Red Rock Resorts, Inc. (RRR) Earnings Call Transcript & Summary

Good afternoon, and welcome to Red Rock Resorts' Second Quarter 2026 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.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Red Rock Resorts Second Quarter 2026 Earnings Conference Call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Kreeger and 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 the call, we will also discuss non-GAAP financial measures. For definitions and complete reconciliation for 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. Before we begin discussing our second quarter results, I'd like to take a moment to recognize an important milestone for our company. On July 1, StationCasinos officially kicked off celebrating our 50th anniversary at Palace Station, the property where our story began. Throughout the summer, we are celebrating the history of our company, our incredible team members, our loyal customers and the Las Vegas community. As part of this celebration, we will incur approximately $8 million onetime anniversary and brand marketing expense, which will be reflected in our third quarter corporate expense. We view this as an investment in honoring our history, recognizing our team members, loyal customers and local community that have made our success possible. The celebration also marks the launch of our new brand campaign, "From Vegas, For Vegas, Always Vegas," reflecting our enduring commitment to the city we have proudly called home for the past 50 years and our confidence in the next chapter of our company's growth. Our second quarter results demonstrate the company we have built over the past 5 decades is as strong as it's ever been. Even against the strongest operating quarter in the company's history a year ago, our Las Vegas operations delivered the second highest second quarter net revenue and adjusted EBITDA in our history while maintaining near record adjusted EBITDA margin. These results demonstrate the strength, consistency and resilience of our operating model and our ability to deliver long-term shareholder value through strong operational performance and disciplined capital allocation. Our Durango property continued to perform exceptionally well despite ongoing construction impacts and has firmly established itself as a meaningful growth driver within the Las Vegas Locals market. The property's continued success reinforces our long-held understanding that investing in best-in-class integrated resorts can expand the market rather than simply redistribute existing demand. Equally important, our core properties continue to generate growth, further demonstrating the strength of our broader portfolio. Building on Durango's continued momentum, construction of the Durango North expansion is progressing well and remains on schedule to open in the second half of 2027. The continued strength of our existing property, together with the significant residential growth occurring in the Southwest Las Vegas reinforces our confidence in the expansion and its long-term growth prospects. Just as importantly, Durango continues to validate our approach to capital allocation, and we believe this expansion will further strengthen the property's competitive position, expand the Las Vegas locals market, gain market share and generate superior long-term shareholder value. Now let's take a look at our second quarter results. With respect to our Las Vegas operations, our second quarter net revenue was $503.2 million, down 2% from the prior year second quarter. Our adjusted EBITDA was $227.5 million, down 5% from the prior year second quarter. Our adjusted EBITDA margin was 45.2%, a decrease of 143 basis points from the prior year. On a consolidated basis, our second quarter net revenue, which includes $3.8 million from our North Fork project, was $510.3 million, down 3% from the prior year second quarter. Our adjusted EBITDA, which includes $2.8 million from our North Fork project, was $208 million, down 9.3% from the prior year second quarter. Our adjusted EBITDA margin was 40.8% for the quarter, a decrease of 281 basis points from the prior year. During the quarter, we converted 48% of our adjusted EBITDA to operating free cash flow, generating $100 million or $0.95 per share. Year-to-date, we have generated $206.7 million of operating free cash flow or $1.97 per share. This strong free cash generation continues to validate our operating model and disciplined approach to capital allocation, enabling us to invest in our properties while continuing to return meaningful capital to our shareholders through dividends and share repurchases. As we begin the third quarter, we remain focused on serving our core local guests while continuing to grow our regional and national customer segments across the portfolio. Compared to the second quarter of last year, we saw meaningful growth in overall carded spend per visit together with higher net theoretical win across our local, regional and national customers. These trends drove the second highest second quarter gaming revenue and profitability in our company's history, surpassed only by last year's historic quarter. Turning to our non-gaming operations. Our hotel and food and beverage divisions delivered a strong revenue quarter, reflecting healthy underlying demand across both businesses and the diversification of our operating model. During the quarter, Green Valley Ranch Hotel renovation reduced the available room night inventory by more than 21,000 room nights, impacting both revenue and profitability across both divisions. Even with this temporary disruption, hotel performance remained solid, supported by higher occupancy across the portfolio, while our Food and Beverage division benefited from higher guest volumes and higher check averages. We look forward to once again offering our guests the full Green Valley Ranch hotel product beginning in late September. As we look ahead to the balance of the year, we are seeing stable trends in our core slot and table business across the Las Vegas locals market and within our carded database. While we expect ongoing disruption from construction activity at our Durango, Sunset Station and Green Valley Ranch properties, we are actively managing these projects to minimize operational disruption. We believe these temporary disruptions are more than offset by the long-term benefits of these investments, which will enhance the guest experience, strengthen our competitive position and drive long-term shareholder value. Now let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the second quarter was $136.5 million, and the total principal amount of debt outstanding was $3.6 billion, resulting