MONARCH CASINO & RESORT INC

Previous wording

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) regarding our expectations and beliefs concerning the cost, financing and impact of our Monarch Black Hawk Expansion; future expansion and acquisition opportunities; positioning of our properties to benefit from future macro and local economic growth; business prospects; business strategies and outlook; competitive advantages and sources of competition; marketing strategy; approvals and licensing requirements; employee relations; capital requirements; anticipated source of funds and adequacy of such funds to meet our debt obligations and capital requirements; financial condition, legal matters and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements. When words and expressions such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions are used in this Form 10-K, as well as statements containing phrases such as “in our view,” “we cannot assure you,” “although no assurance can be given,” or “there is no way to anticipate with certainty,” forward-looking statements are being made. Example of forward-looking statements include, among others, statements we make regarding: (i) our belief that we have sufficient liquidity to fund our operations and any remaining renovation projects, litigation costs and ongoing capital expenditures; (ii) our belief that our business is well-positioned to benefit from the continued gaming industry expansion after the pandemic; (iii) our expectation regarding the availability of future acquisition opportunities; (iv) our beliefs regarding the quality of our products and guest services in Reno and Black Hawk; (v) our expectations regarding our guests' acceptance of the expanded casino, new hotel and enhanced amenities at Monarch Casino Resort Spa Black Hawk; (vi) our expectations regarding our future position in, and share of, the high-end segment of the market and the quality of service we provide to our guests; (vii) our expectations regarding the litigation relating to the construction of the Monarch Black Hawk expansion and related liens recorded by the general contractor and certain subcontractors against the Monarch Black Hawk; (viii) our belief regarding the proximity that the Reno-Sparks Convention Center will have for the Atlantis and the normalization of the convention business to pre-pandemic levels; (ix) the continuing strength of our balance sheet and our expected free cash flow; (x) our expectations regardi…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) regarding our expectations and beliefs concerning the cost, financing and impact of our Monarch Black Hawk Expansion; future expansion and acquisition opportunities; positioning of our properties to benefit from future macro and local economic growth; business prospects; business strategies and outlook; competitive advantages and sources of competition; marketing strategy; approvals and licensing requirements; employee relations; capital requirements; anticipated source of funds and adequacy of such funds to meet our debt obligations and capital requirements; financial condition, legal matters and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements. When words and expressions such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions are used in this Form 10-K, as well as statements containing phrases such as “in our view,” “we cannot assure you,” “although no assurance can be given,” or “there is no way to anticipate with certainty,” forward-looking statements are being made. Example of forward-looking statements include, among others, statements we make regarding: (i) our belief that we have sufficient liquidity to fund our operations and any remaining renovation projects, litigation costs and ongoing capital expenditures; (ii) our belief that our business is well-positioned to benefit from the continued gaming industry expansion after the pandemic; (iii) our expectation regarding the availability of future acquisition opportunities; (iv) our beliefs regarding the quality of our products and guest services in Reno and Black Hawk; (v) our expectations regarding our guests' acceptance of the casino, hotel and related amenities at Monarch Casino Resort Spa Black Hawk and Atlantis; (vi) our expectations regarding our future position in, and share of, the high-end segment of the market and the quality of service we provide to our guests; (vii) our expectations regarding the litigation and any appeal relating to the construction of the Monarch Black Hawk expansion and related liens recorded by the general contractor and certain subcontractors against the Monarch Black Hawk; (viii) our belief regarding the proximity that the Reno-Sparks Convention Center will have on the Atlantis; (ix) the continuing strength of our balance sheet and our expected free cash flow; (x) our expectations regarding continuing our dividend payments in the future; (xi) our…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Our operating results may be affected by, among other things, competitive factors, gaming tax increases, mandated minimum wages, the commencement of new gaming operations, renovations at our facilities, general public sentiment regarding travel and public gatherings, overall economic conditions and governmental policies affecting the disposable income of our patrons, public health conditions including both pandemics such as the global coronavirus (COVID-19) pandemic and localized outbreaks of infectious diseases, terrorism and weather conditions affecting our properties, as well as those matters discussed in Item 1A. “RISK FACTORS” above.

