What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-25 compared with 2023-07-26 · 115 added, 137 removed, 242 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;

• 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;

• cyber security risk, including 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;

• the impact of significant competition, and the expectation the competition levels will increase;

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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;

• reliance on our technology services and catastrophic events and system failures disrupting our operations;

2 unchanged sentences

• cost overruns and other uncertainties associated with the development of new venues and the expansion of existing facilities;

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

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

1 unchanged sentence

• 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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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 JUNE 30, 2023

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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.

2 unchanged sentences

Live and Historical Racing, TwinSpires, and Gaming.

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

We aggregate our other businesses as well as certain corporate operations, in All Other.

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.

Acquisition of Exacta Systems

On August 22, 2023, the Company completed its previously-announced acquisition of Exacta Systems, LLC ("Exacta").

Refer to Note 3, Acquisitions in the notes to our Condensed Consolidated Financial Statements for further information on the transaction.

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.

On June 26, 2023, the Company's 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 its assets at Lady Luck for an immaterial amount.

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.

Presque Isle Impairment

3 unchanged sentences

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.

Refer to Note 5, Asset Impairments in the notes to our Condensed Consolidated Financial Statements for further information on the impairment.

Arlington Sale

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The net proceeds of $195.7 million were used to pay down the outstanding balance amount on our Revolver that was drawn on to fund the acquisition of substantially all the assets of Peninsula Pacific Entertainment ("P2E").

Refer to Note 4, Dispositions in the notes to our Condensed Consolidated Financial Statements for further information on the transaction.

Financing Transactions

4 unchanged sentences

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.

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 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.

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

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

Transaction Update

On August 11, 2022, the Company 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 fourth quarter of 2023.

Key Indicators to Evaluate Business Results and Financial Condition

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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.

The Company completed the sale of substantially all 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 and exit costs in 2022 and 2023 are treated as an adjustment to EBITDA.

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

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

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.

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

Retail sports betting commenced on September 7, 2023 and online sports betting began 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 June 30, Six Months Ended June 30,

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

(in millions) 2023 2022 Change 2023 2022 Change

4 unchanged sentences

Adjusted EBITDA 218.2 163.2 55.0 804.8 582.9 221.9

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.

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

• Net revenue increased $189.4 million driven by a $127.2 million increase in Live and Historical Racing revenue primarily due to the Virginia properties acquired in the P2E Transaction, the properties acquired in the Ellis Park and Chasers Transactions, the opening of Turfway Park in Northern Kentucky in September 2022, and continued growth at our other Kentucky properties, a $60.9 million increase in Gaming revenue primarily due to the New York and Iowa properties acquired in the P2E Transaction, and a $2.3 million increase in TwinSpires primarily due to the Exacta Transaction.

These increases were partially offset by a $1.0 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.

• Operating income increased $49.3 million driven by a $49.1 million increase in Live and Historical Racing income primarily from the Virginia properties acquired in the P2E Transaction, an $18.3 million increase in Gaming income primarily from the New York and Iowa properties acquired in the P2E Transaction, and a $0.6 million increase in All Other.

These increases were partially offset by an $11.8 million increase in selling, general and administrative expenses primarily due to the P2E Transaction, a $6.6 million decrease in TwinSpires income, and a $0.3 million increase in transaction costs.

• Net income increased $4.0 million.

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

a $0.9 million after-tax net increase in other nonrecurring expenses.

Excluding these items, net income increased $4.9 million due to a $34.5 million after-tax increase primarily driven by the addition of the properties acquired as part of the P2E Transaction in the results of our operations, partially offset by a $22.7 million after-tax increase in interest expense associated with higher outstanding debt balances and higher interest rates, and a $6.9 million after-tax decrease in the equity income from our unconsolidated affiliates.

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

• Adjusted EBITDA increased $55.0 million driven by a $46.4 million increase in Live and Historical Racing Adjusted EBITDA primarily from the Virginia properties acquired in the P2E Transaction and continued growth at our Kentucky HRM properties, a $10.7 million increase in Gaming Adjusted EBITDA primarily from the New York and Iowa properties acquired in the P2E Transaction, and a $2.8 million increase in TwinSpires Adjusted EBITDA primarily due to the Exacta Transaction, partially offset by a $4.9 million increase in corporate general administrative expenses.

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

• Net revenue increased $570.8 million driven by a $379.7 million increase in Live and Historical Racing revenue primarily 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 continued growth at our other Kentucky properties and a $195.2 million increase in Gaming revenue primarily due to our New York and Iowa properties acquired in the P2E Transaction.

These increases were partially offset by a $2.6 million decrease in TwinSpires revenue primarily due to the exit of the direct online Sports and Casino business in the first quarter of 2022 and a $1.5 million decrease in All Other net revenue.

• Operating income increased $147.7 million driven by a $143.2 million increase in Live and Historical Racing income primarily from the Virginia properties acquired in the P2E Transaction, a $53.9 million increase in Gaming income primarily from the New York and Iowa properties acquired in the P2E Transaction, a $7.2 million increase in TwinSpires income, and a $5.6 million decrease in transaction costs.

These increases were partially offset by a $37.9 million increase in selling, general and administrative expenses primarily due to the P2E Transaction, a $19.6 million increase in non-cash impairment costs due to the 2023 impairment of Presque Isle intangible assets, and a $4.7 million decrease in All Other operating income primarily related to Arlington exit costs.

• Net income decreased $78.7 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 $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.

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

a $107.4 million decrease in after-tax gains on property sales, a $14.9 million increase in after-tax non-cash impairment costs, a $9.2 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 $2.4 million increase in other nonrecurring costs.

Excluding these items, net income increased $55.2 million due to a $135.5 million after-tax increase primarily driven by the addition of the properties acquired as part of the P2E Transaction in the results of our operations, partially offset by a $76.0 million after-tax increase in interest expense associated with higher outstanding debt balances and higher interest rates, and a $4.3 million after-tax decrease in the equity income from our unconsolidated affiliates.

• Adjusted EBITDA increased $221.9 million driven by a $160.2 million increase in Live and Historical Racing Adjusted EBITDA primarily from the Virginia properties acquired in the P2E Transaction, a record-breaking Derby Week at Churchill Downs Racetrack, and continued growth at our other Kentucky properties, a $65.7 million increase in Gaming Adjusted EBITDA primarily from the New York and Iowa properties acquired in the P2E Transaction, and an $8.1 million increase in TwinSpires Adjusted EBITDA primarily due to the exit of the direct online Sports and Casino business in the first quarter of 2022 and the Exacta Transaction, partially offset by a $12.1 million increase in corporate general administrative expenses.

Revenue by Segment

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

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

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

(in millions) 2023 2022 Change 2023 2022 Change

5 unchanged sentences

Net Revenue $ 572.5 $ 383.1 $ 189.4 $ 1,900.5 $ 1,329.7 $ 570.8

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.

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

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

• Live and Historical Racing revenue increased $123.1 million driven by an $89.0 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $14.7 million increase attributable to the properties acquired in the Ellis Park and Chasers Transactions, an $8.8 million increase primarily due to the opening of Turfway Park in Northern Kentucky in September 2022, a $7.4 million increase from our Derby City Gaming property in Louisville, and a $4.3 million increase from our Oak Grove property in Southwestern Kentucky.

These increases were partially offset by a $1.1 million decrease at Churchill Downs Racetrack due to the decision to move July race days as part of the Churchill Downs Racetrack Spring Meet to Ellis Park.

• TwinSpires revenue increased $5.0 million driven by a $5.5 million increase attributable to the Exacta Transaction and a $0.9 million increase in all other Horse Racing revenue primarily from the B2B expansion strategy associated with United Tote totalisator fees.

These increases were partially offset by a $1.4 million reduction in Sports and Casino revenue.

• Gaming revenue increased $59.0 million driven by a $70.2 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by an $8.7 million decrease in Pennsylvania primarily due to our decision not to renew the management agreement at Lady Luck, and a $2.5 million net decrease from our other gaming properties.

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

• Live and Historical Racing revenue increased $383.8 million driven by a $281.3 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $34.8 million increase primarily due to the opening of Turfway Park in Northern Kentucky in September 2022, a $34.2 million increase attributable to properties acquired in the Ellis Park and Chasers Transactions, a $20.7 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $14.0 million increase from our Oak Grove property in Southwestern Kentucky, and a $9.6 million increase from our Derby City Gaming property in Louisville.

These increases were partially offset by a $10.8 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.

• TwinSpires revenue increased $0.5 million driven by a $5.5 million increase attributable to the Exacta Transaction and a $5.2 million increase in all other Horse Racing revenue primarily from the B2B expansion strategy associated with United Tote totalisator fees, partially offset by a $10.2 million reduction in Sports and Casino revenue due to the exit of the direct online Sports and Casino business in the first quarter of 2022.

