Daniel Foley - VP, Finance and IR Stephen Cootey - CFO, Executive VP & Treasurer Joseph Hasson - EVP & COO.

Carlo Santarelli - Deutsche Bank Shaun Kelley - Bank of America Chad Beynon - Macquarie Stephen Grambling - Goldman Sachs Patrick Scholes - SunTrust.

Good afternoon, and welcome to Red Rock Resorts First Quarter 2018 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 of Finance and Investor Relations. Please go ahead..

Thank you, Sonia. Good afternoon, and welcome to Red Rock Resorts' First Quarter 2018 Earnings Conference Call.

Joining me on the call today from Red Rock Resorts are Frank Fertitta, Chairman and Chief Executive Officer; Rich Haskins, President; Steve Cootey, Executive Vice President, Chief Financial Officer and Treasurer; and Joe Hasson, Executive Vice President and Chief Operating Officer.

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 or implied due to variety of factors.

The risks and uncertainties related to these statements, company's future operating results, and the financial conditions are detailed in our filings with the SEC. During this call, we will also discuss non-GAAP financial measures.

For definitions and a complete reconciliation of these figures to GAAP, please refer to the financial tables in our earnings press release and Form 8-K, which we 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 Stephen Cootey..

Thank you, Dan, and good afternoon, everyone.

First a quick note on the presentation of the company's financial information, in the first quarter the company adopted FASB’s new accounting standard for revenue recognition and elected to apply the full retrospective adoption which restates prior periods, thereby allowing for more consistent comparison of our operating results.

Now let’s take a look at our solid first quarter results. For the quarter consolidated net revenues decreased 1.1% to 421 million, adjusted EBITDA increased 2.9% to 140.1 million and margins increased a 130 basis points to 33.3%.

With respect to Las Vegas operations net revenues for the quarter increased 22% to 395.2 million, adjusted EBITDA increased 4.2% to a 125.9 million and margins increased 120 basis points to 31.9%.

This was our highest first quarter net revenue EBITDA performance since 2008 despite the negative impact of substantial ongoing construction disruption at both Palace Station and the Palms. When viewing our Las Vegas performance, excluding Palace Station and the Palms, the strength we experience in our core business becomes very clear.

Measured on that basis net revenues increased nearly 4%, adjusted EBITDA increased more than 9%, margins expanded by nearly a 170 basis points to over 35% and flow through exceeded our target of 50% to 70% range.

These impressive first quarter results in our core business were driven by mid-6% growth in casino revenues as we saw solid volume across every category. Moreover, the outlook for the Las Vegas economy remains strong and should continue help sustain our positive growth going forward and all key underlying economic metrics remain favorable.

With respect to population the State of Nevada remains the second fastest growing state in the nation with Las Vegas now designated as the fastest growing major metropolitan statistical area in the United States having posted 2.2% growth in 2017.

Also, the number of residents is at an all-time high with one third of new arrivals being retirees, which represent a key gaming demographic for us. With respect to employment, the number of jobs is at an all-time high as we’ve seen 85 consecutive months of broad-based job growth across the valley.

And this growth is expected to continue as Las Vegas is forecast to be the third fastest-growing job market in United States through the end of 2019. Wage growth continues to be solid with average weekly wages up 3.8% for the trailing 12 months.

In addition, taxable sales have increased 4.5% so far in 2018, with strong spending seen across multiple discretionary categories. As for housing news, home sales were up 17% and median existing home prices were up 16% in March. Existing home prices are now up 150% from the low, it remains below peak levels.

The outlook is also very bright on the development standpoint, over 14 billion new capital investments is planned or underway, including such major projects as Resorts World, The new Raider Stadium, Project Neon and the Convention Center expansion.

In addition, both businesses and residents alike in high tax states continue to be attracted to Las Vegas for its low taxes, affordability, great weather, and other draws.

