Q4 2020 Churchill Downs Inc Earnings Call
Yeah.
Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated fourth quarter and year end of 'twenty and 'twenty earnings Conference call. At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will be given at that time I'd share.
A reminder of this conference call is being recorded.
I'd now like to introduce your host for today's conference Mr. Nick Zangari, Vice President Treasury risk management and Investor Relations.
Thank you Katrina and good morning, and welcome to our fourth quarter and year end 2020 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2024th quarter and year end business results were released yesterday afternoon.
And <unk> me today or several members of our team, including Bill mud of President and Chief Operating Officer Marshall to all of our Chief Financial Officer, and Brad Blackwell, Our General counsel.
As we begin this discussion about our 2020 results and our expectations for 2021 and it.
It is important to take a minute to reflect upon the unprecedented challenges that our country and the world as a whole faced and twenty-twenty stemming from the global pandemic.
COVID-19 significantly affected the health and wellbeing of so many people as well as our economy, our businesses, our guests and our team members.
I am proud of how our leadership team and our team members reacted quickly to the pandemic of threat to our company.
Our team took actions to immediately reduce expenses and capital spending and to redesign our safety and health protocols, which enabled our properties to reopen safely for our team members of our guests and our communities.
And and of very challenging environment, we were able to safely run the 146, Kentucky Derby and.
Maintaining its iconic stature is the longest continuously run annual sporting event and the United States.
Going forward, we remain focused on protecting the health and safety of our guess and our team members, while we operate each of our properties as effectively and profitably as we responsibly can.
Today, we will discuss four topics.
First high level of thoughts on our Twenty-twenty results.
Second and update on the legislative change related to historical racing machines, and Kentucky, and the restarting of the capital projects that we had previously suspended.
Third and.
And update on our twin spires horse racing sports betting and online casino strategy.
And last some thoughts on our growth strategies going forward and our plans for the 147th running of the Kentucky Derby dismay.
Marshall well, then walk through the financials for the fourth quarter and more detail and provide and update on our capital management strategy. After she finishes we will take your questions.
So first of some high level of thoughts on our Twenty-twenty results.
Obviously, we did not achieve the budget did adjusted EBITDA of targets, we set for ourselves and 2020, but that was because of the many restrictions and changes resulting from the pandemic.
We cannot reflect on 2020 solely using our traditional financial metrics.
True these challenging times, we were pleased and how our team's adjusted our business practices and protocols. The conduct our operations given the environment. We believed we demonstrated significant financial strength and operational excellence.
The Great example of this is how our team developed and executed the plans the safely run the Kentucky Derby Spectator free on Labor day weekend, instead of our traditional date on the first Saturday and make.
We generate a double digit positive EBITDA for Derby week, even without a crowd and while conducting of during a completely different time of the year when our customers, we're not used to seeing it.
We protected the safety of our community and team members and also protected the reputation the brand and the longterm value of of this iconic asset.
I will share some preliminary thoughts on the 2021 Derby and a few minutes.
Regarding our Derby City gaming H R M property.
Derby City gaming generated more adjusted EBITDA and 2020, and then in 2019, despite clothes being closed from the middle of of March until the middle of June and operating most of the year with significant COVID-19 related restrictions.
We've added new game manufacturers with the addition of scientific games and IGT of.
I also cannot and he will be submitting for the first time game things for approval at the next Kentucky Horse Racing Commission meeting, which will further diversify R. H M. H R M offering.
We also opened the second outdoor smoking patio with an additional 225 H R. M. As in early September that has been very well received by our customers.
With respect to our other H R and properties and Kentucky.
We are pleased with the performance of our Oak row facility and southwestern Kentucky North of of Nashville, Tennessee on Interstate 24.
The H R. M facility opened and mid September and the 128 room Hotel opened and October.
The remaining amenities, including the equestrian center, the outdoor concert venue and the R. V Park will be operational this quarter.
We open this property and the middle of of the pandemic, but it continues to perform even better than Derby cities comparable opening period.
We opened our Newport racing and gaming facility and Newport, Kentucky last year on October 2nd.
Newport is performing well and a very competitive northern Kentucky, Southern Ohio, and Indiana market, given we opened and the middle of the pandemic.
And it will take some time and patience to build our customer database and customer loyalty program.
We are optimistic because of the population demographics or solid and we have and increasingly competitive product and an experienced team.
We will continue to refine our marketing and and prove this property as we move forward through the year.
It is gratifying for our team that are free H R. M facilities have created nearly 600 and full time equivalent jobs, where the Commonwealth of of Kentucky.
And I've also generated substantial purse money.
We're kentucky's premier racetracks, which and turns fuels the health of Kentucky's racing circuit and the entire Kentucky horse industry.
Turning to our online wagering segment.
Our twin spires horse race horse racing business and showed very strong growth and handle over prior year up 36 per cent.
This reflected the shift from brick and mortar bedding to online wagering that began during the closures of most facilities and the March through June 2020 timeframe.
There was also a very modest level of of increased wagering bar existing players and 2020.
These factors together more than offset the impact of slightly lower industry handle and 2020, which was caused by significant race cancellations due to the pandemic.
On our third quarter earnings call, we shared some metrics the demonstrate the significant growth trend within this business, including we grew handled 21% of and the second quarter compared to the prior year quarter. Despite the absence of the Kentucky Derby and May.
And we grew handled 69% of and the third quarter compared to the prior year quarter with the Kentucky Derby held and the third quarter of 2020 versus the second quarter and 2019.
And now and fourth quarter.
Our twin spires horse racing business grew handled 45 per cent compared to the prior year quarter and the number of active players increased by 50 per cent.
This is the third quarter of double digit increases and handle compared to the prior year quarter and is a testament to the organic growth potential for the business.
There's a very profitable business based on pair of mutual wagering.
That and Twenty-twenty generated nearly $127 million and adjusted EBITDA of $48 million or 62% compared to the prior year and with more than of 30 per cent margin for the year.
This growth and online wagering and horse racing as of trend that has continued into 2021 wait.
Wagering on horse racing on twin Spires has remained strong through January and and to February.
And all of our important metrics continue to reflect the healthy growing platform.
Regarding our online sports betting and casino business.
We are still transitioning from our initial technology provider to Gan per player account management and Camby for managed trading services.
While disruptive we believe this change and technology providers is critical to our long term success.
We've completed all of our retail sports book migrations and early indications show high double digit handle growth across of retail footprint since migration.
We launched our first online twin spires brand and sports book and casino offering on the new platform and Michigan, along with the first wave of operators and the state and early January.
We are targeting of launch and Tennessee on a new platform within the next month and will complete the transition of our existing online sports book and Casino operations and other states to the new platform by the end of this quarter, including rolling out of the mobile App, and Pennsylvania, and Indiana upon receipt of regulatory approval.
We intend to roll out of mobile and online sports betting platform and Colorado prior to the Kentucky Derby.
While the online sports betting business operates at a loss at this time, we will continue to invest in the space.
The real size of the EBITDA opportunity will play out over years and not quarters and thus we are focused on very carefully developing our business model for the long term and we'll talk more about our growth strategy and the space and a few minutes.
Regarding the performance of of regional gaming properties all of our gaming properties are open rivers desk planes, Presque-isle and Nemo colon were shut down for a second time for part of November and December of 2020, and reopened and early January 2021.
While all of our property is still have some level of of capacity or other operating restrictions.
Or Oxford, Presque-isle and called her casinos are the ones. The most meaningfully impact of currently by state and local wreck and regulations.
Performance will improve at those facilities substantially as restrictions are lessons.
Our other properties of performing strongly despite various levels of capacity or other limitations.
And we expect these properties to continue to improve as we get further into the year.
We are of maintaining ongoing safety and health protocols and every property to ensure the safety of our guess our team members and our communities and we will do so for as long as necessary.
Overall, we're pleased with our gaming segment performance and Twenty-twenty. Despite the lower adjusted EBITDA generated by of properties due to the impact of the pandemic.
Are wholly owned casino margins, excluding the parts of the year that the casinos were closed due to the pandemic, we're up significantly from the prior year, we continue to see the benefits from the systemic reduction and marketing and customer incentives like free play as well as the elimination of a number of them entities.
Certainly, we're glad 20 twenties behind us and I'm very grateful to our leadership team our team members and our guess the supported our company and help the stabilize improve and even grow some of our businesses in the midst of and unprecedented global health crisis.
Yeah.
The second topic today is an update on the legislative change related to historical racing machines, and Kentucky and its impact on our capital projects and the state.
On Monday of this week Governor of sheer signed into law of Bill recently passed by the General Assembly that significantly clarifies the definition of pair of mutual wagering, including its application with respect of historical racing machines.
Ah, Kentucky Supreme Court decision issued this past September had created some uncertainty around the Kentucky racing Commission's interpretation of this definition.
Although the Kentucky Supreme Court ruled on the legality of of specific manufacturers historical racing machines and did not address of the games of any of the manufacturers, we deploy at our facilities and.
Horse racing industry, and Kentucky work closely together with the General Assembly and the Governor the codify clarifying language to eliminate any potential ambiguity with respect of the legality of historical horse racing machines, and Ah, Kentucky law the.
And it was a really important initiative for the Kentucky horse industry, and we're very appreciative of the leadership and hard work and the Governor and the General Assembly.
We are also happy for all of our constituents, including the horsemen and the many other participants and and fans of the horse industry. The encourage their respective elected representatives to support this important bill to protect the thousands of jobs across the Commonwealth and H R M facilities and directly and indirectly and the horse industry.
We are also pleased for our guests vigorously voice their opinions to their elected representatives. So they could continue to enjoy the Commonwealth H O M facilities and they had chosen to do over many years.
We've already restarted the construction process for our turf way Park racing and H R. M facility and are targeting of Grand opening and the summer of 2022.
We had suspended the significant capital project because of the uncertainty when Covid first hit last year and then later until the Kentucky General Assembly had an opportunity to review the Kentucky Supreme Court decision.
We anticipate spending approximately $145 million and project capital. The finished building this premier facility and that will deliver approximately 800 construction jobs and 400 and fulltime permanent jobs and the northern Kentucky area as well as revitalize the Kentucky Winter Thoroughbred racing circuit.
With respect to Churchill Downs racetrack.
We have used the past 12 months, while we navigated the pandemic and worked the past the H R. M legislation to revisit our plans for a hotel and H R. M facility at the track.
Before suspending activity when the pandemic hit we had completed all of the underground utilities and a handful of site prep projects. We spent approximately $15 million of the $300 million of capital that we had approved for this project.
We are finalizing our revised plans that we believe will be just as impactful and exciting for our customers and community we.
We believe we can and should do the project more cost effectively as we re imagine each of the three elements of the overall project of hotel and H R. M facility and expanded permanent seating hospitality the.
There is really a fourth element to consider as well, which has the potential future expansion of Derby City gaming.
The facility has really performed well since opening and and particular showed its growth potential throughout last year, we're not ready to discuss our revised plans today, we need more time to reflect on all of that we've learned you can expect to hear more from us and the next couple of months as these plans are solidified.
Next and update on our twin spires horse racing sports betting and casino business strategy.
