Red Rock Resorts, Inc. (RRR) Q3 2026 Earnings Call Transcript

Good afternoon, and welcome to the Red Rock Resorts 3rd Quarter 2026 Conference Call. All participants will be in a listen-only mode. Please note, this conference is being recorded. I would now like to turn the conference over to Stephen Coote, 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 Resort's third quarter 2026 earnings conference call. Joining me on the call today are Frank and Lorenzo Fertitta, Scott Krieger, 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 that this call is being recorded. Let me begin by highlighting another strong quarter for the company across our key financial and operating metrics. Our Las Vegas operations delivered the highest third-quarter net revenue and second-highest third-quarter adjusted EBITDA in our history. while maintaining a near record adjusted EBITDA margin. These results reflect the strength and resilience of our business we have built over the past five decades, the consistency of our operating model, and our continued focus on operational excellence and disciplined capital allocation. Turning to our third quarter financial results, our Las Vegas operations generated net revenue of $479.1 million, up 2.3% year-over-year, while adjusted EBITDA was $204.6 million, down 2.3%. Adjusted EBITDA margin was 42.7%, a decrease of 199 basis points from the prior year. On a consolidated basis, net revenue, which includes $6.2 million from North Fork, was $488.7 million, up 2.8% year-over-year. Adjusted EBITDA, which includes $5.1 million from North Fork, as well as a one-time $5.8 million expense associated with our 50th anniversary, was $182.6 million, down 4.3%. The consolidated adjusted EBITDA margin was 37.4%, a decrease of 277 basis points from the prior year. As part of our 50th anniversary celebration, we were especially proud to make every full-time and part-time team member and owner of our company through the grant of more than $72 million in Class A common stock. This milestone reflects our appreciation for the people who have helped build station casinos for the past five decades and reinforces our belief that our team members should share directly in the company's future success. The stock grant will result in approximately $79 million in compensation expense, including non-cash, stock-based compensation and associated payroll taxes. These costs will be allocated to the respective departments in which our team members work. Including approximately $26 million in casino operations, $26 million in food and beverage, $6 million in rooms, $1 million in other operations, and $20 million in SG&A. These expenses will be reflected in our GAAP operating results, but excluded from adjusted EBITDA. During the quarter, we converted 45% of adjusted EBITDA into operating free cash flow, generating $81.7 million, or $0.77 per share. Year-to-date, we have generated $288.4 million of operating free cash flow, or $2.75 per share. This consistent cash generation provides us with the flexibility to reinvest in our properties and development pipeline while returning meaningful capital to our shareholders through dividends and share repurchases. Turning to Durango, the property continues to deliver exceptional operating performance despite ongoing construction activity in and around the resort, reinforcing our confidence in the property and validating our broader development strategy. The resort continues to expand the Las Vegas locals' gaming market, driving incremental play from existing customers while attracting new guests to the Station Casino's brand. To date, the property has added more than 168,000 new customers to our database. While generating increased spend per visit and higher net theoretical win among carted customers in the surrounding market during the quarter, the property's continued performance, supported by strong residential growth in southwest Las Vegas, only reinforces our confidence in the long-term opportunity at Durango. Building on this success, construction of the Durango North expansion continues to advance, with an anticipated opening in the third quarter of 2027. The project will add more than 275,000 square feet along the north side of the property, including nearly 400 additional slot machines and other gaming offerings, including a state-of-the-art bingo room and a dedicated kino lounge. The expanded podium will also add an exciting collection of new dining and beverage and entertainment venues, highlighted by a local Chinese favorite. An internationally acclaimed Italian restaurant, and our partnership with Moonshine Flats, which will bring its signature country western bar and live music concept to Las Vegas for the first time. The expansion will also feature a first-to-market entertainment center, combining premium recreational amenities designed to drive repeat visitation and create a vibrant social destination on the north side of the property. Highlights include a 36-lane bowling facility and diner, luxury movie theaters, a three-course miniature golf destination, and a collection of interactive entertainment experiences, including golf simulators, karaoke, arcade games, and other social gaming offerings, complemented by multiple food and beverage offerings. As a result of these enhancements to the project's scope, we've revised our total estimated investment to approximately $430 million. While the estimated cost has increased, we remain confident in the project's underlying economics and our ability to achieve our targeted 20% return on investment over time. Turning to our broader operating performance, we continue to see healthy underlying trends across our gaming business during the quarter. Our core properties perform well, supported by increased carted spend per visit and higher net theoretical win across our local, regional, and national customer segments. These trends contributed to the highest third-quarter gaming revenue and second-highest third-quarter profitability in our company's history. Our hotel food and beverage divisions delivered solid results, reflecting healthy underlying demand across both businesses. Our hotel division generated revenue growth despite a reduction of more than 4,500 available room nights at Green Valley Ranch. This performance was supported by higher portfolio-wide average daily rates and guest demand for the newly renovated rooms at Green Valley. Not to be outdone, our food and beverage division delivered its highest third quarter revenue in the company's history, benefiting from increased guest volumes and higher average check sizes. Looking ahead to the fourth quarter, we continue to see stable trends in our core slot and table business and within our Carto database. While ongoing construction at Durango and Sunset Station, along with the continued roadwork along the 215 Beltway, creates some near-term disruption, we remain focused on minimizing these impacts as we complete investments designed to enhance the guest experience, strengthen our competitive position, and generate attractive long-term returns. 