Melco sees 88% decrease in Q2 revenue due to COVID-19

Melco Resorts & Entertainment Limited, developer, owner, and operator of integrated resort facilities in Asia and Europe, reported on Thursday its unaudited financial results for the second quarter of 2020.

Total operating revenues for the second quarter of 2020 were US$0.18 billion, representing a decrease of approximately 88% from US$1.46 billion for the comparable period in 2019. The decrease in total operating revenues was primarily attributable to softer performance in all gaming segments and non-gaming operations as a result of the coronavirus pandemic, which resulted in a significant decline in inbound tourism in the second quarter of 2020.

Operating loss for the second quarter of 2020 was US$370.8 million, compared with operating income of US$208.0 million in the second quarter of 2019.

Melco generated negative Adjusted Property EBITDA(1) of US$156.3 million in the second quarter of 2020, compared with Adjusted Property EBITDA of US$448.0 million in the second quarter of 2019.

Net loss attributable to Melco Resorts & Entertainment Limited for the second quarter of 2020 was US$368.1 million, or US$0.77 per ADS, compared with net income attributable to Melco Resorts & Entertainment Limited of US$101.8 million, or US$0.21 per ADS, in the second quarter of 2019. The net loss attributable to noncontrolling interests during the second quarters of 2020 and 2019 were US$58.7 million and US$2.5 million, respectively, all of which were related to Studio City, City of Dreams Manila, and the Cyprus Operations.

Mr. Lawrence Ho, Chairman and Chief Executive Officer, commented, “COVID-19 and the subsequent travel restrictions and quarantine requirements have significantly impacted our second-quarter operating and financial performance. To help mitigate the impact from COVID-19, we have been quick to formulate strategies to preserve liquidity and improve the Company’s balance sheet. In April, we bolstered our balance sheet by entering into a new senior facilities agreement and by selling the shares we held in Crown Resorts Limited. In May, the board suspended the Company’s quarterly dividend program.

“To further enhance our balance sheet, our subsidiary, Melco Resorts Finance Limited, recently accessed the capital markets and issued US$850 million aggregate principal amount of 5.750% senior notes due 2028.

“In addition, in relation to our Studio City project, Studio City Finance Limited, a wholly-owned subsidiary of Studio City International Holdings Limited (“SCIHL”), issued US$500 million aggregate principal amount of 6.00% senior notes due 2025, and US$500 million aggregate principal amount of 6.50% senior notes due 2028 in July. In August, SCIHL also completed a series of private placements of its Class A ordinary shares and American depositary shares to certain existing shareholders, including Melco, which resulted in gross proceeds to SCIHL of approximately US$500 million. Proceeds from the Studio City transactions significantly strengthen SCIHL’s balance sheet and its ability to fund the Phase 2 expansion of Studio City.

“Melco continues to manage its balance sheet in a prudent manner. As of June 30, 2020, we had cash on hand of approximately US$1.2 billion, and undrawn revolver facilities of approximately US$1.6 billion. Proforma for the issuance of the new senior notes and the Studio City private share placements (but excluding Melco’s subscription therein of approximately US$280 million), Melco’s cash on hand as of June 30, 2020 was approximately US$2.0 billion, while the undrawn revolver facilities in Macau and Manila were approximately US$2.0 billion. 

“Despite the current economic uncertainty, sustainability remains a high priority in Melco’s operations. We published our 2019 Sustainability Report, in June, highlighting our progress made in the last twelve months, which includes: 1) receiving an A- and “Best First Time Performer” accolade from CDP, one of the world’s most respected and long-standing environmental disclosure systems, 2) diverting 712 tons of waste from disposal to recycling and composting, and 3) installing solar panels at City of Dreams Manila with the potential to generate 100,000 kWh of electricity per month. In July, Melco became a signatory to the Global Tourism Plastics Initiative led by the UN Environment Programme and the World Tourism Organisation in collaboration with the Ellen MacArthur Foundation.

“Melco remains committed to its global development program. Construction on the expansion of Studio City is progressing. Upon completion, it will offer approximately 900 additional luxury hotel rooms and suites, one of the world’s largest indoor/outdoor water parks, a Cineplex, fine-dining restaurants and state-of-the-art MICE space. In Europe, we are developing City of Dreams Mediterranean, which upon completion, will be Europe’s largest integrated resort with approximately 500 luxury hotel rooms, a 1,500-seat amphitheater, and approximately 10,000 square meters of MICE space.

“Turning to Japan, I want to highlight our unwavering commitment to bring to the country the best IR the world has ever seen. We believe our focus on the Asian premium segment, a portfolio of high-quality assets, devotion to craftsmanship, dedication to world-class entertainment offerings, market-leading social safeguard systems, established track record of successful partnerships, culture of exceptional guest service, and commitment to employee development puts Melco in a strong position to help Japan realize the vision of developing a world-leading IR with a unique, Japanese touch.

“Lastly, we are excited to see some early signs of returning to normal operations in our integrated resorts. In mid-June, operations at Cyprus Casinos have partially resumed. In addition, commencing from July 15, 2020, certain travelers entering Guangdong from Macau were no longer subject to mandatory quarantine. The issuance of IVS visas was reinstated for Zhuhai residents on August 12, 2020, while the nationwide resumption of IVS visa issuance is expected to commence on September 23, 2020. We are hopeful these announcements signal the eventual resumption of the pre-COVID travel between Macau and Mainland China. While we are encouraged by the recent positive developments, ensuring the safety and well-being of our colleagues, customers and communities in which we operate remains our highest priority.”

City of Dreams Second Quarter Results

For the quarter ended June 30, 2020, total operating revenues at City of Dreams were US$105.4 million, compared to US$790.8 million in the second quarter of 2019. City of Dreams generated negative Adjusted EBITDA of US$70.3 million in the second quarter of 2020, compared with Adjusted EBITDA of US$250.8 million in the second quarter of 2019. The year-over-year decrease in Adjusted EBITDA was primarily a result of softer performance in all gaming segments and lower non-gaming revenue, as well as a higher provision for credit losses.

Rolling chip volume was US$2.03 billion for the second quarter of 2020 versus US$14.90 billion in the second quarter of 2019. The rolling chip win rate was 6.13% in the second quarter of 2020 versus 3.16% in the second quarter of 2019. The expected rolling chip win rate range is 2.85% - 3.15%.

Mass market table games drop decreased to US$41.4 million in the second quarter of 2020, compared with US$1.37 billion in the second quarter of 2019. The mass market table games hold percentage was 31.5% in the second quarter of 2020 compared to 31.6% in the second quarter of 2019.

Gaming machine handle for the second quarter of 2020 was US$82.5 million, compared with US$1.04 billion in the second quarter of 2019. The gaming machine win rate was 1.8% in the second quarter of 2020 versus 3.8% in the second quarter of 2019.

Total non-gaming revenue at City of Dreams in the second quarter of 2020 was US$12.8 million, compared with US$98.4 million in the second quarter of 2019.

Altira Macau Second Quarter Results

For the quarter ended June 30, 2020, total operating revenues at Altira Macau were US$17.0 million, compared to US$104.3 million in the second quarter of 2019. Altira Macau generated negative Adjusted EBITDA of US$19.4 million in the second quarter of 2020, compared with Adjusted EBITDA of US$8.5 million in the second quarter of 2019. The year-over-year decrease in Adjusted EBITDA was primarily a result of softer performance in all gaming segments.

Rolling chip volume was US$0.37 billion in the second quarter of 2020 versus US$4.36 billion in the second quarter of 2019. The rolling chip win rate was 6.19% in the second quarter of 2020 versus 2.95% in the second quarter of 2019. The expected rolling chip win rate range is 2.85% - 3.15%.

In the mass market table games segment, drop was US$14.5 million in the second quarter of 2020 versus US$150.0 million in the second quarter of 2019. The mass market table games hold percentage was 11.3% in the second quarter of 2020, compared with 22.5% in the second quarter of 2019.

Gaming machine handle for the second quarter of 2020 was US$43.4 million, compared with US$83.5 million in the second quarter of 2019. The gaming machine win rate was 3.5% in the second quarter of 2020 versus 4.4% in the second quarter of 2019.

Total non-gaming revenue at Altira Macau in the second quarter of 2020 was US$1.4 million, compared with US$6.6 million in the second quarter of 2019.

Mocha Clubs Second Quarter Results

Total operating revenues from Mocha Clubs were US$23.2 million in the second quarter of 2020, compared to US$28.9 million in the second quarter of 2019. Mocha Clubs generated US$4.4 million of Adjusted EBITDA in the second quarter of 2020, compared with US$5.3 million in the same period in 2019.

Gaming machine handle for the second quarter of 2020 was US$496.2 million, compared with US$609.4 million in the second quarter of 2019. The gaming machine win rate was 4.7% in the second quarter of 2020 versus 4.8% in the second quarter of 2019.

Studio City Second Quarter Results

For the quarter ended June 30, 2020, total operating revenues at Studio City were US$10.9 million, compared to US$328.9 million in the second quarter of 2019. Studio City generated negative Adjusted EBITDA of US$42.3 million in the second quarter of 2020, compared with Adjusted EBITDA of US$94.8 million in the second quarter of 2019. The year-over-year decrease in Adjusted EBITDA was primarily a result of softer performance in all gaming segments and lower non-gaming revenue.

Studio City’s rolling chip volume was US$0.23 billion in the second quarter of 2020 versus US$3.10 billion in the second quarter of 2019. The rolling chip win rate was 0.17% in the second quarter of 2020 versus 2.76% in the second quarter of 2019. The expected rolling chip win rate range is 2.85% - 3.15%.

Mass market table games drop decreased to US$20.1 million in the second quarter of 2020, compared with US$877.0 million in the second quarter of 2019. The mass market table games hold percentage was 22.2% in the second quarter of 2020, compared to 29.2% in the second quarter of 2019.

Gaming machine handle for the second quarter of 2020 was US$67.6 million, compared with US$630.9 million in the second quarter of 2019. The gaming machine win rate was 2.7% in the second quarter of 2020 versus 3.2% in the second quarter of 2019.

Total non-gaming revenue at Studio City in the second quarter of 2020 was US$7.6 million, compared with US$36.9 million in the second quarter of 2019.

City of Dreams Manila Second Quarter Results

For the quarter ended June 30, 2020, total operating revenues at City of Dreams Manila were US$7.2 million, compared to US$176.1 million in the second quarter of 2019. City of Dreams Manila generated negative Adjusted EBITDA of US$22.6 million in the second quarter of 2020, compared with Adjusted EBITDA of US$82.8 million in the comparable period of 2019. The year-over-year decrease in Adjusted EBITDA was primarily a result of the government-mandated casino closure for all of the second quarter of 2020 (other than the limited dry/trial run for a limited period during the quarter as permitted by the Philippine Amusement and Gaming Corporation (“PAGCOR”)). 

City of Dreams Manila’s rolling chip volume was US$0.15 billion in the second quarter of 2020 versus US$1.90 billion in the second quarter of 2019. The rolling chip win rate was 3.38% in the second quarter of 2020 versus 5.21% in the second quarter of 2019. The expected rolling chip win rate range is 2.85% - 3.15%.

Mass market table games drop decreased to US$7.5 million for the second quarter of 2020, compared with US$192.8 million in the second quarter of 2019. The mass market table games hold percentage was 24.3% in the second quarter of 2020, compared to 30.4% in the second quarter of 2019.

Gaming machine handle for the second quarter of 2020 was US$30.4 million, compared with US$945.1 million in the second quarter of 2019. The gaming machine win rate was 6.6% in the second quarter of 2020 versus 5.4% in the second quarter of 2019.

Total non-gaming revenue at City of Dreams Manila in the second quarter of 2020 was US$1.4 million, compared with US$31.8 million in the second quarter of 2019.

Cyprus Operations Second Quarter Results

The Company is currently operating a temporary casino, the first casino in the Republic of Cyprus and is licensed to operate four satellite casinos. Upon the completion and opening of City of Dreams Mediterranean, the Company will continue to operate the satellite casinos while operation of the temporary casino will cease.

For the quarter ended June 30, 2020, total operating revenues at Cyprus Casinos were US$3.5 million, compared to US$22.1 million in the second quarter of 2019. Cyprus Casinos generated negative Adjusted EBITDA of US$6.0 million in the second quarter of 2020, compared with Adjusted EBITDA of US$5.8 million in the second quarter of 2019. The year-over-year decrease in Adjusted EBITDA was primarily a result of government-mandated casino closures in the second quarter of 2020.

No rolling chip gross gaming revenue was generated in the second quarter 2020. Rolling chip volume totaled US$0.2 million with a rolling chip win rate of negative 23.12% in the second quarter of 2019. The expected rolling chip win rate range is 2.85% - 3.15%.

Mass market table games drop was US$4.1 million in the second quarter of 2020 versus US$35.3 million in the second quarter of 2019. The mass market table games hold percentage was 11.1% in the second quarter of 2020, compared to 21.1% in the second quarter of 2019.

Gaming machine handle for the second quarter of 2020 was US$57.2 million, compared with US$271.7 million in the second quarter of 2019. The gaming machine win rate was 5.2% in the second quarter of 2020 versus 5.4% in the second quarter of 2019.

Other Factors Affecting Earnings

Total net non-operating expenses for the second quarter of 2020 were US$57.9 million, which mainly included interest expenses, net of amounts capitalized of US$80.3 million, partially offset by other net non-operating income of US$27.6 million, which was primarily attributable to the fair value gain from the investment in shares of Crown Resorts Limited during the second quarter of 2020.

Depreciation and amortization costs of US$155.2 million were recorded in the second quarter of 2020, of which US$14.4 million related to the amortization expense for gaming subconcession and US$5.7 million related to the amortization expense for the land use rights.

The negative Adjusted EBITDA for Studio City for the three months ended June 30, 2020 referred to in this press release is US$8.7 million less than the negative Adjusted EBITDA of Studio City contained in the earnings release for SCIHL dated August 20, 2020. The Adjusted EBITDA of Studio City contained in the Studio City earnings release includes certain intercompany charges that are not included in the Adjusted EBITDA for Studio City contained in this press release. Such intercompany charges include, among other items, fees and shared service charges billed between SCIHL and its subsidiaries and certain subsidiaries of Melco. Additionally, Adjusted EBITDA of Studio City included in this press release does not reflect certain costs related to the table games operations at Studio City Casino.

Financial Position and Capital Expenditures

Total cash and bank balances as of June 30, 2020 aggregated to US$1.17 billion, including US$25.0 million of restricted cash, which was primarily related to Studio City. Total debt, net of unamortized deferred financing costs and original issue premiums, was US$4.75 billion at the end of the second quarter of 2020.

Capital expenditures for the second quarter of 2020 were US$82.5 million, which primarily related to various projects at City of Dreams and Studio City Phase 2 construction.

Recent Developments

"The COVID-19 outbreak continues to have a material effect on our operations, financial position, and prospects during the third quarter of 2020.

"Commencing from July 15, 2020, certain travelers entering Guangdong from Macau were no longer subject to mandatory quarantine. On August 12, 2020, the Chinese authorities resumed the issuance of IVS visas for Zhuhai residents. According to the National Immigration Administration, issuance of IVS visas for Guangdong residents will resume on August 26, 2020, while the nationwide resumption of IVS visa issuance will commence on September 23, 2020. Despite these developments, our operations continue to be impacted by significant travel bans, restrictions, and quarantine requirements imposed by the governments in Macau, Hong Kong, and certain provinces in China on visitors traveling to and from Macau. Additionally, health-related precautionary measures remain in place at our properties in Macau, which could continue to impact visitation and customer spending.

"Our Philippines casino gaming operations were closed due to the enhanced community quarantine for the entire island of Luzon, including Metro Manila, which began on March 16, 2020 and was extended to July 31, 2020. However, during the quarter, City of Dreams Manila was allowed by PAGCOR to undertake a dry run/trial run of its gaming and hospitality operations for a limited period with only a limited number of participants strictly adhering to the new guidelines on social distancing and hygiene and sanitation procedures imposed by the government of the Philippines. The PAGCOR-sanctioned dry run/trial run aimed to address all potential operational concerns to achieve a seamless reopening for City of Dreams Manila.

The COVID-19 outbreak has also impacted the construction of the Studio City Phase 2 project and the progress of construction works at the City of Dreams Mediterranean project. We currently expect additional time will be needed to complete the construction of these projects.

As the disruptions from the COVID-19 outbreak are ongoing, any recovery from such disruptions will depend on future developments, such as the duration of travel and visa restrictions and customer sentiment and behavior, including the length of time before customers resume traveling and participating in entertainment and leisure activities at high-density venues and the impact of potential higher unemployment rates, declines in income levels and loss of personal wealth resulting from the COVID-19 outbreak on consumer behavior related to discretionary spending and traveling, all of which are highly uncertain," Ho concluded.

See the company's full interim results here.