International Speedway Class A Earnings Call Insights: Legislation Outlook and Daytona Project
International Speedway Corporation Class A (NASDAQ:ISCA) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Jaime Katz – Morningstar: Are you guys factoring in that legislation will effectively pass eventually on this project?
Daniel W. Houser – SVP, CFO and Treasurer: No, we haven’t. We have not included that in any of the – when we talk about the returns or anything like that. That would be an upside.
Jaime Katz – Morningstar: Do you have an idea of how probable it might be? I mean, I know that’s hard to gauge, but…
John Saunders – President: Yeah, you’re right. It is hard to gauge right at the moment, and we’re still actively talking to the membership about that, but as you know, not a whole lot is getting done right now and I wouldn’t put a probability factor on it, but we’re actively, actively after it.
Daniel W. Houser – SVP, CFO and Treasurer: I would add to my comment earlier that we’ve enjoyed this tax depreciation category – accelerated depreciation category for many decades. It is in effect through right now, we have not included the extension of that when we look at returns in cash flow, but, we certainly are hopeful and working hard to make sure that, that favorable provision endures.
Jaime Katz – Morningstar: I think in the past, you guys were a little bit more conservative on whether or not these projects would go forward without the legislation passing and obviously, you are pursuing it anyway, so can you talk a little bit about, maybe how the returns on the projects differ with or without the legislation passing and what sort of hurdles you might have on it or obviously you are saying it’s going to be accretive, but doesn’t really offer kind of what your internal thoughts are on it…
Daniel W. Houser – SVP, CFO and Treasurer: Well, Jamie just for my clarification are we talking about the depreciation discussions we have going on with the U.S. Congress or are we talking about public incentives here in the…
Jaime Katz – Morningstar: Public incentives, because I would guess there are some other. It would benefit you more with those public incentives to get people back to work. But maybe I’m incorrect about that and you can correct me if I’m wrong?
Daniel W. Houser – SVP, CFO and Treasurer: Well, I would say that we certainly were very disappointed that the state didn’t see fit to recognize the investment that we are making and the fact that we are really the Florida’s sports franchise. We are headquarters here, NASCAR’s headquartered here. We hold the Super Bowl of NASCAR racing here in Daytona Beach every year and so there is a bit of sting on this end undoubtedly. Again we certainly were sober about our prospects while we’re optimistic. We knew there was no guarantee that we were going to come out of the situation with any benefit there. We certainly had to re-evaluate some of the scope of the project without. And I think primarily related to the midway or some other things.
Jaime Katz – Morningstar: Is there a hurdle rate you are willing to offer and what you guys were looking – are expecting to achieve, like is there some sort of like 10% ROIC or do you not offer that sort of granular information?
Daniel W. Houser – SVP, CFO and Treasurer: Well, I mean, what we have been saying for a couple of years now, Jaime, is that we expect our CapEx to increase that it would be a – some of this would be a long-term view and not necessarily an immediate specific…
Jaime Katz – Morningstar: It’s hard to quantify it sounds like.
Daniel W. Houser – SVP, CFO and Treasurer: (Deferring) on those assets, but there’s a few things here that make it complicated. There is a certain amount of what we’re doing with this project that it was really would be a maintenance CapEx kind of thing. I mean, we’ve got seats over here, galvanized seats, they are 18 inches wide and American food science has very successfully enlarged the size of the American consumer over 40, 50 years. So, you’ve got just – you think like – we’ve got wood bench seatings at the premier facility of NASCAR that have been there since the very beginning, so there’s things that just needed to be done. If you parsed out the things then when we looked at kind of kind of, okay, what was this minimum investment that really wouldn’t drive any incremental revenue or return, how much was that, and then you start to look at the things that do drive return, yeah, those meet a hurdle rate. But when you kind of look at the whole thing together, because it’s a mix of really what we viewed as being maintenance and just bring in the facility into an acceptable experience to some of the amazing things that we’re going to be able to do here to benefit not only the consumer race fans, but our corporate customers. And I go back to the fact that, if you are a company that’s involved in the sport of NASCAR, you need and have to be at the DAYTONA 500. We need to have an experience that justifies that and grows that, and we think we’ve got some phenomenal opportunities. We are not ready to talk about them all yet, because our marketing teams, our CMO, Daryl Wolfe and his group are working diligently on some exciting things and we’re looking forward to being able to talk about those as they unfold.
Jaime Katz – Morningstar: Then, a really easy question. I think in the press release, you had said CapEx in 2016 and ’17 was $60 million, and I think on the – in the kind of prepared remarks, you said $65 million. Is that – which one is right?
Daniel W. Houser – SVP, CFO and Treasurer: Yeah I mean again, those are, I would say $60 million to $65 roughly. Again, we are – keep in mind, we’re – in somewhat — we haven’t ‘even broken ground over here yet. We are working with the general contractor and trying to map things out. But we are doing our best to give some clear guidance on how that’s going to flow, what it’s going to do with basically to show you how CapEx will spike, but then go down, how it’s going to impact our capitalized interest, interest cost et cetera.
Alvin Concepcion – Citi: This is actually Alvin Concepcion in for Greg. Just another question on the Daytona project. You called out you expect low-single digit growth in admissions revenue, but there is going to be fewer permanent fee. So how much of an increase in weighted average ticket price would you expect overall at the track?
Daniel W. Houser – SVP, CFO and Treasurer: Alvin, I think that, first of all, we think we can drive an increase in admissions revenue from several factors. We’re going to continue to have all levels of prices. We’ll have tickets for the DAYTONA 500 that are under $100. We feel that’s very important for the entry-level fan, but we’re also able to do expanded segmentations and various experience and also the ticket options for corporate customers, and also drive admissions to the support events. Now, some of these areas we’ve got to do deference to Joie Chitwood and his team at Daytona International Speedway because I can’t really get out in front of their marketing plans and their communications with the race fans themselves about what ticket prices are going to be et cetera, et cetera. But we want to make sure that our fans out understand that this is not being driven by raising everybody’s ticket price. It’s a very strategic and structured plan. As time goes along and we’re able to talk with our fan about that, we’ll be able to talk with our audience more extensively on.
John Saunders – President: Alan, this is John. What I would also add to what Dan was saying is that in the scripted remarks when we talk about the removal of the Superstretch in all of the seats, the new seats being constructed on the frontstretch where everybody can be engaged and immersed in the total event, the significantly increased points-of-sale, restrooms and the ability for the fan not just for the DAYTONA 500 but for the COKE ZERO 400, the Rolex, the other support races like Nationwide and the Truck Series and our motorcycle events, all being concentrated in a well-designed frontstretch, and having access not just to those points-of-sale, but you take for example the Sprint FANZONE, that’s a $90 ticket today. Folks on the Superstretch while they can access that, it’s over a mile away to get to it. So it’s this kind of thinking that goes into. And yet, as Dan pointed out, we’re not quite there yet in terms of articulating what those weighted average ticket prices might be, but we believe the upside is very promising…
Alvin Concepcion – Citi: And just wanted to see if we could get an update on the remaining NASCAR TV contracts, are they still up for renewal? What you believe NASCAR should be able to get for these contracts? And I think there’s been some indications by ESPN management that NASCAR is a must-have content for them. So I just wanted to get your updated views there.
John Saunders – President: And yeah, and just as a reminder, we get our updates from NASCAR on a fairly periodic basis and then certainly what we – as you and others do read in the trade publications, we’re fairly optimistic about the outlook. There was recent publicity about NBC, potentially having an interest. We know that NASCAR either has or very shortly will be going into their exclusive periods of negotiation with TNT, ABC and ESPN. We know from earlier in the year that FOX was very pleased with the 2014 run that they had being essentially flat year-over-year, but stronger in 18 to 49 men. And so, the outlook is promising. We’re not seeing anything particularly with the media reports on the FOX renewal which we haven’t been formally advised as what those are, but at least the Media reports if you believe them were in a pretty good position. I wouldn’t dare quantify what the total outlook would be, but perhaps by the end of this year, we’ll know definitively.