Las Vegas Sands Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 19, 2023

There are 14 speakers on the call.

Operator

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

Operator

Sir, the floor is yours.

Speaker 1

Thank you and thanks for joining us today. Joining the call today are Rob Goldstein, our Chairman and CEO Patrick Dumont, Our President and COO, Doctor. Wilfred Wong, the President of Sands China and Grant Cheung, EVP of Asia Operations and Today's conference call will contain forward looking statements. We will be making those statements under the Safe Harbor provision of federal securities laws. The company's actual results may differ materially from the results reflected in those forward looking statements.

Speaker 1

In addition, we will discuss non GAAP measures. Reconciliations to the most comparable GAAP financial measure are included in our press release. We have posted an earnings presentation on our website. We may refer to that presentation during the call. Finally, for the Q and A session, we ask those with interest to please post one question and one follow-up, So we might allow everyone with interest the opportunity to participate.

Speaker 1

This presentation is being recorded. I'll now turn the call over to Rob.

Speaker 2

Thank you, Dan, and good afternoon. Thank you for joining us today. The powerful recovery taking place in Macao and Singapore is evident in our results. We believe it's early days and there's still room to run-in both of those markets. We continue to invest in both markets for our future growth.

Speaker 2

We do have a structural advantage in Macao based on our scale. As the market accelerates, we will be a major beneficiary in the future. Singapore continued to do well despite 2 impediments to win the midst of $1,000,000,000 renovation, which does adversely results in Singapore. In addition, we haven't seen a full return of the Chinese premium mass segment yet. This iconic building has a very bright future.

Speaker 2

Cash flow recovery is in full bloom, so it's very, very enjoyable to say, yay dividends. Let's go to some Q and A. First question, please.

Operator

Thank you. Ladies and gentlemen, the floor is now open for questions. Please hold a moment while we poll for questions. And the first question today is coming from Joe Greff from JPMorgan. Joe, your line is live.

Speaker 3

Hey, everyone.

Speaker 2

Hi, John.

Speaker 3

Rob, Patrick, Dan and The team in Macau, I'd love to get your view on margins in Macau, both within the quarter and then just broadly how you're thinking about it going forward. When you look at the months within the 2Q, was there a differential between margins exiting the quarter in June versus the 1st couple of months. And then related to that, I'm assuming you're under the belief and impression that monthly GGR can continue to grow sequentially. I would Imagine in the summer months that would follow typical sequential seasonal trends and margins from here probably have more upsides and downsides from 2Q levels. So my question is specifically this.

Speaker 3

Going forward, how do you think about the flow through on incremental revenue growth from here? And then I have a follow-up.

Speaker 2

Yes, John, starting in terms of the brand for the margin discussion, obviously, we do believe that the market is starting to get stronger. And you saw that in our numbers, our June results were the Almost $200,000,000 of EBITDA in June alone. So we had acceleration in the quarter. Our numbers, I think, speak for Well, we speak loudly. 6 months ago, we were virtually closed.

Speaker 2

On the month of June, again, we lost $200,000,000 EBITDA. And visitation increases, and I think The visitation issue is going to drive obviously the TGR escalation. I just do believe we will be the beneficiary because of our scale and $15,000,000,000 investment will pay off quite well. We have adequate range to run because we have capacity in every segment, Be it gaming and non gaming, I think a very strong advance in that regard. So again, we think as the GGRs escalate from more visitation, We will be a major beneficiary.

Speaker 2

As to margin, Rand, I hope you're a wink in the cow. Please answer that.

Speaker 4

Thanks, Rob. Yes, Joe, our EBITDA margin, obviously, has continued to improve as we grow the revenues on optimal cost structure. Normalized margin is up about 2 40 basis points quarter on quarter. And I think that will continue to rise as revenues continue We do have a more profitable business mix than 2019 As does the whole industry, because we have a greater proportion of mass relative to VIP. But recall, relative The industry, we always had a much greater proportion of our GGR in mass.

Speaker 4

So 87% of our GGR this quarter is in mass Versus 71% in Q2 of 2019 and also the shift between gaming and non gaming. And recall, we're the dominant revenue generator in non gaming in the industry. And non gaming is rising As a percentage of our revenues going from 17% in 2019 to 22% this quarter. So Both of these mix shifts are positive for margin. We are obviously reinvesting our revenues back into the business to increase our capability to handle More visitors, chiefly increasing our headcount to service more hotel rooms.

