Red Rock Resorts(RRR) - 2019 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, financial instruments, debt, equity, and other significant financial activities for the periods ended September 30, 2019 Condensed Consolidated Balance Sheets The balance sheet shows a slight increase in total assets and liabilities, while total stockholders' equity decreased by $34.164 million | Metric | Sep 30, 2019 (thousands) | Dec 31, 2018 (thousands) | Change (thousands) | | :----- | :----------------------- | :----------------------- | :----------------- | | Total Assets | $4,127,462 | $4,009,526 | +$117,936 | | Total Liabilities | $3,344,631 | $3,192,531 | +$152,100 | | Total Stockholders' Equity | $782,831 | $816,995 | -$34,164 | - Current assets slightly decreased, while property and equipment, net, and land held for development increased[9] - Long-term debt, less current portion, increased significantly from $2,821,465 thousand at December 31, 2018, to $3,016,749 thousand at September 30, 2019[9] Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income Net revenues increased, but operating income and net income significantly decreased, leading to a net loss and negative earnings per share | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Net Revenues | $465,858 | $412,332 | 13.0% | $1,395,748 | $1,249,559 | 11.7% | | Operating Income | $14,243 | $54,618 | (73.9)% | $125,869 | $300,250 | (58.1)% | | Net (Loss) Income | $(26,798) | $25,067 | (207.3)% | $(13,581) | $206,299 | (106.6)% | | Net (Loss) Income Attributable to Red Rock Resorts, Inc. | $(15,657) | $14,680 | (206.7)% | $(8,180) | $148,595 | (105.5)% | | (Loss) Earnings Per Share (Basic) | $(0.22) | $0.21 | (204.8)% | $(0.12) | $2.15 | (105.6)% | - Write-downs and other charges, net, significantly increased to $34,094 thousand for the three months and $66,668 thousand for the nine months ended September 30, 2019, compared to $6,439 thousand and $21,070 thousand in the prior year[11] - Interest expense, net, rose by 20.6% for the three months and 23.5% for the nine months ended September 30, 2019, contributing to the net loss[11] Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased, primarily due to a net loss and dividends paid during the nine-month period | Metric (thousands) | Dec 31, 2018 | Sep 30, 2019 | Change | | :----------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $816,995 | $782,831 | $(34,164) | | Net Loss (9 months) | N/A | $(8,180) | N/A | | Dividends (9 months) | N/A | $(21,054) | N/A | | Share-based compensation (9 months) | N/A | $12,814 | N/A | - The company reported a net loss of $8,180 thousand for the nine months ended September 30, 2019, compared to net income of $148,595 thousand for the same period in 2018, significantly impacting retained earnings[16][18] - Dividends paid for the nine months ended September 30, 2019, totaled $21,054 thousand[16] Condensed Consolidated Statements of Cash Flows Operating cash flow decreased, while financing activities provided significantly more cash, primarily from increased borrowings, leading to a smaller overall decrease in cash | Metric (thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (thousands) | | :----------------- | :-------------------------- | :-------------------------- | :----------------- | | Net Cash Provided by Operating Activities | $216,649 | $260,983 | $(44,334) | | Net Cash Used in Investing Activities | $(376,758) | $(404,389) | +$27,631 | | Net Cash Provided by Financing Activities | $152,356 | $22,860 | +$129,496 | | Decrease in Cash, Cash Equivalents and Restricted Cash | $(7,753) | $(120,546) | +$112,793 | | Balance, End of Period | $110,505 | $114,198 | $(3,693) | - Capital expenditures, net of related payables, were $324,435 thousand for the nine months ended September 30, 2019, primarily for Palms redevelopment[21][154] - Borrowings under credit agreements with original maturity dates greater than three months increased to $570,000 thousand in 2019 from $165,000 thousand in 2018[23] Notes to Condensed Consolidated Financial Statements Note 1. Organization, Basis of Presentation and Significant Accounting Policies Red Rock Resorts, Inc. controls and operates Station LLC through its 60% economic interest in Station Holdco, with financial statements prepared under GAAP and the new lease accounting standard (ASC 842) adopted without material impact - Red Rock Resorts, Inc. owns 60% of the economic interests in Station Holdco and 100% of the voting interests in Station LLC and Station Holdco, acting as the sole managing member[27][110] - The company adopted the new lease accounting standard (ASC 842) on January 1, 2019, recognizing $17.3 million in operating lease right-of-use assets and operating lease liabilities, with no material impact on its statements of income or cash flows[32][35] - The company will adopt new accounting guidance for credit losses (CECL) in the first quarter of 2020 but does not expect a material impact on its financial position or results of operations[33] Note 2. Noncontrolling Interest in Station Holdco Red Rock's ownership interest in Station Holdco increased slightly to 60.0% at September 30, 2019, due to exchanges of LLC Units for Class A common shares | Ownership | Sep 30, 2019 | Dec 31, 2018 | | :-------- | :----------- | :----------- | | Red Rock | 60.0% | 59.8% | | Noncontrolling interest holders | 40.0% | 40.2% | - Approximately 