Melco Resorts & Entertainment Limited (NASDAQ: MLCO) reported solid growth and strategic initiatives in its Second Quarter 2024 Earnings Conference Call. CEO Lawrence Ho and CFO Geoff Davis outlined the company’s financial performance, with a focus on profitability, growth, and market position maintenance.
The company welcomed Tim Kelly as the new Property President for City of Dreams Macau and announced the expected opening of City of Dreams Sri Lanka in the fourth quarter of 2024. Adjusted property EBITDA stood at approximately $303 million, and the company discussed plans for debt reduction and potential share repurchases in light of its improved balance sheet post-pandemic.
Key Takeaways
- Lawrence Ho emphasized investment in people and property enhancements in Macau to drive growth.
- Gross gaming revenue (GGR) increased, and City of Dreams Manila had a strong quarter.
- Adjusted property EBITDA reached around $303 million for Q2 2024.
- The company is progressing with its Sri Lanka resort, set to open in 4Q 2024.
- Melco is focusing on service quality over promotional spending to compete in Macau.
- There are plans to open a new exhibition in the White Gallery to increase footfall.
- OpEx is expected to rise slightly, but the majority of the ramp-up phase is considered complete.
- The company is monitoring its share price and valuation, contemplating share repurchases.
- In Manila, the government’s phasing out of pogos is noted, but mass business remains strong.
- Debt reduction and deleveraging remain a focus, with potential smart table rollouts to enhance gaming experiences.
Company Outlook
- Confidence in maintaining a strong market position in Macau.
- Expectation of increased footfall from new initiatives like the light rail level activation and White Gallery exhibition.
- Continued improvement in the balance sheet since the pandemic, though not yet at pre-COVID levels.
Bearish Highlights
- Retail sales in Macau continue to be weak.
- The phase-out of pogos in Manila and increased market supply could divert some trips.
- The ramp-up phase has led to increased operating expenses.
Bullish Highlights
- Growth in luck-adjusted EBITDA by over 30% quarter-to-quarter in Cyprus properties.
- Strategic focus on service quality to capture traffic from competitors.
- Optimism about the strong mass business and government commitment to tourism in Manila.
Misses
- Challenges with the reopening of the House of Dancing Water show, with a target opening in Q1 of the following year.
Q&A Highlights
- Lawrence Ho discussed the impact of decriminalizing illegal cash exchange activities.
- The company is considering share repurchases due to the low share price.
- Smart table rollout schedules are confirmed, with all tables expected at City of Dreams by the end of March.
- Expansion in Thailand is seen as a generational opportunity, but will not significantly impact finances in the near future.
Melco Resorts & Entertainment remains focused on its strategic initiatives to enhance profitability and secure its market position. With the upcoming opening of City of Dreams Sri Lanka and continued investment in its properties and people, the company is poised for growth. Despite some challenges, such as the phase-out of pogos in Manila and the delayed reopening of a key show, Melco’s leadership is optimistic about the future, underpinned by strong financials and a commitment to service excellence.
InvestingPro Insights
Melco Resorts & Entertainment Limited (NASDAQ: MLCO) has demonstrated a commitment to growth and strategic initiatives, as reflected in their recent earnings call. The InvestingPro platform offers real-time data and insights that provide additional context to the company’s financial health and market position.
InvestingPro Data highlights that Melco has a market cap of approximately $2.39 billion, with a significant revenue growth of 162.09% over the last twelve months as of Q1 2024. This growth is indicative of the company’s strong performance and potential for future expansion. Despite the impressive top-line growth, the company’s P/E ratio stands at -24.66, suggesting that investors may have concerns about profitability in the near term.
Two InvestingPro Tips that are particularly relevant to Melco’s situation are:
1. Management has been aggressively buying back shares, which aligns with the company’s discussion of share repurchase plans during the earnings call. This could signal confidence from management in the company’s future prospects.
2. Analysts predict the company will be profitable this year, providing a bullish outlook that may interest potential investors.
For readers interested in a deeper dive into Melco’s financials and market performance, InvestingPro offers an additional 10 tips that can be accessed at https://www.investing.com/pro/MLCO. These tips could be invaluable for those looking to make informed investment decisions regarding Melco Resorts & Entertainment Limited.
Full transcript – Melco Resorts & Entertainment Ltd (MLCO) Q2 2024:
Operator: Ladies and gentlemen, thank you for participating in the Second Quarter 2024 Earnings Conference Call of Melco Resorts and Entertainment Limited. At this time, all participants are in listen-only mode. After the call, we will conduct a question-and-answer session. Today’s conference is being recorded. I would now like to turn the call over to Miss Jeanny Kim, Senior Vice President, Group Treasurer of Melco Resorts and Entertainment Limited. Please go ahead.
