What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-06 compared with 2020-08-07 · 103 added, 109 removed, 178 unchanged (54% of the section changed)

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Various risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including the following factors:

● adverse impacts of the COVID-19 outbreak on our business, constructions projects, financial condition, liquidity, cash flows, operating results, and access to capital markets;

● adverse impacts of the COVID-19 outbreak on short-term and long-term travel, leisure and discretionary spending habits and practices of our guests;

● actions by government officials at the federal, state or local level, including, without limitation, further temporary or extended shutdowns, travel restrictions, social distancing and shelter-in-place orders, in connection with the COVID-19 outbreak;

● continuing adverse impacts of the COVID-19 outbreak on our business, constructions projects, financial condition, liquidity, cash flows, operating results, and access to capital markets, including the worsening of such impacts and the continuation for an unknown period of time;

● continuing adverse impacts of the COVID-19 outbreak on short-term and long-term travel, leisure and discretionary spending habits and practices of our guests;

● continuing actions by government officials at the federal, state or local level, including, without limitation, further temporary or extended shutdowns, travel restrictions, social distancing and shelter-in-place orders, in connection with the COVID-19 outbreak;

● impact of any further temporary or extended shutdowns on our ability to maintain compliance with the terms and conditions of our credit facilities and other material contracts;

● our ability to manage guest safety concerns caused by COVID-19;

● our ability to negotiate relief options and amendments to our Amended Credit Facility;

● our ability to maintain strong relationships with our regulators, employees, lenders, suppliers, customers, insurance carriers, and other stakeholders;

● our ability to maintain strong relationships with our regulators, employees, lenders, suppliers, insurance carriers, customers and other stakeholders;

● impact of any uninsured losses;

● the adverse impact of cancellations and/or postponements of hotel stays and convention and trade shows on our business, market position, growth, financial condition and operating results;

● a delay in or failure of the changes in guest visitation, entertainment choices and spending patterns, including

a decrease in overall demand after reopening our casinos, due to health and other concerns, to return to normalized pre-pandemic levels;

● the adverse impact of cancellations and/or postponements of hotel stays and convention and trade shows on

our business, market position, growth, financial condition and operating results;

● a delay in or failure of the changes in guest visitation, entertainment choices and spending patterns, including a decrease in overall demand after reopening our casinos, due to health and other concerns, to return to normalized pre-pandemic levels;

● the impact of social distancing requirements and other health and safety protocols implemented at our properties, including a reduction in operating margins (or negative operating margins);

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● construction factors, including delays, disruptions, construction defects, increased costs of labor and materials, contractor disagreements, availability of labor and materials, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters, occupancy and building permit issues and other regulatory approvals or issues;

● ongoing disagreements over costs of and responsibility for delays, construction defects and other construction related matters with our Monarch Casino Black Hawk general contractor, including, as previously reported, the litigation against us by such contractor and our filing of affirmative defenses and extensive counterclaims against the Monarch Casino Black Hawk contractor;

● ongoing disagreements over costs of and responsibility for delays, construction defects and other construction related matters with our Monarch Casino Black Hawk general contractor, PCL Construction Services, Inc., including, as previously reported, the litigation against us by such contractor and our filing of affirmative defenses and extensive counterclaims against the Monarch Casino Black Hawk contractor;

● our potential need to post bonds or other forms of surety to support our legal remedies;

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● general market and economic conditions, including but not limited to, the effects of local and national economic, housing and energy conditions on the economy in general and on the gaming and lodging industries in particular;

● the potential of increases in state and federal taxation to address budgetary and other impacts of the COVID-19 pandemic;

● the potential of increased regulatory and other burdens to address the direct and indirect impacts of COVID-19 pandemic;

● the impact of rising interest rates and our ability to refinance debt as it matures at commercially reasonable rates or at all;

● fluctuations in interest rates, including the impact of any discontinuance, modification or other reform of

LIBOR, or the establishment of alternative reference rates;

● fluctuations in interest rates, including the impact of any discontinuance, modification or other reform of LIBOR, or the establishment of alternative reference rates;

● our ability to continue to comply with the covenants and terms of our credit instruments;

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Since the acquisition of Monarch Casino Black Hawk in April 2012, our focus has been to maximize casino and food and beverage revenues while upgrading the existing facility and working on the major expansion.

There is currently no hotel on the property.

In August 2015, we completed the redesign and upgrade of the existing Monarch Casino Black Hawk, bringing to the facility’s interior the same quality, ambiance and finishes of the ongoing master planned expansion that we expect will transform Monarch Casino Black Hawk into a full-scale casino resort.

