Wynn Resorts, Limited — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. Wynn Resorts develops and operates integrated casino resorts in Macau and Las Vegas and was building Encore Boston Harbor. The company owns approximately 72% of Wynn Macau, Limited.
Financial results and liquidity
| Metric | Q3 2018 | First nine months 2018 |
|---|---|---|
| Operating revenue | $1.709 billion, up 10.2% | $5.030 billion, up 13.1% |
| Operating income | $291.0 million | $489.3 million |
| Net income attributable to Wynn Resorts | $156.1 million; $1.44 diluted EPS | $107.6 million; $1.01 diluted EPS |
| Adjusted Property EBITDA | $504.4 million, up 6.6% | $1.545 billion, up 16.1% |
| Operating cash flow | Not presented separately for the quarter | $497.9 million, versus $1.278 billion |
| Investing cash flow | Not presented separately for the quarter | $(928.9) million |
Q3 operating margin was approximately 17.0%; nine-month operating margin was approximately 9.7% (calculated from reported revenue and operating income). The nine-month margin and attributable profit were weighed down by a $463.6 million litigation settlement expense.
At September 30, cash and cash equivalents were $1.949 billion, down from $2.804 billion at year-end 2017. Total debt, net of issuance costs and discounts, was approximately $8.932 billion, including $236.8 million current and $8.695 billion long-term, versus $9.629 billion at year-end. Current assets were $2.336 billion and current liabilities $2.047 billion. Available borrowing capacity under credit facilities and the commitment letter was reported at $1.231 billion. Management said it expected cash needs to be met through operating cash flow, existing cash and available facilities.
Capital expenditures, net of construction payables and retention, were $1.154 billion for the nine months, including $603.6 million for Encore Boston Harbor and $336.2 million for Las Vegas Strip land. The company declared dividends of $0.75 per share in Q3 and $2.00 per share cumulatively for the nine months.
Changes versus prior comparable periods
- Q3 revenue grew 10.2% and attributable net income rose 95.7% year over year. Macau operations drove growth, led by Wynn Palace; Las Vegas revenue fell 14.1%.
- Q3 Adjusted Property EBITDA increased 6.6%, with Wynn Palace growth partly offset by a $56.2 million decrease in Las Vegas Operations EBITDA.
- For the first nine months, revenue rose 13.1% and Adjusted Property EBITDA 16.1%, but attributable net income fell 57.9%, chiefly reflecting the settlement expense and changes in tax benefits.
- Macau revenue rose 20.5% in Q3; Wynn Palace revenue increased 39.1%. Las Vegas operating results weakened, including a 37.1% year-over-year decline in Q3 Adjusted Property EBITDA.
- Operating cash flow declined substantially, reflecting the settlement payment and timing-related changes in customer deposits. Investing outflows increased, chiefly due to construction and land acquisition.
Prior-period revenue figures were retrospectively adjusted for adoption of ASC 606. The company reported no impact on operating income or net income from adoption.
Outlook, risks and unusual items
- Projects: Encore Boston Harbor had an estimated total budget of approximately $2.6 billion; $1.83 billion had been incurred by September 30. Management expected a mid-2019 opening. A $415 million Las Vegas convention-space and golf-course project was expected to open in 2020 and late 2019, respectively. These are management estimates and schedules, not earnings guidance.
- Debt and financing: The company repaid the $1.94 billion Redemption Note in March 2018 and paid $463.6 million to settle related claims; it also released $232.4 million of accrued interest held in escrow. In October, after quarter-end, it entered a $500 million six-year term loan at LIBOR plus 2.25%; proceeds could be used for general corporate purposes, including repurchases, investments or capital expenditures.
- Litigation and regulatory matters: A Massachusetts casino-license-related lawsuit sought $1 billion in compensatory damages plus treble damages; management said it could not determine the probability of loss or a reasonably possible loss range. Other unresolved matters include Macau litigation involving Kazuo Okada, shareholder derivative actions, securities litigation, and regulatory reviews concerning former Chairman and CEO Stephen Wynn. The company said it would vigorously defend claims where stated.
- Operating and market risks: Macau gaming regulation, visitation restrictions, promoter and customer credit/collections, competition, resort concentration, construction execution, gaming-license suitability, leverage and floating interest rates are among the disclosed risks. A 100-basis-point move in variable rates was estimated to change annual interest expense by $45.3 million. Approximately 49.9% of long-term debt was fixed-rate.
- Other notable items: Q3 Macau entertainment, retail and other revenue included $10.7 million of insurance proceeds related to Typhoon Hato. Q3 results also included a $5.8 million expense tied to the general counsel’s departure and accelerated equity-award vesting. No specific full-year earnings or revenue guidance was provided in the filing.
Key facts investors should verify
- Whether Wynn Palace’s strong growth continues and whether Macau VIP win rates normalize; reported win percentages can materially affect casino revenue.
- Whether Las Vegas weakness persists, particularly in table-game play, hotel occupancy and nightclub revenue.
- Encore Boston Harbor’s remaining cost, construction schedule, licensing and regulatory status.
- The company’s post-quarter debt, liquidity, commitment availability and intended use of the new $500 million term-loan proceeds.
- Developments in pending litigation and regulatory reviews, including any eventual estimates of potential financial exposure.
- The sustainability of operating cash flow and dividends given high capital spending, debt service and subsidiary restrictions on distributions.