Daniel Foley - Vice President of Finance, Investor Relations Rich Haskins - President Marc Falcone - Executive Vice President, Chief Financial Officer, Treasurer.

Carlo Santarelli - Deutsche Bank Joe Greff - JPMorgan Shaun Kelley - Bank of America Cameron McKnight - Wells Fargo Chad Beynon - Macquarie Stephen Grambling - Goldman Sachs James Taylor - Bank of America.

Good afternoon, and welcome to Red Rock Resorts' Third Quarter 2016 conference call. All participants will be in a listen-only mode. Please note this conference is being recorded. I would now like to introduce your host for today's conference Daniel Foley, Vice President of Finance and Investor Relations. Please go ahead..

Thank you, Terrence. Good afternoon and welcome to Red Rock Resorts' third quarter earnings conference call. Joining me today on the call from Red Rock Resorts are Rich Haskins, President, and Marc Falcone, Executive Vice President, and Chief Financial Officer, and Treasurer.

Our call today will include forward-looking statements under the Safe Harbor provisions of the federal securities laws. Developments and results may differ from those projected. The risks and uncertainties related to these statements are detailed in our filings with the SEC. 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 and Form 8-K, which were filed this afternoon prior to the call. Also please note that this call is being recorded. I would now like to turn the call over to Marc Falcone..

Thank you, Dan, and good afternoon. I'm pleased to welcome everyone to our third quarter 2016 earnings call. The third quarter was a strong operating quarter for Red Rock Resorts, as evidence by our highest third quarter EBITDA in eight years.

The Las Vegas market continues to demonstrate solid and steady growth as we achieved our highest revenue growth over 16 quarters. In addition, in October, we successfully completed our acquisition of the Palms Casino Resort and began the exciting process of integrating the Palms into Station Casinos premier portfolio of assets.

We will provide additional detail on the significant progress we made to date later in the call. I would also like to take a minute to thank our 13,500 team members who make Station Casinos a leading provider of guest entertainment.

Their hard work, dedication, and exceptional service over the last 40 years continues to be one of the most important factors in driving our guest loyalty and satisfaction, which in turn has helped us achieve outstanding results. We are especially excited to welcome all the Palms team members to the growing Station Casinos family.

Now turning to some more specifics on the third quarter results, our net revenues increased 7.3% to $347.1 million, adjusted EBITDA grew 13.7% to $109 million and our adjusted EBITDA margin grew 180 basis points to 31.4%.

This marks the 14th consecutive quarter of year-over-year net revenue growth, the 23rd consecutive quarter of EBITDA improvement and the 16th consecutive quarter of EBITDA margin improvement.

N Las Vegas, net revenues were up a very strong 6.2%, gaming revenues were up 5.8%, as we experienced growth in every major gaming category, particularly in slots and tables.

Non-gaming revenues increased an equally impressive 7.5%, as we continue to benefit from investments in our non-gaming areas, driven by strength in both hotel revenues up 8.5% and food and beverage revenues of 6.8%. revPAR for our Las Vegas properties was up 11.7% for the quarter.

Our Las Vegas adjusted EBITDA grew 8.2% to $94.3 million for the quarter, the highest level of third quarter adjusted EBITDA since 2008 and our margins grew approximately 50 basis points to 29.6%, while margins increased in both our gaming, hotel segments, food and beverage margins declined this quarter.

As we discussed on our last quarterly call, the opening of several new restaurants in our portfolio had a negative impact on margins. In addition, margins were impacted by our strategy to enhance our overall food and beverage offerings and service levels.

These enhancements have already resulted in additional cover [ph] accounts and higher guest satisfaction. As a result of these enhanced offerings we have incurred additional costs associated with the higher volumes. We expect these costs to continue to have an impact on flow-through over the next few quarters.

We believe the long-term benefit should outweigh the short-term negative impact on margins. We remain excited about several other key initiatives that we believe will have a meaningful impact and drive both gaming and non-gaming revenue scope.

First, we continue to make excellent progress on our IGT system upgrade with nearly hundred percent of the phase 1 system installation now complete across our 20,000 citywide slot machines. We will begin phase 2 later this quarter and expect the project to be complete in mid-2017.

When this system is in place, it will provide a robust upgrade to our current marketing, bonusing [ph] and player communication. Players will be able to receive customized real-time marketing and bonusing in a new state-of-the-art on device service window.

We believe this feature will drive increased visitation, longer time on device, higher guest retention and increased player profitability. In addition, on November 1, we launched our My Rewards program, the next evolution to our multiyear award-winning boarding pass loyalty program.

This exciting enhancement will allow our guest to earn points when they spend money on non-gaming activities, in addition to their gaming activities. And this is inclusive at all of our company-owned food and beverage outlets, as well as our hotel, spas, bowling centers, pools and other non-gaming outlets.

My Rewards have been completely rolled out to all of our properties in Las Vegas, including the Palms and we believe we are the first company in the Las Vegas locals market to rollout such a comprehensive loyalty program.

Overall, we expect this program to drive incremental spend at our properties and investors should continue to expect Red Rock Resorts to be an industry leader in these types of important innovations in our business.

In October, the company broke ground on approximately $115 million expansion upgrade at Palace Station, which recently celebrated its 40th anniversary.

The expansion will include a completely new exterior façade, bingo room, buffet, two new restaurants, additional gaming space, improved parking and a new porte-cochère with improved ingress and egress for our guests.

These upgrades will substantially replace the original building from 1976 and will give a lower right portion of the building a fresh exterior and notable upgrade to its amenity offerings. We expect probably to experience disruption over the next 12 months while we make these improvements.

The product is scheduled to be complete in the fall of 2018 and we believe it was our significant additional guest visits once finished. Now turning to the Palm, as we mentioned we close on the acquisition of Palms on October 1st. Since the closing, we have already executed on several areas of immediate opportunity.

We completed the conversion of all of our major operating systems, including hotel, food and beverage and accounting. We also converted the Palm slot system to the new upgrade rated IGT slots system technology that incorporates My Rewards.

In addition, we have replaced the third-party operator of the café, buffet and room service and have seen significant increases in cover account to date through these outlets as a result of this change.

Perhaps most importantly, we have completed the process of integrating the Palms into our boarding pass loyalty program, which allow the property to participate in all companywide promotions, direct mail and other marketing initiatives.

While we have made substantial progress in our first full month of ownership, we continue to work on our first phase of property enhancements. These enhancements will include the renovation of the café and buffet and an upgrade to the gaming floor which will include the addition of a new VIP gaming area.

We are still in the early stages of analyzing the property operations and examining potential areas for capital improvement. Over the next several quarters we will update investors on additional strategic initiatives and playing capital projects at the property.

As the properties current EBITDA run rate remains approximately 60% below its peak, we are confident that through various initiatives and improvements we'll be able to drive revenue, margin and EBITDA improvement at the Palms over the next several years.

Turning to the current state of Las Vegas market, we believe that population growth, job growth and wage growth remain a major components that drive our overall business.

Other key indicators that we view as important growth in Las Vegas continued to show strength and include a steadily improving housing market, record consumer spending, vibrant visitation levels in Las Vegas in a robust construction pipeline.

Some of the key indicators we monitor include population were total driver, license renders, the key indication of people moving to the valley or up a 11.6% year-to-date, and electric meter hookups remain at an all-time high.

On the job front, total employment in September reached a record 945,000 jobs, a 2.3% increase from the prior year and Las Vegas Employment is now above the peak job market of 2007.

Diversification of the job base continues with over 21,000 jobs added in the last 12 months and a variety of industries and the increased employment counts contribute to improving unemployment rate down 90 basis points year-over-year to 5.8%.

Other key economic indicators remain strong as well, total weekly earnings, the combination of jobs in earnings have increased 4.7% year-to-date, housing prices have more than doubled from the trough and taxable retail sales in southern Nevada reached a record high of nearly $40 billion for the last 12 months ended August 2016.

Visitation to Las Vegas is also at an all-time high and approaching 44 million visitors every month, 9% above prior peak levels, driven by strength and convention and meeting attendants which in turn is driving improving revPAR growth in Las Vegas. The pace of construction in Las Vegas remains healthy and broad-based.

Construction has been more diversified, including development and commercial, industrial logistics, information technology, healthcare, stating the leisure and infrastructure improvements, as well as several other new projects.

