Wynn Resorts (WYNN) Earnings Report: Q3 2014 …s.t.st/media/xtranscript/2014/Q4/12931865.pdf · Wynn Resorts (WYNN) Earnings Report: Q3 ... Welcome to the Wynn Resort third-quarter

CompanyName:WynnResortsLtdCompanyTicker:WYNNSector:Services

Industry:LeisureEventDescription:Q32014 EarningsCall

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WynnResorts(WYNN)EarningsReport:Q32014ConferenceCallTranscriptThefollowingWynnResortsconferencecalltookplaceonOctober28,2014,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

LewisFanger;WynnResorts;VP-IRSteveWynn;WynnResorts;CEOFeliciaHendrix;BarclaysCapital;AnalystIanCoughlan;WynnResortsMacau;PresidentGamalAziz;WynnMacau;PresidentLindaChen;WynnInternationalMarketing;PresidentMattMaddox;WynnResorts;PresidentandCFO

OtherPart icipants

JoeGreff;JPMorgan;AnalystCarloSantarelli;DeutscheBank;AnalystShaunKelley;BofAMerrillLynch;AnalystHarryCurtis;NomuraSecurities;AnalystThomasAllen;MorganStanley;AnalystRobinFarley;UBS;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

WelcometotheWynnResortthird-quarter2014earningscall.IwillnowturntheconferenceovertoMr.LewisFanger,VicePresidentofWynnResorts.Pleasegoahead.

LewisFanger(VP-IR):

Goodafternoon,everyone.WelcometotheWynnResorts'third-quarter2014earningscall.JoiningthecallonbehalfoftheCompanytodayareSteveWynn,MattMaddox,JohnStrzemp,SteveCootey,MauriceWooden,andScottPetersonhereinLasVegas,aswellasGamalAziz,IanCoughlan,FredericLuvisutto,LindaChen,RobertGansmo,andFrankCasselladialinginfromWynnMacau.

Andwiththatsaid,letmeturnitovertoMatt.

Matt Maddox(PresidentandCFO):

Okay.Thanks,everyone.Beforewegetstarted,Ijustneedtoremindeverybodythatwewillbemakingforward-lookingstatementsonthiscall.Andthosestatementsmayormaynotcometrue.

Withthat,IamgoingtoturnitovertoMr.Wynn.

SteveWynn(CEO):

Generallyspeaking,wewerehappywiththethird-quarter.Basically--withthelastquarter,rather--wemade




upintheslotmachinesinthegeneralcasinoinMacauinmasswhatwe--whatwe're--whatwelostinVIP.And,so,itseemstome,aswelookatOctober,thatwearedefinitely--youknow,you'vegottoloveMacao.Wedo,inthisCompany.Andwehavegreat,greatconfidenceandgratitudetobeinvolvedwiththeplace.

Butit'salwaysbeengovernment-sensitive.AndtheturmoilinHongKong,thesmoking--thenewregulationsofsmoking,theturmoilinHongKonglately,inthemonthofOctober,andofcourse,thepolicyofthecentralgovernment,andbeingaggressiveaboutwhatappearedtobemisconductandcorruptioninthegovernment,hasputalotofthewealthybusinessmeninthefoxholes.Everybodyisbeingveryconservativeatthispointoverthere--IthinktakingthecuefromPresidentZ ,whoisaveryconservativeman.

AndithashadanimpactonMacauinOctober.Wehaveallnoticedit.AndIdon'tknowwhetheritisasquallorweareintherainyseasonorhowlongitwilllast,butwearestillvery,verybullishonMacau.And,asusual,inthepast,whenpeopleusedtoaskuswhenareyougoingtogetapprovaltostartconstruction?Whenwillyougetyourlandconcession?You--thingshappeninChinaattheirownpaceandintheirowntime.

Andforthoseofuswhoareluckyenoughtobeinbusinessthere,youhavetositthereandgoalongwiththeprogram,andadjusttoitasbestyoucan.Andthat'swhatwedo.Andasfarasconstructiongoes,Gamalisonthecall,ifanybodywantstoaskhimaboutit.Butwe'reontarget,we'reonbudget,we'reontime.AndWynnPalaceisproceeding.WethinkthatitisgoingtobeaverywonderfuladditiontothemarketintermsofattractingpeopletoMacau.

Like--asinthecaseofourcompetitors,everythingthatisbeingbuiltlatelyisevenbetterthanwhathasbeenbuiltbefore.Thecommunity'ssocialprofileisbeinglifted;thequalityoftheproductsthatarebeingofferedintermsofhospitality;non-gaming,food,beverage,entertainment,andmeetingandconventions,alltherest,getbetterandbetterasthattowntakesadvantageofitscompetitivesuperiority.

WithregardtoLasVegas,wewereveryhappywiththisquarter.Itisacontinuationofwhatwehaveseeninthepast.Allofourmetricshaveimprovedfortheprevious--fortherunning12months.IthinkourEBITDAwas520-odd-million-dollars.Andifwecanholdonduringfourthquarter,weoughttobeabletogettothefiveIhopeinthecalendaryearthisyear.

Thatisprettymuchmycommentsaboutthestatusofourbusiness.Wedidincrease--ifyou'venoticed,wehaveincreasedourregulardividendeffectiveimmediatelyto$1.50aquarter.Wewanttostayveryconservative.Youknowwehaveatremendousfocusonourbalancesheet.Andwehavemadeourspecialdividend$1.00andelectedinsteadtoincreasetheregulardividendbyanother$1.00ayear.

Andfinally,inBoston,justfinishedthecasinodesigns,themoremeticulousandmoredetailedaspects.WeintendtopresentaproductinMassachusettsthathasneverbeenseenbeforeinanycityoranycountry,includinginourownbuildings.WehavetakenanapproachtoBostonthatisdramaticallydifferentthananycasinopresentationthathasbeenseeninourindustryhistorically.

Idon'tthinkinmy40-oddyearsthatIhaveeverbeenasexcitedaboutaprojectasweareaboutBoston.Hopefully,theelectionaweekfromtonightwillconfirmthatthelegislationstandsandthevotersofMassachusettswillvotenoonquestionthree.

IhadtheunusualexperienceoftalkingtoformerCongressmanBarneyFranktodayandcongratulatinghimonhisop-edpieceintheBostonGlobe,inwhichheexplainedthatpeopleshouldbeallowedtospendmoneyastheyseefit.

Andwiththat,we'lltakequestions.

QUESTIONS&ANSWERS




Operator:

(OperatorInstructions)FeliciaHendrix,Barclays.

FeliciaHendrix(Analyst):

Steve,asyoustartedyourpreparedremarks,youmentionedabout--youweretalkingaboutMacau,andhowit'sinterestingbecausethere'sapoliticalinfluencethere.

AndyouweretalkingabouthowsomeoftheVIP'swerelyinglowinthequarter.GivenyourviewofhowthingswereperhapsstabilizinginJulywhenyoutalkedtouslast,wasthatwhatsurprisedyoumostaboutthemarket?Orwerethereotherthingsthatsurprisedyouinthequarter?

SteveWynn(CEO):

Well,youknow,it'sinterestingtoseethebusinesscommunityrespondtothetempoofthecentralgovernment.ThebusinessmenthatwetalkedtoinMacauareverysensitivetothemoodofthecentralgovernment.

AndIguess--youknow,Idon'tknowhowtosayitanydifferentlythanthat--youcompoundthatwiththedisturbancesinHongKong,whichhascertainlyputthecentralgovernmenttothetestononeofitsmostbasicperksorprerogativesinthemodernworld,withthespecialadministrativeregionofHongKong,andthatis,youknow,who'sgoingtonominatethecandidates?

OrwhatisthenominatingprocessforcandidatesforChiefExecutiveOfficer?

Thesearevery,veryinterestingissues.Andasyouutterlyobserveonthemedia,there'sstrongfeelingsinthecommunity.Andmyguessisthat,atsomepoint,thematterwillberesolvedandeverythingwillsettledown.ThebusinessinterruptionsinHongKongaredisturbingtothebusinesscommunityandtothecommunityatlargeinHongKong.AndI'msurethey'redisturbingtothecentralgovernment.

It'shardtobelievethatbothsideswillremainattractable,butitis,afterall,People'sRepublicofChina,andHongKongispartofit.Soitwillbeinterestingtowatchitplayout.TheonlythingI'dsharewithyouisafrontrowseattotheprocess.Andhopethatitplaysoutinanorderlyfashion.Weexperienced,inOctober,aperfectstorm.Wehadthelowestholdpercentageforanumberofweeksthanwe'veeverexperiencedinChina.

WhenIsawit'saperfectstorm,it'sunusual--it'sastatisticalanomalytohold0.9%orsomethinglikethatina2.7%or2.9%game.Butontheotherhand,we'veheld4%onoccasion.So,it'sagatethatswingsbothways.Thosethingsstraightenthemselvesout.Wedon'tpayreallyanyattentiontothat.Adjusted,ourwholepercentagewouldputusinamarketshareofabout10%again.Butevenat10%,wesufferthesamefateastherestofthemarketwhenitexperiencesadecline.

SoIdon'tknowifsurpriseistherightword.Disappointmentcertainlyisaword.


Itrynottousethatword,soIusesurprise.Youknow,youwould(multiplespeakers)--

SteveWynn(CEO):

Disappointment.


Youused--youtalkedaboutholdsontheVIPside.ItdoeslooklikeyouheldalittlebithighonthemasssideaswellonMacau,justrelativetothepastfewquarters,wherewe'vereallybeenseeingtheimpactof--ortheincreasedpurchasesatTheCage.




Howshouldwelookat--justsinceit'snot--somewhatofanewphenomenon,seeingtheholds,seeingthekindofmid-40percentages,Iknowitwas50-and-changethisquarter.Howshouldwethinkaboutanormalizedholdforyourmasssegment?

SteveWynn(CEO):

Greatquestion.Idon'thaveanymorecluesthanyoudoonthisone.Ithinkwhatyoushoulddoispayattentiontothewins.Imeanattheendoftheday,casinorevenuebeforeexpensesismeasuredbyhowmuchisleft.ThepurchaseofthesechipsatTheCagerepresentsamovingtarget,andIdon'tknowhowtoexplainitortonormalizeit.BecauseIhavewatcheditfluctuateasyouhave.

Andyouknow,Idon'tthinkitreallymattersverymuch,really,whenwegetrightdowntoit.Idon'tthinkitreallymatters.Itistherevenue.Itisthatwinfigurethatweareallfocusedon.Andthatistheonethatcounts.


Okay,that'shelpful.Andjustfinally,again,regardingthemarket--andI' lluseyourworddisappointed--doyouthinkanyaspectofthatiscomingfromthesmokingban?

SteveWynn(CEO):

Youknow--wethink--Iaskedthatquestionofmycolleagues.Ianisonthecall,andIthinkitwouldbeagreatthingforhimtoaddress.

IanCoughlan(President):

Well,we'vejusthadacoupleofweekstogaugeit,andacoupleofweeksafterGoldenWeek,soIstillthinkitisearlydays.Thereisnodoubtgoingtobeaneffect,butIthinkitistheleastofourconcernsintermsofrevenuedrop-off.

