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    Churchill Downs Inc (CHDN)

    Q2 2024 Earnings Summary

    Reported on Mar 10, 2025 (After Market Close)
    Pre-Earnings Price$137.96Last close (Jul 25, 2024)
    Post-Earnings Price$140.70Open (Jul 26, 2024)
    Price Change
    $2.74(+1.99%)

    What went well

    • Record-breaking performance and growth across key revenue drivers, including ticketing, wagering, and sponsorships, highlighted by the success of the Kentucky Derby. The company delivered all-time record net revenue of $891 million and adjusted EBITDA of $445 million in the second quarter.
    • Significant growth potential in Kentucky HRM properties, which are still in their ramp-up stages and have not yet reached maturity. The company expects continued improvement as they enhance operations, optimize game mix, and deepen their customer database, indicating future upside in these markets.
    • Successful expansion projects and strong performance of new properties. The Terre Haute Casino opened stronger than expected, becoming an immediate hit with the local population, with plans to attract visitors from Indianapolis. Additionally, the Grandstand Club and Pavilion project aims to upgrade seating options and amenities, potentially increasing revenue and enhancing customer experience.

    What went wrong

    • Slower-than-expected ramp-up of new properties in Kentucky: The Derby City Downtown property has ramped up slower than expected, with the downtown Louisville environment not rebounding quickly from COVID-19. Similarly, the Newport and Turfway properties started slower but are only gradually improving, indicating potential challenges in achieving projected growth rates for these venues.
    • Potential cannibalization concerns in the Kentucky HRM market: The expansion of HRM venues raises concerns about cannibalization among existing properties. While the company reported no cannibalization between Derby City Gaming and Derby City Downtown, the slower ramp-up of the downtown property might suggest market saturation or cannibalization effects impacting overall performance.
    • Labor cost pressures could impact margins: The company acknowledges experiencing wage inflation in line with national trends, which could pressure profit margins. Managing labor costs is crucial, and despite confidence in handling it, continued wage inflation might affect future profitability.

    Q&A Summary

    1. Derby Growth Drivers
      Q: What drove growth at the Derby this year?
      A: Ticketing revenue was the big driver, led by the Paddock Project adding more high-end experiences. Wagering results set records, and sponsorships performed strongly.

    2. Exacta's Expansion
      Q: How is Exacta expected to ramp up?
      A: In Virginia, we've deployed 2,750 games, aiming for 5,000. Exacta benefits from our expansion, and we're optimistic about entering new markets domestically and internationally, though no promises on timing.

    3. Virginia Machine Deployment
      Q: Elaborate on deploying 5,000 machines in Virginia by 2025.
      A: We're allowed 10 facilities with 5,000 machines. Constraints are not licenses but allocating machines across properties. Modest additional CapEx will expand spaces to house more machines, targeting completion before end of 2025.

    4. Margin Expansion Sustainability
      Q: Is the 55% margin in HRM properties sustainable?
      A: Improvement is driven by the Exacta acquisition and gaming floor enhancements. We've integrated Exacta, restructured contracts, and improved game mix, leading to better performance. There's optimism for continued improvement.

    5. Kentucky Properties Ramp-Up
      Q: How are Kentucky properties progressing and handling cannibalization?
      A: Derby City Downtown saw no cannibalization from Derby City Gaming but is ramping slower due to downtown Louisville's slower rebound. Newport and Turfway are building momentum and are still in ramp-up stages.

    6. Terre Haute Performance
      Q: What are expectations for Terre Haute's ramp-up?
      A: Terre Haute opened stronger than expected, being an immediate hit locally. We'll focus on building the local database and gradually attract visitors from Indianapolis, 60–70 miles away.

    7. Impact of Illegal Gaming Bans
      Q: How are bans on skill games affecting competition?
      A: Removal of illegal gaming machines is positive but hard to quantify due to multiple variables. Vigilance is required as some operators attempt to skirt laws, but it's not a major threat currently.

    8. Consumer Spending Trends
      Q: What are the current consumer trends in gaming properties?
      A: We're seeing more trips, with spend per trip flat to modestly declining, indicating stability.

    9. Cost Structure and Labor Environment
      Q: How are expenses and labor costs impacting margins?
      A: Our team focuses on optimizing cost structures through numerous initiatives. While there's some wage inflation, it's manageable and not a top concern.

    10. Grandstand Project Details
      Q: What's the plan for the Grandstand renovation?
      A: We're replacing 10,000 bleacher seats with 8,300 premium seats, upgrading to high-end hospitality. An additional 2,800 seats will benefit from improved amenities.

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