CHDN

Churchill Downs, Incorporated (CHDN)

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Churchill Downs Incorporated (CHDN)

Q3 2010 Earnings Call Transcript

November 4, 2010 9:00 am ET

Executives

Liz Harris – VP

Bob Evans – President and CEO

Bill Mudd – EVP and CFO

Rohit Thukral – EVP, Technology Initiatives; and President, TwinSpires.com

Bill Carstanjen – EVP and COO

Analysts

Steve Altebrando – Sidoti & Company

Ryan Worst – Brean Murray

Presentation

Operator

Good day, ladies and gentlemen, and welcome to Churchill Downs Incorporated third quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, this conference call is being recorded. I would now like to hand the conference over to Ms. Liz Harris, Vice President of Churchill Downs Incorporated and Executive Director of CDI Foundation. Ma'am, you may begin.

Liz Harris

Thanks, Saeed. Good morning and welcome to this Churchill Downs Incorporated conference call to review the company’s results for the third 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 the 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 this company may differ materially from what is projected in the 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 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. We appreciate you joining us today. I'll make a few general comments about Q3 and then turn it over to our CFO, Bill Mudd. After that, we will be happy to take your questions. This was an important quarter for us in two ways. First, our results will demonstrate the earnings power of the diversification strategy that we have been pursuing for the last couple of years. And second, there are some important new developments that should increase our potential future growth and financial performance in 2011.

Let’s start our review of the quarter by putting it in some historical context. If we look back to Q3 2007, Q3 2008, and Q3 2009, we see net revenues of $104 million, $100 million and $101 million, all in all pretty consistent. This past quarter, net revenues from continuing operations were $136 million, about 35% higher than where we have been the last few years.

Looking at EBITDA from continuing operations, we see $10 million in Q3 2007, $11 million in Q3 2008, and $10 million in Q3 2009. Again, pretty consistent. In the just completed quarter, EBITDA from continuing operations was $17 million, up about 75%. We saw the significant increase in both net revenues and EBITDA from continuing operations because growth in our newer online and gaming businesses more than offset declines in our traditional racing operations. This is not a new trend, but the degree of impact at having on our overall results became clearly evident this quarter.

Let me turn now to our second point, six recent new developments that should increase our potential future growth and financial performance in 2011. Let’s start with Harlow’s. Financed on September 13th, our intent to acquire Harlow’s Casino Resort & Hotel in Greenville, Mississippi for approximately $138 million. We are moving along in the licensing process, and as we said in September, we hope to close this transaction sometime between mid-December this year and mid-March of next year.

Youbet. On October 4th, we announced in our 8-K filing the upcoming termination of 64 employees in our online business, most of which will occur by the end of January 2011 with the remainder by the end of next year. This reduction in staff is part of our Youbet.com integration plan. We originally projected $10 million in annualized cost savings from personnel and other cost synergies. However, in our Q2 earnings call on August 5th, we increased that number to $12 million.

Churchill Downs Entertainment. On October 6th, we announced that we were suspending our HullabaLOU Music Festival for 2011 and that we were dissolving our Churchill Downs Entertainment Group, which is now accounted for as discontinued operations. We incurred an EBITDA loss of $7 million in Q3 related to Churchill Downs Entertainment and $8.6 million EBITDA loss in the first nine months of 2010. Those losses will not be repeated next year.

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