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)
Registrant’s telephone number, including area 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, 2023 and December 31, 2022 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | |
| Item 3. |
26 | ||
| Item 4. |
26 | ||
| PART II. |
OTHER INFORMATION |
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| Item 1. |
27 | ||
| Item 1A. |
27 | ||
| Item 2. |
27 | ||
| Item 3. |
27 | ||
| Item 4. |
27 | ||
| Item 5. |
27 | ||
| Item 6. |
28 | ||
| 28 | |||
PART 1 – FINANCIAL INFORMATION
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| (Unaudited) |
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| September 30, |
December 31, |
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| 2023 |
2022 |
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| ASSETS |
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| CURRENT ASSETS |
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| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
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| Short-term investments |
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| Accounts receivable, net of allowance of $19,250 for both periods |
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| Employee retention credit receivable |
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| Inventory |
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| Prepaid expenses |
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| Income taxes receivable and prepaid income taxes |
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| Total current assets |
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| LONG-TERM ASSETS |
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| Deposits |
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| Other prepaid expenses |
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| TIF receivable |
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| Related party receivable |
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| Operating lease right-of-use asset |
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| Equity investment |
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| Land held for development |
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| Land, buildings, and equipment, net |
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| Total long-term assets |
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| TOTAL ASSETS |
$ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
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| CURRENT LIABILITIES |
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| Accounts payable |
$ | $ | ||||||
| Casino accruals |
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| Accrued wages and payroll taxes |
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| Cash dividend payable |
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| Accrued property taxes |
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| Deferred revenue |
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| Payable to horsepersons |
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| Current portion of operating lease obligations |
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| Current portion of finance lease obligations |
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| Total current liabilities |
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| LONG-TERM LIABILITIES |
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| Deferred income taxes |
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| Investee losses in excess of equity investment |
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| Operating lease obligations, net of current portion |
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| Finance lease obligations, net of current portion |
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| Total long-term liabilities |
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| TOTAL LIABILITIES |
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| STOCKHOLDERS’ EQUITY |
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| Common stock, $.01 par value, 10,000,000 shares authorized, 4,944,642 and 4,888,975 respectively, shares issued and outstanding |
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| Additional paid-in capital |
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| Retained earnings |
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| 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, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| OPERATING REVENUES: |
||||||||||||||||
| Casino |
$ | $ | $ | $ | ||||||||||||
| Pari-mutuel |
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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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| Gain on disposal of assets |
( |
) | ( |
) | ||||||||||||
| Other operating expenses |
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| Total Operating Expenses |
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| Gain on sale of land |
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| INCOME FROM OPERATIONS |
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| OTHER INCOME (LOSS) |
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| (Loss) gain from equity investment |
( |
) | ( |
) | ( |
) | ||||||||||
| Interest income, net |
||||||||||||||||
| Net Other (Loss) Income |
( |
) | ( |
) | ( |
) | ||||||||||
| INCOME BEFORE INCOME TAXES |
||||||||||||||||
| 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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| Cash dividends declared per share |
$ | $ | $ | $ | ||||||||||||
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, 2023
| Number of |
Common |
Additional |
Retained |
|||||||||||||||||
| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Dividend declared |
— | ( |
) | ( |
) | |||||||||||||||
| 401(k) stock match |
||||||||||||||||||||
| Net income |
— | |||||||||||||||||||
| Balance at September 30, 2023 |
$ | $ | $ | $ | ||||||||||||||||
For the nine months ended September 30, 2023
| Number of |
Common |
Additional |
Retained |
|||||||||||||||||
| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Dividend declared |
— | ( |
) | ( |
) | |||||||||||||||
| 401(K) stock match |
||||||||||||||||||||
| Issuance of deferred stock awards |
( |
) | ( |
) | ||||||||||||||||
| Shares issued under Employee Stock Purchase Plan |
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| Net income |
— | |||||||||||||||||||
| Balance at September 30, 2023 |
$ | $ | $ | $ | ||||||||||||||||
For the three months ended September 30, 2022
| Number of |
Common |
Additional |
Retained |
|||||||||||||||||
| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Dividend declared |
— | ( |
) | ( |
) | |||||||||||||||
| 401(k) stock match |
||||||||||||||||||||
| Net income |
— | |||||||||||||||||||
| Balance at September 30, 2022 |
$ | $ | $ | $ | ||||||||||||||||
For the nine months ended September 30, 2022
| Number of |
Common |
Additional |
Retained |
|||||||||||||||||
| Shares |
Stock |
Paid-in Capital |
Earnings |
Total |
||||||||||||||||
| Balance at December 31, 2021 |
$ | $ | $ | $ | ||||||||||||||||
| Stock-based compensation |
— | |||||||||||||||||||
| Dividend distribution |
— | ( |
) | ( |
) | |||||||||||||||
| 401(K) stock match |
||||||||||||||||||||
| Issuance of deferred stock awards |
( |
) | ( |
) | ||||||||||||||||
| Shares issued under Employee Stock Purchase Plan |
||||||||||||||||||||
| Net Income |
— | |||||||||||||||||||
| Balance at September 30, 2022 |
$ | $ | $ | $ | ||||||||||||||||
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, |
||||||||
| 2023 |
2022 |
|||||||
| Operating Activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
||||||||
| Stock-based compensation expense |
||||||||
| Stock-based employee match contribution |
||||||||
| Gain on disposal of assets |
( |
) | ||||||
| Gain on sale of land |
( |
) | ( |
) | ||||
| Deferred income taxes |
||||||||
| (Gain) loss from equity investment |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ( |
) | ||||
| Employee retention credit |
||||||||
| Increase in TIF receivable |
( |
) | ( |
) | ||||
| Inventory, prepaid expenses and deposits |
||||||||
| Income taxes receivable/payable and prepaid income taxes |
( |
) | ( |
) | ||||
| Operating lease right-of-use asset |
||||||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Accounts payable |
||||||||
| Deferred revenue |
( |
) | ( |
) | ||||
| Casino accruals |
( |
) | ||||||
| Accrued wages and payroll taxes |
||||||||
| Accrued property taxes |
( |
) | ||||||
| Payable to horsepersons |
( |
) | ||||||
| Net cash provided by operating activities |
||||||||
| Investing Activities: |
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| Additions to land, buildings, and equipment |
( |
) | ( |
) | ||||
| Proceeds from disposal of assets |
||||||||
| Proceeds from sale of land |
||||||||
| Additions for TIF eligible improvements |
( |
) | ( |
) | ||||
| Equity investment contributions |
( |
) | ||||||
| Increase in related party receivable |
( |
) | ( |
) | ||||
| Proceeds from sale of short term investments |
||||||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| Financing Activities: |
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| Proceeds from issuance of common stock |
||||||||
| Cash dividend paid to shareholders |
( |
) | ( |
) | ||||
| Payments for taxes related to net share settlement of equity awards |
( |
) | ( |
) | ||||
| Principal payments on finance lease |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net increase in cash, cash equivalents, and restricted cash |
||||||||
| Cash, cash equivalents, and restricted cash at beginning of period |
||||||||
| 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 |
||||||||
| Additions to land, buildings, and equipment funded through accounts payable |
$ | $ | ||||||
| Dividend declared but not yet paid |
||||||||
| Change in investee losses in excess of equity investments |
( |
) | ||||||
| ROU assets obtained in exchange for operating lease obligations |
||||||||
| Supplemental disclosure of cash flow information: |
||||||||
| Income taxes paid, net of refunds |
$ | $ | ||||||
| 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 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 Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues are from 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 has obtained and 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, 2022, included in its Annual Report on Form 10-K (the “2022 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, 2023 and 2022 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, 2023 and 2022 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 2022 Form 10-K. There were no material changes in significant accounting policies during the three and nine months ended September 30, 2023.
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.
Accounts Receivable - We evaluate our allowance for credit losses and estimate collectability of current and non-current accounts receivable based on historical bad debt experience, our assessment of the financial condition of individual companies with which we do business, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, our estimates and judgments with respect to the collectability of our receivables are subject to greater uncertainty than in more stable periods. The Company does not have accounts receivable with original maturities greater than one year. The allowance for credit losses and activity as of September 30, 2023 and December 31, 2022 was not material.
