Red Rock Resorts, Inc.

Good afternoon and welcome to the Red Rock Resort fourth quarter and full year 2024 conference call. All participants will be in 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 Rocks Resort. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us today for Red Rock Resort's fourth quarter and full year 2024 earnings conference call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Krieger, 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 this call, we will also discuss non-GAAP financial measures. Definition and complete reconciliation of these figures to GAAP, please refer to the financial table in our earnings press release, Form 8K, and investor deck, which were filed this afternoon prior to the call. Also, please note that this call is being recorded. Let's start off by stating that the fourth quarter was another very strong one for the company by all measures. Our Las Vegas operations achieved its highest fourth quarter net revenue in adjusted EBITDA in our history, while maintaining near record adjusted EBITDA margins. For the year, our Las Vegas operations delivered their best performance ever in terms of net revenue and adjusted EBITDA while achieving their record adjusted EBITDA margin for the year. In addition to showing strong financial results, 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. For the full year under our belt, the property continues to increase visitation and a theoretical win from our carded customers in the surrounding area, while signing up over 85,000 new customers to our database. The property continues to ramp up and remains on track to become one of our highest margin properties, as well as generate a return of almost 16% net of cannibalization in 2024. Cannibalization is tracking as expected, mainly affecting our Red Rock property. Like we've seen in the past, we expect to backfill this revenue over the next few years, given the strong long-term growth in the Las Vegas Valley, especially in Summerlin, where downtown Summerlin and Summerlin West are set to bring in around 34,000 new households. As stated on our last earnings call, we began construction last month on the next phase of our Durango master plan. This expansion will add over 25,000 square feet of casino space, including a new high-limit slot area and bar. In total, 230 new slot machines will be added, with 120 dedicated to the high limit room. Additionally, we will be constructing a covered parking garage with nearly 2,000 spaces, improving customer access and providing flexibility for future expansions. The project, with a budget of approximately $120 million, is expected to be completed in January of 2026. Some disruption on the south side of the property is anticipated during construction. Across our portfolio, we remained operationally disciplined, executing on our core strategy of reinvesting in existing properties to enhance amenities while maintaining a focus on best-in-class customer service. By the return to more typical seasonal patterns, we effectively managed expenses, delivered record financial performance with near record margins, reinvested in our properties, and returned capital to our shareholders. Now let's take a look at our fourth quarter and full year results. With respect to our Las Vegas operations, our fourth quarter net revenue was $492.6 million, up 7.2% from the prior year's fourth quarter. Our adjusted EBITDA was $223.9 million, up 1.6% from the prior year's fourth quarter. Our adjusted EBITDA margin was 45.4%, a decrease of 250 basis points from the prior year's fourth quarter. On a consolidated basis, our fourth quarter net revenue $495.7 million, up 7.1% from the prior year's fourth quarter. Our adjusted EBITDA was $202.4 million, up 0.5% from the prior year's fourth quarter. Our adjusted EBITDA margin was 40.8% for the quarter, a decrease of 267 basis points from the prior year's fourth quarter. Let's turn to our full-year performance. With respect to our Las Vegas operations, our full-year net revenue was $1.9 billion, up 12.6% from the prior year. full year adjusted EBITDA was $879.4 million, up 7.4% from the prior year. Our adjusted EBITDA margin was 45.7%, a decrease of 222 basis points from the prior year. On a consolidated basis, our full year net revenue was $1.9 billion, up 12.5% from the prior year. Our full year adjusted EBITDA was $795.9 million, up 6.7% from the prior year. On a full year, adjusted EBITDA margin was 41%, a decrease of 222 basis points in the prior year. In the quarter, we converted 78% of our adjusted EBITDA to operating free cash flow, generating $158.6 million, or $1.50 per share. When looking at our 2024 cumulative free cash flow, we converted 57% of our adjusted EBITDA to operating cash flow, generating $451 million, or $4.27 per share. This significant level of free cash flow was either reinvested in our long-term growth strategy, reinvested into our existing properties, or returned to our stakeholders via debt paydown, share repurchases, and dividends. As we finish 2024, we remain focused on our core local guests as we continue to grow our regional national segments across our portfolio. In comparing our results from last year to last year's fourth quarter, we continue to see strong carded slot play across the database, including our regional national segments. Driven by strong customer engagement and robust spend per visit across our database, we achieved record revenue and profitability in our gaming segments this quarter. This was accomplished despite the broader market experiencing unfavorable hold in sports betting during the quarter. Turning to the non-gaming segments, both hotel and food and beverage continued to grow year over year and deliver record revenue and near record profitability in the fourth quarter. Our hotel division experienced its highest fourth quarter revenue and near record profit driven by our team's success and continue to drive occupancy across our hotel portfolio. Not to be outdone, our food and beverage division also experiences highest ever fourth 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 businesses, as mentioned on our last earnings call, we face a tough fourth quarter comparable. That said, we are seeing positive momentum in both of these business lines as we continue to build our pipeline into 2025. As we look ahead to the first quarter, we are seeing stability in our core slot and tables business in the local market and across our Carta database. 