Q1 2024 Wynn Resorts Ltd Earnings Call

Participants

Brian Gullbrants; President of Encore Boston Harbor; Wynn Macau, Limited

Craig Scott Billings; CEO & Director; Wynn Resorts, Limited

Julie Mireille Cameron-Doe; CFO; Wynn Resorts, Limited

Benjamin Nicolas Chaiken; Executive Director; Mizuho Securities USA LLC, Research Division

Carlo Santarelli; Research Analyst; Deutsche Bank AG, Research Division

Daniel Brian Politzer; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division

David Brian Katz; MD and Senior Equity Analyst of Gaming, Lodging & Leisure; Jefferies LLC, Research Division

John G. DeCree; Director and Head of North America Equity & High Yield Research; CBRE Securities, LLC, Research Division

Joseph Richard Greff; MD; JPMorgan Chase & Co, Research Division

Robin Margaret Farley; MD and Research Analyst; UBS Investment Bank, Research Division

Shaun Clisby Kelley; MD in Americas Equity Research & Research Analyst; BofA Securities, Research Division

Presentation

Operator

Welcome to the Wynn Resorts First Quarter Earnings Call. (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 Mireille 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 Scott Billings

Thanks, Julie. Good 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-a-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 EBITDAR during the month.
Quarter was characterized by strong performance across our nongaming 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. 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 nongaming 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 the 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 approach 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 events and entertainment center and a unique theater and showroom.
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 Wynn 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 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 Mireille Cameron-Doe

Thank you, Craig.
At Wynn Las Vegas, we generated $246.3 million in adjusted property EBITDAR on $636.5 million of operating revenue during the quarter delivering an EBITDAR margin of 38.7%. Hold was a bit of a mixed bag given results in the Sportsbook, 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 revenues 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 EBITDAR margin of 29%. We've stayed very disciplined on the cost side and, excluding a $2 million benefit from a onetime 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 EBITDA 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 games.
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 4 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 EBITDAR, together with our robust cash position, creates a very healthy consolidated net leverage ratio of just over 4x.
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 USD 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 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.

Question and Answer Session

Operator

(Operator Instructions) Carlo Santarelli from Deutsche Bank.

Carlo Santarelli

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 (inaudible) the market at?

Craig Scott 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. 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?

Craig Scott Billings

Sure. Well, first, as it specifically relates to drop and handle, we've almost doubled handle from 2019 to 2023, and a lot of that was share taking. We have table drop that's up almost 50% in the same period so not too shabby. And as you know, I've said on several calls, trees don't grow to the sky.
But all that being said, the comps are getting tougher. And if you go to a CPI calculator online, you will find that the purchasing power of $1 today is the same as about $0.80 in March of 2019.
So for a casino and a hotel operator like us who can reprice rooms every day and whose customers gaming bankrolls reflect the current value of the dollar, we shouldn't be surprised that results today when compared to the past look pretty good. Of course, that pricing power is exacerbated by the strength of what we offer here in Las Vegas with the best service quality, the best physical experience and top-notch program.
You can layer on top of that that our target customer base, they can now earn 5 points on their money just by putting it in the bank, and that has seen pretty strong wealth creation over the past several quarters, it's a pretty powerful EBITDA setup.
Of course, by the way, the vast majority of our deployed capital here and our debt is in yesterday's dollars. So that EBITDA setup also works wonders for returns and discretionary free cash flow.
I digress slightly, but when do things go from absolutely unbelievable to just really great? I don't know the answer to that. The best I can do is give you a clear picture of what we're seeing right now as I did in my prepared remarks with respect to April, and it's good.

Operator

Our next caller is Joe Greff with JPMorgan.

Joseph Richard Greff

My first question is on Macau and follows up on Carlos' Macau-related promotional question. If we look at the 1Q, the conversion of gross gaming revenues of Macau to casino revenues was at a better clip than it was in the fourth quarter and all of last year by quarter. How much of that sequential improvement over the last couple of quarters is just a function of maybe a high hold versus maybe you're operating the business differently than maybe some of your peers who are seeing that relationship sequence less favorably for them than it has for you?

Craig Scott Billings

Yes. Thanks, Joe. It has a lot to do with the revamp of our loyalty program and the fact that we have given our customers choice in terms of how they want their reinvestment. And so in any given quarter, those choices change. And some of those choices flow to contra revenue and some of those choices flow to OpEx. So that's really the primary driver. It's not indicative of a systemic change in the aggregate reinvestment.

Operator

Our next caller is Shaun Kelley with Bank of America.

Shaun Clisby Kelley

Craig or Julie, I just wanted to ask about maybe the Macau OpEx trajectory. Obviously, you've driven and sounds like you expect to continue to see some pretty great operating leverage there. But it is -- as we're still normalizing in that market, it's probably a little bit tougher for us to get a sense of just sort of underlying core expense growth or inflation. So any comments as things start to annualize and normalize a little bit? How much kind of on a year-on-year basis you'd expect that to level off to maybe in the back half of the year?

