Las Vegas Sands Corp. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; year-over-year comparisons are to the corresponding 2012 periods. The company operates integrated casino resorts in Macao, Singapore, Las Vegas and Pennsylvania. The results are unaudited.
Financial performance and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net revenue | $3.243B | $2.582B | $6.546B | $5.345B |
| Operating income | $780.6M | $397.7M | $1.607B | $1.105B |
| Net income | $671.7M | $286.4M | $1.376B | $865.5M |
| Net income attributable to LVS | $529.8M | $240.6M | $1.102B | $739.5M |
| Diluted EPS | $0.64 | $0.29 | $1.33 | $0.90 |
| Adjusted property EBITDA | $1.107B | $844.7M | $2.274B | $1.911B |
- Q2 net revenue rose 25.6%, operating income 96.3%, and LVS-attributable income 120.2%. Six-month increases were 22.5%, 45.4%, and 49.0%, respectively.
- Operating margin was 24.1% in Q2 versus 15.4% a year earlier, and 24.6% for the first half versus 20.7%. LVS-attributable net margin was 16.3% and 9.3% for Q2, and 16.8% and 13.8% for the half-year periods.
- Q2 adjusted property EBITDA increased 31.0%; first-half EBITDA increased 19.0%. Macao was the main growth driver, particularly Sands Cotai Central as it opened in stages. For the first half, Marina Bay Sands EBITDA declined 6.3%, and Las Vegas operating-property EBITDA declined 2.1%.
- Operating cash flow for the first half was $2.024B, up from $1.418B. Capital expenditures were $394.0M, down from $735.5M; cash used in investing was $438.7M. Dividends paid were $988.9M, contributing to $1.576B of cash used in financing. Cash increased by $1.4M to $2.514B; restricted cash totaled about $7.0M.
- Total debt was $9.491B at June 30, down from $10.230B at December 31, 2012. Cash less total debt implies net debt of approximately $6.98B. Current maturities rose to $980.2M from $97.8M, while long-term debt fell to $8.511B from $10.132B. The filing reports $1.19B of available borrowing capacity across U.S., Macao and Singapore facilities.
- Current assets were $4.465B and current liabilities $3.575B at June 30. The company reported leverage ratios of 0.9x for U.S., 1.3x for Macao, and 3.0x for Singapore, below applicable covenant limits of 5.0x, 4.5x and 4.0x.
Material changes and management commentary
- Sands Cotai Central’s progressive opening drove much of the revenue and EBITDA growth. Q2 casino revenue at the property increased 112.7%; first-half casino revenue increased 326.6% against a comparison period that included only its initial operating period.
- First-half casino revenue rose 24.8%, while rooms revenue increased 19.6%, food and beverage 15.0%, and mall revenue 17.1%. Casino revenue at Four Seasons Macao declined 14.2% for the half-year; Marina Bay Sands casino revenue declined 1.7%.
- Expenses grew more slowly than revenue overall, but casino expense increased 27.2% in the first half, including higher Macao gross-win taxes and Sands Cotai Central operating costs. Doubtful-account provision rose to $126.7M from $110.6M. Lower pre-opening costs and no repeat of the prior-year impairment charge also helped reported profit comparisons.
- Net interest expense increased to $137.2M for the first half from $129.2M, despite lower interest cost, principally because less interest was capitalized after Sands Cotai Central phases opened. The weighted-average debt interest rate was 2.7%, versus 3.1% a year earlier.
Outlook, risks and unusual items
- No broad financial forecast or quantified earnings guidance is provided. Management expected the $0.35-per-share quarterly dividend to continue through the remainder of 2013. The Board declared another $0.35 dividend for payment September 30, 2013.
- The company authorized a $2.0B share-repurchase program through June 2015. It repurchased 883,046 shares for $46.6M in June; approximately $1.95B remained authorized.
- The Parisian Macao was expected to open in late 2015, with estimated total development cost of approximately $2.7B; $195.4M had been capitalized by June 30. Sands Cotai Central’s land-concession completion deadline is May 2014, which the company said it would be unable to meet and for which it planned to seek an extension. Failure to obtain extensions could jeopardize land concessions and put related capitalized costs at risk. Phase III of Sands Cotai Central was expected to cost approximately $450M, with construction dependent on demand and market conditions.
- The Las Vegas condominium tower construction remained suspended; $178.8M of costs were capitalized, and management said the impact on total project cost was not determinable. Abandonment or continued weak demand could lead to an impairment charge.
- The Macao gaming-income-tax exemption was due to expire in December 2013; an extension had been requested, but was not assured. The Singapore gaming license was renewed through April 2016 following a SGD 57.0M payment.
- Litigation includes a May 2013 jury verdict for Richard Suen/Round Square of $70.0M, with a $101.6M judgment including prejudgment interest. The court denied the company’s motion to set aside the judgment on July 30; the company intended to appeal and had not recorded a reserve, stating loss was not probable or estimable. The filing also describes ongoing FCPA investigations, other litigation and U.S. Attorney subpoenas; potential outcomes and losses were not estimable.
- Variable-rate debt creates interest-rate exposure: management estimated a 100-basis-point rate change would affect annual interest cost by approximately $94.5M. The filing also identifies foreign-exchange, regulatory, travel-demand, competition, development, financing and covenant-compliance risks.
- After quarter-end, the company terminated CFO Kenneth Kay effective July 31, 2013. His separation terms included one year’s salary of approximately $1.19M, benefits, a prorated bonus if payable, and paid transition consulting through January 2014 at $50,000 per month.
Important facts for investors to verify
- Whether Macao authorities grant the requested Sands Cotai Central land-concession extension and whether project deadlines or capitalized costs change.
- Progress, cost, funding needs and expected returns for The Parisian Macao and other Cotai developments.
- Gaming performance and win-rate variability by property, especially the sharp contribution from Sands Cotai Central and weaker first-half results at Four Seasons Macao and Marina Bay Sands.
- Debt maturities, available facility capacity, covenant headroom, and the extent to which overseas cash is accessible to the parent.
- Outcome and accounting treatment of the Suen judgment, FCPA and other investigations, and pending legal claims.
- Renewal of the Macao tax exemption, continuation of dividends and repurchases, and the financial effect of the CFO transition.