Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Charles Talbert - Director of Investor and Corporate Communication

Lesa France Kennedy - Chief Executive Officer

John Saunders – President

Dan Houser - Senior Vice President and Chief Financial Officer

Analysts

Alvin Concepcion – Citi

John Fox - Fenimore Asset Management

Tim Conder – Wells Fargo

Edward Williams – BMO Capital Markets

Randall Pollock - Vanguard Group

Barry Lucas – Gabelli & Company

International Speedway Corporation (ISCA) Q2 2009 Earnings Call July 7, 2009 9:00 AM ET

Operator

(Operator Instructions) Welcome to the International Speedway Corporation 2009 Second Quarter Conference Call. I would now like to turn the conference over to Charles Talbert, Director of Investor and Corporate Communication for International Speedway.

Charles Talbert

Welcome to International Speedway Corporation Conference Call. We are here to discuss the company’s results for the Second Quarter ended May 31, 2009. With us on this call are Lesa France Kennedy, Chief Executive Officer, John Saunders, President and Dan Houser, Senior Vice President and Chief Financial Officer. After our formal remarks a question and answer period will follow. The operator will instruct you on procedures at that time.

Before we get started I’d like to remind everyone that the statements made in the course of this conference call that express the company’s or management’s beliefs and expectations and which are not historical facts or applied prospectively are considered forward looking statements. It’s important to note that our actual results may differ materially from those contained in or implied by such forward looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained from time to time in the company’s SEC filings including but not limited to the 10-K and 10-Qs. Copies of these filings are available from the company and the SEC.

The company undertakes no obligation to release publicly any revisions to these forward looking statements that may be needed to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Inclusion of any statement in this call does not constitute an admission by ISC or any other person that events or circumstances described in such statements are material.

With those formalities out of the way I will turn the call over to Lesa.

Lesa France Kennedy

First of all this is the first chance that I’ve had the opportunity to speak to you as CEO and I’m looking forward to joining these calls from time to time as our schedule permits and as things are going on that I should be available. I wanted to tell you and assure you too that our succession plan has been in place for a number of years and that we continue to evaluate it on a regular basis.

We appreciate Jim’s contribution and he will still be available and we will be able to continue to utilize his experience. We have a strong and focused management team and this is also a result of our succession planning and also the foundation of our sport.

Before we get into the details of our presentation I wanted to talk to you today about the power of NASCAR. For 60 years NASCAR has had great racing and the sport has continued to evolve. The one thing that I think has really helped NASCAR over the years is that it has been a very nimble sport and they’ve been able to make changes and adjustments over the years as business changes or as the sport changes that accommodate the industry.

We’ve experienced all economic conditions and we’ve always emerged as a stronger and a better sport and stronger and better business and we also have the opportunity before us now. We still have 70 plus million fans and it is the number one spectator sport. In addition to that we have strong demographics that are attractive to our advertisers as well as our TV partners.

Contrary to what you might have read, our television ratings are still strong. What we tend to focus on is the long term ratings that that rise that we’ve had over a number of years even though ratings can fluctuate from year to year. We are televised in 150 countries and we are ranked the number two regular season sport on television.

We also continue to be embraced by local economies where we will typically add $100 to $200 million in local and regional economies when we have sports and events in their areas.

With that I would like to thank you all. I’m really looking forward to moving forward and also to participating in these calls and also the updates as we move forward. I’ll now turn it over to John Saunders.

John Saunders

Second quarter and year to date financial results have gone essentially as we have expected. It is a challenging operating environment that continues to put downward pressure on all non-contracted revenue streams. Fortunately we have long lived by a rigorous and prudent financial discipline with the first principal being to maintain a strong balance sheet. Due to this strategy our liquidity position is solid and our cost of borrowing remains relatively low.

Further solidifying our financial resources, we announced last month that we entered into a definitive settlement with the Internal Revenue Service which resulted in $97 million of the $118 million that was on deposit with the Service being returned to the company. In addition, we received approximately $15 million in cash for interest earned on the deposited funds that were returned. The $112 million recovery strengthens our financial position, provides us with additional financial flexibility and allows us to focus on executing our business strategies. A sale of our Staten Island property which we remain hopeful will occur this year, will further secure our financial position.

Our second quarter included five NASCAR Sprint Cup weekends and one Indy Car event. We are pleased with our performance in spite of the significant economic headwinds. Job losses continue to increase with unemployment above 9%. If we take into account underemployment the jobless rate would be above 16%. This is the significant factor pressing our advanced ticket units and revenue down in excess of 25%.