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Once completed, the Monarch Black Hawk Expansion will nearly double the casino space and will add a 23-story hotel tower with approximately 500 guest rooms and suites, an upscale spa and pool facility, three additional restaurants (increasing the total to four), additional bars and associated support facilities.

Based on the current construction progress, the Company anticipates that the podium, which includes the expanded casino, restaurants, hotel administration, and lounges, as well as some hotel floors, will open in the third quarter of 2020 and the balance of the hotel tower will open in the fourth quarter of 2020.

The Company expects to open the expanded Monarch Casino Resort Spa Black Hawk in the fourth quarter of 2020.

KEY PERFORMANCE INDICATORS

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Impact of the COVID-19 Pandemic

Monarch operating results for the three and six months ended June 30, 2020 were significantly impacted by the unprecedented government-mandated closure of our Nevada and Colorado properties in response to the COVID 19 pandemic, which lasted approximately three months.

Monarch operating results for the three and nine months ended September 30, 2020 were significantly impacted by the unprecedented government-mandated closure of our Nevada and Colorado properties in response to the COVID 19 pandemic, which lasted approximately three months and the effect of the ongoing pandemic after resuming operations.

In March 2020, the World Health Organization declared the rapidly growing COVID-19 outbreak a global pandemic.

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Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively.

The poker room and buffet at Atlantis have not yet resumed operations.

At our Colorado property, table games have not yet resumed operations and our buffet is temporarily being operated as a table-service restaurant.

Additionally, changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at Atlantis and in all restaurants, and a decreased number of active slot machines on the casino floors.

The poker room and buffet at Atlantis resumed operations at the beginning of August.

The table games at our Colorado property resumed operation on September 11, 2020.

The buffet at our Colorado property is temporarily being operated as a table-service restaurant.

Additionally, changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games at and in all restaurants, and a decreased number of active slot machines on the casino floors.

The convention business at Atlantis was affected by the state-mandated gathering limits, which at this time are 50 persons or 50% of fire code capacity, whichever is less.

We have experienced hotel stay and convention booking cancelations, and since the reopening, guest visitation and hotel and convention bookings have been lower than prior to the state-mandated closures, and are expected to remain lower for the near future.

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While we have incurred significant disruptions from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the possibility of the outbreak levels seen to return, the impact on demand following the reopening of our casinos, and other actions or restrictions that may be taken by governmental authorities, the impact to the general U.S economy and to our customers and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q.

We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

Comparison of Operating Results for the Three-Month Periods Ended June 30, 2020 and 2019

For the three months ended June 30, 2020, our net loss totaled $4.3 million, or $(0.24) per diluted share, compared to net income of $9.3 million, or $0.50 per diluted share for the same period in 2019, reflecting a 146.8% and 148.0% decrease in net (loss) income and diluted (losses) earnings per share, respectively.

Net revenues in the three months ended June 30, 2020, totaled $15.2 million, a decrease of $47.6 million, or 75.9%, compared to the three months ended June 30, 2019.

Loss from operations for the three months ended June 30, 2020 totaled $5.5 million compared to 11.6 million for the same period in 2019.

Casino revenue decreased 69.8% in the second quarter of 2020 compared to the second quarter of 2019 which was driven by the COVID-19 outbreak.

Gaming operations were suspended more than two thirds of the second quarter of 2020.

Casino operating expense as a percentage of casino revenue decreased to 26.8% for the three months ended June 30, 2020 compared to 34.5% for the three months ended June 30, 2019, as a result of effective cost management.

Food and beverage revenue for the second quarter of 2020 decreased 83.9% compared to the second quarter of 2019 due to an 88.8% decrease in food and beverage covers, as a result of the pandemic related suspension of our food and beverage operations during the majority of the quarter.

We will continue to evaluate the nature and extent of the impact to our business, results of operations, and financial condition.

Comparison of Operating Results for the Three-Month Periods Ended September 30, 2020 and 2019

For the three months ended September 30, 2020, our net income totaled $10.7 million, or $0.57 per diluted share, compared to net income of $9.3 million, or $0.50 per diluted share for the same period in 2019, reflecting a 15.2% and 14.0% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended September 30, 2020, totaled $59.9 million, a decrease of $5.7 million, or 8.7%, compared to the three months ended September 30, 2019.

Income from operations for the three months ended September 30, 2020 totaled $13.4 million compared to $11.5 million for the same period in 2019.

Casino revenue increased 9.1% in the third quarter of 2020 compared to the third quarter of 2019 which was driven by the increased spending per visit.

Casino operating expense as a percentage of casino revenue decreased to 28.3% for the three months ended September 30, 2020 compared to 34.2% for the three months ended September 30, 2019, as a result of effective cost management and higher casino revenue at Atlantis.

