Business context and reporting period
Canterbury Park Holding Corporation operates a Minnesota racetrack and Card Casino, with additional food, beverage, entertainment and real-estate development activities. This unaudited Form 10-Q covers the three months ended March 31, 2021, compared with the same quarter in 2020. Operations remained affected by COVID-19 restrictions; the Card Casino, simulcast and food-and-beverage operations had been closed through January 10, 2021, then reopened with capacity limits.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net revenue | $9.23 million | $10.95 million; down 15.7% |
| Operating income | $1.27 million | $0.14 million |
| Net income | $0.55 million; $0.12 per diluted share | $0.26 million; $0.05 per diluted share |
| Operating margin | 13.8% | 1.3% |
| Net cash from operating activities | $1.84 million | $0.35 million |
| Capital expenditures | $0.13 million | $0.83 million |
| Cash, cash equivalents and restricted cash | $6.13 million at quarter-end | $4.47 million at December 31, 2020 |
| Debt and credit availability | No line borrowings; $8.75 million available | $10 million revolving facility; $1.25 million letter of credit outstanding |
Gross revenue declines reflected lower activity across the principal businesses: Card Casino revenue fell 9.2% to $6.86 million, pari-mutuel revenue fell 11% to $1.15 million, and food-and-beverage revenue fell 66.5% to $0.37 million. Other revenue was $0.83 million, including $0.515 million of COVID-19 relief grants. Operating expenses fell 26.4% to $7.95 million, primarily from reduced staffing and other cost controls. The company reported a $0.64 million loss from its equity investment, compared with none in Q1 2020.
Management reported non-GAAP EBITDA of $1.32 million and adjusted EBITDA of $1.42 million, versus $0.86 million for both measures in Q1 2020. Adjusted EBITDA excludes specified equity-investment costs and the $0.515 million relief grants. These non-GAAP measures are not substitutes for GAAP results.
Material changes and liquidity
Revenue decreased while operating income and net income improved, as expense reductions more than offset lower sales; the relief grants also supported reported other revenue. Operating cash flow increased year over year, although it included significant working-capital movements, including higher accrued wages and lower payables to horsepersons. Total assets were $69.31 million and stockholders’ equity was $52.06 million at March 31, 2021. The company reported no long-term debt and said it was in compliance with credit-facility financial covenants.
The company suspended its quarterly cash dividend beginning in 2020. It stated that cash, operating cash generation, the available credit line and anticipated land-sale proceeds should fund regular operations and planned 2021 development expenses. Significant additional real-estate development could require outside financing.
Outlook, risks and unusual items
No numerical earnings or revenue guidance was provided. Management expected COVID-19’s effects to remain material during 2021 but said the timing and extent of recovery, restrictions and customer return could not be reasonably estimated. Cost reductions, furloughs, staffing changes, reduced executive compensation, postponed non-essential capital spending and lower discretionary spending were intended to partially mitigate the impact.
Key exposures include continued pandemic-related capacity limits and customer reluctance, gaming and entertainment competition, racing attendance and weather, regulatory or legislative changes, and the CMA with the Shakopee Mdewakanton Sioux Community, scheduled to expire December 31, 2022. The company’s TIF reimbursement depends on future tax revenues and is not guaranteed; the receivable was approximately $12.04 million at quarter-end. Shakopee had authorized changes to the redevelopment responsibilities, including an anticipated $7.67 million reduction in the company’s eligible improvement costs, but the parties had not formally documented the changes. Two land sales closed in April 2021 for approximately $2.5 million in total, after the reporting date.
Management considered potential covenant-related payments under the CMA and an off-track-betting earn-out obligation remote. It stated that pending ordinary-course legal matters were not expected to have a material impact. The filing reported effective disclosure controls and no significant changes to internal control over financial reporting.
Important facts for investors to verify
- Whether COVID-19 restrictions and customer demand materially affect attendance, gaming revenue and operating cash flow after quarter-end.
- How much of the reported improvement in earnings and adjusted EBITDA is sustainable without relief grants and temporary cost reductions.
- Progress, funding needs and returns for Canterbury Commons projects, including joint ventures and the April 2021 land sales.
- Collection prospects for the $12.04 million TIF receivable and formal completion of the proposed redevelopment-agreement changes.
- Renewal or other developments relating to the CMA, which expires at the end of 2022, and continued availability of the credit facility.