Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Las Vegas Sands Corp. (NYSE:LVS)

Q2 2010 Earnings Call

July 28, 2010 08:00 am ET

Executives

Daniel Briggs - VP, IR

Mike Leven - President and COO

Sheldon Adelson - Chairman and CEO

Rob Goldstein - EVP and President of The Venetian and Palazzo Las Vegas

Ken Kay - SVP and CFO

Analysts

Joe Greff - J.P. Morgan

Janet Brashear - Sanford Bernstein

Mark Strawn - Morgan Stanley

Shaun Kelley - Banc of America Securities

Felicia Hendrix - Barclays

Robin Farley - UBS

Operator

Good morning. My name is Marianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Las Vegas Sands Corp. Quarter Two Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remark there will be a question and answer session. (Operator Instructions). Thank you.

At this time, I would like to turn the call over to Daniel Briggs, Vice President of Investor Relations. Sir, you may begin.

Daniel Briggs

Thank you, operator, and good afternoon, everyone, and thank you for joining us today. Good morning to those of you back in United States. On the call with me today are Mike Leven, our President and Chief Operating Officer; Rob Goldstein joining us from Las Vegas; our Executive Vice President, President of The Venetian and Palazzo Las Vegas; Ken Kay, our Chief Financial Officer; and Gayle Hyman, our General Counsel. Mr. Sheldon Adelson, our Chairman and Chief Executive Officer, will be joining us for the Q&A portion of this call.

Before we begin, let me remind you that today's conference call 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, adjusted diluted EPS and adjusted property EBITDA, 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.

I’ll now turn the call over to Mike Leven.

Mike Leven

Good morning, everybody. Sheldon Adelson has just arrived into the hotel. His plane, he had to get off his plane, which was canceled because of the weather. And in about five minutes, he should be here. So I will start by reading some of his portion, and then he’ll pick it up as when he gets in.

Good morning to those of you in the United States, and good evening to those of you in Asia. Thank you all for joining us today. I’ll begin today's call with some comments on this quarter's results, including our results from Marina Bay Sands in Singapore, which opened its doors on April 27th. I’ll then hand the call over to Mike Leven and the team to provide some additional detail.

Big picture, we are very pleased with our results. Our business in Macau was quite strong and is generating record revenue and EBITDA. Marina Bay Sands in Singapore, which was opened for only 65 days during the quarter, has received a wonderful reception from the people of Singapore and the wider region.

The property is experiencing strong visitation and gaming volumes and is off to an outstanding start. In Las Vegas, operating conditions are showing some signs of improvement, particularly on weekends and occupancy has been strong even throughout the summer period.

Our record results in Macau during the quarter included a strong contribution from each of our three properties there. Let me provide the details for the second quarter of 2010, compared to the second quarter of 2009.

At the Venetian Macao, net revenue increased 31% to $581 million. Adjusted EBITDA increased 75% to $193 million, and adjusted EBITDA margin increased 840 basis points to 33.2%.

At the Sands Macao, net revenue increased 29% to $302 million. Adjusted EBITDA increased 33% to $81 million, and adjusted EBITDA margin increased 80 basis points to 26.9%.

At the Four Seasons Hotel Macao and Plaza Casino, net revenue increased 196% to $144 million, adjusted EBITDA increased 493% to $33 million, and adjusted EBITDA margin increased 1,150 basis points to 22.9%. And for our Macau properties in total, net revenue increased 41% to $1.03 billion. Adjusted EBITDA increased 74% to $307 million, and adjusted EBITDA margin increased 560 basis points to 29.9%.

We continue to lead the Macau market with revenue growth flowing through to market leading EBITDA and EBITDA margin. This performance reflects strong revenue growth, coupled with the benefits from our cost containment and efficiency strategies.

Construction activity on the Shangri-La Traders Sheraton complex, our latest integrated resort development on Parcels 5 & 6 on the Cotai Strip in Macau, is progressing. We recently closed the credit facility for the development, and we thank our lending partners for their support on this project. We continue to work with the Macau authorities to ramp-up construction workers necessary to complete the project.

Mr. Adelson just walked in. He’ll pick it up from here.

Sheldon Adelson

In Singapore Marina Bay Sands generated 94 million in EBITDA, in its first 65 days of operation and EBITDA margin of 43.7%. Load table games hold on our rolling business at Marina Bay Sands prevented us from generating even stronger EBITDA and EBITDA margin for the period.

After opening 963 rooms on April 27 and most of the remaining rooms and suites on June 23, Marina Bay Sands has experienced strong visitation and healthy volumes in all three segments of the property's gaming business.

We have seen increases in volumes in both our mass and rolling businesses since we opened the property, and are pleased with both our volumes to date and the ramping up of daily play. We are confident that as the property and its marketing programs continue to mature and as its full complement of amenities, including additional high end suites, retail and entertainment offerings come online. Marina Bay Sands will be an ideal platform for the company's growth.

Let me spend a moment on Las Vegas. Gaming volumes were healthy during the quarter, but we experienced lower table games hold. Hotel revenues improved compared to the second quarter of '09. Occupancy is up, and group business is returning, although pricing on groups remains competitive.

Forward bookings are increasing for both the remainder of 2010 and 2011, which is encouraging. We are also seeing stronger pricing trends that may affect key portion of our business, particularly on weekends.

I look forward to addressing your questions later, but I will turn it over to Mike and the team for a quick update first. Mike?

Mike Leven

Thanks, Sheldon. I’ll add just a couple of thoughts. First, let me cover our leadership change in Macau. The Board of Sands China, made the decision that a leadership change was in the best interest of the company, its employees and shareholders. I will be serving as acting Chief Executive Officer for Sands China, while the Committee of the Board of Directors of Sands China conducts the new search for the new Chief Executive Office.

For at least the last six months, we have had the objective of augmenting the leadership team in Macau with additional Senior Operating Management. We now have the opportunity to fulfill that goal, and I'm pleased to say that we have recruited two Senior Operating Executives to join our management team in Macau on August 10.

Ed Tracy has joined us as President and Chief Operating Officer of Sands China. David Sisk has joined Sands China as Executive Vice President and Chief Casino Officer. Both gentlemen have extensive experience in the hospitality and gaming industries and have developed a track record of success during their careers. We welcome them into the team and look forward to their contributions in the future.

We are quite pleased with both our current operating performance and our strategic positioning in Macau. Our team members there have done an outstanding job during the last year, and we are very pleased with their hard work, dedication and performance. I'm confident that Ed and David, together with the leadership team already in place in Macau, are well prepared to lead Sands China as it grows in the years ahead. As strong as our results have been, these management changes are all about building on the solid foundation we have already established and making our properties work even better in the future.

Let me make a couple of comments on our current quarter results. Our direct VIP play at the Venetian Macao grew to $2.4 billion on approximately 24% of the approximately $10 billion of rolling volume during the quarter. At the Four Seasons Hotel Macao and Plaza Casino, total rolling volume was $4.8 billion with direct VIP rolling business growing to $2.4 billion or about 49% of that total.

Retail is another bright spot, with retail sales increasing nicely across our properties. Retail sales at the Grand Canal Shoppes at The Venetian Macao, for example, were up 56% in the month of June, compared to June of last year. With respect to future development in Macau on parcels five and six, we remain confident that the introduction of additional destinations on the Cotai Strip will expand the Macau market, providing critical mass to drive greater visitation, mass table and slot play, hotel and retail revenues also to our current and future properties.

Let me spend a moment on Sands Bethlehem before Rob covers Las Vegas. I'm pleased to share the news that Sands Bethlehem had its best quarter, since we opened the property last May of '09, generating $12 million of EBITDA during the quarter. The improving results reflects stronger slot revenues and the introduction of additional marketing programs, as well as a concerted effort on efficiency.

We continue to believe that Sands Bethlehem has potential. We introduced 89 table games on July the 18, which have broadened the property's appeal and should contribute to the greater profitability overall. Table play is off to a good early start and has already positively impacted visitation and food and beverage revenue, as well as slot play and profitability.

In fact last week, we generated our highest gross slot win on record. We have also seen a marked increase in our Player Club card enrollments with a significant portion coming from New Jersey and New York.

We restarted the construction of our 300 room hotel and expect it to open in the spring of 2011. The addition of the hotel will increase the length of stay at Sands Bethlehem, while adding higher margin hotel revenues to the property's financial results.

With that, let's go to Rob to discuss Las Vegas.

Rob Goldstein

Thanks, Mike. Our Las Vegas properties drove EBITDA of $66 million in the second quarter of 2010, compared to $78 million in the second quarter of last year. Gaming volumes remain healthy and were stronger during the quarter compared to last year; however, poor hold percentage negatively impacted table revenue by approximately $30 million. RevPAR is up for the quarter, reflecting a stronger occupancy and rates at modestly lower, when compared with same quarter last year.

Looking ahead, we expect to realize more group rooms in 2010 than we did in 2009. The pace of group bookings continues to improve and 2011 should be stronger than 2010. In 2009, realized approximately 478,000 group room nights or about 18% of our total room nights.

Today we have about 550,000 in group rooms on the books for ‘10, an increase of 19% of what we realized in 2009. We expect our actual group rooms to exceed that number as we add additional business throughout the remainder of the year. However, rates are still under pressure in that segment. We do expect that pricing will improve in the group segment over time as business expands. Our direct competitors in Las Vegas raised prices and the economic recovery continues.

So, in summary in Las Vegas, our gaming business is healthy. Our costs are down, given that backdrop, we are confident that our Las Vegas properties will exhibit significant operating leverage as pricing in the FIT segment every time the group segment continues.

With that, I’ll turn it over to Ken Kay.

Ken Kay

Thanks, Rob. We made further progress this quarter on our de-leveraging strategy. Excluding our development financing in Singapore, we paid down or retired approximately $420 million of our debt during the quarter. The repayments include $350 million on the Macau revolver and the purchase and retirement of approximately $27 million of face value of our senior notes, which were purchased for 96.1% of par.

As of June 30, we had approximately $3.8 billion of cash, cash equivalents, restricted cash, and short-term investments on our balance sheet. That cash provides us with significant financial flexibility and will enable us to execute additional components of our de-leveraging strategy in the future.

In addition to our cash balances at June 30, we had approximately $3.2 billion of availability under our undrawn credit facilities at current exchange rates, including amounts available through our US credit facility and our new credit facility related to Parcels 5 & 6 on the Cotai Strip in Macau. So together, we have approximately $7 billion of cash, cash equivalents, restricted cash and short-term investments and available sources of liquidity.

The principal uses for that $7 billion include approximately $750 million of capital expenditures, pre-opening, FF&E and construction period interest to spend on our Marina Bay Sands development in Singapore through the end of calendar 2010. Although we expect as much as $450 million of that amount to be paid out of cash flow generated by Marina Bay Sands during the remainder of the year, an additional $430 million, principally retainage payments on the development, will be paid out of cash flow from operating the property in 2011.

In Macau, approximately $400 million in additional equity contribution will be made towards the development of Parcels 5 & 6 on the Cotai Strip.

During the quarter, we closed the previously announced $1.75 billion credit facility to fund construction of Parcels 5 & 6 in Macau. The remaining equity noted previously and the project financing together are sufficient to complete the first two phases of that development, which will feature approximately 6,000 hotel rooms and all the major cash flow generating components of the development.

