What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 148 added, 97 removed, 231 unchanged (51% of the section changed)

14 unchanged sentences

• loss of key or highly skilled personnel, as well as general disruptions in the general labor market;

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

• online security risk, including cyber-security breaches, or loss or misuse of our stored information as a result of a breach, including customers’ personal information, could lead to government enforcement actions or other litigation;

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• general risks related to real estate ownership and significant expenditures, including risks related to environmental liabilities;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

• personal injury litigation related to injuries occurring at our racetracks;

• compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

• payment-related risks, such as risk associated with fraudulent credit card and debit card use;

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• 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;

• increase in our insurance costs, or inability to 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;

• other factors described in our most recent Annual Report on Form 10-K and in other filings we make with the Securities and Exchange Commission.

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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, 2022, 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 MARCH 31, 2023

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

Churchill Downs Incorporated ("CDI" or the "Company") has been creating extraordinary entertainment experiences for nearly 150 years, beginning with the Company’s most iconic and enduring asset, the Kentucky Derby.

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We aggregate our other businesses as well as certain corporate operations, and other immaterial joint ventures, in All Other.

For additional information about our segments, refer to Note 16 - Segment Information, to our Condensed Consolidated Financial Statements.

For additional information about our segments, refer to Note 17, Segment Information, in the notes to our Condensed Consolidated Financial Statements.

Effective May 22, 2023, the Company's common stock was split two-for-one with a proportionate increase in the number of its authorized shares of common stock.

Lady Luck Casino Nemacolin

On June 26, 2023, our management agreement for Lady Luck Casino Nemacolin ("Lady Luck") in Farmington, Pennsylvania expired and was not renewed.

The company completed the sale of substantially all of its assets at Lady Luck for an immaterial amount.

Presque Isle Impairment

During the second quarter, we evaluated economic conditions subsequent to the date of our annual impairment assessment on April 1, 2023, including competition in the market and inflationary pressures, which increased during the second quarter of 2023, and impacted the performance and outlook of Presque Isle Downs and Casino ("Presque Isle").

As a result, the Company concluded that a trigger event for impairment testing occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill at the end of the second quarter.

Based on the 2023 trigger event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the current environment.

As a result, the Company recognized a non-cash impairment charge of $24.5 million in the second quarter of 2023 for the Presque Isle gaming rights and trademark.

Arlington Sale

3 unchanged sentences

Financing Transactions

On April 25, 2023, we completed an offering of $600.0 million in aggregate principal amount of 6.750% senior notes that mature in 2031.

The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, working capital and other general corporate purposes.

On February 24, 2023, we entered into an incremental joinder to our senior secured credit agreement to increase the loans under the existing Term Loan A credit facility due 2027 by $500.0 million.

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The Company used the net proceeds from the borrowings under the increased Term Loan A to repay outstanding loans under its senior secured revolving credit facility, pay related transaction fees and expenses and for general corporate purposes.

On April 25, 2023, we completed an offering of $600.0 million in aggregate principal amount of 6.750% senior unsecured notes that mature in 2031.

The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, and intends to use the remainder of the proceeds for working capital and other general corporate purposes.

Transactions Update

On August 11, 2022, we entered into an agreement to sell 49% of United Tote, a wholly-owned subsidiary of the Company to NYRA Content Management Solutions, LLC, a subsidiary of the New York Racing Association.

The transaction is subject to usual and customary closing conditions, including applicable regulatory notices and approvals, and is expected to close during the first half of 2023.

The transaction is subject to usual and customary closing conditions, including applicable regulatory notices and approvals, and is expected to close during 2023.

On December 19, 2022, the Company announced that it entered into a definitive agreement under which we would acquire all the outstanding equity interests of Exacta Systems, LLC ("Exacta") for total consideration of $250.0 million in cash (the "Exacta Transaction").

The Exacta Transaction is subject to certain working capital and other purchase price adjustments and is expected to close during 2023.

Impact of the COVID-19 Global Pandemic

The extent to which the COVID-19 pandemic, including the emergence of variant strains, will continue to impact the Company remains uncertain and will depend on many factors that are not within our control.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

Key Indicators to Evaluate Business Results and Financial Condition

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Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:

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• Asset impairments;

• Gain on property sales;

• Gain on property and asset sales;

• Legal reserves;

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• Other charges, recoveries and expenses

On June 26, 2023, the Company's management agreement for Lady Luck expired and was not renewed.

The Company completed the sale of substantially all of its assets at Lady Luck for an immaterial amount.

As of December 31, 2021, Arlington ceased racing and simulcast operations and the property was sold on February 15, 2023 to the Chicago Bears.

Arlington's results in 2022 and 2023 are treated as an adjustment to EBITDA and are included in other expenses, net in the Reconciliation of Comprehensive Income to Adjusted EBITDA .

Arlington's results and exit costs in 2022 and 2023 are treated as an adjustment to EBITDA.

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the Condensed Consolidated Statements of Comprehensive Income.

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Only licensed racetracks and their extensions can operate retail sports betting.

Each track is allowed to contract with up to three providers to carryout online or retail sports betting.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Each track is allowed to contract with up

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

to three providers to carryout online or retail sports betting.

Retail sports betting will commence on September 7, 2023 and online sports betting will begin on September 28, 2023.

Consolidated Financial Results

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) 2023 2022 Change

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2023 2022 Change 2023 2022 Change

Net Revenue $ 768.5 $ 582.5 $ 186.0 $ 1,328.0 $ 946.6 $ 381.4

3 unchanged sentences

Adjusted EBITDA 363.7 291.2 72.5 586.6 419.7 166.9

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

• Net revenue increased $195.4 million driven by a $128.4 million increase from Live and Historical Racing primarily due to revenue attributable to the properties acquired in the P2E, Ellis Park and Chasers Transactions, the opening of Turfway Park in September 2022 and continued growth at our Oak Grove property and a $72.7 million increase from Gaming primarily due to our New York and Iowa properties acquired in the P2E Transaction.

Partially offsetting these increases was a $5.5 million decrease in TwinSpires primarily due to a decrease in Horse Racing as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online, the exit of our direct online Sports and Casino business in the first quarter of 2022 and a decrease in All Other of $0.2 million.

• Operating income increased $72.5 million primarily due to a $52.8 million increase in Live and Historical Racing incremental revenue from the P2E properties acquired in Virginia, and a $24.4 million increase in Gaming driven by the P2E acquired properties in New York and Iowa, decreased transaction and impairment costs of $10.1 million, and an increase in TwinSpires of $3.7 million as a result of the exit of our direct online Sports and Casino business.

Partially offsetting these increases was a $16.4 million increase in corporate general and administrative expenses driven by the acquisition of P2E and $2.1 million increase in All Other operating income.

• Net income increased $113.6 million.

The following items impacted comparability of the Company's net income from continuing operations for the three months ended March 31, 2023 compared to three months ended March 31, 2022:

a $86.2 million after tax gain on the sale of the Arlington property, partially offset by a $1.2 million after-tax net increase in adjustments related to our unconsolidated affiliates, transaction, pre-opening and other expenses.

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

• Net revenue increased $186.0 million driven by a $124.1 million increase in Live and Historical Racing primarily due to the Virginia properties acquired in the P2E Transaction, a record-breaking Derby Week at Churchill Downs Racetrack, the properties acquired in the Ellis Park and Chasers Transactions, and the opening of Turfway Park in Northern Kentucky in September 2022, a $61.6 million increase in Gaming primarily due to the New York and Iowa properties acquired in the P2E Transaction, and a $0.6 million increase in TwinSpires.

These increases were partially offset by a $0.3 million decrease in All Other net revenue.

• Operating income increased $25.9 million primarily due to a $41.3 million increase in Live and Historical Racing income from the P2E properties acquired in Virginia, an $11.2 million increase in Gaming income driven by the P2E acquired properties in New York and Iowa, a $10.1 million increase in TwinSpires, and a $0.7 million decrease in transaction costs.

Partially offsetting these was a $24.5 million non-cash impairment of Presque Isle intangible assets, a $9.7 million increase in selling, general and administrative expenses, and a $3.2 million decrease in All Other operating income.

• Net income decreased $196.3 million.

The following items impacted comparability of the Company's net income from continuing operations for the three months ended June 30, 2023 compared to three months ended June 30, 2022:

a $193.6 million after-tax gain on the sale of the Calder property in the second quarter of 2022, an $18.5 million after-tax increase in impairment costs in the second quarter of 2023, and a $6.0 million after-tax net increase all other nonrecurring expenses.

Excluding these items, net income increased $21.8 million due to a $43.9 million after-tax increase primarily driven by the results of our operations, partially offset by a $22.1 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $72.5 million driven by a $59.6 million increase in Live and Historical Racing attributable to the Virginia properties acquired in the P2E, Ellis Park and Chasers Transactions and a record-breaking Derby Week at Churchill Downs Racetrack, a $16.6 million increase in Gaming driven by the New York and Iowa properties acquired in the P2E Transaction, partially offset by a $3.7 million increase in corporate general administrative expenses.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

• Net revenue increased $381.4 million driven by a $252.5 million increase in Live and Historical Racing primarily due to revenue attributable to the Virginia properties acquired in the P2E Transaction, the opening of Turfway Park in Northern Kentucky in September 2022, a record-breaking Derby Week at Churchill Downs Racetrack, the properties acquired in the Ellis Park and Chasers Transactions, and growth at our Oak Grove property in Southwestern Kentucky and a $134.3 million increase in Gaming primarily due to our New York and Iowa properties acquired in the P2E Transaction.

Partially offsetting these increases was a $4.9 million decrease in TwinSpires primarily due to the exit of the direct online Sports and Casino business in the first quarter of 2022 and a $0.5 million decrease in All Other net revenue.

• Operating income increased $98.4 million primarily due to a $94.1 million increase in Live and Historical Racing income from the P2E properties acquired in Virginia, a $35.6 million increase in Gaming income driven by the New York and Iowa properties acquired in the P2E Transaction, a $13.8 million increase in TwinSpires income, and a $5.9

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

million decrease in transaction costs.

Partially offsetting these was a $26.1 million increase in selling, general and administrative expenses, a $19.6 million increase in non-cash impairment costs due to the 2023 impairment of Presque Isle intangible assets, and a $5.3 million decrease in All Other operating income primarily related to Arlington exit costs.

• Net income decreased $82.7 million.

The following items impacted comparability of the Company's net income from continuing operations for the six months ended June 30, 2023 compared to six months ended June 30, 2022:

a $107.4 million decrease in after-tax gains on property sales, a $15.0 million increase in after-tax non-cash impairment costs in 2023, a $9.0 million after-tax benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swap that did not recur in 2023, and a $1.7 million increase in other nonrecurring costs.

Excluding these items, net income increased $50.4 million primarily due to a $104.1 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $53.7 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $94.4 million driven by a $54.2 million increase from Live and Historical Racing attributable to the properties acquired in the P2E, Ellis Park and Chasers Transactions, a $38.4 million increase from Gaming driven by the P2E properties acquired in New York and Iowa, and a $5.3 million increase from TwinSpires, partially offset by $3.5 million decrease from All Other.

• Adjusted EBITDA increased $166.9 million driven by a $113.8 million increase in Live and Historical Racing attributable to the properties acquired in the P2E, Ellis Park and Chasers Transactions and a record-breaking Derby Week at Churchill Downs Racetrack, a $55.0 million increase in Gaming driven by the New York and Iowa properties acquired in the P2E Transaction, and a $5.3 million increase in TwinSpires, partially offset by a $7.2 million increase in corporate general and administrative expenses.

Revenue by Segment

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

Three Months Ended March 31, Change

(in millions) 2023 2022

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

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2023 2022 Change 2023 2022 Change

Live and Historical Racing $ 408.0 $ 275.9 $ 132.1 $ 623.8 $ 363.1 $ 260.7

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Net Revenue $ 768.5 $ 582.5 $ 186.0 $ 1,328.0 $ 946.6 $ 381.4

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

• Live and Historical Racing revenue increased $128.6 million due to a $97.7 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $15.6 million increase due to the opening of Turfway Park in Northern Kentucky in September 2022, a $7.5 million increase attributable to properties acquired in the Ellis Park and Chasers Transactions, a $6.2 million increase from our Oak Grove property in Southwestern Kentucky, a $1.2 million increase from our Derby City Gaming property in Louisville, and a $0.4 million increase from Churchill Downs Racetrack.

• TwinSpires revenue decreased $5.1 million primarily due to the decision to exit the direct online Sports and Casino business in the first quarter of 2022 which was partially offset by incremental revenue from United Tote.

• Gaming revenue increased $72.4 million primarily due to a $69.0 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction.

Gaming revenue also increased $5.1 million collectively from our properties in Louisiana, Maryland, and Maine, partially offset by a decline of $1.7 million from our properties in Florida and Pennsylvania.

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

• Live and Historical Racing revenue increased $132.1 million due to a $94.6 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $20.5 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $12.0 million increase attributable to the properties acquired in the Ellis Park and Chasers Transactions, a $10.3 million increase primarily due to the opening of Turfway Park in Northern Kentucky in September 2022, a $3.5 million increase from our Oak Grove property in Southwestern Kentucky, and a $1.1 million increase from our Derby City Gaming property in Louisville.

These increases were partially offset by a $9.9 million decrease for non-Derby Week racing operations primarily due to the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023.

• TwinSpires revenue increased $0.6 million primarily due to a $3.4 million increase in revenue related to Horse Racing primarily from United Tote which reflects the portion of the B2B Horse Racing expansion strategy associated with totalisator fees.

This increase was partially offset by a $2.8 million reduction in Sports and Casino revenue due to the decision to exit the direct online Sports and Casino business in the first quarter of 2022.

• Gaming revenue increased $63.4 million primarily due to a $68.6 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by a $5.2 million net decrease from our other gaming properties.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

• Live and Historical Racing revenue increased $260.7 million due to a $192.3 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $26.0 million increase primarily due to the opening of Turfway Park in Northern Kentucky in September 2022, a $20.7 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $19.5 million increase attributable to properties acquired in the Ellis Park and Chasers Transactions, a $9.7 million increase from our Oak Grove property in Southwestern Kentucky, and a $2.2 million

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

increase from our Derby City Gaming property in Louisville.

These increases were partially offset by a $9.7 million decrease for non-Derby Week racing operations primarily due to the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023.

• TwinSpires revenue decreased $4.4 million primarily due to a $8.6 million decrease in Sports and Casino revenue due to the decision to exit the direct online Sports and Casino business in the first quarter of 2022.

This decrease was partially offset by a $4.2 million increase in Horse Racing related revenue primarily from United Tote which reflects the portion of the B2B Horse Racing expansion strategy associated with totalisator fees.

• Gaming revenue increased $135.8 million primarily due to a $137.6 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by a $1.8 million net decrease from our other gaming properties.

Consolidated Operating Expense

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

Three Months Ended March 31, Change

(in millions) 2023 2022

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2023 2022 Change 2023 2022 Change

Taxes and purses $ 174.1 $ 135.0 $ 39.1 $ 319.6 $ 236.6 $ 83.0

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Total expense $ 542.9 $ 382.8 $ 160.1 $ 982.5 $ 699.5 $ 283.0

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses, salaries and benefits, selling, general and administrative, marketing and advertising, depreciation and amortization, and other operating expenses increased due to the P2E, Ellis Park and Chasers Transactions, as well as the opening of Turfway Park in September of 2022.

• Asset impairments increased $24.5 million due to the non-cash impairment of Presque Isle intangible assets in the second quarter of 2023.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

Significant items affecting comparability of consolidated operating expense include:

• Asset impairments increased $19.6 million due to the non-cash impairment of Presque Isle intangible assets in the second quarter of 2023.

• Transaction expenses decreased $5.9 million due to the 2022 P2E Transaction.

• Asset impairments decreased $4.9 million due to the first quarter 2022 impairment related to the decision to exit the direct online Sports and Casino business which did not recur.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

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 March 31, Change

(in millions) 2023 2022

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2023 2022 Change 2023 2022 Change

Live and Historical Racing $ 223.5 $ 163.9 $ 59.6 $ 305.6 $ 191.8 $ 113.8

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Total Adjusted EBITDA $ 363.7 $ 291.2 $ 72.5 $ 586.6 $ 419.7 $ 166.9

Three Months Ended March 31, 2023, Compared to Three Months Ended March 31, 2022

• Live and Historical Racing Adjusted EBITDA increased $54.2 million due to a $46.8 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $4.5 million increase due to continued growth at our Oak Grove property in Southwestern Kentucky, and a $2.5 million increase due to the opening of Turfway Park in Northern Kentucky in September 2022.

Thr ee Months Ended June 30, 2023, Compared to Three Months Ended June 30, 2022

• Live and Historical Racing Adjusted EBITDA increased $59.6 million due to a $43.7 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $16.8 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, and a $2.8 million increase due to continued growth at our Oak Grove property in Southwestern Kentucky.

The remaining properties contributed a $1.9 million increase in Adjusted EBITDA.

• TwinSpires Adjusted EBITDA increased $5.3 million primarily due to the decision to exit the direct online Sports and Casino business in the first quarter of 2022 and incremental revenue from TwinSpires business to business agreements, partially offset by higher content related expenses and advance deposit wagering taxes in certain jurisdictions.

• Gaming Adjusted EBITDA increased $38.4 million driven by a $26.5 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, a $13.5 million increase from our equity investments, and a $0.9 million increase from our properties in Maine, Maryland, and Louisiana.

Partially offsetting these increases was a $2.5 million decrease from our properties in Pennsylvania, Florida, and Mississippi.

• All Other Adjusted EBITDA decreased $3.5 million driven primarily by increased corporate compensation related expenses and legal fees.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

These increases were partially offset by a $5.6 million decrease for non-Derby Week racing operations primarily due to the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023.

• TwinSpires Adjusted EBITDA was flat for the comparative periods.

Sports and Casino Adjusted EBITDA was up $1.9 million as a result of an increase from retail sports betting and from significant cost reductions associated with the exit of the direct online Sports and Casino business in the first quarter of 2022.

United Tote Adjusted EBITDA was up $2.0 million primarily as a result of the incremental revenue from the B2B Horse Racing expansion strategy associated with totalisator fees.

These increases were offset by a $3.9 million reduction in TwinSpires Adjusted EBITDA as a result of lower retail Horse Racing handle due to industry race day cancellations and the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023 as well as higher content related expenses and higher advance deposit wagering taxes in certain jurisdictions.

• Gaming Adjusted EBITDA increased $16.6 million driven by a $21.4 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by a $4.8 million decrease from our other gaming properties.

• All Other Adjusted EBITDA decreased $3.7 million primarily driven by increased corporate compensation and benefits related expenses.

Six Months Ended June 30, 2023, Compared to Six Months Ended June 30, 2022

• Live and Historical Racing Adjusted EBITDA increased $113.8 million due to a $90.5 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $16.8 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $7.4 million increase due to continued growth at our Oak Grove property in Southwestern Kentucky, and a $3.3 million increase primarily due to the opening of Turfway Park in Northern Kentucky in September 2022.

The remaining properties contributed a $1.9 million increase in Adjusted EBITDA.

These increases were partially offset by a $6.1 million decrease for non-Derby Week racing operations primarily due to the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

• TwinSpires Adjusted EBITDA increased $5.3 million primarily due to a $8.4 million increase in Sports and Casino Adjusted EBITDA as a result of an increase from retail sports betting and from significant cost reductions associated with the exit of the direct online Sports and Casino business in the first quarter of 2022.

United Tote Adjusted EBITDA was up $2.4 million primarily as a result of the incremental revenue from the B2B Horse Racing expansion strategy associated with totalisator fees.

These increases were offset by a $5.5 million reduction in TwinSpires Adjusted EBITDA as a result of lower retail Horse Racing handle due to industry race day cancellations and the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023 as well as higher content related expenses and higher advance deposit wagering taxes in certain jurisdictions.

• Gaming Adjusted EBITDA increased $55.0 million driven by a $47.9 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction and a $13.4 million increase from our equity investments, partially offset by a $6.3 million decrease from our other gaming properties.

• All Other Adjusted EBITDA decreased $7.2 million primarily driven by increased corporate compensation and benefits related expenses.

Reconciliation of Comprehensive Income to Adjusted EBITDA

Three Months Ended March 31, Change

(in millions) 2023 2022

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2023 2022 Change 2023 2022 Change

Net income and comprehensive income $ 143.0 $ 339.3 $ (196.3) $ 298.7 $ 381.4 $ (82.7)

Depreciation and amortization 41.8 26.1 15.7 79.7 51.2 28.5

Interest expense 64.7 21.3 43.4

Interest expense, net 65.2 35.1 30.1 129.9 56.4 73.5

Income tax provision 56.2 140.6 (84.4) 109.4 157.1 (47.7)

2 unchanged sentences

Stock-based compensation expense $ 8.1 $ 7.4 $ 0.7 $ 16.7 $ 14.4 $ 2.3

Legal reserves — 3.2 (3.2) — 3.2 (3.2)

Pre-opening expense 3.2 2.6 0.6 6.4 4.7 1.7

Arlington exit costs 5.9 1.8 4.1 9.3 4.3 5.0

Other expense, net 6.6 — 6.6 6.9 — 6.9

Asset impairments — 4.9 (4.9)

Transaction expense, net 0.5 1.2 (0.7) 0.3 6.2 (5.9)

Asset impairments 24.5 — 24.5 24.5 4.9 19.6

Other income, expense:

2 unchanged sentences

Rivers Des Plaines' legal reserves and transactions costs — 0.2 (0.2) — 0.5 (0.5)

Other charges 0.3 1.0 (0.7)

Gain on sale of Arlington (114.0) — (114.0)

Other charges and recoveries, net (1.2) — (1.2) (0.9) 1.0 (1.9)

Gain on sale of assets — (274.6) 274.6 (114.0) (274.6) 160.6

Total adjustments to EBITDA 57.5 (249.9) 307.4 (31.1) (226.4) 195.3

Adjusted EBITDA $ 363.7 $ 291.2 $ 72.5 $ 586.6 $ 419.7 $ 166.9

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

Consolidated Balance Sheet

The following is a summary of our overall financial position:

(in millions) March 31, 2023 December 31, 2022 Change

(in millions) June 30, 2023 December 31, 2022 Change

Total assets $ 6,578.6 $ 6,206.8 $ 371.8

2 unchanged sentences

Significant items affecting the comparability of our Condensed Consolidated Balance Sheets include:

• Total assets increased $66.7 million primarily driven by capital expenditures, increased cash and cash equivalents and increased other current assets driven by an increase in prepaid insurance, partially offset by the sale of our Arlington property.

• Total liabilities decreased $86.0 million primarily driven by net pay down of long-term debt.

• Total shareholders’ equity increased $152.7 million driven by increased current year net income and stock-based compensation.

• Total assets increased $371.8 million primarily driven by increased cash and cash equivalents, capital expenditures and other current assets, partially offset by the sale of our Arlington property and the Presque Isle impairment in 2023.

• Total liabilities increased $69.5 million primarily driven by increased income tax liabilities and increased accounts payable primarily due to timing of racing related payments, partially offset by decreased dividends payable due to the payment of our annual dividends.

• Total shareholders’ equity increased $302.3 million driven by increased net income and stock-based compensation.

Liquidity and Capital Resources

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

(in millions) Three Months Ended March 31, Change

(in millions) Six Months Ended June 30,

Cash flows from:

2023 2022 Change

Operating activities $ 402.6 $ 380.8 $ 21.8

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Financing activities (47.7) 1,058.5 (1,106.2)

Three Months Ended March 31, 2023 , Compared to the Three Months Ended March 31, 2022

• Cash flows from operating activities increased $80.7 million driven by a $77.7 million increase in operating income and distributions from unconsolidated affiliates, a $25.5 million increase in deferred revenue due to advanced sales for the 2023 Kentucky Derby, and $12.3 million decrease in cash used for working capital and all other.

These were partially offset by $34.8 million increased interest paid in 2023.

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022

• Cash flows from operating activities increased $21.8 million driven by increased operating income and increased distributions from unconsolidated affiliates.

These increases were partially offset by an increase in net interest paid and net income taxes paid.

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

• Cash flows from investing activities increased $117.3 million driven by the $195.7 million proceeds from the Arlington sale, partially offset by an increase in capital project expenditures in 2023 primarily at Churchill Downs Racetrack and for the Dumfries project in Virginia.

• Cash flows from financing activities decreased $169.7 million primarily driven by a $182.0 million net pay down of long-term debt in 2023, partially offset by stock repurchased during 2022.

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

Churchill Downs Racetrack First Turn Experience and the Paddock Project, the Derby City Gaming Expansion and Hotel, Derby City Gaming Downtown, the Ellis Park HRM facility in Owensboro, Kentucky, the Terre Haute Casino Resort in Virgo County, Indiana, a New Hampshire HRM Facility, the Virginia HRM entertainment venues in Dumfries and Emporia, and HRMs in our Louisiana OTBs.

