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Item 7. Management’s Discussion and Analysis

2024-02-21 compared with 2023-02-22 · 212 added, 182 removed, 264 unchanged (60% of the section changed)

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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.

Headquartered in Louisville, Kentucky, CDI has expanded through the development of live and historical racing entertainment venues, the growth of the TwinSpires horse racing online wagering business and the operation and development of regional casino gaming properties.

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

During the first quarter of 2022, our chief operating decision maker decided to include the results of our United Tote business in the TwinSpires segment as we evolve our strategy to integrate the United Tote offering with TwinSpires Horse Racing, which we believe will create additional business-to-business revenue opportunities.

Headquartered in Louisville, Kentucky, CDI has expanded through the development of live and historical racing entertainment venues, the growth of the TwinSpires horse racing online wagering business, expanded pari-mutuel content and technology services to B2C platforms, and the operation and development of regional casino gaming properties.

For additional information, refer to Note 21, Segment Information to the notes to consolidated financial statements included in Item 8.

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2023 Transactions

Exacta Systems, LLC Acquisition

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

Exacta Systems ("Exacta") is a leading provider of central determinate system technology in HRMs across the country.

Exacta’s system architecture supports multiple game vendors and virtually unlimited math modeling capabilities on a single central determinate system enabling Exacta to deliver a diverse gaming library to Company owned and third-party HRM entertainment venues in Kentucky, Virginia, Wyoming, and New Hampshire.

For additional information, refer to Note 3, Acquisitions to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Arlington Sale

On February 15, 2023, we closed on the sale of the Arlington property in Arlington Heights, Illinois.

We sold 326-acres to the Chicago Bears for $197.2 million.

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

For additional information, refer to Note 4, Dispositions to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Lady Luck Casino Nemacolin

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.

2022 Transactions

Peninsula Pacific Entertainment Acquisition

On November 1, 2022, the Company completed the acquisition of substantially all the ass ets of Peninsula Pacific Entertainment, LLC ("P2E") with a base purchase price of $2.75 billion ("P2E Transaction") subject to working capital and other purchase price adjustments.

On November 1, 2022, the Company completed the acquisition of substantially all the assets of P2E with a base purchase price of $2.75 billion ("P2E Transaction") subject to working capital and other purchase price adjustments.

The Company acquired the following properties as part of the P2E Transaction:

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

The P2E Transaction also included development rights for two properties currently under development in Dumfries and Emporia, Virginia with up to five additional Historical Racing Machines ("HRMs") entertainment venues as well as ONE Casino and Resort in collaboration with Urban One.

Colonial Downs Racetrack in New Kent, Virginia, six historical racing entertainment venues in Virginia, del Lago Resort & Casino in Waterloo, New York, and the Hard Rock Hotel & Casino in Sioux City, Iowa.

The P2E Transaction also included HRM development rights for two properties in Emporia, Virginia and Dumfries, Virginia.

The Company invested $30.0 million in a seventh Virginia based HRM entertainment venue that opened on September 26, 2023 in Emporia, Virginia.

The Company is also investing approximately $460.0 million to construct The Rose Gaming Resort (“The Rose”) in Dumfries, Virginia with an expected completion late in the third quarter of 2024.

Ellis Park Acquisition

On September 26, 2022, the Company completed the acquisition of Ellis Park Racing & Gaming ("Ellis Park Transaction").

Ellis Park Racing & Gaming ("Ellis Park") is a racetrack and gaming facility venue with HRMs.

As part of the acquisition, the Company also acquired the rights to construct an HRM entertainment venue as an annex of Ellis Park.

In June 2023, the

Company announced it planned to invest approximately $100 million in a new HRM entertainment venue on the east side of Owensboro, Kentucky with an expected completion in the first quarter of 2025.

Chasers Poker Room Acquisition

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The Company plans to develop an expanded charitable gaming facility in Salem to accommodate HRMs and table games.

As part of the Chasers Transaction, the Company made an initial payment to the sellers for rights to operate the poker room and to build a historical racing entertainment venue.

Ellis Park Acquisition

On September 26, 2022, the Company completed the acquisition of Ellis Park Racing & Gaming ("Ellis Park Transaction").

Ellis Park Racing & Gaming ("Ellis Park") is a racetrack and gaming facility venue with HRMs.

As part of the acquisition, the Company also acquired the rights to construct an HRM entertainment venue in Owensboro, Kentucky.

Calder Land Sale

On June 17, 2022, the Company closed on the sale of 115.7 acres of land near Calder Casino ("Calder") for $291.0 million to Link Logistics Real Estate, a Blackstone portfolio company.

On June 17, 2022, the Company closed on the sale of 115.7 acres of land near Calder Casino for $291.0 million to Link Logistics Real Estate, a Blackstone portfolio company.

The Company received cash proceeds of $279.0 million which was net of $12.0 million of transaction costs.

We recognized a gain of $274.6 million on the sale of the land, which is included in other income in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss).

Exacta Systems, LLC Acquisition

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"), subject to certain working capital and other purchase price adjustments.

The Exacta Transaction will provide the Company the ability to realize synergies related to the Company's recent acquisition of the HRM entertainment venues in Virginia.

We recognized a gain of $274.6 million on the sale of the land.

Other Business Activities

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.

For additional information, refer to Note 10, Shareholders' Equity to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Presque Isle Impairment

During the quarter ended June 30, 2023, the Company 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 ("2023 Trigger Event").

Based on the 2023 Trigger Event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the economic environment at that time.

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.

For additional information, refer to Note 8, Asset Impairments to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

During the quarter ended December 31, 2022, the Company evaluated whether events or circumstances changed that would indicate it is more likely than not that any of the Company's intangible assets, goodwill, or property and equipment, were impaired.

Based on the Company's evaluation, the Company concluded that a trigger event for impairment testing occurred related to the Presque Isle Downs and Casino ("Presque Isle") gaming rights, trademark, and the reporting unit's goodwill due to continued negative economic conditions that negatively impacted the estimates and assumptions utilized in our indefinite-lived intangible asset impairment assessment.

As a result of the updated discount rate to reflect the increased uncertainty of the cash flows and updated projected cash flow stream, the Company recorded a $33.4 million non-cash impairment charge in fourth quarter of 2022 for the Presque Isle gaming rights and trademark.