From a business standpoint of view, these positive economic trends along with having the lowest gaining tax rate in the nation and very stable regulatory environment only serve to reinforce our belief that while the Las Vegas locals market is the premier gaming market in United States.

With our best in class locations and properties, market-leading distribution scale, favorable supply demand dynamics and deep organic development pipeline we remain uniquely positioned to continue to take advantage of the ongoing growth in this market. Let's move on to some of our key technology initiatives.

As you may recall in the third quarter of 2017, we began testing and rolling out our new IGT slot system upgrade. The purpose of this update was to provide a more rewarding and convenient experience for our guests through among other things, real time personalized on device bonus and capabilities and other reward features.

At the time we predicted this system upgrade could ultimately prove to be a game changer from a GAAP perspective. As evidenced by approximately 6% growth in casino revenues we have seen across our nondisruptive properties since its rollout we believe our prediction is correct.

All via long way from optimizing the system with a number of key enhancement still to come we have already seen meaningful increases in key metrics that drive our slot businesses, such as card and slot win, time on device and spend per visit.

As one of those additional enhancements we will be introducing IGT's new mobile player tracking system Cardless Connect across all of our large properties in Las Vegas later this month.

This technology will enable our guest to participate in our boarding pass loyalty program by simply tapping their smartphones on a slot machine card reader thereby delivering a more engaging and convenient rewards experience to our guests. We would be the first gaming company in Las Vegas to offer this exciting new technology.

We've always been a leader in innovation in the gaming industry and this is yet another example, how we use our first mover technology to enhance the guest experience at our properties. And we look forward to rolling out additional enhancements in the quarters to come. Now let's talk about our Palace Station and Palms redevelopment projects.

We have continued to be very excited about both these opportunities and significant returns that we expect to generate for the company upon completion.

At Palace Station the project remains on time and on budget, in fact we now anticipated that certain key enhancements will be completed ahead of schedule as a fully renovated casino floor the new state-of-the-art buffet and two new restaurant concepts are all expected to be completed by the end of the third quarter, as opposed to the end of the year.

In addition, we've already seen extremely positive guest response to those portions of the project that have already been put into service. Based on these factors, we now expect construction disruption at Palace Station to begin to taper off and come at the lower end of our previously stated $10 million to $15 million range for the year.

With respect to the Palms, the project also remains on time and on budget and we are very excited about the opening of the final elements of phase 1 of our plan later this month.

These exciting upgrades and amenities at Palms include a complete renovation of the casino floor with an extended member table games and upgraded slot product, the addition of the new high limit rooms for both slot and table games, a new VIP registration lounge, Scotch 80 Prime, a stylish sophisticated steak house that will reset the standard for Las Vegas steak houses, Apex Social Club, a rooftop social club armed by Clique Hospitality Group, a leader in Las Vegas nightlife, which will offer unparalleled views of the strip.

Camden Cocktail Lounge, an exclusive high-end casino lounge experience also managed by Clique Hospitality Group and The Unknown, an iconic center bar.

Other phase 1 elements are already opened at the property to stellar reviews include Ace, our innovative take on Vegas buffet experience, Lucky Penny, our new 24-hour Café, [8] Noodle, an Asian inspired noodle bar.

The completely renovated pro concert theater, a fully renovated 14 screen luxury cinema which includes luxury seating and cocktail service and 18,000 net square feet of completely renovated meeting and convention space.

We are very excited about the extremely high qualities, amenities and upgrades and invite you all to come see firsthand the beginning phase of our transformation of the Palms and to what we believe will be one of the most compelling and dynamic properties in all of Las Vegas.

We expect the fancy tower and typical room and suite renovations, as well as two additional signature restaurants to be completed by the end of 2018, with the remaining phase 2 components expected to open through the second quarter of 2019 and phase 3 expected to open in the fourth quarter of 2019.

Please note that the construction disruption at the Palms continues to be extensive and is expected to remain so through the completion of Phase 2 of the planned redevelopment of the property.

