Monarch Casino & Resort Reports 2018 Second Quarter Net Revenue

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:

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