8-K: Churchill Downs Inc. Reports Record Revenue and Adjusted EBITDA in Q1 2024 Despite Net Income Decline

Churchill Downs Incorporated achieved record first-quarter revenue and adjusted EBITDA, driven by strong performance in its Live and Historical Racing and TwinSpires segments, though net income decreased compared to the prior year.

Summary

• Churchill Downs Incorporated (CDI) reported a record net revenue of $590.9 million for the first quarter of 2024, a 6% increase year-over-year.
• Adjusted EBITDA also reached a record $242.5 million, up 9% compared to the same period last year.
• However, net income decreased by 48% to $80.4 million, primarily due to a significant gain from the sale of property in Arlington Heights, Illinois in the prior year.
• The Live and Historical Racing segment saw a 15% increase in revenue and a 23% increase in Adjusted EBITDA.
• The TwinSpires segment experienced an 18% increase in revenue and a 35% increase in Adjusted EBITDA.
• The Gaming segment's revenue decreased by $8.4 million, and Adjusted EBITDA decreased by $6.7 million, mainly due to the non-renewal of a management agreement and inclement weather.
• The company repurchased $22.0 million of shares under its share repurchase program and completed a $123.75 million repurchase of 1,000,000 shares from an affiliate of The Duchossois Group.
• CDI also paid a $0.382 per share dividend, marking the thirteenth consecutive year of increased dividends.
• The company ended the quarter with a net bank leverage of 4.1x.

Sentiment

Score: 7

Explanation: The sentiment is positive due to record revenue and adjusted EBITDA, but tempered by a significant decrease in net income and some weakness in the gaming segment. The company's strategic investments and capital returns are encouraging.

Positives

• The company achieved record revenue and Adjusted EBITDA for the first quarter.
• Both the Live and Historical Racing and TwinSpires segments showed strong growth in revenue and Adjusted EBITDA.
• The company is actively returning capital to shareholders through share repurchases and increased dividends.
• New gaming and racing facilities are under development, indicating future growth potential.
• The company has maintained a commitment to returning capital to shareholders.

Negatives

• Net income decreased by 48% compared to the prior year quarter.
• The Gaming segment experienced a decrease in both revenue and Adjusted EBITDA.
• Increased maintenance and promotional expenses at Churchill Downs Racetrack impacted the Live and Historical Racing segment's results.
• Corporate compensation and administrative expenses increased, impacting the 'All Other' segment's Adjusted EBITDA.

Risks

• The company's net income was significantly impacted by the absence of a large gain from a property sale that occurred in the prior year.
• The Gaming segment's performance was negatively affected by the non-renewal of a management agreement and inclement weather.
• Increased maintenance and promotional expenses at Churchill Downs Racetrack could impact future profitability.
• The company faces risks related to economic conditions, competition, and regulatory changes.
• The company is exposed to risks related to technology, cybersecurity, and potential disruptions to operations.

Future Outlook

The company is focused on the development of new properties, including The Rose Gaming Resort and Owensboro Racing & Gaming, and continues to invest in its existing operations. The company also plans to continue returning capital to shareholders through share repurchases and dividends.

Management Comments

• The company delivered record first quarter revenue and Adjusted EBITDA for both our Live and Historical and TwinSpires segments.
• The company maintained its commitment to returning capital to shareholders.

Industry Context

The results reflect a continued trend of growth in the gaming and horse racing industries, particularly in the areas of historical racing machines and online wagering. The company's expansion into new markets and development of new facilities aligns with industry trends towards diversification and enhanced customer experiences. The sale of United Tote also reflects a strategic shift in the company's portfolio.

Comparison to Industry Standards

• Churchill Downs' performance in the Live and Historical Racing segment, with a 15% revenue increase and 23% Adjusted EBITDA increase, is strong compared to other regional racing operators. For example, Penn National Gaming, a competitor with a similar mix of racing and gaming assets, has shown more modest growth in its racing segment in recent quarters.
• The 18% revenue growth and 35% Adjusted EBITDA growth in the TwinSpires segment is impressive compared to other online wagering platforms. DraftKings and FanDuel, while larger in overall revenue, have not consistently shown this level of growth in their horse racing divisions.
• The Gaming segment's decline in revenue and Adjusted EBITDA is a concern, especially when compared to regional casino operators like Boyd Gaming, which have shown more stable performance. The non-renewal of the Lady Luck management agreement and weather impacts are specific to Churchill Downs, but the overall trend of increased competition in the gaming sector is a challenge for all operators.
• The capital investment in new properties like The Rose and Owensboro is significant and aligns with industry trends of expanding into new markets and offering diverse entertainment options. This is similar to the strategies of companies like Caesars Entertainment, which are also investing heavily in new developments.

Stakeholder Impact

• Shareholders will benefit from share repurchases and increased dividends.
• Employees may see opportunities with the development of new properties.
• Customers will have access to new entertainment options with the opening of new facilities.
• Suppliers and creditors will benefit from the company's continued growth and investment.

Next Steps

• The company will continue to develop The Rose Gaming Resort, scheduled to open in late September 2024.
• The company will continue to develop Owensboro Racing & Gaming, planned to open in the first quarter of 2025.
• The company will host a conference call on April 25, 2024, to discuss the results.
• The company will continue to execute its share repurchase program.

Key Dates

Keywords

Churchill Downs, Gaming, Horse Racing, TwinSpires, EBITDA, Revenue, Share Repurchase, Dividends, Historical Racing Machines, HRM