Quarterly Report for Quarter Ending SEPTEMBER 30, 2025 (Form 10-Q)

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand Canterbury Park Holding Corporation and its subsidiaries, our operations, our financial results and financial condition and our present business environment. This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the financial statements (the "Notes").

Overview:

Canterbury Park Holding Corporation (the "Company," "we," "our," or "us") conducts pari-mutuel wagering operations and hosts "unbanked" card games at its Canterbury Park Racetrack and Casino facility (the "Racetrack") in Shakopee, Minnesota, which is approximately 20 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.

The Company's pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through September, and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack ("simulcasting"). Unbanked card games, in which patrons compete against each other, are hosted in the Casino at the Racetrack. The Casino typically operates 24 hours a day, seven days a week. The Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

Operations Review for the Three and Nine Months Ended September 30, 2025:

Revenues:

Total net revenues for the three months ended September 30, 2025 were $18,315,000, a decrease of $969,000, or 5.0%, compared to total net revenues of $19,284,000 for the three months ended September 30, 2024. Total net revenues for the nine months ended September 30, 2025 were $47,122,000, a decrease of $2,463,000, or 5.0%, compared to total net revenues of $49,585,000 for the nine months ended September 30, 2024. See below for a further discussion of our sources of revenues.

Casino Revenue:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
Poker Games Collection		$	1,816,000			$	1,902,000			$	5,567,000			$	5,711,000
Other Poker Revenue			671,000				600,000				2,181,000				1,961,000
Total Poker Revenue			2,487,000				2,502,000				7,748,000				7,672,000
Table Games Collection			5,438,000				6,343,000				16,565,000				19,558,000
Other Table Games Revenue			1,000,000				1,034,000				3,293,000				2,550,000
Total Table Games Revenue			6,438,000				7,377,000				19,858,000				22,108,000
Total Casino Revenue		$	8,925,000			$	9,879,000			$	27,606,000			$	29,780,000

Pari-Mutuel Revenue:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
Simulcast		$	778,000			$	809,000			$	2,589,000			$	2,823,000
Live Racing			987,000				1,017,000				1,430,000				1,557,000
Guest Fees			1,045,000				1,131,000				1,443,000				1,669,000
Other revenue			426,000				370,000				1,116,000				1,051,000
Total Pari-Mutuel Revenue		$	3,236,000			$	3,327,000			$	6,578,000			$	7,100,000

Total pari-mutuel revenue decreased $91,000, or 2.7%, and decreased $522,000, or 7.4%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The decrease for three and nine months ended September 30, 2025 can be primarily attributed to both decreased live race days year-over-year and lower simulcast revenues which is related to less overall race days for other race tracks across the country compared to the same periods in 2024.

Food and Beverage Revenue:

Food and beverage revenue increased $405,000, or 13.1%, and increased $269,000, or 3.9%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024.The increases for both periods are primarily related to increased catering operations related to hosting large scale special events and the implementation of a new point-of-sale system that improved speed of service, resulting in increased overall transactions and average spend per customer.

Other Revenue:

Other revenues, consisting of admission revenues, corporate sponsorships, space rentals, and other miscellaneous activities, decreased $330,000, or 11.1%, and decreased $35,000, or 0.6%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The decreases are primarily due to admission revenue decreases related to concert events.

Operating Expenses:

Total operating expenses decreased $106,000, or 0.6%, and increased $203,000, or 0.5%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense decreased $444,000, or 15.9%, and decreased $916,000, or 14.2%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The decreases are primarily due to the decreased Casino and pari-mutuel revenues noted above.

Salaries and benefits decreased $18,000, or 0.2%, and increased $252,000, or 1.2%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increase for the nine months ended September 30, 2025 is primarily due to annual wage increases along with the State of Minnesota annual mandated increase in the minimum wage.

Depreciation and amortization increased $91,000, or 9.7%, and increased $269,000, or 10.0%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increases are primarily due to placing larger fixed assets into service related to our barn relocation and redevelopment plan in the second quarters of both 2024 and 2025.

Advertising and marketing costs increased $124,000, or 18.6%, and increased $324,000, or 26.7%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increases are primarily due to implementing new Casino promotions to attract and retain new players.

Professional and contracted services increased $36,000, or 1.9%, and increased $146,000, or 3.2%, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. The increases are primarily due to increased live racing regulation costs from the Horseracing Integrity and Safety Authority.

Other Income (Loss), Net:

Other loss, net, for the three months ended September 30, 2025 was $408,000, an increase of $445,000, compared to other loss, net, of $853,000 for the three months ended September 30, 2024. Other loss, net, for the nine months ended September 30, 2025 was $2,448,000, a decrease of $639,000, compared to other loss, net, of $1,808,000 for the nine months ended September 30, 2024. The fluctuations compared to the comparable periods of 2024 are primarily due to timing of depreciation expense and debt service costs from our Doran Canterbury II joint venture as it became fully operational during the second quarter of 2024, somewhat offset by increased lease rates from the Doran Canterbury I joint venture.

Income Taxes:

The Company recorded a provision for income taxes of $156,000 and $772,000 for the three months ended September 30, 2025 and 2024, respectively. The Company recorded a provision for income taxes with a benefit of $176,000 and expense of $1,364,000 for the nine months ended September 30, 2025 and 2024, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The income tax benefit for the nine months ended September 30, 2025 compared to the income tax expense for the same period in 2024 is primarily due to a decrease in income before taxes from operations and a federal interest income tax refund in the first quarter of 2025. Our effective tax rate was 24.3% and 55.8% for three and nine months ended September 30, 2025, respectively. Our effective tax rate was 27.6% and 28.9% for three and nine months ended September 30, 2024, respectively.

Net Income (Loss):

The Company recorded net income of $487,000, or $0.10 per basic and diluted share and a net loss of $139,000, or $0.03 per basic and diluted share, for the three and nine months ended September 30, 2025, respectively. The Company recorded net income of $2,022,000, or $0.40 per basic and diluted share and $3,358,000, or $0.67 per basic and diluted share, for the three and nine months ended September 30, 2024, respectively.

EBITDA

To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA, each of which is a non-GAAP measure, which excludes certain items from net income, a GAAP measure. See the table below, which presents reconciliations of these measures to the GAAP equivalent financial measures. We define EBITDA as earnings before interest, income tax expense, and depreciation and amortization. We also compute Adjusted EBITDA, which reflects additional adjustments to Net Income to eliminate unusual or non-recurring items, as well as items relating to our real estate development operations and we believe the exclusion of these items allows for better comparability of our performance between periods and is useful in allowing greater transparency related to a significant measure used by management in its financial and operational decision-making. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, excluding the impact of our real estate segment, and provides a perspective on the current effects of operating decisions relating to our core, non-real estate business. For the three and nine months ended September 30, 2025 and 2024, Adjusted EBITDA excluded stock-based compensation, as well as depreciation and amortization relating to equity investments, and interest expense related to equity investments. For the three and nine months ended September 30, 2024, Adjusted EBITDA also excluded a gain transfer of land. Neither EBITDA nor adjusted EBITDA is a measure of performance calculated in accordance with GAAP and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance. EBITDA is presented as a supplemental disclosure because we believe that, when considered with measures calculated in accordance with GAAP, EBITDA and Adjusted EBITDA provide a more complete understanding of our operating results before the impact of investing and financing transactions and income taxes, and it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA or Adjusted EBITDA information may calculate EBITDA or Adjusted EBITDA differently than we do.

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three and nine months ended September 30, 2025 and 2024:

Summary of EBITDA Data

​

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
NET INCOME (LOSS)		$	487,283			$	2,021,806			$	(139,333	)		$	3,358,246
Interest income, net			(528,501	)			(521,579	)			(1,451,162	)			(1,592,676	)
Income tax expense (benefit)			156,000				772,000				(176,000	)			1,364,000
Depreciation and amortization			1,026,994				936,033				2,944,900				2,676,092
EBITDA			1,141,776				3,208,260				1,178,405				5,805,662
Stock-based compensation			392,994				359,039				1,201,749				1,074,397
Gain on transfer of land			-				(1,732,353	)			-				(1,732,353	)
Depreciation and amortization related to equity investments			517,893				605,138				1,968,919				1,667,927
Interest expense related to equity investments			760,956				840,504				2,277,031				2,085,327
ADJUSTED EBITDA		$	2,813,619			$	3,280,588				6,626,104				8,900,960

​

Adjusted EBITDA decreased $467,000, or 14.2%, and decreased $2,275,000, or 25.6%, for the three and nine months ended September 30, 2025, compared to the same periods in 2024. The decrease in Adjusted EBITDA is primarily due to an overall decrease in income from operations. For the three and nine months ended September 30, 2025, Adjusted EBITDA as a percentage of net revenue was 15.4% and 14.1%, respectively. For the three and nine months ended September 30, 2024, Adjusted EBITDA as a percentage of net revenue was 17.0% and 18.0%, respectively.

Contingencies:

The Company continues to analyze the feasibility of various options related to the development of our underutilized land. The Company may incur substantial costs during the feasibility and predevelopment process, but the Company believes available funds are sufficient to cover the near-term costs. See Liquidity and Capital Resources for more information on liquidity and capital resource requirements.

