What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-27 compared with 2021-10-27 · 160 added, 253 removed, 253 unchanged (62% of the section changed)

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Important factors that could cause actual results to differ materially from expectations include the following:

• the receipt of regulatory approvals on terms desired or anticipated, unanticipated difficulties or expenditures relating to our proposed transactions, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies and cost savings from the proposed transactions within the expected time period (if at all), our ability to obtain financing on the anticipated terms and schedule, disruptions of our or Peninsula Pacific Entertainment LLC's ("P2E") current plans, operations and relationships with customers and suppliers caused by the announcement and pendency of the proposed transaction, our and P2E’s ability to consummate a sale-leaseback transaction with respect to the Hard Rock Sioux City on terms desired or anticipated;

• the impact of the novel coronavirus (COVID-19) pandemic, including the emergence of variant strains, and related economic matters on our results of operations, financial conditions and prospects;

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• inability to respond to rapid technological changes in a timely manner;

• concentration and evolution of slot machine manufacturing and other technology conditions that could impose additional costs;

• concentration and evolution of slot machine and historical racing machine ("HRM") manufacturing and other technology conditions that could impose additional costs;

• inability to negotiate agreements with industry constituents, including horsemen and other racetracks;

• inability to successfully expand our TwinSpires Sports and Casino business and effectively compete;

• inability to identify and complete expansion, acquisition 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;

• inability to successfully focus on market access and retail operations for our TwinSpires Sports and Casino business and effectively compete;

• inability to identify, complete, or fully realize the benefits of, our proposed acquisitions, divestitures, development of new venues or the expansion of existing facilities on time, on budget, or as planned;

• general risks related to real estate ownership and significant expenditures, including fluctuations in market values and environmental regulations;

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• work stoppages and labor issues;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

• risks related to pending or future legal proceedings and other actions;

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• failure to comply with the financial ratios and other covenants in our debt facilities and other indebtedness;

• disruptions in the credit markets or changes to our credit ratings may adversely affect our business;

• increase in our insurance costs, or obtain similar insurance coverage in the future, and inability to recover under our insurance policies for damages sustained at our properties in the event of inclement weather and casualty events.

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This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, including Part I - Item 1A, "Risk Factors" of our Form 10-K for a discussion regarding some of the reasons that actual results may be materially different from those we anticipate.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Executive Overview

Churchill Downs Incorporated (the "Company," "we", "us", "our") is an industry-leading racing, online wagering and gaming entertainment company anchored by our iconic flagship event, the Kentucky Derby.

We own and operate three pari-mutuel gaming entertainment venues with approximately 3,050 historical racing machines ("HRMs") in Kentucky.

We also own and operate TwinSpires, one of the largest and most profitable online wagering platforms for horse racing, sports and iGaming in the U.S.

and we have eight retail sportsbooks.

We own and operate three entertainment venues with approximately 3,050 HRMs in Kentucky.

We also own and operate TwinSpires, one of the largest and most profitable online wagering platforms for horse racing in the U.S.

and we have nine retail sportsbooks.

We are also a leader in brick-and-mortar casino gaming in eight states with approximately 11,000 slot machines and video lottery terminals ("VLTs") and 200 table games.

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During the first quarter of 2022, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources.

Our internal management reporting changed primarily due to the continued growth from Oak Grove Racing, Gaming & Hotel ("Oak Grove") and Turfway Park, which opened its annex HRM facility, Newport Racing & Gaming ("Newport"), in October 2020, which resulted in our chief operating decision maker's decision to include Oak Grove, Turfway Park and Newport in the new Live and Historical Racing segment.

The Live and Historical Racing segment now includes Churchill Downs Racetrack, Derby City Gaming, Oak Grove, Turfway Park, and Newport.

We also realigned our retail sports betting results at our wholly-owned casinos from our Gaming segment to our TwinSpires segment.

As a result of this realignment, our operating segments that meet the requirements to be disclosed separately as reportable segments are:

Live and Historical Racing, TwinSpires, and Gaming.

We conduct our business through these reportable segments and report net revenue and operating expense associated with these reportable segments in our condensed consolidated statements of comprehensive income (loss).

Our chief operating decision maker decided to include the results of our United Tote business in the TwinSpires segment as we evolve our strategy to integrate the United Tote offering with TwinSpires Horse Racing, which we believe will create additional business to business revenue opportunities.

Results of our United Tote business were previously included in our All Other segment.

The prior year results were reclassified to conform to this presentation.

P2E Acquisition

On February 18, 2022, the Company entered into a definitive purchase agreement to acquire substantially all of the assets of Peninsula Pacific Entertainment LLC ("P2E") for total consideration of $2.485 billion (the "P2E Purchase Agreement") (collectively, the "P2E Transaction").

The P2E Purchase Agreement contemplates the acquisition by the Company of the following properties:

Colonial Downs Racetrack in New Kent, Virginia ("Colonial Downs"), six historical racing entertainment venues across Virginia, del Lago Resort & Casino ("del Lago") in Waterloo, New York, and the operations of Hard Rock Hotel & Casino in Sioux City, Iowa (“Hard Rock Sioux City”).

The P2E Transaction is dependent on customary closing conditions, including the Company obtaining approvals from the Virginia Racing Commission, the New York State Gaming Commission, and the Iowa Racing and Gaming Commission.

The transaction is expected to close by the end of 2022.

Either the Company or P2E may terminate the P2E Purchase Agreement if the closing has not occurred prior to the date that is nine months after signing the P2E Purchase Agreement (such date being November 18, 2022), subject to the ability of either party to elect to extend such date for an additional four months in certain circumstances.

If certain required regulatory approvals are not obtained and the P2E Purchase Agreement is terminated, the Company may have to pay a Regulatory Termination Fee of up to $137.5 million.

April 2022 Financing Transactions

On April 13, 2022, the Company announced an amendment of its senior secured credit agreement (the “Credit Agreement Amendment”) to extend the maturity date of its existing revolving credit facility to 2027 and to increase the commitments under the existing revolving credit facility from $700 million to $1,200 million.

The Credit Agreement Amendment also provides for a senior secured delayed draw term loan A credit facility due 2027 in the amount of $800 million (the “Delayed Draw Term Loan A”) and makes certain other changes to the credit agreement.

