What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 118 added, 148 removed, 133 unchanged (67% of the section changed)

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and its subsidiaries.

STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) including, but not limited to (i) the impact of the COVID-19 pandemic on our revenues, cash flows, liquidity, construction projects, results of operations and financial condition;

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by words such as:

“believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “will,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions, as well as statements containing phrases such as “in our view,” or “we cannot assure you,” “although no assurance can be given,” Examples of forward-looking statements include, among others, statements we make regarding:

(i) the impact of the COVID-19 pandemic on our revenues, cash flows, liquidity, construction projects, results of operations and financial condition;

(ii) our expectations regarding the return to normalized operations;

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and (xiv) our expectations regarding legal and other matters.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.

We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements.

When words and expressions such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “will,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions are used in this Form 10-Q, as well as statements containing phrases such as “in our view,” “we cannot assure you,” “although no assurance can be given,” or “there is no way to anticipate with certainty,” forward-looking statements are being made.

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:

● 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;

Forward-looking statements are neither historical facts nor assurances of future performance.

Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control.

Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.

Therefore, you should not rely on any of these forward-looking statements.

Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

● continuing adverse impacts of the COVID-19 pandemic on our business, constructions projects, financial condition and operating results, including access to capital markets;

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

● 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 manage guest safety concerns caused by the COVID-19 pandemic;

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

● 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 long-term demand after reopening our casinos and the initial pent-up demand, 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, 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 ongoing disputes 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.(“PCL”), including, as previously reported, the litigation against us by such contractor and our filing of affirmative defenses and extensive counterclaims against PCL;

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

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Substantial unanticipated verdicts, fines and rulings do sometimes occur;

● risks and uncertainties relating to obtaining court and governmental approval or permits necessary to open the Monarch Black Hawk Expansion to the public;

● our ability to generate sufficient operating cash flow to service our debt obligations and working capital needs and to help finance our expansion plans;

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● our ability to successfully complete potential acquisitions and investments;

● successful integration of acquisitions;

● access to capital and credit, including our ability to finance future business requirements and the Monarch Black Hawk Expansion;

● access to capital and credit, including our ability to finance future business requirements ;

● risks related to our present indebtedness and future borrowings;

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● our ability to successfully estimate the impact of accounting, tax and legal matters;

● risks, uncertainties and other factors described in “Item 1A - Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) and our other filings with the Securities and Exchange Commission.

● risks, uncertainties and other factors described in Part I, Item 1A.

“Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K") and our other filings with the Securities and Exchange Commission.

Any forward-looking statement made by us in this Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made.

We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions, except as required by law.

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Monarch was incorporated in the state of Nevada in 1993.

We own and operate the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the “Atlantis”) and Monarch Casino Resort Spa Black Hawk, a casino in Black Hawk, Colorado.

We own and operate the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the “Atlantis”) and Monarch Casino Resort Spa Black Hawk (the “Monarch Black Hawk”), a casino in Black Hawk, Colorado.

In addition, we own separate parcels of land located next to the Atlantis and a parcel of land with an industrial warehouse located between Denver, Colorado and Monarch Casino Black Hawk.

We also own Chicago Dogs Eatery, Inc.

and Monarch Promotional Association, both of which were formed in relation to licensure requirements for extended hours of liquor operation in Black Hawk, Colorado.

We earn revenues, operating income and cash flow from Atlantis and Monarch Casino Black Hawk, primarily through our casino, food and beverage operations and, at Atlantis, our hotel operations.

The Monarch Casino Black Hawk does not have a hotel;

however, we are in the process of renovations and construction that will include a hotel.

We earn revenues, operating income and cash flow from Atlantis and Monarch Black Hawk, primarily through our casino, food and beverage operations, and hotel operations.

We focus on delivering exceptional service and value to our guests.

Our hands-on management style focuses on exceptional customer services and cost efficiencies.

Our hands-on management style focuses on customer services and cost efficiencies.

Our business strategy is to maximize revenues, operating income and cash flow primarily through our casino, food and beverage operations and hotel operations.

We continuously upgrade our property.

We continuously upgrade our property and invest in technology.

Reno remains a very healthy local-oriented market.

The tight employment environment and wage pressure remain key challenges.

We expect this to be a recurring trend for the market and Atlantis in the years ahead but we remain confident that our operating strategies will allow Atlantis to grow revenue as our market share continues to expand.

