Business context and reporting period
Canterbury Park Holding Corporation filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. The company operates a Minnesota racetrack and casino, with additional food and beverage and real estate development activities. Live racing is seasonal, typically running from May through September.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net revenue | $16.34 million | $17.77 million | $29.64 million | $31.41 million |
| Income from operations | $7.55 million | $2.70 million | $9.11 million | $5.13 million |
| Net income | $5.29 million | $1.76 million | $8.06 million | $3.53 million |
| Diluted EPS | $1.07 | $0.36 | $1.64 | $0.73 |
| Adjusted EBITDA (non-GAAP) | $2.02 million | $3.56 million | $4.50 million | $7.11 million |
- Revenue declined 8.1% in Q2 and 5.6% in the first half. Q2 operating income included a $6.49 million gain on a land sale; this materially boosted reported operating income and net income.
- Adjusted EBITDA margin was 12.4% in Q2 and 15.2% for the first half, versus 20.1% and 22.6%, respectively, in 2022.
- First-half operating cash flow was $10.80 million, versus $10.29 million. Investing activities provided $3.55 million, including land-sale proceeds, compared with $1.06 million used in 2022. Financing activities used $0.79 million, primarily for dividends and taxes on equity awards.
- At June 30, cash and cash equivalents were $24.05 million, restricted cash was $5.62 million, and short-term investments were $5.00 million. The $10 million revolving credit line had no borrowings; it matured January 31, 2024. Current liabilities were $12.85 million and total liabilities were $22.99 million.
- The company reported a $13.63 million TIF receivable and $2.75 million in related-party receivables, largely member loans to development joint ventures. Stockholders’ equity was $79.17 million.
Material changes versus the prior comparable period
- Pari-mutuel revenue fell 31% in Q2 and 26% in the first half. Management attributed the decline mainly to 15 live race days in the first half of 2023 versus 25 in 2022, along with lower out-of-state wagering on live racing.
- Casino revenue rose 3.9% in Q2 but fell 1.3% for the first half. Management cited a higher table-games collection rate for Q2, while first-half performance reflected lower attendance, potentially related to poor weather and inflation-related pressure on discretionary spending.
- Food and beverage revenue was down 5.6% in Q2 but up 8.0% for the first half, which management attributed to visitation at large special events earlier in the year.
- The Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community expired December 31, 2022. No related marketing payments or purse enhancements were recorded in 2023; management linked the expiration to lower other revenue and reduced live-racing profitability.
- First-half 2023 included $2.53 million of income from insurance proceeds recorded through an equity-method investment. The reported gain helped net income, while the company’s Adjusted EBITDA reconciliation excludes it.
- Salaries and benefits increased 5.5% for the first half, primarily due to higher wage rates and a larger 401(k) match. Other operating expenses increased 24.1%, including higher track maintenance, a claim settlement, and repair timing.
Outlook, risks, and unusual items
- Management said available cash, the credit facility, operating cash flow, and anticipated land-sale proceeds should cover ordinary operations and planned development expenses for the next 12 months. No earnings or revenue guidance was provided.
- The company completed an $8.8 million sale of approximately 37 acres to an affiliate of Swervo Development. It expects to use substantially all net proceeds to redevelop the horse stabling area, including new barns and a dormitory. Swervo expects to begin construction of a planned 19,000-capacity amphitheater, with opening anticipated in summer 2025.
- Under the Shakopee redevelopment agreement, the company expects to complete remaining developer improvements by July 17, 2027. Reimbursement is capped at approximately $17.59 million and depends on future tax-increment revenues; it is not guaranteed. Management reported no collectability indicators and no allowance against the TIF receivable.
- The company has an indemnity obligation of up to $5.7 million relating to a Doran joint-venture loan, payable only if the lender demands payment under Doran’s guarantee. Management said pending ordinary-course claims and legal actions were not expected to materially affect financial position or results.
- Key risks include lower discretionary spending, weather and live-racing attendance, competition and declining horse-racing popularity, loss of CMA support, gaming regulation and taxes, labor costs and inflation, development execution and partner performance, and collection of TIF reimbursements. The filing reported no material changes to previously disclosed risk factors.
- Disclosure controls were assessed as effective, with no significant changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported earnings and operating income reflects the one-time land-sale gain and equity-investment insurance proceeds, versus recurring operations.
- Whether reduced live-racing days, wagering, and the expiration of the CMA continue to pressure revenue and Adjusted EBITDA.
- Progress and funding needs for the horse-stabling redevelopment and Swervo amphitheater project, including whether additional financing is required.
- Assumptions supporting collection of the $13.63 million TIF receivable and repayment of related-party member loans.
- The status of the revolving credit facility as it approached its January 31, 2024 maturity, and any refinancing or replacement arrangements.