Wynn Resorts, Limited — Q1 2011 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. The company operates destination casino resorts in Las Vegas and Macau. Results include Encore at Wynn Macau, which opened in April 2010, so the year-over-year comparison is not fully comparable.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net revenue | $1.260 billion | $908.9 million | +38.7% |
| Operating income | $280.6 million | $114.8 million | +144.3% |
| Net income | $226.3 million | $57.9 million | +291.1% |
| Net income attributable to Wynn Resorts | $173.8 million | $27.0 million | +543.9% |
| Diluted EPS | $1.39 | $0.22 | +$1.17 |
| Adjusted Property EBITDA | $405.0 million | $241.9 million | +67.4% |
| Cash from operating activities | $323.2 million | $141.1 million | +$182.1 million |
| Capital expenditures | $32.3 million | $89.3 million | -$57.0 million |
Operating margin was approximately 22.3%, versus 12.6% a year earlier; net margin attributable to Wynn Resorts was approximately 13.8%, versus 3.0%. These percentages are calculated from reported figures. Adjusted Property EBITDA is a non-GAAP supplemental measure and is not a substitute for operating income or operating cash flow.
- Revenue mix: Casino revenue was $1.006 billion, up 45.5%; non-casino revenue was approximately $254 million, up from $217.3 million. Macau net revenue rose to $865.7 million from $590.6 million; Las Vegas rose to $394.6 million from $318.3 million.
- Property EBITDA: Las Vegas generated $132.1 million, versus $60.3 million; Macau generated $272.8 million, versus $181.6 million.
- Cash and liquidity: Cash and equivalents were $1.447 billion at March 31, up from $1.258 billion at year-end. Current assets were $1.745 billion and current liabilities $864.5 million. Cash from operations less reported capital expenditures was approximately $290.8 million.
- Debt: Long-term debt, including current portion, was approximately $3.167 billion, down from $3.268 billion at year-end. The company repaid approximately $100.2 million on the Wynn Macau revolver, which had no balance at quarter-end. Available borrowing capacity was approximately $327.4 million under Las Vegas facilities and $1 billion under Macau facilities. Management reported covenant compliance.
- Interest and tax: Net interest expense was $58.3 million, up from $49.3 million; cash interest paid was $66.6 million versus $13.4 million. Income tax expense was $2.1 million versus $5.1 million. Macau’s casino gaming profits remained exempt from the 12% Complementary Tax through December 31, 2015; casino winnings remained subject to gaming taxes and other levies totaling 39%.
Material changes and operating drivers
- Growth in both markets drove higher revenue and operating income. Macau benefited from Encore’s added capacity and market growth. Casino revenue rose in Las Vegas with increased drop and win, and in Macau with higher VIP turnover and general-casino drop.
- Win rates were unusually strong in both general casinos: Las Vegas table-games win percentage was 30.4% (expected range 21%–24%); Macau general-casino win percentage was 27.9% (expected range 21%–23%). Macau VIP win as a percentage of turnover was 2.69%, just below the 2.7%–3.0% expected range.
- Room rates and REVPAR increased in both markets, while occupancy declined: Las Vegas occupancy was 87.9% versus 89.4%; Macau was 88.6% versus 90.7%. Las Vegas ADR rose to $240 from $203, and Macau ADR to $307 from $282.
- Interest expense increased partly because less interest was capitalized and interest rates on first mortgage notes were higher. A $4.2 million swap fair-value gain compared with a $3.6 million loss in Q1 2010. Swaps do not qualify for hedge accounting, so fair-value changes affect reported earnings.
Outlook, risks and unusual items
- Management said existing cash and expected operating cash flows should be adequate for anticipated 2011 capital needs. It cautioned that Las Vegas market conditions remained uncertain. No specific revenue or earnings guidance was provided.
- The company completed a Las Vegas room refurbishment in January and a suite remodel in early May; the project was below its $83 million total budget, with final cost close-out expected in Q2. Cotai development remained subject to final Macau government land-concession approval; no construction timeline or budget had been set.
- Management cited exposure to economic and travel conditions, gaming competition and regulation, reliance on two resort complexes, high-end customer credit and receivable collection, leverage, interest rates, and Macau currency and regulatory risks. Approximately 75% of casino markers were due from customers outside the United States, primarily in Asia; the allowance for doubtful accounts was $119.3 million.
- APC sought approximately $32 million in an arbitration-related compensation dispute. The court denied APC’s motion to compel arbitration; APC appealed. Management considered the claim without merit and intended to defend it. A potential $5.4 million Nevada sales/use-tax refund had not been recorded as a receivable.
- A $50 million Cotai-related payment is due within 15 days after the government publishes the company’s land rights in its official gazette. The filing does not state that this condition had occurred.
- On April 19, 2011, the board declared a $0.50-per-share dividend, payable May 17 to holders of record May 3. Subsidiary debt restrictions limit the parent’s ability to pay dividends.
- Q1 property charges included write-offs related to a cancelled Las Vegas show and miscellaneous renovations and asset abandonments. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of Q1’s earnings growth reflects sustainable operating trends versus above-expected table-games win rates and the addition of Encore Macau.
- Macau VIP turnover, win percentage, credit collections and doubtful-account allowance, along with the concentration of receivables in Asian customers.
- Debt maturities and refinancing capacity, including the planned refinancing of $111.1 million due in September 2011, interest costs and availability under credit facilities.
- Final Las Vegas remodel costs, Cotai land-concession approval and development commitments, and the status of the related $50 million payment condition.
- Developments in the APC appeal and the unrecorded $5.4 million tax refund claim.