Q2 2023 Churchill Downs Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2023 second quarter earnings Conference call.
At this time all participants are in a listen only mode.
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.
Morning, and welcome to our second quarter 2023 earnings Conference call.
After the company's prepared remarks, we will open the call for your questions.
The company's 2023 second quarter business results were released yesterday afternoon a.
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.
Located at Churchill Downs incorporated Dot com as well as in the website's investors section.
Before we get started I would like to remind you that some of the statements that we make today may include forward looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially.
All forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC specifically the most recent reports on Form 10-Q and Form 10-K.
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.
Our 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, Bill good morning, everyone with.
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 share some high level thoughts on several strategic topics and then Marshall will provide insight on our financial results as well as an update on our capital management strategy.
After she finishes we will take your questions.
We delivered all time record net revenues of $769 million, an all time record adjusted EBITDA of $364 million in the second quarter of this year.
We were very pleased with the results for this year's 149th Kentucky Derby.
A crowd of over 150000 fans watch MAGE at 15 to one odds pull off an incredible victory.
Yeah.
Strong growth in ticketing and sponsorship revenue coupled with record wagering generated a sizable increase in adjusted EBITDA setting a new all time record for Derby week.
We were thrilled to debut on time and on budget.
Our new first turn experience, which provided one of a kind premium accommodations with exclusive use of the horses in the race track from the rail of the historic first term.
Our carefully planned and executed capital projects at Churchill Downs racetrack over the last several years have delivered a solid foundation for ongoing growth in the coming years.
We've kicked off our year long preparation for the 150 of Kentucky Derby next year.
We launched ticket sales in several areas in late May and as of June 30 have already.
<unk> executed contracts for approximately 37% of our plant ticket revenue.
For next year's Derby, which is significantly ahead of the pace for any previous year.
We continue to make excellent progress on the <unk> project.
Which is a transformative undertaking for our facility.
This project has many facets to it.
We are adding additional reserve premium seating that will provide a wide variety of new seating and dining experiences for our guests.
When this project is done.
One who enters our racetrack will be treated to spectacular views of the twin spires and the paddock wood.
Which we believe will provide a central.
For a venue that unites everyone who will visit.
We announced yesterday that we will be investing approximately $15 million to significantly improve the guest experience and our jockey club sweets area overlooking the homestretch of Churchill Downs racetrack.
We have 61 suites, and our jockey club tower and host approximately 2500 chip ticketed customers across the suites dining areas and parishes.
We expect to have improvements in this area completed in time for the 150 of Derby.
We are already planning our next series of development projects for Churchill Downs Racetrack, there are many more opportunities to build out our facility to provide innovative and extraordinary once in a lifetime experiences for new and existing guests.
We hope to launch the next phase of our multiyear development plan immediately after the 150 of therapy.
Our commitment to investing in our flagship asset reflects our belief in our ability to generate consistent adjusted EBITDA growth with nominal levels of risk for years to come.
Finally, we will also be adding a new sports bar and our existing simulcast area at Churchill Downs Racetrack in time for the launch of retail sports betting in Kentucky on September 7th of this year.
Turning to our HR and entertainment venues.
We were pleased to open a new hotel and Steakhouse at Derby City gaming in Louisville in early June .
This coupled with the gaming floor expansion and the addition of the new sports bar earlier in the year provides a suite of additional amenities for our guests to enjoy.
While it is still early we are exceeding our revenue and profitability projections in the first month since opening.
This venue is located in the heart of downtown Louisville across the Street from the Convention Center.
We announced that our seventh ASRM facility will be just outside and to the east of Owensboro, Kentucky.
We have we haven't identified a greenfield site and believe that dislocation will enable us to create a premier entertainment destination for all residents of the region.
We will provide an update on the project timing and budget on our next earnings call.
ASRM entertainment venues across Kentucky will benefit from the passage of legislation banning Gray games, which became effective on June 30.
Great games are essentially slot machines. However, they are unregulated and do not pay state or local taxes and do not follow responsible gaming protocols, including restrictions regarding miners.
Hi, money laundering policies and procedures and a host of other federal and state laws designed to protect consumers and the community.
With the band always taking effect at the very end of last month. It is still unclear how much of an impact it will have on our HR and venues in Kentucky, We certainly believe that it will have a positive effect and will be a benefit to the Commonwealth of Kentucky, its citizens and the horse industry as well.
