拉斯維加斯金沙集團 (LVS) 2021 Q2 法說會逐字稿

Good afternoon. My name is Sade, and I will be your conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands Second Quarter 2021 Earnings Call (Operator Instructions)

I will now turn the call over to Mr. Daniel Briggs.

Thank you, operator. Joining me on the call today are Rob Goldstein, our Chairman and Chief Executive Officer; and Patrick Dumont, our President and Chief Operating Officer. Also joining us on the call today are Dr. Wilfred Wong, President of Sands China; and Grant Chum, Chief Operating Officer of Sands China.

Before I turn the call over to Rob, please let me remind you that today's conference call will contain forward-looking statements that we're 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.

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. (Operator Instructions) Please note that this presentation is being recorded.

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

Thank you, Dan, and good afternoon, and a very good early morning to our colleagues in Asia. Just some brief comments, and we'll go right to Q&A. Our results continue to reflect the pandemic's impact. We did generate positive EBITDA of $244 million per quarter, about the same as the first quarter.

Our Macao performance reflected sequential improvement, but pandemic-related travel restrictions continue to impact our performance. We do remain confident in the eventual recovery in both Macao and Singapore, and we cannot define the timing of the full recovery that's underway and will continue in 2021.

Singapore remains in the $500 million to $600 million range annually, although the second quarter was impacted by heightened pandemic-related restrictions for a portion of the quarter. We will also be subject to closures of both portions of MBS from today through August 5 as part of COVID-19-related protocols. This will obviously have a negative impact on Q3 results.

And as if, there remains no visibility as to when air traffic will return in Singapore, unless Macao, it is difficult to project additional EBITDA from MBS until the resumption of air travel.

Our considerable investments in Macao continues to take shape as the market recovers Four Seasons and Londoner will present growth opportunities, and we continue to have the largest footprint in this incredible market. China continues to demonstrate economic resilience. The spending in Macao's very strong at the premium mass level from both a gaming and retail perspective. You may want to reference Pages 29 and 30 in your deck.

We do have great optimism about our ability to form to pre-pandemic levels once [the vacation] returns. Our company is dividing the 3 areas, the Asian portfolio in Macao and Singapore. While we believe Macao will accelerate in the second half of this year and lead recovery, Singapore will follow up on the resumption of air travel. We are confident we'll return to a $5 billion plus EBITDA from Asia in the future.

The sale of the Las Vegas assets create liquidity and vast optionality to explore large land-based destination resorts in United States and Asia. And finally, in the early innings of building out our digital presence, we are exploring multiple opportunities at present. And we are eager to have this effort become [entailed] to our company in the years ahead. We'll update you at the appropriate time. Let's take some questions.

(Operator Instructions) Your first question is from Robin Farley from UBS.

I wanted to follow up on your announcement about your online strategy and kind of pursuing B2B investments. And just if you could help us think about kind of how the brand that you have would help in the B2B effort? Or how -- just in terms of what that does for Sands as well in a reciprocal way?

And then also, is that -- is that going to be the full extent? Or are you still looking also at B2C options in the online market?

Pat, do you want to take that?

Sure. Happy to. Thanks, Robin. So a few points. I think our brand is very strong. I think we have decades of established brands and high-quality operations and a great relationship with customers. We think that's very powerful to your point.

One thing we're thinking about is we're really investing for the future. We take a very long-term approach. We're still evaluating a lot of different opportunities. I think B2B presents a very significant opportunity for us. David has a great history, and we're really looking forward to him getting started, and we're happy that he joined us.

I think we'll provide updates as we make progress. It's still very early stages, but we're looking forward to being able to deploy capital over many years, and really looking at it from the long term and create a lot of long-term shareholder value.

And I think in the future, you'll see us looking at other things and other opportunities. As Rob has said on other calls, we're going to be very patient. We're going to be prudent and we're going to look for opportunities where we see ways to create real value in the long term.

So I don't think this is the last thing you'll see from us, but I think it's really just the beginning, and we're looking forward to seeing this thing evolve over time. So as we make progress, we'll definitely provide more updates.

Okay. And I don't know if there's -- just as a follow-up. Just thinking about the B2B. Many of the B2B providers out there kind of working with those that would technically be your competitors in land based. And so I guess, how do you think about framing that, how they would see Sand's presence in the online business as somebody that they would partner with versus a competitor?

It's a very fair point. And I think interestingly, our company has seen a lot of changes in the last 12 months. And I think one of the things that we thought about when we considered this is that we really aren't conflicted. The operations in which we -- the markets in which we operate going forward are going to be Singapore and Macao.

