永利渡假村 (WYNN) 2020 Q2 法說會逐字稿

Welcome to the Wynn Resorts Second Quarter 2020 Earnings Call.

(Operator Instructions) This call is being recorded.

(Operator Instructions) I will now turn the line over to Craig Billings, President and Chief Financial Officer.

Sir, you may begin.

Thank you, operator, and good afternoon, everyone.

On the call with me today are Matt Maddox and Marilyn Spiegel in Las Vegas.

Also on the line are Ian Coughlan; Linda Chen; Ciaran Carruthers; Frederic Luvisutto; and Brian Gullbrants.

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.

Thanks, Craig, and thank you, everybody, for joining today.

As we look back at what has occurred in 2020, we made a decision back in March that we were going to invest in our brand and in our culture.

When we closed our facilities in March in Las Vegas and in Boston, and also the borders were restricted in Macau, we decided to pay all 30,000 team members their full wages and benefits through the closure, through the end of May.

Because we know that over the long term, our brand and our culture are what is going to lead us out of this and will continue to allow us to lead in this industry.

One thing that we did during the closure is we developed a comprehensive health and safety guidelines that, in fact, I believe, became the gold standard in the hospitality industry.

Of course, everyone now has the electrostatic spray and UV technology and all the sanitization efforts same as us, thermal cameras as you walk in, to take temperatures.

But one of the things that I'm particularly proud of is our testing capability.

Not only did we test all of our employees before they started, but we developed an algorithm where we surveil our staff and we test randomly 500 to 600 people every couple of weeks, and we have 10 contact tracers in-house.

To put that in perspective, we performed 16,750 tests, and 98% have come back negative.

The roughly 300 that were positive of our staff, our contact tracers contacted them immediately and through an extensive interview process, 99% of those 300 people were exposed outside of Wynn.

Each week, I sit with and talk to the head of Global Health Security and Pandemic Research and her team from Georgetown University, going through our protocols and everything that we're doing.

And just last week, talking about these numbers, her response was, "Wynn is probably the safest place outside of home that your employees and your customers go during the day." That's part of our brand.

That's who we are, and that's what we're going to go live up to.

When we began preparing to reopen on June 4 in Las Vegas, we knew that our brand and our culture were imperative, but so is our cash.

And all along, I've been very clear that we were going to be staffing to demand when we opened.

We made some tough decisions, rightsizing our expense structure since we've opened.

And in the month of June, 26 days at Las Vegas, on a normalized basis, we made roughly $9 million in EBITDA.

Our focus here is that we continue to keep our brand and keep our culture intact, but also keep our cash.

We are going to continue to focus on breaking even or making money.

We did notice in Las Vegas, there was some pent-up demand, in particular from California, as we opened in June.

We were receiving roughly 4,000 reservations a day that would be spread over the upcoming 2 weeks.

And then as the virus began to spike in our key drive-in markets in California and in Arizona, we saw a downtick in reservations, roughly 25% here at Wynn after the 4th of July.

And we staffed appropriately.

We're managing our business every day based on that reduced demand.

And sitting here 30-odd days into the third quarter, our EBITDA is roughly $5 million.

So it's impossible to predict whether Wynn Las Vegas during these times of restriction and closure will be making $5 million a month or $10 million a month.

It's really out of our hands outside of the expenses, and we're focused on that every day and what's going on in our key drive-in markets.

We're experiencing mid-50% occupancy on the weekends and in the 30s during the week.

And the visibility is quite murky because it really is short-term bookings from our drive-in markets.

Moving on to Encore Boston Harbor in Massachusetts.

Clearly, we were not open in the second quarter.

We opened that property in mid-July, on July 12 actually.

And Encore Boston Harbor is experiencing what many regional casinos are experiencing around the country.

Slot volumes are actually quite good.

They're in fact up over last year on significantly reduced units.

Table volumes are off, and probably disproportionately in Massachusetts relative to some other jurisdictions, because of the very tight restrictions that are in place.

As an example, craps and roulette are still not open.

We're working closely with the MGC to show how we can do that in a very safe way.

And the number of positions are limited on the table side.

So I do think there is more demand than supply for table games in our local markets there, and it's really just limited by our current restrictions.