And I previously said twin spires is a very profitable high margin operation with substantial revenue and adjusted EBITDA growth that has enabled bites pair of mutual waiter and model relationship with the Kentucky Derby interests and downs racetrack and long deployed disciplined customer acquisition approach and performed very well and 2020 and it started very strongly.
And 2021.
And January based on the strength of of the twin Spires brand, we announced our decision to rebrand our online sports and casino business from Bad America, the twin spires changed.
Changing our sports betting and online I gaming business. The twin two twin spires will allow us to better leverage the Kentucky Derby, our database of horse racing wagering customers and other cross selling initiatives, the lower customer acquisition costs and enable clear of product positioning and differentiation from competitors and the online sports and can see.
Space.
The combination of are improved technology stack, along with our rebranding should help provide much improved execution and the space.
We were pleased with our initial results of Michigan, which reflects.
And much higher percentage of online casino handle and we anticipate that we will anticipate will be more profitable over the long term and sports betting for us and the state.
So far of Michigan is better than we thought it would be for us with respect of customer acquisition costs and player performance data.
We will stay focused on building a profitable online sports betting and casino business. The operates efficiently with the variable cost the technology model and the grows based on discipline marketing spent and bottom line profitability goals.
This industry is still in the early stages with many participants pursuing maximum market share and top line revenue and every state with limited regard for short term of potentially even longterm profitability.
We don't want to do that and do the space is one and which the mature business model and it's related margins will not be settled for several years as opposed to a number of quarters.
Our strategies based on our experience building of successful and profitable online horseracing betting platform.
Keep acquisition Costello and leverage our online horse racing database and the Kentucky Derby.
Returning customers over the longterm with economically viable player reinvestment and exceptional service and be willing to walk away quickly for market share when the model doesn't work.
We have a lot to prove and the space and we believe will start doing that and 2021 and.
Next I will provide some thoughts on our other growth strategy strategies going forward and our plans for the 147th running of of the Kentucky Derby and make.
We believe our gaming properties of well positioned and their markets a regional markets have been resilient during the past year, we will continue to monitor and adjust as we see the need for changes.
Some of the restrictions around hours of operation and capacity of limitations are being removed with the improvements and the COVID-19 positivity rates.
We believe patron restrictions and other limitations will apply to our casinos and HR and properties and the first half of 2021 and will be gradually lifted and the second half assuming the COVID-19 cases continue to decline based on the increasing availability of vaccines and other factors.
We've optimize our cost structure at our properties, where these assumptions to maintain industry, leading margins of 2021 and.
We are anticipating some competitive pressures and 2021 to our holos property and the new permanent casino and Pine Bluff, Arkansas that opened and October 2020, and tore a name of cold and property from of New Casino East of Pittsburgh that open and November 2020.
We also anticipate continued organic growth for each of our three H R. M properties, and 2021, and especially for Oak Grove, and Newport, which are just getting started.
We're maintaining of disciplined approach with respect our maintenance and proud of capital and are wholly owns gaming properties and light of the current environment Marshall will provide more detailed her comments about our twenty-twenty one capital of plants.
Regarding your equity investment and the reverse des Plaines Casino, we recently announced that the team at rivers is moving forward with a more capital efficient construction plan to expand the gaming floor.
As you will recall rivers has approval to increase their gaming positions from 1002 hundred to 222000 and based on the May 2019, Illinois gaming legislation.
Rivers had previously added approximately 77 of these positions too it's existing floor to the extent there was space.
Rivers plans to invest $87 million, which will be funded from additional debt financing at the river's entity level.
The expansion will be built between the existing casino building and the recently expanded parking garage of the north side of the property.
The first floor of the new area will provide and expanded gaming floor and will include a new restaurant.
The second forward will feature of 24 table poker room of 10000 square foot ballroom for private events and live entertainment and a slot machine gaming area.
The expansion will accommodate approximately 725 gaming positions based on a combination of new slot games and table games, resulting and the facility utilizing it's full of 2000 and physicians permitted under current law.
The rivers team will begin construction and the spring what the target completion by spring of 2022.
Rivers will also pay $24 million and licensing fees for the incremental 800 gaming positions.
This project is and exciting one for us and we believe of very efficient deployment of growth capital.
Regarding the walkie can casino proposal [laughter], the Illinois Gaming Board announced that they are continuing to work on hiring and investment banking group to evaluate the three proposals it's unclear whether the Illinois game of board will be in a position to announce their decision regarding awarding the license of 2021.
Regarding the proposed downtown Chicago Casino the city of Chicago has not yet put out of a request for proposal, we anticipate that that will be a lengthy proposal process and we will update you periodically when it makes sense going forward.
We announced this week that we are initiating the sales process for the Arlington Park Racetrack land.
We will conduct racing and 2021 at the track while moving forward with the transaction to sell this highly desirable land for other non horse racing mixed use options.
It is our intention to work constructively with state and local authorities to find the solution to continue Thoroughbred operations, and Illinois, and we we look forward to further of constructive dialogue as we explore alternatives I'm optimistic that the state and local authorities are interested in finding a path forward with us.
And last we are working hard on the preparations for the 147th Kentucky Derby, which will be run on may 1st 2021.
We are currently planning to sell are seated areas and approximately 40 to 50 per cent capacity and may offer some amount of general admission tickets when we were a little closer to the day.
And we May adjuster ticketing plants as we see further improvement and the circumstances surrounding the pandemic.
We plan to deliver and exciting d'oeuvres of week experience for all of our guests and we hope to see some of you there.
We won't be all the way back this year, but we'll certainly expect to do much much better and all categories and 2020 and plan on delivering and amazing experienced that will blow our customers away.
And summary.
We were grateful to all of our leaders and team members business partners are guests and local communities, who helped us weather the challenges we face last year we.
