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Impairment expenses push CDI to loss in Q1


Churchill Downs Incorporated (CDI) has posted a net loss of $23.4m for the first quarter, primarily due to write-downs of business assets.

Net revenue in the three months to March 31, 2020, amounted to $252.9m, down 4.7% year-on-year from $265.4m in the corresponding period in 2019.

CDI saw the biggest drop within its gaming business, with revenue down 12.4% to $149.1m, as the operator was hit by the closure of its gaming properties as a result of the novel coronavirus (Covid-19) outbreak.

However, in contrast, online wagering revenue was up 6.8% to $67.7m, mainly due to a $3.7m increase in revenue from its TwinSpires business. The TwinSpires handle climbed 8.3% year-on-year and active players jumped 11.6%, despite the impact of coronavirus in the latter part of the quarter.

Online sports betting and igaming net revenues also climbed $600,000, with CDI putting this down to a full quarter of igaming results in Pennsylvania and New Jersey. That said, sports betting revenue was impacted by the suspension of all major US and international sporting events due to Covid-19.

Elsewhere, CDI’s Churchill Downs business saw revenue climb 11.2% to $23.8m, boosted by a $2.9m increase from Derby City Gaming’s continued growth prior to the temporary closure of the facility. However, the temporary suspension of simulcasting operations at Churchill Downs knocked $500,000 off the total.

Looking at spending during the quarter, operating expenses were up 11.4% to $264.5m, with costs higher across several areas of the business. Gaming costs were level at $124.8m, but online wagering expenses climbed 11.1% to $50.1m and Churchill Down spending 13.7% to $26.6m.

Selling, general and administrative expense costs were slightly down to $24.1m, but other spending increased from $15.5m to $21.1m. However, the main area for concern was impairment costs related to intangible assets, with spending here amounting to $17.5m, compared to no expenses in Q1 of 2019.

Detailing these costs, CDI said $12.0m was for non-cash after-tax expenses related to the impairment of its Presque Isle Downs and Casino intangible assets.

A further $7.6m was put down to an after-tax expense increase related to it equity portion of the non-cash change in fair value of Midwest Gaming’s – the parent company of Rivers Des Plaines – interest rate swaps.

These were partially offset by a $3.1 after-tax decrease of its equity portion of Midwest Gaming’s recapitalization and transaction costs, as well as a $2.8m non-cash tax impact related to the re-measurement of net deferred tax liabilities and $2.7m after-tax decrease in expenses related to transaction, pre-opening and other expenses.

However, when these write-downs were coupled with the revenue decline, CDI posted a net loss of $23.4m for the quarter, compared to net income of $11.6m in the previous year.

Net loss from continuing operations stood at $22.6m, down from a net profit of $11.9m for Q1 2019, while net loss from discontinued operations stood at $900,000, up from $300,000 in in the prior year.

Reflecting on the results, chief executive Bill Carstanjen was largely upbeat about the quarter, praising CDI’s reaction to the coronavirus outbreak. Last month, CDI temporarily furloughed employees at venues closed by the pandemic.

In addition, all remaining salaried CDI employees have had their salaries reduced by an amount depending on their current salary, with the most senior executives having the largest salary reductions by percentage.

“During this unprecedented pandemic, we remain focused on the health and safety of our team members, customers and communities,” Carstanjen said. “We appreciate the support we are receiving from our state and local government and regulatory officials as well as our community leaders who are reviewing our proposed safety protocols and working with us to determine the appropriate timing for re-opening our properties.

“Our strong balance sheet and the deep experience and resilience of our team will enable us to emerge from these challenging times as a stronger company ready to execute on all of the growth opportunities we have shared with our investors.”

CDI was also forced to postpone the Kentucky Derby until September 5 due to the outbreak, with a virtual edition of the horse racing event set to take place this weekend.

In addition, CDI last month borrowed $675.4m on its revolving credit facility in order to access additional financial flexibility and to give it a total unrestricted cash and cash equivalents position of $700.9m.

“We look forward to the 146th Kentucky Derby on September, which will be a special day for all of us as we celebrate together once again this magical and iconic event after such a difficult period for our country,” Carstanjen said.