Q3 2020 Churchill Downs Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2023rd quarter Earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time as a reminder, this conference call.
He is being recorded.
I would now like to introduce your host for today's conference Mr., Nexon Gari, Vice President Treasury risk management and Investor Relations.
Thank you Katrina good morning, and welcome to our third quarter 2020 earnings Conference call. After the Companys prepared remarks, we will open the call for your questions. The company's 2023rd quarter business results were released yesterday afternoon, a copy of this release announcing results and other financial and statistical information about the P.
Period to be presented in this conference call, including information required by regulation G is available at the section of the company's website titled News located at Churchill Downs incorporated Dot com as well as in the websites investors section.
Before we get started I would like to remind you that some of the statements that 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.
Any forward looking statements, we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, the press release and form 10-Q are available on our website 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.
We view our overall results for the third quarter very positively both with respect to our expectations prior to the quarter.
And last year's results for the comparable period.
Our third quarter results were strong not just because of the Kentucky Derby was in it but because of the strength of all of our businesses.
Our focus in the quarter was on operating all of our properties under our strict safety and social distancing protocols against the continued backdrop of the COVID-19 pandemic.
Every single one of our brick and mortar facilities is impacted by regulatory and operational changes because of coated.
Our team's ongoing challenges to protect the safety of our customers and our team members. While we operate each property is effectively and profitably as we response we can.
We were successful in doing this from the third quarter and are confident we can build on this record of safety and efficiency going forward.
Our balance sheet remains strong as we weather this difficult period in our country with a great portfolio of future growth opportunities.
Today I'll discuss three topics first I will share more specifics on our third quarter results second.
Second we will provide an update on our historical racing machine projects in Kentucky, and last I will provide some preliminary thoughts on the fourth quarter of 2020 and 2021.
Then Marcia will walk through the financials for the third quarter in more detail and provide an update on our capital management and liquidity. After she finishes we will take your questions.
First some thoughts on our third quarter results, starting with our Churchill Downs segment.
Back in early May when the Kentucky Derby is traditionally run each your wife horse racing had not yet resumed in Kentucky, because the governor had imposed limitations regarding public gatherings due to the pandemic.
We elected to move the Kentucky Derby the Labor day weekend in September we had hoped that we would have spectators at this years Derby, but the pandemic has continued to significantly affect virtually every aspect of life in America, even as we speak today.
While running the Kentucky Derby on Labor day weekend, and Spectator free had a significant impact on our financial results. This year compared to prior years. It was our best option and allowed us to run the event in a manner our customers could see was responsible and appropriate to protect the safety of fans and team members as well as protect the long term value of this iconic asset.
So while this was a difficult decision it was the right one and now we look forward to 2021 and beyond.
Our financial results for the Derby were significantly impacted by the loss of ticket revenue fewer sponsorships and lower wagering on the Derby itself and the races in general during Derby week.
The wagering was approximately half that of last year as a result of several factors one rescheduling the event to a non traditional date confused and lost as many of our casual fans for the year.
To the lack of on track wagering locations meant customers did not have available their traditional outlet for participation.
Three there were fewer horses per race because of a variety of factors connected to the change in the time of the year and because travel restrictions imposed by some states effectively hindered the racing plans for many a lead horses.
And for.
There were unusually heavy favorites and many of the races. This year.
Fact that a level I don't recall seeing in my many years of following Churchill Downs and the Kentucky Derby.
We appreciate our partnership with NBC and although viewership was lower than we always see in the first weekend in May the Derby race was the most watched sporting event on Labor day weekend since 2017 and had 20% more viewers than the most watched sporting event on last year's Labor day weekend.
And yet with all these challenges our team was able to generate double digit adjusted EBITDA at nearly 50% margin for Derby week.
Ironically in many ways the Kentucky Derby showed its strength as a unique and special asset in the face of all the extraordinary headwinds cobot COVID-19 created this year, it's a great economic engine.
Marshall will walk through the Derby results in more detail and I will share some preliminary thoughts on the 2021 Derby in a few minutes.
Regarding our Derby City gaming property.
We celebrated the two year anniversary of the opening of the facility in September and based on its performance to date, we've essentially realized at less than two year payback.
