Wynn Resorts, Limited — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited quarterly results; Q4 figures below are for the three months ended December 31, 2019. Financial figures are in U.S. dollars.
Business context
Wynn operates Wynn Palace and Wynn Macau (through its approximately 72% ownership of Wynn Macau Limited), Wynn Las Vegas, and Encore Boston Harbor, which opened June 23, 2019. Its resorts combine gaming with hotels, dining, retail, entertainment, and convention facilities. Macau remained the largest business by revenue; Encore Boston Harbor contributed its first partial-year results.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Operating revenue | $6.611 billion | $6.718 billion |
| Operating income | $878.3 million | $735.5 million |
| Net income | $311.4 million | $803.1 million |
| Net income attributable to Wynn Resorts | $123.0 million | $572.4 million |
| Diluted EPS | $1.15 | $5.35 |
| Adjusted Property EBITDA | $1.815 billion | $2.044 billion |
| Cash from operations | $901.1 million | $961.5 million |
| Capital expenditures, net of construction payables and retention | $1.063 billion | $1.476 billion |
FY 2019 operating cash flow less reported capital expenditures was approximately negative $162 million. Cash and cash equivalents were $2.352 billion at year-end; total debt principal was $10.515 billion, and available revolver capacity was $1.231 billion. Current assets were $2.856 billion versus current liabilities of $1.983 billion. Management reported compliance with debt covenants at year-end. Debt agreements restrict certain payments and subsidiary distributions.
The Board declared $3.75 per share in dividends for 2019. Wynn had $800.1 million of remaining share repurchase authorization at year-end; reported 2019 repurchases included program repurchases and shares withheld for tax obligations.
Q4 2019 snapshot
Revenue was $1.653 billion, versus $1.688 billion in Q4 2018. Operating income was $226.6 million, compared with $246.3 million. Net loss attributable to Wynn Resorts was $72.9 million, or a $0.68 diluted loss per share, versus attributable net income of $464.9 million, or $4.31 per diluted share, in Q4 2018. The comparison is heavily affected by the substantial U.S. tax-reform benefit recorded in Q4 2018.
Material changes versus 2018
- Revenue declined 1.6%; Macau revenue fell 8.7% to $4.614 billion, and Las Vegas revenue fell 1.9% to $1.633 billion. Encore Boston Harbor generated $363.9 million in its opening period.
- Casino revenue fell 4.4%, mainly as VIP turnover and VIP table-game win weakened in Macau and table drop and table-game win declined in Las Vegas. Macau mass-market table-game win increased at both resorts.
- Non-casino revenue rose 5.4%, led by rooms and food and beverage, including Encore Boston Harbor’s contribution.
- Adjusted Property EBITDA declined 11.2%. Wynn Palace, Wynn Macau, and Las Vegas Operations each recorded lower EBITDA; Encore Boston Harbor contributed $23.2 million.
- Operating income increased despite lower revenue, in part because 2018 included a $463.6 million litigation settlement expense. Net income attributable to Wynn Resorts fell sharply: 2019 included a $176.8 million tax provision, while 2018 included a $497.3 million tax benefit, principally related to U.S. tax reform.
- Interest expense, net of capitalized interest, rose 8.4% to $414.0 million; the weighted-average interest rate increased to 5.04% from 4.80%.
Outlook, risks, and unusual items
- COVID-19: The filing, dated February 28, 2020, says Macau casinos closed February 4 for 15 days and reopened on a reduced basis February 20, amid sharply reduced visitation and travel restrictions. Management said it could not reasonably estimate the effects on future results, cash flows, or financial condition; U.S. resorts could also be affected by reduced international travel.
- Projects and spending: The Wynn Las Vegas meeting and convention expansion opened in February 2020. The project budget, including the redesigned golf course, was approximately $425 million, with $351.3 million incurred by year-end 2019. Wynn expected $225–$250 million of 2020 capital expenditures for a Wynn Tower room remodel and new dining concepts. Crystal Pavilion planning was underway, with initial construction expected to begin in late 2021.
- Macau concession: The gaming concession was due to expire June 26, 2022. Renewal, extension, or replacement terms were uncertain; loss of the concession could materially affect operations.
- Debt and funding: The company characterized itself as highly leveraged. Floating-rate exposure, debt-service requirements, covenant limits, and restrictions on upstreaming subsidiary cash are significant liquidity considerations. WML issued $1.0 billion of 5.125% notes due 2029, with proceeds intended to facilitate repayment of Macau term debt; Wynn Resorts Finance issued $750 million of 5.125% notes due 2029 and established new credit facilities.
- Tax judgments: At year-end, the company reported $3.1 billion of foreign tax credit carryforwards and substantial valuation allowances. The independent auditor identified valuation of deferred tax assets as a critical audit matter. Macau’s gaming-profit tax exemption was scheduled through December 31, 2020.
- Legal and environmental matters: A Massachusetts license-related federal lawsuit was dismissed in November 2019, with no appeal. A Nevada derivative-litigation settlement received court approval in February 2020, subject to effectiveness conditions; other securities and individual stockholder actions remained unresolved, and management could not estimate potential loss for certain cases. Contamination at the Encore Boston Harbor site may require further investigation or remediation, with costs uncertain.
- Other unusual items: The company recorded a $12.4 million loss on debt extinguishment in 2019. Adoption of lease accounting in 2019 added operating lease assets and liabilities to the balance sheet; prior periods were not retrospectively adjusted.
Most important facts for investors to verify
- How COVID-related travel restrictions, reduced Macau visitation, and operating limits affected subsequent-period revenue, cash flow, and liquidity.
- Macau concession renewal prospects and the conditions, timing, and economics of any extension or replacement.
- Debt maturities, subsidiary-level cash availability, covenant headroom, and the planned repayment of Macau term debt.
- Whether Macau VIP weakness persists, and whether mass-market and non-gaming growth can offset it; also monitor Encore Boston Harbor’s operating contribution.
- Realizability of foreign tax credits and the assumptions behind deferred-tax valuation allowances, alongside the status and possible costs of outstanding litigation and Everett remediation.