Speaker 4

That's for sure one of the things that we've Achieved this quarter where our room operating capacity was back to 10,700 rooms On average for the quarter, and as we go into the summer, as we discussed last time, we're heading back to 12,000 rooms In terms of our operable hotel room capacity. So that entire labor issue shortage issue has dissipated as an impediment. And then in terms of intra quarter, yes, margins are related to the revenue recovery rate and June was the standout month For sure for us, we recovered for the Q2 as a whole, as you can see, 85% of 2019 levels in terms of mass revenues for the Q2. But in June, our mass revenue were About 97%, almost at full recovery to June 2019. So the acceleration in June It was really very broad based.

Speaker 4

We saw underlying visitation recovery, obviously, Macao visitation Recovering to almost 70% of 2019. And all of our key volume metrics were up significantly against April May. So non rolling drop increased 15% against April May in June. Slot handle was up 9% and rolling volumes up 10%. So Across the board, we saw a very sharp acceleration in June.

Speaker 3

Great. Thank you.

Speaker 5

And I

Speaker 2

also referenced Page 14, The deck, I think, it's instruct us to look at what's happening in the provinces beyond Guangdong and non Guangdong visitation, Lack of penetration, it's such early days in this recovery. I think if you look at 14, it gives you a really good snapshot What we believe is the beginning of a strong recovery hopefully this summer will evidence more and more return to pre pandemic numbers The non Guangdong visitation number, that's going to fuel this business. As you know, we have the capacity of gaming, non gaming to participate across the board. That's we believe will happen. That will impact margins, but also in our mind that's inevitable factor, Michal.

Speaker 2

6 months in this recovery And we're still way behind in terms of visitation.

Speaker 3

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

Speaker 2

Well, obviously, we prefer a strong macro economy in China. We're hoping for that in the future, but we can perform and will perform even if recovery is slower than our business. We'd like to see it come back quickly. But as you've seen other businesses, you saw the LVMH's numbers, you've seen other retail numbers. The retail market, our business doesn't require everyone to be making a strong economic recovery because certain segments can make it happen.

Speaker 2

But again, we're hoping for a strong rebound in the year and a stronger macro to also impact us positively. I still believe this market will continue to grow In spite of a slower recovery than we like in that region.

Speaker 6

Thank you.

Speaker 1

Thank you.

Speaker 7

Thanks, Joe.

Operator

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

Speaker 8

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

Speaker 2

Lance?

Speaker 4

Yes. Thanks for the question. I think you can see from the results that premium mass recovered still faster than the base mass. But sequentially, base mass still grew strongly on the back of improving visitation. And as you alluded to, I think as room inventory increases, We're able to cater to more visitors.

Speaker 4

I would say the spend per head directionally continues to be very strong Across both premium mass and base mass. So whilst obviously, as the base mass picks up, you'll see more of a mix shift, I think, over time. But within each of the segments, spend per head is actually rising. So we are getting High quality, high valued tourists into Macau at this point. And also, we're broadening this to high value Foreign tourism as well.

Speaker 4

So we can see strong results this quarter again in terms of the high end foreigners. So I would say, At this stage, the higher valued segments are growing, recovering still at a faster rate. Base mass is picking up as growth and hotel capacity increases, but within each of the segments, I. E. Both premium mass and base mass, the spending has actually

Speaker 8

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

Speaker 5

Hi, how are you? So I think when we view the business in terms of capital allocation, we feel like we have a lot of good opportunities Really for big growth both in Cowen and Singapore and that investment will continue to drive our expansion of non gaming amenities and drive our cash flow. But we also think that we're going to be able to return a lot of capital in the future. We were a very shareholder friendly company in the past. We're very focused on return of capital.

Speaker 5

But I think when you look at our prior program and what we're looking to do going forward, I think we'll probably look to have More of a balance between share repurchase and dividends. I think when we thought about the dividend size, it was something that leaves us plenty of room for investments in the future. It allows us to grow over time, which is our focus to really grow our asset base and grow our cash flow capacity, but it also allows for future share repurchases, which is something we're motivated to do. I think the dividend size today gives us flexibility with our capital allocation. And really over time, we tend to shrink the share count.

Speaker 5

I think having a balanced capital return program is very important for us. We talked about it with the Board. I think management is very focused on it. We'll probably look to be more programmatic About share repurchase than we have been in the past. And I think really, this gives us the flexibility to repurchase more shares over time And to really address our capital expenditure needs.