Employee Retention Credit ("ERC") – The Company qualified for federal government assistance through ERC provisions of the CARES Act passed in 2020, for the 2020 second, third, and fourth quarters, as well as the 2021 first and second quarters. The purpose of the ERC is to encourage employers to keep employees on the payroll, even if they are not working during the covered period because of the coronavirus outbreak. We recognize amounts to be refundable as tax credits if there is a reasonable assurance of compliance with grant conditions and receipt of credits. During the first nine months of 2023, the Company received the payments in full and as of September 30, 2023 and December 31, 2022, the Company's expected one-time refunds totaling $
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.
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 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 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 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 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 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.
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. 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, and instead granted deferred stock awards designed to retain NEOs and other senior executives in lieu of LTI Plan awards from 2020 through 2023. In February 2022, the Compensation Committee made determinations regarding the achievement of 2021 performance goals and payouts under the 2019-2021 LTI Plan, which completed the performance period and awards under the 2019-2021 LTI Plan, and the last outstanding awards under the LTI Plan. Accordingly, there are no awards outstanding under the LTI Plan.
Board of Directors Stock Options, 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
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 to key employees that vest over to years. Deferred stock awards represent the right to receive shares of the Company's common stock upon vesting.
During the nine months ended September 30, 2023, the Company granted employees deferred stock awards totaling
Employee deferred stock transactions during the nine months ended September 30, 2023 are summarized as follows:
| Weighted | ||||||||
| Average | ||||||||
| Deferred | Fair Value | |||||||
| Stock | Per Share | |||||||
| Non-Vested Balance, December 31, 2022 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Non-Vested Balance, September 30, 2023 | $ | |||||||
There were
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, 2023 and 2022:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net income (numerator) amounts used for basic and diluted per share computations: |
$ | $ | $ | $ | ||||||||||||
| Weighted average shares (denominator) of common stock outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Plus dilutive effect of deferred stock awards |
||||||||||||||||
| Diluted |
||||||||||||||||
| Net income per common share: |
||||||||||||||||
| Basic |
$ | $ | $ | $ | ||||||||||||
| Diluted |
||||||||||||||||
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 reportable operating segments: horse racing, Casino, food and beverage, and development. The horse racing segment primarily represents simulcast and live horse racing operations. The Casino segment represents operations of Canterbury Park’s Casino. The food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Casino, and during special events. The development segment represents our real estate development operations. The Company’s reportable operating segments are strategic business units that offer different products and services. They are managed separately because the segments differ in the nature of the products and services provided as well as process to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Casino segments.
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, 2023 | ||||||||||||||||||||
| Horse Racing | 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, 2023 | ||||||||||||||||||||
| Segment Assets | $ | $ | $ | $ | $ | |||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||
| Horse Racing | 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) | ( | ) | ( | ) | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| 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, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | ||||||||
| Total net revenue for reportable segments | $ | $ | ||||||
| Elimination of intersegment revenues | ( | ) | ( | ) | ||||
| Total consolidated net revenues | $ | $ | ||||||
| Income before income taxes | ||||||||
| Total segment income (loss) before income taxes | $ | $ | ||||||
| Elimination of intersegment (income) loss before income taxes | ( | ) | ( | ) | ||||
| Total consolidated income before income taxes | $ | $ |
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Total assets for reportable segments | $ | $ | ||||||
| Elimination of intercompany balances | ( | ) | ( | ) | ||||
| Total consolidated assets | $ | $ | ||||||
6. COMMITMENTS AND CONTINGENCIES
Effective on December 21, 2021, the Company entered into a Contribution and Indemnity Agreement ("Indemnity Agreement") with affiliates of Doran Companies ("Doran") in connection with the debt refinancing on the Doran Canterbury I, LLC joint venture. Under the Indemnity Agreement, the Company is obligated to indemnify Doran for loan payment amounts up to $
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, 2023 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”). On January 25, 2022, the Company received the fully executed First Amendment to the Contract for Redevelopment among the Master Developer, the City and the Authority, which is effective as of September 7, 2021. Under this contract, the Company is obligated to construct certain infrastructure improvements within the TIF District, and will be reimbursed for the cost of TIF eligible improvements by the City of Shakopee by future tax increment revenue generated from the developed property, up to specified maximum amounts. 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
On March 4, 2012, the Company entered into a Cooperative Marketing Agreement (the "CMA") with the Shakopee Mdewakanton Sioux Community ("SMSC"). The primary purpose of the CMA was 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 was achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments had no direct impact on the Company’s consolidated financial statements or operations.
