永利渡假村 (WYNN) 2021 Q2 法說會逐字稿

Welcome to the Wynn Resorts Second Quarter 2021 Earnings Call. (Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to Craig Billings, Chief Financial Officer. Sir, you may begin.

Thank you, operator, and good afternoon, everyone. On the call with me today are Matt Maddox, Marilyn Spiegel and Brian Gullbrants in Las Vegas. Also on the line are Ian Coughlan, Linda Chen, Ciaran Carruthers, Frederic Luvisutto and Jenny Holaday.

I want to remind you that we may make forward-looking statements under safe harbor federal securities laws, and those statements may or may not come true. I will now turn the call over to Matt Maddox.

Thanks, Craig, and thank you, everyone, for joining us today. I'd like to start off with our results in North America, which we were all very happy with.

Starting in Las Vegas. We made $133 million in EBITDA in Las Vegas. And what was great about the second quarter was each month was stronger than the last. In fact, June's EBITDA was double what we experienced in April.

We saw our occupancy continue to grow week-over-week, and the strength across all segments was quite apparent from our night clubs to our hotel, our restaurants and our gaming volumes. We were able to achieve $133 million of EBITDA without international high-end play, which in the past had been almost 20% of our results and without conventions. And that trend continued into July. In fact, in July, Wynn Las Vegas experienced its single largest EBITDA for a month since we opened in 2005. We were able to get occupancy up to the mid-90s on the weekend, and it was still in the 80s during the week, but we focused on rate. We had -- we were getting over $500 ADR on the weekends. And we're continuing to make sure we have the right customers in here and achieving the right results.

Moving on to Boston. Same thing can be said. It was a record quarter in Boston at $46 million. We saw each month stronger than the last. Our database is accelerating quite rapidly there. In fact, our new sign-ups for our Wynn Rewards program were up 70% in the second quarter compared to the first quarter, 70%. And again, same story. July, record month, our best month on record for Encore Boston Harbor.

So when I look at our results in North America, it's interesting to say, could the second quarter be a peak? And I think that, that's very short-term thinking. The second quarter is not a peak. It's a preview of what's to come. We've all been able to streamline our expense structure, understand how to yield our properties better. And the ability to generate significant EBITDA out of these assets is quite clear.

Now clearly, the Delta variant's throwing a little bit of a curveball right now. But that will be short term, and it will subside. And what is clear is people want to have fun. They want to go to Las Vegas. And as we see conventions come back, which is going to happen, and then more international play from around the world come back, I am very confident that we will continue to see growth in our results in both Las Vegas and in Boston.

Looking at Macau, we made $67 million in EBITDA for the quarter. And Macau has been continuously sort of 2 steps forward, 1 step back. On our first quarter earnings call, we talked about the strength that we've just experienced during May in Golden Week, where we had achieved $3 million in EBITDA a day during that period. Then -- however, after that call, there was a small outbreak in Guangdong that was quickly stamped out within a couple of weeks, but that greatly suppressed the volumes in June.

We did start to see a slight comeback in the middle of July to where the results were getting close to the April and May results, which really indicates that there's real pent-up demand in the region to go to Macau. Clearly, there's been another outbreak that we've all been reading about in the region. And the restrictions have stepped up quite significantly just over the last few days in terms of travel restrictions. I think the good thing that we all have now experienced is that the Macau government acts decisively and quickly. And usually, it has been able to remedy these things and in the Greater Bay Area within a matter of weeks.

So while we don't know how long this is going to last, the experience thus far, with the decisive action, the ability to test millions of millions of people just within a matter of days in the region and in Macau does give us great hope that this will continue to pass. And what's really -- what we're really focused on is the accelerating vaccination rate in the region.

And so while it's impossible to predict right now, we are quite hopeful that as the vaccination rate continues to accelerate and the stated goals are hopefully achieved by the end of the year, that we will begin to see a more stabilized and normalized operating environment.

Looking at the interactive space, Wynn Interactive. We have an S-4 that's live right now out there. We're working very closely with the Austerlitz team on our SPAC, and that is moving forward quite well. And we're really excited about it.

We put together a full robust program of new product delivery and the marketing program that we will be rolling out for NFL this year that we are excited about. The space is competitive, there's no doubt. But we are very confident with what we put together, with our product, with our brand and what we're going to be able to offer that we are going to be a real player in this market. And we're excited to share a lot more with you at an upcoming Analyst Day that Craig will talk about in a little more detail on this call.

So with that, I'm going to go ahead and turn it over to Craig to get into some more detail.

Thanks, Matt. As Matt noted, our Macau operations delivered $67.6 million of EBITDA in the quarter on $454.4 million of operating revenue. Our EBITDA was driven by encouraging gaming and nongaming performance combined with solid cost controls with particular strength in April and May.

Gross gaming revenue per day in 2Q '21 was approximately 31% of Q2 '19, led by the premium mass segment. Our 2Q results in Macau were positively impacted by higher-than-normal VIP table games hold that increased EBITDA by approximately $10 million from a normalized level.

With respect to cost controls, our OpEx, excluding gaming tax, was $2.3 million per day in the quarter. This is down 23% from $3 million per day in the fourth quarter of 2019 and only up slightly sequentially despite the increase in revenue. We continue to be well positioned to drive strong operating leverage as the business recovers.

At Wynn Las Vegas, we generated $133.2 million of adjusted property EBITDA on $355.1 million of operating revenue with particular strength on the weekends. In the casino, we saw broad-based strength across key segments with slot handle 37% above 2Q 2019 levels and table dropped only 3% below 2Q '19.

The team in Las Vegas has done a great job of controlling costs without negatively impacting the guest experience, delivering a record adjusted property EBITDA margin of 37.5% in the quarter. OpEx per day, again excluding gaming taxes, decreased 24% to $2.3 million per day in the second quarter of '21 from $3 million per day in the fourth quarter of '19. While OpEx increased approximately 45% sequentially from $1.6 million in 1Q '21, revenue nearly doubled, driving strong operating leverage.

In Boston, as Matt mentioned, we generated another record quarter with adjusted property EBITDA of $46.9 million on a record EBITDA margin of 28.4%. Similar to Las Vegas, we have remained very disciplined on the cost side with OpEx per day, excluding gaming tax, of $870,000 in the quarter, a decrease of over 30% compared to $1.3 million per day in Q4 '19 and a modest increase relative to the first quarter of '21 on the back of improved business volumes and increased operating hours.

Turning to Wynn Interactive. We spent much of the quarter aggressively advancing our product features and building a robust marketing campaign ahead of the 2021 football season. Strategic highlights over the past few months include the recent launch of our web applications in Indiana, Colorado, Tennessee, New Jersey and Virginia, which we expect to help drive user acquisition over time.

We've also strengthened our third-party partnerships through agreements with the Detroit Lions, the Colorado Rockies and Cumulus Media. We've also announced several new high-profile brand ambassadors, including Tim Howard and Chad Johnson, with more to come.

Additionally, as sports and sports media continue to converge, we've partnered with several engaging content creators, including Chris Long, to develop unique sports themed programming from the new Blue Wire Podcasts studio at Wynn Las Vegas, which is scheduled to open in a few weeks.

Wynn Interactive is now powered by just over 340 employees and is run rating $110 million in annualized gross revenue as of July. We modestly exceeded the Q2 results underpinning the projections published in connection with our announced de-SPAC with Austerlitz in May despite lower-than-expected user acquisition spend. We anticipate our revenue to accelerate over the remainder of the year, particularly in the fourth quarter, as we roll out our thoughtful and unique marketing campaign and our new product features.

Our total acquisition spending declined sequentially, and we believe our ability to exceed our revenue projections on lower acquisition spend is a testament to the brand's ability to drive retention and higher average spend per customer. We look forward to sharing more details on this business during a presentation to sell-side analysts planned for September, along with a slide deck that will be posted on our IR website at that time.

Turning to the balance sheet. Our liquidity position remains very strong with global cash and revolver availability of over $3.9 billion as of June 30. In Macau, we had approximately $2 billion of available liquidity as of June 30. In the U.S., we had total liquidity of approximately $1.9 billion on June 30, with a substantially lower daily cash burn globally compared to the first quarter of '21.

Earlier this week, a subsidiary of Wynn Macau, Limited received commitments for a new $1.5 billion senior unsecured revolving credit facility that will mature in 2025. The arrangement includes broad participation by our bank group of supportive existing lenders, including local and international banks. Borrowings under the new facility, along with cash on hand, will be used to refinance and retire our existing senior secured credit facility in Macau.

Finally, our CapEx in the quarter was $70 million, and we remain prudent with respect to CapEx while we gain further confidence in the recovery. With that, we will now turn it over to Q&A. Operator?

(Operator Instructions) Our first question comes from Carlo Santarelli.

Matt, Craig, I guess, obviously, a lot has happened here in the last couple of weeks in Macau. But in terms of how you guys are thinking about maybe the relevant benchmarks as to when things could start to get back to normal, is there anything your folks on the ground are tracking or maybe have been told as it pertains to kind of getting things reopened in a way that we're all accustomed to?

Yes, sure. I'll comment and then turn it over to Ian. I think right now, everyone is really focused on the accelerated vaccination rate and getting to those stated goals by the end of the year. The Delta variant is very hard to predict. And the actions that they take over there are quick and decisive because they stamp it out when they lock it down.

And so I don't -- we don't really have any other clarity as to when that will change. But I think the pace of vaccination is quite encouraging. Ian, do you have more thoughts on that? Ian, are you on mute? Or did you drop?

Sorry, can you hear me now, Matt?

Yes.

So it's very clearly linked to the pace of vaccinations, as you pointed out, within the PRC, but also within Hong Kong and Macau and us getting a tripartite agreement and a bubble going so that we can get back to a higher level of normal than we've experienced. We have managed the lift in business very well. There is a desire on the part of the PRC government to allow travel into Macau whenever it's possible.

We've obviously had a pullback in the last couple of days, but there's confidence that the current small cluster will be under control within a couple of weeks. We're going through mass testing of the entire population of Macau over a 3-day period. And we're confident that we will reopen with the PRC in due course, but it is very linked to vaccine rollout.

The one consequence of having a small cluster Delta outbreak in Macau is it will be a huge encouragement for some of the people that has held back on getting a vaccine because they deemed Macau very safe. This could be an alert for them to go and get vaccinated. Right now, we're at 44% vaccination rate in the city, very similar to Hong Kong. So we hope to lift that considerably in the coming weeks and months.

Great. And that's very helpful. And then, Craig, just kind of revisiting your commentary on Las Vegas. Obviously, you guys have taken a lot of cost out of the business. I believe property-level margins, 37%, 38% in the period, clearly well higher than kind of the aggregate of 2019, over 1,000 basis points better.

As the business does ramp and acknowledging that you guys are kind of bringing on or brought on a while ago but haven't yet put in use the incremental group in convention meeting space, what does the margin profile potentially look on a forward basis?

Sure, Carlo. So you may recall, we touched on this a little bit on the last call. And really, as the business has come back in North America, we've been better able to understand where we will have permanent cost saves and where some costs might come back in. You saw some of those costs come back in over the course of Q2, and we had more than corresponding revenue increases.

But as we said on the last call, we're really not talking in terms of margins because that is ultimately business mix and revenue-dependent. But what we did say is that we expected about $150 million of ongoing annual cost saves in the U.S., comprised of somewhere between $75 million and $95 million in Vegas and $65 million to $85 million in Boston.

Our next question comes from Thomas Allen with Stanley Morgan (sic) [Morgan Stanley].

Can you just give us a little bit more color on what you're seeing in terms of group bookings in Vegas?

Sure. Marilyn, do you want to take that?

Sure. The -- August is our first month that we will almost be back to a normal run rate for group bookings. But when you think about second quarter, each month was sequentially higher. And this year, we are going to have more group bookings than we had ever in the second half of the year.

So we're in good shape right now. We've had just a handful of cancellations. We have our largest group that comes in next week, and the pickup is solid. So we feel really good about that.

For 2022, we are above pace from what we were in 2019, and the same is true for 2023. And the ADRs are higher in 2022 and 2023. So we feel good about that group business in addition.

The pace of leads has been also accelerated. So COVID is relatively new. We don't know what the future is going to be like. But in terms of just a week ago, that's the status of what we're seeing.

Perfect. Helpful. And then just as my follow-up on WynnBET, what's the latest thinking on the closing of the transaction and when you expect to start deploying the capital?

Sure. So we would expect -- it's really SEC-dependent because we have another instance of the S-4 that will need to make its way through the SEC. They were pretty expeditious with the last review. So we would hope that the shareholder vote would be in late September. We would then get regulatory approvals, which is really just protocol. And we would hope to close in early to mid Q4.

Keep in mind, we have the ability to advance that business funds from Wynn Resorts and then essentially take that back as part of the proceeds. So it's not going to stop us from deploying capital where appropriate and prudent, but we would expect closure sometime in Q4.

(Operator Instructions) Our next question comes from Stephen Grambling with Goldman Sachs.

I know this is always a bit of a tough question to answer necessarily. But what's been the latest conversations and/or expectations related to the concession renewal in Macau? And how are you trying to plan around that from a capital allocation standpoint?

Sure. This is Matt, and then I'll turn it over to Ian to comment as well. But there's really no new news on that front. So we have a very good relationship in Macau with the local government. We're working closely with the local government to ensure that the goals of the Greater Bay region as being a tourist destination and Macau being a really central part of that are met and what we can do to help facilitate that growth and facilitate continued expansion in Macau.

So we feel really good about our position in Macau as a good corporate citizen and the future of Macau. Ian or Linda, do you have any other thoughts on that?

Yes. The government's primary focus is clearly on the -- managing the unpredictability of the pandemic. That's the primary focus. But it doesn't mean that work isn't taking place behind the scenes. The government have referenced on a number of occasions that the first step in the process is a public consultation process that will take place in the second half of the year.

There's also a completion of local elections in September, which is necessary before they start addressing any gaming law revision. So there is a lot of activity going on behind the scenes. No official conversations yet, but work is taking place. Primary consideration is managing the COVID pandemic.

And maybe as a follow-up, focusing on Macau. I guess if we were to think about the liquidity profile in that market, is there any way to assess how that looks in its ability to support VIP or even parts of premium mass to support a full rebound should you get the green light in the back half of the year?

Yes. I've stated, I think, on our last couple of calls that we are very optimistic about premium mass and the liquidity profile that will be there and in core mass. And VIP is certainly structurally changed. And a lot of VIP customers are converting to more direct customers. We're seeing that already.

So the idea that VIP would revert back to its previous levels, I think that's clearly a foregone -- that's not going to happen. But the overall market and high-end customers I think will be quite robust as, you point out, the green light comes on.

Our next question comes from David Katz with Jefferies.

I wanted to ask about Macau. We obviously can't tell exactly when but presuming that there is sort of an all-clear to reopen and the flow of customers come with some state of normalcy, help us understand what a ramp like that would look like and what the trajectory of it would be and the puts and takes, et cetera.

It's -- as you point out, David, it's hard to predict. But just when we witnessed what happened with Golden Week in May, how we went from not a lot of business in April to $3 million of EBITDA a day over that period, it just shows that the pent-up demand is very real. And I think everywhere around the world, the demand for what we do is stronger than it's ever been.

So to -- clearly, VIP won't come roaring back to where it was, but I fully anticipate that what you'll see on the premium mass side and on the mass side will be stronger than it's ever been. With very limited visitation, we've seen retail revenues up more than 50% to 70% in Wynn Palace.

And our retail partners are continuing to double down and invest, building large-scale stores in our facilities as we speak, which really goes to the idea that this is going to be quite a tourist destination when things come back. In fact, Ian, why don't you spend a little bit of time just talking about some of the new retail offerings that are going to be opening soon and how excited those brand partners are?

So actually, during the quarter, the first and second quarter, we've had 9 stores of Wynn Palace that have been shut down and had been getting moved around. And we have the arrival of 9 LVMH brands into Wynn Palace. So they're opening an LV men's and women's, 2 different stores, at the end of this week. We've got 2 stores with Christian Dior opening. Fendi and Bulgari opened recently. So there's a huge desire with the top brands to be represented in both Wynn properties. We have a queue as long as my arm of brands that are trying to get space at either of the properties.

And so David, my point to that is, clearly, that's just a small portion of our EBITDA, but it's an indication of what people are seeing in that region that Macau is going to be, I think, a very successful and robust tourist destination for the premium mass customer as things start to clear.

And if I can just follow-up quickly and it might be more for Ian is one of the things we've seen here are labor constraints. What is the labor situation like in Macau?

So our workforce is predominantly Macau-based with Macau local residents. We do have 20% of our working population that is import labor, but we have no issues with finding workforce. And the majority of our import labor comes from the PRC, so we haven't had any issues at this point. And I don't believe Macau will have any issues attracting workers.

Okay.

And I'd like to point out in North America, clearly, attracting workers has been a challenge just for the hospitality industry. But for us, it hasn't been. We set a record EBITDA in Las Vegas in July. And we also had an additional 500 people that we brought on board to make sure that we keep our margins where we have them but then our service levels are maintained.

And the same thing's happened at Encore Boston Harbor. So the labor market is clearly tight, but the applicant flow that we've seen coming to our properties has been extraordinary. We've had a hard time interviewing people versus finding people. And I think that's really going to be a big benefit for us going forward.

Our last question comes from Robin Farley with UBS.

Great. I wanted to ask about -- in Vegas with those strong margins. Are there some amenities like the buffet or valet parking that some of these sort of lower-margin amenities that may come back that weren't fully there in the quarter? If you could just kind of manage our expectations a little bit about how margins may look sequentially if you had all of that baked in already in Q2 or if there's anything that might be layered in here from Q2 into Q3.

Well, when you think about the buffet, we have opened the buffet. It opened at the beginning of July. And so that is open 5 days a week. We also have our valet parking at our tower suites that is complementary for guests or guests who choose to park in Wynn Resorts. On the resort side, there's a fee for parking, but they park for free in the parking garage. All other amenities are wide open.

We'll be opening some additional restaurants in August. We opened Delilah in July. So that brought on additional labor. And then our new Mexican restaurant Casa Playa will be opening in August. And so you'll see additional FTEs coming on, but also the appropriate revenues to support that.

And as Matt mentioned, Robin, we generated a tremendous amount of EBITDA in July despite the buffet being open and all the parking dynamics that Marilyn just mentioned. I would just refer you back to what we talked about on our last call and I referenced a little bit earlier, which is the kind of $75 million to $95 million of cost saves in Vegas we think are permanent and $65 million to $85 million in Boston, and then you can vary the model and kind of back into the margin.

Okay. Great. And just one other comment. I wanted to clarify, Marilyn, when you were talking about group, I just want to make sure I understood. You said something like the second half will have the most group ever or something. And I just want to make sure I understand. It was like group events happening or new bookings coming in for the future periods.

the group -- Robin, the groups on the books coming in the second half of 2021 are the highest number of group bookings we've experienced at Wynn. And so typically, most of the group bookings will happen in the first and second quarter.

And so there's a couple of reasons for that. One, groups that were scheduled in the -- in 2020 are -- were pushed into 2021. And some of those groups were pushed into the second half of the year, but they have held. And so it's a large number of group bookings for a second half.

But I imagine that 2022 would be ahead of that or -- but not at this point, is that expected or...

Correct, it is. So the pace in 2022 is the most group bookings we've ever had on the books at this time for the year. So we are pacing very well in '22 and very well in '23. We're quite optimistic about the group business, especially with our new asset, which we really didn't have a chance to use much because we opened it up and then COVID hit us in 2020. So we feel very good about the group business coming back. Of course, all that depends upon the future of COVID in our lives.

Thank you, everybody, for joining us today. We'll see you next quarter.

That concludes today's conference call. Thank you for your participation. You may disconnect at this time.