MONARCH CASINO & RESORT INC 10-Q

ITEM 1. FINANCIAL STATEMENTS ​ MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Nine months ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2021 2020 2021 2020 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Casino ​ $ 63,931 ​ $ 37,292 ​ $ 168,515 ​ $ 74,267 ​ Food and beverage ​ ​ 25,971 ​ ​ 12,835 ​ ​ 64,293 ​ ​ 30,491 ​ Hotel ​ ​ 17,336 ​ ​ 6,613 ​ ​ 39,924 ​ ​ 14,502 ​ Other ​ ​ 4,392 ​ ​ 3,129 ​ ​ 11,577 ​ ​ 6,776 ​ Net revenues ​ ​ 111,630 ​ ​ 59,869 ​ ​ 284,309 ​ ​ 126,036 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Casino ​ ​ 21,297 ​ ​ 10,566 ​ ​ 53,219 ​ ​ 22,836 ​ Food and beverage ​ ​ 20,148 ​ ​ 9,635 ​ ​ 51,748 ​ ​ 24,954 ​ Hotel ​ ​ 6,668 ​ ​ 2,796 ​ ​ 16,308 ​ ​ 6,694 ​ Other ​ ​ 2,120 ​ ​ 1,249 ​ ​ 5,632 ​ ​ 3,120 ​ Selling, general and administrative ​ ​ 21,690 ​ ​ 15,856 ​ ​ 62,222 ​ ​ 41,920 ​ Depreciation and amortization ​ ​ 9,434 ​ ​ 3,891 ​ ​ 28,308 ​ ​ 11,544 ​ Other operating items, net ​ ​ 1,233 ​ ​ 2,448 ​ ​ 2,799 ​ ​ 4,910 ​ Total operating expenses ​ ​ 82,590 ​ ​ 46,441 ​ ​ 220,236 ​ ​ 115,978 ​ Income from operations ​ ​ 29,040 ​ ​ 13,428 ​ ​ 64,073 ​ ​ 10,058 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense, net of amounts capitalized ​ ​ ( 891 ) ​ ​ — ​ ​ ( 3,786 ) ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ ​ 28,149 ​ ​ 13,428 ​ ​ 60,287 ​ ​ 10,058 ​ Provision for income taxes ​ ​ ( 5,835 ) ​ ​ ( 2,683 ) ​ ​ ( 11,670 ) ​ ​ ( 1,640 ) ​ Net income ​ $ 22,314 ​ $ 10,745 ​ $ 48,617 ​ $ 8,418 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share of common stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 1.20 ​ $ 0.59 ​ $ 2.62 ​ $ 0.46 ​ Diluted ​ $ 1.15 ​ $ 0.57 ​ $ 2.51 ​ $ 0.44 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares and potential common shares outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 18,640 ​ ​ 18,218 ​ ​ 18,573 ​ ​ 18,186 ​ Diluted ​ ​ 19,423 ​ ​ 18,861 ​ ​ 19,395 ​ ​ 18,823 ​ ​ ​ ​ The Notes to the Consolidated Financial Statements are an integral part of these statements. ​ 3 Table of Contents MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except shares) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 December 31, 2020 ASSETS ​ ​ (Unaudited) ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 33,036 $ 28,310 ​ Receivables, net ​ ​ 8,628 ​ 3,736 ​ Income taxes receivable ​ ​ 21,323 ​ 24,894 ​ Inventories ​ ​ 6,117 ​ 7,823 ​ Prepaid expenses ​ ​ 6,672 ​ 8,393 ​ Total current assets ​ 75,776 ​ 73,156 ​ Property and equipment, net ​ 570,903 ​ 572,507 ​ Goodwill ​ 25,111 ​ 25,111 ​ Intangible assets, net ​ 508 ​ 973 ​ Deferred income taxes ​ 130 ​ 130 ​ Total assets ​ $ 672,428 $ 671,877 ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ ​ Current portion of long-term debt ​ $ 20,000 ​ $ 12,500 ​ Accounts payable ​ ​ 14,936 ​ 11,655 ​ Construction accounts payable ​ ​ 55,080 ​ ​ 49,771 ​ Accrued expenses ​ 44,815 ​ 34,705 ​ Short-term lease liability ​ ​ 571 ​ ​ 813 ​ Total current liabilities ​ 135,402 ​ 109,444 Deferred income taxes ​ ​ 13,221 ​ ​ 13,220 ​ Long-term lease liability ​ ​ 13,618 ​ ​ 13,984 ​ Long-term debt, net ​ 85,792 ​ 167,162 ​ Total liabilities ​ 248,033 ​ 303,810 ​ Stockholders’ equity ​ ​ ​ ​ ​ ​ Preferred stock, $ .01 par value, 10,000,000 shares authorized; none issued ​ — ​ ​ — ​ Common stock, $ .01 par value, 30,000,000 shares authorized; 19,096,300 shares issued; 18,630,776 outstanding at September 30, 2021; 18,426,130 outstanding at December 31, 2020 191 ​ ​ 191 ​ Additional paid-in capital ​ 39,423 ​ 34,498 ​ Treasury stock, 465,524 shares at September 30, 2021; 670,170 shares at December 31, 2020 ( 6,086 ) ​ ​ ( 8,872 ) ​ Retained earnings ​ 390,867 ​ 342,250 ​ Total stockholders’ equity ​ 424,395 ​ 368,067 ​ Total liabilities and stockholders’ equity ​ $ 672,428 $ 671,877 ​ ​ ​ The Notes to the Consolidated Financial Statements are an integral part of these statements. 4 Table of Contents MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUIT Y (In thousands, except shares, Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares ​ ​ ​ ​ Paid-in ​ Retained ​ Treasury ​ ​ ​ ​ ​ Outstanding Amount Capital Earnings Stock Total ​ Balance, January 1, 2021 18,426,130 $ 191 $ 34,498 $ 342,250 $ ( 8,872 ) $ 368,067 ​ Exercise of stock options, net 91,831 ​ ​ — ​ 1,143 ​ — ​ 1,266 ​ ​ 2,409 ​ Stock-based compensation expense — ​ — ​ 1,280 ​ — ​ — ​ 1,280 ​ Net income — ​ — ​ — ​ 8,154 ​ — ​ 8,154 ​ Balance, March 31, 2021 ​ 18,517,961 $ 191 $ 36,921 $ 350,404 $ ( 7,606 ) $ 379,910 ​ Exercise of stock options, net 81,555 ​ ​ — ​ 675 ​ — ​ 1,106 ​ 1,781 ​ Stock-based compensation expense — ​ — ​ 1,247 ​ — ​ — ​ 1,247 ​ Net income — ​ — ​ — ​ 18,149 ​ — ​ 18,149 ​ Balance, June 30, 2021 18,599,516 $ 191 $ 38,843 $ 368,553 $ ( 6,500 ) $ 401,087 ​ Exercise of stock options, net ​ 31,260 ​ ​ — ​ 8 ​ ​ — ​ ​ 414 ​ ​ 422 ​ Stock-based compensation expense — ​ — 572 ​ — ​ — ​ 572 ​ Net income — ​ — — ​ 22,314 ​ — ​ 22,314 ​ Balance, September 30, 2021 18,630,776 $ 191 $ 39,423 $ 390,867 $ ( 6,086 ) $ 424,395 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares ​ ​ ​ ​ Paid-in ​ Retained ​ Treasury ​ ​ ​ ​ ​ Outstanding Amount Capital Earnings Stock Total ​ Balance, January 1, 2020 18,141,383 $ 191 $ 35,215 $ 