Canterbury Park Holding Corp. — Q1 2020 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2020, with comparisons to Q1 2019. Canterbury Park operates a Minnesota racetrack and simulcast wagering business, an unbanked card casino, food and beverage operations, and real estate development activities.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / prior balance |
|---|---|---|
| Net revenue | $10.949 million | $11.591 million |
| Operating income (loss) | $142,000 | $(23,000) |
| Net income | $255,000 | $57,000 |
| Diluted earnings per share | $0.05 | $0.01 |
| Operating cash flow | $351,000 | $1.461 million |
| Capital expenditures and TIF improvements | $974,000 | $4.801 million |
| Cash, cash equivalents and restricted cash at period end | $3.081 million | $3.927 million at Dec. 31, 2019 |
| Total assets / total liabilities | $65.098 million / $15.204 million | $65.413 million / $15.997 million at Dec. 31, 2019 |
- Revenue declined 5.5%. Pari-mutuel revenue fell 13.1%, card casino revenue 4.3%, and food and beverage revenue 17.3%; other revenue increased 14.8%.
- Operating expenses fell 6.9% to $10.807 million. Management reported adjusted EBITDA of $859,000, up 19.9% from $716,000; adjusted EBITDA margin rose to 7.8% from 6.2%. These are non-GAAP measures.
- Operating margin was approximately 1.3% versus negative 0.2%; net margin was approximately 2.3% versus 0.5%.
- Cash and cash equivalents were zero at March 31; the $3.081 million reported cash balance was restricted. The filing says $945,000 of checks written in excess of the cash balance was included in accounts payable.
- The company reported no line-of-credit borrowings at March 31 and no long-term debt. It had an $8 million revolving credit facility, maturing September 30, 2020, with up to $2 million in letters of credit. Finance and operating lease obligations totaled approximately $163,000, including current portions.
Material changes, outlook and risks
- On March 16, the company temporarily suspended card casino, simulcast and special-event operations in response to COVID-19. Management said the first two months began strongly, but the shutdown materially affected Q1 results. It could not estimate the pandemic’s full-year 2020 impact or when operations, including live racing, could resume.
- Management reported workforce furloughs and salary reductions, suspended the quarterly cash dividend, postponed nonessential capital spending, and reduced operating costs and discretionary spending. It said these steps would only partially mitigate the impact.
- Management believed available operating funds, the credit line and anticipated land-sale proceeds would support 2020 operating and planned development needs. The filing notes the company did not qualify for CARES Act small-business lending programs. Additional significant development could require more financing.
- Three land sales were expected to close in 2020, subject to customary conditions: approximately 12 acres for $2.5 million under a March agreement, 11.3 acres for $2.4 million under an April 7 agreement, and 2.4 acres for $1.1 million under an April 15 agreement.
- The company recorded a $9.857 million TIF receivable, but reimbursement depends on future tax revenues and is not guaranteed. It also had a $2.993 million equity-method investment and $3.534 million in related-party receivables associated with Doran development projects.
- The Shakopee Mdewakanton Sioux Community had not made a payment for the 2020 live race meet as of the filing. The company stated that such purse-enhancement payments go directly to horsemen and do not directly affect its financial statements. The CMA is scheduled to expire December 31, 2022 and restricts the company from promoting or lobbying for expanded gambling authority.
- Management said the pandemic’s duration, customer demand, attendance and reopening timing were uncertain. Other disclosed risks include development costs and returns, TIF collections, competition, labor costs, regulation and the CMA. Management reported no material pending legal proceedings and no changes to the risk factors in the 2019 Form 10-K.
Important facts for investors to verify
- Whether and when the racetrack, casino and event operations resumed, and the resulting effects on revenue, staffing and cash flow.
- Unrestricted cash availability and credit-facility terms, including the September 2020 maturity and any subsequent amendments or borrowings.
- Closing status and net proceeds of the three announced land sales, and progress and reimbursement timing for TIF-eligible work.
- Collectability and repayment timing of the Doran-related receivables and performance of the joint-venture projects.
- Any subsequent CMA payments, changes to the suspended dividend, or material updates to management’s liquidity and outlook assessments.