Good afternoon, and welcome to Red Rock Resorts First Quarter 2019 Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I would now like to turn the conference over to Stephen Cootey, Executive Vice President, Chief Financial Officer and Treasurer of Red Rock Resorts. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to Red Rock Resorts First Quarter 2019 Earnings Call. Joining me on the call today from Red Rock Resorts are Frank Fertitta, Chairman and Chief Executive Officer; Richard Haskins, President; and Bob Finch, 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 measurements. 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 this call is being recorded. Let's turn now to our solid financial results. On a consolidated basis, net revenues increased 6.2% to $447 million. Adjusted EBITDA increased 3.6% to $145.1 million and margins decreased 80 basis points to 32.5%. With respect to our Las Vegas operations, net revenues for the quarter increased 6.9% to $422.4 million. Adjusted EBITDA increased 3.7% to $130.5 million and margins decreased 100 basis points to 30.9%. Despite these results being negatively impacted by substantial construction disruption at the Palms throughout the quarter, we achieved our highest first quarter net revenue and adjusted EBITDA performance on a same-store basis in over a decade. Notably, ex our 2 redevelopment properties' flow-through was within our targeted range of 50% to 70%. Because the Palace Station redevelopment is now fully complete and the Palms redevelopment is rapidly nearing completion, we will no longer be in a position to discuss financial performance of our Las Vegas operations on a disrupted versus nondisrupted basis.…

[Operator Instructions]. Our first question will come from Joe Greff of JPMorgan.

I know it's early days here with the latest phase opening at the Palms. But maybe you can just talk a little bit about the mix between locals and nonlocals. And again, realizing its super early here, can you talk about maybe what, if any, impact you have experienced at some of your other properties, notably Red Rock and GVR?

Yes, sure. Well, Joe, you're right. We're less than 30 days into the project. I'll try to address the last question first. From a cannibalization perspective, we've actually seen no cannibalization on any property. In fact, we've seen an increasing crossover play in the last quarter, which is very promising. And the - I forgot the first question was? Not that I'm ignoring you, Joe.

Just in terms of, I guess, the last four weeks, the mix between tourists and, say, locals?

I mean, and this one, it's completely too early to tell. So give me another 6 to 9 months...

Both segments are up considerably.

Yes.

I totally get it. And then just with respect to 1Q, just given, I guess, some of the costs hitting the Palms that may have been included in CapEx, was there - do we see the Palms maybe retrenching in profitability 1Q versus 4Q, knowing that both relative contributions are small?

I mean, I'm sorry. So you broke up a little bit there, Joe. So if you could maybe repeat the question.

Did the Palms in 1Q retrench a little bit on EBITDA versus whatever it contributed in the 4Q?

Actually - and Joe, I mean, you understand both projects are ramping up. I mean, again, we take a very long-term view on these projects and it's very, very much at the beginning stages. So both the Palace and Palms were a little bit of a drag on margin. The core business margins are actually up, but from a profitability standpoint, I don't think there was any retrenching at all.

The next question comes from Carlo Santarelli of Deutsche Bank.

So my question is kind of along the same lines as Joe's, but thinking more about it's a little bit easier when you're doing a greenfield development to have a better sense of how to think about both the revenue and the margin ramps. But I guess with Palms, and acknowledging it's kind of unique from both aspects, how should we think about kind of your ability to get Palms to the margins that you guys believe it will stabilize wherever that maybe in terms of the time line from completion? And when do you expect to kind of achieve the run rate revenue level and - as well as kind of run rate margins for the property?

Yes. I think, Carlo, that's a good question. We've actually treated this as a completely new project, whether greenfield or not. I mean, we've completely touched every aspect of this project. So this is going to take no different than the same ramp as a new project, about 18 months.

Okay. Great. And then if I could, just one follow-up. Have you guys seen - obviously, there's been some - it seems like some pressure on Strip trends and granted more so in different higher-end segments of the business, which will be less impactful, but have you guys seen any evidence at all in your locals portfolio of maybe some of the softness that we're seeing on the Strip spilling over into some of your locals customers' spend habits?

No, actually. No, we haven't - we've actually seen it pretty much at every property with the exception of, one, positive revenue growth; and two, our 2 properties closest to the Strip, we've seen extraordinary growth. So we've seen no change in our customer behavior.

The next question comes from Shaun Kelley of Bank of America.

Steve, from the prepared remarks, it sounds like you kind of want to move away from the same-store metric or some - or as you start to include, I think, Palace pretty much for the full quarter here. But can you just give us a sense on this [indiscernible] you said sort of no cannibalization that was identifiable. But just directionally versus the market, I think, you characterized on a trailing basis, Steve, that you guys are down almost 2x the market. Did you continue in the 1Q, excluding Palace, to outperform what we see overall for the kind of market revenues? Or how would you characterize the broader portfolio ex Palace at a high level, if you don't want to give out the numbers?

That's all right. I mean, I think, growth in the core business moderated a little bit after the exceptional Q4. I think we've seen the same trends as all the other operators and we had a weaker January. But we saw sequentially meaningful improvement in both February and March, and we - and then we expect - and we continue to perform in line with the market. That said, growth is never going to be linear here. Some quarters are going to be exceptional. You're going to have exceptional growth like we saw in Q4. Others, the growth is going to be a little bit more modest. But as I mentioned in the prepared remarks, as we look at our core business over the past 12 months, which is the way we kind of view things as growth tends to normalize, we've significantly outperformed the market and we expect to continue to do that going forward.

Great. And then just one - for a little bit more detail on the Palms as we start to move forward on the ramp-up here. Can you just talk a little bit about the marketing progression? And is there anything specifically outside of, I think, the area you've highlighted which is primarily the - some of the Asian baccarat areas that you're sort of left to turn on or market? Or like just what's going to be the cadence as we move through second and third quarters here in terms of - any amenities that sort of aren't online, take a little bit longer to market, or how do you expect a little bit of the kind of marketing cadence to work from here?

I mean, I think, you're going to see in Q2 because we have the opening weekend and the launch of on status quo some significant marketing expenses, as you'd see with any project. We've put $690 million into this project, so we want to make sure that it's rebranded correctly. But that - once we go forward, you'll see kind of a steady cadence of marketing as we go throughout the year. And then, yes, as we start launching into our more Asian-centric theme with Tim Ho Wan, I would expect some additional spend to happen - to occur there.

Did any of that get in the way of sort of at least some sort of modest sequential improvement as we move quarter-to-quarter throughout the year? Anything we should be aware of?

Again, I'd go back to what I answered with Carlo's, this is a long - we're going to take this long-term view, right? So I think an 18-month view of getting this to stabilization. So there's no doubt there's going to be some bumps in the road, but I don't think the marketing programs are going to get in a way of sequential improvement. And if we do well, I'll point them out.

The next question comes from Harry Curtis of Nomura Instinet.

If we could shift gears to the Palms. As you introduced this, the new - the property, can you address how you're approaching your entertainment differently than others on the Strip that tend to have a single star focus? It's pretty expensive, but what's the ROI on it? And what sort of incremental or broader distribution advantages do you get by doing it your way?

I mean, it's a tough question to answer in terms of ROI in every single performer. I'm not sure I'm going to go into that level of detail as we don't really comment on individual deals. But the idea was we built on one - kind of a venue that's unparalleled in the market. We had to come up with a talent profile or a group of people that actually helped perform there. We want it to appeal to across all markets, and so that's why we went out pretty broad with in terms of who we actually brought in. The idea there, Harry, is to not just to appeal to kind of the EDM crowd, but to appeal to a wider music audience.

Okay. And is this part of the initial marketing ramp and reintroduction of the Palms? Or is this a strategy that you intend to employ for some time?

This is a continued strategy.

I mean, we're in the early days, Harry. I mean, we're just trying to reintroduce the property to both tourists and locals and get trial for the facility. So step one is the reintroduction, rebranding of the property, giving as much trial as we can. And then once we get through that initial launch, we'll start focusing on expenses and [indiscernible] everything. It's the same thing we do every time we open a new property.

Shifting gears. Given the lift that Las Vegas locals population is enjoying, are you seeing a similar kind of lift in your frequent player sign-ups?

We are seeing increases of player sign-ups, along with - I mean, listen, Harry, across all metrics within slot. I mean, you look at any of our metrics, hours played, spend per visit, new slot sign-ups, uncarded, carded slot win, all out. Is that what you're getting at?

Yes. What I'm trying to get at is your sense of new customers versus older ones that are just playing more.

Yes. No, we are seeing both.

The next question will come from Stephen Grambling of Goldman Sachs.

This is maybe a broader question, but the overall Strip GGR and RevPAR numbers have clearly been choppy and sluggish for a couple of years now, even as locals has been solid. What do you think has been the biggest challenge facing the Strip? And can the locals market continue to outperform for a prolonged period of time or at some point the two become correlated?

