Daniel Foley - Vice President, Finance & Investor Relations Marc Falcone - Executive Vice President, Chief Financial Officer and Treasurer.

Joe Greff - JPMorgan Carlo Santarelli - Deutsche Bank Barry Jonas - Bank of America Merrill Lynch Chad Beynon - Macquarie Stephen Grambling - Goldman Sachs.

Good afternoon, and welcome to Red Rock Resorts’ Fourth Quarter and Full-Year 2016 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 Daniel Foley, Vice President, Finance and Investor Relations. Please go ahead..

Thank you, Brian. Good afternoon and welcome to Red Rock Resorts’ year-end 2016 and fourth quarter earnings conference call. Joining me on the call today from Red Rock Resorts are Frank Fertitta, Chairman and Chief Executive Officer; Rich Haskins, President; and Marc Falcone, Executive Vice President, 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 fourth quarter and year-end 2016 earnings call. 2016 was truly a transformational year for Red Rock Resorts with a number of significant highlights.

To recap, in May, we successfully completed initial public offering of the company, reentering the public markets for the first time since 2007. And in June, we refinanced our $2.4 billion credit facility, resulting in significant interest expense savings and greater flexibility for us to pursue potential high return growth projects.

As a first example of this flexibility, in October, we acquired the Palms Casino Resort, which marked our 20th property in the growing Las Vegas market. We broke ground that same month on a major upgrade and expansion of Palace Station, our original flagship property.

In addition, we announced several innovative investments in our core business, which include a significant upgrade to our slot technology and enhancements to our industry-leading Boarding Pass program, both of which we believe will lay the foundation for the future of guest marketing and communication.

From a financial standpoint, we also achieved our highest annual adjusted EBITDA since 2007. We are proud of these accomplishments and even more excited about a number of initiatives we believe will drive the next phase of growth for the company.

Before I touch upon these initiatives, I would like to spend a moment reviewing our fourth quarter and full-year 2016 financial performance. For the full-year 2016, consolidated net revenues including the Palms increased 7.4% to $1.5 billion, consolidated EBITDA increased 7.3% to $484.4 million, and our consolidated EBITDA margin of 33.4%.

In Las Vegas, total revenues, including the Palms increased 6.2% to $1.34 billion, adjusted EBITDA increased 3.3% to $424 million, and the adjusted EBITDA margin declined 250 basis points to 31.7%.

Fourth quarter consolidated net revenues, including the Palms increased 13.4% to $395 million, adjusted EBITDA declined 0.8% to $125 million, and our adjusted EBITDA margin declined 460 basis points to 31.6%.

In Las Vegas, total revenues, including the Palms increased 13% to $364 million, adjusted EBITDA declined 3.9% to $106 million, and the adjusted EBITDA margin declined 510 basis points to 29.1%.

A portion of this decline in margins, both on a consolidated and in Las Vegas was due to the inclusion of the Palms in our financial results for the first time, which has significantly lower margins than most of our other properties in our portfolio. Several other factors also adversely impacted our fourth quarter results.

Most notably, we experienced unusually low sports hold in the quarter, which impacted results by approximately $5 million, or 5 percentage points of EBITDA growth.

Also, expected disruption related to the Palace Station expansion and the ongoing cost of enhancements relating to our food and beverage offerings and service standard levels continue to have an impact on our quarterly results.

Finally, in connection with our acquisition of the Palms, we incurred additional expenses related to the integration of all of its major operating systems, as well as a takeover in transition of certain third-party food and beverage venues. The impact of all of these factors was approximately $12 million in the quarter.

Going forward, we would expect that Palace Station disruption, as well as the margin impact from our food and beverage enhancements will continue to have a negative impact over the next several quarters. Nonetheless, the core fundamentals in our business remain very solid.

Same-store gaming revenues, excluding sports were up 2.3%, driven by strength in both slots and table games. While sports revenue was impacted by historically low holds, sports right was up 4.5%, driven by substantial growth in mobile wagering.