Weareallstillengagedwiththedifferentdepartmentsofgovernmentinfinalizinghowoursmokingareasandnon-smokingareasaredivided.Itisstilladiscussionthatisongoing.Theplayershavereactedverywelltoit.

Thesmokingroomsthatwe'veestablishedatWynnMacauhavebeenverysuccessful.Weareintheprocessofestablishinganadditionalsmokingroombasedonlocation.Butoverall,Iwouldn'tsaythatthathashadahugeeffectonbusiness.Therehasbeensomeaffect,butithasbeenmarginal.

SteveWynn(CEO):

Also,Ithinkthattechnology,aswegoforward,isgoingtoplayapartinthis.Rightnow,theairintheWynnCasinobeforetheystoppedthesmokingwasbetterthantheairoutsidetheWynnCasinointhestreet,intermsofgeneralpublichealth.

AndIthinkthatwithinthecasino,whetherpeoplearesmokingornot--inVIProoms,forexample--weareable,withadvancedairexchangemethodologyandtechnology,tokeeptheemployeesfreeofanypotentialimpactofsecondarysmoke.

Whatisinterestinginthisconversationisthat,inconversationswiththeCulinaryUnionthatensuresallofthepeoplethatworkinthesecasinoswouldhavesmoking,thereisnoevidencewhatsoeverofanyincreaseinemphysema,lungcancer,oranyotherrespiratorycomplicationassociatedwithworkinginacasinocomparedtothegeneralpublic.

So,thethreatrepresentedthatsmokinginourbuildings,wherewehaveveryadvancedairexchange




technology,maybeitisbecauseeverybodyknowsthattheairiscleaneratWynnLasVegasthanitisanywhereelse.

I'msorry,it'smydogbarkinginthebackground.Ibegyourpardon.Anyway,theairexchangesystemsweusekeepourcasinossmoke-free.

Andalthoughthathasn'tbeenparticularlyimportanttothegovernmentintheirdeterminations,astimegoesby,Iamhopingthatwewillgetaverymatureandsophisticatedlookatthisproblem,keepingfirstandforemostthehealthofouremployeesastheprincipalconsideration.


Thankyouverymuch.

Operator:

JoeGreff,JPMorgan.

JoeGref f (Analyst-JPMorgan):

YoudidanicejoboutperformingthemarketandMacauonthemassside.Steve,orIan,maybecanyoutalkalittlebitaboutwhatyouaredoingthere?AnddoyouactuallythinkmaybetheclientandVIParegivingyousortofthisindirectbenefit,inthatitfreesupsomeroomsandtablecapacitiestogoafterthepremiummasscustomer?

Andthen,obviously,whenLasVegasSandsreportedearningslastweek,theytalkedaboutcompetitioninthemassorthepremiummasssegmentthatledtotheirhavingsomemargindegradationonthosesegments.Canyoutalkaboutthatonyoursideaswell?Thankyou.

SteveWynn(CEO):

Thefirstquestionis,isthereanincreaseinthemassbecauseofthepressureontheVIP?Ithinktheanswertothatisyes.IstheremarginpressureinMacau?Yes.Thecompetition,asIhavesaidonpreviouscalls,isextremelyintenseand,ifanything,inhibitsmarketgrowth.Then,ofcourse,youseethiseitheralossofmarketshareoralossofmargin;oneofthosetwothingshastohappen.

AndwehavegotnewfacilitiescomingoninMacauinthenexttwoyears,includingourselves.WehavegotcapacityincreasescominginJanuaryintheexistingMacauhotel.Verydramaticcapacityincrease,intermsofthese--thejunketroomswe'rebuilding,thesetwogorgeousVIPareas.Andthatisgoingtoallowustoincreaseourmassalittlebitagain.

Soit's--everybodyismovingtheirfloors.Theyareusingtheirtablesandtheirspacesintelligentlytryingtoprotecttheirmargins,andtodedicatethetablesthatareavailabletothemostprofitableusage.Wearedoingthesamething.ButIamnotsurprisedtohearthatthere'smarginsqueezeatthemassmarket.

Havewenoticedthat,too?


Inourmassmarketarea,ourmarginshavebeenconstantoverthelastthreequarters.So,giveortake100basispoints.Sojustinourmassarea,inpremiummassarea,wehaveseenourmarginsstabilize.

SteveWynn(CEO):

Whichisnoindicationthatthatwillcontinue.





Yes.


Great.Andwhenyoulookbackatthe3Q,Matt,wasthereanythinginterestingfromamarginorexpenseperspective?Obviously,34.5%marginsintheenvironmentthatwearein,inMacau,isagreatresult.Isthereanythingthat,absentmassivemixchanges,thatthatisnotagoodleveltolookatgoingforward?


Well,Joe,the(multiplespeakers)--

SteveWynn(CEO):

(multiplespeakers)October.


Yes.Ourmassinslotsmadeupforitinthethirdquarter,buteverybodyisseeingtheOctoberresultsforthemarketaredownover20%.Soclearly,thereisgoingtobemoremarginpressuregoingforward.


AndwhenyoulookattheOctober-to-dateresults,howmuchmassmarketgrowthaccelerationisthere?Andthat'sthebigquestionalotofusarewonderingrightnow.

SteveWynn(CEO):

RobertGansmoisonandsoisFrank.Idon'tknowwhatourholdisenmasse--Imeanwhatourrevenue.Iguesswecanforgetabouttheholdbecauseofthechipissue.ButIreallyhatetodescribethisquarterbaseduponthreeweeks.I'mverytentativeaboutansweringthatone,Joe.