However, we are seeing strong ticket sales demand within three weeks of the events. For this past weekend’s Coke Zero 400 at Daytona we witnessed a 22% increase in ticket sales in the last month compared to last year. The decision to provide our guests with a lower entry level ticket price continues to prove successful.

In addition to getting the phones to ring, it allows our contact center to better match our guests with an experience they desire which is generated repeat business. In spite of these efforts, we continue to expect our admissions revenue for the full year to be down by approximately 15%. As we move into ticket renewals for 2010 events we are reviewing ticket prices and bundled ticket packages to ensure we are matching prices and options with expected demand.

I anticipate for the next year that at certain events we will unbundled ticket packages as well as adjust prices in other sections of the facilities beyond just the entry level tickets. This is a high priority of our management team to optimize attendance and revenue generation in what we expect will continue to be a challenging economic environment.

NASCAR is making the health and appeal of the sport a top priority. They have held town hall style meetings with the constituents of the sport, team owners, drivers, promoters and media partners, to discuss the sports most pressing matters, attendance, television ratings, the economy and on track competition. Collectively we will explore ways to generate additional interest in the sport to reengage old fans and attract new fans to the sport.

Based off these meetings, NASCAR has already made changes to the competition rules, the first of which has been the double file restarts which is generate great excitement. I would expect that we will see further enhancements throughout the year. These aren’t knee jerk reactions but very thoughtful changes that fans will embrace.

One area that I know our fans and sponsors will embrace is ISCs focus on developing green initiatives that will provide for a more healthy and sustainable environment. From waste management programs, pursuing renewable energy, to building expected lead certified headquarters building in Dayton Beach, ISC is committed to leading the way in implementing positive environmental management practices.

One of our more important efforts is focused on recycling. A number of our Motorsports facilities are actively pursuing comprehensive event recycling programs which divert recyclables from area landfills by recovering plastic bottles, glass, aluminum cans and cardboard. As you can imagine, implementing such a program is quite an undertaking due to the complexity of these events.

With the support of our marketing partners such as Coca Cola recycling and Anheuser-Busch we have been very pleased with the response of race fans across the country as we all work to educate and promote environmental responsibility.

We are also proud to support other industry wide initiatives to reduce the racing competitions environment footprint, including an ambitious tree planting program announced recently at our Michigan Speedway. With much of its 1,400 acres featuring a variety of forests, protective wetlands and scenic wildlife, Michigan International Speedway has been a leader in conservation efforts and is the first professional sports venue in the state to join the Michigan Business Pollution Prevention Partnership.

In addition, the Speedway is working with the State of Michigan and the US Fish and Wildlife to explore opportunities to expand wetlands conservation efforts in and around the facility.

All of these efforts can certainly help our bottom line by opening our sport to new non-traditional corporate partners as well as unique business to business opportunities. Green initiatives undertaken by ISC will be an excellent platform to promote the next generation of fuel efficient vehicles that Chevy, Ford, Dodge and Toyota will manufacture.

As we have also mentioned before, we have a multi-year partnership with NextEra Energy Resources, a subsidiary of Florida based FP&L Group, the nations largest provider of wind and solar energy. This partnership may not have been possible without our commitment to conservation and environmental stewardship.

This past year we have faced an unprecedented turn of events with bankruptcies of two of the big three auto manufacturers. While the bankruptcy of GM and Chrysler, as well as the pressures on Ford and Toyota, will not have a material impact on our financial results we do expect that our future partnership deals with auto manufacturers will be low levels we have seen in the past.

Having said that, the auto manufacturers similar to hundreds of other corporate partners participate in the sport of racing because it’s so uniquely suited to showcase their brands. These partnerships help sell products and are one of the few marketing vehicles that can deliver a clearly measurable return on investment.

While Motorsports offers sponsors highly visible corporate integration and access to the most brand loyal fans in the country, we continue to experience lower sales in both sponsorships and hospitality. All sports properties are seeing a pull back in spending by corporate partners as the result of this economic environment. Our company is not immune. We expect gross sponsorship to be off as much as 16% and hospitality as much as 20% for the year.

We expect as the economy improves so too will these revenue categories. Sports marketing sponsorship is an income generating activity for our partners. Using one partner as an example, Bank of America participates not only in NASCAR but in other sports properties and reports that for every dollar spent on sports sponsorship it brings in $10 in revenue and $3 in earnings, a compelling justification to invest in sports marketing.

That said we have to live in today and respond appropriately to the economic environment in which we currently operate. As discussed at length our non-contracted revenue streams are under pressure. With a projected operating margin for the year of between 23% to 25% and an EBITDA margin of 33% to 35% it is apparent we need to focus on mitigating margin erosion and reducing operating expenses.