The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be secured financing overnight rate-based plus a spread, determined by the Company’s total net leverage ratio.

The Company also successfully closed into escrow the previously announced offering of $1,200 million in aggregate principal amount of 5.750% senior notes due 2030.

Chasers Poker Room Acquisition

On March 22, 2022, the Company entered into a definitive purchase agreement to acquire Chasers Poker Room ("Chasers") in Salem, New Hampshire.

Chasers is a charitable gaming facility located approximately 30 miles from Boston, Massachusetts, that offers poker and a variety of table games.

Following the closing of the acquisition, the Company plans to develop an expanded charitable gaming facility in Salem to accommodate historical racing machines.

The Company expects the total investment in Salem, inclusive of the Chasers purchase price to be approximately $150 million.

The transaction is expected to close during the second quarter of 2022.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic.

The COVID-19 global pandemic has resulted in travel limitations and business and government shutdowns which have had significant negative economic impacts in the United States and in relation to our business.

The COVID-19 global pandemic has resulted in travel limitations and business and government shutdowns which have had significant negative

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

economic impacts in the United States and in relation to our business.

Although vaccines are now available, we cannot predict the duration of the COVID-19 global pandemic.

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We will continue to monitor for new developments related to the pandemic and assess these developments to maintain continuity in our operations.

In March 2020, as a result of the COVID-19 outbreak, we temporarily suspended operations at our wholly-owned and managed and gaming properties, announced the temporary furlough of our employees at these properties and certain racing operations, and implemented a temporary salary reduction for all remaining non-furloughed salaried employees based on a percentage that varied dependent upon the amount of each employee’s salary.

The most senior level of executive management received the largest salary decrease, based on both percentage and dollar amount.

In May 2020, we began to reopen our properties with patron restrictions and gaming limitations.

One property temporarily suspended operations again in July 2020 and reopened in August 2020, and three properties temporarily suspended operations again in December 2020 and reopened in January 2021.

The Company provided health, dental, vision and life insurance benefits to furloughed employees through July 31, 2020 and during the subsequent property closure periods.

During the second quarter of 2021, we held the 147 th Kentucky Oaks and Derby with capacity restrictions in compliance with Kentucky venue limitations at that time.

The capacity restrictions limited reserved seating in each area to approximately 40% to 60% capacity and also limited general admission tickets.

The 146 th Kentucky Oaks and Derby was held in the third quarter of 2020 without spectators.

Assets Held for Sale

On September 29, 2021, the Company announced an agreement to sell the 326-acre property in Arlington Heights, Illinois (the "Arlington Property"), which is the current home of Arlington International Racecourse ("Arlington"), to the Chicago Bears for $197.2 million.

The closing of the sale of the Arlington Property is subject to the satisfaction of various closing conditions.

The Company anticipates closing the sale of the Arlington Property in late 2022 or early 2023.

The Company has classified certain assets of Arlington totaling $81.5 million as held for sale as of September 30, 2021, which is included in property and equipment, net on the accompanying condensed consolidated balance sheets.

Arlington’s operations and assets are included in All Other in our consolidated results.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Natural Disaster

In August 2021, Hurricane Ida caused damage to portions of Louisiana, including Fair Grounds Race Course & Slots, and 15 off-track betting facilities ("OTBs") owned by Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI").

All of the Fair Grounds and VSI operations were reopened as of September 30, 2021, with the exception of two OTBs.

The Company carries property and casualty insurance, as well as business interruption insurance subject to certain deductibles.

As of September 30, 2021, the Company has recorded a reduction of property and equipment, net of $3.1 million and incurred $2.2 million in operating expenses, with an offsetting insurance recovery receivable of $5.3 million.

The Company is currently working with its insurance carriers to finalize its claim.

We continue to assess damages and insurance coverage, and we currently do not expect our losses to exceed the applicable insurance recoveries.

Asset Impairment

During the quarter ended June 30, 2021, the Company recorded an $11.2 million non-cash impairment charge related to certain assets at Churchill Downs Racetrack included in our Live and Historical Racing segment.

The impairment was due to a change in the Churchill Downs Racetrack capital plans and the Company's planned usage of these assets.

On February 24, 2022, the Company announced its plans to exit the direct online sports betting and iGaming business and pursue monetization of its online market access licenses.

During the quarter ended March 31, 2022, the Company evaluated whether this planned exit would indicate it is more likely than not that any of the Company’s intangible assets, long-lived assets, current assets or property and equipment, were impaired (“Trigger Event”).

Based on the Company’s evaluation, the Company concluded that a Trigger Event occurred related to certain TwinSpires assets.

As a result, the Company recorded a $4.9 million non-cash impairment charge related to certain assets in the TwinSpires segment.

Key Indicators to Evaluate Business Results and Financial Condition

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• Transaction expense, net which includes:

– Acquisition and disposition related charges;

• Acquisition, disposition, and land sale related charges;

• Direct online Sports and Casino business costs;

• Other transaction expense, including legal, accounting, and other deal-related expense;

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• Other charges, recoveries and expenses

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income (loss).

As of December 31, 2021, Arlington ceased racing and simulcast operations given the pending sale of the property to the Chicago Bears.

Arlington's operating loss in the current year quarter was treated as an adjustment to EBITDA and is included in Other expenses, net in the Reconciliation of Comprehensive Income to Adjusted EBITDA.

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income.

Refer to the reconciliation of comprehensive income to Adjusted EBITDA included in this section for additional information.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Governmental Regulations and Legislative Changes

We are subject to various federal, state, local, and international laws and regulations that affect our businesses.

We are subject to various federal, state and international laws and regulations that affect our businesses.

The ownership, operation and management of our Live and Historical Racing, TwinSpires, and Gaming segments, as well as our other operations, are subject to regulation under the laws and regulations of each of the jurisdictions in which we operate.

The ownership, operation and management of our businesses and properties are also subject to legislative actions at both the federal and state level.

The following update on our regulatory and legislative activities should be read in conjunction with our Annual

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Report on Form 10-K for the year ended December 31, 2020, including Part I – Item 1, "Business" for a discussion of regulatory and legislative changes.

