Red Rock Resorts, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Red Rock operates six major and ten smaller casino properties in the Las Vegas region through Station Casinos LLC. The company held 57.5% of Station Holdco’s economic interests and all of its voting power at quarter-end.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $433.6 million | $401.6 million | +8.0% |
| Operating income | $137.3 million | $130.8 million | +5.0% |
| Net income, consolidated | $85.5 million | $92.2 million | Down |
| Net income attributable to Red Rock | $44.7 million | $48.3 million | Down 7.6% |
| Diluted EPS | $0.75 | $0.77 | Down |
| Adjusted EBITDA | $194.2 million | $178.7 million | Up |
- Revenue rose across all categories: casino +3.0%, food and beverage +18.9%, rooms +19.5%, and other +20.3%.
- Casino margin was 75.1% versus 75.4%; food and beverage margin improved to 23.1% from 19.0%, and room margin to 69.0% from 66.1%.
- Interest expense increased 59.2% to $42.5 million, primarily from higher variable rates. Write-downs and other costs increased to $19.6 million from $10.2 million, largely reflecting development, preopening, demolition, and business innovation costs.
- Operating cash flow was $140.5 million, versus $157.5 million. Investing cash outflow was $180.0 million, chiefly reflecting $175.5 million of capital expenditures, primarily for Durango. Financing provided $29.9 million; cash ended the quarter at $107.7 million.
Financial position and liquidity
- Long-term debt had a carrying amount of $3.053 billion, including $26.1 million current; this compares with $2.985 billion at December 31, 2022. The revolver balance was $222.5 million, with $775.0 million of stated borrowing availability, subject to compliance with facility terms.
- Cash was $107.7 million, down from $117.3 million at year-end. Total current assets were $218.1 million and current liabilities $335.8 million.
- Management said cash on hand, operating cash flows, and available revolver borrowings should fund operations, capital needs, and debt service for the next 12 months. It reported compliance with debt covenants at March 31, 2023.
- Q1 distributions included $15.0 million of dividends to Class A holders and $11.5 million to noncontrolling holders. A $0.25-per-share dividend was announced for payment June 30, 2023. No shares were repurchased under the public program in Q1; $312.9 million remained authorized.
Material changes, outlook, and risks
- Management attributed stronger revenue to favorable visitation and guest spending, group and catering business, improved hotel demand, and operational discipline. Hotel occupancy rose to 87% from 77%; ADR increased to $198.38 from $167.97.
- Durango was under construction, with an expected Q4 2023 opening and estimated total project spending of $780 million. Expected capital expenditures for the remainder of 2023 were $495 million to $565 million. Construction payables and equipment accruals included $80.3 million related to Durango.
- Management cited inflation, higher energy and construction costs, wage pressure, and rising interest rates. It expected inflation and rate impacts to continue in 2023 and noted that higher rates could further increase credit-facility interest costs. The company’s credit-facility LIBOR benchmark was scheduled to transition after LIBOR discontinuation; management did not expect a material impact, but the outcome was uncertain.
- The North Fork casino project in California remained subject to approval of its management agreement by the NIGC, financing, and resumed litigation. The company estimated a 75%–85% likelihood of successful completion and opening; it said construction might begin within six months and the project could open 15–18 months after construction starts. The company had $42.6 million in advances carried on its balance sheet and cautioned that recovery was not assured.
- Other risks include substantial debt and restrictive covenants, exposure to Las Vegas economic and consumer-spending conditions, gaming regulation and taxes, construction execution, and litigation. Routine lawsuits were disclosed; the company said it did not believe outstanding legal matters would materially affect its financial condition or results.
Important facts for investors to verify
- Durango’s construction schedule, total cost, remaining funding needs, and expected opening date.
- Debt balances, variable-rate exposure, revolver availability, covenant compliance, and the LIBOR-to-successor-rate transition.
- Whether operating cash flow and available liquidity can support planned 2023 capital spending alongside debt service and distributions.
- Progress on NIGC approval, project financing, and litigation for North Fork, and the recoverability and timing of repayment of the company’s advances.
- Adjusted EBITDA is a non-GAAP measure; assess it alongside GAAP earnings and cash flows, particularly given higher interest expense and capital expenditures.