Las Vegas Sands Corp. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. Las Vegas Sands operates integrated casino resorts in Macao, Singapore and the United States. Its subsidiary Sands China Ltd. is 70.2% owned by the Company.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net revenue | $4.010 billion | $3.303 billion | +21.4% |
| Operating income | $1.144 billion | $826.7 million | +38.4% |
| Net income | $996.7 million | $704.0 million | +41.6% |
| Net income attributable to Las Vegas Sands | $776.2 million | $572.0 million | +35.7% |
| Diluted EPS | $0.95 | $0.69 | — |
| Adjusted property EBITDA | $1.480 billion | $1.167 billion | +26.8% |
| Operating margin | 28.5% | 25.0% | +3.5 points |
| Net margin attributable to Las Vegas Sands | 19.4% | 17.3% | +2.1 points |
Adjusted property EBITDA is a company-defined non-GAAP measure. Macao revenue rose $703.3 million, driving most of the consolidated increase. Macao EBITDA increased 49.8% to $938.4 million; Marina Bay Sands EBITDA grew 9.7% to $435.2 million. U.S. EBITDA declined 25.9% to $106.2 million, including a 29.8% drop at the Las Vegas properties and an 11.1% decline at Sands Bethlehem. Las Vegas casino revenue fell 31.3%, partly reflecting lower table-game win percentage.
Casino revenue increased 23.2%; rooms increased 23.1%; mall revenue increased 27.6%; food and beverage increased 9.4%. The filing attributes Macao growth mainly to increased casino activity and also cites higher room rates and mall rents. Operating expenses rose 15.8%, slower than revenue growth; casino expense increased $341.3 million, including $283.5 million of additional Macao gross-win tax associated with higher casino revenue.
Cash flow, balance sheet and capital allocation
- Operating cash flow was $1.133 billion, versus $885.5 million. Capital expenditures were $251.7 million, versus $197.2 million; operating cash flow less capital expenditures was approximately $880.9 million, compared with $688.3 million.
- Cash and cash equivalents were $3.303 billion at March 31, down from $3.600 billion at year-end; restricted cash was $5.9 million. Cash declined $297.0 million during the quarter, after $1.181 billion of net financing cash outflow.
- Total debt carrying value was approximately $10.274 billion, up from $9.760 billion at December 31; long-term debt excluding current maturities was $9.969 billion. Debt increased amid refinancing activity and borrowing. Reported debt fair value was approximately $10.10 billion.
- Current assets were $5.242 billion and current liabilities $2.959 billion. The Company reported $1.73 billion of available borrowing capacity across its U.S., Macao and Singapore facilities, net of letters of credit.
- Variable-rate debt was approximately $10.258 billion. Management estimated that a 100-basis-point increase in relevant benchmark rates would raise annual interest cost by about $89.3 million.
- The Company paid a $0.50-per-share quarterly dividend and $915.1 million in total dividends during the quarter. It repurchased 10.0 million shares for $810.0 million; about $619.5 million remained under the $2.0 billion authorization at quarter-end. The board declared another $0.50-per-share dividend for payment June 30, 2014; management expected this dividend level to continue quarterly through the rest of 2014.
Material changes, outlook and notable items
- In March, the Company amended its Macao credit facility: $2.39 billion of term loans were extended to March 2020 and a $2.0 billion revolving facility was established. The amendment removed the consolidated capital-expenditure covenant and revised leverage limits; the Company recorded an $18.0 million debt-modification/early-retirement loss. The U.S. facility had $154.3 million of available capacity and the Macao revolver $1.18 billion at quarter-end.
- The Company expects The Parisian Macao to open in late 2015, at an estimated total development cost of $2.7 billion. The remaining Sands Cotai Central phase is estimated to cost about $700 million. The Macao government extended the Sands Cotai Central completion deadline to December 2016; the Parisian land-concession deadline is April 2016. Failure to meet deadlines without extensions could jeopardize land concessions and expose capitalized costs to impairment.
- Construction of the Las Vegas Condo Tower remains suspended because of weak condominium demand. The Company had capitalized $178.6 million; abandonment or continued weak conditions could lead to a charge.
- Management said cash and operating cash flow should be sufficient to maintain credit-facility covenant compliance. Reported U.S. and Singapore leverage ratios were 1.3x and 2.8x, within respective limits of 5.5x and 3.5x. Macao covenant testing begins with the quarter ending June 30, 2014.
- Macao gaming profits remained exempt from corporate income tax through 2018. A related agreement on dividend tax substitution had not been finalized; a government draft proposed an annual payment of 42.4 million patacas, approximately $5.3 million.
- Unusual and contingent matters include an unaccrued $101.6 million judgment in the Suen litigation, which the Company is appealing and does not consider probable or estimable; ongoing SEC and DOJ FCPA investigations, for which management could not estimate a loss; and a cyberattack disclosed in February that compromised certain customer and employee data, including data at Sands Bethlehem. The Company said the investigations and loss exposure remained unresolved. A prior $47.4 million customer-funds return to the U.S. Treasury was paid in 2013 and that matter was closed.
Most important facts for investors to verify
- Whether Macao’s strong revenue and EBITDA growth is sustained, and how casino volumes and win percentages evolve—particularly given short-term gaming volatility.
- Progress, total funding needs and completion deadlines for The Parisian Macao and Sands Cotai Central, including any further land-concession extensions.
- Debt levels, refinancing terms, covenant headroom and the cost of variable-rate borrowing as development spending continues.
- Whether ongoing litigation, FCPA investigations or the cyberattack result in material costs, penalties, claims or operational effects.
- Whether the planned quarterly dividend and share repurchases remain supported by cash generation and investment requirements.