Q4 2020 Wynn Resorts Ltd Earnings Call

Welcome to the Wynn resorts fourth quarter 2020 earnings call. All participants are unlisted all of the and so the question and answer session of today's conference to ask the question Press Star one on your Touchtone phone record your name and introduce you. Please limit yourself to one question and one follow up question.

Call is being recorded if you have any objections you may disconnect at this time.

I'd now like to turn the call over to Craig Billings, President and Finance Chief Financial Officer, Sir you may begin.

Thank you operator, and good afternoon, everyone on the call with me today are mathematics, and Marilyn Spiegel and Las Vegas also on the liner and Colin Linda Chen share on Carruthers, Frederic the suite, Joe and Brian 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'll now turn the call over to Matt Maddox.

Thanks, Greg and good afternoon, everyone.

Thanks for joining us.

We clearly made progress and the fourth quarter. This year as all of our properties, we are actually EBITDA positive.

The real Testament to the team the way, we've been able to streamline our cost structure and take more of the revenue to the EBITDA line and in fact, I think our company is and the best position, it's ever been and to translate revenue and the EBITDA as more of the business comes back because it's going to.

We continue to anticipate that we're going to see growth month over month and each of our markets and we are well positioned with the way that we've streamlined our business.

If you look at Macau, we generated $39 million of EBITDA for the quarter and.

And the Macau is continuing to see progress the the government there has been very thoughtful and very cautious as to the way that it's been.

Allowing people into Macau, and we feel confident that that growth is going to continue.

One of the positives of 2020 was the.

<unk> been able to spend a lot of time thinking about the future of Macao.

And really what the growth drivers are going to be going forward and.

And it's crystal clear that the growth drivers for Macau of really the sweet spot of our company and Thats the premium segment.

<unk> of mass in particular.

So we spent a lot of time reconfiguring our properties over the last six months to cater to that customer.

We've turned restaurants of buffet and to a hotspot restaurant and we've taken Michelin star restaurants, and created a more premium mass environment. When in fact, we've taken some of our large villas that we don't anticipate we will be using for the junket business and we've turned them into entertainment facilities for the premium mass customer.

That customer is going to lead Macao back and we are well positioned to take a disproportionate share of that business and we think that it's going to continue to improve month over month and our team is positioned to focus on the premium mass segment.

Moving to North America, and Las Vegas, and we made roughly $21 million of EBITDA for the quarter and.

And 14 of that came in October So and October we were seeing some green shoots I think as most of the country was before the.

And the ramp up of the Covid numbers sort of around the country.

And the restrictions kicked back in and they kicked back in and Nevada, and and our key markets in California, and New York and other places and we saw a real decline and business after October.

As an example, and October were booking roughly 1650 rooms per night for future bookings and a couple of weeks after that and to November and December that number fell to 700 700 rooms per night and that continued into January.

However, we've seen just and the last 10 days and uptick again and it's right in line with the Covid number sort of around the country decreasing its clear that people are ready to have fun. They are ready to travel, but there is still not quite sure. If it's time.

We've seen our rooms.

Booking rooms per night and go back up to almost 1600 from 800.

In November and December just and the last 10 days.

In fact for Super Bowl, we're going to be at almost 50% occupancy. The first time since October with over 1000 casino customers coming which is significantly more than we had for new year's Eve.

So while there is still a long way to go and Las Vegas, we can tell the as people become more and more.

And feeling more safe they are ready to travel and they are ready to have fun.

And where we're ready to create that experience in fact, we built multiple restaurants and Las Vegas. During this period that we haven't opened.

And we're going to be opening new restaurants. This year as the restrictions continue to lift.

Just to remind everybody we build of 400000 square foot Convention center that opened at the beginning of last year that we've never used.

And so we have lots of new product exciting stuff that we've been working on all throughout 2020 that we'll be able to launch as business comes back.

And if you look at the convention space. There is a lot of questions about it obviously, we have roughly 170000 room nights convention room nights on the books.

For the third quarter and fourth quarter of this year, which is about the same as what we had in 2019.

Now clearly I expect some wash out of that we havent seen massive cancellations, yet, but I'm sure that there will be cancellations, but we're doing everything we can to keep that business and to create additional business as an example.

