Red Rock Resorts, Inc. reported financial results for the fourth quarter and year ended December 31, 2018.  The Company adopted FASB’s new revenue recognition standard (“ASC 606”), effective January 1, 2018.  Certain prior period amounts have been adjusted to reflect the full retrospective adoption of ASC 606, with no material impact on operating income, net income or Adjusted EBITDA⁽¹⁾.

Net revenues were $431.5 million for the fourth quarter of 2018, an increase of 7.8%, or $31.2 million, from $400.3 million for the same period of 2017. The increase in net revenues was  primarily due to an increase in Las Vegas operations, partially offset by a decrease in Native American management fees due to the expiration of the Gun Lake management agreement in February of 2018.

Net income was $13.2 million for the fourth quarter of 2018, a decrease of 71.3%, or $32.8 million, from $46.0 million for the same period of 2017. The decrease in net income was primarily due to an after-tax decrease in the fair value of derivative instruments of $23.9 million.  These results also reflect an out-of-period, one-time, non-cash adjustment related to a lease obligation regarding our corporate office building that increased interest expense by $9.3 million and decreased net income by $8.6 million.

Adjusted EBITDA was $135.1 million for the fourth quarter of 2018, an increase of 10.1%, or $12.4 million, from $122.7 million in the same period of 2017. The increase in Adjusted EBITDA was primarily due to an increase in Las Vegas operations, partially offset by a decrease in Native American management fees due to the Gun Lake expiration.

For the full year, net revenues were $1.68 billion in 2018, an increase of 2.4%, or $38.9 million, from $1.64 billion for the same period of 2017.  The increase in net revenues was primarily due to a $69.6 million increase in Las Vegas operations, partially offset by a $31.0 million decrease in Native American operations due to the Gun Lake expiration.

For the full year, net income was $219.5 million in 2018, compared to $63.5 million for the same period of 2017. The increase in net income was primarily due to a gain associated with the extinguishment of tax receivable liabilities, as well as a prior year loss associated with the acquisition of the leases at Boulder Station and Texas Station.

For the full year, Adjusted EBITDA was $509.0 million in 2018, an increase of 2.4%, or $11.7 million, from $497.2 million in 2017, primarily due to a $23.7 million increase in Las Vegas operations, partially offset by a $15.1 million decrease in Native American operations due to the Gun Lake expiration.

Las Vegas Operations

Net revenues from Las Vegas operations were $409.5 million for the fourth quarter of 2018, an increase of 10.4%, or $38.5 million, from $371.0 million in the same period of 2017.  Adjusted EBITDA from Las Vegas operations was $121.0 million for the fourth quarter of 2018, an increase of 14.4%, or $15.2 million, from $105.8 million in the same period of 2017.

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Native American Management

Adjusted EBITDA from Native American operations was $19.1 million for the fourth quarter of 2018, a 22.1% decrease from $24.5 million in the same period of 2017.  The decrease was primarily due to the Gun Lake expiration, partially offset by increased management fees generated under the Graton Resort management agreement.

Palace Station and Palms Redevelopment Update

The Palace Station redevelopment project was completed on schedule and on budget with all aspects of the project open as of the end of 2018.  As of December 31, 2018, the Company has incurred $188 million in costs against the budget of $191 million.

The Palms redevelopment project remains on schedule and the budget remains unchanged with the remaining components of phase two expected to be complete in the second quarter of 2019 and phase three expected to be complete in the third quarter of 2019.  As of December 31, 2018, the Company has incurred approximately $430 million in costs against the $690 million project.

Balance Sheet Highlights

The Company’s cash and cash equivalents at December 31, 2018 were $114.6 million and total principal amount of debt outstanding at the end of the fourth quarter was $2.91 billion. The Company’s debt to Adjusted EBITDA and interest coverage ratios were 5.0x and 4.4x, respectively.

Quarterly Dividend

The Company’s Board of Directors has declared a cash dividend of $0.10 per Class A common share for the first quarter of 2019. The dividend will be payable on March 29, 2019 to all stockholders of record as of the close of business on March 14, 2019.

Prior to the payment of such dividend, Station Holdco LLC (“Station Holdco”) will make a cash distribution to all unit holders of record, including the Company, of $0.10 per unit for a total distribution of approximately $11.7 million, approximately $7.0 million of which is expected to be distributed to the Company and approximately $4.7 million of which is expected to be distributed to the other unit holders of record of Station Holdco.

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Conference Call Information

The Company will host a conference call today at 4:30 p.m. Eastern Time to discuss its financial results. The conference call will consist of prepared remarks from the Company and include a question and answer session.  Those interested in participating in the call should dial (888) 317-6003, or (412) 317-6061 for international callers, approximately 15 minutes before the call start time.  Please use the passcode: 4563756. A replay of the call will be available from today through February 20, 2019 at www.redrockresorts.com.

Presentation of Financial Information

(1) Adjusted EBITDA is a non-GAAP measure that is presented solely as a supplemental disclosure. We believe that Adjusted EBITDA is a widely used measure of operating performance in our industry and is a principal basis for valuation of gaming companies. We believe that in addition to net income, Adjusted EBITDA is a useful financial performance measurement for assessing our operating performance because it provides information about the performance of our ongoing core operations excluding non-cash expenses, financing costs, and other non-operational or non-recurring items. Adjusted EBITDA includes net income plus depreciation and amortization, share-based compensation, write-downs and other charges, net, tax receivable agreement liability adjustment, related party lease termination, asset impairment, interest expense, net, loss on extinguishment/modification of debt, net, change in fair value of derivative instruments, provision for income tax and other, and excludes Adjusted EBITDA attributable to the noncontrolling interests of MPM.

Company Information and Forward Looking Statements

Red Rock Resorts owns a majority indirect equity interest in and manages Station Casinos LLC (“Station Casinos”). Station Casinos is the leading provider of gaming and entertainment to the residents of Las Vegas, Nevada.  Station Casinos’ properties, which are located throughout the Las Vegas valley, are regional entertainment destinations and include various amenities, including numerous restaurants, entertainment venues, movie theaters, bowling and convention/banquet space, as well as traditional casino gaming offerings such as video poker, slot machines, table games, bingo and race and sports wagering.  Station Casinos owns and operates Red Rock Casino Resort Spa, Green Valley Ranch Resort Spa Casino, Palms Casino Resort, Palace Station Hotel & Casino, Boulder Station Hotel & Casino, Sunset Station Hotel & Casino, Santa Fe Station Hotel & Casino, Texas Station Gambling Hall & Hotel, Fiesta Rancho Casino Hotel, Fiesta Henderson Casino Hotel, Wildfire Rancho, Wildfire Boulder, Wild Wild West Gambling Hall & Hotel, Wildfire Sunset, Wildfire Valley View, Wildfire Anthem and Wildfire Lake Mead.  Station Casinos also owns a 50% interest in Barley’s Casino & Brewing Company, Wildfire Casino & Lanes and The Greens.  In addition, Station Casinos is the manager of Graton Resort & Casino in northern California.

This press release contains certain forward-looking statements with respect to the Company and its subsidiaries which involve risks and uncertainties that cannot be predicted or quantified, and consequently, actual results may differ materially from those expressed or implied herein.  Such risks and uncertainties include, but are not limited to the effects of the economy and business conditions on consumer spending and our business; competition, including the risk that new gaming licenses or gaming activities are approved; our substantial outstanding indebtedness and the effect of our significant debt service requirements; our ability to refinance our outstanding indebtedness and obtain necessary capital; the impact of extensive regulation; risks associated with changes to applicable gaming and tax laws; risks associated with development, construction and management of new projects or the redevelopment or expansion of existing facilities; and other risks described in the filings of the Company with the Securities and Exchange Commission.  In providing forward-looking statements, the Company is not undertaking any duty or obligation to update these statements publicly as a result of new information, future events or otherwise, except as required by law.  If the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those other forward-looking statements.

