Wynn Resorts Ltd (WYNN) — Q2 2023 Earnings Call Transcript

Thank you, operator, and good afternoon, everyone. On the call with me today are Craig Billings, Brian Gullbrants, and Steve Weitman 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. Afternoon, everyone, and thanks for joining us today. Well, what a quarter. Who would have thought just six months ago that we would be run rating $2.2 billion of property EBITDA? To put that in context, peak annual property EBITDA for the company was $2 billion in 2018. Yet, here we are today. We have a more diversified business with the addition of Encore Boston Harbor; we have a business in Macau that is running structurally higher margins into a resurging market; a business in Las Vegas that is more relevant than ever and is producing nearly double its 2018 EBITDA on much higher margins; and we have a very substantial growth opportunity in the UAE, the most exciting new gaming market in decades. I see tremendous value in our business, and I know our brightest days are ahead of us. Our path is the clearest it has been in years, and our team is committed and energized. Turning to the quarter, and starting in Vegas. Wynn Las Vegas delivered $224 million of adjusted property EBITDAR. On a hold-normalized basis, our EBITDA was up 3% on a very difficult year-over-year comp. We saw strength all over the place; the casino, the hotel, the restaurants, retail, you name it. All supported by a consumer that seems more than willing to continue spending on unique luxury experiences. Now, we obviously have a very particular customer type, skewing heavily to luxury; and we continue to closely monitor whether or not interest rates and inflation begin to impact that consumer, but so far, so good. In fact, drop, handle and RevPAR are all up year-over-year in July. And that's obviously before we get into the latter portion of the year, which has a number of tailwinds from city-wide programming. Turning to Boston, like Vegas, Encore had a strong quarter, generating $69 million of EBITDAR, an all-time property record. We generated record GGR in the casino, led by strong growth in slot handle and the addition of retail sports betting earlier this year. On the non-gaming side, we delivered strong hotel revenue, driven by both ADR and occupancy. On the development front in Boston, we're advancing our East of Broadway expansion project now. Turning to Macau, we generated $246 million of EBITDAR in the quarter, which was 72% of pre-COVID levels. Hold was a bit of a mixed bag in the quarter as we held high in our VIP business, but that was more than offset by low hold on the mass table side. We saw strength across the property with several components of the business above 2019 levels. In the casino, mass table drop increased 4% versus Q2 2019, despite the fact that portions of Wynn Macau's casino were closed for renovation during the quarter. The quality of our product and service, the relaunch of our loyalty program, and our very robust non-gaming events calendar, all helped drive 14.2% market share in the quarter, consistent with our share as we exited 2019. On the non-gaming side, our retail business continues to be incredibly strong, with tenant retail sales increasing 47% relative to 2Q 2019. Looking forward, as you have seen, market-wide GGR momentum in Macau has been impressive, building through the second quarter. The strength has continued into Q3 with mass drop per day in July exceeding what we experienced in each month in Q2 and reaching 120% of daily mass drop in 2019. In July, we also continue to experience robust hotel occupancy and very healthy tenant retail sales. On the development front, 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. Lastly, construction is now underway on Wynn Al Marjan Island, our planned integrated resort in the UAE, with our secant walls and soil compaction complete and over 40% of the required hotel piles in the ground. As I said earlier, this is the most exciting new market opening in decades, and we will bring our A game to this development. Our 40% equity ownership and management license fees will drive a very healthy ROI for Wynn Resorts shareholders. With that, I will now turn it back to Julie to run through some additional details on the quarter.

Thank you, Craig. At Wynn Las Vegas, we generated $224.1 million in adjusted property EBITDAR on $578.1 million of operating revenue during the quarter, delivering an EBITDA margin of 38.8%. Slightly lower-than-normal hold negatively impacted EBITDAR by around $2 million in Q2 and hold-normalized adjusted property EBITDAR was up 3% year-over-year. Our hotel revenue increased 6% year-over-year to $177.8 million, a new second quarter record on the back of an increase of 24,000 occupied room nights. Due to rooms that were out of service for renovations in Q2 2022. ADR, occupancy and RevPAR were all up slightly, compared to Q2 2022, despite the increase in available room nights, highlighting the appeal of our newly renovated room product. Our other non-gaming businesses saw broad-based strength across food and beverage, entertainment, and retail. In the casino, our GGR increased around 2% year-over-year, driven by a 14.8% year-over-year increase in slot handle and table drop that was roughly flat. Turning to Boston, we generated adjusted property EBITDAR of $69.1 million, an all-time property record. EBITDAR margin was 31.1%, up 80 basis points year-over-year. We saw broad-based strength across casino and non-gaming during the quarter. In the casino, we generated $193 million of GGR, a property record, with strength in both tables and slots. Our non-gaming revenue grew 3.8% year-over-year to $55.1 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 $1.15 million in Q2 2023, up 3.6% year-over-year on increased business volumes and down 1% sequentially. As you may have seen in the press, we were pleased to recently sign new union agreements that provide our employees with competitive wages, benefits, and a best-in-class working environment that reflects our Wynn service standards. We expect the incremental OpEx from the new agreements to be partially offset by cost efficiencies we have identified in areas of the business that do not impact the guest experience. Additionally, I would like to note that business volumes in Q3 are temporarily being negatively impacted by the Sumner Tunnel Restoration Project the City of Boston is conducting that will be ongoing through August 31. The impact is primarily being felt in our table games business as both slots and non-gaming revenue continued to grow year-on-year in July. Our Macau operations delivered adjusted property EBITDAR of $246.2 million in the quarter on $769.9 million of operating revenue. As Craig noted, we held high in our VIP business, but this was more than offset by lower-than-expected hold on the mass table side. We were encouraged by the meaningful uptick in visitation and demand we experienced during the quarter, with particular strength in mass casino drop, direct VIP turnover, luxury retail sales, and hotel revenue, all above Q2 2019 levels. EBITDAR margin was 32% in the quarter, an increase of 280 basis points relative to Q2 2019, with Wynn Palace's margin reaching 33.4%, or 690 basis points above Q2 2019 levels. EBITDAR margin strength was driven by a combination of the favorable mix shift to higher margin mass gaming and operating leverage on cost efficiencies. In fact, our OpEx, excluding gaming tax, was approximately $2.2 million per day in Q2, a decrease of 29%, compared to $3.2 million in Q2 2019 and down 2% from Q1, despite the meaningful sequential increase in business volumes. The team has done a great job remaining disciplined on costs, and we're well positioned to continue 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 on our concession commitments. And as we noted the past few quarters, these projects require a number of government approvals, creating a wide range of potential CapEx in the very near term. As such, for 2023 through 2024, we expect CapEx related to our concession commitments to range between $300 million and $400 million. Turning to Wynn Interactive, our EBITDAR burn rate decreased both sequentially and year-over-year to $15 million in Q2 2023. Our team continues to stay disciplined on costs, while driving improved marketing efficiency. 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 June 30. This was comprised of $1.8 billion of total cash and available liquidity in Macau and $2.9 billion in the U.S. Importantly, the combination of strong performance in each of our markets globally, with our properties run rating approximately $2.2 billion of annualized property EBITDAR, together with our robust cash and liquidity, creates a very healthy leverage profile for the company globally. We're also pleased to announce that the Board approved a cash dividend of $0.25 per share, payable on August 31, 2023 to stockholders of record as of August 21, 2023, highlighting our commitment to returning capital to shareholders. Finally, our CapEx in the quarter was $92 million, primarily related to the spa villa renovations and food and beverage enhancements at Wynn Las Vegas and normal course maintenance across the business. With that, we'll now open up the call to Q&A.

Hey, Craig, Julie, everyone. Thank you for taking my question. So, Craig, just on the Macau front, obviously, the reduction sequentially in daily OpEx was a little bit of a differentiator relative to what we've seen in some peer reports. Can you talk a little bit more about that? And also, it looks as though your implied commissions, discounts, etc., were as a percentage of revenue were down nicely sequentially. Do you expect, kind of, that trend to continue going forward?