Okay.

SteveWynn(CEO):

IjustthinkifIamtoopreemptiveandpremature,thenIgiveyouthewronglead.AndIknowthatyou'reaskingthequestionforalltherightreasons,butIwishIhadananswerthatIcouldleanon.

AndIamnotcomfortableontheshortstrength--notwithalltheotherthingsthataregoingoninHongKongandsmoking.I'mconfusedatthemoment,Joe.ItwasJoethataskedthequestion.Joe,I'mconfusedatthemoment.


Youarenotalone.Thankyouverymuch.


And,Joe,theotherpointthatisobviousisOctoberlastyearwasup25%or30%ineverysegment.Sothecompisalsoverydifficult.

SteveWynn(CEO):




Andweareallalittlelow.AndtheyarerisinginHongKong.Imean,really,andthegovernmentsaysnomoresmokinghereandthere,andsomanyofourcustomersaresmokers.There'sjusttoomanymovingpartsforanintelligentresponse,Ithink.


Thankyouverymuch.

SteveWynn(CEO):

Ithinkyouareinthesamespotwithyourclienteleaswearewithourselves.

Operator:

CarloSantarelli,DeutscheBank.

Carlo Santarelli(Analyst-DeutscheBank):

JusttoturnovertoCotaialittlebitandthedevelopmentthere.Andobviously,itlookslikemaybethere'sanincremental$100millionofspendassociatedwithit.AndIdidn'tseealotofcoloronPhase2.Couldyouguyskindofwalkthroughhowyouarethinkingaboutthatprojecttoday,maybewiththeincreasing$100millionis,aswellashowyouarethinkingaboutPhase2?

SteveWynn(CEO):

Well,certainchangeshadtobemadeinordertoaccommodatePhase2.Wedidn'twanttogetaheadofourselvestoofarwithregardtothatuntilthegovernmenthadrespondedandgivenustheappropriatekindofpermission.ButsomeofithascreptintoourWynnPalacebudget.

Butbasically,ourbudgetsarewithin1%ofwhatwehadexpected.AndI'mveryhappywiththeplanningthatwentintothatjob,andtheattentionthatisbeinggiventoGamalandhisteamandMikeHarveyandeverybodyinsupervisingthatconstruction.Thegovernmenthasbeencooperatinganditismovingverynicelywiththelatentconstructionfolkswhobuiltourotherbuildings.

IfIamnotbeingresponsive,maybeyoucouldredirectyourquestion.


No,Ithinkthatwasit.Andmoreorless,Iamassumingthen,basedonyouranswer,maybethat$100millionisforsomepilingandfoundationworkthatwouldbeassociatedwithPhase2?


Yes,Carlo,it'sMattMaddox.So,halfofitwasactuallyforecastedpreopeningexpense,whichreportandothercompaniesdonotbecauseoftheincrementalpayrollandotherHumanResourceprogramsthathavebeengoingon.Anditisnot$100million,itisjustrounding.Soit'smuchlessthan$100million.

Thesecond(multiplespeakers)--

SteveWynn(CEO):

Ithinkit's$60million.


That'sright.It's$56million.Thesecondthingis,weprotectedallofourcontingencyinourconstructionbudget.Sowearegoingtobeabletoutilizethatgoingforward,ifthereareanyotherissues.Andourcurrent



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GMPisat85%boughtoutorlet.Sowearefeelinggoodontheconstructionside.


Great.That'shelpful.Andthen,ifIcould,justafollow-up.Obviously,Steve,asyounotedearlierandIthinkwe'vetalkedaboutonpriorcalls,thatthemassholdpercentageat51%inMacautoday.

Otherthanreadingintoitthatyourpremiummassbusinessobviouslyisbecomingamuchbiggercomponentofyouroverallmass,isthereanythingthatyoucouldsayaroundthatpremiummassbusinessthatyouguyshavestarteddoingdifferentlytogrowthatbusiness?Orareyoukindof--becauseitappearsasthoughyouaremeaningfullybuckingthetrendofthemarket,especiallyinthepremiummass.

SteveWynn(CEO):

Hereisoneofthethingsthatwedid.Iguessinbusinessandlifeyouhavetobelucky,evenbetterthansmart.WemadeadecisioninthebuildingofthePalacewhichwasaveryimportantdecision.

Ifyouarehavingalakeof8acres,likeBellagio,infrontofthehotel,withallkindsofnewadvancedwaterattractions,includingaDoppelmayrgondolathatgoesthroughthefountainsandintothehotel,yousay,okay,whatarewegoingtodowiththelakesideproperty,whichrings180degreesofthislake?Areyougoingtodostores?Areyougoingtodolobbies,restaurantsorwhat?

Well,wemadeadecision,Mr.ButlerandI--D.Butler,mydesignpartnerandI,severalyearsago--andImeanweinhaledandsaid,okay,wearegoingtoputallofourpremiumVIPbusinessofeverydescriptiononthewater,everyoneofwhich,everychamber,everyroomfromoneendofthebuildingtotheother,willbeonthewaterlookingatthefountainsandthewatershow.

Andeveryoneofthemwillhavebathrooms,food,andsmokingbalconies.AndourentirehotelhasgotbalconiesallaroundthelakeonalloftheVIPandmassrooms.

Thisisgoingtoturnouttobeawindfallkindofevent.Becausefolksaregoingtobeabletogambleandstepoutside8or10feet,lookatthewater;andiftheyhavegotayentocontinuetosmoke,theywillbeabletodosooutside.

WeareveryadvantagedbythebasicplanofthePalace,whichputsalloftheimportantgamblingwithterraces--allofit.Itisquite--itturnsouttobequitefortuitous.

AndImustsayIwishIcouldtakecreditforhavingthoughtofitinadvance,butitjustworkedoutright.Wedidn'texpectthatthegovernmentwouldactasaggressivelyanddynamicallyastheyhaveonthesmokingissue.Buthavingdoneso,wefindourselvesinapositionthatwehaveaccommodateditinournewhotel.


Gotit.Thankyou.

Operator:

ShaunKelley,BankofAmericaMerrillLynch.

ShaunKelley(Analyst-BofAMerrillLynch):

We'vespentalotoftimetalkingaboutthemassbusiness,soIfiguredIwouldswitchgearsandjustaskaboutVIP.Couldyoujustgiveusyourkindoflatestthoughtsonwhatyouarehearingfromsomeofyourjunketpartners?




Thereisobviouslyalwaysdiscussioninthemarketaboutthis,butjustmaybeanupdateoncreditsettlement,andyourkindofgeneralviewonmaybewhensomeofthosehigher-endVIPsstarttotakealittlebitmoreriskandstepbackintothemarket?

SteveWynn(CEO):

Don'tknow.Whatwearegivingthemissympathy.We--whatcanwesaytothem?Imeantheyhavetotakethebusinessthewaytheyfinditandassesstheirownrisk.Ourpolicyisrather--we'vegotashortstringonallthisstuff.Andtheyhaverespectedthat.Maybesomeofthecompetitorshavelengthenedthestring;wehaven'thadtodothat.


MaybeIcanaskyouthisway.Justanysense--obviously,Ithinkeveryone--boththejunkets,thecasinos,lending--everyonehasprobablytakenastepback,andtowaitandsee--doyouthinkthingsaregettingworseatthismoment,Steve?Ordoyouthinkitisfairlylikethingsarestartingtosettledown,andnoweverybodyisjustinawait-and-seemode?

SteveWynn(CEO):

Well,thatisaneasyquestion.ItisworseinOctoberthanitwasbeforeOctober.So,ifyouareaskingwhatisthenadirofourexperience,itiscurrent.


Okay.Thatisveryhelpful.AndthentheotherquestionIhavewasjustifyoucouldgiveusaquickkindofreviewofyourlatestthoughtsontheWestCasinozonerenovation?Becauseyoudidmention,Ithink,insomeofyourremarksthatyougotsomeinterestingfeaturestherethatmighthelpoutwhenthatopensfor--IbelieveinJanuary.

SteveWynn(CEO):

ItisgoingtoopeninJanuary.Andwearegettingreadytoinstallwallcoveringandstufflikethat.Thewallsareup.Itisonschedule.Itwasavery,verycomplicatedconstructionjobbecausewehadtoreplumbanddothingsinthefloorandotherthingslikethat.

It'saverydynamic--it'sprobablythefanciesthigh-limitgamblingplacethatwecoulduseinourexperienceforanycustomer,whetheritisourowncustomerorajunketoperator.Andbybeingabletohavethese--thiswholefabulousinnforthem,itfreesupsomeoftherestoftheplaceforustouseinotherways.

Italsoallowedus,intermsofthegeneralflowofthecasino,tocompress--toofferthe--toputthesejunketandthesehigh-limitgamblingareasrightnexttoMGM,andhaveaccessfromtheoutsideforpedestriansdirectlyintothespacewithouthavingtonavigatethewholefloorofthebuilding.Andyouknow,thesebuildingsareratherlarge.That--itisabigconvenienceissue.

AnditalsoallowedustocompressandtoimprovethegeneralflowofWynnMacau,sothatitwouldsupportandenhancetheusageofthemasstables.Thewholeproject,whichwaswell-considered,long-consideredbeforetheteaminMacau,beforeIanandLindaandeverybodyfinallysignedoffonit,wehadmanyiterationstotryandcatchupwithallofthethingswewishwehaddonewhenwebuilttheplaceinthefirstplace.

Youknow,everyoneoftheseresorts,nomatterhowcarefullyconsidered,takeonalifeoftheirownaftertheyopen.Andthenyoufindyourselfsaying,wow,Ididn'tknowthatthepeoplewouldgothereinsteadofhere.Ididn'tknowthatthatwouldworkthewayitisworking.Andthenyousay,well,howcanweadjust?

Someofitisreallyhardtogetto.Youwishthatyoucouldmakeachangethatisclearlybeneficial,butit




involvesinterruptionofbusinessandsomebasicreconfiguration.Well,wedecidedtotakethatstep,afterseveralyearsofoperation,inviewofthefactthatwearegoingtocompetewithourselvesatWynnPalace.WewantedtomakesurethatWynnLasVegashelditspositionasapremierstopforallofthetopplayers.

Andthethingsthatwehavedoneinthepast18monthstoreconfiguretheWynnCasino,Ithink--weallbelieve.atleast--doexactlythat.And,so,wecan'twaittoseetheimpact,whichwillshowupinthefirstquarter.I'mhopingwe'llbeabletotalkaboutthatwithyouinApril.


Thankyouverymuch.

Operator:

HarryCurtis,Nomura.

HarryCurt is (Analyst-NomuraSecurities):

QuestiongoingbacktothePalace.Onthelastcall,Steve,youtalkedabouttakingdeliveryin--IthinkitwasDecemberof2015,whenyoucommentedit'sstillontime.Isit--doyoustillexpectDecember2015delivery?