Based on the Company's evaluation, 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 due to negative economic conditions ("2022 Trigger Event").

Based on the 2022 Trigger Event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the economic environment at that time.

As a result, the Company recorded a $33.4 million non-cash impairment charge in fourth quarter of 2022 for the Presque Isle gaming rights and trademark.

Exit of the Direct Online Sports and Casino Business

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Based on the Company’s evaluation, the Company recorded a $4.9 million non-cash impairment charge related to certain assets in the TwinSpires segment.

The Company will maintain its retail Sports operations and has monetized two of its online market access licenses

Impact of the COVID-19 Global Pandemic

In March 2020, as a result of the COVID-19 outbreak, we temporarily suspended operations at our wholly-owned and managed gaming properties.

In May 2020, we began to reopen our properties with patron restrictions and gaming limitations, which fluctuated with the changing environment.

All of our gaming properties have remained open since January 2021.

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

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

Due to such restrictions, our revenues from the Kentucky Oaks and Derby in each year were significantly less than we would otherwise expect.

The 148th Kentucky Oaks and Derby were held in the second quarter of 2022 without capacity restrictions.

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.

As of December 31, 2023, the Company has exited every state for the direct online Sports and Casino business.

The Company will maintain its retail sports betting operations and has monetized four of its online market access licenses.

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 due 2027 by $500.0 million.

This joinder increased the existing Term Loan A due 2027 from $800.0

million to $1.3 billion and makes certain other changes to the existing credit agreement.

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 13, 2022, we completed an offering of $1.2 billion in aggregate principal amount of 5.75% senior notes that mature in 2030.

The offering of the 2030 Senior Notes was part of the financing utilized for the P2E Transaction.

For additional information on these transactions, refer to Note 12, Debt to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

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 Company has received a deposit on the pending transaction of $14.4 million.

The transaction is subject to usual and customary closing conditions, including applicable regulatory notices and approvals and is expected to close in the first half of 2024.

Key Indicators to Evaluate Business Results and Financial Condition

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• Transaction expense, net which includes:

– Acquisition, disposition, and land sale related charges;

– Acquisition, disposition, and property sale related charges;

– Direct online Sports and Casino business exit costs;

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• Asset impairments;

• Gain on Calder land sale;

• Gain on sale of assets;

• 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 its assets at Lady Luck for an immaterial amount.

As of December 31, 2021, Arlington International Racecourse ("Arlington") ceased racing and simulcast operations.

On February 15, 2023, the Company closed on the sale of the property to the Chicago Bears.

For more information, refer to Note 4, Dispositions and Assets Held for Sale, to the notes to consolidated financial statements included in this Annual Report on Form 10-K.

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

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

See the Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA included in this section for additional information.

For more information, refer to Note 4, Dispositions, to the notes to consolidated financial statements included in this Annual Report on Form 10-K.

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 Consolidated Statements of Comprehensive Income.

See the Reconciliation of Comprehensive Income to Adjusted EBITDA included in this section for additional information.

Business Highlights

In 2022, we delivered strong performance while continuing the execution of several organic investments and completing the largest acquisition in our Company’s history that collectively we believe will provide long-term sustainable value creation.

We delivered strong growth in net revenue, operating income, net income, and Adjusted EBITDA compared to fiscal year 2021:

In 2023, we delivered strong performance while continuing the execution of several organic investments.

We delivered strong growth in net revenue, operating income, and Adjusted EBITDA compared to fiscal year 2022:

• Net revenue was $2.5 billion, up $651.9 million or 36%.

• Net income was $439.4 million, up $190.3 million or 76%;

• Adjusted EBITDA was $763.6 million, up $136.6 million, or 22%;

• Cash from continuing operations was $510.8 million, up $51.3 million or 11%.

• Operating income was $564.0 million, up $242.2 million or 75%.

• Net income was $417.3 million, down $22.1 million or 5%.

• Adjusted EBITDA was $1.0 billion, up $260.3 million, or 34%.

Live and Historical Racing Segment:

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• Churchill Downs Racetrack:

▪ Derby Week successfully returned to full capacity at Churchill Downs Racetrack with the 148th Kentucky Derby with over 147,000 fans gathered in person to watch the most exciting two minutes in sports on the first Saturday in May.

▪ We successfully completed the Homestretch Club prior to the 148th Kentucky Derby and approximately $8.0 million under budget.

▪ We continued construction on the new First Turn Experience which will be completed for the 149th Kentucky Derby in May 2023 and the Paddock Project for the 150th Kentucky Derby in May 2024.

▪ We extended the partnership with Woodford Reserve as the Presenting Sponsor for the Kentucky Derby through 2027.

• Derby City Gaming delivered record net revenue and Adjusted EBITDA.

We continued construction of the gaming floor expansion and new five-story hotel.

• Oak Grove delivered record net revenue and Adjusted EBITDA.

• We celebrated the opening of the new HRM entertainment venue and racetrack facility at Turfway Park in September 2022.

• We began construction of Derby City Gaming Downtown in Louisville, Kentucky as a new HRM entertainment venue.

• We completed the acquisition of Chasers in Salem, New Hampshire on September 2, 2022, which will enable the Company to expand its HRM strategy with table games to the New England market.

• We completed the acquisition of Ellis Park in Henderson, Kentucky in September 2022 including the rights to build an HRM entertainment venue in Owensboro, Kentucky.

◦ Churchill Downs Racetrack ran the 149 th Kentucky Derby with record Derby Week all-sources handle and record Derby Week contribution to Adjusted EBITDA with over 150,000 fans gathered in person to watch the most exciting two minutes in sports on the first Saturday in May.

◦ We successfully completed the First Turn Experience prior to the 149 th Kentucky Derby.

◦ We continued construction of the Paddock Project which is scheduled to be finished in time for the 150 th Kentucky Derby the first weekend in May 2024.

• Kentucky HRMs :

◦ Derby City Gaming:

Delivered record net revenue and Adjusted EBITDA and completed the expansion of the gaming floor and opened a new hotel.

◦ Derby City Gaming Downtown :

Opened in Louisville, Kentucky, on December 6, 2023.

Delivered record net revenue and Adjusted EBITDA for a second year in a row.

Announced plans to invest approximately $100 million in a new HRM entertainment venue on the east side of Owensboro with an expected completion in the first quarter of 2025.

• Virginia HRMs:

◦ Southern Virginia - Rosie's Gaming Emporium:

Opened in Emporia, Virginia on September 26, 2023.

◦ Northern Virginia - The Rose Gaming Resort (Dumfries):

We continued construction of a $460 million gaming and entertainment resort and hotel in Dumfries, Virginia with a scheduled completion late in the third quarter of 2024.

TwinSpires Segment:

• Adjusted EBITDA was $132.1 million, up $18.0 million or 16% from fiscal year 2022.

• We announced a multi-year agreement with FanDuel to enable FanDuel to create a fully integrated and seamless wagering experience with a single wallet for their customers who want to bet on sports and on horse racing with FanDuel TV driving ongoing engagement beginning in January 2023.

• We announced a multi-year agreement with DraftKings to provide ADW technology and other services.

• We announced the exit of the Online Sports & Casino business in February 2022 and ceased online wagering in Tennessee, Colorado, Indiana, New Jersey, and Michigan.

• We have executed strategic market access agreements with Bet365 in Pennsylvania and with Golden Nugget in Indiana to monetize our online wagering skins.

• The Gaming Segment delivered a record $421.9 million of Adjusted EBITDA, an increase of $10.0 million or 2.4% from fiscal year 2021.

• We generated wholly-owned same-store casino margins of 34.5% in 2022, down 2.0 basis points from 2021 and 5.8 basis points higher than 2019.

• Rivers Des Plaines completed their $90 million gaming floor expansion in April 2022 which added 725 gaming positions, a 24-table poker room and additional amenities.

• We began construction of a $290 million casino, hotel, and entertainment venue in Terre Haute, Indiana.

• We completed the sale of 115.7 acres of land near Calder for $291.0 million or approximately $2.5 million per acre to Link Logistics Real Estate on June 17, 2022.

We also executed a §1031 transaction to defer approximately $76.0 million of taxes related to the sale of the land.

• TwinSpires Horse Racing:

◦ We launched a multi-year agreement with FanDuel to enable FanDuel to create a fully integrated and seamless wagering experience with a single wallet for their customers who want to bet on sports and horse racing with FanDuel.

◦ We launched a multi-year agreement with DraftKings to provide ADW technology and other services.

We completed the acquisition of Exacta, a leading provider of central determinate system technology in HRMs across the country.

• Sports Betting:

We opened seven retail sports books and monetized three of our Kentucky online sports betting licenses upon the authorization of sports betting in Kentucky.

Gaming Segment:

• Adjusted EBITDA was a record $488.6 million, up $66.7 million or 16% from fiscal year 2022.

• Terre Haute Casino Resort :

We continued construction of a $290 million casino, hotel, and entertainment venue in Terre Haute, Indiana scheduled to open in the second quarter of 2024.

• We closed the sale of our Arlington Heights, Illinois property to the Chicago Bears for $197.2 million on February 15, 2023.

• We completed the offering of $600.0 million in 6.750% senior notes that mature in 2031.

• We amended our senior secured credit agreement to increase the loans under the existing Term Loan A due 2027 by $500 million.

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

• In December 2023 we announced a repurchase of 1,000,000 shares of our common stock for $123.75 per share from an affiliate of The Duchossois Group, Inc that closed on January 2, 2024.

The Company’s total shareholder return was 28% for 2023 compared to 26.5% for the Russell 1000 and 26.3% for the S&P 500.

The Company’s five-year total shareholder return for 2023 was 237% compared to 106% for the Russell 1000 and 107% for the S&P 500.

The preceding shareholder return calculations assume dividends are reinvested.

We delivered strong financial results in 2023 and remain committed to driving long-term sustainable growth.

Our company generates strong cash flow and our balance sheet is solid and able to support our organic growth and strategic acquisitions that we believe will create long-term value for our shareholders.

Environmental, Social, and Governance

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and further diversification of our Board of Directors and increasing engagement with our shareholders.

• We continued our diversity, equity, and inclusion initiatives (DE&I) including the roll-out of our mission, vision, culture statement, and core values company-wide.

• We closed the sale of our Arlington Heights, Illinois property to the Chicago Bears for $197.2 million on February 15, 2023.

• We completed the acquisition of substantially all the assets of P2E with a base purchase price of $2.75 billion on November 1, 2022.

The P2E assets acquired included Colonial Downs and six HRM entertainment venues in Virginia, del Lago in New York, and Hard Rock Sioux City, as well as the development rights for Dumfries and Emporia HRM facilities in Virginia, up to five additional HRM entertainment venues in Virginia, and ONE Casino & Resort in Virginia in collaboration with Urban One.

▪ We completed the financing for the acquisition in April 2022 by closing a $1.2 billion Senior Secured Revolver due 2027, $800 million of Senior Secured Delayed Draw Term Loan A due 2027, and $1.2 billion of Senior Notes due 2030 at a 5.75% interest rate.

• We announced a definitive agreement to acquire Exacta for $250.0 million.

The acquisition will provide the Company the opportunity to realize additional synergies related to our recent acquisition of the P2E HRM assets in Virginia.

The Company’s total shareholder return was (12)% for 2022 compared to (19)% for the Russell 1000 and (18)% for the S&P 500.

The Company’s five-year total shareholder return for 2022 was 178% compared to 55% for the Russell 1000 and 57% for the S&P 500.

The preceding shareholder return calculations assume dividends are reinvested.

We remain committed to delivering strong financial results and long-term sustainable growth.

Our businesses generate strong cash flow and we have a solid balance sheet that supports our organic growth as well as strategic acquisitions that we believe will create long-term value for our shareholders.

• We also continued our diversity, equity, and inclusion initiatives (DE&I) including the roll-out of our mission, vision, culture statement, and core values company-wide.

Our Operations

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Operating income margin 22.9 % 17.8 %

Net income from continuing operations $ 439.4 $ 249.1 $ 190.3

Net income $ 417.3 $ 439.4 $ (22.1)

Adjusted EBITDA 1,023.9 763.6 260.3

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

• Net revenue increased $212.6 million driven by a $205.5 million increase from Live and Historical Racing primarily due to revenue attributable to the Virginia properties acquired in the P2E, Ellis Park and Chasers Transactions, the running of the 2022 Kentucky Derby without capacity restrictions that were in place in 2021, and continued growth at our Oak Grove property and at Derby City Gaming and a $60.5 million increase from Gaming primarily due to our New York and Iowa properties acquired in the P2E Transaction and increased revenue in Maine, Florida, and Maryland as a result of certain capacity restrictions during the first half of 2021 that did not recur.

Partially offsetting these increases were a $15.0 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 and the exit of our direct online Sports and Casino business in the first quarter of 2022 and a $38.4 million decrease from All Other, primarily due to Arlington not conducting live racing and simulcast during 2022.

• Operating income increased $37.4 million due to a $93.5 million increase in Live and Historical Racing primarily due to the running of the 2022 Kentucky Derby without restrictions, increases in revenue at our historical racing facilities in Kentucky, and the incremental revenue from the acquired properties in Virginia, and a $37.2 million increase in TwinSpires driven by decreased online marketing and promotions expense.

Partially offsetting these increases were a $34.2 million increase in transaction expense driven by the P2E Transaction, a $25.7 million increase in selling, general and administrative expenses due to an increase in Corporate compensation related expenses, legal fees, and charitable donations, a $23.0 million increase in asset impairments, a decrease of $9.3 million in All Other due to Arlington not conducting live racing in 2022, and a $1.1 million decrease in Gaming.

• Net income from continuing operations increased $190.3 million.

The following items impacted comparability of the Company's net income from continuing operations for the year ended December 31, 2022 compared to the prior year:

a $198.7 million non-cash after tax gain on the sale of Calder assets and a $6.5 million after tax decrease in expense related to Rivers Des Plaines' legal reserves and transaction costs.

Offsetting these increases in net income were a $17.8 million non-cash after-tax increase in asset impairments;

a $35.5 million after-tax increase in transaction, pre-opening and other expenses, net, a $2.8 million after-tax increase in legal reserves, and $0.7 million of other charges.

Excluding these items, net income increased $41.8 million primarily due to a $63.5 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $21.7 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $136.6 million driven by a $112.5 million increase from Live and Historical Racing primarily due to an increase attributable to the Virginia properties acquired in the P2E, Ellis Park and Chasers Transactions, an increase due to the running of the 2022 Kentucky Derby without capacity restrictions that were in place in 2021, and continued growth at our Oak Grove property and at Derby City Gaming, a $31.4 million increase from TwinSpires primarily due to a decrease in marketing spend as a result of exiting the Sports and Casino business, and a $10.0 million increase from Gaming driven by an increase in New York and Iowa from the properties acquired

as part of the P2E Transaction and an increase primarily from our properties in Maine, Florida, and Louisiana as a result of capacity restrictions in 2021 that did not recur.

These increases were partially offset by declines in Mississippi and Pennsylvania driven by the current economic factors and a $17.3 million decline in All Other primarily due to Arlington not conducting live racing and simulcast operations in 2022.

• Net revenue increased $651.9 million driven by a $432.7 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, a $212.7

million increase in Gaming revenue primarily due to our New York and Iowa properties acquired in the P2E Transaction, and an $8.5 million increase in TwinSpires revenue primarily attributable to the Exacta Transaction, partially offset by a $2.0 million decrease in All Other revenue.

• Operating income increased $242.2 million due to a $171.4 million increase in Live and Historical Racing income primarily attributable to the Virginia properties acquired in the P2E Transaction, the opening of Turfway Park in Northern Kentucky in September 2022, the properties acquired in the Ellis Park and Chasers Transactions, and continued growth at our other Kentucky properties, a $50.6 million increase in Gaming income primarily from the New York and Iowa properties acquired in the P2E Transaction, a $13.9 million increase in TwinSpires income primarily due to the exit of the direct online Sports and Casino business in the first quarter of 2022 and an increase attributable to the Exacta Transaction, a $37.3 million decrease in transaction costs, and a $13.7 million decrease in non-cash impairment costs.

These increases were partially offset by a $38.1 million increase in selling, general and administrative expenses primarily due to the P2E Transaction, and a $6.6 million decrease in All Other operating income primarily related to Arlington exit costs.

• Net income from decreased $22.1 million.

The following items impacted comparability of the Company's net income for the year ended December 31, 2023 compared to the prior year:

a $112.4 million decrease in after-tax gains on property sales and 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.

Offsetting these decreases to net income were a $16.6 million after-tax decrease in transaction, pre-opening and other expenses, a $10.1 million after-tax decrease in non-cash asset impairments, and a $3.1 million decrease of other charges.

Excluding these items, net income increased $69.7 million due to a $197.1 million after-tax increase primarily driven by the results of our operations, partially offset by a $127.4 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $260.3 million driven by a $187.9 million increase in Live and Historical Racing Adjusted EBITDA primarily attributable to 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 $66.7 million increase in Gaming Adjusted EBITDA primarily from the New York and Iowa properties acquired in the P2E Transaction, and an $18.0 million increase in TwinSpires Adjusted EBITDA primarily due to the exit of the direct online Sports and Casino business and an increase attributable to the Exacta Transaction, partially offset by a $12.3 million increase in corporate general administrative expenses.

Revenue by Segment

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Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

• Live and Historical Racing revenue for 2022 increased $215.8 million primarily due to $62.4 million in revenue attributable to the Virginia properties acquired in the P2E Transaction, $8.0 million in revenue attributable to properties acquired in the Ellis Park and Chasers Transactions, $77.6 million increased revenue at Churchill Downs Racetrack primarily due to the running of the 2022 Kentucky Derby without capacity restrictions that were in place in 2021, and $67.8 million increase driven primarily by growth at our Oak Grove property and Derby City Gaming as well as the opening of Turfway Park in September 2022.

• TwinSpires revenue decreased $16.2 million primarily due to a decrease in pari-mutuel handle as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online and 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 $46.5 million attributable to our New York and Iowa properties acquired in the P2E Transaction, $25.5 million in Maine, Florida, and Maryland as a result of certain capacity restrictions during the first half of 2021 and a $9.7 million increase in Louisiana as a result of the 2022 Jazz Festival that was not held in the prior year due to COVID-19 and shutdowns in 2021 due to Hurricane Ida that did not recur.

