Wynn Resorts, Limited — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Wynn Resorts operates casino resorts in Macau and Las Vegas; Encore Boston Harbor opened June 23, 2019. Unless noted, amounts are U.S. dollars.
Key financial results
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | $1.658bn | $1.605bn | $3.310bn | $3.321bn |
| Operating income | $218.7m | $279.6m | $473.9m | $198.3m |
| Net income attributable to Wynn Resorts | $94.6m | $155.8m | $199.4m | $(48.6)m |
| Diluted EPS | $0.88 | $1.44 | $1.86 | $(0.46) |
| Adjusted Property EBITDA | $480.6m | $476.4m | $975.4m | $1.041bn |
| Operating cash flow | Not separately stated | Not separately stated | $509.4m | $53.3m |
Q2 operating margin was approximately 13.2%, versus 17.4% a year earlier. First-half operating margin was approximately 14.3%, versus 6.0%; the prior-year period included a $463.6m litigation settlement expense. Adjusted Property EBITDA is a non-GAAP measure and excludes, among other items, pre-opening costs, corporate expenses, depreciation and interest.
Material changes and operating performance
- Q2 revenue rose 3.3%, led by Las Vegas Operations (+5.1%) and Macau Operations (+1.0%). Casino revenue increased 3.9%; room revenue increased 6.9%. First-half revenue was nearly flat, down 0.3%.
- Macau’s first-half revenue declined 0.9%. Wynn Palace revenue increased 5.4%, while Wynn Macau revenue fell 7.8%. Management cited lower VIP turnover, partly offset by stronger mass-market table drop. Wynn Macau VIP turnover was down 37.2% for the half.
- Las Vegas Q2 revenue increased 5.1% and Adjusted Property EBITDA increased 10.7%, supported by stronger table drop and win percentage. First-half Las Vegas revenue declined 0.9% and EBITDA declined 7.9%.
- Q2 attributable net income fell 39.3%, primarily as pre-opening expense for Encore Boston Harbor rose to $69.9m from $11.2m. First-half pre-opening expense was $97.6m versus $21.5m.
- First-half operating cash flow improved to $509.4m from $53.3m. Capital expenditures were $636.0m, resulting in operating cash flow less capital expenditures of approximately negative $126.6m. Cash, cash equivalents and restricted cash declined $713.0m to $1.506bn.
Debt, liquidity and capital allocation
- At June 30, cash and cash equivalents were $1.502bn. Available revolver capacity was approximately $1.005bn. Current assets were $1.967bn and current liabilities were $1.975bn.
- Debt carrying value, net of issuance costs and discounts, was approximately $9.152bn, including $56.6m current. The company reported $9.263bn of debt before those deductions. Management said the company was in compliance with debt covenants.
- First-half financing cash outflow was $585.9m, including $603.9m of debt repayments and $270.5m of dividends paid; the company also borrowed $250m under its term loan. It declared dividends of $1.75 per share in the first half and announced a further $1.00-per-share dividend payable in August 2019.
- The company had $828.4m remaining under its $1.0bn share repurchase authorization at June 30. The Wynn Resorts term loan matures in 2024; significant facilities also mature from 2021 to 2027.
- Approximately 48.7% of long-term debt was fixed-rate. Management estimated that a 100-basis-point change in variable rates would change annual interest expense by $47.5m. A 1% change in the U.S. dollar/Hong Kong dollar exchange rate was estimated to result in a $26.1m foreign-currency transaction gain or loss.
Outlook, risks and unusual items
- The filing provides no full-year earnings or revenue guidance. Management said interim results are not necessarily indicative of full-year results.
- Encore Boston Harbor generated $18.8m in revenue and $0.1m Adjusted Property EBITDA during its eight operating days in Q2; it is expected to be reported as a separate segment beginning in Q3.
- Planned projects include a roughly $425m Wynn Las Vegas meeting and convention facility and golf-course reconfiguration, with the golf course expected to reopen in Q4 2019 and the facility to open in Q1 2020. Wynn Macau enhancements are expected to open in stages in Q4 2019 and Q1 2020. The Crystal Pavilion at Wynn Palace remains in preliminary planning, with initial construction expected to begin in late 2021.
- The Massachusetts Gaming Commission fined the company $35m, paid in Q2, following its suitability investigation; the Nevada Gaming Commission imposed a $20m fine, paid in Q1. Encore Boston Harbor also faces a lawsuit seeking $1bn plus treble damages; management could not determine the probability or reasonably possible loss. Other shareholder derivative and securities actions remain pending, with losses not estimable from the filing.
- Key disclosed risks include Macau VIP demand and gaming-promoter relationships, collection of gaming receivables, U.S.-China economic and political conditions, gaming-license and regulatory matters, construction execution, leverage and floating interest rates, foreign exchange, and dependence on a limited number of resorts. The company reported that disclosure controls were effective.
Most important facts for investors to verify
- Whether Macau VIP turnover continues to weaken, particularly at Wynn Macau, and whether mass-market growth offsets it.
- Encore Boston Harbor’s post-opening revenue, profitability, cash generation and ramp-up costs.
- Liquidity and debt-service capacity after capital spending, dividends and share repurchases; also verify covenant headroom and refinancing needs.
- Final outcomes and financial exposure, if any, from the Massachusetts lawsuit and pending shareholder litigation.
- Delivery, cost and timing of Wynn Las Vegas and Wynn Macau projects, and the extent to which operating performance depends on gaming win percentages.