Melco Resorts & Entertainment Limited American Depositary Shares 2026 Q2 Earnings Call

Thank you, operator. Thank you everybody for joining us today for our second quarter 2026 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. Definitions and reconciliations of each of these measures to the most comparable GAAP financial measures are included in the earnings release. Finally, please note that our supplementary earnings slides are posted on our investor relations website. With that, I'll now turn the call over to Mr. Lawrence Ho.

Thank you, Jeanny, and thank you all for joining us today. We're confident in the long-term strength of our business and our outlook for the remainder of 2026 in Macau. Despite near-term headwinds that are reflected in our second quarter results, our priorities remain unchanged: to deepen customer engagement, attract high-quality visitation, and continue investing in our properties to anticipate the changing needs and preferences of our guests. The opening of REM marks an important milestone in the continued evolution of City of Dreams, delivering a distinctive new experience for our guests, which we believe is not available anywhere else in Macau. We continue to take steps to operate more efficiently and strengthen our business. Together with the phased opening of REM, these initiatives position us well to capture the growth and demand. We continue to enhance the gaming experience across our portfolio.

We opened a new gaming area with 18 tables at City of Dreams near the southwest entrance at the end of July. Its convenient location along the main Cotai Strip, with easy accessibility, is expected to attract incremental visitation, particularly from walk-in patrons. The benefits of the convenient access to games has been a proven success with our 15-table gaming area near the Grand Hyatt entrance, which we opened in October 2025. We're also commencing a revamp of the retail areas at City of Dreams in Macau. The redesign area will create a seamless loop across the property, introducing a more carefully curated mix of luxury offerings with differentiated elements. The completion of this retail revamp will allow us to deliver the full integrated resort experience at City of Dreams that will be uniquely Melco. Competition remains elevated, resulting in a demanding cost environment.

We are focused on being disciplined as we align our resources with the highest return opportunities and protect the guest experience. Outside of Macau, a diversified portfolio continued to demonstrate resilience and growth potential. In the Philippines, City of Dreams Manila delivered property EBITDA of $31 million in the second quarter of 2026, representing a 9% year-over-year growth. In Cyprus, despite the disruption associated with the conflicts in the Middle East, property EBITDA at City of Dreams Mediterranean and our satellite casinos rose 60% year-over-year in the second quarter of 2026. In Sri Lanka, our casino operations continued to ramp, recording positive EBITDA of $3.5 million in the second quarter of 2026. We remain focused on executing a disciplined ramp-up strategy and driving further operational progress throughout the remainder of the year. With that, I turn the call over to Jeff.

Thank you, Lawrence. Our group-wide adjusted property EBITDA for the second quarter of 2026 was approximately $304 million. Adjusted for VIP hold, our property EBITDA was approximately $312 million. An unfavorable win rate at City of Dreams Macau had a negative impact on our property EBITDA by approximately $9 million. The VIP win rate at City of Dreams Macau declined from 3.9% in the second quarter of 2025 to 2.7% in the second quarter of 2026. We continued to be disciplined in our cost management with total daily OpEx in Macau for the second quarter of 2026 remaining steady at approximately $3.4 million per day, inclusive of House of Dancing Water and in line with our prior guidance. Lower than expected visitation and lower hold relative to prior quarters placed pressure on margins in the second quarter of 2026.

We are actively evaluating opportunities to incorporate greater flexibility across our operations to better align our cost base with evolving demand and business volumes. Turning to our balance sheet, our liquidity position remains robust. We had available liquidity of approximately $2.8 billion, with consolidated cash on hand of approximately $1 billion as of the end of the second quarter of 2026. Melco Resorts, excluding its operations at Studio City, the Philippines, Cyprus, and Sri Lanka, accounted for approximately $492 million of the consolidated cash on hand. Our strong liquidity position reflects the extension and upsize of Melco's revolving credit facilities, which was announced in June. The maturity date of the RCF was extended from April 2027 to June 2031, and the facility size increased by approximately $821 million, resulting in a total RCF size of $2.8 billion.

This provides us with added financial flexibility as we think about our upcoming maturities. Additionally, in May, Studio City issued $300 million in senior secured bonds. The net proceeds from the issuance, together with a $15 million drawdown from Studio City's revolver and cash on hand, was utilized to early redeem the Studio City senior secured notes due 2027. In July, Studio City redeemed an aggregate principal amount of $165 million of its outstanding 6.5 senior notes due 2028. The redemption was funded with a $150 million drawdown from Studio City's revolver, allowing for a reduction in interest expense. After cancellation of the redeemed notes, an aggregate principal amount of $335 million of the 2028 notes remain outstanding. From April 1st to August 12th, 2026, we repurchased approximately 22.4 million of our ADSs for a consideration of approximately $121 million.

This brings the total repurchases in 2026 to approximately 25 million ADSs for an aggregate consideration of approximately HKD 134 million. We continue to take a disciplined approach to capital allocation, thoughtfully balancing share repurchases, cash availability, prevailing market conditions, and the long-term needs of the business. Share repurchases have been opportunistic when the market price of our ADSs falls far below levels that, in our judgment, appropriately reflect the underlying value of our company. Having spent approximately HKD 134 million on share repurchases in 2026, we currently expect to recommence dividends in 2027. As we normally do, we will give you some guidance on non-operating line items for the upcoming third quarter of 2026. Total depreciation and amortization expense is expected to be approximately HKD 140 million to HKD 145 million.

Corporate expense is expected to come in at approximately HKD 20 million to HKD 25 million, and consolidated net interest expense is expected to be approximately HKD 115 million to HKD 120 million. This includes finance liability interest of around HKD 6 million relating to fees payable in relation to the Macau gaming concession and the Cyprus gaming license, and finance lease interest of approximately HKD 5 million relating to City of Dreams Manila. That concludes our prepared remarks. Operator, back to you for the Q&A.

Hi, George. We've actually soft opened REM already. We're easing into it. The grand opening is set for after Golden Week in October. I think so far the reception has been great. Macau has some of the nicest hotels in the world, so there's already an oversaturation in the luxury market. I think we, in the prepared remarks, we said, REM is unlike anything in Macau. It's actually more like it's unlike anything in Asia, probably the world. It's a very unique product. It's a lot of fun. I think it's a luxury, but it's highly differentiated from anything that's in the market or even at City of Dreams. I think that complements our five-star hotel offering very well.