Our Kentucky ASRM, then use will also benefit from benefit from the legalization of retail and online sports betting.
We plan to have live retail sports books in our HRS venues on September 7th and time for the football season.
We will also have a sports bar with sports betting and our Derby City gaming downtown facility when the property opens in the fourth quarter.
Retail sports betting and our HRS venues will provide another incentive for new and existing customers to come to our properties.
We also monetize the couple of the online sports betting licenses, we Havent, Kentucky with BTB partners, including one with Vanderbilt.
Regarding our expansion in Virginia.
Ah Rosie's Emporia HRS venue will open later this quarter with 150 <unk> in the southern portion of the state near the North Carolina border right off Interstate 95.
Our Dumfries HR in venue and hotel is being built in northern Virginia, approximately 30 miles south of Washington D. C also directly off Interstate 95.
This venue will open with 1150 HRA machines in phase one and we can go up to 1800 total machines in phase II.
The construction is ongoing and we expect the first phase of the project, including the gaming facility to be opened in the second quarter of 2024.
In June we announced plans to run a pair mutual referendum. This November of <unk> Park, which is in northern Virginia, where we hope to open a venue with 150 to 250 HRS. The city is really welcome to US and we are excited to pursue this opportunity.
Currently we have six of our a lot of 10, HR and facilities open and Korea will be the seventh.
Our large scale Dumfries project.
We will replace our current temporary 150 unit facility and thus will not be additive to our total number of deployed licenses.
Manassas Park would be our eighth license, giving us two more to to deploy in addition to our ability to relocate any existing facility to another location.
We also recently announced that the Richmond City Council approved our partnership with urban one as the city's preferred casino operator.
Over the last week, we obtained the required certificate of approval from the Virginia Lottery.
And the circuit court has granted our petition allowing the referendum.
As a reminder, we have a 50 50 partnership with urban one to build a class III Casino Hotel and event center and the city of Richmond upon approval via citywide referendum.
If and when we obtained the right to proceed we plan to build it in phases. The first phase consists of the casino and parking facilities and the second phase will include the hotel and the event center.
This phased approach will enable us to expedite opening the casino portion of the project and generate cash flow to offset the construction costs of the second phase.
This is the most financially prudent approach and provides near term tax revenues for the city of Richmond to fund a variety of their priorities.
We have also made significant progress on our Salem, New Hampshire, HRS site plans, and we will be able to share more details on those plans by the end of the third quarter.
Although this has taken longer than we would've liked we remain excited and committed to creating a unique HRA entertainment offerings from Salem area that will also draw gas from the suburbs of Boston.
We anticipate closing the exact transaction no later than the end of the year and potentially sooner if the remaining closing conditions are more quickly achieve.
Through our ownership of exact to our facilities in Virginia will be able to have a broader variety of gains on their gaming floors, and we will be able to reduce the cost of providing an operating the machines.
This will improve our top line and our margins for Virginia.
We will also continue to improve the technology platform and to offer be exact assistant with third party <unk> operators.
HRS and HRS venues are key strategic focus over the next five years to 10 years for our company.
High growth high margin investments provide an excellent return on capital and we will remain disciplined as we expand our existing footprint and product offerings.
Regarding our twin spires segment.
We were pleased this quarter to see the beginning of the benefits from our <unk> expansion strategy.
Our twin spires and United Tote businesses are now receiving <unk> fees related to providing unsettling wagers on horse races for fan dual and draft Kings.
Although we cannot comment on our <unk> partners horse racing results.
Kentucky Derby was a great boost for both our twin spires horse racing platform, which saw record handle in new registrants and for our <unk> partners.
We expect to add additional <unk> partners over the next 12 months.
We're very optimistic that horse racing and our twin spires services can be expanded meaningfully to online sports wagering platforms to reach millions of customers and that we will continue to benefit from the growth and incremental fees related to our <unk> services over the longer term.
Our twin spires handle was impacted in the second quarter by the loss of 88 rate stays as well as over 600 races. Many from top tracks primarily related to the extensive wildfires in Canada.
Twin spires was also impacted by the move of the Churchill Downs race meet to Ellis Park in June .
Many of our players Churchill Downs racetrack as the single most important track that draws them to our site on any given day.
We expect some Canadian wildfire impact on our twin spires handle in the third quarter. However, we will return to racing at Churchill Downs Racetrack for September race meet.
