Good afternoon and welcome to Red Rock Resorts Third Quarter 2024 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 on Red Rock Resorts third quarter 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. For definitions and complete reconciliation of these figures to GAAP, please refer to the financial tables in our earnings press release, Form 8-K and investor deck, which were filed this afternoon prior to the call. Also, please note that this call is being recorded. Let us start off by stating that the third quarter represented another strong quarter for the company by any measure. In terms of net revenue and adjusted EBITDA, our Las Vegas operations had their best third quarter in our history, while offering at near record adjusted EBITDA margin in the quarter. In addition to showing strong financial results in the quarter, 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. With three full quarters under our belt, the property increased visitation and net theoretical wind in the surrounding Durango area by approximately 91% and 92%, respectively, while signing up over 70,000 new customers to our database. Durango continues to ramp up and remains on track to become one of our highest margin properties as well as generate…

Thank you. [Operator Instructions] Today's first question comes from Joe Greff at JPMorgan. Please go ahead.

Good afternoon, guys. Looking back at the performance in the 3Q, is there anything that you would call out as sort of one-time or kind of a unique trend change outside of the normal seasonality, whether that's extreme heat or renovation disruption? And maybe a sort of directional. Or mathematical way of answering it is if you look at the performance of Durango less Red Rock cannibalization, how did the rest of the portfolio perform? I know in 2Q, you basically mentioned that the $30 million year-over-year EBITDA results was basically Durango net of Red Rock cannibalization with the balance portfolio flat, maybe if you can answer it in that way. And then I have a quick follow up.

Hopefully, it's just quick, Joe. Let me start with the first bit of questions. There's no real unusual items throughout the quarter other than just that return of that typical third quarter seasonality. For example, if you look at past years in 2019, Q2 to Q3 was down almost 19%. So, when you kind of look at Durango, what we talked about here is we expect to deliver about net 15% return on our investment in the first year investment. So, it's actually higher than we promised. We actually promised 10%. So, when you do the quick math, if you have an $800 million cost, that's implying a $120 million in net of cannibalization. When you apply some impact of cannibalization, what you end up getting is that the core portfolio was down low single digits in terms of revenue.

Great. And then, margins 43.3% or 43%, what sort of expenses sort of drove that increase? And then, how do you think about flow through, or margins going forward? Particularly as you know, we think about 2025 as maybe being more of a reinvestment in existing assets kind of year. And maybe you can talk about '25 in terms of renovation impact disruption that you might anticipate?

In terms of just the margin, I'll just frame it very simply. I think about 150 basis points of that margin contribute to cannibalization. So, revenue moving to our existing properties over to Durango. And then you couple that with lower revenues as part of the Q3 seasonality. And then, we did -- we are bearing the brunt of minimum wage which costs us about $1.2 million for the quarter.

And then, maybe we can touch on 2025 in terms of anticipated renovation impacts?

Yeah. Sorry about that. Sorry. So, in terms of the renovation impact, if I run it down by property. So, our initial estimates on GDR roughly about $11.5 million from an EBITDA impact, Sunset Station approximately $5.4 million, and then Durango about $5.9 million.

Thank you, guys.

You're welcome.

And our next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Hey guys. Good evening. Steve, obviously, in the third quarter seasonality, as you said kind of returned to normal. And when you go back and look at your model in particular the local segment, a lot of noise with palms and that stretch. How do you generally think about 4Q seasonality relative to 3Q? And obviously, acknowledging the moving parts of the stub period of Durango last year, makes that a little bit harder for comparability, but just thinking about 3Q relative to 4Q seasonality.

Well, you got a couple of factors in here, Carlo. But in general, if you took a pre-COVID year, taking out the noise of the palms, EBITDA up usually around 12%. But you have to factor in that. We did play a little bit unfriendly in terms of sports to this tune of about $7.6 million in October.

Okay. So, think about it is kind of up $12 million, less almost $8 million from the sports assuming that doesn't reconcile in November and December?

Correct.

Okay. And then, just -- this is just an item of -- just to clarify something. CapEx for the year. You said $185 million to $195 million. Am I correct in? And that excludes Durango closeout, Durango close out for the year was about $95 million. Is that accurate?

Yeah. Durango close up for the year is about 90 -- almost $97 million. We still have about a $1 million left to close that out.

Perfect. Thank you, guys.

And our next question today comes from Steve Wieczynski with Stifel. Please go ahead.

Hey, guys. Good afternoon. Steve, you mentioned that group sales have been a little bit softer than I think you guys have been expecting. Just wondering if you could give some more color on potentially what you guys think are driving that softness? And If we look at the margin on that food and beverage line, it's been a little bit lower than what we've been expecting over the last couple of quarters. Just wondering if that's somewhat due to that lower group business.

Yeah. Steve, this is Scott. Let me take that one. We'll take it into two pieces, one group sales hotel and then we'll corresponding catering. When you look at the quarter, probably the most notable piece of the quarter, we still are digesting a tough comp year-over-year as it relates to COVID rebooking. So, there's about $1 million of good news in last year's number relative to COVID rebookings. If you were to add that in and adjust, we're basically flat when it comes to hotel sales room nights. We expect that we're going to have tough comps into the fourth quarter and somewhat into the first quarter because of the Super Bowl as well in hotel. But if you look a little farther out to '25 and '26, we're very encouraged with our -- on the books pace right now as we go into those future years. And then catering really kind of mirrors the same effect as group room night sales does as well, where we're going to have a tough comp in the next two quarters and then better outcomes into '25 and '26.

And Steve, I answer that last follow up in terms of the softness you're seeing in F&B. It's exactly what Scott said, it's pretty predominantly all catering, as F&B experienced a record revenue quarter.

Okay. Thanks for that, guys. And then, Steve, I understand you guys don't give formal guidance. But we start to think about next year in 2025, is there anything you would call out in terms of whether it's headwinds, whether it's tail winds or anything that would disrupt the normal cadence as we start to think about 2025?

Yeah, I think what you're -- I mean, from a group perspective, the entire company.

The entire company, sorry?

Okay. I think the one we just talked about with graph is probably one of the bigger one-time issues. If you kind of add all that together, you're going to experience about $23 million worth of disruption. As we start the room and model at Green Valley contain the podium remodel at Sunset and then we attach the garage to and the high limit room at Durango. That's really -- those are really the big one-time items.

You're going to go off to get Super Bowl in Q1…

A couple others, like --

I think generally, it is important to note that I think most, all the operators have said that Q3, the seasonality seems to have come back. It is a bit of a challenge. But October has bounced back and is very stable both on slots, table games, sports handle, right? Obviously, the whole percentage due to the NFL hasn't been great, but our core business feels good going into Q4.

Okay. Thanks for the color, guys. Appreciate it.

The next question comes from David Katz at Jefferies. Please go ahead.

Good evening, everyone. Thanks for taking my question. Can we just dive into the Super Bowl comps a little bit? It came up a couple of times. It was -- the Super Bowl volume levels in terms of hospitality strong. And perhaps the sports betting was not? What's the hard part and what's the easy part within the Super Bowl piece?

Well, this is Lorenzo, I think if you look at obviously, hotel food and beverage, things like that, not having the Super Bowl. It is going to be a tough comp versus last year. I would say of all the events that the city has had, citywide events, whether it be F1, you name it. I think Super Bowl was just a huge benefit to the overall city. And obviously, we benefited from that as well. Actually, I think we were -- we lost money on the game. Hopefully, it will not be a headwind or repeated, but from a comp.

I see. So, the overall volume levels were very strong, but the there was some sports impact that came out…

It was negative last year. Historically, over time, we typically would win money to the Super Bowl. Just like last drive…

Okay. Yeah. Perfect. And just as my follow up, the last time we walked through Durango, we talked about sort of longer term with expansions, et cetera. Anything today that would characterize how soon or what those expansions could or would look like and when you'd get to them?

Yeah. David, this is Scott. First, just want to reiterate that the garage and casino and high limit expansion is really kind of a preliminary phase for Durango. We need to do that in order to set ourselves up for the optionality of the other two phases. As we look at those stages, we also compare our Greenfield opportunities as well. I know we've spoken about Inspirato and Cactus as potential opportunities. I think what we want to do is we've got a lot of irons in the fire into the first and second quarter with the existing property remodels in the garage, probably are going to want to see how the market is going into the first half of the year before we make a decision.

I think that's fair. Thank you very much.

And our next question comes from Stephen Grambling with Morgan Stanley. Please go ahead.

Well, I guess, when we think about the election and some of the policies that put it out there, aside from perhaps corporate taxes, what is on your radar that could impact your business?

I think, no tax on tips, I think would be a positive for our business.

Yeah. We've looked at some economic analysis, not -- I don't know if anything has really been published on it. We think it could add somewhere in the neighborhood of about $200 million a year to the local economy here, which obviously we would benefit from.

Yeah. I think it would save the company about $2 million to $3 million in payroll tax as well.

That's helpful. And is there anything that's on the radar in terms of accelerated depreciation or other tax incentives for investment?

I mean, I think we've accomplished that with Durango. That's our effective tax rates below 13%. And that's due to, I think, good work on the tax side for Durango. But -- so my sense is that we'll look to do that on our Sunset asset as well in GVR [ph] and the Durango Garage, once they're put in service later in '25.

Makes sense. Thanks. I'll jump back in the queue.

Thank you. And our next question comes from Barry Jonas with Truist Securities. Please go ahead.

Hey, guys. You added a new slide in the deck on Cactus at the front of the new development pipeline section. Just curious where this stands in terms of what you'll be focused on next. Thanks.

I think that as we look at all of our Greenfield projects, then the good thing about a lot of them is the population growth is getting to a maturity point where they're up for consideration. So, when we look at Cactus, it has different positive attributes than say Inspirato or Kyle Canyon site. The specifics around Cactus are that it is a hybrid location. It sits on the Las Vegas strip as well as it is surrounded by a very lucrative local market as well. So, it makes it a unique development opportunity, because you can take advantage of the hybrid aspect of the property or the location. It would probably be something of larger scale than say an Inspirato. So, we weigh the pros and cons of that capital contribution as well.

Got it. And then, just are there any other tribal or non-Vegas deals you're looking at the moment, or is really the focus just your Las Vegas development pipeline?

Well, no. I think we mentioned during the prepared remarks, we're incredibly excited about North Fork. So, after working on this project over 20 years, we're in ground. Looking forward -- we're in the throes of an 18 to 20 month construction period.

Yeah. 5.8 million people in a two-hour drive. And we think we're going to have the dominant property in the market by far, the best designed and built product in the market

… outside of North Fork.

Yeah. I mean, our core focus, obviously, is Las Vegas, Las Vegas locals. However, we do have a core competency of developing and managing tribal casinos. So, in addition to North Fork, which Steve and Frank mentioned, we're in the ground with, it's a great location, we are active on the development side looking for new opportunities as we have been for the last 25 years on the tribal side. But it's just got to be the right opportunity, the right timing and it all has to kind of line up. But I mean, we've actively looked probably at five or six just over the last year, just -- we haven't found one that works for us yet, but we'll continue to look from a development standpoint.

That's really helpful. Thank you.

And our next question today comes from Brandt Montour with Barclays. Please go ahead.

Hello, everybody. Thanks for taking my question. I'm curious, we went through a lot of the headwinds next year, potential headwinds. Maybe we could talk a little bit about the tailwinds, specifically, what you would typically see getting added back to Red Rock, mitigating that cannibalization you've seen so far in sort of a year or two as well as a Durango or a new Greenfield year-two growth before the construction disruption there?

Yeah. This is Scott. Great question. If you take Red Rock first, we spoke in the past about Summerlin West, which is the final phase of the Howard Hughes Summerlin project. In its completion over the next few years, it'll add an incremental 34,000 households, just up behind the Red Rock location. So not only do we have a great story as it relates to household growth, but the average income in the area is one of the highest in the valley. And we continue to see growth in average income in that area. So, we're optimistic about the Red Rock backfill in the near term. When you look at Durango, Durango sits in what's called the enterprise district of the city. It is by far the fastest growing area of the city and probably has the largest amount of remaining buildable acreage in the surrounding area. So, we're excited about Durango continuing to have its own growth story into the next year as well. If you switch gears a little bit and you look at Sunset, it's one of the key reasons we're refreshing Sunset is the Henderson area around cadence has got quite dynamic growth and we think we're going to see upside from that continued growth in that area of the valley as well.

That's helpful. Thanks. Thanks for that. A second question. The election is now behind us. I can't remember it. Well, I'm sure you guys can remember. Elections that had distractions to your database and your players before. But have you gone back and looked at sort of how in your state -- in the state of Nevada swing state, is that the activity pickup that you've traditionally seen postelection? And if you think you'll see a similar sort of pickup post this election.

Well, when we looked at previous elections, there is definitely an impact, if you will, during an election year and quite honestly, during an Olympics year as well. In previous years, it did drag on into December. But right now, as Lorenzo said, we're pretty encouraged more at this point.

Thanks, everyone.

The next question today comes from John DeCree with CBRE. Please go ahead.

Good afternoon, everyone. You covered a lot of ground. Maybe one on the promotional environment, largely speaking across the locals market. I guess, a couple of your peers have talked about it. Maybe stabilizing or a baiting, and I guess, some of the single asset operators in the neighborhood have been a little bit more aggressive. So, curious what you're seeing, if you think it's died down at all and -- or stabilized, and if it's had any impact one way or another on your business?

Yeah. It remains unchanged in our view. And what we think is a stable rational environment that is very manageable.

Got it. Thanks for that. And maybe one for, Steve, just maybe a clarification if I missed it on the CapEx for next year. I think, I heard $150 million for GVR and was it $160 million for Durango? And then a quick follow up, Steve, would be the disruption would -- I am sorry, Steve.

Yeah. It was $116 million for Durango, and 53 for Sunset.

Okay. And the disruption that you've outlined, I appreciate that that's really helpful. The timing of those projects, should we expect that to kind of be kind of straight line throughout the year? Is there going to be a 1H or 2H, where maybe some of the heavier disruption occurs?

Well, Green Valley is really going to be focused in that June to November period. So that one is really -- you can really pinpoint. Sunset is most likely going to be throughout the year as the last construction project expected to come in line before at the end of the year. And Durango, I would say similar is probably in that middle part of the year is where the [indiscernible] portion of the construction is being done.

Got it. Okay. Great. Thanks.

[Operator Instructions] Our next question comes from Dan Pollitzer with Wells Fargo. Please go ahead.

Hey. Good afternoon, everyone. And thanks for taking my question. First, you've talked a bit about taverns in the past. I mean, can you just give us an update on how you think about that element of your strategy in terms of CapEx, or units that you expect to open over the next few years?

Yeah. Dan, it is Scott. Happy to say that a few weeks back, we opened our first tavern in the north part of town. So, early performance is outpacing our expectations. So, we're happy about that. We have two more coming online in the general area in North Las Vegas, which happens to be a very under penetrated area for us. We have a product coming online in January and then the third tavern coming online in June. And then, we have a total of seven opportunities and the remaining three will be scattered over the next year and a half. I think, in large part, we're attributing the early successes of the first tavern and because of the interlinkage of the boarding pass program, and the fact that we're relatively under penetrated out in that market.

Got it. Thanks. And then just on the North Fork, the 4% development fee on that -- presumably the $750 million. Do you receive that upon the property opening, or is it along the way, do you get kind of pieces of that?

Yeah. It's on the construction financing. And it's not going to be on the full $750 million, there's some puts and takes there.

Got it. Thanks so much.

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for the closing remarks. End of Q&A:

Thank you everyone for joining the call, and we look forward to talking to you again in about three months. Take care.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.