Q4 2019 Earnings Call
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Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2019 fourth quarter and year end earnings Conference call.
This time all participants are in listen only mode. Later, we'll conduct a question and answer session and instructions will be given at that time as a reminder, this conference call is being recorded.
I'd now like to introduce your host for today's conference Mr., <unk>, Vice President Treasury and Investor Relations.
Thank you Katrina good morning, you're welcome to our fourth quarter and year end 2019 earnings conference call.
After the company's prepared remarks, you open the call for your questions. The company's 2019 fourth quarter and year end business results were released yesterday afternoon.
A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by regulation G is available at the section of the company's website titled News located at Churchill Downs incorporated Dot com as well as in the websites Investor section.
Before we get started I would like to remind you that some of the statements. We make today may include forward looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially all forward looking statements should be considered in conjunction with the cautionary statements in our earnings release in the risk factors included in our filings.
As with the FCC specifically the most recent report on form 10-K.
Any forward looking statements, we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of newer <unk> information or future events.
During this call we will present, both GAAP and non-GAAP financial measures reconciliation of GAAP to non-GAAP measures is included in todays earnings press release.
A press release and form 10-K are available on our website at Churchill Downs incorporated Dot Com and now I'll turn the call Overcharged, Chief Executive Officer, Mr. Bill Carstanjen.
Thanks, Nick good morning, everyone.
With me today are several members of our team, including Bill Mudd, Our President and Chief operating Officer, Marcia Dall, our Chief Financial Officer, and bread Blackwell, Our general counsel.
I'll begin with a quick summary of our 2019 accomplishments and how we're positioned our company for significant growth over the next few years.
Marcia will then provide a more in depth review of our financials for the fourth quarter and the total year.
She will also provide an update on our capital plans for 2020.
After she is finished we will be happy to take your questions.
In 2019, we demonstrated our ability to acquire strategic assets to grow organically.
And to effectively manage our capital to drive total shareholder returns that's significantly exceeded the S&P 500, Russell 2000, and the S&P mid cap 400 index.
Our shareholder return also compares very favorably to those of other gaming companies.
As well as other entertainment companies, whom some investors view as benchmarks for the Kentucky Derby.
Our businesses delivered $1.3 billion of net revenue and a record $451 million of adjusted EBITDA up, 32% and 37% respectively over prior year.
We returned over $115 million to our shareholders through stock buybacks and dividends in 2019 and on a cumulative basis have returned over $1 billion to our shareholders over the past five years.
We did so while aggressively investing to grow our businesses and at the same time continuing to maintain one of the lowest leverage levels in the gaming industry.
2019 in the last several years I've been strong.
We are proud of that performance.
That is now in the past, though and all that matters is what we deliver in the future I can assure you. We are extremely focused on continuing to deliver organic growth smart greenfield opportunities and strategic acquisitions are reasonable multiples.
All to grow our adjusted EBITDA free cash flow or return on investment for our shareholders.
Let's begin with the highlights for our Churchill Downs segment.
In early May last year, we delivered the 10th consecutive year, a record setting financial performance for Kentucky Derby week, despite very unpleasant rainy weather.
Virtually every financial metric, we track from wagering sponsorships various online metrics and two admissions revenues. Just for example, established new all time highs.
Beyond the important financial metrics I was pleased to see for the first time qualifier from the Japanese road to the Derby come to the Kentucky Derby and then race so competitively.
2019 was also the first year Japanese betters were allowed to wage or on the Kentucky Derby in Japan.
We will continue to emphasize for the long term building the international profile, the Kentucky Derby, which we will monetize to Readmissions sponsorships and wagering revenues overtime.
With horse racing in virtually every industrialized nation, we want the Kentucky Derby to continue to grow as a global events.
As we look forward to this year is 146 running of the Kentucky Derby on May 2nd.
The team is completing the 11 million dollar renovation of the six for premium seating area next where most exclusive area the mansion.
330 guests will enjoy spectacular upscale and unique experience.
If you haven't gotten your tickets yet you better hurry, because we are close to sold out.
Our commitment to the safety of our equine athletes remains a top priority across all of our race tracks and it is especially your focus a Churchill downs racetrack.
The new quarantine facility in state of the yard equine Medical center will be completed prior to this year's Derby.
We have also co founded and industry integrity initiative among all the prominent racing organizations in the United States to promote the adoption of best practices to improve equine and jockey safety.
Safety and integrity initiatives are important to move the sport forward and are also just plain good business.
We need to meet the ever evolving expectations of our fans our regulators and our communities.
In addition to our equine and human athletes, we go to great wants to ensure the safety and security of our guests and team members work extremely closely with federal state and local authorities as well as leading experts to address any relevant health safety security and travel concerned that could impact. The Derby. This includes the Corona virus.
We were doing the same due diligence this year as we prepare for Kentucky Derby 146.
As a derby is still more than two months away.
We still have a great deal of time to monitor and react. We also will learn from others as they hold their events over the next number of weeks.
We will continue to consult with all relevant authorities and we'll take any and all necessary steps to ensure the safety of all weekend and participate.
We have begun the construction on the 300 million dollar hotel and HR in project on the first turn of Churchill Downs Racetrack. We currently have approval for up to 3000 historical racing machines are HRS units between Churchill Downs Racetrack and Derby City gaming.
Which we currently have approximately 1000 deployed a derby city gaming and expect to deploy approximately 1000 at Churchill Downs racetrack.
Our immediate objective and getting the site prepared.
Utilities ready and pilings installed before the 2020 Derby that will ultimately support the various structures we are building.
The second phase of the project will focus on getting the permanent stadium seating installed prior to the 2021 derby to minimize disruption to our guests.
Plan on opening the hotel and ATM facility in the fourth quarter of 2021.
The 148 Derby in May 2022 will be the first time or customers will be able to enjoy a once in a lifetime experience or hotel.
As we look forward, we remain committed to investing in the long term growth of the Kentucky Derby.
There are many avenues to grow our signature events over the coming years from further growth capital projects to pricing segmentation additional seating capacity increased wagering, new sponsorships and media and licensing revenue streams, all while expanding the international interest generated from the European in Japan roads to the Derby.
Our first historical racing machines facility Derby City gaming, which has also within the Churchill Downs segment.
Attributed over $36 million of adjusted EBITDA, and an increase of more than 50% and purchases to the horsemen at Churchill Downs racetrack and its first full year of operations.
We just announced that scientific games received approval from the Kentucky Horse Racing Commission with respect to kind of its most popular titles for deployment and our Derby City gaming facility and ultimately for use in or other new hrn facilities.
This will enhance our guest experience by providing a greater variety of top gaming titles.
We're excited to work with scientific games, and we'll continue to add more their games along with additional game manufacturers in the future. We've learned a lot from our first full year of operations of Derby City gaming and we'll use those learnings to improve the performance and experience going forward for each of our each are in facilities.
Turning to our online wagering segment.
The Twinspires business performed well in 2019, despite it being quite a challenging year for the horse racing industry.
There were several factors that caused the total thoroughbred industry handle to be down 2% in 2019. After four consecutive years of growth, including first the track safety controversy is fan I need a park in California.
Which led to the cancellation of numerous race days as well as a decline in field sizes and quality of racing at Santa Nita.
Second none of the top finishers in this year's Derby.
Elected to compete in the Preakness, which dampened the usual anticipation leading up to the second leg of the Triple Crown.
Third there wasn't a triple crown contender in 2019 like there was in 2018 and finally, the horse disqualification that the Kentucky Derby contributed significantly to lower player engagement metrics in the months following the Derby from customers. We acquired during Derby week. However, these metrics returned to normal trend in the third quarter.
Despite these industry challenges twinspires was able to grow handled by 4.8%, although revenue and adjusted EBITDA declined very slightly due to the mix of wagering content and high volume low margin customers versus our usual lower volume high margin customer mix.
2019 was a highly unusual year for the industry and I Hope 2020 returns to more typical previous trends for Twinspires.
Regarding sports betting and I gaming.
As Marshall will share with you in more detail. We report our wholly owned retail I.E. brick and mortar sports betting results as part of our gaming segment, and our online and mobile sports betting results in the online wagering segment.
We were pleased with the impact that retail sports betting had in 2019 on our wholly owned river walking Harlows casinos in Mississippi, and our and our Presque Isle Casino in Pennsylvania, both through the returns generated directly by sports wagering on premises.
And through increased slot and table games play.
Said, another way because our cost of acquisition for retail sports betting customers is nominal this portion of our sports betting business is very profitable before even considering the incremental slot and table game play.
During 2019, we generated $5 million of net revenue at our retail bet America sports books with nominal acquisition cost, thereby generating strong margins.
In the fourth quarter 2019, we invested a little more a little over $4 million of our adjusted EBITDA in our online that America's Sportsbook business with about half of the dollar spend on marketing related costs and the majority of the remaining spend related to people and operating costs to support the operations and build out of the.
Business.
As a reminder, we purposely maintained a primarily variable cost structure through our outsourcing of the technology and risk management platform as we learn the business and develop it across different states.
In 2019, we announced that we signed a market access agreement for Indiana in Colorado, and we've launched a retail an online that America sportsbook in Indiana.
We have also find market access agreements and a number of states sports betting may become legal at some point in the future and we will announce those agreements when legislation is approved in those states.
Our existing casino properties, our brick and mortar gaming equity investments in our market access agreements provide a portfolio of states, where we can build on our sportsbook as efficiently as possible.
We believe that states are far from equal that population or wealth may not be only indicators of a profitable market opportunity.
We believe that or other factors like market access terms and tax and regulatory regimes also will help define the potential profitability of different states.
We will adjust our focus and strategy, where we see potential for margin across the various states.
In 2020, we anticipate spending approximately $5 million of our adjusted EBITDA per quarter based on the states that we are currently in as well as those we believe we will launch in during the year, including Colorado.
I would caution that this estimate could change based on timing of state launches and other factors that are out of our control.
We will keep you updated on our quarterly earnings calls.
