Canterbury Park Holding Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Canterbury Park operates horse racing and simulcast wagering, an unbanked Card Casino, food and beverage services, and real estate development in Shakopee, Minnesota. The live racing season typically runs May through September.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $22.29 million | $21.35 million | $53.70 million | $46.44 million |
| Operating income | $4.41 million | $4.39 million | $9.54 million | $8.75 million |
| Net income | $2.92 million | $2.76 million | $6.45 million | $5.18 million |
| Diluted earnings per share | $0.60 | $0.58 | $1.32 | $1.09 |
| Operating margin | 19.8% | 20.5% | 17.8% | 18.8% |
- Q3 revenue increased 4.4% year over year; nine-month revenue rose 15.6%. Nine-month growth reflected higher pari-mutuel, food and beverage, and other revenue, plus Card Casino recovery from prior-year operating restrictions.
- Q3 Card Casino revenue declined 3.9%, primarily due to a lower table-games collection rate; nine-month Card Casino revenue grew 11.7%. Food and beverage revenue increased 12.6% for Q3 and 39.7% year to date.
- Operating expenses grew 5.4% in Q3 and 16.4% year to date. Higher staffing and wage rates, food costs and marketing spend contributed to the year-to-date increase.
- Nine-month operating cash flow was $9.87 million versus $9.99 million in 2021. Investing used $2.08 million, including capital additions, partly offset by land-sale proceeds. Financing used $1.18 million, primarily for dividends and taxes related to equity awards.
- At September 30, cash and cash equivalents were $18.65 million, with restricted cash of $3.56 million. Total current assets were $33.53 million and current liabilities were $12.30 million. The company reported no balance on its $10 million revolving credit line; it was in covenant compliance.
- Total liabilities were $22.65 million. Finance lease obligations were $25,865, all current; no material funded debt balance was reported. The company declared dividends of $0.07 per share for Q3 and $0.28 per share for the first nine months.
Material changes, outlook and risks
- Management said operations had returned to pre-pandemic capacity. It cited visitation, live-racing attendance and higher-value player marketing as growth drivers, while noting labor shortages and supply-chain pressures could continue. New COVID-19 variants may also adversely affect results.
- No specific earnings or revenue guidance was provided. Management expects available cash, operating cash generation, the credit facility and potential land-sale proceeds to cover ordinary needs and planned development expenses for the next 12 months. Significant additional development or facility investment could require further financing.
- The Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community was scheduled to end December 31, 2022. It provided 2022 annual purse-enhancement payments of $7.38 million and marketing payments of $1.62 million. If not extended or renegotiated on substantially similar terms, payments would cease and live-racing results could be materially adversely affected. The agreement also restricts the company’s advocacy concerning expanded gambling.
- The company reported a $13.04 million TIF receivable, including principal and accrued interest. Reimbursement depends on future tax revenues from development and is not guaranteed; management believed it collectible and recorded no allowance. The company’s TIF-eligible improvement cost obligation was capped at $17.59 million under an amended agreement.
- The company has an indemnity obligation of up to $5 million related to a Doran joint-venture refinancing, payable only if the lender demands payment under Doran’s guarantee. Management considered the possibility remote. The company also recorded $2.67 million of investee losses in excess of its equity investment as a liability.
- The $6.10 million employee retention credit receivable remained outstanding at quarter-end. It was recorded as a credit to salary and benefits expense in Q4 2021.
- Adjusted EBITDA, a non-GAAP measure, was $5.34 million for Q3 and $12.45 million for the first nine months, up 3.2% and 23.2%, respectively. Management attributed the increase to recovery, attendance and operating efficiencies.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the Cooperative Marketing Agreement was extended or replaced after its December 31, 2022 scheduled expiration, and the financial terms of any new arrangement.
- Collection and impairment assumptions for the $13.04 million TIF receivable, and the timing and funding of remaining infrastructure work.
- Cash-flow figures: the financial statements report nine-month operating cash flow of $9.87 million and investing cash use of $2.08 million, while MD&A cites $9.61 million and $1.82 million, respectively. The filing text does not explain these differences.
- Progress and funding needs for real estate joint ventures, including the Doran projects and related-party loans, as well as potential exposure under the Doran indemnity.
- Whether labor, inflation, supply-chain constraints and promotional spending affect costs and margins after the pandemic-related recovery period.