Churchill Downs rporated(CHDN) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Churchill Downs Incorporated achieved record net revenue and adjusted EBITDA for 2024, with net revenue increasing by 11% and adjusted EBITDA rising by 13% compared to 2023 [11][42] - The company generated nearly $1.2 billion in adjusted EBITDA, with HRM venues in Virginia contributing 20% to this figure [31][44] - Free cash flow reached$ 688 million, representing a 33% increase per share over the prior year [50] Business Line Data and Key Metrics Changes - All three business segments reported record net revenue and adjusted EBITDA, with significant contributions from the Kentucky Derby and HRM properties [11][42] - The Wagering Services and Solutions segment, previously known as TwinSpires, saw adjusted EBITDA grow by nearly $34 million, primarily from the Exacta business [46][47] - The gaming segment's adjusted EBITDA grew by 4%, driven by the performance of the new Terre Haute property [48] Market Data and Key Metrics Changes - The Rose Gaming Resort opened in Virginia in late 2024, contributing to the growth of HRM operations in the state [31][44] - The company has 1,800 HRMs in the market, with plans to add an additional 400 games by mid-2025 [32][33] - The Owensboro HRM venue opened on February 12, 2025, and is performing well [36] Company Strategy and Development Direction - The company is focused on enhancing the Kentucky Derby experience through significant capital investments and renovations, including the Starting Gate Courtyard and Pavilion project [18][19] - Future projects aim to expand the Derby experience and improve hospitality offerings, with completion expected by 2028 [28][29] - The company plans to pursue disciplined growth in HRM opportunities in Virginia and Kentucky while maintaining a strong balance sheet [38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory of The Rose and the overall HRM market in Virginia, emphasizing the importance of customer education and marketing [34][70] - The company anticipates strong growth in adjusted EBITDA for 2025, driven by new projects and continued success in existing operations [46][50] - Management acknowledged challenges in the regional gaming market but remains focused on identifying growth opportunities [97] Other Important Information - The company repurchased over 160,000 shares in Q4 2024, returning over$ 218 million to shareholders through buybacks and dividends [53] - Bank covenant net leverage was reported at 4.0 times, with expectations for a decrease in the coming year [54] Q&A Session Summary Question: Thoughts on ROI from announced Derby projects - Management believes they can manage construction projects without disrupting the Derby experience and expects these projects to generate long-term shareholder returns [60][62] Question: The Rose's trajectory and ramp - Management is optimistic about The Rose's performance, noting the importance of patience as the market becomes educated about HRMs [70][72] Question: Five-year payback target for HRM investments - Management confirmed that a five-year payback is a reasonable target for HRM projects, including The Rose, and emphasized the importance of long-term performance [78][80] Question: Confidence in demand for premium Derby seats - Management highlighted trends in consumer behavior favoring experiential events and noted strong demand for premium seating, with plans to expand the customer base [87][90] Question: Future investment in regional gaming - Management evaluates regional gaming opportunities on a case-by-case basis, focusing on growth potential and market dynamics [96][98] Question: Gray market gaming enforcement in Kentucky and Virginia - Management reported progress in enforcing laws against gray market gaming, with ongoing efforts in both states [112][114] Question: Pricing power in a higher inflationary environment - Management indicated that current trends in wage growth and inflation have not significantly impacted pricing power across their businesses [120][121] Question: Trends in Virginia's HRM market - Management expressed confidence in the long-term growth of HRM properties in Virginia, despite short-term challenges [126][127]