拉斯維加斯金沙集團 (LVS) 2019 Q2 法說會逐字稿

Good afternoon.

My name is Nora, and I'll be your conference operator today.

At this time, I would like to welcome everyone to the Las Vegas Sands Second Quarter 2019 Earnings Conference Call.

(Operator Instructions) Thank you.

Speaker Daniel Briggs, you may begin your conference.

Thank you.

Joining me on the call today are Rob Goldstein, our President and Chief Operating Officer; and Patrick Dumont, Executive Vice President and Chief Financial Officer.

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 provisions of federal securities laws.

The company's actual results could differ materially from the anticipated results in those forward-looking statements.

In addition, we may discuss non-GAAP measures.

A definition and a reconciliation of each of these measures to the most comparable GAAP financial measures is included in the press release.

Please note that we have posted supplementary earnings slides on our Investor Relations website.

We may refer to those slides during the Q&A portion of the call.

Finally, for those who would like to participate in the Q&A session, we ask that you please (Operator Instructions).

Please note that this presentation is being recorded.

With that, let me please turn the call over to Rob.

Thank you, Dan.

Good afternoon, everyone, and thanks for joining us today.

We want everyone to know that Sheldon is doing fine.

Patrick and I were there last week in Israel and he's in great spirits.

We look forward to him rejoining our next conference call in October.

Let's get to our results.

We had another strong quarter across all of our markets.

Company adjusted EBITDA was $1.27 billion.

In Macao, adjusted property EBITDA was $765 million, up 2% over the prior year.

We grew our mass table and slot revenues by 6% over the prior year with record volumes in the base mass table segments.

Our market share for the quarter was approximately 23%, consistent with prior year.

More importantly, our profitability continues to lead the industry with EBITDA margins at 35.6%, up another 20 basis points year-on-year.

The Parisian Macao had a strong quarter with adjusted EBITDA of $139 million with mass win per day growing by 27% year-on-year, aided by the introduction of our new suites.

During the quarter, we celebrated the 15th anniversary of the Sands Macao opening, which really marked the beginning of Macao's amazing transformation.

Sheldon's vision more than a decade ago to create a critical mass of integrated resorts on Cotai with hotel, entertainment, retail and MICE facilities positions us well for the future.

There is no better market in the world than Macao with regard to the continued deployment of our capital.

We look forward to making additional investments in Macao as we contribute to Macao's diversification and evolution into Asia's leading leisure and business tourism destination.

With the opening of the Hong Kong-Zhuhai-Macao Bridge and the ongoing development of the Greater Bay initiatives, we truly believe Macao has the potential to become the MICE capital of Asia, and we fully intend to contribute to that goal, both through our existing assets and future investments.

Let's turn to Singapore.

Adjusted EBITDA was $346 million.

Normalized EBITDA was consistent with prior year at $384 million.

Rolling volumes increased by 23% over prior year while mass win per day was consistent year-over-year in Singapore dollar terms.

The hotel continues to enjoy strong occupancy and the retail sales per square foot increased by 10%.

Our Las Vegas operations had a very strong quarter with adjusted EBITDA of $136 million.

During this quarter, we complete the sale of Sands Bethlehem.

This project has been a great success for the company not just financially but in terms of its positive impact on the wider regional economy and local community.

It's is a great example of how our developments can drive economic growth for our host communities.

I'd like to thank all the team members at Sands Bethlehem for their dedication and professionalism over the years and wish them the best of luck in the future.

Finally, we continue to increase the return of capital to shareholders.

In addition to our regular dividend, we repurchased $180 million of stock in the quarter.

Thanks for joining us today.

Let's go to questions.

Dan?

Operator, we're ready to begin the question-and-answer session.

(Operator Instructions) We have a question from the line of Felicia Hendrix from Barclays.

I think it's because the new font on your deck threw me, Dan.

So just looking at your mass results with the base up almost 15% and premium mass down about 4%, Rob, just wondering if you could talk about the complexion of the premium mass declines.

Was it mostly in the supreme mass?

Was it across the whole segment?

And also just wondering if you could talk about the performance vis-a-vis the ramping premium product in the market.

So I'll stop there and then I'll ask my follow-up.

Thanks, Felicia, and apologies for Dan's font.

I share your pain.

Let's put our base mass and premium mass segments in perspective.

Our drop in the second quarter, I think, was about $6.1 billion.

That was up year-on-year and also quarter-on-quarter.

So think about that for a second.

Our second quarter drop actually exceeded our first quarter despite Chinese New Years and the seasonality issue.

And I think you all know that Q2 is typically our weakest quarter.

We have the largest base mass business by far in Macao, and this quarter's performance was exceptional.

On the largest base in the market, we grew another 14.7% year-on-year.

I think the bridge has been helpful, but the real story here resides in our capacity in lodging, gaming, entertainment and retail assets.

We dominate the base mass segment, and our competitive advantage is undeniable and will live on for quite a few years, I believe.

So let's look at our premium mass business, which you referenced as well.

Again, we have the largest premium mass business in Macao and the largest margin in that segment.

Volumes were consistent, and that's with Q1.

Our miss came in the hold percentage, not in the volume.

The volume was there; the hold percentage wasn't.

To put it in perspective, our mass business and premium mass business exceeds $25 billion of drop annually based on current run rate.

So a miss in hold percentage of 1 point or 2 or perhaps 3 creates a massive impact on our results.

So I guess this is demonstrated by the results in this segment from Q1 versus Q2.

You can do the math and realize the swings here are in the hundreds of millions of dollars on an annualized basis.

But let's discuss what we're doing about in the next couple of years.

While others are talking about what they're going to build down the road, we are building.

We're building 1,200 exceptional suites at the Londoner and the Four Seasons, and these are large, very large stunning suites of the highest quality that will open throughout 2019 -- some will open actually this fall -- throughout 2020.

And these suites are laser-focused on the premium mass customer at the highest level.

Our suite product, SCL.

Our suite product will exceed most of our competitors' total key count by the end of 2020.

Macao rewards quality product and scale, and we have the product to drive exceptional premium mass flight as a result of our products.

We expect to dominate that segment in the same manner we dominate base mass play.

The future Macao today and tomorrow is mass and premium mass, and we believe rolling in junket business, while will be helpful, the real future -- our growth relies on mass and premium mass growth.

The profit drivers remain these segments, and the absolute driver of these segments is product, product of scale and quality.

We made, in this phone call, a couple of years ago, a very large strategic bet on the future of Macao, and we decided to invest over USD 2 billion at the time that others were unwilling and uncertain.

We made that bet.

That decision will be front and center next year as we complete the Four Seasons suites.

We'll have approximately 3,000 suites in Macao, and that excludes the 750 square foot suites at the Venetia.

If you include those, our portfolio is over 5,500 suites.

Macao's future growth will be in the mass segment.

Our structural advantage is already evident in the base mass.

This will not change.

Our goal is to extend that advantage in the premium mass segment.

The next 18 months will see the introduction of a product that is superior from a design perspective but also from a scale perspective, and that will be proven out in the next 2 years, our performance as we get stronger and stronger in this premium mass segment.

We're very sure about how we feel about this product and how it will perform in the market.

So maybe to add some color to the volume issue as well as the hold percentage issue, Felicia.

Yes.

It is.

And just to kind of follow up on that, I mean you guys actually did come in on the mass side better than we were expecting on both mass -- on both the volume and the hold or the win, rather.

But just kind of looking sequentially both at your mass market share and even your VIP share, it looks sequentially like you did lose some share.

And I'm assuming that is kind of what you were alluding to in those comments on that premium mass side and on the VIP side.

There's some new product now and you're rolling yours out next year.

So maybe you could just...

I think to that point, we, again, to be real clear about this, our success this quarter, that 14% year-on-year growth in base mass shows you the power of these products we have currently in the market.

But I think our future success, while we'll dominate base mass for, I think, the next 5 years, I don't see anything else happening in the market that would hurt us in terms of that growth.

But we really want to focus and be laser-focused on that premium mass customer.

We believe that customer responds to product.

So you open the Londoner with approximately 5,800 keys, a brand-new facade, a brand-new casino floor.

You get that Four Seasons building opened with 290 super large suites of quality, do the same thing with the suites inside Londoner on the [apex] side, and all of a sudden, you've got a product that probably is undeniable to our suite capacity along with our retail and the other products we have in that market, entertainment.

I think it puts us in position for the future.

It's dominant.

I just believe -- I think the success at Melco and Morpheus is evident.

We've seen that time and time again, product works in this market and we're dedicated to giving not just large-scale product but great-quality product.

And I think our success at Parisian, as evidenced by the call -- the comments in the opening, we opened that hotel to about $100 million run rate per quarter.

It's now morphed to $140 million, $150 million, $160 million.

It's a $600 million store performing very, very well and the growth there comes out of premium mass in that new suite product at the Parisian.

We expect the same to happen.

We've seen this at Venetian.

We've seen it at Parisian.

It will happen again at Four Seasons.

Think about a brand-new Four Seasons building with gaming capacity, 290 exceptional suites and then on top of that, we opened Londoner.

Our portfolio is going to be in a very different place inside the next 18 months.

Okay.

But for this quarter, what place are you in just in terms of some of the competing product that's out there?

Well, I think you'll see that we're still -- we're #1 in the market in both base mass and premium mass.

The growth again this quarter or the lack of growth is more tied to -- our volumes were fine.

We're consistent.

Q1 was consistent with Q2, which I think is a great statement.

Where we've missed is in the I'll call the -- what you want to call normalized hold percentage.

And how you address that these days is confusing.

That's evolving, that whole situation, what you think.

Is it 22, is it 24, is it 25?

People raising their estimates, but our miss again is tied to our hold being different in Q2 than Q1 and that's the whole difference.

Our base mass was extraordinary.

It's our premium mass that missed the hold, especially at Venetian, frankly.

We didn't hold well.

Another question from the line of Thomas Allen from Morgan Stanley.

So just on the Singapore bit, the increased entry levee went into effect at the beginning of April.

How are you seeing that affect play?

It's negative in terms of we've had some pushback against the levee, but it hasn't affected our volumes very much.

It's been nominal.

You would expect with the pricing increase, to see some pushback -- there has been -- from the low end of the customer base.

It's already stabilized and probably in the upswing, but the impact is negligible.

It's a few points maybe of drop on the nonrolling.

And I think you'll see it come back in Q3 and Q4.

Like anything, we price it up, there's going to be initial negative reaction.

No one is celebrating the increase NGC, but it's not material and not impactful.

Helpful.

And then just in terms of Vegas, your baccarat business was really strong in the quarter.

Recognizing you had a soft 2Q '18, but it just stands out where it was strong in the face of kind of the market weakness and some of your peers talking about weakness in that segment.

Can you just talk about how your perception of what's going on there?

Sure.

We're very proud of the Vegas performance.

I think it's the best in our history or if not, it's close to it.

Everything worked in this quarter from a gaming and lodging perspective.

The rates were strong, the occupancy, our business looked very good.

The baccarat grew, and I think again, we'll use the term highly concentrated.

Our future in Las Vegas, I think, is less and less dependent on the super high-end and more dependent on slot ETG and premium mass, mass.

It kind of mimics what's happening in Macao a bit.

Again, as you know, this is primarily lodging market.

We remain strong in the lodging piece of our business quarter-after-quarter.

We faltered in the gaming point, and a lot has been volume and some has been hold percentage.

This quarter, we held okay.

Our volumes were better.

I wouldn't call it a trend, and I wouldn't try to extrapolate how it plays across the market in Las Vegas.

I think this market remains -- you can make a lot of money here if you focus on the hospitality piece and if you have the right gaming mix and you run your floor properly, watch your costs.

We had a good quarter and we're very proud of it.

We had like in the first half of the year, we're tracking it, I think it's close to 2 70 EBITDA, so we could have a record year here in Las Vegas.

But again, I think on the baccarat piece, Thomas, less inclined to believe that's going to be a trend, that we're going to see quarter-after-quarter of strong performance.

I do think we'll see our overall table and slot business ramp up especially in the premium mass side.

We're building product for that.

We're addressing that in the casino floor.

We're very -- we've run our business here very close to the vest, look at everything we can do in the floor to maximize profitability.

In this quarter, it really paid off, and I think it will pay off for the rest of the year.

One thing to note is that we have been reinvesting significantly in Las Vegas over time.

So we'd like to believe that through those investments, both in room product and the casino floor, both on The Palazzo side, food and beverage operation as well as the rest of the campus, that you'd see some growth in cash flow.

So hopefully, this can continue because we're going to continue to invest and hopefully grow the market.

Your next question comes from the line of Joe Greff of JPMorgan.

Rob, my question relates back to the Macao premium mass results.

I just want to understand all your comments, which we appreciate.

You're saying premium mass volumes in the 2Q were consistent with the 1Q, so I'm presuming you're saying that's flat sequentially.

What would be in that...

I think it's down, Joe.

I think it's down 2%, 3% if I recall.

Okay.

And what would it be on a year-over-year basis?

So just not taking into account variations in hold percentage?

Yes.

Our premium mass dropped in Q1 of '18 -- Q2 '18 versus Q2 '19.

That's not really something that we put out publicly just in terms of the way to compare it with that breakdown.

So I think just in general, you should look at the Wynn for guidance and just see that the business itself is healthy.

In the long run, it's going to continue to grow based on the investment that Rob referenced in the earlier question around how we see the business and what our positioning is.

And in the long run, this is something that we'll do quite well, right?

I think the key thing here is if you look back at the bet that Sheldon made more than a decade ago, this brilliant bet to invest in scale, to invest in nongaming amenities, to really create the critical mass that allows people to show up and have a lifestyle-type experience, that they can go to a show, go to retail, go to the best restaurants that they've been to and then stay in some of the highest-quality suites that are offered in the world, you're going to realize that with the additional suite product that Rob referenced, we're going to have premium mass growth.

We're going to see the best customers available come to us because of the amenity mix, because of the experience we offer to them, because of the high-quality gaming environments that we have.

So we don't typically get this granular on premium mass drop and the way to split it because at the end of the day, the business is managed in aggregate from the standpoint of production on return on invested capital.

And so when you look at our results over time, we think we've been very good at capital allocation.

We think we've been very good in investing in the right assets to the right quality level.

We're getting better at it.

And we think this next step that Rob referred to is going to really leverage the initial bet that Sheldon made years ago in scale and propel us to the next category.

So I think you look at this year-over-year in 2Q '18, you see that we -- our mass table win was $663 million.

It's a great -- it's a spectacular number.

And then we did $635 million this quarter.

Again, there's some hold in there.

There are some other factors in there.

But as a practical matter, the business continues to be very healthy.

So I think -- you have to think that this is a long-term business and you have to think about the trajectory that we've experienced over the last couple of years, particularly as the inbound or the outbound tourism growth from China has been occurring.

So we feel very strongly about it.

Joe, I think just to comment further on the ecosystem we have there besides the new Apple Store and the theater and the retail, the endless advantages we have, I do think you have to pay attention to the suite mix in Macao.

Again, a lot of big people are talking about they're going to build this, they're going to build that.

And I don't blame them.

The most coveted asset in Macao today is rooms and suites.

The one thing everybody wants more is rooms and suites.

And I think it's clear to see where our trajectory has been in the last 4 to 5 years in that segment.

We just keep growing year after year.

Whether we miss by a quarter by 1 point or 2 or grow by 1 point or 2, the fact is we're approaching this year probably $25 billion in those 2 segments based on premium.

You put that against anyone else's business, there's no comparison.

When we get lucky, we hold to the high end of the range.

We have $800 million, $900 million opportunities.

We don't hold lucky.

We hold down to the $750 million or $740 million range.

But in the end, if you look at where we're going with our product offerings and our suite and table, our entertainment, our retail, scale and size and quality, I think it's undeniable we're going to go in this premium mass segment.

Yes, we won't be able to dominate as clearly as we do with the base mass, but I think we'll come awful close.

Got it.

That's helpful.

And then just my follow-up, and I think I know the answer to this, but I just want to get a clarification from you guys.

When I look at Sands Cotai's -- Sands Cotai Central's performance in the 2Q, would you say anything there is being negatively impacted by any renovation disruption or any preplanning or anything related to the Londoner?

Oh, yes.

You've got -- you have 1,200 keys were ripped apart and being transformed into 600 keys.

You've got a massive problem in terms of just -- it just happens.

You can't do it quietly.

Then, you have the disruption at Conrad as a result of the transformation of force of the holiday into the Londoner suite product.

And then you have facade issues that are starting to happen out there.

I wouldn't call it maximum problems, but I would call there's absolute disruption to some degree coming out of the transformation of holiday into Londoner and the adjacent Conrad, the noise, et cetera, yes.

It's still a 1,200-room transition to 600.

There's a lot of banging and hammering, and there are some people upset about it.

You can't avoid disruption when you're transforming a building like we do in that, and it's going to get worse, I think, as we get into this further in the year.

Your next question comes from the line of Shaun Kelley of Bank of America.

Rob, sorry to beat the dead horse on this a little bit, but just on the premium mass side, I mean I think we all have a pretty good feeling for how concentrated some of the VIP business is, especially in markets like Singapore and Las Vegas.

Can you just give us a little bit more color, maybe at a broad level on the customer base that you're seeing in premium mass in Macao?

And just can you talk about the sensitivity around how important a couple of points of hold here can be?

Is it just a fragment of the customers that are able to move the dial across the whole business?

Just or kind of how concentrated is it?

Just to give us a little bit more color in terms of what to expect from a volatility perspective going forward.

Let's begin with apples and oranges.

You've heard the expression of apples and oranges?

VIP in Las Vegas and VIP premium direct rolling in Singapore is night and day, apples and oranges versus premium mass in Macao.

Macao is a mass premium market with thousands and thousands of customers.

In Las Vegas, when I say concentrated, I mean concentrated, especially in the baccarat Asian piece, that's a very different audience.

Same thing in Singapore.

I wouldn't mix those 2 up.

It's very important.

What you see in China -- in Macao is extraordinary.

It is -- if you think about the comment, in all the years I've done this, there's never a market and never will be a market that one company does $25 billion of roll -- of drop for the year.

Think about how staggering that number is, $25 billion in premium mass -- and mass.

It's not 1, it's not 10, it's not 50, it's thousands of people coming in.

That's why we're building all these suites and all this product that's laser-focused on getting our fair share, in fact, beyond our fair share.

We want to punch above our weight.

And so in Singapore, that's the game plan there as well.

