Good afternoon, and welcome to Red Rock Resorts Q4 2021 Conference Call. All participants will be in a listen-only mode. Please note this conference is being recorded. I would now like to turn the conference over to Stephen Cootey, Executive Vice President, Chief Financial Officer, and Treasurer of Red Rock Resorts. Please go ahead.
Thank you operator, and good afternoon, everyone. Thank you for joining us today for Red Rock Resorts fourth quarter and full year 2021 earnings conference call. Joining me on the call today are Frank Fertitta and Lorenzo Fertitta, as well as our executive management team. I'd like to remind everyone that our call today will include forward-looking statements under the safe harbor provisions of the United States federal securities laws. Developments and results may differ from those projected. During this call, we will also discuss non-GAAP financial measures. For definitions and complete reconciliation of these figures to GAAP, please refer to the financial tables in our earnings press release, Form 8-K and investor deck, which were filed this afternoon prior to the call. Also, please note that this call is being recorded. Now, let's take a look at our fourth quarter and full year results.
On a consolidated basis, when excluding the management fees, our fourth quarter net revenue was $422.4 million, up 32.9% from $317.8 million in the prior year's fourth quarter. Our adjusted EBITDA was $189.7 million, up 50.8% from $125.7 million in the prior year's fourth quarter. Our adjusted EBITDA margin was 44.9% for the quarter, an increase of 535 basis points from the fourth quarter of 2020. With respect to our Las Vegas operations, excluding the impact from our four closed properties, our fourth quarter net revenue was $416.3 million, up 33.5% from $311.8 million in the prior year's fourth quarter.
Our adjusted EBITDA was $206.7 million, up 45.6% from $142 million in the prior year's fourth quarter. Our adjusted EBITDA margin was 49.7%, an increase of 412 basis points from the fourth quarter of 2020. On a same-store sales basis, we achieved the highest fourth quarter net revenue, adjusted EBITDA, and adjusted EBITDA margin in the history of our company. Let's now turn to our full-year performance. Please note that while we are comparing our 2021 full-year performance to our 2020 full-year performance, the 2020 results were severely impacted by the 79-day statewide shutdown of all non-essential businesses, including casinos in an effort to reduce the spread of COVID-19 and by the restrictions on our business which followed and continue through today.
On a consolidated basis, when excluding the management fees, our 2021 full year net revenue was $1.61 billion, up 46.2% from $1.1 billion in the prior year. Our 2021 full year adjusted EBITDA was $733.2 million, up 151.9% from $291 million in the prior year. Our adjusted EBITDA margin was 45.6% for the full year 2021, an increase of 1,912 basis points from the prior year. With respect to our Las Vegas operations, excluding the impact of our four closed properties, our full year 2021 net revenue was $1.58 billion, up 59% from $995.4 million in the prior year.
Our full-year 2021 adjusted EBITDA was $797.6 million, up 120.6% from $361.6 million in the prior year. Our full-year 2021 adjusted EBITDA margin was 50.4%, an increase of 1,407 basis points from the prior year. On the same store sales basis, we achieved the highest full-year net revenue, adjusted EBITDA, and adjusted EBITDA margin in the history of our company. During the quarter, we continued to prioritize free cash flow, converting 52% of our adjusted EBITDA to operating free cash flow, generating $96.8 million or $0.90 per share.
This brings our 2021 cumulative free cash flow generated by the company to $472 million or $4.39 per share, with virtually every dollar being returned to our stakeholders. Taking a look behind the numbers during the quarter, the government's mask mandate across the state of Nevada remained in place, and we definitely felt the effects of that and of increased inflationary pressure on ordinary goods and services. These factors were an offset to customary fourth quarter seasonality and resulted in quarter-over-quarter visitation reduction in visitation. Despite these factors, we experienced increased time on device as well as strong spend per visit across our entire portfolio. Consistent with our experience earlier in the pandemic, the mask mandate and the recent resurgence of the Omicron virus most notably impacted our older guest segment.
Despite these headwinds, we remain disciplined and focused on executing on our core strategy, which allowed us to generate record revenue and profitability with our gaming segments in the fourth quarter. Turning to our non-gaming segments, we saw continued growth in Food and Beverage and Hotel as both segments delivered their most profitable fourth quarter results ever. With regard to Group Sales and Catering business segments, these business lines continue to be slow to recover and felt the impact of the recent resurgence in the pandemic. At this point, while we are seeing our lead pipeline grow, business has been pushed to the back half of 2022 and into 2023.
Finally, as mentioned on our prior earnings calls, our financials are still carrying approximately $2.6 million of COVID-19 litigation costs for the quarter and approximately $2 million in carry costs associated with our closed properties for the quarter. On the expense side, we remain operationally disciplined and continue to look for ways to become more efficient while providing best-in-class wages and benefits to our team members and delivering best-in-class customer service to our guests. The company's actions taken over the past 7 quarters to streamline our business, optimize marketing initiatives, renegotiate a number of vendor and third-party agreements, have led to a significant transformation of the business, which resulted in same store revenue, which exceeds 2019 pre-pandemic levels, higher adjusted EBITDA margin and higher adjusted EBITDA and strong free cash flow conversion.
On a technology front with regard to cashless gaming, we have successfully completed our field trial with IGT at our Red Rock and Green Valley Ranch properties and have begun rolling out this product to our remaining properties. We expect to have cashless gaming up and running at all of our properties over the next two quarters. While the initial focus is introducing cashless payments on the slot floor, the eventual goal is to allow customers to play and pay from one mobile digital wallet across all of our amenities at each of our Las Vegas properties. There'll be more to come as we roll out this exciting product. Now let's cover a few balance sheet and capital items.
The company's cash and cash equivalents at the end of the fourth quarter was $275.3 million, and the total principal debt amount outstanding at quarter end was $2.89 billion. During the quarter, we further bolstered our balance sheet and increased our financial flexibility as we closed on our previously announced sale of the Palms Casino Resort and Palms Place for an aggregate purchase price of $650 million in cash, coupled with the issuance of a $500 million 4.58% senior note due in 2031. We also successfully returned capital to our shareholders through a modified Dutch auction tender offer as well as a payment of a special dividend during the quarter.
We continue to be focused on longer term growth opportunities and on continuing to return capital to our stakeholders. As noted above, the company commenced a modified Dutch auction tender offer in November 2021. Through the tender offer, we're able to purchase approximately 6.9 million Class A shares, representing approximately 10.1% of the Class A shares issued and outstanding, or 6.1% of the total number of shares outstanding, assuming the exchange of all shares of the company's Class B shares and limited liability interest in Station Holdco LLC. At a purchase price of $51.50 per share at an aggregate cost of approximately $354.6 million. Also in November 2021, the company announced that its board of directors had declared a special dividend of $3 per Class A share.
The special dividend was payable to shareholders of record on November 23, 2021 and paid on December 22, 2021. During the fourth quarter, we made distributions of approximately $124.3 million to the LLC unit holders of Station Holdco, which included a distribution of approximately $74 million to Red Rock Resorts. The company elected to use its distribution to pay for a portion of the modified Dutch tender, as well as purchase an additional 389,000 Class A shares at an average price of $49.94 per share under its previously disclosed $300 million share repurchase program.
When coupled with the modified Dutch tender, we purchased approximately 7.3 million Class A shares during the quarter at an average price of $51.42, reducing our share count at quarter end to approximately 107.4 million shares. When combined with our special dividend, we've returned approximately $703 million to our shareholders in the fourth quarter. Capital spend in the fourth quarter was $26.4 million and $61.3 million for the full year in 2021. For the full year 2022, we expect to spend between $75 million and $100 million in maintenance capital and an additional $300 million-$400 million in growth capital inclusive of our Durango project. Now let's provide a short update on the development pipeline.
Starting with our Durango development, we are extremely excited about this project, which is situated on a 71-acre parcel, ideally located off the 215 expressway in Durango Drive in the southwest Las Vegas Valley. The project is located within the fastest-growing area in the Las Vegas Valley with a very favorable demographic profile. The project site provides favorable ingress and egress off the 215 expressway, which handles over 166,000 vehicles per day, and is within a five minute drive to approximately 125,000 people. Further, there are no unrestricted gaming competitors within a 5 mi radius of the project site. In January, we received our permits to begin construction of this project, and we have since broken ground. Anticipated construction will take approximately 18-24 months.
