What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 133 added, 103 removed, 148 unchanged (61% of the section changed)

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“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;

(i) the impact of the COVID-19 pandemic, including recent spikes in cases, 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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(vi) our beliefs regarding the effectiveness of the actions we've taken with respect to the COVID-19 pandemic and the quality of our properties as key factors in Monarch's long-term success;

(vii) our expectations and beliefs concerning the project scope, timing for completion, receipt of all occupancy and other regulatory approvals for portion of the expansion project, impact of the ongoing construction litigation, budget and estimated costs, pre-opening expenses, transformative potential and our continued investment in our expansion project at the Monarch Casino Black Hawk (the "Monarch Black Hawk Expansion");

(viii) our expectations regarding financing of the Monarch Black Hawk Expansion;

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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;

● 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 pandemic;

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

● continuing adverse impacts of the COVID-19 pandemic and its variants, including recent spikes in cases, 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 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;

● our ability to manage guest safety concerns caused by the COVID-19 pandemic and its variants, including recent spikes in cases;

● our ability to negotiate relief options and any further amendments to our 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;

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● 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);

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

● potentially uninsurable liability exposure to customers and staff should they become (or allege that they have become) infected with COVID-19 while at one of our resorts;

● unwillingness of employees to report to work due to the adverse effects of the COVID-19 pandemic or to otherwise conduct work under any revised work environment protocols;

● 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 the COVID-19 pandemic;

● unwillingness of employees to report to work due to the adverse effects of the COVID-19 pandemic, including recent spikes in cases, or to otherwise conduct work under any revised work environment protocols;

● unwillingness of our employees to obtain the COVID-19 vaccination;

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

● the potential of increased regulatory and other burdens to address the direct and indirect impacts of the COVID-19 pandemic and its variants, including recent spikes in cases;

● our ability to successfully implement our business and growth strategies;

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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;

● 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 ongoing disputes over costs of and responsibility for delays, construction defects and other construction related matters with our Monarch 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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● our ability to effectively manage expenses to optimize our margins and operating results;

● our ability to effectively manage increased expenses from recent and current inflationary pressures;

● our ability to effectively manage the impacts of temporary or other supply chain interruptions;

● guest acceptance of our expanded facilities once completed and the resulting impact on our market position, growth and future financial results;

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● changes in patron demographics;

● risks related to record heat conditions, drought conditions and fires in the Western United States;

● 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;

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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.

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 Black Hawk.

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.

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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.

Monarch Casino Black Hawk:

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.

Monarch Black Hawk:

Since the acquisition of Monarch 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 Black Hawk property.

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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.

Construction at the property is currently underway to convert part of the legacy building into a specialty restaurant, sportsbook lounge and bar, and additional casino space, which will complete the transformation of the property into a full-scale casino resort.

This last stage of the project is expected to open by the end of 2021.

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

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Impact of the COVID-19 Pandemic

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.

Monarch operating results for the three and six months ended June 30, 2020 and 2021 were impacted by the COVID-19 pandemic.

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.

On March 16, 2020, in an effort to contain the virus, the state of Colorado mandated a temporary shutdown of all casinos including Monarch 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 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.

Therefore, all financial results period comparisons set forth below should be read with the 2020 partial period closures in mind.

Our financial 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.

Following the reopening of our operations and through the three- and six-months periods ended June 30, 2021, we continued to operate under government-imposed capacity restrictions on our operations and various COVID-19 safety protocols.

We were continually adjusting our operations to the restrictions in occupancy and social distancing requirements, which included 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 adversely affected by the state-mandated gathering limits.

We have experienced hotel stay and convention booking cancellations, and since the reopening, guest visitation and hotel and convention bookings have been inconsistent.

At the same time, however, our results of operation for the second quarter of 2021 benefited from pent-up demand with patrons across the gaming industry, particularly in regional gaming markets and the federal government’s recurring stimulus.

Despite a strong reopening, we are operating in an environment of high uncertainty and there may be additional government restrictions placed on all of our services, such as gaming, restaurants, spas and salons, entertainment venues and convention and meeting space, which could lead to lower demand and revenue.

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 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.

A new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread globally.

In July 2021, due to reports of increased COVID-19 cases apparently driven by the new Delta variant, Nevada state government officials have reintroduced mask mandates for all persons in certain public indoor locations, including casino resorts such as the Atlantis.

Colorado officials may do the same.

These new developments, and any increased restrictions on operations, may adversely impact our results of operations.

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 and the dynamic nature of the circumstances, 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.

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.

Our financial results for the three and six months ended June 30, 2021 benefited from the phased opening of operations at our newly transformed Monarch Black Hawk, which opening started in the fourth quarter of 2020.

Monarch Black Hawk operations continue to ramp up.

The new hotel, including a spa and pool on the top floor, are fully opened.

On May 14, 2021, we opened our new poker room.

With the opening of our expanded casino floor, we had increased the slot machines by approximately 190 and table games by 10, compared to the pre-COVID active gaming devices at Monarch Black Hawk.

Comparison of Operating Results for the Three-Month Periods Ended June 30, 2021 and 2020

For the three months ended June 30, 2021, our net income totaled $18.1 million, or $0.93 per diluted share, compared to net loss of $4.3 million, or $0.24 loss per diluted share for the same period in 2020, reflecting a 517.5% and 487.5% increase in net income (loss) and diluted earnings (losses) per share, respectively.

Net revenues in the three months ended June 30, 2021, totaled $97.7 million, an increase of $82.6 million, or 544.8%, compared to the three months ended June 30, 2020.

Income from operations for the three months ended June 30, 2021, totaled $23.8 million compared to loss from operations 5.5 million for the same period in 2020.

Casino revenue increased 482.0% in the second quarter of 2021 compared to the second 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.

Casino operating expense as a percentage of casino revenue increased to 31.7% for the three months ended June 30, 2021 compared to 26.8% for the three months ended June 30, 2020, as a result of an increase in promotional expenses.

Food and beverage revenue for the second quarter of 2021 increased 664.5% compared to the second quarter of 2020 due to a 745.7% increase in food and beverage covers, offset by a decrease in food and beverage revenue per cover of 9.6%.

The decrease in food and beverage revenue per cover is primarily a result of buffet at Atlantis being closed during the entire second quarter of 2021.

Food and beverage operating expense as a percentage of food and beverage revenue decreased in the second quarter of 2021 to 79.2% compared to 96.6% for the same quarter in 2020 primarily as a result of our effort to align menu prices with increased commodity prices and labor cost.

Hotel revenue increased 847.9% in the second quarter of 2021 compared to the same quarter of 2020 as a result of increase in available rooms by 1,000 per day on average, primarily as a result of the opening of the hotel in Monarch Black Hawk, as well as the closure of hotel operation most of the time during the second quarter of 2020.

Hotel occupancy was 80.1% during the current year period compared to 61.3% during the second quarter of 2020.

The ADR increased by $39.61 ($140.65 in the second quarter of 2021and $101.04 in the second quarter of 2020).

REVPAR, was $122.91 and $66.65 for the three months ended June 30, 2021 and 2020, respectively.

Hotel operating expense as a percentage of hotel revenue decreased to 38.6% in the second quarter of 2021 compared to 61.8% for the comparable prior year period primarily as a result of the increase in ADR and the ramp-up in hotel operation at Monarch Black Hawk, despite higher housekeeping expenses related to labor shortage and wage pressure and COVID-19 safety protocols, which had a negative effect on the hotel margins.

Other revenue increased 351.4% in the second quarter of 2021 compared to the same prior year period.

SG&A expense increased to $20.6 million in the second quarter of 2021 from $8.9 million in the second quarter of 2020 driven primarily by the impact of pandemic-related closures in the prior-year period as well as an increase in payroll expenses to support the expanded Monarch Black Hawk operation.

As a percentage of net revenue, SG&A expense decreased to 21.1% in the second quarter of 2021 compared to 58.5% in the same period in 2020.

Depreciation and amortization expense increased to $9.4 million for the three months ended June 30, 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 tower and expanded casino at Monarch Black Hawk.

During the second quarter of 2021, we recognized $0.8 million in professional services relating to our construction litigation.

During the second quarter of 2020, we recognized $0.5 million Colorado legislation lobbying expenses, $0.3 million equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations, $0.2 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 services relating to our construction litigation.

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

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.

During the second quarter of 2021 we expensed $0.9 million of interest and amortized $0.4 million in deferred loan costs.

In the second quarter of 2020, we capitalized all $1.4 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 Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

Comparison of Operating Results for the Six-Month Periods Ended June 30, 2021 and 2020

For the six months ended June 30, 2021, we had a net income of $26.3 million, or $1.36 per diluted share, compared to net loss of $2.3 million, or $0.13 loss per diluted share for the same period in 2020, reflecting a 1230.3% and 1146.2% increase in net income (loss) and diluted earnings (losses) per share, respectively.