In our Native American segment, we reported another strong quarter generating $21.6 million in EBITDA and bringing year-to-date EBITDA to $62.2 million, both the Graton, Gun Lake properties currently have expansions underway, which should drive additional revenue and EBITDA growth on part of completion.

The Graton Resort & Casino continues to report record operating results and try to putting the finishing touches on its $185 million expansion. The expansion will have 200 hotel rooms in a variety of other resort amenities and is scheduled to open as planned on November 15.

Our management fees of the Gun Lake casino were also strong and the tribe continues to make progress on its $85 million expansion, which is scheduled to open in the summer of 2017. For our North Fork Rancheria project we made considerable progress and are pleased to report some significant developments.

On July 29, the Department of the Interior issued secretary procedures pursuant to which the tribe will be allowed to conduct class III gaming on its land north of Fresno. The federal district court with jurisdiction over this case and to judgment in favor of the tribe no appeal was filed and this case is now closed.

And another significant advancement for the project on September 6, the federal district court in Washington DC issued a ruling dismissing all the opponents’ claims against the Department of Interior contesting the secretary decision to take the land as a trust for the time.

Although the opponents have filed the notice of appeal, we don't expect to judge as well reasoned to decision to be overturned. There are other cases still pending that were filed challenging aspects of the approval of this project, but we continue to remain optimistic about moving forward.

We will continue to work closely with the tribe to clear the last few legal obstacles in order to be in a position to commence construction of the project.

We anticipate the cost of the North Fork project to be between $250 million and $300 million and will include approximately 2000 slots, 40 table games, several restaurants and other entertainment amenities. I'll now cover some balance sheet and capital items.

As of September 30, 2016 the company's cash balance was $96.3 million and the principal balance of outstanding debt was $2.4 billion, which excludes the non-recourse land loan of $115.9 million.

At September 30 the company dollar revolving facility had an outstanding balance of $130 million which includes borrowings associated with the purchase of the Palm. As of September 30, our net debt, net of excess cash to adjusted EBITDA was 4.6 times and interest coverage remained very strong at 4.3 times.

Capital spending year-to-date was approximately $120 million, which consists - did have approximately $50 million of maintenance CapEx and $70 million of growth CapEx. We estimate total capital expenditures for the year will be between $165 million $175 million.

In November, the company announced that its Board of Directors declared a cash dividend of $0.10 per Class A common share for the fourth quarter. The dividend will be payable as of the close of business on November 15, 2016 to all stockholders of record.

Station Holdco will make distribution to all unit holders of record for a total distribution of approximately $11.6 million, approximately $4.1 million of which is expect to be distributed to Red Rock Resorts shareholders and approximate $7.5 million of which is expected to be distributed to other unit holders of record of Station Holdco.

In conclusion, the third quarter was very strong for Red Rock Resorts with a record employment-based and a healthy construction pipeline and strong visitation growth, the overall Las Vegas economy lined up well for ability to capture strong topline and bottom-line growth this quarter.

We continue to execute on a number of major initiatives as described herein, which are enhancing our overall operations, as well as the guest experience and we believe these numerous enhancements and investments in our assets will yield meaningful results going forward. Operator, this concludes our prepared remarks.

We are now ready to take questions from participants on the call..

Thank you. [Operator Instructions] first question comes from Carlo Santarelli from Deutsche Bank. Your line is open..

Hey, guys. Thanks and nice quarter, congratulations. Mark, just in terms of the Palace station project, and I know it was one of several things you guys have talked about and thought about.

But when you thought about returns on that potential $150 million spend relative to some of the other opportunities that you kind of have at your fingertips, whether it's Reno or some be it Las Vegas land parcels, how did you kind of get comfortable that that was that the best bank for your book?.

Well, Carlo, first off, and just to make sure, I don’t make sure I - it's $115 million, I thought I heard you say 150, I just want to make sure, so $115 million on.

Second, I think listen, we continue to look at the Reno opportunity, the Rango [ph] opportunity, but you know, we feel that the positioning of Palace in close proximity to the strip, some of the benefits we're seeing in other properties from enhancing food and beverage offerings, improving access and creating a better overall product improvement that was kind of where we felt that was a better opportunity to invest our capital in the near-term doesn't prevent us from looking at Reno or pursuing a moving forward with Durango and we're also very focused obviously on the opportunity we see at the Palms as well.

So - but we continue to believe that Palace is still got substantial upside given its market position..

Great. Thank you.

And then with respect to Palms, I believe you talked about and you guys have said it previously, just how far below the prior peak that asset is, what's a realistic level as to where you think you can get it to in terms of as a percentage of prior peak over the next call it 18 to 24 or 18 to 36 months?.

Listen, I think as we continue to work and fine-tune our capital plans for the project that will kind of determine the timeframe.

But I think we believe that that’s a great opportunity for us on, we are certainly - will start to close that gap to peak immediately in 2017 and I think a lot of what we do on the capital side will determine what we do and how quickly we can get that property back to peak, whether it's two years, three years.

I think we're confident that the property has significant upside from current levels..

I appreciate it. Thanks, Mark..

And our next question comes from Joe Greff from JPMorgan. Your line is open..

Hey, Mark.

On the topic is the CapEx at Palace Station, do you anticipate much in the way of revenue in EBITDA disruption there and maybe can you help understand how you are thinking about that or how you managing through it?.

Yes. So I think you know, we anticipate probably 12 months of revenue and EBITDA disruption. A lot of what we're doing is going to impact the access on to the main entrance in other areas of the property will disrupted as we work on all this, we're going close the buffet, move it. We're going to do the new bingo room.

So this thing that will impact revenue and EBITDA. I don't think we have completed the total overall impact to what we think disruption will be. But we do think it could be significant in the next 12 months..

And can you remind us how much Palace contributes to total property level EBITDA?.

We historically, Joe, as you know don't breakout individual property EBITDA for the portfolio. We think that we run the business as one business not on individual properties..

Fair enough.

Can you – do you think you can shift those revenues and EBITDA to other properties?.

And its something we're clearly looking at, obviously the Palace Station is not far from the Palms, we could do see some opportunities with the strength of Asian play in the market overall at Palace Station in the Palms and you know, we could also work with Holder [ph] as well to kind of come across marketing shift some of that business to that property..

Got it. And part of your earlier comments, Mark, you talked about the relationship that you maybe some of these investments to be on the restaurant side or having in terms of revenues better than expected in the flow through or margin don’t in ramp mode and you talked about you probably have that some more dynamics for the next few quarters.

Between now and the end of the next few quarters, would you expect sequential improvement though in the reported flow through in Las Vegas?.

There is a couple different dynamics at play. I would say generally, the answer would be yes. The one thing that's a little bit early stages for us to give you more definitive answer is when you take the Palms and you include that into our Las Vegas portfolio, the Palms currently has one of the lowest margins overall.

So we're going to see some natural decline in the overall margin which could impact the overall flow through levels. But as we continue to make improvements at the Palms, we would expect some consistency in improving the flow through going forward. But I just want to emphasize that there will still be pressure on flow through over the next 12 months..

Okay.

And just so we're prepared three months from now, I'm presuming you wouldn’t give a same-store flow through then?.

No, we'll just report Las Vegas operations which will be inclusive of Palms..

Good enough. Thanks, guys..

And our next question comes from Shaun Kelley from Bank of America. Your line is open..

Hey. Good afternoon. Mark, you mentioned in the commentary around the food and beverage and the impact on flow throughs, and obviously there a carryover from what you alluded to last quarter. Just can you give us sense, is this an issue or an extent base that will start to lap next year.

Is it simple as thinking that as we get into I guess the second and third quarter next year we'll start to lap some of these expenses and do you expect that’s normalized over time at that point?.

Yes, I think that’s very accurate, Shaun. We would expect that to anniversary in the second and third quarter of next year and then you would kind of see some more consistency in terms of the publicly reported numbers.

We have opportunity out as well, have continue to refine all the food and beverage programming from quality to staffing and other areas where we're very focused on driving incremental property visits by having a superior food product and service standards, which helps drive our slot revenues longer-term..

Great.

And then my second question is just as we look at the market overall, you know we do have some of the data, although it doesn't line up perfectly with all of your properties, as we look at the Las Vegas local market data, it looks like your casino revenues meaningfully outperformed that and when we look at your other big competitor in the locals market it look like they were either probably closer to inline with that.

Do you think you I mean, based on your own analysis and what you are able look at, do you think it took share in the market overall and what do you think is driving that of I did?.