When complete, the project will include over 73,000 sq ft of casino space with over 2,000 slot machines and 46 table games, over 200 hotel rooms and suite product, four full-service food and beverage outlets, a state-of-the-art experiential race and sportsbook, and a resort-style pool. As mentioned on our prior earnings call, we expect to spend approximately $750 million, which includes all design costs, construction, hard and soft costs, pre-open expenses, and any financing costs associated with the project. We have entered into a guaranteed maximum price contract for the early phases of this project, and with the expectation of approximately 70% of the total project cost being under GMP within the next couple quarters. The company expects the return profile of this project to be consistent with the past greenfield projects within our portfolio. Turning now to North Fork.
When we last spoke, we noted that the tribe has resolved favorably all its federal court litigation. Since then, the tribe has settled its California state court litigation with Stand Up for California, which leaves only one pending case in the California courts, and that is with the Picayune Rancheria. Although that litigation remains active, we do not believe any decision by the California state court could deprive North Fork of its ability to game on its federal trust land. As noted last quarter, we continue to progress with our efforts with respect to this very attractive project, including development and design and initial talks with prospective lending partners. We will continue to provide updates on our quarterly earnings call.
In conclusion, with the back half of the fourth quarter presenting some headwinds, our disciplined approach to running our business allowed the company to enjoy record high EBITDA and EBITDA margin and allowed the company to return approximately $703 million to our shareholders during the quarter. With our best-in-class assets and locations, unparalleled distribution scale, our own development pipeline of eight strategically located gaming properties. We believe that we are uniquely positioned to capitalize on the very favorable long-term demographic trends and high barriers to entry that characterize the Las Vegas locals market. Last, we would like to recognize and extend our thanks again to all of our team members for their hard work and their support with us and to our guests for their support throughout this pandemic.
Operator, this concludes our prepared remarks today, and we are now ready to take questions from participants on the call.
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Joe Greff with J.P. Morgan. Please go ahead.
Hi, Steve. Hi, Frank. Hi, Lorenzo. Question for you, we've been getting this a lot today. Last night, PayPal talked about seeing weakness in spend from their lower income, lower tier consumer. We've been fielding, you know, questions about that kind of segment in the casino segment. I know it's a different business and not in gaming. Can you talk about what you're seeing, maybe at that lower income, that lower price point consumer segment? Clearly, the fourth quarter results didn't reflect anything there. If you can share any kind of consumer trend change in what you've seen, you know, thus far in January and early February.
Hi, Joe. It's Frank. Look, when we look at our business pre-pandemic, we were very much in the mass market, heavy promo, you know, buffet market and all of these kind of things. As we came out of the pandemic, our focus. You know, we like all customers, but our focus has been on the higher end customer player development, and that's really where we've seen all of our goodness come from. When you look at these numbers through the fourth quarter, given the Omicron variant that hit us in December, the fact that we still have a mask mandate and we're able to grow revenues by 33% over the prior year, we're pretty happy with that.
Joe, to be honest, I think it's to add on to what Frank was saying, you know, from a long-term perspective, if we look beyond that quarter, just the long-term demographic profile of Las Vegas, we have more people moving to Las Vegas between 21 and 19. You know, household incomes with over $100,000 have grown, you know, approximately 19%. If we actually forecast that out through 2026, it's expected to grow on average at 8.6% CAGR. I think the player development that we're developing here and our focus now is in the right place.
Got it. I thought what was sort of interesting, Steve, was in the fourth quarter, you had casino revenues flat sequentially, but saw food and beverage room up sequentially, and yet that resulted in higher margins sequentially. Can you talk about what you're seeing, you know, outside of the casino floor in terms of spend, and any kind of expense pressure, as we head into the balance of 2022?
Definitely expense pressure, you know, in the restaurants and, you know, the food and beverage side. Along with those increased costs, we've been extremely diligent on looking for, you know, every opportunity that we have to, you know, keep our food costs in line and, you know, not be underwater in the restaurants. Whereas before we might be looking at, you know, price adjustments once or twice a year, we're literally looking at what we have to do to manage costs on a weekly basis.
