Q2 2021 Churchill Downs Inc Earnings Call

July 29, 2021

[music].

Good.

Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2021 second quarter 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.

As a reminder, this conference call.

Call is being recorded.

I would now like to introduce your host for today's conference Mr. Nick Zangari, Vice President Treasury and Investor Relations.

Thank you Katrina good morning, and welcome to our second quarter 2021 earnings Conference call. After the company's prepared remarks, we will open the call.

Questions. The company's 2021 second quarter business results were released yesterday afternoon.

Copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by regulation G is available at the section of the company's website.

Titled News located at the 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 statement.

For you it 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.

New information or future events. During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, the press release and form 10-Q are available on our website at Churchill Downs incorporated Dot Com and now I'll turn the call over to our Chief executive.

Ive 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 provide brief comments on our second quarter performance.

And then I will share some updates on our capital investment plans for Churchill Downs Derby City gaming and our other growth initiatives.

After my comments Marcia will provide more detail on our second quarter performance. Then we will open up the call for questions.

Regarding our second quarter results overall, we delivered the highest net revenue.

Vince and highest adjusted EBITDA for the second quarter that we've ever generated in any quarter in the history of our company. Despite running the 147th Kentucky Derby and operating our gaming properties with a variety of COVID-19 related restrictions.

We were very pleased with the overall results of the Kentucky Derby, which we.

Ran under significant state mandated capacity restrictions.

Instead of our typical 150000 to 170000 fans, we welcomed approximately 52000 back to Churchill Downs racetrack.

At the time of its running on the first Saturday in May our event represented the largest number of fans to attend a sporting event in the United.

<unk> based in 2021.

As you saw on the press release that we issued after the Derby wagering from all sources on the Derby Day program was up 85% to $233 million and on the Derby race itself was up 96% to $155 million compared to 2020.

This was not quite back to the previous record set in 2019, but was very close and still represents the second best all sources wagering numbers of all time.

Given the capacity restrictions at Churchill Downs racetrack and at brick and mortar facilities across the country. We were very very pleased with that.

Twin spires.

It's created record handle of nearly $63 million on the Derby day program up 66% over 2020.

And record handle of nearly $41 million on the Derby racing alone up 75%.

To put this in further perspective twin spires handle on the Derby day program was up 29% in hand.

There is general Derby race itself was up 35 per cent compared to the previous records set in 2019.

We are grateful to our sponsors of the Derby remain so committed to the events throughout the pandemic as well as our MDC partners.

We along with NBC, we're extremely pleased with this year's nearly 16 million.

On average viewers, marking a 54% increase over the 2020, Kentucky Derby.

Up through the day to the Derby.

TV audience topped all Entertainment award shows for the first time ever and marked Nbc's most watched broadcast since the NFL divisional playoffs in January.

As we look towards the 148, Kentucky Derby in 2022, we see extremely strong ticketing demand and.

And with the projects, we will touch on shortly feel a great deal of optimism for the future of this iconic event.

Our HR and facility facilities in Kentucky performed very well on the second quarter with.

City gaming delivering record net revenue record adjusted EBITDA and record margin.

Our Oak Grove, HR and facility also performed very well on the second quarter.

The team opened the amphitheater and Equestria and center delivered strong double digit sequential growth in net revenue and adjusted and adjusted EBITDA and expanded margins All records.

With their order.

Regarding our Newport racing and gaming facility.

We decided to create 2 distinct areas within the facility the new area will be designed.

Designated smoking and the existing area will remain smoke free.

We plan to build a Newport gaming facility for approximately $38 million and came.

From your budget.

We are utilizing the remaining capital we had not previously spent to lease and finish out nearly 13000 square feet next to the existing gaming floor.

We are relocating 150 of the existing <unk> into the new smoking area to create a more spacious environment.

And we're also adding a new bar area.

This lease expansion also provides additional parking and improves our outdoor signage. We expect to have the project completed in late November of this year.

The success of our HR and facilities in Kentucky reflects our ability to develop innovative new products through industry partnerships invest capital wisely and build customer demand for our unique entertainment offerings.

And on.

The addition of HRS game titles in cabinets from aristocrat IGT and scientific games, and <unk> will enhance our customers' entertainment experience beyond our strong original offering of Ainsworth titles.

Equally importantly, we have generated a significant increase in purse money to attract more and better quality.

The horses to Churchill Downs racetrack as well as to our other racetracks, which helps strengthen the foundation of the entire horse industry in Kentucky.

Our twin spires horse racing business as I mentioned earlier, we benefited from the return on the Kentucky Derby to the first Saturday in May in contrast to last year when the Kentucky Derby was.

<unk> September.

As a reminder, the majority of our annual marketing budget for twin Spires has always spent around the derby.

Derby week enables us to inexpensively acquire a significant number of new customers driving down our cost per install which is a key metric for us.

This year Derby weeks at many all time records for <unk>.

The latest racing.

With a record number of unique players and a record number of first time depositors compared to last year's pandemic year. When there was little opportunity to access the derby other than online.

However, user acquisition and CRM spending as a drag on our second quarter EBITDA, because we cannot recapture all of the spend in the same quarter.

We should recover the spending over the next 3 quarters, which is less than a 1 year payback on the investment.

It is actually very encouraging that we are able to deploy more user acquisition and CRM dollars than ever before than ever before during this year's Derby week.

We spent $7 million more than last year and $3 million more than second.

<unk> 2019.

The spend grew our customer base, which we believe will.

Our growth in the future.

Given the second quarter of last year was in the heart of the pandemic and the Derby had to be moved to September comparisons. The second quarter of this year can get confusing it's clear when we compare this year's second quarter.

2019.

Revenues for twin Spires horse racing were up 33% and adjusted EBITDA was up 42% over 2019.

Regarding our twin spires sports and casino business, we launched our App under the twin spires brand in Colorado, Pennsylvania, and Indiana during the second quarter following.

Following our launch in Michigan, and Tennessee in the first quarter.

Given the additional marketing spend to support the launch of our apps in these states. We had a net loss of adjusted EBITDA of $11 million in the quarter for this business.

We remain careful and patient in our ongoing build out and we hope you recognize as long term investors that at.

<unk> approach, we are taking today will pay off.

We will efficiently expand our footprint and grow their business slowly over time with disciplined acquisition and marketing spend.

Which will enable us to maximize the potential value of this business in the long term.

Even though football season is approaching and depending on the pace of final regular.

At this point.

We may see launches on a couple of new Jersey jurisdictions, like Louisiana, and Maryland, We believe the loss from this business in the second half of the year will be similar to the first half.

Turning to our gaming segment.

Our gaming segment delivered all time record levels of net revenue.

And adjusted EBITDA.

Our wholly owned gaming properties continue to generate high margins coming out of the pandemic, including nearly 4 percentage points of sequential margin expansion and over 10 percentage points of margin expansion compared to the same quarter of 2019.

We are pleased with our regional gaming properties performance and we believe.

We can maintain these higher levels of margins for the foreseeable future.

Our equity investments in River Casino and Miami Valley Gaming also performed quite well on the quarter compared to the prior periods.

And reflected the exceptional locations of these facilities in large markets.

Both properties delivered all time records for.

Adjusted EBITDA and margins.

Across our segments.

The key to delivering these results center around our continued long term strategic focus on growth our focus on building and acquiring high quality properties, making smart capital investments on our existing properties.

Careful planning regarding our balance sheet.

Net relative and focus of our operational leadership teams are.

Our company has a track record of delivering long term total shareholder return and exceptional organic growth opportunities.

We have a unique set of assets in each of our segments that we believe will continue to fuel strong growth in the coming years.

There are 3 groups.

Groups of capital investment projects that will further transform our company over the next 5 years.

The first set of projects involves the multi year expansion at Churchill Downs racetrack to provide once on a lifetime experiences for our guests as we approach the 150 <unk> running of the Kentucky Derby and 2024.

We are excited to announce 3.

New multiyear projects that we believe will generate consistent adjusted EBITDA growth with nominal levels of risk.

The first project is the Homestretch club.

We plan to invest approximately $45 million to transform the section on the grandstand area that is adjacent to the winner circle suites and below the jockey club suites.

This area includes the bleacher seating that is adjacent to the track rail.

Guess, who are in these data first and second floor bleachers previously had access to very old first floor concourse area under the jockey club suites that is not air conditioned and has limited amenities.

Based on our on.

Feedback from our customers we have re imagined this section to create several new reserve seating products.

This area offers a wonderful view of the starting gate for the Derby Superior view of the tracks Big Board and of course, a bird's eye view of the homestretch as the horses Thunder to the finish line.

We will also transform.

Well first of all a concourse and through a special hospitality club that will create an air conditioned space for guests to gather in between races to place a bet enjoy the all inclusive food and beverage offerings or enjoy other high end amenities and activities.

The outdoor portion of this project, replacing the bleachers will include several new.

Premium seating offerings for approximately 3500 guests.

These will consist of.

Trackside lounges that are adjacent to the track rail and will provide a courtside seat experience.

Terrorists dining tables that will offer covered outdoor dining position close to the racetrack.

Stadium style cushion seating.

And private hospitality rooms that are available as an upgrade for guests seated in any of these new areas.

While the total number of seeded patrons will decrease from 5200 and the current configuration to 3500 and this case lessons more the significant.

Improvement in amenities will drive commensurate increases in ticket prices displace customers, who do not wish to upgrade will have other options, including what I will outline in a moment.

We anticipate that the homestretch globe will be completed in time for the May 2022 Derby.

The second multiyear.

Project is to turn 1 seating expansion.

In past years, we have built a temporary structure on the first turn.

At the track that accommodated 3400 guests.

This area has historically been a customer favorite as it offered an introductory price point and includes great views of the first turn.

Your capital Board.

Our terminal on seating expansion project will replace these 3400 seats with 7100, new permanent seats for a total investment of approximately $90 million.

This new area will will create 2 distinct ticket offerings for our guests.

The first area will add.

Add 2000, new premium dining seats inside a new 50000 square foot first floor hospitality venue.

This area will provide a slew of upgraded amenities for these guests will also have access to a reserve trackside tariffs on the track rail to view the races in other signature moments throughout the day, including watching the horses walk over.

And the <unk> date for the Derby.

This project will also add covered stadium seating from 5100 guests, who will have access to all inclusive food and beverage offerings on 2 new elevated concourses built behind the new stadium seating sections.

This project will take.