In our native American segment, we reported management fees for the quarter of 22.1 million down 5.2% from the prior year primarily driven by the expiration in February 2018 of our management agreement with the Gun Lake tribe, which is partially offset by a 12.6% increase in greater management fees.

Also, with respect to the North Fork project we continue to work through the few pieces of litigation that remain regarding this project. As previously noted, the California Supreme Court has granted the tribe's petition for review with respect to a lower court decision involving the project.

Taking any further action in that matter until it has ruled on a very similar case before involving the enterprise tribe, which we see this favorable ruling at the appellate court level. That case has been fully briefed since 2017 and we anticipate that the court will schedule a hearing on the enterprise case in the near future.

I will now cover a few balance sheet and capital items. The company's cash and cash equivalents at year-end -- at the end of the first quarter were 179.2 million and total principal amount of debt outstanding at the end of the first quarter was 2.68 billion.

At the end of the first quarter net debt to EBITDA and interest coverage ratios were five times and 4.6 times, respectively. Capital spent for the first quarter was 138 million which includes both Palace Station and Palms redevelopment.

In 2018, we anticipate capital expenditures will be between 615 million and 700 million inclusive of the Palace Station and Palms projects.

On the investor relations front, we are excited to announce that we’ll be holding our Investor Day in early October around the time of the G3 Conference in Las Vegas, which will include towards the latest developments at both Palace Station and the Palms, details will follow at a later time. Operator, this concludes our prepared remarks for today.

And we’re now ready to take questions from participants on the call..

Thank you. [Operator Instructions] Our first question comes from Joe Greff of JPMorgan. Your line is now open..

Hey guys this is actually [Dan Wasiolek] on for Joe Greff.

The first question, I guess you guys have said Palace would be at the high end of your disruption range, and obviously now you’re saying is at the lower end, I guess how much was in the first quarter of that 10 million to 15 million range and how much should we anticipate in the first half of the year?.

I think the guidance speaks for itself, 2.5 million per quarter, as far as the right way to look at that..

And then your CapEx is pretty significant for the rest of the year, I guess how much of your CapEx was cash versus accrued -- of your CapEx was cash versus accrued?.

It’s all cash..

And then just the last one, the employees at the Palms recently voted to [indiscernible] how does this -- how do you think it impacts your return an expected -- your return on investment in the cost structure at the property?.

We’ll tell you, every individual property is required [indiscernible] and that includes the Palms as well as our other two properties we’re negotiating with. The bottom line is we do not -- we’re going to negotiate [indiscernible] we don’t expect anything -- to agree anything that won’t be in the long-term interest of the company..

Thank you. Our next question comes from Carlo Santarelli of Deutsche Bank. Your line is now open..

If I could -- you talked a little bit about the flow-through range of 50% to 70% that you guys have targeted for a long time and obviously talked about how your non-structured properties exceeded that range.

When you think about the establishment of that range and you obviously think about tax rate jurisdiction that you're which is obviously very favorable when you're showing 6% casino revenue growth, is there any reason why that 50% to 70% feels appropriate [technical difficulty] store portfolio, given some of the top line growth that you're seeing in some of the promotional disciplines? Or could we expect to see the higher end of that range or like you said in the first quarter, kind of north of that range here in the near term?.

I think you are effectively asking, so, I think we like our positioning, we like the strength of the economy, we think we have the best in class assets across the value at very stable locations Carlo. And we generally outperform whenever we have a good market.

And so, we love the way the business is going right now and do feel that we can move to the higher….

We think we have significant leverage to the upside, especially given the tax rate on the topline which is better than any other jurisdiction in the United States. So, on dollar per dollar revenue growth you are going to see more leverage for the upside here in Las Vegas than any other market in that space..

If I could just one follow up. Clearly, some work has gotten started on some of the construction projects that you guys obviously you guys talked about.

Have you started to see any of the impact in the numbers right now from some of the construction labor that's coming to market over the last three to six months?.

This is Joe Hasson. We are in a healthy economy right now and both the Steve and Frank mentioned, anytime we can find revenue upside, its advantageous for our business, so more people working more construction underway simply spells good things for local providers like ourselves at Station casinos and Red Rock Resorts..

We also like the fact when you look at what's going on with convention center, the Raider Stadium, Resorts World, Palace Station and Palms which are going to be completely new redone facilities, are right in the center of where all this activity is happening.

And I think that there will be good choices for people and allow us to capture the upside in the market..

Our next question comes from Shaun Kelley of Bank of America. Your line is now open..

Just maybe kind of continue on the strong casino revenue reports. You definitely had some investor concern given the reported revenue specifically came in for Las Vegas locals throughout the first quarter were decently lower than the 6% that you guys reported.

So, I’m curious, could you just help us characterize the environment, I think pretty stable when you guys look at it on either volume basis or whole adjusted basis months to months, when you adjust for kind of the things you need to like slot accounting or just what's the pattern or trend you are seeing from the consumer right?.

We like what we see in the market that’s for sure.

I think when you look at these state reported numbers you need to be careful of looking at any individual quarter because it has a lot to do with what the end of the month is and when the drops are done and there can be volatility unless you are looking at a sustained period of time, so maybe if you are looking on trailing 12 months you will see what the real picture is by quarter you are going to have volatility.

So, we like focusing in the market..

Second quarter would just be as we sort of win one by one looking at some of the operating performance the casino side stood out which you guys called out, there’s some declines in revenue both in food and beverage and on the room side, I imagine that’s from particularly the non-gaming component at Palms, but could you just elaborate if that’s pretty much the softness or weakness that we see there, anything else to call out, initiatives on those line items?.

So, I think, the room I think you’re seeing the decline really at the Palms, but also if you recall in 2017, we did have the 400 rooms at the Palace which contributed about $1.6 million in Q1, ’17. On the food....

We believe on a net basis getting rid of those rooms that we’re actually better off from a free cash flow point of view because the rooms were built in the early 1970s out of [indiscernible] construction and the maintenance on the rooms were more than what we were getting out of them..

Correct. On the food and beverage side we effectively -- if you take away the Palms were effectively flat.

And if you break that down, in further food and beverage itself was up about 4% and then [it became the main straggler] was catering and we’ve put new resources in place and we’re very happy with the current pipeline of the catering business moving forward..

And lastly revisiting on Palace anything you could elaborate on in terms of sort of a cadence and how things come back online, things that we should be looking out for between 3Q and 4Q, that’d be helpful?.

I think pretty much everything is going to be online by Q3 with the exception of the second-floor restaurant as well as the movie theater and that’s the only piece of the project now that’s going to remain -- remaining end of Q4..

And the like it is long term or sort of I know in the kind of long term blueprint there’s the idea of additional hotel rooms or hotel tower there is that, where does that kind of project stand right now on management’s [indiscernible]?.

Right now, the focus is on the Palms and the core Palace projects, so we’ve not looked into the new rooms and what we’re currently doing is renovating the existing tower and that’s ongoing..

Thank you. Our next question comes from Chad Beynon of Macquarie. Your line is now open..

I wanted to focus on the native American side of things, you said plus 13% in fee [at Graton] you guys have done an impressive job there since the opening and the expansion, could you help us think about how the property is trending and kind of opportunities as we think about 2018 and 2019 as that’s the sole asset within that segment, and then secondarily you kind of mentioned the North Fork opportunity are there other potential management contracts given your performance at this property that are on your radar stream?.

Let me take the question related to Graton Chad, first and foremost, the team there has done a terrific job recovering from the wildfire conditions that took place in the fourth quarter of 2017, and they’re bringing some additional capacity online, in short order at Graton it will be primarily Class 2 gaming devices occupying additional floor space.

