Red Rock Resorts, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts below are in millions unless stated otherwise. Red Rock owns and manages Station Casinos, whose operations are concentrated in the Las Vegas regional market, and manages Graton Resort in California.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net revenue | $108.5 | $482.9 | $485.9 | $929.9 |
| Operating income (loss) | $(93.7) | $45.5 | $(91.0) | $111.6 |
| Net income (loss) attributable to Red Rock | $(71.5) | $(3.8) | $(223.7) | $7.5 |
| Adjusted EBITDA, non-GAAP | $(17.3) | $115.2 | $57.0 | $260.3 |
| Cash from (used in) operating activities | Not reported quarterly | Not reported quarterly | $(56.4) | $143.1 |
- Q2 revenue fell 77.5% year over year; first-half revenue fell 47.8%. Casino revenue declined 69.2% in Q2 and 42.1% for the first half.
- Q2 casino margin was 58.2%, versus 64.2% a year earlier. Food-and-beverage margin was negative 49.6% versus negative 1.7%; room margin was negative 16.6% versus positive 58.3%.
- Q2 diluted loss per Class A share was $1.01; first-half diluted loss per share was $3.19. First-half results included a $113.2 million income-tax expense, primarily from establishing a full valuation allowance against deferred tax assets.
- At June 30, cash and cash equivalents were $270.1; total assets were $4.03 billion and stockholders’ equity was $479.2 million. Debt carrying value was $3.29 billion, including $20.2 million current; the balance sheet reports $3.27 billion of long-term debt net of current maturities.
- Capital expenditures were $41.3 for the first half, compared with $271.6 in the prior-year period, which included substantial Palms redevelopment spending.
Material changes and operating context
- Nevada-mandated closures began March 17. Red Rock reopened six principal properties and its Wildfire properties on June 4, subject to occupancy, distancing, and other restrictions. Texas Station, Fiesta Rancho, Fiesta Henderson, and Palms remained closed. Graton Resort partially reopened June 18.
- The company attributed the steep declines in revenue and operating results mainly to closures, operating restrictions, reduced customer demand, and fewer non-gaming offerings. It reduced costs, including staffing reductions affecting approximately 39% of its full-time workforce.
- For the limited June 4–30 post-reopening period, Las Vegas operations revenue was down 23.3% year over year, while Adjusted EBITDA rose 46.8% and its margin increased to 45.9%. Management cautioned that this short period may not indicate future performance.
- First-half operating cash flow turned negative, from $143.1 million provided to $56.4 million used. Investing cash outflow was $39.8 million, while financing provided $237.8 million, including debt issuance and borrowing activity.
Debt, liquidity, outlook, and risks
- In February, Station LLC amended its credit facility, extending maturities and increasing revolving-credit availability to approximately $1.03 billion, and issued $750 million of 4.50% senior notes due 2028. During Q2 it repurchased $65.4 million principal of its 4.50% and 5.00% notes, recording an $11.2 million net gain on debt extinguishment/modification for the quarter.
- At June 30, revolving-credit availability was $651.3 million, net of $347.5 million drawn and $32.3 million of letters of credit and similar obligations. Management said cash, operating cash flow, and available revolver capacity were expected to fund needs and debt service for the next 12 months, while acknowledging pandemic-related uncertainty.
- For the remainder of 2020, the company estimated required debt principal payments of $6.8 million, interest payments of $65.9 million, and capital expenditures of $10–20 million. The board suspended dividends for the remainder of 2020; first-half dividends paid were $7.1 million.
- Management reported compliance with debt covenants at June 30 but warned that a prolonged downturn could threaten compliance and might require lender waivers or amendments. Failure to obtain relief could result in accelerated debt. The company also warned that reopening restrictions, unemployment, weaker consumer confidence and discretionary spending, and property closures could continue to harm results and liquidity.
- Impairment assessments at March 31 resulted in no impairment; no second-quarter test was performed because management identified no new impairment indicators. Future impairment remains possible if operating results or forecasts deteriorate.
- Other contingencies include the North Fork casino development: required regulatory approvals and litigation remain unresolved, the company has advanced approximately $34.3 million (carrying value $19.2 million), and repayment and project completion are not assured.
Most important facts for investors to verify
- Whether reopened properties sustain the favorable limited-period June EBITDA and margin trends, and when the four closed properties may reopen.
- Cash generation, revolver availability, debt covenant headroom, and refinancing or waiver needs if restrictions or weak demand persist.
- Whether the full deferred-tax-asset valuation allowance or future asset impairment charges change as forecasts evolve.
- Progress and legal outcomes affecting the North Fork project, including management-agreement approval and recovery of advances.
- Timing and financial impact of the Graton management-agreement extension and the suspended dividend policy.