Wynn Resorts, Limited — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Wynn Resorts develops and operates integrated casino resorts in Macau and Las Vegas and is building Encore Boston Harbor. The company owns approximately 72% of Wynn Macau, Limited.
Financial results and liquidity
- Revenue: $1.716 billion, up 20.5% year over year. Casino revenue was $1.242 billion, up 25.5%; non-casino revenue was $473.4 million, up 9.1%.
- Operating performance: Adjusted Property EBITDA, a non-GAAP measure, was $564.3 million, up 32.0%; approximately 32.9% of revenue versus 30.0% a year earlier. GAAP operating loss was $81.3 million, including a $463.6 million litigation settlement expense.
- Profit: Net loss attributable to Wynn Resorts was $204.3 million, or $1.99 per diluted share, compared with net income of $100.8 million, or $0.99 per diluted share, in Q1 2017. The loss also reflected a $69.3 million fair-value loss on the Redemption Note; a $111.0 million income tax benefit partly offset these items.
- Cash flow: Operating cash flow was negative $53.6 million, versus positive $414.6 million a year earlier. Investing cash outflow was $408.1 million, including $514.1 million of capital expenditures; financing cash outflow was $307.2 million. Cash, cash equivalents and restricted cash declined $773.0 million to $2.034 billion.
- Debt and liquidity: Balance-sheet debt, net of issuance costs and discounts, was approximately $9.36 billion at quarter-end; cash and cash equivalents were $2.032 billion, with $129.7 million of investment securities. Available capacity under listed credit facilities was $724.3 million. Management reported compliance with debt covenants.
- Shareholder distributions: The company declared a $0.50-per-share dividend for the quarter. In April, it announced a $0.75-per-share dividend. Wynn Macau also declared a dividend, of which $138.3 million was recorded as payable to noncontrolling interests at quarter-end.
Changes versus Q1 2017
- Macau revenue rose 27.8% to $1.284 billion, led by Wynn Palace, where revenue increased 47.2% to $665.8 million. Las Vegas revenue increased 3.0% to $431.5 million.
- Total Adjusted Property EBITDA increased $136.8 million: Wynn Palace contributed $211.9 million, Wynn Macau $209.8 million and Las Vegas $142.6 million. Wynn Palace EBITDA rose 89.4%.
- Despite stronger property results, the company moved from GAAP profit to a loss, primarily because of the settlement expense and Redemption Note fair-value movement.
- ASC 606 revenue guidance was adopted retrospectively. The filing says prior-period presentation changed, but operating income and net income were unaffected.
Outlook, management commentary and risks
- Management expected Encore Boston Harbor to open in mid-2019. Its estimated total budget was approximately $2.5 billion, with $1.38 billion incurred by March 31; the construction contract had a $1.32 billion guaranteed maximum price, subject to adjustment.
- Phase 1 of the Wynn Las Vegas golf-course redevelopment, including a lagoon and additional meeting space, was budgeted at approximately $500 million, with opening expected in Q1 2020. Additional retail space at Wynn Las Vegas was expected to open in the second half of 2018.
- On April 3, 2018, the company completed a 5.3 million-share offering to a Galaxy Entertainment affiliate at $175 per share, for approximately $915.8 million net proceeds before estimated offering expenses. Proceeds repaid the $800 million bridge loan and were also used to repay other debt. These are post-quarter events.
- Stephen A. Wynn resigned as chairman and CEO in February 2018. The company disclosed an independent-board investigation into allegations concerning his workplace conduct, regulatory reviews in Massachusetts, Nevada and Macau, shareholder derivative actions, and a securities class action. Management said potential loss from several matters could not then be estimated.
- The company settled major claims with Universal Entertainment and Aruze, paying the $1.94 billion Redemption Note principal, $463.6 million related to interest-rate claims, and releasing $232.4 million of accrued interest held in escrow. Other litigation, including claims involving Kazuo Okada, remained pending.
- Key risks include gaming-license and regulatory matters, Macau visitation and economic conditions, customer credit and collection risk, construction costs and delays, substantial leverage and interest-rate exposure, and dependence on a limited number of resorts. A 100-basis-point change in variable rates was estimated to change annual interest cost by $49.7 million.
Important facts for investors to verify
- Post-April financing and debt balances, including repayment of the bridge loan and other debt, and the effect of the share offering on dilution.
- Cash generation excluding the settlement, upcoming construction spending, and actual costs and schedule for Encore Boston Harbor and the Las Vegas redevelopment.
- Whether Macau revenue and EBITDA growth persist, particularly given quarterly win-rate variability; Wynn Macau VIP win was 2.61% of turnover and Wynn Palace VIP win was 2.60%.
- Developments in regulatory reviews and pending litigation, including any changes to estimated exposure or gaming-license risk.
- Debt maturities, subsidiary restrictions on distributions, available borrowing capacity, and the sustainability of dividends amid high leverage and capital commitments.