Q2 2020 Churchill Downs Inc Earnings Call

[music].

Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2022nd quarter earnings Conference call.

At this time, all because sometimes I listen only mode. Later, we'll conduct a question and answer session and instructions will be given at that time.

As a reminder gets conference call is being recorded.

I'd now like to introduce your host for today's conference. That's an example, vice President Treasury management and Investor Relations.

Thank you Katrina.

Good morning, and welcome to our second quarter 2020 earnings Conference call. After the company's prepared remarks, we will open the call for your questions.

Companies 2022nd quarter 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 Okay.

And at Churchill Downs incorporated Dot com as well as in the websites Investor section.

Before we get started I'd like to remind you that some of those 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 and the risk factors included in our filings with the FCC specifically the most recent report on form 10-Q and form 10-K.

Any forward looking statements that we make are based on assumptions as of today and we undertake no obligation to update these statements as result of new 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.

The press release and form 10-Q are available on our web site at Churchill Downs incorporated Dot com.

And now I'll turn the call over to our 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 Brad Blackwell, Our General counsel.

During the second quarter, the global pandemic Cobot 19 has significantly affected everyone in our country and has inflicted harm on the economy and businesses throughout America.

Against this backdrop, our team has performed with determination and creativity.

We have developed and implemented best in class policies and protocols to keep our customers employees and communities as safe as we response, we can during the recent reopenings of our properties.

While our second quarter numbers were significantly affected by the closure of our brick and mortar operations and the postponement of the Kentucky Derby.

Our immediate actions to reduce a broad array of expenses helped to minimize the impact and provided and an efficient operating platform for each property upon reopening.

Our disciplined approach to leverage and careful focus on managing cash expenses have provided a strong balance sheet to whether this difficult period, and we will allow us to become an even more efficient and focused company and with the great portfolio of growth opportunities. We are built to sail through the storm and to return to growth we are.

Cited about what comes next for Us.

Today I will update you on four important topics first the reopening of our gaming properties.

Second I will share some insights into the growth of our Twinspires business during the second quarter and our plans for our sports betting and gaming business within the online wagering segments.

Third an update on our HR am expansion in Kentucky at Oak Grove, and Turfway Park.

And last I will discuss the preparations we were making for the 146 running of the Kentucky Derby on September 15.

Then Marshall will walk through the financials for the second quarter and review our capital management and liquidity. After she finishes we will take your questions.

Let's begin with the reopening of our gaming properties.

As you can see from our press release, we reopened our to Mississippi properties in May along with our off track betting parlors in Louisiana, which have video lottery terminals.

We reopened six more of our gaming properties and Derby City gaming in June.

Reverse does planes casino in Illinois, and Oxford Casino in Maine reopened in July.

After opening in June Calder Casino was required to temporarily suspend operations. The second time on June on July 2nd due to an order issued by the mayor of Miami Dade County to close entertainment venues and a further effort to control the rise in coated 19 cases in the county.

We will continue to collaborate closely with all the relevant authorities, including those in Florida to address any health and safety concerns related to our properties and we'll work to reopen Calder casino as soon as it is prudent to do so all of our properties across the country other than Calder remain open.

We've also included in the press release, the current regulatory limitations on guest and gaming capacity.

All of our property follow various restrictions on the number of customers. We can serve at one time and or the number of games that can be operational.

We've eliminated a number of amenities at our properties, including a phase and valet services as well as some of the other restaurant and food outlets.

We have also greatly reduced marketing and customer incentives like free play.

It is difficult to determine at this point, if and under what circumstances. These amenities and incentives will return to our properties.

We will monitor the competitive dynamics in each of our locations to determine what we need to do in the future, particularly to respond to our competitors.

Based on these changes and amenities and staffing needs as of the end of June we had brought back approximately 80% to 85% of our total gaming workforce that had been furloughed at our wholly owned properties.

With respect to our equity investments in the gaming segment, we reopened Miami Valley Gaming on June 19th and we've had strong results. So far although we're very pleased we haven't elected as of yet to resume our previously announced gaming and hotel expansion at the property. We will continue to monitor the performance of Miami Valley and discuss plans with our part.

In the facility, Delaware North companies.

Regarding rivers disciplines Casino rivers reopened on July Onest and is performing quite well in light of the current guest capacity restrictions.

Illinois passed a new game Bill in May that provide certain Lee for Illinois casinos as they start to recover from cobot 19.

The bill reduced our graduated tax rate on table games on July Onest of this year instead of delaying it until the first new casino under the 2019 gaming expansion opened.

The new gaming Bill also includes delaying the required initial license payment for new gaming positions that reverses, adding and the related reconciliation payment.

These changes are helping us to recover from cobot maximizing the number gaming positions, we operate and putting more team members back on the job.

Rivers has been working to finish the parking garage, which is necessary to support the additional 670, new gaming positions. It will add and now anticipates that the garage will be completed in August.

Recall that 130 of the additional 800 gaming positions approved in the prior gaming Bill we're already added within the existing footprint.

We do not have any updates on the timing for the additional 670 gaming positions, we will provide more information as soon as the performance of the facility post reopening is clear and the team has updated our plans. We of course will be excited to move forward once the operating environment stabilizes and is well understood. This will bring jobs in revenues to this.

State and local community.

Rivers reopen the retail Sportsbook in July when the casino reopened.

Rivers was approved to launch the first mobile App for sports betting in Illinois, and despite the limited sports wagering opportunities due to covert 19 has seen an encouraging volume of new player sign ups. We are excited to see how the river sports wagering operation performs as sports returns to the American landscape.

Some of you have recently asked how Churchill downs benefits from reversed as planes casino sports betting in Illinois.

As a reminder, we own a little over 61% of rivers, and therefore received 61% of the economics that accrue to reverse with respect to the sports wagering operation.

Reverses responsible for all of the marketing and user acquisition costs and owns the customers Ford sports betting operations.

We're versus using a separate Standalone company Rush Street interactive or our OSI as this technology and service provider for the a player account management system and other related services and pays a variable rate fee to our aside.

You may have seen that our OSI recently announced that it intends to go public through a merger with a special purpose acquisition company. This does not change anything with respect to river sports betting operations or our arrangement with our aside.

I noted, we utilize our OSI Fry gaming services for rivers for which we pay fees, but Churchill does not own any portion of our aside nor is any portion of riverstone planes casino owned by our aside.

Our size of service provider to reverse we wish them well with respect to their transaction and are excited for them given the market's enthusiastic response.

Regarding the new casino authorized by the 2019 gaming expansion Bill and Illinois.

We remain committed to our proposal to build the new Waukegan casino in partnership with Rush regaining our partners and reversed as planes. If we were awarded the licensed by the Illinois Gaming Board.

Given the anticipated minority ownership interest Roastery gaming's ownership interest and our local partners interest we would anticipate owning approximately 35% of the new casino the same as Russ Street with 100% of the debt financed at the Waukegan casino entity level. This is similar to how rivers does planes is structured.

Switching to our Derby City gaming property. It reopened on June Eightth and is performing very well as are most of our brick and mortar properties.

The construction of the second outdoor smoking patio. This one on the south side of our existing Derby City gaming facility is still on scheduled to open up.

Approximately 200 additional historical racing machines, including new game titles from scientific games and IGBT.

Next I will share some thoughts on our online wagering segment.

Despite the shift of the Kentucky Derby on the Preakness to third quarter, our Twinspires business had very strong year over year growth in handle for the quarter, which provided significant operating leverage for the business.

Wagering has remained quite strong into the third quarter and we will additionally benefit from the Kentucky Derby on the Labor day weekend and the Preakness that is scheduled to be run on October threerd.

Both of which are traditionally very large contributors to wagering figures for the quarter in which they are run.

Regarding our sports betting and I gaming business.

We start with our base of profitable and prolific twinspires customers. We have demonstrated yet again this past quarter that they will play on our site when we have content for them, even if it isn't the Kentucky Derby.

We look forward to broadening our offerings to them as we entered the larger states for sports and I gaming and with our direct access to many markets and roster of efficient indirect market access deals. We believe we have the foundation of a very special business.

We anticipate launching our retail and online bed Americas Sports book in Colorado in Michigan prior to year end.

And have other states like Tennessee on the horizon for 2021.

We remain focused on and disciplined and building a profitable sports betting and I gaming business that will be integrated with our horse racing wagering platform over the long term.

We will leverage our teams experience and building the most profitable online horse racing wagering platform in the industry with their extensive sports betting and igaming knowledge, coupled with efficient access to the states we want to began.

Unlike other businesses within sports betting space today with significant market valuations based on multiples of future revenue Twinspires has already proven that it has a successful and growing online wagering platform with substantial revenues and profitability.

We hope to improve our speed to market and operational capabilities and all the states that we have market access, which should strengthen our substantial foundation for profitable growth in sports betting and igaming over the long term.

The third subject to update you on as our historical racing machines expansion in Kentucky.

With respect to our Oak Grove expansion in southwest, Kentucky, North of Nashville, Tennessee on Interstate 24.

Due to the cobot 19 related construction delays, we're now planning to have a soft launch with 1325 HRS and mid September with the combination of Ainsworth's scientific games and game titles, we expect to have the grand opening of the HR and facility and the 128 room hotel in mid October we.

