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, ​ ​ 2023 2022 2023 2022 Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Casino ​ $ 73,818 ​ $ 76,909 ​ $ 209,578 ​ $ 203,605 ​ Food and beverage ​ ​ 32,970 ​ ​ 31,312 ​ ​ 93,812 ​ ​ 85,818 ​ Hotel ​ ​ 20,608 ​ ​ 20,785 ​ ​ 54,173 ​ ​ 54,274 ​ Other ​ ​ 5,569 ​ ​ 4,721 ​ ​ 15,729 ​ ​ 13,637 ​ Net revenues ​ ​ 132,965 ​ ​ 133,727 ​ ​ 373,292 ​ ​ 357,334 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Casino ​ ​ 25,473 ​ ​ 25,474 ​ ​ 76,471 ​ ​ 71,156 ​ Food and beverage ​ ​ 23,330 ​ ​ 22,665 ​ ​ 68,070 ​ ​ 65,297 ​ Hotel ​ ​ 7,176 ​ ​ 7,117 ​ ​ 20,107 ​ ​ 19,183 ​ Other ​ ​ 2,820 ​ ​ 2,383 ​ ​ 8,549 ​ ​ 6,712 ​ Selling, general and administrative ​ ​ 27,091 ​ ​ 25,651 ​ ​ 77,162 ​ ​ 72,931 ​ Depreciation and amortization ​ ​ 12,197 ​ ​ 11,183 ​ ​ 35,152 ​ ​ 32,245 ​ Other operating items, net ​ ​ 2,976 ​ ​ 2,898 ​ ​ 3,012 ​ ​ 6,444 ​ Total operating expenses ​ ​ 101,063 ​ ​ 97,371 ​ ​ 288,523 ​ ​ 273,968 ​ Income from operations ​ ​ 31,902 ​ ​ 36,356 ​ ​ 84,769 ​ ​ 83,366 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest expense, net ​ ​ ( 369 ) ​ ​ ( 870 ) ​ ​ ( 1,736 ) ​ ​ ( 2,220 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ ​ 31,533 ​ ​ 35,486 ​ ​ 83,033 ​ ​ 81,146 ​ Provision for income taxes ​ ​ ( 7,370 ) ​ ​ ( 7,993 ) ​ ​ ( 18,787 ) ​ ​ ( 16,100 ) ​ Net income ​ $ 24,163 ​ $ 27,493 ​ $ 64,246 ​ $ 65,046 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share of common stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 1.26 ​ $ 1.45 ​ $ 3.34 ​ $ 3.43 ​ Diluted ​ $ 1.23 ​ $ 1.41 ​ $ 3.27 ​ $ 3.33 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average number of common shares and potential common shares outstanding ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 19,252 ​ ​ 18,999 ​ ​ 19,237 ​ ​ 18,952 ​ Diluted ​ ​ 19,608 ​ ​ 19,503 ​ ​ 19,627 ​ ​ 19,559 ​ ​ ​ ​ 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, 2023 December 31, 2022 ​ ​ ​ (Unaudited) ​ ​ ​ ​ ASSETS ​ ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 33,918 $ 38,779 ​ Receivables, net ​ ​ 10,967 ​ 9,566 ​ Income taxes receivable ​ ​ 2,691 ​ 24,989 ​ Inventories ​ ​ 7,184 ​ 7,558 ​ Prepaid expenses ​ ​ 7,928 ​ 8,537 ​ Total current assets ​ 62,688 ​ 89,429 ​ Property and equipment, net ​ 576,126 ​ 578,050 ​ Goodwill ​ 25,111 ​ 25,111 ​ Intangible assets, net ​ 340 ​ 352 ​ Total assets ​ $ 664,265 $ 692,942 ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ ​ Current maturities of long-term debt, net ​ $ — ​ $ 6,693 ​ Accounts payable ​ ​ 19,536 ​ 14,418 ​ Construction accounts payable ​ ​ 47,403 ​ ​ 49,957 ​ Accrued expenses ​ 48,729 ​ 46,037 ​ Short-term lease liability ​ ​ 883 ​ ​ 639 ​ Total current liabilities ​ 116,551 ​ 117,744 Deferred income taxes ​ ​ 23,016 ​ ​ 23,016 ​ Long-term lease liability ​ ​ 14,251 ​ ​ 13,228 ​ Long-term debt, net ​ 8,000 ​ — ​ Total liabilities ​ 161,818 ​ 153,988 ​ Stockholders’ equity ​ ​ ​ ​ ​ ​ Preferred stock, $ .01 par value, 10,000,000 shares authorized; none issued ​ — ​ ​ — ​ Common stock, $ .01 par value, 30,000,000 shares authorized; 19,148,691 shares issued and outstanding at September 30, 2023; 19,096,300 shares issued and 19,093,676 outstanding at December 31, 2022 ​ ​ 191 ​ ​ 191 ​ Additional paid-in capital ​ 46,886 ​ 40,716 ​ Treasury stock, 2,624 shares at December 31, 2022 ​ ​ — ​ ​ ( 170 ) ​ Retained earnings ​ 455,370 ​ 498,217 ​ Total stockholders’ equity ​ 502,447 ​ 538,954 ​ Total liabilities and stockholders’ equity ​ $ 664,265 $ 692,942 ​ ​ ​ 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, 2023 19,093,676 $ 191 $ 40,716 $ 498,217 $ ( 170 ) $ 538,954 ​ Exercise of stock options, net 37,965 ​ ​ — ​ 808 ​ — ​ 108 ​ ​ 916 ​ Stock-based compensation expense — ​ — ​ 1,474 ​ — ​ — ​ 1,474 ​ Dividend payment ​ — ​ ​ — ​ ​ — ​ ​ ( 95,608 ) ​ ​ ​ ​ ​ ( 95,608 ) ​ Net income — ​ — ​ — ​ 17,670 ​ — ​ 17,670 ​ Balance, March 31, 2023 ​ 19,131,641 $ 191 $ 42,998 $ 420,279 $ ( 62 ) $ 463,406 ​ Exercise of stock options, net 11,703 ​ ​ — ​ 396 ​ — ​ 62 ​ ​ 458 ​ Stock-based compensation expense — ​ — ​ 1,276 ​ — ​ — ​ 1,276 ​ Dividend payment ​ — ​ ​ — ​ ​ — ​ ​ ( 5,741 ) ​ ​ ​ ​ ​ ( 5,741 ) ​ Net income — ​ — ​ — ​ 22,413 ​ — ​ 22,413 ​ Balance, June 30, 2023 19,143,344 $ 191 $ 44,670 $ 436,951 $ — $ 481,812 ​ Exercise of stock options, net ​ 5,347 ​ ​ — ​ 70 ​ ​ — ​ ​ — ​ ​ 70 ​ Stock-based compensation expense — ​ — 2,146 ​ — ​ — ​ 2,146 ​ Dividend payment ​ — ​ ​ — ​ ​ — ​ ​ ( 5,744 ) ​ ​ ​ ​ ​ ( 5,744 ) ​ Net income — ​ — — ​ 24,163 ​ — ​ 24,163 ​ Balance, September 30, 2023 19,148,691 $ 191 $ 46,886 $ 455,370 $ — $ 502,447 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Additional ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares ​ ​ ​ ​ Paid-in ​ Retained ​ Treasury ​ ​ ​ ​ ​ Outstanding Amount Capital Earnings Stock Total ​ Balance, January 1, 2022 18,764,540 $ 191 $ 41,426 $ 410,738 $ ( 4,341 ) $ 448,014 ​ Exercise of stock options, net 191,035 ​ ​ — ​ 19 ​ — ​ 2,458 ​ ​ 2,477 ​ Restricted stock granted ​ 19,549 ​ ​ — ​ ​ 1,658 ​ ​ — ​ ​ 262 ​ ​ 1,920 ​ Purchase of company common stock ​ ( 100,000 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 6,500 ) ​ ​ ( 6,500 ) ​ Stock-based compensation expense — ​ — ​ 1,160 ​ — ​ — ​ 1,160 ​ Net income ​ — ​ — ​ — ​ 18,118 ​ — ​ 18,118 ​ Balance, March 31, 2022 18,875,124 $ 191 $ 44,263 $ 428,856 $ ( 8,121 ) $ 465,189 ​ Exercise of stock options, net 10,000 ​ ​ — ​ 303 ​ — ​ 134 ​ 437 ​ Restricted stock granted ​ 2,946 ​ ​ — ​ ​ 211 ​ ​ — ​ ​ 39 ​ ​ 250 ​ Stock-based compensation expense — ​ — ​ 1,025 ​ — ​ — ​ 1,025 ​ Net income — ​ — ​ — ​ 19,435 ​ — ​ 19,435 ​ Balance, June 30, 2022 18,888,070 $ 191 $ 45,802 $ 448,291 $ ( 7,948 ) $ 486,336 ​ Exercise of stock options, net 6,666 ​ ​ — ​ 195 ​ — ​ 89 ​ 284 ​ Stock-based compensation expense — ​ — ​ 1,257 ​ — ​ — ​ 1,257 ​ Net income — ​ — ​ — ​ 27,493 ​ — ​ 27,493 ​ Balance, September 30, 2022 18,894,736 $ 191 $ 47,254 $ 475,784 $ ( 7,859 ) $ 515,370 ​ ​ ​ 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, ​ 2023 2022 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 64,246 $ 65,046 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ 35,152 ​ 32,245 Amortization of deferred loan costs ​ 307 ​ 1,085 Stock-based compensation ​ 4,896 ​ 3,442 Stock-based compensation - restricted stock ​ ​ — ​ ​ 80 Provision for bad debts ​ 145 ​ 114 Loss on disposition of assets ​ 88 ​ 8 Non-cash operating lease expense ​ ​ 30 ​ ​ ( 1 ) Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Receivables ​ ​ ( 1,546 ) ​ ​ ( 1,153 ) Income taxes receivable ​ ​ 22,298 ​ ​ 2,300 Inventories ​ ​ 374 ​ ​ 625 Prepaid expenses ​ ​ 609 ​ ​ ( 197 ) Accounts payable ​ 5,118 ​ ( 2,065 ) Accrued expenses ​ 2,692 ​ 4,655 Net cash provided by operating activities ​ 134,409 ​ 106,184 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Proceeds from sale of assets ​ 97 ​ 138 Change in construction accounts payable ​ ​ ( 2,554 ) ​ ​ ( 9,243 ) Acquisition of property and equipment ​ ​ ( 32,164 ) ​ ​ ( 31,425 ) Net cash used in investing activities ​ ( 34,621 ) ​ ( 40,530 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Payroll taxes from net exercise of stock options ​ ( 208 ) ​ ( 2,468 ) Proceeds from exercise of stock options ​ ​ 1,652 ​ ​ 5,927 Line-of-credit borrowings ​ ​ 68,000 ​ ​ 3,000 Line-of-credit payments ​ ​ ( 