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 was obligated to make an annual purse enhancement of $
The amounts earned from the marketing payments were recorded as a component of other revenue and the related expenses were 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, 2022, the Company recorded $
Under the CMA, the Company agreed for the term of the CMA 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.
The CMA expired by its terms on December 31, 2022. Accordingly, for the three and nine months ended September 30, 2023, there were no purse enhancement payments or marketing payments under the CMA.
8. REAL ESTATE DEVELOPMENT
Equity Investments
Doran Canterbury I, LLC
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”).
On September 27, 2018, Canterbury Development LLC contributed approximately
Doran Canterbury II, LLC
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”). The Operating Agreement was amended and restated by the members effective July 30, 2020. 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
Canterbury DBSV Development, LLC
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
The following table summarizes changes to the Equity investment and Investee losses in excess of equity investment lines on our consolidated balance sheets for the nine months ended September 30, 2023:
| Equity Investment | Investee losses in excess of equity investment | Net Equity Investment | ||||||||||
| Net Equity Investment Balance at 12/31/22 | $ | $ | ( | ) | $ | |||||||
| Q1 Equity investment income (loss) | ( | ) | ||||||||||
| Q2 Equity investment income (loss) | ( | ) | ( | ) | ( | ) | ||||||
| Q3 Equity investment income (loss) | ( | ) | ( | ) | ( | ) | ||||||
| Net Equity Investment Balance at 9/30/23 | $ | $ | ( | ) | $ | |||||||
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 Original Agreement, the Company agreed to undertake a number of specific infrastructure improvements within the TIF District, and the City 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. Under the Original Agreement, the total estimated cost of TIF eligible improvements to be borne by the Company was $
On January 25, 2022, the Company received the fully executed First Amendment to the Contract for Private Redevelopment (the “First Amendment”) among the Company, the City of Shakopee, and the Shakopee EDA, which is effective as of September 7, 2021. Under the First Amendment and as part of the authorized changes regarding the responsibilities of the Company and the City, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. As a result, the total estimated cost of TIF eligible improvements to be borne by the Company was reduced by $
A detailed Schedule of the Public Improvements under the First Amendment, the timeline for their construction and the source and amount of funding is set forth in the First Amendment, which is filed as Exhibit 10.1 of the Form 8-K filed on January 31, 2022. The Company expects to substantially complete the remaining developer improvements by July 17, 2027 and will be reimbursed for costs of the developer improvements incurred by no later than July 17, 2027. The total amount of funding that the Company will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend in part on future tax revenues generated from the developed property.
As of September 30, 2023, the Company recorded a TIF receivable of approximately $
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.
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 | 2023 | 2022 | |||||||
| 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, | |||||||
| 2023 | 2022 | |||||||
| 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, 2023 are as follows:
| Nine Months Ended September 30, 2023 | Operating leases | Finance leases | ||||||
| 2023 remaining | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 and beyond | ||||||||
| 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
Since 2019, the Company has made member loans to the Doran Canterbury I and the Doran Canterbury II joint ventures 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 and its subsidiaries, 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 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 Casino at the Racetrack. The Casino typically operates 24 hours a day, seven days a week. The 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.
Operations Review for the Three and Nine Months Ended September 30, 2023:
Revenues:
Total net revenues for the three months ended September 30, 2023 were $19,269,000, a decrease of $3,024,000, or 13.6%, compared to total net revenues of $22,292,000 for the three months ended September 30, 2022. Total net revenues for the nine months ended September 30, 2023 were $48,910,000, a decrease of $4,795,000, or 8.9%, compared to total net revenues of $53,705,000 for the nine months ended September 30, 2022. See below for a further discussion of our sources of revenues.
Casino Revenue:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Poker Games Collection |
$ | 1,844,000 | $ | 1,925,000 | $ | 5,665,000 | $ | 5,705,000 | ||||||||
| Other Poker Revenue |
739,000 | 715,000 | 2,253,000 | 2,066,000 | ||||||||||||
| Total Poker Revenue |
2,583,000 | 2,640,000 | 7,918,000 | 7,771,000 | ||||||||||||
| Table Games Collection |
7,037,000 | 6,822,000 | 20,567,000 | 20,850,000 | ||||||||||||
| Other Table Games Revenue |
604,000 | 578,000 | 1,837,000 | 1,773,000 | ||||||||||||
| Total Table Games Revenue |
7,641,000 | 7,400,000 | 22,404,000 | 22,623,000 | ||||||||||||
| Total Casino Revenue |
$ | 10,224,000 | $ | 10,040,000 | $ | 30,322,000 | $ | 30,394,000 | ||||||||
Pari-Mutuel Revenue:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Simulcast |
$ | 906,000 | $ | 901,000 | $ | 2,848,000 | $ | 2,997,000 | ||||||||
| Live Racing |
1,047,000 | 1,214,000 | 1,526,000 | 1,890,000 | ||||||||||||
| Guest Fees |
1,082,000 | 2,133,000 | 1,533,000 | 3,449,000 | ||||||||||||
| Other revenue |
370,000 | 483,000 | 1,103,000 | 1,263,000 | ||||||||||||
| Total Pari-Mutuel Revenue |
$ | 3,405,000 | $ | 4,731,000 | $ | 7,010,000 | $ | 9,599,000 | ||||||||
Total pari-mutuel revenue decreased $1,326,000, or 28%, and $2,589,000, or 27%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease in pari-mutuel revenues is primarily due to a decrease in live race days year-over-year (53 race days in 2023 compared to 64 race days in 2022) as well as decreased guest fees from out-state-handle on our live racing product.
Food and Beverage Revenue:
Food and beverage revenue decreased $603,000, or 15.4%, and $342,000, or 4.8%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease in food and beverage revenues for the three and nine month periods is primarily due to Twin Cities Summer Jam not taking place in the third quarter of 2023 as it did during the third quarter of 2022.
Other Revenue:
Other revenue decreased $1,280,000, or 35.5%, and $1,791,000, or 27.3%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decreases are primarily due to the expiration of the SMSC agreement as funds received from the agreement were used and subsequently recorded in other revenues as well as being recorded as operating, primarily advertising and marketing, expenses.
Operating Expenses:
Total operating expenses decreased $422,000, or 2.4%, and increased $307,000, or 0.7%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The following paragraphs provide further detail regarding certain operating expenses.
Purse expense decreased $386,000, or 12.9%, and $897,000, or 12.9%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease for the three months ended September 30, 2023 is primarily due to the decrease in pari-mutuel revenues while the decrease for the nine months ended September 30, 2023 is primarily due to decreases of both pari-mutuel and Casino revenues.
Salaries and benefits increased $385,000, or 5.6%, and $1,042,000, or 5.5%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increase is primarily due to an increase in our wage-rate structure for seasonal as well as year-round employees to attract and retain front-line workers. The Company also increased its 401(k) match percentage, effective January 1, 2023.
Cost of food and beverage sales decreased $204,000, or 14.9%, and $204,000, or 7.4%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease is primarily due to the decreased food and beverage revenue due to Twin Cities Summer Jam not taking place in 2023 as noted above.
Advertising and marketing costs decreased $680,000, or 43.4%, and $922,000, or 33.7%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease is attributed to the expiration of the Cooperative Marketing Agreement mentioned above in the other revenues section.
Professional and contracted services increased $713,000, or 45.4%, and $1,076,000, or 28.5%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increase in professional expense relates to long-term strategic growth initiatives being pursued as part of the execution on our five-year strategic plan focused on growing Casino revenue.
Other operating expenses decreased $213,000, or 13.3%, and increased $317,000, or 8.3%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease for the three months ended September 30, 2023 is primarily due to lower costs for promoter expenses related to our summer concert series. The increase for the nine months ended September 30, 2023 is primarily due to increased track maintenance costs, a settlement of a claim, and also the timing of miscellaneous repairs and maintenance year-over-year.
Other Income (Loss), Net:
Other loss, net, for the three months ended September 30, 2023 was $137,000, an increase of $140,000, compared to a net other loss of $277,000 for the three months ended September 30, 2022. Other income, net, for the nine months ended September 30, 2023 was $1,995,000, an increase of $2,649,000, compared to a net other loss of $653,000 for the nine months ended September 30, 2022. The increase for the nine months ended September 30, 2023 is primarily due to our share of insurance proceeds received on a claim by Doran Canterbury I. Also contributing to both the three and nine month increases was increased interest income due to the Company transferring available cash into certificates of deposit and money market funds as well as increasing interest rates related to our member loans to Doran Canterbury I and Doran Canterbury II.
During the 2023 second quarter, the Company recorded a gain on sale of land of $6,490,000 as a result of the sale of approximately 37 acres of land to an affiliate of Swervo Development for approximately $8,800,000 in total consideration.
The Company recorded a provision for income taxes of $533,000 and $1,210,000 for the three months ended September 30, 2023 and 2022, respectively. The Company recorded a provision for income taxes of $3,709,000 and $2,434,000 for the nine months ended September 30, 2023 and 2022, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The decrease in our tax expense for the three months ended September 30, 2023 is primarily due to a decrease in income before taxes. Our effective tax rate was 31.9% and 28.7% for the three and nine months ended September 30, 2023, respectively. Our effective tax rate was 29.3% and 27.4% for the three and nine months ended September 30, 2022, respectively. The small fluctuations in the effective tax rates are primarily the result of discrete items that occurred during the three and nine months ended September 30, 2023.
The Company recorded net income of $1,136,000 and $9,199,000 for the three and nine months ended September 30, 2023, respectively. The Company recorded net income of $2,921,000 and $6,450,000 for the three and nine months ended September 30, 2022, respectively.
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. See the table below, which presents reconciliations of these measures to the GAAP equivalent financial measures. 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 and is useful in allowing greater transparency related to a significant measure used by management in its financial and operational decision-making. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, excluding the impact of our real estate segment, and provides a perspective on the current effects of operating decisions relating to our core, non-real estate business. For the three and nine months ended September 30, 2023, Adjusted EBITDA excluded depreciation relating to equity investments, gain on sale of land and disposal of assets, a gain on insurance proceeds related to the equity investment in Doran Canterbury I, as well as depreciation and amortization relating to equity investments, and interest expense related to equity investments. 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 we believe that, when considered with measures calculated in accordance with GAAP, EBITDA and Adjusted EBITDA provide a more complete understanding of our operating results before the impact of investing and financing transactions and income taxes, and it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA or Adjusted EBITDA information may calculate EBITDA or Adjusted 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, 2023 and 2022:
Summary of EBITDA Data
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| NET INCOME |
$ | 1,136,299 | $ | 2,921,120 | $ | 9,199,331 | $ | 6,450,102 | ||||||||
| Interest income, net |
(536,904 | ) | (222,671 | ) | (1,433,353 | ) | (620,811 | ) | ||||||||
| Income tax expense |
533,000 | 1,209,777 | 3,709,000 | 2,434,078 | ||||||||||||
| Depreciation |
831,379 | 747,267 | 2,308,272 | 2,234,790 | ||||||||||||
| EBITDA |
1,963,774 | 4,655,493 | 13,783,250 | 10,498,159 | ||||||||||||
| Gain on disposal of assets |
(19,265 | ) | — | (19,265 | ) | — | ||||||||||
| Gain on sale of land |
— | — | (6,489,976 | ) | (12,151 | ) | ||||||||||
| Gain on insurance proceeds related to equity investments |
— | — | (2,528,901 | ) | — | |||||||||||
| Depreciation and amortization related to equity investments |
438,011 | 445,181 | 1,313,986 | 1,340,856 | ||||||||||||
| Interest expense related to equity investments |
467,571 | 240,418 | 1,292,627 | 625,401 | ||||||||||||
| ADJUSTED EBITDA |
$ | 2,850,091 | $ | 5,341,092 | 7,351,721 | 12,452,265 | ||||||||||
Adjusted EBITDA decreased $2,491,000, or 46.6%, and $5,101,000, or 41.0%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease in Adjusted EBITDA is primarily due to decreased Pari-mutuel and Casino revenues noted above. Furthermore, for the nine months ended September 30, 2023, Adjusted EBITDA was reduced by insurance proceeds received by the Company's equity investment related to an insurance claim by the Doran Canterbury I, LLC joint venture as well as the gain on sale of land to Swervo Development, which were not present in other periods. For the three and nine months ended September 30, 2023, Adjusted EBITDA as a percentage of net revenue was 14.8% and 15.0%, respectively. For the three and nine months ended September 30, 2022, Adjusted EBITDA as a percentage of net revenue was 24.0% and 23.2%, respectively.
