永利渡假村 (WYNN) 2019 Q4 法說會逐字稿

Welcome to the Wynn Resorts Fourth Quarter 2019 Earnings Call.

(Operator Instructions) This call is being recorded.

If you have any objections, you may disconnect at this time.

I will now turn the call over to Craig Billings, President and Chief Financial Officer.

Sir, you may begin.

Thank you, operator.

Good afternoon, everyone.

With me today in Las Vegas are Matt Maddox and Marilyn Spiegel.

Also on the line are Ian Coughlan, Ciar?n 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 Maddox.

Thanks, Craig.

And welcome, everyone, to our fourth quarter conference call today.

To kick it off, I'd like to start in Macau.

So we are currently focused almost solely on the health and safety of our employees, our customers and the Macau community at large right now in Macau.

I'd like to commend the government of Macau and China, in fact, for the quick and decisive action that they take and continue to take to contain the coronavirus.

We're in daily conversations with the government, has been extremely transparent and we -- they have been terrific partners with us as we focus on the safety of everyone in Macau.

In fact, on February 5 at midnight, we worked closely with the government of Macau and all of the operators in Macau to cease our casino operations at midnight on February 5. It was a controlled and organized closure of the casino.

We do still have our hotel and a couple of restaurants opened for the few remaining guests that are in Macau.

But during this time, while the casino is closed, our operating expense burn rate is roughly $2.4 million to $2.6 million a day, and that's largely comprised of payroll to our 12,200 employees.

Looking back at the fourth quarter, we generated $347.7 million of EBITDA.

And like the past quarters, we experienced quick growth in core mass, coupled with compression in the VIP segment.

As we reported on the third quarter, October was actually quite strong, generating EBITDA of a little over $4 million a day.

But we began to see deceleration, leading up to the 20th year celebration handover of Macau back to China in mid -- on December 20, just like the entire market.

However, while it's a short period of time, we did notice that beginning on December 23 through January 10 in a somewhat normal operating environment, our business jumped right back to $4 million a day in EBITDA between the 2 properties on a normalized basis.

Moving to Las Vegas, we made $80 million in EBITDA, with a $20 million negative hold impact during the quarter.

On a full year, just to put it in perspective, in 2019, our baccarat volumes were down roughly 30% in 2019 compared to all of 2018, and that contributed to more than a $50 million decline in EBITDA year-over-year.

Our domestic business continues to be up in the casino and in non-gaming.

RevPAR was up over 3%, in the fourth quarter, and our retail revenues were up double digits.

We're excited about 2020 in Las Vegas.

We have a 430,000 square foot convention center that's opening in weeks to great fanfare.

We have 3 new restaurants that will be more social dining focused and high energy that will be opening throughout 2020, and we'll begin the remodel of Wynn Las Vegas, the 2,700 rooms here in the summer of this year and completing before the end of 2020.

So we have a lot going on in Las Vegas, and we feel really good about all of the segments of our business as we continue to monitor the Far East segment as it relates to Las Vegas.

Looking at Encore Boston Harbor.

We doubled our EBITDA from the third quarter to the fourth quarter to $15 million.

Our Table Games business remains healthy.

We opened -- and Table Games is healthy, and it continues to grow and to be quite strong, actually.

And all the programs that we're putting in place for our slot win, we launched the Wynn rewards program, which is a first for us in North America, which is a tiered card program, we're starting to see those things work in at Encore Boston Harbor.

In fact, our win per unit on the slot was up a little over 14% compared to the third quarter, and we're continuing to see incremental growth on the slot floor.

In 2020, we're focused on continuing to match our food and beverage concepts with our customers.

So destination dining for the overnight visitors as we're ramping our hotel business there and providing more quick-serve options for the daily visitors.

So we feel good about the progress that we're making at Encore Boston Harbor as we continue to ramp that property throughout 2020.

With that, I'll turn it over to Craig.

Thank you, Matt.

As noted in our release, our Macau operations delivered adjusted EBITDA of $347.7 million on $1.1 billion of operating revenues.

The quarter was characterized by strength in mass with combined property win in the mass segment, up 6% year-over-year.

Our results in Macau were positively impacted by higher than normal direct VIP hold percentage, which increased EBITDA by approximately $17.5 million from a normalized level with the hold impact weighted more heavily to Wynn Macau at approximately $12.5 million.

The team in Macau has done a great job of controlling costs at both properties.

At Wynn Palace, our operating expenses, excluding taxes, were down both year-over-year and sequentially, which drove a 40 basis point increase in normalized EBITDA margin compared to Q3 despite the top line pressure experienced market wide.

At Wynn Macau, OpEx was flat year-over-year and sequentially, despite incremental payroll expense incurred to staff up the Lakeside Casino.

We are well prepared to drive strong operating leverage when the market returns to normal.

Our Las Vegas operations produced adjusted EBITDA of $80.1 million in the third quarter on operating revenue of $368.8 million.

Our results were negatively impacted by lower table games hold in both baccarat and domestic tables, costing us about $20 million of EBITDA, as Matt mentioned.

While baccarat was soft year-over-year on a tough comp, we saw 4% growth in non-baccarat table drop and slot handle.

On the hotel side, RevPAR increased approximately 3% year-over-year to $288, driving $120.3 million of hotel revenue.

Bad debt expense in Las Vegas was $4.1 million compared to $1 million in the prior year quarter, costing us $3 million in comparable EBITDA.

The team in Las Vegas also did an excellent job controlling costs in the face of upward pressure on payroll, with operating expenses, excluding tax and bad debt, down slightly year-over-year.

We spent approximately $49 million in project costs in the group space at Wynn Las Vegas in Q4 '19, taking our spend to date to roughly $351 million.

Construction is now complete and the expansion is slated to open in a few weeks.

Encore Boston Harbor produced $15.3 million in EBITDA on a $169.3 million in operating revenue.

Table Games hold was in the normal range.

As Matt mentioned, we have a number of initiatives in play in Boston designed to drive revenue growth, and we expect those initiatives will bear fruit over the course of 2020.

We have also carefully managed our expense base there and operating expenses, excluding gaming tax in Boston were down approximately 11% quarter-over-quarter.

We anticipate making additional investments in the property throughout the year, particularly in food and beverage.

But we are not yet ready to quantify the budget for those initiatives, we expect they will be relatively modest.

Turning to the balance sheet.

During the quarter, we successfully completed a $1 billion 10-year senior notes offering in Macau with strong support from Asia-based long-term investors.

We intend to use the proceeds from the notes offering to repay a portion of our term loans in Macau.

As a result, this will reduce our senior secured debt and related leverage ratio, while extending our maturity profile at an attractive rate.

We ended the quarter with total debt of $10.4 billion, inclusive of the $1 billion of recently issued Macao bonds.

We also had total cash and investments of $2.36 billion, including approximately $1.8 billion at Wynn Macau, and total company-wide revolver capacity of $1.25 billion.

Our liquidity position, particularly in Macau is very strong.

Finally, during the quarter, we returned over $100 million to shareholders through our quarterly dividend payment.

With that, we will now open up the call to Q&A.

Operator?

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

I kind of -- I hate to be generic and more general.

But if you can, just big picture, how do you guys think about things here in the near-term?

And certainly appreciate the color, Matt, on kind of the cost per day here during the closure.

How does things look over there at present?

What are you hearing in terms of the potential to reopen after the tweak window?

And most importantly, what do you foresee kind of on the back end of this?

So Carlo, I think it's a little early to try to say when exactly we will reopen.

We are -- again, the team on the ground is working with the government on a daily basis and watching very carefully if there will be any continued outbreak of the virus.

And so far, we feel like things are fairly well contained, and we're just watching it very carefully.

In terms of Macau, in general, I think the way we look at it is there's been so much investment in the region and all the new infrastructure that was just coming to fruition with the high-speed rail coming into Macau and the light rail launching, and it was really set up for a quite extraordinary 2020.

We were quite excited about it.

So I'm not -- I don't want to predict when operations will be back to normal.

They will be eventually.

We're not exactly sure when.

But Macau is set up for a really great rebound.

Tourism was one of the first things that rebound in events like this because people want to get out and move around and get back to normal.

So we do feel good about the long-term aspect of Macau as soon as the virus is completely contained.

Our next question comes from Joe Greff from JPMorgan.

I mean, there's a lot of uncertainty in Macau, and I appreciate your comments on it.

Can you spend a little bit of time, what you're seeing from that Far East player going into Las Vegas?

Can you share with us maybe your experience this past Chinese New Year?

I know the -- that segment has been challenged for a while, as you alluded to a couple of different times on this call.

We don't really comment mid-quarter on what really happened during the quarter.

But so far, so good.

We had our Far East come in.

We had a party.

We've taken appropriate precautions.

The Far East who are in town, they can't get back to China.

And so they are traveling from one location to another location.

And so if they were here first, they may have gone to another casino, and we expect them to come back as they continue to play.

But clearly, based upon the results, you can see from the fourth quarter, it's still a very choppy market.

And then can you also remind us, sticking to Las Vegas, your expectations for room pricing this year with the convention center and some of the other amenity buildouts in Las Vegas?

I guess, maybe some of which might be impacted by the room refresh this summer.

How are you looking at room pricing for the 2 boxes in Las Vegas?

And how much of a multiyear rent is that both on occupancy and on price when you think about it longer term?

And that's all for me.

Yes.

Joe, I mean, the room pricing and occupancy in Las Vegas is a street fight every day, right?

And so our convention business is very solid.

We feel great reception to our product.

We have leveraged our hotel rooms for the domestic casino growth that we are experiencing or that you're seeing.

The rooms that will be out of order from June through the beginning of November are going to depress of hotel revenue, but we will be sure to eliminate the low end leisure business that often comes to market in the third quarter.

And so it was really planned for that particular time.

In terms of what will we end up with occupancy or with rate, that's a story to be written.

And Joe, we're still focused, as we've been saying for about a year now, that when -- as a convention center stabilized, and we're seeing lots of interest in it, as people are touring, it is booking quite fast.

The 4 to 6 points of incremental occupancy is still the target as we get into late '20 and into '21.

I think we ended the year at roughly 87% occupancy, and we want to be in the low 90s, 6 months from now.

Our next question comes from Felicia Hendrix from Barclays.

So Ian, for you, I was just curious, did the West casino renovation opened up at the end of the year?

Yes, it opened up in mid-November, 44 tables and did exceptionally well, lifted premium mass was incremental business for Wynn Macau.

The marketing and operations team did a great job launching it.

And we were looking forward to a great Chinese New Year.

It had done very well up to that point.

And so we're encouraged.

And for the future, we still have elements of the facility to open in the first quarter.

So we have 2 restaurants coming on board, fixed retail outlets and support areas.

So it's an exciting development for Macau.

Plus, we have all our Encore room back after their renovation.

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

Maybe for Matt or Ian.

Just wanted to get your sense on -- I think obviously, the market was a little disrupted in Macau in December, given the President's visit, but I was kind of curious on maybe your bigger picture view on maybe some of the implications of that visit.

There were some, I think, some really positive reads about what that might have meant for kind of the near or medium term?

And then any kind of just initial reads on the new Chief Executive and how those -- kind of how some of those relations are going?

Sure.

So I'll kick it off.

And then, Ian, you can chime in.

But as I said before, we thought Macau was really set up for a great 2020.

We're very optimistic about the new Chief Executive and the direction that he's taking Macau.

We feel good about all the infrastructure that's coming in place.

Clearly, the visit in December by President, she was wildly lotted around, really all throughout China as Macau has done a great job with the 1 country and 2 systems.

So we feel really good about Macau's position going forward.

Ian, do you have any thoughts on that?

We -- 2 years ago, when the Greater Bay Area was being discussed at the governmental level, Macau was described as having a seat in one of the VIP carriages as the Greater Bay area move forward after President Xi's visit.

It's now positioned Macau in a leading role, which is wonderful for everybody in Macau business and community.

