RRR 10-Q
Red Rock Resorts, Inc. (RRR)
10-Q
2022-11-08
For: 2022-09-30
View Original
Added on
April 09, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
For the quarterly period ended September 30, 2022
OR
For the transition period from to
Commission file number 001-37754
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices)
(Zip Code)
(702 ) 495-3000
Registrant’s telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at October 28, 2022 | |||||||
| Class A Common Stock, $0.01 par value | ||||||||
| Class B Common Stock, $0.00001 par value | ||||||||
RED ROCK RESORTS, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
| September 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Inventories | |||||||||||
| Prepaid gaming tax | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Goodwill | |||||||||||
Intangible assets, net of accumulated amortization of $ | |||||||||||
| Land held for development | |||||||||||
| Native American development costs | |||||||||||
| Deferred tax asset, net | |||||||||||
| Other assets, net | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued interest payable | |||||||||||
| Income tax payable | |||||||||||
| Other accrued liabilities | |||||||||||
| Current portion of payable pursuant to tax receivable agreement | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, less current portion | |||||||||||
| Other long-term liabilities | |||||||||||
| Payable pursuant to tax receivable agreement, less current portion | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 11) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Class A common stock, par value $ | |||||||||||
Class B common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total Red Rock Resorts, Inc. stockholders’ equity | |||||||||||
| Noncontrolling interest (deficit) | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(amounts in thousands, except per share data)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||
| Casino | $ | $ | $ | $ | |||||||||||||||||||
| Food and beverage | |||||||||||||||||||||||
| Room | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Management fees | |||||||||||||||||||||||
| Net revenues | |||||||||||||||||||||||
| Operating costs and expenses: | |||||||||||||||||||||||
| Casino | |||||||||||||||||||||||
| Food and beverage | |||||||||||||||||||||||
| Room | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Write-downs and other, net | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Earnings from joint ventures | |||||||||||||||||||||||
| Operating income and earnings from joint ventures | |||||||||||||||||||||||
| Other expense: | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Loss on extinguishment of debt | ( | ||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| ( | ( | ( | ( | ||||||||||||||||||||
| Income before income tax | |||||||||||||||||||||||
| Provision for income tax | ( | ( | ( | ( | |||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less: net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net income attributable to Red Rock Resorts, Inc. | $ | $ | $ | $ | |||||||||||||||||||
Earnings per common share (Note 10): | |||||||||||||||||||||||
| Earnings per share of Class A common stock, basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share of Class A common stock, diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average common shares outstanding: | |||||||||||||||||||||||
Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Less: comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| Comprehensive income attributable to Red Rock Resorts, Inc. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)
(unaudited)
| Red Rock Resorts, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Additional paid-in capital | Retained earnings | Noncontrolling interest (deficit) | Total stockholders’ equity (deficit) | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2022 | $ | $ | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Distributions | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock option exercises and issuance of restricted stock, net | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Withholding tax on share-based compensation | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | ( | ( | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | — | — | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(amounts in thousands)
(unaudited)
| Red Rock Resorts, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Additional paid-in capital | (Accumulated deficit) retained earnings | Accumulated other comprehensive loss | Noncontrolling interest | Total stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises and issuance of restricted stock, net | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Withholding tax on share-based compensation | ( | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | ( | ( | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(amounts in thousands)
(unaudited)
| Red Rock Resorts, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Additional paid-in capital | Retained earnings | Noncontrolling interest (deficit) | Total stockholders’ equity | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Distributions | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock option exercises and issuance of restricted stock, net | — | — | ( | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Withholding tax on share-based compensation | ( | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | ( | ( | — | — | ( | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | $ | — | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(amounts in thousands)
(unaudited)
| Red Rock Resorts, Inc. Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock | Additional paid-in capital | (Accumulated deficit) retained earnings | Accumulated other comprehensive loss | Noncontrolling interest | Total stockholders’ equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock option exercises and issuance of restricted stock, net | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Withholding tax on share-based compensation | ( | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of Class A common stock | ( | ( | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Exchanges of noncontrolling interests for cash | — | — | ( | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Tax receivable agreement liability resulting from exchanges of noncontrolling interests for cash | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | — | — | — | — | — | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Write-downs and other, net | ( | ||||||||||
| Asset impairment | |||||||||||
| Amortization of debt discount and debt issuance costs | |||||||||||
| Share-based compensation | |||||||||||
Loss on extinguishment of debt | |||||||||||
| Deferred income tax | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Receivables, net | |||||||||||
| Inventories and prepaid expenses | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued interest payable | ( | ( | |||||||||
| Income tax payable | |||||||||||
| Other accrued liabilities | |||||||||||
| Other, net | ( | ||||||||||
Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures, net of related payables | ( | ( | |||||||||
| Proceeds from asset sales | |||||||||||
| Acquisition of land held for development | ( | ( | |||||||||
| Native American development costs | ( | ( | |||||||||
| Net settlement of derivative instruments | ( | ||||||||||
| Other, net | |||||||||||
Net cash used in investing activities | ( | ( | |||||||||
9
RED ROCK RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(amounts in thousands)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings under credit agreements with original maturity dates greater than three months | |||||||||||
| Payments under credit agreements with original maturity dates greater than three months | ( | ( | |||||||||
| Partial redemption of 5.00% Senior Notes | ( | ||||||||||
| Cash paid for early extinguishment of debt | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||
| Repurchases of Class A common stock | ( | ( | |||||||||
| Withholding tax on share-based compensation | ( | ( | |||||||||
| Exchanges of noncontrolling interests for cash | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Other, net | ( | ||||||||||
Net cash used in financing activities | ( | ( | |||||||||
Decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Balance, beginning of period | |||||||||||
| Balance, end of period | $ | $ | |||||||||
| Cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Cash, cash equivalents and restricted cash included in assets held for sale | |||||||||||
| Balance, end of period | $ | $ | |||||||||
| Supplemental cash flow disclosures: | |||||||||||
Cash paid for interest, net of $ | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Capital expenditures incurred but not yet paid | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization, Basis of Presentation and Significant Accounting Policies
Organization
Red Rock Resorts, Inc. (“Red Rock,” or the “Company”) was formed as a Delaware corporation in 2015 to own an indirect equity interest in and manage Station Casinos LLC (“Station LLC”), a Nevada limited liability company. Station LLC is a gaming, development and management company established in 1976 that owns and operates six major gaming and entertainment facilities and nine smaller casino properties (three of which are 50 % owned) in the Las Vegas regional market.
The Company owns all of the outstanding voting interests in Station LLC and has an indirect equity interest in Station LLC through its ownership of limited liability interests in Station Holdco LLC (“Station Holdco,” and such interests, “LLC Units”), which owns all of the economic interests in Station LLC. At September 30, 2022, the Company held 57 % of the economic interests and 100 % of the voting power in Station Holdco, subject to certain limited exceptions, and is designated as the sole managing member of both Station Holdco and Station LLC. The Company controls and operates all of the business and affairs of Station Holdco and Station LLC, and conducts all of its operations through these entities.
In June 2022, the Company decided to permanently close its Texas Station, Fiesta Henderson and Fiesta Rancho properties, which had been closed since March 2020 as a result of the COVID-19 pandemic. The facilities at these properties are being demolished to reposition the land for sale. In addition, the Company permanently closed Wild Wild West in September 2022. See Note 3 for additional information.
A subsidiary of Station LLC managed Graton Resort, a casino in northern California, on behalf of a Native American tribe through February 5, 2021. The property was temporarily closed from March 17, 2020 through June 17, 2020 as a result of the COVID-19 pandemic. The management agreement was originally expected to expire in November 2020 but was extended as a result of the pandemic through February 5, 2021, when the tribe terminated the Company’s management role at the facility.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments necessary for a fair presentation of the results for the interim periods have been made, and such adjustments were of a normal recurring nature. The interim results reflected in these condensed consolidated financial statements are not necessarily indicative of results to be expected for the full fiscal year. These financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Certain amounts in the condensed consolidated financial statements for the prior year have been reclassified to be consistent with the current year presentation. In the first quarter of 2022, management determined that the held for sale criteria were no longer met for a parcel of land that was previously classified as held for sale, and the carrying amount of $50.6 million was reclassified to Land held for development at December 31, 2021.
Principles of Consolidation
Station Holdco and Station LLC are variable interest entities, of which the Company is the primary beneficiary. Accordingly, the Company consolidates the financial position and results of operations of Station LLC and its consolidated subsidiaries and Station Holdco, and presents the interest in Station Holdco not owned by Red Rock within noncontrolling interest in the condensed consolidated financial statements. All intercompany accounts and transactions have been eliminated.
The Company has investments in three 50 % owned smaller casino properties which are joint ventures accounted for using the equity method.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported and disclosed. Actual results could differ from those estimates.
11
Table of Contents
RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Significant Accounting Policies
A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the year ended December 31, 2021.
2. Noncontrolling Interest in Station Holdco
As discussed in Note 1, Red Rock holds a controlling interest in and consolidates the financial position and results of operations of Station LLC and its subsidiaries and Station Holdco. The interests in Station Holdco not owned by Red Rock are presented within noncontrolling interest in the condensed consolidated financial statements.
The ownership of the LLC Units is summarized as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Units | Ownership % | Units | Ownership % | ||||||||||||||||||||
| Red Rock | % | % | |||||||||||||||||||||
| Noncontrolling interest holders | % | % | |||||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
3. Asset Impairment
The Company’s decision in June 2022 to permanently close three of its properties as described in Note 1 was an indicator of impairment. As a result, the Company tested each of these reporting units for impairment as of June 30, 2022 and recorded asset impairment charges totaling $79.0 million, primarily representing the write-off of the facilities that are being demolished. The recoverability of the carrying amounts of the remaining assets, primarily land, was evaluated based on market prices for similar assets, which are considered Level 2 inputs under the fair value measurement hierarchy. There was no goodwill associated with the properties.
The Company also recognized an asset impairment charge of $1.0 million as a result of the permanent closure of Wild Wild West in September 2022.
For the nine months ended September 30, 2021, asset impairment related to the pending sale of Palms Casino Resort, which was completed in December 2021.
4. Native American Development
The Company has development and management agreements with the North Fork Rancheria of Mono Indians (the “Mono”), a federally recognized Native American tribe located near Fresno, California, which were originally entered into in 2003. In August 2014, the Mono and the Company entered into the Second Amended and Restated Development Agreement (the “Development Agreement”) and the Second Amended and Restated Management Agreement. Pursuant to those agreements, the Company will assist the Mono in developing and operating a gaming and entertainment facility (the “North Fork Project”) to be located in Madera County, California. The Company purchased a 305 -acre parcel of land adjacent to Highway 99 north of the city of Madera (the “North Fork Site”), which was taken into trust for the benefit of the Mono by the Department of the Interior (“DOI”) in February 2013.
As currently contemplated, the North Fork Project is expected to include approximately 2,000 Class III slot machines, approximately 40 table games and several restaurants, and future development costs of the project are expected to be between $350 million and $400 million. Development of the North Fork Project is subject to certain governmental and regulatory
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
approvals, including, without limitation, approval of the management agreement by the Chair of the National Indian Gaming Commission (“NIGC”).
Under the terms of the Development Agreement, the Company has agreed to arrange the financing for the ongoing development costs and construction of the facility, and has contributed significant financial support to the North Fork Project. Through September 30, 2022, the Company has paid approximately $55.7 million of reimbursable advances to the Mono, primarily to complete the environmental impact study, purchase the North Fork Site and pay the costs of litigation. The advances are expected to be repaid from the proceeds of the project’s financing or from the Mono’s cash flows from the North Fork Project’s operations; however, there can be no assurance that the advances will be repaid. The carrying amount of the advances was reduced to fair value upon the Company’s adoption of fresh-start reporting in 2011. At September 30, 2022, the carrying amount of the advances was $40.6 million. The Company earns a return on the advances to the Mono. Due to uncertainty surrounding the timing and amount of the stated return, the Company will recognize the return when it is received.
The Company expects to receive a development fee of 4 % of the costs of construction (as defined in the Development Agreement) for its development services, which will be paid upon the commencement of gaming operations at the facility. In March 2018, the Mono submitted a proposed Third Amended and Restated Management Agreement (the “Management Agreement”) to the NIGC. The Management Agreement allows the Company to receive a management fee of 30 % of the North Fork Project’s net income. The Management Agreement and the Development Agreement have a term of years from the opening of the North Fork Project. The Management Agreement includes termination provisions whereby either party may terminate the agreement for cause, and the Management Agreement may also be terminated at any time upon agreement of the parties. There is no provision in the Management Agreement allowing the tribe to buy-out the agreement prior to its expiration. The Management Agreement provides that the Company will train the Mono tribal members such that they may assume responsibility for managing the North Fork Project upon the expiration of the agreement.
Upon termination or expiration of the Management Agreement and Development Agreement, the Mono will continue to be obligated to repay any unpaid principal and interest on the advances from the Company, as well as certain other amounts that may be due, such as management fees. Amounts due to the Company under the Development Agreement and Management Agreement are secured by substantially all of the assets of the North Fork Project except the North Fork Site. In addition, the Development Agreement and Management Agreement contain waivers of the Mono’s sovereign immunity from suit for the purpose of enforcing the agreements or permitting or compelling arbitration and other remedies.
The timing of this type of project is difficult to predict and is dependent upon the receipt of the necessary governmental and regulatory approvals. There can be no assurance as to when, or if, these approvals will be obtained. The Company currently estimates that construction of the North Fork Project may begin in the next months and estimates that the North Fork Project would be completed and opened for business approximately 15 to 18 months after construction begins. There can be no assurance, however, that the North Fork Project will be completed and opened within this time frame or at all. The Company expects to assist the Mono in obtaining financing for the North Fork Project once all necessary regulatory approvals have been received and prior to commencement of construction; however, there can be no assurance that the Company will be able to obtain such financing for the North Fork Project on acceptable terms or at all.
The Company has evaluated the likelihood that the North Fork Project will be successfully completed and opened, and has concluded that the likelihood of successful completion is in the range of 75 % to 85 % at September 30, 2022. The Company’s evaluation is based on its consideration of all available positive and negative evidence about the status of the North Fork Project, including, but not limited to, the status of required regulatory approvals, as well as the progress being made toward the achievement of all milestones and the successful resolution of all litigation and contingencies. There can be no assurance that the North Fork Project will be successfully completed or that future events and circumstances will not change the Company’s estimates of the timing, scope, and potential for successful completion or that any such changes will not be material. In addition, there can be no assurance that the Company will recover all of its investment in the North Fork Project even if it is successfully completed and opened for business.
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following table summarizes the Company’s evaluation at September 30, 2022 of each of the critical milestones necessary to complete the North Fork Project.
| Federally recognized as an Indian tribe by the Bureau of Indian Affairs (“BIA”) | Yes | ||||
| Date of recognition | Federal recognition was terminated in 1966 and restored in 1983. | ||||
| Tribe has possession of or access to usable land upon which the project is to be built | The DOI accepted approximately | ||||
| Status of obtaining regulatory and governmental approvals: | |||||
| Tribal-state compact | A compact was negotiated and signed by the Governor of California and the Mono in August 2012. The California State Assembly and Senate passed Assembly Bill 277 (“AB 277”) which ratified the Compact in May 2013 and June 2013, respectively. Opponents of the North Fork Project qualified a referendum, “Proposition 48,” for a state-wide ballot challenging the legislature’s ratification of the Compact. In November 2014, Proposition 48 failed. The State took the position that the failure of Proposition 48 nullified the ratification of the Compact and, therefore, the Compact did not take effect under California law. In March 2015, the Mono filed suit against the State to obtain a compact with the State or procedures from the Secretary of the Interior under which Class III gaming may be conducted on the North Fork Site. In July 2016, the DOI issued Secretarial procedures (the “Secretarial Procedures”) pursuant to which the Mono may conduct Class III gaming on the North Fork Site. | ||||
| Approval of gaming compact by DOI | The Compact was submitted to the DOI in July 2013. In October 2013, notice of the Compact taking effect was published in the Federal Register. The Secretarial Procedures supersede and replace the Compact. | ||||
| Record of decision regarding environmental impact published by BIA | In November 2012, the record of decision for the Environmental Impact Statement for the North Fork Project was issued by the BIA. In December 2012, the Notice of Intent to take land into trust was published in the Federal Register. | ||||
| BIA accepting usable land into trust on behalf of the tribe | The North Fork Site was accepted into trust in February 2013. | ||||
| Approval of management agreement by NIGC | In December 2015, the Mono submitted a Second Amended and Restated Management Agreement, and certain related documents, to the NIGC. In July 2016, the Mono received a deficiency letter from the NIGC seeking additional information concerning the Second Amended and Restated Management Agreement. In March 2018, the Mono submitted the Management Agreement and certain related documents to the NIGC. In June 2018, the Mono received a deficiency letter from the NIGC seeking additional information concerning the Management Agreement. In April 2021, the Mono received an issues letter from the NIGC identifying issues to be addressed prior to approval of the Management Agreement. In September 2022, the Mono received an additional issues letter from the NIGC identifying remaining issues to be addressed prior to approval of the Management Agreement. Approval of the Management Agreement by the NIGC is expected to occur following the Mono’s response to the most recent issues letter. The Company believes the Management Agreement will be approved because the terms and conditions thereof are consistent with the provisions of the Indian Gaming Regulatory Act (“IGRA”). | ||||
| Gaming licenses: | |||||
| Type | The North Fork Project will include the operation of Class II and Class III gaming, which are allowed pursuant to the terms of the Secretarial Procedures and IGRA, following approval of the Management Agreement by the NIGC. | ||||
| Number of gaming devices allowed | The Secretarial Procedures allow for the operation of a maximum of | ||||
| Agreements with local authorities | The Mono has entered into memoranda of understanding with the City of Madera, the County of Madera and the Madera Irrigation District under which the Mono agreed to pay one-time and recurring mitigation contributions, subject to certain contingencies. The memoranda of understanding have all been amended to restructure the timing of certain payments due to delays in the development of the North Fork Project. | ||||
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
Following is a discussion of the unresolved legal matter related to the North Fork Project.
