Churchill Downs Inc Q3 FY2026 earnings call

• Strategic Focus on Three Platforms: The company is focusing on three core assets: Churchill Downs Racetrack/Kentucky Derby, Human Resource Machines (HRMs), and Twin Spires. These platforms are chosen for their strong cash generation, durable competitive advantages, and growth potential.

• Kentucky Derby & Thoroughbred Championship Series (TCS): Demand for the 153rd Derby is strong, with ticket sales pacing well ahead of last year. The TCS, launching in 2027, connects iconic tracks (Churchill Downs, Belmont Park, Saratoga) into a season-long competition with significant prize money incentives ($5 million bonus pool) to drive engagement and wagering. Sponsorship growth is accelerating, highlighted by a new multi-year partnership with Visa.

• Capital Expenditures and Construction: Victory Run construction is on schedule and budget for completion by Derby 2028, with interim upgrades planned for 2027. Rockingham Grand Casino in New Hampshire is on track to open mid-2027. In Virginia, the Rose venue continues to show strong sequential growth.

• Electronic Table Games (ETGs): The company is expanding its ETG offerings beyond Roulette. Craps ETGs are expected to roll out around the end of the year, with Blackjack ETGs targeted for 2027 deployment, aiming to create a comprehensive suite of products to drive customer reactivation and new acquisition.

• Asset Sales: The sale of nine regional gaming properties is proceeding well, with executed transactions expected by year-end. Proceeds will be used to reduce leverage, repurchase shares, and invest in high-return opportunities.

The company reported record financial results for the third quarter of 2026. Total net revenue reached $696 million, and adjusted EBITDA hit a record $264 million. Specific segment highlights include:

• Live and Historical Racing: Delivered record revenue. Adjusted EBITDA increased 10% year-over-year, driven by strong performance in Kentucky HRM properties (including double-digit growth from Southwestern and Northern Kentucky venues) and solid results from Louisville. Virginia’s adjusted EBITDA decreased by $6 million year-over-year when excluding a one-time insurance recovery; this decline was impacted by competition from a new casino in Petersburg and a $5 million tax on live racing days.

• Gaming Segment: Adjusted EBITDA increased 4% compared to the prior year quarter. Wholly owned regional gaming properties showed strong performance with nearly all properties growing year-over-year. Same-store margins at these casinos remained consistent with the prior year quarter.

• Maintenance Capital: Full-year 2026 maintenance capital spend is expected to be between $90 million and $100 million (previously spent $57 million through the first nine months).

• Project Capital: Full-year 2026 project capital spend is expected to be between $160 million and $180 million (previously spent $119 million through the first nine months). Additionally, the company expects to spend between $200 million and $250 million on project capital in 2027.

• Leverage: Bank leverage is expected to remain around 3.8 to 3.9 times through year-end and decline below 3.0 times following the completion of the regional gaming asset sales.

• Share Repurchases: A new $750 million share repurchase program has been authorized, reflecting confidence in the asset sales process and strong cash flow outlook.

• Regional Gaming Market Conditions: While the M&A environment faces headwinds from interest rates and consumer uncertainty, the company notes its assets are distinct due to newer facilities and strong cash flow conversion.

• Competitive Pressure in Virginia: Central Virginia HRM venues face competition from a new casino in Petersburg, which may redistribute existing revenue or require adjustments in marketing and machine allocation.

• Regulatory Risks: Expansion plans in Virginia (Collinsville relocation and Pulaski/Amherst referendums) depend on successful regulatory approvals and voter passage.

• Execution Risk on New Initiatives: The success of the Thoroughbred Championship Series and Electronic Table Games depends on effective execution, industry buy-in from owners/trainers, and successful product development and regulatory compliance.

Q: What are the expected economic drivers and timeline for the Thoroughbred Championship Series (TCS)? / A: Management anticipates immediate contributions from wagering and admissions as fans engage with marquee races. Sponsorship and licensing revenues will ramp up as the series demonstrates success. The goal is to expand beyond hardcore fans to casual audiences by creating a continuous narrative over five months, leveraging the 'Derby flywheel' model of monetization across media, hospitality, and betting.