Canterbury Park Holding Corporation — Q2 2020 Form 10-Q
Business context and reporting period. The filing covers the three and six months ended June 30, 2020. Canterbury Park operates a Minnesota racetrack and simulcast wagering business, an unbanked Card Casino, food and beverage services, and real estate development activities. Live racing is seasonal.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net revenue | $2.77 million | $16.43 million | $13.72 million | $28.02 million |
| Operating income (loss) | $(2.32) million | $1.30 million | $(2.18) million | $1.28 million |
| Net income (loss) | $(1.18) million | $0.96 million | $(0.93) million | $1.01 million |
| Adjusted EBITDA, non-GAAP | $(1.77) million | $1.68 million | $(0.92) million | $2.39 million |
| Cash from operating activities | Not provided quarterly | $(0.38) million | $9.33 million |
Q2 revenue fell 83.2%; six-month revenue fell 51.1%. Q2 diluted loss per share was $0.25, versus earnings of $0.21 a year earlier; the six-month diluted loss was $0.20 per share, versus earnings of $0.22.
At June 30, total assets were $69.36 million, liabilities $20.59 million, and stockholders’ equity $48.77 million. The company reported no long-term debt, but had $2.87 million outstanding on its revolving credit line. The $8.0 million facility had $6.75 million available after accounting for a $1.25 million letter of credit; its stated maturity was September 30, 2020. Cash and cash equivalents were zero on the balance sheet, while restricted cash was $4.35 million. The cash-flow statement reports $4.35 million of cash, cash equivalents, and restricted cash combined. Current assets were $11.38 million and current liabilities $15.17 million.
Material changes and management commentary
- COVID-19 closures drove the deterioration: casino, simulcast, and special-event operations were suspended March 16. Simulcast, live racing, and food and beverage resumed June 10; table games resumed June 15, while poker resumed July 9. Reopening operated under capacity and social-distancing restrictions.
- For Q2, Card Casino revenue declined 91.1%, pari-mutuel revenue 55.7%, and food and beverage revenue 95.6% year over year. For the first half, the corresponding declines were 50.2%, 42.2%, and 68.4%.
- Operating expenses fell 66.4% in Q2 and 40.6% in the first half, reflecting suspended operations, furloughs, reduced compensation and spending, and lower activity-related costs. These reductions did not offset the revenue decline.
- Six-month operating cash flow was negative, compared with $9.33 million generated in the prior-year period. Investing used $1.76 million, mainly for property and equipment and TIF-eligible improvements; financing provided $2.57 million, including net line-of-credit borrowings.
- The company suspended its quarterly cash dividend, furloughed most employees during the shutdown, reduced salaries, postponed nonessential capital spending, and cut discretionary and operating costs. Management said these measures should partially mitigate the 2020 impact.
Outlook, risks, contingencies, and unusual items
Management said the pandemic’s duration, customer response, and effects of travel and capacity restrictions were uncertain; it expected a material impact on 2020 results but could not reasonably estimate the full extent. No quantified earnings or revenue guidance was provided. Management believed available funds, remaining credit availability, operating cash generation, and planned land proceeds would support 2020 operating and development needs, while noting significant additional real estate development could require further financing. The company said it did not qualify for CARES Act lending programs.
After quarter-end, the company received $2.94 million related to its Doran receivable and used part of the proceeds to pay down the credit line. It also expected approximately $2.5 million from a land sale in 2020 and agreements for additional sales of approximately $2.4 million and $1.1 million in 2021, subject to closing conditions.
The TIF receivable was $10.37 million, including principal and interest; reimbursement depends on future tax revenues and is not guaranteed. A further $666,000 of TIF-eligible costs was transferred from property and equipment during the first half. The filing states that no impairment of property and equipment existed at June 30. Management considered the likelihood of specified payments under the cooperative marketing agreement (CMA) covenant provisions and the off-track-betting earn-out remote, and said pending ordinary-course legal matters were not expected to have a material impact.
The CMA was amended for the reduced 2020 race meet: SMSC agreed to provide up to $5.62 million for 2020 purse enhancement, and no 2020 annual marketing payment was required. Marketing activity would use previously paid but unspent funds. The filing gives different 2021–2022 annual purse-enhancement figures in its narrative and table ($7.28 million and $7.38 million, respectively); investors should verify the applicable amounts.
Other unusual items include a $1.12 million Q2 income tax benefit and a $1.07 million first-half tax benefit. The filing reported no material changes to risk factors, no applicable legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Status and terms of the revolving credit facility at and after its September 30, 2020 stated maturity, including the impact of the post-quarter Doran repayment.
- Operating capacity, customer demand, and financial performance after the staged reopening, particularly poker operations and any renewed restrictions.
- Timing and completion conditions for planned land sales and recovery of related-party receivables.
- Collection timing and ultimate recoverability of the TIF receivable, which depends on future development and tax revenues.
- The correct 2021–2022 CMA purse-enhancement amount, given the inconsistency between the filing’s narrative and table.
- Whether the cash-cost reductions and suspended dividend are sufficient if pandemic-related disruption persists; management’s outlook is materially uncertain and not quantified.