On September 3rd we opened a second outdoor smoking patio. This one on the south side of our existing facility.
The new 8000 square foot patio resulted in a net addition of 225 historical racing machines.
Turning to our online wagering segment.
Our twinspires business within the segment had very strong quarterly growth and handle over prior year.
Driven only partially by Derby week being rescheduled from second quarter to third quarter of this year, primarily the growth was driven by handle outside of Derby week I note that even without Derby in the second quarter. This year, the second quarter actually grew handle 21% in the third quarter. The most recent quarter Twinspires grew handle approximately 69%.
On the second and third quarters are taken together you get a sense of the strength growth and future that Twinspires house.
Overall twinspires more than doubled the number of active players in the third quarter compared to prior year.
Excluding Derby week, we saw a 40% increase in active players and a 10% increase in handle wagered per active player in the third quarter of this year compared to prior year.
While wagering on the Kentucky Derby and other races at Churchill Downs Racetrack during Derby week was roughly half the total of prior year Twinspires handle for the week across all tracks was still up approximately 3% over prior years Derby week, even with the 23% decline of active players for that week.
That is a testament to the true organic growth the business is demonstrating.
Wagering has remained strong through the month of October and all of our important metrics continue to reflect a healthy growing platform.
Our online sports and gaming business outside of Twinspires remains a drag on the EBITDA of the segment at this time, but it is a big part of the future I will talk more specifically about this in a few minutes. After we're done talking about the third quarter.
Regarding the performance of our regional gaming properties.
All of our gaming properties are currently open we were operating at each property safely under strict operational and regulatory protocols. We've included a summary of the current restrictions by property in our press release.
Calder Casino was closed approximately two thirds of the quarter because it was required to temporarily suspend operations. The second time on July 2nd due to an order issued by the mayor of Miami Dade.
County to close entertainment venues in response to a surgeon COVID-19 cases in the county, we work closely with all the relevant authorities to safely reopened Calder casino on August 30 Onest.
We continued to be hampered by severe operating restrictions at Oxford Casino in Maine, I mentioned called or an Oxford, because the regulatory restrictions at these two properties were so severe that the teams could not overcome them in any meaningful way through operating adjustments. Fortunately Calder has now reopened.
In general our wholly owned casino margins continue to benefit from the reduction in marketing and customer incentives like free play as well as the elimination of a number of amenities, including buffets and valet services as well as some of the other restaurant and food outlets, we will monitor the competitive dynamics in each of our locations and currently do not see a need to modify our offerings for the.
Foreseeable future.
Overall, we were very pleased with the performance of our gaming properties through another difficult quarter with Newport and Oak Grove, now open and ramping up we see growth in the immediate future.
With respect to our Oak Grove expansion in southwest, Kentucky, North of Nashville, Tennessee on Interstate 24.
We held the Grand opening of the ATM facility in mid September and the 128 room Hotel opened on October 15th it.
It has 1325 HRS a thousand of which are operational right now with the combination of Ainsworth scientific games and.
The game titles.
There are a few smaller capital investments remaining for the venue, including the equine event Center outdoor concert venue and RV Park that we are finishing and plan to open before the end of the year.
We recently purchased the remaining outstanding minority equity interest in our Oak Grove venture for approximately $3 million from the Keeneland Association and we now own 100%.
Oh grow will create approximately 400 full time equivalent jobs for the southwestern Kentucky region.
We held the Grand opening on October 2nd of our Newport Racing and gaming facility in Newport, Kentucky. This is a legal extension under Kentucky law of our Turfway Park Racetrack. It opened with 500, HR EMS and a simulcast area.
We are pleased that this facility will create 70 full time equivalent jobs in the northern Kentucky area and will also generate much needed purse money for Turfway Park Slide Thoroughbred race meet that begins in December.
Regarding the Turfway Park, HRS and grandstand project, we have temporarily paused. The construction of this facility in late September the Kentucky Supreme Court issued a decision concerning the legality of the company called exact as HR EMS under Kentucky law.
While we do not have any exact HR ends at any of our facilities and therefore are not directly impacted by the Kentucky Supreme Court ruling we.
We feel it is prudent to refrain from further significant capital investment until the Kentucky Legislature has an opportunity to review the decision and the technicalities in the current law during the legislative session starting in early 2021.
We appreciate the support of Governor Bashir, the Kentucky Horse Racing Commission and many legislators on both sides of the aisle who are actively reviewing and discussing this decision.
While the Kentucky Supreme Court decision was technically a narrow one we anticipate that the Kentucky legislature may consider revisions to the relevant statute in the first quarter of 2021. It appears there is a broad recognition that it is important and necessary to address any ambiguity to protect the thousands of jobs created by the horse industry.
The purse money that has generated for the benefit of the horsemen and the downstream, Kentucky breeding unrelated farms and the millions of dollars in annual tax revenues that are generated by each our ends for funding various programs and our state.
And last I will provide some preliminary thoughts on fourth quarter 2020 and next year.
Regarding Churchill Downs racetrack.
Our simulcast facilities at Churchill Downs opened on October Onest, and we were pleased that we were able to run the 24 day fall meat, which started last Sunday with spectators.
We've already already begun preparations for the 147, Kentucky Derby, which we will be run on May Onest 2021.
We do not anticipate moving off our traditional date of the first Saturday in May.
We are starting with the assumption that we will limit the number of reserve seats to 40% to 50% of capacity and we will delay selling any general admission tickets, which do not come with seats until we are closer to the date of the of the Derby.
We do not sell many general admission tickets this far out from the event in any case.
If and as the circumstances surrounding the pandemic improve.
Then we will sell more reserved seats and consider selling general admissions tickets.
We remain paused on building the hotel and HR and facility at Churchill Downs Racetrack until we are past the pandemic and can again model the future with more certainty.
This is just being prudent with our shareholders capital we will provide an update on our next earnings call at the end of February.
Our Derby City gaming Oak Grove, and Newport properties are all in a stage of organic growth and obviously this is particularly true for Oak Grove in Newport, which we just opened this quarter thats very exciting for us.
We believe our other properties are well positioned in their local markets and these markets have been quite resilient so far.
We will continue to monitor and adjust as we see the need for changes.
We do anticipate that substantially similar patron restrictions and gaming limitations will apply to our casino and HR and properties into next year.
Our team has done a very good job of optimizing our cost structure to maintain industry, leading margins through these difficult times and we will continue to do so in 2021 in.
Any improvements in macro conditions will be upside.
Regarding our sports betting and gaming business.
The Twinspires business is having another strong year and has consistently delivered for a long time Twinspires is a very profitable high margin platform with substantial revenue and significant adjusted EBITDA growth that is enabled by a pair of mutual wagering model relationship with the Kentucky Derby and Churchill Downs Racetrack and long deployed disciplines customer acquisition approach.
Yeah.
We are well positioned to broaden our online offerings to our customers as we enter the larger states for online sports and gaming.
We have direct access to many markets with our brick and mortar casinos and a roster of efficient indirect market access deals.
Our bed America sports betting and gaming business will also provide the opportunity to introduce others to wagering on horse racing right.
Right now we remain focused on and disciplined in building a profitable sports betting and gaming business that will be integrated with our horse racing wagering platform over the long term.
Long term success for us will depend on growing in a disciplined manner based on our strengths with start which start with our commitment to operating efficiently with careful marketing spend and bottom line profitability.
We recently announced new agreements with Gan, and Camby, who will be providing the technology and managed trading services for our sports betting and gaming platforms going forward.
We believe they will improve our speed to market and operational capabilities and provide a more substantial foundation for profitable growth and sports betting and gaming over the long term.
When we have our technology, where we needed to be we are confident about what we can do in each market we enter.
Our initial technology choices, just did not provide us the reliable.
Reliability and confidence we needed to invest in the space, but its been helpful to watch the strategies of others, who have been active to better refine our own approach again, we will be disciplined and careful as we move forward.
Finally, a few quick updates.
Regarding the rivers casino desk planes gaming floor expansion.
The rivers parking garage expansion has now completed and the team is working on the preliminary design for a revised expansion that will allow rivers to add 450 to 500 additional gaming positions to the existing casino floor. As we've discussed previously reverses already added 130 of the 800 additional positions allowed under the two three.
19 gaming Bill.
We have not decided when to start construction, but it could start in early 2021 and be completed by the end of 2021.
