Wynn Resorts Ltd (WYNN) — Q4 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.

Good afternoon, everyone, and thanks for joining us again today. Well, what a quarter. And really what a year. Every single member of the Wynn team should be incredibly proud of what they achieved together in 2023. Momentum in the business built throughout the year, and we ended on a high note with $632 million of property EBITDA, an all-time quarterly record, capping off a record year in which we generated nearly $2.2 billion of property EBITDA. We see tremendous value in our business as evidenced by our buybacks in the quarter and I'm genuinely looking forward to 2024. The company is more diversified than it's ever been. In Las Vegas, we continue to distance ourselves from peers as the leader in luxury and it's more evident than ever that we are the go-to spot for the best customers attending citywide events like F1. We have a growing business in Macau that is running structurally higher margins than in the past, is much less reliant on the volatile VIP segment and is increasingly well positioned to compete. And importantly, we have a substantial growth opportunity in the UAE that will further diversify our portfolio and expand our brand into new markets. Turning to the quarter and starting here in Vegas. Wynn Las Vegas delivered $271 million of adjusted property EBITDA, an all-time quarterly record, up 24% year-on-year on a very difficult comp. While F1 was clearly a contributor, activity of the property was intense throughout the quarter, with RevPAR, table drop, slot handle and food and beverage revenue all well above what was a very strong quarter in 2022. In fact, we had our best October, our best November, and our best December ever in terms of EBITDA during Q4. We continue to fire on all cylinders here in Las Vegas, and I'm incredibly proud of the Vegas team. More recently, January 2024 looked a lot like January 2023 from an overall revenue perspective with hotel revenue particularly strong. That being said, January isn't where the action is this quarter. It's all about February. Super Bowl, Chinese New Year, and for us, the best February in our history for group and convention. Between Super Bowl and Chinese New Year, we have doubled the front money and credit that we had in 2023, and we expect record hotel revenue over Super Bowl. So a very active February will really set the tone for the first quarter. Turning to Boston. Encore generated $64 million of EBITDAR during the quarter, similar to many other regional markets, demand at the property was largely stable year-on-year. Revenue decreased by about 0.5%, but the team has done a great job remaining disciplined on OpEx, driving a 2% year-over-year increase in EBITDAR. More recently, underlying demand has remained healthy through January, although a couple of unfortunately timed winter storms had negatively impacted visitation during a few recent weekends. On the development across from Encore Boston Harbor, we recently received a key environmental approval and we are advancing through a few remaining items before construction can begin. Turning to Macau. We generated $297 million of EBITDA in the quarter on market share that was consistent with the prior quarter and with 2019. While we held in the normal range in mass, we held a bit high in VIP. So on a fully normalized basis, EBITDA would have been approximately $290 million or 94% of Q4 2019 levels. The strength in our business there has continued into Q1. In the casino, our mass drop per day in January increased 32% versus January 2019 and was up sequentially versus Q4. On the non-gaming side, our hotel occupancy was 99%, along with continued strength in tenant retail sales. Overall, strong top line performance, combined with disciplined OpEx control drove healthy margins during the month of January. On the development front, we opened our first major concession-related capital project during Q4, a collaboration with the team behind Las Vegas-based Illuminarium and initial customer feedback has been positive. We are deep into design and planning for our other concession-related CapEx commitments, including our Destination Food Hall, the new event and entertainment center and a unique production show. Lastly, turning to Wynn Al Marjan, construction continues on the project with much of the hotel tower and podium foundation now complete, and we are nearly ready to start going vertical on the hotel tower. Property is really going to be a stunner, and it's great to see the buildings start to take shape. With that, I'll now turn it over to Julie to run through some additional details on the quarter.