I am pleased that we have cut $7 million in second quarter normalized Motorsports and G&A related expenses versus the same period last year. This was achieved through a reduction in fixed costs as well as lower event related expenses. There is room for improvement in this area and I am fully committed to seeing these metrics continue to improve.

Outside of our core business we are pleased to report that the Unified Government of Wyandotte County in Kansas has endorsed our Hard Rock Casino at Kansas Speedway proposal. This endorsement allowed us as well as another applicant to present to the Kansas Lottery Commission. The Commission is in the process of negotiating management agreements with the respective parties. We continue to believe we have the best proposal that will provide superior benefit to the State and local communities.

Our proposal provides for the 50/50 joint venture development to be built in phases, the first phase comprised of the casino and certain dining and entertainment features, to begin immediately and at an estimated cost of approximately $390 million. If selected, we project this joint venture will generate in excess of $80 million in EBITDA beginning in 2012.

Dayton Live is moving forward with the first phase of the headquarters building which is expected to be completed later this year. The retail dining and entertainment portions of this development are experiencing strong interest from a variety of notable national and regional tenants despite challenges in the economy and the related pull back in retail expansion nationwide.

That portion of the project is planned to proceed when sufficient leasing levels have been achieved. It is important to note that we are not under a mandatory time table to get this project completed. Our goal in this project, as well as with the proposed project at Kansas Speedway, is to leverage the particular speedways brand, enhance and extend our guest experience during race weekends, create a year round destination for the community, increase the speedway’s asset utilization, and ultimately create value for our shareholders.

Unfortunately one investment that has not performed as we had hoped in our 50/50 joint venture in Motorsports Authentics. Its business of designing, marketing, and distributing officially licenses Motorsports merchandise has been challenged beyond the tough economy as well as the drop in attendance at NASCAR events.

MA is most effective in the distribution of merchandise track side at racing events and it’s generally considered the best in class in the design and distribution of die cast vehicles. Its other channels of distribution include licensed apparel, memorabilia and other things to mass retailers. In recent months MA has been considering various approaches to optimize performance in these distribution channels.

We believe a revised MA business vision with a focus on its core competencies along with streamlined operations, reduced operating costs, and inventory risk; will result in a leaner more profitable operation in the future. Dan, during his prepared remarks will discuss the financial statement impact resulting from MA.

In conclusion, we will continue to manage our business with a long term view which will serve us well as we emerge from this economic downturn. Because of the way we operate our company we have not had to make unfavorable short term decisions that affect our operations long term as the result of the economic challenges. This is a testament to the France family and our Board of Directors who challenge us on a daily basis.

With that I’d like to turn it over to Dan for the financial review.

Dan Houser

As John discussed, considering a challenging economic environment, affecting both consumer discretionary income and corporate budgets, we were pleased with the performance of our core business in the second quarter. While these 2009 results were in line with our expectations, year over year comparability is impacted by unprecedented adverse economic trends including the decline in consumer confidence and the rise in unemployment that began in mid 2008 and will in all likelihood continue into 2010.

To a lesser extent, year over year comparability is affected by the IRL series of event held at our Homestead Miami facility in the second quarter of fiscal 2008 that has been rescheduled to our fiscal fourth quarter in 2009.

Pressure on consumer discretionary spending also had a significant adverse impact on motors sports Authentics business resulting in not only a loss from operations in the second quarter of 2009 as compared to profitable operations in 2008 but also further write down of inventory. In addition, the longer term outlook for MA in certain sales channels most significantly mass retail triggered a review of MA’s goodwill and other intangible assets.

We were happy to report during the quarter that we reached an attractive resolution to the audit issue in appeals with the IRS, an issue in controversy for seven years. The settlement resulted in the return of $97 million in funds on deposit with the Service as well as an additional $15 million in interest earned on the funds returned. As a result of the settlement, we recognized interest income net of tax of approximately $8.9 million or $0.18 per diluted share as part of our income tax expense.

Let’s take a look at the income statement. Admissions revenue for the second quarter decreased to $43.7 million primarily due to lower attendance driven by previously discussed economic conditions, as well as a decrease in our weighted average ticket prices as the result of our value pricing strategies. As mentioned in previous calls, we reduced ticket prices on over 150,000 seats or 15% of capacity for Sprint Cup events across the company. As a result, the weighted average ticket prices for Sprint Cup events held in the second quarter decreased approximately 5%. Year to date our weighted average ticket price is down 1%.

The decrease in Motorsports related revenue to $92.9 million was primarily driven by adverse economic conditions resulting in lower sponsorship, suite and hospitality revenues at our events conducted during the quarter. For the second quarter, ISCs domestic television broadcast and ancillary rights were $58.5 million, with $57.4 million associated with domestic broadcast contracts and $1.1 million of ancillary rights.

The decrease in food, beverage, and merchandise revenue to $13.4 million for the 2009 second quarter was primarily attributable to previously noted lower attendance as well as lower per capita sales for concessions and merchandise and lower catering revenues resulting from a decrease in corporate spending.

The increase in NASCAR direct expenses to $35.4 million was primarily attributable to higher television broadcast rights fees, a percentage of which are paid as part of prize money. To a lesser extent, the reclassification of race sanction fees for our Grand Am events for Motorsports related expense in prior years to NASCAR direct expense in 2009 contributed to the increase. As a reminder, Grand Am was purchased by NASCAR in late 2008 which results in this change in financial statement presentation.

Motorsports related expense decreased to $32 million with the majority of the decrease associated with lower promotional advertising and other race related expenses during the period, resulting from focused cost containment initiatives. To a lesser extent, the decrease was related to previously mentioned reclassification of the Grand Am sanction fees to NASCAR direct expenses as well as the rescheduling of the IRL series event at Homestead.

Food, beverage, and merchandise expense decreased to $9.2 million for the quarter, primarily due to variable costs associated with previously discussed attendance decreases. General and administrative expenses decreased to $25.6 million for the quarter. Even when excluding the substantial reduction in legal fees for the Kentucky litigation, costs are down as a direct result of our company wide cost containment initiatives.

Depreciation and amortization during the second quarter increased to $18.5 million. The increase was largely attributable to ongoing capital spending for maintenance CapEx and other facility enhancements. The decrease in interest income to $230,000 is primarily due to lower interest rate on cash balances. Interest expense for the quarter increased to approximately $5.5 million due to lower capitalized interest and higher average borrowings on our credit facility as compared to the same period in the prior year.

The net loss from equity investments relates to our 50% interest in Motorsports Authentics. As you know, MA designs, markets and distributes officially licensed Motorsports merchandise including die cast scaled replicas of Motorsports vehicles, apparel and memorabilia, through a variety of retail and wholesale channels including track side at events, specialty retailers, and mass retail department stores.

As John touched on earlier, in recent months, MA’s management and ownership have considered various approaches to optimized performance in these distribution channels. As the challenges have been assessed it has been apparent that there is significant risk facing business initiatives in mass apparel memorabilia and other yet to be developed products. These initiatives had previously been deemed achievable and were included in projections that supported the carrying value of inventory goodwill and other intangible assets on MA’s balance sheet.

This analysis combined with the long term macro economic outlook that is now believed to be less robust then previously expected triggered MA’s review of certain assets under Financial Accounting Standards 142 and 144. MA is still finalizing its evaluation which has yet to be reviewed by its independent auditors. However, as the work was substantially complete, ISC recorded in its fiscal second quarter a net loss from MA of $57.3 million or $1.17 per diluted share after tax, that includes impairment charges of $55.6 million or $1.14 per share recognized by ISC in accordance with APB18.

Although we incurred pre-tax loss for the second quarter we recognized an income tax expense of $1 million. This is the result of the tax treatment of losses incurred in the equity investments in fiscal 2009; partially offsetting those was the previously mentioned IRS settlement which reflects the accrual of interest income as a component of our income tax expense. We anticipate our full year effective tax rate on a non-GAAP basis will range between 38% and 39%.

Loss from continuing operations for the three months ended May 31, 2009, was $31.7 million or $0.65 per diluted share on approximately 48 million shares outstanding. However, when you exclude the equity and net loss from equity investment, interest income net of applicable taxes and related adjustments recorded through income tax expense associated with the IRS settlement and the additional depreciation associated with the Daytona Live project, we posted earnings of $0.35 per diluted share for the 2009 second quarter. As described in the release, this is compared to non-GAAP net income for the 2008 second quarter of $0.50 per diluted share.

Now to the balance sheet, at May 31st our combined cash and short term investments totaled $146 million. Current deferred income was $152 million and shareholders equity was $1.1 billion. Our quarter end balance sheet also reflects the settlement with the Service including the elimination of $117 million of long term deposits and the recognition of $112 million receivable at quarter end. We did receive these funds during the last month.

Further balance sheet impacts of the settlement with the Service include the reduction of our long term tax liability and the associated increase of deferred income taxes in accordance with FAS reinterpretation number 48.

