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Edited Transcript of TRK earnings conference call or presentation 13-Mar-19 2:00pm GMT

Q4 2018 Speedway Motorsports Inc Earnings Call

CONCORD Mar 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Speedway Motorsports Inc earnings conference call or presentation Wednesday, March 13, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Marcus G. Smith

Speedway Motorsports, Inc. - President, CEO & Director

* William R. Brooks

Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer

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Conference Call Participants

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* Karen Tan

Wells Fargo Securities, LLC, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Speedway Motorsports' Fourth Quarter and Year-End 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded on Wednesday, March 13, 2019.

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 are many factors that affect future events and trends on the company's business, including, but not limited to, economic factors, weather, the success of NASCAR and others as sanctioning bodies, capital projects and expansion, financial 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?

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Marcus G. Smith, Speedway Motorsports, Inc. - President, CEO & Director [2]

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Good morning, ladies and gentlemen, and thank you for joining us as we announce our fourth quarter and full year results for 2018.

After moving our Charlotte NASCAR playoff weekend to September, we had a less active fourth quarter in 2018. But overall, our total revenues were up for the year and our year-end results were within our expectations. Despite some very significant challenges with weather, our fourth quarter last year did feature a NASCAR triple-header weekend at Texas Motor Speedway with the JAG Metals 350, O'Reilly Auto Parts 300 and AAA Texas 500.

Other major events in the quarter included 2 NHRA playoff races with the Carolina Nationals at Charlotte and the Toyota Nationals at Las Vegas.

NASCAR continues to deliver a massive television audience 10 months out of the year. In 2018, the Monster Energy Cup series ranked as the #1 or #2 most-watched sport of the weekend, 14 times during the season. NASCAR reports that race day digital content consumption increased nearly 30% year-over-year and digital video views increased nearly 50%.

For the 5th year in a row, a different driver won the cup series championship and more than 1/4 of the Fortune 500 are currently invested in NASCAR.

At Speedway Motorsports, our long-term contracted revenue streams remain strong and for 2019, all of our NASCAR Cup Series race entitlements are sold and all but one Truck Series race and one XFINITY Series race are sold as well.

For the consumer, we'll continue to provide our longtime and first-time fans with fantastic memory-making entertainment at an affordable price. For 2019, we'll continue to market our $10 kids ticket pricing for cup races, free kids tickets and many other events. We also have affordable college packages at many of our speedways to target the next generation of fans. In select seating areas, we're expanding leg room for more customer comfort and ease of mobility and also installing drink rails for easier food and beverage consumption.

And while we're unable to control bad weather, we're taking the worry out of advanced purchases with our SMI weather guarantee. If a fan is forced to miss a NASCAR Cup race that has moved to a different day because of weather, we'll honor that ticket purchase price toward a future race.

The 2019 season is off to a strong start. NASCAR's rules and competition changes are creating closer racing with more green flag passes and lead changes. Television ratings are already showing positive signs, and there is a strong sense of collaboration among NASCAR stakeholders, including the teams and the broadcast partners and others, to promote our sport. We expect more dramatic moments in 2019, yielding some incredible finishes and intense driver rivalries.

And now I'll turn it over to Bill Brooks to give us further financial details.

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William R. Brooks, Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer [3]

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Thank you, Marcus. I won't spend much time discussing the fourth quarter of 2018 other than to say it is not comparable to the fourth quarter of 2017 because in '18, Charlotte Motor Speedway conducted its fall race weekend during the third quarter. In the prior year, this event was conducted in the fourth quarter. And in 2017, a nonrecurring $119.4 million tax benefit from the effects of the federal Tax Cuts and Jobs Act was recognized during this fourth quarter.

As for the year ended December 31, 2018, compared to the year ended December 31, 2017, total revenues for 2018 increased $3.6 million or 0.7% over 2017.

Admissions for 2018 decreased by $8.6 million or 9.9% from such revenue of 2017. The decrease is due primarily to the lower overall admission revenues at some NASCAR racing events, including generally poor weather or excessive heat surrounding racing events at 7 of our 8 speedways in 2018. The overall decrease was partially offset by higher admissions revenues associated with the 2018 Las Vegas Motor Speedway racing date realignment, NASCAR racing events conducted on the Charlotte Motor Speedway new ROVAL road course and at Las Vegas Motor Speedway's major NHRA racing events.

Event-related revenue for 2018 increased by $6.6 million or 4.9%. This increase is due mostly to the effects of the 2018 Las Vegas Motor Speedway race date realignments and higher sponsorship revenues for some of our NASCAR and non-NASCAR racing events in 2018. The increase also reflects higher track rentals and higher ancillary broadcasting revenues. The overall increase was partially offset by some lower event-related revenues from poor weather and the resultant lower attendance at NASCAR and other racing events.

The NASCAR broadcasting revenue for 2018 increased by $7.4 million or 3.6%. This increase reflects higher contracted broadcast rights fees for the NASCAR-sanctioned racing events.

Our other operating revenues for 2018 decreased by $1.8 million or 6.4%, due primarily to lower [Oil-Chem] revenues, natural gas mineral rights revenues and Legends Cars revenues.

Our direct expense of events for 2018 increased $2.9 million or 2.9% because of higher costs from the 2018 Las Vegas Motor Speedway race, the realignments, additional operating costs associated with conducting delayed or postponed race events due to the aforementioned poor weather. The overall increase was partially offset by lower advertising and other operating costs at speedways where lower attendance at NASCAR events was experienced.

NASCAR event management fees for 2018 increased $4.1 million or 3.5%, in accordance with expectations.

Other direct operating expenses for 2018 decreased $280,000 or 1.5%. The decreased operating costs were those associated, again, with Oil-Chem and Legend Cars revenues that had declined for 2018.

General and administrative expenses for 2018 increased $3.3 million or 3.4%. The increase reflects wage cost inflation, higher property taxes, shared service expenses and utility costs in 2018.

Depreciation and amortization expense for 2018 actually decreased $10.3 million or 15.9% from recording pretax accelerated depreciation on retired assets of $1.8 million in 2018 compared to $11.1 million in 2017. The decrease also reflects the much smaller and lower depreciation on certain assets not fully depreciated. And the overall decrease was also partially offset by depreciation on capital expenditures we put into service.

Our interest expense net for 2018 was $11.4 million compared to $12.2 million for 2017. This change is due primarily to lower total outstanding debt, partially offset by higher interest rates on credit facility borrowings in 2018 as compared to 2017.

Recall that in 2017 we recognized an impairment of goodwill, a nontax impairment charge -- or rather a pretax impairment charge of $1.1 million, and that eliminates goodwill associated with certain souvenir sales activities.

Our other income net for 2018 was $1.9 million compared to other expense net of $1.3 million for 2017. This change is because of higher gains on disposal of property and lower removal costs from retired assets in 2018.

Income tax provision for the current year and benefit from the prior year had significant changes year-over-year. Our effective income tax rate for 2018 was 24.2% and for 2017 was 234.1% benefit. Our 2018 tax rate reflects the lower U.S. corporate federal tax rate under the Tax Cuts and Jobs Act and the nonrecurring tax benefit of $908,000, resulting from certain state and federal income tax laws changes.

Our 2017 tax rate reflects a onetime material reduction of our net deferred income tax liabilities and corresponding income tax benefit of $119.4 million, resulting primarily from a remeasurement of our deferred tax assets and liabilities, using the lower federal statutory tax rate of 21% under the 2017 enacted tax act. The 2000 tax rate -- 2017 tax rate also reflects some nonrecurring tax benefits related to reduced net deferred income tax liabilities from lower state income tax rates, associated with race date realignments and certain state income tax law changes. Those were partially offset by reduced deferred tax assets from certain state NOL carryovers.

Our net income for 2018 was $40.4 million compared to $148.4 million for 2017.

Looking at the balance sheet. Our 12/31/18 cash balance of $80.6 million was $1.3 million less than the December 31, '17 balance of $81.9 million. Deferred race event income of $33.9 million declined $14.4 million from December 31, '17.

Our long-term debt declined from $231 million at the end of 2017 to $200.9 million in 2018.

Capital expenditures were $34.1 million in 2018, and we expect 2019 capital expenditures to approximate $20 million to $30 million.

The company also estimates 2019 earnings per share of $0.90 to $1.10 per share.

In summary, during 2018, we continued our annual dividend of $0.60 per share, conducted share repurchases of about $4.4 million to reduce shareholder dilution, made $34.1 million of capital expenditures in our facilities and repaid more than $30 million of long-term debt.

At this point, Steve, please allow the participants to ask any questions that they may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Karen Tan with Wells Fargo Securities.

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Karen Tan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [2]

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I'm actually dialing in for Tim Conder. I just had 2 or 3 quick questions. First, I know, in the past, we talked about the board evaluation of growing free cash flow for the company and likely to announce plans going forward sometime in 2019. So just wanted to kind of get an updated timing on when we'll likely hear an update?

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William R. Brooks, Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer [3]

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Karen, that's a good question. The board at this point has decided just to continue to hold any cash that we might generate. The first quarter is a very low-cash-generation period for us. So it really has somewhat of a negligible impact. After that, as you know, our credit facility matures at the end of 2019, and I expect that they want us to refrain from making any policy changes in regards to free cash flow until we get that reorganized.

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Karen Tan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [4]

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Okay. And in terms of dividend and share repurchase, likely not see too much of the change in 2019 until that -- the balance is paid off at the end of the year?

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William R. Brooks, Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer [5]

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Well, actually, the balance of the credit facility has been paid, but the revolver matures in December. So if we are considering what to do with our credit facility, and that's uncertain. So it would be prudent for us to refrain from taking any initiatives we can't sustain until we are sure we have that in place.

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Karen Tan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [6]

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Okay. I do want to clarify one other comment from the press release on Kentucky Speedway this year. It sounds like all of the events other than at Kentucky were impacted by weather-related drag. I just wanted to clarify if Kentucky was -- did you see a better performance year-over-year at that race? Or did all of the other macroeconomic factors also kind of impact that event?

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William R. Brooks, Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer [7]

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I would say the latter.

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Karen Tan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [8]

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Okay. Okay. And then last question from us. Just kind of a year-over-year decline of deferred revenue at year-end. Should we read that as kind of a reflection of presales going forward -- for races going forward? Or is there anything major baked in there that we should be aware of?

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William R. Brooks, Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer [9]

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It is not -- the data that we reported last year is different than the data we reported this year. We are recording the deferred revenues and the deferred expenses separately during the current year and have reflected that change for 2017. When we reported last year, the revenues and expenses were netted. I think there is a decline from the years. I don't know what it would be like if we did it using the same method as last year. And that would relate to the secular trend that we've had for this last period about admissions declines and also inclement weather during a good portion of all of last year.

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Karen Tan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [10]

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Okay. So the $34 million-or-so balance as of December 31, 2018, versus the $48 million December 31, 2017, you're saying it's not really a apples-to-apples comparison? It's a little bit of a change in how that's accounted?

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William R. Brooks, Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer [11]

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Not so much -- that is not apples-to-apples. The change this year, between '17 and '18, which are -- with '17 being somewhat restated from what was presented last year, is different than the measurement between 2016 and 2017.

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Karen Tan, Wells Fargo Securities, LLC, Research Division - Associate Analyst [12]

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Okay, but '17 and '18 are comparable? Okay.

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William R. Brooks, Speedway Motorsports, Inc. - Vice-Chairman, CFO & Treasurer [13]

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Thank you.

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Marcus G. Smith, Speedway Motorsports, Inc. - President, CEO & Director [14]

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Thank you.

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Operator [15]

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(Operator Instructions) And there are no questions at this time. I will turn the call back over to the presenters for closing remarks.

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Marcus G. Smith, Speedway Motorsports, Inc. - President, CEO & Director [16]

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Okay. Thank you, ladies and gentlemen, for joining us today on our call. We look forward to speaking with you next quarter. Have a great day.

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Operator [17]

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This concludes today's conference call. You may now disconnect.