Churchill Downs rporated(CHDN) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved record net revenue and adjusted EBITDA in Q3 2024, with a 10% growth in revenue and an 8% growth in adjusted EBITDA quarter-over-quarter [6][16][15] - Virginia HRM properties were the primary driver of adjusted EBITDA growth, increasing by $15 million or 40$591 million or $7.93 per share in the first nine months of the year, up nearly$145 million or 32% over the same period in 2023 [21] Business Line Data and Key Metrics Changes - The Live and Historical Racing segment and Gaming segment both reported record third-quarter revenue and adjusted EBITDA [6][16] - The TwinSpires segment also achieved record adjusted EBITDA for the third quarter [16] - Virginia HRM properties generated a combined margin of over 54%, up over 6 points compared to the prior year quarter [18] Market Data and Key Metrics Changes - The company opened a new HRM property in Dumfries, Virginia, with 1,650 machines, and plans for a grand opening on November 7, 2024 [10] - The company is expanding HRMs in Richmond, Virginia, adding approximately 100 games during Q3 and anticipating an additional 400 by the end of 2025 [12] - The Kentucky HRM properties performed well, with Oak Grove continuing to grow through market penetration [18] Company Strategy and Development Direction - The company is focused on significant renovations and expansions at Churchill Downs Racetrack, including the Starting Gate Pavilion project, which will enhance seating and amenities [6][7][9] - The company plans to introduce a significant Kentucky Derby qualifying race in Virginia in 2025, increasing race days from 27 this year to 44 in 2025 and 50 in 2026 [13] - HRMs and Exacta's HRM technology are identified as key strategic focuses for the next five to ten years, providing high growth and high margin opportunities [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth opportunities in Virginia, citing improvements in operating processes and game selection [25][51] - The company is committed to delivering superior returns for shareholders and is confident in its ability to generate consistent adjusted EBITDA growth with nominal levels of risk [15][22] - Management acknowledged challenges in downtown Louisville but is focused on improving profitability through cost management and marketing efforts [38] Other Important Information - The Board of Directors approved a 7% increase in dividends, marking the 14th consecutive year of increased dividends per share [22] - The company expects to spend between $450 million and$550 million on project capital for the year, with a focus on ongoing expansions and renovations [21] Q&A Session Summary Question: Progress in Virginia - Management highlighted successful execution in Virginia, with the opening of the Dumfries property and plans to deploy additional HRMs [24][25] Question: M&A Strategy - The company is focused on acquiring businesses where it can improve operations and drive long-term growth, with a promising M&A pipeline [29][30] Question: Project Pipeline and Profitability - Management discussed confidence in the Richmond expansion and acknowledged slower ramp-up at Derby City downtown due to post-COVID challenges [34][38] Question: Growth Drivers Beyond 2024 - Management indicated ongoing international opportunities for Exacta and potential growth in other jurisdictions [41][42] Question: HRM Consumer Strength - The company attributed strong demand in Virginia and Kentucky to the non-mature nature of the HRM product and ongoing improvements [59] Question: Balance Sheet and Growth Opportunities - Management noted that a stronger balance sheet allows for larger growth projects and investments [61][62] Question: Future Capacity in Virginia - Management expressed hope for expanding HRM capacity in Virginia, contingent on state willingness [65][66]