Jeanny Kim: Thanks operator and thank you all for joining us today for our second quarter 2024 earnings call. On the call are Lawrence Ho, Geoff Davis, Evan Winkler and our property presidents in Macau, Manila and Cypress. Before we get started, please note that today’s discussion may contain forward-looking statements made under the safe harbor provision of federal securities law. Our actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures. A definition and reconciliation of each of these measures to the most comparable GAAP financial measures are included in the earnings release. Finally, please note that our supplementary earnings slides are posted on our Investor Relations website. With that, I’ll turn the call over to Mister Lawrence Ho.
Lawrence Ho: Thank you, Jeanny, and thank you all for joining us today. A strategic initiative to expand profitability and drive growth continue to evolve in the second quarter of 2024. We are investing in people and incorporating enhancements to our properties to provide the best premium experience available in Macau to our patrons. Our GGR has continued to grow quarter-to-quarter and year-over-year, and our teams are focused on driving continued expansion of our market position. I’d like to take this opportunity to welcome Tim Kelly. He has just joined us this month as Property President for City of Dreams Macau. We’re very excited to have him on board to lead our initiatives for CoD Macau.
The City of Dreams Manila had a strong quarter, despite market challenges. The City of Dreams Mediterranean and satellite casinos in Cyprus also showed positive momentum. The opening of City of Dreams Sri Lanka is progressing well, with plans to open in late 2024. Geoff Davis shared that group-wide adjusted property EBITDA for the second quarter of 2024 was approximately $303 million. The company has taken steps to reduce refinancing risk in 2025 and has a robust liquidity position. Lawrence Ho addressed concerns about the decriminalization of illegal cash exchange activities and highlighted the impact of external factors like the Euro Cup on market performance. The company is optimistic about future growth and is reinvesting in its properties. Post-Covid, we have acknowledged the need for maintenance work and investment in order to maintain our premium mass leadership position. We are reinvesting in the gaming floor and aim to have the nicest VIP slot area by Q4, subject to approvals. Additionally, we are working on reactivating an entrance at City of Dreams that faces MGM Cotai and Wynn, which has been closed for 15 years. At Studio City, we have been focusing on improving the floor set and have opened a new stadium. We are also planning to enhance various areas on the gaming floor to improve visibility and flow. We have short-term and long-term activations planned at City of Dreams to attract more traffic, including a new exhibition in Q4. Despite a competitive promotional environment in Macau, we remain focused on offering quality service and amenities rather than escalating freebies. In Q2, the spending remained high, particularly on food and beverage offerings. Initially, there was an abundance of snacks for all guests, which we later refined to target premium players with higher quality options. While we haven’t significantly reduced overall spending, we are focusing on areas that drive higher play levels. We expect this trend to continue into Q3 without a significant increase in spending.
Regarding OpEx, we have made significant investments in product and service enhancements at both City of Dreams and Studio City. The majority of these costs are behind us, with ongoing refinement and training being the focus. Some specific costs, like the House of Dancing Water show, will continue to impact expenses but are EBITDA positive elements. The cost of residency shows is expected to decrease in the second half of the year, with a slight increase to around 3.0 by year-end. Retail sales in Macau are still weak, mirroring trends in greater China, but our retail partnerships and repositioning efforts are helping to drive traffic and revenue at our properties. Naturally, everyone is hopeful for the recovery of the Chinese economy as the long-term success of businesses in the greater China area relies on its health. Macau, fortunately, has unique advantages compared to other regions like Hong Kong or Hainan Island. Therefore, there is a collective hope for a quick recovery of the Chinese economy. Lawrence Ho mentioned that the House of Dancing Water is undergoing improvements and will have a grand reopening with new elements added. The show is expected to reopen in Q1 of the following year. The increase in operating expenses (OpEx) was attributed to a 2.5% rise in labor costs and the hiring of additional full-time employees (FTEs) across various departments to enhance service and product quality. The company expects these investments to result in higher returns, improved customer satisfaction, and increased revenue in the near future.
Regarding Thailand, Lawrence Ho mentioned that it is a significant opportunity, but the company’s debt reduction priorities will not be impacted by potential investments in Thailand. He indicated that while Thailand is progressing quickly, any substantial financial commitments to the market are not expected in the near term.
In response to a question about the rollout schedule of smart gaming tables, Lawrence Ho stated that Studio City currently has 30 smart tables, with plans to have a total of 215 by the end of October. The City of Dreams is also scheduled to receive smart tables by the end of March the following year. This rollout is in line with competitors in the market. After being on the floor for several weeks, the rollout of smart tables has had its ups and downs as different people have been adopting them. We have been cautious in our approach to rolling them out, but thankfully, things have been going very smoothly so far. We are confident in our progress and plan to continue the rollout based on the positive feedback we have received. The gap between delivery and full operation is about one month, so we expect to have all 215 tables live on the site by November. Thank you for participating in today’s call, and we look forward to updating you again next quarter. This concludes today’s conference call. Thank you for your participation.