Red Rock Resorts, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; compared with the corresponding 2022 periods. Red Rock operates Station Casinos’ Las Vegas regional gaming and entertainment properties. It held approximately 57.6% of Station Holdco’s economic interests and all voting power at quarter-end.
Key financial results
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net revenue | $416.1 million | $422.2 million | $849.8 million | $823.9 million |
| Operating income | $126.9 million | $68.2 million | $264.2 million | $199.0 million |
| Net income | $74.9 million | $32.4 million | $160.4 million | $124.7 million |
| Net income attributable to Red Rock | $39.5 million | $15.7 million | $84.2 million | $64.1 million |
| Adjusted EBITDA | $175.3 million | $188.9 million | $369.5 million | $367.6 million |
| Net cash from operating activities | — | — | $235.2 million | $277.7 million |
Q2 revenue decreased 1.4%, while first-half revenue increased 3.1%. Casino revenue fell 4.0% in Q2 and 0.5% for the half; non-gaming revenues grew in both periods. First-half hotel occupancy rose to 87.8% from 81.2%, and revenue per available room increased 20.1%. Adjusted EBITDA declined 7.2% in Q2 and increased 0.5% for the half. Adjusted EBITDA is a non-GAAP measure and is not a substitute for cash flow or net income.
Q2 diluted earnings per Class A share were $0.65 versus $0.26; first-half diluted EPS was $1.40 versus $1.04. The 2023 diluted share count includes Class B shares and exchangeable LLC Units, resulting in a substantially higher weighted-average diluted share count than in 2022.
Liquidity, debt and investment
- Cash and cash equivalents were $100.9 million at June 30, 2023, down from $117.3 million at year-end 2022. Revolver availability was $613.0 million, after $384.5 million of borrowings and $33.5 million of letters of credit and similar obligations.
- Total debt was $3.210 billion, versus $2.985 billion at December 31, 2022. First-half net interest expense rose 56.6% to $86.8 million, primarily due to higher variable rates and increased revolving-credit borrowings.
- First-half capital expenditures were $377.1 million, principally for Durango. Operating cash flow was $235.2 million; investing cash outflow was $384.1 million and financing cash inflow was $132.6 million. The company borrowed $270.0 million under its revolving facility.
- Durango was expected to open in Q4 2023; the company expected total project spending of approximately $780 million. It estimated remaining-2023 capital expenditures of $290 million to $360 million.
- Management said cash on hand, operating cash flow and available revolver capacity should fund operations, capital requirements and debt service for the next 12 months. It reported compliance with debt covenants at quarter-end.
Material changes, outlook and risks
- Operating income improved substantially against a 2022 comparison that included a $79.0 million impairment charge for the closures of Texas Station, Fiesta Rancho and Fiesta Henderson. No impairment charges were recorded in the first half of 2023.
- Write-downs and other costs were $10.1 million in Q2 and $29.7 million in the first half of 2023, mainly development and preopening costs, demolition costs and business innovation expenses.
- Management cited continued inflation in food, energy, construction and other costs, wage pressure from worker shortages, and higher interest rates. It warned that economic conditions may affect customer demand and that interest expense may continue to rise.
- The credit facility transitioned from LIBOR to SOFR effective July 1, 2023. The company said the rate benchmark change was not expected to materially affect market risk.
- The North Fork casino project remained contingent on NIGC approval of the management agreement, financing and litigation. Red Rock had advanced approximately $59.0 million to the tribe, with a $43.9 million carrying amount. Management estimated a 75%–85% likelihood of successful completion, but cautioned that recovery of its investment was not assured.
- The company declared and paid $0.25 per Class A share in Q2 and $0.50 per share for the first half. It announced a further $0.25-per-share dividend for payment in September 2023. No shares were repurchased in the first half; $312.9 million remained authorized under the repurchase program.
- Routine litigation was disclosed, with no material financial impact expected by management. The filing reported no material changes to previously disclosed risk factors.
Investor verification points
- Track Durango’s opening schedule, remaining construction spending and any effect on borrowing needs.
- Monitor variable-rate debt costs, revolver usage, covenant headroom and the company’s ability to sustain operating cash flow.
- Assess the drivers behind softer casino revenue and lower Q2 Adjusted EBITDA, alongside continued non-gaming and hotel growth.
- Follow NIGC approval, litigation and financing milestones for North Fork, including recovery prospects for the advances.
- Review the diluted EPS share-count methodology and distinguish Red Rock-attributable earnings from consolidated net income.