永利渡假村 (WYNN) 2007 Q2 法說會逐字稿

Good afternoon, and welcome to the Wynn Resorts Limited, second quarter conference call.

Joining the call on behalf of the company today, are Steve Wynn, Ron Kramer, Marc Schorr, John Strzemp, CFO of Wynn Resorts; Andrew Pascal, President of Wynn, Las Vegas; David Sisk, CFO of Wynn Las Vegas and on the phone Ian Coughlan, President of Wynn Macau and Scott Peterson, CFO of Wynn Macau.

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

Following 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.

Thank you Eva.

Good afternoon, everyone.

Before we begin, I need to remind you that today's conference call contains forward-looking statements that we are 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 discussions of risk that may affect our results.

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

A reconciliation of those measures for the more comparable GAAP measure is included in the press release.

We are broadcasting this conference call live on www.WynnResorts.com where we can also find the earnings release which we circulated earlier today.

We are going to keep our prepared remarks to a minimum.

Let me start by saying that we were incredibly proud of the achievements this quarter.

The second quarter of 2007 was a record quarter for both Wynn Las Vegas and Wynn Macau.

We've generated over $1 million in EBITDA per day in each of our properties, which we believe exceeds all expectations and highlights the strength of the Wynn brand.

In Las Vegas we generated EBITDA of $115.2 million, a 57.6% improvement over the second quarter of 2006, as every segment including gaming, hotel, food and beverage, retail and others, outperformed last year's results.

In Macau, we continue to experience strong sequential growth.

EBITDA in the second quarter was $92.7 million, 17% above the first quarter and 58% higher than the fourth quarter of last year.

We believe that our product and service are the best in each of the markets where we operate and that our numbers reflect that.

And with that, we are going to open it up for your questions.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q & A roster.

Our first question comes from the line of Celeste Brown, with Morgan Stanley.

Celeste, your line is open.

Hello, guys, good afternoon.

Can you hear me?

Yes.

The results at Wynn Vegas, which I guess, we all forget about sometimes because we are so focused on Macau, were just absolutely extraordinary, just from -- in terms of volumes and the EBITDA produced.

Is that -- is the $115 million level something that is sustainable from here on in?

Is that something we should think about as a run rate for the property particularly given that it was a seasonally weak quarter?

Well, look, as you know, we never give guidance and we've always said that, you know, we will worry about growing the top-line of our business and that over time that the brand would create increasing levels of profitability.

We had a high hold percentage in this quarter which contributed to those results.

And we continue to believe that our ability to grow the business and to extend the value of the brand is ongoing.

In terms of your hold, though, it was only a couple hundred -- 20 or 30 basis points above your normal range.

How much do you think the higher hold contributed to the bottom line for that property?

Approximately $7 million.

And we just also want to point out to you that this is the third quarter where we have been able to achieve over $100 million in EBITDA.

And how much was higher hold at Wynn Macau, how much did that contribute?

Approximately $8 million to $9 million for the quarter.

Okay.

Thank you so much.

Sure.

Your next question comes from the line of Steve Kent with Goldman Sachs.

Steve, your line is open.

Hi, Steve.

Hey, Ron.

Could you just talk a little bit about any impact at all from the Visa restrictions.

Certainly the numbers don't seem to be showing it in Macau, even though mass market was roughly flat with the previous quarter.

Just not seeing any slowdown.

At least a few months ago it sounded like you were more concerned about that.

Could you just address that?

Well, look, we continue to be concerned about it.

It's too early to really say what the impact is going to be.

What's clear is that we've had very little impact in the current quarter.

The real story in looking at, you know, what's going to happen as these restrictions take hold as the increase in capacities come on in the end of August and then later in the year.

So, you know, we still are looking at, you know, the outlook in the market.

But clearly there has been no immediate impact from those restrictions.

And also, I noticed that you changed sort of the mix of the expansion a little bit in Macau.

Is that based on anything you are seeing in the market or anticipating?

Well, I think the premise and where we were last time, was that the expansion that we were going to look at to add additional retail space to reconfigure the mix of both VIP and mass.

We've clearly landed on what we believe to be the right formula going forward.

We'll open up an additional 20,000 square feet in the third quarter.

And then the ability to master plan the entire project and will now be able to say that we'll land at 380 tables and 1200 slots by Chinese New Year's.

So, you know, we still are looking at the increase in capacity.

We still see that there's things going on competitively in the market.

But we have a very clear plan about how we plan to position ourselves relative to our competition.

Okay, Ron.

Thank you.

Your next question comes from Joe Greff, with Bear Stearns.

Joe, your line is open.

