Business context and reporting period
Canterbury Park Holding Corporation’s Form 10-K covers the fiscal year ended December 31, 2021, with 2020 as the comparable period; it is an annual report, not a standalone fourth-quarter report. The company operates a Minnesota racetrack and unbanked-card casino, food and beverage and events businesses, and real estate development activities at Canterbury Commons. Card Casino operations generated 63.1% of 2021 revenue.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Net revenue | $60.4 million | $33.1 million |
| Operating income | $17.8 million | $0.6 million |
| Income (loss) before tax | $15.8 million | $(0.2) million |
| Net income | $11.8 million | $1.1 million |
| Diluted EPS | $2.44 | $0.23 |
| Cash provided by operating activities | $13.5 million | $1.1 million |
- Revenue rose 82.3%. By category, Card Casino revenue was $38.1 million (+91.6%), pari-mutuel revenue $10.2 million (+28.4%), food and beverage $6.2 million (+160.7%), and other revenue $5.9 million (+102.6%).
- Operating margin was approximately 29.4%, versus 1.9% in 2020; net margin was approximately 19.5%, versus 3.2%.
- Adjusted EBITDA, a company-defined non-GAAP measure, was $13.5 million versus $0.8 million. The filing reports a 22.5% Adjusted EBITDA margin after excluding $515,000 of COVID-19 relief grant revenue. Its adjustments also remove the employee retention credit, land gains, and specified equity-investment-related costs; it is not a GAAP measure.
- 2021 operating expenses included a $6.314 million employee retention credit recorded as a reduction of salaries and benefits. Excluding that credit, salaries and benefits rose 34.5% from 2020 as staffing and operations normalized.
- Cash, cash equivalents and restricted cash totaled $15.6 million at year-end, up from $4.5 million. Current assets were $24.4 million and current liabilities $9.8 million. Cash from operations less $3.8 million of additions to land, buildings and equipment was approximately $9.7 million, before other investing activity.
- No revolving-credit borrowings were outstanding at year-end. The company had a $10 million secured revolving line due January 31, 2024 and reported compliance with its financial covenants. Total liabilities were $18.7 million; this included $7.7 million of deferred income taxes, not funded debt.
- The company reported a $2.7 million loss from equity investments, primarily related to its Doran apartment joint venture. Its $12.5 million TIF receivable is dependent on future tax-increment revenues; management recorded no allowance.
Material changes versus 2020
- Revenue and earnings rebounded as the venue reopened and capacity restrictions ended May 28, 2021. The company operated 65 live-racing days, versus 53 in 2020, and reported 354 total live and simulcast racing days, versus 240.
- Card Casino and food-and-beverage results benefited from higher visitation and resumed events. Management also cited successful efforts to attract higher-value table-game players. Operating expenses increased 22.9%, less than revenue growth.
- Comparability is affected by the $6.314 million employee retention credit in 2021 and a $2.368 million gain on land transfers in 2020. A $264,000 land-sale gain was recorded in 2021.
- Cash from operations increased to $13.5 million from $1.1 million. Investing activities used $2.5 million in 2021, including capital additions, a joint-venture contribution and related-party receivable increases.
Outlook, commentary, risks and unusual items
- No specific 2022 revenue or earnings guidance is provided. Management said it believed cash, operating cash flow and available credit would meet liquidity and working-capital requirements for more than 12 months.
- Management expected to receive the $6.314 million employee retention credit in 2022 and use it for team-member investment, growth, capital expenditures and deferred maintenance. Supply-chain constraints, labor shortages and possible new COVID-19 variants could affect operations.
- The Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community expires December 31, 2022. Its continuation and economics are uncertain; loss of the agreement could adversely affect live-racing revenue and profitability. The agreement also limits the company’s ability to advocate for expanded gaming. Marketing payments to the company and purse enhancements paid directly to horsemen are distinct; purse enhancements do not flow through the company’s financial statements.
- The filing gives inconsistent annual purse-enhancement figures for 2021–2022: $7.28 million in one passage and $7.38 million elsewhere. The 2020 enhancement was up to $5.62 million. Verify the applicable contractual amount.
- Canterbury Commons projects include apartment joint ventures, a completed office development reported 84% occupied, residential land sales and a proposed 19,000-seat amphitheater subject to approvals. The company also has a conditional indemnity obligation of up to $5 million related to Doran joint-venture debt if the lender demands a loan guarantee.
- The TIF receivable was identified as a critical audit matter because its collectability depends on estimates of future development values and tax increments. The auditor issued an unqualified opinion on the financial statements; management reported effective internal controls, but the auditor did not provide an internal-control audit opinion.
- The company reinstated its quarterly dividend in January 2022 at $0.07 per share. Future dividends remain subject to Board discretion. The board terminated the stock-repurchase plan in March 2022.
Important facts for investors to verify
- Reconcile the disclosed $7.28 million versus $7.38 million CMA purse-enhancement amount, and confirm whether the CMA was extended or renegotiated after its December 2022 expiration.
- Track receipt and use of the employee retention credit, and compare future results with and without this one-time benefit.
- Assess TIF receivable collectability against actual infrastructure costs, development progress, occupancy and tax-increment collections.
- Review Doran and Greystone joint-venture performance, the potential $5 million indemnity exposure, and planned Canterbury Commons capital requirements.
- Monitor post-pandemic visitation, labor and supply costs, competition and any Minnesota sports-betting or gaming-law changes.