Q3 2021 Wynn Resorts Ltd Earnings Call
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Welcome to the Wynn resorts third quarter 2021 earnings call. All participants are on a listen only mode until the question and answer session of today's conference.
Ask a question. Please 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 I will now turn the line over to Craig Billings, Chief Financial Officer, Sir you may begin.
You operator, and good afternoon, everyone.
On the call with me today are mathematics, and Brian <unk> branch in Las Vegas.
Also on the line are Ian Colin Linda Chen to Ron you'd rather sporadically the CTO and Ginny holiday 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, Craig.
And thank you all for joining us today so.
First I'd like to address.
My decision to leave the company.
I've been at Wynn for 20 years.
<unk> been the CEO for the last four and I made a commitment in 2018 to this company and to the board of directors and what was likely one of the Messiest transitions in corporate history.
I'll do everything I could.
To keep the culture.
To make the to get the company on firm footing and to ensure that we would emerge better than we were before.
Now along that journey as we were making lots of progress in getting things stable, we bumped into a pandemic.
And that was the time really.
Win win was able to shine.
We became the beacon and the hospitality people looked at us on what to do we paid all of our staff during the shutdown and we invested in our culture.
We knew.
By doing those things and continuing to be exactly who we are that it would pay off over the long term not just for our people and for our customers.
For our shareholders.
I'd like to thank the unwavering commitment and support of the board of directors. During these four years.
After we made this decision they did ask me if I would remain on the Wynn Macau aboard.
<unk> stability and to assist with the concession renewal process, there, which I agreed to do through 2022 and also the wind interactive board to make sure that we create lots of value for the Wynn resorts shareholders, which I also agreed to.
I'm very happy to say that.
The board was at 100% behind and has the exact right person to replace me as I transition out and Craig billings.
Greg Greg has been my right hand man for <unk>.
Five years now he's been through the good the bad all of it and he knows what to do.
He understands the culture. He is not a guy that's going to build a big corporate infrastructure. It makes decisions fast and he feels the brand.
And the company really couldnt be in a better position going forward.
And in fact, if you look at that I think the proof is in this quarter.
If we just jump to the results and get the business here in Las Vegas, we made $183 million of EBITDA.
And thats not a whole bunch of cost savings that are going to go away over time and can you sustain the margin et cetera, only $15 million to $18 million of that 183 came from cost savings the rest of it we're taking market share.
Over the last four years, we've opened a 400000 square foot convention facility, we built a new golf course, we have changed out 40 of our 60 retail stores to become the shopping destination, we restructured our clubs. So that margins went from 7% to almost 30% we've raised our prices and our hotel seeing straight flow through every.
Area, we're taking share casino included.
We are not only outpacing all of our result, but we're taking share from the market.
I knew coming in that we needed to cater to a demographic that was in more than 30 to 50 is on top of our current demographic in the baby Boomer generation, we've opened lots of new restaurants. In fact, one of the new ones Delilah. If you call right now you can't get in until February I've never seen anything like it.
And while that's one restaurant. It's an example of all the changes that we've made there.
It has really set the foundation for Wynn Las Vegas to take off like a rocket ship.
And I think one of the most important aspects of our successful business. This culture people talk about that but we all know in our business.
Only people make people happy.
And if your employees believe that their future will be better.
Because of the place they work.
And that their employer is going to take care of them when times get tough you have harnessed the power of the universe and Thats, what we have going on right now.
Look I'll give you an example.
Hospitality is experiencing extreme labor shortages right now throughout North America. It's a fact people are talking about it but not at Wynn.
We had four open servers in our restaurants positions open positions last month, we had 1066 people apply.
Sure Big tip job you might expect that we had 22 open positions for our casino cleaners last month, they clean the bathrooms casino the restaurants, they make the play Sparkle, we had 2015 people.
<unk> for those 22 spots.
That is the sign up.
Have a good business, that's when you know you're going to win over the long term.
Because your customers understand that loyalty and people want to be here and so I feel very good about where Wynn Las Vegas is in terms of its culture and its employees the product and its future.
Looking at Encore Boston Harbor same thing record result, $64 million of EBITDA and we did a very similar that we did in Las Vegas. During the shutdown was we looked at things that we're working we had a buffet that was losing $12 million a year. So we ripped it out while we were shutdown and we built probably the world's best sports bar.
<unk> that once Massachusetts legalized sports betting it'll be the best sports book on the East Coast hands down.
We put a new food and beverage offerings, we reconfigured the entire casino, we changed out our casino loyalty program and our database has been growing exponentially.
Over 418000 people in the database.
And if the trajectory that it's growing now that's probably going to double over the next two years.
So encore Boston Harbor again is only at the beginning of its growth and the North American assets really couldnt be in a better position.
There was a little bit of concern that maybe the stimulus money or.
Pent up demand et cetera, what's causing some of this and that may be true for the.
For the third quarter, and what we experienced in the summer, but it certainly continuing.
In October Wynn Las Vegas had its best months on record.
<unk> EBITDA highest margin.
And we held below our normal range.
Same at Encore Boston Harbor, the group business is coming back we have seen groups, taking up over 30% of our room nights in August and September and the way that we're running these facilities now in the way that we're yielding and being unrelenting on price because people like the quality the flow through is happening.
Just last weekend, our average rate was $780 in Las Vegas, and we're at 99% occupancy.
And that is continuing into the future because we're taking market share and Las Vegas itself is growing.
Turning to Macau.
We've had as everyone in the market has had fits and starts there as to the business, but what has been very encouraging over the last month.
Has been the consultation process with the government.
It's been open it's been transparent.
It's been productive.
And we feel very good about the future of Macao and our position in Macau.
Looking at Wynn interactive.
We launched lots of new product this quarter that we're very proud of we made great progress in Arizona with first time depositors and we're seeing good customer feedback and our retention is quite strong. However, the market is really not sustainable right now competitors are spending too much to get customers.
<unk>.
And the economics are just not.
Something that we're going to participate in in the short term.
So while we built the brand and we launched the product in the third quarter, we're going to be focused on building a long term business that's sustainable.
That is not losing lots and lots of money. So we are shifting our strategy to think about the future think about the long term think about cash preservation and we remain very confident that we will create significant value for the Wynn resorts shareholders with our digital strategy.
With that I'm going to go ahead and turn it over to Craig Congratulations Craig. Thank you, Matt and let him go through some more details. Thank you like everyone in the company I have admired leadership over the course of the past four years.
More than anyone you know the dedication and talent at the thousands of folks who make up the wind team and I'm honored to have been asked to lead that team.
Turning to the quarter at Wynn Las Vegas, we generated $183 4 million of adjusted property EBITDA and $476 million of operating revenue.
Overall, our hotel occupancy reached 83% in the quarter with 93% occupancy on weekends.
We stayed true to our luxury brand and have resisted dropping rate with overall ADR, reaching $392 during the third quarter of 'twenty one.
Nearly 30% above Q3 2019 levels.
Our other non gaming business saw broad based strength across the F&B and retail which was also well above pre pandemic levels.
In the casino or Q3, 'twenty, one slot handle was 31% above Q3, 2019 and table drop was 18% above Q3 dollars 19, despite still suppressed international play due to COVID-19 related travel challenges.
The team in Las Vegas has done a great job of controlling costs without negatively impacting the guest experience delivering a record adjusted property EBITDA margin of 38, 5% in the quarter.
Opex per day was $3 million in Q3, 'twenty one approximately 250000 per day below Q3, 2019 levels. Despite the 19% increase in revenue.
As new high margin business like groups and convention returned to the property, we expect opex to increase modestly, but we remain committed to maintaining the cost structure that appropriately balances margins and our exacting certain standards.
In Boston, we generated another record quarter with adjusted property EBITDA of $64 6 million in Q3 on a record EBITDA margin of 33, 6%.
We remain very disciplined on the cost side, there too with Opex per day, excluding a $3 million benefit from a few one time items.
950000 in Q3 dollars 21, a decrease of over 25% compared to $1 3 million per day in Q4, 19, and a modest increase relative to <unk> 'twenty one.
Our Macau operations delivered $10 2 million of EBITDA in the quarter on $312 million of operating revenue.
While business in the quarter was challenging due to the evolving COVID-19 situation, we remain disciplined on costs.
