CHDN

Churchill Downs, Incorporated (CHDN)

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Churchill Downs Incorporated (CHDN)

Q2 2010 Earnings Call Transcript

August 5, 2010 9:00 am ET

Executives

Liz Harris – VP, Communications

Bob Evans – President and CEO

Bill Mudd – EVP and CFO

Analysts

Ryan Worst – Brean Murray

Steve Altebrando – Sidoti & Company

Presentation

Operator

Good day, ladies and gentlemen and welcome to Churchill Downs Incorporated second quarter results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ms. Liz Harris. Ma'am, you may begin.

Liz Harris

Good morning and welcome to this Churchill Downs Incorporated conference call to review the company’s results for the second quarter of 2010.

The results were released yesterday afternoon in a news release that has been covered by the financial media. A copy of the release announcing results, as well as any other financial and statistical information about the period to be presented in this conference call, including any information required by Regulation G, is available at the section of the company’s website titled Investors located at churchilldownsincorporated.com. Let me also note that a news release was issued advising of the accessibility of this conference call on a listen-only basis via phone and over the Internet.

As we begin, let me express that some statements made during this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results, or otherwise are not statements of historical fact.

The actual performance of the company might differ materially from what is projected in such forward-looking statements. Investors should refer to statements included in reports filed by the company with the Securities and Exchange Commission for a discussion of additional information concerning factors that could cause our actual results of operation to differ materially from the forward-looking statements made in this call.

The information being provided today is as of this date only and Churchill Downs Incorporated expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations. Members of our executive team are here and will be available to answer questions after some formal remarks.

We will begin now with our President and Chief Executive Officer, Bob Evans. Bob?

Bob Evans

Thanks, Liz. Good morning, everyone. Thanks for joining us. I'll make a few general comments about Q2 and then turn it over to our CFO, Bill Mudd, to fill you in on the details. After that, we will be happy to try to answer your questions.

Q2 net revenues were up 11% over last year. EBITDA was up $700,000 or 1%. But I had observed that last year included the positive effects of $0.8 million in pari-mutuel tax refunds and a $0.7 million recovery related to the now closed Bay Meadows racetrack in California. And that this year included $4 million in negative effects from deal costs, software asset write-downs, and severance costs, all related to the closing of the Youbet.com deal, which occurred on June 2nd.

This was the second highest quarterly EBITDA the company has reported. The highest was $62.9 million in the second quarter of 2006, although that included $10.1 million in hurricane insurance recoveries.

Let's take a quick look at each business segment. Racing's second quarter EBITDA was up $0.9 million; Kentucky Oaks and Derby Week was up $3.4 million and established a new EBITDA record for the Week. The rest of our racing operations were down in Q2, consistent with the 6% decline in U.S. thoroughbred racing industry handle and a 5% reduction in the number of CDI race days in Q2 from 118 to 112.

Gaming EBITDA was up $1.9 million in the quarter. The Calder Casino obviously increased since it only opened on January 22nd of this year. Our Fair Grounds Slots and video poker businesses were essentially flat. Performance of the Calder Casino continues to improve, both slots and poker were profitable in the quarter on an EBITDA basis, total gross gaming revenue or GGR exceeded $21 million.

Since last fall, we have said that we expect the Calder Casino to produce about $80 million to $100 million in annual full-year GGR. We achieved that annualized run rate in Q2. The casino is now number two in the pari-mutuel facilities in South Florida market in both coin-in and revenue. This represented 22% of both the market's machine inventory and revenue in Q2, not bad for a facility that was only in its fourth, fifth, and sixth months of operation. We added 35,000 new members to our players' club database in Q2, so we hope we can continue to grow revenues.

We believe the EBITDA performance of the Calder Casino should continue to improve as we grow revenues, as we fine-tune the cost structure now that we have a better idea of just what amenities customers want; and as the result of the July 1st Florida State tax rate reduction on slots from 50% to 35%, which we anticipate will add roughly $2 million per quarter to EBITDA starting in the current quarter.

While our Louisiana operations were flat in terms of EBITDA, we are pleased that we were able to increase our share of the New Orleans slot market, offsetting the overall market decline in Q2. EBITDA of our online business declined about $0.6 million in the quarter, primarily as the result of a $1.3 million asset write-down that we took related to software we had purchased in 2007 for which we no longer had any use following the acquisition of Youbet.com. TwinSpires.com's handle increased 11% in the quarter.

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