Q2 2020 Wynn Resorts Ltd Earnings Call
Welcome to the Wynn resorts second quarter 2020 earnings call all participants Arnold listen only mode until the question answer session of today's conference.
You asked a question press star one on your Touchtone phone record your name and I will introduce you. Please limit yourself to one question and one follow up question. This call is being recorded if you have any objections you may disconnect at this time.
Well now turn a line over do Craig Billings, President and Chief Financial Officer, Sir you may begin.
Thank you operator, and good afternoon, everyone.
On the call with me today are mathematics, and Maryland Spiegel in Las Vegas.
Also on the line or even calling when a chance to run through others, but she's doing Bryan Goldberg 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 them.
Thanks, Craig and thank you everybody for joining today.
As we look back at what has occurred in 2020.
We made a decision back in March that we're going to invest in our brand and our culture.
When we closed our facilities in March.
In Las Vegas and in Boston.
And also the borders we're restricted in Macau, we decided to pay all 30000 team members, therefore wages and benefits through the closure.
Through the end of May.
Because we knew that over the long term our brand in our culture or what is going to lead us out of this and we'll continue to allow us to lead in this industry.
One thing that we did during the closure as we developed a comprehensive health and safety.
Guidelines. They in fact, I believe became the gold standard in the hospitality industry.
Of course, everyone now has the electrostatic spray and you'd be technology and all the organization efforts.
Famous Tim is OS thermal cameras as you walk in to take temperatures, but one of the things that I'm, particularly proud of is our testing capability.
Not only did we test all of our employees before they started.
But we developed an algorithm, where we surveil our staff and we test randomly five to 600 people every couple of weeks.
And we have 10 contact tracers in house.
To put that in perspective, we perform 16750 tests.
And 98% have come back negative.
Roughly 300 that were positive of our staff.
Contact tracers contacted them immediately into an extensive interview process, 99% of those 300 people were exposed outside of wins.
Each week I sit with and talk to the head of global Health Security and pandemic research and her team from Georgetown University going through our protocols and everything that we're doing and just last week talking about these numbers are response was when it's probably the safest place outside.
Oh.
Your employees and your customers go during the day.
That's part of our brand.
That's who we are and that's what we're going to live up to.
When we began preparing to reopen on June 4th in Las Vegas, we knew that our brand in our culture, where imperative that so as our cash.
And all along I had been very clear that we're going to be staffing to demand when we open.
We made some tough decisions rightsizing our expense structure.
As Weve opened.
And in the month of June 26 days at Las Vegas on a normalized basis.
We made roughly $9 million and EBITDA.
Our focus here is that we continue to keep our brand and keep our culture attack, but also keep our cash we're going to continue to focus on breaking even for making money.
We didn't notice in Las Vegas, there was some pent up demand in particular from California. As we opened in June we were receiving roughly 4000 reservation today, it would be spread over the upcoming two weeks.
And then as the virus begin to spike in our key drive in markets in California, and Arizona, We saw a downtick in reservations roughly 25% here when after the fourth of July.
And we staffed appropriately we're managing our business everyday based on that reduced demand and sitting here 35 days into the third quarter, our EBITDA is roughly $5 million.
During the week.
And the visibility is quite murky because it really is short term bookings from our drive end markets.
Moving on to Encore, Boston Harbor in Massachusetts.
Clearly we were not open in the second quarter, we opened that property in mid July on July 12th actually an encore Boston Harbor is experiencing what many regional casinos are experiencing around the country.
Slot volumes are actually quite good there in fact up over last year on significantly reduced units.
Table volumes are off and probably disproportionately in Massachusetts relative to some other jurisdictions because of the.
Very tight restrictions that are in place as.
As an example, craps and roulette are still not open we're working closely with the MGC to show how we can do that in a very safe way and the number of physicians are limited on the table side. So I.
I do think there as more demand and supply for table games in our local markets there and it's really just limited by our current restrictions.
In Macau.
The second quarter was similar to the first quarter and what is good about Macau is the direction of travel.
Feels like progress.
So I'm sure as all of you on this call that are watching noticed that every two weeks, there's a slight reduction in the restrictions traverse should restrictions going to Macau, whether it was eliminating the quarantine between the Guangdong province in Macau.
