Thursday, November 04, 2010

WYNN Q3 2010 Conference Call Tidbits

It's that time again - time to read the transcript of WYNN's latest conference call and see what sort of insight Steve Wynn has in store for us.  I think Wynn is one of the most brilliant and candid CEOs out there, and perhaps the best at openly speaking his strategy and vision on the conference calls.  Let's get to it.  (I have no position in WYNN or any of its peers).

Steve Wynn:

"This is the first time on the conference call that I'm going to say I believe that we've seen the bottom in Las Vegas and I don't know how fast it's going to get better, but I don't think it's going to get any worse."

I found this interesting, since LVS's conference call couldn't even pretend to be optimistic on Vegas, and Wynn is usually even more honest,  but I guess he's not saying things are getting better - just that we've FINALLY seen the bottom.  I think if you're interested in buying a condo in Las Vegas you certainly don't have to go out and scoop one up in a hurry - I can't see their real estate market recovering any time in the near future.

"I think with two months to go, we're over $900 million of EBITDA, so speaking after my 40-odd years, first year we're going to go well over $1 billion in profit, in EBITDA at least. Although I stress again that this EBITDA number, which is what everybody likes to flash around is sort of a fake number because you have to pay your interest so lots got to do with what you make as how much money you owe. And depreciation isn't something that can be discarded. The more hotels you have, the more depreciation you've got. And the more money you have to spend taking care of these places,"

Wynn mentioned this on the last call - how EBITDA is kinda a silly measure since you can't just ignore interest and depreciation - but he cites it anyway because his competitors love to use it as a metric.
"Our baccarat is closed until Christmas, it's being re-configured"

What?!!?!?  Baccarat closed?  That actually probably matters - it has to be the big revenue driver. Although I guess they'll decrease costs too because players won't be able to rip up all those cards (/sarcasm & inside joke)

Steve Wynn then goes on a little bit of a political tirade, but notes: 
"We have been the victim of 8% escalation of healthcare costs and our insurance program and we self-insure. We are healthcare provider. And we have never touched the benefits to our employees or raised their costs of their contributions in co-pay and such. Since we opened this hotel five years ago, we've just taken the hit on 8% a year. As a result of this ridiculous 2700-page fiasco that this Congress passed, our escalation of healthcare cost is going to close to 11% or 12%. Thank you very much, Congress, for all the help. They made it tougher on large businesses, small businesses, they've made it tougher on unions. In many cases, the culinary union contract with us, for example, and calls for a fixed contribution or cost of living escalation every year to be put into healthcare or wages whichever the union wants. And when it all goes to healthcare, their wages can't be increased. Or put in even a worse situation that the amount of money that we can give the union to cover their healthcare escalation doesn't equal what the union has to pay out in its policy to our employees. So the healthcare bill was a fiasco across the Board."

You can say what you want about the healthcare bill, but this is one CEO telling you that it's jacking up his costs.  It's not secret that Wynn is not a fan of the Administration, and you can read his rant on Government preceding and following that healthcare segment in the transcript.

On to Q&A:

Responding to a question about Macau:

"Some of the other fellas are a little desperate about their performance. And they've been trying to buy business. I guess in order to make an impression for an IPO or something, it's a scheme that doesn't work very well. They increased the top line but they don't increase the bottom line."

Can anyone guess what "other fellas" Steve Wynn is talking about?  (rhetorical question)

"Well, we're at it, the Board of Directors today voted a special dividend of $8 a share payable on December 7. Another promo, another piece of good news associated by our extraordinary capital structure and our cash flows still leaves us with a huge amount of excess capital and the freedom that many of our competitors don't enjoy financially. But it's good news for our shareholders who we believe should be the principal beneficiaries of this company's activities. And that has been our pattern over the past, ever since the inception of Wynn resorts to take the interest of the shareholders first and considering the whole picture in this country. It was good time for a special dividend."

This is kinda unusual for a capital intensive company, but speaks to Steve Wynn's conservative balance sheet.  Wynn has made it clear in the past that he's positioned the company for the long haul - to withstand downturns - so that they will be able to pay their debt bills regardless of what happens.  The fact that they still have extra capital to distribute to shareholders illustrates that the balance sheet is likely seriously rock solid.  One can also note that they've "paid" the price for this prudence in the way their stock price has lagged LVS - LVS is much more highly levered, and performs better when things are good and bubbly, like right now.  LVS expanded aggressively in Macau and Singapore, and Wynn is slowly and methodically trying to catch up.  Reading on,  the next part of the conference call is Wynn speaking exactly to this "conservative" balance sheet:

"After the dividend, this company throws out the cash flow. It's almost half as much as our total debt, net debt. It's a very comfortable position to be in. I just thought I'd mentioned that. I love that ratio and try to keep it conservative like that. We don't worry about coverage of our interest payment, we worry about coverage of our earnings compared to the total debt. And we'd like it when our earnings as half of our total debt. That keeps us in a very strong position and that's after we pay $1 billion or more dividend"

Then we get to this:

Q: David Katz - Jefferies & Company, Inc.
So many things have seemed to be going right in Macau. And clearly, this is a happy release and a happy conference call, and not to spoil that in any way, but what should we consider that could potentially go wrong. What are the biggest concerns or issues we should think about going forward as we model out the next couple of years particularly in Macau? What concerns you?

A: Stephen Wynn
You want me to hypothetically think of everything could go wrong on a conference call? Who do you think you're talking to, anyway? You've got no chance of me doing that. You do that. That will give you something to do. I'm not going to do it. You understand the market clearly enough. Why would I hypothecate about stuff like that?

