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Cries of bad luck are starting to ring hollow.  So VIP hold needs to be adjusted but high Mass hold is normal?

Q3 was a strong one for LVS.  We don’t want to take away from that.  We’ll leave the question of whether it was as good as the whisper expectations.  However, the company’s recent pattern of providing hold adjusted EBITDA adjusted only for VIP hold is misleading, in our opinion.  Swings in Mass hold can be impactful too, even more so on profitability given the higher flow through. 

So despite all the talk of low hold, we estimate “bad luck” only impacted EBITDA by $6MM across all 3 regions.  That might matter for a company like Isle of Capri but for LVS with over $900 million of quarterly property level EBITDA, was it even worth a discussion?

So let’s move on to what does matter.  Singapore VIP volumes were terrific and the October commentary was impressive.  However, despite the conference call drooling by the bullish analysts, should the Q3 numbers really be a surprise?  LVS indicated at their analyst day that they had already eclipsed Q2 VIP volume levels by the end of August.  With that math in mind, it wouldn’t have been a stretch if Q3 volumes grew 50% QoQ.  They actually grew 36%.

Macau beat our estimate due primarily to a higher percentage of Direct VIP business which is good for margins.  Of course, as they try to stem the market share declines in junket VIP, margins may suffer.  However, if they are successful, the revenue upside should more than offset the margin decline.  We think Venetian/Four Seasons has already begun to advance junket commissions on a two month basis (versus 15-30 days) to boost the business.  November should be telling.

Here is our detailed commentary on Q3:

Q3 DETAIL

MACAU

Property net revenue across LVS’s 3 casinos came in 2% above our estimate while EBITDA came in 7% stronger.  Despite Sheldon’s assertion that EBITDA would have been $11MM higher if not for poor hold, when you adjust for higher than ‘normal’ Mass hold, we estimate that hold only negatively impacted EBITDA by $1MM and revenue by $3MM.

Sands Macao


Sands net revenue was $12MM lower than our estimate and EBITDA was $10MM lower due to what appears to be higher fixed expenses but was likely due to an unlucky mix (i.e. lower hold on the RC junket play).

  • Despite $9MM of higher gross gaming revenues, net gaming revenue was $11MM lower than we estimated due to higher rebates 
    • VIP gross win of $210MM was $9MM better than we estimated but net revenues were lower by $10MM. Either rebates went up in the quarter or Sands started offering some rebates to mass players
      • The rebate rate was 1.04% or 39.4% of win - much higher than Sand’s run rate of 33% and our estimate
      • Direct play in the quarter increased to 15% from 12% last quarter 
      • The win rate was 3bps better than we estimated and drop volume was 3% higher than our estimate
      • Low hold cost Sands $16MM in gross revenue, $9MM of net revenue and $4MM of EBITDA
    • Mass win was $1MM below our estimate while slot win was $1MM better
  • Net non-casino revenue was $1MM below our estimate
    • Promotional expenditures were 60% of non-gaming revenue
  • Implied fixed expenses appear to be $59MM, up 13% YoY and up $12MM sequentially.  We suspect that aside from playing generally unlucky, Sands also held worse on its RC junket business.

Venetian Macao


Venetian’s net revenues were 3% above our estimate while EBITDA was 11% better than we estimated.  While VIP hold was low, we suspect that the mix may have been favorable and Mass held better than ‘normal’.  Net/net we don’t think that hold had any impact on EBITDA this quarter at the Venetian.

  • Net gaming revenue was 1% ($7MM) better than we estimated
    • Net VIP win was $3MM higher than we estimated
      • Direct play in the quarter increased to 24% up from 22% last quarter and contributed to a lower commission rate than we estimated given the higher margin of this business
      • Hold was 3bps lower than we estimated due to higher direct play which resulted in 4% higher RC volume vs. our estimate
      • The rebate rate was 83bps or 31% of hold - just 2bps or 1% higher than we estimated
      • Low VIP hold cost the property $17MM of net revenue and $5MM of EBITDA
    • Mass win was $5MM better than our estimate due to better hold
      •  Mass hold was 60bps higher than the property’s 12 month trailing average and 1.2% higher than the last 6 quarter’s average.  If we take the mid-point of the 12 and 6 quarter average, higher hold on the mass business benefited revenue by $10MM and EBITDA by $5MM – offsetting bad luck on VIP
    • Slot win was $1MM lower than our estimate
  • Net non-casino revenue were $10MM above our estimate
    • Promotional expenditures were 21% of non-gaming revenue
    • Higher non-casino was driven by $5MM of better room revenue and $5MM better retail revenue – which has particularly high flow-through (basically 100%) since the source of the beat is likely incentive rents kicking in
  • Implied fixed expenses appear to be $90MM, down 11% YoY and up $3MM sequentially.  We suspect that aside from playing generally unlucky, Venetian may have held a little better on RC junket business than hold implies.

Four Seasons/Plaza


Four Season’s net revenue was 9% above our estimate while EBITDA was $11MM higher or 22%.

  • Net gaming revenue was $10MM better than we estimated due to better hold
    • Net VIP win was $7MM higher than we estimated
      • Direct play in the quarter fell to 38% from 41% last quarter; as a result, hold was better than we estimated
      • Hold was 21bps higher than we estimated due to 4% lower RC volume and no downward adjustment vs. monthly estimates (the past 6 quarters averaged a 3% downward adjustment)
      • The rebate rate was 84bps or 33%
    • Mass win was in line with our estimate
      • Mass hold was between 4-7% higher than the property’s 12 month trailing and last 6 quarters average.  If we take the mid-point of the 12 and 6 quarter average, higher hold on the mass business benefited revenue by $6MM and EBITDA by $3MM.
    • Slot win was $2MM higher than our estimate
  • Net non-casino revenue were $6MM above our estimate
    • Driven equally by higher non-gaming revenue and lower promotional expense
    • Higher non-casino of $3MM was due to better retail revenue as incentive rents kicked in
  • Implied fixed expenses appear to be $19MM, down 12% YoY and flat QoQ

MARINA BAY SANDS

MBS revenues came in 1% above our estimate while EBITDA was 5% ($20MM) lower than we estimated - $6MM of which was due to one-time charges.   Despite EBITDA being lower than we estimated, we must admit that it’s hard not to be impressed by the massive growth in RC volumes and by the Sheldon’s assertion that October saw an acceleration in current trends.  On the flip side, the incremental revenues came at a cost – namely, much higher rebates, promotional expenses and higher fixed expenses.

  • Net gaming were $18MM above our estimate
    • VIP gross revenue was $46MM higher than we estimated, driven by massive growth in VIP RC growth – which was 14% above our estimate.  However, net VIP gaming revenues were only $10MM above our estimate due to a higher rebate rate.
      • Higher volumes were moderately offset by lower hold
      • Hold of 2.69% was 6bps below our estimate and 8bps below the 6 quarter trailing average (excluding the current quarter).  If we use 2.8% as the normal hold rate for the property, we estimate that revenue and EBITDA were negatively impacted by $18MM and $16MM, respectively.  If we assume 2.85% as ‘normal’ hold, then Sheldon’s assertion of a $24MM drag on EBITDA is indeed accurate
      • The rebate rate increased to 1.3% from 1.2% last quarter
    • Mass table revenue was $4MM below our estimate due to 4% lower drop and hold that was 60bps below our estimate
    • Slot revenue was 9% better than we estimated due to 11% higher handle
  • Net non-casino revenue was $11MM below our estimate due to much higher promotional expenses
    • Promotional expenses increased to 27% of non-gaming revenue
  • Implied fixed expenses were $228MM in the quarter - $6MM of the increase was due to one-time expenses.  Excluding the one-time items, there was a $20MM QoQ increase. 

LAS VEGAS

Las Vegas revenues came in 10% above our estimate while EBITDA was 24% better

  • Net casino revenue was $20MM above our estimate 
    • Table win was $27MM better than our estimate due to strong growth in table drop and better hold
      • Higher than ‘normal hold’ on tables helped revenues by about $14MM and EBITDA by approx $11MM
        • 6 quarter trailing average hold was 18% and 17.5% over of the trailing 12 months
    • Slot win was $7MM better than we estimated due to 5% better handle
    • Better gross gaming revenue was somewhat offset by higher rebates that equaled 5.2% of GGR vs. our estimate of 3.3%
  • Net non-gaming revenues were $9MM above our estimate driven by better RevPAR
  • Property level expenses, excluding taxes increased 9% YoY to $243MM compared to $232MM last quarter