Behind The Numbers – Churchill Downs (CHDN)
Last week, specifically on Thursday, shares of Churchill Downs (CHDN) surged over 14% after reporting Q1 results. The company had a record Q1 beat and the conference call further highlighted the strong growth trajectory where Truist sees a path to $1.4B EBITDA over the next 3-4 years. In Jaguar, we have always bucketed this stock into a select group of companies that have an incredible moat and are basically recession proof.
Reading over the earnings transcript, one particular subject kept coming up and that was the project pipeline. Looking to states like Kentucky, management said they are continuing to build on the success of their HRM (Historical Racing Machine) operations, which began with their inaugural property opening in 2018, Derby City Gaming and Suburban Louisville. The most recent gaming floor expansion there is now complete, and the new hotel is on track to open by the end of the second quarter. “Our team is also working hard to prepare for the opening of Derby City Gaming Downtown, our HRM entertainment venue in downtown Louisville set to open in the fourth quarter of 2023.”
Moving along to Virginia, CEO William Carstanjen acknowledged that their 6 HRM properties are performing as they expected, and in some cases, exceeding expectations. Regarding new projects, they are constructing the Rosie’s Emporia HRM venue in the southern portion of the state, near the Virginia and North Carolina border right off of Interstate 95. This is a 150-unit facility that remains on track to be completed in the third quarter of 2023.
In addition, they are building a significantly larger HRM facility in Dumfries, which is located in Northern Virginia, approximately 30 miles south of Washington, D.C., also directly off of Interstate 95. The construction is proceeding according to schedule, and they expect the first phase of the project with 1,150 HRMs and an approximately 100-room hotels to be opened in the second quarter of 2024.
A Spark for the Bluegrass State
A couple of other items to keep an eye out for are related to Kentucky. Management said on the call that HRM entertainment facilities in the state “will soon benefit from the passage in the first quarter of legislation, allowing retail sports and online betting across the Commonwealth.” They will look to go live in their locations once regulators have stated all of the required regulations and operational standards. Currently, they expect this will happen in the second half of 2023. “We will be permitted to have up to 9 retail locations and up to 8 online sports betting licenses that we can potentially monetize.” Meanwhile, with respect to online wagering, they said they have entered into contracts to provide certain online wagering platforms, including FanDuel, access to the Kentucky market in connection with which they received a revenue stream. They also expect to enter into other market access arrangements in the near future.
Lastly, this upcoming Saturday, the 149th running of the Kentucky Derby will be taking place. The company has officially completed work for its “first turn experience.” “This is a one-of-a-kind entertainment venue that is itself the size of a small stadium with 5,300 covered stadium seats and an additional 2,000 reserved indoor dining seats with exclusive views of the horses and the racetrack from the rail on the first turn. All of the covered stadium seats are sold and more than 3/4 of the indoor reserve seats are also sold with the remainder selling quickly each day. Overall, we are very excited about our progress towards this year’s Kentucky Derby. Based on advanced reserve ticket sales and other metrics available at this time, we expect to deliver record Derby week results. We will issue a press release after the Derby with all of the details.”
Other Tidbits
-Management noted that although the TwinSpires segment saw some top-line deterioration, primarily from exiting the DTC sports and casino business in 2022, margins improved significantly (+22% Y/Y). Additionally, in Q1, the company launched its partnerships with FanDuel and DraftKings (DKNG).
-The company noted it was pleased with consumer trends across its properties during Q1, and noted no “red or yellow flags” to raise at this time.
-It reminded investors that they recently approved a 2-for-1 stock split, effective May 22nd.
