Q1 2023 CHURCHILL DOWNS Inc Earnings Call

Speaker 1: So.

Speaker 2: 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'll conduct a question and answer session, and instructions will be given at that time. Thank you very much.

Speaker 2: As a reminder, this conference call is being recorded.

Speaker 2: I would now like to introduce your host for today's conference, Mr. Phil Forbis, Vice President Financial Planning and Analysis.

Speaker 3: 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.

Speaker 3: The company's 2023 first quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News.

Speaker 3: located at ChurchillDownesIncorporated.com, as well as in the website's investor section.

Speaker 3: Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to different materials. 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.

Speaker 3: specifically the most recent reports on Form 10Q and Form 10K.

Speaker 3: 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.

Speaker 3: A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release.

Speaker 3: The press release and Form 10Q are available on our website at Churchill Downs Incorporated.com.

Speaker 3: And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstangen.

Speaker 3: Thanks, Phil. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer, Marcia Dahl, our Chief Financial Officer, and Brad Blackwell, our General Counsel.

Speaker 3: I will share some high-level thoughts on several strategic topics and then Marsha will walk through our results and provide an update on our capital management strategy.

Speaker 4: After she finishes, we will take your questions.

Speaker 4: We delivered record first quarter net revenue of $560 million and record adjusted EBITDA of $223 million.

Speaker 4: We were pleased with the performance of all of our segments.

Speaker 4: and our expectations remain high for the rest of the year. Let's start with our historical racing machines, our HRM initiatives.

Speaker 4: HRMs are a key strategic focus over the next 5 to 10 years for our company as we seek to expand our existing footprint.

Speaker 4: 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 in Kentucky, Virginia, New Hampshire, Louisiana, and perhaps beyond.

Speaker 4: our inaugural property opening in 2018, Derby City Gaming in 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.

Speaker 4: We have been very happy with how the property has been performing through the significant disruption across the site caused by the floor expansion and the construction of the hotel.

Speaker 4: Our team is also working hard to prepare for the opening of Derby City Gaming Downtown, our HRM entertainment venue in downtown Louisville, set to open in the fourth quarter of 2023.

Speaker 4: In western Kentucky, we have shifted our plans for our Owensboro HRM 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.

Speaker 4: We are disciplined 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.

Speaker 4: We will share more on these plans on our next earnings call and are very optimistic we are on a better path now.

Speaker 4: We have made numerous improvements at Ellis Park to enhance the racing experience for our customers and improve safety and environmental compliance at the property.

Speaker 4: The purse money has increased approximately 50% to over $15 million, and we have added four new states races.

Speaker 4: We have more work to do to make this a great Kentucky racetrack and are committed to doing so.

Speaker 4: We will save any material investment in the HRM portion of Ellis Park until we complete and then evaluate its HRM extension in Owensboro to ensure these properties complement each other and are as efficient as possible from a customer offering an operational perspective.

Speaker 4: The area around Owensboro is the larger and more economically attractive market, and thus our focus will be on that first from an HRM perspective. As a reminder, we also have the Oak Grove HRM extension in our portfolio of potential longer-term development projects.

Speaker 4: We are focused on our other Kentucky projects for now. HRM entertainment facilities in Kentucky will soon benefit from the passage in the first quarter of legislation allowing retail sports and online betting across the Commonwealth.

Speaker 4: We will look to go live in our retail locations once regulators have promulgated all of the required regulations and operational standards.

Speaker 4: Currently, we expect this will happen in the second half of 2023. We will be permitted to have up to nine retail locations and up to eight online sports betting licenses that we can potentially monetize.

Speaker 4: Each of our racetracks and HRM facilities in Kentucky already have a sports bar that will be enhanced with sports betting kiosks so that our customers can easily and conveniently place their retail sports bets. We believe our retail sports books help to drive additional traffic to our properties and other states.

Speaker 4: and will further help to grow our HRM properties across Kentucky. With respect to online wagering,

Speaker 4: revenue stream.

Speaker 4: We also expect to enter into other market access arrangements in the near future.

Speaker 4: Moving to Virginia, our six HRM properties are performing as we expected and in some cases are exceeding our expectations. Regarding new projects, we are constructing the Rosie's Emporia HRM venue in the southern portion of the state near the Virginia and North Carolina border right off of Interstate 95.

