Red Rock Resorts, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020. The company owns and operates gaming and entertainment properties primarily in the Las Vegas market. Comparability is significantly affected by COVID-19 closures and restrictions: four properties—Texas Station, Fiesta Rancho, Fiesta Henderson and Palms—were closed at quarter-end. Management said it had no plans to reopen them in 2021.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenue | $352.6 million | $377.4 million |
| Operating income (loss) | $(71.2) million | $2.7 million |
| Net loss | $(106.6) million | $(177.8) million |
| Net loss attributable to Red Rock | $(64.8) million | $(152.2) million |
| Basic and diluted loss per Class A share | $(0.92) | $(2.18) |
| Adjusted EBITDA (non-GAAP) | $156.6 million | $74.3 million |
| Cash from operating activities | $119.8 million | $47.9 million |
| Cash used in investing activities | $(16.3) million | $(31.3) million |
| Cash used in financing activities | $(106.6) million | Cash provided: $945.7 million |
Revenue declined 6.6%. Casino revenue rose 24.8% to $259.9 million, while food and beverage revenue fell 46.9%, room revenue fell 45.2%, and management fees fell 57.1%. Casino margin increased to 75.7% from 60.0%; food and beverage margin improved to 12.4% from negative 4.7%; room margin was 49.5% versus 48.4%. Hotel occupancy was 60.1% versus 82.7%, and RevPAR was $70.35 versus $109.55.
The $169.7 million Palms impairment was the principal driver of the operating loss. Adjusted EBITDA improved despite lower revenue, reflecting stronger casino performance and cost reductions; it is a non-GAAP measure and is not a substitute for cash flow or net income. Interest expense declined to $27.3 million from $36.1 million. The 2020 tax expense of $113.2 million largely reflected a valuation allowance against deferred tax assets; Q1 2021 tax expense was $0.2 million.
Balance sheet, debt and liquidity
- At March 31, 2021, cash and cash equivalents were $117.9 million; total cash, cash equivalents and restricted cash, including amounts in assets held for sale, were $122.6 million.
- Total debt carrying amount was $2.83 billion, including $26.4 million current and $2.80 billion long-term, compared with $2.90 billion at December 31, 2020. Cash less total debt was approximately $2.71 billion.
- Revolver borrowings were $175.0 million; reported borrowing availability was $826.7 million, net of borrowings and $29.4 million of letters of credit and similar obligations.
- Operating cash flow was $119.8 million; capital expenditures paid were $8.0 million. Management expected $77–$87 million of maintenance and investment capital expenditures for the remainder of 2021.
- Management expected cash on hand, operating cash flow and available credit to fund operations and obligations for the next 12 months, while cautioning that pandemic and market conditions could affect liquidity.
Material changes, outlook and risks
- On May 3, 2021, after quarter-end, the company agreed to sell the Palms entities for $650 million, with closing expected in Q4 2021. The disposal group was classified as held for sale at March 31; the $169.7 million impairment reduced its carrying value. Palms generated $4.1 million of Q1 revenue and a $189.6 million pretax loss, including the impairment.
- Q1 casino revenue increased despite operating limits; slot handle rose 7.3%, table-game drop fell 8.5%, and race and sports write rose 47.3% year over year. Management cited favorable customer trends and cost reductions but said their continuation was uncertain.
- Nevada capacity limits were 50% at March 31 and increased to 80% on May 1. The governor had announced a goal of 100% capacity by June 1, 2021; this was an announced goal, not a company forecast.
- The Graton Resort management role ended February 5, 2021. Whether the agreement entitled the company to an additional extension is disputed, and lower management fees reflect the termination.
- Station LLC redeemed $250 million principal amount of 5.00% Senior Notes in February at a 102.50% redemption price, funded with revolver borrowings and cash. It recorded an $8.1 million debt-extinguishment loss. Management reported covenant compliance at March 31; continued compliance may be affected by COVID-19 and business conditions.
- Interest-rate swaps covering $1.3 billion of variable-rate debt effectively fixed the rate at 3.95% and were due to expire in July 2021. The company also disclosed uncertainty around the transition from LIBOR after 2021.
- The North Fork tribal development project remained subject to regulatory approvals, litigation and financing. Estimated future development costs were $350–$400 million; the company had $24.2 million of advances recorded and warned repayment was not assured. Management estimated a 75%–85% likelihood of project completion and opening, while noting that estimate could change.
- The company suspended dividends until further notice. It repurchased 382,602 Class A shares for $11.2 million during the quarter; $135.9 million remained authorized under the repurchase program through December 31, 2022.
Important facts for investors to verify
- Whether the Palms sale closes on expected terms and timing, and the final proceeds and disposal impact.
- Whether customer demand, capacity restrictions, and the four property closures change, and how these affect revenue and costs.
- Liquidity, debt service, covenant headroom and refinancing exposure, including the post-July 2021 interest-rate position and LIBOR transition.
- The outcome of the Graton agreement dispute and the North Fork project’s approvals, litigation, financing and recoverability of advances.
- The sustainability of improved Adjusted EBITDA and operating cash flow; the filing cautions that interim results are not necessarily indicative of full-year results.