CHDN — Churchill Downs Incorporated

Summary of Churchill Downs Incorporated (CHDN) Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Record Performance: CHDN reported record net revenue and adjusted EBITDA for Q3 2025, with significant contributions from the Live and Historical Racing segment and the Wagering Services & Solutions segment.
• Live and Historical Racing Segment: Revenue grew by 21% year-over-year, and adjusted EBITDA increased by 25%. This marks the 21st consecutive quarter of record growth for this segment.
• Free Cash Flow: Generated $166 million ($2.34 per share), up 13% from the prior year quarter, with a free cash flow yield of approximately 10%.
• Margins: Combined margin for same-store Virginia HRM properties was 51%, considered best in class.

2. Strategic Updates and Business Highlights

• Growth Initiatives: Five key growth catalysts for the Kentucky Derby were outlined, including ticketing revenue, broadcast rates, wagering expansion, sponsorships, and capital investments.
• Victory Run Project: A new $280 million to $300 million venue is planned for completion by 2028, aimed at enhancing guest experience and increasing capacity.
• HRM Expansion: Continued growth in HRM properties in Kentucky and Virginia, with new venues opening and expansions underway, including the upcoming Marshall Yards Racing and Gaming venue.
• Exacta Technology: Growth in the Exacta business due to HRM operations and third-party relationships, with plans for further expansion into new markets.

3. Forward Guidance and Outlook

• 2026 Projections: Anticipated adjusted EBITDA growth driven by the new NBC broadcast deal and continued expansion of online sports wagering.
• Capital Expenditure Plans: Project capital spending is expected to be $200 million to $240 million in 2025 and $160 million to $200 million in 2026.
• Leverage Management: Bank covenant net leverage expected to remain at 4.1x at year-end, with plans to reduce it below 4x in 2026.

4. Challenges and Points of Concern

• Competition: Increased competition in Virginia impacting some properties, particularly in Vinton and Hampton.
• Regulatory Environment: Ongoing challenges with illegal gaming machines in Virginia, described as a "whack-a-mole" situation, requiring constant vigilance and enforcement.
• Market Recognition: Management feels the market does not fully credit the value of owning their properties outright, which could affect stock performance.

5. Notable Q&A Insights

• ROI Targets for Victory Run: Targeting a 20% unlevered IRR, focusing on year three post-opening.
• Electronic Table Games (ETGs): Management sees ETGs as a significant opportunity but acknowledges the need for regulatory approvals and market readiness.
• M&A Activity: Noted a recent uptick in M&A activity in the gaming sector, with CHDN remaining flexible and opportunistic in potential acquisitions.
• Virginia's Illegal Machines: Management reported that while enforcement has improved, illegal machines still exist but are not materially impacting current operations.

Overall, CHDN's Q3 2025 results reflect strong financial performance and strategic growth initiatives, though challenges remain in regulatory environments and competition. The company is positioned for continued growth with a focus on enhancing its flagship events and expanding its gaming operations.