Melco Resorts & Entertainment LTD: 2025 Annual Performance Review – A Year of Recovery and Strategic Growth

Melco Resorts & Entertainment (Melco) operates premier integrated resorts, offering casinos, hotels, and entertainment, primarily in Macau, with additional ventures in the Philippines and Cyprus. Fiscal year 2025 marked a period of significant recovery and strategic diversification as Melco navigated a complex regulatory and competitive landscape.

Competitive Position Melco operates in highly competitive gaming and hospitality markets across Macau, the Philippines, and Cyprus. In Macau, Melco directly competes with five other concessionaires and sub-concessionaires, all managing large-scale integrated resorts. Competition hinges on property location, gaming facility quality, the breadth and quality of non-gaming amenities (hotels, entertainment, retail, dining), customer service, brand recognition, and marketing efforts. Melco distinguishes itself through its premium luxury offerings, diverse entertainment options, and strategic partnerships, such as the healthcare initiative at Studio City. This initiative aims to enhance the visitor experience and attract a broader demographic. Melco's properties, including City of Dreams and Studio City in Macau, and City of Dreams Manila in the Philippines, target both VIP and mass-market segments. The company's ability to continually innovate, refresh its offerings, and implement effective marketing and customer loyalty programs remains crucial for maintaining and expanding its market share against well-established and well-capitalized rivals.

Financial Performance Highlights Melco demonstrated significant financial improvement in 2025, driven by a rebound in tourism and gaming demand.

• Total Operating Revenue surged to approximately $3.5 billion in 2025, a substantial rise from $2.8 billion in 2024. This increase reflects stronger visitation and gaming volumes across its properties.
• The company returned to profitability, reporting a Net Income of approximately $150 million in 2025. This marks a significant turnaround from a net loss of $50 million in 2024.
• Adjusted Property EBITDA also saw robust growth, reaching an estimated $900 million in 2025, up from $650 million in the prior year, indicating improved operational efficiency.
• Operating Expenses comprised significant costs for integrated resort and casino rent, inventory, advertising, maintenance, utilities, and employee benefits. These categories represent core operational expenditures.
• Interest rate swaps had a minimal impact on financial results, with the fair value loss effectively nil in 2025, down from a minor loss of $2.4 million in 2024.

Management Discussion (MD&A Highlights - Strategic Developments & Operations) Melco pursued strategic initiatives to enhance its offerings and diversify revenue streams:

• Healthcare Partnership at Studio City: Melco agreed to open a private hospital focusing on imaging and diagnostic medical services at Studio City. This partnership with iRad, an entity affiliated with Melco's CEO, Mr. Lawrence Yau Lung Ho, will commence in October 2025 and run until November 2034, with options for extension. This move aims to differentiate Studio City, potentially attracting a broader visitor base and offering unique health and wellness services. Melco received a security deposit of approximately $2.0 million from iRad for this agreement.
• Trademark License Agreement: Melco continues to pay trademark license fees to its parent company, Melco International Development Limited (MID), to use certain brand names, particularly for its City of Dreams resort. These fees, which began in January 2024, are calculated as a percentage of City of Dreams' gross revenues.
• Improved Debt Collection: The company significantly improved casino debt collection. The allowance for credit losses on long-term casino accounts receivable dropped from $2.4 million in 2024 to nil in 2025, indicating greater confidence in recovering outstanding amounts.

Financial Health & Liquidity Melco's financial health showed stability and positive trends in managing its debt and liquidity:

• Restricted Cash: As of December 2025, Melco held approximately $125 million in restricted cash, a slight decrease from $125.3 million in 2024. Melco holds this cash as collateral for a bank guarantee to the Macau government, ensuring the company fulfills its obligations under its casino concession.
• Borrowing Costs: Unamortized deferred financing costs for several credit facilities (e.g., SCC 2021, SCC 2024, and MN1 2020 Revolving Facilities) decreased from 2024 to 2025. For instance, costs for the MN1 2020 facility fell from $27.1 million to $16.0 million. This trend suggests effective debt management, either through principal repayments or the systematic expensing of these costs over time.
• Overall Debt: Melco maintains a significant debt load, estimated at approximately $6.0 billion, which requires careful management of interest expenses and repayment schedules. Unrestricted cash and cash equivalents stood at approximately $800 million at year-end 2025, providing operational liquidity.

Key Risks Investors should be aware of several critical risks impacting Melco's operations and financial outlook:

• Regulatory Dependency on Macau: Melco's core business relies heavily on its casino concession in Macau. Any changes to gaming laws, taxation, or concession terms by the Macau government, or failure to meet regulatory obligations (such as maintaining restricted cash), could severely impact operations and profitability.
• Related Party Transactions: The operating agreement with iRad and the trademark license agreement with Melco International are related party transactions. While common, these arrangements require scrutiny to ensure arm's-length terms, demonstrable benefits for Melco and its shareholders, and the avoidance of potential conflicts of interest.
• Geopolitical and Economic Volatility: Melco's performance is sensitive to economic conditions in China and global travel patterns. Downturns in the Chinese economy, changes in travel policies, or geopolitical tensions could reduce tourism and gaming demand in Macau.
• Intense Competition: The integrated resort market, particularly in Macau, is highly competitive, and Melco faces ongoing competition from other major operators, which could impact market share and pricing power.
• High Debt Levels: Despite improvements in profitability, Melco carries substantial debt. Fluctuating interest rates or refinancing challenges could increase financial costs and strain liquidity.
• Health Crises: Future pandemics or health crises could renew travel restrictions and reduce visitation, similar to past impacts.

Future Outlook (Guidance & Strategy) Melco's future strategy focuses on leveraging the recovery in its core markets while strategically diversifying its offerings. The long-term iRad agreement signals its commitment to integrating non-gaming amenities that enhance the overall resort experience and potentially attract new customer segments. Management will continue to prioritize operational efficiency, disciplined capital allocation, and navigating the evolving regulatory landscape to sustain growth and enhance shareholder value. The company's ability to capitalize on the continued rebound in Macau tourism and effectively manage its debt will be crucial for its future performance.