I am very encouraged by the recovery of that business given how much damage was done in one country by the wildfires. Looking forward to other development opportunities I think Steve covered it best in his prepared comments relative to any of the North Fork opportunities..

And then just a housekeeping one, so one of your competitors mentioned that project Neon caused some disruption I guess more towards downtown not sure if that impacted Palace Station any more than what was caused for the disruption.

Do you think there was any impact just because of construction coming out on the [through that]?.

Look I think it's hard to quantify but I can tell you that from a Las Vegas locals point of view that it definitely has created traffic problems and delays in traffic to get up and down, the I-15 especially through that bottleneck called the Spaghetti Bowl. So, again it's hard to qualify but it certainly isn’t helping, I can tell you that..

Our next question comes from Stephen Grambling of Goldman Sachs. Your line is now open. .

I want to follow-up to Shaun's question, can you single out I guess how much of the strength recently in the gaming side is driven by the slot system upgrade specifically and any sense for how that could continue to ramp?.

Look I think when you look at the strength of the Las Vegas economy that’s definitely contributed but as Steve mentioned earlier, we have a leading brand and the off-strip locals market. We have the best locations. We have the best properties with the best amenities. We have tended to outperform in and an out market.

And clearly, the technology and the innovation in the slot system we believe has been a bit of a game changer for us.

Now we are in the early innings of really figuring out how to leverage that to its maximum potential and it’s a big focus of our company, and like I said we are in the early innings and we think there is a lot more to come with the slot system..

And then maybe turning to the Palms, I guess how would you assess the health of the strip versus the local's market? And do those trends change how you think about positioning the property whether it’s in marketing or otherwise between locals and strip customers?.

Well it's clear that we are going to go after both markets. I mean it’s a hybrid property and from the time that the Palms opened in 2000-2001 it had been successful in both the tourist market and the locals market.

And we are going to go after both, clearly the strip market with all those [small island] convention center, the Raider Stadium, Resorts World. We are going to be in the perfect location to capture that traffic.

And I think that when you guys come out I’d encourage you to take a look at phase 1 of the Palms in late May and you are going to get a glimpse of what the future is going to hold for the Palms, and I think everyone is going to be pleasantly surprised to the upsize to see the quality of what we are doing there and why it's going to be a place that people in Las Vegas are going to want to go to..

One more longer-term follow-up.

I know that you have a lot of projects underway and you mentioned that that’s the focus and there should be, but as you see the strength in the local's market, I guess what are your latest thoughts and develop a plan that you have? And how do you assess the opportunity there relative to future investments in the existing property base?.

I think we are in a great position to take advantage of the continued growth in the Las Vegas market because as a company we control five of the best locations for future development and the off-strip locals market that are already entitled. And we are going to be disciplined. We are going to get through the Palms and Palace Station.

We are going to stabilize those, we are going to make sure our balance sheet is in good shape but we have the development pipeline within our control to turn on whenever we want to.

And I can tell if you ever get out on 2:15 and look what's going around -- on and around our Durango site, it’s absolutely amazing, and we’ve two sites as well in the Reno market which is growing and then we have the [President] site for Native Americans, so when you look at the pipeline for the company, we have eight development opportunities within our control..

Thank you. [Operator Instructions] Our next question comes from Patrick Scholes with SunTrust. Your line is now open..

One of your competitors in the Last Vegas locals market has in the last several quarters noted that they’ve been losing some share, are you picking up any share in your properties that are not under renovation?.

I think the numbers speak for themselves, I mean as I reported in the remarks I mean our gaming revenues have been up 6% and that’s been pretty consistent last couple of quarters and I believe the growth last quarter was 0.9%. .

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Steven Cootey for any further remarks..

Well thank you everyone for joining today’s call and we look forward to talking in 90 days. Thank you..

Ladies and gentlemen, thank you for participating in today’s conference. This conclude today’s program. You may all disconnect. Everyone have a great day..