Melco Resorts & Entertainment Limited Q2 FY2025 earnings call

• Macau: EBITDA growth, House of Dancing Water reopened with high occupancy, renovation of City of Dreams entrance, plans to renovate Countdown hotel, enhancements in gaming areas.
• Philippines: Implemented cost reduction initiatives, strategic review ongoing.
• Cyprus: Recovery from Iran-Israel war.
• Balance Sheet: Liquidity robust, $2.3 billion available liquidity, debt refinancing, $120 million share repurchase, impairment of goodwill of $56 million, nonoperating line item guidance for Q3 2025 including depreciation/amortization, corporate expense, and net interest expense.

Macau: Macau property EBITDA grew by 35% year-over-year and 13% quarter-to-quarter. Gaming volumes and revenues were up with mass table games revenue at both City of Dreams and Studio City reaching all-time highs. House of Dancing Water reopened in May with strong feedback, contributing to non-gaming revenue and visitation. Visitation to COD Macau increased 31% year-on-year over the second quarter. Philippines: Heightened competitive environment impacted performance, but cost reduction initiatives led to higher profitability and gaming revenue recovery in July. Cyprus: Impacted by Iran-Israel war in June, but GGR surpassed pre-war levels. Sri Lanka: City of Dreams Sri Lanka opened on August 1, the first integrated resort in Sri Lanka and South Asia.

Total depreciation and amortization expense is expected to be approximately $135 million to $140 million. Corporate expense is expected to come in at approximately $25 million to $30 million and consolidated net interest expense is expected to be approximately $115 million to $120 million.

• Competitive environment in Macau and Philippines.
• Impact of geopolitical events in Cyprus.
• Market dynamics affecting player reinvestment.

Q: Congratulations on a very solid set of results. Firstly, in your prepared remarks, you said you're going to remodel the Countdown hotel. I'm wondering if you guys are doing anything to your gaming floors at either COD or Studio City in the near term in light of new supplies by your competitors?

A: George, it's Lawrence. Maybe I'll start off, and I'll hand it off to Evan and then also perhaps Tim to talk about COD. But over the last 18 months, we've been improving our product and reinvesting in the customer experience. So that has been very -- I think it shows in our results. So I think all the hard work that we put in, in terms of improving that. So as part of the countdown, what used to be a 330-room hotel, we're really taking it down to 150 luxury suites. And I think it's going to be a super unique product doesn't exist anywhere in the world. So we're very excited about that. But I think maybe I'll hand off to -- there's a lot of work being done on the casino floor for us constantly. So I think maybe I'll hand it off to Evan or Tim to elaborate.

Q: Congrats on the strong set of results. One of your competitors was mentioning that mid-quarter, they insignificantly increased reinvestment and that they will continue to monitor the market given that they experienced some market share declines. Have you guys seen anything meaningfully in terms of the competitive nature of the market? Or is it just business as usual?

A: Ricardo, it's Lawrence. Maybe I'll just answer and then hand it off to other. Macau is it's always going to be competitive. And we see competitors trying to grab share here and there. But I think the most important thing, I think the competitor you're referring to has really been -- have under reinvested in the market previously and it's now doing it. But at the same time, we -- at Melco, we want to compete on product and services. So I think the -- what we have done at City of Dreams in terms of the luxury experience with the hotels and now House of Dancing Water and the food and beverage, that stands on its own. So we don't necessarily need to match or compete on who has the best deal out there. And equally, at Studio City, in terms of the family attractions and other fun attractions, again, it's a differentiated product. So again, we don't have to be the most aggressive will give the best deal in the market. So I think that is an area we'll continue to lean in on. I don't know if...

Q: Maybe just to build on that question about your Macau daily OpEx per day. I hear you on core, you did better in the quarter in terms of the all-in number, including House of Dancing Water and residencies. Is there any expectation maybe in the third quarter to bend or to reduce the 2 other components, whether it be House of Dancing Water or residencies within, say, the all-in number above and beyond core? And then the second question on that is you gave a very long list of all the new projects that you're working on, certainly makes sense in terms of your defense of -- on product. But wondering if that's going to create any construction disruption over the second half of the year?

