Monarch Casino & Resort, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Dollar amounts are in millions unless noted. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net revenue | $75.0 | $51.0 |
| Income from operations | $11.3 | $2.1 |
| Net income | $8.2 | $2.0 |
| Diluted earnings per share | $0.42 | $0.11 |
| Cash provided by (used in) operating activities | $21.9 | $(7.5) |
| Cash capital expenditures | $5.9 | $13.7 |
Revenue increased 46.9% year over year; net income increased 303.7%. The reported operating margin was approximately 15.1% versus 4.1%, and net margin approximately 10.9% versus 4.0%. Q1 2020 was significantly affected by government-mandated casino closures beginning in March, so year-over-year comparisons are not like-for-like.
- Casino revenue was $46.9 million, up 73.3%; food and beverage revenue was $16.2 million, up 9.8%; hotel revenue was $8.6 million, up 34.6%; and other revenue was $3.2 million, up 16.0%.
- Casino expense was 29.0% of casino revenue, down from 35.5%. Food and beverage expense was 87.0% of its revenue, up from 84.8%; hotel expense was 49.2%, up from 46.6%.
- SG&A rose to $19.9 million from $17.2 million, but declined to 26.6% of revenue from 33.7%. Depreciation and amortization increased to $9.5 million from $3.8 million, primarily as expanded Black Hawk assets entered service.
- Interest expense was $1.6 million versus none reported in Q1 2020, when $1.8 million of interest was capitalized during construction.
Liquidity, debt and balance sheet
- At March 31, 2021, cash was $24.1 million; current assets were $69.5 million and current liabilities were $115.5 million.
- Gross term-loan principal was $160.0 million, including $15.0 million classified as current. The company made $20.0 million of optional and $2.5 million of mandatory principal payments during the quarter. The $70.0 million revolving facility was undrawn and available.
- The credit facility matures September 3, 2023 and is secured by substantially all company real and personal property. At March 31, the leverage ratio was 2.1x against a maximum of 4.75x, and fixed-charge coverage was 4.6x against a minimum of 1.15x. The facility also required minimum operational liquidity of $25.0 million.
- On April 30, 2021, after quarter-end, an amendment lowered the maximum leverage ratio to 4.00x, removed the 0.50% LIBOR floor, and reduced stated interest-margin and commitment-fee ranges.
- Operating cash flow improved to $21.9 million from cash use of $7.5 million. Cash declined by $4.2 million during the quarter, ending at $24.1 million, after investing and debt repayments.
Changes, outlook and risks
- Q1 2021 benefited from pent-up regional gaming demand, a full quarter of reopened operations, and phased openings at Black Hawk. By quarter-end, approximately 350 Black Hawk hotel rooms were available; the spa, pool and fitness center opened in February. The company had added about 150 slot machines and six table games versus pre-pandemic active levels.
- Capacity limits and social-distancing measures continued to constrain operations. Hotel occupancy was 71.1% versus 75.4%; average daily rate was $111.70 versus $126.31; and RevPAR was $86.59 versus $100.57. Food and beverage covers declined 9.7%, despite higher revenue per cover.
- Management expected remaining Black Hawk work—including a specialty restaurant, poker room, sports lounge, keno counter and additional slots—to be completed later in 2021. No specific revenue or earnings guidance was provided. Management cautioned that completion, timing, budget and financial benefits are not assured.
- Management believed operating cash flows and the available revolver would fund operations, debt obligations and planned capital expenditures for the next twelve months. It identified COVID-19 uncertainty, possible renewed restrictions, travel and convention weakness, labor and wage pressure, and construction and regulatory risks. If cash needs exceed available resources, potential responses include reducing or delaying capital spending, selling assets, restructuring debt or issuing equity.
- Construction contractor PCL’s disputes with Monarch involve contract claims and purported mechanics’ liens related to the Black Hawk expansion. Litigation is ongoing; Monarch said it could not determine the outcome or reasonably estimate any loss or gain. Q1 construction-litigation expense was $0.6 million.
- Other notable items: $23.4 million of income taxes receivable, primarily related to an expected 2020 tax refund; $9.7 million of players’ club obligations included in accrued expenses; and related-party leases with entities associated with the Farahi family. No repurchases were made under the company’s authorized stock repurchase plan.
Most important facts for investors to verify
- Whether revenue and margins remain resilient as pent-up demand fades and operating restrictions, travel patterns and convention activity change.
- Progress, remaining costs and opening timing for the final Black Hawk expansion work, and the potential financial effect of the PCL litigation and liens.
- Cash generation, capital spending and debt repayment capacity, including compliance with the amended credit-facility covenants and the availability of the revolver.
- Collection and timing of the expected tax refund, and any changes in liquidity or working-capital needs.
- Whether labor costs, wage pressure and pandemic-related operating protocols continue to affect food, beverage and hotel margins.