Churchill Downs (CHDN) Q4 2025 earnings review
HRMs Drive Record Top-Line, But One-Time Items Drag Net Income
Churchill Downs closed out 2025 with record Q4 net revenue of $665.9M (+7% YoY) and Adjusted EBITDA of $247.0M (+4% YoY). However, GAAP Net Income told a different story, reversing to a 28% decline ($51.3M) due to a $12.5M state deferred tax valuation allowance and elevated pre-opening costs. The underlying growth engine remains the Live and Historical Racing (LHR) segment, which is accelerating rapidly as new venues ramp up, masking the ongoing deterioration in the traditional Gaming segment. Management aggressively returned capital to shareholders, buying back $425M in stock during the year while leveraging a massive retroactive tax benefit to sustain high capital expenditures.
🐂 Bull Case
The LHR segment is accelerating, with Q4 Adjusted EBITDA surging 20% YoY to $122.1M. New properties like Roseshire and expanding Kentucky venues are consistently delivering high-margin growth.
The company repurchased $425.3M in stock during 2025, taking advantage of strong cash flows, while increasing the dividend for the 15th consecutive year.
🐻 Bear Case
The Gaming segment is reversing, with Q4 EBITDA down 9% YoY. The loss of Louisiana operations and regional disruptions are permanently eroding this segment's baseline.
Bank covenant net leverage sits at 4.1x. While manageable, this leaves little room for error as the company executes massive, multi-year CapEx projects.
⚖️ Verdict: ⚪
Neutral. The core strategy of expanding the HRM footprint is working flawlessly, but traditional gaming weakness, heavy leverage, and messy GAAP profitability due to continuous 'one-time' charges demand investor caution.
Key Themes
Live and Historical Racing (LHR) Accelerating Rapidly
LHR is the undisputed growth engine. Q4 revenue increased 16% YoY to $319.4M, and Adjusted EBITDA grew 20% to $122.1M. Kentucky HRM venues added $10.5M to EBITDA, while Virginia added $6.9M, aided by the opening of the Roseshire Gaming Parlor in September. This segment is successfully offsetting declines elsewhere in the portfolio.
Gaming Segment Reversing to Contraction
Management's narrative highlights 'record Adjusted EBITDA,' but this obscures a severe reversal in the traditional Gaming segment. Q4 Gaming revenue dropped $7.2M (-3%) and Adjusted EBITDA fell $11.2M (-9%). The cessation of HRM operations in Louisiana wiped out $5.3M in EBITDA, while temporary roadwork and curfews in Mississippi dragged profits down another $2.6M. This segment is no longer a growth driver.
H.R. 1 Tax Legislation Turbocharges Cash Flow (Macro)
The enactment of the H.R. 1 federal tax bill provides a massive macroeconomic tailwind. Permanent reinstatements of 100% bonus depreciation and a 30% EBITDA-based interest expense deduction allowed the company to begin utilizing an $85.1M net deferred tax asset. Management previously noted this would increase free cash flow by $50M-$60M annually in 2025 and 2026, perfectly funding their heavy CapEx cycle.
Exacta B2B Technology Platform Yields Results
The Wagering Services and Solutions (WSS) segment saw stable growth, with Q4 Adjusted EBITDA up $4.7M YoY (+13%). A significant driver here is the Exacta B2B technology platform, which generates revenue through incremental HRMs deployed in both owned and third-party venues. This transforms technology costs into a recurring revenue stream.
Elevated Net Leverage at 4.1x
The company ended 2025 with net bank leverage of 4.1x. While management previously guided to de-leveraging below 4.0x, heavy share repurchases ($425M) and ongoing capital commitments have kept debt levels elevated. With $5.06B in total debt on the balance sheet, interest expenses remain a heavy burden ($75.6M in Q4).
The 'Gray Market' Threat Persists in Key Geographies
In previous quarters, management acknowledged that illegal, unregulated gaming machines in Virginia and Kentucky act as a 'whack-a-mole' problem that requires constant vigilance. As the company expands its HRM footprint aggressively in these states, this gray market remains an unquantifiable leak on potential unrated player volume.
Other KPIs
Accelerating dramatically. The company repurchased 4.19 million shares in 2025, up from just $186M in 2024. Despite heavy project CapEx and elevated leverage, management aggressively utilized free cash flow to shrink the float. Approximately $429.5M remains under the current authorization.
Stable. While GAAP Net Income cratered 28% YoY, Adjusted Net Income was practically flat compared to $68.7M in 24Q4. The $17M in add-backs for the quarter included a $12.5M state deferred tax valuation allowance and $6.7M in transaction/pre-opening expenses.
Accelerating. Up 7% YoY from $165.6M in 2024. Growth was driven by Exacta (+ $9.2M) and the sports betting business (+ $4.2M), proving that the digital and B2B tech sides of the business are performing reliably despite legal expense headwinds at TwinSpires.
Guidance
Stable/Decelerating. Management guided for $180-$220M in project CapEx for 2026. This is roughly in line with the actual $204.7M spent in 2025, but significantly lower than the $463.4M spent in 2024. This signals a transition from heavy greenfield construction toward ramping up recently opened assets, though the upcoming Rockingham Grand Casino ($180-$200M total investment by mid-2027) will consume a large portion of this budget.
Key Questions
Gaming Segment Stabilization
With the permanent loss of Louisiana HRM operations and ongoing disruptions in Mississippi, what is the timeline and strategy for stabilizing margins and returning the traditional Gaming segment to positive EBITDA growth?
Leverage Reduction Commitment
Net leverage remains elevated at 4.1x despite earlier targets to bring it below 4.0x. Given the aggressive $425M in share repurchases this year, what is the updated hierarchy for capital allocation, and when will absolute debt reduction take priority?
Exacta Third-Party Pipeline
Exacta is proving to be a solid B2B growth engine. Outside of supporting internal venue expansions, what does the external, third-party contract pipeline look like for Exacta heading into 2026?