Wynn Resorts, Limited — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Financial figures below are in U.S. dollars; “million” and “billion” amounts are converted from the filing’s reported thousands.
Business context and reporting period
Wynn Resorts operates integrated resorts in Macau, Las Vegas and Boston. COVID-19 closures, travel restrictions, capacity limits and reduced visitation severely curtailed activity during the period. Macau casinos reopened after a 15-day closure in February; Wynn Las Vegas reopened June 4 after closing in March; Encore Boston Harbor reopened July 10.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $370.5 million | $1,647.8 million | $1,409.9 million | $4,957.6 million |
| Operating income (loss) | ($283.0 million) | $177.8 million | ($1,053.4 million) | $651.7 million |
| Net income (loss) attributable to Wynn Resorts | ($758.1 million) | ($3.5 million) | ($1,797.7 million) | $195.9 million |
| Diluted earnings (loss) per share | ($7.10) | ($0.03) | ($16.85) | $1.83 |
| Adjusted Property EBITDA | ($65.9 million) | $396.9 million | ($394.1 million) | $1,372.3 million |
| Operating cash flow | Not presented separately | Not presented separately | ($781.1 million) | $779.9 million |
Q3 revenue fell 77.5% year over year; nine-month revenue fell 71.6%. Q3 casino revenue declined 81.8%, while non-casino revenue declined 68.7%. Macau revenue fell 93.7% in Q3; Las Vegas revenue fell 53.3%, and Encore Boston Harbor revenue fell 33.6%. Q3 Adjusted Property EBITDA was negative in Macau, but remained positive in Las Vegas and Boston.
At September 30, cash and cash equivalents were $3.55 billion, versus $2.35 billion at December 31, 2019. Total debt, net of issuance costs and current portion, was $12.56 billion long-term plus $226.6 million current; total liabilities were $14.51 billion. Stockholders’ equity was a $546.6 million deficit. Nine-month capital expenditures were $261.1 million. Financing activities provided $2.24 billion, principally reflecting new debt issuance.
Material changes versus the prior comparable period
- Operating results deteriorated sharply, reflecting pandemic-related closures and suppressed travel and demand. Nine-month operating results shifted from income to a $1.05 billion loss.
- Macau was particularly affected: mainland China visitation to Macau was down 90.5% in Q3 and 85.9% for the nine-month period versus 2019.
- Nine-month operating cash flow swung from a $779.9 million inflow to a $781.1 million outflow.
- Debt increased: reported total debt before unamortized costs was $12.90 billion at September 30, 2020, versus $10.52 billion at year-end 2019. Interest expense, net, rose to $407.2 million for the nine months, from $301.0 million.
- The company suspended its quarterly dividend in May. It paid $108.3 million in dividends during the first nine months of 2020, compared with $460.1 million in the prior-year period.
Outlook, risks and unusual items
- Management said it could not reasonably estimate the pandemic’s future effect on results, cash flows or financial condition, or predict when properties would return to pre-pandemic demand and pricing. It described operations as generating extremely limited revenue.
- Major project capital spending, including the Wynn Tower room remodel, was postponed for the remainder of 2020; the company said it would resume when conditions stabilized. No quantified earnings or revenue guidance was provided.
- Cash and cash equivalents were $3.55 billion, but available borrowing capacity under the WRF Revolver was only $15.9 million; there was no available capacity under the Wynn Macau Revolver. Cash is held across subsidiaries and jurisdictions, which may affect its availability to the parent.
- Debt amendments provided WRF covenant relief through April 1, 2021, replacing a leverage test with a minimum liquidity requirement of $300 million. Management reported covenant compliance at September 30. The company also disclosed restrictions on certain payments and stepped leverage tests after the relief period.
- Income tax expense was $407.4 million in Q3 and $564.1 million for the nine months, despite losses. This primarily reflected increased valuation allowances on U.S. foreign tax credits, loss carryforwards and other deferred tax assets; the balance sheet reported no net deferred tax asset at September 30.
- Credit-loss provision for the nine months was $60.5 million versus $13.0 million in 2019. The allowance was 45.8% of gross casino receivables, compared with 12.4% at year-end 2019, reflecting collection expectations and account reviews amid the pandemic.
- Unusual items included a $30.2 million net benefit from a derivative-litigation settlement recorded against general and administrative expense, and a $4.6 million nine-month loss on debt extinguishment. A $562.3 million deferred-tax adjustment appears in the cash flow reconciliation.
- Risks include prolonged travel restrictions and weak demand, financing and debt-service needs, collection of gaming receivables, foreign-exchange and interest-rate exposure, gaming-concession and regulatory matters, and an ongoing U.S. anti-money-laundering investigation. The company said it could not estimate a possible loss from the investigation or certain shareholder litigation.
- Subsequent developments disclosed in the filing: Wynn Interactive was formed in October, with Wynn Resorts retaining approximately 71%; Encore Las Vegas moved to a reduced operating schedule October 19, and Massachusetts operating-hour restrictions took effect November 6.
Important facts for investors to verify
- Whether Macau visitation and property-level results recover, and how travel rules and health measures evolve.
- Cash availability by subsidiary and jurisdiction, cash burn, and the company’s ability to meet debt service and covenant requirements.
- Debt balances, refinancing options and costs, and the post-relief-period leverage tests.
- Changes in credit-loss estimates, collection of casino receivables, and the basis for deferred-tax valuation allowances.
- Progress and potential financial effects of the anti-money-laundering investigation and pending legal matters.
- Timing of dividend reinstatement, major capital projects, and Wynn Interactive’s operations and financial contribution.
Adjusted Property EBITDA is a supplemental non-GAAP measure and should not be treated as a substitute for GAAP operating results or operating cash flow.