Canterbury Park Holding Corporation — Q2 2021 Form 10-Q
Business context and period. Unaudited results cover the three and six months ended June 30, 2021. Canterbury Park operates a Minnesota racetrack, simulcast wagering and card casino, food and beverage operations, and real estate development. Live racing is seasonal. The comparison with 2020 is heavily affected by COVID-19 closures and capacity restrictions.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $15.87 million | $2.77 million | $25.10 million | $13.72 million |
| Operating income (loss) | $3.09 million | ($2.32 million) | $4.36 million | ($2.18 million) |
| Net income (loss) | $1.87 million | ($1.18 million) | $2.42 million | ($0.93 million) |
| Diluted EPS | $0.39 | ($0.25) | $0.51 | ($0.20) |
| Adjusted EBITDA, non-GAAP | $3.51 million | ($1.77 million) | $4.94 million | ($0.92 million) |
- Q2 revenue rose 473%; first-half revenue rose 83%. Management attributed the increases primarily to reopened operations, higher visitation, removal of capacity limits effective May 28, 2021, and more live-racing days.
- First-half revenue by principal category: Card Casino $16.75 million, pari-mutuel $4.70 million, food and beverage $1.64 million, and other $2.00 million. Q2 Card Casino revenue was $9.89 million.
- Q2 operating margin was approximately 19.5% and net margin approximately 11.8%; first-half operating and net margins were approximately 17.4% and 9.6%, respectively.
- First-half cash from operating activities was $11.64 million, compared with cash used of $0.38 million in 2020. Investing activities provided $0.36 million, including land-sale proceeds; capital expenditures were $1.34 million. Cash, cash equivalents and restricted cash increased to $16.53 million from $4.47 million at year-end.
- At June 30, cash and cash equivalents were $6.90 million and restricted cash was $9.63 million. Current assets were $22.64 million versus current liabilities of $18.20 million. Restricted cash includes funds designated for horsepersons and card-game player pools.
- The company reported no long-term debt and no balance drawn on its $10 million revolving credit line. After a $1.25 million letter of credit, $8.75 million remained available; the company reported compliance with credit covenants.
- Total assets were $79.88 million and stockholders’ equity was $54.28 million. The company recorded a $1.28 million first-half loss from equity investments.
Material changes and management commentary
- Operations had reopened by January 10, 2021 after a temporary closure from November 21, 2020. Capacity and gathering restrictions were lifted May 28, 2021. The company said visitation was recovering faster than anticipated, while some revenue departments remained below pre-pandemic levels.
- Q2 and first-half results benefited from substantially greater Card Casino activity and a 25-day live-racing schedule in the first half of 2021, versus 10 days in 2020. Expenses also increased as staffing and operating activity resumed.
- The company recorded $515,000 in COVID-19 relief grants as first-quarter 2021 other revenue. Management excluded these grants, land-sale gains, and certain equity-investment-related items in its Adjusted EBITDA calculation.
- Land sales generated approximately $2.29 million of first-half proceeds and a $264,000 gain. A further closing under one sale agreement was expected in 2022, subject to conditions.
Outlook, risks and contingencies
- No quantified revenue or earnings guidance was provided. Management expects the recovery to continue but said pandemic effects in 2021 would be material and could not be reasonably estimated. A resurgence of restrictions, including due to COVID-19 variants, could harm results.
- Management said cash, operating cash generation, the available credit line, and expected land-sale proceeds should support regular operations and planned 2021 development spending. Significant additional development or strategic transactions could require additional financing.
- The company had a $12.20 million tax increment financing receivable. Reimbursement depends on future tax revenue from developed property and is not guaranteed. The city authorized changes that could reduce the company’s estimated TIF-eligible improvement costs by $7.67 million, but the parties had not yet formalized those changes.
- The Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community expires December 31, 2022. It provides annual purse enhancement funding of $7.38 million for 2021 and 2022 and marketing payments; continuation after 2022 is uncertain. The agreement also restricts the company’s advocacy regarding expanded gambling authority.
- Other identified risks include competition, declining horse-racing popularity, regulation and potential gaming-tax changes, weather and horse availability, development-partner execution, TIF reimbursement uncertainty, labor costs, cybersecurity and privacy risks, and consumer spending conditions.
- The quarterly cash dividend remained suspended. The filing reports that the board reinstated the CFO’s base salary effective July 1, 2021 and promoted him on August 5, 2021.
Important facts for investors to verify
- Whether the visitation and revenue recovery continued after capacity restrictions were lifted, and how results compare with pre-pandemic levels.
- How much of reported liquidity is unrestricted and available for operations, given the $9.63 million of restricted cash.
- Progress on formalizing the Shakopee redevelopment-agreement changes, TIF reimbursement timing, and the collectability of the TIF receivable.
- Whether the CMA is renewed or replaced before its 2022 expiration, and the effect on racing purses and marketing support.
- The sustainability of earnings and Adjusted EBITDA after the one-time relief grants and land-sale gain, and the performance of the real estate joint ventures.