We opened the first and Nevada private partnership with UMC vaccination destination of vaccination et cetera, where vaccinating between 500, 700 people a day and our encore ballroom.

And this month, we'll be opening our Covid testing lab, which is a PCR based lab.

That will have the ability to process between five and 7000 tests a day.

And that opened this month and the idea is that when we talk to groups of when we're talking to the state leaders about entertainment about nightclubs about conventions that will have the ability for customers to have the health passport whereby they can say and show that they've been vaccinated or they've been tested in our lab answer.

Right and it has been turned around within six hours and so you know everybody in your space everybody and this convention area is either tested negative for COVID-19 or has been vaccinated.

I think that thats going to be of real advantage for us going forward to keep these groups on and to attract additional business as we see the restrictions hopefully continue the lift is vaccines rollout and and we're very hopeful that by the summer.

Really starting to see a lot more people traveling the Las Vegas.

Looking at Massachusetts, Encore Boston Harbor, we.

We made about $16 $7 million and EBITDA for the quarter and again same story of Las Vegas 11 of that in October.

As the numbers ticked up the Covid numbers ticked up in Massachusetts, the restrictions rightfully kicked in.

And there we actually had to close Encore Boston Harbor at nine o'clock at night beginning in November into January, but just recently because their numbers have been going down and theyre positive activity rates are looking quite good and Massachusetts, we've been able to reopen.

$24, seven and Massachusetts, and today, the governor actually announced additional lifting of certain restrictions moving occupancy percentages for restaurants, and other places up from 25% to 40%.

And there are some interesting things about the masters of gaming environment that I think will provide additional short term growth as restrictions are lifted for.

For example, we've never been able to open crafts there.

Big demand for grabs but.

That has not been allowed to date and we're hopeful that that will be allowed quite soon.

On the table game side, we are capacity constrained on the weekends and in particular and now that we're offering now that we are open 24, seven but we only have three seats on the table game, whereas I think almost all other jurisdictions around the company around the country for seats.

And so we're quite hopeful that some of those things.

And those restrictions will continue to lift as the again, the vaccinations rollout and the numbers look good.

The the trends at Encore Boston Harbor are quite strong.

Our margins should be quite good there and where we're very optimistic about the future of our business and.

Encore Boston Harbor.

Now looking at Wynn interactive so.

Wynn interactive, we're very excited about and I know that everybody is talking about the online business as they should be.

Just looking at the five states that were legal and offer and online gaming and online sports betting and November and December.

If your run rate of those numbers just in those five states, it's roughly a $4 billion to $5 billion market just in those states.

So that's quite an opportunity and if you think about all of the other states that will likely be rolling out sports betting and may be some online gaming clearly this total addressable market is quite large.

It's multiples more than it is now and it's one that we are very focused on we bought debt Bowl and November we've consolidated debt. We've added over 100 people to the team recently, we recently launched and Michigan and in Colorado, and our gaming our gaming revenues have increased.

More than 50% since our last call and we're currently on the run rate of about $50 million and our Wynn interactive business.

And so the way we look at this is because each state will take time to roll out that's actually a benefit for us we have the brands. We're releasing new features on our product every week, we're beefing up our team we have some very exciting media deals and partnership deals that we're working on and as we build our strength and bill.

Our brand campaign and rollout and these states, we think we're going to be and a very good position by the back half of this year as the NFL season kicks off again.

So when interactive is a big focus of ours and and we're seeing all of the right.

All of the right things that we were hoping that we would see right now and particularly with the revenues growing almost 50% over the last three months.

So with that I'm going to go ahead and turn it over to Craig to <unk>.

Talk a little bit more about the numbers.

Thanks, Matt and similar to the past few calls I'd like to start with a few points and liquidity and operating expense.

And as of January 31, our global cash and liquidity position was $3 three 9 billion in Macau, we had approximately $2 two 4 billion of available liquidity as of January 31.

And the U S. We had total available liquidity of approximately 1.15 billion on January 31, with a substantially lower daily cash burn globally compared to Q3 2020.

Meanwhile, we continue to be focused on operating expenses.

