Churchill Downs Incorporated Reports 2016 Second Quarter Results

LOUISVILLE, Ky. , Aug. 03, 2016 (GLOBE NEWSWIRE) — Churchill Downs Incorporated (NASDAQ:CHDN) (CDI or Company) today reported business results for the second quarter ended June 30, 2016.

Second Quarter 2016 Highlights
  • Record net revenue of $438.5 million, up 7% over the prior year
  • Record Adjusted EBITDA of $162.9 million, 3% higher than the prior year
  • Record net income of $69.8 million, a 27% increase over the prior year
  • Record diluted net income per share of $4.11, 33% higher than the prior year
  • Record breaking Kentucky Derby and Oaks week Adjusted EBITDA within the Racing segment, up $5.2 million over prior year

 “We delivered record net revenue, net income and Adjusted EBITDA this quarter driven by a 7th consecutive record-setting Kentucky Derby week,” says Bill Carstanjen, CDI’s Chief Executive Officer. “Each of our operating segments showed top-line net revenue growth this quarter and we continue to maintain focus and discipline on our cost structure.”

(in millions, except per share data):20162015
Net revenue$438.5$409.2
Adjusted EBITDA-a)162.9158.9
Net income69.855.1
Diluted net income per share$4.11$3.10

(a- Non-GAAP measure. See explanation of non-GAAP measures below.

Net revenue growth was driven by a $20.7 million increase from Big Fish Games primarily from casual and mid-core free-to-play game growth, a $7.5 million increase from TwinSpires and a $1.3 million increase from our Racing and Casinos segments.

Adjusted EBITDA increased $4.0 million driven by:

  • $6.1 million increase from Racing
  • $3.8 million increase from Casinos
  • $2.3 million increase from TwinSpires
  • Partially offsetting these increases was a $7.8 million decrease from Big Fish Games

The increase in net income and diluted net income per share was primarily a result of:

  • $11.5 million increase in operating income
  • $1.9 million increase in income from our equity investments related to Saratoga Casino Holdings LLC (“SCH”) and Miami Valley Gaming (“MVG”)
  • $4.9 million reduction in our income tax provision primarily from a decrease in our effective tax rate from lower non-deductible acquisition-related charges in the current year
  • Partially offsetting these increases was a $4.0 million increase in net interest expense associated with higher outstanding debt balances
Operating Segment Summaries:

We use Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources.  We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain recurring items is necessary to provide a more accurate measure of our core operating results and enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with GAAP.  Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

The operating segment summaries below present net revenue from external customers and intercompany revenue from each of our operating segments:

RACINGSecond Quarter
(in millions):20162015
Net revenue$164.7$162.2
Adjusted EBITDA91.385.2
Net income69.855.1
Diluted net income per share$4.11$3.10

Net revenue increased $2.5 million, or 2% driven by:

  • A successful Kentucky Derby and Oaks week which benefited from increased ticket sales revenue associated with its new premium indoor seating and Turf Club venues, increased media revenue and record attendance
  • Partially offset by decreases at Churchill Downs and Arlington from a shift in the racing calendar which resulted in five fewer race days

Adjusted EBITDA increased $6.1 million primarily driven by:

  • $5.2 million increase from the Kentucky Derby and Oaks week
  • $1.5 million decrease in corporate allocated expense
  • Partially offset by a racing calendar shift that resulted in a $1.3 million decrease at Churchill Downs and Arlington from five fewer race days

Kentucky Derby and Oaks week highlights:

  • 7th consecutive record year for Adjusted EBITDA growth
  • Record total Derby week attendance – up 3% over 2015’s record
  • Record all sources Derby week handle – up 1% over 2015’s record
CASINOSSecond Quarter
(in millions):20162015
Net revenue$84.4$83.8
Adjusted EBITDA33.329.5

Net revenue increased $0.6 million, or 1% driven primarily by a refined marketing program at Calder that led to new member sign-ups and increased slot handle.

Adjusted EBITDA grew $3.8 million primarily driven by:

  • $1.4 million increase in SCH management fee and equity income
  • $1.1 million increase at our Mississippi properties from operational expense improvements
  • $1.0 million increase in MVG equity income driven by successful promotional activities driving market share growth
  • $0.5 million increase at Calder primarily from the implementation of successful marketing and promotional campaigns
  • Partially offset by a $0.7 million increase in corporate allocated expense
TWINSPIRESSecond Quarter
(in millions):20162015
Net revenue$68.5$61.0
Adjusted EBITDA18.416.1

Net revenue increased $7.5 million, or 12%, primarily due to a 26% increase in active players.  TwinSpires handle grew 16.4%, outpacing the U.S. thoroughbred industry performance by 16.7 percentage points.

Adjusted EBITDA grew $2.3 million driven by:

  • $3.3 million favorable impact of increased wagering, net of content costs, from handle growth and an increase in active players
  • $0.7 million decrease in taxes and purses due to a $1.7 million Pennsylvania tax refund partially offset by increased taxes in certain other jurisdictions
  • Partially offsetting these increases were:
    • $1.2 million increase in marketing and advertising expense efforts associated with the Kentucky Derby and Oaks week
    • $0.5 million increase in corporate allocated expense
BIG FISH GAMESSecond Quarter
(in millions):20162015
Social casino$46.3$48.2
Casual and mid-core free-to-play57.636.5
Total bookings -a)127.9112.7
Net revenue$125.2$104.5
Adjusted EBITDA20.528.3

(a- Bookings is a non-GAAP financial measure equal to the revenue recognized plus the change in deferred revenue for the periods presented.  This non-GAAP measure may differ from other companies’ definition of this measure, and it should not be considered a substitute for, or superior to, any other measure provided in accordance with GAAP.

Total bookings grew $15.2 million, or 13%, as our casual and mid-core free-to-play division continued to show strong growth more than offsetting the declines in the social casino and premium divisions.

  • Social casino bookings declined by $1.9 million compared to the second quarter of 2015 reflecting a 6% increase in average paying users and a 9% decline in average bookings per paying user
  • Casual and mid-core free-to-play bookings’ growth of $21.1 million was driven by a 45% increase in average paying users and a 9% increase in average bookings per paying user.
  • Premium bookings declined $4.0 million, or 14%, primarily driven by customers continuing to shift from paid PC games to free-to-play mobile games.

Net revenue increased $20.7 million, driven primarily by:

  • $23.6 million increase in casual and mid-core free-to-play revenue
  • The fair value adjustment to Big Fish Games deferred revenue assumed as part of the acquisition was $2.7 million lower than the prior year quarter
  • Partially offsetting these increases was a $3.7 million decline in premium games revenue and a $1.9 million decrease in social casino revenue driven by a decrease in bookings

Adjusted EBITDA decreased $7.8 million, driven primarily by:

  • $11.5 million increase in user acquisition spending
  • $6.5 million increase in platform fees on higher bookings
  • $2.3 million increase in developer fees
  • $3.0 million benefit associated with business combination accounting rules that was higher in the prior year than the second quarter of 2016
  • $1.2 million increase in other expenses
  • Partially offsetting these decreases were:
    • $15.2 million of increased bookings
    • $1.5 million decrease of amortization expense related to the timing of game launches

CDI repurchased 104,045 shares of its common stock in conjunction with its stock repurchase program at a total cost of approximately $12.8 million, based upon settlement date, in the second quarter of 2016.  In February 2016, our Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million with no time limitation.  This repurchase authority includes, and is not in addition to, any unspent amounts remaining under the prior authorization.  CDI had approximately $135.0 million of repurchase authority remaining under this program at June 30, 2016, based upon trade date.

Conference Call

A conference call regarding this news release is scheduled for Thursday, August 4, 2016 at 9 a.m. ET. Investors and other interested parties may listen to the teleconference by accessing the online, real-time webcast and broadcast of the call at, or by dialing (877) 372-0878 and entering the pass code 53945979 at least 10 minutes before the appointed time. International callers should dial (253) 237-1169. An online replay will be available at approximately noon EDT on Thursday, August 4, 2016 and continue for two weeks. A copy of the Company’s news release announcing quarterly results and relevant financial and statistical information about the period will be accessible at

Non-GAAP Measures

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), the Company has provided a non-GAAP measurement, which presents a financial measure of earnings before interest, taxes, depreciation and amortization and certain other items as described in the Company’s Annual Report on Form 10K (“Adjusted EBITDA”).

Adjusted EBITDA includes:

  • Changes in Big Fish Games deferred revenue;
  • 50% of EBITDA of our joint venture, MVG;
  • 25% of EBITDA of our SCH equity investment; and
  • Intercompany revenue and expense totals that are eliminated in the Condensed Consolidated Statements of Comprehensive Income

Adjusted EBITDA excludes:

  • Big Fish Games adjustments which include:
    • Acquisition-related charges, including the change in fair value of the Big Fish Games earnout and deferred consideration liability recorded each reporting period
  • Stock-based compensation expense;
  • Calder exit costs; and
  • Other charges and recoveries

The Company uses Adjusted EBITDA as a key performance measure of the results of operations for purposes of evaluating performance internally. The Company believes the use of this measure enables management and investors to evaluate and compare, from period to period, the Company’s operating performance in a meaningful and consistent manner. Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with GAAP and should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.

About Churchill Downs Incorporated

Churchill Downs Incorporated is an industry-leading racing, online wagering and gaming entertainment company anchored by our iconic flagship event – The Kentucky Derby. We own and operate Derby City Gaming, a historical racing machine facility in Louisville, Kentucky. We also own and operate the largest online horse racing wagering platform in the U.S.,, and we operate sports betting and iGaming through our BetAmerica platform in multiple states. We are also a leader in brick-and-mortar casino gaming with approximately 11,000 slot machines and video lottery terminals and 200 table games in eight states. Additional information about CDI can be found online at

Information set forth in this news release contains various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), which provides certain “safe harbor” provisions. All forward-looking statements made in this news release are made pursuant to the Act. Forward-looking statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “seek,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include the following: the effect of economic conditions on our consumers’ confidence and discretionary spending or our access to credit; additional or increased taxes and fees; public perceptions or lack of confidence in the integrity of our business or any deterioration in our reputation; loss of key or highly skilled personnel; restrictions in our debt facilities limiting our flexibility to operate our business; general risks related to real estate ownership, including fluctuations in market values and environmental regulations; catastrophic events and system failures disrupting our operations; online security risk, including cyber-security breaches; inability to recover under our insurance policies for damages sustained at our properties in the event of inclement weather and casualty events; increases in insurance costs and inability to obtain similar insurance coverage in the future; inability to identify and complete acquisition, expansion or divestiture projects, on time, on budget or as planned; difficulty in integrating recent or future acquisitions into our operations; costs and uncertainties relating to the development of new venues and expansion of existing facilities; risks associated with equity investments, strategic alliances and other third-party agreements; inability to respond to rapid technological changes in a timely manner; inadvertent infringement of the intellectual property of others; inability to protect our own intellectual property rights; payment-related risks, such as risk associated with fraudulent credit card and debit card use; compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations; risks related to pending or future legal proceedings and other actions; inability to negotiate agreements with industry constituents, including horsemen and other racetracks; work stoppages and labor issues; changes in consumer preferences with respect to Churchill Downs Racetrack and the Kentucky Derby; personal injury litigation related to injuries occurring at our racetracks; weather and other conditions affecting our ability to conduct live racing; the occurrence of extraordinary events, such as terrorist attacks and public health threats, including the ongoing impact of the novel coronavirus (COVID-19 virus); changes in the regulatory environment of our racing operations; increased competition in the horseracing business; difficulty in attracting a sufficient number of horses and trainers for full field horseraces; our inability to utilize and provide totalizator services; changes in regulatory environment of our online horseracing business; number of people wagering on live horse races; increase in competition in our online horseracing; uncertainty and changes in the legal landscape relating to our online wagering business; continued legalization of online sports betting and iGaming in the United States and our ability to predict and capitalize on any such legalization; inability to expand our sports betting operations and effectively compete; failure to manage risks associated with sports betting; failure to comply with laws requiring us to block access to certain individuals could result in penalties or impairment with respect to our mobile and online wagering products; increased competition in our casino business; changes in regulatory environment of our casino business; and concentration and evolution of slot machine manufacturing and other technology conditions that could impose additional costs; and inability to collect gaming receivables from the customers to whom we extend credit.