Our hotel business also remain strong as same-store RevPAR was up 5%, one of the highest overall increases in Las Vegas. The hotel segment should continue to produce strong results, as we recently completed significant room renovations at Green Valley Ranch, Sunset Station and Fiesta Henderson.

Food and beverage revenues were up 2.6%, driven in part by strategic investments in new restaurant concepts across our portfolio. As previously discussed, we have made significant investments in our business to enhance the guest experience.

And while these investments in our assets, service levels, team members, technology and innovation have impacted our short-term results, we are confident that such investments will be important drivers of our future business growth. Now, let me spend a few moments discussing some of these growth initiatives. First, on the innovation side.

We continue to make excellent progress on our new IGT slot system upgrade with phase one now fully complete. We expect to complete phase two this summer and begin to fully leverage this technology and its functionality in the latter part of 2017.

We’re extremely excited about some of the proprietary and unique bonusing capabilities we will be able to deliver with this new system. When combined with our innovation – other innovation initiatives, we believe we can revolutionize the guest experience across the gaming floor.

In addition, in November, we launched My Rewards, which expanded and enhanced our award-winning Boarding Pass loyalty program. This allows guests to earn points on both gaming and non-gaming activities.

The early feedback and response has been very favorable and we expect to see more tangible benefits over the next several quarters, as we better understand the total value and preferences of our guests.

Similar to some of the communication benefits we will derive from our new slot system, we believe this new program will allow us to speak and incentivize guests on a much more personalized level, which will ultimately drive higher levels of visitation and spend.

Today, we announced that we will be launching Station Play at the end of April, a new white label social casino and gaming application that will be fully integrated with our Boarding Pass program.

This innovative application developed in partnership with Graton will offer players the opportunity to play for free hundreds of their favorite casino games and the ability to earn boarding pass points redeemable at any of station casinos 20 properties located throughout the Las Vegas Valley.

This new technology is an extension to the My Rewards ecosystem and 360 degree view of the guests. The site will feature the industry’s leading slot video poker, table game, bingo and poker products, along with tournament games allowing users to earn and exchange points at home are on the go.

Based on our previous experiences with the social casino product, we recognize that this type of channel extends our brand advertising and value. We believe Station Play is an important improvement engagement tool that extends the guest relationship into the online channel.

Over time, it’s expected to increase our share of wallet and to reactivate guests who are not active in our database, ultimately, driving more guest visits, time on device, and spend. In October, we broke ground on a substantial upgrade in expansion at Palace Station.

The expansion is well underway, and as expected, we’re experiencing significant disruption at the property. It is likely that this construction disruption will impact results for the balance of 2017.

As many of you know, Palace Station is where a company began operations more than 40 years ago, and was an anchor for the company’s success throughout the Las Vegas Valley.

Palace Station is strategically located in one of the most highly traffic quarters in all Las Vegas and sits adjacent to interstate 15.Given the historical success of the property, its location, and proximity to the resort corridor, we continue to believe this investment will generate solid returns.

Now, turning to the Palms, we have made good progress in our first few months of ownership. We remain very enthusiastic about the potential for this uniquely positioned asset, located just a quarter mile off of Las Vegas strip. While we have only owned the property for five months, we’re well on our way to achieving our targeted level of synergies.

We have completed the integration of all of the properties major operating systems, including gaming, hotel, food and beverage and accounting and work has already begun on the renovation of the café with the buffet reservations scheduled to begin immediately thereafter.

Operating results of the Psalm for the quarter were generally in line with our expectations when excluding the negative impact of the previously mentioned transition and integration costs.

As a reminder, while the Palms historical revenues fall within a top one-third of our portfolio, the historical EBITDA margins fall near the bottom of our portfolio. The result was a considerable negative drag on our overall Las Vegas margins.

In our view, however, not only serves to demonstrate the upside potential of the property, as current EBITDA levels remain approximately 60% below peak. Overall, we continue to work on our future plans for the asset. We’re extremely excited about this opportunity and we should be in a position to share our vision for the property in the next 90 days.

