Q1 2023 CHURCHILL DOWNS Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2023 first quarter earnings Conference call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time.
As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference Mr. Phil Forbis, Vice President financial planning and analysis.
Thank you Andrew Good morning, and welcome to our first quarter 2023 earnings Conference call.
After the company's prepared remarks, we will open the call for your questions.
The company's 2023 first quarter business results were released yesterday afternoon.
A copy of this release announcing results and other financial Institutes School 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 Churchill Downs incorporated Dot com as well as in the website's investors section.
When we get started I would like to remind you that some of the statements that we make today may include forward looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially.
All forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC specifically the most recent reports on Form 10-Q and Form 10-K.
Any forward looking statements that we make are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release.
Yes release and Form 10-Q are available on our website at Churchill Downs incorporated Dot com.
Now I'll turn the call over to our Chief Executive Officer, Mr. Bill <unk>.
Thanks, Phil 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.
Brad Blackwell, our general counsel.
I will share some high level thoughts on several strategic topics and then Marcia will walk through our results and provide an update on our capital management strategy.
After she finishes we will take your questions.
We delivered record first quarter net revenue of $560 million and record adjusted EBITDA of $223 million.
And our expectations remain high for the rest of the year.
Let's start with our historical racing machines or HRA initiatives.
<unk> are a key strategic focus over the next five to 10 years for our company as we seek to expand our existing footprint.
We have developed high growth high margin investments in this segment with excellent returns on capital and we will seek to build on that track record and Kentucky, Virginia, and New Hampshire, Louisiana and perhaps beyond.
We are continuing to build on the success of our HR and operations in Kentucky.
Derby City gaming and suburban Louisville.
Our most recent gaming floor expansion. There is now complete and the new hotel is on track to open by the end of the second quarter.
We've been very happy with how the property has been performing through the significant disruption across the site caused by the Flor expansion and the construction of the hotel.
Our team is also working hard to prepare for the opening of Derby City gaming downtown our RM.
<unk> entertainment venue in downtown Louisville set to open in the fourth quarter of 2023.
And Western Kentucky, we have shifted our plans for our Owensboro HR RM extension and are evaluating new locations that will better meet our long term growth profile and better enable us to create a premier entertainment destination.
For all of the residents of the region.
We are disappointed in our decisions regarding our long term capital investments and sometimes that means taking additional time to determine the final location that will best meet our long term return expectations and that is optimal for the communities in which we choose to invest significant time and capital to build long term relationships.
We will share more on these plans on our next earnings call and are very optimistic we are on a better path now.
Okay.
We've made numerous improvements at Atlas park to enhance the racing experience for our customers and improve safety and environmental compliance at the property.
We will kick off the Ellis Park race meet on Friday July 7th after the end of the Churchill Downs spring meet.
The purse money has increased approximately 50% to over $15 million and we have added four new stakes races.
We have more work to do to make this a great Kentucky race track and are committed to doing so.
We will save any material investment in the HR and portion of Ellis Park until we complete and then evaluate its HR and extension and Owensboro to ensure these properties complement each other and are as efficient as possible from a customer.
<unk> and operational perspective.
The area around Owensboro is the larger and more economically attractive market and thus our focus will be on that first from an HR ramp perspective.
As a reminder, we also have the Oak Grove HRA and extension.
Folio a potential longer term development projects we.
We are focused on our other Kentucky projects for now.
HR M Entertainment facilities in Kentucky, we'll soon benefit from the passage in the first quarter of legislation, allowing retail sports and online betting across the Commonwealth.
We will look to go live and our retail locations once regulators have promulgated all of the required regulations and operational standards.
We will be permitted to have up to nine retail locations and up to eight online sports betting licenses that we can potentially monetize.
Each of our racetracks in HR and facilities in Kentucky already have a sports bar that will be enhanced with sports betting kiosks, so that our customers can easily and conveniently placed our retail sports bets.
We believe our retail sports books helped to drive additional traffic to our properties in other states and will further help to grow our HR and properties across Kentucky.
With respect to online wagering.
We have entered into contracts to provide certain online wagering platforms, including fan dual access to the Kentucky market in connection with which we receive a revenue stream.
We also expect to enter into other market access arrangements in the near future.
Moving to Virginia.
Our six HR and properties are performing as we expected and in some cases are exceeding our expectations regarding new.