Regarding our gaming segment.
We delivered record second quarter revenue and adjusted EBITDA with the addition of the Iowa and New York properties from the <unk> acquisition, we did see mild softness across some of our regional gaming properties, particularly in the first half of the quarter each.
Each regional market has different economic and competitive drivers that on a quarter to quarter basis can impact performance of a property.
Overall, despite the inflationary and economic pressures and increased interest rates over the past year, we remain highly confident in the performance of our regional gaming properties, which generate significant free cash flow.
With respect to our Terre Haute Casino and resort construction is progressing well with the planned Grand opening for the casino and hotel in the second quarter of 2024.
In summary, second quarter was another great quarter for us with all time record financial results and the best is still to come.
We've delivered strong growth from our investments in the Kentucky Derby, our acquisition of the <unk> assets and our organic investments in <unk> and other gaming entertainment venues and we still have a lot more growth to come from the projects, we have discussed today and others yet to be far enough along to share with you.
We expect our growth plans to drive a material increase in adjusted EBITDA and free cash flow in the coming years, while we maintain one of the best balance sheets in the industry.
Yeah.
With that I'll turn the call over to Marcia and then we will take your questions Marcia.
Okay.
Thanks, Bill and good morning, everyone as Bill shared we delivered all time record net revenue an all time record adjusted EBITDA in the second quarter.
Our diversified portfolio of businesses generated a 32% growth in revenue and a 25% growth in adjusted EBITDA on a quarter over quarter basis.
I will start by sharing a few insights on these financial results then provide an update on capital management.
Regarding Derby week at Churchill Downs Racetrack as you saw in the press release that we issued immediately following the Derby. We once again set all time records for wagering on the Kentucky Derby race, the Kentucky Derby program, and the Kentucky Derby week races Twins.
<unk> also generated record handle on the Derby week on the Derby day program and on the Derby race.
Derby week is expected to generate $14 million to $16 million of incremental adjusted EBITDA for 2023.
As a reminder, we recognized nearly all of the revenue and costs associated with Derby week during the second quarter of the year. However, there are some ongoing SG&A related costs associated with Derby week.
Throughout the year.
Also the impact of Churchill Downs race track from the shift in racing operations to Ellis Park for three weeks in June was approximately $4 million.
We are disappointed that we incurred this onetime impact to our financials in the second quarter. We believe it was the best long term decision for our company.
Second our AGM properties in Kentucky, and Virginia made strong contributions to our financial results and second quarter.
Overall, our AGM properties contributed nearly $50 million or two thirds of our growth in adjusted EBITDA for the second quarter.
Our organic investments in our Kentucky, AGM properties grew 10% overall on a quarter over quarter basis, and we benefited from the addition of the high margin, Virginia atrium properties that were part of the <unk> acquisition.
Our Virginia properties contributed $44 million of adjusted EBITDA in the second quarter, reflecting a 46% margin collectively for these properties.
Our margin was a point lower than the second quarter than first quarter, reflecting some additional racing related expenses associated with preparing for the colonial downs race meet which kicked off last week.
<unk> was also a point lower primarily as a result, slightly lower topline results and increased marketing spend at our Hampton property.
As expected our Hampton property has seen increased competition from a new casino that opened approximately six months ago.
We expect to improve margins for our Virginia ASRM properties.
We enhanced the gaming floors.
We realize the benefits from the exact to acquisition in the future.
Third turning to our Twinsburg segment too.
Twinsburg handle and adjusted EBITDA were impacted in the second quarter from the shift in racing from Churchill Downs to Ellis Park.
<unk> has a significant market share of Churchill Downs handle and then appears it betters did not shift all of the typical wagering during that time to Ellis Park.
Twinsburg is also was impacted in the quarter by the cancellation of various race tracks of approximately 15% of the Thoroughbred race days during June as well as a number of standard bred race is primarily due to the impact of Canadian wildfire wildfires on air quality conditions.
Estimate that the combined adjusted EBITDA impact of these two unplanned and unusual events in the quarter was less than $2 million.
We also had higher content related expenses and slightly higher EDW taxes in certain jurisdictions.
These unplanned events and higher expenses and taxes.
All set by increased adjusted EBITDA associated with our <unk> expansion related to of course, Jason technology and settlement services and the benefits from our continued pivot out of the direct online sports and casino business.
