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spk00: Ladies and gentlemen, thank you for participating in the second quarter 2022 earnings conference call of Melco Resorts and Entertainment Limited. At this time, all participants are in a 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 Ms. Jeannie Kim, Senior Vice President, Group Treasurer of Melco Resorts and Entertainment Limited.
spk04: Thank you, Operator. And thank you, everybody, for joining us today for our second quarter 2022 earnings call. On the call are Lawrence Ho, Jeff Davis, Evan Winkler, and our property presidents in Macau, Manila, and Cyprus. Before we get started, please note that today's discussion may contain forward-looking statements made under the safe harbor provisions of federal securities laws. Our actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures. A definition and reconciliation 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 now turn the call over to Mr. Lawrence Ho.
spk07: Thank you, Jeannie. It goes without saying that our results for the second quarter of 2022 were heavily impacted by the COVID pandemic and the restrictions imposed across mainland China and Macau. Throughout the pandemic, ensuring the health and safety of our colleagues have been very important, and they continue to be our highest priority through the recent outbreak. We very much appreciate the Macau government's quick handling and publication of the new gaming law in June, and the publication of the requirements for the new casino tender. The new gaming law and the tender requirements provide clear direction for the remainder of the year and set a foundation for a smooth transition once the concessions are awarded. We are committed to Macau and we are aligned with the Macau government's vision to further develop Macau and its economy. In contrast to the challenges we have been facing in Macau, our businesses in the Philippines and Cyprus have been improving with volumes gradually recovering towards pre-COVID levels. City of Dreams Manila has been operating at 100% capacity since March 1st. Our domestic business recovered fairly quickly while international visitation continues to ramp up. We expect to see further growth as travel restrictions around Asia are lifted and travel returns to normal. Cyprus also saw a pickup in volumes and profitability with a relaxation in COVID-related restrictions. In terms of the construction of City of Dreams Mediterranean, as I had mentioned in our first quarter earnings call, we have experienced delays due to some difficulties that we've encountered with our contractor who has struggled to resource the project and was not able to achieve some of the pre-agreed completion dates for various aspects of the project. At this point in time, Based on recent progress, we expect to open in early 2Q 2023, subject to regulatory approvals. However, this remains a fluid situation and we continue to look at ways to expedite the process. The construction of Studio City Phase 2 is progressing well. We'll be monitoring the markets closely to determine the appropriate time to open and currently anticipate phasing the opening beginning in the second quarter of 2023. With that, I turn the call over to Jeff to go through some of the numbers.
spk01: Thanks, Lawrence. In the second quarter of 2022, we reported group-wide property EBITDA of approximately negative 14 million. Luck-adjusted group-wide property EBITDA came in at negative $16 million. An unfavorable VIP win rate negatively affected EBITDA at COD Macau by around $2 million, while favorable VIP win rates positively impacted EBITDA at Studio City and COD Manila by around $4 million. Details of these adjustments can be found in the supplementary earnings slides posted on our investor relations website. Our OpEx in Macau for 2Q 2022 was 1.7 million per day, which represents sequential declines from 1.8 million per day in 1Q 2022 and 1.9 million per day in 4Q 2021. To put this in perspective, pre-COVID, OpEx was approximately 3 million per day. Our teams remain focused on cost containment in this challenging operating environment. As of June 30, 2022, we had approximately $1.6 billion of consolidated cash on hand. Our available liquidity, including cash and undrawn revolving credit facilities, at the end of the second quarter was $2.8 billion. Our revolving credit facilities contain customary financial covenant conditions. and we had previously secured a waiver on these financial covenants until the end of 2022. We recently obtained an extension of these waivers until the end of March 2024. To provide more clarity on our capital structure, MELCO, excluding its operations at Studio City, the Philippines, and Cyprus, had cash of around $563 million and gross debt of $4.9 billion at the end of June 2022. As we normally do, we'll give some guidance on non-operating line items for the upcoming third quarter of 2022. Total depreciation and amortization expense is expected to be approximately $130 million. Corporate expense is expected to come in at approximately $15 to $17 million. And consolidated net interest expense is expected to be approximately $90 to $95 million, which includes finance lease interest of $7 million relating to City of Dreams Manila and around $15 million of capitalized interest. That concludes our prepared remarks. Operator, back to you for the Q&A.
spk00: If you'd like to ask a question at this time, please press star 1 1 on your telephone. That's star 1 1 to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Joe Greff with JP Morgan. Your line is now open.
