Q4 2023 Churchill Downs Inc Earnings Call

Operator: Good day, ladies and gentlemen, and welcome to the Churchill Downs, Inc. 2023 fourth quarter and year-end conference call. At this time, all participants are in a listen-only mode.

Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 20, twenty-three fourth quarter and your earnings conference call.

At this time all participants are in a listen only mode.

Operator: Later, we'll 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 and Treasurer. Thank you, Andrew.

<unk> 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 don't like to introduce your host for today's conference Mr. Fill Forbis, Vice President financial planning and analysis and Treasury.

Phil Forbis: Good morning, and welcome to our fourth quarter and year-end 2023 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2023 fourth quarter and year-end business results were released yesterday afternoon.

Fill Forbis: Thank you Andrew Good morning, and welcome to our fourth quarter and you're in 2023 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The.

The company's 2023 fourth quarter and you're in business results were released yesterday afternoon.

Phil Forbis: 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 on the section of the company's website titled News, located at churchildownsincorporated.com as well as in the website's investor section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent report on Form 10-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.

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 dotcom as well as in the website's Investor section.

Fill Forbis: 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.

Fill Forbis: I'll forward looking statements should be considered in conjunction with the cautionary statements and our earnings release and the risk factors included in our filings with the SEC specifically the most recent report on Form 10-K.

Fill Forbis: 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.

Fill Forbis: During this call will present, both gap and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release.

William C. Carstanjen: The press release and Form 10-K are available on our website at churchildownsincorporated.com. And now, I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen. Thanks, Phil. Good morning, everyone.

Fill Forbis: The press release and Form 10-K are available on our website at Churchill Downs incorporated dotcom.

Speaker Change: And now I'll turn the call over to our Chief Executive Officer, Mister Bill Carr Stanchion.

Speaker Change: <unk>. Good morning, everyone with me today are several members of our team, including Bill mud, our President and Chief operating Officer, Marcia Doll, our Chief Financial Officer, and Brad Blackwell, Our General counsel.

William C. Carstanjen: 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. I'll share some high-level thoughts on several strategic topics, and then Marsha will provide insight on our financial results, as well as an update on our capital management strategy. After she finishes, we will take your feedback. 2023 was a very strong year for Churchill Downs. We grew our company substantially, accomplished a number of key strategic and operational objectives, and positioned the company for exceptional growth in 2024 and beyond. We delivered record net revenue of nearly $2.5 billion and record adjusted EBITDA of over $1 billion.

Speaker Change: I'll 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 <unk>.

Speaker Change: After she finishes we will take your questions.

Speaker Change: 2023, with a very strong year for Churchill Downs, we grew our company's substantially accomplished a number of key strategic and operational objectives and position the company for exceptional growth in 2024 and beyond.

Marshall: We delivered record net revenue of nearly $2.5 billion in record adjusted EBITDA of over $1 billion.

William C. Carstanjen: I'll touch on a few highlights for 2023, but then turn quickly to 2024 to focus on why this year is going to be a pivotal year for growth and for positioning our company for the next several years, beginning with the highlights of 2020. In May, we held a very successful Kentucky Derby, setting, once again, records for virtually every material metric. We expanded our HRM business in Kentucky with the new hotel, sports book, and gaming floor expansion at Derby City Gaming and the opening of Derby City Gaming Downtown. We expanded our HRM business in Virginia with the opening of Rosie's Gaming Emporia in Southern Virginia, and completed the strategic acquisition of Exactus Systems. We launched our Twin Spires B2B business with FanDuel and DraftKings. We completed the sale of our Arlington Heights property in Illinois to the Chicago Bears.

Marshall: I'll touch on a few highlights for 2023, but then turned quickly to 2024 to focus on why this year is going to be a pivotal year for growth and for positioning our company for the next several years.

Marshall: Beginning with the highlights of 2023.

Marshall: And May we held a very successful Kentucky Derby setting once again records for virtually every material metric.

Marshall: We expanded our H R M business in Kentucky, with a new hotel sports book and gaming floor expansion at Derby City gaming.

Marshall: And the opening of Derby City gaming downtown.

Marshall: We expanded our H R M business in Virginia with the opening of the Rosie's gaming in Korea, and Southern Virginia.

Marshall: We completed the strategic acquisition of exact of systems.

Marshall: We launched our Twinspries VW business with <unk> and Draftkings.

Marshall: We completed the sale of our Arlington Heights property in Illinois to the Chicago Bears and.

William C. Carstanjen: And we have several significant strategic organic investments in the process that will accelerate our future growth, and even with all of these initiatives, we still maintain one of the strongest balance sheets in the world. With another record year behind us, let's discuss our objectives for 2024 and beyond. While the gaming industry was impacted in January by volatile cold weather, we are not concerned about that, and our financial results will accelerate in the second quarter and through the first half of next year as we open a number of new properties. In early April, we will celebrate the opening of the Terre Haute Casino Gaming Floor in Indiana, our greenfield development that will have 1,000 slots and 34 table games. On the first Saturday in May, we will host the highly anticipated 150th Kentucky Derby.

Marshall: And we have several significant strategic organic investments and process that will accelerate.

Marshall: Great our future growth.

Marshall: And even with all of these initiatives, we still maintained one of the strongest balance sheets in the industry.

Marshall: With another record year behind us, let's discuss our objectives for 2024 and beyond.

Marshall: While the gaming industry was impacted in January by volatile cold weather.

Marshall: We are not concerned about that and our financial results will accelerate in the second quarter and through the first half of next year as we open a number of new properties.

Marshall: In early April we will celebrate the opening of a Terre Haute casino gaming floor in Indiana are Greenfield development that will have 1000 slots in 34 table games.

Marshall: On the first Saturday in May we will host the highly anticipated 150 of Kentucky Derby.

William C. Carstanjen: We will introduce the reimagined world-class paddock and renovated jockey club. $200 million of exciting investments for our guests that we believe will drive energy and engagement for years to come. The hotel at our Terre Haute Casino Resort will open a few weeks later in mid-May.

Marshall: We will introduce the re imagined world class Paddick and renovated jockey club's sweet.

Marshall: $200 million or exciting investments for our guests that we believe will drive energy and engagement for years to come.

Marshall: The hotel at our Terre Haute Casino resort will open a short few weeks later in mid May.

William C. Carstanjen: Then, towards the end of September, we will open the Rose Gaming Resort in Northern Virginia. I will share more on this in a few moments. In early 2025, we plan to open the Owensboro Racing and Gaming Facility in Western Kentucky. And finally, we plan to also open our expanded HRM Entertainment Facility in New Hampshire in 2025. Beyond these announced projects, we are focused on growing in 2025 and beyond as we execute the next level of our growth strategy. We expect this to include expanding the Kentucky Derby, expanding HRMs in Virginia, and creating an additional gaming property associated with our Oak Grove license in Kentucky. As you may recall, each racetrack license has the right to build an additional facility within 60 miles, expanding the footprint of our Xacti business, growing our B2C and B2B Twin Spires business, and identifying Disciplined Act.

Marshall: Then towards the end of September we will open the rose gaming resort in Northern Virginia.

Speaker Change: I will share more on this in a few moments.

Speaker Change: And early 2025, we plan to open the Owensboro racing and gaming facility in Western Kentucky, and finally, we plan to also open our expanded H R. M Entertainment facility in New Hampshire in 2025.

Speaker Change: Beyond these announced projects we are focused on growing in 2025 and beyond as we execute the next level of our growth strategy.

Speaker Change: We expect this to include expanding the Kentucky Derby.

Speaker Change: Expanding H R M as in Virginia, creating an additional gaming property associated with our Oak Grove license in Kentucky as you May recall each race track license has the right to build an additional facility within 60 miles.

Speaker Change: Expanding the footprint of our exact a business growing R. B two C M b to be Twinspries business.

Speaker Change: And identifying disciplined acquisitions.

William C. Carstanjen: We have a strong initial pipeline of growth opportunities beyond the ones we have. Now, let's discuss a few strategic updates since our last earnings call. First, we are preparing for the Kentucky Derby, which is in about 70 days. Reimagining the paddock and related seating areas will deliver a series of unique and spectacular hospitality experiences. The Paddock Club will offer luxurious accommodations directly next to and overlooking the paddock and will include the opportunity to walk through a private tunnel from the seating area into the paddock for an up-close view of the horse, followed by the chance to walk out to the track to watch the races from the rail.

Speaker Change: We have a strong initial pipeline of growth opportunities beyond the ones, we have announced.

Speaker Change: Now, let's discuss a few strategic update since our last earnings call <unk>.

Speaker Change: First we were preparing for the Kentucky Derby, which isn't about 70 days the.

Speaker Change: <unk> paddock and related seating areas will deliver a series of unique and spectacular hospitality experiences.

Speaker Change: The Paddock club will offer luxurious accommodations directly next to an overlooking the paddock and will include the opportunity to walk through a private tunnel from the seating area into the paddock for an up close view of the horses, followed by the chance to walk out to the track to watch the races from the rail.

William C. Carstanjen: The new Sports Illustrated, or SI, club offers a similarly exclusive experience with views of the paddock in a celebrity and sports-themed hospitality environment, as well as access to watch the races from the rail. In addition to these two new entertainment options, there are numerous additional seating areas with fantastic views of the paddock. This transformative project will reinvent Churchill Downs racetrack in a way that will touch every one of our front-side customers, regardless of where they are sitting. We remain on budget, and we expect it to be completed prior to the end of April, just in time for Derby. This is a testament to our team's experience and ability to deliver highly impactful capital projects that drive increases in the profitability of Kentucky.

Speaker Change: The new sports illustrated or S. I club offers a similarly exclusive experience with views of the paddock and a celebrity in sports themed hospitality environment as well as access to watch the races from the rail.

Speaker Change: In addition to these two new entertainment options. There are numerous additional seating areas with fantastic views of the paddock.

Speaker Change: This transformative project will reinvent Churchill Downs race track in a way that will touch every one of our front side customers, regardless of where they are seated.

Speaker Change: We remain on budget and we expect to be completed prior to the end of April just in time for Derby week.

Speaker Change: This was a testament to our team's experience and ability to deliver highly impactful capital projects that drive increases in the profitability of the Kentucky Derby.

William C. Carstanjen: This is the most significant undertaking at the track that I've seen in my nearly 20 years with the company, and I'm pleased to tell you that there is much more we plan to do in the future to grow our iconic brand. We remain significantly ahead of the pace of any previous year for Derby ticket sales, both with respect to the dollars earned from sales and the percentages of inventory already sold. Turning to our HRM entertainment venues in Kentucky, we opened Derby City Gaming Downtown, our sixth Kentucky HRM venue, at the beginning of December. This facility is focused on capturing the downtown Louisville market driven by the adjacent Convention Center, downtown sporting, concerts, and other events. Urban Tourism and Urban Residence.

Speaker Change: This is the most significant undertaking at the track that I've seen in my nearly 20 years with the company and I'm pleased to tell you that there is much more we plan to do in the future to grow our iconic events.

Speaker Change: We remain significantly ahead of the pace of any previous year for Derby ticket sales, both with respect to the dollars earned from sales and the percentages of inventory already sold.

Speaker Change: Turning to our H R M entertainment venues in Kentucky.

Speaker Change: We opened Derby city gaming downtown or six Kentucky H R. M venue at the beginning of December.

Speaker Change: This facility is focused on capturing the downtown Louisville market driven by the adjacent Convention center downtown Sporting concerts, and other events Bourbon tourism and urban residents.

William C. Carstanjen: We expect the performance to accelerate as we get closer to springtime, when conventions, urban events, and bourbon tourism traditionally increase in the downtown area. We've begun construction of our seventh Kentucky HRM venue on a 20-acre site just east of Owensboro. This is in a growing area of the region located directly adjacent to Route 60, a busy highway surrounding Owensboro, which has seen significant road improvements and commercial development over the last number of years. The plan is to open the venue in the first quarter of 2025 with a total spend of $100 million. Turning to our HRM venues in Virginia, we are making great progress on the road. It is located right off Interstate 95 in the town of Dumfries, 30 miles south of Washington, D.C., in northern Virginia.

Speaker Change: We expected performance to accelerate as we get closer to springtime when conventions urban events and Bourbon tourism traditionally increase in the downtown area.

Speaker Change: We've begun construction of our seventh Kentucky, H R and venue on a 20 acre site just east of Owensboro.

