Monarch Casino & Resort, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. The company operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado. Financial amounts below are in millions, except per-share data.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $59.9 | $65.6 | $126.0 | $187.1 |
| Operating income | $13.4 | $11.5 | $10.1 | $31.9 |
| Net income | $10.7 | $9.3 | $8.4 | $25.6 |
| Diluted EPS | $0.57 | $0.50 | $0.44 | $1.37 |
| Operating margin | 22.4% | 17.6% | 8.0% | 17.0% |
- Q3 revenue fell 8.7% year over year, while net income rose 15.2%, reflecting lower expenses and stronger casino revenue. Casino revenue increased 9.1%; food and beverage revenue fell 30.0%; hotel revenue fell 33.1%.
- For the nine months, revenue decreased 32.6%, net income decreased 67.1%, and diluted EPS decreased 67.9%. The COVID-related shutdowns and continuing operating restrictions were the principal drivers.
- Q3 hotel occupancy was 80.3% versus 95.5%; average daily rate was $100.76 versus $130.98, and RevPAR was $87.87 versus $131.26. Food and beverage covers declined 42.4% in Q3.
- Q3 SG&A was $15.9 million versus $17.9 million; as a share of revenue it was 26.5% versus 27.3%. Nine-month SG&A declined to $41.9 million from $50.8 million, but rose as a share of revenue to 33.3% from 27.2%.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $19.3 million, down from $48.0 million. Investing cash outflow was $36.3 million versus $110.7 million, primarily reflecting expansion and property spending. Financing cash outflow was $13.0 million; cash declined $30.0 million to $30.5 million from $60.5 million at year-end 2019.
- At September 30, total assets were $599.1 million, current assets $50.3 million, current liabilities $59.6 million, and total liabilities $245.6 million.
- Outstanding term-loan principal was $185.0 million; the balance sheet reported $10.0 million current debt and $171.9 million long-term debt, net of issuance costs. The September credit refinancing extended maturity to September 2023 and established a $200 million term loan and $70 million revolver. No revolver borrowings were outstanding; $70 million was available.
- Management reported $76.5 million of Operational Liquidity and stated that cash, available credit and anticipated operating cash flow should fund operations, debt obligations and planned capital spending for the next 12 months. Required leverage and fixed-charge coverage ratios were 4.75:1 maximum and 1.15:1 minimum; reported ratios were 2.2:1 and 9.1:1, respectively.
- A 1-percentage-point increase in interest rates on the outstanding facility would increase annual interest cost by approximately $1.9 million. The filing reports $30.5 million in balance-sheet cash and separately cites $4.0 million of cash in an interest-bearing money-market fund in its liquidity discussion.
Outlook, risks and unusual items
- Both properties reopened with limited operations in June 2020. Occupancy, social distancing, gathering-size and other restrictions continued to constrain capacity and demand; management expected lower visitation and hotel and convention bookings to persist in the near term. The filing gives no numerical earnings or revenue guidance.
- The Black Hawk expansion was expected to open in Q4 2020, with operations ramping up during 2021. The overall budget was approximately $264–$269 million; estimated remaining cost was $5–$12 million. Completion timing, costs, approvals and expected returns remain uncertain.
- Q3 other operating items included $0.9 million in expansion pre-opening expenses, $0.5 million in construction-litigation professional fees, $0.5 million in Colorado lobbying, $0.4 million in pandemic-related reopening costs and $0.1 million in debt-cost write-off. Nine-month total other operating items were $4.9 million.
- PCL Construction Services sued the company over the Black Hawk project; Monarch filed counterclaims. Trial was set for May 17, 2021. The company said it could not determine the likelihood or reasonably estimate any loss or gain.
- COVID-19 uncertainty, potential renewed shutdowns, reduced demand, construction delays or defects, litigation, covenant compliance, liquidity, and variable-rate debt are significant risks. Goodwill impairment assessments in the first half found no impairment; management reported no continuing impairment indicator in Q3, but future impairment remains possible if estimates or operating conditions worsen.
- The company reported disclosure controls and procedures were effective at quarter-end and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether pandemic restrictions, customer demand and hotel and convention activity materially changed after September 30, 2020.
- Whether the Black Hawk expansion opened on schedule and within the stated remaining-cost range, and how it ramped up in 2021.
- Developments, potential exposure and any settlement or judgment in the PCL litigation; the filing does not provide a clear estimated financial outcome.
- Subsequent cash generation, revolver availability, debt covenant headroom and compliance with the $25 million minimum Operational Liquidity requirement.
- Reconciliation of the $30.5 million balance-sheet cash figure with the $4.0 million money-market cash cited in management’s liquidity discussion.
- Any subsequent impairment indicators or significant changes in the assumptions used to assess Black Hawk goodwill.