Sure, Carlo. Well, first, on the OpEx side, I think that we're always modulating OpEx based on business volumes and what we need to get done in any particular quarter. I think the distinction between us and perhaps some of the other folks that have reported that you have seen is that we opened with a full complement of folks. And so we weren't dragging floors, we didn't have rooms out of service, etc. And so we came out of the gate with the full OpEx that you're seeing today and any movements between quarters is really going to be a function of in that quarter. On the commissions and discounts, there hasn't been any substantial change to how we do that. So again, that's going to be quite player specific based on the parameters of each player. And so again, I wouldn't read too much into it.

Great. Craig, as a follow-up, could you discuss the strong performance in Las Vegas, particularly regarding cost discipline? I understand your labor contract ended in July, so I wouldn't expect any immediate impact, but could you explain how you plan to account for a potential settlement and any new terms moving forward, or any relevant details from the second quarter?

Sure. How much time have you got, Carlo?

I've done plenty, plenty, I guess.

Well, first, what I'll say is this, first and foremost, the team at Wynn Las Vegas is the heart and soul of the place. They're very important to me and it's the same reason that we paid everybody during the closure during COVID. And if you look over the term of the last union contracts, their contractual wage increases initially outpaced inflation. And then, of course, lagged inflation over the course of the past couple of years. Net-net, over the last contract, they were actually flat versus core CPI. But unfortunately, and it's a reality, rent in Las Vegas has increased more than CPI over that same period. And it's very important to me that our employees can support a stable home environment for their families. So I expect there'll be some back and forth as we work with culinary to find a fair compensation level that supports our folks, particularly our non-tip folks and their ability to maintain their housing. It's pretty early in the process, so we're not really even close to quantifying dollars yet or talking about accruals. But rest assured, we'll figure it out in a way that's positive for the business over the medium and long-term.

Thank you.

Good afternoon, guys. Craig, when you look back at the 2Q, would you say in Macau, would you say Wynn Macau in the Peninsula had a meaningful amount of renovation disruptor to the EBITDAR line that you would call out or do you think you were able to effectively shift what would otherwise have been disrupted to either other parts of the casino or to your property in Cotai?

The renovations that took place were right in the middle of the casino floor, which certainly caused some disruption. However, it's important to note that a significant portion of the visitation that has returned, especially for us, has been in Cotai. In a scenario without junkets, we are still holding our market share, and I take great pride in what we've achieved collectively. That said, we still have work to do regarding our share downtown, and our business performance is tied to that share. To put it simply, our market share multiplied by the market, minus taxes and operational expenses, equals EBITDA. Our primary focus is on increasing our share downtown, and that's our perspective on the business moving forward. That’s also the reason behind the renovations. I don’t want to imply that the results for the quarter were solely due to the renovations, as they were not, but they did have some impact.

Got it. And I'm presuming the renovation was completed at some point in June. If you can confirm that, but would you expect that Cotai and Peninsula would be more in balance going forward similar to 2019? Or do you think visitation dynamics are such where the Cotai region is just going to get a little bit more traction?

Confirmed and the latter.

Got it. Okay. And then you called out, as others did in the 1Q and parts of the 2Q this reporting season, talking about low hold on the mass side. We can see the whole percentages the last couple of quarters versus what you did in 2019 at both properties. What is that a function of? Are players betting side bets or playing differently or is it really just a couple of quarters of aberrations and expected table hold percentages?

Yes, you're correct. Historically, we haven't made adjustments for mass hold, which made sense when our business was more balanced between mass and VIP segments. This is something we plan to reconsider moving forward. Specifically regarding your question, there are two main factors at play, and this was particularly evident at Wynn Macau compared to Wynn Palace. It's related to volumes and typical fluctuations. You mentioned normal fluctuations and that's certainly relevant, but volume tends to smooth out volatility. When there were tour groups and more core mass customers in Macau, the effects of volatility were naturally less pronounced. Currently, that's not the situation. Therefore, I expect to see ongoing volatility; at times it may work to our advantage and at other times, it may not.

Great. Thank you.

Hi, good afternoon, everyone. Thanks for taking my questions. So Craig, maybe one more about Macau, but just wondering if you could give a little bit of color about, sort of, segments of business, what you're seeing across, particularly behavior wise, across premium mass and VIP. And I'm really thinking kind of spend per visit relative to what's left to recover on the visitation side as you look to see things normalize?