Good afternoon, everyone.

Nice results.

Ron, can you just help clarify or quantify the second phase in the third quarter, the additional table games and slot machines.

Is that consistent with the press release from June?

No.

Just to put it in perspective.

We think that we'll be adding, in the third quarter seven VIP tables and approximately 25 main floor tables and an additional 220 slot machines.

Okay.

That's helpful.

And then with the Wynn Diamond Suites expansion, am I right in assuming that there's going to be additional gaming space beyond VIP there?

We're still in the design of the Diamond Suites.

Obviously, we've spent a lot of time over the last quarter getting to the point where we are now comfortable to put out both a broad project budget of $550 million to $600 million and a time line of opening in early 2010.

Okay, and then one final question.

I know you've referenced Cotai, in the press release.

Is there anything else you want to talk of there in terms of timing?

I think I know the answer there though.

Obviously, we are committed to both Encore and to the further expansion of Wynn Macau.

We have the 52 acres of land.

We were moving forward and as our plans become more concrete, we will be able to give you more detail.

The one other comment I want to make related to Macau, is just as well as the property has been doing in this quarter, remember, that we are still carrying 500 dealers and all the expenses for that planned expansion.

So, that probably impacted us to the tune of $3 million to $4 million of expenses in the quarter.

Great.

Excellent.

Thanks.

Your next question comes from the line of David Katz, with CIBC World Markets.

David, your line is open.

Hello, good afternoon.

Congrats on your quarter.

Thanks.

You're welcome.

A couple of questions.

Firstly, in Las Vegas, you know, the margin expansion obviously has exceeded most expectations.

Anything you've done on the cost side there in terms of cost cutting to drive that kind of margin expansion?

Or are we to understand that that was all kind of volume driven?

And then I have one follow-up.

Yes, I think the -- as we've talked about previously, it's always been about growing the top-line and that this has never been about trying to target margins and trying to take cost out to make the business more profitable.

That part of the investment in the brand is being able to deliver a level of customer service that clearly has resonated with a higher spending clientele and the results in the volumes and -- has been quite substantial.

Right.

And then just one question on Macau.

The announcements here are about the expansion and I guess in just in looking at the press release that came out in June, relative to this one, to follow-up, I guess Joe's question, what changed?

What have we learned -- you know, if in some of your earlier comments, with respect to the Visa restrictions, we have yet to sort of see impact or learn about what the impact will be.

I thought there was some commentary back in June about competition coming on.

What's changed and what have we learned since then that gives us this confidence?

It's Steve Wynn answering this question.

We didn't actually learn anything.

I may have inadvertently, due to sloppy communication, given the wrong impression in the last quarter about our delay.

Some people thought that we had stopped.

Quite the contrary.

We were scheduled to open the full stretch of the expansion on the fifth or tenth of September, in the next few weeks.

And when I was there last season on one of my trips, I decided that there wasn't enough balance in the final configuration of the Diamond Casino.

And I thought that we needed more retail, some additional food and beverage capacity and some more meeting room stuff upstairs and some other things that we had learned would be more responsive to the type of trade that we attracted there, which can pretty much can be described as the top end.

And that meant that I had to hold opening the rest of the space until later in the season in order to make those adjustments.

And I made that point that we were delaying the full opening from September forward, and it's now going to be January, because I wanted to make those changes to balance the facility much in the way the current facility is balanced.

And it meant a few less tables but more powerfully positioned tables and the creation of the new VIP rooms and some other things of that sort, and more retail, some very fancy retailers.

We had had such a wonderful response with our, very exclusive, top end retail that more of the top end retail people wanted to come in and that's sort of a niche that we've established.

At the same time I talked about the rather breathtaking amount of capacity that was about to hit the market.

And when those two things were said at in the same breath, I made it sound like we were backing off when hardly -- when exactly the opposite was the case.

So, allow me to correct that impression.

We're not backing off at all.

As a matter of fact we're pressing ahead and we've come a great deal of the way down the road to completing our thinking and our planning on Cotai as well.

But, as to Wynn Macau, the existing facility, we finished the planning of the current casino and it is underway and will be finished in January.

The only thing that won't be open for Chinese New Year, will be the space directly under the Diamond Suite Villas and the Diamond Suite Suites.

And there are over 400 of the villas and suites.

There are no typical rooms in that building.

They are all exclusive and luxurious.

And there are two VIP casinos there.

Two very luxurious junket rooms that have about 14 or 15 tables each.

And there are two new restaurants and some more retail underneath that tower.

And that won't be ready for quite sometime, while we do the deep foundation work and the landfill.