As of June 30, total debt was $10.4 billion, while our cost of borrowing remains low. Our weighted average interest rate for the quarter was approximately 3.7%. And our current levels of operating performance, our cash balances provide ample cushion for compliance with the financial covenants in our US credit facility.

At June 30, 2010, for the US restricted group covenant compliance purposes, our trailing 12 month EBITDA was $432 million, our total gross domestic debt was $4.3 billion, our cash balances within the US restricted group of $1.9 billion, and our calculated net debt was $2.4 billion. Our leverage ratio was 5.47 times compared to a maximum leverage covenant under our US credit facility of six times.

For the Venetian Macao restricted group at June 30, 2010 our trailing 12 months EBITDA for compliance purposes was $1.09 billion, total gross debt at The Venetian Macao restricted group was $2.27 billion, and our leverage ratio was 2.09 times compared to a maximum leverage covenant of 4.0 times.

We remained focused on maximizing operating profitability to enable debt reduction. While our business will naturally generate a significant amount of free cash flow that will enable de-leveraging the future, we also expect to execute in due course the sale of non-core assets, which will enable additional debt repayments and enhanced returns.

As part of our long-term strategy to delever the company and reduce our debt outstanding, later this week we will be launching an amend and extend transaction with respect to our US credit facility. The transaction contemplates a pay down of our term loan and a reduction of a revolving credit facility commitment in exchange for the extension of maturities and other modifications to the credit agreement intended to increase the company's financial flexibility.

While we are opportunistically looking to pursue this transaction, our current and projected liquidity and financial resources provided with the ability to leave our US credit facility in place without modification should terms not be acceptable to us. If completed, this transaction will accelerate our de-leveraging process, enhance our liquidity and improve the overall credit quality of the company.

And with that, I’ll turn the call back over to Sheldon.

Sheldon Adelson

Thanks, Ken. I guess it’s my turn to sing and dance. No, I'm not going to sing. Before we go to Q&A, let me make a couple of final points. I have complete confidence in Mike and our leadership team. We just completed another outstanding quarter, contrary to what the shorts believed we would do.

Generating record revenues and EBITDA in Macau and for the company overall, our operations are in outstanding shape, and we are making positive additions to our management team.

We have also reduced our debt levels, and our balance sheet has nearly $4 billion of cash, but who is counting, providing significant financial flexibility and enabling us to continue our industry leading growth strategy.

With the opening of Marina Bay Sands in Singapore, we stand today at the beginning of our next major phase of growth. We could not be more enthused about our business today and about our strong positioning for the future.

With that, we'll move to your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Joe Greff of J.P. Morgan.

Joe Greff - J.P. Morgan

Good evening or good morning to Rob and Las Vegas. Looking at the Singapore results, which were very strong, if I'm looking at gross gaming revenue per day, its somewhere in the 3.6 million range in the casino. Win per day is 2.94 million. For the quarter, I am presuming that there was improvement June versus May and May versus the stub in April. Can you talk about the monthly progression of casino win or gaming win maybe on a per day basis and maybe talk about how that trend is going in July?

Sheldon Adelson

I think I would ask Ken to answer that, but my recollection having glanced over the numbers that it was a substantial ramp from May to June. There is a masterpiece and (inaudible) I see a line going from lower left to upper right.

Ken Kay

That's the right direction.

Sheldon Adelson

That is the right direction, okay.

Joe Greff - J.P. Morgan

Maybe I will follow-up off line with you guys. Just on the topic of Steve Jacobs' departure, I'm presuming he has a non-compete. Can you confirm that, and how long does that non-compete last?

Mike Leven

I don't believe he has a non-compete, Joe. Actually he does not have an actual employment contract. He had a signed term sheet. We never got to contract with it, and I don't believe he has a non-compete in that term sheet.

Sheldon Adelson

Well, I would opt to have him go to work for a direct competitor.

Joe Greff - J.P. Morgan

Okay. Mike, Sheldon, are you anticipating any other property management departures as a result of Steve Jacobs not being there, or are you aware of any that might be pending?

Sheldon Adelson

To the contrary, we have several people wanting to come back.

Mike Leven

We are reviewing staff now, Joe, and Stephen Weaver has come back as a consultant to help us through the transition period and maybe even longer depending upon his personal situation. There were basically staff openings here over the last number of months. And I can tell you that I don't think there is anyone of significance on the management team that is in a situation that could be contemplated as a change at this point. I have been here for a week and have not seen any indication that the problem is in the layer of staff below Steve.

Joe Greff - J.P. Morgan

Okay. And maybe you can just talk, Mike, a little bit, the two new guys that you announced yesterday. One has Macau experience, and the other has more US regional experience. Can you talk about what you think they bring to the table?

Mike Leven

In the case of David Sisk, the casino individual, we have been looking for from months for someone to run or supervise the five casinos that we have that includes 5 & 6 as well. He has many years of very strong casino experience combined with some significant Macau experience in other marketplace.

So, I think he brings a very Senior Management approach to the casino business. This is a very complex business, multi-marketed, even though it’s a significant amount of junket business, and we think that David Sisk's personality and skill set bring into the table will provide some management daily attention to the full casino business.

It is not possible to run all of the casino business here from the very top of the organization. There is just too much going on, on a daily basis. So that’s why we were looking for the individual. And I think David brings an unusual combination of understanding the VIP business, as well as having a real good organizational mind and experience for the rest of the casino businesses that we have.

