Good afternoon, and welcome to Red Rock Resorts’ First Quarter 2022 Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Stephen Coty, Executive Vice President, Chief Financial Officer and Treasurer of Red Rock Resorts. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for Red Rock Resorts First Quarter 2022 Earnings Conference Call. Joining me on the call today are Frank and Lorenzo Fertitta as well as our executive management team. I would like to remind everyone that 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. During this call, we will also discuss non-GAAP financial measures. For definitions and complete reconciliation of these figures to GAAP, please refer to the financial tables in our earnings press release, Form 8-K and investor deck, which were filed this afternoon prior to the call. Also, please note this call is being recorded. Now let’s take a look at our first quarter results. On a consolidated basis, excluding great management fees, our first quarter net revenue was 401.6 million, up 16.6% from 344.5 million in the prior year’s first quarter. Our adjusted EBITDA was 178.7 million, up 19.9% from 149 million in the prior year’s first quarter. Our adjusted EBITDA margin was 44.5% for the quarter, an increase of 13 basis points from the first quarter of 2021. With respect to our Las Vegas operations, excluding the impact from our closed properties, our first quarter net revenue was 399.5 million, up 18.1% from 338.4 million in the prior year’s first quarter. Our adjusted EBITDA was 196.7 million, up 18.8% from 165.6 million in the prior year’s first quarter. Our adjusted EBITDA margin was 49.2%, an increase of 29 basis points from the first quarter of 2021. On the same-store sales basis, we achieved the highest first quarter net revenue, adjusted EBITDA and adjusted EBITDA margin in the history of our company, and this marks the…

We will now begin the question and answer session. [Operator Instructions] The first question today comes from Joe Greff with JPMorgan. Please go ahead.

Frank, you have been in the locals market for as long as there has been a developed locals market. What is your view on higher gas prices and that relationship to visitation and spend in the local market? And do you think that relationship historically is what is playing out right now?

I think the market is much more dynamic than it has been historically. Even as we look at the demographics here and found and the people moving to town, we are seeing much higher household income than we have seen in the past. And that has been a big focus of the company on player development, relationship marketing and trying to cater that into the business. That being said, there is no doubt that inflation with food and groceries and even gasoline has an impact on the lowest segments in the database for sure.

Okay. So like I may have cut or interrupted. Can you talk about the older demographics are they performing differently, better sequentially, maybe particularly after masks were done away within the middle of the quarter. And then also to, I’m presuming you like everybody else, have finished strongly, more strongly towards the end of the quarter than at the beginning in January with the Omicron impact. I was hoping if you can talk about sort of margins by month and sort of how you exited the quarter versus the blend of the quarter that you reported here today. And that is all for me.

I can touch on the older demographic. I mean, Joe, as you would expect, the older demographic tends to be a little bit more conservative. But given that once the mass mandate was lift they are starting to come back. We are still not all the way back from our pre-pandemic levels. But that said, that group, any difference of delta in that group is being more than offset by the increase in the younger demographic as well as our traction we have gained in new sign-ups. And then in terms of the margin question, as we have talked we don’t give month-over-month guidance, but I think you are spot on and to say the trends as they moved on to January, which was endocrine affected. The trends of the company improved both gaming and nongaming as we move from January to February to March. And as we are seeing in April, you are seeing trends that are very similar to what we saw in March with the exception more of the lower end, we are seeing a little bit more resilience now than the lower end we have before.

Great. Thank you guys.

The next question comes from Carlo Santarelli with Deutsche Bank. Please go ahead.

Hey guys thanks. Steve, I just wanted to clarify something. In your prepared remarks, you kind of mentioned some challenges that you had to work around in the first quarter. I’m assuming that comment was isolated to kind of January and the variant and some of the impacts that that caused or was there something else that kind of popped up?

No. Omicron, I think, in January was the biggest hurdle we had.

Okay. And then just again, in response to something that you just mentioned, you talked about kind of the lower end, a little bit more resilience. Is there something that has changed in the lower end consumer that you were referring to?

No, I think what you saw - what we did see, and this is probably due to - there was a - you had a lot of stimulus rolling off. You had some inflationary pressures. As Frank mentioned earlier, even the higher gas prices that is going to clearly affect the lower end of the database. And then last quarter, we did see some degradation and visitation on that lower end. And as we - but this was more than offset by the increased visitation in the mid- to high-end local customers as well as the regional and on a town gas, this is what allowed us to achieve record profit on the gaming side.

Great. And then just lastly for me, as you guys talked about earlier, some of the group and convention stuff or group business, I’m assuming you are referring to your in-house group and stuff and the impact that that will have in the second half of this year in 2023. As it pertains to some of the larger events that have started, albeit or stunted a little bit on the strip, but have started, are you guys starting to see any changes in behavior from your customers or maybe customers who would be positively impacted by the trends of group convention business that is taking place on the strip?

A little bit - are you talking about the group business or customers on a whole. So from a group perspective, we are seeing positive traction, as I mentioned in the script, it was just slowed down dramatically by January. But once we pass January, the mass mandates were lifting. We are now seeing green shoots. And the bigger group business, i.e., when you think of the draft of the biggest events could only help kind of restore that luster to Las Vegas.

Great. Thank you Steve.

The next question comes from Shaun Kelley with Bank of America. Please go ahead.

Hi good afternoon everyone. Thanks for taking my question. Steve, just wondering if you could give a little bit more color on the recovery in the non-gaming piece of the business. Obviously, some fits and starts there, but what are you seeing in maybe the theaters, some of the spending behavior out there and specifically as some of the other entertainment options come back online as well, kind of what maybe are you seeing on spending or foot traffic that would be helpful.

Sure. I think it goes without saying that we are competing against all forms of entertainment, and that has been the case for quite some time now and Vegas has been wide open since January of 2021. So from a non-gaming perspective, as I mentioned during the script, we are seeing near record profit across F&B and the hotel people and we are seeing particular strength in our regional and out-of-town business because of that. In terms of the theaters, and catering, as we mentioned before, I will start with theaters, theaters are slowly making their way back and we are seeing a strong back half slate, which should only help the visitation return to the theaters.

Yes it is all product-related - content related as to what the studios are releasing. We expect that to get better going forward.

Right. And Shaun, as you saw from the lease, well, there has been inflation across many of the items related to F&B and cost of goods sold. We were able to offset all - the majority of, if not all of that through price increases, thus you saw the increased margin year-over-year.

That is helpful. And pricing was sort of my second question, which - can you talk a little bit about the hotel side and strip compression, maybe as we get into the second quarter here, we have got - a lot of us have rate surveys and things that track how the strip is doing. But how is that translating into the locals market and what are you able to do with price on some of your hotel products?

From hotel, this was almost a record quarter. We almost hit $170 ADR across the system, which is up almost $50 quarter-over-quarter. And that is on an occupancy of roughly 77%, which again, was up about 17 points, but it is still about 15 points below our historical norm, all of that related to having midweek group business. So as we get that group business back, we can expect to yield even better. Fortunately, the team has done such an amazing job with the lack of the group business, they have been able to fill their - fill and yield the hotel with high-spending gaming customers. And this is one of the big initiatives related to our moving into the mid- to high end in player development.

Thank you very much.

The next question comes from Stephen Grambling with Goldman Sachs. Please go ahead.

Thanks. I know you have addressed this a bit on prior calls, but what are you looking for to reopen the other properties that were still closed during the quarter and are there any limitations still as we think about maybe monetizing those as potentially non-casino properties? Thanks.

We are still in the process of evaluating those properties. I mean, what we look for - there is a couple of things we look for, obviously, the current economic environment. And we also look at how much play we are able to capture from those existing properties in which we have told - we have mentioned before between 92% and 94% of the fee we were able to capture. And so we feel pretty good right now with the state we are, but that is something we are closely evaluating across all three properties.

And then maybe one more follow-up on Joe and Carlo’s question on consumer behavior. I guess what would you typically regard is effectively a canary in the coal mine regarding the broader health of the consumer in the local market.

I mean that is a great question. I mean, look, some of the things - I mean, you have talked - I mean I think Joe mentioned the first thing we watch gas prices. We watch discretionary spend -.

Population growth.

Population growth. And then not just the population growth, but also the discretion -.

Let me talk a little bit about what we are seeing, the 2% is population but when you look at the household income, that is actually growing much faster at the high end.

Yes. So there was a slide in the deck we posted regarding the health of the Las Vegas demographic market. So on average, what Frank is referring to is between 21 and 26 we are expecting Las Vegas to grow at roughly 2%. But when you really break that out when you break out the households, the households with an income over $150,000 annual growth is expected to grow 32% per year.

And I saw that exhibit, which is interesting. I mean, do you think that you are - I mean, I guess, historically, do you feel like your penetration was where it needed to be of that upper income consumer and you alluded to trying to capture more of that. But maybe if you can just elaborate on maybe where you think your penetration was of those customers and how you are evolving to try to capture more of them?

Well, first of all, it goes to the location of our properties being out in the suburbs, I think we have A+ locations where the majority of the growth in Las Vegas is taking place. And I think if you go back five or 10-years ago, a lot of these customers weren’t in Las Vegas, I think the market overall has changed pretty dramatically with people moving from California to Las Vegas. And it is a different customer profile than what we were seeing 10-years ago.

And I think we have really focused at the properties primarily, call it, Red Rock and Green Valley at making sure that we have the amenities on the food and beverage side to attract those customers. And as Steve mentioned in his remarks, we are going to open up a new high-limit table games room on Thursday of this week. One of the things that we noticed or we had been successful at post COVID is we have been able to attract a lot of customers that traditionally would have gone to the strip from a table game standpoint have started - we have been able to attract them up to our properties at both Red Rock and Green Valley. So we are just going to continue to build on that as well.

Thanks so much. I will jump back in the queue.

The next question comes from Steve Wieczynski from Stifel. Please go ahead.

