永利渡假村 (WYNN) 2010 Q1 法說會逐字稿

Good afternoon, and welcome to the Wynn Resorts First Quarter 2010 Earnings Call.

Joining the call on behalf of the Company today are Steve Wynn; Marc Schorr; John Strzemp; Matt Maddox; Andrew Pascal, President of Wynn Las Vegas; Scott Peterson, CFO of Wynn Las Vegas; and on the phone, Ian Coughlan, President of Wynn Macau; and Robert Ganzmo, CFO of Wynn Macau.

(Operator Instructions.) Thank you.

I would now like to turn the call over to Mr.

Maddox.

Please go ahead, sir.

Thank you very much.

Good afternoon, everyone, and good morning, to people in Asia.

I just need to remind everybody that this conference call will be--some of the things we'll say are forward-looking statements and they're protected under the Safe Harbor federal securities laws.

With that, I'm going to go ahead and turn the call over to Steve Wynn for opening remarks.

Thanks, Matt.

The numbers I think speak for themselves.

Really, very little to add to that except that the first quarter numbers that we released today do not include any contribution from Wynn Encore in Macau and--which opened a week ago today.

And we're looking forward to it contributing to the overall impact of our operation in Macau.

I'm also pleased to announce that we have instituted--as announced previously, we have instituted our first quarter dividend of $0.25 a quarter, which will be payable to stockholders of record on May 12 and paid on May 26.

With that, I'll take questions.

(Operator Instructions.) Your first question is from the line of Joe Greff with JP Morgan.

Hello, everyone.

Steve, I was hoping you could give us an update on your thoughts on Cotai in terms of how you're thinking about positioning that.

I know you just opened up Encore a week ago.

But I guess where are you on that from a timing perspective and just a positioning perspective.

And then, if you could further give us updated trends in Las Vegas - are you seeing any signs of improvement from a room rate perspective?

I know you referenced in the press release that the slot revenues were also impacted from new capacity.

Are you seeing any trend change here in the second quarter?

Thank you.

Andrew, you want to answer that question?

Sure, I'll take the two questions.

The first one about rate in Las Vegas, no, we're not really seeing any real improvement in rate going forward.

It's fairly stable.

Our feeling is that with the growth and the capacity that we absorbed in the early part of the first quarter, that that's impacted rates citywide certainly for us and we don't really see that changing through the summer.

The second question related to the slot handle, and we talked about how the comp was a bit tough because we were going up against the opening of Encore where we had a tremendous amount of novelty and local traffic that came through the building, and so we benefited from that.

And then, we have since and are nearly complete--nearly done with constructing our new Beach Club, which basically closed down the whole front of Encore, which has impacted what walk-in traffic we were able to generate off of the Strip.

So--.

--And that comes to an end in four weeks.

The new Beach Club, the--all of the extensive new construction and improvements on the Strip at Encore are completed in the last week in May and we open up with a bang on May 28 with the Encore Beach Club with the new nightclub, Surrender, and the revised Caf Society and Switch.

Quite a bit--in the new entrance plaza, quite a bit of upgrade on the north end of the Strip, on the north end of our property, that I believe is going to have a significant effect on the walk-in.

The last part of the question was--that I'm going to answer is Cotai.

The table caps expire on the 13th--in 2013.

We believe that Macau Encore is the loveliest urban hotel in the world.

And for people who think that that's an exaggeration, then it's very simple to make your own comparisons on pretty much any standard you like.

But it is an urban hotel, much in the same way that the Waldorf Astoria or the Ritz in Paris or the Peninsula in Hong Kong are urban hotels.

The hotels that have built on Cotai are pretty much urban as well because they're built right up to the curb, they are mostly steel and concrete.

What I believe is missing from Cotai is a legitimate destination resort that has the one thing in China that is so scarce, and that is space.

So I want to build a hotel in Cotai and I have designed one that makes use of our 51-acre parcel of extended space of water and gardens no matter where you are in the building.

And that creates an emotional involvement by the guest at a level that cannot be achieved in the city.

It just cannot.

That issue of extended space, of natural light, of water and planting, has an effect on human beings that is sort of hard to explain unless you're in the space itself.

But that's the difference between a lovely hotel and a destination resort.

So we're going to build on Cotai, if we're encouraged to do so, and I believe we will be encouraged to do so, at least at this point I believe that.

We will build a destination resort.

And that will complement the other things that we've built in Macau up till now.

But that won't happen until--it wouldn't open until 2014.

Next question?

Your next question is from the line of [Mark Strahn] with Morgan Stanley.

Hi.

One question.

In Macau, it seems that in the first quarter it was the strongest margin quarter overall in the history of the property.

Is there something that's driving that?

Was there a higher mix of direct play or is there something else at play there?

We did have a higher mix of direct play in the first quarter, and also our non-gaming revenues were up significantly, almost 45%, and we have high margins in particular in retail in that area.

But our whole percentage was dead normal.

Dead normal, that's right.

2.7% for the VIP area overall.

As a matter of fact, [today it] was a little low.

2.85 would be normal.

Okay.

Thank you.

Your next question is from the line of Cameron McKnight with Buckingham.

Good afternoon.

Hello.

Just wondering if you could comment on what happened with controllable costs in Macau during the quarter.

If you look at it, it's very similar to the fourth quarter sequentially.

It think it's a little over $1 million a day run rate versus 990 or so in the fourth quarter.

So the team in Macau has done a very good job keeping the operating expenses in line sequentially with--.

--I think the answer to your question is nothing.

Okay, great.

Thanks.

And then, secondly, Steve, you've got a lot of cash you've extended out, a lot of your maturities.

What are you thinking about capital allocation here?

We don't think that economic disruption is behind us.

We think the deficits have potential for enormous negative impact in the United States.

So we're playing it safe, like we always do in this company.

Okay, great.

Thanks.

Your next question is from the line of Tom Marsico with Marsico Capital Management.

Hi, Steve.

Thanks for taking my call.

I was just wondering how you thought about the very high growth rates that you're seeing in Macau, why you're seeing growth rates as high as they are, the sustainability of those growth rates.

And just more of your philosophy as to how you're seeing that market play out.

Well, it's great to have a question from a real live major shareholder like Marsico Capital.

It's not very often that the buy side guys speak up at these conference calls.

Tom, the inherent strength of the market in China has been the subject of great discussion and it has been explained, and I know that you're one of the people that has spent a great deal of time with all of your investments at Marsico Capital in understanding the depth of that market.

And the pent-up demand that exists there among the 300 million Chinese who are experiencing upper middle class and beyond wealth in that country, that is not to minimize the fact that China faces great challenges for almost a billion people or maybe over a billion people who have yet to experience such prosperity.

But we have to keep in mind that this explosive growth in China and the desire for a consumer experience--and incidentally, to a great deal--to a great extent it is encouraged by the government, which is trying to enhance the consumer economy in Macau.

And so--I mean, in China.

So it is not considered improper to want to aspire to the good life.

And to Chinese--to Chinese people, part of the good life is going to Macau and partaking of all of the excitement and activities that take place there.

Not just gambling, but shopping and fine service and dining.

And branding is very important to those people.

So we've learned that over the years here in Las Vegas.

When we opened Mirage we got all that business away from Caesar's because we were the newest, greatest thing.

When we opened Bellagio, the Chinese business immediately switched to Bellagio.

When we opened Wynn we had big time Asian baccarat business because we were the newest and fanciest thing.

The Asian market is very, very aware of the top brands.

And that's why we're so meticulous in making sure that we meet that demand.

For example, it is nonproductive for us to appeal to the low end market in China because the government does not encourage the low end of China to go to Macau.

They don't mind if people who can afford it go and gamble, but they're sensitive to people who can't afford it going across the border to Macau.

That's why they pulled back on the visas.

But for those people in Hong Kong and South China, from [Dalian] and Shanghai who can afford the good life, there is no stigma attached to that in China.

And there are so many of them.

The market is so deep and rich in successful people who are in search of the good life that Macau is a natural place to--and Hong Kong and Macau are natural markets to absorb some of that energy.

And we are experiencing it along with the other operators in Macau.

And we've maintained our niche in that market because we've protected our brand.

Encore was more of the same.

And coupled with that, we stay on the good side of the government by attending very carefully to a proper Chinese protocol, which is to be humble as a guest of that community, to be grateful for being allowed to be there, and to show our appreciation in every way possible for that privilege, including going public on the Hong Kong Exchange to increase our Chinese ownership of our company.

Those things have all conspired to produce a result, along with the natural flow of people across the borders, that have affected all the operators, to protect our market share and allow it to grow.

And in respect to that, Tom, there is one final point I would make.

One young analyst several months ago said, Mr.

Wynn, as these hotels have opened your market share has gone from 17% to 14 or 15 or 13.

And I said, well, naturally, when thousands upon thousands of tables are added to the market our market share would drop in terms of gross revenue.

But when you're analyzing and evaluating a gaming company, whether it's in the United States or in Asia, the right number is not market share in terms of gross dollars.

It's what percentage of revenue per table you have over the ratio of one-to-one that you would have if your revenue equaled the same percentage as your--as the amount of tables you have.

Or to simplify that, if you had 10 hotels, each with 100 tables, they would each do exactly the same amount of revenue.

Then the percentage of tables and the percentage of revenues would be equal.

That would be total parity.

The ratio of revenue to equipment would be one-to-one.

If the ratio of revenue to equipment is greater than one-to-one, then you operate in a more efficient and a more positive way than your neighbors.

And as more hotels have opened in Macau our ratio has grown, not shrunken.

And that's the number.

That's the number.

The win per table compared to your percentage of tables.

The percentage of revenue you have compared to the percentage of tables you have.

And in that respect, our market position has improved, not slacked.

Those are the things, Tom, that come to my mind as I think of the subject.

Matt, do you have anything to add to that?

No.

I think that's exactly right, Steve.

Okay, Marc?

Exactly correct, Steve.

Tom, does that--?

--Hey, Steve, I just had one more question.

When a lot of the construction was going on and there was concern about the availability of apartments and other housing facilities for the workers on Macau, then there seemed to become a crisis because inflation got pretty extended in Macau.

So with your plans with Cotai, has the government coordinated that so we're not going to see another construction boom occurring concurrently over there?

Well, your observation is very insightful.

At the time, although everybody had good jobs in Macau, their living standard was not going up proportionally because rents for their homes had increased disproportionately more rapidly than their income.

And it caused me a year and a half or so ago to give my line employees a 10% cost of living increase in their wages, so that the wonderful people that work for me wouldn't have lesser of a life.

That was at a time when some of my competitors were cutting back from 48 to 40-hour weeks and cutting out the 13th month in order to save money.

We kept the 48 hours, we kept the 13th month, because it was more important to us to have a satisfied and stable workforce than it was to have an extra $23 or $24 million.

And as we go forward in Cotai, we work very closely with the government, which is very interested in low cost housing, to cooperate with them in any way that we can.

I know that the government has plenty of money to deal with this problem in Macau, and I know that it is on the front of the focus of Secretary [Chan] and Chief Executive Officer [Choy] as well.

So I think that the government has land for this on [Kola One] and I believe that they are going to take advantage of it.

And we, as you know, participate in infrastructure contributions and other types of voluntary contributions for 4% of our revenue every month.

And that number is quite substantial.

If you take the casino win and calculate it yourself you'll see that a lot of money besides the gaming tax itself, which is really an income tax, is in play.

So I think that you'll see activity in that.

And will it tie up construction?

There's a lot of capacity in South China for construction, Tom, and I think that any projects that will come on-stream--remember, the government is limiting the amount of construction and is limiting the licenses.

They've created an oligarchic, monopolistic kind of situation there, thank goodness, to our benefit, along with the other folks that are there now.

And there is no plan to expand that.

So I think that construction is going to be done at a slower pace in the resort industry as a result of the government action.

And so, the private sector--the public sector will pick up the activity.

Thank you.

I just want to make just a comment, if I could.

I'd just like to congratulate you and the management team in managing through the Great Recession.

It's a fairly extraordinary time to see the company rebound with these sorts of results and keeping your people in place I think is a testament to your team and your group.

Thank you.

Thank you, Tom.

Your next question is from the line of Steve Wieczynski with Stifel Nicolaus.

Yes, good morning, guys.

Hey, Steve, I wonder if you could clarify a little bit just leaving Philadelphia, what was the thought process behind that?

And there's been a bunch of rumors out there in terms of where you've been spotted all over the country and what your plans are domestically versus internationally right now?

Well, we shouldn't make too much of me being spotted, as you put it, around the country.

My team and I were curious, having never visited the regional casinos of America, we decided that it was quite appropriate for us to take three or four days and go look at what was being done in the hopes that we might learn something.

And in fact, we did.

We spotted a few casinos that were really beautifully done.

One in particular was the River City Casino owned by Pinnacle Company in St.

Louis - a beautiful job done by Todd Lenahan, who is one of the designers that works for us.

And so, we saw some nice things.

And we were just curious.

And our visit to these places was just as detached and objective as I have just said it.

You should read absolutely nothing into it.

Being spotted doesn't mean thing is afoot.

There is no agenda here.

Our next project will undoubtedly be in China unless we get involved in Massachusetts.

The deal in Philadelphia, as we said in our public statement, which I thought was very--although concise, was very accurate, that we were encouraged by the Institution of Table Game Gaming at a 14% tax rate.

Still a little tough at--for the slot machine tax rate.

But that the gaming opportunities in Pennsylvania were interesting and stimulating, but the particular deal we were in, a deal in which we were a participant in someone else's company--we had never done that before--became unattractive to us at the last minute.

And it was the deal itself that caused us to back out of--we backed out of a deal more than we backed out of Pennsylvania.

And it was that simple.

Great people, good friends, but when it was all said and done the stars didn't line up for us.

And that's what happens sometimes.

You go into deals, you probe, and you start to negotiate, and then at some point when you add everything up you back out.

And we did in this particular case.

Great.

Thanks for the clarification.

Your next question is from the line of Robin Farley with UBS.

Thanks.

A few questions.

One is can you give us some more color around what percent of your business in Macau was [direct] in Q1 versus either Q4 or last year's Q1 just to get a sense of how that is--?

--I think the numbers speak for themselves, Robin.

I mean, they're right there in front of you and I think you can calculate the percentages.

I don't have any color to add to that actually.

Okay.

And then, you probably won't have any color to add to this.

But I wonder if you could give any color--early color on the core Macau property in terms of impact on existing table capacity, that kind of thing?

I'm sorry, Robin.

Could you speak a little louder?

Sure.

Any color from the initial couple days in Macau with Encore in terms of impact on your existing table capacity there?

Oh, you want me to talk about the second quarter before the second quarter earnings are out.

And I'm sorry, Robin, I'm going to have to disappoint you on that one, too.

The second quarter began and we've had seven nights in Macau.

I don't know that it would--even if it was appropriate to comment, I don't know that it would shed much light or color on anything.

I personally don't think there is anything we could learn right away.

I will tell you this, the kind of things that we hear.

Linda Chen is on the table--is on the call--is sitting at the table in Macau, are you not, Linda?

Yes, I am.

Yes, you are.

We can't hear you very well, Linda.

Yes, I'm here.

Okay.

Linda is the President of Wynn International.

She's on the board of the company, the parent company board.

She runs international marketing for Asia for the entire company.

No one has a greater insight.

Linda, can you help Robin with regard to the reception verbally that we've gotten from our customers on Encore in a week?

I think as you said, it's the nicest property in Macau and people were surprised that we can even outdo ourselves with our current mix of Wynn Macau property.

And we've built a product that fits directly to the market needs.

So we have a product where it fits whether it's the junket or the direct VIP business that comes for a shorter stay than what you're used to in the Las Vegas market.

I think we've done great.

I think we will be able to--I imagine--well, like you said, we can't talk about the second quarter.

But like what you said before when you answered Mr.

Marsico's question about the market, good supply in the market [builds the] market.

So I think that's what Encore will be able to do for Macau.

When you have a good supply in the market, it helps the whole--everybody in the city.

I think there is one other point that Linda and I have discussed that's worth sharing with all the people on the conference call.

The goal of broadening and bringing in new concessions in Macau in 2002 was to broaden the appeal of Macau in the Pacific Rim and around the rest of the world to bring new customers, not just baccarat players, into the marketplace.

And it is fascinating to see exactly how that process works.

So I'm going to explain it with regard to Encore.

Macau has junket operators that have a budget that we give them a fixed amount of money to pay for their complementaries for their customers in their rooms, unlike the Las Vegas method, which just sort of pays for the rooms.

The house pays for the rooms.

Now, when we built the Wynn Hotel in Macau, we did what a normal hotel operator does.

We built a very commodious, large, generous typical room.

It's 626 square feet.

That's bigger than Bellagio and the same as Wynn America.

And then, we built extravagant suites starting at 1,800 feet and going up to 3,000.

And those rooms were priced at $200-odd and the suites well above 1,000, as you would expect in any hotel operation, including Shanghai and Hong Kong and Tokyo.

And that's what we did as [Hotel Yeas] in the hospitality business.

It was very, very normal.

Right up the middle.

The junket operators came to us--they came to Linda actually, and said, just a minute.

That's not what we need.

The typical room is beautiful, but it's not sexy enough for a gambler, and the suites are too expensive for us to waste all of our money at $1,500 or $1,200 a night.

What we want is a very theatrical and beautiful room that we can buy for under 400, preferably at 350.

Well, there was no such product.

And all of a sudden the pressures exerted by gambling interests caused us to create a product, an 1,100 square foot suite.

We went and did it and that is Encore.

Now, what we have done is built a room that is at $350 the most incredible piece of hospitality real estate in the world.

And it has an enormous appeal to everybody, especially non-gambling people, because it represents the greatest bargain in the world.

So now, here's Macau, creating a product from its organic gambling roots that now changes the city and the market to be more appealing, more broad based in its attractiveness to everybody.

How interesting unintended consequences are.

Or maybe they are intended.

But here is a product that was engendered by gaming requests that becomes a non-gaming plus for the city.

The most lovely room in the world at a price that is almost half of what a regular room at the Peninsula costs, which would be less than half its size.

Interesting how things work.

I call that - and I made this point to the government - organic growth.

That is not the same thing as trying to pick up Las Vegas and drop it on Macau.

That will never work.

They're--one is China, one is the United States.

And China is China is China.

And in relationships with the people of that country and relationships with your employees you must not forget that it is not Las Vegas.

It is not America.

And so, dropping Las Vegas Strip into Macau was always an idea that did not respect the basic fundamental notion of Macau.

And so, we try--in our observation of the people what we have learned since '06, we could never have built Encore Wynn in '06.

We did not have the hands-on experience with the customers.

We learned from our customers, as all good businesses do.

We learn from our customers, our employees, how to better run out business.

And so, what we have in Encore Macau is an organic product that grows in Macau out of the soil of Macau's own beginnings.

And I'm glad that that question was asked, Robin, because it gives us a chance to clarify what we've done.

And I hope that adds some color to your question.

Yes, that's great.

Thanks.

(Operator Instructions.) Your next question comes from the line of Larry Klatzkin with Chapdelaine.

One, as far as Singapore effect--and I'm guessing it's been open for a while.

And Sheldon just opened his place.

Have you seen anything at all as far as them opening is stealing any of your business?

Zero.

All right.

And then--good answer.

And then, as far as you made a comment about moving your headquarters to Macau.

Was there anything to that?

Yes.

Could you--I mean--.

--We are going to include--.

--That is where the bulk of your earnings are.

We're going to include new headquarters in the Cotai project and I intend to begin the process by switching my own schedule and some of Matt's, my CFO's, schedule in the almost immediate future.

It really at first amounts to really an allocation of our time and our focus.

I don't intend to uproot everybody that works for me and move them to Macau.

I mean, we've got people with lives and homes and stuff.

But it is appropriate I think for us to spend more time and have more focus in Macau.

We have a public company there for which we are responsible to the Hong Kong Exchange and to Chinese institutional investors and we take that very seriously.

And I want to make sure that our activities at the high end of the company and the parent company reflect respect for that position.

Okay.

And then, the last question would be, you kind of said about Pennsylvania that it was the set up of the ownership and the situation that was not attractive to you.

If that license came up for fresh renewal for bid, would you consider bidding on that?

Yes.

All right.

Thanks a lot, Steve.

Your next question comes from the line of Janet Brashear with Sanford C.

Bernstein.

Thank you.

I was wondering in Las Vegas what you make of the baccarat streak and what trend line you'd expect?

Obviously, it's the higher percentage of the business than it has been in the past and it's being driven a lot by Asian gamers.

Do you see them continuing at the same pace, or do you see the trend either picking up or slacking down?

I don't know.

Really, Linda, what do you think?

I think that as compared to last year it definitely will pick up.

However, like you said, the--.

--Linda, come closer to the microphone.

Okay.

I think in Vegas the trend will pick up from last year.

The U.S.

economy is not back to where it was before, so I don't think--expect it to be at its biggest high.

But compared to last year, it should definitely pick up.

That's the lady that can answer your question, ma'am.

Thank you.

Your next question--I'm sorry.

There are no further questions at this time.

Thank you, everybody.

I look forward to talking to you next time.

Bye-bye.

This concludes today's conference call.

You may now disconnect.