We will remain extremely disciplined and if we see a state as nonperforming as we expect.
Then we will significantly reduce or stop spending in that particular state.
We are committed to building a long term profitable sports betting and I game business and the same way that we built a profitable business and twinspires.
Which is by far the most profitable online horse racing wagering platform in the industry today.
There is a great deal to learn from our own experiences in the nascent sports and gain market and from what we observe others to be doing.
We will learn and react and she'll constant improvement.
Turning to our gaming segment.
In 2019, we experienced relatively stable operating environments.
We grew revenue with five of our six wholly owned existing just properties that we owned over both 2018 to 19 and the one property that did not grow revenue, our Oxford casino was essentially flat despite a new competitor in the broader Massachusetts market.
We grew adjusted EBITDA of six of our seven existing properties that we owned over both 2018 in 2019 and the one property that did not grow adjusted EBITDA or Calder Casino was down $1.4 million as a result of running to highlight meets in 2019 as we began the two year process of moving from a horse racing permit to a less expense.
The solution over the long term a highlight permit.
We're not required to run a highlight meet again until the first half a 2021, although we will incur some modest expenses related to the operation in 2020.
So far in 2020.
Our markets continue to remain stable and attractive operating environments, we will watch the dynamics in new England surrounding Oxford unexpected face challenges at Harlows in Greenville, Mississippi with the new temporary casino opened in Arkansas about 100 miles away.
In 2019, our focus was on efficient operational improvements and strategic growth capital projects at our existing regional gaming assets, along with acquiring certain strategic gaming properties at reasonable multiples.
I'd like to make a few comments on our acquisitions in Greenfield projects, while Marshall will add more color on our core gaming operations.
In January last year, we completed the purchase of Presque Isle Downs in casino.
Which provided us with it immediately accretive regional gaming asset at a modest modest multiple and long term access to Pennsylvania for sports betting and I gaming.
We opened a retail bet America Sportsbook at Presque Isle and August and launched an online better America Sportsbook in Pennsylvania in mid December.
We have had product related delays with respect to the iOS and Android applications as we solve for the ability to use the same application in multiple states. So while we are operational we have not yet spend a signet significant amount of marketing dollars anywhere, including Pennsylvania everyday we are improving our online product and hope to have the technology challenges.
All very soon.
In March of last year, we completed the acquisition of the management contract of Lady luck, Nima colon and Pennsylvania.
It is a small casino and was a package deal with Presque Isle.
Our team made some improvements there and its performance has been a very nice surprise.
In March we acquired a little over 61% of mid West gaming, which owns one of the best casino assets in the United States, the reverse casino desk planes near Chicago.
We believe rivers has the highest net gaming revenue per machine in the country among commercial casinos.
It also has a very strong management and operating team.
This investment became potentially more valuable after Illinois passed an expanded gaming bill that increased the number of positions allowed for existing casinos from 1200 to 2000 and allow for other positive changes to our operations, including 24 hour gaming, which the property implemented last week.
The expanded gaming Bill also allows rivers casino to offer a retail sportsbook at the site and online sports wagering across the entire state.
In 2019 rivers added 131 of the 800 additional positions open their new bet rivers Sportsbook in preparation for retail sports betting which is targeted to launch in March of this year.
And began the parking garage expansion.
The reverse team is in the final stages of their development plans for the expansion necessary to how's the remaining approximately 670 positions.
We hope to have more definitive plans and timing to discuss with you at our next earnings call. Both with respect to our site expansion plans and the regulatory process to approve online sports wagering across the state.
Switching to Kentucky.
In 2019, we achieved several milestones with respect to our plans for expanding our historical racing machines footprint.
We began the buildout of our 200 million dollar Oak Grove racing and gaming facility and as required under the terms of our license ran our first harness race meet their in October and November.
We plan to open the Hrn facility with approximately 1300 units and a 128 room hotel in September 20 to 20.
We also acquired Turfway park for $46 million.
And are planning to invest $155 million inclusive of the 46 million to build a hrn facility with up to 1500 units and the new $5.6 million race track that we announced last week.
We plan to open a new facility in the summer 2021.
You may have seen recently that could that the Kentucky Horse Racing Commission voted to amend state regulations to allow for Kentucky license racetracks to have a second location to conduct simulcasting impaired mutual wagering under certain conditions subject to the racing commissions approval.
We plan to apply to the racing Commission for a second location with respect to our Turfway Park license. So that after live racing ends in March and demolition and construction begins a turfway park, we will be able to relocate our simulcasts operations as quickly as possible during the year plus construction period.
Our plan is to lease existing retail space from a third party in a northern Kentucky location to open up facility.
We plan to add a limited number of HR and machines at this location to help generate purse money for Turfway Park, while we tear down the existing grandstand and build a new HR in facility and grandstand area.
Given the investment required to retrofit the space for the new facility, we plan to request that the racing Commission allow us to maintain the second location. After Turfway Park skins reconstruction is complete.
We will go into greater detail during our next earnings call in late April.
Ultimately the addition of the HRS machines at Derby City Gaming Churchill Downs Racetrack Turfway Park, it's extension and Oak Grove will significantly increase jobs and tax revenues in the Commonwealth increased the purchase money for the horses that race on our racetracks attract more money to be wagered on our races and increase.
The value of thoroughbreds for breeding purposes, which is good for the Kentucky horse industry as well as for the Commonwealth of Kentucky.
A few additional comments on Illinois.
We remain excited about our joint bid with Rush Street gaming our partner reversed as planes for the casino license in Waukegan.
Our joint bid was one of the three bids certified by the city of Waukegan and submitted to the Illinois Gaming Board by the October 28, 2019 deadline.
Accordingly, According to the gaming Bill the Illinois game Board has 12 months from that deadline to award the gaming license to one of the bids.
A few final thoughts.
As I mentioned at the beginning of my remarks, our team has delivered significant growth in 2019, and we are well positioned for significant growth in next few years based on our committed pipeline of organic investments and greenfield opportunities.
Over the past five years, we've delivered a total shareholder return of nearly 350%.
We have returned over $1 billion to our shareholders through share repurchases and dividends, while growing our operations significantly or.
Our modest leverage provides flexibility to invest in our existing business and to also pursue strategic investments that we believe will create long term shareholder value, while maintaining capacity for dividend growth and opportunistic share repurchases.
We've done this for a while and plan to continue to be thoughtful stewards of our shareholders' capital when assets.
We have a significant amount of growth in our pipeline and we are excited about the potential opportunities. The continued to develop for our company.
Our next call is scheduled for the week before the 146 running of the Kentucky Derby.
If you hadn't gotten if you haven't gotten your tickets yet. Please hurry there are very few reserved seats that are left.
I want to acknowledge and congratulate our newest board member Paul Varga.
Has been nominated by the board to serve and will be included in the proxy for the April shareholder meeting.
Paul as an outstanding deeply experienced candidate.
And we'll be a great asset for our board.
Now I'd like to turn the call over to Marcia to provide some additional details after that we will answer any questions. You have thank you Marcia.
Thanks, Phil and good morning, everyone.
As Phil said I will provide details on our fourth quarter and full year 2019 financial results and will then provide an update on our capital management plans and some thoughts regarding our future growth plans.
Beginning with our fourth quarter and full year 2019 results.
Our fourth quarter net revenue was $281 million up 28% compared to the prior year quarter and our total year revenue was $1.3 billion up 32% compared to 2018.
The drivers of the increase in our fourth quarter and total your revenue are relatively consistent a little over three fourths of the increase in revenue for both periods was driven by our gaming segment as a result of the acquisition at Presque Isle and Lady luck Nima Colin.
And revenue growth from our other gaming properties.
As Bill discussed we also had $5 million of revenue for the year in the gaming segment from our retail, but America Sportsbook, Adam Mississippi properties Compressco Wow.
There, we see the gaming, which continued to perform very well in its first full year of operation contributed a significant portion of the balance of the revenue growth in fourth quarter and the total year.
As you know the fourth quarter is relatively quiet for Churchill Downs racetrack with only a 25 day follow me.
For the total year Churchill Downs racetrack generated strong revenue growth as a result of a strong derby week in the second quarter.
Our fourth quarter revenue for the online Wagering segment was relatively flat as the loss of revenue from a couple of higher volume low margin customers in the velocity group that have reported in the Twinspires business was offset by an increase in the net revenue from our sports betting and I gaming business.
Primarily as result of online wagering in New Jersey.
As a reminder, the net revenue from our equity investments, including reverses planes in Miami Valley Gaming are not included in our reported net revenue.
As you can see in our supplemental disclosures in our press release, our equity investments and gaming properties generated an additional $586 million. That's total net revenue in 2019 up 59% over the prior year.
As we reflect on our 2019 results. We're pleased that in the two year period. Since we completed the sale of Big fish games. The team has successfully replaced all of the revenue that was sold with more consistent and sustainable revenue with higher margins generated by our three core segments.
Turning to adjusted EBITDA, our fourth quarter, adjusted EBITDA was $74 million of 72% compared to the prior year quarter and adjusted EBITDA for the total year was a record $451 million.
37% over the prior year.
Our gaming segment generated $31 million of adjusted EBITDA growth for the fourth quarter, primarily from the acquisition of Presque Isle and Nima, Colin our equity investment in reverse this plane as well as growth from all but one of our gaming properties.
As you can see from the supplemental information in our press release, our same store wholly owned casino margin was 31.2% for the fourth quarter 2019 of 200 basis points compared to the prior year quarter.
And our Churchill Downs segment services, a gaming delivered the balance of the growth in the fourth quarter adjusted EBITDA compared to the prior year quarter and drove a significant portion of the remaining gross and adjusted EBITDA for the total year.
The team continues to efficiently provide a unique and entertaining experienced for its guests and they're excited about the opportunity to offer the new units and top titles from scientific games beginning in the first quarter of this year.
As we expected Churchill Downs racetrack had a slight decline in fourth quarter, adjusted EBITDA compared to the prior year quarter due to factors.
One we have profitability related to the Breeders' Cup in the fourth quarter of 2018 that did not recur in the fourth quarter 2019.
Second we had increase expenses for additional resources to support the expansion initiatives, we've announced the Churchill Downs racetrack.
So the total year Churchill Downs Racetrack grew adjusted EBITDA, primarily based on this strong performance of Derby week.
Regarding our online wagering segment as Bill discussed, we invested $4.2 million in the fourth quarter and $12 million in total for 2019 of our adjusted EBITDA to build our online sports betting and I gaming operations.
As Bill said about half of this was from marketing and the balance for people and operating cost to support the operations and building out the business.
We also had a slight increase in fourth quarter adjusted EBITDA from our Twinspires business as a result of lower marketing spend in the quarter.
For the total year adjusted EBITDA from or Twinspires business was slightly lower as the loss of a few customers in our velocity group that is higher volume low margin more than offset the growth in our core twinspires business.
Turning to net income fourth quarter net income from continuing operations was $4.2 million compared to $7.3 million in the prior year quarter.
Our press release highlights items that impacted the comparability of our fourth quarter net income from continuing operations.
To the more significant operations in fourth quarter, but the 7.5 million dollar after tax expense.
Related to the Turfway Park purchase price, but from an accounting perspective was required to be expense.
And a 5.6 million dollar noncash tax expense related to an increase in income attributable to state with higher tax rate that resulted in a re measurement of our net deferred tax liabilities.
Excluding these items for the fourth quarter, we had a 7.9 million dollar increase primarily from the $13 million after tax increase income from operations and equity investments.
And is there a point $9 million related to higher level of discrete tax items that lowered our fourth quarter effective tax rate.
These items were partially offset by $6 million of higher after tax inter spend expense in fourth quarter as a result of higher outstanding debt balances.
Net income for 2019, excluding the items that impact to compare ability that we highlighted in our press release grew $29 million as a result, a $56 million of growth from our operations and equity investments.
It was partially offset by higher interest expense and higher effective tax rate for the year as a result of an increase in income attributable to states with higher tax rate.
Turning to cash flows fourth quarter cash flow from operations was $29 million down $33 million from the prior year quarter.
We paid $16 million more in interest payments related to long term debt and had $20 million of incremental working capital needs that was partially offset by the growth in adjusted EBITDA.
For the full year cash flow from operations was $290 million up $92 million from the prior year, which was primarily driven by the growth in our operations.
We paid $11 million for maintenance capital in the fourth quarter, which was in line with the prior year quarter. So the total year, we paid $48 million for maintenance capital.
Regarding project capital, we paid $30 million in fourth quarter, primarily for construction spend Oak Grove, and the quarantine barn, and equine medical facility at Churchill Downs Racetrack.
For the total year, we paid $83 million for project capital.
And finally, some thoughts on 2020.
As Bill mentioned.
We have positioned our company for significant growth and the next two to three years based on our committed pipeline of organic investment and Greenfield opportunities.
Regarding maintenance and project capital for 2020, we anticipate maintenance capital to be $45 million to $60 million, primarily for new slot capital and various maintenance capital at our properties.
We anticipate that project capital spend will be 300 to turn and $60 million.
And the expansion at Churchill Downs Racetrack, and the developments at Oak Grove, and Turfway Park are driving the majority of the stand.
We will have some smaller projects or other properties as well in 2020.
I'd like to close with some thoughts on our adjusted EBITDA growth over the next couple of years.
Starting with the 2019 adjusted EBITDA of $451 million.
Here's a list of organic projects, we have underway and are committed to with good line of sight to the projected economics.
Regarding our Churchill Downs segment as you know, we add unique customer experiences to grow Derby week every year. In addition to smaller capital projects like the $11 million for spending to renovate a portion of the sixth floor at Churchill Downs racetrack for the 146 Derby.
As Bill discussed the hotel in HR M. facility at Churchill Downs Racetrack, well open in the fourth quarter of 2021 and should generate a significant lift and adjusted EBITDA for the 2022 Derby week.
Every city gaming continues to demonstrate strong growth in the market and will benefit from the introduction of scientific games units and their top game titles in the first quarter as this year.
We're working with other game manufacturers develop a time units with their top game titles as well to enhance our customers experience at all of these facilities that we are building.
Regarding our online wagering segment as Bill mentioned, we will remain disciplined in our investments in our online sports betting and I gaming spending with a projected investment a $5 million for adjusted EBITDA per quarter in 2020.
And the commitment to build a long term profitable business just as we did with Twinspires.
Regarding our gaming segment, there are number of drivers of adjusted EBITDA growth as well over the next few years, including it reverses planes the full year impact in 2020 from the addition of the 131 positions that we added in 2019.
The addition of the remaining 669 positions that have been approved as part of the expanded gaming Dell.
The reduction in the table games tax rate when a new casino or temporary casino is opened.
The potential impact of an equity investment and the we're kicking casino if Midwest gaming is selected by the Illinois Gaming Board and the potential upside from retail and online sports betting to reverse this planes as was the potential for retail and online sports betting under Arlington racing license.
Regarding our equity investment in Miami Valley Gaming My garage hotel and expanded gaming floor should open in the fourth quarter of 2021.
We will also continue to invest judiciously and our other wholly owned casino properties to drive profitable growth where is it where it is warranted.
As Bill discussed we do have some potential headwinds are two of our casinos, Oxford and harlows than we are watching carefully.
And lastly, we have to distill construction projects underway that will also grow adjusted EBITDA in the next couple of years.
These two properties given their early stages, along with Arlington, United Tote are currently reported in the all other section of our financials.
Oh, Great Hotel in Asia, RM facility will be opened by September 1st of this year. So we will have a full year benefit from this property in 2021.
And Turfway Park will undergo a major reconstruction in the coming months, resulting in a new HR I'm facility and a new synthetic track by the summer of 2021.
As bill alluded to we're hoping to add a second location to our Turfway Park license such that we can continue to offer another location for our customers to go to for Simulcasting and other gaming entertainment and Northern Kentucky, well, we are rebuilding Turfway Park.
Regarding shareholder returns.
We repurchased $25 million overstock, and the fourth quarter, and we have $175 million remaining share repurchase capacity under our existing program.
As bill highlighted our dividend and share repurchase programs reflects our ongoing commitment to returning capital to our shareholders.
Our net leverage on a reported basis at December remains relatively low at 3.1 times.
We have significant capacity based on a cash on hand ongoing cash generated from operations unused credit facility and relatively low leverage to support continued growth through acquisitions and organic investments as well as our dividends and opportunistic share repurchases.
With that I'll turn the call back over to Bill So that he can open the call for questions Bill.
Thanks Marcia.
Oh, Okay, everybody, we're ready to take questions far away.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchstone telephone. If your question has been answered all your richer move your aside from the Q. Please press the pound ski.
For the first question, we have David Katz from Jefferies. Mystic has your line is open.
Hi, good morning, everyone.
Good.
Good morning, and thank you for the detail for taking my question.
I wanted to.
You know focus on or at least deal with you know that the question. The type of question that were getting across our coverage.
Around prospective virus impact.
Specifically around the Kentucky Derby.
You know there has been efforts to include a and our expectation of a Japanese horse involved do you have any statistics that you are able to share any qualitative comments you can make around international visitors or attendees at the at the Derby.
Whether you know from Asia, or otherwise help us sort of deal with that hypothetical matter as you know as we try to move through this.
Sure David Let me, let me address that.
First from a broader perspective, the corona virus itself.
We're still more than two months away from our event so they'll be many many events cancers professional sporting events with all sorts of other events that happened in the country.
Well before we get to our event. So we have a lot of time to monitor and learn.
And and study the best protocols to put in place if it in fact becomes relevant for our event. So our team will be very very focused on that and pay attention to that just just as we do every year to.
Any other factors that we think potentially could impact us.
With respect to.
The Japanese horse, if a Japanese horse.
Comes to the United States.
That's a great thing we welcome that that's why we have the Japan road to the Derby if the horse doesn't come another American horse will be eligible under our points system to enter the race. So I don't think that this impacts the the field sizes for the Kentucky Derby or the quality of horses that are entered into the Kentucky Derby.
With respect to international participation in terms of.
Attendance.
So I don't know that we have a great access for that information at our fingerprints, but it's also not something I'm, particularly concerned about the tickets are.
Resort tickets are largely sold at this time and ER and there's a healthy secondary market for those tickets as well. So I think it's a fair question to worry about but from a.
From from our calculus, and how we think about it.
Not sure that I see a path where that impacts.
Our attendance in any meaningful way.
Perfect and just similarly around the Kentucky Derby and you know the exciting hotel in HR I'm facility is you're going to build.
Can we just recheck no the prospect of any construction thatll be going on over the next couple of years.
You know that could either you know visually or literally.
Have you know any effect on that all important event.
How should we be comfortable with that.
Well in the section where were building the a the hotel in HR M facility.
Traditionally there are temporary store seats that are constructed in that area.
Our team is carefully stage the construction to ensure that those seats are all their for this this derby there will be some infrastructure that gets relocated but services those seats, but those seats will be will be where they would normally our for this year's Derby and there's a plan in place to make sure those seats are low.
Loss for next year's Derby as well so.
You raised a good point and one that bill modern and Kevin Flannery. The team are very focused on to make sure that our guest or not.
Displaced and and that Theres a plan to to maintain their experience as best we can certainly maintain or the ability to to provide those seats to people.
Got it and one last one if I may with respect to Illinois and to your comment.
In the Bill of A. I believe it's an October deadline.
For a new casino licenses to be announced are issued.
You know a twofold relevance for you won some other license becoming active through a temporary facility.
And.
Waukegan, obviously, which were highly interested in.
Is there any information we can garner about whether that October timeline is how long were going after weight, you know and or do you think theres any probability that it could be sooner than that.
Well, there's certainly a probability.
That it could be sooner than that but they're also isn't any hard information available that we can share with you.
