Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Churchill Downs Inc (CHDN, Financial) reported all-time record net revenue of $891 million and adjusted EBITDA of $445 million for Q2 2024.
- The 150th Kentucky Derby generated significant growth in ticketing, sponsorship revenue, and record wagering, contributing to a new all-time record for Derby Week adjusted EBITDA.
- The company is on track with several high-growth, high-margin investments, including new HRM venues in Kentucky, Virginia, and New Hampshire.
- The acquisition of Exacta has improved performance and margins for HRM venues, and the company is exploring further expansion opportunities both domestically and internationally.
- Churchill Downs Inc (CHDN) has a strong pipeline of growth opportunities in both brick-and-mortar and technology-related businesses, supported by a solid balance sheet.
Negative Points
- The Derby City Gaming property in downtown Louisville has ramped slower than expected, partly due to the local market's slower rebound from COVID-19.
- There are ongoing challenges with illegal gaming products in Kentucky and Virginia, requiring vigilance and communication with local authorities.
- The company faces some constraints in Virginia regarding the deployment of HRMs, including the need for additional capital expenditure and strategic planning.
- The labor market remains tight, with wage inflation being a concern, although it is being managed effectively.
- The Terra Haute property, while performing well initially, is still in its ramp-up stage and has not yet reached maturity, particularly in attracting visitors from Indianapolis.
Q & A Highlights
Q: Another very strong Derby. Can you talk a little bit more about the different components that drove that growth this year?
A: Sure, Barry. Ticketing revenue, or experience revenues, was a big driver, especially with the Paddock project. We saw more capacity and high-end experiences contributing significantly. Wagering results were fantastic, setting records, and sponsorships also performed well. Overall, all key revenue drivers showed improvement.
Q: Can you provide more clarity around the progression of properties like Louisville downtown and Oak Grove? How are they accelerating, and what's left for them?
A: Thanks, David. There's a lot of optimism for Kentucky and future growth. None of our properties have reached maturity yet. We continue to add and change the mix of games, and our teams get better at operating them. There's still a lot of growth and learning ahead, and these properties are still in their ramp-up stage.
Q: Can you update us on Exacta and its current and future opportunities?
A: Sure. In Virginia, we've deployed about 2,750 games and are on our way to 5,000. Exacta will ride that wave. There are potential markets both in the U.S. and internationally considering this form of wagering. We are also developing HRM-based electronic table games to enhance long-term performance.
Q: Can you discuss the ramp and cannibalization of Kentucky HRM properties like Derby City downtown, Newport, and Turfway?
A: Derby City Gaming has ramped slower than expected, but our team is doing everything right. The downtown Louisville environment has been slower to rebound from COVID. Newport and Turfway started slower but continue to build strength. All properties are still in their ramp-up stage and haven't reached maturity.
Q: Can you elaborate on the grandstand project and other areas at Churchill Downs for reinvestment?
A: The grandstand club and Pavilion project will replace 10,000 bleacher seats with 8,300 premium seats and improved amenities. Additionally, 2,800 seats will benefit from upgraded hospitality. We are also exploring other areas like the infield and the gap area between the first turn project and the Sky Terraces for future projects.
Q: How do you see the enforcement of skill game bans in Kentucky and Virginia?
A: There are attempts to skirt gaming laws with skill games, but it's not a significant issue. It requires vigilance by state authorities and our internal team. It's part of the landscape, and we work with local authorities to ensure proper enforcement.
Q: Can you discuss the impact of the gray market machine ban in Kentucky and its implications for Virginia?
A: It's hard to isolate the impact of the ban as there are many variables. However, removing illegal gaming products is certainly positive. Both Kentucky and Virginia are still ramping up, and the ban helps our facilities, but I can't give specific percentages.
Q: What are the consumer trends within the HRM and gaming segments?
A: In general, we are seeing more trips with spend per trip being flat to modestly declining. There is a fair amount of stability across our properties.
Q: How do you think about the projected ramp and maturity timing for Terra Haute?
A: Terra Haute opened stronger than expected, benefiting from the local population. We will continue to build the database locally and expect improvement over time, especially from visitors from Indianapolis. It's not yet at maturity.
Q: Can you elaborate on the margin expansion and the labor environment at your properties?
A: Our team is focused on efficient cost structures, which has driven margin improvements. We see some wage inflation but manage it by hiring great people and optimizing job designs. It's not a top concern for us.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
