Speedway Motorsports' Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 1.13 | About: Speedway Motorsports, (TRK)

Speedway Motorsports Inc. (NYSE:TRK)

Q1 2013 Results Earnings Call

May 1, 2013 10:00 AM ET

Executives

Marcus Smith - President and COO

Bill Brooks - Vice Chairman and CFO

Analysts

Barry Lucas - Gabelli & Company

Operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time I would like to welcome everyone to Speedway Motorsports First Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions.)

This conference call contains forward-looking statements, particularly statements with regard to the company's future operations and financial results. There are many factors that effect future events and trends of the company's business including, but not limited to economic factors, weather, the success of NASCAR and others as sanctioning bodies, the success of company's Motorsports Authentics merchandising joint venture, capital projects and expansions, financing needs, and a host of other factors, both within and outside of management control.

These factors and other factors including those contained in the company’s annual report on Form 10-K and subsequently filed quarterly report on Form 10-Q involve certain risks and uncertainties that could cause actual results or events to differ materially from management's views and expectations.

Inclusion of any information or statement in this conference call does not necessarily imply that such information or statement is material. The company does not undertake any obligation to release publicly, revised or updated forward-looking information, and such information included in this conference call is based on information currently available and may not be reliable after this date.

At this time, I would like to turn the conference over to Marcus Smith. Please go ahead, sir.

Marcus Smith

Thank you, Stephanie, and good morning, ladies and gentlemen. Thank you for joining us today as we announced first quarter results for Speedway Motorsports. For the first quarter we’ve recorded total revenues of $84.2 million, a loss from continuing operations of $1.3 million or $0.03 per diluted share. In addition, Speedway Motorsports reaffirms its full year 2013 earnings guidance as Bill will discuss later.

In the first quarter, we hosted four major NASCAR sanctioned weekends at Las Vegas Motor Speedway we hosted the Kobalt Tools 400 Sprint Cup Series and Sam's Town 300 Nationwide Series events, and at Bristol Motor Speedway we hosted the Food City 500 and Jeff Foxworthy’s Grit Chips 300 Nationwide Series.

First quarter results were within our expectations and we believe that until the U.S. begins experiencing consistent economic recovery across all markets. Our attendance and revenue streams will continue to be impacted.

Over the past several years, we've made significant capital investments in our speedways and offer fans access to some of the best fan amenities in all sports and because of this we are able shift our focus now to from our capital projects to more fan experience. We recognize and continue to reward our long-term fans and at the same time, we’re also focusing on fan experience innovations to attract the next-generation of race fan.

Our promotional efforts and technology of increased target families, kids and first-time fans, and we're improving the before and after race experience in many ways like providing fans with new and exciting pre-race entertainment activities, and we continue to work with local and regional hotels for fan friendly lodging options.

On the corporate sales front, our sales teams continued to work hard to identify new opportunities with corporate partners, as well as maximize the current relationships we already have. While activity and interest from corporations continue, they are still closely monitoring their budgets and needs, and we've seen some increased activity with our corporate track rentals and driving schools.

With respect to event entitlements, we have some catching up to do right now, currently we have one NASCAR Sprint Cup Series event entitlements in New Hampshire is available, and then we also have three nationwide series events. We remain encouraged that these events will get sold however and continue to press forward.

The NASCAR season is off to a good start, creating some compelling story lines between drivers, racing has improved and has produced some exciting finishes. The Gen-6 cars are being well received and the television ratings for Sprint Cup Series are strong.

The discussion in the media has increased significantly in some areas. We’re confident that as the economy improves, combined with our increasing financial strength and expanding marketing efforts that SMI is positioning itself well for renewed long-term growth.

And for further detail on our first quarter, I’ll turn the rest over to our Chief Financial Officer, Bill Brooks.

Bill Brooks

Well, thank you very much, Marcus. Ladies and gentlemen, I think it is important to reiterate our ongoing capital restructuring. During the first quarter, we issued $100 million of Senior Notes due in 2019. And we recently commenced an exchange offer to combine these private placement bonds with our existing $150 million 2019 Senior Notes.

We took the proceeds from this January note issuance and used them to repay our $95 million 2011 term loan. Then in February, we negotiated and amended and restated $100 million revolving credit facility and $250 million delayed draw term loan.

We have called our $275 million 2016 Senior Notes effective in June 1st and we plan to repay them with the $250 million delayed draw term loan and possibly some balance sheet cash under our borrowings, under our new revolving credit facility.

For the quarter ended March 31st, we experienced weaker net income as compared to the prior year, which we attribute to less admissions revenue at our Bristol Motor Speedway winter race which encountered actual and forecasted inclement weather.

Weaker event related revenue at Las Vegas Motor Speedway from the season-ticket promotion and reduced corporate spending and some increased interest expense from capital restructuring that we're undertaking to call our Senior Notes due in 2016. This should ultimately reduce our interest expense by year ended and it lengthens our debt maturities.

Obviously, a weaker economy exacerbated some of these issues. But today, we reaffirm our previously announced 2013 earnings guidance of $0.90 to $1.20 per diluted share from continuing operations despite the weakness in our first quarter earnings versus those of the prior year.

Comparing the three months ended in March of 2013 to the three months ended in March of 2012, our admissions for the three months ended in March of 2013 decreased by $713,000 from such revenue for the same period last year, primarily due to lower overall admission at NASCAR sanctioned raising events.

Event related revenue for the three months ended in March decreased by $913,000 from same revenue for the same period last year. And this decrease is primarily due to lower event related revenues associated with NASCAR sanctioned races. Overall decrease is partially offset by higher track rental and driving school revenues at some of our Speedways in the current period.

The broadcast revenue, the NASCAR broadcast revenue for three months ended in March, increased by $1 million over such period revenues from the prior year. And this increase is due to higher annual contract with broadcast rights fee.

Our other operating revenue for the three months ended in March increased by $40,000 over such revenue for the same period last year. And our other direct operating expenses for the three months ended in March of ‘13 decreased by $73,000 from such expense for the same period last year. These changes reflect combination of individually insignificant items.

Direct expense of events for the three months ended in March decreased by $220,000 over -- increased, excuse me -- by $220,000 over such expense for the same period last year. And this increase reflects a combination of individually insignificant items, including higher advertising and other promotional costs.

Our NASCAR purse and sanction fees for the quarter increased by $531,000 over such expense from the same period last year, reflecting higher annual contracted raise purses and sanction fees.

General and administrative expenses for the three months ended in March increased by $238,000 over such expense for the same period last year. And this increase reflects wage cost inflation and a combination of insignificant items.

Depreciation and amortization for the three months actually decreased by $175,000 from such expense from the same period last year, and this decrease reflects that certain assets are now fully depreciated, and also a combination of individually insignificant items.

Our interest expense for the three months ended in March was $10.9 million, compared to $10.4 million for the same period last year. This change reflects repayment of low interest rate revolving credit facility borrowings with proceeds from the add-on offering of higher interest rates 2019 Senior Notes in the current period, pending redemption of our 2016 Senior Notes in the second quarter of 2013.

Our income tax provision for the three months ended in March 2013 was 37.5%. The effective income tax rate for the three months ended in March of 2012 was 34.8%. All of those items resulted in a net loss of $1.4 million compared to $146,000 for the same period last year.

Our March 31, 2013 selected balance sheet data shows improvement in our cash balances of $25.8 million over those balances. At March 31, 2012, our cash increased to $122.1 million. Long-term debt was reduced by $37.8 million from last year to $533.7 million at March 31, 2013.

Further, debt reduction wasn’t possible and probably won't be until June when we call our 2016 Senior Notes and replace them with a delay through our term loan. Our deferred race revenue decreased $12.1 million from March 31, 2012 to end the current quarter at $93.1 million. And we still project our 2013 capital expenditures to approximate $20 million to $30 million.

At this time, Stephanie, please allow our participants to ask any questions that they may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Barry Lucas with Gabelli & Company.

Barry Lucas - Gabelli & Company

Good morning.

Marcus Smith

Hi, Barry.

Barry Lucas - Gabelli & Company

Couple of questions, Marcus. Just looking at the open entitlements with the one Sprint Cup race and three Nationwide, what would that have been a year ago?

Marcus Smith

Well, in terms of our opening, we were sold out last year, in the last two years. But it's not entirely unusual to go into a season with an open race, even over the last 15, 20 years. So it’s not uncharted territory but certainly, we would like to have it sold already. But we will continue to move forward and find a good partner to start with.

Barry Lucas - Gabelli & Company

Okay. And, could you talk about sort of price volume mix on the attendance revenues? What was your physical attendance down and what are you doing on pricing?

Marcus Smith

Barry, the pricing was flat year-over-year. The change is really is on physical attendance.

Barry Lucas - Gabelli & Company

Okay. So if we think about some of the things that are going on and we’ve kicked this house pretty thoroughly. But very slow improvement in the overall economic but now some real signs that housing is picking up whether it’s permits or sales. And I would look at -- kind of an associated number one I look at new car sales and improving percentage of pick-up trucks, which tends to be somewhat housing related and directed I think to your core fans. So, if you go and sort of move the teal eaves around a little bit, what is your sense at this point in terms of attendance improvement?

Bill Brooks

I'll let, Marcus give you his thoughts on it. But we've thought this year that we are going to wind up in a relatively flattish year. There are some macro developments that are positive. But if you think about three or four years ago, I’m trying to guess this. It went down from last year. It’s still about a half from somewhat higher than what it used to be. People are having that 2 percentage points, spike attack headwind. And so there are some other countervailing issues.

We frequently talk about the inflation and we will disregard the volatile core energy and food issues. While those are basically what most of our consumer have in their basket through inflation. And as a consequence, financially they are stressed and incredibly in the first quarter, we did experience some mild weather. You know the history of the March race. It used to be a lot later and it was somewhat irrelevant to moving it to a less favorable weather period because the event was sold out based upon the really strong demand for season tickets in the August event.

And then, when we don’t have as much demand, we're correspondingly suffering from conducting a race in the mountains in the winter. So that has been an aggravating factor for us. But as we look forward, we expect to hear that we are going to balance these negative factors with the good once that you’ve cited and we are going to be in our review relatively even. What do you think, Marcus?

Marcus Smith

I think that you bring up a good point with housing and auto sales. Housing is just starting to see the signs of the wake up and certainly that will happen. And -- but we’re not in the throws of a housing firm right now. We're not in a position where people that build homes are all of a sudden flushed with extra income.

So, the car business, people are trading for payments. They are going from paying for a five or six-year-old car. They are paying for a newer car and so it’s about the same payment. So we’re optimistic and is the economic improves and more people get back to work that will be a good thing for the business. We were slow going into the recession. And we said things like we’re going to slow coming out of it as well.

Barry Lucas - Gabelli & Company

Great. One more item, Bill, maybe you can refresh my memory on where would be the pricing be on the new credit or the delay draw and what do you think on an annual basis your interest expense savings might be.

Bill Brooks

Barry, fairly, simplistically the Senior Notes replacing our 8.75% notes. And we're replacing a small portion of them with around 5.75% and bank debt is around 2.75%. So you can see we’re saving upwards of 6 percentage points on lot of money. We think that we’ll be able to cut our interest expense this year considerably. Last year, it was about $42 million net. And we think for 2013, it should be about $35 million. And hopefully, since were doing this in the middle of the year, it will be even better in 2014.

Barry Lucas - Gabelli & Company

Great. Thanks very much, Bill.

Bill Brooks

Thank you, sir.

Operator

(Operator Instructions) At this time, there are no additional questions.

Marcus Smith

Okay. Thank you, ladies and gentlemen, for your time. We look forward to talking with you next quarter. Thank you.

Operator

Thank you. This concludes today’s conference. You may now disconnect.

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