Las Vegas Sands Corp. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with Q1 2015. Las Vegas Sands operates casino resorts, hotels and retail malls in Macao, Singapore and the United States. Figures below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Net revenue | $2.716 billion | $3.012 billion | Down 9.8% |
| Operating income | $585.6 million | $711.1 million | Down 17.6% |
| Operating margin | 21.6% | 23.6% | Down 2.0 percentage points |
| Net income | $408.9 million | $611.0 million | Down 33.1% |
| Net income attributable to LVS | $320.2 million | $511.9 million | Down 37.5% |
| Diluted EPS | $0.40 | $0.64 | Down $0.24 |
| Adjusted property EBITDA | $917.6 million | $1.051 billion | Down 12.7% |
| Cash from operations | $798.9 million | $734.3 million | Up $64.6 million |
Net income attributable to LVS had a net margin of 11.8%, versus 17.0% a year earlier. Interest expense, net, was $68.6 million, and the effective tax rate rose to 13.4% from 8.3%, principally because of a valuation allowance on certain deferred tax assets. Other expense was $47.1 million, including a $35.8 million fair-value loss on Singapore currency forwards and foreign-exchange losses.
Capital expenditures were $343.6 million, including $307.3 million for Macao development. Financing cash outflow was $950.8 million, reflecting $880.4 million in dividends and debt repayments, partly offset by $350.2 million of borrowing. Cash and cash equivalents ended the quarter at $1.696 billion, down from $2.179 billion at year-end 2015; restricted cash was $17.3 million.
Total debt was approximately $9.39 billion at quarter-end. Available borrowing capacity under U.S., Macao and Singapore credit facilities was $3.02 billion. Reported leverage ratios were 0.8x for U.S., 1.7x for Macao and 2.5x for Singapore, below respective covenant ceilings of 5.5x, 4.0x and 3.5x. Management said cash on hand and operating cash flow should be sufficient to maintain covenant compliance.
Material changes and operating drivers
- Casino revenue fell 12.4%; total net revenue fell 9.8%. Management attributed the decline primarily to lower casino revenue in Macao and Marina Bay Sands.
- Macao revenue declined $143.0 million, with lower VIP demand and rolling-chip volume among the principal drivers. Macao adjusted property EBITDA decreased 2.5% to $518.1 million.
- Marina Bay Sands revenue declined $181.2 million and adjusted property EBITDA fell 33.8% to $274.9 million. The decline reflected lower rolling-chip win percentage and the stronger U.S. dollar.
- U.S. operations were comparatively stronger: Las Vegas adjusted property EBITDA rose 17.3% to $86.9 million, and Sands Bethlehem rose 26.2% to $37.7 million.
- Mall revenue increased 5.6% to $134.9 million; rooms revenue decreased 1.4%. Total operating expenses declined 7.4%, supported by lower casino expenses and cost controls.
- Cash from operations increased despite lower earnings, primarily due to working-capital changes, including accounts receivable and other accrued liabilities.
Outlook, risks, contingencies and unusual items
- No specific full-year financial guidance was provided. The Parisian Macao was expected to open in the second half of 2016, subject to government approval; estimated total development cost was approximately $2.7 billion. The company had capitalized $1.89 billion by March 31.
- Failure to meet Macao land-concession completion deadlines, absent extensions, could jeopardize the right to operate Sands Cotai Central or The Parisian and expose capitalized costs of approximately $4.88 billion and $1.89 billion, respectively, to potential impairment. The Parisian deadline had been extended to January 2017.
- Construction of the Las Vegas condominium tower remained suspended. The company had $178.6 million of capitalized costs and said a potential charge could arise if conditions do not improve or the project is abandoned.
- On April 7, 2016, after quarter-end, the SEC announced an FCPA civil settlement: LVS neither admitted nor denied the allegations, agreed to a $9 million penalty and to retain an independent consultant for two years. The company said remaining government inquiries continued and their outcome and potential loss could not be estimated.
- In the Suen litigation, the Nevada Supreme Court affirmed liability but reversed the damages award and remanded damages for a new trial. The company recorded no reserve because it considered the original judgment amount neither probable nor reasonably estimable.
- Other disclosed matters include the Jacobs litigation, securities and derivative actions, an AAEC Macao claim, and a cyberattack investigation. Management said it could not estimate potential losses for several matters and intended to defend them.
- Interest-rate and currency movements are material risks: management estimated a 100-basis-point change in relevant benchmark rates could change annual interest cost by about $92.8 million. Forward contracts had $669.4 million notional value and a $32.9 million liability fair value at quarter-end.
- The board declared a further $0.72-per-share quarterly dividend in April, estimated at approximately $572 million, payable June 30, 2016. No shares were repurchased during the quarter; the $2.0 billion authorization expired in October 2016.
Most important facts for investors to verify
- Whether Macao and Singapore gaming demand, VIP volumes and casino win rates stabilize; reported results are sensitive to gaming-market conditions and short-term win variation.
- Whether The Parisian opens on schedule and within budget, and whether Macao concession deadlines are met or extended.
- Cash generation, cash availability across subsidiaries, dividends, capital spending and debt covenant headroom as development continues.
- Subsequent developments and any financial consequences from the SEC settlement, remaining government inquiries and material litigation.
- Exposure to interest rates and foreign exchange, including the impact of further currency-forward fair-value movements.