Churchill Downs Inc Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Kentucky Derby Growth Plans: Focus on creating unique experiences, encouraging innovation, preserving traditions, and minimizing construction impact on Derby. The Starting Gate Courtyard and Pavilion project was on track, with multi-year expansion projects to reinvent key areas of Churchill Downs Racetrack.
• HRM Expansion: Rapid growth in Virginia HRM venues, with The Rose Gaming Resort in Northern Virginia, Owensboro venue in Kentucky opened, and Marshall Yards in Kentucky scheduled for 2026 opening. Virginia operations saw 20% of adjusted EBITDA in 2024.
• Financial Results: 2024 was a record year with 11% net revenue growth and 13% adjusted EBITDA growth. Free cash flow was $688 million, with maintenance capital expected $100-110 million in 2025 and project capital $350-400 million.
• Capital Management: Generated strong free cash flow, planned share repurchases and dividends, and expected bank covenant net leverage to decline in 2026 as new projects came online.

Segment Performance

• Churchill Downs Racetrack: 2024 was a record year with record net revenue and adjusted EBITDA. The Starting Gate Courtyard and Pavilion project was on track for completion by April 2025. Multi-year expansion projects including Sky Terrace renovation, Conservatory, and Infield General Admission were announced, with phases set for completion by 2028.
• HRM Activities: Virginia HRM venues contributed 20% of nearly $1.2 billion adjusted EBITDA in 2024. The Rose Gaming Resort in Virginia, Owensboro HRM venue in Kentucky, and plans for Marshall Yards in Kentucky were highlighted, with growth expected.
• Wagering Services and Solutions (formerly TwinSpires): Adjusted EBITDA grew by nearly $34 million primarily from Exacta business, though handle was impacted by race day cancellations and schedule shifts, but margins remained strong.

Guidance

• 2025 expected strong growth from investments in Kentucky Derby and HRM opportunities.
• Maintenance capital forecasted between $100-110 million in 2025, project capital between $350-400 million.
• Confidence in delivering strong growth from strategic investments in flagship asset and HRM venues.

Risks

• Gray Market Gaming: Enforcement challenges in Kentucky and Virginia with rogue operators flouting laws, though progress made.
• Construction Disruptions: Potential impact on Derby experience if multi-year projects not managed properly.
• Industry Headwinds: Wagering handle impacted by race day cancellations and schedule shifts affecting TwinSpires business.

Question and Answer

Q: Barry Jonas with Truist Securities asked about ROI and construction disruptions for Derby projects.

A: Bill Carstanjen stated core principle is to limit disruption to Derby experience, confident in project execution and ROI from signature asset.

Q: Dan Politzer with Wells Fargo asked about The Rose's trajectory.

A: Bill Carstanjen mentioned The Rose is in a great location, expects ramp over time despite initial market distractions.

Q: David Katz with Jefferies asked about ROI on gaming assets and Kentucky HRM investments.

A: Bill Carstanjen said gaming assets target 5-year payback, The Rose in early journey, Kentucky HRM facilities evaluated individually and as part of ecosystem.

Q: Chad Beynon with Macquarie asked about demand for Derby premium seats.

A: Bill Carstanjen mentioned trend towards experiential events, high return quotient, and efforts to grow international and new US markets.

Q: Jordan Bender with Citizens asked about regional gaming's future investment.

A: Bill Carstanjen said regional gaming evaluated on individual market dynamics, focus on growth and margin improvement.

Q: Jeff Stantial with Stifel asked about California historical horse racing opportunities.

A: Bill Carstanjen said would participate via Exacta's B2B services if California legalizes, confident in HRM rollout potential.

Q: Joe Stauff with SIG asked about gray market gaming enforcement.

A: Bill Carstanjen said gray games are illegal, progress made but ongoing challenge, trends moving in right direction in Kentucky and Virginia.

Q: Daniel Guglielmo with Capital One Securities asked about pricing power in inflationary environment.

A: Bill Carstanjen said wage growth data not discernible in business trajectories yet, but monitoring.

Q: Ben Chaiken with Mizuho asked about The Rose's underlying trends.

A: Bill Carstanjen said trends moving in right direction, team working on database and player incentives, expected extended growth.