spk09: Hello, everybody. Good afternoon and good morning. Just two quick questions for you. One, I guess, 20, 30 minutes ago, it hit that you hired E&Y Singapore, replacing E&Y Hong Kong. Can you talk about, and that was, I believe the reference was that was effective August 16th. Have you heard from the SEC on that? And, you know, to what extent does that completely mitigate delisting risk? Or is hiring E&Y Singapore part of a multi-step process? And if it is, what are the next steps? Or is this pretty much the finality in this process? And then I have one other operating question.
spk07: Sure. Hi, Joe. Hey, Jeff, you want to go into details of that one?
spk01: Sure. So as we moved, we have moved our audit office to Singapore as part of a broader effort to diversify our shared service locations in order to minimize business risk. We've had some employees based in Singapore, and we are building out that team. And more recently, to be a more suitable base, especially for our finance operations. Singapore, as you know, offers good connectivity to the Philippines and Cyprus, while also having proximity to our Hong Kong office and our operations in Macau. And keeping in mind that there is still the possibility that a political solution between the United States and China, there is an ongoing discussion there, is still feasible. So to your direct question, Joe, we have not heard from the SEC. But it's not part of a multi-step process either. We just felt it was appropriate to to locate the audit in Singapore, given some of the changes that we've made in how we're covering the finance function. And as you know, Singapore does not appear on the list in HFCAA.
spk09: Great. Thank you for that, Jeff. And can you talk about, Jeff, you talked earlier about the OPEX in Macau, what that was per day and where it's been historically. Can you talk about the OPEX per day in July and maybe 3Q to date in Macau, or maybe look at another way, maybe what that EVA dot burn rate, you know, has been on a per day, or obviously July and August to date, you know, I think everybody understands it's pretty challenging, but just to get that sort of sense of incremental operating exposure and leverage would be helpful. And that's all for me. Thanks.
spk01: Sure. Without getting into too much detail, we do think that 3Q is starting off below the level of daily OPEX versus what we posted in the second quarter. Some of that is temporary, but we do think that on balance, 3Q has a chance to be a bit lower than the 1.7 that we had in the second quarter.
spk09: And is that more revenue dependent or is that sort of in isolation of revenue performance?
spk01: In isolation, but of course, as we've talked about before, and as you know, to the extent that revenue were to meaningfully ramp up, there would be some additional costs that would be associated with that.
spk09: Yep, absolutely. Okay, great. Thank you, guys.
spk01: Thanks.
spk00: Our next question comes from the line of Praveen Chaudhry with Morgan Stanley. Praveen, your line is now open.
spk03: Thank you. Thanks for taking my question. Two questions for me. The first one is related to the ADR delisting situation. I understand the auditor change could solve the problem or U.S.-China together, they can come up with some solution. But from proactive management, from your perspective, are you thinking about relisting, dual listing in Hong Kong? Is it part of the solution that you are proactively working on, or it's not yet in the pipeline? You will wait for some of the other things to solve itself. And the second question I had was related to the progress in Macau in terms of are we seeing revenue and visitation coming back to Macau? And could we go back to 2Q21 kind of number? Like May was a very good month for us when mass revenue was 40%, 50% normal. Do we think we can get back to that even if Hong Kong is closed sometime this year? Just your expectation, Lawrence. That would be great. Thank you.
spk07: Sure. Hey, Praveen, why don't I take the first question and see if Jeff has anything to add to the first one. And then the second one, David can see if he has anything to add. So on the potentially listing Melco Resorts elsewhere, we have looked into it for the last two years. And we have been in dialogue with the Hong Kong Stock Exchange. And as investors and analysts know, we were listed there. over 10 years ago, we delisted because of cost saving in terms of the cost associated with the listing. And so we had assumed that it was a very simple process, but we're still working with the Hong Kong Stock Exchange on that. So that's certainly one of the potential solutions. I think, as Jeff mentioned, Singapore is technically not on the Hong Kong-China list. So maybe that solves it. Maybe there is a political solution, but we're pretty comfortable where we are. And also, we still have time if we needed to do something else. So we're quite comfortable on that point. I don't know, Jeff, is there anything you want to add?
spk01: No, Lawrence, I think you covered it. Thank you.