And so from that standpoint, it's really a limited universe of people who are our true competitive set, particularly in some of the larger geographies where B2B services model could really be productive. So I think from our standpoint, we are a little bit neutral, like we believe we are from the sense that in a lot of the markets that we might look to target, we don't have any land-based operations and don't have any B2C operations where we could find customers from a B2B business model standpoint. So we feel pretty good about it.

Your next question is from Joe Greff from JPMorgan.

We probably kind of said it mostly just in terms of Macao's reliance on travel and mobility-enhancing measures and timing there, so I'm not going to waste my time on that. But I think at the last call, Wilfred gave a decent amount of detail and I would say, a decent amount of optimism in terms of your license potentially at markets getting extended sometime middle of this year, and that time frame is sort of passed towards about now. I was hoping you could give us an update on your conversations or your thinking, renewal/extension process in Macao.

Wilfred, you there?

Yes. Thank you. Yes. I think the situation has not changed. Obviously, the extension is a very complicated issue. It's something that the Macao government and the Chinese government will have to look at very carefully. They also have their own preoccupation at this stage. For example, the Macao government, apart from still working very hard on making sure that Macao remain a safe city in all the precautionary measures against COVID. They are now preparing for the next legislative council election, which is due on the 12th of September.

So the government is operating at a pace where they feel they want to launch the public consultation for the concession renewal towards the second half of this year, which we believe might mean that it will only happen after the legislative council election.

Now I don't think the government is in a rush to renew the license because they want to do things right. And as we all know, there are many legal issues they have to attend to such as the concession and subconcession issue. And this -- they can only go to the legislative council when the new council is in place.

And then so for -- at this stage, we are really focusing on doing our best, aligning our interest with the government, such as focusing on investment and reinvestment opportunities, building out our properties, improving our operational efficiencies, maintaining a stable workforce, which is very important during this pandemic.

And I think that things will pan itself out eventually because as we move closer to the expiry of the concession, naturally, the extension of the concession is an option which the government will have to look at. But at this stage, there is nothing official and we have no privy information.

And just to follow-up, Joe, on Wilfred's comments, we remain very comfortable with our position. We have to be patient, but there will be a resolution. As you know, we've said numerous times, we've led the efforts in Macao for a diversified approach to development. We've gone above and beyond. Sheldon was the guy behind the Cotai development. We invested USD 15-plus billion, and we continue to follow the government's advice and direction.

So we remain very confident and very patient waiting for the government decision. But no real change, nothing new, but we have not altered our belief that we're in a very good position, very comfortable.

Your next question is from Carlo Santarelli from Deutsche Bank.

Rob, could you talk a little bit about the project at MBS? Obviously, 2025 is the deadline -- or sorry, is the expected opening. As you kind of have this amount of setbacks and acknowledging that you guys kind of pushed it earlier given COVID back in 2020, does '25 still seem kind of realistic as a target? And what are kind of the goalposts for some of the construction work along the way?

I'm going to give it to Patrick, except for one. I'll say this before Patrick jumps in. We remain very committed to Singapore to expanding our presence and our footprint. Obviously, COVID has thrown a monkey wrench, a big monkey wrench in this whole thing.

But this is an extraordinary market. [Why do we] invest in Singapore? We've done very well there. And the addition is going to happen. I think the time frame really depends on the ability to get back to work in the construction area and getting things back in line. I think we've lost '21, we're halfway to '22. So again, we are committed and I'll ask Patrick to provide more color because he's dealt with the government directly.

Thanks, Rob. I think the key thing is what Rob just said, which is there's a certain amount of uncertainty around the timing and availability of when we can actually get things done. A lot of the early parts of this project required us to work with certain government agencies to seek their approval and to work with them collaboratively to ensure that we fulfill the obligations and their desires as well as part of this project.

It's a very tight site. It's 8 acres. There's a lot of programming, a lot of density, a lot of things that have to be worked through and a lot of things that have to be integrated into the current environment to make it right. And so we're starting to work through some of those things.

But as a practical matter, the nature of the construction project of this complexity and size would always be challenging in a normal environment. So I think we're just trying to be cautious and make sure that we understand all the different parameters around labor and around construction time lines before we say that this schedule that is not achievable is achievable.

I think a lot of it depends on the environment and how things go in terms of concession work -- excuse me, COVID recovery over the next couple of months. We'll have a much better view at that time. But right now, I think we're just -- we're cautiously optimistic. We're going to continue working with the government and hopefully have an opportunity to get going sooner rather than later.