Specific State Gaming Regulations and Potential Legislative Changes

During the second quarter of 2021, the Florida Legislature passed multiple pieces of legislation, along with a 30-year tribal gaming compact, both of which will have an impact on Calder.

The tribal gaming compact enables certain tribes to conduct sports betting.

The tribe can have contracts with pari-mutuel facilities to operate retail and online sports betting with a revenue share for the tribe.

Separately, a bill to decouple certain pari-mutuel activities, including jai alai, from gaming activities also passed.

Previously, pari-mutuel facilities, including horse racing and jai alai, were required to race or conduct jai alai to retain their ability to operate slots and cardrooms.

However, under this new law, jai alai facilities can operate slots and cardrooms without conducting jai alai games.

The requirement to conduct racing still applies to thoroughbred race tracks if the entity's slot or cardroom licenses are connected to the entity's racing permits.

Both the tribal sports betting and decoupling legislative actions went into effect when the U.S.

Department of the Interior approved the compact on August 6, 2021.

The tribe is still working on executing partnership deals with pari-mutuel facilities for sports betting.

The Company is evaluating the impact of the decoupling legislation on our Calder operations and alternative uses, including a sale of the excess Calder land.

During the second quarter of 2021, the Louisiana State Legislature passed a bill that was signed by Governor Edwards to allow HRMs in off-track betting facilities.

There are at least a dozen facilities operated by Fair Grounds that will be able to add up to 50 machines per location under this new law.

The Louisiana Racing Commission will oversee historical horse racing.

In 2020, the Louisiana State Legislature passed a bill to allow citizens to approve sports betting on a parish-by-parish basis.

Sports betting was approved in 55 of the 64 parishes.

During the second quarter of 2021, the Louisiana State Legislature defined the landscape for sports betting and approved casino and racino operators to conduct retail and online sports betting in 55 parishes.

The Louisiana Gaming Control Board will oversee sports betting.

The tax rate is 10% on retail and 15% on mobile operations.

In 2020, the Maryland General Assembly passed a bill to allow citizens to approve sports betting, which was approved statewide by a 67% majority during the November 2020 elections.

During the second quarter of 2021, the Maryland General Assembly defined the landscape for sports betting and approved casino and racino operators to conduct retail sports betting.

Other retail sports betting outlets can apply, but not within 15 miles of Ocean Downs.

Ocean Downs is required to submit a bid for one of 60 online licenses.

The Maryland Gaming Control Board will oversee sports betting, with a tax rate of 15%.

The company has submitted its application for a retail sportsbook automatically tied to its casino license.

In 2020, local zoning changes were adopted, and in the second quarter of 2021 statutory changes were made to allow Ocean Downs to build a hotel, which had previously been obstructed.

There have been no material changes with respect to our regulatory and legislative activities disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Consolidated Financial Results

The following table reflects our net revenue, operating income (loss), net income (loss), Adjusted EBITDA, and certain other financial information:

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2021 2020 Change 2021 2020 Change

The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:

Three Months Ended March 31,

(in millions) 2022 2021 Change

Net revenue $ 364.1 $ 324.3 $ 39.8

Operating income (loss) 67.6 49.5 18.1 249.7 37.5 212.2

Operating income (loss) margin 17 % 15 % 20 % 5 %

Net income (loss) from continuing operations $ 61.4 $ 43.1 $ 18.3 $ 205.8 $ (3.1) $ 208.9

Net income (loss) attributable to Churchill Downs Incorporated 61.4 43.2 18.2 205.8 (99.0) 304.8

Operating income 47.4 46.7 0.7

Operating income margin 13 % 14 %

Net income 42.1 36.1 6.0

Adjusted EBITDA 128.5 110.6 17.9

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

• Net revenue increased $39.8 million due to a $25.3 million increase from Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter;

a $15.9 million increase from Live and Historical

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Racing due to the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, as well as an increase at Derby City Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter, partially offset by the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators;

and a $12.8 million increase from All Other primarily due to an increase in handle and admissions at Arlington.

Partially offsetting these increases was a $25.3 million decrease from TwinSpires primarily from the timing of the Kentucky Oaks and Derby.

• Operating income increased $18.1 million due to a $20.3 million increase from Gaming due to the increase in net revenue and increased operating efficiencies;

a $9.3 million increase from Live and Historical Racing primarily due to the increase in net revenue from our HRM facilities partially offset by our decrease in net revenue at Churchill Downs Racetrack due to the timing of the Kentucky Oaks and Derby;

a $6.1 million increase from All Other primarily due to the increase in net revenue from Arlington;

and a $2.7 million decrease in selling, general and administrative expenses primarily due to a decrease in accrued bonuses from an adjustment to our estimated payout in the prior year quarter that did not recur.

Partially offsetting these increases were an $18.8 million decrease from TwinSpires due to the decrease in net revenue from Horse Racing and additional marketing spend related to the Sports and Casino business, and a $1.5 million increase in transaction expense, net due to an increase in legal and professional expenses.

• Net income (loss) from continuing operations increased $18.3 million.

The following items impacted comparability of the Company's third quarter of 2021 net income from continuing operations compared to the prior year quarter:

a $3.2 million after-tax decrease in expenses related to lower transaction, pre-opening and other expenses, and a $0.3 million after-tax benefit increase related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

Partially offsetting these increases was a $0.4 million after-tax increase in Rivers Des Plaines' legal reserves and transaction costs.

Excluding these items, net income (loss) from continuing operations increased $15.2 million primarily due to a $15.3 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $0.1 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Net income (loss) attributable to Churchill Downs Incorporated increased $18.2 million due to a $18.3 million increase in net income from continuing operations discussed above, partially offset by a $0.1 million decrease in net loss attributable to our non-controlling interest from the prior year quarter that did not recur in the current year quarter.

• Adjusted EBITDA increased $34.2 million driven by a $36.0 million increase from Gaming primarily due to the increased operating efficiencies at our wholly-owned properties and equity investments and certain capacity restrictions on patrons and gaming during the prior year quarter;

a $6.5 million increase from All Other primarily due to an increase in handle and admissions at Arlington;

and a $3.6 million increase from Live and Historical Racing primarily due to the opening of Oak Grove HRM facility in September 2020 and Newport in October 2020 and certain capacity restrictions on patrons and gaming during the prior year quarter at Derby City Gaming, partially offset by the timing of the Kentucky Oaks and Derby.