Picayune Rancheria of Chukchansi Indians v. Brown. In March 2016, Picayune Rancheria of Chukchansi Indians (“Picayune”) filed a complaint for declaratory relief and petition for writ of mandate in California Superior Court for the County of Madera against Governor Edmund G. Brown, Jr., alleging that the referendum that invalidated the Compact also invalidated Governor Brown’s concurrence with the Secretary of the Interior’s determination that gaming on the North Fork Site would be in the best interest of the Mono and not detrimental to the surrounding community. The complaint seeks to vacate and set aside the Governor’s concurrence and was stayed from December 2016 to September 2021, when the Supreme Court of California denied the Mono’s and the State of California’s petition for review in Stand Up for California! v. Brown. As a result of the denial, litigation of this matter has resumed and dispositive motions have been filed by Picayune, the State of California and the Mono.
5. Other Accrued Liabilities
Other accrued liabilities consisted of the following (amounts in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Contract and customer-related liabilities: | |||||||||||
| Rewards Program liability | $ | $ | |||||||||
| Advance deposits and future wagers | |||||||||||
| Unpaid wagers, outstanding chips and other customer-related liabilities | |||||||||||
| Other accrued liabilities: | |||||||||||
| Accrued payroll and related | |||||||||||
| Accrued gaming and related | |||||||||||
| Construction payables and equipment purchase accruals | |||||||||||
| Operating lease liabilities, current portion | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
6. Long-term Debt
Long-term debt consisted of the following indebtedness of Station LLC (amounts in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Term Loan B Facility due February 7, 2027, interest at a margin above LIBOR or base rate ( | $ | $ | |||||||||
Term Loan A Facility due February 7, 2025, interest at a margin above LIBOR or base rate ( | |||||||||||
Revolving Credit Facility due February 7, 2025, interest at a margin above LIBOR or base rate (4.62% at September 30, 2022) | |||||||||||
Other long-term debt, weighted-average interest of | |||||||||||
Total long-term debt | |||||||||||
Current portion of long-term debt | ( | ( | |||||||||
Total long-term debt, net | $ | $ | |||||||||
Credit Facility
Station LLC’s credit facility consists of the Term Loan B Facility, the Term Loan A Facility and the Revolving Credit Facility (collectively, the “Credit Facility”). The Term Loan B Facility bears interest at a rate per annum, at Station LLC’s option, equal to either LIBOR plus 2.25 % or base rate plus 1.25 %. The Term Loan A Facility and Revolving Credit Facility bear interest at a rate per annum, at Station LLC’s option, equal to either LIBOR plus an amount ranging from 1.50 % to 1.75 % or base rate plus an amount ranging from 0.50 % to 0.75 %, depending on Station LLC’s consolidated total leverage ratio. The Credit Facility contains a number of customary covenants, including requirements that Station LLC maintain throughout the term of the Credit Facility and measured as of the end of each quarter, an interest coverage ratio of not less than 2.50 to 1.00 and a maximum consolidated total leverage ratio, with step-downs over the term of the Credit Facility, ranging from 6.00 to 1.00 at September 30, 2022 to 5.25 to 1.00 at December 31, 2023 and thereafter. A breach of the financial ratio covenants shall only become an event of default under the Term Loan B Facility if the lenders within the Term Loan A Facility and the Revolving Credit Facility take certain affirmative actions after the occurrence of a default of such financial ratio covenants. Management believes the Company was in compliance with all applicable covenants at September 30, 2022.
Revolving Credit Facility
At September 30, 2022, Station LLC’s borrowing availability under the Revolving Credit Facility, subject to continued compliance with the terms of the Credit Facility, was $962.2 million, which was net of $39.5 million in outstanding borrowings and $29.4 million in outstanding letters of credit and similar obligations.
Fair Value of Long-term Debt
The estimated fair value of Station LLC’s long-term debt compared with its carrying amount is presented below (amounts in millions):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Aggregate fair value | $ | $ | |||||||||
| Aggregate carrying amount | |||||||||||
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
7. Stockholders’ Equity
Net Income Attributable to Red Rock Resorts, Inc. and Transfers from (to) Noncontrolling Interests
The table below presents the effect on Red Rock Resorts, Inc. stockholders’ equity from net income and transfers from (to) noncontrolling interests (amounts in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income attributable to Red Rock Resorts, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Transfers from (to) noncontrolling interests: | |||||||||||||||||||||||
| Exchanges of noncontrolling interests | |||||||||||||||||||||||
| Rebalancing of ownership percentage between the Company and noncontrolling interests in Station Holdco | ( | ||||||||||||||||||||||
| Net transfers from (to) noncontrolling interests | ( | ||||||||||||||||||||||
| Change from net income attributable to Red Rock Resorts, Inc. and net transfers from noncontrolling interests | $ | $ | $ | $ | |||||||||||||||||||
Dividends
During the three and nine months ended September 30, 2022, the Company declared and paid cash dividends of $0.25 and $0.75 per share of Class A common stock, respectively. No dividends were paid during the three and nine months ended September 30, 2021. On October 27, 2022, the Company announced that it would pay a dividend of $0.25 per share to Class A shareholders of record as of December 15, 2022 to be paid on December 30, 2022. Prior to the payment of the dividend, Station Holdco will make a cash distribution to all LLC Unit holders, including the Company, of $0.25 per LLC Unit, a portion of which will be paid to the other unit holders of Station Holdco.
Equity Repurchase Program
8. Share-based Compensation
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The following table presents information about the Company’s share-based compensation awards:
| Restricted Class A Common Stock | Stock Options | ||||||||||||||||||||||
| Shares | Weighted-average grant date fair value | Shares | Weighted-average exercise price | ||||||||||||||||||||
| Outstanding at January 1, 2022 | $ | $ | |||||||||||||||||||||
| Activity during the period: | |||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Vested/exercised (a) | ( | ( | |||||||||||||||||||||
| Forfeited/expired | ( | ( | |||||||||||||||||||||
| Outstanding at September 30, 2022 | $ | $ | |||||||||||||||||||||
_______________________________________________________________
(a)Stock options exercised included 190,114 options that were not converted into shares due to net share settlements to cover the aggregate exercise price and employee withholding taxes.
The Company recognized share-based compensation expense of $4.7 million and $12.8 million for the three and nine months ended September 30, 2022, respectively, and $3.3 million and $9.4 million for the three and nine months ended September 30, 2021, respectively. At September 30, 2022, unrecognized share-based compensation cost was $44.9 million, which is expected to be recognized over a weighted-average period of 3.0 years.
9. Income Taxes
Red Rock is a corporation and pays corporate federal, state and local taxes on its income, primarily pass-through income from Station Holdco based upon Red Rock’s economic interest held in Station Holdco. Station Holdco is a partnership for income tax reporting purposes. Station Holdco’s members, including the Company, are liable for federal, state and local income taxes based on their respective share of Station Holdco’s pass-through taxable income.
The Company’s effective tax rate for the three and nine months ended September 30, 2022 was 11.0 % and 12.9 %, respectively, as compared to 0.3 % and 0.7 % for the three and nine months ended September 30, 2021, respectively. The Company’s effective tax rate for the three and nine months ended September 30, 2022 differs from the 21 % statutory rate primarily due to valuation allowances recorded against a portion of its outside basis difference of its interest in Station Holdco and because its effective tax rate includes a rate benefit attributable to the fact that Station Holdco operates as a limited liability company, which is not subject to federal income tax. Accordingly, the Company is not taxed on the portion of Station Holdco’s income attributable to noncontrolling interests.
