Good afternoon, and welcome the Red Rock Resorts' Second Quarter 2019 conference call. [Operator instructions] Please note, this conference call 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, sir.

Thank you, operator. Good afternoon everyone, and welcome to Red Rock Resorts' second quarter 2019 earnings call. Joining me on the call today from Red Rock Resorts are Frank Fertitta, Chairman and Chief Executive Officer; Rich Haskins, President; Bob Finch, Executive Vice President and Chief Operating Officer. Our call today will include forward-looking statements under the Safe Harbor Provisions of 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 the definitions and complete reconciliations of these figures to GAAP, please refer to the financial tables on our earnings press release and Form 8-K, which we filed this afternoon prior to the call. Also, please note, this call is being recorded. Let's turn now to our second quarter results. On a consolidated basis, net revenues increased 16% to $482.9 million, adjusted EBITDA decreased 7.6% to $115.2 million and margins decreased 600 basis points to 23.9% for the quarter. Excluding the impact of approximately $11.3 million of one-time expenses related to the Palms grand opening weekend in April and the property's national branding and marketing campaign. Adjusted EBITDA on a consolidated basis increased 1.5% to $126.5 million and margins decreased by 375 basis points to 26.2% for the quarter. With respect to our Las Vegas operations, net revenues for the quarter increased 16.3% to $457.8 million, adjusted EBITDA decreased 9.7% to $101.7 million and margins decreased 640 basis points to 22.2%. Excluding the impact of Palms' one-time expenses described above, adjusted EBITDA for the Las Vegas operations was effectively flat at $113 million and margins decreased 390 basis points to 24.7% for the quarter. This net revenue performance was driven by…

Yes, thank you. [Operator instructions] And the first question comes from Joe Greff with J.P. Morgan.

[Indiscernible] for Joe. Thanks for taking the question. Regarding the Palms, how large of negative EBITDA did the Palms generate? Are these one-time expenses from the 2Q go away completely in the 3Q? And do you think you are going to be positive EBITDA in the 3Q and 4Q?

Well, as you know, we don't really break out distinct properties, but your point about the $11.3 million one-time expenses, they go away completely.

Great. And at Palace, did you grow 2Q revenues in EBITDA year-over-year at faster paces than the 1Q?

Yes, we did.

And then lastly, did you go same-store locals, excluding Palms and Palace, faster than Boyd in the second quarter? And how should you do it [indiscernible]? Thank you.

Yes. I think what we said in the last call is that -- and we said -- we alluded to in the comments that we continue to outperform the market.

Okay. Thank you. And the next question comes from Chad Beynon with Macquarie.

Hi. Thanks for taking my question. Your room revenues were up 15% year-over-year, while your room EBITDA was actually up 23%. I’m guessing most of this is being driven by Palace and then also Palms. So understanding that Palms will take a little while to ramp on the mid-week business, could you elaborate a little bit just in terms of if you are happy with the weekend rates? Kind of how that’s ramping at Palms? And if we should expect this to further ramp in the back half of the year? Thanks.

I think we are only four months into this investment right now. So we are still in very early days. That said, and I think as you noted, from a hotel standpoint, we are moving in the right direction. The team is intently focused on how do we actually increase ADR going forward. So we are still not quite there yet, but we are tracking in the right direction.

Okay. And then from a medium-term standpoint, when you think about -- I think last call you talked about leverage, and then once you get through a certain level that you would explore some more organic growth, potentially some M&A, maybe some other options for the balance sheet. Given that it looks like you are ramping pretty fast here, has your view in terms of external initiatives changed at all?

No, I think we are going to reiterate what we said last call that our primary focus right now is to make sure the Palms and Palace ramp up effectively. And then once we reach that inflection point, which we said we start to see in the fourth quarter, we really are intent on reducing our leverage debt four times or less. That said if there's M&A opportunity that exist, we are always going to look at opportunities to maximize shareholder value.

Thank you very much.

Thank you. And the next question comes from Stephen Grambling with Goldman Sachs.

Hey, thanks. So there's been a lot of noises on some of the changes going on with the Palms in the press. Can you just discuss some of the optimization that is taking place? And maybe outline what the path is here to obtain the, kind of target ROI on the property?

That’s a good question. You’ve to be a little bit more specific on the things you've mentioned and you see in the press.

So between some of the changes in management at the club to not having it open on Thursdays, it just seems like there's a couple of thing, tweaks that are going on here and there.

I see, yes. Going back to the investment, I mean, the team takes a very long-term view of these assets. And so as I mentioned, we're four months into a long-term investment in this project. It is going to be constant reevaluation of staff. It's going to be constant reevaluation of opportunities as a way to increase our return, as well as improve the customer experience.

Fair enough. Maybe -- go ahead.

I was saying all of these -- the intent here is to drive toward our low-digit return that we've said we are going to hit double-digit -- sorry, low double-digit, my apologies.

Great. And then, I guess, maybe changing gears a little bit here, but in light of the pullback in the stock, I guess, has your prioritization of how you think about capital allocation changed? And you think that there's levers that you can pull to kind of take advantage of the recent correction more real time?

Well, as you know, we get the Board approved last quarter $150 million share repurchase. But that said, I keep going back to -- it's really about making sure the properties ramp properly, and our focus is really deleveraging the balance sheet.

Great. I will drop back in the queue. Thanks.

Thank you. And the next question comes from Steven Wieczynski with Stifel.

Hey, good afternoon, guys. So the $11.3 million expenses you called out, from an accounting standpoint, can you just tell us where those kind of flew through your income statement?

Sure. About $3.7 million went through F&B and the remainder at the SG&A line, the G&A line.

Okay. And then where -- I guess, when we do look at that, I would assume that when we looked at the F&B, where do you think you can get those margins in the near-term?

I mean, as -- I mean, you've seen from the balance sheet, once we exclude the one-time charges, it's definitely not where we want to be, the focus there's mainly -- we've opened up a bunch of new restaurants at the Palms and the Palace. I think there's opportunities on both sides. We are not there from a revenue perspective at any of the boxes yet, even though they’re all tracking well. And then from an expense structure, it's about grinding and optimizing the expense side of the business. So I don't think we -- I don't see any issue returning to our historical or slightly below our historical margins on an F&B perspective.

Okay, got you. And the last question, I know it's still early with the Palms and all, but can you maybe help us think about the flow from a customer standpoint in terms of where these folks are coming from? And what I'm getting at here is, is it more kind of a locals customer? Is it more folks coming from the Strip, or is it a combination of both?

Maybe a combination of both. When you break down the card at play at the Palms, it's roughly 60% out of town, 40% local, which is really kind of in line with our investment pieces for hybrid property. In terms of locals, it's coming from all over the valley. We are actually see -- your next logical question, is there cannibalization at any of the existing properties? We are actually seeing the reverse. We are seeing the addition of the Palms systems actually increasing organic growth. We are seeing increased play and cross over, i.e., the second stop. And so we are pretty happy with -- from a locals perspective. And out of town, we are taking them from the Strip properties.

And one more, if I could, sorry. Is the promotional environment pretty rational out there at this point?

It's incredibly rational. We remain within our historical range as we’ve the last -- since I've been here.

Okay. Thanks, guys. Appreciate it.

Thank you. And the next question comes from Barry Jonas with SunTrust.

Hey, thanks. Just following up on Steve's question, I think Boyd talked about some hide-in promotional -- hide-in promos in the market in Q2, which has since normalized. Is that something that you guys saw?

No, we are right within our historical reinvestment range as we’ve been for as long as I can remember.

Understood. Okay. Thank you very much.

Thank you. And the next question comes from John DeCree with Union Gaming.

Hey, guys. Most of my questions have been answered, but just two housekeeping items. Steve, I'm sorry if I missed earlier, the $11.3 million one-time expenses. Did that include the national brand campaign as well?

Yes, it did, accretively included portion, there was some portion of it that we are able to push into pre-open. As you're aware, we kind of did rolling opening. So you can see some of that is branding.

Got it. Okay. And then just another housekeeping item. Maintenance CapEx, once the project at Palms is fully done with Tim Ho Wan, can you give us an outline of what that could look like for 2020 and going forward?

Yes, I think roughly maintenance CapEx excluding any one-time refurbishment, is going to be approximately $100 million on an annual basis.

Okay, great. Thanks, Steve.

Thank you. And the next question comes from Jared Shojaian with Wolfe Research.

Hey, good afternoon, everybody. Thank you for taking my questions. So just on the Vegas revenue, the 16% growth in the quarter, how should we think about that into year end? And by that, I mean, do you expect the growth rate to accelerate from here as the property continues to ramp, or do you think there were some one-time revenue benefits in the period just from, call it, the grand reopening?

I think, kind of, you can break it up in a couple of pieces. I mean, we've always stated that the core business, let's call it the non-Palace and Palms is going to grow. We feel that we are going to consistently take share because of our asset quality -- high asset quality. So we should perform double the market or at the market or above as we have in the last 24 months. And from a Palace and Palms, we didn't see any one-time snap during the opening weekends. So we continually see this property -- the property will continue to ramp faster than the market.

Got it. Okay. Thank you. And can you share what you've seen so far in July, and maybe, early August in terms of how that relates to the growth you saw in the second quarter?

I would love to in about 90 days.

All right. I' will try another then. On the cost side, excluding the $11.3 million, should we assume that costs are going to need to ramp from here, or do you feel like there's expenses that were in the quarter that you would expect to sequentially get better as we progress into year-end and next year?

Yes. I think we've always said -- I think I referred to the last call that the Palms because of its complexity of scope and size, it's going to track like a new build. So we've always given that 18-month ramp. Like any new project expenses open much higher than you would normally expect just a refurbishment that's due to you try to increase customer awareness, you try to make sure that the customer service is actually the topnotch. So as we start ramping, the first stage is capture and then we are going to start -- you start optimizing the resort from its expense side. So, there are expenses that will be reduced as time moves on.

Okay. Thank you very much.

Thank you. [Operator Instructions] All right. As there are no more questions at the present time, I would like to return the floor to Stephen Cootey for any closing comments.

Well thank you very much for everyone for joining us and we look forward to talking to you in about 90 days. Thank you.

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.