Wynn Resorts Ltd (WYNN) — Q4 2022 Earnings Call Transcript

Thank you, operator, and good afternoon, everyone. On the call with me today are Craig Billings, Brian Gullbrants, and Steve Whiteman in Las Vegas. Also on the line are Ian Coughlan, Linda Chen, Frederic Luvisutto, and Jenny Holaday. 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 Craig Billings.

Thanks, Julie. Good afternoon, everyone, and thanks for joining us. As we prepared for this call, I looked at an old analyst note that was published after our Q4 2019 earnings. The expectation for 2022 EBITDA at Wynn Las Vegas in that note was $482 million. Here we are three years into the global pandemic later, and Wynn Las Vegas just recorded $816 million of normalized adjusted property EBITDA, $816 million. I'm confident that this is an all-time record for a stand-alone Las Vegas Strip property. And mind you, we did not achieve this result by cutting service standards or reducing staff to drive operating leverage. The team accomplished it by focusing on what we do best: great products, great service, and great programming, which showed in our market share and pricing power. The Wynn Las Vegas team absolutely excelled in 2022. Our business in Vegas is stronger and more relevant than it has ever been. I'll discuss the fourth quarter in Vegas and our outlook in a moment. Regarding several other significant events, I'd like to touch on our concession renewal and the reopening of Macau. I was in Macau for nearly three weeks in December. After going through the then-required quarantine, I was fortunate to attend the signing ceremony for our new concession. I'm proud of the plan we presented as part of the concession renewal and believe that the CapEx and programming we proposed will be beneficial to our business there in the coming years. I would like to thank the government of Macau for their faith in us and our Wynn Macau team for their dedication over the past three difficult years. Fortunately, recent actions by both Macau and Mainland authorities to reopen the market give us great confidence that the difficulties are behind us and the near-term future there is much brighter. Over the past several weeks, we've welcomed back an increasing number of guests as the region has reopened to travel and tourism in a meaningful way. With our premium product and service levels, we are well-positioned to lead the post-COVID recovery in Macau, and our strengths were evident during the recent Chinese New Year holiday period. In the casino, mass table drop reached 95% of 2019 Chinese New Year levels, with strong play across the spectrum, from premium mass to core mass. In direct VIP, turnover was 40% above pre-COVID Chinese New Year levels. And importantly, we estimate that our hold-normalized GGR market share during the month of January was consistent with 2019 levels, despite all the changes in the junket environment that contradict the expectations of those who continue to incorrectly believe that we are solely a VIP-focused organization. On the non-gaming side, hotel occupancy was 96%, and our tenant retail sales increased 34% compared to Chinese New Year 2019. Overall, during the Chinese New Year period, we delivered our strongest EBITDA performance since the onset of the pandemic, approximately $4 million of normalized EBITDA per day. Turning back to Las Vegas, the team at Wynn Las Vegas achieved a fourth quarter record with $219 million of EBITDA. We saw broad-based strength across casino, hotel, food and beverage, entertainment, and retail, all significantly above Q4 2021 levels, despite the difficult year-over-year comparisons. Our investment in people, facilities, and programming, along with our team's deep sense of personal ownership of our business, continues to drive growth. We continue to monitor economic trends and forward bookings at Wynn Las Vegas. We're encouraged that the strength we've experienced over the past several quarters has continued into Q1. Similarly, our forward-looking indicators also remain quite strong, despite well-known macro concerns. Room bookings are pacing at or above pre-COVID-19 levels on substantially higher ADRs. Turning to Boston, like Vegas, Encore had a strong quarter, generating $63 million of EBITDAR. We saw strength across the casino with record gross gaming revenue and on the non-gaming side with strong hotel revenue driven by both ADR and occupancy. This strength has continued into the first quarter with EBITDA per day in January largely consistent with trends we have experienced over the past few quarters. We were also pleased to launch retail sports betting at Encore Boston Harbor last week, averaging a little over half a million a day in handle over the first six days, which is about 80% of the average daily handle at Wynn Las Vegas. During those six days, we also signed up about 30% more Wynn Rewards members than normal. We continue to expect the sportsbook to be a significant driver for new customer acquisition over time. We also continue to advance our plans for our upcoming development project across the street from the property that will include incremental parking, food and beverage, and entertainment amenities. At Wynn Interactive, our overall EBITDA burn rate in the quarter ticked up sequentially to $28 million due to a well-publicized World Series bet that went against us. Adjusted for that single bet, burn was roughly flat. Our team continues to be disciplined on cost while driving improved marketing efficiency. We're looking forward to the potential for a significant catalyst for WynnBET in Massachusetts with the combination of our recently launched retail sportsbook and the expected upcoming launch of online sports betting. Lastly, we are quickly advancing our planning for Wynn Al Marjan Island, our integrated resort in the UAE. We're in the late stages of programming for the resort, and I expect we will be driving piles for the foundation of the property by the middle of the year. I also expect we will share renderings, programming, and plans publicly over the next few months. The more time we spend in that market, the more confident we are in the project.

Thank you, Craig. At Las Vegas, we generated a fourth quarter record of $219.3 million in adjusted property EBITDA on $585.5 million of operating revenue during the quarter. Lower-than-normal hold negatively impacted EBITDA by around $10.5 million in Q4. Our hotel occupancy was 89.9% in the quarter, up 350 basis points year-over-year and up 50 basis points versus Q4 2019. Importantly, we've stayed true to our luxury brand and continued to compete on the quality of product and service experience, with our overall ADR reaching a record $492 during Q4 2022, up 11.8% versus Q4 2021 and 53% above Q4 2019 levels. Our other non-gaming businesses saw broad-based strength across food and beverage, entertainment, and retail, which were up nicely year-over-year and also well above pre-pandemic levels. In the casino, our Q4 2022 slot handle increased 20.9% year-over-year and was 69% above Q4 2019 levels. Similarly, our table drop was up 1.1% year-over-year and was 43% above Q4 2019 levels, despite still suppressed international play during the quarter due to COVID-related travel challenges. The team in Vegas has done a great job of controlling costs without negatively impacting the guest experience, delivering adjusted property EBITDA margin of 37.4% in the quarter. On a hold-normalized basis, our EBITDA margin was up approximately 1,300 basis points compared to Q4 2019. Operating expenses, excluding gaming tax per day, was $3.8 million in Q4 2022, up 25% compared to Q4 2019 levels but well below the 59% increase in operating revenue. In Boston, before getting into the details, I'd like to point out that following the closing of the sale-leaseback transaction on December 1, we're now reporting adjusted property EBITDAR for this business. In Q4 2022, we generated adjusted property EBITDA of $63.3 million with an EBITDA margin of 29%. We saw broad-based strength across casino and non-gaming during the quarter. In the casino, we generated $190 million of GGR, a property record with strength in both tables and slots. Our non-gaming revenue grew 13% year-over-year to a record $56.8 million, with particular strength in the hotels, driven by 93.9% occupancy and a $404 ADR. We've stayed very disciplined on the cost side with operating expenses, excluding gaming tax per day of approximately $1.17 million in Q4 2022. This was a decrease of over 8% compared to $1.3 million per day in Q4 2019 and up modestly relative to Q3 2022. As we've discussed on prior calls, the year-over-year EBITDA and operating expense comparisons were impacted by a combination of contractual labor agreements, which added around $45,000 per day to our operating expense base beginning late in Q2 2022, along with a nonrecurring benefit of $2 million in Q4 last year. We're well-positioned to drive strong operating leverage as we continue to grow the top line over time. Our Macau operations delivered an EBITDA loss of $59.1 million in the quarter on $190.3 million of operating revenues. Lower-than-normal hold negatively impacted EBITDA by around $25 million in Q4. While the COVID situation in the region was challenging during Q4, as Craig noted, we were encouraged by the meaningful uptick in visitation and demand we experienced during the recent Chinese holiday period. Our operating expenses, excluding gaming tax, were approximately $2 million per day in Q4, a decrease compared to $2.4 million in Q4 2021. The team has done a great job remaining disciplined on costs in a difficult operating environment. Longer term, we are well-positioned to drive strong operating leverage as the business recovers over time. Regarding the new concession, we approached the tender process very prudently, carefully balancing our commitments to the government with our responsibilities to our shareholders and, of course, our liquidity position. We're currently advancing through the design and planning stages, but these projects require a number of government approvals, creating a wide range of potential CapEx in the very near term. As such, for 2023, we expect CapEx related to our concession commitments to range between $50 million to $220 million. Our future non-gaming investments include a new center set to be home to a unique spectacle show, innovative food halls, and an events and entertainment center. As Craig noted, we believe these investments play into our strength, as we have a demonstrated track record of introducing innovative non-gaming investments that drive increased tourism and ultimately, strong shareholder returns. Turning to Wynn Interactive, our EBITDA burn rate increased sequentially to $28.3 million in Q4 2022. However, adjusting for the well-publicized World Series bet that Craig mentioned, it was roughly flat with our Q3 2022 burn rate of $17.7 million. The team continues to control costs while driving improved marketing efficiencies. Moving on to the balance sheet, our liquidity position remains very strong with global cash and revolver availability of approximately $4.5 billion as of December 31. This consists of $952 million of total cash and available liquidity in Macau and $3.5 billion in the U.S. These numbers exclude the undrawn $500 million intercompany revolving credit facility Wynn Resorts entered into with Wynn Macau. We were pleased to close the sale-leaseback transaction for the real estate of Encore Boston Harbor on December 1 with gross proceeds of $1.7 billion, which further strengthens our already strong liquidity position. Importantly, the combination of very strong performance in Las Vegas and Boston, with the properties generating $1.04 billion of adjusted property EBITDA during 2022, along with our robust liquidity, creates a very healthy leverage profile in the U.S. With our properties performing well in each of our markets and our robust liquidity, I would like to note our intention to repay our upcoming May 2023 Wynn Las Vegas bond maturity with cash from the balance sheet, thereby reducing our domestic gross leverage by $500 million. Finally, our CapEx in the quarter was $27 million, primarily related to normal course maintenance. With that, we'll now open up the call to Q&A.

Craig, Julie, whoever wants to take this one. Craig, I know you spoke a little bit about what you saw in Macau during Chinese New Year. To the extent you're willing to comment on what you've seen in the aftermath and in the weeks following the holiday, that would be great.

Sure. Thanks, Carlo. It's been pretty good, actually. Frederic, do you want to provide a little more color on that?

Sure, Craig. Thank you, Carlo. We have typically seen a slowdown post-Chinese New Year in the past, but we have been very encouraged to see the business remaining very strong with mass gaming, direct VIP, and retail sales better than similar periods in the past. So, we have seen resilience in the business post-Chinese New Year; I'm very encouraged by that.

Great. Thank you. That's helpful. And then, Craig, you talked a little bit about what you saw on the VIP side. I believe you said direct VIP was 40% above or so that was the 2019 Chinese New Year levels. Can you comment at all on the experience with whatever junket VIP exists in the market today?

Yes. There was some junket activity over the course of Chinese New Year. Obviously, the situation has changed a lot from the pre-COVID period. I think it's actually a little too early to assess what role the gaming promoters and the junkets will play in the market, but there certainly was some activity.

Sort of following up on Carlo's question about what you saw in Chinese New Year. Since then, can you talk about the migration of the junket VIP business into the direct and premium mass component of your mass business? What percentage do you think is migrating versus maybe not coming back yet?

I think it's too early to be talking about percentages given the market really just fully reopened on January 8th, so it's only been a month now. We are certainly seeing former junket customers migrate into both premium mass and direct. Remember, direct is tricky because there, you're talking about credit extension. So, you have to be quite prudent in managing the direct business. However, it's just early to draw conclusions. What I would say is that volumes came back; they returned strong. The narrative that we're VIP-focused, I think, proves to be quite inaccurate. We competed very strongly during the Chinese New Year period, and we're incredibly proud of our results.

When you look back in 2019, we always thought that the direct VIP component was something around 10% to 20% of the total VIP turnovers. Is that fair?

You are.

Okay. That’s all for me. Thank you.

I was hoping to get a little more color on the cost and margin picture as things start to rebound in Macau. Julie, I think in the prepared remarks you mentioned you were down around $2 million a day in the fourth quarter in Macau, if I called it correctly, down from $2.4 million back in 2019. As you're sort of re-ramping, I think we all really underappreciated the amount of operating leverage that was going to happen in certain markets in the United States. Just any thoughts on expenses and margins as the recovery begins here?

Yes, you're correct, Shaun. We did talk about our operating expenses per day in Q4 being $2 million, which was down from $2.4 million the year prior. We worked hard last year to preserve cash and manage operating expenses down while we were closed. This isn’t necessarily representative of how things will be moving forward. As you know, we're fully open now and staffing full-time in different food and beverage outlets and so on. How that plays out in terms of margin will largely depend on the mix of business that comes back in that market. It's much the same answer we provide when asked about margin in Vegas. It's very mix-dependent. We don't manage our business on margin; that's really an outcome of our operations. We manage to our brand, and we systematize our staffing accordingly while being very focused on service delivery centers.

To add that, it's primarily a mass mix now. That's inherently higher margin. A portion of the cost savings that we implemented during the COVID period, which, thankfully, is behind us, will be maintained. So, the margin profile should remain healthy. We're only two weeks into the reopening, so it's still early to forecast specific margins.

Great. Understood. Another thing that came up in the prepared remarks was the CapEx outlook in Macau, and I think you provided a wide range. Can you discuss what might dictate the high versus the low? What projects may get underway or things impacting the outcome of that range?

Certainly. Taking a step back, when we proposed our concession, we committed to $2.2 billion over 10 years. This includes a mix of CapEx and OpEx. We're very focused on getting the CapEx completed quickly so we can begin to drive strong returns. The determining factor is the local approvals we need to break ground and begin construction. Therefore, we provided a wide range because from our perspective, we're moving towards the design and planning stages, but we are dependent on government approvals for construction. The range we provided was $50 million to $220 million.

Hi. This is Cassandra on behalf of David. You mentioned that digital was nearly breakeven in the fourth quarter, excluding the resorts. Can you discuss the upcoming launches and whether we should expect the business to become profitable this year?

Certainly. The most significant upcoming launch is in Massachusetts, where we have Encore Boston Harbor, and I expect to achieve a reasonable market share due to the presence of that property, compared to our competitors in other markets. We are driving the business as aggressively as we can while also being prudent. I anticipate a point of inflection in late 2023, depending on our user acquisition efforts in Massachusetts, but we have the burn rate well under control right now. Again, as previously discussed, our long-term strategy is focused on Massachusetts and positioning ourselves for iGaming, which would make the business accretive to our land-based resorts.

Great. If I may follow up. Can you talk about your upcoming maturity? Any thoughts about tapping into the capital market now since we've seen some activity in the last few weeks?

I think Julie just mentioned in the prepared remarks that we're going to pay down our upcoming maturity with cash on the balance sheet.

Circling back to how things are trending post-Chinese New Year, obviously, we saw strong numbers during the holiday. There has been chatter about a drop-off in the market overall being more than seasonal. Can you provide your perspective on this? Is it reasonable to think that there may be increased volatility around these shoulder periods?

Hi Robin. I’m not sure who you’ve been speaking to, but Frederic just mentioned that we've been performing above what we would normally see during that drop-off period.

But when you say performing above, I didn’t know if that was a combination of expenses being down, and thus, overall EBITDA, but I’m just wondering on the...

No, he was referring to business volumes.

So, would you then assume that this indicates growth in market share? In other words, how would you frame the overall market volatility? It sounds like you're gaining share during this period.

It's a week, right? In the grand scheme of things, it's a week. It’s hard to interpret meaningful trends from just a week. What I would say is that the market rebounded, Macau was vibrant on the mass side, direct VIP side, retail side, and occupancy during Chinese New Year and outperformed our expectations for the lull period that followed. Beyond that point, it’s too early to draw conclusions.

I wanted to circle back on the $4 million EBITDA per day that you mentioned. Is there a way you could put that in historical context? What was it in 2019 or during other Golden Week or Chinese New Year periods?

Yes, it would have been substantial relative to prior periods. It's not where we peak; I'll put it that way, since the junket contribution wasn't present this year. That was approximately $700 million to $1 million of EBITDA in a typical Chinese New Year. I think the point is, it's a substantial number given that the market really opened at the beginning of January, and it gives us confidence for the remainder of 2023 and beyond. Too early to say regarding the resurgence of high-end Asian business in our Las Vegas property. Our performance in Q4 was strong based on domestic business. Many individuals from that region chose to avoid international travel due to COVID. Additionally, visa requirements and travel arrangements are necessary. Nonetheless, international travel is a tailwind we anticipate seeing in Vegas in 2023; given that, in 2022, there was only real inbound visitation from Europe and Latin America.

Operator, the next question will be the last one.

I may have missed this. But regarding Las Vegas, can you provide any additional color on what you're seeing in terms of forward bookings for the first quarter and beyond, particularly relevant to convention mix?

Sure. I'll start, and then I'll ask Brian to provide further insight. Primarily, we have been very intentional over the past year in how we've approached our business in Las Vegas. Our business here is increasingly relevant to the best customers, and despite the tailwinds, we've outperformed expectations. We have a 2023 plan for various economic scenarios. Brian, do you want to elaborate on your view for 2023, particularly convention?

Absolutely. As we progress into '23, not only were we pacing strongly coming out of '22, but the momentum has accelerated further. I am very excited about what we have in store for '23. We have the best teams and assets in the business, particularly in Las Vegas. We're seeing a strong pace for groups as we look ahead into '23, and even beyond. Q1 may be record-setting for us, which is remarkable. We have strong pricing power in every channel. We've just launched a new show with Awakening, and we're anticipating several exciting projects in '23. Additionally, we’re gearing up for the F1 event in November. So, our outlook for the year appears solid, provided there are no other macroeconomic issues.

We’re performing well in areas we can influence. We cannot control the macroeconomic aspects. How those play out remains uncertain. However, we are confident about our business in Las Vegas.

If I can sneak in a quick follow-up on Macau. As you think about growing the direct VIP business, is one approach focusing on customers who may have previously been part of the junket or those in the mass market segment? How much could that business expand?

Every customer is unique, making it difficult to generalize in broad strokes; I likely wouldn't share that in a public call. Each customer represents an opportunity. The ecosystem now consists of junkets, different promoters, and our offerings. It enables us to target a subset of those junket customers. Some of them will take time to figure out, but a portion will transition to our direct business. We observed that trend over Chinese New Year; some will transition to premium mass. However, there isn't a broad plan applicable to everyone.

With that, we will close the call. Thank you all for your time and your support of Wynn Resorts. We look forward to updating you soon.

Thanks, everybody.