Monarch Casino & Resort, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparative figures are for FY 2021 unless stated otherwise. This is an annual filing, not a standalone fourth-quarter report. Monarch owns and operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado.
Financial performance
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net revenue | $477.9 million | $395.4 million |
| Income from operations | $111.4 million | $89.9 million |
| Net income | $87.5 million | $68.5 million |
| Diluted EPS | $4.47 | $3.53 |
| Cash from operating activities | $139.8 million | $128.1 million |
| Capital expenditures | $48.4 million | $37.8 million |
- Revenue grew 20.9%; operating income rose 24.0%; net income increased 27.7%; diluted EPS increased 26.6%.
- Casino revenue was $270.8 million, up 16.0%; food and beverage revenue was $117.2 million, up 28.6%; hotel revenue was $71.2 million, up 30.9%; other revenue was $18.8 million, up 13.7%.
- Operating margin was approximately 23.3%, compared with 22.7% in 2021; net margin was approximately 18.3%, compared with 17.3%.
- Casino operating expense rose to 35.1% of casino revenue from 32.2%, reflecting higher labor and promotional costs. Food and beverage expense declined to 75.5% of its revenue from 79.8%; hotel expense declined to 35.8% from 40.7%.
- Company-wide hotel occupancy was 79.9%, versus 76.7%; ADR was $175.07, versus $141.17; RevPAR was $153.44, versus $119.03. Atlantis occupancy was 83.3% and Black Hawk occupancy was 75.1%.
Cash, liquidity and debt
- At December 31, 2022, cash and cash equivalents were $38.8 million; total current assets were $89.4 million and current liabilities were $117.7 million.
- Year-end term-loan principal was $7.0 million, with $69.4 million available under the revolving facility and a $0.6 million letter of credit. The company made $83.0 million of principal payments in 2022. It reported a 0.04:1 total leverage ratio and a 4.4:1 fixed-charge coverage ratio.
- Cash used in investing activities was $48.0 million and cash used in financing activities was $86.5 million. Financing outflows included debt repayments and a $6.5 million share repurchase.
- Construction accounts payable was approximately $50.0 million, including outstanding retention and other expansion-related payments expected to weigh on cash in coming quarters. The company also reported a $25.0 million federal tax refund receivable; on January 5, 2023, it received $23.8 million, including interest, and expected the balance in subsequent quarters.
- Management stated operating cash flow and available credit were expected to fund operations, debt obligations and planned capital expenditures for the next twelve months, while noting uncertainty around economic, competitive and other factors.
Material changes and management commentary
- The Black Hawk expansion was completed in February 2022, following phased openings beginning in 2020. The expanded resort includes a 516-room hotel, additional casino capacity and amenities. Management attributed much of the year-over-year growth to the ramp-up of these operations and Colorado’s removal of betting limits and authorization of additional games.
- Higher wages, inflation, utilities and other costs, along with competitor promotions, pressured Atlantis margins. Management also cited labor challenges at both properties, particularly in Black Hawk.
- Construction-litigation expense was $7.3 million in 2022, compared with $5.1 million in 2021. It is included in other operating items. The company reported no material impairment charges.
- On February 1, 2023, the company amended and restated its credit facility, increasing the revolving commitment from $70 million to $100 million, with an option for another $100 million, and extending maturity to January 1, 2025. The remaining $7 million term-loan balance was repaid on January 31, 2023.
- On February 7, 2023, the board declared a one-time $5.00-per-share dividend, paid March 15, 2023, and approved a planned recurring annual dividend of $1.20 per share beginning in the second quarter of 2023. Future payments remain subject to board review and may be suspended.
- The filing provides no numerical earnings or revenue guidance. Management expressed confidence in the properties’ ability to benefit from market growth and in Black Hawk’s potential to gain share, but these expectations are forward-looking and subject to stated risks.
Risks, contingencies and controls
- The company depends on two resorts for all operating cash flow, exposing it to local economic, competitive, labor, weather and operating disruptions. Gaming results also fluctuate with customer outcomes and hold rates.
- Construction disputes with general contractor PCL remain unresolved. PCL and subcontractors have asserted claims and liens relating to the Black Hawk expansion; the company has counterclaimed. The Denver trial was set for September 5, 2023, and the related lien case was stayed. The company said it could not determine the outcome or reasonably estimate any loss or gain.
- Other risks include inflation and labor availability, variable-rate debt, restrictive credit covenants, gaming regulation and taxes, new competition or expanded gaming, cyber and privacy threats, and potential impacts from infectious disease or extreme weather.
- The audited financial statements received an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end. The auditor reported no critical audit matters.
Key facts investors should verify
- Track whether Black Hawk’s expanded operations sustain revenue growth and improve profitability after the initial ramp-up.
- Review subsequent disclosures on the PCL litigation, asserted construction liens, legal spending and any potential financial exposure.
- Reconcile actual construction-retention payments and remaining tax refunds against the company’s liquidity and cash-flow outlook.
- Confirm availability, borrowing terms and covenant compliance under the February 2023 credit facility, including the effect of variable rates and planned dividends.
- Assess labor, promotional and other cost trends against revenue growth, particularly the deterioration in casino expense margin.
- Monitor board decisions and cash capacity for recurring dividends; the announced dividend program is not assured.