Speaker Change: This isn't a growing area of the region located directly adjacent to route 60, a busy highway surrounding Owensboro, which is seeing significant road improvements and commercial development over the last number of years.

Speaker Change: We plan to open the venue in the first quarter of 2025 with the total spend of $100 million.

Speaker Change: Turning to our H R. M venues in Virginia, we are making great progress on the rose, which is located right off Interstate 95 in the town of Dumfries 30 miles South of Washington, D C and Northern Virginia.

William C. Carstanjen: Last week, we received approval from the town to increase the number of HRMs as part of Phase 1, and we will now open the facility with 1,650 HRMs instead of 1,100. Additionally, phase one will have a 100-room hotel, several bars and restaurants, and over 2,540 parking spaces. This is not sh- For the time being, we will keep open our existing HRM location in Dumfries with 150 employees. We are pleased to be making a $3.6 million one-time contribution to the town as an incentive for this increase in the number of Phase 1 games. We will also be making a $2 million one-time contribution to the town to support the design of a new community.

Speaker Change: Last week, we received approval from the town to increase the number of H R. M. As part of Phase one and we will now open the facility with 1650 H R. Ms. Instead of 1150.

Speaker Change: Phase one will have a 100 room hotel.

Speaker Change: Several bars and restaurants and over 2540 parking spaces. This has not changed.

Speaker Change: For the time being we will keep open our existing H R. M location in Dumfries with 150 machines.

Speaker Change: We are pleased to be making a 3.6 million dollar one time contribution to the town as an incentive for this increase in the number of phase one games. We will also be making a 200 million or 2 million dollar one time contribution to the town to support the design of a new community Center.

William C. Carstanjen: We anticipate opening the rows in late September, a couple of months later than previously communicated. This will provide additional time for the construction team to finish the build out to accommodate the additional machines and to finish the extensive access road work to our parking area. The access road has taken longer than expected because of some construction challenges and a very wet winter weather environment.

Speaker Change: We anticipate opening the rose in late September a couple of months later than previously communicated.

Speaker Change: This will provide additional time for the construction team to finish the build out to accommodate the additional machines and to finish the extensive access road work to our parking structure. The roadway has taken longer than expected because of some construction challenges and a very wet with winter weather environment.

William C. Carstanjen: We now expect to invest a total of $460 million in Phase 1 of this project, of which only $160 million remains to be spent. Although we are opening a bit later than we had originally planned, our team has done a masterful job addressing construction challenges. And we are also very pleased to be in a position to maximize the number of HRMs. Given this facility's location in the northern Virginia and Washington, D.C. market with nearly six and a half million people and the limited other gaming options in the region, we wanted to maximize the number of machines available for our customers as quickly as possible. Our goal is to utilize all 10 of our potential Virginia HRM licenses and deploy all 5,000 HRM machines currently permitted under the law. With the increase in HRMs at the Rose, we will have approximately 4,440 HRMs operational across the Commonwealth of Virginia by the end of the third quarter of 2024, up from 2,790 at the end of 2020.

Speaker Change: We now expect to invest a total of $460 million on phase wanted this project of which only $160 million remains to be spent.

Speaker Change: Although we are opening a bit later than we had originally planned our team has done a masterful job addressing construction challenges and we are also very pleased to be in a position to maximize the number of HR ends in phase one <unk>.

Speaker Change: Given this facilities location in the Northern Virginia, Washington D C market with nearly six and a half million people in the limited other gaming options in the region. We wanted to maximize the number of machines available for our customers as quickly as possible.

Speaker Change: Our goal is to utilize all 10 of our potential Virginia H R. M licenses and deploy all 5000 H R. M machines currently permitted under the law.

Speaker Change: With the increase in <unk> at the Rose we will have approximately 4440 HRS operational across the Commonwealth of Virginia by the end of the third quarter of 2024 up from 2790 at the end of 2023.

William C. Carstanjen: As our performance over time has demonstrated, our disciplined approach to our HRM investments has led to an excellent return on capital, and we will remain disciplined as we look to expand further in each of our key markets. Turning to our Twin Spires segment, in August of 2023, we completed the acquisition of XactiSystems, which has driven material efficiencies in our HRM operations.

Speaker Change: As our performance over time as demonstrated are disciplined approach to our H R. M investments has led to an excellent return on capital and we will remain disciplined as we look to expand further in each of our key markets.

Speaker Change: Turning to our Twinspries segment.

Speaker Change: In August of 2023, we completed the acquisition of exact of systems, which was driven material efficiencies in our H R. M operations.

William C. Carstanjen: The ExACTA team has continued to make strides, growing the portfolio of third-party HRM operations in Kentucky, Wyoming, and New Hampshire. We are extremely pleased with this acquisition and our new. We have high expectations for this group as the HRM product improves and new jurisdictions consider offering this form of waiver.

Speaker Change: The exact the team has continued to make strides growing the portfolio of third party H R. M operations in Kentucky, Wyoming, and New Hampshire.

Speaker Change: We are extremely pleased with this acquisition and our new team we have high expectations for this group.

Speaker Change: F. A H R M product improves and new jurisdictions consider offering this form of wagering.

William C. Carstanjen: We've been working to better diversify the games at our H.R.M. We believe this will improve our top line and our margins. As we mentioned during our last call, we are also pursuing the development of HRM-based electronic data.

Speaker Change: We've been working to better diversify the games that are H R. And then he's in Virginia as well as in Kentucky. We believe this will improve our top line and our margins as we mentioned during our last call. We are also pursuing the development of H R. M based electronic table games we've.

William C. Carstanjen: We have made progress with our team and partners, and we intend to work with regulators within the legal and regulatory parameters in each jurisdiction to get them deployed when the games are ready and permitted. We also successfully launched our Twin Spires B2B business in 2023. Our B2B strategy is focused on integrating parimutuel wagering on horse racing directly into the online sports wagering platforms through our suite of technology and operational capabilities.

Speaker Change: We have made progress with our team and partners and we intend to work with regulators within the legal and regulatory parameters in each jurisdiction to get them deployed when the games are ready and permitted.

Speaker Change: We also successfully launched our twinspries be to be business in 2023 R. B to be strategy is focused on integrating parimutuel wagering on horse racing directly into the online sports wagering platforms through our suite of technology and operational capabilities.

Speaker Change: Our deals with fondue on Draftkings are still in their early stages. This year's Kentucky Derby will be a nice test of our progress and we are planning to expand our be to be business to other online sports wagering platforms in the future.

William C. Carstanjen: Our deals with FanDuel and DraftKings are still in their early stages, but this year's Kentucky Derby will be a nice test of our progress, and we are planning to expand our B2B business to other online sports wagering platforms. As I have said previously, we believe parimutuel wagering offers predictable and high margins to sports wagering platforms, and our goal is to service their paramutual demand as the sports platforms become more familiar with and focused on horse racing and higher, more predictable margins. Turning to our gaming segment, as I mentioned earlier, we are planning our grand opening for our Terre Haute Casino in Indiana in early April, with the 122-room hotel opening in mid Construction is progressing well and remains on budget.

Speaker Change: As I have said previously we believe parimutuel wagering offers predictable and high margins to sports wagering platforms and our goal is to service their pair mutual demand as the sports platforms become more familiar with and focused on horse racing and hire more predictable margins.

Speaker Change: Turning to our gaming segment as I mentioned earlier, we were planning our grand opening for our Terre Haute Casino in Indiana in early April with the 122 room hotel opening in mid May.

Speaker Change: Construction is progressing well and remains on budget, we built our property team and are focused on executing a smooth opening and rolling out our initial marketing strategy.

Speaker Change: With the Terre Haute Casino, we will have 10 wholly owned regional casinos and two equity investments and high quality regional casinos across 11 states.

Speaker Change: This provides us increasing scale and the ability to leverage operational efficiencies across our properties. We also continue to own our underlying real estate. Unlike many of the other gaming companies.

William C. Carstanjen: We've built our property team and are focused on executing a smooth opening and rolling out our initial marketing strategy. At the Terre Haute Casino, we will have 10 wholly owned regional casinos and two equity investments in high-quality regional casinos across 11 states. It provides us with increasing scale and the ability to leverage operational efficiencies across our property. We also continue to own our underlying real estate, unlike many of the other gaming companies. In summary, 2023 was a tremendous year for our company with record financial results, which is particularly noteworthy given the challenging macroeconomic environment that developed starting in the second quarter of last year. We are now well-positioned for ongoing growth in the next year and beyond, fueled by organic investments in Churchill Downs Racetrack, our HRM projects in Virginia, Kentucky, and New Hampshire, and our Terre Haute Casino in Indiana. One core skill we have demonstrated over time is our ability to build a pipeline of growth opportunities. And I believe that remains as strong a core competency as ever. We have also demonstrated that we can effectively integrate transformative acquisitions, such as P2E and Exactly, while also executing on numerous growth initiatives across our portfolio.

Speaker Change: In summary, 20 twenty-three was a tremendous here for our company with record financial results, which is particularly noteworthy given the challenging macroeconomic environment that develops starting in the second quarter of last year.

Speaker Change: We are now well positioned for ongoing growth in the next year and beyond fueled by organic investments and Churchill Downs Racetrack, our H R M projects, and Virginia, Kentucky, and New Hampshire, and or Terre Haute Casino in Indiana.

Speaker Change: One core skill we have demonstrated over time is our ability to build a pipeline of growth opportunities and I believe that remains as strong a core competency as ever.

Speaker Change: We have also demonstrated that we can effectively integrate transformative acquisitions, such as pizza, we an exact of systems. While also executing on numerous growth initiatives across our portfolio.

Speaker Change: We believe there are many growth opportunities to pursue in the coming years, whether it be further investment in our flagship assets. The Kentucky Derby are new investments aligned with our long term strategic plans I'm excited about.

Speaker Change: About the growth projects, we have discussed today as well as those to come in the future. We believe our growth plans will drive a material increase and adjusted EBITDA free cash flow in the coming years.

Speaker Change: While we maintain one of the best balance sheets in the industry.

Speaker Change: We will keep delivering for our shareholders.

Speaker Change: With that I'll turn the call over to Marsha and then we will take your questions after that Marsha <unk>.

Marsha: <unk> and good morning, everyone <unk> 2023, with another record year for a company. Excluding 2020, our team is delivered seven years in around with record revenue.

Marsha: Record adjusted EBITDA from continuing operations. We also delivered record fourth quarter net revenue and record fourth quarter adjusted EBITDA for any of our company and across all three of our reporting segments.

William C. Carstanjen: We believe there are many growth opportunities to pursue in the coming years, whether it be further investment in our flagship asset, the Kentucky Derby, or new investments aligned with our long-term goals. I'm excited about the growth projects we discussed today, as well as those to come in the future. We believe our growth plans will drive a material increase in adjusted EBITDA and free cash flow in the coming years, while we maintain one of the best balance sheets. We will keep delivering for our shareholders. With that, I'll turn the call over to Marcia, and then we will take your questions after that. Thanks, Bill. And good morning, everyone.

Marsha: I'll start with a few insights on these financial results and provide some initial thoughts in 2024 I will then provide an update on capital management.

Marsha: First regarding 2023 financial result.

Marsha: Acquisition of the Petri assets in Virginia, New York in Iowa, clearly created step function garlington, our financials generating nearly 27% of our $1 billion of adjusted EBITDA in 2023.

Marsha: We also generated record adjusted email from Ah, Kentucky, <unk> properties, driven by the strong performance have our Derby City gaming and Oakland of properties and the first of all year of operation to Terrify Park.

Marcia: As Bill shared, 2023 was another record year for our company. Excluding 2020, our team has delivered seven years in a row of record revenue and record adjusted EBITDA from continuing operations. We also delivered record fourth quarter net revenue and record fourth quarter adjusted EBITDA for the overall company across all three of our reporting segments.

Marsha: Churchill Downs racetrack.

Marsha: Also delivered record adjusted EBITDA.

Marsha: <unk> I'm very successful Derby week. The addition at the first try an experienced and increases and ticketing sponsorships <unk> wagering provided a significant left to our financial results, while maintaining the consistently superior margins that Churchill Downs racetrack has generated over the years.