Yeah, I think you mentioned the hotel for non-gaming segment. The fortunate thing is we price that every day, so you get to reprice the hotel every day. So from an inflation standpoint, you can sort of mitigate that. Exactly. Then we were able to offset. You know, we understand that the group business is gonna take a little bit, you know, longer to recover, but the team has done a great job yielding the hotel to a much more profitable gaming, you know, gaming customer, which has yielded about $28 million in incremental gaming revenue because of that yielding.
Great. That's all for me.
Okay.
Thanks, guys.
Yeah. Thank you.
The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, guys. Good afternoon. Steve, it seems as though if you just looked at, you know, simplistically, OpEx, second half is fairly stable. I think your implied OpEx in the fourth quarter for the Vegas locals business was up marginally. Do you feel like this is a level where it kind of plateaus and this is more or less the go-forward base, or are there other amenities that, you know, perhaps could drive that if it's inflation or just kind of new amenities that have revenue coming along with them from here?
I think from a new amenities perspective, I think we go back to, you know, the June of last year. We, you know, unlike, I think most of our competitors, we opened up all of our amenities with the exception of the buffet. So a lot of those fixed costs are already embedded in there. So now we're looking at any incremental volume should be an incremental positive to margin. You know, from an inflation perspective, I think, you know, and Joe kind of mentioned this, you know, we're experiencing the same tight labor market that everyone else is experiencing, so we're experiencing wage inflation just like everyone else. I think the team is doing an exceptional job managing that labor, managing the hours there. So that's why you know, we effectively from a payroll perspective are flat quarter-over-quarter.
We talked a little bit from, you know, in Joe's question about managing, you know, COGS and particularly in the food and beverage. The team has done a great job, strategically, challenging the menu pricing and raising prices where we can.
If you look at the amenities, as Steve mentioned, there's no additional amenities that we are going to reopen that aren't open yet. From a volume standpoint, food and beverage is very healthy. Bowling is very healthy. The only area that has not returned to pre-COVID-19 levels is movies. I think traffic is about 60% of what it was in 2019. I think that's-
Hotel as well.
Yeah, there's room in hotel. I think the theater obviously is driven a lot by just product, not having as much product being released, so.
Makes sense. Thank you, guys. I know this is kind of a tough one to answer, and seasonality has been something that's been fleeting during you know this the last two years. I believe historically, if you're just looking at kind of locals revenue, Q1 tends to be maybe 2%-3% stronger than Q4 over time. Steve, just given your comment about you know some of the stuff, obviously with the variant that's in the latter half of December, is that seasonality something that you expect to kind of return to more normalized ebbs and flows as we move into 2022?
I mean, again, well, we have no crystal ball, right? I think you touched on it. I mean, there's still the government restrictions are still in place. We still have, you know, the variant is still affecting some visitation. But yes, as that normalizes, we expect the return of seasonality to take hold. We expect our older demographic to come back, no different than they did in past cycles of the pandemic.
Great. Thank you, guys.
The next question comes from Shaun C. Kelley with Bank of America. Please go ahead.
Hey, good afternoon, everyone. Thanks for taking my question. You know, Steve, you brought up a couple of times, you know, just the mask mandate and that holding you back, and also the older demographic. I'm just wondering if you could go a little bit of a layer deeper, whether it's, you know, visitation down from kind of either pre-COVID levels or even from what you saw last quarter, or just kind of the broader behavior pattern, and just give us a sense of how much this is costing you right now? Because, I mean, again, the results being stable quarter-over-quarter is impressive in its own right.
Yeah. I think when you look at visitation, if you kind of dig down on visitation seasonality from Q3 to Q4, you actually expect, or we've seen, and if you look back in our prior 10, 15 years and excluding 2021, generally visitation is flat. What we saw is visitation down almost 6%. Again, it was a tale of
It was all at the end of December with the Omicron. I mean, our business really, you know, follows what that news cycle is. When people get scared, and this time, actually, people getting sick even on top of that, we would, you know, make outreach calls to visitations that we were missing. In the past, it used to be that people were scared to come out or they didn't wanna come out because they didn't have the vaccine yet or whatever. This time, basically, the response was, I have the Omicron variant, you know. I think that really did affect our business.