I think you know, clearly the numbers would suggest that, I can't specifically comment on our large competitors revenue performance, but we're very pleased with our gaming performance in the in the third quarter and we're excited about what we've been able to deliver on the gaming side of the business, obviously help you by very strong fundamental macroeconomic environment which to which we're operating in today..

And I guess the last question on that, which is the amount if you could really provide insight, but it did seem like a pretty meaningful delta to what we're able to see other data, any reason why, given how much of the market you guys actually make up for any color insight you can provide on that?.

I got to say I don't have any incremental insight on that particular aspect..

Okay. Fair enough. We could take it offline. Thanks a lot..

Okay..

And our next question comes from Cameron McKnight from Wells Fargo. Your line is open..

Thanks very much. Good afternoon..

Hey. Cameron.

How are you?.

I'm good. Thanks.

Mark, would you mind talking a about trends that you're seeing in the convention and meeting side of the business at Red Rock and Green Valley Ranch in particular?.

I think consistent with what MGM was saying today about their outlook for group and convention business, we're seeing very positive trends into '17, particular those two properties, which are strong group properties for us. We've got some ConAgra citywide event coming here in the first quarter.

You just had a very strong Sema [ph] in town in the fourth quarter and from what we're seeing our booking patterns our booking trends we're encouraged by the group business outlook for '17..

Okay, great. Thanks.

And then just moving on to the expense side of things, SG&A was down about 3% year-on-year, outside of food and beverage, can you talk to what you are doing on the cost side of things?.

Yes, I mean, some of the things that we've been doing which are helping that particular area, we've been investing a lot of time on doing various energy programs. We've done some Leed certification initiatives across a handful of properties, as well as you know, focusing on energy consumption, water consumption and like.

So we are doing a lot on the energy front. We continue to manage every aspect of our business on a regular basis and that will be a key focus for us going forward.

So food and beverage I mean, we did see hotel margins and casino margins up in the quarter, but obviously beverage part kind of was challenged a little bit, lot of what kind of benefit from his our positioning in the market overall and you know the size and scale of our business.

So we try to leverage that's reduced cost as much as we can across the portfolio..

Got it. Thanks.

And then one last one if I may, you mentioned the strength of Asian play at Palace Station in particular, could you give us some thoughts on the Lucky Dragon opening which I think is scheduled for December 3 that part of the market?.

Yeah, I mean, listen, just similar to when other properties kind of open in the market IN Las Vegas no similar to – not entirely different from the scenario when SOS opened, we would expect there will be some trial, you know from our customers to Lucky Dragon, but again I think you know, we feel the offerings we have, the loyalty of our customers, the positioning of our properties, we should continue to probably get you know our customers to return after a trial basis.

We think there's some bit of a challenge to the location, coming down Saharan having a maybe you-turn into the property from anywhere west of the 15. So, but we're encouraged about the opportunity to kind of work hard to keep our business..

Okay, got it. Thanks very much, Mark..

And our next question comes from Chad Beynon from Macquarie. Your line is open..

Hi. Great. Thanks for taking my questions guys. First, just wanted to ask about the boarding pas announcement that you mentioned at the outset mark, this is always been rated one of the best gaming loyalty programs in the country.

So could you just kin of got help us think about some of the refinements that you're making the program, any new partners, anything that could help or hurt your loyalty? Thanks..

Yes, so as you know the out boarding pass program has been rated the last 15 years as the best one in the market. I think we just won our 16th straight year in the last couple weeks. So obviously it's a loyalty program that work very effectively in the customers clearing the market I have spoken about that.

So what we thought we do is enhance that program by allowing customers who cover, may not have as large of a gaming budget, that spend in other non-gaming areas such as our restaurants.

We have over 140 restaurants and bars in the portfolio for example or are you using our hotel product or local spa visits or anything that we could to generate incremental loyalty from the non-gaming customer, as well as gaming customers who spend on non-gaming amenity.

So we think that is pretty important improvement and upgrade to the overall loyalty program, and at that’s what we launched on November 1..

Okay, helpful. And then on the topic of capital allocation, you announced some good high ROIC projects today and can also said that there may be some more things to come with respect to Palms, two questions here, A, how do you think about you know leverage targets over the next 12 to 18 months.

And then secondly, where does this put Reno on the map? Thanks..

