Wynn Resorts (WYNN) Q2 2020 Earnings Call Transcript

Wynn Resorts (WYNN -0.57%)
Q2 2020 Earnings Call
Aug 04, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Wynn Resorts second-quarter 2020 earnings call. [Operator instructions]. I will now turn the line over to Craig Billings, president, and chief financial officer. Sir, you may begin.

Craig Billings -- President And Chief Financial Officer

Thank you, operator. And good afternoon everyone. On the call with me, today are Matt Maddox and Marilyn Spiegel in Las Vegas. Also on the line are Ian Coughlan, Linda Chen, Ciaran Carruthers, Frederic Luvisutto, and Brian Gullbrants.

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.

Matt Maddox -- Director and Chief Executive Officer

Thanks, Craig. And thank you everybody for joining today. As we look back at what has occurred in 2020, we made a decision back in March that we were going to invest in our brand, and in our culture. When we closed our facilities in March in Las Vegas, and in Boston, and also the borders we're restricted in Macau, we decided to pay all 30,000 team members, their full wages, and benefits through the closure, through the end of May.

Because we knew that over the long term, our brand, and our culture or what is going to lead us out of this, and we'll continue to allow us to lead in this industry. One thing that we did during the closure is we developed a comprehensive health, and safety guidelines. In fact, I believe it became the gold standard in the hospitality industry. Of course, everyone now has the electrostatic spray, and UV technology, and all the standardization efforts.

Same as us, thermal cameras as you walk in to take temperatures, but one of the things that I'm particularly proud of is our testing capability. Not only did we test all of our employees before they started, but we developed an algorithm where we surveil our staff, and we test randomly 500 to 600 people every couple weeks, and we have 10 contact tracers in-house. To put that in perspective, we perform 16,750 tests, and 98% have come back negative. The roughly 300 that were positive of our staff our contact tracers contacted them immediately, and through an extensive interview process, 99% of those 300 people were exposed outside of Wynn.

Each week, I sat with and talked to the head of global health security in pandemic research, and her team from Georgetown University, going through our protocols and everything that we're doing. And just last week talking about these numbers, her response was "when is probably the safest place outside of the home that your employees and your customers go during the day" that's part of our brand. That's who we are, and that's what we're going to live up to. When we began preparing to reopen on June 4th in Las Vegas, we knew that our brand and our culture were imperative, but so is our cash.

And all along I'd been very clear that we were going to be staffing to demand when we open. We made some tough decisions, right-sizing our expense structure since we've opened, and in the month of June, 26 days in Las Vegas on a normalized basis, we made roughly $9 million in EBITDA. Our focus here is that we continue to keep our brand and keep our culture intact but also keep our cash. We're going to continue to focus on breaking even or making money.

We didn't notice in Las Vegas. There was some pent up demand in particular from California as we opened in June. We were receiving roughly 4,000 reservations a day that would be spread over the upcoming two weeks. And then as the virus began to spike in our key drive-in markets in California, and in Arizona, we saw a downtick in reservations, roughly 25% here at Wynn after the Fourth of July.

And we staffed appropriately. We're managing our business every day based on that reduced demand, and sitting here 30-odd days into the third quarter. Our EBITDA is roughly $5 million. So it's impossible to predict whether when Las Vegas during these times of restriction and enclosure, we'll be making $5 million a month, or $10 million a month.

It's really out of our hands outside of the expenses and we're focused on that every day. And what's going on in our key driving markets. We're experiencing mid- 50% occupancy on the weekends, and in the 30% during the week. And the visibility is quite murky because it really is short-term bookings from our drive-in markets.

Moving on to Encore Boston Harbor in Massachusetts, clearly, we were not open in the second quarter. We opened that property in mid-July, on July 12th actually. Encore Boston Harbor is experiencing what many regional casinos are experiencing around the country. Slot volumes are actually quite good there in fact up over last year on significantly reduced units.

Table volumes are off, and probably disproportionately in Massachusetts relative to some other jurisdictions because of the very tight restrictions that are in place. As an example, craps and roulette are still not open. We're working closely with the MGC to show how we can do that in a very safe way, and the number of positions is limited on the tableside. So I do think there is more demand than supply for table games in our local markets there.

And it's really just limited by our current restrictions. In Macau, the second quarter was similar to the first quarter. And what is good about Macau is the direction of travel, feels like progress. So I'm sure as all of you on this call that is watching noticed it every two weeks.

There's a slight reduction in the restrictions, travel restrictions going to Macau, whether it was eliminating the quarantine between the Guangdong province in Macau. And then allowing for non-tourist visas to be issued beginning this month, and continued talk among various people about when tourist visas, the individual visa scheme for the travel bubble of the Guangdong province and Macau will begin. While we do not have any dates on when that will start, we are confident that, that is going to be happening in 2020. And each week, there seems to be a new small incremental step forward.

And once that travel bubble begins to open, and people and tourist visas are being issued, Macau will be back in business. So before I hand it back over to Craig to give more color on the quarter, I just want to stress that we are going to be focused on leading in our industry, maintaining our brand, maintaining our culture, and maintaining our cash. So there will be winners and losers that come out of this, and when this is over, and we come out, we want to make sure that we have the capital available to grow, and we have the culture in place to take care of our people, and our customers. With that, I'll go and turn over to Craig, for additional thoughts.

Craig Billings -- President And Chief Financial Officer

Thank you, Matt. I want to remind everyone that the results presented in our earnings release reflect the closure of Wynn, Las Vegas through June 3, and the closure of Encore Boston Harbor for the entire quarter. As Matt noted, subsequent to reopening in Las Vegas, we generated approximately $9 million of normalized EBITDA from a business that is heavily weighted to weekend occupancy. In the casino, slot business has been resilient with handle per operating day in the second quarter up 2% year over year.

While table drop or operating day was down 31% year over year, primarily due to lower baccarat volumes. In light of current forecasted business trends in the absence of a number of key visitor segments, the team at Wynn, Las Vegas has made adjustments to our business, subsequent to reopening, including to staffing. As a result, our daily opex levels excluding gaming taxes in Las Vegas have declined 40% from Q4 2019 to approximately $1.8 million per day in July. We are focused on cash generation in Las Vegas, and as Matt noted, we expect to break even.

We expect to be break-even to slightly EBITDA positive over the next few months. A substantial improvement over the daily cash burn rate, we experienced during the closure. In Boston, we reopened in early July with a number of safety-related operating restrictions in place. Our reopening plan there was focused on opening only those amenities that support the casino, including the closure of the hotel on most weekdays.

Overall, we've seen encouraging trends in the casino particularly in slots with handle per operating day up approximately 7%, versus Q4, 2019. Similar to Las Vegas, we made a number of operating and staffing adjustments, resulting in a reduction of daily opex, excluding gaming taxes. From Q4 2019 of approximately 33% to 830,000 per day post reopening in July. In Macau, business volumes remain subdued throughout the quarter due to ongoing travel restrictions in place in the region.

While we await the return of visitation to the market, we have made certain opex adjustments with a focus on non-labor fixed costs. As a result, we anticipate that we will break even at approximately 40% of Q4, 2019 gaming volumes. Until that point, we anticipate a gradually improving daily EBITDA burn of $1.5 million to $2 million per day. As of last Friday, July 31, our global cash and liquidity position was over $3.8 billion, providing us with a significant runway to weather the pandemic.

In Macau, we had approximately $2.5 billion of available liquidity as of July 31, and in the U.S., we had total available liquidity of $1.3 billion. As of July 31, with a substantially lower domestic daily cash burn subsequent to the reopening of our U.S. based properties. Our CapEx in the quarter was $52 million, as noted last quarter the vast majority of our CapEx plans remain on hold, and we are only proceeding with our highest priority projects.

Lastly, I'd like to remind everyone that in the first quarter of 2020, we accrued $75.7 million of opex, associated with our prior commitment to pay our domestic team members full-wages and benefits from April 1 through May 15th. And thus, this amount was not included in our opex in the second quarter of 2020. Additionally, corporate expense in the quarter benefited from a $27.7 million net gain in relation to a derivative litigation settlement that the company received after the close of the quarter. With that, we will now turn the call over to Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] [Inudible] from Deutsche Bank. You may go ahead, sir.

Unknown speaker

Hey guys, good afternoon. Craig, you just mentioned that in your remarks that you've thought about 500-basis points out of the requirement to break even in Macau investments, but the 40% of your GGR that would be required that [Inaudible] to your comments earlier with the average in weeks, somewhat of a loosening of policies. If that trend were to continue, and we were looking at a little bit more free and easy travel coming out of Guangdong, is there the potential that we could see that 40% level at any point this year, or presumably in the fourth quarter. Even if just for a month or two.

Craig Billings -- President And Chief Financial Officer

That's what we discuss internally, and how we think about 2020, is that in the fourth quarter, we're hoping to be at that level.

Unknown speaker

Great. Craig, just in terms of a quick point of clarification. On the opex for Macau, you said that the current run rate at current revenue levels is a $1.5 million to $2 million per day burn rate. Is that correct.

Craig Billings -- President And Chief Financial Officer

That $2 million would be in a zero revenue environment, and $1.5 million would be in a modest revenue environment. It's a very fluid situation based on all the visa points that have been discussed ad nauseam. But that's how we think about it at this moment in time.

Unknown speaker

Great. Thanks, guys.

Operator

Thank you. And our next question comes from David Katz from Jefferies. You may go ahead, sir.

David Katz -- Jefferies -- Analyst

Afternoon, everyone. Thanks, for taking my question. With respect to the Las Vegas side, and Matt your commentary around Macau suggests we -- are where we are as it improves. But with respect to Las Vegas and the recovery there, what strategies have you thought about in terms of generating demand, or changing the mix of demand at those properties in the near term as the world evolves.

Matt Maddox -- Director and Chief Executive Officer

So, it's certainly a very different business model. Were effectively a super-regional casino right now. So without the convention-based, without the nightclub crowd, without the large show, we've become super regional. So we're really focused on promos, on offers.

We have partnerships with jets we decks. We're doing lots of things to try to get people to come here more often, basically from California, and Arizona. So frequency and worth to spend more. So, the market is very promotional right now.

Obviously, and we're focused on our database, and driving more casino revenue. Non-gaming revenues down for us by two thirds. And that was two-thirds of our business. So we're doing everything we can to get heads in beds in the hotel and really focused on how we can get more of our drive-in the market here on a more frequent basis.

David Katz -- Jefferies -- Analyst

Understood. And if I can follow that up with respect to getting groups to come in. Obviously, there are restrictions that are evolving and hard to know, but when your team talked to group planners or meeting planners about what kinds of changes you may need to make. What have you planned or done so far to prepare for the fact that there'll be some new normal, at least to start out for groups to come out.

Matt Maddox -- Director and Chief Executive Officer

Yeah, sure. I think that no one can predict the future right now. So groups are all holding off until kind of late spring 21 into the back half of next year to decide what's going to happen, and what they need. One thing that we're doing, which I think is probably different than most of our peers is, I'm spending a lot of time on point of care testing.

There's a couple of really exciting technologies that are moving forward, and we are in line if those get their EU emergency use authorization under the FDA because I believe, if we can have an onsite point of care testing that provides pooling meaning, it looks like you can do 10 people at a time with that five-minute turnaround that, that changes the game for groups. So maybe you're not waiting till the mid-next year. If you can actually have a point of care testing to show that everyone walking into this space is COVID free, I think that that could accelerate. I don't know how much by months our ramp-up of some of the smaller groups.

That stuff has not been approved yet, but those points of care tests are not approved yet by the FDA, but they're moving fast, and the cost especially with pooling are coming down significantly. So I think my belief is that the bridge that we need to get to in a place that requires a lot of people to be together before we're into the vaccine because I think as everyone knows by the time that's approved, and rolled out and implemented, those, those things are complicated and take a lot of time. So those are the types of things we're talking to our groups about in addition to all that social distancing measures, and everything that we do to provide a really safe experience. And so the conversations are ongoing.

But to say that we knew when groups start coming back is that, I think it's too early.

David Katz -- Jefferies -- Analyst

Okay. Appreciate it. Thanks, very much.

Operator

Thank you. Our next question comes from Joe Greff from JP Morgan. You may go ahead, sir.

Joe Greff -- J.P. Morgan -- Analyst

Hey guys, I like to play a theoretical beam to ask a question to get a sense of maybe how important Hong Kong, and travel to Hong Kong may be the importance in the cow market. If the idea is fully restored, and there are no issues there. But for whatever reason, Hong Kong has shut Macau. So what percentage of the  Macau market comes back from a GGR perspective.

Maybe taking into account ways that people could certainly time travel other ways to get to  Macau.

Matt Maddox -- Director and Chief Executive Officer

Yeah, sure. I'm going to let Ian take that one.

Ian Coughlan -- President and Executive Director

So visitation from Hong Kong Joe is between 17%, and 18% if you look at last year, and from a GGR perspective it probably represents 9% or 10% of last year's GGR. We actually think locally with the closure of Hong Kong for PRC travelers once the Guangdong bubble fully opens with tourist visas into Macau, we will get the benefit of Hong Kong being closed to mainland Chinese customers. So Hong Kong is a good market for us, but we really believe the power comes from Guangdong, and 21 of the 47 IVS cities are in Guangdong. So once that opens up, we believe that will lift our business significantly.

Joe Greff -- J.P. Morgan -- Analyst

Great. Thank you. And then Craig, back to Las Vegas. You said with some of the staffing changes you made more recently, July daily opex per day was $1.8 million, is it that a run rate after the staffing changes, or is that an average with not the full amount of the monthly staffing labor opex differential in there.

Craig Billings -- President And Chief Financial Officer

It's the former Joe. It is the latest state of play based on what we have in place right now.

Joe Greff -- J.P. Morgan -- Analyst

Great. Thanks.

Operator

Thank you. And our next question comes from Felicia Hendrix with Barclays. You may go ahead.

Felicia Hendrix -- Barclays -- Analyst

Hi. Thank you. So just taking on, in Las Vegas. And you touched upon this before Matt, in terms of how you're trying to drive visitation to the property spend a little bit on how your yield managing the property.

And I know it's tough now because you don't really have the benefit of all the leverage you'd have in a normal environment as occupancy is what is that sort of thing. But just wondering how you're thinking about maintaining price integrity, and [Inaudible]. And then also if you could just help us understand the percentage of room nights in terms of the convention, and groups versus -- in terms of 2019. If we could just end where you were there.

Thanks.

Craig Billings -- President And Chief Financial Officer

Sure. So you're right about pricing power, we should. It's very complicated. In fact every day at 11:45, we have a yielding meeting looking at all the trends every day because the market's so short term, and the ability to move price is quite tough.

So customers are choosing on price. We're attempting to yield going into weekends when there's a lot of last-minute booking coming in, in particular for one day stays on Saturdays. And so those are really the opportunities midweek, very, very tough. It's a -- if you go online, you can see where the market is pricing.

And so it's really the customers are choosing midweek. And on the weekends, as we're attempting to yield as best we can. Marilyn, you want to talk a little bit about the convention mix in 2019, and what it looks, what it means for us now.

Marilyn Spiegel -- President, Las Vegas

Well, for now, clearly there's not much left on the books for 2020. And there are small groups that we're trying to refill. We have the advantage of having one great facility, and two very long-term relationships with our convention sales folks. So we've been very successful in rebooking them.

You'll see that the second half of '21 is going to be very strong '22, '23, so people are coming in they're seeing that first quarter of '21 is a lot about what's going on with CES, and how are the other groups going to be falling out. But we see that by about April, there's some firmness in the market. Clearly, 2,000 every-year ahead of this first quarter, and second quarter are the best quarters. And so, we missed that this year, and it's too early to tell for the rest of 2020 if there's any business.

And in 2021, the first quarter is a question mark because it was going to in addition come. But we do see firmness by the time April shows up all the way through the rest of the year.

Felicia Hendrix -- Barclays -- Analyst

And just normally.

Craig Billings -- President And Chief Financial Officer

It's around the third convention.

Marilyn Spiegel -- President, Las Vegas

Correct.

Felicia Hendrix -- Barclays -- Analyst

Ok. Ok, thanks. And then Ian, in my follow up. Just hypothetically, the IDF gets reinstated tomorrow.

What do you think the lag period is in terms of when you would start to see that traffic being able to come to Macau.

Ian Coughlan -- President and Executive Director

So we're hopeful -- hoping there's going to be a clamor for visas, and that some of the visa offices will get jammed up. But we imagine it will clear over a couple of weeks, and we're starting to see meaningful traffic within two weeks.

Felicia Hendrix -- Barclays -- Analyst

Ok, great. Thank you.

Operator

Thank you. Our next question comes from Shaun Kelley with Bank of America. You may go ahead.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Hi. Good afternoon, everyone. Just wanted to follow up on some other comments on Las Vegas. Matt, your comment on the super regional comparison with is a little interesting, and we get a lot of questions on the idea around Vegas is run rate margins.

I think we all know that the regional markets are performing quite well. It -- just kind of curious about your thoughts on now that you've lowered the operating expense run rate a little bit, you're undoubtedly learning a ton on the fly about what you can do, and how customers move in and operate in the buildings. Is there any component of what's going on right now. Do you think you can extrapolate into the future of what Las Vegas is margin structure might look like.

I appreciate it's wildly early and theoretical, but just your thought process there.

Matt Maddox -- Director and Chief Executive Officer

Yes, sure. And when I said super regional, what I meant by that was our customers are coming from drive-in markets. But our revenue, as you know, our revenues are not like a regional market revenue. When two-thirds of our business is non-gaming, and that's down by 60% plus.

So even though we're getting gaming to spend is Ok, you can't cut your way to better margins without absolutely destroying your brand, and culture, and company. You can't do it in our market. And we're not going to. So while we -- expenses are down almost 40%.

We're focused on EBITDA, and not on the margin because we want to make sure we're making cash, we're preserving our cash flow, and we're preserving who we are for the long term.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Got it. That's, that's helpful. And then just maybe on a similar idea around Boston right. I mean this property was in a ramp-up phase of really hard to get our arms around, but as we think about other regional markets, we have seen numbers that have really been shockingly good as it relates to the broader margin profile there.

On just any sense of where 830,000 per day gets you to, or where does that property kind of pencil out as you get to kind of targeting potential around EBITDA break-even or positive there. Is that possible on these types of opex numbers, or do you need more volume.

Matt Maddox -- Director and Chief Executive Officer

Yeah, sure. That's possible. And I'll let Craig take that, and then Brian provides some color on our customers there.

Craig Billings -- President And Chief Financial Officer

Sure. Yeah, you're right Shaun. If you look back to Q4'19, we had about $1.3 million in opex. Today, it's about 830,000.

If you think about what's happening in the business, we mentioned that the slot handle was up pretty significantly versus Q4. The table drop is down about 30%, but we're down about 50% in terms of positions. So we can obviously break even in this environment with the opex reductions that we've done, and as that table volumes come back, we anticipate that not only will we generate pretty meaningful EBITDA, some of those expenses will come back. But a good chunk of what we've done is, is more permanent in nature, and we're not going to open any amenity unless it's accretive.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Great. That's helpful.

Craig Billings -- President And Chief Financial Officer

Brian, do you have anything you would add to that.

Brian Gullbrants -- President, Massachusetts

No. Well said.

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Thomas Allen with Morgan Stanley. You may go ahead, sir.

Thomas Allen -- Morgan Stanley -- Analyst

Hey, good afternoon. I guess -- update on your latest views on operating [Inaudible] in Japan. Thank you.

Matt Maddox -- Director and Chief Executive Officer

Sure. So I think is that as most of you that have been following us, our efforts in Japan over the last decade have been more monitoring as opposed to being really active. We have been monitoring that situation for years, and years, and years. And back in March, we decided that until there's more clarity on what the business is going to look like.

What the world is going to look like, and what the regulations really are over there, they were pretty much ceasing our efforts. We did that about four months ago. It doesn't mean that we're not interested in the market. It just means that right now it's not a focus for our company.

Thomas Allen -- Morgan Stanley -- Analyst

Thanks. Helpful Matt. And then just in terms of the U.S., I think that there's a view that with COVID hitting state budgets, you may see some progress, or more legalization potentially in New York, in Georgia. Any interest in expanding in markets like that.

Matt Maddox -- Director and Chief Executive Officer

I think that each one would have to be able to support what we do. We would -- there are clearly I think the Atlanta market or the New York market under the right regulatory environment. Under the right tax rate. Under the right surrounding community agreements is something that we would take a look at.

But without seeing what would be required, I can't say that any of those would be attractive for us right now.

Thomas Allen -- Morgan Stanley -- Analyst

Ok. Thank you.

Matt Maddox -- Director and Chief Executive Officer

With that, we'll take our last question.

Operator

Thank you. And that comes from Stephen Grambling with Goldman Sachs. You may go ahead, sir.

Stephen Grambling -- Goldman Sachs -- Analyst

Thanks for taking me in. On Macau, how would you characterize the financial health [Inaudible] in driving the recovery, and how should investors be thinking about any additional credit, and VIP direct, or ramping up other marketing to attract customers once restrictions begin to lift.

Matt Maddox -- Director and Chief Executive Officer

Yes. You're a fun topic. We talk about it quite a bit internally. Ian, why don't you take that one.

Ian Coughlan -- President and Executive Director

I missed the first part of the question. The line broke.

Matt Maddox -- Director and Chief Executive Officer

Junk it all.

Ian Coughlan -- President and Executive Director

Junk it all. Well, we've got a handful of the largest junket operators at Wynn Macau, and Wynn Palace. So, they've kept their teams together. They're, like ourselves, they're waiting with bated breath for the resuming of tourist visas.

And from the outside, they look well to capitalize, and we deal with the bigger operators. So, we believe that their business was built. We'll build a line with our business.

Stephen Grambling -- Goldman Sachs -- Analyst

And just on the second part of it, you should be generally be assuming that there's some form of promotional support either VIP direct there. In terms of credit being extended, or ramping up their marketing either from you or they're just anticipating across the broader group as restriction of.

Ian Coughlan -- President and Executive Director

The general sentiment locally among the operators is, we're not going to cut each other's throats. Everybody's going to be reasonable about marketing expenses, and that -- we're hoping for lots of activity once the tourist visas come back. And I don't believe that we'll see a huge increase in marketing expenses.

Stephen Grambling -- Goldman Sachs -- Analyst

Very helpful. Thanks so much. Best of luck.

Ian Coughlan -- President and Executive Director

Thank you.

Matt Maddox -- Director and Chief Executive Officer

All right. Well, thank you everybody for joining us today. We look forward to talking to you next quarter. Thank you.

Operator

And thank you. [Operator signoff]

Duration: 32 minutes

Call participants:

Craig Billings -- President And Chief Financial Officer

Matt Maddox -- Director and Chief Executive Officer

Unknown speaker

David Katz -- Jefferies -- Analyst

Joe Greff -- J.P. Morgan -- Analyst

Ian Coughlan -- President and Executive Director

Felicia Hendrix -- Barclays -- Analyst

Marilyn Spiegel -- President, Las Vegas

Shaun Kelley -- Bank of America Merrill Lynch -- Analyst

Brian Gullbrants -- President, Massachusetts

Thomas Allen -- Morgan Stanley -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

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