Q3 2024 Red Rock Resorts Inc Earnings Call

In This Article:

Participants

Stephen Cootey; Chief Financial Officer, Executive Vice President, Treasurer; Red Rock Resorts Inc

Scott Kreeger; President; Red Rock Resorts Inc

Lorenzo Fertitta; Vice Chairman of the Board; Red Rock Resorts Inc

Joseph Greff; Analyst; JPMorgan Chase & Co

Carlo Santarelli; Analyst; Deutsche Bank AG

Steven Wieczynski; Analyst; Stifel, Nicolaus & Company, Incorporated

David Katz; Analyst; Jefferies

Stephen Grambling; Analyst; Morgan Stanley

Barry Jonas; Analyst; Truist Securities, Inc.

Brandt Montour; Analyst; Barclays Bank

John DeCree; Analyst; CBRE Securities

Presentation

Operator

Good afternoon and welcome to Red Rock Resorts third quarter 2024 conference call. (Operator Instructions) 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.

Stephen Cootey

Thank you, operator, and good afternoon, everyone. Thank you for joining us today on Red Rock Resorts third quarter 2024 earnings conference call. Joining me on the call today are Frank Fertitta, and Lorenzo Fertitta, Scott Krieger, and our executive management team.
I would 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 also discussed nongaap 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.
Let us start off by stating that the third quarter represented another strong quarter for the company by any measure. In terms of net revenue and adjusted EBITDA, our Las Vegas operations had their best third quarter in our history while offering at near record adjusted EBITDA margin in the quarter. In addition to showing strong financial results in the quarter, we continue to be pleased with the financial performance of our Durango Casino Resort.
Durango continues to grow the Las Vegas locals market as the team continues to execute and improve the property's operational performance, while at the same time, driving incremental play from our existing customers and attracting new customers to our brand.
With three full quarters under our belt, the property increased visitation and net theoretical wind in the surrounding Durango area by approximately 91% and 92% respectively while signing up over 70,000 new customers to our database. Durango continues to ramp up and remains on track to become one of our highest margin properties as well as generate a return of approximately 15% net of cannibalization through its first year of operation.
Cannibalization remains in line with our expectations and its impact is primarily felt at our Red Rock property. Consistent with our past performance history, we expect to backfill this revenue over the next couple of years, given the strong long term demographic growth profile of Las Vegas Valley. And in particular within the Sunland area which between downtown Summerlin and the Sunland West communities, we expect to have approximately 34,000 new households upon final buildout.
As stated on our last earnings call, we are planning to move forward with the expansion of our Durango property later this year. Our current plans for the next phase of Durango will add over 25,000 square feet of additional casino space including a new high limit slot and bar area. In total, the expansion will add 230 slot machines to the Durango Casino floor, including 120 slot machines dedicated to our new high limit room.
In addition to the expanding casino space, we will be adding an additional covered parking garage with almost 2,000 convenient parking spots, significantly improving customer access to the property while providing us flexibility for future expansions at Durango. The current budget for the project is approximately $116 million and the expansion is expected to take around 12 months to complete. We are expecting some disruption to the south side of the property during the construction period.
Regarding the rest of the portfolio, we remain operationally disciplined within the quarter and continue to execute on our core strategy of reinvesting in our existing properties to deliver fresh and relevant amenities to our guests, all while remaining focused on best-in-class customer service. As we return to a more traditional seasonal pattern, the company continues to manage our expenses, generate record financial performance, maintain near record margins, reinvest in our properties and return capital to our shareholders in the quarter.
Now let us take a closer look at our third quarter. With respect to our Las Vegas operations, our third quarter net revenues was $464.7 million up 13.9% from the prior year's third quarter. Our adjusted EBITDA was $202.6 million up 5.8% from the prior year's third quarter. Our adjusted EBITDA margin was 43.6%, a decrease of 333 basis points from the prior year's third quarter.
On a consolidated basis, our third quarter net revenue was $468 million up 13.7% from the prior year's third quarter. Our adjusted EBITDA was $182.7 million up 4.3% from the prior year's third quarter. Our adjusted EBITDA margin was 39% for the quarter, a decrease of 353 basis points from the prior year's third quarter.
In the quarter, we generated operating free cash flow of $46.4 million or $0.44 per share. This brings our year-to-date cumulative free cash flow to $292.6 million or $2.70 per share. This significant level of year-to-date free cash flow was either reinvested or a long-term growth strategy, reinvested into our existing properties or returned to our stakeholders via debt pay down, share repurchases, and dividends.
As we finish the third quarter, we remain focused on our core local guests as we continue to grow our regional national segments across our portfolio. When comparing our results to last year's third quarter, we continue to see strong visitation and carded slot play across the majority of our database including our regional and national segments.
This strength coupled with a strong spend per visit across the majority of our database allowed us to enjoy near record revenue and profitability across our gaming segments in the quarter. Turning to non gaming segments, both our hotel and food and beverage continue to grow year over year and deliver record revenue and profitability in the third quarter.
Our hotel division experienced its highest third quarter revenue and profit in our history driven by the team's success and continued to drive higher ADR while maintaining occupancy across our hotel portfolio. Not to be outdone, our food and beverage division also experienced its highest ever third quarter revenue and near record profit driven by higher average check and cover counts across our food and beverage outlets.
With regard to our group sales and catering business. As mentioned on our last earnings call, we face a tough third quarter comparable and expect to face tough comparables for the remainder of the year. As we look forward to the fourth quarter of them playing unlucky in sports in October and the previously discussed softness in our group sales and catering business lines, we are seeing strength and stability in our core slot and table business in the locals market and across our car of database as we remain confident in our business prospects moving forward.
Now, let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the third quarter was $117.5 million, and the total principal amount of outstanding was $3.48 billion resulting in net debt of $3.35 billion. As at the end of the third quarter, the company's net debt to EBITDA ratio remained flat at 4.2 times.
Also, during the third quarter, we made a distribution of approximately $72.8 million to the LLC unit holders of Station Holdco, which included a distribution of approximately $42.4 million to Red Rock Resorts. The company used the distribution to make its required tax payment and pay its previously declared dividend of $0.25 per class A common share. Capital spend in the third quarter was $80.4 million, which includes approximately $47.4 million in investment capital, inclusive of Durango project retainage as well as $32.9 million in maintenance capital.
For the full year 2024, not including the spend to close out our Durango project, we now expect capital spend to be between $185 million and $195 million spread between maintenance and investment capital. We also remain committed to strategically investing and offering new amenities to our guests in order to drive incremental visitation and spend to our properties.
Last month, we successfully opened a yard house restaurant at Sunset Station. But we are in early days, we are pleased with the guest response and the early results from this new amenity. We expect to continue to invest in our existing properties throughout 2024, including adding local favorite, China Mama, at our power station property later this year.
In addition to these amenities, we expect to make investments in both our Sunset Station and Green Valley Ranch properties of 2025. At our Sunset Station property, we are building up the success we are seeing with our recently renovated race and sports book and partial casino remodel by continuing to refresh the podium in order to better position the property to capture the continued growth in Henderson, including the master plan communities of the sky and cadence, which are expected to add over 12,500 new households upon the final completion of both communities.
As part of this project, we'll be adding in an all new country western bar, a new Mexican restaurant, an all new center bar along with completely renovated casino space. Work has already commenced on this project and the total cost of the renovation is expected to be approximately $53 million.
At our Green Valley Ranch property, we're expecting to start a complete refresh of our room product. Aligning the hotel with our most recent renovations made to our well received high limit table and slot room rooms of the property. Work is expected to start in June of 2025 and will continue through November of 2025. The cost of the room renovation is expected to be approximately $150 million.
Like our other recently introduced amenities, we expect these to be solid investments are looking forward to moving beyond the disruption challenges of these properties as we introduce these new amenities to our customers next year.
Turning now to North Fork. We are extremely excited about this project, which is situated on a 305 acre site located North of Fresno, California. With great ingress egress off the heavily traveled highway 99, the project is in is one of the most convenient and accessible locations in central California with over 5.8 million people located within two hours of the development site.
When complete this best-in-class resort will include approximately 100,000 square feet of casino space with over 2,400 slot machines including 2,000 class three games, 42 table games and two food and beverage outlets, and a food court with many exciting options. We have started site work in construction as we continue to finalize design. The total construction time for the project is currently anticipated between 18 to 20 months, putting the opening of the resort into 2026.
The current cost of the project is expected to be approximately $785 million which includes all design costs, construction hard and soft costs, preopening expenses and any financing and development fees associated with the project. We are excited to be making progress and we'll continue to provide further updates on our quarterly earnings calls.
Lastly, the company's Board of Directors had declared a cash dividend of $0.25 per Class A common share payable on December 31 to Class A shareholders of record as of December 16, when we combine our share purchases with our special and regular dividends, as well as we have returned approximately $194.8 million to our shareholders in 2024.
The company continues to have a strong year, and Durango continues to validate our long term growth strategy and demonstrate the power of our own development pipeline and real estate bank which consists of over 450 acres of developable land positioned in highly favorable areas across the Las Vegas Valley.
This pipeline coupled with our current best in class assets and locations, gives us an unparalleled growth story that will allow us to double the size of our portfolio and capitalize on the very favorable long term demographic trends and the high barriers to entry that characterize the Las Vegas locals market.
We would like to recognize and extend our thanks to our team members for their hard work. Our success starts with them and they continue to be the primary reason why our guests return time after time. Thanks again for voting as top casino employer in the Las Vegas Valley for the fourth consecutive year as well as being certified by great place to work for a third year in a row. Finally, we thank our guests for their loyal support each of the last six decades operator.
This concludes our prepared remarks, and we are now ready to take questions.

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