Q2 2022 Churchill Downs Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2022nd quarter Earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time as a reminder, this conference call is being recorded.
I'd now like to introduce your host for today's conference Mr. Nick Zheng Zangari, Vice President Treasury risk management and Investor Relations. Please go ahead.
Thank you Paul and Jane.
Morning, and welcome to our second quarter 2022 earnings conference call. After the company's prepared remarks, we will open the call for your questions.
2022 second quarter business results were released yesterday afternoon, a copy of this release announcing results and other.
Statistical information about the period to be presented in this conference call, including information required by regulation G is avail.
Sure.
Located at Churchill Downs incorporated Dot com as well as in the website's investors section.
Before we get started I would like to remind you that some of the statements that we make today may include forward looking statements.
These statements involve a number of risks and uncertainties that can cause.
Cause actual results to differ materially all forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC specifically the most recent reports on Form 10-Q.
Yes.
Any forward looking statements, we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, the press release and Form 10-Q are available on our website at Churchill Downs incorporated Dot Com and now I'll turn the call over to our Chief Executive Officer, Mr. Bill <unk>.
Thanks, Nick and 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 some high level thoughts on our second quarter results and then share some updates on a number of strategic topics, including the <unk> acquisition and our major capital investment projects.
Marcia will then walk through our results in more detail and provide an update on our capital management strategy.
After she finishes we will open up the call for questions.
First some thoughts on our second quarter results.
Overall, we delivered the highest net revenue and highest adjusted EBITDA that we have generated in any quarter in the history of our company.
We generated record net revenue of nearly $583 million up 13% from the prior year quarter and record adjusted EBITDA of $291 million up 25% from the prior year quarter.
While I will talk in a few minutes about the significant growth opportunities that we're currently executing on its worth pointing out the strength of our current portfolio.
Sure.
We were very pleased with the results for this year's Kentucky Derby.
A crowd of nearly 150000 fans watched rip strike and 80 to one long shot pull off an incredible victory.
As you saw in the press release that we issued immediately following the Derby. We set all time records for wagering on the Kentucky Derby race, the Kentucky Derby Day program, and the Kentucky Derby week.
To inspire has also generated record handle on the Derby day program and on the Derby race.
It was also a wonderful to see the many community and charity events occur again this year during the month long celebration in Kentucky, and all between parties and festivities that take place throughout the country, leading up the Derby week.
Derby truly was back in full force.
We along with our broadcast partner NBC, we're extremely pleased with this year's 16 million average viewers with peak viewership of 19 million our largest since 2017.
The Kentucky Derby with Nbc's, most watched program since the superbowl in early February ahead of every single Primetime program special event programming and all other sports programming.
Virtually all metrics point to the Derby is relative and growing appeal.
Just as an example, 16 million average viewership for the Derby was the same as the total for the Daytona 505 hundred in Miami Formula One race combined.
Our Derby guests, we're thrilled with the new home stretch club, which opened in time for Derby week.
We anticipate that our final investment in this project will be approximately $38 million, which is about $7 million under our original projections.
This investment added 3250 premium seats and provided a variety of new high end experiences.
We plan to continue our strong run of capital projects with the completion of the New first term project for next year's Derby.
I will talk more about that in a few minutes.
As we look towards the Kentucky Derby in 2023, we expect to see continued strong ticketing demand and feel a great deal of optimism for the future growth of our iconic events.
Our Kentucky HR and venues also peripheral performed very well in the second quarter with all three properties Derby City gaming Oak Grove, and Newport gaming delivering record revenue and record adjusted EBITDA.
The success of our HR and facilities reflects our ability to find and develop great opportunities build unique entertainment offerings with innovative new products invest capital wisely and successfully build customer demand.
Turning to our twin spires business.
Revenue and adjusted EBITDA for our twin Spires horse racing business was down compared to the prior year quarter as more people continue to return to wagering in person at racetracks and other brick and mortar facilities.
As we said previously we believe that online wagering has stabilized at around 50% of the U S market based on the trends we've seen in the latter half of last year through the first half of this year.
This represents a 12 point increase in online wagering penetration since 2019, but a decline from the pandemic period of 2020 in 2021.
We believe online wagering will likely continue to grow its share of wagering on horse racing after we clear the tough comps from the pandemic quarters.
The second quarter of 2020 to handle for online Horseracing business was up 30% compared to the second quarter of 2019, and adjusted EBITDA was up 32%.
I'll share more about our strategy for this business in a few minutes.
Our twin spires online sports and casino business was almost breakeven in the second quarter, reflecting the actions we have taken to quickly exit this business, while maintaining the retail sports operations on our gaming facilities.
We are still working to monetize our market access rights to other participants and we'll provide an update on our plans reach fruition in the coming months.
Turning to our gaming business.
Just the EBITDA from our wholly owned casino properties was down for the quarter compared to the prior year.
Our Oxford and Calder casinos delivered growth in the quarter. However, we saw the impact from a weaker economic conditions at our two Mississippi properties, our fairgrounds property in Louisiana, and our Presque Isle Casino in Erie, Pennsylvania.
Our Harlem property, Mississippi also experienced increased competitive pressure in the quarter from the Pine Bluff, Arkansas property.
In addition, one of our most profitable Ltvs, which is the home of Louisiana OTB is still closed as a result of hurricane either damaged from 2021.
We are planning to reopen Homer in October .
We also saw modest increased labor cost pressure across all of our regional gaming facilities.
Regarding our equity investments in rivers des Plaines casino.
In May we completed the final phase of the property's expansion project with the opening of a new ballroom and event space.
Rivers des Plaines has added a total of 725 gaming positions in 2022 and is the first casino in Illinois to reach the maximum 2000 positions permitted under state law.
These new gaming positions are made up of 500 slot machines 2000 for table games, and a 22 table poker room.
We also added a new restaurant in a large casino bar.
The property generated record revenue in the second quarter and adjusted EBITDA was up nearly 60% compared to the first quarter.
Adjusted EBITDA was down slightly the second quarter of last year that was a very tough comp.
We expect to see continued strong growth at rivers des Plaines in the second half of this year.
Regarding Miami Valley Gaming gaming.
We completed the expansion of our outdoor gaming patio in June and the conversion of our buffet in July the outdoor game patio has been expanded to allow for 196 additional games and an outdoor bar.
We have also converted the buffets space into two new food venues, while also adding incremental gaming space. This will help the property's performance in the second half of the year.
Marcia will share more details on our gaming segment performance in a few minutes my larger point to you is that we understand our property is very well and have excellent teams in place we are managing through the current environment and even though we have significant growth coming as a result of our deep development pipeline, we remain laser focused.
Operators.
We are watching our revenue trends carefully at all of our regional gaming properties and we will be focused on taking actions to reduce our cost where appropriate in the coming months.
Now I will provide updates on the five areas of strategic focus for our team that will transform our company over the next five years first our major organic investments second Pizza re acquisition third our New Hampshire acquisition.
Fourth our Calder in Arlington land sales and finally, our twin spires business to business strategy.
Let's talk about our major organic growth projects, starting with our projects at Churchill Downs Racetrack.
We've been working on the first term project.
Which as a reminder involves replacing 3400 lower priced temporary seats with 77100, new covered premium seats overlooking the first turn of the racetrack.
We will have two distinct ticket offerings. The first area will add 2000 premium dining seats inside a new 50000 square foot first floor hospitality venue.
The second area will add 5100, new covered stadium style Cushing seats with all inclusive food and beverage on two new elevated concourses built behind the new seating sections.
Our projected $90 million investment in this project remains on track to be completed by Derby 2023.
The work on the <unk> project is also well underway our projected 185 to 200 million dollar investment in the transformation of the areas underneath and adjacent to the historic twin spires remains on track for completion by the 150 of the Kentucky Derby in May of 2024.
This project will enhance the overall experience for nearly every guest at our facility as we have the best of 20, <unk> century, hospitality programming and to the history and pageantry of Churchill Downs Racetrack.
This project will reduce congestion by significantly improving the flow of gas through hepatic and surrounding plaza areas and will add over 3600, new premium reserve seats, and 3250, new standing room only premium tickets, while also materially indirectly upgrading the amenities for over 3000.
700 existing premium reserve seats.
When we are done with these two projects.
We will still have only transformed a portion of Churchill Downs racetrack.
There are many more opportunities in the years ahead to build out our facility to provide innovative expectation once in a lifetime experiences for all segments of our guests, including those who today do not even have a reserve seat and it tends simply with the general admissions paths.
We believe these investments will afford the opportunity to generate consistent adjusted EBITDA growth with nominal levels of risk for years to come.
Let's turn to our organic investments in new high growth Historic racing and gaming properties, beginning with Derby City gaming.
We are investing approximately $76 million to expand the gaming floor and to build a new five story hotel.
The gaming floor expansion is on track to be completed by the end of 2022.
We plan to open with 200 machines, and we will have the capacity to add an additional 250.
We will also add new dining and entertainment options.
The construction of a 123 room hotel remains on track to be completed late in the second quarter of 2023.
Regarding our planned $80 million investment at Derby City gaming downtown and Louisville, we've.
We've completed the necessary demolition work at the site and are in the process of renovating the building that we purchased on the corner of West market Street in South fourth Street.
We anticipate opening Derby city gaming downtown in the second half of 2023.
Turning to Turfway Park, we are nearing the finish line regarding our $148 million investment in this new HR and facility we plan to open on September one.
What an exciting entertainment venue for northern Kentucky, and the entire Tri state area around Cincinnati, We will open with 850, <unk> and have the ability to expand within the existing footprint to 1200 as demand ramps up.
Other upscale amenities, including a sports bar and a large event center will attract customers on race days as well as provide a great venue for large events at other times.
Regarding the rollout of HRS and our Otv's, Louisiana as of today, we have installed 171, <unk> and five Ltvs and we were pleased with their performance to date.
The timing of our <unk> rollout has been impacted by supply chain challenges and contractor shortages as the state continues to recover from hurricane Ida which occurred in the third quarter of 2021.
