Business Overview and History

Canterbury Park Holding Corporation (NASDAQ: CPHC) is a diversified entertainment and real estate development company based in Shakopee, Minnesota. The company's roots trace back to 1994 when it commenced year-round horse racing simulcast operations and hosted its first annual live race meet in 1995. Over the past three decades, Canterbury Park has evolved from a traditional racetrack and casino operator into a multi-faceted enterprise, leveraging its unique 260-acre land parcel to drive long-term value creation.

Canterbury Park Holding Corporation owns and operates the Canterbury Park Racetrack and Casino, the only thoroughbred and quarter horse racing facility in the state of Minnesota. The company's operations are divided into four key segments: horse racing, casino, food and beverage, and real estate development.

The horse racing segment represents the company's pari-mutuel wagering operations on simulcast and live horse races, which historically accounted for a significant portion of Canterbury's revenues. The casino segment encompasses the company's unbanked card game operations, which began in 2000 when Canterbury Park added poker and table games to its Casino at the Racetrack. The casino operates 24 hours a day, seven days a week and has up to 80 gaming tables. The food and beverage segment includes concessions, catering, and event services provided at the racetrack.

Canterbury Park's history dates back to March 1994 when the company was formed. In 1995, it began hosting pari-mutuel wagering on thoroughbred and quarter horse races at its Canterbury Park Racetrack facility in Shakopee, Minnesota. The Racetrack is the only facility in the state of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.

In 2022, the company faced challenges when the Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community expired, resulting in a decrease in purse sizes and number of live racing days. To address this, Canterbury Park worked with the Minnesota Horsemen's Benevolent and Protective Association and the Minnesota Quarter Horse Racing Association to establish new live racing agreements that included Canterbury Park contributing additional funds to supplement purses.

More recently, Canterbury has placed a strategic emphasis on its real estate development segment, which oversees the company's efforts to maximize the value of its 260-acre land parcel surrounding the racetrack. In 2015, the Company began executing a development plan for approximately 140 acres of underutilized land surrounding the Racetrack, known as the Canterbury Commons project. Through joint ventures and land sales, Canterbury Park has pursued various mixed-use development opportunities for this land, including residential, office, retail, and entertainment projects. The Canterbury Commons development has helped diversify the Company's revenue streams beyond its core horse racing and gaming operations.

Financial Performance

For the full year 2024, Canterbury Park reported net revenues of $61.56 million, a slight 0.2% increase from the prior year's $61.44 million. The company's net income, however, declined significantly to $2.11 million, or $0.42 per diluted share, compared to $10.56 million, or $2.13 per diluted share, in 2023. This year-over-year decrease was primarily attributable to a $4.76 million reduction in gains from real estate transactions, as the company recorded a $6.49 million gain on the sale of land in 2023 compared to a $1.73 million gain in 2024.

Canterbury Park's adjusted EBITDA, a key metric that excludes the impact of unusual items, decreased 2.0% to $10.23 million in 2024, compared to $10.45 million in the prior year. This modest decline was largely driven by a 2.5% decrease in casino revenues, partially offset by a 1.8% increase in food and beverage revenues and an 18.3% rise in other revenues.

The company's operating cash flow for the 2024 fiscal year was $6.49 million, while free cash flow stood at $3.63 million. These figures demonstrate Canterbury Park's ability to generate positive cash flows from its operations, despite the challenges faced in the gaming industry.

In the third quarter of 2024, Canterbury Park reported revenue of $19.28 million, representing a slight year-over-year growth of 0.1% compared to Q3 2023. This marginal increase was primarily driven by higher food and beverage revenues related to increased catering operations and one additional live race day, which helped offset a decrease in casino revenue. Net income for Q3 2024 was $2.02 million.

Liquidity

Despite the year-over-year decline in profitability, Canterbury Park maintained a strong liquidity position, with $13.69 million in cash, cash equivalents, and restricted cash as of December 31, 2024. The company's working capital ratio stood at 2.24, indicating a healthy current asset coverage of current liabilities. The current ratio of 2.24 and quick ratio of 2.22 further underscore the company's strong short-term liquidity position.

Canterbury also has access to a $5.0 million revolving credit facility, which was undrawn as of the end of 2024. This provides additional financial flexibility should the need arise. The company's debt-to-equity ratio is extremely low at 0.0021, indicating minimal leverage and a conservative capital structure.

Diversification and Real Estate Development Initiatives

In recent years, Canterbury Park has actively pursued a diversification strategy to reduce its reliance on the traditional horse racing and casino segments. A key component of this strategy has been the company's focus on real estate development through its Canterbury Commons project.

The Canterbury Commons initiative aims to maximize the value of the company's 260-acre land parcel surrounding the racetrack. Since 2015, Canterbury has contributed land to several joint venture agreements and sold parcels to third-party developers, who are constructing a mix of residential, commercial, and entertainment projects. These developments include the Triple Crown Residences at Canterbury Park, a luxury apartment community built in partnership with Doran Companies, as well as various retail, office, and hospitality offerings.

In 2024, Canterbury recorded a $1.73 million gain on the transfer of approximately 3.5 acres of land to the Trackside Investments joint venture, which is developing a new 16,000-square-foot restaurant and entertainment venue. The company also completed the $8.8 million sale of 37 acres of land to Swervo Development in 2023 for the construction of a state-of-the-art amphitheater.

These real estate transactions have not only generated significant cash inflows but have also positioned Canterbury Park as a key player in the broader economic development of the Shakopee region. As the Canterbury Commons project progresses, the company expects to continue diversifying its revenue streams and reducing its reliance on the cyclical horse racing and gaming industries.

Segment Performance

Canterbury Park's operations are divided into four main reportable segments: horse racing, casino, food and beverage, and development. Each segment contributes differently to the company's overall financial performance:

1. Horse Racing Segment: In 2024, this segment generated net revenues of $13.97 million, accounting for 22.7% of the company's total net revenues. Depreciation and amortization for this segment was $3.16 million.

2. Casino Segment: The casino operations remain the primary revenue driver, generating net revenues of $38.77 million in 2024, or 63.0% of total net revenues. Depreciation and amortization for this segment was $301,000.

3. Food and Beverage Segment: This segment contributed $7.97 million in net revenues for 2024, representing 12.9% of total net revenues. Depreciation and amortization was $163,000.

4. Development Segment: The real estate development operations generated net revenues of $6.59 million in 2024, or 10.7% of total net revenues, primarily from gains on the transfer and sale of land parcels. Depreciation and amortization for this segment was $163,000.

Challenges and Risks

Despite the company's efforts to diversify, Canterbury Park still faces several challenges and risks. The horse racing and casino industries remain highly competitive, with the company vying for customers and horses with tribal casinos and other regional entertainment options. The popularity of horse racing has declined nationally, posing a persistent threat to Canterbury's core pari-mutuel wagering operations.

Additionally, the company's real estate development initiatives are subject to various risks, including securing development partners, obtaining necessary approvals, managing construction costs, and leasing commercial spaces in a competitive market. The success of these projects is crucial to Canterbury's long-term growth and diversification strategy.

Furthermore, the company's operations are subject to extensive regulation by the Minnesota Racing Commission, which oversees various aspects of the racetrack and casino, including licensing, racing schedules, and gaming activities. Changes in these regulations could have a material impact on Canterbury's business.

Geographic Focus

As a small-cap company, Canterbury Park primarily operates in the United States, with a specific focus on the seven-county Minneapolis-Saint Paul metropolitan area and the surrounding counties. This geographic concentration allows the company to leverage its strong local brand and community ties but also exposes it to regional economic fluctuations and competitive pressures.

Outlook and Conclusion

Despite the challenges, Canterbury Park remains well-positioned for the future. The company's strategic focus on diversifying its revenue streams, particularly through its real estate development initiatives, suggests a proactive approach to navigating the evolving entertainment and gaming landscape.

As Canterbury Park continues to execute on its Canterbury Commons project and explore new avenues for growth, investors will closely monitor the company's ability to reduce its reliance on the cyclical horse racing and casino segments while capitalizing on the region's economic development. With a strong liquidity position, access to financing, and a proven track record of adaptability, Canterbury Park appears poised to unlock long-term value for its shareholders.

The company's solid balance sheet, with low debt levels and ample cash reserves, provides a buffer against potential industry headwinds and supports ongoing investment in growth initiatives. While the slight revenue growth and decline in profitability in 2024 highlight the challenges faced by the company, the continued progress in real estate development and diversification efforts offer promising avenues for future growth and value creation.