Thank you, Craig. At Wynn Las Vegas, we generated $270.8 million in adjusted property EBITDA on $696.8 million of operating revenue during the quarter, delivering an EBITDA margin of 38.9%, up 140 basis points year-on-year. Higher than average table games hold benefited EBITDA by around $10 million in Q4. OpEx, excluding gaming tax per day was $4.4 million in Q4'23, up 16% year-over-year, well below the 19% increase in revenue. The sequential increase in OpEx was primarily driven by higher programming and staffing costs related to F1. Turning to Boston. We generated adjusted property EBITDA of $64.4 million on revenue of $217.1 million with an EBITDA margin of 29.7%. We've stayed very disciplined on the cost side with OpEx, excluding gaming tax of $1.14 million per day in Q4'23, down 2% year-over-year, driving a 70 basis point increase in EBITDA margin. The team has done a great job mitigating union-related payroll increases with cost efficiencies in areas of the business that do not impact the guest experience. Our Macau operations delivered adjusted property EBITDA of $297 million in the quarter on $910.6 million of operating revenues. As Craig alluded to, we estimate higher-than-expected hold positively impacted EBITDA by around $7 million during the quarter. Importantly, mass hold at both properties within the expected range during the quarter with the hold impact primarily related to the VIP side of the business. EBITDA margin was 32.6% in the quarter, an increase of 140 basis points relative to Q4 2019, driven by a combination of the favorable mix shift to higher-margin mass gaming and operating leverage on cost efficiencies. Our OpEx, excluding gaming tax was approximately $2.56 million per day in Q4, a decrease of 14% compared to $3 million in Q4 2019. 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 market continues to recover. In terms of CapEx in Macau, we're currently advancing through the design and planning stages on our concession commitments. And as we noted in the past few quarters, these projects require a number of government approvals, creating a wide range of potential CapEx outcomes in the near term. As such, we expect CapEx related to our concession commitments to range between $350 million and $500 million in total between 2024 and the end of 2025. Moving on to the balance sheet. Our liquidity position remains very strong with global cash and revolver availability of nearly $4.5 billion as of December 31. This was comprised of $2 billion of total cash and available liquidity in Macau and approximately $2.45 billion in the US. Bringing it all together, the combination of strong performance in each of our markets globally with our properties generating nearly $2.2 billion of property EBITDA in 2023. Together with our robust cash and liquidity position, creates a very healthy leverage and free cash flow profile for the company globally. Further, the Board approved a cash dividend of $0.25 per share payable on February 29, 2024, to stockholders of record as of February 20, 2024. We also repurchased approximately 1.6 million shares, valued at $139 million during the quarter, highlighting our commitment to prudently returning capital to shareholders. We will consider additional dividend increases at Wynn Resorts and the initiation of the dividend from Wynn Macau as the recovery progresses and the exact timing of our global capital deployment plans become more clear. Finally, our CapEx in the quarter was $113 million, primarily related to the spa villa renovations and food and beverage enhancements at Wynn Las Vegas, concession-related CapEx in Macau and normal course maintenance across the business. With that, we will now open up the call to Q&A.

Hey, Craig. Hey, Julie, everyone. Guys, as you think about kind of Macau and obviously, with the amenities that come on, whether it's concession-related or other. Does this kind of $2.5 to $2.6 million daily OpEx rate feel like you're in the right place going forward as we think about 2024, at least?

Hey, Carlo, I'll start and then I'll hand it to Julie. I mean, I think we should put it in perspective, right. Our OpEx in the quarter was, I think, about 14% below Q4 2019, and our margins were some, I think, 140 basis points higher. So we're clearly being disciplined on OpEx. But Julie, do you want to discuss some specifics?

There were some specifics, Carlo, sequentially. If you consider it, it increased by $160,000 per day or $15 million sequentially, divided across three different areas. The first was higher variable costs due to strong business volumes, with hotel occupancy up 100 basis points, GGR up 12%, and F&B up 13%. The second area was payroll, as we incurred more overtime pay related to holidays, with nine public holidays in this quarter compared to just two in the previous quarter. The third area was increased spending on concession-related non-gaming events since this quarter had a particularly heavy event schedule. We previously indicated this during the last call when discussing the various programming we had planned. It all kicked off with the hypercar exhibition, followed by several well-received art, sports, and culinary events. This is what drove the sequential increase. Looking ahead, we believe that the EBITDA margin at both properties is above Q4 2019 levels, and with operational expenses well-controlled, we expect the growth pace in market-wide GGR and our revenue mix to be a major factor in our margins. There will be some variations from quarter to quarter as we see different programming coming in and continue to implement programs linked to concession commitments.

Barring, Carlo, barring a major facility opening like the event center, which is a number of years away. I don't foresee a step change in our OpEx, and we're managing it very, very tightly.

Very helpful. Thank you for the detail as well. Then just as a follow-up. Obviously, the Las Vegas results kind of speak for themselves, and it would be hard to notice anything changed in Las Vegas in the fourth quarter. But obviously, you guys do have a new competitor there to the north. And I was just wondering now with at least a couple of months of kind of experience with that. Could you talk a little bit perhaps about how Fontainebleau has kind of impacted positively or negatively the asset and kind of daily traffic.

Yeah, it really hasn't. So I feel great about our business. I feel great about where we are. Like I said, February is shaping up to be jam-packed between the Super Bowl, Chinese New Year and everything else we have going on. I don't really see any impact.

Great. Thank you, both.

Hi, everyone. Thanks. Craig, in the fourth quarter, mass table GGR was 117% of fourth quarter levels, up from 106% in the 3Q relative to '19 or 3Q of '19. I know you don't sort of think about it maybe or present it at least externally to the same degree that Las Vegas Sands does between how we define this premium mass and its base mass business. But when you think about within the different tiering that you guys have? Would you say all of your mass table tiers are fully recovered plus relative to '19? Or are there some tiers that still have relative recovery to get to and exceed '19 levels?

Thank you, Joe. It's important to distinguish between each property. The initial phase of the recovery clearly focused on premium mass, as evidenced by the revenue per visitor during that time. We observed this trend at Palace first. We've mentioned several times that Wynn Macau would require more time for recovery. Currently, Wynn Palace is concentrating on optimizing room yields and maximizing occupancy to enhance our market position, and the property is well-suited for this. At Wynn Macau, historically, we've been more dependent on transient traffic, which tends to be categorized as core mass by other operators. We started to see improvements in that area this quarter, though there is still more progress to be made. However, if you examine Wynn Macau's numbers from this quarter, I am genuinely proud of our team. There was a noticeable increase in drop and gross gaming revenue, which was extremely strong, thanks to the targeted capital expenditures we completed at the end of the third quarter, leading into the beginning of the fourth quarter, along with the return of the additional segments you mentioned in your question.

Great. That's helpful. And Craig, we heard your positive commentary about February and the 1Q in Las Vegas and in addition to the Super Bowl, the group traction. Would you expect 2Q '24 through 4Q'24 group room nights to be up year-over-year?

Yeah. Brian, do you want to give a little bit more color?

Sure. Joe, as we're seeing this year play out, we're really encouraged by the forward group booking trends that we're seeing. The outlook for group business is super strong. '24 is pacing towards a record room night. So that base is there for us to yield from. And the sales and revenue teams continue to just do a great job in yield managing our properties.

And on those group room nights, Brian, what would you say rate is relative to '23 pricing?

We don't disclose that, but you can assume that rates are contracted on a multiyear basis and bear some relationship to CPI.

Great. Thank you very much.

Hi. Good afternoon, everyone. Craig, maybe just starting and building off the answer to the last question on sort of the way the recovery has played out across the properties. Just specifically at Wynn Macau, is that the bigger beneficiary in the portfolio today as it relates to, let's call it, as we start to see visitation maybe outpace or balance out now relative to the spend per visit we saw, again, earlier in the recovery. Is that sort of the implication of the answer to the last question? Or could you just elaborate a little bit on where you expect to see some of the still very strong visitation numbers and that kind of catch up in the base mass business? Where should we see that most in your portfolio?

