Monarch Casino & Resort Reports 2018 First Quarter Net Revenue

MONARCH CASINO & RESORT REPORTS RECORD FIRST QUARTER WITH NET REVENUE OF $56.3 MILLION, NET INCOME OF $6.7 MILLION AND ADJUSTED EBITDA OF $12.8 MILLION AND UPDATES CONSTRUCTION BUDGET FOR MONARCH CASINO BLACK HAWK

 

 

RENO, NV, April 26, 2018 – Monarch Casino & Resort, Inc. (Nasdaq: MCRI) (“Monarch” or “the Company”) today reported operating results for the quarter ended March 31, 2018, as summarized below:

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

 

Three Months Ended March 31,

 

2018

 

2017

 

Increase

     Net revenues (1)

 $     56,268

 

 $     53,414

 

5.3%

     Adjusted EBITDA (2)

        12,815

 

        12,115

 

5.8%

     Net income

 $       6,741

 

 $       4,872

 

38.4%

           

     Basic EPS

 $         0.38

 

 $         0.28

 

35.7%

     Diluted EPS

 $         0.36

 

 $         0.27

 

33.3%

(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 $0.1 million increase in Net revenue for the quarter ended March 31, 2018. 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 business is off to a decent start this year with healthy gaming volumes at both Atlantis Casino Resort and Monarch Casino Black Hawk. First quarter revenue and adjusted EBITDA rose 5.3% and 5.8%, respectively. Net income and diluted EPS rose 38.4% and 33.3%, respectively, partially benefiting from a lower tax rate as a result of the Tax Cuts and Jobs Act enacted late last year. Although construction disruption at Black Hawk and labor cost increases at both properties remained a challenge in the first quarter, we continued to manage expenses and optimize margins across the business, while remaining focused on delivering exceptional guest service.

 

“We believe Atlantis Casino Resort is well positioned to benefit from the strong current and long-term forecasted economic growth in Reno. Businesses across multiple industries are investing heavily in the region and bringing new jobs and residents to the area. We believe increased housing starts will present another opportunity for Monarch to capitalize on growth in a market where we already achieve an above fair-share of local gaming and entertainment spending.

 

“Despite construction disruption, Monarch Casino Black Hawk also had a strong quarter, generating its highest-ever first quarter revenue. Our construction team in Black Hawk is making considerable progress on the expansion project and the tower now is taller than both the garage and our existing facility. Notably, all costs related to the expansion during the quarter were financed from operating cash flow.  We continue transforming our property into what we believe will be the market’s premier gaming and entertainment leader, while offering superb and friendly service that drives ongoing guest satisfaction.

 

“During the first quarter of 2018, we completed certain modifications to the Monarch Casino Black Hawk construction project scope which we believe will provide additional revenue opportunities for our expanded resort, including enlarging the casino floor and associated amenities by approximately 6,500 square feet. In addition, we have made adjustments to the budget for the rise in construction costs and furniture, fixtures and equipment costs. Accordingly, we have increased our budget for the completion of the Monarch Casino Black Hawk hotel tower and casino expansion to approximately $264 to $269 million. The previously announced budget was approximately $229 to $234 million.

 

“Reno and Black Hawk remain among the healthiest of the U.S. regional gaming markets. We are well positioned to benefit from what we believe is a solid foundation for growth and continue to believe our near- and longer-term growth outlook has never been brighter.”

 

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 $145 thousand increase in net revenue for the quarter, they had no impact on adjusted EBITDA and diluted EPS.

 

Financial results for the quarter ended March 31, 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 quarter ended March 31, 2018 at the end of this release.

 

Summary of 2018 First Quarter Operating Results

For the 2018 first quarter, consolidated net revenues of $56.3 million increased 5.3% from $53.4 million in the prior year, driven by growth at both Atlantis Casino Resort and Monarch Casino Black Hawk. Primarily due to the change in revenue recognition accounting for which a reconciliation is provided at the end of this release, casino revenues declined 27.5% year over year, hotel revenues increased 12.8% and food and beverage revenues increased 9.3%. Furthermore, as a result of the change in revenue recognition, the Company is no longer reporting consolidated promotional allowances.

 

Selling, general and administrative (“SG&A”) expenses for the first quarter of 2018 were $15.2 million compared to $14.6 million in the prior year period, driven by an increase in labor and utility expense. As a percentage of net revenue, SG&A expenses decreased to 27.0% compared to 27.4% a year ago. Casino operating expense as a percentage of casino revenue decreased to 35.7% for the first quarter of 2018 compared to 42.8% in the first quarter of 2017 due to the adoption of the new revenue standard, partially offset by an increase in repair and maintenance expense and an increase in slot machine participation expense. Food and beverage operating expense as a percentage of food and beverage revenue increased to 77.3% during the first quarter of 2018 from 40.4% 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 55.0% for the first quarter of 2018 compared to 39.1% for the same period in the prior year primarily as a result of the adoption of the new revenue standard combined with an increase in small equipment expense.

 

The Company generated consolidated adjusted EBITDA of $12.8 million in the first quarter of 2018, an increase of $0.7 million, or 5.8%, over the same period a year ago.

 

Monarch Black Hawk Expansion

Summarized below is an update on the Company’s ongoing upgrade and expansion of Monarch Casino Black Hawk, including the updated budget, expected costs and completion dates for the project as well as the amounts spent through March 31, 2018: 

 

 

$ in millions

Budget Cost

 

Total Spent Through March 31, 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 2017-2018

 

          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)(4)

 $264 - $269

 

$41

 

$223- $228

 

2Q19

 

  Other

  $8 - $10

 

$10

 

-

   

 

          Total Expansion

$320 - $330

 

$102

 

$223 - $228

   

 

          Total Cost

$430 - $442

 

$201

 

$234 - $241

   

 

               

 

(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”).

 

(4) Reflects the increased budget disclosed below.

                         

We continue 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 in the first quarter of 2018 were funded entirely from the Company’s operating cash flow. Monarch did not make any borrowings on its Amended Credit Facility. As of March 31, 2018, the amount outstanding on the Amended Credit Facility remained at $26.2 million.

 

Capital expenditures of $12.8 million in the first quarter of 2018 represent costs related to the Monarch Casino Black Hawk master development plan and ongoing capital maintenance spending.

 

Interest expense, net of amount capitalized, for the first quarter of 2018 was $80 thousand, compared to $272 thousand in the first quarter of 2017.

 

We believe that the combination of operating cash flow and the approximately $223.2 million available under the Amended Credit Facility will fund all remaining costs relating to the completion of the Monarch 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, 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 March 31,

 

2018

 

2017

Revenues

     

   Casino

 $              29,945

 

 $              41,310

   Food and beverage

                 16,938

 

                 15,490

   Hotel

                   6,363

 

                   5,640

   Other

                   3,022

 

                   2,778

     Gross revenues

                 56,268

 

                 65,218

Less promotional allowances

                 -

 

                 (11,804)

     Net revenues

                 56,268

 

                 53,414

       

Operating expenses

     

   Casino

                 10,696

 

                 17,680

   Food and beverage

                   13,094

 

                   6,252

   Hotel

                   3,499

 

                   2,208

   Other

                      1,545

 

                      985

   Selling, general and administrative

                 15,185

 

                 14,639

   Depreciation and amortization

                  3,692

 

                  3,906

   Loss on disposition of assets

-

 

18

     Total operating expenses

                 47,711

 

                 45,688

 

 

 

 

     Income from operations

                  8,557

 

                  7,726

       

Other expenses

     

   Interest expense, net of amounts capitalized

                    (80)

 

                    (272)

     Total other expense

                    (80)

 

                    (272)

       

     Income before income taxes

                   8,477

 

                   7,454

Provision for income taxes

                 (1,736)

 

                 (2,582)

     Net income

 $               6,741

 

 $               4,872

 

     

Earnings per share of common stock

     

  Net income

     Basic

 

 $                  0.38

 

 

 $                  0.28

     Diluted

 $                  0.36

 

 $                  0.27

       

Weighted average number of common

 shares and potential common 

 shares outstanding

     

Basic

                 17,770

 

                 17,477

Diluted

                 18,710

 

                 18,021

 

 

 

 

   

March 31,

 

December 31,

   

2018

 

2017

ASSETS

 

(unaudited)

   

Current assets

       

    Cash and cash equivalents

 

 $             29,368

 

 $             29,151

    Receivables, net

 

                    5,574

 

                    6,925

    Income taxes receivable

 

272

 

2,008

    Inventories

 

                    3,244

 

                    3,335

    Prepaid expenses

 

                   4,513

 

                   4,612

        Total current assets

 

                  42,971

 

                  46,031

Property and equipment

       

    Land

 

                 30,034

 

                 30,034

    Land improvements

 

                    7,281

 

                    7,249

    Buildings

 

                193,286

 

                193,286

    Buildings improvements

 

                  24,781

 

                  24,745

    Furniture and equipment

 

                141,483

 

                140,404

    Construction in progress

 

                  65,909

 

                  48,834

    Leasehold improvements

 

                    3,782

 

                    3,800

 

 

               466,556

 

               448,352

    Less accumulated depreciation and amortization

 

             (201,038)

 

             (197,638)

        Net property and equipment

 

               265,518

 

               250,714

Other assets

       

    Goodwill

 

                  25,111

 

                  25,111

    Intangible assets, net

 

                    3,578

 

                    3,869

    Deferred income taxes

 

                     3,544

 

                     3,544

    Other assets, net

 

                     2,683

 

                     2,818

        Total other assets

 

                  34,916

 

                  35,342

          Total  assets

 

 $            343,405

 

 $            332,087

 

LIABILITIES AND STOCKHOLDERS' EQUITY

       

Current liabilities

       

    Accounts payable

 

$                8,718

 

$                8,184

    Construction accounts payable

 

                    11,217

 

                    5,823

    Accrued expenses

 

27,797

 

25,406

        Total current liabilities

 

47,732

 

39,413

Long - term debt

 

            26,200

 

            26,200

          Total liabilities

 

                  73,932

 

                  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; 17,792,384 outstanding at March 31, 2018;

       

       17,759,446 outstanding at December 31, 2017

       

    Additional paid-in capital

 

                  27,541

 

                  26,890

    Treasury stock, 1,303,916 shares at March 31, 2018; 1,336,854 shares at

 

               (17,658)

 

               (18,123)

       December 31, 2017

       

    Retained earnings

 

                259,399

 

                257,516

          Total stockholders' equity

 

                269,473

 

                266,474

          Total liabilities and stockholders' equity

 

 $            343,405

 

 $            332,087

 

 

 

MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except shares)

 

 

 

 

MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

RECONCILIATION OF POST TO PRE ASC 606 ADOPTION

 (In thousands, unaudited)

 

 

 

Three Months Ended March 31, 2018

 

Pre ASC 606 Adoption

 

ASC 606 Changes

 

 

Post ASC 606 Adoption

Revenues

 

 

 

 

 

 

Casino

$43,706

 

($13,761)

(a)(b)(c)(d)

 

$29,945

Food and beverage

15,485

 

1,453

(a)(d)(e)

 

16,938

Hotel

5,705

 

658

(a)(f)

 

6,363

Other

3,046

 

(24)

(a)(d)

 

3,022

Gross revenues

67,942

 

(11,674)

 

 

56,268

Less promotional allowances

(11,819)

 

11,819

(a)(e)

 

-

Net revenues

$56,123

 

$145

(b)(c)(e)(f)

 

$56,268

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Casino

$18,978

 

($8,282)

(b)(c)(g)

 

$10,696

Food and beverage

6,171

 

6,923

(e)(g)

 

13,094

Hotel

2,526

 

973

(f)(g)

 

3,499

Other

1,014

 

531

(g)

 

1,545

Selling, general and administrative

15,185

 

-

 

 

15,185

Depreciation and amortization

3,692

 

-

 

 

3,692

Total operating expenses

47,566

 

145

 

 

47,711

Income from operations

 $8,557

 

 -

 

 

 $8,557

Adjusted EBITDA (1)

$12,815

 

-

 

 

$12,815

       

 

 

 

                   

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

 

  • 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.
  • Change as a result of reclassification of the earned and unused points during the period from casino expense to casino revenue.
  • Change as a result of reclassification of the wide area progressive system expense from casino revenue to casino expense.
  • Change as a result of the change of the casino floor bars menu prices and some retail outlets prices from discounted to retail price.
  • Change as a result of reclassification of the banquets service fees from food and beverage expense to food and beverage revenue.
  • Change as a result of reclassification of the groups rebate and commissions from hotel expense to hotel revenue.
  • 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 March 31,

 

2018

 

2017

          Adjusted EBITDA (1)

 $12,815

 

 $12,115

Expenses:

     

     Stock based compensation

(566)

 

(465)

     Depreciation and amortization

(3,692)

 

(3,906)

     Interest expense, net of amount capitalized

(80)

 

(272)

     Loss on disposition of assets

-

 

(18)

     Provision for income taxes

(1,736)

 

(2,582)

          Net income

 $6,741

 

 $4,872

       

           

(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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