Wynn Resorts, Limited — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2018. The company develops and operates casino resorts in Macau and Las Vegas and was building Encore Boston Harbor. Wynn Resorts owns approximately 72% of Wynn Macau, Limited.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1.605 billion | $1.473 billion | $3.321 billion | $2.897 billion |
| Operating income | $279.6 million | $246.9 million | $198.3 million | $496.8 million |
| Net income (loss) attributable to Wynn Resorts | $155.8 million | $74.9 million | $(48.6) million | $175.7 million |
| Diluted EPS | $1.44 | $0.73 | $(0.46) | $1.72 |
| Adjusted Property EBITDA | $476.4 million | $430.0 million | $1.041 billion | $857.6 million |
- Q2 revenue rose 9.0% and Adjusted Property EBITDA rose 10.8%. Wynn Palace drove the improvement; Wynn Macau EBITDA declined, and Las Vegas EBITDA was lower year over year in Q2.
- For the first half, revenue increased 14.6% and Adjusted Property EBITDA increased 21.4%, largely due to Wynn Palace. The attributable net loss chiefly reflects a $463.6 million litigation settlement expense and a $69.3 million Redemption Note fair-value loss, partly offset by a $120.7 million income-tax benefit.
- Q2 operating margin was approximately 17.4%, compared with 16.8% a year earlier. First-half operating margin was approximately 6.0%, versus 17.2%, substantially affected by the settlement charge.
- Cash from operations was $53.3 million for the first half, versus $803.6 million in 2017. The filing attributes the decline primarily to the settlement and changes in customer deposits. Investing used $748.4 million, including $460.1 million for Encore Boston Harbor and $336.2 million for Las Vegas land acquisition.
- Cash and cash equivalents were $1.445 billion at June 30, down from $2.804 billion at year-end; available-for-sale investments were $131.8 million. Total debt carrying value, including current maturities, was approximately $8.313 billion, down from $9.629 billion. Management said the company was in compliance with debt covenants.
- Credit-facility availability was approximately $974 million, including $123.7 million for Wynn Macau and $357.3 million for Wynn America; the remaining $493.2 million WML Finance facility was cash-collateralized and matured July 18, 2018 without borrowings. The company also reported $17.7 million in outstanding letters of credit.
- First-half dividends paid were $270.0 million. The company issued 5.3 million shares in April for net proceeds of $915.2 million, used primarily to repay bridge borrowing and other debt. Shares outstanding were 108,643,901 at July 31, 2018.
Material changes and operating drivers
- Macau Operations revenue grew 12.5% in Q2 and 20.0% in the first half. Wynn Palace revenue rose 56.6% in Q2 and 51.6% in the first half, while Wynn Macau revenue fell 14.9% and 2.5%, respectively.
- Wynn Palace’s Q2 casino revenue benefited from higher table drop and VIP turnover and a VIP win rate of 3.00%, versus 2.18% a year earlier. Wynn Macau’s VIP turnover and win rate weakened; its Q2 VIP win rate was 2.56%, versus 3.53%.
- Las Vegas Operations revenue increased 0.8% in Q2 and 1.9% in the first half. Q2 EBITDA declined 6.1%, primarily due to higher food-and-beverage labor and nightclub entertainment costs.
- On March 30, the company repaid the $1.94 billion Redemption Note and paid $463.6 million to settle claims related to its interest rate; it also released $232.4 million of accrued interest held in escrow. The settlement resolved specified claims with Universal Entertainment and Aruze, but did not release claims against non-parties including Kazuo Okada and Elaine P. Wynn.
- The company adopted ASC 606 retrospectively from January 1, 2018. Prior-period revenue and expense presentation was adjusted, but the company reported no impact on operating income or net income.
Outlook, risks and contingencies
- Encore Boston Harbor had an estimated total project budget of approximately $2.5 billion, including license fees, and $1.64 billion of costs incurred by June 30. The company expected a mid-2019 opening; the construction contract set a June 24, 2019 substantial-completion date, subject to adjustments.
- Phase 1 of the Wynn Las Vegas golf-course redevelopment was estimated at approximately $500 million, with additional meeting space expected to open in first-quarter 2020. Additional retail space at Wynn Las Vegas was expected to open in fourth-quarter 2018.
- Management expected to fund operations, debt service and current developments with operating cash flow, existing cash and credit availability, while cautioning that operating cash flow and refinancing may not be sufficient or available on acceptable terms.
- Following former CEO Stephen A. Wynn’s February 2018 resignation, the company faced regulatory reviews in Massachusetts, Nevada and Macau, shareholder derivative suits and a securities class action. The company stated that outcomes and reasonably possible losses could not be determined for several matters. A Macau claim by Mr. Okada also remained pending after earlier claims were dismissed and appealed.
- Other key exposures include Macau gaming regulation and visitation, dependence on a limited number of resort markets, collection of gaming receivables (82.2% of markers were owed by customers outside the U.S., primarily in Asia), construction and labor costs, and leverage. A 100-basis-point change in variable rates was estimated to change annual interest expense by $39.2 million; a 1% U.S. dollar/Hong Kong dollar exchange-rate change was estimated to produce a $23.7 million transaction gain or loss.
- No specific full-year earnings or revenue guidance was provided. The filing states that interim results are not necessarily indicative of full-year results.
Most important facts for investors to verify
- Whether Wynn Palace’s growth persists and Wynn Macau’s weaker VIP performance stabilizes; gaming win rates can materially affect results.
- Encore Boston Harbor’s remaining budget, construction progress, opening timetable and funding needs, alongside the Las Vegas redevelopment and retail commitments.
- Cash generation after the unusually large settlement, capital spending, dividends and debt repayments; also verify debt maturities, facility availability and covenant headroom.
- Developments and potential financial consequences in regulatory reviews, shareholder litigation and the remaining Okada-related proceedings.
- Comparability of reported revenue after ASC 606, and the effect of the settlement and Redemption Note accounting and tax items on reported earnings.