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 was $128.3 million, and the total principal amount of debt outstanding was $3.7 billion, resulting in net debt of $3.6 billion. As at the end of the quarter, the company's net debt to EBITDA ratio was 4.4 times. During the quarter, we made a total distribution of approximately $29.2 million. to the LLC unit holders of Station Hold Co., including a distribution of approximately $17.3 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 fund a portion of the repurchase of approximately $470,000 Class A common shares at an average price of $56.94 per share under its previously announced $900 million share repurchase program. When combining the dividends and the share repurchases made during the year, we have returned approximately $252.5 million to our shareholders. Last month, we also completed a $500 million add-on to the company's existing Term Loan B credit facility on the same terms as our original facility. The proceeds were used to repay the outstanding borrowings under our revolving credit facility, reducing its balance to zero, pay related fees and expenses, and for general corporate purposes. This transaction further strengthens our liquidity position and enhances our financial flexibility. Turning to capital expenditures, during the quarter we invested $199.1 million, consisting of $164.5 million in investment capital and $34 million in maintenance capital. This brings our year-to-date capital expenditures to $456.1 million, including $346.1 million in investment capital. For the full year 2026, we now expect capital expenditures of approximately $550 million to $570 million, including $425 million to $435 million in investment capital and $125 million to $135 million in maintenance capital. This increase from our previous guidance primarily reflects construction delays and cost overruns. With the recently completed hotel and convention renovation at Green Valley Ranch, enhancements to the scope of the Durango North expansion, and the accelerated pace of construction activity and associated payments across all of our development projects. Despite these increases, we remain confident in the underlying economics of our investments and our ability to generate attractive long-term returns. In addition to our continued investment at Durango, we are making significant investments in our Sunset Station and Green Valley Ranch properties. At Sunset Station, we continue to make excellent progress on our comprehensive redevelopment program. Both the newly renovated Gowdy Bar and Stoney's Rock and Country are now open and have been met with positive customer feedback, reinforcing our confidence in the investment and the underlying demand at the property. Looking ahead, we expect to open Leticia's Kachina and Cantina, Sunset Bar, and our new state-of-the-art bingo room later this quarter, further enhancing the property's dining and gaming offerings. We are also preparing to begin construction on the centerpiece of the Sunset redevelopment, a new premium steakhouse, and a high-limit slot in table game areas. This final phase of the project leverages a proven strategy that has consistently generated strong returns across our portfolio. The project remains on budget at approximately $87 million, with the remaining amenities expected to be completed by mid-2027. At Green Valley Ranch, we have completed a comprehensive renovation of our hotel guest room suites and convention spaces. Most early, customer feedback has been overwhelmingly positive, and initial results have been encouraging, reinforcing our confidence in the investment. With the completion of this project, Green Valley Ranch now offers one of the finest hotel products in the Las Vegas Valley, complementing our recently renovated high-limit slot and table game areas, and further strengthening its position as one of Southern Nevada's premier integrated resorts. Turning to North Fork, we are extremely pleased to announce that the property is officially open for business on October 27th, marking a significant milestone for the tribe and our company. The approximate $700 million development was completed on budget and features more than 2,400 slot machines, 40 table games, and a comprehensive food and beverage offering establishing a significant new gaming and entertainment destination in California's Central Valley. Initial customer feedback has been overwhelmingly positive and demand has been strong as the property continues to ramp operations. Importantly, with the property now open, we are beginning to realize the financial benefits of this investment. Under our seven-year management agreement with the tribe, we expect to receive our first management fee later this month. We have also received $26 million, representing the first installment of the development fee owed to us under the development agreement with the tribe. In addition, our outstanding development note, which has a balance of approximately $86 million, As we look ahead, we remain confident in the strength and resilience of our business model and the long opportunities across our portfolio. Our recent capital investments continue to perform well, reinforcing our disciplined approach to reinvesting in our existing assets while advancing our development pipeline. The continued success at Durango validates our long-term growth strategy and highlights the embedded value of more than 450 acres of owned, developed land in some of the most attractive sub-markets across the Las Vegas Valley. Together, our portfolio of best-in-class assets and unmatched development pipeline position us to capitalize on the favorable demographic trends and high barriers to entry that define the Las Vegas locals gaming market. Creating substantial opportunities for long-term growth and shareholder value. Before we wrap up, I'd like to sincerely thank all of our team members for their continued hard work, dedication, and commitment to delivering exceptional guest experiences every day. They are the foundation of the company's success and the driving force behind the results we continue to achieve. Finally, we want to extend our heartfelt gratitude to our loyal guests and the communities we proudly serve. Their continued trust and support are fundamental to our success. As we look ahead, we remain committed to investing in our team members, our properties, and our communities, while delivering exceptional experiences for our guests and creating lasting value to our shareholders. And with that, operator, we'd be happy to turn the line over to questions.

We will now begin the question and answer session. To ask a question, you may press star, then one, on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question today comes from Lizzie Dove with Goldman Sachs. Please go ahead.

Hi, thanks for taking the question. Apologies if I missed this, I joined the call a little bit late, but could you maybe just talk through to the extent you have the kind of cadence of the quarter? You know, obviously we heard from other operators that there have been some, you know, potential softness in August, so curious, you know, what you've been seeing as you move through the quarter and any more detail you have as you moved into October and November. Thanks.

I mean, I think the overall cadence for the third quarter was pretty steady. I mean, there was some differences between August and September, but most of that's due to date fluctuations. So overall, we thought the quarter extent was pretty consistent. And that kind of led into some of the discussion I had in the remarks. Q4 is steady as she goes.

Great. And then I guess bigger picture as you look to 2027, obviously you have a lot of these ROI projects coming back online starting to contribute, disruption starting to go away. How do you think about that and kind of sizing that and the cadence of that ramp as you move through to 2027 on top of what I'm sure you think is going to be a solid year kind of underlying as well?

Right now, we're very encouraged on the business position, and as you mentioned, we're going to benefit in 2027 from a full year of operation from the newly renovated Green Valley Ranch, and then in the second half of the year, we expect to benefit from adding 275,000 square feet of new capacity to the Las Vegas market with the opening of Durango North, as well as the completion of kind of the centerpiece of the Sunset Station investments, the premium steakhouse, and the high-limit slots and table rooms. You know, we do anticipate next year to be, you know, a heavier CapEx year as we're finally finishing up Durango North and Sunset Station. But as you mentioned, the cadence of disruption, particularly with the properties, but maybe with the exception of the construction in and around the 215 Beltway, should, you know, begin to dissipate, allowing us to kind of reap the rewards from our investment.

Great. Thank you.

The next question comes from David Katz with Jeffries. Please go ahead.

Hi, afternoon. Thanks for all the details. I just wanted to talk about the increases in CapEx, and I think delays and overruns may have been the words you used. Correct me if it's not, but should we look at these as a kind of one-time movement in the budget, or do you think there's potential that we could see more of this? And, you know, does it necessarily linearly eat into the return opportunity, or, you know, can we look at these as an expansion of scope that, you know, grows the EBITDA output at the end? Thanks.

Yeah, there's a bit to unpack there, but I'll start with saying that these, David, these are one time in nature. As I kind of mentioned in the remarks, while there were some increases, particularly to the Durango North, that was all related to scope, we expect to get a return, and we're very comfortable with achieving that 20% return over time.

In relation to GVR.

And the GVR was a one-time cost overrun. The project started out to be, you know, the initial budget we gave was $200 million. It ended up being close to $250 million.

Understood. Okay. Thank you very much.

The next question comes from Dan Pulitzer with J.P. Morgan. Please go ahead.

Hey, good afternoon. Thank you for the questions. Obviously, there's a lot of construction underway and a lot of, you know, noise that impacts the kind of core fundamentals of the business, but do you think you could break out, you know, any disruption impact versus the core and just remind us of any seasonality as we think about kind of going forward?

Sure. From a disruption standpoint, maybe there's a couple of numbers we'll call out, one's disruption and one's related to the 50th year anniversary expenses. So on disruption, if you recall the last call, we called out $3 million of disruption to GVR. The team did a fantastic job managing that disruption. So we actually only realized about $1.5 million. All of it was related to the 4,500 room nights that we lost and associated room and food and beverage revenues that we lost.

I do think, just to add on to what Steve said, you know, we are watching closely the traffic disruption that's in front of our property. So you have in the investor deck some detailed information around interchange improvements on 215 at Red Rock, Green Valley Ranch, and Durango. While so far we've been happy with the way they've managed things, you know, it will intensify in project scope as we get into the end of the year.

And then to round out the question on the 50th year anniversary, if you recall last call, we called that there would be approximately an $8 million hit to EBITDA. And as you heard in the remarks, that was managed down to $5.8 million, the majority of which was the marketing campaign associated with the 50th.

