Segment Information

3 Months Ended

Mar. 31, 2019

SEGMENT INFORMATION

We manage our operations through three reportable segments: Churchill Downs, Online Wagering and Gaming. Refer to Note 1, Description of Business, for further information on the changes we made to our segments during the first quarter of 2019. Accordingly, prior year amounts in this Form 10-Q have been reclassified to conform to this presentation.

Eliminations include the elimination of intersegment transactions. We utilize non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA includes the following adjustments:

Adjusted EBITDA includes our portion of the EBITDA from our equity investments.

Adjusted EBITDA excludes:


•	Transaction expense, net which includes:


•	Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments;


•	Calder Racing exit costs; and


•	Other transaction expense, including legal, accounting, and other deal-related expense;


•	Stock-based compensation expense;


•	Recapitalization costs related to the Midwest Gaming transaction;


•	Asset impairments;


•	Gain on Ocean Downs/Saratoga Transaction;


•	Loss on extinguishment of debt;


•	Pre-opening expense; and


•	Other charges, recoveries and expenses

We utilize the Adjusted EBITDA metric to provide a more accurate measure of our core operating results and enable 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 GAAP. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income.

Effective January 1, 2019, the Company does not allocate corporate and other related expenses to the operating segments in the accompanying condensed consolidated statements of comprehensive income. Accordingly, the prior year amounts in the accompanying consolidated statements of comprehensive income were reclassified to conform to this presentation.

The tables below present net revenue from external customers and intercompany revenue from each of our segments, net revenue from external customers for each group of similar services, Adjusted EBITDA by segment, and a reconciliation of comprehensive income to Adjusted EBITDA:



	Three Months Ended March 31,
(in millions)	2019		2018
Net revenue from external customers:
Churchill Downs:
Churchill Downs Racetrack	$	2.3	$	2.0
Derby City Gaming	18.7		—
Total Churchill Downs	21.0		2.0
Online Wagering:
TwinSpires	63.0		63.2
Online Sports Betting and iGaming	0.1		—
Total Online Wagering	63.1		63.2
Gaming:
Oxford	23.9		24.2
Calder	25.4		24.9
Riverwalk	16.3		14.4
Harlow’s	15.3		13.3
Fair Grounds and VSI	37.5		34.4
Ocean Downs	18.4		—
Presque Isle	29.7		—
Lady Luck Nemacolin	2.3		—
Saratoga	—		0.3
Total Gaming	168.8		111.5
All Other	12.5		12.6
Net revenue from external customers	$	265.4	$	189.3



	Three Months Ended March 31,
(in millions)	2019			2018
Intercompany net revenue:
Churchill Downs	$	0.4		$	0.3
Online Wagering	0.3			0.4
Gaming	1.3			1.0
All Other	2.2			2.4
Eliminations	(4.2		)	(4.1		)
Intercompany net revenue	$	—		$	—



	Three Months Ended March 31, 2019
(in millions)	Churchill Downs		Online Wagering		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	1.4	$	60.5	$	12.2	$	74.1	$	7.5	$	81.6
Historical racing	17.7		—		—		17.7		—		17.7
Racing event-related services	—		—		1.5		1.5		—		1.5
Gaming	—		0.1		146.6		146.7		—		146.7
Other	1.9		2.5		8.5		12.9		5.0		17.9
Total	$	21.0	$	63.1	$	168.8	$	252.9	$	12.5	$	265.4



	Three Months Ended March 31, 2018
(in millions)	Churchill Downs		Online Wagering		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	1.3	$	61.0	$	10.6	$	72.9	$	7.9	$	80.8
Historical racing	—		—		—		—		—		—
Racing event-related services	—		—		1.4		1.4		—		1.4
Gaming	—		—		93.9		93.9		—		93.9
Other	0.7		2.2		5.6		8.5		4.7		13.2
Total	$	2.0	$	63.2	$	111.5	$	176.7	$	12.6	$	189.3