Our opex, excluding gaming tax and the reversal of certain performance based incentive accruals in the third quarter was approximately $2 1 million per day, we continue to be well positioned to drive strong operating leverage as the business recovers.
Turning to win interactive in Q3, the business generated approximately $645 million in total turnover disproportionately weighted to September.
In late August we launched a number of key product improvements, which have been well received by customers.
On a normalized basis went interactive has now run rating over $170 million of gross revenue.
During the quarter and since we have achieved several other key milestones for the business.
Including launching day, one in Arizona, where we drove over 26001st time depositors through September 30th.
Securing a number of additional market access agreements obtaining a license to operate in the state of New York and becoming an official sports betting partner of the NFL.
While sports betting remains an exciting high growth market and will potentially be a $30 to $40 billion Tam over time, the marketplace is proving to be very competitive.
With multiple operators deploying meaningful marketing dollars driving high cost per acquisition and significant customer bonus offers.
In light of this dynamic we have been we are intentionally pivoting our approach to scaling taking.
Taking a more measured and long term focus to grow healthy and sustainable business as Matt mentioned.
We expect our Q3 and Q4 EBITDA burn driven heavily by our branding campaign and Preopening user acquisition in Arizona will decline materially beginning in Q1 2022, as we focus on cost per acquisition that is commensurate with customer lifetime values.
We continue to believe in our team our product and the longer term opportunity and there is certainly paas to grow our business in ways to create value for Wynn resorts shareholders, but the current combination of large scale brand spend performance marketing spend and customer bonuses that we see in the marketplace does not drive unit economics that meet our return requirements.
Turning to the balance sheet, our liquidity position remains very strong with global cash and revolver availability of over $3 7 billion as of September 30.
In Macau, we had approximately $1 8 billion of available liquidity as of September 30, and in the U S. We had total available liquidity of approximately $1 9 billion as of September 30.
As previously announced during the quarter Wynn Macau limited entered into a new $1 $5 billion senior unsecured revolving credit facility that matures in 2025.
The arrangement includes broad participation by a group of supportive existing lenders, including local and international banks borrowing.
Borrowing under the new facility, along with $200 million of cash on hand were used to refinance and retire our existing senior secured credit facility.
Finally, our capex in the quarter was $103 million and we remain prudent with respect to Capex, while we gained further confidence in the recovery.
As a reminder, we are limited in what we can say about the win about when interactive due to live S. Four that we have on file with that we'll now open up the call to Q&A operator.
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 to withdraw your question Press Star two our first question is from Carlo Santarelli with Deutsche Bank You May go ahead.
Yeah.
Hey, everyone. Thank you and Matt Congratulations Gregg congratulations as well.
You guys. Obviously, you spent some time talking about wind interacted and fully appreciating that you can't say much.
We're given where you are in the process.
The decision to pivot is that something where as you think about the way the market is shaping up.
But the what I would assume you deem as unprofitable cohorts of customers that are being acquired right now by others is that something that in your view changes in the next six to nine months or is it something where you'll wait until you actually see kind of that change start to happen.
Yes, it's a great question Carlos.
As we've talked about before we're really focused on lifetime value versus cost per acquisition and that when that ratio is favorable we're more than happy to invest to drive long term profitable growth. If you materially overshoot on CPA or offer noneconomic promotions than you can end up upside down on a customer pretty quickly, which obviously isn't very shareholder friendly.
Shareholder friendly in.
In the current environment, there are certainly opportunities for us to do ROI positive acquisition. They absolutely exist. It's really a question of scale. So if youre not trying to be aggressive and drive headline market share with large scale brand spend performance spend hyper aggressive customer promos, there are absolutely opportunities to grow the business over.
Course of the longer term.
That's helpful. Thank you Craig and then Matt maybe maybe this one's for you as you kind of talked about the consultation and some of the encouraging things that were coming out of those meetings.
Do you have any sense coming out of there to the extent that you could share.
When you're starting to think about the next steps in the process and potentially some more visibility into not only the timeline of the process, but maybe some of the things that we should expect coming out of it.
Okay.
What I can tell you is when.
When the government announced a consultative process. It was very structured at beginning timeline and when the meetings were going to be scheduled and everything happened.
Exactly as they had laid out and so.