No, absolutely. Sean, to even go that next level, when you kind of look at when we refer to the older demographic, arguably almost three-quarters of those missing visits were of the older demographic. Why we're very comfortable with that is we saw this a year ago, and they returned when the restrictions came off and the news cycle and the virus faded.
This is Lorenzo. Getting some more little more detail on your visitation. I mean, one of the things that we're really happy about is that our younger demographic, 21-35, if you compare Q4 2021 to 2019, it's up over 60% from a visitation standpoint. We're continuing through the amenities that we have in the properties, our locations, where the growth in the valley is. We're getting our fair share of what we think is going forward is gonna be a very valuable demographic.
Thanks for that. Actually, Lorenzo, I think my follow-up is kind of right along that same line. You mentioned obviously the favorable, you know, let's call it housing and broader demographic trend of, I think, move-ins from, you know, other places. We know the benefits of low taxes and all the other advantages of being there. Could you just give us a sense of like, maybe when we look back on, you know, 2021 or whatever the right time frame is, you know, how many new customers have you either welcomed into the Boarding Pass program, or broadly, do you think you're seeing that are just people you haven't seen before? Because I think, you know, historically, this was a bit of a same store model, but that tailwind, you know, could be substantial.
Is there a way you could help us think about, you know, maybe magnitude for that in your own business?
Boarding Pass sign-ups are up in a pretty strong fashion. I think you know up around 50% year-over-year growth in Boarding Pass sign-ups. Very healthy rate. I think you know a good part of that is because of what we talked about. Steve had touched upon this. It's not just overall growth in Las Vegas Valley, which I'm sure everybody I mean that's pretty widely known. When you really dig down to the details, what excites us is when you look at the growth in the higher end demographics, whether it's 100,000 income and higher, or 150,000 income and higher, you know talking about 19%-20% growth and a 6% CAGR going out to 2030.
I mean, those are really gonna benefit our business if you're playing the long ball with us because of where our locations are out in Summerlin, Green Valley, all the growing areas of Las Vegas.
The development pipeline.
The development pipeline. I mean, we've got eight properties, eight undeveloped projects that. You know, obviously we've broken ground on Durango, and we're working on all the entitlements and actually starting to lay out plans and timelines for the balance of those properties.
Thank you very much.
The next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.
Hey, thanks for taking the questions. As that blip occurred, did you see any change in the promotional environment across the peer set? Or do you think as a whole, you know, the industry is just operating with less volatility, or are you seeing any kind of broader shift in promotions?
No. I think you're referring to the December blip. No, we did not see any increase or any irrational behavior from any of our competitors. In fact, from our perspective, you know, we're continuing to optimize and refine our marketing because, you know, we're pivoting to we have best-in-class assets, best-in-class locations, and the favorable Las Vegas demographic. That's what we're marketing.
Makes sense.
It really would make no sense to go and spend promotional dollars into a situation where people are home because they're sick. You know, I don't think you would be able to move the needle. We really didn't see any increase in promotional spend.
On the properties that are still closed, I guess, how are you thinking about the potential to either reopen those, and at what point or in what fashion could you ultimately even potentially monetize some of these assets?
Yeah. As long as we're, I mean, it's very similar answer we've given in past quarters. We're continuing to you know, evaluate the potential reopenings on a regular basis. We've I think we've made it clear that we're only gonna reopen these properties if we're confident we can deliver incremental value to the overall portfolio. I mean, fortunately, we've been able to capture about 94% of the database or the, or who we call missing guests from prior to the pandemic, and been able to channel them at great operating leverage to our existing six open properties. In terms of your second point of how we could monetize, I think we gotta cross the first bridge first before even evaluating that.
Got it. Maybe one other one just on Durango. The $750 million looks consistent with what you've discussed before, but you've also talked about higher inflation. What level of inflation are you generally anticipating in that build, and are there any mitigating factors if inflation ends up being higher or even lower?
We're early in the process. Obviously, as Lorenzo, we just broke ground. We're grading the property right now. We have locked in steel, so steel's been bought and was bought a while back. We've locked in concrete, you know, for things like the low rise, the parking garage,
and the tower. Site work has been locked in.