Well, I think you're going to see it across the portfolio, but you're going to see it disproportionately at Wynn Macau just based on the geographic location of the property. You tend to have that more transient customer in downtown and we're going to be a beneficiary of that there. But it affects Palace as well. I mean there's a lot of reasons to visit Palace and to make Palace a destination for a base mass customer. You should see the queue just to get on the gondola out in front of the lake every day. And now as we add incremental amenities like we did with Illuminarium, there's a lot of reasons to visit our property more so than they probably ever have been. So I would say it affects both properties to some extent, but I would expect it to disproportionately affect the property downtown.

Thank you for that. And then maybe as a Las Vegas question. Obviously, some significant benefit on the event side from F1, which we know disproportionately seems like it accrued to you. You're going to have another big one, it seems like with Super Bowl. Wondering if you could comment a little bit on maybe as you look year-over-year, the broader events business in calendar, you talked about group. So how does the just broader event calendar post-Super Bowl feel on a year-over-year basis? And then specifically, because we've got some tracking data that looks pretty good for you. Just any thoughts or comments on the impact of the sphere? And how that has played out, especially on some of the bigger concert nights and what you might see in terms of impact there? Thanks.

Sure. On the first portion of your question, the event calendar looks pretty good because we spend a whole bunch of time creating our own events. So it's not just the city wides. We've been programming the heck out of this joint for several years now, and we've built a lot of momentum on doing that. And that not only helps us from a brand and marketing perspective, but clearly from a room night and a pricing on rooms perspective. So I feel great about the remainder of 2024 from an events perspective. With respect to the sphere, it's been, I'd tell you, it's been pretty amazing. I mean it probably doesn't affect our rate, but we sure do get a whole bunch of requests to reside on that side of the building in order to see the sphere itself. And certainly, on the U2 weekends, we see an uptick in terms of very high-quality occupancy. So you're talking about kind of the best of the best customers that want to stay with us because we're actually the closest property to the sphere as the crow flies. So it's definitely been additive to us on the margin. And I got to tell you, I admire and respect what they've done by doing that. I think it's incredibly novel. It's incredibly unique, and it's yet another kind of only in Vegas experience that you can have, and we're delighted that they're next door.

Thank you very much.

Good afternoon. I appreciate you taking my questions. Vegas is clearly performing at a very high level, and there hasn't been much impact from new supply. What are your thoughts on Wynn West, the property parcel you have? I know this is more of a long-term question, but how has your thought process evolved regarding this in relation to your CapEx projects in the UAE and New York? Thank you.

Sure. We have numerous avenues for growth, including a substantial land bank in Las Vegas, as well as the property across the street and the golf course. There is significant potential here. As many know, we have an ongoing project in New York and another one developing in the UAE, which presents a considerable opportunity for us. Additionally, there are other states that, while advancing at a slower pace, could offer opportunities. We are selective about the jurisdictions we pursue and are also monitoring international markets such as Thailand, which is considering gaming regulations. We are always balancing two factors: our unique ability to manage design and development in-house, which affects our project timelines, and capital utilization. We are focused on deploying capital in the most effective way and making informed decisions based on that. We definitely plan to use the land across the street in Las Vegas; it's only a matter of timing, which will depend on developments in New York and other jurisdictions.

Got it. And then just for my follow-up, right, Macau is certainly continuing along a nice trajectory here. You outlined some CapEx as you think about it related to the concession renewals. But how do you balance that with maybe the subsidiary paying up dividends to the parent? Is that something that we could see within the next 12 to 18 months? Or is that something longer term that you'd like to envision coming back?

Yes. It really depends, you're right. There's a lot of moving parts there, right? We have a debt maturity later this year there. We need to think about our leverage profile in Macau and what that longer-term leverage profile should be. We have some capital that we need to put in the ground there. We had nearly three years of closure and cash burn. So the question is, what do we want the balance sheet to be? How will the CapEx plans come together in terms of the timing of capital deployment, which we're studying and learning more about as we go through the design and development process every day? And then, of course, the dividend. And as you know, the dividend just as a global statement, dividends are the cornerstone of our capital return strategy. So stay tuned. We are looking very closely at it, and we'll figure it out in due course.

