Wynn Resorts, Limited — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2019. Financial statements are unaudited. Wynn operates resorts in Macau and Las Vegas and opened Encore Boston Harbor on June 23, 2019. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1.648B | $1.709B | $4.958B | $5.030B |
| Operating income | $177.8M | $291.0M | $651.7M | $489.3M |
| Operating margin | 10.8% | 17.0% | 13.1% | 9.7% |
| Net income (loss) attributable to Wynn Resorts | $(3.5)M | $156.1M | $195.9M | $107.6M |
| Diluted EPS | $(0.03) | $1.44 | $1.83 | $1.01 |
| Adjusted Property EBITDA | $396.9M | $504.4M | $1.372B | $1.545B |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $779.9M | $497.9M |
- Q3 revenue declined 3.6%; casino revenue fell 9.3%, chiefly on lower VIP turnover and win in Macau. Non-casino revenue rose 10.7%, including Boston Harbor contribution and higher room and food-and-beverage revenue.
- Macau operations revenue fell 18.1% in Q3 to $1.072B. Wynn Palace and Wynn Macau Adjusted Property EBITDA declined 28.3% and 24.0%, respectively. Las Vegas revenue was essentially flat, but its EBITDA declined 7.6%. Encore Boston Harbor generated $175.8M of Q3 revenue and $7.7M of EBITDA.
- Q3 operating income and attributable earnings were pressured by weaker Macau results, higher depreciation after Boston Harbor opened, higher interest expense and a $19.7M income tax expense. The nine-month comparison also reflects the absence of the $463.6M litigation settlement expense recorded in 2018; despite that comparison benefit, nine-month EBITDA declined 11.2%.
- Q3 interest expense, net of capitalized interest, was $114.7M, up 23.3%. Nine-month interest expense was $301.0M, up 7.1%. The weighted-average interest rate on total debt was 5.00% for the nine months, versus 4.71% a year earlier.
Cash, debt and liquidity
- At September 30, cash and cash equivalents were $1.676B, down from $2.215B at year-end 2018. Current assets were $2.111B and current liabilities $1.930B.
- Long-term debt carrying value, net of issuance costs and current portion, was $9.422B; current debt was $116.1M. Cash plus available revolver capacity was approximately $2.782B, comprising $1.676B cash and $1.105B available borrowing capacity.
- Nine-month operating cash flow of $779.9M was below capital expenditures of $878.3M. Investing cash outflow was $883.7M; financing cash outflow was $431.6M, including $460.1M of dividends paid. Cash, cash equivalents and restricted cash decreased $537.0M.
- The September refinancing replaced prior facilities with a $1.0B term loan, an $850M revolver and $750M of 5⅛% notes due 2029. At quarter-end, $25M was drawn on the new revolver and $806.9M remained available. Term-loan repayments of $12.5M per quarter begin in Q4 2019; the remaining balance is due in 2024. Management reported compliance with debt covenants.
- About 54.5% of long-term debt was fixed-rate. The company estimated that a 100-basis-point change in variable rates would change annual interest expense by $43.8M. A 1% change in the U.S. dollar/Hong Kong dollar rate could cause a $27.7M foreign-currency transaction gain or loss.
Outlook, developments and risks
- No company-wide earnings or revenue guidance is provided. Management expected the Wynn Las Vegas convention expansion, with an estimated $425M budget and $302.7M incurred by September 30, to open in Q1 2020. Macau’s West Casino renovation was expected to be completed in stages in Q4 2019 and Q1 2020. Initial Crystal Pavilion construction at Wynn Palace was expected to begin in late 2021.
- Management’s stated expected table-game win ranges were 2.7%–3.0% of VIP turnover in Macau, 22%–26% of table drop in Las Vegas, and 16%–20% at Encore Boston Harbor. Actual results can vary with gaming volumes and win percentages.
- The Massachusetts Gaming Commission imposed a $35M fine, paid in Q2, and Nevada regulators imposed a $20M fine, paid in Q1, in matters related to former CEO Stephen A. Wynn. Litigation remains ongoing. A Suffolk County action seeks $1B in compensatory damages plus treble damages; management said it could not determine the probability of outcome or reasonably possible loss. Other securities, derivative, individual-stockholder and license-related litigation also remains relevant; potential losses are not clearly quantified in the filing.
- Key disclosed risks include Macau VIP demand and customer credit collection, economic and travel conditions in China and the U.S., gaming-license and regulatory requirements, competition, construction costs and execution, leverage and interest-rate exposure, foreign-exchange movements, and litigation. The company also depends on subsidiaries’ ability to distribute cash to the parent, subject to debt-agreement restrictions.
- The company adopted lease accounting in 2019, recognizing operating lease assets and liabilities; management reported no effect on operating income, net income or cash flows. Prior periods were not retrospectively adjusted, limiting balance-sheet comparability.
Most important facts for investors to verify
- Whether Macau VIP turnover and property EBITDA stabilize after the sharp Q3 declines, and how mass-market growth compares with VIP weakness.
- Encore Boston Harbor’s ongoing revenue, margins and cash contribution after its partial-year opening.
- Cash generation relative to capital spending, dividends and debt service, along with the availability and covenant terms of subsidiary-level liquidity.
- Progress, final cost and opening timing for the Las Vegas convention expansion and Macau renovations.
- Developments and potential financial exposure from the Suffolk action and other pending litigation, regulatory matters and gaming-license conditions.