Q2 2019 Earnings Call
Good morning, and welcome to the International Speedway Corporation, 2019 second quarter earnings Conference call.
During the presentation, all participants will be in listen only mode.
Afterwards, you will be invited to participate in the question and answer session.
At that time, if you have a question you will need to press star, but Keith followed by the one key on your Touchtone phone.
As a reminder, this conference is being recorded on Wednesday July 32019.
With us this morning on the call are John Saunders, President and Greg motto, Executive Vice President and Chief Financial Officer.
After formal remarks, John Saunders and Greg model will conduct a question and answer period I want to structure on the procedures at that time.
Before we start the company would like to address forward looking statements that may be addressed on the call.
Forward looking statements involve risks uncertainties and assumptions.
Actual future performance outcomes and results may differ materially from those expressed in these forward looking statements.
Please refer to the documents filed by International Speedway Corporation with the SEC specifically the most recent reports on Form 10-K , and 10-Q, which identify important risk factors, which could cause actual results to differ from those contained in the forward looking statements.
So with these formalities out of the way I will turn the call over to John Saunders Mr. Saunders.
Good morning, everyone and thanks for joining us today on our second quarter call.
As I discussed on previous calls NASCAR Holdings incorporated provided the IC board of directors, a non binding offer to acquire the outstanding shares of IC not currently owned by the France family stockholders.
Our board formed a special committee of independent directors in connection with the NASCAR cost.
The Special Committee retained advisors to evaluate post.
During the quarter.
The Special Committee recommended and the IC Board of directors unanimous unanimously approved the merger agreement.
Which entitles certain holders of IC class, a and b shares to receive $45 in cash for each share count.
As we announced on May 22nd 2019, NASCAR, an IC executed a merger agreement.
The merger is subject to the approval of at least a majority of the aggregate voting power of all outstanding shares of IC common stock not held by NASCAR and its affiliates.
France family group, and certain officers and directors of Ioseight.
The merger is also conditioned upon the satisfaction or waiver of certain customary closing conditions, including among others, the expiration or termination if any clickable waiting period under the Hart Scott Rodino antitrust improvements act of 1986.
We expect to file a preliminary proxy with the SEC.
Final proxy will be mailed to all shareholders. After we receive clearance at the proxy complies with the rules and regulations of the SEC.
Please refer to the merger agreement and other SEC filings, including our Form 10-K filed on January 25th 2019 subsequent filings on form 8-K.
And our Form 10-Q being filed today for additional information concerning the merger.
While the company has entered into an agreement and plan of merger with NASCAR Holdings, there can be no assurance that the merger or any other transaction will occur.
We undertake no obligation to update any such information except as required by law.
The purpose of this call is to discuss our second quarter results and we will have no further comment concerning the merger on this call.
Overall, our second quarter financial results are in line with our 2019 outlook.
We reported a slight decrease in revenue to approximately $168 million. Our non-GAAP earnings were 36 cents per share and we generated an increase in adjusted EBITDA to $52 million.
During the quarter, we hosted six NASA NASCAR Cup weekends and bike week at Daytona.
Admissions revenue for the quarter declined approximately 5%.
Largely due to not running the Indycar event, this year and I assume raceway and loss of revenue related to a sponsor bankruptcy.
On a positive note we saw the overall average ticket price of grandstand admissions for NASCAR Cup events increased to approximately $76.
Up 1.6% driven by ticket sales at the newly renovated is embraced way.
Greg will provide further details on financial results for the quarter and outlook for 2019.
Looking into the third quarter, we have hosted two NASCAR Cup weekends at Michigan and Chicago land.
The Cup event at Michigan was delayed from Sunday to Monday due to rain. So this will be the first time guests who did not return for the event on Monday, we will be able to benefit from our weather protection program.
As you May recall this enables a fan with an unused grandstand ticket to exchange it for for a future same series event at one of our facilities subject to certain restrictions.
Advanced ticket sales for the third quarter are currently trending flat to 2018.
Events to be held in the fourth quarter are still early on in the sales cycle.
We will provide an outlook for these events on our third quarter earnings call in October .
We will continue our consumer focused sales and marketing strategies, providing segmented experiences at a good value. Our objective is to slow and stabilize the recent trends and ultimately position for long term growth.
