Q2 2019 Earnings Call
Welcome to the Wynn resorts second quarter 2019 earnings call.
All participants are in listen only until the question and answer session of today's conference.
I ask a question. Please press star one on your phone record your name and I will introduce you.
This call is being recorded.
Any objections you may disconnect at this time.
I will now turn the line over to Craig Billings, President and Chief Financial Officer, Sir you may begin.
Thank you operator, and good afternoon, everyone.
With me today in Las Vegas, or mathematics in Maryland Spiegel also on the line are in college.
Sure on Carruthers, Frederic Lucerne, two and Bob Desalvio.
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 Matt Maddox.
Thanks, Greg and thank you all for joining our call today.
As a as we look back at second quarter I'd like to start with congratulating. The 5000, new team members that we have in Massachusetts for opening Encore Boston Harbor.
The property opened on June 20, Threerd to much fanfare, thousands and thousands of visitors coming in.
And the property is not disappointed.
The reviews have been terrific people really appreciate the quality and our service levels are beginning to ramp to win standards.
We've seen some really positive impact on the a in the casino on the table game side and in Boston right now table games are performing well our hotel is beginning to ramp.
And we are working on various offers and promotions to really understand the highly competitive slot market in the northeast and believe that with our properties locations with our management team and with our product that we will continue to ramp that property and take share in the northeast and we look forward to sharing more results as we have more data under our belt after our third quarter.
Moving on to Macau, we generated $343 million of EBITDA this quarter.
Macau is currently a really core mass market driven.
Market right now our core mass was up over 22% compared to last year.
That compares to core mess up 13% in the first quarter.
We're continuing to see some choppiness in the premium market and in the VIP market as an example.
April EBITDA on a combined basis was down 21% over last year.
Yes may and June were up over 7%.
And our VIP turnover in May and June were essentially flat with last year.
So really what that tells US is you can't look at one month.
As a trend as an example, the July numbers were recently put out by the da CJ.
And it was pretty clear that there was some softness in the VIP segment.
We did not look at that as a trend we look at it as a data point.
And fully believe in our premium market focus as we continue to take share in the core mass.
Looking at the properties, specifically at Wynn Macau, we saw mass revenues grow over 10%.
And that validates our strategy as we repositioned Wynn Macau last year to turn it from largely VIP junket house by Reconfiguring, the West Casino remodeling the Encore Hotel tower building three new restaurants.
And an additional 8000 square feet of retail all of which will be completed by the end of this year.
Positioning Wynn Macau as a market share taker on the peninsula for 2020.
Looking at Wynn Palace.
Mass revenues were up approximately 6%, which was led by core mass up in the high in double digits offset by softness on the premium mass side.
Wynn Palace continues to be the leader in quality and in luxury in the Macau market.
It's clear that we need more rooms at Wynn Palace and at our Investor Day, we laid out our program for the Crystal pavilions, which includes 1300, new rooms 650 rooms in phase one.
Plus say the crystal pavilions itself, which is a non gaming development that has a new theater concept.
Collaboration with the museum, that's going to have one of the largest collections of Chinese art on the planet as well as.
14, new food and beverage outlets the crystal pavilions, coupled with the rooms will make Wynn palace, the must see destination in Macao.
Moving to Wynn Las Vegas.
I have to congratulate Maryland, and the team in Wynn Las Vegas for an extraordinary quarter and executing our strategy.
It was the first time.
And over five years, where our revpar increased by more than 9.5%, but what I found much more interesting was our focus on the casino.
Which for the last five to six years had largely been ignored.
As an example.
Our domestic table games business.
Was up 12% this quarter when the overall Las Vegas strip was down 6%.
Our slot revenues were up 12% this quarter when the overall Las Vegas strip was only up seven.
Our baccarat revenues increased five times faster than the market clearly we had some high hold.
But even on a drop basis, our baccarat drop was up 16% this quarter.
While the market was only up 11%.
So it's quite an extraordinary result, which was a strategic change in focusing on the casino and driving additional visits and more play.
Another thing that I was really proud of the team as our net promoter score.
At Wynn Las Vegas was the highest in the company's history.
And net promoter score is a simple question that we ask all of our hotel guest and over 40000 people responded this year, which is similar to years past.
Which is.
Would you recommend Wynn Las Vegas to your friends and family.
This year, we outpaced the luxury hotel benchmark by over 15% and had the highest score in 29 in 2019 in our company's history.
So through the cultural shift that's occurred in Las Vegas, I think that that.
Single family, coupled with the numbers says a lot about this management team and what we've been able to achieve.
You take the strong operational prowess and combine that.
