Business context and reporting period
Las Vegas Sands Corp. (LVS) filed this Form 10-K for the fiscal year ended December 31, 2018. The company develops and operates integrated resorts, with major operations in Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania. Macao, through 70%-owned Sands China Ltd., is its largest market. This is an annual filing, not a standalone fourth-quarter report; selected Q4 results are included below.
Financial performance and liquidity
| Metric | FY 2018 | FY 2017 | Change |
|---|---|---|---|
| Net revenue | $13.729 billion | $12.728 billion | +7.9% |
| Operating income | $3.751 billion | $3.464 billion | +8.3% |
| Net income | $2.951 billion | $3.263 billion | -9.6% |
| Net income attributable to LVS | $2.413 billion | $2.808 billion | -14.1% |
| Diluted EPS | $3.07 | $3.55 | -13.5% |
| Adjusted property EBITDA | $5.279 billion | $4.900 billion | +7.7% |
| Cash from operating activities | $4.701 billion | $4.543 billion | +3.5% |
| Capital expenditures | $949 million | $837 million | +13.4% |
Revenue growth was led by Macao, where revenue rose 14%; Macao adjusted property EBITDA increased 18.1% to $3.079 billion. Marina Bay Sands EBITDA fell 3.7% to $1.690 billion, and U.S. EBITDA declined 5.2% to $510 million. Casino revenue was $9.819 billion, rooms $1.733 billion, food and beverage $865 million, mall $690 million and convention, retail and other $622 million. Operating margin was approximately 27.3% and adjusted property EBITDA margin approximately 38.5% (calculated from reported totals).
At December 31, 2018, cash and cash equivalents were $4.648 billion, restricted cash $13 million, current assets $5.566 billion and current liabilities $3.157 billion. Total assets were $22.547 billion; total equity was $6.745 billion. Debt was approximately $11.985 billion, including current maturities, up from $9.640 billion at year-end 2017. Cash less debt implies net debt of approximately $7.34 billion. The company reported $3.51 billion of available borrowing capacity under its U.S., Macao and Singapore facilities, net of letters of credit, and said it was in compliance with debt covenants. Operating cash flow less capital expenditures was approximately $3.752 billion.
Fourth-quarter results and material changes
Q4 2018 revenue was $3.475 billion versus $3.391 billion in Q4 2017. Operating income was $874 million versus $1.028 billion. LVS reported a Q4 net loss of $40 million and a loss attributable to LVS of $170 million, or $0.22 per diluted share; Q4 2017 attributable income was $1.212 billion, or $1.53 per diluted share.
The Q4 2018 loss reflected a nonrecurring, noncash $727 million income tax expense after IRS guidance led to a valuation allowance increase related to historical foreign tax credits. Q1 2018 had included a nonrecurring, noncash $670 million tax benefit on the implementation of the GILTI provisions. For FY 2018, income tax expense was $375 million and the effective tax rate was 11.3%. The prior year included a $526 million noncash tax benefit from U.S. tax reform, a major reason full-year 2018 net income was lower despite higher revenue and operating income.
Interest expense, net, increased to $446 million from $327 million; the weighted-average interest rate rose to 4.0% from 3.2%, alongside a higher average debt balance. The company recorded a $64 million loss on debt modification or early retirement, primarily related to refinancing Macao borrowings. It also recorded $150 million of asset disposal or impairment losses, including a $128 million write-off of Four Seasons Tower Suites Macao project costs.
Capital allocation, outlook and risks
- Projects: LVS anticipated approximately $2.2 billion of total costs for the Londoner Macao conversion and Macao tower-suite projects. The Four Seasons Tower Suites were expected to complete in Q1 2020; Londoner Macao phases were expected through 2020 and 2021. Costs and schedules remained subject to change.
- Sale process: The company agreed to sell Sands Bethlehem for $1.30 billion enterprise value, subject to regulatory review and other closing conditions.
- Shareholder returns: FY 2018 dividends declared were $3.00 per share; the company repurchased about $905 million of its shares. In January 2019, the board declared a $0.77 quarterly dividend and said it expected that level to continue through the rest of 2019, subject to ongoing board review.
- Liquidity outlook: Management stated cash, operating cash flow and committed borrowing capacity were expected to cover working capital, planned and committed capital expenditures, debt obligations and dividend commitments. No specific earnings or revenue guidance was provided.
- Licenses and concentration: The Macao gaming subconcession expires June 26, 2022; absent extension, casino premises and gaming equipment transfer to the government without compensation. Marina Bay Sands’ casino license was due to expire April 25, 2019; a renewal application had been filed, but renewal was not assured. The company’s cash generation depends heavily on Macao, Singapore and Las Vegas.
- Debt and market risks: Disclosed debt maturities include approximately $3.68 billion in 2023. Variable interest rates, LIBOR transition, foreign exchange movements, travel restrictions affecting visitors from mainland China, market competition, gaming regulation and project execution could affect results and liquidity.
- Contingencies and compliance: A damages trial in the Round Square litigation was scheduled for March 2019; the company had accrued only a nominal amount and could not rule out additional liability. A separate Macao claim by Asian American Entertainment sought approximately $372 million; management said it could not determine the probability or reasonably possible loss. The 2016 SEC settlement and 2017 DOJ non-prosecution agreement resolved FCPA inquiries, with DOJ reporting obligations continuing through January 2020. The filing also describes a past cybersecurity attack and continuing cyber and privacy risks.
Most important facts for investors to verify
- Whether the Bethlehem sale closed, its final proceeds and any associated taxes or debt effects.
- Progress, remaining cost and schedule for Londoner Macao and the Four Seasons and St. Regis tower suites, including the significance of the $128 million project write-off.
- Renewal status and terms of Marina Bay Sands’ casino license, and developments affecting the Macao subconcession ahead of its 2022 expiry.
- Cash generation, debt balances and maturities, covenant headroom, refinancing needs and the sustainability of the $0.77 quarterly dividend.
- Subsequent developments in the Round Square and Asian American Entertainment litigation, and any material updates to tax-credit valuation allowances or FCPA compliance obligations.