Red Rock Resorts, Inc.

Good afternoon, and welcome to Red Rock Resorts' second quarter 2026 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 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 and our earnings press release, Form 8K, and investor deck, which are 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 4th, 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 in 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 in 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 has 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 in adjusted EBITDA in our history while maintaining the 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 continues 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 Discipline 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 remains solid, supported by higher occupancy across the portfolio. 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 Branch 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 CARTA 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 4.21 times During the quarter, we made total distributions of approximately $59 million to the LLC unit holders of Station Holco, 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 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 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 Goudy 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 of the property. In the coming weeks, we look forward to opening Stoney's Rocking 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 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 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 to 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 Rocks' 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 its regular cash dividend of 26 cents per Class A common share payable on September 30th to Class A shareholders of record as of September 15th. 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 our existing properties or advancing our development pipeline. The continued success of 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 sub-markets 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 in Sisseta as one of America's best large employers in 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 a 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 five 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.

We will now begin the question and answer session. To ask the 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 today comes from Ben Chaikin with Mizuho. Please go ahead.