Dover Motorsports, Inc.
Q2 2013 Earnings Call Transcript

Published: 25 Jul 2013

[Operator:]

Welcome and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If there are any objections, you may disconnect at this time. I'd now like to introduce to your host for today's conference, Denis McGlynn. Thank you, you may begin.

[Denis L. McGlynn:]

Thank you, good morning, everyone. I'm joined by Mike Tatoian, our Executive Vice President; Tim Horne, our CFO; and Klaus Belohoubek, our General Counsel. Tim's going to read our forward-looking statement disclaimer, and then we'll get underway.

[Timothy R. 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 on the company’s SEC filings.

[Denis L. McGlynn:]

Thanks, Tim. Tim will be going over our Spring NASCAR Weekend financials in a few minutes. But as for overall commentary, the results were generally in line with our expectations. As I'm sure you've heard countless times in recent years, the economy and more specifically, unemployment levels continue to impact our sales volumes in 2 important areas. The economy has led the corporate world to limit marketing and entertainment spending, which in turn impacts our sponsorship and hospitality revenues and our spring rate sponsorship revenues were up over the previous years, but still off from historical highs. In corporate hospitality spending, which in better times would contribute 20,000 or more customers to weekend attendance has dramatically contracted. Additionally, with the great percentage of our customers comprised of middle-class working people, our nation's current high level of unemployment has severely curtailed leisure spending not just in NASCAR, but across the broad spectrum of sports and entertainment. Otherwise, we're encouraged with the great strives NASCAR has made with the new Generation 6 car, the racing has been excellent all series including our Spring FedEx 400, and this gives us confidence that growth will return when the economy and unemployment levels improve. TV ratings for the FedEx 400 were up 300% over the last year and the race ranked as the highest rated and most-watched sporting event of the day. And I'm sure you're all aware of Tuesday's announcement by NASCAR that NBC will replace ESPN and Turner as the holder of broadcast race for the latter part of the season starting in 2015. A new 10-year agreement was announced, which we understand will reflect a significant increase in rights fees over the contract and represent the largest media rights deal in the sport's 65-year history. Under the current arrangement, FOX broadcasts the first '13 Sprint Cup races then Turner TNT takes over for 6 races, with ESPN doing the final 17 races. ESPN currently has rights to all the Nationwide Series races. With NBC taking over the rights for 20 Sprint Cup races and the final 19 nationwide series races each season, the final pieces of the new media rights landscape relate who will assume the rights to the remaining 3 Sprint Cup races and '14 nationwide series or Asia's currently still open. NASCAR has indicated there is significant interest in that part of the package from multiple parties and they hope to wrap up that portion of the schedule in the coming weeks. So, more to come on that. This is obviously good news for Dover Motorsports and its shareholders and a strong win for the NASCAR industry as it underscores the strength of the sport and its position as a premier sports marketing platform. During the FedEx 400 weekend, we successfully rolled out our Flash Seats program, which is a digital ticketing system allowing us to electronically download tickets to a customers' credit card, which can then be scanned at the gate for expedited access. We were the first NASCAR facility to offer this convenience and it was well received and utilized by almost 10% of our June attendees. During our upcoming September NASCAR weekend, we'll introduce our next customer convenience initiative when we fully roll out our Monster rewards card. We originally have tested this all-purpose card last September and expanded the test during the last month's FedEx 400 weekend. Ultimately, the Monster rewards card will be the only card our customers will need here at Dover. And so far as it functions as a Discover backed debit card. It also has a rewards card onto which special promotional offers from Dover International Speedway and/or our sponsors may be loaded and it's set up to receive our Flash Seats electronics tickets as well. The card will be accepted at all our merchandise trailers, concession stands and in casino and restaurants, and should significantly enhance the customer experience here at Dover International Speedway. One last thing before I turn it over to Tim. Last month, we hosted the second annual Firefly Music Festival which was enormously successful for Red Frog Events to whom we lease Speedway land. The music industry trade journals have given Firefly rate reviews and are predicting a great future for the 3-day event. We're looking forward to continuing to help Red Frog grow this event to national prominence and we're happy to have Firefly back on our schedule for June of next year. With that, I'll turn it over to Tim for his financial review of the quarter. Tim?

[Timothy R. Horne:]

Thanks , Denis. Our Sprint NASCAR triple-header in Dover was held during the second quarter of each year. And we also had revenue related to the Firefly Music Festival in the second quarter of this year whereas that event was held in the third quarter last year. If you look at the second quarter statement of earnings, you'll see our revenues were $24.5 million compared to $23.7 million last year. Our Dover NASCAR weekend saw total revenues that were pretty flat, with higher broadcast rights fees offsetting lower admissions revenue. Admissions revenues were off about 8%, which reflects the continued challenges facing our typical race fan such as employment, job security, gas prices, et cetera. Our average ticket prices were fairly consistent from year to year. Contracted broadcast rights fees for the Dover weekend increased a little more than 3% this year. Denis mentioned our sponsorship revenues were up slightly, offsetting slightly lower per cap revenue items, and lower expo area sales this year. Event related expenses were up about $450,000 compared with last year, reflecting higher per cent sanction fees, slightly higher marketing expenses and costs associated with enhanced security of the event. As a result, the profits for the race weekend as a whole were down a little less than 5%. As for the second annual Firefly Music Festival held over 3 days on our grounds in June, we were again the lessor of our property to Red Frog Events, the operator of this festival. And we profit somewhat from the sale of alcohol and from some other minor revenue opportunities as well as the rental. All in all, this added several $100,000 to our gross profit during the quarter, which was a little higher than last year's, up slightly to relative $1.8 million while depreciation expense is pretty consistent with last year. Our net interest expense was down compared to 2012 at $275,000 versus $372,000 last year and that was from lower rates and fees and from lower average borrowings compared to last year. And our net earnings for the quarter were fairly consistent at approximately $4.9 million or $0.13 per diluted share compared with $5 million or $0.14 per share last year. Looking at the June 30 balance sheet, our deferred revenue is down about $950,000 partially from lower advanced ticket sales for the fall race compared to this time last year. Our ticket sales were off about 11% at June 30 compared to last year as the trend towards ticket buying closer to the event seems to be continuing. This is in line with what we're seeing throughout the industry. Additionally, we had a fall nationwide title sponsor in deferred revenue at June 30 last year and as of now, that event remains the lone event that is not titled for our 2013 schedule. Our loan balance was $23,180,000 at June 30 compared to $31.9 million last year and $19.7 million at the end of 2012. Our broadcast revenues were not received until after June 30. So our outstanding loan balance has gone down significantly since then and was about $13.5 million as of yesterday. And our total equity is now back over $50 million. Also included is a cash flow statement for the 6 months ended June 30 where you'll see our net cash used in operating activities was about $3.1 million year-to-date. And that obviously reflects the fact that broadcast rates fees for the June event were not received until July. Our capital expenditures are $207,000 year-to-date. And at this point, our plans for the year for spending of approximately $300,000 in total. The company did repurchase shares in the open market during the quarter. In total, we purchased and retired almost 80,000 shares at an average price of about $2.11. The result of all that is that we borrowed $1.98 million during the quarter, but as mentioned, that loan balance fell significantly after the end of the quarter. That concludes our remarks and our second quarter call. Thank you very much for your participation.