We plan on rolling out a total of approximately 600 machines across 14 of our Otv's in Louisiana by the end of the first quarter of 2023.
Next our Terre Haute project in Indiana.
We purchased the property for our turret, our Queen of Terre Haute Casino resort in early June and held the groundbreaking for the facility on June 21.
We have finalized the site plan and are now completing the final design of the casino and 125 room luxury hotel.
The casino will have up to one thing.
Slots 50 table games, a high limit gaming lounge, and a sports bar, along with several food and beverage venues.
We anticipate completing our $260 million investment in this facility in late 2023.
Now I'd like to provide an update on our acquisition of Pacific Peninsula Gaming Entertainment RPT week.
As a reminder, we are acquiring a very unique set of assets that will provide significant growth through both existing and to be constructed facilities.
The <unk> acquisition, all expect also expands our geographic footprint and provides meaningful additional scale to our company at a very attractive multiple.
We have obtained approval from the Virginia Racing Commission to acquire the Virginia properties, we expect to be on the Iowa Racing and Gaming Commission agenda for approval on August 25th and we have submitted all of the entity and individual licensing applications to the New York State Gaming Commission, although they have not yet provided guidance on when they will.
Approve our application.
We are working closely with the regulatory staff in each state.
As Marshall discussed on our last earnings call. We have already completed the financing needed for the acquisition and therefore, we will be ready to close the transaction as soon as we obtain the remaining regulatory approvals.
We are working very diligently on our integration plans, including participating in the development work for the Dumfries and employee of projects.
The Dumfries project consists of a 400 million dollar investment and a 175000 square foot state of the art gaming facility that can accommodate 1150 <unk> and is scheduled to open in the fourth quarter of 2023. It also includes a 100 room hotel that is planned to open in the first quarter of 2024.
This is an extremely exciting project given its location in the densely populated northern Virginia market.
After completing the first phase we will evaluate a further expansion of this facility up to 1800 HRS.
The Rosie's Emporio development project is also underway Emporio will add 150, <unk> and is currently planned to open in the third quarter 2023.
We are also working on plans to enhance the racing at colonial Downs and supportive of horse racing and agricultural industries in Virginia.
Based on Virginia law, we will be required to run one race date for every 100 <unk> that are operational and the state up to the 5000 <unk>. We are currently authorized.
Colonial Downs will hold 27 rates to eight this year in conjunction with the approximately 2700 <unk> machines now deployed.
Over the next two to four years and we expect to grow to 550 Ray States as we reached 5000 HRS.
We continue to analyze where to deploy additional HR answer Virginia. We are prioritizing locations based on population disposable income and likelihood of being able to pass a local referendum, allowing for HRS and the specified locations.
We will provide updates on future earnings calls.
We are on track to close the <unk> transaction before the end of 2022 subject to receiving the necessary approvals.
Turning to New Hampshire.
We anticipate closing on our acquisition of 100% of Shakespeare's Poker room in Salem, New Hampshire in the third quarter.
Salem is approximately 30 miles from downtown Boston.
We anticipate.
We will finalize plans for our new <unk> facility in the third quarter as well our current plans contemplate opening a new facility with up to 800 gaming positions, including HRS and table games with the potential to add more after we open.
We aren't ready to announce a schedule yet we will provide an update on our next earnings call.
Now I'll provide a brief update on the status of our process to sell the excess land at our Calder and Arlington Park properties.
We closed in June the sale of a 116 acres next to our Calder casino for $291 million.
We intend to utilize the real property, we have already purchased for Derby City gaming downtown and the Queen of Terre Haute casino as well as real property, we will be purchasing as part of the <unk> acquisition and various country. One exchange transactions to further tax on the gain from the sale of the Calder land.
We are also still on track to sell the 326 acre Arlington Park property into the Chicago Bears for $197 million in the first quarter of 2023 pending completion of remaining conditions. We plan to utilize 10 31 exchange transactions to defer the tax from the gain on this sale as well.
And last I will share some thoughts on our twin spires <unk> strategy relating to wagering on horse racing.
As we've stated in previous calls we are exiting the online sports and casino business, but remain very focused on our profitable online twin spires horse racing business.
It's a sophisticated data intense offering that strongly appeals to committed horse players.
We believe fundamentally that horse racing content should and will become available over time on sports wagering platforms to reach every wagering customer across the U S.
Tend to be a leading distributor of horse racing content either directly to two customers a twin spires or under a <unk> model that enables the online distribution of horse racing content to millions of new customers, who have opened online sports wagering accounts.
Given our expertise and extensive knowledge of pair mutual wagering on horse racing, we have the technical expertise access to racing content and technology to seamlessly integrate para mutual wagering into existing third party online sports wagering platforms.
We will also provide user interfaces and ancillary services that may be necessary or desired by online sports wagering platforms.
This strategy will also enable us to offer sports wagering sponsorships for the Kentucky Derby and to generate incremental content fees for Churchill Downs racetrack as well as our other racetracks.
Our twin spires strategy going forward will be to maintain and grow our existing twin spires platform, while growing the distribution of online horse racing content to the millions of U S sports betting customers, who have been acquired by sports betting platforms over the past couple of years.
We anticipate that we will announce some key partnerships before the end of the year and we'll provide an update on our progress on our next earnings call.
In sum our existing portfolio of assets are performing quite well and we remain focused on operational excellence, while also executing on our substantial growth pipeline.
To reiterate we grew adjusted EBITDA, 25% last quarter over prior year quarter and were proud of that.
We are also deeply focused and optimistic about our growth projects.
With that I will turn the call over to Marcia and when she is finished we will open up the call for questions Marshall.
Thanks, Phil and good morning, everyone.
Start with a few thoughts on our second quarter 2022 results and then provide an update on capital management.
As Bill shared we just finished another record setting quarter with record revenue and record adjusted EBITDA.
As you review our second quarter results. There are a few takeaways that I want to share with you.
First as Bill discussed we were very pleased with the performance of Derby week.
Quarter of adjusted EBITDA for Churchill Downs Racetrack was up nearly $59 million compared to the prior year quarter and up nearly $12 million compared to the second quarter of 2019.
The margins from this iconic event continue to remain very high.
Unparalleled in the gaming and entertainment space.
Second our three atrium properties in Kentucky delivered another strong quarter with both combined revenue and adjusted EBITDA up 22% compared to the prior year quarter.
Up 8% on a sequential quarter basis.
Why are these assets performing so well these atrium properties of unique assets and the early growth stage of their lifecycle.
Our team has built these properties to operate very efficiently as we build the customer databases and expand and evolve the game titles and each of these atrium properties have the best mix of games that our customers want to play.
Derby City gaming, which is the most mature of our HCM properties given that it opened in September 2018 is dealing with construction disruption due to the expansion of the gaming floor and the build out of the hotel.
Despite this disruption Derby city gaming still grew top line revenue by 11% and adjusted EBITDA by 8% for the quarter compared to the prior year.
<unk> and Newport Racing gaming has similar strong growth stories during the second quarter.
Growth had net revenue up 33% and adjusted EBITDA up 43% compared to the prior year quarter.
Newport Gaming continues to benefit from the expansion and redesign of the gaming floor delivering over 60% increase in net revenue and more than doubling its adjusted EBITDA for the quarter compared to the prior year quarter.
We are very pleased with the early performance of our first wave of <unk> and our Ltvs in Louisiana and remain excited about the future expansion of our Asia footprint in Virginia, with the <unk> acquisition and in New Hampshire, with the chases poker room acquisition.
Third our team continued to make good progress in exiting the twin spires online sports and casino business and were able to minimize the drag on our financials in the second quarter.
Now expect to eliminate approximately $36 million of loss from our adjusted EBITDA in 2022, compared to 2021 and $5 million improvement to our prior year projections.
In other words, our twin spires retail and online sports and casino business.
Expect it to have a combined net loss of $5 million for the total year.
<unk> expectation does not include any upside from market access deals that are completed and realized prior to the end of 2022.
Fourth regarding our wholly owned gaming properties adjusted EBITDA for the second quarter was down $10 million and margins for our wholly owned gaming properties were down five points compared to the prior year quarter.
There are two reasons for the second quarter of 2021 is it difficult comp for wholly owned properties and for equity investments in rivers des Plaines, and Miami Valley gaming.
First in the second quarter of last year kind of a capacity and other restrictions were beginning to be lifted across all of our properties and economic stimulus motivating consumers to return to in person entertainment venues.
And second the second quarter of last year marketing and free play was lower than normal given the higher level of pent up consumer demand.
In contrast, our margins for our wholly owned gaming properties are up four nine points for the quarter compared to the second quarter of 2019, which is a better comp.
And second quarter. This year, our Harlow is property saw increased competition from Arkansas competitor as fuel prices increased and as government stimulus has been eliminated.
Adjusted EBITDA for our two Mississippi Casino properties combined for the second quarter was flat the second quarter of 2019. Despite the introduction of the major competitor in Arkansas, and 2020 and economic weakness in the state driven by higher gas prices high interest rates and high inflation.
Our customers experienced in 2019.
It is important to note that these two Mississippi properties are smaller properties that represent on an individual property basis, only about 2% of our projected 2023 revenue.
As Bill discussed we did see some economic weakness at our Presque Isle in Louisiana properties, along with the impact of the continued closure of our profitable Houma OTB in Louisiana as well as labor cost pressures across all of our properties in the second quarter.
It is important to note that we did business interruption coverage for the impact of the hurricane either on our Houma OTV.
We did see increased revenue and adjusted EBITDA at our Oxford and Calder gaming properties.
We've shared in the past our retail gaming strategy smaller gaming bets in different regions, along with our diversified portfolio of assets helps to mitigate the impact of the economy on our overall financial results.
Turning to our equity investments and gaming properties reverse as plants generated record revenue in the second quarter and adjusted EBITDA was up nearly 60% compared to the first quarter. However.
However, similar to our wholly owned properties the prior year quarterly comparisons difficult comp for the reasons I just mentioned.