We will continue to monitor the market and any impact from the pandemic as you may have seen this week because of an increase in locally reported Tobin cases rivers will close from 11 P.M. to nine am each day until further notice this.
This is a regulatory requirement.
Regarding the Waukegan Casino proposal, we remain committed to our proposal to build a new Waukegan casino in partnership with Rush Street gaming, our partners and reversed as planes. If we are awarded the license by the Illinois Gaming Board. It is unclear when the Illinois Gaming Board will announce their decision regarding awarding the license, but it will not be this week, we will update you as.
As we learn more.
Regarding the downtown Chicago Casino proposal right.
Our street gaming and related Midwest submitted a response to a request for information issued by the city of Chicago.
Some of you may have seen recent press about this process.
The city of Chicago is not yet put out a request for proposal.
Should rush Street gaming and related decide to respond to an RFP when issued we may decide to be a minority equity partner in the proposed casino along with them with the debt financed with the casino entity level.
We anticipate that this will be a lengthy proposal process and we will update you periodically when it makes sense going forward.
There is no more to be said publicly at this time about this but I felt I should mentioned the topic as there are press reports out there.
In summary.
We had a strong quarter and are demonstrating we can operate effectively in a difficult environment, we are well positioned to weather the ongoing challenges and our remaining disciplined in our capital investment to ensure that we deliver the best total shareholder returns for our investors over the long term.
We remain poised to deploy growth capital and believe there will be good opportunities to do so our balance sheet is very strong so.
To that end our board of directors approved a 7% increase in our annual dividend this past week.
This is the 10th straight year of dividend increase.
With that I'll turn the call over to Marcia and then we'll take your questions when she's done Marcia.
Thanks, Phil and good morning, everyone as Bill discussed I will provide some details on our third quarter financial results and then provide an update on our capital management and liquidity.
Turning to our third quarter results.
We reported third quarter net revenue of $338 million of $32 million or 10% compared to the prior year quarter as growth in net revenue from our Churchill Downs and online wagering segments was partially offset by a decline in net revenue from our gaming segment.
Third quarter, adjusted EBITDA of $122 million was up $34 million or 39% compared to the prior year quarter. As a result of growth from the Churchill Downs and online wagering segments as well as margin improvement from our gaming segment.
The Churchill Downs segment generated $68 million of revenue in the third quarter of $35 million from the prior year quarter and $24 million of adjusted EBITDA in the third quarter.
$10 million from the prior year quarter, driven primarily by Churchill Downs racetrack.
Sure sure Downs Racetrack revenue increased $32 million as result of Derby week being held in the third quarter instead, the second quarter, which more than offset the impact of lower revenue from the September right recently due to less wagering and those spectators.
As a result of significant effort by the team as Bill mentioned the margin on Derby week revenue was nearly 50%. Despite the shift to know spectators. Just a few weeks prior to the running of the Derby on Labor day weekend.
Adjusted EBITDA for Churchill Downs Racetrack was up $15 million for the quarter compared to the prior year quarter. As a result of Derby week more than offset the $4 million of lower adjusted EBITDA from lower net revenue from the September race me.
As Bill mentioned, we are running the fall race meet at Churchill Downs Racetrack that began last Sunday and runs through Thanksgiving weekend with extensive safety protocols to enable a limited number of spectators to attend the race meet.
Every city gaming also increased revenue for the quarter by $3 million or 15% compared to the prior year quarter and increased adjusted EBITDA by nearly $4 million, despite patron restrictions and limitations on atrium capacity as well as lower marketing spend.
The online wagering segment increased net revenue by $56 million or.
8% in the quarter compared to the prior year quarter, primarily driven by Twinspires growth.
Adjusted EBITDA for the online wagering segment more than doubled from $15 million in third quarter 2000, $19 million to $32 million in 2020.
Twinspires grew handled by $254 million or 69% in the third quarter compared to the prior year quarter.
Nearly three fourths of the growth in third quarter handle compared to the prior year quarter was from wagering on Twinspires, Excluding Derby week in 2020 in the same week in September 2019.
This continues the trend that began in the second quarter, when we saw $100 million of growth in handle compared to the second quarter 2019, despite not having the derby or Preakness run in the corner.
