Red Rock Resorts, Inc. Class A Aktie

Good day, and welcome to the Red Rock Resorts First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Stephen Cootey, 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 for Red Rock Resorts First Quarter 2026 Earnings Conference Call. Joining me on the call today are Frank Lorenzo Fertitta, Scott Kreeger and 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. For definitions and 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 this call is being recorded.

Let's start by noting that the first quarter represented another strong quarter for the company across all key measures. Our Las Vegas operations delivered the highest first quarter net revenue and the second highest first quarter adjusted EBITDA in our history while maintaining near record adjusted EBITDA margin. This performance was achieved despite several headwinds later in the quarter including higher gas prices, air travel-related disruption and temporary construction impacts at and around several of our properties, underscoring the strength and resilience of our business model.

In addition to delivering strong first quarter results, we remain very pleased with Durango's performance and the successful revenue backfill at our core properties. Durango continues to expand in the Las Vegas locals market and drive incremental play from our existing customers reinforcing its position as a meaningful growth driver in our portfolio.

Since completing our December expansion, adding more than 25,000 square feet of casino space, the premier high limit slot area, and nearly 2,000 additional covered parking spaces. We've continued to see strong financial performance alongside positive guest feedback.

With more than 4 months of operating history for the new high limit slot area, results continue to validate our strategy of investing in premium slot and table offerings across our portfolio.

Building on Durango's momentum, we continue to advance the next phase of the property's master plan, the Durango North expansion. With more than 6,000 new households expected with a 3-mile radius over the next few years, this expansion is designed to broaden Durango's customer appeal and strengthen its competitive position.

The project will add more than 275,000 square feet on the north side of the property, including nearly 400 additional slot machines and other gaming along with new amenities to drive repeat visitation, highlighted by a 36 lane bowling facility, luxury movie theaters and new dining and entertainment venues, including our partnership with Moonshine Flats, which brings its signature Country Western Bar and live music concept to Las Vegas for the first time. The project is scheduled to open in the summer of 2027 with a total cost estimated at approximately $385 million.

Now let's take a look at our first quarter. With respect to our Las Vegas operations, our first quarter net revenue was $499.5 million, up 0.9% from the prior year's first quarter. Our adjusted EBITDA was $232.4 million down 1.5% from the prior year's first quarter. Our adjusted EBITDA margin was 46.5%, a decrease of 113 basis points from the prior year.

On a consolidated basis, our first quarter net revenue which includes $4.7 million from our North Fork project, was $507.3 million, up 1.9% from the prior year's first quarter. Our adjusted EBITDA, which includes $2.9 million from our North Fork project, was $212.6 million, down 1.2% from the prior year's first quarter.

Our adjusted EBITDA margin was 41.9% for the quarter, a decrease of 129 basis points from the prior year. In the quarter, we converted 50.3% of our adjusted EBITDA into operating free cash flow, generating $107 million or $1.03 per share. The significant level of free cash flow was strategically deployed to support our long-term growth initiatives, including our most recent projects at Durango, Sunset Station and Green Valley Ranch and returning capital to our stakeholders through dividends and share repurchases.

As we begin 2026, we remain focused on our core local guests, which continue to grow our regional and national customer segments across our portfolio. Compared to first quarter last year, we saw continued strength in Carter slot play across the majority of our database, robust spend per visit and net theoretical win across our local, regional and national customer segments, helped drive the highest first quarter gaming revenue and profitability in the company's history.

Turning to our non-gaming operations. Both the hotel and food and beverage divisions delivered a strong quarter, achieving near record revenue and profitability. The hotel operations performed well, generating near record results, driving higher ADR across the portfolio despite the loss of room nights at Green Valley Ranch due to the renovation of our hotel product.

Not to be outdone, the Food & Beverage division delivered its second best first quarter revenue in our history and its third best first quarter profit in our history, supported by higher cover counts and higher average guest checks across our outlets. In group sales and catering, our teams delivered their third highest first quarter revenue in our history. And if we exclude the lost room nights from our Green Valley Ranch room renovation, we continue to see positive momentum into the first half of 2026.

As we look ahead into the second quarter, we are seeing stable trends in our core slot and table business across the Las Vegas locals market and within our gardens database, consistent with a return to more typical seasonal patterns, but we continue to where we expect continued near-term disruption from our ongoing construction at and around Durango Sunset Station and Green Valley Ranch, and we're actively managing these impacts to minimize operational disruption. We remain highly confident in both the strength for our business and the investments we are making at these properties, which we believe support our long-term growth trajectory.

Now let's cover a few balance sheet and capital items. Company's cash and cash equivalents at the end of the first quarter was $134 million, and the total principal amount of debt outstanding was $3.6 billion, resulting in net debt of $3.4 billion. As of the end of the quarter, the company's net debt-to-EBITDA ratio was 4.07x.

During the quarter, we made total distributions of approximately $139.9 million to the LLC unitholders of Station Holdco, including a distribution of approximately $82.1 million to Red Rock Resorts.

The company used its portion of the distribution to fund its previously declared special dividend of $1 per Class A common share, its previously declared quarterly dividend of $0.26 per Class A common share and to fund a portion of the repurchase of approximately 635,000 Class A common shares at an average price of $6.32 per share under its previously announced $900 million share repurchase program, reducing total shares outstanding to approximately 104.4 million. When combining the dividends and the share repurchases made in the quarter, we returned approximately $170.5 million to shareholders. demonstrating our ongoing commitment to disciplined capital allocation and delivering sustainable long-term value to our shareholders.

Capital spend in the quarter was $117.2 million which includes approximately $87.2 million in investment capital as well as $30 million in maintenance capital. For the full year 2026, we expect to spend between $375 million and $425 million, which includes $275 million to $300 million in investment capital as well as $100 million to $125 million in maintenance capital.

In addition to our continued investment at our Durango property, we're making significant investments at our Sunset Station and Green Valley Ranch properties. At Sunset Station, we continue to make strong progress on the podium refresh. The $53 million renovation is well underway and includes an all-new country Western bar night club, a new Mexican restaurant, a new center bar and a fully renovated casino floor.

Customer feedback and performance from the completed portion of this project have been encouraging, reinforcing our confidence in the direction of the renovation and the underlying demand in the property. The project remains on budget with the remaining amenities expected to come online throughout 2026, including the iconic gouty bar, which is expected to reopen in the coming weeks.

Building on this momentum, we are advancing the next phase of Sunset Station designed to further strengthen the property's competitive position and broaden its customer appeal, positioning it to capitalize on the continued growth in Henderson market, particularly from the master planned communities of a Skye and Cadence. This phase will continue with the comprehensive casino refresh, including the expansion and enhancement of the movie theaters as well as the relocation of the temporary bingo area to a new permanent location.

Upon completion of Bingo relocation, the former buffet space will be converted into a new Highland steakhouse and the high limit table games room leveraging a proven strategy that has consistently generated strong returns across our portfolio. Work in this space is expected to begin this quarter with the remainder of the project commencing in the back half of 2026 and extending into 2027. The total cost of this phase remains approximately $87 million.

At Green Valley Ranch, we continue to make strong progress on the comprehensive refresh of our guestrooms, suites and convention spaces, align the hotel experience with the recently renovated and well-received high limit table and slot rooms at the property.

Renovations to the West Tower and convention spaces are now complete with both the tower and convention areas have reopened to strong customer views and encouraging financial performance despite ongoing property disruption. Renovations to the East Tower are well underway and are expected to extend into late summer 2026.

Continuing with Green Valley Ranch long-term development -- redevelopment strategy, we're advancing the next phase of enhancements of this resort. This phase is designed to further strengthen the property's competitive position as one of the premier resort destinations in Las Vegas and broaden its customer appeal through a fully refreshed casino floor, along with upgraded food and beverage and entertainment offerings.

These enhancements build on the performance we are seeing from the high limit product and the renovated room and convention inventory and our intent to drive increased visitation and deeper customer engagement. Work in the space is underway and is expected to extend into 2027 with the total cost of this space estimated at approximately $56 million.

Turning to North Fork. Construction continues to progress. The facility now is permanent power, and we're working toward turnover of the first phase of the casino floor in late June, keeping us on pace for an early fourth quarter 2026 open. Total all-in project cost remains approximately $750 million and the project is fully financed.

As of the end of this quarter, Red Rock's outstanding note balance due from the Tribe was approximately $80.6 million. We remain excited about this best-in-class development and are pleased with the continued progress of construction and look forward to providing further updates on future earnings calls.

The company's Board of Directors has also declared its regular cash dividend of $0.26 per Class A common share, payable on June 30 to Class A shareholders of record as of June 15.

With the first quarter behind us, we remain highly confident in the strength and resilience of our business model, as well as in the recent capital investments we have made across the portfolio. Durango continues to validate our long-term growth strategy and underscores the value of our owned development pipeline and real estate bank which includes more than 450 acres of the developed land in the highly desirable locations across the Las Vegas Valley. Combined with our portfolio of best-in-class assets in premier locations, this pipeline positions us for significant long-term growth and enables us to capitalize on the favorable demographic trends and high barriers to entry that define the Las Vegas locals market.

Looking ahead, we remain focused on executing our development pipeline, maintaining operational discipline and delivering enhanced shareholder returns through a balanced, consistent and disciplined capital allocation strategy.

Before we wrap up, we'd like to sincerely thank all of our team members for their continued hard work and dedication. They are the heart of the company and the driving force behind the exceptional guest experiences to keep our customers coming back time and again. In recognition for their efforts, we are proud to share that Station Casinos has been recognized by Forbes and Statista as one of America's best large employers in 2026. We are also proud to have been recognized for the sixth consecutive year as Top Workplace in Nevada. In addition, we've earned national recognition as USA TODAY Top Workplace for the third consecutive year and for the first time as a top workplace in the hospitality industry.

Lastly, as we approach our 50th anniversary, we extend our heartfelt gratitude to our loyal guests for their unwavering support. We are deeply thankful for the trust they place in us and look forward to continuing to serve our communities for many years to come.

With that, operator, we'd be happy to open the line for questions.

[Operator Instructions] And our first question for today will come from Trey Bowers with Wells Fargo.

This is Zach Silverberg here filling in for Trey. In your prepared remarks, you mentioned a couple of headwinds. I'd like to touch on the first 2, the higher gas prices in their travel. Could you quantify those 2 buckets what the impact was in 1Q and kind of what you're seeing in 2Q thus far?

No. I mean I can qualify -- I mean clearly, we're experiencing higher gas prices in Nevada. I think we're in early days. as judged by our Q1 performance and what we're seeing in April, we've seen no impact from higher gas prices. And what was the second one, Zach?

The air travel?

The air travel, given the fact, while 87% of our hotel guests are generally out of town, the majority of these folks are driving from the regional states. So the TSA impact has been de minimis.

Okay. And just -- I appreciate the color. And just for the follow-up, just on seasonality for 1Q to 2Q. Could you remind us of the typical cadence? And are there any one-timers to call out either last year or this year that could affect performance?

Yes, sure. I mean I think generally, seasonality, Q1 is definitely our peak quarter moving from Q1 to Q2, generally were down 8% to 9%. And from a onetime -- there's no real one timers other than the $9 million disruption number that we've previously quoted in our last call, which still stands. And given some of the construction delays we're seeing at Green Valley. We're expecting another $9 million of disruption to occur in Q2. And then as we start bringing cranes, cement trucks and start erecting steel at our Durango site, we're anticipating another $2 million to $3 million of disruption starting next quarter.

Your next question will come from Barry Jonas with Truist Securities. .

Steve, just wanted to follow up on Durango. Obviously, you got a new slide in the deck somewhat detailing and there's a great video there, too. I was just curious, I think the projects in the vicinity goes through July of '27. How should we be thinking about disruption between now and then beyond the -- what you outlined for next quarter?

Sure. I mean, I think as you saw from the video and from the map, we did experience significant traffic disruption in the first quarter. I think the team on the ground did an exceptional job managing through that disruption that this is early days in a $385 million construction project. So now we start beginning the heavy lift and the cement has effectively poured. We're starting to mobilize cranes early this quarter. and we're going to start erecting steel. So this is why we're expecting a bit more significant disruption as we go through the main poor part of the build. So the $2 million to $3 million estimate for disruption sticks pretty much through the summer to the completion of the project.

Understood. And just for a follow-up, tax refunds are sort of kicking in now. Curious if that's showing in your business at all, especially with the no tax on tips and some of the other positives in the one big beautiful bill?

I mean, Barry, I think the build is job. I think you saw where return processing was pretty constant. The amount of refunds this year versus last year was almost $43 billion to the United States economy up 17%. And the average refund was up almost $333 or 11%. So the build did have its intended consequence of providing more discretionary income into the economy from our perspective where there's a lot of moving parts in the quarter, as you know. But I think we clearly demonstrated we had a great quarter in Q1, our second best Q1 on record. And then what we're seeing in April, we like what we're seeing in April.

Your next question will come from Joe Stauff with Susquehanna.

Steve, on your comments about, say, the new phases at Suncoast and GVR. I was just wondering what the update is on the greenfield project and how you think about maybe when those might layer in at this point?

I want to comment on Suncoast.

Well, the sunset and the Green Valley projects, Joe, I think as I articulated in the marks, we are progressing on said we are progressing well. We're going to open the Gaudi Bar in the weeks and then we expect the rest of the menus in our phase to open up throughout 2026. In terms of Green Valley, the West Tower and the convention center have been open, and we have seen very promising financial results, even though they're early days. the East Tower, we're limping along a little bit, and so we're expecting kind of the suite product and the final rooms to be delivered in mid-September.

Yes. This is Lorenzo. Look, we're continuing to work through the pipeline that we have. We're currently working on what is a potential to add rooms at Durango, rooms, spa, handsome additional meeting space -- in addition to that, we're actively working on 2 additional new greenfield projects going through the process of working on the plans, the scale of the project, working on pricing -- and as that process goes, it's really not something that you can necessarily rush. There's times when we go through it and we sit back down and start over again because it's not perfect. So we are making progress, and we don't have anything to announce now or necessarily in the very near future.

But as we kind of turn the corner into next year, I think we'll have more visibility into what the development plan is going to look like. I mean we do have 6 development properties here in Las Vegas, plus 1 up in Reno for a total of 7, which is, we believe, the most robust pipeline anybody has in the gaming industry. So we're very bullish on it. We just want to make sure we get things right. It takes time to develop these projects.

Next question will come from Dan Politzer with JPMorgan.

It's been a few months since you opened the new part of Durango. Can you talk about what you've seen there and how you're thinking about the returns? I know it's still relatively early, but at this point, you should have, I think, probably a good idea of how that's progressing. .

Dan, this is Scott. Yes, we're really happy with the early results of the Durango expansion. If you recall, we not only increased the casino floor with slot machines, but also added the new slot limit room. And just about every quarter Steve have been reporting on what we call the Durango zone. And that area saw notably increased net deal for the quarter over last year.

And it really is confirming the thesis that continued capital investment in Durango is a good thing. And that's with the team fighting through some of this disruption that you probably see on the investor deck with the traffic situation. So we're really encouraged with what's going on there.

Got it. And just for my follow-up, just to clarify, the disruption for the second quarter, you said $9 million for GVR and then an incremental $2 million to $3 million related to Durango. So just 11% to 12%, correct? Just clarifying that.