Julie Mireille Cameron-Doe

Sure. Shaun, I'll take that one.
Yes, we've talked quite a bit about OpEx and how we've been very disciplined in managing it and how we've been able to accommodate the nongaming OpEx that we have to spend to meet our concession commitments. So we've been really disciplined. We had OpEx per day of $2.63 million in Q1. So it's still well below Q1 '19 levels, and it's only up 3% sequentially.
It was a big Q in terms of what we call tentpole events. And it's -- obviously, the OpEx increase is well below the 10% we've had sequentially in operating revenue. So we had -- we were really pleased with the flow-through there.
Going forward, we're going to continue to be really disciplined around OpEx. We have good line of sight to the events calendar and how we'll continue to incorporate that. So as we have our EBITDA margin at both properties above Q1 '19 levels and our OpEx were well controlled, we really expect revenue mix to be the key driver of margins going forward.
We're going to have some quarter-to-quarter variation as we see different events on the calendar, and we continue to roll out programming. But we feel pretty good about what we've managed to land with OpEx. And we see potential for some quarters to be slightly inside of that $2.63 million. And maybe in a bigger quarter, it might be slightly outside of that. But overall, we're in a good place.

Shaun Clisby Kelley

Super. And just as my follow-up, Craig, to go back to sort of the Las Vegas macro commentary, I mean, I think what many of us struggling with, and I'm sure you're familiar with this in conversations with industry executives, is just -- there have been some comments out there about some leisure -- even at the high end, some leisure pushback when maybe the product mix isn't perfect. And I think -- in some cases, it looks like Wynn is kind of perfect on many of these metrics.
But I'm just curious, as you look through all the KPIs across your business, did you see any area of skittishness? I mean, any area that you would consider normalization or movement around or the truth is the dynamics are alive and well there and again, we may just need to be looking somewhere else across the strip or outside of Las Vegas to see that change in the consumer right now?

Craig Scott Billings

Yes. Sure, Sean. Not really. So if you think about what's happening in Vegas, those who have deployed capital in Vegas over the course of the past 5 years, it actually hasn't been so much -- at least innovative capital. It actually hasn't been so much the industry.
It's been the sphere, it's been the raters. It's been smaller but still impactful capital deployment here that has driven all kinds of demand to the market. And you've heard our competitors talk about this as well, and we have a unique position in the market.
So again, I'll say it, trees don't grow to the sky and comps get tougher and tougher over time. But from a pricing power perspective, we feel great, certainly relative to the rest of the strip.
Brian, do you have any comments on what we're seeing in the booking window at this point?

Brian Gullbrants

Yes. I mean, everything is pretty much a result of retreated back to what it was in 2019 with respect to bookings. And when you look at the pace of group, we continue to pace to have our best year ever over '23, which was our best year ever, and '25 and '26 are pacing nicely, not just in group, but we're seeing that across the board.
So I think continuing to focus on our people, our assets, our experiential events that we put together really allow us to just drive price and continue to balance all our channels.

Craig Scott Billings

And what it means by 2019 is that it's reverted to a normal -- a very normal booking process.

Brian Gullbrants

The booking windows are back to normal, and it's quite nice.

Operator

Our next caller is Dan Politzer with Wells Fargo.

Daniel Brian Politzer

Just one quick one on Las Vegas. Just in terms of your occupancy at that property, I mean you typically run in the high 80s there. I mean you're getting as much rate as it looks like you want. I mean fundamentally, is that property structurally different in that relative to the Macau properties where you run occupancy close to 99%? It just seems like -- I know there's a balance there, but any reason occupancy in Vegas couldn't go higher as you keep pushing rates up modestly?

Craig Scott Billings

Sure. So first and foremost, and this is true company-wide, we never want to be in a position where we have to walk someone because we don't have their room type or we don't have their room available for them. Second, at some point, the experience on the property actually degrades if you get to use an extreme 99% occupancy. So we're always balancing occupancy and rate in order to drive strong revenue results but also maintain a great experience on the property.
Macau is very different. Macau, there is a decent amount of occupancy that occurs on the day. So you have people that are in-market and we will offer them a room while they're in-market so you have the ability to drive up that occupancy very, very close to 100%. So it's really just a difference in market dynamics.
And can we run higher in Vegas? Sure, we could. We could do that. And at times, we do. We do run higher and then it washes out later in the quarter where we run lower. It's really just a question of the on-premises experience and maximizing revenue.

Daniel Brian Politzer

Got it. And then just switching to Thailand. Maybe could you talk a little bit about that opportunity potentially? I know it's quite early days but just high level in terms of timing, project size, how competitive do you think this process would be? Any incremental color would be great.

Craig Scott Billings

Sure. Yes, it's very, very early. I mean, we -- first things first, we need to understand that the regulatory structure, the licensing structure, the bidding structure, et cetera, are all going to be consistent with other jurisdictions that are considered best-in-class. I personally think they will be based on the information that we have to date. But that's really a condition precedent to our further involvement.
It's an interesting market for the reasons that I described in my prepared remarks, lots of great infrastructure, a very strong tourism sector today. And I think it will be a competitive process. I think in any market like that, that has those dynamics, I think you're going to find a lot of folks that are interested in being there. And we are very confident in our capabilities given the strength of the portfolio as it exists today and the talent that we have in this business.

Operator

Our next caller is John DeCree with CBRE.

John G. DeCree

First one, maybe, Craig, you've introduced some new renderings and photos of Al Marjan in front of the ATM conference here in Dubai. Curious if you could remind us total capital contribution and budget or construction cost and if that's changed at all since you've kind of updated the renderings for that project.

Craig Scott Billings

Sure. The total budget is around $4 billion. If budgets move here and there but no substantial movement, our capital contribution will be, round numbers, call it, $900 million. That heavily depends on the construction leverage. So we're in the midst of figuring that out now. But you can figure something like 50-50 debt to equity and then we would be 40% of the equity.

John G. DeCree

Got it. Understood. That's helpful. And then maybe one back domestically to get a little granular, perhaps in Las Vegas on the quarter. You called out February. We knew that was going to be an event-driven month. But I was wondering if you could kind of parse out what January and March look like. And I guess some color on April coming out of the quarter quite strong. But as you kind of size up 1Q, any comments about January and March, specifically relative to year-over-year in terms of performance.

Craig Scott Billings

Sure. What I would say is this. February, as we called out, it would be -- was, of course, the strongest month of the quarter. And then in rank order, it would be March and January.

Operator

Our next caller is Robin Farley with UBS.

Robin Margaret Farley

I wonder if you could just touch on anything for Al Marjan that has to happen from a regulatory perspective approval at any level. If the construction were done tomorrow before it can actually start operating the casino, just to clarify that.

Craig Scott Billings

Sure, Robin. Just like other jurisdictions, there are regulatory requirements that are required before we can open the doors. And so we expect that we will meet those regulatory requirements and receive the necessary approvals in due course.

Robin Margaret Farley

But is there anything from a perspective in terms of anything that has to be legalized at any level or separate from just what we have to do to meet licensing?

Craig Scott Billings

We're not building on spec, put it that way. So I think you've seen -- hopefully, you've seen that they have created a federal regulatory body of the GCGRA in order to license and issue -- license operators and issue regulations associated with gaming. The GCGRA's activities are ongoing, and we are aware of what they are. And we'll get all the necessary approvals in due course.

Operator

Our next caller is Ben Chaiken with Mizuho.

Benjamin Nicolas Chaiken

Just one quick one in Macau. At the Wynn Macau property, your mass hold was around 19% for the second quarter in a row after holding below normal for a long period of time. Do you think the current gaming volumes at this property are enough to have more normalized variability in hold, such as what we've seen in the last few quarters? Any color there would be great.

Craig Scott Billings

Sure. And then we held high subsequent to the end of the quarter. It really is just a function of the normal ebb and flow of the game. A lot of that has to do with the volume of high-end play. And so there's really nothing -- there's really not a lot to see there and, over time, hold will normalize.

Julie Mireille Cameron-Doe

Operator, we'll take one last question after this one.

Operator

And that last caller comes from David Katz with Jefferies.

David Brian Katz

I wanted to just touch on Las Vegas, given the comps are in (inaudible) market given the available resources that you have. I just wonder under what circumstances you might look at developing some of the excess volumes you have in Las Vegas and what would have to happen moving forward?

Craig Scott Billings

Thanks, David. You were chopping up there a bit, but I think I got the gist of your question. I think you were addressing the development opportunities in the land that we have here. But we do -- we have a very substantial land bank in Las Vegas, as you know. And the reality is that we are replacing choices now from a development perspective.
We've got the projects going on in the UAE. By the way, we will have a land bank there as well. We're obviously looking at New York. We are considering Thailand as that process evolves.
And so we have a lot of things in the hopper at the moment that are going to meaningfully increase our EBITDAR and our free cash flow base. We are always considering particularly the adjacent land on the strip as a potential development opportunity, but we really want to see how some of these other things play out.

David Brian Katz

And that was -- the nature of my question is sort of what would have to happen for you to want to move forward on Las Vegas? Would some of these have to fall out or just move forward and this comes right after that. I think that was just a nuance to what I was trying to get at.

Craig Scott Billings

Sure. Yes. So -- the reality is it's many things. So what happens in the macro economy, what happens to borrowing cost, what happens to the cost to build and then what are our other opportunities, how many of those opportunities can be pushed through our design and development team at any given point in time.
So it's a -- I don't know, 5D question, I guess. I don't know if you can get into the fifth dimension. But there's a lot of questions there. And right now, we're focused on New York. We're observing Thailand, and we're in the midst of constructing in the UAE. So we like our development pipeline at the moment. We like our future EBITDAR and free cash flow profile at the moment. So stay tuned.

Julie Mireille Cameron-Doe

Thank you. And thank you, operator. With that, we'll bring this call to a close. We thank you for your interest in the company and look forward to talking to you again next quarter.

Craig Scott Billings

Thanks, everybody.

Operator

And thank you for participating on today's conference call. You may now disconnect.