Melco Resorts & Entertainment Limited Q2 F2026 Earnings Call Transcript

Ladies and gentlemen, thank you for participating in the second quarter 2026 earnings conference call of Melco Resorts & Entertainment Limited. At this time, all participants are in a listen-only mode. After the call, we will conduct a question and answer session. Today's conference is being recorded. I would now like to turn the call over to Ms. Jeanny Kim, Senior Vice President, Group Treasurer of Melco Resorts & Entertainment Limited.

Thank you, Operator. Thank you, everybody, for joining us today for our second quarter 2026 earnings call. On the call are Lawrence Ho, Geoff 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 Hull.

Thank you, Jeanny, and thank you all for joining us today. We're confident in the long-term strengths 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, 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 Kōtai 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 area at the City of Dreams in Macau. The redesigned 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 event 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're 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 continues 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, casino operations continue 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 Geoff.

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 COD Macau had a negative impact on our property EBITDA by approximately 9 million. The VIP win rate at COD Macau declined from 3.9% in the second quarter of 2025 to 2.7% in the second quarter of 2026. We continue 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 six and a half 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, and 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 $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 134 million on share repurchases in 2026, we currently expect to recommence dividends in 2027. As we normally do, we'll 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 140 to 145 million. Corporate expense is expected to come in at approximately 20 to 25 million, and consolidated net interest expense is expected to be approximately 115 to 120 million. This includes finance liability interest of around 6 million relating to fees payable in relation to the Macau Gaming Concession and the Cypress Gaming License and finance lease interest of approximately 5 million relating to City of Dreams Manila. That concludes our prepared remarks. Operator, back to you for the Q&A.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from George Choi with Citi. Please go ahead.

Thank you very much, guys, for taking my questions. My first one, perhaps for Lawrence, I'm glad to learn that RAM is on schedule to open in the third quarter. In your view, how different is RAM versus your existing non-gaming product offerings at City of Dreams? And my second question is for Geoff. On dividends, how should we think about your dividend policy? Thank you very much.

Hi, George. So we've actually soft opened RAM already. Easing into it, the grand opening is set for after Golden Week in October. And 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. And I think in the prepared remarks we said, you know, REM is unlike anything in Macau. It's actually more like it's unlike anything in Asia, probably the world. So it's a very unique product. It's a lot of fun. I think it's a luxury, but then it's highly differentiated from anything that's in the market or even at City of Dreams. So I think that complements our five-star hotel offering very well. And so we're quite excited about REM and also about the rest of the City of Dreams Macau retail revamp, which there's a lot of hoarding right now and we're going to have to suffer through the pains Over the next few months, but once it's all completed, we are very excited, and I think that will probably put City of Dreams to be the nicest property in all of Macau.

So, George, on the dividend policy, as I said in the prepared remarks, we have pushed that from towards the end of this year to sometime in 2027. We have redirected, and as we've always said and as we've demonstrated, when there's opportunities to buy our shares online, at what we think are highly discounted prices. We'll take advantage of that. We think in 2027 we will be in position to recommence the dividend without providing any specific target on that. The intention is to commence a dividend when it can be substantive and meaningful. We're not interested in a nominal dividend. So hopefully that gives you some direction on when and how we're thinking about the dividend policy.

Thank you very much, Hunter.

Your next question comes from David Bain with Texas Capital. Please go ahead.

Awesome. Thank you. Hi, Geoff and Lawrence. Super excited to be back on these calls with you. And I guess my first question would be for you, Lawrence. Over the past few years, we've seen multiple go privates and M&A transactions just given intrinsic values, at least in our view, exceeding public multiples. I think Melco is a clear example of that. I'm sure that You have a lot of corporate action optionality. Is there any kind of big picture thoughts on those type of opportunities? Is it fair to think about them when we look at shares and analyzing them? Good to talk to you again.

We're always very open-minded and I think if you look at our transactions over the years, we've been quite innovative. but I think at this point in time our core focus is I know it's been a few years since COVID but we're still kind of digging out of the COVID hole that elevated our debt and so I think the priority is still on debt repayment and you know really getting our you know getting our improving the performance in Macau and you know we opened Sri Lanka a year ago Learning the market there and really trying to crack the code on the Indian market. So there's still a lot of work, a lot of stuff on our plates right now. But, you know, again, we're always very open-minded and, you know, watching the market and what other people are doing very closely.

Okay, good enough. And then, you know, looking at the historical World Cups versus this one in Q26, Are there some reasons that this year may have been more impact than previous years? And maybe in reverse, are we seeing more event-oriented benefits in Macau? And if material, maybe you can discuss the entertainment calendar that could match up with REM and the COD retail catalyst towards the end of the year into next year? Yeah, why don't we have Evan.

Look, I... I mean, I think from our perspective this year, World Cup probably had a larger impact relative to prior periods. It's a little bit hard to give you the exact as to why. Obviously, there are a lot more opportunities for customers to access different sports betting venues. And so I think this year, similar to the rest of the world, we experienced with a lot of our customers pretty significant sports betting volumes with respect to the World Cup. And I think in June and July, I would say that our experience is likely that it was to some degree a substitute to some of their gaming activity. So we did see some reduced volumes, and with players that came on board, some reduced level of play relative to their historical activity, which, again, we won't know for sure. But I think it's likely that during the World Cup period that that took some of the gaming wallet.

Interesting. Okay, thanks. And anything on the back half entertainment calendar that you think is material? Is that something that we should be monitoring more in Macau relative to in the past?

Look, I think all of us are looking at different entertainment opportunities. We had a concert at the end of July that we really liked the results of. And so we've seen individually that certain entertainment events have driven good volumes. And so we continue to look at Thank you for joining us.

You might have five or six events happening on a weekend. And I think all competitors and ourselves have learned that not all events are profitable. And so I think even this year you're seeing, I think at Galaxy and Sands, there's a 50% drop off in terms of concerts and events in the second half of 2026.

Interesting. All right. Thanks, guys. Thank you.

Your next question comes from Joe Storff with Susquehanna. Please go ahead.

Thank you. Hello, Lawrence and Geoff.

I guess to start with, could you update how to think about the outlook for Macau-based OpEx per day over the next couple quarters with your new suite product launch and just thinking about that number in particular? And then... Wondering if you could comment just on, say, the post-World Cup trends that you're seeing, you know, in Macau, and whether or not they, you know, you don't want to give numbers, I can appreciate, but are they in line, say, with pre-World Cup trends, or have they strengthened? Just wondering how that level of demand is rebuilding after that World Cup impact.

I guess, Evan, Geoff, you guys want to talk about the OPEX?

Sure. Look, I think from an OPEX perspective, obviously we have REM opening and ramping up. I think if we include REM and other activities, we're probably looking at something closer to 3.3 to 3.4 million. If I look at Activity on a post-World Cup basis, again, I think in the June-July period relative to other World Cup periods, I think unfortunately we were surprised that the impact probably was more significant this year than it has been in past years. Coming out of that period as we get into the late July, early August period, I think we've seen a reversion to our normality. So we're seeing our customers come back. We're seeing normal playing volumes. And so I think that it's been a sort of dip in terms of activity that we think has now returned back to normalcy as we move forward into the back half of 2026.

I understand. I appreciate that.

And the 3-3 to 3-4, is that all in, including House of Dancing Water?

Yes, our guidance now, given that we've cycled through the opening of House of Dancing Water, includes House of Dancing Water. Okay, beautiful. Thank you.

Your next question comes from John Decree with CBRE. Please go ahead.

Hi, everyone. Thanks for taking my questions. Two from me. Geoff, maybe the first one to you or whoever wants to apply. And I think in your prepared remarks discussing the margin in the quarter, You mentioned you guys are evaluating some opportunities to create better flexibility in the cost structure to align with business volumes. I was wondering if you could elaborate on that. Is that things you're looking at to kind of find opportunities and variable costs to adjust during periods like unusual shifts in demand? Just curious if you could give us some more color on some of those opportunities.

This is Geoff. I'll start and then hand over to Evan. But we are casting a pretty wide net when it comes to reviewing our cost base and finding areas for efficiency. And I think you see that with the opening of REM. And as that ramps up, we think we can keep our 3.4 per day OPEX number consistent going into the third quarter as we find and execute on cost savings. Excuse me. As far as specific measures, maybe I'll hand it over to Evan.

No, and look, we've in the post-COVID period, I think we spent some time looking at enhancing all of our sort of product and services across the board throughout Macau. And so we've had a period where we have added in from a guest experience standpoint sort of across the board in almost all aspects of the guest experience, meaning Wet and Dry Amenities in the Rooms, Butler Service, an enhanced number of people, an enhanced offering on the gaming floor. And I think with Tim and with Kevin and Raymond at the property level, we're looking at each one of those and looking at the areas where we really think we have a high level of guest impact and areas where we think we're spending money where we may not be getting as much. return on some of those dollars as we would like. And so I think for going through the entirety of where we're spending and looking at areas where we think we can trim without negatively impacting a guest experience, certainly at the premium levels. And so I think throughout the back half of 2026, we're going to be going through an exercise where we're looking back at the last couple of years of data and seeing areas where we can strategically trim back without really negatively impacting that guest experience. It's not going to be seismic, but it would be significant in terms of areas that we think we can save some money and redeploy into other areas of our guest journey as they come to COD and SC.

got it that's helpful color thank you and then maybe on a an unrelated topic for whoever wants to take it we talk a lot about the competitive environment in Macau particularly in the premium segments I think an event like World Cup reminds us that there are you know external competition outside of Macau for customers curious if you're seeing or have a view on kind of regional gaming competition in the area in Lawrence you know your exposure in Manila and Other regional markets might position you kind of best in your peers to answer this, but are you seeing a competitive environment increase from other regional gaming markets or not so much compared to maybe pre-pandemic levels?

I would say not so much because Macau serves a predominantly mainland Chinese market. We are seeing more and more Southeast Asian players and more Koreans showing up in Macau nowadays. But still, that's a small portion of it. Manila serves a huge domestic market in Manila along with a massive Korean market. And I think given the geopolitical tensions between Philippines and China, the Chinese tourist has disappeared for a while, but I think with some better visa schemes allowing the Chinese tourists to come. So I think so far in 2026, we've seen a little bit of uptake on that. So I think that each market serves its own kind of catchment of areas.

Thanks, Lawrence. I appreciate it.

Your next question comes from George Choi with Citi. Please go ahead.

Thanks. Just a couple of follow-ups. On City of Dreams, as you start your construction work on your retail area, the renovation work that is, how should we think about disruption for your next couple of quarters? And secondly, perhaps for Geoff, would you please provide us with your latest guidance on TAPEX for this year and next year, please? Thank you.

Stay on COD, Evan?

Sure. Why don't I start? Tim can supplement. Look, it's sort of a double-edged sword. I think we're very excited about what we've got in store and what we're putting together from a retail podium level standpoint. But we are going to be suffering through some pretty significant construction disruption between now and middle of next year. You're already seeing it in parts of the retail arc that abuts the Kotai Strip that we're going to be completing over the next couple of months. It's going to cycle through various areas of the property, really going through summer of next year. It's hard for me to put a dollar number or a dollar figure on that. Tim has done an amazing job, I think, in terms of Boarding and making the property feel better throughout the construction disruption. But at the same time, it is what it is. You can't hide the fact that activity is going on. So I do think that we are gonna get some level of guest impact despite our best efforts between now and June of next year. But I would say that the positive news is as we go into June of 2027 and beyond, I think we're going to have one of the best feeling, most innovative retail experiences that exist in Macau and really across Asia. But there will be to some degree an impact between now and then.

And on your second question, George, for the remainder of this year, we've got about 225 million of CapEx across the group. and for next year that figure will drop down considerably to somewhere in the range of 275 to 300.

Thank you. Your next question comes from Peter McGuire with Vanguard.

Please go ahead.

Hi. Thank you for taking my call. Repeat or review the capital structure moves that you've made thus far and how you'll address the 2027s. Or did you say that you had repurchased some of the 2027s? I wasn't quite clear on that. And second question is, within the VIP business, is the softness relative to the competitive environment and when, you know, has an attractive offering there and decent quarter in that segment? Thank you.

So on the MLCO 2027s, we haven't made any definitive plans on how to address that maturity, but I think we have a lot of options. And as always, we'll be monitoring all the various avenues for refinancing those notes. and as always, we'll be opportunistic. One position that we can always take is via the upsized RCF. We can take down those bonds with the RCF handily, but that's a decision we'll make later this year.

Yeah. Sorry.

Apologies. The question with respect to VIP, could you repeat that?

Yeah, just in the VIP business, is that, I know you had the World Cup in June, of course, and the mass segment perhaps impacted there, but just specifically in the VIP business, year over year, what was the experience there, and what's the competitiveness in that market for that Roland Chip customer with respect to, I know, you know, Wynn Macau has a nice product, and they had a decent quarter within that segment. Thanks.

So from a premium direct VIP rolling chip business standpoint, I think we continue to be very strong. From a competitive standpoint, although, again, has nice offerings in terms of stuff that they do, is generally not our leading competitor within that business. in terms of where they're shifting their play, where they seem to be trying to go more towards premium direct versus VIP if you look at their volumes over a period of time. I think from our standpoint, we definitely did take a hit where some of those premium players during the World Cup, again, I don't know where they went, but the assumption is that they probably did some level of sports activity which impacted our business. They have now come back. I think we feel pretty good. And I think we feel pretty good about the rolling volume that's coming through in August and our own offerings. So I think as we get to the back half of the year, we feel good about the VIP rolling ship business. And I wouldn't single out a single competitor as someone that we are particularly worried about. It's always been a business where I think we figured to get our fair share or more. And I don't think there's anything that I see on the horizon that would shift that reality.

And don't forget, in Q2, our win rate in BIP was 2.7, which is below our norm of 3, and definitely way below where we were last year to Q. I think we were 3.4, 3.7. So it's pretty significant in terms of the win rate being unfavorable. This

Got it.

Thank you.

There are no further questions at this time. I'll now hand back to Jeanny Kim for closing remarks.

Thank you everybody for participating in our call today and we'll speak to you again next quarter. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.