Canterbury Park Holding Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results and subsequent developments through March 26, 2020. The company operates a Minnesota racetrack and card casino, with related food and beverage, events, and real estate development businesses.
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net revenue | $59.23 million | $59.14 million | +0.1% |
| Operating expenses | $55.59 million | $51.49 million | +8.0% |
| Operating income | $3.64 million | $7.65 million | -52.5% |
| Net income | $2.72 million | $5.72 million | -52.5% |
| Diluted EPS | $0.59 | $1.26 | Down $0.67 |
| Operating cash flow | $6.74 million | $6.33 million | +6.4% |
| Adjusted EBITDA (non-GAAP) | $6.37 million | $7.94 million | -19.8% |
- Operating margin was approximately 6.1%, versus 12.9% in 2018; net margin was approximately 4.6%, versus 9.7%.
- Revenue mix in 2019: Card Casino $34.41 million (58.1%); pari-mutuel $9.83 million (16.6%); food and beverage $8.89 million (15.0%); other $6.09 million (10.3%).
- Card Casino revenue rose 1.4%, food and beverage rose 10.9%, pari-mutuel revenue fell 7.6%, and other revenue fell 7.2%. Lower racing revenue reflected fewer live racing days, a Santa Anita shutdown, and a temporary loss of a high-volume wagering customer amid a content-provider dispute. Food and beverage benefited from a music festival and the remodeled casino and new café.
- Higher salaries and benefits, including minimum-wage increases and casino reopening costs, contributed to expense growth. 2018 results included a $2.24 million gain on transfer of land; 2019 had no comparable gain. 2019 also included a $262,000 disposal loss and a $199,000 insurance recovery gain.
- Fourth-quarter 2019 revenue was $12.60 million and net income was $553,000, compared with $12.04 million and $2.37 million in Q4 2018. The prior-year quarter included a land-related gain.
Cash, debt, and liquidity
- Cash, cash equivalents, and restricted cash totaled $3.93 million at year-end, down from $11.20 million. Cash provided by operations was $6.74 million; investing activities used $13.04 million, including $15.17 million of additions to property and equipment; financing activities used $978,000, primarily dividends.
- Cash and cash equivalents alone were $355,000; restricted cash was $2.31 million current and $1.26 million long-term. Restricted balances support obligations such as player pools, jackpots, and horsemen’s funds.
- No line-of-credit borrowings were outstanding at year-end. The revolving facility provides up to $8 million, with a maturity extended to September 30, 2020; the company drew and repaid $5.93 million during 2019 and was covenant-compliant. The filing does not establish the status of any extension after that maturity.
- Current assets were $3.96 million against current liabilities of $11.48 million; current assets include restricted cash. The company also reported $9.71 million of TIF receivable, whose reimbursement depends on future tax revenues, and $3.53 million in related-party receivables.
- Finance and operating lease obligations were modest; the filing reports no other significant long-term borrowings. Total assets were $65.41 million and stockholders’ equity was $49.42 million.
Outlook, risks, and unusual developments
- COVID-19: On March 16, 2020, the company temporarily suspended card casino, simulcast, and special-event operations. It could not predict when these operations would resume or whether live racing would start on the projected May 15, 2020 date. These closures followed the reporting period and materially affected the company’s principal sources of revenue and cash flow. Management said available unrestricted cash, the credit line, and operating funds were expected to support regular operations for the foreseeable future, subject to the uncertainty of the shutdown.
- The board suspended the normally scheduled $0.07-per-share April 2020 dividend. The company paid $0.28 per share in dividends during 2019; future dividends remain at board discretion.
- No quantified earnings or revenue guidance was provided. Management anticipated fewer live racing days and a slight reduction in attendance and wagering during 2020, while expecting CMA support to help racing performance relative to the industry.
- The cooperative marketing agreement (CMA) with the Shakopee Mdewakanton Sioux Community provides annual 2020–2022 payments of $7.38 million for horsemen’s purses and $1.62 million for Canterbury Park marketing. The agreement expires December 31, 2022, and future renewal and payment levels are uncertain. The counterparty may also terminate early in specified circumstances.
- Real estate development includes an apartment joint venture and infrastructure work under a tax increment financing agreement. Estimated eligible improvements total $23.34 million, but reimbursement is not guaranteed and depends on future tax increments. Development, financing, construction, rental demand, and related-party receivables carry execution and collection risks.
- Other material risks include competition from tribal casinos and online wagering, regulatory and tax changes, minimum-wage and labor costs, weather and equine-health disruptions, and the declining popularity of horse racing. The company reported no material pending legal proceedings and no material impairment of long-lived assets in 2019.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor did not express an opinion on internal control.
Investor verification priorities
- Track the duration and financial impact of the COVID-related shutdown, reopening conditions, live-racing schedule, and the company’s cash needs.
- Confirm renewal or replacement of the revolving credit facility, including maturity, availability, and covenant terms.
- Assess how much reported cash is unrestricted and available, and reconcile liquidity against current liabilities and ongoing capital commitments.
- Monitor TIF reimbursements, construction spending, apartment-project progress, and collectability of related-party receivables.
- Review CMA continuation beyond 2022 and any changes to purse or marketing payments.
- Separate recurring operating performance from the prior-year land-transfer gain and evaluate the causes and persistence of declining pari-mutuel revenue and profitability.