Be very careful when you allude to VIP because when I think of VIP in Singapore, I think of a very concentrated direct rolling customer.

Premium mass is a horse of a different color and that customer we are targeting with our new expansion in Singapore.

Look, showing you how we're thinking about this is clear.

We want to be the dominant player in Asia in the premium mass baccarat and mass baccarat business.

These assets we're constructing, we're designing for that audience.

We've already because what Sheldon did a decade ago, the scale business, we dominate that.

That's pretty clear, the number is 15% growth on a huge base mass platform.

But to have this thing, these suites, especially in Singapore as well as in Macao, this is not a small market.

This is a very large pool of customers coming out of China.

They're also throughout the Rim.

And so I wouldn't worry about.

And my point of hold percentage is that my point is we don't know what the -- the hold percentage are moving.

I mean people are constantly updating their hold percentage formula.

And it's a very complicated, evolving process in Asia, especially in Macao.

It's a fascinating market, but it evolves constantly.

The Chinese customer makes counterintuitive bets from my position.

They play longer, they have a different exit strategy than other customers.

Large players, oftentimes their bets aren't disciplined but play their proposition bets with long odds.

The market mix in Asia and Macao and Singapore is so different than in the U.S. And of course, gambling in Asia is not as frequent.

It's not as ever available as is in the U.S. So when they come to Macao or Singapore, it's more of a -- it's what Vegas was 30 years ago.

It's unusual.

It's unique.

So they stay longer, they play larger.

They don't run from the table when they get ahead.

They bet counterintuitively.

It's a very different audience, but please be careful, when you make that comment about, it's the same as Singapore and Vegas, high-end.

No, it's not.

It's a pool of probably of tens of thousands of Asian people who play to that level.

And it's the reason why Macao is so incredibly important to have a product to address that.

Perfect.

That definitely answered the question.

And then other thing I just, for my follow-up, I wanted to touch on -- to hit on the capital you guys are investing to target this customer more.

I believe you mentioned a couple of times both in comments and in the prepared remarks that some of the suite product for the Four Seasons is going to open in the fall.

Is that new?

And can you give us a little bit sense of how much capacity could come online?

Sort of a little bit about how many more rooms and what the timing of that might look like?

It's Patrick.

I think if you turn to Page 16 in the deck, what you'll see is a slide consistent with one that we published previously, where we lay out exactly the time line that we see right now around these new suite product coming online.

So if you look at the Four Seasons, we're talking about sometime toward the end of Q1.

Our goal is Chinese New Year.

So that's when you should really start seeing the impact of the Four Seasons suite product.

Your next question comes from the line of Anil Daswani of Citi.

My first one is on the VIP segment.

Now some of your competitors have opened new VIP product and have actually managed to do the opposite of the market trends.

Is there anything you can do different to your product on the VIP side to try and take some share from some of your competitors?

Yes.

Two thoughts on that.

We went -- I was there last time in Macao.

We toured the new product.

I think it was at Melco and also at Wynn, I believe.

And there are great salons.

We're opening the Londoner and Four Seasons' brand-new salons.

I think they will be very competitive.

They will open next year and they're a great product.

And to your point, yes.

We can open salons.

However, I will be careful in terms of we look at the numbers in those salons and the junket business in general, of the margin and the flow-through.

As you see from our deck, summer represents sub 10% of our business comes out of the rolling -- specialty junket segment.

We want to be in that segment.

We always said we'll be in that segment.

We'll spend the capital.

We'll compete and we'll compete favorably.

But I would caution people to look at the flow-through and the margins coming out in the junket business.

With the erosion of that segment up with the margins, it's less appetizing for the market.

But having said that, we'll certainly participate.

Our new salons at the Four Seasons and at the Londoner will be very competitive and we'll plan to participate, yes.

And as a follow-up, can you also tell us what the plans are for the expansion at Marina Bay Sands?

Is there a time line that you can share as to when the new VIP stuff or premium mass stuff in Singapore will be coming online?

So you're referring to the actual project itself?

Or the stuff that we mentioned in Tower 1?

The stuff that you mentioned in Tower 1 as well as the expansion, please.

Yes.

I think if you go to the deck, we've included the slide that we included previously about the Singapore expansion, starting on Page 22.

I think the way to think about it is, as we said before, our goal was to kind of open by the end of '23, kind of be in operation January 1, '24.

We'll see if we can get there.

We're working hard to do so.

And I think we don't have a precise time line yet for the Tower 1 activities.

So that's going to be dependent on obviously the required approvals and some work we have done.

We just have to make it happen.

So it's probably going to be a year or 2 before that comes online.

So nothing near term.

We just have to work through that and get the necessary approvals before we can continue.

Yes.

