Las Vegas Sands Corp. — Q2 2017 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2017. Las Vegas Sands operates integrated casino resorts in Macao, Singapore and the United States. The Parisian Macao, opened in September 2016, contributed materially to the year-over-year increase. Amounts below are U.S. dollars; financial figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net revenue | $3,141 | $2,649 | $6,247 | $5,366 |
| Operating income | $816 | $518 | $1,579 | $1,104 |
| Net income | $638 | $394 | $1,216 | $803 |
| Net income attributable to Las Vegas Sands | $545 | $328 | $1,025 | $648 |
| Diluted EPS | $0.69 | $0.41 | $1.29 | $0.82 |
| Adjusted property EBITDA (non-GAAP) | $1,208 | $955 | $2,355 | $1,873 |
Q2 net revenue rose 18.6%, operating income 57.5%, and attributable net income 66.2% year over year. Operating margin was approximately 26.0% versus 19.6%; adjusted property EBITDA margin was approximately 38.5% versus 36.1%. For the first half, net revenue rose 16.4% and attributable net income rose 58.2%; operating margin was approximately 25.3% versus 20.6%. Margins are calculated from reported figures. Adjusted property EBITDA is a non-GAAP measure and excludes significant cash uses, including capital spending, dividends, interest and debt repayments.
Q2 revenue growth reflected $361 million from The Parisian Macao and a $126 million increase at Marina Bay Sands. Marina Bay Sands benefited from higher casino revenue, including higher rolling-chip volume and win percentage. For the first half, The Parisian generated $679 million of net revenue and $188 million of adjusted property EBITDA; Marina Bay Sands’ adjusted property EBITDA increased 35.6% to $857 million. Casino revenue also increased at Las Vegas Operating Properties, partly reflecting a higher table-games win percentage. Gaming results can vary materially over short periods due to chance.
- Cash flow, six months: Operating activities generated $2,109, up from $1,787. Investing activities used $380, including $380 of capital expenditures, versus $750 used in the prior-year period. Financing activities used $1,591, including $1,781 in dividends and $225 in share repurchases.
- Cash and liquidity: June 30 cash and cash equivalents were $2,307, with $10 restricted. Total current assets were $3,100 and current liabilities $2,559. Management reported $2,950 of available borrowing capacity across credit facilities, net of letters of credit, and stated that cash and expected operating cash flows should support covenant compliance and planned needs.
- Debt: Debt carrying value was $10,140, including $126 current maturities; cash-adjusted debt was approximately $7,833. The company reported compliance with debt covenants. Its U.S. term loans were refinanced and extended to March 2024, with a 3.2% rate at June 30. A hypothetical 100-basis-point change in relevant benchmark rates was estimated to change annual interest cost by approximately $101.
- Shareholder returns: The company paid $0.73 per common share in each of Q1 and Q2. In July, the board declared another $0.73 quarterly dividend, estimated at approximately $578, and management expected this level to continue quarterly through the remainder of 2017. The company repurchased 3.9 million shares for $225 during the first half.
Material changes and outlook
- The Parisian Macao’s opening added revenue and operating costs; depreciation and amortization increased 28.2% in Q2, primarily due to the Parisian and accelerated depreciation on certain renovated assets.
- Corporate expense declined year over year because the 2016 period included nonrecurring legal costs. Doubtful-account provisions also fell, partly due to collections of previously reserved customer balances.
- Other expense was $25 in Q2 and $61 for the first half, mainly reflecting foreign-currency transaction losses associated with Singapore-dollar-denominated intercompany debt; first-half results also included a $16 fair-value loss on Singapore forward contracts.
- No formal full-year revenue or earnings guidance is provided in the supplied filing text. Management’s stated outlook includes continuation of the $0.73 quarterly dividend through the rest of 2017, subject to the usual uncertainties.
- The company plans to adopt the new revenue-recognition standard on January 1, 2018, on a full retrospective basis. Management anticipated changes to presentation of promotional allowances and complimentary benefits; the filing says the frequent-player-program change was not expected to materially affect financial condition or results.
Risks, contingencies and unusual items
- Key risks include reliance on Macao, Singapore and Las Vegas operations; gaming-volume and win-rate variability; competition; regulation and licensing; collection of gaming receivables; debt service and covenant compliance; interest- and foreign-exchange-rate exposure; and travel, labor, construction and geopolitical disruptions.
- Significant litigation remains. The Round Square matter was remanded for a new damages trial, with document discovery ongoing; the company accrued only a nominal amount and noted an adverse outcome could require an additional liability. The Macao action brought by Asian American Entertainment seeks approximately $373 million; management said it could not determine the probability or reasonably possible loss. Related shareholder derivative matters also remain, with loss exposure not estimable in some cases.
- Macao gaming operations were income-tax exempt through the end of 2018. The company also reported valuation allowances against certain deferred tax assets, which could change if realization prospects change.
Important facts for investors to verify
- Whether Macau and Marina Bay Sands gaming revenue growth persists, separating operating volume from favorable or unfavorable win-rate variation.
- The Parisian Macao’s ongoing contribution to revenue, EBITDA, costs and capital spending, and the performance of existing Cotai properties.
- Capacity to sustain dividends and repurchases alongside $10.14 billion of debt, upcoming obligations and planned capital expenditures.
- Progress and potential exposure in the Round Square, Asian American Entertainment and shareholder derivative litigation.
- Effects of currency movements and variable-rate debt, including the company’s disclosed sensitivity estimates.
- Implementation effects of the 2018 revenue-recognition standard and the expiration of Macao’s gaming income-tax exemption after 2018.