As a result of the Company’s 2016 initial public offering (“IPO”) and certain reorganization transactions, the Company recorded a net deferred tax asset resulting from the outside basis difference of its interest in Station Holdco. The Company also recorded a deferred tax asset for its liability related to payments to be made pursuant to the tax receivable agreement (“TRA”) representing 85 % of the tax savings the Company expects to realize from the amortization deductions associated with the step-up in the basis of depreciable assets under Section 754 of the Internal Revenue Code. This deferred tax asset will be recovered as cash payments are made to the TRA participants. In addition, the Company has recorded deferred tax assets related to net operating losses.
The Company considers both positive and negative evidence when measuring the need for a valuation allowance. A valuation allowance is not required to the extent that, in management’s judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that the Company’s deferred tax assets will be realized. The Company determined that the deferred tax asset related to the LLC Units issued in the IPO and reorganization transactions is not expected to be realized unless the Company disposes of its investment in Station Holdco. As such, the Company
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
established a valuation allowance against this portion of its deferred tax asset. The Company recognizes changes to the valuation allowance through the provision for income tax or other comprehensive income, as applicable.
Tax Receivable Agreement
In connection with the IPO, the Company entered into the TRA with certain owners who held LLC Units prior to the IPO. In the event that such parties exchange any or all of their LLC Units for Class A common stock or cash, at the election of the Company, the TRA requires the Company to make payments to such holders for 85 % of the tax benefits realized by the Company as a result of such exchange. The Company expects to realize these tax benefits based on current projections of taxable income. The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits.
At September 30, 2022 and December 31, 2021, the Company’s liability under the TRA was $27.2 9.0 0.6 million, which was recorded through stockholders’ equity. No LLC Units were exchanged during the three and nine months ended September 30, 2022 or the three months ended September 30, 2021. The Company expects to pay $6.7 million of the TRA liability within the next twelve months.
The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The payment obligations under the TRA are Red Rock’s obligations and are not obligations of Station Holdco or Station LLC. Payments are generally due within a specified period of time following the filing of the Company’s annual tax return and interest on such payments will accrue from the original due date (without extensions) of the income tax return until the date paid. Payments not made within the required period after the filing of the income tax return generally accrue interest at a rate of LIBOR plus 5.00 %.
The TRA will remain in effect until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA. The TRA will also terminate if the Company breaches its obligations under the TRA or upon certain mergers, asset sales or other forms of business combinations, or other changes of control. If the Company exercises its right to terminate the TRA, or if the TRA is terminated early in accordance with its terms, the Company’s payment obligations would be accelerated based upon certain assumptions, including the assumption that the Company would have sufficient future taxable income to utilize such tax benefits, and may substantially exceed the actual benefits, if any, the Company realizes in respect of the tax attributes subject to the TRA.
10. Earnings Per Share
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
A reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share is presented below (amounts in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Less: net income attributable to noncontrolling interests | ( | ( | ( | ( | |||||||||||||||||||
| Net income attributable to Red Rock, basic | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Net income attributable to Red Rock, diluted | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Weighted average shares of Class A common stock outstanding, basic | |||||||||||||||||||||||
Effect of dilutive securities | |||||||||||||||||||||||
| Weighted average shares of Class A common stock outstanding, diluted | |||||||||||||||||||||||
The calculation of diluted earnings per share of Class A common stock excluded the following potentially dilutive securities that were outstanding at September 30, 2022 and 2021, respectively, because their inclusion would have been antidilutive (amounts in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Shares of Class B common stock and LLC Units exchangeable for Class A common stock | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Unvested restricted shares of Class A common stock | |||||||||||||||||||||||
Shares of Class B common stock are not entitled to share in the earnings of the Company and are not participating securities. Accordingly, earnings per share of Class B common stock under the two-class method has not been presented.
11. Commitments and Contingencies
12. Segments
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RED ROCK RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
The Company utilizes Adjusted EBITDA as its primary performance measure. The Company’s segment information and a reconciliation of net income to Adjusted EBITDA are presented below (amounts in thousands).
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenues | |||||||||||||||||||||||
| Las Vegas operations: | |||||||||||||||||||||||
| Casino | $ | $ | $ | $ | |||||||||||||||||||
| Food and beverage | |||||||||||||||||||||||
| Room | |||||||||||||||||||||||
| Other (a) | |||||||||||||||||||||||
| Management fees | |||||||||||||||||||||||
| Las Vegas operations net revenues | |||||||||||||||||||||||
| Native American management: | |||||||||||||||||||||||
| Management fees | |||||||||||||||||||||||
| Reportable segment net revenues | |||||||||||||||||||||||
| Corporate and other | |||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Share-based compensation | |||||||||||||||||||||||
| Write-downs and other, net | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Loss on extinguishment of debt | |||||||||||||||||||||||
| Provision for income tax | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Adjusted EBITDA (b) | $ | $ | $ | $ | |||||||||||||||||||
| Adjusted EBITDA (c) | |||||||||||||||||||||||
| Las Vegas operations | $ | $ | $ | $ | |||||||||||||||||||
| Native American management | ( | ( | |||||||||||||||||||||
| Reportable segment Adjusted EBITDA | |||||||||||||||||||||||
| Corporate and other | ( | ( | ( | ( | |||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | $ | |||||||||||||||||||
_______________________________________________________________
(a)Includes tenant lease revenue of $5.4 million and $15.5 million for the three and nine months ended September 30, 2022, respectively, and $4.7 million and $11.4 million for the three and nine months ended September 30, 2021, respectively. Revenue from tenant leases is accounted for under the lease accounting guidance and included in Other revenues in the Company’s Condensed Consolidated Statements of Income and Comprehensive Income.
(b)Adjusted EBITDA includes net income plus depreciation and amortization, share-based compensation, write-downs and other, net (including gains and losses on asset disposals, demolition costs, severance, preopening, business innovation and technology enhancements, contract termination costs and non-routine items), asset impairment, interest expense, net, loss on extinguishment of debt, provision for income tax and other, which includes losses from assets held for sale.
(c)In the third quarter of 2022, management changed its methodology for allocating corporate expenses to the Company’s reportable segments. Under the new methodology, only corporate costs that are primarily related to the Company’s operating properties are allocated to the properties. The new methodology was applied to all periods presented. For the three and nine months ended September 30, 2021, expenses of $3.7 million and $9.9 million , respectively, were reclassified from the Las Vegas Operations segment to Corporate and other to conform with the current year presentation. The reclassifications had no impact on Adjusted EBITDA.
21
Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations of Red Rock Resorts, Inc. (“we,” “our,” “us,” “Red Rock” or the “Company”) should be read in conjunction with our condensed consolidated financial statements and related notes (the “Condensed Consolidated Financial Statements”) included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Overview
Red Rock was formed as a Delaware corporation in 2015 to own an indirect equity interest in and manage Station Casinos LLC (“Station LLC”), a Nevada limited liability company. Station LLC is a gaming, development and management company established in 1976 that owns and operates six major gaming and entertainment facilities and nine smaller casino properties (three of which are 50% owned) in the Las Vegas regional market. In June 2022, we decided to permanently close our Texas Station, Fiesta Henderson and Fiesta Rancho properties, which had been closed since March 2020 as a result of the COVID-19 pandemic. The facilities at these properties are being demolished to reposition the land for sale. In addition, we permanently closed Wild Wild West in September 2022. We are currently constructing Durango, a new casino resort on our approximately 50-acre development site at the intersection of Durango Drive and Interstate 215 in the southwest Las Vegas valley, which is expected to open in the fall of 2023. Through February 5, 2021, a subsidiary of Station LLC also managed Graton Resort in northern California on behalf of a Native American tribe.
We own all of the outstanding voting interests in Station LLC and have an indirect equity interest in Station LLC through our ownership of limited liability company interests in Station Holdco LLC (“Station Holdco,” and such interests, “LLC Units”), which owns all of the economic interests in Station LLC. At September 30, 2022, we held 57% of the economic interests and 100% of the voting power in Station Holdco, subject to certain limited exceptions, and we are designated as the sole managing member of both Station Holdco and Station LLC. We control and operate all of the business and affairs of Station Holdco and Station LLC, and conduct all of our operations through these entities. Our only material assets are our ownership interests in Station LLC and Station Holdco, other than tax-related assets and liabilities.
Our Condensed Consolidated Financial Statements reflect the consolidation of Station LLC and its consolidated subsidiaries, and Station Holdco. The financial position and results of operations attributable to LLC Units we do not own are reported separately as noncontrolling interest.
Our principal source of revenue and operating income is gaming, and our non-gaming offerings include restaurants, hotels and other entertainment amenities. Approximately 80% to 85% of our casino revenue is generated from slot play. The majority of our revenue is cash-based and as a result, fluctuations in our revenues have a direct impact on our cash flows from operations. Because our business is capital intensive, we rely heavily on the ability of our properties to generate operating cash flow to repay debt financing and fund capital expenditures.
