Churchill Downs Inc.: Net Income Increases Sharply In First Quarter

Churchill Downs Inc. had net income of $7.3 million in the first quarter of 2017, up $4.5 million from the same quarter in 2016, according to financial statements released Wednesday.

Churchill Downs Incorporated Reports 2017 First Quarter Results

In the quarter, net revenue declined $8.9 million driven by a $10.1 million decrease from Big Fish Games and a $2.4 million decrease from our Racing segment. Partially offsetting these decreases were a $2.4 million increase from TwinSpires and a $1.0 million increase from our Casinos segment.

The $4.5 million increase in net income and $0.28 increase in diluted net income per share was primarily a result of an $11.2 million increase in operating income from our segments, a $2.3 million increase in income from our equity investments and $0.5 million increase from other income, partially offset by a $5.2 million increase in taxes relating to higher operating income, a $3.1 million tax benefit recorded during the first quarter of 2016 from the early adoption of an accounting standard related to stock-based compensation that did not recur in the first quarter of 2017, as well as a $1.2 million increase in net interest expense associated with higher outstanding debt balances.

Adjusted EBITDA increased $10.6 million driven by an $11.4 million increase from Big Fish Games primarily due to decreased user acquisition spending which was partially offset by lower revenue. Also contributing to the increase were a $1.1 million increase from TwinSpires and a $1.0 million increase from our Casinos segment. Partially offsetting these increases were a $2.3 million decline from our Racing segment as well as a $0.6 million decline from all other segments.

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 (“GAAP”). Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

For the quarter, the decreases in both net revenue and Adjusted EBITDA were primarily from Fair Grounds, relating to the impact of a contagious equine disease outbreak which quarantined horses causing limited field sizes, as well as the shift of the Louisiana Derby timing from March in 2016 to April in 2017.

During the quarter, net revenue increased $1.0 million from the prior year primarily driven by a:
• $1.1 million increase at Calder, $1.0 million increase at Oxford and $0.5 million increase at Harlow's due to successful marketing and promotional activities
• Partially offset by a:
– $1.2 million decline at Riverwalk due to inclement weather, an increased competitive environment and an overall declining market
– $0.4 million decline from our other properties

Adjusted EBITDA grew $1.0 million primarily driven by a:
• $3.1 million increase from strong performance from the Company's equity investments, including our new equity investment in Ocean Downs in January 2017.
• Partially offset by a:
– $1.3 million decrease at Riverwalk primarily due to the decline in revenues mentioned above
– $0.7 million decrease at Fair Grounds and VSI from inclement weather and continued softness in the oil and gas industry
– $0.1 million decrease from our other properties

TwinSpires

During the quarter, net revenue grew primarily due to a 19.7% increase in active players. TwinSpires handle grew 6.8%, outpacing the U.S. thoroughbred industry performance by 7.8 percentage points.

Adjusted EBITDA increased $1.1 million driven primarily by the favorable impact of increased wagering, net of content costs, from handle growth and an increase in active players.

Big Fish Games

On a sequential basis from fourth quarter 2016 to first quarter 2017, total bookings decreased $0.7 million, or 0.6%.

• Social casino bookings increased by $2.0 million.

• Casual and mid-core free-to-play bookings declined $2.8 million as expected based on the user acquisition expense reduction in the second half of 2016.

• Premium bookings were up $0.1 million.

Compared to first quarter of 2016, total bookings declined $17.3 million, or 13.5%.

• Social casino bookings declined by $1.0 million.

• Casual and mid-core free-to-play bookings declined $11.2 million as expected based on the significant user acquisition expense reduction in the second half of 2016.

• Premium bookings declined $5.1 million primarily driven by customers continuing to shift from paid PC games to free-to-play mobile games.

Net revenue decreased $10.1 million, driven primarily by a:

• $5.1 million decrease in casual and mid-core free-to-play revenue.

• $3.7 million decrease in premium revenue.

• $1.3 million decrease in social casino.

Adjusted EBITDA increased $11.4 million, driven primarily by an:

• $18.3 million decrease in user acquisition spending.

• $3.2 million decrease in all other expenses.

• Partially offsetting these decreases was a $10.1 million decline in revenues.

Capital Management

CDI repurchased 53,721 shares of its common stock in conjunction with its stock repurchase program at a total cost of approximately $7.8 million in the first quarter of 2017. CDI had approximately $114.6 million of repurchase authority remaining under this program as of March 31, 2017.

At its regular scheduled meeting held April 25, 2017, the Board of Directors of CDI approved a new common stock repurchase program of up to $250 million. The new program replaces the prior $150 million program that was authorized in February 2016 and had unused authorization of $114.6 million. The new authorized amount includes and is not in addition to any unspent amount remaining under the prior authorization. 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.

Use of Non-GAAP Measures

In addition to the results provided in accordance with generally accepted accounting principles (“GAAP”), the Company also uses non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA as described in the Company's Annual Report on Form 10K (“Adjusted EBITDA”).

Adjusted EBITDA includes CDI's portion of the EBITDA from our equity investments.

Adjusted EBITDA excludes:

• Acquisition expense, net which includes:

– Acquisition-related charges, including fair value adjustments related to earnouts and deferred payments; and,

– Transaction expense, including legal, accounting, and other deal-related expense

• Stock-based compensation expense;

• Gain on Calder land sale;

• Calder exit costs; and,

• Other charges and recoveries

For purposes of segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the Consolidated Statements of Comprehensive Income. Refer to the reconciliation of Comprehensive Income to Adjusted EBITDA included herewith for additional information.

The Company uses Adjusted EBITDA as a key performance measure of the results of operations for purposes of evaluating performance internally. The measure facilitates comparison of operating performance between periods and helps investors to better understand the operating results of CDI by excluding certain items that may not be indicative of the Company's core business or operating results. The Company believes the use of this measure enables management and investors to evaluate and compare, from period to period, the Company's 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 and 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.

The Company updated its definition of Adjusted EBITDA to exclude changes in Big Fish Games deferred revenue during the fourth quarter of 2016. Additionally, during the first quarter of 2017, certain revenue previously included in our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. The prior year amounts were reclassified to conform to this presentation.

The post Churchill Downs Inc.: Net Income Increases Sharply In First Quarter appeared first on Horse Racing News | Paulick Report.

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