Wynn Resorts, Limited (NASDAQ:WYNN) Q4 2023 Earnings Call Transcript

Wynn Resorts, Limited (NASDAQ:WYNN) Q4 2023 Earnings Call Transcript February 7, 2024

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 Fourth Quarter 2023 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, Brian Gullbrants and Steve Weitman 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: Good afternoon, everyone, and thanks for joining us again today. Well, what a quarter. And really what a year. Every single member of the Wynn team should be incredibly proud of what they achieved together in 2023. Momentum in the business built throughout the year, and we ended on a high note with $632 million of property EBITDA, an all-time quarterly record, capping off a record year in which we generated nearly $2.2 billion of property EBITDA. We see tremendous value in our business as evidenced by our buybacks in the quarter and I’m genuinely looking forward to 2024. The company is more diversified than it’s ever been. In Las Vegas, we continue to distance ourselves from peers as the leader in luxury and it’s more evident than ever that we are the go-to spot for the best customers attending citywide events like F1.

We have a growing business in Macau that is running structurally higher margins than in the past, is much less reliant on the volatile VIP segment and is increasingly well positioned to compete. And importantly, we have a substantial growth opportunity in the UAE that will further diversify our portfolio and expand our brand into new markets. Turning to the quarter and starting here in Vegas. Wynn Las Vegas delivered $271 million of adjusted property EBITDA, an all-time quarterly record, up 24% year-on-year on a very difficult comp. While F1 was clearly a contributor, activity of the property was intense throughout the quarter, with RevPAR table drop, slot handle and food and beverage revenue all well above what was a very strong quarter in 2022.

In fact, we had our best October, our best November, and our best December ever in terms of EBITDA during Q4. We continue to fire on all cylinders here in Las Vegas, and I’m incredibly proud of the Vegas team. More recently, January 2024 looked a lot like January 2023 from an overall revenue perspective with hotel revenue particularly strong. That being said, January isn’t where the action is this quarter. It’s all about February. Super Bowl, Chinese New Year and for us, the best February in our history for group and convention. Between Super Bowl and Chinese New Year, we have doubled the front money and credit that we had in 2023, and we expect record hotel revenue over Super Bowl. So a very active February will really set the tone for the first quarter.

Turning to Boston. Encore generated $64 million of EBITDAR during the quarter, similar to many other regional markets, demand at the property was largely stable year-on-year. Revenue decreased by about 0.5%, but the team has done a great job remaining disciplined on OpEx, driving a 2% year-over-year increase in EBITDAR. More recently, underlying demand has remained healthy through January although a couple of unfortunately timed winter storms had negatively impacted visitation during a few recent weekends. On the development across from Encore Boston Harbor, we recently received a key environmental approval and we are advancing through a few remaining items before construction can begin. Turning to Macau. We generated $297 million of EBITDA in the quarter on market share that was consistent with the prior quarter and with 2019.

While we held in the normal range in mass, we held a bit high in VIP. So on a fully normalized basis, EBITDA would have been approximately $290 million or 94% of Q4 2019 levels. The strength in our business there has continued into Q1. In the casino, our mass drop per day in January increased 32% versus January 2019 and was up sequentially versus Q4. On the non-gaming side, our hotel occupancy was 99%, along with continued strength in tenant retail sales. Overall, strong top line performance, combined with disciplined OpEx control drove healthy margins during the month of January. On the development front, we opened our first major concession-related capital project during Q4, a collaboration with the team behind Las Vegas-based Illuminarium and initial customer feedback has been positive.

We are deep into design and planning for our other concession-related CapEx commitments, including our Destination Food Hall, the new event and entertainment center and a unique production show. Lastly, turning to Wynn Al Marjan, construction continues on the project with much of the hotel tower and podium foundation now complete, and we are nearly ready to start going vertical on the hotel tower. Property is really going to be a stunner, and it’s great to see the buildings start to take shape. With that, I’ll now turn it over to Julie to run through some additional details on the quarter.

Julie Cameron-Doe: Thank you, Craig. At Wynn Las Vegas, we generated $270.8 million in adjusted property EBITDA on $696.8 million of operating revenue during the quarter, delivering an EBITDA margin of 38.9%, up 140 basis points year-on-year. Higher than novel table games hold benefited EBITDA by around $10 million in Q4. OpEx, excluding gaming tax per day was $4.4 million in Q4’23, up 16% year-over-year, well below the 19% increase in revenue. The sequential increase in OpEx was primarily driven by higher programming and staffing costs related to F1. Turning to Boston. We generated adjusted property EBITDA of $64.4 million on revenue of $217.1 million with an EBITDA margin of 29.7%. We’ve stayed very disciplined on the cost side with OpEx, excluding gaming tax of $1.14 million per day in Q4’23, down 2% year-over-year, driving a 70 basis point increase in EBITDA margin.

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 EBITDA of $297 million in the quarter on $910.6 million of operating revenues. As Craig alluded to, we estimate higher-than-expected hold positively impacted EBITDA by around $7 million during the quarter. Importantly, mass hold at both properties within the expected range during the quarter with the hold impact primarily related to the VIP side of the business. EBITDA margin was 32.6% in the quarter, an increase of 140 basis points relative to Q4 2019, 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 $2.56 million per day in Q4, a decrease of 14% compared to $3 million in Q4 2019. The team has done a great job remaining disciplined on costs and we’re well positioned to continue 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 our concession commitments. And as we noted in 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 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 $4.5 billion as of December 31. This was comprised of $2 billion of total cash and available liquidity in Macau and approximately $2.45 billion in the US. Bringing it all together, the combination of strong performance in each of our markets globally with our properties generating nearly $2.2 billion of property EBITDA in 2023. Together with our robust cash and liquidity position, creates a very healthy leverage and free cash flow profile for the company globally. Further, the Board approved a cash dividend of $0.25 per share payable on February 29, 2024, to stockholders of record as of February 20, 2024. We also repurchased approximately 1.6 million shares, $139 million during the quarter, highlighting our commitment to prudently returning capital to shareholders.