Partially offsetting these increases was an $11.9 million decrease from TwinSpires primarily due to decrease in net revenue from Horse Racing due to the timing of the Kentucky Oaks and Derby and increased marketing and promotional activities for the Sports and Casino businesses.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

• Net revenue increased $456.6 million due to a $206.6 million increase from Gaming due to the temporary suspension of operations in the prior year;

a $203.6 million increase from Live and Historical Racing driven primarily from the openings of the Oak Grove HRM facility in September 2020 and Newport in October 2020, the temporary suspension of operations at Derby City Gaming during the prior year, and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators;

a $26.8 million increase from All Other primarily due the temporary suspension of operations in the prior year at Arlington and United Tote;

and a $19.6 million increase from TwinSpires due to our expansion in additional states related to our Sports and Casino business and an increase in handle in Horse Racing.

• Operating income increased $212.2 million due to a $117.4 million increase from Gaming due to the increase in net revenue and increased operating efficiencies;

a $108.2 million increase from Live and Historical Racing primarily due to the increase in net revenue;

a $14.0 million increase from All Other due to the temporary suspension of operations at Arlington and United Tote in the prior year;

and a $6.3 million decrease in asset impairments due to the $11.2 million non-cash asset impairment at Churchill Downs Racetrack related to revised capital plans associated with the first turn project during the current year period, offset by the $17.5 million non-cash intangible asset impairment in the first

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

quarter of 2020.

Partially offsetting these increases were an $18.2 million decrease from TwinSpires primarily due to additional marketing spend related to the Sports and Casino business;

a $14.4 million increase in selling, general and administrative expenses primarily due to an increase in accrued bonuses in the current year;

and a $1.1 million increase in transaction expense, net due to an increase in legal and professional expenses.

• Net income (loss) from continuing operations increased $208.9 million.

The following items impacted comparability of the Company's net income from continuing operations during the nine months ended September 30, 2021 compared to the prior year period:

a $16.8 million after-tax expense decrease related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps;

a $4.5 million after-tax decrease in expenses related to lower transaction, pre-opening and other expenses;

and a $4.1 million non-cash after-tax decrease related to asset impairments.

Partially offsetting these decreases was a $6.1 million after-tax increase in Rivers Des Plaines' legal reserves and transaction costs.

Excluding these items, net income (loss) from continuing operations increased $189.6 million primarily due to a $189.5 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates and a $0.1 million after-tax decrease in interest expense associated with higher outstanding debt balances.

• Net income (loss) attributable to Churchill Downs Incorporated increased $304.8 million due to a $208.9 million increase in net income from continuing operations discussed above and a $96.1 million decrease in net loss from discontinued operations related to the settlement of the Kater and Thimmegowda litigations during the second quarter of 2020, partially offset by a $0.2 million decrease in net loss attributable to our noncontrolling interest.

• Adjusted EBITDA increased $292.7 million driven by a $192.1 million increase from Gaming primarily due to the increased operating efficiencies at our wholly-owned properties and equity investments and temporary suspension of operations in the prior year;

a $115.7 million increase from Live and Historical Racing primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators, the increased operating efficiencies and the temporary suspension of operations at Derby City Gaming in the prior year, and the opening of Oak Grove HRM facility in September 2020;

and a $5.9 million increase from All Other primarily due to the temporary suspension of operations at Arlington and United Tote in the prior year.

Partially offsetting these increases was a $21.0 million decrease from TwinSpires primarily due to increased marketing and promotional activities for the Horse Racing and Sports and Casino businesses.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

a $22.8 million increase from Live and Historical Racing due to capacity restrictions at the Oak Grove HRM facility and Derby City Gaming in the prior year quarter and overall continued growth in the businesses.

Partially offsetting these increases were a $5.1 million decrease in revenue from All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021 and a decrease of $3.2 million f rom TwinSpires driven by a decrease in Horse Racing handle partially offset by an increase in Sports and Casino due to our expansion in additional states during 2021.

• Operating income increased $0.7 million due to a $9.8 million increase from Live and Historical Racing primarily due to an increase in net revenue;

a $6.4 million increase from Gaming primarily due to the increase in net revenue as a result of capacity restrictions on patrons and gaming during the prior year quarter;

and a $0.6 million increase from All Other.

Partially offsetting these increases were a $5.7 million increase in selling, general and administrative expenses due to an increase in employee benefits as well as an increase in legal fees, a $4.9 million increase in transaction expenses driven by the P2E Transaction, a $4.9 asset impairment related to TwinSpires Sports and Casino as a result of the decision to exit the direct online Sports and Casino business, and a $0.6 million decrease at TwinSpires.

• Net income increased $6.0 million.

The following items impacted comparability of the Company's first quarter of 2022 net income compared to the prior year's first quarter:

a $6.3 million after-tax increase in expenses related to transaction, pre-opening and other expenses, net, and a $3.5 million after-tax impairment charge driven by the decision to exit the direct online Sports and Casino business, and $0.7 million of other charges primarily related to our equity portion of Miami Valley Gaming's after-tax non-cash impairment charge related to prior expansion plans.

Partially offsetting these increases were a $4.5 million after tax benefit increase related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps and a $0.7 million after tax decrease in Rivers Des Plaines' legal reserves and transaction costs.

Excluding these items, net income increased $11.3 million primarily due to a $12.9 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $1.6 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $17.9 million driven by a $9.6 million increase from Live and Historical Racing primarily due an increase in net revenue, a $8.7 million increase from Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter, and a $1.0 million increase from TwinSpires Sports and Casino primarily due to a decrease in marketing and promotional activities, partially offset by a decline in TwinSpires Horse Racing due to decreased handle.

Partially offsetting these increases was a $1.4 million decrease from All Other primarily due to an increase in Corporate expenses offset by an increase at Arlington, as operations expenses incurred in the previous year quarter did not recur.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Financial Results by Segment

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The following table presents net revenue for our segments, including intercompany revenue:

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2021 2020 Change 2021 2020 Change

Three Months Ended March 31,

(in millions) 2022 2021 Change

Live and Historical Racing:

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Net Revenue $ 364.1 $ 324.3 $ 39.8

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

• Live and Historical Racing revenue increased $10.4 million due to a $24.7 million increase at Oak Grove as a result of the opening of the HRM facility in September 2020 and the hotel in October 2020;

a $14.3 million increase at Derby City Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter and the completion of their second outdoor patio which added an additional 225 HRMs in September 2020;

and a $4.3 million increase at Newport due to the opening of the facility in October 2020.

