Red Rock Resorts, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Las Vegas Performance: Second quarter was exceptional with Las Vegas operations delivering highest quarterly net revenue and adjusted EBITDA in 49-year history, sustaining near record adjusted EBITDA margin. Durango Casino Resort expanded the locals market, added over 108,000 new customers since opening, and is on pace to be a high-margin property. Revenue backfill at core properties is underway, with full recovery expected in next couple of years.
• Capital Spending: Second quarter capital spend was $78.2 million, year-to-date $146.4 million. Full year 2025 capital spend revised to $325M-$375M, down $25M from previous plan. Investments in Durango (next phase of master plan, ~$120M project), Sunset Station ($53M podium refresh), and Green Valley Ranch (guest room and convention space refresh, ~$200M) are ongoing.
• North Fork: Construction progressing well, slab on grade completed, expected to close by October 2025, open in early Q4 2026, total cost ~$750M.

Segment Performance

• Las Vegas Operations: Second quarter net revenue was $513.3 million, up 6.2% from prior year; adjusted EBITDA was $239.4 million, up 7.3% from prior year; adjusted EBITDA margin was 46.7%, an increase of 47 basis points. Consolidated net revenue (including $10 million from North Fork) was $526.3 million, up 8.2% from prior year; adjusted EBITDA (including North Fork) was $229.4 million, up 13.7% from prior year; adjusted EBITDA margin was 43.6%, an increase of 212 basis points.
• Non-Gaming Operations: Hotel and food and beverage divisions delivered strong results, with hotel recording highest second quarter revenue and profit, and food and beverage achieving near record results supported by higher cover counts.

Guidance

• Full year 2025 capital spend revised to $325M-$375M, down $25M from prior plan, driven by timing of capital expenditures. North Fork expected to open in early Q4 2026. Q3 EBITDA expected to be down ~10% from Q2, excluding North Fork's $10M contribution which is ~$3M per quarter through opening.

Risks

• Construction Disruption: Disruption from Durango, Sunset Station, and Green Valley Ranch construction projects, with ~$15M impact expected at Green Valley in next 2 quarters. Parking disruption at Durango on weekends.
• Strip Rate Compression: Potential impact on hotel product and rates, though hotel revenue only represents ~10% of overall revenue stream.
• Cannibalization Impact: Initial cannibalization from Durango's opening, though revenue backfill is underway with expectation of full recovery over next couple of years.

Question and Answer

Q: Backing out Native American contributions, help unpack incremental operating leverage and impact of renovations on EBITDA?

A: Stephen Cootey noted strength across all business lines, with Gaming having flow-through north of 70%, and revenue mix shift from lower-margin to higher-margin segments. Renovations in quarter had limited impact so far.

Q: Follow-up on construction disruption timing and tip tax relief?

A: Scott Kreeger discussed disruption timing (Sunset impact in Q3/Q4, Durango parking disruption, Green Valley tower work in next 2 quarters). Stephen Cootey noted tip tax relief and other tax benefits will enhance discretionary income and increase operating free cash flow by ~$60M for rest of 2025.

Q: New database sign-ups and strip overpricing impact?

A: Scott Kreeger said strong positive performance across all segments, including new member sign-ups, with Durango adding 108,000 new customers, and core 6 properties up ~10% in new sign-ups. Locals market offers different value proposition than strip.

Q: Lower leverage and development sites timing?

A: Lorenzo Fertitta stated nothing has changed regarding development sites, continuing to design and evaluate projects. Stephen Cootey said backfill from Durango is mid-inning, with core 6 properties driving growth now.

Q: Q3 seasonality and next greenfield project?

A: Stephen Cootey said Q3 EBITDA expected down ~10% from Q2, excluding North Fork. Frank J. Fertitta mentioned precursor to Durango amenities is garage completion, with potential greenfield projects in strategic locations.