永利渡假村 (WYNN) 2005 Q4 法說會逐字稿

Good afternoon and welcome to the Wynn Resorts Limited fourth-quarter conference call.

Joining the call on behalf of the Company today are Steve Wynn, Chairman and CEO of Wynn Resorts;

Ron Kramer, President of Wynn Resorts;

Mark Schorr, COO of Wynn Resorts;

John Strzemp, CFO and Treasurer of Wynn Resorts;

Andrew Pascal, President and COO of Wynn Las Vegas;

David Sisk, COO of Wynn Las Vegas;

Matt Maddox, Senior Vice President of Business Development and Samantha Stewart, Vice President of Investor Relations.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. (Operator Instructions).

Now I would like to turn the call over to Mr. Kramer.

Please go ahead, sir.

Good afternoon everyone.

We're broadcasting this conference call live on wynnresorts.com where you can also find the earnings release which we circulated earlier today.

Before we begin, I need to remind you that today's conference call contains forward-looking statements that we're making under the safe harbor provision of federal securities laws.

I would also like to caution you that the Company's actual results could differ materially from the anticipated results in these forward-looking statements.

Please see today's press release under the caption forward-looking statements for the discussion of risks (technical difficulty) our results.

In addition, we might discuss adjusted property EBITDA, which is a non-GAAP measure.

A reconciliation of those measures to the most comparable GAAP period is included in the press release.

With that, I'm going to turn the call over to Steve Wynn, who is going to spend a few minutes getting you an update on (technical difficulty) Vegas and Wynn Macau projects and then we will open the call for your questions.

Hello.

I'm Steve Wynn and I came back from Macau last night at 6:30, spent a week there, and so my information about the progress of our project there is relatively fresh.

And this past week has been very fruitful and eventful both in Macau and Las Vegas.

I guess I will start with Macau.

We have received notice from our builder pursuant to our contract with the [Leyton] and China State construction companies, we have received notice of completion formally; that is to say, the date on which the building will be turned over to us, as July 27th, coming up 180-odd days.

We have confirmed this date on several levels with our own staff and so it's looking like a real time for us.

Our position at Macau has been the same from the time that we were granted the first concession as Americans ever granted in that special administrative region, and that is that Macau is our opening gambit in Asia.

It is the beginning of our role as an Asian company and therefore, the moment should not be wasted or squandered.

So we turned our back on short-term profits in order to enter the market with a stunning and long-term powerfully perceived asset.

Wynn Macau is such a place.

It is orders of magnitude beyond the scope of resorts that exist either in Hong Kong or Shanghai or Wynn Macau at the present time.

We're on 16 acres, which is an (technical difficulty) considering it's the dead center the city and it's strategically located.

We are surrounded by (technical difficulty) second concessioner and SJM, the Lisboa Hotel, the first of the three concessionaires.

Adjacent to us is also a sub-concession by MGM and [Pansi Ho].

We are in the middle and we have this fancy building that seems to be done on July 27th.

We have decided, consistent with our past policy, that we're going to make a very important strategic entry into that market with a very high level of service, a service level that is not presently in that city.

That means training, it's all about people.

No matter how extravagant the buildings have been, whether we're talking about our old hotels that we had at Mirage Resorts or at this one, Wynn Las Vegas, they all outperform everything else in the market by a huge margin and they do so not just because they're fancy buildings, but because they're filled with well-trained and very gifted people.

That challenge is significant in Macau as we try and take that level of service to that city and so we've given ourselves a full month.

And I set a date this week of September 5 as the opening of Macau. (technical difficulty) stress that I would not hesitate to change that date by two, three or four weeks, even if it costs us another 7 or $8 million.

If I were sure that I could enter the market with a better level of service than anybody has seen, both in food and beverage and hospitality and the casino itself.

The reaction in terms of recruitment to our program has been very satisfying.

We've had over 54,000 applicants for the 4400 jobs and that runs across the board in casino and non-casino alike.

So we're getting a wonderful choice of very gifted people and we're happy about that.

So our staffing levels I think are going to be realized, but again, I think the most important thing is going to be training.

So we have left ourselves adequate time to train these people not only to give our guests a superior experience, but more importantly it is the only way that I can protect the staff from the enormous stress of an opening when hordes of people descend on these casinos with very significant amounts of money to wager.

And I want to make sure that our kids are galvanized over there so that our reputation is protected long-term.

We have also announced this week or I guess this is the first time that we've made public the fact that Phase II of Wynn Macau, which is under construction now, is divided into two parts.

We have 200 baccarat tables, 200 tables, mostly baccarat, that will open on September 5.

Within 12 months, there are two other phases that come onboard, each an additional 150 tables, bringing us the grand total to 500 tables, mostly baccarat, that will be opened within 10 or 11 months of the September date.

That is to say, we finished Phase II in the summer '07.

We open in the fall of '06.

So that is the way Wynn Macau was going to work.

We have also received 54 acres, in the process of closing our 54-acre Cotai site, which has three hotel sites and a place for an installation called Taiwan House that we'll clarify in the future.

But our 54 acres is three hotel sites and we are at the land department with our plans for those three hotel which will be operated by ourselves with some partners.

But we are going to operate the three hotels at Cotai ourselves and those are pretty much the high points of my week in Macau.

The second thing that I think is significant that's happened in the last few days is yesterday at the Clark County Commission, we got approval for Encore, our 2000-room addition, which has all of the earmarks of an entirely separate hotel but which is being conceived and integrated into Wynn Las Vegas as an extension of Wynn Las Vegas, even though it's Encore at Wynn.

The idea is to have these facilities operate as a unit.

The additional convention space that we're building will bring our capacity for meetings and conventions up to over 200,000; 250 plus 300,000 feet.

We don't specialize in exhibit space here because we are sandwiched between two of America's largest exhibit spaces -- the Las Vegas Convention Bureau is one side of our property and the Sands Expo Center is on the other side.

We instead concentrate on the meetings and banquets and other facilities that are very profitable that attended conventions.

Last night when I walked through the door of the hotel at (technical difficulty), we had a pharmaceutical company with 2200 people at banquets and we had four (technical difficulty) from 300 to 400 dinners taking place in Tryst our (technical difficulty) another nightclub and in other meeting rooms.

That is our specialty here -- high-end, very fancy dinners by our catering chef.

And we intend to market all 4700-odd rooms as a unit even though the hotels represent different personalities of the same kind of youthful edginess that is Wynn Las Vegas.

Finally from my part of this presentation, I would note that since its inception in April, this hotel has dominated the market in most key areas.

Number one, average rate per night -- we're 40 or $50 higher than our nearest competitor.

The win per machine -- regardless of the amount of machines, we have the highest win per machine in the state of Nevada, and we have the highest win per table in the state of Nevada.

And I believe we have the highest EBITDA per room in the state of Nevada and we have been able to maintain that position as a reflection of the time, the energy, the detail of the kinds of facilities.

I'm only hopeful that we will be able to take our show on the road to Macau and do a good job there.

Very challenging thing, very stimulating, very (technical difficulty) and that is pretty much what I have to say today.

Operator, we will take questions now.

(Operator Instructions).

David Anders, Merrill Lynch.

(technical difficulty).

Steve I missed it.

Did you say you're going to be running all three of the hotels on Cotai, or the casinos inside of all of them?

How far have you thought about that?

And number two, can you talk a little bit about operating margin at Macau?

Initially everybody thought, if you do a lot of high end business, the margins would be low.

But Sands seems to be proving that that's not the case.

Do you have any thoughts on that?

We're going to operate, David, the hotels at Cotai.

And if we have some partnerships and some co-investors that would be very nice and we will pick them for strategic reasons.

But we're (technical difficulty) casinos in Cotai.

We don't have any subconcessions at the moment and Cotai is not a place where we're going to do that (technical difficulty).

Secondly, operating margins in Macau.

The Sands has been publishing, and I think they're quite right in doing so, the difference between the general undifferentiated casino and VIP rooms, and this is a phenomenon that is peculiar to Macau.

We don't have it in America, but it's in effect a place where you share entrepreneurial zeal by letting individual operators use your staff and go out and market different blocks of customers, and then they share somewhat in the profits.

The customers also get discounts, which is not unusual here in Nevada either.

Between the amounts of money that are given to these operators for their efforts in marketing these rooms and the discounts to the customers, the margins are much narrower, but of course the volumes are huge.

Everything depends upon the quality of the people that the junket operators bring and the transactions, and they are handled pretty much on an individual basis.

Even though there are guidelines for these VIP rooms, there are enormous differences in the quality of the VIP room operators, there are enormous differences in the way these things pencil out.

I am not a keen student or up to the minute on everything about the Sands VIP rooms because we're so preoccupied with our own business.

But you know there is a difference in the margin.

The biggest margin is in the undifferentiated casino, and that is why we're going to 500 tables.

The Sands I think has five or 600 on their radar and there seem to be more than enough customers.

Everything I saw at Macau was jammed this week, including the Sands.

So I don't think there's going to be any shortage of customers this fall when we open.

And if we do a good job, we will have more leverage in the VIP rooms than anybody has had before.

There's one thing about Macau that I would like to mention.

When we opened the Mirage in 1989, for 23 years there had been Caesar's Palace, an outstanding, incredible iconic resort.

If the Las Vegas scene were older hotels like the Flamingo and the Tropicana and the Riviera and the Sahara, Caesar's Palace stood out like a mountain, like Annapurna in the Himalayas, a big silhouette.

When we came along at the Mirage, we did not really change the standard of Las Vegas.

We were a newer version, a bigger version of Caesar's.

In Macau today, there is a huge sameness to everything.

There is a very flat horizon in terms of the quality of the product that is in Macau today and everybody is upgrading.

Our neighbor, SJM Stanley [Hose] Company, is building a beautiful new place that will be ready in the next two years, MGM is building a beautiful place, it will be ready in two years.

The Galaxy is building a place that will be ready in two years.

Venetian's over in Cotai building a new place.

But on the peninsula, on the mainland of China where all of the action is and will be for the next three years (technical difficulty) on the mainland where all the big construction is going to be in the near future and all of the action is, we have a chance to stand out.

By building this higher service level, I believe we will have more leverage with our customers and it may be reflected in our margin.

It has been in the past and I hope it will be in the future.

Great, thanks.

(Operator Instructions).

Bill Lerner, Prudential.

Thanks.

Two questions.

One, can you talk a little bit about your margin situation in Las Vegas?

Obviously, it has been very strong this early and I would suspect that staffing levels probably still aren't normalized.

So how long until we get to more normalized staffing?

And then I have a follow-up on Macau.

David Sisk is here and Andrew Pascal is here, and I think that would be a very good thing for them to answer.

We currently have about 7800 FPEs.

We think we're getting pretty close to our normalized staffing level.

We think as far as some of our other margins and related to some of our discounting or promotional allowances, we think we're there as well where we're supposed to be.

We're looking more towards our topline growth now as we go forward.

We think that there's a lot of room on the topline here.

And then the follow-up is just regarding Macau position increase through Phase II.

So what is that you're seeing in Macau that is causing you to take the table count up?

I mean, obviously, the answer is volumes and Sands turning away hands during (technical difficulty) but maybe the right question is, if you could have added this table count to Phase I, would you?

Yes.

And I think part of the flexibility of the design was to be able to add those additional tables within the existing financing package that we had done.

So this was part of the plan was to look at the capacity constraint in the market to see the results and now to be able to respond to it.

In a word, yes.

Larry Klatzkin, Jeffries & Company.

Hi, guys.

So I just (indiscernible) statement that you're doing two phases of 150 tables each.

What timing (technical difficulty) 150 tables in at?

(inaudible) when is Phase II A, if you want to call it that -- when's the second 150 tables open up?

Third quarter of '07.

And the first set of tables?

Nine months later, and the second 150 are 12 months later.

There is a 90-day gap between the last 150, the second 150 tables and the third 150 tables.

That answers my question.

It happens all within a year.

The second thing, can you give us any more color about the site you have and what we might be thinking about, at least for the first property, or is this just way too early to talk about it?

I don't know if the people on this call are familiar with the actual geography of Cotai, the landfill between Coloane and Taipa -- that's why it's called Cotai -- Coloane and Taipa, the two islands there make up Macau.

There is a domed arena there and there is a university next to the airport.

