Wynn Resorts Ltd (WYNN) — Q1 2020 Earnings Call Transcript

Thank you, operator. And good afternoon, everyone. On the call with me today are Matt Maddox in Las Vegas and on the phone line Marilyn Spiegel, Ian Coughlan, Linda Chen, Ciaran Carruthers, Frederic Luvisutto, and Brian Gullbrants. I want to remind you that we may make forward-looking statements under Safe Harbor Federal Securities Laws and those statements may or may not come true. I will now turn the call over to Matt Maddox.

Thanks, Craig, and hello everyone. I hope that you are all safe and healthy; we are working from home right now. Instead of just jumping right into our first quarter results, I would like to spend some time talking about how we’ve handled this pandemic and our approach to it. Before we had to close our facilities in North America, based on our Macau experience, I reached out to one of the leading experts in pandemic research and global health security, the director of global health security from Georgetown University. I engaged that team months ago and spent daily conversations with them to understand the situation and how best we could protect our customers and employees while providing information to the medical communities and state and local governments. We actually led the industry both in Massachusetts and Nevada in closing our casinos. We suggested to the Massachusetts Gaming Commission in mid-March that it was time for us to close based on the data and the science and the potential community spread that we were observing. We closed our resorts in Las Vegas before the state declaration to close, being the first to lead that effort. We did this because it was the right thing to do. We understood the need to act early. During that time, we were asking our 30,000 team members—15,000 in North America and 15,000 in Macau—that a pandemic was upon us and that we were closing our resorts. We felt that investing in our culture was imperative, as it has taken years to build the best team in the industry. I decided to continue to pay all of our people during this closure until the end of May. We are an outlier in our industry for this commitment. This investment in culture during such times is a corporate responsibility; it’s also a great investment. I'm uncertain how long this will need to continue, but I know that when we do reopen, I want our team members to have smiles on their faces, even if they are under masks. It’s essential for them to feel like they are part of the family, as this translates to our customers' happiness. We followed a family-focused approach during these unprecedented times to ensure we do not disrupt our culture. This focus has guided our quick action on reopening plans. We published a detailed reopening strategy on April 19th, a 23-page plan that outlines safety measures department-by-department, area-by-area, and space-by-space. It’s become known as the Wynn plan and has drawn interest from various sectors looking to apply it to their businesses. We did this because we want to lead the conversation on a safe phased reopening, underpinned by data. We’ve collaborated with our medical community in Nevada to establish public benchmarks on disease growth, hospitalizations, and ICU capacities, which are necessary to consider reopening. In Nevada, our governor is planning to launch phased openings, with the first phase expected to begin soon. Massachusetts has also formed a task force to examine a phased reopening. I commend both Governor Sisolak and Governor Baker for their early actions and for their hard work. In Macau, we remain open despite a dramatic drop in business due to travel restrictions. However, there are encouraging signs with zero new COVID cases reported recently. Children and students are returning to school, and the government is effectively utilizing a health check system that facilitates movement across borders in a controlled manner. Before our Las Vegas closure, our revenue per available room (RevPAR) was up 8%, and we were on track for record EBITDA in Massachusetts. Although our daily burn during the closure ranged between $2.2 million and $2.6 million, we witnessed a gradual recovery to our gaming volumes, particularly in the VIP and premium segments. We remain optimistic about Macau's future as borders open cautiously and tourism resumes progressively. Our strategy continues to center on investing in our people, communities, and assets, including development projects like the Crystal Pavilion in Macau. We believe we will lead our industry as we navigate these times.

Thank you, Matt. This quarter, I’ll focus my remarks on the company’s liquidity position and our cash burn rate. At the onset of the pandemic both in Asia and the U.S., we took immediate action to bolster our global liquidity position, maximize our financial flexibility, and preserve cash. As of April 30th, our global cash and liquidity position was nearly $3.4 billion, giving us significant runway to weather the pandemic's impact. In Macau, where we drew down our revolving credit facility in February, we had approximately $1.8 billion of available liquidity. In the U.S., we had total available liquidity of approximately $1.6 billion. Our already strong domestic liquidity was bolstered by the issuance of $600 million of unsecured notes in April, which was upscaled from $350 million and was approximately eight times oversubscribed. We were the first company in our industry to issue unsecured notes since the pandemic began, highlighting the strength of our brand and business. We also obtained a covenant waiver for our U.S. credit facility to enhance our financial flexibility. We're well positioned to bridge the current period of uncertainty and thrive operationally during recovery. Upon the closure of casino operations in Macau, we had an expected daily operating expense burn rate of $2.5 million. As we reopened in late February, our normalized EBITDA burn improved to approximately $800,000 per day in March. With the reimplementation of public health measures and border closures, our burn rate in April was approximately $2 million per day, reflecting a limited business volume. For the U.S. operations, we are committed to paying all our team members their wages and benefits, leading to a daily OpEx burn rate of approximately $3.6 million including corporate expense. Thus, our worst-case all-in daily cash burn rate is approximately $7.8 million, allowing sufficient liquidity runway in a zero-revenue scenario until at least Q3 2021. We will continue to assess our cash usage and liquidity as conditions evolve, and will make adjustments as necessary based on the reopening date. We have postponed the Wynn Las Vegas room remodel, set to start in June, conserving approximately $170 million. We will also be judicious with our capital spending, only proceeding with our top priority projects. Our pre-construction planning for the Crystal Pavilion at Wynn Palace is ongoing with our in-house development team. To further solidify our financial position, we've decided to temporarily suspend our quarterly dividends, preserving over $100 million in liquidity each quarter. We are looking forward to resuming dividends when business conditions allow.

Hey, Matt and Craig. Thanks for the comments. For Matt, could you talk a bit about the timing in Macau until some of those quarantine restrictions ease? Was it frustrating to see the summer months potentially pass without more progress?

Based on our limited experience, there is clearly pent-up demand for the VIP and premium segments, which we saw come back faster from February to March. Activity in Beijing and Shanghai indicates a return to production is underway. We foresee demand for Macau without a doubt, especially as we target the higher-end clientele that requires fewer guests but generates more revenue, unlike the mass market.

As Matt mentioned, we reopened in February and March with gaming volumes returning to around 25% to 30% of Q4 2019 levels, which significantly lowered our cash burn rate. That performance puts us in a good position to break even.

And Craig, at 45%, that breakeven assumption is based on the same split generated in Q2, correct?

Yes.

Great. Just as a follow-up, how much do you consider the long-term industry outlook in terms of concession renewal processes and capital spend?

We are committed to our investment plans, which are focused on our people, communities, and our assets. We aim to remain a strategic part of the larger Greater Bay Area development plans.

Thank you very much, guys.

Good afternoon, everyone. Matt, thank you for your prepared comments. Can you provide an update on the health of the top junkets in Macau and how you believe that impacts the VIP segment recovery?

We are in close contact with large junket operators, and it seems they are maintaining adequate liquidity. Everyone is waiting to see how the situation develops. Would you like to add anything, Ian?

The local junkets, similar to us, are eager for the borders to open as they anticipate business will pick up quickly due to pent-up demand. The recent May holiday has built encouragement, with numerous luxury experiences in demand.

Indeed, the traffic during the May holiday reflects demand for our offerings, which bodes well for the business when the borders reopen.

What is your approach in Las Vegas regarding opening strategies? Will you consider opening both assets?

We are finalizing our opening plans in Las Vegas. It is possible we will open both sites, albeit with occupancy restrictions and a focus on leisure demand. Large mass gathering spaces will not be opening initially. We aim for both safety and enjoyment for guests upon return.

We are noticing demand from leisure and value-oriented customers eager to return to our resorts. While the return of group business will take time, we look forward to offering a safe integrated resort experience.

Regarding occupancy, it will depend on public health considerations and demand forecasts. Based on our expectations, we would anticipate breaking even at 50% to 60% occupancy, depending on which areas of the resort we open.

Thanks for the comments. Craig, can you elaborate on the levers available for additional liquidity if needed, both in Macau and the U.S.?

We demonstrated our market access last month with our $600 million unsecured note issuance. Given our cash position, I don’t see a need for further liquidity right now, but we remain capable to tap into capital markets if necessary.

In Macau, additional capital can be accessed at the concessionaire level, while U.S. strategic flexibility is now enhanced by our recent covenant waiver.

Could you analyze your capital spending priorities for this year and next?

We have put several capital projects on hold, focusing only on projects currently underway, such as Delilah, which will be completed. Any large projects, including room renovations, are postponed until cash flow stabilizes.

Thank you. I appreciate your commitment to keeping employees on payroll during these times. It’s a significant statement to the local communities. Matt, in terms of your conversations with airline partners, how do you foresee collaboration as we recover?

I’ve spoken to several airlines about their capacity into Las Vegas. There will be reductions in lift capacity during May and June. Airlines are finalizing their plans and transparency in this process is essential, particularly concerning temperature checks.

Could you discuss your pricing strategy within Vegas, considering the need to maintain price integrity amidst potential new supply?

I believe that in the initial phase of reopening, there will be limited resort openings, and we will capture the leisure market. Adjusting prices will depend on demand but since group business won’t return immediately, we anticipate maintaining pricing power.

Matt, after your recent meeting at the White House, what insights can you share concerning the government's expectations for recovery pace?

The government is highly focused on a safe reopening of the economy. There’s an emphasis on advancing testing capacities and ensuring thorough communication with the medical community to facilitate this.

Do you foresee more industry consolidation as a result of the current environment?

While I think there may be opportunities for acquisition in the industry, our current focus remains on enhancing our existing assets and taking market share.

Could you discuss the timing of the reopening in Macau, considering there haven’t been new COVID cases?

Macau has managed the situation effectively, with clear protocols and collaboration between operators and the government. Daily updates indicate progress, and new phases are being introduced gradually.

The authorities have been thorough with their approach to safety and reopening. They are slowly coordinating efforts with Guangdong to ease border restrictions as soon as it is safe.

Will testing be a requirement for crossing the border?

There are no definitive answers yet regarding testing as a prerequisite for border crossings.

Will you be testing employees in Macau?

In Macau, there are government-led testing measures in place, and we have been informed that testing for teachers is being conducted.

What factors would make an asset more appealing during this time? And how are you reevaluating your capital structure attributes?

Our focus is on optimizing our existing assets and capturing market share as we recover, so we do not have immediate plans for M&A.

Liquidity remains critical; maintaining it is our top priority. We don’t have fixed leverage targets at this stage but reestablishing cash flow will be our next focus.

We'll take our last question, operator.

Can you share views on the potential for a choppy recovery and any contingencies beyond financial strategies?

We continuously monitor data to help guide our phased reopening efforts, ready to adapt based on health indicators. We are prioritizing safety as we prepare for future conditions.

Thank you for all the detail.

Thank you everyone for joining today. We hope everyone stays safe and healthy, and we'll talk to you next quarter.

Thanks everyone.