Red Rock Resorts, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Red Rock operates Las Vegas casino and entertainment properties through Station Casinos LLC and manages Graton Resort. Results reflect the COVID-19 shutdown and operating restrictions.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $353.2 million | $465.9 million | $839.0 million | $1,395.7 million |
| Operating income | $100.9 million | $14.2 million | $10.0 million | $125.9 million |
| Net income (loss) | $72.0 million | $(26.8) million | $(224.2) million | $(13.6) million |
| Net income (loss) attributable to Red Rock | $43.6 million | $(15.7) million | $(180.1) million | $(8.2) million |
| Adjusted EBITDA | $160.9 million | $111.1 million | $217.9 million | $371.4 million |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $85.6 million | $216.6 million |
Q3 revenue declined 24.2%; nine-month revenue declined 39.9%. Q3 casino revenue edged up 0.7%, while food and beverage revenue fell 64.2% and room revenue fell 54.2%. Q3 casino margin rose to 76.0% from 62.6%, reflecting lower costs and closed properties; food and beverage margin was 12.0% versus negative 0.3%. Hotel occupancy was 61.1% versus 88.4%, and revenue per available room was $64.67 versus $111.97.
At September 30, cash and cash equivalents were $108.9 million and restricted cash was $4.4 million. Total debt carrying value was $3.00 billion, compared with $3.03 billion at year-end 2019. The company reported $918.5 million of revolver availability, net of $80.0 million drawn and $32.6 million of letters of credit and similar obligations. Management said it expected available cash, operating cash flow and, if needed, revolver borrowings to fund operations and debt service for the next 12 months.
Material changes and notable items
- All Las Vegas properties closed March 17 through June 3. Six named major properties and Wildfire properties reopened June 4 subject to restrictions; Texas Station, Fiesta Rancho, Fiesta Henderson and Palms remained closed. Management did not expect to reopen those four in 2020.
- Operating cash flow fell to $85.6 million from $216.6 million for the first nine months. Capital expenditures were $53.4 million, versus $324.4 million in 2019, primarily reflecting the prior-year Palms redevelopment.
- Station LLC issued $750 million of 4.50% senior notes due 2028 and amended its credit facility in February. It had repaid $917.5 million of the $997.5 million drawn on the revolver in March. The company repurchased $81.9 million principal amount of debt during the nine-month period.
- Nine-month results included a $113.2 million income tax provision, primarily from establishing a full valuation allowance on deferred tax assets amid COVID-related uncertainty. This contributed to the $224.2 million consolidated net loss.
- The board suspended dividends for the remainder of 2020. The company paid $0.10 per Class A share during the first nine months.
Outlook, risks and contingencies
Management cited ongoing uncertainty around the pandemic, economic conditions, unemployment, customer demand, travel and operating restrictions. It said results would likely remain affected for the rest of 2020 and potentially beyond. No formal earnings or revenue guidance was provided. Expected capital expenditures for the remainder of 2020 were approximately $8 million to $12 million; expected remaining-year principal and interest payments were $4.1 million and $32.1 million, respectively.
The company said it was in compliance with debt covenants at September 30, but warned that prolonged weakness could affect covenant compliance and liquidity. Its revolving credit facility includes leverage and interest-coverage tests; default could permit creditors to accelerate debt. Interest rate swaps effectively fixed $1.3 billion of variable-rate debt at 4.09% through July 2021. LIBOR discontinuation after 2021 may affect borrowing benchmarks.
Other uncertainties include potential future asset impairment if results or forecasts deteriorate; the North Fork tribal casino project, which remains subject to regulatory approvals and litigation, with $19.5 million of advances carried on the balance sheet; and the Graton management agreements, extended to February 5, 2021, with any further extension disputed. Management estimated a 75% to 85% likelihood of successful completion and opening of the North Fork project, but gave no assurance of recovery of its investment.
Important facts for investors to verify
- Reopening decisions, operating restrictions and customer demand, particularly at the four properties still closed at filing.
- Cash generation, revolver availability and covenant headroom as pandemic impacts continue.
- Assumptions supporting the deferred-tax-asset valuation allowance and any future impairment assessments.
- Resolution of the Graton contract-extension dispute and North Fork approvals, litigation, financing and project timing.
- Debt terms, upcoming maturities, interest-rate exposure and the effects of the LIBOR transition.