Q1 2021 Churchill Downs Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the Chelsea on sounds incorporate at 'twenty 'twenty, One first 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 is being recorded.
I would now like to introduce your host for today's conference. It's a Nick Zangari, Vice President Treasury and Investor Relations.
Thank you Olivia good morning, and welcome to our first quarter 2021 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2021 first quarter business results were released yesterday afternoon, a copy of this release announcing results and other financial and statistical information.
<unk> about the period to be presented in this conference call, including information required by regulation G is available at the section of the company's website titled News located at Churchill Downs incorporated Dot com as well as in the website's 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 SEC specifically the most recent report on form 10-Q and form 10-K.
Any forward looking statements that we make are based on assumptions as of today and we undertake no obligation to update these statements as 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.
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 car standard.
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.
I will comment on our first quarter performance, our capital investment plans in the upcoming Kentucky Derby.
After my comments Marcia will make her remarks, and then we will open the call for questions.
As most of you have seen.
We issued an 8-K earlier this week and which we announced changes to our segments for external financial reporting purposes to reflect the evolution and growth of our company and to provide further clarity for investors to better understand our operating performance.
Our continued growth and evolving plans with respect to historical racing machine developments warrant these changes.
Turning our attention to the first quarter.
We've completed our preparations for the 2021, Kentucky Derby, which we will conduct with fans in attendance along with appropriate health and safety protocols.
I will provide more specifics on these plans in a few minutes.
We worked with industry participants and our government representatives across Kentucky to passed new legislation clarifying the legality of historical racing machines on the Commonwealth paving the way for the further development and growth of our current venues and the green light to move forward on potential additional projects.
We repurchased 1 million shares of our stock.
We placed $500 million of debt at very attractive terms, and we delivered double digit revenue and doubled our adjusted EBITDA in the first quarter compared to the prior year.
In light of the COVID-19 impact that began in March of last year. We also compared our performance on the first quarter of this year to the same period in 2019.
Our businesses also delivered double digit revenue growth and double digit adjusted EBITDA growth for the first quarter 2021 compared to the first quarter of 2019.
Our net revenues for the quarter were up 28% compared to the same period in 2020 and up 22% compared to the same periods in 2019.
Adjusted EBITDA was double the same period from last year and nearly 50% higher on the same period in 2019.
The key for us to delivering these results center around our continued long term strategic focus on growth. Despite the short term disruption on the pandemic.
The careful planning around our balance sheet and access to capital.
Quality and focus of our operational leadership teams.
More specifically over the last number of quarters through the first quarter, we sought to protect the long term value of our iconic assets at Kentucky Derby, which remains the longest running annual sporting event in the history of the United States We.
We plan to aggressively but responsibly for the long, Kentucky Derby and will accelerate towards a 2022 event with what we expect will be significantly fewer if any COVID-19 related restrictions.
We will also further invest growth capital on our facility, which I will discuss a bit later.
We sought to position our core assets, our regional gaming properties for high margin growth coming out of the pandemic by trimming operational expenses and then adding back cost only when the analytics showed it is accretive to do so.
We start to capture significant profitable growth from the accelerated channel migration with our market, leading twin spires horse racing business.
And then retain those customers online as brick and mortar restrictions were eased.
We continue to make organic investments in new high growth historical racing and gaming Entertainment properties.
We demonstrated our stability and commitment to our investors by increasing our dividend by 7%.
We repurchased a significant block of shares at a discounted price creating value for our long term shareholders.
We launched our auction process to sell the Arlington Park land. So that we can more effectively deploy this currently locked up capital into high growth projects.
And finally, we re imagined our capital investment plans, resulting in a new portfolio of organic growth opportunities that will provide profitable growth for the foreseeable future.
In short we didn't want to lose our long term focus because of short term challenges but.
But we also believe we could sell on the short term despite the pandemic.
We believe our results demonstrate real strength and strategy and execution.
Lets focus for a moment on our regional gaming properties.
Our regional gaming properties delivered record adjusted EBITDA on the first quarter, which was more than half of the adjusted EBITDA growth on the first quarter for the company compared to the prior year and compared to the first quarter of 2019.
All of our regional gaming properties are now open.
Rivers was actually closed most of the month of January and both Presque-isle and NEMA colon were shut down the first week or so of January.
Regulatory related Covid restrictions have been meaningfully reduced on all of our locations over the course of the first quarter, although various levels of restrictions still exists for all of our properties and we will continue to benefit as these restrictions are lifted.
The performance of our properties will still while still under serious although steadily declining restrictions over the quarter.
Excuse me, while still under serious although steadily declining <unk>.
Restrictions over the quarter was an important component of our company's overall strong performance on our source of optimism as we look forward.
Our equity investments in River Casino and rivers Casino and Miami Valley gaming performed quite well in the quarter compared to the prior period, even despite rivers closure during most of January reflecting the quality of these teams and their exceptional locations in large markets.