We will consider additional dividend increases at Wynn Resorts and the initiation of the dividend from Wynn Macau as the recovery progresses and the exact timing of our global capital deployment plans become more clear. Finally, our CapEx in the quarter was $113 million, primarily related to the spa villa renovations and food and beverage enhancements at Wynn Las Vegas concession-related CapEx in Macau and normal course maintenance across the business. With that, we will now open up the call to Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Carlo Santarelli with Deutsche Bank.

Carlo Santarelli: Hey, Craig. Hey, Julie, everyone. Guys, as you think about kind of Macau and obviously, with the amenities that come on, whether it’s concession-related or other. Does this kind of 2.5 to 2.6 daily OpEx rate feel like you’re in the right place going forward as we think about 2024, at least?

Craig Billings: Hey, Carlo, I’ll start and then I’ll hand it to Julie. I mean, I think, we should put it in perspective, right. Our OpEx in the quarter was, I think, about 14% below Q4 2019, and our margins were some, I think, 140 basis points higher. So we’re clearly being disciplined on OpEx. But Julie, do you want to discuss some specifics?

Julie Cameron-Doe: Yeah, there were some specifics, Carlo, sequentially. So if you think about it, it increased 160,000 per day or $15 million sequentially and that was split across three different buckets. The first one was higher variable costs on the extremely robust business volumes with hotel occupancy up 100 basis points, GGR up 12%, F&B up 13%. The second bucket really is payroll. We had more overtime pay related to holidays because there were nine public holidays in the quarter versus just two in the previous quarter. And then the third bucket was really the highest spending on concession-related non-gaming events, because this was a particularly heavy event quarter. And you remember, we kind of foreshadowed that in the previous call when we talked about all the different programming we had going on.

And that really kicked off with the hypercar exhibition that we had. And then we had several well-received art, sports and culinary events. So that’s really what was driving it, the sequential pop. Going forward, we feel, you know we’ve got — as Craig said, with EBITDA margin at both properties above Q4’19 levels and with the OpEx well controlled. We do expect the pace of growth in market-wide GGR along with our revenue mix to be a key driver of margins. So there’s going to be some quarter-to-quarter variation as we see different programming coming through and we continue to roll out the programming associated with concession commitments.

Craig Billings: Barring, Carlo, barring a major facility opening like the event center, which is a number of years away. I don’t foresee a step change in our OpEx, and we’re managing it very, very tightly.

Carlo Santarelli: Very helpful. Thank you for the detail as well. Then just as a follow-up. Obviously, the Las Vegas results kind of speak for themselves, and it would be hard to notice anything changed in Las Vegas in the fourth quarter. But obviously, you guys do have a new competitor there to the north. And I was just wondering now with at least a couple of months of kind of experience with that. Could you talk a little bit perhaps about how Fontainebleau has kind of impacted positively or negatively the asset and kind of daily traffic.

Craig Billings: Yeah, it really hasn’t. So I feel great about our business. I feel great about where we are. Like I said, February is shaping up to be jampacked between the Super Bowl, Chinese New Year and everything else we have going on, I don’t really see any impact.

Carlo Santarelli: Great. Thank you, both.

Operator: Thank you. Our next caller is Joe Greff with JPMorgan.

Joseph Greff: Hi, everyone. Thanks. Craig, in the fourth quarter, mass table GGR was 117% of fourth quarter levels, up from 106% in the 3Q relative to ’19 or 3Q of ’19. I know you don’t sort of think about it maybe or present it at least externally to the same degree that Las Vegas Sands does between how we define this premium mass and its base mass business. But when you think about within the different tiering that you guys have? Would you say all of your mass table tiers are fully recovered plus relative to ’19? Or are there some tiers that still have relative recovery to get to and exceed ’19 levels?

Craig Billings: Thanks, Joe. I think you have to differentiate between each of the properties. So the early portion of the recovery was clearly premium mass land. You saw that in the different — the revenue per head or revenue per visitor in the early portion of the recovery. And clearly, we saw that hit Palace first. And so we’ve been talking for the past several quarters about how Wynn Macau would need a little bit longer to recover. And so at Wynn Palace, now it’s really about yielding the rooms and driving the best heads and beds, if you will, in order to continue to grow our position there. And the property is well positioned to do that. At Wynn Macau, where we have historically been more reliant on more transient traffic on what other operators may refer to as core mass.

You saw that start to come through in this quarter. There’s still more work to do there. But honestly, if you really look at the numbers that Wynn Macau produced this quarter, I’m incredibly proud of that team. You can see the uptick in drop. You can see the uptick in GGR and it was incredibly strong. That’s really down to the targeted CapEx that we did that we completed just at the end of the third quarter, bridging into the beginning of the fourth quarter and then also the return of those additional segments that you referred to in your question.

Joseph Greff: Great. That’s helpful. And Craig, we heard your positive commentary about February and the 1Q in Las Vegas and in addition to the Super Bowl, the group traction. Would you expect 2Q ’24 through 4Q’24 group room nights to be up year-over-year?