In the case of Ed Tracy, Ed Tracy has some casino experience, but we have bifurcated the building into two pieces, the casino side and the operating side. Ed actually began by washing dishes in a hotel, worked his way up through a series of properties all through his career, much of which people on this call probably wouldn’t have seen at low levels in the hotel business, built his way up through that business through some senior positions, and I think he can take the operation of these properties to the next level.

That the operations of the properties are doing well from a quality basis. It needs a little bit of work on the service side. And also, some substantial improvements can be made on the marketing and sales side, and I believe we will be able to accomplish that with Ed.

I think the combination of having a strong current operating situation, along with the gaming will give the next CEO the ability to deal in the financial, legal, government affairs area. So that’s how we are structuring the business.

Joe Greff - J.P. Morgan

And then back to my Singapore question, you mentioned there was a substantial ramp from May to June. How would you characterize July versus June? I'm not sure if you answered that.

Ken Kay

Just to give you an idea in terms of kind of the May through June and then Mike can tell you where things are currently. If you look at it from a rolling perspective, when we started out the property, we were probably kind of hovering around, I would say, in the $300 million to $400 million range on kind of weekly basis.

But, as you have gotten past and gotten into the beginning of June, right that number has ramped up significantly where it then kind of got above the $600 million range and then it’s now kind of in the $800 million to $900 million range and on a weekly basis. The other thing that I think is important with regard to kind of the non-rolling and slot business, if you look at it on a kind of win per day basis, and those numbers that I gave you before were kind of per day during those weeks for the rolling business.

But on the non-rolling and slot per day, when you started off in May, were kind of in the $2 million plus range per day and then when you have gotten the beginning part of June, it started to get upwards kind of pushing in the $2.5 million range. And now as we have progressed into late June and into the early part of July, it’s kind of pushed up above the $3 million per day. And so it has kind of ramped up quickly in that regard, and now Mike can probably give you an idea relative to kind of the latest.

Mike Leven

Well, I think the latest situation we are now seeing as we get to the latter part of June and through July so far, our rolling volume will probably hit in July a little over $3 billion enrolled at the US now I'm saying, right. And our ramp-up in mass-market and slots has continued in the month of July. Our whole number on the VIP rolling situation has been lower than expected, but we are very consistent in our mass market and slot wins, and what we are doing in the win per unit per days, as well as the whole percentages. So there is no question that it continues to ramp, and we’ll continue to ramp, I think.

I can’t predict what’s going to happen in August and September, but at this point when you look at our performance in the 65 days without any serious contribution from the hotel, which by the way, is also ramping and we ended the quarter at 55% on the 65 days on 900 rooms.

We are doing that level of business now in 2,500 rooms, which means that we are actually selling 1,000 rooms a day more, I believe, than we were selling before. So once we get into the 70s and 80s and percentage price, there’ll be a major contribution there as well. So it would also help the casino numbers. But the encouraging thing is that all three areas of volume in the casino are moving forward and particularly in the VIP now.

Joe Greff - J.P. Morgan

And then my final question, Mike, have you opened up the electronic slots and I believe it’s the (baccara) and up to Roulette?

Mike Leven

Yeah. We only opened the electronic baccara so far, which is about 90, 89 and 90 units. By September 3, we will have over 300 electronics, including Rapid Roulette and Rapid Sic Bo. Some of that will come in August but the whole project will be completed by September 3.

And the early results on baccara were a little bit lower than expectation. They are also ramping up as people know they are there. So we expect that's going to have a pretty good sized impact with that number of machines.

Operator

Your next question comes from the line of Janet Brashear of Sanford Bernstein.

Janet Brashear - Sanford Bernstein

As we are talking about Singapore and looking at the ramp versus and the current trends versus the average levels of play and what not, could we look at the commission rates for a second? It looks like you are doing about 1.2% for the quarter. How is that trending? I know you tried to start out at a lower commission rate, there were competitive pressures that made you ramp up higher. What do you think is sustainable over the next quarter?

Sheldon Adelson

First of all, the rate of hold has nothing to do with the ramp-up. We could ramp up with or without a rate of hold. We could over-hold or under-hold, it still is not going to affect the ramping up.

Mike Leven

I think, Janet that 1.2% is about where it’s going to be. I haven’t seen any indication that it’s going to go more than that, unless really big players that get some extra lift get in there. I would say, 1.2% to 1.3%, something like that is where it is going to be.

Janet Brashear - Sanford Bernstein

Okay. And then from a share perspective, what would you estimate your market share to be now and how do you expect that to change going forward?

Mike Leven

We do not have [Santoso's] numbers. We can’t say; it would be pure guesswork. But I do think that it may sound like an optimistic statement, but we will have more than our fair share given when we ramp up.

When we are in the market as long as Santoso has been in the market, we pick up that three months. By the end of the summer, I would expect that we would have a fair share and perhaps a little greater. But we can’t know until the numbers come out.

Sheldon Adelson

We show the country of origin of the player. I looked at the top 20 players yesterday and we have countries that I didn’t believe we would get them from. Which we even get customers from Macau.

We have Hong Kong, China, Indonesia, Vietnam, Taiwan, Korea, of course, Malaysia and Indonesia, and Thailand. Those names are very difficult to pronounce. I guess they figure Adelson is difficult to pronounce. But clearly as we’re ramping up we have no idea what they are doing, but we have reason to be optimistic and encouraged about our ramping up of following the last number of weeks since we've been open.

We are not at par with them. They have had a better time ramping up, and they had a lot of experience in bringing in buses from Malaysia. They are doing very well at it. Genting is doing a lot better than what I thought they might do. And I think the rewards program are kind of very rich for the player and also for the high-end. There is a lot of rationale that everybody is throwing around as to why they are giving out at least 20 bps higher than we are giving on any one customer category. So, the biggest spread is on the last $10 million and over category.