Speaker 4: 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 HRM facility in Dumfries, which is located in Northern Virginia, approximately 30 miles south of Washington, D.C., also directly off of Interstate 95.

Speaker 5: corridor.

Speaker 4: The construction is proceeding according to our schedule and we expect the first phase of the project with 1,150 HRMs and an approximately 100 room hotel to be open in the second quarter of 2024. We have the right under Virginia law to open up to three additional HRM facilities with the number of HRM machines permissible in each.

Speaker 4: a function of the size and location of the community, subject to an overall cap of 5,000 machines across all of our facilities in the state.

Speaker 4: We are working towards a goal of conducting HRM-related referendums in two new communities this coming fall.

Speaker 4: We are excited about these projects and will share more details on our next earnings call.

Speaker 4: 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 3 casino in the City of Richmond, Virginia.

Speaker 4: This is a separate opportunity from our HRM operations in the state. We are working through the required city of Richmond 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 a Salem, NH-

Speaker 4: sports and casino business in 2022, our bottom line improved significantly.

Speaker 4: We also were very encouraged to see early benefits of our decision to...

Speaker 4: for the launch in the first quarter of our services to deliver racing content to FanDuel and DraftKings. We expect to see our B2B business accelerate in the second quarter with the Kentucky Derby.

Speaker 4: And finally, regarding our preparations for the upcoming 149th running of the Kentucky Derby a week from this Saturday.

Speaker 4: We have made fantastic progress on our projects at Churchill Downs Racetrack. Our new first-turn experience is complete. This is a one-of-a-kind entertainment venue that is itself the size of a small stadium with 5,300 covered stadium seats and an additional 2,000 reserved indoor dining seats.

Speaker 4: with exclusive views of the horses and the racetrack from the rail on the first turn.

Speaker 4: 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 toward this year's Kentucky Derby.

Speaker 4: Based on advance reserve ticket sales and other metrics available at this time, we expect to deliver record derby week results.

Speaker 4: We will issue a press release after the Derby with all of the details. While our focus is on hosting a special Kentucky Derby 149, we are also kicking off our year-long celebration in preparation for the 150th Kentucky Derby in May of 2024.

Speaker 4: The 150th run for the roses will be a remarkable milestone for the longest continually run sporting event in the United States

Speaker 4: The Derby has run annually since 1875 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 fact, early ticket sales are already underway and selling nicely.

Speaker 4: One of the most exciting developments

Speaker 4: be the completion of the PADC project with breathtaking and unrestricted views of the Twin Spires along with spectacular new seating and dining experiences.

Speaker 4: This project will reinvent trickle-down's racetrack and create unique once-in-a-lifetime experiences that will surpass anything like it anywhere in the United States.

Speaker 4: We remain on course to complete the paddock reimagination in time for the 150th 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 in numerous foreign markets.

Speaker 4: We look forward to seeing you at the 149th Kentucky Derby on May 6th 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.

Speaker 4: We have positioned our company for strong growth for years to come with the ongoing investments in the Kentucky Derby, the acquisition of the P2E assets including the existing operational properties and our Virginia growth projects, and our

Speaker 4: We have positioned our company for strong growth for years to come with the ongoing investments in the Kentucky Derby, the acquisition of the P2E assets, including the existing operational properties and our Virginia growth projects. Our Terra Hope project in Indiana.

Speaker 4: our Salem, New Hampshire HRM project and other Kentucky HRM projects, and the pending acquisition of Xacta systems.

Speaker 4: which will greatly improve our Virginia, New Hampshire, and Kentucky capabilities, all of which we expect to drive a material increase in adjusted EBITDA and free cash flow in the coming years.

Speaker 4: Our overarching objective is to pursue what we have demonstrated we are good at, growing the Kentucky Derby, developing green field 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.

Speaker 6: With that, I'll turn the call over to Marsha and then we will take your questions. Marsha? Thanks, Bill, and good morning, everyone. As Bill shared, we delivered record first quarter revenue and adjusted EBITDA. I'll start this morning with a few insights on these financial results and then provide an update on capital management.

Speaker 6: First, all of our HRM properties made strong contributions to our financial results in first quarter. Our Oak Grove HRM facility continued to penetrate the southwestern Kentucky and Nashville Tennessee markets seven decades after the Od loophole was had been

Speaker 6: We also had nice growth in our northern Kentucky market as Turfoy Park and Newport Gaming continue to improve and expand their market presence during first quarter.