With all the capital improvements that we launched last year.
A 400000 square foot Convention center that is going to open in six months.
Thomas Keller the renowned chef will be opening its first fine dining restaurant in Las Vegas in 2020 here at Wynn Las Vegas.
On recall Vera.
The top Mexican chef in North America has two of the top 50 restaurants on the world's best we'll be opening his first restaurant in Las Vegas at Wynn Las Vegas in 2020.
And we also opening a new separate club called Delilah that I think will be the next evolution of nightlife in Las Vegas.
So you combine all of these new projects with what our operations team.
Has been able to deliver.
And I believe that when Las Vegas will continue to be market share takers here in Las Vegas.
Our vision is clear we're going to continue to take market share in Las Vegas, we're going to own the premium market in Macau.
And we're going to ramp Encore Boston Harbor.
To be the top grossing casino in the northeast.
We're very confident in our strategy.
And what that's going to do to do is produce significant free cash flow for our company and for our investors.
With that I'm going to turn it over to Craig to get into more of the numbers.
Thanks, Matt.
As noted in our release for Macao operations delivered $343 million of adjusted property EBITDA on 1.18 billion of operating revenues.
As Matt noted the quarter was characterized by strength in main floor core mass with combined property when in that core mass segment up 22% year over year.
Our results in Macao were positively impacted by VIP hold increasing EBITDA at Wynn Macau by approximately $8 million from a normalized level.
That debt expense at Wynn Macau was comparable year over year, while at Wynn Palace, a swing from a $2.6 million credit in last year's quarter to a 2 million dollar expense in this year's quarter cost us nearly $5 million in year over year comparable EBITDA.
During the quarter, we spent 23.5 million on the west casino refurbishment and encore room refresh taking our spend to date to approximately 42 million.
Our Las Vegas operations delivered 137.4 million of adjusted property EBITDA in the quarter on operating revenue of $464.1 million.
With year over year growth in both baccarat, non baccarat table drops as well as slot handle.
On the hotel side, Revpar increased 9.5% year over year to $300 driving 127.6 million of hotel revenue, which has a property record.
The property held high adding approximately 12 million to EBITDA.
Bad debt expense and Las Vegas was $2.4 million compared to 1.7 in the prior year quarter.
We spent $58 million in project costs and the additional groups space at Wynn Las Vegas, taking or spent to date to 246.6 million.
In Boston, we incurred $187.6 million in total project costs during the quarter, taking our total spend to date to $2.45 billion.
The remaining capex and construction retention of approximately 150 million will be paid over the coming quarters.
We ended the quarter with total debt of $9.15 billion, and total cash and investments of $1.51 billion, including approximately $804.3 million of Wynn Macau.
During the second quarter, we returned over $100 million to shareholders through our quarterly dividend.
We will continue to look closely at capital allocation alternatives, including periodic increases to our dividend as well as opportunistic share repurchases.
With that we will now open up the call to cure that.
Thank you to ask a question press star one on your 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 comes from Carlo Santarelli with Deutsche Bank. Your line is open.
No.
Craig Matt could you talk a little bit about kind of the the impact that maybe the core mass growth relative to the other segments is having on margins. If you just kind of look at palace specifically.
Margins, there were a little softer year over year and given the mix you you would somewhat anticipate that that maybe the mix of revenue would be advantageous for margins, but we didn't see it in this quarter. So maybe you could talk a little bit about kind of whats driving some of the margin pressure there.
Sure I'll start with that Matt. So if you look at our operating expenses in the second quarter per day, they're roughly the same as the first quarter or the fourth quarter, what we had in the second quarter as we had.
Really low hold in the direct part of our business and VIP, which that mix definitely impacted margin and on the premium side of the business, while core mass was up significantly.
That with the premium mass being down that did impact the operating leverage and it did impact the margin side. So its really premium mass coupled with low hold indirect.
Great. Thanks, Matt that that's certainly helpful. And then look we I know this is very hard to answer, but but bigger picture clearly you know with with the not only the protest in Hong Kong, but but obviously the rhetoric around trade war et cetera.
We've seen kind of mixed results coming out of Macau I would say over the last several months, obviously, one data point here or there as you mentioned for July doesn't really make a trend necessarily but you know from the ground and maybe some of the guys in Macau would be even better suited to answer this or are you guys seeing anything that materially different or behaviors that have changed given some of the aforementioned.
So I'll jump in ill ask and answer clearly in July as you saw from the FDIC Jay required there is some softness in VIP and when you have hundreds of flights canceled out of Hong Kong and summer Luxton reluctance to travel I do think that that's impacting the premium end of the business. However that to me feels very temporary and has really nothing to do with our business and everything to do with what's going on in the region.