SteveWynn(CEO):

Yes.Webegantogetthespacesturnedovertousforstockingthekitchensandcleaning,preparingalltherooms;housekeepingisonthejob.Andthenweturnedtheplace,inlateDecemberandinJanuary,intoacampus.Anditisourpracticetofirsttakethestaffandgivethemthebuildingforthemselvesforacoupleofweekstopracticein,whichwebreakallthesystems,wegotoallourbackups.Wehaveallofouremployeesstayintherooms.

Wetesteverythingoverandoveragain,becausewehaveaverystrongopinionthatyouonlyhaveonechanceataGrandOpeningtomakethatwonderfulinitialimpression.AndconsideringthatwearegoingagainstsuchwonderfulcompetitionatGalaxyandCityofDreamsandtheSandsCompany,withalltheproductsthatSheldonandPackerandLawrenceHoandFrancisLouishavedone,wewanttomakesurethatwhenweopenthePalacethateverybodyisimpressed.

Sowearegoingtohaverehearsals.AndthatcampusthatIreferredto,thetrainingfacility,wehopewilltakeplaceinJanuarywhenwe'vehadachancetomoveinandgetthedrawersfilledwithpencilsandpapers,andthelinenputaway,thecarpetsvacuumed;thefreezerboxesandwalk-incoolersstocked,andwestartcookinginthekitchens.Andallthechefstellusthatwedidalousyjobdesigningthekitchens,astheyalwaysdo.(laughter)

Wealsohaveadoptedapolicyofentertainment.WeknowthatinMacau,peoplegambleandshopandeat.Andwhatwesaidwas,inthatcase,let'staketheentertainmentaspectofthehotelintotherestaurants,wheretheycan--wherethey'llsurelybeenjoyed.Sowehavedonethingswehaveneverdonebeforeinrestaurants.

Oneparticularrestaurantisacontinuousseriesofentertainmentvignettes.Wallsopenanditisastage.Andsomeveryfancifulanduniquethingstakeplace.Inotherrestaurants,otherthingsofthatsort.Everyoneofourrestaurantshasanentertainmentquotienttoit.

Wehavedecentralizedentertainmentineachoftherestaurants,andofcourse,inthefrontyard.Andinotherplacesinthehotel,thelobbies,theentrances,areallanimated--animated,expensiveentertainmentattractions.Wearespendinghundredsofmillionsofdollarsonentertainmentinthisfacilitysothat,literally,thehotelitselfistheshow.





Steve,justasaquickfollow-up,inthelastquarter,youmadeapredictiononanumberoftablesthatyouthoughtyouwouldbegetting.Andthere'salotofdebatearoundthat,anditisprobablyfairlyopaque.Butcanyougiveusanupdateonyourlevelofconfidencethatyoucanstillgetover550tables?

SteveWynn(CEO):

Well,theonlyreasonIsaidthatisbecauseIdiscusseditwiththegovernment,andIwasgivenpermissionforit.But,again,inChina,thefinalproofisinthe--inwhathappenswhenyouopen.Andthegovernmenthasfullcontrolofthosesortsofthings.Idon'thaveanyreasontobelievethatwewouldbeallowedtobuildabuildingthatwasverycarefullyreviewedandexaminedbythegovernment,andthenbesurprised.Isupposeitispossible,butIdon'thaveanyhistoryinMacauthatwouldsuggestthatthat'sprobable.

Iknowthatourcompetitorsallhave,andofferfreely,theiropinionofwhatisgoingtohappentous,butcompetitorshavealwaysdonethat.RememberthattwoweeksbeforeweopenedtheMirage,anunnamedcompetitor--asForbesmagazinesaidtome,anunnamedinsider--gaminginsidershavesaidthatyoucan'tmakeit,thatyouroverheadistoohighandthattheMirageisgoingtogobroke.

Ourcompetitorsalwaysseemtohaveaveryconfidentviewofwhatisgoingtohappentous.Idon'tmuchpayattentiontothat.Idopayattentiontowhatthegovernmentsaystous.AndofcourseIpayattentiontoourownhistorythere.Andthegovernmenthasbeenverysteadfastinthewaytheyhavehandledtheirrelationshipswithus.They'vetolduswhattheyexpect.They'vetakentheirtimetoapprovewhatwehavesuggestedwewanttobuild.Theyhaveexaminedourprogramscarefully,madesuggestions.Andthen,whenappropriate,they'vegivenusthegreenlighttogoaheadandbuildtheseplaces.

Youknow,thatistheframeofmindIamin.MaybeIamaPollyanna,butIthinkthatIamtakingtheonlypracticalapproach.


Thatdoesitforme,Steve.Thanks.

SteveWynn(CEO):

Sure.

Operator:

ThomasAllen,MorganStanley.

ThomasAllen(Analyst-MorganStanley):

OnMacaumassmarketmargins,youtalkedabouttheriskstomarginsasrevenueslows.Ithinkweallknowaboutlaborandoperatingcostinflation.ButintermsofpromotionalspendingontheVIPside,youhavealwaysbeenabletokeepyourcommissionsteadywhenwehaveseenincreasesinmarket.Doyouthinkyoucandothesameonthemassmarketsidewithpromotionsasthepremiummasscustomers?Thanks.

SteveWynn(CEO):

Whathappensinourbusinessisthat,attheendoftheday,thecriticaldecisionofwheretogambleismadebythecustomer.Hoteloperatorsandhosts,andmarketingpeople,whatevertheirparticulartitlesmaybe,theyservicethosecustomers.

So,whenyouareinourposition,whenyouareonoursideofthisdiscussion,it'stheproductthatyouputout




thatdeterminesthestrengthofyourcompetitiveposture.

Thereasonthattheobservationyoumadeisaccurateisbecausetheproductthatweproducedwasalwaysalittlebitbetter,andtheservicealittlebitbetter,atleastintheeyesofthecustomers,thanwhattheycouldfindelsewhere.WhenwetookuptheideaofbuildingahotelinCotai,werecognizedthequalityofthecompetition.Andthatsharpenedoursensesandmadeusevenmoreself-criticalthanwehaveeverbeenbefore.

Sothatwecametotheconclusionthatwehadtore-examineeverypartofthehotel,andeverythingthatweweregoingtosaytotheclienteleintermsofservice,foodandbeverage,entertainment,and,ofcourse,user-friendlinessinthegamingareasofthebuilding,withafirmbelief,baseduponourownhistorythat,intheend,thatwouldgiveuswhateverleveragewasavailableunderthecircumstances.

Ifyouweretochangeplaceswithus,Iamsurethatyouwouldcometothesameconclusion.Noweverytimethatyouoperateonanypremise,realitysetsinandthefactsexposethemselvesoveraperiodoftime.IhavetoldyouhowcarefulwewereatWynnPalaceandthegreatrespectthatwehadforourneighbors.Andweactedaccordinglyinconceivingofthehotel.Itisthebestjobwehavedone,Ithink,inmycareer.

Iamoperatingwithagroupofthemosttalented,mostexperiencedpeoplethathaveeverworkedinthegamingindustry--fromGamalAziz,LindaChen,andthestaffofpeoplethatworkfortheminmarketing,toIanCoughlan'sexperienceinthehospitalityindustryandtheexperiencehehasgainedovertheyearsasagamingpresident--allofthishascometobear.Andeveryoneofthesepeoplehavereallyfocusedhardoneverythingthatwearedoing.

Inthelongrun,itwillbetheHumanResourcesoftheleadershipofthisCompanyandthestaffthatdeterminetheoutcome.AndIgotobedeverynightwithafirmconvictionofthattruth--andnoother.Andthen,Ileavetheguessworktootherpeople.

Idon'tknowifI'mbeinghelpfultoyou.AllIcandoissharewithyouthementalityofourmanagement.Andforinvestors,thatis,ofcourse,attheendoftheconversation,theonlythingthatmatters.


That'shelpful.So,justImean,slightlyshorter-term,though,ifwedoseesomekindofpromotionalspendingmoreinthenear-term,doyouthinkthatyouhavetocompetethere?OrdoyouthinkthatthequalityofyourproductbeforePalaceopensisstrongenoughthatyouwouldn'treallyhavetogetintothatgame?

SteveWynn(CEO):

WecoulddoallofthethingsIjustmentioned,butattheendoftheday,wehavetodealwiththesituationaswefindit.Andeachcompanytendstogiveaway,intermsofpromotionalallowancestoitscustomers,aboutasmuchastheycanwithoutbeingself-destructive.Thatnumberissubjecttochangefromtimetotime.

Incidentally,itissubjecttochangedownaswellasup.Sometimespeopleoverspendinpromotionalallowancesanditbecomesanexerciseinfutility--inwhichcaseyoubackoff;ortheexecutivesgetschangedandsomebodynewcomesintoruntheplace.Oneofthetwothingshappens.

Ifyoufindyourselfinanadvantageousposition,andyouthinkthatbyincreasingpromotionalallowancesyoucanhavemoremoneytothebottomline,evenifitmeansthemarginpercentageisless,well,thenyougoforthat.IknowthatmyfriendSheldonAdelsonhasthatkindofmentalitywithhisbusiness.

Andso,marginpercentagematters,butwhataboutthemoney?Attheendoftheday,thatistheonlythingthatmattersis--you'llexcusethecliche,attheendoftheday;everybodysaysthat.Butinthefinalanalysis,it'sthemoney,isn'tit?Andyou'vegottotakethemarketmonthbymonth,Ithink.





Thankyou.Andjusttwoquickfollow-upsonVegas.One,youreportreallystrongRevPARgrowthofaround--up8%thisquarter.Canyoutalkaboutforwardbookingsalittlebit?There'sobviouslythereallyhardcompin1QwithConAg.Dothingslookliketheyarejustgettingkindofbuildingstrengthgoingfromstrengthtostrength?Orcouldthingsslowalittlebit?

SteveWynn(CEO):

Well,lastmonth,Iraisedtheratesby18%ofourhotelsinLasVegastoonlinebookingagentsandtoeverybodyelse.Andwebenefitedfromit.ThatiswhyourRevPARisup.Thatisoneofthefunthingsyougettodowhenyouhavegotabettermousetrap.Ithinkthatisprobablyapoorchoiceofwordsforthatfacility.Theseplacesarehardlymousetrapsat$5billion[roughly]theycost.


And,Steve,theVegaspropertyEBITDApeakedlastcyclearound$420million.Youhave75%moreroomstoday.CouldyouseethatkindofincreaseintermsofEBITDAdoeskindofthiscycle?(multiplespeakers)AndthenI'mdone,Ipromise.

SteveWynn(CEO):

Wehavepassed$420millionalready.


$486millionlastyear.

SteveWynn(CEO):

Pardonme?


$486millionlastyear.

SteveWynn(CEO):

Wedid$486millionlastyear.Andwe'vegot$520millionforthelast--forthe12--ofrecent12months,$526million,Ithink.AndIamhopingthatthefourthquarterwillgetusover$500millionforthiscalendaryear.ItwillbeacountdownsortofthinginDecember.Becauseallthemoneycomesattheend.

Butseemsokay.But,again,weareaninternationalplace,andwegetalotofChineseandLatinbusiness.Andthingsgoingonintheworldaffectusalotinourplace.ButwewillhavethemostprofitablehotelinLasVegaswithoutadoubt.Therewillbenoquestionaboutthat.

CondeNastTravelmadeustheleadinghotellastweekinLasVegasagain,baseduponvisitorvoting,whichwassatisfyingtoustogetthatdistinction.AndsoI'mhappyaboutthat.Youtakecareofyourbuilding,youkeepworkingwithyouremployeestomakethemmoreeffective,moreself-conscious,moreawareoftheirpersonalresponsibilityinthebuilding,andinthelongrun,it'saslow--youknow,it'sthehareandtheturtle.Itreallyisamarathon,notasprint.Andweareenjoyingthebenefitsofour--ofbeingsteadfasthere.


Great.Thankyou.




SteveWynn(CEO):

Sure.

Operator:

RobinFarley,UBS.

RobinFarley(Analyst-UBS):

Twoquestions.Oneis,canyoutalkalittlebitaboutyourownexperiencewithcollectionstothedegreethatwhereyoudohavedirectVIPbusiness?Iknowothershaveaskedaboutjunketcollections.ButIwonderifyoucouldtalkalittlebitaboutyourexperiencewiththatonthedirectVIP?

AndthenunrelatedtoMacau,canyoujustshareanythoughtsonyourinterestinJapanpotentially,ifJapandoesn'tallowresortstobeopentolocals,howthatwouldaffectyourinterests?Thanks.

SteveWynn(CEO):

IwilltakethelastpartandIwillletMattdothefirstpart,Robin.Idon'tknowwhatisgoingtohappeninJapan.IthinkspeculatingonJapanatthismomentisreally,really,fromourpointofview,notproductive.Thesituationthereisundefined--byanymeasureofclosescrutiny,undefined.IdofeelthatanyinterestinbroadeningtheabilityforpeopletogambleinJapanisbaseduponemployment,increasingtourism,andthatsortofthing.

AndIthinkthattheJapanesegovernmentiswellenoughinformedtheycouldunderstandaforeigner-owner--aforeigner'sonlycasinowouldnotgetthatjobdoneforthem.Iamprettyconfidentthattheywouldcometothatconclusion.AndIthinktheywanttokeepthemoneyathome,iftheydothisatall.SoIdon'tthinkitisgoingtoturnoutthatway--ifitturnsoutatall.

Ithinkprobablythemoreimportantquestionisaretheygoingtodoitatall,Robin.AndIdon'tthink--andIthinkthat'sundefinedatthemoment.

Withregardtoourcollections,IwillturnthatovertoMatthew.


So,Robin,inthethirdquarterinourdirectprogram,turnoverwasrelativelyflatwithlastyear.ThedeclineofVIPwaslargelyinthejunketarea.Andourcollections,inourindividualprogram,havebeenverysteady.Wehaven'tseenaslowdowninthat,becauseweremaincautiousinwhoweissuethecreditto,andweknowourcustomerswell.

RobinFarley(Analyst-UBS):

Okay,great.Thankyou.

SteveWynn(CEO):

Arethereanyotherquestions?

Operator:

Therearenofurtherquestionstoday.Arethereanyclosingremarks?

SteveWynn(CEO):

Matt?Gamal,doyouhaveany--Gamal,youwerequietonthiscall.Doyouhaveanycomments?




GamalAz iz (President):

Justthatweareontrack,Steve,andwearefeelingprettygoodandveryconfidentabouttheopeningdates,abouttheinterestinemploymentforourproperty.Wearegettingearlysignsoftremendousbalance,wantingtobepartofWynnPalaceinthefuture.So,wefeelprettygoodandveryconfidentaboutWynnPalaceatthispoint.

SteveWynn(CEO):

Linda,doyouwanttomakeanyprojections?Orgiveeverybodywhoissocuriousaboutthejunketoperators,youaretheclosestoneinthefamilytoallofthat.Youwanttogooutonalimbandmakeanypredictions?Ordoyouwanttostaysafe?

LindaChen(President):

Idon'twanttomakeanypredictions,butIthinkitisnosecrettoanyonethatthejunketsarebeingcautiousandtheyarebeingconservative.Sonodifferentthantheretailsensitivityfornotspendinglavishlyduringamarkettimelikethis.(multiplespeakers)

SteveWynn(CEO):

Yes,youdon't--


So,onthe(multiplespeakers)--goahead.

SteveWynn(CEO):

Yes.LouisVuitton,ChristianDior,andfolkslikethat,andCartierandChanelarenoticingallthroughChinathesamethingthatwearetalkingabouttoday.


Yes,butIthinktheyarebeingveryresponsive,beingconcertive.Andthey'realsotakingthisslowtimeto,ifyoumay,reorganize.So,themodeofthemarketwastoexpandandexpandunlimited.Nowtheyareactuallyconsolidating.

Sonodifferentthananyothermajorindustrythatwhentheyfaceafinancialdifferenceinbanking,whatever.Sonowthetimeisforthemtobere-lookingattheirfuture,whichIactuallythinkisaverypositiveoutlook,iftheyarebeingresponsibleaboutit.

SteveWynn(CEO):

Well,therearethebestthoughtsofallofustothefolksonthecall.Ourcompetitors,ofcourse,arelistening;toallofthem,Isayhiandwishthemwell.Andwe'llspeaktoyouagaininthreemonthsorso.Byebye,everybody.

Operator:

Thankyouforyourparticipationintoday'sconferencecall.Youmaynowdisconnectyourlines.

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Wynn Resorts (WYNN) Earnings Report: Q3 2014 …s.t.st/media/xtranscript/2014/Q4/12931865.pdf · Wynn Resorts (WYNN) Earnings Report: Q3 ... Welcome to the Wynn Resort third-quarter