Canterbury Park Holding Corporation — Q3 2021 Form 10-Q
Business and reporting period. The company operates a Minnesota horse-racing facility and Card Casino, with food, beverage, events and real-estate development activities. This unaudited filing covers the quarter and nine months ended September 30, 2021; comparisons are with the same 2020 periods.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $21.35 million | $13.30 million | $46.44 million | $27.02 million |
| Income from operations | $4.39 million | $3.33 million | $8.75 million | $1.15 million |
| Net income | $2.76 million | $1.85 million | $5.18 million | $0.92 million |
| Diluted earnings per share | $0.58 | $0.39 | $1.09 | $0.20 |
| Net cash from operating activities | Not presented for quarter | Not presented for quarter | $10.45 million | $0.68 million |
- Q3 revenue rose 60.5%; nine-month revenue rose 71.9%. Card Casino revenue increased 45.3% and 75.0%, respectively, while food and beverage revenue increased 303.3% and 144.7%.
- Q3 operating margin was approximately 20.5%, compared with 25.0% in 2020; the prior-year quarter included a $2.28 million gain on transfer of land. Nine-month operating margin was approximately 18.8%, versus 4.3% in 2020. Net margins were approximately 12.9% and 13.9% for Q3, and 11.1% and 3.4% for the nine-month periods, respectively.
- Management reported adjusted EBITDA, a non-GAAP measure, of $5.18 million for Q3 and $10.11 million for the nine months, versus $1.21 million and $0.30 million in 2020. The nine-month 2021 figure excludes $515,000 of COVID-19 relief grants, among other adjustments; the company cautions that EBITDA measures are not substitutes for GAAP results.
- At September 30, cash and cash equivalents were $9.23 million and restricted cash was $4.49 million. Total assets were $76.80 million; current liabilities were $11.56 million. The $10 million revolving facility had no borrowings outstanding; $8.75 million was available after a $1.25 million letter of credit. The company reported covenant compliance.
- Operating cash flow was $10.45 million for the nine months, compared with $0.68 million in 2020. Investing activities used $1.25 million, including capital additions, partly offset by land-sale proceeds; financing activities provided $56,000. Property, plant and equipment additions were $2.58 million.
- Total liabilities were $19.45 million, including $52,591 of finance lease obligations and no balance on the revolving credit line. The filing does not report material conventional funded debt outstanding.
Material changes and management commentary
- Management attributed the recovery to lifted capacity restrictions, increased visitation, live racing and events, marketing initiatives, and efforts to attract higher-value Card Casino players. Operations returned to pre-pandemic capacity on May 28, 2021.
- Revenue and expenses both increased as operations normalized. Salaries and benefits rose 24.3% for the nine months, and advertising and marketing expense rose 361.2%, reflecting resumed operations and cooperative marketing activity.
- In 2020, operations were temporarily suspended from March 16 to June 10, and again from November 21, 2020 through January 10, 2021. The 2020 live racing season also operated with capacity limits, making year-over-year comparisons unusually affected by shutdowns and restrictions.
- The company recorded $515,000 of COVID-19 relief grants as other revenue in Q1 2021. It recorded a $264,000 gain on 2021 land sales for the nine months, compared with a $2.28 million land-transfer gain in 2020.
- The company’s equity-method investments generated a $1.96 million loss for the nine months, primarily related to Doran Canterbury I; the balance sheet included $522,000 of investee losses in excess of the investment. The company also had a $12.36 million TIF receivable, whose reimbursement depends on future tax revenues from development.
Outlook, risks and contingencies
- No specific revenue, earnings or capital-spending guidance is provided. Management said available cash, credit availability, operating cash flow and anticipated land-sale proceeds should cover regular operations and planned development costs for the next 12 months. Significant additional development or strategic transactions could require financing.
- Management cited potential adverse effects from COVID-19 variants, supply-chain disruption and labor shortages. Other disclosed risks include competition, economic conditions, regulation and gaming-law changes, racing attendance and weather, minimum-wage increases, cybersecurity, and execution of real-estate development plans.
- The Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community expires December 31, 2022. The agreement provides annual purse enhancements of $7.38 million and marketing payments of $1.62 million for 2022; continuation after 2022 is uncertain. It also restricts the company’s advocacy regarding expanded gambling authority.
- The company is obligated to construct TIF-eligible infrastructure, but reimbursement is not guaranteed and depends on future tax increments. Shakopee authorized changes that could reduce the company’s estimated improvement costs by $5.744 million, but a formal agreement documenting the changes had not been executed by the filing date.
- Management considers the likelihood of payments under the conditional off-track betting earn-out and repayment obligations under CMA covenants remote. It said pending legal matters were not expected to materially affect financial position or results. No changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the strong post-reopening revenue and margin performance persists, particularly in Card Casino and event operations, and how labor and supply costs evolve.
- The timing, documentation and expected recoverability of the TIF receivable, including final responsibility for infrastructure costs.
- Performance and future funding requirements of the Doran and Greystone development joint ventures, given equity-method losses and related-party receivables.
- Whether the SMSC cooperative marketing and purse-enhancement arrangements are renewed or replaced after 2022.
- The distinction between unrestricted cash and restricted cash, and the assumptions behind management’s 12-month liquidity assessment.
- Adjusted EBITDA adjustments and reconciliation to GAAP net income when comparing periods or companies.