Adjusted EBITDA by segment is comprised of the following:



	Three Months Ended March 31, 2019
(in millions)	Churchill Downs			Online Wagering			Gaming
Net revenue	$	21.4		$	63.4		$	170.1

Taxes & purses	(6.2		)	(3.3		)	(65.0		)
Marketing & advertising	(1.1		)	(1.0		)	(5.1		)
Salaries & benefits	(5.2		)	(2.5		)	(24.5		)
Content expense	(0.5		)	(32.1		)	(1.2		)
SG&A expense	(1.7		)	(1.8		)	(6.4		)
Other operating expense	(5.3		)	(5.8		)	(19.0		)
Other income	—			—			15.9
Adjusted EBITDA by segment	$	1.4		$	16.9		$	64.8



	Three Months Ended March 31, 2018
(in millions)	Churchill Downs			Online Wagering			Gaming
Net revenue	$	2.3		$	63.6		$	112.5

Taxes & purses	(0.7		)	(3.4		)	(38.0		)
Marketing & advertising	(0.3		)	(0.8		)	(3.6		)
Salaries & benefits	(3.1		)	(2.1		)	(16.9		)
Content expense	(0.4		)	(32.2		)	(0.9		)
SG&A expense	(1.0		)	(1.4		)	(3.8		)
Other operating expense	(2.8		)	(5.8		)	(13.7		)
Other income	—			—			10.8
Adjusted EBITDA by segment	$	(6.0	)	$	17.9		$	46.4



	Three Months Ended March 31,
(in millions)	2019			2018
Reconciliation of Comprehensive Income to Adjusted EBITDA:

Comprehensive income	$	11.6		$	182.4
Foreign currency translation, net of tax	—			(0.6		)
Change in pension benefits, net of tax	—			0.2
Net income	11.6			182.0
Loss (income) from discontinued operations, net of tax	0.3			(167.9		)
Income from continuing operations, net of tax	11.9			14.1

Additions:
Depreciation and amortization	20.8			13.8
Interest expense	13.7			9.6
Income tax provision	6.5			2.6
EBITDA	$	52.9		$	40.1

Adjustments to EBITDA:
Selling, general and administrative:
Stock-based compensation expense	$	4.7		$	2.8
Other charges	0.5			—
Pre-opening expense	1.3			0.6
Other income, expense:
Interest, depreciation and amortization expense related to equity investments	3.5			4.3
Recapitalization costs related to Midwest Gaming	8.2			—
Transaction expense, net	3.5			1.4
Total adjustments to EBITDA	21.7			9.1
Adjusted EBITDA	$	74.6		$	49.2

Adjusted EBITDA by segment:
Churchill Downs	$	1.4		$	(6.0	)
Online Wagering	16.9			17.9
Gaming	64.8			46.4
Total segment Adjusted EBITDA	83.1			58.3
All Other	(8.5		)	(9.1		)
Total Adjusted EBITDA	$	74.6		$	49.2

The table below presents information about equity in income of unconsolidated investments included in our reported segments:



	Three Months Ended March 31,
(in millions)	2019		2018
Gaming	$	4.1	$	6.5

The table below presents total asset information for each of our segments:



(in millions)	March 31, 2019		December 31, 2018
Total assets:
Churchill Downs	$	367.7	$	359.6
Online Wagering	237.4		222.8
Gaming	1,603.8		877.1
Total segment assets	2,208.9		1,459.5
All Other	269.6		265.7
Total assets	$	2,478.5	$	1,725.2

The table below presents total capital expenditures for each of our segments:



	Three Months Ended March 31,
(in millions)	2019		2018
Capital expenditures:
Churchill Downs	$	9.6	$	26.2
Online Wagering	11.5		2.3
Gaming	2.5		4.0
Total segment capital expenditures	23.6		32.5
All Other	4.5		1.5
Total capital expenditures	$	28.1	$	34.0