Red Rock Resorts, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Red Rock owns and manages Station Casinos, whose business is primarily Las Vegas gaming and hospitality. Most operating restrictions were lifted by June 1, 2021, but Texas Station, Fiesta Rancho, Fiesta Henderson and Palms remained closed at quarter-end. The company said it had no plans to reopen those properties in 2021. Comparisons with 2020 are materially affected by the pandemic-related closure of all properties from March 17 through June 3, 2020.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $414.8 million | $353.2 million | $1,195.5 million | $839.0 million |
| Operating income | $142.9 million | $100.9 million | $240.3 million | $10.0 million |
| Consolidated net income (loss) | $117.9 million | $72.0 million | $154.7 million | $(224.2) million |
| Net income (loss) attributable to Red Rock | $71.2 million | $43.6 million | $93.2 million | $(180.1) million |
| Adjusted EBITDA | $184.5 million | $160.9 million | $551.3 million | $217.9 million |
Q3 revenue increased 17.4% year over year; casino revenue rose 20.5%, food and beverage 41.3%, and room revenue 79.1%. Q3 casino, food and beverage, and room margins were 75.4%, 19.9%, and 61.7%, respectively. Hotel occupancy was 81.1% and average daily rate was $153.61, compared with 61.1% and $105.86 a year earlier. Nine-month operating results included a $167.8 million Palms impairment charge; excluding this and other adjustments is reflected in the company’s non-GAAP Adjusted EBITDA, which is not a liquidity measure.
Cash, debt and liquidity
- Operating cash flow for the first nine months was $476.8 million, versus $85.6 million in 2020. Investing cash outflow was $58.1 million; financing cash outflow was $449.6 million. Capital expenditures were $34.9 million.
- At September 30, cash and cash equivalents were $89.9 million. Total debt carrying value was $2.643 billion, including $25.9 million current; total long-term debt, net of current portion, was $2.617 billion.
- Revolver availability was $1.0 billion, net of $29.4 million in letters of credit and similar obligations. Management said Station LLC was in compliance with debt covenants at quarter-end and expected cash, operating cash flow and available borrowing capacity to fund the next 12 months.
- In February, Station LLC redeemed $250 million of 5.00% Senior Notes, recording an $8.1 million extinguishment loss. On October 29, 2021, it redeemed the remaining $280.3 million principal using revolver borrowings and cash; the company expected a further $5.3 million loss.
Changes, outlook and risks
- Management cited continued strong visitation, increased customer spend and gaming time, and the return of core customers. Cost optimization measures implemented in 2020 also supported results. The company cautioned that it cannot predict whether favorable trends or the broader recovery will continue.
- Palms sale agreement: $650 million consideration, with closing anticipated in Q4 2021. The nine-month impairment reduced its carrying value; Palms reported a $192.3 million pretax loss for the nine months, including the impairment.
- Durango development: expected project spend of approximately $750 million, funded through cash, operating cash flow, an expected $24 million partial site sale and revolver borrowings. Construction was expected to begin in Q1 2022, with completion 18–24 months after commencement.
- The company repurchased 3.13 million Class A shares for $123.3 million in the first nine months. The authorization was increased to $300 million, with $173.9 million remaining at September 30. Dividends remained suspended until further notice; quarterly tax distributions to LLC Unit holders were expected to continue.
- North Fork tribal casino development remained contingent on regulatory approval, financing, litigation and other milestones. Red Rock had advanced approximately $45 million, with a $29.9 million carrying amount; repayment is not assured. Management estimated a 75%–85% likelihood of successful completion, while noting no assurance of completion or recovery of its investment.
- Risks include pandemic effects and possible renewed restrictions, closure decisions, substantial debt and covenant constraints, consumer and economic conditions, construction cost or schedule issues, gaming regulation and taxes, and legal or regulatory outcomes. A proposed Nevada ballot initiative could raise the gaming tax from 6.75% to 9.75%; if on the ballot and approved, the increase would take effect January 1, 2023.
Investor verification points
- Confirm whether the Palms sale closed on expected terms and how proceeds were applied.
- Review post-quarter debt balances, including the October redemption and related revolver borrowing, as well as covenant headroom.
- Track reopening decisions, operating trends and the comparability of results against pandemic-affected periods.
- Assess Durango’s final budget, financing, construction start and completion timetable.
- Monitor North Fork approvals, litigation, project financing and the recoverability of advances.
- Distinguish consolidated earnings and Adjusted EBITDA from earnings attributable to Red Rock shareholders and GAAP cash flow.