Despite these challenges it is important to put the twinsburg quarterly results in perspective.
<unk> adjusted EBITDA was flat on a quarter over quarter basis. It was up 15% on a sequential quarter basis. This reflects the overall strength of this business, including the tremendous benefit received in connection to Churchill Downs Racetrack and the Derby and we believe it will continue to grow as we can.
And our <unk> strategy.
We do expect the <unk> segment margins to return to more historical levels in the third and fourth quarter of this year.
Based on our continued BBB and retail sports betting expansion and reduced marketing spend.
And fourth regarding our gaming business, we once again realized significant contributions in the second quarter from the addition of the New York and Iowa properties acquired in the <unk> transaction.
Bill discussed we did see mild topline softness which resulted in a collective modest decline in adjusted EBITDA on a quarter over quarter basis for our existing regional gaming properties.
Our second quarter same store wholly owned casino margins.
Slightly more than one point compared to the same period in 2022.
Our margins on a comparable basis or up three six points for the same for the second quarter compared to the same quarter in 2019.
Selecting a retention of approximately half of the margin expansion benefit from the post Covid peak in 2021.
We recorded a $24 5 million noncash impairment related to the gaming Reits intangible for Presque-isle Isle Casino. This reflects the increasing competitive threat from Greg games, the economic environment, including inflationary trends and the high interest rates and the impact.
I gaming on retail gaming and the impact of operating in a high tax rate environment in this state.
Turning to capital management as a reminder, our two for one stock split was effective may 22nd So all of our per share metrics have been updated for this impact.
We generated $372 million or $4.87 per share of free cash flow. During the first half of the year. This is up $15 million 25 per share over the first half of 2022 and reflects our strong diversified earnings.
This increase over the prior year reflects the strong cash flow generated from our businesses that was partially offset by higher interest rates and a $33 million nonrecurring tax refund in 2022.
Regarding maintenance capital, we spent $30 million in the first half of the year and we continue to expect to spend $75 million to $95 million in total for the year.
Regarding project capital, we spent $282 million in the first half of the year and we continue to expect to spend between 575 and $675 million in total for the year.
At the end of the second quarter, our bank Covenant net leverage remained at three nine times.
Based on our planned acquisition of Exacta and our capital investments. We continue to expect our bank covenant net leverage to remain in the four times range through the end of the year. We then expect our bank covenant net leverage to decline in 2024 and 2025.
Overall, we are very pleased with the results that our team has delivered for the second quarter, the diversification of our portfolio and our strong balance sheet provides us a solid foundation for growth through various economic cycles and operating opportunities, we're very well positioned to execute on our tangible.
Pipeline of growth opportunities for the remainder of 2023 and beyond.
With that I'll turn the call back over to Bill So that he can open the call for questions Bill.
Thank you Marcia.
At this point, we're happy to take your questions So fire away.
Thank you.
I ask a question you will need to press star one one on your telephone. If your question has been answered or you wish to remove yourself from the queue Press star one again.
Please standby, while we compile the Q&A roster.
And our first question comes from the line of David Katz with Jefferies.
Hi, good morning, everyone. Thanks for taking my questions.
So I wanted to just talk about the gaming business right in regional gaming and I suppose we include HRS.
And there you.
There's a lot of detail, but what I wanted to talk about in a general sense as well.
Is there some we've seen some industry numbers that come out a little bit down year over year.
Ill speak for myself sort of keeping all of that processed into our numbers for regional gaming.
It's been a little bit more complex in your case because of the growth is what is the underlying economy and demand environment looking like to you and particularly as we start to get into July .
How is that sort of setting up going forward.
Thanks for the question David.
So first when you think about our company.
You always have to pullback from just a quarter by quarter look our company. The way we are structured the way were built were built to deliver a lot of growth over the next few years because of the projects that we've.
Developed in the pipeline we have so everything about that is the same as it's been it's a time of extreme optimism and at the time of execution for our company.
Anytime I get a specific question about.
Trends you might see in a given month or even over a quarter I try to I try to frame them in the context of that larger.
Picture of how do we grow our company how do we build our company. That's something that's of course, you have to set over a multiyear period and that's of course, you have to stick through even.
Month to month quarter to quarter and year to year. So everything about what we're doing in our company remains on course and it remains.