Also of note is the decrease in the current portion of long term debt as the result of the repayment of our $150 million in senior notes due in April from cash on hand. At the end of the quarter, total debt was approximately $424 million including $150 million in senior notes, $150 million in borrowings on our revolving credit facility, $66 million in TIFF funds associated with Kansas, $51 million for the loan to construct our headquarters building components of the Daytona Live project, and $7 million in debt associated with Chicagoland and Route 66.

Concurrent with the settlement with the Service, we reactivated our previously authorized open market share repurchase program. We’ve authorized our agent to purchase shares under certain opportunistic parameters which encompass price, corporate and regulatory requirements, capital availability, and other market conditions. We have currently $42 million remaining on our $250 million authorization.

Also related to our Federal settlement, we are currently working with the various state tax authorities to reach resolution under similar settlement terms and expect to pay no more than $9 million in total to finalize these settlements with the various states. It is important to note that we have more than adequate reserves related to these state tax matters including interest charges.

Last week we paid down $50 million on the $150 million in borrowings under our credit facility. We expect to repay an additional $50 million by fiscal year end and to have the borrowings fully paid down by the time the revolver goes current in June 2010. This plan assumes that our performance maintains within our stated guidance. Unexpected further deterioration of operating results could result in a reevaluation of our strategy.

As it relates to capital spending, for the three months ended May 31, 2009, we spent $21.3 million on capital expenditures including $10.1 million for projects at our existing facilities. For the remaining $11.2 million in the second quarter, approximately $10 million was associated with the pre-funded construction of our new headquarters building. The remaining balance is associated with additional capitalized funding for our Staten Island property that is being marketed for sale and for our wholly owned subsidiary Stock-Car Montreal.

For the full year we continue to anticipate spending between $50 million and $55 million on capital expenditures at our existing facilities. In this environment we view this as the minimum amount of investment necessary for maintenance CapEx, safety and regulatory requirements, while preserving the guest experience. Total CapEx for the year including pre-funded spending for the completion of our new headquarters building, is expected to exceed $100 million.

In terms of our financial outlook, while we expect consumer and corporate spending trends to continue to be impacted by challenging economic conditions throughout 2009, we reiterate our 2009 full year total revenue guidance of between $700 and $720 million. We are also maintaining our earnings guidance for 2009 of $1.80 to $2.00 per diluted share excluding results of MA, the net interest income impact from the IRS settlement, and accelerated depreciation for Daytona Live. We remain more comfortable at the lower end of this earnings range.

In conclusion, we anticipate a difficult operating environment for the foreseeable future. Fortunately we are in a solid financial position that affords us the ability not only to execute our business strategy but also to explore ways to grow the business. We are taking the necessary steps to strengthen our company despite downward pressure on revenues. I remain encouraged by our performance thus far and believe we’ll be a much stronger company when we emerge from this extended recession.

With that I’ll turn it back over to the operator who will lead us through the Q&A portion of the call.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Alvin Concepcion – Citi

Alvin Concepcion – Citi

Would you be able to quantify how advance ticket sales are trending?

Dan Houser

They’re still running in the upper 20% to 30% behind on advance ticket sales basis. The encouraging thing that we’re seeing is we’re still seeing a great spike in sales as we lead up to the event. At this point we expect admissions revenues for the year to be off around 15%. We’ve seen that continue in this quarter, we had a nice pickup for the events in Michigan earlier in June and this past weekend for the Coke Zero 400 we were very pleased with the sales within the last five weeks leading up to the event actually were a little bit ahead of our expectations there.

Alvin Concepcion – Citi

I think you mentioned demand for tickets picked up three weeks prior to the event, is that different from how it was maybe at the beginning of the year?

Dan Houser

No, its pretty similar to what we’ve seen all year this year but it’s a phenomenon I think we kind of assess its indicative of the consumer confidence. People are waiting later to buy.

Alvin Concepcion – Citi

What’s your appetite for acquisitions, are you seeing any attractive opportunities out there?

John Saunders

We always have an eye to acquisitions. We successfully acquired and integrated businesses into the company in the past. There are a few opportunities remaining out there but under the right terms and conditions the right deal for our shareholders we certainly would pursue such opportunities.

Alvin Concepcion – Citi

Have there been any share repurchases since the end of the quarter?

Dan Houser

We’ve had some share repurchases but I think that you should expect that we’re going to be very opportunistic in our repurchase of shares and I wouldn’t model in aggressive share repurchases through the rest of the year.

Operator

Your next question comes from John Fox - Fenimore Asset Management

John Fox - Fenimore Asset Management

Do you have a forecast given the debt pay down for interest expense for the second half of the year?