And secondly, on the new Chief Executive, he barely sat in his seat, and he has this huge virus maelstrom.

He's been quite amazing in his clear concise pragmatic communication with the community and also with business.

We've been in daily dialogue with government, and it's been quite remarkable, and the decision-making that he has done in his first few weeks.

Our next question comes from Thomas Allen from Morgan Stanley.

So a couple of questions on Macau.

How is business interruption insurance going to work?

And then also with covenants, I know you've been well under them.

And obviously, you have a ton of cash.

But will there be concessions given?

And then finally, the cost containment was really impressive.

Can you just talk a little bit more about how you're able to achieve that?

Sure, Thomas.

It's Craig.

I'll take the first 2, and then we can talk about the latter.

So generally speaking, business interruption insurance must relate to a physical event that caused the business interruption.

So a storm or some type of damage.

That obviously isn't the case here.

So we don't expect material business interruption coverage proceeds from the coronavirus event.

To your question on covenants, the vast majority of our debt stack is comprised of long-dated unsecured bonds with no maintenance covenants.

The 2 bank facilities do have maintenance covenants.

The U.S. facility has more than ample covenant headroom to sustain a very prolonged period of suppressed business volumes in Macau.

And the Macau facility does have a maintenance covenant that is sensitive to Macau EBITDA.

And as I suspect, several concessionaires do, we've already have a game plan in place to manage that to the extent that the shutdown is extended, but it would have to be quite extended.

And as you rightly pointed out, we have a ton of liquidity.

We have a couple of billion dollars of availability between cash and revolver in Macau, and that's more than sufficient to last for really any period of closure.

Ian, did you -- would you kind of comment on the OpEx controls?

Sure.

It's just a team efforts to collectively look at variable expenses, we were able to bring headcount down.

We have a hiring freeze in place.

And the teams did a good job and parsing expenses went up hurting the quality of service and the quality of product and facility.

Our next question comes from Harry Curtis from Instinet.

My question goes back to the comments that you made about the light rail system.

Was it -- was an operation long enough to get any sense of whether or not it would be effective transporting more visitors to your properties?

Harry, this is Ian.

And it had only been in operation for 3 weeks and still going through testing mode.

It's a great vehicle transfer situation for us with 2 stations right outside our property.

But it's too early to tell in terms of traffic movement, et cetera.

Next question comes from David Katz from Jefferies.

If I can just ask you to go back on one detail.

You did make -- some mention and show some evidence of good cost containment.

Can you talk a bit more about what levers and a bit more specificity around what you can do with costs?

Are you encouraging vacation or any of those sorts of things that may mitigate some cost impact?

And then secondly, I wanted to change the subject and talk a bit about Encore Boston.

And just sort of get your updated view about what a ramp to a payback period might be over time and how you're envisioning that?

Sure.

So this is Matt.

For -- on the cost containment side, in a normal operating environment, I think in all of our properties, we've been doing a very good job focusing on costs and being smart and efficient.

Right now, in Macau, the roughly $1.8 million to $1.9 million a day of payroll, we are not looking at cutting that at all.

Now is the time when you invest in your people.

You don't do something short-term that will hurt the culture or cause any distraction.

So we're investing in the community right now.

Because we know this will be temporary, and we think that it's the right long-term investment.

For Encore Boston Harbor, when we laid out the program when we opened to Analyst Day, we talked about a 2-year ramp period.

Admittedly, it has launched softer than we thought, in particular on the slot side.

And so we're doing a lot of work.

What we realized was we didn't have quite the right food and beverage program, in particular, around quick serve for the daytime slot customer.

It's actually the same thing that we went through at Wynn Palace.

And when we opened, we realized we needed more quick-serve restaurants in Wynn Palace.

We immediately closed 1/3 of the casino.

We built Red 8. We've built 5 new restaurants in the meantime.

And so we're going through that process in a very fast way at Encore Boston Harbor.

Because when we see a problem, we fix it.

So I think we're still in that 2-year ramp-up mode.

Thank you for your participation in today's conference.

You may disconnect at this time.