We've just been very happy with our open its been and how constructive it's been and I think that that is going to continue throughout 2002 as Macau.
It really focuses on the long term health and stability, which they have continued to say.
The industry and of the region.
Can't give any specific dates or timeline, but what I can tell you is we're very confident in the process.
That's great. Thank you both.
Thanks Carlo.
Thank you. The next question is from Joe Greff with J P. Morgan you May go ahead.
Hello, everyone, Matt Congratulations best of luck, it's been a long time.
And Greg very happy for your congratulations on your promotion.
Joe.
Yeah.
Matt do you want to given any any more.
Description to the reason why youre stepping away now.
I'm not sure the statements in press release really kind of delved into that in great detail and maybe there are reasons for that and then my second question Craig I know you have opinions on.
Casino real estate monetization.
Given just the valuations we've seen in Las Vegas, and elsewhere in regional casino market.
I was hoping you can give us your updated thoughts, particularly maybe.
With particular attention to <unk>. Thank you.
Yes sure Joe.
It's actually there's nothing more to it than what I laid out at the beginning of this call I have been here for 20 years.
I was Steve Wynn's right hand Guy.
For a long time and when that transition happened I made the commitment that I was going to make sure. This company didn't lose what it was built on which was excellent service driven and just being the best and that's what I wanted to that's what I wanted to achieve and we've done that now the pandemic frankly.
<unk> My program, a little bit because when that had I realized you don't need to lead through that and make sure that we come out better than ever. So it is really one of those.
It's been 20 years exactly what I wanted to achieve we've done and I feel like the management team. That's in place. The people that are in place and where this company is that it's the right time for me to go do something else, which I am quite excited about and it's the and Craig is the exact right person to step in.
There's really nothing more to it.
Before I committed to four years and that's my four year anniversary.
And on the real estate side Joe.
Our position and our position is.
If any over any reasonable period of time, our valuation appropriately reflects the value of our real estate than.
We're always more we're always more content to control that real estate and be able to invest in that real estate.
And really that Hasnt changed to the extent that it does change then obviously, we will have to consider what's in the best interest of shareholders.
Great. Thank you.
Thank you. The next question is from Thomas Allen with Morgan Stanley You May go ahead. Thank.
Thank you and just wanted to reiterate the congratulations to you both on.
What's been a great career and Craig congratulations on the new role. Thank you.
So so.
U S results are really stellar back in mid 2019, you guys had set targets of $515 million for Vegas and $275 million for Boston.
Updated thoughts around around the kind of longer term outlook for those properties.
Well, yeah sure I'll jump in and.
Think that given what we're seeing now.
Those estimates feel quite conservative.
I think it's pretty.
It's pretty clear what we achieved in Las Vegas was its market share taking.
It's a restructure of the business, it's not I think that we all sit around and think are normalized margins are between 35 and 40 in this market.
And so we didn't go out and cut a whole bunch of cost and slowly bring people back trying to squeeze every last dollar now we went out and got more customers.
And I think that's going to continue in the same at Encore Boston Harbor.
There isn't one piece of the business Thomas that we haven't.
That we haven't touched and address and changed and adapted so really these two assets are firing on all cylinders.
Perfect. Thanks, and then just following up on the transition any thoughts on the new CFO and then Craig you guys still run went interactive how are you thinking about about that thanks.
Sure we were fortunate.
At the company that we have.
Reasonably deep bench at the corporate level and we've done we've hired some real talent on the wind interactive side. So it will be coming back to you soon.
With the management structure with a revised management structure.
On outlook and we'll talk to you about it then stay tuned.
Perfect. Thank you.
Thank you. The next question is from Shaun Kelley with Bank of America. You May go ahead.
Great. Good afternoon, everyone and yes, Matt Craig for my congratulations as well, Matt it's been a.
A long number of years, so look forward to hearing what's next.
Yes.
Greg I'd love to hit on a couple of the comments that I know theres only so much you can probably cover right now on an interactive.
A comment specifically on CPA is I mean I know.
You know this formula better than probably anyone else on this call.
Can you talk about the prevailing lake just level of what Youre seeing out there because one challenge we I think all run into as analysts is the.
The formula kind of spits.
Spits out whatever.
In a way a little bit of whatever you want so the more you spend on marketing you can justify it if your LTV is higher.
And it's hard for us to kind of independently validate so just a little bit of thought around like what is that prevailing level of spend out there and sort of what are you. What are you maybe wanted to be too to make the model or math work to what you think is going to be a profitable long term.
Sure Sean we don't quote we don't quote specific CPA or specific ltvs ltvs of course.
Pretty lengthy forward looking estimate what I would say is that you really have kind of three elements that impact. This rate, yes brand spend you have performance spend where you're actually buying digital ads to bring customers directly to the product and then you have the underlying promotion that you are providing to the customer and some participants in the market.
We have structural advantages in those areas some participants don't.
And so when you're when you're pulling all three of those levers into a very very aggressive market, where there's a ton of competition and a ton of folks doing the same thing.
It can become particularly difficult, particularly in states, where you're entering the market late.
So in Arizona as an example, where we did 20 26000 plus ftes over the course of September that's a great outcome other states that where maybe you're entering or scaling a little bit later it becomes much more offer driven and you can pretty again pretty quickly get upside down.
I think what we're focused on is leveraging the advantages that we have right. We have a database we are a brand.
And to the extent that we're not we're.
We're not aggressively chasing every single lever, we can build a business over the longer term, that's a great business into what will eventually be.
A really really strong team.
Thanks for that and then.
Thanks, a lot for my congrats and best wishes as well to follow ups to earlier questions first on the cow, while the timing of recoveries uncertain given your confidence in the concession renewal of what are some of the things that you are doing now we're planning on doing to change the positioning of the assets to cater more to premium math.
Yeah sure Yeah, and why don't you why don't you jump in and take that.
So over the last three years, we've been visiting and luxury assets that were formerly taken up by a drunk can offer razors and we'd be opening them up for premium maths, whether it's an villas in our towers.
Sweet and general gaming spaces.
And we are fortunate to have the best assets and debt service and market. So the pivot is very very straightforward.
Great and then maybe as a an unrelated follow up on real estate value.
Meg I appreciate the response on valuation. So if we were to look at Vegas in Boston assets separately are the two markets seeing different kind of potential differences in capital intensity and valuation from where you sit today.
Thanks.
Well on the capital intensity side naturally Boston is going to be is going to be less capital intensive it's just the.
The nature of the business there in the nature nature of the asset relative to Vegas right Vegas is a market is pretty consistent reinvention is Matt mentioned, we've done and we've done an incredible incredible job at that on the evaluation side again, I think you have to look over any reasonable period of time and look at the value of the real estate within within the <unk>.
Roger business.
So we watch that very closely we watch it all the time and were very conscientious of the underlying real estate value, but that's that has historically been our position and it remains unchanged.
Do you think that the.
The competitors response to actually competitors actually pursuing this have actually change the competitive in that environment, perhaps to your beneficiary. Thanks.
Have they changed the competitive environment I guess.
It's just a form of financing right, it's no different than a piece that it just happens to be over time are more expensive piece of that then we observe in the bond markets today at the end of the day, each operator is going to make their own decision and form their own strategy.
Being in Opco has its advantages and has it disadvantages, depending upon what's happening in the broader business. So I don't I don't think it's Ah.
I don't think it's an operational question other than the willingness to continue to reinvest in your business.
And how you do that but I don't think it's a day to day operational question per se.
No no. Thanks.
Thank you. The next question is from David Cats with Jeffries you May go ahead.
Hi, This is cassandra asking on behalf David.
First congratulations to them, both Matt and Tech do you have to you that.
And thanks for taking it questions. So I would like to ask about in New York you got the license yesterday.
Just given the high tax rate, 51% and your comment around pivoting and your approach to scalability. So how are you thinking about your and launch in New York.
Thank you Yeah, we were really pleased to be awarded that license yesterday, and New York clearly has the potential to be one of the largest addressable markets in the U S.
Given the tax rate as you as you point out is a prime example of a market where you need to be incredibly prudent with respect to marketing and bonus expense, which obviously as you. As you also pointed out a theme that I discussed pretty heavily in my prepared remarks, we have a great database, New York, particularly in the more affluent areas.
The state and certainly to the extent that you're prudent with marketing spend and bonuses, there's the opportunity to build a business there overtime, but no doubt the tax rate is is the headwind that we all have to acknowledge.
Alright, and if I may follow up I think there is a request for information I'm in New York for Downstate license.
Any thoughts around potentially pursuing that or.
I'm pursuing other organic what greenfield opportunities for when.
Yeah. This is Matt and.
Craig and I have for the last five plus years, we work on these things together and that is when.
When does so I think we won't be participating in the New York process.
Up until it came either like a good deal or uneconomic and it's hard to know.
But that's one that we're going to keep a close eye on and there are other potential new jurisdictions that can be really exciting actually and what's so great about this company.
Our design team at architecture team over 100 people that are responsible for a Mirage and treasure island, the Bellagio and were basically you know the.
Modern day integrated resort are all intact and excited.
And you can't build something now if you haven't built these things in the past and our team is really good at that and understand how to make these things work both financially, but more importantly for the customer. So if a new opportunity comes up that makes sense for when the wind brand I think that we will.
The team will continue to look at it.
Got it. Thank you very much for taking my questions.
Thank you operated we have time for one last question.
Thank you. Our last question is from Robin Farley with you B S. You May go ahead.
Okay, great. Thanks for taking the question I'm, Craig Let me add my congratulations on top of everyone else's uhm on the new role and.
[laughter] question about the potential it gave me a lot of changes in the cow and just wondering what your view is on you know.
If government approval is required for dividend would that be a concern in terms of ability to get shareholders return on the investment there where would you be comfortable that that's.
Yeah that that would not be a factor that would come into play.
[noise] robbing it's Mad I think everyone is focused on.
That issue and the industry is failing United and like I said I think the government has been very.
And.
And transparent and in fact in one of the consultative.
Hearing they they talked about the need to balance the employment market instability of Macau with returns for shareholders, which I think is perfectly logical and makes a lot of sense.
And when you are attending these meetings in person what are your thoughts.
This is <unk>, we'd be very incorrect with the partnership orientation of government with their pragmatism and also the progress that's being made it's been very transparent they've allows us to engage directly in person and also in writing we've chai.
Are there concerns we don't have clarity on the number of the issues at this point, but we will get clerisy farther along the way and all of the concessions have similar concerns and we believe that the fact that we've aired them and share them that they will be given very serious consideration by government ultimately.
We're in partnership with government, they're also very aware of the growing regional competition, particularly with Japan now kicking up so there's a desire for stability going forward and they understand that were businesses that need to reinvest and continue to develop so we feel a lot of support from governments, it's a process.
Get more information further down the line, while we're very confident that they have our best interests at heart.
That's great that's round for color. Thank you can I follow up on it quickly unrelated to the online gaming strategy, if I could I'm just curious here you know with the.
The approach of so many online betting operators is that revenue matters early and you know at not I would say not at any cost that that I'm in the market seems very willing to value on multiple the revenue and I I mean, I I'm old school and think I think as as you do that [laughter] profitability matters more than that but.
Uhm, what how do you <unk> I guess what are your thoughts about.
If he don't focus on that in the early stages. You mentioned that entering late is you know more offer driven maybe than than getting it on day, one and so it seems like that suggest that you you do see a trade off of that there will be expense later, if you if you don't turn to capture them.
The top line marketshare print so when do we just put some context around that thank you sure sure.
First let me say that we fully intend to be day, one in every market that.
That we address and so we will be there will be there day one.
The important thing to keep in mind is it's not so much quote unquote income statement profitability its profitability of cost per acquisition versus lifetime value, It's making sure that every first deposit or that you drive or every cohort first depositors that you drive or ultimately profitable on a lifetime value basis. So that's where we're focused it's much more.
About the return on the spend the return on the AD spend.
And certainly we believe that we have the ability to do that over time. It doesn't mean that we're going to intentionally enter markets.
It's late.
Oh and it wasn't he has some that that you might be just that maybe that holding back on the spend would mean that there's any market you wouldn't give high has the that's the profitability marketshare, but that that's that's helpful context, thanks very much sure no problem.
Alright, everybody. Thank you for joining today, we will talk to you next quarter. Thanks.
[noise] that does conclude today's conference you may disconnect at this time.
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