As discussed earlier, the underlying fundamentals of our business remains strong and guide our belief that our continued investments in our assets in addition to our other initiatives will allow us to capture more than our fair share of future growth in the Las Vegas market.

The overall health of the Las Vegas economy gives us confidence in the investments we’re currently making. The forecasted outlook for Las Vegas is bright. Las Vegas GDP is expected to grow by 2.8% in 2017, ahead of the estimated 2.5% growth rate in 2016, and well ahead of expected overall U.S. GDP growth.

The state of Nevada is now the second fastest growing state in the nation, and Las Vegas is the fourth fastest growing large metro area in the United States, as people continue to move to Las Vegas for jobs in retirement purposes. In fact, one in every three new people moving to Las Vegas are retirees and core potential Red Rock Resorts customers.

On the job front, total employment reached a record high of 953,000 jobs and the unemployment rate fell 120 basis points to 5% in 2016, the second best improvement of any large metro area in the United States. In addition, Forbes Magazine recently ranked Las Vegas as the number one market for job growth in the country through 2020.

Total weekly earnings continue to increase at a healthy pace and were up 7.1% in December and taxable retail sales continue to reach record highs each month as residents of Las Vegas have ramped up spending. The Las Vegas tourism continues to show strength through my record visitation, near record convention attendance, and improving RevPAR.

As we have stated before, many of our guests are employees on the Las Vegas strip and are benefiting from the robust strip fundamentals.

Construction continues unabated with a diverse set of project ranging from commercial, industrial and logistics, information and technology, healthcare, stadium and leisure, and general infrastructure improvements and new builds.

2016 was a robust year for all areas in the valley and there’s a large backlog of uncompleted projects totaling nearly $14 billion slated for completion in the next several years. For all of these reasons, we continue to believe that Las Vegas is the best regional gaming market in the United States.

In our Native American section – segment, we reported another strong quarter with management fees of $25.1 million, up 18% from the prior year. We continue to see record operating results from Graton, while Gun Lake Casino has impacted negatively from difficult weather throughout the quarter.

This quarter caps an outstanding year in which we generated $87.3 million in management fees. On November 15, Graton Resort & Casino opened its $185 million expansion, which included 200 hotel rooms and a variety of other resort amenities. The expansion has been very well received by guests.

We have already seen a meaningful increase in gaming spend from existing guests, as well as driving new incremental visits to the property. We believe current operating momentum and the success of the expansion will continue to drive positive increases in our management fees.

In addition, in November, our management fee will increase from 24% to 27% of pre-tax income. With respect to North Fork, in December, an appellate court ruled against the North Fork tribe in the case of stand up for California versus Brown.

The three-judge panel held as the Governor of California exceeded his authority in concurring in the Secretary of the Interior’s determination to take land into the trust for the tribe. The appellate court’s decision reversed the trial court’s previous ruling in favor of the tribe.

The tribe in the state filed petitions for a review in the Supreme Court of California seeking review of the appellate court’s decision. We anticipate a decision by mid-April as to whether the California Supreme Court will accept that review. I will now cover some balance sheet and capital items.

As of December 31, the company’s cash balance was $134 million, and the principal balance of outstanding debt was just under $2.5 billion. At December 30, the company’s $685 million revolving credit facility had an outstanding balance of $120 million, which includes borrowings associated with the purchase of the palms.

As of December 31, 2016, debt net of excess cash to adjusted EBITDA ratio was 4.8 times and the interest coverage remains strong at 4.6 times.

Since the beginning of 2017, we have completed a series of debt-related transactions, including two separate refinancings that have provided approximately $10 million in annual interest savings and added flexibility to our capital structure.

In addition, I would like to point out that our 7.5% senior notes recently had a step down in their call premium, which could provide an additional opportunity to further decrease borrowing costs.

Turning to other balance sheet items, capital spending in 2016 was approximately $163 million, which consisted of approximately $64 million of maintenance capital and $99 million of investment capital.

For 2017, we estimate total capital expenditures will be between $175 million and $200 million, which includes approximately $70 million related to Palace Station’s expansion and upgrade.

On March 1, the company announced that its Board of Directors declared a cash dividend of $0.10 per Class A common share for the fourth quarter to be payable on March 31 to the shareholders of record as of March 15.

In conclusion, 2016 was another very successful year of Red Rock Resorts and we believe that our efficient operating structure, superior balance sheet, and strong free cash flow profile provide a very solid foundation for future growth of the company. Operator, this concludes our prepared remarks.

And we will now be ready to take questions from participants on the call..

Thank you, sir. [Operator Instructions] Our first question will come from line of Joe Greff with – from JPMorgan. Please proceed..

Good afternoon, guys.

Marc, can you just talk about how you view market share on a same-store basis in the locals market? What trends you’ve seen? Do you think you’ve lost market share?.

Hey, Joe, good afternoon. No, I don’t think we’ve lost market share by any means. So I think, the overall market grew in line with expectations in 2016 in the 2% to 3% range. We continue to be very confident in our market share position overall in Las Vegas, particularly given our significant size and scale in the marketplace..

How do you measure the impact that the Palace Station renovation will have on you? Maybe this is a good time to kind of talk about either from a revenue, or EBITDA, or percentage of the portfolio basis just so that numbers are in line with maybe how you guys are thinking about that renovation and disruption impact?.

Yes, and I think, we clearly indicated on our third quarter call, we expect a significant disruption as a result of this expansion and renovation. That was clearly the case in the fourth quarter, I think, we expect that will be a similar case as to the balance of this year and it’s likely to get worse in the next several quarters.

Our best guess today and we can’t hold us to this, because it’s a very fluid situation. But we anticipate roughly a $10 million to $15 million impact from the Palace Station renovation. However, after we complete that renovation and expansion, we’re extremely excited about what that repositioning of that property does for Palace Station.

As we indicated, the property is located in a very highly traffic quarter. The property has – not had significant capital investment in nearly 15 to 20 years.

And I think we feel quite excited about what’s going on in that particular part of town and what we’re seeing overall in Las Vegas is that, once that this short-term disruption is complete, the asset should be extremely well-positioned to benefit from the strong fundamentals in the Las Vegas market..

Got it.

And just my final clarification question, $10 million to $15 million EBITDA impact?.

Correct..

Got it. Thanks, guys..

Thank you. Our next question will come from the line of Carlo Santarelli with Deutsche Bank. Please proceed..

Hi..

Hey, thanks, guys. Thanks for taking my question. Marc, you touched on it a little bit with some of the the top line metrics on the same-store. And obviously, that the – there were a couple of one timers in there, including Palace Station.

If you kind of look at the rest of the portfolio and leaving in the F&B drag, Ex-Palms, Ex-Palace Station margins on the balance of the Las Vegas portfolio, were they up year-over-year, could you just talk maybe a little bit about the non-impacted stuff?.

Yes, I think, Carlo, the sports alone for us was 5 percentage points of growth, almost half of the overall total impact. So that clearly is a particularly big drag on the overall margins.

And the other thing I would point out too is that, as we pointed out in our prepared comments, Palace, I mean, Palms on an overall basis, the negative drag related to the Palm is also a significant impact on that margin decline, which we articulated for the quarter.

So I think that creates a great opportunity though for the Palms as we continue to refine operations there. We put in our systems. We start to leverage our systems. We should start to see some margin improvement there, which should balance out the overall negative impact on the Las Vegas portfolio.

And I think, the biggest impact like you said is continue to be the drag on food and beverage, but also sports was a particularly big impact in the fourth quarter on same-store margins..

Okay, great.

And then if I could on the CapEx, I’m assuming the $175 million to $200 million that you talked about for next year, obviously, inclusive of $70 million for Palace Station? Could you maybe clarify what if anything was spent on Palace Station? I know some money was spent on Palace Station, but in the fourth quarter of this year, and then also if what in the 2017 budget is related to possibly some work at the Palms?.

Yes, I think, currently right now in the fourth quarter is a very small amount of money at Palace Station. So it’s kind of insignificant overall for the 2016 numbers. The majority of the spend you will see at Palace will occur in 2017 and 2018, so with some diminish amount spend in the fourth quarter.

And the $175 million to $200 million guidance for 2017, there’s a small amount of capital in there for the Palms, particularly related to the renovation of the café and the buffet, which we talked about. Those should be completed by the, call it, the early fourth quarter of 2017.

And as I said, we will discuss in the next 90 days, what the broader repositioning plan is for that property..

Great, Marc. And then just if I could going back to the sports book, obviously, $5 million EBITDA impact is not insignificant.

Could you kind of maybe just talk a little bit about it like, are you seeing it across a number of sports? Was it one event related, where you guys were just kind of on the unlucky side of something, or maybe kind of give us a little sense for what’s going on since obviously this is the second kind of sports book issue and we’ve heard it from other operators as well for this particular fourth quarter?.

Yes, I think, listen, we’re one of the largest sports book operators in the entire Las Vegas market. So we’re going to have a larger impact to the trends generally been experiencing. But majority of the impact is from the NFL. You had a lot of favorites win every weekends winning in and out. And so that contributed to a majority of the impact on sports.

So a little bit on college, but a majority on NFL was the impact in the fourth quarter for us..

Okay, great. Thank you..

Thank you. Our next question will come from the line of Shaun Kelley with Bank of America. Please proceed..

Hey, guys. This is Barry Jonas in for Shaun. So, Marc, just to clarify the $5 million is out of the $12 million impact for the entire quarter.

And if that is the case of the remaining $7 million, what would you say is, I guess, the non-recurring element, maybe the integration at Palms? I just want to understand what – how to think about the – what’s going to bleed into the rest of the year?.

I think we said, listen, you’re going to expect ongoing disruption for Palace for the balance of the year, the drag on food and beverage, the anniversary at the end of the third quarter of this year. The holiday, I think, has been well documented by other guys. So, you can position that as sometime, maybe one-time in nature.

And sports, listen, sports is, obviously, by the law of averages, that should come back at some point. So – but I think the magnitude that sports decline was one of the worst fourth quarters and one of the worst NFL seasons from a sports book perspective that Las Vegas has experienced in a long time.

So, you can choose to look at that $5 million, we look at as one-time in nature and how we would calculate our same-store performance in the quarter..

Okay, sure.

And then just thinking about the Palace, once that’s completed there are other properties, where you think we could potentially see more, say, deferred CapEx projects down the road?.

No, I think, listen, we invested over $450 million in our portfolio over the last five or six years of significant amount obviously in our flagship properties, Red Rock and Green Valley, but we’ve also invested considerable amount of capital across the entire portfolio.

I mentioned room renovation upgrades at Green Valley, at Sun – Sunset, at Fiesta Henderson, all the properties are really pretty fresh and capital. Palace is – was a unique situation.

And we spent time over the last 10, 15 years building out the portfolio throughout the Valley, investing in those assets, building out those locations, and we’re circling back to where really kind of the whole company’s growth really began and putting some extra investment in that property, given how the markets evolved so much and potential opportunity we see with Palace.

But there’s not any other property in the portfolio that we would identify at this point that would have any substantial capital requirements or needs at this point..

Great.

Last one for me, any update on Reno?.

At this point with respect to Reno, I mean, obviously, we’re very focused on what we’re doing with respect to Palace expansion. We’re very focused on what we’re doing with Palms. I think until we get close to finishing those projects, we’ll still work – do work on the entitlement process in Reno and still work on the development.

But at this point, I think we’re going to be closer to the end of when we finish those projects before we would start the Reno project..

Great. Thanks so much, guys..

Thank you. Our next question will come from the line of Chad Beynon with Macquarie. Please proceed..

Great. Thanks for taking my questions. I wanted to go back to Palms, Marc, in your prepared remarks you said that that synergies are in line with expectations. I know you guys have only been operating the property for five or so months.

But have you been able to see any revenue benefits tie in your rewards program, or just kind of knowing the market better than the former owners, anything there on the revenue side would be helpful? Thanks..

I think it’s – I think, obviously, Chad, it’s a little bit early. I mean, we spent the fourth quarter being very aggressive on the systems transitions and putting our accounting systems, and marketing systems, our slots system in place. So we really only had a couple months of visibility in terms of the revenue side.

So I think it’s early to say, but we’re encouraged by the fact that this property is located in an area, where we have a low penetration of our boarding pass members.

And so we certainly see that as we have our systems in place, we refine our marketing program for that asset that we would see good upside on the revenue side of the business as we have further time to absorb their database and exploit our database with our own systems in place.

So obviously, that takes a bit of time than more than a couple of months..

Chad Beynon:.

t:.

Yes, I think overall and generally, we don’t comment on the first quarter trend. But GVR and Red Rock are well positioned broadly in the convention market in town and in the local market.

But I think, historically, as with all citywide events such as the strength of ConAgra, which is coming up in this week, there’s generally a lift for those type of conventions in the market.

And – but I don’t want to specifically comment on any of our current trends for the quarter, but I think where we feel our hotel portfolio is well-positioned with the recent renovations we’ve done..

Okay. I appreciate it..

Thank you. Our next question will come from the line of Stephen Grambling with Goldman Sachs. Please proceed..

Hey, thanks. I know you’re going to give a little more detail on the Palms repositioning in the future.

But as you think about the EBITDA still 60% below peak, how much of that decline is being driven by the top line versus margins? And are there any structural issues to think about in evaluating where margins could go longer-term versus the company average?.

Well, I would certainly say, that the historical revenues at the property have been somewhat consistent. There’s been some changes from sort of the peak to current levels, but a majority of the impact has been on the margin side.

And we see opportunities for us to close that gap meaningfully between our average margin in the company and versus where the margins are at the Palms..

That’s helpful. And then I know you don’t like to talk about the quarterly expectations, but can you remind us of any other kind of unusual events that we should be thinking about for the year? And then any sense for the impact on the Native American expansions? Thanks..

With respect to your first question on – the only thing that we would point out as probably everybody knows, at least, in the first quarter, there’s one extra day for the leap year, but that’s everybody’s business issue. But I’m not aware of anything we haven’t disclosed.

But we talked about the disruptions, the drag of the margins, some of those factors being contributors for the balance of our 2017 EBITDA performance. The impact on the Native American expansions, I think, we’re very optimistic about the early results we’re seeing at Graton out of the hotel.

It’s been very strong benefit from that hotel expansion, particularly with our Asian – core Asian customer up there.

And where we’ve given that the high slot occupancy and overall table and gaming occupancies [we want in valley] [ph] we feel that expansion that will open later this year will be a big contributor to the Gun Lake cash flows and ultimately our management fees.

So I think, the other thing we’re obviously quite excited about going forward as we move it through 2017 get over some of these obstacles is, when we get through the Palace expansion, when we identify the – and the refinish, the repositioning of the Palms, we’re extremely enthusiastic about the upside we can potentially see in 2018 from our new slot system.

And if we get some change in regulation and potential tax cuts, lower healthcare costs, we all think those would be extremely good contributors to our 2018 cash flows..

That’s all very helpful. Thanks so much..

Thank you. [Operator Instructions] There are no further questions. So now it is my pleasure to hand the conference back over to Marc Falcone, Executive Vice President, Chief Financial Officer and Treasurer for closing comments and remarks.

Sir?.

Thank you, everyone. We appreciate your time today, and we look forward to talking to you after first quarter results. Thank you..

Ladies and gentlemen, thank you for your participation on today’s conference. This does conclude the program. You may all disconnect. Everybody have a wonderful day..