Las Vegas Sands Corp.
Q3 2013 Earnings Call Transcript

Published: 18 Oct 2013

[Operator:]

Good afternoon. My name is Toni, and I will be your conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands Corporation Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Daniel Briggs, Vice President of Investor Relations. Sir, you may begin.

[Daniel J. Briggs:]

Thank you. Before I turn the call over to Mr. Adelson, please let me remind you that today's conference will contain forward-looking statements that we are making under the Safe Harbor provisions of federal securities laws. The company's actual results could differ materially from the anticipated results in those forward-looking statements. Please see today's press release under the caption Forward-looking Statements for a discussion of risks that may affect our results. In addition, we may discuss adjusted net income and hold-normalized adjusted net income, adjusted diluted earnings per share and hold-normalized, adjusted diluted earnings per share and adjusted property EBITDA and hold-normalized adjusted property EBITDA, all of which are non-GAAP measures. A definition and a reconciliation of each of these measures to the most comparable GAAP financial measures are included in the press release. Please note that this presentation is being recorded. We also want to inform you that we have posted supplementary earnings slides on our Investor Relations website for your use. We may refer to those slides during the Q&A portion of the call. [Operator Instructions] With that, let me please introduce our Chairman, Sheldon Adelson.

[Sheldon Gary Adelson:]

Thank you, Dan. Looks like we have so many adjustments, our adjustments have given birth to other adjustments. Good afternoon, everybody, and thank you for joining us today. We are extremely pleased with our record financial results, which continue to reflect strong execution of our strategic objectives. We delivered outstanding growth in revenue, cash flow, net income and earnings per share this quarter, with our adjusted diluted earnings per share up 78.3% to $0.82 per share. Hold-normalized diluted earnings per share increased 47.2% to reach $0.78 per share. Take that you guys who underestimated us. Importantly, the power of our unique convention-based, Integrated Resort business model, which truly sets us apart in the industry, is increasingly being reflected in our financial results. Looking back to the 2-year period ending December 31, 2012, and out of the largest 100 U.S. public companies, we were the 11th fastest in net revenue growth, the ninth fastest in EBITDA growth, the eighth fastest in net income growth and #3 out of 100 in earnings per share growth. Looking ahead, we are confident that our business model gives us a sustainable competitive advantage in the Integrated Resort industry as we seek new development opportunities. We are the leaders in the industry and our unique convention-based business model, coupled with our financial strength and focus on operational excellence, will contribute to our growth in the years ahead. The highlights of the quarter, from my perspective, are as follows

[Daniel J. Briggs:]

Operator, we're ready for the first question, please.

[Operator:]

Okay. Your first question comes from the line of Shaun Kelley with Bank of America Merrill Lynch.

[Shaun C. Kelley:]

[indiscernible] taking my question. Guys, I think that the key focus I'd like to ask about is probably on the margin side here. So it looks like 3 of your 4 properties in Macau did above 30% EBITDA margin this quarter and I think the big surprises were both Sands Cotai Central and the Four Seasons. So I was wondering if you could talk a little bit about what you were doing to continue to drive, I think, mass market growth, in particular, at those properties and how you're able to kind of yield up, maybe the hotel rooms, what you guys are learning about that that's allowing you to deliver such strong margins there.

[Sheldon Gary Adelson:]

[indiscernible] good luck.

[Robert G. Goldstein:]

Shaun, it's Rob. Obviously, we're pleased at SCC, the numbers. It'll end up being the third property in the LVS portfolio to exceed $1 billion of annual EBITDA in the future. But we believe there's considerable room to grow the business. SCC, as you know, has almost 6,000 hotel rooms on Cotai, and at this point, there's 200 less mass table games at SCC versus The Venetian. So in the spring, we open up our premium mass offering of 75 more games. So we believe the story at SCC is just beginning. It's in its infancy from my perspective. We believe the potential growth there is material for a lot of reasons. But in answer to your question, we're obviously happy with our win-per-unit. The margin driver there is the mass table business and that has grown immeasurably. We're almost at the industry lead there in Cotai, and yet we only have less than 300 games. So the margins at SCC are predicable and when you have a focus like we do and a room base, and as you know, the most important predictor of gaming habit is where you sleep, and most people sleep with us because we have the most rooms. So I think Sands Cotai Central, although we're very, very pleased with the performance this quarter, it has a lot of room to grow, well beyond the current number. You referenced Four Seasons, and again, we're pleased with Four Seasons. After the re-segmentation, our junket performance there is exceptional, it always has been. But I think also for the first time, we're getting strong results out of the premium mass segment. We have over 60 games or so there now, not sure about the exact number. But the key at Four Seasons is to get the proper mix between junket. We are very strong proponents of both segments, the junket mix and the mass table mix or premium mass table mix. Four Seasons is highly desirable for consumer in Cotai. And again, we've got that right this quarter, but to get to our goal of $500-plus million of annualized EBITDA, we've got to keep working on our mix and keep working on that, use the rooms and the team there is very focused on that. So we're very pleased with both SCC and Four Seasons, but we think both stories are in the infancy, and there's considerable growth in the future for those properties.

[Shaun C. Kelley:]

And I guess just one follow-up, we've gotten a few questions on Singapore as well. In that property, obviously, normalized hold for the first time in a number of quarters is encouraging. But a couple of questions on operating expenses there being up a little bit, both sequentially and year-on-year. Could you comment if there's anything either in there that was maybe dragging on margin just this quarter or just any one-time items? That would be helpful.

[Robert G. Goldstein:]

Well, I think you know that our focus in Singapore has migrated over to the foreign visitations, and that includes more rooms to the premium mass customer who comes to that property. We're still running 60%-plus margins in that segment. We're delighted with our progress there. As you know, we've spoken in previous calls about the challenge in Singapore, vis-a-vis visitation of locals. Our team there is very focused on driving our foreign visitation. We're up over 46% year-on-year in that segment. That segment does require sleeping rooms. The casinos pay for those rooms, so that is somewhat -- the hotel benefit, so its a yin and yang on that. But the truth is that we want to keep driving more foreign visitation, premium mass. As you know, we're at 4 or 5 a day. Our goal is to get to 5 million a day. That's where the growth resides in Singapore for us. So it may drive a few points of margin here and there, but at the end of the day, if we get that number to 5 million a day, the overall EBITDA in that property will accelerate quite a bit.

[Sheldon Gary Adelson:]

Shaun, I'm sure you know that we all love you, but we also love the other girls at the dance.

[Shaun C. Kelley:]

I will yield the floor.

[Sheldon Gary Adelson:]

You better yield the floor. We'd like to keep the questions to 2 per person. You could come back again later if we have more time.

[Operator:]

Your next question comes from the line of Felicia Hendrix with Barclays.

[Felicia R. Hendrix:]

Can we just stay on Singapore for a minute then, Rob? Just to continue along that line, what was the cash RevPAR then or your cash ADR, however you want to give us that number. And was there an increase in commissions that you paid there as well? Because, according to our calculations, it looks like there might be.

[Robert G. Goldstein:]

The commissions on the VIP are consistent with -- were not escalating commissions, they remained the same. The Rolling Volume was $13.75. As for RevPAR, I think RevPAR was pretty close to the $400 number because of the -- Mr. Adelson said we were all virtually full, and we had a $401 U.S. average rate, so RevPAR was almost at the $400 level.

[Felicia R. Hendrix:]

Okay. So just trying to understand the comment, your answer to Shaun's question. So in terms of giving more rooms to the premium mass segment, you're trying to attract more of the foreign visitor, just sounded like maybe you were giving more rooms away. So just again, how is that?

[Sheldon Gary Adelson:]

Yes, we are. That's the issue.

[Robert G. Goldstein:]

You're exactly right. The market was driven by local and now we're moving towards more of a foreign visitation market and to get our casino win, the premium mass, beyond the 4.2, 4.4, 4.5 a day, our focus has been on foreign visitation, which obviously acquires fly-in customers and rooms. So we're buying more rooms from the hotel and that may have an adverse effect, a point or 2 in the margins.

[Felicia R. Hendrix:]

Okay. So the ADR that you're reporting is a cash ADR and not just the kind of casino-related ADR?

[Unknown Executive:]

There's no material difference in the reported ADR and the cash ADR, no.

[Robert G. Goldstein:]

Actually, we paid more in the casino segment than any other segment there is. We pay the highest rates to the hotel from the casino side.

