Monarch Casino & Resort, Inc. — Q3 2023 Form 10-Q
Business and period: The filing covers the three and nine months ended September 30, 2023. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net revenue | $133.0 | $133.7 | $373.3 | $357.3 |
| Operating income | $31.9 | $36.4 | $84.8 | $83.4 |
| Net income | $24.2 | $27.5 | $64.2 | $65.0 |
| Diluted EPS | $1.23 | $1.41 | $3.27 | $3.33 |
| Operating margin | 24.0% | 27.2% | 22.7% | 23.3% |
- Revenue mix: Q3 casino revenue fell 4.0% to $73.8 million; food and beverage rose 5.3% to $33.0 million; hotel declined 0.9% to $20.6 million; and other revenue increased 18.0% to $5.6 million. For the first nine months, total revenue increased 4.5%, led by food and beverage (+9.3%), other (+15.3%), and casino (+2.9%); hotel revenue was nearly flat.
- Cash flow: Operating cash flow was $134.4 million for the first nine months, versus $106.2 million a year earlier. The company attributed the improvement in part to receipt of an income-tax refund and working-capital changes. Investing cash outflow was $34.6 million, primarily for property upgrades and equipment. Financing cash outflow was $104.6 million, including $107.0 million of dividends.
- Balance sheet and debt: At September 30, cash was $33.9 million, total assets $664.3 million, and total liabilities $161.8 million. Credit-facility debt was $8.0 million, with $91.4 million available under the $100 million revolving facility. The facility matures January 1, 2025; its reported interest rate was 6.42%. The company reported a 0.05:1 total leverage ratio and 14.73:1 fixed-charge coverage ratio, versus covenant limits of no more than 2.5:1 and at least 1.1:1, respectively.
- Liquidity: Management said anticipated operating cash flow and available facility capacity were expected to fund operations, planned capital expenditures, and authorized dividends for the 12 months following the filing. Cash and cash equivalents declined from $38.8 million at year-end 2022 to $33.9 million.
Changes, outlook, and material items
- Q3 net revenue decreased 0.6%; net income fell 12.1% and diluted EPS fell 12.8%. Higher operating expenses contributed to the earnings decline. For the first nine months, revenue and operating income increased, but net income and diluted EPS edged lower.
- Management cited labor expense, wage inflation, utilities, insurance, marketing, and other costs as pressures on margins. Q3 casino and hotel expense ratios worsened year over year; food-and-beverage expense as a share of revenue improved. Atlantis faces a competitive Reno market and labor challenges. Black Hawk is seeking to grow high-end visitation and market share following its completed expansion.
- Capital spending was $34.6 million in the first nine months, largely for Atlantis hotel-room upgrades, casino-floor carpeting, and equipment at both properties. No numerical earnings or revenue guidance was provided.
- Dividends: The company paid a one-time $5.00-per-share dividend in March and quarterly dividends of $0.30 per share in June and September. A further $0.30 dividend was announced for December. The annual $1.20-per-share policy is subject to Board review and may be suspended.
- Construction litigation: The dispute with PCL and related lien claims remain unresolved. The First Denver Lawsuit trial began September 5, 2023, was recessed after about five weeks, and was scheduled to resume November 20. The related Gilpin lien action remains stayed. Monarch’s separate lawsuit against PCL is also pending; PCL moved to dismiss the amended complaint. The company said it cannot determine the probability of outcomes or reasonably estimate any loss or gain. Litigation expense was $4.1 million for the first nine months of 2023, compared with $6.5 million in 2022.
- Other unusual items included $1.2 million of proceeds from a COVID-closure-related insurance claim in the first nine months of 2023. The filing identifies the Israel conflict and broader financial, economic, competitive, and regulatory conditions among risks to forward-looking statements. The company reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Progress and potential financial exposure from the PCL construction litigation and related mechanics’ liens; no loss estimate is available in the filing.
- Whether labor, promotional, and other cost pressures continue to weigh on property-level and consolidated margins.
- Cash generation excluding the tax-receivable collection, and the sustainability of capital spending and dividend payments.
- Borrowing needs and refinancing or repayment plans ahead of the January 2025 credit-facility maturity.
- Performance trends at each property: reported results are aggregated into one segment, limiting property-level financial detail in this filing.