Earnings Call Transcript - LVS Q2 2023

Operator, Operator

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

Daniel Briggs, Senior Vice President of Investor Relations

Thank you and thanks for joining us today. Joining the call today are Rob Goldstein, our Chairman and CEO; Patrick Dumont, our President and COO; Dr. Wilfred Wong, the President of Sands China; and Grant Chum, EVP of Asia Operations and COO of Sands China. Today's conference call will contain forward-looking statements. We will be making those statements under the Safe Harbor provision of federal securities laws. The company's actual results may differ materially from the results reflected in those forward-looking statements. In addition, we will discuss non-GAAP measures. Reconciliations to the most comparable GAAP financial measure are included in our press release. We have posted an earnings presentation on our website. We may refer to that presentation during the call. Finally, for the Q&A session, we ask those with interest to please post one question and one follow-up, so we might allow everyone with interest the opportunity to participate. This presentation is being recorded. I'll now turn the call over to Rob.

Rob Goldstein, Chairman and CEO

Thank you, Dan, and good afternoon. Thank you for joining us today. The powerful recovery taking place in Macao and Singapore is evident in our results. We believe it's early days and there's still room to run in both those markets. We continue to invest in both markets for our future growth. We do have a structural advantage in Macao based on our scale. As the market accelerates, we will be a major beneficiary in the future. Singapore continues to do well despite two impediments. We're in the midst of a $1 billion renovation, which adversely impacts results in Singapore. In addition, we haven't seen a full return of the Chinese premium mass segment yet. This iconic building has a very bright future. Cash flow recovery is in full bloom. So it's very, very enjoyable to say, 'Yay, dividends!' Let's go to some Q&A. First question, please.

Operator, Operator

Thank you. Ladies and gentlemen, the floor is now open for questions. The first question today is coming from Joe Greff from JPMorgan. Joe, your line is live.

Joe Greff, Analyst

Hey, everyone.

Rob Goldstein, Chairman and CEO

Hi, Joe.

Joe Greff, Analyst

Rob, Patrick, Dan, and the team in Macao, I'd love to get your view on margins in Macao, both within the quarter. And then just broadly how you're thinking about it going forward. When you look at the months within the 2Q, was there a differential between margins exiting the quarter in June versus the first couple of months? And then related to that, I'm assuming you're under the belief and impression that monthly GGRs can continue to grow sequentially. I would imagine in the summer months that would follow typical sequential seasonal trends, and margins from here probably have more upsides than downsides from 2Q levels. So my question is specifically this going forward, how do you think about the flow-through on incremental revenue growth from here? And then I have a follow-up.

Rob Goldstein, Chairman and CEO

Yeah. Joe, I'll start and then turn over to Grant for the margin discussion. Obviously, we do believe that the market is starting to get stronger, and you saw that in our numbers. Our June results were the strongest, almost $200 million of EBITDA in June alone, so we had acceleration in the quarter. Our numbers, I think, speak for themselves; they speak loudly. Six months ago, we were virtually closed, and in the month of June, again, we do $200 million EBITDA. And visitation increases in the town. I think the visitation issue is going to drive obviously the GGR escalation. I just do believe we will be the beneficiary because of our scale and $15 billion of investment will pay off quite well. We have adequate room to run because we have capacity in every segment of the gaming and non-gaming. We have, I think, a very strong advantage in that regard. So, again, we think as the GGRs escalate from more visitation, we will be a major beneficiary. As to margin, Grant, I hope you're awake in Macao. Please answer that.

Grant Chum, EVP of Asia Operations and COO of Sands China

Thanks, Rob. Yeah, Joe, margin obviously has continued to improve as we grow the revenues on optimal cost structure. Normalized margins are up about 240 basis points quarter-on-quarter. And I think that will continue to rise as revenues continue to recover. We do have a more profitable business mix than 2019, as does the whole industry because we have a greater proportion of mass relative to VIP. But recall, relative to the industry, we always had a much greater proportion of our GGR in mass. So 87% of our GGR this quarter is in mass versus 71% in Q2 of 2019. And also the shift between gaming and non-gaming, and recall, we're the dominant revenue generator in non-gaming in the industry, and non-gaming is rising as a percentage of our revenues going from 17% in 2019 to 22% this quarter, so both of these mix shifts are positive for margin. We are obviously reinvesting our revenues back into the business to increase our capability to handle more visitors, chiefly increasing our headcount to service more hotel rooms. That's for sure one of the things that we've achieved this quarter where our room operating capacity was back to 10,700 rooms on average for the quarter. And as we go into the summer, as we discussed last time, we're heading back to 12,000 rooms in terms of our operable hotel room capacity, so that entire labor shortage issue has dissipated as an impediment. And then in terms of intra-quarter, margins are related to the revenue recovery rate, and June was the standout month for sure for us. We recovered for the second quarter as a whole, as you can see, 85% of 2019 levels in terms of mass revenues for the second quarter. But in June, our mass revenue were about 97%, almost at full recovery to June 2019. So the acceleration in June was really very broad-based. We saw underlying visitation recovery obviously, Macao visitation recovering to almost 70% of 2019. And all of our key volume metrics were up significantly against April and May, so our non-rolling drop increased 15% against April-May. In June, slot handle was up 9% and rolling volume was up 10%, so across the board we saw a very sharp acceleration in June.

Joe Greff, Analyst

Great. Thank you.

Rob Goldstein, Chairman and CEO

But also reference page 14 of the deck, I think the structure to look at what's happening in the provinces beyond Guangdong and non-Guangdong visitation and lack of penetration. It's just early days, this recovery. And I think if you look at '14, it gives you a really good snapshot of what we believe is the beginning of a strong recovery. Hopefully, this summer will evidence more and more return to pre-pandemic numbers in the non-Guangdong visitation. And that's going to fuel this business. As you know, we have the capacity, gaming, non-gaming to participate across the board. And that's what we believe will happen, that will impact margins, but also in our mind, that's an inevitable factor in Macao, six months into this recovery, and we're still way behind in terms of visitation.

Joe Greff, Analyst

Great. My follow-up question is, we've seen within Mainland China more mixed macroeconomic performance year-to-date. And yet at the same time in Macao, gross gaming revenues, visitation, retail sales, pretty much most metrics have steadily improved. How do you reconcile the disconnect between China macro and the fundamentals on the ground in Macao? And how do you see that relationship playing out going forward?

Rob Goldstein, Chairman and CEO

We obviously prefer a strong macro economy in China and hope for that in the future. However, we can perform and will continue to perform even if the recovery is slower than we would like. We would like to see a quick rebound. As seen in other businesses, our retail market does not depend on a strong economic recovery since certain segments are capable of thriving regardless. Nevertheless, we are hoping for a strong rebound and an improving macro environment that would have a positive impact on us. I still believe this market will keep growing despite a slower recovery than we desire in that region.

Joe Greff, Analyst

Thank you.

Rob Goldstein, Chairman and CEO

Thanks, Joe.

Operator, Operator

Thank you. The next question is coming from Robin Farley from UBS. Robin, your line is live.

Arpine Kocharian, Analyst

Hi. Thank you. This is actually Arpine for Robin. I was wondering if you could talk about average spend for mass customer and where you expect that to sort of normalize, thinking about the fact that a portion of higher spender in VIP obviously ends up in mass, but also that as you open up more hotel room capacity, that ramps up probably higher percentage of grind mass returns to Macao. How do you think about that more normalized spend per mass customer, looking forward into the back half?

Rob Goldstein, Chairman and CEO

Grant?

Grant Chum, EVP of Asia Operations and COO of Sands China

Yes. Thanks for the question. I think you can see from the results that premium mass recovered still faster than the base mass. But sequentially, base mass still grew strongly on the back of improving visitation. And as you alluded to, I think as room inventory increases, we're able to cater to more visitors. I would say the spend per head directionally continues to be very strong across both premium mass and base mass. So whilst, obviously, as the base mass picks up, you'll see more of a mix shift, I think, over time. But within each of the segments, spend per head is actually rising. So we are getting high-quality, high-value tourists into Macao at this point. And also, we're broadening this to high-value foreign tourism as well. So we can see strong results this quarter again in terms of the high-end foreigners. So I would say at this stage, the higher-valued segments are growing, recovering still at a faster rate. Base mass is picking up as visitation grows and hotel capacity increases. But within each of the segments, i.e., both premium mass and base mass, the spending is actually continues to be very high, and indeed, spend per visitor is heading in a positive direction.

Arpine Kocharian, Analyst

Great. Thank you, Grant. And just one quick follow-up. With your dividend restated here, I was wondering if you could update us on your overall kind of capital return strategy and how you think about buybacks. Thank you.

Patrick Dumont, President and COO

Hi. I hope you're doing well. When we consider capital allocation, we believe there are significant growth opportunities in both Macao and Singapore. Our investments will support the expansion of non-gaming amenities and enhance our cash flow. Additionally, we expect to return a substantial amount of capital in the future. In the past, we have been very shareholder-friendly and remain focused on returns on capital. Looking ahead, we plan to create a better balance between share repurchases and dividends. Regarding the dividend size, we have room for future investments that will allow us to grow our asset base and cash flow capacity. This also presents opportunities for future share repurchases, which we aim to pursue. The current dividend size gives us flexibility in our capital allocation, and over time, our intention is to reduce the share count. Having a balanced capital return program is crucial for us, and management is committed to it. We plan to adopt a more systematic approach to share repurchase than in the past, which will provide the flexibility to buy back more shares over time and address our capital expenditure needs. Our strategy will focus on allocating capital to growth, as we see many unique opportunities for our company. We will continue to prioritize the dividend in line with our program, while also allowing for more balance and flexibility in the future for share repurchases, aiming to reduce the share count.

Arpine Kocharian, Analyst

Thank you. Very helpful.

Operator, Operator

Thank you. Next question is coming from Carlo Santarelli from Deutsche Bank. Your line is live.

Carlo Santarelli, Analyst

Hey, everybody. Thanks. Robert or maybe one of the guys in Macao, I was wondering, as kind of the market has shifted and you've seen a couple of quarters that at least look more normalized, as operators who may have been more VIP-focused in the past or certainly more mix towards VIP relative to you guys, have you seen any change in behavior as it pertains to kind of mass reinvestment levels across the market wide?

Rob Goldstein, Chairman and CEO

Yes. Grant, why don't you take that?

Grant Chum, EVP of Asia Operations and COO of Sands China

Sure. Thank you for the question. Overall, we observe a very stable competitive environment. All operators in the industry continue to invest in non-gaming and diversification, bringing remarkable event programming to the market. This is beneficial for not only growing the tourism economy but also boosting business volumes for all operators. We have seen positive results from investments in non-gaming and events programming over the past three months, particularly from our own non-gaming initiatives that have significantly driven business levels and visitation. Regarding reinvestments, they are relatively similar to what we have observed in recent quarters. The market in premium mass remains highly competitive and will continue to be so. However, there is rational behavior among the industry operators, particularly led by the larger players. The industry's focus has been on reinvesting in non-gaming programming, which has been a significant driver of recovery thus far.

Carlo Santarelli, Analyst

Great. Thank you for that. And then if I could, as a follow-up, just in terms of the expansion at Marina Bay Sands, I know you guys were going through some stuff and reviewing some budget needs and design plans and everything else. Is there anything you guys could share at this point in time with how we should be thinking about that timeline, spend, etc.?

Patrick Dumont, President and COO

Sure. First off, we have very strong feelings about the future success of Singapore. If you look at the results from the quarter, the visitation we have, the type of customers coming through the building, and the fact that China has not fully recovered, along with where Singapore is positioned today in relation to the growing economies in Southeast Asia, we believe that Singapore's future is positive. We're motivated to invest there and expand our capacity at Marina Bay Sands. Currently, we're in discussions with the government about the final form of our project. There have been many changes in the market regarding market potential, the government's goals for high-value tourism, and how we want to grow in that market. We're making some adjustments and hope to have a clearer idea of what this will look like in the upcoming quarters. Right now, we're in discussions and hope to finalize our project in the near term. We're looking forward to getting started.

Carlo Santarelli, Analyst

Great. Thank you, Patrick. Appreciate it.

Operator, Operator

Thank you. The next question is coming from Stephen Grambling from Morgan Stanley. Stephen, your line is live.

Stephen Grambling, Analyst

Hey, thanks. As a follow-up on Macao, the $200 million number you mentioned in June, is that a clean number that you would think of to build off of, given normal seasonality? Or should we see that build as base mass continues to recover?

Rob Goldstein, Chairman and CEO

What was the second portion, the last part, last thing you said? Recover?

Stephen Grambling, Analyst

I guess it's a question of as base mass continues to recover, how should it impact that $200 million number?

Rob Goldstein, Chairman and CEO

It should go up. The reason we mentioned this is because we had a strong month, especially considering that June typically isn't very good. Our outlook is straightforward: we believe Macao will continue to strengthen. The recovery will depend on increased visitation across all segments. Our structural advantages and diverse offerings set us apart. We can grow in areas like base mass, premium mass, retail, and everything else that customers desire, allowing us to compete effectively. I see June as just the beginning, and I hope the summer will demonstrate that. We'll need to observe how July, August, and September perform. Our outlook is clear—more visitors, particularly in base mass, and deeper penetration into China will lead to increased gaming revenue, and we will significantly benefit from that. I find reassurance in the fact that just six months ago, we weren't certain we would be operational. We essentially had a closed business in December '22. Now, in the summer of '23, we're looking at a $2.4 billion run rate based solely on June, and we anticipate that could increase. We have always been strong advocates for Macao. We maintain our belief that this market is exceptional. While the overall recovery in China has been slow across all segments, it is gaining momentum now, and summer will be a key indicator of how quickly we can reach revenue levels of $26 billion, $30 billion, or $32 billion. I'm not sure what the peak will be, but we expect noticeable growth this summer. Additionally, we are well-positioned with the right assets to capitalize on opportunities in Macao. All our facilities are open and operational, including retail, slots, and tables. As the market expands, we should be major beneficiaries of the new demand that is emerging.

Stephen Grambling, Analyst

To clarify, do you believe there were any one-time benefits in June, such as Jackie Chung or other factors, that could have influenced that number? Might that have been an unusually high figure? Or are you suggesting that is a solid number to base future expectations on?

Patrick Dumont, President and COO

So I think the key thing to note is that we've had these non-gaming what we call lifestyle programs, which includes entertainment and other activations for years. And they're very successful pre-pandemic because we were able to connect with their customers and bring in very high value tourists in those high frequency. And so we've started those programs again. And so the concept you just referred to is very popular. And I could let Grant comment on that or Wilfred comment on it. But I think the key thing for this is our non-gaming programs are working. That the investment in non-gaming, that the activations, that the driving customer visitation through social media is working. And so the visitation of high-value customers flows through with our results in that month. I think the interesting thing is, air traffic to Macao and to Hong Kong is like around 50% of where it was pre-pandemic. So our story is one of visitation. It was led by higher value customers on premium mass. But now as people can begin the trial of the Macao more easily and more frequently, they're starting to return. They're starting to consume all of our different amenities, not only the hotels, but the concerts, the food and beverage, the retail, all of it's working. And so we'd like to believe we can grow from that number materially as our base mass non-rate of play returns as more premium mass customers show up. And as Grant said earlier in the call, more of our hotel rooms come online. So we think we've invested to the pandemic and very high-quality products. The customer response has been very strong. And we're a little priced through it. So we'd like to believe that there is margin room there. We'd like to believe that as we activate our non-gaming activities that will draw more customers to concerts and other events, and then that will continue to grow overall the desirability and visitation of Macao. Grant, do you have anything to add?

Grant Chum, EVP of Asia Operations and COO of Sands China

Yes. Thanks, Patrick. Yes, I mean, as you rightly say, we've had a very long track record going back 16 years in terms of posting world-class entertainment events at The Venetian Cotai Arena. And this was always part of our lifestyle programming. Jackie has been terrifically successful in the past with us as well. He played in both 2017 and 2018 in the summers of those years. I think what makes this June special is, firstly, he played a record-breaking 12 shows across four weekends. I don't think that's ever been done before in Macao. But not only that, Macao was the first touring stop of the entire global tour that Jackie Chung has just launched. So that he chose to launch this new global tour at The Venetian Macao, I think, is testament to both Macao's rising destination appeal and the importance of it as an entertainment hub regionally, as well as our own track record in partnering with Jackie and his team over many years. So the month was strong, not just the days when the concert was on, which is nine months of the month. So it's a combination of factors. I think the underlying visitation to Macao, like Patrick referenced, was improving throughout the quarter and into June, even though it was into a traditionally weaker part of the travel calendar. Hotel availability improved, transportation improved, concert series undoubtedly played a part, but that's just one component of the ongoing lifestyle program. And I think that programming is not just done by us, but the whole industry. And I think that will make Macao continue to recover rapidly. And it speaks volumes to, I think, the new direction that the government is pursuing and I think is a great start to the new concession.

Stephen Grambling, Analyst

It makes sense. Thanks so much. I'll leave the floor.

Grant Chum, EVP of Asia Operations and COO of Sands China

Thanks, Stephen.

Operator, Operator

Thank you. The next question is coming from Shaun Kelley from Bank of America. Shaun, your line is life.

Shaun Kelley, Analyst

Hi. Good afternoon, everyone. So maybe I just want to go back to the cost side a little bit. It's probably for Grant. But if I caught it correctly, I think in an earlier question, you said room complement was up to 10,700 on average in the quarter, heading to 12,000. Can you just give us a little bit more color on that? Are we at the 12,000, we exit the quarter there? And just what does that imply for kind of necessary either headcount or kind of cost ramp-up from here? Is there a little bit more remaining? Or actually, is this number that we saw in the quarter pretty reflective of kind of what you think the baseline operating cost should look like from here moving forward?

Grant Chum, EVP of Asia Operations and COO of Sands China

Yes. Thanks, Shaun. Yes, I think you heard it right, averaged around 10,700 rooms a day in terms of our operable capacity from a labor standpoint during the quarter. We actually increased further towards the end of the quarter. So as we go into third quarter, we're roughly at that 12,000 rooms mark, which I said, plus or minus, typically, there's always a handful of rooms out of order for maintenance, regular maintenance. We're effectively back in full inventory now and ready for the peak summer season, which is getting underway later this month.

Shaun Kelley, Analyst

Thank you for that. I have a similar question regarding Marina Bay Sands. We have seen margins around 46 to 47 for two consecutive quarters, which is still a few hundred basis points below pre-COVID levels. I understand there have been various developments. In the slide deck, you mentioned that some of the renovations were nearing completion. Could you provide an update on the impact of these renovations and how we ended the quarter? Additionally, costs were up about 10% quarter-over-quarter. As we return to full room capacity, can we expect some margin improvement sequentially or moving forward? How should we approach this in the second half of the year?

Patrick Dumont, President and COO

It's important to highlight that Marina Bay Sands is undergoing significant improvements, as mentioned by Robert earlier. We're making substantial investments, resulting in what is likely our best offering to date, and the customer feedback has been overwhelmingly positive, although we are still in the process of this transformation. A key point to consider is that our largest suites, specifically our 200 multi-day suites, will be the last to be available, coming online this quarter and the next. The full revenue potential of the renovated Tower 1 and Tower 2 will only be realized once these suites are operational, as we have been running without them. Their addition will enable us to price better, achieve higher margins, and increase cash flow from this valuable segment, which previously lacked adequate accommodation options. This upgrade is expected to significantly enhance our operational efficiency. Additionally, we have had a substantial number of rooms unavailable, and with rising costs for inputs and an increase in gaming taxes, we must seek higher-value customers, optimize pricing, and boost volume to overcome these challenges. It’s also worth noting that while we've struggled with our critical room inventory, our casino floor renovation is nearing completion, and importantly, air travel from China is starting to recover. Looking at the trends over the quarter, we’ve seen a month-over-month increase in play from China, and as visitation returns and our new suites become available, we will have a chance to adjust our pricing to counterbalance cost increases and enhance margins.

Shaun Kelley, Analyst

Thank you, Patrick. Thanks everyone.

Rob Goldstein, Chairman and CEO

I believe we are moving towards a stronger labor strategy because in every industry, whether it's hospitality or retail, having an exceptional product that people desire gives you pricing power. We are close to achieving that, although it has been a long process. As we work through improvements in our room offerings, food and beverage, and retail, it's evident in the market why brands like Hermes and Louis Vuitton command such high profit margins. They offer superior products that are in demand. The same principles apply to the watch and hospitality sectors. I think we are creating something remarkable that people may not fully appreciate until they experience it firsthand. Once completed, our pricing power will significantly increase across all areas, including rooms, gaming, and retail. I'm surprised we are achieving these strong numbers even with ongoing construction. Once this building is finished, our pricing strategy will elevate further. MBS is unique in that the margins will manage themselves as long as we provide a product that people desire and are willing to pay for. I believe that once you all have the opportunity to visit MBS and see what we are building, you will understand the significance of these statements. Our pricing power is a key focus. We are not cutting costs; instead, we are investing to enhance our offerings by increasing labor. This will allow us to deliver an exceptional product that people will want to experience. Our approach centers on earning our success through outstanding offerings, with customers willing to pay a premium for them. It's that straightforward, and the margins will reflect this during our peak times.

Shaun Kelley, Analyst

Thank you very much.

Operator, Operator

Thank you. The next question is coming from David Katz from Jefferies. David, your line is live.

David Katz, Analyst

Afternoon, everyone. Thanks. I know you've touched on this from a number of different perspectives, but I'd love just a little more help or insight in terms of how margins should evolve, specifically for the Macao enterprise in total. And just looking back at where normal was in 2019 and what a new normal could look like now. How high the ceiling is, any qualitative perspectives around there and how we get there in the next several quarters would be helpful? Thank you.

Rob Goldstein, Chairman and CEO

I want to get Grant to take that question. But I do want to say, David, again, I think I'll use the words structural advantage. I think we're just a very different position than some people in that we were built for this market in terms of scale and size in every area of our business. Base mass, premium mass, we're still handicapped by the base mass hasn't fully recovered. But I think our reinvestment in the last 20 years is to make this product grow and grow relative to margin and demand. I think we're just built for this environment. So I'm highly confident margins will rise with our increased revenue. Grant, can you add some color?

Grant Chum, EVP of Asia Operations and COO of Sands China

Yes. Thanks for the question. And again, we don't have a specific forecast on how high the margins will rise to. I think you can look at the structure of the business. I mean, as Rob says, I mean, we have an excellent structure in terms of our business mix. We have an efficient cost structure. And I think the way you will be looking at this is how high will revenues go. But it is true that the segments that are going to drive more revenue recovery and then eventually growing structurally will be the higher-margin segments within gaming, mass versus VIP, and then also non-gaming versus gaming. I think non-gaming is recovering even more strongly than gaming. We're at 93% of our 2019 non-gaming revenues. Our hotel revenues for the quarter are 8% higher than 2019 on fewer rooms being available. Our retail business is looking very strong. Tenant sales were up 28% this quarter and that will continue especially with full seats. That's ongoing.

David Katz, Analyst

Thank you. And as my follow-up, with respect to share repurchases, Patrick, which you touched on earlier, obviously not asking for specifics around when and where and how much. But any color on sort of boundaries or accomplishments or how we might think qualitatively as to when we get there and when we can start to think about that in a more tangible way?

Patrick Dumont, President and COO

We have just restarted our return of capital program this quarter, which reflects the confidence of the Board and management in the long-term prospects of the business. We aim to grow the dividend over time while also implementing a repurchase program. At this moment, I can't provide specific details about the volume of repurchases since we still have many factors to plan for. Our approach to capital allocation will align with what we previously explained. It's important to highlight that our capital expenditures may vary as we consider numerous large projects, some of which are more certain than others. We are particularly excited about the expansion of Marina Bay Sands, which we believe will become an outstanding asset. While its timing might be slightly delayed, we intend to invest as much as possible because we anticipate significant growth there. However, we are exploring other options as well, and the timing of any related capital outflow is uncertain. The positive aspect is that we will have the flexibility to adjust our capital expenditures based on our business growth and return excess capital to shareholders through share repurchases in a structured manner. While I can't provide a specific amount today, we will focus on capital expenditures for growth and the future, ensure that the dividend program grows appropriately, and maintain a shareholder-friendly approach in our return of capital program through share repurchases. I acknowledge that we cannot specify anything just yet, but we will continue to evaluate this in the coming quarters and will keep you informed.

David Katz, Analyst

Okay. Appreciate it. Thanks very much. Good luck.

Operator, Operator

Thank you. The next question is coming from Brandt Montour from Barclays. Brandt, your line is live.

Brandt Montour, Analyst

Hey, good evening, everybody. Thanks for taking my questions. So on the VIP business, which grew nicely for you guys in the quarter, but wasn't as strong as the overall market. Could you just update us how important is this segment to you when you plan the next couple of years? And then can you just touch on the current dynamics of the VIP market overall away from you and how your strategy compares to the broader market?

Rob Goldstein, Chairman and CEO

I'm sure this is the first point, you said we didn't do as well as the market in the VIP?

Brandt Montour, Analyst

VIP quarter-over-quarter grew below market-wide VIP.

Rob Goldstein, Chairman and CEO

I think we feel confident about our position in the VIP and base mass segments. Our portfolio is very diverse, with the Venetian still being the leading venue in Macao. It's set to be the first to surpass $1 billion in EBITDA, demonstrating strong recovery potential. We have established a solid foundation with our offerings. The Four Seasons allows us to cater effectively to a wide range of clients, and our gaming products are nearly unmatched. The Londoner is still in its early renovation phase, with much work ahead. Besides The Sands, which we've somewhat reduced our expectations for, there is significant growth potential in the peninsula, although it remains a tough area for profitability. The focus has shifted to Cotai, where all our assets except for The Sands are located. We are confident that there is still room for growth in the region. Our standing in both VIP and base mass segments is very strong, having more suites and market share than our competitors, along with significant growth potential due to the size of our properties. We've established a lifestyle brand, collaborating with top figures in retail and dining, which positions us favorably in the market, both in terms of product variety and quality. We believe we can continue to grow in both base and premium segments, and the notion that we aren't a player in the premium mass market is inaccurate and not supported by our numbers.

Grant Chum, EVP of Asia Operations and COO of Sands China

Yes, our strategy regarding VIP has not changed. In fact, the evolving market in Macao for VIP aligns with our strategy more than ever because we are focused on the premium direct segment of VIP. We have historically maintained a strong sales network throughout Asia, and we are actively working to attract elite international players to Macao, seeing initial success in this effort. Our foreign rolling volumes in the second quarter have already returned to 2019 levels, well ahead of the broader tourism recovery in Macao’s overseas markets. Our approach is centered around premium direct and our robust sales network in Asia, coupled with our intensified efforts to attract more foreign high-tier patrons to Macao. As Rob mentioned, it’s an attractive destination for these markets, and we plan to leverage our exceptional product and location to draw in more international visitors.

Brandt Montour, Analyst

Thank you for your remarks. I have a follow-up regarding capital expenditures. I’m reviewing slide 23, which provides a useful year-by-year overview, in relation to last quarter's information. It seems that the MBS expansion was temporarily removed from the plan, which you have addressed. I noticed the addition of Londoner Phase 2 and would like to confirm if that’s indeed a new development and hear your thoughts on the return targets for that project. Additionally, I came across reports about a new hotel tower at The Venetian. If this is accurate or part of the plan, will it be included in the $3.5 billion capital expenditures commitment that you’ve made with the government?

Patrick Dumont, President and COO

We decided to pause the Singapore expansion until we finalize the program and receive government approval to understand the costs involved. As for The Londoner Phase II, we successfully implemented it during the pandemic, built through it, and saw strong market validation, which was exciting. The feedback has been overwhelmingly positive, and we look forward to launching the next part of the project to maximize its earning potential. We believe this offering could rival the productivity seen in the Mid-East. We see significant growth potential in our core segments, particularly mass and premium mass, and the renovated hotel rooms will help us meet market demands as effectively as we did in Phase I. Regarding a new hotel tower, we cannot comment on any rumors we may not be aware of. Our focus remains on meeting our concession renewal requirements and enhancing our non-gaming amenities to stimulate visitation in Macao. Grant, do you have anything else to add?

Grant Chum, EVP of Asia Operations and COO of Sands China

Patrick, you explained it very well. The Londoner's success involves a complete transformation of the property's branding, positioning, and functionality. It's important to remember that most of the hotel rooms currently in use are still the original Sands Cotai Central rooms, along with half of our main gaming floors. Phase 2 is primarily focused on further enhancing The Londoner. We plan to reposition and upgrade the Sheraton and Conrad hotels and undertake a full upgrade of the Pacifica Casino on the Sheraton side. We will also be adding more non-gaming amenities and attractions to The Londoner, many of which are part of our concession commitments. This includes new signature restaurants with international appeal, a cutting-edge wellness center, and various lifestyle attractions. Furthermore, we remain committed to developing a new landmark garden-themed attraction, the conservatory, situated in the gardens south of The Londoner resort, although this will take longer to complete. However, we're ready to move forward with Londoner Phase 2, focusing on refreshing the hotels and casino, as we've been working on the designs during the pandemic. The product we've created has been well received, especially with the market's recovery and the return of visitors and hotel guests. We're eager to initiate Phase II, which is why we can begin actual construction in the latter half of this year.

Brandt Montour, Analyst

Great. Thanks all.

Operator, Operator

Thank you. The next question is coming from Steve Wieczynski from Stifel. Steve, your line is live.

Steven Wieczynski, Analyst

Hey. So Rob or whoever wants to take this, and Patrick, you touched on this a little bit, so this might be you. But Slide 14 is pretty interesting. It shows visitation trends during the quarter, with Hong Kong actually surpassing pre-COVID levels, and Guangdong nearing recovery as well. However, the rest of China is still significantly below pre-COVID levels. I'm curious about how you all perceive the recovery in that segment going forward and what you're monitoring. Also, Patrick, you mentioned air capacity— is that the only factor at play, or are there other elements possibly holding that segment back?

Patrick Dumont, President and COO

I want to express our excitement about the resurgence in visitation. It's been exhilarating to see both returning and new patrons. Recently, when we were in Macao, the energy in the city was remarkable. Some of this resurgence can be attributed to air travel capacity, but it's also important to note that the mass market players and unrated gaming, which The Venetian and our other properties are well-equipped to handle, have not fully returned yet. The potential for growth is evident when comparing the visitation data from 2019 to this past quarter; there's still significant room for improvement as many patrons are now beginning to plan their visits. From our perspective, we are well-positioned to accommodate these returning customers. We have the capacity, a range of appealing non-gaming amenities, and entertainment options. We believe Macao is the premier tourism market in Asia, and we expect to see continued visitor growth. Additionally, the influx of international visitors is a promising development. Looking at the data, particularly slide 15, highlights our potential, and our team is committed to maximizing that opportunity. Grant, I would like to hand it over to you for any further comments.

Grant Chum, EVP of Asia Operations and COO of Sands China

Yes. I was going to point to that page as well. Patrick. Yes, Dan's famous Page 15 on the penetration. Actually, you can see from the Eastern China, Yanxi River Delta region, especially Shanghai and Zhejiang Province. In fact, the recovery rate is higher than Guangdong's because I think you have better airlift, better propensity to travel cross-border from those source markets. And we've already seen a very big upward shift in the recovery rate of non-Guangdong, relative to first quarter. So I think in the first quarter, when we're looking at that recovery rate, it was less than 30%, and now we're approaching 50%. So non-Guangdong visitation second quarter grew almost, I think, in the high 40s sequentially. So it is coming back, as we said, as airlift improves, transportation in general improves, and also our hotel room availability has been increasing. And actually, we'll be further increasing for Macao as a whole in the third quarter. We have some new hotel rooms coming online. So all of that, I think, is positive for the outlook for continued recovery in the visitation outside of Guangdong Province.

Rob Goldstein, Chairman and CEO

Maybe I'd just add, the trajectory may be uncertain, but the end result is very certain. I mean this market always comes back, and I think it walks the summer, you'll see some very positive indications. I don't think anybody knows when or exactly why it's not fully recovering in certain areas, but we just know it's going to recover. It's a question of when that happens. The result, I think, is on the question. And again, I hope this summer, we showed some strong evidence. And July, hopefully, will show a big number, the best number of the year thus far and that starts to add in this recovery.

Steven Wieczynski, Analyst

Okay. Great. I'll leave it there, guys. I appreciate the color. Thanks.

Rob Goldstein, Chairman and CEO

Thank you.

Operator, Operator

Thank you. And a final question today is coming from Daniel Politzer from Wells Fargo. Daniel, your line is live.

Daniel Politzer, Analyst

Hey, good morning, everyone, and thanks for taking my questions. Just a quick follow-up, Rob, on that comment about July. I mean, is there any reason other than just the airlift capacity that we wouldn't expect that normal seasonality and the build off the momentum that you saw in June, whether it's macro concerns, behavioral or entertainment calendar? Is it really just simply airlift? Or there are other reasons in particular?

Rob Goldstein, Chairman and CEO

No, there's multiple variables at work here. And I wouldn't want pigeonhole, the economy, Visa. I don't think we really know the answer to that. It's an aggregate answer; it can't be unpacked really. I do think though, seasonality, summer has always been the time. This is the first time, post-COVID. I, for one, believe summer has improved very strong. Some business people boasting about what the joint numbers look like. I hope they're right. I believe some will be very indicative of new growth in this market. And look, again, I think you have to look back on how quickly we see this recovery. Six months ago, we were in dire straits. And now we're unpacking $200 million a month in June. So we're very bullish when we think long-term. And again, the trajectory may be uncertain but the end result's very clear. We're going to get there. We're going to make a lot of money in Macao, definitely. And we hope we have more good news in the near future to offer to you. So I'm hoping for a big summer for the market.

Daniel Politzer, Analyst

Got it. And just one more quick question. We haven't discussed the digital strategy, and there have been some recent headlines indicating progress in that area. Do you have any information you could share? Additionally, at a high level, how do you align that strategy with regulatory concerns, considering your presence in Macao and your relationship with the government there?

Patrick Dumont, President and COO

We previously mentioned our intention to invest in building digital activities from the ground up. We see ourselves as builders rather than buyers. Currently, we are working on several digital initiatives, but it's still early, so we don’t have much to share at this moment. However, we feel optimistic about the long-term potential. Our focus will be on highly regulated markets, specifically in Europe and North America. We aim to uphold our regulatory standards rigorously, collaborating only with partners when it is appropriate, and being very selective in those partnerships. Our priority remains regulatory certainty, and despite some technical difficulties, we are dedicated to investing in digital opportunities for the long term, with an emphasis on highly regulated markets.

Daniel Politzer, Analyst

Got it. Thanks.

Operator, Operator

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.

Rob Goldstein, Chairman and CEO

Thank you, everybody.

Patrick Dumont, President and COO

Thank you.