0.1 million LLC Units were exchanged for Class A common shares during the three and nine months ended September 30, 2019, which increased Red Rock's ownership interest in Station Holdco[36] Note 3. Native American Development The company is assisting the North Fork Rancheria of Mono Indians with a $250-$300 million gaming project, which faces regulatory and legal hurdles but has an estimated 65-75% likelihood of completion - The North Fork Project is expected to include approximately 2,000 slot machines, 40 table games, and several restaurants, with an estimated cost between $250 million and $300 million[40] - The company has paid approximately $33.8 million of reimbursable advances to the Mono tribe, with a carrying amount of $18.7 million at September 30, 2019[41] - The company estimates a 65-75% likelihood of successful completion and opening of the North Fork Project at September 30, 2019, despite ongoing legal challenges and regulatory approval delays[45][49][50][51] Note 4. Other Accrued Liabilities Other accrued liabilities significantly decreased, primarily due to a large reduction in construction payables and equipment purchase accruals, reflecting the completion of major redevelopment projects | Metric (thousands) | Sep 30, 2019 | Dec 31, 2018 | Change (thousands) | | :----------------- | :----------- | :----------- | :----------------- | | Total Other Accrued Liabilities | $191,730 | $266,474 | $(74,744) | | Construction payables and equipment purchase accruals | $27,145 | $108,855 | $(81,710) | | Accrued payroll and related | $50,765 | $55,448 | $(4,683) | - The decrease in construction payables reflects the completion of major redevelopment projects like Palms and Palace Station[53][114] Note 5. Long-term Debt Total long-term debt increased to $3.051 billion at September 30, 2019, driven by increased borrowings under the Revolving Credit Facility and a new Term Loan A Facility, following an amendment to the credit facility | Debt Type (thousands) | Sep 30, 2019 | Dec 31, 2018 | Change (thousands) | | :-------------------- | :----------- | :----------- | :----------------- | | Total Long-term Debt | $3,050,687 | $2,855,359 | +$195,328 | | Revolving Credit Facility | $453,851 | $245,000 | +$208,851 | | Term Loan A Facility (March 2023) | $188,844 | $0 | +$188,844 | | Term Loan A Facility (June 2022) | $52,968 | $251,448 | $(198,480) | - The company amended its credit facility in February 2019, increasing borrowing availability under the Revolving Credit Facility by $115.0 million to $896.0 million and extending maturity dates for consenting lenders[55][144] - At September 30, 2019, Station LLC's combined borrowing availability under its Revolving Credit Facility was $401.8 million[59][145] Note 6. Derivative Instruments The company uses interest rate swaps with a notional amount of $1.4 billion to convert variable-rate debt to a fixed rate of 4.23%, resulting in a net loss from fair value changes for the periods ended September 30, 2019 - Interest rate swaps had a combined notional amount of $1.4 billion at September 30, 2019, effectively converting $1.4 billion of variable interest rate debt to a fixed rate of 4.23%[62] | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | | :----------------- | :-------------------------- | :-------------------------- | | Change in fair value of derivative instruments (Loss) | $(1,739) | $(21,335) | - Cumulative deferred net gains of $2.0 million from previously designated cash flow hedges are expected to be reclassified into earnings during the next twelve months[66] Note 7. Fair Value Measurements The fair value of the company's interest rate swaps, classified as Level 2 inputs, was $319 thousand in assets and $7.422 million in liabilities at September 30, 2019, with the estimated fair value of long-term debt at $3.109 billion | Metric (thousands) | Sep 30, 2019 | Dec 31, 2018 | | :----------------- | :----------- | :----------- | | Interest rate swaps (Assets) | $319 | $23,945 | | Interest rate swaps (Liabilities) | $7,422 | $0 | | Metric (millions) | Sep 30, 2019 | Dec 31, 2018 | | :---------------- | :----------- | :----------- | | Aggregate fair value of long-term debt | $3,109 | $2,766 | | Aggregate carrying amount of long-term debt | $3,051 | $2,855 | Note 8. Stockholders' Equity The company declared and paid cash dividends of $0.10 per share, while accumulated other comprehensive (loss) income decreased due to reclassification of unrealized gains on interest rate swaps - Cash dividends of $0.10 per share of Class A common stock were declared and paid for both the three and nine months ended September 30, 2019[70] | Metric (thousands) | Dec 31, 2018 | Sep 30, 2019 | Change (thousands) | | :----------------- | :----------- | :----------- | :----------------- | | Accumulated Other Comprehensive (Loss) Income | $1,083 | $(205) | $(1,288) | - Net transfers to noncontrolling interests for the nine months ended September 30, 2019, were $(5,712) thousand, compared to $(2,651) thousand in the prior year[72] Note 9. Share-based Compensation Share-based compensation expense increased to $4.5 million for the three months and $12.8 million for the nine months ended September 30, 2019, with 12.4 million shares available for issuance under the equity incentive plan | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Share-based compensation expense | $4,464 | $12,849 | $3,315 | $8,872 | - At September 30, 2019, a total of 12.4 million shares were available for issuance under the Red Rock Resorts, Inc. Amended and Restated 2016 Equity Incentive Plan[73] - Unrecognized share-based compensation cost was $49.1 million, expected to be recognized over a weighted-average period of 2.9 years[74] Note 10. Write-downs and Other Charges, Net Write-downs and other charges, net, significantly increased to $34.1 million for the three months and $66.7 million for the nine months ended September 30, 2019, primarily due to artist performance agreement termination costs and Palms redevelopment expenses | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Write-downs and other charges, net | $34,094 | $66,668 | $6,439 | $21,070 | - $28.2 million of the charges for the three months ended September 30, 2019, were related to artist performance agreement termination costs and severance at Palms' nightclub and dayclub[76] - Palms redevelopment and preopening costs contributed $0.6 million and $25.9 million to these charges for the three and nine months ended September 30, 2019, respectively[77] Note 11. Income Taxes The company's effective tax rate was significantly lower than the statutory rate due to Station Holdco's partnership tax status and noncontrolling interests, with a Tax Receivable Agreement (TRA) liability of $25.1 million | Metric | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Effective Tax Rate | 3.05% | (0.92)% | 2.43% | 11.32% | - The Tax Receivable Agreement (TRA) liability was $25.1 million at September 30, 2019, with future payments expected to be substantial upon exchange of LLC Units for Class A common stock[86][148] - The company recognized nontaxable income of $90.4 million in the nine months ended September 30, 2018, due to a reduction in TRA liability from transactions with pre-IPO owners[87][129] Note 12. (Loss) Earnings Per Share The company reported a basic loss per share of $(0.22) for the three months and $(0.12) for the nine months ended September 30, 2019, a significant decline from positive EPS in the prior year, primarily due to the net loss attributable to Red Rock Resorts, Inc. | Metric | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (Loss) Income Attributable to Red Rock, basic (thousands) | $(15,657) | $(8,180) | $14,680 | $148,595 | | (Loss) Earnings Per Share of Class A common stock, basic | $(0.22) | $(0.12) | $0.21 | $2.15 | - Diluted EPS calculation excluded 46.8 million shares issuable in exchange for Class B common stock and LLC Units, 7.7 million stock options, and 0.7 million restricted stock shares at September 30, 2019, as their inclusion would have been antidilutive[92] Note 13. Leases The company adopted the new lease accounting standard (ASC 842) on January 1, 2019, recognizing $14.2 million in operating lease right-of-use assets and $15.5 million in operating lease liabilities, with total lease expense for the nine months at $30.4 million - Upon adoption of the new lease accounting standard on January 1, 2019, the company recognized $17.3 million in operating lease ROU assets and operating lease liabilities[35] | Metric (thousands) | Sep 30, 2019 | | :----------------- | :----------- | | Operating lease right-of-use assets | $14,238 | | Total operating lease liabilities | $15,482 | | Weighted-average remaining lease term | 31.2 years | | Weighted-average discount rate | 5.39% | | Lease Expense Component (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | | :---------------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $1,298 | $3,862 | | Short-term lease cost | $1,627 | $5,528 | | Variable lease cost | $7,242 | $21,049 | | Total lease expense | $10,167 | $30,439 | Note 14. Commitments and Contingencies The company is involved in various routine lawsuits, but management does not expect these legal matters to have a material effect on the company's financial condition, results of operations, or cash flows - Management believes current litigation will not materially impact the company's financial condition, results of operations, or cash flows[102][174] Note 15. Segments The company operates two reportable segments: Las Vegas operations and Native American management, with Las Vegas operations showing a decrease in Adjusted EBITDA while Native American management increased - The company aggregates its Las Vegas casino properties into one reportable segment and its Native American management arrangements into another[103][118] | Adjusted EBITDA (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Las Vegas operations | $97,168 | $97,942 | $329,338 | $336,408 | | Native American management | $22,273 | $19,787 | $65,699 | $61,671 | | Total Adjusted EBITDA | $111,084 | $109,106 | $371,383 | $373,827 | - Adjusted EBITDA is a non-GAAP measure used to assess operating performance and is a principal basis for valuation in the gaming industry[136] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of Red Rock Resorts, Inc.'s financial condition and results of operations for the three and nine months ended September 30, 2019, covering business overview, key performance indicators, segment results, and liquidity, highlighting the impact of redevelopment projects and economic conditions Overview Red Rock Resorts, Inc. manages Station LLC, a gaming and entertainment company in Las Vegas and California, holding a 60% economic interest