That is correct, Dan. .

The next question will come from John DeCree with CBRE.

I would love a little bit more detail on the EBITDA margin declines year-over-year, trying to unpack what might be attributable to disruption in the quarter and transitory versus perhaps a little bit more persistent OpEx inflation?

Not a problem. But one thing I did want to point out that from an EBITDA perspective, we feel very comfortable with our margins given some of the structural changes we've made over the last several years in terms of -- and proud to say that Q1 represented the 21st quarter of the last 23 since Cove where Las Vegas operations was about 45%.

But then to get to your question, I think we've done a great job managing payroll. Payroll is probably up a little under 3%, which is in line with the Valley COGS, which is another large cost flat to down, really, the majority of the EBITDA margin degradation can be contributed to the really-the Green Valley hotel disruption. -- which is probably almost half of that margin degradation and then a few uncontrollable such as we had elevated utilities costs this quarter as well as loss and some loss of damages.

Great. And just as a quick follow-up, -- any insight into hotel demand at the renovated Green Valley Ranch rooms or the business more broadly as we think about differentiating that hotel customer from the strips hotel customer that's facing some weakness right now?

This is Scott. Let me take the broad-based performance. We were really happy with the performance in the hotel for the overall brand. Now you have to caveat that we had about 27,000 room nights offline or about 10% of our inventory at Green Valley Ranch. Given that we still were positive year-over-year in hotel revenue. So the rest of the portfolio did a nice job of addressing some of the headwinds that Steve talked about with TSA issues, fuel prices and then, of course, those units being done.

As far as the West Tower that is available and the new banquet space, customer feedback, both from a transient customer and from a sales customer standpoint, it's been phenomenal. And it's our view that those rooms are probably the nicest rooms in town right now. from a competitive standpoint and a quality standpoint. We're seeing increased ADR growth as we expected out of refreshing those rooms.

And really, the story for Green Valley is to get through the rest of the room remodel and call it, late September to kick in to maximizing the full capital investment where we've got all the rooms up and running and we've got the banquet space. And so we look forward to that happen soon.

As far as general health going forward, we like where we are in April relative to hotel -- it's early in the summer booking window. But if you kind of look at competitive set, let's call it, on the 60-day booking window, we are seeing green shoots in core and 5-star hotel ADRs. And we do like the fact that the strip is addressing some of the tourism concerns around value. There's a lot of inclusive packages available in the market for that customer that's seeking value. So we're optimistic about the summer, but it's really early in the booking window to come.

Your next question will come from Grant Montour with Barclays.

It's Christie off for Brad. I just wanted to clarify on the seasonality from 1Q to 2Q. I just want to make sure I heard that right that you said it was typically down 8% to 9%. And then in terms of -- I appreciate the color on the 2Q disruption costs of $9 million at GVR and $2 million to $3 million at Durango I just wanted to clarify, what was that in 1Q? I think last quarter, you mentioned it was $9 million for GVR.

Yes. So the clarification point, you did hear the seasonality, right, typically going back that we are down 8% to 10% between -- excuse me, 8% to 9% between the first quarter and the second quarter. On terms of -- or, I'm sorry, I lost your second question again, my apologies. .

The -- I appreciate the color on the 2Q disruption costs, but how did that compare to 1Q for GVR and Durango?

1Q GBR was -- we previously announced $9 million that you came in pretty much spot on $9 million and Durango, despite seeing a lot of traffic disruption the teams kind of managed through it to have just a marginal impact. .

And then switching over to North Ford. Can you guys provide any color how you expect that property to ramp? I think in the past, you have seen a potential to be similar to Gun Lake?

Yes. I think -- look, I think just optically looking at ramps, we're pretty good at understanding these traditionally -- each market has its own competitive pressure. Certainly, there are 3 competitive properties in the area. We expected in the early days that they might be promotionary in how they approach our opening -- but we expect in the typical projects, it may take a couple of years to ramp up and to really get the database acclimated and to grow that database. But given our location, given the quality of the product and our knowledge of that kind of, call it, mid-California market and the team that we have there, we expect to do quite well.

Yes, we would expect the property to be profitable from day 1. So it's just a matter of fine-tuning it and growing the revenue base and managing the expenses on a go-forward basis. So probably a little bit of a shorter ramp than, say, Las Vegas typical .

Two years maybe .

Typical Las Vegas as I think so. .

Yes. And then -- and I think we've articulated maybe several quarters ago that stabilization this is about a $40 million to $50 million revenue product for us.

Your next question will come from Stephen Grambling with Morgan Stanley.

Maybe a follow-up just on GVR and the room renovations. What does the total spend of somebody who's staying on property there kind of compared to the average. I mean when you're quantifying that disruption, is that purely the hotel revenue that's come out? Or are you able to kind of decipher what other netting, you can see if you get that customer coming back somewhere else or getting other spend?

Yes. You can actually -- it's pretty much by the room. So you can pretty much nail this. From a disruption standpoint, this is absolutely not an exact...

Room revenue and gaming revenue.

It's come a -- that's what I was going to say. And so -- well, an exact size when it comes to rooms, there's more science to it. And so where Frank was getting to it's a combination. The majority is going to be room revenue majeure. And then the second point is going to be convention revenue and catering, right? You'd expect that given the rooms that are out and the catering spaces are out. but then it's all -- then there is a significant portion of food and beverage and gaming that are associated with those rooms.

Right. And so I guess you're including that in that disruption as part of that estimate because I guess what I'm trying to think through is as we bring those rooms back, I imagine that's a higher spending customer, perhaps the benefit that you get is when it comes back, should be theoretically much bigger than the disruption that you're describing. Yes.

Once we get it dialed in. Yes, absolutely. That's right.

Your next question will come from Jordan Bender with Citizens.

Steve, I want to go back to the higher gas price comments. You kind of made it sound like April were back to normal, and the consumer is acting normal. Were those comments in March, you were seeing higher gas prices impact foot traffic into the casino? Or how should we think about that?

I mean, I think as we kind of go through the progression of the quarter, right, January was strong, February was strong. March was impacted by everything you read in the news, which included some higher gas prices. And then -- but we were very happy with the way April right now is tracking to be 1 of the best Aprils on record. So far, gas, but we haven't seen too much of an impact from higher gas prices. .

Yes, March was a -- it wasn't a bad month. It was fine, but we think it was affected by that, by gas, by the war, the uncertainty as well as just the TSA situation was a bit untenable. The goodness it's over and behind us, at least it seems. But for that 2- or 3-week period, I think people just were hesitant to get on a commercial airline because they didn't want to wait in the airport for 2 to 3 hours to get on their flight. So it definitely affected things. But in no way was it a bad performance money.

Got it. And then the other part, the construction disruption that you're seeing around town -- are you able to capture those players at other properties via your database? Or are you just losing those visits from those players to specific properties?

This is Scott. Yes, I think you hit it on the head. We have quite a broad distribution of properties in very convenient drive times of each other, and we kind of call it crossover play. And what we'll see is if we can't mitigate that disruption with the customer, they'll typically land in an adjacent property of ours. And we watch that very closely from a database perspective as well. So if we see decline in any known customer. We certainly have programs to address that. .

Your next question will come from Chad Beynon with Macquarie.

You mentioned that you're starting to do some of the early work on additional greenfield projects. So with the outline CapEx that you have going on over the next 18 months, in the current leverage, what's the maximum leverage that you'd be comfortable levering up against in this market?

We kind of articulate right now, we're about 4.07x. The balance sheet is we feel it's very strong. Interest expense has come down for the past 4 quarters in a row right now. There's no short-term maturities and the credit agreement is incredibly flexible. And as we said in the past, Chad, that while we'd love to keep maintaining leverage on and around 4 for the right opportunities that we would spike leverage up. I think once you start topping -- that's really where you start kind of -- kind of you start getting a little concerned Doria project .

Look, we have North Fork coming on. We have a note receivable from North Fort around $80 million we expect that thing to be profitable from the day that we opened it up. And we're going to continue to have some of these new investments come online where we're upgrading the properties we have at Sunset, Green Valley, et cetera. So...

Durango [indiscernible] the summer. So like Frank said, our expectation is that we'll be getting a return on the capital is currently in the ground. So our expectation is that EBITDA will grow. And then we're going to make a decision on what property or what project is next and how we're going to layer these things in. But I think we're very comfortable with...

While you're on reproduction.

And knowing that as you're investing in new assets, you're going to generate new EBITDA, which is going to once they open, obviously, get you back in line to where you want to be long term.

Okay. Yes. That makes sense. And then you kind of touched on this a little bit with the database and what's going on the strip with some of the all-inclusive deals. But are you starting to see strip operators start to market locals in a way that we haven't seen for several years, whether it's slot credits or hotel rooms or anything else that could increase the promotional or competition landscape? -- in the near term.

Yes. We don't see anything that would cause us to change what we're hearing or expect that it was anything different than what's happened in the past.

Yes, ship operators historically have always taken a shot at local some maybe with more success than others, but nothing has necessarily changed that I've seen. You haven't seen anything, Scott, right?

No.

Your next question will come from David Katz with Jefferies.

Heard some earlier this week commentary from a hospitality company on a little bit of change in the shape recovery and seeing some strength in the lower end, which has shown up in some of the hospitality numbers. Are you seeing anything like that? Because it's as though we've talked about the bottom of your database being a little pressured for quite a while.

I think the place to look for any kind of change there is in the absolute discretionary. So if you look at eating out I'll reference food and beverage and entertainment -- we had a great quarter. We were up year-over-year. We increased cover count. We increased average check. Overall revenue and profit in Food and Beverage is up. And to me, that's probably 1 of the more absolute discretionary items in our business, and it's kind of a bellwether for us as to the health of that customer. And like Steve said, we had a record gaming quarter. So they're also here plan slots and other gaming casino games. And so right now, it looks healthy.

It's not that our low end has been under pressure for a while. It's Post-COVID, we changed our business level. And we've really reinvested in high limit slot rooms, high limit table games. We're not in the promotion business anymore we're relying on our best-in-class locations, best-in-class buildings, having the best employees to take care of the guests. And it's just -- it's been a pivot from what used to be a very promotional market. And it's just where our focus is. It's not that it's under pressure.

Yes, I think that saying that customers basically doesn't have the discretionary income is probably not the way we look at it. We do have customers that seek value. So it's kind of a bit of a magic recipe as to how to provide what a customer perceives as value based on their demographic tier. And so we think we do a really good job offering a value to just about every demographic in the spectrum.

Yes. The art is having a hang in steakhouse under the same roof that you're serving $1.99 margaritas and balancing that.

So you appeal to all the segments and the market demographically. So the one thing that we've done is try to provide a lot of value propositions for the repeat local customers and give them real value. And I think we do a better job at that than anyone else in the market. .

Understood. And if I can just follow up quickly, do you -- are you seeing anything? Or can you talk to destination volumes that impact the business? Probably not the core, but on the margin, is there any notable impact or trends you can cite?

Well, look, I think the most finite place and measurable place to look is in our database out of town. And our database out of town, I don't know how many quarters it's been steep, but we are incredibly consistently growing that national and regional segment of our database, inclusive of the first quarter. So it continues to be an area of opportunity and growth for us.

At least 10 -- these 10 quarters Scott. .

The next question will come from Steve Pizzella with Deutsche Bank.

First, maybe we can get an update on what you're seeing in the promotional environment?

Stable. I think just as we've said in previous earnings calls, you do have the single proprietary one-off casinos that their kind of core DNA is to be a bit promotional. But nothing has changed there. And the market continues to be very stable, and we don't intend on changing any of our current strategies as a result of anything we're seeing.

Okay. Great. And then just as a follow-up, curious if the World Cup has had a material impact in the past more visitation perspective for you guys at your properties?

Yes, the World Cup is unique this year, and we really got ahead of it. The fact that of where it's located, the time slots for viewing and the number of games creates a great opportunity. We have the best race and sports book experiences in town. Customers know to come to our books for that kind of communal viewing experience. And so the operating teams have a very comprehensive plan to put our best foot forward during the World Cup.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Stephen Cootey for any closing remarks. Please go ahead.

Well, thank you, everyone, for joining us. Take care.

The conference has now concluded. Thank you for your participation. You may now disconnect.

Good afternoon, and welcome to Red Rock Resorts Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] 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 Resorts. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining today for Red Rock Resorts Fourth Quarter and Full Year 2025 Earnings Call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Kreeger and 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. For definitions and 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, this call is being recorded.

The fourth quarter represented another period of exceptional performance for the company. Our Las Vegas operations set new fourth quarter records for net revenue and adjusted EBITDA while maintaining near record adjusted EBITDA margin. This marked the ninth consecutive record quarter for both net revenue and adjusted EBITDA. For the full year, our Las Vegas operations delivered their strongest performance on record, achieving all-time highs in net revenue and adjusted EBITDA, including producing more than $900 million in adjusted EBITDA for the first time in our 50-year history while maintaining near record adjusted EBITDA margin. These results marked the second consecutive year of record net revenue and the fifth consecutive year of record adjusted EBITDA, underscoring the strength, consistency and long-term earnings power of our operating platform.

In addition to delivering strong financial results in 2025, we remain very pleased with the continued performance of Durango Casino Resort and the successful revenue backfill at our core properties. Durango continues to expand the locals market and drive incremental play from our existing customer base, reinforcing its position as a meaningful growth driver within our portfolio. On December 15, we completed our latest expansion to Durango, adding more than 25,000 square feet of new casino space, including what we believe is the premier high limit slot area in Las Vegas, along with a covered parking garage providing nearly 2,000 additional parking spaces.

While still early, customer response has been overwhelmingly positive and early operational results continue to validate our capital investment into high limit slot and table areas across our portfolio. Building on the success on January 5, we broke ground on the next phase of Durango's master plan, further advancing the property's long-term growth strategy, supported by strong market fundamentals and rapid development of the surrounding area, including more than 6,000 new households within a 3-mile radius of the property over the next few years. This phase will expand the podium along the north side of the existing facility by more than 275,000 square feet.

The expansion will add nearly 400 additional slot machines and ancillary gaming to the casino floor while also introducing a range of new amenities designed to drive repeat visitation and broaden customer appeal. These enhancements include a state-of-the-art 36-lane bowling facility, luxury movie theaters, a mix of new restaurant concepts and multiple entertainment venues highlighted by a partnership with Moonshine Flats, which will bring its signature Country Western bar and live music concept to Vegas for the first time.

Construction is expected to take approximately 18 months to complete. The total project cost is estimated to be approximately $385 million. Upon completion of this expansion, we believe Durango will be better positioned to capture additional market share and drive sustained growth in the local market. Now let's take a look at our fourth quarter and full year results. With respect to our Las Vegas operations, our fourth quarter net revenue was $505 million, up 2.5% from the prior year's fourth quarter. Our adjusted EBITDA was $231 million, up 3.2% from the prior year's fourth quarter. Our adjusted EBITDA margin was 45.8%, an increase of 32 basis points from the prior year's fourth quarter.

On a consolidated basis, our fourth quarter net revenue, which includes $3.7 million from our North Fork project, was $511.8 million, up 3.2% from the prior year's fourth quarter. Our adjusted EBITDA, which also includes $3.7 million from our North Fork project was $213 million, up 5.4% from the prior year's fourth quarter. Our adjusted EBITDA margin was 41.7% for the quarter, an increase of 84 basis points from the prior year.

Let's turn to our full year performance. With respect to our Las Vegas operations, our full year net revenue was just under $2 billion, up 2.9% from the prior year. Our full year adjusted EBITDA was $915.9 million, up 4.2% from the prior year. Our full year adjusted EBITDA margin was 46.2%, an increase of 56 basis points from the prior year. On a consolidated basis, our full year net revenue, which includes $17.6 million from our North Fork project, was $2 billion, up 3.7% from the prior year. Our full year adjusted EBITDA, which also includes $17.6 million up from our North Fork project, was $848.6 million, up 6.6% from the prior year. Our full year adjusted EBITDA margin was 42.2%, an increase of 114 basis points from the prior year.

In the quarter, we converted 62% of our adjusted EBITDA to operating free cash flow, generating $131.5 million or $1.25 per share. When looking at our 2025 cumulative free cash flow, we converted 55% of our adjusted EBITDA to operating cash flow, generating $466.3 million or $4.44 per share. This significant level of free cash flow was strategically deployed to support our long-term growth initiatives, including our most recent projects at Durango, Sunset Station and Green Valley Ranch will return to our stakeholders through debt reduction, dividends and share repurchases.

In the fourth quarter, we remained focused on our core local guests while continue to grow our regional national customer base across our portfolio. Compared to the fourth quarter last year, we saw continued strength in carded slot play across our database, including our regional national customers. Robust visitation and net theoretical win across our local database as well as our regional national customers helped drive the highest fourth quarter revenue and profitability in our gaming operations in the company's history.

Turning to our non-gaming operations. Both Hotel and Food and Beverage delivered another strong quarter, achieving near record revenue and profitability in the quarter. The hotel operations performed exceptionally well, generating near record results despite the West and East Towers at Green Valley Ranch being offline for renovation. The Food and Beverage operations achieved record revenue and near record profitability for the quarter, supported by higher cover counts across our outlets.

In group sales and catering, our teams delivered near record fourth quarter revenue. And if we exclude the lost room nights from our Green Valley Ranch room renovation, we continue to see positive momentum in the first half of 2026. As we start the first quarter, we have continued to see stability in our core slot business within the locals market and across our carded database. While we expect near-term disruption impact from our ongoing construction projects at Durango, Sunset Station and Green Valley Ranch, we remain as confident as ever in the strength of our business and long-term growth prospects.

Now let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the fourth quarter was $142.5 million, and the total principal amount of debt outstanding was $3.4 billion, resulting in net debt of $3.3 billion. As of the end of the fourth quarter, the company's net debt-to-EBITDA ratio was 3.87x, marking the seventh consecutive quarter of deleveraging, demonstrating both the earnings power of our operating platform and the stability of our balance sheet.

During the fourth quarter, we made total distributions of approximately $72.3 million to the LLC unitholders of Station Holdco, including a distribution of approximately $42.4 million to Red Rock Resorts. The company used its portion of the distribution to fund its previously declared quarterly dividend of $0.26 per Class A common share and to repurchase almost 880,000 Class A common shares at an average price of $54.67 per share under its previously announced $900 million share repurchase program, reducing total shares outstanding to approximately 104.9 million.

When combining the dividends and the share repurchases made throughout the year, we returned approximately $296.9 million to shareholders in 2025, demonstrating our ongoing commitment to disciplined capital allocation and delivering sustainable long-term value to our shareholders. Capital spend in the fourth quarter was $78.9 million, which includes approximately $64.2 million in investment capital as well as $14.7 million in maintenance capital. For the full year 2025, capital spend was $319 million, which includes approximately $227 million in investment capital as well as $92 million in maintenance capital, down from our previous guidance, mainly due to the timing of capital expenditures.

As we look into our capital spend for 2026, we expect to spend between $375 million and $425 million, which includes $275 million to $300 million in investment capital, as well as $100 million to $125 million in maintenance capital. In addition to our continued investment in our Durango property, we are making significant investments in our Sunset Station and Green Valley Ranch properties. At Sunset Station, we continue to make strong progress on our podium refresh. The $53 million renovation will include an all-new Country Western Bar Nightclub, a new Mexican restaurant, a new center bar and a fully renovated casino floor.

Customer feedback and initial performance from the completed portions of the project have been overwhelmingly positive, reinforcing our confidence in the direction of the renovation and the underlying consumer demand of the property. The project remains on budget with the remaining amenities expected to continue to come online throughout the first half of 2026. Building on this momentum, we are pleased to announce the next phase of Sunset Station, which is designed to further strengthen the company's competitive position and broaden its customer appeal, positioning it to capitalize on the strong demographic trends and continued growth in the Henderson market, particularly from the master planned communities of the Skye and Cadence, which are expected to deliver more than 12,500 new households at full build-out.

The next phase will continue the comprehensive casino refresh, including expansion and enhancement of the movie theaters as well as the relocation of the temporary bingo area currently housed in our former buffet space to a new permanent location. Upon completion of the bingo relocation, the former buffet space will be converted into a new high-end steakhouse and high limit table games room, leveraging a proven strategy of investing in the higher-end value segments of our database that has consistently generated strong returns across our portfolio. Work on this phase is expected to begin in the second quarter with the remainder of the project commencing in the back half of 2026 and extending into early 2027.

The total project cost is estimated at approximately $87 million. At Green Valley Ranch, we continue to make progress on the comprehensive refresh of our guest rooms, suites and convention spaces, aligning the hotel experience with the recently renovated and well-received high limit table and slot rooms at the property. Renovations to the West Tower are now complete and the tower has reopened to strong customer views and while still early, encouraging financial performance despite the ongoing disruption on the property. Renovations to the East Tower and the convention spaces commenced during the fourth quarter. We expect the convention spaces to return to service late in the first quarter, while renovations to the East Tower are expected to extend into the summer of 2026.

Continuing with the Green Valley Ranch's long-term redevelopment strategy, we are advancing on the next phase of enhancements at this resort. This phase is designed to further strengthen the property's competitive position as one of the premier resort destinations in Las Vegas and broaden its customer appeal through a fully refreshed casino floor, along with upgraded Food and Beverage and entertainment offerings. These enhancements build on the success we have seen from both the [indiscernible] product of the property and the early performance of the renovated room inventory and are intended to drive increased visitation and deepen customer engagement across the resort. Work on this phase has already begun and is expected to extend into 2027 with total project costs estimated at approximately $56 million.

Turning now to North Fork. Construction continues to progress very well with the opening of the project on track for an early fourth quarter 2026 opening. Total all-in project costs remain approximately $750 million and is fully financed. As of the end of the quarter, Red Rock's outstanding note balance due to the Tribe was approximately $77.9 million. And you may have heard or read about an unfavorable ruling of the Tribe received from a California court in December on its single remaining legal matter. This is the same case we have discussed in the past, and we do not believe this ruling will interfere with North Fork's right or ability to conduct gaming on its federal trust land.

We remain excited about this best-in-class development, pleased with the continued progress of construction, and we look forward to providing further updates on future earnings calls. Consistent with our balanced approach to investing in long-term growth while returning capital to our shareholders and following the completion of our fifth consecutive year of record adjusted EBITDA, we are pleased to announce that the company's Board of Directors has declared a special cash dividend of $1 per Class A common share payable on February 27 to Class A shareholders of record as of February 20.

This action reflects the continued strength we are seeing in our business and the confidence we have in the long-term earnings power of our operating model. In addition, the company's Board of Directors has also declared its regular cash dividend of $0.26 per Class A common share payable on March 31 to Class A shareholders of record as of March 16. With the fourth quarter behind us, the strong momentum for 2025 has carried into the current year, reinforcing our confidence in strength and resilience of our business. Durango continues to validate our long-term growth strategy and underscore the value of our own development pipeline and real estate bank, which includes more than 450 acres of developable land in highly desirable locations across the Las Vegas Valley.

Combined with our portfolio of best-in-class assets in premier locations, this pipeline positions us for significant long-term growth and enables us to fully capitalize on the favorable demographic trends and high barriers to entry that define the Las Vegas Locals market. Looking ahead, we remain focused on executing our development pipeline, maintaining operating discipline and delivering enhanced shareholder returns through a balanced, consistent and disciplined capital allocation strategy. We want to take a moment to sincerely thank all of our team members for their continued hard work and dedication. Our success truly begins with them. They are the heart of our company and the driving force behind the exceptional guest experiences that keep our customers coming back time and again.

In recognition for their efforts and in addition to the many accolades we have received in recent years, we are proud to share that Station Casinos has been recognized by Forbes as one of America's Best Large Employers for 2026. This meaningful honor recognizes organizations nationwide that go above and beyond to create an outstanding culture for their team members and reflects our continued commitment to fostering a workplace where individuals feel valued, supported and empowered to grow and succeed. Lastly, we extend our heartfelt gratitude to our loyal guests for their unwavering support over the past 6 decades. We are deeply thankful for the trust they place in us and look forward to continuing to serve our communities for many years to come.

With that, operator, we're happy to open the line for questions.

[Operator Instructions] Our first question today is from David Katz with Jefferies.

Look, I think we look at the Las Vegas Valley as a whole, and I know we've discussed in the past the connection between what may go on the strip, what may go on in other destination pockets within the Valley. Can you just talk about what you're seeing in terms of demand levels as it relates to other areas? Because candidly, we've heard sort of pockets of weakness and forward-looking strength. Just give us an update on what you've seen and are seeing.

David, it's Scott. Thanks for the question. Probably the best place to start would be in the hotel, and then we can kind of transition into other revenue areas. For the quarter, it's important to note that you have to adjust for the rooms that were out at GVR. When you do that, we performed quite well. So the down in the hotel was essentially the room nights that we lost being down at GVR.

So if you baseline that from an ADR perspective, from an occupancy perspective and an overall revenue perspective, we did quite well, and we did much better than what is publicly available from a RevPAR perspective compared to the Strip. That was really a function of strong sales effort on the part of our sales team and then also Red Rock and Durango from a leisure segment having very high ADR. So we like where we sit in hotel, and we think that our hotel product is differentiated from the Strip in that regard. The quality of our assets, the value proposition and the ease and location of our properties really lets us compete at a different level when it comes to the hotel.

From a gaming perspective, we continue to see regional and national be one of our strongest performing areas of the database. And as Steve mentioned, we had a record fourth quarter revenue in gaming. And again, we think that's attributable to a couple of things. One, the investment in our high limit rooms and our move towards higher net worth customers as well as the quality of our assets where people are finding from a regional and national perspective that our offering is quite compelling versus the Strip from a convenience and quality perspective.

Steve, I don't know if you want to add anything?

Yes. I mean, David, I know a lot of [ log ] comes between the Strip and the locals, but it kind of really does start that we don't rely on tourism. We don't rely on conventions. We don't rely on hotel-driven revenue, right? We are a locals market, incredibly gaming-centric. We offer a distinct value proposition to our guests, and we rely on our guests to come back multiple times a month. In fact, 50% of our guests come over 8 times a month. I think that is a differentiating factor between I think us and the Strip.

And I think the other thing is if you look at the locations that we have within the locals market, we have the best locations in the market, strategically located off the beltways. And where our properties are located is where all the new growth and new housing is taking place. So we feel great about where we are.

The next question is from Ben Chaiken with Mizuho.

There's a number of new projects you're working on, given there's some updated time lines in coordination with Phase 2 at Sunset and Phase 2 of GVR as well as Durango, which was previously announced. Can you help us with maybe the total construction disruption that you're thinking in '26 and maybe any cadence that would be relevant.

Sure. I can start, and I know the team can jump in. So if I kind of go back to Q4, Q4, we experienced probably about $5.1 million of disruption mainly at our Green Valley Ranch property. When I looked at our Sunset property -- our Sunset Station property, the disruption was minimal. So there's some slight differences what we had previously announced.

That being said, we don't know how much better we could have done if we weren't renovating...

It's a bit of a gut feel other than the hotel segment at Green Valley. We know we got 300 rooms now, so we can calculate that, obviously.

Exactly. And so -- and I think that Frank would echo that same point about Durango, where we're just beginning construction on the North Valley, and we're doing our best in both the Sunset project and the Durango project to mitigate and minimize the operational impact while maintaining construction time lines because moving into the first quarter, as Lorenzo mentioned, Green Valley Ranch is very easy to calculate because it's all rooms based, and we have a history on that. We are going to be in peak construction on the East Tower and the convention in Green Valley. So we expect disruption approximately about $9 million.

And then as mentioned, we're going to continue to manage and monitor the potential impacts at Sunset Station and Durango on those projects as they move forward to what's called more active phases of construction. But I do want to remind everyone that while these impacts -- all these disruption impacts are short -- very short term in nature, the redevelopment of our properties to ensure that we remain best-in-class, we're equipped with amenities that keep allowing our guests to return time and time again, that is central to Frank and Lorenzo's strategy. So over the long run, we expect to generate significant return from these capital investments and further widen our competitive advantage from other locals in the market, but also the Strip.

Okay. That's helpful. I guess, is $9 million a good bogey then for the year? I mean that sounded like just the 1Q number.

That was actually the 1Q number. I think you're going to end up maybe like $4 million, $5 million probably in Q2 at Green Valley. And I'm hesitant right now to -- as Frank and Lorenzo talked about, the Durango and the Sunset seem more of a gut feel. So not ready to give guidance on that one just yet.

This is Lorenzo. On Green Valley, that disruption, those rooms should be coming -- will be coming online in July, kind of by summer. All the rooms should be delivered by then and the meeting space. So it's not far away. We're getting through the [indiscernible] right now.

Next question is from Barry Jonas with Truist Securities.

Generally, I think Q4 to Q1 EBITDA is usually up about, I guess, apologies, 6% to 7%. Any reason outside of the disruption to think that could fare better or worse this year?

Yes, Barry, I think the number might be a little high as I always thought of seasonality between Q4 and Q1. It depends how far you go back. We go back -- go back prior to COVID, so I'm usually about 5.5%. Yes, but I don't think that there's any reason that we can't achieve those returns. The one note being that $9 million disruption. And just note, so there's no confusion, right? That means roughly, if I'm going sequentially, as you just did, that would mean really $3.9 million in extra disruption at Green Valley versus Q4.

Great. And then just at a high level...

[indiscernible] Go ahead, Barry.

Got it. And then just as a follow-up, as we head towards tax refund season, maybe just give your latest thoughts about expectations for any top line benefits from the One Big Beautiful bill.

I mean -- Barry, I mean I think ultimately, we're looking forward to a tax returns just started. I mean the tax return season just started. I think the way these generally trend, if I look at '25 to '24, about 1/3 of these refunds are done by sometime, let's call it, late February and almost 50% of them are done by mid-March. But the key measures there, including the elimination of the federal tax on tips, you're looking at overtime, the new senior tax credit, the reduction in marginal tax rates and increased child and family tax credits as well as expanded standard deductions. We feel, especially given where our assets are positioned and where people are moving to and where people currently are that we are in prime position to take advantage of the excess discretionary income hitting the Las Vegas locals market.

The next question is from Chad Beynon with Macquarie.

With respect to the GVR and Sunset Station updates around additional capital, some of that going into '27, how does that affect the timing of the developmental pipeline for greenfield projects beyond this year?

Yes. This is Lorenzo. It doesn't affect it at all. It's just part of our kind of ongoing strategy. We really believe that the key to our long-term success is investing in our existing properties and keeping them fresh. And like Steve said, it helps continue to separate us from our competition. It also, I think, is allowing us to start to gain some market share or grab some market share from the Strip as we're seeing a lot of customers, particularly on the high end that are coming over -- that historically stayed at the Strip that are now staying with us based on the amenities we have and the services that we provide.

So listen, any time that we go out and say that we're going to invest money in high-limit slots and high-limit table games at these properties, believe me, that's a great investment, and that's something that you guys should be really happy about. We've seen great returns on those investments historically. And it's just part of the process of how we've repositioned the properties and the brand coming out of COVID from all of those spaces prior to that were essentially buffets where a lot of those buffets people coming into the property, they were discounted buffets. They were -- it was a loss leader, and we've completely flipped that from that being a loss to being now assets that are generating substantial profit.

As far as new builds, I mean, that is really what we believe is our one of the core competencies of our company is being able to go out, identify a piece of property, start from scratch, design the property first on ingress and egress and then figuring out what the product wants to be and how we're going to operate it. We're currently working on multiple properties right now, I would say, in kind of full-on design. We have -- we're going through the entitlement process on them. And it just takes time. And we'll have an update hopefully fairly soon on exactly what the time frame is going to be. But the investments that we're making in our current properties will have no effect at all on new properties and new builds.

Okay. Great for that extra color. And then it sounds like we're hearing some conflicting things in terms of just the buzz and activity at your properties and around the locals market for the Super Bowl. I think most of the headline media was around Strip prices, but we heard different things in the locals market. Can you maybe just talk broadly around how traffic was this weekend and given the game outcome, if this should be a negative headwind for the first quarter versus last year?

Yes, Chad, this is Scott. I can tell you, I had the pleasure of touring the properties on Sunday, walking with the general managers and want to give them and their team a lot of support for what they did. I can tell you, there's no better place to be on Super Bowl weekend than a Station Casino property. We had every property fully programmed, whether it was the bars, the restaurants, the race and sports book. VIP parties for our best guests, we were buzzing. And we had decent results from the Super Bowl from a betting perspective and even better results from a gaming perspective on slots and Food and Beverage. And if there was any slowdown elsewhere, it wasn't in our properties.

The next question is from Jordan Bender with Citizens.

I want to hit on the 90% deduction from the One Big Beautiful bill. From what we can see, it doesn't seem like there's much momentum to revert it back to what it was. So have you guys done any work around how much of a threat that could be, particularly for the higher-end business?

Yes, this is Scott. I'll take it first from a customer perspective and then maybe Steve can talk a little bit about what to do about it. For the most part, if there was an impact, it's relatively centered around just education and our customers trying to figure out what it means. So to the degree we can, we try to help them understand the language in the bill and how it affects them. Steve can probably elaborate a little more on the mechanics of it and what we're doing in conjunction with not only just us, but the whole gaming industry in trying to rectify the legislation to get it adjusted back to where it was.

Sure. I mean I'll go to keep it incredibly high level because I think you touched on it. I mean the rule is incredibly confusing. And so I think that the main goal here, particularly since legislative seems a little bit tougher to find, is work through administratively through the IRS just to give some clarity around what 90% -- how the 90% rule works. And so and making -- and then finding a mechanism industry-wide to get that out to our players and our customers.

Great. And I guess, Steve, sticking with you, as we think through your leverage, we kind of run the CapEx numbers through our model and what our model now is maybe leverage is going to stay at the current levels over the next year or so. Can you just remind us like where you are comfortable running the business as we think about if and when we do get a new build project?

Yes. I mean I think in the current leverage position right now, where we have an incredibly strong balance sheet, ample liquidity, very flexible credit agreement and no long-term maturities. So I think at 3.87x, that's the seventh consecutive quarter of deleveraging. We feel that the balance sheet will provide Frank and Lorenzo a good foundation in which to grow not only their existing capital projects, return capital to our investors, but also position us for the next greenfield -- the greenfield investments. If leverage were to creep up because there was a market opportunity, either that they wanted to accelerate their new projects or accelerate reinvestment where they saw that they were going to generate ample return, feel that we could temporarily move leverage beyond where we currently are and still be very comfortable with the balance of the balance sheet.

The next question is from Steve Pizzella with Deutsche Bank.

Just on the promotional environment, can you talk about what you're seeing in terms of promotional activity and the competitive behavior in the locals market?

Steve, this is Scott. It's been very consistent. So as we've mentioned on previous calls, there are small single unit operators that have always been competitive promotionally. But in the grand scheme of things, it's not changed a bit over probably the last couple of years. So a very stable environment.

Okay. And then just knowing that it is a smaller part of your business, but with the strong group calendar on the Strip expected this year and commentary that you believe you are getting some demand that might have gone to the Strip before, do you expect to receive any benefit from the group business as well?

Yes. This is Scott again. I can tell you, we had a great quarter in the fourth quarter as it relates to hotel sales and the associated catering. We see that moving into the first and second quarter of the year. And then as the booking window opens up for the back half of the year, we're encouraged as well. So we're pretty happy with the sales team's effort and the bookings that we have on the books so far.

The next question is from Dan Politzer with JPMorgan.

First, you guys have talked a lot about the benefits of your higher-end rooms, higher net worth customers. And as we're thinking about this kind of increasingly bifurcated consumer environment, I don't know, is there any way to kind of frame out how you think about your portfolio, whether it's the EBITDA contribution from the higher-end properties, the Durango, GVR, the Red Rocks of the world, just to kind of better -- so we can better appreciate the quality of the customer and the assets that you guys have?

Well, I mean, generally, Dan, as you know, we're not going to sit here and break down the segments. That's why we're all group -- we group up by division. But you can be fairly certain that all the assets across the database performing really well.

A lot of our customers don't just play at one property. We have a lot of crossover play, whether there's a property close to when they're getting off work or whatever is convenient. So they don't tend to be siloed into one singular property.

And some of the other properties, too, we've been encouraged just with the amount of higher in play that we're starting to see in places like Santa Fe and Sunset Station and even at Palace Station. We're seeing some of the high-end play. So it's pretty much throughout the system. Obviously, Green Valley, Durango and Red Rock kind of lead the charge there. But we're finding that as we add assets to these different areas of the valley and we upgrade the assets that it's pulling a higher-end customer overall to even those properties and growing the market where maybe somebody wouldn't have come to that property before. Now they're coming to those properties. So part of the market -- the function of the market is what's the quality of the product you provide. And so we're seeing that the service quality and the product quality is growing the market for us, casting a wider net as far as what we're able to attract to the properties.

Got it. And then just following up, I know you're not ready to give that disruption from Durango Phase 2, Phase 3 here. But as I think about $120 million expansion [indiscernible] the property that was owned now you have a $385 million expansion, which I get extends over a fairly long period of time. I mean, is there any way to kind of couch relative to that $4 million disruption impact you had on the prior phase just so we can kind of try to tweak our expectations and have them in the right place there?

Listen, a lot of it's a gut feel, but the reality is with the Durango North expansion is that what we've seen historically where you see the bigger parts of disruption is when you disrupt parking, which obviously affects convenience and which is all the locals market is all about is convenience or you take down hotel rooms like we've done at Green Valley Ranch because you just don't have the bodies in the building. Look, we certainly expect that we're going to be disrupted at Durango as we continue on with this.

But we look at it is that it's short term. We're talking about 18 months or 16 months from now. And then when we open the property with all these entertainment amenities that we're going to have, we're as confident as we've ever been in that property that foot traffic in gaming traffic going through that property is going to explode with the number of bodies that are going to be there coming to these entertainment assets. So Steve, I don't know what you're thinking from a disruption standpoint if we're ready to put a number out there, but...

Yes, I don't think we're quite ready. I mean we're -- Dan, just -- I mean, I owe you an apology, we're literally just 1 month away from dispensing out the property and kind of getting logistics down. And so what Lorenzo said that it's a short term, about 16 months away really from completion.

You also have traffic improvements going on around that. We just -- we don't really know. We can't quantify it. Maybe after we get 90 days in and see what's going on with the property, we'll have a better ability to communicate on that. But that's -- it's just hard to put a number on. We don't know how much better we might be doing so.

That's the key. And look, we -- as part of the last expansion that we just opened with the VIP slot or the high-limit slots, we opened a new garage. And I can say that every week, we're increasing the car counts going into the new garage. So people are figuring it out. They're finding their way. So we're encouraged from that standpoint. But also, we've done this for a long time, and we know that you're definitely going to feel the impact of disruption when parking is disrupted.

And Dan, if I kind of revert back to the question that Barry asked, Barry asked in effect Q1 guidance. And so the way I answered them, I feel very comfortable given the seasonality output and then the disruption we gave on Green Valley Ranch to achieving that. So I think that kind of gives me a perspective on the Durango disruption right now.

The next question is from Joe Stauff with Susquehanna.

Just one quick follow-up on the Durango discussion. Is part of the disruption, as I understand it, is from the road work and so forth. Is the state doing that? Or who dictates essentially the disruption in the road work?

Yes, Joe, it's Scott. There's 2 projects that are going on. One, we have an apartment complex right next to us that's being developed. There is some trenching that's going on as we speak there. We're in tight coordination with them to minimize the disruption, but that should be going on for a couple of more months here. And then the county is working on an on-ramp off of the access frontage road on to the freeway and a widening of the left turn lane coming off of the freeway, both of which will make ingress and egress much better to our property over the long haul. But that project is going to probably go through the summer of next year. It has not started.

The bad news is we have traffic construction, roadway construction. The good news is we wouldn't have it unless the valley was growing. So we look at it as short-term pain, long-term gain.

Got it. And just one quick follow-up. What is the outcome or the effect of the California ruling in December? Does this adjust the opening date? What is the effect of that ruling?

I think as we indicated in the remarks, Joe, the impact is nothing. And so we believe that the ruling will not change our ability -- the Tribe's ability to do gaming on federally trust land. Construction is moving incredibly fast. The team out there is doing an amazing job, and we're looking forward to opening this project in the fourth quarter of '26 on schedule.

The next question is from Steve Wieczynski with Stifel.

So Steve, if we go back to all the -- there's been a lot of talk about the potential disruption this year, and you've given us a ton of helpful color. And some of it seems like you're still not certain in terms of what the overall impact is going to be. So I guess the simple question might be, with all this disruption, as we think about 2026 versus 2025, do you still think you can grow your Las Vegas EBITDA base this year with all this disruption?

We do.

Perfect. Okay. Second question, Steve, you gave -- or Scott, Steve or Scott gave color around the rated play side of things. I guess the word we're kind of pick on it sounds like it's very stable. Did you give any color? Did I miss it in terms of what you're seeing right now from a non-rated perspective?

Yes. For the quarter, non-rated was up. So we see it both in our rated customer, our non-rated customer, really a great quarter for the health of the database if you really dig into all the metrics.

It's Lorenzo, particular strength, like I said before, in the VIP segment, but also seeing strength in what I'll call kind of our younger segment demographic, 21 to 35, up substantially. Once again, I think partially because of the amenities that we've added over the years are really kind of [indiscernible] they're appealing to a younger guest. And look, we've been encouraged because they're finding their way to slot machines and table games as well. So...

The next question is from Stephen Gram with Morgan Stanley.

This is a bit of maybe a bigger picture question, but how do you generally think about the right level of maintenance CapEx across the portfolio, thinking about maybe some of the bigger properties versus the smaller properties? And maybe part of the question, [indiscernible] is trying to think through the amount of capital you've deployed maybe relative to what we're seeing on the Strip and if you could be seeing some kind of permanent share gains there?

We think one of the things that separates us is the fact that we're a wholly owned company. We're not an opco/propco structure. And Lorenzo and I take a long-term view towards the portfolio. And you have maintenance capital, which means what does it take to maintain where we are where customers are coming in. But we look at some of these repositioning of amenities and what we're doing at Durango in the next phase is literally investments to cast a wider net and draw more customers.

Look, we're owner operators. We've been doing this since we are teenagers. And we walk through the properties, obviously, on a regular basis, and we want to make sure that they are looking appropriate to our customers and that we -- all the equipment and everything that is needed for our team members to be able to provide their jobs and their function is provided. And I think as well, it's just -- it goes back to even historically when you look at what properties have outperformed on the Strip, right? I mean, if you look right now, you've got the properties that have always philosophically invested in their assets and even -- and we do the same thing. If we have a restaurant that's not performing, we'll rip it out and put a new restaurant in.

And I think you see the same thing at the [indiscernible]. They've done that for decades. And it's not a surprise that relative to the rest of the competitive set that they continue to outperform. So it's a very kind of similar mentality, I think, in a way, even though Steve is not there, they've kind of carried that on. And I think you see it when you walk through the property, it just looks and feels different, and I think customers appreciate that. And we're committed to continue to operate our businesses like that as well.

Maybe one other follow-up kind of related here. But historically, I think there's always been this concern that some of the maybe weaker trends on the Strip could ultimately spill over into the locals market. It doesn't sound like that's happening at all, but curious where you would be looking out to see maybe the first signs of that? And should we have already maybe seen some of those to kind of highlight that there could be a decoupling here?

I mean I thought -- during the first question, I mean, we're just a fundamentally different business, right? So we tend to be a bit more recession resistant. I think if you look back since 1984, I believe the Strip has had 11 times in that instances where gaming GGR was down. The locals market is at 6, 3 of which are related to the great financial crisis. One is related to COVID and the other 2 are related to 2013 and 2014 when local GGR was down less than 0.3% versus the Strip at the same time period, down 2%.

I think it just goes back to we're gaming-centric. We're not hotel-driven. We're not convention driven. We're driven by local repeat customers that keep coming time and time again. And then going back to what Frank and Lorenzo said, that's why we are continuing to invest in our properties. That's why we love our locations, and we love our locations because we think we are best positioned to not only separate ourselves from the Strip, but best positioned to gain from the long-term favorable demographic profile.

And I think one of the things that you have to remember and look at is while the Strip may have some revenue declines, they still are a business that has to fill their rooms. Even if the rates are down, they're filling their rooms, which means you still need guestroom attendance, you still need all those employees to keep those rooms full. And so look, we love our position in the market. We've been doing this for a long time. And the thing we love most about our strategy is that we have the right locations in the market. All locations are not created equal. We are in growing markets. We're not on surface streets. We're on the beltways where all the new rooftops are being built.

And we've talked a lot about the VIP and the high-end gaming play and the higher-end restaurants. But I think we've also positioned the brand and the company such that we also have a strong value proposition, $1.99 margaritas, food specials in the cafes. We don't charge for parking. So we provide a product that's accessible to people from all different demographic types. And look, at the end of the day, people use our properties as their form of entertainment and get away from a local perspective. And we're really leaning into that when you see the type of amenities that we're adding to a place like Durango.

$1.99 Margarita resonates with everyone.

The next question is from Brandt Montour with Barclays.

The first one is just full year '25 disruption. I think you guys are originally looking for $25 million. Could you just let us know how that came in to the best of your ability to calculate that?