Partially offsetting these increases was a $32.9 million decrease at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators.

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

• Live and Historical Racing revenue increased $22.5 million due primarily to an $11.0 million increase at Oak Grove, a $9.9 million increase from Derby City Gaming, and a $1.9 million increase from Newport.

Oak Grove and Derby City Gaming reflected the benefit of the elimination of the operating restrictions that were in place during the first quarter of 2021 and overall continued growth in the businesses.

• TwinSpires revenue decreased $3.6 million from the prior year quarter primarily due to a $6.9 million decrease from Horse Racing that was partially offset by a $3.3 million increase from Sports and Casino.

Horse Racing net revenue decreased as a result of lower handle primarily due to the timing of the Kentucky Oaks and Derby.

Sports and Casino net revenue increased as a result of our expansion in additional states and marketing and promotional activities.

• Gaming revenue increased $51.9 million due to certain capacity restrictions on patrons and gaming during the prior year quarter.

Net revenue increased for all Gaming properties except for Riverwalk and Fair Grounds and VSI.

Fair Grounds and VSI were negatively impacted by Hurricane Ida in August 2021, resulting in a temporary closure of Fair Grounds Race Course & Slots and OTBs.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

• All Other revenue increased $12.6 million primarily due to an $11.5 million increase at Arlington due to an increase in handle and admissions, and a $1.1 million increase at United Tote primarily due to an increase in equipment sales.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

• Live and Historical Racing revenue increased $206.2 million due to a $69.7 million increase at Oak Grove as a result of the opening of the HRM facility in September 2020 and the hotel in October 2020;

a $64.6 million increase at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions compared to the running of the 146th Kentucky Oaks and Derby without spectators;

a $57.8 million increase at Derby City Gaming primarily due to the temporary suspension of operations during the prior year and the completion of their second outdoor patio which added an additional 225 HRMs in September 2020;

a $13.3 million increase at Newport due to the opening in October 2020;

and a $0.8 million increase at Turfway Park primarily due to the temporary suspension of operations during the prior year period.

• TwinSpires revenue increased $19.5 million from the prior year period primarily due to a $17.1 million increase from Sports and Casino and a $2.4 million increase from Horse Racing.

Sports and Casino net revenues increased as a result of our expansion in additional states and marketing and promotional activities.

Horse Racing net revenue increased as a result of an increase in handle compared to the prior year due to the continued shift from wagering at brick-and-mortar locations to online wagering.

• Gaming revenue increased $207.2 million primarily due to the temporary suspension of operations of all of our Gaming properties and the loss of revenue at each property during the prior year.

• All Other revenue increased $28.0 million primarily due to a $23.1 million increase at Arlington and a $4.7 million increase at United Tote, both of which were due to the temporary suspension of operations in the prior year period, and a $0.2 million increase from other sources.

Horse Racing net revenue decreased as a portion of our patrons returned to wagering at brick-and-mortar facilities in the current quarter instead of wagering online.

Sports and Casino net revenue increased as a result of our expansion in additional states during 2021.

• Gaming revenue increased $25.2 million primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter that were no longer in place at Oxford, Calder, and Presque Isle.

• All Other revenue decreased $6.7 million primarily as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Consolidated Operating Expense

The following table is a summary of our consolidated operating expense:

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2021 2020 Change 2021 2020 Change

Three Months Ended March 31,

(in millions) 2022 2021 Change

Taxes and purses $ 101.6 $ 88.9 $ 12.7

Content expense 44.6 53.9 (9.3) 141.8 134.8 7.0

Salaries and benefits 42.3 37.2 5.1

Content expense 41.3 43.1 (1.8)

Selling, general and administrative expense 35.9 30.2 5.7

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Marketing and advertising 11.5 12.1 (0.6)

Asset impairments — — — 11.2 17.5 (6.3)

Transaction expense, net 5.0 0.1 4.9

Asset impairments 4.9 — 4.9

Other operating expense 49.1 40.0 9.1

Total expense $ 316.7 $ 277.6 $ 39.1

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $28.2 million primarily driven by the increase in net revenue by our wholly-owned gaming properties and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Content expense decreased $9.3 million primarily due to the running of the 147th Kentucky Oaks and Derby in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

• Salaries and benefits expense increased $6.0 million driven by certain capacity restrictions on patrons and gaming during the prior year quarter, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, partially offset by the timing of the Kentucky Oaks and Derby.

• Selling, general and administrative expense decreased $2.7 million driven primarily from a decrease in accrued bonus from an adjustment to the estimated annual payout in the prior year quarter that did not recur.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

• Depreciation and amortization increased $3.5 million primarily driven by the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Marketing and advertising expense increased $5.7 million primarily due to increased marketing by our TwinSpires Sports and Casino businesses and for our Gaming segment as operations have returned to full capacity, partially offset by the timing of the Kentucky Oaks and Derby.

• Transaction expense, net increased $1.5 million primarily due to increased legal and professional expenses.

• Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses.

Other operating expense increased $4.2 million primarily driven by certain capacity restrictions on patrons and gaming during the prior year quarter and the opening of Oak Grove HRM facility in September 2020 and Newport in October 2020.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $137.7 million driven by the temporary suspension of operations in the prior year, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Content expense increased $7.0 million primarily due to an increase in certain host fees and source market fees for the TwinSpires Horse Racing business.

• Salaries and benefits expense increased $22.2 million driven by the temporary suspension of operations in the prior year, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Selling, general and administrative expense increased $14.4 million driven primarily from an increase in our accrued bonuses in the current year compared to the prior year due to the temporary suspension of operations in the prior year.

• Depreciation and amortization increased $11.4 million primarily driven by the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Marketing and advertising expense increased $28.3 million primarily due to increased marketing by our TwinSpires segment, and the temporary suspension of operations in the prior year.

