Red Rock Resorts, Inc. (NASDAQ:RRR), a leading gaming and entertainment company in the Las Vegas regional market, reported impressive second quarter 2024 results, driven by the continued strong performance of its Durango Casino & Resort and resilience across its core Las Vegas portfolio.

Financials

For the full year 2023, Red Rock reported annual net income of $176,004,000, annual revenue of $1,724,086,000, annual operating cash flow of $494,337,000, and annual free cash flow of -$207,287,000. In the second quarter of 2024, the company generated net revenue of $486.4 million, up 16.9% year-over-year, and adjusted EBITDA of $201.7 million, up 15% year-over-year. The company's adjusted EBITDA margin for the quarter was 41.5%, a decrease of 67 basis points from the prior year period.

Durango Casino & Resort Performance

The strong second quarter results were primarily driven by the continued ramp-up of the Durango Casino & Resort, which opened in December 2023. The Durango property contributed significantly to the company's growth, with the team executing well and driving incremental play from existing customers as well as attracting new customers to the brand. In the second quarter, Durango increased visitation and net theoretical win in the surrounding Durango area by approximately 90% and 88%, respectively, while signing up over 55,000 new customers to the company's database.

While the opening of Durango did result in some cannibalization at the company's Red Rock property, as expected, management remains confident in their ability to backfill this revenue given the strong long-term demographic growth profile of the Las Vegas Valley and the proximity of their properties to high-growth areas within the region.

Durango Expansion Plans

Recognizing the success and potential of the Durango property, the company announced plans for a significant expansion of the facility. The next phase of the Durango project will add over 25,000 square feet of additional casino space, including a new high-limit slot and bar area. In total, the expansion will add an additional 230 slot machines, including 120 slot machines dedicated to the new high-limit room. Additionally, the company will be adding an additional covered parking garage with almost 2,000 convenient parking spots to improve customer access and provide flexibility for future expansions.

Las Vegas Portfolio Performance

Across the rest of the company's Las Vegas portfolio, Red Rock continued to execute on its strategy of reinvesting in existing properties to deliver fresh and relevant amenities to its guests. During the quarter, the company successfully opened new restaurant offerings at its Green Valley and Palace Station properties, and completed an upgrade to the Race & Sports Book and a partial casino remodel at its Sunset Station property. Management expects these new amenities to drive incremental visitation and spending at these locations.

Outlook

Looking ahead, the company remains focused on its core local guests while continuing to grow its regional and national customer segments. Management expressed confidence in the stability of the local market and the strength of the company's database, noting positive trends across all customer segments, including strong growth in its VIP, regional, and national customer groups.

Operational Efficiency

On the expense side, Red Rock maintained its operational discipline, managing costs effectively while continuing to provide best-in-class customer service. The company's adjusted EBITDA margin of 41.5% for the quarter, while down slightly year-over-year, remains near record levels and demonstrates the resilience and sustainability of the company's operating model.

Capital Allocation

In terms of capital allocation, Red Rock continued to take a balanced approach, reinvesting in its properties, deleveraging its balance sheet, and returning capital to shareholders. During the quarter, the company made $78.6 million in capital expenditures, including $35.9 million in investment capital for the Durango project and $42.7 million in maintenance capital. The company also paid $74.1 million in dividends to Class A common stockholders and $57.5 million in cash distributions to the noncontrolling interest holders of Station Holdco.

Looking ahead, the company expects full-year 2024 capital expenditures, excluding the Durango project, to be between $140 million and $180 million, split between maintenance and investment capital. Management also remains committed to its long-term leverage target of 3x net debt to EBITDA, with the company's net debt to EBITDA ratio currently at 4.2x.

Development Projects

On the development front, the company continues to make progress on its North Fork project, a gaming and entertainment facility being developed in partnership with the North Fork Rancheria of Mono Indians in California. The company expects to begin preparatory site work on the project next month, with construction to follow in the fourth quarter of this year. The total construction time for the North Fork project is currently anticipated to be between 18 and 20 months, with an expected opening in 2026.

Conclusion

Overall, Red Rock Resorts delivered an impressive second quarter performance, demonstrating the strength and resilience of its business model and the success of its strategic initiatives, particularly the Durango Casino & Resort. With a robust development pipeline, a focus on reinvesting in its existing properties, and a disciplined approach to capital allocation, the company appears well-positioned to continue driving long-term growth and value creation for its shareholders.