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Executives

Marcus Smith - President and COO

Bill Brooks - Vice Chairman, CFO and Treasurer

Analysts

Steve Altebrando - Sidoti & Company

Tim Conder - Wells Fargo Securities

Barry Lucas - Gabelli & Company

Speedway Motorsports, Inc. (TRK) Q2 2013 Earnings Call July 31, 2013 10:00 AM ET

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 the Speedway Motorsports Second 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 affect 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.

Thank you, I would now like to turn the conference over to Marcus Smith. Please go ahead.

Marcus Smith

Thank you, Stephanie, good morning, ladies and gentlemen. Thank you for joining us today as we discuss the company’s financial and operating results for the second quarter results end in June 30, 2013. For the second quarter, we’ve recorded total revenues of $176.8 million, an adjusted non-GAAP income from continuing operations of $26.5 million or $0.64 per diluted share. Six months 2013 total revenues were $261 million and adjusted non-GAAP income from continuing operations was $25.1 million or $0.61 per diluted share.

We had a very busy quarter; we hosted eight major NASCAR-sanctioned events, including those at Charlotte Motor Speedway where we hosted the NASCAR Sprint All Star Race, the Coca-Cola 600 Sprint Cup Race and the History Channel 300 Nationwide Series event.

At Kentucky Speedway, we hosted the Quaker State 400 presented by Advance Auto Parts, Sprint Cup Series Race and The Feed the Children 300 Nationwide Series events.

And at Sonoma Raceway, we hosted the Toyota/Save Mart 350 Sprint Cup Series event and then at Texas Motor Speedway, we hosted the NRA 500 Sprint Cup series race and along with the O'Reilly Auto Parts 300 Nationwide series race.

We also hosted several other racing events this quarter including three NHRA national events, three NASCAR Camping World Truck Series events and one Indycar series event, Texas Motor Speedway.

Since our last call, our corporate sales team secured entitlement sponsors for the remaining 2013, NASCAR Sprint cup series race as well as two nationwide series races and currently we have just one nationwide series race yet to be titled for 2013.

In a recent news, just last week NASCAR and NBC Sports Group announced they have reached a 10-year comprehensive agreement granting NBC exclusive rights to the final 20 Sprint Cup Series races of season. Final 19 NASCAR nationwide series events, Select NASCAR Regional and Touring Series events and other live content beginning in 2015.

NBC has also been granted Spanish language rights, certain video on demand rights and exclusive TV Everywhere rights for its NASCAR sprint cup series and NASCAR nationwide series events.

There are three sprint cup and 14 nationwide series broadcast rights that remain to be negotiated. All NASCAR attempting all the truck series broadcast rights have been secured through 2022.

We are extremely excited about the new broadcast agreement reached with NBC Sports Group while the official financial terms have yet to be announced, according to industry media reports that the deal is for $4.4 billion over 10 years. The new rights agreement with NBC along with previously announced rights agreement with FOX should help the industry achieve a number of strategic growth opportunities and we remain confident as the economic conditions approve across the country so our attendance and other event related revenues and activities. And in the meantime will continue to focus on providing our fans and visitors with unmatched entertainment value at all of our facilities.

And with that I will turn the financial discussion over to Bill Brooks. Bill?

Bill Brooks

Thank you very much, Marcus. I think it’s important if we discuss the non-GAAP earnings adjustments because they are relatively large and infrequent although they are not really unexpected. The largest adjustment is the non-cash charge which is about $89 million reduced by tax benefit of $2.3 million. The goodwill impairments related to New Hampshire Motor Speedway and Kentucky Speedway. The bulk of the impairment results from the goodwill associated with the acquisition of New Hampshire Motor Speedway, remember that this is so-called secondary goodwill is recorded because of (inaudible) are significantly different and then in the unlikely event of our selling the assets of New Hampshire’s Speedway instead of the stock, the significant tax could be due and recording this potential liability required reporting the secondary goodwill which effectively increased our purchase price from 330 million to over a 450 million and to recall that we had $49 million partial impairment of the secondary goodwill in 2011. This is the balance of the secondary goodwill as this is about now impaired.

The next largest adjustment of 18.5 million before $6.8 million tax benefit was for the call premium unamortized cost and loan discount related to the redemption of our (inaudible) quarter Senior Notes due in 2016 which we undertook as part of our capital restructuring.

The last of these adjustment is of favorable adjustment is a $4.1 million tax benefit arising from some state income tax restructuring undertaken. The resulting adjusted non-GAAP income and the continuing operation was 26.5 million and this is really very similar to the 27 million that we had in the prior year. How is that possible? A relatively (inaudible) event related revenues. Much of that weakness was offset by stronger broadcast revenue, lower expenses and benefits from a capital restructuring in a state income tax restructuring but we are really trying to make the best with difficult circumstances including the inclement weather and weather forecast surrounding our events as well as in an uncertain economy.

