore in the fourth quarter, and there’s no doubt in my mind that our business will return to pre-COVID levels in the future. In Macao, the Grand Suite Four Seasons is now open, and the first phase of Londoner Macao will officially open in February. We are very excited about the progressive unveiling of the Londoner Macao throughout 2021. Sands China is well-positioned to capture a rebound in tourism when the pandemic finally subsides. We’ve always believed there’s no better market for our company to invest in than Macao. We will continue to invest in our resort products, nurture our local talent, and, of course, support the local community, which we are grateful for. In Singapore, we remain very committed to long-term investment in Marina Bay Sands, including both the upgrading of our existing facilities and the expansion of that property. On a personal note, I’ve spent more than two decades with Sheldon and had the fun and pleasure of working for and with him. He was a great mentor and a great friend. His generosity and decency are reflected in the decision to continue to pay our team members even after the pandemic dramatically impacted our business. He was adamant that team members continue to receive pay and health benefits, even while we were closing our buildings and it was abundantly clear that our business would be hampered for quite some time. Since his passing, we have received condolences from around the world: from global leaders, elected officials, business partners, investors, customers, and many of you joining us on the call today. We are touched by the outpouring of support, and we really appreciate that. I am honored to have been invited by the board of Las Vegas Sands and Sands China to become the Chairman and CEO of both companies. With the support of the board and the family, I will work hard to fulfill Sheldon’s extraordinary vision. I am confident that, as Sheldon was in 1995, this company will go from strength to strength in the future. For one final thought before we turn to questions, I look forward to the day we can say we are ready to yield dividends.

Operator, Operator

First question, sir, we have Joe Greff from JPMorgan. Your line is open.

Joe Greff, Analyst

Good afternoon, everybody. Before asking questions, I just want to offer my condolences to all of you as well as the passing of Sheldon. Rob and Patrick, you were obviously particularly close. So it’s a big loss and he truly was one of a kind. So my condolences.

Rob Goldstein, CEO

Thanks, Joe. We appreciate that. Thank you.

Joe Greff, Analyst

So my question and my follow-up focus on Macao. When we look back at what’s transpired with tourist investments from Mainland China into Macao, it’s obviously been slower than what we all anticipated, though it has shown some progress. Other than the government having this intentional gradual easing of visas and the global pandemic, are there any other policy issues weighing in on visitation? When you talk to folks in China, what specifically are they looking at or metrics to see a further easing of tourist visas?

Rob Goldstein, CEO

We’re fortunate to have both Wilfred and Grant on the call. I’m going to ask them to address that question, Joe. Gentlemen?

Wilfred Wong, President of Sands China

Yes. Grant, you want to talk first?

Grant Chum, COO of Sands China

Yes. Good afternoon, everyone. Yes. Joe, I think following the resumption of visa issuance from late September, business volumes clearly rebounded during the fourth quarter. The recovery was led primarily by premium mass and luxury retail. Both segments showed good momentum throughout the quarter. In December, we had a very encouraging month, especially during the holiday season. We reached over 50% hotel occupancy during the month, and on peak days, we achieved 8,500 to 9,000 room nights, which we hadn’t done since January. If you look at the pace of recovery in retail, luxury retail sales really took off during the quarter, with Four Seasons’ retail mall sales up 16% over the prior year, marking the best month ever for tenant sales at the Four Seasons mall. The challenge is that visitation has remained subdued, with Macao only having 20% of the prior year’s visitations during the fourth quarter. It’s a challenge regarding policy in that, during that time, there were outbreaks and local cases in various provinces and cities in China. October and November saw relatively muted cases, but from around the third week of December, domestic cases started to rise in Northern China, resulting in districts and cities being classified as medium to high risk, which immediately impacts visitation and forward bookings. As of mid-December, we were seeing positive momentum in forward bookings for January and into Chinese New Year, but that has since moderated.

Joe Greff, Analyst

That’s helpful. And just a follow-up regarding Macao policy, do you think either Macao or the Central Government in Beijing want Mainland Chinese companies to get involved with Macao casinos? Is this something that’s a priority for the government? Have there been any discussions along these lines?

Rob Goldstein, CEO

Wilfred, Grant, or Patrick, do you want to jump on that?

Wilfred Wong, President of Sands China

Yes. We have not been told of anything at this stage. Consideration is now being given to what the conditions should be for the new concession. As far as we know, we have not been consulted on whether Chinese companies should participate. However, Chinese companies are likely to take part in gambling which is not legal in China. Previously, there were suggestions about state-owned enterprises getting involved, but I don’t think this is in line with current policy considerations. The idea of private Chinese companies participating in Macao and under what circumstances remains unclear.