Restarted the work on the remaining noncore parts of the venue that require small amounts of capital investment, including the equine event Center outdoor concert venue and RV Park and anticipate that these areas will open shortly after the Hrn facility in hotel.

With respect to our Turfway Park extension in Newport, Kentucky, We've made excellent progress on this project.

Our team is completed all of the site work and the structural improvements needed to the building.

We anticipate that the additional interior construction will be completed by the into September and preparation for Grand opening by early October.

This timing will provide two months of operations to generate much needed purse money for Turfway Park December live Thoroughbred race meet.

The Turfway Park extension will open with the simulcast area a gaming for with up to 500, HR EMS and a bar area and will create 70 full time equivalent jobs in the northern Kentucky area.

Please note that the number of machines operating at both Oak Grove, and Newport could be impacted by additional extensions of capacity restrictions by state officials with respect to cope with 19 I provided the numbers assuming full capacity.

Regarding Turfway Park racing and gaming we finished the modeling the existing grandstand, a turfway park in the second quarter and the racetrack itself with a new state of the art artificial racing surface call to Peter will be completed by the end of August.

During the second quarter, we completed the architectural design and site development plans, we will begin construction of the new HRS and grandstand facility as soon as we obtained the required permits and complete the necessary site improvements.

The updated design reflects a floor plan of approximately 155000 square feet and includes a simulcast facility.

The racing grandstand, an event space for groups and banquets.

Resource owner and VIP player accommodations.

44500 square feet of gaming floor that can accommodate up to 1200 historical racing machines.

And three food and beverage venues, including a sports bar designed to accommodate sports wagering in the event. It is approved in Kentucky.

Based on the Finalization of the designed for the facility total project capital for Turfway Park is projected to be approximately $200 million, which includes the Turfway Park acquisition costs and other previously approved capital.

This capital investment will be completed over the next 15 to 18 months.

The increase of approximately $45 million over previously provided estimates is primarily driven by increased site work requirements and a larger racing and gaming facility. Our team completed and additional analysis of the northern Kentucky market and believes that the market demographics and competitive landscape scape can clearly support this level of invests.

Segment and will generate a strong return on capital for our shareholders.

And finally, I'll provide an update on Churchill Downs racetrack and the upcoming 146 running of the Kentucky Derby on September Fiveth.

Over the past several months as our country as space, both the spread of coded 19.

And the increasing social and racial unrest sparked by the death of George Floyd Briana, Taylor and Amod Armory.

Our reflected constantly on the roll the Kentucky Derby and the Commonwealth of Kentucky, and its importance to the social fabric of our community and the country.

For me and our team members the Kentucky Derby is the essence of what this company does and putting on this happening every year is the single most important contribution that we make as individuals and as a team to our community.

It's a labor of love and we're all true believers that bring something special and unique to our community and state of which we are also proud.

And it's essence, the Kentucky Derby as a celebration and an inspiration.

Not just to the fans our community our state in our country, but also to those of us whose job it is to make it happen.

Most years, we take it for granted that it is both a celebration and an inspiration.

I don't think it's the same this year with all that is going on it just cannot be the same celebration that normally is.

However, we hope that when we run it for the 146 consecutive year the September.

The event will serve as an inspiration and a unifying force sports and certainly the Kentucky Derby can do that it can serve to unite us and inspire us and to remind us of the things and events that bring us together and that we have in common.

Ultimately the Kentucky Derby belongs to our community and our country. It provides a special and memorable reason to come together every year almost always in the spring time on the for Saturday in May but this year in September.

As we've previously announced to ensure the safety of our guest team members and everyone else involved and in close collaboration with state and local authorities and medical professionals. We will have fewer guests. This year Derby, we're absolutely committed to ensuring a safe environment and significantly reducing the size of the crowd is an important.

Step to doing so.

We will implement best practices and protocols that we've observed from around the world and we'll make adjustments all the way up to Derby day itself as we find ways to improve.

There will be more announcements on our plans in the coming days and weeks.

We have chosen to honor any request from our suite holders and other gas for refunds or to apply the value of their tickets for this year's event to next year in lieu of refunding their tickets.

We have also when requested worked with those sponsors were facing difficult business challenges this year to move their sponsorship dollars to the 2021 Derby.

We will protect the long term relationship we have with our guests and sponsors during this challenging time, that's the way to think about it when we know the Derby, we'll be back next year in every year after that into the foreseeable future.

The financial details for this year's Kentucky Derby week, we'll continue to change as we make decisions over the coming weeks, we will provide the metrics right. After derby as we do every year.

Since we will have fewer guest and lower sponsorship participation, we will deliver lower financial results. This year. This is a year of extenuating circumstances.

For those who come to the Derby. This year, we promise you that we will make it a wonderful experience and most importantly, we will make it a safe and comfortable as we possibly can.

We will continue to work tirelessly with state and local officials and medical professionals to develop and implement all necessary protocols to provide that safe environment for our guests to come together to celebrate this time honor tradition.

For those of you who cannot attend this year NBC remains a fantastic partner for us and will be broadcasting the derby for everyone to enjoy from the comfort of their homes.

It is important to note that our team at Churchill Downs Racetrack has been practicing our operational protocols as we approach to Derby, we completed a successful spring meat spectator free over a period of 27 days in May and June.

We were among a very limited number of businesses to open in the first round in Kentucky, and our team worked very very constructively with the Governor's office to earn that privileged.

We implemented and enforce the comprehensive safety protocols that we developed in collaboration with the Governor of Kentucky, Andy Bashir and the Kentucky Horse Racing Commission to protect a health and safety of the many many people involved who are necessary to run a complex Thoroughbred horse meat.

This experience is an excellent foundation for the upcoming September Kentucky Derby, now 37 days away.

With that I'll turn the call over to Marsha and then we will take your questions Marcia.

Thanks, and good morning, everyone.

I will discuss at the beginning of his comments our results in second quarter reflect the quick decisions Swift actions and hard work of our team during these difficult times.

The diversity of our portfolio provided strong earnings growth from our trends first business and our gaming properties and PCG since reopening as long as the cost reductions that were taken to reduce the impact of the gaming property closures and help to top two partially offset the materials reduction and adjusted EBITDA.

From the prior year quarter due to the rescheduling of every week from second quarter to their quarter. This year, along with the impact of the property closures in the early part of the quarter.

As Bill discussed we begin reopening our gaming properties in may with a more efficient operating model.

We were pleased with the result sleep monitoring in May and June timeframe that a wholly owned casino properties for open.

During their respective reopening periods the properties collectively generated a 9% growth in net revenue and 38% growth in adjusted EBITDA and a 9%, 0.9% increase point increase in our industry, leading margins compared to the prior year period.

Our elimination of amenities, including the phase valet services and some of the other hotel and food and beverage services provided the foundation for this increase in operating efficiency.

We have also significantly reduced our free play and other customer incentive.

Sustainability as these margins depends upon the competitive landscape in each market.

The rest assured we will only add back amenities or additional free play and other incentive if necessary.

Our equity investment MDT also has performed well since it's the Anthony on June 19th in all the time period is more limited and therefore not necessarily a conclusive turned MDG has realized strong growth rate seen net revenue and adjusted EBITDA and is realized improved margins. During this reopening period as well.

Given to the gaming also had strong results after the Anthony during the 23 days that we were opened in June as you can see from the public data on the Kentucky Horse Racing Commission website, even though we had a little over 50% of our machines available per guest during this period, we averaged $646.

Gross gaming Commission per day per machine more than double the average at the trailing 12 month period ending in March 2020 pick every city gaming.

I guess, just beginning margin was significantly higher during June actively Alvin.

We do anticipate lower required levels of marketing and pre play as well as my limited amenities, we will adjust if necessary based on the competitive environment.

Turning to our online wagering results for the quarter. Despite the shift as the Derby week to the third quarter of 2020 are Twinspires business grew handle and the second quarter over $100 million, a 22% compared to the prior year quarter as many brick and mortar bedding outlets remained closed end customers.

Migrated to online wagering as based tax began to me anything.

Excluding the 2019 guarantee we candle to Churchill Downs racetrack content.

Twinspires grew handle 43% compared to the prior year quarter.

We also experiencing increasing the amount wagered and the increasing the average number of wagering days finer existing customers in the quarter compared to the prior year that we believe reflects a lack of alternative sports betting options.

A little infinitely chain.

The significant growth in handle on a quarter over quarter basis provided significant operating leverage which generated an 18 million dollar, 78% increase and adjusted EBITDA for transparency business.

Handle growth in the third and fourth quarter for transfer should benefit from the shifted Derby week to the third quarter and the treatment. This new to the fourth quarter and will depend on a temporary therapy.

Turning to capital, we sent $4 million on maintenance capital and the second quarter, which primarily related to mandatory items and capitalized labor related to improvements to our Twinspires technology platform.

For the first six months is 2020, we have spent 13 million guys. We do anticipate that maintenance capital spending will increase slightly in the second half of the year based on the reopening of the gaming properties and the preparation to the TV in the third quarter and turnarounds race track.

Therefore, we anticipate 30 million to $40 million and maintenance capital for the full year 2020.

We sent $79 million on project capital in the second quarter of which $58 million for spent on the growth facility $15 million on the Churchill Downs racetrack related contacts and $5 million on the Turfway Park extension.

During the second half of 2020, we anticipate spending $120 million target and $30 million and project capital that will be focused primarily on the four major capital projects Tiptoed discussed.

Growth that every city gaming smoking Patio addition, the test site Park extension and the Turfway Park racing and gaming facility.

We remain committed to building hotel and ATM facility Intrexon arms race track. However, we will continue to pause on this project until we have better clarity on the longer term impact of this crisis on the U.S. and global economy.

Regarding our leverage and cash liquidity at the end of June our leverage net cash at June 38 to 6.1 times, reflecting the impact of the shift as Derby week from second to third quarter and the impact of our property closures and first and second quarter.

We had $649 million unrestricted cash like no long term debt maturities until the second half of 2024, except for $4 million at the annual amortization of our term loan b.

We have cash liquidity well beyond the next 12 months with the flexibility to adjust the capital spending as needed.

Even though we're proactively obtained a waiver far to maintenance financial covenants. The reporting period, ending June 32021, primarily due to the shifted to every week from second to third quarter. We were in compliance with the financial covenants on the revolver at the end of June.

And finally as I approach my five year anniversary the Churchill Downs this year and reflect on what I. Appreciate most about our company and our leadership team I can assure you we will always to the right thing for the long term for our customers for our employees our communities and our shareholders.

As we shared on this call there are number of near term opportunities that we are investing in heavy will provide growth and solid return on investment and they're also a number of other longer term opportunities that we will be able to invest in overtime to drive organic growth for a company.

Our team has developed a core capability and doing the successfully within our businesses.

We also may have the opportunity to capitalize on the market momentum around sports betting related companies as investors more clearly understand the tremendous asset that our team has developed our twin sized business that at its core is a very possible sports betting platform.

And as markets liberalized over time, we can capitalize on the opportunity to expand into other sports as well as I gaming.

25 already has market access and his operational on nearly four times in other states that traditional online sports wagering providers operational in today.

Online sports fishing business has market access either directly or more efficiently to market access deals that provides a strong foundation for developing a very special business when combined with our Twinspires business.

And then most important evolve we have this tremendous iconic asset to Kentucky Derby that through its magic has created a time every year for us to come together.

Generation after generation for 146 consecutive years to unite and inspire.

We look forward to senior at the JV in a few weeks, if you're able to calm and if you can't we hope that you will enjoy watching it on NBC.

A special thanks to our team we're all working hard to ensure that would create a safe.

We also experienced higher guest.

With that I'll turn the call back over to Bill. So that you can open the call for questions Bill just thank you Marcia.

At this point, we're ready to take your questions. So please firewall.

Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key touchstone telephone.

A question that's been answered or you wish to remove your cellphone Mckee they expect the captain.

First question, we have David Katz from Jefferies. Your line is open.

Hi.

And good morning, everyone.

I wanted to just started in Illinois.

If that's okay.

We still have a deadline of hearing about the Waukegan license I believe it's in October.

But the terms have change or the perspective terms have changed around the downtown.

Sito license.

How have you thought about.

Change and.

Whether.

That's a license you would pursue as well.

You know and its potential.

The impact what you have there and rivers as well as prospectively Waukegan.

Hi, David It's bill. Thanks, Thanks for the question I'm going to answer at the best I can within the context of.

Of this sort of process.

So first we remain excited about waukegan, we havent heard any any updates with respect to the timing and you're correct when they when you say that.

The date that they're supposed to respond with the awarding of of the bid is in late October. So we remain optimistic about that and still believe that's the timeframe that the state is on the gaming Commission is on.

With respect to the downtown Chicago side, Yes, the there've been some developments in the in the and the new gaming Bill that was passed in May that change some of the.

Some of the parameters of the Chicago license change the tax rate et cetera. So I imagine that the city is working on an RFP and when they put out an RFP.

Certainly thats something that.

We and others would would take a look at to evaluate it we do have an investment in the state.

It's a challenge state in many ways, but it's a state we believe in and we've invested heavily in that state as as a company. So anything Chicago is going to do or put out we're going to want to take a look at and explore but thats. All we know as of right now we'll have to wait we'll have to wait to the city acts.

To be in a position to really evaluate whether there'd be an opportunity for our company like ours.

But certainly we have some advantages and knowing the market and being familiar with with the jurisdiction.

With respect to Arlington Park, right, which it opened some respect is contingent on your broad, Illinois strategy.

And what path that we'll pursue is contingent on a number of these other variables.

How are you dealing with that property in the interim at one point I think you had indicated the prospect of sports.

Wagering facility.

What should we be doing with respect to Arlington.

We decided to.

To play on at Arlington Park for now and we reach an agreement with the horsemen, a two years ago to your agreement with the horsemen. So.

No we're running the race meat right now we'll run it will run a 2020 race made and we have an agreement to run a 2021 race meta if we elect to do so.

That's not a long term viable solution for the Arlington Park license.

So on the other had we want to give the stayed on ourselves and opportunity to figure out if theres a location, we can move that too or a better solution in the state for us, but currently we're not planning on doing sports wagering there through the Arlington license we're happy.

To play heavily in Illinois, and sports wagering through our rivers license, which I discussed in my earnings comment so that'll be our play for sports Wagering in Illinois, and long term for Arlington Park as we've explained on these calls and we've explained to the state.

It doesn't work the economics don't work, it's not a viable solution, we'd like to give the state given everything thats going on.

The opportunity to help us find a better long term solution.

But the long term solution has not Arlington Park that land will have a higher and better purpose for something else that at some point, but we want to work constructively with all of the all of the.

Constituencies in the market to see if theres, an opportunity to move the license or otherwise changed circumstances. So that so they're racing keen to continue in Illinois, but for us.

We've been patient and thoughtful and constructive with the parties.

Up in that jurisdiction.

The long term that land gets sold and that license will need to move if it's going to continue.

And the timeframe by doing that is not something I'm going to comment on this call today and it's not it's not definitive but certainly.

Certainly it's something that's on our mind on a on a week to week basis, if not a day to day basis.

Fair.

I wanted to ask about the Derby.

You know because it is such an important under normal circumstances and important earnings driver right in our models.

You know to be very candid about it that I've spoken to investors who.

Our sort of putting a place holder of a zero.

And others, who are putting in.

Numbers that are much higher than that.

The challenge obviously is that that those earnings are driven from a number of different.

Avenues.

And I know that you don't guide or disclose specifics around those but perhaps you are marcia Ken just give us a little bit of qualitative input. So that we can make our own assumptions around.

What is the degree to which fans are present or not.

You should have given a fair amount of refunds and maybe you can sort of help us with that and you indicated you remarks that youve deferred sponsorships, which won't be in this year. So any qualitative commentary that can help us revisit the model would would really be helpful.

David you always asked very thoughtful questions, but sometimes theyre, they're they're tough to answer in a satisfactory way to you and I always a I've I've.

Appreciate that I offer that in advance.

Here's here's the thing.

The Derby long term has not been damaged in anyway, and as folks have asked for refunds, it's been humbling.

To go through that process with them and as that as many of rolled the money forward to the next year. So here's the thing we are going to do what's right by our customers and our sponsors. So we're going to work with them are largely I think we have a lot of the data points that are within our control I think we largely understood.

Band and are still processing, what our customers want to do we do get new information everyday but it starts with what they want to do and it starts with then making sure that we can stay within the restrictions that had been provided to us by the governor that we worked out with the governor and our safety plan. So as we think about where to move people as we think of.

About how many people on a section how to keep them save what are we learning about cobot 19 that might change our our assumptions on social distancing all of those things we are factoring in a very dynamic process. So.

Qualitatively.

I feel really good about what we're experiencing and I've been humbled by.

As always and about the by the quality of the team and by the fervor that our customers feel for this event.

But we need to make sure. They keep we keep them safe we need to make sure that we comply with all regulations now and any changes that might come.

From the Governor I can tell you for.

Data points I can give you we're not selling any GA tickets right now we had sold a bunch.

But we've stopped selling GA.

We're still well under the.

The capacity that that we've discussed with the governor.

But we've stopped anyway, because we want to make sure that first and foremost when our customers come to this event they feel safe and they feel like we've taken all possible steps to give them an excellent wonderful experience that is a safe experience. So we've also greatly reduced the temporary.

Structures and expenses part of this process and part of I guess the confidence we have around this process is as we reduce what the events going to be.

We right size our cost structure. So all in all its a dynamic process, but it's not one of weakness or one of fear. Our team has this well under control, but we are responding real time as you know as our community and as our state responds to cope with 19 and at all points, we're going to do the right thing.

To protect the long term of this brand.

Even if that means we stay under what the governor authorize the do it's all about safety and how our guest feel when they come so.

Im sorry that Thats not everything you want to hear in an answer like this but thats. The best I can give you right now we haven't made every decision theres a possibility that will restore GA for for example, but I would tell you right now we've turned it off until we really understand and are comfortable with what will happen. If we turn it back on for example.

I understand.

