Red Rock Resorts Inc. (NASDAQ:RRR) Q4 2021 Earnings Conference Call February 2, 2022 4:30 PM ET
Stephen Cootey - EVP, CFO & Treasurer
Frank Fertitta - CEO
Lorenzo Fertitta - Vice Chairman
Conference Call Participants
Joe Greff - JPMorgan
Carlo Santarelli - Deutsche Bank
Shaun Kelley - Bank of America
Stephen Grambling - Goldman Sachs
Barry Jonas - Truist Securities
Dan Politzer - Wells Fargo
Chad Beynon - Macquarie
Good afternoon, and welcome to Red Rock Resorts Fourth Quarter 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 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 great 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 foreclosed 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 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, 2020 results were severely impacted by the 79-day statewide shutdown of all nonessential 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 great 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 foreclosed 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. And 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 within the quarter, the government's mask mandate across the State of Nevada remained in place. And we definitely felt the effects and -- 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 -- a reduction in visitation. Despite these factors, we experienced increased time on devices 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 nongaming segments. We saw continued growth in food and beverage and hotel as both segments delivered their most profitable fourth quarter results average. 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 back and pushed in 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 mitigation 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 prepandemic levels, higher adjusted EBITDA margin and higher adjusted EBITDA and strong free cash flow conversion.
On the 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 2 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 5/8% senior note due in 2031. We also successfully returned capital to our shareholders through a modified Dutch auction tender offer as well as the 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 were 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 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.
Also during the fourth quarter, we made distributions of approximately $124.3 million to the LLC unitholders 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 to $400 million in growth capital, inclusive of our Durango project.
Now let's provide a short update on our development pipeline. Starting with our Durango development, we are extremely excited about this project, which is situated on a 71-acre parcel, ideally located up 215 Expressway 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 as within 5-minute drive to approximately 125,000 people.
Further, there are no unrestricted gaming competitors in the 5-mile 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 to 24 months. When complete, the project will include over 73,000 square feet of casino space with over 2,000 slot machines and 46 table games, over 200 hotel room and suite product, 4 full-service food and beverage outlets, a state-of-the-art experience of racing sports book 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/soft costs, preopen expenses and any financing costs associated with the project. We have entered into a guarantee of 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 of 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, which stand up for California, which leaves only one pending case in the California courts. And that is with the [indiscernible] 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 8 strategically located gaming properties, we believe that we are uniquely positioned to capitalize on the very favorable long-term demographic trends with high barriers to entry that characterize the Las Vacas local market.
Lastly, 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.
[Operator Instructions] First question today comes from Joe Greff with JPMorgan. Please go ahead.
We've been getting this a lot today. Last night, PayPal talked about seeing weakness in spend from their lower-income, lower-tier consumer. And so we've been fielding questions about that kind of segment in the casino segment. And I know it's a different business and not in the gaming, but 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. And if you can share with any kind of consumer trend change in what you've seen thus far in January and early February?
Joe, it's Frank. Look, when we look at our business prepandemic, we were very much in the mass market, heavy promo buffet market and all these kind of things. And as we came out of the pandemic, our focus -- we like all customers, but our focus has been on the higher-end customer player development. And that's really where we see all of our goodness come from.
When you look at these numbers to be in the fourth quarter, given the Omicron variant that hit us in December, the fact that we still have a mask mandate, and we were able to grow revenues by 33% over the prior year, we're pretty happy with that.
And Joe, to be honest, I think to add on to what Frank was saying, 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 into Las Vegas. Between '21 and '19, household incomes with over $100,000 have grown approximately 19%.
And if we actually forecase that out through '26, it's expected to grow on average at a 6% CAGR. So I think the PD developments that we're developing here and our focus now is in the right place.
And 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 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 in the restaurants and the food and beverage side. But along with those increased costs, we've been extremely diligent on looking for every opportunity that we have to keep our food cost in line and not be underwater in the restaurants. Whereas before, we might be looking at price adjustments once or twice a year, we're literally looking at what we have to do to manage costs on a weekly basis.
Yes. I think you mentioned the hotel for nongaming 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.
And then we were able to offset -- we understand that the group business is going to take a little bit longer to recover, but the team has been a great -- done a great job yielding the hotel to a much more profitable gaming customer, which has yielded about $28 million of incremental gaming revenue because of that yielding.
The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.
Steve, it seems as though, if you just look at 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 perhaps could drive that if it's inflation or just kind of new amenities that could have revenue coming along with them from here?
I think from a new amenities perspective, if we go back to the June of last year, we -- 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 have already been embedded in there. So now we're looking at an incremental volume should be an incremental positive to margin.
From an inflation perspective, I think Joe kind of mentioned this. 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, manage that labor and managing the hours there. So that's why we effectively, from a payroll perspective, were flat quarter-over-quarter.
And then we talked a little bit from -- in Joe's question about managing COGS and particularly in the food and beverage. And the team has done a great job strategically challenging the menu pricing and raising prices where we can.
And if you look at the amenities, as Steve mentioned, there's no additional amenities that we're 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 levels is movies. And I think traffic is about 50% of what it was in 2019. And there's room in hotel, but I think the theatre obviously is driven a lot by just product not having as much product being released. So…
Makes sense. And then I know this is kind of a tough one to answer, and seasonality has been something that's been fleeting during the last 2 years. But I believe, historically, if you're just looking at kind of locals revenue, 1Q tends to be maybe 2%, 3% stronger than 4Q over time.
And Steve, just given your comment about some of the stuff, obviously, with the variance 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?
Again, we have no crystal ball, right? I think you touched on it. I mean, there's still -- the government restriction is still in place. We still have -- the variant is still affecting some visitation. But yes, as we -- 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 with pandemic.
The next question comes from Shaun Kelley with Bank of America. Please go ahead.
Steve, you brought up a couple of times the mask mandate and not holding you back and also the older demographic. I'm just wondering if you could you go a little bit of a layer deeper, whether it's 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-on-quarter is impressive in its own right.
Yes. I think when you look at visitation, if you kind of dig down on visitation, seasonality from Q3 to Q4, you actually expect what we've seen. If you look back in our prior 10, 15 years when excluding '21, generally, visitation is flat. And what we saw is visitation down almost 6%. And again, it was a tale of
It was all at the end of December with the Omicron. I mean, our business really follows what that new cycle is. And when people get scared, and this time, actually, people getting sick even on top of that, we would make our calls to visitations that we were missing.
And in the past, it used to be that people were scared to come out or they didn't want to come out because they didn't have the vaccine yet or whatever. And this time, basically, the response was, I have the Omicron variant. And so I think that really did affect our business.
Absolutely. And Shaun, to even go to 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. And why we're very comfortable with that is we saw this a year ago, and they returned when the restrictions came off and the new 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 to 35 if you compare Q4 '21 to '19, it's up over 60% from visitation standpoint. So we're continuing through the amenities that we're -- we have in the properties or locations where the growth in the valley is, we're getting our fair share of what we think going forward is going to be very valuable demographic. So.
Actually, Lorenzo, I think my follow-up is kind of right along that same line. So you mentioned obviously the favorable, let's call it, housing and demographic trend if I think move-ins from other places that we know the benefits of flow taxes and all the other advantages of being there.
Could you just give us a sense of like maybe when we look back on 2021 or whatever the right time frame is, how many new customers have you either welcomed into the Boarding Pass program? Or broadly, do you think you're seeing that or just people you haven't seen before? Because I think historically, this was a bit of a same-store model, but that tailwind could be substantial. Is there a way you could help us think about maybe magnitude for that in your own business?
Boarding Pass sign-ups are up in a pretty strong fashion. I think up around 50% year-over-year growth in Boarding Pass sign-ups. So very healthy rate.
And I think a good part of that is because of what we talked about just -- and 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.
But 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, $150,000 income and higher talking about 20%, 19%, 20% growth and a 6% CAGR going out to 2030. I mean, those are some -- those are really going to benefit our business. 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.
And the development pipeline.
And the development pipeline. And we've got 8 properties, 8 undeveloped projects that, obviously, we've broken ground on Durango. And we're working on all the entitlements and actually starting to lay out plans and time lines for the balance of those properties.
The next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.
As that blip occurred, did you see any change in the promotional environment across the peer center? Do you think as a whole, the industry is just operating with less volatility? Or are you seeing any kind of broader shift in promotions?
No. I think that blip, I think you're referring to the December blip. No, we did not see any increase or any irrational behavior from our competitors. And in fact, from our perspective, we're continuing to optimize and refine our marketing because our whole -- we're pivoting to, we have best-in-class assets, best-in-class locations and a favorable Las Vegas demographic. That's what we're marketing.
It really would make no sense to go and spend promotional dollars into a situation where people are at home because they're sick. I don't think you would be able to move the needle. But we really didn't see any increase in commercial spend.
And then 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?
Yes, as long as -- I mean, it's a very similar answer we've given in past quarters. We're continuing to evaluate the potential reopenings on a regular basis. And I think we've made it clear that we're only going to reopen these properties 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 fee or what we call missing guests from prior to the pandemic and been able to channel them at great operating leverage to our existing 6 open properties.
In terms of your second point of how we can monetize, I think we got to cross the first bridge first before we're evaluating that.
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 and inflation ends up being higher or even lower?
We're early in the process. Obviously -- it's Lorenzo. We just broke ground. We're grading the property right now. We have locked in steel. So steel has been bought, was bought a while back. We locked in concrete for things like the low rise and the parking garage.
And the tower.
And the tower.
And then you have site workers have been locked in.
Site workers 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 other things you wouldn't typically order and have POs out this far out from a project.
But we're 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 and today, we're very confident in the number that we laid out.
And the beautiful thing about a GMP contract, Stephen, I mean, if this is -- we're pushing the risk to the builder. So the builder is smart. We've got a best-in-class builder building Durango. He's definitely putting contingency to help cope with any potential inflation or unforeseen circumstance that they're willing to be going 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.
The next question comes from Barry Jonas with Truist Securities. Please go ahead.
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 nongaming side? And I guess with that, maybe talk about any impact you expect from Nevada approving remote registration.
On cash, I think it's early days, right? So 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 a guest can experience the same cashless transaction technology at Red Rock that they would at Sunset. So we expect to do a larger push when we're completed with the rollout.
In terms of the expectation, we expect this to be adapted well, particularly with the younger demographic. We expect it to accelerate. Any time you remove 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.
And then just as a follow-up, I want to kind of ask about your excess land bank. Anything you're actively marketing? Or I guess, could we see any sizable land sales this year?
Yes. I mean, we have the 8 development sites. So we're looking at all of them and trying to determine which are strategic and which are let's -- noncore. And our phones are always accepting inbound calls, which we get constantly, particularly given the scarcity of land in Las Vegas. So this portfolio is only getting much more valuable over time.
In Q4, we did close on our Mt. Rose site. So we did sell Mt. Rose site for $32.6 million. And so that was, I think, a good end of that transaction. We look forward to more to come.
The next question comes from Dan Politzer with Wells Fargo. Please go ahead.
I just wanted to follow up on the commentary you gave on the additional development for parcels. I mean can you kind of outline, obviously, after Durango, how you look at the relative attractiveness of some of those parcels and which ones you'd maybe look to develop sooner than later?
Yes. 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 Skye Canyon project, which is up near the Charleston turnoff out there. Skye Canyon is one of the fastest-growing master plan development in the United States. We've got a great location right off the freeway there.
We're actually working on predevelopment up on our site at Reno, which is across the street from the convention center. So 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 a tax haven and just overall diversification of the economy and technology and all the good stuff happening out there.
While we haven't -- we're not in a position to commit to exactly what's going to be next. We spend a lot of time debating whether we -- which one we pull the trigger on next. But I can tell you that the focus right now is getting Durango to open. And yes, being in a position that right on the heels of opening that project that we'd be in a position to break ground and announce kind of what the next pipeline of deals are going to be.
And then just for my follow-up, Steve, on the corporate expense for the quarter, I think it was around $15 million. It ticked higher a little bit sequentially. Was there anything, bonus accruals or any kind of onetime items in there? Is that a good run rate to use going forward?
Yes. I mean, I still think -- I think $5 million, $5.1 million a month is a decent run rate. But in Q4, you did see 2021 as a whole was a great year for the company, and we wanted to reward our team members. And so we did -- in Q4, we did up our bonus accrual for the year in order to pay our team members.
[Operator Instructions] The next question comes from Chad Beynon with Macquarie. Please go ahead.
Congrats on the results. First, I want to start with just the margins. At these levels, how should we think about flow through going forward, whether it's the older customer coming back on the gaming side or that nongaming business starting to turn on a little bit more on the events and convention. Can you still generate 50% plus flow-throughs with revenues coming in, given where margins are at this rate?
Incremental gaming revenue, obviously, is going to flow at a very high margin as the older demographic starts to come back. Convention and banquet business for us historically has been at least at a 50%. We underwrite it at least at a 50% margin. So yes, I mean, we certainly would expect -- I don't know, Steve, just kind of go through the quarters we've had over the last...
Yes, since reopening.
Yes. Sure. I mean, I think we talked about this last quarter, but we've been -- over the past 7 quarters, we've exceeded 45%. And so we -- and as I mentioned during the remarks, we spend a lot of time on the operations side just readjusting and readjust both with the operations as well as the marketing programs. And we think what we've done is transformational.
So achieving these margins and flow-through, we think, should be more of the norm than the exception. I think the last 7 quarters proved that. And then to add one of the businesses that Lorenzo mentioned, the theater business once the product gets better, will return. You saw December was -- because of Spiderman was a bank, was a good month for the theaters. We hope to have more of them to come.
Normally, we expect about 600,000 people per quarter because of theaters. It's a 100% margin business for us. And then any of the incremental volume that they generate is also incremental deposits to the product.
And then in '22, even with the elevated CapEx for Durango holding the business flat, you'll still be able to generate some excess free cash flow. So 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 maintenance number, it should be kind of in trend line with where we've been before.
75 to 100.
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 going to get a very high return on.
It's got twice the adults per gaming position within a 5-mile zone as Red Rock and Green Valley. So we think it's a good use of capital.
Yes. Sorry. I guess my question is, during this phase, should we think about considerations for dividends or share repurchases or during 2022 when CapEx is a little elevated, should we not assume that, that's on the table?
I think you should assume everything is on the table. I mean, as I mentioned in the remarks, we're going to take a balanced approach to longer-term growth opportunities as well as return to 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 kind of proves that out. The balance sheet at 3.5 times net leverage at an average interest rate of 3.5% with no long-term maturities is positioned well for the Board to consider both growth opportunities and in a balanced approach to returning capital if they so choose.
And we still have room left on our share repurchase program.
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.