Red Rock Resorts, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Red Rock operates gaming, hotel, restaurant and entertainment properties primarily in the Las Vegas region through Station Casinos. Results are not directly comparable with 2020 because properties were temporarily closed during parts of that year.
Financial and operating performance
- Revenue: Q2 net revenue was $428.2 million, up from $108.5 million a year earlier. First-half revenue was $780.8 million versus $485.9 million.
- Profit: Q2 consolidated net income was $143.4 million, compared with a net loss of $118.4 million; income attributable to Red Rock was $86.7 million, or $1.12 per diluted share. First-half consolidated net income was $36.8 million, versus a loss of $296.2 million; income attributable to Red Rock was $21.9 million, or $0.29 per diluted share.
- Adjusted EBITDA: Q2 was $210.2 million, compared with negative $17.3 million. First-half Adjusted EBITDA was $366.8 million versus $57.0 million. This non-GAAP measure adds back, among other items, the Palms impairment.
- Revenue trends and margins: Q2 casino revenue was $304.2 million and casino margin was 76.9%; food and beverage revenue was $64.9 million with a 24.7% margin; room revenue was $39.2 million with a 62.6% margin. Q2 slot handle rose 296% and table-game drop rose 248% year over year. Hotel occupancy was 82.0% and average daily rate was $151.94.
- Cash flow: First-half operating cash flow was $312.6 million, investing cash outflow was $35.6 million and financing cash outflow was $306.9 million. Cash, cash equivalents and restricted cash totaled $95.8 million at period end, including $4.8 million classified within assets held for sale.
- Debt and liquidity: Debt carrying amount was $2.679 billion, including current maturities. Cash and cash equivalents were $91.0 million. Revolver availability was $970.7 million, net of $31.0 million borrowed and $29.4 million of letters of credit; the $31.0 million borrowing was repaid after quarter end. Management reported compliance with debt covenants.
- Other capital and liquidity items: First-half capital expenditures were $20.1 million. The company repurchased $37.8 million of Class A shares and distributed $31.4 million to noncontrolling holders. Cash dividends remain suspended.
Material changes versus the prior comparable period
- Results rebounded from the 2020 pandemic shutdown period as customer activity and operating restrictions improved. Management cited higher visitation, increased spend per visit and more gaming-device play, while cautioning that these trends may not continue.
- First-half operating income was $97.4 million, versus an operating loss of $91.0 million in 2020. The 2021 result includes a $167.8 million impairment charge related to the planned Palms sale.
- First-half interest expense declined to $52.9 million from $70.0 million, primarily due to lower debt and low variable interest rates. A $250 million partial redemption of 5.00% Senior Notes generated an $8.1 million loss on debt extinguishment.
- Management fee revenue fell, principally because the Graton Resort management agreement ended February 5, 2021.
Outlook, risks and unusual items
- Palms disposition: Red Rock agreed to sell the entity holding Palms for $650 million; closing was anticipated in Q4 2021. The sale had not closed at June 30. Palms remained closed and the company recorded the $167.8 million impairment. Four properties—Texas Station, Fiesta Rancho, Fiesta Henderson and Palms—were not open, and Red Rock had no plans to reopen them during 2021.
- Operating outlook: Management expected to fund operations and capital needs over the next 12 months using cash, operating cash flow and, if needed, revolver borrowings. Planned second-half 2021 maintenance and investment capital expenditures were approximately $65 million to $75 million; anticipated required debt principal and interest payments were $12.9 million and $45.9 million, respectively. No formal earnings guidance was provided.
- COVID-19 and demand: State operating restrictions were lifted June 1, 2021, but a face-covering requirement for employees and guests in indoor public spaces was reinstated in late July. Management cited continuing uncertainty around the pandemic, local employment, consumer spending and the Las Vegas economy.
- Development and litigation: The North Fork project in California remains dependent on regulatory approvals, financing and litigation outcomes. Red Rock had advanced approximately $41.1 million to the tribe, with a $26.0 million carrying value; repayment is not assured. The NIGC had identified issues to address before management-agreement approval. On August 5, 2021, a federal district court ruled for the tribe and federal defendants in a remanded case; other North Fork litigation remained relevant.
- Other exposures: Debt covenants could constrain financing and operations if performance weakens. LIBOR discontinuation after 2021 could affect borrowing rates; the company said the successor rate and its impact were uncertain. Routine litigation was not expected by management to have a material effect, but outcomes are uncertain.
Important facts for investors to verify
- Whether the Palms sale closed on the anticipated timeline and at the agreed consideration, and the final proceeds and disposition impact.
- Operating trends at reopened properties, reopening decisions for the four closed properties, and the effects of renewed COVID-19 measures.
- Debt balances, revolver availability, covenant compliance and the impact of the July 2021 repayment and expired interest-rate swaps.
- Progress, approvals, financing and litigation outcomes for the North Fork project, including recoverability of advances.
- Comparability of Adjusted EBITDA and reported earnings, particularly the effects of the Palms impairment, noncontrolling interests and unusual prior-year shutdown conditions.