Net revenues in the six months ended June 30, 2021, totaled $172.7 million, an increase of 161.0%, compared to the six months ended June 30, 2020.

Income from operations for the six months ended June 30, 2021 totaled $35.0 million compared to $3.4 million loss from operations for the same period in 2020.

Casino revenue increased 182.9% in the first six months of 2021 compared to the first six months of 2020 and was driven by an increase in gaming devices with the opening of the expanded casino in Monarch Black Hawk and an increase in guest spend per visit at both properties.

Additionally, in 2020, our operations were suspended in mid-March 2020 through beginning/mid-June 2020 due to COVID-19 pandemic.

Casino operating expense as a percentage of casino revenue decreased to 30.5% for the six months ended June 30, 2021 compared to 33.2% for the six months ended June 30, 2020 primarily as a result of strong casino performance after the reopening of our properties and targeted cost cutting measures.

Food and beverage revenue for the first six months of 2021 increased 117.0% compared to the 2020 same period due to a 89.1% increase in food and beverage covers combined with a 14.8% increase in food and beverage revenue per cover.

Food and beverage operating expense as a percentage of food and beverage revenue decreased in the first six months of 2021 to 82.5% from 86.8% for the same period in 2020 primarily as a result of our effort to align menu prices with increased commodity prices and labor cost, as well as the decline of food and beverage revenue in 2020 due to the COVID-19 pandemic and the subsequent shutdown of our operations for approximately three months.

Hotel revenue increased 186.3% in the first six months of 2021 compared to the first six months of 2020 primarily due to increase in available rooms with the opening of the new hotel at Monarch Black Hawk, as well as the pandemic related hotel shutdown for approximately three months in 2020.

Hotel occupancy for the first six months of 2021 was 75.9% compared to 71.8% during the period the hotel at Atlantis was open in the first six months of 2020.

ADR increased by $7.20, from $120.73 in the first six months of 2020 to $127.93 in the first six months of 2021.

REVPAR was $105.92 for the first six months of 2021 and $91.85 for the period the hotel was open in the first six months of 2020.

Hotel operating expense as a percentage of hotel revenue decreased to 42.7% in the first six months of 2021 compared to 49.4% for the comparable prior year period primarily as a result of the higher ADR.

Other revenue increased 97.0% in the first six months of 2021 compared to the same prior year period.

SG&A expense increased to $40.5 million in the first six months of 2021 from $26.1 million in the first six months of 2020 primarily due to the COVID-19 shutdown and the related cost mitigation measures taken by management in 2020, as well as the increase in payroll expenses in 2021 to support the expanded Monarch Black Hawk operation.

As a percentage of net revenue, SG&A expense decreased to 23.5% in the first six months of 2021 compared to 39.4% in the same period in 2020.

Depreciation and amortization expense increased to $18.9 million for the six months ended June 30, 2021 compared to $7.7 million for the same prior year period, due to new assets placed into service with the opening of our hotel tower and expanded casino at Monarch Black Hawk.

During the first six months of 2021, we recognized $1.5 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company 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 six months of 2020, we recognized $1.0 million in pre-opening expense related to the 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, $0.9 million in Colorado legislation lobbying 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.

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

During the first six months of 2021, we expensed $2.7 million of interest and amortized $0.2 million in deferred loan costs.

During the first six months of 2020, we capitalized all interest of $3.2 million, 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 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.

Cash paid for capital expenditures for the six-month periods ended June 30, 2021 and 2020 totaled $11.9 million and $22.6 million, respectively.

During the six-month period ended June 30, 2021 our capital expenditures related primarily to:

the conversion of part of the legacy Monarch Black Hawk building into a specialty restaurant, sportsbook lounge and bar, and additional casino space;

complete renovation of the high-end suites on the top floors of the hotel tower at Atlantis;

and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Black Hawk.

During the six-month period ended June 30, 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 Black Hawk.

Capital expenditures during the first six month in 2021 were funded from operating cash flows.

Capital expenditures during the first six month in 2020 were funded from borrowings from the Amended Credit Facility.

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 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.

In the fourth quarter of 2013, we began work to convert the Monarch 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 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 Black Hawk guests.

The demolition and removal of the old parking structure, which included a controlled implosion of the old garage, was completed in the first quarter of 2017.

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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.

In the second quarter of 2021, we opened our new poker room.

