Marcus Smith - President and COO
Bill Brooks - CFO
Barry Lucas - Gabelli & Company
Speedway Motorsports, Inc. (TRK) Q3 2013 Earnings Call October 27, 2013 10:00 AM ET
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 Inc. Third 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 Authentic 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 now like to turn the conference over to Marcus Smith. Please go ahead, sir.
Thank you, Stephanie. Good morning, ladies and gentlemen, and thank you for joining us today as we discuss the company’s financial and operating results for the third quarter ended September 30, 2013. For the third quarter, we reported total revenues of $137.5 million and adjusted non-GAAP income from continuing operations of $10.7 million or $0.26 per diluted share. Nine months 2013 total revenues were $398.5 million and adjusted non-GAAP income from continuing operations was $35.8 million or $0.86 per diluted share. Also, given the broader economic uncertainty for Main Street America, SMI revised its full year 2013 guidance, which, our CFO, Bill Brooks, will address further later.
During the third quarter, we hosted eight major NASCAR-sanctioned racing events at our speedways in Atlanta, Bristol, Kentucky and New Hampshire. We started the quarter at New Hampshire Motor Speedway for the Camping World RV Sales 301 Sprint Cup Series event, and CNBC Prime’s The Profit 200 Nationwide Series event. At Bristol Motor Speedway, we hosted the IRWIN Tools Night Race, the Food City 250 and the UNOH 200 and Labor Day weekend took us to Atlanta Motor Speedway for the AdvoCare 500 and the Great Clips/Grit Chips 300 Nationwide Series event.
We ended the quarter at Kentucky Speedway for the NASCAR Kentucky 300 Nationwide Series Race then backed in the Hampshire Motor Speedway for the SYLVANIA 300 Sprint Cup Series weekend. We also hosted several other racing events including the Carlyle Tools NHRA Nationals, presented by NAPA Auto Parts at zMAX Dragway and the NHRA Sonoma Nationals and GoPro Grand Prix of Sonoma IndyCar Series event at Sonoma speedway, the ZLOOP 150 Automobile Racing Cup of America Series racing event in Kentucky Speedway and the Smith's 350 NASCAR Camping World Truck Series events both at the Las Vegas Motor Speedway.
Our results continue to reflect the challenges of operating entertainment venues during tough economic conditions but we remain focused on positioning the company for long-term growth, despite headwinds we’re still making positive progress. We managed to secure all of our NASCAR Sprint Cup Series event entitlement in all but one NASCAR Series Nationwide Series events before 2014. We are still seeing encouraging levels of activity and interest from current and perspective corporate partners and our sales teams continue to work hard in that endeavor.
We recently announced the Quaker State would return as the title sponsor of the Sprint Cup series event at Kentucky through 2018. We have two NASCAR Sprint Cup series events and five Nationwide Series events yet to be announced or so for 2014 and this puts us about where we were last year at this time. We remain committed to offering fans unrivaled entertainment and amenities in all sports and events at our facility. In recent announcements Texas Motor Speedway in collaboration with Panasonic will showcase the new world’s largest high definition video board during its NASCAR Sprint Cup Series event weekend in 2014, in April. The video board will be located on the back stretch and will be 218 feet wide and about 95 feet tall; it will be just larger than the current larger screen in the world at Charlotte Motor Speedway.
In Bristol Motor Speedway we also announced plans to transform the legendary speedway into the world’s largest football stadium for the inaugural Battle at Bristol, College Football's Biggest Ever game to be held on Saturday, September 10, 2016. The event will feature a border battle between Virginia Tech Hokies and Tennessee Volunteers and is projected to set the NCAA record for highest single-game attendance added for full game.
The new ten-year broadcasting media and digital rights agreements with NBC Sports Group and FOX Sports are the largest in the sports history. Financial terms are yet to be disclosed but industry sources estimate the value of the total contract over ten years to be over $8.2 billion. We have a lot of great things happening in the industry right now and a lot to look forward to 2014. The new NASCAR broadcast agreements, the focus appeal to widening demographic markets, NASCAR’s improvements to on-track competition, all provide us with tremendous prospects for limited and long-term growth. And we are committed more than ever to providing our fans with the unsurpassed entertainment value defined at our facilities.
And to get into more of the financial details I will turn it over to our CFO, Bill Brooks.
Thank you, Marcus. Unlike a lot of our prior years in the third quarter, we were pretty similar to the 2012 third quarter where we conducted two last Camping World Series Truck races in the quarter. Our third quarter results are relatively comparable to the prior year in terms of the events that we had and in any unusual items. Even our adjusted earnings per share were similar between the two periods.
But the composition of earnings is not similar, we continue to experience weaker admissions revenue year-over-year and the changed admissions revenue was about evenly split between attendance and pricing. Our event related revenues also declined year-over-year mostly from weaker corporate demand. While many of our expense categories were reduced somewhat, it was not enough to offset the revenue weakness we have experienced this year, so one would expect lower earnings per share under these set of circumstances.
Our corporate and tax restructuring are finally gaining some correction by reducing interest expense and lowering our tax rate. By altering some of these factors within our control, we are able to partially mitigate the revenue weakness that we have experienced. We look at the three months ended in September 2013 compared to the three months ended in September 30, 2012; the total revenue has decreased by about $4.8 million or about 3.3%
Admissions for the three months ended in September 2013 decreased by $3.2 million or 9% from the same period last year, and was primarily due to lower admissions at NASCAR sanctioned racing events. Event related revenue likewise decreased, it decreased by about $2.6 million or about 6.5% from such revenue for the same period last year. The decrease is due primarily due to declines in most categories so far; event related revenues associated with our NASCAR sanctioned events. The increase was offset a little bit by higher track rentals at some of our Speedways.
As expected our NASCAR broadcasting revenue for the three months increased by $1.8 million or about 3% over such revenues for the same period last year. Our other operating revenues, and actually our other operating expenses for the three months, both decreased about the same amount, in dollar amounts from the same period last year, and the decrease was due primarily to lower legends cars and non event souvenir sales.
Our direct expense of events for the three months ended in September, decreased by $925,000 from such expense over the same period last year. This decrease reflects lower advertising and a combination of small items in the current period. Just keep in mind that admissions and event related revenues directly impact many of these expenses such as sales and admission taxes or cost of merchandise, credit card processing sales, and then some of our operating cost.
We look at our NASCAR purse and sanction fees for the three months ended in September; they decreased by $160,000 from the same period last year. The decrease reflects conducting two last Camping World Truck Series Race events in the quarter, and that were partially offset by a higher annual contractual racing purses and sanction fees for the NASCAR events.
Our general and administrative expense for the three months increased slightly by about a $115,000 over such expenses of the same period last year reflecting some wage cost inflation in small items. Interestingly, our depreciation for the three months decreased by $326,000 from the same period last year that decrease reflects that certain assets are now fully depreciated. Interest expense for the three months ended in September was $5.9 million compared to $10.3 million for the same period last year. This change reflects redemption of higher interest rates, 2016 senior notes and replacement with lower interest rate credit facility borrowings, lower total outstanding debt and lower interest on the credit facility borrowings in the current period.
Also our income tax provision effective rate for the three months ended in September was about 38.9% excluding certain non-recurring benefits of state income tax law changes, compare that to a prior year effective rate of three months of 2012 was 40.1, this lower current period tax rate is due to lower effective state income tax rates. So those are the factors that caused our net income for September 30, 2013 to be $12.3 million compared to $11 million for the same period last year.
We adjusted our earnings guidance from $0.90 to $1.10 earnings per share downwards to $0.80 to $0.90 basically because of the aforementioned weakness that we have experienced throughout the period. Hopefully, we'll come in within that range and we expect that the sales will probably be pretty similar to what we have mentioned previously.
Our balance sheet continues to show some improvement, September 30 our cash was $115.3 million, which increased $8.9 million from December in about $19.2 million from September of last year, third quarter race income in September 30, 2013 and $48.4 million reflects a decline of about $4.3 million from that of September 30, 2012. Our long-term debt totals about $487.9 million versus $521.3 million at year end, $ 526.6 million last September both reflecting considerable pay downs. They also each include in December of 2012 and in September 2012 a flat discount of around 5 million and then the September 2013 numbers include a premium, so there is actually about $10 million of swing that should be considered when evaluating the amount of debt reduction that we had in that 12-month period.
We are at this point forecasting our capital expenditures for the year of $15 million to $25 million. At this point at the end of our prepared remarks that we have Stephanie please ask our participants to ask any questions that they would like to at this point.
(Operator Instructions). Your first question comes from the line of Barry Lucas with Gabelli & Company.
Barry Lucas - Gabelli & Company
I have got a couple that are -- some are short term but I do want to go longer term. Any color you could provide for the advanced sales for taxes, because I know you narrowed the guidance or lowered the guidance but with only two races, one in the books and one this weekend. I am just wondering why it's still so wide.
Barry we went from $0.20 range to a $0.10 range and as we go through the end of the year there is always adjustments to accruals that may have some impact. And truly we have some visibility to earnings taxes that we expect to be about the same as all the other events that we have had this year somewhat weaker than the prior year. But we really don't have much visibility to the expenses. And that's true pretty much all the events we have conducted in October as well.
So for that reason hopefully in abundance of caution (Ph) we reduced our earnings. We have done this probably in last two years spell and each instance turned out to be excessively conservative, I have no idea whether it will be this time or not.
Barry Lucas - Gabelli & Company
And you did make a statement in release and talked about little bit on the call in terms of tax rates. Can we think of those tax rate reductions being kind of more permanent in taking you kind of during that 37%, 38% or it should be penciling in something else.
I think you’re correct. Changed, it worked on changing the structure of our corporations so that our state income tax structure is different and looking at maybe at 38% rate seems reasonable now going forward.
Barry Lucas - Gabelli & Company
Just switching user to the bigger picture, the racing has been pretty good, I think certainly entertaining and that’s just not an opinion I think that’s statement of fact judging by the overall TV viewership numbers but it’s still hard to get people in the seats -- into the seats despite a modest improvement in the overall economy and improved housing market which certainly plays into employment numbers for a lot of your fans.
So, I guess the question is what’s the disconnect from kind of mid single digit declines to flat attendance numbers and is it kind of an endemic issue we sport at this point.
I’m going to let Marcus talk about this as well but my view is that live entertainments events are at rest right now because people are conservative and they can consume the product in alternate medias without having to incur the time and expense with actually attending, and that’s not sporting events but it’s a lot of concerts or theater or musical productions. Do you have any other opinion Marcus?
I think when you look at anything where you buy ticket to go to an events no matter what sport it is or entertainment venue, it’s soft and I think where we have a direct communication with the consumers out there and we’re selling more tickets then would fit in most venues for every weekend but Main Street America are not seeing a huge improvement right now and there is whole lot of a uncertainty everything around healthcare and what not. So, jobs are still the key that’s what we need for people to really have recovery and of course jobs that are paying. But then from a macro sense I think we’re excited that housing starts are improving, people need to get a little more time under the belt with a good paying job I think for us to see that. So, we are not isolated and the difficulty of selling lot of the tickets today is pretty much across the board from what we can see in our research and just top line stories.
But I think certainly the opportunity looking out tremendous when you consider the tremendous TV audiences, the consumers that are enjoying NASCAR Racing, the new fans that are coming into the sport and enjoying it there is lot of positives there for the future.
Barry Lucas - Gabelli & Company
One last one for me if possible squeeze it, that announcement for Bristol was pretty intriguing how would you handicap other opportunities for different kinds of events to fit into your venues whether it’s other football games or gaming as one of your peers has done, are there those kind of opportunities where you can improve the return on assets if you were of those big facilities.
I think that’s something that we love to see and the game in Bristol is something that’s taken a long time to pull together, we looked back and saw the first time it early hit the news was about 17 years ago. So, the time and since then it really hasn’t been something that’s where all the piece would fall into place. Perfect timing is now and all the parties fell like it was the right time for it so we’re certainly excited about it and as it’s the course of regular business, we’re always working to operate our facilities to the maximum potentials every week. So, you’ll find our facilities across the country are busy more often than not with varying events and we continue to make efforts to increase the profit and fund on those events.
(Operator Instructions). At this time, there are no additional questions.
Thank you ladies and gentlemen for joining us today; we look forward to speaking with you next quarter. Have a good day.
Thank you, this concludes today's conference call. You may now disconnect.
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