Our financial position is strengthened by our contracted corporate sales and broadcast agreements that provide long term visibility.
NASCAR is a powerful brand with a loyal fan base that we believe is aware of appreciates and supports corporate participation to a greater extent than fans of any other sports property.
We continue to drive the business forward with corporate partnerships nearly half of fortune 100 companies and 25% of Fortune 500 companies invest in NASCAR.
We currently have agreements in place for approximately 91% of our 2019 goal with all of our 2019 Monster Energy NASCAR Cup series events. So.
The new integrated sponsorship model is gaining momentum and partners and prospects are supportive of a new vision.
From a broadcast perspective, the Monster Energy NASCAR Cup series remains strong.
Viewership is up an average of 3% for Fox broadcast in the 2019 season and the Cup series share of audience is up 6% compared to last year.
Further bands that are tuned into NASCAR broadcast are tuned in for a longer period of time compared to other sports.
NASCAR digital platforms are showing significant growth in aggregate social engagement comment rate and you tube watch time.
Through the first 15 races of the 2019 season.
Race day user session time has increased 11%.
Consumption rate is up 2% and user return frequency is up 6%.
Domestic broadcast rights fees, which include digital streaming continue to provide significant cash flow visibility to us race teams and NASCAR over the contract term through 2024.
We we will continue to navigate the evolving media landscape through our long term partnerships with industry leaders NBC and Fox.
Last October Talladega Superspeedway commenced construction on the redevelopment of the iconic Talladega Talladega infield.
The project will immerse fans into the sport of NASCAR with a one of a kind Talladega were an experience featuring unprecedented access interactive attractions and enhanced amenities for gas.
While components of the redevelopment opened this spring the full project will be completed this year by Talladega as fall event as attract celebrates its fiftyth anniversary.
We believe prudent reinvestment in our facilities will continue to position IC for long term growth and deliver shareholder value.
Development development at one Daytona continues to gain momentum as tenants complete construction and commence operations.
The Daytona the Marriott Autograph collection hotel opened in April .
Selling out over Memorial day weekend, and heading for more sold out days around the Coke zero sugar 400.
Construction of the icon lifestyle apartments commenced in 2019 also part of the greater one Daytona project with certain components available for occupancy as early as fall 2019.
We anticipate these components will greatly assist in providing the momentum needed to drive this development to stabilization.
Entertainment can use continues to be a focus for one Daytona with victory circle fast, becoming the developments focal point hosting events from live music.
Car shows community best goals as well as providing great opportunities for fans to meet competitors and observed vehicles for motor sports events held at Daytona International Speedway.
We anticipate one daytona to be a destination for retail dining and entertainment.
In the greater Daytona Beach area.
IC maintained strong visibility the visibility of future cash flow with over half of its revenue secured through the Industrys tenure broadcast agreement and multi year partnership agreements.
We will continue our strategic focus on consumer marketing initiatives to deliver.
Growth through our core business.
We will also seek opportunities for increased utilization of our facilities through ancillary events.
In addition investments in qualified developments like the Hollywood Casino and one Daytona will provide for further growth and shareholder value.
I will now turn the call over to Greg to give you the financial review for the second quarter and the outlook for 2019, Greg.
Thanks, John and good morning, everyone.
Before reviewing the financial results, it's important to note several items impacting fiscal year over year second quarter comparability.
These include termination of sponsorship agreements and sub lease agreements with the company that is involved in bankruptcy proceeds, resulting in lower admission and sponsorship revenues as well as lower rental expenses.
Certain cost related to terminated agreements associated with non motor sports operations.
Revenues and expenses related to the purchase of certain assets from racing electronics.
Cost associated with the merger agreement.
The Indycar event at SM Raceway in country Music Festival at Daytona, both which occurred in the second quarter of 2018, but not in 2019.
And certain costs accelerated depreciation removal of assets and capitalized interest associated with our capital projects at one Daytona I SM enrichment Raceway in 2018 and Talladega in 2019.
All of these are outlined in the earnings news release and are included in the GAAP to non-GAAP reconciliation where appropriate.
Now looking at the income statement.
Admissions revenue for the second quarter was $24.4 million a decrease of approximately 5% from 2018.
This is primarily related to the Indycar event at I assume raceway.
Lower attendance for certain NASCAR and other events held during the quarter and the previously discussed sponsor bankruptcy.
Partially offsetting the decline were increased admissions revenue for the bike week events at Daytona and NASCAR events held at the newly renovated iOS and Raceway.
The decrease in motor sports and other event related revenues to 126.8 million is primarily due to the aforementioned country 500 music festival and Indycar events, the sponsor bankruptcy and certain other corporate sales, which were partially offset by increased TV broadcast rights revenues.
Hi, SCS domestic television broadcast and ancillary revenues were $97.7 million for the quarter.
The increase in food beverage and merchandise revenue to 11.4 million is primarily related to sales associated with the racing electronics business course, partially offset by the aforementioned country 500 Music Festival and Indycar event.
The decrease in other revenues to $5.5 million is primarily related to the receipt of insurance proceeds in 2018 offset by increased rents received from tenants at one Daytona.
NASCAR event management fees increased to 52.3 million. The increase is due to variable costs driven by higher television broadcast rights fees associated with the NASCAR Cup expended in truck series events.
As well as contracted increases in non TV NASCAR event management fees.
Motor Sports and other event related expense decreased to 32 million, primarily due to the country 500 Music Festival and Indycar event.
And expenses associated with terminated sublease agreement.
Also contributing to the decrease were lower event expenses related to certain NASCAR events held during the quarter.
Food beverage and merchandise expense increased to $8.1 million.
The increase is related to costs associated with racing electronics, and 2019, partially offset by the country 500 Music Festival in 2018.
Third beverage and merchandise expense as a percentage of associated revenue decreased to approximately 71.4%.
Other operating expenses increased to 1.9 million primarily related to operating costs associated with one Daytona.
General and administrative expense increased to 28.9 million. The increase is primarily due to certain employee related costs property taxes and cost related to the merger agreement.
Depreciation and amortization expense increased to 28.8 million for the quarter largely due to assets placed in service related to the completion of projects at I. SM enrichment race race as well as one Daytona.
Partially offsetting the increase were assets that have been fully depreciated or removed from service in 2019.
Losses on asset retirements decreased to 600000, primarily due to the removal of assets not fully depreciated associated with capital projects, including the infield renovation at Talladega.
Interest income increased to approximately $1.3 million for the quarter, primarily related to higher yield on short term investments.
Interest expense increased to $3.7 million as a result of lower capitalized interest associated with the highest embraced play one daytona projects from the prior year.
Equity and net income from equity investments of approximately 6.4 million represents our 50% interest in the Hollywood Casino at Kansas Speedway and to a lesser extent, our approximate 34% and 33% equity interest in the Daytona and Fairfield hotels, respectively at one Daytona.
This is comparable to $6.4 million in the second quarter of 2018.
For the quarter, we received cash distributions from the casino totaling $6.5 million.
The effective tax rate for the second quarter of fiscal 2019 was 22.9% compared to 22.2% in the second quarter of 2018.
Net income for the three months ended May 31, 2019 was $15.1 million or 35 cents per diluted share on approximately 43.4 million shares outstanding.
However, when you exclude noncapitalized nonrecurring acquisition costs related to the purchase of certain assets from rice in electronics.
Onetime noncash charges related to terminated agreements from non motor sports operations.
Costs associated with the merger agreement.
In certain non recurring costs and removals assets in connection with the infield project at Talladega.
We posted earnings of 36 cents per diluted share for the second quarter of fiscal 2019 compared to non-GAAP net income for the second quarter of 2018 to 37 cents per diluted share.
And an increase in adjusted EBITDA to $52.1 million for the second quarter of fiscal 2019 compared to $50.8 million in the second quarter of fiscal 2018.
As for the balance sheet and future liquidity at the quarter end, our combined cash and cash equivalents totaled 338.7 million and shareholders' equity was $1.7 billion.
Our deferred income was $79.4 million down approximately $12.9 million from the same period in the prior year.
The decrease in deferred income is primarily due to the change in accounting associated with the new revenue recognition standard, which requires netting of certain accounts receivable and deferred income items.
At the end of the quarter total principal outstanding on debt was approximately $256.8 million.
Which includes 165 million senior notes.
46.3 million TIF bonds associated with Kansas Speedway.
And 45.5 million for our term loan on our headquarters office building.
We currently have no borrowings drawn on our $300 million revolving credit facility.
As it relates to capital spending for the three months ended May 31, 2019, we spent approximately $42.6 million, including capitalized interest in label.
As for capital allocation our plan remains as previously communicated we have established a long term capital allocation plan to ensure we generate sufficient cash flow from operations to fund our working capital needs capital expenditures at existing facilities return of capital through payments of an annual cash dividend and repurchase of shares under our stock purchase plan.
We operate under a five year capital allocation plan adopted by our board of directors covering fiscal years 2017 through 2021.
Components of this plan include capital expenditures at existing facilities, including the Talladega Anfield project, the one Daytona development and return of capital to shareholders.
For our existing facilities, we expect capital expenditures up to $500 million from fiscal 2017 through 2021.
These include the projects completed at I., SM enrichment race ways and the infield renovations underway at Talladega.
As well as other maintenance and guest experience capital expenditures for remaining existing facilities.
While many of these component components of these projects will exceed weighted average cost of capital considerable maintenance capital expenditures, which we estimate to be approximately $40 million to $60 million annually will likely result in a blended return of invested capital in the low to mid single digits.
In addition to the $500 million capital expenditures for existing facilities, we expect approximately $111 million net capital expenditures exclusive of capitalized interest net of public incentives related to one Daytona.
For fiscal 2019, we expect total capital expenditures associated with our capital allocation plan to range between 90 and $100 million for existing facilities, including the Talladega infield projects and remaining capital expenditures related to completion of the projects at SM Richmond race lays and one Daytona.
Return of capital to shareholders through dividends and share repurchases is a significant pillar of our capital allocation.
We expect dividends to increase in 2020 and beyond by approximately 4% to 5% annually.
We currently have no active rule Tenbfive one plans. Therefore, we did not purchased any shares of CA during the second quarter fiscal 2019.
At May 31, 2019, we had approximately $138.7 million remaining repurchase authority under the current $530 million stock purchase plan.
We have built the capital allocation plan based on Conservative estimates that will maintain a strong financial position.
Prudently and disciplined reinvestment in the business and provide stable and growing returns to shareholders.
And now for our outlook for 2019.
In an effort to enhance the comparability and understandability of our forward looking financial guidance, we adjust for certain nonrecurring items that will be included in our future GAAP reporting.
We believe this adjusted information best represents our expectations for our 2019 core business performance.
Please refer to our earnings release for the detailed list of items excluded from our fiscal 2019 non-GAAP guidance.
For fiscal 2019, we are reaffirming our outlook within the previously provided guidance range.
The high end of our range contemplates stabilization in our attendance and related revenues.
And securing 100% of our corporate sales goal.
While the low end of our range contemplates further erosion in attendance approximately 95% of our corporate sales goal less the uncollectible revenue from a sponsor currently in bankruptcy.
And net of lower operating expenses as a result of cost containment initiatives.
Our full year fiscal 2019 guidance includes total revenues to range between 685 and $750 million $705 million.
Adjusted EBITDA will range between 230 and $250 million.
Included in adjusted EBITDA is approximately $27 million in pre tax cash distributions from the Hollywood Casino.
Operating margin is estimated between 13 and a half and 16%.
Our non-GAAP effective tax rate is forecasted at 25%, 26% and non-GAAP earnings of $1.85 to $2.15 per diluted share.
In closing we continue to see areas of success like the increased admissions at our newly renovated I assume raceway and increased viewership for 2019.
Our 2019 financial outlook provide year over year growth.
We have a defined consumer focused marketing and sales strategy.
We continue to reinvest in new fan experiences that competitively positioned our facilities against other entertainment options.
And we maintain a solid financial position developed over many years that affords us the ability to follow our disciplined capital allocation strategy and maintain our leadership position in the motor sports industry.
For the future, we are well positioned to balance the strategic capital needs of our business with returning capital to our shareholders.
We look forward to speaking with you on our next earnings conference call in October with that I will turn it back over to the operator, who will lead us through the Q and a portion of the call operator.
Thank you at this time, ladies and gentlemen, we will open the lines for questions and answers. If you wish to ask a question simply press Star then the number one on your telephone keypad.
At any point. Your question has been answered your question remove yourself from the queue press the pound key.
Okay.
Our first question comes from the line of Jamie Katz of Morningstar.
Hi, Good morning, guys. Good morning, John .
I have a question on the integrated Spawners sponsorship model, you sort of roster across that pretty quickly I'm curious if you have any update on that that would be helpful for us to understand.
I don't have anything any updates or just to refresh of what we've talked about previously the.
NASCAR as approach going forward.
Is to cheer sponsorships you know the days of a of a sprint writing a 75 million dollar check.
To be a series entitlement, we just don't think that.
A good model going forward.
But NASCAR has been in the marketplace.
They have what they call a premier and took that your tiered levels for sponsors a they have a lot of interest at both levels of those those two years, but it would really be.
Their announcement when something is a sign.
But it does include the integrated sponsorship model does include assets not just from NASCAR, but assets across race facilities and in some cases race teams. So it's including the broadcasters so.
Yeah, we think it's a much better play going forward and they are gaining momentum momentum in the marketplace, but announcement that would really come from NASCAR.
And we would hear more about that over the next six months plus correct is that the right timeline to think about that I I I would think that's the right time line.
Okay, and then as far as the.
Bank partner, that's going through.
Bankruptcy has that given you guys any posture really reassess how some of these contracts are structured and your ability to.
Maybe replace some partner is if it seems like that may not be able to have the liquidity to.
Surface their payments with you.
Hey, Jamie this is Greg I'll answer that that situation. We do have a defined risk analysis process that we go through and evaluating our partnerships before executing a busy agreements. This this one situation. Unfortunately has not just impacted us and impacted many in the industry and many in other industries and.
To the extent of replacing to position our sales team and as John mentioned with the the integrated sponsorship model will always look for opportunities to.
Create a new category of new positions for our for our partners.
Okay, and then I know you don't want to talk about the buyout I just want to reiterate what I heard which is that.
Before the vote to college to the outside shareholders. It will go first to FTC or whoever is evaluating anti trust. So there's still some length of time before this transaction theoretically would close is that right.
Yes, Jamie the process will be the company will prepare a a proxy to file with the FCC name within 30 days of the 30 business days of the merger agreement.
And then go through a period with the FCC to clear it before a final proxy will be sent out to shareholders for the.
Okay. So that's unlikely to probably happened before fiscal year end given that some of these processes are really slow.
Well, we gave 'em, we gave the expected timeline to happen.
The transaction to close within the calendar year of 2019.
And at the time of the merger the announcement of the merger agreement on May 22nd.
Okay. Okay. That's helpful. Thank you so much.
Thank you Jamie.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
Our next question comes from the line of Tim Conder Wells Fargo.
Thank you and just really wanted to to hone in on that on the timeline, there a little bit gentlemen.
The filing of the of the proxy.
Requirements with the FCC I mean is that basically eminent and then obviously the the review process is to be compressed store or long dated but just trying to get a little bit more of a timeline here. We appreciate the by the end of the COVID-19 here, but any other color you can give on as far as a benchmark some timeline.
Yes, Tim this is drag.
You know again I think we can kind of work through the data as you know they are outlined in the.
With the with regards to the process and the merger agreement 30 business days following the signing of the merger.
Agreement on from May 22nd So that's that's coming then.
The FCC has a period of time to.
To go through and comment on on that and that's that's in the FCC, the regulatory bodies or and will work with the the FCC to declare those comments. So that we can complete a final proxy I don't think were in a position to provide a definitive timeline.
That is more comprehensive.
Than that at this time.
Okay. Okay that helps so the okay. So we're in the period, you're the bowls in their court at this present time that we're waiting to hear back from them.
Well we.
We are.
We are preparing a preliminary proxy to be filed with the SEC.
Okay. Okay. Okay. Thank you very much.
Okay. Thanks, Tim.
Again, ladies and gentlemen, if you wish to ask a question simply press Star then the number one on your telephone keypad.
There appears to be no further questions I would like to turn the floor back over to management for any additional and closing remarks.
I just this is John I just wanted to thank everybody for joining us on todays call and we look forward to.
Talking with you on our third quarter earnings call, which will be in October so have a great day. Thank you. Thank you all have a good day.
Thank you ladies and gentlemen, this does conclude today's second quarter earnings Conference call you may now disconnect.