Canterbury Park Holding Corp

Previous wording

Operations Review for the Three and Nine Months Ended September 30, 2024:

Current wording

Operations Review for the Three Months Ended March 31, 2025:

Previous wording

Total net revenues for the three months ended September 30, 2024 were $19,284,000, an increase of $16,000, or 0.1%, compared to total net revenues of $19,268,000 for the three months ended September 30, 2023. Total net revenues for the nine months ended September 30, 2024 were $49,585,000, an increase of $675,000, or 1.4%, compared to total net revenues of $48,910,000 for the nine months ended September 30, 2023. See below for a further discussion of our sources of revenues.

Current wording

Total net revenues for the three months ended March 31, 2025 were $13,142,000, a decrease of $956,000, or 6.8%, compared to total net revenues of $14,098,000 for the three months ended March 31, 2024. See below for a further discussion of our sources of revenues.

Previous wording

As indicated by the table above, total Casino revenue decreased $345,000, or 3.4%, and $542,000, or 1.8%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The decrease for the three and nine months ended September 30, 2024 can be primarily attributed to both a decrease in drop and a lower average collection revenue rate in table games, somewhat offset by an increase in our other table games revenue due to increases related to our progressive jackpot revenue.

Current wording

As indicated by the table above, total Casino revenue decreased $864,000, or 8.6%, for the three months ended March 31, 2025, respectively, compared to the same period in 2024. The decrease for the three months ended March 31, 2025 can be primarily attributed to both a decrease in drop, due to increased competition, and a lower average collection revenue rate in table games, somewhat offset by an increase in our other table games revenue and other poker games revenue due to increases related to our progressive jackpot revenue and increased maximum rake per hand instituted in May 2024.

Previous wording

Total operating expenses decreased $92,000, or 0.5%, and increased $300,000, or 0.7%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The following paragraphs provide further detail regarding certain operating expenses.

Current wording

Total operating expenses increased $156,000, or 1.3%, for the three months ended March 31, 2025, compared to the same period in 2024. The following paragraphs provide further detail regarding certain operating expenses.

Previous wording

Salaries and benefits increased $45,000, or 0.6%, and increased $358,000, or 1.8%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increase is primarily due to annual wage increases along with the State of Minnesota annual mandated increase in the minimum wage.

Current wording

Salaries and benefits increased $159,000, or 2.6%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase is primarily due to annual wage increases along with the State of Minnesota annual mandated increase in the minimum wage.

Previous wording

Depreciation and amortization increased $105,000, or 12.6%, and increased $368,000, or 15.9%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increase is primarily due to placing larger fixed assets into service towards the second half of 2023 as well as placing assets into service related to the first and second phases of our barn relocation and redevelopment plan in the second quarter of 2024.

Current wording

Depreciation and amortization increased $81,000, or 9.5%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase is primarily due to placing larger fixed assets into service related to the first and second phases of our barn relocation and redevelopment plan in the second quarter of 2024.

Previous wording

Other operating expenses increased $247,000, or 17.7%, and $20,000, or 0.5%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increase is primarily due to higher promoter expenses related to special events.

Current wording

Other operating expenses increased $107,000, or 9.1%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase is primarily due to higher real estate taxes.

Previous wording

The Company recorded a provision for income taxes of $772,000 and $533,000 for the three months ended September 30, 2024 and 2023, respectively. The Company recorded a provision for income taxes of $1,364,000 and $3,709,000 for the nine months ended September 30, 2024 and 2023, 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 nine months ended September 30, 2024 compared to 2023 is primarily due to a decrease in income before taxes from operations. Our effective tax rate was 27.6% and 28.9% for three and nine months ended September 30, 2024, respectively. Our effective tax rate was 31.9% and 28.7% for the three and nine months ended September 30, 2023, respectively. The decrease in the effective tax rate is primarily the result of favorable discrete items that occurred during the three months ended September 30, 2024.

Current wording

The Company recorded a provision for income taxes with a benefit of $181,000 and expense of $450,000 for the three months ended March 31, 2025 and 2024, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The income tax benefit for the three months ended March 31, 2025 compared to the income tax expense for the same period in 2024 is primarily due to a decrease in income before taxes from operations and a federal interest income tax refund in the first quarter of 2025. Our effective tax rate was 37.7% and 31.1% for three months ended March 31, 2025 and 2024, respectively.

Previous wording

The Company recorded net income of $2,022,000, or $0.40 per basic and diluted share, and $3,358,000, or $0.67 per basic and diluted share, for the three and nine months ended September 30, 2024, respectively. The Company recorded net income of $1,136,000, or $0.23 per basic and diluted share, and $9,199,000, or $1.87 per basic and $1.86 diluted share, for the three and nine months ended September 30, 2023, respectively.

Current wording

The Company recorded a net loss of $299,000, or $0.06 per basic and diluted share, for the three months ended March 31, 2025. The Company recorded net income of $998,000, or $0.20 per basic and diluted share, for the three months ended March 31, 2024.

Previous wording

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, 2024, Adjusted EBITDA excluded stock-based compensation, as well as depreciation and amortization relating to equity investments, interest expense related to equity investments, and a gain on transfer of land. For the three and months ended September 30, 2023, Adjusted EBITDA also excluded a gain on disposal of assets, a gain on insurance proceeds received by the Company's equity investment, and a gain on sale of land. 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.

Current wording

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 months ended March 31, 2025 and 2024, Adjusted EBITDA excluded stock-based compensation, 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.

Previous wording

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 thethree and nine months ended September 30, 2024 and 2023:

Current wording

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 thethree months ended March 31, 2025 and 2024:

Previous wording

Adjusted EBITDA increased $89,000, or 2.8%, and $506,000, or 6.0%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increase in Adjusted EBITDA is primarily due to an overall increase in Income from Operations. 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, which was not present in other periods. For the three and nine months ended September 30, 2024, Adjusted EBITDA as a percentage of net revenue was 17.0% and 18.0%, respectively. For the three and nine months ended September 30, 2023, Adjusted EBITDA as a percentage of net revenue was 16.6% and 17.2%, respectively.

Current wording

Adjusted EBITDA decreased $1,274,000, or 39.6%, for the three months ended March 31, 2025, compared to the same period in 2024. The decrease in Adjusted EBITDA is primarily due to an overall decrease in Income from Operations. For the three months ended March 31, 2025, Adjusted EBITDA as a percentage of net revenue was 14.8%. For the three months ended March 31, 2024, Adjusted EBITDA as a percentage of net revenue was 22.8%.

Previous wording

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 line of credit and security agreement with a financial institution. The agreement was amended as of February 28, 2021 to extend the maturity date to January 31, 2024 and increase its revolving credit line up to $10,000,000. The line of credit was collateralized by all receivables, inventory, equipment, and general intangibles of the Company, as well as a mortgage on certain real property. The credit agreement contains covenants requiring the Company to maintain certain financial ratios. The general credit and security agreement was further amended as of January 31, 2024 to extend the maturity date to January 31, 2027 and reduce the maximum borrowing under the line of credit to $5,000,000. In connection with the amendment, the financial institution terminated a mortgage to release certain Company real property as collateral and the parties entered into a negative pledge agreement under which the Company agreed not to create any liens or encumbrances on certain Company real property. As of September 30, 2024, 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, 2024. As of September 30, 2024, the Company was in compliance with the financial covenants of the credit and security agreement.

Current wording

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 line of credit and security agreement with a financial institution. The agreement was amended as of February 28, 2021 to extend the maturity date to January 31, 2024 and increase its revolving credit line up to $10,000,000. The line of credit was collateralized by all receivables, inventory, equipment, and general intangibles of the Company, as well as a mortgage on certain real property. The credit agreement contains covenants requiring the Company to maintain certain financial ratios. The general credit and security agreement was further amended as of January 31, 2024 to extend the maturity date to January 31, 2027 and reduce the maximum borrowing under the line of credit to $5,000,000. In connection with the amendment, the financial institution terminated a mortgage to release certain Company real property as collateral and the parties entered into a negative pledge agreement under which the Company agreed not to create any liens or encumbrances on certain Company real property. As of March 31, 2025, the outstanding balance on the line of credit was $0. As of March 31, 2025, the Company was in compliance with the financial covenants of the credit and security agreement.

Previous wording

The Company’s cash, cash equivalents, and restricted cash balance at September 30, 2024 was $22,427,000 compared to $25,842,000 as of December 31, 2023. In August 2023, the Company received approval for a three-phase barn relocation and redevelopment plan totaling approximately $15 million over the course of two years. As of September 30, 2024, the Company has completed phases one and two of the project with phase three currently underway, with estimated remaining costs of approximately $5,000,000. In addition, the Company expects to spend the remaining $3,800,000 in tax increment financing over the next six months for the completion of the private redevelopment plan. 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 potential future land sales, will be sufficient to satisfy its ongoing liquidity and capital resource requirements for regular operations, as well as these planned development expenses for at least the next twelve months. 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.

Current wording

The Company’s cash, cash equivalents, and restricted cash balance at March 31, 2025 was $15,741,000 compared to $13,687,000 as of December 31, 2024. In August 2023, the Company received approval for a three-phase barn relocation and redevelopment plan totaling approximately $15 million over the course of two years. As of March 31, 2025, the Company has completed phases one and two of the project with phase three currently underway, with estimated remaining costs of approxim ately $2,000,000. In addition, the Company expects to spend the remaining $1,907,000 in tax increment financing over the next six months for the completion of the private redevelopment plan. 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 potential future land sales, will be sufficient to satisfy its ongoing liquidity and capital resource requirements for regular operations, as well as these planned development expenses for at least the next twelve months. 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.

Previous wording

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 thenine months ended September 30, 2024 was $9,281,000, primarily as a result of the following: the Company reported net income of $3,358,000, depreciation of $2,676,000, a loss from equity investment of $3,401,000, and stock-based compensation and 401(k) match totaling $1,074,000. This was partially offset by a gain recognized on a transfer of land of $1,732,000. The Company also experienced an increase in payable to horsepersons of $2,143,000, primarily due to the timing of our live racing season. This was offset by an increase in accounts receivable of $1,974,000, primarily due to purse payments made as part of the 2024 live meet and purse fund contribution agreement, and an increase in inventory and prepaid expenses of $1,131,000, primarily due to the prepayment of infrastructure development, for thenine months ended September 30, 2024.

Current wording

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 thethree months ended March 31, 2025 was $3,374,000, primarily as a result of the following: the Company reported a net loss of $299,000, depreciation and amortization of $931,000, a loss from equity investment of $1,573,000, and stock-based compensation and 401(k) match totaling $382,000. The Company also experienced an increase in payable to horsepersons of $1,207,000, primarily due to the timing of our live racing season. This was offset by an increase in accounts receivable of $486,000, an increase in TIF receivable of $206,000, and a decrease in accounts payable, net of land, buildings, and equipment funded through accounts payable, of $1,234,000, primarily related to payments for our redevelopment plan, for thethree months ended March 31, 2025.

Previous wording

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.

Current wording

Net cash provided by operating activities for the three months ended March 31, 2024 was $1,616,000, primarily as a result of the following: the Company reported net income of $998,000, depreciation of $851,000, a loss from equity investment of $852,000, and stock-based compensation and 401(k) match totaling $346,000. Primarily due to timing, the Company also experienced a decrease in accounts payable of $2,253,000, an increase in accounts receivable of $344,000, offset by an increase in accrued wages and payroll taxes of $534,000 for the three months ended March 31, 2024.

Previous wording

Net cash used in investing activities for thenine months ended September 30, 2024 was $11,637,000, primarily due to additions to land, buildings, and equipment of $8,080,000 and an increase in TIF eligible improvements of $2,486,000, which are associated with the barn relocation and redevelopment plan.

Current wording

Net cash used in investing activities for the three months ended March 31, 2024 was $2,707,000, primarily due to additions to land, buildings, and equipment of $2,217,000 and an increase in related party receivables of $444,000 .

Previous wording

Net cash used in financing activities for thenine months ended September 30, 2024 was $1,058,000, 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 during the three months ended September 30, 2024.

Current wording

Net cash used in financing activities for thethree months ended March 31, 2025 was $430,000, 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 during the three months ended March 31, 2025.

Previous wording

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.

Current wording

Net cash used in financing activities for the three months ended March 31, 2024 was $470,000, 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 during the three months ended March 31, 2024 .

Previous wording

As of September 30, 2024, the Company recorded a TIF receivable on its Consolidated Balance Sheet of approximately $16,969,000, which represents $13,793,000 of principal and $3,176,000 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.

Current wording

As of March 31, 2025, the Company recorded a TIF receivable on its Consolidated Balance Sheet of approximately $19,240,000, which represents $15,686,000 of principal and $3,554,000 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.