Marcia: Today I'll start with a few insights on these financial results and provide some initial thoughts on 2024. I will then provide an update on capital management. First, regarding 2023 financial results, the acquisition of the P2E assets in Virginia, New York, and Iowa clearly created sub-function growth in our financials, generating nearly 27 percent of our $1 billion of adjusted EBITDA in 2023. We also generated record adjusted EBITDA from our Kentucky HRM properties, driven by the strong performance of our Derby City Gaming and Oak Grove properties and the first full year of operations at Turfway Park. Churchill Downs Racetrack also delivered record-adjusted EBITDA as a result of a very successful Derby Week.

Marsha: We expect Churchill Downs recheck to deliver step function glad with an adjusted EBITDA in 2024, given the addition of a panic project and other economics associated with 150 is Kentucky Derby.

Marsha: And our twin spires segment with readjusted, even though it by 18 $90 compared to the prior year because of to discipline strategies.

Marsha: Firstly benefited from the final stages of the exit from online sports and casino business.

Marsha: <unk> into the B B for online wagering on horse racing.

Marsha: <unk> online wagering on horse racing helped to partially offset a slight decline in retail waging higher content related expenses and hire a D. W taxes.

Marcia: The addition of the first-turn experience and increases in ticketing, sponsorships, and parimutuel wagering provided a significant lift to our financial results while maintaining the consistently superior margins that Churchill Downs Racetrack has generated over the years. We expect Churchill Downs Racetrack to deliver step function growth and adjusted EBITDA in 2024 given the addition of the PADEC project and other economics associated with the 150th Kentucky Derby. In our Twin Spires segment, we grew adjusted EBITDA by $18 million compared to the prior year because of two discipline strategies.

Marsha: And there were significant number of ray stay cancellations and shifts and reschedule as in 2023, which impacted reach out wagering.

Marsha: Overall, we remained pleased with the strong martins's business generate despite facing industry headwinds in 2023.

Marsha: Although January racing has been impacted by some extremely cold weather conditions were helpful. The industrywide horse racing handle will stabilize in 2024.

Marsha: Second we began to realize the benefits of our strategy to vertically integrate exacta and it's H M Central determinant system technology.

Marcia: First, we benefited from the final stages of the exit from the online sports and casino business and the pivot into B2B for online wagering on horse racing. The pivot into B2B for online wagering on horse racing helped to partially offset a slight decline in retail wagering, higher content-related expenses, and higher ADW taxes. And there were a significant number of race day cancellations and shifts in race schedules in 2023, which impacted retail wagering. However, overall, we remain pleased with the strong margins this business generates despite facing industry headwinds in 2023. Although January racing has been impacted by some extremely cold weather conditions, we are hopeful that industry-wide horse racing handle will stabilize in 2024. Second, we began to realize the benefits of our strategy to vertically integrate Xacta and its HRM Central Determinant System technology.

Marsha: We acquired exact it for $250 million in August of 2023, and the fourth quarter exact contributed nearly $9 million have adjusted EBITDA to the twin spires segment and more than $5 million or improved economics far Virginia, H I am properties.

Marsha: And last regarding our gaming business I reached Nongaming properties held up relatively well in 2023, despite the consumer softness across the industry.

Marsha: 2023, Same-store holding on casino margins, excluding insurance pretty proceeds who down 1.6 points compared to 2022, However, I'm margins on the same basis, nearly 2.5 points compared to 2019.

Marsha: Regarding our equity investments, but to reverse those planes in Miami Valley gaming delivered record revenue and record adjusted EBITDA in 2023.

Marcia: We acquired Xacta for $250 million in August of 2023. In the fourth quarter, Xacta contributed nearly $9 million of adjusted EBITDA to the Twin Spire segment and more than $5 million of improved economics for our Virginia HRM property. And last, regarding our gaming business, our regional gaming properties held up relatively well in 2023, despite the consumer softness across the industry. However, our 2023 same-store, wholly-owned casino margins, excluding insurance proceeds, were down 1.6 points compared to 2022.

Marsha: Reverse this plane's performed well just like competitive challenges in the Chicago market and N V. G delivered high single digit growth and adjusted EBITDA, Despite a challenging economic environment.

Marsha: As Bill mentioned many of our recent gaming properties for impacted in January by inclement weather, which combined with a strong start to the year in 2023 will likely cause a difficult comparison for first quarter of 2024 from a revenue and margin perspective.

Marsha: Despite the challenging start to the year. We are pleased with the results. We have seen so far in February and we remain optimistic for these properties for the balance of the year.

Marsha: Overall, we are very pleased with the results that our team delivered in 2023.

Marcia: However, our margins on this same basis were up nearly 2.5 points compared to 2019. Regarding our equity investments, both RiverSysPlanes and Miami Valley Gaming delivered record revenue and record-adjusted EBITDA in 2023. RiverSysPlanes performed well despite competitive challenges in the Chicago market, and MVG delivered high single-digit growth and adjusted EBITDA despite a challenging economic environment.

Marsha: They'll discuss we will enjoy the iconic 150th Kentucky Derby in May and we will be layering on a series of new properties that will fuel our growth in 2024 and beyond.

Marsha: Turning to capital management, we generated $528 million or $6.94 per share free cashflow in 2023 at 16 per cent per share of the prior year, primarily from the strong cash flow generated from our businesses.

Marcia: As Bill mentioned, many of our regional gaming properties were impacted in January by inclement weather, which combined with a strong start to the year in 2023 will likely cause a difficult comparison for first quarter 2024 from a revenue and margin perspective. Despite the challenging start to the year, we are pleased with the results we have seen so far in February, and we remain optimistic about these properties for the balance of the year. Overall, we are very pleased with the results that our team delivered in 2023. As Bill discussed, we will enjoy the iconic 150th Kentucky Derby in May, and we will be layering on a series of new properties that will fuel our growth in 2024 and beyond. Turning to capital management, we generated $528 million, or $6.94 per share, of free cash flow in 2023, up 16% per share over the prior year, primarily from the strong cash flow generated from our businesses. Regarding maintenance capital, we spent $78 million in 2023 and expect to spend between $90 and $105 million in 2024.

Marsha: Regarding maintenance capital, we spent $78 million in 2023 and expect to spend between 90 and $105 million in 2024 <unk>.

Marsha: The increase in maintenance capital for 2024 is driven by incremental a time slot capital in Kentucky in Virginia racing related upgrade to Ellis Park maintenance projects at Churchill Downs Racetrack in preparation for the hundred 50th Kentucky Derby and incremental slot capital at a regional gaming facilities <unk>.

Marsha: Regarding project capital, we spent $599 million in 2023, and I expect to spend between 450 and $550 million in 2024.

Marsha: The major components of our plan project capital in 2024, and order our largest to smallest alright, the rose H I'm venue in Northern Virginia, The Terre Haute Casino and hotel, the Church announced panic project and the Owensboro H I'm venue.

Marsha: Regarding share repurchases, we repurchased approximately 151000 shares in the fourth quarter and an average share price of approximately $119 per share under our share repurchase program. We also repurchase 1 million shares in a privately negotiate it transaction with the Duchess My group for $123 and <unk>.

Marcia: The increase in maintenance capital for 2024 is driven by incremental HRM slot capital in Kentucky and Virginia, racing-related upgrades at Ellis Park, maintenance projects at Churchill Downs Racetrack in preparation for the 150th Kentucky Derby, and incremental slot capital at our regional gaming facilities. Regarding project capital, we spent $599 million in 2023 and expect to spend between $450 and $550 million in 2024. The major components of our planned project capital in 2024, in order of largest to smallest, are the Rose HRM venue in Northern Virginia, the Terre Haute Casino and Hotel, the Churchill Downs Paddock Project, and the Owensboro HRM venue. Regarding share repurchases, we repurchased approximately 151,000 shares in the fourth quarter at an average share price of approximately $119 per share under our share repurchase program.

Marsha: 75 cents per share are disciplined approach to share repurchases reflects our belief in the longterm value of our shares.

Marsha: At the end of December 2023, I Bank Covenant that leverage with 4.0 times based on the capital investments and the timing of our opening up for new facilities, We expect our bank covenant net leverage to remain in the four times range over the coming year.

Marsha: We then expect her bank covenant that leverage to decline in 2025, sorry investments in Kentucky, Virginia in Indiana begin to ramp.

Marsha: And closing his bill said 2023 with a tremendous here for a company with record financial results and we expect 2024 and beyond will be even better given our unique portfolio of assets and our new projects coming online that will generate a significant amount of adjusted EBITDA and free cash flow we remain <unk>.

Marcia: We also repurchased 1 million shares in a privately negotiated transaction with the Duchosnois Group for $123.75 per share. Our disciplined approach to share repurchases reflects our belief in the long-term value of our shares. At the end of December 2023, our Bank Covenant Net Leverage was 4.0 times. Based on the capital investments and the timing of our opening of our new facilities, we expect our Bank Covenant Net Leverage to remain in the 4 times range over the coming year. We then expect our bank covenant net leverage to decline in 2025 as our investments in Kentucky, Virginia, and Indiana begin to ramp up. In closing, as Bill said, 2023 was a tremendous year for our company with record financial results, and we expect 2024 and beyond will be even better given our unique portfolio of assets and our new projects coming online that will generate a significant amount of adjusted EBITDA and free cash flow. We remain committed to creating long-term shareholder value. And with that, I'll turn the call back over to Bill so that he can open the call to questions. Bill?

Marsha: <unk>, creating longterm shareholder value and with that I'll turn the call back over to Bill. So that he can open the call for questions <unk>.

William C. Carstanjen: Thanks Pasha.

William C. Carstanjen: We're about ready to take your questions so far away.

Pasha: Thank you ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone and.

William C. Carstanjen: And if you wish to remove yourself from the queue. Please press star one one again.

Speaker Change: A moment please.

Speaker Change: Our first question comes from the line of David Cat with Jeffries.

David Katz: Hi, good morning, everyone. Thanks for all the detail Bill what what I'd love to just talk about it was you know a lot of thoughtful capital out there are a lot of growth capital as we move forward, specifically with the Derby and Churchill Downs Racetrack, how how do you what's your vision.

Speaker Change: Four kind of what's next <unk>, assuming the paddock and you know all the capital comes online is there you know more in the future of size you know some of US will call. You know some seven eight figure investments you know there were super productive or should we be taking more on the.

William C. Carstanjen: Thanks, Parsha. We're now ready to take your questions, so fire away. Thank you. Ladies and gentlemen, if you have a question at this time, please press star one one on your telephone. And if you wish to remove yourself from the queue, please press star one one again.

Speaker Change: Nine.

Speaker Change: Figure category.

Speaker Change: Thanks, David and good morning so.

Speaker Change: There's more to come with the Derby and there there are a couple of significant projects that we think are possible. So our first goal is execute on this one and prove this one out which I feel I couldn't feel more confident about that than I do so one thing at a time execute on this one take the learnings from this one enroll them into summer.

Operator: One moment, please. Our first question comes from the line of David Katz with Jeffrey. Hi, good morning, everyone.

David Katz: Thanks for all the detail. Bill, what I'd love to just talk about is, you know, a lot of thoughtful capital out there, a lot of growth capital. As we move forward, specifically with the Derby and Churchill Downs racetrack, you know, how do you see your vision for kind of what's next? Right, assuming the paddock, and you know, all the capital comes online.

Speaker Change: The other significant projects that we've considered this isn't the call where I reveal what those might be and we haven't decided as a management team or with our board exactly what should come next.

Speaker Change: But I would just point out that when you come to the to the Derby, David and I Hope, we see you at Derby 150.

Speaker Change: Take a look around it's a mile oval and you still see significant areas that could see material improvement or or almost greenfield and their and their possibility. So it's a big place it's.

William C. Carstanjen: Is there, you know, more in the future for size? Some of us recall some seven, eight-figure investments that were super productive, or should we be thinking more in the nine-figure category? Thanks, David, and good morning.

Speaker Change: There's lots of vantage points around the track.

Speaker Change: And we scour the world to see what the the best other people have done in other parts of the World and then we try to build on that so more to come in and significant projects to come but for today. The messages were gonna deliver on this one we're gonna make this one work for Derby 150.

William C. Carstanjen: There's more to come with the Derby, and there are a couple of significant projects that we think are possible. So our first goal is to execute on this one and prove this one out, which I couldn't feel more confident about than I do. So one thing at a time, execute on this one, take the learnings from this one, and roll them into some of the other significant projects that we've considered. This isn't the call where I reveal what those might be, and we haven't decided as a management team or with our board exactly what should come next. But I would just point out that when you come to the Derby, David, and I hope we see you at Derby 150, take a look around. It's a mile oval, and you still see significant areas that could see material improvement or almost a greenfield in their possibilities. So it's a big place; there are lots of vantage points around the track.