Speaker 5

So I think what we're going to try to do is allocate capital to growth, which we think we have a lot of opportunities that are unique for our company, Focus on the dividend is a cornerstone of our program as we always have, but allow ourselves to have more balance, more flexibility in the future through more programmatic share repurchases and really shrink that share

Speaker 8

Thank you. Very helpful. Thank you.

Operator

Next question is coming from Carlos Santarelli from Deutsche Bank. Your line is live.

Speaker 9

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

Speaker 2

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

Speaker 4

Sure. Yes, thanks for the question. I think on the whole, we see a very stable competitive environment. I think All of the operators, the entire industry is continuing to invest in non gaming and diversification and bringing about, I think, a really stellar event programming into the market, which is helpful, I think, not just for growing the tourism economy, but also increasing the business Volumes for all of the operators. So I think you're seeing the positive results from that investment In non gaming and events programming, even in this past 3 months, not least In terms of our non gaming programming that we put in place, that's been really driving business levels and visitation.

Speaker 4

In terms of reinvestments, Yes. I think it's relatively similar to what we've seen in the recent quarters. Clearly, it's become continues to be actually always been a very competitive market in premium mass and will continue to be. But I think there's very rational behavior amongst the operators and the industry in general Led by the larger players, but as I said, the focus of the industry has been to reinvest In a non gaming programming and that's been a tremendous driver to the recovery so far.

Speaker 9

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

Speaker 5

Sure. First off, we have very strong feelings about the future success of Singapore. If you look at the results from the quarter, look at the visitation that we have, the type of customer we have coming to the building, the fact that China has not fully recovered And if you look at sort of the nature of where Singapore sits today, any confluence of events in terms of the growing economies in Southeast Asia, We have a very strong view about the future of Singapore. It's very positive. And so we're very motivated to make an investment there and expand our capacity Hi, Adrienne Desai Sands.

Speaker 5

Right now, we're in discussions with the government about what the final form of our project will look like. There's obviously been a lot of change to the market in terms of market Potential, the government's goals around high value tourism and to be fair, the way we want to grow into that market. And so there's some adjustments that we're making and hopefully we'll have a better sense of what that will look like in the upcoming quarters. But right now we're in discussions and we'll have a chance to continue

Operator

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

Speaker 7

Hey, thanks. As a follow-up from Macau, the $200,000,000 number you mentioned in June, is that a clean number that you would think of to build off of given normal seasonality or should we see that build as base mask continues to recover?

Speaker 2

Was this the second portion? I think it's the last part. Last thing you said, recover?

Speaker 7

I guess it's a question of as base mass continues to recover, how should it impact that $200,000,000 number.

Speaker 2

It should go up. I think that the reason we called that out is because Obviously, a strong month, especially in light of the seasonality of June not being a great month. Look, our position is simple. We think Macao We'll just continue to get stronger and recoveries we've predicated on visitation in all segments and our again, our advantage is Very structural and very different than our operators. We have capacity growth, base mass, premium mass, rooms, retail, everything you think of as customers want, we have the product, Service that, that does the business in our competitors.

Speaker 2

So I think June is the beginning. Hopefully, the summer will be evidence that we'll see how July, August and 10 rolls up. But Our story is pretty simple, more visitation, especially more basemask, more penetration in China, will yield bigger GGR, We'll be a huge recipient of that. And I think that's the story we believe in Paul Hartley. I guess I take comfort in fact again, 6 months ago, we weren't sure we'd be open.

Speaker 2

We had basically closed business in the start of 'twenty two. Here we are in the summer of 'twenty three, looking at A $2,400,000,000 run rate just based on June, immediately that can accelerate. So we're firm believers in the galleries happen. We've never Vassily, I believe that market is just special. And the recovery in China is slower in general for all segments and probably What's coming on now and this summer will be a great indicator how fast it's going back to $26,000,000,000 $30,000,000,000 $32,000,000,000 I don't know what the peak is, but I just believe the acceleration we have is this summer.

Speaker 2

And again, we are in this very, very good position of having plenty of Assets to put to work in the Cowen. Plenty of rooms, rooms are all open. Retail is open and functioning spots and tables. So As the market grows, we should be a big beneficiary from that new demand that's coming.