Great, Patrick. If I could just one quick one. Has there been any thought, obviously, now given the sale of The Venetian Las Vegas, and the proceeds that are on the comp for that, can you -- potentially revisiting the bidding process in Japan?

Not at this time, Carlo. We've had inquiries from a lot of parties there. We've tried very hard and put a lot of money and a lot of human capital work there in the last 10, 15 years, and we left with a feeling that there's just much uncertainty for us. You can always revisit something based on a change in circumstance. But at this point, we remain in the sidelines.

Next question come is from Stephen Grambling from Goldman Sachs.

Could you just talk a little bit about some of the different expansion opportunities for land-based resorts in the U.S. or even other broader markets that we haven't touched based on so far and how you prioritize and evaluate those different markets?

Well, being in the U.S., you know of our efforts in New York, which we've shut down because New York did not resolve that issue. So that's not available at this time. Texas, we remain very committed to pursuing. I think it's a couple of years away, but I think there's a real chance down the road back in Texas doing something down there.

There's some recent news about Florida. We put a foot in the water in Florida. We think that's a real opportunity. We're going to -- there's a path there in '22 [if we're] successful in gathering signatures to have a vote in the fall of '22 for a land-based opportunity. In the U.S., that's the discipline we're looking at.

We've obviously discussed Japan, although previously. Our best opportunities are to reinvest in Macao and Singapore because those places are proven huge successes. And I think when you're as fortunate as we are to have made $5-plus billion, we need to roll out there who knows what, but there's a lot of running room in both Singapore and Macao.

Frankly, they remain our biggest focus because they're so extraordinary and hard to duplicate anywhere in the world. And I think that's our focus right now is getting MBS things to up and hopefully wait for the fall, and we can invest more in Macao. The Londoner we completed later [this year or in '22], Four Seasons. We'd love to deploy more capital in Asia.

I think the broad opportunity is interesting. We'll see we have -- if we can get there. But it's hard to find things extraordinary at the 2 places we operate to bet.

Your next question is from Shaun Kelley from Bank of America.

Maybe a question for either Grant or Wilfred, but I was wondering I think we have a pretty good sight line on the core -- on the premium mass market and how that's performing and how the spending behavior is going. But I was wondering if there's any color or insights you guys have gleaned just from what you're seeing on more of the base mass or the lower end mass market. I'm sure the samples had a small. I'm just kind of curious on how the customer is behaving when they are in the market and what you've seen at some of your properties if you could provide anything there?

Grant?

Yes. I think the trends have been pretty consistent in the last 6 months. You see, I think, very strong consumption propensity, great strength in spending power for those who have returned to Macao for leisure trips. And I think that applies across the different segments.

But obviously, clearly, the premium mass, the segment has returned in greater volume, greater number of patrons. But you go further down to mid-level in the base mass, the spending power is definitely prominent. However, you can see from the visitations, they are still around, let's say, low 20% of where we were before the pandemic.

So the base mass is clearly impacted by just the drastic reduction in the number of people visiting. But the people who are coming are actually staying longer and in most cases, even more. And I think what was encouraging sequentially, although June was somewhat of a temporary hiccup. What was encouraging was we saw the greatest amount of sequential growth in the base mass and the FIT segments versus Q1 order premium mass continue to recover, the bigger bounce back was actually in the base mass. So we hope to see some of those mix of encouraging trends continue into the summer, summer holidays and beyond.

Great. And maybe to change gears for a quick follow-up on the online topic, if I could. For Patrick or Rob, just kind of want to get your quick sense on maybe the build versus buy equation, right? So obviously, some of these technologies and things are out there, but they could be quite expensive. Just how do you kind of weigh maybe some of the options set around acquisitions and sizing relative to possibly things that could be done maybe more organically?

Patrick?

So it's a very interesting question. It's something that we've been looking at for a while, and we continue to look at. And it's an interesting comment about valuations. I think there's been a lot of optimism in the market call it, the last 6 to 12 months. And valuations have definitely moved around a lot in the last few weeks.

I think the key thing for us is we're really building for the long term. And so when we look at things, we're really going to take a long-term view of value. And if we do acquire something, it's going to be for the reason that it fits into a much larger, broader strategy and something where we see long-term value creation by owning it.

