Red Rock Resorts, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the provided figures are for the full year, not Q4 alone. Red Rock is a holding company whose principal operations are conducted through Station Casinos LLC. Its casino business is concentrated in the Las Vegas market.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenue | $1.664 billion | $1.618 billion | +2.8% |
| Operating income | $561.3 million | $401.5 million | +39.8% |
| Net income | $390.4 million | $354.8 million | +10.0% |
| Net income attributable to Red Rock | $205.5 million | $241.9 million | Down |
| Adjusted EBITDA | $743.9 million | $741.0 million | +0.4% |
| Cash from operating activities | $542.2 million | $610.0 million | Down |
| Cash and cash equivalents at year-end | $117.3 million | $275.3 million | Down |
Revenue mix showed casino revenue down 1.4% to $1.126 billion, while food and beverage rose 15.3% to $283.1 million and room revenue increased 14.3% to $164.5 million. Hotel occupancy improved to 83.0% from 75.0%; average daily rate rose to $179.88 from $152.20. Casino margin declined to 75.2% from 75.9%. Adjusted EBITDA margin was approximately 44.7%, compared with 45.8% in 2021.
Capital expenditures were $328.6 million, including spending on Durango; investing cash flow was a $442.1 million outflow. Financing cash flow was a $290.0 million outflow, including $141.5 million of share repurchases, $116.7 million of Class A dividends and $152.4 million of distributions to noncontrolling holders. The company reported $3.018 billion of debt principal at year-end, including $149.5 million drawn on its revolving facility. Revolver availability was $852.2 million, net of borrowings and letters of credit. Total stockholders’ equity was $32.2 million.
Material changes and unusual items
- Operating income included an $80.0 million impairment charge in 2022, primarily related to the permanent closure of Texas Station, Fiesta Henderson and Fiesta Rancho. 2021 included a $177.7 million loss on the sale of Palms.
- Write-downs and other was a net gain of $47.7 million in 2022, including $76.3 million of land-sale gains. Net proceeds from asset sales were $121.6 million; the company also spent $232.8 million acquiring development land.
- Interest expense rose 25.9% to $129.9 million, primarily because of higher variable rates. Approximately $1.8 billion of borrowings bore variable rates; management estimated a 1 percentage-point rate increase would add about $18 million to annual interest cost.
- Red Rock’s attributable earnings fell despite higher consolidated net income, in part reflecting the larger share of earnings attributable to noncontrolling interests. The 2021 comparison also benefited from a $100.0 million deferred-tax valuation-allowance release; 2022 recorded a $44.5 million income-tax expense.
- The company reinstated its regular quarterly dividend in 2022 and paid a $1.00-per-share special dividend. It repurchased 3.7 million Class A shares for $141.5 million during the year.
Outlook, commentary and key risks
Management cited favorable visitation and spend-per-visit trends, alongside operating discipline and cost controls, but cautioned that their continuation is uncertain. For 2023, anticipated investment capital expenditures were $550 million to $600 million, including Durango, plus $70 million to $90 million of maintenance capital expenditures. Durango was budgeted at approximately $750 million and was expected to open in Q4 2023. Management expected cash on hand, operating cash flow and available revolver borrowings to fund near-term needs, while noting that economic and market conditions could affect liquidity and financing access.
- Inflation, rising interest rates, energy and construction costs, and labor shortages may pressure consumer spending, wages and margins. The business is highly concentrated in the Las Vegas regional market.
- Substantial debt, variable interest exposure, restrictive covenants and refinancing needs may constrain investment and distributions. The company said it was compliant with applicable debt covenants at year-end.
- The LIBOR rates used on facility borrowings were scheduled to be discontinued on June 30, 2023; the successor rate and its effect were uncertain.
- The North Fork tribal casino project remained dependent on NIGC approval of the management agreement, financing and resolution of litigation. Red Rock carried $41.7 million of related development advances; management estimated a 75%–85% likelihood of successful completion, an estimate subject to substantial uncertainty.
- Other disclosed risks include intense gaming and online-betting competition, gaming regulation, union activity and labor disputes, construction delays or overruns, cyber and data-security threats, and drought or water-cost pressures.
Important facts for investors to verify
- Reconcile consolidated net income with the $205.5 million attributable to Red Rock, and assess the noncontrolling-interest allocation and tax effects.
- Review debt maturities, variable-rate exposure, covenant headroom and post-LIBOR borrowing rates, alongside the funding plan for Durango and planned 2023 capital spending.
- Track Durango’s final cost, construction schedule and opening, and whether North Fork receives the required approval, financing and litigation resolution.
- Assess the sustainability of casino demand, operating margins and cash generation amid local economic conditions, inflation and competition.
- Consider the limits on dividends and repurchases from debt covenants and the holding-company structure, as well as the $28.6 million tax receivable agreement liability and potential future payments.