Business context and reporting period
Las Vegas Sands Corp. (LVS) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. Its integrated resort, casino, hotel, retail mall and convention operations are concentrated in Macao, Singapore and Las Vegas. The company sold Sands Bethlehem on May 31, 2019.
Key financial results
Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net revenue | $3,250 | $3,372 | $10,230 | $10,254 |
| Operating income | $899 | $922 | $2,764 | $2,877 |
| Net income | $669 | $699 | $2,521 | $2,991 |
| Net income attributable to LVS | $533 | $571 | $2,069 | $2,583 |
| Diluted EPS | $0.69 | $0.73 | $2.68 | $3.27 |
| Adjusted property EBITDA (non-GAAP) | $1,283 | $1,282 | $4,001 | $4,007 |
- Margins: Q3 operating margin was approximately 27.7%, versus 27.3% a year earlier; attributable net income margin was approximately 16.4%, versus 16.9%. Nine-month operating margin was approximately 27.0%, versus 28.1%.
- Cash flow: Nine-month operating cash flow was $1.796 billion, down from $3.400 billion. Investing activities generated $352 million, including $1.160 billion net proceeds from the Bethlehem sale, offset in part by $756 million of capital expenditures. Financing activities used $2.968 billion. Cash, cash equivalents and restricted cash ended at $3.832 billion, down $829 million from year-end 2018.
- Liquidity: September 30 cash and cash equivalents were $3.817 billion, with $15 million restricted. Current assets were $4.808 billion and current liabilities $3.004 billion. LVS reported $6.64 billion of available borrowing capacity across its U.S., Sands China and Singapore facilities, net of letters of credit.
- Debt: Carrying value of long-term debt was $11.943 billion, including current maturities; contractual debt value was $12.02 billion. The company issued $3.50 billion of senior notes in July and used part of the proceeds to repay its 2013 U.S. Credit Facility. Management reported compliance with debt covenants. Defined leverage ratios were 0.9x for U.S., 1.8x for Sands China and 2.1x for Singapore facilities, against respective limits of 4.0x, 4.0x and 4.5x.
- Capital returns: LVS paid three quarterly dividends of $0.77 per share during the first nine months and repurchased 7.9 million shares for $454 million. The board declared another $0.77 quarterly dividend for payment in December 2019.
Material changes versus the prior comparable periods
- Q3 revenue declined 3.6%, operating income 2.5% and net income 4.3%. The Bethlehem sale reduced Q3 revenue by an estimated $138 million versus the prior-year quarter; stronger Las Vegas and Marina Bay Sands results partly offset the impact. Consolidated adjusted property EBITDA was essentially flat.
- For the first nine months, revenue was nearly unchanged, but operating income fell 3.9% and net income fell 15.7%. Results included a $556 million gain on the Bethlehem sale, which partly offset lower operating income, higher interest expense and the tax comparison.
- Nine-month 2019 tax expense was $403 million, compared with a $407 million tax benefit in 2018. The prior-year benefit included a $670 million non-cash tax benefit; 2019 included $161 million of tax expense related to the Bethlehem sale. Excluding these discrete items, the company reported an effective tax rate of 10.2% in each period.
- Interest expense, net, rose to $421 million from $308 million for the nine months. The filing attributes the increase primarily to higher average debt balances and rates. Nine-month weighted-average total debt was $12.069 billion and the weighted-average interest rate was 4.6%, versus $10.627 billion and 3.7% in 2018.
- Operating cash flow declined substantially, reflecting the Singapore land-lease payment for the MBS expansion, a nonrecurring legal settlement, higher interest costs and lower working-capital inflows, including lower gaming customer deposits and outstanding chips.
Outlook, management commentary, risks and unusual items
- Projects: The MBS expansion, including a hotel tower, rooftop attraction, convention facilities and an arena with at least 15,000 seats, was estimated at SGD 4.5 billion (about $3.3 billion); final cost remained subject to design and development. A Singapore delayed-draw term facility of SGD 3.75 billion (about $2.71 billion) was established for the project, with no amount drawn at September 30. Macao projects, including The Londoner Macao and Grand Suites at Four Seasons, were expected to cost approximately $2.2 billion in total. Management’s then-current target dates were phased completion during 2020–2021 for The Londoner and the first half of 2020 for Grand Suites; costs and timing could change.
- Management outlook: The filing provides no formal numerical earnings or revenue guidance. Management said cash, operating cash flow and available credit were expected to support working capital, committed and planned capital expenditures, development, debt obligations and dividends.
- Operating trends and risks: Macao’s nine-month results benefited from mass-market gaming, while VIP rolling-chip activity was weaker at several properties. Marina Bay Sands’ nine-month adjusted property EBITDA declined 9.3%, mainly due to lower rolling-chip win percentage and the prior-year comparison for doubtful-account collections. Management cited exposure to gaming demand and chance-based win rates, travel and consumer spending, mainland China policies and visitation, Hong Kong-related disruption, competition, licensing and regulatory requirements, labor and construction costs, foreign exchange, interest rates, debt and refinancing, and project execution.
- Legal contingency: In the Macao Action, Asian American Entertainment sought to increase its claim to 96.45 billion patacas (approximately $11.94 billion), alleging lost profits. The trial was rescheduled to begin September 16, 2020. Management said the matter was at a preliminary stage and it could not determine the probability of outcome or a reasonably possible loss range; the company intends to defend the case.
- Other notable items: A nonrecurring legal settlement contributed to higher corporate expense, but its amount is not clearly identified in the supplied filing text. The company recorded a $24 million loss on debt modification or early retirement, primarily from writing off deferred financing costs. Adoption of the new lease standard added $337 million of operating lease right-of-use assets and lease liabilities at January 1, 2019, without affecting net income.
Important facts for investors to verify
- How much of the decline in operating cash flow is recurring versus attributable to the land-lease payment, legal settlement and working-capital timing.
- The final cost, funding draw schedule and construction milestones for the MBS expansion and Macao projects.
- Underlying casino volume and win-rate trends, particularly Macao VIP activity and Marina Bay Sands results, apart from gaming luck and the Bethlehem divestiture.
- The status and potential financial exposure of the AAEC litigation, including developments in the claim amount and scheduled trial.
- Debt maturities, interest-rate and foreign-exchange exposure, covenant headroom, and the sustainability of dividends and repurchases alongside planned capital spending.
- How the prior-year $670 million tax benefit and current-year Bethlehem-sale gain affect comparisons of reported earnings with ongoing operations.