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Wynn Resorts Ltd. (NASDAQ:WYNN)

Q4 2007 Earnings Call

February 12, 2008 4:30 pm ET

Executives

Ron Kramer - President

Steve Wynn - Chairman and CEO

Analysts

Steven Kent - Goldman Sachs

Bill Lerner - Deutsche Bank

Celeste Brown - Morgan Stanley

Larry Klatzkin - Jefferies

Robin Farley - UBS

Operator

Good afternoon and welcome to theWynn Resorts Limited fourth quarter conference call. Joining the call, onbehalf of the company today are Steve Wynn; Ron Kramer; Marc Schorr; JohnStrzemp; Andrew Pascal, President of Wynn Las Vegas; David Sisk, CFO of WynnLas Vegas; and on the phone, Ian Coughlan, President of Wynn Macau; and ScottPeterson, CFO of Wynn Macau.

(Operator Instructions)

Thank you. Now, I would like toturn the call over to Mr. Kramer. Please go ahead, sir.

Ron Kramer

Thank you, Heather. Goodafternoon, everyone.

Before we begin, I need to remindyou that today's conference call contains forward-looking statements that weare making under the Safe Harbor provision of FederalSecurities Laws. I would also like to caution you that the company's actualresults could differ materially from the anticipated results in theseforward-looking statements. Please see today's press release under the caption,"Forward-looking Statements," for the discussion of risks that mayaffect our results.

In addition, we will discussadjusted property EBITDA, which is a non-GAAP measure -- a reconciliation ofthose practices for the most comparable GAAP measures is included in the pressrelease.

We're broadcasting thisconference call live on www.wynnresorts.com, where you can also find theearnings release that we circulated earlier today. I'm going to give you abrief overview, and then we'll open up and take your questions.

Simply, 2007 was a great year. Weare extremely proud of our results in Macau and in Las Vegas. Fourth quarter, we generatedconsolidated property EBITDA of $197 million for the two property. That's a 23%improvement versus the same quarter in 2006. The Wynn brand has becomesynonymous with quality.

Our loyal customers enjoy theintimacy of our design and appreciate the extraordinary level of service weprovide. We believe we have the top properties in each of the markets where weoperate, and our results reflect that preeminence.

In Macau,our EBITDA on the fourth quarter was $99.6 million, a 70% increase over thesame period of the prior year, despite significant growth in supply during thethird and fourth quarters. In our first full year, Wynn Macau generated $364.1million of EBITDA.

On December 24, 2007, we openedthe Wynn Macau expansion, which increased our table offerings by approximately40% and nearly doubled our slot capacity. We continue to perform well in Macau. We believe that the opening of MGM next door has helpeddraw additional traffic to our neighborhood.

In 2007, gaming revenues for themarket were up 47% and gaming revenue per visitor grew sequentially every month,an incredible testament to the depth of this market. Trends remained strong,and the year ahead looks very promising as demand continues to grow with noappreciable additional supply entering the market in the next 12 months.

In Las Vegas, The Tower Suites at Wynn Las Vegasis the only casino resort in the world to receive both the Mobil Five Star andthe AAA Five Diamond award and we have done it two consecutive years. We'realso very proud to be the only resort in Las Vegas to be honored with the prestigious MichelinGuide's Five Red Pavilion award.

In the fourth quarter, Wynn LasVegas generated $97.3 million in EBITDA, which represents a $3.8 million decreaseversus fourth quarter '06 due mostly to the decline in hold percentage from26.3% to 23.5%. During the quarter, our slot business was down modestly versusthe fourth quarter of '06 due to the lower traffic resulting from the closuresof the Stardust and Frontier.

We expect the late Decemberopening of the Palazzo to drive improved walk-in traffic to Wynn Las Vegas, benefitingboth our slots as well as other businesses. Our food and beverage, retail andother department showed solid quarter-over-quarter growth, and for the fullyear, Wynn Las Vegas EBITDA grew over 25% reaching $417 million.

