Canterbury Park Holding Corp 10-Q for FY2021 Q3
Canterbury Park Holding Corp (CPHC)
About this 10-Q
Canterbury Park Holding Corp filed this 10-Q on November 9, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $21.35M
- up 60.5% from $13.3M a year earlier
- Net income
- $2.76M
- up 49.1% from net income of $1.85M a year earlier
- Diluted EPS
- $0.58
- up 48.7% from $0.39 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED |
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____. |
Commission File Number:
| CANTERBURY PARK HOLDING CORPORATION |
| (Exact Name of Registrant as Specified in Its Charter) |
| (State or Other Jurisdiction of Incorporation or | (I.R.S. Employer | |||
| Organization) | Identification No.) |
(Address of principal executive offices and zip code)
Securities registered pursuant Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of each exchange on which registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| ☒ | No | ☐ |
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
| ☒ | No | ☐ |
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||
| ☒ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
| Yes | No | ☒ |
The Company had
Canterbury Park Holding Corporation
INDEX
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| PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (unaudited) |
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| Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| PART II. |
OTHER INFORMATION |
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| Item 1A. |
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PART 1 – FINANCIAL INFORMATION
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited) | ||||||||
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance of $ for both periods | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Income taxes receivable | ||||||||
| Total current assets | ||||||||
| LONG-TERM ASSETS | ||||||||
| Deposits | ||||||||
| Other prepaid expenses | ||||||||
| TIF receivable | ||||||||
| Related party receivable | ||||||||
| Operating lease right-of-use assets | ||||||||
| Equity investment | ||||||||
| Land held for development | ||||||||
| Property, plant, and equipment, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Card Casino accruals | ||||||||
| Accrued wages and payroll taxes | ||||||||
| Accrued property taxes | ||||||||
| Deferred revenue | ||||||||
| Payable to horsepersons | ||||||||
| Current portion of finance lease obligations | ||||||||
| Current portion of operating lease obligations | ||||||||
| Total current liabilities | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Deferred income taxes | ||||||||
| Investee losses in excess of equity investment | ||||||||
| Finance lease obligations, net of current portion | ||||||||
| Operating lease obligations, net of current portion | ||||||||
| Total long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ par value, shares authorized, and respectively, shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
See notes to condensed consolidated financial statements.
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| OPERATING REVENUES: |
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| Pari-mutuel |
$ | $ | $ | $ | ||||||||||||
| Card Casino |
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| Food and beverage |
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| Other |
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| Total Net Revenues |
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| OPERATING EXPENSES: |
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| Purse expense |
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| Minnesota Breeders’ Fund |
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| Other pari-mutuel expenses |
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| Salaries and benefits |
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| Cost of food and beverage and other sales |
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| Depreciation and amortization |
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| Utilities |
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| Advertising and marketing |
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| Professional and Contracted Services |
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| Loss on disposal of assets |
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| Other operating expenses |
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| Total Operating Expenses |
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| Gain on sale/transfer of land |
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| INCOME FROM OPERATIONS |
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| OTHER (LOSS) INCOME |
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| Loss from equity investment |
( |
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) | ( |
) | ( |
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| Interest income, net |
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| Net Other (Loss) Income |
( |
) | ( |
) | ( |
) | ( |
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| INCOME BEFORE INCOME TAXES |
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| INCOME TAX EXPENSE |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| NET INCOME |
$ | $ | $ | $ | ||||||||||||
| Basic earnings per share |
$ | $ | $ | $ | ||||||||||||
| Diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
| Weighted Average Basic Shares Outstanding |
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| Weighted Average Diluted Shares |
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See notes to condensed consolidated financial statements.
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the three months ended September 30, 2021
| Number of |
Common |
Additional |
Retained |
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| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
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| Balance at June 30, 2021 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| 401(K) stock match |
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| Net income |
— | |||||||||||||||||||
| Balance at September 30, 2021 |
$ | $ | $ | $ | ||||||||||||||||
For the nine months ended September 30, 2021
| Number of |
Common |
Additional |
Retained |
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| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
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| Balance at December 31, 2020 |
$ | $ | $ | $ | ||||||||||||||||
| Exercise of stock options |
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| Stock-based compensation |
— | |||||||||||||||||||
| Dividend distribution |
— | ( |
) | ( |
) | |||||||||||||||
| 401(K) stock match |
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| Issuance of deferred stock awards |
( |
) | ( |
) | ||||||||||||||||
| Shares issued under Employee Stock Purchase Plan |
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| Net income |
— | |||||||||||||||||||
| Balance at September 30, 2021 |
$ | $ | $ | $ | ||||||||||||||||
For the three months ended September 30, 2020
| Number of |
Common |
Additional |
Retained |
|||||||||||||||||
| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
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| Balance at June 30, 2020 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
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| Dividend distribution |
— | ( |
) | ( |
) | |||||||||||||||
| 401(K) stock match |
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| Issuance of deferred stock awards |
( |
) | ||||||||||||||||||
| Net Income |
— | |||||||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | $ | ||||||||||||||||
For the nine months ended September 30, 2020
| Number of |
Common |
Additional |
Retained |
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| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
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| Balance at December 31, 2019 |
$ | $ | $ | $ | ||||||||||||||||
| Exercise of stock options |
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| Other share retirements |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Dividend distribution |
— | ( |
) | ( |
) | |||||||||||||||
| 401(K) stock match |
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| Issuance of deferred stock awards |
( |
) | ( |
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| Shares issued under Employee Stock Purchase Plan |
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| Net Income |
— | |||||||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | $ | ||||||||||||||||
See notes to condensed consolidated financial statements.
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, |
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| 2021 |
2020 |
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| Operating Activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation |
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| Stock-based compensation expense |
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| Stock-based employee match contribution |
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| Deferred income taxes |
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| Gain on sale/transfer of land |
( |
) | ( |
) | ||||
| Loss on disposal of assets |
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| Loss from equity investment |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) | ( |
) | ||||
| Other assets |
( |
) | ||||||
| Income taxes receivable/payable |
( |
) | ||||||
| Operating lease right-of-use assets |
||||||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Accounts payable |
( |
) | ||||||
| Deferred revenue |
( |
) | ||||||
| Card Casino accruals |
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| Accrued wages and payroll taxes |
( |
) | ||||||
| Accrued property taxes |
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| Payable to horsepersons |
( |
) | ||||||
| Net cash provided by operating activities |
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| Investing Activities: |
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| Additions to property, plant, and equipment |
( |
) | ( |
) | ||||
| Proceeds from sale of land |
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| Increase in TIF receivable |
( |
) | ( |
) | ||||
| (Increase) decrease in related party receivable |
( |
) | ||||||
| Proceeds from sale of investments |
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| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Financing Activities: |
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| Proceeds from issuance of common stock |
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| Payments against line of credit |
( |
) | ||||||
| Borrowings on line of credit |
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| Cash dividend paid to shareholders |
( |
) | ( |
) | ||||
| Payments for taxes related to net share settlement of equity awards |
( |
) | ( |
) | ||||
| Principal payments on finance lease |
( |
) | ( |
) | ||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Net increase in cash, cash equivalents, and restricted cash |
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| Cash, cash equivalents, and restricted cash at beginning of period |
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| Cash, cash equivalents, and restricted cash at end of period |
$ | $ | ||||||
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
| Schedule of non-cash investing and financing activities |
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| Additions to buildings and equipment funded through accounts payable |
$ | $ | ||||||
| Transfer of future TIF reimbursed costs from PP&E |
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| Transfer of assets to Doran Canterbury II |
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| Transfer of assets to Canterbury DBSV |
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| Supplemental disclosure of cash flow information: |
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| Income taxes paid |
$ | $ | ||||||
| Interest paid |
See notes to condensed consolidated financial statements.
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business – Canterbury Park Holding Corporation’s (the “Company,” “we,” “our,” or “us”) Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live racing operations are a seasonal business as it typically hosts live race meets each year from May until September. The Company earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino typically operates 24 hours a day, seven days a week and is limited by Minnesota State law to conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues are from Card Casino operations, pari-mutuel operations, and food and beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack. Additionally, the Company is developing underutilized land surrounding the Racetrack in a project known as Canterbury Commons™, with approximately 140 acres originally designated as underutilized. The Company is pursuing several mixed-use development opportunities for this land, directly and through joint ventures.
Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation and its direct and indirect subsidiaries Canterbury Park Entertainment, LLC; Canterbury Park Concessions, Inc.; and Canterbury Development, LLC). Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.
These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2020, included in its Annual Report on Form 10-K (the “2020 Form 10-K”).
The condensed consolidated balance sheets and the related condensed consolidated statements of operations, stockholders’ equity, and the cash flows for the periods ended September 30, 2021 and 2020 have been prepared by Company management. In the opinion of management, all adjustments (which include only normal recurring adjustments, except where noted) necessary to present fairly the financial position, results of operations, statement of stockholders’ equity, and cash flows at September 30, 2021 and 2020 and for the periods then ended have been made.
Summary of Significant Accounting Policies – A detailed description of our significant accounting policies can be found in our most recent Annual Report on the 2020 Form 10-K. There were no material changes in significant accounting policies during the three and nine months ended September 30, 2021.
Restricted Cash – Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in card game progressive jackpot pools, the player pool and poker promotional fund to be used to repay card players in the form of promotions, giveaways, prizes, or by other means.
Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate partnerships. Revenue from these advance billings is recognized when the related event occurs or services have been performed. Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds, for which revenue is recognized when expenses are incurred.
Payable to Horsepersons - The Minnesota Pari-mutuel Horse Racing Act requires the Company to segregate a portion of funds (recorded as purse expense in the statements of operations) received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ association. Pursuant to an agreement with the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”), the Company transferred into a trust account or paid directly to the MHBPA, $
Revenue Recognition – The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel wagering on simulcast and live horse races, and food and beverage transactions. We determine revenue recognition through the following steps:
| ● | Identification of the contract, or contracts, with a customer |
| ● | Identification of the performance obligations in the contract |
| ● | Determination of the transaction price |
| ● | Allocation of the transaction price to the performance obligation in the contract |
| ● | Recognition of revenue when, or as, we satisfy a performance obligation |
The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of any track fees and is recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state’s racing regulatory body. The transaction price for food and beverage contracts is the net amount collected from the customer for these goods. Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the good is transferred to the customer when delivery is made.
Contracts for Card Casino operations and pari-mutuel wagering involve two performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who do not participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as these wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from what would result if the guidance were applied on an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone redemption value of the points earned, which is determined by the value of a point that can be redeemed for a cash voucher, food and beverage voucher, racing admission, valet parking, or racing forms. Based on past experience, the majority of customers redeem their points for cash vouchers. Therefore, there are no further performance obligations by the Company.
We have two general types of liabilities related to contracts with customers: (1) our MVP Loyalty Program and (2) outstanding chip liability. These are included in the line item Card Casino accruals on the consolidated balance sheet. We defer the full retail value of these complimentary reward items until the future revenue transaction occurs.
The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program.
We evaluate our on-track revenue, export revenue (as described below), and import revenue (as described below) contracts to determine whether we are acting as the principal or as the agent when providing services, to determine if we should report revenue on a gross or net basis. An entity acts as a principal if it controls a specified service before that service is transferred to a customer.
For on-track revenue and “import revenue,” that is revenue we generate for racing held elsewhere that our patrons wager on, we are entitled to retain a commission for providing a wagering service to our customers. For these arrangements, we are the principal because we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses.
For “export revenue,” when the wagering occurs outside our premises, our customer is the third party wagering site such as a racetrack, Off Track Betting (“OTB”), or advance deposit wagering (“ADW”) provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site.
For the nine months ended September 30, 2021, the Company recorded as other revenue $
2. STOCK-BASED COMPENSATION
Long Term Incentive Plan and Award of Deferred Stock
The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“NEOs”) and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Currently, there is one award outstanding for the three-year period ending December 31, 2021. Beginning in 2020, and as a result of the COVID-19 Pandemic, the Company temporarily suspended the granting of performance awards under its LTI Plan until there is more certainty about the Company’s future operations, and instead granted deferred stock awards designed to retain NEOs and other Senior Executives in lieu of LTI Plan awards for 2020 and 2021.
Board of Directors Stock Option, Deferred Stock Awards, and Restricted Stock Grants
The Company’s Stock Plan currently authorizes annual grants of restricted stock, deferred stock, stock options, or any combination of the three, to non-employee members of the Board of Directors at the time of the Company’s annual shareholders’ meeting as determined by the Board prior to each such meeting. Deferred stock awards represent the right to receive shares of the Company's common stock upon vesting. Options granted under the Plan generally expire years after the grant date. Restricted stock and deferred stock grants to non-employee directors generally vest
Employee Deferred Stock Awards
The Company's Stock Plan permits its Compensation Committee to grant stock-based awards, including deferred stock awards, to key employees and non-employee directors. The Company has made deferred stock grants that vest over to years.
During the nine months ended September 30, 2021, the Company granted employees deferred stock awards totaling
Employee deferred stock transactions during the nine months ended September 30, 2021 are summarized as follows:
| Weighted |
||||||||
| Average |
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| Deferred |
Fair Value |
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| Stock |
Per Share |
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| Non-Vested Balance, December 31, 2020 |
$ | |||||||
| Granted |
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| Vested |
||||||||
| Forfeited |
( |
) | ||||||
| Non-Vested Balance, September 30, 2021 |
$ | |||||||
Stock-based compensation expense related to the LTI Plan, deferred stock awards, and restricted stock awards is included on the Condensed Consolidated Statements of Operations and totaled approximately $
Stock Option Grants
The Company has granted incentive stock options to employees pursuant to the Company’s Stock Plan with an exercise price equal to the market price on the date of grant. The options vest over a
A summary of stock option activity as of September 30, 2021 and changes during the nine months then ended is presented below:
| Weighted |
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| Weighted |
Average |
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| Average |
Remaining |
Aggregate |
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| Number of |
Exercise |
Contractual |
Grant Date |
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| Stock Options |
Options |
Price |
Term (in years) |
Fair Value |
||||||||||||
| Outstanding at January 1, 2021 |
$ | |||||||||||||||
| Granted |
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| Exercised |
( |
) | ||||||||||||||
| Expired/Forfeited |
( |
) | ||||||||||||||
| Outstanding at September 30, 2021 |
$ | $ | ||||||||||||||
| Exercisable at September 30, 2021 |
$ | $ | ||||||||||||||
3. NET INCOME PER SHARE COMPUTATIONS
The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three and nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| Net income (numerator) amounts used for basic and diluted per share computations: |
$ | $ | $ | $ | ||||||||||||
| Weighted average shares (denominator) of common stock outstanding: |
||||||||||||||||
| Basic |
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| Plus dilutive effect of stock options |
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| Diluted |
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| Net income per common share: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
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Options to purchase
4. GENERAL CREDIT AGREEMENT
The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $
5. OPERATING SEGMENTS
The Company has
Depreciation, interest, and income taxes are allocated to the segments, but no allocation is made to the food and beverage segment for shared facilities. However, the food and beverage segment pays approximately
The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):
| Nine Months Ended September 30, 2021 |
||||||||||||||||||||
| Horse Racing |
Card Casino |
Food and Beverage |
Development |
Total |
||||||||||||||||
| Net revenues from external customers |
$ | $ | $ | $ | $ | |||||||||||||||
| Intersegment revenues |
||||||||||||||||||||
| Net interest income |
||||||||||||||||||||
| Depreciation |
||||||||||||||||||||
| Segment income (loss) before income taxes |
( |
) | ||||||||||||||||||
| Segment tax expense (benefit) |
( |
) | ||||||||||||||||||
| September 30, 2021 |
||||||||||||||||||||
| Segment Assets |
$ | $ | $ | $ | $ | |||||||||||||||
| Nine Months Ended September 30, 2020 |
||||||||||||||||||||
| Horse Racing |
Card Casino |
Food and Beverage |
Development |
Total |
||||||||||||||||
| Net revenues from external customers |
$ | $ | $ | $ | $ | |||||||||||||||
| Intersegment revenues |
||||||||||||||||||||
| Net interest (expense) income |
( |
) | ||||||||||||||||||
| Depreciation |
||||||||||||||||||||
| Segment (loss) income before income taxes |
( |
) | ( |
) | ||||||||||||||||
| Segment tax (benefit) expense |
( |
) | ( |
) | ||||||||||||||||
| December 31, 2020 |
||||||||||||||||||||
| Segment Assets |
$ | $ | $ | $ | $ | |||||||||||||||
The following are reconciliations of reportable segment revenues, income before income taxes, and assets, to the Company’s consolidated totals (in 000’s):
| Nine Months Ended September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Revenues |
||||||||
| Total net revenue for reportable segments |
$ | $ | ||||||
| Elimination of intersegment revenues |
( |
) | ( |
) | ||||
| Total consolidated net revenues |
$ | $ | ||||||
| Income before income taxes |
||||||||
| Total segment income before income taxes |
$ | $ | ||||||
| Elimination of intersegment (income) loss before income taxes |
( |
) | ||||||
| Total consolidated income before income taxes |
$ | $ |
| September 30, |
December 31, |
|||||||
| 2021 |
2020 |
|||||||
| Assets |
||||||||
| Total assets for reportable segments |
$ | $ | ||||||
| Elimination of intercompany balances |
( |
) | ( |
) | ||||
| Total consolidated assets |
$ | $ | ||||||
6. COMMITMENTS AND CONTINGENCIES
In accordance with an Earn Out Promissory Note given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of (a) $
The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), which became effective March 4, 2012, was amended in the first quarter of each of 2015, 2016, 2017, 2018, and in June 2020 (as described below in Note 7) and will expire on December 31, 2022. The CMA contains certain covenants that, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes it unlikely that any breach of a covenant will occur, and that therefore the possibility that the Company will be required to pay the specified amount related to any covenant breach is remote.
The Company is periodically involved in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims and legal actions at September 30, 2021 and as of the date of this report, will not have a material impact on the Company’s consolidated financial positions or results of operations.
In August 2018, the Company entered into a Contract for Private Redevelopment with the City of Shakopee in connection with a Tax Increment Financing District (“TIF District”). The Company is obligated to construct certain infrastructure improvements within the TIF District, and will be reimbursed by the City of Shakopee by future tax increment revenue generated from the developed property. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property.
7. COOPERATIVE MARKETING AGREEMENT
As discussed above in Note 6, on March 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.
Because the Company conducted a more limited 2020 live race meet due to the COVID-19 Pandemic, the Company and SMSC entered into the Fifth Amendment Agreement (“Fifth Amendment”) to the CMA effective June 8, 2020. Under the Fifth Amendment, the SMSC agreed to provide up to $
Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events.
As noted above and affirmed in the Fifth Amendment, SMSC is obligated to make an annual purse enhancement of $
The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2021, the Company recorded $
Under the CMA, the Company agreed for the term of the CMA, which is currently scheduled to terminate on December 31, 2022, that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.
8. REAL ESTATE DEVELOPMENT
Equity Investments
On April 2, 2018, the Company’s subsidiary Canterbury Development LLC, entered into an Operating Agreement (“Operating Agreement”) with an affiliate of Doran Companies (“Doran”), a national commercial and residential real estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC (“Doran Canterbury I”). Doran Canterbury I was formed as part of a joint venture between Doran and Canterbury Development LLC to construct an upscale apartment complex on land adjacent to the Company’s Racetrack (the “Project”). Doran Canterbury I has completed developing Phase I of the Project, which includes 321 units, a heated parking ramp, and a clubhouse.
On September 27, 2018, Canterbury Development LLC contributed approximately
In connection with the execution of the Amended Doran Canterbury I Agreement, on August 18, 2018, Canterbury Development LLC entered into an Operating Agreement with Doran Shakopee, LLC as the two members of a Minnesota limited liability company entitled Doran Canterbury II, LLC (“Doran Canterbury II”). Under the Doran Canterbury II Operating Agreement, Doran Canterbury II will pursue development of Phase II of the Project. Phase II will include an additional 300 apartment units. Canterbury Development’s equity contribution to Doran Canterbury II for Phase II was approximately
On June 16, 2020, Canterbury Development LLC, entered into an Operating Agreement with an affiliate of Greystone Construction, as the two members of a Minnesota limited liability company named Canterbury DBSV Development, LLC ("Canterbury DBSV"). Canterbury DBSV was formed as part of a joint venture between Greystone and Canterbury Development LLC for a multi-use development on the
Tax Increment Financing
On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority (“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. The City of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018.
Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing public infrastructure improvements. The total estimated cost of TIF eligible improvements to be borne by the Company is $
The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.
The City of Shakopee has authorized changes to the Redevelopment Agreement and the responsibilities of the Company, but the Company, the City of Shakopee, and other parties have not formally entered into an agreement that memorializes these changes. The Company will provide updated disclosure when the parties enter into a new agreement. As part of the authorized changes regarding the responsibilities of the Company and the city of Shakopee, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. As a result, should Canterbury enter into the agreement that memorializes these changes, the total estimated cost of TIF eligible improvements to be borne by the Company will be reduced by $
Recently Closed Transactions under Real Estate Agreements
On April 7, 2020, the Company entered into an agreement to sell approximately
On April 15, 2020, the Company entered into an agreement to sell approximately
As a result of these two land sales, the Company recorded a gain of approximately $
9. LEASES
The Company determines if an arrangement is a lease or contains a lease at inception. The Company leases some office equipment under finance leases. We also lease equipment related to our horse racing operations under operating leases. For lease accounting purposes, we do not separate lease and nonlease components, nor do we record operating or finance lease assets and liabilities for short term leases.
As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. We recognize expense for operating leases on a straight-line basis over the lease term. The Company’s lease agreements do not contain any variable lease payments, material residual value guarantees or any restrictive covenants.
Lease costs related to operating leases were $
Lease costs included in depreciation and amortization related to our finance leases were $
The following table shows the classification of the right of use assets on our consolidated balance sheets:
| September 30, | December 31, | ||||||||
| Balance Sheet Location | 2021 | 2020 | |||||||
| Assets | |||||||||
| Finance | Land, buildings and equipment, net (1) | $ | $ | ||||||
| Operating | Operating lease right-of-use assets | ||||||||
| Total Leased Assets | $ | $ | |||||||
1 – Finance lease assets are net of accumulated amortization of $
The following table shows the lease terms and discount rates related to our leases:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Weighted average remaining lease term (in years): | ||||||||
| Finance | ||||||||
| Operating | ||||||||
| Weighted average discount rate (%): | ||||||||
| Finance | % | % | ||||||
| Operating | % | % | ||||||
The maturity of operating leases and finance leases as of September 30, 2021 are as follows:
| Nine Months Ended September 30, 2021 | Operating leases | Finance leases | ||||||
| 2021 remaining | $ | $ | ||||||
| 2022 | ||||||||
| 2023 | ||||||||
| Total minimum lease obligations | ||||||||
| Less: amounts representing interest | ( | ) | ( | ) | ||||
| Present value of minimum lease payments | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Lease obligations, net of current portion | $ | $ | ||||||
10. RELATED PARTY RECEIVABLES
In 2019, 2020, and through the first nine months of 2021, the Company loaned money to the Doran Canterbury I and II joint ventures in member loans totaling approximately $
The Company has also recorded related party receivables of approximately $
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Canterbury Park Holding Corporation, our operations, our financial results and financial condition and our present business environment. This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the financial statements (the “Notes”).
Overview:
Canterbury Park Holding Corporation (the “Company,” “we,” “our,” or “us”) conducts pari-mutuel wagering operations and hosts “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.
The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through September, and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino typically operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.
COVID-19 Pandemic:
In January 2020, an outbreak of a respiratory illness caused by a new strain of coronavirus was identified. The disease has since spread rapidly across the world, causing the World Health Organization to declare the outbreak a pandemic (the “COVID-19 Pandemic”) on March 12, 2020. Since that time, governments and businesses have taken measures to limit the impact of the COVID-19 Pandemic, including the issuance of shelter-in-place orders, social distancing measures, travel bans and restrictions, and business shutdowns.