Speaker 7

And so just to be clear, you don't do you think that there was any Kind of one time benefits in June, whether it's Jackie Chung or other things that could have been driving that. And so that may have been an outsized number or is that you're saying that is a

Speaker 5

So I think the key thing to note is that we've had these non gaming, what we call lifestyle programs, which includes And other activations for years and they were very successful pre pandemic because we were able to connect with our customers and bring in very high value terms in those high frequent. And so we've started those programs again. And so the concert you just referred to is very popular. And I can let Greg comment on that or Loper comment on it. So I think the key thing for this is our non gaming programs are working, that the investment in non gaming, that the activations, That the driving customer visitation through social media is working.

Speaker 5

And so the visitation of high value customers Flow through with our results in that month. I think the interesting thing is air traffic to Macau and to Hong Kong is Like around 50% of where it was pre pandemic. So our story is one of visitation. It was led by higher value customers and premium mass, Now as people can begin to travel to Macau more easily and more frequently, they're starting to return, they're starting to consume all of our different amenities, not only the hotels, The concerts, the food and beverage, the retail, all of it's working. And so we'd like to believe we can grow from that number materially as our base mass, Non rate of play returns as more premium mass customers show up and as Grant said earlier in the call, more of our hotel rooms come online.

Speaker 5

So we think we've invested through the pandemic and very high quality products. The customer response has been very strong and we're going to price through it. So We'd like to believe that there is margin room there. We'd like to believe that as we activate our non gaming activity that will draw more customers to concerts and other events, and then I'll continue to grow overall the desirability of visitation of the comp. Grant, do you have anything to add?

Speaker 4

Yes. Thanks, Patrick. Yes, I mean, as you rightly say, we've had a very long track record going back 16 years in terms of posting world class entertainment events At the Venetian Cotai Arena, and this was always part of our lifestyle programming. Jackie has been terrifically successful in the past with us as well. He played in both 2018 in the summers of those years.

Speaker 4

I think what makes this June special is firstly, He played a record breaking 12 shows across 4 weekends. I don't think that's ever been done before in Macau. But not only that, Macau was the 1st touring stop of the entire global tour that Jackie Chung has just launched. So that he chose to launch his new global tour at the Venetia Macau, I think is testament to both Macau's Rising destination appeal, the importance of it as an entertainment hub regionally, as well as our own track record in partnering with Jackie and his So the month was strong, not just the days when the concert was on, which is 9 months of the month. So it's a combination of factors.

Speaker 4

I think the underlying visitation to Macau, like Patrick referenced, was improving throughout the quarter and into June even though It was into a traditionally weaker part of the travel calendar. Hotel availability improved, transportation improved. Concert Series undoubtedly played a part, but that's just one component of the ongoing lifestyle program. And I think that programming It's not just done by us, but by the whole industry. And I think that will make Macau continue to recover rapidly.

Speaker 4

And it Speaks volumes to, I think, the new direction that the government is pursuing, and I think It's a great start to the new concession.

Speaker 7

Makes sense. Thanks so much. I'll yield the floor.

Speaker 2

Thanks, Steve.

Operator

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

Speaker 10

Hi, good afternoon, everyone. Good morning, Grant. So Maybe I just want to go back to the cost side a little bit. It's probably for Grant. But if I caught it correctly, I think in an earlier question, you said Room complement was up to 10,700 on average in the quarter heading to 12,000.

Speaker 10

Could you just give us a little bit more color on that? Are we at the 12,000 we exit the quarter there? And just what does that imply for Kind of necessary either headcount or kind of cost ramp up from here. Is there a little bit more remaining? Or actually, Is this number that we saw in the quarter pretty reflective of kind of what you think the baseline operating cost should look like from here moving forward?

Speaker 4

Yes. Thanks, John. Yes, I think, yes, you heard it right. It's averaged around 10,700 rooms a day in terms of our Operable capacity from a labor standpoint during the quarter, we actually increased further towards the end of the quarter. So As we go into Q3, we're roughly at that 12,000 rooms mark, which I said plus or minus, but typically There's always a handful of rooms out of order for maintenance, regular maintenance.

Speaker 4

We're effectively back at full inventory now And ready for the peak summer season, which is getting underway later this month.

Speaker 10

Great. Thanks for that. Maybe a similar question, but kind of transferring over to Marina Bay Sands. There we've seen kind of 2 quarters in a row with margins kind of in the 46 to 47 camp. That's still a couple of 100 basis points Hello pre COVID and I know there's a lot going on there.

Speaker 10

I do believe in the slide deck you guys called out that the Some of the renovation activity was either over or close to. So maybe just an update on some of that renovation disruption And how we sort of exited the quarter there and just your thoughts on costs, which I think were up about 10% Q on Q. Is there anything Any is there as the full complement of rooms comes back, can we also see some margin leverage or improvement sequentially or going forward? And how should we think about that in the second half?

Speaker 5

So I think what's important to note about 3 Day Sands, as Rob did in his remarks earlier, the building is under a lot of change. It's changed for the better. We're investing a lot and we're creating what is arguably the best product we ever had. And the customer response is very strong, But we're mid flight in that. And so I think a couple of things to consider, our biggest suites, so our 200 multi based suites Are the last to come online.

Speaker 5

So that's what's going to come in this quarter and in next quarter. So the full earnings potential of The renovated Tower 1 and Tower 2 will not really be reached until those suites are online. So we've been operating without them. So we'll be able to price better, we'll have higher margin and we'll have Like a larger quantum of cash flow from this high value segment coming into the building because they didn't have any place to stay. And now we're adding 200 suites The highest quality we've ever had.

Speaker 5

So that's going to be meaningful and that will address, let's call it some of the operating leverage we want to get out of our cost base. We've had a significant number of rooms out of inventory. And so I think between some of the cost increases that we've seen in the market for inputs And to be fair, the gaming tax increase, there are some things we need to overcome through higher value customers, through pricing and through volumes. And I think the one thing that's important to note aside from the fact that we haven't had our most important room inventory available to us, our casino floor has also been on renovation, that's coming to a close. But most importantly, airlift from China is really back yet.

Speaker 5

And so when you look at play across the quarter from rated play from China, It's increased each month across the quarter. And so as China visitation comes back into the fold and our new multi day suites come online, We will have an opportunity to price through some of the cost increases and improve margin.

Speaker 10

Thank you, Patrick. Thank you, everyone.

Speaker 2

I just want to say, Sean, I think moving to the labor side, I think margins will escalate because in every business, be it hospitality or retail, You've got an exemplary product people want. You've got pricing power. And I think we're finished over there. It's taking a long time. It's a slug, but we get through this thing.

Speaker 2

The room factor offer, the F and B, the retail, rethinking our retail, You see this all the map in terms of why does Hermesh and Louis Vuitton get these ridiculously high priced high margin. We want the product, they offer a superior product. Same thing happens in the watch world, same thing happens in the hospitality world. I think we're building something over the people don't understand how good it is Until you see it and understand it, it's going to be really special and we'll be able to get pricing at every level be it rooms, casino gaming, retail. When this building is done, I'm amazed we're doing these kind of numbers with ripped up buildings.

Speaker 2

When this building is done, our pricing power is going to go I think that's MBS case in different gear. The margins always take care of themselves as long as you have the product people want and will pay for it. I do believe when you guys have a chance to get over there and CMBS and experience what we're doing, you'll appreciate these comments. It's going to be a pricing power issue. We're not going to cut costs, if anyone add costs to add more labor.

Speaker 2

We're going to have a really good product people want to be at, but that enables you to charge prices that are high. And I think that's our strategy, is not to we're going to earn our way to success by offering a great product we're going to pay out for it. It's just that simple. And margin reflects that in the day comes.

Speaker 10

Thank you very much.

Operator

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

Speaker 11

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

Speaker 2

I want to get Grant to take that question, but I do want to say, David, again, I think I'll use the words structural advantage. I think we're in this very Position some people in that we were built for this market in terms of scale and size in every area of our business. Base mass, premium mass, we're still handicapped by the Base mass hasn't fully recovered, but I think our reinvestment last 20 years is going to make this product grow and grow. There's a margin in demand. I think we're just built for this environment.

Speaker 2

So I'm highly confident margins will rise with our increased revenue. Frank, can you add some color?

Speaker 4

Yes. Thanks for the question. Megan, we don't have a specific forecast on how high The margins will rise. I think you can look at the structure of the business. I mean, as Rob says, I mean, we have an Excellent structure in terms of our business mix.

Speaker 4

We have an efficient cost structure. And I think the way you will be looking at this is how high will revenues go. But it is true that the segments that are going to drive more revenue recovery And eventually, growing structurally will be the higher margin segments within gaming, Mass versus VIP and then also non gaming versus gaming. I think our non gaming is recovering even more strongly than gaming. We're at 93% of our 2019 non gaming revenues.