Partially offsetting these increases was a decrease of $18.3 million primarily from our Mississippi and Pennsylvania properties due to the current economic conditions.

• All Other revenue decreased $45.9 million primarily as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

• Live and Historical Racing revenue increased $438.2 million driven by a $313.9 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $41.2 million increase in Northern Kentucky primarily due to the opening of Turfway Park in September 2022, a $36.4 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 $19.2 million increase from our Derby City Gaming property and the opening of Derby City Gaming Downtown in December 2023 in Louisville, Kentucky, and a $16.5 million increase from our Oak Grove property in Southwestern Kentucky.

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.

• TwinSpires revenue increased $16.8 million driven by a $19.1 million increase attributable to the Exacta Transaction, a $5.3 million increase primarily from the B2B expansion strategy associated with United Tote totalisator fees, a $1.9

million increase from our retail sports betting business, and a $1.8 million increase in all other Horse Racing revenue primarily driven by increased handle from our higher-wagering volume customer base, partially offset by 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 2023 and an $11.3 million reduction primarily due to the exit of the direct online Sports and Casino business in the first quarter of 2022.

• Gaming revenue increased $212.8 million driven by a $230.0 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction, partially offset by a $16.9 million decrease in Pennsylvania primarily due to our decision not to renew the management agreement at Lady Luck and a $0.3 million net decrease from our other gaming properties.

Consolidated Operating Expense

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(in millions) 2023 2022

Taxes and purses $ 473.7 $ 434.5 $ 39.2

Gaming taxes and purses $ 613.4 $ 473.7 $ 139.7

Content expense 173.0 173.7 (0.7)

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Marketing and advertising expense 83.4 52.9 30.5

Maintenance, insurance and utilities 88.9 61.5 27.4

Property and other taxes 26.4 16.0 10.4

Asset impairments 24.6 38.3 (13.7)

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Total expense $ 1,897.7 $ 1,488.0 $ 409.7

Percent of revenue 82 % 82 %

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Significant items affecting comparability of consolidated operating expense include:

• The additional properties acquired as part of the P2E, Ellis Park and Chasers Transactions drove increases in taxes and purses, salaries and benefits, selling, general and administrative and other operating expenses.

• In May 2022, we ran the Kentucky Derby without capacity restrictions which drove increases in salaries and benefits and other operating expenses.

• In addition to the impacts from the acquisitions, Corporate compensation related expenses, legal fees, and charitable donations also contributed to increases in selling, general and administrative expenses.

• The decline of $21.6 million in marketing and advertising expense was primarily due to decreased online marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online Sports and Casino business.

This decrease was partially offset by increased marketing spend at the Kentucky HRM properties in our Live and Historical Racing segment.

• The increase in asset impairments was driven by a $33.4 million non-cash impairment charge at Presque Isle.

• Transaction expense increased $34.2 million due to the P2E, Ellis Park, and Chasers Transactions.

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

• The decrease in asset impairments was driven by reduced non-cash impairment charges in 2023 compared to 2022 primarily at Presque Isle.

• Transaction expenses decreased $37.3 million primarily driven by expenses incurred in 2022 in connection with the P2E Transaction.

Adjusted EBITDA by Segment

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Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

• Live and Historical Racing Adjusted EBITDA increased $112.5 million due to a $30.1 million increase attributable to the Virginia properties acquired in the P2E Transaction, a $0.7 million increase attributable to properties acquired in the Ellis Park and Chasers Transactions, a $59.1 million increase at Churchill Downs Racetrack primarily due to the running of the 2022 Kentucky Derby without capacity restrictions that were in place in 2021, and a $22.6 million increase primarily due to the continued growth at our Oak Grove property and at Derby City Gaming.

• TwinSpires Adjusted EBITDA increased $31.4 million primarily due to a $40.0 million increase from our Sports and Casino business primarily due to decreased marketing and promotional activities and an $8.6 million decrease attributable to lower Horse Racing net revenue.

• Gaming Adjusted EBITDA increased $10.0 million driven by a $17.9 million increase in New York and Iowa from the properties acquired as part of the P2E Transaction, an $11.6 million increase primarily from our properties in Maine, Florida, and Louisiana as a result of capacity restrictions in 2021 that did not recur, and a $2.8 million increase from our equity investments.

Partially offsetting these increases was a decrease of $22.3 million primarily from our Mississippi and Pennsylvania properties due to the current economic conditions.

• All Other Adjusted EBITDA decreased $17.3 million primarily due to the elimination of the $9.7 million operating income related to Arlington as a result of ceasing racing and simulcast operations at the end of 2021 and a $7.6 million increase in Corporate compensation related expenses, legal fees, and charitable donations.

• Live and Historical Racing Adjusted EBITDA increased $187.9 million driven by a $145.0 million increase attributable to the Virginia properties acquired in the P2E Transaction and savings as a result of the Exacta Transaction, a $15.7 million increase due to a record-breaking Derby Week at Churchill Downs Racetrack, a $13.1 million increase from continued growth at Oak Grove in Southwestern Kentucky, an $8.6 million increase in Northern Kentucky primarily due to the opening of Turfway Park in September 2022, a $7.2 million increase due to growth from our Derby City Gaming property and the opening of Derby City Gaming Downtown in December 2023 in Louisville, Kentucky, and a $5.4 million increase attributable to our other Live and Historical Racing properties.

These increases were partially offset by a $7.1 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 2023.

• TwinSpires Adjusted EBITDA increased $18.0 million driven by an $11.8 million increase attributable to the Exacta Transaction, an $11.3 million increase primarily from significant cost reductions associated with the exit of the direct online Sports and Casino business in the first quarter of 2022, and a $3.7 million increase primarily from the B2B expansion strategy associated with United Tote totalisator fees.

These increases were partially offset by an $8.8 million decrease primarily as a result of lower retail Horse Racing handle as well as higher content-related expenses and higher advance deposit wagering taxes in certain jurisdictions.

• Gaming Adjusted EBITDA increased $66.7 million driven by a $78.9 million increase attributable to the New York and Iowa properties acquired in the P2E Transaction and a $7.1 million increase from our equity investments.

These increases were partially offset by a $14.6 million decrease from our other wholly owned Gaming properties primarily driven by Florida, Mississippi, and Pennsylvania, and a $4.7 million decrease attributable to proceeds for business interruption insurance claims related to Hurricane Ida.

We received $6.3 million of insurance proceeds in 2022 compared to $1.6 million in 2023.

• All Other Adjusted EBITDA decreased $12.3 million primarily driven by increased corporate compensation expenses.

Reconciliation of Comprehensive Income to Adjusted EBITDA

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(in millions) 2023 2022

Net income and comprehensive income attributable to Churchill Downs Incorporated $ 439.4 $ 249.1 $ 190.3

Net loss attributable to noncontrolling interest — — —

Net income 439.4 249.1 190.3

Loss from discontinued operations, net of tax — — —

Income from continuing operations, net of tax 439.4 249.1 190.3

Net income and comprehensive income $ 417.3 $ 439.4 $ (22.1)

Depreciation and amortization 169.0 113.7 55.3

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Adjustments to EBITDA:

Selling, general and administrative:

Stock-based compensation expense $ 32.9 $ 31.8 $ 1.1

Legal reserves (1.2) 3.8 (5.0)

Other charges 7.4 0.2 7.2

Pre-opening expense and other expense 13.2 5.8 7.4

Pre-opening expense 18.6 13.2 5.4

Arlington exit costs 9.4 5.7 3.7

Other expense, net 7.0 1.7 5.3

Transaction expense, net 4.8 42.1 (37.3)

Asset impairments 24.6 38.3 (13.7)

Other income, expense:

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Other charges and recoveries, net 2.4 1.0 1.4

Gain on Calder land sale (274.6) — (274.6)

Transaction expense, net 42.1 7.9 34.2

Asset impairments 38.3 15.3 23.0

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

Total adjustments to EBITDA 24.7 (106.2) 130.9

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Total shareholders’ equity 0.9 0.6 0.3

• Total assets increased $3.2 billion driven by a $2.4 billion increase in goodwill and other intangibles from the P2E, Ellis Park and Chasers Transactions and a $1.0 billion increase in property and equipment, net from the P2E and Ellis Park Transactions and construction projects.

Partially offsetting these increases was a $0.2 billion decrease in cash and cash equivalents due to outflows for bond and term loan interest, capital expenditures related to ongoing construction projects and payments for the purchases of Ellis Park and Chasers.

• Total liabilities increased $2.9 billion driven by a $1.2 billion increase in notes payable, net of debt issuance costs, related to the closing of the 2030 Senior Notes, a $1.4 billion increase in long-term debt, driven by the P2E

Transaction, a $0.2 billion increase in liabilities assumed as part of the P2E, Ellis Park and Chasers Transactions, and an increase in deferred income taxes.

• Total shareholders’ equity increased $0.3 billion driven by net income of $0.4 billion, partially offsetting this increase was $0.1 billion of primarily stock repurchases, and taxes paid related to net share settlement of stock awards.

• Total assets increased $0.8 billion 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 $0.5 billion driven by increased notes payable, accrued capital expenditures, and increased deferred revenue primarily due to increased advanced ticket sales related to the 150 th Kentucky Derby, partially offset by a net pay down of long-term debt.

• Total shareholders’ equity increased $0.3 billion driven by increased net income and stock-based compensation, partially offset by share repurchases.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources have been and will continue to be cash flow from operations, borrowings under our credit facility, and proceeds from the issuance of debt securities.

Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, acquisitions or equity investments, funding of construction for development projects, and our compliance with our covenants under our credit facility.

Our ongoing liquidity will depend on several factors, including available cash resources, cash flow from operations, acquisitions, or equity investments, funding of construction for development projects, and our compliance with our covenants under our credit facility.

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

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Operating Cash Flow

Cash provided by operating activities increased from increased operating income, increased distributions from unconsolidated affiliates, and tax refunds in the current year driven by prior years' tax return losses.

These increases were partially offset by an increase in net interest paid and transaction costs paid as part of the P2E Transaction and other operating expenses.

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 provided by operating activities increased $0.1 billion driven by increased operating income and increased deferred revenue from advanced ticket sales and sponsorships related to the 150 th Kentucky Derby .

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

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.

Investing Cash Flow

Cash used in investing activities increased $3.0 billion driven primarily by $3.0 billion used for the P2E, Ellis Park and Chasers Transactions, increased capital maintenance expenditures of $0.3 billion, partially offset by proceeds from the Calder land sale of $0.3 billion.

Cash used in investing activities decreased $2.4 billion driven by the P2E Transaction in 2022, partially offset by increased capital project expenditures in 2023 primarily at Churchill Downs Racetrack, Terre Haute Casino Resort, and The Rose Gaming Resort in Dumfries, Virginia, and decreased proceeds from the sale of assets.

Financing Cash Flow

Cash provided by financing activities increased $2.4 billion primarily driven by a $2.3 billion increase in net borrowings from long-term debt and a $0.1 billion decrease in common stock repurchases.

Cash provided by financing activities decreased $2.3 billion primarily driven by a $2.4 billion decrease in net borrowings from long-term debt and notes payable and a $119.0 million decrease in common stock repurchases.

Capital Expenditures

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

We have announced several project capital investments, 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, a New Hampshire HRM Facility, the Virginia HRM entertainment venues in Dumfries and Emporia, and HRMs in our Louisiana OTBs.

We have spent $599.5 million in 2023 on project capital investments including:

Churchill Downs Racetrack Paddock Project, Derby City Gaming Downtown, Owensboro Racing & Gaming in Eastern Daviess County, Kentucky, the Terre Haute Casino Resort in Vigo County, Indiana, a New Hampshire HRM Facility, and The Rose Gaming Resort in Dumfries.

We currently expect our project capital to be approximately $450.0 to $550.0 million in 2024, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.

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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.

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We had $214.9 million of repurchase authority remaining under this program on December 31, 2023.

On October 25, 2022, the Company's Board of Directors approved an annual cash dividend on our common stock of $0.714 per outstanding share, which represented a 7% increase over the prior year.

On December 18, 2023, the Company entered into an agreement (the “2023 Stock Repurchase Agreement”) with an affiliate of The Duchossois Group ("TDG") to repurchase 1,000,000 shares of the Company’s common stock, for $123.75 per share representing a discount of 4.03% to the closing price on December 15, 2023 of $128.95 for an aggregate purchase price of $123.8 million.

The repurchase of the shares of Company's common stock pursuant to the 2023 Stock Repurchase Agreement closed on January 2, 2024, and contains customary representations, warranties, and covenants of the parties.

The repurchase of shares of common stock from TDG pursuant to the 2023 Stock Repurchase Agreement was approved by the Company's Board of Directors separately from and did not reduce the authorized amount remaining under the existing common stock repurchase

The repurchase of the shares was funded using available cash and borrowings under the Company’s senior secured credit facility.

On October 24, 2023, the Company's Board of Directors approved an annual cash dividend on our common stock of $0.382 per outstanding share, which represented a 7% increase over the prior year on a split adjusted basis.

The dividend was payable on January 5, 2024 to shareholders of record as of the close of business on December 1, 2023.

The 7% increase marked the 12th consecutive year that the Company has increased the dividend.

The 7% increase marked the thirteenth consecutive year that the Company has increased the dividend per share.

The payment and amount of future dividends will be determined by the Board of Directors and will depend upon, among other things, our operating results, financial condition, cash requirements, and general business conditions at the time such payment is considered.

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2030 Senior Notes 1,200.0 1,200.0 —

2031 Senior Notes 600.0 — 600.0

Total debt 4,874.0 4,638.8 235.2

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Credit Agreement

On December 27, 2017, we entered into a senior secured credit agreement ("2017 Credit Agreement") with a syndicate of lenders.

The 2017 Credit Agreement provided for a $700.0 million senior secured revolving credit facility due 2024 (the "Revolver") and a $400.0 million senior secured term loan B due 2024 (the "Term Loan B").

Included in the maximum borrowing of $700.0 million under the Revolver was a letter of credit sub facility not to exceed $50.0 million and a swing line commitment up to a maximum principal amount of $50.0 million.

The Term Loan B bears interest at LIBOR plus 200 basis points and requires quarterly payments of 0.25% of the original $400.0 million balance, or $1.0 million per quarter.

At December 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"), $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, the Company amended the Credit Agreement to extend the maturity date of its existing Revolver to April 13, 2027, to increase the commitments under the existing Revolver from $700.0 million to $1.2 billion, and to increase the swing line commitment from $50.0 million to $100.0 million.

The amendment also provided for a 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 in the accompanying Consolidated Financial Statements for more information regarding the P2E Transaction.

The Company capitalized $3.5 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.

On February 24, 2023, we amended our Credit Agreement to increase the loans under the Term Loan A due 2027 from $800.0 million to $1.3 billion and made certain other changes to the existing credit agreement.

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

The Company capitalized $2.6 million of debt issuance costs associated with the increased Term Loan A which are being amortized as interest expense over the remainder of the 5-year term.

Term Loan B-1 bears interest at Secured Overnight Financing Rate ("SOFR") plus 210 basis points and requires quarterly payments of 0.25% of the original $300.0 million balance.

The Term Loan B-1 may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement.

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 December 31, 2023, that applicable margin was 150 basis points which

was based on the pricing grid in the Credit Agreement.

The Company had $947.6 million available borrowing capacity, after consideration of $5.3 million in outstanding letters of credit, under the Revolver as of December 31, 2023.

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 December 31, 2023, the Company's commitment fee rate was 0.25%.

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

1 (the "Joinder") to its 2017 Credit Agreement which provided $300.0 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing 2017 Credit Agreement (as conformed to recognize the new loan) and carries a maturity date of March 17, 2028.

The Term Loan B-1 bears interest at LIBOR plus 200 basis points and requires quarterly payments of 0.25% of the original $300.0 million balance.

The Term Loan B-1 may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the 2017 Credit Agreement.

On April 13, 2022, the Company amended the 2017 Credit Agreement (as amended, the "Credit Agreement") to extend the maturity date of its existing Revolver to April 13, 2027, to increase the commitments under the existing Revolver from $700.0 million to $1.2 billion, and to increase the swing line commitment from $50.0 million to $100.0 million.

The amendment also provides for a senior secured Delayed Draw 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.

For more information regarding the P2E Transaction, refer to Note 3, Acquisitions, to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

The Revolver and Delayed Draw Term Loan A bear interest at the Secured Overnight Financing Rate ("SOFR") plus 10 basis points, plus a variable applicable margin which is determined by the Company's net leverage ratio.

As of December 31, 2022, that applicable margin was 125 basis points which was based on the pricing grid in the Credit Agreement.

During 2022, we have borrowed $664.1 million on our Revolver which provided the Company with financing for the Chasers, Ellis Park, and P2E Transactions.

For more regarding the Chasers, Ellis Park and P2E Transactions, refer to Note 3, Acquisitions, to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

The Company had $524.8 million available borrowing capacity, after consideration of $11.1 million in outstanding letters of credit, under the Revolver as of December 31, 2022.

The phase-out of LIBOR for 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 is in the process of transitioning its financing from LIBOR to alternative reference rates.

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

The Company completed the transition of its financing from London Interbank Offered Rate to SOFR during the second quarter of 2023.

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

The Credit Agreement is collateralized by substantially all the wholly owned assets of the Company.

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persons in accordance with Regulation S under the Securities Act.

The Company used the net proceeds from the offering to repay the then-outstanding balance on the Revolver.

In connection with the offering, we capitalized $8.9 million of debt issuance costs which are being amortized as interest expense over the term of the 2027 Senior Notes.

The 2027 Senior Notes were issued at par, with interest payable on April 1 st and October 1 st of each year, commencing on October 1, 2019.

The 2027 Senior Notes were issued pursuant to an indenture, dated March 25, 2019 (the "2027 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2027 Guarantors"), and U.S.

Bank National Association, as trustee.

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

The terms of the 2027 Indenture, among other things, limit the ability of the Company to:

(i) incur additional debt and issue preferred stock, (ii) pay dividends or make other restricted payments, (iii) make certain investments, (iv) create liens, (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments, (vi) sell assets, (vii) merge or consolidate with other entities, and (viii) enter into transactions with affiliates.

T he 2027 Senior Notes will vote as one class under the indenture governing the 2027 Senior Notes.

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

2028 Senior Notes

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The Company used the net proceeds from the offering to repay a portion of our $600.0 million 5.375% Senior Unsecured Notes due in 2021.

