MONARCH CASINO & RESORT, INC. Unless otherwise indicated, "Monarch," "Company," "we," "our," and "us" refer to
STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") including, but not limited to (i) the impact of the
COVID-19 pandemic on our revenues, cash flows, liquidity, construction projects,
results of operations and financial condition; (ii) our expectations regarding
the return to normalized operations; (iii) our beliefs regarding the sufficiency
of our cash and other financial resources; (iv) our expectations regarding
discussions with our lenders about refinancing and/or additional relief options
and steps under the Amended Credit Facility that may be requested in light of
currently-changing circumstances, as well as our expectations regarding credit
facility covenant compliance and our ability to continue to obtain necessary
covenant waivers; (v) our expectations regarding changes in our operations and
services relating to restrictions in occupancy and social distancing
requirements; (vi) our beliefs regarding the effectiveness of the actions we've
taken with respect to the COVID-19 pandemic and the quality of our properties as
key factors in Monarch's long-term success; (vii) our expectations and beliefs
concerning the project scope, timing for completion, receipt of all occupancy
and other regulatory approvals for portion of the expansion project, impact of
the ongoing construction litigation, budget and estimated costs, pre-opening
expenses, transformative potential and our continued investment in our expansion
project at the
Various risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including the following factors:
continuing adverse impacts of the COVID-19 outbreak on our business,
? constructions projects, financial condition, liquidity, cash flows, operating
results, and access to capital markets, including the worsening of such impacts
and the continuation for an unknown period of time;
? continuing adverse impacts of the COVID-19 outbreak on short-term and long-term
travel, leisure and discretionary spending habits and practices of our guests;
continuing actions by government officials at the federal, state or local
? level, including, without limitation, further temporary or extended shutdowns,
travel restrictions, social distancing and shelter-in-place orders, in
connection with the COVID-19 outbreak;
impact of any further temporary or extended shutdowns on our ability to
? maintain compliance with the terms and conditions of our credit facilities and
other material contracts;
? our ability to manage guest safety concerns caused by COVID-19;
? our ability to negotiate relief options and amendments to our Amended Credit
Facility;
? 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
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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 demand after reopening
our casinos, due to health and other concerns, to return to normalized
pre-pandemic levels;
the impact of social distancing requirements and other health and safety
? protocols implemented at our properties, including a reduction in operating
margins (or negative operating margins);
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 the
? COVID-19 pandemic or to otherwise conduct work under any revised work
environment protocols;
? the potential of increases in state and federal taxation to address budgetary
and other impacts of the COVID-19 pandemic;
? the potential of increased regulatory and other burdens to address the direct
and indirect impacts of the COVID-19 pandemic;
? our ability to successfully implement our business and growth strategies;
? our ability to realize the anticipated benefits of our expansion and renovation
projects, including the Monarch Black Hawk Expansion;
construction factors, including delays, disruptions, construction defects,
increased costs of labor and materials, contractor disagreements, availability
? of labor and materials, zoning issues, environmental restrictions, soil and
water conditions, weather and other hazards, site access matters, occupancy and
building permit issues and other regulatory approvals or issues;
ongoing disagreements over costs of and responsibility for delays, construction
defects and other construction related matters with our
? Hawk general contractor,
previously reported, the litigation against us by such contractor and our
filing of affirmative defenses and extensive counterclaims against the Monarch
? our potential need to post bonds or other forms of surety to support our legal
remedies;
risks related to development and construction activities (including disputes
with and defaults by contractors and subcontractors; construction, equipment or
? staffing problems and delays; construction defects; shortages of materials or
skilled labor; environmental, health and safety issues; weather and other
hazards, site access matters, and unanticipated cost increases);
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;
? risks and uncertainties relating to obtaining court and governmental approval
or permits necessary to open the Monarch Black Hawk Expansion to the public;
? 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;
? guest acceptance of our expanded facilities once completed and the resulting
impact on our market position, growth and future financial results;
? our ability to successfully complete potential acquisitions and investments;
? successful integration of acquisitions;
? access to capital and credit, including our ability to finance future business
requirements and the Monarch Black Hawk Expansion;
? risks related to our present indebtedness and future borrowings;
? adverse trends in the gaming industry;
? changes in patron demographics;
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 ability to continue to comply with the covenants and terms of our credit
instruments;
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? 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; and
risks, uncertainties and other factors described in "Item 1A - Risk Factors" in
? our annual report on Form 10-K for the year ended
Form 10-K") and our other filings with the
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
We earn revenues, operating income and cash flow from Atlantis and
Atlantis: Our business strategy is to maximize revenues, operating income and cash flow primarily through our casino, food and beverage operations and hotel operations. We continuously upgrade our property. 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.
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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 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.
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RESULTS OF OPERATIONS
Impact of the COVID-19 Pandemic
Monarch operating results for the three and nine months ended
In
Our
Despite a strong reopening, we are operating in an environment of high uncertainty and there may be additional government restrictions placed on all of our services, such as gaming, restaurants, spas and salons, entertainment venues and convention and meeting space, which could lead to lower demand and revenue. Such restrictions could also increase our costs, further decrease our operating margins and have a material adverse effect on our operations, cash flows and financial results.
While we have incurred significant disruptions from the COVID-19 outbreak, we
are unable to accurately predict the full impact that COVID-19 will have due to
numerous uncertainties, including the severity of the disease, the possibility
of the outbreak levels seen to return, the impact on demand following the
reopening of our casinos, and other actions or restrictions that may be taken by
governmental authorities, the impact to the general
Comparison of Operating Results for the Three-Month Periods Ended
For the three months ended
Casino revenue increased 9.1% in the third quarter of 2020 compared to the third
quarter of 2019 which was driven by the increased spending per visit. Casino
operating expense as a percentage of casino revenue decreased to 28.3% for the
three months ended
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Food and beverage revenue for the third quarter of 2020 decreased 30.0% compared
to the third quarter of 2019 due to an 42.4% decrease in food and beverage
covers, as a result of capacity and other regulatory limitations which remain in
effect in
Hotel revenue decreased 33.1% in the third quarter of 2020 compared to the same
quarter of 2019 as a result of lower hotel occupancy of 80.3% during the period
compared to 95.5% during the third quarter of 2019 and a decrease in ADR of
Other revenue decreased 2.1% in the third quarter of 2020 compared to the same prior year period.
SG&A expense decreased to
Depreciation and amortization expense increased to
During the third quarter of 2020, we recognized
During the third quarters of 2020 and 2019, we capitalized
Comparison of Operating Results for the Nine-Month Periods Ended
The operating results for the 2020 nine-month period reflect the government-mandated closer of our operations for approximately three months, as well as the effect of the continuing regulatory limitations relating to the ongoing pandemic, which remained in force after the reopening of our properties.
For the nine months ended
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Casino revenue decreased 22.6% in the first nine months of 2020 compared to the
first nine months of 2019 and was driven by the COVID-19 outbreak, which
culminated in a suspension of our operations in
Food and beverage revenue for the first nine months of 2020 decreased 43.6% compared to the 2019 same period due to a 52.1% decrease in food and beverage covers, partially offset by a 17.8% increase in food and beverage revenue per cover. Food and beverage operating expense as a percentage of food and beverage revenue increased in the first nine months of 2020 to 81.8% compared to 79.4% for the same period in 2019 primarily as a result of the decline in F&B revenue due to the COVID-19 pandemic and the subsequent shutdown of our operations for approximately three months.
Hotel revenue decreased 46.7% in the first nine months of 2020 compared to the
first nine months of 2019 due to the pandemic related hotel shutdown for
approximately three months and the decrease in hotel occupancy to 75.7% during
the period the hotel was open compared to 89.4% occupancy during the first nine
months of 2019, combined with a
Other revenue decreased 31.5% in the first nine months of 2020 compared to the same prior year period.
SG&A expense decreased to
Depreciation and amortization expense increased to
During the first nine months of 2020, we recognized
During the first nine months of 2020 and 2019, we capitalized
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. In addition, we have invested, and continue to invest, in our Monarch Black Hawk Expansion.
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Cash paid for capital expenditures for the nine-month periods ended
Monarch Black Hawk Expansion
In the fourth quarter of 2013, we began work to convert the
The Monarch Black Hawk Expansion includes a multi-phased expansion of
On
We expect to finance the remaining cost through a combination of operating cash flows, available cash and cash equivalents and the Fourth Amended Credit Facility. We can provide no assurance that any project will be completed on schedule, if at all, or within established budgets, or that any project will result in increased earnings to us. Further, although we intend to seek recovery from our general contractor through the current litigation, we may be required to fund certain costs of correcting construction defects and deficiencies until, and if, recovered from the general contractor.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity have been cash provided by operations, and
available cash and cash equivalents, and, for capital expansion projects,
borrowings available under our credit facility. On
For the nine months ended
Net cash used in investing activities totaled
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Net cash used for financing activities in the first nine months of 2020 totaled
Amended Credit Facility
On
The Fourth Amended Credit Facility extends the maturity date of the Amended
Credit Facility from
We are required to make quarterly principal payments under the Term Loan
Facility on each Term Loan Installment Date, commencing on
As of
Borrowings are secured by liens on substantially all of the Company's real and personal property.
In addition to other customary covenants for a facility of this nature, as of
The interest rate under the Amended Credit Facility is LIBOR plus a margin ranging from 1.75% to 3.25%, or a base rate (as defined in the Fourth Amended Credit Facility) plus a margin ranging from 0.75% to 2.25%, or the Prime Rate. The applicable margins vary depending on Company's leverage ratio.
On the terms and subject to some conditions, the Company may, at any time before
the Maturity Date, request an increase of Revolving Credit Facility, provided
that each such increase is equal to
The Company may prepay borrowings under the Fourth 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.
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We believe that the
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 2019 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 2019
Form 10-K filed with the
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of
Payments due by period (1)
Less Greater
than 1 1 to 3 3 to 5 than 5
Total year years years years
Operating Leases (2) $ 23.0 $ 1.4 $ 2.3 $ 2.1 $ 17.2
Purchase Obligations (3) 28.4 25.3 2.3 0.7 0.1
Borrowings Under Amended Credit
Facility (4) 185.0 10.0 175.0 - -
Total Contractual Cash Obligations
Because interest payments under our Fourth Amended Credit Facility are
subject to factors that, in our judgment, vary materially, the amount of
future interest payments is not presently determinable. These factors
include: i) future short-term interest rates; ii) our future leverage ratiowhich varies with EBITDA and our borrowing levels; and iii) the rate at which (1) we deploy capital and other spending which, in turn, impacts the level of
future borrowings. The interest rate under the Fourth Amended Credit Facility
is LIBOR plus a margin ranging from 1,75% to 3.25%, or a base rate (as
defined in the Fourth Amended Credit Facility) plus a margin ranging from
0.75% to 2.25%, or the Prime Rate. The interest rate is adjusted quarterly
based on our leverage ratio. Based on our leverage ratio, at September 30,
2020 , pricing was LIBOR plus 2.25%.
(2) Operating leases include the Driveway Lease, the Parking Lot Lease and
billboards leases.
Purchase obligations represent approximately $17.5 million of commitments
related to capital projects and approximately
orders and construction commitments are cancelable by us upon providing a
30-day notice.
(4) The amount represents payment obligations of outstanding draws against the
Fourth Amended Credit Facility as of September 30, 2020 .
As described in the "CAPITAL SPENDING AND DEVELOPMENT" section above, we
commenced a substantial expansion of our
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