Monarch Casino & Resort, Inc. — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Monarch operates Atlantis Casino Resort Spa in Reno, Nevada, and Monarch Casino Resort Spa Black Hawk in Colorado. The Black Hawk expansion was completed in Q1 2022.
Financial results
Amounts are in millions, except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $108.3 | $75.0 | +44.5% |
| Income from operations | $21.3 | $11.3 | +89.2% |
| Net income | $18.1 | $8.2 | +122.2% |
| Diluted EPS | $0.92 | $0.42 | +119.0% |
| Operating margin | 19.7% | 15.0% | +4.7 percentage points |
| Net cash from operations | $35.4 | $21.9 | +$13.6 |
Revenue by category: casino $62.8 million (+33.9%); food and beverage $26.0 million (+60.7%); hotel $15.2 million (+75.9%); and other $4.2 million (+32.4%). Hotel occupancy was 76.5% versus 71.1%; ADR was $170.73 versus $111.70; RevPAR was $142.78 versus $86.59. Net margin was 16.7%, compared with 10.9%.
At March 31, cash and cash equivalents were $33.1 million, total current assets $79.0 million, and total current liabilities $134.4 million. The resulting working capital deficit was $55.4 million, including $24.4 million of income taxes receivable, principally an expected 2020 tax refund. Gross term-loan principal was $80.0 million; $20.0 million was classified as current, and long-term debt net of issuance costs was $58.5 million. The revolver had no borrowings, with $69.4 million available after a $0.6 million letter of credit. Cash used in investing was $22.1 million; cash used in financing was $13.8 million. Cash decreased $0.4 million during the quarter.
Changes and management commentary
- Management attributed growth to the Black Hawk expansion ramp-up and the comparison with Q1 2021, when COVID-19 capacity restrictions and safety protocols affected operations. More gaming devices, rooms, table-game variety, and the removal of Colorado table-game betting limits also supported casino results.
- Food and beverage covers rose 47.6% and revenue per cover increased 8.9%. Improved food and beverage and hotel expense ratios supported margins; casino expense as a share of casino revenue increased, primarily due to gaming taxes and labor costs.
- SG&A rose to $24.2 million from $19.9 million, but declined as a share of revenue to 22.3% from 26.6%. Interest expense fell to $0.7 million from $1.6 million.
- Operating cash flow increased to $35.4 million. Capital expenditures and related investment cash outflows rose year over year as the company completed expansion-related work and upgraded properties.
- The company repurchased 100,000 shares for $6.5 million in a privately negotiated transaction. It made $5.0 million of mandatory and $5.0 million of optional term-loan principal payments during the quarter.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management said anticipated operating cash flow and available revolver capacity were expected to fund operations and planned capital expenditures for the 12 months following filing. It cautioned that adverse operating or other conditions could require reduced or deferred capital spending, asset sales, debt restructuring, or additional equity.
- Management cited wage and inflationary pressures, labor availability, supply-chain disruptions, COVID-19 uncertainty, interest-rate exposure, competition, and dependence on two resorts as risks. A 1 percentage-point increase in rates on the $80 million outstanding facility balance would increase annual interest cost by approximately $0.8 million.
- Construction litigation with PCL and related mechanics’ lien claims remains unresolved. The Denver Action trial was scheduled for September 6, 2022; the related Gilpin Action was stayed. The company said it could not determine the probability of outcome or reasonably estimate a loss or gain. Construction-litigation expenses were $1.3 million in Q1 2022 versus $0.6 million in Q1 2021.
- Management reported no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- The filing gives inconsistent maximum Total Leverage Ratio covenant limits: 4.5:1 in Note 6 and 4.0:1 in Management’s Discussion and Analysis. Both sections report an actual ratio of 0.5:1; confirm the applicable covenant threshold.
- Track whether the completed Black Hawk expansion sustains occupancy, room rates, gaming revenue, and operating margins as the prior-year comparison normalizes.
- Monitor the expected $24.4 million tax refund, the $20 million of scheduled debt payments over the next 12 months, the September 2023 credit-facility maturity, and liquidity relative to the working capital deficit.
- Follow the PCL litigation and lien claims, including trial developments, potential costs, and any eventual financial impact; the filing does not quantify the exposure.