I mean, listen, we - I think they're indirectly correlated, right? So from a Strip perspective, our customers are their employees. But beyond that, our particular business is we're not as hotel-centric as most of the Strip. We're more gaming-centric. And I've kind of mentioned right about a dozen different economic indicators in local business and why we think we're going to continue to see the growth.

I think they're two totally different markets at the end of the day. The locals market is going to be focused on population growth, how the economy here is doing, wage growth, retirees coming into the market. And all the indicators for the Las Vegas economy are positive, and that's where our business primarily comes from, and we're very bullish in the Las Vegas locals market.

Last one, and maybe as a more micro follow-up. And you went through a little bit of this, but any additional color you can give on the magnitude of disruption either on a dollar basis and how should we be thinking about that both in the quarter and as the year progresses. And also, if there's any kind of hold or calendar shift that we should think about?

You're talking the - I mean, the Palms? I mean, there was - I mean...

No, just across the portfolio.

No. I mean, I think, as I mentioned, Palace, we're now beyond the disruption. Starting April, we're still at the Palms, we're pretty much beyond the disruption, though. There's going to be continued elevated expenses at the Palms as kind of we work through the opening process. But from a calendar perspective, again, I don't see any holds there.

And next, we have a question from Barry Jonas of SunTrust.

You've given some great color on how you see the Strip versus the locals market. I'm just curious - I mean, how do you think about the - any potential backlash around rising resort fees, parking fees? Has that driven any upside? I believe you recently offered some no-resort fee promotion at some of your properties.

I think there's - I think that's an opportunity, particularly for our resorts near the Strip. I mean we don't enforce our guests to pay for parking and our resort fees are very manageable, particularly relative to the Strip.

Great. And then, I believe, in February, the Board authorized a $150 million share authorization. Just curious, have you given any color? Have you bought anything? And what do you prioritize share repurchases in terms of capital allocation?

So no, we haven't bought anything just yet. This is really built on suspenders. This goes back to kind of the meltdown in December 24. We did not have [indiscernible] place. We realized that, that would - possibly could have been an opportunity to buy stock at that point. But right now, our focus, as I mentioned on the call, is to pay - one, focus on ramping up our properties; and two, paying down debt and deleveraging.

Sure. And then last for me, the Wild, Wild West land purchase for 20 acres, is that still on target to close in June?

Yes, it is.

And next, we have a question from Chad Beynon of Macquarie.

Regarding the Graton management fee growth, I think you said 14% up in your prepared remarks, and sequentially, that was up pretty significantly as well. Should we assume that based on what's going on at that property now, you could continue to see improvement from that from a year-over-year perspective? I think that was one area that came in surprisingly above most expectations.

I think that's - I mean just to keep the explanation short, your assumption is fair. Yes.

Okay. Great. There's nothing special about the seasonality of those fees. That's just kind of improvement in the quarter and they're distributed that way?

Correct.

Okay. The $23 million write-down, could you elaborate as to what that was attributable to?

Well, you're talking - yes, sequentially the $23 million write-down, I'm sorry, yes, it's weirdly put in my P&L. That's actually pretty open. So that's all related to the Palms.

[Operator Instructions]. Our next question will come from John DeCree of Union Gaming.

Just one high level for me. Steve, I think you've hit it directly on in your prepared remarks about focusing on deleveraging the balance sheet. I think you mentioned the target leverage ratio of about 4x. Looking at how these properties could ramp and the amount of cash flow that you'll generate might not take all that long to get there. So I was wondering if you could comment on how you think about capital allocation once you achieve your leverage target. And then, just a quick question, how you think about just EBITDA growth relative to actual principal paydown in obtaining that target.

Well, the last question is an easier one because you're going to get a little bit of both. As I think you rightfully said, the properties are expected to ramp. So we're going to get some natural deleveraging and not just from the core property growth, but through the ramp-up of Palace and Palms, and then we'll complement that through - you got your normal debt amortization and any - as I've mentioned and you've alluded to, once you head to 2020, you'll expect to be a significant free cash generator. And so the great thing is we're going to have a lot of options available to maximize value to our shareholders, which could include buying back shares, returning dividends and potentially looking at new developments/M&A.

And this concludes our question-and-answer session. I would like to turn the conference back over to Stephen Cootey for any closing remarks.

Well, thank you everyone for joining, and I look forward to talking to you in 90 days. Bye, bye.

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