We were pleased to restart the capital and growth projects that we had put on hold.
And we look forward to continued significant organic growth of Derby City gaming Oak Grove, and Newport, and Kentucky, and rivers Casino des Plaines, and Illinois. We also look forward to the immediate construction of perfectly park and the re imagining of our plans of Louisville around Churchill Downs racetrack.
I'm also excited about what we may accomplish and Illinois as we just discussed.
Online organic growth is our objective as well and <unk>.
All of our businesses. Our teams are determined to deliver longterm profitable growth along with the best possible total shareholder return for investors over the long term.
Our balance sheet is very strong and provides us the opportunity to make acquisitions, the fond of organic growth to pay dividends.
And to make strategic share repurchases, we've demonstrated and our ability to deliver on all of these fronts.
With the great portfolio of future growth opportunities some of which we discussed today and others that we're working on and we'll discuss when appropriate.
We have significant access to capital to support our initiatives.
And we emerge from the challenges of the pandemic 2021 of the transition year, but the one where you can see we are firmly on track with good things on the immediate horizon.
With that I'll turn the call over the Marsha and then we will take your questions Marsha. Thanks.
Thanks, now and good morning, everyone and this morning, I will share some thoughts on her of 2020 performance and can.
Clinton and some additional detail and fourth quarter, and then I will provide and update on a capital of management strategy and of 2021 plans.
And it's like a marriage my remarks of today I looked back and my quarterly earnings comments from last year.
And our first quarter earnings kind of last year I became my comments by stating that our leadership team has always had the commitment to maintaining of strong balance sheet with relatively low average in relation to others and the gaming industry and.
And the capital structure, I sympathise flexibility to support organic growth and enable our business to the nimble two different economic cycles of.
Are strong balance sheet relatively low the average and flexible capital structure proved to be a critical of fortress the naval that company to navigate the challenges that we're surrounded us and 2020.
And leadership teams click actions to reduce our cost structure cause they're of kind of it all and provide additional financial resources and.
In response to the unprecedented pandemic crisis and so.
Like at the resilience necessary to whether these difficult times and went to personally thank our leadership team and she and members for their commitment and dedication and the face of such incredible adversity.
Turning kind of financial results there were three significant factors the impact of tech out within 20.
First the closure of all and a brick and mortar of gaming and H I and properties and of course taken of operations for certain periods of time and the year as the result of the kind of of 19 pandemic.
We were impacted in the November and December timeframe and the results are the temporary closure of feverish the planes pets kind of iron and the mcallen as well as some additional restrictions and a few of our other properties.
All of our properties have an open and since the middle of January and we've seen some restrictions being lifted and our properties and.
And aggressively reduced expenses and was able to generate significant margin in prison and she over here when the top of these from the open.
For 2020, excluding quarterly results for properties of of clothes doing and quarter the margin for holding and kissing of properties without the 690 basis points.
Second we ran the hundred and 46, Kentucky Oaks and Derby without any spectators and the labor day weekend instead of the first weekend and Nate and it's still highlighted the team was still able to deliver double digit positive EBITDA.
For every week of protecting the longterm iconic value of this incredible asset.
And last are twins of ours business benefited from it and if he can't increase and the level of online wagering on horse racing.
And still discuss the closer of most brick and mortar of getting locations cause waiting on the horse racing to shift from these brick and mortar locations to online and second quarter.
And prior periods online waiting on the horse racing represented 35 to 40 per cent of all wagering on horse racing.
And the second quarter of 2020, we saw this increase the approximately 75 per cent.
And then it's very spending locations, we open and the third quarter, we saw online penetration of 64%.
The diversity of of my portfolio of businesses enabled us to still generate of a billion dollars of revenue and $286.5 million and that majestic EBITDA. Despite the unprecedented challenges that we face and 2020.
Regarding our fourth quarter results, the just the even a $79 million.
$5 million seven per cent compared to the priority of quarter and the results of the stronger and it's from her twin smart of course, they thank goodness and.
Okay, and the H M facility and from Derby City gaming.
The strong growth was partially offset the the impact of lower adjusted EBITDA kind of of gaming properties and the Churchill Downs racetrack due to the ongoing patria and capacity restrictions as well as the closure of three first misplaced in November and Prescott Island, NEVA, calling and mid December and the remainder of the year.
The gardener twin spires Horseracing business the fourth quarter of 2020 is the third year and of we grew handled I over $100 million compared to the power of your quarter.
The distance grew quarter over quarter handle $100 million and the second quarter $254 million, and the third quarter and $141 million and the fourth corner the.
It's the growth and handle of his translated directly and reliably and to record levels of adjusted EBITDA. So just isn't.
And last regarding fourthquarter, excluding our press kind of I'll, and Nemo call and properties and for clothes for a portion of of December.
Holy and casino margin increased 570 basis points compared to the power of your period, despite lower net revenue.
We remain disciplined regarding our competitive offerings and each property.
Turning the capital management, and 2020, we spent $23 million and maintenance capital primarily related to catalyze the labor related improvements to of Twins Myers, Horseracing technology platform and mandatory items and our gaming properties.
For 2021, we anticipate spending $50 million to $60 million I maintenance capital of wish about half is targeted for gaming properties, primarily driven by her to for all of spending and 2020.
We also and anticipate spending of the majority of the remainder and replacing the turf course, the Churchill Downs racetrack and and continued improvements to our twin spires horse racing technology platform.
Regarding project capital and 2020, we sent $211 million and price of capital and wish more than half what's the on the upgrade the facility.
The balance of the patch of capital of of spent on the map when the Steakhouse project and the quarantine barn, and Churchill Downs racetrack, the build out of the Newport racing and gaming facility. The grandstand demolition and site preparation of Turfway Park and he just non smoking patio of Derby City gaming.
