Red Rock Resorts, Inc.

Good afternoon, and welcome to Red Rock Resort's second 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 Coote, 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 Resort's second quarter 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 and Form 8-K, which were filed this afternoon prior to the call. Also, please note this call is being recorded. Before we get started, I'd like to note that we will be comparing our 2021 second quarter results against our 2019 second quarter results. Given that our properties were closed for a portion of 2020 second quarter due to the COVID-19 pandemic, we believe that this financial comparison provides clear insight into our performance this past quarter. Please also note that in 2019, we had all 10 of our large properties open, whereas in the second quarter, only six of the 10 were operating. Now let's take a look at our second quarter results. On a consolidated basis, our second quarter net revenue was 428.2 million, down 11.3% from 482.9 million in the second quarter of 2019. Our adjusted EBITDA was 210.2 million, up 82.4% from 115.2 million in the second quarter of 2019. Our adjusted EBITDA margin was 49.1% for the quarter, an increase of 2,522 basis points, from the second quarter of 2019 and up 466 basis points from the first quarter of 2021. With respect to our Las Vegas operations, excluding the impact of our foreclosed properties, our second quarter net revenue was $420.7 million, up 32.1% from $318.5 million in the second quarter of 2019. Our adjusted EBITDA was $224.8 million, up 108.7% from $107.7 million in the second quarter of 2019. Our adjusted EBITDA margin was 53.4%, an increase of 1,964 basis points from the second quarter of 2019 and up 450 basis points from the first quarter of 2021. On the same store sales basis, we achieved the highest net revenues, highest adjusted EBITDA, and highest adjusted EBITDA margin in the history of our company. During the quarter, we continue to prioritize free cash flow, converting 72% of our adjusted EBITDA to operating free cash flow, generating $150.1 million, or $1.29 per share. This brings cumulative free cash flow generated by the companies since our June 2020 reopening to the end of the second quarter to almost $500 million, or $4.28 per share, with virtually every dollar being returned to our stakeholders. Taking a look behind the numbers, the overall customer trends we saw in the second quarter were consistent with the trends we've seen since our reopening in June 2020. We continue to see strong and consistent visitation from our younger demographic, increased spend per visit, more time spent on device, plus the continued return of our core customer. And as the government mandated capacity restrictions rolled off during the quarter, we begin to see the return of our non-gaining segments as both hotel and food and beverage revenue ex-buffet has returned to pre-COVID levels. Our sales and catering business continues to ramp up as we continue to build out our book of business in the back half of this year into 2022. These trends were all positively impacted by the continued role of the COVID-19 vaccination program, the removal of capacity restrictions for Clark County on June 1st, and federal stimulus money. These positive trends were offset by approximately 3.2 million of COVID-19 mitigation costs for the quarter and approximately 2.2 million in carry costs associated with our closed properties for the quarter. On the expense side, we continue to expect to achieve approximately $200 million per annum of cost savings compared to our pre-pandemic cost structure. The company continues to benefit from the actions we took to streamline our business, optimize our marketing initiatives, and renegotiate a number of vendor and third-party agreements. These initiatives, along with maintaining a disciplined operational focus, have enabled the company to achieve and sustain higher profitability and drive more free cash flow. Now let's cover a few balance sheet and capital items. Companies cash and cash equivalents at the end of the second quarter were $91 million and total principal amount of debt outstanding at quarter end was 2.72 billion. In the second quarter, we paid down 150.5 million in debt and since the end of the second quarter, we've paid down an additional 31 million which represents the repayment of all drawings under our revolving credit facility. Since our June 2020 reopening, we have reduced our net debt levels by approximately 518.8 million from a peak level of 3.1 billion. David Wiltshire- Capital spent in the second quarter was 12.1 million as mentioned in our previous earnings call we anticipate our 2021 maintenance capital spend to be between 65 and $75 million. David Wiltshire- Also during the second quarter, we had a tax distribution of approximately 55.8 million to the LLC unit holders of station whole call which include conclude the distribution of approximately 32 million to Red Rock resorts. The company elected to use 26.6 million of its distribution to purchase slightly over 682,000 Class A shares at an average price of $38.92 per share under its previously disclosed 150 million share repurchase program. When combined with our debt repayment, we've returned 177.1 million to our stakeholders during the second quarter. With a huge reduction in our net debt level over the past year, we are well on our way to having one of the most solid balance sheets in the industry. which gives us the ability to focus on longer-term growth opportunities as well as consider additional ways of returning capital to our stakeholders as we move forward. 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 of 215 Expressway and Durango Drive in southwest Las Vegas Valley. The project is located in the fastest growing area in the Las Vegas Valley, and there are no unrestricted gaming competitors within a five-mile radius of the project site. We are working through the planning and budgeting phases of this project with the goal and expectation to have a shovel in the ground in the first quarter of 2022. Once the project is started, we anticipate construction will take approximately 18 to 24 months. When complete, the project will include over 100,000 square feet of casino space with over 2,000 slots and 40 table games, a state-of-the-art sportsbook, over 200 hotel rooms and sweet product, and four full-service food and beverage outlets. Now turning to North Fork, as you may know, not long after our last earnings call, the tribe received an unfavorable decision from the same California State Appellate Court that had earlier ruled against North Fork and the State of California, a decision which in August 2020, the California Supreme Court had effectively reversed and remanded to the lower court with the instructions to reconsider its prior decision against the tribe. We believe that this lower court decision contravened the California Supreme Court's instruction as well as California law. Both the tribe and the state of California have already filed and completed the briefing on their separate petitions for review with the California Supreme Court. We expect to hear whether these petitions will be granted in the next five to nine weeks. In the meantime, we've continued to progress our efforts with respect to this very attractive project, including the development and design and initial talk to the prospective lending partner. we expect to be in a position to provide an update at or prior to our next quarterly earnings call. Lastly, and as previously disclosed on prior earnings call, on May 3rd, we entered into a definitive agreement to sell the Palms Casino Resort and Palms Place for an aggregate price of $650 million in cash to the affiliate of the San Manuel Band of Mission Indians. The closing of this transaction is subject to customary closing commissions, including regulatory approvals, and is expected to be completed before the end of the year. In conclusion, as government mandated restrictions fell away and more of our population became vaccinated, this last quarter we saw the continued return of our core customer while continuing to retain our share of the younger customer demographic. A significant pent-up leisure demand led the company to historic revenues. This, coupled with our disciplined operating approach to running our business, allowed the company to enjoy record high EBITDA, EBITDA margin, and free cash flow conversion. While we are happy with these results for the quarter, our primary focus continues to be the health and safety and well-being of our team members and guests. On both counts, we continue to believe that even brighter days are ahead. With our best-in-class assets and locations, unparalleled distribution and scale, and our own pipeline of six strategically located gaming and title 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. Lastly, we'd like to recognize and extend our thanks again to all of our team members for their hard work and for their support us and to our guests for their support throughout this pandemic. Operator, this concludes the prepared remarks for today. We're 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 1 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 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Joe Greff with J.P. Morgan. Please go ahead.