It is important to note that this growth in handle is translated directly and reliably into growth in adjusted EBITDA.
Many in the online sports wagering space today have valuations based on their future potential handle growth and potential for 2025 margins. There are contingent upon states adopting legislative changes to allow for sports betting and gaming and elimination of marketing spend.
Twinspires is a very profitable and stable online sports wagering business today with significant and demonstrated growth, especially in the last two quarters with nearly 30% margin.
As a result, twinspires adjusted EBITDA nearly doubled in the quarter compared to the prior year quarter and Twinspires has significant growth potential as a long term trend towards increased online pair mutual wagering has rapidly accelerating.
Our more than a decade long experience with this business.
Yes that once customers try online wagering they prefer it giving us conviction in the long term persistence of this channel shift.
And now turning to our gaming segment.
Net revenue from a gaming properties decreased $44 million, a 24% driven primarily by two factors.
First our Calder property was closed for two to three months in the quarter and second significant restrictions on the number of patrons gaming limitations and other restrictions.
Imposed on the Oxford, and Presque Isle I'll casinos during the quarter.
Net revenue from River walk in our Louisiana properties was up during the third quarter 2020, compared to the prior year quarter, reflecting effective targeted promotions and higher levels of unrated play.
Our gaming segment, adjusted EBITDA was up $4 million for third quarter compared to the prior year quarter.
Adjusted EBITDA from our equity investments in gaming properties was up $9 million compared to the prior year quarter with strong performance from reversed as planes. After reopening in early July and from Miami Valley Gaming.
Adjusted EBITDA from a wholly owned gaming properties was down $5 million.
Strong growth from our Mississippi, and Louisiana properties is more than offset by declines primarily at Calder, Oxford, and Presque-isle due to patronize restrictions and gaming capacity limitations.
Our wholly owned casino margin was up 480 basis points compared to the prior year period, as we remain disciplined regarding our competitive offerings in each location.
Turning to capital regarding maintenance capital, we spent $5 million in third quarter, we anticipate spending $10 million to $15 million and maintenance capital in the fourth quarter at Churchill Downs Racetrack and casino properties.
Regarding project capital, we spent $74 million in third quarter of which half was spent on the Oak Grove HR and facility that we opened on September 18, and the Oak Grove Hotel that we opened on October 15th.
The balance of the project capital in the quarter was spent on the Newport racing and gaming facility that we opened on October 2nd.
The second services gaming smoking patio that we opened during Derby week, and the Turfway Park Racetrack project.
During the fourth quarter 2020, we anticipate project capital spend of 40 million to $50 million through freight related to final invoices and work that has been completed on the projects I just discussed.
As Phil mentioned, we have paused in the Turfway Park atrium and grandson project and also prudently holding on to other investment and the Churchill Downs Hotel anytime facility.
We will provide further updates on our next earnings call at the end of February.
Our leadership team has a proven track record of generating strong returns from the capital we invest for our shareholders as evidenced by the two year payback on the Derby City gaming investment.
We also have a proven track record of protecting our shareholders capital when appropriate by investing prudently in organic growth or acquisitions that fit strategically with our company and knowing when to not invest and when to be patient.
Although it may seem difficult to pause on these two capital projects for now we believe it is clearly the prudent choice for our investors long term shareholder return.
Regarding our leverage in cash liquidity at the end of September and that leverage at September Thirtyth was 5.5 times, and we had $622 million of unrestricted cash.
Weve cash liquidity well beyond the next 12 months and we are in compliance with financial covenants on the revolver at the end of September.
We've also had a proven track record of returning capital to our shareholders. When it makes sense to do so well other operators in the gaming industry have eliminated or materially reduce their dividends. We are pleased that our board approved a 7% increase in our annual dividend the 10th consecutive year of increased dividends for our shareholders.
With that I will turn the call back over to Bill So that he can open the call for questions Bill.
Thank you Marcia.
At this point, we are ready to take your questions everybody. So please fire away.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchstone telephone. If your question has been answered or you wish to remove yourself from the queue. Please rescue bounty.
First question, we have Don Politzer from JP Morgan Your line is open.
Hi, Dan go ahead.