As we discussed last quarter reverses investing $87 million to expand the facility, which will be funded from debt at the rivers entity level.
The expansion will accommodate approximately 725 gaming positions based on a combination of new slot games on table games, resulting in the facility utilizing its full 2000 positions permitted under current law.
The target completion of spring of 2022.
Rivers will also pay $24 million on licensing fees for the incremental gaming positions and $10 million towards sports wagering license by the end of the second quarter. This.
This project is an exciting one for us and we believe a very efficient deployment of growth capital.
Our wholly owned properties also performed well overall, despite COVID-19 related regulatory restrictions that severely impacted some of our properties Marcia will provide more color on a few minutes.
The second area of adjusted EBITDA growth on the first quarter came from our twin spires horse racing business.
Accelerated channel migration throughout the COVID-19 prices shifted wagering on horse racing to the online channel from brick and mortar facilities.
Trend remains a surprisingly strong one.
Our horse racing business grew handled by 34% over the first quarter of 2020 compared to a 10% increase in wagering on U S. Thoroughbred races in the first quarter of 2021.
Recall that some of our racing was canceled last year on the first quarter, which subsequently returned to the racing calendar this year.
We continue to make careful strategic investments in building, our twin spires sports and casino business, we launched our new Gan and can be platform for sports betting and casino wagering in Michigan and for sports betting in Tennessee.
Our focus is on establishing that our technologies will perform as we scale and then testing our marketing and acquisition strategies to see if they can be deployed efficiently at scale.
Our new technology platform has performed performed very well to date.
We transitioned, Pennsylvania, and Indiana to the new Gan and can be platform earlier this week.
Spectra launch of mobile product and Colorado by the end of the week of this week.
And to transition New Jersey later in the second quarter.
Note that our new segment reporting incorporates our retail sports betting results within our twin spires segments to more accurately show our sports betting activities.
There are other states that have recently approved new sports betting legislation, including Maryland, where we have a brick and mortar casino. There are additional states that have either passed legislation or are considering new legislation.
That may be an opportunity for long term growth on sports betting and online casino wagering.
While we appreciate these new possibilities, we remain cautiously optimistic given the long timeframe that exists between legislation.
When legislation is approved and when the business can become operational.
As well as the ongoing industry wide cash losses that are accumulating on all of these states that have already implemented sports betting, which has generally been driven by excess of free play marketing and brand spend focused on revenue growth as opposed to profitability.
We remain committed to and disciplined in growing profitable businesses that create long term shareholder value. This was our strategy in building our profitable online horseracing business and it remains our strategy and building our sports betting and online casino wagering business.
We identify clear path to a reasonable return on marketing spend long term profitability and margin sustainability, we will invest appropriately.
We believe our in our investor patients our investors' patience will be rewarded in time in this space.
Our commitment to being disciplined on growing profitable businesses as reflected in our investment and historical racing and gaming Entertainment properties.
As a reminder, it has only been a little over three years since our team announced our partnership with Ainsworth to develop new state of the art HRS.
In September 2018, our team opened our first HR and facility Derby City gaming in Louisville, which we built for $65 million.
The success of Derby City reflects our ability to develop new products from industry partnerships invest capital prudently and build customer demand for our unique entertainment venue.
The expansion of HRS game titles to include the best themes offered by scientific games, and IGT has significantly enhanced our customer entertainment experience.
Equally important Derby city has generated significant purse money for Churchill Downs racetrack to support the horse racing industry.
The increase in purse money has attracted more and better quality horses to our Premier Churchill Downs Racetrack and help strengthen the foundation of the entire horse industry in Kentucky.
Despite the challenges of the global pandemic. We also completed the construction of our Oak Grove, HR and facility and hotel and <unk> growth, Kentucky that opened in September 2020, and our Turquoise Park HRS Annex Newport racing and gaming that opened in October 2020.
These three facilities provided a combined $16 million of growth in adjusted EBITDA on the first quarter of 2021 compared to the prior year on.
Obviously, none of these venues have approach maturity and they offer as high growth opportunities that we plan to continue to invest and to grow over the long term.
We are making good progress on building our Turfway Park racing in HRS Entertainment venue, we held a groundbreaking ceremony in March which was celebrated with the governor of Kentucky Other state and local politicians and members of the Kentucky Horse Racing Commission. We are on track to open a facility in the summer of 2022.
Before discussing our preparation for the 147th Kentucky Derby I will update you on our capital investment plans related to Churchill Downs Racetrack and Derby City gaming.
As I mentioned on our last earnings call, while the projects at Churchill Downs Racetrack pause during the pandemic, we use the time to reevaluate a number of evolving factors, including.
Consumer travel trends, especially hotel occupancy on room rates in our region.
Alternative capital investment opportunities at Churchill Downs racetrack that would create new experiences for our customers, including new or enhanced reserve seats.
That would generate more immediate at higher returns with less risk.