in Station Holdco, with gaming as its primary revenue source heavily influenced by the growing Las Vegas economy - Red Rock Resorts, Inc. holds a 60% economic interest in Station Holdco and controls Station LLC, which operates ten major and ten smaller casino properties in the Las Vegas regional market and manages Graton Resort in California[109][110] - Gaming is the principal source of revenue and operating income, with approximately 80% to 85% of casino revenue generated from slot play, making the business capital intensive and reliant on operating cash flow[111] - The Las Vegas economy showed strong growth from 2015-2018, with a 2.1% year-over-year increase in employment by September 2019 and 78 consecutive months of increased taxable retail sales from February 2013 to July 2019[112][113] Our Key Performance Indicators The company uses key indicators to measure performance across gaming (slot handle, win), food and beverage (average guest check), and room operations (occupancy, ADR, RevPAR) - Gaming revenue measures include slot handle, table game drop, race and sports write (volume), and win/hold percentages, which are generally consistent[115] - Food and beverage revenue is measured by average guest check and number of restaurant guests served[115] - Room revenue is evaluated using occupancy, average daily rate (ADR), and revenue per available room[115] Results of Operations Net revenues increased for both the three and nine months ended September 30, 2019, primarily due to growth in Las Vegas operations, particularly at Palms, but operating income significantly decreased due to increased expenses at Palms and the impact of a prior-year tax receivable agreement income | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Net Revenues | $465,858 | $412,332 | 13.0% | $1,395,748 | $1,249,559 | 11.7% | | Operating Income | $14,243 | $54,618 | (73.9)% | $125,869 | $300,250 | (58.1)% | - The decrease in operating income for the nine months ended September 30, 2019, was significantly impacted by the recognition of $90.4 million of income from tax receivable agreement transactions in the prior year period[120] - Increased expenses at Palms, including depreciation and artist performance agreement termination costs, were major contributors to the decline in operating income[120] Net Revenues Net revenues increased by $53.5 million (13.0%) for the three months and $146.2 million (11.7%) for the nine months ended September 30, 2019, driven by increased Las Vegas operations, particularly at Palms | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Net Revenues | $465,858 | $412,332 | 13.0% | $1,395,748 | $1,249,559 | 11.7% | - The increase in net revenues was primarily attributable to improved performance in Las Vegas operations, particularly at the Palms Casino Resort[119] Operating Income Operating income decreased significantly by $40.4 million (73.9%) for the three months and $174.4 million (58.1%) for the nine months ended September 30, 2019, primarily due to higher expenses at Palms and the absence of a prior-year tax receivable agreement income | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Operating Income | $14,243 | $54,618 | (73.9)% | $125,869 | $300,250 | (58.1)% | - The decrease in operating income for the nine months ended September 30, 2019, was significantly influenced by the $90.4 million income from tax receivable agreement transactions recognized in the prior year period[120] - Increased expenses at Palms, including depreciation and artist performance agreement termination costs at its nightclub and dayclub, contributed to the decline in operating income[120] Casino Casino revenues increased by 3.3% for the three months and 4.1% for the nine months ended September 30, 2019, driven by increased volume across all major gaming categories, with casino expenses rising commensurately | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Casino revenues | $238,269 | $230,723 | 3.3% | $728,470 | $699,726 | 4.1% | | Casino expenses | $89,205 | $82,772 | 7.8% | $259,861 | $242,126 | 7.3% | | Margin | 62.6% | 64.1% | (1.5)pp | 64.3% | 65.4% | (1.1)pp | - Slot handle increased by 4.1% (3 months) and 3.8% (9 months), table games drop by 18.5% (3 months) and 17.1% (9 months), and race and sports write by 6.0% (3 months) and 9.0% (9 months)[121] Food and Beverage Food and beverage revenue increased significantly due to the opening of Palms' nightclub and new restaurants, but expenses rose even more, leading to a negative margin for the three-month period and the subsequent closure of the Palms nightclub and dayclub | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Food and beverage revenues | $128,016 | $94,666 | 35.2% | $370,740 | $280,226 | 32.3% | | Food and beverage expenses | $128,376 | $87,097 | 47.4% | $360,767 | $252,320 | 43.0% | | Margin | (0.3)% | 8.0% | (8.3)pp | 2.7% | 10.0% | (7.3)pp | - The opening of the nightclub and dayclub at Palms, as well as several new restaurants at Palms and Palace Station, drove the increase in food and beverage revenue[122] - Due to challenging expenses and fixed cost structure, the company announced on November 5, 2019, the immediate closure of the Palms nightclub and dayclub[122] Room Room revenues increased by 22.5% for the three months and 13.1% for the nine months ended September 30, 2019, primarily due to an increase in available rooms following the completion