Tidbits: WYNN Q4 2009 Earnings Call Transcript

"Bigger ain’t better’; better is better" - Steve Wynn

Steve Wynn is the best in the business.  He understands the casino business and enunciates his views better than anyone else I've ever heard.  Although I have no position in WYNN stock, I always find value listening to his thoughts on the conference calls that accompany WYNN's earnings releases.  Without further ado, let's see what he has to say this time.  Although Wynn's comments were brief, these are partial quotations:  tidbits - not a complete transcript (which you can find in the link above)

" What we have to say I think going to be very brief because I think these numbers speak for themselves. We had a wonderful year in China.  We always want to point out that the most important thing to recognize when looking at numbers of a – in our business is not so much market share per se. That’s a measurement of sort of casino revenue. What really is important is to look at the yield per table and the profitability per table. And I am very happy to see that again for the second or third consecutive year the profitability and the efficiency of our tables in Macau continued to climb in spite of the existence of some very fanciful competition that appeared this year."

"We look forward to a very healthy and exciting 2010 and beyond. I wish I could say the same thing about Las Vegas, but I am still – as we have been in the past – unlike some of our competitors who have seen all kinds of glitter and wonderment just around the corner; I think everybody has sort of come clean now that we don’t see that."

So Wynn remains bullish on Macau, and isn't even pretending to be bullish on Vegas - he's admitting that there is no foreseeable Vegas recovery imminent.

"The policies in Washington, policies of government have taken a terrible toll on the working people in America that come to Las Vegas and the Corporations that book conventions and meetings in Las Vegas. I am afraid to say that I think the outlook for 2010 is very conservative at least. I don’t see any major change in the future. I don’t see it getting worse per se, but I do think that unless there is some signal from Washington that they can control the deficit, that not only Las Vegas, but the country faces dire problems. And I don’t see any reason whatsoever to have a spec of confidence in the Congress or the administration that’s there now.

And in the end Las Vegas is almost a perfect reflection of the national mood. So I am conservative and guarded about the future of Las Vegas and I think political leadership has now come home to roost as part of every businessman’s conference calls. I mean imagine, it would be necessary for someone in my position with my job to talk to a group of investors and analysts and have to refer to policies in Washington when discussing the relevance of the quarters that lie ahead. But if anybody has got a spec of – sophistication that’s listening to my voice now will recognize that that is in fact true."

Interesting snipe at Washington.  

Then came the Q&A portion:

Q: "May be you can talk a little bit strategy going forward in Las Vegas. Is the series correct and necessary slow recovery, how do you look at primary  mix that business bringing back the higher end customer with room rates where they are right now."

A: Good question. Good question really to the heart of the matter. If we have a rather cold-blooded look at the near future, the question is what do you do then and once again, here the oldest story in the book when it comes to our Company. Capital structure is your salvation. It’s capital structure that allows you to hold your head in a down market. I don’t – I am not forced with my colleagues to juggle my employees or to juggle my customer service levels. There is nothing left to do in my industry except do the basics better. And doing the basics better is what we are all about right now as we tend to our (inaudible) in a market that’s sort of rough.

(Wynn then goes into detail about new restaurant, beach club, dining area on the north side of Encore, where there was supposed to be a shared port with the now abandoned Echelon Place and Frontier re-developments, before bringing his answer back to Wynn's strong capital position:)

"This whole complex which is on the strip side of Encore, where we originally put a port to share unfortunately the hotel that were supposed to be built across the street from us at the Frontier side and the Stardust  site have been aborted. And we perceived that they will be aborted for the near and distant future. I don’t see anything happening with the Echelon Place project in the near future, nor do I see anything happening on the Frontier project. So having a fancy port to share which we unfortunately built for Encore was worthless. Now, another company would have to live with that. Because we have such a strong financial statement, and because we have the working capital that’s necessary to keep us competitive, we take off that unused port to share and we put something on it that would generate profits in 90 days. And that puts more pressure on our competition. More pressure on every level of our competition. We area about refurbish our rooms in Wynn, because they are five years old. It puts more pressure on our competition because our service levels and the targeted attractiveness of our facilities gets more and more infective.

Nothing left to do, but the basics better, and that’s the story of Wynn Resorts in Las Vegas."

Wynn isn't worried because he's not desperate - he has his balance sheet set up such that he's not leveraged to the hilt and desperately scrambling for funds to repay debts, as his competitors are doing (MGM just announced another restructuring, where they managed to again extend and pretend their day of reckoning by convincing bondholders to extend maturities.)

