Segment Information

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Information

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 regarding 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 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;

•Midwest Gaming's impact on our investments in unconsolidated affiliates from:

◦The impact of changes in fair value of interest rate swaps; and

◦Recapitalization and transaction costs;

•Asset impairments;

•Gain on Ocean Downs/Saratoga Transaction;

•Loss on extinguishment of debt;

•Legal reserves;

•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 September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Net revenue from external customers:
Churchill Downs:
Churchill Downs Racetrack	$	8.9	$	8.5	$	172.2	$	165.4
Derby City Gaming	22.5		2.3		62.4		2.3
Total Churchill Downs	31.4		10.8		234.6		167.7
Online Wagering:
TwinSpires	70.3		71.8		228.8		228.7
Online Sports Betting and iGaming	(0.1)		—		0.1		—
Total Online Wagering	70.2		71.8		228.9		228.7
Gaming:
Presque Isle	38.1		—		104.9		—
Fair Grounds and VSI	25.0		24.5		93.4		88.4
Oxford	27.2		28.9		77.4		79.3
Calder	24.4		24.0		75.4		74.9
Ocean Downs	26.7		8.1		67.0		8.1
Riverwalk	13.6		12.8		44.1		40.8
Harlow’s	13.3		12.1		41.9		37.9
Lady Luck Nemacolin	10.0		—		20.6		—
Saratoga	—		—		—		0.6
Total Gaming	178.3		110.4		524.7		330.0
All Other	26.4		28.3		60.9		63.6
Net revenue from external customers	$	306.3	$	221.3	$	1,049.1	$	790.0

	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Intercompany net revenue:
Churchill Downs	$	1.3	$	1.0	$	12.6	$	10.7
Online Wagering	0.2		0.3		0.9		1.1
Gaming	0.3		0.1		1.8		1.2
All Other	3.4		3.2		9.0		9.2
Eliminations	(5.2)		(4.6)		(24.3)		(22.2)
Intercompany net revenue	$	—	$	—	$	—	$	—

	Three Months Ended September 30, 2019
(in millions)	Churchill Downs		Online Wagering		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	5.4	$	67.1	$	6.2	$	78.7	$	15.0	$	93.7
Historical racing	21.3		—		—		21.3		—		21.3
Racing event-related services	1.6		—		0.8		2.4		3.1		5.5
Gaming(a)	—		—		153.2		153.2		—		153.2
Other(a)	3.1		3.1		18.1		24.3		8.3		32.6
Total	$	31.4	$	70.2	$	178.3	$	279.9	$	26.4	$	306.3

	Three Months Ended September 30, 2018
(in millions)	Churchill Downs		Online Wagering		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	4.8	$	68.8	$	4.3	$	77.9	$	16.6	$	94.5
Historical racing	2.2		—		—		2.2		—		2.2
Racing event-related services	2.0		—		0.8		2.8		3.5		6.3
Gaming(a)	—		—		92.8		92.8		—		92.8
Other(a)	1.8		3.0		12.5		17.3		8.2		25.5
Total	$	10.8	$	71.8	$	110.4	$	193.0	$	28.3	$	221.3

(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to gamble or through the redemption of our customers' loyalty points are recorded at their estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in Gaming revenue. These amounts were $8.9 million for the three months ended September 30, 2019 and $6.6 million for the three months ended September 30, 2018.

	Nine Months Ended September 30, 2019
(in millions)	Churchill Downs		Online Wagering		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	48.1	$	218.7	$	23.9	$	290.7	$	34.7	$	325.4
Historical racing	58.7		—		—		58.7		—		58.7
Racing event-related services	115.0		—		3.1		118.1		5.3		123.4
Gaming(b)	—		0.1		442.4		442.5		—		442.5
Other(b)	12.8		10.1		55.3		78.2		20.9		99.1
Total	$	234.6	$	228.9	$	524.7	$	988.2	$	60.9	$	1,049.1

	Nine Months Ended September 30, 2018
(in millions)	Churchill Downs		Online Wagering		Gaming		Total Segments		All Other		Total
Net revenue from external customers
Pari-mutuel:
Live and simulcast racing	$	45.6	$	219.5	$	19.3	$	284.4	$	38.1	$	322.5
Historical racing	2.2		—		—		2.2		—		2.2
Racing event-related services	111.6		—		2.9		114.5		5.7		120.2
Gaming(b)	—		—		267.8		267.8		—		267.8
Other(b)	8.3		9.2		40.0		57.5		19.8		77.3
Total	$	167.7	$	228.7	$	330.0	$	726.4	$	63.6	$	790.0

(b) Food and beverage, hotel, and other services furnished to customers for free as an inducement to gamble or through the redemption of our customers' loyalty points are recorded at their estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in Gaming revenue. These amounts were $24.7 million for the nine months ended September 30, 2019 and $19.5 million for the nine months ended September 30, 2018.

