Wynn Resorts, Limited — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. Wynn Resorts operates resorts in Macau and Las Vegas and is developing Wynn Palace in Macau and a resort in Everett, Massachusetts. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net revenue | $1.040 billion | $1.412 billion | $2.133 billion | $2.926 billion |
| Operating income | $169.1 million | $341.3 million | $354.2 million | $718.2 million |
| Net income | $77.2 million | $258.4 million | $63.3 million | $561.4 million |
| Net income attributable to Wynn Resorts | $56.5 million | $203.9 million | $11.9 million | $430.8 million |
| Diluted earnings per share | $0.56 | $2.00 | $0.12 | $4.22 |
| Adjusted Property EBITDA | $295.4 million | $467.4 million | $618.4 million | $962.0 million |
- Q2 net revenue fell 26.3%; operating income fell 50.5%; Wynn-attributable net income fell 72.3%. Six-month net revenue fell 27.1%, while attributable net income fell 97.2%.
- Q2 operating margin was approximately 16.3%, versus 24.2% a year earlier. The six-month operating margin was approximately 16.6%, versus 24.5%.
- The decline was concentrated in Macau casino operations. Q2 Macau revenue decreased 35.8% and Macau Adjusted Property EBITDA fell 43.5%. VIP turnover dropped 41.1% to $15.5 billion. For the six months, Macau VIP turnover fell 47.6% to $32.7 billion.
- Las Vegas also weakened: Q2 revenue declined 6.2% and Adjusted Property EBITDA declined 23.9%, primarily reflecting lower casino revenue and table-game win. Non-casino revenue across the company was comparatively resilient in Q2, increasing 1.8%.
- Q2 interest expense, net of capitalized amounts, was $75.2 million, down from $81.8 million. Six-month expense was $153.2 million, down from $157.0 million. Six-month results included a $120.0 million loss on extinguishment of debt, primarily from refinancing and repurchasing 2020 notes.
Cash flow, liquidity and debt
- Six-month operating cash flow was $186.3 million, compared with $578.1 million in 2014. Investing cash outflow was $964.5 million, including $909.9 million of capital expenditures, largely related to Wynn Palace. Financing cash inflow was $84.1 million.
- Cash and cash equivalents were $1.488 billion at June 30, down from $2.182 billion at year-end. Available-for-sale investments totaled $245.6 million. Current assets were $2.088 billion and current liabilities were $1.227 billion.
- Reported long-term debt was $8.066 billion, including a $1.936 billion subordinated Redemption Note; $80.1 million was classified as current. Debt increased from $7.345 billion at year-end. The company issued $1.8 billion of 5.5% notes due 2025 and used proceeds principally to repurchase 2020 notes. Management reported compliance with debt covenants.
- Available borrowing capacity was approximately $1.01 billion under the Wynn Macau revolving facility and $1.24 billion under Wynn America facilities. The company reported total stockholders’ deficit of $110.7 million, compared with equity of $211.1 million at year-end.
- Dividends paid during the first half were $396.9 million. The company declared a further $0.50-per-share dividend in July, payable August 20, 2015.
Outlook, developments and risks
- Management expected Wynn Palace to open in the first half of 2016. The general contractor said it would miss the early-completion milestone of January 25, 2016, but remained on schedule for substantial completion by the contractual deadline. Approximately $2.7 billion of an estimated $4.1 billion total project budget had been incurred by June 30.
- Pre-opening costs rose to $16.9 million in Q2 and $33.0 million for the first half. Management expected these costs to increase as Wynn Palace and the Massachusetts project progressed. Encore Las Vegas guest-room renovations began in June, with completion expected by year-end; management did not expect a significant operating impact.
- Macau weakness was attributed to market conditions and regional economic factors affecting games promoters and premium customers. The company noted credit and collection exposure: approximately 83% of casino markers were due from customers outside the U.S., primarily in Asia. Advanced commissions to Macau games promoters included $124.0 million in casino receivables, partly offset by $43.6 million of commissions payable.
- Material legal and regulatory uncertainties include the ongoing Okada redemption litigation and related investigations, and lawsuits challenging the Massachusetts gaming-license award and proposed land conveyance. A Macau lawsuit filed by the Okada Parties in July 2015 seeks dissolution of Wynn Macau SA and damages. Management said it could not determine the probability or reasonably possible loss for several proceedings; an adverse material judgment or settlement could harm financial condition.
- Other risks include reliance on a small number of resorts, leverage and refinancing needs, restrictions on subsidiary dividends, gaming regulation and licensing, foreign-exchange exposure, and the ability to complete developments on time and budget. About 91% of long-term debt was fixed-rate, including swaps; a 1% change in variable rates was estimated to change annual interest cost by $7.4 million. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Macau VIP and mass-market demand stabilizes, and how turnover, gaming win and collections evolve.
- Wynn Palace construction progress, total remaining funding needs, opening timing and pre-opening costs.
- Debt, cash usage and borrowing availability after capital spending, dividends and the 2020-note refinancing.
- Developments and potential financial exposure from Okada-related litigation and investigations, and Massachusetts license and land disputes.
- Whether the Macau tax exemption and dividend-tax arrangements are renewed beyond their stated 2015 expiry dates.