Earnings Call Transcript - LVS Q1 2022

Daniel Briggs, Senior Vice President of Investor Relations

Thank you, Paul. Joining the call today are Rob Goldstein, our Chairman and Chief Executive Officer; and Patrick Dumont, our President and Chief Operating Officer. Also joining are Dr. Wilfred Wong, President of Sands China; and Grant Chum, Chief Operating Officer of Sands China. 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 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. 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, I'll turn the call over to Rob.

Rob Goldstein, Chairman and Chief Executive Officer

Thanks, Dan. Good afternoon, and good morning to our colleagues in Asia. Some brief comments, and we'll go to Q&A. Our results continue to reflect the pandemic's impact, the travel restrictions that press visitation, and our financial results in both Macao and Singapore this quarter. We did generate positive EBITDA for the quarter in Singapore and for the company in total. The business in Singapore, as the travel corridors established last quarter, have been replaced with an introduction of the backdated traveler framework, which allows backdated travelers to enter Singapore in much the same way as prior to the pandemic. In short term, as we are open for business in Singapore. Our conviction and long-term opportunity in the Singapore market remain steadfast. The $1 billion capital investment currently underway at MBS introduced luxurious new suite products and amenities that disorder. In Macao, our considerable investment in Londoner is nearing completion. As the market recovers, 4 Seasons, Londoner will provide growth opportunities in both premium and mass customer segments. We continue to have the largest footprint in the Macao marketplace, and we appreciate the opportunity to provide input in the public consultation process, and we look forward to participating in the retendering process as well. While the current quarter results in Macao were impacted severely by the enhanced travel restrictions in China, customer demand and spending in Macao have proven resilient at the premium mass level from both a gaming and retail perspective in periods when the restrictions have been relaxed. We remain confident that we will return to positive cash flow in both Macao and Singapore in the future as restrictions are eased and travel and tourism recover. We consider our portfolio of resorts in Asia to be an outstanding platform for growth for the years ahead. In addition, we continue to pursue opportunities to develop large-scale resorts in both the United States and Asia. The sale of Las Vegas was completed this quarter, which creates additional liquidity and optionality. Lastly, we continue to build out our digital presence and explore multiple opportunities. We will provide additional color at the appropriate time. Let's go to your questions.

Daniel Briggs, Senior Vice President of Investor Relations

Paul, we're ready to go to questions. Thanks.

Operator, Operator

And the first question is coming from Joe Greff from JP Morgan.

Joe Greff, Analyst

Rob, I'd love to get a little bit more detail on the recent experience in Singapore with the VTL framework. Can you tell us or share with us business volumes, visitation improvements in March and April to date? And when we look at the first quarter and the $121 million of hold normalized EBITDA, how much of that was sort of the last month of the quarter, given the benefits from more international inbound tourism?

Rob Goldstein, Chairman and Chief Executive Officer

Yes. Joe, it’s a fair question. The core to MBS was clearly driven, it moved upward as you went along. I started with $17 million in January, went to $46 million in February. We had $58 million of EBITDA in March. And that trajectory is continuing, the momentum is going upward in April. I think Singapore is back, and it will experience the same post-COVID numbers as you see in the U.S., in my opinion. The question is how fast does it get there? The demand is there, and it will continue. Assuming there are no more surprises from the COVID situation, we like to think that Singapore will return to a $1 billion run rate this year. So $58 million in March feels pretty good, and that momentum is continuing.

Joe Greff, Analyst

Great. That’s helpful. And hopefully, I’m not going to follow up with a Macao-related question, but is it too much to ask? Can you talk about Thailand and sort of that as an integrated resort opportunity and what the latest is there? I know there have been press reports regarding your efforts and that as an opportunity.

Rob Goldstein, Chairman and Chief Executive Officer

Yes, I think it’s premature, Joe, and we’re looking at a lot of different things in Asia, and that’s certainly a list of things, but I think it’s premature to get ahead of ourselves there. I’ll pass on that.

Operator, Operator

And the next question is coming from Stephen Grambling from Goldman Sachs.

