Wynn Resorts, Limited — Q2 2010 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2010; unaudited. Wynn Resorts operates resort complexes in Las Vegas and Macau. Encore at Wynn Macau opened April 21, 2010. Unless noted, amounts below are in millions of U.S. dollars.
Financial performance
| Metric | Q2 2010 | Q2 2009 | Six months 2010 | Six months 2009 |
|---|---|---|---|---|
| Net revenue | $1,032.6 | $723.3 | $1,941.6 | $1,463.2 |
| Operating income | $148.1 | $82.8 | $263.0 | $109.9 |
| Net income (loss), consolidated | $88.9 | $25.5 | $146.8 | $(8.3) |
| Net income (loss) attributable to Wynn Resorts | $52.4 | $25.5 | $79.4 | $(8.3) |
| Diluted EPS attributable to Wynn Resorts | $0.42 | $0.21 | $0.64 | $(0.07) |
| Adjusted property EBITDA | $281.4 | $192.7 | $523.3 | $351.2 |
Net revenue increased 42.8% in Q2 and 32.7% for the first half. Operating margin was approximately 14.3% in Q2 versus 11.4% a year earlier, and 13.5% for the first half versus 7.5%. These margins are calculated from reported revenue and operating income.
- Macau drove growth: Q2 net revenue was $714.4 million versus $410.4 million; first-half revenue was $1,305.1 million versus $859.1 million. Macau adjusted property EBITDA rose to $216.2 million in Q2 from $117.2 million and to $397.8 million for the first half from $231.8 million. Results include Encore at Wynn Macau from its April opening.
- Las Vegas was weaker in Q2: Q2 net revenue was $318.2 million versus $312.8 million, while adjusted property EBITDA fell to $65.1 million from $75.5 million. First-half revenue was $636.5 million versus $604.1 million, and EBITDA was $125.4 million versus $119.4 million.
- Q2 casino revenue increased 55.2% to $789.2 million; first-half casino revenue rose 41.0% to $1,480.8 million. The growth was primarily from Macau. Gaming taxes and other levies in Macau total 39% of casino winnings under the concession agreement.
Cash flow, balance sheet and financing
- First-half cash from operations was $422.6 million, up from $171.7 million. Capital expenditures were $188.6 million, compared with $307.1 million; net investing cash outflow was $197.4 million.
- Cash and cash equivalents were $1,858.4 million at June 30, down from $1,991.8 million at year-end. Long-term debt, including current portion, was approximately $3,233.7 million, down from $3,569.1 million. Current liabilities were $694.4 million and total liabilities were $4,070.0 million.
- At period-end, the company reported $146.3 million available under Wynn Las Vegas credit facilities and $869.8 million under Wynn Macau facilities. About $1.2 billion of cash was held by the parent and was not subject to subsidiary debt restrictions. Management said cash and operating cash flow were expected to meet anticipated 2010 capital needs; it also cautioned that subsidiary cash generation and refinancing are not assured.
- During the first half, Wynn Macau repaid approximately $371 million on its revolving facility. Wynn Las Vegas exchanged about $352 million of 2014 notes for 2020 notes; related third-party costs of $3.2 million were expensed. Interest expense for the first half declined to $102.9 million from $110.7 million.
- After quarter-end, Wynn Las Vegas issued $1.32 billion of 7.75% first mortgage notes due 2020, with proceeds intended to purchase or redeem 2014 notes. A concurrent credit amendment extended maturities on portions of facilities to 2015, added $248.5 million in term loans, and changed covenants. This subsequent transaction is not reflected in June 30 debt balances.
- The company paid a $0.25-per-share dividend in May and declared another $0.25 dividend payable in August. Debt agreements restrict certain subsidiary distributions. Interest-rate swaps covered part of floating-rate exposure; management estimated a 1 percentage-point rate change would alter annual interest cost by about $2.8 million.
Changes, outlook and risks
- Management described Macau operations as strong and Las Vegas as pressured by the weak economy and additional market capacity. It expected Las Vegas room rates, casino volumes and departmental profitability to remain below historical levels. No specific full-year earnings or revenue guidance was provided; interim results were stated not necessarily to indicate full-year results.
- Las Vegas Q2 ADR declined to $197 from $218, while occupancy increased to 92.6% from 86.6%. Macau ADR rose to $287 from $263; occupancy was 81.3% versus 86.7%. Las Vegas table-game win percentage was 20.0%, below the stated 21%–24% expected range; Macau VIP win percentage was 3.22%, above its 2.7%–3.0% range. These results and gaming revenues can be volatile.
- A Las Vegas room and suite refurbishment began in July, with an estimated $83 million budget and expected completion in early Q2 2011; rooms will be temporarily removed from service. The company had also incurred $537.5 million of approximately $550 million in total costs for Encore at Wynn Macau.
- Cotai development remained subject to final Macau government land-concession approval; management had no final budget or timeline. A proposed Philadelphia casino project was terminated in April.
- Key risks include reliance on two resort complexes, economic and travel weakness, competition and new supply, gaming regulation and Macau visitation restrictions, high-end customer credit and collection risk, leverage and interest-rate exposure, and foreign-exchange changes. About 77% of markers were owed by customers outside the United States, primarily in Asia; the allowance for doubtful accounts was $110.1 million.
- Other notable matters: an arbitration and related litigation with Atlantic-Pacific Capital over a compensation claim, which the company disputed; a Macau tax examination of 2006–2007 returns, with outcome and timing unclear; and a potential $5.4 million Nevada sales/use-tax refund for which no receivable had been recorded. The filing said disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether Macau growth and the contribution from Encore are sustainable, including the effect of gaming win rates versus expected ranges.
- Las Vegas demand, room pricing, casino volumes and the impact of the $83 million refurbishment on available rooms and results.
- Completion and terms of the post-quarter-end 2014-note refinancing, including resulting debt service, maturities, covenants and subsidiary cash restrictions.
- Collection trends and credit losses on casino receivables, especially international customer balances.
- Outcome of the Macau tax examination, APC dispute and Nevada tax-refund claim, along with approval status and economics of any Cotai development.