Wynn Resorts, Limited (NASDAQ:WYNN) Q1 2024 Earnings Call Transcript

Wynn Resorts, Limited (NASDAQ:WYNN) Q1 2024 Earnings Call Transcript May 7, 2024

Wynn Resorts, Limited beats earnings expectations. Reported EPS is $1.94, expectations were $1.43. Wynn Resorts, Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Wynn Resorts First Quarter Earnings Call. All participants are in a listen-only mode, until the question-and-answer session of today’s conference. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the line over to Julie Cameron-Doe, Chief Financial Officer. Please go ahead.

Julie Cameron-Doe: Thank you, operator, and good afternoon, everyone. On the call with me today are Craig Billings and Brian Gullbrants in Las Vegas. Also on the line are Linda Chen, Frederic Luvisutto, and Jenny Holaday. 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 Craig Billings.

Craig Billings: Thanks, Julie, and afternoon, everyone. As always, thanks for joining us today. The momentum that we generated in the business throughout 2023 continued into 2024, as we delivered all-time record property EBITDAR of $647 million during the first quarter of 2024. I’m incredibly proud of all of our team members who remain so focused on delivering 5 star service and one of the kind experiences to our guests, a heartfelt thank you to each of you. Turning to the quarter and starting here in Vegas. Wynn Las Vegas delivered $246 million of adjusted property EBITDAR, a first quarter record and up 6% year-on-year on a very difficult comp. As we noted on our last call, most of the action in the quarter was concentrated in February, as the combination of Super Bowl and Chinese New Year drove all-time record EBITDA during the month.

Quarter was characterized by strong performance across our non-gaming businesses with revenue growing 16% year-on-year, led by 21% growth in hotel revenue, along with healthy volumes in the casino. Through our unique combination of the best service levels in the market, continuous reinvestment in our property, and our Only at Wynn programming, we continue to fire on all cylinders here in Las Vegas. More recently, our top-line trends remained healthy in April with Drop, Handle, and RevPAR all up year-over-year on yet another difficult comp. Turning to Boston. Encore generated $63 million of EBITDAR during the quarter. The team in Boston successfully navigated a confluence of poor weather in January and inflationary pressures during the quarter as EBITDAR and revenue at the property were largely stable year-on-year.

There were encouraging pockets of strength in the quarter with record slot handle and strong year-on-year growth in hotel revenue. More recently, demand has remained healthy through April with particular strength in slot handle and RevPAR. On the development across from Encore Boston Harbor, we have put this development on hold for the time being, as we have been unable to reach an agreement with local authorities on certain financial terms. Though it’s disappointing, we have numerous other development projects globally where we can redirect the capital we intended to deploy in Boston. Turning to Macau. We generated $340 million of EBITDAR in the quarter on GGR market share that was above both the prior quarter and above our 2019 exit rate.

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Q&A Session

We held above our expected range, so on a fully normalized basis, EBITDAR would have been approximately $320 million. The strength in our business has continued into Q2. In the casino, our mass drop per day in April increased 30% versus April 2019 and on the non-gaming side, our hotel occupancy was 99%. Overall, strong top-line performance combined with disciplined OpEx control drove healthy margins during April. We were also pleased with results during May, Golden Week, particularly in light of unfavorable weather in the region. In the casino, mass drop per day increased 30% versus the comparable 2019 holiday period and approached levels seen during last Chinese New Year. On the development front in Macau, we began initial demolition and construction work on our second concession related project, our Destination Food Hall.

We are well into design and planning for our other major concession related CapEx commitments, including our new event and entertainment center at a unique theater and show. Turning to Wynn Al Marjan. In the UAE, construction is rapidly advancing on the project and as of this week, we are currently constructing the fourth floor of the hotel tower. You can find recent renderings and images of Wynn Al Marjan in a press release we issued yesterday ahead of a major travel convention taking place this week in Dubai. And I expect we will further update you on the advances we have made on the project later this year. Finally, we are actively considering greenfield development opportunities in New York City and potentially, Thailand. In New York, we believe a full scale wind integrated resort in Hudson Yards will drive meaningful incremental tax revenue, tourism, and employment in the state.

Despite the elongation of the RFA submission process in New York, we remain intrigued by the prospect of a Wynn resort in Manhattan. In Thailand, it’s early days and we have yet to see the regulatory and licensing structures. Thailand is already a major tourism destination with significant tourism infrastructure and a world class service culture. So we will continue to closely monitor advancement of the legalization process. I remain incredibly bullish about the future of our company. In Las Vegas, we remain at the pinnacle of the market with tremendous demand for what we offer, and an inflation — and in an inflationary environment like this, we have the luxury of being able to reprice our hotel rooms every day in order to take advantage of that demand.

In Macau, we continue to punch above our weight on a revenue per hotel room basis, generating meaningful market share and substantial discretionary free cash flow. We also have a meaningful high ROI project underway in the UAE along with potential greenfield developments in other attractive gateway cities. Meanwhile, our leverage profile continues to improve as does our outlook on future free cash flow. Our best days lie ahead. With that, I will now turn it over to Julie to run through some additional details on the quarter. Julie?

Julie Cameron-Doe: Thank you, Craig. At Wynn Las Vegas, we generated $246.3 million in adjusted property EBITDAR on $636.5 million of operating revenues during the quarter, delivering an EBITDA margin of 38.7%. Hold was a bit of a mixed bag, given results in the sports book, and we estimate a net $5 million benefit from higher than normal hold in the quarter. OpEx excluding gaming tax per day was $4.1 million in Q1 2024, up 9% year-over-year and in line with the increase in operating revenue, as we successfully absorbed incremental OpEx related to Super Bowl programming, union related payroll increases and other inflationary pressures. Turning to Boston. We generated adjusted property EBITDAR of $63 million on revenue of $217.8 million with an EBITDA margin of 29%.

We’ve stayed very disciplined on the cost side and excluding a $2 million benefit from a one-time item, OpEx per day was $1.19 million in Q1 2024, up around 2% year-over-year. The team has done a great job mitigating union related payroll increases with cost efficiencies in areas of the business that do not impact the guest experience. Our Macau operations delivered adjusted property EBITDAR of $339.6 million in the quarter on $998.6 million of operating revenue. As Craig alluded to, we estimate higher than normal hold positively impacted EBITDAR by around $19 million during the quarter. VIP hold was largely in the normal range with the hold impact primarily related to higher than normal hold on Wynn Palace’s mass table game. EBITDA margin was 34% in the quarter, an increase of 140 basis points relative to Q4 2023, and 310 basis points relative to Q1 2019.

Overall, our strong margin expansion relative to 2019 has been driven by a combination of the favorable mix shift to higher margin mass gaming and operating leverage on cost efficiencies. Our OpEx excluding gaming tax was approximately $2.6 million per day in Q1, a decrease of 17% compared to $3.2 million in Q1 2019. OpEx increased 3% on a sequential basis, well below the 10% increase in operating revenue. The team has done a great job staying disciplined on costs, and we remain well positioned to drive strong operating leverage as the market continues to recover. In terms of CapEx in Macau, we’re currently advancing through the design and planning stages on several of our concession commitments. And as we noted the past few quarters, these projects require a number of government approvals, creating a wide range of potential CapEx outcomes in the near term.

As such, we continue to expect CapEx related to our concession commitments to range between $350 million and $500 million in total between 2024 and the end of 2025. Moving on to the balance sheet. Our liquidity position remains very strong with global cash and revolver availability of nearly $4.2 billion as of March 31. This was comprised of $2.2 billion of total cash and available liquidity in Macau and approximately $2 billion in the U.S. On the capital markets front, in February, we issued a $400 million add-on to the Wynn Resorts Finance 2031 unsecured notes with net proceeds along with cash on hand used to fund the tender and repurchase of $800 million of Wynn Las Vegas notes maturing in March 2025. Over the past four quarters, we’ve reduced company-wide gross debt by approximately $1 billion.

Bringing it all together, the combination of strong performance in each of our markets globally, with our properties generating over $2.3 billion of trailing 12 month property EBITDA together with our robust cash position, creates a very healthy consolidated net leverage ratio of just over 4 times. Our strong free cash flow and liquidity profile allows us to reduce leverage while returning capital to shareholders. To that end, the Board approved a cash dividend of $0.25 per share payable on May 31, 2024 to stockholders of record as of May 20, 2024. Additionally, in late March, the Wynn Macau Board recommended the reinstatement of a dividend at $0.075 per share or $50 million highlighting our commitment to prudently returning capital to shareholders in both the U.S. and Macau.

Finally, our CapEx in the quarter was $97.7 million primarily related to the Villa renovations and food and beverage enhancements at Wynn Las Vegas, concession related CapEx in Macau and normal course maintenance across the business. Additionally, we contributed $70 million of equity to the Wynn or Al Marjan Island JV project during the quarter, bringing the total equity contribution to date to approximately $160 million. With that, we will now open up the call to Q&A.

Operator: Thank you. [Operator Instructions] Carlo Santarelli from Deutsche Bank. You may go ahead, sir.

Carlo Santarelli: Thank you. Thanks, Craig. Thanks, Julie. Craig, just in terms of what you’re seeing in Macau, obviously, you guys had a strong quarter. Everything seemed to flow through very nicely. In terms of the competitive landscape that you’re seeing into May now relative to perhaps what you’re seeing last quarter or fourth quarter more specifically, could you kind of characterize what’s [Technical Difficulty] the market outlook (ph)?

Craig Billings: Yes. Sure, Carlo. You cut out a little bit there at the end, but I got the gist of your question. Macau has always been and is currently a competitive market. And as you know, we focus on product and service, and we focus on attracting the best guests in the market. So I’ve seen a lot of the questions and the commentary around promotional activity. I don’t really want to speak to promotional activity by others in the market. But I can tell you that our reinvestment can move 50, 75 basis points in any given quarter depending upon what we are trying to achieve. But the core of our competitive strength remains product and service. And I think you can see that in Q1 with both our results and our margin.

Carlo Santarelli: Helpful. Thank you. And then, Craig, just going back to your remarks on Las Vegas. You made a point of kind of calling out February being the primary driver of the quarter. You then follow that up with drop handle RevPAR kind of all up in April and mentioned kind of tougher comparisons along the way. How do you kind of foresee what is a very obviously tough comp stack as you move through the balance of this year in the market?