Longer to complete on the Homestretch club and we are therefore planning to have this open by the May 2023 Derby.

Both the Homestretch club and the term loan project La for personal seat licenses there'll also be opportunities for sponsor naming rights partner activation footprints and special event sales to generated.

The <unk> revenue over the long term.

The combination of these 2 capital projects will result in a net addition of 1750 high end reserve seats and more importantly, due to the conversion to all inclusive premium seating. We believe that net revenue for these 2 areas combined will be substantially.

<unk> higher than it has been in recent years.

The third multi year project involves an expansive redesign of the paddock area, including the areas underneath on adjacent to the historical twins the historic twin spires.

In addition to introducing new and innovative seating experiences.

On this project will reduce congestion by significantly improving the flow of guests through the paddock and plaza areas. We are so excited about this project because it will enhance the overall experience for nearly every guest comes to a racetrack.

We are still on the early design phase of this project, which we are tentatively planning to debut for the 150 <unk>.

It's really the Kentucky Derby in May 2024, we will provide updates on this project on our earnings calls going forward.

1 last note on Churchill Downs racetrack.

On our new Turf course is on target for completion later this year.

The new turf course will have a wider running surface greatly increase.

The durability of the Racecourse and improve the safety for our equine athletes and jockeys.

In general Turf racing generates more wagering per race, and we should get more races, and a better quality more predictable surface with on a new edition.

Our $10 million investment is a further indication of our confidence on our racing.

Racing and wagering product.

<unk> and investment in the growth of the Kentucky Derby.

Yeah.

Second group of capital projects are the organic investments, we're making in new high growth historical racing and gaming Entertainment properties.

Our commitment to being disciplined in growing profitable businesses.

As reflected in our organic investment in these entertainment venues.

We have 5 unique HRS growth opportunities that are underway, including expanding our Derby city gaming property.

Developing in other HR and facility in Louisville.

Executing the growth plans at our <unk> growth property.

Building out the <unk>.

Ability of Turfway Park.

And expanding our Otp network on Louisiana to include HR apps.

Regarding our Derby City gaming property.

We continue to be very pleased with the growth of this venue and believe that additional expansion and other amenities will further enhance its long term growth potential.

We will be investing approximately $76 million to expand the property, including the addition of a 5 story 123 room Hotel. The project will add 41000 square feet of new gaming floor space.

And we will initially accommodate 200, new HR endgame decisions.

A new VIP gaming space.

Our emphases sports bar on stage for live Entertainment.

This area will also include a new restaurant and bar that will provide a variety of food and beverage options for gaming and hotel guests throughout the entire day in order to better serve and attract guests.

It's clear that Derby city is working.

And we will invest where we where things are going well.

And in our Oak Grove ASRM on hotel venue is still on the very early stages of maturity and should provide ongoing growth as we expand our marketing to draw more customers we.

We estimate that we are less than 15% penetrated in the Nashville market and our win per unit per day is already exceeding our expectations for this early in its maturation cycle.

We believe there is significantly more opportunity for growth from this property.

We are also working on an HRA annex facility in connection with our Churchill Downs Racetrack license that will add additional HRS gaming positions and the Louisville market.

We're not yet ready to announce the specific location of this facility, but we confirm that it will not.

At the racetrack itself and will be designed to capture more of the downtown in tourist market.

We will share more details over the coming weeks as our plans are finalized.

We think now is a great time to invest on our hometown.

And that it will be a win win for our community and Churchill Downs.

Our investment in build out of our turf way Park racing and HSM Entertainment venue is continuing and we are on track to open the facility in the summer of 2022.

Finally, we are very pleased that the Louisiana State legislature passed a bill on the second quarter that has been signed by the governor providing for the introduction of HR into Louisiana.

Not from the Bill specifically allows fairgrounds to have up to 50 <unk> in each of our off track betting locations.

We are currently operating 15 off track betting locations in Louisiana, Most with video poker machines and are developing plans to incorporate up to 50 <unk> in each of these facilities, we expect to spend approximately $35 million upgrading.

Otv's and expect to have <unk> operational starting next year.

The regulators are working on the necessary regulations, we will provide an update on our progress on our next earnings call.

Third group of capital projects.

Relates to our gaming properties the most.

Most significant project in this group is the rivers expansion as we discussed last quarter reverse $87 million expansion plan is on track for a phased opening starting in the first quarter of 2022.

The rivers expansion will accommodate approximately 725 gaming positions based on a combination of new slots and table games and the facility will be.

Trading hours on the state to have the maximum number of 2000 positions.

The first floor expansion will host a great new gaming area, a new restaurant in a new event center. The second floor expansion will include a new gaming area and a new poker area.

Collectively these capital investment projects are the building blocks that we believe will propel.

Propel strong revenue and adjusted EBITDA growth over the next 5 years. These building blocks are real and they are tangible.

We continue to have a very strong balance sheet available with significant cash and liquidity.

And with the near term opportunity to monetize 2 significant properties Arlington Park and the excess land.

At our Calder per property, we are very excited.

Guarding Arlington Park, we have received numerous bids from interested parties for the land and are working through the process to select the final winning bid we will provide an update when we have selected the winning bidder regarding Calder, we've launched the process to sell the excess land around.

Our Calder casino.

We've already received multiple unsolicited bids, but expect it will take some time to run the formal process.

We will provide an update when appropriate but are moving with all deliberate speed.

In summary, the strong free cash.

The strong free cash flow of our businesses.

With.

The potential to monetize underutilized assets enables us to maintain low leverage invest in organic and inorganic growth opportunities paying increasing levels of dividends and strategically repurchase shares over the long term for our shareholders. As we discussed we have a lot of opportunities that are in the execution phase and we have the capacity to.

To land more projects as they develop.

We think the horizon has never looked brighter for us.

With that I will turn the call over to Marcia and when she is finished we will open up the call for questions Marcia.

And good morning, everyone I will begin with some insights into our second quarter financial results and then I will provide an update on our capital management.

Yeah.

We are very pleased with our second quarter financial results and with the growth plans that are underway to transform our company and fueled strong growth in the coming years on.

Our team delivered record net revenue and record adjusted EBITDA on a consolidated basis in the second quarter.

More importantly.

<unk> our team is on track to deliver the highest level of net revenue and the highest level of adjusted EBITDA for the total year that our company has ever generated.

Turning to our 3 business segments are alive and historical racing segment generated $191 million of net revenue and $98 million of.

<unk> EBITDA in the second quarter.

Tricia Downs team ran a successful 147th Kentucky Oaks and Derby, despite capacity restrictions, which limited reserve seating. We appreciate all of the fans that weighted on the basis that week and the support of our sponsors as well as NBC.

Although ticketing.

<unk> revenue for Derby week is the primary driver of our net revenue and adjusted EBITDA.

<unk> expansion is sponsorships and the broadcast strength for the Derby are also important components of our adjusted EBITDA growth.

The 3 new multiyear projects at Churchill Downs Racetrack.

<unk> improved the existing venue.

Adjusted upgrade amenities and provide a unique all inclusive experience for our guests.

All of which will drive increased pricing.

The Homestretch club and turned on expansion projects will add 1750 premium reserve seats by May 2023, and will include additional personal seat.

Eat licenses.

Allowing us to further segment our ticket pricing.

These new areas will also provide the opportunity to expand our sponsorships in the coming years.

The Panic project will also improve and elevate the experience for all of our patrons.

I'm personally very excited for the transformation.

That will occur over the next 3 years to Churchill Downs racetrack as we prepare for the 150 assets running of the Kentucky Derby in May 2024 day.

These 3 multi year projects are a very capital efficient way for us to expand this iconic asset and to create strong long term shareholder.

Returns.

Turning to our HR on properties in this segment nearly a third of the $95 million of growth in adjusted EBITDA from this segment was driven by our Derby City gaming and Oak Grove HR on properties in Kentucky.

Derby City gaming performance continues to exceed our expectations deliver.

<unk> record net revenue adjusted EBITDA and margins for the second quarter.

The continued strong performance at Derby City gaming clearly supports the business case for expansion of this property in the coming year.

This was only the third full quarter that <unk> has been in operation and the property is performing ahead of.

To deliver on our patients we believe the Oak Grove will deliver strong growth in adjusted EBITDA as we expand our market reach within the Nashville communities.

Turning to our twins or our segment adjusted EBITDA for the quarter from our twin Spires horse racing business declined $8 million compared to second quarter last year.

The majority.

Juruti of this decline is related to the timing of user acquisition spending and bonuses for existing customers.

We spend more on customer acquisition around Derby week than any other time of the year because twin spires is able to market more efficiently during derby week and as a result, we're able to significantly reduce the cost of acquisition.

Of our exit of a large cohort of people who'd like to wager on horse racing.

We were able to deploy more marketing dollars in ever for this year's Derby and the payback is still projected to be under 1 year.

While this is a drag on 2021 profitability, we will realize the benefits of this spending over the.

Physician to 4 corners.

Our twin spires horse racing business benefited from a 9% increase in handle primarily because of the timing of Derby week and because the Preakness was run during its typical second quarter timeframe.

As Bill mentioned to inspire has delivered record handle on the Derby day program as well as the Derby race.

Some customers returned to brick and mortar properties to wager on the second quarter of 2021. However, we expect that the penetration of online wagering on horse racing will remain elevated from previous years, albeit not at the same level. It was that in the second quarter of 2020, when most brick and mortar betting options for.

Horse racing, we're not open due to the COVID-19 pandemic.

Regarding sports and online casino business generated a loss of $11 million in the quarter due to marketing and promotional activities as we rolled out our rebranded twin spires online App in Pennsylvania, Indiana and Colorado.

Now turning to our gaming segment, because all of our gaming properties were closed for some portion of the second quarter last year. My comments will provide quarterly sequential comparisons and comparisons to the second quarter of 2019, where appropriate to highlight how successful the second quarter of this year was for the gaming segment.

We are very pleased with the performance of all of our gaming properties in the second quarter. Our team delivered record net revenue from our wholly owned casinos and record adjusted EBITDA from our entire gaming portfolio of assets we.

We were pleased with the 22% sequential growth in net revenue from from first quarter 2020.

The second quarter 2021 for wholly owned casinos.

We're also pleased with the 46% increase in adjusted EBITDA and 3 in the 3.6% point percentage point margin expansion.

We have seen continued strong demand generally disciplined competitive behavior.

And our markets are dynamic that has continued into July.

