Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Red Rock Resorts Inc (RRR, Financial) reported its best third quarter in history for Las Vegas operations in terms of net revenue and adjusted EBITDA.
- The Durango Casino Resort showed strong performance, increasing visitation and net theoretical win by approximately 91% and 92% respectively.
- The company signed up over 70,000 new customers to its database, indicating successful customer acquisition efforts.
- RRR plans to expand the Durango property, adding over 25,000 square feet of casino space and a new parking garage, which is expected to enhance customer access.
- The company generated significant operating free cash flow of $46.4 million in the quarter, contributing to a year-to-date cumulative free cash flow of $292.6 million.
Negative Points
- The adjusted EBITDA margin decreased by 333 basis points for Las Vegas operations and 353 basis points on a consolidated basis compared to the prior year's third quarter.
- Cannibalization from the Durango property impacted revenue at the Red Rock property, with the core portfolio experiencing a low single-digit revenue decline.
- The company faced a tough comparable in group sales and catering business, with expectations of continued challenges in the fourth quarter.
- Minimum wage increases cost the company about $1.2 million for the quarter, impacting margins.
- Renovation impacts are anticipated in 2025, with estimated EBITDA impacts of $11.5 million for Green Valley Ranch, $5.4 million for Sunset Station, and $5.9 million for Durango.
Q & A Highlights
Q: 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?
A: Stephen Cootey, CFO: There's no real unusual items throughout the quarter other than the return of typical third-quarter seasonality. The core portfolio was down low single digits in terms of revenue, with Durango performing better than expected.
Q: What sort of expenses drove the margin changes, and how do you think about flow through or margins going forward?
A: Stephen Cootey, CFO: About 150 basis points of the margin change is due to cannibalization, coupled with lower revenues from Q3 seasonality and a $1.2 million impact from minimum wage increases.
Q: How do you generally think about 4Q seasonality relative to 3Q?
A: Stephen Cootey, CFO: Typically, EBITDA is up around 12% from Q3 to Q4 in a pre-COVID year. However, we played unfavorably in sports, impacting October by about $7.6 million.
Q: Can you give more color on the softness in group sales and its impact on food and beverage margins?
A: Scott Kreeger, President: The softness is largely due to tough year-over-year comps from COVID rebookings. We expect tough comps into the fourth quarter but are optimistic about 2025 and 2026.
Q: What are the anticipated renovation impacts for 2025?
A: Stephen Cootey, CFO: Estimated EBITDA impacts are $11.5 million for Green Valley Ranch, $5.4 million for Sunset Station, and $5.9 million for Durango.
Q: How do you view the promotional environment in the locals market?
A: Scott Kreeger, President: The promotional environment remains stable and rational, with no significant changes impacting our business.
Q: What are the potential tailwinds for Red Rock and Durango in the coming years?
A: Scott Kreeger, President: Red Rock will benefit from the growth in the Summerlin West area, while Durango is positioned in the fast-growing enterprise district, both offering significant growth opportunities.
Q: Are there any other tribal or non-Vegas deals you're looking at currently?
A: Lorenzo Fertitta, Vice Chairman: Our core focus is Las Vegas locals, but we are actively looking for new tribal casino opportunities, having evaluated several in the past year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