Food and beverage revenue for the third quarter of 2020 decreased 30.0% compared to the third quarter of 2019 due to an 42.4% decrease in food and beverage covers, as a result of capacity and other regulatory limitations which remain in effect in Reno and Black Hawk due to the ongoing pandemic.

Food and beverage revenue per cover increased year-over-year by a 21.4%.

Food and beverage operating expense as a percentage of food and beverage revenue increased in the second quarter of 2020 to 96.6% compared to 79.6% for the same period in 2019 primarily as a result of a decrease in revenue due to the COVID-19 pandemic-related shutdown of our operations and an increase in labor expenses as a percentage of revenue.

Hotel revenue decreased 83.3% in the second quarter of 2020 compared to the second quarter of 2019 due to the suspension of our hotel operations during the majority of the quarter and lower hotel occupancy of 61.3% during the period the hotel was opened in the second quarter of 2020 compared to 88.3% during the second quarter of 2019.

The ADR decreased $28.87, from $129.91 in the second quarter of 2019 to $101.04 in the second quarter of 2020.

REVPAR, calculated by dividing total hotel revenue by total rooms available, was $66.65 and $118.34 for the three months ended June 30, 2020 and 2019, respectively.

Hotel operating expense as a percentage of hotel revenue increased to 61.8% in the second quarter of 2020 compared to 39.1% for the comparable prior year period primarily as a result of the COVID-19 pandemic related shutdown of our operations.

Other revenue decreased 71.8% in the second quarter of 2020 compared to the same prior year period.

Selling, general and administrative (“SG&A”) expense decreased to $8.9 million in the second quarter of 2020 from $16.5 million in the second quarter of 2019 primarily due to cost mitigation measures implemented during the closure of our properties, including the temporary furlough of approximately 90% of the Company’s employees, a 50% reduction of executives’ salaries, and the CEO and board members having forgone all cash compensation.

As a percentage of net revenue, SG&A expense increased to 58.5% in the second quarter of 2020 compared to 26.3% in the same period in 2019.

Depreciation and amortization expense increased to $3.8 million for the three months ended June 30, 2020 compared to $3.7 million for the same prior year period, due to new assets placed into service during the current quarter.

During the second quarter of 2020, we recognized $0.2 million in pre-opening expense related to the Monarch Black Hawk Expansion project, $0.2 million in professional service fees relating to our construction litigation, $0.5 million in Colorado legislation lobbying expenses and $0.3 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations.

During the second quarter of 2019, we recognized $0.2 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk.

Food and beverage operating expense as a percentage of food and beverage revenue decreased in the third quarter of 2020 to 75.1% compared to 79.4% for the same quarter in 2019 primarily as a result of lower year over year COGS percentage.

Hotel revenue decreased 33.1% in the third quarter of 2020 compared to the same quarter of 2019 as a result of lower hotel occupancy of 80.3% during the period compared to 95.5% during the third quarter of 2019 and a decrease in ADR of $30.22 ($100.76 in the third quarter of 2020 compared to 130.98 in the third quarter of 2019).

The occupancy and ADR were negatively impacted by the continuing COVID-19 pandemic government-enforced restrictions and by the continuing decline of travel and convention businesses in general due to the pandemic.

REVPAR, was $87.87 and $131.26 for the three months ended September 30, 2020 and 2019, respectively.

Hotel operating expense as a percentage of hotel revenue increased to 42.3% in the third quarter of 2020 compared to 34.8% for the comparable prior year period primarily as a result of the decrease in ADR and higher labor costs as a result of an increase in housekeeping wages.

Other revenue decreased 2.1% in the third quarter of 2020 compared to the same prior year period.

SG&A expense decreased to $15.9 million in the third quarter of 2020 from $17.9 million in the third quarter of 2019 primarily due to:

a $1.4 million decrease in promotional and marketing expenses;

a $0.2 million decrease in labor expense;

a $0.2 decrease in travel expense;

a $0.2 million decrease in repair and maintenance expense.

As a percentage of net revenue, SG&A expense decreased to 26.5% in the third quarter of 2020 compared to 27.3% in the same period in 2019.

Depreciation and amortization expense increased to $3.9 million for the three months ended September 30, 2020 compared to $3.7 million for the same prior year period, due to new assets placed into service during the current quarter.

During the third quarter of 2020, we recognized $0.9 million in pre-opening expense related to the Monarch Black Hawk Expansion project, $0.5 million in professional service fees relating to our construction litigation, $0.5 million in Colorado legislation lobbying expenses, $0.4 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations, and $0.1 million in unamortized debt issuance cost write off.

During the third quarter of 2019, we recognized $0.9 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk and $0.2 million in professional service fees relating to our construction litigation.

