What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 85 added, 86 removed, 154 unchanged (53% 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 COVID-19, 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 belief regarding the exposure of our cash and accounts receivable to credit risk;

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

(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.

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

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

(iii) our belief regarding the exposure of our cash and accounts receivable to credit risk;

(iv) our beliefs regarding the quality of our work product and guest service and our ability to capture additional market share in the high-end segment of the market;

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

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

(vii) 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;

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

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

(x) our expectations regarding future capital requirements;

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

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

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

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● cybersecurity risks, including misappropriation of customer information or other breaches of information security;

● impact of natural disasters, severe weather, terrorist activity and similar events;

● disruptions or reductions in travel and our operations due to natural disasters, severe weather, terrorist activity, pandemics, epidemics or outbreaks of infectious or contagious diseases, political instability, civil unrest and similar events;

● our competitive environment, including increased competition in our target market areas;

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We remain confident that our operating strategies will allow Atlantis to grow revenue as our market share continues to expand.

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

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

Monarch Black Hawk:

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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.

We are experiencing the pressure of increased costs and, due to the property’s location, labor shortage.

Although we are currently experiencing the pressure of increased costs and, due to the property’s location, labor shortage, we believe we have a long runway to fully unlock the property’s potential.

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

We use certain Key Performance Indicators (“KPI”) to manage our operation and measure our performance.

We use the following Key Performance Indicators (“KPI”) to manage our operation and measure our performance:

Gaming revenue KPI:

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Available rooms exclude those rooms unavailable for occupancy during the period due to renovation, development, or other requirements.

include rooms where the guests do not show up for their stay and lose their deposit.

Sold rooms include rooms where the guests do not show up for their stay and lose their deposit.

The calculations of the occupancy rate and ADR include the impact of rooms provided on a complimentary basis.

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

Through the six-month period ended June 30, 2021, we continued to operate under government-imposed capacity restrictions on our operations and various COVID-19 safety protocols.

During the first few months of the nine-month period ended September 30, 2021, we continued to operate under government-imposed capacity restrictions on our operations and various COVID-19 safety protocols.

We were continually adjusting our operations to the restrictions in occupancy and social distancing requirements.

At the same time, in the second quarter of 2021, both Atlantis and Black Hawk revenues benefited from COVID-19 related pent-up demand.

At the same time, in the second and third quarters of 2021, both Atlantis and Black Hawk revenues benefited from COVID-19 related pent-up demand.

The convention business at Atlantis was adversely affected by the state-mandated gathering limits.

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Monarch Casino Resort Spa Black Hawk expansion

Our financial results for the three and six months ended June 30, 2022 benefited from the phased opening of operations at our newly transformed Monarch Black Hawk, which opening started in the fourth quarter of 2020.

Our financial results for the three and nine months ended September 30, 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.

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

In the first six months of 2022 compared to the same period in 2021, the average daily number of slot machines had increased by approximately 210, the average daily table games had increased by approximately 15 and the average daily available rooms had increased by approximately 150.

In the first nine months of 2022 compared to the same period in 2021, the average daily number of slot machines had increased by approximately 177, the average daily table games had increased by approximately 19 and the average daily available rooms had increased by approximately 105.

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 June 30, 2022 and 2021

For the three months ended June 30, 2022, our net income totaled $19.4 million, or $0.99 per diluted share, compared to net income of $18.1 million, or $0.93 per diluted share for the same period in 2021, reflecting a 7.1% and 6.5% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended June 30, 2022, totaled $115.3 million, an increase of $17.6 million, or 18.0%, compared to the three months ended June 30, 2021.

Income from operations for the three months ended June 30, 2022, totaled $25.7 million compared to income from operations of $23.8 million for the same period in 2021.

Casino revenue increased 10.7% in the second quarter of 2022 compared to the second 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 36.5% for the three months ended June 30, 2022, compared to 31.7% for the three months ended June 30, 2021, primarily due to an increase in promotional allowances and an increase in labor expense.

Food and beverage revenue for the second quarter of 2022 increased 28.7% compared to the second quarter of 2021 due to a 22.5% increase in food and beverage covers, combined with an increase in food and beverage revenue per cover of 5.0%.

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 second quarter of 2021 at both properties being negatively impacted by COVID-19 related restrictions.

Food and beverage operating expense as a percentage of food and beverage revenue decreased in the second quarter of 2022 to 77.0% compared to 79.2% for the same quarter in 2021 primarily due to our ongoing efforts to align menu prices with increased commodity prices and labor costs.

Hotel revenue increased 31.1% in the second quarter of 2022 compared to the same quarter of 2021 primarily as a result of an increase in ADR of $44.63 ($185.28 in the second quarter of 2022 and $140.65 in the second quarter of 2021).

Hotel occupancy was 81.0% during the current year period compared to 80.1% during the second quarter of 2021.

RevPAR was $162.47 and $122.91 for the three months ended June 30, 2022 and 2021, respectively.

Hotel operating expense as a percentage of hotel revenue decreased to 34.4% in the second quarter of 2022 compared to 38.6% 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 17.4% in the second quarter of 2022 compared to the same prior year period primarily due to the ramp-up of the spa operation at Monarch Black Hawk.

SG&A expense increased to $23.1 million in the second quarter of 2022 from $20.6 million in the second 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 well as increased utility expenses.

As a percentage of net revenue, SG&A expense decreased to 20.0% in the second quarter of 2022 compared to 21.1% in the same period in 2021.

Depreciation and amortization expense increased to $10.5 million for the three months ended June 30, 2022, compared to $9.4 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 second quarter of 2022, we recognized $2.4 million and $0.8 million, respectively, in professional service fees relating to our construction litigation.

Comparison of Operating Results for the Three-Month Periods Ended September 30, 2022 and 2021

For the three months ended September 30, 2022, our net income totaled $27.5 million, or $1.41 per diluted share, compared to net income of $22.3 million, or $1.15 per diluted share for the same period in 2021, reflecting a 23.2% and 22.6% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended September 30, 2022, totaled $133.7 million, an increase of $22.1 million, or 19.8%, compared to the three months ended September 30, 2021.

Income from operations for the three months ended September 30, 2022, totaled $36.4 million compared to income from operations of $29.0 million for the same period in 2021.

Casino revenue increased 20.3% in the third quarter of 2022 compared to the third 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 and higher guest spend per visit at both properties.

Casino operating expense as a percentage of casino revenue decreased to 33.1% for the three months ended September 30, 2022, compared to 33.3% for the three months ended September 30, 2021, primarily due to the increase in gaming revenue.

Food and beverage revenue for the third quarter of 2022 increased 20.6% compared to the third quarter of 2021 due to a 7.6% increase in food and beverage covers, combined with an increase in food and beverage revenue per cover of 12.1%.

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 increase in buffet covers at both properties.

Food and beverage operating expense as a percentage of food and beverage revenue decreased in the third quarter of 2022 to 72.4% compared to 77.6% for the same quarter in 2021 primarily due to our ongoing efforts to align menu prices with increased commodity prices and labor costs.

Hotel revenue increased 19.9% in the third quarter of 2022 compared to the same quarter of 2021 primarily as a result of an increase in ADR of $23.63 ($177.74 in the third quarter of 2022 and $154.11 in the third quarter of 2021).

Hotel occupancy was 86.8% during the current year period compared to 83.4% during the third quarter of 2021.

RevPAR was $170.14 and $142.39 for the three months ended September 30, 2022 and 2021, respectively.

Hotel operating expense as a percentage of hotel revenue decreased to 34.2% in the third quarter of 2022 compared to 38.5% for the comparable prior year period primarily as a result of the increase in ADR and the ramp-up in hotel operations at Monarch Black Hawk.

Other revenue increased 7.5% in the third quarter of 2022 compared to the same prior year period primarily due to the ramp-up of the spa operation at Monarch Black Hawk and increase in commission revenue.

SG&A expense increased to $25.7 million in the third quarter of 2022 from $21.7 million in the third quarter of 2021 driven primarily by increases in labor expense, utility expenses and advertising expense at Monarch Black Hawk.

As a percentage of net revenue, SG&A expense decreased to 19.2% in the third quarter of 2022 compared to 19.4% in the same period in 2021.

Depreciation and amortization expense increased to $11.2 million for the three months ended September 30, 2022, compared to $9.4 million for the same prior year period, due to new assets placed into service with the ongoing renovation at Atlantis.

During the third quarter of 2022 and 2021, we recognized $2.8 million and $1.5 million, respectively, in professional service fees relating to our construction litigation.

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

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

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

In the third quarter of 2022 we expensed $0.5 million of interest and amortized $0.4 million in deferred loan costs.

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

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

Comparison of Operating Results for the Six-Month Periods Ended June 30, 2022 and 2021

For the six months ended June 30, 2022, we had a net income of $37.6 million, or $1.92 per diluted share, compared to net income of $26.3 million, or $1.36 per diluted share for the same period in 2021, reflecting a 42.8% and 41.2% increase in net income and diluted earnings per share, respectively.

Net revenues in the six months ended June 30, 2022, totaled $223.6 million, an increase of 29.5%, compared to the six months ended June 30, 2021.

Income from operations for the six months ended June 30, 2022 totaled $47.0 million compared to $35.0 million income from operations for the same period in 2021.

Casino revenue increased 21.1% in the first six months of 2022 compared to the first six months of 2021 and was driven by an increase in gaming devices with the opening of the expanded casino in Monarch Black Hawk and an increase in guest spend per visit at both properties.

Casino operating expense as a percentage of casino revenue increased to 36.1% for the six months ended June 30, 2022 compared to 30.5% for the six months ended June 30, 2021 primarily as a result of increase in labor expenses and increase in promotional allowances.

Food and beverage revenue for the first six months of 2022 increased 42.2% compared to the 2021 same period due to a 32.9% increase in food and beverage covers combined with a 7.0% increase in food and beverage revenue per cover.

Food and beverage operating expense as a percentage of food and beverage revenue decreased in the first six months of 2022 to 78.2% from 82.5% for the same period in 2021 primarily as a result of our effort to align menu prices with increased commodity prices and labor cost.

Hotel revenue increased 48.3% in the first six months of 2022 compared to the first six months of 2021 primarily due to increase in available rooms with the opening of the new hotel at Monarch Black Hawk, as well as increase in ADR.

ADR increased by $50.47, from $127.93 in the first six months of 2021 to $178.40 in the first six months of 2022.

Hotel occupancy for the first six months of 2022 was 78.8% compared to 75.9% during the same period of 2021.

REVPAR was $152.90 for the first six months of 2022 and $105.92 for the first six months of 2021.

Hotel operating expense as a percentage of hotel revenue decreased to 36.0% in the first six months of 2022 compared to 42.7% for the comparable prior year period primarily as a result of the higher ADR.

Other revenue increased 24.1% in the first six months of 2022 compared to the same prior year period.

SG&A expense increased to $47.3 million in the first six months of 2022 from $40.5 million in the first six months of 2021 primarily due to the increase in labor expense, sales and marketing expense and utility expense.

As a percentage of net revenue, SG&A expense decreased to 21.1% in the first six months of 2022 compared to 23.5% in the same period in 2021.

Depreciation and amortization expense increased to $21.1 million for the six months ended June 30, 2022 compared to $18.9 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 first six months of 2022, we recognized $3.7 million in professional service fees relating to our construction litigation and $0.2 million in gain on disposal of assets and litigation proceeds.

During the first six months of 2021, we recognized $1.5 million in professional services fees relating to our construction litigation and $0.1 million in equipment, supplies and employee testing expenses directly attributable to the pandemic for reopening of the properties and incremental to normal operations.

During the first six months of 2022, we expensed $0.7 million of interest and amortized $0.7 million in deferred loan costs.

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

Comparison of Operating Results for the Nine-Month Periods Ended September 30, 2022 and 2021

For the nine months ended September 30, 2022, we had a net income of $65.0 million, or $3.33 per diluted share, compared to net income of $48.6 million, or $2.51 per diluted share for the same period in 2021, reflecting a 33.8% and 32.7% increase in net income and diluted earnings per share, respectively.

Net revenues in the nine months ended September 30, 2022, totaled $357.3 million, an increase of 25.7%, compared to the nine months ended September 30, 2021.

Income from operations for the nine months ended September 30, 2022 totaled $83.4 million compared to $64.1 million income from operations for the same period in 2021.

Casino revenue increased 20.8% in the first nine months of 2022 compared to the first nine months of 2021 and was driven by an increase in gaming devices with the opening of the expanded casino in Monarch Black Hawk and an increase in guest spend per visit at both properties.

Casino operating expense as a percentage of casino revenue increased to 34.9% for the nine months ended September 30, 2022 compared to 31.6% for the nine months ended September 30, 2021 primarily as a result of an increase in promotional allowances.

Food and beverage revenue for the first nine months of 2022 increased 33.5% compared to the 2021 same period due to a 22.4% increase in food and beverage covers combined with a 9.0% 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 2022 to 76.1% from 80.5% for the same period in 2021 primarily as a result of our effort to align menu prices with increased commodity prices and labor cost.

Hotel revenue increased 35.9% in the first nine months of 2022 compared to the first nine months of 2021 primarily due to increase in available rooms with the opening of the new hotel at Monarch Black Hawk, as well as increase in ADR.

ADR increased by $40.11, from $138.04 in the first nine months of 2021 to $178.15 in the first nine months of 2022.

Hotel occupancy for the first nine months of 2022 was 81.7% compared to 78.6% during the same period of 2021.

REVPAR was $159.08 for the first nine months of 2022 and $119.18 for the first nine months of 2021.

Hotel operating expense as a percentage of hotel revenue decreased to 35.3% in the first nine months of 2022 compared to 40.8% for the comparable prior year period primarily as a result of the higher ADR.

Other revenue increased 17.8% in the first nine months of 2022 compared to the same prior year period primarily due to the ramp-up of the spa operation at Monarch Black Hawk and increase in commission revenue.

SG&A expense increased to $72.9 million in the first nine months of 2022 from $62.2 million in the first nine months of 2021 primarily due to the increase in labor expense, utility expense and sales and marketing expense.

As a percentage of net revenue, SG&A expense decreased to 20.4% in the first nine months of 2022 compared to 21.9% in the same period in 2021.

Depreciation and amortization expense increased to $32.2 million for the nine months ended September 30, 2022 compared to $28.3 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 and renovation projects at Atlantis.

During the first nine months of 2022, we recognized $6.5 million in professional service fees relating to our construction litigation.

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 2022, we expensed $1.1 million of interest and amortized $1.1 million in deferred loan costs.

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

Cash paid for capital expenditures for the six-month periods ended June 30, 2022 and 2021 totaled $35.2 million and $11.9 million, respectively.

During the six-month period ended June 30, 2022 our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the original tower at Atlantis and the acquisition of gaming and other equipment to upgrade and replace existing equipment at Atlantis and Monarch Black Hawk.

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

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

Cash paid for capital expenditures for the nine-month periods ended September 30, 2022 and 2021 totaled $40.5 million and $21.7 million, respectively.

During the nine-month period ended September 30, 2022 our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the original tower at Atlantis, the new upscale retail shop at Atlantis 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, 2021 our capital expenditures related primarily to the following:

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;

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 six months of 2022 and 2021 were funded from operating cash flows.

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

Monarch Black Hawk Expansion

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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 six months ended June 30, 2022, net cash provided by operating activities totaled $60.6 million, compared to net cash provided by operating activities of $55.2 million in the same prior year period.

For the nine months ended September 30, 2022, net cash provided by operating activities totaled $106.2 million, compared to net cash provided by operating activities of $96.3 million in the same prior year period.

This increase was primarily a result of increases in net income, and depreciation expense, offset by an increase in working capital.

Net cash used in investing activities totaled $35.2 million and $11.9 million during the six months ended June 30, 2022 and 2021, respectively.

Net cash used in investing activities during the first six months of 2022 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the original tower at Atlantis and for acquisition of gaming and other equipment at both properties.

Net cash used in investing activities during the first six months of 2021 consisted primarily of cash used for redesign of part of the legacy Monarch Black Hawk building, 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 financing activities in the first six months of 2022 totaled $28.3 million and consisted of $25.0 million in principal payments on the credit facility and $6.5 million cash used for the purchase of Company stock under the Repurchase Plan partially, offset by $3.2 million of net proceeds from stock options exercise.

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

Net cash used in investing activities totaled $40.5 million and $21.7 million during the nine months ended September 30, 2022 and 2021, respectively.

Net cash used in investing activities during the first nine months of 2022 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the original tower at Atlantis, the new upscale retail shop 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 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 financing activities in the first nine months of 2022 totaled $66.0 million and consisted of $63.0 million in principal payments on the credit facility and $6.5 million cash used for the purchase of Company stock under the Repurchase Plan partially, offset by $3.5 million of net proceeds from stock options exercise.

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

Amended Credit Facility

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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 Amended Credit Facility increased 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 June 30, 2022, we had an outstanding principal balance of $65 million under the Term Loan Facility, a $0.6 million letter of credit and no borrowings under the Revolving Credit Facility;

As of September 30, 2022, we had an outstanding principal balance of $27 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.

The entire outstanding principal balance is due in the next twelve months.

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.

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 2022, we may be required to prepay borrowings under the Amended Credit Facility using excess cash flows for each fiscal year, depending on the Company’s leverage ratio.

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

In addition to other customary covenants for a facility of this nature, as of June 30, 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 June 30, 2022, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.4:1 and 3.6:1, respectively.

As of June 30, 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.

In addition to other customary covenants for a facility of this nature, as of September 30, 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 September 30, 2022, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.2:1 and 3.8:1, respectively.

As of September 30, 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 June 30, 2022, the interest rate on the Term Loan Facility was 2.67%, or LIBOR plus a 1.00% margin.

As of September 30, 2022, the interest rate on the Term Loan Facility was 4.12%, 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 six months of 2022, we made $15 million in optional prepayments on the Term Loan Facility in addition to a $10 million in mandatory payments.

As of June 30, 2022, $43.8 million “Long-term debt, net” in the Company’s consolidated balance sheet represents the $65.0 million outstanding loan amount under the Amended Credit Facility, net of $1.2 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 June 30, 2022 will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended June 30, 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.

During the first nine months of 2022, we made $48 million in optional prepayments on the Term Loan Facility in addition to a $15 million in mandatory payments.

As of September 30, 2022, $26.2 million, representing $27.0 million outstanding loan amount under the Amended Credit Facility, net of $0.8 million unamortized debt issuance costs, is presented in the Current liabilities section of the Company’s consolidated balance sheet as “Current maturities of long-term debt”.

We believe that our anticipated operating cash flow and the $69.4 million available under our Amended Credit Facility as of September 30, 2022 will be sufficient to sustain operations for the twelve months from filing of Form 10-Q for the quarter ended September 30, 2022 and fulfill our capital expenditure plans.

However, spikes in COVID-19 cases or new variants thereof, other contagious diseases or viruses, 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.

5 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis