Wynn Resorts, Limited — Q1 2020 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2020, compared with Q1 2019. Wynn operates resorts in Macau and Las Vegas and Encore Boston Harbor, which opened in June 2019. The period was severely affected by COVID-19 closures, travel restrictions and reduced visitation.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Operating revenue | $953.7 million | $1,651.5 million | Down 42.3% |
| Operating income (loss) | $(247.4) million | $255.2 million | Declined $502.6 million |
| Net income (loss) attributable to Wynn Resorts | $(402.0) million | $104.9 million | Declined $506.9 million |
| Diluted EPS | $(3.77) | $0.98 | Declined $4.75 |
| Adjusted Property EBITDA | $(5.3) million | $494.8 million | Declined $500.1 million |
| Net cash from operating activities | $(176.5) million | $263.9 million | Declined $440.4 million |
Casino revenue fell 51.8%; non-casino revenue declined 17.9%. Macau revenue was down 60.9%, Las Vegas Operations revenue down 19.3%, while Encore Boston Harbor contributed $140.9 million. Adjusted Property EBITDA was $29.4 million for Macau Operations, $(22.1) million for Las Vegas Operations and $(12.6) million for Encore Boston Harbor. The EBITDA measure is non-GAAP and excludes significant costs, including interest and capital spending.
At March 31, cash and cash equivalents were $2.881 billion, versus $2.352 billion at year-end; current assets were $3.415 billion and current liabilities $1.885 billion. Total debt carrying value was $11.369 billion, including $236.0 million current debt, versus $10.404 billion at December 31. Interest expense, net of capitalized interest, rose 38.3% to $128.8 million. Capital expenditures were $139.3 million. Cash increased mainly with net debt issuance; financing activities provided $838.0 million.
The income statement reports a $(75.8) million provision for income taxes, while the tax note describes $75.8 million as income tax expense, primarily related to valuation allowances for U.S. foreign tax credits. The filing text does not clearly reconcile this sign inconsistency.
Material changes and developments
- Revenue declined $697.8 million year over year, principally reflecting the Macau casino shutdown for 15 days and subsequent reduced operations, sharp Macau visitation declines, and U.S. resort closures late in the quarter.
- Mainland China visitation to Macau fell 97.2% in February and 96.3% in March year over year. Wynn Las Vegas closed March 17 and Encore Boston Harbor closed March 15; both remained closed pending government authorization to reopen.
- The company accrued $75.7 million in Q1 for U.S. employee salary, tips and benefits continuation from April 1 through May 15; in May it extended that commitment through May 31.
- Allowance for credit losses rose to $60.0 million from $39.3 million at year-end; Q1 provision for credit losses was $20.6 million versus $5.4 million a year earlier. Most casino markers were owed by customers outside the United States, primarily in Asia.
- Gross debt issuance proceeds were $1.469 billion and repayments were $515.2 million during Q1. The company paid a $1.00-per-share dividend in March; it suspended the quarterly dividend program on May 6.
Outlook, risks and contingencies
- Management said COVID-19’s future effects on results, cash flows and financial condition could be material but could not reasonably be estimated. Macau travel restrictions and health safeguards remained in effect; management could not predict when restrictions would ease or demand and pricing would recover.
- As of March 31, the company reported $2.881 billion cash and $115.1 million available revolver capacity across facilities. Subsequent actions included drawing an additional $50 million on the Macau revolver and $25 million on the WRF revolver in April, and issuing $600 million of 7.75% notes due 2025 on April 14.
- An April amendment to WRF’s credit agreement provided covenant relief through April 1, 2021, replacing the first-lien leverage covenant with a $300 million minimum-liquidity requirement during the relief period. Restrictions on certain payments apply, with stepped leverage tests thereafter. Management reported covenant compliance at March 31.
- Major project capital expenditures, including the Wynn Tower room remodel, were postponed for the remainder of 2020, subject to reassessment as conditions stabilize. The company said its liquidity position and subsequent actions supported operations for the foreseeable future, while warning that access to capital and debt service remained risks.
- Derivative litigation settlements were approved, subject to exhaustion of appeals. Individual stockholder cases and a securities class action remained unresolved; management could not determine the probability or reasonably possible loss for the securities action. Other ordinary-course litigation was not expected by management to have a material effect.
Key facts for investors to verify
- Reopening dates, operating restrictions, Macau visitation recovery, and post-closure customer demand and pricing.
- Cash availability by subsidiary and jurisdiction, revolver usage, debt service capacity, covenant compliance and restrictions on distributions.
- Credit-loss assumptions and collections on casino receivables, particularly international customer balances.
- The ongoing cost and duration of employee-pay commitments, and the timing and scale of resumed capital spending.
- The tax-note versus income-statement presentation of the $75.8 million tax amount, and any developments in pending litigation.