318,572 $ ( 12,777 ) $ 341,201 ​ Exercise of stock options, net 30,545 ​ ​ — ​ ( 428 ) ​ — ​ 428 ​ ​ — ​ Stock-based compensation expense — ​ — ​ 873 ​ — ​ — ​ 873 ​ Net income ​ — ​ — ​ — ​ 2,020 ​ — ​ 2,020 ​ Balance, March 31, 2020 18,171,928 $ 191 $ 35,660 $ 320,592 $ ( 12,349 ) $ 344,094 ​ Exercise of stock options, net 17,634 ​ ​ — ​ ( 552 ) ​ — ​ 246 ​ ( 306 ) ​ Stock-based compensation expense — ​ — ​ 981 ​ — ​ — ​ 981 ​ Net loss — ​ — ​ — ​ ( 4,347 ) ​ — ​ ( 4,347 ) ​ Balance, June 30, 2020 18,189,562 $ 191 $ 36,089 $ 316,245 $ ( 12,103 ) $ 340,422 ​ Exercise of stock options, net 70,510 ​ ​ — ​ 402 ​ — ​ 986 ​ 1,388 ​ Stock-based compensation expense — ​ — ​ 897 ​ — ​ — ​ 897 ​ Capital contribution ​ ​ ​ ​ ​ ​ ​ 78 ​ ​ ​ ​ ​ ​ ​ ​ 78 ​ Net income — ​ — ​ — ​ 10,745 ​ — ​ 10,745 ​ Balance, September 30, 2020 18,260,072 $ 191 $ 37,466 $ 326,990 $ ( 11,117 ) $ 353,530 ​ ​ ​ The Notes to the Consolidated Financial Statements are an integral part of these statements. 5 Table of Contents MONARCH CASINO & RESORT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ 2021 2020 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 48,617 $ 8,418 ​ Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 28,308 ​ 11,544 ​ Amortization of deferred loan costs ​ 630 ​ 466 ​ Stock-based compensation ​ 3,099 ​ 2,751 ​ Provision for bad debts ​ 44 ​ 75 ​ Loss on disposition of assets ​ 138 ​ 5 ​ Write off of unamortized debt issuance costs ​ ​ — ​ ​ 95 ​ Deferred income taxes ​ ​ 1 ​ ​ — ​ Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ Receivables ​ ​ ( 4,936 ) ​ ​ 100 ​ Income taxes receivable ​ ​ 3,571 ​ ​ 1,639 ​ Inventories ​ ​ 1,706 ​ ​ ( 613 ) ​ Prepaid expenses ​ ​ 1,721 ​ ​ 37 ​ Right of use asset, net ​ ​ ( 13 ) ​ ​ ( 2 ) ​ Accounts payable ​ 3,281 ​ ( 5,755 ) ​ Accrued expenses ​ 10,110 ​ 525 ​ Net cash provided by operating activities ​ 96,277 ​ 19,285 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ Proceeds from sale of assets ​ 20 ​ 25 ​ Change in construction accounts payable ​ ​ 5,309 ​ ​ ( 6,135 ) ​ Acquisition of property and equipment ​ ​ ( 26,992 ) ​ ​ ( 30,237 ) ​ Net cash used in investing activities ​ ( 21,663 ) ​ ( 36,347 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ Payroll taxes from net exercise of stock options ​ ( 730 ) ​ — ​ Proceeds from exercise of stock options ​ ​ 5,342 ​ ​ 1,161 ​ Long-term debt borrowings ​ ​ — ​ ​ 8,750 ​ Principal payments on long-term debt ​ ( 74,500 ) ​ ( 20,000 ) ​ Loan issuance cost ​ ​ — ​ ​ ( 2,862 ) ​ Net cash used in financing activities ​ ( 69,888 ) ​ ( 12,951 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in cash and cash equivalents ​ 4,726 ​ ( 30,013 ) ​ Cash and cash equivalents at beginning of period ​ 28,310 ​ 60,539 ​ Cash and cash equivalents at end of period ​ $ 33,036 $ 30,526 ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ Cash paid for interest, net of amounts capitalized ​ $ 2,707 $ — ​ Cash paid for income taxes ​ $ 8,100 $ — ​ Conversion of long term deposit to short term deposit ​ $ — ​ $ 908 ​ ​ ​ The Notes to the Consolidated Financial Statements are an integral part of these statements. ​ 6 Table of Contents MONARCH CASINO & RESORT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021 ​ NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ​ Basis of Presentation : ​ Monarch Casino & Resort, Inc. was incorporated in 1993. Unless otherwise indicated, “Monarch,” “us,” “we,” and the “Company” refer to Monarch Casino & Resort, Inc. and its subsidiaries. Monarch owns and operates the Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the “Atlantis”) and Monarch Casino Resort Spa Black Hawk, a hotel and casino in Black Hawk, Colorado (the “Monarch Black Hawk”). In addition, Monarch owns 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. Monarch also owns 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. ​ The accompanying unaudited consolidated financial statements include the accounts of Monarch and its subsidiaries (the “Consolidated Financial Statements”). Intercompany balances and transactions are eliminated. ​ Interim Financial Statements : ​ The Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the management of the Company, all adjustments considered necessary for a fair presentation are included. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. ​ The balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements of the Company at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2020. ​ Impact of COVID-19 : ​ In March 2020, a global pandemic was declared due to an outbreak of a new strain of coronavirus (“COVID-19”). In an effort to contain the virus, on March 16, 2020 the state of Colorado mandated a temporary shutdown of all casinos including Monarch Casino Resort Spa Black Hawk and on March 17, 2020 the state of Nevada mandated the temporary closure of all casinos including Atlantis Casino Resort Spa in Reno. The COVID-19 outbreak has had, and may continue to have, an adverse effect on the Company's results of operations. ​ Our Nevada and Colorado properties reopened with limited operations on June 4, 2020 and June 17, 2020, respectively. The state of Colorado mandated closure of table games again on November 13, 2020, which lasted until early February, 2021. Most of the time since the reopening of our properties we have had to operate under government-enforced capacity restrictions and other limitations. We have been consistently adjusting our routine operations 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 has been adversely 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 inconsistent. On July 30, 2021, the state of Nevada reinstated indoor mask mandates, which negatively affected our operation and financial results. At the same time, however, our results of operation for the first nine months of 2021 benefited from pent-up demand with patrons across the gaming industry, particularly in regional gaming markets. 