Canterbury Park Holding Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with Q1 2021. The company operates a Minnesota racetrack and card casino, plus food and beverage and real estate development businesses.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $13.638 million | $9.226 million | +47.8% |
| Operating income | $2.426 million | $1.272 million | +90.7% |
| Net income | $1.774 million | $0.551 million | +221.7% |
| Diluted EPS | $0.36 | $0.12 | — |
| Operating margin | 17.8% | 13.8% | +4.0 percentage points |
| Net margin | 13.0% | 6.0% | +7.0 percentage points |
| Cash provided by operating activities | $2.937 million | $1.693 million | +73.4% |
| Capital additions to property and equipment | $0.778 million | $0.129 million | — |
- Card Casino revenue rose 50.9% to $10.360 million. Food and beverage revenue increased 190.7% to $1.089 million; pari-mutuel revenue rose 8.0% to $1.247 million. Management attributed growth mainly to increased visitation, removal of pandemic capacity restrictions, higher-value table-games activity, poker tournaments, and larger events.
- Operating expenses increased 41.0% to $11.212 million, including higher staffing, purses, food and beverage costs, and marketing as operations returned to more normal levels.
- Adjusted EBITDA, a non-GAAP measure, was $3.547 million, or 26.0% of revenue, compared with $1.422 million, or 16.3% of revenue excluding 2021 COVID-19 grants. The 2021 quarter included $515,000 of relief grants; Q1 2022 included none.
- At March 31, cash and cash equivalents were $13.217 million and restricted cash was $3.640 million. Cash, cash equivalents, and restricted cash totaled $16.857 million, up from $15.599 million at year-end.
- Current assets were $26.182 million and current liabilities $10.875 million. The company had no balance outstanding on its $10 million revolving credit line, which matures January 31, 2024, and reported compliance with its financial covenants. Lease obligations were approximately $39,000.
- Total assets were $85.779 million; total liabilities $20.278 million; and stockholders’ equity $65.501 million. The company declared a $0.14-per-share dividend; $340,000 remained payable at quarter-end.
Material changes and management commentary
- Results improved substantially against a Q1 2021 comparison affected by a temporary January 2021 shutdown and operating restrictions. Management said the business returned to pre-pandemic operating guidelines in May 2021.
- Management cited operational efficiencies introduced during the pandemic as an additional contributor to Adjusted EBITDA growth. Salaries and benefits rose 38.8%, reflecting staffing for normalized operations.
- Management believes current cash, the revolving facility, operating cash generation, and expected land-sale proceeds are sufficient for regular operations and planned development costs over the next 12 months. Significant additional development or strategic investments could require additional financing.
Outlook, risks, and unusual items
- The filing provides no formal numerical revenue or earnings guidance. Management noted that supply-chain issues and labor shortages had affected operations and could continue; new COVID-19 variants could also adversely affect results.
- The Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community is scheduled to expire December 31, 2022. For 2022, it provides for annual purse enhancement payments of $7.38 million and marketing payments of $1.62 million. Continuation after 2022 is uncertain; the agreement also restricts the company’s advocacy concerning expanded gambling.
- The company recorded a $12.668 million tax-increment-financing (TIF) receivable, including $1.488 million of interest. Reimbursement depends on future tax revenues from development; management considered the balance collectible and recorded no allowance. The amended redevelopment agreement caps the company’s eligible improvement costs at $17.593 million, and reimbursement is not guaranteed.
- Real estate joint ventures remain a source of investment uncertainty. The company recorded a $239,522 net loss from equity investments for the quarter and had $1.720 million of investee losses in excess of its equity investment recorded as a liability. It also contributed approximately $340,000 to Doran Canterbury II and had related-party receivables of $2.184 million.
- A conditional indemnity agreement could require the company to indemnify Doran for loan payments up to $5 million if the lender demands Doran’s loan guarantee. Management said the likelihood of a breach triggering repayment under the marketing agreement was remote; it also said pending legal matters were not expected to materially affect results.
- Other disclosed risks include competition, regulation and gaming taxes, racing attendance and horse availability, weather, development execution, and cyber and privacy risks. The company reported no changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether customer visitation, casino revenue, and operating margins remain strong after pandemic-related restrictions ended, and how labor and supply costs evolve.
- Whether the marketing and purse-support arrangements continue after the CMA’s December 2022 expiration, and the effect of any replacement terms.
- Progress, financing needs, and expected returns for Canterbury Commons and the joint ventures, including collectability of the TIF receivable and related-party balances.
- Whether future capital spending, development commitments, dividends, or contingent indemnity obligations change the company’s liquidity position.
- The filing’s reported cash includes restricted funds; distinguish these from the $13.217 million of cash and cash equivalents available for general purposes.