Churchill Downs Incorporated Reports 2022 Third Quarter Results - The Kentucky Derby is just the beginning... | Churchill Downs Incorporated (2023)

LOUISVILLE, Ky.,Oct. 26, 2022(GLOBE NEWSWIRE) --Churchill Downs Incorporated(Nasdaq: CHDN) (the "Company") today reported business results for the third quarter endedSeptember30, 2022.

Third Quarter2022Highlights

  • Net revenue of$383.1 millioncompared to$393.0 millionin third quarter 2021
  • Net income of$57.0 millioncompared to$61.4 millionin third quarter 2021
  • Record third quarter Adjusted EBITDA of$163.2 millioncompared to$156.1 millionin third quarter 2021
  • Completed the previously-announced purchase ofChasers Poker RoominSalem, New Hampshire("Chasers")
  • Announced and closed on the acquisition ofEllis Park Racing & Gaming("Ellis Park") inHenderson, Kentuckyfor total consideration of$79.0 millionin cash
  • Announced a multi-year agreement with FanDuel to enable FanDuel to create a fully integrated and seamless wagering experience with a single wallet for horse racing and sports

CONSOLIDATED RESULTS

Third Quarter
(in millions, except per share data)20222021
Net revenue$383.1$393.0
Net income$57.0$61.4
Diluted EPS$1.49$1.57
Adjusted EBITDA(a)$163.2$156.1
(a) This is a non-GAAP measure. See explanation of non-GAAP measures below.

SEGMENT RESULTS

During the first quarter of 2022, we updated our operating segments to include the results of our United Tote business in the TwinSpires segment. Results of our United Tote business were previously included in our All Other segment.

The summaries below present net revenue from external customers and intercompany revenue from each of our reportable segments:

Live andHistorical Racing

Third Quarter
(in millions)20222021
Net revenue$102.4$81.5
Adjusted EBITDA34.527.7

For the third quarter of 2022, net revenue increased$20.9 milliondue primarily to a$6.5 millionincrease atChurchill Downs Racetrackas a result of increased handle from holding more live race days in the third quarter of 2022 as compared to the same quarter of 2021, a$6.2 millionincrease atOak Grove Racing,Gaming and Hotel("Oak Grove"), a$3.2 millionincrease atTurfway Parkas a result of the opening of the historical racing facility onSeptember 1, 2022, a$2.6 millionincrease atNewport Racing & Gaming("Newport"), a$1.3 millionincrease at Derby City Gaming, and a$1.1 millionincrease related to the acquisitions of Chasers and Ellis Park inSeptember 2022.

Adjusted EBITDA increased$6.8 milliondue to a$1.8 millionincrease atChurchill Downs Racetrackdriven by increased race days in the third quarter of 2022 as compared to the same quarter of 2021 and a$5.0 millionincrease at our HRM properties driven primarily by a$3.1million increase at Oak Grove and a$1.6million increase at Newport.

TwinSpires

Third Quarter
(in millions)20222021
Net revenue$107.4$109.0
Adjusted EBITDA31.122.1

For the third quarter of 2022, net revenue decreased$1.6 millionfrom the prior year quarter primarily due to a decrease of$3.4 millionfrom Sports and Casino and a$1.8 millionincrease from Horse Racing. The decrease in Sports and Casino was driven by the decision to exit the direct online Sports and Casino business in the first quarter of 2022. The increase in Horse Racing net revenue was driven by increased handle from our high wagering-volume customer base.

Adjusted EBITDA increased$9.0 millionprimarily due to an$11.1 millionincrease from our Sports and Casino business due to decreased online marketing and promotional activities in the current year quarter. This increase was offset by a$1.5 milliondecrease from Horse Racing due to increased content expenses and a$0.6 milliondecrease from United Tote.

Gaming

Third Quarter
(in millions)20222021
Net revenue$185.9$185.6
Adjusted EBITDA111.6110.7

For the third quarter of 2022, net revenue increased$0.3 millionprimarily due to increases at Fair Grounds andOcean Downs. Fair Grounds revenue increased$5.7 millionas a result of closures in the prior year quarter from Hurricane Ida that did not recur and incremental historical racing revenue from machines installed at certain off-track betting facilities.Ocean Downsnet revenue increased$1.6 millionas a result of strong attendance during the summer months. These increases were nearly offset by decreases at ourMississippiandPennsylvaniaproperties as a result of current economic conditions and competitive pressures.

