Wynn Resorts, Limited — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011; comparisons are with the corresponding 2010 periods. The company operates Wynn/Encore resorts in Las Vegas and Macau. Unless stated otherwise, amounts below are in U.S. dollars and millions.
Financial performance
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net revenue | $1,298.3 | $1,005.9 | $3,925.9 | $2,947.5 |
| Operating income | $239.8 | $131.9 | $733.4 | $394.9 |
| Net income (loss) | $185.2 | $(2.1) | $566.9 | $144.7 |
| Net income (loss) attributable to Wynn Resorts | $127.1 | $(33.5) | $422.9 | $45.9 |
| Diluted EPS | $1.01 | $(0.27) | $3.37 | $0.37 |
| Adjusted Property EBITDA | $381.1 | $274.5 | $1,233.1 | $797.8 |
Net revenue grew 29% in Q3 and 33% year to date. Operating margin was approximately 18.5% in Q3 and 18.7% year to date, compared with 13.1% and 13.4%, respectively, in 2010. Adjusted Property EBITDA is a non-GAAP measure; the company cautions it excludes significant costs and may not be comparable across companies.
- Segment results: Q3 net revenue was $951.4 million in Macau (+42%) and $346.9 million in Las Vegas (+4%). Adjusted Property EBITDA was $296.0 million in Macau and $85.1 million in Las Vegas. For nine months, Macau revenue was $2,793.6 million and Las Vegas revenue was $1,132.4 million.
- Cash flow: Nine-month operating cash flow was $1,149.1 million, versus $661.1 million; investing cash outflow was $364.3 million and financing cash outflow $267.1 million. Capital expenditures were $85.8 million. The investing outflow also includes purchases of corporate debt securities.
- Liquidity: Cash and cash equivalents were $1,776.0 million at quarter end, up from $1,258.5 million at year end. Working capital was approximately $879.4 million. Available revolver capacity was $347.5 million for Las Vegas and $1.0 billion for Macau. Management said cash and operating cash flow were expected to cover anticipated 2011 capital needs.
- Debt: Current and long-term debt totaled approximately $3,103.9 million; separate land-concession obligations totaled $179.2 million. Management reported compliance with debt covenants. Approximately 87% of long-term debt was fixed-rate, including swaps; a 1% change in variable rates was estimated to change annual interest cost by $3.9 million.
- Dividends: The company paid $0.50 per share in May and August 2011. After quarter end, the board declared a further $0.50 per share dividend and, on November 1, a $5.00 per share dividend, payable December 21, 2011.
Changes and operating drivers
- Macau was the main growth driver. Q3 VIP turnover rose 45%; VIP win was 2.95%, within the stated 2.7%–3.0% expected range. Macau general-casino drop increased 16.4%, and table-games win percentage was 27.7%, within the revised 26%–28% range. Year-to-date Macau growth also benefited from Encore at Wynn Macau, which opened in April 2010.
- Las Vegas Q3 casino revenue declined $11.5 million as table-games win percentage fell to 18.3%, below the expected 21%–24% range, despite 10.7% higher table-games drop. Year-to-date Las Vegas casino revenue increased, helped by higher drop and a 25.4% table-games win percentage, above the expected range.
- Room revenue increased in both markets. Q3 Las Vegas/Macau occupancy was 88.3%/93.7%; ADR was $240/$315. The company cited higher room rates and Macau occupancy, and increased visitation supporting Macau gaming, retail and food-and-beverage results.
- Q3 2010 results included a $64.2 million debt-extinguishment loss, contributing to the prior-period net loss. Nine-month 2011 results included $108.5 million of present-value expense for a University of Macau donation commitment, a significant unusual charge.
Outlook, risks and contingencies
- No quantified earnings or revenue guidance is provided. Management said it continued to refine its resorts and described the Las Vegas economic environment as uncertain.
- The company accepted draft terms for a roughly 51-acre Cotai land concession and anticipates a resort with a casino and approximately 1,500 rooms, subject to government approval. Scope, schedule and budget remained under development. The land premium is approximately $193.4 million; a separate $50 million payment for relinquishment of third-party development rights was accrued.
- The University of Macau commitment totals $135 million: $25 million paid in May 2011 and $10 million annually for 2012–2022. The filing recorded $108.5 million as the present value of the remaining commitment and related charge.
- Key risks include reliance on two resort complexes, volatile premium gaming and customer credit, international economic and tourism conditions, Macau regulatory and mainland visitation changes, competition, leverage and refinancing, interest and currency movements, and dependence on key executives. About 80% of casino markers were due from customers outside the U.S., primarily in Asia; the doubtful-account allowance was $120.4 million.
- Atlantic-Pacific Capital is pursuing approximately $32 million in disputed compensation. The company denies the claim and intends to defend it; a court had denied the claimant’s motion to compel arbitration, and an appeal was pending. The filing also notes an IRS examination of the 2010 return and possible reduction of unrecognized Macau tax benefits by $0–$10.7 million over the next 12 months.
Most important facts for investors to verify
- Whether Macau revenue, VIP turnover and win rates remain sustainable, and how gaming win volatility affects reported results.
- Cash availability at the parent versus subsidiaries, debt maturities and restrictions on subsidiary distributions and dividends.
- The final Cotai project approval, scope, budget, schedule and total funding needs, including land and related obligations.
- The impact of the $108.5 million donation charge and future annual donation payments on earnings and cash flow.
- Collection performance on casino receivables, tax examinations and the outcome of the APC dispute.
- The terms, funding and sustainability of the subsequently declared $5.00-per-share dividend.