Q4 2024 Earnings Summary
- Strong growth potential of The Rose gaming resort in Virginia: The CEO expresses high confidence in significant and sustained growth at The Rose over the next 12 months and beyond. Located in a perfect location with fantastic demographics, the market is large and under-served, with customers currently needing to leave the market to access gaming. As they build their customer database and the market becomes educated, they expect trial and acceptance of their HRM offerings to drive growth. ,
- High demand and expansion of premium experiences for the Kentucky Derby: The company is investing in transformational projects to expand and enhance the Kentucky Derby experience, including the Sky Terrace renovation, the conservatory, and infield general admission projects. There is strong evidence of expanding customer base and high return guests, benefiting from consumer trends towards experiential events. The CEO notes that they are pacing ahead of Derby ticket revenue for the 151st Derby compared to last year's 150th Derby, and are confident in demand for new premium seats. These investments are expected to generate significant long-term shareholder value. , ,
- Potential for further expansion of HRM operations into new jurisdictions: The CEO believes there is a reasonable probability that other jurisdictions will legalize HRMs over the next several years, mentioning that they are not done with HRM rollouts. With their HRM services business (Exacta), they are positioned to capture new opportunities, such as potential legalization in California. This could provide new avenues for growth and expand their B2B revenue streams.
- Slow ramp-up of The Rose Gaming Resort may delay expected earnings contributions: Management emphasized the need to be patient with The Rose's performance, indicating that it may take 12 months to demonstrate its performance. Short-term numbers are influenced by factors like weather and elections, suggesting the property may be underperforming in the short term, potentially delaying expected returns. ,
- Persistent challenges from gray market gaming could continue to impact revenues: The company acknowledges that despite progress, gray market gaming remains a challenge in key markets like Kentucky and Virginia, referring to it as a "whack-a-mole" problem that may not be fully resolved soon. This ongoing issue may continue to affect gaming revenues.
- Significant capital investments in Kentucky Derby projects carry execution and demand risks: The company is undertaking large-scale expansion projects for the Kentucky Derby, which may carry risks of execution, cost overruns, and potential disruptions. While management is confident, any softening in consumer demand for premium experiences could impact the expected returns on these investments. ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Net Revenue | +11% (from $561.2M to $624.2M) | Total Net Revenue increased by $63.0M or 11% YoY, driven by overall growth in core operating segments and the benefits of strategic initiatives from the previous period, building on earlier acquisitions and new property openings. |
Operating Income | +19% (from $106.2M to $126.8M) | Operating Income improved by $20.6M or 19% YoY, reflecting enhanced operational efficiency and profitability gains from initiatives such as new asset openings and operational improvements that had momentum from the prior period. |
Net Income | +26% (from $57.6M to $72.3M) | Net Income climbed by $14.7M or 26% YoY, benefitting from stronger operational performance and improved margins, which continued the positive trend established in the previous period while building on cost efficiencies and revenue growth. |
Live and Historical Racing | +15% (from $233.5M to $268.3M) | Live and Historical Racing revenue increased by approximately 15% YoY, bolstered by growth at key properties and further strengthening of market positions that were already yielding results in Q4 2023. |
TwinSpires Revenue | -5% (from $105.4M to $99.9M) | TwinSpires revenue declined by about 5% YoY, which may be attributed to challenges such as reduced race-day handles or market access constraints that became more pronounced this period compared to Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Maintenance Capital Expenditures | FY 2025 | no prior guidance | $100 million–$110 million | no prior guidance |
Project Capital Expenditures | FY 2025 | $250 million–$325 million | $350 million–$400 million | raised |
Bank Covenant Net Leverage | FY 2025 | Anticipated to decline relatively quickly | Expected to decrease below the 4x range | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
HRM Expansion | In Q1, Q2, and Q3 calls, HRM expansion and optimization were repeatedly highlighted – from significant increases in adjusted EBITDA and new openings in Virginia and Kentucky to efforts shifting machines and enforcing gray market rules | In Q4, the focus remains on aggressive HRM expansion across core markets with detailed projects in Virginia (e.g., Richmond and the forthcoming Rose Shire Gaming Parlor) and continued consideration of regulatory and market maturity issues | Consistent focus with enhanced regulatory emphasis and further scaling efforts. |
Performance & Ramp‑up Challenges | Q1 discussions noted a strong start at properties like Terre Haute and modest ramp‑up at Derby City, while Q2 and Q3 elaborated on operational challenges and the need for steady, long‑term customer building (especially for larger properties) | Q4 emphasized challenges at The Rose – citing weather delays, election-cycle distractions, and limited pre‑launch marketing – yet maintained an optimistic long‑term outlook | Ongoing focus with slightly increased caution and more detailed challenges highlighted in Q4. |