We are currently working on converting the existing buffet and the adjacent casino area of the legacy facility into a new specialty restaurant, sportsbook lounge and bar, and additional casino space.

We expect this work to be completed by the end of 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 expect to finance the remaining Monarch Black Hawk Expansion costs through a combination of operating cash flows, available cash and borrowings under the 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.

Further, although we intend to seek recovery from our general contractor through the current litigation, we may be required to fund certain costs of correcting construction defects and deficiencies until, and if, recovered from the general contractor.

Further, although we intend to seek recovery from our general contractor through the current construction litigation, we may be required to fund certain costs of correcting construction defects and deficiencies until, and if, recovered from the general contractor.

LIQUIDITY AND CAPITAL RESOURCES

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

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

For the six months ended June 30, 2021, net cash provided by operating activities totaled $55.2 million, compared to net cash used in operating activities of $10.0 million in the same prior year period.

This increase was primarily a result of increases in net income (loss), primarily due to the pandemic-related closures in the prior year, and depreciation expense, as the hotel tower and expanded casino in Monarch Black Hawk were placed in service in the fourth quarter of 2020, combined with a decrease in working capital.

Net cash used in investing activities totaled $11.9 million and $22.6 million during the six months ended June 30, 2021 and 2020, respectively.

Net cash used in investing activities during the first six months of 2021 consisted primarily of cash used for the transformation of part of the Monarch Black Hawk legacy facility, complete renovation of the high-end suites on the top floors of the hotel tower at Atlantis and for acquisition of gaming and other equipment at both properties.

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 Black Hawk and for acquisition of gaming and other equipment at both properties.

Net cash used for financing activities in the first six months of 2021 totaled $43.3 million and consisted of $47.5 million principal payments to the credit facility offset by $4.2 million proceeds from the stock options exercise.

Net cash provided by financing activities in the first six months of 2020 totaled $10.4 million and consisted of $11.0 million borrowings under the credit facility offset by $0.6 million payroll taxes payment related to net exercise of stock options.

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”).

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”).

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

On April 30, 2021, the Company entered into an amendment to the Fourth Amended Credit Facility (defined above and hereafter, inclusive of all amendments, as the “Amended Credit Facility”).

The maturity date of The Amended Credit Facility is September 3, 2023.

The Amended Credit Facility increases the aggregate principal amount of the credit facilities to $270.0 million.

The $270.0 million Amended Credit Facility consists of:

$200 million term loan (“Term Loan Facility”) and $70 million revolving credit facility (“Revolving Credit Facility”), together with an option to increase the facility by up to an additional $75.0 million Revolving Credit Facility.

As of June 30, 2021, we had an outstanding principal balance of $135.0 million under the Term Loan Facility, from which $17.5 million is expected to have a maturity date in next twelve months and we had no borrowings under the Revolving Credit Facility, therefore all $70.0 million remained available for borrowing.

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.

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.

The estimated amount of the mandatory principal payments due in the next twelve months is $17.5 million.

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

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 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.

In addition to other customary covenants for a facility of this nature, as of June 30, 2021, the Company is required to maintain a Total Leverage Ratio (as defined in the Amended Credit Facility) of no more than 4.0:1 and Fixed Charge Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.15:1.

As of June 30, 2021, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 1.5:1 and 5.2:1.

As of June 30, 2021, the interest rate under the April 30 , 2021 amendment to the Amended Credit Facility is LIBOR plus a margin ranging from 1.00% to 2.00%, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00% to 1.00%, or the Prime Rate.

The applicable margins vary depending on the Company’s 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).

We may prepay borrowings under the 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.

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.

During the first six months of 2021, we made a $42.5 million optional prepayment on its Term Loan Facility in addition to a $5.0 million mandatory payment.

As of June 30, 2021, $114.9 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $135.0 million outstanding loan amount under the Amended Credit Facility, net of $2.6 million unamortized debt issuance costs and $17.5 million mandatory principal payment that are due in next twelve months and are presented as “Current portion of long-term debt” in the Current liabilities section of the Company’s consolidated balance sheets.

We believe that our anticipated operating cash flow and the $70.0 million available under our Amended Credit Facility as of June 30, 2021 will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended June 30, 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 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.

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.

For a discussion regarding our material commitments for capital expenditures, see the CAPITAL SPENDING AND DEVELOPMENT section above.

CRITICAL ACCOUNTING POLICIES

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Item 2. Management’s Discussion and Analysis