Wynn Resorts, Limited — Q1 2012 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2012, compared with Q1 2011. Wynn operates destination casino resorts in Las Vegas and Macau. Macau supplied most revenue; the company depends on these two resort complexes and on premium customers, including customers who wager on credit.
Financial performance
Amounts below are in millions, except per-share data and operating statistics.
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net revenue | $1,313.5 | $1,260.3 | +4.2% |
| Operating income | $260.1 | $280.6 | -7.3% |
| Operating margin | 19.8% | 22.3% | -2.5 percentage points |
| Net income | $198.4 | $226.3 | -12.3% |
| Net income attributable to Wynn Resorts | $140.6 | $173.8 | -19.1% |
| Diluted EPS | $1.23 | $1.39 | -11.5% |
| Adjusted Property EBITDA | $390.7 | $405.0 | -3.5% |
| Cash from operating activities | $338.5 | $323.2 | +$15.3 |
| Capital expenditures | $35.5 | $32.3 | +$3.1 |
Macau net revenue rose 9.8% to $950.7 million, while Las Vegas revenue declined 8.1% to $362.8 million. Macau Adjusted Property EBITDA increased to $289.8 million from $272.8 million; Las Vegas EBITDA fell to $100.9 million from $132.1 million. Casino revenue increased 4.3% overall. The filing reports Q1 2012 dividends declared of $0.50 per share; the cash dividend was paid during the quarter.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $1.871 billion, up from $1.263 billion at year-end; available-for-sale securities totaled $189.3 million.
- Total debt was approximately $5.496 billion, comprising $168.0 million current and $5.328 billion long-term. The year-end total was approximately $3.218 billion. The increase principally reflects the $1.936 billion related-party redemption note and the $900 million Wynn Las Vegas notes issuance.
- In March, Wynn Las Vegas issued $900 million of secured 5.375% first-mortgage notes due 2022 and used some proceeds to repay term loans. At quarter-end, the company reported $84.2 million available under the Las Vegas facility and $1.0 billion available under the Macau revolver, which matured in June 2012.
- Operating cash flow exceeded capital spending; financing cash flow included $900 million of new debt proceeds, $558.9 million of debt repayments and $50.4 million of dividends paid. Management said existing cash, operating cash flow and facility availability should cover anticipated 2012 capital needs, while noting future financing cannot be assured.
- Wynn Resorts’ equity fell to $248.7 million from $2.089 billion, primarily following the $1.936 billion share redemption recorded against equity. Total equity, including noncontrolling interests, was $441.0 million.
Material changes, outlook and risks
- Operating trends: Las Vegas table-games win percentage fell to 22.8% from 30.4%, although drop rose 3.2%; management’s expected range was 21%–24%. Macau VIP turnover rose 14.6%, but win as a percentage of turnover was 2.59%, below the 2.7%–3.0% expected range. Macau general-casino drop increased 3.6%, and its 30.3% win percentage exceeded the 26%–28% expected range. These outcomes illustrate gaming-result volatility.
- Costs and margins: General and administrative expense rose to $106.0 million from $87.7 million, partly due to legal and share-redemption costs. Doubtful-account provision increased to $18.1 million from $10.2 million, primarily in Macau as collections took longer. Property charges rose to $10.3 million from $3.3 million. Interest expense increased to $62.1 million from $58.3 million.
- Share redemption and related litigation: The company redeemed and canceled 24,549,222 shares held by Aruze USA, Inc. after the board found Aruze, its parent Universal Entertainment and Kazuo Okada unsuitable. It issued Aruze a $1.94 billion, 2% promissory note due 2022, subordinated to company and affiliate borrowed-money obligations and prepayable at the company’s discretion. Aruze and Universal challenged the redemption and seek, among other relief, restoration of the shares and unspecified damages. The company’s claims against them are also pending.
- Regulatory and other legal matters: The SEC’s Salt Lake office began an informal inquiry concerning the University of Macau donation, other charitable donations and Macau gaming licenses; the company said it was cooperating. Several shareholder derivative suits allege fiduciary-duty breaches concerning the donation and Okada matters. APC seeks approximately $32 million in arbitration-related compensation, which the company disputes. Outcomes and potential effects are uncertain.
- Development and commitments: Macau’s Cotai land concession was gazetted May 2, 2012, after quarter-end. The company anticipates a resort with about 2,000 rooms but had not finalized scope, timing or budget. The land premium totals $193.4 million; a separate $50 million payment obligation became payable following gazetting. Wynn Macau also committed $10 million annually to the University of Macau Development Foundation for 2012–2022, in addition to $25 million paid in 2011.
- Outlook and other items: No numerical earnings guidance was provided. Management described the Las Vegas market as uncertain and Macau as continuing to grow. The filing identifies tourism and economic conditions, credit collection, gaming regulation, competition, legal and probity investigations, leverage, foreign exchange, and reliance on two locations as risks. A further $0.50-per-share dividend was announced May 7, payable June 4, 2012. Management reported debt-covenant compliance at March 31.
Important facts for investors to verify
- Terms, fair-value assumptions and potential cash-payment implications of the $1.94 billion Aruze note, and the status and outcome of related litigation and investigations.
- Whether the Macau revolving facility was refinanced, renewed or repaid at its June 2012 maturity, and the company’s ability to meet debt service and covenant requirements.
- Subsequent casino win rates, VIP turnover, credit collections and doubtful-account provisions, particularly in Macau.
- Final Cotai project budget, schedule, financing plan and total land-related commitments.
- Effect of the SEC inquiry and other proceedings on operations, gaming licenses, donations and financial exposure.
Adjusted Property EBITDA is a non-GAAP supplemental measure and is not a substitute for operating income or operating cash flow. Interim results are not necessarily indicative of full-year results.