Red Rock Resorts, Inc. — Q3 2023 Form 10-Q
Business and period: Red Rock operates six major and ten smaller casino properties in the Las Vegas region through Station Casinos LLC. This unaudited filing covers the three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Red Rock held approximately 58% of Station Holdco’s economic interests and all of its voting power.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $411.6m | $414.4m | $1,261.4m | $1,238.3m |
| Operating income | $122.5m | $140.7m | $386.7m | $339.7m |
| Net income | $68.4m | $95.5m | $228.9m | $220.1m |
| Net income attributable to Red Rock | $35.5m | $49.6m | $119.7m | $113.7m |
| Adjusted EBITDA | $175.2m | $181.9m | $544.7m | $549.5m |
| Red Rock diluted EPS | $0.60 | $0.83 | $1.99 | $1.87 |
- Q3 revenue declined 0.7%; casino revenue fell 3.4%, while food and beverage, rooms and other revenue rose 4.3%, 7.6% and 3.7%. Nine-month revenue rose 1.9%, supported by non-gaming growth, despite a 1.5% casino revenue decline.
- Q3 operating income fell 12.9% and Red Rock-attributable net income fell 28.4%. For nine months, operating income rose 13.8% and attributable net income rose 5.3%, partly reflecting the prior-year $80.0m impairment charge.
- Q3 Adjusted EBITDA declined 3.7%; nine-month Adjusted EBITDA declined 0.9%. These are non-GAAP measures and are not substitutes for net income or cash flow.
- Casino margin was 74.1% in Q3 versus 75.3%; food and beverage margin was 20.7% versus 20.8%; room margin improved to 68.2% from 66.6%. Hotel occupancy was 86.4% versus 84.3%, and ADR was $185.20 versus $169.97.
Cash, debt and liquidity
- Nine-month operating cash flow was $335.4m, down from $417.5m. Investing cash outflow was $520.5m, including $512.5m of capital expenditures, primarily for Durango. Financing provided $190.7m, including $370.5m of revolver borrowings. Cash at September 30 was $122.8m.
- Total debt was $3.306bn, versus $2.985bn at year-end 2022. The revolving facility had $485.0m drawn and $512.5m available, net of $33.5m in letters of credit and similar obligations. Debt includes variable-rate facilities; the Term Loan B rate was 7.67% and Term Loan A/revolver rate 6.92% at quarter-end.
- Q3 and nine-month net interest expense increased 32.7% and 47.5%, respectively, reflecting higher variable rates and increased revolver borrowings. Management expected interest rates could continue to rise.
- Management said cash, operating cash generation and revolver availability should fund operations, capital needs and debt service for the next 12 months, while cautioning that financing and cash generation are subject to economic and market conditions. The company reported compliance with debt covenants.
Changes, outlook and risks
- Durango was under construction, with opening expected in December 2023 and total project cost estimated at approximately $780m. Planned capital expenditures for the remainder of 2023 were $110m–$180m. Construction-related accrued payables were $128.3m at September 30.
- Q3 write-downs and other totaled $15.1m, versus $3.9m a year earlier; nine-month amounts were $44.8m versus $16.1m. 2023 charges primarily included development and preopening expenses, demolition costs and business innovation development. There were no 2023 impairment charges; 2022 included $80.0m of impairment related primarily to permanently closed properties.
- Management cited continued favorable visitation and spend per visit, but also inflation, higher energy and construction costs, labor shortages and rising interest rates. It said cost controls, pricing and procurement measures are being used to address inflation. No formal earnings guidance was provided.
- The North Fork tribal gaming project remained contingent on NIGC approval of the management agreement, financing and unresolved litigation. Red Rock had $45.1m of reimbursable advances recorded and assessed the likelihood of successful completion and opening at 75%–85%; recovery and timing are uncertain.
- Disclosure controls were deemed ineffective at quarter-end because of a material weakness in the accuracy and timeliness of review and approval of vendor master payment-file changes. The company reported remediation steps, including revised procedures and employee training. Management nevertheless concluded the financial statements fairly presented results in all material respects.
- Other risks include substantial debt and covenant restrictions, sensitivity to local economic conditions and consumer spending, competition, regulation and potential litigation. The filing reported no material changes to previously disclosed risk factors.
Investor verification points
- Track Durango’s opening schedule, final cost, remaining construction spending and effects on debt and interest expense.
- Monitor casino revenue trends against continued growth in rooms and food and beverage, including the impact of inflation and labor costs on margins.
- Verify operating cash flow, revolver availability, variable borrowing rates and covenant headroom as debt and capital spending increase.
- Follow remediation and testing of the vendor-payment control weakness, as well as any subsequent disclosure-control updates.
- Check progress on NIGC approval, North Fork litigation and financing before relying on expected project timing or recovery of advances.
- Review cash distributions and dividends alongside investment needs: the company paid $44.0m in dividends and $65.2m in noncontrolling-interest distributions in the first nine months.