Welcome to the Wynn Resorts 4th Quarter 2019 Earnings Call. All participants are on listen only until the question and answer session of today's conference. This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Craig Billings, President and Chief Financial Officer.
Sir, you may begin.
Thank you, operator. Good afternoon, everyone. With me today in Las Vegas are Matt Maddox and Marilyn Spiegel. Also on the line are Ian Collin, Chiran Carruthers, Frederic Luisotto and Brian Goldbrand. 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, Craig, and welcome everyone to our Q4 conference call today. To kick it off, I'd like to start in Macau. So we are currently focused almost solely
on the
health and safety of our employees, our customers and the Macau community at large right now in Macau. I'd like to commend the government of Macau and China in fact for the quick and decisive action that they take and continue to take to contain the coronavirus. We're in daily conversations with the government. It's been extremely transparent and they have been terrific partners with us as we focus on the safety of everyone in Macau. In fact, on February 5 at midnight, we were working on Macau and all
operations in Macau to continue operations. On midnight, we still have our hotel and couple restaurants open for a few remaining guests there in
Looking back at the 4th quarter, we generated $347,700,000 of EBITDA. And like the past quarters, we experienced quick growth in core mask coupled with compression in the VIP segment. As we reported on the Q3, October was actually quite strong generating EBITDA of a little over $4,000,000 a day. But we began to see deceleration leading up to the 20th year celebration handover of Macau back to China in mid on December 20, just like the entire market. However, while it's a short period of time, we did notice that beginning on December 23 through January 10 in a somewhat normal operating environment, our business jumped right back to $4,000,000 a day in EBITDA between the two properties on a normalized basis.
Moving to Las Vegas, we made $80,000,000 in EBITDA with a $20,000,000 negative hold impact during the quarter. On a full year, just to put in perspective, in 2019, our baccarat volumes were down roughly 30% in 2019 compared to all of 2018 and that contributed to more than a $50,000,000 decline in EBITDA year over year. Our domestic business continues to be up in the casino and in non gaming. RevPAR was up over 3% in the 4th quarter and our retail revenues were up double digits. We're excited about 2020 in Las Vegas.
We have a 430,000 square foot convention center that's opening in weeks to great fanfare. We have 3 new restaurants that will be more social dining focused and high energy that will be opening throughout 2020. And we'll begin the remodel of Wynn Las Vegas, the 2,700 rooms here in the summer of this year and completing before the end of 2020. So we have a lot going on in Las Vegas and we feel really good about all of the segments of our business as we continue to monitor the Far East segment as it relates to Las Vegas. Looking at Encore Boston Harbor, we doubled our EBITDA from the Q3 to the Q4 to $15,000,000 Our table games business remains healthy.
We opened and table games was healthy and it continues to grow and to be quite strong actually. And all of
the programs that we're putting
in place for our slot win, we launched the Win Rewards program, which is a first for us in North America, which is a tiered card program. We're starting to see those things work at Encore Boston Harbor. In fact, our win per unit on the slot floor was up a little over 14% compared to the Q3 and we're continuing to see incremental growth on the slot floor. In 2020, we're focused on continuing to match our food and beverage concepts with our customers. So destination dining for the overnight visitors as we're ramping our hotel business there and providing more quick serve options for the daily visitors.
So we feel good about the progress that we're making at Encore Boston Harbor as we continue to ramp that property throughout 2020. With that, I'll turn it over to Craig.
Thank you, Matt. As noted in our release, our Macau operations delivered adjusted EBITDA of $347,700,000 on $1,100,000,000 of operating revenues. The quarter was characterized by strength in mass with combined property win in the mass segment up 6% year over year. Our results in Macau were positively impacted by higher than normal direct VIP hold percentage, which increased EBITDA by approximately 17,500,000 dollars from a normalized level with the hold impact weighted more heavily to Wynn Macau at approximately 12,500,000 controlling costs at both properties. At Hollis, our operating expenses, excluding taxes, were down both year over year and sequentially, which drove a 40 basis point increase in normalized EBITDA margin compared to Q3, despite the top line pressure experienced market wide.