Speaker Change: And then we'll roll the the learnings from that into into the next big one.

Speaker Change: Understood and if I can just follow that up and and make sure. We're getting the message is exactly right yeah. It it it it does sound as though we sort of get the paddock open and maybe wrap it a little bit before you know and I and I don't think there's any debate right on the the length.

Speaker Change: A tale of growth at that <unk> I I I was more you know just probing about sort of timing and magnitude and it sounds like you know there may be a little bit of rap time before we get into you know more heavy spending there is that is that a fair take away.

William C. Carstanjen: And we scour the world to see what the best people have done in other parts of the world, and then we try to build on that. So more to come, and significant projects to come. But for today, the message is we're going to deliver on this one. We're going to make this one work for Derby 150.

Speaker Change: Or we don't know yet I guess, yeah. So I would say that every year, we try to do something to delight, our customers and every year, we want our customers who come year to year to look at our facility and say there is something new there was something different there was something exciting. So that's part of the rhythm of how we are.

David Katz: And then we'll roll the learnings from that into the next. Okay. And if I can just follow that up and make sure we're getting the messages exactly right.

Speaker Change: Approach capital expenditures so the size of the project, we haven't made a decision on that but you are going to see constant consistent activity. There on a on a basis that can be measured year to year. So.

William C. Carstanjen: You know, it does sound as though we sort of get the paddock open and maybe ramp it up a little bit before, you know, and I don't think there's any debate right on the length of the tail of growth at that asset. I was more, you know, just probing about sort of timing and magnitude. And it sounds like, you know, there may be a little bit of ramp time before we get into, you know, more heavy spending there. Is that, is that a fair takeaway? Or we don't know yet, I guess.

Speaker Change: So I don't I don't want to foreshadow or mislead, but we will be active in 2025, the scope of the project and the timing of the project. That's something we we still have to decide based on our learnings from this derby, but I wouldn't expect a I I wouldn't expect a material pause our teams shopping at the bit to get going on.

Speaker Change: The next thing.

Speaker Change: Understood I appreciate the clarification. Thanks, so much.

Speaker Change: Thanks, David.

William C. Carstanjen: So I would say that every year, we try to do something to delight our customers. And every year, we want our customers who come year after year to look at our facility and say, "There's something new, there's something different, there's something exciting." So that's part of the rhythm of how we approach capital expenditures. So the size of the project, we haven't made a decision on that yet. But you are going to see constant, consistent activity there on a basis that can be measured year to year.

Speaker Change: Thank you one moment please for our next question.

Remeid: And our next question comes from the lineup Remeid, So Bonnie withdraw securities.

Remeid: Hey, guys. Thanks for taking my question.

Remeid: Can you quantify the upside you'll have seen from the beginning of skill based ban.

Remeid: We've heard some legislative movement to maybe legalized skill games and the state and can you walk is there any risk their entire responding thanks.

William C. Carstanjen: So I don't want to foreshadow or mislead, but we will be active in 2025. The scope of the project and the timing of the project, that's something we still have to decide based on our learnings from this Derby, but I wouldn't expect a material pause. Our team's chomping at the bit to get going on the next one.

Speaker Change: Sure and good morning remain.

Speaker Change: So first.

Speaker Change: The court case that led to the enforcement of the ban in Virginia happened October November of last year, and it's still hard to quantify exactly what that meant and that's because the enforcement process over the fourth quarter and into the first quarter has been lumpy it requires local.

David Katz: I understand. I appreciate the clarification. Thanks so much.

Speaker Change: Local enforcement, so it's been pretty lumpy and harder to quantify especially when added to the operational efficiencies were clearly demonstrating in in Virginia. So the ability to to treat it as a single variable in to know for sure can't do that yet and that's because it wasn't a light switch.

Operator: Thanks, David. Thank you. One moment, please, for our next question. And our next question comes from the line of Rameen Sabani, with Truist Security. Hey guys, thanks for taking our question. Can you quantify the upside you have seen from the Virginia skill-based ban? We've heard some legislative movement to maybe legalize skilled games in the state, and can you walk us through any risks there and how you're responding? Sure, and good morning. So far, the court case that led to the enforcement of the ban in Virginia happened in October and November of last year, and it's still hard to quantify exactly what that meant, and that's because the enforcement process over the fourth quarter and into the first quarter has been lumpy.

Speaker Change: The court case didn't come down and the next day, we woke up to complete enforcement of the ban on skill games, that's not what happened instead. The court case came down and that started then a multi month process of enforcement of closing those games across the different local jurisdictions in the state. So that's something that we're still evaluating and still.

Speaker Change: Understanding and <unk>.

Speaker Change: And that that will that will continue as opposed to legislative matters.

William C. Carstanjen: It requires local enforcement, so it's been pretty lumpy and harder to quantify, especially when added to the operational efficiencies we were clearly demonstrating in Virginia. So the ability to treat it as a single variable and to know for sure can't do that yet, and that's because it wasn't a light switch. The court case didn't come down, and the next day, we woke up to the complete enforcement of the ban on skill games. That's not what happened,

Speaker Change: This call at this time of year is always interesting because we do this call against the backdrop of of Legislative sessions being active is this is the time of year, where many if not most of the state legislatures are are active insertion and there's always been.

Speaker Change: Bills being considered are talked about and I'll I'll tell you our process or process is always is there a bill that has an opportunity to get past that might pass what are the details of that of that bill what are the what are the risks what are the opportunities is there a chance to shape that bill is there a chance to.

William C. Carstanjen: Instead, the court case came down, and that started a multi-month process of enforcement of closing those games across the different local jurisdictions in the state. So that's something that we're still evaluating and still understanding, and that will continue, as opposed to legislative matters. This call at this time of year is always interesting because we do this call against a backdrop of legislative sessions being active. This is the time of year when many, if not most, of the state legislatures are in session, and there's always bills being considered or talked about. And I'll tell you our process. Our process is always, is there a bill that has an opportunity to get passed that might pass? What are the details of that bill? What are the risks?

Speaker Change: Mitigate a bill that has negative components. That's all part of a process that goes on this part of your and that's why these calls during this part of your I always have to be respectful of those processes and focus on what we know versus what might happen. So this this legislative cycle like most involve.

Speaker Change: Activity in different jurisdictions, including in Virginia, and as those sort out here's what I can tell you our T mobile evaluate those our team will deal with those in our T mobile attempt to shape those as best we can but today's a call where we talk about what's actually happened and what we know will happen and not speculate on what what could.

William C. Carstanjen: What are the opportunities? Is there a chance to shape that bill? Is there a chance to mitigate a bill that has negative components?

Speaker Change: [noise] happen in different jurisdictions, I wish I could be more precise but I've learned over time, we gotta tell you, what we know and what what's.

William C. Carstanjen: That's all part of the process that goes on this part of the year. And that's why, on these calls during this part of the year, I always have to be respectful of those processes and focus on what we know versus what might happen. So this legislative cycle, like most, involves activity in different jurisdictions, including in Virginia.

Speaker Change: What's happening.

Speaker Change: Drifting down lots of hypothetical doesn't end up conveying any particular knowledge to to our shareholder base.

Speaker Change: Got it yeah that makes perfect sense. So I appreciate the the extra color.

Speaker Change: And just a quick follow up uhm on on exact you know you called out the strong contribution a quarter how're you thinking about the synergy potential now that you've had some time to to wrap that and you know versus when you first announced the deal and also what's the reception been like from from the B B <unk>.

William C. Carstanjen: And as those sort out, here's what I can tell you. Our team will evaluate those. Our team will deal with those.

William C. Carstanjen: And our team will attempt to shape those as best we can. But today's a call where we talk about what's actually happened and what we know will happen and not speculate on what could happen in different jurisdictions. I wish I could be more precise, but I've learned over time. We got to tell you what we know and what's happening. Drifting down, lots of hypotheticals doesn't end up conveying any particular knowledge to our shareholders. Got it. Yeah, it makes perfect sense. So I appreciate the extra color.

Speaker Change: Active any color that would be helpful. Thank you.

Speaker Change: Yeah sure <unk> so.

Speaker Change: That that acquisition has gone extremely well for us I'd I'd I'd start with two different components of it one has the ability for us to just to operate more efficiently and a higher margin, we integrated that business into our operations and we took what had been a vendor cost and we folded it into our operations and that allows us to operate <unk>.

Speaker Change: Leaner better more efficiently and at a higher margin and that's that's something that that marsha referenced in her in her comments and that's that's been a great development. The second category I would say with respect for our own company is our ability to better control the process to improve and develop.

William C. Carstanjen: And just a quick follow-up on the exact, you called out the strong contribution in the quarter. How are you thinking about the synergy potential now that you've had some time to ramp that and, you know, versus when you first announced the deal? And also, what's the reception been like from the B2B perspective? Any color there would be helpful.

Speaker Change: The product to work with more manufacturers to control our push towards faster development that we think is more favorable in the longterm for us. So it gives us the ability to to.

William C. Carstanjen: Thank you. Yeah, sure, Ramin. So, that acquisition has gone extremely well for us. I'd start with two different components of it. One is the ability for us to just operate more efficiently at a higher margin. We integrated that business into our operations, and we took what had been a vendor cost and folded it into our operations. And that allows us to operate cleaner, better, more efficiently, and at a higher margin. And that's something that Marcia referenced in her comments, and that's been a great development. The second category, I would say, with respect to our own company, is our ability to better control the process to improve and develop the product, work with more manufacturers to control or push towards faster development that we think is more favorable in the long term for us. So it gives us the ability to implement our philosophical approach and our priorities and our areas of focus without a loss of efficiency.

Speaker Change: Implement our philosophical approach and our priorities and our areas of focus.

Speaker Change: Without a loss of efficiency, we we know control some of these building blocks and that's going to allow us to more effectively and quickly to get to a better more competitive product in the H R. M space versus class three traditional casinos. So that part of it is something I think will prove out we're already proving it out internally but.

Speaker Change: Externally, you'll see more progress on that over the coming quarters with respect to the the next part of your question which was.

Speaker Change: We were both a consumer of exact of services and also we have a beta b component of it we saw those services to other people that's a real focus for us we we.

Speaker Change: We care a lot about the opportunities in new Hampshire in Wyoming, and Kentucky with respect to facilities that are not Churchill downs facilities, that's a real opportunity for us and and so we're very disciplined and careful with the team to make sure that they are focused on providing the best service they can to those <unk>.

William C. Carstanjen: We now control some of these building blocks, and that's going to allow us to more effectively and quickly get to a better, more competitive product in the HRM space versus class three traditional. So that part of it is something I think we'll prove out. We're already proving it out internally, but externally, you'll see more progress on that over the coming quarters. With respect to the next part of your question, which was... We are both a consumer of Exactus services, and we also have a B2B component of it. We sell those services to other people.

Speaker Change: Customers because that's a big part of this and if you think about it that may be a key to opening up other states for us where we might not think we have a b to see opportunity, but there are be to be opportunities for us. So the beat of B component of the exact a business business model is one we take very seriously and it's really important to us.

Speaker Change: And we're gonna continue to to do it as well as we can in terms of how of customers received us it's been absolutely fine. We're just making sure we deliver on on what they need from our from our business from from Exactor from our services that we provide and we just make sure we meet their expectations and exceed them and everything else takes care of itself.

William C. Carstanjen: That's a real focus for us. We care a lot about the opportunities in New Hampshire and Wyoming and Kentucky with respect to facilities that are not Churchill Downs facilities. That's a real opportunity for us, and so we're very disciplined and careful with the team to make sure that they are focused on providing the best service they can to those customers because that's a big part of that. And if you think about it, that may be a key to opening up other states for us where we might not think we have a B2C opportunity, but there are B2B opportunities for us. So the B2B component of the XACTA business model is one we take very seriously, and it's really important to us, and we're going to continue to do it as well as we can. In terms of how customers have received us, it's been absolutely fine.

Speaker Change: <unk>.

Speaker Change: Got it thanks, so much I appreciate that thank.

Speaker Change: For me.

Speaker Change: Thank you one moment please for our next question.