Speaker 6: Our Virginia properties contributed $98 million of net revenue and $47 million of adjusted EVADA in the first quarter. This represents a 48% margin collectively for these properties.

Speaker 6: This performance is prior to any material improvements to the gaming floors at these properties that we expect to realize in the future.

Speaker 6: Second, regarding our TwinSpires horse racing business, our overall handle was higher in the first quarter than the prior year. We did generate lower adjusted EBITDA from our online TwinSpires horse racing business as a result of higher content related expenses and slightly higher ADW taxes in certain jurisdictions. Despite a slight decline in adjusted EBITDA, our overall handle was higher in the first quarter than the prior year. We did generate lower adjusted EBITDA from our online TwinSpires horse racing business

Speaker 6: We are pleased with the strong margins that this business delivered in 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.

Speaker 6: We believe the B2B expansion related to our horse racing technology and related services will provide a further enhancement to our adjusted EBITDA and margins in the coming quarters.

Speaker 6: delivered strong performances in first quarter compared to the prior year.

Speaker 6: Our existing regional gaming properties in Maine, Maryland, Louisiana, and our Hulloats property in Mississippi collectively delivered a small increase in adjusted EVITA compared to the prior year quarter that was more than offset by declines at our Pennsylvania and Florida properties and our Riverwalk property in Mississippi.

Speaker 6: Our first quarter SAME store Holy Home 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 EVDA from our Pennsylvania properties.

Speaker 6: Overall, we are very pleased with the results that our team has delivered in the first quarter, and we believe we are very well positioned to continue to grow through the remainder of 2023.

Speaker 6: Turning to Capital Management, we generated $204 million of free cash flow in the first quarter, up $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 the next quarter.

Speaker 6: in total for the year. Regarding project capital, we spent $123 million in the first quarter and continue to expect to spend between $575 and $675 million in total for the year. At the end of first quarter, our bank covenant net leverage was 3.9 times.

Speaker 6: Based on our planned acquisition of Exacta and our capital investments, we expect our Bank Covenant Net 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.

Speaker 6: as 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.

Speaker 6: We utilized the proceeds from the Term Loan A financing to fully repay the outstanding balance on our credit facility. We also completed a $600 million dollar 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.

Speaker 6: 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. The stock split reflects their belief in the stock market.

Speaker 6: and ours in the long-term growth potential of our company.

Speaker 6: With that, I'll turn the call back over to Bill so that he can open the call for questions. Bill? Thank you, Marcia.

Speaker 4: At this point we'd like to take any questions that you have for us.

Speaker 4: We'd like to take any questions that you have for us.

Speaker 2: To ask a question, you will need to press star 1 1 on your telephone. And if you wish to remove yourself from the queue, please press star 1 1 again. One moment, please. Our first question comes from the line of Barry Jonas with Truist. Hey guys, good morning. Thanks for taking my question.

Speaker 4: of our thesis in investing to acquire P2E was that these processes, 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 that's a big part of

Speaker 4: what a portion of our team spends our time on. But for the existing properties that were already there and operational, that's been a breath of fresh air. And generally, they've been quite strong and we're quite optimistic looking forward. Got it. And then just to follow up, there's been

Speaker 4: with the consumer trends that we saw across our properties.

Speaker 4: 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 and feel pretty good in general. Some markets are better than others, but across a 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.

Speaker 4: margins but right now we're not really doing that because there isn't enough trend data to suggest that we need to.

Speaker 2: That's really helpful. Thank you so much.

Speaker 4: That's really helpful. Thank you so much. Thanks, Barry.

Speaker 2: Thank you so much.

Speaker 4: 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 respect to Kentucky sports betting, have you talked about what the opportunities are and sort of what the magnitude of that is?

Speaker 4: We find that it does drive traffic to our properties, that it does help the overall energy and flow of people through our properties. And so it's a really good thing. So we will follow the strategies we've 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.

Speaker 4: the sports bars and we'll put in the kiosks, refine the customer offering. And it'll be a nice bonus. It's not material to the scale of the company or anything like that, but it'll help each of these HRM properties, not only from the contribution of the sports wagering piece, but from the additional traffic that it drives to the rest of the facility.

Speaker 7: Understood. On the subject of HRM facilities, one of the issues that comes up regularly with investors is the degree to which those HRM facilities can perform, whether an HRM machine, how it compares with the traditional HRM facilities.