Speaker 4

Our hotel revenues for the quarter are 8% higher Then 2019 on fewer rooms being available. Our retail business is looking very strong. Tenant sales were up 28 And that will continue, especially with our 4th season That's ongoing.

Speaker 11

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

Speaker 5

So I think we just restarted our return to capital program this quarter. I think it shows The Board and management's confidence in the long term performance of the business. And we'll look to grow that dividend over time in a way that also allows us to have repurchase program. I can't give you a specific size about the volume of repurchases for the time of today because we still have a lot of things to plan for. But in our capital allocation thought process, We're going to think about it in the way that it was described previously.

Speaker 5

I think what's also important to note is that we're going to have variability in our CapEx. We have a lot of large projects that we're considering. Some of them are more certain than others. We're very excited about Marina Bay Sands expansion. We think it's going to be an unbelievable asset.

Speaker 5

We're very excited about it. The timing may be a little delayed from where we are today. We're going to invest as much as we possibly can because we think the growth there will be extraordinary. But we have other options, other things we're looking at And the timing of that potential outflow is unknown or if it's going to happen. The good news is we'll have the ability to modulate our CapEx based on how we grow the business and use excess capital and return it to shareholders through share repurchases and hopefully in a programmatic way.

Speaker 5

So while I can't give you an exact amount today, I will tell you our intent So look at our, what's called CapEx for growth, CapEx for the future, a way to grow the business, look at the dividend program and ensure that it grows in an appropriate manner And then look at return of capital programs to share repurchases that are shareholder friendly. But I think that's how we'll look at it. But as it were as where we are right now, I can't give you a side yet. But We'll continue to look at it in the upcoming quarters and we'll talk about it.

Speaker 11

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

Speaker 2

Thank you. Thanks, Ed.

Operator

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

Speaker 12

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

Speaker 1

I'm sorry,

Speaker 2

this is the first one. You said we did view as well as the market in the VIP?

Speaker 12

VIP quarter over quarter grew below

Speaker 4

market wide VIP.

Speaker 2

I think we're very comfortable going to VIP and the base math. I think our portfolio You're so well rounded. Venetian is still the king of Macao. It's going to be the 1st place $1,000,000,000 plus dollars is earned EBITDA wise, And it shows no signs, but to recover its previous position. We built a portfolio that is very well rounded.

Speaker 2

The 4 Seasons Enables us to be very well to anybody, the brewing product there and the gaming products pretty much unparalleled. Again, the London are early stages. We're halfway done in renovation. The full renovation was still a while down the road. But except for the Sands, which I think we give up on the potential, a lot of growth being down there in the peninsula, it's

Speaker 11

going to be a very difficult, challenging

Speaker 2

place to make a Challenging place to make a lot more money. The shift has been to Cotai, which of course all of our assets other than Sands are there. We remain convinced there's more room to grow Reason. But I think our position on the VIP and the base mass is as good as it gets. We've got more suite than anybody else, More share than anybody else and I think more potential growth because of sheer mass size of our buildings.

Speaker 2

And again, we referenced lifestyle. We built a business there with Jackie this month or somebody else next month, whether it's the best retail, the best restaurants. We built a lifestyle approach that I think puts us at the top of the heap in that Both as a product offerings, but also quality of product. Very comfortable with volume, have no reason to believe we can't grow and keep growing both in base and premium. I think the idea we're not a premium mass player is unfair and unjustified by numbers.

Speaker 2

Grant?

Speaker 4

Yes. I think on the VIP, our strategy hasn't changed. And in fact, obviously, the way the market has evolved in Macau for VIP, It fits our strategy more than ever because we're focused on the we've always focused on the premium direct segment out of the VIP. And we've historically had a very strong sales network around the rest of Asia. So we're working very hard, bringing foreign top tier players into Macau.

Speaker 4

And we're having, I would say initially, great success in doing so. Our foreign rolling volumes are Already back to 2019 levels in the second quarter. Obviously, far ahead of the general tourism recovery from overseas Markets for Macau. So I think it's anchored around Premium Direct, Our very strong sales network around Asia and a continued effort, intensifying the effort To bring more foreign top tier patrons to Macau, as Rob said, It's a great destination for all of those markets, and we intend to make full use Of our great product and destination to attract those foreigners.

Speaker 12

Great. Thanks for that. And just a follow-up on CapEx. I'm trying to reconcile Slide 23, that's really helpful year by year build you guys do for us with Last quarter, it looks like MBS expansion, I guess, was temporarily taken off. You guys commented on that already.

