Q2 2020 Red Rock Resorts Inc Earnings Call
Thank you operator, and good afternoon, everyone. Thank you for joining todays.
Red Rock resorts second quarter 2020 earnings conference call.
But all of you and your families are staying safe and healthy joining me on the call today from Red Rock resorts are Frank <unk>, Chairman, Chief Executive Officer, Bob Finch Executive Vice President and Chief operating Officer, and wrought Atamian executive Vice President of development strategy.
I like to remind everyone that our call. Today will include forward looking statements out of the safe Harbor provisions of the United States Federal Securities laws.
The whole bunch of results may differ from those projected during this call will also discuss non-GAAP financial measures, but the definitions and complete reconciliation of these figures to gap. Please refer the financial tables in our earnings press release on form 8-K.
Filed this afternoon prior to the call also please note that this call is being recorded.
Before we get started want to take a moment to acknowledge the passing a rich haskins our president.
Passed away at an accident.
On July 4th.
For over 25 years, which was a trusted advisor to the company through both good times and that he was instrumental not only in the successful broke the company, but in the development of the station casinos family culture.
Those who are interacted with him were inspired by steady leadership in any situation and as anything is possible attitude, which define what he was all about.
Well, which may have left left us because accomplishments and legacy remain and live here at station.
Now onto the quarter.
Before moving onto our financial results will take a moment to remind you of some of the actions we have taken during the first too much of the quarter as we prepare for these uncertain economic times.
During the closure, we re examining challenged every aspect of the company.
Took a number of pivotal steps to prepare for a new operating environment with a focus on health safety cost reductions and liquidity.
So that had been working closely with our outside medical experts, we established a very very comprehensive health and Clemens guidelines for our properties given the current environment.
These new guidelines meet or exceed the higher standards set by federal state and local authorities and will be adapting a circumstance require simply put we are committed providing the most safe secure environment possible for both our team members and guess.
A few highlights include all Gaston team member entrances at our resort properties up and equip state of the art thermal scanners.
All team members are required to wear masks and PPD consistent with health authority guidelines as master now required for all gas we've continued to make massive available to guess upon entering the property.
All team members at all vendors and partners underwent F.D.A. or there are authorized cobot 19 testing prior to reopening and we've continued to test our team members vendors and partners on a regular basis.
We have completed over 12000 tests as of today.
Page, which led to staff reductions, both a property and corporate level.
Reducing costs related to outside services through termination of renegotiated vendor and other agreements.
Spending are totally dividend.
Eliminating non essential capital spending for the remainder of the year.
An opening our new properties phased approach to maximize flexibility in meeting business demand.
Through these actions, we've become a leaner and efficient much more leaner inefficient company that remain confident in our ability to permanently achieve the approximate of $150 million and cost reductions on an annualized run right basis, we referenced on our previous earnings call.
These cost reductions do not include any labor expense savings related to those properties that did not open as part of our first opening phase nor does that include savings ways to any amenities that we're not initially provided in this space.
Well, we estimate that those additional labor is expense savings or approximately $200 million, an annualized run right basis.
Mount with declined to the extent or clothes properties, where to come back online or those amenities, where again to be provided.
Now, let's turn to our financial results as you recall on March 17th the Governor of Nevada ordered a statewide shut down if not all amount of central businesses, including casinos in an effort to reduce the spread of Kobe 19.
Similar similarly, the Greaten Casino resort, which has managed by the company closed on March 17th.
What are you originally began as a 30 day shut down on March 17th hearing Nevada ended 79 days later, when the Governor Nevada allowed a certain non essential businesses, including casinos to open with restrictions on June 4th the grading Casino resort also partially reopened on June 18th.
On June 4th we opened 16 of our 20 properties Red Rock Green Valley Ranch, Santa Fe station Boulder station, Palo station Sunset station and our wildfire properties.
As we noted on our previous earnings call. If you exclude palms from both 2019 net revenue in EBITDA. These first to reopen properties generated over 80% of our Las Vegas, net revenue and over 90% as of our Las Vegas EBITDA during the same period.
Our Texas station Fiesta, Rancho Fiesta Henderson and pumps Casino resort properties remained close at this time.
We will not consider reopening these properties until we fully assess both the performance of our first opened properties and the health of the economy is a whole.
On a consolidated basis reported net revenue of 108 $5 million down 482, $9 million and the prior quarter adjusted EBITDA of negative 17 $3 million down from 115 $2 million in the prior quarter and our EBITA margin decrease the negative 15, 90% for the corner.
With respect to our Las Vegas operations, we reported net revenues of $101 million down from 457 8 million in the prior quarter.
EBITDA of negative $12 $1 million down from $106 million, the prior quarter and our EBITA margin decreased to negative 12% for the quarter.
Within these numbers are a couple of items, we'd like to call out as you recall, we are one of only three companies in Las Vegas. The continue to pay all our fulltime team members regular pay and health benefits from March March 17 shut down date through may 16th at the cost of the company of over $72 million.
Because of our commitment to our team members through this crisis, we were able to recognize on approximately 18 $6 million payroll retention benefit and the quarter under the cares Act.
Bring the total payroll benefits received a date under the <unk> to 38 3 million. Additionally, these numbers do not reflect approximately $27 million and payroll expenses and the quarter, which were accrued and the first quarter do at our commitment to provide regular pay and benefits to all fulltime team members after corner and from April 1st April 30th.
Well the severe impact of Kobe 19 can be seen in our quarterly results. The company's Las Vegas performance. During the open period from June 4th through June 30th tells a different and more positive story.
Flex both the resilience of our local business model and the impact of with the size of actions. The management team took during the closure.
Measure on the basis of that period, adjusted EBITDA increased 46, 8% 45 $9 million, an increase of 14 $6 million.
This increase was cheap despite net revenues declining 23, 3% to $100 $1 million a decrease in about $34 million <unk>.
Martin margins in this period increased 2192 basis points 245, 9%, yielding our highest June EBITDA margin ever.
In addition, while we generally do not comment on our current funding quarter financial performance. We are pleased with our year over year performance financial performance in July, but we would caution. However that we are still in the middle of this pandemic and have little visibility regarding impacts of this crisis will have in our company in the economy moving forward.
I will now cover a few balance sheet liquidity items.
The company's cash in cause could ones at the end of the second quarter were 274 $5 million and the total principle amount of debt outstanding at quarter and was three $3 billion.
As of July 31, we have we've had 197 $5 million drawn on a revolver and have over $1 billion in liquidity in the form of cash on hand, and revolver availability, which provides us with the ability to operate fully staffed for over 20 months to return to zero revenue environment.
In addition, we believe we are positioned to continue to comply with all of our financial covenants for the foreseeable future and we have no significant that maturities until 2025.
For all these reasons, we believe we remained well positioned financially to handle the uncertain times ahead.
Finally, an update on her to native American agreements.
At Great and Casino resort reported management fee revenue for the second quarter of five $9 million.
Kris of 75% over the prior year, driven primarily by the resort closure for the majority of the quarter.
<unk>, we expect to reach agreement with the trod on an approximate appropriate extension of term in accordance with the terms of the management agreement.
With regard to North Fork, our plans to develop a casino for the Norfork tribe have installed for the last several years by litigation brought by opponents of the project. The Supreme Court of California held an oral argument on June 2nd 2020, and the very very similar case involving the enterprise tribe.
We were expecting decision by month and and are hopeful that the decision will clear the way to finally develop this very attractive project on behalf of the North Fork drive in Central California.
This quarter has been more than most challenging quarters and are over 40, plus year history. We believe that the company has responded well to each of these challenges and as well positioned succeed going forward.
We would like to extend our thanks to all of our team members for their hard work and continued focus to our guests for standing by us. During these trying times together, we will manage through this.
Operated this concludes our prepared remarks for today and we are now ready to take questions from participants on the call.
Thank you we will now begin the question and answer.
To ask the question <unk> then one on your time zones.
For your question has been addressed and you would like to your question. Please Star then chip.
The first question today will come from Joe grass with J P. Morgan.
Go ahead.
Hi, guys Omar Sandra on for Joe Thanks for taking a question.
First off the $46 million EBITDA in Las Vegas and June what's in the clothes property is due in terms of inhibitor drag nor are you able to manage it lower in July and Ken 45% margins for the reopening group of properties sustain themselves in the current environment.
Okay. So I'll start with the easy one.
And so the clothes properties for June had a drag her about one $4 million.
That will remain fairly consistent in July that we think we can get it a couple hundred thousand dollars lower going forward.
Regarding the sustainability the margins I think we've done the team has done a great amount of work reevaluating and retooling the business during the closure and then our cost structure. It is in a position to deal with these very very uncertain timeframe revenue perspective. So we feel confident that we can deliver margins and access for historical margins.
Thanks, and then.
Can you discuss what you've seen in July and the locals market in terms of gaming paper and behavior. There how much revenue per day down versus June levels. What are you staying with July with respect to customer mix, which has been holding up better since the end of June younger or older and do you get a sense of the care.
Is driving.
Sure.
What what July.
Generally don't comment on again.
Current quarter, but to give you some general sense.
The trends in July of an <unk>.
Basically consistent what we've seen in June we've seen less visitation.
We've seen more spend per visit we've seen more time on device, we've seen a younger demographic in our database show up are older demographic.
To be expected to the current pandemic has stayed at home I think this point here is encouraging because it's an opportunity for growth when our seniors our seniors start returning when the situations. Besides.
Awesome. Thanks, and then just one last one for US is there a market for asset to sell a prices that you can seriously except for that too early and then lastly, what's the future palms.
I think it's too early to assess right now.
Right now we have very little clarity on our current economic environment.
So we currently pumps is currently currently undecided, whether we're going to open right now.
We don't know if or when we're going to reopen any of the clothes properties. We think it's too early.
To make that decision at this time I think so far we're very pleased with the results that <unk>.
The ability to <unk>.
Move some of the play from a closed properties to our existing properties.
And we're going to continue to try to get clarity and navigate the situation to Meg will important decisions for.
Sure whatever decisions, we make will be in the best interest of shareholder value.
Awesome. Thanks, so much.
Alright, and the next question will come from very Jonas with Trust Securities. Please go ahead.
Hi, Thank you first off I just wanted to extend my condolences for your loss.
So I guess the first question is.
Create some of the color.
On trends, you're seeing but is it possible to give any sense of what the drive to business.
Maybe from California is looking like right now in any color on group is group pretty much non existent just would like to get one more layer down into.
Segments are doing.
I think thank you can look at our.
Short haul.
Traffic coming in to Vegas that is down it's down.
Not merely is significantly is longer all business group business Convention business.
Things of that nature much more significantly.
I don't know if you want to add to that Steve I think franker spot on in terms of how you doing a between short-haul a long haul and from a group business I think just like the strip are suffering from group.
And so I think 2020 and the beginning of 21 will be tough sledding I think one important thing for people to notice.
Is really the difference on our business model, though we are primarily a gaming company that happens to have hotel catering and conventual business as an amenity.
Primarily 80% of our business.
Comes from the casino.
So we're able to have the results like we did in the short term without having.
The benefit of strong hotel catering and conventions.
Hopefully we will return as we get the corporate crisis.
Under control.
But our primary business was really suburban.
Las Vegas local business, that's close proximity through our facilities.
Great and I guess with that get in Nevada is closed.
Far as I'm wondering if you've seen any cow and or just any impact from from those closures.
It's definitely not helpful. We have about 650.
Bar machines, and the company in Las Vegas those.
Which had been closed.
So we look forward to the ability to get those open.
As soon as possible.
This is kind of an urban flow thing.
Changing requirements, whether it be at the pools, whether it be.
That's the bars, whether it be have to wear a mask, where you don't have to wear masks and so.
Every day is trying to navigate through kind of a new set of circumstances and I think our team is not a very good job. So four.
Got it and then last just touching on the promo environment is it fair to say pretty rational folks are just more focused on on margins at this point or.
Are you seeing anything heat up amongst the competitions.
I think it is a very unique situation, where every operators firm himself and the exact same situation which was that.
We have a lot of unknowns lacquer visibility and is focused is made everyone I think refocus on what really matters.
A business, where I can tell you for us.
We took the I don't know $79 80 days that we were closed.
We probably worked more hours longer hours on just trying to unpack and really go through and thing through what was meaningful and our business and what were things that were maybe just.
Take a whole lot of time and not creating a lot of results.
I can tell you whether it be corporate level or how much labor.
Or what amenities.
Really drive the profits facilities.
Let us back to where we really started in this business.
And every survey you've ever done for Las Vegas local since we started with 1976.
For the most part hasn't changed.
It's all about convenience.
The value proposition and relationships.
And sometimes maybe we have all overcomplicated are a bit too much but I think we're definitely back to the basic so I think we have lots of good things growing poorer square the best properties, we have the best distribution on the valley.
If you take the six properties that we have open today five of those are all in the suburbs with growing population offer a major interstates.
Erin gross egress they were purpose bill.
For the local business.
With the exception palace was built the same way, but it is in the center of throne.
What is the town has grown and through more of a suburban.
I think that's where we're going to rely on great properties, great service, great relationships and great value.
We're going to be much more laser focused on marketing and advertising and things that we can really measure and know that they were.
That's great. Thank you so much guys.
And the next question will come from Chad Ban was Macquarie. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Wanted to I guess dive into another metric for June did you see any major difference in terms of weekday versus weekend compared to what you've seen I guess pre cove. It as you've run the business and do you think margins may have been elevated.
Compared to prior weekday period, just because of extra traffic. Thank you.
We have seen kind of a change it changed.
Lisa subtle changes some of the traffic patterns, most notably Saturday is kind of which is normally one of our busiest days, it's been slightly down.
We believe that's due to the Colbath crisis, and you're seeing a lot of that same traffic return during the mid week or Sunday, so the people coming back or just choosing.
Right in their time in business throughout the week.
Okay.
And then from Ah Capex standpoint, I don't know if you.
And updated view is there a new level of maintenance that we should be thinking about just to run the business I know you've suspended.
All projects and really most of the maintenance capex, but should we think about something coming back now that your business.
Is back to a new normal rate.
Yeah. So just to give you an update on cue to we spend approximately 10 $5 million Q too.
We still expect to be in that $50 million to $60 million Capex range, We think 60 around $60 million. That's a good number going forward for maintenance Capex.
And I think the factors that we have maintained the properties very very well, they're all in great shape and I think we still have a lot of unknowns in front of us relative to.
<unk> crisis.
What the future is going to look like and so we're going to be very very diligent on.
Any capex that we spend until we have more clarity.
Thank you both very much and I'll pass along my condolences as well.
Okay. Thank you.
And the next question will come from it chairs show Jane with Wolf Research. Please go ahead.
Hi, good afternoon, everyone. Thanks for taking my question.
Just going back to the of $150 million of potential longer term run right savings can you parse that out and help us understand with some of the biggest items are that are in there and I guess what will be different about the operating model. Once we're through this pandemic that allows you to keep those costs out of the business and do you worry about any <unk>.
A impairing the overall consumer experience.
We don't we don't worry about the <unk>.
Consumer experienced I think.
One thing that you have to look at that we've made significant reductions corporate office building, which I don't think.
Will affect the guests experience.
In any way whatsoever.
Again, it's easier to.
Return the car when it's not going to 80 miles an hour down the road.
Close to three months to really focus on every aspect and challenge everyone as too.
What what we can live with and what we can move without and the other thing is.
Unfortunately, we have.
A lot of them entities that I don't know Phil return. They were they were amenities may be generated a lot of traffic but not.
Necessarily.
Hi margin business.
And we have foreclosed properties and we've been able to move.
A good portion of those revenues through some of our other facilities. So I think.
I can't predict the future, but I can tell you that what we've seen so far doesn't impact I think we have a great customer experience, where it's been a significant amount of time and energy on health safety testing convenience for the customers through thermal.
Camera scanners, it all the answers and everything.
I think the customer experiences gray, but I think or two members have done a great job.
And.
Hopefully, we can move forward and be able to operate the business in a much more efficient basis, our team member head count.
<unk> about 50% of what it was going into this.
And to this crisis.
Okay, sorry forces to really challenge and rethink everything we do.
Got it. Thank you and then other regional operators have talked about a new and younger customer that's driving some of the performance right now.
My question is are you seeing that in the locals market here as well and do you have an estimate for what percentage of your guests are employed by the Vegas stripped in some form.
Sure.
A healthy Las Vegas strips.
Is <unk>.
Super important to a long term healthy.
Las Vegas economy.
That being said we have seen a very strong housing market here in Las Vegas I. Thank you have a lot of migration.
Of other states.
Everything too.
A place like Nevada.
And where it's more affordable.
Housing cost of living I think the retirement community here is growing a double the rate.
Of the regular population growth here in Las Vegas.
We're still seeing population growth.
I can't tell you exactly what percentage of our business.
Is employed by the gaming industry I can't tell you, we do have a fairly substantial <unk>.
Retiree.
Customer base.
Can't tell you that we have seen as a pretty significantly increase in the younger demographic and our business, which were very focused on.
Relationship marketing.
Capturing the information of being able to contribute to market to them and we have seen.
A decline and the older guessed that is more concerned.
About the Cobra dryer, so I don't know what the future brings but if we can get some stickiness from retain.
Some of these younger people that are coming into our facilities get the Cobra virus.
Under control.
Are older demographic feels comfortable coming back it could be a very good thing for us.
Okay. Thank you very much and my condolences as well for your loss.
Thank you.
And the next question will come on John Decree with Union Jamie. Please go ahead.
Hi, everyone. Thank you for taking my questions and.
Like everyone else, Thank my sympathies and <unk>, let's let's.
Your friends and valued colleague two two of us and you as well.
Very very tragic so my sympathies.
Question I know has touched on it a little bit.
Already and there's only been a few weeks of operation to really look at but they will kind of all grasping at consumer behavior, So far and I'm not sure if I missed into prepared remarks, but is there any commentary color you could provide on.
Some of the typical metrics, what you're seeing an right it versus on right at play realizing so much of your.
Local in right it, but any any bifurcation there and.
With limited.
Perhaps entertainment options such as bars are you seeing.
An increase in new customer sign up is there anything that might tend to give us a little bit more insight on consumer behavior. So far in the first couple of weeks since reopening.
I'll tell Ya anecdotally, but if we go back to where we were just talking about.
Pre Cove.
Part of our database from Carter play was from an older demographic retirees and things like that.
Really are staying home at this point with air concerns over the virus.
Had a pretty significantly increase.
Younger uncoded demographic, but our focus is basically to convert that arm carded.
Younger play in Jakarta Park.
It it perhaps a follow up is.
I think from what you've said, so barbecue extrapolate but to ask directly.
Is the amount of visitation.
From your card customers down, but but maybe spend per visit healthy when they come or how has that been been playing out.
Yes, John.
Short answer your question is yes, you're seeing hesitation down spend up and spends offsetting the visitation.
Thanks, very much for taking my questions guys.
At this time there are no further questions in the questions you and I would like to turn it back over to management and closing remarks.
Okay. Thank you everyone for joining us on the call and we look forward to talking to you in 90 days.
Thank you. This concludes today's conference I would like to do encourage everyone to disconnect at this time.
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