Good afternoon, and welcome to Red Rock Resorts' Second Quarter 2016 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, Vince. Good afternoon, and welcome to Red Rock Resorts' Second Quarter Earnings Conference Call. Joining me on the call today from Red Rock Resorts are Richard Haskins, President; and Marc Falcony 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 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 Marc Falcone.

Thank you, Danny, and good afternoon. I'm pleased to welcome everyone to our second quarter 2016 earnings call and our first quarter reporting operating results as a public company. The second quarter was truly an exciting quarter for Red Rock Resorts. We successfully completed our initial public offering, announced that our consolidated subsidiary station casinos has agreed to acquire the Palms Casino Resort and finally refinanced a new $2.4 billion credit facility. In addition, and perhaps most importantly, we continued to see strong overall trends in our core business. For the quarter, our net revenues increased 4% to $351.5 million. Adjusted EBITDA grew 6.8% to $117.4 million and our adjusted EBITDA margin grew 90 basis points to 33.4%. This marks the 13th consecutive quarter of year-over-year net revenue growth, the 21st consecutive quarter of EBITDA improvement and the 15th consecutive quarter of EBITDA margin improvement. In Las Vegas, net revenues were up 2.3%, driven by a 3.8% increase in non-gaming revenues as we continue to benefit from investments in non-gaming areas, driven by strength in both hotel revenues, which were up 5.5%, including beverage revenues, which were up 5.6%. Gaming revenues were also up 1.8%, led by strong results in both slots and table games, which were offset by lower sports hold. Adjusted for sports hold, net revenues would have been up 3%, and gaming revenues would have been up 2.7% for the quarter. Our Las Vegas adjusted EBITDA grew approximately 2.7% to $104.6 million for the quarter and our margins grew approximately 10 basis points to 32.4%. Adjusted for the lower hold in sports an additional costs associated with the 10-year anniversary of Red Rock, Las Vegas adjusted EBITDA and adjusted margin would have grown 6.2% and 100 basis points, respectively. As we stated in our earnings release, strong…

[Operator Instructions] Our first question is from Shaun Kelley of Bank of America.

So first of all, I guess welcome back, and congratulations on all of the deal activity this quarter. There is a lot going on. So can we just start with a quick clarification? I think we caught it right, but you gave a little bit of detail on potential hold impact. We're estimating that based on what you said, I think that's probably around $3.5 million of EBITDA to the quarter. Is that right?

It's about a 3.5 percentage points, which is roughly $3.5 million when looked at. The lower sports hold and the higher cost related to the Red Rock 10-year anniversary. We also had lower results just given the difficult comparisons in May with respect to hotel and table games, but those 2 particular issues account for about 3.5 percentage of points of EBITDA growth.

Okay, that's helpful. And then just for those of us that are sort of new to the business is -- can you just tell us, is sports something that's going to be pretty regularly volatile from here on? Or was this really kind of an exceptional one-off given -- kind of relative to historical patterns that you've seen.

Well, I think there's a couple of components to the sports hold. Obviously, as we referenced, there is significant activity in and around the Pacquiao-Mayweather fight last May. That, I think, was a significant portion to the lower hold, but there is volatility in sports quarter-to-quarter. This quarter happened to be a particularly unusually low hold for us, I think, given the May challenges from last year as well as other areas where sports hold was just substantially lower than last year.

Okay, great. And last one for me. But you mentioned North Fork in the prepared remarks, and obviously, this is something that's sort of new to us as well. Obviously, if this remains in litigation, it's going to hard for you to comment too much, but can you give us any sense of sort of trajectory or timeline that we can think about as to at least when we might think about the next milestone or next incremental data point on the litigation there?

Sure. Shaun, this is Rich Haskins. As Marc touched on, that was a very important milestone for us to get the decision from the Department of Interior, with respect to the secretarial procedures, which in essence, replaced what would've been the compact had we gone through that state route. But we're waiting a litigation decision with respect to the land being taken into trust, the validity of that. It's been fully briefed with the court since April of last year. And there's no assurances with respect to court timing, but we're hopeful that we can get a decision in that case within the next 2 or 3 quarters, and that would be, obviously, a very important decision for us as well.

And is there anything else outstanding, Richard? Is that really the only thing that you guys -- the only thing outstanding that you would need before you could contemplate financing or construction?

Now really, Shaun, this one, it's all litigation-based. There's 2 or 3 other lawsuits that actually have been fairly recently filed by the neighboring tribe, which we obviously just view as a delay tactic, but we think the key piece of litigation is the piece that I referenced to earlier.

Our next question is from Carlo Santarelli of Deutsche Bank.

Marc, just on the Las Vegas flow-through. Obviously, in the quarter, it impacted, I would say more so on the flow-through side just by the extra cost. Is kind of that 60% to 70% still a good estimate to use going forward? Or are we seeing some cost creep in the business?

Yes. If you adjust for the cost factors and the whole percentage, flow-through would've been 70% for the quarter on a normalized basis. So I still think we're comfortable in the 60% to 70% flow-through range.

Okay. And then if I could, just one follow-up. Within the segments, the one thing that I noticed that was a little bit softer in the quarter was on the F&B side. It looks like those margins have come in a little bit -- year-over-year as profit margins. Is that a mix issue more so than anything else? I know you guys have been doing some stuff with the restaurants. I'm just wondering if there is a little bit of a mix issue.

No, Carlos. I think you hit it. Basically, we had several new restaurants opened up in the second quarter. And obviously, the associated costs of preopening and training, getting the staff appropriately positioned to run those restaurants and some of the additional staffing costs for good service and good entertainment experience we want to provide with those restaurants probably had an impact on the costs, a little bit on flow-through on food and beverage. And we would obviously expect that these new restaurants have some sufficient time to ramp-up, particularly as we get through the summer months into the stronger fall period that we should see some more normalized costs out of those new restaurant operations.

Our next question is from Joe Greff with JPMorgan.

Marc, I missed some of your comments at the end of your prepared comments section. Can you talk about how you're thinking about CapEx at Palace Station? And how you're thinking about the timing of Reno? Obviously, there's been some news items on specifically those 2 projects.

So on Palace Station -- and what was the second one, Joe? You broke up a little bit?

Reno.

Reno. I'll let Richard address Reno, and then I'll address Palace Station.

Yes, sure. With respect to Reno, really, what we're doing is just getting the necessary entitlements, right? We've got 8 acres that we think is a great location across the convention center sites. And we're in the process right now of obtaining the necessary local and state approvals to be able to develop on that site, but we haven't made any final decision with respect to scope or timing yet.

With respect to Palace Station, we're pretty excited about the returns and some of the success we've had with renovations and improvements at several of our other properties. And then when you look at Palace Station, this is the original location where Station Casinos, now Red Rock Resorts, originated. It's got a great location in the heart of Las Vegas. It hasn't really had any meaningful capital investment dollars into the property since 1991. And we view what's going on in the locals market and particularly in that location, that part of town. There's a great opportunity to upgrade and add some amenities. So we are looking at a multiple-phase project. Phase 1a, which we anticipate will start in September, will be about $20 million to $25 million; adding a new bingo room and buffet as well as some additional improvements to the property and its appearance. So that's about as much that we're committed to at this point with respect to Palace, and we're pretty excited about that opportunity at this point.

[Operator Instructions] Our next question is from Cameron McKnight of Wells Fargo.

Marc, just wondering if you can talk about market share trends in the Vegas market and whether there's been any change in promotional levels or the promotional environment.

No. I think we're -- we've seen very consistent activity in the promotional side, both from us and our competitors. I think it's important to note that we've seen that acceleration of gaming revenue performance in 2016 versus 2015. But from a promotional standpoint, it's been pretty consistent.

Okay, great. Thanks and then just on the mix of revenue growth. Non-gaming has -- and I mean, during this quarter, non-gaming outstripped gaming revenue growth. Is that something we should expect to continue? Or was it more a function of some of the one-off factors in the quarter?

I think it's a bit of a combination of a little bit of both. I think like I said, we've seen that acceleration in gaming the first half of -- gaming revenues for the first half of 2016. If we adjust and we normalize, our gaming revenue growth would've been closer to 3% versus the 1.8%. I think contributing to some of the growth in non-gaming is obviously, we added several of these new restaurants in the comparable period to last year, so you're seeing a little bit stronger performance relative to non-gaming versus gaming. But we're very encouraged, particularly what we're seeing in the slots and the table side of the business as it pertains to gaming revenue growth, not only in the first quarter, but in the second quarter and similar trends as to what we're seeing -- what we saw in July.

Okay, got it. Thanks. And then finally, just on the sports side. Was there any one event that led to low hold on the sports books?

The most significant event was obviously the Mayweather-Pacquiao fight. We did have maybe some other impacts in other sports on a year-over-year basis, but that was one of the larger events on the sports hold.

Got it. So that was more of a comparison issue rather than something that happened this year?

Exactly.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Thank you, everyone. We'll talk to you in the third quarter earnings call.