And how to optimize the distribution of HR and facilities in the Louisville market in light of the continued significant growth of Derby City gaming and the potential for an annex permissible under Kentucky law within 60 miles of Churchill Downs Racetrack, which includes downtown Louisville.
Just on this analysis, we have decided to not build a hotel on the first turn of Churchill Downs Racetrack at this time, we may decide to build a hotel at the race track in the future, but now is not the right time.
We think we have excellent alternative projects that offer better returns on our capital over shorter periods, both at the racetrack and at Derby City gaming.
As a result of this decision we have developed a multiyear phased set of projects that we believe will create significantly improved experiences for our guests at the Derby and will generate consistent adjusted EBITDA growth in the coming years for this iconic asset.
We are developing the final designs completing the due diligence and obtaining.
Firm construction estimates for these projects.
We anticipate that the first capital investments would be completed by next year is 148 <unk> in 2022, the second project by the 149 <unk> in 2023.
And third and most transformative project by the $150 <unk> and 2024.
While we haven't gotten from construction estimates yet we know these projects are economically viable we will provide a complete summary of the 100 of the 148 Derby project at our next earnings call as well as provide more information on the project to be completed by Derby $1 49 in 2023.
We will also share some of our plans for additional amenities for Derby $1 50. Please stay tuned we are excited about what is to come at Churchill Downs racetrack over the next three years, but we're not ready to share our detailed plans today.
We are also evaluating options to expand Derby city gaming.
We continue to be very pleased with the growth of this entertainment venue and believes that an expansion with additional floor capacity on other amenities will enhance the long term growth from this asset.
We are on the design phase and obtaining construction estimates we expect to share these plans at or before the next earnings call.
Additionally, we are evaluating an opportunity to build the Churchill Downs <unk>.
Derby City gaming is demonstrating the strength of our HR and product on the Louisville market and we believe the market will support a satellite facility that does not materially Cannibalized Derby City gaming.
We are excited and confident about all of these projects and view them as likely to deliver strong returns with only modest risks.
This is another irony of the pandemic, we stopped our Louisville projects in light of the uncertainty, but we have learned so much with the passage of the subsequent time and we will emerge with projects that we will monetize better and quicker.
Now I will share some thoughts on the 147th Kentucky Derby that is just a little over a week away.
Our team has worked hard and preparing to welcome spectators back to Churchill Downs from an Amazing Derby week. For example, we partnered with Norton healthcare to offer COVID-19, vaccinations at our racetrack for the community around the facility the backside workers and our team members.
There is growing excitement amongst our team members our community and our fans with respect to this year's Kentucky Derby, everyone wants to get back towards normal and our iconic events is an important step on that road for our state and region.
Derby week, we'll begin with opening night Saturday evening celebrating Louisville is vibrant arts community with a variety of musicians dancers live performances visual artist and of course horse racing.
On Tuesday April 27th we will celebrate champions for change with a special day of racing commemorating black horseman and Thoroughbred racing.
And as a public commitment to increasing diversity and inclusivity and the sport of horse racing.
On that note, we're excited to launch today, the Derby equity and community initiatives, along with our partners at Humana and the Kentucky Derby Festival.
The initiative is our combined efforts to incorporate more inclusive events into the Derby season, with the intention of better ensuring a sense of belonging with respect to Louisville communities that have historically encountered a lack of access to opportunities.
The 147th Kentucky Derby will be held on May one the first Saturday in May.
We expect to have sold 40% to 60% of the reserve seating and each seating area, depending on our ability in each area to comply with the Kentucky venue limitations.
Guests will be asked to wear masks when they are not eating or drinking. In addition, we will have extra resources dedicated to cleaning and sanitizing high touch services throughout the week.
All of our reserve seats have been sold as all inclusive to improve our guest experience and to minimize the need for cash handling.
We are also selling a limited number of infield only tickets at the traditional pricing levels to provide a more affordable option to attend as well.
NBC Sports network will provide coverage of the Kentucky Oaks race from 12% to six PM on Friday April 30th.
NBC Sports network and NBC proper will provide coverage of the Kentucky Derby from 12 to 730 P. M on Saturday May one.
We've worked tirelessly to make this year's event very special for our guests and we look forward to welcoming them back to our historical our historic facility, it's going to be a great and very welcome experience for everybody.
With that I will turn the call over to Marcia on when she is finished we will open the call for questions Marshall.
Bill and good morning, everyone.
Bill mentioned I will provide some thoughts on our new segment reporting and our first quarter financial results. Then I will provide an update on our capital management plans.
We filed a form 8-K Tuesday afternoon in which we made two changes to our operating segments for the first quarter 2021 and going forward.
First change we made was to rename our Churchill Downs segment true.
Live on historical racing operating segment this.
This segment represents race tracks with library thing and historical racing Entertainment venues. This operating segment will now include our Churchill Downs Racetrack and casino room facility Derby City gaming.
Oh growth racing gaming and hotel venue, which opened in September 2020 are.
