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, and any other contagious diseases or viruses on our
revenues, cash flows, liquidity, construction projects, results of operations
and financial condition; (ii) our beliefs regarding the sufficiency of our cash
and other financial resources; (iii) our belief regarding the exposure of our
cash and accounts receivable to credit risk; (iv) our beliefs regarding the
quality of our work product and guest service and our ability to capture
additional market share in the high-end segment of the market; (v) our beliefs
regarding the quality of our properties as key factors in Monarch's long-term
success; (vi) our expectations and beliefs concerning the expansion project at
the Monarch Black Hawk (the "Monarch Black Hawk Expansion"); (vii) our
expectations and intentions regarding the expenses, defenses and outcomes of the
lawsuits filed by the construction project general contractor against us and our
counterclaims against the contractor; (viii) our expectations regarding our
business prospects, strategies, estimates and outlook; (ix) our expectations
regarding the positioning of our properties to benefit from future macro and
local economic growth; (x) our expectations regarding future capital
requirements; (xi) our anticipated sources of funds and adequacy of such funds
to meet our debt obligations and capital requirements; and (xii) our
expectations regarding legal and other matters.
Forward-looking statements are neither historical facts nor assurances of future
performance. 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;
disruptions or reductions in travel and our operations due to natural
? disasters, severe weather, terrorist activity, pandemics, epidemics or
outbreaks of infectious or contagious diseases, political instability, civil
unrest and similar events;
? our competitive environment, including increased competition in our target
market areas;
? 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.
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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.
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 endure 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. Although we are currently
experiencing the pressure of increased costs and, due to the property's
location, labor shortage, we believe we have a long runway to fully unlock the
property's potential. Through its superior product and service, the property is
positioned to attract and retain the upper segment of the market and grow
incremental revenue and profit.
KEY PERFORMANCE INDICATORS
We use the following 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.
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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 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.
During the first few months of the nine-month period ended September 30, 2021,
we continued to operate under government-imposed capacity restrictions on our
operations and various COVID-19 safety protocols. We were continually adjusting
our operations to the restrictions in occupancy and social distancing
requirements. At the same time, in the second and third quarters of 2021, both
Atlantis and Black Hawk revenues benefited from COVID-19 related pent-up demand.
The convention business at Atlantis was adversely affected by the state-mandated
gathering limits. 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 nine months ended September 30, 2022
benefited from the phased opening of operations at our newly transformed Monarch
Black Hawk, which opening started in the fourth quarter of 2020. The new hotel,
including a spa and pool on the top floor, was fully operational by the end of
the second quarter of 2021. 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 nine months of 2022 compared to the same
period in 2021, the average daily number of slot machines had increased by
approximately 177, the average daily table games had increased by approximately
19 and the average daily available rooms had increased by approximately 105. In
addition, the property's table games revenue in the current period benefited
from the elimination of betting limits and additional table games variety,
effective May 2021.
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Comparison of Operating Results for the Three-Month Periods Ended
September 30, 2022 and 2021
For the three months ended September 30, 2022, our net income totaled $27.5
million, or $1.41 per diluted share, compared to net income of $22.3 million, or
$1.15 per diluted share for the same period in 2021, reflecting a 23.2% and
22.6% increase in net income and diluted earnings per share, respectively. Net
revenues in the three months ended September 30, 2022, totaled $133.7 million,
an increase of $22.1 million, or 19.8%, compared to the three months ended
September 30, 2021. Income from operations for the three months ended
September 30, 2022, totaled $36.4 million compared to income from operations of
$29.0 million for the same period in 2021.
Casino revenue increased 20.3% in the third quarter of 2022 compared to the
third quarter of 2021. The increase in casino revenue was driven primarily by
the increase in gaming devices with the complete opening of our expanded casino
in Black Hawk and higher guest spend per visit at both properties. Casino
operating expense as a percentage of casino revenue decreased to 33.1% for the
three months ended September 30, 2022, compared to 33.3% for the three months
ended September 30, 2021, primarily due to the increase in gaming revenue.
Food and beverage revenue for the third quarter of 2022 increased 20.6% compared
to the third quarter of 2021 due to a 7.6% increase in food and beverage covers,
combined with an increase in food and beverage revenue per cover of 12.1%. The
increase in covers is primarily a result of the opening of a new restaurant at
Monarch Black Hawk in early 2022 as well as increase in buffet covers at both
properties. Food and beverage operating expense as a percentage of food and
beverage revenue decreased in the third quarter of 2022 to 72.4% compared to
77.6% for the same quarter in 2021 primarily due to our ongoing efforts to align
menu prices with increased commodity prices and labor costs.
Hotel revenue increased 19.9% in the third quarter of 2022 compared to the same
quarter of 2021 primarily as a result of an increase in ADR of $23.63 ($177.74
in the third quarter of 2022 and $154.11 in the third quarter of 2021). Hotel
occupancy was 86.8% during the current year period compared to 83.4% during the
third quarter of 2021. RevPAR was $170.14 and $142.39 for the three months ended
September 30, 2022 and 2021, respectively. Hotel operating expense as a
percentage of hotel revenue decreased to 34.2% in the third quarter of 2022
compared to 38.5% for the comparable prior year period primarily as a result of
the increase in ADR and the ramp-up in hotel operations at Monarch Black Hawk.
Other revenue increased 7.5% in the third quarter of 2022 compared to the same
prior year period primarily due to the ramp-up of the spa operation at Monarch
Black Hawk and increase in commission revenue.
SG&A expense increased to $25.7 million in the third quarter of 2022 from $21.7
million in the third quarter of 2021 driven primarily by increases in labor
expense, utility expenses and advertising expense at Monarch Black Hawk. As a
percentage of net revenue, SG&A expense decreased to 19.2% in the third quarter
of 2022 compared to 19.4% in the same period in 2021.
Depreciation and amortization expense increased to $11.2 million for the three
months ended September 30, 2022, compared to $9.4 million for the same prior
year period, due to new assets placed into service with the ongoing renovation
at Atlantis.
During the third quarter of 2022 and 2021, we recognized $2.8 million and $1.5
million, respectively, in professional service fees relating to our construction
litigation. These expenses are included in Other operating items, net in the
Consolidated Statements of Income.
In the third quarter of 2022 we expensed $0.5 million of interest and amortized
$0.4 million in deferred loan costs. In the third quarter of 2021, we expensed
$0.5 million of interest and amortized $0.4 million in deferred loan costs. See
further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL
RESOURCES section below.
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Comparison of Operating Results for the Nine-Month Periods Ended
September 30, 2022 and 2021
For the nine months ended September 30, 2022, we had a net income of $65.0
million, or $3.33 per diluted share, compared to net income of $48.6 million, or
$2.51 per diluted share for the same period in 2021, reflecting a 33.8% and
32.7% increase in net income and diluted earnings per share, respectively. Net
revenues in the nine months ended September 30, 2022, totaled $357.3 million, an
increase of 25.7%, compared to the nine months ended September 30, 2021. Income
from operations for the nine months ended September 30, 2022 totaled $83.4
million compared to $64.1 million income from operations for the same period in
2021.
Casino revenue increased 20.8% in the first nine months of 2022 compared to the
first nine months of 2021 and was driven by an increase in gaming devices with
the opening of the expanded casino in Monarch Black Hawk and an increase in
guest spend per visit at both properties. Casino operating expense as a
percentage of casino revenue increased to 34.9% for the nine months ended
September 30, 2022 compared to 31.6% for the nine months ended September 30,
2021 primarily as a result of an increase in promotional allowances.
Food and beverage revenue for the first nine months of 2022 increased 33.5%
compared to the 2021 same period due to a 22.4% increase in food and beverage
covers combined with a 9.0% increase in food and beverage revenue per cover.
Food and beverage operating expense as a percentage of food and beverage revenue
decreased in the first nine months of 2022 to 76.1% from 80.5% for the same
period in 2021 primarily as a result of our effort to align menu prices with
increased commodity prices and labor cost.