He comes back to this point in answering the next question, while making more allusions to MGM's CityCenter:

"The revenue is going up by 3% and capacity is going up by over 6% thanks to our friends down the street. Those building were conceived in a different time, but they exist. So does Encore. So, we make the best of it. I’ll tell you one thing. You better damn well have a strong balance sheet if you want to play on this strip and we’ve got one. I think our cash is equal to our debt. And we don’t have any current maturities, we have long maturities, low interest rates. We are protected for stormy weather. And this is again, you know, I said this before. Without a – if you don’t understand the capital structures, the backbone of your marketing, then you need to go back to business school. We understand that here. We don’t need to learn that lesson anew."

Wynn's genius comes from his willingness to express insights that others wouldn't elaborate on in a conference call like this, where he knows that his competitors are listening.  It's not rocket science, I'm sure, but listening to Steve Wynn explain in 2 paragraphs some simple design elements of his future Philadelphia casino is awesome:

"You know, you put the valet parking and the employee parking on grade and then you lift the casino by 12 or 14 feet and you drive up to that on the port to share so it look like it’s on grade. And then you have two or three levels of parking on either side of the casino, so you can walk right into the casino from the garages. And we make this super friendly place for users. And they can run in, gamble for three hours, and run out, have a great steak or an Italian dinner or noodles or a slice of pizza, and it will be just the right lighting and great colors. All those things. All those little things that have always given us market superiority. We are going to put them to work for the first time in a straight forward casino, not a destination integrated resort, which involves all those bells and whistles that are so expensive that you are familiar with in the past."

and then this:

"That’s right. But our general casino customer is different than the other general casino customer by a lot, by a lot. And I like to say that three times, by a lot. We build a better mouse trap so to speak, we build a facility more user-friendly. And there is nothing left in our business but to do the basics better. People come to a casino with a very specific and clear-cut goal in mind. They want to sit down, enjoy the excitement of gambling, have something good to eat, and be well served. That sounds very simple, except that’s not usually what happens. They want to be able to see the cards; the lighting has got to be right. They want an environment that’s emotionally pleasing to them, which has to do with colors and all kinds of minute details that take years and years and years of experience to learn about. And we’ve got years and years and years of experience that we’ve learned about it. It’s unfortunately not the kind of a thing that you can pick up in three weeks with a big bank roll and a bombastic wave of you arm. Nobody becomes Master of the Universe in this business just because they say they are. Bigger ain’t better’; better is better. Next question."

Wynn takes some more shots at Washington:

"Listen, we are more of a Chinese company than an American today as we are having this call. I love it. Thank God for being outside the United States today. There isn’t an executive in the world that isn’t thrilled about being outside the United States today. What are we supposed to do? Draw great hope and satisfaction from the behavior of the Senate and the House of Representatives? If that isn’t enough to give you a heartburn, I don’t know what is."  

and then

"I don’t think anybody in America is arguing it. There is a furiousness in the country about the irresponsibility. $100 million a month we are supposed to borrow, $100 billion a month we are supposed to borrow for the next five or six years. Why, it’s totally unsustainable. It’s lunacy. I remember the (inaudible) bill; I think it was around 1909. The great political philosopher from France wrote, “The American system of democracy will thrive until that moment when the politicians discover they can bribe the electorate with their own money.” And those damn fools have done it."

I don't disagree - but I'm surprised to hear Steve Wynn lob these comments out there on a conference call - i think it's a very unusual approach for a major CEO to take, speaking out loudly against Washington.

In case there was any doubt as to how Wynn felt, he continued:

"If you are talking about strictly convention booking, you can say that ’10 is better than ’09, and you can say you see a trend of increased bookings. It is totally irresponsible and naïve for anybody to say based upon this slight trend, we project this infinitely into the future and give you some rosy balloony [ph] story about what’s going to happen in ’11. And I am warning my investors that may be on the call, to the extent that you hear any of that from our competitors, beware. There are more questions afoot in this market in America that will impact ’11 than I have hair in my head, I am happy to say, and I still have a full head of hair.

