Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in Part II, Item 8. Financial Statements and Supplementary Data. The following discussion provides an analysis of our results of operations and reasons for material changes therein for 2024 as compared to 2023. Discussion regarding our financial condition and results of operations for 2023 as compared to 2022 is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 21, 2024.
Our Business
Churchill Downs Incorporated ("CDI" or the "Company") has been creating extraordinary entertainment experiences for over 150 years, beginning with the Company’s most iconic and enduring asset, the Kentucky Derby. Headquartered in Louisville, Kentucky, CDI has expanded through the acquisition, development, and operation of live and historical racing entertainment venues, the growth of the online wagering businesses, and the acquisition, development, and operation of regional casino gaming properties.
2024 Transactions and Expansions
The Rose Gaming Resort Opening
In November 2024, the Company opened The Rose Gaming Resort approximately 30 miles south of Washington D.C. The Company invested approximately $460 million to construct The Rose Gaming Resort with a 102-room hotel, eight food and beverage options, and 1,650 historical racing machines ("HRMs"). The Rose Gaming Resort has the potential to be expanded to up to 1,800 HRMs.
Terre Haute Casino Resort Opening
In April 2024, the Company opened the Terre Haute Casino Resort in Terre Haute, Indiana. The Company invested approximately $290 million to develop the Terre Haute Casino Resort with a luxury hotel, 1,040 slot machines, 36 tables games, a state-of-the-art sportsbook, and regionally inspired food and beverage amenities.
NYRA Transaction
In April 2024, the Company closed on the sale of 49% of the United Tote Company (“United Tote”), a wholly owned subsidiary of CDI, to NYRA Content Management Solutions, LLC ("NYRA"), a subsidiary of the New York Racing Association, Inc.
2023 Transactions and Expansions
Derby City Gaming Downtown Opening
In December 2023, the Company opened Derby City Gaming Downtown in Louisville, Kentucky. The Company invested approximately $90 million to develop Derby City Gaming Downtown with a gaming area, a main-level sports bar with a stage for live entertainment, retail sports betting, a premium bourbon bar, and an elegant wine lounge for guests, including locals, tourists, and convention attendees.
Exacta Systems, LLC Acquisition
On August 22, 2023, the Company completed its acquisition of Exacta Systems, LLC ("Exacta Transaction"). Exacta Systems, LLC ("Exacta") is a leading provider of central determinant 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 determinant system enabling Exacta to deliver a diverse gaming library to Company owned and third-party HRM entertainment venues in Virginia, Kentucky, Wyoming, New Hampshire, and is expanding internationally.
Lady Luck Casino Nemacolin Agreement
In June 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.
Derby City Gaming & Hotel Expansion
In June 2023, the Company invested approximately $78 million to expand the Derby City Gaming facility in Louisville, Kentucky and build a five-story hotel with 123 rooms including amenities to better serve and attract guests. The expansion included a VIP gaming area, a new sports bar, a stage for live entertainment, and an upscale-casual restaurant and bar.
31
Arlington Sale
On February 15, 2023, the Company 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 LLC.
Other Business Activities
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. Based on the 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 7, 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.
Stock Split
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 9, 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.
Key Indicators to Evaluate Business Results and Financial Condition
Our management monitors a variety of key indicators to evaluate our business results and financial condition. These indicators include changes in net revenue, operating expense, operating income, earnings per share, outstanding debt balance, operating cash flow and capital spend.
Our consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"). We also use non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. We believe that the use of Adjusted EBITDA as a key performance measure of results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy, and allocate resources. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:
Adjusted EBITDA includes our portion of EBITDA from our equity investments and the portion of EBITDA attributable to a noncontrolling interest.
Adjusted EBITDA excludes:
• Transaction expense, net which includes:
– Acquisition, disposition, and property sale related charges;
– Other transaction expense, including legal, accounting and other deal-related expense;
• Stock-based compensation expense;
• Rivers Des Plaines' impact on our investments in unconsolidated affiliates from:
– Legal reserves and transaction costs;
• Asset impairments;
• Gain on property sales;
• Legal reserves;
32
• Pre-opening expense; and
• Other charges, recoveries and expenses
As of December 31, 2021, Arlington International Racecourse ("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 2023 are treated as an adjustment.
On June 26, 2023, the Company's management agreement for Lady Luck in Farmington, Pennsylvania expired and was not renewed.
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 Net Income to Adjusted EBITDA included in this section for additional information.
Business Highlights
In 2024, we delivered strong performance while continuing the execution of several organic investments that 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 2023:
• Net revenue was $2.7 billion, up $272.6 million or 11.1%;
• Net income was $426.8 million, up $9.5 million or 2.3%;
• Adjusted EBITDA was $1.2 billion, up $135.3 million, or 13.2%;
• Cash from operations was $771.7 million, up $166.4 million or 27.5%.
Live and Historical Racing Segment:
• Adjusted EBITDA was $574.6 million, up $99.2 million or 20.9% from fiscal year 2023.
• Churchill Downs Racetrack:
◦ Churchill Downs Racetrack ran the 150th Kentucky Derby on the first Saturday of May, generating all-time record all-sources handle and all-time record Derby Week Adjusted EBITDA with nearly 157,000 fans gathered in person to watch the most exciting two minutes in sports.
◦ We successfully completed the transformative Paddock Project prior to the 150th Kentucky Derby. This multi-year project fundamentally improves the entire venue for every guest and provides a foundation to further innovate for years to come.
◦ We extended the agreement with NBC Sports to continue hosting the Kentucky Derby on NBC and Peacock through 2032.
◦ We announced the Starting Gate Pavilion and Courtyard renovation to be open for the 151st Kentucky Derby.
• Kentucky HRMs:
◦ Owensboro Racing & Gaming: Constructed a new HRM entertainment venue that opened in February 2025 in Owensboro, Kentucky.
◦ Marshall Yards Racing & Gaming: Announced a new HRM entertainment venue near Paducah, Kentucky, that will open in the first quarter of 2026.
• Virginia HRMs:
◦ The Rose Gaming Resort: Opened a world class entertainment resort in Dumfries, Virginia in November 2024 that includes 1,650 HRMs, eight bars and restaurants, and a hotel with over 100 rooms and event space.
◦ Richmond Expansion: Announced plans to further expand the Richmond, Virginia HRM venue by 450 HRMs.
◦ Roseshire Henrico County: Announced plans to open a new HRM entertainment venue in Henrico County, Virginia that will include 175 HRMs.
Wagering Services and Solutions Segment:
• Adjusted EBITDA was $165.6 million, up $33.5 million or 25.4% from fiscal year 2023.
• We expanded Exacta technology and product offerings to customers in new states and internationally.
33
• We monetized online sports betting market access in select states (Indiana, Kentucky, and Pennsylvania) with third parties.
Gaming Segment:
• Adjusted EBITDA was $506.9 million, up $18.3 million or 3.7% from fiscal year 2023.
• Terre Haute Casino Resort: Opened the Terre Haute Casino Resort in April 2024 and luxury 122-room hotel in May 2024 that includes over 1,000 slot machines, table games, a state-of-the-art retail sportsbook, a 400,000 square-foot entertainment venue, and several food and drink offerings.
All Other:
• We amended our senior secured credit agreement to extend the maturity date of our revolving credit facility and term loan A facility from 2027 to 2029 and to make certain other changes to our existing credit agreement.
• We repurchased $65.3 million of shares under our share repurchase program in 2024, based on trade date.
• We continued in our ESG efforts with the ongoing promotion of responsible gaming; initiatives at our properties to lessen energy and water usage, to decrease carbon emissions, and to responsibly manage waste; increasing investments in the communities in which we operate and supporting our teams through educational and leadership development; and increasing engagement with our shareholders.
The Company’s five-year total shareholder return for 2024 was 97.6% compared to 94.9% for the Russell 1000 and 97.0% 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.
Our Operations
We manage our operations through three reportable segments: Live and Historical Racing, Wagering Services and Solutions, and Gaming.
Refer to Part I, Item 1. Business, of this Annual Report on Form 10-K for more information on our segments and a description of our competition and government regulations and potential legislative changes that affect our business.
Consolidated Financial Results
The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:
Years Ended December 31, Change
(in millions) 2024 2023
Net revenue $ 2,734.3 $ 2,461.7 $ 272.6
Operating income 709.0 564.0 145.0
Operating income margin 25.9 % 22.9 %
Net income attributable to Churchill Down Incorporated $ 426.8 $ 417.3 $ 9.5
Adjusted EBITDA 1,159.2 1,023.9 135.3
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
• Net revenue increased $272.6 million driven by a $178.3 million increase from the Live and Historical Racing segment primarily from growth at our Virginia properties and the opening of the Rosie's Emporia HRM venue and The Rose Gaming Resort, a record-breaking Derby Week at Churchill Downs Racetrack, and growth at our other HRM venues, a $70.5 million increase from the Gaming segment primarily from the opening of the Terre Haute Casino Resort, and a $24.6 million increase from the Wagering Services and Solutions segment primarily from to our Exacta business. All Other net revenue decreased $0.8 million.
• Operating income increased $145.0 million driven by a $105.1 million increase from the Live and Historical Racing segment primarily from a record-breaking Derby Week at Churchill Downs Racetrack, lower fees related to the Exacta technology used in the Company's HRM operations, the opening of the Rosie's Emporia HRM venue and The Rose Gaming Resort, and growth at our other HRM venues, a $21.6 million increase from the Gaming segment primarily from the opening of the Terre Haute Casino Resort, partially offset by inclement weather in January 2024, regional
34
gaming softness, and increased competition, a $20.7 million increase from a reduction of non-cash impairment costs, a $16.9 million benefit to transaction expense primarily related to the settlement of certain liabilities recorded at the time of the Company's November 2022 acquisition of substantially all of the assets of Peninsula Pacific Entertainment LLC, and a $16.3 million increase in the Wagering Services and Solutions segment primarily from our Exacta business. Partially offsetting these increases to operating income was a $35.4 million increase in selling, general and administrative expenses and a $0.2 million decrease in All Other operating income.
• Net income attributable to Churchill Downs Incorporated increased $9.5 million. The following impacted comparability of the Company's net income for the year ended December 31, 2024 compared to the prior year: an $86.2 million after-tax gain on the sale of the Arlington property in the prior year, partially offset by a $15.7 million after-tax decrease in non-cash impairment costs, a $12.8 million after- tax decrease in transaction, pre-opening, and other expense primarily from the settlement of certain liabilities recorded at the time of the Company's November 2022 acquisition of substantially all of the assets of Peninsula Pacific Entertainment LLC, a $5.1 million after-tax increase of other charges and recoveries, net related to non-recurring insurance claim recoveries, and a $0.9 million after-tax decrease of all other charges. Excluding these items, net income increased $61.2 million primarily due to a $77.0 million after-tax increase primarily driven by the results of our operations and equity income from our unconsolidated affiliates, partially offset by a $15.8 million after-tax increase in interest expense associated with higher outstanding debt balances and higher interest rates.
• Adjusted EBITDA increased $135.3 million driven by a $99.2 million increase from the Live and Historical Racing segment primarily from a record-breaking Derby Week at Churchill Downs Racetrack and growth at our HRM venues, a $33.5 million increase from the Wagering Services and Solutions segment primarily due to our Exacta business, and an $18.3 million increase from the Gaming segment primarily from the opening of the Terre Haute Casino Resort in April 2024 that was partially offset by inclement weather in January 2024, regional gaming softness, and increased competition. These increases were partially offset by a decrease of All Other Adjusted EBITDA of $15.7 million.
Revenue by Segment
The following table presents net revenue for our segments, including intercompany revenues:
Years Ended December 31, Change
(in millions) 2024 2023
Live and Historical Racing $ 1,267.0 $ 1,084.6 $ 182.4
Wagering Services and Solutions 500.7 458.4 42.3
Gaming 1,045.4 974.6 70.8
All Other 6.6 0.9 5.7
Eliminations (85.4) (56.8) (28.6)
Net Revenue $ 2,734.3 $ 2,461.7 $ 272.6
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
• Live and Historical Racing revenue increased $182.4 million due to a $57.2 million increase at Churchill Downs Racetrack due to a record-breaking 150th Derby Week, a $25.9 million increase in Northern Virginia including the opening of The Rose Gaming Resort, a $17.2 million increase from the opening of the Rosie’s Emporia HRM venue in Southern Virginia in September 2023, a $39.5 million increase from our other Virginia HRM venues, a $41.5 million increase from our Kentucky HRM venues, and a $1.1 million increase from our New Hampshire venue.
• Wagering Services and Solutions revenue increased $42.3 million due to a $40.8 million increase from our Exacta business primarily from growth in our third party HRM business and from the growth of our Virginia HRM venues and a $2.0 million increase from our sports betting business, partially offset by a $0.5 million decrease from TwinSpires Ho rse Racing.
• Gaming revenue increased $70.8 million primarily due to a $96.6 million increase from the opening of the Terre Haute Casino Resort. This increase was partially offset by a $15.6 million decrease from our other wholly owned gaming properties primarily due to inclement weather in January 2024, regional gaming softness, and increased competition; and a $10.2 million decrease due to our decision not to renew the management agreement at Lady Luck at the end of June 2023.
• All Other revenue increased $5.7 million primarily due to intercompany revenue related to the captive insurance company that was established in April 2024. All captive revenue is eliminated in consolidation.
35
Consolidated Operating Expense
The following table is a summary of our consolidated operating expense:
Years Ended December 31, Change
(in millions) 2024 2023
Taxes and purses $ 662.9 $ 613.4 $ 49.5
Content expense 168.4 173.0 (4.6)
Salaries and benefits 330.1 285.3 44.8
Selling, general and administrative expense 237.7 202.3 35.4
Depreciation and amortization 199.1 169.0 30.1
Marketing and advertising expense 90.7 83.4 7.3
Maintenance, insurance and utilities 95.2 88.9 6.3
Property and other taxes 23.0 26.4 (3.4)
Asset impairments 3.9 24.6 (20.7)
Transaction (benefit) expense, net (12.1) 4.8 (16.9)
Other operating expense 226.4 226.6 (0.2)
Total expense $ 2,025.3 $ 1,897.7 $ 127.6
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Operating expenses increased $127.6 million for the year ended December 31, 2024 compared to December 31, 2023 primarily due to the Exacta Transaction in August 2023, the opening of Rosie's Emporia in September 2023, Derby City Gaming Downtown in December 2023, Terre Haute Casino Resort in Indiana in April 2024, and The Rose Gaming Resort in Virginia in November 2024. Transaction (benefit) expense, net for the year ended December 31, 2024, includes the settlement of certain liabilities recorded at the time of the Company's November 2022 acquisition of substantially all of the assets of Peninsula Pacific Entertainment LLC which resulted in a benefit to transaction expense of $18.8 million. Asset impairments for the year ended December 31, 2024 include a $3.9 million write-off in the third quarter of 2024 of HRMs in Virginia that are no longer in use. Asset impairments for the year ended December 31, 2023 include the $24.5 million non-cash impairment of Presque Isle intangible assets in the second quarter of 2023.
Adjusted EBITDA by Segment
We believe that the use of Adjusted EBITDA as a key performance measure of the results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.
Year Ended December 31, Change
(in millions) 2024 2023
Live and Historical Racing $ 574.6 $ 475.4 $ 99.2
Wagering Services and Solutions 165.6 132.1 33.5
Gaming 506.9 488.6 18.3
Total segment Adjusted EBITDA 1,247.1 1,096.1 151.0
All Other (87.9) (72.2) (15.7)
Total Adjusted EBITDA $ 1,159.2 $ 1,023.9 $ 135.3
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
• Live and Historical Racing Adjusted EBITDA increased $99.2 million due to a $32.6 million increase at Churchill Downs Racetrack due to a record-breaking 150th Derby Week, $9.7 million increase in Northern Virginia including the opening of The Rose Gaming Resort, a $7.1 million increase from the opening of the Rosie’s Emporia HRM venue in Southern Virginia in September 2023, a $38.3 million increase from our other Virginia HRM venues, and an $11.5 million increase primarily from our other Kentucky HRM venues.
36
• Wagering Services and Solutions Adjusted EBITDA increased $33.5 million due to a $29.2 million increase from our Exacta business because of increased fees from our Virginia HRM venues, a $2.2 million increase from a one-time reduction in accrued compensation expenses related to our Exacta business, and a $2.6 million increase primarily from our sports betting business, partially offset by a $0.5 million decrease from TwinSpires Horse Racing.
• Gaming Adjusted EBITDA increased $18.3 million primarily due to a $44.5 million increase from the opening of the Terre Haute Casino Resort and a $3.0 million increase from our equity investment in Miami Valley Gaming. These increases were partially offset by a $19.5 million decrease from our wholly owned gaming properties and an $8.5 million decrease from our equity investment in Rivers Des Plaines primarily due to inclement weather in January 2024, regional gaming softness, increased competition, and higher labor and benefit expense; and a $1.2 million decrease from proceeds for business interruption insurance claims in the third quarter 2023 that did not reoccur.
• All Other Adjusted EBITDA decreased $15.7 million driven primarily by increased corporate compensation related expenses and other corporate administrative expenses driven by enterprise growth.
37
Reconciliation of Net Income to Adjusted EBITDA
Years Ended December 31, Change
(in millions) 2024 2023
Net income attributable to Churchill Downs Incorporated $ 426.8 $ 417.3 $ 9.5
Net income attributable to noncontrolling interest 2.3 — 2.3
Net income 429.1 417.3 11.8
Adjustments:
Depreciation and amortization 199.1 169.0 30.1
Interest expense 289.8 268.4 21.4
Income tax provision 144.1 144.5 (0.4)
Stock-based compensation expense 36.1 32.9 3.2
Legal reserves — (1.2) 1.2
Pre-opening expense 29.6 18.6 11.0
Arlington exit costs — 9.4 (9.4)
Other expense, net 4.2 7.0 (2.8)
Transaction (benefit) expense, net (12.1) 4.8 (16.9)
Asset impairments 3.9 24.6 (20.7)
Other income, expense:
Interest, depreciation and amortization expense related to equity investments 42.0 40.2 1.8
Rivers Des Plaines' legal reserves and transactions costs 0.3 — 0.3
Other charges and recoveries, net (6.9) 2.4 (9.3)
Gain on the sale of assets — (114.0) 114.0
Total adjustments 730.1 606.6 123.5
Adjusted EBITDA $ 1,159.2 $ 1,023.9 $ 135.3
Consolidated Balance Sheet
The following table is a summary of our overall financial position:
As of December 31, Change
(in billions) 2024 2023
Total assets $ 7.3 $ 7.0 $ 0.3
Total liabilities 6.2 6.1 0.1
Total shareholders’ equity 1.1 0.9 0.2
• Total assets increased $0.3 billion driven by increased capital expenditures primarily at the Terre Haute Casino Resort, Churchill Downs Racetrack, Owensboro Racing and Gaming in Western Kentucky, and The Rose Gaming Resort in Northern Virginia.
• Total liabilities increased $0.1 billion driven primarily by increased borrowings on our revolver and increased deferred income taxes, partially offset by decreased accrued capital expenditures and decreased deferred revenue due to the recognition of revenue related to the 150th Kentucky Derby.
• Total shareholders’ equity increased $0.2 billion driven by net income and the addition of a redeemable noncontrolling interest, 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.
38
The following table is a summary of our liquidity and cash flows:
Year Ended December 31, Change
(in millions) 2024 2023
Cash Flows from:
Operating activities $ 771.7 $ 605.3 $ 166.4
Investing activities (545.2) (718.0) 172.8
Financing activities (196.6) 129.3 (325.9)
Operating Cash Flow
Cash flows from operating activities increased $166.4 million driven by increased operating income and due to the change in working capital primarily related to an increase in short-term gaming and racing liabilities as a result of our Company’s growth and a decrease in accounts receivable primarily from the timing of collections. Partially offsetting these increases to cash from operating activities was increased interest paid and decreased distributions from our unconsolidated affiliates in 2024. 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 flows used in investing activities decreased $172.8 million primarily driven by decreased funds used in acquisitions and capital expenditures in 2024, partially offset by proceeds from the Arlington sale received in 2023.
Financing Cash Flow
Cash flows from financing activities decreased $325.9 million primarily driven by decreased net proceeds from long-term debt in 2024 compared to 2023 and by increased share repurchases in 2024.
Capital Expenditures
Included in cash flows from investing activities are capital maintenance expenditures and capital project expenditures. Capital maintenance expenditures relate to the replacement of existing fixed assets with a useful life greater than one year that are obsolete, exhausted, or no longer cost effective to repair. 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 spent $463.4 million in 2024 on project capital investments including: Churchill Downs Racetrack Paddock Project, the Terre Haute Casino Resort in Vigo County, Indiana, The Rose Gaming Resort in Northern Virginia, and Owensboro Racing & Gaming in Western Kentucky. We currently expect our project capital to be approximately $350 to $400 million in 2025, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties.
Common Stock Repurchase Program
On September 29, 2021, the Board of Directors of the Company approved a common stock repurchase program of up to $500.0 million ("2021 Stock Repurchase Program"). Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended or discontinued at any time. We had $149.6 million of repurchase authority remaining under this program as of December 31, 2024.
Dividends
On October 22, 2024, the Company's Board of Directors approved an annual cash dividend on our common stock of $0.409 per outstanding share, which represented a 7% increase over the prior year. The dividend was payable on January 3, 2025 to shareholders of record as of the close of business on December 6, 2024. The 7% increase marked the fourteenth consecutive year that the Company has increased the dividend. 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.
39
Credit Facilities and Indebtedness
The following table presents our debt outstanding, bond premium and debt issuance costs:
As of December 31, Change
(in millions) 2024 2023
Term Loan B-1 due 2028 $ 288.8 $ 291.8 $ (3.0)
Term Loan A due 2029 1,172.4 1,235.0 (62.6)
Revolver 377.5 247.2 130.3
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 —
Total debt 4,938.7 4,874.0 64.7
Current maturities of long-term debt (63.1) (68.0) 4.9
Total debt, net of current maturities 4,875.6 4,806.0 69.6
Issuance cost and fees (31.5) (37.7) 6.2
Total debt $ 4,844.1 $ 4,768.3 $ 75.8
Credit Agreement
At December 31, 2024, 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"), $288.8 million senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $1.2 billion senior secured term loan A due 2029 (the "Term Loan A"), and $100.0 million swing line commitment. Certain amendments to the Credit Agreement entered into during 2023, 2024, and 2025 are described below.
On February 24, 2023, the Company closed an amendment of the Credit Agreement to increase the loans under the Term Loan A 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.
On July 3, 2024, the Company closed an amendment of the Credit Agreement to extend the maturity date of the Revolver and Term Loan A from 2027 to 2029 and amend certain other provisions of the Credit Agreement. The Company has $5.7 million of capitalized unamortized debt issuance costs associated with the Term Loan A which are being amortized as interest expense over the remainder of the term.
On February 14, 2025, the Company announced that it closed the seventh amendment of the Credit Agreement. The seventh amendment to the Credit Agreement (i) reduced the interest rate for the Term Loan B-1 from Secured Overnight Financing Rate ("SOFR") plus 200 basis points to SOFR plus 175 basis points, (ii) eliminates the 0.10% credit spread adjustment, and (iii) makes certain other amendments to the Credit Agreement.
The Term Loan B-1 requires quarterly payments of 0.25% of the original $300.0 million balance and 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, 2024, that applicable margin was 150 basis points which was based on the pricing grid in the Credit Agreement. The Company had $814.9 million available borrowing capacity, after consideration of $7.6 million in outstanding letters of credit, under the Revolver as of December 31, 2024.
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, 2024, the Company's commitment fee rate was 0.25%.
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. The Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates. The Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio.
40
Actual as of
December 31, 2024 Requirement
Interest coverage ratio 3.9 to 1.0 > 2.5 to 1.0
Consolidated total secured net leverage ratio 1.3 to 1.0 < 4.0 to 1.0
The Company was compliant with all applicable covenants on December 31, 2024.
2027 Senior Notes
On March 25, 2019, the Company completed an offering of $600.0 million in aggregate principal amount of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. 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 1st and October 1st of each year, commencing on October 1, 2019. 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
On December 27, 2017, the Company completed an offering of $500.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "Existing 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. persons in accordance with Regulation S under the Securities Act. The Existing 2028 Notes were issued at par, with interest payable on January 15th and July 15th of each year, commencing on July 15, 2018. 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. persons in accordance with Regulation S under the Securities Act. 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 15th and July 15th 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 3.25% premium is being amortized through interest expense, net over the term of the Additional 2028 Notes.
The Company may redeem some or all the 2028 Senior Notes at redemption prices set forth in the 2028 Indenture.
2030 Senior Notes
On April 13, 2022, a wholly owned subsidiary of the Company completed an offering of $1.2 billion in aggregate principal amount of 5.75% Senior Unsecured Notes that mature on April 13, 2030 (the "2030 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that was exempt from registration under the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The offering of the 2030 Senior Notes was part of the financing utilized for the acquisition of substantially all of the assets of Peninsula Pacific Entertainment LLC. 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 1st and October 1st of each year, commencing on October 1, 2022. The 2030 Senior Notes will vote as one class under the indenture governing the 2030 Senior Notes.
