Churchill Downs Bets On Growth After Record Quarter

Churchill Downs ((CHDN)) has held its Q1 earnings call. Read on for the main highlights of the call.

Churchill Downs’ latest earnings call struck a clearly upbeat tone, with management leaning on record revenue and EBITDA, strong free cash flow, and visible growth projects to argue that the company’s momentum is durable. While they acknowledged localized weather, competition, and regulatory risks, executives repeatedly emphasized that robust cash generation and disciplined capital deployment give them room to keep investing and returning capital.

Record Quarterly Financial Performance

Churchill Downs reported record first quarter net revenues of $663 million and record adjusted EBITDA of $257 million, underscoring strong execution across its portfolio. Management highlighted that this performance came despite some regional headwinds, reinforcing the strength of the core business and the benefits of recent growth investments.

Strong Free Cash Flow and Capital Discipline

The company generated $276 million of free cash flow, or $3.94 per share, in Q1, providing ample capacity for reinvestment and shareholder returns while ending the quarter with net leverage at 3.9x under bank covenants. Project capex was $40 million in Q1, and management reaffirmed full‑year 2026 project capex guidance of $180–$220 million and maintenance capex of $90–$110 million, signaling continued disciplined spending.

Live & Historical Racing and Kentucky HRM Momentum

The Live & Historical Racing segment delivered record quarterly results, with adjusted EBITDA up more than $11 million, or about 11% year over year, as Kentucky remained the clear growth engine. Historical racing machines in Kentucky drove more than $9 million of EBITDA growth, a 17% increase, helped by the on‑time, on‑budget opening of Marshall Yards in February, the company’s eighth HRM property in the state.

Virginia Progress and Colonial Downs Success

In Virginia, adjusted EBITDA increased by $3 million, or 6% year over year, showing that the market remains attractive despite some localized pressure. Colonial Downs was a standout, hosting a sold‑out Virginia Derby that delivered a 19% handle increase versus last year, marking the third‑highest wagering day in the track’s history and reinforcing the value of marquee racing events.

Wagering Services Growth

The Wagering Services and Solutions segment posted an 8% year‑over‑year gain in adjusted EBITDA, driven by growth in retail sports betting, online market access deals, and continued rollout of the XASSA platform. TwinSpires contributed modest EBITDA growth, with management noting that lower legal expenses helped profitability even as they continue to expand digital capabilities.

Early Success with Electronic Table Games

Churchill Downs reported encouraging early results from roulette‑based electronic table games deployed at six Kentucky HRM properties in the first quarter, describing the games as accretive to gross gaming revenue. The initial rollout is driving customer database growth and attracting new players, and the company plans to add more ETG machines and introduce craps and blackjack products through 2026.

Strategic Acquisition of Preakness & Black‑Eyed Susan IP

Management spotlighted a definitive agreement to acquire intellectual property rights for the Preakness Stakes and Black‑Eyed Susan Stakes, subject to closing, as a key strategic move in marquee racing. The deal includes a $3 million base fee that will begin growing 2.5% annually in 2028, plus a 2% share of handle on the two race days, where combined handle was about $140 million last year, deepening the company’s footprint in premier events.

Derby Week Investment and Expected Incremental EBITDA

The company continues to invest heavily in Kentucky Derby hospitality, citing renovations to the Mansion, enhancements to Finish Line Suites, and the Victory Run project targeted for 2028 as drivers of long‑term earnings power. Derby Week attendance topped 370,000 last year, and management expects to surpass that, projecting a likely sell‑out and confirming $15–$20 million of incremental Derby EBITDA year over year.

New Development Pipeline

Churchill Downs’ development pipeline remains active, with the Rockingham Grand Casino in Salem, New Hampshire on track for a mid‑2027 opening, marking entry into a new and attractive regional market. Management framed Rockingham as a key piece of the company’s long‑term growth story, complementing expansion in existing jurisdictions and diversifying revenue sources.

Operational Impact from Weather and Local Competition in Virginia

Management acknowledged that several Virginia properties, outside the strong performance at Colonial Downs, were hurt by adverse weather and heightened local competition during the quarter. They indicated that targeted marketing and operating changes are underway to stabilize trends in those venues, while emphasizing that statewide results still showed growth.

Cessation of HRM Operations in Louisiana and Weather Disruption

The gaming segment also absorbed the impact of the planned cessation of HRM operations in Louisiana, effective May, which will weigh on future regional results relative to an otherwise strong base. In addition, a $2 million weather‑related disruption in January temporarily pressured gaming performance, though management stressed these issues are localized rather than structural.

Customer Mix Softness Outside Kentucky

While high‑value rated customers remain solid, Churchill Downs noted softness among lower‑value, unrated players and in markets outside Kentucky, which nudged management to refine marketing tactics. The company is adjusting promotional offers and customer outreach in an effort to better capture growth across all segments without undermining margins.

Regulatory and Legislative Uncertainty

Executives highlighted ongoing legislative and regulatory uncertainty around HRMs and potential iGaming changes as a continuing risk factor across several states, even as recent outcomes in Virginia were favorable. They stressed that legislative processes are inherently unpredictable and could create future headwinds, with Maryland HRM discussions still unresolved and closely watched by management.

Forward‑Looking Guidance and Growth Outlook

Looking ahead, Churchill Downs reaffirmed its 2026 capital plan with $180–$220 million in project capex and $90–$110 million in maintenance capex, supported by Q1 free cash flow of $276 million and net leverage of 3.9x, which management believes leaves ample balance‑sheet flexibility. The company outlined a clear timeline that includes 48 race dates at Colonial Downs in 2026, a mid‑2027 opening for Rockingham Grand Casino, completion of Victory Run by 2028, ongoing rollout of HRM‑based ETGs, and meaningful Derby Week EBITDA upside this year.

The overall message from Churchill Downs’ earnings call was one of steady growth backed by strong cash generation and a full slate of high‑return projects, even as management remains candid about regional and regulatory challenges. For investors, the combination of record results, visible event‑driven earnings catalysts, and a disciplined but active development pipeline paints a picture of a company leaning into its competitive advantages while keeping an eye on risk.