7 Table of Contents The Company has taken steps to mitigate the effects of the COVID-19 pandemic and the economic uncertainty by reducing operating expenses, taking advantage of federal and state government programs that support companies affected by the COVID-19 pandemic and their employees, and entering into an amended and restated credit agreement with its lender, which extended the maturity date of the Company’s credit facility to September 3, 2023 and increased the aggregate principal amount of the facility from $ 241.3 million to $ 270.0 million (consisting of a $ 200.0 million term loan and a $ 70.0 million revolving credit facility) with an option to increase the facility by up to an additional $ 75.0 million revolving line of credit. See NOTE 6. LONG-TERM DEBT. In addition, the Company had strongly encouraged team members to obtain the COVID-19 vaccination to ensure the safety of its team members and guests. ​ The Company believes that its anticipated cash flows from operating activities, combined with the $ 70.0 million available under its Amended Credit Facility (as defined below), will be sufficient to fund its operations, meets its debt obligations and fulfill its capital expenditure plans for the next twelve months. ​ Goodwill: ​ The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles-Goodwill and Other (“ASC Topic 350”). ASC Topic 350 gives companies the option to perform a qualitative assessment that may allow them to skip the quantitative test as appropriate. The Company tests its goodwill for impairment annually during the fourth quarter, or whenever events or circumstances make it more likely than not that impairment may have occurred. Impairment testing for goodwill is performed at the reporting unit level, and each of the Company’s casino properties is considered to be a reporting unit. ​ Goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in a business combination in April 2012. As of September 30, 2021, we had goodwill totaling $ 25.1 million related to the purchase of Monarch Black Hawk, Inc. ​ ASC Topic 350 requires that goodwill be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We performed an assessment to determine whether events or circumstances such as those described in ASC 350-20-35-3C existed and we determined that they did not exist during the interim period; therefore, an interim impairment test was not performed. ​ The Company believes that it has made reasonable estimates and judgments in performing its analysis in light of the risks and uncertainties surrounding the COVID-19 pandemic. However, if the excess of fair value over the carrying amount declines by a significant amount in the future as a result of changes in actual and projected operating results or other internal or external economic factors, the Company could be required to recognize goodwill impairment charges in future periods. ​ Property and Equipment, net: ​ Property and Equipment, net consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 December 31, 2020 Land ​ $ 32,986 ​ $ 32,986 ​ Land improvements ​ 9,898 ​ 9,847 ​ Buildings ​ 469,119 ​ 471,819 ​ Buildings improvements ​ 35,142 ​ 33,681 ​ Furniture and equipment ​ 216,421 ​ 229,052 ​ Construction in progress ​ 32,924 ​ 6,257 ​ Right of use assets ​ ​ 14,189 ​ ​ 14,784 ​ Leasehold improvements ​ 3,848 ​ 3,848 ​ ​ ​ 814,527 ​ 802,274 ​ Less accumulated depreciation and amortization ​ ( 243,624 ) ​ ( 229,767 ) ​ Property and equipment, net ​ $ 570,903 ​ $ 572,507 ​ ​ ​ ​ ​ ​ ​ ​ ​ 8 Table of Contents Property and equipment are stated at cost, less accumulated depreciation and amortization. Property and equipment is depreciated principally on a straight line basis over its estimated useful lives as follows: ​ ​ ​ ​ ​ ​ ​ Land improvements 15 - 40 years Buildings 30 - 40 years Building improvements 5 - 40 years Furniture 5 - 10 years Equipment 3 - 20 years ​ The Company evaluates property and equipment and other long-lived assets for impairment in accordance with the guidance for accounting for the impairment or disposal of long-lived assets. For assets to be disposed of, the Company recognizes the asset to be sold at the lower of carrying value or fair value less costs of disposal. Fair value for assets to be disposed of is generally estimated based on comparable asset sales, solicited offers or a discounted cash flow model. ​ For assets to be held and used, the Company reviews fixed assets for impairment annually during the fourth quarter or whenever indicators of impairment exist. If an indicator of impairment exists, we compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, the impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model or market comparables, when available. For the three- and nine- month periods ended September 30, 2021 and 2020, there were no impairment charges. ​ Segment Reporting: ​ The accounting guidance for disclosures about segments of an enterprise and related information requires separate financial information to be disclosed for all operating segments of a business. The Company determined that the Company’s two operating segments, Atlantis and Monarch Black Hawk, meet the aggregation criteria stipulated by ASC 280-10-50-11. The Company views each property as an operating segment and the two operating segments have been aggregated into one reporting segment. ​ Inventories: ​ Inventories, consisting primarily of food, beverages, and retail merchandise, are stated at the lower of cost and net realizable value. Cost is determined by the weighted average and specific identification methods. Net realizable value is defined by the Financial Accounting Standards Board (“FASB”) as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ​ Debt Issuance Costs: ​ Costs incurred in connection with the issuance of long-term debt are amortized to interest expense over the term of the related debt agreement utilizing the effective interest rate method. Unamortized amounts of debt issuance costs are recorded as a reduction of the outstanding debt and included in “Long-term debt, net”. ​ As of September 30, 2021, debt issuance costs, net of amortization, were $ 2.2 million. ​ Capitalized Interest: ​ The Company capitalizes interest costs associated with debt incurred in connection with major construction projects. When no debt is specifically identified as being incurred in connection with a construction project, the Company capitalizes interest on amounts expended on the project at the Company’s average borrowing cost. Interest capitalization is ceased when the project is substantially complete. No capitalized interest was recognized in the three and nine months ended September 30, 2021, as the Monarch Black Hawk expansion project was substantially completed in the fourth quarter of 2020. The Company capitalized $ 1.8 million and $ 5.0 million during the three and nine months ended September 30, 2020, respectively. 9 Table of Contents Revenue Recognition: ​ The majority of the Company’s revenue is recognized when products are delivered or services are performed. For certain revenue transactions (when a patron uses a club loyalty card), in accordance with Accounting Standard Update No. 2014-09 (“ASC 606”), a portion of the revenue is deferred until the points earned by the patron are redeemed or expire. Casino revenue: Casino revenues represent the net win from gaming activity, which is the difference between the amounts won and lost, which represents the transaction price. Jackpots, other than the incremental amount of progressive jackpots, are recognized at the time they are won by customers. Funds deposited by customers in advance and outstanding chips and slot tickets in the customers’ possession are recognized as a liability until such amounts are redeemed or used in gaming play by the customer. Additionally, net win is reduced by the performance obligations for the players’ club program, progressive jackpots and any pre-arranged marker discounts. Progressive jackpot provisions are recognized in two components: 1) as wagers are made for the share of players’ wagers that are contributed to the progressive jackpot award, and 2) as jackpots are won for the portion of the progressive jackpot award contributed by the Company. Cash discounts and other cash incentives to guests related to gaming play are recorded as a reduction to gaming revenue. ​ Players’ Club Program: The Company operates a players’ club program under which as players perform gaming activities they earn and accumulate points, which may be redeemed for a variety of goods and services. Given the significance of the players’ club program and the ability for members to bank such points based on their past play, the Company has determined that players’ club program points granted in conjunction with gaming activity constitute a material right and, as such, represent a performance obligation associated with the gaming contracts. At the time points are earned, the Company recognizes deferred revenue at the standalone selling prices (“SSP”) of the goods and services that the points are expected to be redeemed for, with a corresponding decrease in gaming revenue. The points estimated SSP is computed as the cash redemption value of the points expected to be redeemed, which is determined through an analysis of all redemption activity over the preceding twelve -month period. ​ As of September 30, 2021, the Company had estimated the obligations related to the players’ club program at $ 9.7 million, which is included in Accrued Expenses in the Liabilities and Stockholders’ Equity section in the Consolidated Balance Sheet. ​ Food and Beverage, Hotel and Other (retail) Revenues: Food and Beverage, Hotel and Other Revenues in general are recognized when products are delivered or services are performed. The Company recognizes revenue related to the products and services associated with the players