In connection with the offering, we capitalized $7.7 million of debt issuance costs which are being amortized as interest expense over the term of the Existing 2028 Notes.

On March 17, 2021, the Company completed an offering of $200.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "Additional 2028 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.

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The Additional 2028 Notes were offered under the indenture dated as of December 27, 2017, governing the $500.0 million aggregate principal amount of 4.75% Senior Unsecured Notes due 2028 and form a part of the same series for purposes of the indenture.

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

Upon completion of this offering, the aggregate principal amount outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively, the "2028 Senior Notes"), is $700.0 million.

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

The 2028 Senior

Notes will vote as one class under the indenture governing the 2028 Senior Notes.

The 2028 Senior Notes will vote as one class under the indenture governing the 2028 Senior Notes.

The 3.25% premium is being amortized through interest expense, net over the term of the Additional 2028 Notes.

The Company used the net proceeds from the Additional 2028 Notes and the Term Loan B-1:

(i) to repay indebtedness outstanding under our Revolver, (ii) to fund related transaction fees and expenses, and (iii) for working capital and other general corporate purposes.

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

Bank National Association, as trustee.

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

The terms of the 2028 Indenture, among other things, limit the ability of the Company to:

2030 Senior Notes

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The offering of the 2030 Senior Notes was part of the financing utilized for the P2E Transaction.

The Company held the net proceeds of this transaction of $1.2 billion in escrow until the proceeds were utilized to complete the P2E Transaction on November 1, 2022, at which time CDI assumed the obligation and became the Issuer.

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.

The 2030 Senior Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 13, 2022, with interest payable in arrears on April 1 st and October 1 st of each year, commencing on October 1, 2022.

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The Issuer may redeem some of or all the 2030 Senior Notes at any time prior to April 1, 2025, at redemption prices set forth in the 2030 Offering Memorandum.

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 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.

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.

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

The Company capitalized $10.5 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 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 1 st and November 1 st 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.

Contractual Obligations

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Dividends $ 28.5 $ — $ — $ — $ 28.5

Term Loan B 4.0 376.0 — — 380.0

Interest on Term Loan B (1)

22.1 21.7 — — 43.8

Revolver — — 247.2 — 247.2

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

2031 Senior Notes — — — 600.0 600.0

Interest on 2027 Senior Notes 33.0 66.0 16.5 — 115.5

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Interest on 2030 Senior Notes 69.0 138.0 138.0 106.0 451.0

Interest on 2031 Senior Notes 40.5 81.0 81.0 101.3 303.8

Operating and Finance Leases 10.3 19.5 14.5 37.0 81.3

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Critical Accounting Policies and Estimates

Our significant accounting policies and recently adopted accounting policies are more fully described in Note 2, Significant Accounting Policies of the notes to consolidated financial statements included in Item 8.

Our significant accounting policies and recently adopted accounting policies are more fully described in Note 2, Significant Accounting Policies to the notes to consolidated financial statements included in Item 8.

Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

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Our critical accounting estimates relate to goodwill and certain indefinite-lived intangible assets.

Goodwill and certain indefinite-lived intangible assets

Acquisition of certain identifiable indefinite-lived intangible assets

In conjunction with the acquisition of a business, the Company records identifiable indefinite-lived intangible assets acquired at their respective fair values as of the date of acquisition.

Goodwill and certain intangible assets

Acquisition of certain identifiable intangible assets

In conjunction with the acquisition of a business, the Company records identifiable intangible assets acquired at their respective fair values as of the date of acquisition.

Our indefinite-lived intangible assets primarily consist of gaming rights and trademarks.

Gaming rights and trademarks are considered indefinite-lived intangible assets that do not require amortization based on our future expectations to operate our gaming facilities and use the trademarks indefinitely, and our historical experience in renewing these intangible assets at minimal cost with various state gaming commissions.

We use various valuation methods to determine initial fair value of our indefinite-lived intangible assets, including the Greenfield Method and relief-from-royalty method of the income approach, all of which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy.

Certain of our gaming rights and trademarks are considered indefinite-lived intangible assets that do not require amortization based on our future expectations to operate our gaming facilities and use the trademarks indefinitely, and our historical experience in renewing these intangible assets at minimal cost with various state gaming commissions.

Our definite-lived intangible assets primarily consist of technology and other assets.

We use various valuation methods to determine initial fair value of our intangible assets, including the Greenfield Method and relief-from-royalty method of the income approach, all of which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy.

The use of these valuation methods requires us to make significant estimates and assumptions about future revenue and operating expenses, expected start-up costs, capital expenditures, royalty rate, and the discount rate.

The fair values of gaming rights are generally determined using the Greenfield Method, which is an income approach methodology that calculates the present value based on a projected cash flow stream.

This method assumes

that the gaming rights provides the opportunity to develop a casino or historical racing facility in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights.

The fair values of gaming rights are generally determined using the Greenfield Method, which is an income

approach methodology that calculates the present value based on a projected cash flow stream.

This method assumes that the gaming rights provides the opportunity to develop a casino or historical racing facility in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights.

Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the acquisition and/or the creation of all tangible and intangible assets.

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The estimated future revenue, royalty rate, and the discount rate are the primary assumptions and estimates used in these valuations.

The fair value of technology assets are generally determined using the relief-from-royalty method of the income approach, which estimates the cost savings that accrue to the owner of the intangibles asset that would otherwise be payable as royalties or license fees on revenues earned through the use of the asset.

The estimated future revenue, royalty rate, and discount rate are the primary assumptions and estimates used in the valuations.

The discount rates used to discount expected future cash flows to present value are generally derived from the weighted average cost of capital analysis and adjusted for the size and/or risk of the asset.

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Assessments of goodwill and indefinite-lived intangible assets

We perform our annual review for impairment of goodwill and indefinite-lived intangible assets on April 1 of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not the asset is impaired.

We perform our annual review for impairment of goodwill and indefinite-lived intangible assets on April 1 st of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not the asset is impaired.

Adverse industry or economic trends, lower projections of profitability, or a sustained decline in our market capitalization, among other items, may be indications of potential impairment issues which are triggering events requiring the testing of an asset’s carrying value for recoverability.

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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-K

Item 7. Management’s Discussion and Analysis