Our AAA Park racing gaming venue, where we are currently building the new HR on facility that Bill discussed and our Newport racing and gaming venue, which opened in October 2020, and as an annex Turfway Park.
The financial results from <unk> Turfway Park, and Newport were previously included in all other.
The second change we made was to rename our online wagering segment as the <unk> segment.
Consistent with our branding from horse racing and for sports and online Casino wagering.
Also now, including our retail sports betting results from our wholly owned casinos in our sports and casino business within the twin spires segment.
Our retail sports betting results at our wholly owned casinos were previously included in our gaming segment.
This change provides a clearer view of the total profitability of our sports and online casino business.
So turning to our financial results.
We're very pleased with our first quarter financial results.
Our first quarter.
<unk> are a direct reflection of our team's relentless fortitude during the 2020 pandemic to position our company for significant organic growth coming out of the pandemic.
Our three business segments combined delivered double digit revenue growth and doubled our adjusted EBITDA in first quarter compared to the prior year quarter.
As Bill shared we also had double digit revenue growth and double digit adjusted EBITDA growth for the first quarter compared to the first quarter of 2019.
Our live and historical racing segment generated $65 million of net revenue in the first quarter, which was more than double the prior year quarter and generated $18 million of adjusted EBITDA compared to $1 million in the prior year quarter.
Churchill Downs racetrack is relatively quiet in the first quarter of each year with no live racing days and therefore, the nearly $36 million of growth net revenue and the $17 million from growth and adjusted EBITDA for the quarter was from the opening of our Oak Grove, and Newport properties and continued strong growth from <unk>.
Derby City gaming.
We are very pleased with the performance of our outgrowth in Newport properties. Since they are opening in late 2020.
Derby City gaming performance continues to exceed our expectations.
Property benefited from the completion of a second outdoor gaming patio, which added 225 <unk> in September 2020, and increased operating efficiencies.
Primary competitor also closed for a few days during the quarter due to flooding, which helped to bring additional traffic to Derby City gaming.
The twin Star segment generated $100 million of net revenue of $31 million from the prior year quarter and generated $22 $5 million with adjusted EBITDA of $6 $5 million from the prior year quarter on.
Twin Spires force chasing business was $26 million of net revenue increase and generated an incremental $9 9 million of adjusted EBITDA compared to the prior year quarter.
Our fourth tracing business benefited from a 34% increase in handle compared to the prior year quarter, which in part reflects the impact of the continued shift from brick and mortar wagering online wagering.
Our sports and online casino net revenues increased nearly $5 million during the first quarter.
Operating loss in this business increased $3 $4 million from the prior year quarter as a result of the increased marketing and promotional activities related to our launch in Michigan and Tennessee.
And last our gaming segments net revenue from only our wholly owned casinos increased $6 $6 million or 4% from the prior year quarter on.
Gaming segments, adjusted EBITDA, which includes our wholly owned wholly.
Wholly owned casinos and equity investments in reverse and MVP increased $34 $5 million or 72%.
Regarding our wholly owned casinos, it's important to note that debt.
Very closure of a brick and mortar properties beginning in mid March of last year due to COVID-19 did impact our prior year quarter comparison.
In January 2021, Presque-isle, IL and need Mcallen were closed for a brief period of time.
All of the gaming properties operating under state and local restrictions due to COVID-19. During the first quarter, we have seen a reduction in the restrictions on almost all of our properties. However, there are certain restrictions in place that are still there that limit our full operating potential for gaming properties.
The margin for our wholly owned gaming properties, excluding price kind of IL <unk> Cohen increased 15 points compared to the first quarter of 2020.
The margin improvement on the same basis for first quarter 2021, compared to the first quarter 2019 with over seven points.
Regarding our equity investments and rivers Casino des Plaines and MTG. Both properties are open and also continue to operate under certain state and local restrictions.
As Jill mentioned reverse was closed for a few weeks in early January of this year.
These two properties generated $10 million of incremental adjusted EBITDA in the first quarter compared to the prior year quarter and also distributed a combined $22 million of cash to Churchill and the first quarter.
Turning to capital management in the first quarter of 2021, we spent $5 million on maintenance capital compared to.
They were primarily related to capitalized.
Improvements to our twin spires, Horseracing technology platform and mandatory items at our gaming properties and Churchill Downs racetrack.
For full year 2021, we continue to anticipate spending $50 million to $60 million.
Net capital of which about half is targeted on our gaming properties, primarily driven by our deferral of spending in 2021.
We also anticipate spending the majority of the remainder on replacing the turf course, nutritional downs racetrack and on continued improvements to our twin spires Horseracing technology platform.
Regarding project capital for the first quarter of 2021, we spent $8 million on project capital, which more than half was spent on the oak Grove facility. The balance of the parts of capital spent at Churchill Downs Racetrack and site preparation at Turfway Park.
For full year 2021, we continue to anticipate spending $150 million to $160 million on price of capital of which approximately half is planned to the build out of the Turfway Park facility.