A significant portion of our business is dependent upon customers who live and/or work in the Las Vegas metropolitan area. In September 2022, the unemployment rate in the Las Vegas metropolitan area decreased to 5.3% as compared to 5.7% in June 2022 and 34% in April 2020. Statewide, the unemployment rate for September 2022 decreased to 4.4% as compared to 4.7% in June 2022 and 30% in April 2020. In September 2022, the median price of an existing single-family home in Las Vegas according to the Las Vegas Realtors® was $450,000, down 6.25% as compared to June 2022. In light of uncertainty in the economic outlook stemming from rising inflation, higher interest rates and increased energy costs, we cannot predict whether the recovery in unemployment and the downward trend in housing prices in the Las Vegas area will continue.
The COVID-19 pandemic and its related variants have had, and may continue to have, a detrimental impact on the United States and Las Vegas economies. We have taken steps to mitigate these and potential future effects of COVID-19 and its related variants on our results of operations through a combination of streamlining our business, optimizing our marketing initiatives and reducing expenses.
Subsequent to the reopening of most of our properties in June 2020, we have seen favorable customer trends that continued in the third quarter of 2022, including consistent visitation from our guests and strong spend per visit. These trends, in combination with our operational discipline and our focus on our core customers, as well as regional and out of town guests, continue to drive consistent operating results in 2022. However, we cannot predict whether these trends will continue, nor can
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we predict the extent to which the impacts of inflation, increased energy costs and interest rates and the COVID-19 pandemic and its related variants on the United States and Las Vegas economies may affect our business in the future.
Information about our results of operations is included herein and in the notes to our Condensed Consolidated Financial Statements.
Key Performance Indicators
We use certain key indicators to measure our performance.
Gaming revenue measures:
•Slot handle, table game drop and race and sports write are measures of volume. Slot handle represents the dollar amount wagered in slot machines, and table game drop represents the total amount of cash and net markers issued that are deposited in table game drop boxes.
•Win represents the amount of wagers retained by us.
•Hold represents win as a percentage of slot handle or table game drop.
As our customers are primarily Las Vegas residents, our hold percentages are generally consistent from period to period. Fluctuations in our casino revenue are primarily due to the volume and spending levels of customers at our properties.
Food and beverage revenue measures:
•Average guest check is a measure of food sales volume and product offerings at our restaurants, and represents the average amount spent per customer visit.
•Number of guests served is an indicator of volume.
Room revenue measures:
•Occupancy is calculated by dividing occupied rooms, including complimentary rooms, by rooms available.
•Average daily rate (“ADR”) is calculated by dividing room revenue, which includes the retail value of complimentary rooms, by rooms occupied, including complimentary rooms.
•Revenue per available room is calculated by dividing room revenue by rooms available.
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Results of Operations
Information about our results of operations is presented below (amounts in thousands):
| Three Months Ended September 30, | Percent change | Nine Months Ended September 30, | Percent change | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Net revenues | $ | 414,439 | $ | 414,769 | (0.1) | % | $ | 1,238,316 | $ | 1,195,545 | 3.6 | % | |||||||||||||||||||||||
| Operating income | 140,700 | 142,895 | (1.5) | % | 339,738 | 240,258 | 41.4 | % | |||||||||||||||||||||||||||
| Casino revenues | 282,386 | 288,983 | (2.3) | % | 842,793 | 853,133 | (1.2) | % | |||||||||||||||||||||||||||
| Casino expenses | 69,697 | 70,985 | (1.8) | % | 208,309 | 204,501 | 1.9 | % | |||||||||||||||||||||||||||
| Margin | 75.3 | % | 75.4 | % | 75.3 | % | 76.0 | % | |||||||||||||||||||||||||||
| Food and beverage revenues | 69,799 | 64,794 | 7.7 | % | 209,254 | 176,551 | 18.5 | % | |||||||||||||||||||||||||||
| Food and beverage expenses | 55,309 | 51,908 | 6.6 | % | 166,371 | 141,844 | 17.3 | % | |||||||||||||||||||||||||||
| Margin | 20.8 | % | 19.9 | % | 20.5 | % | 19.7 | % | |||||||||||||||||||||||||||
| Room revenues | 39,062 | 39,519 | (1.2) | % | 120,117 | 100,613 | 19.4 | % | |||||||||||||||||||||||||||
| Room expenses | 13,031 | 15,122 | (13.8) | % | 38,806 | 40,863 | (5.0) | % | |||||||||||||||||||||||||||
| Margin | 66.6 | % | 61.7 | % | 67.7 | % | 59.4 | % | |||||||||||||||||||||||||||
| Other revenues | 22,989 | 21,070 | 9.1 | % | 65,492 | 56,267 | 16.4 | % | |||||||||||||||||||||||||||
| Other expenses | 8,455 | 6,769 | 24.9 | % | 23,617 | 18,102 | 30.5 | % | |||||||||||||||||||||||||||
| Management fee revenue | 203 | 403 | n/m | 660 | 8,981 | n/m | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 91,570 | 92,602 | (1.1) | % | 268,059 | 255,602 | 4.9 | % | |||||||||||||||||||||||||||
| Percent of net revenues | 22.1 | % | 22.3 | % | 21.6 | % | 21.4 | % | |||||||||||||||||||||||||||
| Depreciation and amortization | 30,789 | 34,025 | (9.5) | % | 97,311 | 124,440 | (21.8) | % | |||||||||||||||||||||||||||
| Write-downs and other, net | 3,862 | 463 | n/m | 16,087 | 2,158 | n/m | |||||||||||||||||||||||||||||
| Asset impairment | 1,026 | — | n/m | 80,018 | 167,777 | n/m | |||||||||||||||||||||||||||||
| Interest expense, net | 34,287 | 25,311 | 35.5 | % | 89,709 | 78,192 | 14.7 | % | |||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | n/m | — | 8,140 | n/m | |||||||||||||||||||||||||||||
| Provision for income tax | 11,783 | 354 | n/m | 32,572 | 1,152 | n/m | |||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 45,844 | 46,688 | (1.8) | % | 106,433 | 61,539 | 73.0 | % | |||||||||||||||||||||||||||
| Net income attributable to Red Rock | 49,608 | 71,248 | (30.4) | % | 113,702 | 93,184 | 22.0 | % | |||||||||||||||||||||||||||
_______________________________________________________________
n/m = Not meaningful
We view each of our Las Vegas casino properties as an individual operating segment. We aggregate all of our Las Vegas operating segments into one reportable segment because all of our Las Vegas properties offer similar products, cater to the same customer base, have the same regulatory and tax structure, share the same marketing programs, are directed by a centralized management structure and have similar economic characteristics. We also aggregate our Native American management arrangements into one reportable segment. The results of operations for our Native American management segment are discussed in the section entitled “Management Fee Revenue” below and the results of our Las Vegas operations are discussed in the remaining sections below.
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Net Revenues. Net revenues for the three months ended September 30, 2022 were $414.4 million as compared to $414.8 million for the prior year period. Casino revenue decreased by 2.3% and room revenue decreased by 1.2%, which was offset by increases of 7.7% and 9.1% in food and beverage and other revenues, respectively, all as compared to the prior year period. On a same-store basis, excluding the impact of our closed properties, for the three months ended September 30, 2022, we produced the highest third quarter net revenues in the Company’s history. For the nine months ended September 30, 2022, net revenues were $1.24 billion, an increase of 3.6% compared to $1.20 billion for the prior year period, and we achieved year over year growth of 18.5%, 19.4% and 16.4% in food and beverage, room and other revenues, respectively, while casino revenue decreased by 1.2%.
Operating Income. For the three months ended September 30, 2022, our operating income was $140.7 million compared to $142.9 million for the prior year period. For the nine months ended September 30, 2022, our operating income was $339.7 million as compared $240.3 million for the prior year period. For the nine months ended September 30, 2022 and September 30, 2021, operating income included the impact of impairment charges of $80.0 million and $167.8 million, respectively. For the nine months ended September 30, 2022, the impairment charges were related primarily to the permanent closure of our Texas Station, Fiesta Rancho and Fiesta Henderson properties in June 2022, which had remained closed since the beginning of the COVID-19 pandemic in March 2020. For the prior year period, the impairment charge was related to Palms Casino Resort (“Palms”), which was sold in December 2021. Additional information about factors impacting our operating income is included below.
Casino. Casino revenue for the three and nine months ended September 30, 2022 decreased by 2.3% and 1.2%, respectively, as compared to the prior year periods. Our casino revenues for the comparable periods in 2021 were at record levels due to strong customer demand as we continued to recover from the negative effects of the COVID-19 pandemic. For the three months ended September 30, 2022, slot handle decreased by 3.4%, table games drop decreased by 2.8% and race and sports write decreased by 8.0% as compared to the prior year period. Casino expense decreased by 1.8% for the three months ended September 30, 2022 as compared to the prior year period, commensurate with the decrease in revenue. For the nine months ended September 30, 2022, slot handle decreased by 1.1%, table games drop increased by 3.2% and race and sports write increased by 11.0% as compared to the prior year period. Casino expense for the nine months ended September 30, 2022 increased by 1.9% as compared to the prior year period, primarily due to higher employee-related costs.