in net debt of $3.5 billion. As of the end of the quarter, the company's net debt-to-EBITDA ratio was 4.21x. During the quarter, we made total distributions of approximately $59 million to the LLC unitholders of Station Holdco, including a distribution of approximately $34.5 million to Red Rock Resorts. The company used its portion of the distribution to fund its previously declared quarterly dividend of $0.26 per Class A common share. When combining the dividends and share repurchases made during the year, we returned approximately $198 million to our shareholders. Capital spend in the quarter was $139.8 million, which includes approximately $94.4 million in investment capital as well as $45.4 million in maintenance capital. This brings our year-to-date capital spend to $257 million, which includes approximately $181.6 million in investment capital as well as $75.4 million in maintenance capital. For the full year 2026, we still expect to spend between $375 million and $425 million, which includes $275 million to $300 million in investment capital as well as $100 million to $125 million in maintenance capital. In addition to the continued investment in Durango, we are making significant investments in our Sunset Station and Green Valley Ranch properties. At Sunset Station, we continue to make excellent progress on our podium refresh. The recently reopened Gaudi Bar has been met with positive customer feedback, and we are very encouraged by its early financial performance, reinforcing our confidence in both the renovation strategy and the underlying demand at the property. In the coming weeks, we look forward to opening Stoney's Rockin' Country, a new country western bar nightclub, which will further expand the property's entertainment offerings. The renovation remains on budget with the remaining amenities expected to come online throughout 2026. Building on this momentum, we continue to execute the next phase of Sunset Station redevelopment. This phase includes enhancements to the movie theaters, the relocation of the temporary bingo operation into a permanent location and the redevelopment of the former buffet space into a premium steak club, steakhouse and high-limit slot and table game area. These investments build upon a proven strategy that has consistently generated attractive returns across our portfolio, further strengthening our confidence in the long-term opportunity at Sunset Station. Construction remains on schedule with the balance of the project expected to be completed throughout 2026 and into 2027. The total project cost remains $87 million. At Green Valley Ranch, we continue to make excellent progress on the comprehensive renovation of our hotel product. The West Tower and convention space have reopened to positive customer feedback and encouraging financial performance, validating our investment in the property. We expect to have the full East Tower hotel product back online in September, completing the renovation of all of our guest rooms and suites. Upon completion, Green Valley Ranch will feature one of the finest hotel products in the Las Vegas Valley, complementing the recently renovated high limit slot and table game areas and further strengthening its competitive position as one of Southern Nevada's premier integrated resorts. Building on the momentum of these investments, we continue to execute the next phase of Green Valley Ranch's long-term redevelopment strategy. This phase includes a comprehensive casino floor refresh, enhancements to its food and beverage offerings and upgrading entertainment amenities. Construction is underway and is expected to extend into 2027, with a total project cost estimated at approximately $56 million. Turning to North Fork. Construction continues to progress well as we move closer to opening. Last month, we successfully completed the turnover of the first phase of the casino podium and have begun installing slot machines and other gaming equipment. We expect turnover of the next phase of the podium later this month, keep us on pace for an early fourth quarter 2026 opening. The project remains on budget and is fully financed with total all-in costs expected to remain approximately $750 million. As of quarter end, the Red Rock's outstanding note receivable from the Tribe was approximately $83.4 million. With construction progressing well and the project moving into its operational readiness phase, we remain excited about this best-in-class development and look forward to welcoming our first guests later this year. The company's Board of Directors has also declared a regular cash dividend of $0.26 per Class A common share payable on September 30 to Class A shareholders of record as of September 15. As we look ahead, we remain confident in the strength and resilience of our business model and long-term opportunities across our portfolio. Our recent capital investments continue to perform well, reinforcing our disciplined approach to reinvesting in our existing properties while advancing our development pipeline. Continued success at Durango validates our long-term growth strategy and the embedded value of our more than 450 acres of owned development land located in some of the most attractive submarkets across the Las Vegas Valley. Combined with our portfolio of best-in-class assets, this unmatched development pipeline positions us to capitalize on the very favorable demographic trends and high barriers to entry that continue to define the Las Vegas locals market. And before we wrap up, we'd like to sincerely thank all of our team members for their continued hard work, dedication and commitment to delivering exceptional guest experiences every day. They are the foundation of our company's success and the driving force behind the results we continue to achieve. Their efforts continue to be recognized both locally and nationally. During the year, Station Casinos was recognized by Forbes and Statista as one of America's Best Large Employers of 2026, by Newsweek as one of America's Greatest Workplaces by State for the second consecutive year, as a top workplace in Nevada for the sixth consecutive year and as the USA TODAY Top Workplace for the fourth consecutive year. Finally, as we celebrate our 50th anniversary, we want to extend our sincere gratitude to our loyal guests and the communities we have proudly served over the past 5 decades. Their trust and support has made this milestone possible. As we look to the future, we remain committed to investing in our team members, our properties and our communities as we continue building on the foundation established over the past 50 years. With that, operator, we'd like to be happy to open the line for questions.

[Operator Instructions] The first question today comes from Ben Chaiken with Mizuho.

Maybe if you could just take us through the cadence of the quarter to the extent you can. I think we had heard that maybe June was potentially softer in Las Vegas. Not sure if that's calendar related or maybe anything underlying. Just maybe what you're seeing to the extent you can break it down.

Ben, this is Scott. Thanks for the question. Let's start with slot revenue, which for us is our primary source and most important aspect of our business. Actually, we were very consistent across all 3 months of the quarter. And then if you look at April was definitely better than May and June, but only by a certain amount of whole percentage difference in race and sportsbook and table games, but otherwise, pretty consistent across the quarter.

We actually got quite a pick up on -- from the World Cup in June. Our properties really leaned into activation and promotion for the event, drove a lot of bodies and overall it was -- I think it helped June from a traffic standpoint. So it was positive.

Understood. That's very helpful. And then maybe just from a modeling standpoint question, I would love to touch on seasonality. Just as we sit here today, what's your best take on 3Q, at least historically?

Yes. Thanks, Ben. Looking forward, typically from Q2 to Q3, season with Q3 being one of our softer quarters, usually you see you're down 10% from Q2 to Q3.

The next question comes from Trey Bowers with Wells Fargo.

Just wondering if you guys in the past have given some helpful detail around kind of the numeric impact of the disruption. As we think about Q2 and then kind of making our way through the balance of the year as some of these projects kind of finish up and come online, any sense of just the impact in Q2 relative to Q1 and then what it might look like for the next couple of quarters?

Yes, sure. I think the team did a great job managing disruption, both on-site at our Green Valley Ranch, Sunset Station and Durango properties as well as off-site as NDOT is engaged in pretty substantial infrastructure projects across near several of our properties, including Durango, Green Valley and Red Rock. While estimating disruption is never really an exact science, we did experience temporary disruption at Green Valley to the extent of about $7 million, which was slightly lower than the $9 million we have announced on our last earnings call. And it was driven really by the primary loss of the 21,000 room nights as well as the associated gaming, food and beverage revenue at the property. Durango, the team did a great job managing disruption. We really did not see too much disruption in Q2, but still stick to our guidance as construction, both on-site and off-site is kind of progressing. And so we're still guiding about $2.5 million in Q3 and then each quarter subsequent to the project completes in the back half of 2027. I do want to remind everyone, by the way, that these income -- these impacts are temporary in nature, and they are more than offset by the long-term benefits of the investments that we're making.

And then if I could just get a follow-up. I appreciate the call out of the $8 million impact from the 50th anniversary this quarter. Just offsetting that, anything that we should expect to see kind of from a top line perspective? Or just any further detail on what that means from the model, that would be super helpful.

I think -- this is Scott. I think certainly, there's a good degree of brand awareness and goodwill that comes into what we're doing here. We're part of the community and being out in the community with the message is certainly going to have a positive impact going forward. I can tell you, looking at the quarter thus far, we're happy with the way things are going. And if we stay on this track, I would imagine there is a net positive effect from the top line.

The next question comes from Chad Beynon with Macquarie.

This is [ Aaron ] on for Chad. Maybe to start with just a higher-level question. We continue to hear about the C-shaped economy versus the K-shaped economy. Are you seeing any notable differences in visitation or spend between your lower worth and higher worth customers?

No. Actually, I mean, I think as I mentioned, the trends are pretty stable across our entire business, both slots and tables. And that stems to, I think, both from the high end to low-end customers.

Okay. Got you. Great to hear you guys did well on the World Cup. Just kind of sticking on the event theme. The third F1 Las Vegas race is coming up. And I know in the past, you've said that F1 isn't really an event for your company. So just curious if that's still the case or maybe if the programming around it or the understanding of visitation and customer behavior has changed where there could be some opportunities for you guys?

Yes, this is Lorenzo. The F1 event in Las Vegas is primarily tourist-driven as we see it. You don't get a lot of rallying behind it from a local perspective. The World Cup worked for us because the local fans were really into it, obviously, with the different countries participating, depending on what game was going on. I mean our sports books were just billowing with people all over. It was actually very, very positive, like I said, from a traffic standpoint. But for us, specifically, F1 doesn't really move the needle at all. And we don't really lean into anything relative to participating in promotion. My understanding is it's obviously very good for the higher-end properties on the Las Vegas Strip though, so.

The next question comes from Joe Stauff with Susquehanna.

I was wondering if you could give maybe an assessment of the level of demand you're seeing or you saw in the second quarter and what you're seeing thus far as far as you can see it for destination and regional demand? And then maybe an update with respect to the road work and all the things that the state is doing in and around the Durango property? Is it worsening? Is it the same as, let's say, it was a month or 2 ago? Just trying to assess that level of disruption there.

Yes, Joe, it's Scott. I'll take the first question and leave it up to maybe Steve to talk about the second. If I were to gauge demand, I'd look at kind of 2 areas, inbound gaming and then inbound hotel. We like the way the database and the customer segments performed in the quarter. We like what we're seeing in July and into the future relative to the gaming database and specifically our regional, which is essentially drive market and out of town, which is fly market. So we see positive trends there. From a hotel perspective, ex the GVR impact of having about 21,000 rooms out in the quarter from GVR, the hotel -- our same-store hotel performed very well for the quarter, quarter 2. We like the trends there. We like the trends in occupancy, ADR. We outpaced the Strip from an ADR perspective. And then as we look into the future into Q3 and then look at forward group sales bookings, we see green shoots and positive performance. Keeping in mind that the GVR rooms are going to come online in mid-September, and that's really going to put wind in the sails for us from a destination perspective.

Sure. Maybe to tackle the second question, Joe. I mean, in terms of there's probably 3 or 4 thing items that are going on right now around Durango. So from a Roy Horn perspective, that was the construction we talked about earlier this year. That has been since completed. That was the connection, really the infrastructure connectivity into the multifamily development that's going up right next to Durango. But both westbound on-ramp, Eastbound on-ramp are kicking off actually in June of '26 and expected to last pretty much the next year as well as the triple left on Durango South. So 3 of the major infrastructure projects are just kicking off. And the same thing in Red Rock as well as in Green Valley, yes.

And the incremental $8 million that you're spending, just for clarification, if you're kicking off a marketing campaign, is it fair to say that some level of spending might stick in that corporate line, say, in fourth quarter out to maintain that marketing campaign to some degree?

If you're referring to the $8 million. I mean, we -- look, me and Frank, it started as a family business. We've been -- the business has been around for 50 years. We thought that the anniversary was a great opportunity for us to kick off so-called branding campaign to reinforce our position in the market here in the locals market, a market that was really created by our dad. And we just felt like that it was a perfect point to kick something like that off. We've had a ton of good feedback. There's been a lot of media coverage in PR and earned media as well, along with the media spend that we have in the marketplace around the brand campaign, which also right now is featuring a lot of our long-term team members, some of which have been with us almost 50 years. So look, we think that we're going to get benefit from this for a lot of years to come. We've done this in the past. We've had a number of different brand campaigns from "we love locals" to "we've been doing it for a long time," and we just felt like it made sense to do it around the 50th anniversary. Look, they do cost money, and it is a charge that's going to hit the quarter in the third quarter. But overall, we think it's the right thing to do for the long-term benefit of the business.

The next question comes from Steve Pizzella with Deutsche Bank.

As some of the ROI projects come back online and start contributing, how should we think about how fast the ROI projects ramp as we build a bridge in our models into 2027?

I think we've always been pretty consistent in terms of targeting these projects over a 3-year lifespan. So the first year generally is around 10%. The first project, the major project coming online is really the Green Valley, which should be online as of Q4.

Okay. And just as a follow-up, have you seen any impact from the Strip operators becoming more aggressive on value, including all-inclusive offerings and promotional packages? Or has demand in the locals market remain largely insulated?

Steve, this is Scott. First of all, we love what the Strip did this summer by kind of offering an all approach, if you will, for value packages. I think it only helps the city. We provide value every day. It's in the core of what we do. Our model is a high-frequency model. So we make sure that -- but value is relative. Value is just about price.