Q3 2020 Wynn Resorts Ltd Earnings Call

Welcome to the Wynn resorts third quarter 2020 earnings call. All participants are in a listen only until the question answer session of today's conference.

Question.

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 I would now turn the line over to Craig.

Fillings, President and Chief Financial Officer, Sir you may begin.

Thank you operator, and good afternoon, everyone.

On the call with me today are magnetic smelling Spiegel in Las Vegas also on the line are in Colin Linda Chen John Carruthers, She token 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 to mathematics.

Thanks, Greg and thank you for joining us today, everyone I'm sure everybody's glued to the television watching these exciting election results right now so we'll just we'll get right into it on our results here I'd.

I'd like to start in Macau.

So the third quarter in Macau was really very similar to the second if there wasn't a lot to talk about we're still seeing roughly 8% to 10% of our visitor volumes compared to pre called at levels.

And it was really high there was just not a whole lot going on.

As everyone has been seeing.

The government of Macau with its deliberate approach and steadfastness has been working very hard to continue to open Macau.

Macau is probably one of the safest places on the planet and the ankle they'd go vacation months and months and months.

And everyone. There is really excited to see the progress that's going on.

So as an example in the month of August in Macau, Our EBITDA line was negative 40 million.

Because there was very little revenue and we're we're carrying our cost our team's doing a great job saving money, where we can being more efficient while protecting the local employment and all of our employees.

However in October we started to see those trends change.

So we went from 10% of our normal minister volumes up to almost 30%.

And it wasn't just over Golden week, it was actually throughout the month and in fact I looked at our visitor data from November 2nd third and fourth at Wynn Palace before I walked in here and we're seeing roughly 6000 people a day come into building a pretty covered that number was 18000.

So those trends that we saw in early October are continuing into November.

From a revenue standpoint in October.

Yes drop on our on the table side was roughly 40% of our pre coven levels.

And on the junket side, which everyone's been talking about the junket business, what's going to happen to it is it going to survive where is that going to go.

Clearly, it's changing clearly it will be small or even as we come through this than it was before but it's still very real well.

We saw 30% roughly between 25 and 30%.

In turnover compared to our pre coven levels in the junket space.

So that activity.

Produced.

Actual positive EBITDA for us in October. So if you think about it we went from a negative $40 million in August which was normal similar.

Similar in July et cetera to a positive six in October quite a big swing.

Closer to 28.

Some of the things that are encouraging that we're seeing in Las Vegas is we are taking share in the casinos segment, we're seeing new domestic customers that we've never seen before that previously were lifers at some of our competitors and I think for all of the reasons that we've been laying out from our security protocols of checking.

Everyone when they walk into our Covid protocols to all of our restaurants being open. We are beginning to continue we're not beginning we are taking market share on the casino side.

Slots in the market where down over 33% during the quarter and we were down 16 table.

Table drop was down about 35% and the quarter and we were down 25. So we're just seeing more business, we're seeing higher end customers not not a lot, but we're seeing that I believe we are gaining share on that front.

In October in Las Vegas, we actually had our best month, we generated roughly $14 million of EBITDA in October.

We had a little bit of hold luck in there maybe $2 million, but overall it was it was a very good month.

Now as.

As everyone on the call knows Las Vegas has seasonality and we're coming in to the slow time. So covid cases are picking up in the U S. Obviously and November December quite slow in Las Vegas and have been heavily reliant on group.

So our team Wow. So October will not be repeated in November and December but it shows that when there is just a little bit of business with the way we have restructured our expense line the amount of operating leverage that we have now revenue quickly convert into EBITDA and our focus.

As things do get a little slower during the winter is to make sure that we stay EBIT positive. That's what we're going to do in Las Vegas, and I would think it's hard to tell but I think when Las Vegas, probably was the most profitable integrated resort casino on the strip or if not the most it.

It was definitely at the top of the list. So our strategies working we're maintaining our brand we're maintaining our culture, and we're making a little bit of money.

Moving to Boston.

Encore Boston Harbor as is really starting to hit his stride.

So we generated roughly $26 million in EBIT significantly more than we ever have in the past.

During the quarter and our team has really learned how to be a super regional operator.

Focus during the shutdown on how to run Encore Boston Harbor differently than we were because clearly we were doing was not quite right.

And so we have we've had a laser focus on the casino segment and what it is that those customers want and how we're going to deliver it and.

And if you look at our results.

Slot handle per day, just overall volume per day was actually up over last year.

It's pretty extraordinary when you think about we had 1800 slot machines open during the third quarter compared to 3000 last year and volume was higher on a daily basis.

Per unit was over $400 on the 1800 units of I think 407 compared to 219 last year.

So encore Boston Harbor is really starting to understand how and we are starting to understand what that market is how to market to those customers and how to monetize there.

Massachusetts recently, just this week announced that starting over the weekend restaurants bars casinos et cetera will need to close covid related starting at 930 at night, that's clearly a setback for us, but it's very temporary.

