Churchill Downs rporated(CHDN) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved record net revenue of over $1.8 billion and record adjusted EBITDA of$764 million in 2022, reflecting strong financial performance [40][54] - Free cash flow increased to $461 million in 2022, up$41 million from the previous year [73] - The company expects capital expenditures to rise to between $575 million and$675 million in 2023, compared to $373 million in 2022 [54][73] Business Line Data and Key Metrics Changes - The acquisition of P2E properties contributed$109 million in net revenue and $48 million in adjusted EBITDA in Q4 2022 [70] - The company's retail and online sports and casino business reported a nominal loss of$1 million in adjusted EBITDA for 2022, with expectations for a return to high single-digit returns in 2023 [92] - The TwinSpires horseracing business saw lower pari-mutuel handle in 2022, but adjusted EBITDA was up 37% compared to 2019, with margins growing to 28% [93] Market Data and Key Metrics Changes - Online wagering accounted for approximately 52% of all wagers on U.S. racing in 2022, stabilizing from a peak of over 60% during COVID-19 [15][93] - The company is expanding its HRM business into Virginia, New Hampshire, and Louisiana, with significant growth expected from these markets [61][64] Company Strategy and Development Direction - The company is focused on expanding its HRM business and has made significant investments in new properties and acquisitions, including the P2E transaction [40][64] - The strategic goal is to grow the Kentucky Derby and develop high-margin investments in HRM segments, with a focus on Virginia and New Hampshire [49][64] - The company plans to enhance its HRM properties in Virginia and expects to realize additional benefits from the acquisition of Exacta [91] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the underlying strength of the Virginia opportunity and the integration of acquired properties, noting no significant issues in the integration process [12][13] - The company anticipates continued growth in 2023, driven by strong consumer demand and successful project completions [40][54] - Management acknowledged the competitive environment in Virginia but remains confident in the company's strategic positioning [113] Other Important Information - The company completed the sale of Arlington Park Racetrack for $197 million, which is part of its strategic realignment [47] - The company is actively managing its leverage, which increased to 4.2x due to the P2E acquisition, with plans to reduce it in the coming years [95] Q&A Session Summary Question: What are the prospects for adding more to the pipeline before the end of 2023? - Management indicated that while there is no guarantee of future projects, they will continue to seek opportunities while managing existing projects [77] Question: What is the expected leverage range? - Management aims to maintain leverage in the 3x to 4x range, with strategic opportunities dictating any increases [78] Question: How are HRM margins expected to evolve over time? - Management noted strong HRM margins around 48% since acquiring properties and expects improvements with the Exacta acquisition [80] Question: What is the impact of new casino capacity in Virginia? - Management is monitoring the impact of new commercial casinos on existing properties, particularly in Hampton and Vinton [113] Question: How does the company view the opportunity at Chasers in New Hampshire? - Management is optimistic about the potential of the Chasers facility, especially due to its location near the Massachusetts border [126]