Market Overview

Monarch Casino & Resort Reports Second Quarter Net Revenue of $59.9 Million, Net Income of $9.2 Million and Adjusted EBITDA of $15.9 Million

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RENO, Nev., July 24, 2018 (GLOBE NEWSWIRE) -- Monarch Casino & Resort, Inc. (NASDAQ:MCRI) ("Monarch" or "the Company") today reported operating results for the quarter ended June 30, 2018, as summarized below:

($ in thousands, except per share data and percentages)

  Three Months Ended June 30,   Six Months Ended June 30,
    2018     2017   Increase     2018     2017   Increase
Net revenue(1) $ 59,909   $ 58,229   2.9 %   $ 116,177   $ 111,643   4.1 %
                       
Adjusted EBITDA(2)   15,909     15,801   0.7 %     28,724     27,916   2.9 %
                       
Net income $ 9,239   $ 7,239   27.6 %   $ 15,980   $ 12,111   31.9 %
                       
Basic EPS $ 0.52   $ 0.41   26.8 %   $ 0.90   $ 0.69   30.4 %
Diluted EPS $ 0.50   $ 0.40   25.0 %   $ 0.86   $ 0.67   28.4 %

(1) As described in the section below entitled "New Revenue Recognition Standard" the Company has changed its revenue recognition policy effective January 1, 2018. This change resulted in a $0.2 million and $0.3 million increase in Net revenue for the three and six months ended June 30, 2018, respectively. Please see the reconciliation provided at the end of this release for more information related to the changes in revenues and expenses.
(2) Definitions, disclosures and reconciliations of non-GAAP financial information are included later in the release.

CEO Comment
John Farahi, Co-Chairman and Chief Executive Officer of Monarch, commented: "Our continued growth in the second quarter highlights our strategic positioning in two of the country's most favorable gaming markets. Second quarter revenue growth of 3% was driven by record second quarter levels of slot win at Atlantis Casino Resort and Monarch Black Hawk while Atlantis also delivered its highest ever level of second quarter hotel revenue. However, flow through to Adjusted EBITDA was impacted by increased labor expense over the prior year and incremental construction-related expenses, compounded by historically low table game hold at Atlantis, resulting in Adjusted EBITDA growth of 1% for the quarter.

"Atlantis continues to benefit from the overall health of Reno market and remains well positioned to capitalize on the region's long-term economic resurgence thanks to its world-class amenities and favorable location adjacent to the Reno-Sparks Convention Center.

"Monarch Casino Black Hawk is driving healthy visitation, guest play and market share gains which we believe bodes well for the property's future. Slot play and visitation trends at the property remain healthy and consistent, though Adjusted EBITDA flow through has been hampered by construction-related operating expenses which we expect will subside as the new hotel and other amenities open next year.

"Throughout the quarter we made further progress with our master planned expansion at Monarch Casino Black Hawk, which remains on schedule and on budget. Our guests are excited about the property's transformation and we look forward to completing the project next year. Our guests and visitors to our website can see that the 23-story hotel tower now rises past its halfway point.

"We remain focused on delivering exceptional guest service as we continue to evaluate our operations and explore the use of technology and analytics to drive further efficiencies, improve margins and increase profitability. Overall, we believe 2018 remains on track to be a year of growth for the Company and we look forward to the second half of the year and the opening in mid-2019 of our Black Hawk expansion."

New Revenue Recognition Standard
On January 1, 2018, the Company adopted accounting standard update No. 2014-09 ("ASC 606") and all the related amendments to all contracts ("new revenue standard") which provides consistency in the reported financial information within the gaming industry. The Company applied the modified retrospective method and recognized the cumulative effect of the initial application of the new revenue standard as an adjustment to the opening balance of retained earnings. The opening retained earnings adjustment primarily related to the change in the accounting for the slot club liability from the immediate revenue/cost method to the deferred revenue method.

The new revenue standard also resulted in reclassifications to and from revenues, promotional allowances and operating expenses. Pursuant to the new FASB guidelines, food and beverage, hotel and other complimentaries are now valued at their retail price and included as revenues within their respective categories, with a corresponding decrease in gaming revenues, as the offsetting amount historically included in promotional allowances has been eliminated. In addition, the cost of providing these complimentary goods and services are now included as expenses within their respective categories, resulting in a corresponding decrease in casino expenses. While those changes have resulted in a $171 thousand and $316 thousand increase in net revenue for the three and six months ending June 30, 2018, respectively, they had no impact on adjusted EBITDA and diluted EPS.