I also think we're not necessarily looking to take big bites right away. I think this is something we're going to look to develop it over time in a prudent manner and sort of build more and then maybe buy where it makes sense. I don't think you'll see us go out and make a splash by using Las Vegas sale proceeds in any large transformational acquisition, unless there's some really compelling reason why we have to do it.

But that's not our focus. Our focus is to build the product, get the culture right, get the opportunity right and then make acquisitions as they sit in with the overall strategy.

Your next question is from Thomas Allen from Morgan Stanley.

Yes. Patrick, just a follow-up to that question. respecting that you're not going to do a transformational deal. Like how are you thinking about the size of the deal? Like are you thinking of being kind of an incubator for start-ups? Or are you thinking like hundreds of millions, low billions? How are you thinking about the sizes?

It's a pretty broad range. I'll tell you our goal is really -- I don't know that we provide a lot of value at the angel stage. We might be able to help some people, but I'm not really sure that that's where we provide sort of the most value. I think from our standpoint, if we can get kind of earlier stage and mid-stage, but again, sitting into a larger strategy, that's where we'll look to be really effective.

I think things that are much larger that would be transformational in the $1 billion range. We'd have to have a really good reason to do it. And I think we'd want to be operating for a while to understand why that would make sense for us, right? I don't think we're going to buy our way into a business. I think we're going to develop our way into a business and look to see how acquisitions help enhance that approach.

Helpful color. That makes sense. And then just on Macao and Singapore, respecting that the majority of your business and the majority of your future is really around the mass market. VIP came in really light, only $600 million of rolling chip volumes in Singapore stood out. Just, can you talk about what's going on there and your expectations?

I think you were saying you're looking at Singapore as close to Macao, you're saying, right, Thomas?

I think Macao was down quarter-over-quarter too, Rob. So I mean Singapore was what really stood out. Could you talk about VIP in general and kind of your expectations there?

Yes. Well, the VIP, as you know it right now, it's a closed market, just locals only. So you're trading mostly on -- exclusively on people who are living in Singapore. Now maybe -- that may be people residing there during the pandemic. You might get -- and that's to push from some of the folks who moved to Singapore, to weigh out the pandemic is part of the reason.

But I don't think you can look at our numbers at this point and really make a whole lot of inference as the future because it's so -- without having a little bit of sloppiness, it's so outsized and yet it's surprising us how well it's doing because we never would have chased that kind of performance, yet people, they can't leave. They're stuck in Singapore. The same way people can't leave, they're stuck in Singapore right now on the high end.

So I think it's hard to make inferences like into the future. It's probably a trend, it's just an anomaly. I think that's going to be the case until this thing resolves, as air traffic have been down on Singapore. You can see these trends, both good and bad, they are confusing.

And I think in the case of it's very difficult to look at Singapore's numbers, come up with a clear direction where it goes and the sloppy performance confused all of us initially. And now you realize a lot of people have traveled outside Singapore by staying [for example]. The same probably holds true on the high end on the [trends national] to be residing in Singapore during the pandemic.

So I'm not sure you can make a whole lot of long-term trends based what we're seeing today in Singapore.

There's one other comment that might be helpful, which is the way we're sort of thinking about it is that the investment and the products really matter. And so if you look at what we've done during the pandemic, we spent a lot of time and deployed a lot of capital in sort of enhancing the offerings that we have. So when there is a recovery, we have better capacity and more competitive product. It is a product of the industry.

And so from our standpoint, the way we think about the long term is the level of investment that we've put in during the pandemic, so we can position ourselves in a more strong way when the recovery happens. So I wouldn't look at the rolling volumes now and for you guys to indicate anything. I think you should look at the fact that you've been able to deploy capital, create higher-quality products, create higher quality experience for our customers. And that way, we're stronger positioned on the other side. And that's how we're really approaching it.

Your next question is from Steve Wieczynski from Stifel.

So probably going back to Wilfred with this question, but I guess for Americans and investors that we talked to, it's tough for us to understand where China is with respect to their vaccination progress. And case counts continue to look pretty promising, but China is still having issues.

But is it -- China is still having issues with lack of availability with the vaccine? Or is it -- the vaccine that's being used hasn't been effective? Or is it just something else? I'm just trying to get more color around that if all that makes sense.

Thank you for the question. Actually, China is not lacking in vaccines. Actually, they export quite a lot of vaccines. But the truth is if you look at the statistics, China today has already administered 1.5 billion doses of vaccine. Now that really means that over 50%, 60% of the population has been vaccinated.