• Gaming revenue increased $194.8 million driven by a $207.8 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by an $11.4 million decrease in Pennsylvania primarily due to our decision not to renew the management agreement at Lady Luck, and a $1.6 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 June 30, Six Months Ended June 30,

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

(in millions) 2023 2022 Change 2023 2022 Change

9 unchanged sentences

Total expense $ 460.2 $ 320.1 $ 140.1 $ 1,442.7 $ 1,019.6 $ 423.1

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

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

Three Months Ended September 30, 2023, Compared to Three Months Ended September 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

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

Significant items affecting comparability of consolidated operating expense include:

2 unchanged sentences

• Transaction expenses decreased $5.6 million due to the 2022 P2E Transaction.

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 June 30, Six Months Ended June 30,

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

(in millions) 2023 2022 Change 2023 2022 Change

5 unchanged sentences

Total Adjusted EBITDA $ 218.2 $ 163.2 $ 55.0 $ 804.8 $ 582.9 $ 221.9

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.

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.

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

• Live and Historical Racing Adjusted EBITDA increased $46.4 million driven by a $38.3 million increase attributable to the Virginia properties acquired in the P2E Transaction and a portion of the benefit from the Exacta Transaction, a $7.3 million increase from continued growth at our Derby City Gaming property in Louisville and our Oak Grove property in Southwestern Kentucky, and a $2.9 million increase attributable to our other Live and Historical Racing properties.

These increases were partially offset by a $2.1 million decrease at Churchill Downs Racetrack primarily due to the decision to move July race days as part of the Churchill Downs Racetrack Spring Meet to Ellis Park.

• TwinSpires Adjusted EBITDA increased $2.8 million driven by a $3.1 million increase attributable to the Exacta Transaction, partially offset by a $0.3 million net decrease in Horse Racing and Sports and Casino.

• Gaming Adjusted EBITDA increased $10.7 million driven by a $25.0 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by a $6.5 million decrease from our equity investments, a $4.9 million decrease from our other wholly-owned gaming properties, and a $2.9 million decrease attributable to proceeds for business interruption insurance claims related to Hurricane Ida.

We received $4.1 million of proceeds in the third quarter of 2022, compared to $1.2 million received during the third quarter of 2023.

• All Other Adjusted EBITDA decreased $4.9 million primarily driven by increased corporate compensation and benefits related expenses and legal and professional fees.

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

Nine Months Ended September 30, 2023, Compared to Nine Months Ended September 30, 2022

• Live and Historical Racing Adjusted EBITDA increased $160.2 million driven by a $128.8 million increase attributable to the Virginia properties acquired in the P2E Transaction and a portion of the benefit from the Exacta Transaction, a $16.3 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $14.3 million increase from continued growth at our Derby City Gaming property in Louisville and our Oak Grove property in Southwestern Kentucky, and an $8.5 million increase attributable to our other Live and Historical Racing properties.

These increases were partially offset by an $7.7 million decrease for non-Derby Week racing operations primarily driven by the decision to move a portion of the Churchill Downs Racetrack Spring Meet to Ellis Park in June 2023.

• TwinSpires Adjusted EBITDA increased $8.1 million driven by a $9.6 million increase in Sports and Casino from significant cost reductions associated with the exit of the direct online Sports and Casino business in the first quarter of 2022, a $3.3 million increase in Horse Racing primarily from the B2B expansion strategy associated with United Tote totalisator fees, and a $3.1 million increase from the Exacta Transaction.

These increases were partially offset by a $7.9 million decrease primarily 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 $65.7 million driven by a $72.8 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction and a $6.9 million increase from our equity investments.

These increases were partially offset by an $11.5 million decrease from our other wholly-owned gaming properties and a $2.5 million decrease attributable to proceeds for business interruption insurance claims related to Hurricane Ida.

We received $4.1 million of proceeds in 2022 compared to $1.6 million received in 2023.

• All Other Adjusted EBITDA decreased $12.1 million primarily driven by increased corporate compensation and benefits related expenses and legal and professional fees.

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

Reconciliation of Comprehensive Income to Adjusted EBITDA

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

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

(in millions) 2023 2022 Change 2023 2022 Change

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Adjusted EBITDA $ 218.2 $ 163.2 $ 55.0 $ 804.8 $ 582.9 $ 221.9

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) June 30, 2023 December 31, 2022 Change

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

Total assets $ 6,750.5 $ 6,206.8 $ 543.7

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

• 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.