Speaker 12

You added Londoner Phase 2, want to make sure that that's new and hear any maybe thoughts about targets return targets for That project. And then lastly, I think there were some reports from you guys or came from you guys through the media mid quarter about a new hotel tower at And if that's a true or a plan, I'm just curious if that's going to be included in the $3,500,000,000 CapEx commitment that you've agreed with the government on?

Speaker 5

So just a few points. We did take Singapore Expansion off because until we finalize the program and have final approval from the government, we don't know exactly what it will cost. So we're going to hold off on that until we have a project decided upon. In terms of the Londoner Phase 2, I think the great thing about the Londoner is when we first started, we actually did it pre concession during the pandemic and we built through the pandemic And into the concession renewal, we came out on the other side and the thesis was validated. It's incredibly well received by the market.

Speaker 5

It looks spectacular. Customer response has been very strong and we're excited about the results and that market validation was very important. And now we're going to roll into the second part of the building And really hopefully tap into the absolute earning power of that, just call it really well laid out, really thought through Hotel offering and amenity offering. And so in our long term view, that's something that will hopefully today come close to the niche in terms of its productivity potential there. Very excited about that opportunity.

Speaker 5

In terms of return targets, I think it's not something that we talk about directly, but in our minds, There's a lot of potential growth in our deepest and most profitable segments, which is mass and premium mass. And so with the revised Or renovated hotel suites, hotel rooms and suites that we'll have there, we think we'll be able to address the market incredibly well just like we did with the 1st phase of the month there. So I think that's kind of how we're thinking about it. And in terms of a new hotel tower, I don't think we can comment on rumors. I don't think that's something I think for us, we're really focused on really delivering against our concession renewal requirements, investing in the non gaming amenities that really help define Our portfolio in Macau and really drive visitation.

Speaker 5

So Brandt, do you have any other comments you'd like to add?

Speaker 4

So, Patrick, you covered it very well. I think The Londoner success, we've had the wholesale reinvention of the property's positioning and the branding and the functionality. And actually, it's easy to forget that most of the hotel room accommodation today still remains the original Sands Kotai Central Rooms as is half of our main gaming floor. So Phase 2 is really about making Londoner More Londoner, we need to reposition and upgrade, Sheraton and the Conrad Hotels as well as a comprehensive upgrade of the Pacifica Casino on the Sheraton side. And we'll be adding more non gaming amenities and attractions to the Londoner.

Speaker 4

And many of which are also included in our concession commitments, more signature restaurants International Peel, state of the art wellness center, other sort of lifestyle attractions. And then beyond that, over a longer time frame, we've always committed since the concession retender To developing this new landmark garden themed attraction, the conservatory, located to be located in the Gardens South of the London Resort. That will take longer time frame to develop. But first off, We're able to get right down to work on London Phase 2 on the hotels and the casino refresh because we've been working on this During the pandemic on the design, so we're now, as Patrick said, I mean, we've seen it, the product that we have come out with Being hugely validated and with the market recovery, with the return of visitation and the hotel guests, We're keen to get moving onto this Phase 2, and that's why we're able to start the actual construction in the second half of

Speaker 1

Great. Thanks all.

Operator

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

Speaker 13

Yes. Hey, guys. Good afternoon. So, Rob or whoever wants to take this and Patrick you touched on this a little bit, so this might be you. But Slide 14, I think is pretty interesting around visitation trends during the quarter with Hong Kong back to actually above pre COVID levels, Guangdong pretty much back.

Speaker 13

The rest of China though remains well below pre COVID levels. Wondering how you guys are thinking about the recovery in that segment moving forward and what you're watching. And I know, Patrick, you talked about air capacity. Was it really just air capacity or are there other factors out there that might be holding that segment back?

Speaker 5

I think one thing I do want to say is we're really excited about it. Seeing the visitation come back has been thrilling. Customer responses, Seeing patrons from before, seeing new patrons, it's really a fantastic place. We were in Macau recently and it just there's great energy, great electricity in the city. I think some of it is air capacity.

Speaker 5

To be fair, some of it's the let's call it the more mass player, the unrated play that The Venetian and other of our assets were So strongly set up work that really drove a lot of high volume and high margin business. All those segments still haven't come back in full. So between the airlift and if you turn to the next page, actually Page 15, where it shows the visitation for 2019 and then compared to this last quarter, You can kind of see that we have a lot of room to go. We have a lot of patrons who want to come back and see us and they're just starting now to make their trips happen. So I think From where we sit, we have a great ability to accommodate these customers that we've done in the past.