Current wording

Our operating results may be affected by, among other things, competitive factors, gaming tax increases, mandated minimum wages, the commencement of new gaming operations, renovations at our facilities, general public sentiment regarding travel and public gatherings, overall economic conditions and governmental policies affecting the disposable income of our patrons, public health conditions including global pandemics and localized outbreaks of infectious diseases, terrorism and weather conditions affecting our properties, as well as those matters discussed in Item 1A. “RISK FACTORS” above.

Previous wording

Our management evaluates the KPI as compared to prior periods, the peer group, or market, as well as for any trends.

Current wording

Our management evaluates the KPIs as compared to prior periods, the peer group, or market, as well as for any trends.

Previous wording

For 2023, our net income totaled $82.4 million, or $4.20 per diluted share, compared to net income of $87.5 million, or $4.47 per diluted share for the same period of 2022, reflecting a 5.8% decrease in net income and 6.0% decrease in diluted EPS (“Earnings Per Share”). Net income and diluted EPS for the years ended December 31, 2023 and 2022, were impacted by: i) the effective tax rate (24.0% in 2023 and 19.8% in 2022), which varied primarily based on the amount of the excess tax benefit on stock compensation and drove a $4.8 million and $0.24 decrease in net income and diluted EPS, respectively; and ii) higher depreciation expense in 2023 compared to 2022, which drove $3.9 million and $0.19 decrease in net income and diluted EPS, respectively. Net revenue for the years ended December 31, 2023 and 2022 were $501.5 million and $477.9 million, respectively, reflecting an increase of $23.6 million, or 4.9%.

Current wording

For the year ended December 31, 2024, our net income totaled $72.8 million, or $3.84 per diluted share, compared to net income of $82.4 million, or $4.20 per diluted share for the same period of 2023, reflecting a 11.7% decrease in net income and 8.6% decrease in diluted EPS (“Earnings Per Share”). Net income and diluted EPS for the years ended December 31, 2024 and 2023, were impacted by: i) $27.6 million loss on litigation between Monarch and PCL recognized in the year ended December 31, 2024; ii) higher depreciation expense ($51.4 million and $47.3 million in 2024 and 2023, respectively); offset by i) the effective tax rate (21.6% in 2024 and 24.0% in 2023), based primarily on the amount of the excess tax benefit on stock compensation; ii) lower legal and consulting costs related to the litigation between Monarch and PCL ($0.8 million and $6.9 million in 2024 and 2023, respectively). Net revenue for the years ended December 31, 2024 and 2023 were $522.2 million and $501.5 million, respectively, reflecting an increase of $20.7 million, or 4.1%.

Previous wording

Casino revenue increased 4.3% in the year ended December 31, 2023, compared to the same period of 2022. Casino operating expense as a percentage of casino revenue increased to 36.4% for the year ended December 31, 2023, compared to 35.1% in 2022, primarily due to increases in labor and slots participation expenses, as well as an increase in promotional allowances at both properties.

Current wording

Casino revenue increased 4.1% in the year ended December 31, 2024, compared to the same period of 2023. Casino operating expense as a percentage of casino revenue increased to 37.2% for the year ended December 31, 2024, compared to 36.4% for the same period in 2023, primarily due to increases in labor expense and technology related expense.

Previous wording

Food and beverage revenue increased 8.1% in the year ended December 31, 2023 over the same period in 2022, due to a 5.6% increase in average revenue per cover combined with a 2.4% increase in covers. Food and beverage operating expense as a percentage of food and beverage revenue in the year ended December 31, 2023 was 72.4% compared to 75.5% over the same period in 2022. Food and beverage operating expense as a percentage of food and beverage revenue decreased as a result of cost efficiency and an increase in average revenue per cover as we were actively aligning menu prices with the food and labor costs.

Current wording

Food and beverage revenue increased 0.7% in the year ended December 31, 2024 over the same period in 2023, due to a 1.6% increase in average revenue per cover partially offset by a 0.9% decrease in covers. Food and beverage operating expense as a percentage of food and beverage revenue in the year ended December 31, 2024 was 73.7% compared to 72.4% for the same period in 2023. Food and beverage operating expense as a percentage of food and beverage revenue increased as a result of increase in cost of goods sold.

