Wynn Resorts Ltd (WYNN) — Q3 2024 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, and good afternoon. As always, thank you for joining us today. It's about a month ago that we had the opportunity to host many of the folks on this call here at Wynn Las Vegas to take you through our business in general and Wynn Al Marjan Island in particular. It was great to see you all, and I hope that our confidence in our current business and in our development pipeline came through. Our leadership position in the world's most attractive gaming markets, our targeted investments in our existing properties, and our development in the UAE all give us great conviction about the future of Wynn Resorts. To that end, we announced that the Board has increased our share repurchase authorization to $1 billion, highlighting our continued commitment to prudently return capital to shareholders. Turning to the quarter and starting in Las Vegas. Demand remained healthy here. And on a normalized basis, revenue was up about 1% and EBITDA was essentially flat year-over-year on very tough comps. Despite those very tough year-over-year comps, we grew hotel revenue by 5%, slot handle by 4%, and continued to see healthy table drop in the casino. More recently, demand has remained healthy in the fourth quarter with strong growth in slot handle, table drop, and solid non-gaming demand. Now, Las Vegas year-over-year comps are increasingly challenging and I have said many times on these calls, trees don't grow to the sky. But demand from the high-end consumer remains stable and with $950 million of trailing 12-month EBITDA on around $5 billion of capital in the ground between Wynn and Encore, we're extremely pleased with the performance of our business here. Looking ahead, our luxury positioning and unique programming continue to appeal to the market's most affluent and therefore, most resilient customers, positioning us well to continue our leadership on the strip as we move into 2025. Turning to Boston, Encore generated $63 million of EBITDAR, up 4% year-on-year during the quarter. Demand was strong across the business with slot handle up 3%, table drop up 1%, and non-gaming revenue up 2%. More recently, demand has remained healthy through October, led by strong year-on-year growth in slot handle and stable non-gaming revenue against another tough comp. Turning to Macau, we generated $263 million of EBITDA during the third quarter, up 3% year-on-year. Demand remained healthy with operating revenue growing 6%, led by 10% year-on-year growth in combined mass table and slot win. While the competitive environment in Macau is clearly intense, we continue to focus on maximizing EBITDA rather than purely market share. To that end, we have several initiatives in place that focus on our natural product and service leadership that we expect will support and drive market share in 2025 and beyond. First, we continue to elevate our food and beverage programming with innovative new concepts, including four recently renovated and reimagined venues at Wynn Palace, the recently opened Drunken Fish at Wynn Macau, and the mid-2025 opening of our destination food hall at Wynn Palace. At casino, we are currently revitalizing and expanding the Chairman's Club, our most exclusive gaming area at Wynn Macau, and in the design phase for a similar expansion and renovation of the Chairman's Club at Wynn Palace. We are supporting these CapEx efforts with continued improvements to our recently enhanced loyalty program and our Only at Wynn events and experiences across culinary, music, entertainment, and sports. Longer term, our concession-related CapEx, including an event center and a production show, will support visitation and ultimately, drive share gains in a market where unique experiences are increasingly appealing to guests. We've seen the current competitive dynamic in Macau before, and we are confident that continued investment in our market-leading assets and 5-star service position us well to effectively compete profitably over time. More recently, October was characterized by healthy mass table drop, strong direct VIP turnover, and 99% hotel occupancy. We saw particular strength during the Golden Week holiday period where mass table drop increased almost 30% compared to last year's Golden Week. Our long-term outlook in Macau remains decidedly bullish. On the development front in Macau, we continue to advance design work on our event center and production show for Wynn Palace. In fact, I was in Shanghai two weeks ago reviewing initial rehearsals for our production show, and I was very pleased with the early work on the production. Turning to Wynn Al Marjan Island in the UAE. We were honored to receive the first land-based gaming license issued by the GCGRA back in early October. As I mentioned, we were delighted to share more details about the development at our Analyst and Investor Update Meeting here in Las Vegas a few weeks ago. Construction is rapidly progressing on the project with work now reaching the 24th floor of the hotel tower and over 3.6 million square feet of concrete and steel now in place. As we discussed at our update several weeks ago, we believe the UAE will be a $3 billion to $5 billion gaming market and certainly the most exciting new market for our industry in decades. I remain incredibly bullish about the future of our company. We have the best assets in the world's premier gaming markets, and our team is the most dedicated team in the business. We are investing for long-term growth with an exciting high ROI development in the UAE well underway, which is unique in our industry. Outside of the UAE, we are exploring potential greenfield opportunities in attractive gateway cities, and we have strategic land banks in each of our markets that provide additional development opportunities over time. Meanwhile, our leverage profile continues to improve as free cash flow grows, allowing us to increase the return of capital to shareholders through the recurring dividend and opportunistic share repurchases. Our best days lie ahead. With that, I will now turn it over to Julie to run through some additional details on the quarter.