Finally, our balance sheet is strong.At yearend, we had net debt of approximately $1.7 billion and our net leveragestood at 2.2 times, providing us with excellent financial flexibility forfuture developments and shareholder value-enhancing opportunities.

With that, we're going to open upand take your questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first question comes fromthe line of Steven Kent with Goldman Sachs.

Steven Kent - Goldman Sachs.

Hi. Could you just give us alittle bit more color on what you experienced so far in January in Las Vegas? MGM gave someinformation that things were softer in the first few weeks. I just wanted tosee what your experience was. And also, just a little bit more color on theexpansion at Wynn Macau, how that's ramping up and if it's meeting yourexpectations?

Steve Wynn

This is Steve, answering thatquestion. I don't think we want to get too forward in the quarter. I think thatit's probably a good idea to be cautious about Las Vegas market, in general. It has beensaid that Las Vegas is somehow impervious toeconomic trends in the United States of America. That isn't quite anaccurate way of expressing it.

Las Vegas is resistant because so much of ourbusiness is booked far in advance, conventions for example and other things ofthat sort. And so what happens in Las Vegas isif there is a general economic softening in the United States and surrounding territory, Las Vegas reacts to it a little later. Thereis sort of a delay built in. But it would be unsophisticated to think that Las Vegas is somehow amagical island on to itself, immune or isolated from the effects of the citiesand the communities that serve it with its visitors.

So I would be cautious, dependingon your particular view, each of you, about the general economic conditions inthe United Statesas we go forward into the year. Then, I think that you probably turn on theyellow light about how the Las Vegasmarket will respond. I don't think that we see any significant moment this year,so far, in terms of our non-casino revenue or drop in the casino, and that sortof thing. So I'm not sure than I have an intelligent answer.

The folks at MGM, of course, havea much bigger sampling. We have just one hotel, and after all, we are sort of inan elitist place. But again, whether we're elitist or not, in spite of all theawards and the clear superiority of our product here in Las Vegas, again, I would say that -- and thenature of our clientele tends to be very upscale. I still think that we are notan island on to ourselves, nor will we ever be here in Las Vegas in any hotel.

Having said that, the second partof your question, I don't want to be too wordy about this, had to do with Macau? We did open the part of our expansion on December24 and marched into January with a larger facility, both in VIP and in generalcasino. And we are thrilled and delighted with the results. Let's hope that itcontinues as we go forward. But I don't have anything else intelligent tooffer.

Steven Kent - Goldman Sachs.

Okay. Thanks.

Operator

Your next question comes from theline of Bill Lerner with Deutsche.

Bill Lerner - Deutsche Bank

One for you. I hadn't heard you [wayyou] hit on the Nevadagaming tax proposals. I would love to hear you generally talk to those and Ithink that's probably it for me after that.

Steve Wynn

That's another item that we haveto watch and try and understand. If it moves along, its impact would be in 2011if it ever comes about. And it's the kind of thing that we're seeing around thecountry in every state, where the needs of the citizens, demands of thecitizens, and the ability of the government to supply them are stressed. Las Vegas and Nevadais no different than any place else, and we've got a long way to go before weunderstand the full impact of that. I don't think there is much more to say onthat subject.

I just want to remind everybodythat there is a little asterisk on last year’s Las Vegas EBITDA.  Being a grandfather and understanding howimportant Christmas is, both to parents and to children, we decided here in ourfamily way, that in the fourth quarter we took $5 million out of our [Swansea] earningsfor the year and gave $1,000 tax paid to all of our employees, who made $40,000or less as a Christmas present, and we paid the tax. And I think the gross upcost is about $5 million.

And when you are looking at ourEBITDA, you might take that into account, because it would have been more money-- instead of 97, we would have been at (inaudible). So, we did something sortof unusual, which I was delighted to do, and all of management thought it was aright thing to do, to make sure that so many of our employees, who havefamilies, would have a merry Christmas. So, we did something unusual this year.And I just wanted to -- for those of you who were running out of numberscomparing to last year, I should tell you that that was a special event. We'lltake the next question.