Yes, I'm going to not comment on VIP because it's obviously very patron-specific and VIP volumes are while surprisingly good, still a fraction of what they were previously. On the mass side, we've seen length of stay decline, which makes sense because during COVID, if you made the commitment to come, you were coming for an extended period, but we've seen spend per customer actually go up. And so frequency has increased. Length of stay has decreased and spend per customer has gone up, which is great because that gives you the opportunity to make efficient use of your rooms and is generally good for business. But I don't really have a comment on VIP.

Very helpful. I wanted to ask about the CapEx comment made in the prepared remarks. The mention was regarding some of the concession commitments and an estimated range of $300 million to $400 million. Is that figure intended to represent an annual amount or is it a total for 2023 and 2024? Additionally, could you clarify how you're considering the CapEx in relation to the potential OpEx aspects associated with that concession process? I understand this may vary for different cases, and I realize these plans are subject to change.

Sure. Thanks, Shaun. I'll take that. Yes, that number we've given out, the $300 million to $400 million is for ‘23 to ‘24. And really, we've done that, I think we've always foreshadowed that the process takes some time because of all the different approvals that are required. So, you know, we were hopeful that we would get more on this year, but actually now we're looking at, you know, between the $300 million to $400 million over the ‘23 to ‘24 period in total. In terms of how we're thinking about the concession, it's more than half of the commitment we made, more than half of the $2 billion is CapEx related. And we do expect that to be front-end loaded. So obviously, with the $300 million to $400 million in the first two years. And then a similar clip to that for a couple of years after that.

And then I would just point out that on the OpEx side, I would just like to remind you that there's a lot of things that we do in the business today that already support non-gaming. And so we don't expect all of that to be incremental.

Very clear. Thank you, everyone.

Hi, thanks. Maybe a clarification on July in Macau. I think you said the run rate was 120% of 2019 levels on hold. Should we think of that as true for hold adjusted win rate comparing versus 2019? And any reason to believe that the $2.2 million in OpEx per day would be similar or different during that month versus the quarter as we build going forward?

The 120% I mentioned was for drop, so Wynn obviously has no impact. Additionally, we do not expect any significant changes in OpEx.

And then maybe as a follow-up on capital allocation. I think if we take the $2.2 billion run rate EBITDAR, less the concession spend, some other CapEx in Vegas in the dividend. It looks like there could still be some free cash flow left over. Is that the right way to think about it? And is there appetite in our ability to ramp capital return? Or do you generally think the pandemic has altered how you think about liquidity and leverage?

Julie, do you want to take the first portion of that, and I'll take the second?

Sure. Yes, you're quite right. We're now with the $2.2 billion run rate and interest under control and all of that, we have sizable discretionary free cash flow. And so we're very focused on what we'll be doing in terms of delevering, returning to shareholders and of course, all of the exciting projects we have in front of us.

Yes. We're well capitalized at the moment. And I expect we will maintain some extra liquidity until we really see how a few things play out. First is New York. The second is the macro economy and the third is the yield curve. And we're always looking at the markets, the capital markets and thinking about when to refinance and whether to do it dollar-for-dollar or modestly delever. And when to return capital to shareholders, primarily by adding to the dividend. So we're in a bit of a wait-and-see approach at this moment. But if you think about it, we've got a great project in the UAE that is going to be a stunner. We've reinitiated our dividend, and our leverage is well under control. So we feel pretty good about where we are.

Fair enough. Thanks so much.

Sure.

Good afternoon, everyone. Thank you for taking my question. I'm looking for more insight on margins in Macau. It's been a key question as we try to understand what the new normal might be long-term, largely influenced by revenue mix. I would like to hear your updated thoughts compared to what we discussed 90 days ago, or even earlier when I visited, as it was the main topic at that time. Thank you.

Sure, David. Not really. I mean, I think a little bit like what happened in the U.S., we learned to run our business differently. So you mentioned primarily related to business mix. And certainly, that's a component of it. But we're running the business really, really well. The quality of service is as it should be and as it has always been, yet our OpEx has come down pretty meaningfully. And I think it's a testament to Linda and Frederic and Craig Fullalove, our CFO, over there and everything they've been able to do with the business. So really, what you're seeing is particularly at Palace, you can see it in the margin. What you're seeing is the impact of both sides of it with operating leverage coming through from business volumes and pretty robust expense control.

Right. And leaving it to us to decide on the order of magnitude, but it is fair to assume that there still should be some margin upside in Macau still to be captured as volumes return, correct?

Well, I haven't been in an Excel model in probably 15 years. But if I were doing one, I would probably hold margin at Palace relatively constant just to be conservative. I mean, it's in the low-30s today, which is pretty darn good. And I would assume that Wynn Macau's margin increases as we aggressively fight for share.

Okay, I’ll take it. Thank you very much. Appreciate it.

Good evening, everyone. Thank you for taking my question. The results in Las Vegas have been great, with REVPAR and ADR showing slight improvements year-over-year. I'm curious about your thoughts on raising rates from the current levels, considering occupancy is quite high. Looking ahead to the latter half of the year, how do you view your performance expectations for the third and fourth quarters, and what kind of financial or hotel impact do you anticipate from F1 in the fourth quarter?

Sure. I'll start, and then I'll ask Brian to comment. We have grown ADR pretty meaningfully, certainly since the property reopened from the closure in 2020, and I'm incredibly proud of our ability to do that. It really speaks to the product that we offer. And we've held those rates, and we've continued to have a rate premium to the rest of the town. Our ability to continue to take rate really depends on the macro. And as I mentioned in my opening remarks, the best I can do is kind of give you a clear picture of what we're seeing right now, and it's good. But as I've said before, we have a 2023 playbook for really end 2024 for every scenario. So I'm not really going to forecast whether we think we can continue to take rate given how dependent it is on the overall economy, but we're feeling great about our business. Brian, do you want to talk about pacing?

Sure. If you look at our forward-looking demand indicators, they are remaining quite healthy. The room bookings we have are increasing year-over-year, and group pace continues to be strong. We've mentioned it in previous calls that Q3 and Q4 are maintaining the same pace we've experienced so far this year, making 2023 a record year for groups. Additionally, 2024 is showing promising signs. We are consistently looking for indicators, and lead volume is present, with our team excelling at converting those leads.

Okay. That's super helpful. And then for Al Marjan, I appreciate the comments. Obviously, an exciting property. Can you give us an update on the casino license and sort of the pathway there and just an update, if you have everything you need for the sort of full plan that you've laid out in your initial projections?

Sure. We have everything we need to operate gaming in Al Marjan. And I think there's confusion here because there's a lack of understanding regarding individual Emirates versus the UAE as a whole. It's clearly a 10, as I think I've talked about before to a state and federal system. So while there may be conversation in other Emirates about legalization or legalization at the federal level, thereby covering all Emirates, I expect that we will have our license for Ras Al Khaimah actually imminently. But there should be no concern that there is a legalization process that needs to occur in order for a broader legalization process in order for gaming to occur in that property.

Crystal clear. Thanks for the comments.

Sure.

Good afternoon, everyone. Thank you for taking my questions. In previous calls, you mentioned that you could return to a run rate EBITDA around $26 billion to $27 billion for GGR. Considering the current mix and margin, is that still possible? Also, regarding the data point from July being under 20%, do you think that is something we could achieve by the end of this year?

I mean it depends on the market. Again, the model there is, as I said, pretty straightforward. Your share times the market, minus taxes, minus OpEx. So it really depends on which way the market goes. The market estimate where we think we would get back remains, as you described, probably closer to $27 billion versus $26 billion, based on the share we turned in this particular quarter, but generally, that holds true.

Got it. For my follow-up regarding Wynn Macau, you mentioned that you plan to compete for market share there. Is it correct to assume that margins might decrease slightly from their current levels? Also, in a broader context related to premium mass, are you noticing an increase in promotions within that segment?

