Monarch Casino & Resort, Inc. — Q3 2021 Form 10-Q
Business and period: The quarter and nine months ended September 30, 2021. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado. Results reflect reopening and expansion-related growth, but comparisons with 2020 are materially affected by pandemic shutdowns and restrictions in the prior-year period. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $111.6 | $59.9 | $284.3 | $126.0 |
| Operating income | $29.0 | $13.4 | $64.1 | $10.1 |
| Net income | $22.3 | $10.7 | $48.6 | $8.4 |
| Diluted EPS | $1.15 | $0.57 | $2.51 | $0.44 |
| Operating margin | 26.0% | 22.4% | 22.5% | 8.0% |
| Net margin | 20.0% | 17.9% | 17.1% | 6.7% |
- Q3 revenue increased 86.5% year over year; nine-month revenue increased 125.6%. Growth spanned casino, food and beverage, hotel, and other revenue, with the expanded Black Hawk property a significant contributor.
- For the first nine months, operating cash flow was $96.3 million, versus $19.3 million in 2020. Investing cash outflow was $21.7 million and financing cash outflow was $69.9 million; cash increased $4.7 million to $33.0 million.
- At September 30, cash was $33.0 million and current assets were $75.8 million versus current liabilities of $135.4 million. Current liabilities included $55.1 million of construction accounts payable and $20.0 million of current debt.
- Term-loan principal outstanding was $108 million; the company had no revolving-credit borrowings and $70 million available. Debt carrying value was $85.8 million long term, net of issuance costs and the current portion. The company made $67.0 million of optional and $7.5 million of mandatory principal payments during the nine-month period.
- Capital spending, as reported by management, was $21.7 million in the first nine months. Property and equipment, net, was $570.9 million at quarter-end.
Changes, outlook, and risks
- Drivers and margins: The Black Hawk hotel tower and expanded casino began phased opening in late 2020; the poker room opened in May 2021. More gaming devices, removal of Colorado table-game bet limits, and higher guest spending supported casino revenue. New restaurants, spa and retail facilities also contributed. Q3 hotel occupancy was 83.4% and ADR was $154.11, versus 80.3% and $100.76 in Q3 2020. SG&A increased in dollars but declined as a share of revenue, to 19.4% from 26.5% in Q3.
- Costs and unusual items: Q3 food-and-beverage expense increased as a share of revenue to 77.6% from 75.1%, reflecting commodity-price and labor-cost pressure. Depreciation rose with new assets placed in service. Nine-month other operating items included $3.0 million of construction-litigation professional fees, partly offset by litigation and insurance proceeds.
- Project outlook: Management expected the remaining Black Hawk conversion—specialty restaurant, sportsbook lounge and bar, and additional casino space—to be completed by year-end 2021. The filing provides no quantified earnings or revenue guidance and cautions that project timing, costs, and returns are uncertain.
- Liquidity and debt: Management believed operating cash flow plus available revolving capacity would fund operations, debt obligations, and planned capital expenditures for the next 12 months. The facility matures September 3, 2023; $20 million of mandatory principal payments were expected over the next 12 months. Covenant thresholds were leverage no greater than 4.0:1 and fixed-charge coverage of at least 1.15:1; reported ratios were 1.0:1 and 5.6:1, respectively.
- Risks and contingencies: COVID-19 variants, government restrictions, mask mandates, travel and convention demand, labor availability and wage inflation, commodity prices, supply-chain issues, and interest rates could adversely affect results. A 1% interest-rate increase on the outstanding facility balance would raise annual interest cost by approximately $1.1 million.
- Construction litigation: PCL Construction and subcontractors allege contract-related claims and mechanics’ liens concerning the Black Hawk expansion; Monarch has asserted counterclaims. The Denver action was scheduled for trial in March 2022, and a related Gilpin County action was stayed pending that case. The company said it could not determine the outcome probability or reasonably estimate any loss or gain.
Important facts for investors to verify
- Whether post-reopening demand and Black Hawk expansion gains persist after accounting for the unusually weak, shutdown-affected 2020 comparison.
- Whether the remaining expansion work was completed on schedule and within budget, and the ultimate costs or recovery associated with construction defects and litigation.
- Cash generation, capital spending, construction payables, and capacity to meet required debt payments while maintaining liquidity.
- Exposure to labor and commodity-cost inflation, renewed COVID-related restrictions, and changes in travel, convention, and gaming demand.
- Future interest expense and compliance with credit-facility covenants; management’s liquidity assessment is subject to substantial uncertainties.