The 2021, we anticipate spending $150 million to $160 million on price of capital of wish approximately half of his plan for the bill and out of the Turf My Park H M facility. The Bill discussed and the final completion of a few carry of of projects related to Oakland and Newport has lots of smaller cabinet.
The project Center gaming facilities.
The balance of the 2021 part of capital is the place holder for the potential capital expansion plans of Churchill Downs Racetrack. The Bill also mentioned we.
We will provide more detail on this project and the future when the revised plans and more fully developed.
And at the end of of December of 2020 wait net leverage of 5.5 times, the affecting reflecting primarily the lower level of 2020, adjusted EBITDA and the results of the pandemic.
We were compliant with both of them or all of our covenants for each quarter and 2020, even though we have a waiver and he's Kevin and instead of the reporting period for a second quarter of 2021.
And a few weeks ago, we repurchase 1 million chance of her stock for $193.9 million, who necessarily and that's just wanted that we funded with a revolving credit facility.
And we're also planning to pay $124 million related to the Keeter and the mcgavock of settlement near the end of March.
Therefore, we anticipate raising a combination of secured and I'll take care of that and the first half of this year, primarily to repay the outstanding balance on a revolving kind of facility.
This will provide the flexibility to use a revolving credit facility opportunistic growth of it the coming year.
We appreciate the support of a bank group and get holders you recognize are proven track record of discipline right and.
Their support enabled us to continue to invest strategic organic growth projects and to pay of 7% higher and no dividend to our shareholders and choose the cheesy glee repurchase of large block of our shares and early 2021.
We anticipate the Internet leverage would decrease of of the balance of 2021, and and 22022 is the business is returned to full throttle and we accelerate the credits from a new of properties over the coming years.
And closing, we are and a unique position of having many opportunities support our long term growth.
And the Bill mentioned 2021 is the transition year of our company and we anticipate the graduate lifting of the restrictions on our properties throughout the year as we begin to return to a more normal and magical Kentucky Derby.
And we look beyond 2021 outlook reflects the acceleration organic growth of service of the gaming Outgrows Newport as well as the expansion at rivers just plain.
We're also expecting to begin to see the benefits of growing our online later and segment through the extension of the sports setting and I gaming leveraging our twin spires brand and customer base on the state by state basis.
And we will also see additional growth and and adjusted EBITDA and the opening of Turfway Park, and additional expansion projects and Churchill Downs racetrack.
But then I'll turn the call back of of the Bill So that he can open the cough of questions Bill.
Thanks Marsha.
If any of you have any questions and I expect you do far away. We're we're here to take them.
Ladies and gentlemen, if you have a question at this time. Please press of the Star and then the number one P. R and a touchtone telephone and give you. A question has been answered are you sure and move yourself from the Kid. Please press the pankey.
Yeah. The first question comes from the line of Diane Pollock fur some J P. Morgan Your line is open.
And good morning, and everyone and thanks for taking my questions.
So first I was I was hoping we could touch on the HR and facilities and how do you think about the opportunity set within Kentucky, obviously, oh grow when when per unit there have been improving the past the amount that they can have the 220, new Ford is still kind of ramping and and very big cities and absolutely impressive and I think over 450 day January.
And so you know how do you think about the opportunity and the ramp across the facilities and and I guess, where do you see the most of the outside from here and to think about that.
First good morning, Dan.
So the products getting better and better and and that's one of the most exciting things about this opportunity the products getting better more manufacturers are interested and participating and that's giving us of more competitive.
The more competitive offering so I'm excited about that I think our team's excited about that and of course when you look at the taking of one at a time and.
And no sense was the Louisville market are Derby city gaming mature when the pandemic Kid. So we have the natural ramp up even and our facility that we've had the longest and it hasn't been that long, but it's still of our oldest facility and when you think about Oh Grove down on the Tennessee border, which.
And it's gonna pull out of the Tennessee market and particular Nashville, We're just getting started there and and we've started during a period, where there's been the pandemic and that's clearly the hindered hindered the the start path, but even without hindrance. It started so well for us so.
We have a couple of factors that.
R.
A really good the have one is we have and improving products and of pathway to to see improvements and the product we have a new product and also of our facilities are new and and no sense and.
Mature markets are are are mature facilities. So so we feel pretty good about those and and we have some of our best and brightest and the company focused on those properties to to drive them forward.
Great and do you think and how do you think about the margin opportunity of grow relative to Dirty city, given it it's a little bit more of a a full offering down and oh growth.
You hit it on the head and I think the margins will will will be nice at the very efficiently built facility and I think that's something we're good at when we get the opportunity to do Greenfields, we're very focused on efficiency and margins, but that one has a hotel and some other amenities and while those are good things to have and they drive a bigger business. They also can they can also lower your March.
And because of the business day drive doesn't have quite the same margin. So the margins on H R. M and Kentucky have been solid that's really been a testament to how we built and operated our facilities as opposed to any natural other advantage at play that that's a testament to our team.
And and they're careful they're the careful approach to to building and efficient property, but when you have a situation like we do and old grow where we want to drive people to visit us from from the and particularly the Nashville market. So we're asking on the <unk>.
I apologize about that.
One moment, while will be connect the backup speech of line.
[noise] have I per cent of the backup speak her line is now connected and the main room and you May proceed.
Thanks, and I'm, sorry, everybody. If we dropped you for a second but when I heard that the if I was just I was just wrapping up my comment on on the national market and the the desirability of of having more of amenity. So we can get people to get in their cars and drive a little bit further distance to visit us and they do and our other markets.
So I don't think you Miss anything.
And and then if you have any follow ups far away.
Yeah.
