Wynn Resorts, Limited — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Wynn Resorts develops, owns and operates integrated casino resorts in Macau and Las Vegas and is building Wynn Boston Harbor. It owns approximately 72% of Wynn Macau, Limited.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Net revenues | $1.476 billion | $997.7 million | +47.9% |
| Operating income | $249.9 million | $158.3 million | +57.9% |
| Net income attributable to Wynn Resorts | $100.8 million | $75.2 million | +34.0% |
| Diluted EPS | $0.99 | $0.74 | +33.8% |
| Adjusted Property EBITDA | $427.5 million | $300.3 million | +42.4% |
| Net cash from operating activities | $414.6 million | $115.4 million | Up $299.2 million |
- Operating margin was approximately 16.9%, compared with 15.9% a year earlier. Adjusted Property EBITDA margin was approximately 29.0%, versus 30.1%; the latter is a company-defined non-GAAP measure and is not a substitute for operating income or cash flow.
- Casino revenue was $1.151 billion, up 57.1%; non-casino revenue was $324.5 million, up 22.5%. Promotional allowances were $111.6 million, up 34.3%.
- Cash and cash equivalents were $2.543 billion at March 31; available-for-sale investments totaled $297.8 million. Cash plus investments was approximately $2.841 billion. The company reported $549.7 million of available capacity on Macau’s revolving facility and $360.4 million on Wynn America’s revolver, net of letters of credit.
- Long-term debt was $9.813 billion, down from $10.125 billion at year-end. This includes the $1.835 billion fair-value carrying amount of the subordinated Redemption Note. Current assets were $3.081 billion and current liabilities $1.508 billion.
- Capital expenditures, net of construction payables and retention, were $145.6 million. Investing activities used $122.5 million; financing activities used $201.0 million, including $331.2 million of debt repayments and $51.3 million of dividends paid.
- The company declared a quarterly dividend of $0.50 per share, also declared for Q1 2016. A further $0.50 dividend was announced for payment May 23, 2017.
Changes versus the prior-year quarter
- Wynn Palace, opened in August 2016, contributed $475.8 million of net revenue and $111.9 million of Adjusted Property EBITDA; it was the main driver of consolidated growth. Its Adjusted Property EBITDA rose 44.4% from Q4 2016, though management said construction around the property continued to affect its ramp-up.
- Wynn Macau net revenue fell 3.5% to $587.0 million and Adjusted Property EBITDA declined 5.3% to $181.1 million. Management cited lower business volumes, including competition from recent Cotai resort openings. Las Vegas net revenue rose 6.0% to $412.9 million and Adjusted Property EBITDA increased 23.4% to $134.6 million.
- Interest expense, net of capitalized amounts, rose to $98.3 million from $44.8 million. Capitalized interest fell substantially as Wynn Palace construction was completed; Q1 2016 also included a $25.6 million out-of-period adjustment that reduced interest expense. Depreciation and amortization increased to $139.8 million from $78.0 million, mainly due to Wynn Palace entering service.
Outlook, risks and unusual items
- No consolidated earnings guidance was provided. Wynn Boston Harbor had an estimated total project budget of approximately $2.4 billion, with $606.9 million incurred through March 31. The company expected a mid-2019 opening. An April 28 construction agreement set a $1.32 billion guaranteed maximum price and substantial completion target of June 24, 2019, subject to adjustments.
- Management said it expects to fund future cash needs from operating cash flow, existing cash and credit facilities, and intends primarily to use available borrowing capacity for Wynn Boston Harbor. The company cautioned that operating cash flow, refinancing and access to financing are not assured.
- The company was in compliance with debt covenants at March 31. On April 24, it amended Wynn America credit facilities, extending specified loan and revolving-credit maturities to December 2021.
- Major contingencies include ongoing litigation with the Okada Parties concerning the 2012 share redemption and related counterclaims; trial was scheduled for April 2018. Management said it could not determine the probability or range of loss, if any, and noted a material adverse judgment or settlement could affect financial condition. Related investigations and other litigation, including challenges involving the Massachusetts gaming license, also remain relevant; the Massachusetts Supreme Judicial Court affirmed dismissal of several claims but remanded certain claims.
- The Redemption Note’s fair value was $1.835 billion, up from $1.819 billion at year-end; the quarter included a $15.8 million non-cash fair-value loss. Other unusual movements included a $6.1 million foreign-currency remeasurement loss. Q1 2017 doubtful-account expense was a $4.2 million benefit, reflecting collections and allowance reversals.
- Key risks include Macau and Las Vegas demand and competition, gaming regulation and licensing, construction cost and schedule risks, customer credit and collection, leverage and interest-rate exposure, foreign-exchange movements, and pending litigation or regulatory matters. A 100-basis-point change in variable rates was estimated to change annual interest cost by $33.2 million; a 1% change in the U.S. dollar/Hong Kong dollar rate could result in a $28.0 million transaction gain or loss.
Important facts for investors to verify
- Whether Wynn Palace’s operating improvement continues and how Cotai competition affects Wynn Macau.
- Progress, final cost and opening schedule for Wynn Boston Harbor, including changes to the contract price or project budget.
- Debt maturities, borrowing availability, covenant compliance and cash accessibility across subsidiaries; reported group liquidity is not necessarily freely transferable.
- Developments and potential financial consequences in the Okada-related litigation, investigations and Massachusetts license litigation.
- The effect of gaming win-rate volatility, credit receivable collections, foreign exchange and interest rates on reported earnings and cash flow.
- The comparability of year-over-year results, given Wynn Palace’s opening and the $25.6 million Q1 2016 interest adjustment.