Churchill Downs Inc. 10-Q Summary: Q2 2024
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. Churchill Downs Inc. (CDI) operates through three primary segments: Live and Historical Racing, TwinSpires (online wagering and sports betting), and Gaming (regional casinos). The company reported strong operational performance driven by a record-breaking Kentucky Derby and the opening of new casino properties, offset by higher interest expenses and ongoing capital projects.
Key Financial Metrics
| Metric (in millions) | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Net Revenue | $890.7 | $768.5 | $1,481.6 | $1,328.0 |
| Operating Income | $330.0 | $225.6 | $456.3 | $345.5 |
| Net Income (Attributable to CDI) | $209.3 | $143.0 | $289.7 | $298.7 |
| Diluted EPS | $2.79 | $1.86 | $3.87 | $3.90 |
| Adjusted EBITDA | $444.8 | $363.7 | $687.3 | $586.6 |
| Operating Cash Flow (YTD) | $471.7 | $402.6 | - | - |
| Total Debt (Gross) | $4,893.1 | - | - | - |
| Cash & Restricted Cash | $230.9 | - | - | - |
Material Changes vs. Prior Period
- Revenue Growth: Q2 revenue increased 16% ($122.2M) year-over-year. The Live and Historical Racing segment drove a $79.7M increase, primarily due to the 150th Kentucky Derby. The Gaming segment grew $28.3M, aided by the April 2024 opening of Terre Haute Casino Resort.
- Profitability: Operating income surged 46% ($104.4M) in Q2. This was significantly aided by the absence of a $24.5M non-cash impairment charge recorded in Q2 2023 related to Presque Isle Downs assets.
- Net Income Variance: While Q2 net income rose 46%, YTD net income decreased slightly ($9.0M) compared to the prior year. This decline is largely attributable to a one-time $114.0M gain on the sale of the Arlington property in Q1 2023, which did not recur.
- Interest Expense: Net interest expense increased to $73.5M in Q2 2024 from $65.2M in Q2 2023, reflecting higher interest rates and outstanding debt balances.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects project capital expenditures for 2024 to range between $450.0 million and $550.0 million. Major projects include renovations at Churchill Downs, The Rose Gaming Resort in Virginia, and expansions in Kentucky and New Hampshire.
- Debt Management: On July 3, 2024, the company amended its Credit Agreement to extend the maturity of the Revolver and Term Loan A from 2027 to 2029. As of June 30, 2024, available borrowing capacity under the Revolver was $893.5 million.
- Share Repurchases: The company repurchased approximately $13.0M of stock in Q2 under its 2021 program and $123.8M in a private transaction with The Duchossois Group in January 2024. Approximately $179.9M of repurchase authority remains under the 2021 program.
- Regulatory Risks: A significant legal challenge exists in Louisiana regarding the constitutionality of the 2021 Historical Horse Racing Act. A lower court ruled the act unconstitutional, but the company has filed a suspensive appeal allowing continued operations during the review. An adverse final ruling could impact Louisiana HRM results.
- Market Risks: The company faces exposure to variable interest rates (SOFR) on $1.8 billion of debt. A 1% increase in SOFR would reduce net income by approximately $13.0 million annually.
Investor Verification Checklist
- Derby Impact: Verify the sustainability of revenue growth in the Live and Historical Racing segment post-Derby Week, as this event is a significant annual outlier.
- Terre Haute Performance: Monitor the ramp-up and profitability of the Terre Haute Casino Resort, which opened in April 2024 and contributed to Q2 growth.
- Louisiana Litigation: Track the status of the appeal regarding the 2021 Historical Horse Racing Act, as a loss could materially affect the Gaming segment's revenue in Louisiana.
- Interest Rate Sensitivity: Assess the impact of rising interest rates on future net income, given the company's substantial variable-rate debt exposure.
- Capital Allocation: Review the execution of the $450M-$550M capital expenditure plan and its effect on future cash flows and leverage ratios.