Got it. Thanks and congrats on the quarter.

Thank you.

Thank you.

Great. Thanks. I wanted to ask about Vegas. It sounds like clearly very strong events calendar and outlook for February. Your January comments sounded like it was maybe a little bit flattish year-over-year. I'm just wondering how much is looking on kind of a year-over-year basis when you get past some of these big events in February? Thanks.

Sure, Robin. Yes, January, well, keep in mind, last year, Chinese New Year started in January. And so this year, it starts in February. So as I mentioned in my prepared remarks, February really sets the tone for the quarter, and it's where all the action is this year in Q1. March has a couple of headwinds. Easter timing is one of them and then the absence of CON/AGG is another. But our forward booking indicators continue to look strong, and we feel good about it. I've said probably five times on the last three or four calls that trees don't grow to the sky, and I would continue to tell you how things are looking in Vegas, and they continue to look good. They continue to look good for us. So how the quarter plays out will be very dependent on February. And again, all forward indicators look strong for February. But subsequent to that, we'll take it from there.

Okay, great. Thank you very much.

Sure.

Thank you. Good evening, everyone, and congratulations on the results. Specifically regarding Macau and Palace, could you discuss the competitive landscape for premium mass players and how it has evolved so far this year? With strong volumes and improvements in travel infrastructure, how has that impacted your position? Is this a positive factor as we move forward and volumes continue to increase?

Sure. Specifically as it relates to Wynn Palace. Wynn Palace is incredibly well positioned and has been since the day it opens Encore time. But it only grows more so as we continue to evolve the amenities in Wynn Palace. Competition for premium mass customers has been fierce forever at the end of the day. So it's really nothing new. What we try to do is really focus on what we do well, stay true to who we are and be really, really disciplined, including on reinvestment because at the end of the day, I don't think the bank takes market share. I think they take cash. And so we're really focused on generating cash and EBITDA. So I think Palace turned in a great quarter, its future is bright, and we will continue to aggressively chase market share responsibly.

Great. Thank you.

Hey, thank you. I may have missed this, but I guess how are you thinking about looking currently at the Super Bowl, how that might compare to Formula 1? Is there any way to kind of back out how you think about the contribution from Formula 1 in the quarter and how that might grow next year?

Yes, that's a really good question. The Super Bowl tends to attract more corporate visitors, which is an important distinction to note. We have significantly increased our front money and credit for the Super Bowl, nearly double what we had last year. This will be a key aspect of our business in the coming week, and I anticipate it will yield strong results. Additionally, many attendees will choose not to participate in gaming, due to the corporate nature of the event. To answer your question directly, we don't have a definitive answer yet, but at this moment, my estimation is that the Super Bowl won't have as much impact on the casino, while it could be equally or more impactful for hotel revenue. Does that sound fair, Brian?

Yeah, both hotel revenues and rates are very similar to Formula 1. The weekend Super Bowl event is another great match, I think, for our brand. And as you said, we're going to have double the credit and track money we had previously. So I think we're in for a great weekend here.

Great. Thanks so much.

Hi, everyone. Thanks for taking my question. Maybe two follow-ups. One is on F1, and we've had some conversations. This was the first year, obviously, quite successful for you. Curious how you think about next year and going forward? Is there opportunities to calibrate event and see growth and build upon this? Or do you have a view that the first one in Vegas might be the best? We've had some different folks, different opinions about that, whether next year is a tough comp or an opportunity perhaps to just continue to grow that event for you and for the city?

Yeah. Great question. I guess I'll answer that as a Las Vegan and someone who cares about the broader market and wanting to see everybody in the market participate and do really well. There's clearly, I mean, look, the first time you do anything of this scale, you're going to have learnings. And it's just natural. And so I do think that there's a lot that can be done to make the event more relevant for the town more broadly. And I think that F1 understands that. And I think, frankly, the operators in town understand that. Even those like us who disproportionately benefited. So I think the event is only going to get better and better. I think what this year proved is that the core contingent of people that travel to go to an F1 race is our customer. And so you better believe that we will program the heck out of this place yet again, just like we did this F1, this last F1 this coming year, and we will do our best to attract the best customers in the market. And hopefully, again, there will be more opportunities for some of the other tiers of properties in the market to participate in the event this year as they continue to evolve and change the event.

Thanks, Craig. That's helpful. Maybe one more top down on the other side of the world in Macau. We still hear from investors skittish about some of the uncertainty around the macroeconomic picture in China yet. We continue to see monthly numbers out of Macau and your performance things just continue to recover and grow. Curious if you want to take a stab or someone of the team to kind of weigh in on how Macau's kind of fundamental recovery has been decoupled from that? What you're kind of seeing that gives some confidence that the recovery trend continues. And if you have any top-down high-level comments? It would be helpful.

Yes, I'll leave the detailed China macro analysis to people who do that for a living. But there's certainly a lot of crosscurrents to consider. You have tremendous pent-up demand still from several years of closure. You have the ease of proximity to Macau, which actually benefits Macau when the economic situation perhaps isn't as robust as it could be. And you have some modest stimulus efforts that we've seen. But you also, as you rightly pointed out, clearly, have a litany of difficult economic indicators. Yet Macau continues to tread along. So to us, it's really the long-term viability of Macau. We're thinking in kind of 5, 10-year increments. So it's really the long-term viability of Macau that's most relevant. And we're clearly already at levels that allow us the financial and operating flexibility to plan for that longer-term time horizon. So I think it's well observed, maybe not well understood, but well observed that Macau's trajectory does seem to be decoupled from the broader China macro. I think you saw that in 2009 as well. And I think that bodes well for the future. Does it bode well for next quarter? I don't know. Does it bode well for the quarter after that? I don't know. But it certainly bodes well for the future, and that's what we're thinking about.

Thanks for the perspective on the long-term outlook. I really appreciate it. Congratulations on the quarter.

Thank you.

Thank you, John. The next question will be our last.

Afternoon. Nice result. Thanks for taking my question. Just to kind of pile in on that Macau question. Wondering if you could elaborate a little bit in terms of the health of the shopping retail market. That's something that we've heard from the luxury operators continues to be strong in specific markets. Wondering how you're seeing that right now. And then as some of the catchment areas recover in terms of visitation, if that could be an additional tailwind in the future? Thanks.

Certainly. If you examine the progress throughout 2023, retail sales in Macau have shown remarkable strength, exceeding figures from 2019. Our data from Q3 to Q4 indicates a slight increase of about 10 basis points. If any macroeconomic factors from China are impacting Macau, it seems to stem from there. However, considering the robust performance relative to pre-COVID times, it’s hard to express dissatisfaction. It seems that Macau is increasingly viewed as an alternative to Hong Kong for retail sales. This is supported by the ongoing changes in visitor demographics, especially in Cotai. Looking long-term, the outlook for Macau appears very promising in this regard. Visitors coming to Macau motivated by retail or gaming, or both, is a positive development and reflects the natural evolution of the area. You can also observe the quarter-over-quarter shifts in our financials.

Perfect. Thank you. And then in terms of the interactive business, is there any update to speak about or could there be an opportunity to monetize or partner this in a shareholder-friendly way?

I'll take that one. Thanks, Chad. Yes, we announced in August that we would be exiting the markets where we operate, specifically leaving New York and Michigan under review. We are continuing our strategic evaluation of those two states and will provide more information soon. The rest of the markets are mostly finalized, and we are also working on closing down operations in Massachusetts online. Wherever possible, we will engage with our player databases and ensure we act in the best interests of our shareholders by monetizing our assets in compliance with market regulations and opportunities.

Great. Thank you very much. I appreciate it.

Thank you.

Thank you. With that, we'll close the call. Thank you for your interest and we look forward to talking to you again next quarter.