Cencora Q4 2022 Earnings Call Transcript

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February 8, 2023

There are 11 speakers on the call.

Operator

Welcome to the Wynn Resorts 4th Quarter 2022 Earnings Call. All participants are in a listen only mode until the question and answer session of today's conference. This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the line over to Julie Cameron Do, Chief Financial Officer, please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. On the call with me today are Craig Billings, Brian Goldbrandt and Steve Weidman in Las Vegas. Also on the line are Ian Cullen, Linda Chen, Frederic Luvisuto, Jenny Holliday. I want to remind you that we may make forward looking statements under Safe Harbor Federal Securities Laws and those statements may or may not come true. I will now turn the call over to Craig Billings.

Speaker 2

Thanks, Julie. Afternoon, everyone, and thanks for joining us. As we prepared for this call, I looked at an old analyst note that was published after our Q4 2019 earnings. The expectation for 2022 EBITDA at Wynn Las Vegas in that note was $482,000,000 Here we are 3 years in a global pandemic later and Wynn Las Vegas just printed $816,000,000 of normalized adjusted property EBITDA, $816,000,000 I'm confident that this is an all time record for a standalone Las Vegas Strip property. And mind you, we did not deliver this result by nickel and diming on service standards and reducing staff to drive operating leverage.

Speaker 2

The Wynn Las Vegas team absolutely crushed it in 2022. Our business in Vegas is stronger and more relevant than it has ever been. I'll talk more about the Q4 in Vegas and our outlook in a moment. Turning to several other significant events, I'd like to touch on Concession renewal and the reopening of Macau. I was in Macau for nearly 3 weeks in December and after going through the then I was fortunate to attend the signing ceremony for our new concession.

Speaker 2

I'm proud of the plan that we put forward as part of the concession renewal and believe that CapEx and programming we proposed will be added to our business there over the coming years. I would like to thank the government of Macau for their faith in us. And Importantly, I would like to thank the Wynn Macau team for their dedication to our business over the past 3 very difficult years. Fortunately, Recent actions by both Macau and Mainland authorities to reopen the market give us great confidence that the difficulties are behind us in the near term future there much brighter. Over the past several weeks, we've welcomed back an increasing number of guests as the region has reopened to travel and tourism in a meaningful way.

Speaker 2

With our premium product and service levels, we are well positioned to lead the post COVID recovery in Macau and our strengths were Evident during the recent Chinese New Year holiday period. In the casino, mass table drop reached 95% of 2019 Chinese New Year levels with strong play across the spectrum from premium mass to core mass. In direct VIP, Turnover was 40% above pre COVID Chinese New Year levels. And importantly, we estimate that our hold normalized GGR market share during the month of January Was consistent with 2019 levels despite all the changes in the junket environment, defying the expectations of those who was 96% and our tenant retail sales increased 34% compared to Chinese New Year 2019. Overall, during the Chinese New Year period, we delivered our strongest EBITDA performance since the onset of the pandemic, approximately $4,000,000 of normalized EBITDA per day.

Speaker 2

Turning back to Las Vegas. The team at Wynn Las Vegas turned in a 4th quarter record with $219,000,000 of EBITDA. We saw broad based strength across casino, hotel, F and B, entertainment and retail, all well above Q4 2021 levels, Despite the difficult year over year comps, our investment in people, facilities and programming and our team's deep sense of Personal ownership of our business continue to drive growth. We continue to monitor economic trends in forward bookings at Wynn Las Vegas. We're encouraged that the strength we have experienced over the past several quarters has continued into Q1.

Speaker 2

Similarly, our forward looking indicators also remain quite Strong despite well known macro concerns as room bookings are pacing at or above pre COVID-nineteen levels on substantially higher Turning to Boston, like Vegas, Encore had a strong quarter, generating $63,000,000 of EBITDAR. We saw strength across the casino with record gross gaming revenue and on the non gaming side with strong hotel revenue driven by both ADR and occupancy. The strength has continued into the Q1 with EBITDA per day in January, largely consistent with trends We were also pleased to launch retail sports betting at Encore Boston Harbor last week, Averaging a little over $500,000 a day in handle over the 1st 6 days, which is about 80% of the average daily handle at Wynn Las Vegas. During those 6 days, we also signed up about 30% more Wynn Rewards members than normal. We continue to We also continue to advance our plans for our upcoming development project Across the street from the property that will include incremental parking, food and beverage and entertainment amenities.

Speaker 2

At Wynn Interactive, our overall EBITDA burn rate in the quarter ticked up We're looking forward to the potential for a significant catalyst for WynnBET in Massachusetts with the combination of our recently launched retail book and the expected upcoming launch of online sports betting. Lastly, we are quickly advancing our planning for Wynn Al Marjan Island, our integrated resort in the UAE. We're in the late stages of programming for the resort, and I expect we will be driving piles for the foundation of the property by the middle of the year. I also expect we will share renderings, programming and plans publicly over the next few months. The more time we spend in that market, the more confident we are in the project.

Speaker 2

With that, I will now turn it over to Julie to run through some additional details on the quarter. Julie?

Speaker 1

Thank you, Craig. At Wynn Las Vegas, we generated a 4th quarter record of $219,300,000 in adjusted property EBITDA On $585,500,000 of operating revenue during the quarter, lower than normal hold negatively impacted EBITDA by around $10,500,000 in Q4. Our hotel occupancy was 89.9 percent in the quarter, up 3 50 basis points year over year and up 50 basis points versus Q4 Importantly, we stayed true to our luxury brand and continue to compete on quality of product and service Experience. With our overall ADR reaching a record $4.92 during Q4 2022, up 11.8% versus Q4 2021 and 53% above Q4 2019 levels. Our other non gaming businesses saw broad based strength across SMB, entertainment and retail, which were up nicely year over year Also well above pre pandemic level.

Speaker 1

In the casino, our Q4 2022 slot handle increased 20.9% year over year and was 69% above Q4 twenty nineteen levels. Similarly, our table drop was up 1.1% year over year and 43% above Q4 2019 level despite still suppressed international play during the quarter due to COVID related travel challenges. The team in Vegas has done a great job of controlling costs without negatively impacting the guest experience, delivering adjusted property EBITDA margin of 37.4 In the quarter, on a whole normalized basis, our EBITDA margin was up approximately 1300 basis points compared to Q4 2019. OpEx excluding gaming tax per day was $3,800,000 in Q4 2022, up 25 compared to Q4 2019 levels, but well below the 59% increase in operating revenue. In Boston, before getting into the details, I'd like to point out that following the closing of the sale leaseback transaction on December 1, we're now reporting adjusted property EBITDA In Q4 2022, we generated adjusted property EBITDA of $63,300,000 with EBITDA margin of 29%.

Speaker 1

We saw broad based strength across casino and non gaming during the quarter. In the casino, we generated $190,000,000 of GGR, A property record with strength in both tables and slots. Our non gaming revenue grew 13% year over year to a record 56 $8,000,000 with particular strength in the hotel, driven by 93.9 percent occupancy and a $404 ADR. We've stayed very disciplined on the cost side with OpEx excluding gaming tax per day of approximately $1,170,000 in Q4 2. This was a decrease of over 8% compared to $1,300,000 per day in Q4 2019 and up modestly relative to Q3 2022.

Speaker 1

As we've discussed on prior calls, the year over year EBITDA and OpEx comps were impacted by a combination of contractual labor agreement, Which added around $45,000 per day to our OpEx base beginning late in Q2 2022 along with a non recurring benefit of $2,000,000 in We're well positioned to drive strong operating leverage as we continue to grow the top line over time. Our Macau operations delivered an EBITDA loss of $59,100,000 in the quarter on $190,300,000 of operating revenue. Lower than normal hold negatively impacted EBITDA by around $25,000,000 in Q4. While the COVID situation in the region was challenging during Q4, As Craig noted, we were encouraged by the meaningful uptick in visitation and demand we experienced during the recent Chinese holiday period. Our OpEx excluding gaming tax was approximately $2,000,000 per day in Q4, a decrease compared to $2,400,000 in Q4 2021.

Speaker 1

The team has done a great job remaining disciplined on costs in a difficult operating environment. Longer term, we are well positioned to drive strong operating leverage as the business recovers over time. In terms of the new concession, we approach the tender process very prudently, carefully balancing our commitments to the government With our responsibilities to our shareholders and of course our liquidity position, we're currently advancing through the design and planning stages, So these projects require a number of government approvals, creating a wide range of potential CapEx in the very near term. As such, for 2023, we expect CapEx related to our concession commitments to range between $50,000,000 to $220,000,000 Our future non gaming investments including new theater set to be home of a unique spectacle show and innovative food halls and an events and entertainment center. As Craig noted, we believe these investments play into our strengths as we have a demonstrated track record of introducing innovative non gaming investments They're driving increased tourism and ultimately strong shareholder returns.

Speaker 1

Turning to Win Interactive, our EBITDA Earn rate increased sequentially to $28,300,000 in Q4 2022. However, adjusting for the well publicized World Series set that Craig mentioned, It was roughly flat with our Q3 2022 burn rate of $17,700,000 The team continues to control costs while driving improved marketing efficiency. Moving on to the balance sheet. Our liquidity position remains very strong with global cash and revolver availability of Approximately $4,500,000,000 as of December 31. This was comprised of $952,000,000 of total cash and available liquidity in Macau and $3,500,000,000 in the U.

Speaker 1

S. These numbers exclude the undrawn $500,000,000 intercompany revolving credit facility Wynn Resort entered into Wynn Macau. We were pleased to close the sale leaseback transaction for the real estate of Encore Boston Harbor on December 1 with gross proceeds of $1,700,000,000 further bolstering our already strong liquidity position. Importantly, the combination of very strong performance in Las Vegas and Boston with the properties generating $1,040,000,000 Our adjusted property EBITDA during 2022 together with our robust liquidity creates a very healthy leverage profile in the U. S.

Speaker 1

With our properties performing well in each of our markets and our robust liquidity, I'd like to note our intention to repay our upcoming May 2023 Wynn Las Vegas bond maturity with cash from the balance sheet, reducing our domestic growth leverage by 500,000,000 Finally, our CapEx in the quarter was $27,000,000 primarily related to normal cost With that, we'll now open up the call to Q and A.

Operator

Thank you. Our first question comes from Carlo Santarelli with Deutsche Bank, you may go ahead.

Speaker 3

Hey, thanks. Thank you very much, Craig and Julie for the comments. Craig, Julie, whoever wants to kind of take this one. Craig, I know you spoke a little bit about kind of what you guys saw in Macau during Chinese New Year. To the extent you're willing to Kind of comment on what you've seen in the aftermath and kind of the weeks following the holiday, that would be great.

Speaker 2

Sure. Thanks, Carlo. It's been pretty good actually. Frederic, do you want to take do you want to provide a little more color on that?

Speaker 4

Sure, Craig. Thank you, Carlo. We have seen typically after post Chinese New Year in the past, the period has seen a slowdown. We have been very encouraged to see the business remaining very, very strong with mass gaming direct VIP and retail sales fell down previously Similar period in the past. So we have seen the resilience of the business.

Speaker 4

Post Chinese New Year, I'm very encouraged with that.

Speaker 3

Great. Thank you. That's helpful. And then, Craig, you talked a little bit about obviously what you saw on the VIP side. I believe you said direct VIP was 40% above or so.

Speaker 3

That was 2019 Chinese New Year levels?

Speaker 2

Correct.

Speaker 3

Can you comment at all as to what the experience has been with whatever junket VIP there is in the market today?

