Higher Derby Revenues Propel Churchill Downs To Record Second-Quarter Earnings

Churchill Downs Inc. had net income of $78.3 million in the second quarter of 2017, up 12 percent from the same quarter in 2016, according to financial statements released Wednesday.

Churchill Downs Incorporated Reports 2017 Second Quarter Results

In the quarter, net revenue increased $13.4 million primarily from a $12.1 million increase from TwinSpires, a $9.2 million increase in Racing and a $3.9 million increase from Casinos. Partially offsetting these increases was a $12.6 million decrease from Big Fish Games.

The $8.5 million increase in net income and $0.70 increase in diluted net income per share was primarily a result of a $12.1 million increase in operating income from our segments and a $2.9 million increase in income from our equity investments, partially offset by a $5.8 million increase in taxes relating to higher operating income and $0.7 million increase primarily due to higher interest expense associated with higher outstanding debt balances.

Adjusted EBITDA increased $12.8 million primarily from a $7.4 million increase in Racing primarily as result of a strong Kentucky Derby week performance and a $4.2 million increase from Casinos due to equity investments and organic growth at certain properties.

OPERATING SEGMENT RESULTS:

We use Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain recurring items is necessary to provide a more accurate measure of our core operating results and enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

During the quarter, net revenue increased $11.0 million from the prior year primarily driven by a $9.0 million increase in net revenue at Churchill Downs primarily from a successful Kentucky Derby week and a $1.5 million increase at Arlington driven by increased handle and admissions during their meet.

Adjusted EBITDA increased $7.4 million from the prior year driven by a $6.5 million increase at Churchill Downs primarily from a successful Kentucky Derby week and $1.1 million increase at Arlington driven by increased handle and admissions during their meet, partially offset by a $0.2 million decrease from other sources.

During the quarter, net revenue increased $3.9 million from the prior year primarily driven by a $2.0 million increase at Oxford, a $1.3 million increase at Calder, and a $0.6 million increase at Harlow's, all of which resulted from successful marketing and promotional activities.

Adjusted EBITDA grew $4.2 million primarily driven by a:

• $3.7 million increase from strong performance from the Company's equity investments, including our new equity investment in Ocean Downs in January 2017.

• $0.9 million increase at Oxford driven by the increase in revenues.

• Partially offsetting these increases was a decrease of $0.7 million primarily from a decrease at Fairgrounds and Riverwalk.

During the quarter, net revenue increased $12.1 million primarily due to a 34.0% increase in active players. TwinSpires handle grew 19.6%, outpacing the U.S. thoroughbred industry performance by 18.4 percentage points.

Adjusted EBITDA increased $0.5 million driven by a $2.2 million favorable impact of the increased wagering, net of costs, associated with the increase in active players and handle. This increase was partially offset by a $1.7 million 2016 Pennsylvania tax refund which did not recur.

On a sequential basis from first quarter 2017 to second quarter 2017, total bookings increased $1.1 million, or 1.0%.

• Social casino bookings increased by $3.1 million.

• Casual and mid-core free-to-play bookings declined $1.9 million as expected based on the user acquisition expense reduction.

• Premium bookings declined $0.1 million.

Compared to second quarter of 2016, total bookings declined $15.8 million, or 12.4%.

• Social casino bookings increased by $3.2 million.

• Casual and mid-core free-to-play bookings declined $15.6 million as expected based on the significant user acquisition expense reduction.

• Premium bookings declined $3.4 million primarily driven by customers continuing to shift from paid PC games to free-to-play mobile games.

Compared to second quarter of 2016, net revenue decreased $12.6 million, driven primarily by a:

• $12.1 million decrease in casual and mid-core free-to-play revenue.

• $3.5 million decrease in premium revenue.

• Partially offsetting these decreases was a $3.0 million increase in social casino.

Compared to second quarter of 2016, Adjusted EBITDA increased $0.5 million, driven primarily by an:

• $9.1 million decrease in user acquisition spending.

• $4.0 million decrease in all other expenses.

• Partially offsetting these decreases was a $12.6 million decline in revenues.

Capital Management

CDI repurchased 1,077,029 shares of its common stock in conjunction with its stock repurchase program at a total cost of approximately $171.7 million in the second quarter of 2017. CDI had approximately $78.3 million of repurchase authority remaining under this program as of June 30, 2017. Included in our repurchases during the second quarter of 2017 was an agreement with an affiliate of The Duchossois Group to repurchase 1,000,000 shares of the Company's common stock for $158.78 per share in a privately negotiated transaction.

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