Janet Brashear - Sanford Bernstein

Is that customer mix as you expected, and what would you say are the most profitable segments right now?

Sheldon Adelson

The mass is the margin it’s always going to be very profitable, but on the difference in the tax rates. So it comes out even though it would figure out to about 11.5 to 12 it's coming in at about 10 because of the way that they do the calculation, and it's coming in at about 20 instead of 22 on the mass side.

So, theoretically, the reward program is much richer for the high-end player, but then again it’s offset by the lower tax rate. There are some days that we go by and we look at our contribution margin of 67%. I mean many days we are doing upwards of 50% on the cost of sales, the net after cost of, what you would think of as cost of sales, I would call it contribution margin.

So the margins at 43.7% I think is probably is surprise to a number of people. It's not to us because when we look at daily numbers and we get numbers every day, it looks like we’ll have a substantially higher margin, probably industry leading profit margins for both us and presumably for Genting.

So, but the fact that there are so many people that are coming from different countries in Asia, I didn’t see any Japanese, but I did see some Koreans. We have a group of Koreans flying in every week. And they are very good players, fine people and good players. So I think that the outer reaches of our radius, our marketing radius, is wider than what we thought before.

Anything else except continuing to grow.

Janet Brashear - Sanford Bernstein

Could you comment a little bit on what your worst case fallback plan would be for Lots 5 & 6 in Macau, if it doesn’t get any easier to bring in labor?

Sheldon Adelson

We believe that the government is recognizing that as long as we've done a thorough job and all of our human resource efforts have been with the people from the human resources office of the Macau government, sitting next to our interviews of these people, I don't have any official acknowledgment of this part upon believe that we’ll get the people that we need. The government of Macau is only responding to the need for us to try to put local people to work. If they are faced with the choice of not having any growth, on the one hand, or on the other hand, allowing more foreign workers in, I believe very strongly they are going to allow more foreign workers in.

Operator

Your next question comes from the line of Mark Strawn of Morgan Stanley.

Mark Strawn - Morgan Stanley

Three real quick questions by market. First, in Macau I was hoping you could give a little bit of color on July trends to date. In Singapore I was hoping you could talk a little bit about the margin ramp as you layer on the other hotel components and start to ramp there in the retail mall. I think it would mean that margins have continued to ramp in current levels. And also in Vegas, a quick question for Rob about cash RevPAR trends. Certainly RevPAR numbers looked impressive in the quarter, but I was hoping you could kind of give us a sense of what the cash numbers look like.

Sheldon Adelson

He has been so quiet, I am wondering whether or not Rob is still alive.

Rob Goldstein

I am alive and well, Sheldon.

Sheldon Adelson

Good. Glad to hear it.

Mike Leven

July has been a terrific 27 days so far in Macau. I think I can’t speak for everybody else on the Peninsula in here, but basically we are doing extremely well at the EBITDA line for all properties. So you never know until it’s over in July, but my guess is July will continue the trends of the last quarter. One more. We are very optimistic about what’s happening here from that standpoint. What was the second question?

Mark Strawn - Morgan Stanley

Second question is about retail, Mike, retail in Marina Bay?

Mike Leven

Yeah, retail in Marina Bay you will have I think 160 stores open at September 3, and there is a big opening party there for that, of the 280 stores. So we expect at the begin to contributing profitability, which, as you know is high margin profitability in the retail area. Just to give you an example of the 43.7 percentage, really had no when you are opening a property, you are basically, you’re staffing levels and your volume levels don't really come together. For example, in the quarter, we averaged room contribution of about 70%.

Normally, we would get somewhere between 78% and 82%. As the hotel begins to fill up, we’ll get that margin. That will be a higher level of contribution. So I think the answer to your question is, there should be no reason that contribution margin goes lower. In fact, there should be every reason the contribution margin or the EBITDA margin level goes higher as we go forward.

Rob Goldstein

Mark, as far as your question, you should focus in on casino comps as a percentage of the net segment versus the group rooms and wholesale in the FIT, is that correct?

Mark Strawn - Morgan Stanley

Yes, that is right.

Rob Goldstein

I think throughout the market, we are all pretty much aware that too many people, ourselves included are comping or discounting in the casino segment more aggressively than they would like to. We prefer to use [720] as a percentage of our mix, like to see our group rooms get back into the mid-30s, even higher, and our FIT in the 40% to 50% and the balance to the casino.

Unfortunately, in this environment we were down from the last year. We were comping less on a relative basis year-on-year, but it's still too high. We are still in the mid-20s. I think we are probably less guilty than our competitors, but we are still guilty of it. And I think, it’s indicative of the market that we can’t on mid-week, the weekends is not the issue. We can get FIT and others on the weekends. The mid-week has been a challenge, and I think the market clearly can break out the cash RevPAR from the comp. Question to ask, and I think across the market there is too much comping, but there is also too much supply in the market right now.

So, until we see stronger group, stronger FIT. I think you’ll see that continue to be a problem for us and for the market in general.

Operator

Your next question comes from the line of Aaron Fischer of CLSA.

Aaron Fischer - CLSA

Just a couple of questions on Singapore as well. Just first of all, can you provide any guidance in terms of the breakdown of casino visitors between the local market and the foreign market?

And then the second question as Mike mentioned on the margins, it seems like the margins probably slightly depressed given the 65 days. Sheldon, do you still think that you can deliver more than 1 billion in EBITDA in Singapore over the next 12 months?

Sheldon Adelson

Can you repeat that, your accent has got a little [Technical Difficulty] with my Boston accent hearing.

Aaron Fischer - CLSA

I think the first question was just a simple one in terms of providing a breakdown between the split of customers between the local market in Singapore and the foreign market and then just an offside on the EBITDA guidance?

