Q1 2024 Earnings Summary
- Strong initial performance at the Terre Haute casino, which opened in April 2024 and is starting off better than expected, suggests potential for higher-than-expected returns and faster ramp-up to full operational maturity.
- Growth potential from HRM optimization and customer acceptance, including the development of electronic table games, is leading to increased revenue and margins, with further upside as properties like Turfway Park continue to mature. ,
- The Exacta acquisition is providing multiple growth avenues, such as improving existing operations, expanding B2B services to third parties, entering new US jurisdictions, and potential international expansion, opening up significant additional revenue streams. ,
- Churchill Downs Incorporated is willing to increase its leverage above its target range of 3-4x when pursuing opportunities, potentially leading to higher financial risk and elevated leverage levels in the near term.
- Key properties like Turfway Park are still "nowhere close to a mature property" and may take longer to reach targeted margins, which could delay expected financial benefits and impact near-term earnings.
- Limitations on the number of Historical Racing Machines (HRMs) they can deploy in Virginia (only 500 machines remaining) may constrain growth opportunities in that market.
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Leverage Tolerance
Q: What's your leverage tolerance in the next 6–8 quarters?
A: We target leverage in the 3x to 4x range , but we're willing to go above that when responsible opportunities arise. Over the years, we've consistently increased leverage when warranted to pursue valuable investments. -
Derby Earnings Guidance
Q: Can you help us manage expectations for this year's Derby earnings?
A: Things are moving positively year-over-year, and that will be the case this year. After the Derby race, we'll provide a range reflecting all the day's activity to help clarify expectations. For now, I've shared all I can responsibly tell you before the event. -
Exacta's Impact and Growth
Q: Where are you in realizing benefits from Exacta?
A: We're optimizing Exacta in our existing properties to improve margins. We're enhancing performance with third parties, exploring new U.S. jurisdictions, and seeing international growth opportunities. -
Regulatory Environment in Virginia
Q: How do you view the regulatory changes in Virginia affecting your business?
A: We expect a new Class III license in Petersburg and have planned accordingly. We're comfortable with our Virginia business and actively participate in the regulatory process to shape opportunities and address risks. -
Future Growth Beyond Derby Enhancements
Q: How are you ensuring growth continues after this year's Derby improvements?
A: Significant projects like the Paddock are just the beginning. We'll learn and improve upon them, pursue ancillary opportunities, and look for new ways to monetize our facilities through sponsorships, TV rights, and wagering. -
B2B Relationships with DraftKings and FanDuel
Q: How are your B2B deals with DraftKings and FanDuel progressing?
A: The relationships have gone very well. The Derby is key for recruiting players, and we've seen increased activities from them around horse racing, which we encourage. We'll assess progress after this year's Derby results. -
HRM Business Performance
Q: How is the ramp-up at Derby City Downtown and Turfway progressing?
A: Derby City Downtown started modestly due to seasonality but is progressing as expected. Turfway is improving every quarter but isn't yet mature; we have high expectations for continued improvement. -
Expansion in Virginia
Q: What are your plans for deploying additional machines in Virginia?
A: We have more opportunities than machines and expect to deploy the remaining 500 machines in 2025. We'll make choices and act relatively quickly. -
Terre Haute Ramp-Up
Q: How should we think about Terre Haute's ramp to hit ROI targets?
A: We underwrite projects to a year 3 EBITDA model. Terre Haute has started strong, and we're pleased with the initial performance. We expect continuous improvement as the team gains experience. -
Electronic Table Games Development
Q: What's the status of your electronic table games and their impact?
A: We're very engaged and focused on developing electronic table games. They're progressing according to plan, but timing isn't entirely under our control. In jurisdictions with machine caps, these games count toward those limits. -
The Rose vs. Rosie's Performance
Q: Can you compare Big Rose's expected performance to Little Rosie's?
A: The Rose is a much larger facility with higher investment, designed to compete as a traditional big-box gaming facility. It's a $465 million project in a market of 6.5 million people. While Little Rosie's perform exceptionally well, The Rose represents a bigger opportunity.