Rivers des Plaines also incurred more marketing expense additional labor costs and other costs related to the opening of the gaming floor expansion in the second quarter of this year.
We expect that these costs will normalize our strong revenue growth will continue as a result of the expansion in the second half of this year.
Miami Valley Gaming also had a similar outcome for the quarter with adjusted EBITDA up on a sequential basis, but down slightly against a tough second quarter 2021 comp while executing their gaming expansion plans.
As Bill discussed our team is working to evaluate ways to drive additional efficiencies at all of our properties in the coming months.
And last regarding our capital management, we generated $233 million of free cash flow of $12 million over the prior year quarter we.
We also had a significant inflow of cash from the sale of the <unk> land, which generated net cash proceeds of $279 million in the quarter.
We continue to expect to spend $60 million to $70 million on maintenance capital and $300 million to $350 million and project capital in 2022.
We also repurchased nearly 322000 shares in the second quarter and an average share price of approximately $191 per share, reflecting our belief in the long term value of our shares.
At the end of June 2022, our banking net leverage was two three times and our external net leverage was two four times.
Our leverage has continued to decline because of our strong operating results in the second quarter 2022.
We have strong liquidity with a combination of cash on our balance sheet.
Drawn $800 million term loan a.
$1 2 billion from our recent bond offering in escrow.
Going free cash flow generation, and 100% capacity on our $1 $2 billion credit facility.
With adequate funds for the acquisition of Ptv and choices as well as for the project capital investments we have announced.
Even after these acquisitions and capital investments, we will still have significant revolver capacity remaining.
In closing, we have a unique portfolio of assets and a tangible pipeline of organic and inorganic growth opportunities from which we will be able to generate a significant amount of revenue adjusted EBITDA and free cash flow in the coming years.
We have the building blocks in place to make this happen.
We remain committed to creating long term shareholder value with increasing dividends and by strategically repurchasing shares of our stock over the long term.
With that I will turn the call back over to Bill So that he can open the call for questions Bill.
Thank you Marcia.
If anybody would like to ask any questions fire away.
Yeah.
Thank you very much again to ask a question you will need to press Star and then the number one on your telephone keypad.
Our first question is from the line of David Katz with Jefferies. Please proceed with your question. Please.
Can you hear me all.
Yes, Hi, David Good morning.
Good morning broke up for a second so I wanted to talk about the beta b.
To inspire strategy and it sounds as though you are taking a holistic approach transpires in this is incremental to it but any color you can give us on how you may have to fund it.
Scale or scope or Tam around it just so we can get a sense for how big you think this add on.
Could be.
Well, we think it's we think it's a nice opportunity and it starts with <unk>.
Work that others have done about what the ultimate size of the of the American online sports wagering.
Market opportunity will be and then it becomes a question of what will our what will horse racing as percentage of that would be those are those are amorphous things to understand.
But those are all very large potential numbers, but it's hard to predict for sure.
What's important to remember for US is that we largely have not had access to this.
Our customer base because.
Online wagering on sports Wagering is generally involved.
<unk> customers, who who have familiarity with horse racing who've been to the tracks before or that we have a chance to recruit in very narrow windows around our biggest races. So.
The notion that.
Somebody else has gone out and recruited hundreds of thousands to millions of customers, who may have started their journey and the online sports because they were interested in a different sport, but then can bet seamlessly on a horse race when it's made available to them that's an interesting opportunity.
A significant expansion and distribution of pretense of a potential customer base that.
That's new to us so how large it will be how significant it will be those are questions for the future whats important for US now is just to execute on our strategy, where we solve the technology issues, we solve the process issues.
The content issues et cetera to make sure that we can deliver a seamless product.
Understood so the methodology.
We would use in coming up with the size.
Looking at for sports betting Tam and then applying some.
Reasonably modest percentage to that.
I think thats methodology, what you are.
Implied correct.
Yes.
That's exactly right. Those those are the building blocks on which you can then make some assumptions.
Okay.
Separately I wanted to ask rich.
Richmond, Virginia.
What you might be seeing or hearing I know that there is a referendum and some goings on there.
What if anything is the latest.
Well.
Thanks for that question David.
We think the Richmond opportunity is a really interesting one.
But theres not much more we can say today on this call.
The original plan.
Was to do a referendum enrichment.
November there was language in the most recent state budget that was signed by the Governor However.
That postpone that referendum into 2023, so we're still wrapping up with our partners. Our urban one who really has the lead on this project and with the city of Richmond, We're still <unk>.
Wrapping our arms around the best path forward and how to.
To constructively work with with the Governor and the legislature in Virginia to get this project to fruition. So.
We'll keep working on it we think it's a really good project.
There's lots of discussions going on about it and Thats really all I can say.
Can say about it today.
With the added kicker that we're going to work very very hard on it over over the next period of time to find a way to get it to fruition.
Perfect. Okay. Thank you Brian .
Thanks, David.
Thank you and our next question is coming from the line of Daniel Pulitzer.
Wells Fargo.
Please go ahead.
Questions.
So I wanted to dive a little bit into the gaming performance in the quarter.
Additional clarity if you can talk through the promotional environment, what is that confined to riverwalk and youre seeing it across the different properties.
Any other property one offs to think about going forward.
And then also.
Any sense of cadence through the quarter April May June and maybe some color on July trends.
Thanks, Dan.
So.
First when we talk about gaming.
I'm going to talk about I'm going to draw the distinction between our HRS properties in our in our traditional brick and mortar gaming properties.
Our HR and properties.
<unk>.
Without exception show strong topline growth preservation of margins and just are in the in the early innings still of their growth story for some of our more mature properties like the properties we have in Mississippi.
We saw some pressure that was more that was more noticeable there wasn't covered and other trends.
<unk>.
In Mississippi, we saw the entire market was soft.
Including for Us, particularly riverwalk.
And <unk>.
No.
Each property you had a little bit different story.
When you talk about summarizing it it gets hard to summarize because every every property and every market shows a little bit of different different characteristics I think in general.
I'd say that.
Take note that we were up 25% year over year for the quarter a lot of these properties that we have are individually not that big so when we see pressure in Mississippi or we see pressure in Louisiana.
It's up against a large collection of assets and a large collection of of EBITDA not to mention the growth that's coming.
I see a lot of discussion in the market about these things about.
Margins in environment, and the economy, and what I would say from my chair as.
It's all being managed right now it's all being managed it's all it's all having been around in a C suite job all the way back.
2009, the last time, we saw what may be a recession.
It's manageable.
It's not overly remarkable at this point.
And it certainly isn't universal across jurisdictions.
There are pockets of it and we'll just manage site by site.
Not holistically, but site by site to figure out what's best for each property.
Got it and just kind of pivoting.
Two the build out of the <unk>.
Horse racing bedding and content and the technology I mean are you envisioning multiple deals here and exclusive.
Kind of a white label product, where you just provide the tech and the content and then how should we think about the potential risks cannibalization for your core to inspire product as yet maybe.
Effectively syndicate that content to other.
Operators. Thanks.
Yes, those are two really good questions I think every sports online sports operator.
Has a different set of needs. So some will need more services than others. Some know nothing about horse racing.
No quite a bit about horse racing. So we have a suite of services that we can provide for people.
Not just technology, but content et cetera.
And we'll let potential partners dictate what they need and.
How we can help them, how we can partner with them I think ultimately the idea here is not a white label Standalone Adwd. The ultimate idea here is integrating horse racing into there.
Into their larger sports Pam that is offering a range of different sports.
So as you know Dan Horseracing as para mutual based and.
The sports fans as they are structured in the United States are offering fixed odds wagering on these different sports so connecting that fixed odds wagering platform to two para mutual wagering is something we can do it's something that takes some work and it takes a partnership to accomplish but that ultimately I think is where this goes because.
Offers access to the most potential actual customers.
Those who are on the larger sports wagering platforms.
In terms of cannibalization, there can be some of that especially with the lower end customer base, but.
That isn't something we.
We find particularly troubling right now because twin spires really is ultimately driven by by committed players. Those are the those are the ones that are most interested in the suite of sophisticated tool.
Tools.
And.
And content.
Video that's available it's very <unk>.
Extensive complicated prod product with lots of different ways of.
Of customizing and for the core players, who really like to devote a significant amount of time, but we think twin spires will stand alone.
As a really attractive is it really attractive option compared to the slimmed down simplified.
Newbie interfaces, we're likely to see more on the online sports wagering platform.
But certainly for newer customers, who aren't as familiar there can be some cannibalization there, but that is not what drives the performance of twin spires that cohort is not who drives the performance of twin spires.
Understood. Thanks for all the color.
Thanks, Dan.
Yeah.
Thank you very much and our next question is coming from the line of Shaun Kelley from Bank of America. Please go ahead.
Hi, Good morning, everyone. Thank you for taking my question.
Wanted to go back to the core consumer a little bit.
On the gaming operations.
I know, we focused a little bit on this already but just if you could would it be possible to kind of touch on two areas. One would be I think you called out presque-isle as maybe seeing a little bit and we've talked a lot about Mississippi understand some of the unique supply challenges there, but if that is expanding to presque-isle or Louisiana could you talk a little bit about that and then the second part of that.
As you've already talked about some some cost mitigation efforts one.
Discussion point, we hear a lot from investors is concerns that because the operating structure has been optimized so much coming out of Covid. There maybe limited things that can be done to offset costs. It doesn't sound like you're as worried about that so maybe just talk about some of the areas you could do to.
To mitigate some of the pressures you might be seeing on the top line. Thanks.
So I'm going to take that second question first and then I'm going to ask my colleague Bill Mudd returned to Mississippian Presque-isle.
Your second question.
How do we mitigate and have.
There are always opportunities to mitigate your cost structure.
In a declining revenue environment that isn't something that we have faced recently and it isn't something that.
Debt.
<unk> is a wildly wild concern a wildly important concern for us right at the moment.
But there are always things you can do around around all your different expense items your expense lines when times get tough, but again I don't think that Thats really.
The environment, we found ourselves in and I'm always very very careful about concluding anything from one quarter or two quarters about about the long term so.
Our team I would just remind people our teams at the proper property level have stood the test of time for quite a while we have very good strong operating operating teams and we take this analysis property by property, we don't tend to be holistic when we look at.
Economic trends in the country, we tend to go market by market and find.
Find out by each market, what we think we're seeing there. So if it's the case that we're looking at sustained pressure.
We need to adjust to that's impacting the top line and that's what we'll do.
And there is always ways to accomplish that.
Tried tried and proven the fact that coming out of Covid.
We opened up in environments, where we had reduced.
Labor pools.
And reduced marketing because we had often take time restrictions on how many customers. We could have in the facility at one time. The fact that those two tools, where tap to a certain extent coming out of Covid.
Does not mean that.
But there is nothing left in the Hopper, if we need to adjust for the economy, but again, that's not something that's keeping me up right now it's just steady the course right now is the environment unfolds.
Bill do you have some comments you want to make on Presque Isle or Mississippi, Yes, I would just say that.
With the with both properties in Pennsylvania, and both properties in Mississippi.
They probably have seen pressure from.
Inflation on fuel and food.
More than our more affluent properties have seen so we've seen that more quickly and then press Kyle.
Is.
Had the luxury of more COVID-19 restrictions than some of the competing properties in Ohio, and we're just going through the process of getting those players to come back to our site and there is a there's a player reinvestment there that we have to put in place, but we're seeing that migration coming back and we will continue to chip away at getting those customers back over there.
Quarters, and then Louisiana.
The big driver really in Louisiana more than anything was we didn't have jazz Fest. There last year. This year, we had you asked us which closed the property.
For basically seven days.
During during jazz Fest from a from a slot perspective so.
<unk>.
So feel pretty good about that property.
And.
And we're not seeing it creep too far into into our other properties at this point.
Very helpful. Thank you for the color.
Maybe just as a follow up a little bit more on the constructive side to thank Marcia gave some comments around the ramp up that youre starting to see with the expansion and just plans just wondering if you could elaborate a little bit there I think it sounds like there were a few one time cost not sure if I can call. It does might've been in this quarter, but just help us give a sense more.
Generally how youre thinking about the ramp up going there it sounds encouraging.
It is really encouraging.
Having visited the property during the construction process in the immediate opening there were some real ingress and egress issues that the customers had to navigate.
As is always the case when you do a construction project or an expansion project that editing existing site, it's tremendously distracting to the team and it can be tremendously distracting to the customer. So some of that noise will now settle out and.
And we will get to see the team.
Get the opportunity to just operate.
The expanded area and the full facility.
Without the disruption and without the distraction of all the change so we think it looks really well.
We think it looks really good it's a great finish out.
And it's a really really great market.
So getting the word out.
Getting the customers to come back getting the customers to understand how things are a little bit different in terms of <unk>.
Access in the facility and as and as that knowledge gets reflected through the customer base we should.
We should see some good results so.
I think it's not a new story or a different story you see it every time you do an expansion.
I think the team navigated it beautifully and we'll start to see the results of the second half of the year.
Thank you very much.
Thank you. Our next question is from the line of Joe Stauff Susquehanna. Please go ahead.
Yeah.
Thank you.
Bill Marshall Bill.
I had a couple of questions maybe on.
Theater side.
Yes.
Sort of mentioned the preservation of margins. Thank you.
<unk>.
On your HRS portfolio, we're talking Derby City Oak Grove and Newport.
Yes.
Youll be launching.
A little bit over 1000 machines during the second half of this year, but as I think about I guess my question is on.
Margins for those kind of core.
<unk> is it fair to say that you would expect margins.
To be pretty consistent in the second half.
Relative to what you realized in the first half.
Yes.
Okay.
Excellent then.
On.
Salem, New Hampshire.
I apologize if you could repeat I think you had mentioned you would expect to open with around 800 machines.
But wondering.
Are you comfortable giving is giving us.
An assessment of how much higher in terms of the number of machines you can have.
And just the timing on on a reminder of when you would expect to be able to do that.
Sure.
So first.
I didn't.
I mean to give such a short answer but it was a simple answer so I gave no no no.
And sorry, I'm really really well.
Yeah, we feel really good about <unk> and our margins based on our visibility into the future.
The property will be a little bit different different of Derby city gaming in Louisville, because we'll have a hotel, but that ultimately is designed to drive activity from our higher end customers.
And Thats a very good thing to do so so we might see a little tweak of the margin.
Just as we operate a hotel, but generally it's the <unk>.
Answer to your basic question, how do we feel about our margins we feel very good the answer is yes.
We anticipate maintaining them as we can see into the future with respect to chasers.
Remember Chase's what we're buying there is one of the charitable licenses and that license.
Robust business, but it's far too small a facility for.
For our HRS expansion, so, while we locked down and complete the process and planning around.
Our <unk>.
And table game expansion, which will which will be nearby but not on site, it's best to be.