of redevelopment projects at Palms and Palace Station, with improved occupancy and average daily rate | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change | | :----- | :-------------------------- | :-------------------------- | :----- | :-------------------------- | :-------------------------- | :----- | | Room revenues (thousands) | $48,169 | $39,306 | 22.5% | $145,555 | $128,655 | 13.1% | | Occupancy | 88.4% | 85.8% | +2.6pp | 88.7% | 88.6% | +0.1pp | | Average daily rate | $126.68 | $112.93 | +12.2% | $128.71 | $118.23 | +8.9% | | Revenue per available room | $111.97 | $96.88 | +15.6% | $114.11 | $104.72 | +8.9% | - The increase in available rooms as a result of the completion of the Palms and Palace Station redevelopment projects was the primary driver for higher room revenues[123] Other Other revenues and expenses, encompassing tenant leases, retail, bowling, spas, and entertainment, increased for both the three and nine months ended September 30, 2019, reflecting increased business volume | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Other revenues | $27,823 | $26,385 | 5.5% | $80,650 | $73,858 | 9.2% | | Other expenses | $14,077 | $13,216 | 6.5% | $39,610 | $34,111 | 16.1% | - Increased business volume across tenant leases, retail outlets, bowling, spas, and entertainment contributed to the growth in other revenues and expenses[124] Management Fee Revenue Management fee revenue increased by 11.0% for the three months and 4.8% for the nine months ended September 30, 2019, primarily due to stronger operating results at Graton Resort, partially offset by the expiration of the Gun Lake management agreement | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Management fee revenue | $23,581 | $21,252 | 11.0% | $70,333 | $67,094 | 4.8% | - Stronger operating results at Graton Resort were the main driver for the increase in management fee revenue[125] - The expiration of the Gun Lake management agreement in February 2018, which produced $4.3 million of revenue in the prior year period, partially offset the nine-month increase[125] Selling, General and Administrative ("SG&A") SG&A expenses increased by $3.4 million for the three months and $19.9 million for the nine months ended September 30, 2019, primarily due to higher costs at Palms related to its grand reopening and national branding campaign, though as a percentage of net revenue, SG&A decreased | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | SG&A expenses | $107,756 | $104,360 | 3.3% | $317,423 | $297,540 | 6.7% | | SG&A as % of net revenues | 23.1% | 25.3% | (2.2)pp | 22.7% | 23.8% | (1.1)pp | - Increased costs at Palms, including those associated with grand reopening events and the property's national branding and marketing campaign, were the primary drivers for the rise in SG&A expenses[126] Depreciation and Amortization Depreciation and amortization expense increased significantly to $57.9 million for the three months and $164.6 million for the nine months ended September 30, 2019, primarily due to additional portions of the Palms redevelopment being placed into service and the completion of the Palace Station project | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | Change (%) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (%) | | :----------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Depreciation and amortization | $57,925 | $44,235 | 30.9% | $164,613 | $133,391 | 23.4% | - The increase was primarily due to additional portions of the Palms redevelopment being placed into service in early April 2019 and the completion of the Palace Station project in December 2018[127] Write-downs and Other Charges, net Write-downs and other charges, net, increased substantially to $34.1 million for the three months and $66.7 million for the nine months ended September 30, 2019, including $28.2 million for artist performance agreement termination costs and severance at Palms' nightclub and dayclub, and Palms redevelopment and preopening costs | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Write-downs and other charges, net | $34,094 | $66,668 | $6,439 | $21,070 | - The charges for the three months ended September 30, 2019, included $28.2 million related to artist performance agreement termination costs and severance at Palms' nightclub and dayclub[128] - Palms redevelopment and preopening costs contributed $0.6 million (3 months) and $25.9 million (9 months) to these charges[128] Tax Receivable Agreement Liability Adjustment The company recognized a minimal $(97) thousand adjustment to the Tax Receivable Agreement (TRA) liability for both the three and nine months ended September 30, 2019, contrasting sharply with the prior year's nine-month period, which saw a $(90,375) thousand adjustment reflecting $90.4 million of nontaxable income | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | TRA liability adjustment | $(97) | $(97) | $0 | $(90,375) | - The significant adjustment in the prior year (nine months ended September 30, 2018) was due to $90.4 million of nontaxable income recognized from transactions with pre-IPO owners, which reduced the TRA liability[129] Interest Expense, net Interest expense, net, increased to $40.5 million for the three months and $118.9 million for the nine months ended September 30, 2019, primarily due to higher outstanding indebtedness and lower capitalized interest as redevelopment