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Segment Information | 3 Months Ended
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Mar. 31, 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 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 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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