On March 16, 2020, the Company announced that, based on the advice of Minnesota state and regulatory bodies, it was temporarily suspending all Card Casino, simulcast, and special events operations at Canterbury Park in response to concerns about the COVID-19 Pandemic. Canterbury Park determined this voluntary suspension of activities was in the best interest of the health and safety of its guests and team members and would provide the Company an opportunity to review and update operational best practices and strategies based on what was currently known about this public health situation and future developments. On June 10, 2020, the Company reopened and resumed simulcast, live racing, and food and beverage operations. The Company also resumed table games and poker operations in the Company’s Card Casino on June 15, 2020 and July 9, 2020, respectively. These reopenings were done in compliance with Minnesota state guidelines on capacity limitations.
On November 18, 2020, Minnesota state and regulatory bodies issued an executive order requiring closure of places of public accommodation as a measure to slow the spread of COVID-19. As a result, the Company temporarily suspended all Card Casino, simulcast, and food and beverage operations from November 21, 2020 through January 10, 2021.
In connection with reopening our pari-mutuel, food and beverage, and Card Casino operations, we adhered to social distancing requirements, which included reduced seating at table games and poker and capacity limitations to follow Minnesota state guidelines. Effective May 28, 2021, all capacity limits, restrictions on large gatherings, and other restrictions, which had been implemented in response to the impact of the COVID-19 Pandemic, were lifted and our Racetrack began operating operated under pre-pandemic guidelines. Our Card Casino also began operating without capacity restrictions effective May 28, 2021, but we maintained and intend to maintain certain operational changes and improvements initiated in 2020 in response to the COVID-19 Pandemic.
The disruptions arising from the COVID-19 Pandemic had a significant impact on the Company's financial condition and operations during the three and nine months ended September 30, 2020. The COVID-19 Pandemic also had a negative impact on the Company's financial condition and operations for the first half of 2021, although to a much lesser extent than 2020. However, the Company's revenues began to recover in both the 2021 second and third quarters. The strong recovery we have experienced in the second and third quarters of 2021 have been a result of increased consumer confidence, reduction in capacity restrictions, and faster than anticipated vaccine roll-outs, as well as the success of initiatives begun during the COVID-19 Pandemic to increase attendance at live racing and other events, enhance the player experience, and recruit higher value players. Although the Company has currently appeared to recover from the effects of the COVID-19 Pandemic, the pandemic has caused other global issues that could have a future adverse effect on the Company. Specifically, these issues relate to supply chain issues and labor shortages, which have had a negative impact on the global economy and likely will continue to have an impact in the near future. Additionally, the spread of any new COVID-19 variants could also have an adverse effect on the Company's financial condition and results. As the impact of the COVID-19 Pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.
Operations Review for the Three and Nine Months Ended September 30, 2021:
Revenues:
Total net revenues for the three months ended September 30, 2021 were $21,347,000, an increase of $8,047,000, or 60.5%, compared to total net revenues of $13,300,000 for the three months ended September 30, 2020. Total net revenues for the nine months ended September 30, 2021 were $46,445,000, an increase of $19,428,000, or 71.9% compared to net revenues of $27,017,000 for the nine months ended September 30, 2020. These increases consist of increases in pari-mutuel, Card Casino, food and beverage, and other revenues as a result of increased visitation as COVID-19 Pandemic restrictions have been lifted, and social distancing measures and operating capacity limitations have ceased. See below for a further discussion of our sources of revenues.
Pari-Mutuel Revenue:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Simulcast |
$ | 964,000 | $ | 1,056,000 | $ | 3,059,000 | $ | 2,290,000 | ||||||||
| Live racing |
1,091,000 | 600,000 | 1,663,000 | 723,000 | ||||||||||||
| Guest fees |
1,897,000 | 2,108,000 | 3,222,000 | 2,665,000 | ||||||||||||
| Other revenue |
349,000 | 420,000 | 1,055,000 | 1,223,000 | ||||||||||||
| Total Pari-Mutuel Revenue |
$ | 4,301,000 | $ | 4,184,000 | $ | 8,999,000 | $ | 6,901,000 | ||||||||
Total pari-mutuel revenue increased $116,000 and $2,098,000 for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. For the 2021 third quarter, the increase in revenue compared to the prior year is related to live racing revenues due to increased business levels as we recover from the effects of the COVID-19 Pandemic described above, as well as the fact our 2020 live racing season operated at a limited capacity. The is partially offset by lower guest fee revenue due to decreased out of state handle and lower simulcast and other revenue. For the nine months ended September 30, 2021, the increase in revenue compared to the same period in 2020 is due to increased business levels, including the fact we returned to normalized operations and full capacity starting in the second quarter 2021 as compared to the closure of our operations from March 16, 2020 until June 10, 2020 and operating our live racing season at a limited capacity upon reopening.
Card Casino Revenue:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| Poker Games |
$ | 1,998,000 | $ | 1,291,000 | $ | 5,058,000 | $ | 2,949,000 | ||||||||
| Table Games |
7,414,000 | 5,331,000 | 19,624,000 | 11,156,000 | ||||||||||||
| Total Collection Revenue |
9,412,000 | 6,622,000 | 24,682,000 | 14,105,000 | ||||||||||||
| Other Poker Revenue |
562,000 | 245,000 | 1,330,000 | 729,000 | ||||||||||||
| Other Table Games Revenue |
478,000 | 325,000 | 1,195,000 | 714,000 | ||||||||||||
| Total Card Casino Revenue |
$ | 10,452,000 | $ | 7,192,000 | $ | 27,207,000 | $ | 15,548,000 | ||||||||
The primary source of Card Casino revenue is a percentage of the wagers received from players as compensation for providing the Card Casino facility and services, which is referred to as “collection revenue.” Other Poker Revenue and Other Table Games Revenue presented above includes fees collected for the administration of tournaments and the poker jackpot and amounts earned as reimbursement of the administrative costs of maintaining table games jackpot funds, respectively.
As indicated by the table above, total Card Casino revenue increased $3,261,000, or 45.3%, and $11,659,000, or 75.0%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. These increases are due to increased visitation as our business recovers from the effects of the COVID-19 Pandemic described above, as well as increased table games drop from the successful marketing efforts to recruit higher value players. When the Company reopened its table games operations on June 15, 2020, this included reduced seating at table games and capacity limitations to follow Minnesota state guidelines. The Company did not resume poker operations until July 2020. Our Card Casino also began operating without capacity restrictions effective May 28, 2021, but we maintained and intend to maintain certain operational changes and improvements, which we believe is preferred by players and is contributing to increased revenue and margins.
Food and Beverage Revenue:
Food and beverage revenue increased $2,613,000, or 303.3%, and $3,028,000, or 144.7%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. These increases are due to increased visitation as our business recovers from the effects of the COVID-19 Pandemic described above. Furthermore, the increases are due to being able to host large scale events, including a three-day music festival and seven-show concert series in the 2021 third quarter, as well as the fact the Company's entire 2020 live racing season consisted of limited crowds due to capacity constraints. As noted above, all capacity limits which had been implemented as a response to the COVID-19 Pandemic were lifted on May 28, 2021.
Other Revenue:
Other revenue increased $2,057,000, or 193.7%, and $2,643,000, or 106.8%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. These increases are due to the reversal of the effects of the COVID-19 Pandemic described above, as well as hosting a three-day music festival and seven-show concert series in the 2021 third quarter. For the nine months ended September 30, 2021, the Company received $515,000 of COVID-19 relief grants that the Company recorded as other revenue in the 2021 first quarter.
Operating Expenses:
Total operating expenses increased $4,716,000, or 38.5%, and $9,819,000, or 34.9%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. These increases reflect an increase in the majority of the Company's operating expenses, primarily as a result of return to normalization of operations in the three and nine months ended September 30, 2021 as compared to the prior year temporary suspension of operations from March 16, 2020 through June 9, 2020 and the limitations placed on operations upon reopening. The following paragraphs provide further detail regarding certain operating expenses.
Purse expense increased $517,000, or 21.6%, and $2,252,000, or 55.0%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The increases are due to increases in pari-mutuel and Card Casino revenues.
Salaries and benefits increased $950,000, or 17.4%, and $3,134,000, or 24.3%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The increases are due to an increase in the number of personnel to support our resumption of normalized operations in the three and nine months ended September 30, 2021 as well as the fact that the majority of employees were placed on an unpaid furlough during the temporary shutdown of operations in 2020.
Cost of food and beverage sales increased $753,000, or 177.1%, and $878,000, or 82.8%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. These increases are consistent with the increase in food and beverage revenues.
Advertising and marketing increased $987,000, or 908.5%, and $1,195,000, or 361.2%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The increase is primarily attributable to the increased expenditures that are funded by payments received under the CMA for joint marketing, as well as an increase in advertising and marketing spend to support our resumption of normalized operations in the three and nine months ended September 30, 2021.
Other operating expenses increased $792,000, or 69.2%, and $818,000, or 28.0%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020. The increases are primarily attributable to the expenses associated with the three-day musical festival and seven-show concert series held in the 2021 third quarter, as well as a return to a more normalized live racing season in 2021.
During the 2021 second quarter, the Company recorded a gain on sale of land of $264,000 as of result of the sale of approximately 9.8 acres of land for approximately $2,400,000 in gross proceeds.
During the 2020 third quarter, the Company recorded a gain on transfer of land of $2,275,000 as a result of transferring land to the Doran Canterbury II and Canterbury DBSV joint ventures.
The Company recorded a provision for income taxes of $1,123,000 and $1,138,000 for the three months ended September 30, 2021 and 2020, respectively. The Company recorded a provision for income taxes of $2,133,000 and $70,000 for the nine months ended September 30, 2021 and 2020, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The increase in our tax expense for the three and nine months ended September 30, 2021 is due to an increase in income before taxes from operations. Our effective tax rate was 28.9% and 29.2% for the three and nine months ended September 30, 2021. Our effective tax rate was 38.1% and 7.1% for the three and nine months ended September 30, 2020. The 2020 effective tax rates were impacted by benefits realized from the 2019 NOL carrybacks calculated in the 2020 tax provision.
The Company recorded net income of $2,757,000 and $5,178,000 for the three and nine months ended September 30, 2021. The Company recorded net income of $1,849,000 and $923,000 for the three and nine months ended September 30, 2020.
EBITDA
To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure, which excludes certain items from net income, a GAAP measure. We define EBITDA as earnings before interest, income tax expense, and depreciation and amortization. We also compute Adjusted EBITDA, which reflects additional adjustments to Net Income to eliminate unusual or non-recurring items, as well as items relating to our real estate development operations and we believe the exclusion of these items allows for better comparability of our performance between periods. For the three and nine months ended September 30, 2021, Adjusted EBITDA excluded gain on sale/transfer of land, loss on disposal of assets, depreciation, amortization, and interest expense related to equity investments, as well as $515,000 of COVID-19 relief grants included in other revenue. Neither EBITDA nor adjusted EBITDA is a measure of performance calculated in accordance with GAAP and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance. EBITDA is presented as a supplemental disclosure because it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.
The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three and nine months ended September 30, 2021 and 2020:
Summary of EBITDA Data
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| NET INCOME |
$ | 2,757,398 | $ | 1,849,012 | $ | 5,177,975 | $ | 923,036 | ||||||||
| Interest income, net |
(180,357 | ) | (168,552 | ) | (524,757 | ) | (501,600 | ) | ||||||||
| Income tax expense |
1,123,209 | 1,137,997 | 2,133,030 | 70,498 | ||||||||||||
| Depreciation |
730,164 | 655,003 | 2,113,917 | 2,065,496 | ||||||||||||
| EBITDA |
4,430,414 | 3,473,460 | 8,900,165 | 2,557,430 | ||||||||||||
| Gain on sale/transfer of land |
— | (2,275,458 | ) | (263,581 | ) | (2,275,458 | ) | |||||||||
| Loss on disposal of assets |
— | 13,407 | — | 13,407 | ||||||||||||
| Depreciation and amortization related to equity investments |
496,512 | — | 1,283,858 | — | ||||||||||||
| Interest expense related to equity investments |
248,727 | — | 705,793 | — | ||||||||||||
| Other revenue, COVID-19 relief grants |
— | — | (515,000 | ) | — | |||||||||||
| ADJUSTED EBITDA |
$ | 5,175,652 | $ | 1,211,409 | $ | 10,111,235 | $ | 295,379 | ||||||||
Adjusted EBITDA increased $3,964,000 and $9,816,000 for the three and nine months ended September 30, 2021 as compared to the same periods in 2020. These increases are due to increased visitation as COVID-19 Pandemic restrictions have been lifted and social distancing measures and operating capacity limitations have ceased. The increases are also due to increased operational efficiencies that have been implemented since the COVID-19 Pandemic. For the three months ended September 30, 2021, Adjusted EBITDA as a percentage of net revenue was 24.2%. For the nine months ended September 30, 2021, Adjusted EBITDA as a percentage of net revenue, excluding $515,000 other revenue from COVID-19 relief grants, was 22.0%.
Contingencies:
The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community, which became effective on March 4, 2012, and was amended in the respective first quarters of 2015, 2016, 2017, 2018, and June 2020 and will expire December 31, 2022. The CMA contains specific covenants that, if breached, would trigger an obligation to repay a specified amount related to these covenants. At this time, management believes that the likelihood that the breach of a covenant would occur and that the Company would be required to pay the specified amount related to a covenant is remote.
The Company continues to analyze the feasibility of various options related to the development of our underutilized land. The Company may incur substantial costs during the feasibility and predevelopment process, but the Company believes available funds are sufficient to cover the near-term costs. See Liquidity and Capital Resources for more information on liquidity and capital resource requirements.
Liquidity and Capital Resources:
The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $10,000,000 and allows for letters of credit in the aggregate amount of up to $2,000,000 to be issued under the credit agreement. As of September 30, 2021, the bank had issued a $1,250,000 letter of credit on behalf of the Company and therefore, the Company has an available credit line up to $8,750,000. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The line of credit also includes collateral in the form of a Mortgage, Security Agreement, Fixture Financing Statement and Assignment of Leases and Rents. As of September 30, 2021, the outstanding balance on the line of credit was $0. As of September 30, 2021, the Company was in compliance with the financial covenants of the general credit and security agreement.
The Company’s cash, cash equivalents, and restricted cash balance at September 30, 2021 was $13,726,000 compared to $4,472,000 as of December 31, 2020. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations and future land sales, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as its planned development expenses for the next twelve months. However, if the Company engages in any additional significant real estate development or strategic growth or diversification transactions, additional financing would more than likely be required and the Company may seek this additional financing through joint venture arrangements, through incurring debt, or through an equity financing, or a combination of any of these.
Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2021 was $10,453,000, primarily as a result of the following: The Company reported net income of $5,178,000, depreciation of $2,114,000, a loss from equity investment of $1,964,000, and stock-based compensation and 401(k) match totaling $797,000. The Company also experienced an increase in income taxes receivable of $1,265,000, offset by a decrease in payables to horsepersons of $1,337,000 due to timing.
Net cash used in operating activities for the nine months ended September 30, 2020 was $680,000 primarily as a result of the following: The Company reported net income of $923,000, depreciation of $2,065,000, loss from equity investment of $661,000, and stock-based compensation and 401(k) match totaling $566,000. Cash used in operations was reduced by a gain on transfer of land of $2,275,000. The Company also experienced an increase in accounts receivable of $1,295,000 due to timing.
Investing Activities
Net cash used in investing activities for the first nine months of 2021 was $1,254,000, primarily due to additions to property, plant, and equipment, additions for TIF eligible improvements, and an increase in related party receivables. This is partially offset by proceeds received from the sale of land. Net cash used in investing activities for the first nine months of 2020 was $56,000, primarily for additions to property, plant, and equipment and additions for TIF eligible improvements. This was partially offset by a decrease in related party receivables.
Financing Activities
Net cash provided by financing activities during the first nine months of 2021 was $56,000, primarily due to proceeds from the issuance of common stock, partially offset by payments for taxes of equity awards. Net cash used in financing activities during the first nine months of 2020 was $306,000, primarily due to cash dividends paid to shareholders.
In March 2020, the Company’s Board of Directors suspended the Company’s quarterly cash dividend, beginning with the cash dividend that would normally have been paid in April 2020.
Critical Accounting Policies and Estimates:
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are included in Note 2 to our consolidated financial statements in our 2020 Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Property and Equipment - We have significant capital invested in our property and equipment, which represents 44.5% of our total assets at September 30, 2021. We use our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at September 30, 2021.