[Felicia R. Hendrix:]

Okay. Did that all count as one question?

[Robert G. Goldstein:]

That's it. You're done. Over and out.

[Operator:]

Your next question comes from the line of Steven Kent with Goldman Sachs.

[Steven E. Kent:]

Just a couple of questions, more from a corporate perspective, can you discuss the search for the CFO and where you stand? And also the same on the FCPA investigation, whether we could get a resolution on that sometime soon?

[Unknown Executive:]

Yes. Steven, at the present time, the search for the CFO has not actually begun. We continue to talk about when that will take place. Probably not -- if at all -- not until the end of the year or the beginning of next year. At this time of the year, it's not really a good time. We're moving along the same way we've been organized for the last 4 months. And as far as FCPA, there's nothing new to report. That investigation continues to go on and there's no real indication as far as when that will be completed.

[Steven E. Kent:]

Okay. Then my second question, Rob, you said that international play is up 60%. Where is it actually? Did you say the number, what percentage is now, international?

[Robert G. Goldstein:]

Yes. I said, in Singapore our foreign visitation, premium mass, is up 46%, in that segment. The driver of our success in Singapore, in the premium mass segment, is foreign visitation. Because, as you know, we have challenges in local visitation. So the growth there is material. I didn't reference this, but we're thrilled to see the non-Guangdong visitation into Macau actually bypassing Guangdong visitation. So with our room base, that's a very positive thing for us. They stay longer, come from further away and require sleeping rooms. So Sheldon's 9,000 sleeping rooms in Cotai turned out to be a pretty good idea. And as that accelerates and the infrastructural improvements continue, I think we'll see more demand for those rooms. So that foreign visitation, from non-Guangdong, is the Macau driver for us.

[Operator:]

Your next question comes from the line of Thomas Allen with Morgan Stanley.

[Thomas Allen:]

Just in terms of the capital returns. In your original remarks, you mentioned that you expect to buy back at least $75 million of stock a month. Is that an annual target, so you'll do $900 million a year or more or are you really going to do it -- you have a minimum monthly commitment? And are you still planning to take advantage of volatility in your stock price?

[Michael Alan Leven:]

I don't think, Tom, this is Michael. We're not going to be opportunistic. We're committing to buy a minimum of $75 million worth of stock a month. And if it does become an opportunity to buy it at lower price, we can put in more money if we wish. But at this point our commitment is to buy $75 million a month until the $1.6 billion that's available under our agreement to buy $2 billion is used.

[Thomas Allen:]

That's helpful. And then should we assume that you're not going to pay a special dividend at the end of the year, given the buybacks and the increase recurring?

[Michael Alan Leven:]

There hasn't been a discussion at this point, about a special dividend. That'll be discussed towards the end of the year. At this point, we can't really answer that question.

[Operator:]

Your next question comes from the line of Carlo Santarelli with Deutsche Bank.

[Carlo Santarelli:]

Big picture, just thinking about Japan and other Asian opportunities out there. Could you guys talk a little bit about how you would frame them over time, in terms of how you're thinking about CapEx, maybe some of the differences in building in a market such as Japan or Tokyo relative to your experiences in Singapore and Macau?

[Michael Alan Leven:]

Sure. Carlos, it's Mike. Japan would obviously be the most expensive investment we've ever made from a single property standpoint. The estimates range anywhere from $6 billion in Tokyo and up. There's been some comments, recently, about construction costs going up in Japan because of the Olympics. So it's likely to potentially run higher than that. In Korea, we would not expect to spend that kind of money at all, would probably be less than the Singapore property and significantly less than Japan. In countries like Vietnam, we'd expect lower construction cost there because labor and construction are both lower. And if, per chance, Taiwan would take place, it will probably look like something like Korea. So we're pretty well in touch, through our development department, in every one of those places to understanding the exact economics involved from a construction standpoint. What we don't know in Japan is what the tax rates will be or in any of these other countries at this point. So we can't estimate the bottom line. But we can, in fact, estimate not only construction, but cost of operation, which we're doing all the time.

[Carlo Santarelli:]

And then just one quick one, it's not a very big or material number, but I did notice next year's CapEx, you guys have a $215 million investment in current properties. Are there any special projects that you guys are thinking about?