Yeah. So the first one on gaming I know you guys mentioned that there was a drag from Calder I'm, an Oxford and corner junior restrictions.
Could you could you maybe quantify that so we could maybe get a better handle on what kind of the wholly owned segment would have looked like ex those headwinds.
Bob help us with that question a little bit just refine it if it should you were breaking up on us for a for a second.
Is there any way you could break out maybe ex called there in Oxford, what what the wholly owned segment organic segment looks like in the quarter just given those properties. Obviously, we're facing some specific property specific headwinds.
Yes, I mean.
<unk>.
I can't give you excluding those two but I can give you what those two independently kind of done Dan. This is bill Mudd Calder with close through August 31st they really only operated during the month of September from a revenue perspective revenue is down 75% that location.
And you know.
Actually we didn't generate a positive EBITDA for the quarter because of that so obviously that had a big drag and then and it continues to operate under under constraints. If you look at.
Box.
Oxford.
Oxford right now it is operating at a capacity of 200 people, which includes employees and we have to.
Actually quarter that facility into four zones, it's probably you know the most awkward and I had.
Restrictions with respect to coal that across the nation, but Oxford was down 55% in revenue and down 70% in EBITDA, although it was positive.
It continues to operate under those constraints and we continue to work with the regulatory officials in that state to free up some of that but I don't see that we have the ability to do that anytime soon so.
Got it thanks, and then just moving to Twinspires, given the new quality to the second quarter in the third quarter.
With you know kind of that's been rated triple Crown races, all over how should we think about normalized twinspires marketing going forward relative to the.
20, 27%, maybe you guys did in 2019.
Well I think.
Some of the moving around of the Triple Crown events.
Between quarters.
It's like that but generally I think or DNA is to look before we leap and to have some certainty and some data and have done some testing before we do things like that because ultimately.
And gambling in general, it's not always necessarily hard to get customers, it's hard to get profitable customers and that's what we always focus on and Thats, what we learned over the years and Twinspires and we will take that into a into the online sports and gaming markets as more of them opened up Jeff.
Generally some markets are more exciting than other markets the level excitement depends on the products. We can offer the tax rate online sports and online casino versus just sports. So the property of the the products we can offer the tax rates.
Our connection to that jurisdiction in terms of access to customers already or the ability to reach them cost effectively all those things go into our level of excitement and how we view each market in comparison to the others.
Got it thanks.
Hello, and thanks for all that detail in your prepared remarks.
Thanks, Dan.
Next question, we have Joe.
Joe stock funds asking your line is open.
Hmm.
I wanted to drill down a little bit more I guess on on Twinspires and.
Well I think you had mentioned you know in the third quarter in your prepared remarks that.
Users had doubled in twinspires, but I was wondering if.
If there are any other kind of keep you guys you can share with us meaning you know year to date, which are those all new customers are they own you see uniques, whatever you can share with us on from a capex perspective.
Yes so.
Really detailed.
Year over year, K.P. eyes to discuss with everybody because if we did that it's a discussion in and of itself because it every every point we have to distinguish between the difference in characteristics of Derby last year versus this year. So in general we decided as a team we were going to start with a summary, and just focus on third quarter.
So that we have just give you accurate easy to digest, but generally as I may as I said in the prepared remarks.
All of our important metrics all of them all of our material metrics.
Show really surprising strength.
Even after digesting the headwind of holding a derby, where we did not get the casual fans compared to prior years. All the performance. This year is facing that headwind that normally is a tailwind for this business and gives it a huge.
Growth ramp up all the results. This year have been achieved with only a headwind from the Derby.
And so for us that's what I'm most things I'm most proud of the team because they didn't moan about it they didn't worry about it. They just went on executed and thats been good to see.
Yes that makes sense I can appreciate that.
And I guess, there's certainly it.
But.
Big unknown out there as it relates to.
The level of growth you've had in twinspires and and the number of users year to date or at least those.
Save migrating from a more retail experience.
Im wondering you know I've asked this before but it certainly is an important.
Sort of input going forward is your thoughts on.
Once they migrate to online versus the retail experience that the stickiness of that would you expect them.
You know to circulate back to the retail experience you know hopefully when all this is over or would you expect them to.
Let's say put most of their handle on the mobile platform kind of going forward.
