Wynn Resorts' (NASDAQ:WYNN) first quarterly report without founder Steve Wynn as CEO -- or even owning any shares of the casino resort operator -- went about as well as it could have. The sexual misconduct allegations against Steve Wynn don't seem to have caused any disruption to the business in the U.S., and Wynn Resorts continued to take market share from competitors in Macau.
While a cloud still hangs over the fate of Wynn's $2.5 billion Boston Harbor project, a good quarter is a nice distraction for investors. Here's a look at the highlights, and some analysis of why revenue and earnings may only get better.
Wynn was the star of the show
In Macau, the benchmark one must compare earnings to is the 19.1% growth of gaming revenue overall in the region. That's the rising tide lifting all boats (or casinos) in the Chinese territory.
Wynn Macau, the company's original resort there, reported an 11.9% increase in revenue to $618.2 million, and adjusted property EBITDA (a proxy for cash flow from a resort) jumped 15.9% to $209.8 million. But those figures reflect some unusually bad luck at the gaming tables for the house. VIP gaming volume was up 28.6%, outpacing the market, and mass-market play jumped 16.4%. But the percentage of total volume won by the casino on the VIP side was below the expected range, or results would have been better.
At Wynn Palace, located in the Cotai region, revenue increased 47.2% to $665.8 million, and adjusted property EBITDA rose 89.4% to $211.9 million. VIP gaming volume was up 39.3% in the quarter, and mass-market gaming play increased a shocking 58.1%, showing that Wynn can steal share in the mass market there.
On top of the gaming growth, non-casino revenue at Wynn Palace was up 29.5% to $97.4 million, driven by a 30.6% increase in room rates to an average of $252 per night. Stronger non-gaming revenue could be a stabilizing factor for Wynn Resorts long term if gaming revenue goes through another downturn.
Wynn Resorts picked up a tremendous amount of market share in Q1, and proved that Wynn Palace is on its way to being one of the most profitable resorts in Macau: It could, it think, generate over $1 billion in annual adjusted property EBITDA long term, which would make it a tremendous source of cash for the company.
Las Vegas is so-so
Gaming revenue on the Las Vegas Strip was off 0.7% in the first two months of the year, so investors shouldn't have expected much from the region. But at Wynn Las Vegas, revenue increased 3% to $431.5 million and adjusted property EBITDA was up 6% to $142.6 million.
However, much like in Macau, luck worked against Wynn Resorts in Las Vegas. Table game drop -- which should be a proxy for casino revenue -- jumped 17%, but actual casino revenue was only up 8% to $134.6 million.
Wynn's balance sheet is no longer a drag
One of the biggest risks Wynn Resorts has faced over the past few years has been its ballooning debt, primarily due to the costs associated with building Wynn Palace and Wynn Boston Harbor. At the end of Q1 2018, debt outstanding was $9.36 billion and total cash was $2.16 billion, adding up to a net debt of $7.20 billion.
What has changed is the EBITDA coming from the business, particularly in Macau. Total adjusted property EBITDA was up 32% in the quarter to $564.3 million, which on an annualized basis is $2.26 billion. As a result, the net debt to EBITDA ratio was just 3.2, a very reasonable amount of leverage for Wynn Resorts, which is still looking forward to the boost Wynn Boston Harbor will give to its financials when it opens next year.
A leader in the global gaming market
There weren't any glaring flaws in the first quarter for Wynn Resorts, and Macau was really the shining star for the company. Given its outperformance versus Macau as a whole, and the momentum both Wynn Macau and Wynn Palace have operationally, the company appears set up for success for many years to come.