Facility and the final completion of a few carryover projects related to Oak Grove, and Newport as well as some smaller capital projects at our gaming facilities.
Balance of the 2021 price of capital for the capital expansion plans at Churchill Downs Racetrack that Bill discussed.
Now regarding our debt and leverage positions on February one, we repurchased 1 million shares of our stock from an affiliate of the desk just one group we repurchase the shares for $193 94 per share.
Aggregate purchase price of $193 $9 million, we funded the repurchase with our revolver.
We believe that repurchasing large blocks of our shares at attractive prices.
This will turn on long term shareholders and will be accretive to our EPS.
In March we issued 303, a new $300 million term loan b and $2 million of senior unsecured notes at very attractive pricing, which we used to pay off our revolver and fund the settlement payments for the big fish related legal cases on March 21st.
We have approximately $148 million of excess cash on our balance sheet debt.
We'll use for project capital and other corporate needs.
At the end of March 2021, we had net leverage of five three times, reflecting our increase in debt and the lower level of 2020 adjusted EBITDA as a result of the pandemic.
We were compliant with both of our revolver covenants at the end of the first quarter, even though we have a waiver of these covenants through the second quarter 2021 reporting period.
We anticipate that our net leverage will decrease in second quarter and over the balance of the year and into 2022 as we benefit from the programming of the Derby on its traditional day first Saturday of May.
The continued listing of state and local restrictions on our gaming and these are on properties and as we accelerate the growth from our newer atrium properties.
I like Bill I'm excited for the 147% running of the Kentucky Oaks and Derby next week.
It is truly the most special and magical Sporting entertainment event in the world.
With that I'll turn the call back over to Bill So that he can open the call for questions Bill.
Thanks Marcia.
Okay, everybody, we're ready to take your questions. If you have any for us.
Ladies and gentlemen to ask a question you will need to press. The Star then the one key on your touched on telephones to becoming a question press. The pound key please standby will be compounded Kenny roster.
Now first question coming from the line of Brett Andress with Keybanc capital. Your line is now open.
Hey, good morning, Thanks for taking my questions.
Starting off on on the Derby, obviously going to be a unique year again.
Maybe normally we would debate some of the finer details like whether field size things like that but just how much revenue visibility around the event.
Do you have this year, maybe compared to a normal year.
And then the second part of that question is industry handle obviously continues to be strong.
Personal wagering is going to return to the Derby just how do you think about some of the puts and takes around that as it relates to twin spires.
Sure. So I'll take your first question.
There's a couple of questions within the first one first revenue visibility.
Our revenue visibility is really excellent because we know exactly how many seats, we're able to sell in different areas.
We understand our sponsorship numbers and we have a pretty good feel for wagering, although there may be some variability on on that.
Just because of circumstances, a little bit different this.
This year like they were last year or so so generally as we go into the Derby Theres, a fair amount of Av.
Confidence and understanding of what we should be able to expect and we've largely telegraphed some of that in my earnings comments.
In other forms so that so that people know.
Primarily.
They were not able to have the full contingent of fans that we normally would have because of because of COVID-19.
With respect to the puts and takes on wagering.
The country is open back up for four fans there are limitations.
Different jurisdictions, so as people return to brick and mortar facilities. That's one important place that people wager on while they couldnt do that as much last year, we werent necessarily happy about that because not everybody is going to is going to migrate to online.
So so we're glad that the facilities are back open generally across the country, even though there are restrictions windows within those facilities and of course <unk>.
Migration to online has been a big theme for us over the last year. So that's an important.
Component for us on an important emphasis for us as well. So so we're we're optimistic about that.
Got it Okay, and then second listening to some of your sports betting and online gaming peers, there seems to be a desire I think for some of them to get into the.
The horse wagering business so.
As we begin to think about the possibility of new entrants.
It would be helpful. For me if you could maybe just talk through the competitive moats that you've done.
You see around the twin spires business and what what new entrants could even mean for the industry.
Well generally.
We like the idea of more fan participation in wagering on horse racing generally we think that's a good thing for our game for our company overall and for twin spires, It's a great gambling game.
But it's different than other forms of sports wagering from a couple of respects first from a legal perspective.
That has a separate legal regime. It has a federal law that sort of governs how horse racing.
Wagering can happen across state lines and it gives the content producer clear intellectual property rights with respect to any wagering activity on on the content providers content. So.
So deals are required with the horseracing providers.
Tracks and their horsemen in order to ever take wagers on their content. So it's a different legal construct and that's that's an important difference our moat to throw the rolling out of this.
More broadly.
Secondly.
Wagering on horse racing is pure mutually base, that's not fixed odds based so the technology is different generally.
Generally the platforms you see out there.
Across sports wagering providers.
They're not quite set up at this time to take para mutual wagering, that's a technology challenge that certainly surmountable, but.
But it hasnt been undertaken yet so.
So there are some there are some tweaks on differences about per mutual wagering on horse racing that that are out there that over time might be.