Appreciate you taking my question I have more but I'll give somebody else a chance to circle back.

Thank you.

Yes, David.

Next question, we have Dan Politzer from JP Morgan Your line is open.

Hey, good morning, everybody. Thanks, Thanks for all their commentary thus far.

Good morning Twinspires.

At a fairly strong quarter.

TQ margins were up significantly.

Can you tell me about how sustainable in the margin expansion is given the elevated volumes.

Is there more operating leverage just and maybe previously thought or.

I guess, how sustainable R&D elevation margins going forward.

How do you think about the current playing volumes.

And the current level handle.

Hi, Dan This is bill Mudd.

I would say well first of all the.

Theres overhead cost that you have to cover and if the volumes stay where they are I think the margins are very sustainable.

Generally so I think well boils down to have customers.

Two things have customers shifted from wagering on properties to online and if they become more comfortable with online and I believe they have.

And then the second thing is doable volumes stay where they are and I think that's a that's a good question that I don't completely no. The answer too I think it will I think the lack of other sports has shifted people to playing more horse racing and certainly playing online horse racing since they were working from home and had more time to do that.

That sort of thing so I think it kind of comes down to those too, but I think as long as a volumes stay where they are then yes margins will state stay high.

Got it. Thanks I appreciate that and then just a higher level question sports betting igaming.

Twinspires in there.

Lot of market share leader yielded stated that they are near term goal is to gain market share to grow revenues on just given their trading out revenue multi mode right now.

And a lot of companies in the state thin raise capital of their thinking going public.

Right.

Routines backstage and other structures, so given the evolving nature this market marches commentary.

On on Twinspires, achieving meta remark about the Standalone business.

Any there and you given any thought that maybe changing the capital structure could this be a standalone company public publicly traded in some form and along with that how do you think about allocating capital to this business given their head in significant capital increases for many of these a date embark on growth strategy.

Good questions.

I'll take the second one.

The second question you asked first in the second question was on.

How much capital you deployed or the business.

We talk about that all the time or where there are different models being.

Being followed out there in the market and that and that.

Investors have rewarded.

Aggressive outlays of capital to drive market share numbers, even if it doesn't drive profitability. So we pay attention to all of that and see what people are doing and the good news is we have the capital, we're very well capitalized and we have access.

To are you a substantial balance sheet so.

Say flexible be willing to learn from others and and that's where we've done our motto and we continued to study that market and think about it.

But we build twinspires, a certain way and we like what we've built and we're very proud of what we've built and it is a very strong business with very good customers that we believe we own for other forms of online wagering as as those become available in the jurisdictions, where our customers are located so so we're always thoughtful and care.

Our full about it and and we'll continue to be so but following the model that some of followed.

That's everybody's prerogative.

But here are were hard wired to generate profitability and and and that's our default always terms of capital structure.

Yes, we work for the shareholders a Churchill downs. So we have to always consider what is the appropriate capital structure for any of our three main business divisions online wagering, including Twinspires is one.

The Kentucky Derby.

And our Kentucky operations is another and our and of course, our brick and mortar gaming absolutely overtime.

Denim business for for quite a while now overtime preferred capital structure change opportunities arise and we always think about that we always study of those developments and of course, we're studying the developments that are happening in the marketplace now with respect online wagering. So that's our job and our job is to stay abreast of those things and.

Understand and interpret whether they offer our shareholders.

A better return on their investment.

Then the current structure. So we'll keep looking at all of those things and that's a core requirement of our jobs in a ended in one we welcome.

Okay.

Thank you for that and last one on on just M&A and also capital allocation.

Where does M&A fall in terms of your capital allocation preferences here, just given there's obviously property that it.

That are coming onto the market.

We are one of your competitors.

In Louisville across the river.

Coming on the markets, specifically I guess, how do you think about M&A and the competitive landscape with in Louisville, and how it and get evolves.

I think.

M&A is.

An avenue.

To responsibly and efficiently grow our company.

That has been a part of our story over over the the term of this management team so thats not changed.

You always look at and I'd say of the 520 to 550 commercial casinos that exist in the United States.

Probably.

My cell for our business development leader, our Bill Mudd or Marcia, probably we could talk fairly fluently about most of any of those so we have views on commercial casinos that are out there. We have views on markets that are attractive we have views on assets that are attractive.

And though we always manage our capital utilization to hold back.

The ability to have the ability to go after acquisition targets that.

The that are on our list. So nothing's changed we'll have to watch what multiples do now with with all of the disruption that's happened in the American economy.

But certainly.

We are an active and vigilant participant in the M&A markets going forward just as wide just as we've been in the past doesn't mean, we like the prices doesn't mean, we pull the trigger but we certainly show up at the table to evaluate what's out there.

Okay, and then just just a quick follow up on though on that on Cesar Southern Indiana, which out procedures has mentioned it. It's you know hesitant to divest setting would that be of any interest how do you think about the competitive landscape evolving.

Over time there.

Dan I appreciate the question, but I just feel like I should not comment on any particular assets or opportunity.

That's out there or may be out there in the marketplace I just feel like.

I should result reserve comment on that.

So.

I wish I could delve into it but all things considered I shouldn't comment on other people's properties or other people sales processes.

Understood. Thanks, so much they appreciate the comments.

Thanks, Dan.

The next question, we have so stop from Ghana. Your line is open.

Good morning, everyone.

But I wanted to ask you.

About a comment that you made.

Just earlier in the Paul with respect to bet America, I think you're thinking about America, certainly because you're talking in the on length segment.

But that America integrating list Twinspires over time, and I wanted to see what what timing is is reasonable to assume that would occur.

That's a real.

Strategic initiative of ours, we really want to see that happened because it'll it'll link our great customers.

Seamlessly to other products.

But I can't give you a timeframe right now all I can tell you is it something we're very interested in seeing done.

And we'll pursue it in our list of other priorities.

As appropriate, but I can't give you a timeframe right now.

But I would tell you we view that as it as an important strategic initiative or is over.

Overtime.

Makes sense and could you just update us for a bit America on your on your BTD or tech stack approach for bed America.

Don't really have any comment on that today.

I think.

At a higher level, how while we believe we have the capability of building our own tech stack.

We'd rather stay at a variable cost model.

During these early years for sure and maybe beyond.

And.

And I wouldn't really want to comment more specifically about our b to b providers, our tech stack providers, our third party providers at this point I don't have anything to really announce on that.

But certainly we want to see improvements and our operating capabilities and our and our timing to market and our performance in different markets and that's something we'll continue to work on but no no no real commentary or announcements on this call.

Okay.

And finally just.

To revisit twinspires.

I've see huge growth.

You had mentioned that it continued in July.

And certainly it will be there for September, especially given the Kentucky Derby, but I was wondering if seems side.

Demand.

For Twinspires and online horse racing in general.

Do you think it will be affected because of the see other sports machine base Fund V a hockey.

His restarting now such that it could be affected or that gross call. It 25% in the second quarter.

Could be a little bit lower and August just wondering what your thoughts Sir.

I mean, it could be I've been involved with online wagering on horse racing since we started the business in 2007 and some of Bill's comments were were directed to a very answer this question as well.

And.

Just referencing back to my long history being involved in this I do that only to say that.

I've seen lots of things have been surprised lots of times, here's what I know for sure.

Wagering on horse racing online is a very competitive good gambling product that customers gravitate towards as they understand it. So I think certainly it's the case that our customers like to bet on other things.

Beyond horse racing and they like to bet on more horse racing when we can offer it to them. So our customers are gamblers and they like to gamble and they like lots of products. So certainly as more sports become available for them again, and they're all throughout the country and different jurisdictions there they're all over the place.

Certainly they'll want to participate in that but I think what's important for us.

Is we've built a relationship with them we understand their preferences, we understand their patterns and it's up to us to continue to offer them products that they find attractive and that's our challenge to make sure.

And in all the jurisdictions, we care about that we do so but I do think though just because they'll want to split their wallet on other sports doesn't necessarily mean, that's not a bad thing for Churchill Downs, but also.

There's a there's a big share of wallet out there that isn't captured in their online activities side I'm not I'm not sure Theres no crystal ball to say exactly.

Okay.

How much additional sports wagering impacts their current volumes on Twinspires. It's there's there's plenty of wallet out there to get as we as a as they develop their skill set and they get access an opportunity. So.

I'm excited about Twinspires I think.

The bottom line is we'll see what happens to that business, but we've been growing at a long time and I don't really see any change in that fundamental formula I'm excited to have more more products more more products to offer these people.

Thanks So.

I am showing no further questions at this time I would now like to turn the conference back to Mr. Bill Carstanjen.

Thank you.

As always we really appreciate.

Your confidence in us as a company and as a management team. Thank you for investing with us.

For those of you haven't thank you for your interest on our company will continue to do right by your investment and we appreciate your patience and support during what's been and examine a series of challenges to the economy and to our company that we're processing through so we'll talk to you assume and in the meantime will go run a great Derby.

And best of best of luck to everybody out there. Thank you.

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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<unk>.

At this time, all participants listen only mode. Later welcome Doctor question and answer any special and instructions to won't be given up that time as a reminder, it gets conference call is being recorded.