The holiday [laughter].
Yeah, No worries just one one more kind of switching gears and the sports betting and I gave me. The obviously evaluations of continued right. There's been a lot of of her bus growth I mean, I guess as we it as we should as we think about your footprint here you know it does seem like being the first mover does have some advantages and while you know certainly you.
You're being measured and your approach how do you kind of way the the pros and cons.
Being a little bit more conservative on the marketing side at this stage you know as you think about the longer term opportunity and you know with the goal of obviously that's being of material contributor to your to your business.
We we have to wait of those things very very carefully because obviously there are a lot of smart people out there.
The talk constantly and put their money, where the mouth is who believe that first mover advantage is the be all and all and and of must have so we have to respect the the views of those folks.
And I.
I think and our case of.
We don't want to play it that way we have we have a.
Ah Ah Ah balance sheet that we treasure that's been important to us that we think about all the time and.
And and so we don't want of compromise it and the universe, where the ultimate business model of play here in terms of margins and play of Reinvestments, sometimes there'll be determined over years of not quarters. So there's a lot of risk of being wrong. So we.
We check all of those inputs and said well what we need to do for our company is demonstrate a very quick pathway to profitability and don't share share and don't chase size.
Chase profitability. So everything we do and this company is built on on a short time frame and of conservative timeframe on when we think.
We can demonstrate profitability and that'll be our model designed to keep us and the game long term and and and we'll be more aggressive when we're more sure about.
About the returns and we can drive and if we're not sure about the returns and we can drive for our shareholders and we sit on the sidelines and and we wait until we all share and the risk of on that as you lose first mover advantages.
Not everybody out there can follow the same strategy and and first of all of the advantages not the strategy that.
That can be and advantage for us all.
So now that we have our technology platform I don't think we're disadvantage in terms of our offerings, but we're just not gonna chase of.
Later acquisition costs way, others are and and we'll see how it sorts out over time.
Got it understood I appreciate all of the thoughtfulness and and the color of their thanks.
Thanks, Thanks to.
Your next question comes from the line of feedback from the back of America. Your line is open.
Thanks, guys and good morning, congrats on the great quarter.
Just wanted to touch quickly on some of the trend you're seeing so far and 20th 21 across both of the reach all day and a portfolio and the adra and facilities and Kentucky just out of those are going compared to maybe third quarter and we saw some of the some of the better demand and 2020 and any expectations for returns and especially around.
The older demographic and your database.
Welcome to the end and good morning.
So the pandemic really obviously still really effects American commerce, and and it affects everybody, including the older demographic in terms of their willingness to take trips. So I think of real driver for all of our properties, whether they be mature properties. Our newly opened properties is going to be when are people vaccinated and comfortable.
And otherwise willing to return to their no normal patterns.
Of behavior, and I think that's something that that will see develop over 2021, and that's that's why I use of the year that this is the transition your yeah.
We can't go for the throttle and won't go full throttle at all our properties because we're still we're still on the bridge time period, where things are getting better and appears with respect to the to the.
The pandemic, but we're not out of it and it is something that affected all avenues of American commerce, including a brick and mortar facilities and.
And that's the big driver, but.
And I think that's the most important driver and it's all important of it sort of overwhelms the other thing.
But I guess, if I had to do another one I'd say.
Put in the last few weeks of and whether impacted.
And and it's a lot of noise going on and this is not trained thirdquarter fourth quarter and the first quarter.
The third quarter, obviously very day, there's price and pent up demand coming out of the second quarter of any of shut down.
Fourth quarter of fell off a little bit and that's really driven by.
Constraints for non casinos by certain states January and that can be very strong the cat and then February and we had.
And two other things so in terms of the people coming back and it's very gradual I think we're at the beginning of the vaccination really still at the beginning of the vaccinations.
Process and I think that will continue to to drop people.
Back to the site as as of late.
[noise], Thanks, guys I Super helpful. And then switching gears, a little bit to the online opportunity and.
And I would just be great to hear the twin spires side of things some of the player of activity and behavior of you're seeing and the quarter and.
What you think that me and in terms of durability of that demands and this opportunity and then as well when we think about Michigan be curious if you guys saw any uplift from the twin spires database with the rebranding of of the App compared to some of your markets, where you're still Bad America and.
And your plans as your role of the twin spires brand into new market. Just if we can expect to see you kind of of a.
Essentially three.
The launch for lack of of better terms in terms of marketing and customer acquisition under this new brand or if it's more of a kind of a subtle stealth the rollout.
Okay, and there's a lot of questions actually may try and take them.
Kind of one of the time.
And say first of all and the value of the knee and cohorts that are coming into transpires the value of those cohorts are higher than what we traditionally C.
And I think some of that is true and by the fact that and other sent home and working from home and.
No there is a take six.
And they Wanna play during the day of the of they're able to do that and much more easily so the value of those chords are generally higher they're somewhat younger but we're also seeing a lot of of your room.
Coming in there as well so in terms of continuing and I think what people sign up for an account and have taxes and that accounts.
Continue to play, but I do think that there are certain people that when they are and the racetrack and I'll put mine.
Through the window and so I think we'll keep a good chunk of the th.
Huge chunk of think of the folks that have decided to go online, but I think some of that will.
Small portion of that will go back and the windows.
And when you know.
When price tracts reopen and our lives.
And there.
In terms of the Michigan. Yeah. This is the first time, we've lost and the jurisdiction where we have.
Want to enact of transpires database.
Along with an App that works of mobile platform and the worse and onsite offering.
And the upper Peninsula in Michigan.
But.
And the new technology platform and.
And what I can say is our conversion rates under our new platform are much higher and.
