What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-08 · 86 added, 145 removed, 134 unchanged (63% 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, 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;

(i) the impact of the COVID-19 pandemic, including any recent spikes in cases or any spread of new variants, on our revenues, cash flows, liquidity, construction projects, results of operations and financial condition;

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

(iii) our beliefs regarding the sufficiency of our cash and other financial resources;

(iv) our expectations regarding credit facility covenant compliance and our ability to continue to obtain necessary covenant waivers;

(iv) our expectations regarding credit facility covenant compliance ;

(v) our expectations regarding changes in our operations and services relating to government restrictions that may be imposed in light of COVID-19 pandemic measures;

(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 expansion project at the Monarch Black Hawk (the "Monarch Black Hawk Expansion"), including the timing for completion of the last stage of the project, receipt of occupancy and other regulatory approvals, impact of the ongoing construction litigation, budget and estimated costs, pre-opening expenses and transformative potential);

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

(ix) our expectations and intentions regarding the expenses, defenses and outcomes of the lawsuits filed by the construction project general contractor against us;

(x) our expectations regarding our business prospects, strategies, estimates and outlook;

(xi) our expectations regarding the positioning of our properties to benefit from future macro and local economic growth;

(xii) our expectations regarding future capital requirements;

(xiii) our anticipated sources of funds and adequacy of such funds to meet our debt obligations and capital requirements;

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

(vi) our beliefs regarding the quality of our properties as key factors in Monarch's long-term success;

(vii) our expectations and beliefs concerning the expansion project at the Monarch Black Hawk (the "Monarch Black Hawk Expansion"), ;

(viii) our expectations and intentions regarding the expenses, defenses and outcomes of the lawsuits filed by the construction project general contractor against us and our counterclaims against the contractor;

(ix) our expectations regarding our business prospects, strategies, estimates and outlook;

(x) our expectations regarding the positioning of our properties to benefit from future macro and local economic growth;

(xi) our expectations regarding future capital requirements;

(xii) our anticipated sources of funds and adequacy of such funds to meet our debt obligations and capital requirements;

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

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

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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 and its variants, including any 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 any spikes in cases, 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, and mask mandates in connection with the COVID-19 pandemic, including any spikes in cases;

● 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 and its variants, including any spikes in cases;

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

● adverse impacts of the COVID-19 pandemic and its variants on our business, financial condition, operating results, access to capital markets, and on short-term and long-term travel, leisure and discretionary spending habits and practices of our guests;

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

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

● impact of any uninsured losses;

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

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

● a delay in or failure of the changes in guest visitation, entertainment choices and spending patterns, including a decrease in overall 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, mask mandates and other health and safety protocols implemented at our properties, including a reduction in operating margins (or negative operating margins);

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

● a delay in or failure of the changes in guest visitation, entertainment choices and spending patterns, including a decrease in overall long-term demand;

● 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;

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● 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 any 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 any spikes in cases;

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

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

● our ability to realize the anticipated benefits of our expansion and renovation projects, including the Monarch Black Hawk Expansion;

● 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 Black Hawk general contractor, PCL Construction Services, Inc.

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

● risks related to development and construction activities (including disputes with and defaults by contractors and subcontractors;

construction, equipment or staffing problems and delays;

construction defects;

shortages of materials or skilled labor;

environmental, health and safety issues;

weather and other hazards, site access matters, and unanticipated cost increases);

● risks related to pending litigation, which is costly and time-consuming to defend, and if decided against us, could require us to pay substantial judgments or settlements.

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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 increased expenses from inflationary pressures, including wage inflation;

● 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;

● our ability to successfully complete potential acquisitions and investments;

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

● risks related to our present indebtedness and future borrowings;

● adverse trends in the gaming industry;

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

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

● our dependence on two resorts;

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

● the impact of the events occurring in Eastern Europe and the conflict taking place in Ukraine;

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

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

“Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K”) and our other filings with the Securities and Exchange Commission.

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

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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.

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

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

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

Construction at the property is currently underway to 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.

In the first quarter of 2022, we completed our masterplan expansion, transforming the property into a full-scale casino resort, which includes a 23-story hotel with spa and pool at the top floor, expanded casino floor, poker room, sportsbook lounge, keno counter, five dining options and ten bars.

Through its superior product and service, the property is positioned to attract and retain the upper segment of the market and grow incremental revenue and profit.