Liquidity and Capital Resources:

The Company's primary source of liquidity and capital resources have been and are expected to be cash flow from operations and cash available under our revolving line of credit. The Company has a line of credit and security agreement with a financial institution. The agreement was amended as of February 28, 2021 to extend the maturity date to January 31, 2024 and increase its revolving credit line up to $10,000,000. The line of credit was collateralized by all receivables, inventory, equipment, and general intangibles of the Company, as well as a mortgage on certain real property. The credit agreement contains covenants requiring the Company to maintain certain financial ratios. The general credit and security agreement was further amended as of January 31, 2024 to extend the maturity date to January 31, 2027 and reduce the maximum borrowing under the line of credit to $5,000,000. In connection with the amendment, the financial institution terminated a mortgage to release certain Company real property as collateral and the parties entered into a negative pledge agreement under which the Company agreed not to create any liens or encumbrances on certain Company real property. As of September 30, 2025, the outstanding balance on the line of credit was $0. As of September 30, 2025, the Company was in compliance with the financial covenants of the credit and security agreement.

The Company's cash, cash equivalents, and restricted cash balance at September 30, 2025was $16,990,000 compared to $13,687,000 as of December 31, 2024. In August 2023, the Company received approval for a three-phase barn relocation and redevelopment plan totaling approximately $15 million over the course of two years. As of September 30, 2025, the Company has substantially completed the project, with minimal expenditures remaining. In addition, the Company expects to spend the remaining $1,452,000 in tax increment financing over the next six months for the completion of the private redevelopment plan. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations and potential future land sales, will be sufficient to satisfy its ongoing liquidity and capital resource requirements for regular operations, as well as these planned development expenses for at least the next twelve months. Furthermore, if the Company engages in additional significant real estate development, significant improvements to its facilities, the Racetrack or surrounding grounds, or strategic growth or diversification transactions, additional financing would more than likely be required and the Company may seek this additional financing through joint venture arrangements, through incurring debt, or through an equity financing, or a combination of any of these.

Operating Activities

Trends in our operating cash flows tend to follow trends in operating income but can be affected by changes in working capital, the timing of significant interest payments, and tax payments or refunds. Net cash provided by operating activities for the nine months ended September 30, 2025 was $9,004,000, primarily as a result of the following: the Company reported a net loss of $139,000, depreciation and amortization of $2,945,000, a loss from equity investment of $3,899,000, and stock-based compensation and 401(k) match totaling $1,202,000. The Company also experienced an increase in payable to horsepersons of $1,158,000, primarily due to the timing of our live racing season, as well as a decrease in income taxes receivable and prepaid income taxes of $1,313,000, primarily due to the receipt of a federal refund during that period. This was offset by an increase in accounts receivable of $922,000, also due to the timing of our live racing season, a decrease in accounts payable, net of land, buildings, and equipment funded through accounts payable, of $1,103,000, and an increase in TIF receivable of $673,000, related to the interest accrued, for the nine months ended September 30, 2025.

Net cash provided by operating activities for the nine months ended September 30, 2024 was $9,281,000, primarily as a result of the following: the Company reported net income of $3,358,000, depreciation and amortization of $2,676,000, a loss from equity investment of $3,401,000, and stock-based compensation and 401(k) match totaling $1,074,000. This was partially offset by a gain recognized on a transfer of land of $1,732,000. The Company also experienced an increase in payable to horsepersons of $2,143,000, primarily due to the timing of our live racing season. This was offset by an increase in accounts receivable of $1,974,000, primarily due to purse payments made as part of the 2024 live meet and purse fund contribution agreement, and an increase in inventory and prepaid expenses of $1,131,000, primarily due to the prepayment of infrastructure development, for the nine months ended September 30, 2024.

Investing Activities

​

Net cash used in investing activities for the nine months ended September 30, 2025 was $4,655,000, primarily due to additions to land, buildings, and equipment of $3,675,000 and an increase in TIF eligible improvements of $590,000, both of which are associated with the redevelopment plan, an increase in related party receivable of $696,000, primarily due to additional member loans and interest related to the member loans, and purchases of short-term investmentsof $5,250,000. This was partially offset by proceeds from the sale of short-term investments of $5,500,000.

Net cash used in investing activities for the nine months ended September 30, 2024 was $11,637,000, primarily due to additions to land, buildings, and equipment of $8,080,000 and an increase in TIF eligible improvements of $2,486,000, which are associated with the barn relocation and redevelopment.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2025was $1,046,000, primarily due to cash dividends paid to shareholders and payments for taxes of equity awards. The Company declared a cash dividend of $0.07 per share payable during the three months ended September 30, 2025.

Net cash used in financing activities for the nine months ended September 30, 2024 was $1,058,000, primarily due to cash dividends paid to shareholders and payments for taxes of equity awards. The Company declared a cash dividend of $0.07 per share payable during the three months ended September 30, 2024.

Critical Accounting Estimates:

The preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires us to make estimates and judgments that are subject to an inherent degree of uncertainty. The nature of the estimates and assumptions are material due to the levels of subjectivity and judgment necessary to account for highly uncertain factors or the susceptibility of such factors to change.

These accounting estimates are described in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Annual Report on Form 10-K for the year ended December 31, 2024. Management made no changes to the Company's critical accounting estimates during the quarter ended September 30, 2025. In applying its critical accounting estimates, management reassesses its estimates each reporting period based on available information. Changes in these estimates did not have a significant impact on earnings for the quarter ended September 30, 2025.

The development and selection of critical accounting estimates, and the related disclosures, have been reviewed with the Audit Committee of our Board of Directors. We believe the current assumptions and other considerations used to estimate amounts reflected in our Condensed Consolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our Condensed Consolidated Financial Statements, the resulting changes could have a material adverse effect on our financial condition, results of operations and cash flows.

Estimate of the allowance for doubtful accounts - Property Tax Increment Financing "TIF" Receivable

As of September 30, 2025, the Company recorded a TIF receivable on its Consolidated Balance Sheet of approximately $20,161,000, which represents $16,141,000 of principal and $4,020,000 of interest. The TIF receivable requires significant management estimates and judgement pertaining to whether an allowance for doubtful accounts is necessary. The TIF receivable was generated in connection with the Contract for Private Redevelopment, in which the City of Shakopee has agreed that a portion of the future tax increment revenue generated from the developed property around the Racetrack will be paid to the Company to reimburse it for expenses in constructing public infrastructure improvements.

The Company typically performs an annual collectability analysis of the TIF receivable in the fourth quarter of each year, or more frequently if indicators of potential uncollectability exist. The Company utilizes the assistance of a third party to assist with the projected tax increments. The quantitative analysis includes assumptions based on the market values of the completed development projects within Canterbury Commons, which derives the future projected tax increment revenue. The Company uses the analysis to determine if the future tax increment revenue will exceed the Company's development costs on infrastructure improvements. As a result of our analysis for the year ended December 31, 2024, management believes the TIF receivable will be fully collectible and no allowance related to this receivable is necessary. There were no indicators of potential uncollectability for the three months ended September 30, 2025.

Redevelopment Agreement:

As mentioned above in Note 7 of Notes to Financial Statements, on August 10, 2018, the City of Shakopee, the City of Shakopee Economic Development Authority, and the Company entered into a Redevelopment Agreement in connection with a Tax Increment Financing District ("TIF District") that the City had approved in April 2018. Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure and the City of Shakopee agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements. The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.

On January 25, 2022, the Company received the fully executed First Amendment to the Contract for Private Redevelopment among the Company, the City of Shakopee, and the Shakopee EDA, which is effective as of September 7, 2021. Under the First Amendment and as part of the authorized changes regarding the responsibilities of the Company and the City, improvements on Unbridled Avenue will be primarily constructed by the City of Shakopee. As a result, the total estimated cost of TIF eligible improvements to be borne by the Company was reduced by $5,744,000 to an amount not to exceed $17,592,881.

Forward-Looking Statements:

From time-to-time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as "believes," "expects," "anticipates," "intends" or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include, but are not limited to:

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We may not be successful at implementing our growth strategy.

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Our business is sensitive to reductions in discretionary consumer spending as a result of downturns in the economy and other factors outside of our control.

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We have experienced a decrease in revenue and profitability from live racing.

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We may not be able to attract a sufficient number of horses and trainers to achieve above average field sizes.

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We face significant competition, both directly from other racing and gaming operations and indirectly from other forms of entertainment and leisure time activities, which could have a material adverse effect on our operations.

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Nationally, the popularity of horse racing has declined.

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A lack of confidence in the integrity of our core businesses could affect our ability to retain our customers and engage with new customers.

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Horse racing is an inherently dangerous sport and our racetrack is subject to personal injury litigation.

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Our business depends on using totalizator services.

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Inclement weather and other conditions may affect our ability to conduct live racing.

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We are subject to changes in the laws that govern our business, including the possibility of an increase in gaming taxes, which would increase our costs, and changes in other laws may adversely affect our ability to compete.

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We are subject to extensive regulation from gaming authorities that could adversely affect us.

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We rely on the efforts of our partner Doran for the development and profitable operation of our Triple Crown Residences at Canterbury Park joint venture.

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We rely on the efforts of our partner Greystone Construction for a new development project.

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We may not be successful in executing our real estate development strategy.

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We are obligated to make improvements in the TIF district and will be reimbursed only to the extent of future tax revenue.

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We face competition from other real estate developers.

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We may be adversely affected by the effects of inflation

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Our success may be affected if we are not able to attract, develop and retain qualified personnel.

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The payment and amount of future dividends is subject to Board of Director discretion and to various risks and uncertainties.

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Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security.

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We process, store, and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business.