Speaker 2

Yes, there was some junket activity over the course of Chinese New Year. Obviously, the situation has changed a lot From the pre COVID period, I think it's actually a little bit too early to call out what role The gaming promoters and the junkets will play in the market, but there certainly was some activity.

Speaker 3

Great. Thanks everybody.

Operator

Thank you. Our next caller is Joe Greff with JPMorgan.

Speaker 5

Hello, everybody. So following on Carla's question, on what you saw in Chinese New Year's in the period since then, Can you talk about the migration of the junket VIP business into the direct, and into the premium mass component of your mass business? How do you sort of think what otherwise would have been the junket? What percentage of that do you think is migrating versus Maybe not coming back quite yet.

Speaker 2

I think it's Joe, I think it's way too early to be talking about percentages given the market really just fully reopened on January 8, so really a month now. We certainly are seeing former junket customers migrate Into both Premium Mass and into direct. Remember direct is tricky because there you're talking about credit extension and so you have to be Quite prudent in how you manage the direct business, but unfortunately it's just a little too early. What I would say is Volumes came back strong. The narrative that we're VIP focused, I think, proved To be pretty false, we competed very strongly during the Chinese New Year period and we're incredibly proud of the results that we had.

Speaker 5

And when you look back in 2019, we always thought that the direct VIP component of was something around 10% to 20% of the total VIP turnover, are we fair in taking that? Can you remind us of that?

Speaker 2

You are. You are.

Speaker 5

Okay. That's all for me. Thank you.

Speaker 2

Thanks, Joe.

Operator

Thank you. Our next caller is Shaun Kelley with Bank of America.

Speaker 6

Hi, good afternoon, everyone. Thanks for taking my question. Just was hoping to get a little bit more color on maybe the cost and margin picture as things to rebound in Macau. Julie, I think in the prepared remarks you mentioned you were down around $2,000,000 a day in the Q4 in Macau, if I caught Correctly down from $2,400,000 back in 2019. Just as you're sort of re ramping, I mean, I think we all really underappreciated the amount of operating leverage that was going to happen in certain markets in the United States and kind of trying to put some of the tea leaves together around how this may play out for Macau.

Speaker 6

So just any kind of thoughts On expenses and margins as the recovery begins here?

Speaker 1

Sure. Yes, you're correct, Sean. We did talk to our OpEx per day in Q4 was $2,000,000 which was down from $2,400,000 the year prior. We worked really hard last year To further cash and to manage OpEx down while we were closed. So obviously, that's not representative of how things will be Moving forward, as you know, we're fully open now and staffing full time in just SMB outlets and so on.

Speaker 1

So where that shakes out in terms of margin, it's really going to depend on the mix of business that comes back in that market. Much the same answer we give when we're asked

Speaker 4

about margin

Speaker 1

in Vegas. It's very much mix dependent and we don't manage Our business on margin, that's really the outcome. We manage through our brand and we start accordingly and we're very tight In terms of staffing, we're very focused on doing that appropriately. We're very, very focused on service delivery

Speaker 2

And I would just add, it's primarily mass mix now. So you're going to have that's inherently higher margin And a portion of the cost savings that we implemented during the COVID period, which thank God is long behind us, We will maintain. So the margin profile should be healthy. Again, it's we're really talking about a couple of weeks here. So it's a little bit early to start forecasting Specific margins.

Speaker 6

Great, understood. And then maybe just the follow-up. Another thing that kind of came up in the prepared remarks was The CapEx outlook in Macau and I think you gave a pretty wide range. Could you just kind of talk about what would sort of dictate may The high versus the low, what are some of the different either projects that could get underway or things that could impact The outcome of the range that you discussed?

Speaker 1

Sure. So I think taking a step back, if you think about our total commitment when we put through our Session proposal, we've committed to $2,200,000,000 over 10 years and that's obviously that's a mix of CapEx and OpEx, but we're very focused on getting the CapEx done as quickly as possible so that we can start to drive strong returns from it. The limiting factor is really the approvals that we need locally to break ground and build anything. So it's really not in our hands. That's why we've given such a wide range because from our perspective, we're pacing towards Getting through our D and D and designing everything, but we have to go through government approvals for anything that's construction related.

Speaker 1

So the range we gave was $50,000,000 to $220,000,000

Speaker 6

Thank you very much.

Operator

Thank you. Our next caller is David Katz with Jefferies. You may go ahead.

Speaker 7

Hi, this is Cassandra on behalf of David. You mentioned that digital was nearly breakeven in 4th quarter, excluding the World Series result. Can you discuss the upcoming launches and whether we should expect the business to inflect to profit this year?

Speaker 2

Sure. The upcoming the most significant upcoming launch is Massachusetts, where obviously we have Encore Boston Harbor, and I would hope and expect that we will have A reasonable market share because of that, the presence of that property as our competitors have in other markets. We are driving the business As hard as we can while being prudent. I would expect some point of inflection in late 20 J. Rice:] dependent upon how much user MoneyGood user acquisition we do in Massachusetts, but we have the burn at this point Really, really well under control.

Speaker 2

And again, as we talked about before, the long term strategy is really focused on Massachusetts And positioning ourselves for iGaming, which would make the business accretive to our land based resorts.

Speaker 7

Great. Thank you. If I may follow-up, can you talk about your upcoming maturity and any thoughts about tapping into the Capital Market now, since we have seen some activity in the last few weeks.

Speaker 2

I think Julie just mentioned in the prepared That we're going to pay down our upcoming maturity with cash on the balance sheet.

Speaker 7

Great. Thank you very much.

Operator

Thank you. Our next caller is Robin Farley with UBS.

Speaker 8

Great. Thanks. I wonder just circling back to how things are trending post Chinese New Year, obviously, really strong numbers through the holiday. There's been chatter that the drop off in the market overall was a little bit more than seasonal. So I wonder if you could sort of give your Take on that, is it reasonable to think that they'll just be kind of increased volatility, maybe around kind of shoulder periods?

Speaker 8

Or I guess, how would you Kind of frame that more than normal sort of seasonal drop off post the holiday.

Speaker 2

Hi, Robin. Hi, Deanna. I'm not sure who you've been talking to. Frederic Just mentioned that actually, we've been performing, above what we would normally see during that drop off period.

Speaker 8

But when you say performing above, I don't know if that was a combination of you talked about your expenses being down and so it could be overall EBITDA, Just wondering on the

Speaker 2

No, he was talking business volumes.

Speaker 8

Okay. So, would you then assume that that's a Growth in market share and that in other words, what's your take on sort of the overall market volatility that maybe you're gaining Sharon, it sounds like in that period, but just your statement

Speaker 2

It's a week, right? In the grand scheme of things, it's a week. So it's hard to read any tea leaves in a week. What I would say is that the market roared back. Macau was a rager On the mass side, on the direct VIP side, on the retail side and on the occupancy side during Chinese New Year, and it's it outperformed our expectations for the low Formed our expectations for the low period shortly thereafter.

Speaker 2

Anything beyond that, it's just too early to read.

Speaker 8

Okay. And just to clarify, when you say it outperformed your expectations, but you meant specifically that it was a Better sequential drop off than what you'd seen in 2019 or just better than what your expectations were for Okay, great. Thank you. Sure. Thank you.

Speaker 8

Thank

Operator

you. Our next question is Daniel Politzer. You may go ahead from Wells Fargo.

Speaker 9

Hey, good afternoon, everyone. Thanks for taking my questions. I wanted to circle back on the $4,000,000 EBITDA per day for Chinese New year that you mentioned, is there any way you could put that into historical context? I don't know what it was in 2019 or during other Golden Week or Chinese New Year periods.

Speaker 2

Yes, it would have been I don't remember if we've quoted it previously, so I want to be careful in terms of prior disclosure. But it's substantial relative to prior periods. It's not it's certainly not where we peaked, Put it to you that way because the junket contribution wasn't there this year and that was Call it $700,000,000 to $1,000,000 EBITDA in a normal Chinese New Year. I think the point It's a substantial number given that the market really opened at the beginning of January and it gives us confidence In the remainder of 2023 and beyond.

Speaker 9

Understood. And then just pivoting to Las Vegas, I mean to what extent since China has effectively reopened, have you seen that high end Asia business kind of resurface

Speaker 10

Your Vegas property.

Speaker 2

Too early to say. I mean our BOC drop in the quarter in Q4 was pretty strong. So we've been doing pretty well on the back of domestic Bock Business and in fact those folks from the region that chose to sit it out sit COVID out over here. So again, a little bit early to say, you have to go through the process of getting a visa, you have to arrange travel, etcetera, etcetera. But certainly, international travel is a tailwind We hope to see in Vegas in 2023, given that really in 2022, it was only The only real inbound visitation was some from Europe and from Latin America.

Speaker 9

Got it. Thanks.

Speaker 1

Thanks. Operator, the next question will be the last one. Thank you.

Operator

Thank you. And our last question comes from Stephen Grambling with Morgan Stanley. You may go ahead, sir.

Speaker 4

Hey, thanks. I may have missed this, but in Las Vegas, could you just provide any additional color On what you're seeing in terms of forward bookings, not only in I guess the first quarter But even as we look out over the course of

Speaker 2

the year, what you're seeing and any expectations

Speaker 4

as it relates to kind of convention mix? Thanks.

Speaker 2

Sure. I'll start and then I'll ask Brian to comment. So first and foremost, we have been really intentional over Yes, we're keenly aware of the broader economic environment from interest rates to gas prices to layoffs and we have a 2020 Playbook for any number of economic scenarios. Brian, do you want to talk about your view on 2023 and then perhaps dig a little bit more into convention?

Speaker 10

Absolutely. As we look to 2023, not only were we pacing strong coming out of 2022, going into 2023, it's just accelerated. I'm so excited about what we've got coming in 2023. When you look at it, we've got the best teams in the business. We've got the best assets in the business.

Speaker 10

In Vegas, we've got strong pace of group, particularly as we look forward into 2023 and then even Beyond, Q1 may be a record for us. It's just really done well. We have strong pricing power in every channel. We got a new show we just launched with Awakening. We've got several projects coming in 2023 that are really exciting.

Speaker 10

And then we kind of kick things at the end up a notch with F1 in November. So our outlook for the year Pending no other macroeconomic impacts, looks pretty good. We're feeling pretty good about what we can see right now. So on the group side, very strong.

Speaker 2

We're doing really well on what we can control. We don't control the macro economy. That's a fact. So how that flows? Don't know.

Speaker 2

But we're feeling good about our business here.

Speaker 8

Fair enough. And then if

Speaker 4

I can just sneak in a quick follow-up on Macau. As you think about how to grow the direct VIP business, we're thinking about that as an opportunity. Is one way to think through maybe some of the customers who used to bet Both VIP and in the mass market segment as a target customer and is there any way to frame how big that business could grow?

Speaker 2

Every customer is unique and so it's really difficult. If I had A broad strokes playbook, I probably wouldn't share it on a public call, but every customer is unique. And so The ecosystem now which is comprised of junkets but different, promoters and us, It gives us the ability to address a sub segment of those junket customers. Some of them, they're going to it's going to take years to figure out. But certainly a portion of those will migrate into our direct business.

Speaker 2

You saw it over Chinese New Year And some of them will migrate into Premium Mass, but I don't think there's a broad swath playbook that we can talk about.

Speaker 4

Fair enough. Thanks so much. Sure.

Speaker 1

Okay. Well, with that, we'll now close the call. Thank you all for your time today and your support to Twin Results. We look forward to updating you very soon.

Speaker 2

Thanks everybody.

Operator

Thank you for participating on today's conference call.

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