Sheldon Adelson

It’s about 35%, slightly more than a third. Does that answer that question?

Aaron Fischer - CLSA

Yeah, sure.

Ken Kay

And the trends have been pretty steady since we started. So, pretty steady trends from the beginning. And we talked about a 35% or so Singaporean coming into the casino when we first opened for seven to eight days, and its really stayed pretty much the same all the way through.

Sheldon Adelson

I'm looking at the chart, and there are essentially two parallel lines right across the chart. I think it's about 35% - 37%, somewhere in the mid-30s. And the last part was?

Aaron Fischer - CLSA

On the EBITDA, do you think you can still deliver more than 1 billion in EBITDA next year?

Sheldon Adelson

I didn’t say more than 1 billion. I said 1 billion. Do I still hold by that? Yes. I know I may get myself in trouble if we don't hit it. I should tell you we are looking at the numbers and the trends, and I'm looking at a wider reach of high end customers than what I thought we would get at this stage of the game.

Operator

Your next question comes from the line of Shaun Kelley of Banc of America Securities.

Shaun Kelley - Banc of America Securities

Just one question, first of all, in Singapore. Mike, you gave a little bit of color on the where you thought the contribution margin could stabilize on the hotel side. I was wondering if you could tell us just in the quarter, what the contribution margins were for the hotel and for the casino?

And then secondarily, just wanted to ask a question or a follow up for Rob on Las Vegas.

Mike Leven

Shaun, I don't really have that. I can tell you the contribution margins from the hotel itself was pretty minimal in the first quarter in Singapore, it is so early, and, as you know, you sort of overstaff and over think in order to get the service levels up. Plus, you have openings and all those expenses going in there. I can say the casino margin is over 50%. It varies by 52% to 55% depending upon the day.

Also you can see that the overall margin of 43.7 is probably dragged by the hotel and the various expenses that go on there, that’s why the margin is below 50 on an EBITDA basis.

We are carrying operating costs, energy costs and operating costs that run a significant amount on a daily basis that don't sort of get amortized when the hotel isn’t filled up and when all the food and beverage and everything isn’t open. So, the best I can say to answer that question is that north of 50 would be where I think we ought to be when the hotel is ramping or has ramped up.

Sheldon Adelson

I talked a bit of our C&E, Conference and Exhibition, tonight about another issue. And I asked him how things were going and he said, well we have a little problem. He said, we have too much business. So part of the construction of something that has to be finished has to be done from 7:00 PM at night to 7:00 AM in the morning. We can't work during the day because we have too much (MICE) business. It’s a great problem to have. But I don't know how big the MICE business is, but if there is any MICE business, you can’t be doing any drilling or nailing or whatever. So that was very encouraging to hear.

Shaun Kelley - Banc of America Securities

And I guess one more follow-up on Singapore would just be any update on the status for junkets in the market there? There has been some chatter about maybe some players acting as junkets for small groups of theirs in for some local trade press. But just kind of wondering what you guys are seeing there, and do you have any application in for junkets under Marina Bay?

Mike Leven

Not to my knowledge. I haven’t heard or seen a junket application. About a month or two ago, there was some noise that there had been some junket applications into the CRA at Singapore, but nothing has come out to us at this particular point in time.

Sheldon Adelson

There has been a lot of local gossip about how Genting is working with junket reps. We have no basis on which to make an accurate statement about whether they are or not. My inclination is to say that if Japan 1.4 to 1.5, it's certainly an indication they may have to be working with some sort of intermediary. What was the other part of his question?

Shaun Kelley - Banc of America Securities

The last question was just for Rob, just on Vegas real quickly. I think you had said that you were at 18% of your business being group business, I believe that was for '09.

Rob Goldstein

Yes.

Shaun Kelley - Banc of America Securities

Can you talk about where you think that's going to stabilize in '10, and what you think it can be in '11?

Rob Goldstein

Well, in '10, we are hoping to get tune into the mid 20s. I think we'll see a lot more exceeds, hopefully it will exceed 30, but we are not there yet. The real issue is really demand is there. The question is rates, you go up to the market and look at the rates, they are just not the buyers are lot tougher. The market both in Las Vegas and beyond Las Vegas is very rate-sensitive, and I think that has been a challenge. We’d like to really exceed 30 in '11, but I think we’ll be in high 20s probably is more accurate.

Just one comment, if you don't mind, the Singapore issue you mentioned before to Mike and Sheldon, is just from the junket reps. From my perspective, I don't think, this was an issue that was lot of people are concerned about. But demand on this high end premium segment is so good that I just don't know why we need to worry about it either way. I mean I think anything we are seeing in our premium guys keep seeing more and more demand, as Sheldon referenced, in multiple countries.

If anything, I think they become more of a non-event than ever because the demand on the premium side with the tables is extraordinary. And I don't see this probably have credit problems. So I think we've played this very well, and the market has proven to be very, very strong on the premium side without junket reps.

Sheldon Adelson

I'm not sure, I remember what I was going to say. I think that some of the press are talking about or some of the analysts are talking about, well the junket reps are going to show themselves in the second half. I can be quoted on this, I don't think so. Because the property checks of the Singapore government is so comprehensive, I don't believe it’s only been a couple of small number of months ago that they've accepted that was the cutoff date, I don't think it was the cutoff date. It was since they received junket rep applications.

So, I am still convinced that the Macau style junket reps will not submit to the property checks and provide the information that the government will need to put them through the investigatory wringer. And even if they do, and even if there are some Macau style junket reps that will do that, I don't believe its going to be done this year at all. Now just like I could tell my wife, I'm not perfect all the time. So I don't, she doesn't believe me. I don't listen, I could be wrong. I don't think there is going to be any junket reps coming into 2010.

Operator

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

Felicia Hendrix - Barclays

Just on getting to the hold, what was the impact in Singapore and Vegas? You know, it’s a little bit lower on both.

Rob Goldstein

On Vegas, we are seven points lower each one 400 and some million, so it’s about $30 million revenue impact on Las Vegas.

Felicia Hendrix - Barclays

Okay. I am assuming Singapore really less significant, relatively small?

Mike Leven

Singapore was from a revenue standpoint a little bit less than Vegas. It’s probably about 25 million - 26 million.

Felicia Hendrix - Barclays

Okay. Thank you. And then just ….

Mike Leven

For a whole …

Unidentified Company Speaker

Yeah, correct.

Unidentified Company Speaker

On revenue.

Unidentified Company Speaker

On revenue, yeah.

Sheldon Adelson

It was in the mid to high 20s. On normalizing debt, I guess would make it somewhat more attractive.

Felicia Hendrix - Barclays

That's right. Your direct play at the Venetian and Plaza increased nicely sequentially. I'm just wondering, where should we expect those numbers to go? What are your goals?

Sheldon Adelson

The sky is the limit.

Felicia Hendrix - Barclays

Is it?

Sheldon Adelson

Listen, say again.

Mike Leven

No, the question was about premium direct play.

Sheldon Adelson

Premium direct no….

Mike Leven

24% in ….

Sheldon Adelson

We are in active discussion right now since we terminated Steve Jacobs about the wisdom of accentuating the effort for direct premium play. We are certainly not going to eliminate it. The question is, how aggressive we are going to be to try to get it. We certainly have a lot of it in, I mean all that we have in Singapore is direct premium play. And consistent with what I have been talking to Goldstein about in daily lunches, I believe that a credit default rate is going to be as low as that in Vegas. Do you have anything to say about that, Rob?

Rob Goldstein

Yeah, I think it's a great comment in this sense that one thing I have been surprised about listening to our credit and premium casino people is how, to put it bluntly, how important Singapore is in that part of the world to customers from Indonesia and Thailand and Malaysia. I have been taught a lesson just too how critical Singapore is politically, financially, in a lot of ways emotionally, it’s a very important country, and city, state. And the customers have a lot of respect for it, I have been pleased to find that people pay pretty quickly. We haven’t had a credit issue yet.

In fact, I think it’s better than Las Vegas in terms of people wanting to pay, and in that part of the world, they come more frequently because that’s their region. And they have a lot of respect for that country, and I think that’s helped us lot. And direct credit has been a pleasant surprise thus far to me and I think to our team over there.

Sheldon referenced the amount of business and the diversity of countries we impact, we draw from. It’s growing daily. Korea has been a surprise. Taipei has been a surprise. Indonesia, Malaysia less than a surprise. But to me, the direct credit issue has been really, really feel good to our team, our credit team and the sales team, because it does not appear to be an issue. And that again, it diminishes the importance of the junk rep issue more and more. And that segment honestly it's just to me it is an amazing segment. So Sheldon has already commented the sky is the limit in that segment. I think that segment could be extraordinary for both Genting and us.

Felicia Hendrix - Barclays

Okay. But my question was on Macau and what your plans are for going direct there. So am I hearing that you are trying to grow it there? Because I thought, Sheldon, you made a comment that you might pull back. I am just confused?

Sheldon Adelson

We may. We are in the process of discussing this amongst senior management.

Felicia Hendrix - Barclays

Okay. So the difference in what you are seeing in Macau versus the Singapore is what?

Mike Leven

Singapore, Singapore is all direct play.

Felicia Hendrix - Barclays

No, I understand that. I guess what I'm hearing is that your direct play in Macau increased nicely sequentially, which is obviously beneficial to you. So I was just wondering if that was going to keep increasing. And you are saying that you are evaluating that now. So I was just wondering why?

Rob Goldstein

We take it all. I mean the goal of the company is to maximize value, which Sheldon and Mike referenced, and take all aspects of whether it’s direct or to junk rep. The only thing that is intriguing to us is that while the direct play has been very, very strong in showing growth, the real question is how much more we can get out of the junket side. Because the growth has been phenomenal on the junket side. So why not ride both horses if you can, why not anticipate manageable value of what makes the most sense, but in the end why look at both markets? I think what Sheldon is referencing is that direct play is good, junket play is good. If it’s profitable, take it all.

Felicia Hendrix - Barclays

That was the crux of my question. I appreciate that.

Sheldon Adelson

I can make an addendum to that. The idea of getting junket play with the expectation of lower cost has not been completely met amongst the various strata of direct premium player. Some of them are very high, and we may bifurcate part of the direct premium play, keep some and not keep others, because the cost of this is very high. And well, in some cases, it’s high. So we are reconsidering as to whether or not its going to be worth it to keep all strata of direct premium play because I have seen several analysts report that say, well the scuttlebutt is that as sale chases direct premium players, a lot of the players, a lot of the junket reps are bringing their business over to Wynn.

Now, we don't know that’s the case, but if it is the case, we certainly want to reverse that trend. So I do admit that Wynn does a very good job on the junket reps.

Felicia Hendrix – Barclays

And then just final question, can you just give us an update on the candidate pool for the CEO for Sands China, how that’s looking, what you are looking at?

Mike Leven

The candidate pool, Felicia, is a global search at this point. We’ve interviewed two search firms. We’ve gone through the specifications, and tomorrow the committee, Irwin Siegel, David Turnbull, and myself, will commit to a search firm to do it. We are looking for an out-of-the-box candidate in many ways and someone that can manage the full asset base that we have, lead and manage that asset base. Not necessarily a casino person or a hospitality person, but a very strong business person.