Just to follow on Patrick's comments about what's happening in MBS, we should mention to you that our mass casino floor is going through renovation currently, and we'll open -- renovate it by summer of 2020.

The new super premium mass levels, level 2 open early 2020.

[HM] Levels 2 and 3 in '21.

And keep in mind, we're adding additional slot machines late '20, we'll add another 400 roughly.

And the balance in '21, so 500 more games in the floor in '21.

And so the market does $700, $800 per unit per day, it's pretty impactful.

Next question comes from the line of Carlo Santarelli of Deutsche Bank.

Rob, could you talk a little bit on the VIP side as to where you guys kind of are?

And I know you're not going to give specific numbers, but where you are with respect to your direct mix of VIP relative to your junket?

And maybe just benchmark that against prior periods in the history of you guys operating in that business in Macao?

It's Patrick.

One thing, we don't actually provide that breakdown.

We kind of view VIP as a whole as the way to kind of think about the mass for that business.

So just as a practical matter, I think what you'll see is that we're kind of following the trend of the overall Macao market for VIP.

And unfortunately, we witnessed a little bit of contraction in that business.

I think the prior question was about our products.

We feel like over time as we continue to invest, the substantial capital that we're deploying in Macao, that we'll be much better positioned to grow in VIP when there's a rebound in the future.

This is a business that's seen some cyclicality across years, seen some challenges in the way customers utilize that type of business.

And over time, it's always been resilient.

And so we'd like to believe that we're poised to take advantage of the return when it occurs.

And in the meantime, we'll keep servicing the customers there as best as we can.

But in terms of providing specific breakdowns, that's not really something that we're going to provide at this time.

Understood, Patrick.

And maybe if you wouldn't mind, could you comment a little bit about how you see kind of the junket business shaping up here over the medium-term just in terms of consolidation that's occurred within the junket industry?

And whether you see that kind of continuing?

Or you see the market may be starting to become a little bit more fragmented as we look out over the next 2 to 3 years.

Carlo, I'll take that.

I don't think -- it's hard to predict.

Obviously, junket is going through a very, very dim period with what's happened in the last month or so.

It's hard to predict what the junket business ends up being.

We're hoping for a resurrection to come back.

It's always done that in the past.

I assume it will in the future as well.

But there's other markets out there and some of the structures and some of the ways they can gamble makes it hard to figure out how Macao figures into that.

I mean it's confusing, the things that are allowed regulatory-wise in other jurisdictions.

It's hard for us to really ascertain where the junkets want to go.

They want to redirect their efforts to other jurisdictions.

I think that's the biggest question.

I think the market will be there.

Demand is there.

I assume liquidity will be okay.

But where do the customers want to go and where do the junkets want to send them?

And so it's hard to say.

We've always know, in the end, it's driven by -- product is essential.

We'll have the product.

But the realities remain.

It's a low-margin business and it's challenging.

And I think, again, it's been challenging structurally for Macao to compete if other jurisdictions do things that Macao doesn't allow.

And I applaud the efforts of the Macao regulators to keep it the way it should be, which is done with integrity and quality.

The Macao people, I think, have stepped up and done the right thing, and we applaud their efforts.

It's quite -- it's noble.

They run the business properly and not allow things to happen that have been happening.

So we're hoping for a comeback in Macao.

We'll certainly have a product ready for that comeback.

But as you alluded to earlier, we have another side of our business, new direct.

And that customer enjoy our salons and our suites if in fact the junkets don't participate.

But I think we both know Macao is still a very desirable jurisdiction albeit regulated, regulated properly.

So we'll have to wait and see what happens.

Your next question comes from the line of Robin Farley of UBS.

I just wanted to see if you could comment on, I don't know if you have any expectation for the time line for rebidding on concessions in Macao.

Just any expectation when there might be RFP in the next 12 to 18 months, anything along those lines?

We currently don't have any information, and we're eagerly awaiting for what we should do.

But that being said, we're very proud of the investment that our Chairman made when he first started building in Macao and how that blossomed into the largest portfolio of nongaming amenities.

And we also believe that because of our strong relationships and support for small and medium enterprise, we're very well positioned to continue.

So we feel like we've been a very good corporate citizen.

We've contributed meaningfully to the economy there.

We've done the things we've been asked to do to diversify the economy away from nongaming, and we're prepared.

So we think we have a great case to make for the future and we're just eagerly waiting.

I guess one of the other concession holders has talked about big nongaming investment that may be added to their resort, not necessarily anything that would have to be added before a concession renewal would be known about.

But do you have -- you're obviously investing tremendously right now in your Macao properties.

When you look out a little further, are there additional things that you think about doing or even have room to do that could add as well outside of what you've already announced for the next 2 years?

Robin, it's Rob.

I think about it every day.