It might be surmounted by some who are willing to do the work and cut the necessary deals in order to do so.
And were never afraid of whenever afraid of that we'll we'll look to find opportunities within that to bed.
Monetize our content in and further.
Further the economics of twin spires as well.
Alright, and then.
In the spirit of things going back to normal here.
Can we get your pic for the Derby.
No I never do that because that's incredibly unfair to these poor horse owners out there who would then be cursed with.
With me, having pick them as my favorite debt I wouldn't do that to people.
It wouldn't help anybody wouldn't help that poor horse owner and we'd really it really screw overview betters out there who may be listening to my advice. So on the last person.
Can give that advice, but it's a really competitive field this year so far.
Is actually pretty exciting for those that know the game. This is this is going to be a lot of fun. This year.
I was just looking for looking for an edge there alright. Thanks. Thanks for taking my question on <unk> twin spires.
They've got some tools that can help you out.
Thank you thanks for those questions.
Our next question coming from the line of Dan <unk> with Bank of America. Your line is now open.
Thanks, and good morning, guys congrats on another great quarter.
Starting off I, just wanted to ask a little bit about the return of customers you've seen on the regional casino side and also at the HR on properties in Kentucky be great to just get some color around customer behavior and demographics of guidance.
Are these rated players that you've seen before or are you seeing any return of the older demographic yet just be great. You guys had sort of kind of what's driving demand there. Thanks.
So I'm going to generalize.
<unk>.
Generally theres been more unrated play than traditionally we've seen and generally are older players the older demographics clearly demonstrated in the data.
Are the most reluctant to return, but they're starting to return as we believe the vaccination rollout across the country.
Moves along.
Great.
Very helpful.
And then I guess thinking about the Derby coming up this week.
Can you just help us think about some day margin impacts of the restrictions that you're facing this year and how we should expect that kind of tax rate flow through the P&L.
There are puts and takes when it comes to the margins with respect to Derby.
We're doing more cleaning et cetera, but also.
Food and beverage is packaged with with the tickets.
<unk>.
I don't I suggest that.
You are not worry or focus much about about margins I think that's not a big driver in trying to predict this year, how derby will will perform economically.
Great. Thank you that's.
Thats It from me and definitely looking forward to the Derby in back to back to normal in 2020 to.
US too thanks, Dan.
And our next question coming from the line of Joseph <unk> with Susquehanna. Your line is open.
Okay. Thank you good morning.
Bill Good morning Marshall.
First question on the HRS.
Derby City gaming.
On a lot of record quarter.
Despite.
The 60% fire code restrictions as you suggested bill say youre seeing more unrated players.
Just trying to ask where you see say.
Net debt incremental demand or any magnitude or measurement of if you can give us.
If the fire code restriction, where do we be removed meaning.
Do you have certainly excess demand on the weekends during the weekdays any commentary you can give us I'd be curious.
I would talk about it a little bit more broadly than that it's just a property thats not close to maturity yet with respect to.
Customer awareness on our market with respect to customer familiarity with the quality of the product and with respect to the the evolution of the product itself. We are still working hard to introduce.
More product more games more manufacturers on the floor more innovation so.
So generally there are a lot of factors that are moving in the right direction, but I would start with the factor of.
It's still new it's not it's not close to maturity.
And Thats a really good thing if you look at the <unk> the size of the Louisville market net to <unk>.
That market.
Were also.
Down there at Oak Grove, pulling out of Nashville and up on.
At our Newport facility pulling out of the Northern Kentucky, Cincinnati region, but just looking at Louisville, you get a sense of the market based on what the activities are on the other side of the river and that's all fair game for Us to go after.
Their economics and their customers.
And that all we always.
Derive confidence from knowing the size.
The historical size of the market by looking at their performance, but we think the markets even bigger than that but that helps give a sense of what our targets are to certainly we.
We exist in competitive markets and we intend to.
The challenge competitors in our space, particularly those that have been around longer than us. So there are a lot of good factors.
We've built.
Greenfields before in.
This is a great place to be in the evolution of a greenfield because we know we've got so much more to go but.
But we've got to go prove it.
So the noise around the pandemic and fire code restrictions and and capacity constraints on weekends and whatnot.
Thats relevant that's important but I view that is less significant than just generally where we are on the stage of that property.
Sure.
Makes sense.
On the Oak Grove.
You do have.
Clearance regulatory clearance to have over 1500 machines, there and the other piece I wanted to ask.
How many of those machine say, we're we're available given kind of like the reopening cadence and obviously, it's a new property that you aftermarket, but what is the right way to think about.
That just in terms of.
How many of those machines were available <unk> deployed at that location.
Yes, so there or thereabout.
<unk> thousand 325 machines on the floor and somewhere around the.
The high nine hundreds are actually turned on.
That's primarily driven by.
Covid related restrictions and sort of.
Proximity of machines to each other so.
That's the current state of play on that facility floor.