Yes, that's that's a really good question.
So one of the attributes of this business.
Overtime.
As has been the stickiness of the customers. If we can get trial, we've always found.
We do a really really good job of retaining those customers and in fact this business is built not on.
Masses and masses of small customers what we've been good at is developing people into meaningful customers are are are attributes per paying and playing customer really are fairly extraordinary. So we've always been good once we get the hook in the fishing.
Feeling that men, we've always been very very good at building our relationship with them. So the history of this business is one of stickiness when it comes to.
This year.
Clearly some of the the traditional brick and mortar outlets.
They weren't available because across the country Cove. It restrictions led to the shutdowns over lots of tracks and no TBS for at least a portion of the time they've been reopening for a while and we're demonstrating these results even with them reopening, but I think what you saw there there you saw a decline overall in handle for the industry. So not our specific results but.
Handle for the industry as a whole and that is there some hardcore folks that didn't transition those folks didn't trial, even in the face of losing a brick and mortar location that they normally go to so those folks you can take off the table there not really a part of the picture to the extent that some people did I think it was a nice boost but.
Again, it's it's <unk> it it it wasn't the by any means the whole story or any kind of revolutionary development clearly it accelerated.
Some of the channel shift that's been happening, but the story of the channel shift in horse racing is a well understood one and that is as good as it develops the customers tend to be very sticky to the product and the hang around and continue to bet on line. So because some mild acceleration, but I really think the story.
You have twinspires this year is way broader than that and we touched on that a bit a moment ago with you know the single greatest tailwind, we usually get every year, which is the massive casual fans fans that we acquire cheaply and don't have to reinvest in at a high level those fans weren't here this year. So.
You got to watch some of those those factors are against each other and so generally when it comes to.
Active players I think as a team we feel pretty good going forward about the level of active players we have in our ability to grow those and the level of stickiness and the players that that that of joint.
I see.
If I can squeeze one more in I I apologize about haagen them, Mike here, but.
You know I was wondering if you can.
Of the ADW sort of competitive landscape, obviously, you have one big competitor call. It two smaller ones in there and then then there are a few very small operators and I'm wondering.
Just from a competitive perspective, if you've seen any changes any notable changes in that landscape year to date that.
You know could either create more opportunity for you going forward in some way shape or form.
I think.
DDW in general, we've been doing very well and including the the most significant competitor out there that that's not a racetrack company a pure play online gambling company I think in general.
Everybody has done pretty well and and we actually encouraged that the fact is we set on on these calls and in other environments for a long time. This is a very good gambling product. It's based on parimutuel wagering for it. So the margins are always something you understand in terms of your your net revenues, it's something you can always count.
On you always understand what it's going to be and it's a good product that is always available and your customer and you can build a you know you can build a patterns and habits with your customers based on the availability of content and the predictability of content and your ability to reinvest and then sensibly because you have a good feel for what.
What's your true net revenues are going to be so so I think I think you're seeing some of that beyond just our experience in the space and I imagine that you'll continue to do that but I think vis-a-vis each other I don't think theres been.
Material change I think it's a rising tide, that's floating all boats and I think others in the gambling space are starting to understand sort of the attractiveness of this from a business perspective of offering this kind of product.
Thank you very much.
Next question, we have David Katz from Jefferies. Your line is open.
Hi, good morning, everyone.
Thanks for taking my questions look I you know, we don't want to be in any way dismissive of your you know.
Operating execution on the hard asset side, but we do have quite a few discussions around and I know you've touched on this but I wanted to go a little farther on you know the.
Value that you have and the assets and Twinspires, what you're building in AI gaming and the ability to grow it competitively you know as I gaming and sports betting more broadly become legal bill.
Bill how do you I would like to hear you talk about how you think about value and capabilities, which I think is a word I've heard you use over the years.
You know, we then twinspires on the backend and obviously, it's an ability to to to capture and execute on customers and you know and do so profitably on the front end do you feel like you have the the that the brand capabilities. Obviously, you have some market access that should be helpful. How do you think about the VA.
Now you pieces along the chain.
And you know where that where that you would like to take that in the near term.
Well first I'd say that.
We've talked about these kind of issues David over a long period of time.