Speaker 7: in consumer spend or behaviors or any of those sorts of things, or is it really just the same?

Speaker 7: whether there's any noticeable difference in consumer spend or behaviors or any of those sorts of things or is it really just the same? I think if you see the...

Speaker 4: The margins we drive from these facilities and the locations of some of them with the competition of other types of gaming on our in our surrounding borders, you can see it's a very competitive project product. So.

Speaker 4: concentrated around the variety of product, getting more gains available to us. So as a business model, we're very, very pleased and excited about HRMs, and as a company that's driven first and foremost by margins, I think you see the evidence of that and see why we're excited about it.

Speaker 4: But part of reaching maturity eventually property by property, and I am of the view that we haven't reached maturity at any of our HRM properties, part of reaching maturity over time is constantly improving, working with the manufacturers to improve the quality and imper expansion of ourwind client.

Speaker 4: of products available using the HRM model. So more to come, more to come, and I think that's 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 toolkit to work with manufacturers to make this product as competitive as we can.

Speaker 4: can with Class III, but we're not where we're going to be over the long term yet.

Speaker 4: class three, but we're not where we're going to be over the long term yet. Okay, appreciate it. Thank you very much. Thank you.

Speaker 2: Thanks, David. Our next question comes from the line of Dan Pollitzer with Wells Fargo. Hey, good morning, everyone, and thanks for taking my questions. First, I want to touch on the Kentucky, the gray market. Recently, there was some legislation there that cracked down on this. Can you maybe talk about the size of what the gray market was in Kentucky?

Speaker 4: else on the call during the first quarter, the Kentucky Legislature.

Speaker 4: passed new legislation that was signed by the governor, banning the category of gaming machines that euphemistically we refer to as gray games. These were popping up in bars and taverns and restaurants and convenience stores across the state.

Speaker 4: 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 HRM machines and licensed authorized facilities like the ones we run. So this was the

Speaker 4: circumstance where these these machines were multiplying rapidly and it gained an unfortunate foothold in the state. They were unauthorized, 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.

Speaker 4: that they were really harming and multiplying across the state. So the state has taken steps through legislation to ban them. The law 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.

Speaker 4: And we think given 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. But just as importantly, these were terrible for

Speaker 4: They were unauthorized, unregulated, and unmanaged by the state, and that's dangerous for a product like gaming. So we're happy to see them go. We expect that it'll 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.

Speaker 2: Got it. And then just to follow up on Kentucky and HRM's, the Turboy Park, I think it's, you know, 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? You know, any cannibalization between that Newport and how you look to grow that as well as the market.

Speaker 4: market is the Cincinnati region.

Speaker 4: In that region you have Ohio, Indiana, and Kentucky all coming to meet with orders. So Indiana and Ohio have had gaming in that market for many years, so it was a developed competitive market. We bring the advantage of being the only gaming on our side of the Ohio River.

Speaker 4: 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's better than the last, and I thought we showed great, great improvement between our opening.

Speaker 4: last year and in the first quarter of this year, I think we were very, very pleased with the path we're on towards improvement. And we're on a path. I think you'll see improvement over the next several quarters. And we look at Turfway and Newport as one combined product offering. So.

Speaker 4: I don't really have anything material to say or any material concerns about 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 we're the new guy in a developed market and we have to convince the customers to try us

Speaker 4: and give us an opportunity to compete for their consumer dollar. And that's a process that takes time in a competitive market. But I'm very pleased with our team and very pleased with our start and very pleased with the progress we showed over first quarter.

Great, thanks so much. Thank you.

And our next question comes from the line of Sean Kelly 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 are we yet seeing any, you know, what we consider material contribution from some of the, you know, agreements reached with FanDuel and DraftKings on the partnership side there?

That's a really interesting question, and I think it's one that you'll see the answer play out over an extended period of time. In our …

In our organization, we track a lot of data and we look at it constantly, so we do see initial signs that FanDuel is investing in pushing horse racing 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've paid a lot of attention to the Twin Spires business since the day it was conceptualized and became a real thing. And so I follow 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, look out for handle on the Derby this year, and really, if you'll show some patience, I think we'll be able to provide you a better, more complete answer in the second quarter after there's a chance for the Triple Crown events around which 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 ask 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 marketing around. So far, particularly FanDuel, 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 FanDuel, they've 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 bet all 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, you know, Richmond came up just kind of on the slate of something. Got a couple referenda you're targeting in Virginia for for this fall. You know, just just wondering if we can revisit, you know.

Scope and scale there of a potential opportunity as well as just any milestones or things that need to occur relative to, I think, a competing proposal that exists up in Petersburg. I think your proposal has been around much longer, but just kind of.

a couple of the pros, cons there because I believe that the scope and scale there is pretty material. That's a potentially $500 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 in Richmond.

a city referendum is required for authorization to 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 haven't achieved that yet.

Virginia for have been awarded. This is the fifth and final full Class 3 license. It requires a hotel, a casino, which will include table games and Class 3 machines. So this is the fifth license that 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'll proceed down this path over the second and third quarter, hopefully achieve all the required approvals.

Hopefully you then conduct the referendum and win the referendum and then the process to construct would start. The fruition of the project is still something that's not measured in 2023 time frame or probably even 2024. These are the initial steps to unleash 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 Binion with Macquarie. Hi, good morning. Thanks for taking my questions. First, I wanted to revisit just some some comments around margins. I guess specifically focusing on the gaming and then the HRM facilities. So I believe you said, you know,

revenues and demand remain strong are these margins that are sustainable at least for the year. Thank you.

those are the trends that are in the books that we see and that we can fully understand. Week to week, we always look carefully to look at trends. But I've been around doing this for a long time and I'd say comparisons are always something that you have to give time to watch them develop. There's always weather events from prior year or other things like that 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 operations, then we move to plan.

or cost versus what we disclosed in our in our first quarter press release last year. Yes there are challenges on labor, yes there can be challenges on material, but we're managing all 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 prepared remarks, where we decided of our own volition that we could do better in Owensboro and select a better site that would serve us 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.

Great to hear. Thanks for that update. And then separately, just on the HRM content side of things, when we talk to the slot manufacturers, it sounds like they're all really focused on generating good content for your business, for HRMs in general. Where are we just in terms of the content journey? Are there still opportunities to kind of in this element-based way of treating your business? For Ward connect dictate logs to 6,888- Wow cheer up. Parents admit this worksally with the existing cloud quiet services site. However generally Aware".

improve the floor, whether it's diversification or overall content, obviously understanding that the exact acquisition is pending. Thanks!

We are nowhere near the end of the journey. There are lots of pieces of content and some manufacturers that we haven't reached yet that we haven't 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 three machines.

So getting that product converted for ours will always be something we're working on. But there's still a pretty healthy product map and roadmap for what we want to see happen in terms of HRM product on our floor.?,

And our manufacturers, I think, get the, you know, the attractiveness of HRMs for their business model, the ability to sell us machines and make a return on our HRM floors. So it's working fine. It's working well.

And I'd leave the question on that. Obviously there's a lot we could talk about and we do work on here, but I would leave it at this. It's an area of significant strategic focus for us to think about how to improve the floors and what product is out there of various types that 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 are going to have that extra step that we're HRM.

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 are gonna have that extra step that we're HRM.

But all good. You'll see improvement every quarter. All good. Great, great. Thanks, Bill. Really nice quarter. Appreciate it. Thanks. Appreciate the questions. Thank you. And our next question comes from the line of Jordan Bender with JMP. Great, thanks. Good morning. I want to start in Virginia. There was a casino open.

the rest of the year. Thanks.

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 and our ability to sustain and improve as we do the exact transaction. Our challenge in the state.

across all our facilities there, we're limited to 5,000 machines. So if one particular property feels pressure versus another because of competition, essentially that's an opportunity to move product around the state. We don't have enough machines ultimately. Right now we've deployed 2,700, but we will get to 5,000 relatively quickly as we-

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 we'll 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 purchases were somewhat minimal or none in the quarter. We know you have. The dividend in 4th quarters, we think about capital allocation going forward. Is it kind of fair to assume that share purchases will be kind of close to 9 until we get through most of these growth projects? I think, as we've said in the past, Jordan, we are.

Great, thanks. Thanks, Carter.

Bye, Jordan. Thank you.

I would now like to hand the call back over to Chief Executive Officer Bill Carstensen for any closing remarks. Thank you. Everyone, we really appreciate your interest in our company and your investment in our company. We'll 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. We're up for it though. This is an exciting time for us, an optimistic time 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.

and we're up for it though. This is an exciting time for us, an optimistic time for us, and we just wanna 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.