And the retention of stickiness of the keeping of those players and much higher and the value of the player is much higher so we've been very happy with that and I think that gives us a lot more confidence around what the long term value of these players will day versus what we'd seen the for our casino offering on the new technology stack is vastly improved and where you are.
And New Jersey.
And Indiana and.
And currently operating certainly haven't and.
Keeps those conversion rates assess day.
And is higher.
In terms of cross selling yes, we've.
Converted a number of players and actually are exceeded our expectations of transpires customers and Michigan.
Very happy and excited about that.
So far we're very proud of as I mentioned, and we can see of at profitability.
CPA seemed to be very reasonable and.
So far exceeded our expectations.
[noise], great I really appreciate it.
[noise]. Your next question comes from the line of <unk> Princess Diana the online is open.
Good morning, everyone. Thanks for taking the call.
I wanted to ask about.
The cancelled races, you know and and 2020.
I guess roughly about 25 per cent of the races, I guess, we're cancelled or.
That was spelled I guess, seven and a half thousand and what is you know.
If you can help educate me on the right way to think about how some of those races kind of repopulate and.
Above and beyond just sort of the normal kind of of.
Vaccination rate sort of you know the sequence or expectation like how do you think about maybe one of a chunk of those could reoccur this year.
Just wondering about that sure so I.
I think generally.
You'll see and 2021 return to.
The racing calendars that you saw and 2019 and the years prior to that 2020, a lot of races, where losses you just described.
Because.
Many jurisdictions, including Kentucky weren't allowed to conduct racing for a portion of the year because of the pandemic.
Now when that happens.
Some of the demand for wait around the horse racing just shifts to the racing that is available so.
So you have a couple of different factors going on and some as the.
One of those factors of people want of.
One of the wage or online and they fight of races that are there some of those races, perhaps about the same quality of races of the rest of their typical of typically about all of them, but they're still as content. So some of the demand shifts to whatever product is available and then some of the demand goes away because people can't find what they were actually looking for so.
And we've taken the economist of really.
Unpack those factors to understand exactly how much of one factor versus another we saw until the 2020 and what we'll see and 2021, but certainly it is not helpful to handle and not helpful to the game when we lost the extent of and the quality of races that we lost and the second quarter of next year. So it's good to have him back and I think that's the tailwind.
In general for our business and 2021.
I see and I see and.
I wanted to ask maybe well I could take the sofa and this might be a little specific but like you know and.
Given the extent of given the growth and online and particular.
Does that drive purses.
I know of such that you know the demand.
Can be created for additional races or is it just primarily just a function of like you said of a <unk> and jurisdiction.
That prohibited racing given COVID-19.
And I'll answer that at a pretty high level of because because it's it's a bit of of a complicated topic, but.
Yep.
More wagering out of practice and indication of of of interest and a particular race and the more waiter and you have great additional interest and the race because of the pools are bigger and the opportunities, particularly around the exotic exotic wagering.
Are better, but I think the next is sort of the connection between the size of the purses and.
And the wage range really has been fundamentally altered and many jurisdictions across the country and because of alternative.
Funding mechanism basically.
Casino gaming has impact of a lot of the purses. So.
So.
And the.
The two.
Theoretically true, but there's so much going on that.
And that's.
I really would.
And.
The.
Disconnect.
Disconnect and for purposes of this conversation that the the nexus between.
Wagering and purses.
What is.
Sort of wagering.
Slightly different twist I'm, taking taking of towards and this when you see and.
Wagering.
More interest in the way of drawing product because it creates more opportunity for sophisticated bettors and others to come in and find opportunity for value. So that's a more important.
And then I think the.
Queen majoring and the size of the first.
Understood that makes sense.
And then maybe two specific questions Bill you you had talked about.
Possible expansion of of Derby City gaming with that were you referencing maybe the satellite facility that I think you have flexibility to create maybe something like Newport or would that be.
Uhm on the existing sort of of the building.
Really really.
There is a possibility for a satellite facility, but as.
The bill amount of and I have talked recently over the last couple of weeks.
30 sort of gaming is just kind of this juggernaut and and we have to make sure that we maximize that and make it everything that it can be so watching it's performance over the last year and really fast.
Early stunning and we want to make sure that.
The that properties everything in and of itself that it's supposed to be.
Well, we we rush forward with an idea of what else, we should do and the.
The race track.
And that's even before we get to the idea of of the satellite which is clearly.
<unk> opportunities and Kentucky attached to each of our licenses.
I see.
One last question and just kind of thinking about of your your digital business you talked about sort of the launch sequence of jazz you know.
And the first half.
And you're looking at your portfolio, you you're likely to have a skin and Maryland. When you know, let's say the issue the rigs and so far so I guess theoretically you could launch and Maryland at some point later this year are there any other.
Say market access agreements that you'd be interested in to get yourself in the states that you don't have the skin and whether it be gaming whether it be OSB.
We we generally have followed the policy of not publicly disclosing our market access deals.
And until they're ripe.
So so we have a fairly robust.
You know operation to to explore and obtain the market access deals where we don't have direct access. The state you just mentioned, Maryland, we actually have a facility. There we have our ocean downs facilities. So that's not one where we need market access through a third party, but and states like Michigan.
We're we're loss of where we were talking about a few moments ago. That's an example of of where we obtained market access through a third party and and we work on that too. It's just we follow the policy of not of not disclosing each and every one of those until until they're ripe for of disclosure.
Okay.
Thank you very much okay. Thank you.
And the last question comes from the line of David Cats from Jaffray's. The on line is open.
Hi, good morning, everyone and thanks for work and me and.
I wanted to if if I may just go back a little farther on the digital strategy.
Taking and you know all of your commentary.
Commentary as well as some of your answers I I'd I'd love to just have a clear definition of how you.