And I'm sure. It's the right thing to do from a health perspective, the government, Massachusetts has done a terrific job throughout all of this managing this from Governor Baker to the Massachusetts Gaming Commission.

So we view it as a temporary setback, but it's really nothing that were worried about because our business model is sound and I think that we're going to continue to see increases in revenue increases in EBITDA out of awkward Boston Harbor.

Moving on to one more topic. This is a new one for us.

There's been a lot going on in the gaming world concerning.

Sports betting and in particular online sports betting.

We've been very focused on this topic for the last couple of years, but we've been admittedly quiet about it.

In 2019.

Working with Craig Billings, who is helping me run this effort, we decided that we wanted to focus on product first.

So how could we have the best product because that is who we are when it comes to sports betting online sports betting we scoured the Earth and we found the company in the UK called bet ball.

And the founders and the operators that company, we had a great cultural fit there. The they were the founders of be win and party and understand this intimately and they built a product in the UK that was really very social.

So the engagement that they had with their customers was quite extraordinary and therefore, they're kpis, we're really really good. So when you see your friend, making a bad it will pop up on your phone do you want to follow your friend, it's very parlay heavy it moves you into chat rooms quickly it's fun.

It's a lot of fun.

And their user acquisition cost in the UK and their ltvs, we're quite attractive relatives in this industry standards. So we made an investment in that company in 2019.

And began working on a U S rollout.

With them we.

And then move forward and we acquired that company, we owned 70% of that company now and they are fully integrated and we have 150 people inside wind interactive.

And we've begun R U S rollout.

So quietly but.

We can talk about it we have signed market access deals and the United States in nine states.

That represents about 25% of the total addressable market I think a lot of analysts on this car.

Call say that that's roughly $20 billion to $30 billion. So we already have access to 25% of that and we're in very active dialogue.

Definitive documentation in many cases on seven additional states, which represents another third of that market.

So the way that we're going we think that will have more than half of the total addressable market to market access deals.

U S. We had total available liquidity of approximately $1.2 billion on October 31, with substantially lower domestic daily cash burn as demand has started to return to each of our markets. Meanwhile.

Meanwhile, we continue to be very focused on operating expenses compared to the fourth quarter of 2019, our global FTE count has decreased by nearly 7500 or 30%.

Our global payroll and non variable expenses have declined by nearly $200 million or 34% leading to consolidated opex per day inclusive of corporate and exclusive of gaming taxes, a $4.8 million compared to seven $6 million in queue for 19.

While these are often difficult decisions many of the changes we made to achieve these decreases are permanent and will drive operating leverages business volumes return.

It's important to note that the three Q Opex numbers I, just mentioned and those that I will mentioned throughout my remarks exclude the benefit of a reversal of certain payroll an incentive accruals totaling approximately $50 million, which are reflected in our earnings release.

In Macau is Matt noted we've been encouraged by performance during October as we delivered positive normalised EBITDA during the months driven by solid gaming and non gaming performance.

As well as a continued focus on cost controls gross gaming revenue per day in October was approximately 33% Q4 2019 with premium mass strengthening into the later portion of the month.

With respect to cost controls are opex again, excluding gaming taxes, and excluding the reversal of certain performance based incentives accruals in the third quarter was approximately $2 million. This is down from approximately $3 million in queue for 19.

When Las Vegas, we generated $23 million adjusted property EBITDA or approximately $28 million adjusted for lower than normal hold from a business that is heavily weighted to weekend occupancy.

And the casino, we saw broad based strength across key segments with both table drop and slot handle reaching 78% of Q4 2019 levels during the quarter.

We remain focused on cost disciplined in Las Vegas, with our Opex per day, excluding gaming taxes, and excluding the reversal of those performance based incentive accruals decreasing to $1.8 million per day in Q3, 2020 from $3 million per day and keep for 2019.

In this environment of suppressed group demand, we expect recent trends to generally continue throughout Q1 21.

We believe the combination of meaningful permanent cost saves along with increased group demand position as well to accelerate our recovery as we move into the back half of 2021.

In Boston, we reopened in July with a number of safety related operating restrictions in place.

As Matt mentioned are reopening plan there was focused on operating only those amenities that support the casino.

Overall of we have seen encouraging trends in the casino, particularly in slots with handle per day operating day up approximately 5% versus Q4 19 similar to Las Vegas, We made a number of operating and staffing adjustments, resulting in daily Opex.

Down from Q4, 2019 by approximately 40% to approximately 750000 per day in three Q2 thousand 20.

Our capex in the quarter was $69 million as noted last quarter. The vast majority of our Capex plans remain on hold and we are only proceeding with the highest priority projects.

Finally in October we entered into a series of transactions, resulting in the creation of wind interactive through the merger of bet Bowl, our strategic partner for digital gaming and several when owned entities I'd.

I'd like to welcome the vet Bill team to the wind family.