Adjusted EBITDA increased$0.9 milliondriven by a$1.4 millionincrease from our equity investments partially offset by a$0.5 milliondecrease at our wholly-owned Gaming properties. The increase in our equity investments was driven by increased revenue at Rivers Des Plaines. The decrease from our wholly-owned Gaming properties is the result of decreased revenue and increases in marketing and salaries expense. Gaming Adjusted EBITDA includes$4.1 millionin proceeds received for business interruption insurance claims related to Hurricane Ida.

All Other

For the third quarter of 2022, All Other revenue and Adjusted EBITDA decreased primarily as a result ofArlingtonnot conducting live racing in the third quarter of 2022 as we ceased racing and simulcast operations at the end of 2021. We are excludingArlington'soperating results from Adjusted EBITDA in 2022 pending the sale of the property to theChicago Bears.

Chasers Poker Room Acquisition:

OnSeptember 2, 2022, the Company completed its previously announced purchase of Chasers inSalem, New Hampshire. Chasers is a charitable gaming facility located approximately 30 miles fromBoston, Massachusetts, that offers poker and a variety of table games. The Company plans to develop an expanded charitable gaming facility inSalemto accommodate historical racing machines and table games. As part of the acquisition, the Company made an initial payment to the sellers for rights to operate the poker room and to build a historical racing facility. Additional payments will be made once all necessary permits are obtained and the planned historical racing facility is opened. The Company expects the total investment inSalem, inclusive of the Chasers purchase price, to be approximately$150 million.

Ellis Park Acquisition:

OnSeptember 26, 2022, the Company completed the acquisition of Ellis Park inHenderson, Kentuckyfor total consideration of$79.0 millionin cash, subject to certain working capital and other purchase price adjustments. Ellis Park is a Thoroughbred racetrack and gaming facility located north of theOhio Riverand just south ofEvansville, Indianaand features approximately 300 historical racing machines ("HRMs"). In acquiring Ellis Park, the Company also assumes the opportunity to construct a track extension facility with HRMs inOwensboro, Kentucky. Over the next year, the Company expects its total investment inHendersonandDaviessCounties to be approximately$75 millionin addition to the purchase price.

Peninsula Pacific Entertainment LLC("P2E") Acquisition:

The Company has entered into a definitive purchase agreement to acquire substantially all of the assets of P2E for total consideration of$2.75 billion(the “P2E Acquisition”). The P2E Acquisition contemplates the Company acquiring the following properties: Colonial Downs Racetrack inNew Kent, Virginia, six historical racing entertainment venues acrossVirginia,del Lago Resort & CasinoinWaterloo, New York, andHard Rock Hotel & CasinoinSioux City, Iowa(“Hard Rock Sioux City”).

The P2E Acquisition also includes other development rights including the opportunity, underVirginialaw, to develop up to five additional HRM entertainment venues inVirginiawith collectively up to approximately 2,300 additional HRMs. These development rights include:

  • The rights to build a new HRM entertainment venue with up to 1,150 HRMs inDumfries, Virginiawith potential for expansion up to 1,800 HRMs after initial build out. TheDumfriesfacility will replace the existing Rosie'sDumfriesfacility located in northernVirginiaand the initial phase of the project is expected to open in 2023.
  • The rights to develop one of the additional HRM entertainment venues with up to 150 HRMs inEmporia, Virginia.The Emporia Projectwill be located alongI-95near theNorth Carolinaborder and is expected to open in 2023.

The P2E Acquisition also includes the rights to P2E’s ongoing effort in partnership with Urban One, to developONE Casino + Resort, a$565 milliondestination casino inRichmond, Virginia.

The Company has obtained the acquisition of ownership interest approval for theVirginiaproperties from theVirginia Racing Commissionand approval for Hard Rock Sioux City from theIowa Racing and Gaming Commission. The P2E Transaction remains dependent on customary closing conditions, including the Company obtaining approval from theNew York State Gaming Commission. The transaction is expected to close before the end of 2022.

CAPITAL MANAGEMENT

Share Repurchase Program:

The Company repurchased 288,781 shares of its common stock at an average share price of approximately$204.04based on trade date in conjunction with its publicly announced share repurchase program at a total cost of$59.0 millionin the third quarter of 2022. We had approximately$300.2million of repurchase authority remaining under this program as ofSeptember30, 2022.

Annual Dividend:

OnOctober 25, 2022, the company's Board of Directors approved an annual cash dividend on the Company's common stock of$0.714per outstanding share, a 7 percent increase over the prior year. The dividend is payable onJanuary 6, 2023, to shareholders of record as of the close of business onDecember 2, 2022, with the aggregate cash dividend paid to each shareholder rounded to the nearest whole cent. This marks the twelfth consecutive year that the Company has increased the dividend.

NET INCOME

The Company's third quarter of 2022 net income was$57.0 millioncompared to$61.4 millionin the prior year quarter.

The following items impacted the comparability of the Company's third quarter net income:

  • $2.4 millionafter-tax increase in expenses related to transaction, pre-opening and other expenses, net; and
  • $1.4 millionafter-tax reduction in the benefit related to our equity portion of the non-cash change in the fair value ofRivers Des Plaines'interest rate swaps.

These items were partially offset by:

  • $0.3 millionafter-tax decrease in expenses related to our equity portion ofRivers Des Plaines'legal reserves and transaction costs.

Excluding the items above, third quarter 2022 adjusted net income decreased$0.9 millionprimarily due to the following:

  • $11.5million after-tax increase from the prior year quarter in interest expense associated with higher outstanding debt balances;
  • Partially offset by$10.6 millionafter-tax increase from the prior year quarter driven by proceeds from business interruption insurance from Hurricane Ida and other nonrecurring income tax benefits.

Conference Call

A conference call regarding this news release is scheduled forThursday, October27, 2022, at9 a.m. ET. Investors and other interested parties may listen to the teleconference by accessing the online, real-time webcast athttp://ir.churchilldownsincorporated.com/events.cfm, or by registering in advance via teleconferencehere. Once registration is completed, participants will be provided with a dial-in number containing a personalized conference code to access the call. All participants are instructed to dial-in 15 minutes prior to the start time. An online replay will be available at approximatelynoon ETonThursday, October27, 2022, and will continue to be available for two weeks. A copy of the Company’s news release announcing quarterly results and relevant financial and statistical information about the period will be accessible atwww.churchilldownsincorporated.com.

Use of Non-GAAP Measures

In addition to the results provided in accordance with GAAP, the Company also uses non-GAAP measures, including adjusted net income, adjusted diluted EPS, EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA.

The Company uses non-GAAP measures as a key performance measure of the results of operations for purposes of evaluating performance internally. These measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of the Company by excluding certain items that may not be indicative of the Company's core business or operating results. The Company believes the use of these measures enables management and investors to evaluate and compare, from period to period, the Company’s operating performance in a meaningful and consistent manner. The non-GAAP measures are a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP, and should not be considered as an alternative to, or more meaningful than, net income or diluted EPS (as determined in accordance with GAAP) as a measure of our operating results.

We use Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. We utilize the Adjusted EBITDA metric to provide a more accurate measure of our core operating results and enable management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with GAAP. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

Adjusted net income and adjusted diluted EPS exclude discontinued operations net income or loss; net income or loss attributable to noncontrolling interest; changes in fair value for interest rate swaps related toRivers Des Plaines;Rivers Des Plaines'legal reserves and transaction costs; transaction expense, which includes acquisition and disposition related charges, as well as legal, accounting, and other deal-related expense; pre-opening expense; and certain other gains, charges, recoveries, and expenses.

Adjusted EBITDA includes the Company's portion of EBITDA from our equity investments.

Adjusted EBITDA excludes:

  • Transaction expense, net which includes:
    • Acquisition, disposition, and land sale related charges;
    • Direct online Sports and Casino business exit costs; and
    • Other transaction expense, including legal, accounting, and other deal-related expense;
  • Stock-based compensation expense;
  • Rivers Des Plaines'impact on our investments in unconsolidated affiliates from:
    • The impact of changes in fair value of interest rate swaps; and
    • Legal reserves and transaction costs;
  • Asset impairments;
  • Gain on Calder land sale;
  • Legal reserves;
  • Pre-opening expense; and
  • Other charges, recoveries and expenses.

As ofDecember 31, 2021,Arlingtonceased racing and simulcast operations given the pending sale of the property to theChicago Bears.Arlington'soperating loss in the current year quarter was treated as an adjustment to EBITDA and is included in Other expenses, net in the Reconciliation of Comprehensive Income to Adjusted EBITDA.

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the consolidated statements of comprehensive income. Refer to the Reconciliation of Comprehensive Income to Adjusted EBITDA included herewith for additional information.

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