Previous wording

Hotel revenue decreased 0.3% in the year ended December 31, 2023 over the same period in 2022 due to a decrease in ADR from $175.07 for the year ended December 31, 2022 to $172.56 for the year ended December 31, 2023, offset by higher hotel occupancy of 84.5% in 2023 compared to 79.9% in 2022. RevPAR was $159.20 in 2023 and $153.44 in 2022. Hotel operating expense as a percent of the hotel revenue for the year ended December 31, 2023 was 37.2% compared to 35.8% for the same period in 2022. The decrease in the hotel expense margin was primarily due to the decrease in ADR. The group and convention business is still below the pre-pandemic level.

Current wording

Hotel revenue increased 7.6% in the year ended December 31, 2024 over the same period in 2023 due to an increase in ADR from $172.62 for the year ended December 31, 2023 to $182.48 for the year ended December 31, 2024, combined with slightly higher hotel occupancy of 84.8% in the year ended December 31, 2024 compared to 84.7% for the same period in 2023. RevPAR was $220.28 in the year ended December 31, 2024 and $209.71 for the same period in 2023. Hotel operating expense as a percent of the hotel revenue for the year ended December 31, 2024 was 34.3% compared to 37.2% for the same period in 2023. The decrease in the hotel expense margin was primarily due to the increase in ADR and effective cost management.

Previous wording

Other revenue increased 14.9% in 2023 compared to 2022 driven primarily by increases in spa and retail revenues, partially offset by a decline in arcade revenue.

Current wording

Other revenue increased 13.8% in the year ended December 31, 2024 compared to the same period in 2023 driven primarily by increases in spa and commission revenues.

Previous wording

SG&A expense increased to $105.8 million in the year ended December 31, 2023 from $97.6 million in the same period of 2022 due to: i) a $3.8 million increase in salaries, wages and related employee benefits expense; ii) a $1.1 million increase in property taxes; iii) a $1.1 million increase in utility expense; iv) a $1.1 million increase in repairs and maintenance expense; v) a $0.5 million increase in insurance expense; and vi) a $0.6 million increase in other expenses. The increase in expense is primarily a result of the ramp up of the expanded operation at Monarch Black Hawk, as well as inflation related price increases. As a percentage of net revenue, SG&A expense increased to 21.1% in 2023 from 20.4% in 2022.

Current wording

SG&A expense increased to $108.3 million in the year ended December 31, 2024 from $105.8 million in the same period of 2023 due to: i) a $2.6 million increase in salaries, wages and related employee benefits expense; ii) a $0.8 million increase in repairs and maintenance expense; offset by a $0.7 million decrease in utility expense. As a percentage of net revenue, SG&A expense decreased to 20.7% in the year ended December 31, 2024 from 21.1% in the corresponding prior year period 2023.

Previous wording

Depreciation and amortization expense increased to $47.3 million for the year ended December 31, 2023, as compared to $43.4 million for the same period in 2022 primarily due to the addition of assets related to the redesign and upgrade of the hotel rooms at Atlantis and the Oyster and Sushi Bar Restaurant located on the Sky Terrace at Atlantis.

Current wording

Depreciation and amortization expense increased to $51.4 million for the year ended December 31, 2024, as compared to $47.3 million for the same period in 2023 primarily due to the addition of assets related to the redesign and upgrade of the hotel rooms at Atlantis, as well as ongoing maintenance capital expenditures at both properties.

Previous wording

During the year ended December 31, 2023, we recognized $6.9 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company and our countersuit against the general contractor and $0.2 million in loss on disposal of assets, offset by $1.2 million net proceeds from a sale of a COVID closure related insurance claim. During the year ended December 31, 2022, we recognized $7.3 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company and our countersuit against the general contractor, offset by $0.1 million of gain on disposed assets and $0.1 million of insurance claims proceeds. These expenses are included in Other operating items, net in the Consolidated Statements of Operations.

Current wording

During the year ended December 31, 2024, we recognized $27.6 million loss relating to the principal judgment on the litigation between Monarch and PCL, $0.8 million in construction litigation expense related to the litigation between Monarch and PCL and $0.2 million in loss on disposal of assets. During the year ended December 31, 2023, we recognized, $6.9 million in construction litigation expense related to the lawsuit filed by the Monarch Black Hawk Expansion construction project general contractor against the Company and our countersuit against the general contractor and $0.2 million in loss on disposal of assets, offset by $1.2 million net proceeds from a sale of a corona virus (“COVID”) closure related insurance claim. These expenses are included in Other operating items, net in the Consolidated Statements of Operations.

Previous wording

During the year ended December 31, 2023, we decreased the outstanding principal balance under our Amended Credit Facility by $1.5 million to $5.5 million as of December 31, 2023. During 2023 and 2022, we recognized $1.6 million and $2.4 million, respectively, in interest expense, net of interest income. See further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

Current wording

During the year ended December 31, 2024, we decreased the outstanding principal balance under our Amended Credit Facility by $5.5 million to no balance outstanding as of December 31, 2024. During 2024 and 2023, we recognized $0.1 million and $1.6 million, respectively, in interest expense, net of interest income. See further discussion of our Amended Credit Facility in the LIQUIDITY AND CAPITAL RESOURCES section below.

Previous wording

During the years ended December 31, 2023 and 2022, capital expenditures related primarily to the major redesign and upgrade of all hotel rooms in the first and second towers and complete renovation of the high-end suites on the top floors of the third hotel tower at Atlantis, the redesign and upgrade of the Oyster and Sushi Bar Restaurant located in the Sky Terrace at Atlantis and the acquisition of gaming equipment at both of our properties.

Current wording

During the years ended December 31, 2024 and 2023, capital expenditures related primarily to the major redesign and upgrade of all hotel rooms at Atlantis, the redesign and upgrade of the Oyster and Sushi Bar Restaurant located in the Sky Terrace at Atlantis and the acquisition of gaming equipment at both of our properties.

Previous wording

For the year ended December 31, 2023, net cash provided by operating activities totaled $173.0 million, an increase of $33.3 million, or 23.8%, compared to the same period of the prior year. This increase was primarily due to a $23.8 million federal income tax refund received from IRS, and a $14.4 million change in working capital, of which $12.8 million is from an increase in accounts payable, primarily construction payable, offset by $5.0 million decrease in net income.

Current wording

For the year ended December 31, 2024, net cash provided by operating activities totaled $140.7 million, a decrease of $32.3 million, or 18.7%, compared to the same period of the prior year. This decrease was primarily due to a $24.5 million federal income tax resulting from a refund received from IRS in 2023, $9.8 million decrease in deferred tax liability and $9.7 million decrease in net income, offset by a $7.8 million change in working capital and $4.0 increase in depreciation expense.

Previous wording

Net cash used in investing activities totaled $51.2 million and $48.0 million in the years ended December 31, 2023 and 2022, respectively. Net cash used in investing activities during the years ended December 31, 2023 and 2022 consisted primarily of cash used for renovation projects at Atlantis, and for the acquisition of gaming and other equipment at both properties.

Current wording

Net cash used in investing activities totaled $43.8 million and $51.2 million in the years ended December 31, 2024 and 2023, respectively. Net cash used in investing activities during the years ended December 31, 2024 and 2023 consisted primarily of cash used for hotel rooms redesign and upgrade project at Atlantis, and for the acquisition of gaming and other equipment at both properties.

Previous wording

Net cash used in financing activities of $117.2 million in 2023 represented $112.8 million used for payment of dividends, $5.0 million used for the repurchase of Company common stock under the Repurchase Plan and $1.5 million principal payments under the Amended Credit Facility, offset by $2.1 million of proceeds from stock options exercise, net of payroll taxes from net exercises. Net cash used in financing activities of $86.5 million in 2022 represented $83.0 million principal payments under the Amended Credit Facility and $6.5 million used for the for repurchase of Company common stock under the Repurchase Plan, offset by $3.0 million of proceeds from stock options exercise, net of payroll taxes from net exercises.

Current wording

Net cash used in financing activities of $81.5 million in the year ended December 31, 2024 represented $60.0 million used for the repurchase of Company common stock under the Repurchase Plan, $22.3 million used for payment of dividends, and $5.5 million principal payments under the Amended Credit Facility, offset by $6.2 million of proceeds from stock options exercise, net of payroll taxes from net exercises. Net cash used in financing activities of $117.2 million in the year ended December 31, 2023 represented $112.8 million used for payment of dividends, $5.0 million used for the repurchase of Company common stock under the Repurchase Plan and $1.5 million principal payments under the Amended Credit Facility, offset by $2.1 million of processed from stock options exercise, net of payroll taxes from net exercises.

Previous wording

We expect that the Company’s cash position in the next several quarters may be negatively impacted by the outstanding construction retention and other payments related to the Monarch Black Hawk Expansion project of $47.6 million, which are reflected in “Construction Accounts Payable” on the balance sheet as of December 31, 2023.

Current wording

We expect that the Company’s cash position in the next quarters may be negatively impacted by the outstanding payments related to the Monarch Black Hawk Expansion project litigation and the judgment of $74.6 million issued February 14, 2025, which are included in the Current Liability on the balance sheet as of December 31, 2024.

Previous wording

Purchase obligations of materials and supplies used in the normal operation of our business represent approximately $16.3 million as of December 31, 2023 and all are cancelable by us upon providing a 30-day notice.

Current wording

Purchase obligations of materials and supplies used in the normal operation of our business represent approximately $18.3 million as of December 31, 2024 and all are cancelable by us upon providing a 30-day notice.

Previous wording

On February 1, 2023, the Company entered into the Fifth Amended and Restated Credit Agreement (the “Amended Credit Facility”) with Wells Fargo Bank, N.A., as administrative agent. The Amended Credit Facility provides for a $100 million line of credit which matures on January 1, 2025.

Current wording

On December 31, 2024, the Company entered into the Sixth Amended and Restated Credit Agreement (the “Sixth Amended Credit Facility”) with Wells Fargo Bank, N.A., as administrative agent. The Sixth Amended Credit Facility amends and restates the Company’s $100.0 million credit facility, dated as of February 1, 2023 (the “Prior Facility”).

Previous wording

In addition to other customary covenants for a facility of this nature, as of December 31, 2023, 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 December 31, 2023, our Total Leverage Ratio and Fixed Charge Coverage Ratio were 0.04:1 and 46.18:1.

Current wording

In addition to other customary covenants for a facility of this nature, as of December 31, 2024, the Company is required to maintain a Total Leverage Ratio (as defined in the Sixth Amended Credit Facility) of no more than 1.5:1.0 and Fixed Charge Coverage Ratio (as defined in the Sixth Amended Credit Facility) of at least 1.1:1.0. As of December 31, 2024, the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio associated with the Prior Facility was 0.0:1.0 and 84.4:1.0.

Previous wording

As of December 31, 2023, the Company had an outstanding principal balance of $5.5 million under the Amended Credit Facility, a $0.6 million letter of credit and $93.9 million remained available for borrowing.

Current wording

As of December 31, 2024, the Company had no outstanding principal balance under the Sixth Amended Credit Facility, a $0.6 million standby letter of credit and $99.4 million remained available for borrowing.

Previous wording

We believe that the expected cash flows from operating activities and the $93.9 million available under our Amended Credit Facility as of December 31, 2023 will be sufficient to support our current operations, meet our debt obligations and fulfill our capital expenditure plans for the twelve months from the filing of Form 10-K for the year ended December 31, 2023; however, we are surrounded by uncertainty about financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow in the upcoming months or if our cash needs exceed the Company’s 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.

Current wording

We believe that the expected cash flows from operating activities and the $99.4 million available under our Amended Credit Facility as of December 31, 2024 will be sufficient to support our current operations, meet our debt obligations and fulfill our capital expenditure plans for the twelve months from the filing of Form 10-K for the year ended December 31, 2024; however, we are surrounded by uncertainty about financial, economic, competitive, regulatory, and other factors, many of which are beyond our control. If we are unable to generate sufficient cash flow in the upcoming months or if our cash needs exceed the Company’s 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.