We currently expect our project capital to be approximately $575 to $675 million in 2023, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.

• Cash flows from investing activities decreased $223.6 million driven by increased capital project expenditures in 2023 primarily at Churchill Downs Racetrack and for the Dumfries project in Virginia and decreased proceeds from the sale of assets.

• Cash flows from financing activities decreased $1.1 billion primarily driven by repayments of long-term debt in 2023.

We have spent $282.2 million year to date on project capital investments.

We expect to spend approximately $575 to $675 million for the year on project capital investments.

The significant project capital investments planned for the second half of 2023 include:

Churchill Downs Racetrack Paddock Project, Derby City Gaming Downtown, the Ellis Park HRM facility in Eastern Daviess County, Kentucky, the Terre Haute Casino Resort in Vigo County, Indiana, a New Hampshire HRM Facility, and the Virginia HRM entertainment venues in Dumfries and Emporia.

The planned 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").

The 2021 Stock Repurchase Program includes and is not in addition to the unspent amount remaining under the prior 2018 Stock Purchase Program authorization.

Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions.

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

We had $270.2 million of repurchase authority remaining under this program on March 31, 2023.

We had $270.2 million of repurchase authority remaining under this program on June 30, 2023.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

Credit Facilities and Indebtedness

The following table presents our debt outstanding:

(in millions) March 31, 2023 December 31, 2022 Change

(in millions) June 30, 2023 December 31, 2022 Change

Revolver $ — $ 664.1 $ (664.1)

5 unchanged sentences

2030 Senior Notes 1,200.0 1,200.0 —

2031 Senior Notes 600.0 — 600.0

Total debt 4,660.8 4,638.8 22.0

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Net debt $ 4,551.4 $ 4,558.7 $ (7.3)

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

Credit Agreement

At March 31, 2023, the Company’s senior secured credit facility (as amended from time to time, the “Credit Agreement") consisted of a $1.2 billion revolving credit facility (the "Revolver"), $400.0 million senior secured term loan B due 2024 (the "Term Loan B"), $300.0 million senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $100.0 million swing line commitment.

At June 30, 2023, the Company’s senior secured credit facility (as amended from time to time, the “Credit Agreement") consisted of a $1.2 billion revolving credit facility (the "Revolver"), $300.0 million senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $100.0 million swing line commitment.

Certain amendments to the Credit Agreement entered into during 2022 and 2023, respectively, are described below.

1 unchanged sentence

This amendment also provided for the senior secured Term Loan A due April 13, 2027 in the amount of $800.0 million, which was drawn on November 1, 2022 as part of the financing for the P2E Transaction.

Refer to Note 3, Acquisitions to our Condensed Consolidated Financial Statements, for further information regarding the P2E Transaction.

Refer to Note 3, Acquisitions in the notes to our Condensed Consolidated Financial Statements for further information regarding the P2E Transaction.

The Company capitalized $3.2 million of debt issuance costs associated with the Revolver commitment increase and $6.4 million of debt issuance costs associated with the Term Loan A which are being amortized as interest expense over the 5-year term.

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

For the period ended March 31, 2023, the Company's commitment fee rate was 0.25%.

For the period ended June 30, 2023, the Company's commitment fee rate was 0.25%.

The Revolver and Term Loan A bear interest at SOFR plus 10 basis points, plus a variable applicable margin which is determined by the Company's net leverage ratio.

As of March 31, 2023, that applicable margin was 150 basis points.

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

The phase-out of LIBOR in existing debt agreements is set for June 30, 2023.

The Credit Agreement includes a general process for establishing an alternative reference rate to the extent LIBOR is phased out.

The Company will complete the transition of its financing from LIBOR to SOFR by June 30, 2023.

These transition activities will not have a material impact on the Company’s financial statements.

As of June 30, 2023, that applicable margin was 150 basis points.

The Term Loan B-1 bears interest at SOFR plus 210 basis points.

The Company completed the transition of its financing from LIBOR to SOFR during the second quarter of 2023.

These transition activities did not have a material impact on the Company’s financial statements.

2027 Senior Notes

As of March 31, 2023, we had $600.0 million in aggregate principal amount of 5.500% senior unsecured notes that mature on April 1, 2027 (the "2027 Senior Notes").

The 2027 Senior Notes were issued at par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2019.

As of June 30, 2023, we had $600.0 million in aggregate principal amount of 5.500% senior unsecured notes that mature on April 1, 2027 (the "2027 Senior Notes").

The 2027 Senior Notes were issued at par in a private offering to qualified institutional

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2019.

The Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture.

2028 Senior Notes

As of March 31, 2023, we had a total of $700.0 million in aggregate principal amount of 4.750% senior unsecured notes (collectively, the “2028 Senior Notes”) maturing on January 15, 2028.

As of June 30, 2023, we had a total of $700.0 million in aggregate principal amount of 4.750% senior unsecured notes (collectively, the “2028 Senior Notes”) maturing on January 15, 2028.

The 2028 Senior Notes consist of $500.0 million notes issued at par and $200.0 million notes issued at 103.25%.

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2030 Senior Notes

As of March 31, 2023, we had $1.2 billion in aggregate principal amount of 5.750% senior unsecured notes that mature on April 13, 2030 (the "2030 Senior Notes").

As of June 30, 2023, we had $1.2 billion in aggregate principal amount of 5.750% senior unsecured notes that mature on April 13, 2030 (the "2030 Senior Notes").

The 2030 Senior Notes were issued at par in a private offering to qualified institutional buyers, with interest payable in arrears on April 1st and October 1st of each year, commencing on October 1, 2022.

2 unchanged sentences

The Company may redeem some or all the 2030 Senior Notes at redemption prices set forth in the 2030 Indenture.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

2031 Senior Notes

On April 25, 2023, the Company completed an offering of $600.0 million in aggregate principal amount of 6.750% Senior Unsecured Notes that mature on April 25, 2031 ("2031 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

On April 25, 2023, the Company completed an offering of $600.0 million in aggregate principal amount of 6.750% senior unsecured notes that mature on April 25, 2031 (the "2031 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, and intends to use the remainder of the proceeds for working capital and other general corporate purposes.

The 2031 Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 25, 2023, with interest payable in arrears on May 1 and November 1 of each year, commencing on November 1, 2023.

The Company recognized a loss on extinguishment on Term Loan B of $1.3 million, which is included in miscellaneous, net in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The Company capitalized $10.6 million of debt issuance costs associated with the 2031 Senior Notes which are being amortized as interest expense over the remainder of the 8-year term.

The 2031 Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 25, 2023, with interest payable in arrears on May 1st and November 1st of each year, commencing on November 1, 2023.

The 2031 Notes will vote as one class under the indenture governing the 2031 Senior Notes.

The Company may redeem some or all of the 2031 Notes at any time prior to April 25, 2025, at redemption prices set forth in the 2031 offering memorandum.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

Contractual Obligations

Our commitments to make future payments as of March 31, 2023, are estimated as follows:

Our commitments to make future payments as of June 30, 2023, are estimated as follows:

(in millions) 2023 2024-2025 2026-2027 Thereafter Total

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10.8 42.3 41.3 4.3 98.7

Term Loan B-1 2.3 6.0 6.0 279.7 294.0

Interest on Term Loan B-1 (1)

15.3 40.2 39.3 4.1 98.9

Revolver — — — — —

3 unchanged sentences

2030 Senior Notes — — — 1,200.0 1,200.0

2031 Senior Notes — — — 600.0 600.0

Interest on 2027 Senior Notes 16.5 66.0 49.5 — 132.0

1 unchanged sentence

Interest on 2030 Senior Notes 34.5 138.0 138.0 175.0 485.5

Interest on 2031 Senior Notes 20.8 81.0 81.0 141.8 324.6

Operating and Finance Leases 5.3 20.0 17.1 43.8 86.2

1 unchanged sentence

Total $ 182.5 $ 715.3 $ 2,202.7 $ 3,172.9 $ 6,273.4

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 6.56% which was the rate in place as of March 31, 2023.

As of March 31, 2023, we had approximately $5.2 million of tax liabilities related to unrecognized tax benefits.

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 6.79% which was the rate in place as of June 30, 2023.

As of June 30, 2023, we had approximately $5.3 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