Canterbury Park Holding Corp. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; unaudited. Canterbury Park operates a Minnesota racetrack, pari-mutuel wagering and card casino, food and beverage businesses, and real estate development projects. Operations were materially disrupted by COVID-19 closures and capacity restrictions.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $13.30 million | $18.60 million | $27.02 million | $46.62 million |
| Operating income | $3.33 million | $1.47 million | $1.15 million | $2.76 million |
| Net income | $1.85 million | $1.15 million | $0.92 million | $2.16 million |
| Diluted EPS | $0.39 | $0.25 | $0.20 | $0.47 |
| Adjusted EBITDA (non-GAAP) | $1.21 million | $2.27 million | $0.30 million | $4.66 million |
- Revenue fell 28.5% in Q3 and 42.1% for the nine-month period. Nine-month Card Casino revenue declined 38.7%; food and beverage fell 73.0%; other revenue fell 52.9%; and pari-mutuel revenue fell 16.6%.
- Q3 operating income included a $2.28 million gain on land transferred to development joint ventures. Excluding this gain, reported Q3 operating income would have been approximately $1.05 million. The company also recorded a $0.51 million Q3 loss from equity investments.
- Reported operating margin was approximately 25.0% in Q3 and 4.3% for the nine months, calculated using reported operating income and revenue; Q3 includes the land-transfer gain. The filing does not present a separate gross margin measure.
- Cash provided by operating activities was $0.68 million for the nine months, compared with $3.95 million in 2019. Investing activities used $0.06 million, versus $11.72 million in 2019; financing activities used $0.31 million.
- At September 30, cash and cash equivalents were $0.19 million and restricted cash was $4.06 million. The company had no long-term debt and no outstanding line-of-credit borrowings. Its $6.0 million revolving facility had $4.75 million available after a $1.25 million letter of credit; the facility maturity was extended to December 31, 2020.
- Total assets were $67.64 million and total liabilities were $16.70 million. The balance sheet included a $10.61 million TIF receivable and $8.33 million in equity investments.
Material changes and management commentary
- The company suspended card casino, simulcast, and special-event operations on March 16. Simulcast, live racing, and food and beverage reopened June 10; table games reopened June 15 and poker July 9, with capacity limits and reduced seating.
- Management attributed lower revenue and adjusted EBITDA primarily to the closures, restrictions, attendance declines, and reduced operations. Operating expenses fell 35.9% year over year for the nine months, including lower payroll and marketing costs.
- Management implemented furloughs, staffing reductions, salary cuts, lower discretionary spending, and postponed nonessential capital expenditures. The quarterly cash dividend was suspended beginning in 2020. Management expected these actions to partially mitigate the full-year impact, but provided no numerical earnings or revenue guidance.
- The company contributed land to Doran Canterbury II and Canterbury DBSV joint ventures and recognized the $2.28 million gain. It also had three land-sale agreements expected to close in 2021 for approximately $6.0 million in aggregate consideration, subject to customary conditions.
- The Shakopee Mdewakanton Sioux Community agreed to provide up to $5.62 million for 2020 purse enhancements; the 2021 and 2022 annual purse-enhancement commitments remain $7.38 million each. No 2020 marketing payment was required, with previously paid, unspent funds to be used. The agreement runs through 2022.
- The company’s TIF reimbursement depends on future tax revenues and is not guaranteed. Management said liquidity from cash, operating receipts, available credit, and anticipated land-sale proceeds should support operations and planned 2020 development spending; significant additional development could require new financing.
Risks, contingencies, and unusual items
- Management said COVID-19’s duration, operating restrictions, customer attendance, and willingness to spend remained uncertain, and expected the pandemic’s impact on 2020 results, cash flows, and financial condition to be material.
- The credit facility’s December 31, 2020 maturity creates a near-term refinancing or renewal point. The filing does not state whether it was subsequently renewed.
- The TIF receivable depends on future development-generated tax revenues. The City had authorized changes to infrastructure responsibilities, but the parties had not formally documented them in an amended agreement as of the filing.
- Management considered potential payments under the racetrack acquisition earn-out and possible repayment obligations under the cooperative marketing agreement remote. It said pending ordinary-course legal matters were not expected to materially affect results.
- The filing’s cash-flow statement reports $679,647 of cash provided by operations for the nine months, while the MD&A describes $680,000 as cash used. The statement and MD&A therefore conflict on the direction of operating cash flow.
Key facts for investors to verify
- Whether COVID-related restrictions, reopening capacity, and customer demand changed materially after September 30, 2020.
- Whether the revolving credit facility was renewed or replaced before its December 31, 2020 maturity.
- The collection outlook and timing for the $10.61 million TIF receivable, and the status of the revised redevelopment agreement.
- Whether the expected 2021 land sales closed, and how the development joint ventures performed after the land transfers.
- The cash-flow inconsistency between the financial statement and MD&A, and the future impact of the suspended dividend and expense reductions.