Financial results for the three months and six months ending June 30, 2017 have not been restated and are reported under the accounting standards in effect during that period. The Company has provided reconciliation between the new revenue standard and the old revenue standard for the three and six months ending June 30, 2018 at the end of this release.

Summary of 2018 Second Quarter Operating Results
For the 2018 second quarter, consolidated net revenues of $59.9 million increased 2.9% from $58.2 million in the prior year. Primarily due to the previously announced change in revenue recognition accounting casino revenues declined 31.3% year over year, hotel revenues increased 29.6% and food and beverage revenues increased 12.7%. See, "MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES RECONCILIATION OF POST TO PRE ASC 606 ADOPTION" below. Casino revenue was also impacted during the second quarter of 2018 by abnormally low table game hold at Atlantis. Underlying trends in the Company's slot floor, hotel and food and beverage operations were healthy on a year over year basis.

Selling, general and administrative ("SG&A") expenses for the second quarter of 2018 were $16.2 million compared to $15.1 million in the prior year period, driven primarily by increased labor expense, utility expense and repair and maintenance expense. As a percentage of net revenue, SG&A expenses increased to 27.0% compared to 25.9% a year ago. Casino operating expense as a percentage of casino revenue decreased to 34.9% in the second quarter of 2018 compared to 39.8% in the second quarter of 2017 due to the adoption of the new revenue standard, partially offset by lower table games revenue at Atlantis. Food and beverage operating expense as a percentage of food and beverage revenue increased to 75.2% during the second quarter of 2018 from 41.8% a year ago as a result of the adoption of the new revenue standard, partially offset by improvements in product cost. Hotel operating expense as a percentage of hotel revenue increased to 37.7% in the second quarter of 2018 compared to 36.0% in the same period in the prior year, primarily as a result of the adoption of the new revenue standard, partially offset by underlying hotel revenue growth.

The Company generated consolidated adjusted EBITDA of $15.9 million in the second quarter of 2018, an increase of $0.1 million, or 0.7%, over the same period a year ago. Net income and diluted EPS for the second quarter of 2018 rose 27.6% and 25.0%, respectively, partially benefiting from a lower tax rate as a result of the Tax Cuts and Jobs Act enacted late last year.

Monarch Black Hawk Expansion
Summarized below is an update on the Company's ongoing upgrade and expansion of Monarch Casino Black Hawk, including the budgeted costs and completion dates for the project as well as the amounts spent through June 30, 2018: 

$ in millions Budget Cost   Total Spent Through
June 30, 2018
  Left to
Spend
  Estimated
Completion Date
 
I. Existing Facility                
Monarch Casino Black Hawk (1) $76   $76   -   Completed  
Existing Facility Upgrade (2)(3) $34 - $36   $23   $11 - $13   Interior completed;
Exterior 2018
 
Total Existing Facility $110 - $112   $99   $11 - $13      
                 
II. Expansion                
Acquired Land Parcels $10   $10   -   Completed  
Parking Structure $38 - $41   $41   -   Completed  
Hotel Tower & Casino (3) $264 - $269   $69   $195 - $200   2Q19  
Other $8 - $10   $10   -      
Total Expansion $320 - $330   $130   $195 - $200      
Total Cost $430 - $442   $229   $206 - $213      
                     
(1) The Company paid $76.0 million cash or $69.2 million net of acquired working capital and NOLs when it acquired Monarch Casino Black Hawk (formerly Riviera Black Hawk Casino) in 2012.  
(2) Includes upgrades to the interior, which were completed in August 2015, demolition of the original garage, and upgrades to the exterior of the existing facility to match the design of the master planned expansion.  
(3) The Company anticipates funding the hotel tower and casino expansion, as well as the existing facility exterior upgrades, from a combination of operating cash flow and the amended and restated credit facility (the "Amended Credit Facility").  

Monarch continues to expect completion of the Monarch Casino Black Hawk hotel tower and casino expansion in the second quarter of 2019.

Credit Facility and Liquidity
Capital expenditures of $28.5 million in the second quarter of 2018 include construction costs related to the Monarch Black Hawk expansion and ongoing capital maintenance spending. Capital expenditures were funded from the Company's operating cash flows as well as $10.8 million of new borrowings against its Amended Credit Facility. The amount outstanding on Monarch's Amended Credit Facility as of June 30, 2018 was approximately $37.0 million.

Interest expense, net of amount capitalized, for the second quarter of 2018 was $42 thousand, compared to $206 thousand in the second quarter of 2017.

