Business context and reporting period
Las Vegas Sands Corp. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. The company operates integrated resorts in Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania. The Parisian Macao opened on September 13, 2016; its results are included for the period after opening.
Financial performance
Amounts are in U.S. dollars; financial statement amounts below are rounded to billions unless otherwise noted.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net revenue | $2.969B | $2.894B | $8.335B | $8.827B |
| Operating income | $720M | $739M | $1.824B | $2.139B |
| Net income | $606M | $618M | $1.409B | $1.811B |
| Net income attributable to LVS | $513M | $519M | $1.161B | $1.500B |
| Diluted EPS | $0.65 | $0.65 | $1.46 | $1.88 |
| Adjusted property EBITDA (non-GAAP) | $1.143B | $1.052B | $3.015B | $3.119B |
Q3 net revenue rose 2.6%, while operating income declined 2.6% and LVS-attributable income declined 1.2%. Operating margin was 24.2%, versus 25.5%. For the nine-month period, net revenue fell 5.6%, operating income fell 14.8% and LVS-attributable income fell 22.6%; operating margin declined to 21.9% from 24.2%.
Nine-month casino revenue declined 7.4%, reflecting lower Macao and Marina Bay Sands gaming revenue. Consolidated adjusted property EBITDA fell 3.3% for the nine months, including a 12.5% decline at Marina Bay Sands; U.S. property EBITDA increased 15.7%. Q3 EBITDA increased 8.6%, supported by the new Parisian Macao and improved results at The Venetian Macao.
Net cash from operations was $2.830B for the nine months, up from $2.440B. Investing activities used $1.148B, including $1.103B in capital expenditures. Financing activities used $2.076B, primarily reflecting $2.337B in dividends paid. Cash and cash equivalents decreased $389M to $1.790B.
At September 30, 2016, total debt was approximately $9.76B, including $164M of current maturities; cash was $1.790B and restricted cash $9M. The company reported $3.51B of available borrowing capacity across its U.S., Macao and Singapore facilities. Reported leverage ratios were 0.7x for U.S., 2.0x for Macao and 2.5x for Singapore, within their respective covenant limits.
Material changes and notable developments
- The Parisian Macao contributed $68.6M in Q3 net revenue and $19.2M in adjusted property EBITDA. Parisian-related pre-opening costs were $86.1M in Q3 and $124.9M year to date.
- In August, the company completed a Macao facility amendment that extended $3.12B of existing term loans and added $1.0B of term loans, with the extended loans maturing in May 2022. It also extended U.S. revolving commitments to September 2020; $1.15B was available under that facility.
- The company paid quarterly dividends of $0.72 per share during 2016 to date. After quarter-end, the board declared a further $0.72 dividend, announced a 2017 annual dividend of $2.92 per share, and authorized a $1.56B share repurchase program. No shares were repurchased in the first nine months of 2016.
- Nine-month corporate expense increased $80.8M, primarily due to nonrecurring legal costs. The effective tax rate rose to 11.7% from 8.8%, primarily due to valuation allowances on certain deferred tax assets.
Outlook, risks and contingencies
The filing gives no specific consolidated revenue or earnings guidance. Management stated that cash, operating cash flow and available credit were expected to be sufficient for covenant compliance, working capital, planned capital expenditures, debt obligations and dividend commitments. Management cautioned that interim results are not necessarily indicative of full-year results.
- Development and land-concession risk: Required open-area development at Sands Cotai Central and The Parisian Macao had deadlines of December 2016 and January 2017, respectively. Failure to meet deadlines without extensions could jeopardize land concessions and expose the company to potential impairment of capitalized costs of $4.90B and $2.62B, respectively.
- Suspended project: Construction of the Las Vegas Condo Tower remained suspended. If conditions do not improve or the project is abandoned, some of its $178.6M capitalized cost could be charged.
- Legal and regulatory matters: The Roundsquare matter was remanded for a new trial on damages; the company said the potential loss could not be reasonably estimated. The company had settled SEC FCPA allegations in April 2016 but continued to respond to remaining government inquiries; their outcome and potential loss were not estimable. Other disclosed litigation includes securities and derivative actions, a Macao claim by AAEC, and matters relating to a prior cyberattack.
- Debt and market exposure: All reported debt was variable-rate. Management estimated that a 100-basis-point rate increase would raise annual interest cost by approximately $99M. Currency movements also affect results; the filing disclosed foreign-exchange forward contracts with $497.6M notional value and a $15.4M liability fair value.
- Other stated risks include gaming demand and win-rate variability, collection of gaming receivables, regulation and licensing, competition, currency changes, cybersecurity, and dependence on operations in Macao, Singapore and Las Vegas.
Important facts for investors to verify
- Whether Macao gaming demand and VIP rolling-chip volumes stabilize, particularly at Sands Cotai Central, Sands Macao and Marina Bay Sands.
- The Parisian Macao’s post-opening revenue, operating contribution, occupancy and continuing start-up costs.
- Progress on land-concession development deadlines and any requested extensions, as well as the status and carrying value of the suspended Las Vegas tower.
- Debt balances, facility availability, covenant headroom, variable-rate exposure and the sustainability of the company’s dividend and repurchase plans.
- Developments in the Roundsquare damages retrial, remaining FCPA-related inquiries and other material litigation or cyber-related claims.