Now if you ask me about every single floor I'm not going to be able to answer that so please don't ask me if for every one of our floors, but that one.
That's a facility that bill Mudd and the team pay a lot of attention to so because we're so focused on growing it so I happen to know those numbers off the top of my head yes.
Yes.
And then twin spires and as you.
Deploy additional.
Day menu options right new products, so as to be gaming.
I would imagine there is a hell of a lot of.
Horseracing customers that you have in Tennessee.
And.
I guess my question, primarily is within twin spires.
And so you're offering from us fee in Tennessee, and so forth going forward.
And the supply is obviously the other states.
Where are you in the development of a shared wallet.
It seems.
There could.
It could be a real weapon for cross promotion.
You suggested maybe on an earlier answer there obviously is some.
Software complexity to try to pair the pair mutual in fixed odds racing or fixed odds betting.
Calculus, together, but I'm wondering where you are in that.
Yes, we know how to do it and it is a priority and it is something that we think is important but really are but its not something were addressing.
As a top priority right now we've been focused on converting to Gan and camby and testing that technology, making sure that works.
And.
That'll be our priority for the near term is as I covered a bit on my script as we as we get comfortable making sure that that technology is robust and scalable and I'm sure it'll be.
And then as we test our marketing and other plans with respect to.
Traditional sports wagering and online casino as soon as we can get around to the Commonwealth It and that kind of exercise, we will but right now we just have a lot to do so it's not a it's not a circumstance where you can do everything at once so that's how we prioritize.
Understood Thanks very much.
And our next question coming from the line of David Katz with Jefferies. Your line is now open.
Hi, good morning, everyone. Thanks for all the information.
I wanted to.
Talk about Illinois in a broad sense I know that there is a process underway with Arlington and I'd love to get a sense for.
Even a neighborhood of timing with respect to that and then.
There are sort of other license processes that obviously started pre COVID-19.
Whether they've suspended themselves indefinitely or what would you like to see come out of those whether it's waukegan or downtown.
Please.
Sure David Good to talk to you so.
With respect to the Arlington Park land sale.
Preliminary bids.
Preliminary bid date has been set and and as those bids come in.
In the second quarter, we will evaluate them and figure out next steps I think the ultimate conclusion of that process is something I can't responsibly predict for you because we will have to see the nature of the bids and if there if there.
If the property gets bid.
Split up between multiple bidders or if it's a single bidder et cetera. So.
There is a process the process is underway the preliminary.
Indications are due in the second quarter, and we will take it from there and.
All good on that front. It's just this is what it takes to run a complex process to sell a big piece of land with a lot of value like that one.
With respect to opportunities on the gaming side.
In Illinois.
Am I understanding the waukegan.
Process, Bill Mudd and I were talking about this this morning I think bid.
The RFP window is closed for for our bankers to submit a response to the Waukegan RFP request to be the banker.
To help.
To help the gaming board make their decision and I understand it's a six month window from the time that bankers selected whenever the banker is selected so that's all I know on that process thats not a prediction thats just telling you what I know that process is obviously taken longer than what we might have originally thought when we made our original bid, but we'll have to see and then with respect to other opportunities in the <unk>.
<unk> I don't have anything to report we are monitoring like you are in <unk>.
Having discussions where appropriate but we are all really interested to see what happens.
With respect to downtown Chicago and and.
We will pay attention to that to see if there is opportunities for that and whether there's opportunities to move the race track.
Elsewhere on the state as well, but I don't have anything to.
To report on that at this time other than we work on it and think about it every day.
I appreciate that and with respect to Kentucky I know you made some commentary during your remarks.
And I believe I heard correctly that.
The notion of the all suite hotel is being.
Being tabled for the for the time being I just wanted to make sure that I heard that correctly.
Yes.
I suppose why and what is the vision for the Derby in how these properties might even interact with each other across Kentucky.
Sort of looking for Grand vision of of Kentucky, as a whole if you can.
Yeah, we will lay out.
More fulsome picture of.
Projects with Churchill Downs Racetrack and Derby City gaming.
At or before our next earnings call, we're still going through some of the some of the pricing and some of the construction.
But ultimately if we back up.
Talk about what we had previously been proposing a large.
Hotel based project at the track.
I don't think he comes as any surprise to people out there.
There's a lot more risk on a project like that just because of the disruption of travel and.
And that.
The movement around the country. So we want to be thoughtful and careful about that and always make smart decisions. So as we challenge as we always do and we've said that on these calls we always challenge our assumptions, we always revisit and.
And retest every assumption, we think theyre just better projects for us to do that.
<unk>.
Our higher return lower risk, particularly in the current environment. So.
We.
Re ordered and re imagined what we want to do.
And.
Segmented on which always helps because we run the Derby every may 1st.
And so we always have to be ready to run the derby. So we've segmented them into three different projects for the track.
I think.
I think I have to leave it at there I can't give you a big all encompassing vision because youll get that next time, when we price that out and we can talk specifically on on returns and costs associated with those returns, but I'll just ask that the investors.
Be patient with us give us the benefit of the doubt we've been we've demonstrated we've been good at these investments we've been thoughtful about these investments for the racetrack and we've got some really exciting things and it was back to a point I made in my prepared remarks that this pandemic, obviously has been a really.
Terrible thing and disruptive to all our families and all are.
Communities that we participate in but ironically, it gave us time to think and retest and rejigger some of the some of the projects. We thought we should do and it's made US a better company, we will get a better return.
We're more focused on cost and return and we will do better with our projects going forward because because we've had time to test and learn coming out of this pandemic.
Alright, I appreciate that and one last one if I may regarding digital and just the digital strategy, whether that OSB I gaming.
Our twin spires.
It's look there's a population of entities out there that are.
Running at certain speeds, and obviously that bears a cost.
On our risk profile, how have you thought about.
The notion of doing it yourself versus partnering versus using b to b providers et cetera, and how you're pacing that OSB and I gaming business relative to admittedly, what's going on now is an awful lot of enthusiasm.
Yes, it's a really good question also a really hard question.
I think partnerships.
We have them with respect to technology, we have a technology partner, we have elected not to go invest in our own technology in and Thats consistent with how we've started businesses here on the company in the past.
In the beginning make your cost structure is variable as possible. So you pay by the drink and <unk>.
And you can manage costs as you get into the business. So you don't Overcommit and overspend early on so our technology partners.
We've switched.
Now with Gan and Camby, and we feel pretty good about that so we feel that that's very stable and we're optimistic about that when it comes to other sorts of partnerships marketing partnerships or equity partnerships for us that just comes down to a question of do we think that's going to lower our cost.
For customer acquisition does that do we think that that'll save us that that's a cheaper more effective way to acquire customers then marketing on our own and so those are always be deals that we look at and revisit but one of the challenges in the space that people have in the space.
<unk>.
Have approached differently than.
By the metric of market cap, it's been really beneficial to a couple but.
We've we've looked around and looked at different deals on really felt that.
That doesn't really change at this point our cost per customer acquisition will give us confidence that it will change our cost per acquisition. So we haven't pulled the trigger on it on any of that but over time, we might.
But we're always.
We're an established company we have multiple business models, we want to be very careful about not.
Falling victim to over enthusiasm, we want to make sure that we invest in businesses that we're going to drive an acceptable return for our investors and so we're confident we should be playing in this space, we're being very methodical, we're being very patient we're being very careful.
And.
And be patient with us give us give us a chance we are we're being very thoughtful and spending as much time on this as any of our businesses.
But <unk> is not a substitute for demonstrated.
Returns and so we want to make sure we see a path to get those before we commit incredibly.
Incredibly seriously and some of these jurisdictions.
Understood I appreciate it thanks very much thanks.
Thanks, David.
And we have a follow up question from Brett Andress from Keybanc. Your line is now open.
Following up on that last Churchill investment question would the plan still be in HRS operation on the Churchill property and now plus an annex in the surrounding area I just wanted to make sure I'm not crossing any wires.
And I guess, what analysis drove you the conclusion that.
That market can absorb another.
HRS facility.
But we always have the right to to put HR and facilities at the racetrack, but as the Crow flies. The race track is within five miles of Derby City gaming and they're both in that sort of <unk>.
<unk> South east portion of the city so.
So.
That's always there we may pursue that I'm not discounting that for the future as as events unfold, but we have something in Derby City gaming that just flat out works just flat out works and when you find that in business you should invest in what works and Derby City gaming really works for us so.
Or are.
Predisposition is to is to look hard at more investment there when it comes to the annex.
Bill Mudd and his teams.
We have a lot of <unk>.
Analytics on where our customers come from.
Where do.
Do we see ZIP codes in the Metropolitan area that we don't draw from that we think may be go across the river.
<unk>.
We've done a ton of work to figure out where are the strong spots for Derby city gaming or where are the weak spots and where do the.
Conventioneers, who come to the city go do they go across the river do they go to Derby City gaming, where do the transient folks that come through Louisville go we've been running all of those questions.
Because we do have that annex, which is independent of putting machines at the racetrack itself. So we have that debt annex that we can deploy and we would look to do that obviously to maximize the collective return out of the Louisville market not over cannibalize and not cannibalize any material.
In any material respect, what we have going on at Derby City gaming.
Very helpful. Thank you for the clarification.
Our pleasure.
That's all the time, we have for questions today, I would now like to turn the call back over to Mr. Bill <unk> for closing remarks.
Thank you too.
All of you out there who are interested in our company and who have invested on our company, we're humbled and grateful for it and we'll do our best to be good stewards of your capital.
Please stay tuned please tune in for our for the Derby on May 1st it's going to be a great one and I think it's really the first event.
Since since Covid hit in full force of this caliber and of this type with with fans on the seats. So check it out we will do it right. We'll make you proud thanks very much everybody.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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