And I think the pool will be very large actually. We’d like someone with Asian experience in particular and that has Asian cultural experience and can deal with the governments of both Beijing and Macau.

Sheldon Adelson

I have got Asian and I have cultural experience. I eat a little bit of Chinese food.

Mike Leven

That’s qualification.

Operator

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

Robin Farley - UBS

Had a couple of questions. One is for sites 5 & 6. You had talked about a Q3 opening in 2011. Is that looking more like Q4 now with some of the labor issues? I wanted to get what the latest opening date for that is? And then also, can you help quantify the impact of holds in Macau on the EBITDA line? Because obviously we can do some math on revenues that you would know that commission structure on those revenues to be able to help us understand the EBITDA impact.

Sheldon Adelson

Which property?

Robin Farley - UBS

In Macau across the street.

Mike Leven

5 & 6, but it was, 15 basis points or something difference. The number could be 3, 2.85 to 3, 3.1. It’s all within a general range. 5 & 6. It’s too early for us to tell we are sending over some construction experts that have extraordinary experience in building properties very quickly. And we are sending them over to see what we can do to make up for any lost time. We are not sure that we have any lost time yet. I did see a chart today, and the chart showed that within a very short period of time, just weeks we could catch up to whatever lag we have. Just goes smack on the original schedule. It’s too early for us to tell.

Robin Farley - UBS

And then on the hold issue, it looks like revenues would have been above your range of normal hold, but I'm just wondering the EBITDA impact, if there is a way to quantify the commission structure something we can calculate based on what you released.

Sheldon Adelson

I think that the hold doesn’t affect the commission structure, because the role is the role.

Robin Farley - UBS

Depending on whether…

Sheldon Adelson

Whether you have the role.

Robin Farley - UBS

Through junket versus direct, right?

Sheldon Adelson

But if the direct, we are not satisfied that direct is that much cheaper. And if, in fact, we don't have enough experience in it to save us the credit issues which are different here in Macau than they are in Singapore, we don't know yet.

Well, I could tell you that the percentage of role and the commission that we pay is not impacted, but then we have a larger hold and lower hold. We had that discussion this afternoon. The role is the role, and if we hold more, it’ll be slightly lesser role because somebody will have lost money faster and the opposite.

Robin Farley - UBS

Okay and then few other questions. One is, is there any way to quantify in Las Vegas what the impact on group business are active in general, was conventions that shifted from offering and with the splitting in May and what that may have added in sort of May, June, July and anything of importance? Is there any way to quantify the impact of that specifically on your group business?

Rob Goldstein

I cannot speak to the market, Robin, but I think everyone participates somewhat in what happened down there. We added a few significant groups. I don't think it’s that material at the end of the day, but it did help the summer. At the top of my head, I can recall three very decent groups probably representing 25,000 room nights in the summer.

Robin Farley - UBS

Rob, I want to ask you, how do you start a flood?

Rob Goldstein

Very carefully. I think it look, unfortunately I would have to admit it did help Las Vegas. I think the whole town, we lost some groups to low rated other competitors in town. I think the overall impact probably was significant for the town. For us I think, if I'm not mistaken, I don't have hard numbers, Robin, but I think it was, like I say, a couple of three or four groups at maybe 25,000 room nights total for the summer. It was good for us Las Vegas overall. It was low-rated business. It wasn't high-rated business. It wasn't significant food and beverage, but it certainly added body count and cash re-sales, especially needed mid-week in summer.

Sheldon Adelson

Some of our competitors who were much weaker than we were dropped their rates more significantly than what we would have.

Rob Goldstein

Right. To Sheldon's point, we bid on significant piece of the business and lost a number of them to people who just cut rates in the double digits. We stayed triple digit, and my recollection was good. It was 150, 160 a night. It was mid-week, but it wasn’t monumental. It was helpful.

Robin Farley - UBS

And then just a last question, can you comment on in Singapore your occupancy trends in July, that was 2500 rooms just versus the sort of 50% range occupancy for the June quarter, how that is trending now in July?

Mike Leven

Robin, we basically ran about 55% in the quarter for the first 65 days on 900…

Sheldon Adelson

Averaged upon it

Mike Leven

Averaged around 1200 rooms, which means you are selling about 650 to 660 rooms a night. We are averaging a little over that percentage for the first 26 days of July. And so we are selling considerably more rooms, because we are open at 2600 rooms basically. That's about 2400 keys. So we have about twice the rooms running the same occupancy. So, we are selling about 1200 to 1300 rooms a night.

We are ramping up in our leisure business. We started off at about 40 - 50 rooms a night. And now we are now seeing 250 or 260 coming into that segment. And we've been live on the corporate market, which we fully expected because our concierge lounge in that floor wasn't really done. It will be done in September, and we expect some ramping up there. As you know the Singapore occupancy, it came out today, for June was up significantly, 88% in hotels etcetera in spite of the increased room availability and rate was up a considerable amount.

We fairly lifted the market in Singapore and it should be only a few more months. It's really growing every day, not in leaps and bounds, but it’s growing every day.

Sheldon Adelson

The numbers just came out that tourism went up 24% in June.

Mike Leven

Yeah. 24%. Yeah. Singapore is ecstatic that’s been going on since the integrated resorts have opened. So…

Sheldon Adelson

Any further questions?

Operator

There are no further questions at this time.

Sheldon Adelson

Okay. We'd like to express our thanks to everybody who called in particularly during this call, and we look forward to our next call. Hopefully we’ll do it just as good, if not better. Thank you.

Operator

Thank you for participating in today's conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Las Vegas Sands Corp. Q2 2010 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts