Wynn Resorts, Limited — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amounts are in U.S. dollars; financial statement figures below are in millions unless noted. The company operates resorts in Macau, Las Vegas, and Massachusetts.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $85.7 | $1,658.3 | $1,039.4 | $3,309.9 |
| Operating income (loss) | $(523.0) | $218.7 | $(770.4) | $473.9 |
| Net income (loss) attributable to Wynn Resorts | $(637.6) | $94.6 | $(1,039.6) | $199.4 |
| Diluted earnings (loss) per share | $(5.97) | $0.88 | $(9.74) | $1.86 |
| Adjusted Property EBITDA | $(322.9) | $480.6 | $(328.2) | $975.4 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(608.0) | $509.4 |
- Margins: Q2 operating margin was approximately negative 610%; the severe revenue collapse makes margin comparisons atypical. Adjusted Property EBITDA was also negative. These measures should not be treated as substitutes for GAAP results or cash flow.
- Cash and liquidity: June 30 cash and cash equivalents were $3.798 billion, up from $2.352 billion at December 31, 2019. Including restricted cash, the balance was $3.803 billion. Available revolver capacity was about $40 million ($24.1 million at Wynn Macau and $15.9 million at WRF).
- Debt: Gross principal debt was approximately $12.887 billion at June 30, versus $10.515 billion at year-end; reported debt net of issuance costs and discounts was $12.775 billion. Long-term debt, net of current portion, was $12.477 billion. Total liabilities were $14.611 billion and stockholders’ equity was $274.2 million.
- Capital and cash uses: Six-month capital expenditures were $191.7 million. Financing activities provided $2.236 billion, including $2.894 billion of debt issuance proceeds; dividends paid were $108.1 million.
Material changes and operating conditions
- Q2 revenue declined 94.8% year over year; first-half revenue declined 68.6%. Q2 casino revenue fell 99.2%, and non-casino revenue fell 85.2%.
- Macau operations generated Q2 revenue of $20.6 million, down 98.2%; Las Vegas revenue was $64.9 million, down 86.0%. Encore Boston Harbor generated $0.2 million and was closed during the quarter.
- Macau casinos closed for 15 days in February and reopened on a reduced basis before operations were restored, subject to protective measures and severe travel restrictions. Mainland China visitation to Macau fell 99.3% in Q2 and 83.7% for the first half year over year; the Individual Visitor Scheme had not restarted by the filing date.
- Wynn Las Vegas closed March 17 and reopened June 4 with restrictions. Encore Boston Harbor closed March 15 and reopened July 12, after quarter-end, with restrictions and limited hotel and dining availability.
- All three operating segments reported negative Q2 Adjusted Property EBITDA: Macau $(193.6) million, Las Vegas $(75.6) million, and Encore Boston Harbor $(53.8) million.
- The allowance for credit losses rose to $88.3 million from $39.3 million at year-end; first-half provision for credit losses was $49.0 million versus $9.0 million in 2019. Management cited pandemic-related collection expectations and account reviews.
Outlook, financing, risks, and unusual items
- Management said the pandemic would have a material impact on 2020 and potentially later results, cash flows, and financial condition, but it could not reasonably estimate the impact or timing of recovery. It cautioned that properties might not return to pre-pandemic demand or pricing soon.
- The company suspended its quarterly dividend in May and postponed major project capital expenditures for the remainder of 2020, including the Wynn Tower room remodel. Management said available liquidity and financing actions were expected to support continuing operations, while noting operating and capital-market uncertainty.
- During the period, WRF issued $600 million of 7.75% notes due 2025 and WML issued $750 million of 5.5% notes due 2026; the company also drew on revolving facilities. WRF received covenant relief through April 1, 2021, with a minimum-liquidity covenant of $300 million during that period, followed by stepped leverage limits. Management reported compliance with debt covenants at June 30.
- The WRF credit amendment and retail loan amendment introduced payment restrictions and temporary covenant relief. Cash is held across subsidiaries and jurisdictions; the filing describes dependence on subsidiaries’ ability to make distributions to the parent.
- Q2 results included a $27.7 million net gain from a derivative litigation settlement, recorded as a reduction in general and administrative expense. A $75.7 million U.S. employee salary, tips, and benefits continuation expense was accrued in Q1 and excluded from Q2 expenses.
- Income tax expense was $80.9 million in Q2 and $156.7 million for the first half, primarily reflecting increased valuation allowances for U.S. foreign tax credits and loss carryforwards despite reported losses.
- Material uncertainties include continuing travel restrictions, future closures or operating limits, customer demand and credit collection, debt service and refinancing access, gaming license and regulatory matters, and foreign exchange and floating-rate exposure. The company disclosed an ongoing U.S. Attorney’s Office investigation and grand jury subpoenas concerning certain Wynn Las Vegas transactions; it could not estimate a possible loss. Securities and other litigation also remained pending, with outcomes and potential losses not estimable.
Important facts for investors to verify
- Whether Macau travel restrictions and the Individual Visitor Scheme resume, and how quickly visitation, gaming volumes, occupancy, and pricing recover.
- Cash burn and liquidity by subsidiary and jurisdiction, actual available revolver capacity, covenant headroom, and whether cash can be distributed to service parent-level obligations.
- Debt maturities, interest expense, refinancing availability, and compliance with amended covenants as relief periods end.
- Collections on casino receivables and whether the $88.3 million allowance remains adequate as economic conditions develop.
- The duration and financial effects of operating restrictions, staffing commitments, postponed capital projects, and the suspended dividend.
- Developments in the anti-money-laundering investigation and litigation, including whether any claims, charges, or reasonably estimable losses emerge.