Dan Houser

Yes we do, we’ll get that for you.

John Fox - Fenimore Asset Management

Can you talk about why you’re thoughts on the land why this fiscal year why are you optimistic about that and just give us some more details there?

John Saunders

Are you talking about Staten Island?

John Fox - Fenimore Asset Management

Yes I am.

John Saunders

As you know, we’ve been in discussions with a few interested parties for some time now. Obviously nothing is easy in this market and nothing is easy in New York. We have made substantial progress with these interested parties. We’re optimistic that we can get something done by the end of the year. We’re anxious to move this along but there are just a number of hurdles with the potential buyers that we’ve got to leap over. Like I said, we’re hopeful we can get it done this year but there are no guarantees.

John Fox - Fenimore Asset Management

Could you give us a little bit more information, you had a sentence in there about the amount of your sponsorship revenue comes from the auto manufacturers which I think you said is something like 10% of the total for all the manufacturers. Could you give us a little more on the impact and what you’re seeing with GM and Chrysler?

John Saunders

Right now even though they have filed we haven’t seen anything affecting our core business. That’s not to say that something can’t change going down the road. As I said, we don’t expect to see these deals to be what they were in the past. They’re not material to the company’s earnings and we’ll work with them and we hope they stay in the sport, it’s an excellent marketing spend for these manufacturers. As of today there has been no pull back from ISC facilities.

John Fox - Fenimore Asset Management

On the buyback with Dan’s comments not to expect much the next six months, I was thinking about where the stock was trading and you have a very liquid strong balance sheet at this point. I’m just curious why you wouldn’t be more aggressive buying your own stock.

Dan Houser

I think that’s a valid question. I would say that on the economic stability we’re cautiously optimistic at this point. I think our number one priority here and with management with our Board is to maintain a strong cash position and liquidity. Right now we feel pretty good about where things are going but we’re going to feel better to just go cautiously here into 2010.

I will say that we continue to have a commitment to meaningful share repurchases as part of our capital allocation. We want to be sure that we’re really out the woods with economic recovery that there’s not another downward trend that could put us into a tight cash position, we have our revolver to renegotiate here and need to start that in 2010. We’re going very conservatively on paying that down and on probably on shares for the next six months or so I would say.

John Fox - Fenimore Asset Management

Do you have the interest expense?

Dan Houser

It’s going to be probably in the neighborhood of about $8 million. That’ll depend on how quickly we pay down the revolving credit facility and on the capitalized interest.

Operator

Your next question comes from Tim Conder – Wells Fargo

Tim Conder – Wells Fargo

If you could give us a little bit more color on the sponsorship and entitlement renewal rates that you’re seeing. If you look last year and as you renewed an entitlement or you renewed a sponsorship and you were seeing that escalator of the new contract versus the old contract with the same client, the ‘x’. What is that this year, that renewal rate or that escalator rate that you’re getting?

John Saunders

It really varies. Some are coming in at more the traditional incremental growth rates, some are flat, and some may decline a percentage or two. It’s really a mixed bag. We do see sponsors looking for more value, they’re in partnerships with us which somewhat declines the net sponsorship to the company. I will tell you that coming off our revised forecast from Q1; we’re current at about 94% close to 95% of our targeted sponsorship revenue for the year.

I believe we have only one NASCAR Sprint Cup entitlement left and we’re hopeful that we’ll have something to announce on that soon. It’s a bit of a mixed bag; I don’t have one specific metric for you because they’re all different in this environment.

Tim Conder – Wells Fargo

On the MA write down, the majority of that write down was goodwill intangibles, was there anything either in that write down or in the roughly $0.03 on the operating loss, is there anything in there from an inventory write down perspective?

Dan Houser

Yes, the inventory write downs included in the overall impairment piece and that was about $3 to $4 million of the $55.6 million. It was primarily in the goodwill and intangible stuff.

Tim Conder – Wells Fargo

What’s the broad carrying value now of your 50% interest in MA?

Dan Houser

$19 million

Tim Conder – Wells Fargo

Your guidance I think excludes MA. Is that only the charges or is that also are you excluding the operating component of MA for the year?

Dan Houser

Back when we revised guidance in the first quarter because of just the lack of clarity in that business and some of the strategy and how we’re going to have to work to get that thing to a profitable operation. We had a new management team. We just felt it was time to exclude that from our overall non-GAAP guidance. Yes, the $1.80 to $2.00 excludes MA.

Tim Conder – Wells Fargo

Any time table at this point to see the whole Kentucky litigation wrap up come to a conclusion here?