But all the rest of the expansion that we've already built, will be open and fully operational with the staff that we've been carrying since last winter by Chinese New Year.

We will open it in January.

We're right on schedule and there are no more questions about that, that we were answering.

We're setting sail with that program against all competition in the market.

And we're feeling very good about it.

If I can just thank you for that and if I could just ask one more quick one.

With respect to Macau and hold percentage.

I would say one of the challenges we have in forecasting is getting our table hold percentage dialed in just right.

What have we, I guess learned in the short time that Macau's opened, about table hold percentage and do we have the right normal range out there or should there be some adjustment to that normal?

Repeating your observation that you're having a hard time getting a handle on that.

Welcome to the club.

2.7% to 3% is what we continue to put out as our range.

And we continue to exceed our range.

Look --.

On a monthly basis.

I would only add one thing to this discussion of hold percentage, to the investment community that's joined our call and our competitors as well, something that's been known to all of us for quite sometime.

The house advantage in a given mathematical sense on a hand of Baccarat or a passing dice is well understood.

But what determines the gross revenue of a casino is the length of play.

And casinos that appeal in a special way to customers and make them sit for a longer period of time, enjoy a different range of response than those that do not.

Similarly -- and that's true of Blackjack or Craps or Roulette.

It is also true that casinos that cater to high end Baccarat players, who tend to have much longer playing periods and bigger bank rolls, have a higher range of response in terms of casino potential revenue than those that do not.

And that's why the Golden Nugget, when we operated it, didn't hold as much money as the Mirage.

Or the Wynn Las Vegas -- it would be different than a place like the Sahara.

So, when you talk about Macau you are in exactly the same position again.

The general casino is one thing and the VIP rooms are another.

They differ structurally in the way we pay the junket operators and the promotional allowances we dispense to customers and credit and all the rest.

And the people in the general casino play for a shorter period of time.

And so hold percentage is a murky subject at best.

And it has to be considered in the total context of the resort and the clientele that the resort enjoys.

I think that as you evaluate all of us in this business, that you're going to have to come to your own conclusions about that.

And of course you can look at history.

If -- we don't all publish our hold percentages by the month.

It's probably well passed the point of too much information for anybody to bother with.

But you certainly should take note of the kinds of hotels that the various companies operate or the kinds of operations that any particular hotel represents.

I'm done with the answer.

Thank you very much.

Your next question comes from the line of Larry -- I'm sorry, of Robin Farley, with UBS.

Robin, your line is open.

Great.

I've got three questions.

First, on Encore, it looks like the budget went up slightly since last time and you made a comment in the release about refining the final design.

So, I guess is that -- should we interpret that as the potential for that budget to go up a little further?

And then the other two are Macau questions.

One is, do you anticipate any changes to commission levels in the market after capacity in Cotai opens?

And then secondly, in terms of your comments just a moment ago on hold percentage, there are others in the market saying they're comfortable that VIP win levels -- instead of being 2.7% to 3%, are a little higher than -- or I guess at 3%.

And based on the comments you just made about the -- kind of, the more upscale -- the more the property offers, the more likely the hold percentage to be higher.

I'm curious why you wouldn't have a hold percentage -- why you would have a hold percentage, I guess, below what others are saying is a normal hold?

Robin, it's Steve.

I don't know what others are saying.

But I responded to the other question by saying that it's a moving thing and we're new in the market, not as -- you know Sands has the most experience.

We are relative newcomers.

We're just getting ready to finish our first year and I'm learning along with my colleagues about Macau.

And sharing that information with all of you as quickly as we were able to discern any pattern and we have no secrets.

The comments I just made about a hold percentage are based upon my experience here in Las Vegas for the past 40 years.

As far as the budget of Encore, Encore is done.

They are pouring the 41st floor this week.

The increase is mostly rounding as we finalize design.

So, this is not a $100 million increase.

This was a $21 million increase which took us to 2.15.

So, we always round it.

So, there is a very small increase that's included in the Encore budget.

Encore will be open next year.

It's going to be -- it's 2039 suites.

The whole thing is all suites.

Just like Diamond.

We don't -- we won't be building regular rooms much any more in this company.

Did I miss an answer to a question, Robin?

I was just going to -- the other question was just in Macau.

If you anticipate any changes to commission levels in the market --.

We -- I remember now.

Robin, we don't know what to anticipate.

The enterprise that's about to be launched in a few weeks is a massive ground breaking enterprise by our neighbors -- good neighbors to the south.

And they have an enormous amount of VIP space -- over twice as much as ourselves at the moment.

And we would not lead any change in the market.