Indirect and our earnings comments about that while we while we complete the planning and approval process with the various authorities and landlords and regulatory people et cetera. So we're not ready to fully disclose at our announce our plans.
But beyond what we said in the earnings comments, which is we hope to open with up to up to 800 machines, we think the market probably could support more of that but.
It's.
It requires patience and it requires careful working with the various.
City and other people who were involved.
To support the operation So right now.
The Investor group out of wrap their mind around a facility that's going to be 650 to 800 machines, but obviously if we're successful we would look to expand that if we could if we could get the approvals and otherwise expanded facility, but currently currently the way to think about it is $6 50 to 800.
And in terms of timing and I'm I'm, sorry, Joe that was part of your question as well.
Yes.
Yes, I hope to have great visibility.
That we can explain on timing very shortly but today I need to be circumspect in my in my comments I said, we haven't.
The work.
To a sufficient level, where we can talk about it publicly.
Thanks, a lot.
Thank you very much. Our next question is from the line of Chad Beynon from Macquarie. Your question. Please.
Hi, good morning, Thanks for taking my question.
And this inflationary high inflationary environment, it's pretty evident that you could be a major price taker at the Derby.
The benefit from turn one that you expect to get at the 149.
Are you guys or how should we think about same store pricing opportunities in the reserved and premium seats.
You approach. This during other years when CPI was at elevated levels. Thank you.
Yes, that's a good question.
Yeah.
That's something we thought a lot and talked a lot about going into Derby $1 48, which is the Derby. We had in 2022 and it will certainly be a topic as we approached Derby $1 49.
We generally have a philosophy with our customer base, where we don't just.
Raise prices.
And.
And leave it at that we always try to enhance their experience make things different point out additional amenities et cetera.
And try to get our customers to feel good about their experience and so so.
Like the Derby is a very emotional purchase and it involves discretionary income. So it's really important that your customers many of whom come year to year feel very very good about their purchase and feel like they get great value. So it's always a.
A package for us we try to we try to package it with new amenities and new changes in and a lot of times I think the success. We've had in doing that has resulted in people not even necessarily appreciating that we have done that.
So we're constantly making changes to the facility you see that now with.
The paddock project that we're working on which will change the experience for every single person who comes through the front gate.
Those are all opportunities were in the process of offering that better experience offering different amenity to better aesthetics.
Sometimes the pricing increases don't feel quite as.
Noteworthy or as extreme so.
As we enter into a high inflation.
Potentially high inflation environment.
Continuing high inflation environment, we have to look at our pricing structure, but it's certainly not the case that.
We're sort of Bruce about that we we try to have a relationship with our customers and do it in a calculated careful manner and I think the fact that we've been able to do that successfully is the reason that people don't tend to talk about it.
That much they havent havent noticed as much. So you can tell I'm not super comfortable talking about raising prices the derby one.
On a telephone call like this but it's something we have to think about it we do it.
And it's part of our plan, it's part of our as part of our process.
Thank you.
Yes, I'm sure our customers appreciate that.
And then in terms of capital allocation.
A lot of ins and outs just in terms of money being spent and money coming in from asset sales.
You repurchased a decent amount of stock in the quarter, how should we think about this.
Over the course of the next six to 12 months given the.
The other commitments with the Capex and then hopefully the inflow of assets. Thank you.
Yes.
Capital planning process I think is really sophisticated an attribute to marsha who lead that so.
We're we're pretty detailed and thoughtful.
And very focused on.
Allocation of capital.
Over over the next 12 months 24 months 36 months and beyond so.
We look at our availability, we look at the projects. We have we look at our stock price we look at.
Dividends, we look at all of those things and we compare and contrast, and generally over over the past you have seen that we have thought a good use of our shareholders' capital has been to consistently repurchase stock so that philosophy.
Willingness to do that Hasnt changed.
And what we will do from now going forward is continue to evaluate the market that we're in and the opportunities that we have and the.
<unk> make decisions on the balance across all of the things that we should should and can spend our money on what is the appropriate balance so no change in philosophy.
But as to what we will exactly do that will depend on some factors some of which we've talked about and some of which.
Some of which will be remain behind closed doors.
But theres been no change in our philosophy and generally what we've done we've been very pleased.
But we've done it.
Thanks, Bill I appreciate it.
Sure.
Yeah.
Thank you I would now like to turn the conference back to Bill. Thanks, Tien Tsin for closing remarks.
Yes. Thank you everybody I really appreciate the questions that was those were really.
Really helpful questions today.
Thanks for your interest in our company. Thanks for supporting US, we'll try to do well by your confidence in US, we're really optimistic about what happens over the remainder of this year and beyond.
Despite the fact that we're in a in an economy, where people don't have as much confidence about the economy as they've had previously we feel really really great about our company and really really great about our opportunities. So it's full speed ahead for us. So thanks for your confidence in us.
We will do right by that and we will talk to you next quarter. Thank you.
Thank you. This concludes today's conference call you may now disconnect.
The conference will begin shortly to raise your hand during Q&A.
Dial Star one one.
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Yes.
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Bill.
Jim.
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Raise your hand during Q&A you can dial one one.
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