Wynn Resorts, Limited — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts are U.S. dollars; financial statements are unaudited. Wynn operates integrated resorts in Macau, Las Vegas, and Boston, and an online gaming business. Macau accounted for most of the year-over-year revenue recovery.
Key financial results
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $1.596 billion | $908.8 million | $3.020 billion | $1.862 billion |
| Operating income (loss) | $250.3 million | $(52.0) million | $419.9 million | $(146.9) million |
| Net income (loss) attributable to Wynn Resorts | $105.2 million | $(130.1) million | $117.5 million | $(313.4) million |
| Diluted EPS | $0.84 | $(1.14) | $0.84 | $(2.73) |
| Adjusted Property EBITDAR | $524.5 million | $179.2 million | $954.2 million | $356.7 million |
Q2 operating margin was approximately 15.7%, versus a loss-making operating result in Q2 2022. Casino revenue was $913.0 million in Q2, up 153.9%; non-casino revenue was $682.8 million, up 24.3%. Consolidated net income was $127.8 million in Q2 and $129.0 million for the first half, before noncontrolling interests.
Cash flow and liquidity: First-half operating cash flow was $530.7 million, compared with cash used of $157.5 million in 2022. Investing used $544.3 million, including $215.3 million of capital expenditures and $286.5 million for Treasury securities. Financing used $18.8 million. Cash, cash equivalents, and restricted cash totaled $3.748 billion at June 30; cash and cash equivalents alone were $3.654 billion, with $288.2 million of investment securities. Available revolver capacity was $737.0 million, net of letters of credit.
Debt and balance sheet: Debt was $12.143 billion net of issuance costs and discounts, including $41.3 million current; long-term debt on the balance sheet was $12.101 billion. Total liabilities were $15.291 billion and stockholders’ deficit was $1.507 billion. Management said the company was in compliance with debt covenants at quarter-end. Approximately 24% of long-term debt was variable-rate; a 100-basis-point rate change was estimated to change annual interest expense by $23.2 million.
Material changes versus the prior comparable period
- Revenue rose 75.6% in Q2 and 62.1% in the first half. Macau Operations revenue increased 556.8% in Q2, primarily as travel restrictions were relaxed or eliminated and gaming, hotel, and restaurant activity recovered. Las Vegas revenue grew 3.0% in Q2; Encore Boston Harbor grew 5.6%.
- Macau Adjusted Property EBITDAR turned positive: $246.2 million in Q2 versus a $90.3 million loss a year earlier. Las Vegas Q2 Adjusted Property EBITDAR declined 1.1% to $224.1 million; Boston increased 8.4% to $69.1 million. Wynn Interactive remained loss-making, but its Q2 loss narrowed to $15.0 million.
- Operating expenses rose 40.0% in Q2, partly reflecting higher Macau gaming taxes and volume-related costs. First-half gaming taxes were $701.8 million versus $283.2 million. General and administrative expense also increased, including $35.6 million of Q2 and $70.9 million of first-half triple-net lease expense at Encore Boston Harbor after its sale-leaseback.
- Net interest expense increased: Q2 interest expense, net of capitalized amounts, was $190.2 million versus $154.8 million; the reported weighted-average borrowing rate increased to 6.08% from 5.14%. First-half interest expense was $378.0 million versus $307.0 million.
Outlook, management commentary, risks, and unusual items
- The filing provides no numerical revenue, earnings, or cash-flow guidance. Management attributed the Macau improvement to the easing of pandemic-related travel measures. It cautioned that interim results are not necessarily indicative of full-year results.
- Management said it may be possible within the next 12 months to release part of the valuation allowance on certain U.S. deferred tax assets, but the timing and amount are uncertain.
- Debt activity included $600 million of 7.125% notes due 2031 and $600 million of 4.50% WML convertible bonds due 2029. Proceeds helped refinance or repay $600 million of 2025 notes and $500 million of Wynn Las Vegas notes due 2023. The WRF facility amendment extended portions of term and revolving commitments to 2027; portions not extended remain due in 2024. Interest-rate benchmarks on facilities transitioned from LIBOR to SOFR-based rates after quarter-end.
- The WML convertible-bond conversion feature is accounted for as a Level 3 derivative. Its quarter-end fair-value liability was $77.0 million; fair-value gains were $21.6 million in Q2 and $46.5 million in the first half, making reported earnings sensitive to valuation assumptions.
- Key risks cited include Macau licensing and regulation, geopolitical and travel conditions, competition, gaming win rates, collection of gaming receivables, labor, cybersecurity, interest rates, foreign exchange, and the company’s substantial indebtedness. The company disclosed ongoing Dore-related Macau litigation, a securities class action proceeding through discovery, and an ongoing U.S. anti-money-laundering investigation; outcomes and potential losses were not estimable for the class action and investigation.
- Wynn paid a $0.25-per-share dividend in June and announced another $0.25-per-share dividend payable August 31, 2023. No repurchases were made under the public buyback program in the first half.
Important facts for investors to verify
- Whether Macau’s post-reopening demand and gaming volumes persist, and how win-rate volatility affects revenue and margins.
- Debt maturity and refinancing needs, variable-rate exposure, covenant terms, and the effect of higher interest costs on cash generation.
- Cash availability by legal entity and restrictions on subsidiary distributions to the parent; WML paid no dividends in 2022 or the first half of 2023.
- Future gaming-tax, lease, and capital-expenditure cash requirements, which are not captured by Adjusted Property EBITDAR.
- Developments in the disclosed litigation and federal investigation, and changes in the valuation of the WML convertible-bond derivative or deferred-tax valuation allowance.