Speaker Change: Our next question comes from the line of Chad Damien with look Larry.

Chad Damien: Good morning, Thanks for taking my question Bill wanted to ask another one on I guess, the the mid or a longterm growth of the company you guys did a nice job kind of laying it out at the at the onset in terms of you know what's already embedded in future growth pizza, we it looks like the multiple is already down under <unk>.

Chad Damien: Nine and you still have some opportunities here exact based on the math that you gave us under five but as we think about the future of the portfolio I'm sure. There's a lot of stuff that comes across your desk. What makes the most sense in terms of growth and in different segments as at Tech is it gaming opportunities racing.

William C. Carstanjen: We're just making sure we deliver on what they need from our business, from XACTA, from the services that we provide. And we just make sure we meet their expectations and exceed them, and everything else takes care of itself. Got it. Thanks so much.

Chad Damien: Anything that that you you know, we'd like to double down on them over the next five years. Thanks.

William C. Carstanjen: Appreciate that. Thanks. Thank you. One moment, please, for our next question. Our next question comes from the line of Chad Beynon with McQuarrie. Morning, thanks for taking my question.

Speaker Change: Yeah. So first thanks for that question, Chad and there's a lot there and that I appreciate that question and I'll I'll try that.

Chad Beynon: I wanted to ask another one on, I guess, the mid or long-term growth of the company. You guys did a nice job kind of laying it out at the onset in terms of, you know, what's already embedded in future growth. P2E, it looks like the multiple is already down under nine, and you still have some opportunities here, Xacta, based on the math that you gave us under five.

Speaker Change: Walk us through this concisely. So first one you think about our company.

Speaker Change: Always remember we have the special acid called the Kentucky Derby and while it's 150 years old.

Speaker Change: And is the oldest continuously run sporting event in the United States and our mind, it's still a young young property with a lot of opportunity. So that's a component of our growth story going forward next this H R. M development that happened in the U S gaming environment, that's been a great development for our <unk>.

William C. Carstanjen: But as we think about, you know, the future of the portfolio, I'm sure there's a lot of stuff that comes across your desk. What makes the most sense in terms of growth in different segments? Is it tech? Is it gaming opportunities? Racing?

Speaker Change: Company and whether you look at our beta C properties are actual facilities or if you look at our technological capabilities are technology services, you see a lot of growth. There. So we like H R. Ms from both the perspective of being a beta C. Operator, we think it's their efficient use of capital.

William C. Carstanjen: Anything that you, you know, would like to double down on over the next five years? Thanks. Yeah, so first, thanks for that question, Chad. And there's a lot there. And I'm and I appreciate that question. And I'll try to walk us through this concisely. So, first, when you think about our company... Always remember we have this special asset called the Kentucky Derby, and while it's 150 years old, and is the oldest continuously run sporting event in the United States.

Speaker Change: We think we've demonstrated we know what to do in that space as as a beta C. Operator, and there'll be opportunities there that we're executing on and and and perhaps more in the future and then the transition to offering some of the technology services I think that's just been a really important development for our company. It serves us both from the <unk>.

William C. Carstanjen: In our minds, it's still a young, young property with a lot of opportunity. So that's a component of our growth story going forward. Next, this HRM development that happened in the U.S. gaming environment has been a great development for our company. And whether you look at our B2C properties, our actual facilities, or if you look at our technological capabilities, our technology services, you see a lot of growth there. So we like HRMs from both the perspective of being a B2C operator and we think that they're efficient uses of capital.

Speaker Change: Perspective of efficiency in our own operations, but also from the perspective of opening up other avenues for us to to achieve returns by servicing well the needs of other b to see operators, where we don't have the opportunity ourself to be that operator, so I think you'll continue to see growth and opportunity there.

Speaker Change: Sure I think the U S gaming environment generally is fairly dynamic you that's.

Speaker Change: It harkens back to one of the earlier questions lots of legislature legislatures every year are looking at tweaks in the gaming laws and changes and we have to watch those both defensively, but also offensive Lee as opportunities for for our businesses and then coupling with this technology theme for a second.

William C. Carstanjen: We think we've demonstrated what to do in that space as a B2C operator, and there will be opportunities there that we execute on, and perhaps more in the future. And then the transition to offering some of the technology services, I think that's just been a really important development for our company. It serves us both from the perspective of efficiency in our own operations but also from the perspective of opening up other avenues for us to achieve returns by servicing well the needs of other B2C operators where we don't have the opportunity ourselves to be that operator.

Speaker Change: The Twinspries business as an example of.

Speaker Change: What started as a beta C business and and it's been remarkably robust as a beta C business, even as other forms of online wagering have started to develop in the country like like online sports wagering, it's been remarkably robust the thing I've been most thoughtful about there is just.

William C. Carstanjen: So I think you'll continue to see growth and opportunity there. And I think the U.S. gaming environment generally is fairly dynamic. That harkens back to one of the earlier questions; lots of legislatures every year are looking at tweaks in the gaming laws and changes, and we have to watch those both defensively but also offensively as opportunities for our business. And then, coupling with this technology theme for a second, the Twin Spires business is an example of what started as a B2C business and has been remarkably robust as a B2C business, even as other It's been remarkably robust. The thing I've been most thoughtful about there is just the unusual occurrence in 2023 of lost races, as opposed to other things that might have affected the business. We lost somewhere around 1,700 races.

The unusual occurrence in 2023 of lost races, as opposed to other things that might have affected the business, we lost somewhere around 1700 races in 2023 and in the first quarter. We've also seen a decline in races, and those had been whether other things outside of anybody's.

Particular control, but that businesses would be to see business has been robust, but also those technology services have been the basis for how we think we can take that business into other things like like providing be to be services. The sports wagering platforms. So moving from there into.

Gaming regional gaming.

Speaker Change: I think scale scale scales been important we find that as we achieve scale were more efficient we get smarter our teams work better if they they get more done our margins can increase so we liked scale and the regional gaming and for US. It's important known 100 per cent of the property that gives more stability to our to.

William C. Carstanjen: 2023. And in the first quarter, we've also seen a decline in races, and those have been caused by weather, other things outside of anybody's particular control. But that business as a B2C business has been robust. But also, those technology services have been the basis for how we think we can take that business into other things, like providing B2B services to sports wagering platforms. So moving from there into gaming, regional gaming. I think scale, you know, scale.

Our company and it's the right answer for our company.

As as we face this current environment. So I don't think every regional gaming opportunity out there is for us, but as we've demonstrated over time, we have our model we have our filter and we have our approach and we see opportunities there that we like and we're not afraid of scale and the regional gaming space because.

William C. Carstanjen: Scale's been important. We find that as we achieve scale, we're more efficient. We get smarter, our teams work better, they get more done, our margins can increase. So we like scale in regional gaming, and for us, it's important to own 100% of the property. That gives more stability to our company, and it's the right answer for our company as we face this current environment. So I don't think every regional gaming opportunity out there is for us.

We think it comes with some advantages that can grow and strengthen our company over time. So I think I'd say to you that I like all of our business segments. I think all of them are contributors I think all of them are really important and if they're came times, where they work then we would have to think differently about it but right now all our businesses are great <unk>.

Tributaries with growth profiles and strategies to make them bigger better businesses and that's the that's the plan will execute on.

William C. Carstanjen: But as we've demonstrated over time, we have our model, we have our filter, and we have our approach, and we see opportunities there that we like, and we're not afraid of scale in the regional gaming space because we think it comes with some advantages that can grow and strengthen our company over time. So I think I'd say to you that I like all of our business segments, I think all of them are contributors, I think all of them are really important, and if there came times where they weren't, then we would have to think differently about it. But right now, all our businesses are great contributors with growth profiles and strategies to make them bigger, better businesses, and that's the plan we'll execute. Thank you. It is really comprehensive.

Thank you really comprehensive appreciate all that and.

And then follow up just in terms of the Virginia HR M's. After the rose is opened and at the end of 24, how should we think about the additional H R. M licenses that you have whether it's a new market and kind of going through a referendum.

Uhm expanding out existing properties and what kind of timeline that that we should you know think about in terms of deploying the remainder of those 5000 machines. Thanks.

A big challenge in Virginia is the.

Chad Beynon: Appreciate all that. And then, just in terms of the Virginia HRM after the Rose is opened at the end of 24, how should we think about the additional HRM licenses that you have, whether it's a new market and kind of going through a referendum, expanding out existing properties, and what's the kind of timeline that we should think about in terms of deploying the remainder of those 5,000 machines? Thanks. Our big challenge in Virginia is... The 5,000.

The 5000 machines, where we if.

If you deployed the maximum number of machines were allowed under every potential license, we wouldn't have enough machines. So.

So for us it's about yielding the machines, we deploy so we were particularly happy to move into northern Virginia with with the increase in machines at the rose that that was important and that's a nice step for us because we think those machines will yield more or other or other avail.

Alible licenses.

It will always be a comparison of of two criteria. One is where do we think we can get the license active.

William C. Carstanjen: We're, we, um. If you deployed the maximum number of machines allowed under every potential license, we wouldn't have enough. So.

In some jurisdictions, we still need to get a referendum passed in other jurisdictions, there isn't a need for an additional referendum because over time, a referendum has been passed that that would authorize us to be active with H R. Ms. So the first criteria is where can we get licences operational and the second cry.

William C. Carstanjen: So for us, it's about yielding the machines we deploy. So we were particularly happy to move into Northern Virginia with the increase in machines at the Rose. That was important, and that's a nice step for us because we think those machines will yield other available licenses. It will always be a comparison of two criteria.

Curious, how how do we think the deployment of machines in that jurisdiction would compare <unk>.

William C. Carstanjen: One is, where do we think we can get the license active? In some jurisdictions, we still need to get a referendum passed. In other jurisdictions, there isn't a need for an additional referendum because, over time, a referendum has been passed that would authorize us to be active with HRMs.

Versus deployment of those machines in other jurisdictions, we can deploy and so that's part of the chess game.

That we're playing there and and I've said this before and I'll say it again ultimately it's not that we're gonna get to 5000 machines quickly we're going to do that we're gonna be as I said in my prepared remarks were gonna be somewhere around 4440 by the end of this year.

William C. Carstanjen: So the first criteria is, where can we get licenses operational? And the second criteria is, how do we think the deployment of machines in that jurisdiction would compare? versus the deployment of those machines in other jurisdictions we can deploy them in. So, that's part of the chess game that we're playing there. And I've said this before, and I'll say it again, ultimately, it's not that we're going to get to 5,000 machines quickly. We're going to do that. We're going to be, as I said in my prepared remarks, we're going to be somewhere around 4,440 by the end of this year. The real challenge over time is where are the best places to deploy those machines, and perhaps legislatively, there'll be a path at some point to more machines to fill out what we'd like to offer under those licenses.

The real challenge over time is where are the best places to deploy those machines and perhaps legislated legislatively there'll be a a path at some point to more machines to fill out what we'd like to offer under those licenses. So it's a bit of a chess game and it's a comparative game, where we're comparing different jurisdictions to each other within the state and that's.

<unk>, that's something we're actively doing now.

Now as as we figure out where we want to deploy our machines and where we want these licenses to be and I I I hope to have more specifics for Ya over the course of 2024 to more fully answer that question.

Thank you nice results appreciate it.

Thank you one moment please for our next question.

And our next question comes from the line of Jordan Bender with JMP Securities.

William C. Carstanjen: So it's a bit of a chess game, and it's a comparative game where we're comparing different jurisdictions to each other within the state, and that's something we're actively doing now as we figure out where we want to deploy our machines and where we want these licenses to be. And I hope to have more specifics for you over the course of 2024 to more fully answer that question. Thank you.

Good morning, everyone I wanted to touch on Chase series, the projects and pending for awhile, yet we know you have the balance sheet and the willingness to execute on that filled out at some point bill loud and clear that there's nothing to announce at this time, but you know maybe any updated thoughts on how you see that property or that market.

Yeah. Thanks, Jordan, we liked the market we liked its proximity to the Massachusetts suburbs. So for US it's the challenge of of being comfortable and the site and getting all the approvals necessary in order to move forward. So yeah, I would have liked that to move faster than it has but it hasnt <unk>.

Chad Beynon: Thank you. One moment, please, for our next question. And our next question comes from the line of Jordan Bender with JMP Security. Good morning, everyone.

Jordan Bender: I want to touch on Chasers. The project's been pending for a while, yet we know you have the balance sheet and the willingness to execute on that build out at some point. You know, Bill, loud and clear that there's nothing to announce at this time, but maybe any updated thoughts on how you see that property or that market? Thanks, Jordan.

I can our interest or our confidence in the market. We liked the market. It's just when you do a lot of development like we've done sometimes they go extremely well and sometimes they go slower than you'd like and that one is one where I wish it had gone faster I wish we had news we could announce but it doesn't change our appetite. The fact that it's been slower getting too.

William C. Carstanjen: We like the market, and we like its proximity to the Massachusetts suburbs. So for us, it's the challenge of being comfortable at the site and getting all the approvals necessary in order to move forward. So yeah, I would have liked that to move faster than it has, but it hasn't shaken our interest or our confidence in the market. We like the market. It's just when you do a lot of development like we've done, sometimes things go extremely well, and sometimes they go slower than you'd like. And that one is one where I wish it had gone faster.

To the finish line of announcing a complete project plan doesn't change our interest in the market.

It doesn't it just it's just affected the timing of moving forward on it but we have a team that works very hard on that and and we'll get it done and we will have something to announce and we will do so as soon as we can in the meantime, we've been really pleased with our exact a team because they have been doing a really good job.

Job of building their relationship and their customer book with the other operators that are dispersed throughout the state.

Jordan Bender: I wish we had news we could announce, but it doesn't change our appetite. The fact that it's been slower getting to the finish line of announcing a complete project plan doesn't change our interest in the market. It doesn't It just affects the timing of moving forward on it. But we have a team that works very hard on that. And, And we'll get it done. And we'll have something to announce. And we will do so as soon as we can. In the meantime, we've been really pleased with our Xacti team because they have been doing a really good job of building their relationship and their customer base with the other operators that are dispersed throughout the state. Great, thanks for that!

Great. Thanks for that and then on the follow up very Twinspries segment handles historically been about mid single digit griller and you've called out a couple of the unusual items over the past couple of years with the Covid pull forward the wildfires uhm loss of races at the track. So as we think about the growth in that business.

<unk> you said you were looking for stabilization.

You may be just framed that out or what what is this new growth level look like in the coming years.

William C. Carstanjen: And then on the follow up for Twin Spires, segment handles have historically been about a mid single-digit grower. And you've called out a couple of the unusual items over the past couple of years with the COVID pull forward, the wildfires, loss of races at the track. So as we think about the growth in that business, Marcia, you said you're looking for stabilization. Can you maybe just frame that out?

The last the last Coupla years I've been so lumpy. We've we've just seen so many other variables we did have this.

Real step up and the percentage of of.

Of the wagering that was going through the online channel that occurred during COVID-19, where many of the racetracks in the United States stayed operational but the fans who traditionally would go to the track weren't able to do that and it really boosted the online percentage some.

Jordan Bender: Or you know, what will this new growth level look like in the coming years? The last couple of years have been so lumpy. We've just seen so many other variables. We did have a real step up in the percentage of the wagering that was going through the online channel that occurred during COVID, where many of the racetracks in the United States stayed operational, but the fans who traditionally would go to the track weren't able to do that, and it really boosted the online perception. Some of that was given back a little bit as we emerged from COVID. Along with that has been this series of unfortunate events with wildfires in Canada and severe weather and rainstorms.

Some of that got given was given back a little bit as we emerged from COVID-19.

And then.

Along with that has been has been this series of you know unfortunate events with the wildfires in Canada and severe weather in rainstorm and just we've been in this this window, where we've just seen a lot of Lumpiness and change an actual race states. So I think.

William C. Carstanjen: And just we've been in this window where we've just seen a lot of lumpiness and change on actual race dates. So I think... Now I've been doing this for almost 20 years, so I've seen other periods where you see a couple years of lumpy behavior, and I don't think it's the new norm per se, I just sometimes these things happen in bunches. So I think Marsha and her comments and definitely the way that Bill Mudden and I think about it is that we've had some noise going on here. We need that to settle out a little bit to see how the business is doing, but generally, it is the little engine that could. It's been incredibly robust and efficient.

No I've been doing this I've been in this industry for almost 20 years. So I've seen other periods, where you see a coupla years of lumpy behavior.

And I don't I don't think it's the new norm per se I, just sometimes these things happen in bunches. So I think I think Marcia and her comments on the definitely the way that bill mud and or I think about it is that we've had some noise going on here, we need that to to.

Settle out a little bit to to.

To see how the business is doing but generally it is it is the little engine that could it's it's been incredibly robust I know there were a lot of theories and previous earnings calls, where where you'd asked about how sports wagering impacting it house, how how is the business holding up in the face of that.

William C. Carstanjen: I know there were a lot of theories in previous earnings calls where you asked about how sports wagering is impacting it, how is the business holding up in the face of that. And what I'd say is the biggest thing I look at and the biggest thing I'm worried about is just consistency of content. It's just the availability of the racing product to our core customers on Twin Spires. Our backstop for all this, and over time, it may become incredibly significant. We'll just have to see over time. I don't have the crystal ball, but our ability to provide parimutuel wagering for other providers of sports wagering, so the sports wagering platforms, we'd like to give them the ability to bet on horse racing. Their technology stacks work differently, and they have to integrate with ours or others in order for theirs to work seamlessly on parimutuel, and we'd like to see that happen.

What I would say is the biggest thing I look at and the biggest thing I'm worried about is just consistency of content is just the availability of the racing product to our to our core customers on twin spires are backstopped will all this and over time. It may become incredibly significant we will just have to see you.

Over time, I don't have the crystal ball, but our ability to service with our suite of technology services Parimutuel wagering for other providers of sports wagering, though so the sports wagering platforms, we'd like to give them the ability Tibet on on horse racing their technology stacks work differently than they have to integrate.

With hours or others in order for there to work seamlessly on parimutuel and we'd like to see that happen, we'd like to see the distribution of the product more broadly we think that's the way to think about the twin spires business longterm not just be to see but beta C plus b to be just like we're demonstrating with exacta.

William C. Carstanjen: We'd like to see the distribution of the product more broadly. We think that's the way to think about the Twin Spires business long term, not just B2C but B2C plus B2B, just like we're demonstrating with Xact. Thanks, Bill. Thank you. One moment, please, for our next question. And our next question comes from the line of Jeff Spanchel with Thief.

Thanks Bill.

Thank you one moment please for our next question.

And our next question comes from the line of <unk> with Stifel.

Jeff Spanchel: All right, great morning, Bill. Marcia, thanks for taking my questions. Maybe starting off here on the Twins Buyers business, could you just talk a little bit more about what you're seeing from your sports betting partners as it relates to, let's say, product investment and marketing spend? You know, are you seeing any kind of investment going towards cross-selling users and bringing more people into the horse racing platform? Can you just talk about that as it relates to the trajectory of your B2B component? Thanks.

Hi, Greg Good morning, Bill Marsha, Thanks for taking my questions maybe.

Maybe starting off here.

On a twin spires business can you just talk a little bit more on on what you're seeing from your sports betting partners as it relates to who will say product investment and and marketing spend you know are you are you seeing.

Kind of investment going towards cross selling users and bringing more people into the horse racing platform can you just that talk about that as it relates to the trajectory repeat to be about it I think.

William C. Carstanjen: I think last year was, Last Derby was really proof of concept, you know, just trying to get, um.., trying to get deals in place and the technology to work seamlessly. I think we'll see around this Triple Crown event the level of interest and investment they want to devote to it at this time. The advantage of parimutuel wagering on horse racing over time is the consistency of the margins and the relatively high nature of the margins versus other products.

Happy to do that Justin and I always appreciate the question I think last year was <unk>.

The last Derby was really proof of concept you know just trying to get <unk>.

Trying to get Ah deals in place in the technology to work seamlessly I think we will see around this triple crown event, the level of interest and investment they wanted to vote to it at this time the advantage of parimutuel wagering on horse racing over time is the consistency of the margins and the relatively high nature of the <unk>.

Margins versus other products. So I think over time that will become more of an interest just from a business perspective for sports wagering platforms, but right now they have a lot of priorities that they can speak for themselves on the different ones that they have and we're just a piece of that so I think last year was more proof of concept.

William C. Carstanjen: So I think over time, that will become more of an interest just from a business perspective for sports wagering platforms. But right now, they have a lot of priorities. They can speak for themselves on the different ones that they have, and we're just a piece of that.

Jeff Spanchel: So I think last year was more proof of concept. This year, we'll see the level of focus and interest they put into the Kentucky Derby. It is a big race.

This year will see.

We will see the level of of focus and interest they put into the Kentucky Derby. It is a big Kentucky Derby, it's the 150th of it so I think.

William C. Carstanjen: It's the 150th running of it. So I think, Like a lot of what you see in the sports arena, they market around big events that are there and the next big one for horse racing. The biggest of the big races is the Kentucky Derby, and that will be a good point to measure progress. But I was very pleased with the level of engagement last year and the interest, and also respectful and understanding that they have multiple priorities right now, of which we're just one. I personally believe that over time we'll become, and when I say we, I mean the horse industry and this particular product as a wagering product, will become more of a focus. But that'll have to be proven.

Like a lot of what you see in the in the sports arena they market around big events that are there in the next big one for horse racing. It's the biggest of the big is the Kentucky Derby and that will be a good point to measure progress, but I was very pleased with the level of engagement last year and and the.

Interest and and also respectful and understanding that they have multiple priorities right now of which were just one I personally believe that over time will become I. When I say, we I mean, the horse industry. In this particular product as a waiter and product will become more of a focus but that'll have to be proven out that that theory will have to be proven over time.

Jeff Spanchel: That theory will have to be proven over time. Thanks, Bill. And then turning to the gaming segment, could you just talk a little bit more about what you're seeing for various customer cohorts, kind of, you know, low end, high end, unrated, if there's any sort of discrepancies, region by region? Thanks. No, what I would say is, That's always a good question and the right question to ask.

Great. Thank you spell and then turning to the to the gaming Simon can you just talk a little bit more on on what you're seeing them for various customer galore, it's kind of.

Low and high end unrated and if there's any sort of discrepancies region by region. Thanks, So what I would what I would say is <unk>.

That's always a good question and the right question to ask I don't think there's a change in the in the.

William C. Carstanjen: I don't think there's a change in the, uh, in the... I think, as Marcia indicated in her notes, last year, I think the customer base was a little stronger. The economy was a little stronger in the first quarter than it is now.

Okay.

Now I think is March indicated her notes Ah last year I think the customer base was a little stronger the economy was a little stronger in the first quarter than it is now, but second third fourth quarter going through today, where our team's not really seeing material change in the quality and capability of our customers it's been relatively sequential.

William C. Carstanjen: But second, third, fourth quarter, going through today, our team's not really seeing a material change in the quality and capability of our customers. It's been relatively sequentially consistent. So when we think about our business, we're not particularly obsessed or worried about material changes in the quality of customer service or the capabilities in the wallet of the customer sequentially. It's been pretty consistent over the last number of months. It's other things that are driving variations in the business. Marsha talked about, you know, there was some rough weather this winter in January versus last year. December wasn't as bad as expected.

Lee consistent so when we think about our business, we're not particularly obsessed or are worried about material changes in the quality of customer.

And the capabilities in the wallet of the customers sequentially, it's been pretty consistent over over the last number of months. It's other things that's driving.

Variations in the business.

Marsha talked about there there's some rough winter this rough weather. This winter in January versus last year December wasn't as bad February is pretty good.

William C. Carstanjen: February's pretty good. The HRMs, they're growing anyway. You know, they're growing anyway.

The <unk>, they're growing anyway, they're growing any way, they're not at maturity yet so we're seeing growth there in those products look good. So there are other variables that are really driving the outlook for the business right now as opposed to variability in the the customers capabilities.

William C. Carstanjen: They're not at maturity yet, so we're seeing growth there, and those products look good. So there are other variables that are really driving the outlook for the business right now, as opposed to variability in the customer's capability.

William C. Carstanjen: Thanks, Bill. I'll pass it on. Thanks. Thank you. One moment, please, for our next question. And our next question comes from the line of Joe Stauff with SIG. Thank you. Good morning, Bill. Marcia.

Great very up all thanks to I'll pass it on.

Thanks, Jeff.

Thank you one moment please for our next question.

And our next question comes from the line of Joe Staff with S. I G.