• Asset impairments decreased $6.3 million due to an $11.2 million non-cash impairment charge relating to the change in the Churchill Downs Racetrack first turn capital plans and the Company's planned usage of these assets, compared to a $17.5 million non-cash intangibles impairment recognized during the first quarter of 2020 that did not recur in the current year.

• Taxes and purses increased $12.7 million primarily driven by the increase in net revenue by our wholly-owned gaming and HRM properties.

• Salaries and benefits expense increased $5.1 million driven by the capacity restrictions at our gaming properties in the prior year quarter.

• Content expense decreased $1.8 million primarily due to a decrease in online simulcast host fees in the TwinSpires Horse Racing business.

• Selling, general and administrative expense increased $5.7 million driven primarily from an increase in employee benefits as well as an increase in legal fees.

• Depreciation and amortization decreased $0.9 million primarily driven by the assets held for sale at Arlington.

• Marketing and advertising expense decreased $0.6 million primarily due to decreased marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online Sports and Casino business.

This decrease was partially offset by increased marketing spend at our gaming properties.

• Transaction expense, net increased $4.9 million primarily due to increased legal and professional expenses related to the P2E Transaction.

• Asset impairments increased $4.9 million due to a non-cash impairment charge related to the Company's plan to exit the direct online Sports and Casino business.

• Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses.

Other operating expense increased $28.6 million primarily driven by the temporary suspension of operations at our properties during the prior year, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Other operating expense increased $9.1 million primarily driven by significant increases in property insurance, food and beverage costs, and preparation for the running of the 148th Kentucky Oaks and Derby.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Adjusted EBITDA

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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.

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2021 2020 Change 2021 2020 Change

Three Months Ended March 31,

(in millions) 2022 2021 Change

Live and Historical Racing $ 27.9 $ 18.3 $ 9.6

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Total Adjusted EBITDA $ 128.5 $ 110.6 $ 17.9

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

• Live and Historical Racing Adjusted EBITDA increased $3.6 million due to a $9.6 million increase at Oak Grove due to the opening of the Oak Grove HRM facility in September 2020 and an $8.7 million increase at Derby City Gaming due to the increase in net revenue and increased operating efficiencies.

Partially offsetting these increases was a $14.7 million decrease at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators.

• TwinSpires Adjusted EBITDA decreased $11.9 million primarily due to a $6.8 million increase in the loss from our Sports and Casino business due to increased marketing and promotional activities and a $5.1 million decrease from Horse Racing primarily due to the timing of the Kentucky Oaks and Derby.

• Gaming Adjusted EBITDA increased $36.0 million driven by a $20.9 million increase at our wholly-owned Gaming properties and a $15.1 million increase from our equity investments, both of which were due to increased operating efficiencies and certain capacity restrictions on patrons and gaming during the prior year quarter.

• All Other Adjusted EBITDA increased $6.5 million driven by a $5.9 million increase at Arlington due to an increase in handle and admissions, a $0.5 million increase at United Tote due to the increase in net revenue, and a $0.1 million increase from Corporate.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

• Live and Historical Racing Adjusted EBITDA increased $115.7 million due to a $50.8 million increase from Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions compared to the running of the 146th Kentucky Oaks and Derby without spectators;

a $36.9 million increase from Derby City Gaming due to the increase in net revenue, increased operating efficiencies, and the temporary suspension of operations during the prior year;

a $25.6 million increase at Oak Grove due to the opening of the Oak Grove HRM facility in September 2020;

a $1.7 million increase at Newport due to the opening of the Newport facility in October 2020;

and a $0.7 million increase at Turfway Park primarily due to an increase in handle and the temporary suspension of operations in the prior year.

• TwinSpires Adjusted EBITDA decreased $21.0 million primarily due to a $17.5 million increase in the loss from our Sports and Casino business due to increased marketing and promotional activities and a $3.5 million decrease from Horse Racing due to increased marketing and advertising expense.

• Gaming Adjusted EBITDA increased $192.1 million driven by a $114.8 million increase at our wholly-owned Gaming properties and a $77.3 million increase from our equity investments, both of which were due to increased operating efficiencies and the temporary closure of all of our Gaming properties in the prior year.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

• All Other Adjusted EBITDA increased $5.9 million driven by a $12.1 million increase from Arlington due to increased operating efficiencies and the temporary suspension of operations in the prior year and a $2.3 million increase at United Tote due to the temporary suspension of operations during the prior year.

Partially offsetting these increases was a $8.5 million decrease at Corporate primarily due to an increase in accrued bonuses.

Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2021 2020 Change 2021 2020 Change

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 61.4 $ 43.2 $ 18.2 $ 205.8 $ (99.0) $ 304.8

Net loss attributable to noncontrolling interest — 0.1 (0.1) — 0.2 (0.2)

Net income (loss) before noncontrolling interest 61.4 43.1 18.3 205.8 (99.2) 305.0

Loss from discontinued operations, net of tax — — — — 96.1 (96.1)

Income (loss) from continuing operations, net of tax 61.4 43.1 18.3 205.8 (3.1) 208.9

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

• Live and Historical Racing Adjusted EBITDA increased $9.6 million due to a $5.3 million increase at Oak Grove, a $5.2 million increase at Derby City Gaming, and a $0.7 million increase at Newport from the increase in net revenue.

Partially offsetting these increases was a $1.2 million decrease at Churchill Downs Racetrack due to the timing of Derby Week expenses and a $0.4 million decrease from higher expenses at Turfway Park.

• TwinSpires Adjusted EBITDA increased $1.0 million primarily due to a $3.7 million increase from our Sports and Casino business due to decreased marketing and promotional activities and a $0.6 million increase at United Tote.

Partially offsetting these increases was a decrease from Horse Racing of $3.3 million due to the reduction in net revenue.

• Gaming Adjusted EBITDA increased $8.7 million driven by a $5.6 million increase at our wholly-owned Gaming properties due to increased net revenue and a $3.1 million increase from our equity investments, both of which were due to certain capacity restrictions on patrons and gaming during the prior year quarter.

• All Other Adjusted EBITDA decreased $1.4 million driven by a $2.6 million increase in legal fees and the timing of other Corporate expenses that was partially offset by a $1.2 million decrease in the Arlington operating loss in the current year quarter compared to the prior year quarter as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

We are excluding Arlington's operating results from Adjusted EBITDA in 2022 pending the sale of the property to the Chicago Bears.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Reconciliation of Comprehensive Income to Adjusted EBITDA

Three Months Ended March 31,

(in millions) 2022 2021 Change

Net income and comprehensive income $ 42.1 $ 36.1 $ 6.0

Depreciation and amortization 25.1 26.0 (0.9)

Interest expense 21.3 19.4 1.9

Income tax provision (benefit) 26.3 13.9 12.4 84.1 (5.6) 89.7

Income tax provision 16.5 16.2 0.3

EBITDA $ 105.0 $ 97.7 $ 7.3

Adjustments to EBITDA:

Selling, general and administrative:

Stock-based compensation expense $ 7.0 $ 5.5 $ 1.5

Other charges — 0.8 (0.8) 0.2 0.7 (0.5)

Pre-opening expense and other expense 1.7 6.2 (4.5) 3.8 9.8 (6.0)

Pre-opening expense 2.1 0.6 1.5

Other expense, net 2.5 — 2.5

Asset impairments 4.9 — 4.9

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Rivers Des Plaines' legal reserves and transactions costs 0.3 1.3 (1.0)

Other charges 1.0 — 1.0

Total adjustments to EBITDA 23.5 12.9 10.6

Adjusted EBITDA $ 128.5 $ 110.6 $ 17.9

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Consolidated Balance Sheet

The following table is a summary of our overall financial position:

(in millions) September 30, 2021 December 31, 2020 Change

(in millions) March 31, 2022 December 31, 2021 Change

Total assets $ 3,036.9 $ 2,981.6 $ 55.3

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Significant items affecting the comparability of our condensed consolidated balance sheets include:

• Total assets increased $287.1 million driven by a $248.3 million increase in cash and cash equivalents primarily due to the net proceeds from the new Term Loan B-1 and Additional 2028 Notes and the increase in operating income for the nine months ended September 30, 2021 ;

a $24.5 million increase in investment in and advances to unconsolidated affiliates due to the Company's interest in Rivers and MVG;

a $17.0 million increase in restricted cash due to increased account wagering deposits;

a $14.1 million increase in accounts receivable, net primarily due to timing;

and a $11.9 milli on increase in all other assets.

Partially offsetting these increases was a $28.7 decrease in property and equipment primarily due to depreciation expense and the asset impairment at Churchill Downs Racetrack.

• Total liabilities increased $315.4 million primarily driven by a $204.2 million increase in notes payable due to proceeds from our Additional 2028 Notes;

a $139.5 million increase in long-term debt due to proceeds from the new Term Loan B-1 under our Credit Agreement;

a $59.6 million increase in accrued expenses and other current liabilities driven by an increase in purses payable due to timing and increased account wagering deposits with TwinSpires;

a $42.0 million increase in deferred income taxes primarily driven by the payment of the Kater and Thimmegowda litigation settlements;

and a $21.7 million increase in accounts payable driven by timing of payments.

Partially offsetting these increases were a $124.0 million decrease in current liabilities of discontinued operations due to the payments of the Kater and Thimmegowda litigation settlements;

a $24.9 million decrease in dividends payable due to the payment of our annual dividends;

and a $2.7 million decrease in all other liabilities.

• Total shareholders’ equity decreased $28.3 million driven by $243.9 million in repurchases of common stock and a $12.9 million decrease in taxes paid related to net share settlement of stock awards.

Partially offsetting these decreases were a $205.8 million increase from current year net income, a $20.4 million increase from stock-based compensation, and a $2.3 million increase from other sources.

• Total assets increased $55.3 million driven b y a $40.9 million increase in property and equipment driven by capital expenditures at Churchill Downs Racetrack, Turfway Park, and Derby City Gaming;

a $16.9 million increase in other current assets driven by an increase in prepaid insurance;

and a $11.8 million increase in all other assets.

Partially offsetting these increases was an $8.1 million decrease in investments in and advances to unconsolidated affiliates driven by distributions received from Rivers Des Plaines and MVG;

and a $6.2 million decrease in income tax receivable driven by the current year quarter income tax provision.

• Total liabilities increased $44.3 million primarily driven by a $56.3 million increase in current deferred revenue due to advance sales associated with the 148th Kentucky Oaks and Derby tickets and sponsorships;

a $15.3 million increase in accounts payable driven by timing of payments;

and a $10.5 increase in all other liabilities.

Partially offsetting these increases were a $26.1 million decrease in dividends payable due to the payment of our annual dividends;

and a $11.7 million decrease in accrued expenses and other liabilities.

• Total shareholders’ equity increased $11.0 million driven by a $42.1 million increase from current year net income and $7.0 million from stock-based compensation.

Partially offsetting this increase were $25.0 million in repurchases of common stock and $13.1 million in taxes paid related to net share settlement of stock awards.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Liquidity and Capital Resources

The following table is a summary of our liquidity and cash flows:

(in millions) Nine Months Ended September 30,

(in millions) Three Months Ended March 31,

Cash flows from:

3 unchanged sentences

Financing activities $ (68.0) $ 106.8 $ (174.8)

Three Months Ended March 31, 2022, Compared to the Three Months Ended March 31, 2021

• Cash flows from operating activities increased $31.0 million driven by a $35.3 million increase in current deferred revenue mainly due to advance sales associated with the 148th Kentucky Oaks and Derby tickets and sponsorships, an $18.6 million increase in distributions from unconsolidated affiliates, and a $0.7 million increase in operating income.

Partially offsetting these increases was a $23.6 million decrease from all other operating activities.

We anticipate that cash flows from operations over the next twelve months will be adequate to fund our business operations and capital expenditures.

• Cash used in investing activities increased $50.5 million driven by a $37.9 million increase in capital project expenditures at Churchill Downs Racetrack and Turfway Park, a $5.3 million increase in capital maintenance expenditures and a $7.3 million increase from all other investing activities.

• Cash provided by financing activities decreased $174.8 million primarily driven by a $356.9 million decrease in net borrowings from long-term debt.

Partially offsetting this decrease was a $169.6 million increase in common stock repurchases and a $12.5 million decrease from all other financing activities.