No, you’ll not get any of that from us. I don’t see it. I’ve got more questions than answers. I have more pessimism than I have had before. And it’s based upon the political environment in which we are living today. And it definitely is impacting Las Vegas. The President of the United States hasn’t missed one single opportunity to swelch [ph] Las Vegas. In our particular case it’s cost us millions of dollars from companies affected by the President’s remarks that had no connection whatsoever to federal bailouts. But we get phone calls, and I am not going to mention the names of the companies, from Chairmen, who say we don’t want to appear to be profligate because Barack Obama said this or that about Las Vegas. But it’s had an effect on us. The hospitality industry in the United States of America as a whole has suffered disproportionately during this recession. Maybe automobile workers got a break. But all of the hundreds and hundreds of thousands of people that work in the hotels, restaurants, and bars in the United States of America have been totally and completely overlooked in this aborted rescue attempt that has squandered billions of dollars in the United States. And I am being very harsh about it. And I’ve got the data to back it up and so is everybody else in the hospitality industry Job formation and the kinds of companies that make jobs are under attack in the United States of America. You know, MGM – aside for a moment – in – last year we created almost 5000 jobs. And immediately became the target of the administration. Businesses that created jobs, little own gaming companies have created jobs, had to be no good. I mean, it is preposterous that businesses are under attack in the United States of America.

Anybody that makes over$250,000 in the form of a personal income tax return is now by Washington definition ‘a rich person’ when everybody who has got a college degree knows that the personal income tax rate in the United States of America is the business tax of America. Every subchapter S, every individual proprietorship, and every partnership in the United States of America files tax returns as individuals. And when they do, and they show that they made $2 million, or $3 million or God forbid $4 million, they pay the income tax rate. They deduct their working expenses, their living expenses and then they invest in a new store, a new shop, and most of the time 25% of their “profits” are tied up in accounts receivable or inventory. But all of a sudden, all of those people who make over $250,000 are rich folks to be fleeced. And if that’s job formation stimulation in America, (inaudible) providence. And if I sound angry about it, and disgusted, I am disgusted and angry at the apparent ignorance of the administration and the Congress to recognize the fact that the individual tax rate in the United States of America is in fact the business tax of America. And if you keep banging on that, you will destroy in the incentive for job formation in the United States of America. And that’s simple truth. Simple truth. And whether politicians like it or don’t like it, it means nothing to me.

And that’s why I am pessimistic about Las Vegas, because those are our customers. Those people out there, hustling their businesses, and God forbid, showing that they made a million dollars as a partnership or as an individual, yes, they are the enemy now. They are the rich folks. Well, until we get over this America is in for hard times because what’s going to happen is the people that are going to suffer from what’s going on are the working class of America. My 15 to 20,000 employees they are the ones that are in trouble. The reason they are in trouble is this demolition of the dollar. It’s going to reduce the buying power of the working class of America as sure hell as if we gave them a salary cut of 25%. And that’s another thing that doesn’t seem to be clear to the brilliant people in Washington, D.C. They are not just our customers, they are my employees. And until my employees get the drift of what’s being done to them America is in trouble."

Whew!  Zzzzzzzzzzzzinger!  

LVS is building a big casino in Singapore, and a question came up is Wynn was concerned that they would take some of his high end business.  He responded:

"Okay, first of all, your question is well put and if I can rephrase it, if Singapore is designed to take the top end customer away from us four hours away in a jet, the equivalent of New York to LA, are worried. Now this hotel in Singapore is going to be beautiful. I hope, I suspect that it will be. It’s going up in April. The one that the Venetian folks have built. Now, right down the street, for 25 minutes from our hotel in Macau, the same company built the Four Seasons, designed by their own public announcement to take our business away. People didn’t have to travel four hours on a jet. They decided to do it right down the street. And they weren’t able to do it. So, I hardly can be concerned about a threat four hours by jet away from me if I wasn’t concerned about one that was four miles away from me on Cotai. Does that answer your question?"

Steve gives another long answer to a question from Charles Kokly (search the transcript for the whole quote), but basically Wynn says that if he had it to do over again, he wouldn't build Encore Las Vegas.  However, he explains, "if I had to do it today, no, I keep my money. Fortunately, we had enough money that we don’t sweat it. We have planned that business or not – business cycles go up, business cycles go down. Any sophisticated company plans and has built into its capital structure and a building that survives such predictable events."  

 I wrote this blog post as just read the transcript for the first time.  As usual, I wasn't disappointed.  Steve Wynn's knowledge, insight, experience, and more importantly - his willingness to say what's on his mind and share this knowledge - makes Wynn's quarterly conference calls a must listen to / must read.

-KD