Monarch Casino & Resort, Inc. — FY 2013 Form 10-K
Reporting period: Year ended December 31, 2013. The filing also reports unaudited fourth-quarter results. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Black Hawk in Colorado; the Black Hawk property had no hotel in 2013.
Financial performance
| Metric | FY 2013 | FY 2012 | Change |
|---|---|---|---|
| Net revenue | $188.7 million | $163.3 million | +15.6% |
| Income from operations | $30.5 million | $16.0 million | +91% |
| Net income | $18.0 million | $8.9 million | +102% |
| Diluted EPS | $1.06 | $0.55 | +$0.51 |
| Adjusted EBITDA | $48.5 million | $36.2 million | +34% |
Operating margin increased to approximately 16.1% from 9.8%; net margin increased to approximately 9.5% from 5.5%. Adjusted EBITDA is a non-GAAP measure. FY 2012 included $2.2 million of acquisition expenses, and included Black Hawk results only from its April 2012 acquisition.
- Revenue drivers: Atlantis net revenue rose 5.7% to $141.3 million, with growth across categories and lower promotional allowances. Its hotel occupancy increased to 89.5% from 87.2%, average daily room rate to $77.78 from $71.13, and RevPAR to $75.41 from $66.98. Black Hawk contributed $47.5 million of net revenue and $16.5 million of Adjusted EBITDA in 2013; its 2012 figures covered only the post-acquisition period.
- Fourth quarter: Net revenue was $44.5 million, operating income $4.2 million, net income $2.1 million, and diluted EPS $0.12. In Q4 2012, these were $41.9 million, $2.9 million, $1.3 million, and $0.08, respectively.
- Cash flow and investment: Operating cash flow was $36.1 million versus $26.0 million. Investing activities used $12.4 million, primarily for capital spending; capital expenditures were $12.4 million versus $10.3 million. Operating cash flow less capital expenditures was approximately $23.7 million.
- Debt and liquidity: Cash was $19.3 million; long-term debt was $53.8 million, down from $81.1 million after $27.3 million of principal repayments. Current assets were $34.0 million and current liabilities $26.8 million. The $100 million credit facility had $95.5 million of maximum borrowing capacity at year-end and matures November 15, 2016. Leverage was 1.1x against a 3.0x maximum covenant; fixed-charge coverage was 17.0x against a 1.15x minimum.
Material changes, outlook and risks
- Management reported revenue growth in all Atlantis categories and continued redesign and upgrades at Black Hawk; the new buffet opened in September 2013. Black Hawk received conditional zoning approval for a major resort expansion, including a 507-room hotel, expanded casino, restaurants, spa and parking. Construction was expected to commence in 2014, but final project cost, schedule and financing had not been established.
- Contractual construction commitments were $14.8 million at year-end, in addition to other purchase obligations. Management said cash, operating cash flow and available credit should fund operations and capital plans for the next 12 months, subject to economic and other risks. No quantified earnings or revenue guidance was provided.
- Unusual items included a $0.6 million reversal of Nevada sales-tax accruals on complimentary and employee meals, following a state ruling; the ruling also reduced year-over-year SG&A expense. A $0.3 million adjustment to the casino receivables reserve benefited operating income. Prior-period promotional amounts were reclassified from expenses to revenue offsets; the filing says this did not affect previously reported income or cash flows.
- Key risks include economic weakness and discretionary-spending sensitivity in the Reno, Denver, California and Pacific Northwest markets; intense competition and possible expansion of gaming in feeder markets; gaming-license and tax regulation; floating-rate debt and refinancing; and construction cost, permitting, financing and execution risks. Interactive poker operations had not commenced; required approvals, system arrangements and other conditions remained outstanding.
- The Kerzner trademark litigation was settled and concluded in 2013. Management said other routine claims were not expected to materially affect results. The filing states that the independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Compare underlying property performance using full-year or pro forma periods, given Black Hawk’s partial-year inclusion in 2012.
- Check the final Black Hawk expansion budget, construction schedule, financing plan and any updates to contractual commitments.
- Monitor cash generation, planned capital expenditures, debt paydown, facility availability and compliance with credit covenants.
- Assess sustainability of Atlantis room-rate and occupancy gains, promotional spending, and Black Hawk operating performance amid local competition.
- Track regulatory progress and costs for interactive gaming, and review the related-party property lease arrangements disclosed in the filing.