Rob Goldstein, CEO

Joe, can I just jump on Wilfred’s very thoughtful comments? We’ve been going to Beijing for around 20 years in Macao, having endless meetings. I've never had a conversation with anyone who mattered that suggested that to me. In fact, they often chuckle at the notion. The reality is the focus should always be on investing heavily in non-gaming activities and supporting employees, which has been our direction for years. You won't hear anyone say you need to sell equity to Chinese companies. What we do now is a strong affirmation of those principles.

Joe Greff, Analyst

Great. Thank you, guys.

Operator, Operator

Next question, we have Carlo Santarelli from Deutsche Bank. Your line is open.

Carlo Santarelli, Analyst

Hey, guys. Thank you for taking my question, and I echo Joe’s sentiments about the recent loss.

Rob Goldstein, CEO

Thank you for your kind words to us. We appreciate what you said. It was very kind and thoughtful. Really appreciate it.

Carlo Santarelli, Analyst

To the best of your understanding, how should we expect the concession renewal process to move forward? What is the anticipated timeline for announcements related to this process?

Rob Goldstein, CEO

I’m going to turn back to the fellows in Macao. I think they’re best suited to answer your query. Wilfred, Grant, help us.

Wilfred Wong, President of Sands China

Yes. We are eagerly waiting for the government’s direction because, as you all know, we only have about 17 months left before the concession expires. We know that the government is adopting a process that includes public consultation around concession performance and targets regarding diversification. Amendments to legislation have to be introduced into the legislative council, and then the bidding process begins. It’s a tight timetable we’re facing, and it’s unclear when this will begin because the government is focused on the fight against the pandemic. They will put all their energy into that to ensure visitors can continue to come. So, the short answer is we don’t know.

Carlo Santarelli, Analyst

Thank you very much. That’s very helpful. And then for a follow-up. You mentioned potentially being open to offers for the Las Vegas asset last quarter. Does that influence the timing of the return of the dividend, or is it more about when Macau and Marina Bay Sands are back to doing what they do?

Patrick Dumont, President

Hi. It’s Patrick. A couple of points. We hold a very positive view of Las Vegas; it’s an irreplaceable tourist destination. There’s a huge amount of investment going into Las Vegas, and we think there’s significant pent-up demand. The restrictions now are based on capacity constraints set by the government. On weekends, we’re doing quite well and nearly reaching 2019 slot levels. We’re optimistic about the outlook for Las Vegas. That said, if the sale process is completed, it’s independent of the dividend. We need to see a return to operations and understand the cash flow trajectory of the business. You’ve heard Grant mention the completion of the Londoner milestones. That’s an outstanding product, and we believe it will generate significant cash flow in the future. So, we’ll approach the dividend by evaluating our cash flow trajectory and then decide when and how to restart it. We remain very focused on returning our capital.

Rob Goldstein, CEO

Carlos, I want to add to Patrick's thoughts. There’s a lot of commentary reading about how Las Vegas will never return to pre-pandemic levels. I've heard it all before, and while Las Vegas is struggling now, you can't deny there will be a recovery. Demand for conventions in 2022 to 2027 is incredibly strong. Our customers want to come, and we remain very optimistic about the return of Las Vegas. It may take longer than we want it to, but please don’t believe notions that the pandemic will harm Las Vegas in any long-term way. The demand is there, and the offerings of this unique town are going to attract visitors again.

Carlo Santarelli, Analyst

I understand, and I appreciate that perspective. Thank you.

Operator, Operator

Next question, we have Thomas Allen from Morgan Stanley. Your line is open.

Thomas Allen, Analyst

Hello, and let me also send my condolences to you and the entire Las Vegas Sands family. Mr. Adelson was a true visionary, and his successes will never be forgotten.

Rob Goldstein, CEO

Thank you for your comments. We appreciate it.

Thomas Allen, Analyst

There have been reports regarding your interest in online gaming opportunities. Can you discuss your strategy in a bit more detail?

Rob Goldstein, CEO

Sure. We’re exploring a multitude of opportunities in both regional and U.S. markets. The space has changed significantly, and we’re learning what might be out there without any solid commitments yet. Sheldon had an outsized ethical concern about people who could not afford gambling or who were too young to engage in it responsibly, and he always stressed the importance of ensuring that the market was policed properly. We are going to explore this space thoroughly before committing to anything concrete, and we will keep you updated if something materializes.

Thomas Allen, Analyst

Thanks, Rob. On U.S. developments, there has been discussion about potential opportunities in New York and Texas. Can you describe the likelihood of entering these markets and how you envision being positioned there?

Rob Goldstein, CEO

We’ve been looking at New York for quite some time. We believe in its potential due to its dense population and diversity. The recent proposals in New York excite us. Texas is another strong market; we’re investigating that closely. We’re focused on the potential returns there and our ability to create strong offerings in these markets.