Yes, so I think from a leverage target perspective. I mean, we're pro forma right now for the Palms transaction at 4.6 times. I think we would expect that leverage - that leverage level to kind of go down with continued growth in our business and some natural deleveraging through amortization. So I would anticipate will be in that low to mid fours.

Our target ranges is low - is four times to five times that we've said previously. So I think we're still on a strong position over that perspective. With respect to Reno, its something obviously, we continue to evaluate, continue to look at.

We probably need you know about 12 to 18 excuse me, 18 to 24 months of lead time before we were in the ground on that projects, but we are very continue to evaluate it and there is no definitive timeline..

Okay. Thanks, Mark. Good quarter..

And our next question comes from Stephen Grambling from Goldman Sachs. Your line is open..

Hi.

Thanks, just a quick follow up on the Joe's earlier question on the Palms, can you just provide a little bit more detail on how the property is gaming versus lodging versus god and beverage mix compares to the average and if you think there's any difference in seasonality that business that should be aware of?.

In terms of the seasonality of the business, we don't really see much change from what the rest of our portfolio is. If recall the Palms property has a very strong locals component, as well as the proximity and script benefits. So I think you are going to see little seasonality overall to the business.

In terms of it food and beverage gaming to non-gaming mix, its pretty similar to what we experienced at some other properties in our portfolio like Red Rock and Green Valley Ranch..

Okay, thanks.

And then one other kind of broader topic, just talk about how you weigh the impact of sports teams coming to Las Vegas and the impact on your business?.

We think is great. We think it’s very exciting for the local community. Obviously you are well aware of the hockey team that will start its first season here in the 2017.

Obviously we're encouraged by the progress made on the stadium and we're looking forward to seeing how the NFL determines the potential to move for the readers from Oakland to Las Vegas, you know, the market should benefit from higher prices, higher occupancies, more spent on food and beverage.

It’s just a great opportunity to have real professional’s sports organizations relocate to Las Vegas..

Thanks so much..

And our next question comes from Steve [indiscernible] from Stifel. Your line is open..

Hey, good afternoon, guys.

Mark, I don’t if you said this, but did you give any color on how October trended in Vegas?.

No Steve, we don't generally comment on months in between the quarter. So you know just – all I can tell you is that the macroeconomic environment here continues to be quite strong..

Okay. Got you. And then second question still stand in Vegas, obviously the casino revenues there continue to be pretty healthy.

Can you give us any color in terms of what you're seeing from your typical customer, is that no more frequency in terms of a visit to the property or they coming with you more money in their wallet or is it additional new players that are starting to show up?.

It's really a combination of all three, I mean, we have very strong boarding pass sign-ups on a monthly basis which been indication new players, we have visit's, [indiscernible] right direction. So all three of those are kind of impacting our strength into these..

Okay. Great. Thanks, guys. I appreciate it..

And our next question comes from James Taylor from Bank of America. Your line is open..

Hey, Mark.

How are you doing?.

Good, James.

How are you?.

Good. Just couple of boring balance sheet question….

I like those..

Just on the bonds, obviously the call price steps down in March.

I am just curious what your current thinking is on potentially refinancing in the bond or bank market?.

Yes, we continue to look at that very closely, as you pointed out, there is a step down on March 1, 2017. We obviously know how strong the credit markets are, right now see how post election things are, but we we're continue to take a close look at what we do the bonds as we get into 2017..

Okay.

And then just on North Fork, are there like certain hurdles in your mind before you can move forward with financing, have those hurdles been overcome and I guess more broadly just how should we think about potential timing for financing raise, construction and opening?.

Hey, James. This is Rich Haskins. Mark alluded to in his comments that we cleared a couple of major legal hurdles in the third quarter. There is a few other remaining court cases we are hopeful that will have decisions in a couple of the key ones remaining by the end of year.

I am assuming we'll receive a favorable decision on those cases which as we have at all the other case to date. We anticipate that we maybe able to commence restructuring the project in the second quarter of '17..

Great. Thank you..

And at this time, I'm showing no further questions. I would like to turn the call back for any closing remarks..

That will do it for us. Thank you everyone for your time today, I know its busy day. We look forward to talking to you soon. Thank you..

Ladies and gentlemen, thank you for your participation at today's conference. This concludes the program. You may now disconnect. Everyone have a great day..