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 equivalent at the end of the fourth quarter was $164.4 million, and the total principal amount of debt outstanding was $3.4 billion, resulting in net debt of $3.3 billion. At the end of the fourth quarter, the company's net debt to EBITDA ratio was 4.1 times. Also during the fourth quarter, we made distributions of approximately $39 million to the LLC unit holders of Station Holco, which included a distribution of approximately $22.7 million to Red Rock Resorts. The company used the distribution to make its required tax payment and pay its previously declared dividend of 25 cents per Class A common share. During the quarter, the company repriced its term loan B credit facility, which now bears interest at 2% over SOFR. This repricing further strengthens our balance sheet and reduces our interest expense by approximately $4 million per year. Capital spend in the fourth quarter was $26 million, which included approximately $16.8 million in investment capital, inclusive of Durango project retainage, as well as $9.2 million in maintenance capital. For the full year 2024, capital spend was $283.9 million, which includes approximately $172.3 million in investment capital, inclusive of Durango project retainage, as well as $111.6 million in maintenance capital. As we look into our capital spend for 2025, we expect to spend between $375 to $425 million, which includes $285 to $325 million in investment capital, as well as $90 to $100 million in maintenance 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. In the fourth quarter, we successfully opened a Yardhouse restaurant at our Sunset Station and added local favorite China Mama at our Palace Station property. We are pleased with our guest response and early results from these new amenities. In addition to these amenities, and as discussed in our last earnings call, We've been making investments into both our Sunset Station and Green Valley Ranch properties into 2025. At our Sunset Station property, we'll be building off 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 Skye and Cadence, which are both expected to add over 12,500 new households upon final completion of both communities. As part of the project, we'll be adding in an all-new country western bar and nightclub, a new Mexican restaurant, an all-new center bar, along with a 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. On our Green Valley Ranch property, we are expecting to start a complete refresh of our room and suite product, as well as our convention space, aligning the hotel with with our most recent renovations made to our well-received high limit table and slot rooms at the property. Work is expected to start in June of 2025 with the majority of our rooms being back in service by year end. The cost of the room and convention renovation is expected to be approximately $180 million. Like our other recently introduced amenities, we expect these to be solid investments, however we do expect some disruption challenges at 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 and egress off the heavily traveled Highway 99. The project is one of the most convenient and accessible locations in Central California with over 4.2 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 factory games, 42 table games, and two food and beverage outlets, and a food pool with many exciting options. Construction is progressing well, and we anticipate topping off the facility later this month, keeping us on schedule for a mid-2026 resort opening. The total project cost is expected to be approximately $750 million, which includes all design costs, construction hard and soft costs, pre-opening expenses, and any financing and development fee costs associated with the project. We are also making steady progress on project financing and anticipate closing on the facility later this quarter. We're excited about these developments, and we will continue to provide these updates during our quarterly earnings call. Lastly, the company's board of directors has declared a cash dividend of 25 cents per Class A common share, payable on March 31st, by Class A shareholders of record of March 17. When we combine our share repurchases with our special and regularly declared dividends, we return approximately $224 million to our shareholders in 2024. The company had a strong year, and we remain confident in our business models as we head into 2025. We remain convinced 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 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 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 keep coming back. We thank them again for voting us top casino employer in the Las Vegas Valley for the fourth consecutive year, being certified by Great Place to Work for a third year in a row, as well as being recognized by Forbes as one of America's best in-state employers. Finally, we thank our guests for their loyal support in each of the last six decades. Operators, this concludes our prepared remarks for today, and we are now ready to take questions.

We will now begin the question and answer session. If you ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, 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 and then two. Our first question comes from Carlo Santorelli with Deutsche Bank. Please go ahead.