Business context and reporting period
Canterbury Park Holding Corporation’s Form 10-K covers the fiscal year ended December 31, 2022, compared with 2021; it is an annual report, not a standalone fourth-quarter filing. The company operates a Minnesota racetrack and unbanked card casino, food and beverage and event businesses, and real estate development activities at Canterbury Commons. Casino operations generated 60.2% of 2022 revenue.
Financial performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net revenue | $66.824 million | $60.400 million | Up 10.6% |
| Operating expenses | $55.943 million | $42.882 million | Up 30.5% |
| Operating income | $10.893 million | $17.781 million | Down 38.7% |
| Income before taxes | $10.235 million | $15.798 million | Down 35.2% |
| Net income | $7.513 million | $11.798 million | Down 36.3% |
| Diluted EPS | $1.54 | $2.44 | Down 36.9% |
| Operating cash flow | $11.217 million | $13.498 million | Down 16.9% |
Revenue by category: Casino $40.219 million, up 5.6%; pari-mutuel $10.958 million, up 7.0%; food and beverage $8.227 million, up 33.0%; and other revenue $7.420 million, up 26.2%. Operating margin was approximately 16.3%, versus 29.4% in 2021; net margin was approximately 11.2%, versus 19.5%.
- Adjusted EBITDA, a non-GAAP measure, was $15.141 million, up 12.4% from $13.471 million. The company reported Adjusted EBITDA equal to 22.8% of revenue in 2022 and 22.5% in 2021 after excluding the 2021 COVID-19 relief grants.
- The 2021 results included a $6.314 million employee retention credit (ERC) benefit that reduced expenses. Excluding that credit, operating expenses rose 13.7% in 2022, reflecting normalized operations, higher staffing and wages, and inflationary costs. This prior-year item is a major reason reported net income fell despite revenue growth.
- Cash, cash equivalents and restricted cash totaled $16.106 million at year-end, including $12.989 million of cash and cash equivalents and $3.117 million of restricted cash. Short-term investments were $5.000 million. Current assets were $30.700 million and current liabilities $10.431 million.
- The company had no borrowings on its $10 million revolving credit facility at year-end; the facility matures January 31, 2024 and is secured by company assets and a mortgage on certain real property. Total liabilities were $21.091 million. Management said liquidity, including available credit, should meet requirements beyond the next 12 months.
- Investing cash outflow was $9.275 million, principally for capital additions, short-term investments, related-party receivables and equity investment contributions. Financing cash outflow was $1.435 million, primarily reflecting dividends. Cash, cash equivalents and restricted cash increased $0.507 million during the year.
Material changes versus 2021
- All three operating businesses benefited from increased visitation and more normalized activity. Food and beverage and other revenue also reflected concerts and large events; prices were raised to help offset inflation.
- The 2022 live racing meet had 64 days, compared with 65 in 2021. Racing days totaled 354 in both years, including simulcast-only days.
- The Cooperative Marketing Agreement (CMA) with the Shakopee Mdewakanton Sioux Community expired on December 31, 2022. The company will no longer receive CMA marketing payments, and purse enhancement payments to horsemen also ended. The filing reports 2022 purse enhancement amounts inconsistently as $7.280 million in some sections and $7.380 million in others; marketing payments are generally stated as $1.620 million, while the accounting note reports $1.920 million of CMA-related revenue.
- The company reinstated quarterly cash dividends in January 2022; it paid $1.360 million in dividends during the year.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-flow guidance is provided. Management expects to receive the remaining $6.103 million ERC receivable in 2023 and plans to use the proceeds for team-member investment, growth, capital expenditures and deferred maintenance.
- The company plans approximately $15 million of stable-area improvements over about two years, subject to city grading and utility permits. It expects to use nearly all proceeds from the planned Swervo land sale for the amphitheater development toward this project; the land sale was expected to close in the first half of 2023.
- Management warns that CMA expiration may reduce live-racing purses, field sizes, wagering and profitability, while also ending marketing support. Competition from tribal casinos, Running Aces, online wagering and potential tribal sports betting, as well as labor shortages, wage increases, inflation, weather, regulation and public-health disruptions, are identified risks.
- The $13.294 million TIF receivable depends on future tax revenues from development. Management judged it fully collectible and recorded no allowance, but reimbursement is not guaranteed. Canterbury also has an indemnification obligation tied to Doran Canterbury I financing, capped at $5.7 million.
- Equity-method investment losses were $1.568 million, down from $2.703 million in 2021. The company recorded a $0.157 million net loss on asset disposals and only $0.012 million gain on land sales in 2022. The financial statements received an unmodified audit opinion; the auditor reported no critical audit matters.
Important facts for investors to verify
- Reconcile the filing’s inconsistent CMA purse-enhancement and marketing-payment amounts, and assess the post-CMA impact on live racing and marketing costs.
- Track receipt and use of the $6.103 million ERC receivable, which management expected in 2023.
- Verify permits, funding and timing for the approximately $15 million stable-area project and the Swervo land sale.
- Monitor collectability of the TIF receivable, development progress and the Doran-related indemnification exposure.
- Assess whether revenue recovery can offset higher operating costs, inflation, labor constraints and the absence of 2021’s ERC benefit.