Monarch Casino & Resort Reports 2019 Third Quarter Net Revenue

MONARCH CASINO & RESORT REPORTS THIRD QUARTER NET REVENUE OF $65.6 MILLION, NET INCOME OF $9.3 MILLION AND ADJUSTED EBITDA OF $17.4 MILLION

 

RENO, NV, October 30, 2019 – Monarch Casino & Resort, Inc. (Nasdaq: MCRI) (“Monarch” or “the Company”) today reported operating results for the quarter ended September 30, 2019, as summarized below:

 

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

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

Increase

 

2019

 

2018

 

Increase

 

 

 

 

 

(Decrease)

 

 

 

 

 

(Decrease)

     Net revenue

 $65,585

 

 $64,359

 

1.9%

 

 $187,086

 

 $180,536

 

3.6%

                       

     Adjusted EBITDA(1)

   17,351

 

   18,427

 

(5.8%)

 

   47,545

 

   47,151

 

0.8%

                       

     Net income

 $  9,326

 

 $ 10,859

 

(14.1%)

 

 $  25,620

 

 $  26,839

 

(4.5%)

                       

     Basic EPS

 $    0.52

 

 $    0.61

 

(14.8%)

 

 $    1.42

 

 $    1.51

 

(6.0%)

     Diluted EPS

 $    0.50

 

 $    0.58

 

(13.8%)

 

 $    1.37

 

 $    1.44

 

(4.9%)

 

  • 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: “Monarch’s financial performance in the third quarter of 2019 reflects continued top-line growth that was offset by higher payroll and healthcare expenses as well as expenses related to our ongoing transformation of Monarch Casino Black Hawk. Net revenue for the quarter grew 1.9% over the prior year while adjusted EBITDA decreased 5.8% year-over-year.

 

“Underlying spend and visitation trends at Atlantis Casino Resort remain healthy. The greater Reno market continues to perform as expected, and we are seeing increased spend per visit from many of our player segments. The positive macroeconomic trends in Reno and across Northern Nevada continue to benefit our business at Atlantis, though the increasingly competitive labor market has had an impact on our payroll expenses and EBITDA margin.

 

“In Colorado, Monarch Casino Black Hawk again performed remarkably well even as the final stages of construction at the property continue to impact the customer experience. Net revenue grew in the third quarter and we continued to increase market share, though net income was impacted by ongoing pre-opening expenses and hiring related to the expansion. In the near term, we expect to continue to incur pre-opening expenses, as we prepare to introduce and open what we believe will become Black Hawk’s favorite new destination resort. As our hotel and resort amenities open, we expect to grow the overall market as well as further expand market share, particularly as we begin to execute on what we believe will be an eighteen-month ramp-up period.

 

“We believe that the quality of the new Monarch Casino Resort Spa Black Hawk will offer a transformational experience for both new and returning guests. We expect the expansion of our Black Hawk property into a true destination resort will position Monarch to generate significant free cash flow growth over the coming years. Importantly, we have been able to fund over half of the spending to-date on the more than $400 million Black Hawk project from operating cash flows, leaving our peak leverage levels modest and giving us a solid balance sheet that we believe will provide Monarch future flexibility to pursue additional long-term growth opportunities.

 

Summary of 2019 Third Quarter Operating Results

For the 2019 third quarter, consolidated net revenue of $65.6 million increased 1.9% from $64.4 million in the prior year. Casino and hotel revenues increased 2.0% and 7.8% year-over-year, respectively, while food and beverage revenue declined 0.7%. The increase in casino revenue was driven by increased spend per visit, partially offset by an increase in promotional allowances, recognized at the stand alone selling price and recorded as casino contra revenue. The increase in hotel revenue was due to an increase in complimentary room ADR. The slight decline in food and beverage revenue was the result of lower cover counts. Both hotel and food and beverage cash revenues were negatively impacted by the cancellation of the 2019 Interbike conference, which Reno hosted in September of 2018, and which drove strong hotel and food and beverage revenue last year.

 

Selling, general and administrative (“SG&A”) expenses for the third quarter of 2019 were $17.9 million compared to $16.8 million in the prior-year period, driven primarily by an increase in labor expenses, due in part to increased headcount related to the initial hiring of management staff ahead of the opening of the Monarch Casino Black Hawk expansion, as well as an increase in repair and maintenance expense. As a percentage of net revenue, SG&A expense increased to 27.3% compared to 26.1% in the prior year period. Casino operating expense as a percentage of casino revenue was unchanged year-over-year at 34.2%. Food and beverage operating expense as a percentage of food and beverage revenue increased to 79.4% during the third quarter of 2019 from 74.2% in the prior-year period primarily as a result of higher labor expense and higher cost of goods sold expense. Hotel operating expense as a percentage of hotel revenue decreased to 34.8% in the third quarter of 2019 compared to 36.2% in the same period a year ago, primarily as a result of the increase in hotel revenue.