KEY PERFORMANCE INDICATORS

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Impact of the COVID-19 Pandemic

Monarch’s operating results for the three and nine months ended September 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 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.

Therefore, the nine-month periods financial results comparison set forth below should be read with the 2020 partial period closures in mind.

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

Monarch’s comparison of operating results for the reported periods were impacted by the COVID-19 pandemic.

Following the reopening of our operations in June 2020 and through the three-month period ended March 31, 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.

Our financial results for the three and nine months ended September 30, 2020 were significantly impacted by the unprecedented government-mandated closure of our Nevada and Colorado properties in response to the COVID-19 pandemic, which lasted approximately three months, and the related operational changes to comply with government restrictions as well as changes in customer demand and overall travel and leisure industry.

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.

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

In July 2021, due to reports of increased COVID-19 cases apparently driven by the new Delta variant, Nevada state government officials 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.

Since the reopening, guest visitation and hotel and convention bookings have been and continue to be inconsistent.

The demand for convention bookings has been lower than prior to the state-mandated closures, and is expected to remain lower for the near future.

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

Our financial results for the three and nine months ended September 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 number 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 September 30, 2021 and 2020

For the three months ended September 30, 2021, our net income totaled $22.3 million, or $1.15 per diluted share, compared to net income of $10.7 million, or $0.57 per diluted share for the same period in 2020, reflecting a 107.7% and 101.8% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended September 30, 2021, totaled $111.6 million, an increase of $51.8 million, or 86.5%, compared to the three months ended September 30, 2020.

Income from operations for the three months ended September 30, 2021, totaled $29.0 million compared to income from operations of $13.4 million for the same period in 2020.

Casino revenue increased 71.4% in the third quarter of 2021 compared to the third quarter of 2020.

The increase in casino revenue was driven primarily by the increase is gaming devices with the opening of our expanded casino in Black Hawk, the removal of Colorado table game bet limit and higher guest spend per visit at both properties.

Casino operating expense as a percentage of casino revenue increased to 33.3% for the three months ended September 30, 2021 compared to 28.3% for the three months ended September 30, 2020, primarily due to an increase in promotional expenses at Monarch Black Hawk, as well as strong casino performance in the prior year period, following the properties’ reopening.

Food and beverage revenue for the third quarter of 2021 increased 102.3% compared to the third quarter of 2020 due to an 84.7% increase in food and beverage covers, combined with an increase in food and beverage revenue per cover of 9.5%.

The increase in covers is primarily a result of the opening of two new restaurants at Monarch Black Hawk in early 2021 and the buffet at Atlantis being closed in July of 2020.

Food and beverage operating expense as a percentage of food and beverage revenue increased in the third quarter of 2021 to 77.6% compared to 75.1% for the same quarter in 2020 primarily due to increased commodity prices and labor costs.

Hotel revenue increased 162.2% in the third quarter of 2021 compared to the same quarter of 2020 as a result of an average daily increase in available rooms by 50, with the opening of the hotel at Monarch Black Hawk.

Hotel occupancy was 83.4% during the current year period compared to 80.3% during the third quarter of 2020.

ADR increased by $53.35 ($154.11 in the third quarter of 2021and $100.76 in the third quarter of 2020).

REVPAR was $142.39 and $87.87 for the three months ended September 30, 2021 and 2020, respectively.

Hotel operating expense as a percentage of hotel revenue decreased to 38.5% in the third quarter of 2021 compared to 42.3% 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.

Other revenue increased 40.4% in the third quarter of 2021 compared to the same prior year period primarily due to the addition of a retail outlet and spa at Monarch Black Hawk.

SG&A expense increased to $21.7 million in the third quarter of 2021 from $15.9 million in the third quarter of 2020 driven primarily by the additional G&A expenses to support the expanded Monarch Black Hawk as well as an increase in overall labor expense.

As a percentage of net revenue, SG&A expense decreased to 19.4% in the third quarter of 2021 compared to 26.5% in the same period in 2020.

Depreciation and amortization expense increased to $9.4 million for the three months ended September 30, 2021 compared to $3.9 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 third quarter of 2021, we recognized $1.5million of professional services fees relating to our construction litigation, $0.1 million loss on disposal of assets, $0.3 million of litigation proceeds and $0.1 million of insurance claims proceeds.

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

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

During the third quarter of 2021 we expensed $0.5 million of interest and amortized $0.4 million in deferred loan costs.

In the third quarter of 2020, we capitalized all $1.8 million of interest, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion.

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

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2021 and 2020

For the nine months ended September 30, 2021, we had net income of $48.6 million, or $2.51 per diluted share, compared to net income of $8.4 million, or $0.44 per diluted share for the same period in 2020, reflecting a 477.5% and 470.5% increase in net income and diluted earnings per share, respectively.

Net revenues in the nine months ended September 30, 2021, totaled $284.3 million, an increase of 125.6%, compared to the nine months ended September 30, 2020.

Income from operations for the nine months ended September 30, 2021 totaled $64.1 million compared to $10.1 million income from operations for the same period in 2020.

Casino revenue increased 126.9% in the first nine months of 2021 compared to the first nine months of 2020 and was driven by an increase in gaming devices with the opening of the expanded casino in Monarch Black Hawk, the removal of Colorado table game bet limit and an increase in guest spend per visit at both properties.

Casino operating expense as a percentage of casino revenue increased to 31.6% for the nine months ended September 30, 2021 compared to 30.7% for the nine months ended September 30, 2020, primarily as a result of higher promotional and payroll expenses in the current year.

Food and beverage revenue for the first nine months of 2021 increased 110.9% compared to the 2020 same period due to a 87.4% increase in food and beverage covers combined with a 12.5% 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 nine months of 2021 to 80.5% from 81.8% for the same period in 2020 primarily as a result of our effort to align menu prices with increased commodity prices and labor costs, 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 175.3% in the first nine months of 2021 compared to the first nine months of 2020 primarily due to an 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 nine months of 2021 was 78.6% compared to 75.7% during the period the hotel at Atlantis was open in the first nine months of 2020.

ADR increased by $27.17, from $110.87 in the first nine months of 2020 to $138.04 in the first nine months of 2021.

REVPAR was $119.18 for the first nine months of 2021 and $89.99 for the period the hotel was open in the first nine months of 2020.

Hotel operating expense as a percentage of hotel revenue decreased to 40.8% in the first nine months of 2021 compared to 46.2% for the comparable prior year period primarily as a result of the higher ADR.

Other revenue increased 70.9% in the first nine months of 2021 compared to the same prior year period primarily due to the addition of a retail outlet and spa at Monarch Black Hawk.

SG&A expense increased to $62.2 million in the first nine months of 2021 from $41.9 million in the first nine 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 expenses in 2021 to support the expanded Monarch Black Hawk operation.

As a percentage of net revenue, SG&A expense decreased to 21.9% in the first nine months of 2021 compared to 33.3% in the same period in 2020.

Depreciation and amortization expense increased to $28.3 million for the nine months ended September 30, 2021 compared to $11.5 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 nine months of 2021, we recognized $3.0 million of professional service fees 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, $0.1 million loss on disposal of assets, $0.3 million of litigation proceeds and $0.1 million of insurance claims proceeds.

During the first nine months of 2020, we recognized $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.

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

During the first nine months of 2021, we expensed $3.2 million of interest and amortized $0.6 million in deferred loan costs.

During the first nine months of 2020, we capitalized all interest of $5.0 million, as the borrowings on our Amended Credit Facility were exclusively used to finance the Monarch Black Hawk Expansion.

Our financial results for the three months ended March 31, 2022 benefited from the phased opening of operations at our newly transformed Monarch Black Hawk, which opening started in the fourth quarter of 2020.

The new hotel, including a spa and pool on the top floor, was fully operational by the end of the second quarter of 2021.

In May 2021, we opened our new poker room.

In December 2021, we opened our sportsbook lounge, and in February 2022, our new specialty restaurant.

In the first quarter of 2022 compared to the same period in 2021, the average daily number of slot machines had increased by approximately 260, the average daily table games by approximately 13 and the average daily available rooms by approximately 220.

In addition, the property’s table games revenue in the current period benefited from the elimination of betting limits and additional table games variety, effective May 2021.

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2022 and 2021

For the three months ended March 31, 2022, our net income totaled $18.1 million, or $0.92 per diluted share, compared to net income of $8.2 million, or $0.42 per diluted share for the same period in 2021, reflecting a 122.2% and 119.0% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended March 31, 2022, totaled $108.3 million, an increase of $33.4 million, or 44.5%, compared to the three months ended March 31, 2021.

