Churchill Downs Incorporated Financial Report Analysis Q4 2024

Key Insights:

• Recommendation: Hold
• The company has demonstrated robust growth across its segments, but the debt levels and recent stock repurchase activities warrant cautious observation before making new investments.

Snapshot of Key Financial Metrics:

• Total Revenue: $2,734.3 million (2024)
• Net Income: $429.1 million (2024)
• Adjusted EBITDA: $574.6 million (2024)
• Total Debt: $4,938.7 million (2024)
• Equity Value: $1,083.6 million (2024)
• Cash Flow from Operations: $6.5 million from operating leases (2024)

Overview

Churchill Downs Incorporated (CDI) continues to solidify its position as a leader in the gaming, wagering, and racing industry, as evidenced by its recent financial report filed to the SEC. This analysis will delve into the company's revenue streams, profitability metrics, debt obligations, and overall financial health, while also considering macroeconomic factors.

Revenue Analysis

Total Revenue Growth

CDI reported total revenue of $2,734.3 million for the fiscal year ended December 31, 2024, representing a 11% increase from $2,461.7 million in 2023, and a 51% increase from $1,809.8 million in 2022. This growth can be attributed to increased activity across all major segments:

• Live and Historical Racing: Increased from $1,084.6 million (2023) to $1,267.0 million (2024).
• Wagering Services and Solutions: Rose from $458.4 million (2023) to $500.7 million (2024).
• Gaming: Grew from $974.6 million (2023) to $1,045.4 million (2024).

Adjusted EBITDA

The company's Adjusted EBITDA for 2024 reached $574.6 million, a substantial jump from $475.4 million in 2023. This demonstrates enhanced operational efficiency and profitability across its segments, particularly in Gaming and Live Racing.

Profitability Metrics

• Net Income: CDI reported a net income of $429.1 million in 2024, which is an increase from $417.3 million in 2023. This stable income reflects effective cost management despite rising operational expenses.
• Net Income per Share: Basic and diluted EPS were $5.73 and $5.68, respectively, indicating a healthy return for shareholders.

Expense Management

Despite increased revenues, CDI faced rising expenses:

• Salaries and Benefits: Increased to $127.0 million in 2024.
• Marketing and Advertising: Rose to $42.1 million.
• Pari-mutuel Taxes: Increased significantly to ($300.0 million), reflecting the growing scale of operations.

Debt Obligations

CDI's total debt stands at $4,938.7 million, which includes:

• Term Loan A: $1,166.7 million
• Term Loan B-1: $286.8 million
• Multiple tranches of Senior Notes due in 2027, 2028, 2030, and 2031.

Debt Maturities

Significant repayments are due in 2027 and 2028, with total future maturities amounting to $1,039.9 million in 2028 alone. The company maintains compliance with all applicable covenants, suggesting a solid management of its leverage.

Shareholder Returns

CDI announced a stock repurchase program in December 2023, repurchasing 1,000,000 shares at $123.75 per share, totaling $123.8 million. This move signals management's confidence in the company's valuation and aims to enhance shareholder value.

Macroeconomic Context and Competitive Landscape

The gaming and wagering industry is experiencing a robust recovery post-pandemic, supported by rising disposable incomes and increased consumer spending on entertainment. However, potential headwinds include economic uncertainty and regulatory changes that may impact operations.

Competitive Analysis

CDI faces competition from various regional gaming and wagering companies, which may affect market share and pricing strategies. Continuous innovation in services, alongside a focus on customer experience, is crucial for maintaining a competitive edge.

Conclusion

In summary, Churchill Downs Incorporated has demonstrated considerable growth and profitability in 2024, bolstered by strong performance across its segments. However, the substantial debt levels and the strategic stock repurchase program necessitate careful monitoring. Given these dynamics, the recommendation is to hold CDI stock as the company navigates its growth trajectory amidst a competitive landscape and evolving market conditions.

Investors should keep an eye on future earnings reports and macroeconomic developments that may impact the company's performance in the coming months.