A time of great optimism because of the strength of the pipeline that we've built.
With respect to this prior quarter I think if you look at the numbers across.
The entire country, you can see pockets of strength and you can see pockets of weakness.
In general I'd say, the second half of the quarter was stronger than the first half and I would say.
Even though we're currently in an environment, where we're demonstrating for you substantial growth in our company.
Primarily because of the <unk> acquisition and some of those some of those properties are performing very very well for us we still showed organic growth in our base business.
Absent that acquisition so.
Those are the larger trends and themes I think to focus on when you think about it.
About our company.
And look I think the important follow up if I may.
The growth pipeline of considerable growth pipeline.
Since we last spoke on a public call about 90 days ago, Alright is still.
Comfortably intact.
Wrecked.
Oh, Yeah I think.
Start with the Kentucky Derby and the performance that we saw with the first term project.
That that really did exceed our expectations in terms of the immediate customer.
<unk> of that and the positive feedback we got from that so.
If you break it down we feel very very optimistic about all the projects, we're doing around the derby and from that you spread into the <unk> with the Dumfries project Thats coming on the Emporia all the projects, we're doing there and we feel really good about terra Haute as well. So at this point, what's important for US David is execute execute execute get those.
Property is done on time and on budget.
<unk> focus on on executing the plans we have already put in place.
So in general I'd say, there is a lot of cause for optimism.
And those remain on course for.
For delivery as we previously discussed.
Perfect. Thank you.
Thanks, David.
Thank you.
One moment please for our next question.
Our next question comes from the line of Dan pilot, Sir with Wells Fargo.
Hey, good morning, everyone and thanks for taking my questions.
Wanted to follow up and drill drill a bit more into the gaming segment.
I mean, if I look at just the Iowa, and New York properties that you recently acquired it looks like revenue was more or less flat quarter over quarter and EBITDA was down is there is there a big seasonality component or is there something going on specifically at those properties and along those similar lines like is there anything specific in Louisiana that one also stood out as being down a bit year over year.
I think in general there there are some labor pressures that different properties.
I think.
That those are common themes throughout throughout the country.
There was also some mild softness just in general on the top line. So.
So.
I wouldn't want to call out those two particular properties or or talk about the properties, where there was strength I would just say there is some of that noise going on.
And the market in general in general.
Will wash out yet I would never.
While our team focuses and we will respond quickly to data that they will see week to week I don't personally ever draw big trends from a month or two months and again in the last quarter I saw a mixture of things that's not the worst the first half was a little rougher generally than the second half. So I don't want to communicate to you Dan that I thought there was anything.
We needed to significantly adjust to based on.
What we saw in the first several months of owning that property or what we saw in the last quarter. It's okay. It's going to be fine it'll it'll it'll settle out and it'll settle down and I don't think theres any institutional or seismic so paradigm shifts that we have to adjust to in those markets.
In particular or in general.
Got it. Thanks, that's helpful. And then I know, it's a bit early but as we think about next year's Derby and maybe the puts and takes between the paddock the jockey club, maybe possibly more <unk> deals.
And then just to being 150 and as you think about pricing can you maybe walk through some of the puts and takes here as we try to bridge from this year to next year and what may be the most incremental drivers of EBITDA growth.
Yes next year.
Next year, we are delivering.
A really seismic change in the on track experience at Derby, and so we're delivering a bunch of new ticketing options were impacting for existing seats the experience.
So next year, you'll you'll see a pretty significant.
Expansion in ticket revenues I think other things are moving well things like wagering are the trend lines have been extremely strong there, but the biggest driver of Kentucky Derby.
EBITDA over time has been the experience is not seats, we never like to talk about it in terms of seats, we'd like to talk about it in terms of delivering different experiences for our customers and next year Derby, $1, 50, which which is going to be a really significant event in the country.
No one else can really make claims of 150 consecutive events in a row. So we're building around the uniqueness and specialness of the 158th consecutive Derby and the capital investment that's been made in our in our facility.
To drive a meaningful increase in ticketing revenues.
Understood. Thanks for all the color.
Thank you.
<unk> for our next question.
And our next question comes from the line of Barry Jonas with <unk> Securities.
Hey, guys good morning happy.
Happy to hear racing is coming back to Churchill Downs, but wanted to just ask about the suspension what would the conclusions of the investigation and what steps have been taken to minimize future risk.
