Unless otherwise indicated, "Monarch," "Company," "we," "our," and "us" refer to Monarch Casino & Resort, Inc. and its subsidiaries.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: "believes," "expects," "anticipates," "estimates," "plans," "intends," "objectives," "goals," "aims," "projects," "forecasts," "possible," "seeks," "may," "will," "could," "should," "might," "likely," "enable," or similar words or expressions, as well as statements containing phrases such as "in our view," or "we cannot assure you," "although no assurance can be given." Examples of forward-looking statements include, among others, statements we make regarding: (i) the impact of COVID-19, including any recent spikes in cases or any spread of new variants, and any other contagious diseases or viruses on our revenues, cash flows, liquidity, construction projects, results of operations and financial condition; (ii) our beliefs regarding the sufficiency of our cash and other financial resources; (iii) our belief regarding the exposure of our cash and accounts receivable to credit risk; (iv) our beliefs regarding the quality of our work product and guest service and our ability to capture additional market share in the high-end segment of the market; (v) our beliefs regarding the quality of our properties as key factors in Monarch's long-term success; (vi) our expectations and beliefs concerning the completed expansion of the Monarch Black Hawk (the "Monarch Black Hawk Expansion"); (vii) our expectations and intentions regarding the expenses, defenses and outcomes of the lawsuits filed by the construction project general contractor against us and our counterclaims and separate lawsuit against the contractor; (viii) our expectations regarding our business prospects, strategies, estimates and outlook; (ix) our expectations regarding the positioning of our properties to benefit from future macro and local economic growth; (x) our expectations regarding future capital requirements; (xi) our anticipated sources of funds and adequacy of such funds to meet our debt obligations and capital requirements; and (xii) our expectations regarding legal and other matters.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

adverse impacts of COVID-19, its variants any other contagious diseases or

? viruses on our business, financial condition, operating results, access to

capital markets, and on short-term and long-term travel, leisure and

discretionary spending habits and practices of our guests;

actions by government officials at the federal, state or local level,

? including, without limitation, temporary or extended shutdowns, travel

restrictions, social distancing, shelter-in-place orders, and mask mandates in

connection with COVID-19 or any other contagious diseases or viruse;

? our ability to maintain strong relationships with our regulators, employees,

lenders, suppliers, insurance carriers, customers and other stakeholders;

? impact of any uninsured losses;

the adverse impact of cancellations and/or postponements of hotel stays and

? convention and trade shows on our business, market position, growth, financial

condition and operating results;

? a delay in or failure of the changes in guest visitation, entertainment choices

and spending patterns, including a decrease in overall long-term demand;

potentially uninsurable liability exposure to customers and staff should they

? become (or allege that they have become) infected with COVID-19 or any other

contagious disease or virus while at one of our resorts;

unwillingness of employees to report to work due to the adverse effects of

? COVID-19 or any other contagious diseases or viruses, or to otherwise conduct

work under any revised work environment protocols;

? unwillingness of our employees to obtain the COVID-19 vaccination or any


   boosters;


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? the potential of increases in state and federal taxation to address budgetary

and other impacts of COVID-19;

? our ability to successfully implement our business and growth strategies;

? our ability to realize the anticipated benefits of our expansion and renovation

projects, including the Monarch Black Hawk Expansion;

our ongoing disputes over costs of and responsibility for delays, construction

defects and other construction related matters with our Monarch Black Hawk

? general contractor, PCL Construction Services, Inc. ("PCL"), including, as

previously reported, the litigations against us by such contractor and our

filing of affirmative defenses, extensive counterclaims and a separate lawsuit

against PCL;

? our potential need to post bonds or other forms of surety to support our legal

remedies;

risks related to pending litigation, which is costly and time-consuming to

defend, and if decided against us, could require us to pay substantial

? judgments or settlements. We cannot predict with certainty the outcomes of such

legal proceedings, and the costs incurred in litigation can be substantial,

regardless of the outcome. Substantial unanticipated verdicts, fines and

rulings do sometimes occur;

? our ability to generate sufficient operating cash flow to service our debt

obligations and working capital needs and to help finance our expansion plans;

? our ability to effectively manage expenses to optimize our margins and

operating results;

? our ability to effectively manage increased expenses from inflationary

pressures, including wage inflation;

? our ability to effectively manage the impacts of temporary or other supply

chain interruptions;

? our ability to successfully complete potential acquisitions and investments;

? access to capital and credit, including our ability to finance future business

requirements;

? adverse trends in the gaming industry;

? changes in patron demographics;

? risks related to record heat conditions, drought conditions and fires in the

Western United States;

? risks related to possible flooding due to snow melt from the heavier than

average snowfall in the Western United States;

general market and economic conditions, including but not limited to, the

? effects of local and national economic, housing and energy conditions on the

economy in general and on the gaming and lodging industries in particular;

? the impact of rising interest rates and our ability to refinance debt as it

matures at commercially reasonable rates or at all;

? our dependence on two resorts;

? ability of large stockholders to influence our affairs;

? our dependence on key personnel;

? the availability of adequate levels of insurance;

changes in federal, state, and local laws and regulations, including

? environmental and gaming licenses or legislation and regulations, and laws and

regulations permitting expanded and other forms of gaming in our key markets;

? ability to obtain and maintain gaming and other governmental licenses and

regulatory approvals;

? any violations by us of the anti-money laundering laws;

? cybersecurity risks, including misappropriation of customer information or

other breaches of information security;

disruptions or reductions in travel and our operations due to natural

? disasters, severe weather, terrorist activity, pandemics, epidemics or

outbreaks of infectious or contagious diseases, political instability, civil

unrest and similar events;

? our competitive environment, including increased competition in our target

market areas;

? increases in the effective rate of taxation at any of our properties or at the

corporate level;

? our ability to successfully estimate the impact of accounting, tax and legal

matters;

? the impact of the events occurring in Eastern Europe and the conflict taking

place in Ukraine; and

risks, uncertainties and other factors described in Part I, Item 1A. "Risk

Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial

? Condition and Results of Operations" of our Annual Report on Form 10-K for the

year ended December 31, 2022 (the "2022 Form 10-K"), and our other filings with

the Securities and Exchange Commission.




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Any forward-looking statement made by us in this Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions, except as required by law. New risks emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements.

OVERVIEW

Monarch was incorporated in the state of Nevada in 1993. We own and operate the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the "Atlantis") and Monarch Casino Resort Spa Black Hawk (the "Monarch Black Hawk"), a casino in Black Hawk, Colorado. In addition, we own separate parcels of land located next to the Atlantis and a parcel of land with an industrial warehouse located between Denver, Colorado and Monarch Black Hawk.

We earn revenues, operating income and cash flow from Atlantis and Monarch Black Hawk, primarily through our casino, food and beverage, and hotel operations. We focus on delivering exceptional service and value to our guests. Our hands-on management style focuses on customer services and cost efficiencies.

Atlantis: We continuously upgrade our property. With quality gaming, hotel and dining products, we believe the Atlantis is well positioned to benefit from future macro and local economic growth. Reno remains a healthy local-oriented market, but at the same time a very competitive market. The market's employment growth is broad based and we expect this positive indicator will support the continued strength of our business at Atlantis. At the same time, the tight employment environment, with the local unemployment rate below the national average, has created labor challenges, including wage inflation, which we continue to actively manage. We expect this to be a recurring trend for the market and Atlantis in the years ahead. The increase in the labor costs and the increase in price inflation, combined with continued aggressive marketing programs by our competitors, has applied upward pressure on Atlantis' operating costs and is lowering our profit margins.

Monarch Black Hawk: Monarch Black Hawk is the first property encountered by visitors arriving from Denver and other major population centers via Colorado State Highway 119. The Denver metro economy remains strong with higher than the national average per capita personal income. At the beginning of 2022, we completed the master planned renovation and expansion, transforming the property into a world-class resort. Monarch Black Hawk is positioned to leverage the expanded operation, the elimination of betting limits and new game types in Black Hawk, Colorado, as well as to benefit from the growing state-wide online and retail sports betting. Monarch Black Hawk also is experiencing labor challenges, resulting from the distance to the staffing filter markets of Golden, Colorado and the Denver Metro area and low unemployment in those markets. We continue to attract high value players from across Colorado's Front Range, who had previously traveled to other markets, such as Las Vegas, for a high-end casino entertainment experience. We believe that the quality of our expanded product and exceptional guest service will meet the demand of the high-end segment of the market and will grow revenue and accelerate market share.

KEY PERFORMANCE INDICATORS

We use the following Key Performance Indicators ("KPI") to manage our operation and measure our performance:

Gaming revenue KPI: Our management reviews on a consistent basis the volume metrics and hold percentage metrics for each gaming area. The main volume measurements are slot coin-in, table games drop, sportsbook write and keno write. Slot coin-in represents the dollar amount wagered in slot machines, including free promotional wagers. Table games drop represents the total amount of cash and net markers deposited in the table drop box. Keno write and sportsbook write represents the dollar amount wagered at our counters, along with sportsbook write made through our mobile wagering system. Volume metrics are important in managing the business, as our gaming win is affected by actual hold percentage, which in general varies from the expected hold percentage and historical hold percentage. Gaming win represents the amount of wagers retained by us. Hold percentage represents win as a percentage of slot coin-in, table game drop, sportsbook write, or keno write. Our win and hold percentages are calculated before discounts, commissions, deferring revenue associated with our loyalty programs and allocating casino revenues related to goods and services provided to patrons on a complimentary basis.



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Food and Beverage revenue KPI: The main KPIs in managing our food and beverage ("F&B") operations are covers and average revenue per cover. A cover represents the number of guests served and is an indicator of volume. Average revenue per cover represents the average amount spent per food and beverage outlets' served guests. Changes in the average revenue per cover might be an indicator for changes in menu offerings, changes in menu prices or may indicate changes in our guests' preferences and purchasing habits.

Hotel revenue KPI: The main KPIs used in managing our hotel operation are the occupancy rate (a volume indicator), which is the average percentage of available hotel rooms occupied during a period, and the average daily rate ("ADR", a price indicator), which is the average price per sold room. Available rooms exclude those rooms unavailable for occupancy during the period due to renovation, development, or other requirements. Sold rooms include rooms where the guests do not show up for their stay and lose their deposit. The calculations of the occupancy rate and ADR include the impact of rooms provided on a complimentary basis. Revenue per available room ("RevPAR") represents total hotel revenue per available room and is a representation of the occupancy rate, ADR and miscellaneous hotel sales.

Operating margins: Our management is consistently focused on controlling expenses and finding cost savings, without affecting the quality of the product we offer and our guests' services and experience. We measure our performance using expense margin, which is a percentage of direct expenses, including labor, cost of product and any other operating expenses related to the gaming, food and beverage, or hotel operation to the net gaming, food and beverage, or hotel revenues. Selling, general and administrative ("SG&A") margin represents SG&A expenses for a period as a percentage of total net revenue for a period. In managing the food and beverage operation, we use Cost Of Goods Sold ("COGS") percentage, which represents a percentage of product cost to the food and beverage revenue and is a measurement of commodity prices and menu sales prices.

Our management evaluates the KPI as compared to prior periods, the peer group, or market, as well as for any trends.

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2023 and 2022

For the three months ended March 31, 2023, our net income totaled $17.7 million, or $0.90 per diluted share, compared to net income of $18.1 million, or $0.92 per diluted share for the same period in 2022, reflecting a 2.5% and 2.2% decrease in net income and diluted earnings per share, respectively. The decrease in net income was impacted by the effective tax rate, which varies based on the amount of excess tax benefit on stock compensation. Net revenues in the three months ended March 31, 2023, totaled $116.6 million, an increase of $8.3 million, or 7.7%, compared to the three months ended March 31, 2022. Income from operations for the three months ended March 31, 2023, totaled $23.2 million compared to income from operations of $21.3 million for the same period in 2022.

Casino revenue increased 6.5% in the first quarter of 2023 compared to the first quarter of 2022. The increase in casino revenue was driven primarily by the increase in gaming volume in Black Hawk. Casino operating expense as a percentage of casino revenue increased to 37.7% for the three months ended March 31, 2023, compared to 35.6% for the three months ended March 31, 2022, primarily due to the increase in labor expense.

Food and beverage revenue for the first quarter of 2023 increased 12.6% compared to the first quarter of 2022 due to a 1.2% increase in food and beverage covers, combined with an increase in food and beverage revenue per cover of 11.2%. The increase in covers is primarily a result of the opening of a new restaurant at Monarch Black Hawk in early 2022 as well as increase in buffet and casual dining restaurants covers at both properties. Food and beverage operating expense as a percentage of food and beverage revenue decreased in the first quarter of 2023 to 74.8% compared to 79.6% for the same quarter in 2022 primarily due to an increase in average check and improved cost management.



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Hotel revenue increased 1.8% in the first quarter of 2023 compared to the same quarter of 2022 primarily as a result of an increase in hotel occupancy to 82.2% during the current year period compared to 76.5% during the first quarter of 2022, partially offset by a decrease in ADR by $9.65 ($161.08 in the first quarter of 2023 and $170.73 in the first quarter of 2022). RevPAR was $146.58 and $142.78 for the three months ended March 31, 2023 and 2022, respectively. Hotel operating expense as a percentage of hotel revenue increased to 41.3% in the first quarter of 2023 compared to 38.0% for the comparable prior year period primarily as a result of the decrease in ADR and an increase in labor expense.

Other revenue increased 16.5% in the first quarter of 2023 compared to the same prior year period primarily due to the increased demands of Spa services at both properties.

SG&A expense increased to $25.1 million in the first quarter of 2023 from $24.2 million in the first quarter of 2022 driven primarily by increases in utility expense and repair and maintenance expense. As a percentage of net revenue, SG&A expense decreased to 21.5% in the first quarter of 2023 compared to 22.3% in the same period in 2022.

Depreciation and amortization expense increased to $11.3 million for the three months ended March 31, 2023, compared to $10.5 million for the same prior year period, due to new assets placed into service with the ongoing renovation at Atlantis.

During the first quarter of 2023, we recognized $0.5 million and $1.3 million, respectively, in professional service fees relating to our construction litigation. These expenses are included in Other operating items, net in the Consolidated Statements of Income.

In the first quarter of 2023 we recognized $0.5 million of interest expense, $0.3 million in deferred loan costs amortization expense and $0.3 million in interest income. In the first quarter of 2022, we expensed $0.3 million of interest and amortized $0.4 million in deferred loan costs. See further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

CAPITAL SPENDING AND DEVELOPMENT

We seek to continually upgrade and maintain our facilities in order to present a fresh, high quality product to our guests.

Cash paid for capital expenditures for the three-month periods ended March 31, 2023 and 2022 totaled $15.2 million and $22.1 million, respectively. During the three-month period ended March 31, 2023, our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the second tower at Atlantis, re-carpeting the casino floor at Atlantis and the acquisition of gaming, and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Black Hawk. During the three-month period ended March 31, 2022 our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the first tower at Atlantis, the completion of the transformation of part of the Monarch Black Hawk legacy facility, and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Black Hawk. Capital expenditures during each of the first three months of 2023 and 2022 were funded from operating cash flows.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity have been cash provided by operations and, for capital expansion projects, borrowings available under our Amended Credit Facility.

For the three months ended March 31, 2023, net cash provided by operating activities totaled $61.5 million, compared to net cash provided by operating activities of $35.4 million in the same prior year period. This increase was primarily a result of the decrease in income tax receivable as a result of receipt of an income tax refund.



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Net cash used in investing activities totaled $15.2 million and $22.1 million during the three months ended March 31, 2023 and 2022, respectively. Net cash used in investing activities during the first three months of 2023 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the second tower at Atlantis, re-carpeting the casino floor at Atlantis, and the acquisition of gaming and other equipment at both properties. Net cash used in investing activities during the first three months of 2022 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the first tower at Atlantis, the completion of the transformation of part of the Monarch Black Hawk legacy facility, and for acquisition of gaming and other equipment at both properties.

Net cash used in financing activities in the first three months of 2023 totaled $50.7 million and consisted of $95.6 million used for payment of dividends, offset by $44.0 million of borrowings under the credit facility, net of the payments to the credit facility and $0.9 million of net proceeds from stock options exercise. Net cash used in financing activities in the first three months of 2022 totaled $13.8 million and consisted of $10.0 million in principal payments on the credit facility and $6.5 million cash used for purchase of Company stock under the Repurchase Plan partially offset by $2.7 million of net proceeds from stock options exercise.

Amended Credit Facility

On February 1, 2023, we entered into the Fifth Amended and Restated Credit Agreement with Wells Fargo Bank, N.A., as administrative agent. The Fifth Amended Credit Facility (the "Amended Credit Facility") amends and restates the Company's Fourth Amended and Restated Credit Agreement, which consisted of: a $200 million term loan and a $70 million revolving line of credit.

On February 1, 2023, there was no outstanding balance under the term loan of the Fourth Amended and Restated Credit Agreement. The Amended Credit Facility does not contain a term loan.

The Amended Credit Facility increases the aggregate principal amount of the revolving line of credit from $70 million to $100 million, with an option to increase it by another $100 million within the first six months. The maturity date of the Amended Credit Facility is January 1, 2025.

As of March 31, 2023, we had an outstanding principal balance of $51 million under the Amended Credit Facility.

In addition to other customary covenants for a facility of this nature, as of March 31, 2023, we were required to maintain a Total Leverage Ratio (as defined in the Amended Credit Facility) of no more than 2.5:1 and Fixed Charge Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.1:1. As of March 31, 2023, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.3:1 and 6.7:1, respectively.

The interest rate under the Amended Credit Facility is SOFR (the Secured Overnight Financing Rate) plus a margin ranging from 1.00% to 1.50%, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00% to 0.50%. The applicable margins will vary depending on the Company's leverage ratio. In addition, SOFR-based loans will incur a 0.10% credit adjustment spread due to the conversion from LIBOR to SOFR as the new benchmark rate. As of March 31, 2023, the interest rate was 5.9%, or SOFR plus a 1.00% margin.

The Company's obligations under the Amended Credit Facility are secured by substantially all of the Company's assets.

We believe that our anticipated operating cash flow and the $48.4 million available under our Amended Credit Facility as of March 31, 2023 will be sufficient to sustain operations for the twelve months from the filing of this Form 10-Q for the quarter ended March 31, 2023 and fulfill our capital expenditure plans. However financial, economic, competitive, regulatory, and other factors, many of which are beyond our control, could negatively impact our operations. If we are unable to generate sufficient cash flow in the upcoming months or if our cash needs exceed our borrowing capacity under the Amended Credit Facility, including our option to increase the credit facility by an additional $100 million, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or issuing additional equity.

For a discussion regarding our material commitments for capital expenditures, see the CAPITAL SPENDING AND DEVELOPMENT section above.



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CRITICAL ACCOUNTING POLICIES

A description of our critical accounting policies and estimates can be found in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2022 Form 10-K. For a more extensive discussion of our accounting policies, see Note 1. "Summary of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements in our 2022 Form 10-K filed with the SEC on February 28, 2023.

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