Red Rock Resorts, Inc. (NASDAQ:RRR) Q3 2023 Earnings Call Transcript
Red Rock Resorts, Inc. (NASDAQ:RRR) Q3 2023 Earnings Call Transcript November 7, 2023
Red Rock Resorts, Inc. beats earnings expectations. Reported EPS is $0.6, expectations were $0.38.
Operator: Good afternoon, and welcome to Red Rock Resorts Third Quarter 2023 Conference Call. All participants will be in a listen-only mode. Please note, this conference is being recorded. 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 Resort. Please go ahead.
Stephen Cootey: Thank you, operator, and good afternoon, everyone. Thank you for joining us today on Red Rock Resorts third quarter 2023 earnings conference call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Kreger, 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. Definitions and a 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. Before we get into any of the details, similar to our financial and operating results in the first half of the year, the third quarter represented another strong quarter for the company. The quarter represented our third best third quarter in the history of the company in terms of same-store net revenue, adjusted EBITDA and adjusted EBITDA margin only surpassed by the unprecedented third quarters of 2021 and 2022. Team continued to validate our core strategy of reinvesting in our properties to deliver fresh and relevant amenities to our guests, while remaining focused on best-in-class customer service. In executing this strategy, the team delivered another strong quarter across all business lines, this quarter, marking the 13th consecutive quarter that the company delivered adjusted EBITDA margins in excess of 45%.
And through the first nine months of the year, the company remains on pace to have the best financial year in the history of our company. Now let's take a look at our third quarter results. With respect to our Las Vegas operations, third quarter net revenue was $408 million, down $3.6 million from the prior year's third quarter. Adjusted EBITDA margin was $191.4 million, down $8.5 million year-over-year. Our adjusted EBITDA margin was 46.9%, a decrease of 69 basis points year-over-year. On a consolidated basis, the third quarter net revenue was $411.6 million, down $2.8 million from the prior year’s third quarter. Adjusted EBITDA was $175.2 million down $6.7 million year-over-year. Our adjusted EBITDA margin was 42.6% for the quarter, a decrease of 132 basis points year-over-year.
In the quarter, we converted 53% of our adjusted EBITDA to operating free cash flow, generating $91.9 million or $0.88 per share. When looking at our year-to-date cumulative free cash flow, we converted 53% of our adjusted EBITDA to operating free cash flow, generating $290.5 million or $2.78 per share. This significant level of free cash flow was reinvested in our long-term growth strategy, including our Durango project, were return to our stakeholders via debt paydown and dividends. Throughout the quarter, we remained operationally disciplined and focused on our core local guests as we continue to grow our regional and national segments. When comparing our results to last year's third quarter, we continue to see upside from strong visitation in our regional, national and VIP segments.
This strength, coupled with strong spend per visit across the majority of our portfolio, allowed us to enjoy near record third quarter revenue and adjusted EBITDA results across our gaming segments. Turning to the non-gaming segments, both hotel and food and beverage continue to grow year-over-year and delivered near record profitability in the third quarter. Our hotel division experienced its highest third quarter revenue and profit in our company's history driven by our team's success on continuing to drive higher occupancy and ADR across our hotel portfolio. Food and beverage experienced near record third quarter revenue and profitability, driven by higher average check across our food and beverage outlets and the continued strength of our catering business.
Our catering revenue continues to remain strong, as this quarter represented the ninth consecutive quarter of double-digit year-over-year growth in this business segment. In regard to our group sales business, we continue to see positive momentum driven by the growth of room nights, ADR and our catering revenue as our pipeline continues to grow into the rest of this year and into the beginning of 2024. As we begin the fourth quarter, we like what we see so far as our business across both our gaming and non-gaming segments remain stable, consistent to what we've seen throughout this year, though we will continue to face challenging year-over-year comparisons over the next several quarters. On the expense and labor side, we remain operational discipline and continue to look for ways to become more efficient while providing best-in-class customer service to our guests and continue to be the top employer of choice in Las Vegas Valley.
Despite a tougher year-over-year comparable, the company was able to manage its expenses and generate near record financial performance and continue to return capital to our shareholders. These results demonstrate the resilience of our business model, the sustainability of our operating margin, the ability of our management team to execute on a long-term growth strategy and take a balanced approach to returning capital to our shareholders. During the quarter, we remain committed to strategically investing in our core strategy, which includes expanding our footprint in Las Vegas and offering new amenities to our guests at our existing locations. Over the past several months, we successfully opened Stoney's North Forty bar, a new poker room and a new high limit slot room in our Santa Fe Station property, as well as Game On sports bar at our Boulder Station property.
We are pleased with the early results from all of the amenities we've opened up in 2023 and expect to continue to invest in additional amenities, which will include our new high-limit slot and table room at our Green Valley Ranch properties opening later this year. Now let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the third quarter were $122.8 million, and the total principal amount of debt outstanding was $3.3 billion, resulting in net debt of $3.2 billion. As of the end of the third quarter, the company's net debt to EBITDA and interest coverage ratios was 4.37 times, and 4.5 times, respectively. As we stated on previous earnings calls, our leverage will continue to tick upwards as we complete the construction of our Durango project.
And upon the completion of Durango, we will expect to delever towards our long-term net leverage target of three times net leverage. Capital spend in the third quarter was $135.4 million, which includes approximately $119.4 million in investment capital inclusive of Durango, as well as $16 million in maintenance capital. For the full year 2023, we now expect to spend between $70 million and $90 million in maintenance capital and a total of $550 million to $600 million in growth capital inclusive of Durango. Now let's provide an update on our development pipeline. We continue to prepare for the scheduled opening of our Durango Resort, which we've now moved to December 5 in order to ensure a first-class opening of the resort. As we've mentioned before, we are extremely excited about the addition of this resort to the Red Rock family, which is situated on a 50-acre site ideally located off the 215 Expressway and Durango Drive in the Southwest Las Vegas Valley.
The resort is located in the fastest-growing area in the Las Vegas Valley of a very favorable demographic profile and no unrestricted gaming competitors in the 5-mile radius. As we look at open Durango, we expect some movement in the budget, but we do not expect the budget to be materially different than the $780 million we disclosed in our prior earnings call. The company still anticipates the return profile for Durango to be consistent with our prior greenfield developments. Turning now to North Fork. As we noted in our last quarter, after favorably resolving all of its other litigation, the tribe has a single remaining case in the California courts. We do not believe the case will interfere with the right or ability of North Forks to conduct gaming on its federal trust land.
And we continue to work with the tribe to progress our efforts with respect to this project, including working toward the approval of a management agreement, continuing our work on the development and design and having preliminary talks with prospective lending partners. We are making good progress on these fronts, and will continue to provide updates on our quarterly earnings calls. On the real estate front, as noted on our last earnings call, we have made significant progress with respect to the sale of our former Texas station and Fiesta Rancho properties. While we cannot disclose the terms, we anticipate the closing of these two real estate parcels later this quarter. These potential transactions represent a continued execution of our long-term real estate development strategy as we look to reposition and upgrade our real estate portfolio for the next chapter of growth at station casinos.
Lastly, on November 6, the company's board of directors declared a cash dividend of $0.25 per Class A common share, payable on December 29 to Class A shareholders of record as of December 15. With our best in class assets and locations coupled with our development pipeline of seven owned development sites, located in the most desirable locations in the Las Vegas Valley, we have an unparalleled glow story that will allow us to double the size of the portfolio and capitalize on the very favorable long-term demographic trends and high barriers to entry that characterize the Las Vegas locals market. We would like to recognize and extend our thanks to all of our team members for their hard work. Our success starts with them and they continue to be the primary reason why our guests return time after time.
We would like to thank them for voting us the top casino employer in the Las Vegas Valley for the third consecutive year. We are also very proud to share that Forbes selected us, selected our Red Rock Casino Resort and Spa as the top overall casino resort hotel in Las Vegas, which we consider a tremendous recognition of our efforts and those of our team members. Finally, we would like to thank our guests for their loyal support each of the last six decades. Operator, this concludes our prepared remarks today and we are now ready to take questions.
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