Thomas Allen, Analyst

Thanks for the insights.

Operator, Operator

Next question, we have Robin Farley from UBS. Your line is open.

Robin Farley, Analyst

Thanks very much. Also, condolences for the loss of Sheldon. On the topic of selling your Las Vegas assets, how much of a priority is that? Is it more of a response to incoming interest rather than something you're actively pursuing?

Rob Goldstein, CEO

Patrick?

Patrick Dumont, President

From our viewpoint, we are always looking to maximize shareholder returns. If there’s an opportunity to do that through asset transactions, we’ll consider it. We evaluate our portfolio regularly, and we are currently focused on maximizing our returns across our projects and markets.

Robin Farley, Analyst

What kind of appetite are you seeing for your assets?

Patrick Dumont, President

The appetite varies based on market conditions, but we're continuously assessing new growth opportunities through our existing portfolio. It is essential during this time to maintain liquidity, and we are planning for the long term as the pandemic resolves. Hence, we seek to make pricing optimal across our asset portfolio.

Rob Goldstein, CEO

Just to emphasize, we have a robust balance sheet and anticipate significant investments in Macau once conditions stabilize. As demand returns, the government may require licensees to reinvest in the region, which we are eager to do. Our commitment to both Macau and Singapore remains strong.

Robin Farley, Analyst

Thank you very much.

Operator, Operator

Next question, we have Stephen Grambling from Goldman Sachs. Your line is open.

Stephen Grambling, Analyst

Thanks for the question and condolences again. My first question is on Singapore as it continues to show remarkable resilience. What are you learning from this performance about serving the domestic crowd that might inform your renovation plans?

Rob Goldstein, CEO

Firstly, Singapore is performing well, and although the slot business hasn't fully returned to pre-pandemic levels, we see a solid local market. The presence of wealthy residents provides significant support. However, foreign visitation is crucial, and we believe that while local revenues are stable, the lack of tourists limits growth. We’re indeed planning significant reinvestments in Singapore as we believe in the market's long-term potential.

Stephen Grambling, Analyst

And could we get your thoughts on digital and i-gaming? What do you think differentiates your approach compared to existing players?

Rob Goldstein, CEO

I have strong thoughts about it, but I’d prefer to hold off on discussing specifics until we’re more advanced in our explorations. Digital gaming is intriguing; we are assessing its potential viability for growth.

Stephen Grambling, Analyst

Sounds great. Thanks so much.

Operator, Operator

Next question, we have Shaun Kelley of Bank of America. Your line is open.

Shaun Kelley, Analyst

Hi. Good afternoon, everyone. I also want to offer my condolences to you, Rob, Patrick, to the whole Adelson and Las Vegas Sands families.

Rob Goldstein, CEO

Thank you, Shaun. We appreciate it.

Shaun Kelley, Analyst

If we could return to the topic of Macao for a moment, what insights can you provide regarding the vaccination programs and their potential impact on reopening the market?

Rob Goldstein, CEO

Grant, are you still awake?

Grant Chum, COO of Sands China

Yes. Shaun, in China, the domestic economy has been recovering strongly. This recovery occurred despite the absence of widespread vaccination. However, local governments, including in Hong Kong and Macao, are striving to procure vaccines, which will commence soon. The central government's strategy largely focuses on keeping local cases to zero and resuming travel under those conditions, which will be critical for Macao's recovery.

Shaun Kelley, Analyst

Thank you for that perspective and insight. I appreciate it.

Operator, Operator

For the last question, we have David Katz from Jefferies. Your line is open.

David Katz, Analyst

Hi. My condolences as well. The best part of this job is always the extraordinary people we meet, and he was certainly a treasure.

Rob Goldstein, CEO

That’s so true. People talk about everything else, but he loved a laugh and had great humor. What’s your question, David? Thank you for your comments.

David Katz, Analyst

In one of the slides in your deck, you mentioned that some of the rolling volume that has gone away has been recaptured within the premium mass segment. Are you able to measure how much of that is a recapture of potential VIP dollars? What’s your best guess about modeling VIP performance in the next few years?

Rob Goldstein, CEO

Grant?

Grant Chum, COO of Sands China

Yes. I’d say structurally, we offer a diverse array of services within the integrated resort model, leading to a transition of interaction from junkets to a premium mass market, which has been ongoing for several years. This structural shift is expected to continue. The demand shift will capture more from operators rather than just intermediaries as we move forward.

David Katz, Analyst

Perfect. Thank you very much.

Rob Goldstein, CEO

Thank you, David.

Operator, Operator

Ladies and gentlemen, that’s all the time that we have for today. Thank you all for participating. You may now disconnect.