Monarch Casino & Resort, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022 unless noted. This is an annual filing, not a standalone fourth-quarter report. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado.
Key financial results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue | $501.5 million | $477.9 million | +4.9% |
| Income from operations | $110.2 million | $111.4 million | -1.2% |
| Net income | $82.4 million | $87.5 million | -5.8% |
| Diluted EPS | $4.20 | $4.47 | -6.0% |
| Operating cash flow | $173.0 million | $139.8 million | +23.8% |
| Capital expenditures | $51.4 million | $48.4 million | +$3.0 million |
- Revenue mix: Casino revenue was $282.3 million (+4.3%); food and beverage was $126.6 million (+8.1%); hotel was $71.0 million (-0.3%); and other revenue was $21.6 million (+14.9%).
- Margins: Operating margin was approximately 22.0%, down from 23.3%; net margin was approximately 16.4%, down from 18.3%. Casino expenses rose to 36.4% of casino revenue from 35.1%. Food and beverage expense improved to 72.4% of revenue from 75.5%; hotel expense increased to 37.2% from 35.8%.
- Cash and liquidity: Cash and cash equivalents were $43.4 million at year-end. The company reported $74.97 million of current assets and $123.37 million of current liabilities. Operating cash flow included a $23.8 million IRS refund and favorable working-capital movements, including higher construction payables.
- Debt: Credit-facility principal was $5.5 million at year-end, with $93.9 million available under the $100 million facility and a $0.6 million letter of credit. The facility matures January 1, 2025; the year-end borrowing rate was 8.50%, variable. Debt is secured by substantially all company assets.
- Capital returns: Cash dividends paid totaled $112.8 million, or $5.90 per share, including a one-time $5.00 dividend and three quarterly payments of $0.30. The company repurchased $5.0 million of shares during 2023.
Material changes and management commentary
- Revenue increased, but operating income and earnings declined as labor, utilities, property taxes, repairs, depreciation, and other costs rose. SG&A increased to $105.8 million from $97.6 million; its share of revenue rose to 21.1% from 20.4%.
- Management attributed lower net income in part to the effective tax rate rising to 24.0% from 19.8%, chiefly because of a smaller excess tax benefit from stock compensation, and to higher depreciation.
- Hotel occupancy improved at both resorts, while room pricing softened. Atlantis occupancy was 84.5% versus 83.3%, with ADR of $157.64 versus $158.54. Black Hawk occupancy was 79.9% versus 75.1%, with ADR of $195.20 versus $201.92. The company said group and convention business remained below pre-pandemic levels.
- The Black Hawk expansion was completed in early 2022. FY2023 capital spending was primarily for Atlantis room and restaurant upgrades, ongoing maintenance, and gaming equipment.
- Management said operating cash flow and available credit should support operations, debt obligations, and planned capital expenditures for the 12 months after filing, while noting uncertainty around economic, competitive, and regulatory conditions. No specific revenue or earnings guidance was provided.
Risks, contingencies, and unusual items
- Construction litigation: The dispute with Black Hawk expansion general contractor PCL remains unresolved. A 28-day trial concluded in November 2023, and the parties submitted proposed findings in February 2024; the court’s decision was pending. The company recorded $6.9 million of litigation-related professional fees in 2023. PCL and subcontractors also asserted or recorded mechanics’ liens; the company said the likelihood and amount of any loss or gain could not be reasonably estimated.
- Near-term cash needs: $47.6 million of construction retention and other expansion-related payments were recorded in construction accounts payable, and management said these could negatively affect cash in coming quarters.
- Operating exposure: All operating cash flow depends on two resorts. Key risks include intense gaming competition, inflation and labor availability, discretionary consumer spending, gaming win-rate variability, severe weather, regulatory changes, and cyber or power disruptions.
- Outlook sensitivities: Variable-rate debt exposes the company to higher interest expense. Management estimated a 2% rate increase on year-end borrowings would add about $0.1 million of annual interest cost. Dividends remain subject to board discretion.
- Unusual items: 2023 results included $1.2 million of net proceeds from a COVID-closure-related insurance claim, partly offsetting litigation and other operating costs. Operating cash flow benefited from the IRS refund and working-capital changes.
- Independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting; they reported no critical audit matters.
Most important facts for investors to verify
- Track the court ruling, related lien proceedings, potential exposure, and timing or amount of the $47.6 million construction-payable outflow.
- Confirm refinancing or renewal plans for the credit facility before its January 1, 2025 maturity, including borrowing availability and variable-rate costs.
- Assess whether revenue growth can outpace labor, promotional, and other operating-cost inflation and restore margins.
- Evaluate the sustainability of recurring dividends alongside capital spending, litigation costs, and liquidity needs.
- Reconcile the filing’s covenant disclosures: MD&A states a maximum Total Leverage Ratio of 4.0:1, while Note 6 states 2.5:1. The filing text does not provide a clear single value.