Las Vegas Sands Corp. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Comparisons are with Q1 2018 unless stated otherwise. Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
Business context and results
Las Vegas Sands operates integrated resorts in Macao, Singapore and the United States. Net revenue rose 1.9%, driven chiefly by stronger Macao results, partly offset by lower revenue at Marina Bay Sands. Management cautions that interim results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $3,646 | $3,579 | +1.9% |
| Operating income | $971 | $1,158 | -16.1% |
| Operating margin | 26.6% | 32.4% | -5.8 percentage points |
| Net income | $744 | $1,616 | -54.0% |
| Net income attributable to Las Vegas Sands | $582 | $1,456 | -60.0% |
| Diluted earnings per share | $0.75 | $1.84 | Down $1.09 |
| Adjusted property EBITDA | $1,452 | $1,500 | -3.2% |
| Net cash from operating activities | $820 | $1,397 | Down $577 |
| Capital expenditures | $240 | $238 | Up $2 |
| Cash, cash equivalents and restricted cash at period end | $4,148 | $2,640 | Down $513 from year-end 2018 |
| Total debt carrying value, including current maturities | $11,999 | $11,985 at year-end 2018 | Up $14 |
Operating expenses increased 10.5% to $2,675. Interest expense, net, rose to $141 from $89; the weighted-average interest rate was 4.6%, versus 3.5%. The effective tax rate was 10.3%, compared with a reported tax benefit rate of 54.6% in Q1 2018. Excluding Q1 2018’s one-time, non-cash $670 tax benefit related to U.S. tax reform, that period’s effective tax rate would have been 9.5%.
At March 31, 2019, the company reported $4,134 of unrestricted cash and $14 of restricted cash. It had $3.51 billion of available borrowing capacity across its U.S., SCL and Singapore credit facilities, net of letters of credit. Management said cash, operating cash flow and available facilities were expected to cover working capital, planned and committed capital expenditures, debt obligations and dividend commitments. Total debt carrying value was approximately $12.0 billion; reported leverage ratios were 1.0x for U.S. operations, 1.8x for Macao and 2.0x for Singapore, below respective covenant ceilings of 5.5x, 4.0x and 4.0x. Management believed the company was in compliance with debt covenants.
Material changes versus prior year
- Macao revenue increased 8.1%; Macao adjusted property EBITDA rose 8.7% to $858. The Parisian Macao’s adjusted property EBITDA increased 40.5% to $163.
- Marina Bay Sands revenue declined $105 to $767, and adjusted property EBITDA fell 21.8% to $423. Casino revenue was down 16.6%, primarily reflecting lower Rolling Chip win percentage and volume.
- Consolidated adjusted property EBITDA declined despite Macao growth, largely due to the Singapore decrease.
- Operating income was pressured by higher corporate expense, including a nonrecurring legal settlement, increased Macao casino costs, and accelerated depreciation on assets expected to be replaced for The Londoner Macao project.
- Operating cash flow declined, which the company attributed to lower Singapore revenue, the legal settlement, higher interest costs, working-capital changes and the timing of interest payments.
- Cash distributions remained substantial: $903 was paid in dividends and $174 was spent on share repurchases. The quarterly common dividend increased to $0.77 per share from $0.75.
Outlook, projects and risks
- The filing gives no specific full-year revenue or earnings guidance. Management describes ongoing property enhancements and development plans.
- The Londoner Macao and Four Seasons Tower Suites Macao projects were expected to cost approximately $2.2 billion in total. The company expected the additional Four Seasons suites to be completed in Q1 2020 and the Londoner project in phases during 2020 and 2021; cost and timing remained subject to change.
- In April 2019, after quarter-end, Marina Bay Sands agreed to a Singapore expansion with an estimated cost of SGD 4.5 billion, approximately $3.3 billion. It includes a hotel tower, rooftop attraction, convention facilities and an arena with at least 15,000 seats. The company paid approximately SGD 1.54 billion, or $1.14 billion, in required premiums, deposits, taxes and fees. It also paid SGD 72 million, or approximately $53 million, toward renewal of the Marina Bay Sands gaming license, now expiring in April 2022.
- The proposed sale of Sands Bethlehem for $1.30 billion enterprise value remained subject to regulatory review and other closing conditions.
- Casino outcomes are exposed to short-term win-rate volatility. Other stated risks include economic and discretionary-spending conditions, gaming regulation and license renewals, competition, gaming-credit collections, interest and currency movements, construction costs and execution, and reliance on Macao, Singapore and Las Vegas.
- The company settled the Round Square litigation in March 2019 for a confidential payment; all claims were dismissed with prejudice. A separate Macao claim by Asian American Entertainment seeks 3.0 billion patacas, approximately $371 million; management said it could not determine the probability of outcome or reasonably possible loss. Trial was scheduled for September 2019.
- A hypothetical 100-basis-point increase in LIBOR and SOR was estimated to increase annual interest cost by approximately $121 million. The filing also quantifies foreign-exchange sensitivities, including an estimated $118 million loss under a hypothetical 10% weakening of the U.S. dollar against the Singapore dollar.
Important facts for investors to verify
- Whether Macao’s growth can persist and whether Marina Bay Sands casino performance recovers; separate underlying trends from gaming win-rate volatility.
- The amount and financial impact of the confidential Round Square settlement, which the filing does not disclose.
- Progress, final cost, funding and timing of the Macao projects and the Singapore expansion, including the substantial post-quarter payments.
- Status and closing conditions of the Sands Bethlehem sale and the unresolved AAEC litigation exposure.
- Cash generation relative to dividends, repurchases, debt service and planned development spending; confirm continued covenant compliance and available facility capacity.
- Potential effects of interest-rate and currency movements, and changes to Singapore gaming-license terms or other regulatory requirements.