Specifically for the three months ended in June 30, 2013 compared to the three months ended in June 30, 2012 total revenues for the three months decreased by about 4.3 million or 2.4% from such revenues for the same period last year.

Admissions for the three months ended in June decreased by $4.8 million or 12.4% from such revenue for the same period last year, and the decrease was primarily due to lower overall admissions at our NASCAR sanctioned racing events.

Likewise event related revenue for the three months ended in June 30, 2013 decreased by $2.2 million or about 3.9% from last year. The decrease is due primarily the declines in most of our categories and event related revenues associated with our NASCAR sanctioned racing event. The overall decrease was partially offset by some higher track rental and driving school revenues at some of our Speedways during the current quarter.

NASCAR broadcast revenue for three months ended in June increased by $2.7 million or 3.4% over the last year as expected. Our direct expense of events for the three months ended in June actually decreased by $793,000 or 2.3% from last year. The decrease reflects lower advertising and promotional expenses in a combination of small and insignificant items.

The NASCAR purse and sanction fees for the year ended in June increased by $1.2 million or 2.6% over last year, reflecting higher annual contracted raise purses and sanction fees of our NASCAR events.

General and administrative expenses for the three months ended in June also decreased by $571,000 or 2.3% over last year. The decrease reflects lower legal and professional service cost, lower property taxes, and a combination of individually insignificant items, all of which were partially offset by some wage cost inflation.

Depreciation and amortization expense for the three months ended in June decreased by $271,000 or 1.9% from the prior year, and that reflects that certain assets are now fully depreciated.

Our interest expense that for the three months ended in June was $9.2 million, compared to $10.2 million for the same period last year. This change reflects redemption of our higher interest rate 2016 Senior Notes with lower interest rate credit facility borrowings and lower total outstanding debt. The change also reflects lower capitalized interest compared to last year.

Now, of course we spoke about our impairment of goodwill from the three months, it was $89 million before income tax benefits, 2.3%, and of that amount of goodwill for New Hampshire was $82.7 million originally recorded upon to differed tax liability associated with the intangibles under the purchase method of accounting.

And once again those rules require the deferred taxes to be established assuming we would ultimately sell the New Hampshire Speedway asset from that stock for tax reporting purposes and they prohibit (inaudible) or adjustment of such liabilities notwithstanding to any such payment of tax, loss was fairly pretty unlikely.

As expected we did we did have the loss on our early debt redemption in refinancing which should in a future help us on] interest expense, and that charge of $18.5 million before income tax benefit of 6.8, was for the premium unamortized net loan cost issue discount transaction cost associated with the former 2016 Senior notes.

Our income tax provision for the three months ended in June 2013 was 37.1%, excluding the negative impact of not recording tax benefits related to a significant portion of the goodwill impairment charge and certain onetime benefits from our state in context restructure, compared to our effective income tax rate for the three months ended in June 2012 which was 40.7%.

Selected balance sheet data that I wanted to share with you, our cash balance of a $120.3 million, is up $13.9 million from year end and $9.2 million from last year. Our differed race revenue of $70.1 million is down about $6.3 million from June 30, 2012; although that’s up $11.6 million from year end.

Our long term debt decreased from $554.7 million at June 30 2012 to $508.8 million in June 30, 2013. Thus far doing 2013, our capital expenditure is approximated about $5.1 million, and our capital expenditures for the entire year estimated to approximately $20 million to $30 million.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Steve Altebrando with Sidoti & Company.

Steve Altebrando - Sidoti & Company

In terms of the broadcast contract can you give us a sense of what percentage on a dollar basis that the unsold Nationwide and Sprint Cup Series represented in the current deal?

Marcus Smith

Great question Steve I think the current deal with ESPN includes both Sprint Cup and the entire Nationwide Series. That’s a in fact I have laid some numbers to you to exactly what that is but if we look at it as a percentage of the total events it’s probably somewhere around 8% or 9% and I think that’s probably reasonably accurate way to look at it.

Steve Altebrando - Sidoti & Company

Okay so basically meaning you have about 90% or so of the content looked up?

Marcus Smith

Yes and it might be a little bit more than 90 but that’s a good way to analyze it.

Steve Altebrando - Sidoti & Company

Okay and is there any information you can provide about escalators in the new deal and if there is any timeframe that you expect to have or NASCAR expects to have an announcement on the final portion of the TV deal?