Dan Houser

Yes, we do have a date for a hearing, its July 30th, the end of this month. From there it’ll probably take several months before the courts issue their opinion. We’re optimistic but it’s in front of the appeals court. We do have a date and we’re moving forward with it.

Tim Conder – Wells Fargo

Are there any thoughts as far as the car tomorrow? I know everybody’s in a cost control mode especially with the teams and that. Are there any thoughts that you’re hearing from NASCAR about any changes in that going forward, program as it relates to competition on the track and so forth?

Lesa France Kennedy

That is a NASCAR question and so I don’t think that I really could address that.

John Saunders

I mentioned in my script that NASCAR has held these town hall meetings with all the stakeholders in the sport. One of the agenda items was the on track competition and the information that I’ve heard back from NASCAR is that the teams are beginning to figure the car out, the racing is improving, and so we’re getting it dialed in. It has achieved other goals, the safety component.

Clearly when you look at an accident such as Kyle Busch’s on Saturday night that’s a tribute to the car. The costs are coming down which takes pressure off the car owners. They were building a lot of different cars for a lot of different race tracks. The number of cars being built is coming down. They’re making progress. This was a monumental change in our sport and its going to take time to get to the finer objectives of the initiative. All in all things are moving forward with it.

Tim Conder – Wells Fargo

It seemed to be very successful as you mentioned in bringing the costs down, the safety and that. As you just said, it sounds like it’s just going to take time to tweak it from the competition point to tweak that a little better.

John Saunders

That’s correct.

Operator

Your next question comes from Edward Williams – BMO Capital Markets

Edward Williams – BMO Capital Markets

What is the carrying cost right now for the investment to the Staten Island property?

Dan Houser

It’s in the neighborhood of $74 million. We had written it down to $65 million and then we had capitalized property taxes and things like that. Its $75 to $80 million in that range.

Edward Williams – BMO Capital Markets

What is your thought with regards to timing of Kansas City and when we may get a decision from there with regards to going ahead and building out the casino? You had mentioned $80 million in projected EBITDA by 2012, what are the key hurdles you’d need to clear in order to achieve that run rate?

John Saunders

As we mentioned this is a joint venture with Cordish Company. The process is first we have to go, now that we’ve been endorsed by Wyandotte County as has the other applicant, we now go to the lottery commission for their endorsement and for negotiating of management contracts and what the specifics of the deal would be in terms of the relationship between the entity and the state. Then you go to what’s called the Kansas Lottery Gaming Facility Review Board and they have about a 60 day period in which to make a selection and ultimately an award of the license.

This really is something that will carry into October, somewhere in there. Late 2009 I would say. We’ll know by the end of the year if this is a go forward program. What was the second component of your question?

Edward Williams – BMO Capital Markets

What the hurdles were that you needed to get to that $80 million run rate.

John Saunders

Obviously Dan can speak to the challenges of financing. It’s probably the biggest issue. Other than that, once you’ve received the license you’re ready to go with the shovel in the ground. Again, financing being the biggest challenge.

Dan Houser

With the phased approach that we’re proposing under this iteration of the project what we’ll do is build the main casino floor, its going to have the great majority of the ultimate total gaming machines and tables etc., some level of dining and things like that but phase one is going to be the real EBITDA driving portion of the project. We believe once we get the doors open its going to be ready to start generating some EBITDA.

Edward Williams – BMO Capital Markets

Looking backward at the quarter for a moment, was there any significant trend in the performance of the events as you progressed through the quarter or were each of the events did they perform similarly versus a year ago?

John Saunders

It’s uncanny that it’s really pretty similar. We are across the board seeing the advance ticket sales 25% up to 30% running behind, closing that gap into the 15% off of last year but a very strong run up in ticket sales late toward the event. One of the things that we are seeing is that a lot of these late ticket sales and particularly where we’ve done the value pricing on the tickets, more than half those are new buyers. Very encouraged about that new folks coming into the sport at this lower price point.

Similarly, hospitality and suites and things like that are kind of off across the board. A lot of that is because you have multi-track deals with corporate participants so you tend to see that trend a lot of times spread over the events. The other thing is that our teams out there in the field are doing a great job of reigning in costs that are not to the detriment of impacting the guest experience. That’s something that we’re very proud of. I’ll give a tip of the hat to our folks out at the business units at the tracks for their efforts there.

Edward Williams – BMO Capital Markets

You alluded to unbundling some events for next year. When do you think we may get some more color as to what the pricing might be like for the 2010 events?

John Saunders

As I said in my remarks, as their renewal periods start to trigger is when tracks will be making announcements. I would say in some cases late third quarter, early fourth quarter of this year. As I mentioned, we’re challenging our management and our track presidents across the board this is beyond the entry level with the goal of optimizing capacity and revenue.

Operator

Your next question comes from Randall Pollock - Vanguard Group

Randall Pollock - Vanguard Group

Can you comment on any specific targets regarding balance ratios or credit ratings? Separately can you comment on an overview of any specific contracts with networks or TV stations?

Dan Houser

We are BBB investment grade rating is extremely important to us and I’ll emphasize that at the BBB level not just we’re okay sliding down to BBB-. Our feeling is that our strong balance sheet focus has really paid off for us in these tough economic times and we’ve been well positioned, we have some flexibility to grow the business if opportunities are there to increase shareholder value.

I think that you’re going to see us continue to play a little on the conservative side as I said in some of my comments earlier where we’re going, we’re slowly paying off that revolving credit line, it’s going to be a gradual pickup as we get back into share repurchases. We again feel that that is a great way to build value for our shareholders. I think that the best thing that we can do for the company and for our shareholders is maintain a very strong balance sheet so that’s going to be a primary focus for us.

John Saunders

Your question regarding media contracts there are no performance clauses in those contracts. Those contracts are executed between NASCAR and their broadcast partners. There are no performance indicators tied to rights fees. This contract compared to the old contract averages about $560 million a year for the industry versus an average of $400 million in the previous contract.

It grows on average of 2% to 4% a year but as I said there are no performance metrics that have to be met. This contract goes through 2014 so I suspect that NASCAR will 18 to 24 months out in front of that will begin discussions with the broadcasters for the renewal for 2015 and beyond.

Operator

Your next question comes from Barry Lucas – Gabelli & Company

Barry Lucas – Gabelli & Company

At the projections for cash flow at the casino, $80 million is the number you threw out for 2012, is that $80 million at the venture level or $80 million to ISC?

John Saunders

That’s $80 million at the joint venture level.

Barry Lucas – Gabelli & Company

Any change or improvement or how would you compare this past weekend’s IRL race at Watkins Glen to year ago?

John Saunders

First of all they had a great race, they had great weather. I haven’t seen the TV ratings as yet; they’ll probably be out midweek. They put on a good show and we’re pleased with our partnership with the IRL. I would not say that there was a significant leap in attendance; we’re not seeing that in any of our events this year including the IRL. All in all a great Motorsports weekend up there.

Barry Lucas – Gabelli & Company

Motorsports Authentics has been through a number of management changes, write downs, write offs over the years. At this point what would encourage you to just cut the thing loose or shut it down? Maybe even more to the point, what would be the timetable to make any such decision?

John Saunders

First of all, we’re serious about this business. We’ve had our hits and as Dan talked about, I think its important to remember why we got into this business to begin with in that Action Performance was running out of cash and it was highly likely that in the preceding year if we did not complete the acquisition that we would not have trailers, these drivers trailers at our events not just ISC events but the entire industry.

SMI and ISC stepped in to shore that up, that is terrific content for the fans, adds to the overall fan experience. Beyond that we were also very interested in exploring opportunities in mass in the retail environment. As Dan spoke to some of those opportunities didn’t evolve.

To your question, we’re right now focused on looking at our core competencies. We want to make sure that track side experience is if anything enhanced going forward. We are considered best in class in die cast, we own tooling over in China and do a very good job with die cast both at the 1:24 and 1:64 scale. We think working with our partner that we ought to focus on shoring up the business first and then exploring our opportunities after that. That’s what taking the impairment today, that’s what sets us up to go down that strategy.

You’ve got to keep in mind that on this track side 80% of the cup venues are ISC and SMI venues so we have a real strong interest in making sure that this becomes a compelling element to the fan experience going forward. It’s not out of the question down the road but right now we’re focused on getting the business profitable, streamlined, and executing on our core competencies.

Operator

At this time there are no further questions. Mr. Talbert do you have any closing remarks?

John Saunders

Thank you all for joining us on our second quarter call. Clearly we’ve got a strong balance sheet. The good news is we’re meeting expectations that we revised coming off quarter one. We’re committed to preserving the guest experience but we’re also very focused on taking costs out of the business and we’re not taking our eye off the long term strategic initiatives of the company. In spite of the economy we’re in pretty good shape given all things and we look forward to seeing on the third quarter call.

Operator

This does conclude today’s conference call. You may now disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: International Speedway Corporation Q2 2009 Earnings Call Transcript
This Transcript
All Transcripts