Red Rock Resorts, Inc. Class A Common Stock 2026 Q2 Earnings Call

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, 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 1st, Station Casinos 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 one-time 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 that the company we have built over the past five 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 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's second quarter.

Our adjusted EBITDA was $227.5 million, down 5% from the prior year's 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's 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's 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 and will continue 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 remains 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 is 4.21 times. During the quarter, we made total distributions of approximately $59 million to the LLC unit holders 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 have returned approximately $198 million to our shareholders. Capital spent 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-$300 million in investment capital, as well as $100 million-$125 million in maintenance capital. In addition to the continued investment at Durango, we are making significant investments at 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 and 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.

On 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 this 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.