And do you have any further thoughts on that.
No. The the same headwinds that have existed for the last nine months continue and clearly what's happening in Hong Kong, albeit it's more recent is certainly going to impact business in the short term as you've described theres been disruption to people movement.
Between Hong Kong, and Macau and that looks like it's going to continue for the for the next few weeks at least.
And then even if I just could one follow up obviously VIP on a sequential basis across both of the assets was relatively stable in aggregate do you feel like that business has changed or is kind of the the stability enroll just more of the same and what we're looking at year over year, just more has to do with with comp stacks and luck factors as it pertains to revenue.
The VIP continues to be very choppy for the same reasons Alaska.
12 to 18 months am I wouldn't suggest that there's stability. There we have some good months and then we have a bad month.
Okay, Great. That's helpful. Thank you guys.
Our next question comes from Joe Greff with JP Morgan Your line is open.
Good afternoon everybody.
Just with respect to the junket business in Macau are not worrying are Craig.
Can you talk about sort of maybe the more recent if there is more recent volatility with sort of key junkets and how volatile that business is obviously you have a lot of news flow on a on key junkets and what they need to be going through can you talk about.
How diverse your junket businesses, and it's but if one drug that might be appearing in volume decline you know how that kind of impact or the business in the aggregate and then just a follow up to Carla's question about the margins at Wynn Palace, if we were to normalize for those hold impact.
In say the Twoq you wouldn't want to Wynn palace, what would be a normalized hold EBITDA margin.
In the two key when once you get that sort of better understand that dynamic and that's it for me.
Ian why don't you take the first question and then Craig I'll, let you handle the margin question.
[noise]. So we have business with the same junkets that we've had over the last 18 months. They go through periods of Choppiness. A one junket is off one is down but there's nothing material about a specific chunk of that we do business with at this point.
And on the on the margin point.
Joe.
The the low hold indirect VIP idled in junket phenomenon that we experienced in the quarter and then the mix.
Shifting to Matt referred to on the premium mass cormet side, probably cost us.
150 to 200 basis points of margin.
Thank you.
Our next question comes from Felicia Hendrix with Barclays. Your line is open.
Hi, Thanks, a lot Ian I'll start with you you know for those of US sitting at our desks in the U.S. and this latest trade weren't intensification and RMB devaluation seems like it could have an incremental impact on demand.
You know you guys have kind of characterize what you're seeing as they continue choppiness, but I'm. Just wondering is is and I know its super early because just happened, but you know could we see another leg down and the second part of that question is you know is there a point where the macro effects. The mass and you know obviously, it's already effected the Supreme mass, but I'm really asking about the lower tiers of mass.
Based on visitor arrivals, which continue to grow I don't think core mass is going to be affected and I think it's too early to call. The latest gyrations in the trade War.
I'm wondering if it I cant remember as Linda on the line I don't know what maybe she's hearing from you know some of the folks that she's been communicating with recent energy she's not on the line today. Please yeah 'cause that's obviously like the biggest concern that folks are having a right now.
So but it is early also you know through the since your Investor day, one of the a lot of the questions that we've gotten on the Crystal Pavilion project was how you were thinking about the targeted return of 15% to 20% and I was just hoping that you could talk about what was driving that view and why we should be comfortable with that outlook.
Sure. So I'll start with that again, clearly Wynn palace needs more than 1700 hotel rooms.
I think you can see from some of our competitors that have just ramped up their new quite nice hotel product, what's that what that has done to their bottom line. We are hotel is full and on the weekends were turning away customers that we do not want to be turning away and we know that they will spend more time and more money with us if they're staying with us that coupled with the multi generational travel that exist in Asia much different than really anywhere else.
In the world the Crystal pavilions is going to attract a lot of customers, but also as we see attic cotai families travel with customers. So we think that the crystal pavilions entertainment. The Crystal Pavilion project will be attractive to a much broader audience and we've estimated that we expect over 10 million visits to that on an annual basis. So the premium mass will be in the hotel and we think that will get significant incremental visitation from the core mast with the project.
Great. That's really helpful. My final is just for Craig just housekeeping. The I think it was at palace, where are your bad debt slipped from a credit to an expense, which affected EBITDA I'm. Just can you just talk about the expense in the quarter is that just normal crop course caution reason to think anything from that number.
No we have a pretty rigorous process of aging our receivables that formulaic, it's not reflective of any particular macro trend.
And so it's normal course stuff. So we went from 2.6 in the credit in the prior year quarter to $2 million of expense in the current year.
Okay, great. Thanks, so much.
Our next question comes from Shaun Kelley with Bank of America. Your line is open.
Hey, good afternoon, everyone. Thank you, Matt just thinking about the kind of an operating environment that we're in a little bit more broadly on and and the growth that you're seeing in the core mass business is there anything you can do that the you know outside of obviously, a meaningful room expansion to remix.
The property or or or read right or sort of optimized palace to take advantage of the market conditions as they are today and anything you guys are thinking about there from kind of the operating or expense perspective.
That would make sense to adjust.
Well.
Sean we have been doing that so for our core mass to be up 22%. You know that's not by accident, we were running significantly more marketing events and concerts and programs. We are really looking at continuing to drive that business and I believe we are taking a large share of the core mass relative to our unit base. So with our no roughly 300 games at each in each place. So Wynn Macau will be perfectly positioned to continue to take additional share in core mass starting in 2020 as we finished that program and I'd just like to again remind everybody the premium business is not going away.
We've all seen this over many many years in 2016 and 2012, when it's artificially contracts for a very short period of time.
And people focused on core and then it expands quite rapidly.
So what we're not going to do is change who we are.
We are the premium operator, and we will continue to be the premium operator, but during this time, we are capturing I think more than our fair share of the core mass growth.
Hi, there thanks for that and then just at a high level you guys have laid out sort of the 15% to 17% market share in a range I think you know in our math you're it.
You were still in that range just at the at the very low end of that is that still something you're broadly comfortable with you know, obviously quarterly volatility or whole notwithstanding.
Yes, that's that that's our range that we're still focused on for the year.
Great. Thank you very much.
Our next question comes from Thomas Allen with Morgan Stanley . Your line is open.
Hey, so two questions on Vegas first broadly the proper did really well in the quarter, but food and beverage revenue was down was there anything.
A nuance about that and then second Vegas backer out was really strong in the quarter job for you.
People have been cautioning about that business. So how should we think about the outlook for Vegas background going forward. Thanks.
So and food and beverage I mean, clearly we have a new competitor in the marketplace and nightclubs and its a very promotional market right now, but we're pretty firm in our belief great product great service is going to overcome any competitive pressure there, but that's what's happening in food and beverage and then when it comes down to baccarat. It is what you see here in the Choppiness is what you see in macro events and so we're not sure what any quarter is going to do for baccarat, but we were delighted with this quarter.
Helpful. Thanks, and then just on palace on the mass table when it's been kind of it's been stable at around 300 million Bucks for six quarters. Now do you think that's kind of the right Ryan Runrate for the foreseeable future until we see.
You see Crystal Palace Palace on Auryxia, big ramp up and that pretty much in play.
Hi, it's really very market dependent Thomas So I believe is premium comes back which it will we're going to be a net beneficiary of that timing when that comes back is not as quite hard, but I would expect us to see growth. Once we once the premium customer begins to come back to Macau.
And you think this level because it is defendable given the strong core mass business. So.
It certainly has been for six quarters. So yes, we are we feel comfortable with our business model and the direction that we're going.
Alright, thank you.
Our next question comes from Harry Curtis with Infinite Your line is open.
Hey, good afternoon, everyone I I had it and I apologize I've been bouncing between calls I hope this wasn't a wasn't asked but in Boston can you talk about your strategy and in a in building your slot business and in your experience how long does that typically take to up or to get to a a satisfactory level.
Sure I'll I'll start and then I'll turn it over to Bob Desalvio. So weve targeted a 12 month ramp up Harry and what we're doing is we're making sure that we're not going to get into a promotional war with our competitors who are quite nervous about oncor Boston Harbor, So were reacting to what our slot customers are telling us we're looking and understanding what promotions work you know how points translate to comp dollars and what prizes what gifts are working and we are really focused on it its guerrilla marketing out there and we're really focused on that and we have the right team to do it. So Bob do you want to jump in on that sure I'm. One of the things were primarily focused on his database building. So right now of course, we're trying to sign up as many new customers as possible, we're doing quick evaluations and turns and making sure that we communicate with them.
Overall, when they see the property a great response, a very positive but as you know this does take time to get through the ramp process, but we are all over it working on it.
A very good and my follow up question has is related to the acreage around Boston.
Hi, you've been.
Somewhat active.
Buying up some key acreage how long does it take for that to become kind of commercially viable for you guys and are you looking at that joint ventures, how meaningful might might joint ventures add to your cash flow over over the years.
So the.