Compared to the fourth quarter of 2019, our global property and corporate operating expenses per day, excluding gaming tax of $4 $6 million decreased nearly 40% year over year compared to $7 6 million and Q4 and 19 with our FTE count decreasing by approximately 8700 for 34% we.

Specht of meaningful portion of these savings to drive operating leverage as business volumes return and Macau as Matt noted, we generated $39 4 million of EBITDA and the quarter with particular strength around the December holiday season.

Our EBITDA was driven by encouraging gaming and non gaming performance as well as the continued focus on cost controls gross gaming revenue in Q4 2020 was approximately 32% of Q4 2019 levels led by the premium mass segment.

With respect to cost controls our Opex again, excluding gaming tax was $2 2 million per day. This is down from approximately 3 million per day in Q4, and 19 and only up modestly from 2 million per day, and Q3, 'twenty due primarily to an increase and variable costs as business volumes return.

And at Wynn Las Vegas, we generated $21 million of adjusted property EBITDA from a business that remains heavily weighted to weekend occupancy.

And the casino, we saw broad based strength across key segments with slot handle and table drop reaching 85% and 72% of Q4 2019 levels respectively. During the quarter.

We remain focused on cost discipline, and Las Vegas, with our Opex per day, excluding gaming taxes decreasing to $1 6 million per day, and Q4 of 2020 from 3 million per day, and Q4 2019 and from $1 8 million per day and Q3 2020.

As Matt noted as Covid accelerated and holiday travel was discourage of around the already seasonally challenging holiday period, the back half of the quarter was weaker than the front and.

And this environment of suppressed demand, we expect <unk> 'twenty one performance overall to be subdued, but we do expect pockets of strong demand in February as Matt mentioned around Super Bowl and Presidents' day weekend.

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

In Boston as noted on the Q3 call and by matches and now we generated record adjusted property EBITDA of $11 3 million in October the curtailed operating hours stemming from the state's stay at home order negatively impacted EBITDA during November and December.

We were pleased by the recent decision to lift stay at home orders and we are now picking up where we left off in October.

Similar to Las Vegas, we have remained very disciplined on the cost side with Opex per day, excluding gaming tax of $680000 and Q4 2020 compared to $1 3 million per day in Q4 of 2019 and 750 <unk> per day.

In Q3 2020.

Turning to Wynn interactive or 72% owned online gaming and sports betting subsidiary continues to advance our sports betting and online casino strategy.

With current annualized run rate gross gaming revenue of around $50 million based on results in January and early February.

And when Beth or online our U S online sports betting and casino gaming application has now been live in New Jersey for several months and we recently launched and Colorado and Michigan.

And as Matt mentioned, we are simultaneously scaling operations, improving our brand positioning making product improvements and launching a new the new states we.

We expect to continue to see growth and the business with much of that growth back half loaded, particularly as we enter the 2021 NFL season.

Our capex and the quarter was $29 million has noted last quarter. The vast majority of our Capex plans remain on hold and we are only proceeding with their highest priority projects.

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

Thank you can I ask a question press star one on your Touchtone phone you're for.

And and record your name clearly and.

After the proud of I will introduce you for your questions. Please limit yourself to one question and one follow up question to withdraw your question Press Star two.

One moment please.

Our first question is from Karl set of <unk> go ahead. Your line is open.

Hey, guys. Thank you.

Sure Craig.

I'll start with you first.

Obviously, a lot about some of the cost cuts and.

Noted the I think.

On a segment level basis, some of the declines.

And Macau obviously.

Non adjusted for any hold or anything else that obviously what of influenced the numbers a little bit.

It looks like the year over year was down about 25%.

In terms of of how you guys spoke about.

Net reductions relative to some of the variable stuff that will come back and how are you thinking about kind of the run rate is as business levels normalize in terms of of permanence.

So good question Carlo I think we.

We will see as as the market progresses and volume start to come back you can see that we had a slight uptick in the quarter as we moved from kind of zero.

At the mid the earlier portion of the year into that kind of 30% of of Q4 and 19 levels of volumes. So a decent chunk of those are our permanent but I must of course caution you. It's not the same as the U S staffing flexibility just isn't the same as the U S. So some of those will come back but we.

And like where appropriately sized and the cost base is appropriately sized for the business volumes that we have today.