Speaker 5

We have the capacity. Very interesting non gaming amenities. We have entertainment. And we think this is the most important tourism market in Asia and the region. And people are going to show up.

Speaker 5

We also have international visitors showing up, which is kind of a new thing. So I think the power of Macau is going to continue to grow and grow. But when I look at Slide 15, I just see a lot of potential and our team is working hard to try to capture that potential. Brent, I

Speaker 11

want to turn it over to

Speaker 5

you and see if you have any additional remarks.

Speaker 4

Yes. I was going to point to that page as well, Patrick. Yes, Dan's famous Page 15 on the penetration. Actually, you can see from the Eastern China, Yangtze River Delta region, especially Shanghai and Zhejiang province, In fact, the recovery rate is higher than Guangdong's because I think you have better airlift, Better propensity to travel cross border from those source markets. And we've already seen a very Big upward shift in the recovery rate of non Guangdong relative to Q1.

Speaker 4

So I think in the Q1, When we're looking at that recovery rate, it was less than 30%, and now we're approaching 50%. So non Guandong visitation 2nd quarter grew almost, I think, in the high 40s sequentially. So it is coming back, as we said, as airlift Transportation in general improves, and also hotel room availability has been increasing. And actually, we'll be further increasing for Macau as a whole in the Q3. We'll have some new hotel rooms coming online.

Speaker 4

So all of that, I think, It's positive for the outlook for continued recovery in the visitation outside of Guangdong province.

Speaker 2

Hey, guys. This is Aptio. Trajectory may be uncertain, but the end result is very certain. I mean, this market always comes back, and I think you watch this summer and you'll see some very positive I don't think anybody knows when or exactly why it's not fully recovering in certain areas, but we just know it's going to recover. It's a question of when that happens.

Speaker 2

The result, I think, is on the question. And again, I hope this summer, we show some strong evidence. I mean, July, hopefully, we'll show A big number, the best number of the year thus far and it starts to add this recovery.

Speaker 13

Okay, great. I'll leave it there guys. Appreciate the color. Thanks.

Speaker 2

Thank you. Thanks, Steve.

Operator

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

Speaker 6

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

Speaker 2

No one knows there's multiple variables at work here. I wouldn't want to pigeonhole, the economy, Visa. I don't think we really know the answer to that. It's an aggregate answer that can't be unpacked clearly. I do think though seasonality, Summer has always been the time.

Speaker 2

This is the 1st summer post COVID. I, for one, believe summer has improved very strong. Some business people boasting about The numbers look like, hope they're right. I believe some of what will be very indicative of new growth in this market. And Look, again, I think you have to look back on how quickly you see recovery.

Speaker 2

6 months ago, we were in dire straits and now we're unpacking $200,000,000 month of June. So we're very bullish on Macau long term. And again, trajectory may be uncertain, but end results very clear. We're going to get there. We're going to make a lot of money in Macau And we hope we have more good news in the near future to offer to you.

Speaker 2

So I'm hoping for a big summer for the market.

Speaker 5

Got it. And just

Speaker 6

one more quick one. We haven't touched on the digital strategy. And there's been some headlines lately that there's been some progress there. Do you have anything that you could possibly share? And as you just in high level, as you think about this strategy, how do you reconcile that with regulatory concerns given your presence in Macau and your relationship with the government there.

Speaker 5

So I think we said a while ago that we were going to invest in ground up Digital activities. So we're not buyers, we're builders. And I think for a while we've been working on a couple of additional initiatives. And I think the key thing for us is, it's still early days yet. We don't really have much to talk about.

Speaker 5

We're very confident about it. We think long term there's Real potential there. Our focus is going to be on highly regulated markets. So that would mean Europe and North America. Our goal is to make sure that we maintain our regulatory standards in the best possible way, only working with partners where that makes sense And being very selective.

Speaker 5

But in our mind, we're very focused on regulatory certainty and being in I'm going to put us on hold. Sorry about that. So I think our view is that these digital issues have We're going to continue to invest in them for the long term. We are committed for the long term. And I think our goal is going to be to focus on highly regulated markets.

Speaker 6

Got it. Thanks.

Operator

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

Speaker 1

Thanks everybody. Thank you.

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Earnings Conference Call
Las Vegas Sands Q2 2023
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