This is the land between the arena and the University.

I don't know if that helps you.

It's down by the end, or up on the other side of it?

Pardon me, sir?

Is it down at the end, or is it up toward the Galaxy is, up further towards Macau?

Galaxy.

Another question is just housekeeping for you, Ron.

One, option expense, what should we be using?

Going forward, you could use $0.03 to $0.04.

Per quarter?

Yes.

And then how about for depreciation, capital expenditure timing?

We're not going to go to that level of guidance.

Okay.

How about first quarter trends in Vegas?

What are you seeing?

I think we continue to see the business that opened in April, and that you can see the performance over the period.

We continue to see the Wynn Las Vegas performing at levels that are consistent with how it has performed.

Alright.

And I guess that's all my questions.

And I guess the last thing is, is there anything else you're seeing in Vegas that would give you more comfort with what's going on?

We have plenty of comfort with what's going on.

We're continuing to develop, we're about to take on the Encore project.

So we feel very comfortable with the market that we operate in and we are very encouraged about our future.

There was some talk while we ere building this building that we would trigger at the north end of the strip, and that sounded great.

And I guess there was logic to it, but I also felt that there were other factors that were in play.

For example, the success of Borgata would certainly encourage the Sands people and the Boyd Company to go forward, and we encourage them to do that.

The extent of their reaction to their own success in Atlantic City, a deal I made with (technical difficulty) when I was at Mirage Resorts, the Borgata deal was something we started together, I am thrilled at what I'm seeing about that Stardust property.

That is a major change in Las Vegas, not just at the north end of the strip.

Sheldon [Addelson] and Bill Weidner next door and Rob Goldstein, our neighbors, are doing a (technical difficulty) job with the Palazzo.

Right now, our adjacency on our side of the strip is a construction site, it's a big hole and it has been for a couple of years.

Someday it's going to be a vibrant 3000-room hotel that will add more traffic to our slot machines and tables and restaurants, along with our own rooms.

And finally at the planning stage now and in the zoning and hearing area, our neighbor Phil Ruffin across the street (technical difficulty) has come up with a very aggressive and exciting plan for the Frontier.

Donald Trump is building 1200 rooms of condominium hotels without a casino that are under construction now directly facing our hotel.

So we have a tremendous uptick in traffic surrounding us that we are not enjoying at the present time.

And in spite of that, we have the highest win per machine and the highest win per table in the state of Nevada, so to speak in an empty neighborhood.

Imagine how wonderful it will be when of these new people in the area.

So my expectations are buoyed by that, naturally.

The greatest benefit that we get will be from our own house guests, will be staying in our 4700 and 30 or 40 or 50 rooms, I don't know -- what is the final total, Andy, 47?

4750.

4750.

So those are the things that are happening around us that are exciting at our end of the neighborhood, so to speak.

Very good.

I appreciate it.

(Operator Instructions).

Celeste Brown, Morgan Stanley.

Hi, guys.

Are you seeing an evolution of the VIP business at Macau?

Obviously you're not getting it yet (technical difficulty) in terms of your observations.

Has that changed you view of sort of what you can achieve on the VIP side?

What is important about Macau, and it has not been mentioned lately, prior to the Sands evolution, the 70% of the volume in Macau was in the VIP rooms and 30% was in the, what they call the common casino.

What is interesting is that I was told by George Olivera, the attorney for the city, that there has been a dramatic shift that seems to be a trend that now 60% of the revenue is in the VIP rooms, and 40% he told me, Mr. Olivera told me, were from the general casinos.

Now what that represents in his view, and I take his position as being informed, is that better players now find the common casino at the Sands attractive, and therefore an acceptable place to go.

And there are more people and more money going to the general casino because the quality of the general casino is more acceptable.

In the past, the really nice part of the Lisboa hotel and some of the other places were in the private rooms.

That's where the service levels were higher and the space was more human scale and more conducive to lingering and playing longer.

Now at the Sands (technical difficulty) person is in the common casino.

And according to the attorney for the city, Mr. Olivera, there has been a change.

If they really went from 70 to 60%, there would be a 15% switch in the VIP volume in terms of a portion of it, not in terms of volume.