With quality gaming, hotel and dining products, we believe the Atlantis is well positioned to benefit from future macro and local economic growth, as well as for possible adverse macro-economic conditions

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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.

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.

In the fourth quarter of 2013, we began work on the Monarch Black Hawk Expansion.

In November 2016, we opened our elegant nine-story parking facility with about 1,350 spaces for guest use.

Construction of a new hotel tower and casino expansion on the site where the old parking structure was sitting is under way.

(See CAPITAL SPENDING AND DEVELOPMENT – Monarch Black Hawk Expansion).

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.

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

In August 2015, we completed the redesign and upgrade of the existing Monarch Black Hawk property.

In November 2016, we opened for guest use a new nine-story parking structure with approximately 1,350 spaces and additional valet parking, with total property capacity of approximately 1,500 spaces.

In the fourth quarter of 2020 we began a phased opening of our hotel tower and expanded casino floor.

Construction at the property is currently underway to redesign and upgrade part of the legacy building, which will complete the transformation of the property into a full-scale casino resort.

This last stage of the project, which includes converting the existing buffet to a specialty restaurant and adding a poker room, a sports lounge, a keno counter and additional slot machines, is expected to open in 2021.

Through its superior product and service, the property is designed to attract and retain the highest tier guests in the market.

KEY PERFORMANCE INDICATORS

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Impact of the COVID-19 Pandemic

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.

Monarch operating results for the three months ended March 31, 2020 and 2021 were impacted by the COVID-19 pandemic.

The first quarter of 2020 was 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.

The first quarter of 2021 was impacted by the ongoing government imposed restrictions on our operations and additional COVID-19 safety protocols after resuming operations.

At the same time our results of operation for the first quarter of 2021 benefitted from the pent-up demand with patrons across the gaming industry, particularly in regional gaming markets.

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

On March 16, 2020, in an effort to contain the virus, the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Black Hawk and, on March 17, 2020, the state of Nevada mandated the temporary closure of all casinos including the Atlantis in Reno.

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 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.

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

Changes were made from routine operations relating to restrictions in occupancy and social distancing requirements, which include reduced seating at table games 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.

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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Such restrictions could also increase our costs, further decrease our operating margins and have a material adverse effect on our operations, cash flows and financial results.

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.

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 duration and severity of the disease, the possibility of the outbreak levels seen to return, the long-term impact on demand following the reopening of our casinos, and other actions or restrictions that may be taken by governmental authorities, the impact thereof to the general U.S economy and to our customers.

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 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.

Monarch Casino Resort Spa Black Hawk expansion

First quarter of 2021 results benefited from the phased opening of operations at our newly transformed Monarch Casino Resort Spa Black Hawk, which opening started in the fourth quarter of 2020.

By the end of the first quarter of 2021, we had approximately 350 hotel rooms available for guest occupancy.

In February we opened our spa, pool and fitness center.

The new restaurants were gradually increasing hours of operation and operational capacity up to the limits allowed by the government at that time.

In the face of continued COVID limitation during the first quarter of 2021, with the opening of our expanded casino floor, we had increased the slot machines by approximately 150 and table games by 6, compared to the pre-COVID active gaming devices at Monarch Black Hawk.

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2021 and 2020

For the three months ended March 31, 2021, our net income totaled $8.2 million, or $0.42 per diluted share, compared to net income of $2.0 million, or $0.11 per diluted share for the same period in 2020, reflecting a 303.7% and 281.8% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended March 31, 2021, totaled $75.0 million, an increase of $23.9 million, or 46.9%, compared to the three months ended March 31, 2020.

Income from operations for the three months ended March 31, 2021 totaled $11.3 million compared to $2.1 million for the same period in 2020.

Casino revenue increased 73.3% in the first quarter of 2021 compared to the first quarter of 2020.

The increase in casino revenue was driven by the increase is gaming devices with the opening of our expanded casino in Black Hawk, a full quarter of operations at the Company’s properties in Reno and Black Hawk (the prior year quarter was partially impacted by pandemic-related shutdowns), and higher guest spend per visit.

Casino operating expense as a percentage of casino revenue decreased to 29.0% for the three months ended March 31, 2021 compared to 35.5% for the three months ended March 31, 2020, as a result of effective cost management and higher casino revenue at both properties.

Food and beverage revenue for the first quarter of 2021 increased 9.8% compared to the first quarter of 2020 due to food and beverage revenue per cover increased year-over-year by 21.5% an 9.7% decrease in food and beverage covers.

The increase in food and beverage revenue per cover is a result of an increase in fine dining restaurants, with the opening of new restaurants in Monarch Black Hawk and menu price adjustments.

The decrease in covers is 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 operating expense as a percentage of food and beverage revenue increased in the first quarter of 2021 to 87.0% compared to 84.8% for the same quarter in 2020 primarily as a result of ongoing capacity restrictions in the Company’s food and beverage outlets.

Hotel revenue increased 34.6% in the first quarter of 2021 compared to the same quarter of 2020 as a result of increase in available rooms by 390 daily on average, primarily as a result of the phased opening of the hotel in Monarch Black Hawk.

Hotel occupancy was 71.1% during the period compared to 75.4% during the first quarter of 2020.

The ADR decreased by $14.61 ($111.70 in the first quarter of 2021and 126.31 in the first quarter of 2020).

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 $86.59 and $100.57 for the three months ended March 31, 2021 and 2020, respectively.

Hotel operating expense as a percentage of hotel revenue increased to 49.2% in the first quarter of 2021 compared to 46.6% for the comparable prior year period primarily as a result of the decrease in ADR and the ramp-up in hotel operation at Monarch Black Hawk.

In addition, higher housekeeping expenses related to labor shortage and wage pressure, as well as to COVID-19 safety protocols had a negative effect on the hotel margins.

Other revenue increased 16.0% in the first quarter of 2021 compared to the same prior year period.

SG&A expense increased to $19.9 million in the first quarter of 2021 from $17.2 million in the first quarter of 2020 primarily due to:

a $1.2 million increase in advertising expenses;

a $0.9 million increase in labor expense;

and a $0.6 million increase in property tax expense.

As a percentage of net revenue, SG&A expense decreased to 26.6% in the first quarter of 2021 compared to 33.7% in the same period in 2020.

Depreciation and amortization expense increased to $9.5 million for the three months ended March 31, 2021 compared to $3.8 million for the same prior year period, due to new assets placed into service with the opening of our hotel building and expanded casino at Monarch Black Hawk.

During the first quarter of 2021, we recognized $0.6 million in professional service fees relating to our construction litigation, and $0.1 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 first quarter of 2020, we recognized $0.8 million in pre-opening expense related to the upcoming opening of the new hotel and expanded casino in Black Hawk, $0.4 million Colorado legislation lobbing expenses, and $0.1 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 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.

During the first quarter of 2021 we recognized $1.6 million in interest expense.

In the first quarter of 2020, we capitalized $1.8 million of interest, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion ongoing at that time project.

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 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.

CAPITAL SPENDING AND DEVELOPMENT

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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 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.

Cash paid for capital expenditures for the three-month periods ended March 31, 2021 and 2020 totaled $5.9 million and $13.7 million, respectively.

During the three-month period ended March 31, 2021 our capital expenditures related primarily to redesign of part of the legacy Monarch Black Hawk building and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Black Hawk.

During the three-month period ended March 31, 2020, our capital expenditures related primarily to the new hotel tower and casino expansion at Monarch 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 both periods were funded from available cash and borrowings from the credit facility and in the first quarter of 2021 with cash from Company’s operating cash flows.

Monarch Black Hawk Expansion

In the fourth quarter of 2013, we began work to convert the Monarch Casino Black Hawk into a full-scale casino resort (the “Monarch Black Hawk Expansion”).

The Monarch Black Hawk Expansion includes a multi-phased expansion of Monarch Casino Black Hawk, which involves construction of a new parking structure, demolition of the existing parking structure, and construction of a new hotel tower and casino expansion.

In the fourth quarter of 2013, we began work to convert the Monarch Casino Black Hawk into a full-scale casino resort (the “Monarch Black Hawk Expansion”).The Monarch Black Hawk Expansion includes a multi-phased expansion of Monarch Casino Black Hawk, which involves construction of a new parking structure, demolition of the existing parking structure, and construction of a new hotel tower and casino expansion.

In November 2016, the new nine-story parking structure, offering approximately 1,350 parking spaces, was completed and became available for use by Monarch Casino Black Hawk guests.

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On February 8, 2017, we broke ground on the hotel tower and casino expansion.

The new 23-story tower will nearly double the existing casino space and will include approximately 500 hotel rooms, an upscale spa and pool facility, three additional restaurants and additional bars.