Thanks for the call Barry So we'll announce.
Shortly more details on the September meat and some of the safety protocols that will be hands, but the takeaway is <unk>.
The track is very safe and what we needed to do was spend some of those time in the interim while the track while.
While we ran the rest of the race meet at Ellis to just go soup to nuts through every single thing we do at the racetrack.
There was nothing that jumped out as an apparent cause.
Of.
Of the injuries of the breakdowns.
And as we went through and rebuilt our processes from the ground up to check everything that we do to make sure extra sure.
We didn't find anything material so.
The way to think about news like that is.
Hey.
You have to do the best you can you have to take the steps that you can to make it as safe as possible and you constantly have to challenge yourself and review everything you do.
But this was a series of unfortunate circumstances that happened during the early portion of our meat.
And to.
To the extent that there can be good that comes out of it everything we will do going forward starting in September we will do a little bit better and a little and be a little bit more thorough and we'll learn what we can.
But there aren't any material changes that have been made to the structure of the track of the surface of the track because bringing in some of the best there.
World to help us evaluated we didn't we didn't find anything fund.
<unk> are wrong or different about our track from from previous years, so that in a sense can sometimes be unsatisfying, but that's business and that sports. We just have to commit to continually doing everything we can constant incremental improvement to be as safe as we possibly can.
And we've done that.
Great I appreciate that color just as a follow up wanted to ask about the Richmond casino process, how do you see the valid.
Ballot initiative process different now versus the last time.
This time, we have the benefit of the data behind the.
The process that was run a couple of years ago that didn't involve us.
No.
The task of our team of our partnership is to evaluate everything about last time to find places, where we can drive incremental improvement so.
The good news about running a record a referendum a second time and again, we didn't run it the first time, but our partner was involved in running at the first time.
The good news about doing that is you have a lot of data about how people voted and why they voted that way and we will try to take all that and fold that into our processes.
This time to drive incremental improvement it was $51 49 last time it wasn't.
It wasn't a catastrophic defeat it was it was lost in the margins. So we will be fighting to win.
The confidence and the approval of of those motors and the margins that last time didn't have enough confidence in the project.
Great. Thank you.
Thanks Barry.
Thank you.
Please for our next question.
And our next question comes from the line of Joe Stauff with S. G.
Thank you good morning, Bill Marsha Bill.
I know you had mentioned in your opening comments, but.
I wanted to ask you maybe the best way to think about timing of the benefits associated with the new Kentucky law and outline basically grademark machines.
It's a tough answer right in terms of anticipating when you say that that tailwind starts to show up for you guys. So I was wondering if you could.
Maybe talk about that a little bit more.
And then I have one follow up please.
Sure. So it was.
The decision of the legislature to pass legislation, which was signed by the Governor banning Gray games was a really good thing for the Commonwealth.
Gaming gaming is supposed to be a regulated and taxed business in particular on the regulatory front, it's important that their basic protocols and processes in place to protect.
Patrons.
Who choose to participate and to prevent patrons, who shouldnt be participating so all in all this was a very good thing that happened in the Commonwealth of Kentucky, Obviously, when you have unregulated unlicensed uncontrolled gaming you see a lot of proliferation and expansion in this arrested.
All of that this stopped all of that so as we go forward from this point.
And the opportunity for people to engage in that illegal great game behavior is no longer there you'll see some of that demand shift over by as a matter of logic, you will see that shift over to the license regulated gaming, which we participate in the HRS business as to the individual impact of that it will.
Probably very bye bye facility and it'll be hard to always isolate because at every one of our properties. We're also doing other things to improve our business for example.
Derby City gaming, we've opened up the hotel, we're learning how to run that well we've expanded the gaming floor. We also have sports wagering that goes live in September . So we have these other good things that are going on in our properties across the state and one more positive factor will be the fact that illegal gaming in Kentucky is no long.
Permissible so I can't totally isolated for you at this time as we actually get real data and as I think you know, we're we're very data driven company as we actually get real data into the system, maybe we'll be able to comment more specifically.
But at this time.
Just kicking off and we know what's going to be positive, but it is hard to quantify.
Gotcha.
And then just a follow up on.
On the Dumfries.
Comments that Chad.
Phase one the second quarter.
I believe you outline 11 50 in terms of just the number of units.
Yes.
What is the right way to think about how quickly or.