These expenses are included in Other operating items, net in the Consolidated Statement of Operations.

During each of the second quarters of 2020 and 2019, we capitalized $1.4 million of interest, which is all interest, paid and accrued during those quarters, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion.

See further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

Comparison of Operating Results for the Six-Month Periods Ended June 30, 2020 and 2019

For the six months ended June 30, 2020, we had a net loss of $2.3 million, or $(0.13) per diluted share, compared to net income of $16.3 million, or $0.88 per diluted share for the same period in 2019, reflecting a 114.3% and 114.8% decrease in net income and diluted earnings per share, respectively.

Net revenues in the six months ended June 30, 2020, totaled $66.2 million, a decrease of $55.3 million, or 45.5%, compared to the six months ended June 30, 2019.

Loss from operations for the six months ended June 30, 2020 totaled a $3.4 million compared to $20.4 million income from operations for the same period in 2019.

Casino revenue decreased 40.2% in the first six months of 2020 compared to the first six months of 2019 and was driven by the COVID-19 outbreak, which culminated in a suspension of our operations in mid-March 2020, partially offset by an increase in guests’ spend per visit during the first two months of 2020 compared to the same period in 2019.

Casino operating expense as a percentage of casino revenue decreased to 33.2% for the six months ended June 30, 2020 compared to 35.8% for the six months ended June 30, 2019.

Food and beverage revenue for the first six months of 2020 decreased 50.5% compared to the 2019 same period due to a 57.0% decrease in food and beverage covers, partially offset by a 14.9% increase in food and beverage revenue per cover.

Food and beverage operating expense as a percentage of food and beverage revenue increased in the first six months of 2020 to 86.8% compared to 79.4% for the same period in 2019 primarily as a result of the decline in casino revenue due to the COVID-19 pandemic and the subsequent shutdown of our operations for approximately three months.

Hotel revenue decreased 54.4% in the first six months of 2020 compared to the first six months of 2019 due to the pandemic related hotel shutdown for approximately three months and the decrease in hotel occupancy to 71.8% during the period the hotel was open compared to 86.3% occupancy during the first six months of 2019, combined with a $5.33 decrease in ADR, from $126.06 in the first six months of 2019 to $120.73 in the first six months of 2020.

REVPAR was $91.85 and $116.53 for the period the hotel was open in the first six months ended June 30, 2020 and for the six months ended June 30, 2019, respectively.

Hotel operating expense as a percentage of hotel revenue increased to 49.4% in the first six months of 2020 compared to 38.0% for the comparable prior year period primarily as a result of the COVID-19 pandemic and the subsequent shutdown of our operations.

Other revenue decreased 45.5% in the first six months of 2020 compared to the same prior year period.

SG&A expense decreased to $26.1 million in the first six months of 2020 from $33.0 million in the first six months of 2019 primarily due to the COVID-19 shutdown and the related cost mitigation measures taken by management.

As a percentage of net revenue, SG&A expense increased to 39.4% in the first six months of 2020 compared to 27.1% in the same period in 2019.

Depreciation and amortization expense increased to $7.7 million for the six months ended June 30, 2020 compared to $7.3 million for the same prior year period, due to new assets placed into service during the six-month period.

During the first six months of 2020, we recognized $1.0 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk, $0.3 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company, $0.8 million Colorado in legislation lobbing expenses and $0.3 in million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations.

During the first six months of 2019, we recognized $0.6 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk.

During the third quarters of 2020 and 2019, we capitalized $1.8 million and $1.7 million of interest, respectively, which is all interest, paid and accrued during those quarters, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion.

See further discussion of our Fourth Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2020 and 2019

The operating results for the 2020 nine-month period reflect the government-mandated closer of our operations for approximately three months, as well as the effect of the continuing regulatory limitations relating to the ongoing pandemic, which remained in force after the reopening of our properties.

For the nine months ended September 30, 2020, we had a net income of $8.4 million, or $0.44 per diluted share, compared to net income of $25.6 million, or $1.37 per diluted share for the same period in 2019, reflecting a 67.1% and 67.9% decrease in net income and diluted earnings per share, respectively.

Net revenues in the nine months ended September 30, 2020, totaled $126.0 million, a decrease of $61.1 million, or 32.6%, compared to the nine months ended September 30, 2019.

Income from operations for the nine months ended September 30, 2020 totaled a $10.1 million compared to $31.9 million income from operations for the same period in 2019.

Casino revenue decreased 22.6% in the first nine months of 2020 compared to the first nine months of 2019 and was driven by the COVID-19 outbreak, which culminated in a suspension of our operations in mid-March 2020 through beginning/mid-June 2020, partially offset by an increase in guest spend per visit during the period the properties were opened in 2020 compared to the same period in 2019.

Casino operating expense as a percentage of casino revenue decreased to 30.7% for the nine months ended September 30, 2020 compared to 35.2% for the nine months ended September 30, 2019 primarily as a result of targeted cost cutting measures.

Food and beverage revenue for the first nine months of 2020 decreased 43.6% compared to the 2019 same period due to a 52.1% decrease in food and beverage covers, partially offset by a 17.8% increase in food and beverage revenue per cover.

Food and beverage operating expense as a percentage of food and beverage revenue increased in the first nine months of 2020 to 81.8% compared to 79.4% for the same period in 2019 primarily as a result of the decline in F&B revenue due to the COVID-19 pandemic and the subsequent shutdown of our operations for approximately three months.

Hotel revenue decreased 46.7% in the first nine months of 2020 compared to the first nine months of 2019 due to the pandemic related hotel shutdown for approximately three months and the decrease in hotel occupancy to 75.7% during the period the hotel was open compared to 89.4% occupancy during the first nine months of 2019, combined with a $16.95 decrease in ADR, from $127.82 in the first nine months of 2019 to $110.87 in the first nine months of 2020.

REVPAR was $89.99 and $121.49 for the period the hotel was open in the first nine months ended September 30, 2020 and for the nine months ended September 30, 2019, respectively.

Hotel operating expense as a percentage of hotel revenue increased to 46.2% in the first nine months of 2020 compared to 36.8% for the comparable prior year period primarily as a result of the ongoing impact of the COVID-19 pandemic.

Other revenue decreased 31.5% in the first nine months of 2020 compared to the same prior year period.

SG&A expense decreased to $41.9 million in the first nine months of 2020 from $50.8 million in the first nine months of 2019 primarily due to the COVID-19 shutdown and the related cost mitigation measures taken by management.

As a percentage of net revenue, SG&A expense increased to 33.3% in the first nine months of 2020 compared to 27.2% in the same period in 2019.

Depreciation and amortization expense increased to $11.5 million for the nine months ended September 30, 2020 compared to $11.0 million for the same prior year period, due to new assets placed into service during the nine-month period.

During the first nine months of 2020, we recognized $1.9 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk, $0.8 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company, $1.4 million in Colorado legislation lobbing expenses, $0.7 in million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations and $0.1 million in unamortized debt issuance cost write off.

During the first nine months of 2019, we recognized $1.5 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk and $0.2 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company.

Those expenses are included in Other operating items, net in the Consolidated Statement of Operations.

During the first six months of 2020 and 2019, we capitalized $3.2 million and $2.6 million of interest, respectively, which is all interest, paid and accrued during those periods, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion.

During the first nine months of 2020 and 2019, we capitalized $5.0 million and $4.2 million of interest, respectively, which is all interest, paid and accrued during those periods, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion.

See further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

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In addition, we have invested, and continue to invest, in our Monarch Black Hawk Expansion.

Cash paid for capital expenditures for the six-month periods ended June 30, 2020 and 2019 totaled approximately $22.6 million and $73.6 million, respectively.

During the six-month period ended June 30, 2020 our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch Casino Black Hawk and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Casino Black Hawk.

The capital expenditures during this period were funded from available cash and cash equivalents.

During the six-month period ended June 30, 2019, our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch Casino Black Hawk, the renovation of hotel suites at Atlantis and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Casino Black Hawk.

The capital expenditures during this period were funded from operating cash flows, available cash and cash equivalents and borrowings from the credit facility.

Cash paid for capital expenditures for the nine-month periods ended September 30, 2020 and 2019 totaled $36.3 million and $110.7 million, respectively.

During the nine-month period ended September 30, 2020 our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch Casino Black Hawk, a restaurant and a bar renovation at Atlantis and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Casino Black Hawk.

During the nine-month period ended September 30, 2019, our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch Casino Black Hawk, the renovation of hotel suites at Atlantis and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Casino Black Hawk.

The capital expenditures during both periods were funded from operating cash flows, available cash and borrowings from the credit facility.

Monarch Black Hawk Expansion

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Our total overall budget for the completion of the Monarch Casino Black Hawk hotel tower and casino expansion is approximately $264 million to $269 million.

Based on the current construction progress, we anticipate that the podium, which includes the expanded casino, restaurants, hotel administration, and lounges, as well as some hotel floors, will open in the third quarter of 2020 and the balance of the hotel tower will open in the fourth quarter of 2020.

We expect to finance the cost through a combination of operating cash flows, available cash and cash equivalents and the Amended Credit Facility.

We anticipate opening the expanded Monarch Casino Resort Spa Black Hawk in the fourth quarter of 2020, with operations ramping up throughout 2021.