At Wynn Macau, OpEx was flat year over year and sequentially despite incremental payroll expense incurred to staff up the Lakeside Casino. We are well prepared to drive strong operating leverage when the market returns to normal. Our Las Vegas operations produced adjusted EBITDA of $80,100,000 in the 3rd quarter on operating revenue of $368,800,000 Our results were negatively impacted by low tables in both baccarat and domestic tables, costing us about $20,000,000 of EBITDA as Matt mentioned. While baccarat was soft year over year on a tough comp, we saw 4% growth in non baccarat table drop and slot handle. On the hotel side, RevPAR increased approximately 3% year over year to $2.88 driving $120,300,000 of hotel Bad debt expense in Las Vegas was $4,100,000 compared to $1,000,000 in the prior year quarter, costing us $3,000,000 in comparable EBITDA.
The team in Las Vegas also did an excellent job controlling costs in the face of upward pressure on payroll with operating expenses excluding tax and bad debt down slightly year over year. We spent approximately $49,000,000 in project costs in the group space at Wynn Las Vegas in Q4 2019, taking our spend to date to roughly $351,000,000 Construction is now complete and the expansion is slated to open in a few weeks. Encore Boston Harbor produced 15 point $3,000,000 in EBITDA on $169,300,000 in operating revenue. Table games hold was in the normal range. As Matt mentioned, we have a number of initiatives in play in Boston designed to drive revenue growth and we expect those initiatives will bear fruit over the course of 2020.
We have also carefully managed our expense base there and operating expenses excluding gaming tax in Boston were down approximately 11% quarter over quarter. We anticipate making additional investments in the property throughout the year, particularly in food and beverage. While we are not yet ready to quantify the budget for those initiatives, we expect they will be relatively modest. Turning to the balance sheet. During the quarter, we successfully completed a $1,000,000,000 10 year senior notes offering in Macau with strong support from Asia based long term investors.
We intend to use the proceeds from the notes offering to repay a portion of our term loans in Macau. As a result, this will reduce our senior secured debt and related leverage ratio, while extending our maturity profile at an attractive rate. We ended the quarter with total debt of $10,400,000,000 inclusive of the $1,000,000,000 of recently issued Mackelmon. We also had total cash and investments of $2,360,000,000 including approximately $1,800,000,000 at Wynn Macau and total company wide revolver capacity of $1,250,000,000 Our liquidity position, particularly in Macau is very strong. Finally, during the quarter, we returned over $100,000,000 to shareholders through our quarterly dividend payment.
With that, we will now open up the call to Q and A. Operator?
Thank Our first question comes from Carlo Santarelli from Deutsche Bank. Your line is now open.
Hey, guys, and thanks for the comments. I kind of I hate to be generic and more general, but if you can, just big picture, how do you guys think about things here in the near term? And certainly appreciate the color, Matt, on kind of the cost per day here during the closure. How do things look over there at present? What are you hearing in terms of the potential to reopen after the 2 week window?
And most importantly, what do you foresee kind of on the back end of this?
So, Carla, I think it's a little early to try to say when exactly we will reopen. We are again, the team on the ground is working with the government on a daily basis and watching very carefully if there will be any continued outbreaks of the virus. And so far we feel like things are fairly well contained and we're just watching it very carefully. In terms of Macau in general, I think the way we look at it is there's been so much investment in the region and all the new infrastructure that was just coming to fruition with the high speed rail coming into Macau and the light rail launching and it was really set up for a quite extraordinary 2020. We were quite excited about it.
So I'm not I don't want to predict when operations will be back to normal. They will be eventually. We're not exactly sure when, but Macau is set up for a really great rebound. Tourism was one of the first things that rebound in events like this because people want to get out and move around and get back to normal. So we do feel good about the long term aspect of Macau as soon as the virus is completely contained.
Great. Thank you very much.
Our next question comes from Joe Greff from JPMorgan. Your line is now open.
Good afternoon, everybody. I mean, there's a lot of uncertainty in Macau and I appreciate your comments on it. Can you spend a little bit of time, what you're seeing from that Far East player going into Las Vegas? Can you share with us maybe your experience this past Chinese New Year? I know that segment has been challenged for a while as you alluded to a couple of different times on this call.
So you know we don't really comment mid quarter on what really happened during the quarter, but so far so good. We had our Far East come in. We had a party. We've taken appropriate precautions. The Far East who are in town, they can't get back to China.
And so they are traveling from one location to another location. And, so if they were here first, they may have gone to another casino and we expect them to come back as they continue to play. But clearly, based upon the results you can see from the Q4, it's still a very choppy market.
And then can you also remind us, sticking to Las Vegas, your expectations for room pricing this year with the convention center and some of the other amenity build outs in Las Vegas. I guess maybe some of which might be impacted by the room refresh this summer. How are you looking at room pricing for the 2 boxes in Las Vegas? And how much of a multiyear ramp is that, both on occupancy and on price when you think about it longer term? And that's all for me.
Thank you.
Yes, Joseph. I mean the room pricing and occupancy in Las Vegas is a street fight every day, right? And so our convention business is very solid. We feel great reception to our product. We have leveraged our hotel rooms for the domestic casino growth that we are experiencing or that you're seeing.
The rooms that will be out of order from June through the beginning of November are going to depress hotel revenue, but we will be sure to eliminate the low end leisure business that often comes to market in the Q3. And so it was really planned for that particular time in terms of what will we end up with occupancy or with rate, that's a story to be written.
And Joe, we're still focused as we've been saying for about a year now that when as the convention center stabilized and we're seeing lots of interest in it as people are touring, it is booking quite fast. The 4 to 6 points of incremental occupancy is still the target as we get into late 2020 and into 2021. I think we ended the year at roughly 87% occupancy and we want to be in the low 90s 6 months from now.
Great. Thank you very much.
Our next question comes from Felicia Hendrix from Barclays. Your line is now open. Hi there. Thank you so much. So Ian, for you, I was just curious, did the West Casino renovation open up at the end of the year?
It opened up in mid November, 44 tables, did exceptionally well, lifted premium mass with incremental business for Wynn Macau. The marketing and operations team did a great job launching it. And we were looking forward to a great Chinese New Year. It had done very well up to that point. And so we're encouraged.
And for the future, we still have elements of the facility to open in the Q1. So we have 2 restaurants coming on board, 6 retail outlets and support areas. So it's an exciting development in Macau. Plus we have all our anchor rooms back after their renovation.
Our next question comes from Shaun Kelley from Bank of America.
Maybe for Matt or Ian, just wanted to get your sense on, I think, obviously the market was a little disrupted in Macau in December given the President's visit, but was kind of curious on maybe your bigger picture view on maybe some of the implications of that visit. There were some, I think, some really positive reads about what that might have meant for kind of the near or medium term? And then, then any kind of just initial reads on the new Chief Executive and how those kind of how some of those relations are going?
Sure. So I'll kick it off and then Ian you can chime in. But as I said before, we thought Macau was really set up for a great 2020. We're very optimistic about the new Chief Executive and the direction that he's taking Macau. We feel good about all the infrastructure that's coming in place.
Clearly, the visit in December by President Xi was wildly lauded around really all throughout China as Macau has done a great job with the one country and two systems. So we feel really good about Macau's position going forward. Ian, do you have any thoughts on that?
We 2 years ago when the Greater Bay Area was being discussed at a governmental level, Macau was described as having a seat in one of the VIP carriages as the Greater Bay Area move forward after President Xi's visit. It's now positioned Macau in a leading role, which is wonderful for everybody in Macau business and community. Secondly, on the new Chief Executive, he barely sat in his seat and he has this huge virus maelstrom. He's being quite amazing in his clear, concise, pragmatic communication with the community and also with business. We've been in daily dialogue with government and it's been quite remarkable, the decision making that he's done in his 1st few weeks.
Our next question comes from Thomas Allen from Morgan Stanley. Your line is now open.
Hey, thanks. So a couple of questions on Macau. How is business interruption insurance going to work? And then also with covenants, I know you've been well under them and obviously you have a ton of cash, but will there be concessions given? And then finally, the cost containment was really impressive.
Can you just talk a little bit more about how you were able to achieve that? Thank you.
Sure, Thomas. It's Craig. I'll take the first two and then we can talk about the latter. So generally speaking, business interruption insurance, relate must relate to a physical event that caused the business interruption. So a storm or some type of damage.
That obviously isn't the case here. So we don't expect material business interruption coverage proceeds from the coronavirus event. To your question on covenants, the vast majority of our debt stack is comprised of elongated unsecured bonds with no maintenance covenants. The 2 bank facilities do have maintenance covenants. The U.
S. Facility has more than ample covenant headroom to sustain a very prolonged period of suppressed business volumes in Macau. And the Macau facility does have a maintenance covenant that is sensitive to Macau EBITDA. And as I suspect several concessionaires do, we've already have a game plan in place to manage that to the extent that the shutdown is extended. But it would have to be quite extended.
And as you rightly pointed out, we have a ton of liquidity. We have a couple of $1,000,000,000 of availability between cash and revolver in Macau, and that's more than sufficient to last for really any period of closure. Ian, did you would you kind of comment on the OpEx controls?
Sure. It's just a team effort to collectively look at variable expenses. We were able to bring headcount down. We had a hiring freeze in place and the teams did a good job and parsing expenses, but not hurting the quality of service and the quality of product and facility.
Our next question comes from Harry Curtis from Instinet. Your line is now open.
Hi, good afternoon. My question goes back to the comments that you made about the light rail system. Was it in operation long enough to get any sense of whether or not it would be effective transporting more visitors to your properties?
Harry, this is Ian. And it had only been in operation for 3 weeks and still going through testing mode. It's a great vehicle transfer situation for us with 2 stations right outside our property, but it's too early to tell in terms of traffic movement, etcetera.
Our next question comes from David Katz from Jefferies. Your line is now open.
Hi, afternoon. If I can just ask you to go back on one detail, you did make some mention and show some evidence of good cost containment. Can you talk a bit more about what levers and a bit more specificity around what you can do with cost? Are you encouraging vacation or any of those sorts of things that may mitigate some cost impact? And then secondly, I wanted to change the subject and talk a bit about Encore Boston, and just sort of get your updated view about what a ramp to a payback period might be over time and how you're envisioning that?
Thank you.
Sure. So this is Matt. For on the cost containment side in the normal operating environment, I think in all of our properties we've been doing a very good job focusing on costs and being smart and efficient. Right now in Macau, the roughly $1,800,000 to $1,900,000 a day of payroll, we are not looking at cutting that at all. Now is the time when you invest in your people, you don't do something short term that will hurt the
culture or cause any distraction.
So we're investing in you don't do something short term that will hurt the culture or cause any distraction.
So we're investing
in the community right now because we know this will be temporary and we think that it's the right long term investment. For Encore Boston Harbor, when we laid out the program when we opened at Analyst Day, we talked about a 2 year ramp period. Admittedly, it has launched softer than we thought, in particular on the slot side. And so we're doing a lot of work. What we realized was we didn't have quite the right food and beverage program, in particular around quick serve for the daytime slot customer.
It's actually the same thing that we went through at Wynn Palace. And when we opened, we realized we needed more quick serve restaurants in Wynn Palace. We immediately closed a third of the casino. We built Red8. We've built 5 new restaurants in the meantime.
And so we're going through that process in a very fast way at Encore Boston Harbor because when we see a problem, we fix it. So I think we're still in that 2 year ramp up mode.
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