Wynn Resorts, Limited — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Wynn Resorts operates resorts in Macau and Las Vegas and was constructing Encore Boston Harbor. Financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $1.652 billion | $1.716 billion | Down 3.7% |
| Operating income (loss) | $255.2 million | $(81.3) million | Improved; prior period included a $463.6 million litigation settlement |
| Net income (loss) attributable to Wynn Resorts | $104.9 million | $(204.3) million | Improved; prior period also included a $111.0 million tax benefit |
| Diluted EPS | $0.98 | $(1.99) | Improved |
| Adjusted Property EBITDA | $494.8 million | $564.3 million | Down 12.3% |
| Operating cash flow | $263.9 million | $(53.6) million | Improved |
Operating margin was approximately 15.5%, versus negative 4.7% in Q1 2018; the prior-period comparison is heavily affected by the litigation settlement. Adjusted Property EBITDA margin was approximately 30.0%, versus 32.9%. Management cautions that Adjusted Property EBITDA is a non-GAAP supplemental measure, not a substitute for operating income or cash flow.
Casino revenue fell 4.6% to $1.185 billion; non-casino revenue declined 1.5% to $466.4 million. Revenue decreased at Wynn Macau (15.3%) and Las Vegas Operations (7.1%), partly offset by 9.1% growth at Wynn Palace. Adjusted Property EBITDA fell 21.9% at Wynn Macau and 24.0% in Las Vegas, while Wynn Palace increased 5.0%. Management cited lower VIP turnover at Wynn Macau and lower Las Vegas table drop as key pressures.
Cash, debt and liquidity
- Cash and cash equivalents were $1.823 billion at March 31, down from $2.215 billion at year-end 2018. Cash, cash equivalents and restricted cash declined $392.5 million during the quarter.
- Net cash used in investing activities was $310.9 million, including $310.3 million of capital expenditures. Net cash used in financing was $343.1 million, including $500.5 million of debt repayments and $80.8 million of dividends paid.
- Long-term debt, net of issuance costs and current portion, was $9.134 billion; the current portion was $36.5 million. Available revolver capacity was $979.5 million. Management stated it was in compliance with debt covenants.
- The company borrowed an additional $250 million under its Wynn Resorts term loan in March, at LIBOR plus 2.25%, due October 2024; it repaid $498.8 million on the Wynn Macau revolving facility.
- Approximately 48.6% of debt was fixed-rate. The company estimated that a 100-basis-point change in variable rates would change annual interest expense by $47.8 million. A 1% change in the U.S. dollar/Hong Kong dollar exchange rate was estimated to cause a $27.0 million foreign-currency transaction gain or loss.
Outlook, developments and notable items
- Encore Boston Harbor was expected to open in mid-2019. Its estimated total project budget was approximately $2.6 billion, with $2.26 billion incurred through March 31; Q1 pre-opening expense was $27.7 million.
- Wynn Las Vegas meeting and convention expansion and golf course reconfiguration had an estimated $425 million budget, with $181.5 million incurred. Management expected the golf course to reopen in Q4 2019 and the facility to open in Q1 2020. A Wynn Macau gaming-area and dining/retail project had an estimated $62 million budget and was expected to finish in Q4 2019.
- On April 30, 2019, the Massachusetts Gaming Commission found the company and Wynn MA suitable to retain the gaming license, subject to a $35 million fine and other conditions. The fine was accrued at March 31. Nevada regulators approved a separate $20 million fine, paid during Q1.
- A post-quarter dividend of $1.00 per share was announced May 9, payable May 30, 2019. The Q1 dividend was $0.75 per share, compared with $0.50 a year earlier.
- Adoption of the new lease accounting standard added operating lease assets and liabilities; prior periods were not restated, so balance-sheet comparisons are not directly comparable. Management reported no impact on operating income, net income or cash flows from adoption.
Risks and contingencies
The filing highlights exposure to Macau and U.S. travel and gaming conditions, gaming regulation and license retention, VIP customer credit collection, gaming-promoter relationships, construction costs and execution, leverage and floating interest rates, and currency movements. The company noted that a substantial portion of Macau markers were owed by customers outside the United States, primarily in Asia.
Several legal matters remained unresolved. A Massachusetts plaintiff sought $1 billion plus treble damages in a license-related action; the company said it could not determine the probability of loss or reasonably possible loss range. Stockholder derivative and securities actions also remained pending, with loss outcomes not estimable based on proceedings to date. Other litigation was described as arising in the ordinary course.
Important facts for investors to verify
- Whether Encore Boston Harbor opened on schedule and within its approximately $2.6 billion budget, and its subsequent operating contribution.
- Whether the decline in Wynn Macau and Las Vegas results persisted, particularly the trends in VIP turnover and Las Vegas table drop.
- Current cash, debt, revolver availability, covenant compliance and capacity to fund projects, dividends and any share repurchases.
- Compliance with Massachusetts gaming-license conditions and the status or financial impact of the Massachusetts, Nevada and shareholder legal matters.
- How interest-rate, foreign-exchange and customer-receivable risks affect earnings and cash flow.