Thank you, Craig. At Wynn Las Vegas, we generated $202.7 million in adjusted property EBITDA on $607.2 million of operating revenue during the quarter, delivering an EBITDA margin of 33.4%. As Craig noted, on a normalized basis, EBITDA was essentially flat year-on-year with lower-than-normal table games hold negatively impacting EBITDA by around $2 million in Q3 2024 and higher-than-normal hold positively impacting EBITDA to the tune of $12 million in the prior year quarter. OpEx, excluding gaming tax per day, was $4.2 million in Q3 2024, up 2% compared to $4.1 million in the prior year period. The Las Vegas team continues to exercise strong cost management without impacting the guest experience. Turning to Boston, we generated adjusted property EBITDA of $63 million, up 4% year-on-year on revenue of $214.1 million with an EBITDA margin of 29.4%. We've stayed very disciplined on the cost side with OpEx per day of $1.14 million, up less than 1% year-on-year and down slightly sequentially. The Boston team has also 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 $262.9 million in the quarter on $871.7 million of operating revenue with table games hold in the normal range during the quarter. EBITDA margin was 30.2% in the quarter, an increase of 210 basis points relative to Q3 2019. OpEx, excluding gaming tax, was approximately $2.55 million per day in Q3, up 7% year-on-year, primarily reflecting higher payroll and higher variable costs on increased business volumes, but flat on a sequential basis. The team has done a great job staying disciplined on costs and we remain well-positioned to drive strong operating leverage as the market continues to grow over time. In terms of CapEx in Macau, we're currently advancing through the design and planning stages on several of 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 now expect CapEx related to our concession commitments to range between $350 million to $425 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 $3.5 billion as of September 30th. This was comprised of $1.7 billion of total cash and available liquidity in Macau and $1.8 billion in the U.S. The past few months have been active from a balance sheet perspective as we continue to extend our debt maturity profile and improve our leverage position. In fact, pro forma for a few transactions completed in early October, we've reduced gross debt by $1.2 billion year-on-year, resulting in approximately $70 million of annualized interest expense savings. The combination of strong performance in each of our markets globally with our properties generating nearly $2.4 billion of trailing 12-month property EBITDA, together with our robust cash position creates a very healthy consolidated net leverage ratio of just over 4 times. Our strong free cash flow and liquidity profile allows us to reduce leverage while returning capital to shareholders. To that end, the Wynn Resorts Board approved a cash dividend of $0.25 per share payable on November 27th, 2024, to stockholders of record as of November 15th, 2024. We also opportunistically repurchased just under 1.5 million shares for $118 million during the quarter. And as Craig noted, the Board recently approved an increase of our share repurchase authorization to $1 billion, highlighting our continued commitment to prudently returning capital to shareholders. Finally, our CapEx in the quarter was $101 million, primarily related to the villa renovations and food and beverage enhancements at Wynn Las Vegas, concession-related CapEx in Macau, and normal course maintenance across the business. Additionally, we contributed $18.2 million of equity to the Wynn Al Marjan Island project during the quarter, bringing our total equity contribution to date to $532.6 million. We estimate our remaining 40% pro-rata share of the required equity is approximately $800 million to $875 million, fully loaded for capitalized interest fees and certain improvements on the Island. Importantly, we've also made meaningful progress on the debt financing for the project with significant interest from a diverse group of banks, both locally in the region as well as internationally. We expect the financing will be completed later this year, and we will update you in due course. With that, we will now open up the call to Q&A.

Hey Craig, Julie, everyone. Craig, maybe if you could start just kind of outlining as you look out to 2025 across the regions, some of the required revenue perhaps to maintain margins, what were some of the cost increases that you guys are forecasting?