And so you know we we we we paid attention online wagering.
Not only in America, but as it's rolled out in Europe and other parts of the world over an extended period of time. So there. So we've seen different models happen and what we're seeing in America is we're seeing.
A jurisdiction that really hasn't been driven by technology advancement, it's really been driven in his opening up because of regulatory change. So the technology is there.
The digital space as well understood outside of gambling. So so its a catch up thing. So there's so what you're seeing here is a rush to get into the business very very quickly and an assumption that you need to acquire as many customers. As you can with is bigger brand as you can as.
Quickly as you can and I'm not dismissive of those feelings are those thoughts at all that's just an observation on on how the U.S. market is opening versus what we've seen other markets in the world do so from our perspective, we don't have.
Oh, we have some advantages with twinspires and that we have a a longstanding online business with great customers in many jurisdictions to be opened up and that's a big advantage for US. We also are a company that is recognized in the gambling space among the casual consumers.
But there's some really powerful brands out there and so theres, some really powerful spending out there and we have to be cognizant of that and careful of that just because somebody else spends the money doesn't mean that we can spend that money or that we see in our modeling a return.
With that kind of player investment so.
As we deal as we address.
From that generality to the specifics we have to be careful we can't just do something that other people are doing because they're doing it and that may mean that we get left behind in some markets that may mean that some markets are not good opportunities for us, but there are other markets that will be where we think we do have a beachhead. We do have a foothold and we think we can run our model and play effectively.
So I also don't accept that once a customer signs up with another site that you can never get that customer that's not the world we've lived.
In horse racing or that we've seen in other jurisdictions. So so my point is will play very delighted diligently and carefully and thoughtfully, but we won't we won't go chase.
Every marketing deal or every acquisition opportunity because we just haven't found that the work when we built twinspires and you know as I say I think actually made this remark earlier in this call.
Acquiring customers, whether it be twinspires are brick and mortar has never really been our biggest challenge, it's always acquiring customers effectively and that's just how it will run our business and others will run different models and all the power to them, we'll have to see but we'll do it the way that we're comfortable do it.
I think also if I could make one more point.
You know, we've got great content, Weve got great content and great access to horse racing and as I've said I think horse racing is a great online gambling product, where we're always going to have an advantage because of our company and while a portion of our company does which is produced horse racing and run the Derby and deep relationships in the industry.
So that's that's something that we're not afraid to build around are we think others as they see the power of what of what horse racing can do on the online space you know, we think others might.
Pay attention, which isn't necessarily a good thing because it's an advantage we have now but I think it's a sustainable advantage over the long term and that's what's important.
Thank you for that and if I can try to follow that up.
It's very clear at least so far what your relationship is.
You know with Rush Street from a land based or hard asset perspective.
Is there any you know vision or any any color you can provide around that how that relationship rolls into the mobile side of things and you know sports and gaming and as you know new States open up.
The degree to which you may play a role with them or is that confined just to Illinois.
Well, we have a really good relationship with with Rush Street, and they're really mature accomplished.
Talented people and a talented team. So I think that's a question that's hard to answer certainly.
Certainly everything in Illinois has has been positive, including our how how we're engaged in the online space in Illinois, which is through the rivers Bank brand and through there are ESI technology platform.
Everything is it has been a positive and and.
Generally they are great to work with and I think there are special group of people and.
I wouldn't say more than than that.
For the future, but certainly certainly we have a very strong partnership with them and and we are doing other things and Illinois together like like we discussed their bidding on lucky and et cetera, So never say never but but we don't have anything to talk about at this at this stage.
Thank you very much good luck.
Thanks, David.
I am showing no further questions at this time I would now like to turn the conference back to Mr. Bill Carstanjen.
Thank you.
I'd just like to remark that we always appreciate your interest your investment in our company.
Especially during these challenging times COVID-19 has changed everything about how American business works and and it's something we think about and deal with every day and and we'll keep doing that well keep being responsible shepherds of your of your capital and we'll try to make sure we make good smart long term patient decisions that.
That that benefit the your investment so thanks for your interest again and we'll we'll see you next time good luck.
Ladies and gentlemen. This concludes today's conference. Thank you again for your participation and have a wonderful day you may all disconnect.
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