Hotel revenue increased 35.9% in the first nine months of 2022 compared to the
first nine months of 2021 primarily due to increase in available rooms with the
opening of the new hotel at Monarch Black Hawk, as well as increase in ADR. ADR
increased by $40.11, from $138.04 in the first nine months of 2021 to $178.15 in
the first nine months of 2022. Hotel occupancy for the first nine months of 2022
was 81.7% compared to 78.6% during the same period of 2021. REVPAR was $159.08
for the first nine months of 2022 and $119.18 for the first nine months of 2021.
Hotel operating expense as a percentage of hotel revenue decreased to 35.3% in
the first nine months of 2022 compared to 40.8% for the comparable prior year
period primarily as a result of the higher ADR.
Other revenue increased 17.8% in the first nine months of 2022 compared to the
same prior year period primarily due to the ramp-up of the spa operation at
Monarch Black Hawk and increase in commission revenue.
SG&A expense increased to $72.9 million in the first nine months of 2022 from
$62.2 million in the first nine months of 2021 primarily due to the increase in
labor expense, utility expense and sales and marketing expense. As a percentage
of net revenue, SG&A expense decreased to 20.4% in the first nine months of 2022
compared to 21.9% in the same period in 2021.
Depreciation and amortization expense increased to $32.2 million for the nine
months ended September 30, 2022 compared to $28.3 million for the same prior
year period, due to new assets placed into service with the opening of our hotel
tower and expanded casino at Monarch Black Hawk and renovation projects at
Atlantis.
During the first nine months of 2022, we recognized $6.5 million in professional
service fees relating to our construction litigation. During the first nine
months of 2021, we recognized $3.0 million of professional service fees relating
to our construction litigation, $0.1 million in equipment, supplies and employee
testing expenses directly attributable to the pandemic for reopening of the
properties and incremental to normal operations, $0.1 million loss on disposal
of assets, $0.3 million of litigation proceeds and $0.1 million of insurance
claims proceeds.
During the first nine months of 2022, we expensed $1.1 million of interest and
amortized $1.1 million in deferred loan costs. During the first nine months of
2021, we expensed $3.2 million of interest and amortized $0.6 million in
deferred loan costs. See further discussion of our Amended Credit Facility in
the LIQUIDITY AND CAPITAL RESOURCES section below.
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.
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Cash paid for capital expenditures for the nine-month periods ended
September 30, 2022 and 2021 totaled $40.5 million and $21.7 million,
respectively. During the nine-month period ended September 30, 2022 our capital
expenditures related primarily to the redesign and upgrade of hotel rooms in the
original tower at Atlantis, the new upscale retail shop at Atlantis and the
acquisition of gaming and other equipment to upgrade and replace existing
equipment at Atlantis and Monarch Black Hawk. During the nine-month period ended
September 30, 2021 our capital expenditures related primarily to the following:
the transformation of part of the legacy Monarch Black Hawk building into a
specialty restaurant, sportsbook lounge and bar, and additional casino space;
complete renovation of the high-end suites on the top floors of the hotel tower
at Atlantis; and the acquisition of gaming and other equipment to upgrade and
replace existing equipment at Atlantis and Monarch Black Hawk. Capital
expenditures during each of the first nine months of 2022 and 2021 were funded
from operating cash flows.
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 nine months ended September 30, 2022, net cash provided by operating
activities totaled $106.2 million, compared to net cash provided by operating
activities of $96.3 million in the same prior year period. This increase was
primarily a result of increases in net income, and depreciation expense, offset
by an increase in working capital.
Net cash used in investing activities totaled $40.5 million and $21.7 million
during the nine months ended September 30, 2022 and 2021, respectively. Net cash
used in investing activities during the first nine months of 2022 consisted
primarily of cash used for the redesign and upgrade of hotel rooms in the
original tower at Atlantis, the new upscale retail shop at Atlantis and for
acquisition of gaming and other equipment at both properties. Net cash used in
investing activities during the first nine months of 2021 consisted primarily of
cash used for the transformation of part of the Monarch Black Hawk legacy
facility, complete renovation of the high-end suites on the top floors of the
hotel tower at Atlantis and for acquisition of gaming and other equipment at
both properties.
Net cash used in financing activities in the first nine months of 2022 totaled
$66.0 million and consisted of $63.0 million in principal payments on the credit
facility and $6.5 million cash used for the purchase of Company stock under the
Repurchase Plan partially, offset by $3.5 million of net proceeds from stock
options exercise. Net cash used in financing activities in the first nine months
of 2021 totaled $69.9 million and consisted of $74.5 million principal payments
on the credit facility partially offset by $4.6 million proceeds from the stock
options exercise.
Amended Credit Facility
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").
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The maturity date of the Amended Credit Facility is September 3, 2023. The
Amended Credit Facility increased the aggregate principal amount of the credit
facilities to $270 million. The $270 million Amended Credit Facility consists of
a $200 million term loan ("Term Loan Facility") and a $70 million revolving
credit facility ("Revolving Credit Facility"), together with an option to
increase the facility by up to an additional $75 million Revolving Credit
Facility.
As of September 30, 2022, we had an outstanding principal balance of $27 million
under the Term Loan Facility, a $0.6 million letter of credit and no borrowings
under the Revolving Credit Facility; $69.4 million remained available for
borrowing. The entire outstanding principal balance is due in the next twelve
months.
We are required to make quarterly principal payments under the Term Loan
Facility on each Term Loan Installment Date, commencing on December 31, 2020, in
an amount equal to (x) the percentage set forth opposite the applicable period
during which such Term Loan Installment Date occurs (i.e., 1.25% for the period
from December 31, 2020 to September 30, 2021, and 2.50% for the period from
December 31, 2021 and thereafter) multiplied by (y) $200 million.
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
September 30, 2022, we are required to maintain a Total Leverage Ratio (as
defined in the Amended Credit Facility) of no more than 4.0:1 and Fixed Charge
Coverage Ratio (as defined in the Amended Credit Facility) of at least 1.15:1.
As of September 30, 2022, our Total Leverage Ratio and Fixed Charge Coverage
Ratio were 0.2:1 and 3.8:1, respectively.
As of September 30, 2022, the interest rate under the Amended Credit Facility is
LIBOR plus a margin ranging from 1.00% to 2.00%, or a base rate (as defined in
the Amended Credit Facility) plus a margin ranging from 0.00% to 1.00%, or the
Prime Rate. The applicable margins vary depending on the Company's leverage
ratio. Commitment fees are equal to the daily average unused revolving
commitment multiplied by the commitment fee percentage, ranging from 0.175% to
0.325%, based on our leverage ratio. As of September 30, 2022, the interest rate
on the Term Loan Facility was 4.12%, or LIBOR plus a 1.00% margin.
On the terms and subject to some conditions, we may, at any time before the
maturity date, request an increase of the Revolving Credit Facility, provided
that each such increase is equal to $15 million or an integral multiple of $1
million in excess and, after giving effect to the requested increase, the
aggregate amount of the increases in the total revolving loan commitment shall
not exceed $75 million.
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 nine months of 2022, we made $48 million in optional prepayments on
the Term Loan Facility in addition to a $15 million in mandatory payments.
As of September 30, 2022, $26.2 million, representing $27.0 million outstanding
loan amount under the Amended Credit Facility, net of $0.8 million unamortized
debt issuance costs, is presented in the Current liabilities section of the
Company's consolidated balance sheet as "Current maturities of long-term debt".
We believe that our anticipated operating cash flow and the $69.4 million
available under our Amended Credit Facility as of September 30, 2022 will be
sufficient to sustain operations for the twelve months from filing of Form 10-Q
for the quarter ended September 30, 2022 and fulfill our capital expenditure
plans. However, spikes in COVID-19 cases or new variants thereof, other
contagious diseases or viruses, or financial, economic, competitive, regulatory,
and other factors, many of which are beyond our control, could negatively impact
our operations. If we are unable to generate sufficient cash flow in the
upcoming months or if our cash needs exceed our borrowing capacity under the
Amended Credit Facility, we could be required to adopt one or more alternatives,
such as reducing, delaying or eliminating planned capital expenditures, selling
assets, restructuring debt or issuing additional equity.
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For a discussion regarding our material commitments for capital expenditures,
see the CAPITAL SPENDING AND DEVELOPMENT section above.
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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