To give you any guidance on that certainly I think everybody involved whether it be us through bidding for the waukegan license or any of the other potential license holders a bit or who are build a bidding for the other licenses.
We all hope and Ah think it's it's a a legitimate possibility that the gaming commission moves faster than the October 29.
Line I'm sure they would like to I'm sure that that would be their expectation or hope as well, but we don't have any information at all.
So we can share with you on what their their timeframe will be so we'll keep monitoring that and if we do get information that we could share publicly we would.
But I think we're all just gonna have to be patient, that's not within our control, but certainly.
Everybody, including the state who is a eagerly awaiting that those revenues everybody has an interest in that process moving as fast as that responsibly can.
Perfect. Thanks, and good luck.
Thanks, David.
Your next question, we have Joe Stauffer from Susquehanna.
First off your line is open.
Thank you good morning, everyone [noise].
Bill you you touched on sort of a satellite facility in offering that you could do.
During turfway construction I was wondering.
One when the regulator would approve that and to like any any sizing whether it be the number of HR items that you expect to be there you know what are the simultaneous cast offerings that you could put in that facility.
So that that's the first question and I'll just take it I guess question My question. Please.
Oh, Thanks, and I appreciate that because sometimes it's hard to remember all the parts of the multipart question sorry.
[laughter] well that that probably helps me more than you [laughter].
So first that the relative size of the property.
It's gonna dependent we can't we can't disclose a number yet because it will depend on a pending down the most attractive real estate option and then secondly, getting the racing commissions approval I think.
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I wouldn't want to risk prejudicing the process with the racing Commission.
In any way. So I think those are still discussions that we need to have privately with them in conjunction with identifying the the right facility, but but it certainly will not be of the size of what we're doing a turfway park. It will be a much more modest offering than that but I I think a really good thing for the state and a good thing for our company depend.
You know, where we can find a location to put it.
The facility as we envision would offer both HRS and a full suite of Simulcasts.
Products that are available so would be both a place to wage or on the horses. So our fans that Turfway park have a place to go during this extensive oh reconstruction processes of the Turfway Park site, but would also offer.
A modest but healthy number of HR opportunities a four players for that we can build the purchase account and generate returns for the state.
And our own company.
I see.
Two more questions. Please.
So I just wanted to clarify say on on the the license issuance process and Illinois [laughter] is it fair to assume.
That the compete a different say Rockford.
I believe there's one bidder and that did or.
Had applied earlier, I guess versus your fewer joint bid in Waikiki and is it fair to assume that assuming October 20 Nines is is the last date.
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Illinois would decide with respect to that application where that license much earlier or is it is the timing also.
You know whatever you can share with us I know it's a.
It's always difficult to try to handicap regulators, but I was just wondering on the timing of that piece.
Well not every license in the state, but is that is being offered.
Has multiple bidders so they're there there are a.
Situations, where theres just a single bidder and there are other.
There are other circumstances in the states were were bidders. It said that they would do a temporary and and that's part of their their their approach to winning new license.
With respect to the timing on when the racing or when the Illinois Gaming Board is going to make a decision I just can't responsibly speculate on that other than I can identify that they have motives just like we all do to move as quickly as they responsibly Cam the governor has talked about the importance of this revenue to the state access.
Era, so I I think everybody would like to move as expeditiously as possible and wood and I'm sure that that includes the Illinois gaming board that they would like to move as expeditiously as they can't through this process, but I'm just not the person that can be in a position to comment on on whether there will be finished.
And win in advance of the October the October a that the October deadline.
Okay.
That's not a very satisfying answer no I understand I understand it territory, where we don't control, but yes, and I just want to be respectful of the people that do but but I can tell you I can I can't comment on their or their motivations and their incentives everybody wants to move as quickly as possible in Illinois, both but.
I don't want to be dismissive of their significant workload in the and their efforts will just have to wait until they're ready.
Okay. Thank you and just to clarify and question so.
One when you exited Saratoga I believe in August of 18, [laughter] correct me if I'm wrong.
You guys retain the the access to potential.
Online sports again, when New York gets there is that accurate.
Yes.
And.
Can you tell me when in the online segment currently the impact from your velocity business within the online segment.
When we at least in 2020 would anniversary.
The the impact I guess from from lower activity specific involved in the velocity business.
Let me just make sure we understand that question would you would you.
Sure. Let me, let me just want to make sure we understand it yeah. Let me, let me restate that all I'm, saying is in the context the online business.
Velocity has.
[noise] has contracted.
In 2019, and what I was just trying to figure out is okay. When we kind of lap.
One year out sort of the year over year impact of of that first real hit in the velocity business that that occurred in 2019, hopefully that's clear.
I think it's clear out well.
Let me start and then a I'm sitting here next my colleague Bill Mudd. This was a case, where bill if you think I didn't quite captured as Ben Yeah, I think velocity saw some contraction last year and there was appointed which we lap it.
But I have to say that.
I think that trend in general and velocity is not something we expect to continue seidl idle fuel velocity will be a a meaningful negative impact and may even be a positive impact for this coming year. So I think there I see multiple factors there, but I would I would suggest that the trends from last year not something you.
Should focus on seeing continue.
I would I would agree with that.
In the left that I think you're talking about probably was kind of no second quarter type of impact that's right. If if if that's the case, but to Bill's point. These are all very about no meal.
And can move very quickly so I view it more as an upside than than any commentary on risk for this year I see I see so you would expect that business to effectively kind of reflate not.
Decline further or flatten out.
That's the way I feel about yes, okay. Thank you very much.
For the last question.
Dan Politzer from JP Morgan Mr., Paul It Sir your line is open.
Hey, everyone. Good morning, Thanks for taking my questions I know Dan good morning.
Good morning.
Personally I want to head on sports betting and I guess your overarching strategy. There have you thinking about this business with respect to maybe adding a media partner just given.
What's been going on in the space lately and how do you think about your strategy for size versus profitability, especially as it relates the online versus retail I know, there's a lot in there, but just how did you get some color.
Oh sure.
So with respect to partners media partners or others.
First.
We did want vendor relationships as we entered this business that allowed us to enter the business as much in a variable cost model as we could because just having started businesses as we have within Churchill.
We know that they can be lumpy it first and it's hard to predict exactly how it will grow and win so you want to variable cost structure as much as you can at first to make sure that your costs aren't outsized compared to your revenues, so feel very comfortable with our vendor relationship them and relationships and what we've decided to outsource versus to do internal.
And I think that's been a component of how we've approached the business with respect to.
True partnerships.
With media companies or otherwise I think with any partnership you have to look at what they bring.
Ah to the table and how much it would cost you to get it from a vendor or from a or develop it yourself. So I think we'll look at all those.
Yeah, we've looked at media deals I think we'll continue to look at media deals and other types of deals, but it's really a question of analyzing clearly with the data you have.
Oh, whether it's worth the cost of the partnership and we're sharing the upside generally as we've approached this business much like when we enter twinspires all those years ago, while we want to be careful about giving away the upside and we want to make sure that we keep as much of the upside as we response, we can and if we do give up upside like if we have to enter a particular jurisdiction.
Because we don't ourselves have any way to get access to the jurisdiction, we want to make sure we have a very good.
A theory on quantifying that that upside that we're giving up so so we've been cautious maybe more cautious than others and maybe appropriately or in appropriately. So, but we tend to be very very careful on sharing upside for the long term when it's not easy to completely completely quantify.
Your second question with respect to.
Size versus probability, there's probably a number of places to go with that and so let me just start and then you can follow up if I Didnt go in the direction you were anticipating.
Really really like the retail sports betting.
As Marshall was alluding to and I tried to alluded to as well since the cost of acquisition of the customer by customer base within the casino is nominal compared to the cost of reaching.
Potential customers in the online space. The margins are very good so we like that and we'll do as much of that as we can and the online space.
So far what we've seen it can be a quite it can be expensive to acquire customers in the online space. It's just an expensive digital world.
We want to make sure our product is is a mature and performs as.
Required so it doesn't disappoint the customers and we want to make sure. We developed data on on the value of customers. So that we parrot carefully to the cost of those customers. So.
They are different theories to approach this business and we respect everybody. That's made their choices on this but from our company's perspective, Oh. We are we are very great data driven we were very data driven group. So so we tend to be incremental we tend to be careful we we tend to test and re test.
And that can come at the expense of speed, but over the long term, we think we'll have.
Data to make good decisions. So we're going to plug along at a at a pace that makes sense for us and and try to get better every quarter and you know indeed within every quarter every week every month, we'll try to get better and smarter about how we make decisions and spend our capital.
That's helpful. I appreciate that detail.
Could squeeze in one more.
Turning to river is and.
How do you think about the remaining 39% ownership there any have you given thoughts the consolidating it what are the puts and takes today and a relationship and how do you see it will evolving over time.
<unk> the majority of of the interest in reverse that that Churchill doesn't own.
Really is owned by Aneel Bloom and his family and other some other key executives.
Within his organization and their tremendous partners and Oh bring tremendous value to our company and there there is no interest our plan.
To to seek consolidation of that.
The plan is to continue to work with.
Partners that that bring tremendous value and improve our company and improve our our efforts together and that jurisdiction. So just harkening back a few minutes ago to the discussion about.
Media partners, and our online business and how we want to be careful and thoughtful about that well, Illinois. As an example, where we have a tremendous partner that makes our company better and and that we learn from and that we're pursuing other opportunities with like Waukegan. So so.
I'll I.
I wouldn't expect any any change in that anytime in the in the near term.
Alright, Thanks I appreciate it.
I'm showing no further questions at this time I would now like to turn the conference back to Mr. Bill Carstanjen.
Thank you everyone I really appreciate your time I appreciate your interest that our company. We all do we appreciate your good questions and.
Your confidence in us and your investments than us. So we're going to keep doing what were what we do and and we'll talk to you at a very short period of time less than two months for about two months from now we'll talk to you again and and report further so thanks everybody.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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