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Edited Transcript of DVD earnings conference call or presentation 24-Jan-19 10:59am GMT

Q4 2018 Dover Motorsports Inc Earnings Call

DOVER Jan 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Dover Motorsports Inc earnings conference call or presentation Thursday, January 24, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Denis L. McGlynn

Dover Motorsports, Inc. - CEO, President & Executive Director

* Timothy R. Horne

Dover Motorsports, Inc. - Senior VP of Finance, CFO & Director

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Presentation

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Operator [1]

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This conference will now be recorded.

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Denis L. McGlynn, Dover Motorsports, Inc. - CEO, President & Executive Director [2]

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Morning, everyone, and welcome. I'm joined by Tim Horne, our CFO, who's going to read our forward-looking statement disclaimer, and then we'll get underway.

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Timothy R. Horne, Dover Motorsports, Inc. - Senior VP of Finance, CFO & Director [3]

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In order to help you understand the company and its results, we may make certain forward-looking statements. It is possible the company's actual results might differ from any predictions we make today. Additional information regarding factors that could cause such differences appear in the company's SEC filings.

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Denis L. McGlynn, Dover Motorsports, Inc. - CEO, President & Executive Director [4]

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Thanks, Tim. Well, it's a good quarter for the company with our only major event, our fall NASCAR weekend, coming in only slightly down against last year thanks to growth in sponsorship and broadcast revenues, and we closed out the year totally debt free. In conjunction with Dover Downs Gaming & Entertainment, we introduced live sports wagering on-site during the race weekend last fall. And while this was essentially a Dover Downs Gaming initiative, Dover Motorsports benefited from the national media attention regarding the introduction and the positive fan response to betting on NASCAR.

Down the road, we see tremendous opportunity to grow fan engagement through sports betting. Wagering could also help increase TV ratings as it's been demonstrated that fans with a wagering interest are more inclined to tune in to follow the progress of an event through the final outcome. Younger demographics are also favorably disposed to betting on sports.

On the subject of younger demographics, we're happy to see NASCAR recently introduced a joint project in conjunction with its cup team owners to form teams to compete in the esports sector. Esports are essentially computer games played by professional gamers for real money and are televised by streaming over the Internet. It's a growing area, and it's also very attractive to younger demographics. Major championship events are held in venues like the Madison Square Garden and attract as many as 15,000 fans. It's still a niche sport at this point, but it's another step in the right direction for NASCAR.

Tim's ready to discuss the financials now so I'll turn it over to him.

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Timothy R. Horne, Dover Motorsports, Inc. - Senior VP of Finance, CFO & Director [5]

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Thanks, Denis. As Denis mentioned though, our entire fall race weekend fell in the fourth quarter this year while the Friday and Saturday events of the fall weekend fell in the third quarter of 2017. If you look at the fourth quarter statement of earnings, you'll see our revenues were $20.75 million compared to about $18.3 million last year, with the increase largely from the fact that the whole weekend was in the fourth quarter this year as well as from higher cup series broadcast revenue this year offset to some extent by lower admissions revenue.

Regarding the NASCAR weekend, as mentioned last quarter, despite rain forcing the move of Friday's event to Saturday morning, the weekend was an operational success. In addition to the broadcast revenue increase, sponsor revenues were also slightly higher this year. And as mentioned, these were offset by lower admissions revenues. Our purse and sanction fees were up a little more than 4% while all other expenses were fairly consistent. For the weekend as a whole, profits were down slightly compared to last year.

Our G&A expenses were almost identical to last year. We had $1,758,000 for the quarter. Depreciation was down compared with last year at $789,000 as last year's expense included some accelerated depreciation for certain projects we decided not to complete in the speedway.

We have small net interest income this year compared to a small expense last year. Lower discount rates and lower property taxes required us to increase the contingent obligation related to our Nashville bonds. And the other expense represents a loss on certain equity investments held in our non-qualified pension plan, which are now required to be run through the income statement.

Our effective income tax rate was approximately 26.6% for the quarter. And if you recall, the fourth quarter of last year included recording the effect of the federal tax reform, which had us revalue our net deferred tax liabilities using the new 21% rate. The impact of that was to reduce those liabilities recorded as a discrete tax benefit of approximately $4.5 million, resulting in a tax benefit last year despite the pretax earnings. Without that adjustment, our effective rate last year was approximately 40.6% in the fourth quarter. So our net earnings for the quarter were almost $4.1 million or $0.11 per diluted share compared with net earnings of approximately $7.6 million in the fourth quarter of last year or $0.21 per share. But removing the impact of the tax reform adjustment last year would have led to non-GAAP net earnings of approximately $3.1 million or $0.08 per share in the fourth quarter of '17.

Turning to the December 31 balance sheet, our financial position continues to strengthen. We had no debt at the end of the year compared to $3.24 million in debt at the end of last year, and we had almost USD 4 million in available cash. We had contributed another $1.75 million to our frozen pension plan during the first 9 months of 2018 to capitalize on higher tax rates available for those deductions, and that had the obvious effect of significantly lowering our pension liability compared to last year-end.

Also included is a cash flow statement for the year ended December 31, where you'll see our net cash from operating activities was up compared to last year at $6.95 million primarily from lower cash paid for income taxes this year. Capital expenditures were $992,000 for the year primarily for equipment purchases and facility improvements. Our $0.08 annual dividend was paid in December, and we bought back almost 97,000 shares of stock during the fourth quarter at an average price of $2.06, bringing our total purchases for the year to almost 309,000 shares, and the result of all that is that we paid down all $3.24 million of our debt this year and, as mentioned, had about $4 million in available cash.

For 2019, our plan for total capital spending is for about $600,000 of normal equipment and improvements. Additionally, we're considering much-needed improvements to our 50-year old Cup Series garage, and we will be going out to bid shortly on that work. That work could add several million dollars to the -- to that amount, but stay tuned as we get our bids back.

That concludes our fourth quarter update. Thank you for your interest.