We would only be forced, perhaps, to follow it.

But I really think that question would be better addressed to other companies that are in the market.

We don't have any plan, whatsoever, to change our programs that we have.

Our junket operators are very -- the three of them are very happy with us and have expressed that they are very happy and claim that their clientele find the hotel to be the hotel of choice of all of the hotels that are in Macau at the moment.

And hopefully they'll continue to feel that way even though they may patronize another or newer hotel, they'll still find us as a nice place to be.

And so we aren't planning any changes.

Okay, great.

Thank you.

Your next question comes from the line of Bill Lerner, with Deutsche Banc.

Bill, your line is open.

Thanks a lot.

Hello guys.

Two questions.

One, Steve, you just made the remark on what Utada is saying about Japan, if you are willing to share that with us now that we've seen some changes with the LDP.

And I have got a Macau follow-up.

I don't feel qualified in giving any leadership to this subject at the present time.

Sorry.

Okay.

The follow-up is just on the structure of your VIP business.

I guess, you know we have seen now enough to see that some of this has to do with hold and so forth.

And we have seen margins improve sequentially in Macau.

Can you just talk about, you know, if not absolute numbers, just directional help here on the percentage of your VIP business that's direct versus junket?

You know, I would suspect that that's a big benefit from a margin perspective.

Matt?

John?

John Strzemp is going to answer the question.

In Macau approximately 75% of our VIP business comes from junket operators, approximately 20% to 25% is run in-house programs.

In-house, okay.

Basically 75/25.

Okay, and the in-house stuff that you -- we should just think about as typically slightly lower margin than mass market margins?

I mean, it's still structurally a little different.

I think that's again under the category of a little bit more information than we need to share with everybody at this moment on a conference call.

Okay.

Alright, let me ask you one more then, if I can.

Just on the -- we haven't talked about the golf course development in awhile and obviously there's a tremendous amount of supply in the Vegas pipeline.

You guys have talked about, you know, punch -- maybe punching a hole in the ground there in 2010 or so.

Given the infrastructure needs of Vegas and given the amount of supplies, sort of premium proposed supply anyway coming in 2011 and 2012 and so forth, does that change your view on timing and scope?

No.

Listen.

We've got a $2 billion hotel under construction next door that's over 2000 suites.

Now, based upon the information that you see available to you about the one that we are sitting in today and how it performs, imagine if we hold or improve these levels.

You don't need too many other hotels.

Now, if we were operating with a different kind of company we might need five or six of these puppies.

But, at our level one or two is enough.

The property holds its value of the golf courses we are talking about, our real estate only gets worth more each day.

And we've had a very exciting development in our neighborhood with the arrival of Mr.

Tshuva and his colleagues from the Plaza Hotel from Israel.

They are going to be spending billions of dollars across the street right next to the folks at the Boyd Gaming, who are spending billions of dollars on Echelon Place.

The whole high end neighborhood of Las Vegas is about to take place, slightly north of Spring Mountain Road and Treasure Island.

And then catty-corner is Barneys and Palazzo.

In the middle of this little crossfire is our property.

I am feeling wonderfully encouraged by the improvement in the neighborhood.

I mean, we were across the street from the Frontier Hotel.

Now, I built that when I was 25 years old with some other guys and it was a mean looking place by the time it got closed.

Nobody really went there any more.

And Phil Ruffin did a fabulous deal by selling it to Yitzhak Tshuva, and Yitzhak has got plans that he shared with us verbally because he stays here to look down on his property.

We picked up our occupancy from the Tshuva group and they have plans that are really quite dramatic.

Not to mention Donald Trump's condo hotel which is opening in a few months.

And a second tower underway.

But there's a thousand rooms and 3000 rooms at Palazzo that are very fancy.

Not to mention Barneys and all those stores and all those restaurants that the folks at the Sands are opening.

We don't have any walk-in business.

This quarter that you are looking at is -- we were an island here.

And a nice island perhaps, but we're an island.

And we're about to become the cross section of the fanciest neighborhood on the Las Vegas strip.

To take Echelon and The Plaza developments as an entry, coupled with the Palazzo and Encore.

And the Fontainebleau down the street.

Yes, but let's not even go as far as the Fontainebleau, just stay with the adjacent properties.

The fanciest new hotels in the history of Las Vegas are all here.

And I think that's a very notable migration of the center of gravity of our town in terms of quality, at least, to the north.

And we are mighty proud of our neighbors and what they're doing.

We can't wait for Mr.

Adelson's group to commence operations later this year, hopefully, because that will make another big jump in our retail walk-in traffic.