Great. Thank you for that and the matter of Corona and one of the guys from the couch you guys could kind of provide and and I know, it's not an easy answer but any thoughts that you have around kind of the cadence of.

So the diesel loosening and and what you guys are potentially hearing as it pertains to that topic.

And Ian why don't you take that one.

So we were we were very happy with the cadence of running from October Golden week into the Christmas and Western New year period, where we had two weeks of extremely strong occupancy and.

And great play on the slower, particularly in premium mass and mass and quite frankly, there was the.

And there was a lot of anticipation of out Chinese new year, and clearly we had a number of outbreaks and China. During January late December and January debt have curtailed a lot of travel and understandably the authorities and the PRC has been working hard to contain the outbreak.

The cases of dropped from the hundreds to the teens, so thats very positive, but it has impacted the booking cycle for Chinese new year.

And do have a lot of player interest still and Chinese new year, we are of a number of our bigger players reserving suites of dealers.

And they will potentially travel, but certainly it's affected bookings true of towns. So we're probably looking at more like in October of Golden week situations, and the Christmas and Western New year period. However, we believe that it's Tim.

Temporary setback of very temporary setbacks as winter is ending.

The recent outbreaks of being contained and.

And the vaccines are starting to get rolled out there getting rolled out obviously by the millions and China, both locally and Macau. We've just received our first delivery of 100000 vaccines and in late March we have of further deliveries and distribution of another 100000 were small population in terms of visas.

The opening up more and more people of being the load access into Macao, that's obviously very fluid and very linked to containment and China, but there has behind the scenes been a pick up in number of one optimism and number two.

Discussions between the authorities and the greater Bay area between Hong Kong, the PRC and Macau about the reestablishment of the travel bubble. So people are looking to the future of there is low at the end of the tunnel. This is the temporary setbacks cadences frankly demand is out there and we're priming our proper.

Ts to take full advantage of debt, we command and the luxury sector and we believe that we are ready to take more than our fair market share and we proved in Q4, we built market share up to nearly 16% and we believe that there is more market share for us to take particularly given that we've commanded the luxury.

The sector and those of the customers that are coming back.

Great and thank you so much guys.

Our next question is from Joe Greff from Jpmorgan go ahead. Your line is open.

Hello, everybody.

And that it's been.

This amount of time and your opening remarks talking about the opportunities and the premium mass segment.

Can you talk about how the opinion of mass segment that the volumes and the fourth quarter.

The compared relative to or how they did relative to overall net table, probably I think with them on.

And that's your debt and 51% year over year, which by the way was better than I guess, the one and co operator.

<unk> fourth quarter results, so far and.

And I'm presuming the premium that did better than that and.

And can you talk about what's what's driving that improvement versus the base mass of versus I think you'll probably understand what's going on with the VIP and certainly with the junkets and then you also mentioned related to the premise of Nielsen mentioned net.

I guess expectations about month over month improvement so the premium mass performance.

And January did that exceed the Denver and did you see that trend debt right.

Sequential improvement month over month throughout the fourth quarter.

Yes, sure, Jeff and I don't want to say that we are seeing that in January because.

And pointed out that there were.

Some restrictions that were put in place continue to restrictions in China as there were some small outbreaks and COVID-19.

The the way that it was handled and pretty much quickly put out has been extraordinary I was on the phone on the zoom.

Zoom call actually it was somewhat in Shanghai last night.

It was just talking about its life as usual I mean, we're back we're going to clubs are going out.

They are really ready to travel and go to Macau and so there's a real sense of optimism when youre talking to people and China.

And.

We are very well positioned for that customer that that is the premium segment, yes. The premium segment did better than the core mass segment and I don't want to get into the exact numbers, but it was not down 50% of the overall mass was up but.

What you know about our business, Joe is where we do not need 50000 people a day of walking through our facilities to get back to our EBITDA targets, we require significantly less people because we cater to the higher end customer and those are going to be the customers and our opinion that are going to be traveling first theyre going to be the ones that are coming.

Backfires.

And where we're targeting that segment and we think that we're going to get more market share and the premium mass segment than we have and the past.

Thank you for the Buck.

Our next question is from Shaun Kelley with Bank of America go out of your line is open.