We believe that the combination of operating cash flow and the approximately $212.4 million available under its Amended Credit Facility will fund all remaining costs related to the completion of the Monarch Casino Black Hawk expansion.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements relating to (i) our plans, objectives, near- and long-term outlook, opportunities, expectations, growth prospects and future operations with respect to Atlantis Casino Resort Spa and Monarch Casino Black Hawk and the markets in their respective regions; (ii) our plans, costs, financing, and additional expenses and revenue opportunities as a result of project and budget modifications, construction, completion and opening timelines of upgraded, redesigned and/or expanded facilities at Monarch Casino Black Hawk; and (iii) our expectations regarding our future position in the market and the quality of service we provide to our guests. Actual results and future events and conditions may differ materially from those described in any forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation:

  • construction factors, including delays, disruptions, increased costs of labor and materials, availability of labor and materials, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters, building permit issues and other regulatory approvals or issues;
  • we have not yet entered into a guaranteed maximum price ("GMP") construction contract with our Monarch Casino Black Hawk general contractor;
  • components of our Monarch Casino Black Hawk construction project will be outside the scope of any GMP contract;
  • access to available and reasonable financing on a timely basis;
  • our ability to generate sufficient operating cash flow to help finance our expansion plans;
  • our ability to effectively manage expenses to optimize its margins and operating results;
  • changes in laws and regulations permitting expanded and other forms of gaming in our key markets;
  • the effects of local and national economic, credit and capital market conditions on the economy in general and on the gaming industry and our business in particular;
  • guest acceptance of our expanded facilities once completed and the resulting impact on our market position, growth and future financial results; and
  • competition in our target market areas

Additional information concerning potential factors that could adversely affect all forward-looking statements, including the Company's financial results, is included in our Securities and Exchange Commission filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, which are available on our website at www.monarchcasino.com.

About Monarch Casino & Resort, Inc.

Monarch Casino & Resort, Inc., through its subsidiaries, owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada, and the Monarch Casino Black Hawk in Black Hawk, Colorado, approximately 40 miles west of Denver. For additional information on Monarch, visit Monarch's website at www.monarchcasino.com.

The Atlantis features approximately 61,000 square feet of casino space; 824 guest rooms; eight food outlets; two espresso and pastry bars; a 30,000 square-foot health spa and salon with an enclosed year-round pool; two retail outlets offering clothing and traditional gift shop merchandise; an 8,000 square-foot family entertainment center; and approximately 52,000 square feet of banquet, convention and meeting room space. The casino features approximately 1,450 slot and video poker machines; approximately 38 table games, including blackjack, craps, roulette, and others; a race and sports book; a 24-hour live keno lounge; and a poker room.

The Monarch Casino Black Hawk features approximately 30,000 square feet of casino space; approximately 740 slot machines; 14 table games; a 250-seat buffet-style restaurant; a snack bar and a new nine-story parking structure with approximately 1,350 spaces, plus additional existing valet parking bringing total parking capacity to 1,500 spaces. Once completed, the Monarch Casino Black Hawk expansion will nearly double the casino space and will add a 23-story hotel tower with approximately 500 guest rooms and suites, an upscale spa and pool facility, three restaurants (bringing the total to four restaurants), additional bars, and associated support facilities.

Contacts:
David Farahi
Chief Operating Officer
775/825-4700 or dfarahi@monarchcasino.com

Joseph Jaffoni, Richard Land, James Leahy
JCIR
212/835-8500 or mcri@jcir.com

- financial tables follow -

MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
         
    Three months ended June 30,   Six months ended June 30,
      2018       2017       2018       2017  
Revenues                
Casino   $ 31,142     $ 45,323     $ 61,087     $ 86,633  
Food and beverage     17,541       15,562       34,479       31,052  
Hotel     8,097       6,248       14,460       11,888  
Other     3,129       3,070       6,151       5,848  
Gross revenues     59,909       70,203       116,177       135,421  
Less promotional allowances     -       (11,974)       -       (23,778)  
Net revenues     59,909       58,229       116,177       111,643  
                 
Operating expenses                
Casino     10,856       18,060       21,552       35,740  
Food and beverage     13,196       6,510       26,290       12,762  
Hotel     3,056       2,249       6,555       4,457  
Other     1,565       1,022       3,110       2,007  
Selling, general and administrative     16,152       15,080       31,337       29,719  
Depreciation and amortization     3,738       3,769       7,430       7,675  
Loss (gain) on disposition of assets     4       (14)       4       4  
Total operating expenses     48,567       46,676       96,278       92,364  
                                 
Income from operations     11,342       11,553       19,899       19,279  
                 
Other expenses                
Interest expense, net of amounts capitalized     (42)       (206)       (122)       (478)  
Total other expense     (42)       (206)       (122)       (478)  
                 
Income before income taxes     11,300       11,347       19,777       18,801  
Provision for income taxes     (2,061)       (4,108)       (3,797)       (6,690)  
Net income   $ 9,239     $ 7,239     $ 15,980     $ 12,111  
                 
Earnings per share of common stock                
Net income                
Basic   $ 0.52     $ 0.41     $ 0.90     $ 0.69  
Diluted   $ 0.50     $ 0.40     $ 0.86     $ 0.67  
                 
Weighted average number of common shares and potential common shares outstanding                
Basic     17,821       17,527       17,795       17,502  
Diluted     18,569       18,208       18,556       18,114  


MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares)
 
    June 30,   December 31,
      2018       2017  
ASSETS   (unaudited)    
Current assets        
Cash and cash equivalents   $ 27,133     $ 29,151  
Receivables, net     5,003       6,925  
Income taxes receivable     460       2,008  
Inventories     3,300       3,335  
Prepaid expenses     4,178       4,612  
Total current assets     40,074       46,031  
Property and equipment        
Land     30,034       30,034  
Land improvements     7,281       7,249  
Buildings     193,286       193,286  
Buildings improvements     25,461       24,745  
Furniture and equipment     141,915       140,404  
Construction in progress     101,370       48,834  
Leasehold improvements     3,782       3,800  
      503,129       448,352  
Less accumulated depreciation and amortization     (204,447)       (197,638)  
Net property and equipment     298,682       250,714  
Other assets        
Goodwill     25,111       25,111  
Intangible assets, net     3,286       3,869  
Deferred income taxes     3,544       3,544  
Other assets, net     2,549       2,818  
Total other assets     34,490       35,342  
Total  assets   $ 373,246     $ 332,087  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities        
Accounts payable   $ 7,411     $ 8,184  
Construction accounts payable     19,385       5,823  
Accrued expenses     28,872       25,406  
Total current liabilities     55,668       39,413  
Long - term debt     36,970       26,200  
Total liabilities     92,638       65,613  
         
Stockholders' equity        
Preferred stock, $.01 par value, 10,000,000  shares authorized; none issued     -       -  
Common stock, $.01 par value, 30,000,000 shares authorized;     191       191  
19,096,300 shares issued; 17,874,653 outstanding at June 30, 2018;        
17,759,446 outstanding at December 31, 2017        
Additional paid-in capital     28,280       26,890  
Treasury stock, 1,221,647 shares at June 30, 2018; 1,336,854 shares at     (16,501)       (18,123)  
December 31, 2017        
Retained earnings     268,638       257,516  
Total stockholders' equity     280,608       266,474  
Total liabilities and stockholders' equity   $ 373,246     $ 332,087  
                 


MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
RECONCILIATION OF POST TO PRE ASC 606 ADOPTION
 (In thousands, unaudited)
 
    Three Months Ended June 30, 2018
  Pre ASC 606
Adoption
  ASC 606
Changes
    Post ASC
606
Adoption
Revenues            
Casino $45,967     ($14,825)   (a)(b)(c)(d)   $31,142
Food and beverage   16,178       1,363   (a)(d)(e)     17,541
Hotel   6,818       1,279   (a)(f)     8,097
Other   3,149       (20)   (a)(d)     3,129
Gross revenues   72,112       (12,203)         59,909
Less promotional allowances   (12,374)       12,374   (a)(d)     -
Net revenues $59,738     $171   (b)(c)(e)(f)   $59,909
             
Operating expenses            
Casino $18,905     ($8,049)   (b)(c)(g)   $10,856
Food and beverage   6,252       6,944   (e)(g)     13,196
Hotel   2,296       760   (f)(g)     3,056
Other   1,049       516   (g)     1,565
Selling, general and administrative   16,152       -         16,152
Depreciation and amortization   3,738       -         3,738
Loss on disposal of assets   4       -         4
Total operating expenses   48,396       171         48,567
Income from operations $11,342       -       $11,342
Adjusted EBITDA (1) $15,909       -       $15,909
             

(1) Definitions, disclosures and reconciliations of non-GAAP financial information are included later in the release.

(a) Change as a result of reclassification of current period complimentaries at estimated retail price from promotional allowances to casino, food and beverage, hotel, spa and retail revenues.
(b) Change as a result of reclassification of the earned and unused points during the period from casino expense to casino revenue.
(c) Change as a result of reclassification of the wide area progressive system expense from casino revenue to casino expense.
(d) Change as a result of the change of the casino floor bars menu prices and some retail outlets prices from discounted to retail price.
(e) Change as a result of reclassification of the banquets service fees from food and beverage expense to food and beverage revenue.
(f) Change as a result of reclassification of the groups rebate and commissions from hotel expense to hotel revenue.
(g) Change as a result of the elimination of the reclassification journal entry that reclassified the costs of complimentaries from hotel, food and beverage and other expense categories to casino expense. Under ASC 606, the costs of complimentaries stay in the complimentaries revenue producing department.


MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
RECONCILIATION OF POST TO PRE ASC 606 ADOPTION
 (In thousands, unaudited)
 
    Six Months Ended June 30, 2018
  Pre ASC 606
Adoption
  ASC 606
Changes
    Post ASC
606
Adoption
Revenues            
Casino $89,673     ($28,586)   (a)(b)(c)(d)   $61,087
Food and beverage   31,663       2,816   (a)(d)(e)     34,479
Hotel   12,523       1,937   (a)(f)     14,460
Other   6,195       (44)   (a)(d)     6,151
Gross revenues   140,054       (23,877)         116,177
Less promotional allowances   (24,193)       24,193   (a)(d)     -
Net revenues $115,861     $316   (b)(c)(e)(f)   $116,177
             
Operating expenses            
Casino $37,883     ($16,331)   (b)(c)(g)   $21,552
Food and beverage   12,423       13,867   (e)(g)     26,290
Hotel   4,822       1,733   (f)(g)     6,555
Other   2,063       1,047   (g)     3,110
Selling, general and administrative   31,337       -         31,337
Depreciation and amortization   7,430       -         7,430
Loss on disposal of assets   4       -         4
Total operating expenses   95,962       316         96,278
Income from operations $19,899       -       $19,899
Adjusted EBITDA (1) $28,724       -       $28,724
             

(1) Definitions, disclosures and reconciliations of non-GAAP financial information are included later in the release.

(a) Change as a result of reclassification of current period complimentaries at estimated retail price from promotional allowances to casino, food and beverage, hotel, spa and retail revenues.
(b) Change as a result of reclassification of the earned and unused points during the period from casino expense to casino revenue.
(c) Change as a result of reclassification of the wide area progressive system expense from casino revenue to casino expense.
(d) Change as a result of the change of the casino floor bars menu prices and some retail outlets prices from discounted to retail price.
(e) Change as a result of reclassification of the banquets service fees from food and beverage expense to food and beverage revenue.
(f)  Change as a result of reclassification of the groups rebate and commissions from hotel expense to hotel revenue.
(g) Change as a result of the elimination of the reclassification journal entry that reclassified the costs of complimentaries from hotel, food and beverage and other expense categories to casino expense. Under ASC 606, the costs of complimentaries stay in the complimentaries revenue producing department.


MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES
RECONCILIATION OF ADJUSTED EBITDA TO NET INCOME
 (In thousands, unaudited)

The following table sets forth a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, a GAAP financial measure:           

  Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018       2017       2018       2017  
Adjusted EBITDA (1) $15,909     $15,801     $28,724     $27,916  
Expenses:              
Stock based compensation   (825)       (493)       (1,391)       (958)  
Depreciation and amortization   (3,738)       (3,769)       (7,430)       (7,675)  
Interest expense, net of amount capitalized   (42)       (206)       (122)       (478)  
Gain (loss) on disposition of assets   (4)       14       (4)       (4)  
Provision for income taxes   (2,061)       (4,108)       (3,797)       (6,690)  
Net income $9,239     $7,239     $15,980     $12,111  
                       

(1) Adjusted EBITDA, a non-GAAP financial measure, consists of net income plus loss on disposal of assets, provision for income taxes, stock based compensation expense, other one-time charges, interest expense, depreciation and amortization less interest income, any benefit for income taxes and gain on disposal of assets. Adjusted EBITDA should not be construed as an alternative to operating income (as determined in accordance with US Generally Accepted Accounting Principles), as an indicator of the Company's operating performance, as an alternative to cash flows from operating activities (as determined in accordance with US GAAP) or as a measure of liquidity. This measure enables comparison of the Company's performance over multiple periods, as well as against the performance of other companies in our industry that report Adjusted EBITDA, although some companies do not calculate this measure in the same manner and, therefore, the measure as presented may not be comparable to similarly titled measures presented by other companies.

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