Unless otherwise indicated, "Monarch," "Company," "we," "our," and "us" refer to
Monarch Casino & Resort, Inc. and its subsidiaries.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be identified by
words such as: "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.
Forward-looking statements are neither historical facts nor assurances of future
performance. Instead, they are based only on our current beliefs, expectations
and assumptions regarding the future of our business, future plans and
strategies, projections, anticipated events and trends, the economy and other
future conditions. Because forward-looking statements relate to the future, they
are subject to inherent uncertainties, risks and changes in circumstances that
are difficult to predict and many of which are outside of our control. Our
actual results and financial condition may differ materially from those
indicated in the forward-looking statements. Therefore, you should not rely on
any of these forward-looking statements. Important factors that could cause our
actual results and financial condition to differ materially from those indicated
in the forward-looking statements include, among others, the following:
adverse impacts of COVID-19 and its variants on our business, financial
? condition, operating results, access to capital markets, and on short-term and
long-term travel, leisure and discretionary spending habits and practices of
our guests;
actions by government officials at the federal, state or local level,
? including, without limitation, temporary or extended shutdowns, travel
restrictions, social distancing, shelter-in-place orders, and mask mandates in
connection with COVID-19;
? our ability to maintain strong relationships with our regulators, employees,
lenders, suppliers, insurance carriers, customers and other stakeholders;
? impact of any uninsured losses;
the adverse impact of cancellations and/or postponements of hotel stays and
? convention and trade shows on our business, market position, growth, financial
condition and operating results;
? a delay in or failure of the changes in guest visitation, entertainment choices
and spending patterns, including a decrease in overall long-term demand;
potentially uninsurable liability exposure to customers and staff should they
? become (or allege that they have become) infected with COVID-19 while at one of
our resorts;
unwillingness of employees to report to work due to the adverse effects of
? COVID-19, including any spikes in cases, or to otherwise conduct work under any
revised work environment protocols;
? unwillingness of our employees to obtain the COVID-19 vaccination or any
boosters;
? the potential of increases in state and federal taxation to address budgetary
and other impacts of COVID-19;
? our ability to successfully implement our business and growth strategies;
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? our ability to realize the anticipated benefits of our expansion and renovation
projects, including the Monarch Black Hawk Expansion;
our ongoing disputes over costs of and responsibility for delays, construction
defects and other construction related matters with our Monarch Black Hawk
? general contractor, PCL Construction Services, Inc. ("PCL"), including, as
previously reported, the litigations against us by such contractor and our
filing of affirmative defenses and extensive counterclaims against PCL;
? our potential need to post bonds or other forms of surety to support our legal
remedies;
risks related to pending litigation, which is costly and time-consuming to
defend, and if decided against us, could require us to pay substantial
? judgments or settlements. We cannot predict with certainty the outcomes of such
legal proceedings, and the costs incurred in litigation can be substantial,
regardless of the outcome. Substantial unanticipated verdicts, fines and
rulings do sometimes occur;
? our ability to generate sufficient operating cash flow to service our debt
obligations and working capital needs and to help finance our expansion plans;
? our ability to effectively manage expenses to optimize our margins and
operating results;
? our ability to effectively manage increased expenses from inflationary
pressures, including wage inflation;
? our ability to effectively manage the impacts of temporary or other supply
chain interruptions;
? our ability to successfully complete potential acquisitions and investments;
? access to capital and credit, including our ability to finance future business
requirements;
? adverse trends in the gaming industry;
? changes in patron demographics;
? risks related to record heat conditions, drought conditions and fires in the
Western United States;
general market and economic conditions, including but not limited to, the
? effects of local and national economic, housing and energy conditions on the
economy in general and on the gaming and lodging industries in particular;
? the impact of rising interest rates and our ability to refinance debt as it
matures at commercially reasonable rates or at all;
fluctuations in interest rates, including the impact of any discontinuance,
? modification or other reform of LIBOR, or the establishment of alternative
reference rates;
? our dependence on two resorts;
? ability of large stockholders to influence our affairs;
? our dependence on key personnel;
? the availability of adequate levels of insurance;
changes in federal, state, and local laws and regulations, including
? environmental and gaming licenses or legislation and regulations, and laws and
regulations permitting expanded and other forms of gaming in our key markets;
? ability to obtain and maintain gaming and other governmental licenses and
regulatory approvals;
? any violations by us of the anti-money laundering laws;
? cybersecurity risks, including misappropriation of customer information or
other breaches of information security;
? impact of natural disasters, severe weather, terrorist activity and similar
events;
? our competitive environment, including increased competition in our target
market areas;
? increases in the effective rate of taxation at any of our properties or at the
corporate level;
? our ability to successfully estimate the impact of accounting, tax and legal
matters;
? the impact of the events occurring in Eastern Europe and the conflict taking
place in Ukraine; and
risks, uncertainties and other factors described in Part I, Item 1A. "Risk
Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial
? Condition and Results of Operations" of our Annual Report on Form 10-K for the
year ended December 31, 2021 (the "2021 Form 10-K") and our other filings with
the Securities and Exchange Commission.
Any forward-looking statement made by us in this Form 10-Q is based only on
information currently available to us and speaks only as of the date on which it
is made. We undertake no obligation to publicly update or revise any
forward-looking statements as a result of future developments, events or
conditions, except as required by law. New risks emerge from time to time and it
is not possible for us to predict all such risk factors, nor can we assess the
impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ
significantly from those forecast in any forward-looking statements.
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OVERVIEW
Monarch was incorporated in the state of Nevada in 1993. We own and operate the
Atlantis Casino Resort Spa, a hotel and casino in Reno, Nevada (the "Atlantis")
and Monarch Casino Resort Spa Black Hawk (the "Monarch Black Hawk"), a casino in
Black Hawk, Colorado. In addition, we own 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.
We earn revenues, operating income and cash flow from Atlantis and Monarch Black
Hawk, primarily through our casino, food and beverage, and hotel operations. We
focus on delivering exceptional service and value to our guests. Our hands-on
management style focuses on customer services and cost efficiencies.
Atlantis: Our business strategy is to maximize revenues, operating income and
cash flow primarily through our casino, food and beverage, and hotel operations.
We continuously upgrade our property and invest in technology. Reno remains a
healthy local-oriented market. We are experiencing the effect of increased costs
which, combined with continued aggressive marketing programs by our competitors,
have applied upward pressure on Atlantis' operations. 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.
Monarch Black Hawk: Since the acquisition of Monarch Black Hawk in April 2012,
our focus has been to maximize casino and food and beverage revenues while
upgrading the existing facility and working on the major expansion. In
August 2015, we completed the redesign and upgrade of the original Monarch Black
Hawk property. In November 2016, we opened for guest use a new nine-story
parking structure with approximately 1,350 spaces and additional valet parking,
with total property capacity of approximately 1,500 spaces. In the 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. 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.
Gaming revenue KPI: Our management reviews on a consistent basis the volume
metrics and hold percentage metrics for each gaming area. The main volume
measurements are slot coin-in, table games drop, sportsbook write and keno
write. Slot coin-in represents the dollar amount wagered in slot machines,
including free promotional wagers. Table games drop represents the total amount
of cash and net markers deposited in the table drop box. Keno write and
sportsbook write represents the dollar amount wagered at our counters, along
with sportsbook write made through our mobile wagering system. Volume metrics
are important in managing the business, as our gaming win is affected by actual
hold percentage, which in general varies from the expected hold percentage and
historical hold percentage. Gaming win represents the amount of wagers retained
by us. Hold percentage represents win as a percentage of slot coin-in, table
game drop, sportsbook write, or keno write. Our win and hold percentages are
calculated before discounts, commissions, deferring revenue associated with our
loyalty programs and allocating casino revenues related to goods and services
provided to patrons on a complimentary basis.
Food and Beverage revenue KPI: The main KPIs in managing our food and beverage
("F&B") operations are covers and average revenue per cover. A cover represents
the number of guests served and is an indicator of volume. Average revenue per
cover represents the average amount spent per food and beverage outlets' served
guests. Changes in the average revenue per cover might be an indicator for
changes in menu offerings, changes in menu prices or may indicate changes in our
guests' preferences and purchasing habits.
Hotel revenue KPI: The main KPIs used in managing our hotel operation are the
occupancy rate (a volume indicator), which is the average percentage of
available hotel rooms occupied during a period, and the average daily rate
("ADR", a price indicator), which is the average price per sold room. Available
rooms exclude those rooms unavailable for occupancy during the period due to
renovation, development, or other requirements. Sold rooms
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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. Revenue per available room ("RevPAR")
represents total hotel revenue per available room and is a representation of the
occupancy rate, ADR and miscellaneous hotel sales.
Operating margins: Our management is consistently focused on controlling
expenses and finding cost savings, without affecting the quality of the product
we offer and our guests' services and experience. We measure our performance
using expense margin, which is a percentage of direct expenses, including labor,
cost of product and any other operating expenses related to the gaming, food and
beverage, or hotel operation to the net gaming, food and beverage, or hotel
revenues. Selling, general and administrative ("SG&A") margin represents SG&A
expenses for a period as a percentage of total net revenue for a period. In
managing the food and beverage operation we use Cost Of Goods Sold ("COGS")
percentage, which represents a percentage of product cost to the food and
beverage revenue and is a measurement of commodity prices and menu sales prices.
Our management evaluates the KPI as compared to prior periods, the peer group,
or market, as well as for any trends.
RESULTS OF OPERATIONS
Impact of COVID-19
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. 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.
The convention business at Atlantis was adversely affected by the state-mandated
gathering limits. The demand for convention bookings has slightly improved, but
continues to be lower than prior to the state-mandated closures.
We continue to evaluate the nature and extent of the COVID-19 impact to our
business, results of operations, and financial condition.
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. The new hotel,
including a spa and pool on the top floor, was fully operational by the end of
the second quarter of 2021. In May 2021, we opened our new poker room. In
December 2021, we opened our sportsbook lounge, and in February 2022, our new
specialty restaurant. In the first 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
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.
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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. 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. 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.
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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. 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 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; 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.
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Monarch Black Hawk Expansion
In 2013, we began work to convert the Monarch Black Hawk into a full-scale
casino resort spa. The multi-phased expansion of the Monarch Casino Resort Spa
Black Hawk involved construction of a new parking structure beginning in 2016,
demolition of the original parking structure in 2017, construction of a new
hotel tower and casino expansion and redesign and upgrade of a part of the
legacy facility, which were completed in February 2022.
In the fourth quarter of 2020, we began the phased opening of our new hotel
tower and casino expansion, which increased the casino space and added a
23-story hotel tower with 516 guest rooms and suites, banquet and meeting room
space, a retail store, a concierge lounge, an upscale spa and pool facility
located on the top floor of the tower, three new restaurants, and additional
bars and lounges. In 2021, we added a poker room, a keno counter, a sportsbook,
sports lounge and bar, as well as additional slot machines in the legacy
facility. In February 2022, we completed the Monarch Black Hawk expansion with
the opening of a new specialty restaurant.
We are confident that the quality of our expanded product and exceptional guest
service will meet the demand of the high-end segment of the market and will
derive accelerated market share and revenue growth.
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 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. 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.
Amended Credit Facility
On September 3, 2020, we entered into the Fourth Amended and Restated Credit
Agreement with Wells Fargo Bank, N.A., as administrative agent and certain banks
(the "Fourth Amended Credit Facility"). On April 30, 2021, we entered into an
amendment to the Fourth Amended Credit Facility (defined above and hereafter,
inclusive of all amendments, as the "Amended Credit Facility").
The maturity date of the Amended Credit Facility is September 3, 2023. The
Amended Credit Facility increases the aggregate principal amount of the credit
facilities to $270 million. The $270 million Amended Credit Facility consists of
a $200 million term loan ("Term Loan Facility") and a $70 million revolving
credit facility ("Revolving Credit Facility"), together with an option to
increase the facility by up to an additional $75 million Revolving Credit
Facility.
As of 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; $69.4 million remained available for
borrowing.
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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. 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.
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.
We may prepay borrowings under the Amended Credit Facility revolving loan
without penalty (subject to certain conditions and certain charges applicable to
the prepayment of LIBOR borrowings prior to the end of the applicable interest
period). Once reduced or cancelled, the Revolving Credit Facility may not be
increased or reinstated without the prior written consent of all lenders. During
the first 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. 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.
For a discussion regarding our material commitments for capital expenditures,
see the CAPITAL SPENDING AND DEVELOPMENT section above.
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CRITICAL ACCOUNTING POLICIES
A description of our critical accounting policies and estimates can be found in
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our 2021 Form 10-K. For a more extensive discussion of
our accounting policies, see Note 1. "Summary of Significant Accounting
Policies" in the Notes to the Consolidated Financial Statements in our 2021
Form 10-K filed with the SEC on February 28, 2022.
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