Zachary Silverberg

Zachary Silverberg asked about Red Rock Resorts' overall tavern strategy, its ability to source new or high-end customers, and the return profile of taverns. He also requested an update on the three-year cannibalization backfill process from Durango Casino Resort.

Answer

Scott Kreeger, President, explained the tavern strategy as a 'micro-market strategy' to penetrate neighborhoods, focusing on high-net-worth areas with growth. Taverns attract a demographic that skews male, sports bettor, and young, aiming to grow them into larger property customers. Three new taverns are opening in H1, with more in H2, following a highly selective and accretive growth strategy. He stated that Red Rock Resorts feels 'very good' about the cannibalization and backfill process from Durango, with core properties showing low single-digit growth last quarter, indicating they are on track.

Zachary Silverberg requested more detail on the stabilizing consumer trends post-election and asked about the potential financial benefit from a proposed 'no tax on tips' policy.

Answer

President and CFO Charles Protell confirmed that the lower end of the customer database has stabilized after previous declines, with rated gaming revenue turning positive year-over-year in January. CEO Blake Sartini added that The STRAT is seeing 'green shoots' with improved slot performance and higher carded play. Regarding the tip tax, Protell estimated a direct benefit of about $2 million for the company but noted the larger, indirect benefit would be increased discretionary spending from the local workforce.

Zachary Silverberg asked about the drivers behind the strong 46% margins in the Nevada locals casinos and whether there are further levers for margin growth. He also inquired about the company's CapEx plans for both maintenance and growth.

Answer

President & CFO Charles Protell attributed the strong local casino margins to rightsized labor, streamlined F&B operations, hotel efficiencies, and lower utility costs. Regarding CapEx, he stated maintenance runs $30-35 million annually, with plans to open two new taverns this year. Beyond that, major investments are not planned, as capital is being prioritized for share repurchases. CEO Blake Sartini added that they are pursuing growth via third-party investments in their facilities and real estate.

Zachary Silverberg, on behalf of Dan Politzer at Wells Fargo, inquired about the performance trajectory and ramp-up of The Rose gaming resort, asking for insights into its first few months and the outlook for the next year.

Answer

CEO William C. Carstanjen expressed strong confidence in The Rose, noting its excellent location and market demographics. He explained that, like other HRM openings, it takes time to educate the market and build a customer base, citing minor initial headwinds like opening during an election cycle. He stated that performance is ramping appropriately and advised patience over the next 12 months.

Zachary Silverberg, calling for Dan Politzer of Wells Fargo & Company, asked for the breakdown of advertising spend between the U.S. and Latin America, the outlook for 2025 marketing spend, and an assessment of regulatory risks like tax hikes and the momentum for iGaming legalization.

Answer

Executive Kyle Sauers explained that while RSI doesn't break down marketing spend, it is a higher percentage of revenue in Latin America. He expects to gain leverage on the marketing line in 2025, with spend influenced by the recent launch in Peru and a potential launch in Alberta. CEO Richard Schwartz addressed regulatory risk, stating he doesn't expect tax hikes to spread and warned of unintended consequences like driving players to unregulated sites. He noted growing momentum and conversations around iGaming legalization but declined to predict which states might be next.

Zachary Silverberg requested more detail on the Philadelphia submarket, particularly quantifying the expected impact of university students returning, and asked about migration trends in other dense urban locations.

Answer

Keith Kimmel, President of Property Operations, explained that Philadelphia's recovery is tied to the return of students at Drexel and Penn, and the recall of workers by Comcast, both expected by mid-to-late 2021. Regarding migration, he noted a pause in new job-related move-ins to the Bay Area but a significant uptick in moves to Miami, particularly from the Northeast.