Site work is under GMP, so that's locked down. Eventually here in the near future, we expect to be up to 70% under GMP. We're already ordering things like kitchen equipment, and other things you wouldn't typically, you know, order and have POs out this far out from a project.
We're, you know, anticipating trying to mitigate any issues that there might be relative to supply chain or inflation. I'm sure we'll experience some things, but we're as of right now today, we're very confident in the number that we laid out, so.
The beautiful thing about a GMP contract, Stephen, is, I mean, if this is we're pushing the risk to the builder. The builder's smart. This is where we've got a best-in-class builder building Durango. He's definitely putting a contingency to help, you know, cope with any potential inflation or unforeseen circumstance that they're, you know, willing to face during the build of the project. But if there's any unforeseen risk that that person doesn't anticipate, that risk is on them.
Makes sense. Thanks so much.
The next question comes from Barry Jonas with Truist Securities. Please go ahead.
Thank you. I wanted to start on cashless. What kind of expectations or maybe aspirations do you have with cashless growing your spend per player on the gaming and non-gaming side? I guess with that, maybe talk about any impact you expect from Nevada approving remote registration. Thanks.
You know, on cashless, I think it's early days, right? We haven't really even begun our big marketing push as we wanted to wait until there's a seamless experience across our entire portfolio, so that our guests can experience the same cashless transaction and technology at Red Rock that they would at Sunset. We expect to do a larger push when we're, you know, completed with the rollout. In terms of the expectation, you know, we expect that this to be adapted well, particularly with the younger demographic. We expect it to accelerate you know, anytime you remove a friction from the gaming floor, that generally is good for the business and it accelerates gaming spend. I mean, I'll leave it at that.
In terms of the remote registration overall, I think that just should, again, you're removing friction from the business from a cashless perspective, and so you expect that to help our sign-ups.
Okay, great. Just as a follow-up, wanted to kind of ask about your excess land bank. Anything you're actively marketing or I guess, you know, could we see any sizable land sales this year?
Yeah. I mean, we have the eight developments aside, so we're looking at all of them and trying to determine which are strategic and, you know, which are, let's say, non-core. Our phones are always accepting inbound calls, which we get, you know, constantly, particularly given the scarcity of land in Las Vegas. So this portfolio is only getting much more valuable over time. You know, in Q4, we did close on our Mount Rose site, so we did sell the Mount Rose site for $32.6 million. Yeah, so that was, I think, a good end to that transaction. We look forward to more to come.
Yeah, sorry about that.
The next question comes from Daniel Politzer with Wells Fargo. Please go ahead.
Hey, good afternoon, everyone, and thanks for taking my questions. I just wanted to follow up on the commentary you gave on the additional development or parcels. I mean, can you kind of outline, you know, obviously after Durango, how you look at the relative attractiveness of some of those parcels and, you know, which ones you'd maybe look to develop sooner than later?
Yeah, I mean, we're still in the process of trying to figure out kind of what is going to be next on deck and certainly demographics and growth in the valley and traffic studies are going to play a role in that. I can tell you that we've started to work on plans and lay out the project that we have out in Inspirada in Green Valley. We think that's a very, very dynamic market, a ton of population growth, and the traffic out there is fantastic. We're also actively working on the Sky Canyon project, which is up near the Mount Charleston turnoff out there. Sky Canyon is one of the fastest-growing master plan developments in the United States. We've got a great location right off the freeway there.
We're actually working on pre-development up on our site up in Reno, which is across the street from the convention center. You know, we're tracking kind of what's happening up there in Northern Nevada market with the same dynamics, with a lot of people moving there, looking for, you know, a tax haven and just overall diversification of the economy and technology and all the good stuff happening up there. While we haven't, you know, we're not in a position to commit to exactly what's gonna be next. We spent a lot of time debating, you know, whether we, you know, which one we pull the trigger on next. I can tell you that, you know, the focus right now is getting Durango built and open right on the-
Being in a position.
Yeah, being in a position that right on the heels of opening that project, that we would be in a position to break ground and announce kind of what the next pipeline of deals are gonna be.