projects were completed | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Interest expense, net | $40,517 | $118,936 | $33,590 | $96,299 | - The increase was driven by higher outstanding debt and reduced capitalized interest due to the completion of Palms and Palace Station redevelopment projects[130] Loss on Modification of Debt The company recorded a $0.3 million loss on modification of debt for the nine months ended September 30, 2019, resulting from the amendment to its credit facility in February 2019 | Metric (thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | | Loss on modification of debt | $302 | $0 | - The loss was incurred due to the amendment of the credit facility in February 2019, which involved extending maturity dates and reducing interest rates for consenting lenders[57][131] Change in Fair Value of Derivative Instruments The company recognized a net loss of $1.7 million for the three months and $21.3 million for the nine months ended September 30, 2019, from changes in the fair value of its interest rate swaps, contrasting with net gains in the prior year periods, primarily due to downward movements in the forward interest rate curve | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Change in fair value of derivative instruments | $(1,739) | $(21,335) | $4,229 | $27,353 | - Downward movements in the forward interest rate curve were the primary cause of the net loss in fair value of derivative instruments[132] Benefit (Provision) for Income Tax The company recognized an income tax benefit of $0.8 million for the three months and an income tax provision of $0.1 million for the nine months ended September 30, 2019, with the effective tax rate significantly lower than the statutory rate due to Station Holdco's partnership tax status and noncontrolling interests | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Benefit (provision) for income tax | $842 | $(124) | $(623) | $(26,324) | - The effective tax rate was 3.05% (3 months) and (0.92)% (9 months) for 2019, lower than the 21% statutory rate, because the company is not liable for income taxes on the portion of Station Holdco's earnings attributable to noncontrolling interests[82][133] Net (Loss) Income Attributable to Noncontrolling Interests Net (loss) income attributable to noncontrolling interests was $(11.1) million for the three months and $(5.4) million for the nine months ended September 30, 2019, reflecting the portion of net (loss) income attributable to the ownership interest in Station Holdco not held by Red Rock, a significant shift from prior year net income | Metric (thousands) | 3 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2018 | | :----------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income attributable to noncontrolling interests | $(11,141) | $(5,401) | $10,387 | $57,704 | - The change from net income to net loss attributable to noncontrolling interests mirrors the overall net loss reported by the company for the current periods[11] Adjusted EBITDA Adjusted EBITDA for the three months ended September 30, 2019, increased slightly to $111.1 million, while for the nine months, it decreased to $371.4 million, with Las Vegas operations seeing a decrease and Native American management an increase | Adjusted EBITDA (thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Adjusted EBITDA | $111,084 | $109,106 | $371,383 | $373,827 | | Las Vegas operations | $97,168 | $97,942 | $329,338 | $336,408 | | Native American management | $22,273 | $19,787 | $65,699 | $61,671 | - Adjusted EBITDA is a non-GAAP measure that is presented solely as a supplemental disclosure and is a widely used measure of operating performance in the gaming industry[136] - The decrease in total Adjusted EBITDA for the nine-month period was primarily influenced by the decline in Las Vegas operations' Adjusted EBITDA[105][136] Holding Company Financial Information The Holding Company (Red Rock Resorts, Inc. exclusive of Station LLC and its subsidiaries) reported net income of $0.9 million for the three months and a net loss of $(0.1) million for the nine months ended September 30, 2019, primarily due to income tax benefit/provision, contrasting with significant net income in the prior year due to TRA liability income - At September 30, 2019, the Holding Company had cash of $0.2 million and a net deferred tax asset of $111.9 million, partially offset by a $25.1 million liability under the TRA and $0.7 million of other current liabilities[141] - For the nine months ended September 30, 2018, the Holding Company generated net income of $61.2 million, primarily due to $90.4 million of income from TRA liability[142] Liquidity and Capital Resources At September 30, 2019, the company had $106.4 million in cash and cash equivalents and $401.8 million in available borrowing capacity, with anticipated uses of cash including capital expenditures, debt payments, and dividends, and believes current cash flows and available borrowings will be adequate for the next twelve months, though long-term funding may require additional debt or equity - At September 30, 2019, the company had $106.4 million in cash and cash equivalents and $401.8 million in combined borrowing availability under its revolving credit facility[145] - Anticipated uses of cash for the remainder of 2019 include $30.0 million to $40.0 million for maintenance and investment capital