Hey guys good afternoon. So Steve, in the past, I think if I remember correctly, you talked about how margin moving forward will be more tied to revenue growth versus anything else. I’m wondering if that still remains the case at this point or if there is anything else you discovered that could or we should be thinking about either from a positive standpoint or a negative side of things on the expense side that could impact your margins moving forward?

Yes. And as you can see in the past quarters, I’m still sticking to our guidance that revenue and operating leverage are going to be the biggest driver of margin going forward. But I think as all companies are seeing, we are in a very unique labor market right now and we are all experiencing inflationary pressure. So if there is one thing that we are keeping a focus on is payroll. So in general, our payroll quarter-over-quarter was up $9.7 million roughly, but let’s call it 9%. But if you break and parse that number down, about $3.7 million of that are just more work to the system. So we brought people on to do more hours, more labor and there was a revenue associated with that labor. So really, the inflationary mark is $6 million, which is about 5% - a little above 5%, 5.5%, which is in line with the Valley. So that is something that we are keeping an eye on, but still going back to the first point, revenue is going to be the main driver in that operating leverage to consistent margins.

And we have been in a pretty tight band for the -.

Past eight - yes, past seven quarters.

Okay. Got you, thanks. And then second question, in terms of the local market there, have you guys seen any - I don’t know if I would use the word material, but any major changes in terms of market share shifts there in the market and I guess, what that is kind of getting to is the promotional environment there still pretty rational?

Ocean market is incredibly rational. And so we haven’t really seen any big massive shifts in the market.

Okay, thanks guys, I appreciate it.

The next question comes from Chad Beynon with Macquarie. Please go ahead.

Hi good afternoon and thanks for taking my question. Just wanted to ask about capital allocation. You had the dividend in the quarter in addition to, I guess, the small special. Just wondering with leverage at these levels, how should we think about capital allocation, I guess, dividends and share repos through the remainder of the year?

So I mean, I think going back to what we said last quarter, I mean, everything is on the table. As you know, we take a very balanced approach. We got a balance returning capital through investing in longer-term growth opportunities, i.e., the Durango project as well as our six other strategically located properties as well as returning capital to stakeholders. And as you saw by the dividend, we are committed to the $0.25 dividend. There was a slight slowdown in our share repurchases. We only purchased 185,000 shares this quarter. A lot of that was just being prudent with the Durango projects staring us in the face. We wanted to make sure we wrapped up the GMP before it really kind of refocusing our efforts on the share repurchase program. But I think over the quarter, especially given the strong nature of our balance sheet, and as you mentioned, the low leverage. I mean everything is on the table, and we have a lot of financial flexibility to execute both on our longer-term opportunities and returning capital to our stakeholders.

Great, thanks. And then just on the last question regarding not much in terms of promotional environment now that Palms has reopened. I think you have said in the past that you don’t expect any impact. If there was an impact, should it be more on the non-gaming side or the gaming side or again, it could be negligible in terms of how you see the business? Thanks.

Yes. We think it is going to be negligible. It would be fair - that the team just opened up on April 27. So it is early days.

Okay. Thank you very much.

The next question comes from Barry Jonas of Truist Securities. Please go ahead.

Hey guys. Well, you have been successful with the GMP on Durango. Just curious what do you think the risks are here relating to the budget or I guess more so timing for the project?

With the GMP, we are fortunate to get about 70% of the project derisked. And now our focus is in making sure I think you hit on it, is making sure that our FF&E and construction materials are delivered on time when the teams need to build and the operators need to hand over. And so yes we have executed what we call a long-term procurement strategy in which we have identified all the long lead time items and are starting to purchase those now. So items that in a normal build we purchased six months out, we are starting a year out. And so we are hoping to use that to mitigate any potential delays in the supply chain.

Got you. Okay. And then I noticed that there were about 2.2 million of native American losses. Just curious what that is and how should we be thinking about future losses from here?

The $2.2 million is related to the great an arbitration case, which we have mentioned in the past. We can assume that those losses will go away.

That is simple.

Perfect. Thank you.

[Operator Instructions] The next question comes from Dan Politzer from Wells Fargo. Please go ahead.

Hey good afternoon Frank and Steve. So most of my questions have been answered. But just in terms of the customers you are seeing come back, I know the locals market, I think it is around 20% of the population retirees. Have you seen any impact from that segment of the database, just given they are more reliant on the fixed income?

No, I think question may have been touched a little bit earlier where you are seeing the older demographic being more conservative, but they are coming back. And when you think of the Omicron virus, really what that affected, that is more the younger generation as those are the folks that got sick. And so from a spend perspective, we are seeing no change in the older demographic spend habits.

Got it. And then I know it sounds like you are further along in terms of rolling out the cashless gaming across your properties. I mean given the reduction of friction costs, have you seen higher spend per visit from those customers that have adopted it or any kind of early takeaways there?

Yes. I mean this is going to be a slow migration to the technology. And given that we are not in all of our properties, we haven’t started the big marketing push, but the group that has executed, we have seen a rise - we have seen more gaming velocity.

Got it. Thanks so much.

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 the call and we look forward to talking to you in about 90-days. Thank you.

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