Churchill Downs Incorporated — Q1 2024 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2024, compared with the same period in 2023. Churchill Downs operates through Live and Historical Racing, TwinSpires, and Gaming segments. The quarter preceded the 150th Kentucky Derby and included continued investment in new and expanded properties.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net revenue | $590.9 million | $559.5 million | +$31.4 million |
| Operating income | $126.3 million | $119.9 million | +$6.4 million |
| Operating margin | 21.4% | 21.4% | Flat |
| Net income | $80.4 million | $155.7 million | -$75.3 million |
| Diluted EPS | $1.08 | $2.05 | -$0.97 |
| Adjusted EBITDA | $242.5 million | $222.9 million | +$19.6 million |
| Operating cash flow | $254.7 million | $215.9 million | +$38.8 million |
| Capital expenditures | $155.0 million | $134.7 million | +$20.3 million |
Revenue increased 5.6%, while Adjusted EBITDA increased 8.8%, implying an Adjusted EBITDA margin of approximately 41.0%, compared with 39.8% in the prior-year quarter. Interest expense increased to $70.4 million from $64.7 million. The effective income tax rate was 21.0% and included a $5.6 million benefit from deferred-tax-liability remeasurement.
Segment revenue increased to $245.1 million from $214.4 million in Live and Historical Racing and to $106.6 million from $94.8 million in TwinSpires. Gaming revenue declined to $239.2 million from $250.0 million. Segment Adjusted EBITDA was $100.8 million for Live and Historical Racing, $39.6 million for TwinSpires, and $122.8 million for Gaming.
Liquidity, debt, and capital resources
- Cash and cash equivalents were $149.4 million at March 31, 2024; cash, cash equivalents, and restricted cash totaled $222.0 million.
- Total debt was $4.963 billion, up from $4.874 billion at December 31, 2023; net debt after current maturities and issuance costs was $4.859 billion.
- The $1.2 billion revolving facility had $841.9 million of available borrowing capacity after outstanding letters of credit.
- The weighted-average borrowing rate was 7.01%. A one-percentage-point increase in SOFR would reduce annualized net income and operating cash flow by an estimated $13.7 million, assuming constant variable-rate debt.
- Management expects operating cash flow and available credit capacity to fund operations and capital expenditures over the next twelve months.
- Management currently expects 2024 project capital expenditures of approximately $450 million to $550 million, subject to timing, delays, and payment schedules.
Material changes versus the prior comparable period
- Live and Historical Racing benefited from the Rosie's Emporia opening, growth at other historical racing properties, and Exacta-related savings.
- TwinSpires benefited from the August 2023 Exacta acquisition, which added revenue and cost synergies, as well as retail and online sports betting.
- Gaming performance declined primarily because of January weather and the non-renewal of the Lady Luck Casino Nemacolin management agreement.
- Net income was not comparable because Q1 2023 included an $114.0 million pretax, approximately $86.2 million after-tax, gain on the sale of Arlington. Excluding disclosed comparability items, management stated that Q1 2024 net income increased by $10.1 million.
- The company repurchased 1.0 million shares from an affiliate of The Duchossois Group for $123.8 million and repurchased an additional 184,821 shares under its existing program for $22.0 million. Approximately $192.9 million remained under the program at March 31, 2024.
- Deferred revenue increased substantially, primarily from advanced sales related to the 150th Kentucky Derby. Contract liabilities were $172.3 million at March 31, 2024, compared with $92.3 million at December 31, 2023.
Guidance, outlook, commentary, and risks
The filing does not provide formal revenue or earnings guidance. Management expects continued investment in the Churchill Downs Racetrack Paddock Project, Owensboro Racing & Gaming, a New Hampshire historical racing facility, and The Rose Gaming Resort in Virginia. Terre Haute Casino Resort opened on April 5, 2024, and The Rose HRM entertainment facility was scheduled to open in late September 2024.
A material regulatory contingency involves Louisiana historical racing. A state court ruled that the 2021 Historical Horse Racing Act was unconstitutional and required voter approval for historical racing. Churchill Downs and other parties appealed; the suspensive appeal permits continued operations while the appeal proceeds. The company had approximately 500 historical racing machines in Louisiana off-track betting facilities as of March 31, 2024.
Other principal risks include consumer discretionary spending, inflation, competition, regulatory and tax changes, horsemen and industry agreements, cyber and technology failures, acquisition and development execution, litigation, insurance availability, debt covenants, credit-market disruption, and higher interest rates. The filing states that there were no material changes to previously disclosed risk factors. Routine litigation is ongoing, but management does not expect any excess exposure beyond accrued amounts to be material based on current information.
Subsequent to quarter-end, on April 8, 2024, Churchill Downs sold 49% of United Tote to a subsidiary of the New York Racing Association.
Facts investors should verify
- Progress, total cost, and financing of the $450 million to $550 million 2024 project-capital plan.
- Louisiana appellate developments and potential effects on approximately 500 historical racing machines and Gaming results.
- Debt reduction plans, refinancing needs, covenant compliance, and exposure to SOFR-based interest rates.
- Operating performance and margins at Gaming properties following January weather disruptions and the Lady Luck exit.
- Revenue conversion and cash collections associated with the elevated Kentucky Derby deferred-revenue balance.
- Benefits, integration, and any remaining obligations related to the Exacta acquisition.
- Execution and ramp-up of Terre Haute Casino Resort, The Rose Gaming Resort, and other new or expanded properties.