On the second question, no, the market has been pretty disciplined, and we're certainly pleased with that. On the first question, I don't think you should expect margin to go down at Wynn Macau. If the subtext of your question was will we need to get promotional in order to drive business to Wynn Macau, no, you should not assume that the margin will go down because we have tremendous operating leverage that comes with each 10 basis points of share at that property.

Got it. Thanks, that’s helpful.

Good afternoon. Thanks for taking my question. I wanted to ask about the Interactive cash burn. You mentioned that that's come down again year-over-year and sequentially. Are you still on track for this to turn profitable in the fourth quarter? And any other kind of insights in terms of where this is going and how the flow-through should look if revenues rise from here during peak season? Thanks.

Sure. I don't think we ever said it would be breakeven in the fourth quarter. But what we are focused on is making sure that it goes down every quarter.

Yes. Sports betting is a challenging industry. It's similar to a commodity business, which makes it tough. However, we are committed to managing this business with a long-term, shareholder-friendly approach. That is our primary focus.

Thank you. And then another one on Macau. You just mentioned the $27 billion GGR number. We did see some sequential growth in the last recent month. But I'm just wondering, as some of the farther-out visitors come back to the market, I guess we'd kind of have to look through the database figuring out where all the premium players are in all of China. But does this matter as much for you guys? Or are there enough people in kind of Hong Kong and Guangdong for you to continue to put up numbers? Or do you really need some of those further-out markets to open up from a visa and just a visitation standpoint? And are they driving higher spend per trip than what you're seeing in the property right now?

Every customer matters, Chad. We want to see the underlying regions begin contributing to Macau. Are we reliant on it? No. However, it will certainly enhance the recovery and the overall market, which in turn brings us closer to breakeven with 2019.

Makes sense. Appreciate it. Thank you very much.

Sure.

Thank you for taking my questions. I have a two-part question about Las Vegas. Craig, could you provide more insight into the visibility you have for major events like F1 or the Super Bowl? Additionally, regarding your forward demand indicators for bookings, how much of the year-on-year growth is linked to those events? Also, without considering those events, are you still observing positive booking indicators for the less busy periods?

Sure. I'll start, and then I'll ask Brian to comment. Brian's previous mention of the booking pace was separate from those events, addressing your last question. Formula 1 and the Super Bowl are events that align perfectly with our offerings because they attract high-end patrons and customers to the area. We're really excited about our current position. Brian, would you like to add more details?

Sure. Yes, I think both of these events, specifically F1 and then Super Bowl, definitely played to the strengths of our brand. It's a perfect match. We are getting significant premiums for those two events themselves. And I think we're pacing quite nicely. I know some of our competitors have given more specific data, but I can tell you we're going to do just fine here.

Very good. Thanks for the color guys. Appreciate it.

Thanks, John. And operator, the next question will be our last.

Great. Thank you for letting me sneak in here at the end. Can you clarify just to sort of make it comparable to previous periods, what the VIP hold added to make EBITDA in Macau?

Julie? Holding back to VIP. I mean as we said on the call, we held a little bit high on VIP, but that was more than offset by lower mass hold. So we're not actually getting into breaking it out.

Holding back to VIP. I mean as we said on the call, we held a little bit high on VIP, but that was more than offset by lower mass hold.

Okay. We have $20 million of high hold on VIP, which I mentioned earlier. We need to start normalizing for mass hold since much of our business is now mass. It's about $20 million in Macau, and the lower mass hold more than offset that, as Julie mentioned.

Okay, great. I appreciate you providing that information to make it comparable to previous quarters. Thank you. I'm sorry if I missed your earlier comment, but have you mentioned how much of the margin you think you can retain in Vegas? Thanks.

During the challenging times of COVID, we established a permanent cost savings figure, which we have maintained. We have learned to operate our business differently during this period. Over the past 1.5 years, our business volumes have been exceptional, and we have remained committed to our brand. The business is now what it is. If there are any macro-driven changes to our business volumes or average daily rates, we have a strategy in place because we experienced it during COVID, and we will be prepared. Although we are not currently observing any changes, we are ready for any scenario.

Okay. Alright, great. Thank you very much.

Well, thank you, operator. With that, that concludes the Q2 earnings call. Thanks, everybody, for your attention. We look forward to talking to you again soon.