expenditures, $8.4 million for principal and $34.8 million for interest payments on debt, and $11.7 million for dividends and distributions[146] - On October 29, 2019, the company paid $57.0 million to purchase its corporate office building, which was funded with borrowings under the revolving credit facility[147] Cash Flows from Operations Net cash provided by operating activities decreased to $216.6 million for the nine months ended September 30, 2019, primarily due to increased write-downs and other charges, including Palms redevelopment and artist performance agreement termination costs, and a $19.3 million increase in cash paid for interest | Metric (thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (thousands) | | :----------------- | :-------------------------- | :-------------------------- | :----------------- | | Net cash provided by operating activities | $216,649 | $260,983 | $(44,334) | - Operating cash flows were negatively impacted by write-downs and other charges, net, including Palms redevelopment and preopening, artist performance agreement termination costs at Palms' nightclub and dayclub, and a $19.3 million increase in cash paid for interest[153] Cash Flows from Investing Activities Net cash used in investing activities decreased to $376.8 million for the nine months ended September 30, 2019, with capital expenditures of $324.4 million primarily for Palms redevelopment, and the purchase of a 20-acre land parcel for $57.4 million | Metric (thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (thousands) | | :----------------- | :-------------------------- | :-------------------------- | :----------------- | | Net cash used in investing activities | $(376,758) | $(404,389) | +$27,631 | - Capital expenditures were $324.4 million for the nine months ended September 30, 2019, primarily related to the redevelopment at Palms[154] - In July 2019, the company purchased a 20-acre parcel of land for $57.4 million[154] Cash Flows from Financing Activities Net cash provided by financing activities significantly increased to $152.4 million for the nine months ended September 30, 2019, primarily due to $212.1 million in net borrowings under the revolving credit facility used to fund capital expenditures, alongside dividends and distributions paid | Metric (thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | Change (thousands) | | :----------------- | :-------------------------- | :-------------------------- | :----------------- | | Net cash provided by financing activities | $152,356 | $22,860 | +$129,496 | - The company incurred net borrowings under the revolving credit facility of $212.1 million, primarily used to fund capital expenditures[156] - Dividends paid to Class A common shareholders were $20.9 million, and cash distributions to noncontrolling interest holders were $14.1 million[156] Restrictive Covenants At September 30, 2019, Station LLC's interest coverage ratio was 4.05 to 1.00 and its consolidated total leverage ratio was 5.48 to 1.00, and the company believes it was in compliance with all covenants in its credit facility and 5.00% Senior Notes indenture - Station LLC's interest coverage ratio was 4.05 to 1.00 and its consolidated total leverage ratio was 5.48 to 1.00 at September 30, 2019[158] - The company believes that as of September 30, 2019, Station LLC was in compliance with the covenants contained in the credit facility and the indenture governing the 5.00% Senior Notes[158] Off-Balance Sheet Arrangements At September 30, 2019, the company had no variable interests in unconsolidated entities providing off-balance sheet financing or engaging in leasing/hedging arrangements, other than derivative instruments (interest rate swaps) and $37.1 million in outstanding letters of credit - The company had no variable interests in unconsolidated entities that provide off-balance sheet financing, liquidity, market risk or credit risk support[159] - At September 30, 2019, the company had outstanding letters of credit and similar obligations totaling $37.1 million[159] Contractual Obligations There were no material changes to contractual obligations during the nine months ended September 30, 2019, other than a $212.1 million increase in outstanding indebtedness under the revolving credit facility - The only material change to contractual obligations during the nine months ended September 30, 2019, was a $212.1 million increase in outstanding indebtedness under the revolving credit facility[160] Native American Development The company continues its development and management agreements with the North Fork Rancheria of Mono Indians for a gaming and entertainment facility in California - The company has development and management agreements with the North Fork Rancheria of Mono Indians to assist in developing and operating a gaming and entertainment facility in California[161] Regulation and Taxes The company is subject to extensive regulation by Nevada gaming authorities, the National Indian Gaming Commission, and other commissions, with no current specific proposals to increase gaming taxes in Nevada, though future changes are possible - The company is subject to extensive regulation by Nevada gaming authorities, the National Indian Gaming Commission, the California Gambling Control Commission, and the Federated Indians of Graton Rancheria Gaming Commission[162] - There are currently no specific proposals to increase taxes on gaming revenue in Nevada, but there are no assurances that an increase will not be proposed and passed in the future[163] Description of Certain Indebtedness No material changes occurred to the terms of the company's indebtedness during the nine months ended September 30, 2019, except for the February 2019 amendment to Station LLC's credit facility - No material changes to the terms of the company's indebtedness occurred during the nine months ended September 30, 2019, other than the February 2019 amendment to Station LLC's credit facility[164] Derivative and Hedging Activities The company's derivative and hedging activities are detailed in Note 6 to the Condensed Consolidated Financial Statements - A description of the company's derivative and hedging activities is included in Note 6 to the Condensed Consolidated Financial Statements[165] Critical Accounting Policies and Estimates The company updated its lease accounting policies as of January 1, 2019, due to the adoption of a new standard, but there were no other material changes to critical accounting policies and estimates during the nine months ended September 30, 2019 - The company updated its lease accounting policies as of January 1, 2019, in conjunction with the adoption of the new lease accounting standard[166] - There were no other material changes to critical accounting policies and estimates during the nine months ended September 30, 2019[166] Forward-looking Statements The report contains forward-looking statements regarding financial condition, results of operations, business expansions, legal proceedings, and employee matters, which are subject to various risks and uncertainties, including financial market risks, economic conditions, competition, regulatory changes, and construction project risks - Forward-looking statements are identified by words such as "may," "might," "could," "believes," "anticipates," and "expects"[167] - Actual results may differ materially from forward-looking statements due to factors including substantial indebtedness, economic conditions, competition, changes in laws/regulations, and risks associated with construction projects[167] Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes in market risks from those previously disclosed, but the company is monitoring the potential discontinuation of LIBOR after 2021 and its impact on the credit facility's interest rates - There have been no material changes in market risks from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[168] - The company is monitoring the potential discontinuation of LIBOR after 2021 and its possible impact on the interest rate per annum applicable to loans under its credit facility[169] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2019, with no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were effective, at the reasonable assurance level, as of September 30, 2019[171] - There was no change in the company's internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[172] Part II. Other Information Item 1. Legal Proceedings The company and its subsidiaries are involved in routine lawsuits, and management believes these will not materially affect the company's financial condition, results of operations, or cash flows - The company and its subsidiaries are defendants in various lawsuits relating to routine matters incidental to their business[174] - In the opinion of management, such litigation is not expected to have a material effect on the company's financial condition, results of operations, and cash flows[174] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes in the risk factors previously disclosed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2018[175] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In July 2019, the company issued 57,043 shares of Class A common stock in exchange for Class B common stock and LLC Units, relying on a Section 4(a)(2) exemption from registration - In July 2019, the company issued an aggregate of 57,043 shares of Class A common stock in exchange for an equivalent number of shares of Class B common stock and LLC Units[176] - Such shares were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933[176] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[177] Item 4. Mine Safety Disclosures No mine safety disclosures were reported - No mine safety disclosures were reported[177] Item 5. Other Information No other information was reported - No other information was reported[178] Item 6. Exhibits The exhibits section lists various certifications (Sarbanes-Oxley Act Sections 302 and 906) and XBRL-related documents, including the instance document, schema, calculation, definition, label, and presentation linkbase documents, and the cover page interactive data file - The exhibits include certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[178] - XBRL documents such as the Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, Presentation Linkbase Document, and Cover Page Interactive Data File are provided[179] Signature Signature The report was duly signed on November 7, 2019, by Stephen L. Cootey, Executive Vice President, Chief Financial Officer, and Treasurer of Red Rock Resorts, Inc. - The report was signed on November 7, 2019, by Stephen L. Cootey, Executive Vice President, Chief Financial Officer, and Treasurer of Red Rock Resorts, Inc.[181]