Compared to the second quarter of 2019, net revenues increased 5% adjusted EBITDA increased $44 million or 58% and our wholly owned casino property margins expanded by over 10 percentage points.

On 1 given our strong cost controls, we believe that our margins will likely remain elevated compared to the prior years for the foreseeable future.

We were especially pleased with the performance of rivers des Plaines, and Miami Valley gaming, which collectively contributed nearly half of the $122 million of adjusted EBIT growth.

EBITDA growth for the gaming segment.

Compared to the prior year quarter and more than half of the $44 million adjusted EBITDA growth.

<unk> to the second quarter of 2019.

Both delivered record net revenue adjusted EBITDA and margins as well as significant margin expansion.

<unk> compared to the same quarter in 2019.

These 2 properties also distributed a combined $25 million of cash to us in the second quarter as the property's returned to generating significant operating cash flow.

We believe the expansion at rivers as planes and the ongoing growth at.

All of our gaming properties will fuel our adjusted our growth in adjusted EBITDA as well as the operating cash flow in the coming years.

Turning to capital management regarding project capital, we spent approximately $16 million on project capital in the first half of 2021 of which more.

More than half was spent finishing the oak Grove facility.

The balance of the project capital has been spent at Churchill Downs racetrack and per site preparation at Turfway Park.

We anticipate spending $130 million to $140 million on project capital for the full year 2021 of which approximately half.

As planned for the build out of the Turfway Park H M facility and a few ongoing projects and Oak Grove and Newport.

The remaining capital spending is primarily for the multi year capital expansion projects at Churchill Downs racetrack as well as the expansion of ATM machines and facility enhancements to capture the H.

<unk> opportunity in Louisiana.

We have spent approximately $14 million on maintenance capital in the first half of 2021, primarily weighted related to Churchill Downs racetrack and improvements to our twin spires horse racing platform.

We now anticipate spending $45 million to $55 million.

Maintenance capital in 2021, which includes $10 million for the new Turf course of Churchill Downs racetrack, new slots and other maintenance improvement projects for our gaming and Acer and properties and ongoing improvements to our twin spires horse racing platform.

Now regarding our debt and leverage positions.

From at the end of June 2021, we had net leverage of 3 <unk> times, reflecting the substantial improvement in our operating performance that increased our trailing 12 months adjusted EBITDA.

The waiver period for both of our revolvers maintenance covenants ended yesterday with our second quarter filing we were pleased with although.

Though we had the waiver in place we met our revolver covenants through the entire waiver period.

We appreciate the support of our Bank group during this period of time.

We anticipate that our net leverage will continue to decrease over the balance of the year, we have plenty of debt capacity and flexibility given our low leverage.

On operating cash flow to fund the capital investment projects that we have shared today that we believe will create strong earnings growth in the coming years.

We're also in the process of monetizing the Arlington real estate and excess land at Calder, which will provide significant cash to reinvest in our business.

To pursue.

Pursue strategic acquisitions or to return to our shareholders.

As Bill stated the building blocks that we've put in place to support the ongoing growth of our company are real and tangible.

We believe our continued long term strategic focus on growth, including acquiring quality properties.

And started to our unique portfolio of assets and investing strategically in our existing properties.

Along with the thoughtful management of our balance sheet and access to capital will provide significant growth in adjusted EBITDA and free cash flow in the coming years.

All of this will enable us to deliver strong long term.

Our returns and to continue to return capital to our shareholders in the form of dividends and strategic share repurchases.

With that I'll turn the call back over to Bill So that he can open the call for questions Bill.

Thank you Marcia.

At this point, we'd like to open up the call for questions.

Ladies and gentlemen.

If you have a question at this time. Please press the Star then the number 1 key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Our first question is from Shaun Kelley from Bank of America. Your line is open.

Yes.

Shareholders good morning, everyone.

I just wanted to maybe start given all of the capital expansion opportunity is if we could just drill a little bit further on you guys gave a lot of color about the different projects on the timeline.

I'm wondering if you could just talk at a high level about rois on a little bit of your expectation for.

Kind.

Of which projects will take a little bit more time to ramp versus when youre going on which ones are going to be a little bit more of an immediate kind of an immediate payback.

Sure happy to address that.

So first when it comes to <unk>.

Churchill Downs racetrack, we usually target.

Returns.

Of.

And in the 6 to 8.

So so if you want to back into the expected EBITDA that we think when the project reaches mature maturity, we're really building to multiples that are.

Hum.

5 to 6 to 8 times, we've often beaten that Churchill downs racetrack, So that's given us.

Our confidence with projects for the facility are generally this group of projects is right in our sweet spot, we really understand the customer demand and the customer feedback with respect to these kind of products and we really understand the area, where these customers will be in and have lots of experience.

Modeling what to expect.

Generally when we open a project and we covered some of the timing.

During the initial commentary.

The Homestretch club will be opened by next Derby. The first term will be opened by the Derby. After that 2023, and then the paddock project.

<unk>, which is in the earlier designed phrase phase.

It is targeted to open 2024.

Generally in the first year.

The customer doesn't know the product so it's hard to sell the product based on experience because they haven't had the experience yet it's a new product.

But I have to say having been here a long time.

<unk> worked on a lot of projects usually the customer response is better than we really respect really expect even though there's no 1 out there to sell it by word of mouth from having actually experienced that.

The hospitality because.

They haven't opened yet.

But those things said obviously.

Word of mouth is an important selling point so generally the second year sales in the third year sales are even better.

But I would also I guess finished with respect to that question with the observation is these projects for Churchill Downs Racetrack are exactly on our sweet spot. This is exactly what our team is deeply experienced theyre doing and these.

Exactly the kind of projects we've done in the past. So we have a fairly good degree of confidence with respect to the construction process with respect to the sales cycle and with respect to the EBITDA generation once the project reaches maturity.

Great and then maybe just as.

My follow up.

You gave some color on some of the investments being made in twin spires, particularly for the launches of some of the new states as you've kind of moved to the new branding could you just give us a little bit more.

Color on the expectations for that going forward when do you start to expect to see maybe some.

These are existing on the market share front or is there further investment in marketing that needs to be made after the launch process, just maybe help us think about.

Investment for the back half, especially going into the NFL and then and then more importantly, how you expect maybe debt to operate over the next couple of years as you start to gain traction there.

Philosophic.

Lyrically, we did not want to focus on market share because generally in that market. We haven't been comfortable with what the competitors are paying for or what the customers are or what the competitors are paying to acquire customers. So generally we are not over and setting our teams to acquire market share and acquire customers because we don't see.

Wasabi or lot of that customer acquisition has long term profitable so for us we're building it methodically and carefully.

So that we have the right cost structure on the right DNA for how to run the business and then on some of the noise that we think is currently market in the market settles down we'll be able to better assess how.

<unk> maximize that business for our company.

With respect to.

On the.

The upcoming football season, Yes, I mean, I think we already know enough to say that online sports wagering.

Has cyclicality it has seasonality to it in football College and professional is a really big.

How to better the seasonality.

We think some of our improvements on how we operate that business are going to be a little a little opaque just because we're heading into the <unk>.

And to the customer acquisition portion of the year or so so we will balance those things, but in general we think.

Customer acquisition.

Big part costs will will consume some of our operational improvements.

As we head into football season, but again, you can trust with our company, we're not acquiring customers unless we think we have a plan to be profitable with with respect to those customers over the long term.

Thank you very much.

Our next question is from David Katz from Jefferies. Your line is open.

Hi, good morning, everyone and thanks for all the detail so far.

Aye.

I wanted to just hone in on 1 detail, which was I think at 1 point, we may have expected that there would be.

HR ends at Churchill Downs Racetrack.

I think though you may have touched on it.

Some of the decision.

Not too can you elaborate on that just a bit I am just curious sort of how have those thoughts came together sure.

Sure David I'm happy to do that.

With the pandemic.

A lot of businesses out there, we reassessed everything and and.

I know, there's always a lot of optimism with respect to the future.

And we share that too, but we're always thoughtful and careful about our capital investments on about our business planning.

And so when the pandemic.

<unk> hit we rethought everything in here a couple of things. We learned 1 is Derby city gaming is even more of a juggernaut than we ever thought.

And generally in business it doesn't have to be complicated when you have something working well invest more on what's working so Derby city gaming really powered right through the pandemic.

And we need to respect that and invest around that so that was a better property than we ever could have hoped for and we're going to continue to grow it for the benefit of the company and for the and for the benefit of the horse industry in Kentucky, which also then benefits Churchill. So we saw a lot of strength coming out of Derby.

City gaming and with respect to the track a lot of our original plans pre pandemic with respect to the track.

We're very.

Forward thinking it involve new business models around very high end hotel hospitality, we're very excited about it.

But with.

We decided to go back to you right now what we really really know so we really reshuffle. Some of these projects doesn't per crude lot preclude long term hospitality at Churchill Downs racetrack or any project that we might have thought about in the past, but we wanted to reshuffle the deck and focus on on what we know works at Churchill Downs.

<unk> and when it comes to the <unk>.

Put them, where we know it works, which is which is Derby city gaming.

And take a look at the opportunity that we see coming out of our rebuilding downtown so.

Think as a company.

We just did the mature thing revisited all.

Pam are projects reassess the risk took what we learned coming out of the pandemic and reshuffled our debt to focus on what we thought would work best and fastest in the near term. So as it stands right now we don't want to put <unk> at Churchill Downs Racetrack, it's close to Derby City gaming and we think it's a better investment.

For our company to invest in Derby City gaming and also.

With respect to <unk> and also look downtown and when it comes to Churchill Downs Racetrack focus on what Churchill Downs Racetrack really is best debt, which is monetizing the Kentucky Derby.

Understood.

And.

I know.

I know that you've touched on sort of a digital gaming efforts.

But I wanted to go back to that just a little bit.

I clearly understand Inc.

On the strategy not to gain market share and to build profitably and I also.

Also understand the notion of building a branded integrated.

Enterprise in conjunction with your land based efforts at the same time.

There are other strategies that others have pursued where.

<unk> done it a JV or just on sort of with.

But set a strategy and leadership.

So forth how do you think about sort of those competing issues.

On the.

The decision to sort of build it within Churchill structurally the way it is versus perhaps having it in a kind of a separate channel for a separate.

Enterprise.

Well first I'd say that.

Within our digital assets, we have a very very successful 1.

By anybody's estimation it's.

It's the most profitable.

Digital assets and the online gaming space and that's true that's true.

On inspire.

So.

There is nothing.

With respect to how we approach digital we know what's worked for us.

And and.

And we all we want to respect those lessons that we think we've learned being in this business for a long time and it.

Buyers, whom we study everybody else relentlessly we constantly are trying to learn from what everybody else is doing.

And and reflect that in our business plans and business processes, but.

But I think with respect to.

The capital structure of the ownership structure.

We've seen some of the different structures that are out there that other companies have done the spacs or the or spinoffs or what have you, but I don't really think that's relevant for right now.

Right now it's.

It's build a great business build the business with the right DNA thats going to be successful long term.

At the same maybe because we've been in the digital business for a while with horse racing in twin spires, maybe that puts the Ah <unk>.

More of a longer term focus maybe maybe maybe it causes us to think long term, but with deep respect for the significant competitors that are out there that have accomplished all kinds of.

Of things.

We have to do it the way that we know works for us and.

For those that have followed our company and invested in us over the long period.

I think they have some confidence in us is like we have confidence on ourselves.

We will do the right thing with this group of assets.

But building it too fast or building it was inappropriate marketing.

Your capital structure in the end isn't going to fix that it isn't going to change that and isn't going to fix that so our focus as a team is.

Build the asset correctly and overtime, we will have the best strategy for us for how to how to.

Maximize its value to Churchill.

Churchill Downs.

Okay, great. Thanks very much.

[noise].

Our next question is from Jordan Bender from Macquarie. Your line is open.

Hey, everyone. Good morning, you've alluded to now growing HR and fees.

Several of your properties on the call you have approved 7000 units in the state of Kentucky between the main facilities in annexes.

Look out over the next several years are you do you anticipate reaching those 7000 units.

Future capital projects.

If you work towards that.

Okay.

Well.

We'd be the first to tell you that.

We don't have a crystal ball, but we always make plans and the thing I think about our company that we can promise you is that we're always revisiting our plans and seeing what the what the presence teaching us about the future.

So I don't have any comment on ultimately how many HR EMS, we have in Kentucky or any other place.

All I can promise you that we'll learn from our results and.

Ultimately the number of machines you have in Kentucky.

Unlike some jurisdictions isn't isn't statutorily driven.

And you can have as many and you can apply for as many as you need and you want the regulatory on the legal regime isn't really designed to to enforce a fixed minimum.

Minimum or maximum so we'll right size the number of machines, we use on the jurisdiction based on on on how things go and and accord.

<unk> with our expectations on a return on our on our invested capital.

Okay. Thank you.

And then you've touched on it quite a bit on the call day for twin spires.

Can you talk about the conversion that you've seen from the debt Americas platform in your horse racing platform.

To the sports betting on gaming.

In the states that go on so far thank you.

Yeah.

So I just wanted to make sure I give you a good precise answer would you mind just restating. The question again I don't want to answer a question different than the 1 you asked.

Yeah.

On Q for kind of a day conversion that you've seen from the bed Americas platform and your twin spires horse racing platform on to the sports betting I gaming App so far.

Well I think it's.

Yeah.

Over the introduction of lots of states Youll see.

See the true power of that taking what are very strong horseracing customers were really the model is much different than what you see generally in sports wagering on horse racing. We have very very good long term customers that we know a lot about versus the sports wagering online sports Wagering World, where were meeting a lot of new customers and.

In cycling through and filtering through lots of customers to find good ones. So the fact that we have a database across a whole bunch of states of very good gaming customers, who have been focused on horse racing is definitely an advantage for our company as we deploy other online products.

State, but we're still at a point, where we haven't seen a huge number of states that are open and a huge amount of time in the states that are open to really tell the definitive story of what that database will mean, so we're in the early days of it but it's theoretically it's conceptually and it's actually an advantage to have this data.

Into this but thats something thats, playing out now and will over will play out over the next.

Number of years, so I don't want to characterize it as a success at this point because we got to go out and prove it and that's to come on the upcoming quarters and years.

Okay. Thank you.

Our next question is from Brett Andress from Keybanc. Your line is open.

Hey, good morning, Thanks for taking my questions.

So on the Derby city expansion.

Just the thought process on adding a hotel there I'm just curious how that plays into the future growth.

Debate on that property and maybe the evolution of the customer base, there or is it really just as simple as.

A backdoor way to add hotel capacity around the Derby.

It is now.

<unk> focused on adding.

Backdoor capacity as you called it.

For the Derby.

Although there certainly that won't hurt and certainly that can be an advantage. This is a gaming driven hotel. It's it's modeled after some of the other things we've done in the company whether you look at what we've done on Oxford on what we're doing in Oak Grove.

Or what we've what we've experienced in Mississippi with our hotels, it's designed to stretch.

The market, we can reach into so we can reach customers who are further away who have farther to travel and with respect to our good customers. It can allow them to stay and play longer at our facility. So it has modeled very very conservatively.

Based on our gaming hotel proposition.

The fact that it might have some benefits being close to Churchill downs on the Kentucky Derby is gravy, but this is a straight up this is a straight up disciplined application of what we've learned from our hotels at our other properties that are other gaming facilities in the United States.

Got it Alright, and then just can you just talk a little bit about the ramp of out.

Growth I mean margins continue to.

Gradually step up there, but is there anything in the back half of 2021 or 2022.

Our going on at that property that we can start to see that property closed the gap with <unk>.

Derby City.

Yeah.

Yes. This is bill Mudd, we're very pleased with the ramp there.

We're seeing there clearly ahead of where we had planned internally.

For the investment into that property.

As Bill stated, we're still below 15% penetration in the Nash.

Nashville market, it's about an hour drive from the Nashville market, we're growing that database.

Every day.

Pleased with with how it's going obviously, the weekend Friday Saturday and Sunday are you know already.

At or near where we are at.

Not quite there yet, but we're we're closing the gap on Derby day on weekends. It's that early part of the week, we got to figure out how to get more people out of that national market.

And the Democrats.

<unk> makes sense for that Monday through Thursday period. So yes, there is clearly.

Much more opportunity to ramp that property and the team has done a great job doing it.

Alright, thank you.

Yeah.

And our last question is from Joe Stauff from Susquehanna.

<unk>.

Line is open.

Thank you good morning, Bill Good morning, Marsha Good morning Bill.

Couple of questions on twin spires. Please.

I'm wondering if you can maybe provide a little bit more commentary on on the.

The result of.

The added kind of bonuses and marketing spend for user growth on twin spires and is there any additional color you can give us I believe you had said <unk>.

Our record new player growth.

But I was wondering if you could maybe provide a little bit more commentary on what you saw.

Why don't you why don't you go through some of the stats, yes, I'd be happy to.

Comparing to 2000.

<unk> in the second quarter is a little bit of a misnomer because everything was shut down in the second quarter of last year true.

And of course, the Derby didn't happen in the second quarter of last year, but if you compare to the number of players that we had active.

Versus the second quarter of last year, we were up 150%.

If you compare it to the third quarter of last year, where we ran the Kentucky Derby.

We were we were up 46% versus the number of players will happen in that period and if you go back 2 years and say well how do you compare to the second quarter of <unk> 19, which remember was an all time.

Time record number of.

Handle.

We were up 15% in terms of players for that period. So.

Whenever you think about horse racing and twin spires online, it's much like what youre seeing in online sports betting.

You're taking the expenses in the current.

Current period to generate growth in the future and every year, we get 1 opportunity.

On an event like the Derby, it's bigger than any other event and horse racing to deploy large amounts of investment and every year, we keep pushing more.

Into the marketing spin and realize that we keep getting.

Good returns so every year from last several.

We've increased marketing spend this year was a bigger than than any increase we've seen a long period of time, because we did.

Pull back a little bit.

Last year.

And we were successfully being able to deploy that so it was great to see from that perspective.

Hopefully that answers your question, yes, that's very help.

Yes, I appreciate that bill and.

As we think about just what you've seen in 2 inspires an 80 <unk> EDW in general is.

Obviously huge growth here over the past 4 quarters and I was wondering.

Kind of where it is.

What you've seen thus far maybe in July out out of the.

Volume towards fiber CDW in particular as it continued similar too.

The trend in the second quarter I know Marshall had some commentary, but I was wondering specifically for.

Kind of how it's trending here, thus far in the third quarter.

Well I think in the second quarter, what you saw as we continue to grow.

No.

Twin spires.

And that was a day or in a period of last year in the second quarter largely everything was shut downs. So no..1 was able to go to a brick and mortar wagering facility to place bets on horse racing be it at a racetrack that was running races, because they weren't allowing patrons ends or an off track betting facility.

This.

This year, you've seen a lot of people start to go back to those facilities and Luckily that translated to a lot of growth across the industry and handle.

So the way I would characterize it on what do you think about it as are we are we maintaining some of the 2 things are we maintaining people interested in the sport and I think we are we've seen 4.

Quarters on a row of strong growth across the industry.

Anywhere from 38%.

6% I think was last years.

Fourth quarter and what we're seeing is about half of those people that went on line or staying on line. There are some people that want to put their money through the window.

So we're.

We're happy with where we are.

We're growing the entire customer base and we're also keeping a good percentage of those people that decided to wager on line when they can no longer going to brick and mortar facilities and those people that don't are going back to brick and mortar facility. So I think it's a win across all parts of the business.

That makes sense.

We're very.

And then Bill I was wondering.

What your thoughts were just with respect to your gaming portfolio and <unk>.

Similar to your competitors you guys have generated huge margin gains and as the world Normalizes and.

You think about what you have to add back in terms of non gaming amenities or more promotions or whatever.

What portion or.

All of that savings do you think is more permanent than not.

Sure so.

Yeah.

And I always want to be careful about what's fact and what's what.

Conjecture.

So what we see right now is.

Not generally tremendous pressure from our competitors to have to restore amenities.

And excess cost so I think the industry.

In my opinion.

The industry has learned something through this and the industry has become more focused on on margins in the industry was forced to adapt to the circumstances, we were in and that we continue to begin with with access to workers.

We all got through a test a lot of assumptions about.

Pinion best operate a casino and what the target margins ought to be so I think there's been some learning for our company and some learning for others.

That I hope will sustain itself overtime right now what we see is.

It makes us have a lot of confidence that we can maintain our margins.

Into the foreseeable future.

Future, so I feel pretty good about that.

But that's what I know right now we don't see any pressure on margins.

For the foreseeable future, we think we're going to be operating on is under a similar paradigm to what we operate in now and we will keep reevaluating that every quarter, but we certainly think this is a better way to run casinos and we hope competitors.

How to do that too.

But we'll all get a chance to measure that over time, but we clearly as a company are very focused on margins. We are very focused on efficiency.

We like the general trend that our facilities have been able to go on.

And really we think thats been good for.

<unk> as a whole to follow a similar projections.

Thanks very much.

I am showing no further questions at this time I would now like to turn the conference back to Mr. Bill gross Tien tsin. Thank you.

I want to thank you all for your interest on our company.

And your investment in our company and I look forward to seeing you all in person when the opportunity affords itself.

But in the meantime, we're going to keep doing what we do so we appreciate your confidence in us and your guidance and we're going to go out and execute on these initiatives that we laid out in front of us.

So thank you very much.

Enjoy the weekend. Thank you.

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

[music].

Yes.

[music].

Today.

[music].

On that.

[music].

Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2021 second quarter 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 as a reminder, this go.

This call is being recorded.

I would now like to introduce your host for today's conference Mr. Nick Zangari, Vice President Treasury and Investor Relations.

Thank you Katrina good morning, and welcome to our second quarter 2021 earnings Conference call. After the company's prepared remarks, we will.

Open the call for your questions. The company's 2021 second quarter business results were released yesterday afternoon.

A copy of this release announcing results and other financial incentives to go information about the period to be presented in this conference call, including information required by regulation G is available at the section of the company's.

On the front book titled News, located at Churchill Downs incorporated Dot com as well as in the website's Investor 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.

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.

<unk> of new information or future events. During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, the press release and form 10-Q are available on our website at Churchill Downs incorporated Dot Com and now I'll turn the call over to our chief.

Speed of officer, Mr. Bill car standard.

I will provide brief comments on our second quarter.

Exactly and then I will share some updates on our capital investment plans for Churchill Downs Derby City gaming and our other growth initiatives.

After my comments Marcia will provide more detail on our second quarter performance. Then we will open up the call for questions.

Regarding our second quarter results overall, we delivered the highest.

<unk> revenue and highest adjusted EBITDA for the second quarter that we've ever generated in any quarter in the history of our company. Despite running the 147th Kentucky Derby and operating our gaming properties with a variety of COVID-19 related restrictions.

We were very pleased with the overall results of the Kentucky Derby.

<unk>, which we ran under significant state mandated capacity restrictions.

Instead of our typical 150000 to 170000 fans, we welcomed approximately 52000 back to Churchill Downs racetrack at.

At the time of its running on the first Saturday in May our event represented the largest number of fans to attend to supporting.

Event in the United States in 2021.

'twenty.

This was not quite back to the previous record set in 2019, but was very close and still represents the second best all sources wagering numbers of all time.

Given the capacity restrictions at Churchill Downs racetrack and at brick and mortar facilities across the country. We're very very pleased with that.

Inspires generated record handle of nearly $63 million on the Derby day program up 66% over 2020 and.

And record handle of nearly $41 million on the Derby racing alone up 75%.

To put this in further perspective twin spires handle on the Derby day program was up 29%.

<unk> and handle on the Derby race itself was up 35% compared to the previous records set in 2019.

We are grateful to our sponsors of the Derby remain so committed to the events throughout the pandemic as well as our MDC partners.

We along with NBC, we're extremely pleased with this year's nearly.

Million average viewers, marking a 54% increase over the 2020, Kentucky Derby.

Up through the day to the Derby the television audience topped all Entertainment award shows for the first time ever and marked Nbc's most watched broadcast since the NFL divisional playoffs in January.

6 to as we look towards the 148, Kentucky Derby in 2022, we see extremely strong ticketing demand and.

And with the projects, we will touch on shortly feel a great deal of optimism for the future of this iconic event.

Our HR and facility facilities in Kentucky performed very well on the second quarter with.

With Derby City gaming delivering record net revenue record adjusted EBITDA and record margin.

Our Oak Grove, HR and facility also performed very well on the second quarter.

The team opened the amphitheater and Equestria and center delivered strong double digit sequential growth in net revenue and adjusted and adjusted EBITDA and expanded margins All records.

<unk> for the quarter.

Regarding our Newport racing and gaming facility.

We decided to create 2 distinct areas within the facility the new area will be designed.

Designated smoking and the existing area will remain smoke free.

We plan to build a Newport gaming facility for approximately $38 million and came.

Your budget.

We are utilizing the remaining capital we had not previously spent at least on finish out nearly 13000 square feet next to the existing gaming floor.

We are relocating 150 of the existing <unk> into the new smoking area to create a more spacious environment and we're also adding a new bar area.

This lease expansion also provides additional parking and improves our outdoor signage. We expect to have the project completed in late November of this year.

And on.

The addition of HRS game titles in cabinets from aristocrat IGT and scientific games, and Konami will enhance our customers' entertainment experience beyond our strong original offering of Ainsworth titles.

Equally importantly, we have generated a significant increase from first money to attract more and better quality.

The horses to Churchill Downs racetrack as well as to our other racetracks, which helps strengthen the foundation of the entire horse industry in Kentucky.

Regarding our twin spires horse racing business as I mentioned earlier, we benefited from the return on the Kentucky Derby to the first Saturday in May in contrast to last year, when the Kentucky Derby.

Offering late until September.

As a reminder, the majority of our annual marketing budget for twin Spires has always spent around the derby.

Derby week enables us to inexpensively acquire a significant number of new customers driving down our cost per install which is a key metric for us.

This year Derby weeks at many all time records for.

Twin spires horse racing with a record number of unique players and a record number of first time depositors compared to last year's pandemic year.

And there was little opportunity to access the derby other than online.

However, user acquisition and CRM spending as a drag on our second quarter EBITDA, because we cannot recapture all of the spend in the same quarter.

We should recover the spending over the next 3 quarters, which is less than a 1 year payback on the investment.

It is actually very encouraging that we were able to deploy more user acquisition and CRM dollars than ever before than ever before during this year's Derby week, we spent $7 million more than last year and $3 million more than second.

Second quarter of 2019.

The spend grew our customer base, which we believe will fuel our growth in the future.

2019 Red.

Revenues for twin Spires horse racing were up 33% and adjusted EBITDA was up 42% over 2019.

Regarding our twin spires sports and casino business, we launched our App under the twin spires brand in Colorado, Pennsylvania, and Indiana during the second quarter.

Following our launch in Michigan, and Tennessee in the first quarter.

Given the additional marketing spend to support the launch of our apps in these states. We had a net loss of adjusted EBITDA of $11 million in the quarter for this business.

We remain careful on patient and our ongoing build out and we hope you recognize as long term investors that.

The disciplined approach we are taking today will pay off we will efficiently expand our footprint and grow the business slowly over time with disciplined acquisition and marketing spend.

Which will enable us to maximize the potential value of this business in the long term.

Even though football season is approaching and depending on the pace of final.

<unk>.

We may see launches on a couple of new Jersey jurisdictions like Louisiana.

In Maryland, we believe the loss from this business in the second half of the year will be similar to the first half.

Turning to our gaming segment.

Our gaming segment delivered all time record levels of net revenue.

Canoe and adjusted EBITDA.

Our wholly owned gaming properties continue to generate high margins coming out of the pandemic, including nearly 4 percentage points of sequential margin expansion in over 10 percentage points of margin expansion compared to the same quarter of 2019.

We are pleased with our regional gaming properties performance and we believe.

To maintain these higher levels of margins for the foreseeable future.

Our equity investments in River Casino and Miami Valley Gaming also performed quite well on the quarter compared to the prior periods.

And reflected the exceptional locations of these facilities in large markets.

Both properties delivered all time records for.

<unk> revenue adjusted EBITDA and margins.

Across our segments.

The key to delivering these results center around our continued long term strategic focus on growth on.

Our focus on building and acquiring high quality properties, making smart capital investments on our existing properties.

Careful planning regarding our balance sheet.

And the quality and focus of our operational leadership teams.

Our company has a track record of delivering long term total shareholder return and exceptional organic growth opportunities.

We have a unique set of assets in each of our segments that we believe will continue to fuel strong growth in the coming years.

There are 3.

3 groups of capital investment projects that will further transform our company over the next 5 years.

The first set of projects and involves the multi year expansion at Churchill Downs racetrack to provide once in a lifetime experiences for our guests as we approach the 150 <unk> running of the Kentucky Derby and 2024.

We are excited to announce.

2 multiyear projects that we believe will generate consistent adjusted EBITDA growth with nominal levels of risk.

The first project is the Homestretch club.

We plan to invest approximately $45 million to transform a section on the grandstand area that is adjacent to the winner circle suites and below the jockey club suites.

3 in this area includes the bleacher seating that is adjacent to the track rail.

Guests, who are in these data first and second floor bleachers previously had access to very old first floor concourse area under the jockey club suites that is not air conditioned and has limited amenities.

Based on our on.

Feedback from our customers we have re imagined this section to create several new reserve seating products.

We will also transform.

On the first floor concourse into a special hospitality club that will create an air conditioned space for guests to gather in between races to place a bet enjoy the all inclusive food and beverage offerings orange away on their high end amenities and activities.

The outdoor portion of this project, replacing the bleachers will include several new premium seating offerings for approximately 3500 guests.

These willing to consist of.

Trackside lounges that are adjacent to the track rail and will provide a courtside seat experience.

Terrorists dining tables that will offer covered outdoor dining position close to the racetrack stay.

Stadium style cushion seating.

And private hospitality rooms that are available as an upgrade for guests seated in any of these new areas.

While the total number of seeded patrons will decrease from 5200 and the current configuration to 3500 in this case lessons more the significant improvement and amenities will drive commensurate increases in ticket prices displace customers, who do not wish to upgrade will have other options, including what I will.

Outline in a moment.

We anticipate that the Homestretch club will be completed in time for the May 2022 Derby.

The second multi year capital project is to turn 1 seating expansion.

In past years, we have built a temporary structure on the first term.

At the track that accommodated 3400 guests.

This area has historically been a customer favorite is it offered an introductory price point and includes great views of the first turn and the Big Board.

[noise] are turned on seating expansion project will replace these 3400 seats with 7100, new permanent seats 4 in total investment of approximately $90 million.

This new area will will create 2 distinct ticket offerings for our guests.

The first area will add 2000, new premium dining seats inside a new 50000 square foot first floor hospitality venue.

This area will provide a slew of upgraded amenities for these guests will also have access to a reserve trackside terrorists on the track rail to view the races and other signature moments throughout the day, including watching the horses walk over to the starting gate for the Derby.

This project will also add covered stadium seating for 5100 guests, who will have access to all inclusive food and beverage offerings on 2 new elevated concourses built behind the new stadium seating sections.

This project will take longer to complete than the Homestretch club and we are therefore planning to have this open on May 20 twenty-three Derby.

Both the Homestretch club and it turned 1 project law for personal seat licenses. There also be opportunities for sponsor naming rights partner activation footprints and special events sales to generate additional revenue over the long term.

The third multiyear project involves an expansive redesign of the paddock area, including the areas underneath and adjacent to the historical twins the historic Twinspries.

In addition to introducing new and innovative seating experiences this.

This project will reduce congestion by significantly improving the flow of guests through the paddock and plaza areas. We are so excited about this project because it will enhance the overall experience for nearly every guest comes to a racetrack.

We are still on the early design phase of this project, which we are tentatively planning to debut for the 150th anniversary of the Kentucky Derby and May 2024, we will provide updates on this project on our earnings calls going forward.

1 last note on Churchill Downs racetrack on.

Our new turf course is on target for completion later this year.

The new turf course will have a wider running surface greatly increase the durability of the racecourse and improve the safety for our equine athletes on jockeys.

In general Turf racing generates more wagering per race, and we should get more races, and a better quality more predictable surface with a new addition.

Or 10 million dollar investment is a further indication of our confidence on our racing and wagering product and an investment in the growth of the Kentucky Derby.

Second group of capital projects are the organic investments, we're making a new high growth historical racing and gaming Entertainment properties.

Our commitment to being disciplined and growing profitable businesses is reflected in organic investment in these entertainment venues.

We have 5 unique H R M growth opportunities that are underway, including expanding our Derby city gaming property.

Developing another H R M facility in Louisville.

Executing the growth plans that are Oak Grove property.

Building out the H R. M facility at Turfway Park, and expanding R. O T. P network in Louisiana to include HR ounce.

Regarding our Derby City gaming property.

We continue to be very pleased with the growth of this venue and believe that additional expansion and other amenities will further enhance its longterm growth potential.

We will be investing approximately $76 million to expand the property, including the addition of a 5 storey 123 room hotel. The project will add 41000 square feet of new gaming floor space and will initially accommodate 200, new H R. M game decisions.

A new VIP gaming space and a new sports bar on stage for live Entertainment.

It's clear that Derby city is working and.

And we will invest where we where things are going well.

Our Oak Grove H R. M. In hotel, then you're still on the very early stages of maturity and should provide ongoing growth as we expand our marketing to draw on more customers.

We estimate that we are less than 15 per cent penetrated into Nashville market and our wind per unit per day is already exceeding our our expectations for this early in its maturation cycle.

We believe there are significantly more opportunity for growth from this property.

We are also working on an H R. M annex facility in connection with our Churchill Downs Racetrack license that will add additional H R. M gaming positions in the Louisville market.

We are not yet ready to announce the specific location of this facility, but we confirm that it will not be at the racetrack itself and will be designed to capture more of the downtown in tourist market.

We will share more details over the coming weeks I was there as our plans are finalized.

We think now is a great time to invest on our hometown.

And that it will be a win win for our community and Churchill Downs.

Our investment and build out of our turf way Park racing in H R. M Entertainment venue is continuing and we are on track to open the facility in the summer of 2022.

Finally, we were very pleased that the Louisiana State legislature passed the bill on the second quarter that has been signed by the governor providing for the introduction of HR into Louisiana.

The Bill specifically allows fairgrounds to have up to 50 H R M as in each of our off track betting locations.

We are currently operating 15 off track betting locations in Louisiana, Most with video poker machines and are developing plans to incorporate up to 50 H R. M. As in each of these facilities, we expect to spend approximately $35 million upgrading R. O T B's and expect to have H M. M's operational starting next year.

The regulators are working on the necessary regulations, we will provide an update on our progress on our next earnings call.

Third group of capital projects.

Relates to our gaming properties. The most significant project in this group as the rivers expansion as we discussed last quarter rivers 87 million dollar expansion plan is on track for a phased opening starting in the first quarter of 2022.

The rivers expansion will accommodate approximately 725 gaming positions based on a combination of new slots and table games and the facility will be the first in the state that have the maximum number of 2000 positions.

The first floor expansion will host a great day gaming area, a new restaurant and a new event center. The second floor expansion will include a new gaming area and a new poker area.

Collectively these capital investment projects are the building blocks that we believe will propel strong revenue on adjusted EBITDA growth over the next 5 years. These building blocks are real and they're tangible.

We continue to have a very strong balance sheet available with significant cash and liquidity.

And with the near term opportunity to monetize 2 significant properties Arlington Park and the excess land at are called or per property. We were very excited.

Regarding Arlington Park, we have received numerous bids from interested parties for the land and are working through the process to select the final winning bid we will provide an update when we have selected the winning bidder.

Regarding Calder, we've launched the process to sell the excess land around are called a casino. We've already received multiple unsolicited bids, but expect it will take some time to run the formal process.

We will provide an update on appropriate but are moving with all deliberate speed.

In summary, the strong free quiet the strong free cash flow of our businesses with the potential monetize underutilized assets enables us to maintain low leverage investing organic and inorganic growth opportunities pay increasing levels of dividends and strategically repurchase shares over the long term for our shareholders as we discuss.

Just we have a lot of opportunities that are in the execution phase and we have the capacity to land more projects as they develop we think the horizon is never looked brighter for us.

With that I will turn on the call over to Marsha and when she is finished we will open up the call for questions Marsha. Thanks.

Thanks, now and good morning, everyone and once again with some insights into our second quarter financial results and then I will provide an update on a capital management plans.

We are very pleased with our second quarter financial results and with the growth plans that are underway to transform our company and feel a strong garlic in the coming years.

Our team delivered record net revenue and record it just EBITDA on a consolidated basis in the second quarter.

More importantly, our team is on track to deliver the highest level of net revenue and the highest level of adjusted EBITDA for the total here that our company has ever generated.

Turning 2 or 3 business segments I live in historical racing segment generated $191 million of net revenue and $98 million of adjusted EBITDA in the second quarter.

Sure. It's a downs team ran a successful hundred and 47th Kentucky Oaks and Derby, despite capacity restrictions, which limited reserved seating. We appreciate all the fans that waited on the races that week and the support of our sponsors as well as N B C. On.

On their ticketing revenue for it every week if the primary driver on our net revenue and adjusted EBITDA Wagering extension of sponsorships and the broadcast rights for the Derby are also important components of our adjusted EBITDA growth.

The 3 new multiyear projects at Churchill Downs Racetrack will significantly improve the existing venue upgrade amenities and provide a unique all inclusive experience for aghast on.

All of which will drive increased pricing.

The homestretch cloud and turned on extension projects well add 1750 premium reserved seats by May 2023, and will include additional personal seat licenses, allowing us to further segment our ticket pricing.

These new areas will also provide the opportunity to standard sponsorships in the coming years.

The Panic project will also improve and elevate the experience for all of our patrons.

I'm personally very excited for the transformation that will occur over the next 3 years Detrition Downs racetrack as we prepare for the hundred 50th running at the Kentucky Derby in May 2024.

These 3 multiyear projects alright, very capital efficiently for us to extend this iconic asset and to create strong long term shareholder returns.

Turning to our H I M properties and the segment nearly a third of the $95 million of growth and adjusted EBITDA from this segment was driven by our Derby City gaming and Oak of H M properties in Kentucky.

Every city gaming performance continues to exceed our expectations delivering record net revenue adjusted EBITDA and margins for the second quarter.

Continued strong performance at Derby City gaming clearly supports the business case for expansion on this property in the coming year.

This is only the third full quarter that okay that has been in operation and the property is performing ahead of our expectations. We believe okra will deliver strong growth and adjusted EBITDA as we extend our market reach within the national communities.

Turning to our Twinspries segment adjusted EBITDA for the quarter from your twin Spires horse racing business declined $8 million compared to second quarter last year.

The majority of this decline is it related to the timing of user acquisitions spending and bonuses for existing customers.

We spend more on customer acquisition around Derby week, and any other time of the year, because twinspries is able to market more efficiently during derby week and as a result, we are able to significantly reduce the cost of acquisition of a large cohort of people who'd like to wager on horse racing.

We were able to deploy more marketing dollars than ever for this year's Derby and the payback is still projected to be under 1 year.

Oh this is a drag on 2021 profitability, we will realize the benefits of this spending over the next 3 to 4 corners.

Twin spires the horse racing business benefited from a 9 per cent increase in handle primarily because of the timing of Derby week and because the Preakness was around during its typical second quarter timeframe.

As Bill mentioned Twinspries delivered record handle on the Derby day program as well as the Derby race.

Some customers returned to brick and mortar properties to later in the second quarter of 2021. However, we expect that the penetration of online wagering on horse racing, who remain elevated can preview Sears, albeit not at the same level is is that in the second quarter of 2020, when most brick and mortar betting options for horse racing.

We're not open due to the COVID-19 pandemic.

Regarding sports on online casino business generated a loss of $11 million in the quarter to the marketing and promotion on activities as we rolled out our rebranded Twinspries online App in Pennsylvania, Indiana in Colorado.

Now turning to our gaming segment, because all of our gaming properties for clothes for some portion of the second quarter last year. My comments will provide quarterly sequential comparisons in comparison to the second quarter of 2019, where appropriate to highlight how successful the second quarter of this year was for the gaming segment.

We're very pleased with the performance of all of our gaming properties in second quarter. Our team delivered record net revenue from a hole in casinos and record adjusted EBITDA from our entire gaming portfolio of assets.

We were pleased with the 22 per cent sequential growth and net revenue from <unk> from first quarter of 2021 second quarter of 2021 for homeland casinos, where.

We're also pleased with the 46 per cent increase and adjusted EBITDA and 3 and the 3.6% point percentage point margin expansion.

We have seen continued strong demand generally disciplined competitive behavior in our markets a dynamic that has continued to July.

Compared to the second quarter of 2019 net revenues increased 5 per cent adjusted even increased $44 million, 58% and a hole in casino property margins.

<unk> I over 10 percentage points.

Given our strong cost controls, we believe that our margins will likely remain elevated compared to the prior years for the foreseeable future.

We were especially pleased with the performance of various this plane's in Miami Valley gaming, which collectively contributed nearly half of $122 million on adjusted EBITDA <unk> EBITDA growth for the gaming segment.

Share to the prior year quarter and more than half of the $44 million adjusted EBITDA growth.

Compared to the second quarter of 2019.

[noise], both delivered record net revenue adjusted EBITDA margins as well as significant margin expansion compared to the same quarter in 2019.

These 2 properties also distributed a combined $25 million of cash to us in the second quarter. That's the properties returned to generating significant operating cash flow.

We believe the expansion it reverses planes and the ongoing growth at all of our gaming properties will fuel are adjusted our growth and adjusted EBITDA as well as the operating cash flow in the coming years.

Turning to capital management regarding contact capital, we've spent approximately $16 million on project capital in the first half of 2021 of which more than half was spent finishing the Oakland on facility.

The balance on the project Kapitalismus, then at Churchill Downs Racetrack and for site preparation that Turfway Park.

We anticipate spending $130 million to $140 million on project capital for the full year 2021 of which approximately half his plan for the build out of the Turfway Park H M facility and if he ongoing projects <unk> in Newport.

The remaining capital spending is primarily for the multi year capital expansion projects at Churchill Downs racetrack as well as an expansion of HR machines and facility enhancements to capture the H M opportunity in Louisiana.

We have spent approximately $14 million on maintenance capital in the first half of 2021, primarily weighted related to church announced racetrack and improvements to her twin spires horse racing platform.

We know anticipate spending $45 million to $55 million from maintenance capital in 2021, which includes $10 million for the new turf course at Churchill Downs racetrack, new slots and other maintenance improvement projects for gaming and a certain properties and ongoing improvements tour Twinspries horse racing platform.

Now regarding our debt and leveraged positions at the end of June 2021, we had net leverage a 3 point O times, reflecting the substantial improvement in our operating performance the increased our trailing 12 months adjusted EBITDA.

The waiver period for both of our revolvers maintenance covenants ended yesterday with our second quarter filings.

We were pleased although we had the waiver in place we met a revolver covenants through the entire waiver period.

We appreciate the support our bank group during this period of time.

We anticipate that are net leverage will continue to decrease over the balance of the year, we have plenty of debt capacity and flexibility given are low leverage installed operating cash flow to fund the capital investment projects that we have shared today that we believe will create strong earnings growth in the coming years.

We're also in the process of monetizing the Arlington real estate in excess land at Calder, which will provide significant cash to reinvest in our business to pursue strategic acquisitions or to return to our shareholders.

As Bill stated the building blocks that we've put in place to support the ongoing growth of our company are real and tangible we've.

We believe our continued long term strategic focus on growth, including acquiring quality properties to add to our unique portfolio of assets and investing strategically in our existing properties along with a thoughtful management of our balance sheet and access to capital will provide significant growth and adjusted EBITDA and free cash flow in the coming.

In years.

All of this will enable us to deliver strong long term shareholder returns and to continue to return capital to our shareholders in the form of dividends and strategic share repurchases.

With that I'll turn the call back over to Bill So that he can open the call for questions Bill.

Thank you Marcia.

At this point, we'd like to open up the call for questions.

Ladies and gentlemen, if you have a question on that day time. Please price. The Star then the number 1 key on your Touchtone telephone is there a question of the day manager or you registered on move yourself I'm Becky based price to pankey.

Our first question is from Sean Kelly from Bank of America. Your line is open.

Hi, Good morning, everyone I just wanted to maybe start given all of the the capital expansion opportunities. If we could just still a little bit further you guys are getting a lot of color about the different projects on the timeline.

Wondering if you could just talk at a high level about rois on a little bit of your expectation for kind of which projects will take a little bit more time to ramp versus when dragon, which ones are going to be a little bit more of an immediate kind of an immediate payback.

Sure happy to address that so first when it comes to.

Churchill Downs racetrack, we usually target returns of in the in the 6 to 8 a range.

So so if you want to back into the expected EBITDA that we think when the project reaches mature majority were really building to multiples that are.

5 to 6 to 8 times, we've often beaten that with Churchill Downs racetrack. So that's given us more confidence with projects for the facility are generally this group of projects is right on our sweet spot, we really understand the customer demand and the customer feedback with respect to these kind of products and we really understand the.

Area, where these customers will be in and have lots of experience modeling what to expect so generally when we open a project and we covered some of the timing.

During the initial commentary the home stretch call will be open by next Derby. The first term will be open by the Derby. After that 2023, and then the Paddock project, which is in the earlier design phrase phase will is targeted to open 2024.

Generally in the first year.

The.

The customer doesn't know the product so it's hard to sell the product based on experience because they haven't had the experience yet it's a new product.

But I have to say I haven't been here, a long time and worked on a lot of projects usually the customer response is better than than we really respect really expect even though there's no 1 out there to sell it by word of mouth from having actually experienced the the hospitality.

Because it hasn't opened yet, but those things said, obviously word of mouth is an important selling point. So generally the second year sales on the third year sales or even better.

But I'd also I guess finished with respect to that question with the observation that these projects for Churchill Downs Racetrack are exactly on our sweet spot. This is exactly what our team is deeply experienced that doing and these are exactly the kind of projects. We've done in the past. So we have a fairly good degree of confidence with respect.

To the construction process with respect to the sales cycle.

And with respect to the EBITDA generation once the project reaches maturity.

Great and then maybe just as my follow up you gave some color on some of the investments being made in Twinspries, particularly for the launches of some of the new states as you as you kind of moved to the to the new branding could you just give us a little bit more color on the expectations for that going forward when do you.

Start to expect to see maybe some.

Lift on the market share front or is there further investment in marketing that needs to be made after the launch process, just maybe help us think about investing.

Investment for the back half, especially going into NFL, and then and then more importantly, how you expect maybe that to operate over the next couple of years as as you start to gain traction on there.

Philosophically, we did not want to focus on market share because generally in that market. We haven't been comfortable with what the competitors are paying for our what the customers are paying or what the competitors are paying to acquire customers. So generally we are not over on sending our teams to acquire market share and acquire customers because we don't.

See a lot of that customer acquisition as long term profitable so for US we're building it methodically and carefully.

So that we have the right cost structure on the right DNA for how to run the business and then some of the of the noise that we think is currently market and the market settles down we'll be able to better assess how to best maximize that business for our company.

With respect to the.

The upcoming football season, Yes, I mean, I think we already know enough to say that online sports wagering as it has cyclicality it has seasonality to it in football College and professional is a really big part of the seasonality. So we think some of our improvements on how we operate that business or.

Going to be a little a little opaque just because we're heading into the into the customer acquisition portion of the year. So so we will balance those things, but in general we think customer acquisition costs will will consume some of our operational improvements as we head into football season, but again you.

Can trust with our company, we're not acquiring customers unless we think we have a plan to be profitable with with with respect to those customers over the long term.

Thank you very much.

Our next question is from David Cats from Jeffrey the line is open.

Hi, good morning, everyone. Thanks for all the details so far I.

Wanted to just hold on and on 1 detail with which was I think at 1 point. We may have expected that there would be HR ends at Churchill Downs racetrack on and I think though you may have touched on.

Some of the decision.

Not too can you elaborate on that just a bit I am just curious sort of.

How how those thoughts came together.

Sure David I'm happy to do that.

Yeah with the pandemic like a lot of businesses out there, we reassessed everything and and I know, there's always a lot of optimism with respect to the future.

And we share that too, but we are always thoughtful and careful in about our capital investments on about our business planning and so when the pandemic cat hit we rethought everything on here a couple of things. We learn 1 is Derby city gaming is even more of a juggernaut than we ever thought and generally in business. It doesn't have to be complicated.

Hated when you have something working well invest more on what's working so Derby city gaming really powered right through the pandemic and we need to respect that and invest around that so that was a better property than we ever could have hoped for and we're going to continue to grow it for the benefit of the company and for the and for the benefit of a.

The horse industry in in Kentucky, which also been benefits Churchill. So we saw a lot of strength coming out of Derby City gaming and with respect to the track a lot of our original plans prepandemic with respect to the track.

We're very.

Forward thinking and involve new business models around very high on hotel hospitality, we were very excited about it.

But with the pandemic, we decided to go back to right now what we really really know so we really reshuffled. Some of these projects doesn't per crude law preclude longterm hospitality at Churchill Downs racetrack or any project, we might have thought about in the past, but we wanted to reshuffle the deck and focus on what we know works at Churchill.

<unk>.

And when it comes with the H R M.

Put them, where we know what works, which is which is Derby city gaming and.

Take a look at the opportunity that we see coming out of a rebuilding downtown so I think as a company.

We just did the mature thing revisit it all our our projects reassess the risk took what we learn coming out of the pandemic and reshuffled our deck to focus on what we thought would work best and fastest in the near term. So as it stands right now we don't want to put H R. M. At Churchill Downs Racetrack, it's close to the Derby.

City gaming and we think it's a better investment for our company to invest in Derby City gaming and also.

With respect H R M and also look downtown and when it comes to Churchill Downs Racetrack focus on what Churchill Downs Racetrack really is best debt, which is monetizing the Kentucky Derby.

Understood.

And I know.

I know that you touched on the digital gaming efforts.

Yeah, but I wanted to go back to that just a little bit because I I totally understand intended strategy not to gain market share and to build profitably and I also understand the notion of building a branded integrated.

Enterprise in conjunction with your land based efforts at the same time.

There are other strategies that others have pursued where it's.

It's done at a J V or some sort of with a separate set of strategy and leadership and so forth. How do you think about sort of those competing issues and.

The decision to sort of build it within Churchill structurally the way it is versus perhaps having it in a kind of a separate channel or a separate enterprise.

Well first I'd say that.

Within our digital assets, we have a very very successful 1.

By anybody's estimation.

But most profitable.

Digital asset in the online gaming space and that's true that's twinspries. So.

There's nothing.

There's.

With respect to how we approach digital we know what's worked for us.

And and and we all we want to respect those lessons that we think we've learned being in this business for a long time and at the same time, we study everybody else relentlessly. We constantly are trying to learn from what everybody else is doing and and reflect that in our business plans and business process.

<unk>.

But I think with respect to.

The capital structure of the ownership structure.

We've seen some of the different structures that are out there that other companies have done the spacs or the or or spin offs or what have you, but I don't really think that's relevant for right now.

Right now it's it's.

Build a great business build a business with the right DNA, that's going to be successful long term I think maybe because we've been on the digital business for awhile with horse racing and Twinspries, maybe that puts a.

More of a longer term focus maybe maybe maybe it caused us to think long term, but with deep respect for the significant competitors that are out there that have accomplished all kinds of of of of things.

We have to do with the way that we know works for us and for those that have followed our company and invested in us over the long period I think they have some confidence on us just like we have confidence on ourselves that we will do the right thing with this group of assets, but building it too fast or building it was inappropriate marketing your.

Capital structure in the end isn't gonna fix that it isn't going to change that and isn't gonna fix that so our focus is a teen is.

Build the asset correctly and and overtime, we'll we'll have the the best strategy for us for how to how to.

Uhm maximize its value to Churchill downs.

Okay I agree thanks very much.

Our next question is from Jordan vendor from Mcrae Your line is open.

Everyone. Good morning, you've alluded to now grown to HR on face at several of your properties on the call you have approved $7 an units in the state of Kentucky between the maid facilities annex is as we look out over the next several years are you do you.

[laughter] paint, reaching those $70 a unit.

Maybe <unk> future capital projects be work towards that thanks.

Well.

We'd be the first to tell you that we don't have a crystal ball, but we always make plans and and the thing I think about our company that we can promise you that we're always revisiting our plans and seeing what the what the presence teaching us about the future. So I don't have any comment on ultimately how many <unk>, we have in Kentucky or any other place.

All I can promise you that we'll learn from our results and.

Ultimately the number of machines you have in Kentucky.

Unlike some jurisdictions isn't isn't statutorily driven you can have as many as you can apply for as many as you need and you want that.

The regulatory in the legal regime isn't really designed to to enforce a fixed minimum or maximum so all right size. The number of machines. We use on the jurisdiction based on on on how things go and in accordance with our expectations on a return on our on our invested capital.

Okay. Thank you and then you have touched on it quite a bit on the call but for twin spires can you talk about the conversion that you've seen from the bed America's platform in your <unk> horse racing platform on to the sports betting gaming App and.

In the state that you go on so far thank you.

Say say I just want to make sure I give you a good precise answer would you mind just restating that that question again I don't want to answer your question different than the 1 yes.

Yeah, I'm, just looking for kind of day conversion that you've seen from the bed America's platform and your Twinspries horse racing platform on to the sports betting Igaming App so far.

Well I think it's.

Over the introduction of lots of states, you'll see the true power of that taking what are very strong horse racing customers were really the model is much different than what you see generally in sports wagering and horse racing. We have very very good long term customers that we know a lot about versus the sports wagering online sports.

[noise] way during world, where we're meeting a lot of new customers in cycling through and filtering through lots of customers to find good ones. So the fact that we have a database across a whole bunch of states of very good gaming customers, who had been focused on horse racing is definitely an advantage for our company as.

We deploy other online products into those state, but we're still at a point, where we haven't seen a huge number of states that are open and a huge amount of time in the states that are open to really tell the definitive story of what that database will mean, so we're on the early days of it but it's theoretically it's conceptually in it.

It's actually an advantage to have this database, but that's something that's playing out now and will over will play out over the next <unk>.

A number of years, so so I don't want to characterize it as a success at this point because we got to go out and prove it and that's that's the come on the upcoming quarters in years.

Okay. Thank you.

Our next question is from that address from Keybanc. Your line is open.

Hey, good morning, Thanks for taking my my questions. So on on the Derby City expansion just the the thought process on adding a hotel there I'm just curious how that plays into the future growth of that property and maybe the evolution of the customer base there or is it really just as simple as.

A back door way to add hotel capacity around the Derby.

It's not it's not focused on adding.

Backdoor capacity as you called it for the Derby, although there.

Certainly that won't hurt and certainly that can be an advantage. This was a gaming driven hotel. It's it's modeled after some of the other things we've done in the company whether you look at what we've done on Oxford or what we're doing in old growth or what we what we experienced in Mississippi with our hotels, it's designed to stretch the market we can reach into.

Too. So we can reach customers, who are further away who have farther to travel and with respect to our good customers. It can allow them to stay and play longer at our facility. So it is modeled very very conservatively based on a gaming hotel proposition the.

The fact that it might have some benefits being close to Churchill downs on the Kentucky Derby is gravy, but this was a straight up this is a straight up disciplined application of what we've learned from our hotels at our other properties that are other gaming facilities in the United States.

Got it Alright, and then just can you just talk a little bit about the ramp of outgrow the new margins continue to to gradually step up there, but is there anything in the back half of 2021 or 2022 that.

Are going on at that property that we can start to see that property closed the gap with there'll be city.

Yes. This is bill mud, we're very pleased with the ramp that we're seeing there clearly ahead of where we.

We had planned internally for the investment and of that property Bill.

Bill stated, we're still below 15% penetration in the.

Nashville market, it's about an hour drive from the national market, we're growing that database.

Every day very pleased with without going obviously, the weekends Friday Saturday and Sunday on.

Are you know already at or near where we are at not not quite there yet, but we're we're closing the gap on Derby day on the weekends. It's that early part of the week, we got to figure out how to get more people out of that national market.

And the demographics that makes sense for that Monday through through Thursday period. So yeah, there's clearly.

Much more opportunity to ramp that property and the team's doing a great job doing it.

Alright, thank you.

And our last question is from <unk> from from scanner. Your line is open.

Thank you good morning, Bill Good morning, Marsha Good morning, Bill [laughter] couple of questions on Twinspries. Please.

I'm wondering if you can maybe provide a little bit more commentary on on the.

The result of the added kind of bonuses and marketing spend per user growth on Twinspries and is there any additional color you can give us I believe you had said.

Record new player growth.

But I was wondering if you could maybe provide a little bit more commentary on what you saw.

So why don't you why don't you go through some of the stats, yeah I'd be happy to.

No comparing to 2000.

20 in the second quarter is a little bit of a misnomer because everything was shut down on the second quarter of last year true.

And of course, the Derby didn't happen in the second quarter of last year, but if you compare to the number of players that we had actively versus the second quarter of last year, we were up 150 per cent.

If you compare it to the third quarter of last year, where we ran the Kentucky Derby.

We were we were at 46% versus the number of players will happen in that period and if you go back 2 years and say well how do you compare to the second quarter of 19, which remember was an all time record number of.

Handle.

We were up 15% in terms of players from for that period. So.

Whenever you think about horse racing and Twinspries online, it's much like what you're seeing an online sports paying today, you're you're taking the expenses and the current period to generate growth in the future and every year, we get 1 opportunity on an event like the Derby, it's bigger than any other event in horse racing.

To deploy large amounts of investment and every year, we keep pushing more.

And to the marketing spin and realize that we keep getting.

Good returns every year for the last several years, we've increased marketing spend this year was bigger than than any increase we've seen a long period of time, because we did pullback.

Pull back a little bit [noise] last year, and we were successfully being able to deploy that so it was great to see from that perspective.

Hopefully that answers your question yeah that that's very helpful. I appreciate that bill and.

As we think about just what you've seen in Twinspries Adwd EDW in general is.

Obviously huge growth year over the past 4 quarters and I was wondering.

Kind of where it's what what you've seen thus far maybe in July out out of the you know.

Twinspries EDW in particular as it continued similar to [noise].

The trend in the second quarter I know Marcia had some commentary, but I was wondering specifically for you know kind of how it is trending here thus far in the third quarter.

Well I think in the second quarter, what you saw as we continue to grow.

Twinspries.

And that was a day or in a period of last year in the second quarter largely everything was shut down. So no..1 was able to go to a brick and mortar wagering facility to place bets on horse racing B at at a racetrack that was running races, because they weren't allowing patrons ends or or an off track betting facility.

This year, you've seen a lot of people start to go back to those facilities and Luckily that translated to a lot of growth across the industry and handle so we are the way I would characterize it and what do you think about it is are we are we maintaining some of the 2 things are we maintaining people interested in the sport and I think we are we've seen for.

4 quarters on a row of strong growth across the industry.

Anywhere from 38 per cent 6 per cent I think it was last year's.

Fourth quarter and what we're seeing is about half of those people that went on line or staying on line. There are some people that want to put their money through the window. So we're very happy with where we are.

We're we're growing the entire customer base on we're also keeping a good percentage of those people that decided wager on line when they can no longer go to a brick and mortar facilities and those people that don't are going back to brick and mortar facility. So I think it's a win across all parts of the of the business.

That makes sense.

And then Bill I I was wondering.

You know what your thoughts were just with respect to your gaming portfolio and.

[laughter] similar.

Similar to your competitors you guys have generated huge margin gains in.

The World Normalizes, and you think about what you have to add back in terms of non gaming amenities or more promotions or whatever you know what what portion or.

All of that savings do you think is more permanent than not.

Yeah sure so.

I always want to be careful about what's fact and what's what's.

Conjecture. So what was your right now is.

Not generally tremendous pressure from our competitors to have to restore amenities and in excess costs. So I think the industry.

In my opinion day.

The industry's learned something through this and the industry has become more focused on on margins in the industry was forced to adapt to the circumstances, we were in and that we continue to be in with with access to the workers.

We all got to a test a lot of assumptions about how to best operate a casino and what the target margins oughta be so I think there's been some learning for our company and some learning for others.

That I hope will sustain itself over time right now what we see is it makes us have a lot of confidence that we can maintain our margins into the foreseeable future. So I feel pretty good about that but that's that's what I know right now we don't see any pressure on margins.

For the foreseeable future, we think we're going to be operating on his under similar paradigm to what we operate in now and we'll keep reevaluating that every quarter, but we certainly think this is a better way to run casinos and we hope competitors see that too, but we'll we'll we'll all get a chance to measure that over time, but we cleared.

Lee as a company are very focused on margins, we're very focused on efficiency.

And we liked the general trend that our facilities have been able to go on and and really we think that's been good for the industry as a whole to follow a similar projections.

Thanks very much.

I am showing no further questions at this time I would now I'd like to turn the conference back to Mister Belka expansion. Thank you.

I want to thank you all for your interest on our company on your investment in our company and I look forward to seeing you all in person when the opportunity affords itself.

But in the meantime, we're gonna keep doing what what we do so we appreciate your confidence in us.

And your guidance and we're gonna go out and execute on these initiatives that we laid out in front of us today. So thank you very much.

Enjoy the weekend. Thank you.

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

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