New projects, we are constructing the rosie's Emporia HR imp venue in the southern portion of the state near the Virginia, and North Carolina border right off of Interstate 95. This is a 150 unit facility that remains on track to be completed in the third quarter of 2023.
In addition, we are building a significantly larger HRS facility in Dumfries, which is located in northern Virginia, approximately 30 miles south of Washington D. C also directly off of Interstate 95.
This is an extremely important project because of its proximity to the significant population in northern Virginia, Interstate 95 corridor.
The construction is proceeding according to our schedule and we expect the first phase of the project with 1150, <unk> and an approximately 100 room hotel to be opened in the second quarter of 2024.
We have the right under Virginia law to open up to three additional HR and facilities.
With the number of HRS machines permissible in each a function of the size and location of the community.
Subject to an overall cap of 5000 machines across all of our facilities in the state.
We are working towards a goal of conducting <unk> related referendums and two new communities this coming fall.
We are excited about these projects and we'll share more details on our next earnings call.
We will also discuss in more detail on the next call our plans with respect to our 50 50 partnership with urban one to pursue a full class III casino in the city of Richmond, Virginia.
This is a separate opportunity from our <unk> operations in the state.
We are working through the required city enrichment approvals to conduct a referendum. This fall to obtain the authorization necessary to proceed with the construction of this project, which would include a casino hotel and event center.
Also we are making solid progress on our Salem, New Hampshire, HRS site plans and.
I'll share more details on future earnings calls.
Regarding our online operations.
Inspire has had a nice first quarter.
Although our top line declined primarily because of our decision to exit the direct online sports and casino business in 2020 to our bottom line improved significantly.
We also were very encouraged to see early benefits of our decision to.
The launch in the first quarter of our services to deliver racing content the <unk> Draft Kings.
We expect to see our <unk> business accelerate in the second quarter with the Kentucky Derby.
And finally regarding our preparations for the upcoming 149th running of the Kentucky Derby week from this Saturday.
We have made fantastic progress on our projects at Churchill Downs Racetrack, our new firsthand experience is complete.
This is a one of a kind entertainment venue that is itself the size of a small stadium with 5300 covered stadium seats and an additional 2000 reserved indoor dining seats with exclusive use of the horses in the race track from a rail on the first term.
All of the covered stadium seats are sold.
And more than three quarters of the indoor reserve seats are also sold with the remainder selling quickly each day.
Overall, we are very excited about our progress towards this year's Kentucky Derby.
Based on advanced reserve ticket sales and other metrics available at this time, we expect to deliver record Derby week results.
We will issue a press release after the Derby with all of the details.
While our focus is on hosting a special Kentucky Derby $1 49, we're also kicking off our year long celebration in preparation for the 150 of the Kentucky Derby in May of 2024.
The $150 run for the Roses will be a remarkable milestone for the longest continually run sporting event in the United States.
The Derby is run annually since $18 75 through World Wars, recessions and even Pandemics.
We have announced a number of new guest experiences and ticket offerings that will be available for this very special Kentucky Derby in.
In fact early ticket sales are already underway and selling nicely.
One of the most exciting developments will be the completion of the paddock project with breathtaking, an unrestricted views of the twin spires, along with spectacular new seating and dining experiences.
This project will reinvent Churchill Downs racetrack and create unique once in a lifetime experiences that will surpass anything like it anywhere in the United States.
We remain on course to complete the paddock re imagination and time for the 150 of Derby.
Our capital projects to grow the scale and profitability of the Kentucky Derby will be supported by our continued ramp up of sales efforts across the country as well as a more focused and strategic sales process and numerous foreign markets.
We look forward to seeing you at the 149th Kentucky Derby on May six of this year and if you cannot join us in person. Please be sure to watch the NBC broadcast beginning at noon eastern time.
In summary, the first quarter was another great quarter for us with record financial results we.
We have positioned our company for strong growth for years to come with the ongoing investments in the Kentucky Derby.
The acquisition of the <unk> assets, including the existing operational properties and our Virginia growth projects.
Terra Haute project in Indiana.
Our Salem, New Hampshire, HR and project and other Kentucky, HR and projects.
And the pending acquisition of exact of systems, which will greatly improve our Virginia, New Hampshire in Kentucky capabilities, all of which we expect to drive a material increase.
Adjusted EBITDA and free cash flow in the coming years.
