Canterbury Park Holding Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Canterbury Park operates a Minnesota racetrack and casino, with additional food and beverage, events, and real estate development activities. Live racing is seasonal and typically runs May through September.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net revenue | $13.30 million | $13.64 million |
| Operating income | $1.55 million | $2.43 million |
| Net income | $2.77 million | $1.77 million |
| Diluted EPS | $0.56 | $0.36 |
| Operating cash flow | $5.82 million | $2.94 million |
| Capital expenditures | $1.01 million | $0.78 million |
| Adjusted EBITDA (non-GAAP) | $2.48 million | $3.55 million |
- Revenue declined 2.5%; operating expenses rose 4.8%. Operating margin was approximately 11.7%, versus 17.8% a year earlier. Net margin was approximately 20.8%, versus 13.0%, with the improvement in net income largely reflecting equity-investment income from an insurance-related recovery.
- Adjusted EBITDA margin fell to 18.7% from 26.0%. The company’s non-GAAP measure excludes the insurance-related gain and certain equity-investment depreciation and interest; it should not be treated as a substitute for GAAP results.
- Casino revenue fell 6.2%, and pari-mutuel revenue fell 9.1%; food and beverage revenue rose 35.0%, supported by special events and higher prices.
- At March 31, cash and cash equivalents were $16.73 million, restricted cash was $3.62 million, and short-term investments were $5.00 million. Current assets were $31.45 million and current liabilities $10.47 million.
- Operating cash flow benefited in part from $3.60 million of employee retention credit collections. Investing activities used $1.06 million and financing activities used $0.52 million, including dividends paid.
- The company had no balance outstanding on its $10 million revolving credit facility, which matures January 31, 2024, and reported compliance with its financial covenants. Finance-lease obligations were approximately $12,000; the filing reports no other drawn debt.
Material changes and unusual items
- Casino revenue decreased $646,000, which management attributed primarily to lower attendance—potentially due to inclement weather—and reduced discretionary spending amid inflation. Table-games revenue declined while poker revenue increased.
- Higher wages and benefits, food costs, and other operating expenses contributed to the expense increase. Management cited wage-rate changes, a higher 401(k) match, inflation, recruiting, and horse-racing safety costs.
- Other income was $2.26 million, compared with a $47,000 loss in Q1 2022. Equity-investment income included an insurance-related recovery from the Doran Canterbury I joint venture’s claim against a third party. The filing identifies this as an important driver of the year-over-year net-income increase.
- The company declared a $0.07-per-share dividend, compared with $0.14 per share in Q1 2022. The board retains discretion over future dividends.
- After quarter-end, on May 1, 2023, the company announced a completed sale of 37 acres for $8.8 million. The buyer plans a 19,000-capacity amphitheater, with opening anticipated in summer 2025. This transaction was subsequent to the reporting period.
Outlook, risks, and contingencies
- No quantified earnings or revenue guidance is provided. Management said cash, operating cash flow, the undrawn credit facility, and expected land-sale proceeds should cover regular operations and planned development costs for the next 12 months. Larger development, facility, or strategic investments could require additional financing.
- The cooperative marketing agreement with the Shakopee Mdewakanton Sioux Community expired December 31, 2022. Management warns that the loss of its purse-enhancement and marketing payments may reduce live-racing revenue and profitability.
- A $13.50 million tax-increment-financing receivable depends on future tax revenue from development; reimbursement is not guaranteed. Management reported no indicator of collectability concern and recorded no allowance.
- Under an indemnity agreement related to Doran Canterbury I financing, the company may have to indemnify Doran for loan payments up to $5.7 million if the lender demands payment under Doran’s guarantee.
- Management said pending claims and legal actions were not expected to materially affect results or financial position. The filing also highlights risks from discretionary spending, weather, competition, regulation, inflation and wages, horse availability, and execution of real-estate development projects.
- Management concluded disclosure controls were effective and reported no significant changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether lower casino attendance and pari-mutuel activity persist, and whether special-event and food-and-beverage growth can offset them.
- The recurring earnings contribution from operations after separating the joint venture’s insurance-related recovery from reported results.
- Progress and funding requirements for Canterbury Commons development, including the collectability and timing of TIF reimbursements.
- The financial impact of the expired community marketing agreement on live racing and related operations.
- Closing proceeds and planned use of the $8.8 million land-sale consideration, noting the sale occurred after March 31, 2023.
- Future dividend decisions, credit-facility renewal or refinancing before its January 2024 maturity, and any potential Doran indemnity exposure.