Q2 2021 Red Rock Resorts Inc Earnings Call
Good afternoon, and welcome to Red Rock resorts second quarter, 2021 conference call on.
All participants will be in a listen only mode. Please note. This conference is being reported.
I would now like to turn the conference over to Steven Coody 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, the Red Rock resorts second quarter 2021 earnings Conference call. Joining me on the call today are Frank and friends on for Ciena as well as the 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 of our earnings press release and form 8-K, which were filed this afternoon. Prior to the call also please note. This call is being recorded.
Before we get started I'd like to note that we will be comparing our 2021 second quarter results against our 2019 second quarter results given that our properties were closed for a portion of 2022nd quarter. Due the COVID-19 pandemic. We believe the this financial comparison provides clear insight into our performance this past quarter.
Please also.
Note that in 2019, we had all 10 of our large properties open whereas in the second quarter only 6 of the 10 were operating.
Now, let's take a look at our second quarter results.
On a consolidated basis, our second quarter net revenue was $428.2 million down 11, 3% from $482.9 million in the second quarter.
Sort of 2019 our.
Our adjusted EBITDA was $210.2 million up 82, 4% from $115.2 million in the second quarter of 2019 our.
Our adjusted EBITDA margin was 49, 1% for the quarter, an increase of 2000 and 522 basis points from the second quarter of 2019.
466 basis points from the first quarter of 2021.
With respect to our Las Vegas operations, excluding the impact of our foreclosed properties are for R. R.
The second quarter net revenue was $420.7 million up 32, 1% from $318.5 million of the second quarter of 2000.
Our adjusted EBITDA was $224.8 million up 108, 7% from $107.7 million on the second quarter of 2019, our adjusted EBITDA margin was 53, 4% an increase of 1964 basis points from the second quarter of 2019 and up 450 basis.
19 links from the first quarter of 2021.
On the same store sales basis, we achieved the highest net revenue.
Highest adjusted EBITDA and highest adjusted EBITDA margin of the history of our company.
During the quarter, we continue to prioritize free cash flow of converting 72% of our adjusted EBITDA to operating free cash flow generating 100.
<unk> $3.1 million or $1.29 per share.
This brings cumulative free cash flow generated by the companies since our June 2020, reopening to the end of the second quarter to almost $500 million or $4.28 per share with virtually every dollar of being returned to our stakeholders.
Taking a look behind the numbers the overall customer trends we.
For the second quarter were consistent with the trends we've seen since our reopening in June 2020, we continue to see strong and consistent visitation from a younger demographic increased spend per visit more time spent on device plus the continued return of our core customer.
And as the government mandated capacity restrictions rolled off during the quarter, we began to see the.
So all of this of our non gaming segments as both hotel and food and beverage revenue ex buffet has returned to pre COVID-19 levels or sales of catering business continues to ramp up as we continue to build out our book of business in the back half of this year and into 2022.
These trends were all positively impacted by the continued rollout of the COVID-19 vaccination program.
The removal of capacity restrictions for Clark County on June 1st in the federal stimulus money.
Positive trends were offset by approximately $3.2 million of COVID-19 mitigation costs for the quarter and approximately $2.2 million and carry costs associated with our closed properties for the quarter.
On the expense side, we continue to expect to achieve approximately $200 million per annum.
Of cost savings compared to our pre pandemic cost structure.
The company continues to benefit from the actions, we took to streamline our business optimize our marketing initiatives and renegotiated number of vendor and third party agreements. These initiatives along with maintaining a disciplined operational focus have enabled the company to achieve its sustained higher profitability and drive more free cash flow.
Now, let's cover a few balance sheet and capital items the comp.
<unk> cash and cash equivalents at the end of the second quarter were $91 million and total principal amount of debt outstanding at quarter end was $2.72 billion and.
In the second quarter, we paid down $155 million of debt and since the end of the second quarter, we paid down an additional $31 million.
Which represents the repayment of all of drawings under our revolving credit facility.
Since our June 2020, reopening we have reduced our net debt levels by approximately $518.8 million from a peak level of $3.1 billion.
Capital spend on the second quarter was $12.1 million and as mentioned in our previous earnings call. We.
We anticipate our 2021 maintenance capital spend to be between 65 and $75 million.
Also during the second quarter, we had of tax distributions of approximately $55.8 million to the LLC unitholders of station Holdco, which include conclude the distribution of approximately $32 million to Red rock resorts.
The company elected.
Got it to the used $26.6 million of its distribution to purchase slightly over 682000 class a shares at an average price of $38.92 per share under the previously disclosed $150 million share of our share repurchase program when combined with our debt repayment. We've returned $177.1 million to our stakeholders of during the second quarter.
Quarter.
Of the huge reduction on our net debt level over the past year, we are well on our way of having 1 of the most solid balance sheets from the industry, which gives us the ability to focus on longer term growth opportunities as well as consider additional ways of returning capital of our stakeholders as we move forward.
Now I'll provide a short update on development pipeline, starting with our Durango.
Development, we're extremely excited about this project, which is situated on 71 acre parcel of.
Ideally located all of the $2.15 Expressway in Durango drive in southwest Las Vegas Valley.
The project is located in the fastest growing area of the Las Vegas Valley and there are no unrestricted gaming competitors within a 5 mile radius of the project site.
We are working.
Through the planning and budgeting phases of this project with the goal and expectation to have a shovel on the ground in the first quarter of 2022.
Once the project has started we anticipate construction will take approximately 18 to 24 months when.
When complete the project will include over 100000 square feet of casino space with over 2000 slots and $4.40 table games a.
The art Sports book over 200 hotel rooms, and suite product and for full service food and beverage outlets.
Now turning the North Fork as you May know not long after our last earnings call. The driver's seat an unfavorable decision from the same California state of pellet Court that had earlier ruled against North Fork and the state of California the decision.
A state of which in August 2020, the California Supreme Court had effectively reversed and remanded to the lower court with the instructions to reconsider its prior decision against the tribe.
We believe that this lower court decision contravene, the California Supreme Court construction as well as California law.
Both the stride in the state of California have already.
All of them completed the briefing on their separate petitions for review with the California Supreme Court.
We expect to hear whether these petitions will be granted in the next 5 to 9 weeks in the meantime, we have continued to progress our efforts with respect of this very attractive project, including the development of design and initial talks with prospective lending partners, we expected the in a position.
Already fund to provide an update at or prior to our next our next quarterly earnings call.
Lastly, and as previously disclosed on prior earnings call on May 3 we entered into definitive agreements to sell the pumps casino resort in pumps placed for the aggregate price of $650 million of cash to the <unk>.
Failures of the Santa <unk> band of Mission Indians. The closing of this transaction is subject.
Physicians very closing conditions, including regulatory approvals.
<unk> is expected to be completed before the end of the year.
In conclusion as government mandated restrictions fell away in more of our population became vaccinated. This last quarter. We saw the continued return of our core customer while continuing to retain our share of the younger customer demographic.
The company efficient pent up leisure demand led the company to historic revenues. This coupled with our disciplined operating approach to running our business allowed the company of enjoy record high EBITDA EBITDA margin and free cash flow conversion.
But we are happy with these results of the quarter. Our primary focus continues to be the health and safety and wellbeing of our team members and guests on both counts we continue to believe.
As the greater days are ahead.
With our best in class assets and locations unparalleled distribution and scale.
In our own pipeline of 6 strategically located gaming entitled properties. We believe that we are uniquely positioned to capitalize on the very favorable long term demographic trends and high barriers to entry that characterize the Las Vegas locals market.
We'd like to recognize and extend our thanks again to all of our team members for their hard work and for their support us and to our guests for their support throughout this pandemic on.
Operator. This concludes the prepared remarks for today, we're now ready to take cost out of questions from participants on the call.
We will now begin the question and answer session.
Ask a.
Last week you May Press Star then 1 on your Touchtone phone.
If youre 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.
Question the.
Our first question comes from Joe Greff with J P. Morgan. Please go ahead.
Good afternoon, guys on.
Great Great results here.
Given that the locals market is in this.
Great.
Oh you were.
Demand is accelerating.
On the capacity.
It has gone the other way.
Maybe Frank if you can give us an update on how you're thinking of.
Some of these closed properties and the 3 properties that are closed.
How youre thinking about potentially layering them on reopening then and.
If you are thinking of opening of 1 of the 3.
How challenging is it right now to find staff and just labor of Europe.
Suddenly open properties as revenue keeps coming back.
What the labor market is more challenging.
It had been pre COVID-19.
But we got well.
Ahead of the market in terms of wanting to be the preferred in the quarter.
In the Las Vegas locals market and get ahead of what we saw coming with resorts World. So we also kept all of our employees on during the crisis. So it's put us on a better position.
And then if we would have closed the properties.
The reopen.
And then.
So overall, we've done very good and we haven't had any problem of having all of the amenities are open.
Days of week.
Yes.
That's been good I think we from training to evaluate these closed properties. We've come to know conclusion at this point in time.
The open up the <unk>.
And on which property would open.
Our primary focus right now has really been on the wrong growth.
<unk> is a great development opportunity and the most underserved part of the Las Vegas Valley. So that's really where our primary focus has been but will continue to evaluate.
The 3 properties of the close form.
So on when we think they kind of add to the absolute profitability of the company.
Going forward.
And Frank just adding on to your comment on that that Durango.
Didn't hear a project Capex number there so obviously, maybe you're not prepared to disclose it.
Whats holding back on on finalizing that debt net.
The net internally is it bringing in partners is it monetizing part of that 71 acre.
The parcel to sort of partner is it monetizing other.
Land bank or other parcels to.
Net debt costs down I.
I guess, what's sort of the gating issue.
I think Joe I think I'll break it up on the 2 pieces of the first I think is pretty straightforward, we're going through the budgeting and planning process right. Now so we're going through detailed design drawings, completing those drawings and getting them out to our construction partners of of waiting to finalize the pits. So.
So we should be in a lot of kind of you guys with the right.
We want we want to get bids and G M P's and understand where we are I think we'll be there by hopefully in the next earnings call exactly and I think the second piece I think you touched on it the 7.
101 acre parcel of land there, we do believe there's an opportunity to parse off.
The portion of the Atlanta.
And look.
Number of development partners to help on health net debt costs down.
Great. Thanks, guys good work.
Okay.
The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.
Hey, guys. Good afternoon. Thank you.
Obviously Steven.
And Frank when you look at kind of the free cash flow of the business is throwing off right now and you kind of extrapolate out to the end of this year.
Okay.
Steve.
<unk>.
Eric.
But something that some times.
At what point do you say <unk>.
You take a more firm view beyond kind of the the.
The pay for for Durango, whatever that that proves to be.
And.
Perhaps.
Capital return strategy and how do you guys kind of think about.
Yeah.
What's the buyback.
Bill.
Youre breaking up a little bit what are the.
I think your question was relative to start thinking about other ways to return capital to shareholders was able to loans, yes, sorry, I was just noting that the kind of at year end leverage looks like it'll be around 2 times and with the free cash flow you're throwing off obviously durango will be able to be built and you'll probably.
Have some optionality as well so just kind of how do you think about that.
So our ultra a few words on I'll, let Steve and Lorenzo.
And actually walk through.
Going forward I think we want to have a more conservative balance sheet.
We want to have flexibility on the company true variable true.
Take advantage of of all of these high return development opportunities that we have on the Las Vegas market, which we think is the best gaming market in the United States.
And then we also want to have the ability to take a balanced approach to paying down debt buying back stock and paying dividends and we want to have a balance.
Balanced approach I don't know Lorenzo if you have anything.
No.
Sure.
Thank you guys.
The next question comes from Barry Jonas with true of Securities. Please go ahead.
Oh, great. Thank you maybe to start can I.
Can we get your thoughts on the new indoor masked mandate in Nevada would love to get your perspective on what kind of impact that could potentially have on your business.
Obviously.
It's hard to predict the effect that it's going to have any time that you see new headlines of people.
Of all Covid or COVID-19 restrictions and certainly not of positive.
Although the last 12 months average.
A lot of Andrew I would just say, we navigated some much more difficult situations than we're currently.
Have in front of us here and I will say that.
When the mask mandate came off.
Off which I think was early June.
We didn't really see any change in our business, meaning there was no significant upside when people didn't have masks or didn't have the word masks. So.
I can say that our employees, obviously, the ball complied without any issues and.
No.
Talk to you in Q1.
Part of Q2, our customers who are the right announced there didn't seem to be an issue there either but.
We'll have to wait and see how that plays out.
Kind of if there is an impact it's most likely short term and long term, we still feel very strongly above the low.
The long term favorable trends in Las Vegas.
As well as the strength of our platform, we're feeling the positive trends and the growth in the population, particularly we're seeing a lot of new phases of growth in our VIP and higher end segments.
We've seen growth on <unk>.
Q2 over Q1, even on our younger segmentation so general.
Trajectory.
<unk> of those those areas have been positive to us and we're seeing the.
The effects of the overall supply demand dynamics that we've been talking about for decades, I think minus the mask.
The new cycle of the Delta.
And all of the business it feels very good.
I think we have no crystal.
In terms of short term revenue, but I can tell you from a long term perspective.
We think that we have the best locations and the best gaming market and control of 6 great development sites in the market. So we're pretty bullish on the long term viable.
The ability of the of the platform.
That's been incredibly.
The ball of full.
Maybe just tackling of that in a more direct way another outstanding quarter.
EBITDA margins in Vegas record.
The record levels, just curious to get your thoughts on whether these levels are sustainable.
I think that we believe the.
The.
The margin.
Can be sustained with him to ZIP code that we're on.
Quarter over quarter, you may have a little variation of a few hundred basis points, 1 way or the other.
We think the cost side of the business of made a permanent shift.
And then it really is dependent on where the revenues come from.
Sure.
Every incremental dollar that we get through an existing property.
The flow through is extremely high.
So I don't know if your guidance on them.
Yes.
You still got some margin enhancing items coming down the pipe right. We're still bearing about $3.2 million of Covid costs does that $3.6 billion inclusive of the palms, $1.4 million.
On a of close of the company cost.
We're just starting and we're still the debt sales and catering business as well building up are still lagging as well as the theater business and so we expect those high margin businesses to contribute positively.
As we touched on earlier, we've opened up all of our amount of these June 4th of the acceptance of the buffet, which we don't think we'll ever opening.
So every dollar of incremental volume as Frank said, we'll be sure of a positive impact given we're already carrying the fixed cost of those amenities. That's why we're pretty confident on the margin going forward. We don't see any other business lines that are not already online that would be coming online that would be taken away from margin only only areas.
That could potentially.
Leased the lease day, where they are now.
Great I apologize just 1 quick follow up if 50% to 70% flow through was historically, what you guys guided are we structurally like at the higher end or even beyond that now.
Yes, it depends where the revenue is coming from obviously.
And again from slots, it's going to be at a much higher rate.
From food and beverage it'll be.
Lower than that so.
Helpful. Thank you so much guys and congrats on a great quarter.
Thank you.
The next question is from Shaun Kelley with Bank of America. Please go ahead.
Obviously, hey, good afternoon, everyone.
Maybe keeping along without the the last comment I just wanted to get a little bit more color on some of these amenities that were I guess.
When we started the second quarter not fully online, but definitely it reopened.
Once you were allowed to in June can you just give us any sense of.
Neither.
Please some of those are coming back be it on the hotel side. The theater side of the convention side did those go from zero to 100 or do we have room for some of those to ramp sequentially as we move through the third and fourth quarters, even from what we saw in Q2 on on a revenue basis.
Maybe start with the theaters theaters, just really ramped up in May when you had you had.
How quickly can you get a film slate, which has really been each of the big items Thats held them back the theaters or ramping but theyre ramping up slowly Sean. So we expect theres a lot of room to run in the theaters going forward and sales and catering same thing of what we're building up of Big book of business day on building up that book take some time, so we're seeing on the social side.
Most likely in the back half of this year and then the group business is starting to come back in 'twenty, 2 and 'twenty 3.
Terms of the other amenities of the hotel business as I mentioned in the in the remarks, the hotel is really snapback.
Very well so I think we have there as you know we're getting a rate back right back as pre free at pre COVID-19 levels given the for this.
Quarter on more slightly behind occupancy. So there is a lot of room to run in terms of filling the rooms, I think that goes hand in hand with the sales the sales on group business, because we really do need debt midweek room to kind of boost that occupancy.
And then maybe 1 other high level and you've covered plenty of ground on the call, but I would say.
Yes.
Rewind the the kind of a history lesson here there was the tie back you know last cycle and you know were really were probably parts of of the good times, where.
You would get compression or spillover from the strip do you see that on weekends at some of your core property of lets say you know, whether it's green valley or Red.
If we are are you seeing that or are you seeing on a weekend can you just describe a little bit about that that environment of that that fact, and where do you expect it to go from here.
I would say that.
A couple of things 1 is Lorenzo we've taken we've been less reliant upon on what the strip is done.
Red Rock recently meeting, we've kind of set our own zone, and our own sales rate and relative to.
Right.
That we're publishing of that we're able to get kind of all of them.
The segment and the Casino segment has been higher.
Than it ever was really history.
Certainly and the Otas segment has been lower.
So we're kind of getting the nice double whammy that where we're getting nice rate and we think getting a better customer and our rooms as well.
Thank you very much.
The next question is from Chad.
Chad Beynon with Macquarie. Please go ahead.
Hi, good afternoon. Thanks for taking my question and congrats on the quarter.
Given some of record cap rates that we've seen particularly in the.
Southern Nevada has anything changed in terms of your thoughts around owning all of your assets versus.
The store selling of rent stream at near record multiples.
I don't think anything has changed I mean, certainly we.
Take notice of some of the cap rates and we like it.
We think the fact that we own all of our real estate continues to be a very compelling investment opportunity.
For people, who want to own our name.
We're 1 of the few companies left.
That provides that debt structure, that's completely intact.
And I don't know me of Frank as large shareholders kind of like owning the real estate over the long haul. So that's where we think the value is but.
But it's good I think Chad I think it is good to note that youre right.
As record cap rates and it seems that since the birth of the gaming REIT. Several years ago every quarter has been near record cap rate. So it's benefited us from from waiting because it seems like can we liked the fact that we.
On the real estate.
And we also on the upside is Las Vegas market continues to grow.
On the upfront.
Right near where I come from both.
Great. Thanks.
And then just in terms of seasonality normally.
Q3 in the valley.
People start to head out of town for vacation I think seasonally it comes down by about 3 of 4% on a sequential basis I know youre.
So guidance for the back half of the year, but you know do you expect normal seasonality to kind of set in or do you think of this year could be a little bit more pronounced given the lack of vacations people were taking and now they might be out of town more this year than in prior periods.
Nokia of anything that's going to be about the same.
It's tough to tell we don't have the that's 1 where we don't have a crystal ball in terms of.
What our guests are gonna be doing.
Okay. Thank you very much.
The next question is from John decree with the CBR E. Please go ahead.
Good.
Everyone. Thanks for taking my.
My questions are just to perhaps on the on the database and customer segmentation.
Over the past 3 or 6 months.
Have you seen it.
A significant increase in new customer sign ups I guess, how is your your database growth trend.
Good afternoon on being recently through the.
The reopening compare to maybe the historical pre COVID-19.
From a new sign of perspective, it's been not only just.
The extreme we've done extremely well we will be focused on this from an operation standpoint, it's up in the quarter to quarter as well as let's call. It now.
Based on pre Covid levels, not just in terms of the number of new signings, but how active they are with the card. So when they get a card more of.
Some are using it immediately and then when they use it they are much more valuable to the casino.
Okay. That's that's helpful and Steve I think in your prepared remarks, you mentioned that the older.
Customer segment has started to come back more meaningful could you give us a sense of how close to normal that the customer segment has returned perhaps exiting the quarter and how much more.
Room, there could be had.
That's a good question that we've all made of headwind not.
Not only just across the all of the demographic, but all of you know.
All of <unk> segments.
From a customer standpoint of probably 55% to 65% of our customers of return, but are most of the high end customers of returns. So there is still with the chop on the bringing customers back.
Got it thanks for the additional color on.
Interest on the quarter guys.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Stephen Coutee for any closing remarks.
What's the thank you for taking the time to join our call on we look forward to talking to you next quarter. Thank you very much.
Congrats the conference is now concluded. Thank you for attending today's presentation you may now disconnect.