 

The Company generated consolidated adjusted EBITDA of $17.4 million in the third quarter of 2019, a decrease of $1.0 million, or 5.8%, over the same period a year ago. Net income for the third quarter of 2019 decreased 14.1% and diluted EPS declined 13.8%. The decline in EBITDA and net income is primarily a result of the significant increase in payroll and healthcare expenses in the current quarter.

 

Monarch Black Hawk Expansion

Summarized below is an update on the Company’s ongoing upgrade and expansion of Monarch Casino Black Hawk: 

 

$ in millions

Budget Cost

 

Total Spent Through September 30, 2019

 

Left to Spend

 

Estimated
Completion Date

 

I. Existing Facility

             

 

  Monarch Casino Black Hawk (1)

$76

 

$76

 

-

 

Completed

 

  Existing Facility Upgrade (2)(3)

$34 - $36

 

$28

 

$6 - $8

 

Exterior 4Q19 Interior 2Q20

 

          Total Existing Facility

$110 - $112

 

$104

 

$6 - $8

   

 

               

 

II. Expansion

             

 

  Acquired Land Parcels

$10

 

$10

 

-

 

Completed

 

  Parking Structure

$38 - $41

 

$41

 

-

 

Completed

 

  Hotel Tower & Casino (3)

 $264 - $269

 

$231

 

$33 - $38

 

1Q20

 

  Other

  $8 - $10

 

$10

 

-

   

 

          Total Expansion

$320 - $330

 

$292

 

$33 - $38

   

 

          Total Cost

$430 - $442

 

$396

 

$39 - $46

   

 

               

 

(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, and additional work to tie the two buildings together, that will be performed in the fourth quarter of 2019, 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”).

 

                         

 

As the Company disclosed in a Form 8-K filed with the SEC on September 3, 2019, Monarch now expects its Monarch Casino Black Hawk expansion project – including the hotel, expanded casino, restaurants and certain public areas – to be fully open in the first quarter of 2020. The remaining remodeling of some areas of the existing casino is expected to be completed in the second quarter of 2020.

Credit Facility and Liquidity

Capital expenditures of $37.1 million in the third quarter of 2019 include construction costs related to the Monarch Casino Black Hawk expansion as well as ongoing capital maintenance spending at both the Reno and Black Hawk properties. Capital expenditures during the quarter were funded from the Company’s operating cash flows as well as $23.3 million of borrowings against Monarch’s Amended Credit Facility. The amount of borrowings outstanding on Monarch’s $250.0 million Amended Credit Facility as of September 30, 2019 was $155.8 million.

 

All $1.7 million in interest in the third quarter of 2019 was capitalized, compared to $609 thousand of interest capitalized and $55 thousand expensed in the third quarter of 2018.

 

Monarch continues to believe that its operating cash flows and the $93.6 million available under its Amended Credit Facility will be sufficient to fund all remaining costs related to both the completion of the Monarch Casino Black Hawk expansion and the Company’s ongoing capital expenditures for the Atlantis in Reno.

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, future operations and anticipated financial results (including pre-opening expenses and cash flow) 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, contractor disagreements, 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;
  • ongoing  disagreements over costs of and responsibility for delays and other construction related matters with our Monarch Casino Black Hawk general contractor, including, as previously reported, the initiation of litigation against us by such contractor;
  • our filing of affirmative defenses and extensive counterclaims against the Monarch Casino Black Hawk contractor in the above mentioned litigation;
  • risks related to development and construction activities (including disputes with and defaults by contractors and subcontractors; construction, equipment or staffing problems and delays; shortages of materials or skilled labor; environmental, health and safety issues; weather and other hazards, site access matters, and unanticipated cost increases);
  • 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 mandating increases in minimum wages and employee benefits;
  • 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 reports 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 36 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

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

 

2019

 

2018

 

2019

 

2018

Revenues

 

 

 

 

 

 

 

 

   Casino

 

$     34,169

 

$     33,504

 

$     95,981

 

$     94,591

   Food and beverage

 

     18,341

 

     18,472

 

       54,026

 

       52,951

   Hotel

 

9,878

 

       9,167

 

       27,192

 

       23,627

   Other

 

       3,197

 

       3,216

 

         9,887

 

         9,367

     Net revenues

 

     65,585

 

       64,359

 

     187,086

 

     180,536

 

               

Operating expenses

               

   Casino

 

       11,674

 

       11,455

 

       33,831

 

       33,007

   Food and beverage

 

       14,566

 

       13,700

 

       42,885

 

       39,990

   Hotel

 

         3,437

 

         3,315

 

       10,014

 

         9,870

   Other

 

      1,699

 

      1,571

 

        4,913

 

        4,681

   Selling, general and administrative

 

      17,885

 

      16,793

 

       50,843

 

       48,130

   Depreciation and amortization

 

         3,686

 

         3,651

 

       10,984

 

       11,081

   Pre-opening expenses

 

953

 

-

 

1,577

 

-

   Construction litigation expenses

 

162

 

-

 

162

 

-

   Loss on disposition of assets

 

           -

 

           8

 

           -

 

           12

     Total operating expenses

 

       54,062

 

       50,493

 

     155,209

 

     146,771

     Income from operations

 

       11,523

 

       13,866

 

      31,877

 

       33,765

 

               

Other expenses

               

   Interest expense, net of amounts capitalized

 

-

 

   (55)

 

        -

 

        (177)

     Total other expense

 

       -

 

       (55)

 

         -

 

         (177)

   

 

 

 

 

 

 

 

     Income before income taxes

 

       11,523

 

       13,811

 

       31,877

 

       33,588

Provision for income taxes

 

      (2,197)

 

      (2,952)

 

      (6,257)

 

      (6,749)

     Net income

 

$       9,326

 

$     10,859

 

$     25,620

 

$     26,839

                 

Earnings per share of common stock

               

   Net income

               

     Basic

 

$         0.52

 

$         0.61

 

$         1.42

 

$         1.51

     Diluted

 

$         0.50

 

$         0.58

 

$         1.37

 

$         1.44

 

               

Weighted average number of common shares and potential common shares outstanding

               

    Basic

 

       18,056

 

       17,886

 

       17,997

 

       17,826

    Diluted

 

18,709

 

18,631

 

18,665

 

18,582

 

 

MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(In thousands, except per share data)

 

 

 

September 30, 2019

 

December 31, 2018

ASSETS

 

(unaudited)

   

Current assets

       

    Cash and cash equivalents

 

 $                  29,088

 

$                       30,462

    Receivables, net

 

                    6,763

 

                       6,740

    Income taxes receivable

 

-

 

                            279

    Inventories

 

                    4,540

 

                         3,692

    Prepaid expenses

 

                   5,588

 

                         5,508

        Total current assets

 

                  45,979

 

                       46,681

Property and equipment

       

    Land

 

                 30,769

 

                       30,034

    Land improvements

 

                    7,742

 

                         7,645

    Buildings

 

                193,235

 

                     193,235

    Buildings improvements

 

                  26,291

 

                       25,995

    Furniture and equipment

 

                150,249

 

                     139,772

    Construction in progress

 

                  275,120

 

                     180,518

    Right of use assets

 

15,776

 

-

    Leasehold improvements

 

                    3,848

 

                         3,782

 

 

               703,030

 

                     580,981

    Less accumulated depreciation and amortization

 

             (216,695)

 

                   (206,657)

        Net property and equipment

 

               486,335

 

                     374,324

Other assets

       

    Goodwill

 

                  25,111

 

                       25,111

    Intangible assets, net

 

                    1,829

 

                         2,704

    Deferred income taxes

 

                     4,027

 

                         4,027

    Other assets, net

 

                     1,877

 

                         2,280

        Total other assets

 

                  32,844

 

                       34,122

          Total assets

 

 $            565,158

 

$                     455,127

LIABILITIES AND STOCKHOLDERS' EQUITY

       

Current liabilities

       

    Accounts payable

 

$                   11,149

 

11,182

    Construction accounts payable

 

                    12,804

 

17,152

    Accrued expenses

 

32,740

 

31,111

    Income taxes payable

 

4,136

 

-

    Short-term lease liability

 

797

 

-

        Total current liabilities

 

61,626

 

                       59,445

Long-term lease liability

 

14,989

 

-

Long-term debt

 

           155,850

 

94,500

          Total liabilities

 

                  232,465

 

                       153,945

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; 18,082,135 outstanding at September 30, 2019;

       

       17,919,021 outstanding at December 31, 2018

       

    Additional paid-in capital

 

                  33,728

 

                  30,111

    Treasury stock, 1,014,165 shares at September 30, 2019; 1,177,279 shares at

 

               (13,602)

 

               (15,876)

       December 31, 2018

       

    Retained earnings

 

                312,376

 

                286,756

          Total stockholders' equity

 

                332,693

 

                     301,182

          Total liabilities and stockholders' equity

 

 $              565,158

 

 $                    455,127

 

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 September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

          Adjusted EBITDA (1)

 $17,351

 

 $18,427

 

$47,545

 

$47,151

Expenses:

             

     Stock based compensation

(1,027)

 

(902)

 

(2,945)

 

(2,293)

     Depreciation and amortization

(3,686)

 

(3,651)

 

(10,984)

 

(11,081)

     Interest expense, net of amount capitalized

-

 

(55)

 

-

 

(177)

     Gain (loss) on disposition of assets

-

 

(8)

 

-

 

(12)

     Provision for income taxes

(2,197)

 

(2,952)

 

(6,257)

 

(6,749)

     Pre-opening expenses

(953)

 

-

 

(1,577)

 

-

     Construction litigation expenses

(162)

 

-

 

(162)

 

-

          Net income

 $9,326

 

 $10,859

 

$25,620

 

$26,839

           

  • 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, pre-opening expenses, construction litigation expenses, 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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