Las Vegas Sands Corp. — Q3 2017 Form 10-Q
Business context and reporting period
Unaudited results for the three and nine months ended September 30, 2017, compared with the same 2016 periods. The company operates integrated resorts in Macao, Singapore and the United States; it owned 70.1% of Sands China Ltd. at quarter-end.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net revenue | $3.199B | $2.969B | $9.446B | $8.335B |
| Operating income | $856M | $720M | $2.435B | $1.824B |
| Net income | $685M | $606M | $1.901B | $1.409B |
| Net income attributable to LVS | $570M | $513M | $1.595B | $1.161B |
| Diluted EPS | $0.72 | $0.65 | $2.01 | $1.46 |
| Adjusted property EBITDA | $1.210B | $1.142B | $3.565B | $3.015B |
Net revenue rose 7.7% in Q3 and 13.3% for the nine-month period; LVS-attributable net income increased 11.1% and 37.4%, respectively. Operating margin was approximately 26.8% in Q3 versus 24.2%; for nine months it was 25.8% versus 21.9%. Adjusted property EBITDA is a non-GAAP measure and excludes significant cash uses, including capital spending, dividends, interest and debt repayments.
- Q3 growth was led by The Parisian Macao, which opened in September 2016, and Marina Bay Sands. Q3 net revenue increased $230M; The Parisian contributed $349M more revenue year over year, while Marina Bay Sands increased $31M. Macao properties excluding The Parisian declined $137M.
- Q3 adjusted property EBITDA increased 6.0%; Marina Bay Sands grew 13.0%, while Las Vegas operating properties declined 11.6%. Nine-month EBITDA increased 18.2%, including growth at The Parisian and Marina Bay Sands.
- Nine-month operating cash flow was $3.222B, versus $2.831B. Capital expenditures were $592M, down from $1.103B. Financing cash outflow was $2.809B, including $2.362B of dividends, $300M of share repurchases and net debt repayments.
- September 30 cash and cash equivalents were $2.001B, plus $11M restricted cash. Total current assets were $2.836B and current liabilities $2.661B. Balance-sheet debt was $9.617B, including $134M current maturities; shareholders’ equity was $5.896B and total equity $6.891B.
- Available borrowing capacity under U.S., Macao and Singapore facilities was $3.51B. Management reported covenant compliance and leverage ratios of 0.5x for U.S., 1.8x for Macao and 2.0x for Singapore, below respective limits of 5.5x, 3.5x and 3.5x. Management believes cash, operating cash flow and facility availability can fund obligations and planned spending.
Material changes, outlook, risks and unusual items
- A useful-life estimate change, effective July 1, 2017, reduced Q3 depreciation and amortization by $51M and increased operating income by $51M, net income by $46M and basic and diluted EPS by $0.06. This is a material contributor to reported improvement, not an operating cash inflow.
- The company reported $80M of other expense for the first nine months, primarily foreign-exchange losses, including $65M transaction losses and a $16M fair-value loss on currency forwards. A hypothetical 100-basis-point change in relevant benchmark rates would change annual interest cost by about $98M.
- Typhoon Hato caused property damage in Macao; $21M of Q3 and $27M of nine-month asset disposal or impairment losses primarily related to those damages. Corporate expense also included a charitable donation commitment for relief and recovery.
- No quantitative earnings or revenue guidance is provided. Management announced plans for approximately 295 additional Four Seasons Macao suites, with completion expected in 2019, and the phased renovation, expansion and rebranding of Sands Cotai Central as The Londoner Macao, expected to be completed in 2020. Both projects are expected to commence in 2018.
- The board declared a Q4 2017 dividend of $0.73 per share and announced a 2018 annual dividend of $3.00 per share, or $0.75 quarterly. The company repurchased $300M of shares in the first nine months and had $1.26B remaining under its authorization at September 30.
- Management cites gaming-win volatility, reliance on Macao, Singapore and Las Vegas, gaming regulation and licensing, customer credit collection, currency and interest-rate changes, competition, construction and labor constraints, travel disruptions, and debt covenant/refinancing risks. Macao gaming income tax exemption was effective through the end of 2018.
- Material proceedings include the Roundsquare matter, with a new damages trial pending and only a nominal accrual; the company says it cannot determine the probability or reasonably possible loss for certain derivative actions and the Macao AAEC action. AAEC seeks approximately $373M in Macao; its separate U.S. action seeking $5B was dismissed in 2015. A securities class action had summary judgment for defendants, with plaintiffs’ appeal pending.
Most important facts for investors to verify
- How much reported earnings growth depends on the revised depreciation useful lives, and whether subsequent results support the estimate.
- Whether Macau and Singapore casino volumes and win rates, particularly Rolling Chip results, remain sustainable; short-period gaming outcomes can vary.
- Progress, total costs and expected returns for The Londoner Macao and the Four Seasons Macao tower suites, alongside capital spending and dividend commitments.
- Debt covenant headroom, variable-rate exposure and currency risk, including the $98M annual interest-cost sensitivity and Singapore-dollar exposure.
- Developments in the disclosed litigation and the expiration or renewal of Macao’s gaming income tax exemption after 2018.