I don't know when Barney's is going to be open.

But, you know, right on the corner, adjacent to our stores, is Barney's, which is wonderful.

We're very excited about all that.

So, golf course -- we're going to keep studying it and take advantage.

The first thing we'll do on a golf course is build directly across from the Las Vegas Convention Center on the corner of Paradise Road and Desert Inn.

That will be the first shot that we fire.

And we're working on that idea and the concept of that now.

I hope that answers your question.

That's great.

Thanks, Steve.

Your next question comes from the line of Larry Haverty with GAMCO.

Larry, your line is open.

Yes, two questions related about Macau.

The first is, do you expect, ever, the non-gaming revenues to move up below the low level that they are currently at?

And then the companion question is that the slot win was pretty impressive in the quarter.

Does this mean that the locals are changing their behavior to slots and does that affect your thought processes?

Larry, Macau is an evolutionary market.

When you look at the history in Las Vegas and you look at how the market has grown, as you develop non-gaming assets, the gaming market improved.

In Macau, you're starting with a run rate market that's already beyond Las Vegas.

The infrastructure to the market is still a story about what's going to happen in the years to come.

The roads, the bridges, the rails, increased air transportation.

So, the visitation to the market will only go up over the next few years and as a result of that the gaming revenue will grow but the non-gaming revenue will grow.

To get to the mix of where Las Vegas is currently operating you are looking at us at approximately 45% gaming, 55% non-gaming, is going to happen in Macau over a much shorter period of time.

I think I would like to add a little something to that that's in a different tact.

Think of Las Vegas versus Atlantic City, for a moment.

In Atlantic City, you have a lot of day trippers, a lot of repeat visitations -- multiple visits.

If there are 35 million people, I'll just invent the number, it's probably a million people 35 times.

In Las Vegas, if there are 35 million people it may be 17 million people twice a year.

Okay, those are, of course, exaggerations.

But my point is obvious.

That when people go on vacation, as they do here, then they are shopping and they are taking longer trips and the non-casino options are very important to them.

In Atlanta City, which has now become something of a mature market, we see a trend or a profile that's much closer to Macau.

And there is a tremendous similarity between the two places actually.

And the proximity to big population areas, the fact that people can reach it easily for an evening or a day.

The average stay is much shorter.

So, Las Vegas was out in the middle of the desert.

People had to come here and make a journey.

They still do.

And so they don't make the journey for a night, they make it for two or three.

I think that Macau will change the profile.

But to -- Larry, if I understand your question, will we get to the point where we have a 50/50 mix like we do here?

No.

I don't think so.

Not right away.

But we will get a fabulous demonstration of how close -- you know, the idea is if you build it they will come.

We'll see how close that may be, as we watch the results of the wonderful new Venetian Hotel when it opens.

Because here is a case where there's a huge shopping center.

And all of the things that we see in Las Vegas brought to an enormous level.

The Sands folks did a good job of describing all of that.

And if there is ever a chance, we'll see it first at the Venetian.

Because in our current facility, we can never match the non-gaming offerings that are being presented at the Venetian.

But, incidentally, I'm impressed with the Venetian's approach and is that why I reconfigured the Diamond Casino to add more retail and other attractions -- entertainment attractions, all of which will be unveiled in January because I'm trying to get that other number up.

I don't know what comes first, though.

You have the facilities and they use them.

Or is it something inherently structural about the nature of the visitation?

You know we've got a very big airport here.

And so there is a nice airport in Macau.

The flights are being increased each season from Taipei and other places.

But I wouldn't look for a 50/50 breakout in the near future.

And as far as the slot machines go, the same comment I made before.

Slot revenue goes up when people stay at the machines longer.

When people stay at the machines longer, that's what happens at our place.

Which is why the slot revenue is as high in both Las Vegas and Macau compared to the rest of the market per machine.

Okay, great.

Good job, Steve.

And your final question comes from the line of Matthew Farkas, with Paradigm Capital.

Matthew, your line is open.

Thanks so much.

Congratulations.

I guess my question is -- I have one question that is kind of a two-parter.

Do you think that your sensational results in Las Vegas is the result of taking market share from some of your competitors in that town?

Or is it more based on people from Asia who maybe hadn't come to Las Vegas but now that your name is establishing a brand in Macau, they are now coming to Vegas for the first time or in fact more often?

Both.

Both?

Yes.

Okay.

I guess that's that.

Thank you.

And there are no further questions at this time.

Gentlemen, do you have any closing comments?

No, we'll thank you all for joining us and we look forward to speaking to you again after our next quarter.

This concludes today's conference.

You may now disconnect.