In Macau, the second quarter was similar to the first quarter.

And what is good about Macau is the direction of travel feels like progress.

So I'm sure, as all of you on this call that are watching noticed, that every 2 weeks, there's a slight reduction in the restrictions, travel restrictions going to Macau, whether it was eliminating the quarantine between the Guangdong Province and Macau, and then allowing for nontourist visas to be issued beginning this month, and continued talk among various people about when tourist visas, the individual visa scheme, for the travel bubble of the Guangdong Province and Macau will begin.

While we do not have any dates on when that will start, we are confident that, that is going to be happening in 2020.

And each week, there seems to be a new, small incremental step forward.

And once that travel bubble begins to open and tourist visas are being issued, Macau will be back in business.

So before I hand it back over to Craig to give more color on the quarter, I just want to stress that we are going to be focused on leading in our industry, maintaining our brand, maintaining our culture and maintaining our cash.

So there will be winners and losers that come out of this.

And when this is over, and we come out, we want to make sure that we have the capital available to grow, and we have the culture in place to take care of our people and our customers.

With that, I'll go ahead and turn it over to Craig for additional thoughts.

Thank you, Matt.

I want to remind everyone that the results presented in our earnings release reflect the closure of Wynn Las Vegas through June 3 and the closure of Encore Boston Harbor for the entire quarter.

As Matt noted, subsequent to reopening in Las Vegas, we generated approximately $9 million of normalized EBITDA from a business that is heavily weighted to weakened occupancy.

In the casino, slot business has been resilient with handle per operating day in the second quarter up 2% year-over-year, while table drop per operating day was down 31% year-over-year, primarily due to lower baccarat volumes.

In light of current forecasted business trends and the absence of a number of key visitor segments, the team at Wynn Las Vegas has made adjustments to our business subsequent to reopening, including to staffing.

As a result, our daily OpEx levels, excluding gaming taxes in Las Vegas, have declined 40% from Q4 2019 to approximately $1.8 million per day in July.

We are focused on cash generation in Las Vegas.

And as Matt noted, we expect to be breakeven to slightly EBITDA-positive over the next few months, a substantial improvement over the daily cash burn rate we experienced during the closure.

In Boston, we reopened in early July with a number of safety-related operating restrictions in place.

Our reopening plan there was focused on opening only those amenities that support the casino, including the closure of the hotel on most weekdays.

Overall, we've seen encouraging trends in the casino, particularly in slots, with handle per operating day up approximately 7% versus Q4 2019.

Similar to Las Vegas, we made a number of operating and staffing adjustments, resulting in a reduction of daily OpEx, excluding gaming taxes, from Q4 2019 of approximately 33% to $830,000 per day post reopening in July.

In Macau, business volumes remained subdued throughout the quarter due to ongoing travel restrictions in place in the region.

While we await the return of visitation to the market, we have made certain OpEx adjustments with a focus on nonlabor fixed costs.

As a result, we anticipate that we will break even at approximately 40% of Q4 2019 gaming volumes.

Until that point, we anticipate a gradually improving daily EBITDA burn of $1.5 million to $2 million per day.

As of last Friday, July 31, our global cash and liquidity position was over $3.8 billion, providing us with significant runway to weather the pandemic.

In Macau, we had approximately $2.5 billion of available liquidity as of July 31.

And in the U.S., we had total available liquidity of $1.3 billion as of July 31, with a substantially lower domestic daily cash burn subsequent to the reopening of our U.S.-based properties.

Our CapEx in the quarter was $52 million.

As noted last quarter, the vast majority of our CapEx plans remain on hold, and we are only proceeding with our highest priority projects.

Lastly, I'd like to remind everyone that in the first quarter of 2020, we accrued $75.7 million of OpEx associated with our prior commitment to pay our domestic team members full wages and benefits from April 1 through May 15, and thus this amount was not included in OpEx in the second quarter of 2020.

Additionally, corporate expense in the quarter benefited from a $27.7 million net gain in relation to a derivative litigation settlement that the company received after the close of the quarter.

With that, we will now turn the call over to Q&A.

(Operator Instructions) Carlo Santarelli from Deutsche Bank.