41
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 6.75% 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 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.
Contractual Obligations
Our commitments to make future payments as of December 31, 2024, are estimated as follows:
(in millions) 2025 2026-2027 2028-2029 Thereafter Total
Dividends $ 30.1 $ — $ — $ — $ 30.1
Revolver — — 377.5 — 377.5
Interest on Revolver (1)
22.8 45.6 34.5 — 102.9
Term Loan B-1 3.0 6.0 279.8 — 288.8
Interest on Term Loan B-1 (1)
18.8 37.1 3.9 — 59.8
Term Loan A 60.1 120.2 992.1 — 1,172.4
Interest on Term Loan A (1)
69.5 128.1 86.9 — 284.5
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 33.0 49.5 — — 82.5
Interest on 2028 Senior Notes 33.3 66.5 16.6 — 116.4
Interest on 2030 Senior Notes 69.0 138.0 138.0 34.5 379.5
Interest on 2031 Senior Notes 40.5 81.0 81.0 60.8 263.3
Operating and Finance Leases 11.0 19.4 14.5 30.2 75.1
All other
1.6 3.0 2.8 5.0 12.4
Total $ 392.7 $ 1,294.4 $ 2,727.6 $ 1,930.5 $ 6,345.2
(1) Interest includes the estimated contractual payments under our Credit Facility assuming no change in the weighted average borrowing rate of 6.04%, which was the rate in place as of December 31, 2024.
As of December 31, 2024, we had approximately $3.2 million of unrecognized tax benefits.
Critical Accounting Policies and Estimates
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.
Our consolidated financial statements have been prepared in conformity with GAAP, which requires management to make estimates, judgments, and assumptions that we believe are reasonable based on our historical experience, contract terms,
42
observance of known trends in our Company and the industry as a whole and information available from other outside sources. Our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results may differ from those initial estimates.
Our critical accounting estimates relate to goodwill and certain indefinite-lived intangible assets.
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. 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. 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. The estimated future revenue and operating expenses, start-up costs of the acquired business, and the discount rate are the primary assumptions and estimates used in these valuations. The fair values of trademarks are generally determined using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible asset by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the trademarks. 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. Changes in estimates or the application of alternative assumptions could produce significantly different results.
Assessments of goodwill and intangible assets
We perform our annual review for impairment of goodwill and indefinite-lived intangible assets on April 1st 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.
Goodwill and indefinite-lived intangible assets are required to be tested annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an asset is impaired. An entity may first assess qualitative factors to determine whether it is necessary to complete the impairment test using a more likely than not criteria. If an entity believes it is more likely than not that the fair value of a reporting unit is greater than the reporting unit's carrying value, including goodwill, the quantitative impairment test can be bypassed. Alternatively, an entity has an unconditional option to bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. If a quantitative impairment test of goodwill is required, we generally determine the fair value under the market and income valuation approaches using inputs primarily related to discounted projected cash flows and price multiples of publicly traded comparable companies. If a quantitative impairment test of our indefinite-lived intangible assets is required, we generally determine the fair value using the Greenfield Method for gaming rights and relief-from-royalty method of the income approach for trademarks. Qualitative factors include macroeconomic conditions, industry and market conditions, cost factors, and overall financial performance, among others. These factors require significant judgments and estimates, and application of alternative assumptions could produce materially different results. Evaluations of possible impairment require us to estimate, among other factors, forecasts of future operating results, revenue growth, operating expense, tax rates, start-up costs, capital expenditures, depreciation, working capital,
43
discount rates, long-term growth rates, risk premiums, royalty rates, terminal values, and fair values of our reporting units and assets. The impairment tests for goodwill and indefinite-lived intangible assets are subject to uncertainties arising from such events as changes in competitive conditions, the current economic environment, material changes in growth rate assumptions that could positively or negatively impact anticipated future operating conditions and cash flows, changes in the discount rate, and the impact of strategic decisions. If any of these factors were to materially change, such change may require a reevaluation of our goodwill and indefinite-lived intangible assets. Changes in estimates or the application of alternative assumptions could produce significantly different results.
44