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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-07 · 65 added, 36 removed, 99 unchanged (51% of the section changed)

79 unchanged sentences

RESULTS OF OPERATIONS

Comparison of Operating Results for the Three-Month Periods Ended March 31, 2024 and 2023

For the three months ended March 31, 2024, our net income totaled $18.3 million, or $0.93 per diluted share, compared to net income of $17.7 million, or $0.90 per diluted share for the same period in 2023, reflecting a 3.4% and 3.3% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended March 31, 2024, totaled $121.7 million, an increase of $5.0 million, or 4.3%, compared to the three months ended March 31, 2023.

Income from operations for the three months ended March 31, 2024, totaled $23.8 million compared to income from operations of $23.2 million for the same period in 2023.

Casino revenue increased 3.8% in the first quarter of 2024 compared to the first quarter of 2023.

The increase in casino revenue was driven primarily by the continued increase in market share at our property in Black Hawk, partially offset by an increase in promotional allowances.

Casino operating expense as a percentage of casino revenue increased to 38.0% for the three months ended March 31, 2024, compared to 37.7% for the three months ended March 31, 2023, primarily due to the increase in labor and slots participation expenses.

Food and beverage revenue for the first quarter of 2024 increased 2.9% compared to the first quarter of 2023 due to a 2.3% increase in food and beverage covers, combined with an increase in food and beverage revenue per cover of 0.6%.

Food and beverage operating expense as a percentage of food and beverage revenue in the first quarters of 2024 and 2023 are flat, at 74.8%, as a result of the increase in average check and our efforts to manage costs.

Hotel revenue increased 8.4% in the first quarter of 2024 compared to the same quarter of 2023 primarily as a result of ADR increased by $20.41 ($181.49 in the first quarter of 2024 and $161.08 in the first quarter of 2023).

Hotel occupancy decreased to 78.7% during the current year period compared to 82.2% during the first quarter of 2023.

RevPAR was $153.42 and $146.58 for the three months ended March 31, 2024 and 2023, respectively, and was impacted by the lower occupancy and a decrease in resort fee revenue.

Hotel operating expense as a percentage of hotel revenue decreased to 35.6% in the first quarter of 2024 compared to 41.3% for the comparable prior year period primarily as a result of increase in ADR and improved cost management.

Other revenue increased 6.7% in the first quarter of 2024 compared to the same prior year period primarily due to an increase in spa revenues at both properties.

SG&A expense increased to $27.1 million in the first quarter of 2024 from $25.1 million in the first quarter of 2023 driven primarily by increases in labor expenses, combined with an increase in advertising and promotional expenses.

As a percentage of net revenue, SG&A expense increased to 22.3% in the first quarter of 2024 compared to 21.5% in the same period in 2023.

Depreciation and amortization expense increased to $12.5 million for the three months ended March 31, 2024, compared to $11.3 million for the same prior year period, due to new assets placed into service with the ongoing renovation at Atlantis.

During each of the first quarters of 2024 and 2023, we recognized $0.5 million in professional service fees relating to our construction litigation, which are included in Other operating items, net in the Consolidated Statements of Income.

In the first quarter of 2024, our interest expense was offset by the interest income.

In the first quarter of 2023, we recognized $0.5 million of interest expense.

Comparison of Operating Results for the Three-Month Periods Ended June 30, 2024 and 2023

For the three months ended June 30, 2024, our net income totaled $22.7 million, or $1.19 per diluted share, compared to net income of $22.4 million, or $1.14 per diluted share for the same period in 2023, reflecting a 1.2% and 4.4% increase in net income and diluted earnings per share, respectively.

Net revenues in the three months ended June 30, 2024, totaled $128.1 million, an increase of $4.5 million, or 3.6%, compared to the three months ended June 30, 2023.

Income from operations for the three months ended June 30, 2024, totaled $29.5 million compared to income from operations of $29.7 million for the same period in 2023.

Casino revenue increased 3.1% in the second quarter of 2024 compared to the second quarter of 2023.

The increase in casino revenue was driven primarily by the continued increase in market share at our property in Black Hawk.

This was partially offset by an increase in promotional allowances at both properties.

Casino operating expense as a percentage of casino revenue increased to 37.7% for the three months ended June 30, 2024, compared to 37.4% for the three months ended June 30, 2023, primarily due to an increase in labor expense.

Food and beverage revenue for the second quarter of 2024 increased 1.0% compared to the second quarter of 2023 due to a 1.5% increase in food and beverage revenue per cover.

Food and beverage covers declined 0.5%.

Food and beverage operating expense as a percentage of food and beverage revenue in the second quarters of 2024 increased to 73.8% compared to 72.3% in the second quarter of 2023 as a result of an increase in COGS and an increase in operating expense.

Hotel revenue increased 9.0% in the second quarter of 2024 compared to the same quarter of 2023 primarily as a result of ADR increased by $9.00 ($185.34 in the second quarter of 2024 and $176.34 in the second quarter of 2023).