Craig, you just mentioned in your remarks that you've kind of taken about 500 basis points out of the requirement for breakeven in Macau [investments], but the 40% of 4Q GGR that would be required.

Matt, relative to your comments earlier with the every 2 week somewhat of a loosening of policies, if that trend were to continue and we were looking at kind of a little bit more free and easy travel coming out of Guangdong, is there the potential that we could see that 40% level at any point this year or presumably in the fourth quarter, even if just for a month or 2?

That's what we discuss internally and how we think about 2020, is that in the fourth quarter, we're hopeful to be at that level.

Okay.

Great.

And then, Craig, just in terms of the -- point of clarification, on the OpEx for Macau, you said that the current run rate at current revenue levels is a $1.5 million to $2 million per day burn rate.

Is that correct?

Yes.

$2 million would be in a 0 revenue environment, and $1.5 million would be in a modest revenue environment.

We -- it's a very fluid situation based on all the visa points that have been discussed ad nauseam, but that's how we think about it at this moment in time.

And our next question comes from David Katz from Jefferies.

With respect to the Las Vegas side, and Matt, your commentary around Macau suggests we are where we are as it improves.

But with respect to Las Vegas and the recovery there, what strategies have you thought about in terms of generating demand or changing the mix of demand at those properties in the near term as the world evolves?

So it's certainly a very different business model.

We're effectively a super regional casino right now.

So without the convention base, without the nightclub crowd, without the large shows, we've become super regional.

So we're really focused on promos, on offers, we have partnerships with JetSuiteX.

We're doing lots of things to try to get people to come here more often, basically from California and Arizona, so frequency and worth to spend more.

So the market is very promotional right now, obviously.

And we're focused on our database and driving more casino revenue.

Non-gaming revenue is down for us by 2/3.

And that was 2/3 of our business.

So we're doing everything we can to get heads in beds in the hotel and really focused on how we can get more of our drive-in market here on a more frequent basis.

Understood.

And if I can follow that up with respect to getting groups to come, and obviously there are restrictions that are evolving and hard to know.

But when your team talk to group planners or meeting planners about what kinds of changes you may need to make, what have you planned or done so far to prepare for the fact that there'll be some new normal, at least to start out, for groups to come in?

Yes, sure.

I think that no one can predict the future right now.

So groups are all holding off until kind of late spring '21 into the back half of next year to decide what's going to happen and what they need.

One thing that we're doing, which I think is probably different than most of our peers, is I'm spending a lot of time on point-of-care testing.

There's a couple of really exciting technologies that are moving forward.

And we are in line if those get their EUA, Emergency Use Authorization, under the FDA.

Because I believe if we can have on-site point-of-care testing that provides pooling, meaning we -- it looks like you can do 10 people at a time with a 5-minute turnaround that, that changes the game for groups.

So maybe you're not waiting until the mid-next year, if you can actually have point-of-care testing to show that everyone walking into this space is COVID-free.

I think that, that could accelerate, I don't know how much, by months, our ramp-up of some of the smaller groups.

That stuff has not been approved yet, but -- those point-of-care tests are not approved yet by the FDA, but they're moving fast.

And the cost, especially with pooling, are coming down significantly.

So I think my belief is that's sort of the bridge that we need to get to in a place that requires a lot of people to be together, before we're into the vaccine.

Because I think as everyone knows, by the time that's approved and rolled out and implemented, those things are complicated and take a lot of time.

So those are the types of things we're talking to our groups about in addition to all the social distancing measures and everything that we do to provide a really safe experience.

And so the conversations are ongoing, but to say that we knew when groups would start coming back is, I think it's too early.

Our next question comes from Joe Greff from JPMorgan.

I'd like to play a theoretical game [with you] or ask a question to kind of get a sense of maybe how important Hong Kong, and travel through Hong Kong maybe is important to the Macau market.

If the IDS is fully restored, and there are no issues there, but for whatever reason Hong Kong is shut to Macau, what percentage of the Macau market comes back from a GGR perspective, maybe taking into account ways that take

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could certain

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travel, other ways to get to Macau?

Yes, sure.

I'm going to let Ian take that one.

So visitation from Hong Kong, Joe, is between 17% and 18%, if you look at last year.

And from a GGR perspective, it probably represents 9% or 10% of last year's GGR.

We actually think locally, with the closure of Hong Kong, for PRC travelers once the Guangdong bubble fully opens with tourist visas into Macau, we will get the benefit of Hong Kong being closed to mainland Chinese customers.

So Hong Kong is a good market for us, but we really believe the power comes from Guangdong, and 21 of the 47 IVS cities are in Guangdong.

So once that opens up, we believe that, that will lift our business significantly.

Great.

And then, Craig, back to Las Vegas.

You said with some of the staffing changes you made more recently, July daily OpEx per day was $1.8 million.

Is that a run rate after the staffing changes, or is that sort of an average with not the full amount of a monthly staffing labor OpEx differential in there?

It's the former, Joe.

It is the latest state of play based on what we have in place right now.

And our next question comes from Felicia Hendrix with Barclays.

So just sticking on Las Vegas.

And you kind of touched upon this before, Matt, in terms of how you're trying to drive visitations to the property

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spend

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a little bit how you're yield managing the property.

And I know it's tough now because you don't really have the benefit of all the levers you'd have in a normal environment, because occupancy is what it is, that sort of thing.

But just wondering how you're thinking about kind of maintaining price [integrity]

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[and so forth].

And then also, if you could just help us understand the percentage of room nights in terms of convention and groups versus in terms of 2019, if you could just [unveil] where you were there?

Sure.

So you're right about pricing power, Felicia, it's very complicated.

In fact, every day at 11:45, we have a yielding meeting, looking at all the trends every day, because the market is so short-term and the ability to move price is quite tough.

So customers are choosing on price.

We're attempting to yield going into weekends when there's a lot of last-minute booking coming in, in particular for 1-day stays on Saturdays.

And so those are really the opportunities.

Midweek, very, very tough.

It's a -- if you go online, you can see where the market is pricing.

And so it's really -- the customers are choosing midweek and on the weekends, as we're attempting to yield as best we can.

Marilyn, you want to talk a little bit about the convention mix and 2019 and what it means for us now?

Well, for now, clearly, there's not much left on the books for 2020.

And there are small groups that we're trying to refill.

We have the advantage of having, one, a great facility; and two, very long-term relationships with our convention sales folks.

So we've been very successful in rebooking them.

You'll see that the second half of '21 is going to be very strong, '22, '23.

So people are coming and they're seeing that.

The first quarter of '21 is a lot about what's going on with CES and how are the other groups going to be falling out.

But we see that by about April, there's some firmness in the market.

Clearly, 2000 -- every year ahead of this, first quarter and second quarter are the best quarters.

And so we missed that this year, and it's too early to tell for the rest of 2020 if there's any business.

And in 2021, the first quarter is a question mark because it's going to -- [an addition come], but we do see firmness by the time April shows up, all the way through the rest of the year.

And then just normally...

This was around 1/3, convention.

Correct.

Okay.

Okay.

And then just, Ian, as my follow-up, just hypothetically, the IVS gets reinstated tomorrow.

What do you think the lag period is in terms of when you would start to see that traffic being able to come to Macau?

So we're hoping there's going to be a clamor for visas and that some of the visa offices will get jammed up, but we imagine it will clear over a couple of weeks.

And we'll start to see meaningful traffic within 2 weeks.

Our next question comes from Shaun Kelley with Bank of America.

Just wanted to follow up on some of the comments on Las Vegas.

Matt, your comment on the super regional kind of comparison is a little interesting.

And we get a lot of questions on the idea around sort of Vegas's run rate margins.

I think we all know that the regional markets are performing quite well.

Just kind of curious on your thoughts on -- now that you've lowered the operating expense run rate a little bit, you're undoubtedly learning a ton on the fly about what you can do and how customers move and operate in the buildings.

Is there any component of what's going on right now you think you can extrapolate into kind of the future of what Las Vegas's margin structure might look like?

I appreciate it's wildly early and theoretical, but just your thought process there?

Yes, sure.

And when I said super regional, what I meant by that was, our customers are coming from drive-in markets.

But our revenue, as you know, our revenues are not like a regional market revenue.

When 2/3 of our business is nongaming, and that's down by 60-plus percent.

So even though we're getting -- gaming spend is okay, you can't cut your way to better margins without absolutely destroying your brand and culture and company.

You can't do it in our market, and we're not going to.

So while we -- our expenses are down almost 40%, we're focused on EBITDA and not on margin because we want to make sure we're making cash, we're preserving our cash flow and we're preserving who we are for the long term.

Got it.

That's helpful.

And then just maybe a sort of similar idea around Boston, right?

I mean this property was in a ramp-up phase, so really hard to get our arms around.

But as we think about other regional markets, we have seen numbers that have really been shockingly good as it relates to the broader margin profile there.

Just any sense of where $830,000 per day gets you to?

Or where does that property kind of pencil out as you get to kind of targeting potential around EBITDA breakeven or positive there?

Is that possible on these types of OpEx numbers or do you need more volume?

Yes, sure.

That's possible.

And I'll let Craig take that and let Brian provide some color on our customers there.

Sure.

Yes, you're right, Shaun.

If you look back to Q4 '19, we had about $1.3 million in OpEx.

Today, it's about $830,000.

If you think about what's happening in the business, we mentioned that slot handle was up pretty significantly versus Q4.

Table drop is down about 30%, but we're down about 50% in terms of positions.

So we can obviously break even in this environment with the OpEx reductions that we've done.

And as that table volume comes back, we anticipate that not only will we generate pretty meaningful EBITDA, some of those expenses will come back.

But a good chunk of what we've done is more permanent in nature, and we're not going to open any amenity unless it's accretive.

Great.

That's helpful.

Brian, do you have anything you would add to that?

No.

Well said.

And our next question comes from Thomas Allen with Morgan Stanley.

Can you just update us on your latest views on operating a casino in Japan?

Sure.

So I think, as most of you that have been following us, our efforts in Japan over the last decade have been more monitoring as opposed to being really active.

We have been monitoring that situation for years and years and years.

And back in March, we decided that until there's more clarity on what the business is going to look like, what the world is going to look like and what the regulations really are over there, that we're pretty much ceasing our efforts.

We did that about 4 months ago.

It doesn't mean that we're not interested in the market.

It just means that right now, it's not a focus for our company.

Thanks, helpful, Matt.

And then just in terms of the U.S., I think that there's a view that with COVID hitting state budgets, you may see some progress with more legalization, potentially in New York, potentially in Georgia.

Any interest in expanding in markets like that?

I think that each one would have to be able to support what we do.

We would -- there are -- clearly, I think the Atlanta market or the New York market, under the right regulatory environment, under the right tax rate, under the right surrounding community agreements is something that we would take a look at.

But without seeing what would be required, I can't say that any of those would be attractive for us right now.

With that, we'll take our last question.

And that comes from Stephen Grambling with Goldman Sachs.

On Macau, how would you characterize the financial health and relevance of the junkets in driving a recovery, and how should investors be thinking about any additional credit in VIP direct for ramping up other marketing to attract customers once restrictions begin to lift?

Yes, sure.

A fun topic we've talked about quite a bit internally.

Ian, why don't you take that one?

I missed the first part of the question, the line broke.

Junket health.

Junket health.

Well, we've got a handful of the largest junket operators at Wynn Macau and Wynn Palace.

So they've kept their teams together.

They're, like ourselves, they're waiting with bated breath for the resuming of tourist visas.

And from the outside, they look well capitalized, and we deal with the bigger operators.

So we believe that their business will build aligned with our business.

And just on the second part, I mean, do you -- should we generally be assuming that there is some form of promotional support, either VIP direct or in terms of credit being extended or ramping other marketing, either from your -- just anticipating across the broader group as restrictions lift?

The general sentiment locally among the operators is we're not going to cut each other's throats.

Everybody's going to be reasonable about marketing expenses.

And that we're hoping for lots of activity once the tourist visas come back.

And I don't believe that we'll see a huge increase in marketing expenses.

All right.

Well, thank you, everybody, for joining us today.

We look forward to talking to you next quarter.

Thank you.

Thank you.

And thank you.

This concludes today's conference call.

You may go ahead and disconnect at this time.