60,000 ) ​ ​ ( 3,000 ) Principal payments on long-term debt ​ ( 7,000 ) ​ ( 63,000 ) Payment of dividend ​ ​ ( 107,093 ) ​ ​ — Purchase of company common stock ​ ​ — ​ ​ ( 6,500 ) Net cash used in financing activities ​ ( 104,649 ) ​ ( 66,041 ) ​ ​ ​ ​ ​ ​ ​ Change in cash and cash equivalents ​ ( 4,861 ) ​ ( 387 ) Cash and cash equivalents at beginning of period ​ 38,779 ​ 33,526 Cash and cash equivalents at end of period ​ $ 33,918 $ 33,139 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Cash paid for interest ​ $ 1,810 $ 1,139 Cash paid for income taxes ​ $ 20,306 $ 13,800 ​ ​ 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, 2023 ​ 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, consisting of normal recurring accruals, are reflected in the interim financial statements. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. ​ The balance sheet at December 31, 2022, 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, 2022. ​ 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. ​ Concentrations of Credit Risk and Credit Losses: ​ Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of bank deposits and trade receivables. ​ The Company accounts for credit losses in accordance with ASU 2016-13 using a forward-looking expected loss model. ​ The Company maintains its surplus cash in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. ​ ​ 7 Table of Contents 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 determined to reduce the Company’s receivables to their carrying value, which approximates fair value. The allowance is estimated based on historical collection experience, specific review of individual customer accounts, current economic and business conditions and management’s expectations of future economic and business 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 high collection risk receivables. The Company writes off its uncollectible receivables once all efforts have been made to collect such receivables. Recoveries of accounts previously written off are recorded when received. Concentrations of credit risk with respect to gaming and non-gaming receivables are limited due to the large number of customers comprising the Company’s customer base. Historically, the Company has not incurred any significant credit-related losses. ​ As of September 30, 2023, the Company has recorded a reserve of $ 0.2 million for gaming and non-gaming receivables. ​ The Company believes it is not exposed to any significant credit risk on cash and accounts receivable. ​ 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. ​ Property and Equipment, net: ​ Property and equipment, net consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2023 December 31, 2022 Land ​ $ 32,977 ​ $ 32,977 ​ Land improvements ​ 10,969 ​ 10,939 ​ Buildings ​ 473,672 ​ 475,956 ​ Building improvements ​ 91,028 ​ 75,858 ​ Furniture and equipment ​ 250,000 ​ 249,045 ​ Construction in progress ​ 13,627 ​ 7,229 ​ Right of use assets ​ ​ 15,098 ​ ​ 13,861 ​ Leasehold improvements ​ 4,245 ​ 4,244 ​ ​ ​ 891,616 ​ 870,109 ​ Less accumulated depreciation and amortization ​ ( 315,490 ) ​ ( 292,059 ) ​ Property and equipment, net ​ $ 576,126 ​ $ 578,050 ​ ​ ​ ​ ​ ​ ​ ​ 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 Right of use assets ​ 5 - 40 years Leasehold 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. ​ 8 Table of Contents 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 indicators at the end of the fiscal year and 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 comparable, when available. For the nine-month periods ended September 30, 2023 and 2022, respectively, there were no impairment charges. ​ 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. ​ As of September 30, 2023, 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. ​ 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. 9 Table of Contents As of September 30, 2023, the Company had estimated the obligations related to the players’ club program at $ 9.0 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. ​ Other Operating items, net: ​ Other operating items, net, in general consist of miscellaneous operating charges or proceeds. ​ For the three months ended September 30, 2023, Other operating items, net, was $ 3.0 million and primarily represented professional service fees relating to our construction litigation. For the three months ended September 30, 2022, Other operating items, net, was $ 2.9 million and consisted of professional service fees relating to our construction litigation of $ 2.8 million, and loss on disposal of assets of $ 0.1 million. ​ For the nine months ended September 30, 2023, Other operating items, net, was $ 3.0 million and consisted of $ 4.1 million of professional service fees relating to our construction litigation and $ 0.1 million loss on disposal of assets, offset by $ 1.2 million net proceeds from a sale of a COVID closure related insurance claim. For the nine months ended September 30, 2022, Other operating items, net, was $ 6.4 million and primarily represented professional service fees relating to our construction litigation. ​ 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. ​ 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. Certain 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. ​ As of September 30, 2023, 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. ​ The weighted-average incremental borrowing rate of the leases presented in the lease liability as of September 30, 2023, was 4.32 %. There were no new leases entered into in the third quarter of 2023. ​ 10 Table of Contents The weighted-average remaining lease term of the leases presented in the lease liability as of September 30, 2023, was 17.35 years. ​ Cash paid related to the operating leases presented in the lease liability for the nine months ended September 30, 2023 and 2022, was $ 1.1 million and $ 1.0 million, respectively. ​ NOTE 3. STOCK-BASED COMPENSATION ​ In accordance with ASC 718, 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, ​ ​ 2023 2022 2023 2022 Casino ​ $ 111 $ 56 $ 262 $ 181 Food and beverage ​ 59 ​ ( 12 ) ​ 88 ​ 104 ​ Hotel ​ 80 ​ 56 ​ 213 ​ 126 ​ Selling, general and administrative ​ 1,896 ​ 1,157 ​ 4,333 ​ 3,031 ​ Total stock-based compensation, before taxes ​ 2,146 ​ 1,257 ​ 4,896 ​ 3,442 ​ Tax benefit ​ ( 450 ) ​ ( 264 ) ​ ( 1,028 ) ​ ( 723 ) ​ Total stock-based compensation, net of tax ​ $ 1,696 $ 993 $ 3,868 $ 2,719 ​ ​ 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, ​ ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ Per Share ​ ​ ​ ​ Per Share ​ ​ Shares ​ ​ Amount ​ Shares ​ Amount ​ Basic 19,252 ​ $ 1.26 ​ 18,999 $ 1.45 ​ Effect of dilutive stock options 356 ​ ( 0.03 ) ​ 504 ​ ( 0.04 ) ​ Diluted 19,608 ​ $ 1.23 ​ 19,503 $ 1.41 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ Per Share ​ ​ ​ ​ Per Share ​ ​ Shares ​ Amount Shares ​ Amount ​ Basic 19,237 $ 3.34 18,952 $ 3.43 ​ Effect of dilutive stock options 390 ​ ( 0.07 ) 607 ​ ( 0.10 ) ​ Diluted 19,627 $ 3.27 19,559 $ 3.33 ​ ​ Excluded from the computation of diluted earnings per share are options where the exercise prices are greater than the weighted assumed proceeds per share as their effects would be anti-dilutive in the computation of diluted earnings per share. For the three months ended September 30, 2023 and 2022, options for approximately 749 thousand and 592 thousand shares, respectively, were excluded from the computation. For the nine months ended September 30, 2023 and 2022, options for approximately 617 thousand and 538 thousand shares, respectively, were excluded from the computation. ​ 11 Table of Contents 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 (the “Parking Lot Lease”). This lease gives the Atlantis the right to use a parcel, approximately 4.2 acres, adjacent to the Atlantis. The primary purpose of the Parking Lot Lease is to provide additional, convenient, Atlantis surface parking. 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, 2023 and 2022, the Company paid $ 187 thousand in rent, plus $ 8 thousand and $ 14 thousand, respectively, in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2023 and 2022, the Company paid $ 561 thousand in rent, plus $ 17 thousand and $ 22 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30, 2023, recognized in the Consolidated Balance Sheet, was $ 9.8 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. 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, 2023 and 2022, the Company paid $ 101 thousand in rent plus $ 14 thousand and $ 12 thousand, respectively, in operating expenses relating to this lease. For each of the nine-month periods ended September 30, 2023 and 2022, the Company paid $303 thousand in rent plus $ 35 thousand and $ 28 thousand, respectively, in operating expenses relating to this lease. The right of use asset and lease liability balances as of September 30, 2023, recognized in the Consolidated Balance Sheet , was $ 3.3 million. ​ The Company occasionally leases billboard advertising, storage space and parking lot space from affiliates controlled by the Farahi Family Stockholders, and paid $ 104 thousand and $ 121 thousand, respectively, for the three-month periods and $ 373 thousand and $ 325 thousand, respectively, for the nine-month periods ended September 30, 2023 and 2022, for such leases. The right of use asset and lease liability balances related to the billboard leases as of September 30, 2023, recognized in the Consolidated Balance Sheet, was $ 2.0 million. ​ NOTE 6. LONG-TERM DEBT ​ On February 1, 2023, the Company entered into the Fifth Amended and Restated Credit Agreement (the “Amended Credit Facility”) with Wells Fargo Bank, N.A., as administrative agent. The Amended Credit Facility provides for a $ 100 million line of credit which matures on January 1, 2025. ​ As of September 30, 2023, the Company had an outstanding principal balance of $ 8 million under the Amended Credit Facility. ​ 12 Table of Contents In addition to other customary covenants for a facility of this nature, as of September 30, 2023, the Company is required to maintain a Total Leverage Ratio (as defined in the Amended Credit Facility) of no more than 2.5 :1 and Fixed Charge Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.1 :1. As of September 30, 2023, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.05:1 and 14.73:1, respectively. ​ The interest rate under the Amended Credit Facility is SOFR (the Secured Overnight Financing Rate) plus a margin ranging from 1.00 % to 1.50 %, or a base rate (as defined in the Amended Credit Facility) plus a margin ranging from 0.00 % to 0.50 %. The applicable margins will vary depending on the Company’s leverage ratio. In addition, SOFR-based loans will incur a 0.10 % credit adjustment spread due to the conversion from LIBOR to SOFR as the new benchmark rate. As of September 30, 2023, the interest rate was 6.42 %, or SOFR plus a 1.00 % margin. ​ The Company’s obligations under the Amended Credit Facility are secured by substantially all of the Company’s assets. ​ NOTE 7. TAXES ​ For the nine months ended September 30, 2023 and 2022, the Company’s effective tax rate was 22.6 % and 19.8 %, respectively. The effective tax rate for the nine months ended September 30, 2023 and 2022 was impacted by excess tax benefit on stock option exercises, which were $ 0.4 million and $ 2.3 million for the nine months ended September 30, 2023 and 2022, respectively. ​ 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, 2023 and 2022. 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. ​ As of September 30, 2023, we have an authorization to purchase up to 2,900,000 shares 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, against the Company and its Colorado subsidiaries, in connection with the Company’s now completed expansion of the Monarch Casino Resort Spa Black Hawk. The case is captioned PCL Construction Services, Inc. v. Monarch Growth Inc., et al. , Case No. 2019CV33368 (the “First Denver Lawsuit”). The complaint alleges, among other things, that the defendants breached the construction contract with PCL and certain implied warranties. On December 5, 2019, the Company filed its 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. ​ On September 1, 2022, the judge previously assigned to the Denver Action recused herself, resulting in a continuance of the trial then set for September 6, 2022, and reassignment to another courtroom. Following reassignment, the court set a new trial date of September 5, 2023. 13 Table of Contents ​ In connection with the expansion of the Monarch Black Hawk, as described above, PCL and certain subcontractors have also 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 the District Court, County of Gilpin, Colorado, against the Company and its Colorado subsidiaries, in connection with the Company’s now completed expansion of the Monarch Casino Resort Spa Black Hawk. The case is captioned PCL Construction Services, Inc., v. Monarch Growth Inc., et al. , Case No. 2021CV30006 (the “Gilpin Lawsuit”). The complaint essentially mirrors the claims and allegations made by PCL in the First Denver Lawsuit, as described above. The Gilpin Lawsuit includes an additional claim, however, for foreclosure of PCL’s purported mechanics’ lien against the property on which the Monarch Casino Resort Spa Black Hawk is situated (the “Property”). PCL also joined additional parties who may claim a purported lien against the Property, as defendants. 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. ​ Monarch filed its answer and counterclaims to PCL’s second amended complaint in the Gilpin Lawsuit on July 15, 2021, but a trial of the matter has not been set. Monarch has also filed answers to all cross claims due to date, denying the claimants’ rights to relief. Monarch anticipates filing further answers to additional cross claims, also denying the claimants’ rights to relief. The case remains stayed pending the outcome of the First Denver Lawsuit, Case No. 2019CV33368. We are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any. ​ On February 9, 2023, Monarch Growth, Inc., Monarch Casino & Resort, Inc. and Monarch Black Hawk, Inc. filed a complaint in District Court, City and County of Denver, Colorado, against PCL, in connection with the Company’s now completed expansion of the Monarch Casino Resort Spa Black Hawk. The case is captioned Monarch Growth Inc., et al., v. PCL Construction Services, Inc. , Case No. 2023CV30458 (the “Second Denver Lawsuit”).The complaint alleges, among other things, that PCL breached the construction contract, duties of good faith and fair dealing, and implied and express warranties based on defective and/or nonconforming contruction work at the project, and includes claims for monetary damages as well as equitable and declaratory relief. On April 18, 2023, at the parties’ joint request, the Court ordered the Second Denver Lawsuit stayed for ninety days from date of the stay order until July 17, 2023. Following the expiration of the stay and the filing of a motion to dismiss by PCL, Monarch amended its complaint in the Second Denver Lawsuit. On September 13, 2023, PCL filed a motion to dismiss Monarch’s amended complaint. Monarch filed its response in opposition to PCL’s motion to dismiss on October 4, 2023. The court has not yet resolved PCL’s motion to dismiss Monarch’s amended complaint, and we are currently unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any. ​ Meanwhile, on September 5, 2023, trial commenced in the First Denver Lawsuit in the District Court for the City and County of Denver, Colorado. After approximately 5 weeks, the trial has been recessed pending additional trial days allowed by the Court in late November. Trial is currently set to resume on November 20, 2023 and conclude on November 28, 2023. We remain unable to determine the probability of the outcome or reasonably estimate the loss or gain, if any, or determine when the court will resolve the claims currently being tried. ​ The Company recognized $ 4.1 million and $ 6.5 million in construction litigation expense relating to these lawsuits for the nine months ended September 30, 2023 and 2022, respectively, which is 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. ​ 14 Table of Contents NOTE 10. DIVIDENDS ​ On February 7, 2023, the Company announced that the Company’s Board of Directors declared a one-time cash dividend (the “One-time Dividend”) of $ 5.00 per share of its outstanding common stock, par value $ 0.01 per share (“Common Stock”), paid to the stockholders of record of the Company on March 1, 2023 (the “Record Date”), payable on March 15, 2023 (the “Payment Date”). ​ In addition to the One-time Dividend, the Board of Directors approved the initiation of an Annual Dividend policy for the payment of an annual dividend in the amount of $ 1.20 per outstanding share of Common Stock, commencing in the second quarter of 2023. These dividends will be paid quarterly on the 15th day of the third month of the applicable calendar quarter (or, if such date is not a trading day, then the first trading day immediately thereafter such date) to those stockholders of record on the 1st day of the third month of the applicable calendar quarter (or, if such date is not a trading day, then the first trading day immediately thereafter such date). ​ On June 15, 2023, the Company paid a cash dividend of $ 0.30 per share of its outstanding common stock, to stockholders of record on June 1, 2023. On September 15, 2023, the Company paid a cash dividend of $ 0.30 per share of its outstanding common stock, to stockholders of record on September 1, 2023. ​ On October 18, 2023, the Company announced a cash dividend of $ 0.30 per share of its outstanding common stock, payable on December 15, 2023, to stockholders of record on December 1, 2023. This cash dividend is part of the previously announced annual cash dividend of $ 1.20 per share payable in quarterly payments. ​ The Company’s declaration of each cash dividend amount shall be subject to the Board’s review of the then-current financial statements of the Company, available acquisition opportunities and other prudent uses of the Company’s cash resources. As such, the Board of Directors may suspend the dividend program at any time and no assurances can be given that a quarterly dividend will be paid. ​ 15 Table of Contents