07/28/2011 12:45PM

Churchill Downs Inc. numbers show strength


Churchill Downs Inc. continued to pay down its long-term debt during a second quarter in which the company posted record revenues, underlining the company’s strength at a time when the racing industry is facing serious economic pressures.

According to financial statements released late on Wednesday, Churchill had net income of $40.1 million in the quarter, a 45 percent increase over net income of $27.6 million during the second quarter of last year, largely because of sharply higher revenue from its casino gambling and account-wagering businesses. The company generated $104.8 million in cash flow during the quarter, and used $38 million to reduce its long-term debt from $222.9 million to $184.9 million.

Revenue of $249.7 million during the quarter was a record and a 16 percent gain over revenue of $215.4 million during the second quarter of 2010. Revenue from Churchill’s account-wagering business was up 56 percent, from $29.8 million to $46.5 million, and revenue from the company’s casinos was up 38 percent, from $35.8 million to $49.5 million.

Revenue from the company’s racing operations was up only 1 percent, from $147.4 million to $148.2 million, but the racing industry is currently in the midst of a significant contraction, with industry-wide handle on races at U.S. racetracks down 7.7 percent during the first six months of the year.

Churchill credited higher revenue from the Kentucky Derby and Kentucky Oaks cards in early May for offsetting declines at its other racetracks. According to the financial statements, revenue at Churchill Downs increased 4 percent during the quarter, from $92 million last year to $95.8 million. Revenue at each of Churchill’s three other tracks declined during the quarter.

Also offsetting the declines, Churchill trimmed $5.7 million from its quarterly racing expenses, according to the financial statements, in part because of $2.9 million in tax breaks in Kentucky.

As strong as the second-quarter results were, revenue growth in the company’s casino and account-wagering businesses was inorganic, with the gains provided by acquisitions Churchill made last year. Early in the second quarter of 2010, Churchill merged its account-wagering business with Youbet.com, and the second-quarter results this year included a full three months of the combined operation, compared with only one month in the second quarter of last year. In addition, Churchill bought a Mississippi casino in December last year, the first free-standing casino acquisition for the company.

Churchill’s chief executive, Robert Evans, said during a conference call on Thursday morning that the company would continue to consider acquisitions in the “regional casino space.” In the short term, Evans said, Churchill would continue to pay down its long-term debt, in part by using the cash generated at casinos at Calder Race Course in Florida, Fair Grounds Race Course in New Orleans, and the Mississippi property.

Due to flooding in May, the Mississippi casino was closed for 25 days, and Evans said the closure cost the property approximately $3 million in earnings before interest, taxes, depreciation, and amortization. The company is pursuing the recovery of the money under a business-interruption insurance policy, Evans said.

Significantly, Churchill’s chief financial officer, William Mudd, said that handle through twinspires.com continued to decline, extending a trend that began in the first quarter. For the past decade, account wagering has been the only growing segment of the pari-mutuel market, and the first-quarter decline was the first for the company. However, the decline in the second quarter was only 2.3 percent, Mudd said, compared to a 10 percent decline for the first quarter.