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Churchill Downs Incorporated (NASDAQ:CHDN) Delivers Impressive Q2 2024 Results, Poised for Continued Growth
Published on September 24, 2024 | Ticker: CHDN

Churchill Downs Incorporated, the renowned operator of the iconic Kentucky Derby and a diversified entertainment and gaming company, has reported its second-quarter 2024 financial results, showcasing impressive performance across its business segments.

Financials

In the second quarter of 2024, the company generated net revenue of $890.7 million, a significant 15.9% increase compared to the same period in the prior year. This strong top-line growth was driven by the company's diversified portfolio of businesses, highlighted by a record-breaking Kentucky Derby Week. For the full year 2023, Churchill Downs reported net revenue of $2,461.7 million.

The company's net income for the second quarter of 2024 was $210.2 million, a substantial increase from the $143.0 million reported in the same quarter of the previous year. On an annual basis, Churchill Downs reported net income of $417.3 million in 2023. The company's strong profitability is a testament to its ability to effectively manage its operations and capitalize on growth opportunities.

Operating cash flow for the second quarter of 2024 was $471.7 million, up from $402.6 million in the same period last year. For the full year 2023, Churchill Downs generated operating cash flow of $605.8 million. However, the company's free cash flow for 2023 was negative $70.7 million, as it continued to invest in growth initiatives and capital projects.

Business Overview

Segmental Performance

Churchill Downs' diversified business model is reflected in the performance of its three reportable segments: Live and Historical Racing, TwinSpires, and Gaming.

Live and Historical Racing Segment

The Live and Historical Racing segment, which includes the company's flagship Kentucky Derby and other live and historical racing properties, reported net revenue of $464.7 million in the second quarter of 2024, a 20.7% increase from the same period in 2023. This strong performance was driven by a record-breaking Kentucky Derby Week, the opening of the Rosie's Emporia property in September 2023, and continued growth at the company's other historical racing machine (HRM) properties in Kentucky and Virginia.

TwinSpires Segment

The TwinSpires segment, which encompasses the company's online wagering and B2B pari-mutuel services, generated net revenue of $151.7 million in the second quarter of 2024, a 10.4% increase compared to the same period in the prior year. This growth was primarily attributable to the acquisition of Exacta Systems, which has provided synergies and improved the performance of the company's Virginia HRM venues.

Gaming Segment

The Gaming segment, which includes the company's regional casino properties, reported net revenue of $274.2 million in the second quarter of 2024, an 11.5% increase from the same period in 2023. This growth was driven by the opening of the Terre Haute Casino Resort in Indiana in April 2024, partially offset by the company's decision not to renew the management agreement for the Lady Luck Casino Nemacolin in Pennsylvania at the end of June 2023.

Adjusted EBITDA and Capital Management

Churchill Downs' adjusted EBITDA, a key performance metric, reached a record $444.8 million in the second quarter of 2024, a 22.3% increase from the same period in the prior year. For the full year 2023, the company reported adjusted EBITDA of $687.3 million.

The company's strong financial performance has enabled it to maintain a healthy balance sheet and pursue strategic growth initiatives. As of June 30, 2024, Churchill Downs had a bank covenant net leverage ratio of 4.0x, which is expected to decline to at or slightly below 4.0x by the end of 2024 as the company's new investments in Virginia, Indiana, and Kentucky continue to generate meaningful adjusted EBITDA and free cash flow.

Outlook

Churchill Downs remains focused on executing its long-term growth strategy, which includes investments in its flagship Kentucky Derby property, expansion of its HRM footprint, and strategic acquisitions.

The company recently announced a $85 million renovation project at Churchill Downs Racetrack, which will transform the Grandstand Club and Pavilion area, increasing premium seating and hospitality options for guests. This project is expected to have a payback period of less than eight years, in line with the company's target for investments at the Kentucky Derby venue.

In Virginia, Churchill Downs is on track to open its new HRM property, "The Rose," in Dumfries in late September 2024, with 1,650 HRMs. The company also plans to open a new HRM entertainment venue in Henrico County, Virginia, with 175 HRMs, and is exploring opportunities to expand its HRM footprint in the state further.

Additionally, the company's acquisition of Exacta Systems in 2023 has provided significant benefits, including improved performance and margins at the company's Virginia HRM properties and the ability to offer Exacta's central determinant system technology to third-party HRM operators, both domestically and internationally.

Looking ahead, Churchill Downs remains well-positioned for continued growth, with a strong pipeline of strategic initiatives and a healthy balance sheet to support its expansion plans. The company's diversified business model, focus on operational excellence, and commitment to delivering exceptional experiences for its customers position it for long-term success in the dynamic entertainment and gaming industry.

Risks and Challenges

While Churchill Downs has demonstrated impressive performance, the company faces several risks and challenges that investors should consider:

1. Regulatory Environment: The company's operations are subject to extensive regulation at the federal, state, and local levels, and changes in laws or regulations could impact its business.

2. Competition: The gaming and entertainment industry is highly competitive, and the company faces competition from both traditional and emerging forms of entertainment and gaming.

3. Economic Conditions: The company's performance is influenced by consumer spending and discretionary income, which can be affected by economic conditions and other macroeconomic factors.

4. Integration Risks: The company's growth strategy includes strategic acquisitions, and the successful integration of these acquisitions is critical to realizing the expected benefits.

5. Capital Expenditures: The company's significant investments in capital projects, such as the Grandstand Club and Pavilion renovation at Churchill Downs Racetrack, carry execution and financial risks.

Despite these challenges, Churchill Downs' strong track record, diversified business model, and strategic initiatives position the company for continued growth and success in the years ahead.

Conclusion

Churchill Downs Incorporated has delivered an impressive performance in the second quarter of 2024, showcasing the strength and resilience of its diversified business model. The company's record-breaking results at the Kentucky Derby, coupled with the growth in its HRM and gaming operations, have driven significant top-line and bottom-line expansion.

With a robust pipeline of strategic initiatives, including investments in its flagship Kentucky Derby property and expansion of its HRM footprint, Churchill Downs is well-positioned to capitalize on the opportunities in the entertainment and gaming industry. The company's healthy balance sheet and focus on operational excellence further support its ability to deliver long-term value for shareholders.

As Churchill Downs continues to execute its growth strategy and navigate the evolving regulatory and competitive landscape, investors should closely monitor the company's progress and its ability to overcome the risks and challenges inherent in its business. Overall, Churchill Downs' impressive second-quarter performance and its promising outlook make it a compelling investment opportunity in the gaming and entertainment sector.

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