Income from operations for the three months ended March 31, 2022, totaled $21.3 million compared to income from operations of $11.3 million for the same period in 2021.

Casino revenue increased 33.9% in the first quarter of 2022 compared to the first quarter of 2021.

The increase in casino revenue was driven primarily by the increase in gaming devices with the complete opening of our expanded casino in Black Hawk, the removal of Colorado table game bet limit and higher guest spend per visit at both properties.

Casino operating expense as a percentage of casino revenue increased to 35.6% for the three months ended March 31, 2022, compared to 29.0% for the three months ended March 31, 2021, primarily due to increases in gaming tax expense and labor expense.

Food and beverage revenue for the first quarter of 2022 increased 60.7% compared to the first quarter of 2021 due to a 47.6% increase in food and beverage covers, combined with an increase in food and beverage revenue per cover of 8.9%.

The increase in covers is primarily a result of the opening of a new restaurant at Monarch Black Hawk in early 2022 as well as buffet covers in the first quarter of 2021 at both properties being negatively impacted by COVID-19 related restrictions and lower guest demand.

Food and beverage operating expense as a percentage of food and beverage revenue decreased in the first quarter of 2022 to 79.6% compared to 87.0% for the same quarter in 2021 primarily due to improvements in labor costs management and higher revenue per cover.

Hotel revenue increased 75.9% in the first quarter of 2022 compared to the same quarter of 2021 as a result of an average daily increase in available rooms by approximately 220, with the staged opening of the hotel at Monarch Black Hawk.

Hotel occupancy was 76.5% during the current year period compared to 71.1% during the first quarter of 2021.

ADR increased by $59.03 ($170.73 in the first quarter of 2022 and $111.70 in the first quarter of 2021).

REVPAR was $142.78 and $86.59 for the three months ended March 31, 2022 and 2021, respectively.

Hotel operating expense as a percentage of hotel revenue decreased to 38.0% in the first quarter of 2022 compared to 49.2% 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.

Other revenue increased 32.4% in the first quarter of 2022 compared to the same prior year period primarily due to the addition of a retail outlet and spa at Monarch Black Hawk.

SG&A expense increased to $24.2 million in the first quarter of 2022 from $19.9 million in the first quarter of 2021 driven primarily by the additional G&A expenses to support the expanded Monarch Black Hawk as well as an increase in overall labor expense.

As a percentage of net revenue, SG&A expense decreased to 22.3% in the first quarter of 2022 compared to 26.6% in the same period in 2021.

Depreciation and amortization expense increased to $10.5 million for the three months ended March 31, 2022, compared to $9.5 million for the same prior year period, due to new assets placed into service with the completed opening of our hotel tower and expanded casino at Monarch Black Hawk.

During the first quarter of 2022, we recognized $1.3 million in professional service fees relating to our construction litigation.

During the first quarter of 2021, we recognized $0.6 million in professional service fees relating to our construction litigation;

and $0.1 million of equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations.

These expenses are included in Other operating items, net in the Consolidated Statements of Income.

In the first quarter of 2022 we expensed $0.3 million of interest and amortized $0.4 million in deferred loan costs.

In the first quarter of 2021, we expensed $1.3 million of interest and amortized $0.3 million in deferred loan costs.

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

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We seek to continually upgrade and maintain our facilities in order to present a fresh, high quality product to our guests.

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

Cash paid for capital expenditures for the nine-month periods ended September 30, 2021 and 2020 totaled $21.7 million and $36.3 million, respectively.

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

the transformation 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;

Cash paid for capital expenditures for the three-month periods ended March 31, 2022 and 2021 totaled $22.1 million and $5.9 million, respectively.

During the three-month period ended March 31, 2022 our capital expenditures related primarily to:

the redesign and upgrade of hotel rooms in the first tower at Atlantis;

the completion of the transformation of part of the Monarch Black Hawk legacy facility;

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

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

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

Capital expenditures during the first nine month in 2020 were funded from operating cash flow and borrowings from the Amended Credit Facility.

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.

Capital expenditures during each of the first three months 2022 and 2021 were funded from operating cash flows.

Monarch Black Hawk Expansion

In the fourth quarter of 2013, we began work to convert 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.

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

In 2013, we began work to convert the Monarch Black Hawk into a full-scale casino resort spa.