We expect to finance the remaining cost through a combination of operating cash flows, available cash and cash equivalents and the Fourth Amended Credit Facility.

We can provide no assurance that any project will be completed on schedule, if at all, or within established budgets, or that any project will result in increased earnings to us.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity have been cash provided by operations, and available cash and cash equivalents, and, for capital expansion projects, borrowings available under our Amended Credit Facility.

Our principal sources of liquidity have been cash provided by operations, and available cash and cash equivalents, and, for capital expansion projects, borrowings available under our credit facility.

On June 4, 2020, Atlantis Casino Resort Spa re-opened, after approximately two and a half months of closure ordered by the Nevada governor in response to the COVID-19 pandemic, and resumed limited operations.

On June 17, 2020, Monarch Casino Black Hawk, re-opened, after approximately three months of closure ordered by the Colorado governor in response to the COVID-19 pandemic, and resumed limited operations.

For the six months ended June 30, 2020, net cash used in operating activities totaled $10.0 million, compared to net cash provided by operating activities of $31.7 million in the same prior year period.

For the nine months ended September 30, 2020, net cash provided by operating activities totaled $19.3 million, compared to net cash provided by operating activities of $48.0 million in the same prior year period.

This decrease was primarily a result of a decrease in net income combined with an increase in working capital, especially a decrease in accounts payable and accrued expenses.

Net cash used in investing activities totaled $22.6 million and $73.6 million during the six months ended June 30, 2020 and 2019, respectively.

Net cash used in investing activities during the first six months of 2020 consisted primarily of cash used for the new hotel tower and casino expansion at Monarch Casino Black Hawk and for acquisition of gaming and other equipment at both properties.

Net cash used in investing activities during the first six months of 2019 consisted primarily of cash used for the new hotel tower and casino expansion at Monarch Casino Black Hawk, for the renovation of hotel suites at Atlantis and for acquisition of gaming and other equipment at both properties.

Net cash provided by financing activities in the first six months of 2020 totaled $10.4 million and consisted of $16 million borrowing under the Amended Credit Facility revolving loan, offset by $5.0 million mandatory principal payment to the Amended Credit Facility term loan, as well as a $0.6 million effect from the stock options net exercise.

In the first six months of 2019, we borrowed $38.0 million under the Amended Credit Facility.

Net cash used in investing activities totaled $36.3 million and $110.7 million during the nine months ended September 30, 2020 and 2019, respectively.

Net cash used in investing activities during the first nine months of 2020 consisted primarily of cash used for the new hotel tower and casino expansion at Monarch Casino Resort Black Hawk, for a restaurant and a bar renovation at Atlantis and for acquisition of gaming and other equipment at both properties.

Net cash used in investing activities during the first nine months of 2019 consisted primarily of cash used for the new hotel tower and casino expansion at Monarch Casino Black Hawk, for the renovation of hotel suites at Atlantis and for acquisition of gaming and other equipment at both properties.

Net cash used for financing activities in the first nine months of 2020 totaled $13.0 million and consisted of $11.3 million principal payments, net of the borrowing under the credit facility, $2.9 million bad debt refinancing cost, offset by $1.2 million effect from the stock options net exercise.

In the first nine months of 2019, we borrowed $61.4 million under the Amended Credit Facility.

The borrowings were used to fund the Monarch Casino Black Hawk Expansion.

Net cash provided by financing activities

Amended Credit Facility

On July 20, 2016, the Company entered into an Amended Credit Facility.

Under the Amended Credit Facility, the Company’s available borrowing capacity was $250.0 million, and the maturity date was July 20, 2021.

At December 31, 2019, the total revolving loan commitment under the Amended Credit Facility was automatically and permanently reduced to $50.0 million and all $200.0 million outstanding under the revolving loan was converted to a term loan.

Prior to the conversion, we drew all available borrowings up to $200.0 million.

Following the conversion to a term loan, on December 31, 2019, we made a $3.8 million mandatory principal payment.

As of June 30, 2020 , the Company had an outstanding principal balance of $191.3 million under the Amended Credit Facility term loan.

As of June 30, 2020, the Company had $16.0 million outstanding and $34 million remaining in available borrowings under the Amended Credit Facility revolving loan.

On September 3, 2020, we entered into the Fourth Amended and Restated Credit Agreement with Wells Fargo Bank, N.A., as administrative agent and certain banks (the “Fourth Amended Credit Facility”).

The Fourth Amended Credit Facility amends and restates the Company’s $250.0 million credit facility, dated as of July 20, 2016 (the “Amended Credit Facility”).

On September 29, 2020, the Company and its lender executed an Amendment to the Fourth Amended Credit Facility, which amends the definition of “Financial Covenant Start Date”.

The Fourth Amended Credit Facility extends the maturity date of the Amended Credit Facility from July 20, 2021 to September 3, 2023.

In addition, the Fourth Amended Credit Facility increases the aggregate principal amount of the credit facilities to $270.0 million.

The $270.0 million Fourth Amended Credit Facility consists of:

$200 million term loan (“Term Loan Facility”) and $70 million revolving credit facility (“Revolving Credit Facility”).

We are required to make quarterly principal payments under the Term Loan Facility on each Term Loan Installment Date, commencing on December 31, 2020, in an amount equal to (x) the percentage set forth opposite the applicable period during which such Term Loan Installment Date occurs (i.e., 1.25% for the period from December 31, 2020 to September 30, 2021, and 2.50% for the period from December 31, 2021 and thereafter) multiplied by (y) $200.0 million.

Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company may be required to prepay borrowings under the Fourth Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio.

The estimated amount of the mandatory principal payments due in the next twelve months is $10.0 million.

As of September 30, 2020, we had an outstanding principal balance of $185.0 million under the Term Loan Facility, from which $10 million is expected to have a maturity date in next twelve months.

As of September 30, 2020, we had $70.0 million available borrowings under the Revolving Credit Facility.

The Company has a $0.6 million Standby Letter of Credit, from which there have been no withdrawals.

Borrowings are secured by liens on substantially all of the Company’s real and personal property.

In addition to other customary covenants for a facility of this nature, as of June 30, 2020, we are required to maintain a Total Leverage Ratio (Total Funded Debt divided by EBITDA, as defined in the Amended Credit Facility) of no more than 3.5:1 and a Fixed Charge Coverage Ratio (EBITDA divided by fixed charges, as defined in the Amended Credit Facility) of at least 1.15:1.

As of June 30, 2020, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 5.2:1 and 1.7:1, respectively.

The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.00% to 2.50%, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00% to 1.50%, or the Prime Rate.

In addition to other customary covenants for a facility of this nature, as of September 30, 2020, we are required to maintain a Total Leverage Ratio (as defined in the Fourth Amended Credit Facility) of no more than 4.75:1;

Fixed Charge Coverage Ratio (as defined in the Fourth Amended Credit Facility) of at least 1.15:1;

and Minimum Operational Liquidity (as defined in the Fourth Amended Credit Facility) of $25.0 million.

As of September 30, 2020, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 2.2:1 and 9.1:1, respectively and our Operational Liquidity were $76.5 million.

The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.75% to 3.25%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75% to 2.25%, or the Prime Rate.

The applicable margins vary depending on Company’s leverage ratio.

We may prepay borrowings under the Amended Credit Facility revolving loan without penalty (subject to certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period).

Amounts prepaid may be re-borrowed so long as the total borrowings outstanding do not exceed the maximum principal available.

On the terms and subject to some conditions, we may, at any time before the Maturity Date, request an increase of the total revolving loan commitment, provided that each such increase is equal to $15.0 million or an integral multiple of $1.0 million in excess and, after giving effect to the requested increase, the aggregate amount of the increases in the total revolving loan commitment shall not exceed $75.0 million.

We are required to make principal payments on the amount of the term loans on each Term Loan Installment Date (last business day of each quarter, starting with the quarter ending December 31, 2019) in an amount equal to (x) the percentage set forth opposite the applicable year during which such Term Loan Installment Date occurs multiplied by (y) the Conversion Amount.

The estimated amount of the mandatory principal payment due in the next twelve months is $25.0 million.

In relation to the COVID-19 pandemic closure of our properties, the Company and the lender executed, on June 9, 2020, Limited Waiver and Amendment to Credit Agreement.

The lender agreed to waive any default or event of default under the Amended Credit Facility resulting from (i) the failure to have the Atlantis Casino Resort or the Monarch Casino Black Hawk open and operating during the period commencing on April 1, 2020 and ending on September 30, 2020;

(ii) the construction of the Monarch Black Hawk Expansion being stopped at any time prior to September 30, 2020;

and (iii) the occurrence of a material adverse change on or prior to September 30, 2020, as a result of a mandated business cessation order.

The lender also agreed to waive any default on the financial covenants under the Amended Credit Facility for a period commencing on April 1, 2020 and ending on September 29, 2020.

The Amended Credit Facility was amended by adding a new definition, “Operational Liquidity”, to the Amended Credit Facility.

Operational Liquidity as defined is, as of any date of determination, the amount by which (a) (i) the Unused Revolving Commitment as of such date, plus (ii) cash (including cage cash) as of such date exceeds (b) (i) $24,000,000 minus (ii) any retainage costs with respect to the expansion project and any settlement or judgment under the PCL Litigation paid in cash;

provided that from and after the expansion project completion date, the receipt of a final certificate of occupancy (or its local equivalent) for the expansion project and the final resolution or disposition of the PCL Litigation, the amount in this clause (b) shall be deemed to be zero.

