Las Vegas Sands Corp. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; unaudited. Comparisons are with Q1 2010 unless stated otherwise. Las Vegas Sands operates casino resorts in the U.S., Macau and Singapore, including Marina Bay Sands, which opened in stages beginning in April 2010. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net revenue | $2.112 billion | $1.335 billion | +58.2% |
| Operating income | $485.9 million | $141.8 million | +242.6% |
| Operating margin | 23.0% | 10.6% | +12.4 percentage points |
| Net income | $364.5 million | $47.8 million | +662.3% |
| Net income attributable to LVS | $289.3 million | $17.6 million | +1,545.7% |
| Common-stockholder net income (loss) | $228.2 million | $(28.9) million | Turned profitable |
| Diluted EPS | $0.28 | $(0.04) | Turned profitable |
| Adjusted property EBITDA | $745.7 million | $371.0 million | +101.0% |
| Operating cash flow | $418.4 million | $282.8 million | +$135.6 million |
Revenue growth reflected $584.9 million from Marina Bay Sands and stronger Macau operations. Casino revenue rose 56.8%; rooms 28.3%; food and beverage 57.9%; and convention, retail and other 52.2%. Operating expenses increased 36.3%, slower than revenue, to $1.626 billion. The effective tax rate was 11.0%, versus 21.6%.
By segment, Macau adjusted property EBITDA increased 46.8% to $374.0 million; Marina Bay Sands generated $284.5 million; Sands Bethlehem rose to $22.1 million from $11.0 million. Las Vegas operating-property EBITDA fell 38.1% to $65.2 million, with casino revenue down 46.5% and lower table-games drop and win percentage. MBS had no prior-year comparison.
Cash, debt and liquidity
- Cash and cash equivalents were $3.134 billion at March 31, up $96.9 million during the quarter. Restricted cash totaled about $658.9 million.
- Cash from operations was $418.4 million; capital expenditures were $332.5 million; investing cash outflow was $179.8 million; financing cash outflow was $147.8 million. Capital spending was primarily in Singapore ($158.0 million) and Macau ($145.1 million).
- Total debt carrying value was $10.103 billion, including $917.0 million of current maturities; long-term debt excluding current maturities was $9.186 billion. Total debt declined from $10.141 billion at year-end 2010.
- Management reported $2.36 billion of borrowing capacity across U.S., Macau and Singapore credit facilities. U.S. and VML leverage ratios were 5.2x and 1.5x, respectively, against limits of 6.5x and 3.0x.
- Variable-rate debt creates material rate exposure: a 100-basis-point rate increase was estimated to raise annual interest cost by about $96.7 million. Weighted-average debt was $10.163 billion and weighted-average interest rate was 4.1%.
Changes, outlook and material risks
- Marina Bay Sands was a major source of new revenue and EBITDA. Its Q1 EBITDA and margin were reduced versus Q4 2010 by approximately $16 million of unusual or non-recurring costs, including incentive compensation, training, receivables reserves and museum start-up costs.
- Management said cash, operating cash flow and available facilities should fund development plans and support covenant compliance. No specific consolidated earnings guidance was provided.
- Marina Bay Sands was expected to be fully open by December 31, 2011; failure could permit the Singapore Tourism Board to draw a $152.5 million security deposit. The company expected to spend a further SGD 760 million (about $602 million) to complete the project and related costs.
- Macau parcels 5 and 6 construction had restarted using a $1.75 billion VOL facility and SCL offering proceeds. Phase I could be delayed until Q1 2012 if additional construction labor is not secured; Phase II timing remained uncertain. Completion funding beyond the identified facility was not assured.
- The Macau land concession for parcels 7 and 8 was denied and under appeal; the company had $101.9 million of capitalized costs at risk. Failure to meet concession deadlines or obtain extensions for parcels 3 and 5–6 could put concessions and related capitalized investments at risk. Suspended Las Vegas condominium development had $177.1 million capitalized.
- Shangri-La’s hotel management agreement for a parcels 5–6 tower was terminated; LVS was evaluating alternative branding. Delays could also permit Starwood to terminate its agreement, and LVS was negotiating revised timelines.
- The company disclosed SEC and DOJ investigations concerning FCPA compliance, as well as an SFC investigation of Sands China. Multiple shareholder derivative and securities class actions were pending; outcomes were not estimable. The Suen judgment was reversed and remanded for a new trial.
- The final purchase price for The Shoppes at The Palazzo remained unresolved; LVS could record a future loss. Debt covenant breaches could trigger cross-defaults and acceleration. Other stated risks include gaming volatility, credit losses, foreign exchange, development approvals and funding.
Investor verification priorities
- Verify the sources and sustainability of the sharp earnings increase, particularly MBS contributions, Macau gaming volumes and win rates, and the Las Vegas decline.
- Review debt maturities, facility availability, covenant calculations and sensitivity to variable interest rates; assess how much cash is restricted or held in subsidiaries.
- Track MBS completion, security-deposit exposure and remaining funding needs, plus Macau labor availability, land concessions, project deadlines and hotel-brand agreements.
- Monitor FCPA-related investigations and litigation, the Palazzo mall sale-price resolution, and any resulting cash, earnings or impairment effects.
- Assess dilution: common shares outstanding increased during the quarter, and warrant exercises, preferred-stock transactions and potential equity awards affected share counts and per-share results.