The multi-phased expansion of the Monarch Casino Resort Spa Black Hawk involved construction of a new parking structure beginning in 2016, demolition of the original parking structure in 2017, construction of a new hotel tower and casino expansion and redesign and upgrade of a part of the legacy facility, which were completd in February 2022.

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.

In the third 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.

In 2021, we added a poker room, a keno counter, a sportsbook, sports lounge and bar, as well as additional slot machines in the legacy facility.

In February 2022, we completed the Monarch Black Hawk expansion with the opening of a new specialty restaurant.

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 Monarch Black Hawk Expansion costs through a combination of operating cash flows, available cash and, if necessary, borrowings under the Amended Credit Facility.

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

Further, although we intend to seek recovery from our general contractor through the current construction litigations, 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, for capital expansion projects, borrowings available under our Amended Credit Facility.

For the nine months ended September 30, 2021, net cash provided by operating activities totaled $96.3 million, compared to net cash provided by operating activities of $19.3 million in the same prior year period.

This increase was primarily a result of increases in net income, 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 $21.7 million and $36.3 million during the nine months ended September 30, 2021 and 2020, respectively.

Net cash used in investing activities during the first nine 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 nine 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 in financing activities in the first nine months of 2021 totaled $69.9 million and consisted of $74.5 million in principal payments on the credit facility offset by $4.6 million net proceeds from stock options exercise.

Net cash used in financing activities in the first nine months of 2020 totaled $13.0 million and consisted of $20.0 million principal payments on the credit facility and $2.9 million loan issuance cost, offset by $8.8 million borrowings under the credit facility and $1.1 million proceeds from the stock options exercise.

For the three months ended March 31, 2022, net cash provided by operating activities totaled $35.4 million, compared to net cash provided by operating activities of $21.9 million in the same prior year period.

This increase was primarily a result of increases in net income, and depreciation expense, as we continue to place in service new assets until the full completion of the Monarch Black Hawk expansion, combined with a decrease in working capital.

Net cash used in investing activities totaled $22.1 million and $5.9 million during the three months ended March 31, 2022 and 2021, respectively.

Net cash used in investing activities during the first three months of 2022 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the first tower at Atlantis, the transformation of part of the Monarch Black Hawk legacy facility and for acquisition of gaming and other equipment at both properties.

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 financing activities in the first three months of 2022 totaled $13.8 million and consisted of $10.0 million in principal payments on the credit facility and $6.5 million cash used for purchase of Company stock under the Repurchase Plan partially offset by $2.7 million of net proceeds from stock options exercise.

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

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”).

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”).

On April 30, 2021, we 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.

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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, we 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 the next twelve months and we had no borrowings under the Revolving Credit Facility, therefore all $70 million remained available for borrowing.

As of March 31, 2022, we had an outstanding principal balance of $80 million under the Term Loan Facility, a $0.6 million letter of credit and no borrowings under the Revolving Credit Facility;

$69.4 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 million.

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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 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, respectively.

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.

In addition to other customary covenants for a facility of this nature, as of March 31, 2022, we are 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 March 31, 2022, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.5:1 and 4.7:1, respectively.

As of March 31, 2022, the interest rate under 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.

As of March 31, 2022, the interest rate on the Term Loan Facility was 1.11%, or LIBOR plus a 1.00% margin.

On the terms and subject to some conditions, we 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.

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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, we made a $67.0 million in optional prepayments on its Term Loan Facility in addition to a $7.5 million in mandatory payments.

As of September 30, 2021, $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 payment that are due in the 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 September 30, 2021 will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended September 30, 2021 and fulfill our capital expenditure plans.

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

During the first three months of 2022, we made $5 million in optional prepayments on the Term Loan Facility in addition to a $5 million in mandatory payments.

As of March 31, 2022, $58.5 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $80.0 million outstanding loan amount under the Amended Credit Facility, net of $1.5 million unamortized debt issuance costs and $20.0 million mandatory principal payment that are due in the 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 $69.4 million available under our Amended Credit Facility as of March 31, 2022 will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended March 31, 2022 and fulfill our capital expenditure plans.

However, spikes in COVID-19 cases or new variants thereof or financial, economic, competitive, regulatory, and other factors, many of which are beyond our control, could negatively impact our operations.

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.

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For a more extensive discussion of our accounting policies, see Note 1.

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

“Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in our 2021 Form 10-K filed with the SEC on February 28, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis