Wynn Resorts, Ltd. - Q1 2010 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010. Wynn Resorts, Limited operates two primary destination casino resort complexes: Wynn Las Vegas (including Encore) in Nevada and Wynn Macau (including the recently opened Encore at Wynn Macau) in Macau. The company is a large accelerated filer incorporated in Nevada.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Revenues | $908.9 million | $739.9 million |
| Operating Income | $114.8 million | $27.1 million |
| Net Income (Consolidated) | $57.9 million | ($33.8 million) Loss |
| Net Income Attributable to Wynn Resorts | $27.0 million | ($33.8 million) Loss |
| Diluted EPS (Wynn Resorts) | $0.22 | ($0.30) |
| Operating Cash Flow | $141.1 million | $60.7 million |
| Cash and Cash Equivalents | $1.76 billion | $1.99 billion |
| Total Debt (Long-term + Current) | $3.28 billion | $3.57 billion |
| Adjusted Property EBITDA | $241.9 million | $158.5 million |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 22.8% year-over-year, driven primarily by a 27.7% increase in casino revenues. Wynn Macau contributed significantly with a 31.6% revenue increase, while Las Vegas revenues rose 9.3%.
- Profitability Turnaround: The company returned to profitability, reporting net income of $57.9 million compared to a net loss of $33.8 million in Q1 2009. This was aided by a $10.6 million gain on debt extinguishment in the prior year quarter which is absent in the current quarter, yet operating income still surged 323%.
- Debt Reduction: Total debt decreased by approximately $286 million, primarily due to repayments on the Wynn Macau Senior Revolving Credit Facility.
- Expense Management: General and administrative expenses decreased by $5.9 million due to cost-saving initiatives and lower advertising costs. However, the provision for doubtful accounts increased to $7.0 million from $3.9 million.
- Non-Controlling Interest: Net income attributable to non-controlling interests was $30.9 million, reflecting the 27.7% stake sold in Wynn Macau, Limited during its October 2009 IPO.
Outlook, Risks, and Unusual Items
- Recent Openings: Encore at Wynn Macau opened on April 21, 2010, with total development costs expected to reach $575 million. Construction is also underway for the Encore Beach Club in Las Vegas, expected to open in Q2 2010.
- Debt Restructuring: In April 2010, the company completed an exchange offer, swapping approximately $382 million of 2014 Notes for new 2020 Notes.
- Dividend Declaration: On April 28, 2010, the Board declared a quarterly cash dividend of $0.25 per share, payable May 26, 2010.
- Market Risks: Management cites continued uncertainty in the global economy, specifically impacting Las Vegas operations with lower occupancy and room rates due to new supply. Macau operations remain strong but face regulatory and currency risks.
- Contingencies: The company is awaiting government approval for a land concession on Cotai, Macau. A $50 million payment is contingent upon this approval. The company also terminated negotiations for a Philadelphia casino project in April 2010.
Investor Verification Checklist
- Verify the sustainability of Wynn Macau's VIP revenue growth and win percentages given the high concentration of high-limit players.
- Monitor the impact of new Las Vegas supply on occupancy rates and Average Daily Rates (ADR), which declined to $203 in Q1 2010.
- Assess the company's ability to service debt given the $3.28 billion total debt load and the reliance on operating cash flow for debt service.
- Review the status of the Cotai land concession application and the associated $50 million commitment.
- Confirm the impact of the Wynn Macau, Limited IPO on future cash distributions and the non-controlling interest allocation.