And if you assume everyone has 2 doses, that represents 53%. And they're still vaccinating at over 10 million doses a day. So what it means is that every 25 days, they can increase that vaccination rate by 10%. Now that is also, to some extent, true for Hong Kong and Macao. Hong Kong already administered 5 million doses and its vaccination rate is already over 40%.

Macao administered 460,000 doses. That's also over 40% of the population. So we're quite confident that if China continues in that rate, and with the increase of vaccination rate by about 10% per 25 days, when you come to winter, then almost the whole population, like 90%, 80% would be vaccinated.

Now I think once we reach that level, that travel bubble within China, including Hong Kong and Macao, it's really possible. Now what you have seen in the news is that because China adopts a non-tolerance policy towards COVID, so whenever there's some outbreak in certain areas in the country, it's widely reported and they immediately go back to lockdown. And that's why I think the best scenario in the short term is a travel bubble between China, Hong Kong and Macao because they're so concerned about the importation of COVID cases, especially with the variant cases.

Your last question is from David Katz from Jefferies.

You've covered a lot of ground. What I wanted to ask was just kind of a broader question here. Taking in everything about the U.S. and what you've said in Asia, if we were to think about what LVS looks like in, say, 3 to 5 years out or 2 to 5 years out, what's that picture look like? What's the vision for that?

What are the -- and obviously that can be as qualitative and high level as you're thinking about it. But I'd love to just hear your perspectives on that.

We have a pretty simple market structure. We, first and foremost, see return to $5 billion, $6 billion EBITDA in our Macao and Singapore markets. We see a renewed investment in both Macao and Singapore to grow that from $5 billion to $6 billion and beyond. We certainly see a one or 2 land-based facilities in the United States, maybe Florida or Texas. And lastly, we have a strong digital presence.

And reflecting our balance sheet, we have the ability to do all these things. I think we're convinced in Asia that the most important thing in this company, the timing is uncertain of the turn to a more normal environment in Asia, but the outcome is not uncertain. It's going to happen. And I think it will reflect what's happened here in Las Vegas, which is people flock these casinos, we'll make more money than pre-COVID, and our business will boom again. And that's -- we're [not steering clear of that], but [we're not quite sure] of that timing, but not the outcome.

I also think we -- and clearly, we want to invest heavily in both those places because that's our best path to $6 billion, $7 billion, $8 billion EBITDA. We've made very clear our belief in both Texas, Florida and perhaps, other large field jurisdictions in the U.S. We have the balance sheet and the optionality to pursue those. And as Patrick outlined, we are very involved in the digital strategy. We're pretty slow to get there, but in 3 or 5 years from now, you'll see a real -- a positive outcome.

And that's where we think we end up. We feel pretty confident. We've been derailed the last 18 months by this terrific virus, this pandemic. But I think it's clear we're heading -- to me, it's very obvious that we are being patient and staying the course. And I think while we're doing that, we have ample liquidity to do anything we want to do anywhere and in a large scale. So that will be my thought 3 to 5 years from now. Patrick, your sentiments?

I couldn't agree with you more. And I think the great thing about it is we have a lot of opportunity in front of us, right? I can't tell you which one of these options, hopefully, all of them become available, but quality.

And the great thing is that we've just invested $2.2 billion in Macao. We feel very strongly about the market. And the potential to invest more post concession renewals, we feel very strongly about the expansion in Singapore and our long-term commitment. Singapore is a very unique tourism destination and a high quality of earnings potential that we'll get from Singapore.

And then looking to the U.S., these are just great locations. And looking at the digital opportunity, we feel really strongly about the returns and the potential growth that's in this area. So from a company standpoint, 5 years from now, we could be looking like a very different company in terms of our scale.

And to Rob's point earlier, I think our balance sheet and the capability that the liquidity from the sale of Las Vegas presents -- allows us to pursue all of these opportunities. So we're very bullish about it.

If I may, just to follow it up quickly, and I appreciate all of that. With respect to the digital strategy, is the notion that it would be integrated with the company as it is today and branded as such? Or is it more of a sort of a separate enterprise or potentially either still at this point?

Rob, if you're okay, I'll grab that one.

Yes, please do.

So I think the key thing to note is we have a very skilled team and a great platform. We have a very strong corporate culture. We have just the ability to execute on a variety different things. And I think we have the capital to have patience and invest for the long term. And so I think this is going to be a business that will require separate people, separate infrastructure and be distinct. That being said, it will benefit from being part of our larger organization.

So much like Singapore and Macao are part of a global team, they have things that are specific to them that they have to deal with and so will this business. But it will benefit from being part of a large organization.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you.