Hi, good afternoon, everyone.

Maybe you switched the Las Vegas for a quick question you gave some some great commentary on how well the casino performance as Dan and I think thats been decently consistent around town and I just wanted to get your thoughts on them. We don't ask a lot about the casino blocks of business specifically for Wynn, but was wondering if you could give us a little bit more high kind of.

The high level of color on how important is that casino and and rated play business for Wynn in Las Vegas.

And any directional sense of how important that isn't what you guys could do to maybe lean into that just to maybe stabilize things and continue to outperform like you've kind of already are.

Hi, This is Marilyn and I can't stress enough, how important that casino businesses to us we have of really late then and we have seen that casino segment of the hotel, the stronger and stronger and resilient and so our casino hosted play almost.

The vast majority of our play is rated play the casino host team has done an unbelievable job and getting these guests to return over and over the.

The events that we planned the database that we have has really the improvements that we made in 2020 for all of those tools have really come through exceptionally strong and in those areas, where we have on hosted rated business. We launched Wynn rewards in December and that has been.

So far a very smooth launch and we're looking forward to having enough of those players come really Super Bowl will be the first opportunity that we've had to do that for the casino marketing team.

Has been the start of.

Of the Covid.

Situation and so they're driving the bus right now.

And if you look at just the market gaming market share.

We used to be around 8% to 9% of the market say 2018, 2019, and now we're closer to 15% of the market and that's not by accident I think all the measures that we've taken to make sure that this place as its restaurants open and it is fine and it feels it is very safe the staff.

<unk> continued to be highly motivated and focused on service.

We've been taking share and the domestic high and it is the fact, we've been seeing players that we've never seen before.

And we're going to continue to lean into that segment, because I actually think that we're very well positioned to take market share.

Thank you bonus and then maybe just my follow up.

Switching over to Wynn interactive just could you give us the status or a little bit of of thought process around marketing it sounds like.

You've already made some progress and of lined up a lot of a lot of of strong partners to get some of these states launched you when's the right time to kind of lean in on the marketing spend have you already or do you really expect that's going to be kind of back half loaded as as you mentioned Craig when maybe the the.

The players are already to receive that message around around some of the seasonality.

Sure.

First of all it's incredibly important to make sure that your product is in a state where you feel like you can scale. It. So we're making we're doing product drops really every two weeks and our focus there is making sure that we can achieve market parity.

In order to do that and so that I would say that's our number one number one focus and of consumes.

40% of our time on Wynn interactive.

And then the other the other key components as you rightly point out are kind of two parts of marketing performance marketing, where you actually kind of driving installs through AD networks through Facebook et cetera, and we certainly have begun to hit the gas on that component of our marketing because you can do it and a very targeted way the second component of marketing.

<unk> is really third party relationships and third party partnerships mass media, if you will and thats, a little bit of of chicken or the egg because before you engage in and large scale mass media you want to make sure the.

Think of product is where you want it to be and for US that's of high standard given our brand and you want to make sure that youre in and of states to where any bleed that you're experiencing into states, where it's not legal.

Is acceptable and so you should expect to see a lot more from us from the third party of mass media marketing side over the course of.

2021, but we're doing performance marketing today in order to begin to scale of the products.

Thank you very much.

Our next question is from Thomas Allen with Morgan Stanley Go ahead. Your line is open.

Hey, How's it going I'm just in terms of Macau Kiss of death, and your latest thinking on kind of.

On the VIP business and maybe structural risks there. Thank you.

Yes, sure so we have been.

And focused on the future of Macao, and clearly where we're leaning in on the premium mass segment and on the mass segment the.

The <unk> business is not going away, but it is definitely going to be less.

Other it's 20% of 2019 of 35% of 2019 and the future of it is.

Hard to say.

But it's going to exist it's evolving it's consolidating.

And and so.

And where it will still be a player and VIP and it will still be a large contributor to our company and to our bottom line, but you know.

We're really focused on the premium mass segment and do you have anything to add on that.

And just.

Looking back to December our VIP got back to 35% of.

The December 2019 numbers. So it's certainly not of small contributor it still continues to grow and get better and the pace of recovery of obviously slower than the premium mass, but even in January we had a lot of activity from our big players so people and our premium direct program. So it's certainly not faded away from <unk>.

Lately it is growing and.

It is tied to the health of the general market. The pace of recovery is just a bit slower. So it will continue to be part of our business.

I do think that there'll be significantly less VIP players as junkets consolidate and fall out, but there will still be.

Very large VIP players and our focus is on that direct business and on the the very high and as opposed to having lots of junket operators and trying to drive.

Lots of VIP customers, it's really more about it's really about the premium VIP segment and and that's why we've been focused.

All very helpful color and then just on the interactive side now that you're in three states and any of them.

And thinking about it.

And just how competitive the market is and I mean any concerns there. Thank you.

I mean.

The market is quite competitive clearly, but I think debt.

I've been surprised at the size of the market I think Michigan has been a really interesting test case for how quickly it's ramped and the size of both the sports and the online gaming. So yes, it's tough competition, but I think the market is larger than we anticipated.

And.

And there's going to be plenty of room for great brands and great products and.

We think 2021 is going to be our year to really get into this.

Thank you good luck.

Thanks.

Our next question is from Stephen Grambling with Goldman Sachs. Go ahead. Your line is open.

Hi, Thanks, just as a follow up on the comments around consolidation and VIP. If we were to go back to 2015 and 16. It seemed like a similar expectation was out there for continued restriction and VIP play and then that business came back very strong and 17 18, and how would you compare and contrast, what is happening now versus.

And then and how quickly can you pivot back if you saw liquidity ramped back up and other words, you need to reconfigure again or is it as simple as slotting the junkets backend.

That's a good question I think.

To ramp VIP back up it's actually not that complicated you can just slot junkets and but we really think that Macau and is transforming more much more and to a tourist destination focused on more than just gaming and so our focus is on and the non gaming side, it's on the premium mass side.

I really don't anticipate the VIP market snapping back like it did after after 2016 I think it will definitely be there and will definitely be a large market, but the growth drivers going to be on the premium mass side and the mass side.

Understood and then moving back to Las Vegas, and you had some good commentary on convention bookings, maybe if we peel back the onion, a little bit what have you seen or heard about corporate demand since the vaccine results were announced and rollout started and has that.

Feedback driven and the healthy passport strategy or is that more a regulator driven.

No that feedback is really when driven because of.

Everyone is very cautious and no one really knows what they can do so and <unk>.

Look at current restrictions and rooms, and they say you can't have more than 250 people how can we hold.

The convention and so there's more questions and answers and what we're trying to do is solve those questions and so we'll have to get our state comfortable debt.

We can exceed the current limits and we can continue to have more people and one room by doing the things that we're doing and I do think that's one of the reasons, we haven't seen a lot of fallout quite yet.

And the back half of the year because of lot of corporate.

Still waiting to see if there will be solutions for people to get back together.

And a large way and what we're trying to provide those so of the 170000 room nights, we have but of course, there's going to be cancellations and theres going to be wash and it's hard to predict.

But people are more sanguine now about the back half of the year than than Ive seen on the corporate side and we're just trying to show the way with with our Covid testing lab and our vaccination center.

Fair enough. Thanks, so much and best of luck.

Operator, I think we have time for one last question.

Okay and our final question is from David Katz with Jefferies. Go ahead. Your line is open.

Hi afternoon, everyone. Thanks for taking my question.

In the context of that.

We often discuss the prospects of concession and explorations and how that rolls and and that information.

<unk>, obviously is extremely difficult.

And.

And what.

Thoughts of strategies, how do you sort of deal with that and is there a realistic more realistic possibility that this is sort of of deferred circumstance that maybe more than more than a couple of years away.

David I'll answer that question.

Same way, we do each quarter, which is.

We continue to heavily invest in the community we're known as good corporate partners, we're known as one of the top employers and what we want to do is provide real value for Macau and for the Greater Bay area.

So we understand our place there were good partners with with everyone in Macau and and the Greater Bay area, and we're going to continue and do that and work closely with the government as they determine what the concession renewal process will be.

Got it. Thank you you've covered a lot and appreciate it thank you David.

Alright, Thank you everybody for joining us we'll see you next quarter.

That concludes today's conference. Thank you for participating you may disconnect at this time.