Red Rock Resorts, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparison is with Q1 2019. Red Rock owns and manages Station Casinos, whose operations are concentrated in the Las Vegas market, and manages Graton Resort in California. All Las Vegas properties and Graton Resort closed on March 17, 2020, following COVID-19-related orders.
Financial performance
Amounts are in millions except per-share data. Interim results reflect only part of the period with properties closed.
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Net revenue | $377.4 | $447.0 | Down 15.6% |
| Operating income | $2.7 | $66.1 | Down 95.9% |
| Net income (loss) | $(177.8) | $20.3 | Red Rock-attributable loss was $152.2; diluted loss per share was $2.18 |
| Adjusted EBITDA | $74.3 | $145.1 | Down 48.8%; non-GAAP measure |
| Cash from operations | $47.9 | $54.6 | Down $6.7 |
| Capital expenditures | $30.8 | $160.0 | Prior-year spending largely related to the Palms redevelopment |
- Casino revenue fell 15.0%; casino margin was 60.0% versus 66.1%. Food-and-beverage revenue fell 15.8%, and the reported margin was negative 4.7% versus 12.1%. Room revenue fell 16.6%; occupancy was 82.7% versus 87.7%, while ADR was $132.52 versus $131.38.
- Operating income was pressured by lower revenue and continued payroll and benefits during closures. SG&A rose 2.2% to $101.3 million; depreciation and amortization rose 15.1% to $58.5 million, partly reflecting Palms assets placed in service in 2019.
- The $113.2 million income-tax expense reflected a full valuation allowance on deferred tax assets amid the COVID-driven outlook. The company reported no impairment charge after its March 31 interim asset assessments, but warned that future impairment could result if actual or projected performance deteriorates.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $1.091 billion, restricted cash was $4.1 million, and total assets were $4.898 billion. Total liabilities were $4.304 billion and stockholders’ equity was $594.9 million.
- Total debt carrying value was $4.002 billion, including $997.5 million drawn on the revolving facility; current debt was $26.6 million. The revolver had $29.8 million of availability, net of outstanding borrowings and letters of credit.
- Financing activity included issuance of $750 million of 4.50% senior notes due 2028 and a February credit-facility amendment extending maturities and modifying pricing and covenants. The company reported a $11.4 million net loss on debt extinguishment/modification.
- At quarter-end, the company reported an interest coverage ratio of 6.36x and total leverage ratio of 4.16x, and said it was in covenant compliance. It cautioned that prolonged closures or a weak recovery could require lender waivers or amendments.
- Management said cash on hand and expected operating cash would fund obligations for the next 12 months. Expected remaining-2020 uses included $19.6 million of required principal payments, $121.8 million of interest and $20–30 million of maintenance capital expenditures.
- Financing cash flow was $945.7 million, principally reflecting debt issuance and borrowings. Cash and cash equivalents increased from $128.8 million at year-end 2019 to $1.091 billion at quarter-end.
Outlook, risks and unusual items
- Management expected second-quarter results to be more unfavorable than Q1 because closures continued, and anticipated further negative effects from economic weakness, lower consumer demand and operating restrictions after reopening. No quantified earnings or revenue guidance was provided.
- The company expected initially to reopen Red Rock, Green Valley Ranch, Santa Fe Station, Boulder Station, Palace Station, Sunset Station and Wildfire properties, then assess performance before reopening other locations. Reopening timing was uncertain; planned measures could include reduced capacity, distancing, health checks and enhanced cleaning.
- On May 1, 2020, the company announced staffing reductions affecting approximately 39% of its full-time workforce. It also described potential CARES Act benefits, including employee retention credits, deferred employer Social Security taxes and bonus depreciation; the filing did not quantify benefits recognized.
- On May 19, the board announced suspension of the dividend for the remainder of 2020. The company had paid $0.10 per Class A share in Q1.
- North Fork development remains contingent on regulatory approvals, financing and resolution of litigation. Red Rock had advanced approximately $34.2 million, with a $19.1 million carrying value, and disclosed that repayment is not assured. Estimated project cost is $250–300 million; management estimated a 65–75% likelihood of successful completion and opening.
- Other material risks include fixed costs during closures, covenant compliance and refinancing access, consumer demand and reopening restrictions, potential future asset impairments, and litigation affecting the North Fork project. Management reported disclosure controls effective as of March 31, 2020.
Key facts for investors to verify
- Actual reopening dates, capacity restrictions, customer demand and cash burn relative to management’s 12-month liquidity assessment.
- Debt covenant headroom and remaining revolver availability as operating conditions and cash flows evolve.
- Whether deferred tax assets or goodwill, brands and other long-lived assets require further valuation allowances or impairment charges.
- Timing and outcome of North Fork approvals and litigation, project financing, and recovery of advances.
- Implementation and effects of workforce reductions, CARES Act benefits, and the dividend suspension.