Whoa!  a DYKWTFIA from Steve Wynn! WHO DO YOU THINK  YOU'RE TALKING TO?!   I'm actually somewhat surprised at Wynn's reaction here - he's usually quite good about laying out potential pitfalls and obstacles and being honest about them on the call.  Wynn then goes on another tirade about the Government and how their policies make consumers and businesses lack confidence.  You can read it for yourself in the transcript.  Here's a sample:

"I mean, one of the reasons I'm so angry about this, and there's no question I am, is that I have always had a sort of a protective attitude towards my employees. I consider us a family. And I've always thought that we, as a company, if we stayed healthy, that we could protect our employees in every way possible. And now I see the government destroying the value of the dollar, lowering the quality of life and the standard of living for the working class of America, the very people that they're supposed to represent. And sure, we're going to give paychecks out, but they're going to be $0.60 on a dollar paychecks. And all these people are coming up for Social Security and Medicare. They're going to get paid with $0.60 and $0.70 on a dollar, dollars. I remember hearing the President say that the middle class has gone down and the rich get richer. The reason the middle-class relative position deteriorates, if it does at all, is because of the government. Not because of people that creates jobs and build companies. It's because of the government. And what happened now is the American public has awakened to this miserable truth. And they see right through with phony rhetoric. And if that's true, we're going to get a different kind of leadership in Congress that recognizes what it takes to run this country properly using common sense. And that's the reason that I think that this stinging rebuke that the President is going to get tonight has to have a proper effect on him and other like-thinking hypocrites."

Wynn then takes another swipe by complementing the Macau Government:

Q: Cameron McKnight - Buckingham Research Group, Inc.
Steve, would you mind commenting on some of the general macro trends you're seeing in China as it relates to your business. Are you seeing more customers? Or are you seeing more spend from a similar number of customers?

A: Stephen Wynn
More customers, longer stays, everything that the government of Macau intended to happen in Macau is happening. Here's a government with a plan, with a common sense plan, and they employed experts to execute the plan. A bunch of us that do this sort of thing.

Responding to a question about giving out hotel designs:
"I remember going to Atlantic City this past year, I was making a tour of various jurisdictions to learn about what was going on in America because I haven't done it in so long. And I was walking out of the Borganta, which I want to look at and there next-door was Harra's, with a curved tower and asymmetrical roof, a very poor, homely copy of the Wynn Las Vegas. And I called up Gary Loveman (Harrah's CEO), and I said, "Hey man, have you no shame?" I mean, and in the building was in the wrong proportion. In order to do what we do with our building, it has to be horizontal in its proportion or doesn't look right. And this one was verticals, which just looked like sort of a tall rectangle with point on one end. And he said he gave me an answer, he said "Well, duplication is a serious form of flattery." I found that relatively unsatisfactory answer. I think maybe someone should try to do their own thing instead of doing bad copies of other people's things. But we do give the boys a chance to louse up what they think we're doing. But there always one hotel behind and that reminds me of the story when Waylon Jennings met a kid that imitated the western singer. He told the kid, "Listen, I know you're a nice kid and you sing good and you're good-looking, but if you do well in Jennings, I'm already doing well in Jennings and you got to be yourself if you want to be successful in life, because I'll tell you something, son, and the boy's name was Wendell Atkins. Is it Wendell? Is it Waylon Jennings? If you do me, you're always going to be one record behind. And I thought that was a great funny remark. I was standing there when he said it. So if people copy our hotels, they're always one hotel behind. It's okay with me."

All in all, this wasn't my favorite Wynn call in terms of insight, but it's certainly a worthy read nonetheless.



Hammer Player a.k.a Hoyazo said...

Great job, KD. These Wynn con calls are always some of your best posts.

For a guy who just reported another good quarter, Steve seemed far more on-edge on this call than in the past. Hopefully that's not because he knows bad things are a-coming.

But What do I Know? said...

If I can pick a nit--health care costs didn't go up 8% because of the government--they went up 8% because buyers and payers are misaligned.

Don't get me wrong, the government didn't help, but without the introduction of some kind of rationality regarding health care expenditures (call it rationing if you will) costs aren't going to moderate

Mark S said...

Kid, things are pretty bad here but unfortunately, I don't think things are at the bottom yet.

Inflation of food and energy prices are killing us out here but no one mentions it.

I wish Steve would run for governor or something, but why give up all that power?

Kid Dynamite said...

Yeah Mark - i think there's a very very big difference between "hitting the bottom" and "starting to recover"

with all the capacity - which just CONTINUES to increase - i simply can't imagine any sort of real recovery in Vegas as far as the eye can see.

Anonymous said...

Wynn on Japan:

"Yes. So the situation in Japan is provocative as inviting as potentially wonderful as it might be for the citizens of Japan and for a company that could be of service in the construction of such an industry like ourselves or any of the other fellas."

So let me get this straight? If the Japanese had the opportunity to go blow 4k on a weekend filled with booze, gamblers and hookers, the people of the country would somehow be better off than if they invested in 4k business, education, infrastructure?

Gambling is a opportunity for wealthy folks to spend discretionary income but unfortunately they don't exactly check your 1040 Schedule D at the front door.

By the way Kid, never really been here before but you come up 3rd in Google under "Wynn Conference Call". Great work

Anonymous said...

So the 8% annual premium increases before health care reform were no problem?

Am I the only one who sees that businesses in, lets say, Germany (or any other major developed economy) have way more stable health care costs than we do? I would think that would be something of a competitive advantage, especially given the trajectory US health care has been on.

Seriously, this is one of our shining lights of capitalism and his solution is to go back to the health care mess we had before? Because otherwise the non-single payer, private run healthcare system post reform has turned the US into Cuba?

What f**king nonsense.