Planning and permitting process does take quite a long time in Massachusetts and were not in with any formal programs right. Now we are talking to various potential partners because I think a joint ventures could really work on that 11 acres for additional hotels that might be or not quite the wind standard and other entertainment offerings.
Because this will be an entertainment destination in the Boston Metroplex, and those 11 acres are going to be very valuable. So we're taking our time to make sure that we have the exact right program and understanding what it is that we need to drive more visitation to our casino.
When you talk about entertainment I guess I'm is there any just kind of 30000 foot.
Framework that you can put around that well how do you define entertainment we've been approached by people that would like to think about putting an arena there for various events. We've been approached by people that like to do the outdoor districts that have Ah you know lots of various entertainment aspects, but on a more boutique level. So we were evaluating various proposals were not in a rush, but we do think that that's going to really add to the area into the revenues of Encore Boston Harbor over the long term.
Very good much appreciate it thank you.
Thanks, Eric.
Our next question comes from Stephen Grambling with Goldman Goldman Sachs. Your line is open.
Hi, good afternoon. Thanks for taking the question I just one follow up on Boston, what would you need to see to start thinking about becoming more aggressive targeting VIP players that the property. I think you had said that you were going to wait a little bit before you really started targeting them.
That's right what we've determined is we want to make sure that our service levels are at the Wynn standard and that that's not easy the team is doing an amazing job getting there and really a very very quick way, but we had always said lets give it at least 90 days before we start hitting our full database at Wynn Las Vegas, offering people offers there and and directly marketing to our higher end customer. So the idea is that would be sometime in the fall.
Got it and then one other follow up from the.
The event back at Boston.
The $250 million in Capex, I think that you outlined as part of the $16 and free cash flow per share can you just remind us what isn't isn't included in that number.
That is the loss Las Vegas room remodel.
I believe that's what you're referring to in 2020.
And so that that would be what your I guess is there any other kind of maintenance capex that we need to be thinking about or other ROI projects that.
We should be factoring in.
Well I think we've outlined everything between the food and beverage program in a Wynn Las Vegas, the trailing capex for the group space.
In Las Vegas, the maintenance Capex needs that we have across the property I think are well modeled including in your model and into Crystal Pavilion in Macao, That's that's really our our pipeline.
Fair enough. Thanks, so much of it back in the queue.
Sure.
Our next question comes from David Katz with Jefferies. Your line is open.
Hi, good afternoon. Thanks for all of the detailed information you've covered quite a bit.
A bit more hypothetical if you decided.
If if if and when you decide to grow.
Are you thinking more about growth domestically or internationally, we obviously are aware of Japan.
What that opportunity is but irrespective of that.
Do you have more of an inclination one way or the other.
No we're going to always focus on large scale integrated resorts that can move the needle on on a company of our size.
So there are some large domestic markets that are talking about a third license for example, in New York, but without really understanding how that would work where it would be it's hard to say how appealing that is but we're keeping a very close eye on that.
As well as lots of people are spending lots of time in Japan, including us.
And so anytime a market that could support a win style property would open we would be interested.
But its a were agnostic between domestic and international.
Perfect. Thank you and nice quarter.
Our next question comes from Neil Daswani with Citibank. Your line is open.
Thanks for taking my question I, just wanted to focus a little bit on Wynn palace in the Crystal pavilions.
Matt could you tell us how much integration is there going to be between two these two properties and as a consequence does that lead to any disruption at Wynn palace going forward.
No. It shouldnt, so and Neal we have seven acres of land adjacent to Wynn Palace, and we actually built a retail corridor that was going to connect to phase two that we never opened.
Currently its housing our Macau, if you were to go over there and look at all the art installations that we ran for art Macau, but that that thoroughfare as closed off to the public normally and that will be the connection into the crystal pavilions.
So outside of construction traffic on the roads. The overall property should feel very little impact on the new construction and do you have any thoughts on that.
No I think we knew we were going to develop both those plots of land so.
In fact, a lot of the back of house integration of those properties is already planned for the facility of Wynn Palace as it exists has made provisions for a lot of back to how support.
Thank you and as my follow up could you, maybe and tell us if there's been much of a disruption impact in Wynn Macau from your remodeling, that's obviously going to be completed at the end of this year.
Nothing significant it's certainly visually disruptive, but I wouldn't say, it's had a material impact on business were 40% of the way through remodeling of the encore rooms, and we're hoping to have everything finished by the end of the year.
Hi, Thanks for taking my questions guys.
Thanks Neil.
So I'll turn it over to the host for final remarks.
Oh.
Okay well. Thanks, Thanks for joining today, everyone. We'll talk to you next quarter.
Thank you.
This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.