Stock-Based Compensation – Accounting guidance requires measurement of services provided in exchange for a share-based payment based on the grant date fair market value. We use our judgment in determining the assumptions used to determine the fair value of equity instruments granted using a Black-Scholes model. The Company also has historically granted Long Term Incentive Awards under the Long Term Incentive Plan (the “LTI Plan”) under which Company executive officers and other senior executives have had the opportunity to receive a payout of shares of the Company’s common stock at the end of a three-year period. Management must make a number of assumptions to estimate future results to determine the compensation expense of the LTI Plan. As a result of the COVID-19 Pandemic, the Company has temporarily suspended its LTI Plan until there is more certainty about the Company’s future operations. Currently, awards are outstanding under the LTI Plan only for the three-year period ending December 31, 2021.
Commitments and Contractual Obligations:
The Company entered into the CMA with the SMSC on June 4, 2012, that was amended in January 2015, 2016, 2017, March 2018, and June 2020 and expires December 31, 2022. See “Cooperative Marketing Agreement” below.
Cooperative Marketing Agreement:
On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.
Because the Company conducted a more limited 2020 live race meet due to the COVID-19 Pandemic, the Company and SMSC entered into the Fifth Amendment Agreement (“Fifth Amendment”) to the CMA effective June 8, 2020. Under the Fifth Amendment, the SMSC agreed to provide up to $5,620,000 for the annual purse enhancement for the year 2020. The annual purse enhancement that the SMSC is obligated to pay under the CMA for 2021 and 2022 was not changed and remains at $7,380,000 per year.
Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events.
As noted above and affirmed in the Fifth Amendment, SMSC is obligated to make an annual purse enhancement of $7,380,000 and annual marketing payment of $1,620,000 for 2022.
The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2021, the Company recorded $1,003,000 and $1,415,000 in other revenue, respectively, incurred $962,000 and $1,326,000 in advertising and marketing expense, respectively, and incurred $41,000 and $89,000 in depreciation, respectively, related to the SMSC marketing funds. For the three and nine months ended September 30, 2020, the Company recorded $490,000 and $811,000 in other revenue, respectively, incurred $449,000 and $694,000 in advertising and marketing expense, respectively, and incurred $41,000 and $117,000 in depreciation, respectively, related to the SMSC marketing funds.
Under the CMA, the Company has agreed for the 10-year term of the CMA expiring December 31, 2022 that it will not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.
Redevelopment Agreement:
As mentioned above in Note 8 of Notes to Financial Statements, on August 10, 2018, the City of Shakopee, the City of Shakopee Economic Development Authority, and the Company entered into a Redevelopment Agreement in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure and the City of Shakopee agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements. The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.
The City of Shakopee has authorized changes to the Redevelopment Agreement and the responsibilities of the Company, but the Company, the City of Shakopee and other parties have not formally entered into an agreement that memorializes these changes. The Company will provide updated disclosure when the parties enter into a new agreement. As part of the authorized changes regarding the responsibilities of the Company and the city of Shakopee, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. As a result, should Canterbury enter into the agreement that memorializes these changes, the total estimated cost of TIF eligible improvements to be borne by the Company will be reduced by $5,744,000. These improvements were substantially complete as of the date of this filing.
Forward-Looking Statements:
From time-to-time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include, but are not limited to:
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The COVID-19 Pandemic has materially adversely affected the number of visitors at our facility and disrupted our operations, and while our business operations are recovering beginning with the 2021 second quarter, we may be adversely impacted by changes in the spread of COVID-19 variants; |
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We face significant competition, both directly from other racing and gaming operations and indirectly from other forms of entertainment and leisure time activities, which could have a material adverse effect on our operations; |
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We may not be able to attract a sufficient number of horses and trainers to achieve above average field sizes; |
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Nationally, the popularity of horse racing has declined; |
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Our horse racing and gaming businesses are sensitive to economic conditions that may affect consumer confidence, consumer discretionary spending, or our access to credit in a manner that adversely affects our operations; |
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A lack of confidence in the integrity of our core businesses could affect our ability to retain our customers and engage with new customers; |
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Horse racing is an inherently dangerous sport and our racetrack is subject to personal injury litigation; |
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Our business depends on using totalizator services; |
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Inclement weather and other conditions may affect our ability to conduct live racing; |
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Purse Enhancement Payments and Marketing Payments under our CMA with SMSC may not continue after 2022; |
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We are subject to changes in the laws that govern our business, including the possibility of an increase in gaming taxes, which would increase our costs, and changes in other laws may adversely affect our ability to compete; |
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We are subject to extensive regulation from gaming authorities that could adversely affect us; |
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We rely on the efforts of our partner Doran for the development and profitable operation of our Triple Crown Residences at Canterbury Park joint venture; |
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We rely on the efforts of our partner Greystone Construction for a new development project; |
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We may not be successful in executing our real estate development strategy; |
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We are obligated to make improvements in the TIF district and will be reimbursed only to the extent of future tax revenue; |
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An increase in the minimum wage mandated under Federal or Minnesota law could have a material adverse effect on our operations and financial results; |
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We depend on key personnel; |
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The payment and amount of future dividends is subject to Board of Director discretion and to various risks and uncertainties; |
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Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security; |
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We process, store, and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business; |
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Energy and fuel price increases may adversely affect our costs of operations and our revenues; |
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Other factors that are beyond our ability to control or predict. |
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4: CONTROLS AND PROCEDURES
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Evaluation of Disclosure Controls and Procedures: |
The Company’s President and Chief Executive Officer, Randall D. Sampson and Chief Financial Officer, Randy J. Dehmer, have reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon this review, these officers have concluded that the Company’s disclosure controls and procedures are effective.
| (b) |
Changes in Internal Control over Financial Reporting: |
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Not Applicable.
There have been no changes to the Risk Factors listed in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated by our subsequently filed Quarterly Reports on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Not Applicable.
| 31.1 |
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| 31.2 |
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| 32 |
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
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| 99.1 |
Press Release dated November 8, 2021 announcing 2021 Third Quarter Results. |
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| 101 |
The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, formatted in Inline eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and September 30, 2020, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and September 30, 2020, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and September 30, 2020, and (v) Notes to Financial Statements. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Canterbury Park Holding Corporation |
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| Dated: November 9, 2021 |
/s/ Randall D. Sampson |
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Randall D. Sampson |
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President and Chief Executive Officer (principal executive officer) |
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| Dated: November 9, 2021 |
/s/ Randy J. Dehmer |
| Randy J. Dehmer | |
| Chief Financial Officer (principal financial officer, principal accounting officer) |
Exhibit 31.1
CERTIFICATION
I, Randall D. Sampson certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Canterbury Park Holding Corporation; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case on an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; |
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5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Dated: November 9, 2021 |
CANTERBURY PARK HOLDING CORPORATION |
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/s/ Randall D. Sampson |
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Randall D. Sampson |
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President and Chief Executive Officer (principal executive officer) |
Exhibit 31.2
CERTIFICATION
I, Randy J. Dehmer certify that:
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I have reviewed this quarterly report on Form 10-Q of Canterbury Park Holding Corporation; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case on an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; |
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5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Dated: November 9, 2021 |
CANTERBURY PARK HOLDING CORPORATION |
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/s/ Randy J. Dehmer |
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Randy J. Dehmer |
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Chief Financial Officer (principal financial officer, principal accounting officer) |
Exhibit 32
CERTIFICATION
Pursuant to 18 U.S.C. 1350, the undersigned Chief Executive Officer and Chief Financial Officer of Canterbury Park Holding Corporation (the “Company”) herby certifies that:
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(1) |
The accompanying quarterly report on Form 10-Q for the period ended September 30, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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CANTERBURY PARK HOLDING CORPORATION |
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Dated: November 9, 2021 |
/s/ Randall D. Sampson |
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Randall D. Sampson |
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President and Chief Executive Officer (principal executive officer) |
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Dated: November 9, 2021 |
/s/ Randy J. Dehmer |
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Randy J. Dehmer |
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Chief Financial Officer (principal financial officer, principal accounting officer) |
Exhibit 99.1
CANTERBURY PARK HOLDING CORPORATION REPORTS
RECORD 2021 THIRD QUARTER RESULTS
Shakopee, MN – November 8, 2021 – Canterbury Park Holding Corporation (“Canterbury” or the “Company”) (NASDAQ: CPHC), today reported record financial results for the three and nine months ended September 30, 2021.
($ in thousands, except per share data and percentages)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2021 |
2020 |
Increase |
2021 |
2020 |
Increase |
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Net revenues(1) |
$ | 21,347 | $ | 13,300 | 60.5 | % | $ | 46,445 | $ | 27,017 | 71.9 | % | ||||||||||||
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Net income (1) |
$ | 2,757 | $ | 1,849 | 49.1 | % | $ | 5,178 | $ | 923 | 461.0 | % | ||||||||||||
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Adjusted EBITDA(1) (2) |
5,176 | 1,211 | 327.2 | % | 10,111 | 295 | 3323.1 | % | ||||||||||||||||
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Basic EPS |
$ | 0.58 | $ | 0.39 | 48.7 | % | $ | 1.09 | $ | 0.20 | 445.0 | % | ||||||||||||
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Diluted EPS |
$ | 0.58 | $ | 0.39 | 48.7 | % | $ | 1.09 | $ | 0.20 | 445.0 | % | ||||||||||||
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(1) |
Net revenues and net income for the nine month period ended September 30, 2021 include $515,000 in grant funds received as a result of the Minnesota COVID-19 relief package that was passed and signed into law in December 2020. |
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(2) |
Adjusted EBITDA, a non-GAAP measure, excludes certain items from net income, a GAAP measure. Non-GAAP financial measures are not intended to be considered in isolation from, a substitute for, or superior to GAAP results. Definitions, disclosures, and reconciliations of non-GAAP financial information are included later in the release. |
Financial results for the nine months ended September 30, 2021 include the impact of the state-mandated closure of Canterbury Park which ended January 10, 2021 and capacity restrictions from January 11, 2021 to May 28, 2021, subsequent to which Canterbury Park operated without mandated capacity restrictions. Financial results for the three and nine months ended September 30, 2020 reflect the impact of the onset of the COVID-19 pandemic and closure of the Card Casino, simulcast, and special events operations at Canterbury Park from March 16, 2020 to June 9, 2020, after which the Company reopened in a limited capacity.
Management Commentary
“Canterbury Park’s operating momentum since our reopening continued as we generated record financial performance in the third quarter of 2021. Revenue grew 61% year over year to a record $21.3 million, while adjusted EBITDA grew 327% to $5.2 million,” said Randy Sampson, President and Chief Executive Officer of Canterbury. “Operating without pandemic restrictions for a full quarter allowed us to generate our best-ever Card Casino revenue performance, with July and August reporting two of our three all-time record months for table games revenues. We benefited from improving visitation and strong spend per visit in the Card Casino throughout the quarter as we yielded our poker and table games at high levels and continued to generate more table games revenue from our higher value players due to our focused marketing efforts. Our racing and hospitality operations also benefited from more normalized conditions as we expanded our event calendar, ultimately leading to increased attendance at Canterbury Park.
“The 2021 live race meet, encompassing 65 days, generated record total handle and purses of $90.8 million and $15.5 million, respectively. Furthermore, we saw daily out-of-state handle grow roughly 4% over last year’s record and by nearly 179% compared to 2019. Our decision to schedule racing on Sundays instead of Mondays as we did in 2020 contributed to significant attendance growth. As race fans returned to Canterbury Park and wagered 87% more on-track than in 2020, we were encouraged to see out-of-state wagering handle remain at elevated levels. We also benefited in the quarter from the return of the Twin Cities Summer Jam, the addition of a seven-show concert series, and the return of our highly attended junk bonanza antique show.
“Importantly, while revenue levels returned to pre-pandemic levels during the 2021 third quarter, our ongoing efforts to manage labor and expenses continue to deliver higher margins and cash flow. Adjusted EBITDA as a percentage of total revenue was 24%, an increase from 22% in the 2021 second quarter, setting an all-time record for the second consecutive quarter. While labor shortages are likely to continue as longer-term challenges, including upward pressure on wage and benefit costs, we believe our active management of operating expenses and our ongoing work to implement efficiencies throughout the business will allow us to maintain margins at attractive levels going forward.
“Progress on the development of Canterbury Commons™ continued in the 2021 third quarter. Our many visitors that come to play at Canterbury Park are seeing a growing number of residential and commercial tenants who call Canterbury Commons home or come to work here each day. As the impact of the pandemic subsides, we are also seeing increased interest in the development from potential entertainment, hospitality, and retail partners who we believe will serve as additional anchors and drivers of traffic to our property. Canterbury Commons is on its way to becoming a pre-eminent residential, business, and entertainment center for Shakopee and the surrounding area, and we believe we are in the early stages of creating an attractive, pedestrian-friendly community that will also create long-term Card Casino, racing, and event growth opportunities.
“With our continued operating momentum, Canterbury remains well positioned to pursue strategic transactions where we can leverage our financial flexibility and operating expertise. Our evaluation of these opportunities is ongoing and we are excited by the potential they hold to further transform our business. As we continue unlocking Canterbury Commons’ value through land sales and development, we are creating new and significant long-term value for our shareholders. Our team has helped us successfully weather the storm of the COVID-19 pandemic and Canterbury Park has emerged a stronger company with an extremely bright future.”
Canterbury Commons Development Update
Leasing remains ongoing for the Phase 1 development of the upscale Triple Crown Residences at Canterbury Park. Sitework for the project’s second phase of roughly 300 apartments is underway; Canterbury Park and Doran Companies expect construction of the new Phase II apartments to begin in the spring of 2022.
Greystone Construction (“Greystone”) is now occupying the new 28,000 square foot office building it completed earlier this year and approximately 85% of the building is under contract, including a medical tenant that has leased a majority of the building’s first floor. Canterbury Park and Greystone, via their joint venture, continue to make progress on securing additional partners for the balance of the 13-acre site, with ongoing interest from potential hospitality and dining uses.
Pulte Homes of Minnesota commenced construction of 63 new row homes and townhome residences with potential sales and occupancy of the initial units beginning in the first quarter of 2022. In addition, the City of Shakopee approved Lifestyle Communities’ proposed development of a new cooperative community featuring a 56-unit, four-story building with over 5,000 square feet of amenity spaces. Lifestyle Communities expects to begin construction in early 2022.
Developer and partner selection for the remaining approximately 90 acres of Canterbury Commons continues. The primary focus for future projects will be on entertainment, office, retail, hotel, and restaurant uses. Canterbury expects to make additional new partner announcements in the future.
Summary of 2021 Third Quarter Operating Results
Net revenues for the three months ended September 30, 2021 increased 60.5% to a record $21.3 million, compared to $13.3 million for the same period in 2020. The year-over-year increase in net revenues reflects higher revenue generated across the Company’s operations as compared to the third quarter 2020. This was driven by a full quarter of more normalized operations in the third quarter 2021 as compared to the prior year, which contained limited operations and capacity restraints.
Operating expenses for the three months ended September 30, 2021 were $17.0 million, an increase of $4.7 million, or 38.5%, compared to operating expenses of $12.2 million for the same period in 2020. The year-over-year increase in operating expenses reflects a return to more normalized operations in the third quarter 2021 as compared to the third quarter 2020, primarily as a result of a return of substantially all of the Company’s operations in the third quarter 2021 while the prior year period was impacted by limited operations and active efforts to reduce expenses to preserve cash.
During the 2020 third quarter, the Company recorded a $2.3 million gain related to the transfers of land to the Doran Canterbury II and Canterbury DBSV joint ventures.
The Company recorded a loss from equity investment of $686,000 and $512,000 for the three months ended September 30, 2021 and 2020, respectively, primarily related to its share of depreciation, amortization, and interest expense from the Doran Canterbury joint ventures that are developing the Triple Crown Residences.
The Company recorded income tax expense of $1.1 million and $1.1 million for the three months ended September 30, 2021 and 2020, respectively.
The Company recorded net income of $2.8 million, or diluted earnings per share of $0.58, for the three months ended September 30, 2021. The Company recorded net income and diluted earnings per share of $1.8 million and $0.39, respectively, for the three months ended September 30, 2020.
Adjusted EBITDA, a non-GAAP measure, was a quarterly record $5.2 million in the 2021 third quarter compared to $1.2 million in the same period in 2020.
Summary of 2021 Year-to-Date Operating Results
Net revenues for the nine months ended September 30, 2021 increased 71.9% to $46.4 million, compared to $27.0 million for the same period in 2020. This year-over-year increase reflects improved performance across the Company’s operations as a result of a return to normalized operations and full capacity in the third quarter 2021 as compared to the temporary suspension of operations from March 16, 2020 through June 9, 2020 and the limitations placed on operations upon reopening.
Operating expenses for the nine months ended September 30, 2021 were $38.0 million, an increase of $9.8 million, or 34.9%, compared to operating expenses of $28.1 million for the same period in 2020. This year-over-year increase in operating expenses reflects a return to normalized operations and full capacity in the second quarter 2021 as compared to the prior year temporary suspension of operations from March 16, 2020 through September 9, 2020 and the limitations placed on operations upon reopening.
During the 2021 second quarter, the Company recorded a $264,000 gain related to the sale of approximately 9.7 acres of land to Pulte Homes of Minnesota and Lifestyle Communities for $2.5 million.
The Company recorded a loss from equity investment of $2.0 million and $661,000 for the nine months ended September 30, 2021 and 2020, respectively. These losses from equity investments were primarily related to the Company’s share of depreciation, amortization, and interest expense from the Doran Canterbury joint ventures.
The Company recorded income tax expense of $2.1 million and $70,000 for the nine months ended September 30, 2021 and 2020, respectively.
The Company recorded net income of $5.2 million, or diluted earnings per share of $1.09, for the nine months ended September 30, 2021. The Company recorded net income and diluted earnings per share of $923,000 and $0.20, respectively, for the nine months ended September 30, 2020.
Adjusted EBITDA was $10.1 million for the nine months ended September 30, 2021 compared to adjusted EBTIDA of $295,000 in the same period of 2020.
Additional Financial Information
Further financial information for the third quarter ended September 30, 2021 is presented in the accompanying tables at the end of this press release. Additional information will be provided in the Company’s Quarterly Report on Form 10-Q that will be filed with the Securities and Exchange Commission on or about November 9, 2021.
Use of Non-GAAP Financial Measures
To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure, which excludes certain items from net income a GAAP measure. We define EBITDA as earnings before interest, taxes, depreciation and amortization. We define Adjusted EBITDA as earnings before interest income, income tax expense (benefit), depreciation and amortization, as well as excluding gains on sale/transfer of land, loss on disposal of assets, depreciation and amortization related to equity investments, grant money received from the Minnesota COVID-19 relief package, and interest expense related to equity investments. Neither EBITDA nor adjusted EBITDA is a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP"), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance. We have presented EBITDA as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry. Other companies that provide EBITDA information may calculate EBITDA differently than we do. We have presented Adjusted EBITDA as a supplemental disclosure because it enables investors to understand our results excluding the effect of these items.
About Canterbury Park
Canterbury Park Holding Corporation (Nasdaq: CPHC) owns and operates Canterbury Park Racetrack and Card Casino in Shakopee, Minnesota, the only thoroughbred and quarter horse racing facility in the State. The Company generally offers live racing from May to September. The Card Casino hosts card games 24 hours a day, seven days a week, dealing both poker and table games. The Company also conducts year-round wagering on simulcast horse racing and hosts a variety of other entertainment and special events at its Shakopee facility. The Company is also pursuing a strategy to enhance shareholder value by the ongoing development of approximately 140 acres of underutilized land surrounding the Racetrack that was originally designated for a project known as Canterbury Commons™. The Company is pursuing several mixed-use development opportunities for the remaining underutilized land, directly and through joint ventures. For more information about the Company, please visit www.canterburypark.com.
Cautionary Statement
From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, we may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans. These statements are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties which could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. We report these risks and uncertainties in our Annual Report on Form 10-K filed with the SEC and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. They include, but are not limited to: the effect that the COVID-19 coronavirus pandemic and resulting precautionary measures may have on us as an entertainment venue or on the economy generally, including the fact that we temporarily suspended all card casino, simulcast, and special events operations during portions of 2020 and may be required to do so again in 2021, that we were required to limit visitors and engage in new cleaning protocols, social distancing measures and other changes to our racetrack and card casino operations to comply with state law and health protocols and reductions in the number of visitors due to their COVID-19 concerns; material fluctuations in attendance at the Racetrack; material changes in the level of wagering by patrons; any decline in interest in the unbanked card games offered in the Card Casino; competition from other venues offering unbanked card games or other forms of wagering; competition from other sports and entertainment options; increases in compensation and employee benefit costs; increases in the percentage of revenues allocated for purse fund payments; higher than expected expense related to new marketing initiatives; the impact of wagering products and technologies introduced by competitors; the general health of the gaming sector; legislative and regulatory decisions and changes; our dependence on the Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community for purse enhancement payments and marketing payments, which may not continue after 2022; our ability to successfully develop our real estate, including the effect of competition on our real estate development operations and our reliance on our current and future development partners; temporary disruptions or changes in access to our facilities caused by ongoing infrastructure improvements; and other factors that are beyond our ability to control or predict.
# # #
Investor Contacts:
| Randy Dehmer | Richard Land, Jim Leahy |
| Senior Vice President and Chief Financial Officer | JCIR |
| Canterbury Park Holding Corporation | 212-835-8500 or cphc@jcir.com |
| 952-233-4828 or investorrelations@canterburypark.com |
– Financial tables follow –
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CANTERBURY PARK HOLDING CORPORATION'S |
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SUMMARY OF OPERATING RESULTS |
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2021 |
2020 |
2021 |
2020 |
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Net Operating Revenues |
$ | 21,347,334 | $ | 13,300,014 | $ | 46,444,694 | $ | 27,016,828 | ||||||||
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Operating Expenses |
(16,961,343 | ) | (12,245,399 | ) | (37,957,706 | ) | (28,139,097 | ) | ||||||||
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Gain on Sale/Transfer of Land |
- | 2,275,458 | 263,581 | 2,275,458 | ||||||||||||
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Income from Operations |
4,385,991 | 3,330,073 | 8,750,569 | 1,153,189 | ||||||||||||
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Other (Loss) Income, net |
(505,384 | ) | (343,064 | ) | (1,439,564 | ) | (159,655 | ) | ||||||||
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Income Tax Expense |
(1,123,209 | ) | (1,137,997 | ) | (2,133,030 | ) | (70,498 | ) | ||||||||
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Net Income |
$ | 2,757,398 | $ | 1,849,012 | $ | 5,177,975 | $ | 923,036 | ||||||||
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Basic Net Income Per Common Share |
$ | 0.58 | $ | 0.39 | $ | 1.09 | $ | 0.20 | ||||||||
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Diluted Net Income Per Common Share |
$ | 0.58 | $ | 0.39 | $ | 1.09 | $ | 0.20 | ||||||||
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RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA |
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NET INCOME |
$ | 2,757,398 | $ | 1,849,012 | $ | 5,177,975 | $ | 923,036 | ||||||||
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Interest income, net |
(180,357 | ) | (168,552 | ) | (524,757 | ) | (501,600 | ) | ||||||||
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Income tax expense |
1,123,209 | 1,137,997 | 2,133,030 | 70,498 | ||||||||||||
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Depreciation |
730,164 | 655,003 | 2,113,917 | 2,065,496 | ||||||||||||
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EBITDA |
4,430,414 | 3,473,460 | 8,900,165 | 2,557,430 | ||||||||||||
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Gain on sale/transfer of land |
— | (2,275,458 | ) | (263,581 | ) | (2,275,458 | ) | |||||||||
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Loss on disposal of assets |
— | 13,407 | — | 13,407 | ||||||||||||
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Depreciation and amortization related to equity investments |
496,512 | — | 1,283,858 | — | ||||||||||||
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Interest expense related to equity investments |
248,727 | — | 705,793 | — | ||||||||||||
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Other revenue, COVID-19 relief grants |
— | — | (515,000 | ) | — | |||||||||||
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ADJUSTED EBITDA |
$ | 5,175,652 | $ | 1,211,409 | $ | 10,111,235 | $ | 295,379 | ||||||||