Business context and reporting period
Studio City International Holdings Limited filed this annual report on Form 20-F for the fiscal year ended December 31, 2023; it is not a standalone 2023 fourth-quarter report. The company owns and operates the non-gaming businesses of Studio City, an integrated resort in Cotai, Macau. Its affiliate Melco Resorts (Macau) Limited operates the casino under its Macau gaming concession. Financial statements are prepared under U.S. GAAP.
Studio City Phase 2 opened in stages in April and September 2023, adding hotel and entertainment capacity. The company generates all revenue in Macau and reports one operating segment.
Financial results and key metrics
Amounts below are in U.S. dollars unless stated otherwise; financial statement figures are in millions, except per-share data.
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Operating revenue | $445.5 | $11.5 | Up $434.0 million, reflecting travel recovery, Phase 2 openings and new residency concerts. |
| Operating loss | $(29.0) | $(277.2) | Improved substantially as revenue recovered. |
| Net loss attributable to Studio City International Holdings Limited | $(133.5) | $(326.5) | Loss narrowed; basic loss per Class A share was $0.173 versus $0.459. |
| Adjusted EBITDA | $159.2 | $(140.8) | Non-GAAP measure; 2023 margin 35.7%. Not a substitute for operating cash flow or GAAP earnings. |
| Net cash used in operating activities | $(18.9) | $(178.8) | Cash use declined with improved operations. |
| Net cash used in investing activities | $(161.5) | $(453.4) | Primarily property and equipment spending; 2023 cash purchases were $156.8 million. |
| Cash and cash equivalents at year-end | $228.0 | $509.5 | Down $281.5 million, including operating, investment and financing outflows. |
| Long-term debt, net | $2,335.2 | $2,434.5 | Principal outstanding was $2,347.1 million; see debt maturities below. |
Operating margin was approximately negative 6.5% in 2023, compared with negative 2,401% in 2022, when revenue was exceptionally low. Net loss attributable to the company was approximately 30.0% of revenue in 2023. Interest expense, net of capitalized amounts, increased to $129.6 million from $92.4 million, mainly because Phase 2 construction completion reduced capitalized interest. Cash interest paid was $113.4 million.
Casino contract revenue, reported net of gaming taxes and operator costs, was $155.5 million in 2023 versus negative $56.7 million in 2022. Studio City Casino gross gaming revenue was $912.4 million versus $171.2 million. Hotel occupancy rose to 90% from 28%; ADR was $153 versus $111 and REVPAR was $137 versus $31.
Current assets were $316.1 million and current liabilities were $156.8 million at year-end, implying a current ratio of about 2.0. This includes $41.0 million receivable from affiliates. The company reported $228.0 million cash and $0.1 million restricted cash. Its HK$233 million revolving facility, approximately $29.8 million, was available subject to conditions.
Material changes versus the prior comparable period
- Recovery in Macau visitation and gaming activity, along with Phase 2 openings, drove the sharp revenue rebound. Macau visitor arrivals and gross gaming revenue increased 395% and 334%, respectively, year over year, but remained 28% and 37% below 2019 levels.
- Non-gaming revenue growth included hotel revenue of $111.7 million, up from $17.9 million, and food, beverage, entertainment, mall, retail and other revenue of $137.8 million, up from $28.4 million.
- Operating expenses rose to $474.6 million from $288.8 million. Depreciation and amortization increased to $166.1 million from $123.7 million, primarily following Phase 2 openings; pre-opening costs rose to $17.5 million from $3.3 million.
- Cash decreased by $281.5 million during 2023. Financing activities used $100.9 million, mainly reflecting the purchase of $100 million principal amount of 2025 Notes in the tender offer.
- The company had $2.347 billion principal debt at year-end: $397 million of 6.0% notes due 2025, $350 million of 7.0% secured notes due 2027, $500 million of 6.5% notes due 2028, $1.1 billion of 5.0% notes due 2029, and a small credit-facility term balance.
Outlook, management commentary and risks
Management identifies recovery in travel and consumer spending, the Macau gaming market, implementation of amended gaming rules, and execution of the resort’s gaming and non-gaming strategy as important trends. The company expects to focus on premium-mass and mass-market gaming and differentiated non-gaming amenities. It provides no clear quantified revenue, earnings or cash-flow guidance in the filing.
- Recovery and concentration: The business depends on a single Macau resort and remains exposed to renewed health disruptions, travel restrictions, weaker visitor spending and economic conditions in China and the region.
- Casino and concession dependence: The company does not hold a gaming license. Casino operations depend on the affiliate operator and its concession, which runs through December 31, 2032. Failure, amendment or termination of the casino agreement or concession could materially impair revenue and debt servicing.
- Leverage and refinancing: Debt covenants restrict distributions and other actions; substantial interest and principal payments are due, including $397 million in 2025. Debt is secured in part by material assets, and defaults may trigger acceleration or cross-defaults.
- Related-party reliance: Melco affiliates provide casino operation, management, staff and shared services. Related-party charges and allocations may differ from costs the company would bear as an independent operator.
- Regulatory, market and operating risks: Risks include evolving Macau and PRC rules, gaming-table and machine limits, cross-border currency controls, competition, labor availability, cybersecurity and data protection, foreign exchange and potentially insufficient insurance.
- Liquidity and distributions: Cash is generally retained in operating subsidiaries; the company said no cash was transferred to the holding company in 2023 other than for intragroup charges. It does not expect to pay dividends in the foreseeable future.
- Contingencies and unusual items: Capital commitments were $14.7 million at year-end. Management said ordinary-course legal proceedings were adequately provided for or not material in aggregate. The company recorded a $1.6 million gain on extinguishment of debt in 2023. Its audit report expressed an unqualified opinion and reported no critical audit matters; management and the auditor assessed internal control over financial reporting as effective.
Most important facts for investors to verify
- Whether post-Phase 2 operating performance and cash generation can support debt service, given the 2023 net loss and continuing negative operating cash flow.
- The timing and refinancing plan for the $397 million 2025 Notes maturity, debt-covenant headroom, and conditions attached to the available revolving facility.
- The durability and composition of the reported $159.2 million Adjusted EBITDA, including its reconciliation to GAAP results and the filing’s note that it differs from the Studio City Adjusted EBITDA presented in Melco Resorts’ annual report by $47.6 million.
- The status and terms of the Macau complementary-tax exemption application for Studio City Entertainment, and its potential effect on results if not extended.
- The amount and collectability of affiliate receivables, the scale and terms of related-party charges, and restrictions on moving cash from subsidiaries to the holding company.