Red Rock Resorts, Inc.
Consolidated Statements of Income Advertisement
(amounts in thousands, except per share data)
(unaudited)
	Three Months Ended December 31,				Year Ended December 31,
	2018		2017		2018		2017
Operating revenues:
Casino Advertisement	$ 240,757		$ 221,763		$  940,483		$  886,206
Food and beverage	100,971		87,995		381,197		365,448
Room Advertisement	42,169		39,640		170,824		179,041
Other	27,054		22,940		100,912		92,967
Management fees Advertisement	20,520		27,972		87,614		118,477
Net revenues	431,471		400,310		1,681,030		1,642,139
Operating costs and expenses: Advertisement
Casino	84,854		79,388		326,980		311,086
Food and beverage	87,892		78,406		340,212		326,069 Advertisement
Room	19,314		19,297		78,440		81,768
Other	14,320		10,074		48,431		40,332 Advertisement
Selling, general and administrative	92,952		92,215		390,492		380,930
Depreciation and amortization	46,864		43,496		180,255		178,217 Advertisement
Write-downs and other charges, net	13,580		3,653		34,650		29,584
Tax receivable agreement liability adjustment	(263)		(139,070)		(90,638)		(139,300) Advertisement
Related party lease termination	—		—		—		100,343
Asset impairment	—		—		—		1,829 Advertisement
	359,513		187,459		1,308,822		1,310,858
Operating income	71,958		212,851		372,208		331,281
Earnings from joint ventures Advertisement	579		390		2,185		1,632
Operating income and earnings from joint ventures	72,537		213,241		374,393		332,913
Other (expense) income: Advertisement
Interest expense, net	(46,800)		(31,315)		(143,099)		(131,442)
Loss on extinguishment/modification of debt, net	—		(13,355)		—		(16,907) Advertisement
Change in fair value of derivative instruments	(14,938)		11,053		12,415		14,112
Other	(67)		(99)		(354)		(357) Advertisement
	(61,805)		(33,716)		(131,038)		(134,594)
Income before income tax	10,732		179,525		243,355		198,319
Benefit (provision) for income tax Advertisement	2,449		(133,556)		(23,875)		(134,786)
Net income	13,181		45,969		219,480		63,533
Less: net income attributable to noncontrolling interests Advertisement	4,235		16,497		61,939		28,110
Net income attributable to Red Rock Resorts, Inc.	$     8,946		$   29,472		$  157,541		$    35,423
Earnings per common share: Advertisement
Earnings per share of Class A common stock, basic	$       0.13		$       0.43		$        2.28		$        0.53
Earnings per share of Class A common stock, diluted	$       0.11		$       0.35		$        1.77		$        0.42 Advertisement
Weighted-average common shares outstanding:
Basic	69,283		68,486		69,115		67,397
Diluted	116,414		116,274		116,859 Advertisement		115,930
Dividends declared per common share	$       0.10		$       0.10		$        0.40		$        0.40

Red Rock Resorts, Inc.
Segment Information and Reconciliation of Net Income to Adjusted EBITDA
(amounts in thousands)
(unaudited) Advertisement
	Three Months Ended December 31,				Year Ended December 31,
	2018		2017		2018		2017
Net revenues
Las Vegas operations	$ 409,483		$ 370,985 Advertisement		$ 1,588,003		$ 1,518,442
Native American management	20,365		27,842		87,009		117,968
Reportable segment net revenues	429,848		398,827 Advertisement		1,675,012		1,636,410
Corporate and other	1,623		1,483		6,018		5,729
Net revenues	$ 431,471		$ 400,310 Advertisement		$ 1,681,030		$ 1,642,139
Net income	$   13,181		$   45,969		$    219,480		$      63,533
Adjustments
Depreciation and amortization	46,864 Advertisement		43,496		180,255		178,217
Share-based compensation	2,417		2,195		11,289		7,922
Write-downs and other charges, net	13,580 Advertisement		3,653		34,650		29,584
Tax receivable agreement liability adjustment	(263)		(139,070)		(90,638)		(139,300)
Related party lease termination	— Advertisement		—		—		100,343
Asset impairment	—		—		—		1,829
Interest expense, net	46,800 Advertisement		31,315		143,099		131,442
Loss on extinguishment/modification of debt, net	—		13,355		—		16,907
Change in fair value of derivative instruments	14,938 Advertisement		(11,053)		(12,415)		(14,112)
Adjusted EBITDA attributable to MPM noncontrolling interest	—		(1,780)		(962)		(15,262)
(Benefit) provision for income tax	(2,449) Advertisement		133,556		23,875		134,786
Other	67		1,099		329		1,357
Adjusted EBITDA	$ 135,135 Advertisement		$ 122,735		$    508,962		$    497,246
Adjusted EBITDA
Las Vegas operations	$ 120,971		$ 105,790		$    457,379		$    433,640
Native American management Advertisement	19,124		24,548		80,795		95,897
Reportable segment Adjusted EBITDA	140,095		130,338		538,174		529,537
Corporate and other Advertisement	(4,960)		(7,603)		(29,212)		(32,291)
Adjusted EBITDA	$ 135,135		$ 122,735		$    508,962		$    497,246

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Source: Red Rock Resorts, Inc.