Dover Motorsports, Inc.
Q4 2018 Earnings Call Transcript

Published: 24 Jan 2019

[Denis McGlynn:]

Good morning, everyone, and welcome. I'm joined by Tim Horne, our CFO who is going to read our forward-looking statement disclaimer, and then we'll get underway.

[Tim Horne:]

In order to help you understand the company and its results, we may make certain forward-looking statements. It is possible the company's actual results might differ from any predictions we make today. Additional information regarding factors that could cause such differences appear in the company's SEC filings.

[Denis McGlynn:]

Thanks, Tim. Well, it's a good quarter for the company with our only major event our Fall NASCAR weekend coming in only slightly down against last year. Thanks to growth in sponsorship and broadcast revenues and we closed out the year totally debt free. In conjunction with Dover Downs Gaming & Entertainment, we introduced Live Sports Racing onsite during the race weekend last fall. And while this was essentially a Dover Downs Gaming initiative, Dover Motorsports benefited from the national media attention regarding the introduction and the positive fan response to betting on NASCAR. Down the road, we see tremendous opportunity to grow fan engagement through sports betting. Wagering could also help increase TV ratings as it’s been demonstrated that fans with the wagering interest are more acclaimed to tune-in will follow the progress of an event through the final outcome. Younger demographics are also favorably disposed to betting on sports. In the subject of younger demographics, we're happy to see NASCAR recently introduce the joint project in conjunction with its cup team owners, reform teams to compete in the eSports sector. eSports are essentially computer games played by professional gamers for real money and are televised by streaming over the Internet. It's a growing area and also very interactive to younger demographics. Major championship events are held in venues like the Madison Square Garden and attract as many as 15,000 fans. It's still in support at this point but it's another step in the right direction for NASCAR. Tim is ready to discuss the financials now. So I'll turn it over to him.

[Tim Horne:]

Thanks Denis. As Denis mentioned our entire fall rates weekend sell in the fourth quarter this year while the Friday and Saturday events of the fall weekend sell in the third quarter of 2017. If you look at the fourth quarter statement of earnings, you'll see our revenues were $20.75 million compared to about $18.3 million last year, with the increase largely from the fact that the whole weekend was in the fourth quarter of this year as well as from higher cup series broadcast revenues this year offset to some extent by lower admissions revenues. Regarding the NASCAR weekend, as mentioned last quarter despite rain forcing the move of Friday's event to Saturday morning, the weekend was an operational success. In addition to the broadcast revenue increase, sponsor revenues were also slightly higher this year and as mentioned these were offset by lower admissions revenues. Our purse and sanction fees were up a little more than 4% while all other expenses were fairly consistent. For the weekend whole profits was down slightly compared to last year. G&A expenses were almost identical to last year about $1,758,000 for the quarter. Depreciation was down compared with last year at $789,000 as last year's expense included some accelerated depreciation for certain projects we decided not to complete the Speedway. We had small net interest income this year compared to a small expense last year, lower discount rates and lower property taxes required us to increase the contingent obligation related to our NASCAR funds and the other expense represents a loss on certain equity investments held in our non-qualified pension plan which are now required to be run through the income statement. Our effective income tax rate was approximately 26.6% for the quarter. As you recall the fourth quarter of last year included recording the effect of Federal Tax Reform which had us revalue our net deferred tax liabilities using the new 21% rate. The impact of that was to reduce those liabilities recorded as a discreet tax benefit of approximately $4.5 million resulting in a tax benefit last year despite the pre-tax earnings. Without that adjustment, our effective rate last year was approximately 40.6% in the fourth quarter. So our net earnings for the quarter were almost $4.1 million or $0.11 per diluted share compared with net earnings of approximately $7.6 million in the fourth quarter of last year or $0.21 per share. By removing the impact of the tax reform adjustment last year would have led to non-GAAP net earnings of approximately $3.1 million or $0.08 per share in the fourth quarter of 2017. Turning to the December 31st balance sheet, our financial position continues to strengthen, we had no debt at the end of the year compared to $3.24 million debt at the end of last year and we had almost $4 million in available cash. We had contributed another $1.75 million to our frozen pension plan during the first nine months of 2018 to capitalize on higher tax rates available for those deductions and that had the obvious effect of significantly lowering our pension liability compared to last year-end. Also included is a cash flow statement for the year ended December 31st, where you'll see our net cash from operating activities was up compared to last year at $6.95 million primarily from lower cash paid for income taxes this year. Capital expenditures were $992,000 for the year primarily for equipment purchases and facility improvements. Our $0.08 annual dividend was paid in December and we bought back on those 97,000 shares of stock during the fourth quarter at an average price of $2.06 bringing our total purchases for the year to almost 309,000 shares. And a result of all that is that we paid down all $3.24 million of our debt this year and as mentioned at about $4 million in available cash. For 2019, our plan for total capital spending is for about $600,000 of normal equipment and improvement. Additionally, we're considering much needed improvements to our 50 year old Cup Series Garage and we will be going out to bid shortly on that work and that work could add several million dollars to that amount but stay tuned as we get our bid spec. That concludes our fourth quarter update. Thank you for your interest.