Red Rock Resorts, Inc. — Q2 2022 Form 10-Q
Business and period: Unaudited results for the quarter and six months ended June 30, 2022, compared with the same 2021 periods. Red Rock consolidates Station Casinos and operates casino, hotel, dining and entertainment properties primarily in the Las Vegas market. At June 30, it held 57.4% of Station Holdco’s economic interests and 100% of its voting power.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net revenue | $422.2 million | $428.2 million | $823.9 million | $780.8 million |
| Operating income | $68.2 million | $168.5 million | $199.0 million | $97.4 million |
| Net income | $32.4 million | $143.4 million | $124.7 million | $36.8 million |
| Net income attributable to Red Rock | $15.7 million | $86.7 million | $64.1 million | $21.9 million |
| Adjusted EBITDA | $188.9 million | $210.2 million | $367.6 million | $366.8 million |
Revenue mix and operating trends: Q2 casino revenue declined 7.7% to $280.6 million, while food and beverage, room and other revenue rose 13.7%, 13.1% and 18.7%, respectively. For the first half, casino revenue was down 0.7%; non-gaming revenue growth helped lift total revenue 5.5%. Q2 casino margin declined to 75.1% from 76.9%; food and beverage margin fell to 21.6% from 24.7%; room margin improved to 70.0% from 62.6%. Hotel occupancy was 85.3% versus 82.0%, and ADR was $183.77 versus $151.94.
Cash flow and liquidity: First-half operating cash flow was $277.7 million, down from $312.6 million. Investing cash outflow was $104.6 million, including $101.4 million of capital expenditures; financing cash outflow was $224.0 million, including $122.5 million of share repurchases, $54.9 million of noncontrolling-interest distributions and $30.3 million of dividends. Cash and equivalents were $256.3 million at June 30, down from $275.3 million at year-end 2021. Station LLC had $1.0 billion of revolver availability, net of $29.4 million of letters of credit. Management expected cash, operating cash flow and available borrowing capacity to fund operations and obligations for the next 12 months.
Debt and balance sheet: Debt carrying amount was $2.844 billion, including $25.9 million current; cash was $256.3 million. Interest expense rose 12.2% in Q2 to $28.7 million, primarily due to higher variable rates. Total stockholders’ deficit was $27.7 million, compared with equity of $50.0 million at year-end. The company reported compliance with debt covenants at June 30.
Material changes and unusual items
- Q2 operating income and attributable earnings fell sharply, principally reflecting a $79.0 million impairment charge after the June decision to permanently close and demolish Texas Station, Fiesta Rancho and Fiesta Henderson, which had been closed since March 2020. The prior-year first half included a $167.8 million impairment related to Palms, sold in December 2021.
- Q2 2021 casino revenue was an unusually high comparison period, which management attributed to the lifting of COVID-19 restrictions, stimulus payments and recovering demand. Management said favorable visitation, spend per visit and core-customer trends continued in Q2 2022.
- First-half 2022 included $6.7 million of Palms artist-performance agreement termination costs in write-downs and other expense. First-half 2021 included an $8.1 million debt-extinguishment loss.
- In Q2, the company repurchased 3.0 million Class A shares for $113.7 million and paid $0.25 per-share dividends. The board later authorized an additional $300 million repurchase program, bringing remaining authorization to $331.9 million, and announced a further $0.25 per-share dividend for September 2022.
Outlook, risks and contingencies
Management estimated remaining-2022 capital expenditures of $275 million to $400 million, including Durango development. It expected Durango to open in approximately 15 to 21 months. Subsequent to quarter-end, the company paid $172.4 million for approximately 126 acres of Las Vegas development land.
Management cited inflation in food, supplies, energy and construction, labor shortages and wage pressure, rising interest rates, consumer-demand uncertainty, substantial debt, competition, regulation and potential renewed effects of COVID-19 as risks. It noted interest rates may continue to rise. A proposed Nevada gaming-tax increase was effectively withdrawn and was not expected to appear on the November 2022 ballot.
The North Fork tribal casino project remains subject to regulatory approval, financing and litigation. The NIGC management-agreement approval process and a related legal matter remained unresolved. The company estimated a 75%–85% likelihood of successful completion, but cautioned that timing, completion and recovery of its investment are uncertain. It had advanced approximately $51.9 million to the tribe; the carrying amount was $36.8 million, and repayment is not assured. The filing also describes routine litigation and a dispute concerning a former Graton Resort management agreement.
Investor facts to verify
- Whether underlying Las Vegas demand and non-gaming growth can offset softer casino revenue and inflation-driven labor and operating costs.
- The impact of the $79.0 million closure-related impairment and the permanent closure, demolition and planned disposition of the three properties.
- Durango and other development spending, including the post-quarter land purchase, against projected cash flow, liquidity and debt service.
- Variable-rate debt exposure, covenant headroom and the company’s capital returns through repurchases and dividends.
- North Fork approval, litigation, financing and advance-repayment milestones, and any material changes in the project’s completion outlook.