Speedway Motorsports Q2
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Speedway Motorsports Q2
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Speedway Motorsports <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRK)") else Response.Write("(NYSE: TRK)") end if %> UNION CITY, Ca., August 13, 1996/FOOLWIRE/ --- Speedway Motorsports reported results for Q2 1996 yesterday morning. They reported record results for the quarter. Their net income was higher than expected at $0.32 per share.
This is the 6th consecutive quarter where they have had a significant increase over the prior year. It was particularly gratifying to hit analyst expectations this quarter because the number of weighted average shares were higher than anyone anticipated by about 10%. This was due to the strong performance on the price and the effect of both the secondary offering this Spring and the common stock equivalent conversion of the options, most of which were issued when they went public. Their quarter was significantly impacted by the very good results at the Charlotte Motor Speedway and also by the inclusion of the results from their Bristol Motor Speedway which were equally impressive.
They had a terrific Ten Days of May at Charlotte beginning with the International Race of Champions and the Winston Select the weekend before May 22nd and before the Coca-Cola 600. In those ten days they sold about 400,000 tickets and increased their net income at Charlotte about 22%. 600 racing, their legend's cars, they were 32% ahead for the quarter with the legends program and this offset the bad weather they had in Atlanta in March for their 500 mile race. They got hit by some serious cold weather in Atlanta, but it was made up in Charlotte and that is the advantage of owning more than one speedway, and they have never been hit seriously at two races in a row at their different tracks.
If they had owned Bristol last year, the year over year revenue comparisons would have showed 28% growth. Broadcast revenues were flat in Q2 and the ticket prices increased between 3-5% over the 1995 ticket prices. Their operating income was very strong and the percentage of operating income margin was very consistent with last year despite a significant increase in depreciation and amortization resulting from their aggressive expansion plan at the end of last year at Atlanta and Charlotte and their acquisition of the Bristol Motor Speedway.
Their liquidity remains good. The proceeds of the offering coupled with their bank line is going to be adequate for the construction of the Texas Motor Speedway. They continue to work on alternative means of financing and, at the end of the quarter, they had approximately $40.2 million in long term debt. The vast majority of that resulted from the acquisition of Bristol and a small amount from the financing used for the construction of Texas. The cash position is fine now but will go quickly. With regard to capital expenditures, exclusive of Texas they are now looking at approximately $20 million in 1996 and in the range of $40 million in 1997.
NEW TRACK CONSTRUCTION IN DALLAS/FT. WORTH THE TEXAS MOTOR SPEEDWAY
Texas is coming along real well. They are paving now and putting the bonder course down -- a rough type of asphalt that is put down before a smooth finish is put down. They are comfortable with the April 4th and 5th opening date in 1997. They are still working on the second Winston Cup date at Texas. One of the things that has helped construction has been the dry weather in Ft. Worth over the last 12 months. The big problem with building a speedway is that you undertake a huge excavating and grading job. So, it is a cut and fill operation and you are working over 125 acres where the track and the grandstand are. They have all that in place and it is going well.
Response on pre-sales of the ticket package has been overwhelming. They are working on putting the whole package together. They are also working on the television contract for Texas and feel very optimistic about the chances of bringing a major network in there for the first weekend at some pretty strong dollars. They have had a tremendous amount of interest in the suites also. They think they have hit a home-run down there given the amount of interest they have seen. One of the things they thought would happen that is happening is that, in Atlanta and Charlotte they have a lot of competition for the dollar close around them as far as racing is concerned, in particular Winston Cup racing. When Indianapolis sold 280,000 out for the first time for the Brickyard 400 Winston Cup Race 3 years ago, that was pretty indicative to them what could happen at a track that put on a major Winston Cup Race that was not close to a lot of other speedways. They think they have seen the same thing happening in Texas. People are very hungry for it, there is a tremendous amount of interest there, and there is no place to take that interest before they decided to build the speedway in Ft. Worth. So they feel good about the decision they made to go down there.
They have announced the construction of condominiums at Texas Motor Speedway -- 58 condominiums -- and they have deposits and purchase contracts on more than 40, and perhaps at this point almost 50 of them. That is far greater than any response they had at Charlotte and Atlanta when they announced the condos. It took much longer than that to get that kind of interest. They probably won't build more than 58 condos for now. They are selling the condos for between $300,000 and $550,000 depending on what floor they are on and their size.
They have been working very hard on corporate sponsorships at the speedway and think they will set some records there as far as sponsors are concerned because of the Dallas/Ft. Worth market, particularly with the beer companies, soft drink companies, etc. located in that market. As far as Winston Cup racing is concerned, corporate sponsorships run from $300,000 at some of the smaller tracks up to $800,000-$850,000. They think they will go through the top of that sponsorship level with Texas. Indianapolis has done extremely well the way they've done theirs for the Brickyard 400 was to sell 5 different companies an exclusive on the sponsorship there and tied it in with TV coverage. Speedway is not going to go that route, but will probably be looking at 5 major involvements by 5 companies tied in both into the name of the race and into the telecast.
The company was asked whether problems Penske Motor Sports is having in California would play into Speedway's hand to get their second Texas date. The company responded that Penske needs a second date to make his track work because he is not building the number of seats they are in Texas. They think that if Nascar does something with Penske on a second date, they hopefully will do something with Speedway on a second date. They are very glad that they are in Texas rather than in California with regard to the requirements to build a track.
UPGRADES TO EXISTING SITES
In Atlanta, they announced last week that they are flipping the track. Atlanta is a true oval -- it is the only mile-and-a-half true oval super speedway in existence. They are going from a 1.5 mile oval to a quad oval like Charlotte where you've got two bends down the front straight-away. This will enable them to put significantly more seats down the front straight-away so people can see the pits. In Atlanta right now they have a little over 100,000 permanent seats, so the addition with the front stretch grandstand will put them up to 137,000. That is a new number. A month or two ago, they didn't have the real numbers of seats in because they didn't know whether they were going to go to a wider seat -- 19" vs 20" seats -- so the additional seats came from that. In addition, they may have to move or lose one of their older grandstands at Atlanta, so they may not have an additional 37,000 net seats there. And that construction will commence in 1997. They are working hard on the Winston Cup Championship Race in Atlanta in November and that is coming along well. They are also trying to move the Atlanta race date out of the typical cold weather time period.
In Charlotte they will have in 4th quarter approximately 10,000 additional seats. These will be seats that they rented. They had the same number of seats rented for the 600 and the Winston. They are in the second turn and that is where their new grandstand expansion at Charlotte is going to come in 1997. They will add 20,000 seats in 1997 in the 2nd turn (that will net out to about 15,000 seats because they will be replacing an old grandstand that contained 4,500 seats). In both Atlanta and Charlotte they expect to be able to charge a little more for the new seats than the old ones because they are much better (better sight lines, etc.). In terms of broadcast revenues, this is the last year of the lowered telecast rights with Turner. They will see a significant increase in that in 1997.
Bristol is also coming along well. They will be having events there on August 23rd and 24th. They had 71,000 seats at Bristol when they bought it. When they ran their event they were at about 74,000 and by the time they run in August, including the temporary seats, they will be at 83,000. With Bristol, they inherited old broadcast contracts and the renegotiated contracts for 1997 will increase significantly.
When they were looking to expand, the two sites competing were the Dallas/Ft. Worth area and St. Louis. Dallas/Ft. Worth won because they felt it was a much stronger market and was easier to build because of the climate. The rumor keeps cropping up that they are going back to St. Louis to look at another site. They have had some discussions in St. Louis, but there is nothing to talk about right now -- they haven't made any decisions of what to do or not to do there.
600 RACING AND LEGEND RACING
With the 600 Racing, they haven't seen any increase in units sold, but what they are seeing is a tremendous increase in the number of parts sold because they use what is known as a specification race car. It is the trend that started in auto racing worldwide about 10 years ago where everybody runs the same car as far as the chassis, engine, rear-end, etc. The only change is in the body. With specification cars, you're not allowed a lot of leeway with parts. Legend cars runs a recycled Toyota Celica rear-end and that is the only thing you can run in it. And you have to buy these parts through 600 Racing. The only thing that you can buy outside of 600 Racing is the seatbelts, the seat and a few other things. There are 300 parts in a Legends car and 290 of those parts have to be bought through 600 Racing. So they have a lock on that market and it is proving strong on the parts end as they near their 1600th car in 4 years.
What they have discovered at Charlotte, that they think will also work at Atlanta and Texas, is that there is a whole new market of racers out there that are buying these Legends cars. There is a group of fairly well-heeled males between 35 and 45 that is a market that just didn't exist in racing before Legends. Then there is also a strong youth market between 15 and 18 that has come into the business. But, the 35-45 year old male market has helped them at Charlotte with the Speedway Club, with the condos, with the better race tickets, etc. They think the same will happen with the other tracks.
They are prototype testing a new chassis for the Legends car right now that may replace the old one and they think that is going to generate a significant amount of interest. And, they have finally come out with their 1934 Ford sedan body and it is by far the best body they have ever made as far as replicating a 1934 Ford in 5/8th scale. The person who did all this worked on the Saturn in GM Design and did the original clay models of the Saturn cars. They also have a new dealer in Texas that they think will produce some strong results for them. There are more race tracks in Texas (with 59) than any other state in the country and they think this new dealer is going to come forth strongly in the next two quarters. They are also continuing to test their new car, which originally was called the Attack. Their not going to call it that because they couldn't get the name copyrighted, but it is a smaller version of the Legends car and is about 400 pounds versus the legends 1100 pounds. They are in their 1500th lap of testing and have about 1500 more laps to go on it. They feel good about the car right now but have not made a decision yet whether they are going to manufacture it or not. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |