Las Vegas Sands Corp. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Comparisons are with Q1 2014 unless otherwise noted. The company operates integrated casino resorts in Macao, Singapore, Las Vegas and Bethlehem, Pennsylvania. Its 70.1%-owned Sands China subsidiary accounts for most Macao operations.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior period | Change |
|---|---|---|---|
| Net revenue | $3.012 billion | $4.010 billion | Down 24.9% |
| Operating income | $711 million | $1.144 billion | Down 37.8% |
| Operating margin | 23.6% | 28.5% | Down 4.9 percentage points |
| Net income | $611 million | $997 million | Down 38.7% |
| Net income attributable to LVS | $512 million | $776 million | Down 34.0% |
| Diluted EPS | $0.64 | $0.95 | Down 32.6% |
| Adjusted property EBITDA | $1.051 billion | $1.480 billion | Down 29.0% |
| Cash from operations | $734 million | $1.133 billion | Down $398 million |
| Capital expenditures | $367 million | $252 million | Up $116 million |
| Cash and cash equivalents | $2.406 billion | $3.506 billion at Dec. 31, 2014 | Down $1.100 billion |
| Total debt, carrying value | $9.241 billion | $9.993 billion at Dec. 31, 2014 | Down $752 million |
Net cash used in financing was $1.445 billion, principally reflecting $827 million of dividends paid and $625 million of debt repayments. Operating cash flow less capital expenditures was approximately $367 million. Current assets were $3.987 billion and current liabilities $2.436 billion at March 31. The company reported $2.36 billion of available borrowing capacity across its credit facilities, net of letters of credit.
Reported results include a $15.3 million loss on asset disposals, primarily at Macao properties. Q1 2014 included an $18.0 million loss on debt modification or early retirement; Q1 2015 had no such loss. Foreign currency translation reduced comprehensive income by $82.3 million in Q1 2015, versus a positive $10.2 million adjustment a year earlier.
Material changes and operating drivers
- Macao net revenue fell approximately $950.6 million, primarily on lower casino revenue. Consolidated casino revenue declined $995.4 million; management attributed the Macao and Singapore declines mainly to weaker VIP demand and lower Rolling Chip volume.
- Macao adjusted property EBITDA fell 43.4% to $531 million. Marina Bay Sands EBITDA declined 4.6% to $415 million; Las Vegas Operating Properties declined 7.0% to $74 million. Sands Bethlehem rose 12.7% to $30 million.
- Revenue was not uniformly weak: mall revenue increased 17.2% to $128 million, while room revenue declined 7.2% and food and beverage revenue declined 6.6%.
- Lower casino expenses partly offset the revenue decline, reflecting lower gaming-related taxes and expenses. Total operating expenses fell 19.7%, less than the 24.9% revenue decline; operating margin consequently contracted.
- Debt decreased during the quarter through repayments of $440 million on the Macao facility and $166 million on the U.S. facility. Average total debt was $9.84 billion and the reported weighted average interest rate was 2.7%.
Outlook, liquidity, risks and contingencies
- Management said cash on hand and operating cash flow should be sufficient to maintain credit-facility covenant compliance. At March 31, U.S., Macao and Singapore leverage ratios were 0.8x, 1.0x and 2.2x, respectively, versus limits of 5.5x, 4.5x and 3.5x.
- After quarter-end, the company borrowed $1.0 billion under an accordion term loan to the Macao credit facility, funded April 30, 2015, with maturity in March 2021. This is a subsequent event, not included in March 31 debt balances.
- The board declared a $0.65-per-share quarterly dividend payable June 30, 2015. Management expected this dividend level to continue quarterly through the remainder of 2015. Q1 dividends paid totaled $827 million.
- The Parisian Macao, estimated to cost approximately $2.7 billion including land premium, was expected to open in the second half of 2016, subject to government approval. Sands Cotai Central’s remaining phase was expected to cost about $460 million. The company had applied for an extension to The Parisian’s April 2016 land-concession completion deadline; failure to obtain extensions for applicable development deadlines could jeopardize land concessions and expose capitalized project costs to impairment.
- The Las Vegas Condo Tower construction remained suspended. Management said the effect on total project cost was not determinable; abandonment or persistently weak demand could lead to a charge against $178.6 million of capitalized costs.
- Major unresolved matters include the Suen/Round Square appeal of a $101.6 million judgment, the Jacobs litigation and sanctions proceedings, securities and derivative lawsuits, the SEC/DOJ Foreign Corrupt Practices Act investigations, and the AAEC dispute. Management generally could not determine the likelihood or reasonably possible loss for these matters. It stated the preliminary FCPA findings did not require restatement and did not represent a material weakness in financial reporting controls as of March 31.
- A prior cyberattack compromised some customer and employee data at the Bethlehem facility; investigations remained ongoing, and potential loss was not estimable. The filing also identifies gaming-market, regulatory, development, credit-collection, currency, cybersecurity and litigation risks.
- Variable-rate debt creates interest-rate exposure: management estimated a 100-basis-point rate increase would raise annual interest cost by approximately $82 million. The company does not hedge its foreign-currency exposure.
Important facts for investors to verify
- Whether Macao VIP demand and Rolling Chip volumes stabilize, and how casino win-rate variability affects reported results.
- Progress on The Parisian and Sands Cotai Central construction, government approvals and land-concession deadline extensions.
- Post-quarter borrowing, available facility capacity, covenant headroom, debt maturities and the effect of continued dividends on liquidity.
- Developments and potential financial exposure in the Jacobs, Suen, FCPA, AAEC and other legal matters, as well as the cyberattack investigations.
- Whether operating cash flow can sustain planned capital spending and distributions while revenue and EBITDA remain below prior-year levels.