And I'd like to introduce here at home for today's conference most of <unk>, Vice President Treasury waste management and Investor Relations.

Thank you Katrina.

And welcome to our second quarter 2020 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company is 2022nd quarter business results were released yesterday afternoon, a copy of this release announcing results and other financial and statistical information about the period to.

[noise] 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 dotcom as well as in the website's investors section.

We get started I'd like to remind you that some of those statements that we make today may include forward looking statements. These statements involve a number of risks and uncertainties that could cause the actual results to defer materially.

I'll forward looking statements should be considered in conjunction with a cautionary statements in our earnings release and the risk factors included in our filings with the FCC specifically the most recent report on form 10-Q inform 10-K.

Any forward looking statements that we make her based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.

This call we will present, both gap non gap financial measures a reconciliation of gap to non gap measures is included in today's earnings press release.

The press release inform 10-Q are available on our website at Churchill Downs incorporated Dot com.

And now I will turn the call over to our Chief Executive Officer, Mister Bill car standard.

Thanks, Nick Good morning, everyone with me today are several members of our team, including Bill mud, our President and Chief operating Officer, Marcia Doll, our Chief Financial Officer, and Brad Blackwell, Our General counsel.

During the second quarter, the global pandemic cope with 19 is significantly affected everyone in our country and it hasn't afflicted harm on the economy and businesses throughout America.

Against this backdrop, our team is performed with determination and creativity.

We have developed and implemented best in class policies and protocols to keep our customers employees and communities as safe as we responsibly can during the recent reopening of our properties.

While our second quarter numbers were significantly affected by the closure of a brick and mortar operations and the postponement of the Kentucky Derby.

Are immediate actions to reduce abroad array of expenses helped to minimize the impact and provided and an efficient operating platform for each property upon reopening.

Our disciplined approach to leverage and careful focus on managing cash expenses have provided a strong balance sheet to whether this difficult period and will allow us to become an even more efficient and focused company.

And what the great portfolio of growth opportunities.

We are built a sale through the storm and to returned to growth. We're excited about what comes next for us.

Today I will update you on for important topics first the reopening of our gaming properties second I will share some insights into the growth of our twin spires business during the second quarter at our plans for our sports betting in a gaming business within the online wagering segments.

Third an update on our H R M expansion in Kentucky at Oak Grove, and Turfway Park.

And last I will discuss the preparations we were making for the 146 running a the Kentucky Derby on September 5th.

Then Marshall will walk through the financials for the second quarter and review our capital management and liquidity. After she finishes we will take your questions.

Let's begin with the reopening of our gaming properties.

As you can see from our press release, we reopened are to Mississippi properties and May along with our off track betting parlors in Louisiana, which have video lottery terminals.

<unk> reopened six more of our gaming properties and Derby City gaming in June.

Rivers desk planes casino in Illinois, and Oxford Casino in Maine reopened in July.

After opening in June called a casino was required to temporarily suspended operations a second time.

<unk> second due to an order issued by the mayor of Miami Dade County to close entertainment venues and a further effort to control the rise and Kobe 19 cases in the counting.

We will continue to collaborate closely with all the relevant authorities, including those in Florida to address any health and safety concerns related to our properties and we'll work to reopen called a casino as soon as it is prudent to do so.

All of our properties across the country other than Calder remain open.

We have also included in the press release, the current regulatory limitations on guests and gaming capacity.

All of our properties follow various restrictions on the number of customers. We conserve at one time <unk> the number of games that can be operational.

We have eliminated a number of amenities that are properties, including buffets and ballet services as well as some of the other restaurant and food outlets.

We are also greatly reduced marketing and customer incentives like free play.

It is difficult to determine at this point if in under what circumstances. These amenities and incentives will returned to our properties.

We will monitor the competitive dynamics in each of our locations to determine what we need to do in the future, particularly to respond to our competitors.

Based on these changes and amenities and staffing needs as of the end of June we had brought back approximately 80% to 85% of our total gaming workforce that had been furloughed at our wholly owned properties.

With respect to our equity investments and the gaming segment, we reopen Miami Valley gaming on June 19th and we've had strong results so far.

Oh, we're very pleased we have an elected as of yet to resume are previously announced gaming in hotel expansion on the property. We will continue to monitor the performance of Miami Valley and discuss plans with our partner in the facility Delaware North companies.

Regarding rivers desk planes Casino rivers reopened on July 1st and is performing quite well in light of the current guest capacity restrictions.

Illinois past, the new gaming Bill and May that provides certainly for Illinois casinos as they start to recover from cold with 19.

Bill reduced our graduated tax rate on table games on July 1st of this year instead of delaying it until the first new casino under the 2019 gaming expansion opened.

The new Gainesville also includes delaying the required initial license payment for new gaming positions that rivers is adding and the related reconciliation payment.

These changes are helping us to recover from Covid maximizing the number of gaming positions, we operate and putting more team members back on the job.

Rivers has been working to finish the parking garage, which is necessary to support the additional 670, new gaming positions. It will add and now anticipates that the garage will be completed in August.

Recall that 130 of the additional 800 gaming positions approved and the prior gaming Bill were already added within the existing footprint.

We do not have any updates on the timing for the additional 670 gaming positions, we will provide more information as soon as the performance of the facility post reopening is clear and the team has updated our plans. We of course will be excited to move forward once the operating environment stabilizes and as well understood. This will bring jobs and revenues too.

<unk> and local community.

Rivers reopen their retail sports book in July when the casino reopened.

Rivers was approved to launch the first mobile App for sports betting in Illinois, and despite the limited sports wagering opportunities due to Kober 19 has seen in encouraging volume of new player sign ups. We're excited to see how the river sports Wagering operation performs as sports returns to the American landscape.

Some of you have recently asked how Churchill downs benefits from reverse desk planes casino sports betting in Illinois.

As a reminder, we own a little over 61% of rivers and therefore receive 61% of the economics that accrue to reverse with respect to the sports wagering operation <unk>.

Rivers is responsible for all of the marketing and user acquisition costs and owns the customers sport sports betting operations.

<unk> is using a separate Standalone company Russ Street interactive or Rsi as it's technology in service provider for the a player account management system and other related services.

And pays a variable rate fee to rsi.

You have may have seen that Rsi recently announced that it intends to go public through a merger with our special purpose acquisition company.

Does not change anything with respect to river sports betting operations or are arrangement with rsi.

I noted, we utilize rsi Fry gaming services for reverse for which we pay fees, but Churchill does not one any portion of rsi nor is any portion of rivers desk planes casino owned by Rsi Rsi as a service provider rivers, we wish them well with respect to their transaction and are excited for them given the market's enthoo.

The attic response.

Regarding the new casino authorized by the 2019 gaming expansion Bill in Illinois.

To our proposal to build a new Waukegan casino in partnership with Russia gaming our partners in reverse desk planes. If we are awarded the license by the Illinois Gaming Board.

Given the anticipated minority ownership interest Russ Street gaming ownership interest in a local partners interest we would anticipate owning approximately 35% of the new casino the same as Russ Street with 100% of the debt financed at the Waukegan casino entity level. This is similar to how rivers desk planes are structured.

Switching to our Derby City gaming property. It reopened on June 8th and is performing very well is our most of our brick and mortar properties.

The construction of the second outdoor smoking patio. This one on the south side of our existing Derby City gaming facility is still on scheduled to open it.

Approximately 200 additional historical racing machines, including new game titles from scientific games and IGT.

Next I will share some thoughts on our online wagering segment.

Despite the shifted the Kentucky Derby on the Preakness to third quarter are twins buyers business have very strong year over year growth and handled for the quarter, which provided significant operating leveraged for the business.

Wagering has remained quite strong into the third quarter and we will additionally benefit from the Kentucky Derby on the Labor day weekend and the Preakness that is scheduled to be run on October 3rd.

Both of which are traditionally very large contributors to wagering figures for the quarter in which they are run.

Regarding our sports betting in a gaming business.

We start with our base a profitable and prolific twin spires customers. We have demonstrated yet again this past quarter that they will play on our site when we have content for them, even if it isn't the Kentucky Derby.

We look forward to broadening our offerings to them as we enter the larger states for sports and I gaming and with our direct access to many markets and a roster of efficient indirect market access feels we believe we have the foundation of a very special business.

We anticipate launching a retail an online bed America sports book in Colorado in Michigan prior to year and.

And have other states like Tennessee on the horizon for 2021.

We remain focused on and disciplined and building a profitable sports betting ni gaming business that will be integrated with our horse racing wagering platform over the long term.

We will leverage our team's experience in building the most profitable online horse racing wagering platform in the industry with their extensive sports bedding and I gaming knowledge, coupled with efficient access to the states we want to ban.

Unlike other businesses within the sports betting space today with significant market valuations based on multiples of future revenue. Two inspires is already proven that it has a successful and growing online wagering platform was substantial revenues and profitability.

We hope to improve our speed the market and operational capabilities and all the states that we have market access.

Which would strengthen our substantial foundation for profitable growth in sports betting in a gaming over the long term.

The third subject to update you on as our historical racing machine expansion in Kentucky.

With respect to our Oak Grove expansion in southwest, Kentucky, North of Nashville, Tennessee on Interstate 24.

Due to the coven 19 related construction delays, we are now planning to have a soft launch with 1325 <unk> in mid September with a combination of Ainsworth scientific games and IGT game titles, we expect to have the grand opening of the HR M facility and the 128 room hotel and mid October.

We have restarted the work on the remaining non-core parts of the venue that require small amounts of capital investment, including the equine event Center outdoor concert venue an R V Park and anticipate that these areas will open shortly after the H R M facility in hotel.

With respect to our turf way Park extension in Newport, Kentucky, We've made excellent progress on this project.

Our team is completed all of the site work in the structural improvements needed to the building.

We anticipate that the additional interior construction will be completed by the end of September and preparation for Grand opening by early October.

This time, and we will provide two months of operations to generate much needed purse money for Turfway Parks December lives Thoroughbred race neat.

The turf way Park extension will open with the simulcast area a gaming for with up to 500, H R M and a bar area and we'll create 70 fulltime equivalent jobs and the northern Kentucky area.

Please note that the number of machines operating at both Oak Grove in Newport could be impacted by additional extensions of capacity restrictions by state officials with respect to cover 19.

Provided the numbers assuming full capacity.

Regarding Turfway Park racing and gaming, we finished demolishing existing Grand standard Turfway Park in the second quarter and the racetrack itself with a new state of the yard artificial racing surface call to Peter will be completed by the end of August.

During the second quarter, we completed the architectural design and site development plans, we will begin construction of the new ASRM and grandstand facility as soon as we obtained the required permits and complete the necessary site improvements.

The updated design reflects a floor plan of approximately 155000 square feet and includes a simulcast facility.

Ah racing grandstand, an event space for groups and banquets racehorse owner and VIP player accommodations.

44500 square feet of gaming floor that can accommodate up to 1200 historical racing machines.

And three food and beverage venues, including a sports bar designed to accommodate sports wagering in the event. It is approved in Kentucky.

Based on the Finalization of the design for the facility total project capital for Turf way Park is projected to be approximately $200 million, which includes the turf way Park acquisition costs and other previously approved capital.

Capital investment will be completed over the next 15 to 18 months.

The increase of approximately $45 million over previously provided estimates as primarily driven by increased site work requirements in a larger racing and gaming facility. Our team completed an additional analysis of the northern Kentucky market and believes that the market demographics and competitive landscape scape can clearly support this level of invest.

And will generate a strong return on capital for our shareholders.

And finally I'll provide an update on Churchill Downs race track and the upcoming 146 running of the Kentucky Derby on September 5th.

Over the past several months is our country his face both the spread of Cobra 19, and the increasing social and racial unrest sparked by the deaths of George Floyd Briana, Taylor and our motto Arberry.

Reflected constantly on the roll the Kentucky Derby and the Commonwealth of Kentucky, and it's importance to the social fabric of our community and the country.

For me and our team members.

Kentucky Derby as the essence of what this company does and putting on this happening every year is the single most important contribution that we make as individuals and as a team to our community.

It's a labor of love and we are all true believers that it brings something special and unique to our community and state of which we are also proud.

At its essence, the Kentucky Derby as a celebration and an inspiration.

Not just to the fans are community our state in our country, but also to those of us whose job it is to make it happen.

Most of years, we take it for granted that it is both a celebration and an inspiration.

I don't think it's the same this year with all that is going on it just cannot be the same celebration that'd normally is.

However, we hope that when we run it for the 146 consecutive year the September.

The event will serve as an inspiration in a unifying force sports and certainly the Kentucky Derby can do that.

Can serve to unite us and inspire us and to remind us of the things and events that bring us together and that we have in common.

Ultimately the Kentucky Derby belongs to our community and our country.

It provides a special on memorable reason to come together every year.

Most always in the springtime on the first Saturday in May but this year in September.

Is <unk> previously announced to ensure the safety of our guest team members and everyone else involved in in close collaboration with state local authorities in medical professionals. We will have fewer guests. This year of Derby, we were absolutely committed to ensuring a safe environment and significantly reducing the size of the crowd is an important.

Step to doing so.

We will implement best practices and protocols that we've observed from around the world and we'll make adjustments all the way up to Derby day itself is we find ways to improve.

There will be more announcements on our plans in the coming days and weeks.

We have chosen to honor any requests from our sweet holders and other guests for refunds or to apply the value of their tickets for this year's event to next year in lieu of refunding their tickets.

We are also when requested work with those sponsors who are facing difficult business challenges. This year to move there sponsorship dollars to the 2021 Derby.

We will protect the long term relationship we have with our guests and sponsors during this challenging time, that's the way to think about it when we know the Derby will be back next year and every year after that into the foreseeable future.

The financial details for this year's Kentucky Derby week will continue to change as we make decisions over the coming weeks, we will provide the metrics right. After derby as we do every year.

Since we will have fewer guests and lower sponsorship participation, we will deliver lower financial results. This year. This as a year of extenuating circumstances.

For those who come to the Derby. This year, we promise you that we will make it a wonderful experience and most importantly, we will make it a safe and comfortable as we possibly can.

We will continue to work tirelessly was state and local officials in medical professionals to develop and implement all necessary protocols to provide that safe environment for our guests to come together to celebrate this time honored tradition.

For those of you who cannot attendant. This year NBC remains a fantastic partner for us and will be broadcasting the derby for everyone to enjoy from the comfort of their homes.

It is important to note that our team at Churchill Downs Racetrack has been practicing our operational protocols as we approach to Derby, we completed a successful spring meat spectator free over a period of 27 days in May and June.

We were among a very limited number of businesses to open in the first round in Kentucky, and our team work very very constructively with the Governor's office to earn that privilege.

We implemented and enforced the comprehensive safety protocols that we developed in collaboration with the Governor of Kentucky, Andy of this year and the Kentucky Horse Racing Commission to protect the health and safety of the many many people involved who are necessary to run a complex Thoroughbred horse meat.

This experience as an excellent foundation for the upcoming September Kentucky Derby, now 37 days away.

With that I'll turn the call over to Marsha and then we will take your questions Marsha.

Thanks, and good morning, everyone and still discussed at the beginning of his comments Ah results in second quarter reflect a quick decisions thrift actions and hard work of our team during the difficult at times.

City of our portfolio provided song, earning scratch from our transference business and our gaming properties and TCG since reopening as long as the cost reductions that were taken to reduce the impacted gaming property closures and help to pop too personally offset the materials reduction and adjusted EBITDA.

From the pioneer quarter due to the rescheduling. It every week from second quarter to third quarter. This year, along with the impact of the property closures in the early part of the corner.

I still discussed we began reopening are gaming properties and may with a more efficient operating model.

We are pleased with the results we saw during the May and June timeframe.

Casino properties for open.

And their respective reopening periods the properties collectively generated a 9% credit and net revenue at 38% growth and adjusted EBITDA and a 9% 0.9%.

Point increase in our industry, leading margins compared to the prior year period.

Elimination of amenities, including Buffets Valley services.

The other hotel and food and beverage services provided the foundation for this increased and operating efficiency.

We have also significantly reduced our free play and other customer and finished.

Sustainability these margins dependent upon the competitive landscape and each market.

The rest assured we will only add back amenities, our additional free play and other incentives if necessary.

Equity investment MDT also has performed well since a three opening on June 19th and all the time period is more limited and therefore, not necessarily a conclusive trend MTG has realized strong growth rates and that revenue and adjusted EBITDA and has realized and Trish margins. During this reopening period as well.

Kansas City gaming all sorts Jiang results after reopening during the 23 days that we were opening and J as you can see if in the public data on the Kentucky Horse Racing Commission website, even though we had a little over 50% of our machines available barghest. During this period, we have a $646.

Gross gaming Commission per day pardon machine more than double the average the trailing 12 month period ending in March 2020, Okay, Kansas City gaming.

I gave us the gaming marginally significantly higher derrington actively opened.

We do anticipate lower required levels of marketing and pre play as far as my Elimidate amenities.

Yes, if necessary based on the competitive environment.

Turning to our online later in the results for the quarter. Despite the shifts the Derby week, because the third quarter of 2020 or twinsburg business, good handle and the second quarter of $100 million, 22% compared to the prior year quarter.

Many brick and mortar bedding outlet remained closed and customers migrated to online wagering and space tax began to reopen.

Excluding the 2019 definitely candle Churchill Downs race track content.

Inspired screw handled 43% compared to the prior year quarter.

We also experiencing increasingly Mount Waitered and an increase in the average number of wagering days.

Listing customers in the quarter compared to the prior year that we believe reflects lack of alternative sports betting options available for waiting.

A significant growth and handle on a quarter of quite a basis provide a significant operating leverage which generated in $18 million and 78% increase and adjusted EBITDA for transfer is business.

Handle growth and the third and fourth quarter for transfer should benefit from the shifted Derby week to the third quarter and the Preakness This new to the fourth quarter and we will be run on October 3rd.

Turning to Capitol, we sent $4 million on maintenance capital and the second quarter, which primarily related to mandatory items and capitalized labor related to improvements twinsburg technology platform.

For the first six months of 2020.

13 million guys, we do anticipate that maintenance capital spending will increase slightly and the second half of the year based on the reopening of the gaming properties and the preparation to the Derby and the third quarter and Churchill Downs race track.

Therefore, we anticipate $30 million to $40 million on maintenance capital to the full year 2020.

We sent $79 million on project capital and the second quarter of which $58 million has been on the outgrowth facility $15 million on the Churchill Downs racetrack related projects and $5 million on the Turfway Park extension.

During the second half of 2020, we anticipate spending 120 million.

$39 and project capital that we'll be focused primarily on the four major capital projects Tiptoe discussed.

<unk> that diversity gaming smoking Patty in addition to testify park extension and the terrified Park racing and gaming facility.

We remain committed to building the hotel an H M facility in church announce racetrack. However, we will continue to pause on this project until we have better clarity on the longer term impact of this crisis on the U S and global economy.

Regarding a leverage and cash liquidity at the end of June are elaboration that'd cash at 10, 36, one times, reflecting the impact of the shift Derby week from second to third quarter and the impact of our property closures and first and second quarter.

We had $649 million unrestricted cash with no longterm that maturities until the second half of 2024, except for $4 million of annual amortization of <unk>.

We have cash liquidity well beyond the next 12 months with the flexibility to adjust the capital spending Anthony.

Even though we proactively obtained waiver far too maintenance financial covenants since the reporting period ending June 30th 2021, primarily due to the shifted Derby week from second to third quarter, we were in compliance with both financial covenants on the revolver at the end of June.

And finally as I approach my five year anniversary researcher balance this year.

And reflect on what I appreciate most about our company and our leadership team I can assure you we will always to the right thing for the long term for our customers.

Employees are communities and our shareholders.

As we shared on this call there are a number of near term opportunities that we are investing in that will provide growth and solid return on investment.

There are also a number of other longer term opportunities that we will be able to invest in over time to drive organic credit for a company.

Our team has developed a core capability and doing the successfully within our businesses.

We also may have the opportunity to capitalize on the market momentum around sports betting related companies as investors more clearly understand the tremendous asset that our team has developed are twin size business that at its core is a very profitable sports betting platform.

And is markets liberalized over time, we can capitalize on the opportunity to expand into other sports as well as I gaming.

Transfer to already has market access and is operational and nearly four times the number of states that traditional online sports wagering providers our operational in today.

And our online for tuition business has market access either directly or more efficiently to market access deals that provides a strong foundation for developing a very special business when combined with our transpires business.

And then most important evolve we have this tremendous iconic asset the Kentucky Derby that through it's magic has created a time every year for us to come together.

Generation after generation for 146 consecutive years to unite and inspire.

We look forward to seeing you at the Derby in a few weeks, if you're able to come and if you can't we hope that you will enjoy watching it on NBC.

Special Thanks to our team, we're all working hard to ensure that would create a safe and special experience for our guest.

With that I'll turn the call back over to Bill. So that you can open the call for questions Bill Yes. Thank you Marsha.

At this point, we're ready to take your question. So please far away.

Ladies and gentlemen, if you have a question at this time please.

And then the number one key on a touchtone telephone.

Question. That's been entered are you wish to remove yourself from the cube the spice accounting.

First question, we have David Cats from Jeffries Your line is open.

Hi.

Good morning, everyone.

I wanted to just start in Illinois.

If that's okay.

We still have a deadline hearing about the Waukegan license I believe it's in October.

Well at the terms have changed or the perspective terms of changed around the downtown.

<unk> license.

How have you thought about.

Change and and whether.

That's a license you would pursue as well.

At its potential.

Impact what you have there and rivers as well as prospectively and walk you again.

Hi, David It's bill Thanks, Thanks for the question.

I'm going to answer it the best I can within the context of of.

Of this sort of process.

So first we remain excited about Waukegan, we haven't heard any any updates with respect to the timing and you're correct. When they when you say that.

The date that they're supposed to respond with the awarding of of the bid is in late October. So we remain optimistic about that and still believe that's the timeframe. The state is on the gaming Commission is on.

With respect to the downtown Chicago side, Yes, there've been some developments and the and the new gaming Bill that was passed and May have changed some of the.

Some of the parameters of the Chicago license changed the tax rate et cetera. So I imagine that the city is working on an RFP and when they put out an RFP.

Certainly that's something that.

We and others would take a look at two evaluated we do have an investment and the state.

It's a challenge state in many ways, but it's a state we believe in and we've invested heavily in that state is a company. So anything Chicago is going to do or put out we're going to want to take a look at and explore but that's all we know as of right. Now we'll have to wait we'll have to wait to the city acts.

Being a position to really evaluate whether there'd be an opportunity for a company like hours.

But certainly we have some advantages of knowing the market and being familiar with with the jurisdiction.

With respect to Arlington Park, Alright, which.

I'm respect is contingent on your abroad, Illinois strategy.

And what path that will pursue.

Contingent on a number of these other variables.

How are you dealing with that property in the interim at one point I think you had indicated.

Prospect of a sports.

Wagering facility.

What should we be doing with respect to Arlington.

We decided to.

To play on at Arlington Park for now and we reach an agreement with the horsemen of two years to your agreement with the horsemen. So.

We're running the race meat right now will run it will run a 2020 race meat and we have an agreement to run a 2021 race made if we elect to do so.

That's not a long term viable solution for the Arlington Park license.

So.

The other hand, we want to give the state on ourselves an opportunity to figure out if there's a location we can move that to or a better solution in the state for us, but currently we're not planning on doing sports wagering there through the Arlington license we're happy.

To play heavily in Illinois, and sports wagering through our rivers license, which I discussed in my earnings comments, so that'll be our play for sports Wagering in Illinois, and long term for Arlington Park is <unk> explained on these calls and <unk> explained to the state.

It doesn't work the economics don't work, it's not a viable solution, we'd like to give the state given everything that's going on an opportunity to help us find a better long term solution.

But the long term solution is not Arlington Park that land will have a higher and better purpose for something else at some point, but we want to work constructively with all of all of the.

Constituencies on the market to see if there's an opportunity to move the license or otherwise change the circumstances. So that so they're racing can continue in Illinois, but for us.

<unk> been patient and thoughtful and constructive with the parties.

Up in that jurisdiction.

The long term that land gets sold and that license, we'll need to move if it's going to continue.

And the timeframe bread doing that is not something I'm gonna comment on this call today, and it's not it's not definitive but certainly.

Certainly it's something that's on our mind on a on a week the week basis, if not a day to day basis.

Sure.

I wanted to ask about the Derby.

Because it is such an important under normal circumstances and important earnings driver right in our models and to be very candid about it I've spoken to investors who.

Are sort of putting a placeholder over zero.

And others, who are putting in.

Numbers that are much higher than that.

The challenge obviously is that.

Those earnings are Dragon from a number of different.

Avenues.

And I know that you don't guide or disclose specifics around.

But perhaps Marcia can just give us a little bit of qualitative input. So that we can make our own assumption is around.

What the degree to which fans are present or not.

You sort of given a fair amount of refunds and maybe you can sort of help us with that.

You indicated and your remarks that you have differed some sponsorships which won't be in this year. So any qualitative commentary that can help us we visit the model would would really be helpful.

David you always ask very thoughtful question, but sometimes.

Tough to answer and a satisfactory way to you and I and I always.

I appreciate that.

Offer that in advance.

Here's here's the thing the Derby long term has not been damaged in any way and is folks are asked for refunds, it's been humbling.

To go through that process with them.

Many of rolled the money forward to the next year. So here's the thing we're going to do what's right by our customers and our sponsors. So we're going to work with them largely I think we have a lot of the data points that are within our control I think we largely understand and there's still processing what our customers.

Want to do we do get new information everyday, but it starts with what they want to do and it starts with then making sure that we can stay within the restrictions that had been provided to us by the governor that we worked out with the governor and our safety plan. So as we think about where to move people as we think about how many people on a section how to.

Keep them safe what are we learning about Cove at 19 that might change our our assumptions on social distancing all of those things we were factoring in in a very dynamic process. So.

Qualitatively.

I feel really good about what we're experiencing and I've been humbled by.

As I always am about by the quality of the team and by the fervor that our customers feel for this event.

But we need to make sure. They keep we keep them safe we need to make sure that we comply with all regulations now in any changes that might come.

From the Governor I can tell you.

Data points I can give you we are not selling any gea tickets right now we had sold a bunch.

But we've stopped selling gea.

We're stillwell under the.

The capacity that that.

Discuss with the governor.

But we've stopped anyway, because we want to make sure that first and foremost when our customers come to this event they feel safe and they feel like we've taken all possible steps to give them an excellent wonderful experience that as a safe experience. So we are also greatly reduce the temporary structure.

<unk> and expenses part of this process and part of I guess the confidence we have around this process is as we reduce what the event is going to be.

<unk> right size are cost structure. So all in all it's a dynamic process, but it's not one of weakness or one of fear. Our team has this well under control, but we are responding real time as as our community and as our state response to cope with 19 and at all points, we're going to do the right thing.

To protect the long term of this brand.

Even if that means we stay under what the governor authorized to do it's all about safety and how our guests feel when they come so.

I'm, sorry that that's not everything you want to hear in an answer like this but that's the best I can give you right now we haven't made every decision there's a possibility that will restore gea for example, but I would tell you right now we've turned it off until we really understand and our comfortable with what will happen. If we turn it back on for example.

I understand.

Appreciate you taking my question I have more of a at all if somebody else a chance to circle back.

Thank you.

David.

Next question, we have Dan pilot, Sir from J P. Morgan Your line is open.

Hey, good morning, everybody and thanks, Thanks for all of your commentary that's fire.

Good morning, Glanced bars.

At a fairly strong quarter <unk>.

<unk> margins were up significantly.

Can you tell me about how sustainable on the margins dancing is given elevated volume J.

Is there more operating leverage.

Previously thought or.

How sustainable Rd elevated margins going forward.

And how do you think about the current saying volumes.

And the current level handle.

Hi, Dan This is bill mud.

I would say well first of all.

There's overhead costs that you have to cover and at the volume stay where they are I think the margins are very sustainable.

Generally so I think.

Boils down to have customers.

Two things have customers shifted from wagering on properties too online and if they become more comfortable with online and I believe they have.

And then the second thing is well volume stay where they are I think that's that's a good question that I don't completely know the answer to I think it will.

I think the lack of other sports has shifted people to playing more horse racing and certainly playing online horse racing since they're working from home and have more time to do that sort of thing. So I think it's kind of comes down to those two but I think as long as a volume stay where they are then yes margins will stay stay high.

Alright. Thanks, I appreciate that and then there's the higher level question sports betting gaming.

From transpires in there.

Lot of market share later than you feel that it's dated near term goal is to gain market Sherry grow revenues just given their trading out revenue mothballed right now.

And a lot of companies and the state capital.

Capital of there.

Public.

Through geese backseat and other structures, so given the evolving nature of this market and marches commentary.

Two inspiring the day she made a remark about this standalone business.

Is there have you given any thought that maybe changing the capital structure could this be a standalone company public it publicly traded in some form and along with that how do you think about allocating capital to this business given their head and significant capital increases for many of the day embark on growth strategy.

Good questions.

I'll take the second one.

The second question, Yes, first and the second question was on.

How much capital you deploy to the business.

We talk about that all the time, where where there are different models being.

Being followed out there on the market and that and that.

Investors have rewarded.

Aggressive outlays are capital to drive market share numbers, even if it doesn't drive profitability. So we pay attention to all of that and see what people are doing and the good news is we have the capital were very well capitalized and we have access.

Two or substantial balance sheet so.

Say flexible be willing to learn from others and that's really been our motto and we continued to study that market and think about it.

But we built to inspire as a certain way and we like what we've built and we're very proud of what we built and it is a very strong business with very good customers that we believe we own for other forms of online wagering as those become available in the jurisdictions, where our customers are located so so we're always thoughtful and <unk>.

[noise] about it and and will continue to be so but following the model that some of followed.

That's everybody's prerogative.

But here are were hard wired to generate profitability and then that's our default always in terms of capital structure.

Yeah, we work for the shareholders of Churchill Downs. So we have to always consider what is the appropriate capital structure for any of our three main business divisions online wagering, including two inspires as one.

The Kentucky Derby.

And our Kentucky operations is another in our and of course are brick and mortar gaming absolutely overtime.

Been in business for for quite a while now overtime preferred capital structures change opportunities arise and we always think about that we always studied.

Those developments and of course, we're studying the developments that are happening in the marketplace now with respect online wagering. So that's our job and our job is to stay abreast of those things and understand and interpret whether they offer our shareholders.

A better return on their investment.

Then the current structure. So we'll keep looking at all of those things.

And that's.

Core requirement of our jobs and one we welcome.

Okay.

Thank you for that and and last one on on just M&A Nazis capital allocation.

Where does M&A fall in terms of your tastes and preferences year. It just given there's obviously property that have come that are coming on to the market.

One of your competitors.

In Louisville across the river.

On the market, specifically I guess, how do you think about M&A in a competitive landscape within Louisville, and how it how you can get involved.

I think.

<unk> is.

And Avenue.

To responsibly and efficiently grow our company.

That has been a part of our story over over the term of this management team so that has not changed.

You always look at I'd say of the 520% to 550 commercial casinos that exists in the United States.

Probably.

Myself for our business development leader, our bill mud or Marsha, probably we could talk fairly fluently about most of any of those so we have views on commercial casinos that are out there. We have views on markets that are attractive we have views on assets that are attractive.

And we always manage R capital utilization the hold back.

The ability to have the ability to go after acquisition targets that.

That are on our list. So nothing's changed will have to watch what multiples do now with with all of the disruption that's happened in the American economy.

But certainly.

We are in active and vigilant participant in the M&A markets going forward. Just is just as we've been in the past doesn't mean, we like the prices doesn't mean, we pull the trigger but we certainly show up at the table to evaluate without there.

Okay, and then just just a quick follow up on the on the on Caesar Southern Indiana.

Seizures has mentioned.

Has been such a diverse.

Would that be of any injuries, how do you think about the combatted landscape evolving.

Over time there.

Dan I appreciate the question, but I just feel like I should not comment on any particular assets are opportunity.

That's out there may be out there in the marketplace I just feel like.

I should reserve comment on that.

So.

I wish I could delve into it but all things considered I shouldn't comment on other people's properties or other people sales processes.

Understood. Thanks, so much today I appreciate your comments.

Thanks Man.

The next question we have so I was taught from Susquehanna line is open.

Good morning, England.

No I wanted to ask you.

About a comment that you may.

Just earlier in the call with respect that America I think you were thinking about America, a certain date, because you're talking in the online segment.

But that America integrating with twin inspires over time and I wanted to see what what timing.

Is is reasonable just soon that would occur.

That's a real.

Strategic initiative of ours, we really want to see that happen because it'll it'll link are great customers.

Seamlessly two other products.

But I can't give you a timeframe right now all I can tell you is it something we're very interested in seeing done.

And will pursue it.

List of other priorities.

As appropriate, but I can't give you a timeframe right now.

But I would tell you we view that is a is an important strategic initiative hours over.

Over time.

Makes sense and could you just update as forward that America on your on your bdd or text stack approach poor Bad America.

Don't really have any comment on that today.

I think.

At a higher level.

While we believe we have the capability of building our own tax stack <unk>.

We'd rather stay at a variable cost model.

During these early years for sure maybe beyond.

And.

And I wouldn't really want to comment more specifically about.

<unk> providers, our tech stacked providers are third party providers at this point I don't have anything to really announce on that.

But certainly we want to see improvements and our operating capabilities in our in our timing the market and our performance in different markets and that's something will continue to work on but no no no real commentary or announcements on this call.

Okay, and and finally just.

To revisit two inspires.

Obviously huge growth.

You had mentioned that it continued in July.

And certainly it'll be there for September, especially given the Kentucky Derby, but I was wondering issues saw it.

Demand.

For twins fires in an online horse racing in general.

Do you think it'll be effective because obviously other sports major league baseball and da hockey.

Is restarting now such that it could be affected or that grows call at 25 per cent and the second quarter.

Could be a little bit lower in August just wondering what your thoughts Sir.

I mean, it could be I've been involved with online wagering on horse racing since we started the business in 2007 Soma Bill's comments were were directed to a very into this question as well.

And.

Just referencing back to my long history being involved in this I do that only to say that.

I've seen lots of things have been surprise lots of times, here's what I know for sure.

Wagering on horse racing online is a very competitive good gambling product that customers gravitate towards as they understand it. So I think certainly it's the case that our customers like to bed on other things.

Beyond horse racing and they like Tibet on more horse racing when we can offer it to them. So our customers are gamblers and they like to gamble and they like lots of products. So certainly as more sports become available for them again, they're all throughout the country and different jurisdictions, they're all over the place certainly.

They will want to participate in that but I think what's important for us.

Is we built a relationship with them we understand their preferences, we understand their patterns and it's up to us to continue to offer them products that they find attractive and that's our challenge to make sure.

And all the jurisdictions, we care about that we do so but I do think though just because they'll want to split their wallet on other sports doesn't necessarily mean, that's not a bad thing for Churchill Downs, but also.

There's a there's a big Cheryl wallet out there that isn't captured in their online activity side I'm not I'm not sure. There is no crystal ball to say exactly.

How much additional sports wagering impacts their current volumes on twin spires.

There's plenty of wallet out there to get as we as as they develop their skill set and they get access an opportunity so.

I'm excited about two inspires I think.

The bottom line is we'll see what happens to that business, but we've been growing at a long time and I don't really see any change in that fundamental formula I'm excited to have more more products more more products to offer these people.

Thanks So.

I am showing no further questions at this time I would know like to turn the conference back to Mr. Bhatt guys standing.

Thank you as always we really appreciate.

Your confidence in us as a company and as a management team. Thank you for investing with us.

For those of you haven't thank you for your interest in our company will continue to do right by your investment and we appreciate your patience and support during what's been and exogenous series of challenges to the economy onto our company that were processing through so we'll talk to you soon and in the meantime will go run a great Derby.

And best the best of luck to everybody out there. Thank you.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day. He may all disconnect.

[noise].