You think about adding and getting up to that more maximum number of roughly 800 units.
Really good question I think it can go a couple of different ways.
I think.
We'll see how quickly it ramps.
We will be talking to the community about about the conditions around expansions, which.
Which involves opening the event center.
In the other spaces, we will be looking at all of that based on what actually happens when we opened obviously we.
Well without being able to predict the future, we expect strong demand, particularly on a per machine basis.
So.
So give us a little bit of time to get it open give us a little bit of time to complete the road infrastructure give us a little bit of time to talk to the community about.
About.
Our partnership for expansion of the facility.
All of that will all of that will be in play.
And.
And we'll go from there we're obviously interested in ramping up as quickly as we can we think the demand is going to be there and there's going to be there quickly.
But all of this has to be done carefully and in conjunction with the community and their expectations on traffic flow in and the other amenities and the facility we're prepared to move very very quickly.
And we probably ended up we will end up doing that but I don't want to promise that till we get the place open.
Okay. Thanks, a lot bill.
Sure.
Thank you one moment please for our next question.
And our next question comes from the line of Chad Beynon with Macquarie.
Good morning, Thanks for taking my questions.
First with respect to reducing leverage you, obviously have several options including <unk>.
Divesting assets sale leasebacks, you have some excess land that could be sold or you could just grow your way out of out of leverage which is kind of how you framed it before.
Given the ramping and opening of properties that you've laid out.
Given the current status of the <unk>.
Uh huh.
The environment from a macro standpoint is there anything changed in terms of how you're planning on deleveraging. Thanks.
I don't believe anything has really changed.
While I read the same.
Articles and look at the same data many other people do about the economy and understand the natural.
Concerns people might have about the state of the economy over the next year or two and interest rates et cetera for us. This is a time of.
Expansion in our company, we have a very strong pipeline of great projects that makes sense in any economic environment. So nothing about nothing about the current.
Economy makes us want to change our plans for executing our growth strategy, along with our growth strategy and along with these properties and projects. We've talked about today will come a lot of additional EBITDA and thats.
That's how we've been building this company over the last number of years and that's how we're going to continue to build it even through an economic cycle that some people feel or is likely to give people headwinds I don't think we believe as a senior management team that we're feeling the headwinds in any material respect so we're going to go.
We'll continue to do what we've been doing and we feel fortunate and blessed to have the pipeline of opportunities that we have.
Thank you Bill and then.
Back to Virginia, the HRS <unk>, you kind of outline the process it in Dumfries and I'm guessing it would be the same with with the licenses that you have remaining outside of that.
Lot of items going on in Virginia, with New properties opening we've seen North Carolina land based casino legislation potentially proposed but in terms of those those last licenses.
Can you kind of help us think about the timeline of when you would you would kind of green light. Those are peer pick sites is this something that could be several years out or maybe after the Richmond.
Ballot and some other items in North Carolina that would give you enough confidence to kind of move forward in certain locations.
Sure Good question I'm reminded of.
The famed.
UCLA basketball coach John wooden.
Be quick but don't hurry.
So.
We plan on moving very quickly with respect to our remaining licenses in Virginia, and we think about things about.
What we do with underperforming ones as well.
Although they've all been fairly solid so.
I think youll see us move as quickly as we possibly can there is really a two pronged approach to.
To thinking about it one is we have to identify markets in the state that we think are the best markets to use one of 10 licenses we have to identify those and then we have to go talk to those communities and get support to run a referendum and as part of that that phase. We also have to win the referendum. So.
There's a lot that can happen in that second that second phase and now we have additional things like.
The activity in North Carolina.
Which impacts Virginia, because Virginia say shares at southern border with with North Carolina immediately to the south so.
We werent very focused for any additional sites anywhere near the southern border of Virginia, because that's where the class III casinos.
Casinos in Virginia are largely that's where they're all located except for the Richmond license, which is the one we're participating for the rest of them are down there on the southern border. So that was not a market that we were interested in continuing to pursue any way for any of our remaining Virginia licenses, we're looking through more of.
The middle portion in the upper portion of the state and we have lots of leads and lots of opportunities that we're exploring.
But that second phase I was talking to you about where the community is really your partnership in these you have to have the city Council support you have or the or the or the county support depending on the individual side and you have to win a referendum those of the logistics and the wrinkles that make this more than an academic exercise of simply looking at.
<unk> centres in wealth centers through the state. So we're sorting all of that out we of course want to get to 10 licenses as quickly as we responsibly can but we don't want to waste any the challenge for the team is how do we maximize each of those licenses and that's back to that quote be quick, but the hurry, we don't want to make mistakes.
Deploy these to suboptimal places so I think youll see us be very active.
<unk>.
2023, 2024 and to the extent we have remaining licenses.
25.
Thanks, Bill Great quote and great insights I appreciate it.
Thanks, Jeff.
One moment please for our next question.
Our next question comes from the line of Jordan Bender with JMP Securities.
Great. Thanks for taking my question, Phil maybe a bigger picture question, Alex wildfires and the horse racing industry, So with horse wagering getting maybe a little bit more crowded with fixed odds. There is some of the real money gaming companies coming into the space is consolidation make sense either from a traffic perspective to control more of the.
You should have content or even.
Platform M&A just to gain scale within the industry.
Always a good question.
In times of change and uncertainty it's always a good question I think through things like <unk>.
Like that.
What I would say is.
I believe our company has the single best.
Online gaming asset others might disagree with that and they are free to have their opinion, but.
Our asset has stood the test of time it generates a great deal of EBITDA. It demonstrates strong consistent margins, it's a great asset so as we look at it.
The winds of change in the online gaming space, whether it be horse racing or larger we look at that from a position of strength knowing that we have something thats very valuable that that that is a proven commodity and around which we can build so.
I think I would I would start my answer with that and I would end with that we pay attention to all the themes and all the trends that are going on but we really really like our business and we know how strong it is and we know what it's capable of and we have lots of thoughts on on how we can and should build that but we also whenever whenever cocky about it.
Overconfident about it we're also really watching to see how things develop because nobody really has a crystal ball, including us. So were the company that tries to be good at responding to reality, we're not claiming that we have a crystal ball that we can always predict what happened, but we do think that our track record shows that we're very good at.
<unk> rationally.
And in real time to what actually happens in the markets out there and this is the time now and over the next couple of years, where we're going to see.
Various changes in.
The competitor landscape and in the markets in general is this sort of nascent online sports wagering space grows up a little bit.
Great and then for my follow up I know, there's always a push to get international evolved into the Derby, maybe just an update on what you saw this year.
Out of Europe , coming out of Japan, either from a wage rate participation point of view.
We're still in the.
We're still in the beginning of our Odyssey on international It is a big focus for us, particularly around <unk>.
Ticketing and reach so.
It's.
As several initiatives in the company have started when.
When you first start your.
Youre seeing change, but it's off a very small base and thats, how I'd say our international.
File looks.
We're seeing improvement, we're seeing encouragement, but it's off a very small base, but for our company. This is a big push going forward, we want our content out there for wagering and we also want to reach.
The consumers across Industrialised.
The industrialized world, where just about in any major industrialized country, you see horse racing just about not everyone, but most.
We want to reach those customers because as you know.
Covering our company, but also from our discussion a little bit earlier driving ticket revenue high end ticket revenue, that's a big part of the Kentucky Derby economic puzzle, that's something we've been good at and we want to reach those people that already demonstrate they pay those ticket prices to go to.
Of the Kentucky Derby.
But the equivalent of that raise our race.
In other in other countries. So it's a focus but the base is so small right now it's not material change that we're talking about but over the next three to five years Youll hear us talking a lot more about this because we're going to be demonstrating.
Real commitment and effort to growing.
So you are growing that piece of our pie.
Great. Thank you very much.
Thank you.
I'd now like to hand, the call back over to CEO Bill <unk> for any closing remarks.
Thank you.
To thank all of you who participated in these calls that listening and for your interest in our company for your commitment to our company.
Folks that ask questions. Today. These are these were in particularly really strong sharp questions. We appreciate them, we will try to be good stewards of People's Trust in us in the capital.
They've given us so well.
We will talk to you we'll talk to you next quarter, but youre going to see activity over the next 90 days because.
We're not slowing down we're charging ahead. This is a good time theres opportunity theres opportunity environment in environments like this and this management team. This group of people we've been together a long time and we've proven through a variety of different.
Environments that we can succeed so we're full speed ahead building our company.
Even if others out there are showing reticence not not us. So we will talk to you in 90 days. Thanks again for your confidence talk soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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