Contingencies:
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's primary source of liquidity and capital resources have been and are expected to be cash flow from operations and cash available under our revolving line of credit. 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 which matures January 31, 2024. 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, 2023, the outstanding balance on the line of credit was $0. The Company did not borrow on the revolving line of credit during the quarter ended September 30, 2023. As of September 30, 2023, 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, 2023 was $28,076,000 compared to $16,106,000 as of December 31, 2022. 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 ongoing liquidity and capital resource requirements for regular operations, as well as its planned development expenses for at least the next twelve months. The Company intends to allocate substantially all of the net proceeds from the sale of the 37 acres of land to Bloomington Investments, LLC, an entity related to Swervo Development ("Swervo"), for total consideration of $8,800,000, to the redevelopment of the horse stabling area, which serves its racing business, with new barns and a new dormitory complex. The Company may seek additional financing to complete the redevelopment of the horse stabling area. In August 2023, the Company received approval for the first phase of the barn relocation and redevelopment plan, which is expected to take approximately one year to complete. Furthermore, if the Company engages in additional significant real estate development, significant improvements to its facilities, the Racetrack or surrounding grounds, 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
Trends in our operating cash flows tend to follow trends in operating income but can be affected by changes in working capital, the timing of significant interest payments, and tax payments or refunds. Net cash provided by operating activities for the nine months ended September 30, 2023 was $10,201,000, primarily as a result of the following: the Company reported net income of $9,199,000, depreciation of $2,308,000, deferred income taxes of $776,000, and stock-based compensation and 401(k) match totaling $1,043,000, offset by a gain from equity investment of $562,000 and a gain on land sale of $6,490,000. The Company experienced an increase in cash related to an employee retention credit receivable of $6,103,000, offset by a decrease in amounts payable to horsepersons of $768,000 and an increase in accounts receivable of $1,002,000 for the nine months ended September 30, 2023.
Net cash provided by operating activities for the nine months ended September 30, 2022 was $9,869,000, primarily as a result of the following: the Company reported net income of $6,450,000, depreciation of $2,235,000, a loss from equity investment of $1,274,000, and stock-based compensation and 401(k) match totaling $795,000. Primarily due to timing of our live racing season, the Company also experienced an increase in accounts payable of $1,595,000 and an increase to payable to horsepersons of $558,000, offset by a decrease in accounts receivable of $1,499,000 and income taxes receivable and prepaid income taxes of $1,287,000 for the nine months ended September 30, 2022.
Investing Activities
Net cash provided by investing activities for the nine months ended September 30, 2023 was $2,895,000, primarily due to net proceeds received from the sale of land of $8,337,000, offset by $5,577,000 in additions to land, buildings, and equipment.
Net cash used in investing activities for the first nine months of 2022 was $2,078,000, primarily due to $2,663,000 in additions to land, buildings, equipment, and $398,000 in equity investment contributions, which was somewhat offset by $1,160,000 in net proceeds received from the sale of land .
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2023 was $1,126,000, primarily due to cash dividends paid to shareholders and payments for taxes of equity awards. The Company declared a cash dividend of $0.07 per share payable each quarter during the nine months ended September 30, 2023.
Net cash used in financing activities during the first nine months of 2022 was $1,180,000, primarily due to cash dividends paid to shareholders and payments for taxes of equity awards. The Company declared a cash dividend of $0.14 per share payable during the first quarter followed by a $0.07 per share payable for the second and third quarters during the nine months ended September 30, 2022.
Critical Accounting Estimates:
The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires us to make estimates and judgments that are subject to an inherent degree of uncertainty. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change.
These accounting estimates are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Management made no changes to the Company’s critical accounting estimates during the quarter ended September 30, 2023. In applying its critical accounting estimates, management reassesses its estimates each reporting period based on available information. Changes in these estimates did not have a significant impact on earnings for the quarter ended September 30, 2023.
The development and selection of critical accounting estimates, and the related disclosures, have been reviewed with the Audit Committee of our Board of Directors. We believe the current assumptions and other considerations used to estimate amounts reflected in our Condensed Consolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our Condensed Consolidated Financial Statements, the resulting changes could have a material adverse effect on our financial condition, results of operations and cash flows.
Estimate of the allowance for doubtful accounts - Property Tax Increment Financing "TIF" Receivable
As of September 30, 2023, the Company recorded a TIF receivable on its Consolidated Balance Sheet of approximately $13,801,000, which represents $11,305,000 of principal and $2,496,000 of interest. The TIF receivable requires significant management estimates and judgement pertaining to whether an allowance for doubtful accounts is necessary. The TIF receivable was generated in connection with the Contract for Private Redevelopment, in which the City of Shakopee has agreed that a portion of the future tax increment revenue generated from the developed property around the Racetrack will be paid to the Company to reimburse it for expenses in constructing public infrastructure improvements.
The Company typically performs an annual collectability analysis of the TIF receivable in the fourth quarter of each year, or more frequently if indicators of potential uncollectability exist. The Company utilizes the assistance of a third party to assist with the projected tax increments. The quantitative analysis includes assumptions based on the market values of the completed development projects within Canterbury Commons, which derives the future projected tax increment revenue. The Company uses the analysis to determine if the future tax increment revenue will exceed the Company's development costs on infrastructure improvements. As a result of our analysis for the year ended December 31, 2022, management believes the TIF receivable will be fully collectible and no allowance related to this receivable is necessary. There were no indicators of potential uncollectability for the three and nine months ended September 30, 2023.
Cooperative Marketing Agreement:
On June 4, 2012, the Company entered into a Cooperative Marketing Agreement (the "CMA") with the SMSC. The primary purpose of the CMA was 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 was achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments had no direct impact on the Company’s consolidated financial statements or operations.
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 paid the required annual purse enhancement of $7,380,000 and annual marketing payment of $1,620,000 for 2022.
The amounts earned from the marketing payments were recorded as a component of other revenue and the related expenses were 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, 2022, the Company recorded $977,000 and $1,764,000 in other revenue, incurred $916,000 and $1,603,000 in advertising and marketing expense, and incurred $61,000 and $161,000 in depreciation related to the SMSC marketing funds. The excess of amounts received over revenue is reflected as deferred revenue on the Company’s consolidated balance sheets.
Under the CMA, the Company agreed for the term of the CMA 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.
The CMA expired by its terms on December 31, 2022. Accordingly, for the three and nine months ended September 30, 2023, there were no purse enhancement payments or marketing payments under the CMA.
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.
On January 25, 2022, the Company received the fully executed First Amendment to the Contract for Private Redevelopment among the Company, the City of Shakopee, and the Shakopee EDA, which is effective as of September 7, 2021. Under the First Amendment and as part of the authorized changes regarding the responsibilities of the Company and the City, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. As a result, the total estimated cost of TIF eligible improvements to be borne by the Company was reduced by $5,744,000 to an amount not to exceed $17,592,881.
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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Our business is sensitive to reductions in discretionary consumer spending as a result of downturns in the economy and other factors outside of our control. |
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Because purse enhancement payments and marketing payments under our CMA with SMSC did not continue after December 31, 2022, we have experienced decreased revenue and profitability from live racing. |
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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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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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Nationally, the popularity of horse racing has declined |
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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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Our business and operations have been, and may in the future, be adversely affected by epidemics, pandemics, outbreaks of disease, and other adverse public health developments, including COVID-19. |
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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 may be adversely affected by the effects of inflation |
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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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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.
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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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Not Applicable.
The most significant risk factors applicable to the Company are described in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes from the risk factors previously disclosed.
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.
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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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 9, 2023 announcing 2023 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, 2023, formatted in Inline eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and September 30, 2022, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and September 30, 2022, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and September 30, 2022, 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 13, 2023 |
/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 13, 2023 |
/s/ Randy J. Dehmer |
| Randy J. Dehmer | |
| Chief Financial Officer (principal financial officer, principal accounting officer) |
