Speedway Motorsports, Inc (TRK) Q4 2018 Earnings Conference Call Transcript

Speedway Motorsports, Inc. (TRK)
Q4 2018 Earnings Conference Call
March 13, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Good morning, and welcome to the Speedway Motorsports Fourth Quarter and Year End 2018 Earnings Conference Call. During the call, all participants will be in a listen-only mode. Afterwards, you'll be invited to participate in the question-and-answer session. 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 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 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?

Marcus G. Smith -- President and Chief Executive Officer

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 the weather.

Our fourth quarter last year did feature a NASCAR tripleheader 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 two 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 number one or number two 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 fifth year in a row, a different driver wont he Cup Series Championship, and more than one-fourth 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. With 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 and free kids' tickets in 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 are expanding legroom 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 advance purchases with our SMI Weather Guarantee. If a fan is forced to miss a NASCAR Cup race that is 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, the broadcast partners, and others, to promote our sport. We expect more dramatic moments in 2019, including some incredible finishes and intense driver rivalries.

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

William R. Brooks -- Vice Chairman and Chief Financial Officer

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 during the third quarter. Prior year, this event was conducted during the fourth quarter, and in 2017 a nonrecurring [webcast cuts out] tax benefit from the effects of the Federal Tax Cut 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 [webcast cuts out] $3.6 million, or [webcast cuts out]% for 2017. Admissions for 2018 decreased by $8.6 million, or 9.9% [webcast cuts out] such revenue of 2017 decreased primarily due to lower overall admission revenues that some NASCAR race [webcast cuts out] generally poor weather of excessive heat surrounding racing events at seven of our eight speedways in 2018.

The overall decrease was partially offset by higher admissions revenues associated with the 2018 Las Vegas Motor Speedway race date realignment, NASCAR racing events conducted on the Charlotte Motor Speedway new oval road course, and at Las Vegas Motor Speedway's major NHRA [webcast cuts out] events.

Event-related revenue for 2018 increased by 6.6[webcast cuts out].9%. This increase [webcast cuts out] mostly to the effects of the 2018 Las Vegas Motor Speedway race date realignments, higher sponsorship revenues from some of our NASCAR and non NASCAR racing events in 2018. [Webcast cuts out] increase also reflects higher track [webcast cuts out] higher ancillary broadcasting revenues. The overall increase was partially offset by some lower event related revenues from poor weather and [webcast cuts out] result in lower attendance at NASCAR and other racing events.

NASCAR broadcasting revenue for 2018 increased by $7.4 million, or 3.6%. This increase reflects higher contracted broadcast rights fees [webcast cuts out] NASCAR-sanctioned racing [webcast cuts out].

Our other operating revenues for 2018 decreased by $1.8 million, or 6.4%, due primarily to lower Oil Chem revenues [webcast cuts out] gas rights revenues, and Legends cars revenues. Our direct expense of events for 2018 [webcast cuts out] $2.9 million, or [webcast cuts out]9%, because of higher costs from the 2018 Las Vegas Motor Speedway race date realignments, additional operating costs associated with conducting delayed or postponed race events, and 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 [webcast cuts out]%, in accordance with expectations. Other direct operating expenses for 2018 increased $280,000, or [webcast cuts out].5%. Decreased operating costs were those associated [webcast cuts out] Oil Chem and Legend cars revenues that had declined in 2018.

General and administrative expenses for 2018 increased [webcast cuts out], or 3.4%. The increase reflects wage cost inflation, higher property taxes, shared service [webcast cuts out] penalty costs in 2018.

Depreciation and amortization expense for 2018 actually decreased $10.3 million, or 15.9% from recording pre-tax accelerated depreciation on retired assets of $1.8 million in 2018, compared to $11.1 million in 2017. The decrease also [webcast cuts out] to a much smaller and lower depreciation on certain assets not fully depreciated. The overall decrease was 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 our credit facility borrowings in 2018 as compared to 2017. You'll recall that in 2017 [webcast cuts out] of goodwill [webcast cuts out] acts, impairment charge -- or rather a pre-tax impairment charge -- of $1.1 million. That eliminates goodwill associated with certain souvenir sales activity.

Our other income net for 2018 was $1.9 million, compared to other expense net of [webcast cuts out] 2017. This exchange is because of higher gains on disposal of property, lower removal costs from retired assets in 2018 [webcast cuts out].

Income tax provision for the current year [webcast cuts out] prior year had significant changes year-over-year. Our effective income tax rate for 2018 was 24.2%. 2017 was a 234.1% benefit. Our 2018 tax rate reflects the lower U.S. corporate federal tax rate under the Tax Cuts and Jobs Act and a nonrecurring tax benefit of [webcast cuts out] resulting from certain state and federal income tax laws changes. Our 2017 tax rate reflects a one-time material reduction of our net deferred income tax liabilities [webcast cuts out] corresponding tax benefit of $119.4 million, resulting primarily from remeasurement of our deferred tax assets and liabilities [webcast cuts out] lower federal statutory tax rate of 21% under the 2017 [webcast cuts out] Tax Act.

2017 tax rate also reflects some nonrecurring tax benefits related to [webcast cuts out] net deferred income tax liabilities for 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 and certain [webcast cuts out] carryovers.

Our net income for 2018 was $40.4 million, compared to $148.[webcast cuts out] 2017. Looking at the balance sheet, our 12-31-18 cash balance of $86 million was [webcast cuts out] less than December 31, '17 balance of $89 million. The deferred race event income of [webcast cuts out] declined [webcast cuts out] from December 31, '17.

Our long-term debt declined to $231 million at the end of 2017 to $200.0 million [webcast cuts out]. Capital expenditures were $34.1 million in 2018. We expect 2018 capital expenditures to approximately $20-30 million. The company also estimates 2019 earnings per share of $0.90-1.10 per share.

In summary, during 2018, we [webcast cuts out] our annual dividend of $0.60 per share and conducted share repurchases of about $4.4 million [webcast cuts out] shareholder dilution [webcast cuts out] 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.

Questions and Answers:

Operator

At this time, I would like to remind everyone in order to ask a question please press *, then the No. 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Once again, that is *1 to ask a question. And your first question comes from Karen Tan with Wells Fargo Securities. Please go ahead.

Karen Tan -- Wells Fargo Securities -- Analyst

Good morning. Thanks for taking our question. I'm actually dialing in for Tim Conder. I just had two or three quick questions. First, I know in the past we talked about the board's evaluation of a growing free cash flow for the company, and likely to announce plans going forward sometime in 2019. So, I just want to try and get an updated timing on when we'll likely hear an update?

William R. Brooks -- Vice Chairman and Chief Financial Officer

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, though it really has somewhat of a negligible impact. After that, as you know, our credit facility matures at the end of 2019. I expect that they'll want us to refrain from making any policy changes in regards to cash flow until we get that reorganized.

Karen Tan -- Wells Fargo Securities -- Analyst

Okay, so -- I'm sorry. In terms of dividend and share repurchase, likely not see too much of the change in 2019 until that balance is paid off at the end of the year.

William R. Brooks -- Vice Chairman and Chief Financial Officer

Well, actually, the balance of the credit facilities has been paid, but the revolver tours [webcast cuts out] December. So, 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're sure we have that in place.

Karen Tan -- Wells Fargo Securities -- Analyst

Okay. Thanks for the clarification there. 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 want 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 impact that event?

William R. Brooks -- Vice Chairman and Chief Financial Officer

I would say the latter.

Karen Tan -- Wells Fargo Securities -- Analyst

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

William R. Brooks -- Vice Chairman and Chief Financial Officer

It is not [webcast cuts out] -- the data that we reported last year is different than the data we reported this year. We are recording deferred revenues and the deferred expenses separately during the current year, and I have reflected that change for 2017. [Webcast cuts out] reported last year, 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 had used the same method as last year, and that would relate to the secular trend that we've had for the last period, about admissions declines -- and also inclement weather -- during a good portion of all of last year.

Karen Tan -- Wells Fargo Securities -- Analyst

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 an apples-to-apples comparison? There's a little bit of change in how that's accounted?

William R. Brooks -- Vice Chairman and Chief Financial Officer

Not so much that that is not apples-to-apples. The change this year between '17 and [webcast cuts out] with '17 somewhat restated from what was presented last year [webcast cuts out] different than the measurement between 2016 and 2017.

Karen Tan -- Wells Fargo Securities -- Analyst

Okay. But '17 and '18 are comparable. Okay. I think that's all the question we have. Thank you so much.

Marcus G. Smith -- President and Chief Executive Officer

Thank you.

William R. Brooks -- Vice Chairman and Chief Financial Officer

Thank you.

Operator

Again, to ask a question, please press *1 on your telephone keypad. We'll pause for just a moment. As a reminder, to ask a question, please press *1 on your telephone keypad. And if you'd like to ask a question, please press *1. And there are no questions at this time. I'll turn the call back over to the presenters for closing remarks.

Marcus G. Smith -- President and Chief Executive Officer

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. Thank you.

...

Operator

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

Duration: 24 minutes

Call participants:

Marcus G. Smith -- President and Chief Executive Officer

William R. Brooks -- Vice Chairman and Chief Financial Officer

Karen Tan -- Wells Fargo Securities -- Analyst

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