Las Vegas Sands Corp. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited results cover the company’s integrated resort, gaming, hotel, retail and convention operations in Macao, Singapore and the U.S. Sands Bethlehem was sold on May 31, 2019; its results are included through May 30.
Financial results
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Net revenue | $3.334B | $3.303B | $6.980B | $6.882B |
| Operating income | $894M | $797M | $1.865B | $1.955B |
| Net income | $1.108B | $676M | $1.852B | $2.292B |
| Net income attributable to LVS | $954M | $556M | $1.536B | $2.012B |
| Diluted EPS | $1.24 | $0.70 | $1.98 | $2.55 |
| Adjusted property EBITDA | $1.266B | $1.225B | $2.718B | $2.725B |
Q2 revenue increased 0.9%, operating income 12.2%, and adjusted property EBITDA 3.3% year over year. Q2 net income included a $556M gain on the Bethlehem sale. For the first half, revenue rose 1.4%, while operating income fell 4.6%, net income fell 19.2%, and adjusted property EBITDA was down 0.3%. The company reported a 26.8% Q2 operating margin and 26.7% first-half margin, calculated from reported operating income and revenue.
Q2 performance reflected stronger Las Vegas and Macao results, partly offset by lower Marina Bay Sands casino revenue and the Bethlehem divestiture. First-half Macao revenue rose $203M and Las Vegas revenue rose $58M, while Marina Bay Sands revenue fell $122M. First-half operating income was pressured by lower Singapore Rolling Chip win percentage, a nonrecurring legal settlement, and higher depreciation and amortization. Interest expense, net, rose to $284M for the first half from $182M, reflecting higher average debt and interest rates. The first-half effective tax rate was 14.8%, versus a tax benefit in 2018 that included a $670M noncash benefit; 2019 included $161M tax expense on the Bethlehem sale.
Cash flow, debt and liquidity
- First-half operating cash flow was $896M, down from $2.504B. Management attributed the decrease principally to the Singapore land-lease payment for the MBS expansion, a nonrecurring legal settlement, higher interest costs and working-capital movements.
- Investing cash flow was a $655M source, including $1.160B net cash proceeds from the Bethlehem sale; capital expenditures were $453M. Financing cash outflow was $2.187B, including $1.821B in dividends and noncontrolling-interest payments and $354M in share repurchases.
- Cash and cash equivalents were $4.017B at June 30, 2019, plus $14M restricted cash. Long-term debt was $11.909B, with $116M current maturities; total debt carrying value was approximately $12.025B. The company reported $3.41B of available borrowing capacity across credit facilities, net of letters of credit.
- Management said it was in compliance with debt covenants. Reported leverage ratios were 1.1x for U.S., 1.8x for SCL and 2.1x for Singapore facilities, below respective limits of 5.5x, 4.0x and 4.0x. Management believed cash, operating cash flow and available facilities could fund working capital, projects, debt obligations and dividend commitments.
- The company paid quarterly common dividends of $0.77 per share in March and June and repurchased 6.1M shares for $354M during the first half. A further $0.77 dividend was declared in July for payment in September.
Material developments, outlook and risks
- Macao: The Londoner Macao renovation and expansion and Four Seasons Tower Suites Macao were expected to cost approximately $2.2B in total. Management expected the tower suites to be completed in Q1 2020 and The Londoner project in phases during 2020–2021; costs and dates could change.
- Singapore expansion: The MBS project is planned to include a hotel tower, rooftop attraction, convention facilities and an arena seating at least 15,000. Estimated cost was SGD 4.5B (about $3.3B). The company had paid approximately SGD 1.54B (about $1.14B) in land-related premiums, deposits, taxes and fees. It was pursuing an estimated $2.77B delayed-draw term loan and up to $185M of additional revolving commitments; financing was not assured and timing and amounts remained subject to change.
- Marina Bay Sands’ gaming license was renewed through April 2022 following a SGD 72M payment. The company said it expected no full-year results from interim performance and gave no specific earnings guidance in this filing.
- Risks include gaming-license and regulatory requirements, competition, economic and travel conditions, gaming-revenue volatility, credit collection, currency and interest-rate exposure, leverage and refinancing, project execution and litigation. A hypothetical 100-basis-point increase in LIBOR and SOR would increase annual interest cost by approximately $121M, per the filing.
- In a Macao lawsuit, AAEC sought to increase its claim on July 15, 2019 to 96.45B patacas (about $11.98B). The filing states management could not determine the probability of outcome or reasonably possible loss and intended to defend the matter vigorously; trial was scheduled for September 2019. Management considered other ordinary-course litigation not expected to materially affect results, but actual outcomes could differ.
- Lease accounting adoption added $337M of operating lease right-of-use assets and liabilities as of January 1, 2019, with no impact on net income. The Las Vegas condo tower remained suspended. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification priorities
- Separate recurring operating performance from the $556M Bethlehem sale gain and the unusual 2018 tax benefit and asset write-off when comparing earnings.
- Track Marina Bay Sands casino trends and win-rate variability, as well as Macao and Las Vegas segment performance and the impact of selling Bethlehem.
- Verify financing terms, committed funding and total cost/timing for the MBS expansion and Macao projects; monitor cash needs after the substantial land payment, dividends and repurchases.
- Review debt maturities, interest-rate sensitivity, facility headroom and covenant compliance, including the proposed Singapore financing.
- Follow developments in the AAEC claim, including its substantially increased demand, and assess any eventual change in the company’s loss assessment.