Monarch Casino & Resort, Inc. — FY2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019, with quarterly data including Q4. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Black Hawk in Colorado. Black Hawk’s major hotel and casino expansion was under construction during the year.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net revenue | $249.2 million | $240.3 million | +3.7% |
| Income from operations | $39.6 million | $42.8 million | −7.6% |
| Net income | $31.8 million | $34.1 million | −6.7% |
| Diluted EPS | $1.70 | $1.83 | −7.1% |
| Cash from operations | $63.2 million | $58.8 million | +7.6% |
| Capital expenditures | $135.0 million | $125.7 million | +$9.2 million |
- Operating margin was approximately 15.9%, down from 17.8%; net margin was approximately 12.8%, down from 14.2%.
- Revenue growth reflected higher hotel, food and beverage, and casino revenue. Hotel revenue rose 15.5%; ADR increased to $124.17 from $104.61, while occupancy edged down to 88.4% from 89.3%.
- Cost pressure included higher labor and promotional costs. SG&A rose to $69.3 million from $65.8 million; operating expenses also included $2.5 million of Black Hawk pre-opening expense and $0.3 million of construction-litigation costs.
- At December 31, cash and cash equivalents were $60.5 million. Debt under the credit facility was $196.3 million, including $20.0 million classified as current; the company reported $50.0 million of remaining borrowing availability. Operating lease liabilities totaled $15.6 million.
- Monarch reported compliance with credit covenants: total leverage ratio of 3.2x versus a maximum of 4.75x, and fixed-charge coverage ratio of 3.9x versus a minimum of 1.15x. The variable-rate facility was priced at LIBOR plus 1.50% at year-end; a 1% rate increase was estimated to add about $2.0 million in annual interest cost.
Q4 and prior-period comparison
Q4 2019 net revenue was $62.1 million versus $59.8 million in Q4 2018. Operating income was $7.7 million versus $9.1 million, and net income was $6.2 million versus $7.3 million. Reported annual and quarterly revenue comparisons are affected by the 2018 adoption of ASC 606, which changed the presentation of complimentary services, promotional allowances, and related expenses; the filing says the standard did not affect net income.
Outlook, risks, contingencies and unusual items
- Management expected a soft opening of the first podium floors and some hotel floors at Black Hawk in Q2 2020, with further hotel floors opening during the quarter. Additional restaurant, poker room, and sports lounge work was expected to finish in Q4 2020. These are expectations, not financial guidance.
- The expansion budget for the hotel tower and casino was approximately $264–$269 million. Estimated remaining completion costs at year-end were $20–$27 million. The company disclosed schedule and cost disputes with general contractor PCL and had not entered into the contemplated guaranteed-maximum-price amendment.
- PCL sued the company in August 2019; Monarch filed counterclaims in December. The case was preliminary, and the company said it could not determine the likelihood or reasonably estimate any loss or gain.
- The filing highlighted the emerging COVID-19 outbreak as a risk to travel, conventions, visitation, staffing, and suppliers. Management stated its impact was not material to results as of the filing, but the potential effect was highly uncertain.
- Colorado had authorized sports betting; Monarch Black Hawk received a Master License on February 20, 2020, and sports betting was scheduled to launch May 1, 2020.
- Other material risks include reliance on two properties, competition and possible new gaming markets, labor and operating-cost pressures, gaming regulation and licensing, variable-rate debt and refinancing, and construction delays or cost overruns. The company reported no material environmental-compliance capital spending in 2019.
- Ernst & Young issued an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting as of December 31, 2019.
Important facts for investors to verify
- Progress, opening dates, remaining costs, and funding needs for the Black Hawk expansion, including resolution and financial exposure from the PCL dispute.
- Whether the $50.0 million of reported facility availability remains accessible under the credit agreement, and the schedule and terms of required debt repayments.
- How labor, promotional spending, and other operating costs affect margins as revenue grows.
- Actual business effects of COVID-19 and the launch and contribution of Colorado sports betting; the filing provides no quantified outlook for either.
- Comparability of reported revenue and departmental margins across years given the ASC 606 presentation changes.