Dover Motorsports, Inc.
Q3 2014 Earnings Call Transcript

Published: 31 Oct 2014

[Operator:]

Welcome and thank you for standing by. All participants are in listen-only mode throughout the duration of the call. Today's call is being recorded. If you have any objections, you may disconnect at this point. Now, I will turn the meeting over to your host, Mr. Denis McGlynn. Sir, you may now begin.

[Denis McGlynn:]

Thank you. 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 statements disclaimer, we’ll get underway with our 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 could cause such differences, appear in the company's SEC filings.

[Denis McGlynn:]

Thanks, Tim. Well, with the exception of a grandstand removal non-cash impairment charge, during the quarter we continued our year long trend of reporting earnings per share equal to those for the same period last year. Repeating the experience from our Sprint NASCAR weekend in June, we have three great days of weather during our fall NASCAR weekend. The perfect weather combined with continuing growth in broadcast rights fees and lower interest payments offset a decline in attendance revenue and somewhat lower corporate spending. NASCAR’s new Sprint Cup Championship Chase format added considerable interest and excitement to our fall race weekend and we are happy to see continued solid youth ticket sales and strong ticket sales to first time Dover customers. These are two special areas of focus for us as we continue our efforts to replenish our customer base. During our last NASCAR Race weekend, NASCAR announced new rules for next year. They are designed to lower team operating costs and further improve the on track racing product. NASCAR banned all individual team testing at tracks next year, but will allow for testing to be conducted during selected good year official tire test. NASCAR is also tempting to improve the racing on mid size tracks like [RC] (ph) at Dover by reducing horsepower and down force. Fewer tire failures and more passing are expected to be the result and these are two things we’d really like to see here at Dover. NASCAR is also providing teams an option to allow their drivers to make suspension adjustments from inside the cockpit. Currently, only a pick crewmember can make adjustments from outside the corridor and pit stops, and this change could have a significant impact on the competitiveness of races. These are pretty dramatic changes for next year and I think, they show NASCAR’s continuing determination to improve the on track product and create more excitement for fans. NASCAR also recently announced the 10-year deal for Comcast XFINITY brand to take over next year a series sponsor for what is now the Nationwide Series. XFINITY is Comcast residential service brand and there is a growing relationship between Comcast and NASCAR, and so far as Comcast owned NBC will be televising the second half of the NASCAR season starting next year. XFINITY is also planning to bring substantial technological innovations for the table, which will enhance the viewers experience both at home and more importantly, over mobile devices at the track. Nothing has been revealed yet, but the goal is to allow you to turn your TV, your cell phone into a computer with search engines, apps, Twitter trends, on-demand content of drivers and races, and incorporating live scanner traffic drivers and crews. These types of innovations will help bring the NASCAR experience to the next level and hopefully, help accelerate our progress with youth and first time efforts. We have a couple of major capital projects currently in progress, first, is the replacement of the brief fans surrounding the racing surface. This is a $2.9 million project, which will give us a state-of-the-art fencing system for the safety of our fans. And then hence overall aesthetic appearance will be the secondary benefits of this project and completion is expected by year end. As allude to earlier and as you may have read recently, we’re following a general trend across Motorsports and the entire sports industry for that matter and are taking steps to reduce our grandstand seating capacity to rightsize our facility to match current demand trends. We previously reduced our total capacity from 135,000 to 113,000 seats by widening existing seats. Our current efforts will physically remove seats in turns two and three, which have been low demand sections recently. Approximately 17,000 seats are being removed and the materials recycled, these were being our capacity for spring of 2015 to approximately 96,000. We are exploring opportunities to refurbish facilities such as mezzanine areas left behind following the removal of seats prior to any further structure removal. One final item before Tim takes over. Regarding the pending sale of natural superspeedway, the buyer requested a second 30-day extension, which we granted and returned for $200,000 of the $1.5 million deposit being released to us from escrow. The buyer needed additional time to work out survey and road location issues. And we expect a fourth quarter closing for this transaction. With that, I’ll turn it over to the Tim for review of the third quarter financials. Tim?

[Tim Horne:]

Thanks Denis. Our Fall NASCR tripleheader was held during the third quarter of both this year and last year. As you look at the statement of earnings, you’ll see our revenues were $21.1 million compared to $21.5 million last year. Our Dover NASCAR Weekend saw total revenues that were down about 1.5% with higher broadcast rights fees, offsetting lower admissions and inventory related revenue. Admission revenue was down 8.6%, with average cup ticket prices down just slightly. Our contracted broadcast right fees for the weekend increased a little more than 4% this year. Sponsorship revenues in general were okay but they were impacted by the lack of nationwide event title sponsor this year. Suite and tent sales were down compared to last year while infield and club hospitality both were improved this year. All other revenue trends were commensurate with the attendance. Event-related expenses were up about $300,000 compared with last year, primarily reflecting higher purse and sanction fees and slightly higher marketing cost. As a result, profits for the race weekend as whole were down about 5%. General and administrative expenses were almost identical to last year at $1.7 million while depreciation expense is also fairly consistent with last year at $805,000. The loss on disposal of assets reflects the removal of grandstand seats, Denis just mentioned and it represents the remaining net book value of those assets as well as the cost to remove them. Net interest expense was down compared to 2013 at $71,000 versus $237,000 last year and was from lower rates, lower average borrowings and lower fees compared to last year. And after that charge for the loss on disposal, our net earnings for the quarter were $2.6 million or $0.07 per share. We’ve attached the schedule that reconciles the net earnings to an adjusted net earnings, it excludes that charge and you can see that adjusted net earnings were down about $100,000 at just over $4 million or $0.11 per diluted share, compared with $4.1 million and $0.11 per share last year. Looking at the September 30 balance sheet, the deferred revenue is not really a meaningful number at the end of the third quarter and sales for next year is just getting underway. Our loan balance was $14.7 million at September 30, compared to [$18.80] (ph) last September and $14.8 million at year-end. Our broadcast revenues were not received until after September 30, so our outstanding loan balance has gone down significantly since then. Also included is the cash flow statement for the nine months period where you’ll see our net cash from operating activities was about $1.8 million year-to-date. And again, that obviously reflects the fact that our broadcast rights fees for the September event are not received until October. Capital expenditures are $1,460,000 year-to-date, the bulk of which is for the replacement and the debris fence around the track. At this point, our plans for the year are for capital spending of about $3.8 million in total, as we complete defense project and install some 500 NASCAR we require for 2015. We did not repurchase any shares in the open market during this quarter but did have repurchases back in the first quarter. And the result of all that is that we paid down $2.2 million during the quarter and $100,000 year-to-date, but as mentioned, that loan balance fell significantly after the end of the quarter. Denis mentioned at this point, we still expect the National transaction to close by the end of the year. A $27 million purchase price would create a small gain for book purposes and a slightly larger gain for tax purposes. We would expect net proceeds to be approximately $21 million to $22 million after income taxes and settlement adjustments. As was the case this time last year, yesterday our Board of Directors declared an annual cash dividend on both classes of common stock of $0.05 per share. That dividend will be payable on December 10th to shareholders of record at the close of business on November 10th. Any decisions regarding future dividends will be evaluated on an ongoing basis. That concludes our prepared remarks and our third quarter call. Thank you for your interest.