Capital Investments for Kentucky Derby Events | Earlier periods (Q1–Q3) focused on projects like the TwinSpires Paddock, Grandstand Club/Pavilion, and initial premium seating upgrades with targeted capital amounts and phased roll‑outs | Q4 presented a broader, multi‑phase approach including the Starting Gate Courtyard, Sky Terrace, Conservatory, and infield improvements with detailed timelines for Derby enhancements | Evolution from initial strategic projects to a comprehensive, multi‑project upgrade plan. |
Regulatory & Operational Risks | Across Q1–Q3, discussions included the Virginia HRM cap, gray market competition (with enforcement actions highlighted), potential labor cost pressures, and cannibalization effects in some locations | In Q4, the focus shifted primarily to the challenge of gray market competition while discussion on HRM caps, labor costs, and cannibalization was either less detailed or omitted | A slight shift toward emphasizing gray market risks while de‑emphasizing other operational risk factors. |
Expansion & Diversification (Exacta) | Q1–Q3 consistently discussed diversification via the Exacta acquisition, noting improved margins, a strong B2B component, and expansion into both domestic and international jurisdictions (e.g., New Hampshire, Wyoming, Malta) | Q4 continues to leverage Exacta for HRM service expansion and mentions potential new markets (including California), reinforcing its role in both technology integration and business diversification | Consistent strategic emphasis on diversification with incremental geographic and product expansion. |
Evolving Sentiment on Growth Prospects | Q1 presented balanced optimism with multi‑year ramp‑up expectations, and Q3 introduced more cautious language focused on execution risks (notably for properties like the Dumfries location) | Q4 contains no explicit discussion on evolving sentiment or a notable shift from high optimism to caution in growth prospects | Explicit sentiment shifts are less highlighted in Q4, suggesting a diminished focus on this topic compared to earlier periods. |
Financial Leverage & Capital Allocation | In Q1–Q3, leverage and capital deployment were discussed with bank covenant net leverage around 4x, with steady capital spending and expectations for lower leverage as new facilities begin delivering EBITDA | Q4 detailed a bank covenant net leverage of 4.0x alongside aggressive capital projects (e.g., spending $463 million in 2024 with forecasts for 2025) and confidence in gradual deleveraging by 2026 | A consistent focus on leveraging for growth with more detailed disclosures in Q4, showing managed capital allocation amid expansion. |
Post‑Pandemic Foot Traffic Focus | Q1 had no mention, Q2 briefly noted slower recovery in downtown Louisville (affecting Derby City Downtown), and Q3 did not include discussion on this topic | Q4 contains no mention of post‑pandemic foot traffic recovery as a performance factor | A diminishing emphasis on post‑pandemic recovery as the narrative moves toward new growth drivers. |
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ROI from Projects
Q: What uplift or ROI do you expect from the announced projects?
A: We consider these projects as key to generating long-term shareholder returns, and they always meet our hurdles. We've managed similar projects without disrupting the Derby experience and are confident we can do it again. -
Rose Property Ramp-Up
Q: How will the Rose property ramp over the next months?
A: The Rose is in a fantastic market, and we're confident it will perform well. As we educate the market, we expect growth commensurate with its demographics. It's starting to ramp appropriately, and we anticipate strong performance over the next 12 months. -
5-Year Payback Targets
Q: Is the Rose within the 5-year payback framework?
A: Yes, we target a 5x payback over 5 years for gaming assets, and with HRMs we've generally beaten that. The Rose has no different targets, and we feel really good about it. -
Gray Market Gaming Enforcement
Q: What's the status of gray market gaming enforcement in Kentucky and Virginia?
A: There's been substantial progress in both states. Gray games are illegal, and authorities are enforcing the law, but it's like whack-a-mole as rogue operators try new tactics. We don't expect to eliminate all revenue loss, but progress is steady. -
Potential HRM Expansion in California
Q: How might you participate if HRMs are approved in California?
A: While we don't have a racetrack there, we could participate through Exacta's products and services. We believe there's a reasonable probability other jurisdictions will legalize HRMs over the next few years. -
Demand for Premium Derby Seats
Q: What gives you confidence in demand for premium seats?
A: We're benefiting from trends favoring experiential events. We have high return rates and waiting lists for premium experiences. We're expanding internationally to grow new customers and support future expansions. -
Regional Gaming Investments
Q: How do you view regional gaming for future investment?
A: We assess individual markets based on dynamics and trends. We're focused on growth and improving margins and adjusted EBITDA. We pursue opportunities where we expect long-term growth. -
Impact of Wage Inflation
Q: Can you increase prices in a higher inflation environment?
A: We monitor inflation data but haven't seen discernible effects on our businesses yet. We can't isolate any trends impacting pricing power currently, but we'll keep monitoring.