We'd like to invest with both hands in nongaming assets because I think if you look at our history, we've done it without being really -- they asked us to do things, and we over-responded.

And you see the investment we made there with the hotels and the entertainment and the retail.

And all the things that people thought were crazy are pretty not crazy today.

But we like to invest with both hands in the future of Macao.

We are such believers in the -- we're proud to be there.

I think Patrick alluded to what was done 15 years ago.

I remember watching it and thinking to myself, will this pay off?

And obviously, Sheldon's skill and thought process paid off beyond my understanding.

It continues to pay off.

And I think we would be thrilled.

Sheldon, if you ask him to invest many more billions of dollars, would ask him how fast can he get there.

And so we're eagerly waiting the government's advices.

We are very, very proud of what we've done in Macao.

It's been one of the greatest experiences I've ever had in this business, and the government has been nothing but supportive.

We're proudly part of that process there.

We're very proud to be part of the -- we talked about our point of view, which is clear.

We like to see it evolve even further to maybe the greatest nongaming jurisdiction.

Our retail business there, our entertainment business, our nongaming lodging business, it just -- we are huge believers and we think we're right at the beginning, not the end, of Macao's success.

So all they have to do is tell us how much and where, and Mr. Adelson will be the happiest guy in the world to write a very big check.

Your next question comes from the line of Jared Shojaian of Wolfe Research.

Just to stick with the premium mass theme for a second.

I know this might be a hard question to answer, but do you think the conclusion is that length of play is down from 1Q to 2Q?

And then as I think about a normalized run rate for mass win percentage, do you think 1Q was more of an anomaly?

Or do you think 2Q is more of an anomaly?

Good question, Justin.

Good question.

Well, the first question you asked about the time play.

I don't think that's worth worrying about.

We don't see any evidence of that.

If anything, this market, if you haven't spent enough time there watching the way these customers come and gamble, and again, the only legal jurisdiction available close to Mainland China is Macao.

And in case you haven't been there recently, it's an extraordinary place.

I mean it's evolved to a place where I think one of the reasons Vegas will have a difficult time in the future is it's such an attractive environment for gamers.

It's got all the bells and whistles, all the dining and retail and entertainment, if you want, right across the bridge there.

So it's pretty extraordinary.

And the bridge, of course, added -- gilded that already big lily.

So I don't worry at all about Chinese people gambling longer.

That's not a problem at all.

As far as that business, where it goes, it just gets bigger and better.

And I wouldn't worry at all about these people coming in and that business growing.

As to your hold percentage question, I think I alluded to it earlier, it's fascinating in that the Chinese market is somewhat counterintuitive.

Having grown up in places like Atlantic City and Las Vegas and Chicago and even in the Caribbean, you've had this belief that the larger bankroll customers would gravitate towards, let's call it, the better-advantaged bets.

But the Chinese are counterintuitive, and they make bets on proposition bets.

They play sometimes only proposition bets.

They play far beyond the time you think they would.

With most customers, you worry about will they give you adequate time to qualify for complementaries or discounts.

The Chinese, you just wonder if they're going to leave the table.

They're a much different gamer, a much different profile.

And I think that lends itself to a confusion about hold percentage.

We held, I think it was 25 or 24-something in Q1, I don't think it's an aberration at all.

It's just a question of what's the mixture of bets.

When you have a -- it all comes down to how they bet their game.

This is a math business.

And when they make these bets that help the house hold higher, you're going to hold higher.

And what we saw in Q1 is not aberrational.

In fact, I can make an argument that the hold percentage is gravitating towards the higher end, 24, 25, 26 versus 21, 22.

The premium mass customer stays longer, has a very confusing exit strategy.

They make bets that don't seem to, on the face, wouldn't be the right thing to do.

So I think you're going to see as premium mass gets stronger, hold percentages trade up.

Am I prepared to tell you it was 23 versus 24 versus 20.

I don't know.

And I think, again, depends on the mix of bets.

They bet pairs and ties.

They bet -- they don't go straight bet in a bank player over there.

They bet for Lucky Six.

They bet things that we find somewhat confusing as operators.

But it's an incredible market.

Also they come from faraway places and they stay longer.

And so when they get to Macao, it's not just they're going to go back to their home city and a place to gamble.

So they have outsized gaming appetites.

But clearly, it's a mathematical equation that we can't always gauge.

But I don't think anyone is prepared to tell you exactly, is it 23, is it 24, is it 25?

We do know things are trading up, though.

The whole market is moving towards a higher hold percentage category, which is helpful to us and our fellow operators and competitors.

So again, as the market mix changes, players come from further away, more premium mass, I think you're going to see hold percentages trade up.

Is our first quarter repeatable?

I believe it's absolutely repeatable.

I think this business is going to evolve further.

But no one I've met can tell you exactly what the hold percentage number should be.

Great.

That's helpful.

And then can you just talk about the promotional environment on the junket side?

And specifically, if you've seen any changes in commission structures from any of your peers?

No.

I don't think that's an issue today.

I think the junket business is in flux, but I don't believe it's that promotional.

I think it's more about where the customers want to go, what the better products are.

And frankly, it's a jurisdictional decision.

I mean I think some customers are moving towards maybe promotional.

In other jurisdictions, they offer better bet or better circumstance than we do in Macao.

But again, I think Macao will stay.

It's a gold standard for the regulatory environment there in terms of keeping it consistent, keeping it accurate, keeping it -- I think what they've done is exemplary, and I think we're lucky to be part of a jurisdiction that runs that business in the manner which Macao does run it.

I don't think it's about promotional within Macao.

It may be promotional outside of Macao, other jurisdictions, that could be hurtful to the junket revenues.

Your last question comes from the line of David Katz of Jefferies.

I wanted to ask about one of the areas we're constantly trying to monitor is the Chinese economy and the degree to which it is helping and hurting business.

And quite frankly, we've seen some mixed signals in that regard.

If you could share whatever perspective you might have in that regard.

And my second follow-up is, as I look at the capital that you've laid out between Macao and assuming that you were successful in winning a bid in -- with a winning bid in Japan, we've gotten so used to a pristine balance sheet.

Where might you see that going?

And where would you be comfortable, leverage-wise, as we look out over the next several years?

Let's start with that.

Fine.

Why don't we address the capital structure first?

If you look at our capital structure and you look at the nature of the way we borrowed, I think the key thing here is that we've been very conservative with the anticipation of having the opportunity to develop in Japan.

So we always wanted to make sure that we had ample balance sheet capacity to be able to fulfill our Chairman's highest and best use, which is deploying capital in new projects.

And so we would only invest in something that has a high return threshold that meets his criteria and the Board's criteria.

And so from that standpoint, I think if you look at the timing of Japan, look at, you referenced both Singapore and Macao, you look at the timing and delivery of those projects and the potential cash flow growth that Rob alluded to out of Macao for some of those investments and what our view is on what the appropriate return is in Singapore, you can see that the timing actually fits quite well for the growth in EBITDA and the creation of the balance sheet capacity in order to fund the development in Japan.

And so we're very much looking forward to the opportunity.

Unfortunately, the time line is not so obvious and it's also not so short.

It's possible that may take several years even before an operator is selected.

So during that time, we'd like to believe that our assets in Macao and in Singapore will continue to grow their cash flows as they establish a stronger position in the market and enhance our already very strong offerings.

And so from our standpoint, we feel very strongly about our financial discipline and about our financial policies that we've addressed before.

Our Chairman has said that he's very focused on a 2 to 3x leverage level.

We're very focused on maintaining, upgrading our investment-grade rating.

This is something that's very important to us for the long term, and we think it has very strong strategic advantages for us as a company.

And so we'll be very careful and very mindful as the Board looks at these issues to ensure that we keep our leverage level and our cash flow profile and our investment level in our assets to the right levels in order to ensure that we get the outcome that we're discussing.

And so we're ready for Japan.

We're looking forward to the opportunity.

It's just not super near term.

And so with that, we think we'll have plenty of capacity to get it done and stay within the levels that we've discussed.

All right, and I think I'll turn it over to Rob a little bit for the Chinese economy question.

Dave, we hear anecdotally.

I don't want to say this is a -- that you should take too seriously, but we hear anecdotally from our people who work in the casino that their customers are concerned in the trade war.

It is impacting some of their business.

They're more of the entrepreneurial people.

Probably, affects it more at the higher end, people own their own businesses or work for companies that are being impacted by it.

It's not a good thing from their perspective.

We hear a very positive feedback that why can't this war be resolved?

But we don't have -- based on our base mass growth and based on what we're seeing in general, Macao looks like it's doing just fine.

I wouldn't want to try to put the trade war front and center of any real concerns other than anecdotally, occasionally, hear from a VIP customer.

I heard from my customer here in Las Vegas recently, a Chinese customer, that it's really impactful.

But I don't know how to clarify that or put a real number that makes any sense against the business.

Again, when you grow 15% in your base mass, the premium mass business will have record levels this year.

How do you complain?

How do you really find the concern that this is -- now maybe we're wrong.

Maybe this war will be resolved shortly.

I see that there's a couple of things happening in the headlines.

and maybe that will impact our business.

It can't hurt us.

It will probably help us once it's resolved.

It's a positive, positive for China, positive for the U.S. And we're hopeful it gets resolved.

But to give you real other than occasional anecdotal feedback would be incorrect.

Thank you all for participating.

This concludes today's conference call, you may now all disconnect.