Canterbury Park Holding Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared with fiscal 2022. This filing reports annual results; standalone fourth-quarter financial results are not clearly provided in the supplied text.
Business context
Canterbury Park operates a Minnesota racetrack and casino offering pari-mutuel wagering and unbanked card games, along with food, beverage, events and real estate development. Casino operations generated 64.8% of 2023 net revenue. The company is pursuing a five-year strategy focused on casino revenue growth and developing Canterbury Commons.
Financial results and liquidity
- Revenue: $61.44 million, down 8.1% from $66.82 million. Casino revenue was $39.78 million (down 1.1%); pari-mutuel revenue $8.25 million (down 24.7%); food and beverage $7.83 million (down 4.8%); and other revenue $5.57 million (down 24.9%).
- Profit: Operating income was $11.50 million versus $10.89 million; net income was $10.56 million versus $7.51 million. Diluted EPS was $2.13 versus $1.54. Reported results included a $6.49 million gain on land sale and $4.23 million of the company’s share of insurance-proceeds gain from an equity-method investee.
- Cash flow: Operating cash flow was $11.54 million versus $11.22 million. Investing activities used $0.46 million and financing activities used $1.35 million. Cash, cash equivalents and restricted cash increased $9.74 million to $25.84 million.
- Margins and adjusted performance: Operating expenses were 91.8% of net revenue, versus 83.7%. Adjusted EBITDA, a non-GAAP measure, was $10.45 million, down 35.6% from $16.21 million; its margin declined to 17.0% from 24.3%. The company excludes land-sale and other items from this measure.
- Balance sheet and liquidity: Total assets were $104.68 million and total liabilities $22.88 million. No borrowings were outstanding on the credit line at year-end. A January 2024 amendment extended the line to January 2027 and reduced capacity from $10 million to $5 million. Management expects available cash, short-term investments, operating cash flow and borrowing availability to cover needs beyond 12 months.
- Other notable balances: The TIF receivable was $13.97 million, including accrued interest; management recorded no allowance. Related-party receivables were $3.53 million. The company reported no material legal proceedings pending.
Material changes and unusual items
- Live racing days fell to 53 from 64. Pari-mutuel revenue declined, particularly guest fees associated with out-of-state wagering and smaller fields.
- The Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community expired at the end of 2022. In 2022, it provided a $1.62 million marketing payment and a $7.28 million purse enhancement paid directly to horsemen; neither payment continued in 2023. The purse enhancement did not flow through the company’s consolidated financial statements.
- Food and beverage revenue was affected by Twin Cities Summer Jam not occurring in 2023. Wage and benefit expense rose 4.7%, while professional and contracted services rose 25.3%, partly reflecting strategic growth initiatives.
- The $8.8 million sale of approximately 37 acres to a Swervo affiliate generated the $6.49 million land-sale gain. Swervo’s planned amphitheater is under construction and is expected to open in 2025.
- The 2023 equity-investment result included the company’s share of insurance proceeds recognized by Doran Canterbury I, a nonrecurring item cited by management.
Outlook, commitments and risks
- For the 2024 racing season, the company agreed to 54 live racing days and guaranteed overnight purses of $23,000 per race. The company expects higher purse cash outlays; reimbursement of any overpayment depends on future purse supplements and is not assured.
- The company expects to invest approximately $15 million in stable-area improvements over two years, with construction begun. It also expects development activity at Canterbury Commons, including the amphitheater and residential projects.
- The company has indemnification exposure of up to $7 million related to Doran Canterbury I debt financing. TIF reimbursement depends on future tax revenues generated by development, and collection estimates involve management judgment.
- Key risks include competition from tribal casinos, Running Aces and online wagering; weaker discretionary spending and inflation; labor costs and staffing; regulatory changes; weather and horse availability; and execution, financing and leasing risks in real estate development. Sports betting legalization in Minnesota could increase competition, but its enactment is uncertain.
- Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion and reported no critical audit matters; the company was not required to obtain an auditor attestation on internal controls.
Important facts for investors to verify
- How much of 2023 earnings growth reflects recurring operations versus land-sale and insurance-related gains, and how the company defines and reconciles Adjusted EBITDA.
- Whether 2024 purse spending improves field sizes and wagering enough to offset the added cost, and whether any overpayment is ultimately reimbursed.
- Progress and funding for the approximately $15 million stable-area plan, and the expected returns and obligations associated with Canterbury Commons and joint ventures.
- Collectability and timing of the $13.97 million TIF receivable, and the company’s potential exposure under the $7 million Doran indemnity.
- Updated credit-line availability and covenant compliance following the January 2024 amendment, along with the treatment of restricted cash in assessing liquidity.