And when we look at the 215 construction, which runs all the way from Red Rock to Durango to GVR, it's short-term pain, but it's long-term gain because the reason they're expanding the Beltway and everything on the 215 is because that's where all the growth is happening in Las Vegas. So we think we'll be the beneficiary of this ability to put in increased traffic through and past the locations that we have. So short-term pain loss in the game. And then the other thing I think Steve might want to mention to you guys, over the summer, there was an increase in the rate that we paid for electricity.

Yeah. And, you know, we'll probably, I know somewhere down the line, someone's going to ask a margin question, so I might as well preempt it and kind of walk you through it. So, and I apologize, Dan, I know you didn't ask this, but I'm sure the next person will. So as you can see, Las Vegas operations, we lost about 199 basis points. The majority of which can be explained in two areas. One, the casino. You know, we had a bad debt receivable recovery last year, which made the year-over-year comparison quite difficult. That was about 102 basis points of it. And the remaining of it, as Frank mentioned, was a $1.2 million increase of utilities, which hit our SG&A line. And that, to me, is more seasonal. NVE raised what we call our seasonal peak demand rate. So that is a rate that that increase will only be seen from what's called June 1st to September 30th. And to round out the consolidated margin, which was down 277 basis points, the big delta there is the $5.8 million of expense related to the 50th that I mentioned previously.

Got it. That's helpful. And just for my follow-up, since you preempted the margin question, I'll ask just a clarifying question on the CapEx. Can you maybe bridge between the – I think you raised project capital expenditures or investment CapEx about $150 million and maybe the maintenance CapEx, $15 to $20 million. Can you just kind of parse out that increase? I think you threw out a couple kind of factors, but just to clarify, that would be helpful. Thanks.

Yeah, no, absolutely. I mean, the big ones, right, is GVR went from two, you know, you have about $50 million in GVR, and then Durango North, you went from $385 to $430 million. Those are the two big ones. Sunset, as I mentioned earlier, is on track, on budget. And then from a maintenance capital, it's a variety of things. You know, our IT expenses, as we were able to capitalize some IT expenses, went up about $11 million. We also upgraded the UPS systems, which are really the electrical backup for all our entire properties. As you know, slots are 65% of our business and core to our operations, so we felt that this was prudent, just given some of the kind of irregularities that were happening in the electrical grid over the year, and that was really the remaining piece. Those are the big bridges.

Appreciate it. Thanks so much.

The next question comes from Joe Stoff with Suscohanna. Please go ahead.

Good evening, guys. I wanted to ask, I think historically you provided a number of roughly 10% return, say, the following full year once a project is implemented and completed. I was wondering, does that number still make sense as we think about... The, you know, the incremental contribution from GVR and Sunset, once those are completed, I know Durango won't be until the third quarter of 27.

Yes, I mean, I think that holds true. I think David was asking something very similar a couple questions ago. Okay.

And the disruption, the traffic disruption that you had described at Durango, you know, How much visibility do you have on that? Scott, I believe you mentioned it'll get heavier in the fourth quarter. Maybe that's a function of where the project is, or is that also a function of what the state dictates in terms of the traffic disruption?

It's a little bit of both. We actually have pretty good visibility. They have a construction plan with milestone timelines, and we meet with them to help mitigate anything we can on our side, and we're in close contact with the county on progress. It is construction. It is live. You never know if something gets delayed or if they run into a problem, but we do have three things.

And it's actually three things. It's what's going on in the 215 Beltway, which, again, we think long-term is going to be positive for us. It's what we're doing at Durango to the north of the property. At the end of the year, we'll have all of the steel erected, so I think we'll be in a better place once the disruption of all the erection of the steel and all that is going on. The third one, which we don't talk too much about, is they're building two very large apartment developments right behind our property, which is also creating a little bit of disruption. But again, once those apartments come online, they're literally a walking distance to the casino. So, you know, another positive.

I think it's all manageable, and stuff that we, you know, either have influence on or visibility on.

Thank you. Yeah, with that, Durango has continued to perform extremely well. That's right. Look, we feel like we're in a really good spot with GVR. The hotel room's done there. We're already seeing positive trends out of the hotel and the impact that it's having on the business. As Steve said, sunset's nearly finished. I think by the middle of next year, we'll... Hopefully be wrapping up most of the podium enhancements that we made. And then sometime in Q3, the expansion in Tarango should open. So it will open with additional amenities, too, to drive more traffic to the property. Significant amenities. Significant amenities, which Steve outlined. So we're feeling like we're in a pretty good spot going forward.

Great. Thanks.

The next question comes from Don Decree with CBRE. Please go ahead.

Hey, good afternoon, everyone. I guess, first, congratulations on the North Fork opening to you and your partners, the tribe. I think, you know, that one's been in the works for quite a long time, so congratulations there.

Thank you.

On the same topic, I know it's only been less than a week, but you've done this a couple times, so I'm curious if you could share some thoughts from the opening, maybe some kind of brief comparisons to some of your other development projects in California and kind of how you're expecting the ramp from here and kind of based on what you've seen, only though it's been a few days.

Look, as expected, when you open a new casino in a supply-restricted market, You open in the early days, you're essentially at capacity, and you're just trying to manage the crowds and keep the place clean at that point. I would say that it's a very similar pattern to what we saw when we opened Thunder Valley, gosh, now almost 20 years ago, the Great Mirage Aurea back in 2013. And now, you know, we'll see where the business settles in. I think the more we learn about it and kind of what we're seeing on a daily, hourly basis, we're continuing to be extremely positive on that market and what the potential is. Scott, I don't know.

Yeah, I think I would echo what you said. I would like to take a second to shout out to the executive team for a wonderful opening, both the home office in Las Vegas and the team on the ground there. The first week of opening operations went great. The customer feedback's been phenomenal, and as Lorenzo said, the early first week outlook looks really good.

Hey, John, I've got to put a capstone on that just from a financial perspective. You know, North Fork is now transitioning to, you know, a recurring cash flow contributor to Red Rock.

Yeah, and look, the good news is, you know, we received the initial payment on the development fee. I think there's a little bit more to be coming in the near future. But the good news is, you know, we've been invested in this project for over 20 years. We've seen it through. We appreciate the tribe working with us for as long as they have and believing in us. But now the money that we've forwarded to get this project done has turned from, you know, pick interest to cash pay, and so we feel really good about the $86 million note that we have as a receivable back to the company.

All gray color, guys. Thank you for that. Very helpful. Maybe a quick follow-up, shifting gears on the scope of Durango North. And, you know, I know you kind of underwrite returns to kind of net impact across the portfolio, but how should we think about any incremental kind of cannibalization at Red Rock as you roll out the Durango North expansion next year and enhance scope? Do you think you're kind of still? We're covering or backfilling in Red Rock, or does the Durango expansion have, you know, any impact on, you know, potential cannibalization there?

Yeah, I mean, I think we've been backfilling at Red Rock as we thought that we would on a good trend line. But I do think, look, when we open what we're opening at Durango, we're going to draw from all over the Las Vegas Valley for people coming to see. What we're building there. I don't think anyone has done anything like this to the magnitude of all the amenities and offerings that we're going to have. And so I would imagine, you know, in the short term, just like probably every other local's casino, we're going to be getting a lot of trial. I would imagine that would settle back in.

Yeah, the idea is to expand the market with the amenities that we're adding. And that's a dynamic market there. There's a ton of commercial activity. Steven mentioned all the new units, the apartments, houses being built in that area. That's the fastest growing area, for sure. In Las Vegas, there's no question. And like I say, the commercial activity in the area is... It's very strong as well. So, look, it'll settle in, as Frank said. I'm sure some Red Rock guests will check it out.

We're talking about the growth, you know, around Durango, but I can tell you, which we've always seen, you know, gosh, we opened Red Rock 20 years ago here in the heart of Summerlin, and I can tell you that Summerlin West is going extremely well with, you know, new residences popping up. And the plan they have for downtown Summerlin, which is right where Red Rock is located, is like amazing stuff that will be going vertical with real density here, both from a residential and a commercial point of view, around Red Rock, which is going to be super positive for this property as well. So I think, look, the good news story for where our properties are located in the valley is where all the growth is taking place, you know, on the beltways in the suburbs, and, you know, we feel really positive over the mid to long term about everything that's going to be filling in around both Durango and Red Rock.

That sounds good. I really appreciate that. Congrats again on North Fork. Thank you.

The next question comes from Steve Wysinski with Stiefel. Please go ahead.

Hey, guys. Good afternoon. So, Steve or Scott, I'm not sure who wants to take this, but Steve, you mentioned a couple times, you know, that your core customer is. We use the word stable. And your rated card players continue to frequent your property. So wondering, am I reading too much of this or wondering what that means then for the unrated customer? Just trying to understand if that customer base has slowed or you've seen any slowdown in your database growth around that. Any color there would be helpful.

Hi, Steve. It's Scott. I'll start. Maybe Steve can jump in. Just echoing his opening remarks, very stable, very consistent, positive performance year-over-year in the database. Win up, spend per visit up, net deal up. We also increased year-over-year our new sign-ups, and then getting to your question directly, we saw probably one of the strongest year-over-year quarterly increases in un-carded play that we've had in a while, and that's attributed to the amenities that we're bringing online, new restaurants, new products, and having a pretty fulsome entertainment schedule over the summer to drive non-carded customers. So we're very happy with customer trends right now. And actually, if you take a peek into Q4, that is continuing.

I think we're very pleased with the resilience of the...our core business is slot machines, right? And with, you know, the head lens on fuel prices and grocery prices and all these things, our customers on the slot department have continued to be extremely resilient. And our slot business has been very pleasing.

Okay. Gotcha. Thanks for that. And then, Scott, kind of sticking with you, can you maybe just give a quick update on what you're seeing right now from a group perspective and maybe how that's kind of booking out right now into the first half of 27? Thanks, Scott.

I'm going to jump in front of it a little bit and talk about hotel in general, because it's a bigger catchment. We saw a really strong performance in hotel year over year, both in overall revenue and ADR. You know, with GVR coming online. Through the quarter, we knew that group sales was going to be a little funky with GVR coming online, and we kind of forecasted that in previous calls. So when we look at the fourth quarter in group sales, very strong, positive year-over-year growth and into next year as well. And then catering follows that as well as you go into the fourth quarter and the beginning of the year. So we're super optimistic about groups filling in to GVR as we brought those rooms online floor by floor.

Okay, great. Thanks, guys. Appreciate it.

The next question comes from Brant Montour with Barclays. Please go ahead.

Good afternoon, everybody, and good evening. So, the first question would be on just What's going on with the strip? I know that you guys don't have any direct exposure to the Las Vegas strip. There was a tailwind at some point over the last 18 months that you had called out about taking away certain VIPs and getting a nice little stream of VIP business coming to your properties instead of the strip because they like the experience better. What sort of quantum is that business for you? Have you seen any sort of change in behavior from those folks with what's going on with the strip?

Yeah, there's a couple of probably responses I can take out of that, and I'll hit the last one directly. It's about 20% of our overall swap business and coincidentally about 20% of our segmentation in hotels, so it is a meaningful group. As we have said, quarter after quarter after quarter, it is one of our most dynamic groups. So from an overall regional and national basis, we're seeing very positive gains in that area, both in slots and in overall hotel.

Great. Thanks for that. And then just following up on an earlier question, because I think it got a little bit lost, just thinking about typical seasonality, fourth quarter, third quarter into fourth quarter, any reason not to think that seasonality, again, adjusting for disruption, adjusting for the one-time stuff in the third quarter, any reason to think that that wouldn't look like the last handful of years from just a quarter-over-quarter perspective?

No, Brian, I think, and I apologize, you're absolutely correct. I missed it. That was a part two of a prior question. We talked about 10% to 11% typically in Q4. I think this would be on the higher end of that, but consistent with past quarters.

That's it for me. Thanks, everyone.

The next question comes from Steve Pizzella with Deutsche Bank. Please go ahead.

Hey, good afternoon, and thank you for taking our questions. Steve, just wanted to clarify on the $79 million of shared base compensation expense. Did that impact the 3Q adjusted EBITDA? Is this a one-time expense, or how should we think about any incremental compensation expense from these awards going forward?

Yeah, the breakdown, the $79 million is a one-time stock comp expense and associated payroll tax. So there's $72 million of non-cash stock expense related to the grants we gave our employees as part of the 50th anniversary celebration. There's about $7 million of cash taxes related to those grants, and that's what is spread among the departments. The casino has roughly $26 million of those expenses. F&B 26, room 6, other is 1, and then SG&A approximately 20. That's all that does not affect EBITDA, and it is one time in nature.

Okay, that's helpful. Thank you. And then I think you noted a bad debt expense last year in the 3Q and utilities increased this year impacted the year-over-year margin expansion. Can you help us think about how normalized operating expenses are trending on a year-over-year basis and how we should think about margins moving forward?

Yeah, I think if you go to the casino, it was a bad receivable that we collected. So it just made the comp hard. And so what you're seeing really in the casino in Q3, you're seeing pretty consistent margins in the casino. That's kind of normal course operation. Maybe there's some slight adjustment for hold, but that's going to vary quarter to quarter. From an F&B perspective, what you're seeing there, once you take out all the one-time expenses, I think Scott mentioned it, you're seeing catering didn't have its best quarter, and so any margin degradation to the catering, the F&B was related to catering, which, as Scott mentioned, Q4 and out-order looking good. So I anticipate pretty stable margins in F&B, and you're seeing what we're doing from a college perspective. It's effectively flat. Payroll has been, you know, payroll and related costs have been effectively flat. And SG&A, you know, SG&A, the main driver was that $1.2 million in electric. And then there's some outside services related to the entertainment programs that fall in that bucket that Scott mentioned previously.

Okay, great. Thank you.

The next question comes from Barry Jonas with Truist Securities. Please go ahead.

Hey, guys. Any updated thoughts around your next big development project? I know we've talked about Inspirata or Cactus, and I guess with that, once you're done with Durango North, are you done there, or would you still evaluate any further expansions there? Thanks.

I'll take the last part first, and... Durango North, I think the final thing that we have the capability of doing, but haven't made the decision, is we have the ability to add more rooms and meeting space and a spa. At Durango, but I'll let Lorenzo...

Yeah, and which we're currently working on, designed for that. We're working with a general contractor on some pre-construction work there, just trying to get pricing back and just see, you know...

Plus a million, 400 rooms, possibility there, you know, meeting space to go along with it and a spa.

And given how the Durango Hotel has performed, I mean, it's performed probably better than we originally expected when we built the property. We've really kind of carved out a segment there where people like the property a lot, they like the product a lot, and given its proximity to the strip, it's off the strip, but it's still fairly close. So the hotel business there has been good, and I think with additional rooms there, it would allow us to even further kind of yield. Better because we'd be able to handle more groups, more upper-end, higher-end customers, more suites. That's kind of where we see we're a bit deficient there. So on that front, you know, while we haven't committed or announced anything, that's an obvious kind of next step for Durango. Beyond that, as you know, we think of ourselves as a development company. We've built the value in this company by building new properties in Las Vegas, and we have multiple pieces of property for development. No, you know, obviously no announcement today. We're continuing to work on multiple new projects at the same time, and same thing, working with general contractors, getting pricing feedback, and just trying to push the ball forward while at the same time, you know, going to focus on finishing out the Durango North project, get that open, and our intent is there to be announcing, you know, the next development, you know, Fairly soon, we just want to make sure that we have everything tied up. We have our budgets tied up, scope, everything tied up. You know, these things take time to get right, so we're just in the process of continuing to work on that.

That's great. And just as a follow-up, just curious if any update on your land strategy. You obviously have many parcels. Curious if any open sales processes. And on the flip side, you're evaluating maybe increasing your land holdings in Vegas, Reno, or any other market. Thank you.

Look, we're always looking. I mean, I think we probably know the real estate market here as well as anybody. We're very tight end, and anytime a site. It becomes potentially available. Historically, we've been in the front of that and not afraid to make the investment and hold the property for a number of years or even decades, for that matter. On the divestment side, there's no news there.

I think we control, and this was with foresight from quite a long time ago, but when you look at the Las Vegas Valley now, you look at the beltways that didn't exist. This is where, you know, in the Northwest, We have a Sky Canyon out there. We're liking what's going on up there. BLM released a bunch of property. There's a great master plan development going on up there. The rooftops up there are unbelievable. We have the only site with non-restricted gaming capabilities up there. We're bullish on that. Scott Cannon, I'm sorry. And the one on Losi Road and the Beltway as well. We're super excited about that one. And of course, you guys are all well familiar with the Cactus site, which is the first thing you see coming in towards the Las Vegas Strip on I-15. The ability Cactus Boulevard, which runs east to west, captures a tremendous catchment of the local market as well as the visibility from the drive-in. Tourist Market, Inspirata, which is in, you know, a wonderful neighborhood in Henderson. We feel really good about our land holdings, and, you know, like I say, we expect to, you know, finish out what we're doing at Durango North, and we'll be, you know, coming back with what our next development is. That's how we got to where we are. Like the ones I said, we've been a development company. We're going to keep doing that.

Thank you.

The next question comes from Jordan Bender with Citizens. Please go ahead.

Hey, everyone. Afternoon. Thanks for the question. A couple years into the tavern business, I guess any update on the strategy and the returns you're seeing there? And then maybe just to follow up for the fourth quarter, you know, F1, you were a couple years into that. I guess, is there any expectations we should have there, or is it just kind of another event, another year for you guys?

I'll take the F1. You can take the tavern, Scott. On the F1 side, other than the fact that we're fans here and we like it, we're just talking about it today. We really don't see any impact on our business, good, bad, or indifferent. It doesn't really affect us in any way that we can tell.

And I'll jump into taverns. So we just opened up the seventh of our eight taverns. The eighth tavern will come online at the beginning of next year. We've built a great brand, resonates well with customers. It is a unique customer demo, one that we targeted, and now that we're up and operating, it is a younger, skewed sports demo. And the interesting thing, because of where we've placed these, they're in areas where we don't have as much penetration. So we're able to kind of test the market in these areas. And one of the things that is interesting is about 60% of the people that are frequenting the taverns were previously not boarding pass members. So we've been able to kind of reach out into those areas, ingratiate the brand with the customers out there. And then we are seeing that crossover come from the taverns to the big box operation. So, so far, so good.

Thank you.

The next question comes from Ben Chaikin with Mizuho. Please go ahead.

Hey, how's it going? Maybe on the 50th anniversary, fully acknowledging this was intended to give back to the community and the employees, but I guess I would have also assumed there may have been a slight improvement in revenue as well, even if not the main intention. Is this fair? Do you feel like that came through, or was it really unrelated? And one follow-up, thanks.

I don't think we ever intended This could be any immediate, you know, improvement in revenue based on this. This is literally long-term thinking for the most important asset that we have, which is our team members. And we're in a business where we have to earn our customers' business every single day, right? There's a casino on every corner in Las Vegas.

Thank you.

The business that we're in is repeat customers that keep coming back to our places, and so we wanted to recognize... Where we started in 1976 with 5,000 square feet and 90 team members, and where we are today with, you know, 10,000-plus team members strong that have helped us get to where we are, and the amazing thing is many of these team members that have been there for 20-plus years, I mean, they're the reason that our customers choose to come to our places.

Look, around the actual, you know, specifically the 50th anniversary, it was not a promotion-driven model. Like, we didn't run promotions. We didn't give away anything. It was more, you know, we did run advertising. We did run commercials. So I guess you could say maybe it was a bit of a brand play, per se, to let, you know, remind customers about, you know, that we've been in the community here for 50 years and services that we provide. And should we get some benefit out of that in the months and years to come? I think so. I think there's value to that, for sure, for what we spent. But it wasn't like an immediate impact, like Frank says. We did not run promotions around that.

But I can tell you, the positive feedback throughout the entire community has been unbelievable.

That's great. That's great. Appreciate it. And then maybe just switching kind of more near-term, last quarter, I believe you talked about kind of a negative 10% seasonality for 3Q. If I'm not mistaken, with GVR expected to be slightly a less drag sequentially, which it seems like came in even better than you thought. A few million drag from Durango, I think, was the expectation. So the question is, I think overall, the quarter came in close, but slightly beneath, especially considering the GVR bucket got better, if I caught you correctly. So was this a hair slow or top line? Was it higher expenses? Was Durango a bigger disruption? You also talked about some traffic. I think we've touched, you know, bits and pieces, but to the extent you can help clarify, that would be helpful, or maybe this was right what you expected. Thanks.

Well, specifically GVR, I'll let you answer the question in depth, but GVR really didn't come online until September.

Yeah, and then we buffered. So we didn't just immediately pick a date and put groups and customers in those rooms. We had some buffer so that we didn't have to walk people or we didn't have to cancel on a group. I mean, it was fluid. So that's relative to the quarter.

So what we're talking about, we're seeing the fruits of the GBR room remodel. It's really in October and November going forward, and what we're seeing in Forest Bookings.

Yeah, and unfortunately the Green Valley rooms came on later than what we expected them to come on, but good news is they're online and they're being well received now. So we're positive going forward on the feedback that we're getting from the room experience. Okay, understood.

The next question comes from Trey Bowers with Wells Fargo. Please go ahead.

Hey, guys. Sorry to keep kind of beating on the same question here, but I think what a lot of people would like to get a better understanding of is just, you know, you guys, the revenue in the quarter came in better than most of us thought, but the EBITDA came in a little worse. So is there like a... A top-line growth level you need to kind of reachieve to start seeing incremental margins flowing through. And then part two of that, if I heard you right, Steve, you said EBITDA would be up 10 to 11 at the higher end of the range in the fourth quarter, but that would imply EBITDA is down in the locals market again in Q4. So again, is that kind of, you're just not seeing that top-line level that covers all these new expenses, or is it more one-time items that we're not thinking about? Thanks.

Yeah, no problem. On the top line, I mean, there's a lot of moving pieces to that question, Trey, as you know, and as all the matters of where the revenue comes from and where the expenses come from. But, you know, if you kind of think of if expenses are up 2% to 3% and let's call it payrolls up 2% to 3% because that's usually a good measure, kind of how we're thinking about payroll going forward in 2027, you'd need about 3% to 4% revenue growth to kind of really stick it and keep margins flat.

Yeah, and you had the one-time seasonally adjusted, you know, they put an increase for peak demand on power, which ran through September. Yeah, which we didn't anticipate, actually. Yeah, ran through September. And as Steve, you know, told you guys, last year we had a good guy on bad tech collection.

Yeah, that's right. And disruption. And in terms of the, I guess, the guidance or guidance going into Q4, I think my, you know, my, your questions, you know, I'm thinking the EBITDA was roughly flat as I was trying to get to the, I didn't think it was down when I was giving you the seasonality. As I said, it was going to be the high end. But maybe I need to dig in.

Yeah, sorry, I meant the year-over-year number would be down as the quarter-over-quarter number was up at 11%.

No, that is right. You still do have disruption from Durango, and as I think Frank and Lorenzo mentioned in the previous question, GVR came on a little bit late, and I think you're looking for the $5 million disruption that we're trying to make up. I don't know if we're going to quite get there, just given the delays of the GVR project.

Thanks for the call.

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

Well, thank you, everyone, and I look forward to talking in about 90 days. Take care.

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