Looking at success and this and you know is that should we ultimately expect that you will sort of be and most states that are meaningful one way or another is it something that we should be thinking about.
You know actual profits this year right of presuming there is some some investment moderate of investment inquired and entering new States is next year. The the the year of where we start to see some meaningful EBITDA.
You know if you could just paint us a little broader picture not asking for guidance of course and I appreciate it.
David Good to talk to you there's a lot of unpack there so I'm gonna make [laughter].
Abroad comments, and then I'm going to the Bill is going to talk about some of the specifics because there are a number of specifics that you took us towards there. So first our metrics around this business are totally profitability driven but we we.
And we.
That's how our company's value that's how we are driven and that's how our company has been built and that's the best way for us to look at the space. So the overarching commentary is profitability of the only thing we're interested in and pathway to profitability is the only thing that matters. When we talk about this opportunity.
As we day down through that you had a bunch of topics Bill please.
So David I think and a lot of the topics you here.
It was relative to when do we become profitable and I think that's.
And that's a really really tough.
The question to answer and for number one.
We really we've been out of all even operating and Indiana, Pennsylvania.
And we haven't been operating under of technology stacked at.
And allows us to retain customers and and to convert customers as they come out of a war actually I shall send it back and our customers So and we got a class and one.
And and they actually fund.
Of their accounts that's the <unk>.
Right under our new technologies conversion range of are much higher much much higher and we used to ask we're excited about that and and retain those customers. So if we don't have an app and places like Indiana, and Pennsylvania, It's hard to keep those customers on your platform and the only place thing and layers underneath the same.
So those factors play.
A very very large role and.
The long term value of the customer.
So we've got a lot of experience with twins fires and and even our days and Nick fish.
The bill in the South and our team of.
Understanding.
And then the value.
And the long term value of the customer reverse of the cost of of fire the customer so as long as we can continue to acquire customers.
And we know the value of the long term value of that customer and exceeds what we're paying the amount of the hospital, we're going to continue to spend marketing dollars.
And and the Martin and dollars, obviously come in the form of the.
Branding witches.
Which account would call Bob the lines of people knowing that what the transparent brand is that's big recently converted from that Americans transpires transpires has a lot of the extra value and and lowers our user acquisition costs out of that.
Cost per click acquisition.
So in terms of when you become profitable will continue to spend marketing dollars and.
Nice like Michigan, and Colorado, and Tennessee, and New Jersey, Pennsylvania, and and as long as we feel that that long term value of the exchange of the cost of the fire.
And Ah comfortably and the cost of the fire those customers and with the new technologies that we're seeing much better ltvs.
And the mobile confidence in overtime.
And so far the the CPA and Michigan and using the twin spires Brad.
Lower because there's a brand equity their service so.
Short answer is where.
And we're going to we're going to continue the.
Chip away and and deliver great product and.
And that customers and as long as that Tpa remains of low.
And and the timing of steaks, obviously.
And we talked about Tennessee, jurors, Pennsylvania, Indiana, Colorado.
We also have Maryland.
And I believe Joe mentioned, and we also have the Louisiana witches and the middle of.
Right and they're legislation and there's lots of.
The activity and the space and.
The state of the month before.
Or upfront expenses are only so.
Give you understand and and answer on the Rob the Bill.
Yes.
Alright should we expect you to to you know at least endeavored to get into the larger states the team to be moving somewhere and New York, Texas.
And are those on the board.
And it's a reasonable cost of get into the gas Bill do you want to add to that that's good.
[laughter].
Okay. Thank you very much.
Thanks, David.
I am showing no for any of the questions at this time out and I would like to turn the conference back to Mister Bill can I stand and thank you.
And I apologize about that we just had another question from Mister bread and drink. Some keybanc. Your line is open.
Alright, thanks for squeezing the into just the bill hoping you can give.
And give us some more insight.
And how you are thinking about re imagining.
The Churchill Downs racetrack expansion, so is that something where you're going to allocate more dollars to H R. M maybe less the accommodation.
And the any of these things like that if you could just help us with the factors.
And that you're paying the most of attention to the.
First of all thanks for joining us on the call and and happy to squeeze you in and of course.
And so there's not a lot more of that we can say.
And today's call.
Because we're not ready to say it but some of the factors we're looking at.
Really.
Go to the robustness of the HR and products and we're best of deploy.
Here in Louisville.
Of.
What the best hospitality.
Offering is at the race track itself, how to think about the hotel with some of the disruption that we've seen and in the hotel industry across the United States and the last 12 months. Those are all things were looking at and we have a really good.
Handle around those things, we're just not ready right now on this call to get into them, but but we really we break up the project really into those three dimensions, but there really is the fourth dimension of of which which has been the the strong performance of the Derby sort of gaming. So we're still figuring out how those for pieces fit together and.
And and I.
I'm confident by our next earnings call will well.
And we will be much of.
More definitive and our plans for Ya.
Alright, I appreciate the color. Thank you.
Alright and.
Oh, and you're afraid of questions at this time, Sir I came back to you and Mister Bill kind of standing.
Thanks, Thanks, everyone and it was always we appreciate your interest and our company and your support and we'll try to make sure we always do the right thing.
I feel great about the company and I'm very excited and.
Very pumped up about the upcoming Derby.
Things are getting better out there and I and I I'm excited for our team as they finalize their plans for that event.
It'll be much much stronger than it was last year as we as we go through this transition back to normality, which isn't quite there, yet and 2021, but but hopefully on the horizon. So thanks very much for your support.
Talk to the next time and be.
<unk>. Thank you.
Ladies and gentlemen of this concludes today's conference. Thank you for your participation have and have a wonderful day. He may I'll disconnect.
[music].