Our overarching objective is to pursue what we have demonstrated we are good at growing the Kentucky Derby, developing greenfield and organic opportunities as well as executing strategic acquisitions that fit our profile.
We do this while maintaining one of the best balance sheets in the industry.
With that I'll turn the call over to Marcia and then we will take your questions Marcia.
Thanks, Phil and good morning, everyone as Bill shared we delivered record first quarter revenue and adjusted EBITDA.
Start this morning with a few insights on these financial results and then provide an update on capital management.
First Oliver ASRM properties made strong contributions to our financial results and first quarter.
Growth HR and facility continued to penetrate the southwestern Kentucky, and Nashville, Tennessee markets.
So had nice growth in our northern Kentucky market, that's turquoise Park, and Newport gaming continued to improve and expand their market presence during the first quarter.
Our Virginia properties contributed $98 million of net revenue and $47 million of adjusted EBITDA in the first quarter.
This represents a 48% margin collectively for these properties.
This performance is prior to any material improvements to the gaming floors. At these properties, we expect to realize in the future.
Second regarding our Twinsburg horse racing business, our overall handle was higher in the first quarter than the prior year.
Did generate lower adjusted EBITDA from the online Twinsburg horse racing business as a result of higher content related expenses slightly higher EDW taxes in certain jurisdictions.
A slight decline in adjusted EBITDA.
Pleased with the strong margins that this business delivered first quarter.
The pivot out of the online sports and casino business provided a nice uplift to our adjusted EBITDA and margins in first quarter compared to the prior year quarter. We.
We believe the <unk> expansion related to our horse racing technology related services, we will provide a further enhancement to our adjusted EBITDA and margins in the coming quarters.
Regarding our gaming business, we realized significant contributions from the addition of the New York and Iowa properties acquired in the <unk> transaction.
Our equity investments in rivers, and Miami Valley Gaming also delivered strong performances in first quarter compared to the prior year.
Existing regional gaming properties in Maine, Maryland, Louisiana, and our Hello property in Mississippi collectively delivered a small increase in adjusted EBITDA compared to the prior year quarter, there was more than offset by declines in our Pennsylvania, and Florida properties and our Riverwalk property in Mississippi.
Our first quarter same store wholly owned casino margins were down less than one point compared to the prior same period in 2022, primarily reflecting the margin pressure from the decline in adjusted EBITDA from our Pennsylvania properties.
Overall, we are very pleased with the results that our team has delivered in the first quarter.
We believe we are very well positioned to continue to grow through the remainder of 2023.
Turning to capital management, we generated $204 million of free cash flow in the first quarter.
$79 million over the prior year, primarily as a result of the strong cash flow generated from our businesses.
Regarding maintenance capital, we spent $12 million in the first quarter and continue to expect to spend $75 million to $95 million in total for the year.
Regarding project capital, we spent $123 million in the first quarter and continue to expect to spend between 575 $675 million in total for the year.
At the end of first quarter, our bank Covenant net leverage was three nine times.
Based on our planned acquisition of Exacta, and our capital investments, we expect our bank covenant leverage to remain in the four times range over the coming year.
We then expect our bank covenant net leverage to decline in 2024, and 2025 and our ongoing investments in all of our new projects come online.
From a financing perspective at the end of February we completed a $500 million term loan a financing.
We utilized the proceeds from the term loan a financing.
Fully repay the outstanding balance on our credit facility.
We also completed a $600 million bond offering this past week.
We used a portion of the proceeds from this bond offering to repay our term loan b that would have matured in December 2024.
The remainder of the proceeds will be used for capital projects or for the exact transaction.
And lastly on Tuesday of this week, our board approved a two for one stock split and a corresponding proportionate increase to the authorized shares of the company.
Stock split reflects their belief.
And ours and the long term growth potential of our company.
That I will turn the call back over to Bill So that he can open the call for questions Bill.
Thank you Marcia.
At this point, we'd like to take any questions that you have for us.
Lee.
To ask a question you will need to press star one one on your telephone.
And if you wish to remove yourself from the queue. Please press star one again one moment please.
Our first question comes from the line of Barry Jonas with Truest.
Hey, guys. Good morning, Thanks for taking my questions.
Now that you've had some time owning the petri assets curious what you see as the upside case and how that maybe compares to when you initially underwrote the deal.
Thanks, Barry so far we've been really really pleased with the <unk> assets, one of our thesis and investing to acquire <unk>.
Was that these process of these properties were still on the early stages of their development and hadn't reached maturity.
And in general we see that so.
We're also of course really excited about the growth projects that hadn't been executed on and Thats, a big part of what.
But a portion of our teams spend our time on but for the existing projects are the <unk>.
Listing properties that were already there and operational.
That's been a breath of fresh air that generally.
They have been quite strong.
We're quite optimistic looking.
Looking forward.
Got it and then just a follow up there's been more concern I think across the market on the health of the consumer what are you guys seeing across your businesses and maybe what options do you have to best respond if you did see things deteriorate.
I think in the first quarter, we were pleased with with the consumer trends that we saw across our properties.
So we have to look at the results as they come in we read everything everybody else does as well, but so far they've been pretty strong and I feel pretty good in general some markets are better than others, but across the portfolio that is as broad and as diverse as ours.
I don't have any yellow or red flags to raise with you at this time, if we do see in the future if we do see.
Economic headwinds.
External economic headwinds in the economy, we will adjust our marketing and our expense structure to deal with it appropriately because we're always going to be focused on our margins, but right now.
Not really doing that because there isn't enough trend data to.
To suggest.
But we need to.
That's really helpful. Thank you so much.
Thanks Barry.
Thank you.
And our next question comes from the line of David Katz with Jefferies.
Hi, good morning, everyone.
I wanted to go back to an issue and I apologize. If this sort of came out in the remarks, but with respect to Kentucky sports betting.
Have you talked about what the opportunities are and sort of what the magnitude of that is and what your strategies are for for activating that once it goes live.
Hi, David Good morning, Yes, yes.
Oh.
We can put these in our in our race tracks.
And also our HR them extensions so.
We will have nine opportunities over time to deploy.
Retail sports betting we do this in other markets. We do this in several other markets. So we have an approach we find that.
That it does drive traffic to our properties that it does.
A healthy overall energy and and flow of people through our properties and so it's a really good thing. So we will we will follow the strategy. We followed in our other markets around our sports bars, we actually designed our facilities thinking that this may happen in Kentucky at some point. So we've already built the sports bars, and we will put in the kiosk.
<unk>.
Our refined the customer customer offering and it'll be a nice bonus it's not material to this to the scale of the company or any or anything like that but it will help each of these HR M properties not only from the contribution of the sports wagering piece, but from the additional traffic it drives to the rest of the facility.
Understood.
And on the subject of HR and facilities one of the issues that comes up.
Regularly with investors is the degree to which those HR and facilities.
Perform right, where they are in HR machine, how it compares with the traditional regular slot machine, whether there is any noticeable difference in consumer spend or behaviors or any of those sorts of things or is it.
Really just the same.
Okay.
I think if you see the.
The margins, we drive from these facilities and the locations of some of them with the.
The competition of other types of gaming on on.
In our surrounding borders you can see it's a very competitive project product. So.
If you think about game titles, it's a process constantly of getting more game titles from the traditional class III manufacturers.
Converted to <unk>. So it's a constant journey to make the product better and I would tell you that I think there are ways to further improve it most with.
Concentrated around.
The variety of product getting more gains available to us so as a business model.
Very pleased and excited about HRS.
As a company that's driven first and foremost by by margins I think you see the evidence of that and see why we're excited about it but part of reaching maturity.
Eventually property by property and I am I am of the view that we haven't reached maturity at any of our HR and properties part of reaching maturity overtime is constantly improving working with the manufacturers to improve.
The quality and depth of products available using the ASRM model so more to come.
More to more to comment I think thats part of the reason I'm excited about the exact acquisition as well when we are able to close that.
Over the rest of the year I think that just helps us with our tool kit to work with manufacturers to make this product as competitive as we can with class III.
But we're not where we're going to be over over the long term yet.
Okay I appreciate it thank you very much thanks.
Thanks, David.
Yes.
Our next question comes from the line of Dan pilots, there with Wells Fargo.
Hey, good morning, everyone and thanks for taking my questions.
First I wanted to touch on the Kentucky, the grain market recently, there was some some some legislation there that crack down on this can you maybe talk about the size of what the great market was in Kentucky, maybe the properties that you could see the most uplift or that had.
Seeing the most drag there from this and then just any way our hands and how to think about or quantify the impact of this of this more restrictive regulation. Thanks.
Sure happy to do that.
So for everyone else on the call during the first quarter, the Kentucky legislature.
Passed new legislation that was signed by the Governor.
Banning the category of gaming machines.
Sort of euphemistically referred to as Greg Games. These were these were popping up in bars, and taverns and restaurants and convenience stores across the state there wasn't a fully accurate count of how many of these were.
But I think it's fair to say there were several times the number of these of actual compared to actual HRS machines and licensed authorized facilities like the ones we run so.
Sure.
This was.
A circumstance where these these machines were multiplying rapidly and have gained.
And unfortunately foothold in the state they were on authorized they were untaxed. They were unregulated they were not fully understood because there were no reporting on on them, but.
It was the collective view of many including us including the legislature.
Uh huh.
They were really harming and multiplying across the state. So the state has taken steps through legislation to ban them.
<unk>.
<unk> takes effect in the late summer that's just a function of how Kentucky law works. So the law isn't being implemented yet it doesn't get implemented until the late summer and we think given the.
The.
While not precisely counted clearly huge number of these machines all around us that it's likely to have a positive impact when they go away on legal authorized gaming.
Just as importantly, these these were terrible for our industry thereon authorized unregulated.
And on managed by the state and that's dangerous for a product like gaming. So we're happy to see them go we expect that it will improve all facilities out there that are licensed and regulated like ours, but to precisely quantify it it's really hard because there was never an accurate count of the number of these things that were out there.
Got it and then.
Just to follow up on Kentucky in HRS. The Turfway Park I think it's it's obviously a newer property. It's still ramping can you talk about maybe some of the puts and takes in that northern Kentucky market.
And any cannibalization between that new Ford and how you are you look to grow that as well as the margin profile over time any.
Insights into how to think about that relative to the Derby city or in Oak Grove.
Sure.
That's a really good series of questions all impact that one at a time.
So.
The northern Kentucky market is the Cincinnati region.
In that region, you have Ohio, Indiana, and Kentucky, all coming to meet with borders So <unk>.
Indiana, and Ohio has had gaming in that market for many years. So it was a developed competitive market, we bring the advantage of being.
<unk>.
The only gaming on our side of the Ohio River, but it is a very competitive developed market. So it started with.
Newport for Us followed by.
Building out the full Turfway Park.
And.
Every quarter is better than the last.
And I thought we showed great great improvement between our opening.
Last year in the first quarter of this year I think I think we were very very pleased with the path. We're on towards improvement and we're on a path I think youll see.
<unk> over the next several quarters and we look at perf way of Newport as one combined product offering so.
I don't really have anything material to say are any material concerns about.
<unk>.
The interplay between people that go to Newport versus turf way, it's about reaching these customers in the market and convincing them. They have an alternative to driving over these bridges.
To Indiana, and Ohio, So more to come on that but the market dynamics are where the new guy in a developed market and we have to convince the customers to try us and give us an opportunity to compete for their consumer dollars and Thats a process that takes time and a competitive market, but I am very pleased with our team in <unk>.
Pleased with our start and very pleased with the progress we showed over first quarter.
Great. Thanks, so much.
Thank you Andrew.
Next question comes from the line of Shaun Kelley with Bank of America.
Hi, good morning, everyone. Thanks for taking my questions.
Just wanted to ask a specific one around twin spires, maybe just to start is.
Yet seeing any what we consider material contribution from some of the.
The agreements reached with Standalone draft Kings on the partnership side, there should we expect to see or possibly even a little bit more material.
In terms of contribution coming through with the Derby, just kind of how to think about that relationship I know the economics are spread across a couple of different places, but just kind of help us think strategically about maybe where those partnerships. It at this stage.
Sure Sean.
It's a really interesting question and I think that's one that you'll see the answer play out over an extended period of time.
And our.
And our organization, we track a lot of data and we look at it constantly so we do see initial signs that.
That fanjuls investing and pushing horse racing and and that others will as well. So we're very excited to see the first real milestone of that though around the Kentucky Derby and I think this is one of those things where I can tell you that.
I paid a lot of attention to the twin spires business since the day. It was conceptualized and became a real thing and so I followed that data personally very very carefully.
And I think the proof will be in the pudding, though and we're very close to starting to see some of that proof. So.
Look out for Derby lookout for handle on the Derby this year and really.
If youll show some patients I think will be able to provide you a better more complete answer in the second quarter. After after there is a chance for the triple crown events around with some of these folks can actually do comprehensive.
Marketing because they have events to push people towards so initial signs prior to those events I found encouraging but not the sort of thing that we should use this call to drill deeply into I. Just asked that you show a little patience and wait for the Triple Crown events that are happening in the second quarter, where these folks can really do some <unk>.
Marketing around so so far.
Sure.
Particularly found too I think I think they're showing a lot of interest and appetite and the thesis that we have here.
Is that many of our customers will enjoy a bet on the Kentucky Derby or on horse racing, but we never managed to reach those customers with our twin spires offering but these folks that are out there now with a broader sports wagering platform like <unk>. They have reached a lot more customers than we ever were able to.
With our very narrowly focused twin spires, app, which we still think is the absolute best in the business for betting on horse racing, but that's all you do on it you don't get all of these other sports so an optimistic time for us, but the proof is going to be in the pudding and we're happy to wait for that we'll talk about that in more detail next quarter.
Makes sense and something to look forward to.
Second question would just be.
Richmond came up just kind of on the slate of it it sounds like you had a couple referenda youre targeting.
In Virginia for this fall.
Just wondering if you could revisit.
Scope and scale there.
Essential opportunity as.
As well as just.
Any milestones or things that need to occur relative to I think a competing proposal that exist up in Petersburg I think your proposal has been around much longer but just kind of a couple of the.
The pros cons theirs, because I believe that the scope and scale there is pretty material.
That's a potentially $5 to $600 million project, we hope to get the opportunity to do it.
Last year.
There was a one year delay in our ability to conduct a referendum enrichment.
Our city referendum is required for authorization to move.
Move forward with the project so.
This year, we're working towards.
Authorization by the city to conduct the referendum, we're on a pathway to do that we hope to achieve that we havent achieved that yet those are those are series of steps that we're processing through but so far nothing too.
Nothing to be concerned about what we will do our best to process through that to put ourselves in a position to conduct the referendum. This year. There are five authorized licenses in the state of Virginia or have been awarded this was the fifth and final full class III license it requires a hotel.
Our casino, which will include table games in class III machines.
So this is the fifth license that.
The city of Richmond has awarded the partnership and now we have to go through the process to authorize the referendum or get the referendum authorized so that it can be conducted so there's still several steps here before the project could be realized and we're on that path.
Never a guarantee that you get to the finish line, but so far everything is going well and we will proceed down this path over over the second and third quarter hopefully achieve all the required approvals hopefully then conduct a referendum and and when the referendum and then then the process to construct would start.
<unk>.
The fruition of the project is still something thats not measured in 2023 time frame or probably even 2024.
These are the initial steps to.
Unleashed.
What we think would be a really fantastic project.
Thank you very much.
Thank you.
And our next question comes from the line of Chad Beynon with Macquarie.
Hi, Good morning, Thanks for taking my questions first I wanted to.
Revisit just some comments around margins I guess, specifically focusing on the gaming and then the the.
The ASRM facilities. So I believe you said outside of Florida and Pennsylvania.
Margins were very strong wondering if you could just dig into that a little bit more have we seen the labor and utility pressures kind of plateau and I guess, just going back to the hypothetical if if revenues and demand remains strong. Our these margins that are sustainable at least for the year. Thank you.
Thanks, Thanks, Chad I appreciate the question.
Bob.
I would answer that by saying.
Look at our results for the quarter.
Those are the those are the trends that are in the books that we see and that we can fully understand.
We do week.
We always look carefully to look at trends.
But I've been I've been around doing this for a long time and I would say.
Comparisons are always something that you have to give time to watch them to develop there is always weather events from prior year or other things like that that can that can affect them. So the short answer is.
We're doing our thing we're not seeing material changes that we have to respond to if we did see these things developing in our in our operations. Then we move to plans, where we tighten up the cost structure and tightened up the operations in order to best maintain our margins.
There is no cause for alarm here things generally looked pretty solid across the whole portfolio. When you have as many property as we have you might find an example of anything across that many properties, but generally and operations.
<unk>.
I feel good and there is nothing to report or dig deeper into at this time, we're just going to execute as we have been executing when it comes to construction timing and cost I don't have an update on the timing or cost versus what we disclosed in our in our first quarter.
Press release last year.
Yes, there are challenges on on labor, yes, there can be challenges on material, but we're managing all of those so what we disclosed last quarter in terms of timing for our projects and cost for those projects.
We're still on course for that other than as I disclosed in my.
My prepared remarks.
We decided of our own volition that we could do better in Owensboro and select a better site that would service better long term, but otherwise, yes, there can be challenges on the construction side.
But we're managing through those and there's nothing really to report on the call.
It's great to hear thanks for that update.
And then separately just on the ASRM content side of things when we talk to the slot manufacturers. It sounds like Theyre, all really focused on.
Generating good good content for for your business for <unk> in general.
Or are we just in terms of the content journey are there still opportunities to kind of improve the floor, whether it's diversification. Our overall content, obviously understanding that the exact acquisition is patenting. Thanks.
Yeah.
We are.
We are nowhere near the end of the journey there are there are.
Lots of pieces of content and some manufacturers that we haven't reached yet that we havent developed and it'll be a constant state of catch up because the businesses. The manufacturing businesses really are run and oriented towards the class III machines, so getting that product converted for ours.
Always be.
Something we're working on but there is still a pretty healthy product map and roadmap for what we want to see happen in terms of HRS.
Product on our floor and.
Sure.
And our manufacturers I think get the.
The.
The attractiveness of HRS for their business model, the ability to sell us machines in.
<unk>.
Make a return on our HR and floors. So it's working fine it's working well.
And I believe I believe the question on that obviously there is a lot we could talk about it we do work on here, but I would.
I would leave it at this it's an area of significant strategic focus for us to think about how to improve the floors at what product is out there of various types that.
What would help us shape the floor, but I would also say that already we've achieved a quality product, but our goal is always to be as good as any of our competition has and we always youre going to have that extra step that were <unk>.
But all good you'll see improvement every quarter all good.
Great. Thanks, Bill really nice quarter appreciate it.
Thanks.
I appreciate the questions.
Thank you.
And our next question comes from the line of Jordan vendor with JMP.
Great. Thanks, Good morning, I wanted to start in Virginia.
Opening there during the quarter and your margin were flatter really.
It kind of quarter over quarter. So when we think about the land based product on the casino side coming online really coming online.
That 48% margin sustainable or something we should think about.
Kind of throughout the rest of the year.
Really good question certainly there is competition coming on line there already is competition that's come online in Virginia.
I feel really good about our margins on our ability to.
To sustain and improve as we do the exactly transaction our challenge in the state.
Across all our facilities there were limited to 5000 machines. So if one particular property feels pressure versus another because of competition.
Essentially.
That's an opportunity.
Move product around the state we don't have enough machines ultimately right now we have deployed 2700, but we will get the 5000 relatively quickly as we expand our footprint ultimately our real challenge in the state of Virginia is the number of machines, we have and we have.
<unk> places, we can move those machines around based on based on the competitive environment. So it's part of the chess match.
But I don't really.
View, it as a margin threat because ultimately.
That's on us to be smart on where we deploy our resources and we have great locations now and we think really great locations that will deploy to in the future. So it's part of the chess game of how to maximize the utilization of these machines. So that we maximize our margins in the state.
And I think our team will meet that challenge so far they have.
Great. Thanks, Bill and Marcia it looks like share repurchases were somewhat minimal in the quarter. We know you have the dividend in fourth quarter as we think about capital allocation going forward is it kind of fair to assume that share repurchases will be kind of close to nine until we.
Get through most of these growth projects.
I think as we've said in the past Jordan, we are very opportunistic on the share repurchase perspective, and so based on all things considered based on our leverage.
We have tremendous capacity as you just saw with our credit facility to be in the market to buy shares back.
We decided that we wanted to end and you'll see us.
Buy shares back Opportunistically in the future as well.
Great Thanks nice quarter.
Thanks Jordan.
Thank you.
I'd like to hand, the call back over to Chief Executive Officer, Bill <unk> for any closing remarks.
Thank you everyone. We really appreciate your interest in our company and your investment in our company, we will try to be good stewards of your capital. We obviously have a lot going on right now with the Kentucky Derby and all of our growth projects in and.
We're up for it though this is an exciting time for us.
Domestic Tom for Us and we just want to execute and take good care of your capital investment in US. So thank you and we'll talk to you all soon.
Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect.
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