Marcus Smith

Steve there hasn’t been any discussion really on either of those we haven’t heard other than we have read their same reports that both NBC and Fox have shown some interest the remaining broadcast rights are available I am hopeful that we have some closure on that in the next quarter but we have not been surprised as to how the various amounts were payable over their term.

Steve Altebrando - Sidoti & Company

That’s helpful and anything on the escalators?

Marcus Smith

No it hasn’t been really closed and of course we could see similar to last time where it’s down in the year first year and then up quite a bit over a period of time or it could be up a lot and just flat overtime but my guess is it will be up in the mid single-digits overtime but that’s just my personal speculation.

Operator

Your next question comes from the line of Tim Conder with Wells Fargo Securities. Mr. Conder your line is open.

Tim Conder - Wells Fargo Securities

Just a follow-on on the TV contract gentlemen could you remind us of your percentage that you get of the total contract? And then just to confirm we have heard some of the things in the industry, but just to confirm, will there be any changes as far as the different (tearing) of how the races are divided up under the new contract proposal.

Bill Brooks

Our share of the agreement is about one-third, very similar to the number of races that we have. We have not heard anything about the changes in race tiers or allocations among the various events or among the different series of events.

Tim Conder - Wells Fargo Securities

Into the new contract you would anticipate still, I mean from those two perspectives not that much changing since whatever the new contract is obviously in taking a percentage of that?

Bill Brooks

We don't have any information to the contrary.

Tim Conder - Wells Fargo Securities

And then also just wanted to check was there a deferred revenue number that you had; I didn't see it there unless I miss it, I apologize but I didn't see on the balance sheet any deferred revenue number.

Bill Brooks

Yes the deferred revenue is 70.1 million and is down about 6.3 million from last year in June, is up about 11.6 from year-end.

Tim Conder - Wells Fargo Securities

And is that predominantly on the admission side Bill?

Bill Brooks

Yeah, usually it's mostly admissions, sometimes it will have some early build sponsor type of arrangement, but it's mostly admissions.

Operator

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

Barry Lucas - Gabelli & Company

Couple of items, Bill could you just refresh us on what the reported dollar amount on the Fox piece of the contract was going to be?

Bill Brooks

Barry I think that it is 2.4 billion, about 300 million a year on average.

Barry Lucas - Gabelli & Company

So there would be no reason to think if those numbers are reasonably accurate as they have been reported that we should be north of $7 billion in total for all the races?

Bill Brooks

If that's correct, that would be the total of the disclosed amounts of 4.4 and 2.4, it's about 6.8. I am not sure that others would aggregate if they were 50 million for a year to be 400 so that would be a little bit north of 7.

Barry Lucas - Gabelli & Company

I was hoping that a couple of things, either you or Marcus could flash out a bit, I know in the prose of the press release we know weather was a factor, but if I look at 12.5% decline in admissions revenues, sequentially that was a much deeper drop from the first quarter, which I think was kind of low single digit and I think the events were the same. So maybe if you could talk a little bit about fiscal volumes, what units kind of looked like, what average selling prices looked like in the quarter to trying to account for some of the variance?

Bill Brooks

Barry it is a little confused because the Speedways are experiencing some different results. Couple of speedways actually had, half of them actually had higher ticket price, and that could be a result of lesser promotions or it could be a result of mix where people are buying better seats. And I think that it’s more likely the former. And in terms of admissions, some of the speedways pretty stabilized and don't have much change and others had some fairly significant downturns. So on balance most of the downturn in actual fiscal attendance.

Barry Lucas - Gabelli & Company

Maybe you could 7touch on trends going forward, what do advance ticket sales look like at this point in time? And has there been any change one way or the other?

Bill Brooks

Barry one of the things that we talk about a lot is the economy and the way it's effected race fans and I think we have all read in the paper and seen on TV the Wall Street recovery versus the Main Street recovery. And I think the NASCAR fan base is a great life of America. Where you got little bit of everything, from high end to low end and we have got good many people that are ready fans out there that still don't have as good of the paying job, or don't have as much disposable income as they had in travel budgets or commodity gas is more expensive and money is tighter.

So, that’s where we’re seeing most of our resistance when it comes to the fan. And so we continue to pour our attention into delivering that high value experience for our fans that continue to come back and are loyal and can afford to make a trip to attract. So, the advance sales reflect a supply and demand curve where you have these people know that they (inaudible) so some people push their purchase to later point but our returns on customers continue and become graces they want that to have jobs and stable income enter to come back and drive themselves.

Where work we’ve seen, we can see it reflected in the deferred revenue being down and is kind of more than of the same of what we’ve seen from the whole yare hopefully the last quarter was somewhat exacerbated by weakness at our Kentucky Speedway and then hopefully it won’t be quite the same for the rest of the year as (inaudible) shapes up a little better.

Barry Lucas - Gabelli & Company

Any comment you can make on corporate spend hospitality which was not that new as much as ignitions?

Bill Brooks

We’re bullish on that, we’re happy to see things level off and come back a little bit every company out there wants to advertise and market through every consumer to come and buy that product the NASCAR audience is great audience to market.

And we’re seeing new companies coming and people that haven’t seen them before were seeing in the other companies come back. So, we’re still bullish on that and we think that this like we’ve seen in the broader economy, the corporate spending is going to come back more quickly than the consumer.

Barry Lucas - Gabelli & Company

It’s a broader picture, its NASCAR maybe this is unfair to ask you but I have to tell you either an analyst or a fan, the attendance at Indianapolis looked abysmal, absolutely abysmal as you pass the camera standup to the front straight and I know when they use it, the huge facility.

But it just strikes me, that’s such a black mark for the sport and so as I say this is unfair to ask you but what can you do, what are you doing at your facilities, not just to put people into seeds but from our cosmetic point of view, what are you doing, just make it look better, I mean that was truly awful.

Bill Brooks

Nobody in the ticket selling business likes to see empty seats through our hotel rooms or state rooms on a (inaudible) or an empty seat. And certainly it’s this point to see that at any NASCAR no matter where it’s at. It’s when you look at other sports or other entertainment opportunities where tickets are sold there is higher sensitivity with travel expenses the total cost of the event and right now the ticket is the least expensive portion of budget to go to a race and people are (inaudible).

So, whether it’s a concert or another sporting event when you look out there at any professional sport or even in sport, we’ve seen more empty seats than ever before. Our release in the recent years and I think it have been really point to this broader economy and whether it’s basket ball or some football stadiums, if it’s not the hot team, it’s hard to spell. So, I don’t know what the answer is but I think there is one silver bullet but I know that we’ve done really well on some market, we’ve had challenges and others and for some reasons indeed had a tough weekends but I don’t think that’s sense sparely a statement on the overall industry.

We see things across the country and differences in the country are showing up in results. So, eventually I think we have to see the consumer from the different angle in different parts of the country.

Marcus Smith

You know Barry I've read media reports that I think are credible that's estimated the crowd at 75,000 people, while that would not be as large as crowds that they've had before on the relative basis to professional (I guess) to college sports that's a very respectable crowd.

Operator

(Operator Instructions) Your next question is a follow up from Tim Conder with Wells Fargo Securities

Tim Conder - Wells Fargo Securities

Regarding your seating and maybe this isn’t necessarily planned for '14 but over the next couple of years, your one competitor has led out some plan especially in the largest facility, obviously they're doing a major remake there.

But they've talked a lot about taking capacity out putting in from the standpoint of total number of seats and also making larger seats which has been somewhat of a trend in the industry the last several years, but what are your thoughts or multiyear planning process as far as looking at that, and sort of to help the scarcity factor and overall you know upgrade the mix of the seats so to speak

Bill Brooks

Well I think that when you look at other sporting venues over the last 10-15 years, it's been whether it's NBA basketball arenas or football stadiums trend down in total number of seats and this is an improvement that's been replaying out.

I would anticipate that it would follow that modern trend as we focus on our business and capital improvements over the last five years, 10 years we put a lot of (inaudible) on the fans, (inaudible) comfort and enjoyment and (inaudible) it's included in some cases replacing older stands with (inaudible) parking areas, extra things, and that's really (inaudible) customer enjoyment, things that people are excited about and in some cases that may include replacing seats with other great fan amenities and sometimes we do things like we (inaudible), the big TV in Charlotte, it has the biggest TV in the world for our fans to.

Tim Conder - Wells Fargo Securities

Okay I mean at this point nothing that you can quantify as far as you're to going to pull out this amount of capacity over the next three years or changes at this point as far as an overall capital plan?

Bill Brooks

Really, no, the (inaudible) was no, but we've really been focused on a tremendous span amenity infrastructure over the last 5, 8 years and we've cut back a little less two years because we feel really good about the fan infrastructure and amenities that we provided thus far. We don’t have a plan necessarily to have an across board (inaudible) reduction but our plan is to continue to focus on the best fan amenities that (inaudible) Speedway.

Operator

(Operator Instructions) At this time there are no additional questions in the queue.

Bill Brooks

Okay, well thank you ladies and gentlemen for your time, we look forward to speaking with you next quarter, thank you Stephanie.

Operator

Thank you, this does conclude today's conference call, you may now disconnect.

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Source: Speedway Motorsports' Management Hosts Q2 2013 Results - Earnings Call Transcript
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