Operator

Your next question comes from theline of Celeste Brown with Morgan Stanley.

Celeste Brown - Morgan Stanley

Hi guys, good afternoon. First, Iknow you guys don't like to talk about the [corner] end, but there has been alot of press about weather impacting the ability of the people to travel in China, and I would guess outside of China.Is that impacting the market at all for Chinese New Year?

Steve Wynn

It did, Celeste. It always, mostdefinitely put up a bump in the first week of February. We have people sleepingin the train station at Guangzhou, and that type of good luck was extraordinaryand have reached into Southern China in the Guangdong province to Shenzhen,Dongguan and Guangzhou and those kind of places, and it affected everybody'sbusiness, I am sure, for about five or six days. But Chinese New Year has beenrobust. And it's over now, I think the snow melted and the things are back ontrack.

Celeste Brown - Morgan Stanley

Steve I'm not sure I understoodwhat you were saying about how you don't expect a significant momentum inVegas. Can you explain that a little further?

Steve Wynn

I said that we had not yetobserved any significant moment in terms of the impact. Somebody mentioned inthe question, I think it was Steve Kent that MGM had said that they saw a softening?Well, you know MGM looks across what 10 casinos or something, their sampling isenormous, and they see every part of the market, we don't. We're dealing with, well,for lack of a better term, rich folks.

Celeste Brown - Morgan Stanley

So you're saying generally yourtrends would be better than theirs?

Steve Wynn

Well, again, I don't want to makestatements about trends. I'm responding to whether we feel a softening in themarket. I'm not sure that we can analyze that and that we are prepared to makethat statement. Yeah it's too short, too quick. And Super Bowl was exiting, theFebruary calendar is terrific. Forgetting for a moment the whole percentage andluck as it impacts a place like this, general levels of business, we don't seea trend yet. But again I remind you that, I don't think that we are immune fromsuch things. If they're strong enough around us, we'll feel them sooner orlater, I would guess.

Celeste Brown - Morgan Stanley

Thank you.

Operator

Your next question comes from theline of Larry Klatzkin with Jefferies.

Larry Klatzkin - Jefferies

Hey guys, a couple things. One,the Diamond Suites was more like -- the end of first quarter, beginning ofsecond quarter 2010 at this point?

Ron Kramer

I think that's what it's alwaysbeen.

Steve Wynn

I think Diamond -- the Tower, youmean?

Larry Klatzkin - Jefferies

Yeah I thought it was always alittle earlier in the year than that. Okay.

Steve Wynn

Tower's probably about 22 or 23months out, and I just came down the hall for this phone call from a finalapproval of some of the stuff in Diamond tower lobby, and I must say that thebuilding itself and the things that are in it, is by any measurement of my 40years the most beautiful thing that Roger Thomas and Hirsch Bedner and ourstaff acting together have ever done. I came into the conference room where we'reall sitting for this call and I brought with me a carpet sample and a piece offabric from the barroom off the lobby of Diamond. I'm very excited. We've neverdone anything quite like this. It's sort of taking a Four Seasons idea andputting on steroids or at warp speed or any other vernacular metaphor you wantto use. But it's a statement of luxury and these 405 rooms and villas that arebeyond whatever we've done in the past. And I am fascinated to see how theChinese culture will receive it, but we've definitely swung for the fences withthe Diamond.

Larry Klatzkin - Jefferies

Alright.

Steve Wynn

I mean that in our own WynnResort's terms, which are pretty swollen already.

Larry Klatzkin - Jefferies

Alright, cool, cool. And then, amI doing this right, Ron, in Vegas you hit about compared to last year, about a$17 million of worse luck and in Macau, youdid a little over $50 million of better luck compared to last year's result.

Ron Kramer

Well, as we said in our priorcall, we are not going to get caught in normalizing numbers.

Larry Klatzkin - Jefferies

Okay, that's fine, and then…

Steve Wynn

Actually I don't think we cannormalize the numbers. Around here, it's fascinating. We can't do it. We don'tknow now how they are.

Larry Klatzkin - Jefferies

Okay. As far as the project onthe acres on Cotai, you made some pretty amazing sounding projects on the lastcall. Do you have any more details on that you can talk to us about?

Steve Wynn

Well, we've got Encore coming upin Christmas here in Las Vegas.We've got Diamond coming up shortly thereafter. So, we are in the middle ofexpansion of the company, and that is almost doubled before we are done. AndCotai and the Golf Course are obviously our next move, notwithstanding orexcluding the notion of the new jurisdiction. And as we look at the performanceof our colleagues and our competitors, we adjust the size and the scope of theproject.

What I have said is that we arebuilding an extraordinarily luxurious all-suite hotel and that is true. What isadjustable in my mind is the amount of rooms. And I've been trying to analyzethe Venetian, for example, in the fourth quarter to see, what was their realoccupancy, how many rooms they really had opened, what the real average rateis.

In a new property, as you know,as you open these places, we've been in the same spot as them, on occasions youopen in phases. And until you get to the second full quarter of operations, it'sa little tricky to try and get your arms around what's going on. But we'rewatching this with great interest and hoping that all of the good newscontinues, so that we can lay on some more size on our property in Cotai. So,as we plan it and work on it, we're watching the Venetian and the otherprojects that are underway, and looking at the performance of MGM, and tryingto learn something.

Larry Klatzkin - Jefferies

Okay. And what you guys see forsome of the improvements in access for Macau, do you think some of the thingsgoing on are going to be a big improvement and the market should continue togrow in the kind of pace we saw in the last month?

Steve Wynn

Your question is basically at theroot, asking us, do we believe that the government will be able to reactefficiently and effectively to the changes and demand and touristic developmentof that market. My experience, the past six years, almost seven years in Macau,that's how long I've been there, since we've got the concession. And evenperiod before the concession, while we were competing for it, has been that theGovernment of Macau and the People's Republic of China has a way of handling theirbusiness in a manner remarkably efficient and they get there very quickly. Thespeed at which government reacts in China compared to our wonderfuldemocracy here at home is extraordinary.

And I think that the market willnot be constrained because of infrastructure problems. I think the governmentis terrific in that regard. They've done things when we were getting ready toopen. There was a period of about two weeks before we opened when Jack Binionand I said we'll never make it. They had no street on the east side of ourbuilding. And five days later, it was finished. It was 24 June, Avenue 24thJune  didn't exist and within five to sixdays it was finished, incredible. That could never happen in the United States.So, I have tremendous confidence in the ability of the government to do almostanything they think is necessary, in terms of infrastructure. And you know thatthey are behind this growth in Macaucompletely. It never would have happened were it not for the centralgovernment's support and encouragement.

Larry Klatzkin – Jefferies

All right, thanks guys.

Operator

(Operator Instructions). Yournext question comes from the line of Robin Farley with UBS.

Robin Farley - UBS

Thanks. I had a couple ofquestions. First in Macau, just looking atyour mass dropping down year-over-year, did you reconfigure the tables? Did youtake some tables out of the math designation and make them VIP; just trying tounderstand that change.

Steve Wynn

We added to the mass market andwe added to VIP. The expansion included two new VIP rooms and a general casino.And there are yet three more VIP casinos that are quite extraordinary, two ofthem will be coming this year, at the end of the year, and then another one inthe base of the Diamond Tower. And there is aMembers Only general casino in the base of the Diamond Tower.There is quite a bit of additional capacity that comes on at the higher end ofthe spectrum at the end of this year, in the fall. And then as the tower itselfopens up, we have a brand new and quite exciting entrance that is on the cornerof our building that faces MGM directly, within 150 feet, and the new L'Arcde Triomphe Hotel being built by Stanley Ho's wife and Angela. And both ofthose casinos are right at our door in our new Diamond members' only facility.So, we did not take anything off the floor.

