Business context and reporting period
Las Vegas Sands Corp. (LVS) filed this unaudited Form 10-Q for the three months ended March 31, 2013. The company operates integrated casino resorts in Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania; it owns 70.2% of Sands China Ltd. Management cautions that interim results are not necessarily indicative of full-year results.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net revenue | $3,302.7 | $2,762.7 | +19.5% |
| Operating income | $826.7 | $707.6 | +16.8% |
| Net income | $704.0 | $579.1 | +21.6% |
| Net income attributable to LVS | $572.0 | $498.9 | +14.6% |
| Diluted EPS | $0.69 | $0.61 | — |
| Adjusted property EBITDA | $1,166.6 | $1,066.5 | +9.4% |
| Operating margin | 25.0% | 25.6% | −0.6 pts |
| Net margin | 21.3% | 21.0% | +0.3 pts |
- Operating cash flow was $885.5 million, versus $667.5 million. Capital expenditures were $197.2 million, versus $398.3 million. Financing activities used $819.1 million, primarily for $495.8 million of dividends and $326.0 million of Singapore facility repayments. Cash declined $133.0 million to $2.380 billion.
- At March 31, 2013, total debt was approximately $9.828 billion, including $97.3 million of current maturities; long-term debt was $9.731 billion. Total assets were $22.011 billion and total equity was $8.844 billion.
- Available borrowing capacity across U.S., Macao and Singapore facilities was $992.3 million. Management reported covenant leverage ratios of 1.0x for U.S., 1.5x for Macao and 2.9x for Singapore, below respective limits of 5.0x, 4.5x and 4.0x. Debt covenants tighten over time.
- Quarterly dividend was $0.35 per share, up from $0.25 a year earlier. Management expected this dividend level to continue quarterly through 2013.
Material changes and operating drivers
- Growth was led by Sands Cotai Central, which contributed $587.2 million of net revenue after phases opened in 2012 and January 2013. Macao segment revenue rose to $2.027 billion from $1.457 billion and adjusted property EBITDA increased to $626.6 million from $450.7 million.
- Marina Bay Sands revenue declined $53.8 million to $794.9 million and adjusted property EBITDA fell 16.0% to $396.8 million, primarily reflecting lower casino revenue and win percentage. Las Vegas operating-property EBITDA was broadly flat at $113.4 million; Bethlehem EBITDA increased 8.6% to $29.9 million.
- Casino revenue increased 20.7%; rooms, food and beverage, and mall revenue rose 21.4%, 20.8% and 19.7%, respectively. Convention, retail and other revenue declined 2.8%. The increase in operating expenses (+20.5%) broadly tracked revenue growth; depreciation and amortization increased 29.7%, while pre-opening expense fell from $51.5 million to $6.8 million.
- There was no impairment charge in Q1 2013, compared with $42.9 million in Q1 2012 related to termination of the ZAiA show at The Venetian Macao. Foreign currency translation reduced comprehensive income by $48.5 million, compared with a $98.9 million gain a year earlier.
Outlook, risks and unusual items
- The Parisian Macao was expected to open in late 2015, with estimated total development cost of approximately $2.7 billion. LVS said it would pursue approximately $2.0 billion of financing for the project. Sands Cotai Central phase III was estimated to require approximately $450 million to complete; construction would begin as demand and market conditions warrant.
- LVS expected to seek a Macao government extension to the Sands Cotai Central completion deadline of May 2014. Failure to meet applicable concession deadlines without extensions could threaten land concessions and lead to impairment of related capitalized costs. The Parisian deadline was April 2016.
- Construction of the Las Vegas Condo Tower remained suspended because of weak condominium demand; $178.8 million of costs had been capitalized, and the impact on total project cost was not determinable.
- Management said cash and operating cash flow should be sufficient for covenant compliance, but additional financing is needed for Cotai development. Approximately $1.93 billion of cash was held by non-U.S. subsidiaries, with some funds subject to restrictions or third-party shareholder distribution requirements.
- Macao gaming profits benefited from an income-tax exemption through the end of 2013; a requested five-year extension was uncertain. The Singapore gaming license was renewed through April 2016, following a payment of SGD 57.0 million in April 2013.
- Material contingencies include the ongoing Suen litigation trial, an unresolved former SCL CEO lawsuit, an SEC/DOJ Foreign Corrupt Practices Act investigation, and an AAEC Macao claim of 3.0 billion patacas (about $375.8 million). Management could not determine the probability or range of loss for these matters. The Audit Committee reported preliminary findings of likely books-and-records and internal-control violations under the FCPA, but said they did not materially affect the financial statements, require restatement, or constitute a material weakness as of March 31, 2013; the investigation remained ongoing.
- Key risks include gaming win volatility, tourism and economic conditions, competition, substantial leverage and tightening covenants, financing and construction execution, regulatory approvals and gaming licenses, foreign exchange and litigation. Management reported disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether LVS secures financing for The Parisian and obtains extensions for Macao development deadlines, and the resulting construction and impairment exposure.
- Singapore performance and casino win trends, including the effect of rolling-chip win percentages on revenue and EBITDA.
- Debt covenant headroom as limits tighten, available facility capacity, and the location and accessibility of cash balances.
- Continuation of the $0.35 quarterly dividend alongside development funding needs and debt repayment.
- Developments and potential financial exposure in the FCPA investigation and significant litigation matters.
- Renewal of Macao’s gaming tax exemption after 2013 and the effect of tax or regulatory changes.