Monarch Casino & Resort, Inc. — Q2 2023 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2023. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado; it reports the properties together as one segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $123.7 million | $115.3 million | $240.3 million | $223.6 million |
| Income from operations | $29.7 million | $25.7 million | $52.9 million | $47.0 million |
| Net income | $22.4 million | $19.4 million | $40.1 million | $37.6 million |
| Diluted EPS | $1.14 | $0.99 | $2.04 | $1.92 |
- Q2 revenue grew 7.3%, net income 15.3%, and diluted EPS 15.2%. First-half revenue grew 7.5%, net income 6.7%, and diluted EPS 6.3%.
- Q2 casino revenue rose 7.8%, primarily on higher gaming volume at Black Hawk. Food and beverage revenue increased 10.8%, reflecting more covers and higher revenue per cover. Hotel revenue declined 1.1%; occupancy improved to 83.4% from 81.0%, while ADR fell to $176.34 from $185.28. RevPAR was essentially flat at $162.33.
- Q2 operating income margin was approximately 24.0%, versus 22.3% a year earlier. Cost pressures included higher casino and hotel labor expense, as well as increased SG&A costs for utilities, insurance, and marketing.
- Six-month operating cash flow was $87.9 million, versus $60.6 million, with the increase primarily reflecting an income tax refund and the related reduction in taxes receivable. Investing cash outflow was $25.6 million, including property and equipment spending; financing cash outflow was $66.0 million.
- Cash was $35.1 million at June 30, down from $38.8 million at year-end. Current assets were $61.9 million and current liabilities $106.5 million. Stockholders’ equity was $481.8 million.
Debt, liquidity and capital allocation
- Under a February 2023 amended revolving credit facility, Monarch had $41 million outstanding and $58.4 million available at June 30. The facility has a $100 million commitment and matures January 1, 2025; its reported interest rate was 6.20%, based on SOFR plus 1.00%.
- Debt covenants require a total leverage ratio no higher than 2.5:1 and fixed charge coverage ratio of at least 1.1:1. Reported ratios were 0.2:1 and 9.3:1, respectively. Debt is secured by substantially all company assets.
- Management believes operating cash flow and available facility capacity will fund operations and planned capital expenditures for the 12 months following the filing. It cautions that adverse financial, economic, competitive, regulatory, or other factors could affect that assessment.
- The company paid a one-time $5.00-per-share dividend in March and a $0.30-per-share quarterly dividend in June. A further $0.30 dividend was announced for September. The annual $1.20-per-share dividend policy is subject to board review and may be suspended. Total dividends paid in the first half were $101.3 million.
Changes, outlook and notable matters
- Revenue growth was led by casino and food and beverage. Hotel occupancy improved, but lower ADR pressured hotel revenue and expense margins. Food and beverage expense as a share of revenue improved, while casino and hotel expense ratios worsened, primarily due to labor costs.
- Monarch cited a tight labor market and wage inflation in Reno and Black Hawk, inflation and competitive marketing pressure. Management expects labor challenges to persist. It views the properties’ products and service, Black Hawk’s expanded resort, and regional economic conditions as opportunities, but provided no quantified revenue or earnings guidance.
- First-half capital expenditures were $25.6 million, principally for Atlantis hotel-room upgrades, casino re-carpeting, and equipment. The company said these expenditures were funded from operating cash flow.
- Other operating items included $1.2 million of proceeds from sale of a COVID-closure-related insurance claim in the first half, offset by $1.2 million of construction-litigation professional fees. The comparable 2022 period included $3.7 million of litigation fees.
- Construction disputes with PCL and related mechanics’ lien claims remain unresolved. The company said it cannot determine the probability of outcomes or reasonably estimate any resulting gain or loss. A trial in the Denver action was set for September 5, 2023; a separate Monarch complaint against PCL faced a motion to dismiss filed July 17, 2023.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Subsequent filings and court records for the PCL construction litigation, lien claims, and related proceedings, including any financial exposure.
- Future operating trends in gaming volume, hotel ADR and occupancy, food and beverage spending, and labor and other operating costs.
- Cash generation after the tax refund and substantial dividend payments, planned capital spending, and use of the revolving facility as its January 2025 maturity approaches.
- Whether the board continues the quarterly dividend, which the filing states is discretionary and not assured.
- Interest-rate exposure: the company estimated a 1% rate increase on the June 30 debt balance would raise annual interest cost by approximately $0.4 million.