• Total assets increased $543.7 million primarily driven by increased capital expenditures and assets acquired in the Exacta Transaction, partially offset by the sale of our Arlington property and the Presque Isle impairment in 2023.

• Total liabilities increased $206.5 million primarily driven by a net increase in long-term debt, income tax liabilities and increased accrued interest, partially offset by decreased dividends payable due to the payment of our annual dividends.

• Total shareholders’ equity increased $337.2 million driven by increased net income and stock-based compensation, partially offset by share repurchases.

Liquidity and Capital Resources

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

(in millions) Six Months Ended June 30,

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

(in millions) Nine Months Ended September 30,

Cash flows from:

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Financing activities 38.7 1,020.1 (981.4)

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.

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

• Cash flows provided by operating activities increased $74.3 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 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 anticipate that cash flows from operations and availability of borrowings under our credit facility over the next twelve months will be adequate to fund our business operations and capital expenditures.

• Cash flows used in investing activities increased $442.5 million driven by increased capital project expenditures in 2023 primarily at Churchill Downs Racetrack and for the Dumfries project in Virginia, increased cash used in acquisitions, and decreased proceeds from the sale of assets.

• Cash flows provided by financing activities decreased $981.4 million primarily driven by repayments of long-term debt in 2023 and higher levels of financing than in the prior year period.

We have spent $445.7 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 significant project capital investments planned for the fourth quarter of 2023 include:

The planned amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.

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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 June 30, 2023.

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

The Company repurchased $37.3 million of its common stock during the three months ended September 30, 2023 and had $232.9 million of repurchase authority remaining under this program on September 30, 2023, based on trade date.

Credit Facilities and Indebtedness

The following table presents our debt outstanding:

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

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

Revolver $ 118.7 $ 664.1 $ (545.4)

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Net debt $ 4,654.8 $ 4,558.7 $ 96.1

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

Credit Agreement

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.

At September 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, are described below.

On April 13, 2022, we amended the Credit Agreement to extend the maturity date of its Revolver to April 13, 2027, to increase the commitments under the existing revolving credit facility from $700.0 million to $1.2 billion, and to increase the swing line commitment from $50.0 million to $100.0 million.

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

For the period ended September 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 June 30, 2023, that applicable margin was 150 basis points.

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

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

The estimated contractual payments, including interest, under the Credit Agreement for the next twelve months are estimated to be $181.2 million assuming no change in the weighted average borrowing rate of 7.01%, which was in place as of September 30, 2023.

During the nine months ended September 30, 2023, we had net repayments of principal and interest on the Revolver of $548.6 million.

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

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2027 Senior Notes

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.

As of September 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 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 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.

As of September 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 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").

As of September 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.

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

In connection with the offering, we capitalized $18.3 million of debt issuance costs which are being amortized as interest expense over the term of the 2030 Senior Notes.

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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 (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.

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 Senior 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.

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The Company capitalized $10.7 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 June 30, 2023, are estimated as follows:

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

Term Loan A 32.5 130.0 1,105.0 — $ 1,267.5

Interest on Term Loan A (1)

43.1 160.3 93.3 — 296.7

Term Loan B-1 1.5 6.0 6.0 279.8 293.3

Interest on Term Loan B-1 (1)

10.8 42.3 41.3 4.3 98.7

Revolver — — — — —

Interest on Revolver — — — — —

2027 Senior Notes — — 600.0 — 600.0

2028 Senior Notes — — — 700.0 700.0

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

Interest on 2028 Senior Notes 16.6 66.5 66.5 16.6 166.2

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

0.9 5.2 5.0 11.6 22.7

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 6.79% 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.

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

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

The Company leases certain real estate and other property.

Most of our building and land leases have terms of 2 to 10 years and include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more.

Certain of our lease agreements include lease payments based on a percentage of net gaming revenue and others include rental payment adjustments periodically for inflation.

As of September 30, 2023, minimum rent payable under operating leases was $28.0 million, with $6.3 million due in the next twelve months.

As of September 30, 2023, minimum rent payable accounted for as financing obligations was $56.3 million, with $4.4 million due in the next twelve months.

Other Contractual Obligations

The Company has other contractual obligations that consist primarily of minimum guarantees with commitments of $21.6 million, $0.9 million of which is due within the next twelve months.

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