Monarch Casino & Resort, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless noted. Monarch operates the Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Black Hawk in Colorado. Financial amounts below are in millions of dollars unless otherwise stated.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Gross revenue | $57.879 | $55.422 | +4.4% |
| Promotional allowances | $10.708 | $9.914 | +8.0% |
| Net revenue | $47.171 | $45.508 | +3.7% |
| Operating income | $6.471 | $5.331 | +21.4% |
| Net income | $4.043 | $3.276 | +23.4% |
| Diluted EPS | $0.24 | $0.19 | +26.3% |
| Cash from operations | $8.239 | $7.848 | +5.0% |
| Capital expenditures | $7.780 | $4.960 | +56.9% |
Operating margin on net revenue improved to approximately 13.7% from 11.7%; net margin rose to approximately 8.6% from 7.2%. Operating cash flow less property and equipment acquisitions was approximately $0.5 million in Q1 2015.
- Casino revenue increased 3.9%; casino expenses rose faster, to 43.6% of casino revenue from 41.7%, primarily due to higher complimentary costs and payroll.
- Food and beverage revenue increased 6.8%, with higher revenue per cover and more covers; expense ratio improved to 39.8% from 40.5%.
- Hotel revenue increased 2.0%. Occupancy was 84.4% versus 83.5%; average daily rate was $68.43 versus $67.86, and RevPAR was $63.88 versus $62.63.
- Promotional allowances rose to 18.5% of gross revenue from 17.9%, reflecting competitive complimentary spending. SG&A declined to $12.579 million from $13.231 million, or 26.7% of net revenue versus 29.1%.
Cash, debt and liquidity
- Cash and cash equivalents were $18.470 million at March 31, 2015, down from $21.583 million at year-end 2014. Total assets were $251.784 million; current assets were $30.174 million and current liabilities $28.202 million.
- Long-term debt was $42.0 million, down from $46.3 million at December 31, 2014 after $4.3 million of principal payments. The company had $46.0 million of remaining availability under its $88.0 million maximum facility.
- The credit facility matures November 15, 2016 and is secured by substantially all company property. Pricing at quarter-end was LIBOR plus 1.5%; a 1% rate increase on outstanding debt would raise annual interest cost by approximately $0.4 million.
- Management said cash, operating cash flow and available borrowing capacity should fund operations, debt service and planned capital expenditures for the next 12 months, while noting that adverse conditions could require reduced or delayed spending, asset sales, debt restructuring or equity financing.
Outlook, projects and risks
- At Monarch Black Hawk, the second of three casino-renovation phases opened in March 2015; the final phase was expected to finish in Q3 2015. Remaining renovation costs were estimated at $16–$18 million.
- The new nine-story parking structure, intended to increase parking from about 500 to 1,500 spaces, was anticipated to be completed in late 2015. Remaining related costs were estimated at $29–$32 million.
- Management expected to begin the hotel tower and casino expansion in Q2 2016. The plan includes approximately 500 rooms, nearly double the existing casino space, and additional dining and amenities. The project was estimated at $229–$234 million, with the full tower expected to open in late 2017. Funding was expected from operating cash flow and an expanded or replacement credit facility; the current facility’s 2016 maturity makes refinancing a key dependency.
- Contractual cash obligations totaled $82.6 million: $33.0 million due within one year, including $25.0 million of construction contracts; $49.0 million due in one to three years, including $42.0 million of debt. Some purchase and construction commitments were cancellable on 30 days’ notice.
- Management identified competition, gaming-market and regulatory changes, economic weakness in feeder markets, fuel costs, construction execution and financing, and cybersecurity as risks. Expansion of California Native American casinos and possible gaming near Denver or in key feeder markets could pressure results or affect development plans.
- Routine legal claims were not expected by management to have a material adverse effect. Disclosure controls were concluded to be effective; no material change in internal control over financial reporting was reported.
Unusual items and other disclosures
- A revised estimate of the existing Black Hawk parking structure’s remaining useful life increased Q1 2015 depreciation expense by $0.5 million and reduced net income by $0.3 million, or approximately $0.02 per basic and diluted share.
- The company allowed its Nevada interactive-gaming approval to lapse pending more favorable market conditions; the subsidiary had no operating activities.
- The board had authorized repurchases of up to 3 million shares, but no shares had been repurchased under the plan. Q1 share-option exercises resulted in approximately $0.3 million of cash proceeds.
- No numerical full-year earnings or revenue guidance was provided in the filing. The stated project schedules, costs and financing plans are forward-looking estimates, not guarantees.
Most important facts for investors to verify
- Whether operating cash generation and remaining credit availability can support the renovation and expansion commitments without materially increasing leverage.
- Progress, final cost and schedule for the parking structure and Black Hawk expansion, including the expected 2016 credit-facility refinancing.
- Whether competitive complimentary spending continues to outpace casino revenue growth and pressure property-level margins.
- Future operating cash flow, liquidity and debt covenant compliance as construction spending rises; reported quarter-end leverage and fixed-charge coverage ratios were 1.0:1 and 33.8:1, respectively.
- The impact of market, regulatory, cybersecurity and gaming-competition risks on results and development plans.