[Michael Alan Leven:]

Yes. Our CapEx, on an annual basis, for the products we have today, represents close to $500 million annually. That CapEx is divided into property maintenance, which essentially is keeping the products where they are, and a combination of other investments which involve profit opportunities that we find within the properties to upgrade. The present plans are to spend approximately that money on an annual basis.

[Unknown Executive:]

And, Carlo, the red in that Slide on page 24, the $250 million, is Theater Box 5 [ph] and Four Seasons. So that's what that money is designed to pay for.

[Michael Alan Leven:]

New development money represents other money on top of the maintenance CapEx.

[Operator:]

Your next question comes from the line of Cameron McKnight with Wells Fargo.

[Cameron Philip Sean McKnight:]

Question for Rob, first of all, labor has been a big talking point. Can you comment on the labor restrictions that relate to dealers in Macau?

[Michael Alan Leven:]

I'll answer that question. Rob only cares about how much is being played at the tables. I take care of the labor with Chris. The answer to that question is, that from a dealer standpoint, there will be Macanese dealers and Macanese croupiers. That's what the government wants and that's what we intend to do. All the comments that have gone on in the last month about that have caused a lot of uproar in the local community in Macau. I don't think anybody, including us, is prepared to venture away from those rules at all, and the government assures us that we'll have enough people available at the time when we have more tables and more situations, and we will follow the rules directly on that area.

[Cameron Philip Sean McKnight:]

And then as a follow-up, as we think about capacity and the projects that are being built over the next 5 years, what do you think is more important in driving EBITDA? Is it hotel rooms or is it tables?

[Robert G. Goldstein:]

It'd be both, right?

[Sheldon Gary Adelson:]

You're talking about in Macau?

[Cameron Philip Sean McKnight:]

In Macau, yes.

[Robert G. Goldstein:]

Okay, both are very important. Let's be clear, you can't do one without the other. The key to our success has been this room concentration. I think, again, going back 2 years ago when we built these large projects and people were questioning the approach, but today we look at the relative table versus room relationship, it's obviously clear that we have a huge advantage by all those sleeping rooms. So tables, you have to have the tables, and obviously, that's an issue in Macau. But never forget how important the sleeping rooms are, and with the table caps, tables are more valuable than ever, but the sleeping room equivalent -- that sleeping room piece of the puzzle is evident every day as we go forward. And our success in Macau, we keep growing our table games, our mass tables are over 1,000 now, but we can do that because we have the sleeping rooms to drive that revenue. So they're related beyond anyone's comprehension years ago.

[Sheldon Gary Adelson:]

There's a big coincidence of events, we have a huge multi-tens of billions of train infrastructure built or being built, bringing in more people. We have, in 3 years or less, the Hong Kong-Zhuhai-Macau airport opening up, that will give Macau essentially a very mature, very highly-patronized international airport. It's a very, very unique position. So the more people come in and the table cap sit, the more win per table per day we're going to experience. So we could see it's already happening. So we can go from say, $11,000 or $12,000 [indiscernible] $13,000 per table in mass. It will go up to $13,000, $14,000, $15,000, $17,000, $20,000. It could go higher. So with the limit on table caps and just more people coming in, we're going to have a lot more win per day.

[Robert G. Goldstein:]

The other thing I'll just mention, on top of Sheldon's comments, one more thing. The size of the facility, there's obviously a table cap and obviously sleeping rooms are a challenge for the market, but The Venetian and our larger buildings, the SCC, afford us the ability to add more ETG units and capitalize on the huge size of these buildings. And a lot of [indiscernible] capacity, so that's another opportunity for us to keep adding more ETGs and growing our business that way.

[Operator:]

Your next question comes from the line of Harry Curtis with Nomura.

[Harry C. Curtis:]

A couple of quick questions, following up on Japan. Could you just give us an update on your views of the legislation and what the likely outcome will be as far as the ownership structure?

[Michael Alan Leven:]

Harry, as far as the ownership structure, we do not have any news at all, about partnerships or what have you, at this point. There's been some rumors in the market about having a Japanese partner, all the way to Japanese majority that I've seen in print, but there's nothing that our people on the ground know about any significant, really, indication as to what the Japanese ownership, if any, would be at this particular point in time. On the legislation, you probably know the same things we know. They're talking about, by December, having the first phase of the legislation done. Our best knowledge, today is, we're not sure. It could be December, it could be January. All the press has been favorable, but Japan has been trying this for many, many years and it's not really -- we really just can't predict when that legislation will happen. And then there's talk about a year to 2 after the legislation, lots of talk now, about 1 year, before a final decision. But once again, that is not known either. So at this point, we're optimistic. I think everyone is optimistic that Japan will do something, but at the end of the day, I don't think anybody is able to really predict it.

[Sheldon Gary Adelson:]

They're focusing on -- this is Sheldon. They're focusing on 2 things. One, the Integrated Resort model out of Singapore. They're focusing on the social protections, like perhaps the $100 admission fee, a levy; and secondly, they're focusing on conventions. There's no company in the world that has the convention experience like we do. Anybody, any journalist, any analyst, anybody in the politics, in government, says that the frontrunner by far in the close position is Las Vegas Sands Corporation, because we're the experts in both of what they're looking for. They're looking to create tourism. Our Integrated Resorts, in the first 24 months, increased tourism in Singapore by 41%. They generally acknowledge, we have changed Las Vegas with our business model and convention base. We changed Macau, everybody in the government would acknowledge that. We've changed Singapore, and we can easily change any other city in which we have a MICE focus, MICE-based business model. So everybody says we're in the close [ph] position there. We hope we're in the close [ph] position. I think that we may have a -- caught between a rock and a hard place, meaning we think that Tokyo wants us and Osaka wants us. So we've notified both governments, we're happy to accommodate them.

[Operator:]

Your final question comes from the line of Robin Farley with UBS.

[Robin M. Farley:]

You mentioned, in your comments, government approvals are still needed for The Parisian project. Can you just kind of highlight whether the kind of major approvals that are still needed for that to open in late 2015?

[Unknown Executive:]

I think she's asking what approvals we may need before we open in 2015.

[Sheldon Gary Adelson:]

Actually, I don't think I mentioned it, no.

[Robin M. Farley:]

In your opening comments you mentioned government approval, so you're saying you don't expect any additional approvals needed?

[Sheldon Gary Adelson:]

You always need building permits. So we always put in a caveat when we talk about a schedule, assuming building permits come on a timely basis, and in Macau, they have come on a timely basis. But I'd rather issue a caveat to say, subject to the government acting the way they've always acted, giving us building permits on a timely basis. If I said that, but frankly, I don't recall that. But there is no specific approvals. We know that they're planning to give out tables and the last thing I heard was everybody's not going to be as happy with the table allocation as everybody would like to be, and that's -- we'll have to live with that, we think we're in a better position. Our competitors aren't going to do any better than we have. And we have -- since everybody, all 6 concessionaires, the primary concessionaires and the sub-concessionaires, which we're one, has the opportunity. Everybody's put in for the same number of tables for this, and if they keep the table cap at exactly where they are, we'll get them and we hope we'll get enough tables. And we'll take the lower-performing tables from other properties, which I think the government is counting on for everybody. There'll be no advantage except we're putting up almost as many rooms as the average of the other 5 concessionaires -- the average of 2 of them, because they're averaging 1,500 to 1,700. And we're in the process of building the St. Regis, and we're putting another 400, 500 rooms there, which is the fourth building on Sands Cotai Central. We don't see any obstacles there.

[Robin M. Farley:]

The other question was...

[Unknown Executive:]

We're having a hard time hearing you. Could you speak into the phone?

[Robin M. Farley:]

Sure. The other question was about your reserves levels in Singapore. It looks like as a percent of accounts receivable it's as high as it's ever been there. So just wondering what's going on with collections leading you to be so conservative with reserves.

[Robert G. Goldstein:]

Robin, it's Rob. We've always aspired to get a higher percentage of our $1.1 billion in Singapore, reserved in the 30s and beyond. So we're very pleased where prices are going. As you know, we're at 32% on $1,119,000,000. Comfortable with it. I think we're being conservative and are going to keep that approach because they make sense for us. As you know it's a challenging -- collecting money in Singapore has always been something essentially, we [indiscernible]. We feel it's difficult, we're in Singapore. It's difficult because we are dealing with mostly Mainland Chinese customers. So we feel good about the reserve and we feel good about the level of collections we have accelerated.

[Operator:]

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.