Adjusted EBITDA by segment is comprised of the following:

	Three Months Ended September 30, 2019
(in millions)	Churchill Downs		Online Wagering		Gaming
Net revenue	$	32.7	$	70.4	$	178.6
Taxes & purses	(10.2)		(4.4)		(71.2)
Marketing & advertising	(1.1)		(3.6)		(5.5)
Salaries & benefits	(6.8)		(3.0)		(26.6)
Content expense	(0.5)		(36.5)		(1.6)
SG&A expense	(2.1)		(1.8)		(7.9)
Other operating expense	(6.9)		(6.1)		(21.2)
Other income	0.1		—		27.1
Adjusted EBITDA	$	5.2	$	15.0	$	71.7

	Three Months Ended September 30, 2018
(in millions)	Churchill Downs		Online Wagering		Gaming
Net revenue	$	11.8	$	72.1	$	110.5
Taxes & purses	(3.6)		(4.2)		(37.9)
Marketing & advertising	(0.6)		(0.6)		(3.6)
Salaries & benefits	(4.5)		(2.1)		(16.8)
Content expense	(0.5)		(37.3)		(0.9)
SG&A expense	(0.8)		(1.4)		(4.5)
Other operating expense	(4.6)		(5.7)		(14.8)
Other income	—		—		12.7
Adjusted EBITDA	$	(2.8)	$	20.8	$	44.7

	Nine Months Ended September 30, 2019
(in millions)	Churchill Downs		Online Wagering		Gaming
Net revenue	$	247.2	$	229.8	$	526.5
Taxes & purses	(52.1)		(12.0)		(204.7)
Marketing & advertising	(5.8)		(9.1)		(15.7)
Salaries & benefits	(24.5)		(8.2)		(76.5)
Content expense	(1.8)		(120.4)		(4.5)
SG&A expense	(5.8)		(5.5)		(21.2)
Other operating expense	(28.8)		(20.5)		(62.0)
Other income	0.1		—		70.7
Adjusted EBITDA	$	128.5	$	54.1	$	212.6

	Nine Months Ended September 30, 2018
(in millions)	Churchill Downs		Online Wagering		Gaming
Net revenue	$	178.4	$	229.8	$	331.2
Taxes & purses	(31.6)		(12.2)		(111.4)
Marketing & advertising	(4.1)		(4.5)		(10.7)
Salaries & benefits	(17.3)		(6.6)		(49.3)
Content expense	(1.8)		(119.3)		(2.9)
SG&A expense	(3.0)		(4.4)		(12.3)
Other operating expense	(21.6)		(19.7)		(44.2)
Other income	0.1		—		36.4
Adjusted EBITDA	$	99.1	$	63.1	$	136.8

	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Reconciliation of Comprehensive Income to Adjusted EBITDA:
Comprehensive income	$	14.8	$	56.5	$	133.5	$	341.8
Foreign currency translation, net of tax	—		—		—		(0.6)
Change in pension benefits, net of tax	—		(0.2)		—		0.2
Net income	14.8		56.3		133.5		341.4
Loss (income) from discontinued operations, net of tax	0.4		1.7		1.9		(166.1)
Income from continuing operations, net of tax	15.2		58.0		135.4		175.3
Additions:
Depreciation and amortization	22.0		16.7		64.3		45.8
Interest expense	18.9		9.9		52.0		29.2
Income tax provision	8.0		16.7		53.1		52.1
EBITDA	$	64.1	$	101.3	$	304.8	$	302.4
Adjustments to EBITDA:
Selling, general and administrative:
Stock-based compensation expense	$	5.5	$	3.9	$	17.6	$	13.1
Legal reserves	3.3		—		3.6		—
Pre-opening expense and other expense	1.2		2.8		3.6		4.1
Transaction expense, net	0.9		5.4		5.0		8.9
Gain on Ocean Downs/Saratoga transaction	—		(54.9)		—		(54.9)
Other income, expense:
Interest, depreciation and amortization expense related to equity investments	9.7		3.6		22.9		12.2
Changes in fair value of Midwest Gaming's interest rate swaps	3.2		—		15.4		—
Midwest Gaming's recapitalization and transactions costs	—		—		4.7		—
Other	0.1		—		—		—
Total adjustments to EBITDA	23.9		(39.2)		72.8		(16.6)
Adjusted EBITDA	$	88.0	$	62.1	$	377.6	$	285.8
Adjusted EBITDA by segment:
Churchill Downs	$	5.2	$	(2.8)	$	128.5	$	99.1
Online Wagering	15.0		20.8		54.1		63.1
Gaming	71.7		44.7		212.6		136.8
Total segment Adjusted EBITDA	91.9		62.7		395.2		299.0
All Other	(3.9)		(0.6)		(17.6)		(13.2)
Total Adjusted EBITDA	$	88.0	$	62.1	$	377.6	$	285.8

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2019		2018		2019		2018
Gaming	$	14.1	$	9.1	$	27.7	$	24.4

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

(in millions)	September 30, 2019		December 31, 2018
Total assets:
Churchill Downs	$	364.5	$	359.6
Online Wagering	242.5		222.8
Gaming	1,606.8		877.1
Total segment assets	2,213.8		1,459.5
All Other	348.7		265.7
Total assets	$	2,562.5	$	1,725.2

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

	Nine Months Ended September 30,
(in millions)	2019		2018
Capital expenditures:
Churchill Downs	$	24.7	$	100.6
Online Wagering	7.3		7.1
Gaming	30.7		13.2
Total segment capital expenditures	62.7		120.9
All Other	28.3		4.6
Total capital expenditures	$	91.0	$	125.5