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.

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.

In the fourth quarter of 2020, we began the phased opening of our new hotel tower and casino expansion, which increased the casino space and added a 23-story hotel tower with 516 guest rooms and suites, banquet and meeting room space, a retail store, a concierge lounge, an upscale spa and pool facility located on the top floor of the tower, three new restaurants, and additional bars and lounges.

We are currently working on converting the existing buffet to a specialty restaurant, and adding a poker room, a keno counter, a sports lounge, as well as additional slot machines, in the existing facility.

We expect this work to be completed later in 2021.

We are confident that the quality of our expanded product and exceptional guest service will meet the demand of the high-end segment of the market and will derive accelerated market share and revenue growth.

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

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 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 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 $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

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

For the three months ended March 31, 2021, net cash provided by operating activities totaled $21.9 million, compared to net cash used in operating activities of $7.5 million in the same prior year period.

This increase was primarily a result of an increase in net income and increase in depreciation, combined with a decrease in working capital.

Net cash used in investing activities totaled $5.9 million and $13.7 million during the three months ended March 31, 2021 and 2020, respectively.

Net cash used in investing activities during the first three months of 2021 consisted primarily of cash used for redesign of part of the legacy Monarch Black Hawk building and for acquisition of gaming and other equipment at both properties.

Net cash used in investing activities during the first three 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 for financing activities in the first three months of 2021 totaled $20.1 million and consisted of $22.5 million principal payments offset by $2.4 million proceeds from the stock options exercise.

There were no financing activities during the first three months of 2020.

Fourth Amended Credit Facility

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.

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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 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;

The estimated amount of the mandatory principle payment due in next twelve months is $15.0 million.

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

As of March 31, 2021, we had an outstanding principal balance of $160.0 million under the Term Loan Facility, from which $15 million is expected to have a maturity date in next twelve months.

As of March 31, 2021, we had $70.0 million available borrowings under the Revolving Credit Facility.

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

Borrowings are secured by liens on substantially all of our real and personal property.

In addition to other customary covenants for a facility of this nature, as of March 31, 2021, 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.

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).

As of March 31, 2021, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 2.1:1 and 4.6:1, respectively.

We entered into an amendment to the Fourth Amended Credit Facility effective as of April 30, 2021.

Based on the amendment, we are required to maintain a Total Leverage Ratio of no more than 4.00:1.00.

The amendment removes the requirement for 0.50% LIBOR floor.

As of the effective date of this amendment, the interest rate is LIBOR plus a margin ranging from 1.00% to 2.00%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.00% to 1.00%, or the Prime Rate.

The applicable margins vary depending on our leverage ratio.

Commitment fees are equal to the daily average unused revolving commitment multiplied by the commitment fee percentage, ranging from 0.175% to 0.325%, based on our leverage ratio.

On the terms and subject to some conditions, we 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.

We 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.

During the first quarter of 2021, we made a $20.0 million optional prepayment on our Term Loan Facility in addition to a $2.5 million mandatory payment.

We believe that our anticipated operating cash flow and the $70.0 million available under our Fourth Amended Credit Facility as of March 31, 2021 will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended March 31, 2021 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.

If we are unable to generate sufficient cash flow in the upcoming months or if our cash needs exceed our borrowing capacity under the Amended Credit Facility, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or issuing additional equity.

If we are unable to generate sufficient cash flow in the upcoming months or if our cash needs exceed our borrowing capacity under the Fourth Amended Credit Facility, we could be required to adopt one or more alternatives, such as reducing, delaying or eliminating planned capital expenditures, selling assets, restructuring debt or issuing additional equity.

CRITICAL ACCOUNTING POLICIES

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“Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in our 2020 Form 10-K filed with the SEC on March 12, 2021.

CONTRACTUAL OBLIGATIONS

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)

Operating Leases (2)

Purchase Obligations (3)

Borrowings Under Amended Credit Facility (4)

Total Contractual Cash Obligations

(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:

i) future short-term interest rates;

ii) our future leverage ratio which varies with EBITDA and our borrowing levels;

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

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.

(3) Purchase obligations represent approximately $17.5 million of commitments related to capital projects and approximately $11.0 million of materials and supplies used in the normal operation of our business.

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 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.

While we have disclosed the estimated cost of that expansion, we have not entered into contracts for substantial portions of the work.

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

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