Thank you good morning, Bill Marsha.

Joe Stauff: Just a couple follow-ups. Bill, you know, you had mentioned some of the benefits of Xacta. I was wondering if you expect to use, you know, that system within, you know, your various Kentucky properties. I think it's downtown, but I was just wondering more about the application to use that in your other Kentucky properties. Yeah, there's a product that, without getting too detailed into some of the oddities and some of the nuances and availability of products, there are some differences in terms of offerings between Exacta and other other providers, and we do expect to have, and have deployed XACTA in some of our facilities.

Just a couple of follow ups Bill.

Mentioned kind of the benefits of exact.

I was wondering if you expect to use.

That system.

Pushing.

Kentucky properties that I think it's downtown but I was just wondering more about the expectation to use that in your other Kentucky properties.

Yeah, there there is product that without getting too detailed into it and.

And some of the <unk>.

<unk> and some of the nuances and availability of products. There are some differences in terms of of offerings between exact and other other providers and we do expect to have.

To <unk> to deploy and have deployed exacta in some of our some of our facility. So I think there's nothing wrong with having more than one central determinant system on your floor that could make sense, it's whatever whatever maximizes the return on your invested capital and there you're going to see examples in Virginia and <unk>.

William C. Carstanjen: So I think there's nothing wrong with having more than one central determinant system on your floor. That can make sense. It's whatever maximizes the return on your invested capital.

William C. Carstanjen: And you're going to see examples in Virginia and Kentucky, everywhere, where there's going to be more than one central determinant system on the floor, and certainly XACTA is a major makes sense. And then in Virginia, you know, on the existing portfolio, call it roughly 2000-2800 units. I'm wondering how long, like I know you want to say optimize that game offering.

Can tuckey everywhere word where there's going to be more than one central determinant system on the floor and certainly exactly as a as a major one of those.

It makes sense and and then in Virginia on.

On the existing portfolio call. It roughly 2100 2800 units.

I'm wondering how long like I I know you want to say optimize that that game offering.

William C. Carstanjen: It's, you know, it takes, you know, it takes some time. And so I'm wondering how long it might take you to kind of optimize that game offering within Virginia for, you know, say the existing 2800 units. Well, we're going to be at 4,440 in the third quarter, and we have a team that works pretty hard on where else we can deploy licenses and how many machines we should deploy. And then we work with that team and Bill Mudd's team constantly to figure out where the optimal allocation will be between facilities. So I don't know that it'll ever be.

Yes. It it takes it takes some time and so I'm wondering how long it might take you to kind of optimize that game offerings.

In Virginia for.

Say the existing salt call at 2800 yen.

Well, we're gonna be at.

4440 in the third quarter, and we have a team that that that works pretty hard on on where else. We can deploy licenses and how many machines. We should deploy and then we work with that team works with bill months team constantly to figure out where the optimal.

What the optimal allocation will be between facilities. So I don't know that it'll ever be.

William C. Carstanjen: What will ever be done, we'll always be analyzing as we get the 5,000 machines where it's best to have those 5,000 machines, but of course we'd also, Joe, really love to change the equation at some point and have more machines because this is a different environment than say Kentucky where there isn't a limit on the number of machines, but Virginia's construct under their law is the machines are capped, so yield on machines is a very important concept in Virginia, not quite as important in Kentucky because we can have as many machines as we want, but ultimately we'll work constantly as we get the 5,000 to deploy all the machines in Virginia and then to deploy them to the right, highest utilization license. But then ultimately, it'd be nice to have more machines. And that's not something I'm foreshadowing.

Will ever be done will always be analyzing as we get the 5000 machines, where it's best to have those 5000 machines, but of course, we'd also Joe really love to change the equation at some point and have more machines. Because this. This is this is a different environment, and then say, Kentucky, where there isn't a limit on the number.

<unk> of machines, but Virginia's construct under their law is the machines are cap. So yield on machines is a very important concept in virginia, not quite as important in Kentucky, because we can have as many machines as we want but ultimately will work constantly as we get the 5000 to to deploy all.

The machines in Virginia, and then towards who bought two to beloit to deploy them to the right.

Ah highest utilization license, but then ultimately it'd be nice to have more machines and that's not something I'm for shadowing that would just be nice to have and that's one thing we'd like to see you would help the state and help the horse industry.

William C. Carstanjen: That would just be nice to have. And that's one thing we'd like to see. It would help the state and help the horse industry because the market would support them.

Because because the market would support them.

Joe Stauff: Gotcha. And if I could just one quick one, you talked about just the pattern, you know, you described as say, lumpy enforcement, you know, of the gray market machines in Virginia. Can you, can you give us maybe the right description about the enforcement pattern in Kentucky for the gray market for now the illegal gray market machines? Yeah, they're clearly illegal in Kentucky, so they're the same in Virginia.

Gotcha, and if I could just one quick glenny you talked about just the pattern.

Yeah, you described as say lumpy enforcement.

Of the Gray market machines in Virginia can you can you give us maybe the right description about.

The enforcement pattern in Kentucky.

For the gray market for now the illegal gray market machines.

Yeah, they're clearly illegal in Kentucky, So <unk> and Simon Virginia, there's not a question of their legality. It's a question of the boots on the ground to to have them turned off and removed that that's.

William C. Carstanjen: There's not a question of their legality. It's a question of the boots on the ground to, uh, have them turned off and removed. That's a, uh, justice move in the right direction, but it doesn't move uniformly in every jurisdiction, and it can take time. So it's just the reality that in both the state of Virginia and the state of Kentucky, these things have become ubiquitous. They were pretty widely dispersed, and it's just a matter of manpower and will to get them removed.

Justice moves in the right direction.

But it doesn't move uniformly in every jurisdiction and it can take time. So it's just the reality of it both the state of Virginia and the state of Kentucky. These things had become ubiquitous they were they were pretty widely dispersed and it's just a manpower and will process to get them removed and.

William C. Carstanjen: And that's been happening. That clearly has been happening. It's taken time, and it's been lumpy.

They have been that's been happening that's that that clearly has been happening. It's just it's taken time and it's and it's been lumpy some areas of move faster than others and also the there there really isn't a mechanism where somebody's out there counting to make sure. They're all off in every single place everywhere, that's just something that.

William C. Carstanjen: Some areas have moved faster than others, and also the There really isn't a mechanism where somebody's out there counting to make sure they're all off in every single place, everywhere. That's just something that is moving in the right direction, and we've been happy. But take Virginia. This all happened in the mid to late fall. That's when the court case came down.

Is moving in the right direction and we've been happy but take Virginia. This all happened in the mid to late fall. That's when that's when the court case came down. So these are these are the months after that happened.

William C. Carstanjen: So these are the months after that happened. Thanks a lot, Bill. Thank you. One moment, please, for our next question. Our next question comes from the line of Daniel Guglielmo with Capital One Security. Hello, everyone.

Thanks, a lot bill.

My pleasure.

Thank you one moment please for our next question.

Our next question comes from the line of Daniel Guglielmo with capital one Securities.

Daniel Politzer: Thank you for taking my questions. So y'all have obviously been developing and are continuing to develop with that framework in mind. How has the development environment changed, if any, this year versus last? So anything of note around labor availability, supply chain considerations, underwriting versus actual? Yeah, I think so at this point. We've seen the volatility in the environment, and we build it into our plans. So I think if you talk about the Owensboro Project and The Rose.

Alright, everyone. Thank you for taking my questions.

That y'all have obviously been developing and are continuing to develop with that framework in mind. How is the development environment change if any this year versus last so anything of note around labor availability supply chain considerations underwriting versus actual.

Yeah I think.

I think at this point.

We've seen the volatility in the environment and we build it into our plans. So I think if you talk about the the Owensboro project.

William C. Carstanjen: At this point, we have a high degree of confidence, just like we did pre-COVID, on timing generally and cost. You know, we're in this environment where there has been inflation, there has been increased cost, but we're able to predict that now and plan around it. So we're back to feeling comfortable about this. There was a little bit of a period where, emerging from COVID, where there were significant restrictions on supply, supply chains were working differently, and then we hit the heavy inflation environment.

And the rose at this point, we have a high degree of confidence just like we did pre COVID-19 on timing generally and cost you know we were in this environment, where there has been inflation. There has been increased cost, but we're able to predict that now and plan around it. So we're back to feeling comfortable about this.

There was a little bit of a.

Period were emerging from Covid, where there was significant restrictions on on supply and supply chains were working differently and then we hit the the the the heavy inflation environment.

William C. Carstanjen: And so those environments were different than when we started the project, and our team, I think, just did a masterful job. That's the word I'd use, getting our projects done as cost effectively and as close to budget, mostly within budget, as possible. So our team did a great job in a volatile environment. But at this point, I wouldn't describe this as a volatile environment.

And so those environments were different than when we started the project and our team I think just did a masterful job. That's the word I'd use getting our projects done as cost effectively and as close to budget, mostly within budget as possible. So our team has done a great job in a volatile environment, but at this point I don't describe.

William C. Carstanjen: This is now a predictable environment where we understand how the supply chain's different than it was pre-COVID, and we just plan around that. So, while others may look at inflation or supply chain disruptions, we've now had a window where we can see how it works, and we just plan around that. So when we do our projects now, the Owensboro thing that we talked about, mentioned in our prepared remarks, I feel very, very good about that. The rows, completing the rows, I feel very, very good about that. We're in a predictable, volatile environment now, and that's all we need. We just need predictability.

This is a volatile environment. This is now a predictable environment, where we understand how the supply chain different than it was pre COVID-19 and we just plan around that so while others may look at inflation or supply chain disruptions. We've now had a window, where we can see how it works and we just plan around that.

So when we do our projects now the Owensboro things that we talked about mentioned in our prepared remarks, I feel very very good about that the rose completing the rose I feel very very good about that we're we're in a predictable volatile environment now and that's all we need we just need predictability. So.

Daniel Politzer: So I feel very good about our plans and about timing and budget. Great! I really appreciate all that color. And then just around the corner, the Super Bowl in Vegas brought out some really big spenders, and we think the ultra-luxury consumer strength has been clear for this year's Derby. Have you all seen an increase in interest from those types of spenders? And then, outside of the ticket prices, how would that financial impact be seen on race day? What we've seen is extraordinary interest in the Kentucky Derby at all prices. I think we've been doing this for so long, I think sometimes we take it for granted, but we're building our facility, and we're selling products every year that we never had before.

So I feel very good about our plans and about timing and budgets.

Okay, Great I really appreciate all that color and it just around so the superbowl in Vegas brought out some really big spenders and we think the ultra luxury consumer strange has been clear for this year's Derby.

Seen an increase in interest from those types of spenders and then outside of the ticket prices, how would that financial impact the scene on race day.

So.

What we've seen is extraordinary interest and the Kentucky Derby at all price points I think we've been doing this for so long I think sometimes we ourselves.

Take it for granted but we're building our facility and worst selling product every year that we never had previously and and it's a it's a testament to the team that where you're doing this so successfully and it's a testament to the quality and the the the place of the Kentucky Derby and the the American.

Daniel Politzer: And it's a testament to the team that we are doing this so successfully, and it's a testament to the quality and the place of the Kentucky Derby in the American entertainment landscape. So we couldn't be happier about where we are with respect to customer interest at all price points, whether you're talking about the infield or our most expensive tickets; we are in very, very good shape. We wish we had more to sell than we have. So we feel very, very positive about that. And was there another part of your question that I missed, or did I capture that? Was there anything else to your question? No, you got it. That was it.

Entertainment landscape. So we couldn't be happier about where we are with respect to customer interest at all price points, whether you're talking about the infield or most expensive tickets. We are in very very good shape. We wish we had more to sell than we have so we feel.

Very very positive about that.

And.

And was there another part of your question that I missed or did I capture that was there anything else to your question.

William C. Carstanjen: Thank you. I appreciate it. Oh, yeah.

No you got it that was it. Thank you appreciate it Oh, Yeah my pleasure Daniel.

William C. Carstanjen: Thank you. One moment, please, for our next question. And our next question comes from Shaun Kelley with Bank of America. Hi, good morning, everyone.

Thank you one moment please for our next question.

And our next question comes from Sean Kelly with Bank of America.

Shaun Clisby Kelley: Thanks for taking my question. Bill, you alluded a little bit ago to productivity in Virginia, just given the limits on the machine counts there. And I was hoping you could help us bridge that a little bit to your expectations for the ramp up at the Rose Resort in Northern Virginia. Could you just talk a little bit about how right now, we see some extreme productivity coming out of that, a very limited number of machines up there. Can you give us a sense of how you expect that to ramp up, either relative to the Virginia average or just relative to your other experiences in that market? And how extraordinary can the returns of some of those machines be once you meaningfully increase the footprint there? Just give us some boundaries of your expectations.

Hi, Good morning, everyone. Thanks for taking my question.

You alluded a little bit ago, too you know the productivity and Virginia, just given the limits on the machine counts there and I was I was hoping you could help us bridge that a little bit too your expectations for the ramp up at.

The rose resort in Northern Virginia could you just talk a little bit about right now I mean, we see some extreme productivity coming out of that you know a very limited I think you know account of machines out there can you give us a sense of kind of how you expect that to ramp up either relative to the Virginia average or just relative to your other experiences in that market.

And how extraordinary you know can the returns of some of those you know I was kind of those machines be once you meaningfully increase the footprint decks, just give us a down to your expectations I think that'd be helpful.

William C. Carstanjen: I think that'd be helpful. I appreciate that, Shaun. Start with just the size of the market. It's a six and a half million person metropolitan area, and that's very large. We're not used to operating in markets with that many people. You take Louisville, for example, where we have Derby City Gaming, etc. This is a million person market.

I appreciate that Shaun so.

We start with just the size of the market. It's it's it's a six and a half million person metropolitan area and that's very large we're we're not used to operating in markets with that many people you take Louisville for example, where we have Derby city gaming et cetera. This is a million person market. So the Washington D C Northern Virginia market.

William C. Carstanjen: So the Washington, D.C., Northern Virginia market is a very, very large market, and we, of course, would love it, and we're located right on one of the major arteries, I-95, that runs directly north-south in that Northern Virginia corridor. So the market's there, the people are there, and we would have liked to have deployed and are deploying as many machines as we can. And our experience so far with our 150-unit facility has been pretty remarkable. The level of activity running through 150 machines is pretty remarkable.

A very very large market and we of course would love and we're located right on one of the major arteries I 95 that runs directly directly north south and that Northern Virginia corridor. So the market's there. The the people are there and and we would have liked to have deployed in art.

Deploying as many machines as we can and our experienced so far with our 150 unit facility has been pretty remarkable it's been pretty remarkable the level of activity running through 150 machines. So so we're really thrilled to to open up the rows with the 1000.

William C. Carstanjen: So we're really thrilled to open up the rows with the 1,650 machines, and it will be a question of learning the customer base, and using the machines as well as we can in terms of how we incentivize our different levels of customers to maximize our return there. But I would say academically, we haven't opened it yet, but I'd say academically this, You know, this is a case where I wish we had more machines in a larger facility, so this will be about running efficiently and yielding the machines as smartly as we can because we have a limited number. So we're optimistic about the market. I feel very good about our team that's going to be on the field there.

650 machines and it'll be a question of of learning the customer base customer base, yielding the machines as well as we can in terms of how we incent our different levels of customers to maximize our return there, but I would say academically we have an opened yet but I'd say academically. This.

The you know this this is a case, where I wish we had more machines on a larger facility. So this will be about running efficiently and yielding the machines.

As smartly as we can.

Because we have a limited number of them. So we are optimistic about the market.

I I feel very good about our team that's going to be on the field, there and it'll just be a ramp up period, where we get to know the different customers remember when we open the door or we have to learn all our customers. We have to learn one from another and the different levels of play amongst them and and that'll take some time and we will get.

William C. Carstanjen: And it'll just be a ramp-up period where we get to know the different customers. Remember, when we open the door, we have to learn all our customers. We have to learn one from another and the different levels of play amongst them.

William C. Carstanjen: And that'll take some time, and we'll get there... I hope we will open very successfully. I have every reason to think we will, but we'll also get better after we open as we start to learn who our customers are and how best to work with those different customer cohorts. Thanks. And could you address a little bit, I mean, you talked about a lot of different facilities, but I don't think for the Owensboro plant, you talked yet a little bit about, I think the machine count there was, in terms of what your new plan is for that facility, which is basically 2x what you had originally. Could you just talk a little bit about that, maybe the same question a little bit, the densities in that area, the ability to have 600 machines relative to some of your experiences elsewhere in Kentucky? You obviously know the market, the demographics probably better than anybody. Yeah, Owensboro is the fourth largest city in Kentucky, and there's a lot of development on the Kentucky side of the Ohio River. Owensboro is on the river, separating the Ohio River from Kentucky and Indiana.

I hope we open very successfully I've I have every reason to think we will but we'll also get better.

After we open as we start to learn who our customers are and how how best to to work with those different customer cohorts.

Thank you and could you could you address a little bit I didn't even talk about a lot of different allow you different facilities, but I don't think for the <unk> for Owensboro, you talk you out a little bit about I think the machine count there.

Was he in terms of what your new plan is to that facility is basically to ask what you had had originally could you just talk a little bit about that maybe same question a little bit the density in that area. The ability to sports 600 machines relative to some of your experiences elsewhere in Kentucky, you. Obviously now you know the market and the demographics probably better than anybody.

Yeah, Owensboro as with force fourth largest city in Kentucky, and there's a lot of development on the Kentucky side of the Ohio River.

Owensboro is on the river separating the Ohio River separating Kentucky from Indiana, and there's a fair amount of development on the Kentucky side, including Owensboro and the surrounding region. So we're gonna open up with 600 machines. There are properties on the Indiana side that help us measure.

William C. Carstanjen: And there's a fair amount of development on the Kentucky side, including Owensboro and the surrounding region. So we're going to open up with 600 machines. There are properties on the Indiana side that help us measure and size the market, and we have our expectations of how big the market should be for us, given the Kentucky side of the population there. So we've built our model not just based on having Ellis Park in the area with a modest number of machines but looking at what we see on the other side of the river across that region and then measuring how much of the population and density is on the Kentucky side.

<unk> and size the market and.

We have our expectations on how big the market should be for us given the Kentucky side of the population there. So so so we built our model not just based on having Ellis park in the area with a modest amount of machines, but looking what we see on the other side of the other river across that region, and then measuring how much of the <unk>.

Population and density is on the Kentucky side, so plenty of plenty of inputs into our model to help us figure out how to size that project correctly.

Shaun Clisby Kelley: So plenty of inputs into our model to help us figure out how to size that project correctly. Thank you very much. Thank you. One moment, please, for our next question. Our next question comes from the line of Dan Politzer with Wells Fargo. Hey, good morning.

Thank you very much.

Thank you my pleasure Sir.

One moment. Please for next question.

Our next question comes from the line of Dan pilots, there with Wells Fargo.

Daniel Politzer: I was wondering if we could drill a little bit more into the Derby, Bill. I think you mentioned a step-step function change in growth for the 150. Maybe you could kind of quantify that. I think, around last year, you gave us kind of an EBITDA range we should expect or, you know, maybe bridge us to the kind of key pieces that are going to be driving that growth. Sure, Dan.

Hey, good morning, Uhm I was wondering if we could do a little bit more into the Derby. Thank you mentioned, a step step function change and growth for for the 150, maybe you can kind of quantify that I think around last year. You you gave us kind of an EBITDA range. We should expect there maybe <unk> did it kind of key pieces that are going to be driving.

That growth.

William C. Carstanjen: It's good to talk to you. We're not putting out a number. We're not providing guidance on the increase.

Sure dance could get to talk to you. So we're not putting out a number we're not providing guidance on on the increase.

Daniel Politzer: But I would point out... uh... the five changes in the facility we've created... a great deal of additional high-end C. There's a great deal of interest in the Derby generally, it's building, and this is the 150th. So, um, I would say, whether you look at sponsorships, you look at attendance. We don't know yet on the wagering, but that's been trending in the right direction. But we look at our key components to how you build the economics for the Derby, and they all look really, really good. But for purposes of the modeling you do and the thinking you do, I would look at trends from the last number of years on where those components are heading and then review with the team and through the press releases the infrastructure that's being implemented for this year, the additional seats, the type of seats, the level of hospitality. And that will give a sense of why we're so optimistic that we're going to be looking at a really special version of the Derby. And you use the term step function increase. That was actually something Marcia said.

But I would point out.

The size of the change in the facility, we we created <unk>.

A great deal of additional high and seats.

There's a great deal of also interest in the Derby generally it's building and this is the 150th.

So.

I would say whether you look at sponsorships.

Look at attendance.

We don't know yet on the wagering, but that's been trending in the right direction, but we look at our key components to how you build the economics for the Derby and they all look really really good but for <unk> for purposes of the modeling you do in the thinking you do I would look at trends from the last number of years on where those components are.

Are heading and then review with the team and through the press releases that the infrastructure that's being implemented for this year. The additional seats the type of seeds the level of hospitality and that will give a sense of why were so optimistic that that we're gonna be looking at it.

A really special version of the Derby and you use the term step function increase that was actually more something Marcia said I know what she means by it and I share that optimism.

William C. Carstanjen: I know what she means by it, and I share that optimism. And we'll go out and execute and make it happen. Got it. Thanks. And then just for my follow-up, Xacta, I think that you called out within the live and historical racing segment of 5 million EBITDA uplift there. But I think for the Virginia properties, the margins were more or less the same relative to the prior year period. So how should we think about those cost synergies flowing through in 2024, to the extent that there should be more margin uplifts and maybe if there's any offsets to that that you guys are managing through? Well, it's never a single variable, and that's, I mean, we all like to... to reduce everything to a single variable, and it's hard to do that.

And we will go out and execute and make it happen.

Got it thanks, and then just for my follow up exact I I think that you called out it's in within the alive and historical racing segment of by 5 million EBITDA uplift there I think for the Virginia properties margins, where more or less the same relative to the prior year period. So how should we think about.

<unk> you know those cost energies flowing through in 2024, the extent that there should be more margin uplift and maybe if there's any off steps to that that you guys are managing through well.

Well, it's never a single variable and that's when we all like to.

To reduce everything to a single variable and it's hard to do that but this coming year, we have a four year of the exact.

Daniel Politzer: But this coming year, we have a full year of the exact, uh... efficiencies coming in uh... we have, New machines coming online in the rows in what we hope is a high-yield market. So there's going to be pros and cons to the margins, um... but exact is very much a a real good guy i think how we yield the machines i think you'll start to see that we're good at that and we're thoughtful about that and we'll get better at that so those will be some of the good guys and and there might be other things that impacted as well but uh... i do think we drove margin improvement improvement, And we're going to keep working as hard as we can on the things that we control to keep doing that, and hopefully we can. Got it.

Efficiencies coming in.

We have <unk>.

New machines coming online in the rose and what we hope is a high yield market.

So.

There's gonna be pros and cons to the margins.

But exact is very much a a real good guy I think how we yield the machines I think you'll start to see that we're good at that and work thoughtful about that and we will get better at that so those will be some of the good guys and there might be other things that impacted as well, but I do think we drove margin improvement improvement <unk>.

And and we're gonna keep working as hard as we can on the things that we control.

To keep doing that in and hopefully hopefully we can.

William C. Carstanjen: Thanks so much. Thank you. I'll now hand the call back over to CEO Bill Carstanjen for any closing remarks. Thank you all for your time today. We ran a little bit over.

Got it thanks, so much.

Thank you I'll know him to call back over to C. E O Bill car standing in for any closing remarks.

Thank you all for for your time today, we ran a little bit over there were a lot of questions and it was great to go through these questions. We appreciate the questions. So our I also want to thank our team here in the room in and out in the field, they're making it happen for us they're very focused on building a great company and delivering returns for our shareholders. So we'll get after it and.

William C. Carstanjen: There were a lot of questions, and it was great to go through them. We appreciate the questions. So I also want to thank our team here in the room and out in the field. They're making it happen for us. They're very focused on building a great company and delivering returns for our shareholders.

Operator: So we'll get after it, and we'll talk to you soon in seven or eight weeks, I guess, very close to the Derby. Thank you all very much. Ladies and gentlemen, this does conclude today's program, and you may now disconnect.

We'll talk to you will talk to you soon and seven or eight weeks I guess very close to the Derby. Thank you all very much.

Ladies and gentlemen, thank you for participating this does conclude today's program and you may now disconnect.

Mmm.

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Okay.

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