Speedway Motorsports, Inc. (NYSE:TRK)
Q1 2016 Earnings Conference Call
April 27, 2016 10:00 am ET
Marcus Smith - President, Chief Executive Officer
Bill Brooks - Vice Chairman, Chief Financial Officer, Treasurer
Matthew Brooks - Macquarie
Jack Ripsteen - Potrero Capital
Good morning, and welcome to the Speedway Motorsports First Quarter 2016 Earnings Conference Call. During the call, all participants will be in a listen-only mode. After you will be invited to participate in a question-and-answer session. As a reminder, this call is being recorded on Wednesday April 27, 2016.
With us on this morning’s call is Marcus Smith, Chief Executive Officer and President; and Bill Brooks, Vice Chairman and Chief Financial Officer. After formal remarks, a question-and-answer period will be conducted.
Before we start, the company would like to address forward-looking statements that may be addressed on the call. This conference call contains forward-looking statements particularly statements with regard to the company’s future operations and financial results. There maybe 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 other sanctioning bodies, capital projects and expansion, financing needs and a host of other factors both within and outside of management’s control.
These factors and other factors including those contained in the company’s Annual Report on Form 10-K and subsequently filed quarterly reports 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.
So with these formalities out of the way, I will turn the call over to Marcus Smith. Marcus?
Thank you. And good morning, ladies and gentlemen, and thank you for joining us on today’s call.
For the first quarter we reported total revenues of $83.2 million and net income of $861,000 or $0.02 per diluted share. We also are reaffirming our full year 2016 earnings guidance of $0.90 to $1.10 per diluted share. While our financial results for the first quarter were within our expectations, we believe that the improving economy has not yet reached many of our core fans despite some positive trends and macro economy. Many Americans continue to struggle with under employment and increased cost for basic goods and the strong U.S. dollars negatively impact the buying power of our Canadian customers.
Now, looking at the quarter, we hosted four major NASCAR events. In February, we hosted the NASCAR Sprint Cup Series, Folds of Honor QuikTrip 500 and the XFINITY Series, Heads Up Georgia 250 at Atlanta Motor Speedway. And in March, at Las Vegas Motor Speedway, we hosted the NASCAR Sprint Cup Series, Kobalt 400 and the XFINITY Series, Boyd Gaming 300. Other racing events this quarter include the Great Clips 200 NASCAR Camping World Truck Series at Atlanta Motor Speedway.
NASCAR’s improvements to the sport and recent competition changes are showing positive benefits racing and had let some really exciting events. Through the first eight races, the NASCAR Sprint Cup Series averaged about 6.5 million viewers and ranked as the number one or number two sport on television for each of those weekends. Also NASCAR Digital and Socialmedia continue to see strong growth. These platforms are an important strategy for content distribution as fans are consuming NASCAR in more ways never before.
As for event entitlements, we are trending inline with this time last year, currently we have two NASCAR Sprint Cup Series event entitlements and one XFINITY Series event entitlement yet to be announced or sold for 2016. However, I feel confident that our sales team is working diligently to achieve these goals. And our focus continues to be on race fans. It has been our philosophy to create the best possible live experience in our speedways, one that cannot be duplicated at home or at other venues. We now have three of the world’s largest high definition video boards in the planet, one at Charlotte, one at Texas and the recently unveiled Colossus TV in Bristol. Also at Bristol, we recently installed a new audio system to further enhance the fan experience.
We continue to work on seeing enhancements at our venues and related capacity at each venue. At Las Vegas Motor Speedway, we demolished some seating in Turn 4 and replaced it with high-end VIP hospitality area and luxury RV Terrace that was available in time for the Kobalt 400.
We are also installing new digital LED scoreboard at several of our Speedways and we're nearing completion of the distributed antenna system at each Speedway that will provide our fans with high-speed wireless performance while they are enjoying events at our venues.
We’re also making good progress with the renovations at our Kentucky Speedway. The Speedway is in the middle of a full repave and re-profiling of the racing surface. In addition, we’re improving the tracks drainage system and installing more energy absorbing Safer Barrier. We’ve also completed significant installations of additional Safer Barriers at Atlanta, Bristol, Charlotte, Las Vegas and New Hampshire.
And I’ll now turn it over to Bill Brooks, our CFO to give you further financial review.
Well, thank you, Marcus.
Our first quarter 2016 net income is obviously greater than 2015, but the non-GAAP earnings are not. Many categories of revenue and expense also differed between periods. We attribute these differences to several factors. The movement of an NHRA race at Charlotte Motor Speedway from the first quarter of 2015 to second quarter of 2016 probably accounts for much of the admission event related revenue and direct expense of events differences year-over-year.
Surprisingly, world events had an outsized effect on the first quarter, the strong dollar discouraged many of our foreign customers particularly Canadian customers from attending our event weekend at the Las Vegas Motor Speedway, which combined with inclement weather produced a relatively weak event at Las Vegas. Additionally, lower natural gas prices have their natural gas royalties at Texas Motor Speedway.
Also, during the first quarter of 2015, we received payments for an easement on some of our land from a local utility company that did not reoccur in 2016. Combination of these events account for most of the differences between the quarters ended March 31, 2016 and March 31, 2015.
Our total revenues for the three months ended in March 31, 2016 increased by $2.1 million or 2.5% from such revenue for the same period last year. Admissions for the three months ended March 31, 2016 increased by $3.3 million or 17.7%, this decrease is due to CMS holding a major NHRA event in the first quarter 2015, it was held in the second quarter of 2016 and to lower our overall attendance at NASCAR racing events held in Las Vegas.
Event related revenues for the three months ended March 2016 decreased by $540,000 due primarily to CMS holding a major NHRA racing event in the first quarter 2015 that has been held in the second quarter of 2016 and to a lesser extent lower souvenir sales. The overall decrease was partially offset by higher track rental and driving school revenues at some of the company’s speedways in the current period.
NASCAR broadcast revenues for the three months increased by $1.1 million or [Technical Difficulty] over last year.
Other operating revenue for the three months ended in March increased by $627,000 or 7.9%, due primarily to higher legend car and non-event souvenir sales. The overall decrease was partially offset by lower royalty revenues associated with Texas Motor Speedway natural gas royalties. Direct expense for the events for the three months ended March decreased by $1.8 million or 12.2% mostly from CMS holding the aforementioned NHRA event in a different quarter and to a lesser degree cost associated with lower souvenir sales.
Event management fees for NASCAR for the three months ended in March 31, 2016 increased by $679,000 or 3.1% as expected. And the other the direct operating expenses for the quarter decreased by $751,000 or 15.5% primarily from increased operating cost associated with those on our legends car and non-event souvenir sales.
General and administrative expenses for the three months ended March 31, 2016 increased by $983,000 or 4.3%. This increase reflects higher compensation cost in the period including [Technical Difficulty] cost inflation in a combination of [Technical Difficulty].
Depreciation and amortization expense for the quarter increased by about $36,000. Net interest expense for the three months ended in March was $3.3 million compared to $6.3 million from the same period last year. This change reflects our first quarter 2015 redemption of higher interest rate 2019 senior notes, replacement lower interest rates 2023 senior notes credit facility borrowings, those had lower outstanding debt as compared to the prior year. This change also reflects some interim interest expense of $1.7 million, which was incurred in the first quarter of 2015 relating to transactions.
You will recall we had a loss on early debt redemption and refinancing for the first quarter of 2015 representing a charge -- earnings of $8.4 million before income taxes of $3.1 million incurred for redemption premium unamortized net deferred loan cost and deduction cost net of issuance premium that was all associated with our former 2019 senior notes.
Other expense net for the three months 2016 was $68,000 that compares to other income of $390,000 for the same period last year. Income tax rate for the three months ended in 2016 was 37.5% or 2015, it was 34.5%, 2015 effective rate was reduced by some adjustments to deferred taxes and would have been 37.1% excluding those adjustments. Those factors discussed, we had a net income for three months ended March 31, 2016 $861,000 compared to a net loss of $4.1 million prior year.
At March 31, 2016 cash balances of $79.3 million decreased $22.3 million from those of March 31, 2015. Total long-term debt of $319.2 million at March 31, 2016 declined $81.9 million from March 31, 2015. Motor race revenue increased about $3.4 million year-over-year much of this increase relates to the Battle at Bristol football game University of Tennessee and Virginia Tech scheduled to be held on September 10 of this year at Bristol Motor Speedway. Our capital expenditures were somewhat front loaded this year and they’re expected to be $30 million to $40 million for 2016.
Michele, at this point please open up calls to anyone who might have questions.
[Operator Instructions] You have one question from Matthew Brooks from Macquarie. Your line is open.
Good morning, guys. I was wondering -- are you able to tell us what the same-store growth would be if you account for that change in the schedule, specifically on admission?
Yes. I know what you are referring to. Much of the change relates to NHRA events we talked about. And another significant portion of the decline relates to lower attendance by folks from Canada and other foreign countries related to foreign exchange issues. The remainder is, we believe whether related so its probably flattish. We've seen probably in the last six or eight months, if I remember correctly, more attendance, but -- and more revenue, more attendance and less revenue, less attendance and less revenue, less attendance and more revenue. We really don’t have a pattern that we are noticing apart from people buying tickets late during the event or closer to the event. And that they [indiscernible] racing and other things occurring in the marketplace, other entertainment options. And finally, the weather being the driving factors that are affecting it in the short run.
Okay. Do you think that the improvement in the chase format, is driving any increased interest in the later races in the year compared to the early once?
I think that there is a lot of interest in the chase -- the chase period. But we haven’t been able to really identify any trend of weakness in the first part of the year that relates to that strength in the later part.
I think you actually have for the first 26 races, you have more pressure on the drivers than I think the new rules package for the cars along with the chase format that rewards winnings so much creates a lot of pressure on the drivers and the teams to perform their best in the first 26 races, the regular season if you will of the sport. And then, of course, the chase is a format that people are familiar with because it falls a similar tournament style racketing so to speak. And so it provides its own excitement. But I don’t think it has caused less interest, I think in fact it's the opposite, it creates more pressure and more interest in the first 26 races.
Okay. And the last one, once you got deferred revenue, it looks like may be its 4% compared to this time last year, is that due to the shift in the schedule, or is that some improvement advance ticket sales or sponsorship that’s coming through?
Matt, most of it is related to the football game that’s going to be held in Bristol, which is an incremental event.
Right, I understand. Thank you very much for your time.
[Operator Instructions] I do have another question from Jack Ripsteen from Potrero Capital. Your line is open.
Hi, good morning. Thanks. I had two questions. The first is on the Bristol race, can you talk about attendance you saw there, and then, I guess its three, and then, upcoming whether Talladega any thoughts plans, what happens when you move the race may be to the next day? And then, lastly it looks like you’ve repurchased some shares, what's remaining on the authorization, any chance that gets reloaded? Thanks.
Jack, the last one in terms of the authorization there is over 600,000 shares remaining in authorization. So we will probably in the short run continue to repurchase shares enough to avoid losing. Then you had a question in regard to Talladega, its not really….
Sorry, wrong track. I meant on the Bristol the prior attendance?
Yes. In Bristol it’s in -- I think I read in newspaper reports that estimated attendance is 70,000, [race is set] [ph] that for this moment that’s less than half the available seating, which is not a typical for a Bristol race in the spring time particularly one with the two prior years had really bad weather. And it looks as though very few people are attending when you in fact have a fairly sizable crowd and it’s a function of having those rows seats in it very confined space.
Okay. Because it was -- it looks one way, but then when you go online to say purchase tickets it looks quite differently if you’re using the seating purchase chart?
Yes. That’s exactly the case. I know that it's very deceptive and it looks as though it's sparsely attended, but in reality it was a fairly substantial attendance and disparity in the strengths of the night race and the spring race account for a lot there right now.
Bristol Motor Speedway is one of the largest in terms of seating capacity largest venues in the world and when you have huge crowd there that would be a sell out elsewhere on the stadiums, but there is still more seats to fill up.
With the later date, moving from March to April and the racing improvement we had fantastic racing in Bristol this year in the spring. We think that will bode well for future sales. We are also coming off of three years in a row of the spring race having really poor weather and that always impacts us negatively in the out years, no matter when you chose to look in the history of the company that always impacts the latter years. So, with the racing that we had and better weather timing for that spring day we feel like it has a good opportunity.
Great, thanks. And you mentioned the share repurchase being [indiscernible] dilution any thoughts on as you pay down the debt taking that up to something that can get ahead of the dilution?
That’s a possibility. We would like to see some additional repayments on our debt during this current calendar year and once we get that debt hopefully down below $300 million, we will assess if we want to make any alternate capital allocations, but that's certainly topic of discussion.
Okay, great. Thanks for your time.
[Operator Instructions] I have no further questions at this time. I turn the call back over to the presenters for closing remarks.
Okay. Thank you, ladies and gentleman for your time today. We look forward to speaking with you next quarter. Have a good day.
Thank you, everyone. This concludes today’s conference call. You may now disconnect.
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