Las Vegas Sands Corp. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also provides unaudited fourth-quarter results. Amounts are U.S. dollars unless stated otherwise.
Business context
Las Vegas Sands develops and operates integrated resorts in Macao, Singapore and Las Vegas. The portfolio combines casinos with hotels, retail, dining, entertainment and convention facilities. The company held a 70% interest in Sands China Ltd. and sold Sands Bethlehem on May 31, 2019.
Financial results and key metrics
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Net revenue | $13.739 billion | $13.729 billion |
| Operating income | $3.698 billion | $3.751 billion |
| Operating margin | 26.9% | 27.3% |
| Net income | $3.304 billion | $2.951 billion |
| Net income attributable to LVS | $2.698 billion | $2.413 billion |
| Diluted EPS | $3.50 | $3.07 |
| Adjusted property EBITDA | $5.389 billion | $5.279 billion |
| Cash from operating activities | $3.038 billion | $4.701 billion |
| Capital expenditures | $1.216 billion | $949 million |
FY 2019 revenue was essentially flat. Operating income fell 1.4%, while net income rose 12.0%, primarily because of the $556 million gain on the Bethlehem sale. Adjusted property EBITDA, a non-GAAP measure, increased 2.1%. Operating cash flow declined by $1.663 billion; the company attributed much of the decrease to a $963 million Singapore land-lease payment for the expansion project, higher interest costs, a legal settlement and working-capital changes. Cash flow less capital expenditures was approximately $1.822 billion, before other investing and financing uses.
Fourth-quarter 2019 revenue was $3.509 billion, operating income was $934 million, net income was $783 million and diluted EPS was $0.82. Fourth-quarter 2018 revenue was $3.475 billion, operating income was $874 million, and the company reported a $40 million net loss and diluted loss per share of $0.22; the 2018 quarter included a $727 million non-cash tax expense related to U.S. tax reform guidance.
Liquidity, debt and capital allocation
At December 31, 2019, cash and cash equivalents were $4.226 billion, with another $16 million of restricted cash. Current assets were $5.305 billion and current liabilities were $3.224 billion (a current ratio of approximately 1.64). Long-term debt was $12.422 billion, excluding $70 million of current maturities; contractual debt was $12.577 billion. The company reported $3.95 billion available on U.S., Macao and Singapore revolving facilities and $2.78 billion available under Singapore’s delayed-draw term facility for the expansion project.
Debt increased from $11.985 billion at year-end 2018 to $12.492 billion at year-end 2019. The company issued $4.0 billion of senior notes and used part of the proceeds to repay its U.S. credit facility and for general corporate purposes, including share repurchases. Management said available cash, operating cash flow and undrawn facilities were expected to cover working capital, planned and committed projects, debt obligations and dividend commitments. Credit agreements impose leverage and other covenants; management reported compliance at year-end.
The company paid $3.00 billion in dividends and noncontrolling-interest distributions and repurchased $754 million of its shares in 2019. In January 2020, the board declared a $0.79-per-share quarterly dividend and said it expected that level to continue through the remainder of 2020, subject to ongoing board assessment.
Material changes and operating performance
- Macao revenue increased $188 million, with higher non-rolling-chip win and drop contributing to casino growth; Macao adjusted property EBITDA rose 3.6% to $3.189 billion.
- Las Vegas operating-property revenue increased $136 million, and adjusted property EBITDA rose 23.6% to $487 million, supported by casino and room performance.
- Marina Bay Sands adjusted property EBITDA declined 1.7% to $1.661 billion, mainly reflecting higher payroll, property tax, repair and maintenance costs.
- The Bethlehem sale reduced revenue by approximately $309 million year over year, but generated $1.161 billion in net cash proceeds and a $556 million gain.
- Corporate expense rose $111 million, primarily due to a nonrecurring legal settlement. Doubtful-account provision increased to $30 million from $5 million. Ferry impairment charges included $65 million related to two ferries.
- Interest expense, net of capitalized amounts, increased to $555 million from $446 million; the weighted-average interest rate rose to 4.5% from 4.0%.
Outlook, risks and contingencies
Development plans included approximately $2.2 billion of Macao projects, with The Grand Suites at Four Seasons expected to finish in the first half of 2020 and The Londoner Macao work phased through 2020 and 2021. The Singapore expansion was estimated at SGD 4.5 billion (approximately $3.3 billion at year-end exchange rates), with completion required within eight years under the development agreement. Costs and timing remained subject to change. The Las Vegas condominium project remained suspended; management said a decision to abandon it could result in a charge against $129 million of capitalized costs.
A significant subsequent event was the 2019 Novel Coronavirus outbreak. The Macao government suspended casino operations beginning February 5, 2020; travel restrictions and suspension of the China Individual Visit Scheme also disrupted visitation. Management said the effect on Macao operations and consolidated results, cash flows and financial condition would be material but could not then be reasonably estimated. This event occurred after the reporting year and is not reflected in FY 2019 operating results.
Other material risks include the Macao gaming subconcession’s June 2022 expiry and uncertainty over extension; concentration of cash generation in three markets; substantial debt and refinancing needs, including significant maturities in 2023 and 2024; gaming regulation and license requirements; credit collection and gaming volatility; construction cost and schedule risks; foreign-exchange and interest-rate exposure; competition; and litigation. A Macao action by Asian American Entertainment sought to increase its claim to 96.45 billion patacas (approximately $12.02 billion); the company said it could not determine the probability of outcome or reasonably possible loss and intended to defend the matter vigorously. The filing provides no quantified FY 2020 earnings or revenue guidance.
Most important facts for investors to verify
- The duration, operating and cash-flow effects of the Macao casino suspension and associated travel restrictions, which were not estimable when the filing was issued.
- Whether Macao’s gaming subconcession and related tax arrangements are extended beyond June 2022, and the terms of any extension.
- Debt maturities, refinancing capacity, covenant headroom and the sustainability of dividends and repurchases amid large development commitments.
- Actual project costs, schedules and returns for The Londoner Macao, The Grand Suites at Four Seasons and the Marina Bay Sands expansion.
- Developments in the AAEC litigation and any other contingencies, along with casino receivable collections and allowance adequacy.