The Borrowers shall not permit Operational Liquidity to be less than $25,000,000 at any time.

In addition, any borrowing under the Amended Credit Facility, greater than $26,000,000 shall be used solely to pay retainage costs with respect to the Expansion Project and any settlement or judgment under the PCL Litigation.

As a part of the limited waiver and amendment, for a period starting on June 9, 2020 until the first adjustment to occur after the fiscal quarter ending September 30, 2020, the interest rate is set as LIBOR plus 2.50%, or base rate plus 1.50% and the commitment fees are set at 0.45%.

We are in continuing discussions with our lenders regarding additional relief options and amendments of the Amended Credit Facility.

Currently, we have a term sheet and firm commitment letters from all banks participating in the current lending group for refinancing, which will be completed upon signing of the documents and will increase our credit facility and extend the lending period.

If negotiations for the refinancing are not successful, this could have a material adverse impact to the Company’s financial condition.

We believe that the $18.7 million cash in our interest-bearing money market fund and the $34.0 million available under our Amended Credit Facility as of June 30, 2020, as well as anticipated operating cash flow, will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended June 30, 2020 and fulfill our capital expenditure plans.

On the terms and subject to some conditions, the Company may, at any time before the Maturity Date, request an increase of Revolving Credit Facility, provided that each such increase is equal to $15.0 million or an integral multiple of $1.0 million in excess and, after giving effect to the requested increase, the aggregate amount of the increases in the total revolving loan commitment shall not exceed $75.0 million.

The Company may prepay borrowings under the Fourth Amended Credit Facility revolving loan without penalty (subject to certain conditions and certain charges applicable to the prepayment of LIBOR borrowings prior to the end of the applicable interest period).

Once reduced or cancelled, the Revolving Credit Facility may not be increased or reinstated without the prior written consent of all lenders.

We believe that the $4.0 million cash in our interest-bearing money market fund and the $70.0 million available under our Fourth Amended Credit Facility as of September 30, 2020, as well as anticipated operating cash flow, will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended September 30, 2020 and fulfill our capital expenditure plans.

However, we are surrounded by uncertainty about COVID-19, as well as financial, economic, competitive, regulatory, and other factors, many of which are beyond our control.

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CONTRACTUAL OBLIGATIONS

Our contractual obligations as of June 30, 2020 and the next five years and thereafter are as follow (in millions):

Our contractual obligations as of September 30, 2020 and the next five years and thereafter are as follow (in millions):

Payments due by period (1)

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Total Contractual Cash Obligations

(1) Because interest payments under our Amended Credit Facility are subject to factors that, in our judgment, vary materially, the amount of future interest payments is not presently determinable.

(1) Because interest payments under our Fourth Amended Credit Facility are subject to factors that, in our judgment, vary materially, the amount of future interest payments is not presently determinable.

These factors include:

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and iii) the rate at which we deploy capital and other spending which, in turn, impacts the level of future borrowings.

The interest rate is adjusted quarterly based on our leverage ratio, which is calculated using operating results over the previous four quarters and borrowings at the end of the most recent quarter.

Based on our leverage ratio and the Limited Waiver and Amendment to Credit Agreement, signed on June 9, 2020, at June 30, 2020, pricing was LIBOR plus 2.5%.

The interest rate under the Fourth Amended Credit Facility is LIBOR plus a margin ranging from 1,75% to 3.25%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75% to 2.25%, or the Prime Rate.

The interest rate is adjusted quarterly based on our leverage ratio.

Based on our leverage ratio, at September 30, 2020, pricing was LIBOR plus 2.25%.

(2) Operating leases include the Driveway Lease, the Parking Lot Lease and billboards leases.

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All of the purchase orders and construction commitments are cancelable by us upon providing a 30-day notice.

(4) The amount represents payment obligations of outstanding draws against the Amended Credit Facility as of June 30, 2020.

(4) The amount represents payment obligations of outstanding draws against the Fourth Amended Credit Facility as of September 30, 2020.

As described in the “CAPITAL SPENDING AND DEVELOPMENT” section above, we commenced a substantial expansion of our Monarch Casino Black Hawk facility starting in 2014.

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For this reason, we have included in the table above only the amounts for which we have contractual commitments.

At June 30, 2020, we estimate that the remaining cost to complete the Monarch Black Hawk Expansion is between $9 million and $16 million.

At September 30, 2020, we estimate that the remaining cost to complete the Monarch Black Hawk Expansion is between $5 million and $12 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis