Wynn Resorts, Limited — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; unaudited. Wynn Resorts develops and operates integrated casino resorts in Macau and Las Vegas and is building Wynn Boston Harbor. The company owns approximately 72% of Wynn Macau, Limited. Results reflect a full quarter of Wynn Palace operations in Q3 2017, versus 40 operating days in Q3 2016, limiting comparability.
Key financial results
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net revenue | $1.612 billion | $1.110 billion | $4.617 billion | $3.166 billion |
| Operating income | $257.3 million | $76.9 million | $754.1 million | $382.8 million |
| Net income attributable to Wynn Resorts | $79.8 million | $(17.4) million | $255.5 million | $128.2 million |
| Diluted EPS | $0.78 | $(0.17) | $2.49 | $1.26 |
| Adjusted Property EBITDA | $473.0 million | $305.4 million | $1.331 billion | $918.4 million |
| Net cash from operations | Not separately reported for quarter | Not separately reported for quarter | $1.278 billion | $680.8 million |
Q3 net revenue rose 45.3%, operating income increased to more than three times the prior-year level, and Adjusted Property EBITDA rose 54.8%. Nine-month revenue increased 45.8%, attributable net income rose 99.3%, and Adjusted Property EBITDA increased 44.9%. Operating margin was approximately 16.0% in Q3 2017 versus 6.9% in Q3 2016, and 16.3% for the first nine months versus 12.1% a year earlier. These margins are calculated from reported revenue and operating income.
Operations and material changes
- Macau Operations generated Q3 net revenue of $1.153 billion, up 68.8%; Wynn Palace contributed $555.3 million and Wynn Macau $597.4 million. Wynn Palace’s year-over-year comparison is substantially affected by its August 2016 opening.
- Las Vegas Operations generated Q3 net revenue of $459.6 million, up 7.6%. Companywide casino revenue rose 59.4%; non-casino revenue increased 10.6%.
- Q3 Adjusted Property EBITDA was $321.4 million for Macau Operations, including $138.2 million at Wynn Palace, and $151.5 million for Las Vegas. Management said Wynn Palace volume improved sequentially, while construction surrounding the property continued to affect its ramp-up.
- Higher operating expenses partly offset revenue growth. Q3 expenses increased 31.2%, including higher casino costs, general and administrative costs and depreciation; pre-opening expense fell as Wynn Palace moved beyond its opening period.
- Q3 property charges and other included $19.1 million of estimated costs primarily related to typhoon damage in Macau.
Cash, debt and liquidity
- At September 30, 2017, cash and cash equivalents were $2.936 billion and available-for-sale investments were $320.2 million. Current assets totaled $3.557 billion against current liabilities of $2.062 billion.
- Total debt carrying value was $10.177 billion, including $405.3 million classified as current; long-term debt was $9.772 billion. Debt excludes the separate cash and investment balances. Management reported compliance with debt covenants.
- Available revolving capacity was $608.6 million under Wynn Macau’s facility and $358.0 million, net of letters of credit, under Wynn America’s facility. About 66.5% of long-term debt was fixed-rate; a 100-basis-point change in variable rates was estimated to change annual interest cost by $34.4 million.
- Nine-month investing cash outflow was $663.2 million, including $650.3 million of capital expenditures, primarily for Wynn Boston Harbor. Financing cash outflow was $128.0 million; dividends paid were $270.1 million. Operating cash flow increased to $1.278 billion, helped by Wynn Palace and higher customer deposits.
- Debt refinancing included $1.35 billion of WML notes due 2024 and 2027, and $900 million of Wynn Las Vegas notes due 2027. The company tendered for and redeemed its 2021 and 2022 notes; the remaining $403.6 million of 2021 notes was redeemed on October 20, 2017. Debt extinguishment losses were $43.1 million for the nine-month period.
- Dividends declared were $0.50 per share in Q3 and $1.50 per share for the first nine months. A further $0.50-per-share dividend, payable November 28, 2017, was announced after quarter-end.
Outlook, risks and unusual items
- No consolidated earnings or revenue guidance was provided. Management expects to fund operations, development, debt service and other needs with operating cash flows, credit-facility availability and cash balances, while cautioning that cash generation and refinancing are not assured.
- Wynn Boston Harbor had an estimated total project budget of approximately $2.4 billion; $935.6 million had been incurred by September 30, 2017. The company expected a mid-2019 opening. A construction agreement set a $1.32 billion guaranteed maximum price, subject to adjustments, and a substantial-completion date of June 24, 2019.
- The planned Phase 1 redevelopment of the Wynn Las Vegas golf course had an estimated budget of approximately $500 million; the course was expected to close before year-end 2017. Most additional Las Vegas retail space was expected to open in Q3 2018.
- Reported earnings included non-cash Redemption Note fair-value losses of $41.7 million in Q3 and $70.0 million for nine months. The note’s fair value was $1.889 billion at quarter-end; valuation depends partly on uncertain litigation and redemption assumptions.
- The Okada-related redemption litigation and related claims remain significant uncertainties. Management said it could not determine the probability of outcome or reasonably possible loss; an adverse material judgment or settlement could materially affect financial condition. A Macau court dismissed claims in July 2017, but the plaintiffs indicated an intention to appeal.
- Challenges to the Massachusetts gaming license remained pending, including a remanded certiorari claim and an open-meeting-law claim. Other cited risks include Macau gaming regulation and visitation, customer credit and collections, construction costs and execution, leverage and interest rates, foreign exchange, and legal or regulatory investigations.
- The company stated that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- How much of the revenue and EBITDA growth reflects Wynn Palace’s additional operating days versus underlying comparable-property trends and gaming win rates.
- Wynn Palace’s ramp-up, including effects of nearby construction, VIP turnover, mass-market performance and actual win rates.
- Wynn Boston Harbor’s remaining funding needs, cost and schedule performance, permitting and labor risks, and the terms of its construction commitments.
- Debt maturities, refinancing outcomes, interest-rate exposure, covenant headroom, and the amount and location of cash available to the parent company.
- Developments in Okada-related litigation and investigations, the Massachusetts license challenges, and any resulting financial or regulatory consequences.
- Typhoon-related repair costs and whether the estimated $19.1 million charge captures the full impact.