Got it. Just for my follow-up, Steve, on the corporate expense for the quarter, I think it was around $50 million. It ticked higher a little bit sequentially. Was there anything, you know, bonus accruals or any kind of one-time items in there? Is that a good run rate to use going forward?
Yeah, I mean, I still think $5 million-$5.1 million a month is a decent run rate. In Q4, you did see, you know, 2021 as a whole was a great year for the company, and we wanted to reward our team members. We did, you know, in Q4, we did up our bonus accrual for the year in order to pay our team members.
Got it. Thanks so much.
As a reminder, if you have a question, please press star then one to be joined into the queue. The next question comes from Chad Beynon with Macquarie. Please go ahead.
Hi, good afternoon. Thanks for taking my question, and congrats on the result. First, I wanted to start with just the margins. At these levels, how should we think about flow-through going forward, whether it's, you know, the older customer coming back on the gaming side or that non-gaming business, you know, starting to turn on a little bit more on the events and convention? Can you still generate, you know, 50% plus flow-throughs with revenues coming in, given where margins are at this rate? Thanks.
Yeah.
Yeah.
Incremental gaming revenue obviously is gonna flow at a very high margin as the older demographic starts to come back. You know, convention and banquet business for us historically has been, you know, at least at a 50%. We underwrite it at least at a 50% margin. Yeah, I mean, we certainly would expect to. I don't know, Steve, you wanna just kinda go through the quarters we've had over the last-
Yeah, since reopening.
Seven quarters.
Yeah, sure. I mean, I think we talked about this last quarter, but you know, we've been over the past seven quarters, you know, we've exceeded 45%. You know, as I mentioned during the remarks, we spent a lot of time on the operations side, really, and you know, just readjusting and readjust both the operations as well as the marketing programs. We think what we've done is transformational. Achieving these margins and flow-through, we think should be more the norm than the exception. I think the last seven quarters prove that. You know, to add one of the businesses that Lorenzo mentioned, the theater business, once the product gets better, will return.
You saw, you know, December was a, you know, because of Spider-Man, was a bang, you know, it was a good month for the theaters. We hope to have more of them to come. You know, normally we expect about 600,000 people per quarter because of theaters. It's a 100% margin business for us. Any of the incremental volume that they generate is also incremental positive to profit.
Great. Thanks. In 2022, even with the elevated CapEx for Durango holding the business flat, you'll still be able to generate some excess free cash flow. From a capital allocation standpoint, how should we think about what the best use of this cash is during the next year?
Well, I mean, from our perspective, we think the best use of cash is exactly what we're doing with investing in Durango. I mean, we don't really look at that like a traditional, like CapEx. I think there's a lot of companies out there that would love to be investing their money in a location like Durango. I mean, that's true investment capital. I think when you look at our, you know, our maintenance number, you know, it should be kind of in trend line with where we've been before.
75 to 100.
I mean, it just depends how you look at it. It's free cash flow. We got a lot of free cash flow. We just happen to be investing it in a project that we think we're gonna get a very high return on.
Right. It's got twice the adults per gaming position within a five-mile zone as Red Rock and Green Valley. We think it's a good use of capital.
When you think of Durango
Yeah, sorry. I guess my question is, during this phase, should we think about considerations for dividends or share repurchases or during, you know, 2022 when CapEx is a little elevated? Should we not assume that that's on the table?
I think you should assume everything's on the table. I mean, you know, as I mentioned in the remarks, we're gonna take a balanced approach to long-term growth opportunities as well as return of capital to shareholders. You saw what we did in 2021, which we think was extraordinary and probably the only gaming company to not raise debt, to not raise equity, and then return over $700 million to our shareholders, you know, kind of proves that out. The balance sheet at 3.5x net leverage at an average interest rate of 3.5% with no long-term maturities is positioned well for the board to consider both long-term growth opportunities and in a balanced approach to returning capital if they so chose.
We still have room left on our share repurchase program.
Yeah.
Thank you very much. Appreciate it.
This concludes our question and answer session. I would like to turn the conference back over to Stephen Cootey for any closing remarks.
Thank you everyone for joining the call, and we look forward to touching base in the next 90 days. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.