Yes. I think it came in better than we thought, Brandt. As I even just alluded to last quarter, I think we gave roughly $9 million of disruption, almost $9.5 million disruption we expected in Q4 alone, and we came in at $5.1 million for that quarter.

Okay. And then on the new Durango phase, we'll call it Phase 2. I guess this is a second half '27 opening. Do you foresee opening this in one amenity at a time? Is it going to be one big grand opening? And then in terms of the breakout, I mean, you're not going to break out the $385 million, but just when we think about your return thresholds, how much of those -- how much of that total project spend is gaming versus non-gaming? Maybe we could do it that way to help us try and model out the returns on this.

This is Lorenzo. I mean our expectation is that we would get similar returns to what we've seen on the project so far itself, kind of low teens, growing to mid-teens and eventually growing to kind of our 20% threshold that we've seen historically. I think -- well, I know that we will open that property with all of the amenities open but for possibly one of the Food and Beverage amenities might trail by 2, 3, 4 months, still working on that. But the vast majority, call it, 90%, 95% of the amenities will open with one big bang. That's the way we like to do it like we open our new builds.

And then relative to a breakout, I mean, I think when you look at the overall capacity that we have at Durango, we still have capacity even though we're obviously doing incredible business there. So we're adding -- how many slots we adding? 400 additional slots on our base is about 2,200. And we feel like with the entertainment amenities that we're adding there and just the sheer traffic and foot traffic that we're going to have flowing through the building, we're going to get that benefit on to the gaming floor now on both table games and slots. So I can say we're very confident in the prospects for that project.

The next question is from John DeCree with CBRE.

Covered a lot of ground. Maybe 2 to round it out. High level, can you guys talk about what you're seeing in terms of new database adds? I mean you're obviously performing quite well. But are you still seeing the database grow? And then specifically outside of first-time visitors to Durango as the rest of the portfolio, especially as you make these investments, GVR, Sunset, et cetera, are you seeing your database go new customers that you haven't had before?

Yes, this is Scott. So even last quarter, I think we mentioned that we saw the database grow from the perspective of actual carded customer count, we grew the database this year. And interestingly, it grew in every demographic segment of age. And then the contribution from a net DO perspective of that database grew in every category of age demographic as well year-over-year.

And John, we continue to grow Durango. We continue to see new sign-ups even around the Durango area, visits are up, net DO is up, spend per visit is up. So we love our positioning for that property and looking forward to the next phase opening up.

Awesome. I have one last one, Steve, for you. I think an easy one, not expecting much, but just to ask the outlook for OpEx inflation. Anything notable this year as we think about margins for 2026 other than the disruption, so specifically on any cost buckets?

I mean we like where we stand from a margin. This is the 20th quarter of the 22 that we've hit above 45% in LVL without really sacrificing service or operational or customer quality. Labor is the one notable. As you know, we live in a very competitive environment in the valley and our guests are -- our employees are first line to our customers. So I would expect that to go mid-single digits from a labor perspective. But ultimately, we've been managing COGS, we're managing utilities. Insurance expense is really tail wagging the dog, that's slightly up. But for the most part, costs are being managed.

The next question is from Trey Bowers with Wells Fargo.

This is Zach Silverberg on for Trey. First one, I believe last call, you mentioned there would be a handful of taverns opening this year. Could you remind us of the overall tavern strategy and your ability to source new or high-end customers and the return profile of the taverns?

Yes. This is Scott. We have currently 8 taverns. We just opened our third tavern about 1.5 weeks, 2 weeks ago. The thesis for taverns is relatively simple. It's a micro market strategy where you can get into neighborhoods in areas where maybe we don't have as great a penetration we have a thesis around our investments in taverns. We like to be in high net worth areas. We like to be in areas where there's growth versus the intercity population.

And it's got a unique customer base from a demographic standpoint. It tends to skew [ male ], it tends to skew sports better and it tends to skew young. So we like accessing that customer and the hopes that they grow into our overall platform of larger properties. So we have 3 more properties coming online in the first half and then the remainder in the second half of this year. But the strategy from a growth perspective is highly selective for us. We want to make sure that if we do enter into a new tavern deal that it fits our thesis and it's accretive.

Got you. Appreciate that. And then one more. You previously stated the cannibalization backfill from Durango was about a 3-year process. We're approaching that later this year. Could you kind of update us on the timing and progress and if you're -- how you guys feel about it?

I think we feel very good about where we are from a cannibalization and for more equally as important, the backfill to our core properties. Our core properties are growing low single digits last quarter, which kind of proves out that fact. So we're in line with where we need to be to hit those targets.

This concludes our question-and-answer session. I would like to turn the conference back over to Stephen Cootey for any closing remarks.

Thank you, everyone, for joining the call today, and we look forward to talking again in about 90 days. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, and welcome to the Red Rock Resorts Third Quarter 2025 Conference Call. [Operator Instructions] Please note this conference call is being recorded. I would now like to turn the conference over to Mr. Stephen Cootey, 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 for Red Rock Resorts Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Kreeger and 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 the 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 in our earnings release, Form 8-K and investor deck, which were filed this afternoon prior to the call.

Also, please note this call is being recorded. The third quarter was another strong one for the company by every measure. Our Las Vegas operations once again set new records, delivering its highest third quarter net revenue and adjusted EBITDA in our history while maintaining a near record adjusted EBITDA margin. This marks the ninth consecutive quarter of record net revenue and the fifth consecutive quarter of record adjusted EBITDA, underscoring the strength, consistency and long-term earnings power of our operating model. In addition to delivering strong financial results, we remain very pleased with the continued performance of our Durango Casino Resort and the revenue backfill at our core properties. Durango continues to expand the Las Vegas locals market, drive incremental play from our existing customer base and attract new guests to the Station Casinos brand.

Despite the disruption caused by the construction of our new high limit slot room and covered parking garage, the property continued to demonstrate strong momentum within the quarter with increased visitation and elevated net theoretical win from our carted customers in the surrounding Durango area as well as adding new customers to the brand. As discussed on prior earnings calls, construction continues on the current phase of our Durango master plan. This expansion will add more than 25,000 square feet of additional casino space, including a new high limit slot area and bar. In total, the project will introduce approximately 230 new slot machines with 120 allocated to the high limit room.

As part of this phase, we are also building a new covered parking garage with nearly 2,000 spaces, which will enhance customer access and provide infrastructure flexibility to support future growth of the company. The total project cost is approximately $120 million remains on budget and is expected to be completed in late December. With this phase nearing completion, we are now turning our attention to the next phase of Durango's master plan as we continue to build on the property's early success and strong customer demand. Supported by robust market fundamentals and the rapid development of the surrounding area, this next phase will expand the podium along the north side of the existing facility by more than 275,000 square feet.

The expansion will add nearly 400 additional slot machines and [ancillary] gaming to the casino floor as well as introduce a range of new amenities designed to enhance the guest experience and deliver on what our customers are asking for, including a state-of-the-art 36-lane bowling facility, luxury movie theaters, a mix of new restaurant concepts and food hall tenants and multiple entertainment venues designed to drive repeat visitation and broaden our customer appeal. Construction is expected to begin in January and will take approximately 18 months to complete. The total project cost is estimated at approximately $385 million and will be executed under a guaranteed maximum price contract.

We are excited to embark on this next phase of growth at Durango. And upon completion, we believe the property will be even better positioned to capture additional market share and drive sustained growth in the local market, which is expected to add more than 6,000 new households within 3-mile radius of the property over the next few years, complemented by the continued build-out of Downtown Summerlin and Summerlin West, which together are projected to add approximately 34,000 new households. Now let's take a look at our third quarter. With respect to our Las Vegas operations, our third quarter net revenue was $468.6 million, up almost 1% from the prior year's third quarter. Our adjusted EBITDA was $209.4 million, up 3.4% from the prior year's third quarter. Our adjusted EBITDA margin was 44.7%, an increase of 110 basis points from the prior year.

On a consolidated basis, our third quarter net revenue, which includes $3.9 million from our North Fork project, was $475.6 million, up 1.6% from the prior year's third quarter. Our adjusted EBITDA, which also includes $3.9 million from our North Fork project, was $190.9 million, up 4.5% from the prior year's third quarter. Our adjusted EBITDA margin was 40.1% for the quarter, an increase of 110 basis points from the prior year. In the quarter, we converted 67.3% of our adjusted EBITDA into operating free cash flow, generating $128.5 million or $1.21 per share.

This brings our year-to-date cumulative free cash flow to $335.3 million or $3.17 per share. This strong level of free cash flow was strategically deployed to support our long-term growth initiatives, including our most recent projects at Durango, Sunset Station and Green Valley Ranch or returned to our stakeholders through debt reduction, dividends and share repurchases. As we begin the fourth quarter, we remained focused on our core local guests while continue to grow our regional and national customer segments across the portfolio. Compared to the third quarter of last year, we saw continued strength in carded slot play across our database, including our regional and national segments. Robust visitation and net theoretical win helped drive the highest third quarter revenue and profitability in our gaming segment in the company's history.

Turning to our non-gaming operations. Both hotel and food and beverage delivered another strong quarter, achieving near record revenue and profitability in the quarter. The hotel segment performed exceptionally well, generating near-record results despite the West Tower at Green Valley Ranch being offline for renovation, driven by our team's success in increasing occupancy across the portfolio. The Food and Beverage segment achieved record revenue and near-record profitability for the quarter, supported by higher cover counts across our outlets. In group sales and catering, our teams delivered near record third quarter revenue, and we continue to see positive momentum in both business lines through the balance of 2025 and into early 2026.

As we look ahead to the fourth quarter, we are seeing continued stability in our core slot and table games business within the locals market and across our Carta database. We've also seen a return to a more normal hold in our sports business as we start the fourth quarter. While we do expect near-term disruption impact from our ongoing construction projects at Durango, Sunset Station and Green Valley Ranch, we remain as confident as ever in the strength of our business and long-term growth prospects.

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 $129.8 million, and the total principal amount of debt outstanding was $3.4 billion, resulting in net debt of $3.3 billion. At the end of the third quarter, the company's net debt-to-EBITDA ratio was 3.89x. During the third quarter, we made total distributions of approximately $27.8 million to the LLC unitholders of Station Holdco, including a distribution of approximately $16.3 million to Red Rock Resorts. The company used a portion of the distribution to pay its previously declared quarterly dividend of $0.25 per Class A common share and repurchase approximately 92,000 Class A common shares under its previously announced $600 million share repurchase program.

Prior to the earnings call, our Board authorized an extension of our existing share repurchase program to December 31, 2027, as well as authorized an additional $300 million to our existing share repurchase program, giving us $573 million of availability for future share repurchases. As a reminder, since we began purchasing shares either through our share repurchase program or the 2021 tender, we have purchased approximately 15.2 million Class A shares at an average price of $45.53 per share, reducing our share count to approximately 105.9 million shares.

As mentioned on our previous earnings call, there was no estimated cash tax payment for Red Rock Resorts in the third quarter, and we do not anticipate one occurring in the fourth quarter due to the passage of the One Big Beautiful Bill Act earlier this year. Capital spend in the third quarter was $93.7 million, which includes approximately $70.5 million in investment capital as well as $23.2 million in maintenance capital. This brings our year-to-date capital spend to $240.1 million, which includes approximately $163.1 million in investment capital as well as $77 million in maintenance capital. For the full year 2025, we now expect to spend between $325 million and $350 million, down $25 million from our previous earnings call, mainly due to the timing of capital expenditures.

The full year capital spend includes $235 million to $250 million in investment capital as well as $90 million to $100 million in maintenance capital. In addition to our continued investment in our Durango property, we are making significant investments in our Sunset Station and Green Valley Ranch properties. At Sunset Station, we continue to advance our podium refresh to better position the property for continued growth in Henderson, particularly for the master planned communities of the Sky and Cadence, which are expected to deliver over 12,500 new households at full build-out. The $53 million renovation includes an all-new Country Western bar and Nightclub, a new Mexican restaurant, a new center bar and a fully renovated casino floor.

We are pleased to report that customer feedback and initial financial performance on the completed portions of the renovation has been overwhelmingly positive, reinforcing our confidence in the project's direction. The project remains on budget with the new amenities expected to come online throughout the remainder of 2025 and into the first half of 2026. At Green Valley Ranch, we've commenced a comprehensive refresh of our guestroom suites and convention spaces, aligning the hotel experience with the recently renovated and well-received high limit table and slot rooms at the property. Work on the rooms in the West Tower is currently underway and is expected to be completed by mid-November, at which point the East Tower will come offline.

While we are still reviewing the East Tower and convention schedules, we now expect the timing for this portion of the project to extend into the summer of 2026. As with our recently -- other recently introduced amenities, we believe these upgrades will generate strong returns. However, we do anticipate some continued disruption at the property through the first half of 2026 as we bring these new offerings online for our guests. Turning now to North Fork. Construction is progressing well. We expect to have the facility enclosed by the end of the month and permanent power in place by December, keeping us on pace for an early fourth quarter 2026 opening. The total all-in project cost remains approximately $750 million is fully financed and is being executed under a guaranteed maximum price contract.

When complete, this best-in-class resort will feature approximately 100,000 square feet of casino space with over 2,400 slot machines, including 2,000 Class III games, 40 table games, 2 food and beverage outlets and a food court with many exciting options. At the end of the quarter, Red Rock's outstanding note balance due from the tribe stands at approximately $75.2 million. We're excited about this project, very happy with the progress of construction and look forward to providing further updates on future earnings calls.

Lastly, the company's Board of Directors has approved an increase in our regular quarterly cash dividend of $0.26 per Class A common share payable on December 31 to shareholders of record as of December 15. The decision to raise our regular quarter dividend reflects the continued strength we are seeing in our business and the confidence we have in our long-term earnings power of our operating model. Including the dividend and the share repurchases completed during the quarter, we will have returned approximately $221 million to our shareholders year-to-date, demonstrating our ongoing commitment to disciplined capital allocation and delivering sustainable long-term value to our shareholders.

With a third record quarter behind us, strong momentum from the start of the year has continued, and we remain confident in the strength and resilience of our business. Durango continues to validate our long-term growth strategy and highlight the value of our own development pipeline and real estate bank, which includes more than 450 acres of developable land in highly desirable locations across the Las Vegas Valley. Combined with our portfolio of best-in-class assets in premier locations, this pipeline positions us for significant long-term growth and allows us to fully capitalize on the favorable demographic trends and high barriers to entry that define the Las Vegas locals market.

Looking ahead, we remain focused on executing our development pipeline, maintaining operating discipline and enhancing shareholder returns through a balanced and consistent capital allocation strategy. Finally, we want to take a moment to sincerely thank all of our team members for their continued hard work and dedication. Our success begins with them. They are the driving force behind the exceptional guest experience that keep our guests coming back time and again. Thanks to their efforts, we are proud to have been recognized with multiple accolades, including being voted top casino employer in the Las Vegas Valley for 5 consecutive years, certified as a Great Place to Work for 4 years running and named one of America's best in-state employers by Forbes for the second year in a row. We were also honored as a top place to work by USA TODAY and recently recognized by Newsweek as one of America's Greatest Workplaces in Nevada.

Lastly, we extend our heartfelt gratitude to our loyal guests for their unwavering support over the past 6 decades. With that, operator, we're happy to open the line for questions.

[Operator Instructions] and at this time, our first question will come from Dan Politzer with JPMorgan.

First, Durango, I guess, we can call it Phase 3, if you will. Can you maybe talk about the rationale there for adding on as you kind of finish up this initial phase, the disruption impact and maybe how to frame returns just given there is a big component of this project that's going to be clearly non-gaming?

Sure. This is Lorenzo. Obviously, as you know, Durango opened very strong 2 years ago. Guests really have taken to the property, and we've been very happy with the results so far. Going back to the overall premise of the Durango investment, looking at the fact where the location exists, there's no competition within 3 miles in a growing market, submarket in Las Vegas. And then when we look at demand there, particularly for entertainment assets at that property, we felt like that there was the ability to drive additional traffic and additional guests by adding some additional capacity as well as additional entertainment assets there.

And look, and the reality is that from a return standpoint, we expect to get similar returns on the expansion that we have gotten so far on the initial build, which is right in line with what we had communicated to everybody when we announced the project.

And of all the customer surveys that we've done since we opened, the one thing that our customer base expects is all these other entertainment amenities like movie theaters and bowling and things of this nature. So we're basically giving our customers what they're asking for. And that's really what we build as regional entertainment destinations in the best locations with the best amenities at the facilities. That's what's allowed our company to grow the way that it has.

Got it. That makes sense. And then just in terms of the quarter, Steve, I think you alluded to something along the lines of sports betting hold. I don't know if you can quantify what that might have been in the quarter? And then along those lines, any way to kind of get a sense of what that disruption impact, where we stand year-to-date versus I think that $23 million, although given it sounds like they're [indiscernible].

It's really last year was like a not normal sports hold last year given the way the NFL had most of the favorites winning every game.

Yes. If you recall, last October, we announced that last third quarter call, we announced we had about $4 million of unfavorable hold. So I just wanted to remind everyone that we're back to a normal hold as Q4 is progressing. In terms of, I think, disruption, I think this quarter was a really outstanding quarter by every measure, even despite the disruption we had in both our Green Valley Ranch, where the hotel remains offline through mid-November. It probably impacted our results by $2.5 million to $3 million for the quarter, after which the East Tower will then go right down.

We also did experience some disruption, especially during peak parking times at Durango and at Sunset Station as we're during peak construction times. As mentioned, with the Green Valley Ranch project extended, we expect that disruption to extend beyond 2025 and into 2026. For Q4, we're estimating Green Valley disruption probably around $8 million.

The next question will come from Brandt Montour with Barclays.

So Steve, you called out in the hotel business, exceptional success. Obviously, one of your peers has an asset that's a little bit closer to the strip that was feeling it right from the sort of Las Vegas softness. And I know you guys are sort of running a different model, perhaps a different customer, different regional location. But maybe you could just comment on what you did see in terms of the strip weakness over the summer in your business. You guys have been taking share from the strip on VIPs. Did that kind of hold its own even with what's going on over there?

Brandt, this is Scott. Maybe I'll take this one. For the quarter, we were very happy with the hotel performance. We look at the choppy market in the city, and we felt like we were very resilient in regard to the performance. One thing to caveat, if you look at hotel revenue being down, it's largely a function of the Green Valley rooms being offline. So if you take that out, we actually performed quite well. Occupancy was up about 244 basis points. And when you look at RevPAR, we were only off by about 1.3%. And if you added back in the GVR rooms that RevPAR, we probably would have been positive in RevPAR for the quarter.

Probably the one thing that you're most interested in is ADR. And we kind of mirrored the rest of the city where you saw luxury properties performing a little bit better in ADR year-over-year comparison to, say, something that's more 2- or 3-star level. We saw the same thing. But if you look at overall ADR for our company against the Strip, we outperformed them by about 25% on an ADR basis.

Okay. Great. And then just to circle back on one of Dan's questions. I don't know if I caught it. But Phase 3 Durango disruption potential, assuming not that big of a deal. I mean it's on the north side, and so maybe it's not a big deal and you guys didn't -- but you didn't talk about it making sure we didn't miss anything there.

No Brandt, you didn't miss anything. I think we're still working through the details as we're getting for the construction launch in January. But we do feel that disrupting the north side of the resort is going to cause some significant disruption.

The next question will come from Stephen Grambling with Morgan Stanley.

Just a follow-up on Brandt's question about the strip. Just maybe more broadly, how do you think about the health of the Strip and its impact on your business? And should we be thinking that maybe historical correlations are not potentially useful at this point?

Yes, Stephen, I know there's been a lot of discussion, particularly since G2E about the recent softening trends from the strip and really whether these things are going to spill over in the locals market. And I think the first thing to do is really differentiate the business model. So the past 50 years, we viewed the Las Vegas locals market. It's just a fundamentally different business. One unlike the strip, it doesn't rely on heavy tourism, doesn't rely on conventions nor is it hotel driven. Instead, our locals market is anchored in a gaming-centric business model that offers value propositions to both local guests as well as out-of-town guests and at its core, is supported by incredibly loyal guests who, in our case, over 50% of our card revenue sees guests come over 8 times a month.

And then further, the market continues to display resilience and stability within this market. We believe we're best positioned to capture our fair share of that market in the Las Vegas Valley. And this is demonstrated by our financial results. We had 9 record quarters of revenue and 5 record quarters of EBITDA.

Makes sense. And then you've got a lot on your plate, I recognize with the different projects. But as we look further out to some of the new development opportunities out there, just given the confidence that it sounds like you have in some of these projects, does it change how you think about either the magnitude or what projects or even the ROIC that you could have on some of the land that you could still develop going forward?

Well, this is Scott. That's a great question. I don't think that anything has really changed in our view and what we've said in the past. The announcement of Durango North is really just about the fact that Durango North is shovel-ready. So it's the quickest project we can get in the ground. That does not slow us down in any way in our master planning, entitlement or cost analysis of the other projects that we've talked about, namely Cactus and Inspirada.

And perhaps the Durango hotel rooms.

This is Lorenzo, we're continuing to plan and design and move forward with entitlements, and we're as bullish as we've ever been relative to the future development of the company and our ability to generate returns.

The next question will come from David Katz with Jefferies.

So just to follow on to that a bit. I know Steve and everyone, we've had the discussion about potentially having 2 projects kind of in the ground and spending at once. And that was possible, but it didn't seem all that likely. Can you sort of give us your updated perspective on that?

Look, we definitely could have 2 projects in the ground at the same time, but I don't think that would be more than a minor overlap in my opinion. One project may be winding down with another project starting out.

And that said, David, when you talk about major developments, like we just announced Durango North, which we view as almost an extension of a new build. At the same time, we're doing an extensive remodel at Green Valley. We're doing extension remodel at Sunset Station.

And we're working on our greenfield projects.

Okay. Lots of balls in the air. And Steve, I just want to make sure I heard correctly, fully loaded leverage is 3.89x. Just looking through the next 12 months, is that a neighborhood that we should expect you to kind of stay in? Or does that start to ramp up in your model?

Right now, I can tell you we're very comfortable with the leverage. This quarter marked the sixth quarter in a row of deleveraging. And as I mentioned earlier, we converted 67% of our EBITDA to free cash flow. So we do plan on funding these resorts out of free cash. Leverage, if it does spike up because of the development of these projects would be temporary in nature as we get these projects up and running, particularly our Green Valley project and Sunset Station projects online and generating cash.

And you don't expect to be a cash taxpayer in the near term?

No. I think as Frank alluded to, the tax bill has been -- is going to be incredibly favorable for these development projects. When we took an initial look, and there's still some wood to chop in this analysis, but we would expect 100% of the Sunset Station project that's currently scoped to be allowed to accelerate depreciation, about 40% of the GDR project to be accelerated, 40% of the Durango North project to be accelerated and about 10% of the current Durango South garage to be accelerated. When you kind of put all that together, that's a little bit over $300 million of capital we're going to put to work that we'll be able to accelerate depreciation and take advantage of the tax bill.

The next question will come from Ben Chaiken with Mizuho.

Just a follow-up on the tax benefit that you were just running through. I guess now that you have a better view of what the capital outlays will look like in '26, could you help us with the free cash flow conversion next year, EBITDA to free cash flow?

Well, I mean, we're still in the throes of actually doing our operating budget and our capital plan for 2026. What we was able to focus on is our capital on our existing projects. I mean that's really where the extent of it. I do -- as you've seen over the last several quarters, we've reduced capital outlays by $25 million, mainly due to the timing of those projects. So these 3 same projects, the Sunset is currently scoped, Green Valley, the hotel and convention as well as the Durango South the Garage, which is going to be opening in mid-December, about $175 million of capital related to those projects will spill over into 2026, just as a matter of timing. And hopefully, that helps, Ben.

Yes, that's very helpful. I appreciate it. And then just kind of like more modeling related. In the past, you've -- last couple of quarters, you've given us some seasonality color. Is there anything notable we should consider as we close out the year? I think you mentioned $8 million of construction disruption. Just anything else you'd flag?

I mean, typically, Q4 to -- Q3 to Q4 seasonality is usually up about 10% to 11%. Right now, at least we haven't seen anything that would argue differently. But then as you mentioned, that's going to be offset by there's some Green Valley disruption, about $8 million and probably Sunset Station to the tune of $1 million to $1.5 million.

The next question will come from John DeCree with CBRE.

Maybe a question operationally. You talked a little bit about on the hotel side, the performance on luxury versus more value-oriented options. I wonder if you could speak to the gaming business, perhaps the database. And Steve, you may have touched a little bit on this in the prepared remarks. But what are you seeing across the database kind of upper tiers versus lower tiers? And any trends in kind of unrated play? It's not a huge piece of your business, but from a consumer perspective.

John, this is Scott. I'll take that one. For the quarter, we saw meaningful increases in carded and uncarded slot win. It's really been consistent and stable performance. And it's really a function of us prioritizing investments around our higher valued customers. So whether that's having some of the best-in-class high [indiscernible] rooms in town, new relevant amenities, best-in-class assets, keeping them clean and fresh and really location.

That's what I was just going to say is the fact that we're positioned in these high net worth, high-growth areas on arterial freeways is really shining through in the database. So when you look at our local, our regional and our national customers, all of those groups or those categories are up meaningfully with particular growth in VIP, regional and national, while the lower worth segments remained stable. And then I also mentioned and you got that uncarded is also up for the quarter.

That's all really helpful. And then maybe an easy one on the promotional environment. Las Vegas is kind of a separate market, but we're kind of seeing and hearing outside of Las Vegas regionally a little bit of uptick in promotional activity. Have you guys noted or seen anything, of course, throughout the summer or currently in terms of changes in competitive behavior in the market?

No, it's been business as usual for us. So it remains very constant and rational.

The next question will come from Chad Beynon with Macquarie.

Flow-through in the quarter was slightly better than, I think, what most expected given the disruption that you called out and OpEx per day was down for the first time in several years. Can you just talk about if this is sustainable from a cost standpoint? And anything else that we should be thinking about from a labor, utility, et cetera, standpoint for expenses in the next couple of quarters?

I can take the OpEx part, maybe you take the free cash flow part. Really, you said it. Overall, operating expenses were flat to down for the quarter. When you look at COGS as a percentage of revenue, we were flat. When you look at utilities and repairs and maintenance, we were down slightly. So payroll, we were up a bit, but that was a function of us giving a 3% raise in the middle of the year to salary and hourly employees, which is really kind of a CPI pacing pay raise. But fundamentally, as long as marketing remains rational, which it has for the last several years, these are completely sustainable efforts and kind of a shout out to our operating teams in the field. They're incredibly focused on margin control and expense management and the GMs and their teams out in the field do a great job.

Yes. And just to add to piggyback what Scott said, and I was going to give a similar shot on the revenue side. I mean this is really -- it's about operating leverage and a flow-through operating leverage. So as Scott mentioned, the database is healthy. The business is healthy despite some disruption at 3 of our properties. So if we keep that up, flow-through should be sustainable. The consolidated flow-through, Chad, is probably a little bit lumpy just given the fact that there's the North Fork development fee embedded in that. But other than that, it's business as usual.

And then actually a good segue to my next question. Just in terms of the fee, you said opening for North Fork, you said Q4 '26. When will you start to receive kind of those top and bottom line economics? Do those flow through as the property ramps? Or are there any deferred payments in terms of how that's structured?

Well, I think the first thing I think you'll see is that we've been accruing, we accrued $10 million of the development fee last quarter, $3.9 million this quarter. We expect to accrue $3.4 million pretty much through the opening. That obviously is noncash. Once the resort opens in Q4 per the development agreement, I would think about -- there's going to be an influx of cash from that development fee upon the resort successful opening.

And the -- there's probably going to be a true-up of that development fee, probably, I would say, a quarter behind that as we true up construction costs. And as Frank is mentioning, the $75 million note payable goes cash interest immediately upon cash open, and then we will look to recoup that note as soon as the property starts cash flowing at which point our 7-year management agreement kicks in the day we opened. And we expect -- if we're going to give guidance to that resort, we expect to generate $40 million to $50 million in management fees upon stabilization over that term.

The next question will come from Joe Stauff with Susquehanna.

Just 2 quick ones. I was wondering if you can maybe just give us an update on the backfill process at Red Rock. I know there are a couple of things moving around in the quarter with GBR out, the hotel offline. But I was wondering if you could comment on that. And just to clarify, Scott, I think you had mentioned in the previous answer that both regional and national demand were up in the quarter. Is that right?

That's correct.

On the backfill, we're on track. As you know, when we kind of kicked off the Durango process in December of '23, we said that we would experience cannibalization. We did. We expected within 3 years to backfill Red Rock. And so we're kind of in the year 2 in the throes of year 2, and we're on track to do that just that.

The next question will come from Steve Paella with Deutsche Bank.

Just a couple of quick ones. Within locals, can you talk about if there was anything to call out from a cadence perspective intra-quarter?

Cadence for the quarter No, I think it was pretty normal quarter, yes.

Okay. And then I might have missed it. Did you give a sportsbook hold impact for the quarter if there was one?

No, we didn't. What we did, I think prior question, we referenced it during the script because if you recall last year, during the third quarter call, we held unusually poorly, and we called a $4 million number out last October. We just wanted to remind folks that the hold is normal through today.

The next question will come from Jordan Bender with Citizens.

Maybe to drill down on margins one more time. If I look at casino margins, they continue to improve to levels we haven't seen in over 2 years. Is this a function of mix? Is it Durango continuing to ramp? Or anything else you would kind of point us to, to say this is kind of the right level for your casino margins looking forward?

I think it's a function of the mix, but also I think the team has done a great job managing expenses.

And I think it's been a shift in our approach to the market post-COVID, where we shifted towards high-limit slot rooms, high-limit table games. And I think we're doing a much better job post-COVID on attracting the high-end value customer.

Understood. And just on the follow-up, the dividend increase went up $0.01 a quarter. I mean is there any kind of calculation behind why that went up $0.01? Or was it just arbitrary that's kind of what you guys landed on?

Well, it's a whole number to start. So it took some condensing, but it's $0.01 a quarter, so $0.04 a year. I think the Board recognized and the management team recognize the continued strength of the business and the long-term earnings power of the platform. The Board continues to evaluate its dividend policy every quarter. And so I think they set something up so that in the future, they could reevaluate quarterly earnings dividend increases.

The next question will come from Barry Jonas with Truist Securities.

It's Patrick Keough on for Barry tonight. First, zooming out on the construction impact, you had previously pointed to around $25 million for the year. Where would you say you are cumulatively? And any reason to think you'd be tracking above or below that number for the full year?

I think we're tracking below that number, and I kind of walked you through it. sunset, we have seen marginal disruption in the past quarters. I expected $1 million to $1.5 million this quarter. Durango, Dave and the team down there have done an amazing job managing the disruption. So there's minor disruption there. It's tough to quantify because it's mainly peak parking time. And then Green Valley, I kind of walked you through what I think this quarter was about $2.5 million, $3 million. Next quarter, I anticipate $8 million sorry, this quarter.

Sounds good. As a follow-up, we'd be interested to hear any early thoughts on the taverns business. How many do you have open at this point? How have they performed relative to expectations? And what does your pipeline look like?

Patrick, this is Scott. So we've got 8 under contract, 2 are operational. We've got 5 coming online starting in the early part of next year and all the way through to the summer. Early indicators are we're ramping to our investment thesis. So we're happy with the performance of the 2 taverns. And if we go back to the thesis a little bit of why we like the taverns, tends to skew a younger audience. As we grow our database, we're seeing that come to fruition that it's a younger customer base and the customer base we're trying to attract. Also, because of the locations of the 2 open taverns, we're finding a pretty strong penetration into unknown customers in those zones.

So we're kind of reaching out and finding new customers that we didn't have in our bloodstream. And we are seeing those customers now migrate to our large box properties as well. So all of those original reasons why we got into the business, we're starting to see green shoots on. It's early days as we open up more of the taverns, we'll kind of solidify the performance and the kind of attributes of what we like about the taverns. But so far, we're pretty excited about it.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Stephen Cootey for any closing remarks. Please go ahead, sir.

Well, thank you very much for joining the call, and we look forward to talking again in about 90 days. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day and welcome to Red Rock Resorts Second Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now turn the conference over to Stephen Cootey, 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 for Red Rock Resorts Second Quarter 2025 Earnings Conference Call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Kreeger and 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. For definitions and complete reconciliation for these figures to GAAP, please refer to the financial tables in our earnings press release, Form 8-K and our investor deck, which were filed this afternoon prior to the call. Also, please note that this call is being recorded. The second quarter was an exceptional one for the company by every measure. Our Las Vegas operations delivered its highest quarterly net revenue and adjusted EBITDA in our 49-year history, all while sustaining near record adjusted EBITDA margin.

In addition to delivering strong financial results, we remain highly encouraged by the continued performance of our Durango Casino Resort and the revenue backfill at our core properties. Durango continues to expand the Las Vegas locals market, drive incremental play from our existing customer base and attract new guests to the Station Casinos brand. The property once again demonstrated strong momentum within the quarter with increased visitation, higher spend per visit and elevated net theoretical win from our carded customers in the surrounding Durango area. And since opening in December 2023, Durango has added over 108,000 new customers to our database. The resort remains on a solid trajectory and is on pace to become one of our highest margin properties, delivering a return net of cannibalization of over 15% through the second quarter of 2025. Regarding the cannibalization impact, which occurred primarily at our Red Rock property following Durango's opening, we are encouraged by the pace of the revenue backfill, which suggest that the worst of the impact is behind us.

Consistent with our historical experience, we continue to expect full revenue recovery over the next couple of years, supported by strong long demographic growth across the Las Vegas Valley, as particularly evident in Summerlin, where the combined build-out of the Downtown Summerlin and Summerlin West is projected to add approximately 34,000 new households. Across the rest of our portfolio, we demonstrated our ability to successfully manage costs while driving top line growth, resulting in what was easily the best quarter in our company's history.

Strength was evident across all business lines as we executed our core strategy of reinvesting in existing properties to enhance amenities and deliver best-in-class customer service while also returning capital to our shareholders. Now let's take a look at our second quarter. With respect to our Las Vegas operations, our second quarter net revenue was $513.3 million, up 6.2% from the prior year second quarter. Our adjusted EBITDA was $239.4 million, up 7.3% from the prior year second quarter. Our adjusted EBITDA margin was 46.7%, an increase of 47 basis points from the prior year. On a consolidated basis, our second quarter net revenue, which includes $10 million from our North Fork project, was $526.3 million, up 8.2% from the prior year second quarter. Our adjusted EBITDA, which also includes $10 million from our North Fork project, was $229.4 million, up 13.7% from the prior year second quarter.

Our adjusted EBITDA margin was 43.6% for the quarter, an increase of 212 basis points from the prior year. In the quarter, we converted 54% of our adjusted EBITDA into operating free cash flow, generating $124.3 million or $1.18 per share. This brings our year-to-date cumulative free cash flow to $217.3 million or $2.06 per share. This strong level of free cash flow was strategically deployed to support our long-term growth initiatives, including our most recent project at Durango, Sunset Station and Green Valley Ranch or return to our stakeholders through debt reduction, dividends and share repurchases. As we begin the third quarter, we remain focused on our core local guests while continuing to drive our regional and national customer segments across the portfolio. Compared to the second quarter of last year, we saw continued strength in card and slot play across our entire database. Robust visitation and strong spend per visit, coupled with a strong table games business helped drive the highest revenue and profitability in our Gaming segment in the company's history. Turning to our non-gaming operations. Both hotel and food and beverage divisions delivered a strong quarter, achieving near record revenue and profitability in the second quarter. Our hotel division recorded its highest second quarter revenue and profit, driven by our team's success increasing both ADR and occupancy across our portfolio.

The Food and Beverage division also achieved near record results for the quarter, supported by higher cover counts across our outlets. In group sales and catering, the team delivered near record second quarter revenue and profit, and we continue to see positive momentum in both business lines for the remainder of 2025 and into 2026. As we look ahead to the third quarter, we are seeing continued stability in our core slot and table games business within the locals market and across our Carded database. While we do expect to return to more typical seasonal visitation patterns and some near-term disruption impact from our ongoing construction projects at Durango, Sunset Station and Green Valley Ranch, we remain as confident as ever in the strength of our business and long-term growth prospects. Now let's cover a few balance sheet and capital items. The company's cash and cash equivalents at the end of the second quarter was $145.2 million, and the total principal amount of debt outstanding was $3.4 billion, resulting in net debt of $3.3 billion.

As of the end of the second quarter, the company's net debt-to-EBITDA ratio was 3.96x. During the second quarter, we made total distributions of approximately $200.3 million to the LLC unitholders of Station Holdco, including a distribution of approximately $116.9 million to Red Rock Resorts. The company utilized its portion of the distribution to fund its first and second quarter estimated tax payments, pay its previously declared quarterly dividend of $0.25 per Class A common share and a special dividend of $1 per Class A common share and to repurchase approximately 672,000 Class A common shares for $31 million at an average price of $45.94 per share under its previously announced $600 million share repurchase program.

The second quarter share repurchases bring the total number of Class A common shares repurchased, including the 2021 tender offer and open market repurchases to approximately 15 million shares at an average price of $45.35 per share, reducing the company's share count to approximately 105.4 million shares at the quarter end. Capital spend in the second quarter was $78.2 million, which includes approximately $59.8 million in investment capital as well as $18.4 million in maintenance capital. This brings our year-to-date capital spend to $146.4 million, which includes approximately $92 million in investment capital as well as $54 million in maintenance capital. For the full year 2025, we now expect to spend between $325 million and $375 million, down $25 million from our previous earnings call, mainly driven by the timing of capital expenditures.

The full year capital spend includes $235 million to $275 million in investment capital as well as $90 million to $100 million in maintenance capital. As mentioned on our last earnings call, we are making significant investments in our Durango Casino Resort, Sunset Station and Green Valley Ranch properties. At Durango, construction continues on the next phase of our Durango master plan. This expansion will add over 25,000 square feet of additional casino space, including a new high limit slot area bar. In total, the project will introduce 230 new slot machines with 120 allocated to the high limit room. As part of this phase, we are also building a new covered parking garage with nearly 2,000 spots, which will enhance customer access and provide infrastructure flexibility to support the future growth of the property. The total project cost is approximately $120 million and is currently operating under a guaranteed maximum price contract. The project remains on budget and is expected to be completed in late December. At Sunset Station, we are advancing our podium refresh to better position the property for continued growth in Henderson, particularly from the master planned communities of the Skye and Cadence, which are to deliver over 12,500 new households at full build-out. The $53 million renovation includes an all-new country Western bar nightclub, a new Mexican restaurant, a new center bar and a fully renovated casino floor.

We are pleased to report that customer feedback on the completed portions of the renovation has been overwhelmingly positive, reinforcing our confidence in the project's direction. The property remains on budget with the new amenities expected to come online throughout the remainder of 2025 and the first half of 2026. At Green Valley Ranch, we have commenced a comprehensive refresh of our guest rooms, suites and convention space, aligning the hotel experience with our recently renovated and well-received high limit table and slot rooms at the property. Work on the rooms in the West Tower is currently underway with the majority of all rooms in both towers expected to return to service by year-end. The total investment for the room and convention remodel renovation is projected to be approximately $200 million. As with our recently introduced amenities, we believe these upgrades will generate strong returns. However, we do anticipate some temporary disruption at the property as we bring these new offerings online for our guests. Turning now to North Fork. Construction is progressing well. We've completed the slab on grade, and we anticipate closing the facility by October, keeping us on a pace for an early fourth quarter 2026 open.

The total all-in project cost is expected to be approximately $750 million, is fully financed and is currently being executed under a guaranteed maximum price contract. When complete, this best-in-class resort will include approximately 100,000 square feet of casino space with over 2,400 slot machines, including 2,000 Class III games, 44 table games and 2 food and beverage outlets and a food court with many exciting options. In addition to the work continuing to progress as planned, the project remains on budget. We are also pleased to report that we are now able to begin and have begun recognizing our development fee revenue starting this quarter. This will continue the project's opening marketing another meaningful milestone in the advancement of this long-term project. Also as of the end of the quarter, Red Rock's outstanding balance due from the tribe stands at approximately $72.3 million. We're excited about this project, very happy with the progress of construction and look forward to providing further updates on future earnings calls. Lastly, the company's Board of Directors has also declared its regular cash dividend of $0.25 per Class A common share payable on September 30 to Class A shareholders of record as of September 15. Following the payment of this dividend and the share repurchases completed during the quarter, we have returned approximately $189 million to our shareholders year-to-date.

With 2 record quarters under our belt, the year is off to a strong start, and we remain confident in the strength and resilience of our business model. Durango continues to validate our long-term growth strategy and highlight the value of our own development pipeline and real estate bank, which includes more than 450 acres of developable land positioned in highly desirable locations throughout the Las Vegas Valley. Combined with our existing portfolio of best-in-class assets in premier locations, this pipeline positions us for significant growth and enable us to fully capitalize on the very favorable long-term demographic trends and the high barriers to entry that define the Las Vegas locals market. We do want to take a moment to sincerely thank all of our team members for their continued hard work and dedication. Our success begins with them. They are the driving force behind the exceptional experiences that keep our guests coming back time and time again.

Thanks to their efforts, we are proud to have been recognized with multiple accolades, including being voted a top casino employer in the Las Vegas Valley for 5 years -- 5 consecutive years, certified as a Great Place to Work for 3 years running and named one of America's best in-state employers by Forbes. We are also honored as a top place to work by USA TODAY and recently recognized by Newsweek as one of America's Greatest Workplaces in Nevada. Finally, we extend our heartfelt gratitude to our loyal guests for their unwavering support over the past 6 decades. Operator, this concludes our prepared remarks for today, and we are now ready to take questions.

[Operator Instructions] First question today comes from Jordan Bender with Citizens.

Backing out the Native American contributions in the quarter, flow-through still incredibly strong. Are you maybe able to help us unpack kind of where you're finding that incremental operating leverage? And I guess I'll just put the second part of the question there. Any impact from the renovations in the quarter that you can call out for EBITDA?

Yes. I think the strength, Jordan, is evident across all business lines. From a casino perspective, obviously, we had the best table and slot hold in the history of our -- in the history of our company, led by great volume and comparable hold. We also had our most -- our best hotel revenue and record profitability. And then not to be outdone, Food and Beverage, had its second best revenue -- second best revenue quarter only to be outlined by last quarter, which obviously have the trial from Durango. And the big change there and you saw this in our margin. You had some revenue mix shift from, let's call it, lower margin Food and Beverage and Hotel and higher-margin Gaming and Gaming actually had a flow-through north of 70%.

Great. And then I guess on the renovation disruption in the quarter.

Yes, we haven't seen too much impact from the renovation in this quarter. That said, we're still sticking to our guns on some of the disruption as we're in the thick or the peak construction period now for all 3 projects, the Durango, Sunset Station and Green Valley Ranch, with the majority of that disruption of almost $15 million occurring at Green Valley as the West and East towers are going to be taken down over the next 2 quarters. .

The next question comes from Joe Stauff with Susquehanna..

I wanted to ask just a follow-up on the construction disruption. Steve, you said you're sticking your guns in terms of kind of what you outlined for each property. Is July, August, September, say, the largest concentration of that disruption. Could you just remind us of the timing of that? And then I was wondering if you could share your analysis of how the tip tax relief kind of affects the locals market and your customer in particular?

Joe, it's Scott. I'll take the disruption kind of schedule and time line, and I think Steve will take the second question. A couple of quarters ago, Steve was pretty descriptive of what we thought disruption was going to be, and he just mentioned that in the Q2 time frame was a little lighter than we thought. Some of that is due to just the timing of construction. And in some respects at Sunset, we switched around the order of what we were doing. So at Sunset, instead of going into our main pit, we went into an area that contained an entertainment lounge. So that switched around the impact a bit. So you'll see sunset impact to be more like Q3, Q4 and maybe a little bit of a bleed into '26. Durango disruption has been relatively light, which is a good thing, but we are seeing impacts to parking, especially on the weekends.

We're getting above 80% parking and what's left over is less convenient parking in our world, that's pretty impactful. And then the second piece of Durango is we're enclosed now. And so the interior fit out is going to start, which tends to have more noise and kind of disruption that's on the adjacent construction wall than you saw in the past. But all in all, we still think that the bulk of the disruption you're going to see in Q3 and Q4.

And Green Valley is just getting started with the room renovation.

That's right. Yes. So Green Valley schedule is that we'll be through Tower 1 late September, first week of October. And then we'll be into the Tower 2 in October with the goal for us to be done at the end of the year. And then in October, we'll also kick in on the conference center remodel, which will be early January completion. And then Sites will be done in March. So that gives you kind of a time line at Green Valley Ranch.

I'll take the second, Joe, I'm going to congratulate you because you gave the ultimate back-to-school question, one question, 27 parts. I don't think you can actually just look at no tax on tips. I think ultimately, the tax legislation can only be viewed as a good one for Las Vegas. And just given our position in the locals market, we do expect to benefit from the legislation and increase of discretionary income it's going to bring to our customers. The key measures, as you mentioned, tax on tips, but there's also the elimination of federal tax and overtime pay, the new senior tax credit as well as expanded standard deductions, family tax credit and some reductions in marginal tax credits, all of which would significantly enhance the discretionary income. Well, it's tough to say how much of this income is going to flow to Red Rock. We can start framing that. I think you and I have talked through this. For example, when we ran our initial analysis on no tax for tips, for example, we estimated approximately $85 million annually would flow into Clark County. And then when you kind of even view overtime, which is a little trickier, there's about 1.2 million workers in Clark County and using some national estimates, roughly 4% to 8% of those typical people actually get -- receive overtime pay.

And ultimately, this could benefit each worker up to $300 to $1,800 per worker annually. And then not to be outdone, just remind -- remind everyone that there are about 390,000 seniors over 65. And just given the marginal -- the median household income of that cohort, we would expect a substantial portion of those seniors will qualify for at least part of the new senior deduction. So all of this is fantastically good for our company. And then the next 27 parts of the question right? I mean I think with the expansion of -- you can expense immediately R&D expenses, the acceleration of bonus depreciation and the relief from interest deductibility, that is going to have an immediate impact on our cash flow for the remainder of 2025. We do not expect to pay cash taxes for the remainder of 2025. And further, we do not expect to make any tax distributions to Station Holdco for the rest of the year, which we estimate will increase our operating free cash flow by $60 million for the rest of the year.

The next question comes from Steven Wieczynski with Stifel.

So Steve, I want to ask about your new database sign-ups across your properties in the quarter. And I guess what I'm trying to understand here is if you guys have seen any pickup in new customers given the well -- let's call it, the well-documented slowdown along the strip. Basically trying to understand if the strip has essentially overpriced itself and some customers are now looking for other alternatives. Hopefully, that makes sense.

It does. Steve, this is Scott. Let me take that one. So from an overall database perspective, we saw strong positive performance across all of the segments. And as it's been trended from past quarters, because of our focus, because of the investments we're making in our properties, we're seeing particularly strong growth in our VIP our core customer, our regional and national customers. But in this quarter specifically, not to be outdone, we also saw a considerable improvement in what we would call our retail customer, our non-rewards customers.

So across the database, pretty much homogenously, we've seen positive increases. And you mentioned new member sign-ups particularly. interesting that if you -- you've got to take into account the opening of Durango and the impact it had in the second quarter of last year, Durango has signed up 108,000 new-to-brand customers as of this quarter or as of the end of Q2. So that's a sizable -- whether -- or sorry, database increase that comes from Durango. If you take that comparison of Durango out and you just look at the core 6, we're up almost 10% in new sign-ups, which is really a quite sizable effort on the part of the operating teams to grow the database in general. The other thing that we look at is when we look at demographics, across all the age categories, we saw positive increases in the quarter. And most interesting as an absolute customer count in the database, we saw under 35 growth 15%. I think that's attributable to the relevant amenities that we're putting in our properties, the way that we position our properties and quite honestly, the team -- the marketing team and how they resonate with the younger demographic.

So we're seeing strong demographic increases. And then not to be outdone, when we look at uncarded, second quarter slot coin in was the highest quarter of increase in uncarded play that we've seen in the last 2 years. So really, when you take a broad brush stroke across all of the aspects of demographics and customer database, we're seeing positive growth. And then as we look into Q3, we're seeing very similar trends as we go. It's early. But as we look into the future trend into Q3, it's very consistent.

And Steven, just to piggyback on what Scott was saying, that really highlights the difference between the Strip and Las Vegas locals, right? While the Strip relies heavily on tourism, conventions, hotel-driven revenue, we are anchored by a gaming-centric business model, right? We focused on deeply loyal customer base. Many of these customers, in fact, our customers, 75% for our card to play business over 4x a month. And so we feel locals offers a stronger value proposition, which is driving more people to our casino, which includes accessible pricing, convenient locations, personalized service, and that continues to resonate not only with our locals guests, but it's starting to increasingly resonate with our out-of-town guests as well.

Okay. Got you. That's great color, guys. And then I assume this is probably going to be for Scott. And I apologize if, Steve, you had this in your prepared remarks. But wondering if we can get an update, Scott, in terms of what you're seeing from a group perspective, maybe in the fourth quarter of this year and then what you're seeing so far for '26.

Yes, we're seeing really positive forward bookings. So we're talking in the mid-20% increases in group. And then catering kind of ride shotgun with group sales and we're seeing similar increases not only through the remaining quarters of this year but into '26 as well. .

The next question comes from Shaun Kelley with Bank of America.

Steve or whoever wants to take it, I know it's probably hard to put a finer point on it, but it sounds like there were several upside surprises in the quarter, both the backfill comment you made a number of times in the prepared remarks and then the strength in unrated play, which has been a segment that I think has come back better than expected across the locals. So if you were to kind of divide out by those 2, do you -- could you venture a guess or help us think a little bit about how much either of those 2 things, in particular, contributed to the kind of the outsized growth or the reacceleration in growth we saw in the quarter?

I think if you really look at really what the big contributor was, I think Scott had touched upon this. It's the VIP play in slots and in table games. And as we mentioned, I mean, we've invested quite a bit in high-limit areas and amenities over the past I guess, 4 years, 5 years coming out of COVID, and we're really starting to see that pay off now as we feel like that we're getting more than our fair share in those 2 areas from a gaming revenue standpoint.

I would add to that, Steve, you can jump in. When you really look at the market in general, Durango was the star of the show a year ago, but as Durango kind of matures into the market, one of the things that we're seeing, we mentioned it last quarter and again in Q2 is the performance of our core 6 properties in growing market share and growing the market. So we're seeing all of our properties contribute to the revenue increases.

And then maybe just to kind of dig in on seasonality or however we want to think about it, but there have been a lot of callouts and certainly a warning from one of your peers about concerns on sort of strip rate compression as we move into the summer months here and some pretty serious discounting out there that I think we can all see on social media. Are you seeing that reflected in any of the hotel product or the prevailing rate there? How are you kind of insulated from that? And just sort of yes, bank shots around that for the Red Rock portfolio?

Yes, great question. This is Scott. One, let's just go back and say that Q2 was a great quarter for hotel. But as we look into the current trends and short-term booking window, yes, across the board, you are seeing kind of an ADR war, if you will, out there. Now how do we play into that? Certainly, we have to be competitive with the market rates, but we're certainly not completely dropping our rates to unreasonable levels. I think it's also important, Frank and Steve just mentioned this that we are a different makeup of business than the strip. So a majority of our revenue comes through casino. While hotel is important to us, it really only represents about 10% of our overall revenue stream. And then when you look at FIT and transient, it's really only about 20% of the overall hotel mix. So while it's important to us and we stay competitive, it really doesn't represent the lion's share of the revenue stream of the company.

The next question comes from Chad Beynon with Macquarie.

Just in terms of the lower leverage at this point and maybe the business humming along slightly better than anyone would have expected. You obviously have a full plate with some of the renovation projects that you outlined and that will hit in the end of '25 and '26. But as we think further down the track some of the bigger development -- developmental sites. Has anything changed just given your cash position with respect to the timing of maybe greenlighting one of those next opportunities?

This is Lorenzo and obviously, Frank chime in. But nothing has changed. I mean, clearly, we are a development company. I mean that's really what our focus is. We've got all of this real estate in Las Vegas in strategic locations. And with Durango, we've proven again that we can develop these projects and get attractive returns.

From a timing standpoint, we're in a position, I think, as we said before, where we're just continuing to design and go through the process of trying to figure out which project we think we're going to be able to get the best returns at and have the most impact to be able to create equity value for the company.

And these projects just take time. We want to make sure that we get good drawings. We go out on the street, we get good pricing. so that when we do announce what the next project is and what the pricing is that we're confident we're delivering for everybody. I think we had said at one point a quarter or 2 ago that we would probably have an update when we report Q4 of this year. I don't know, Frank, if you have anything to add.

Great. And then in terms of the Red Rock's impact, what inning are we in, in terms of just getting back on the right glide path to return to what some of the prior numbers are? I know you guys are looking at net of cannibalization but I know that's kind of a key model driver, just getting some of that -- backfilling some of that business back into Red Rock.

Yes. I think as I mentioned in the prepared remarks, generally, these backfill historically has taken a little bit over 3 years. And so we feel very comfortable in the position we are from a backfill perspective. Scott alluded to the market share growth -- the market share comment where you looked at the 12 months, Durango is really driving the ship. When you look at 6 months, 3 months, 9 months, it is now really the core 6 kind of driving the ship, which kind of shows you the power of the platform and our ability to backfill at our existing properties. So we like where we are. We're mid-inning, right? We're kind of entering our second year of that backfill.

Our next question comes from Barry Jonas with Truist Securities.

Maybe just for Steve. Any color you can give about thinking about seasonality for Q3 as we refine our models?

Yes. No problem. And obviously, it's coming off of a big quarter. And I think the first thing you have to do is just recognize that North Fork is in the $10 million. And so not really part of seasonality, just to give you some guidance there. We would expect that number to be $3 million a quarter through opening just to get that out of the way. And then usually, Q4 to Q3 or Q3 to -- Q3 to Q2 is usually down about 10% from an EBITDA perspective.

That's helpful. And -- okay. Just to mention it [Indiscernible]. All right. if you have a follow-up.

No, I was just going to just reiterate that there's also that disruption we talked about, but I think you got that.

Yes, understood. And then I know we'll get the big reveal later on, but any early puts and takes you can offer for the finalist for your next big greenfield project. You could sort of identified a few areas that you're thinking about. So just curious if the order has changed or any puts or takes you'd be willing to share now.

Yes. I mean I think the one thing that we've shared with you guys is that the precursor to potential expansion of amenities in Durango is the garage setting this up to be able to have more amenities accommodate the guests with convenient parking at all. So that is definitely an option. And in terms of the greenfield, I think we'll do that at the end of the year on our year-end call.

The next question comes from Ben Chaiken with Mizuho.

As you get into some of the renovation work primarily GVR and Sunset. Maybe you could just help us flush out some of the larger opportunities that each project you hope to solve for with the current renovations because these are largely -- these are more than -- at least from my perception, they seem larger than just refreshes of the existing product?

Yes, I can start that. This is Scott. And then Steve, you can kind of jump in. So let's start with Sunset. So Sunset is in an incredibly vibrant new emerging area of the valley. There's a development called Cadence over in that area of the [indiscernible] that represents about 12,500 new rooftops over the phasing of the project. At one time, Sunset was kind of an anchor property for us. And as the valley fills in on the East side, Sunset is being remodeled and refurbished to represent kind of the red rock of the East side for us. It's an incredibly dynamic property. It's a fully integrated property.

And so we started about 1.5 years ago with the race and Sports book and a Yard House restaurant, which both have been incredibly successful. And then we've gone through and we're subsequently remodeling the entire casino floor. We're adding a country Western dance hall. We'll go in and refurbish the lobby, the exterior of the property at a Mexican restaurant, redo the center bar. And so essentially, the main center or heart of the overall property will be refurbished. As we've been doing that over the last 1.5 years, we've been -- it's been incredibly well received by our customers. Each segment of the property that we renovate and reopen, we're seeing positive return.

In visitation and in the expansion of the demographic profile that we're able to attract to the property. So I mean, we feel like we have pretty good traction over there. and we really believe in the return on investment that we'll get over there at Sunset, given the area in the market that it's in, which is growing and the ability for us to attract a younger gaming profile. And I think we've seen since post-COVID with all these investments that we've made, we really have been able to lower the age group that we're able to attract to the property, which I think is very important for the long-term growth here.

And then switching to GVR, same story. It's an incredibly vibrant area, one of the higher net worth areas of the valley. GVR rooms were in need of a refresh. We really started with adding high limit rooms, which we've done on all of our core properties, pretty much all of the core properties, which we've seen incredible return on investment in. And so we did that first at Green Valley, new high limit rooms both slots and tables, new restaurants. So we're bringing the hotel rooms up to a 5-star level of finish to complement the high limit rooms and the restaurants and at the same time, bringing our meeting space in alignment with that level of quality. So you're going to have fresh new rooms, fresh new we mentioned in meeting space, fresh suite product great high limit rooms, new higher-class restaurants and so.

And I think what you'll see when you see the Green Valley Ranch room product, I mean, it is more than just a refresh or a rerag of the room.

The repositioning.

It's a complete repositioning of the property into the luxury space where the bathrooms are being completely redone. And I think we'll have one of the nicest room products in the city. So we're excited about that.

And we have some of the renderings for those in the investor deck. Do you want to take a look.

Got it. Helpful. And then just a really quick one. I think you helped us with some of the benefit to free cash flow for the remainder of the year tied to the 100% bonus depreciation. How do we think about that number in '26, even just in broad strokes?

A lot of it depends on what we actually do.

That's exactly where I was going to go in. So let's assume that the interest limitation is going to be a good guy. The main driver here in '26 is going to be the accelerated depreciation, and we're really going through our capital planning right now. But I think that puts us in a good step that any investment that Frank or Lorenzo want to make. We know we're going to be able to take that tax further immediately. .

The next question comes from David Katz, Jefferies.

I covered a lot of ground already. I appreciate it. I just wanted to get a sense for, Steve, how you're sort of thinking about your sort of ideal leverage range given the spending, which has been productive given the capital return plans, et cetera, where would you like to sort of range that over time?

Yes, David, I don't think there's any change right now. As you can -- we've kind of knocked down leverage over the last several quarters just naturally through generating higher EBITDA. So very comfortable with the balance sheet and the overall leverage position. As I mentioned previously, it's supported by a very flexible credit agreement and no near debt term maturities. And that's the financial flexibility that enables Frank and Lorenzo to kind of operate a balanced and disciplined approach to capital allocation.

You did mention that this quarter, we did take an opportunity to return a lot of capital through the 670,000 share repurchase, our quarterly dividend as well as our special dividend. I think the focus in the back half of the year is primarily going to be focused on getting Green Valley, Sunset and Durango online.

Congrats on your quarter.

Thanks, David. .

[Operator Instructions] The next question comes from John DeCree with CRE.

Maybe just one in regard to the 100,000-plus customers you've acquired since opening Durango. Curious if you could give us any insight into the behavior of that segment of the database relative to previous customers, do they spend more? Do they visit more frequently? Do they move about your other properties? Is there a behavior any different if they're acquired at Durango versus the rest of the portfolio?

Yes, John, this is Scott. I think generally, because you're talking about a large sample size of people, they behave very similarly to the rest of our customers. I mean the are in and among 3 to 5-mile radiuses of other customers. Now well, I guess I'll enhance your question by saying, does Durango behave a little differently than some of our other properties and the answer would be yes. I think that Durango is catering to a younger demo.

We tend to see a lot of industry folks coming off the strip and stop an off at Durango, maybe on the way home. So we have a little bit more visitation on the later day parks at Durango. And I think it's a function of the incredible food and beverage programming we have there that it's kind of a lifestyle or in a property you see in a younger [indiscernible].

And just the location is unbelievable. And it's a growing area of the valley, both residentially, commercially, there's a lot of activity going on around there. And as Scott said, it's broadened the demographic profile.

And definitely a higher spend per person on to beverage.

This concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.

Well, thank you, everyone, for joining the call, and we'll see you and talk again in 90 days. Take care.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.