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.

-KD

WYNN: Q2 2010 Conference Call Tidbits

As I like to do every quarter, I'm about to sit down and read the transcript of Steve Wynn's quarterly earnings conference call.  Like David Einhorn's quarterly letters, I think Wynn's calls are indispensable for the knowledge he usually disperses simply and eloquently.  Let's see what we find this quarter:

Steve Wynn: "the nightclub and younger-person recreational market represented by Tryst, Blush, XS, Surrender and the Beach Club. That's a business that could do over $150 million for us, with a profit margin in the mid-40s. So we're really happy about that."

In case you were wondering exactly how much money the clubs made...  $150mm gross, almost $70mm net.

Wynn then begins to expound on a politically tinged "rant."  I'll let him explain:

"We hope for continued improvement in Las Vegas. Or let me put it differently. We hope that we'll get smarter in Las Vegas in dealing with the peculiarities of this market and this very, very mercurial national economic economy that we're living with. The national economy and the political environment in the country as we head up to the elections is very, very touchy. And it is impacting all businesses.

Today, we got a report at a -- various of our board committees meetings about the impact of the bill, the Financial Reform Bill that the President signed, with its hundreds of new committees and regulations to be formed, bodies and government bureaucrats to be created who will then tell us what we should be doing or what standards we have to live up to, both at the SEC and in other bureaus that have been created by this Financial Reform Act that the President was so enthused about. There isn't one single person in the United States of America that has a clue of where the Financial Reform Act will lead and what it really means. In spite of the fact that there are undoubtedly some good things in it, it has the potential of being a catastrophic interference with business, very much like the Healthcare Bill. So we're living through this along with the rest of America. And you can decide whether you want to be pessimistic or optimistic. You can decide whether the glass is half full or half empty. I'm at the point where I hope we just don't tip the glass over."

Later, responding to a question:

" We began -- this is more a third quarter than second, but we began the remodel of the 2,700 rooms that is Wynn Las Vegas because they're five years now since it opened. And thank goodness, the rooms were fully utilized, with high-90s occupancy. And it's time to remodel them. And consistent with our personality, we've upgraded them. And I think between the regular rooms, the suites and the villas, we’re going to spend $99 million between now and January and February -- April"

I found it surprising that they're renovating already - after only 5 years.

"We're also remodeling the baccarat game starting in October. It’ll be ready for Christmas, New Year's. And we're making our baccarat pit much sexier."

 Sexier baccarat!  

"One of the things that's happening here as the market softened and many of these companies with very bad capital structures neglected their properties rather severely. And the properties are all showing the wear and tear. They're showing the lack of capital expenditures. And the public, of course, takes note of this immediately. There's no secrets. The minute the place is not clean or it's getting threadbare, it has a very bad effect on your clientele. We go in the opposite direction, take advantage of our capital structure and make sure that we're pretty and all fluffed up all the time."

well - there you go - that's why he's renovating Wynn already.

Joseph Greff - JP Morgan Chase & Co

It’s Joe Greff from JPMorgan. Two questions, one is on Las Vegas, and it's great hearing you're raising room rates here. Are you seeing any improvement in spend per occupied room outside of room rates?

Stephen Wynn

I'm going to let Andrew answer that, but I want to point out that at the time when we decide to raise room rates and it’s happening successfully, within three weeks after making that decision, we also reduced the available inventory associated with this remodel, which gave us a perfect opportunity to do it. Because under normal circumstances, we're going to take 15% or 16% of the inventory out until we're done. And so that gave us some more leverage why we could lean on the rate. Andy, you can talk about the spend per room.

Andrew Pascal

And the short answer is no, no material change.

I highlighted this portion just to illustrate that Wynn is careful to point out that reason they were able to raise room rates in Vegas is because they reduced supply, by taking rooms off the market to remodel.  In other words, higher rates, lower numbers.

Later, responding to a question about Cotai:

" I got everybody that had anything to do with customers and the business in a big conference room and went around the room one person at a time and asked the very same question that you ask. Who are we? And what are we doing in Cotai? Where are we going? How are we going to present ourselves? Where do we fit in? What should the public expect? Because consistency and -- is very important to business, just as it is in life, so -- and I was really excited and very gratified that there are very diverse personalities in the group. And they were relaxed and comfortable enough to express themselves. And what was really fascinating was that to the man and woman that were in the room -- there were men and women. Every one of them, in their own way, said the same thing. Dance with the girl that you brought to the party, or dance with the guy that brought you, whatever that old anecdote is. We know who we are. We know what we do best. Stick to what we do best. Take advantage of Cotai, and do it better than anybody's ever done it, including us, in history."

"We're going to be Wynn Resorts, Cotai. Wynn Cotai. We're not going to look like Sheraton or a Hilton or a different company. We're going to look like us. And you know what to expect when I say that."

Bill Lerner, who I think is the finest gaming analyst out there, then asks this interesting question, and gets in interesting response from Steve Wynn, probing a bit before moving on:

"William Lerner -Union Gaming Group

Question for Steve, and then Andy, just a follow-up or a quick second follow-up. The first one is, Steve, you, of course, talked about the beginning of the room remodel in Vegas. What about the new rooms or the design of the new rooms in Vegas do you think will encourage folks to pay more per night, besides you charging them more, ultimately?

Stephen Wynn

Yes, it’s a good question, simple answer, Y-E-S.

William Lerner - Union Gaming Group

Yes, meaning...

Stephen Wynn

Well, they’ll like it more, they’ll pay more.

William Lerner -Union Gaming Group

And that’s a -- there’s nothing structurally changing about the rooms, it’s just...

Stephen Wynn

No, no. It's reragging, reaccessorizing."

I didn't get the sense Lerner was satisfied with the answer.

"William Lerner - Union Gaming Group

The last one here, and maybe this is for Andy. What are you seeing -- are you seeing anything reflective of the euro weakness? By that, I mean the currency now? I know, of course, those trips -- Europeans book trips further out than folks from regional places around the U.S., of course, and I would think that strength in the euro over time takes some time to play out. What are you seeing, if anything, Andy?

Andrew Pascal

We're not seeing anything. It's not materially affecting our business in any way.

Stephen Wynn

There was a period when the euro was really up there around $1.58. There were some guys from Europe that were coming over here and thought they were playing with pesos. They were playing with dollars. And I can’t say that we didn't get a little lift from that. Some of the Europeans really liked the cheap dollar when it came to gambling, because they were paying off at -- they thought $0.67 on the dollar. Now that has tamed, I don't know that it will hurt us or anything. But we had a lot of customers from the United Kingdom, so we get the pound sterling as an item, now and then."

I love the "playing with pesos" line to describe Europeans coming to Vegas when the Euro was at $1.58.

Later:

"Now there was one of our neighbors, who's got a great ambition and doing a big job is Sands. They released earnings yesterday, and they had a $300 million number in for three or four places in Macau, three places. And we had $215 million or $216 million. EBITDA has as much meaning as snow on top of Mount Everest. It's a worthless number, because you've got to pay interest, you got to pay taxes, and depreciation’s as real as the payroll. I just got through telling you what it cost to change the rooms and keep them fresh. So you ask yourself, what really is going on? So you subtract the cost of ferry boats, subtract the interest payment on the first quarter of both companies, subtract the...Whatever the depreciation is that both companies use. And just make it equal, whether it’s on a forty-year schedule or a ten-year schedule. Makes no difference to me. And you'll get to the fact that the money left over afterwards is greater with the smaller company, in terms of Macau. Bigger ain’t better. Better is better. Because when you borrow all that money, you got to pay it back. And when you build all of those facilities, you got to depreciate them and take care of them. So you better damn well make sure that they carry their weight. Now I'm a big fan of the development in Cotai and the things that my competitors have done. And they're making the future bright for Macau, and I'm proud to be part of it and proud to be their neighbor. But when you're analyzing what's going on, don't get confused. So we're a younger company than the Sands and MGM. And we are a little bit more, oh, steady, or a little slower. And it's the old hare and the turtle story. We're a little bit more like a turtle than a hare. But at the end of the day, we're going to build Macau, and it's going to be the Cotai project. And it's going to be a big increment to the wealth of our company. And we'll go somewhere else at that same time. And when you take the four- or eight-year difference in age between us and the Sands or the 20-year difference between us, 16-year difference between us and MGM, we'll catch all those guys. We'll catch all those guys. But we'll do it in a very steady, processional way. And each of our properties’ll have the kind of characteristics we're describing now. And we wouldn’t do as well if it wasn't for them. Don't misunderstand. I'm not deprecating them. But I am pointing out that we’re a different kind of company. And we’re going to stay that way. And maybe we don't move quite as fast as the other guys, but we don't borrow money quite as flagrantly. We don't take on projects that we can't really control down to really fine point. And maybe that disadvantages us competitively on occasion. And I'm willing to accept that myself in exchange for having security for my employees, predictability for my investors. I’m willing to make that exchange. I'm willing to take longer to get where I want to go. And where I want to go is where we dominate the gaming industry in terms of quality and performance."

That right there is the reason to read the conference call transcript.  A big long statement that sums up Wynn's philosophy on running his company, and comes back to the line I quoted last quarter:  "Bigger isn't better, better is better."

"Robin Farley - UBS Investment Bank

Yes, I got a question on Vegas and one on Macau. In Vegas, I wonder if you could give us a little color on -- your table drop was down slightly after being up nicely in Q1....

Stephen Wynn

Robin, the reason the table drop is off is because there's so many more tables around here, even though they're not doing a very good job for their owners. And secondly, the reason our customer acquisition cost is up is that when companies, namely, our competitors, get desperate, there’s two things happen. They stop taking care of the building, and they increase their promotional allowances, to no avail, I might add. It's a one-way street to oblivion. But that's the natural knee-jerk reaction when they get desperate. They don't take care of their building, and they grasp for customers. And then it has an effect in the marketplace, and it takes everybody down. The person who starts this kind of stuff doesn't do themselves a bit of good. It takes awhile before they wake up to it, and then they get new executives or something. It's been the oldest story in the history of Las Vegas. We go through this cycle all the time with inexperienced help and unsophisticated management. They spend too much. They over-comp. They do all this stuff. This is as old as Methuselah around here. Maybe I'm getting old. I've been doing this for 42 years. But I’ve seen this about 11 times. And then there's a new group of young, inexperienced managers. Again, they fire the other guys, and the people, okay, well, we can’t do this anymore. Stop -- we can’t comp people that don't play that much. We can’t afford this. There’s no margin in this business. They got Blackjack at some of these hotels down to where the game isn’t worth it, the space it takes up on the floor. But what the hell? They got the tables. They got the dealers. They want to protect the jobs. They go and give the joint away. If their rooms are empty, they figure they've got nothing to lose, even if they’re new rooms."

"Robin Farley - UBS Investment Bank

In other words, the competitive situation that you saw in Q2, it sounds like it's continuing here into the second half of the year in terms of customer acquisition costs and table drop being down.

 

Stephen Wynn

In a word, yes. But we've got these nightclubs, and there, we're able to get an advantage because it's the management of atmosphere. And so there, knowledge and experience really matter. A Blackjack game’s a Blackjack game. Unfortunately, a slot machine’s a slot machine. They're all a commodity. When we get into the areas where there's a difference that matters, like the way we treat people, how beautiful the places are, the management of environment, then the competition can't run with us, and we're safer. And that's where Linda's customers come in. They're brand-oriented. They’re very conscious of the little things, the quality of their experience, how clean the place is and how they're cared for. Nightclubs, believe it or not, in a strange way, it's a similar kind of thing. So those are the two segments where we hold our own."

Interestingly, there wasn't discussion in either the prepared remarks or the Q&A of the fact that Wynn's numbers were actually helped this quarter because they were a little lucky in Macau - their hold % was slightly higher than expected.  Contrast this with last quarter, where they were slightly unlucky.

disclosure: I have no positions in LVS, WYNN or MGM.

-KD

WYNN Q1 2010 Conference Call Tidbits

I find Steve Wynn's quarterly conference calls to be among some of the most honest, straightforward and illuminating data points freely available in the market.  Wynn is the best of the best at what he does, and he's even better at clearly expressing himself.  Without further ado, let's take a stroll through the transcript of the most recent call and see what sorts of interesting tidbits we find:  (note: I have no positions in WYNN)

Steve Wynn didn't bother with an opening statement or a review of the quarterly results, simply explaining:

"The numbers I think speak for themselves. Really very little to add to that, except that the first quarter numbers that we released today do not include any contribution from Wynn Encore in Macau, and which opened a week ago today, and we are looking forward to it contributing to the overall impact of our operation in Macau. 

I’m also pleased to announce that we have instituted, announced previously, we have instituted our first quarter dividend of $0.25 a quarter, which will be payable to stockholders of record on May 12th and paid down on May 26th.

With that, I’ll take questions."

Q: From Cameron McNight @ Buckingham: "And then secondly, Steve, you’ve got a lot of cash. You’ve extended out a lot of your maturities. What are you thinking about capital allocation here?"

A: From Steve Wynn: "We don’t think that economic disruption is behind us. We think the deficits have potential for enormous negative impact in the United States. So we are playing it safe like we always do in this company."

I found this to be very interesting, especially in light of the 25c dividend that WYNN declared.  Wynn's strength is that he's kept his balance sheet in check and not levered himself to the point where he risks bankruptcy.  In the past several quarters, he's expressed a very cautious view, which he does again in the answer above - so why is he paying a dividend?!?!??!  

Q: Tom Marisco, Marisco Cap Mgmt: "I was just wondering how you thought about the very high growth rates that you’re seeing in Macau? Why you’re seeing growth rates as high as they are, the sustainability of those growth rates and just more of your philosophy as how you’re seeing that market play out?"

A: Steve Wynn:

"Well, it’s great to have a question from a real live major shareholder like Marsico Capital. It’s not very often that the buy-side guys speak up on these conference calls. Tom, the inherent strength of the market in China has been the subject of great discussion and it has been explained and I know that you’re one of the people that has spent a great deal of time with all of your investments in Marsico Capital and understanding the depth of that market. And the pent-up demand that exists there among the 300 million Chinese who are experiencing upper middle class and beyond wealth in that country, that is not to minimize the fact that China faces great challenges for almost 1 billion people or maybe over 1 billion people who have yet to experience such prosperity. But we have to keep in mind that this explosive growth in China and the desire for a consumer experience, and incidentally to a great extent it is encouraged by the government, which is trying to enhance the consumer economy in China. So it is not considered improper to want to aspire to the good life. And to Chinese people, part of the good life is going to Macau and partaking of all of the excitement and activities that take place there. Not just gambling, but shopping and fine service and dining and branding is very important to those people. So we’ve learned that over the years here in Las Vegas. When we opened Mirage, we got all that business away from Caesars because we were the newest greatest thing. When we opened Bellagio, the Chinese business immediately switched to Bellagio. When we opened Wynn we had big-time Asian baccarat business because we were the newest and fanciest thing. The Asian market is very, very aware of the top brands, and that’s why we’re so meticulous in making sure that we meet that demand. For example, it is non-productive for us to appeal to the low-end market in China, because the government does not encourage the low-end of China to go to Macau. They don’t mind if people who can afford it go and gamble but they’re sensitive to people who can’t afford it going across the border to Macau. That’s why they pulled back on the visas. But for those people in Hong Kong and South China from [Dagen] Shanghai who can afford the good life, there’s no stigma attached to that in China. And there are so many of them. The market is so deep and rich and successful people who are in search of the good life that Macau is a natural place and Hong Kong and Macau are natural markets to absorb some of that energy. And we are experiencing it along with the other operators in Macau. We’ve maintained our niche in that market because we protected our brand. Encore was more of the same. And coupled with that, we stay on the good side of the government by attending very carefully to a proper Chinese protocol, which is to be humble as a guest of that community, to be grateful for being allowed to be there, and to show our appreciation in every way possible for that privilege including going public on the Hong Kong exchange to increase our Chinese ownership of our company. Those things have all conspired to produce a result along with the natural flow of people across the borders that have affected all the operators to protect our market share and allow it to grow. And in respect to that Tom, there’s one final point I would make, one young analyst several months ago said, ‘Mr. Wynn, as these hotels have opened, your market shares has gone from 17% to 14% or 15% or 13%.’ And I said, well naturally, when thousands upon thousands of tables are added to the market, our market share would drop in terms of gross revenue. But when you’re analyzing and evaluating a gaming company; whether it’s in the United States or in Asia, the right number is not market share in terms of gross dollars, it’s what percentage of revenue per table you have over the ratio of 1 to 1 that you would have if your revenue equaled the same percentage as the amount of tables you have, or to simplify that if you had 10 hotels each with a 100 tables, they would each do exactly the same amount of revenue than the percentage of tables and the percentage of revenues would be equal. That would be total parity. The ratio of revenue to equipment would be 1 to 1. If the ratio of revenue to equipment is greater than 1 to 1, then you operated a more efficient and more positive way than your neighbors. And as more hotels have opened in Macau, our ratio has grown, not shrunken. And that’s the number, that’s the number, the win per table compared to the percentage of tables, the percentage of revenue you have compared to the percentage of tables you have, and in that respect, our market position has improved, not slackened. Those are the things Tom that come to my mind as I think of this subject. Matt, do you have anything to add to that?"

Then later, this, again from Steve Wynn:

"I think there is one another point that Linda and I have discussed that’s worth sharing with all the people on the conference call. The goal of broadening and bringing in new concessions in Macau in 2002 was to broaden the appeal of Macau in the Pacific Rim and around the rest of the world to bring new customers, not just baccarat players into the marketplace. And it is fascinating to see exactly how that process works. So I’m going to explain it with regard to Encore. Macau has junket operators that have a budget that we give them a fixed amount of money to pay for their complementaries for their customers in their rooms, unlike the Las Vegas method which just sort of pays for the rooms. There the house pays for the rooms. Now when we built the Wynn Hotel in Macau, we did what a normal hotel operator does. We built a very commodious large generous typical room at 626 square feet. That’s bigger than Bellagio and the same as Wynn America. And then we built extravagant suites starting at 1,800 feet and going up to 3,000. And those rooms were priced at 200 odd dollars, and the suites well above $1,000 as you would expect in any hotel operation including Shanghai and Hong Kong and Tokyo. And that’s what we did as hoteliers. In the hospitality business, it was very, very normal, right up the middle. The junket operators came to us, they came to Linda actually and said just a minute, that’s not what we need. The typical room is beautiful, but it’s not sexy enough for a gambler, and the suites are too expensive for us to waste all of our money at $1,500 or $1,200 a night. What we want is a very theatrical and beautiful room that we can buy for under $400, preferably at $350. Well, there was no such product. And all of a sudden the pressures exerted by gambling interests caused us to create a product an 1,100 square foot suite. We went and did it, and that is Encore. Now what we have done is built a room that is at $350 the most incredible piece of hospitality real estate in the world. And it has an enormous appeal to everybody, especially non-gambling people, because it represents the greatest bargain in the world. So now here’s Macau, creating a product from its organic gambling roots that now changes the city and the market to be more appealing, more broad-based in its attractiveness to everybody. How interesting unintended consequences are or maybe they are intended, but here is a product that was engendered by gaming requests that becomes a non-gaming plus for the city. The most lovely room in the world at a price that is almost half of what a regular room at the Peninsula costs, which would be less than half its size. Interesting how things work. I call that, and I’ve made this point to the government, organic growth. That is not the same thing as trying to pick up Las Vegas and drop it on Macau that will never work. One is China, one is the United States, and China is China is China, and in relationships with the people of that country, in relationships with your employees, you must not forget that it is not Las Vegas, it is not America. And so dropping Las Vegas strip into Macau was always an idea that did not respect the basic fundamental notion of Macau. And so we try in our observation of the people, what we’ve learned since ‘06. We could never have built Encore Wynn in ‘06. We did not have the hands-on experience with the customers. We learned from our customers, as all good businesses do, we learned from our customers and our employees, how to better run our business. And so what we have in Encore Macau is an organic product that grows in Macau out of the soil of Macau’s own beginnings. And I’m glad that that question was asked Robin, because it gives us a chance to clarify what we’ve done. And I hope that adds some color to your question."

That's a free lesson in how to think about the hospitality industry, courtesy of Steve Wynn's expert view.  Again, I think he expresses these concepts better and more openly than any other CEO I've ever heard.

Getting away from the earnings call transcript, and back to the earnings release itself, there were a few interesting items.  The Las Vegas results: 

"Net casino revenues in the first quarter of 2010 were $139.5 million, up 18.8% from the first quarter of 2009. Table games drop was $556.9 million compared to drop of $520.0 million in the 2009 quarter and table games win percentage of 23.2% was within the property’s expected range of 21% to 24% and higher than the 17.7% reported in the 2009 quarter."   

In plain English, earnings were up vs the same period last year, but that's largely because 2009Q1 was, to put it bluntly, somewhat "unlucky" for WYNN - their win percentage in 2009Q1 was 17.7%, vs 23.2% in 2010Q1. Table games drop was only up 7%.

Then, the doozy:

"Gross non-casino revenues for the quarter were $225.2 million, a 1.4% decrease from the first quarter of 2009, driven primarily by lower hotel revenues which were partially offset by higher entertainment revenues.

Hotel revenues were down 8.8% to $77.6 million during the quarter, versus $85.1 million in the first quarter of 2009 as Average Daily Rate (ADR) decreased 8.6% to $203, compared to $222 in the 2009 quarter. Our occupancy was 89.4%, flat with the 89.5% generated in the prior year period, generating revenue per available room (REVPAR) of $181 in the 2010 period compared to $199 in the first quarter of 2009.

Food and beverage revenues decreased 1.0% to $95.9 million in the quarter and Retail revenues were $18.9 million in the quarter, 3.3% below last year’s levels."

I wrote a post last week asking for anecdotes from my readers regarding economic recovery.  I interpret WYNN's Las Vegas results as a clear sign that the Vegas economy is certainly not recovering - the numbers continue to deteriorate, even from Q1 2009's miserable levels.

-KD

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