Las Vegas Sands Corp. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013; unaudited. Las Vegas Sands operates integrated casino resorts in Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania. It owned 70.2% of Sands China Ltd., which operates most of its Macao properties.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net revenue | $3.569B | $2.709B | $10.114B | $8.054B |
| Operating income | $915M | $534M | $2.522B | $1.639B |
| Net income | $809M | $445M | $2.185B | $1.310B |
| Net income attributable to LVS | $627M | $350M | $1.728B | $1.089B |
| Diluted EPS | $0.76 | $0.42 | $2.09 | $1.32 |
| Adjusted property EBITDA | $1.276B | $877M | $3.549B | $2.788B |
- Q3 revenue increased 31.7%; operating income rose 71.3% and LVS-attributable net income rose 79.2%. Nine-month revenue increased 25.6%; operating income rose 53.8% and LVS-attributable net income rose 58.7%.
- Operating margin was 25.6% versus 19.7% in Q3 and 24.9% versus 20.4% year to date. Net margin was 22.7% versus 16.4% and 21.6% versus 16.3%, respectively.
- Growth was led by the progressive opening of Sands Cotai Central and stronger casino results at The Venetian Macao and Marina Bay Sands. Q3 adjusted property EBITDA rose 45.5%; Macao and Marina Bay Sands improved, while Las Vegas and Bethlehem EBITDA declined year over year.
- Operating cash flow for the first nine months was $3.161B, up from $2.173B. Investing cash outflow was $646M, including $599M of capital expenditures; financing cash outflow was $1.813B. Cash and equivalents ended at $3.209B, up from $2.513B at year-end 2012.
Debt, liquidity and capital allocation
- Total debt carrying value was $9.764B at September 30, 2013, versus $10.230B at December 31, 2012; cash-adjusted debt was approximately $6.555B. Current maturities were $1.302B, including $1.22B under the Senior Secured Credit Facility due within 12 months.
- Unrestricted cash was $3.21B and restricted cash $7.3M. The company reported $938M available across its U.S., Macao and Singapore facilities. About $2.74B of unrestricted cash was held by non-U.S. subsidiaries; approximately $2.03B could be repatriated with minimal taxes, while other funds were constrained in part by SCL shareholder dividend requirements.
- Quarter-end leverage ratios were 1.0x for U.S., 1.2x for Macao and 2.7x for Singapore, below respective covenant limits of 5.0x, 4.0x and 4.0x. Management said cash and operating cash flow should support covenant compliance, but additional financing may be needed for Cotai development.
- The company paid $1.277B in dividends and repurchased 5.48M shares for $346.3M during the nine months. The board declared a further $0.35-per-share dividend for December 2013 and management said it intended to increase the quarterly dividend to $0.50 beginning in Q1 2014.
Outlook, material items and risks
- The Parisian Macao was expected to open in late 2015, with estimated total development cost of approximately $2.7B. Sands Cotai Central Phase III was expected to cost more than $450M to complete. The company planned to seek an extension to the May 2014 Sands Cotai Central land-concession completion deadline; failure to obtain extensions or meet applicable deadlines could risk the concessions and trigger impairment of capitalized costs.
- Construction of the Las Vegas Condo Tower remained suspended because of weak condominium demand. The company had capitalized $178.8M in project costs and warned that some or all could be impaired if conditions do not improve or the project is abandoned.
- A $47.4M payment to the U.S. Treasury related to two casino customers was recorded as a legal settlement expense and paid in Q3. The USAO matter was closed under an agreement that also requires written reports on certain casino activities. Separately, the SEC and DOJ FCPA investigations remained unresolved; the company said it could not estimate the outcome or potential loss. Its audit committee investigation was complete, with preliminary findings that management said did not require restatement or indicate a material weakness.
- A Nevada jury judgment in the Suen litigation was $101.6M plus approximately $1M in costs and fees. The company intends to appeal and recorded no reserve, citing its view that a loss was not probable or estimable. Other significant litigation includes the Jacobs case, securities and derivative actions, and an approximately $376M Macao claim by AAEC; outcomes were not estimable in the filing.
- Macau gaming operations benefited from an income tax exemption extended through 2018. Marina Bay Sands’ gaming license expires in April 2016. Material risks include gaming and regulatory approvals, dependence on Macao and Singapore, customer and credit trends, competition, construction and concession deadlines, leverage and refinancing, currency and interest-rate exposures, and litigation. A 100-basis-point increase in benchmark rates was estimated to raise annual interest cost by about $94M.
Key facts for investors to verify
- Whether Sands Cotai Central and The Parisian receive required land-concession extensions and remain on schedule and within funding plans.
- Repayment, refinancing or extension plans for the $1.22B of debt classified as current, and continued compliance with tightening Macao and Singapore leverage covenants.
- Whether reported earnings growth persists after accounting for Sands Cotai Central’s ramp-up and volatility in casino win rates, particularly VIP play.
- Developments and potential financial exposure in the FCPA matters and material lawsuits, including the unreserved Suen judgment and AAEC claim.
- Cash availability at the parent level, future dividends and buybacks, and progress toward management’s stated Q1 2014 dividend increase.