And then allowing for non tourist pieces to be issued beginning this month and continued talk among various people about when tourist pieces. The individual visa scheme for the travel bubble of the Guangdong Province, and Macau will begin.
Well, we do not have any dates on when that will start we are confident that that is going to be happening in 2020, and each week, there seems to be a new small incremental step forward and once that travel bubble begins to open and people in tourist visas are being issued Macau will be.
Back in business.
So before I hand, it back over to crack to give more color on the quarter I just want to stress that we are going to be focused on leading in our industry.
Maintaining our brand maintaining our culture and maintaining our cash so there will be winners and losers that come out of this and when this is over and we come out we want to make sure that we have the capital available to grow and we have the culture in place to take care of our people and our customers.
That Iga and turn it over to Craig for additional thoughts.
Thank you Matt.
I want to remind everyone that the results presented in our earnings release reflect the closure of Wynn Las Vegas through June three and the closure of Encore Boston Harbor for the entire quarter.
As Matt noted subsequent to reopening in Las Vegas, we generated approximately $9 million of normalized EBITDA from a business that is heavily weighted to weakened occupancy.
In the casino slot business has been resilient with handle per operating day in the second quarter up 2% year over year, while table drop per operating day was down 31% year over year, primarily due to lower baccarat volumes.
In light of current forecasted business trends in the absence of a number of key visitors segments. The team at Wynn Las Vegas is made adjustments to our business subsequent to reopening including to staffing.
As a result, our daily Opex levels, excluding gaming taxes in Las Vegas have declined 40% from Q4 2019 to approximately $1.8 million per day in July.
We are focused on cash generation in Las Vegas, and as Matt noted, we expect to breakeven we expect to be breakeven to slightly EBITDA positive over the next few months a substantial improvement over the daily cash burn rate, we experienced during the closure.
In Boston, we reopened in early July with a number of safety related operating restrictions in place.
Reopening plan there was focused on opening only those amenities that support the casino, including the closure of the hotel on most weekdays.
Overall, we have seen encouraging trends in the casino, particularly in slots with handle per operating day up approximately 7% versus Q4 2019.
Similar to Las Vegas, we made a number of operating and staffing adjustments, resulting in a reduction of daily Opex. Excluding gaming taxes from Q4 2019 of approximately 33% to 830000 per day post reopening in July.
In Macau business volumes remained subdued throughout the quarter due to ongoing travel restrictions in place in the region.
While we await their words the return of visitation to the market. We have made certain opex adjustments with a focus on non labor fixed costs.
As a result, we anticipate that we will breakeven at approximately 40% of Q4 2019 gaming volumes until that point, we anticipate a gradually improving daily EBITDA burn of $1.5 million to $2 million per day.
As of last Friday July 30, Onest, our global cash and liquidity position was over $3.8 billion, providing us with significant runway to weather the pandemic.
In Macau, we had approximately $2.5 billion available liquidity as of July 30, Onest and in the US we had total available liquidity of 1.3 billion as of July 30, Onest with a substantially lower domestic daily cash burn subsequent to the reopening of our us based properties.
Our capex in the quarter was $52 million as noted last quarter. The vast majority of our Capex plans remain on hold and we are only proceeding with our highest priority projects.
Lastly, I'd like to remind everyone that in the first quarter of 2020, we accrued $75.7 million of Opex associated with our prior commitment to pay our domestic team members full wages and benefits from April one through may 15th and thus this amount was not included in Opex in the second quarter of 2020.
Additionally, corporate expense in the quarter benefited from a $27.7 million net gain in relation to a derivative litigation settlement that the company received after the close of the quarter.
With that we will now turn the call over to Kuni.
Thank you.
To ask a question press star one on your Touchtone phone on mute your phone record your name clearly after the prompt and I will introduce you for your question. Please.
Please limit yourself to one question and one follow up question to withdraw your questions. You May press star to one moment. Please in the first question.
Carlos Santarelli from Deutsche Bank, You May go ahead Sir.
Hey, guys good afternoon.
Craig you just mentioned in your remarks.
It's been about 500 basis points out of the requirements of breakeven in Macau.