Sure, Carlo. I caught most of your question despite a brief interruption. First, let me reiterate that we don't focus on margins; instead, we actively manage our revenues and costs while considering the brands. Looking at our key markets, Vegas and Macau, in Vegas, the high-end consumer is still performing well. We're dealing with very tough comparisons, as we've mentioned in previous calls. We've already seen the largest impacts from union payroll increases, and while there’s slight wage pressure, it isn’t significant. For 2025 in Vegas, it will mainly be about demand, and current indicators suggest we are in a solid position. Additionally, our retail lease revenue, closely linked to luxury retail, increased by 3.5% year-over-year in Q3, reflecting a strong consumer base here, which provides us confidence in our revenues, although comparisons are becoming increasingly challenging. Overall, we feel positive about our situation. In Macau, Q3 presented some unique margin challenges. While our market share remained stable, the Gross Gaming Revenue (GGR) declined because the overall market GGR was down quarter-over-quarter. We experienced higher VIP commissions this quarter as VIP turnover increased, despite flat VIP GGR. Retail revenue decreased by about $3 million, and we also had an extra day in the quarter that contributed to additional operating expenses. The situation in Macau was somewhat unusual. Nevertheless, our daily operations remained consistent. Ultimately, the competitive landscape and market share versus EBITDA will be crucial as we approach 2025, but overall, the outlook seems promising, and we feel confident.

Thank you. I have a follow-up question. Craig, you have mentioned several times about the competitive challenges in Las Vegas. Can you outline the headwinds you anticipate facing in the market in the first quarter compared to the Super Bowl last year? It would be helpful if you could provide some specific parameters around that.

We haven't discussed the additional EBITDA from last year's Super Bowl, and that's certainly a challenge from a comparison standpoint, but we haven't released any figures. The fourth quarter and F1 are looking quite promising for us. You can see that our room rates, compared to our competitors, are set at a significant premium over the rest of the strip. Even though this year's F1 has a later booking window than last year, we believe we are in a strong position, and the overall situation is shaping up well.

Great. Thank you very much.

Good afternoon, everybody. Craig, just starting on Macau. You mentioned or you touched on the competitive environment in Macau and what you're doing to address it with different changes to F&B and venue and loyalty programs and various programming. Does it feel if we look at where the market is today relative to the beginning of the summer that at least competitive pressures vis-à-vis reinvestment market-wide in the business is a little bit better than where it was today versus at the beginning of the summer?

Yes, it feels stable to slightly better, but it's still very competitive.

Understood. As a follow-up, October started off well with Golden Week and the following week. Since then, does it seem like a normal period, or are we noticing some improvement in visitation or spending compared to earlier in the year?

I believe my comments regarding October remain relevant. We typically do not provide guidance during the quarter beyond our prepared remarks. Therefore, I stand by what I stated earlier: Golden Week was excellent. You've seen the overall market numbers for October, and we feel confident about our position in Macau.

Thank you.

Good afternoon, everyone. Thank you for taking my question. Craig, I wanted to specifically ask about Wynn Macau, where the gaming business has performed quite well, especially this quarter, with mass market table drop up 10%. There has been a lot of discussion about this, but as visitation to Macau recovers, could you provide any insights on what you're observing at Wynn Macau?

Sure. I mean, it's really a testament to our team. If you rewind a year or so ago, the team had identified a number of areas where we could improve the physical experience, the food and beverage experience. Really, again, kind of like I mentioned in my prepared remarks, focus on the things that we are really, really good at that we know drive market share. They identified those, and we've executed those over the course of the past year or so. It is a fact that the more visitation you have given the transient nature of the downtown customer, that visitation will disproportionately benefit Wynn Macau. But I would put it much more down to execution and the execution that we have done over the course of the past year.

Thanks, Craig. That's helpful. And maybe a follow-up on Las Vegas table drop. I think you've mentioned in your prepared remarks that you're still seeing really healthy trends from the high-end customer, but I think table drop is down a little. One of your peers talked about some big players that maybe didn't show up this quarter and then you mentioned, I think, quarter-to-date in Vegas table drop is up. So, just wondering if you could give us a little bit more color on kind of what you're seeing in the high-end table play if there's kind of been any shift in customer trends from Q-on-Q or anything like that?

No shifts of significant note. Let's put it in a historical perspective. Six to eight years ago in Las Vegas, the business experienced a lot of volatility due to very high-end table play. Over the past several years, we have taken deliberate steps to grow and diversify our casino business. We still hold a significant share of the casino market and have reduced our exposure to extreme high-end volatility, which is reflected in the numbers. Regarding any specific quarter, it's possible to have one or two individuals who might affect the overall table drop. However, that's the strength of the Las Vegas model; it has diversification. We see hotel revenue up, slot handle up, and table drop steady or slightly down. This isn't indicative of a broader trend; it's simply part of running the business.

Sounds good. Thanks, Craig, really appreciate it.

Sure.

Thank you. I have a follow-up question regarding the decline in gaming revenue in Vegas. Was this primarily due to your international VIP play, or were there also some domestic challenges affecting domestic gaming revenue?

Julie, you want to take that?

Sure. Hi, Robin, I'm happy to take that. Look, I think when you look at the comps, you really have to take account of hold. So, when you normalize the hold year-over-year, that makes a big difference to that calculation. So, in terms of the applied increase if you think about country revenue of GGR, first normalize the hold. And then bear in mind that our ADRs have increased about 7% year-over-year. So, that meaningfully increases the GAAP cost of the comped hotel rooms that go through that line. So, when you take those two things into account, because we do the analysis all the time, you can really see there's no trend there. It's just a function of hold and higher ADRs?

Yes, I would just look at drop and handle, Robin. I mean drop year-over-year dropped down 4.4%, slot handle up 3.5%. So, the 4.4% is kind of what I was talking about with the last question answer. That can be a couple of people, but it's not really indicative of a broader trend and 3.5% in slots is great. So, we feel great about where the gaming business is here. And again, that high-end consumer continues to hold in there.

Okay. Thanks. And just as a follow-up. You talked last quarter about your group business increasing, I was wondering if you could sort of give us some outlook for group bookings for Q4 and for next year? And yes, just any comments on that.

Sure. Happy to. Brian, do you want to take that?

Sure. Hey, Robin. The outlook for group business remains quite healthy for the remainder of the year. And then we're pacing towards, as we've said before, a record year in room nights for this year at fairly strong ADRs. That's allowed us to build a really solid base for our team to yield manage the rest of the rooms and segments. And in terms of 2025, as we look forward, we get to a point where as you book more and more group rooms, you can really start to crowd out the other valuable business. So, particularly in a year where we'll have around 50,000 room nights out of service next year for our Encore Tower room renovation. So, overall, we expect 2025 to look a lot like 2024 in terms of group room nights, but we'll push on rate as our team knows how to do. So, pacing quite well and pacing like we were this year.

Looking 2025 looking like 2024 by intention.

Correct.

Okay, great. Thank you.

Good afternoon everyone. You significantly increased your share repurchase authorization this quarter. Can you discuss your approach to capital allocation, whether you plan to use that opportunistically or through a programmatic approach, and also share your thoughts on your capital expenditure needs both domestically and in Macau? Thank you.

Sure, I'll cover capital allocation theory and then Julie cover CapEx. Opportunistically tends to be the name of the game for us. We're not programmatic buyers of the stock, and we tend to buy back when we feel like the stock is particularly cheap. So, you saw we purchased $118 million during the quarter. We continue to believe the stock looks attractive at current levels, and that's why we raised the authorization. We're always balancing liquidity needs between capital deployment for growth like BAE, debt management. We've been deleveraging over the course of the past couple of years and then, of course, return capital. Julie, do you want to cover major CapEx?

Sure. And yes, there's not a lot more to add versus what we said in our prepared remarks, really, because we're now covering off on Marjan, but I think we've given really clear numbers on Marjan. From a Vegas perspective, obviously, we're continuing to invest here on maintenance and targeted high-return projects. So, on the project side, as I mentioned, we're renovating the remaining villas now that we've completed the renovation of the spa villas. And we're continuing to enhance the food and beverage program with new offerings. So, we have zero bond, we have a restaurant refresh with Fiola Mare, which will be replacing Lakeside. We're also planning to renovate the Encore Tower hotel rooms during 2025. So, we expect total project CapEx for the remainder in Vegas to be in the neighborhood of $300 million. And outside of that, the Vegas normal course maintenance CapEx is $75 million to $85 million. Macau, I think I covered in the prepared remarks, we've taken that range down a little bit. Now, we're getting close we're getting more certainty around numbers and also work close that period as well. So, that range has tightened a little bit on the concession commitments and then the maintenance CapEx in Macau continues to be. Normally, we look at about $75 million for what's going on there.

Got it. Thanks. And then just turning to Macau. Wynn Palace, I think the mass gaming volumes or revenues there volumes really were down a touch. Anything that's changed or evolved in terms of the environment on the ground as it relates to that property?

No, I don't think so. I think it's pretty consistent. All the remarks that we have made throughout the call regarding the state of Macau applied to Wynn Palace. So, no, not really.

Thanks so much.

Hey thanks. Just a couple of follow-ups on Macau as well. First, I think the RevPAR for the hotels was down in both segments. Just curious if there's anything to call out there? And then what are the expectations going forward on the hotel side? And I believe you also started to roll out smart tables early in the quarter. Is there any feedback on smart tables and the potential impact from those as we look into next year?

Sure. There isn’t much to interpret regarding RevPAR since occupancy levels are nearly at full capacity, so there isn't significant information to draw from that. Regarding smart tables, we are in the process of implementing them, with about a quarter of our tables equipped so far, and we anticipate a complete rollout by Chinese New Year 2025. This initiative provides notable advantages in terms of game security and reducing human error, which we've mentioned previously. Additionally, we have access to detailed bet-by-bet data that will enhance our marketing strategies. We have a well-defined plan for leveraging this data to introduce innovative marketing to our customers. However, we're not going to disclose those details during this call. The true benefits will be realized once we achieve a nearly complete rollout, as it will allow us to gain a comprehensive understanding of our customers. It's a bit too early to make definitive statements, but we are making progress.

So, just to clarify, I guess, when is that complete rollout set now or you need to collect some data for a period of time?

Next Chinese New Year.

Got it. Okay. Thank you.

Hi, good evening. Thank you for taking my questions. I see that you've expressed some confidence about Macau, but is there any specific evidence or impact from the stimulus that we can discuss? What specifically drives that confidence? Thank you.

I think it's a little early just to say it's having an impact. Demand during October Golden Week was encouraging, as I talked about in my prepared remarks. We were running 99% occupancy. But in the past, and I would encourage you to look probably early 2016 would be the most recent example of that scale. And you'll see that there was a pretty substantial positive impact on both visitation and GGR. But I think it's a bit early at this point to say if anything is testing through Macau.

Got it. And if I can ask just one follow-up detail. Along with the buyback, did you indicate whether the quarter ending share count is the same or whether you had acquired any quarter-to-date sort of post the end of the quarter?

I did not comment on the month of October or the first few days in November.

Thanks, David. Operator, we'll take one more caller.

Good evening, everybody and afternoon. Thanks for taking my question. I think Macau CapEx guidance went down from the prior range. And I guess it was just more of a wider guess of it before, but it's unusual, we see CapEx expectations moving in that direction. Can you just comment on sort of what changed if you can from a competitive standpoint?

Sure. In terms of the competitive standpoint, nothing has really changed. This is primarily about timing. We have made specific commitments regarding our capital expenditures, and it's all about when we can get this completed. As I’ve mentioned before, we are reliant on various approvals, particularly land use, which we cannot control. This contributes to a broad range of potential outcomes for our capital expenditures. We have been stating this for some time, especially concerning the remainder of 2024 and 2025. As we approach the end of that period, we have narrowed that range. Overall, it seems unlikely that we will be able to complete everything by the end of 2025, given our current status.

Okay. Thanks for that. And then just a quick unrelated follow-up on the New York licensure process, if you have any thoughts on that? And specifically, with regards to one of your competitors making a comment about having some hesitation around iGaming legislation? And if that is something that you guys weigh as well when you think about that opportunity?

Yes, I do have thoughts on that. I've seen the comments you mentioned and actually posted about it on LinkedIn back in March. First, I understand that states want to quickly generate tax revenue from online gaming, but there are significant implications, particularly for those working in the land-based gaming sector at resorts. If online gaming leads to a 15% revenue decline, that’s a substantial hit to your margins, which ultimately means fewer job opportunities for those affected. Additionally, there's the risk of long-term regulatory backlash. Having worked in the gaming market in Australia, I've witnessed how societal and regulatory pushback can occur when gaming expands too much. So yes, I see this as a concern. Furthermore, considering the billions of dollars involved and the potential to employ thousands of people, these are important factors to evaluate. So in summary, we are definitely monitoring the situation.

Okay. Thanks for your thoughts.

Well, thank you, Brandt, and thank you, everybody. With that, we'll now close the call. We appreciate your interest in Wynn Resorts, and we look forward to talking to you again next quarter.