Food and Beverage. Food and beverage includes revenue and expenses from our restaurants, bars and catering. For the three and nine months ended September 30, 2022, food and beverage revenue increased by 7.7% and 18.5%, respectively, driven by growth across all categories of our food and beverage operations. For the three and nine months ended September 30, 2022, the average guest check at our restaurants increased by 17.7% and 21.0%, respectively, while the number of restaurant guests served decreased by 11.6% and 5.6%, respectively, as compared to the prior year periods. For the three and nine months ended September 30, 2022, food and beverage expense increased by 6.6% and 17.3%, respectively, primarily due to higher employee-related costs and costs of sales.
Room. For the three and nine months ended September 30, 2022, room revenue decreased by 1.2% and increased by 19.4%, respectively, and room expense decreased by 13.8% and 5.0%, respectively, as compared to the prior year periods. The results for the prior year periods included room revenues of $3.3 million and $9.7 million, respectively, from the condominium rental program at Palms, which we sold in December 2021.
Information about our hotel operations is presented below:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Occupancy | 84.3 | % | 81.1 | % | 82.2 | % | 74.5 | % | |||||||||||||||
| Average daily rate | $ | 169.97 | $ | 153.61 | $ | 174.19 | $ | 143.27 | |||||||||||||||
| Revenue per available room | $ | 143.27 | $ | 124.50 | $ | 143.15 | $ | 106.66 | |||||||||||||||
For the three and nine months ended September 30, 2022, our ADR increased by 10.7% and 21.6%, respectively, our revenue per available room improved by 15.1% and 34.2%, respectively, and our occupancy rate increased by 3.2 and 7.7 percentage points, respectively, all as compared to the prior year periods.
Other. Other primarily represents revenues from tenant leases, retail outlets, bowling, spa, and entertainment, and their corresponding expenses. For the three and nine months ended September 30, 2022, other revenues increased by 9.1% and 16.4%, respectively, primarily driven by spa, bowling and leased outlets. Other expenses increased by 24.9% and 30.5%,
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respectively, as compared to the prior year periods, due to higher employee-related costs, cost of sales and entertainment expenses.
Management Fee Revenue. For the three and nine months ended September 30, 2022, management fees represented fees earned from the management of our joint ventures. For the nine months ended September 30, 2021, management fees primarily represented fees earned from our agreement with a Native American tribe to manage Graton Resort, which we ceased to manage on February 5, 2021.
Selling, General and Administrative (“SG&A”). For the three and nine months ended September 30, 2022, SG&A expenses decreased by 1.1% and increased by 4.9%, respectively, as compared to the prior year periods. As a percentage of net revenue, SG&A expenses for the three and nine months ended September 30, 2022 were effectively flat as compared to the prior year periods as we continued to focus on operational efficiencies and cost control.
Depreciation and Amortization. For the three and nine months ended September 30, 2022, depreciation and amortization expense decreased by 9.5% and 21.8%, respectively, as compared to the prior year periods. For the three months ended September 30, 2022, the decrease in depreciation expense was due primarily to the permanent closure of Texas Station, Fiesta Rancho and Fiesta Henderson in June 2022. For the nine months ended September 30, 2022, depreciation expense decreased as compared to the prior year period mainly due to the sale of Palms in 2021.
Write-downs and Other, net. Write-downs and other, net includes gains and losses on asset disposals, demolition and other costs associated with our three permanently closed properties, severance, preopening related to Durango, business innovation and technology enhancements, contract termination costs and non-routine items. For the three and nine months ended September 30, 2022, write-downs and other, net were $3.9 million and $16.1 million, respectively, as compared to $0.5 million and $2.2 million, respectively, for the prior year periods.
Asset Impairment. For the three months ended September 30, 2022, we closed the Wild Wild West property and recognized an asset impairment charge of $1.0 million. For the nine months ended September 30, 2022, we also recognized asset impairment charges totaling $79.0 million, primarily to write off the facilities and certain related assets at Texas Station, Fiesta Rancho and Fiesta Henderson, which we decided to permanently close and demolish in June 2022. For the nine months ended September 30, 2021, we recorded an asset impairment charge of $167.8 million to reduce the carrying amount of Palms to its estimated fair value less cost to sell as a result of entering into a purchase agreement to sell the property at a price less than its carrying amount. The sale was completed in December 2021.
Interest Expense, net. Interest expense, net increased to $34.3 million and $89.7 million for the three and nine months ended September 30, 2022, respectively, as compared to $25.3 million and $78.2 million, respectively, for the same periods in 2021. The increase in interest expense was primarily due to higher variable interest rates applicable to our credit facility for the current year periods. We expect that the interest rates on our credit facility may continue to increase in response to macroeconomic conditions. Additional information about long-term debt is included in Note 6 to the Condensed Consolidated Financial Statements.
Loss on Extinguishment of Debt. For the nine months ended September 30, 2021, we recognized a loss of $8.1 million as a result of the partial redemption of the 5.00% Senior Notes. The remaining principal amount of these notes was redeemed in the fourth quarter of 2021.
Provision for Income Tax. For the three and nine months ended September 30, 2022, we recognized a provision for income tax of $11.8 million and $32.6 million, respectively. Station Holdco is treated as a partnership for income tax reporting purposes and Station Holdco’s members are liable for federal, state and local income taxes based on their share of Station Holdco’s taxable income. We are not liable for income tax on the noncontrolling interests’ share of Station Holdco’s taxable income or benefit from a taxable loss, and therefore our effective tax rates of 11.0% and 12.9% for the three and nine months ended September 30, 2022, respectively, were less than the statutory rate. We recognized income tax expense of $0.4 million and $1.2 million for the three and nine months ended September 30, 2021, respectively. For the prior year periods, we maintained a valuation allowance on our entire deferred tax asset as a result of the economic downturn and uncertainty caused by the COVID-19 pandemic; therefore, we did not record income tax expense on the majority of pretax income for those periods.
Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests for the three and nine months ended September 30, 2022 and 2021 represented the portion of net income attributable to the ownership interest in Station Holdco not held by us.
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Adjusted EBITDA
Adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021 for our two reportable segments and a reconciliation of net income to Adjusted EBITDA are presented below (amounts in thousands). The Las Vegas operations segment includes all of our Las Vegas casino properties and the Native American management segment includes our Native American management arrangements.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenues | |||||||||||||||||||||||
Las Vegas operations | $ | 411,560 | $ | 412,694 | $ | 1,231,401 | $ | 1,181,921 | |||||||||||||||
Native American management | — | 205 | — | 8,292 | |||||||||||||||||||
| Reportable segment net revenues | 411,560 | 412,899 | 1,231,401 | 1,190,213 | |||||||||||||||||||
| Corporate and other | 2,879 | 1,870 | 6,915 | 5,332 | |||||||||||||||||||
| Net revenues | $ | 414,439 | $ | 414,769 | $ | 1,238,316 | $ | 1,195,545 | |||||||||||||||
| Net income | $ | 95,452 | $ | 117,936 | $ | 220,135 | $ | 154,723 | |||||||||||||||
| Adjustments | |||||||||||||||||||||||
| Depreciation and amortization | 30,789 | 34,025 | 97,311 | 124,440 | |||||||||||||||||||
| Share-based compensation | 4,662 | 3,325 | 12,799 | 9,439 | |||||||||||||||||||
| Write-downs and other, net | 3,862 | 463 | 16,087 | 2,158 | |||||||||||||||||||
| Asset impairment | 1,026 | — | 80,018 | 167,777 | |||||||||||||||||||
| Interest expense, net | 34,287 | 25,311 | 89,709 | 78,192 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | 8,140 | |||||||||||||||||||
| Provision for income tax | 11,783 | 354 | 32,572 | 1,152 | |||||||||||||||||||
| Other | — | 3,109 | 846 | 5,308 | |||||||||||||||||||
| Adjusted EBITDA | $ | 181,861 | $ | 184,523 | $ | 549,477 | $ | 551,329 | |||||||||||||||
| Adjusted EBITDA | |||||||||||||||||||||||
| Las Vegas operations | $ | 199,920 | $ | 201,652 | $ | 605,985 | $ | 591,098 | |||||||||||||||
| Native American management | (120) | 205 | (3,568) | 7,809 | |||||||||||||||||||
| Corporate and other | (17,939) | (17,334) | (52,940) | (47,578) | |||||||||||||||||||
| Adjusted EBITDA | $ | 181,861 | $ | 184,523 | $ | 549,477 | $ | 551,329 | |||||||||||||||
The year-over-year changes in Adjusted EBITDA were due to the factors described within Results of Operations above.