What's that 40% of 14 TDR that would be required.
That ROE your comments earlier with the every two weeks somewhat.
Loosening of policies.
That's correct word to continue.
And we were looking at kind of a little bit more frequently travel coming out of Guangdong.
Is there the potential that we could see that 40% level at any point this year or presumably in the fourth quarter, even if just quarter bunker too.
That's what we discussed internally and how we think about 2020 as that.
In the fourth quarter, where we are hopeful to be at that level.
Okay great.
Craig just in terms of of the.
I could point of clarification on the.
Opex for Macau, He said that the current run rate at current revenue levels is a one and a half to $2 million per day burn rate is that correct.
2 million would be in a zero revenue environment, and one and a half would be in a modest revenue environment. We it's a very fluid situation based on all the.
The visa points that have been discussed AD nauseum, but thats, how we think about it at this moment in time.
Great. Thanks, guys.
Thank you and our next question comes from David Katz from Jefferies. You May go ahead Sir.
All right afternoon, everyone. Thanks for taking my question.
With respect to Las Vegas side.
Yes.
Your commentary around Macau suggests we are where we are as it improves but with respect to Las Vegas.
And the recovery there.
What strategies have you thought about oh in terms of generating demand or changing the mix of demand at those properties.
In the near term as the world evolves.
Yeah. So it's certainly a very different business model were effectively a super regional casino right now so without the convention base without the the night club crowd without the large shows.
We become Super regional so we're really focused on promos on offers we have partnerships with jets. We decks, we're doing lots of things to try to get people to come here more often basically from California and Arizona.
So frequency and worth to spend more so.
The market is very promotional right now, obviously and we're focused on our database and driving more casino revenue non gaming revenues down for us by two thirds and that was two thirds of our business. So we're doing everything we can to get heads in beds in the hotel and really.
They focused on how we can get more of our drive end market here on a more frequent basis.
Understood and if I can follow that up.
With respect to getting groups to come and obviously, there restrictions that are evolving and.
Hard to know.
When your team talk to grew planners are meeting planners about what kinds of changes you may need to make.
What have you planned or done so far to prepare for the fact that there'll be some new normal at least to start out for groups to come out.
Yeah, sure I think that.
No one can predict the future right now so groups are all holding off until you know kind of late spring 21 into the back half of next year to decide what's going to happen and what they need one thing that were doing which I think it's probably different than most of our peers as I'm spending a.
A lot of time on point of care testing Theres, a couple of really exciting technologies that are moving forward and we are in line if those get there.
Emergency use authorization under the FDA because I believe if we can have onsite point of care testing that provide pooling, meaning we it looks like you can do 10 people at a time with a five minute turnaround that that changes the game for groups. So maybe you are not waiting till the mid next year.
If you can actually have point of care testing to show that everyone walking into this space.
His kobin free I think that that could accelerate I don't know how much by months.
Our ramp up of some of the smaller groups that stuff has not been approved yet by the those point of care attached or not approved yet by the FDA, but they're moving fast and the cost, especially with.
Pooling are coming down significantly.
So I think my belief is that sort of the bridge that we need to get to in a place that requires a lot of people to be together before where into the the vaccine because I think as everyone knows.
By the time, that's approved and rolled out and implemented those things are complicated take a lot of time.
So those are the type things, we're talking to our groups about in addition to all that.
Social distancing measures and everything that we do.
To provide a really safe experience.
And so the conversations are ongoing but.
Say that we knew when groups and start coming back is that I think it's too early.
Yes, Okay. Appreciate it thanks very much.
Thank you. Our next question comes from Joe Greff from JP Morgan You May go ahead Sir.
Hey, guys I'd like to play a a theoretical.
Oh, yes, good question to going to get a sense of maybe how important in Hong Kong.
And travel to Hong Kong, maybe them.
Hortons Macau market is the idea is fully restored.
There are no issues there.
But for whatever reason Hong Kong is shut Macau, what percentage of Macau market comes back from a Gigi our perspective, maybe taking into account ways that Keith.
[noise] could certainly coupon travel other ways to get to Macau.
Yeah, sure I'm going to let Ian take that one.
So visitation from Hong Kong job is between 17 and 18%. If you look at last year and from a GR perspective, we're probably represents nine or 10% of last year's Gigi or we actually think locally with the closure of Hong Kong for PRC travelers once the Guan.
On mobile fully opens with tourists visas seems to Macau, we will get the benefit of Hong Kong being closed to mainland Chinese customers. So Hong Kong as a good market for us, but we really believe the power comes from Guangdong and 21 of the 47.
I view cities are in Guangdong, so once that opens up we believe fotopoulos our business significantly.
Great. Thank you and then create back to Las Vegas, He said with the some of the staffing changes you made more recently July daily Opex per day was 1.8 million is is that a run rate after the staffing changes or is that sort of an average with.
The full amount of of a monthly staffing labor opex differential in there. It's the former Joe It is the.
The latest state of play based on what we have in place right now.
Great. Thanks.
Thank you enter next question comes from Felicia Hendrix with Barclays. You May go ahead.
Hi, Thank you I'm just thinking on on Las Vegas, and you kind of touched upon this before Matt in terms of how you're trying to drive.
His attention to the property.
HM.
Okay, how your youre managing the property and I know, it's tough now because you don't really have the benefit of all the levers you can have in a normal environment is occupancy is what is that sort of thing, but just wondering how you're thinking about on kind of including price integrity.
And or and then also if you could just help us understand the percentage of room nights and.
In terms of convention groups versus too in terms of 2018, if we could just where you were there. Thanks.
Sure So you're right about pricing power Felicia, it's very complicated in fact that every day at 11 45, we have a yielding meeting looking at all the trend everyday because the market. So short term and the ability to move prices quite tough so customers are.
Moving on price, we're attempting to yield going into weekends. When there's a lot of last minute bookings coming in in particular for one day stays on Saturdays.
And so those are really the opportunities midweek very very tough.
It's a you know if you go online you can see where the market is pricing and so it's really the customers are choosing midweek and on the weekends as where were attempting to yield as best we can.
Mailing you want to talk little bit about the convention mix and 20 maintain and what it would what it means horse now well for for now clearly there's not much left on the books for 2020, and you know they're small groups that were trying to refill we have the advantage of having one at a great facility and two very long term relationships with our.
Our convention sales folks that we've been very successful in rebooking them, you'll see that the second half of 21 is going to be a very strong 20 to 23. So people are coming in they are seeing that first quarter of 21 is a lot about what's going on with CES and Howard the other group.
Going to be falling out, but we see that buyback April theres some firmness.
In the market clearly 2000 every year ahead of this first quarter in second quarter or the best quarters, and so are we missed that this year and it's too early to tell for the rest at 2020, if there's any business and in 2021. The first quarter is a question mark because he's going to.
In addition, calm, but we do see firmness by the time April shows up all the way through the rest of the here.
Thanks, and just normally around a third convention correct.
Okay. Thanks, and then and as my follow up just.
Hypothetically you know the idea gets reinstated tomorrow.
What do you think the lag period is in terms of when you would start to see that traffic being able to come to Macau.
So there were home, hoping there is going to be a clamor for visas and that some of the visa offices will get jammed up but we imaginable to your over a couple of weeks.
Start to see meaningful traffic within two weeks.
Okay, great. Thank you.
Thank you. Our next question comes to Shaun Kelley with Bank of America. You May go ahead.
Hi, Good afternoon, everyone on just wanted to follow up onto my comments on Las Vegas, Matt Your comment on the Super Regional kind of comparison was it a little interesting and and we get a lot of questions on the idea around on sort of Vegas is run rate margins I think we all know you know that the regional markets are performing.
Quite well.
It just kind of curious on your thoughts on.
Now that you've lowered the operating expense run rate a little bit on your undoubtedly learning I touched on the fly about what you can do and how customers move in and operate in the buildings on you is there any component of what's going on right. Now you think you can extrapolate into kind of the future of what Las Vegas is margin structure might look like I appreciate its wildly early.
In theoretical but just your thought process there Ah, yes, sure and when I said Super regional or what I meant by that was our customers are coming from Dr. end markets.
But our revenue as you know our revenues are not like a regional market revenue in two thirds of our business is non gaming and you know that's down by 60 plus percent. So even though were getting gaming spend is okay.
You can't cut your way to better margins without absolutely, destroying your brand and culture and company.
Can't do it in our market and and you know we're not going to so while we you know our expenses are down almost 40%.
We're focused on EBITDA and not on margin because we want to make sure we're making cash we're preserving our cash flow and we're preserving who who we are for the long term.
Got it that's that's helpful. And then you just maybe sort of similar idea around Boston right. I mean, this property was in a ramp up pace of really hard to get our arms around but as we think about other regional markets. You. We have seen numbers that have really been you shockingly good as it relates to the broader.
Margin profile there.
Just any sense of where 830000 per day gets you to or where does that property kind of pencil out as you get to kind of targeting you know potential around EBITDA breakeven or positive. There is that possible on these types of opex numbers or do you need more volume.
Yeah, sure that's possible and I'll, let Craig take that and then have Brian provide some color on our customers there sure.
Yeah, you're right Sean if you look back to Q4 19, we had about 1.3 million in Opex today, it's about a 30.
If you if you think about what's happening in the business, we mentioned that slot handle was up.
Pretty significantly versus Q4 table drop is down about 30%, but were down about 50% in terms of positions. So.
We can obviously breakeven in this environment with the Opex reductions that we've done and as that table volumes comes back we anticipate that not only will be generate.
Pretty meaningful EBITDA some of those expenses will come back, but a good chunk of what we've done is is more permanent in nature, and we're not going to open any amenity unless it's accretive.
Great that's helpful.
Brian do you have anything you would add to that.
No well said.
Thank you.
Thank you and our next question comes from Thomas Allen with Morgan Stanley You May go ahead Sir.
Hey, good afternoon curious updates on your whether its views on operating it gets you know in Japan. Thank you.
Sure So I.
I think is most of you that have been following us our efforts in Japan over the last decade have been more monitoring as opposed to being really active.
We.
I have been monitoring that situation for years and years and years and back in March.
So we decided that until there's more clarity on what the business is going to look like.
What the world is going to look like and what the regulations really are over there they were pretty much ceasing. Our efforts we did that about four months ago. It doesn't mean that we're not interested in the market. It just means that right now it's not a focus for our company.
Thanks helpful. Matt and then just in terms of the U.S. you know I think the view that would covert hitting state budgets you may see some progress there were more legalisation potentially in New York sets in Georgia.
Any interest in an expanding in markets like that.
You know I think that each one would have to be able to support what we do.
We would a you know there are you know clearly I think the Atlanta market or the New York market under the right regulatory environment under the right tax rate under the right surrounding community agreement is something that we would take a look at but without seeing what would be required a you know I can't say that any of.
Those would be attractive for us right now.
Okay. Thank you.
With that we'll take our last question.
Thank you and that comes from Stephen Grambling with Goldman Sachs. You May go ahead Sir.
Thanks for sneaking me and on Macau, How would you characterize this national health and relevance of the junkets and driving a recovery and how are you should investors be thinking about any additional credit in VIP direct we're ramping up other martina attract customers once restrictions bid into less bad yes, sure a fund topic, we talk about quite a bit internally here.
And why don't you take that one.
I missed the first part of the question the line broke.
Junket Hell.
John to help.
Well, we've got a handful of the largest junket operators when mccomb Wynn palace. So they've kept their teams together there like ourselves there waiting with bated breath for the resuming of tourists visas and from the outside they look we'll capitalize them we deal with the bigger.
Operator, so we believe that their business was built will build aligned with our business.
And your some of the second part I mean do you should be generally be assuming that there's some form of a promotional support either VIP directs or [noise].
In terms of credit being extended or ramping other marketing.
Either from your interest anticipating it across the broader group is restriction Atlanta.
The general sentiment locally among the operators is we're not going to called each other's throws everybody's going to be reasonable about marketing expenses.
The we're hoping for lots of activity once the tourist pieces come back and I don't believe that we'll see a huge increase in marketing expenses.
Okay helpful. Thanks, So much best of luck.
Thank you.
Alright, well. Thank you everybody for joining us today like we look forward to talking to you next quarter. Thank you.
And thank you. This concludes today's conference call. You May go ahead and disconnect at this time.