Hotel occupancy increased to 85.5% during the second quarter of 2024 compared to 83.4% during the second quarter of 2023.

RevPAR was $172.06 and $162.33 for the three months ended June 30, 2024 and 2023, respectively.

Hotel operating expense as a percentage of hotel revenue decreased to 33.5% in the second quarter of 2024 compared to 36.2% for the comparable prior year period primarily as a result of increase in ADR and improved cost management.

Other revenue increased 7.4% in the second quarter of 2024 compared to the same prior year period primarily due to an increase in spa revenues at both properties.

SG&A expense increased to $26.2 million in the second quarter of 2024 from $25.0 million in the second quarter of 2023 driven primarily by:

$0.6 million increase in labor expense;

$0.4 million increase in repair and maintenance expense;

and $0.2 million increase in advertising and marketing expenses.

As a percentage of net revenue, SG&A expense increased to 20.4% in the second quarter of 2024 compared to 20.2% in the same period in 2023.

Depreciation and amortization expense increased to $12.4 million for the three months ended June 30, 2024, compared to $11.6 million for the same prior year period, due to new assets placed into service with the ongoing renovation at Atlantis.

During the second quarter of 2024 we recognized $0.1 million in professional services fees relating to our construction litigation and $0.1 million in loss on disposal of assets.

During the second quarter of 2023, we recognized $0.6 million in professional service fees relating to our construction litigation, $0.1 million in loss on disposal of assets and $1.2 million in proceeds from a sale of COVID closure related insurance claim.

In the second quarter of 2024 and 2023, we recognized $0.2 and $0.8 million of interest expense, net of interest income, respectively.

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, 2024 and 2023

For the six months ended June 30, 2024, we had a net income of $41.0 million, or $2.12 per diluted share, compared to net income of $40.1 million, or $2.04 per diluted share for the same period in 2023, reflecting a 2.2% and 3.9% increase in net income and diluted earnings per share, respectively.

Net revenues in the six months ended June 30, 2024, totaled $249.8 million, an increase of 3.9%, compared to the six months ended June 30, 2023.

Income from operations for the six months ended June 30, 2024 totaled $53.3 million compared to $52.9 million income from operations for the same period in 2023.

Casino revenue increased 3.4% in the first six months of 2024 compared to the first six months of 2023 and was driven by an increase in market share at Monarch Black Hawk.

Casino operating expense as a percentage of casino revenue increased to 37.8% for the six months ended June 30, 2024 compared to 37.6% for the six months ended June 30, 2023 primarily as a result of increase in labor expense and increase in promotional allowances.

Food and beverage revenue for the first six months of 2024 increased 1.9% compared to the 2023 same period due to a 2.0% increase in food and beverage revenue per cover.

Food and beverage covers year-over-year are flat.

Food and beverage operating expense as a percentage of food and beverage revenue increased in the first six months of 2024 to 74.3% from 73.5% for the same period in 2023 primarily as a result of an increase in COGS.

Hotel revenue increased 8.8% in the first six months of 2024 compared to the first six months of 2023 primarily due to an increase in ADR by $14.58, from $168.96 in the first six months of 2023 to $183.54 in the first six months of 2024, partially offset by a decrease in occupancy from 82.8% during the first six months of 2023 to 82.2% during the same period of 2024.

RevPAR was $162.96 for the first six months of 2024 and $154.67 for the first six months of 2023.

Hotel operating expense as a percentage of hotel revenue decreased to 34.5% in the first six months of 2024 compared to 38.5% for the comparable prior year period primarily as a result of increase in ADR and improved cost management.

Other revenue increased 7.1% in the first six months of 2024 compared to the same prior year period.

SG&A expense increased to $53.3 million in the first six months of 2024 from $50.1 million in the first six months of 2023 primarily due to:

$2.5 million increase in labor expense;

$0.5 million increase in repair and maintenance expense;

and $0.6 million increase in advertising and marketing expenses, partially offset by $0.4 million decrease in utility expense.

As a percentage of net revenue, SG&A expense increased to 21.3% in the first six months of 2024 compared to 20.8% in the same period in 2023.

Depreciation and amortization expense increased to $24.9 million for the six months ended June 30, 2024 compared to $23.0 million for the same prior year period, due to new assets placed into service with the ongoing renovation at Atlantis.

During the first six months of 2024 we recognized $0.6 million in professional services fees relating to our construction litigation and $0.1 million in loss on disposal of assets.

During the first six months of 2023, we recognized $1.2 million in professional service fees relating to our construction litigation and $1.2 million in proceeds from a sale of a COVID closure related insurance claim.

During the first six months of 2024, we expensed $0.2 million of interest, net of interest income.

During the first six months of 2023, we expensed $1.4 million of interest, net of interest income.

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

CAPITAL SPENDING AND DEVELOPMENT

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 three-month periods ended March 31, 2024 and 2023 totaled $17.9 million and $15.2 million, respectively.

During the three-month period ended March 31, 2024, our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the third 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 three-month period ended March 31, 2023 our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the second tower at Atlantis, re-carpeting the casino floor 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 three months of 2024 and 2023 were funded from cash on hand and operating cash flows.

Cash paid for capital expenditures for the six-month periods ended June 30, 2024 and 2023 totaled $30.7 million and $25.6 million, respectively.

During the six-month period ended June 30, 2024, our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the third 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, 2023 our capital expenditures related primarily to the redesign and upgrade of hotel rooms in the second tower at Atlantis, re-carpeting the casino floor 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 2024 and 2023 were funded from cash on hand, operating cash flows and borrowings against the Company’s credit facility.

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 three months ended March 31, 2024, net cash provided by operating activities totaled $38.3 million, compared to net cash provided by operating activities of $61.5 million in the same prior year period.

This decrease was primarily a result of the decrease in income tax receivable as a result of receipt of an income tax refund in the first quarter of 2023 and change in working capital, offset by an increase in depreciation expense and increase in net income.

Net cash used in investing activities totaled $17.9 million and $15.2 million during the three months ended March 31, 2024 and 2023, respectively.

Net cash used in investing activities during the first three months of 2024 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the third tower at Atlantis and the acquisition of gaming and other equipment at both properties.

Net cash used in investing activities during the first three months of 2023 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the second tower at Atlantis, re-carpeting the casino floor at Atlantis, and the acquisition of gaming and other equipment at both properties.

Net cash used in financing activities in the first three months of 2024 totaled $24.3 million and consisted of $19.6 million cash used for purchase of Company stock under the Repurchase Plan and $5.7 million used for payment of dividends, partially offset by $1.0 million of net proceeds from stock options exercise.

Net cash used in financing activities in the first three months of 2023 totaled $50.7 million and consisted of $95.6 million used for payment of dividends, partially offset by $44.0 million of borrowings under the credit facility, net of the payments to the credit facility and $0.9 million of net proceeds from stock options exercise.

For the six months ended June 30, 2024, net cash provided by operating activities totaled $62.6 million, compared to net cash provided by operating activities of $87.9 million in the same prior year period.

This decrease was primarily a result of the decrease in income tax receivable as a result of receipt of an income tax refund in the second quarter of 2023 and change in working capital, offset by an increases in depreciation expense, net income, and stock options expense.

Net cash used in investing activities totaled $30.7 million and $25.6 million during the six months ended June 30, 2024 and 2023, respectively.

Net cash used in investing activities during the first six months of 2024 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the third tower at Atlantis and the acquisition of gaming and other equipment at both properties.

Net cash used in investing activities during the first six months of 2023 consisted primarily of cash used for the redesign and upgrade of hotel rooms in the second tower at Atlantis, re-carpeting the casino floor at Atlantis, and the acquisition of gaming and other equipment at both properties.

Net cash used in financing activities in the first six months of 2024 totaled $41.8 million and consisted of $50.4 million cash used for purchase of Company stock under the Repurchase Plan and $11.2 million used for payment of dividends, partially offset by $17.5 million of borrowings under the Amended Credit Facility, net of the payments to the lender under the Amended Credit Facility and $2.3 million of net proceeds from stock options exercise.

Net cash used in financing activities in the first six months of 2023 totaled $66.0 million and consisted of $101.3 million used for payment of dividends, offset by $34.0 million of borrowings under the Amended Credit Facility, net of the payments to the lender under the Amended Credit Facility and $1.3 million of net proceeds from stock options exercise.

Amended Credit Facility

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The Amended Credit Facility provides for a $100 million line of credit which matures on January 1, 2025.

As of March 31, 2024, we had an outstanding principal balance of $5.5 million under the Amended Credit Facility.

In addition to other customary covenants for a facility of this nature, as of March 31, 2024, we were 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 March 31, 2024, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.04:1 and 55.46:1, respectively.

As of June 30, 2024, we had an outstanding principal balance of $23.0 million under the Amended Credit Facility.

In addition to other customary covenants for a facility of this nature, as of June 30, 2024, we were 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 June 30, 2024, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.04:1 and 88.27:1, 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%.

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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 March 31, 2024, the interest rate was 8.5%, or SOFR plus a 1.00% margin.

As of June 30, 2024, the interest rate was 5.4%, 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.

We believe that our anticipated operating cash flows will be sufficient to sustain operations for the twelve months from the filing of this Form 10-Q for the quarter ended March 31, 2024 and fulfill our capital expenditure plans and authorized dividend distributions.

We believe that our anticipated operating cash flows will be sufficient to sustain operations for the twelve months from the filing of this Form 10-Q for the quarter ended June 30, 2024 and fulfill our capital expenditure plans and authorized dividend distributions.

However financial, economic, competitive, regulatory, and other factors, many of which are beyond our control, could negatively impact our operations.

6 unchanged sentences

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