Adjusted EBITDA is a non-GAAP measure that is presented solely as a supplemental disclosure. We believe that Adjusted EBITDA is a widely used measure of operating performance in our industry and is a principal basis for valuation of gaming companies. We believe that in addition to net income, Adjusted EBITDA is a useful financial performance measurement for assessing our operating performance because it provides information about the performance of our ongoing core operations. Adjusted EBITDA includes net income plus depreciation and amortization, share-based compensation, write-downs and other, net (including gains and losses on asset disposals, demolition costs, severance, preopening, business innovation and technology enhancements, contract termination costs and non-routine items), asset impairment, interest expense, net, loss on extinguishment of debt, provision for income tax and other, which includes losses from assets held for sale.
To evaluate Adjusted EBITDA and the trends it depicts, the components should be considered. Each of these components can significantly affect our results of operations and should be considered in evaluating our operating performance, and the impact of these components cannot be determined from Adjusted EBITDA. Further, Adjusted EBITDA does not represent net income or cash flows from operating, investing or financing activities as defined by GAAP and should not be considered as an alternative to net income as an indicator of our operating performance. Additionally, Adjusted EBITDA does not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity. It should be noted that not all gaming companies that report EBITDA or adjustments to this measure may calculate EBITDA or such adjustments in the same manner as we do, and therefore, our measure of Adjusted EBITDA may not be comparable to similarly titled measures used by other gaming companies.
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In the third quarter of 2022, we changed our methodology for allocating corporate expenses to our reportable segments. Under the new methodology, only corporate costs that are primarily related to our operating properties are allocated to the properties. The new methodology was applied to all periods presented. For the three and nine months ended September 30, 2021, expenses of $3.7 million and $9.9 million, respectively, were reclassified from the Las Vegas Operations segment to Corporate and other to conform with the current year presentation, and the reclassifications had no impact on Adjusted EBITDA.
Holding Company Financial Information
The indentures governing the 4.50% Senior Notes and the 4.625% Senior Notes contain certain covenants that require Station LLC to furnish to the holders of the notes certain annual and quarterly financial information relating to Station LLC and its subsidiaries. The obligation to furnish such information may be satisfied by providing consolidated financial information of the Company along with additional disclosure explaining the differences between such information and the financial information of Station LLC and its subsidiaries on a standalone basis. The following financial information about the Company and its consolidated subsidiaries, exclusive of Station LLC and its subsidiaries (the “Holding Company”), is furnished to explain the differences between the financial information of the Holding Company and the financial information of Station LLC and its subsidiaries for the periods presented in this report. The primary differences between the financial information of the Holding Company and that of Station LLC relate to income taxes of the Holding Company and the liability relating to the tax receivable agreement (“TRA”).
At September 30, 2022, the difference between the balance sheet for Station LLC and its consolidated subsidiaries and the balance sheet for the Holding Company is that the Holding Company had cash of $2.7 million and $95.3 million of deferred tax assets, net, which are solely assets of the Holding Company, and liabilities that are solely the Holding Company’s, consisting of a $27.2 million liability under the TRA, of which $6.7 million is expected to be paid in the next twelve months, income tax payable of $3.0 million, and $2.8 million of other liabilities. At December 31, 2021, the Holding Company had cash of $3.3 million, $98.6 million of deferred tax assets, net, a $27.2 million noncurrent liability under the TRA and $1.4 million of other net current liabilities.
The Holding Company recognized net losses of $11.8 million and $32.6 million for the three and nine months ended September 30, 2022, respectively, and $0.3 million and $1.2 million for the three and nine months ended September 30, 2021, respectively, representing provision for income taxes.
Liquidity and Capital Resources
The following liquidity and capital resources discussion contains certain forward-looking statements with respect to our business, financial condition, results of operations, dispositions, acquisitions, investments and subsidiaries, which involve risks and uncertainties that cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied herein. Such risks and uncertainties include, but are not limited to, the risks described in Item 1A—Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021.
At September 30, 2022, we had $101.1 million in cash and cash equivalents. Station LLC maintains its borrowing availability under its revolving credit facility, subject to continued compliance with the terms of the credit facility. At September 30, 2022, Station LLC’s borrowing availability under the revolving credit facility was $962.2 million, which was net of $39.5 million in outstanding borrowings and $29.4 million in outstanding letters of credit and similar obligations.
Our primary capital requirements for the near term are expected to be related to the operation and maintenance of our properties, debt service payments and construction costs for Durango. Our anticipated uses of cash for the remainder of 2022 include (i) approximately $140 million to $200 million for capital expenditures, including the development of Durango, (ii) required principal and interest payments on Station LLC’s indebtedness totaling $6.5 million and $35.4 million, respectively, (iii) dividends to our Class A common stockholders, including approximately $14.5 million to be paid in December 2022, and (iv) distributions to noncontrolling interest holders of Station Holdco, including “tax distributions” that may be made quarterly when required and in amounts that may vary from quarter to quarter. We also expect to pay approximately $55.0 million for the purchase of development land at Losee Road and Interstate 215 in North Las Vegas. Other payment obligations include salaries, wages and employee benefits, service contracts, property taxes, insurance and other obligations.
On August 4, 2022, our board of directors increased the authorization for repurchases of Class A common stock under our equity repurchase program to $600 million and extended the authorization through June 30, 2024. We are not obligated to repurchase any shares under the program. Subject to applicable laws and the provisions of any agreements restricting our ability to do so, repurchases may be made at our discretion from time to time through open market purchases, negotiated transactions
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or tender offers, depending on market conditions and other factors. During the nine months ended September 30, 2022, we repurchased approximately 3.7 million shares of our Class A common stock in open market transactions at a weighted-average price of $38.06 per share. At September 30, 2022, we had $312.9 million of remaining repurchases authorized under the program. From time to time, we may also seek to repurchase our outstanding indebtedness. Any such purchases may be funded by existing cash balances or the incurrence of debt, including borrowings under our credit facility. The amount and timing of any repurchases will be based on business and market conditions, capital availability, compliance with debt covenants and other considerations.
We expect that cash on hand, cash generated from operations and borrowings available under the credit facility will be sufficient to fund our operations and capital requirements and service our outstanding indebtedness for the next twelve months. We regularly assess our projected capital requirements for capital expenditures, repayment of debt obligations, and payment of other general corporate and operational needs. In the long term, we expect that we will fund our capital requirements with a combination of cash generated from operations, borrowings under the credit facility and the issuance of debt or equity as market conditions may permit. However, our cash flow and ability to obtain debt or equity financing on terms that are satisfactory to us, or at all, may be affected by a variety of factors, including competition, general economic and business conditions and financial markets. As a result, we cannot provide any assurance that we will generate sufficient income and liquidity to meet all of our liquidity requirements or other obligations.
Following is a summary of our cash flow information (amounts in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 417,451 | $ | 476,823 | |||||||
| Investing activities | (369,867) | (58,104) | |||||||||
| Financing activities | (253,743) | (449,633) | |||||||||
Cash Flows from Operations
Our operating cash flows primarily consist of operating income or loss generated by our properties (excluding depreciation and other non-cash charges), interest and income tax payments, and changes in working capital accounts such as inventories, prepaid expenses, receivables and payables. The majority of our revenue is generated from our slot machine and table game play, which is conducted primarily on a cash basis. Our food and beverage, room and other revenues are also primarily cash-based. As a result, fluctuations in our revenues have a direct impact on our cash flow from operations.
For the nine months ended September 30, 2022, net cash provided by operating activities was $417.5 million as compared to $476.8 million for the prior year period. Cash flows from operating activities for the nine months ended September 30, 2022 included $84.7 million in interest payments and $25.2 million cash paid for income taxes, as compared to $78.4 million and $2.5 million, respectively, for the prior year period. Information about our operating activities is presented within Results of Operations above.
Cash Flows from Investing Activities
For the nine months ended September 30, 2022 and 2021, cash paid for capital expenditures totaled $198.6 million and $34.9 million, respectively. Capital expenditures for the current year included amounts related to the Durango project. In addition, we paid $172.4 million in July 2022 to purchase approximately 126 acres of development land in Las Vegas.
Cash Flows from Financing Activities
During the nine months ended September 30, 2022, we paid $44.7 million in dividends to Class A common stockholders and $85.3 million in cash distributions to the noncontrolling interest holders of Station Holdco. We also paid $141.5 million to repurchase 3.7 million shares of our Class A common stock pursuant to our equity repurchase program.
During the nine months ended September 30, 2021, we redeemed $250.0 million in outstanding principal amount of Station LLC’s 5.00% Senior Notes and paid a redemption premium of $6.3 million. In addition, during the nine months ended September 30, 2021, we paid $124.0 million to repurchase 3.1 million shares of our Class A common stock pursuant to our equity repurchase program and we paid cash tax distributions of $49.1 million to noncontrolling interest holders of Station Holdco.
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Restrictive Covenants
The agreements governing our credit facility and the indentures governing our senior notes impose significant operating and financial restrictions on us, including certain limitations on our and our subsidiaries’ ability to, among other things, obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements. In addition, our credit agreement contains certain financial covenants, including maintenance of a minimum interest coverage ratio and adherence to a maximum total leverage ratio. During the nine months ended September 30, 2022, there were no changes made to the covenants included in the credit facility or the indentures governing the senior notes as described in Financial Condition, Capital Resources and Liquidity in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. We believe that as of September 30, 2022, Station LLC was in compliance with the covenants contained in the credit facility and the indentures governing the senior notes.
As a result of these covenants and restrictions, we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to provide liquidity if changes in the economy, discretionary spending, consumer confidence or other external factors negatively affect our business. In addition, such covenants and restrictions may limit our ability to compete effectively or to take advantage of new business opportunities. Further, our ability to comply with covenants and restrictions contained in the agreements governing our indebtedness may be adversely affected by general economic conditions and industry conditions resulting from the COVID-19 pandemic.
Failure to satisfy the covenants contained in the credit agreements, indentures or other agreements governing our indebtedness would require us to seek waivers or amendments of such covenants. There can be no assurance that we would be able to obtain required waivers or amendments, as such matters depend, in part, on factors outside of our control. If we fail to satisfy our covenants and are unable to obtain such waivers or amendments, our creditors could exercise remedies under the applicable documents governing such indebtedness, including acceleration of such indebtedness.
Off-Balance Sheet Arrangements
At September 30, 2022, we had no variable interests in unconsolidated entities that provide off-balance sheet financing, liquidity, market risk or credit risk support, or that engage in leasing, hedging or research and development arrangements with us, nor did we have retained or contingent interests in assets transferred to an unconsolidated entity. At September 30, 2022, we had outstanding letters of credit and similar obligations totaling $29.4 million.
Inflation
Our business is experiencing the impact of increased inflationary pressure. Commodity prices have increased and become more volatile, and we are experiencing price inflation in ordinary goods and services such as food costs, supplies, energy costs and construction costs. In addition, we have been impacted by a shortage of qualified workers which places additional upward pressure on wages and benefit costs as we seek to attract and retain qualified workers. We attempt to minimize the impact of inflation on our business by implementing cost controls, adjusting prices and optimizing our procurement strategy.
Native American Development
We have development and management agreements with the North Fork Rancheria of Mono Indians, a federally recognized Native American tribe located near Fresno, California, pursuant to which we will assist the tribe in developing, financing and operating a gaming and entertainment facility to be located on Highway 99 north of the city of Madera, California. See Note 4 to the Condensed Consolidated Financial Statements for information about this project.
Regulation and Taxes
We are subject to extensive regulation by Nevada gaming authorities as well as the National Indian Gaming Commission and the California Gambling Control Commission. In addition, we will be subject to regulation, which may or may not be similar to that in Nevada, by any other jurisdiction in which we may conduct gaming activities in the future.
The gaming industry represents a significant source of tax revenue, particularly to the State of Nevada and its counties and municipalities. From time to time, various state and federal legislators and officials have proposed changes in tax law, or in the administration of such law, affecting the gaming industry. The Nevada legislature meets every two years for 120 days and when special sessions are called by the Governor. The most recent special legislative session ended on November 16, 2021. There are currently no specific legislative proposals to increase taxes on gaming revenue, but there are no assurances that an increase in taxes on gaming or other revenue will not be proposed and passed by the Nevada legislature in the future.
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Description of Certain Indebtedness
A description of our indebtedness is included in Note 7 to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 and Note 6 to the Condensed Consolidated Financial Statements. There were no material changes to the terms of our indebtedness during the nine months ended September 30, 2022.
Critical Accounting Policies and Estimates
A description of our critical accounting policies and estimates is included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2022.
Forward-looking Statements
The outbreak of COVID-19 resulted in the closure of all of our casino properties and all other casino properties located in Nevada from March 17, 2020 through June 3, 2020. We reopened the majority of our properties on June 4, 2020, but certain of our properties will remain closed permanently. Although restrictions on operations to implement social distancing and other health and safety protocols were progressively lifted through June 1, 2021, and a rule added in late July 2021 requiring all employees and guests to wear face coverings while indoors in public spaces was lifted on February 10, 2022, there is no guarantee that additional measures will not be re-implemented in the future. The outbreak of COVID-19 and measures to reduce its spread have caused, and may continue to cause, widespread unemployment and significant disruptions in the United States economy generally and the Las Vegas economy in particular, which could adversely impact our business.
When used in this report and elsewhere by management from time to time, the words “may,” “might,” “could,” “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements with respect to our financial condition, results of operations and our business including our expansions, development and acquisition projects, legal proceedings and employee matters. Certain important factors, including but not limited to, financial market risks, could cause our actual results to differ materially from those expressed in our forward-looking statements. Potential factors which could affect our financial condition, results of operations and business include, without limitation, the impact of the COVID-19 pandemic, rising inflation, higher interest rates and increased energy costs on consumer demand and our business, financial results and liquidity; the impact of our substantial indebtedness; the effects of local and national economic, credit and capital market conditions on consumer spending and the economy in general, and on the gaming and hotel industries in particular; the effects of competition, including locations of competitors and operating and market competition; changes in laws, including increased tax rates, regulations or accounting standards, third-party relations and approvals, and decisions of courts, regulators and governmental bodies; risks associated with construction projects, including disruption of our operations, shortages of materials or labor, unexpected costs, unforeseen permitting or regulatory issues and weather; litigation outcomes and judicial actions, including gaming legislative action, referenda and taxation; acts of war or terrorist incidents, natural disasters or civil unrest; risks associated with the collection and retention of data about our customers, employees, suppliers and business partners; and other risks described in our filings with the Securities and Exchange Commission. All forward-looking statements are based on our current expectations and projections about future events. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date thereof. We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date hereof.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our long-term debt. There have been no material changes in our market risks from those disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 4. Controls and Procedures
The Company’s management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2022. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the principal executive officer and principal financial officer concluded that,
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as of September 30, 2022, the Company’s disclosure controls and procedures were effective, at the reasonable assurance level, and are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are defendants in various lawsuits relating to routine matters incidental to their business. No assurance can be provided as to the outcome of such matters and litigation inherently involves significant risks.
Item 1A. Risk Factors
There have been no material changes in the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table presents our Class A share purchases for the three months ended September 30, 2022. All of our Class A share repurchases during the periods presented were made in open market transactions pursuant to our publicly announced equity repurchase program. The Class A shares were retired upon repurchase.
| For the Month Ended | Total Number of Shares Purchased | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of a Publicly Announced Program (2) | Approximate Dollar Value That May Yet Be Purchased Under the Program (2) | |||||||||||||||||||
| July 31, 2022 | — | $ | — | — | $ | 31,920,833 | |||||||||||||||||
| August 31, 2022 | — | — | — | 331,920,833 | |||||||||||||||||||
| September 30, 2022 | 495,754 | 38.31 | 495,754 | 312,920,169 | |||||||||||||||||||
| Totals | 495,754 | 38.31 | 495,754 | ||||||||||||||||||||
_______________________________________________________________
(1) Excludes commissions.
(2) On August 4, 2022, our board of directors increased the authorization for repurchases of Class A common stock under our equity repurchase program by $300 million, resulting in total repurchase authorization of $600 million, and extended the repurchase authorization through June 30, 2024. The remaining amount authorized for repurchases under the program was $312.9 million at September 30, 2022.
Item 3. Defaults Upon Senior Securities—None.
Item 4. Mine Safety Disclosures—None.
Item 5. Other Information—None.
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Item 6. Exhibits
(a)Exhibits
No. 101.INS—XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
No. 101.SCH—XBRL Taxonomy Extension Schema Document
No. 101.CAL—XBRL Taxonomy Extension Calculation Linkbase Document
No. 101.DEF—XBRL Taxonomy Extension Definition Linkbase Document
No. 101.LAB—XBRL Taxonomy Extension Label Linkbase Document
No. 101.PRE—XBRL Taxonomy Extension Presentation Linkbase Document
No. 104—Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RED ROCK RESORTS, INC., Registrant | ||||||||
| Date: | November 7, 2022 | /s/ STEPHEN L. COOTEY | ||||||
Stephen L. Cootey Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||||||
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