Home > Finance > Quarterly results > Debt keeps Melco in red in Q2 despite 220% revenue rise

Debt keeps Melco in red in Q2 despite 220% revenue rise

| By Zak Thomas-Akoo
In its Q2 financial report, integrated resorts operator Melco Resorts & Entertainment saw the business' debt obligations push the company into a net loss despite a 220% increase in revenue.
Melco Q2 revenue

For the three-month period ending 30 June, Melco’s quarterly revenue rose 220% year-on-year from $296.1m to $947.9m.

Melco said the rise was driven by the relaxation of Macau’s Covid-19 restrictions in January 2023, as well as several improvements in its properties. These included the opening of Studio City Phase 2’s Epic Tower and the launch of residency concerts at the same location.

On this revenue, Melco reported an operating income of $64.3m, compared to a $209.2m loss in Q2 2022.

The company’s adjusted earnings before interest, tax, depreciation or amortisation (EBITDA) also grew to $267.3m, as opposed to a $13.8m loss the previous year.

Costs increase alongside revenue

Nearly all of Melco’s costs also rose alongside the increased revenue.

The business’ casino costs more than doubled to $505.5m from $204.4m. The operator’s food and beverage, entertainment, rooms and administrative costs also all experienced significant rises during the period.

H1 results highlight improvement since Q1

For the six-month period, revenue increased to $1.66bn, compared to the $771.1m achieved the year before. This represented a more modest 115.3% rise, meaning the majority of the growth occurred in this quarter.

Melco’s H1 operating income was $64.6m. This is largely similar to the business’ quarterly figure since it achieved almost all of the income this quarter, only recording $333,000 for Q1.

Meanwhile, the business reported $412.1m in adjusted EBITDA for the six-month period.

Business still below 2019 EBITDA

However, as the business clarified during its earnings call, it is still not at the level of gross gambling revenue that would mean an increase on the 2019 EBITDA. This is partially due to a lower-spending customer profile that the business has attracted post-Covid.

“If you look at the air lifts going into Macau right now, it is probably at around 50%,” said Melco chairman and CEO Lawrence Ho in the company’s earnings call.

“And Macau, over the last six months since the recovery has started has become very much a weak end-market.”

In Q2 2023, the company still reported a net loss of $23.4m for the quarter. This is much reduced from the $251.5m recorded the previous year.

Rapid increase of Macau casino revenue

Melco’s flagship City of Dreams casino saw revenue rise 420.3% to $506.2m in Q2 2023. The business said the year-on-year increase resulted from better performance across all gaming segments, as well as non-gaming operations.

Meanwhile Studio City recorded an even bigger increase, reporting a 557.4% increase in revenue to $236.0m.

The business’ more modestly sized Altira Macau property reported $29.3m, compared to the $7.2m achieved the year before.  

These results represented a much faster rate of growth compared to the company’s non-Macau operations.

Melco’s Philippines casino, City of Dreams Manila, reported a slight rise in revenue to $116.4m, compared to the $111.7m reported the previous year.

Lawrence Ho claims recovery ongoing

Ho highlighted the business’ quarter-on-quarter revenue totals.

“The strength of our Macau recovery is evident in the 43% increase in gross gaming revenue in the second quarter of 2023 compared to the first quarter of 2023,” he said.

“We’ve seen mass drop increase month-to-month and turnover in our premium direct VIP segment continued to exceed 2019 during the second quarter.

“Labour supply issues in Macau have been largely resolved,” he added. “We have been able to provide our customers with Melco’s full suite of services and amenities.”

“We expect to add another 560 hotel rooms to our portfolio with the opening of W Macau at Studio City in September and are well positioned to support the continuing increase of customers in Macau.”

Continued debt burden

During the Covid-19 pandemic, the business took on significant debt to continue operating as a going concern.

As of 30 June 2023, Melco has total liabilities of $9.50bn. This is a small decrease compared to the $9.62bn Melco recorded six months ago.  

The business’ quarterly interest expense rose $123.5m in Q2 2022, compared to the $91.2m reported the previous year. On a six-month basis, the company paid $232.5m.

The expense was enough to push the company’s operating profit into a loss in the second quarter of 2023.

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