If that's true, our general casino in Macau is prettier than (technical difficulty) rooms that exist in Asia.

Our general casino.

We mocked it up full-size, we have pictures of it and the customers we've shown it to believe that.

So we have a general casino that is not really a general casino anymore than Bellagio or Wynn Las Vegas is a commonplace.

So I think that we're going to see some changes in the numbers as well.

The Wynn property in Macau is a change for Macau.

We ought to get that straight.

It's not just business as usual for that city.

The environment that we're creating, the way we're going to treat people in the common urea is substantially different from what has been done historically over there.

I think that probably we'll get some surprises in the numbers, but only time will tell.

Alright, thank you.

Jay Cogan, Banc of America Securities.

I have a few questions, one on Vegas and then a couple with Cotai (indiscernible).

Based on some earlier comments in regards to where you are from a margin standpoint and stimulating the top line, Steve or Ron or somebody, can you just give us a sense as to what you're looking at from a top line stimulus standpoint here as on gaming side as on the gaming side (indiscernible) already done a sense of timing (indiscernible) before Encore or with Encore?

One thing, before Ron answers that question, which I'm sure he won't do.

I want to point out that when you measure the performance of these hotels in Las Vegas vis-a-vis one another, normalize the whole percentage to 21%.

If you normalize our neighbors' performance or any of our other casinos to 21.3, for example, which was our number in the last quarter, you get more comparable comparisons.

I know that MGM does not release the whole percentage of Bellagio.

But if you really want to know how these places are performing against one another, you have to sort of pick a normalized number like 21%, and then you get (technical difficulty) idea of who's doing what to whom.

What I would like to point you to, and obviously we're not going to get into giving you specific guidance, but some of the things that have gone on since the property opened, some of the improvements and refinements, the remodeling of a restaurant, [Corsa], repositioning our nightclub La Bete into Tryst are all revenue-enhancing opportunities.

And while there were property charges that we incurred during 2005, they were all done in the expectation of growing our topline revenues from some of these non-gaming activities with obviously the hope that that is going to flow through into the gaming activities.

But there has clearly been improvements of restaurants, bars from the time that we opened in April, which we hope to see revenue enhancement in 2006.

Gotcha.

Any sense of timing and something we should expect during this quarter or second quarter?

How do you think that's going to (inaudible)?

We're saying that we expect it to, that the property is performing at levels consistent with where it has been since its opening, and we still believe that there's room for revenue enhancement.

I think we can give an example.

We have a nightclub downstairs, one of our nightclubs, Tryst, it to be used to be called La Bete.

And we felt it started out being designed as a restaurant, it would become a club, it had a dual usage.

We discovered after we opened that dual usage is not appropriate because a club has to be designed these days in this marketplace as a club, and that -- those designs are not consistent with a restaurant.

So -- per se.

And so we closed La Bete and reconfigured it for a few million dollars and reopened it at Christmastime.

Before, it operated in an $8.5 million type of clip, and now it's at 20.

This is an outlet, for example, that can have a margin of about 50%.

So we make changes based upon things that we learn.

What is important is not so much what the numbers are since Christmas, Tryst, or any other place.

They should not be taken with anymore than what they are -- a moment in time.

What is important is that when you open one of these hotels, you immediately find out everything that you did right and everything that you did wrong.

And invariably, you find out that you misconceived or ill-conceived or poorly designed something, and then you have a choice.

You either leave it alone or you step up and fix it.

In the case of our company in the past, the last 30 years, I have always fixed it.

And as we learn more about our building, we make adjustments to it and you can pretty much consider us as the kind of a company that will always do that here and in China.

And speaking of China, Macau, maybe if somebody could just [frame] updated Cotai plans in a little bit more detail for us.

For example, when you say partners but not subconcession partners per se, a sense of what that means, can we get some sense of the CapEx, the timing, the financing?

Can we just get a little bit more of the vision?

(technical difficulty) you will see it when we do our first deal, but we're not quite ready for that yet.

And no comment on Taiwan House?

No.

Okay, thanks.

Joe Greff, Bear Stearns.

Hi, guys, my questions have been asked and answered.

Thank you.

Dennis Forst, KeyBanc Capital Markets.

Thank you.

Ron may have already answered this question, but it had to do with the property charges in the fourth quarter.

Is that what you were referring to, the changeouts of La Bete and Corsa, et cetera?

I think that our property charges in the fourth quite were probably as brisk as they ever were, because that is when we reacted to the information that we learned in May and June, in the months immediately following the opening.

That's when we made the most dramatic -- and we swept in and tied to do everything before Christmas.

I say that we'll always be doing things, but I think the property charges that we had in the fourth quarter are as big as they'll ever be, and most likely bigger than we will ever do.

So that is when we made the major adjustments.

We did it in Corsa, which is an Italian restaurant; we did it with baccarat, we did it with the nightclub, we did a huge list of corrections, which is exactly incidentally what we did at Mirage.

I remember right after opening Mirage, we spent 9 million;

Bellagio, we spent about 12 or 15 or 20 as we went along.

And later on at Mirage, we added the dolphins and the tiger habitat.

What's going to be involved in changing the showroom from Avenue Q to Spamalot?

I'm estimating -- we haven't got a final number, but we start that work on June 1st, probably up to 10.

And that will flow through the income statement, rather than the cash-flow statement?

It will go through the income statement in the first quarter.

And (MULTIPLE SPEAKERS) decision is finalized in the first quarter.

That takes the theater to 1499 seats from 1200.

Right, and then I had a question for Andrew.

Andrew, you had talked about.

One other thing in the property part, was that we also upgraded some of our fairway villas during the period.

So these points that third quarter charges about 6 million, fourth quarter charges a little over 8 million and Matt's kind of put a point to it, just the range, 8 million is the high end of what you should be looking at on modeling going forward.

Let me embellish upon Steve's $10 million.

The part that will flow through the first quarter is only limited -- is limited to the abandonment of the existing piece of the showroom.

The balance will be capitalized on a going-forward basis.

So I didn't want to mislead you.

The 10 million Steve's referring to would be --.

Capital items.

Capital items, but some of that capital will naturally be abandonment and will be treated as a property charges in the first quarter.

And likely less than $8 million, which you said is the high water point?

And 8 million I think was the entire capital budget that Steve was referring to.

And then I wanted to ask, you comment talking about normalizing margins.

You said (technical difficulty) promotional allowances are where they should be.

How do you look at that so we can get a better idea of how to model?

Do you at it as a percentage of casino win, percentage of total win, a dollar amount?

This is David Sisk;

I was the one who answered the question.

We look at it as a percentage of gross gaming win in terms of our margins on our promotional allowances.

And those margins will fluctuate as we have different compositions of business or we get into seasonality. (technical difficulty) first quarter, you have a Chinese New Year, a new year and a Super Bowl, so promotional allowances may creep up a little bit.

But within that normal range of where we've been performing is where we believe they will continue to perform.

That is close to 30% of the gross gaming win?

No, I think we're actually in the mid 14.5%, is where I think we're going to be.

Okay, because I'm just taking the promotional allowances -- $40 million in the fourth quarter divided by (MULTIPLE SPEAKERS).

I apologize -- I gave you the wrong number there.

I think it's on gross revenues.

I think I said gross casino revenue, so it's gross revenue.

You look at it on total gross revenues?

Yes, my apologies.

And it should be in the 15% range or so.

Lastly, the slot hold percentage seems low to me, maybe other properties are in that 5.1% range that you have for the year.

Are you a little more generous with your slots than other strip properties?

We believe that we are.

We're constantly looking at our slot product, our mix, the way we are priced and we want to make sure that we're giving the people that are staying with us and that are walking through the doors really great value.

So what they're telling us is they appreciate it, and I think that's reflected in our win per unit performance.

Does it have anything to do with a mix of games?

Do you have more higher priced games than others?

I'm going to pick up this answer.

And I know that our wonderful neighbors and friends are all listening to this conference call, and we don't intend to tell you another damn thing about our slot machines.

In fact, we win more per machine than everybody else, and that is the end of this conversation.

Okay.

You got it.

Thank you.

Sure.

Okay, well thank you everyone.

We'll look forward to talking to you after our next quarter.

Thank you.

This concludes today's conference call.

You may now disconnect.