Robin Farley - UBS

Okay.

Ron Kramer

And just to comment Robin, themass market business were flat, that's after absorbing the significant increaseand just to point out to you the drop is down, but the Wynn is actually up fromfourth quarter last year.

Robin Farley - UBS

Right now we are just looking atthe drop as kind of normalized without any hold impact. Okay. And then therehave been changes in the market in terms of VIP, commission structures, andways that competitors are quoting VIP business. And I wondered if you couldtalk about, to what extent you are providing credit to junkets, even if it'sjust using their commission just to the extent that their commissions arecollateral, or I guess, to any degree that you are doing that?

Steve Wynn

That's proprietary information. Iam not going to discuss it.

Robin Farley - UBS

Okay. And then my last questionis. There were two transactions in the fourth quarter with the equity offeringand the large dividend that, you know, for the larger shareholders that didn'tparticipate in the offering, I guess is kind of equivalent of selling shares,and given that you have plans for a major Cotai property, we don't have thebudget yet, but you've indicated it's going to be big. How does that dividendkind of fit? How does that fit in to your capital plans for Cotai and kind oftiming and capital?

Ron Kramer

I think you've got it a littleconfused. Let me…

Steve Wynn

You certainly confused me. Couldyou try and give that question, Robin, one more time, so that we can deal withit?

Robin Farley - UBS

Sure. So you raised equity in the$154 range and then you paid a large dividend. Given that you have plans forsignificant capital spending in Cotai, just curious as to why the largedividend, when that capital would probably have fitted to your plans for Cotai?

Steve Wynn

We don't feel that we have anyproblem raising capital and the large dividend was to give shareholders money.

Ron Kramer

And the piece you missed inbetween was that we did a $400 million bond deal for Wynn Las Vegas level, andat the end of the year we looked at what our aggregate cash needs wereincluding the undrawn facilities, which is over $1billion at the Wynn Macaulevel, which theoretically would be the equity for our Cotai project on astandalone financing.

So we have unmatched financingcapability in terms of both our cash and our leverage and we've always donethings that are shareholder friendly in terms of returning capital to ourshareholders. We did it in '06 and we have the ability to do it based on aseries of transactions.

Steve Wynn

There are various advantageoustax rates for the shareholders, all of them. I think that’s something we needat the moment. There was a 3% tax rate there.

Ron Kramer

We'll put up the final number inMarch.

Robin Farley - UBS

All right. I guess --.

Steve Wynn

And so, that's a nice thing to dofor shareholders.

Robin Farley - UBS

I guess, I am trying tounderstand what the time the share issuance was, if you didn't need it forcapital raising?

Steve Wynn

It is the job, and you could takethis as a final statement on the subject going forward. It is the job of Boardof Directors and especially of a CEO to take advantage of the market. And thatmarket movement is extreme. Now when a company increases its value by 50% in 60days, that's unnatural movement of value and the market also goes the other waysometimes. These unnatural movements in value -- no company gets to be worthtwice as much in 60 days, as it was before to any intelligent person. So, whenthat happens, we take advantage of it, and if everybody is so hungry forshares, we let them have some. And if the shares go down, we buy them, and thatpolicy is a statement of policy of this company.

Robin Farley - UBS

Okay. Great, thank you.

Operator

Thank you. We have reached theend of allotted questions for today. Are there any closing remarks?

Steve Wynn

No, it's just that it would benice -- we always seem to get questions every quarter from the same five or sixpeople and you mentioned there were 200 people on the call and I was hopefulthat somebody new might have a question that attacked our business from adifferent angle, for example. And if that's not the case, we will say thank youand good bye to everybody. But we're always anxious to hear from new people ifthey are on the call, besides our competitors.

Ron Kramer

Thanks everyone.

Steve Wynn

Bye, bye.

Operator

Thank you for participating intoday's Wynn Resorts Limited fourth quarter conference call. You may nowdisconnect.

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