Monarch Casino & Resort, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2021; filed August 6, 2021. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado. Comparisons with 2020 are heavily affected by COVID-19-mandated casino closures that lasted about three months; both properties reopened with limited operations in June 2020.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $97.7 million | $15.2 million | $172.7 million | $66.2 million |
| Operating income (loss) | $23.8 million | ($5.5 million) | $35.0 million | ($3.4 million) |
| Net income (loss) | $18.1 million | ($4.3 million) | $26.3 million | ($2.3 million) |
| Diluted EPS | $0.93 | ($0.24) | $1.36 | ($0.13) |
Q2 operating and net margins were approximately 24.3% and 18.6%, respectively; first-half margins were approximately 20.3% and 15.2%. Revenue growth reflected reopening against the prior-year shutdown period, stronger guest spending, and the phased opening of Black Hawk’s expanded casino and hotel. In Q2, casino revenue was $57.7 million, food and beverage $22.1 million, hotel $14.0 million, and other $4.0 million.
Q2 hotel occupancy was 80.1%, ADR $140.65, and RevPAR $122.91, compared with 61.3%, $101.04, and $66.65, respectively, a year earlier. Food and beverage covers rose sharply year over year, while revenue per cover fell 9.6%, partly because the Atlantis buffet remained closed. SG&A was $20.6 million in Q2 and $40.5 million for the half, but declined as a share of revenue versus the unusually low-revenue 2020 periods.
Cash flow, debt, and liquidity
- First-half operating cash flow was $55.2 million, versus cash used of $10.0 million in 2020. Investing activities used $11.9 million; financing activities used $43.3 million, primarily reflecting $47.5 million of debt principal payments.
- Cash was $28.3 million at June 30, 2021, essentially unchanged from year-end. Current assets were $75.2 million and current liabilities $123.9 million. Current assets included a $25.1 million expected 2020 tax refund.
- Credit-facility principal outstanding was $135.0 million; $17.5 million was classified as current. The company also reported $114.9 million of long-term debt, net of issuance costs and current maturities. The $70.0 million revolving facility was undrawn and available; facility maturity is September 3, 2023.
- During the first half, Monarch made $42.5 million in optional and $5.0 million in mandatory term-loan repayments. At June 30, reported leverage and fixed-charge-coverage ratios were 1.5:1 and 5.2:1, versus covenants of no more than 4.0:1 and at least 1.15:1.
Changes, outlook, and key risks
Black Hawk’s new hotel tower and expanded casino began phased operations in late 2020; the new poker room opened May 14, 2021. Management expected the remaining conversion of the legacy facility into a specialty restaurant, sportsbook lounge and bar, and additional casino space to be completed by year-end 2021. No specific earnings or revenue guidance was provided.
Management said operating cash flow and the unused $70.0 million revolver should fund operations, debt obligations, and planned capital spending for the next twelve months. It cautioned that COVID-19 developments, demand and operating restrictions could undermine that expectation; if cash generation or borrowing capacity proved inadequate, Monarch might reduce or defer capital spending, sell assets, restructure debt, or issue equity. Nevada reintroduced indoor mask mandates in July 2021, after quarter-end; Colorado could take similar action.
Construction disputes with general contractor PCL and related mechanics’ lien litigation remain significant contingencies. A Denver trial was scheduled for March 21, 2022; no trial date had been set for the separate Gilpin County action. The company said it could not determine the probability of an outcome or reasonably estimate any gain or loss. It recorded $1.5 million in first-half construction-litigation expense. Other risks include labor and wage pressure, construction costs and completion, interest-rate exposure, and dependence on two resorts. A hypothetical 1% increase in rates on outstanding facility borrowings would add about $1.4 million to annual interest cost.
Important facts for investors to verify
- Whether guest demand and operating performance remain strong after the unusually favorable reopening comparison and initial pent-up demand.
- Progress, remaining cost, and timing of the final Black Hawk expansion work, and any effect of construction litigation or liens.
- Cash generation, revolver availability, debt repayment requirements, and continued compliance with credit covenants.
- Receipt and timing of the $25.1 million expected tax refund, and whether working-capital needs affect liquidity.
- Any renewed COVID-19 restrictions, labor or cost pressures, or changes to management’s year-end project expectations.