Dover Motorsports, Inc.
Q2 2015 Earnings Call Transcript

Published: 3 Aug 2015

[Operator:]

Welcome and thank you for standing by. At this time, all participants will be on a listen-only mode until the question-and-answer session of today's conference. [Operator Instructions] I would now like to turn the call over to Mr. Denis McGlynn. Sir, you may begin.

[Denis McGlynn:]

Thank you, operator. Good morning, everyone. Mike Tatoian, our Executive Vice President; Tim Horne, our CFO; and Klaus Belohoubek, our General Counsel are all here with me this morning. And after Tim reads our forward-looking statement disclaimer, we'll get underway with the review of the quarter.

[Tim Horne:]

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

[Denis McGlynn:]

Thanks Tim. Well, this is a very busy quarter for the company with our spring NASCAR race weekend, the fourth annual Firefly Music Festival and the inaugural Big Barrel Country Music Festival all taking place within a five week period to close out the quarter. Tim will brief on the financial metrics in a minute, but in general starting with the FedEx 400 weekend, it was smooth three days with goods albeit hot weather and some encouraging trends. FedEx 400 paid attendance fell off just slightly from last year with a 1% decline. It was a continuing improvement against earlier years where the declines were in the 10% range. Hopefully, we’re beginning to see the start of a trend reversal going forward. Our youth ticket sales continued their growth trend coming in at 6.4% of Sunday sales versus 5.7% last year and just 1.6% four years ago. Also, tickets sold to first time ticket buyers were an encouraging 35% of Sunday sales which gives us confidence in our efforts to attract new customers to replace those who may be aging out or otherwise not able to attend perhaps for economy related reasons. Our Sunday race telecast generated 2.5 rating which turned out to be the highest of the season on FOX Sports 1 and was the highest rater sport of the weekend on all of cable. All the relevant digital and social metrics were up by healthy margins as well. Additionally, we saw growth from last year in the corporate sales area, which include sponsorship, hospitality and FanZone display space. So overall, there were several positives to take away from the weekend and we hope to build on these going forward. The fourth annual Firefly Music Festival here at Dover International Speedway was another overall success as was the inaugural Big Barrel Country Music Festival which came a week later. Weather was an issue during both weekends but all stakeholders including the fans were satisfied with the collaborative efforts between Red Frog events and our personal here at Dover International Speedway, and we are all looking forward to next year’s festivals. One final item before I turn it over to Tim. Our agreement to sell Nashville Superspeedway to NeXovation has expired, but we understand that the real estate market in Nashville is experiencing resurgence. We are seeing significant interest in our facility and we are in discussions with several interested parties. Tim will have additional detail on how we will account for the money paid to us under the expired agreement. And with that, I’ll turn it over to Tim for his review of the financials.

[Tim Horne:]

Thanks, Denis. This was a successful quarter for the company both operationally and financially. Our spring NASCAR tripleheader in the Firefly Music Festival were both out during the second quarter of 2015 and 2014, and the second quarter this year also saw the inaugural Big Barrel Country Music Festival as well. If you look at the second quarter statement of earnings, you’ll see our revenues were $25.4 million compared to $24.3 million last year. Our Darwal NASCAR weekend saw total revenues that were up about 4% with higher broadcast rights and sponsorships offsetting slightly lower emissions revenue. As Denis mentioned, our Sprint Cup attendance was off about 1% while our average ticket price for the weekend were down 2% to 3%. The contracted broadcast rights fees for the Darwal weekend increased to little more than 6% this year. Sponsorships, exposition and sweet revenues were all up somewhat while concessions and merchandise revenues were down slightly. Event related expenses were up about $300,000 compared with last year reflecting the higher person sanction fees offset by slightly lower expenses elsewhere. As a result, profits for the race weekend as a whole were up about 5%. As for the fourth annual Firefly Festival held over four days on our grounds in June, we were again the lessor of the property to Red Frog Events, the operator this festival and an addition to a rental fee we also derived revenue from the sale of alcohol related to the event. While again being a nice contributor to gross profit during the quarter, the results were slightly behind last year as weather impacted some sales this year. Having said that, the event is very successful and will return again next year. We also hosted the first annual Big Barrel Music Festival during the quarter on the weekend immediately following Firefly. The promoter and our arrangement with them is the same as with Firefly and it’s also a nice additional monetization of our property. G&A expenses were slightly higher than last year at $1.8 million primarily from consulting fees related to some land use matters as well as higher amortization of actuarial losses related to our pension plan. Depreciation expense shown here is significantly higher this year at $1,422 million versus $818 million last year. And this is from accelerating depreciation for about 8,100 seats that we will be removing after the fall race this year. So depreciation is accelerated so the net book value of those assets will be zero after our October event. You will see this again next quarter as well. We recognized this income $606,000 in payments made related to our agreement to sell the Nashville Superspeedway property. These were non-refundable payments made by the purchaser in 2015 for extending the closing date under that agreement. As previously reported the purchaser defaulted under the agreement on June 01 and that the fall has not been cured and the agreement has now expired by its terms. Accordingly, we will recognize the remaining $1,867 million in the third quarter for a total $2.9 million that’s been paid to us in connection with this now expired agreement. We’ve expanded our sales efforts and are currently in discussions with additional prospective purchasers. Net interest expense was down compared to last year and that was from lower outstanding borrowings during the year. And our net earnings for the quarter were approximately $5.5 million or $0.15 per diluted share compared with net earnings of $4.8 million or $0.13 per share last year. This year’s results are obviously impacted by the accelerated depreciation and the deposits recognized to date from Nashville that I just discussed and they essentially cancelled each other out. We’ve attached the sheet, it illustrates that. Looking at the June 30 balance sheet, our receivables are down this year as we received our TV money in the second quarter this year but not until the third quarter of last year. Deferred revenue is fairly similar to last year from ticket sales that are just slightly behind this time last year and we also required less of a deposit from our customers this year, and that was offset by the timing of other sponsor payments. You see our loan balance was $2.8 million at June 30 compared to $16.9 million at June 30 of last year. Also included is a cash flow statement for the six month period while you see our net cash provided by operating activities was $8.5 million through six months. That compares with cash used $1.6 million in the six month last year. The operating cash provided was significantly more than last year obviously from the earlier receipt of TV money, offset by the earlier payment of certain event expenses. Our capital expenditures are $1.1 million year-to-date, a bulk of which was for the installation of fiber required by NASCAR for this season backing the first quarter, some IT and other facility improvements. You can see on the cash flow statement, the $1.2 million in payments made this year by NeXovation for the extension of that Nashville sales agreement. The result of all of this is that we paid out almost $8 million of our credit facility so far this year. That concludes our prepared remarks and our second quarter update. Thank you very much for your interest.

[Operator:]

Thank you for calling the digital replay service.