Red Rock Resorts, Inc.

Good day and welcome to the Red Rock Resort's first quarter 2026 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. 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 Resorts' first quarter 2026 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. For definitions and complete reconciliation of these figures to GAAP, please refer to the financial tables 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 by noting that the first quarter represented another strong quarter for the company across all key measures. Our Las Vegas operations delivered the highest first quarter net revenue and the second highest first quarter adjusted EBITDA in our history, while maintaining near record adjusted EBITDA margin. This performance was achieved despite several headwinds later in the quarter, including higher gas prices, air travel related disruption, and temporary construction impacts at and around several of our properties. underscoring the strength and resilience of our business model. In addition to delivering strong first quarter results, we remain very pleased with Durango's performance and the successful revenue backfill at our core properties. Durango continues to expand the Las Vegas Locals Market and drive incremental play from our existing customers, reinforcing its position as a meaningful growth driver in our portfolio. Since completing our December expansion, adding more than 25,000 square feet of casino space, the premier high-limit slot area, and nearly 2,000 additional covered parking spaces, we've continued to see strong financial performance alongside positive guest feedback. With more than four months of operating history for the new high-limit slot area, results continue to validate our strategy of investing in premium slot and table offerings across our portfolio. Building on Durango's momentum, we continue to advance the next phase of the property's master plan, the Durango North expansion. With more than 6,000 new households expected within a three-mile radius over the next few years, this expansion is designed to broaden Durango's customer appeal and strengthen its competitive position. The project will add more than 275,000 square feet along the north side of the property, including nearly 400 additional slot machines and other gaming, along with new amenities to drive repeat visitation, highlighted by a 36-lane bowling facility, luxury movie theaters, and new dining and entertainment venues, including our partnership with Moonshine Flats, which brings its signature country western bar and live music concept to Las Vegas for the first time. The project is scheduled to open in the summer of 2027, with a total cost estimated at approximately $385 million. Now let's take a look at our first quarter. With respect to our Las Vegas operations, our first quarter net revenue was $499.5 million, up 0.9% from the prior year's first quarter. Our adjusted EBITDA was $232.4 million, down 1.5% from the prior year's first quarter. Our adjusted EBITDA margin was 46.5%, a decrease of 113 basis points from the prior year. On a consolidated basis, our first quarter net revenue, which includes $4.7 million from our North Fork project, was $507.3 million, up 1.9% from the prior year's first quarter. Our adjusted EBITDA, which includes $2.9 million from our North Fork project, was $212.6 million, down 1.2% from the prior year's first quarter. Our adjusted EBITDA margin was 41.9% for the quarter, a decrease of 129 basis points from the prior year. In the quarter, we converted 50.3% of our adjusted EBITDA into operating free cash flow, generating $107 million, or $1.03 per share. The significant level of free cash flow was strategically deployed to support our long-term growth initiatives, including our most recent projects at Durango, Sunset Station, and Green Valley Ranch, and returning capital to our stakeholders through dividends and share repurchases. As we begin 2026, we remain focused on our core local guests, which continue to grow our regional and national customer segments across our portfolio. Compared to first quarter last year, we saw continued strength in carded slot play across the majority of our database. Robust spend per visit and net theoretical win across our local, regional, and national customer segments helped drive the highest first quarter gaming revenue and profitability in the company's history. Turning to our non-gaming operations, both the hotel and food and beverage divisions delivered a strong quarter, achieving near record revenue and profitability. The hotel operations perform well, generating near-record results, driving higher ADR across the portfolio, despite the loss of room nights at Green Valley Ranch due to the renovation of our hotel product. Not to be outdone, the Food and Beverage Division delivered its second-best first-quarter revenue in our history and its third-best first-quarter profit in our history, supported by higher cover counts and higher average guest checks across our outlets. In group sales and catering, Our teams delivered their third highest first quarter revenue in our history, and if we exclude the lost room nights from our Green Valley Ranch room renovation, we continue to see positive momentum into the first half of 2026. As we look ahead into the second quarter, we're seeing stable trends in our core slot and table business across the Las Vegas Locals Market and within our carded slot database, consistent with a return to more typical seasonal patterns. We expect continued near-term disruption from our ongoing construction at and around Durango, Sunset Station, and Green Valley Ranch. We're actively managing these impacts to minimize operational disruption. We remain highly confident in both the strength for our business and the investments we are making at these properties, which we believe support our long-term growth trajectory. Now let's cover a few balance sheet and capital items. Companies' cash and cash equivalents at the end of the first quarter was $134 million, and the total principal amount of debt outstanding was $3.6 billion, resulting in net debt of $3.4 billion. As of the end of the quarter, the company's net debt to EBITDA ratio was 4.07 times. During the quarter, we made total distributions of approximately $139.9 million to the LLC unit holders of Station Holco, including a distribution of approximately $82.1 million to Red Rock Resorts. The company used its portion of the distribution to fund its previously declared special dividend of $1 per Class A common share, its previously declared quarterly dividend of 26 cents per Class A common share, and to fund a portion of the repurchase of approximately 635,000 Class A common shares at an average price of $60.32 per share under its previously announced $900 million share repurchase program, reducing total shares outstanding to approximately $104.4 million. When combining the dividends and the share repurchases made in the quarter, we returned approximately $170.5 million to shareholders, demonstrating our ongoing commitment to disciplined capital allocation and delivering sustainable long-term value to our shareholders. Capital spent in the quarter was $117.2 million, which includes approximately $87.2 million in investment capital, as well as $30 million in maintenance capital. For the full year 2026, We expect to spend between $375 and $425 million, which includes $275 to $300 million in investment capital, as well as $100 to $125 million in maintenance capital. In addition to our continued investment at our Durango property, we are making significant investments at our Sunset Station and Green Valley Ranch properties. At Sunset Station, we continue to make strong progress on the podium refresh. The $53 million renovation is well underway and includes an all-new country western bar and nightclub, a new Mexican restaurant, a new center bar, and a fully renovated casino floor. Customer feedback and performance from the completed portions of this project have been encouraging, reinforcing our confidence in the direction of the renovation and the underlying demand of the property. The project remains on budget, with the remaining amenities expected to come online throughout 2026, including the iconic Gaudi bar, which is expected to reopen in the coming weeks. Building on this momentum, we are advancing the next phase of Sunset Station, designed to further strengthen the property's competitive position and broaden its customer appeal, positioning it to capitalize on the continued growth in Henderson Market, particularly from the master plan communities of Ascaya and Cadence. This phase will continue with the comprehensive casino refresh, including the expansion and enhancement of the movie theaters, as well as the relocation of the temporary bingo area to a new permanent location. Upon completion of the bingo relocation, the former buffet space will be converted into a new highland steakhouse and the high-limit table games room, leveraging a proven strategy that has consistently generated strong returns across our portfolio. Work in this phase is expected to begin this quarter, with the remainder of the project commencing in the back half of 2026 and extending into 2027. The total cost of this phase remains approximately $87 million. At Green Valley Ranch, we continue to make strong progress on the comprehensive refresh of our guest rooms, suites, and convention spaces, aligning the hotel experience with the recently renovated and well-received high-limit table and slot rooms at the property. Renovations to the West Tower and convention spaces are now complete, with both the tower and convention areas have reopened to strong customer views and encouraging financial performance, despite ongoing property disruption. Renovations to the East Tower are well underway and are expected to extend into late summer 2026. Continuing with Green Valley Ranch's long-term redevelopment strategy, we're advancing the next phase of enhancements at this resort. This phase is designed to further strengthen the property's competitive position as one of the premier resort destinations in Las Vegas and broaden its customer appeal to a fully refreshed casino floor, along with upgraded food and beverage and entertainment offerings. These enhancements build on the performance we are seeing from the high-limit product and the renovated room and convention inventory and are intended to drive increased visitation and deeper customer engagement. Work in this phase is underway and is expected to extend into 2027, with the total cost of this phase estimated at approximately $56 million. Turning to North Fork, construction continues to progress. The facility now has permanent power, and we are working toward turnover of the first phase of the casino floor in late June, keeping us on pace for an early fourth quarter 2026 open. Total all-in project cost remains approximately $750 million, and the project is fully financed. As of the end of this quarter, Red Rock's outstanding note balance due from the tribe was approximately $80.6 million. We remain excited about this best-in-class development and are pleased with the continued progress of construction and look forward to providing further updates on future earnings calls. The company's board of directors has also declared its regular cash dividend of 26 cents per Class A common share payable on June 30th to Class A shareholders of record as of June 15th. With the first quarter behind us, we remain highly confident in the strength and resilience of our business model, as well as in the recent capital investments we have made across the portfolio. Durango continues to validate our long-term growth strategy and underscores the value of our own development pipeline and real estate bank which includes more than 450 acres of the developer land and in highly desirable locations across the Las Vegas Valley. Combined with our portfolio of best-in-class assets and premier locations, this pipeline positions us for significant long-term growth and enables us to capitalize on the favorable demographic trends and high barriers to entry that define the Las Vegas Locals market. Looking ahead, we remain focused on executing our development pipeline, maintaining operational discipline, and delivering enhanced shareholder returns through a balanced, consistent, and disciplined capital allocation strategy. Before we wrap up, we'd like to sincerely thank all of our team members for their continued hard work and dedication. They are the heart of the company and the driving force behind the exceptional guest experiences to keep our customers coming back time and again. In recognition for their efforts, we are proud to share that Station Casinos has been recognized by Forbes and Statista as one of America's best large employers in 2026. We are also proud to have been recognized for the sixth consecutive year as top workplace in Nevada. In addition, we've earned national recognition as USA Today top workplace for the third consecutive year and for the first time as a top workplace in the hospitality industry. Lastly, as we approach our 50th anniversary, we extend our heartfelt gratitude to our loyal guests for their unwavering support. We are deeply thankful for the trust they place in us and look forward to continue to serve our communities for many years to come. With that, operator, we'd be happy to open our line for questions.

Thank you. 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 two. And our first question for today will come from Trey Bowers with Wells Fargo. Please go ahead.