Good afternoon, and welcome to Red Rock Resorts Fourth Quarter and Year-end 2017 Conference Call. [Operator Instructions]. 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, Bruce. Good afternoon, and welcome to Red Rock Resorts' Fourth Quarter and Year-end 2017 Earnings Conference Call. Joining me on the call today from Red Rock Resorts are Frank Fertitta, Chairman and Chief Executive Officer; Rich Haskins, President; Stephen 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. 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 a 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 Steve Cootey.

Thank you, Dan, and good afternoon, everyone. Turning first to fourth quarter results. For the quarter, consolidated net revenues decreased 0.1% to $394 million and adjusted EBITDA decreased 1.7% to $122.6 million. Margins for the quarter were 31.1% on a consolidated basis and 29% for Las Vegas operations. In Las Vegas, net revenues for the quarter increased 0.3% to $364.7 million, and adjusted EBITDA was flat year-over-year at $105.7 million. Notably, and as discussed in our recent calls about Palace Station Palms continue to experience substantial construction disruption during the quarter. However, when viewing our Las Vegas performance, excluding those 2 disruptive properties, the results are much more telling and demonstrate the underlying strength of our core business. Measured on that basis, net revenues increased nearly 5%; adjusted EBITDA increased approximately 8%; margins were up nearly 100 basis points; and flow-through was back within our historical range of 50% to 70%. These results were driven by strong volumes across every major gaming category. Turning next to our full year performance. For 2017, net revenues were $1.62 billion, an increase of 11.2% from $1.45 billion in 2016. The increase in net revenues is primarily due to the acquisition of the Palms, the $41.8 million increase in same-store Las Vegas operations, and the $7 million increase in Native American operations. For the full year, adjusted EBITDA was $496.4 million, an increase of 2.5% from $484.4 million in 2016, primarily due to the acquisition of the Palms and $8.6 million increase in Native American operations, which is partially offset by a $5.8 million increase in corporate and other. As noted above, these full year financial results were negatively impacted by substantial construction disruption at Palace Station and the Palms throughout the year. As a reminder, Palace Station is expected to continue to experience…

[Operator Instructions]. And our first question comes from the line of Joe Greff from JP Morgan.

With respect to the incremental investment Phase III at the Palm, does this displace more EBITDA than originally contemplated? Or can you do Phase III? Would that really impact in incremental EBITDA disruption?

What we're going to try to do, we think this way we're going to try to minimize any disruption to EBITDA, the steel. And the steel should be up with the restaurant. And we're creating connector to minimize disruption during Phase III.

Okay, great. In your prepared comments, I think it was -- some of the others things you have already talked about, but one thing, and this is, really for Frank, and I can understand its sensitivity here not to be chewing in your face about it, but obviously, recent news reports that may be personal potential investments outside of the company has impacted stock in a pretty volatile way. So I'm asking in that context, Frank, do you have any comment with respect to your holdings in Red Rock? And any comments on that, that would be helpful. Appreciate it.

Look, our 100% focus every single day on how to create shareholder value here at Red Rock. And in terms of speculation, the company has a policy where we don't comment on questions or speculations. But I can rest assure that everyday that I come into work, it's a 100% focus on Red Rock Resorts.

And our next question comes from the line of Carlo Santarelli from Deutsche Bank.

Just a point of clarity, Steve. In the release, you guys mentioned that the year-over-year increase in the same-store Las Vegas operations was $41.8 million. I just wanted to make sure that, that did not or did that included, I should say, just as the core set and Palms was excluded even in the fourth quarter despite the fact that you drawn it in the prior fourth quarter.

The $41.1 million excluded the Palms.

For the entire deal of the year, correct?

Yes, correct.

Okay. And we've, obviously, over the last few calls spent a lot of time discussing Palace Station as well as Palms' CapEx plans. Two-part question. The first part is you mentioned in your remarks earlier that you continue to expect the Palace Station disruption to be towards the high end, I think, that was $10 million to $15 million for 2017. Were you insinuating that you expect another $10 million to $15 million EBITDA ahead as we move forward into 2018?

No, no, no. This is $10 million, $15 million annually, and so as I kind of mentioned to you previously, Q4, Q1 will be the highest level, be at the higher end of that. And as we start rolling through Q3 and Q4, that should be -- that just start diminishing.

Okay, got it. And then lastly, as we've thought about Palms and Palace Station, when you think about the broader portfolio, specially some of the bigger properties, I know you mentioned here doing regular remodels at Red Rock. But when you think about the balance of the assets, as we kind of get beyond the CapEx here and the next year or two, is there anything that's kind of significant on the horizon in 2019 and beyond with their picking a side kind of the regular maintenance CapEx spend?

No. That does not.

And our next question comes from the line of Shaun Kelley from Bank of America.

Steve, you mentioned the -- stick with Carlo's question on some of the incremental life-cycle renovations take advantage of kind of that capital expensing guidelines. Should we be thinking about or concerned with any incremental disruption as it relate to some of those? Are those things used to be able to manage in normal course and not have too much of an impact? Or should we be factoring something into our models in '18? And if so, when do you think those renos will be the most disruptive?

Well, for the palms, I think, we answered the Palms' questions for Joe.

Yes. More, Frank, the life-cycle stuff?

Yes, very diminished. Diminished to no disruption at all.

Okay, great. And then, maybe, one other question just given the scope and scale of what you guys are really contemplating doing at the Palms. But could you just tell us, I mean, strategically, there's now a whole host of initiatives you have here. You brought in some huge nightlife partners, there's a lot being done. When you look out in the marketplace, could you help us think a little bit at a high level of like how, either from a rate perspective or from a food and beverage mix perspective, are there comps out there in the market that you're looking at, saying, look, here's the type of run rate or productivity. We think we can get this property, too, upon stabilization, just so that we can start to underwrite or think about the property in a similar way to the way we imagine you guys are?

Yes, sure. Shaun, I mean, obviously, we're excited about the location, we're excited about the growth in Las Vegas and Cannes, which we do view as the best gaining market in the world. The property is very uniquely positioned. It's a true hybrid property, right? It's attracting locals and tourists alike, so there's really no other comp like it, to be honest. We have experienced writing these similar assets, including the Palms itself. And I look no further than what the Palms has done in its past. If I look back, it's what George did and his team did, they hit a number that allowed us that we see out of a much lower asset base and a much less quality asset base. They hit an EBITDA that would help us generate a low- to mid-single-digit EBITDA return to double-digit return on both Phase 1 and Phase 2. And you saw that we've added Phase III, which is about $135 million, and you can do the math on 300 slot machines, 16 table games and adding a new restaurant, I mean, that's clearly...

That specifically targets the ancient demographics, which surrounds the property.

Correct.

As well as a fact that right now, the conversion from the Palms' place is very difficult. Those 600 rooms over there. And what we're going to do with this casinos expansion, it's going to much, much, much improve the ability to gaining revenues out of those 600 hotel rooms, will be nearly a football field closer to those rooms than they currently are right now. And so we feel really good about giving conversion out of that. And I got to tell you guys, anybody who hasn't been through the Palms, I encourage you to go walk through. The property speaks for itself. When people see what this renovated property looks like, what it's going to offer in terms of restaurants, world-renowned chefs, art, must-see attractions, it's gonna be one of the nicest properties in the entire city of Las Vegas by far.

And our next question comes from the line of Stephen Grambling from Goldman Sachs.

Couple of quick follow-ups. I guess, first, how did the new tax reform rules change your consideration for capital allocation, specifically as the balance shifted away from developing groundup on land you own towards the investing that everyone's kind of asking about the existing properties into our preference for acquisition and renovations?

Well, generally, under the current rules, right, the room renovations qualifies -- is the qualified improvement, which we can expense immediately.

And then can you remind me would you have been a cash taxpayer prior to corporate tax reform, I guess, given bonus appreciation rules?

There's a potential that we would have been a cash taxpayer in 2018.

Great. And then on the spend on the Palms and the incremental spend on the 2 properties, the hybrid property, I guess. Do you anticipate the equivalent of preopening and/or marketing expenses that we should be thinking about as we get into kind of 2019 time frame?

Well, those were embedded in the $620 million.

Okay. And one last one, if I may. So this is a follow-up to Shaun, which is just -- with the spend kind of rivaling on the Palms specifically other strip assets, I just want to make sure I understand this correctly, are you more shifting your view to making this a definitely more like a strip-focused property versus the traditional kind of hybrid?

No, I think it's in the same place as what you've seen us do with Red Rock and Green Valley. It's definitely in a much more centrally located area of Las Vegas, which I think will allow us to get more thrust business in there than the other properties, which are further out in the suburbs. And it definitely will have more of a nightlife, day life entertainment component to it than the other properties, but it's still going to be a hybrid property. The locals are very important part with what we're going to do at the Palms. But it definitely is going to have a lot must-see attractions for the 130,000 plus hotel rooms that surround the property.

Look forward to seeing some of those changes. Is there a high-end room planned?

Yes, just Steve, I wanted to come back to the -- I mean, when you compared to one of the strip asset -- I mean, I have been on the strip property for almost 8 years prior to this experience and the $620 million is not -- you can't compare that to a strip property in terms of capital investment, just -- and your second question was [indiscernible]? We don't have a specific walk-or-out room, we have a higher-limit room. And that's one of the reasons we're adding in some Chinese restaurant to attract that key demographic to drive walk-or-out play.

And our next question comes from the line of Chad Beynon from Macquarie.

I wanted to go back to your comment on the same-store business margins, and I guess, more importantly the flow-through, which was quite strong in the year. Could you help us think about 2018, if there's any union negotiations, and inflationary pieces of the model? And kind of how we should think about same-store flow-through, obviously, excluding Palms and Palace Station?

Sure. On the Union front, that's going to be ongoing, and I don't anticipate that affecting operations. On the wage increases, I think you're seeing with the market, 2% to 3% inflation on wage growth. We expect our flow-through for our non-disruptive properties to continue to be in the 50% to 70% range.

Great. And then, you answered -- Oh God, I'm sorry.

Well, I'm just going to say when you take out the noise around Palace Station and the Palms, I got to tell you what it is. It's a great story for the balance of the portfolio. With what's going on in Las Vegas population increase, job creation, lots of investment here, and you look at the rest of the portfolio, 5% in revenues and 8% in cash flow, we think that's a great story.

And then my follow-up back on the CapEx topic. You said that you're qualified on the current room renovations, but how should we think about the excess land that you have in Las Vegas? And also in Reno, have maximized the most value for your shareholders given the changes in CapEx, if you view those ramp parcels differently post-tax reform?

Sure. I mean, the ramp parcels are extremely important, it's great to own our development pipeline. First and foremost, we're focused on bringing the Palms, Palace online, but as you know, we have key assets and Wild, Wild West, Durango and Reno as well that are definitely on the forefront of our development pipeline. In terms of tax reform, those are new developments but it wouldn't qualify under the acceleration, the way a renovation such as the Palms and Palace call for us.

Okay, great. And then the last one from me, anything that we should be thinking about from a seasonality standpoint for 2018, given 1Q had ConAg and there may have been a slight benefit kind of right off the strip, anything differently in 2018?

This is Joe Hasson. From a seasonality point of view, remember that we operate primarily locals focused businesses and with the population growing in Las Vegas, with wage growth in Las Vegas, that's really the foremost driver of our business. Of course, we're also in the hybrid business, and we attract destination travelers, so any lift in the overall economics of the broader market is advantageous to us as well.

[Operator Instructions]. And at this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Steve Cootey for any closing remarks.

Well, thank you for just being on the call today. We'll look forward to hearing from you in about 90 days.