This new subsidiary went interactive is 71% owned by wind resorts and positions as well to advance our sports betting an online casino business. During 2021 when that are sports betting an online casino application has been live in New Jersey for several months.

And while it's early days initial returns on our user acquisition spend I've been encouraging over.

Over the next two quarters, we anticipate going live in Colorado, Michigan, and Indiana, We have posted a series of slides on our high our website further outlining the wind interactive business. We're excited to tell you more about that business as it develops in 2021.

With that will now open up the call to Q&A operator.

Thank you to ask a question press star one on.

Your Touchtone phone on your phone record your name clearly after the prompt and I'll introduce your question. Please limit yourself to one question and one follow up question to withdraw your question Press Star too.

Our first question comes from Carlos Center Alley.

Your line is open.

Hey guidance.

Good afternoon, and thanks for all the details.

As you as you see kind of Macau, starting to to ramp up in shape up obviously and you guys mentioned that your remarks. The premium mass performance has kind of picked up through October when you think about the VIP environment and the the premium mass environment. If you look out you know look over the next one to two to three.

Three years.

Relative to 2019, how would you characterize your expectations for the mix of those to those two segments with within within the G. G aren't channels.

So.

If you look at our business model.

Carlos we're not reliant on 50000 people coming through our doors a day, we are in the premium business. So we feel quite good about the premium Madison premium slot segment.

There is continued customer demand lots of people like to point out.

Various issues, but when you think about Macau, it's position and how important it is and the greater Bay area and the development of Macau into a global destination global tourist destination for the Greater Bay area, we feel very very good about our position in particular on the premium massage Oh.

For the next couple of years.

We have the right product as far as junket again lots of conversation about junkets that business is not dead is it some people like to say, we saw get back that 25% to 30% of its previous levels. I believe it will continue to consolidate with some largest operators and.

We will continue to participate in it so I don't anticipate the junket business will be back to 2019 levels.

Because it is consolidating and it is shrinking but then the cow market overall is very well positioned to be one of the top tourist destinations in Asia over the next three years.

About future.

Intentions to to find and investing when attractive and.

I guess when you look at it now how sufficiently capitalize it to fund growth.

No into Colorado, Michigan, Indiana, and another markets.

Sure Joe.

First of all we're big believers in the segment the.

The digital businesses as you know is all about customer lifetime value and marketing spend to obtain that lifetime value.

Significant chunk.

We'll stay out of the business and that's how we'll drive operating leverage as the business returns.

Okay. Thank you Ron and then just moving to back then and Matt You said that you thought that the curfew would be short lived and as we think about the impact of the curfew and what is your customer mix, usually look like at night versus during the day. It was like more sets during the day or just in the traffic with heavier at night.

Just kind of what kind of impact do you think the curve you might have on the property.

Sure so.

Clearly it will have an impact so more than half of our revenue is generated.

Between.

Right. So closing at 930 years is going to have quite an impact we what we're going to do is we're going to have a much.

Lower operating expense so we're likely you know.

Going to see.

Our ft Count go down by somewhere between 670 and 1000 people. During this so we will continue I believe we will continue to be able to be EBITDA positive, but it's.

It's unclear how much we want to stay above zero. During this closure because again more than half of our revenue is generated at the time when.

We'll be close.

Premium match in premium slot heavy and that has been the focus of Linda Chen and Candy and are full marketing team and they are doing a very good job there and I think we are really well positioned given that the overall crowds of our customers will likely be worse.

Think will will be getting back to 100000 people a day in the short term.

So focusing on the higher end in the premium segment, which is where we are I think we'll actually be an advantage in terms of our EBITDA, an EBITDA share in the market.

Thanks for that and sort of a follow up on on the same theme I mean, Craig you walk through some some of the operating expense statistics, and you talked about and for Vegas, but you've also been able to probably optimize Macau a little bit more than I appreciate that the head count pieces not.

Lot of discussion about how competitive the new Jersey market is having operated there for a little while and Craig and the team the XP when team having operated in Europe does that concern you at all and then can you also just talk about the the the NASCAR partnership a little bit. Thank you.

Like everyone's being.

Not promotions or and check people are.

Just focused on trying to do what they can and watch the watch the market come back, but Ian is there anything or Linda that you'd like to add to that.

There hasn't been any shifts in increased promotional activity everybody's being very measured and careful about it so I don't nobody's.

Gone Crazy at this point, there's enough business going around premium masses, a story in the town, we feel particularly encouraged because it's our market when we've got two niece property. So.

Nothing nothing unusual.

What you're anticipating in terms of international demand Indoor group meetings convention demanded covering.

So this is marilyn the international demand that we're seeing it for the casino side is Lim.

Back on top of an Opex base that is lower than it has historically been it's a pretty good recipe for operating leverage.

What are the things that we've.

We've done.

Is.

We will finish this year our own.

<unk> Covid testing lab.

And we've partnered with.

Yeah.

[music].

Thank you for your participation stays conference you me disconnect at this time.