Wynn Resorts, Limited — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; compared with the three months ended March 31, 2014. Amounts below are U.S. dollars.
Business context and results
Wynn Resorts develops and operates destination casino resorts. Its principal operating segments are Macau Operations and Las Vegas Operations. The company was constructing Wynn Palace in Macau and developing a resort in Everett, Massachusetts.
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net revenue | $1.092 billion | $1.514 billion | Down 27.8% |
| Operating income | $185.1 million | $376.8 million | Down 50.9% |
| Operating margin | 16.9% | 24.9% | Down 8.0 percentage points |
| Net income (loss) attributable to Wynn Resorts | $(44.6) million | $226.9 million | Turned to a loss |
| Diluted earnings (loss) per share | $(0.44) | $2.22 | Turned to a loss |
| Adjusted Property EBITDA | $323.0 million | $494.6 million | Down 34.7% |
| Adjusted Property EBITDA margin | 29.6% | 32.7% | Down 3.1 percentage points |
Macau revenue was $705.4 million, down 37.7%; Las Vegas revenue was $386.9 million, up 1.6%. Macau Adjusted Property EBITDA fell 44.7% to $212.3 million, while Las Vegas Adjusted Property EBITDA was nearly flat at $110.7 million.
Cash flow, debt and liquidity
- Operating cash flow was a use of $15.0 million, versus $209.2 million provided in Q1 2014. Investing activities used $521.6 million, including $495.7 million of capital expenditures, primarily for Wynn Palace. Financing activities used $3.4 million.
- Cash and cash equivalents were $1.642 billion at quarter-end, down from $2.182 billion at December 31, 2014. Current assets were $2.383 billion and current liabilities $1.248 billion (current ratio approximately 1.91).
- Reported long-term debt was $7.985 billion before deducting its $150.9 million current portion, including the $1.936 billion Redemption Price Promissory Note. The company issued $1.8 billion of 5.5% senior notes due 2025 and used proceeds principally to tender for 2020 notes. The transactions generated a $116.2 million debt-extinguishment loss.
- Available borrowing capacity was $1.16 billion under Wynn Macau’s revolving facility and $1.24 billion under Wynn America’s facilities. Management said cash, operating cash flow and available facilities should cover anticipated needs for at least 12 months; it cautioned that additional financing might not be available on favorable terms or at all.
- Total stockholders’ equity was a deficit of $147.2 million, compared with equity of $211.1 million at year-end. Q1 dividends declared were $1.50 per share; $346.8 million of dividends were paid during the quarter.
Material changes and management commentary
- Macau VIP turnover fell 52.4% to $17.1 billion; Macau casino revenue decreased 38.0%. Management attributed the weakness to Macau market conditions and regional economic factors affecting games promoters and premium customers. Macau mass-market table-games win declined 7.0% and slot win declined 31.2%.
- Las Vegas casino revenue increased 4.2%, but room revenue declined 3.3%, with occupancy down 4.8 percentage points to 83.0%; higher average daily room rate partly offset the occupancy decline.
- Management reported increased promotional allowances as a percentage of casino revenue, associated primarily with a new Macau loyalty program. Doubtful-account expense rose to $6.1 million from a $2.7 million benefit in the prior-year quarter.
- Wynn Palace had an estimated total project budget of approximately $4.1 billion; approximately $2.2 billion had been incurred by March 31. The company expected a first-half 2016 opening. The general contractor said it would miss an earlier completion milestone but remained on schedule for substantial completion by the contractual date.
- The filing gives no quantified full-year earnings or revenue guidance. It said pre-opening costs were expected to rise as Wynn Palace progressed and the Massachusetts project developed.
Risks, contingencies and unusual items
- The company disclosed ongoing litigation involving the redemption of former shareholder Aruze’s shares and related claims by the Okada parties. Management could not determine the probability of outcome or reasonably possible loss; a material adverse judgment or settlement could affect financial condition.
- Separate derivative litigation and investigations were disclosed, including a U.S. government investigation related to the University of Macau donation and a Macau authority information request concerning Cotai land. The company said it was cooperating. It also disclosed legal challenges to the Massachusetts gaming-license award; Wynn MA was not named in those complaints.
- Advanced commissions to Macau games promoters were $139.3 million in casino receivables, offset by $51.7 million of related commissions payable. The filing noted promoter liquidity concerns and that advances were now supported primarily by promissory notes. Approximately 84% of casino markers were due from customers outside the United States, primarily in Asia.
- About 93% of long-term debt was fixed-rate, including swaps; a 1% change in variable rates was estimated to change annual interest cost by $5.9 million. Approximately 22% of cash was denominated in foreign currencies, primarily Hong Kong dollars; a 1% exchange-rate change was estimated to cause an approximately $3.0 million transaction gain or loss.
- Subsequent events: the company announced a $0.50-per-share dividend payable May 21, 2015, and redeemed $71.1 million principal of untendered 7⅞% 2020 notes on May 1, 2015.
Key facts for investors to verify
- Whether Macau VIP turnover and promoter/customer credit conditions stabilize, and how they affect casino revenue, receivables and cash collection.
- Wynn Palace’s construction schedule, remaining funding needs, project budget and first-half 2016 opening expectation.
- Debt balances, refinancing and redemption costs, borrowing-facility availability, and restrictions on subsidiary distributions and dividends.
- Developments and potential financial consequences of the Okada-related litigation and investigations, Macau Cotai inquiry, and Massachusetts license challenges.
- Whether operating cash flow and liquidity remain sufficient alongside elevated development spending and dividend payments.