Capital Expenditures

Included in cash flows from investing activities are capital maintenance expenditures and capital project expenditures.

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Capital project expenditures represent fixed asset additions related to land or building improvements to new or existing assets or purchases of new (non-replacement) equipment or software related to specific projects deemed necessary expenditures.

We have announced several project capital investments during the past year, including the following:

Churchill Downs Racetrack Homestretch Club and the Turn I Experience, Derby City Gaming Expansion and Hotel, Derby City Gaming Downtown, Turfway Park HRM Facility and Grandstand, the Queen of Terre Haute Casino Resort, and Louisiana HRMs.

We currently estimate that we will spend between $300 million and $350 million for project capital in 2022, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.

Common Stock Repurchase Program

On September 29, 2021, the Board of Directors of the Company approved a common stock repurchase program of up to $500.0 million (“2021 Stock Repurchase Program”).

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The repurchase program has no time limit and may be suspended or discontinued at any time.

We have approximately $499.2 million of repurchase authority remaining under the 2021 Stock Repurchase Program at September 30, 2021, based on trade date.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Nine Months Ended September 30, 2021, Compared to the Nine Months Ended September 30, 2020

• Cash flows from operating activities increased $252.4 million driven by a $212.2 million increase in operating income and a $64.9 million increase in distributions from unconsolidated affiliates.

Partially offsetting these increases was a $24.7 million decrease from all other operating activities.

We anticipate that cash flows from operations over the next twelve months will be adequate to fund our business operations and capital expenditures.

• Cash used in investing activities decreased $157.6 million driven by a $162.1 million decrease in capital project expenditures due to reduced capital project spending in the current year compared to prior year.

Partially offsetting this decrease was a $4.1 million increase in capital maintenance expenditures and a $0.4 million increase from all other investing activities.

• Cash provided by financing activities decreased $559.1 million primarily driven by a $340.0 million decrease in net borrowings from long-term debt, a $214.0 million increase in common stock repurchases, and a $5.1 million decrease from all other financing activities.

We have approximately $420.6 million of repurchase authority remaining under the 2021 Stock Repurchase Program at March 31, 2022, based on trade date.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Credit Facilities and Indebtedness

The following table presents our debt outstanding:

(in millions) September 30, 2021 December 31, 2020 Change

(in millions) March 31, 2022 December 31, 2021 Change

Term Loan B due 2024 $ 383.0 $ 384.0 $ (1.0)

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Refer to Note 8, Shareholders' Equity, of the Notes to the Condensed Consolidated Financial Statements for information regarding this transaction.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

On March 17, 2021, the Company entered into the Incremental Joinder Agreement No.

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The Company capitalized $3.5 million of debt issuance costs associated with the Joinder which are being amortized as interest expense over the 7-year term of the Term Loan B-1.

The interest rate on the Revolver on September 30, 2021 was LIBOR plus 150 basis points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of June 30, 2021.

On April 13, 2022, the Company entered into the Credit Agreement Amendment to extend the maturity date of our existing revolving credit facility to 2027 and to increase the commitments under the existing revolving credit facility from $700 million to $1,200 million.

The Credit Agreement Amendment also provides for the Delayed Draw Term Loan A credit facility due 2027 in the amount of $800 million.

The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be SOFR-based plus a spread, determined by the Company’s and the guarantors’ leverage ratio.

The interest rate on the Revolver on March 31, 2022 was LIBOR plus 138 basis points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of March 31, 2022.

The Term Loan B and Term Loan B-1 bear interest at LIBOR plus 200 basis points.

The Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

business, changes in fiscal year, and transactions with affiliates.

The Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio.

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Consolidated total secured net leverage ratio 0.52 to 1.0 < 4.0 to 1.0

The Company was compliant with all applicable covenants on September 30, 2021.

The Company was compliant with all applicable covenants on March 31, 2022.

The Term Loan B requires quarterly payments of 0.25% of the original $400.0 million balance, or $1.0 million per quarter.

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The Company is required to pay a commitment fee on the unused portion of the Revolver determined by a pricing grid based on the consolidated total net leverage ratio of the Company.

For the period ended September 30, 2021, the Company's commitment fee rate was 0.25%.

For the period ended March 31, 2022, the Company's commitment fee rate was 0.20%.

2027 Senior Notes

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The Existing 2028 Senior Notes were issued pursuant to an indenture, dated December 27, 2017 (the "2028 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2028 Guarantors"), and U.S.

Bank National Association,

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

Bank National Association, as trustee.

The Company may redeem some or all of the Existing 2028 Senior Notes at any time at redemption prices set forth in the 2028 Indenture.

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In connection with the offering, we capitalized $3.4 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes.

Upon completion of this offering, the aggregate principal amount outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700 million.

Upon completion of this offering, the aggregate principal amount

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700 million.

The Additional 2028 Notes were issued at 103.25% of the principal amount, plus interest deemed to have accrued from January 15, 2021, with interest payable on January 15th and July 15th of each year, commencing on July 15, 2021.

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Contractual Obligations

Our commitments to make future payments as of September 30, 2021, are estimated as follows:

(in millions) October 1 to December 31, 2021 2022-2023 2024-2025 Thereafter Total

Our commitments to make future payments as of March 31, 2022, are estimated as follows:

(in millions) 2022 2023-2024 2025-2026 Thereafter Total

Term Loan B $ 3.0 $ 380.0 $ — $ — $ 383.0

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Interest on 2028 Senior Notes 16.6 66.5 66.5 49.9 199.5

Operating leases 1.7 11.5 10.0 11.6 34.8

Operating and Finance Leases 5.3 12.9 11.6 16.0 45.8

Minimum Guarantees (2)

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Total $ 76.2 $ 564.5 $ 166.0 $ 1,677.1 $ 2,483.8

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 2.09% which was the rate in place as of September 30, 2021.

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 2.21% which was the rate in place as of March 31, 2022.

(2) Includes the maximum estimated exposure where we are contractually obligated to make future minimum payments.

As of September 30, 2021, we had approximately $4.0 million of tax liabilities related to unrecognized tax benefits.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

As of March 31, 2022, we had approximately $3.9 million of tax liabilities related to unrecognized tax benefits.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis