Wynn Resorts, Limited — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; figures are unaudited. Wynn Resorts owns 72.3% of Wynn Macau and 100% of its Las Vegas operations, and is developing Wynn Palace in Macau. Dollar amounts below are USD unless noted.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net revenue | $1.412B | $1.332B | $2.926B | $2.711B |
| Operating income | $341.3M | $274.0M | $718.2M | $607.7M |
| Net income attributable to Wynn Resorts | $203.9M | $129.8M | $430.8M | $332.7M |
| Diluted EPS | $2.00 | $1.28 | $4.22 | $3.28 |
| Adjusted Property EBITDA | $467.4M | $425.7M | $962.0M | $876.8M |
- Q2 net revenue rose 6.0%, attributable income rose 57.1%, and Adjusted Property EBITDA rose 9.8%. Operating income margin was approximately 24.2%, compared with 20.6% a year earlier.
- Macau Q2 revenue increased 3.2% to $960.6M; Las Vegas revenue increased 12.5% to $451.4M. Las Vegas recorded quarterly property EBITDA of $160.4M, a property record. Company commentary attributed growth principally to higher casino revenue, including improved table-game win; Macau VIP turnover fell 11.7% in Q2.
- For the first half, Macau revenue increased 8.9% and Las Vegas revenue 5.6%. Macau casino revenue benefited from a 32.9% increase in general-casino table-game win, while VIP win percentage was lower year over year.
- Q2 attributable net income included an $8.7M operating-income benefit from a revised casino-receivable allowance estimate, versus a $14.9M benefit in Q2 2013. The filing identifies these estimate changes as the primary driver of the doubtful-account benefit in each quarter.
Cash, debt and capital allocation
- At June 30, cash and cash equivalents were $3.035B; available-for-sale investments were $250.7M. Current assets were $3.618B and current liabilities $1.285B. Restricted cash was nil after $199.8M was applied to Wynn Palace costs.
- Total long-term debt, including the $1.936B Redemption Note, was approximately $7.311B, with $1.050M current. The $1.55B Wynn Macau revolving facility was undrawn; management reported compliance with debt covenants. Approximately 97% of long-term debt carried fixed rates.
- First-half operating cash flow was $578.1M, down from $910.8M in 2013, mainly due to lower customer deposits and accounts payable/accrued expenses. Investing cash outflow was $254.2M, including $415.6M of capital expenditures, primarily for Wynn Palace. Financing cash inflow was $275.5M, including $756.2M of note proceeds, partly offset by $434.3M of dividends and debt repurchases.
- Wynn Macau issued $750M of additional 5.25% senior notes in March. Interest expense, net of capitalized interest, increased to $81.8M for Q2 and $157.0M for the first half. The company declared $1.25 per share dividends in each of Q1 and Q2; a further $1.25 dividend was announced after quarter-end.
Outlook, risks and contingencies
- Wynn Palace had an approximately $4.0B total project budget and a $2.6B guaranteed-maximum-price construction contract. Approximately $1.1B had been incurred by June 30; the company expected opening in the first half of 2016. Management expected pre-opening costs to rise as development progressed.
- Management said existing cash, operating cash flow and available credit were expected to meet anticipated capital needs for the remainder of 2014, while noting that additional financing might not be available on acceptable terms, or at all.
- The Massachusetts gaming-license process was expected to conclude by the end of Q3 2014. A November 2014 ballot measure to repeal expanded gaming could affect the project; proceeding would require significant company funds.
- Significant unresolved Okada-related litigation and investigations include disputes over the 2012 share redemption and the $1.936B Redemption Note, derivative actions, and related regulatory matters. Management could not determine the probability or range of possible loss in key matters and warned that an adverse material judgment or settlement could materially affect financial condition. The company also reported a Macau CCAC information request concerning Cotai land and said it was cooperating.
- Key exposures include reliance on two resort complexes, premium gaming credit and collection risk, Macau and gaming regulation, project execution, leverage and refinancing, foreign exchange, and tourism and economic conditions. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- How much of Q2 earnings growth reflects operating performance versus the receivable-reserve estimate benefit and gaming win-rate variability.
- Wynn Palace’s remaining funding needs, construction progress, cost adjustments and opening schedule relative to the $4.0B budget.
- Debt maturity, refinancing and subsidiary dividend restrictions, including the implications of the Redemption Note and outstanding debt covenants.
- Developments in Okada-related litigation, regulatory inquiries and the Cotai land information request, including any quantified exposure.
- Macau VIP and mass-market trends, credit collections, and the effect of gaming taxes and labor costs on margins.