Churchill Downs (NASDAQ:CHDN) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://edge.media-server.com/mmc/p/ngc4vanw/

Summary

Churchill Downs reported record first quarter net revenues of $663 million and adjusted EBITDA of $257 million, showcasing strong execution and growth strategy momentum.

The company opened its eighth Historical Racing Machine Venue in Kentucky, contributing to job creation and increased purse funding for the local horse racing industry.

Churchill Downs acquired intellectual property rights to the Preakness Stakes, aiming to expand its iconic assets portfolio and support the renaissance of Thoroughbred racing in Maryland.

Kentucky Derby enhancements include renovations and the introduction of the Victory Run project, aiming to elevate the Derby week experience and attract international customers.

The company's HRM venues in Kentucky and Virginia are performing well, with plans to expand electronic table games offerings to attract a broader customer base.

Strong free cash flow generation supports reinvestment in growth projects and capital returns to shareholders, with a focus on maintaining a healthy balance sheet.

Management expressed confidence in the long-term growth potential of their portfolio and emphasized the strategic importance of their investments in Thoroughbred racing and HRM facilities.

Full Transcript

OPERATOR

Good day ladies and gentlemen and welcome to the Churchill Downs Incorporated first quarter 2026 results conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will be given. At that time we ask all question and answer participants to please limit themselves to one question. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sam Ulrich, Vice President, Investor Relations.

Sam Ulrich (Vice President, Investor Relations)

Thank you Andrew. Good morning and welcome to our first quarter 2026 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2026 first quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the Company's website titled news located@churchilldowns incorporated.com as well as in the website's Investor section. Before we get started, I would like to remind you that some of the statements that we make today may include forward looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. Specifically the most recent reports on Form 10Q and Form 10K. Any forward looking statements that we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During this call we will present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in yesterday's earnings press release. The press Release and Form 10Q are available on our website at churchilldownsincorporated.com and now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstagen.

Bill Carstagen (Chief Executive Officer)

Thanks Sam. Good morning everyone. With me today are several members of our team including Bill Mudd, our President and Chief Operating Officer, Marcia Dahl, our Chief Financial Officer and Brad Blackwell, our General Counsel. I will begin with a high level overview of our first quarter performance and key strategic developments. Marsha will then walk through our financial results and capital management strategy in more detail and then we will open up the call for your questions. Let me start with a few key highlights from the quarter. First, we delivered a strong start to the year with record first quarter net revenues of $663 million and record adjusted EBITDA of $257 million. These results reflect strong execution across our portfolio and continued momentum with our growth strategy. Second, we successfully opened our Marshall Yards Historical Racing Machine Venue in Calvert City, Kentucky on time and on budget. This marks our eighth HRM facility in the Commonwealth. Early performance has been encouraging and the property is already contributing to job creation, increased purse funding for Kentucky's horse racing industry and long term shareholder value. Third, we continue to see strong progress in Virginia where we remain committed to supporting the renaissance of Thoroughbred racing. We will host 48 race dates in 2026 and expect to generate significant purse funding from our HRM operations across the state that will be distributed during our race meet at Colonial Downs. We also ran a successful Virginia Derby in March and we are excited that the winner, incredibolt, will have the opportunity to compete in this year's Kentucky Derby. We were very pleased with several positive developments in Virginia during the closing stages of the 2026 legislative session. The Governor vetoed legislation related to skill gains and a proposed new casino in Fairfax county. Igaming also did not receive approval. These outcomes support a more attractive operating environment and we remain committed to continued investment and job creation in Virginia. Another example of our strategy around smart transformative investments in the Thoroughbred industry is reflected in our announcement earlier this week we signed a definitive agreement to acquire the intellectual property rights to the Preakness Stakes and the Black Eyed Susan Stakes from a subsidiary of the Stronach Group. This includes all trademarks and associated rights with respect to the Preakness Stakes, which is the second leg of the Triple Crown Stakes, which is the second leg of the three related races for the Phillies. We expect.

OPERATOR

Ladies and gentlemen, please stand by once again, please stand by.

Bill Carstagen (Chief Executive Officer)

Second most wagered on race in the country. The Kentucky Derby is of course first by a very wide margin, followed by the two other Triple Crown races, the Preakness and the Belmont Stakes, and then our own Kentucky Oaks Race. Let me now turn to the Kentucky Derby and our vision for long term growth. We continue to invest in enhancing the Derby experience and for this year's event we are unveiling several exciting upgrades. We have completed renovations of the Mansion, one of the most exclusive hospitality areas offering exceptional views of the track and finish line. Our finish line suites have also been significantly upgraded creating a more integrated high energy hospitality experience with improved flow and premium amenities. These are our most exclusive suites and we are very excited to show our customers a reimagin.ed and unique settin.g. Followin.g this year's Derby week we will accelerate the work on the Victory Run project. As I discussed on our call, in. February we will finish this project in time for the 2028 Kentucky Derby. This new structure will offer spectacular premium suites on the first level. The guests in these suites will be able to walk to the rail to watch the races. Victory Run will also incorporate covered box seating and multiple high end dining experiences on the second through fourth levels of the building. These projects are designed to deliver strong long term returns while offering exceptional guest experiences. Looking ahead, we remain focused on expanding Derby Week into an even broader week long national and international event. Last year we welcomed more than 370,000 guests across Derby week, roughly the equivalent of five Super Bowls in one week. We see significant opportunities to continue growing the entire week with respect to attendance, wagering viewership, sponsorship and ebitda. As part of that strategy, we are expanding Derby Week with the addition of racing on Sunday, April 26 and for the first time the Kentucky Oaks will be broadcast in primetime on NBC and Peacock, giving us a powerful platform to expand the reach of this prestigious race and the broader Derby experience. At the same time, the continued growth of Derby Week is attracting innovative global partnerships. These partners are increasingly focused on premium experience driven engagement and the Derby Week offers a unique platform to deliver that at scale. Our partners recognize that activations at live sporting events have become more coveted given the significant growth in the experience economy. When coupled with premium hospitality offerings during Derby Week, our partners can provide once in a lifetime experiences for their customers during one of the most marquee live sporting and entertainment weeks in the world. Over 152 years, the Kentucky Derby has become an iconic event in sports and entertainment. We are going to build on that legacy by continuing to expand its reach and relevance for future generations. Turning to our HRM portfolio, our venues in Kentucky and Virginia are performing well and play an important role in supporting the horse racing industry in their respective states. They generate PERS funding, support the local agricultural industries, create jobs and drive meaningful economic impact in the communities where we operate. We will continue to invest in HRM venues and product offerings. We introduced Roulette Electronic table games or ETGs based on historical horse races at six of our Kentucky HRM properties during the first quarter. Early indications are very encouraging and the new ETGs are certainly accretive to our gross gaming revenue (GGR) in Kentucky. We will be rolling out additional machines throughout 2026 and beyond. We are increasing our marketing of this new offering and awareness is building at each of our properties. We are also working on developing additional HRM based ETGs including craps and then blackjack to attract an even broader customer base. Looking ahead, our Rockingham Grand Casino project in Salem, New Hampshire remains on track for a mid-2027 opening. This development represents another compelling opportunity to expand into an attractive market with a high quality entertainment offering. In summary, this was a strong start to 2026. We delivered record results, executed on key strategic initiatives and continue to invest in high return growth opportunities across our portfolio. Churchill Downs remains exceptionally well positioned with a strong core portfolio of businesses and a clear path for long term growth. We are confident in our ability to deliver consistent and meaningful value for our shareholders and before I turn it over to Marcia And before I turn it over to Marcia, a quick reminder. Derby Week begins this Saturday, April 25th with opening day and culminates on Saturday, May 2nd with the 152nd running of the Kentucky Derby. We have an exciting week of racing and events planned and we look forward to hosting many of you in person. We are anticipating an exceptional Derby and Derby week, significantly outpacing not only last year but also Derby 150 in 2024. If you have not secured your tickets yet, we encourage you to do so. We expect to be fully sold out. With that, I'll turn this over to Marcia.

Marcia Dahl (Chief Financial Officer)

Marcia Thanks Bill and good morning everyone. I'll begin with highlights of our financial results and then provide an update on Capital Management. First, regarding our financial results. As Bill noted, we delivered record first quarter revenue and adjusted EBITDA with both our live and historical racing segment and our Wagering Services and Solutions segments achieving record performance for the quarter. We are pleased with the continued momentum in our live and historical racing segment. Adjusted EBITDA increased by more than $eleven million 11% compared to the prior year quarter. Our Kentucky HRMs delivered outstanding results with adjusted EBITDA increasing more than $9 million or 17% compared to the prior year quarter driven by strong growth across both Western and Northern Kentucky. Our Kentucky growth also reflects the opening of Marshall Yards in February. In Virginia, adjusted EBITDA increased by $3 million or 6% compared to the prior year quarter. This growth was supported by continued momentum at the Rose which delivered sequential increases in the GGR per machine per day for each month of the first quarter. Our team is making great progress in marketing the property to attract new guests and increase spend per visit. We're encouraged by the continued top line growth and increase in the margins at the ROHS and believe the property remains in the early stages with a long Runway for growth as well. At Colonial Downs Racetrack, we successfully held the Virginia Derby in March with sold out attendance and a 19% increase in the handle over last year, making it the third highest wagering day in Colonial Downs history. Performance at our other Virginia properties was impacted by weather and increased competition. We are actively optimizing our marketing and operating strategies and remain confident in the long term performance of these properties. Turning to our wagering services and solutions segment, adjusted EBITDA increased 8% driven by retail sports betting, contributions from our online sports betting market, access agreements and continued expansion of our Xacta platform. Twinspires also delivered modest growth in adjusted EBITDA, primarily due to lower legal expenses. And last regarding our gaming segment, our wholly owned regional gaming properties performed in line with our expectations given the cessation, of HRM operations in Louisiana in May of last year and $2 million of weather related disruption in January. Overall first quarter same store margins at our wholly owned casinos were relatively consistent with the first quarter of last year. Customer trends have improved versus the prior year and remain consistent with the prior quarter. We see continued strength among higher value rated players and some softness outside of Kentucky and lower value unrated segments. We are actively revising our marketing strategies to capture opportunities across both segments. Turning to capital management, we generated $276 million or $3.94 per share of free cash flow in the first quarter reflecting the strength and consistency of our operating model. Our strong free cash flow generation continues to support both reinvestment in high return growth projects and meaningful capital returns to shareholders. Project Capital expenditures were $40 million in the quarter and we continue to Expect full year 2026 project capital spend of 180 to 220 million dollars. Maintenance capital expenditures were 19 million dollars in the quarter and we continue to expect full year 2026 maintenance capital spend of 90 to $110 million. We ended the quarter with Bank Covenant net leverage of 3.9 times reflecting continued strong operating cash flow generation from our recent investors.

Bill Carstagen (Chief Executive Officer)

With that, I'll turn the call back over to Bill so that we can open the line for questions. Thank you Marcia. Okay everyone, I think we're ready to take your questions now.

OPERATOR

Certainly. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment please.

Barry Jonas (Equity Analyst at Truist)

Our first question comes from the line of Barry Jonas with Truist. Hey guys, Good morning. I may have missed this as the audio was a little off before, but can you maybe detail a little more about the fee structure for the Preakness IP? And also if you have any wider thoughts on the longer term strategy there. Thank you.

Bill Carstagen (Chief Executive Officer)

Good morning, Barry. Thanks for the question. Sorry there were any difficulties with the audio. Certainly happy to cover anything that slipped through the cracks. So the fee structure in Maryland is a two part structure. First, a base fee of $3 million that grows at 2.5% every year starting in 2028. It does not apply for the 2027 Derby and we haven't closed the Preakness. I should say we haven't closed on the purchase of the intellectual property yet at this point either.. But starting next year, it's a $3 million base fee. From that point on, it grows at 2.5% and then the second portion of the fee is 2% of handle for the Black Eyed Susan Day plus the Preakness Day. So you add those two amounts together and you get the total. Last year, the Preakness and Black Eyed Susan Day in combination did about 140 million of handle to give a rough perspective on where it is at this point. So for us, it's a thrill to be a part of that. That's a, in our view, an iconic asset. And having been in the game for a long time, I'm familiar with the history of the Preakness and I know what it's been in the past and what it can be in the future. So we're happy to participate and work with the state as they see fit to help build them back to their former glory. Perfect. Thank you. Thank you. Our next question comes from the line of Dan Pollitzer with JP Morgan. Hey, good morning, everyone. Thanks for the question, Bill. Just another one on Preakness. As we think about your capital allocation parameters and you know, in the past you've talked about investing in the ecosystem, thinking, looking for things with local monopolies, ability to improve operations of an asset over time. How does this investment in Preakness fit into that? And how do you think about this maybe potentially evolving over kind of the medium to long term? Thanks for the question, Dan. So, first, some of those attributes come in connection with iconic assets, unique assets, special assets that can have different attributes than everything else over time. And we think the Preakness is one of those assets. We think it has tremendous potential, tremendous history, and as it unfolds, we certainly are available to the state and happy to work with the state to help them figure out how best to transition that property into something great like it's been in the past. So for us, it's entirely consistent with how we look at things like the Derby. In my opinion, the Derby is always what's most special and what's most unique about our company. And it's an asset that can't be duplicated. It's just a very special, unique piece of Americana. And we think Pimlico and the Preakness has elements to that itself. And it's about developing those and encouraging those things to happen over time. Got it. Thank you. Thank you. Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Hi, everyone. Thank you for taking my question. In the past, you all have talked about growing the international customer base for the Kentucky Derby and U.S. horse racing in general. Outside of the dollars generated, how do you all measure success there? And what are your goals over the medium term? So the five or so years? Well, Dan, thanks for that question. That touches on a theme that's personally really important and significant to me. I think we have this unique American event and there's an irony to that because over the long 152 year history of the Derby, that hasn't necessarily been the focus of the international piece, hasn't necessarily been the focus of our efforts. But despite that, we still have this global brand. So focusing on building that is critical going forward. It starts with attendance. It starts with encouragin.g more folks in. the overseas market, starting with those that have an attachment or an interest in horse racing to come experience this event. And from that it builds into sponsors and partnerships. And those are the more important elements. Certainly in some countries, wagering can be possible. Japan is an example of that. But first and foremost, it's about driving high end customer participation and encouraging sponsorships. And certainly attendance and viewership can be a part of it. I don't have in my fingerprints the information this year for all the markets that the Derby will be telecast, but it's a very impressive picture and it's a growing picture. So everything we see internationally from an international perspective is positive and growing and encouraging. And you'll see us focus more on that over the coming years because there's a big population out there in the rest of the world that's in particular interested in thoroughbred racing as well as the United States. And our job is to attract those people and bring them here in the higher echelons of our ticket offering. Thank you. And our next question comes from the line of Chad Banan with Macquarie. Hi, good morning. Thanks for taking my question. Bill, one for you. I guess related to government affairs or the legislative win in Virginia. Obviously you can't predict future legislation, but anything you can kind of highlight in terms of why this was vetoed if the governor or other constituents are just realizing the impact on the state, we're just getting a lot of questions if this will become a recurring thing. But anything else you can help on there would be helpful. Thank you. Sure. Chad. Thanks for the question. So generally, state legislative processes are busy, messy processes. There's lots of activity. There's lots of divergence of views. It's part of democracy. It's how democracy works. So the fact that legislation is introduced, the fact that legislation is discussed doesn't mean there's consensus in the state on what's going to happen that year or in the future. It's just part of. the legislative process. So I think every year is different, and every. Every legislature, and I think every year they learn from the past experiences, and that factors into what they want to do as a state going forward. So I think what happened in Virginia, to turn it to Virginia, and less from a general comment, what happened in Virginia is part of a healthy democratic process. There was lots of discussions, There were lots of divergence of views, and the state came to a conclusion on how they wanted to manage and think about gaming for the time being. I'm encouraged by some of the dialogue and some of the discussion there that their progression on gaming issues is a positive one from our perspective. And I'm encouraged going forward that there's a forum for discussion, that there's a forum for divergence of views, and that our views are respected and heard and part of that process and will be reflected in whatever outcomes in the future we might see. But generally, Virginia shows a lot of elements of a very stable environment for us. We believe in that jurisdiction. We believe in the possibility and the potential of that jurisdiction, and we're really glad to be a part of that dynamic in that environment. Thank you. Our next question comes from the line of David Katz with Jefferies. Hi, good morning, everyone. I wanted to just spend a second on Virginia, if I may. You know, way back when we sort of made this acquisition, you know, there was clearly a lot of opportunity, and what's evolved so, you know, since then is, you know, just more competing licenses and some, you know, traditional licenses and forgetting about any discussion about igaming and will it or won't it one day? Bill, I remember you telling me over lunch a while back that every strategy should evolve as you go to be a good one. Has this turned out competitively the way you expected, and have you evolved your Virginia strategy for that? What appears to be increasing competition in that particular market? Great question, David. So already you can see Virginia's been a really strong investment for us. It's been a really encouraging investment in terms of new competition. You face that discussion in all jurisdictions as a part of the gaming dynamic that you have in the country. And we've progressed through that pretty well. And for us, there will be opportunities too, as discussions around Virginia evolve over time. So always be flexible. I agree with what you said. Always evolve your strategy. Always be flexible. We've done that in Virginia. What we don't control is the noise and the discussion that happened during any legislative session. But we participate vigorously in those discussions and we always constantly evaluate what's best for our company, where to focus, where to pivot, where to change. But Virginia so far for us through all this noise has been a really, really strong investment. And as we look forward, we see that continuing and we'll evolve that strategy and roll with the times as we see real pivots that need to be made. So so far, so far so good. It's been a positive experience for us. And for us it's now focusing on next year and focusing on how we want to evolve our business in that state.

OPERATOR

Thank you. Our next question comes from the line of Brandt Montour with Barclays. Good morning, everybody. Thanks for taking my question. I wanted to ask about the derby. Bill. You sounded pretty upbeat about momentum there. But just maybe to put a finer point on it, how would you compare the impact of geopolitical events to this spring's ticket selling season to last spring's geopolitical events? And Marcia, is there any sort of update to the 15 to 20 million incremental EBITDA year over year that you called out last quarter? Thank you. I'll start first. And Marcia, if you want to comment on the last part of the question, please feel free to jump in. So last year the geopolitical events, which was really the introduction of Terrace for the time. First. First time impacted us. It impacted the sales process when it started. I'm pleased to say that this year we haven't seen that we are not experiencing geopolitical corrections to our sales process. So all good there. And it's been a smooth and predictable sales cycle for us and a really encouraging sales cycle for us. And Brandt, from a growth perspective, we are very confident in our $15 to $20 million of Derby growth over last year's number. And as Bill said earlier on the call, you know that will be a very significant increase even over Derby 150.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.