Red Rock Resorts, Inc. — Q3 2022 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2022, compared with the same 2021 periods. Red Rock operates six major and nine smaller casino properties in the Las Vegas region through Station LLC. At quarter-end, Red Rock held 57.4% of Station Holdco’s economic interests and all of its voting power.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $414.4 million | $414.8 million | $1,238.3 million | $1,195.5 million |
| Operating income | $140.7 million | $142.9 million | $339.7 million | $240.3 million |
| Net income | $95.5 million | $117.9 million | $220.1 million | $154.7 million |
| Net income attributable to Red Rock | $49.6 million | $71.2 million | $113.7 million | $93.2 million |
| Adjusted EBITDA | $181.9 million | $184.5 million | $549.5 million | $551.3 million |
| Net cash from operating activities | Not stated for quarter | Not stated for quarter | $417.5 million | $476.8 million |
Q3 basic and diluted earnings per Class A share were $0.86 and $0.83, respectively, versus $1.03 and $0.93. Q3 casino revenue fell 2.3%, while food and beverage revenue rose 7.7% and room revenue fell 1.2%. Departmental margins were 75.3% for casino, 20.8% for food and beverage, and 66.6% for rooms. For the first nine months, net revenue increased 3.6%; parent-attributable income increased 22.0%, while Adjusted EBITDA was slightly lower.
Cash and cash equivalents were $101.1 million at September 30, 2022, down from $275.3 million at year-end 2021. Total debt carrying value was $2.88 billion, including $26.0 million current; total stockholders’ equity was $8.1 million. The revolver had $962.2 million of borrowing availability, net of borrowings and letters of credit. The company reported compliance with debt covenants.
Material changes and cash uses
- Q3 reported revenue was essentially unchanged year over year. Management said same-store Q3 net revenue, excluding closed properties, was the company’s highest third-quarter level to date.
- Nine-month operating income rose substantially, but comparisons reflect impairment charges of $80.0 million in 2022 versus $167.8 million in 2021. The 2022 charge primarily followed the decision to permanently close and demolish Texas Station, Fiesta Rancho, and Fiesta Henderson; Wild Wild West’s closure added $1.0 million in Q3.
- Variable-rate debt costs increased: Q3 net interest expense rose 35.5% to $34.3 million, and nine-month expense rose 14.7% to $89.7 million. The company noted rates could continue increasing.
- Nine-month operating cash flow declined to $417.5 million. Investing outflows were $369.9 million, including $198.6 million of capital expenditures and $174.1 million for development land. Financing outflows were $253.7 million, including $141.5 million of share repurchases, $44.7 million of dividends, and $85.3 million of distributions to noncontrolling holders.
- Capital allocation included 3.7 million Class A shares repurchased for $141.5 million in the first nine months. The remaining repurchase authorization was $312.9 million. The company declared $0.75 per share in dividends for the nine-month period.
Outlook, risks, and notable items
- Management expected cash on hand, operating cash flow, and revolver availability to fund operations, capital requirements, and debt service for the next 12 months. Planned remaining-2022 uses included $140–$200 million of capital expenditures, approximately $55 million for additional development land, debt service, dividends, and noncontrolling-interest distributions. This is not formal earnings guidance.
- Durango, under construction in southwest Las Vegas, was expected to open in fall 2023. The company cited construction-cost inflation, labor and materials availability, permitting, and execution as risks.
- The North Fork tribal gaming project remained contingent on regulatory approval, financing, litigation outcomes, and other milestones. The NIGC had issued a further issues letter in September 2022 regarding the management agreement; related litigation had resumed. The company estimated a 75%–85% likelihood of successful completion, while cautioning that timing, completion, and recovery of its investment were uncertain. Advances carried at $40.6 million; total advances paid were approximately $55.7 million.
- Management cited inflation, higher energy and wage costs, rising interest rates, economic and consumer-demand uncertainty, COVID-19 impacts, competition, regulation, and substantial indebtedness as risks. It reported favorable visitation and spend-per-visit trends, but said their continuation was uncertain.
- Disclosure controls were assessed as effective; the filing reported no material change in internal control over financial reporting and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Las Vegas visitation and customer spending remain resilient as inflation and borrowing costs rise, and how that affects casino volume and margins.
- Durango’s construction budget, remaining cash requirements, and ability to meet the expected fall 2023 opening.
- Debt-rate exposure, covenant headroom, and the sustainability of liquidity after development spending, dividends, distributions, and repurchases.
- Progress on North Fork approvals, litigation, financing, and recoverability of the company’s advances.
- How reported results compare with same-store performance and how management’s non-GAAP Adjusted EBITDA definition and adjustments affect comparisons.