Canterbury Park Holding Corp quarterly report, Q2 FY2022

Canterbury Park Holding Corporation — Q2 2022 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2022; filed August 12, 2022. Canterbury Park operates a Minnesota racetrack and card casino, alongside food and beverage operations and real estate development. Live racing is seasonal, generally running May through September.

Financial performance

Metric	Q2 2022	Q2 2021	Six months 2022	Six months 2021
Net revenue	$17.77M	$15.87M	$31.41M	$25.10M
Operating income	$2.70M	$3.09M	$5.13M	$4.36M
Net income	$1.76M	$1.87M	$3.53M	$2.42M
Diluted EPS	$0.36	$0.39	$0.73	$0.51
Adjusted EBITDA	$3.56M	$3.51M	$7.11M	$4.94M

Q2 revenue rose 12.0%, but operating income fell 12.6% and net income fell 6.1%. Operating margin was approximately 15.2%, compared with 19.5% a year earlier.
Six-month revenue increased 25.2%; operating income rose 17.5% and net income rose 45.8%. Six-month operating margin was approximately 16.3%, versus 17.4%.
Adjusted EBITDA margin was 20.1% for Q2 and 22.6% for the first half, versus 22.1% and 20.1%, respectively, in 2021. Adjusted EBITDA is a non-GAAP measure.
Q2 revenue growth came mainly from food and beverage and other revenue; Card Casino revenue was nearly flat year over year. First-half Card Casino revenue increased 21.5%, including stronger table-games results and poker tournament revenue.

Cash flow, liquidity, and balance sheet

First-half operating cash flow was $10.29M, compared with $11.33M in 2021. Investing used $1.06M; financing used $0.83M.
Cash and cash equivalents were $14.65M at June 30; restricted cash was $9.35M, bringing combined cash and restricted cash to $24.00M. Restricted cash includes amounts for horsemen and card-game player pools.
Current assets were $37.34M and current liabilities $19.31M. The reported current ratio is approximately 1.93, but includes restricted cash and other receivables.
The company had no balance outstanding on its $10M revolving credit line, which matures January 31, 2024, and reported compliance with its financial covenants. Finance lease obligations totaled approximately $33,000; the filing reports no material conventional borrowings.
Total assets were $96.44M and stockholders’ equity $67.24M. The $6.10M employee retention credit receivable remained outstanding.
Cash dividends declared were $0.07 per share in Q2 and $0.21 per share for the first half; $0.68M was paid during the first half.

Material changes and management commentary

Management attributed recovery from 2021 comparisons to resumed full-capacity operations, increased visitation and live-racing attendance, and larger events. Operating expenses also increased as operations normalized.
First-half salaries and benefits rose 24.5%, with management citing higher staffing needs and wage-rate increases to attract and retain workers. Advertising and marketing expense increased 172.6%, reflecting higher promotional spending and Cooperative Marketing Agreement (CMA) activity.
The 2021 comparison included $515,000 of COVID-19 relief grants; no such grants were received in the first half of 2022. Q2 gain on land sale was $12,000; the related sale generated approximately $1.2M in proceeds.
Equity-method investment losses were $0.77M for the first half, mainly related to the Doran Canterbury I apartment development joint venture. Losses recorded in excess of funded investment reached $2.22M at June 30.
The company recorded a $12.84M TIF receivable, including principal and accrued interest. Reimbursement depends on future tax revenues; management considered it fully collectible and recorded no allowance.

Outlook, risks, and contingencies

No specific earnings or revenue guidance was provided. Management said available cash, the undrawn credit facility, operating cash generation, and possible land-sale proceeds should fund regular operations and planned development for the next 12 months. Significant additional development or facility investment may require outside financing.
The CMA with the Shakopee Mdewakanton Sioux Community was scheduled to end December 31, 2022. It provided annual 2022 marketing payments of $1.62M to the company and $7.38M in purse-enhancement payments directly to horsemen. If not extended or renegotiated on substantially similar terms, payments could cease and live-racing results could be materially adversely affected. The CMA also restricts the company’s position on expanded gambling authority.
TIF reimbursements are not guaranteed and depend on future development-generated tax revenues. The company expects to complete remaining developer improvements by July 2027 and may use operating resources, its credit line, or third-party financing.
Other cited risks include competition, economic and consumer-spending conditions, labor shortages and wage costs, supply-chain constraints, weather and racing participation, gaming regulation, cybersecurity, and real-estate project execution. Management said COVID-related effects had eased but new variants could adversely affect results.
The company disclosed a potential indemnity obligation to Doran affiliates of up to $5M if the lender demands payment under Doran’s loan guarantee. Management considered CMA covenant-breach payments remote; routine legal claims were not expected to have a material impact.

Important facts for investors to verify

Whether the CMA was extended or replaced after its scheduled December 31, 2022 expiration, and the resulting effect on racing economics.
Collection timing and assumptions supporting the $12.84M TIF receivable, plus required remaining infrastructure spending and funding needs.
Timing and collectability of the $6.10M employee retention credit receivable and the $2.28M related-party receivable.
The filing’s MD&A states Q2 net income was $1.775M, while the financial statements report $1.755M; confirm the correct amount. The financial statements show Q2 EPS of $0.36.
How much of reported cash is available for general use, given $9.35M of restricted cash, and whether seasonal working-capital swings affect liquidity.