Stephen Grambling, Analyst

Maybe sticking with new development opportunities. There's obviously been a lot of back and forth in New York, specifically New York City, different boroughs. You've been seeing some headlines around Times Square. Just curious what you're seeing there, and how we should think about that as an opportunity?

Rob Goldstein, Chairman and Chief Executive Officer

Well, New York has been on our radar for a long time. We continue to be in the hunt there. I don't want to get into static borrowers' locations; I think that's proprietary. But we remain interested. I think it's a huge market for us. We've been very clear about that in the past. The process is quite a long way to go. And we'll just keep you posted as we hear and learn things, but we're in the hunt, and we'll see how it works out for us.

Stephen Grambling, Analyst

And then you did mention you'll discuss digital when the time is right, and they obviously say patience is a virtue, which has clearly paid off looking at some of these stocks. So as you think about the opportunity set in front of you, has anything changed in terms of your thinking about which areas of the industry might be more or less interesting to dig into, even before considering where the investment might end up?

Patrick Dumont, President and Chief Operating Officer

So it's Patrick. I think nothing has really changed in our view. We take a very long-term perspective on digital. I think our comments have been pretty consistent across the quarters. We're really in a growth and investment stage. So it's very early on, and when we have something to talk about, we'll definitely start discussing it. But at this point, it's a very early stage. We're building a team and looking forward to the future.

Stephen Grambling, Analyst

Awesome. Maybe one last one if I can sneak it in then. So since the development opportunities feel like they're still pushed out, and you've gotten some proceeds in from Vegas. I think you mentioned this in the remarks, but just remind us in terms of thinking about capital allocation priorities. I mean, is a buyback something that's on the table that you'd be thinking about with some of those proceeds? Or do you feel like there's enough other things to spend the money on in the near term?

Patrick Dumont, President and Chief Operating Officer

No problem. This is a question that I think we get pretty often. I'll refer to the answers that we provided in our last quarterly call. But I think the key takeaway is we're very focused on new development. The sale of Las Vegas was really to reinvest capital in high-growth opportunities that we think are unique to our company. We feel very strongly about our development capabilities and our ability to execute large-scale developments in new markets. And we think there's a lot of potential out there. We're waiting to see this come forward, and as Rob said, where we can invest to get the highest returns. In terms of return of capital, I think we've always said that the dividend is really the cornerstone of our return capital program. It's something that we want to look at in terms of really long-term operational cash flow growth, and then we'll size it accordingly and look to that to recur before we actually start the dividend again. In terms of share repurchases, we've always said we've been opportunistic to return capital that way as well. If you look at our past, we've actually returned a fair amount of capital through share repurchases when we felt that we had excess liquidity. So I think at this point, our priority is to make sure we get out of the pandemic, ensure that we have ample liquidity and a protected balance sheet to recover from our pandemic operations. We can support a local host market and our team members as we go through that process. Then we'll focus on new development and growth and investment in our existing markets, which we've been doing throughout the pandemic, and then we will look to restart the dividend as operating cash flows recover. Lastly, I think we'll look at share repurchases where opportunities arise.

Rob Goldstein, Chairman and Chief Executive Officer

Let's not forget that we are investing $1 billion currently in Singapore. We're trying to invest more in Singapore. And we think Macao, when things reopen, might be opportunistic as well. People forget how much capital we could put to work in our existing marketplaces.

Operator, Operator

And the next question is coming from Shaun Kelley from Bank of America.

Shaun Kelley, Analyst

Just maybe to actually touch on Macao for a minute. Rob, there have been some different starts as it relates to the reopening in Hong Kong, and I think some positive progress there as case counts have come down. Any signposts maybe out of that market and maybe reconnecting that with Macao that the local team could give us some color on?

Rob Goldstein, Chairman and Chief Executive Officer

Sure. Grant, do you want to take that question?

Grant Chum, Chief Operating Officer of Sands China

Yes. Thank you for the question. Yes, at this stage, there is no new information or news in terms of quarantine-free travel from Hong Kong to Macao. I think Hong Kong cases have improved, but we're not at the point where there's any change in the quarantine policy.

Shaun Kelley, Analyst

Grant, maybe just to clarify, is that specifically as it relates to its interaction with Macao? Or what about for visitors coming from overseas possibly opening up a corridor to Singapore? So maybe help us think a little bit more broadly, if you could?

Grant Chum, Chief Operating Officer of Sands China

I'm sorry, are you asking about international visitors?

Shaun Kelley, Analyst

Yes. Either, I think arriving in Hong Kong and then, I guess, coming in from inbound places or leaving Hong Kong going to places like Singapore.

Grant Chum, Chief Operating Officer of Sands China

Sorry, you're asking a question about people going to Singapore or to Macao?

Shaun Kelley, Analyst

Is there any indication that Hong Kong is easing its overall visitation policy, as it has been quite closed off from an external perspective? That's the point I'm trying to address.

Grant Chum, Chief Operating Officer of Sands China

Sorry, I'd be asking about Hong Kong. Yes, they have relaxed. So non-residents can now travel to Hong Kong from the 1st of May, and that hasn't been possible for some time. So you can go to Hong Kong from next month overseas into Hong Kong, but you would still have to be subject to the quarantine policy once you enter Hong Kong.

Rob Goldstein, Chairman and Chief Executive Officer

Something more to say, Glen, I'm going to cut you off. More to say?

Grant Chum, Chief Operating Officer of Sands China

No, that's it. Okay.

Operator, Operator

Next question is coming from Robin Farley from UBS.

Robin Farley, Analyst

I wonder if you could talk a little bit more about Singapore and any change in the composition of business there in terms of what's coming back? Is it more mass? Is it more VIP? Is it higher win per visitor than what you saw before, or just more absolute number of visitors? Just kind of what are you seeing sort of come back first?

Rob Goldstein, Chairman and Chief Executive Officer

The answer is yes. It's all coming back. I mean there's demand over there. In the month of March, we saw outsized demand from free independent travelers on the pure leisure side, we saw premium mass. We saw high-end gaming coming out of over the realm. I just think Singapore is in a unique position. Obviously, Macao is in a difficult place right now, so people are going to gravitate to other opportunities. They want to travel. They're no different than what we've seen here in the U.S. I think our MBS product is a very, very unique opportunistic window here. We're hoping Macao's up, obviously, sooner. But until it does, I think you'll see a lot more demand than typical. I think it's from all segments. The team there is doing a great job managing what's happening in the month of March. And again, it's leisure travel, it's casino, it's VIP casino, it's premium mass casino. It's universal. It feels like renewal and a very positive beginning. And hopefully, without a COVID interruption or a change in policy, I believe MBS is going to be very productive this year.

Robin Farley, Analyst

Great. My follow-up question is about your recent announcement regarding a small investment in an integrity-related business for online sports betting. Could you discuss that? It seems there are some B2B online sports companies that already provide that kind of service for free as part of their offerings to the leagues and sportsbooks. I'm curious about what attracted you to that angle or what distinguishes your service from what other OSB B2B providers are offering for free.

Patrick Dumont, President and Chief Operating Officer

Sure. It's Patrick. And I think what you'll see over time is us making investments in small companies where we think they have a competitive advantage in the B2B space that has a lot of growth potential and also where we think, over time, we may form it into a larger platform. So from our standpoint, we're looking at a variety of different businesses that are in startup or early stage in order to ensure that we stay in front of technological innovation in our industry. And so this is part of a broader strategy. It is a relatively small investment relative to Las Vegas, and we think over time this investment and others will help contribute to our overall digital efforts. I'm not going to get into the exact thesis behind every investment that we make, but there's a long-term plan for what we're approaching. I think over time, you'll start to see how that evolves.

Operator, Operator

And the next question is coming from Carlo Santarelli from Deutsche Bank.

Carlo Santarelli, Analyst

I just have two kind of timeline-related questions. And I don't know, Rob, maybe you can answer the first and then perhaps provide some color on Macao and the timeline there. But just in terms of MBS, obviously, construction and things along those lines in this type of environment is very hard to predict. I have not gotten a chance to get through the slides yet to see if there are any changes to kind of your expectations for the timeline there. But what are some of the goalposts in terms of construction on that? And then secondarily, as it pertains to the tender process and whatnot in Macao, how do you see the timeline for that shaping up as we move through the rest of 2022?

Rob Goldstein, Chairman and Chief Executive Officer

Carl, in Singapore, as you know, we're underway in a rather extensive renovation, a $1 billion-plus renovation in Singapore that's underway as we speak. And it's going to take a while. It won't be completed until '23, but it's going to be very encompassing. We've had, as everyone in the world has been impacted by COVID, issues with both getting supplies and labor, but it's underway. We're still working through our issues with IR too. We're not ready to talk about that today because we're still working through those issues. Same issues: supplies, labor costs, etc. We intend to complete IR 1, again, in '23; IR 2 is still up for interpretation. As for Macao timelines and the retendering, I'm going to turn it over to Wilfred or Grant to take that question. Maybe Wilfred is best suited.

Wilfred Wong, President of Sands China

Thank you. The timeline for retendering of the concession is progressing according to the timeline announced by the Macao SAR government. Currently, a few things are at play; two bills relating to the gaming law have been approved by the legislative assembly and will be approved in full after the panel discussion before the end of this legislative session in August. We're hearing suggestions that it will be earlier than August. At this stage, we are going to be granted an extension of the current concession until the end of 2022. That is the time when we expect the retendering exercise will be completed. After the amendment of the law, the retendering procedure will start, and a lot of information about the retender will come out. We are in the process of preparing for that retendering exercise, and hopefully, everything will be completed before the end of 2022.

Carlo Santarelli, Analyst

That's helpful. Just so I'm clear, in August, you'll more or less have everything you need from the gaming law perspective? And then that period from, say, August, if not maybe earlier, through December will be the formal tendering process when everything is more or less buttoned up. Is that the right interpretation?

Wilfred Wong, President of Sands China

That's right.

Operator, Operator

The next question is coming from George Choi from Citigroup. George?

George Choi, Analyst

A couple of questions from me. Firstly, Macao. The Macao Corp has recently ruled that a couple of your competitors are joining and separately liable for some illegal deposits. How do you see the likelihood that you will also be found liable for this potential liability after the recent close down of major changes there?

Rob Goldstein, Chairman and Chief Executive Officer

Grant, do you want to handle that?

Grant Chum, Chief Operating Officer of Sands China

Sure. Thanks, Josh, for the question. As you know, the cessation of operations of all of these fixed-room junket promoters obviously happened fairly recently in December of last year. As a result, there are some new court cases being raised by various stakeholders and participants in that system. Currently, there is nothing material to report from Sands China’s perspective. There are a few cases ongoing, but none of them are material, and we will continue to monitor the situation and obviously report back if there are any changes.

George Choi, Analyst

And my second question is on your balance sheet. Now clearly, the first quarter was quite difficult for your Macao operations, putting a lot of stress on your Sands China. When it gets to a point where Sands China needs to raise funds, could you consider equity as an option, or is it too cheap enough that you would continue to look to raise funds from the debt capital market?

Rob Goldstein, Chairman and Chief Executive Officer

Patrick?

Patrick Dumont, President and Chief Operating Officer

It's Patrick. A couple of thoughts here. I think we're very optimistic about the long-term future of Macao. We understand there are articles about concerns around liquidity. I think we have a very strong balance sheet. Yes, we've faced some stress over the last few years under the pandemic's tough operating conditions; I think we all have. The good news is that our company, as a group, has a lot of liquidity and a variety of options. The good news is also that we were an investment-grade company during the pandemic, which speaks volumes about the market's view of our ability to raise additional capital. From our standpoint, I think we have a lot of flexibility. Our balance sheet was designed to withstand shocks and a lot of variability in our respective operating markets. I think we've proven that. Where we are today is that we'll look to see how operations continue to emerge from the pandemic, hopefully soon, and assess our liquidity. We have cash at the parent level, we have cash throughout the system, and we have an investment-grade credit rating. We have access to credit markets. The good news is we positioned ourselves well to benefit from the recovery on the other side. We have a lot of flexibility, and we'll use it as necessary.

Operator, Operator

Next question is coming from Chad Beynon from Macquarie.

Chad Beynon, Analyst

I wanted to ask about inflation. I know it's something that people are a little bit more focused on here in North America, and it's different in different regions of the world. But I'm wondering if you could talk about the labor inflationary environment or employment situation in your key markets, Singapore and Macao? And how that could potentially impact margins when the business is fully recovered on the revenue side?

Rob Goldstein, Chairman and Chief Executive Officer

I want to address our business situation. Margins are indeed facing pressure from inflation, which is a concern we are aware of. However, I believe that revenue will manage itself in terms of margins. I expect to see a significant rebound in Singapore this year and potentially a strong recovery in Macao in either '23 or even '22; it's uncertain. We lack visibility into the future developments in China, just like anyone else. However, I believe, similar to the U.S., margins will improve due to strong demand. I think that in Singapore, we will witness substantial revenue this year, and I hope to see comparable results in Macao this year or next. Regarding the operational challenges, Grant has already shared insights about Macao, including issues related to wage inflation, which I cannot specifically address.

Grant Chum, Chief Operating Officer of Sands China

Sure, Rob. I think right now, Macao is a slightly different situation. If you look at the wage trend, it's very moderate, if not flattish, in terms of wage inflation. But obviously, that's for reasons that are not hard to discern because there is pressure on unemployment since it's such a tourism-dependent economy. Interestingly, in terms of construction cost trends, they are either in line with prior years or, if not, going down somewhat, again, because of the demand-supply situation that’s specific to Macao as a lot of large-scale works have moderated. They're being completed. At this stage, we’re not seeing any significant signs on the inflation front. Of course, there are some supplies such as food, where we do experience inflation, but overall, this is not going to be material. But I think the important point is what Rob said; you also have to consider that for our type of business, the revenue side of the equation, which I think is going to be the more dominant driver.

Patrick Dumont, President and Chief Operating Officer

And just to sort of add another thought, the important thing to note is where you'll see the impact of inflation is really in construction costs and in materials that go into construction inputs for large-scale projects. You see that in the U.S., you'll see it in Singapore, and you'll start to see it in other markets in Asia. As people come out of the pandemic, there’s a pent-up demand pipeline of things that needed to get done, alongside a shortage of labor and a shortage of labor movement related to pandemic restrictions. That is something that is likely to be seen; you're already experiencing a little bit of it in certain markets. The good news is that inflation also brings pricing, and so our business is not tied into any long-term contracts. We have the ability to operate within the market. Singapore has always been a very high-quality place for labor. It's been an expensive labor market and has always been tight, and we've always managed it. I am confident in the team’s execution capability to maintain margins through the cycle. It's the nature of our business that we have pricing power. We can adjust rates as a hotel as a consumer products company and really work through the changing inflation and effectively incorporate that into business margins.

Chad Beynon, Analyst

Regarding the digital portfolio opportunities you mentioned, with the recent valuation changes in many public companies, has there been any alteration in the total amount of money you plan to invest in this area? Given that there might be some strong opportunities soon due to valuation discrepancies, are you still maintaining a disciplined approach regarding the total investment you would consider for this effort?

Rob Goldstein, Chairman and Chief Executive Officer

I believe we have to be disciplined. And the reason I say that is our core business, and let's be honest, our balance sheet is what it is. It's in a pretty good place. If our business returns in Singapore like we anticipate, and then behind that comes to Macao, we get back to $4 billion or $5 billion or $6 billion EBITDA. Our investment portfolio approach may change as it relates to digital. But at this time, we're going to stay doing what we're doing now, which is being very disciplined, waiting for our core business to return because there's no one like us. If Macao comes back as I think it will hopefully sooner than later, and Singapore is coming back, we'll be in a very different place in 6 months or a year, and that may change our thinking. I think it's pretty simple. We want to get back to our core strength, and then we can revisit other opportunities at that time.

Patrick Dumont, President and Chief Operating Officer

I think one other thing that's important to note is we’re very much focused on building rather than buying. We want to ensure that we create a lot of long-term value. Our company has a history of being a platform of development and entrepreneurship, and we are taking that approach through our digital efforts in several different areas, which we think over time will provide the most reward for shareholders. So we're very patient. We're thinking long term, and yes, there are cycles in valuations across the digital space. In our mind, we will execute against our long-term strategy and take advantage where we can.

Operator, Operator

The next question is coming from David Katz from Jefferies.

David Katz, Analyst

With respect to the U.S. land-based opportunities that are out there, if you sort of have your druthers or how your wishes come to pass, what does the LVS U.S. land-based presence look like over time?

Rob Goldstein, Chairman and Chief Executive Officer

Any place there are very large-scale buildings that can create large EBITDA. We're not looking to be a small regional player, obviously. So that limits the opportunities down to Texas, New York. We failed in Florida recently, but we're not done with Florida; we're still looking at that. There are other places we can go and invest the kind of money on investment, the kind of returns we want; we're not going to be buying small businesses. So I think at this point, as you talk to me today, it would have to be Texas, New York, and perhaps Florida.

Operator, Operator

And the next question is coming from Steve Wieczynski from Stifel.

Steve Wieczynski, Analyst

Just one question for me. Rob, you talked about getting to that $1 billion EBITDA run rate in Singapore potentially by the end of the year. And I'm not sure you're going to answer this, but is it fair to say that March and maybe more so April on a monthly run rate basis is enough to get you to that $1 billion run rate level? I'm just really trying to understand a little more how strong recent trends have been?

Rob Goldstein, Chairman and Chief Executive Officer

Yes. Well, I guess, looking at March, you're at about a $700 million run rate if you annualize March, and April looks better at this point. So I don't think it takes a lot to get there. I mean, to be honest, I don't know why we wouldn't get there. We won't get into specific numbers in April, but the trending in Singapore, as I referenced earlier, Robin, someone asked the question about what's happening, it's outsized demand in all segments. Why wouldn't it happen? I mean, I think it's going to blow past the $1 billion, frankly. It just depends on if we see any pushback due to COVID restrictions. I mean, we have an outsized opportunity. Singapore is the best product in the market today. Macao essentially is not available. I think we compete very well already in Singapore, but it's unique now. And I believe it should get to $1 billion and better. The only negative there, as you well know, is that China is still relatively closed to us. So that's the market we'll miss, but we feel very confident about our prospects. In the last month, things have gone from hesitancy to full-bore excitement about what's happening in Singapore, and I hope the government shows our enthusiasm.

Operator, Operator

And the final question is coming from Ben Chaiken from Credit Suisse.

Ben Chaiken, Analyst

I have a couple of follow-up questions about Singapore. You mentioned $58 million in March. Could you remind me if that was influenced by the recent tax changes? It seems like both VIP and mass should increase by about 300 basis points. Was that reflected in the March figures you shared?

Rob Goldstein, Chairman and Chief Executive Officer

Yes, it was as of March 1; we were impacted by the changes you referenced.

David Katz, Analyst

Cool. In the last few days, there have been some changes in Singapore regarding travel restrictions. Can you remind us where we are today compared to where we were in March?

Rob Goldstein, Chairman and Chief Executive Officer

If you're vaccinated, gaining entry to Singapore is quite straightforward today. There are still some restrictions, such as having to be smoking or drinking water to remove your mask while in the casino. Overall, vaccinated individuals have full access to Singapore, which is a different situation compared to a month ago. This positive development is why we remain optimistic about Singapore. There is now quarantine-free entry for all vaccinated travelers, and there are no strict limits on daily arrivals. We're pleased to say that business is back up and running in Singapore.

Ben Chaiken, Analyst

Got it. One last quick question, not to get ahead of ourselves, but you mentioned $1 billion a few times. Why not? You're achieving $1.7 billion pre-COVID and with the new hotel coming. Is the billing just a round number?

Rob Goldstein, Chairman and Chief Executive Officer

There's no new hotel coming. We're not building any hotel yet. So there's no new hotel. Look, we just see $1 billion as a benchmark. We think that's attainable. We're not trying to oversell it or over-expect ahead of ourselves. Let's see where it goes. We're looking at the results in the U.S. We're very excited about what's happening in the U.S. The demand is there. We've seen no reason why Asia shouldn't keep ramping more positively. Again, as we referenced, that's a very unique asset. $1.7 billion at the peak was the performance of MBS. We get back to that sometime, yes, I think we will, and then beyond that, but it won't be this year.

Operator, Operator

There were no other questions in queue. 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.