A: Sure. Let me I guess on the first one, in terms of the overall expense number, and I'm assuming you're pointing towards residencies of House of Dancing Water. In terms of the residency program, that's trailed off. So Aaron had his last show on Monday. So for that component going forward, we do expect a reduction as that program has run off. We obviously will continue to have entertainment and concerts next year, but at a reduced level to what we've seen. In terms of House of Dancing Water, that number is probably about the right run rate. So we're starting to get things stabilized. We have very good take-up and occupancy. So again, it should be an EBITDA contributor. But in terms of its portion of the expense base, that's probably not a bad number going forward. In terms of all of the projects that we're doing on each of the properties, I probably gave you a list of ones that have already happened this year and ones that are going to be happening. Studio City, I would say we're essentially behind all of that. In terms of COD, we've actually been pretty successful, I think, if you go to the property on being able to hoard zone by zone to minimize any customer disruption. Even the front entrance is sort of its own separate zone. It's not within the casino property. So I do think we're able to do it with fairly limited impact in terms of a customer experience as we're getting all these things done. The team spent a lot of time looking at the phase in these projects. And so again, I'm not concerned about any disruption that would come from construction over the next 3 to 6 months.

Q: Maybe ask one question on Sri Lanka, which is opening tomorrow. Congratulations on that. Maybe, Lawrence, can you give us a little bit of how you're thinking about performance there, the ramp, the time to ramp, expected returns. Obviously, it's a very new product in a new market. So a little bit tougher to hone in on. But any kind of initial thoughts on kind of what you're hoping or expecting would be helpful.

A: John, we're very excited about Sri Lanka. We have looked at it for a number of years. And it is -- it's the first integrated resort in South Asia and also in Sri Lanka. I think there is going to be definitely a key thing period because we're effectively creating a whole new industry. I think the current players there are really third world type operators. So I think it's a whole new paradigm shift. So we're very excited about that for us is really opening a new market in India as well. And so I think we're similar to what we did with Cyprus, where it's grown into a very nice market in itself. It will take a little bit of time. But I think we're very excited about it. I don't know if Evan has any more color -- additional color or Geoff?

Q: I wanted to follow up on the player reinvestment discussion that we had a bit earlier. Just looking at the numbers, it seems like Studio City player reinvestment was relatively flat if you kind of factor in volume changes, et cetera. But COD, the numbers actually improved. They came down. I think the expectation would be that at the high end is driving the growth in Q2 and now Q3 that, that player reinvestment as a percentage of mass would go up. That seems to have been the case for most of the Cotai properties at Sam's and for MGM Cotai. You guys are an outlier. And I'm assuming once we see the other results, there'll be outliers as well. I know, Evan, you talked a little bit about kind of what you guys are doing and how you're trying to differentiate, but it seems like a very divergent trend that you're seeing at COD. Can you maybe elaborate as to what you're doing on player reinvestment that may be different? Is there a different methodology you're incorporating? Is it a different set of player reinvestment initiatives that you have that's leading to this because that's a big part of the -- that you've seen this quarter.

A: Well, again, it's a little hard for us to comment on how we're doing it relative to others because obviously, I'm not sitting with their teams. What I would say is we're trying to utilize our sort of as we're getting better and better data out of walker and better and better insight into the player, we're trying to be more strategic in terms of where we're putting those dollars to get the best bang for our buck. And so we're trying to titrate it more carefully. I think, again, we were able to bring it down pretty successfully. The markets dynamic. We're constantly titrating it. So again, it will bump up and down a little bit from where it is. But I think, again, we're trying to make sure we're rewarding the right folks who we think are really bringing in the contribution. And it's hard for me to comment on what we're doing different than the others because I just -- I don't know exactly how they're apportioning their spend.

Q: Congratulations for a very good set of results. A couple of questions from me. Of course, the focus is on OpEx and competitive dynamics where you've already answered all the questions. I have 2 questions, one on Philippines and another on House of Dancing Water. Both are for me, catalysts to take it to the next level from your stock price perspective and profitability. So would you be able to quantify or at least subjectively explain if House of Dancing Water is actually contributing positively to gaming business? I understand you mentioned that it might be EBITDA neutral on the non-gaming side. And is that helping or helped the Q2 number in City of Dreams? So that's the first question. The second question on Philippines, the weakness is all across Philippines. It's not just yours. So I just want to understand when does it stop getting worse? And then related to that was a transaction that you were working on. Any update if you can give us, that will be awesome.

A: Praveen, maybe I'll answer the first one on House of Dancing Water, and then I'll hand it off to Geoff Andres on Philippines and Geoff Davis can talk about the transaction. So, I think House of Dancing Water and maybe Evan and Tim can add. It's done wonders for us ever since the opening on May 7 because the House of Dancing Water IP is so closely aligned with City of Dreams. So if anything, the grand relaunch of House of Dancing Water was really relaunching City of Dreams as well. And I think since then, we have seen record visitation across the board. I think now consistently, we're getting over 40,000 property visitation in City of Dream. So it certainly has contributed to the success that we saw in Q2 and part of that momentum into Q3. I don't know if you want to elaborate.