spk07: And then on the second one, of course, this summer has been just dreadful in Macau. given the outbreak exactly, I think it was two months ago, it was June 18th. And, you know, thankfully we're slowly and gradually coming out of it. And, you know, I think even in the last two weeks, we have seen a progressive improvement, you know, baby steps. Are we going to get back to May 2021? You know, May 2021 was a great month, you know, and we're hopeful that Golden Week in October is going to be a good month. And of course, I think everybody is looking at the Communist Party Congress in October, throughout October, to see other catalysts and other signs. But I think overall, we're moving in the right direction. I don't know, maybe David can give a bit more color.
spk02: Sure, Fred. So, look, one of the things that happens when we go through these COVID outbreaks, obviously, it has a significant impact on visas. Unfortunately, when we close these things down, it doesn't bounce back quite as fast, unfortunately, as the close happens. As Lauren said, it's a gradual, it's a slow climb out of this, but the key for us is Visa and China feeling comfortable to let people come across to Macau. As Lauren said, I think we're expecting it to be fairly slow through September. As we get into hopefully that October golden week period, we'll start seeing it to hopefully start to improve, but it really depends, I think, at the end of the day on the National Party Congress meetings. And coming out of that, and then hopefully as we get into the fourth quarter more, deeper into that, we'll start seeing a bigger improvement. And hopefully by the time we get to next year, we're actually maybe back on that pace to your point of where we were back in May of 2021. But again, it's just going to be a very slow process, unfortunately. And we'll get through there, but it's just going to take some time.
spk03: Yeah, many thanks. Thanks, Lawrence. Thanks, Jeff. Thanks, David. Good luck.
spk07: Thanks, Briggy.
spk00: As a reminder, if you'd like to ask a question at this time, that is star 1-1. Our next question comes from the line of George Choi with Citi. George, your line is now open.
spk06: Thank you for taking my questions. Just a couple from me. Lawrence, longer term, do you have any plans to simplify your corporate structure? And I guess I'm asking this question with a specific focus on 200HK and Studio Citi. And my second question is, there seems to be still some confusions out there about Studio City on whether or not it's a satellite casino. Would you kindly clarify this for us, please? Thank you.
spk07: Sure, George. You know, I think we're continuously looking to improve, you know, various corporate structures. And, you know, I think everything is changing. on the table. But at the current point in time, I think the key focus is really digging ourselves together with the other five operators out of the hole that Macau has been for the last three years. And, you know, it's, you know, on one hand, you know, there are various debts at various entity levels is not the easiest thing to do. But, you know, I think we'll really consider that once we are in a better position, because the last two and a half, three years has been god awful. And in terms of Studio City, George, it's very clear that Studio City is not a satellite casino, considering the government asked us to revert the gaming area. And so we've been told specifically that Studio City is not, and since it's majority owned by Melco, Melco Resort. And so, you know, I think if there was any confusion on that issue, it's actually pretty crystal clear to us.
spk06: Thank you very much, Steph. That's a pretty good call. Thank you.
spk07: Thanks, George.
spk00: That concludes today's question and answer session. I'd like to turn the call back to Dean Kim for closing remarks.
spk01: Actually, operator, I think we've got one more question in the queue.
spk00: We do have one more question. This question comes from the line of Ricardo Chinchilla with Deutsche Bank. Your line is now open.
spk08: Hey guys, thanks for taking the question. I was wondering if you could provide an update on the CapEx needs at City2City? And with current price inflation, have you seen an increase in the budget and how much is remaining?
spk07: Hey, Ricardo. It's Lauren. So maybe David and Jeff can supplement. But Studio City Phase 2 has progressed extremely well. It's probably out of all of the construction projects we've ever had, probably the smoothest one, even with all of this COVID restrictions. In terms of budget, I think we have, over the past couple of years, reduced the budget. Rather than inflation or supply chain causing an increase in budget, we have reduced the budget. And I think that's really because of the good job that the project and construction team together with China State Construction have done. But I think in terms of the numbers, maybe I'd pass to David and Jeff or Kevin to talk about.
spk01: Sure. This is Jeff. The remaining CapEx that's due on Studio City Phase 2 is about $250 million. The significant majority of that will be in the second half of this year. And that's absolutely right. Our overall budget has declined over the course of the construction project. And we don't anticipate any inflation shock as virtually everything has been procured at this time for both the construction and the vast majority of the fit-out.
spk08: Perfect. Thank you. That's all I had.
spk00: We're going to have a couple of questions in queue at this time. I'm going to turn it back to Jeannie for closing remarks.
spk04: Thank you, everybody, for participating in our conference call today, and we look forward to speaking with you again next quarter. Thank you.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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