Wynn Resorts, Limited — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017, compared with the corresponding 2016 periods. Wynn operates resorts in Macau and Las Vegas and is developing Wynn Boston Harbor. Wynn Palace, which opened in August 2016, is included in 2017 results but not the prior-year comparison.
Key financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net revenue | $1.529B | $1.058B | $3.005B | $2.056B |
| Operating income | $246.9M | $147.5M | $496.8M | $305.8M |
| Net income attributable to Wynn | $74.9M | $70.4M | $175.7M | $145.6M |
| Diluted EPS | $0.73 | $0.69 | $1.72 | $1.43 |
| Adjusted Property EBITDA | $430.0M | $312.7M | $857.6M | $612.9M |
Q2 net revenue rose 44.5% and operating income rose 67.3%; operating margin was approximately 16.1%, versus 13.9% a year earlier. Adjusted Property EBITDA increased 37.5%. Revenue and EBITDA growth largely reflect Wynn Palace, which contributed Q2 revenue of $414.7M and Adjusted Property EBITDA of $87.4M. Wynn Macau and Las Vegas also reported higher Q2 EBITDA.
Net income grew more slowly than revenue, reflecting higher interest expense, a $22.3M debt-extinguishment loss, and a $12.4M loss from the change in fair value of the Redemption Note. Wynn Palace-related depreciation and amortization also increased as the resort entered service. Management reported Wynn Palace’s ramp-up continued to be affected by construction around the property.
Cash flow, liquidity, debt, and capital
- Six-month operating cash flow was $803.6M, versus $369.9M in 2016. Investing cash outflow was $397.3M, including $392.6M of capital expenditures, primarily for Wynn Boston Harbor. Operating cash flow less reported capital expenditures was approximately $411M.
- Cash and cash equivalents were $2.486B at June 30, 2017; available-for-sale investments were $312.6M. Cash is held across the parent and subsidiaries, and not all subsidiary cash is necessarily available to the parent.
- Total debt carrying value was approximately $9.808B, down from $10.125B at year-end 2016. This includes the $1.848B fair-value carrying amount of the Redemption Note. The company reported $548.8M of available capacity under Wynn Macau’s revolver and $358.0M under Wynn America’s revolver, net of letters of credit.
- Wynn issued $900M of 5.25% notes due 2027 and used proceeds and cash to tender for and redeem its 5.375% notes due 2022. The refinancing generated a $20.8M extinguishment loss; an amendment to Wynn America credit facilities generated another $1.5M loss. Management stated it was in compliance with debt covenants.
- Six-month dividends paid were $179.6M. A further $0.50-per-share dividend was announced July 25, payable August 22, 2017. The company had $1.0B of remaining share-repurchase authorization, with no second-quarter repurchases.
Changes, outlook, and risks
- Wynn Palace drove most of the year-over-year increase. Wynn Macau’s Q2 VIP turnover rose 35.3%, but VIP win percentage fell to 3.53% from 3.98%; mass-market table drop declined 9.0%. Wynn Macau room revenue fell 12.4%, with ADR down 19.6% despite higher occupancy. Las Vegas net revenue increased 3.1% in Q2.
- Management expects Wynn Boston Harbor to open in mid-2019. The total project budget, including license fees, construction, capitalized interest, pre-opening and land costs, is approximately $2.4B; $771.8M had been incurred by June 30. A construction agreement set a $1.32B guaranteed maximum price, subject to adjustment, and a June 24, 2019 substantial-completion target. Wynn Las Vegas golf-course redevelopment Phase 1 was estimated at approximately $500M.
- The filing provides no earnings or revenue guidance. Management expects cash needs for operations, development, resort enhancements and debt service to be met through operating cash flow, credit availability and existing cash, while cautioning that subsidiary cash generation and refinancing are not assured.
- Significant legal matters include the ongoing Okada redemption litigation and related claims. Management could not determine the probability or reasonably possible loss for the principal litigation; it warned a material adverse judgment or settlement could affect financial condition. The Macau court dismissed the Okada Parties’ Macau claims on July 11, 2017. Elaine Wynn’s claims and potential change-of-control implications remain matters to monitor.
- Market exposures include floating-rate debt and foreign currency. The company estimated a 100-basis-point rate move would change annual interest cost by $31.2M and a 1% U.S. dollar/Hong Kong dollar exchange-rate move would produce a $27.7M transaction gain or loss. Approximately 72.2% of long-term debt was fixed-rate, including swaps.
- Other risks include Macau and U.S. gaming regulation, customer credit and collection, reliance on a limited number of resorts, construction costs and approvals, and the fair-value estimate of the Redemption Note. The company reported 84.5% of casino markers were owed by customers outside the United States, primarily in Asia.
Important facts for investors to verify
- How Wynn Palace’s ramp-up and Macau VIP and mass-market trends develop, particularly win rates, turnover, table drop, and Wynn Macau room pricing.
- Whether operating cash flow can sustain Boston Harbor construction, dividends, capital spending, and debt service; confirm availability and restrictions on subsidiary cash and revolving credit.
- Debt maturities, interest-rate exposure, refinancing terms, and the fair-value assumptions and legal status of the Redemption Note.
- Progress, final cost, schedule, and permitting for Wynn Boston Harbor and the proposed Wynn Las Vegas golf-course project.
- Developments in the Okada and Elaine Wynn litigation and any resulting regulatory, change-of-control, or financial consequences.