Wynn Resorts Ltd (WYNN) — Q1 2023 Earnings Call Transcript

Thank you, operator, and good afternoon, everyone. On the call with me today are Craig Billings and Brian Gullbrants in Las Vegas. Also on the line are 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 today. Before we get into the specifics of the quarter, I'm pleased to say that after three years of suspension, today, we announced that we are resuming payment of a quarterly dividend, initially $0.25 per share. We have a number of growth projects in flight that require capital and will ultimately add meaningful EBITDA to our business. But with Macau returning to profitability and North America continuing to perform well above historical levels, we have sufficient financial flexibility to also return capital to shareholders. I also want to express appreciation to our more than 27,000 team members, who were once again recently recognized by Forbes Travel Guide with 24 Five Star Awards, the most of any independent hotel company in the world. Thank you for all that you do. Turning to Las Vegas. It's a fascinating time in our business. Despite the confluence of high inflation, high interest rates, bank failures, and increasingly difficult year-over-year comps, Wynn Las Vegas delivered an all-time record in Q1 with $232 million of adjusted property EBITDA, supported by a consumer that continues to feel optimistic. We also subsequently delivered the best April in the history of the property. We continue to invest heavily in people, programming, and the building to further distance ourselves as the clear leader in luxury in Vegas. Looking ahead, we currently have a strong pipeline of forward group demand, continued room pricing power, a healthy drop in handle, and a robust programming calendar, particularly in the back half of the year. However, I continue to watch the macro factors that I mentioned earlier, and I'll note that beginning in Q2 2023, we will start to compare against some very strong prior year quarters. Lastly, just as I have done in the past several quarters, I'll continue to tell you exactly what we're seeing. Right now, things feel good around here. Turning to Boston, like Vegas, Encore had a strong quarter, generating $63 million of EBITDAR. We saw strength across the casino in terms of table drop, slot handle, and overall GGR. On the non-gaming side, we delivered strong hotel revenue driven by both ADR and occupancy. The strength has continued into Q2 with EBITDA per day in April largely consistent with trends we have experienced in recent quarters. We also launched retail sports betting at Encore Boston Harbor in Q1, which helped drive a 20% increase in sign-ups to our Wynn Rewards loyalty program year-to-date. I expect that sports betting will continue to be a significant driver for new customer acquisition over time. On the development front in Boston, we finalized the interiors and began to buy out structural materials for our upcoming projects across the street from the property that will add incremental parking, food and beverage, and entertainment amenities. Turning to Macau, we generated $156 million of EBITDA in the quarter, with lower-than-normal VIP hold negatively impacting EBITDA by about $10 million. In the casino, mass table drop reached 82% of Q1 2019 levels, and our VIP hold normalized market share was over 14% during the quarter despite unusually low hold in our mass business at Wynn Macau and significant portions of Wynn Macau's East casino being closed for renovation during the quarter. Encouragingly, that market share was consistent with full-year 2019 levels. On the non-gaming side, our retail business was incredibly strong, with tenant retail sales increasing 60% compared to the first quarter of 2019, once again highlighting the strength of our premium consumer. Looking forward, as you've seen, market-wide GGR momentum in Macau has been very impressive, building through Q1 and accelerating into April. Who would have thought six months ago that the market would be run rating north of $22 billion in annual GGR? In April, our mass drop per day increased versus Q1, our direct VIP turnover per day increased significantly versus Q1, and occupancy and retail sales were very healthy. More recently, the May Golden Week holiday period was particularly strong, outperforming Golden Week 2019 in several key areas. In the casino, our overall mass table drop during the holiday period was nearly 10% above 2019 Golden Week levels, and our direct VIP turnover was more than double 2019 levels. Outside of gaming, our tenant retail sales increased 36% compared to Golden Week 2019, and our hotel occupancy was 95%. Performance during and after the quarter was skewed towards Wynn Palace, driven both by the mix of customers returning to Macau in the initial reopening wave and the renovation-related closures at Wynn Macau. We are making a number of changes and improvements to Wynn Macau that I expect will drive longer-term market share gain. In the meantime, I expect that Wynn Palace will continue to pace ahead of Wynn Macau in the recovery. On the development front in Macau, we are deep into design and planning for our concession-related CapEx commitments, which we believe will help support Macau's long-term diversification goals and be additive to our business over the coming years. We look forward to telling you more in due course. Lastly, I hope you reviewed the information we provided a couple of weeks ago on Wynn Al Marjan Island, our planned integrated resort in the UAE. If you haven't listened to the presentation or read through the slide deck, you can find both on our IR website. I'm incredibly proud of the program and design elements we have put together thus far. As noted in the presentation, we expect the resort to generate between $450 million and $600 million of steady-state EBITDA. Our 40% equity ownership in the project, along with management and license fees, will drive a very healthy ROI for Wynn Resorts shareholders. With that, I'll now turn it back to Julie to run through some additional details on the quarter.

Thank you, Craig. At Wynn Las Vegas, we generated an all-time record of $231.6 million in adjusted property EBITDA on $586.8 million of operating revenue during the quarter. Higher-than-normal hold positively impacted EBITDA by around $4 million in Q1. Our hotel occupancy was 88.8% in the quarter, up 1,190 basis points year-over-year and up 620 basis points versus Q1 2019. Importantly, we've stayed true to our luxury brand and continue to compete on quality of product and service experience, with our overall ADR reaching a record $493 during Q1 2023, up 14.1% versus Q1 2022 and 46% above Q1 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 Q1 2023 slot handle increased 33.5% year-over-year and was at 99% of our Q1 2019 level. Similarly, our table drop was up 9.6% year-over-year, achieving 49% of our Q1 2019 levels. The team in Vegas has done a great job of controlling costs without negatively impacting the guest experience, delivering an adjusted property EBITDA margin of 39.5% in the quarter. On a hold-normalized basis, our EBITDA margin was up approximately 300 basis points year-over-year, at approximately 1,400 basis points compared to Q1 2019. OpEx excluding gaming tax per day was $3.7 million in Q1 2023, which was flat sequentially and up 20% compared to Q1 2019 levels, but well below the 46% increase in operating revenues. Turning to Boston, we generated adjusted property EBITDA of $63.4 million with an EBITDA margin of 29.3%. We saw broad-based strength across casino and non-gaming during the quarter. In the casino, we generated $191 million of GGR, a property record with strength in both tables and slots. Our non-gaming revenue grew 21% year-over-year to $50.9 million, with particular strength in hotel and food and beverage. We've stayed very disciplined on the cost side, with OpEx excluding gaming tax per day of approximately $1.17 million in Q1 2023. This is up relative to Q1 2022 on increased business volumes and flat sequentially. As discussed on prior calls, the year-over-year EBITDA and OpEx comparisons were impacted by contractual labor agreements, which added around $45,000 per day to our OpEx base beginning late in Q2 2022. We're well positioned to drive strong operating leverage as we continue to grow the top line over time. Our Macau operations delivered adjusted property EBITDA of $155.8 million in the quarter on $600.1 million of operating revenues. Lower-than-normal VIP hold negatively impacted EBITDA by around $10 million in Q1. As Craig noted, we were encouraged by the meaningful uptick in visitation and demand we experienced during the quarter, particularly in mass casino and luxury retail sales. Our OpEx excluding gaming tax was approximately $2.3 million per day in Q1, a decrease compared to $3.2 million in Q1 2019 and up modestly from Q4, despite a meaningful sequential increase in business volumes. The team has done a great job remaining disciplined on costs, and we're well positioned to drive strong operating leverage as the business recovers over time. In terms of CapEx, we're currently advancing through the design and planning stages of our concession commitments. As noted last quarter, these projects require a number of government approvals, creating a wide range of potential CapEx in the very near term. For 2023, we continue to expect CapEx related to our concession commitments to range between $50 million to $220 million. Turning to Wynn Interactive, our EBITDA burn rate decreased both sequentially and year-over-year to $21.1 million in Q1 2023. Our team continues to stay disciplined on 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 $4.7 billion as of March 31. This was comprised of $1.6 billion of total cash and available liquidity in Macau and $3.1 billion in the US. Importantly, the combination of very strong performance in Las Vegas and Boston, with the properties generating over $1.1 billion of adjusted property EBITDA in the 12 months through March 31, together with our robust liquidity, creates a very healthy leverage profile in the US. As Craig noted, with our properties performing well in each of our markets and our robust liquidity, we're pleased to announce that the Board approved the resumption of our quarterly dividend, with a cash dividend of $0.25 per share payable on June 6, 2023, to stockholders of record as of May 23, 2023, highlighting our commitment to prudently returning capital to shareholders. Finally, our CapEx in the quarter was $124 million, primarily related to spa and villa renovations, and food and beverage enhancements at Wynn Las Vegas, and normal course maintenance across the business. With that, we will now open up the call to Q&A.

Hey, everyone. Thanks for taking my question. Craig, as you talked about the work you guys are doing on the peninsula at that asset, how much of the trailing effects of that asset relative to Cotai are related to the work versus how much of the overall recovery that you've experienced or the market has experienced in Cotai? How much does the peninsula lag that? And what do you think it takes to narrow that gap in the resumption of attempting to attain 2019 levels in both geographies?

Sure, no problem. Carlo, thanks for the question. First, it's important to note, we don't normalize for mass hold. So when we talk about normalized numbers, they don't include any unusually low hold in that. And we did hold low in mass at Wynn Macau in the quarter. But certainly, and I called it out for a reason, Wynn Palace is leading the charge among our two properties as the market comes back. Several factors are at play. I think everybody who follows Macau closely knows that GGR and visitation were somewhat disconnected in the initial wave in that you had many dedicated players come back. Most of those players are rated players. And they weren't coming with tour groups; they were coming as individual visitors and they disproportionately ended up at Wynn Palace on Cotai, while Macau historically has been more exposed to our group business and general unrated business. So, I'm not surprised that Wynn Palace led Wynn Macau. The second point is that there are a number of changes that we're making to Wynn Macau. The property needs to be refreshed, and we're making those changes now. We did start those in Q1, including some significant refreshment of the East casino, which disrupted significant numbers of pits concurrently. They were effectively closed during the quarter. I think as the market continues to recover, as more unrated play comes back, and as more tour groups return to the market, then we'll get the natural benefit downtown. Of course, we're trying to make the property as appealing as possible to gain market share. In the interim, I expect Palace to lead Wynn Macau.

Thank you. That's helpful. And as a follow-up, obviously, there's plenty of development activity. There's spend on Cotai, and your contributions down the road for the UAE development. What was the primary thought process and driving factors behind the decision to reinstitute the dividend?

Well, thanks, Carlo. Yes, the dividend is the cornerstone of our capital return strategy. The US business is generating plenty of cash flow, and Macau is coming back quickly, so now we are balancing these high-ROI development projects in Boston and the UAE. We're preserving some capital related to New York City, to the extent that it advances. On the other side, we desire to re-implement that dividend and return capital. We felt that this initial dividend was a great place to start. From there, stay tuned. We'll see how we grow it over time.

Great. Thank you, Craig.

Good afternoon, everybody. Craig, it looks like EBITDA margins on net revenues in Macau in March were about 30%. I just want to make sure my math is right on that. When I look at overall OpEx growth versus net or gross revenue growth, it looks like OpEx growth is approximately half of revenue growth. Do you think that can continue, or do you think OpEx growth is lagging because of labor constraints and maybe other nuanced aspects in the Macau marketplace?

Well, thanks, Joe. The market is structurally different than it was in 2019 and before for a few reasons. I think the change in the junket environment and the shift to mass is well understood. Regarding OpEx, the concessionaires were encouraged to maintain labor throughout the shutdown. There are components of the labor pool where we were able to trim, particularly with respect to some foreign labor. I've heard comments from some of our competitors that they were bringing labor back, particularly in housekeeping. I think that's generally true for us. We have been operating at full capacity since the day the market reopened. We may be light in a couple of labor categories, but not in high-dollar labor categories. I don't think we are in a situation where our fixed costs will meaningfully accelerate as the market accelerates. I expect some healthy operating leverage coming out of the business over the next couple of years. If you look at where Palace printed this quarter, you can see that there was distinct margin improvement, and our service levels certainly haven't degraded versus 2019. So, I'm pretty bullish.

Great. I was hoping you could provide a bit more detail regarding your comments about April in Macau, particularly in terms of an EBITDA run rate. I don't know if you want to look at it as a percentage growth rate in relation to March or for the full quarter, but any additional details would be appreciated.

I would just say our average EBITDA per day in April was up over our average EBITDA per day in Q1. You saw what the market did. The market grew quite healthily from both February to March and then March to April. We had 14% share in the first quarter, so you can probably do the math from there.

Great. Thanks so much, guys.

Sure.

Hi. Good afternoon, everyone. Thank you for taking my question. Just hoping to get more color on the recovery you’re seeing in the VIP segment. Obviously, I believe you called out direct being double the level of Golden Week. Could you provide insights into how you're serving that higher-end customer and how the market has adapted to that? Additionally, how has your direct program evolved?

Sure. It's a bit early to forecast the overall trajectory of VIP, both direct and junket. But certainly, we were pleased with turnover in both the quarter and subsequent to, including Golden Week. I think it's a testament to how much Macau in general, and we in particular, have to offer those customers, including those from broader Asia. We are watching the situation closely. Stay tuned. I don't think there have been a lot of changes in how we execute in direct. We have developed some incremental player referral relationships outside of traditional markets, which is part of our broader mandate to improve international visitation to Macau. The way we underwrite credit and extend credit remains similar, and we'll see how it develops over the next couple of quarters. Overall, we've been pleasantly surprised.

Thank you for that. As my follow-up, could you provide expectations for the completion of the renovations on the Peninsula, or if they don’t conclude entirely, when they will become materially less of a headwind?

The material impact will subside this quarter. We had portions of the main floor on the east side closed at various points throughout Q1. That’s complete. Now we're doing some work in adjacent salons, and that will finish this quarter. There are a number of other improvements that will take longer, but they shouldn't impact revenue in the same way.

Hey, good afternoon, everyone. Thanks for taking my questions. I wanted to pivot to Wynn on margin. Can you discuss how we should think about this property evolving over time in terms of the timing of your capital commitment, financing breakdown, equity contributions, debt, and gaming versus non-gaming? Any additional color would be helpful.

Sure. Think of it as a $4 billion project for now. Consider it as 50% equity and 50% construction-related financing, with the exact percentage yet to be determined. The equity will be put in pro rata with the construction cost, which is always a debate with financing sources. I’ve discussed this on prior calls. The market in Dubai from a non-gaming perspective is incredibly healthy. If you look at ADRs, food and beverage spend, and luxury retail spend, it’s tremendous. We believe that this business is much more similar to our Las Vegas business than it is to Macau or Boston, which were primarily gaming-centric markets. This will be a healthy balance of gaming and non-gaming, allowing us to provide a full and high-quality experience while generating very healthy returns.

Got it. In Macau, were there any notable moving pieces in the quarter? Can you quantify the impact of the mass hold on EBITDA, as well as the construction disruption? That would be helpful as we consider a normalized scenario going forward.

There were probably 500 basis points of low mass hold, plus or minus. You have the statistics in the press release, where you can apply that to it. As for the construction disruption, we haven’t quantified that.

Great. Thanks. I wanted to circle back to your comments about VIP hold, especially the fact that it was at two times the level of 2019 for your direct business during Golden Week. If we think about your direct VIP business in 2019 being around 15% of total VIP, is it reasonable to expect you could get back to 30% of previous VIP levels or higher, especially since this is a new environment under the regulations?

Thanks, Robin. The unknown at this point is the denominator in your equation. We don’t yet know what total VIP will be. We need to see how that develops over the next few quarters. There are no legal or structural impediments to us returning to or exceeding our prior direct VIP business. So, yes, there’s no reason we couldn't achieve that, other than credit underwriting. We won't underwrite players we aren't comfortable with from an asset perspective, but otherwise, no obstacles exist.

That’s what I was suggesting. If you were at two times the level already for Golden Week, then it’s conceivable you could recapture what was previously junket business at that level or even higher.

Correct, there are no obstacles to that.

We will take one last question, operator.

Hi. Good afternoon. Thank you for taking my question. Let’s bring the conversation back home to Las Vegas. Obviously, a fantastic quarter for you guys and the market overall. Two customer segments we're paying attention to are the international customer and convention recovery. Presumably, both have accelerated in Q1. I’m curious to get your thoughts on the recovery of those two segments for Wynn specifically and how much room you see for those segments relative to 2019?

Sure. Regarding international, you're correct; the market has not returned to its full pre-COVID levels. It has been a geography-by-geography situation. Latin America started to return early, and Europe is also coming back. I see opportunities in international travel, specifically mentioning China and mainland Chinese guests. However, it's still very early to predict outcomes there, so we need to watch closely as we move through 2023. Brian, would you like to discuss our group and convention pacing?

Sure. Thanks, Craig. John, I would say that the group sector is back beyond 2019 levels at this point. During Q1, we had one of our best convention group revenue experiences ever, thanks to successful events like CES, Homebuilders, and CONEXPO. It was a phenomenal quarter that helped drive record results. Looking ahead, the group business is solid. Our team is pacing towards record group room nights for this year with very strong ADRs. We built a solid foundation allowing us to yield manage our rooms in other segments as we move forward. As for 2024, knock on wood, we are currently pacing ahead of what’s anticipated to be a record 2023. Therefore, we see this continuing. So far, we haven’t seen any signs of softening, but we will remain cautious and reactive if necessary. Right now, everything looks positive.

As Brian mentioned, it’s been interesting. Many people in both the sell side and buy side keep waiting for a downturn in Vegas, but it hasn't occurred to date. We’ve prepared our 2023 and 2024 playbooks for every possible scenario and learned to operate our business efficiently through COVID. We feel confident about our current status. We'll be ready for anything as we move forward.

Thanks. That’s very helpful. As a follow-up, I’d like your insights on the competitive landscape in Macau, particularly in direct VIP and premium mass. There seem to be plenty of opportunities during the early recovery, but I’m curious about your thoughts on player reinvestment and how competitive or promotional the market has been.

It's still early. Half of great strategic thinking involves ignoring the noise, and there was a lot of noise in Q1. We had competitors with rooms out of commission and volatility due to lower volumes, which creates noise. However, the market is recovering much faster than anyone expected six to nine months ago. It’s great to see. The margin profile across Macao looks strong, indicating relatively disciplined reinvestment rates, which is encouraging. The next couple of months will be telling as we monitor the pace and size of recovery. If you project forward, consider that we are run rating $22 billion of GGR currently; at around $26.5 billion of GGR, our combined properties could approach the EBITDA they produced in 2019, which is remarkable. As the market continues to gain momentum, I believe the concessionaires will behave rationally, which will benefit us, them, and the overall market.

That sounds very encouraging, Craig. Thank you so much, and congratulations on a great quarter.

Thank you. I appreciate it.

Thank you for your interest in Wynn Resorts, and we look forward to sharing more information with you next quarter.