points’ redemptions at the time products are delivered or services are performed, with corresponding reduction in the deferred revenue, at SSP. Other complimentaries in conjunction with the gaming and other business are also valued at SSP. Hotel revenue is presented net of non-third-party rebates and commissions. The cost of providing these complimentary goods and services are included as expenses within their respective categories. Other Revenues : Other revenues (excluding retail) primarily consist of commissions received on ATM transactions and cash advances, which are recorded on a net basis as the Company represents the agent in its relationship with the third-party service providers, and commissions and fees received in connection with pari-mutuel wagering, which are also recorded on a net basis. Sales and other taxes : Sales taxes and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses. In addition, tips and other gratuities, excluding service charges, collected from customers on behalf of the Company’s employees are also accounted for on a net basis and are not included in revenues or operating expenses. 10 Table of Contents ​ Credit Losses ​ The Company extends short-term credit to its gaming customers. Such credit is non-interest bearing and is due on demand. In addition, the Company also has receivables due from hotel guests and convention groups and events, which are primarily secured with a credit card. An allowance for doubtful accounts is set up for all Company receivables based upon the Company’s historical collection and write-off experience and taking into consideration the current economic conditions and management’s expectations of future economic conditions. The allowance is applied even when the risk of credit loss is remote. When a situation warrants, the Company may create a specific identification reserve for a high collection risk receivables. As of September 30, 2021, the Company has recorded a reserve of $ 0.2 million for gaming and non-gaming receivables. The Company writes off its uncollectible receivables once all efforts have been made to collect such receivables. The book value of receivables approximates fair value due to the short-term nature of the receivables. ​ Other Operating items, net: ​ Other operating items, net, in general consist of miscellaneous operating charges or proceeds. ​ For the three months ended September 30, 2021, Other operating items, net, was $ 1.2 million and included: $ 1.5 million of professional services relating to our construction litigation and $ 0.1 million loss on disposal of assets, offset by $ 0.3 million of litigation proceeds and $ 0.1 million of insurance claims proceeds. For the three months ended September 30, 2020, Other operating items, net, was $ 2.4 million and included: $ 0.9 million in pre-opening expenses relating 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 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. ​ For the nine months ended September 30, 2021, Other operating items, net, was $ 2.8 million and included: $ 3.0 million of professional services relating to our construction litigation, $ 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 and $ 0.1 million loss on disposal of assets, offset by $ 0.3 million of litigation proceeds and $ 0.1 million of insurance claims proceeds. For the nine months ended September 30, 2020, Other operating items, net, was $ 4.9 million and included: $ 1.9 million in pre-opening expenses relating to the Monarch Black Hawk Expansion project; $ 0.8 million of professional service fees relating to our construction litigation; $ 1.4 million in Colorado legislation lobbying expenses; $ 0.7 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. ​ Impact of Recently Adopted Accounting Standards: ​ The Company has evaluated the recently issued or proposed by the FASB or other standards-setting bodies accounting standards and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s Consolidated Financial Statements. ​ In addition, a variety of proposed or otherwise potential accounting standards are currently under review and study by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, the Company has not yet determined the effect, if any, the implementation of any such proposed or revised standards would have on the Company’s Consolidated Financial Statements. ​ NOTE 2. ACCOUNTING FOR LEASES ​ For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of the lease payments over the lease term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into its determination of lease payments when appropriate. As permitted by ASC 842, the Company elected not to separate non-lease components from their related lease components. ​ 11 Table of Contents As of September 30, 2021, the Company’s right of use assets consisted of the Parking Lot Lease, the Driveway Lease (each as defined and discussed in NOTE 5. RELATED PARTY TRANSACTIONS) , as well as certain billboard leases. ​ Upon adoption of the new lease standard, incremental borrowing rates used for existing leases were established using the rates in effect as of the lease inception or modification date. The weighted-average incremental borrowing rate of the leases presented in the lease liability as of September 30, 2021, was 4.33 %. ​ The weighted-average remaining lease term of the leases presented in the lease liability as of September 30, 2021 was 20.9 years. ​ Cash paid related to the operating leases presented in the lease liability for each of the nine months ended September 30, 2021 and 2020, was $ 1.1 million. ​ NOTE 3. STOCK-BASED COMPENSATION ​ In accordance with ASU No. 2016-09, the Company records any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Income in the reporting periods in which vesting occurs. As a result, the Company’s income tax expense and associated effective tax rate are impacted by fluctuations in stock price between the grant dates and vesting dates of equity awards. ​ Reported stock-based compensation expense was classified as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ Nine months ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2021 2020 2021 2020 Casino ​ $ 83 $ 46 $ 196 $ 102 Food and beverage ​ 32 ​ 45 ​ 100 ​ 114 ​ Hotel ​ 50 ​ 33 ​ 122 ​ 88 ​ Selling, general and administrative ​ 407 ​ 773 ​ 2,681 ​ 2,447 ​ Total stock-based compensation, before taxes ​ 572 ​ 897 ​ 3,099 ​ 2,751 ​ Tax benefit ​ ( 120 ) ​ ( 189 ) ​ ( 651 ) ​ ( 578 ) ​ Total stock-based compensation, net of tax ​ $ 452 $ 708 $ 2,448 $ 2,173 ​ ​ NOTE 4. EARNINGS PER SHARE ​ Basic earnings per share is computed by dividing reported net earnings by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect the additional dilution for all potentially dilutive securities such as stock options. The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ ​ ​ 2021 ​ 2020 ​ ​ ​ ​ ​ Per Share ​ ​ ​ Per Share ​ ​ Shares Amount Shares Amount ​ Basic 18,640 $ 1.20 18,218 $ 0.59 ​ Effect of dilutive stock options 783 ​ ( 0.05 ) 643 ​ ( 0.02 ) ​ Diluted 19,423 $ 1.15 18,861 $ 0.57 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ ​ ​ 2021 ​ 2020 ​ ​ ​ ​ ​ Per Share ​ ​ ​ Per Share ​ ​ Shares Amount Shares Amount ​ Basic 18,573 $ 2.62 18,186 $ 0.46 ​ Effect of dilutive stock options 822 ​ ( 0.11 ) 637 ​ ( 0.02 ) ​ Diluted 19,395 $ 2.51 18,823 $ 0.44 ​ ​ 12 Table of Contents Excluded from the computation of diluted earnings per share are options where the exercise prices are greater than the market price as their effects would be anti-dilutive in the computation of diluted earnings per share. For the three months ended September 30, 2021 and 2020, options for approximately 316 thousand and 1,062 thousand shares, respectively, were excluded from the computation. For the nine months ended September 30, 2021 and 2020, options for approximately 239 thousand and 1,077 thousand shares, respectively, were excluded from the computation. ​ NOTE 5. RELATED PARTY TRANSACTIONS ​ The shopping center adjacent to the Atlantis (the “Shopping Center”) is owned by Biggest Little Investments, L.P. (“BLI”). John Farahi and Bob Farahi, Co-Chairmen of the Board and executive officers of the Company, and Ben Farahi have significant holdings (the “Farahi Family Stockholders”) in Monarch and each also beneficially owns limited partnership interests in BLI. Maxum LLC is the sole general partner of BLI, and Ben Farahi is the sole managing member of Maxum LLC. Neither John Farahi nor Bob Farahi has any management or operational control over BLI or the Shopping Center. Until May 2006, Ben Farahi held the positions of Co-Chairman of the Board, Secretary, Treasurer and Chief Financial Officer of the Company. ​ On August 28, 2015, Monarch, through its subsidiary Golden Road Motor Inn, Inc., entered into a 20-year lease agreement with BLI for a portion of the Shopping Center, consisting of an approximate 46,000 square-foot commercial building on approximately 4.2 acres of land adjacent to the Atlantis (the “Parking Lot Lease”). This lease gives the Atlantis the right to use a parcel, approximately 4.2 acres, comprised of a commercial building and surrounding land adjacent to the Atlantis. The primary purpose of the Parking Lot Lease is to provide additional, convenient, Atlantis surface parking. The Company demolished the building and converted the land into approximately 300 additional surface parking spaces for the Atlantis. The minimum annual rent under the Parking Lot Lease is $ 695 thousand commencing on November 17, 2015. The minimum annual rent is subject to a cost of living adjustment increase on each five-year anniversary. In addition, the Company is responsible for the payment of property taxes, utilities and maintenance expenses related to the Leased Property. The Company has an option to renew the Parking Lot Lease for an additional ten-year term. If the Company elects not to exercise its renewal option, the Company will be obligated to pay BLI $ 1.6 million. For each of the three-month periods ended September 30, 2021 and 2020, the Company paid $ 174 thousand in rent, plus $ 13 thousand in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2021 and 2020, the Company paid $ 522 thousand in rent, plus $ 21 thousand and $ 20 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30, 2021, recognized in the Consolidated Balance Sheet, was $ 10.3 million. ​ In addition, the Atlantis shares a driveway with the Shopping Center and leases approximately 37,400 square feet from BLI (the “Driveway Lease”) for an initial lease term of 15 years , which commenced on September 30, 2004, at an original annual rent of $ 300 thousand plus common area expenses. The annual rent is subject to a cost of living adjustment increase on each five-year anniversary of the Driveway Lease. Effective August 28, 2015, in connection with the Company entering into the Parking Lot Lease, the Driveway Lease was amended to: (i) make the Company solely responsible for the operation and maintenance costs of the shared driveway (including the fountains thereon); (ii) eliminate the Company’s obligation to reimburse the Shopping Center for its proportionate share of common area expenses; and (iii) exercise the three successive five-year renewal terms beyond the initial 15-year term in the existing Driveway Lease agreement. At the end of the renewal terms, the Company has the option to purchase the leased driveway section of the Shopping Center. For each of the three-month periods ended September 30, 2021 and 2020, the Company paid $ 101 thousand in rent plus $ 12 thousand and $ 8 thousand, respectively, in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2021 and 2020, the Company paid $ 303 thousand in rent, plus $ 25 thousand and $ 17 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30 , 2021, recognized in the Consolidated Balance Sheet, was $ 3.8 million. ​ The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders, and paid $ 57 thousand and $ 27 thousand, respectively, for the three-month periods and $ 151 thousand and $ 101 thousand, respectively, for the nine-month periods ended September 30, 2021 and 2020, for such leases. ​ 13 Table of Contents NOTE 6. LONG-TERM DEBT ​ On September 3, 2020, the Company 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”). On April 30, 2021, the Company entered into an amendment to the Fourth Amended Credit Facility (collectively, with all prior amendments, 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 million. The $ 270 million Amended Credit Facility consists of: a $ 200 million term loan (“Term Loan Facility”) and a $ 70 million revolving credit facility (“Revolving Credit Facility”), together with an option to increase the facility by up to an additional $ 75 million Revolving Credit Facility. ​ As of September 30, 2021, the Company had an outstanding principal balance of $ 108 million under the Term Loan Facility, from which $ 20 million is expected to have a maturity date in next twelve months. As of September 30, 2021, the Company had no borrowings under the Revolving Credit Facility, therefore all $ 70 million remained available for borrowing. ​ The Company is 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 million. The estimated amount of the mandatory principal payments due in the next twelve months is $ 20 million. ​ Commencing with the delivery of the compliance certificate for fiscal year 2021, the Company 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 the Company’s real and personal property. ​ In addition to other customary covenants for a facility of this nature, as of September 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 September 30, 2021, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 1.0 :1 and 5.6 :1. ​ As of September 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. As of September 30, 2021, the interest rate on the Term Loan Facility was 1.34 %, or LIBOR plus a 1.25 % margin. ​ On the terms and subject to some conditions, the Company may, at any time before the Maturity Date, request an increase of the Revolving Credit Facility, provided that each such increase is equal to $ 15 million or an integral multiple of $ 1 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 million. ​ The Company 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 nine months of 2021, the Company made a $ 67.0 million in optional prepayments on its Term Loan Facility in addition to $ 7.5 million in mandatory payments. ​ 14 Table of Contents As of September 30, 2021, the $ 85.8 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $ 108 million outstanding loan amount under the Amended Credit Facility, net of $ 2.2 million unamortized debt issuance costs and $ 20 million mandatory principal payments that are due in the next twelve months and presented as “Current portion of long-term debt” in the Current liabilities section of the Company’s consolidated balance sheets. ​ The Company believes that the expected cash flows from operating activities and the $ 70 million available under its Amended Credit Facility as of September 30, 2021 will be sufficient to support its current operations, meet its debt obligations and fulfill its capital expenditure plans for the twelve months from filing of the Form 10-Q for the quarter ended September 30, 2021; however, the Company is surrounded by uncertainty relating to COVID-19 future developments, as well as financial, economic, competitive, regulatory, and other factors, many of which are beyond its control. If the Company is unable to generate sufficient cash flow in the upcoming months or if its cash needs exceed the Company’s borrowing capacity under the Amended Credit Facility, it 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. ​ NOTE 7. TAXES ​ For the nine months ended September 30, 2021 and 2020, the Company’s effective tax rate was 19.4 % and 16.3 %, respectively. The effective tax rate for the nine months ended September 30, 2021 and 2020 was impacted by excess tax benefit on stock option exercises. ​ As of September 30, 2021, the $ 21.3 million “Income taxes receivable” in the Company’s consolidated balance sheet represents the expected federal and state tax refund for 2020 tax year, net of current year federal and state tax payable. ​ Deferred tax assets were evaluated by considering historical levels of income, estimates of future taxable income and the impact of tax planning strategies. ​ No uncertain tax positions were recorded as of September 30, 2021 and 2020. No change in uncertain tax positions is anticipated over the next twelve months. ​ NOTE 8. STOCK REPURCHASE PLAN ​ On October 22, 2014, the board of directors of Monarch authorized a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, the board of directors authorized a program to repurchase up to 3,000,000 shares of the Company’s common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements and other factors. The Repurchase Plan does not obligate the Company to acquire any particular amount of common stock and the plan may be suspended at any time at the Company’s discretion, and it will continue until exhausted. The actual timing, number and value of shares repurchased under the repurchase program will be determined by management at its discretion and will depend on a number of factors, including the market price of the Company’s stock, general market economic conditions and applicable legal requirements. The Company has made no purchases under the Repurchase Plan. ​ NOTE 9. LEGAL MATTERS ​ On August 30, 2019, PCL Construction Services, Inc. (“PCL”) filed a complaint in District Court, City and County of Denver, Colorado (the “Denver Action”), against the Company and its Colorado subsidiaries, in connection with certain disputes regarding construction of the Company’s expansion of Monarch Black Hawk. The complaint alleges, among other things, the defendants breached the construction contract with PCL and certain implied warranties. On December 5, 2019, the Company and its Colorado subsidiaries filed an answer and counterclaim, which alleges, among other items, that PCL breached the construction contract, duties of good faith and fair dealing, and implied and express warranties, made fraudulent or negligent misrepresentations on which the Company and its Colorado subsidiaries relied, and included claims for monetary damages as well as equitable and declaratory relief. ​ 15 Table of Contents The trial date for this matter has been scheduled for March 21, 2022. Discovery in the action is ongoing, and we are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any. ​ In connection with the expansion of the Monarch Black Hawk, as described above, PCL and certain subcontractors have provided purported notice of liens filed against the real property on which the Monarch Black Hawk is situated (the “Monarch Black Hawk Property”), for sums allegedly owed for construction of the expansion. Some of the subcontractors have recorded such liens in the property records of Gilpin County, Colorado. ​ On March 26, 2021, PCL filed a mechanics’ lien foreclosure action in District Court, County of Gilpin, Colorado (the “Gilpin Action”), against the Company and its Colorado subsidiaries, in connection with the Company’s expansion plans for the Monarch Black Hawk Property. The complaint essentially mirrors the claims and allegations made by PCL in the Denver Action, as described above. The new lawsuit includes an additional claim, however, for foreclosure of PCL’s purported mechanics’ lien against the Monarch Black Hawk Property. PCL also joined additional subcontractors as defendants who have claimed a purported lien against the Monarch Black Hawk Property. Effective May 10, 2021, PCL filed its second amended complaint, joining more such parties as defendants. Many of the Company’s co-defendants have filed cross claims against Monarch for foreclosure of mechanics’ liens and related claims, including unjust enrichment, and have also filed counterclaims against PCL. The Company and its Colorado subsidiaries filed an answer and counterclaims in the Gilpin Action on July 15, 2021. Monarch has also filed answers to all cross claims, denying the claimants’ rights to relief. The Company and its Colorado subsidiaries intend to defend against PCL’s claims and the cross claims filed by certain subcontractors, and will vigorously prosecute its counterclaims for damages. The case was recently stayed pending the outcome of the Denver Action. The Company recognized $ 3.0 million and $ 0.8 million in construction litigation expense relating to these lawsuits for the nine months ended September 30, 2021 and 2020, respectively, which are included in Other operating items, net on the Consolidated Statements of Income. ​ From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. Management believes that the amount of any reasonably possible or probable loss for such other known matters would not have a material adverse impact on our financial conditions, cash flows or results of operations; however, the outcome of these actions is inherently difficult to predict. ​ ​ ​ ​ 16 Table of Contents