Q1 2024 Churchill Downs Inc Earnings Call
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Operator: Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time. We ask all question and answer participants to please limit themselves to one question. 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 in Treasury.
Good day, ladies and gentlemen, and welcome to the Churchill Downs incorporated 2024 first quarter earnings Conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
We asked a question and answer participants to please limit themselves to one question.
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 Treasury.
Phil Forbis: Thank you, Andrew. Good morning, and welcome to our first quarter 2024 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's first quarter 2024 business results were released yesterday afternoon.
Phil Forbis: Thank you Andrew Good morning, and welcome to our first quarter 2024 earnings Conference call.
Phil Forbis: After the company's prepared remarks, we will open the call for your questions.
Phil Forbis: The company's 2024 first quarter business results were released yesterday afternoon, a copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by regulation G is available at the section of the company's website titled News located at Churchill Downs incorporated Dot com.
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.
Phil Forbis: As well as in the website's investors section.
Phil 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.
Phil Forbis: All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures.
Phil Forbis: All forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC specifically the most recent reports on Form 10-Q and Form 10-K.
Phil 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.
Phil Forbis: 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.
Phil Forbis: A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release. The press release and Form 10-Q are available on our website at churchildownsincorporated.com. Now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen.
Phil Forbis: The press release and Form 10-Q are available on our website at Churchill Downs incorporated Dot com.
Phil Forbis: And now I'll turn the call over to our Chief Executive Officer, Mr. Bill <unk>.
William C. Carstanjen: Thanks, Phil. Good morning, everyone.
Bill: Thanks, Phil Good morning, everyone.
William C. Carstanjen: With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer, Marcia Dall, our Chief Financial Officer, and Brad Blackwell, our General Counsel. I'll share some high-level thoughts on several strategic topics, and then Marcia will provide insight into our financial results, as well as an update on our capital management strategy. After she finishes, we will take your questions.
Bill: With me today are several members of our team, including Bill Mudd, Our President and Chief operating Officer, Marcia Dall, Our Chief Financial Officer, and Brad Blackwell, Our General counsel.
William C. Carstanjen: I will share some high level thoughts on several strategic topics and then Marshall will provide insight into our financial results as well as an update on our capital management strategy.
Speaker Change: After she finishes we will take your questions.
William C. Carstanjen: We delivered record first-quarter net revenues of $591 million and record adjusted EBITDA of $243 million. We were pleased with the performance of all of our segments, and our expectations remain high for the rest of the year. We hope our performance resonates with our shareholders as a reminder that our long-term and consistent strategies have resulted in an extremely strong company that is delivering best-in-class growth with the pipeline to a great future.
Marcia Dall: We delivered record first quarter net revenues of $591 million and record adjusted EBITDA of $243 million.
Speaker Change: We were pleased with the performance of all of our segments and our expectations remain high for the rest of the year.
Speaker Change: We hope our performance resonates with our shareholders as a reminder, that our long term and consistent strategies have resulted in an extremely strong company that is delivering best in class growth, what the pipeline to a great future.
William C. Carstanjen: Let me update you on the strategic investments we are making in 2024 to drive long-term shareholder value. First, we have completed one of the most significant construction developments ever at Churchill Downs Racetrack, the new Paddock Project. Every guest who enters through our front gates will be treated to breathtaking views of the Twin Spires and Paddock area. Those who have tickets in the newly created sections will enjoy spectacular seating and dining that will deliver a once in a lifetime experience.
Speaker Change: Let me update you on the strategic investments, we are making in 2024 to drive long term shareholder value.
Speaker Change: First.
Speaker Change: We have completed one of the most significant construction developments ever at Churchill Downs Racetrack, the new Paddock project.
Speaker Change: Every guest who interest through our front gates will be treated to breathtaking views of the twin spires Empatic area.
Speaker Change: Those who have tickets in the newly created sections will enjoy spectacular seeding and dining that will deliver a once in a lifetime experience.
William C. Carstanjen: I am proud, in particular, of what our team has accomplished over the past three years in delivering three significant projects: The Homestretch Club, The First Turn Club, and now The Paddock Project. These investments illustrate what our team can dream, design, and execute to enhance the special experience expected by each of our guests at the Kentucky Derby. Every year, we seek to surprise and delight our guests with something new and tangible as they explore Churchill Downs Racetrack.
Speaker Change: I am proud in particular of what our team has accomplished over the past three years and delivering three significant projects.
Speaker Change: Homestretch club, but first term club and now the Paddock project.
Speaker Change: These investments illustrate what our team can dream design and execute to enhance the special experience expected at the Kentucky Derby by each of our guests.
Speaker Change: Every year, we seek to surprise and delight, our guests with something new intangible as they explore Churchill downs racetrack.
William C. Carstanjen: The Paddock Project has been a multi-year massive undertaking that fundamentally improves the entire venue, as we unveil it for its first Derby. We will undoubtedly find both operational opportunities to improve upon and new ancillary investments to give the customer more of what they tell us they value. We believe our $200 million investment in this transformative project will provide a foundation around which to further innovate for years to come. We are also evaluating an intriguing smaller project for the 2025 Derby that will enhance the guest experience in another portion of our venue. We anticipate that this will be a capital investment in the range of $60 to $80 million and have a payback of six to eight years, which is our target range for Churchill Downs racetrack.
Speaker Change: The Paddock project has been a multi year massive undertaking that fundamentally improves the entire venue.
Speaker Change: As we unveil it for its first Derby, we will undoubtedly find both operational opportunities to improve upon and new ancillary investments to give the customer more of what they tell us they value.
Speaker Change: We believe our $200 million investment in this transformative project will provide a foundation around which to further innovate for years to come.
Speaker Change: We are also evaluating an intriguing smaller project for the 2025 Derby that will enhance the guest experience and another portion of our venue.
Speaker Change: We anticipate that this will be a capital investment in the range of $60 million to $80 million.
Speaker Change: And have a payback of six to eight years, which is our target range for Churchill Downs racetrack.
William C. Carstanjen: We will provide a more detailed update on our 2025 plans at our next earnings call in late July. Next, regarding our HRM progress. Our disciplined approach to HRM investments demonstrated over the last number of years has led to excellent returns on capital from both our HRM properties and our acquisitions of related technology. We remain focused on expanding further in each of our key markets. In Kentucky, the construction of our Owensboro HRM venue remains on track with a planned opening in the first quarter of 2025. This will be our seventh Kentucky HRM venue, and it will be located just east of Owensboro, the fourth largest city in Kentucky.
Speaker Change: We will provide a more detailed update on our 2025 plans at our next earnings call in late July.
Speaker Change: Next regarding our HR and progress.
Speaker Change: Our disciplined approach to HR and investments demonstrated over the last number of years have led to excellent returns on capital from both our HR and properties and our acquisitions of related technology.
Speaker Change: We remain focused on expanding further in each of our key markets.
Speaker Change: In Kentucky, the construction of our Owensboro HRS venue remains on track with a planned opening in the first quarter of 2025.
Speaker Change: This will be our seventh Kentucky, ASRM venue and it will be located just east of Owensboro, the fourth largest city in Kentucky.
William C. Carstanjen: We are permitted under Kentucky law to develop one more HRM venue, this one tied to and required to be located within 60 miles of our Oak Grove license. This opportunity is one in which we are very interested and are devoting time and resources to exploring in Virginia. 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. As I discussed on our February earnings call, we have received approval to open our new HRM venue in Dumfries, called The Rose, with 1,650 machines instead of the previous limit of 1,150 machines.
Speaker Change: We are permitted under Kentucky law to develop one more HRS venue. This one tied to and are required to be located within 60 miles of our Oak Grove license.
Speaker Change: This opportunity is one in which we are very interested and devoting time and resources to exploring.
Speaker Change: In Virginia.
Speaker Change: Our goal is to utilize all 10 of our potential Virginia, ASRM licenses and deploy all 5000 HR machines currently permitted under the law.
Speaker Change: As I discussed on our February earnings call. We have received approval to open our new HR and venue in Dumfries called the rows with 1650 machines instead of the previous limit of 1150 machines.
William C. Carstanjen: We anticipate opening in September. The team has made great progress on the gaming floor and hotel construction and has kept us on schedule despite an extremely wet spring that affected outdoor road and utilities work. Dumfries is a great location, located right off Interstate 95 and just 30 miles south of Washington, D.C., in northern Virginia.
Speaker Change: We anticipate opening in September.
Speaker Change: The team has made great progress on the gaming floor in hotel construction and has kept us on schedule. Despite an extremely wet spring that affected outdoor road and utilities work.
Speaker Change: <unk> is a great location located right off Interstate 95, and just 30 miles south of Washington, DC and the northern in Northern Virginia.
William C. Carstanjen: I am very excited about this opportunity. A $465 million Greenfield project in the Washington, D.C., northern Virginia region will mark a meaningful step forward in growth for Churchill Downs, with the completion of the rows by the end of the third quarter of 2024.
Speaker Change: I am very excited about this opportunity a $465 million Greenfield project in the Washington, DC, Northern Virginia region will Mark a meaningful step forward in growth for Churchill Downs.
Speaker Change: With the completion of the rose by the end of the third quarter of 2024.
William C. Carstanjen: We will have approximately 4,450 HRMs operational across the Commonwealth of Virginia. We have a number of additional Virginia HRM development opportunities we are exploring, and we anticipate that we will have deployed in 2025 the remaining 500-plus machines we are permitted under law. We are analyzing the best options for the remaining HRMs as well as deciding if we should shift any of the existing HRMs to other locations to optimize the performance overall of our Virginia HRM.
Speaker Change: We will have approximately 4450 <unk> operational across the Commonwealth of Virginia.
Speaker Change: We have a number of additional Virginia, HR and development opportunities, we are exploring and we anticipate that we will have deployed in 2025. The remaining 500 plus machines, we are permitted under law.
Speaker Change: We are analyzing the best options for the remaining HRS as well as deciding if we should shift any of the existing HRS to other locations to optimize the performance overall of our Virginia HRS business.
William C. Carstanjen: As the first quarter financials reflect, our Kentucky and Virginia operations are performing very well. There are a number of factors contributing to our results, including the continued integration and product improvement opportunities resulting from our XactA acquisition. The improvement of our marketing and operational processes, particularly with respect to the Virginia properties, which we have only owned since late 2022. The continued trend towards familiarity and acceptance by gaming customers of the HRM product, and, with respect to Virginia, the enforcement of the ban on so-called skill games. All of these factors are helping our results, although it is hard to firmly distinguish the effect of each factor from the other without turning to Exacto.
Speaker Change: As the first quarter financials reflect our Kentucky, and Virginia operations are performing very well.
Speaker Change: There are a number of factors contributing to our results, including the continued integration and product improvement opportunities, resulting from our exact the acquisition.
Speaker Change: The improvement of our marketing and operational processes, particularly with respect to the Virginia properties, which we have only owned since late 2022.
Speaker Change: The continued trend towards familiarity and acceptance by gaming customers of the ASRM product.
Speaker Change: And with respect to Virginia, the enforcement of the ban on so called skill games.
Speaker Change: All of these factors are helping our results. Although it is hard to firmly distinguished the effect of each factor from the others.
Speaker Change: Turning to exacta.
William C. Carstanjen: The acquisition of the X-Acta Central Determinant System technology has improved the performance of our Virginia HRM venues by enabling us to better optimize the gaming floors and reduce the technology fees charged to our venue. Because of this vertical integration, we have improved both our top line and our overall margin. We are also in the process of converting approximately 10% of our gaming floors in Kentucky to this exact technology to improve our top line over the long term.
Speaker Change: The acquisition of the exact central determinant system technology has improved the performance of our Virginia, ASRM venues by enabling us to better optimize the gaming floors.
Speaker Change: And reduce the technology fees charged to our venues because of this vertical integration, we have improved both our topline and our overall margins.
Speaker Change: We are also in the process of converting approximately 10% of our gaming floors in Kentucky to the exactly technology to improve our top line over the long term.
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. For example, we are now one of the central determinant system providers in nine of the 10 HRM venues that are operational in New Hampshire.
Speaker Change: The executive team has continued to make strides growing the portfolio of third party <unk> operations in Kentucky, Wyoming, and New Hampshire.
Speaker Change: For example, we are now one of the central determinant system providers in nine of the Tam.
Speaker Change: Of the 10 HRS venues that are operational in new Hampshire, and we look forward to growing this business as those properties expand.
William C. Carstanjen: And we look forward to growing this business as those properties expand. There are a number of new jurisdictions that are considering this form of wagering, and our team is looking forward to participating in these growth opportunities if they materialize. As we mentioned during our February call, we are making progress on the development of HRM-based electronic table games. This development work will only further enhance the performance of our HRM venues over the long term.
Speaker Change: There are a number of new jurisdictions that are considering this form of wagering and our team is looking forward to participating in these growth opportunities if they materialize.
Speaker Change: As we mentioned during our February call, we are making progress on the development of <unk> based electronic table games. This development work will only further enhance the performance of our HR and venues over the long term.
William C. Carstanjen: Our executive team is demonstrating it can be effective as both a B2C and a B2B business. That is a key cultural and operational challenge we wanted to meet to potentially participate in a range of market opportunities, and we are pleased the team is proving it can do so. Next, regarding our investment in gaming property. We held the grand opening for our Terra Haute Casino in Indiana on April 5th, on time and on budget.
Speaker Change: Our executive team is demonstrating it can be effective as both a beta C and b to b business that.
Speaker Change: That is a key cultural and operational challenge, we wanted to meet to potentially participate in the range of market opportunities and we are pleased the team is proving they can do so.
Speaker Change: Next regarding our investment in gaming properties.
Speaker Change: We held the Grand opening for our Terre Haute Casino in Indiana on April 5th on time and on budget.
William C. Carstanjen: We had over 12,000 people visit the property on opening day. As a point of reference for how strong the initial demand is at the property, the total coin-in on opening day surpassed the largest day that we have ever had at Derby City Gaming. A great start, although the daily volumes have since come down.
Speaker Change: We had over 12000 people visit the property on opening day.
Speaker Change: As a point of reference for how strong the initial demand is at the property.
Speaker Change: Total coin in an opening day surpassed the largest day that we have ever had at Derby City gaming a great start.
Speaker Change: While the daily volumes have since come down.
William C. Carstanjen: We have been extremely pleased with the performance, and we are well ahead of our projections. Since we will be a destination for people from Indianapolis, our 122-room hotel opening in mid-May should propel our performance even more. Again, a great start and congratulations to our Terre Haute team. And finally, regarding our preparations for the upcoming Kentucky Derby a week from this Saturday. The 150th Run for the Roses will be an extraordinary milestone for the longest continually run sporting event in the United States.
Speaker Change: We have been extremely pleased with the with the performance.
Speaker Change: And we are well ahead of our projections.
Speaker Change: Since we will be a destination for people from Indianapolis or 122 room hotel opening in mid May should propel our performance even more.
Speaker Change: Again, a great start and congratulations to our Terre Haute team.
Speaker Change: And finally regarding our preparations for the upcoming Kentucky Derby week from this Saturday.
Speaker Change: The $150 run for the Roses will be an extraordinary milestone for the longest continually run sporting event in the United States.
William C. Carstanjen: Personally, this will be my 19th Kentucky Derby and my 10th as CEO. The buzz and energy are greater every year, and this year feels particularly heightened. Ticket sales, including in our new seating areas, have exceeded our expectations, and all of the metrics we track appear exceptional. We look forward to seeing many of you at the Kentucky Derby on May 4th. And if you cannot join us in person, please be sure to watch the NBC telecast beginning at noon Eastern time.
Speaker Change: Personally this will be my 19th Kentucky Derby and 10th as CEO.
Speaker Change: And energy is greater every year and this year feels particularly heightened tick.
Speaker Change: Ticket sales.
Speaker Change: Including throughout our new seating areas have exceeded our expectations and all of the metrics, we track a purer exceptional.
Speaker Change: We look forward to seeing many of you at the Kentucky Derby on May four and.
Speaker Change: And if you cannot join us in person please be sure to watch the NBC telecast beginning at noon eastern time.
William C. Carstanjen: We will provide a press release with our preliminary results after the race, like we do every year. In summary, the first quarter was another great quarter for us with record financial results. We were particularly pleased to overcome the challenging January weather, which was significantly worse compared to prior years.
Speaker Change: We will provide a press release with our preliminary results. After the race like we do every year.
Speaker Change: In summary, the first quarter was another great quarter for us with record financial results, we were particularly pleased to overcome the challenging January weather, which was significantly worse compared to prior year.
William C. Carstanjen: We have positioned our company for strong growth for years to come with our pipeline of investments in the Kentucky Derby, HRM, and other gaming venues, the B2B and B2C expansion of our Twin Spires and Xacti businesses, and disciplined acquisitions. We are delivering for our shareholders, and we have been consistent in our strategies and execution over an extended period of time. We also have a strong pipeline of growth opportunities we are developing beyond the ones we've announced.
Speaker Change: We have positioned our company for strong growth for years to come with our pipeline of investments in the Kentucky Derby.
Speaker Change: <unk> and other gaming venues, the BBB and <unk> expansion of our twin spires, an exact businesses and disciplined acquisitions.
Speaker Change: We are delivering for our shareholders and we've been consistent in our strategies and execution over an extended period of time.
Speaker Change: We also have a strong pipeline of growth opportunities, we are developing beyond the ones we've announced.
William C. Carstanjen: We continue to expect to drive a material increase in adjusted EBITDA and free cash flow in the coming years while we maintain one of the best balance sheets in the industry. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia? Thanks.
Speaker Change: We continue to expect to drive a material increase in adjusted EBITDA and free cash flow in the coming years, while we maintain one of the best balance sheets in the industry.
Speaker Change: With that I'll turn the call over to Marcia and then we will take your questions Marcia.
Marcia Dall: Thanks, Bill and good morning, everyone I'll start with a few insights on our financial results and then provide an update on capital management.
Marcia Dall: Thanks, Bill, and good morning, everyone. I'll start with a few insights on our financial results and then provide an update on capital management. Regarding first quarter financial results, as Bill shared, we delivered record first quarter revenue and adjusted EBITDA. In our live and historical racing segment, our HRM properties in Virginia and Kentucky performed extremely well during the first quarter. In Virginia, our HRM properties increased adjusted EBITDA by nearly $13 million, or more than 27% compared to the prior year quarter. Savings related to the X-ACTA transaction provided nearly $6 million of improved economics for our Virginia HRM properties.
Marcia Dall: First regarding first quarter financial results as Bill shared we delivered record first quarter revenue and adjusted EBITDA and are alive and historical racing segment, our <unk> properties in Virginia, and Kentucky performed extremely well during the first quarter.
Marcia Dall: And Virginia are each arm properties increased adjusted EBITDA by nearly $13 million and more than 27% compared to the prior year quarter saving.
Marcia Dall: Savings related to the exact transaction provided nearly $6 million of improved economics to our Virginia atrium properties. We also benefited from the opening of the <unk> <unk> in September 2023, as well as strong growth in our other Virginia properties.
Marcia Dall: Virginia is your own properties, excluding racing generated a combined 54% margin during the quarter of.
Marcia Dall: We also benefited from the opening of Rosie's Emporia in September 2023, as well as strong growth at our other Virginia properties. Virginia HRM Properties, excluding racing, generated a combined 54% margin during the quarter of 5.9 points compared to the prior year quarter and up 4.4 points on a sequential basis. Our Kentucky HRM properties increased adjusted EBITDA by $8.5 million, or nearly 20% compared to the prior year quarter. Nearly half of this growth was driven by our Northern Kentucky HRM properties.
Marcia Dall: Five nine points compared to the prior year quarter and up four four points on a sequential basis.
Marcia Dall: Our Kentucky AGM properties increased adjusted EBITDA by $8 $5 million or nearly 20% compared to the prior year quarter.
Marcia Dall: Half of this growth was driven by our northern Kentucky atrium properties.
Marcia Dall: Did have a $2 $7 million decrease at Churchill Downs race track compared to the prior year quarter related to increased maintenance and other expenses in preparation for the 150 of the Kentucky Derby.
Marcia Dall: And our twin inspire segment adjusted EBITDA grew by more than $10 million compared to the prior year quarter. The exact business contributed more than $9 million of adjusted EBITDA to the Twinsburg segment from third party customers and growth in our Virginia ASRM properties or.
Marcia Dall: We did have a $2.7 million decrease at Churchill Downs racetrack compared to the prior year quarter related to increased maintenance and other expenses in preparation for the 150th Kentucky Derby. However, in our Twin Spire segment, Adjusted EBITDA grew by more than $10 million compared to the prior year quarter. The Executive Business contributed more than $9 million of Adjusted EBITDA to the Twin Spire segment from third-party customers and growth in our Virginia HRM property.
Marcia Dall: Our twin spires horse racing business saw a modest decline in adjusted EBITDA in the first quarter, primarily as a result of lower retail volume from extremely cold weather conditions in January weather related cancellations resulted in an 8% reduction in U S Thoroughbred races in the quarter compared to the prior year period.
Marcia Dall: And lastly regarding our gaming business, our regional gaming properties performed relatively well in first quarter, despite being impacted by inclement weather in January.
Marcia Dall: Our Twins Fires horse racing business saw a modest decline in adjusted EBITDA in the first quarter, primarily as a result of lower retail volume from extremely cold weather conditions in January. Weather-related cancellations resulted in an 8% reduction in U.S. thoroughbred races in the quarter compared to the prior year period.
Marcia Dall: We did see the majority of our properties topline as well as adjusted EBITDA improve in March.
Marcia Dall: As we anticipated our first quarter same store wholly owned casino margins were down two four points compared to the same periods in 2023, primarily as a result of the challenging January weather.
Marcia Dall: Turning to capital management, we generated $242 million or $3 24 per share and free cash flow in the quarter of 21% per share over the prior year, primarily from the strong cash flow generated from our businesses.
Marcia Dall: And last, regarding our gaming business, our regional gaming properties performed relatively well in the first quarter, despite being impacted by inclement weather in January. We did see the majority of our properties' top line, as well as adjusted EBITDA, improve in March. As we anticipated, our first-quarter same-store, wholly-owned casino margins were down 2.4 points compared to the same period in 2023, primarily as a result of the challenging January weather.
Marcia Dall: Regarding maintenance capital, we spent $12 million in the first quarter and continue to expect to spend between 90 and $105 million in total for the year.
Marcia Dall: Regarding project capital, we spent $143 million in the first quarter and continue to expect to spend between 450 and $550 million in total for the year.
Marcia Dall: Regarding share repurchases, we repurchased $22 million of CVI ishares in the first quarter.
Marcia Dall: At the end of the first quarter, our bank Covenant net leverage was four one times based on our capital investments and the timing of the opening of our new facilities. We expect bank covenant net leverage to remain in the four times range for the remainder of the year.
Marcia Dall: Turning to capital management, we generated $242 million, or $3.24 per share of free cash flow in the quarter, a 21% increase over the prior year, primarily from the strong cash flow generated from our business. Regarding maintenance capital, we spent $12 million in the first quarter and continue to expect to spend between $90 and $105 million in total for the year. Regarding project capital, we spent $143 million in the first quarter and continue to expect to spend between $450 and $550 million in total for the year. Regarding share repurchases, we repurchased $22 million of CBI shares in the first quarter.
Marcia Dall: We then expect our bank covenant.
Marcia Dall: <unk> to decline in 2025 is our investments in Kentucky, Virginia, and Indiana begin to deliver significant adjusted EBITDA growth.
Marcia Dall: Overall, we are very pleased with the record results that our team has delivered in the first quarter and we are well positioned to continue to grow through the remainder of 2024 and to 2025 fueled by the tangible pipeline of growth initiatives that bill discussed.
Speaker Change: This is my ninth year as CFO and will be my ninth Kentucky Derby next week. This is truly a special time of the year for our company and this year's Derby is going to be even more spectacular than ever I am looking forward to sharing experience with many of you in person next week with that I'll turn the call back over to Bill. So that he can open the call for questions Bill.
Marcia Dall: At the end of the first quarter, our Bank Covenant Net Leverage was 4.1 times. Based on our capital investments and the timing of the opening of our new facilities, we expect Bank Covenant Net Leverage to remain in the 4 times range for the remainder of the year. We then expect our Bank Covenant Net Leverage to decline in 2025 as our investments in Kentucky, Virginia, and Indiana begin to deliver significant adjusted EBITDA growth.
William C. Carstanjen: Thank you Marcia.
William C. Carstanjen: Now ready to take your questions.
William C. Carstanjen: Thank you.
William C. Carstanjen: Ask a question. Please press star one one on your telephone and wait for your name to be announced.
Participant: Your question. Please press Star one again, one moment please.
William C. Carstanjen: And our first question comes from the line of David Katz Jefferies.
Marcia Dall: Overall, we are very pleased with the record results that our team delivered in the first quarter, and we are well-positioned to continue to grow through the remainder of 2024 and into 2025, fueled by the tangible pipeline of growth initiatives that Bill discussed. This is my ninth year as CFO and will be my ninth trip to the Kentucky Derby next week. This is truly a special time of the year for our company, and this year's Derby is going to be even more spectacular than ever. I'm looking forward to sharing the experience with many of you in person next week. With that, I'll turn the call back over to Bill so that he can open the call for questions. Okay, Bill?
David Katz: Good morning, everybody. Thanks for taking my questions I appreciate it.
David Katz: I just wanted to sort of dispense with the issue.
David Katz: The issue of leverage and then Marcia I heard your commentary about sort of staying around the four times level and I want to sort of put that in the context of bill something you said about potentially more opportunities out there that you're evaluating.
David Katz: That could enter the mix if you could just talk about your leverage tolerance near term call. It next six to eight quarters in and how that may or may not roll.
Marcia Dall: Sure David happy to do that.
Marcia Dall: Good to talk talk to you and look forward to senior next week I heard you were going to you were going to attend.
Speaker Change: So our target range of three to four times, that's where we target leverage.
William C. Carstanjen: We're now ready to take your questions.
Speaker Change: But we are willing to go above that when we see responsible opportunities that are worth pursuing.
Operator: Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment, please. And our first question comes from the line of David Katz with Jeffreys.
Speaker Change: <unk>.
Speaker Change: Over a number of years, that's how we've consistently thought about it we look to be in a range, but sometimes opportunities present themselves when they do especially when you work hard consistently over time to find the opportunities and so we will bump up from that win win.
David Katz: Morning, everybody. Thanks for taking my questions. I appreciate it. I just want to sort of dispense with the issue of leverage. And Marcia, I heard your commentary about sort of staying around the four times level. And I want to sort of put that in the context of, Bill, something you said about, you know, potentially more opportunities out there that you're evaluating that could enter the mix. If you could just talk about your leverage tolerance, you know, near term, call it next, you know, six to eight quarters and how that may or may not roll.
Speaker Change: Warranted.
Speaker Change: Okay.
Speaker Change: And just secondarily.
Speaker Change: My perception is that the expectations for this year's Derby are quite high.
Speaker Change: And I'm always trying to just make sure we keep numbers in the right place can you maybe drill down a little bit with us from last year's Derby and.
Speaker Change: In that quarter in and maybe help us sort of bridge some of the pluses and potential minuses. If there are any.
Speaker Change: Just to make sure we.
Speaker Change: I'll keep our numbers in the right place coming.
William C. Carstanjen: Sure, David. Happy to do that. Good to talk to you and look forward to seeing you next week. I heard you were going to attend.
Speaker Change: Coming coming out of this year's Derby.
Speaker Change: Not totally sure I, followed that question David.
Speaker Change: Would you mind just frame it a little bit differently.
William C. Carstanjen: So our target range is three to four times. That's where we target leverage, but we're willing to go above that when we see responsible opportunities that are worth pursuing. So over a number of years, that's how we've consistently thought about it. We look to be in a range, but sometimes opportunities present themselves when they do, especially when you work hard consistently over time to find the opportunities.
David Katz: I don't want to start to answering a different question and that one that one I'm not quite sure I got it.
David Katz: So what I mean is if we take last year's Derby earnings.
David Katz: There is really a year or two have turned one experience.
David Katz: Which adds probably add something then we have year one of the paddock then we have some pricing increases that you probably took.
David Katz: Okay, and just secondarily, you know, my perception is that the expectations for this year's Derby are quite high. And I'm always trying to just make sure we keep the numbers in the right place. Can you maybe drill down a little bit with us on last year's Derby and, you know, in that quarter and maybe help us sort of bridge some of the pluses and potential minuses if there are any, just to make sure we, you know, we all keep our numbers in the right place, you know, coming out of this year's Derby?
David Katz: Look at your deferred revenue increase.
David Katz: And you're in your filing which implies.
David Katz: Some some ticket price increases how do we sort of walk across those upside blocks and just keep them under control. So that the likes of me don't get carried away with my my Derby estimates.
Speaker Change: Well so.
Speaker Change: Coming out of Derby Derby Knight will actually put out a range that will help clarify that I think at this point.
William C. Carstanjen: I'm not totally sure I understand that question, David. Would you mind just framing it a little bit differently?
Speaker Change: There are things that build on each other year to year.
Speaker Change: You threw me off with the first formulation of the company because.
David Katz: I don't want to start answering another question. That one, I'm not quite sure I understand it. So what I mean is...
David Katz: Because.
David Katz: The point about puts and takes generally.
David Katz: Generally things are moving in a positive direction year to year.
David Katz: So what I mean is, you know, if we take last year's Derby earnings, and you know, there's really year two of turn one experience You know, which adds probably adds something then we have year one of the paddock then we have Some pricing increases that you probably took, you know We look at your deferred revenue increase in your you know in your in your filing which implies You know some some ticket price increases, how do we sort of walk across those, you know Upside blocks and just keep them under control so that people the likes of me don't get carried away with my my Derby estimates
David Katz: And that'll be the case for this year. So I would ask that you just hold on and you'll you'll see after the Derby on.
David Katz: After the Derby race on Saturday Night will put out a range, where we have the benefit of reflecting on all of the activity of the day, so not too much longer before we can provide more specificity, but here one year, one week out from the event.
David Katz: I've told you all that I can responsibly tell you prior to the event itself.
Speaker Change: I got you. Thank you I appreciate it.
Speaker Change: Thank you one moment please for our next question.
Speaker Change: And our next question comes from the line of Barry Jonas with Truest.
William C. Carstanjen: Coming out of Derby, Derby night, we'll actually put out a range that will help clarify that. I think at this point, there are things that build on each other year to year. You threw me off with the first formulation of the company because... Because of the point about puts and takes, generally, things are moving in a positive direction year to year, and that'll be the case for this year. So I would ask that you just hold on, and you'll see after the derby race on Saturday night; we'll put out a range where we have the benefit of reflecting on all the activity of the day. So not too much longer before we can provide more specificity, but here, one week out from the event, I've told you all that I can responsibly tell you prior to the event itself.
Barry Jonas: Hey, guys. Good morning, I'll, just keep it to one question interesting to hear about the strong start at Cara Hot.
Barry Jonas: With the opening just curious how should we think about the ramp from here to hit your IRR or ROI targets. Thanks.
Barry Jonas: Well for US, we always underwrite projects looking at year, three EBITDA and we've been fortunate that some of our projects have been so strong that that people forget that and they see the return immediately they see the return in year, one, but generally properties take a while to get the maturity. It takes a while to build your.
Barry Jonas: So it takes a while to.
Barry Jonas: To understand your customers to understand the extent of your range. So all of those things build as the team gets more experienced on the ground they perform better so.
Barry Jonas: So generally.
Barry Jonas: It takes at least three years to get to maturity.
David Katz: I got you. Thank you. I appreciate it.
Barry Jonas: That's how we underwrite the projects in the case of Terre Haute things started pretty strong we're really really pleased with how our how we started but there are lots of things we've already learned that we're going to improve upon and get better at.
Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Barry Jonas with Truly. Hey guys.
Barry Jonas: Well, for us, we always underwrite projects looking at year three EBITDA. And we've been fortunate that some of our projects have been so strong that people forget that, and they see the return immediately. They see the return in year one.
Barry Jonas: And so I don't think this is one where we will be running a big gauntlet of.
Barry Jonas: Of waiting for the property.
Barry Jonas: Start to Blossom I think it's going to start at least so far what we've seen so far it's going to start relatively strong.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: One moment please for our next question.
Speaker Change: And our next question comes from the line of Chad Beynon with Macquarie.
William C. Carstanjen: But generally, properties take a while to get to maturity. It takes a while to build your database. It takes a while to understand your customers, to understand the extent of your range. So all of those things build. And as the team gets more experienced on the ground, they perform better. So generally, it takes at least three years to get to maturity.
Chad Beynon: Good morning, Thanks for taking my question nice results.
Chad Beynon: Wanted to focus on the exact impact thus far, particularly on the live and historical racing margins looks like that.
Chad Beynon: Certainly had a nice outsize impact in the first quarter and should continue.
William C. Carstanjen: And that's how we underwrite the projects. In the case of Terre Haute, things started pretty strong. We're really, really pleased with how we started. But there are lots of things we've already learned that we're going to improve upon and get better at. And so I don't think this is one where we'll be running a big gauntlet of waiting for the property to start to blossom. I think it's going to start, at least so far, based on what we've seen so far, relatively strong.
Chad Beynon: Can you just kind of help us think about where we are in the exact.
Chad Beynon: Benefit journey.
Chad Beynon: A lot of it I think is.
Chad Beynon: Just kind of removing an expense, but we've talked about some revenue benefits as well. So maybe if you can just kind of frame what inning. We're in with exact maybe what's been done and what's on the com. Thank you.
Speaker Change: Sure Chad so.
Speaker Change: I would put it in a couple of different buckets.
Operator: Thank you. One moment, please, for our next question. The next question comes from the line of Chad Beynon with Macquarie.
Chad Beynon: The first bucket is what can exactly do for our existing properties how can it help us.
Chad Beynon: Optimize our floors, how can we improve our margins.
Chad Beynon: Morning. Thanks for taking my question. Nice results. I wanted to focus on the XACTA impact thus far, particularly on the live and historical racing margins. Looks like that, you know, certainly had a nice outsized impact in the first quarter and should continue. Can you just kind of help us think about where we are on the XACTA benefit journey? You know, a lot of it I think is just kind of removing inexpense, but, you know, we've talked about some revenue benefits as well. So, maybe if you could just kind of frame what inning we're in with XACTA, maybe what's been done and what's on the horizon. Thank you.
Chad Beynon: All the things that go into our existing properties, that's one bucket and we're not done there and I and I hinted and talked on some of that in my script, we're not complete with the.
Chad Beynon: With the process of figuring out how to improve our existing operations by better understanding and utilizing the capabilities that we have from exactly the.
Chad Beynon: The second category is well how can we improve the performance of this business with.
Chad Beynon: Third parties.
Chad Beynon: <unk>.
Chad Beynon: That's a good place to be because like our businesses our own HR businesses. These are businesses that are still in the relatively early innings of their of their maturity. So there is still moving towards maturity and so our other third parties. So that's an area, where we can get better and those businesses that we serve will get better and its an opportune.
William C. Carstanjen: Uh, sure, Chad. So, um, I would put it in a couple of different buckets. The first bucket is, what can X-ACTA do for our existing properties? How can it help us optimize our floors?
William C. Carstanjen: How can we improve our margins? All the things that go into our existing properties. That's one bucket, and we're not done there. And I hinted at and talked about some of that in my script.
Chad Beynon: <unk> for us to grow the third bucket I would say, our new jurisdictions within the United States, We don't have.
William C. Carstanjen: We're not complete with the process of figuring out how to improve our existing operations by better understanding and utilizing the capabilities that we have from Xact. The second category is, well, how can we improve the performance of this business with third parties. And that's a good place to be because like our businesses, our own HR businesses, these are businesses that are still in the relatively early innings of their maturity. So they're still moving toward maturity, and so are other third parties.
Chad Beynon: We want to point to or talk about today, but certainly the <unk> as a as a gaming product is something that's.
Chad Beynon: Discussed and.
Chad Beynon: And evaluated and different.
Chad Beynon: Different jurisdictions in the United States, and that's something that I think will be.
Chad Beynon: A potential growth area for this business over time and then finally, the last bucket I would say is international we have had some inbound from from international jurisdictions, and I think I think that might be a place for us to grow.
William C. Carstanjen: So that's an area where we can get better, and those businesses that we serve will get better, and it's an opportunity for us to grow. The third bucket, I would say, are new jurisdictions within the United States. We don't have any we want to point to or talk about today, but certainly, HRMs as a gaming product are something that's being discussed and evaluated in different jurisdictions across the United States. And that's something that I think will be a potential growth area for this business over time. And then, finally, the last bucket, I would say, is international. We've had some inbound from international jurisdictions, and I think that might be a place for us to grow over the coming quarters as well.
Chad Beynon: Over the coming quarters as well.
Speaker Change: Thank you very much I appreciate it.
Speaker Change: Thank you.
Speaker Change: Please for our next question.
Speaker Change: Okay.
Speaker Change: Next question will come from the line of Jordan Bender with JMP Securities.
Jordan Bender: Good morning, Thanks for taking my question.
Jordan Bender: It kind of follow on David's question is theres been a lot of positive talk around upcoming Caribbean you've mentioned in the past just the step function growth in 'twenty four but we think that 25, you mentioned the incremental project for next year, but can you just talk to the PC that youre, putting in place the kind of ensuring.
William C. Carstanjen: Thank you very much.
Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Jordan Bender with JMP Securities.
Speaker Change: That youre growing off of this outsized growth in.
Speaker Change: This year. Thank you.
Speaker Change: Yes, I think Thats a really good question I think one of the things that's always.
Jordan Bender: Good morning. Thanks for taking my question. I want to kind of follow on David's question of, you know, there's been a lot of positive talk around the upcoming Derby. And you've mentioned in the past, just the step function growth in 24. But as we think to 25, you mentioned the incremental project for next year, but can you just talk about the pieces that you're putting in place to kind of ensure that you're growing off of this outsized growth this year? Thank you.
Speaker Change: Most meaningful to me what I'm most proud of is how our organization learns.
Speaker Change: Our organization, our organization really prides itself on on learning and improving so I think when we introduce a project of the magnitude of the Paddock project, we're going to see a bunch of things that we can do better this year and we're going to see a bunch of ancillary opportunities that we can pursue.
William C. Carstanjen: Yeah, I think that's a really good question. I think one of the things that's always... Most meaningful to me, what I'm most proud of is how our organization learns. Our organization really prides itself on learning and improving. So I think when we introduce a project of the magnitude of the PADDIC project, we're going to see a bunch of things that we can do better this year, and we're going to see a bunch of ancillary opportunities that we can pursue based on the footprint we were just establishing with the PADDIC project.
Speaker Change: Based on the footprint, we're just establishing with the Patrick project. So I view significant projects like this one as the beginning I think it will unlock a lot of learnings for us.
Speaker Change: And our team will be hungry to find those areas, where we can grow and improve on so part of what comes forward in the subsequent years is that PS learning to use what we have done better.
Speaker Change: But also we'll be we will be looking at other projects and other parts of the facilities and we will be looking for other ways to monetize everything about our facilities sponsorships.
William C. Carstanjen: So I view significant projects like this one as just the beginning. I think it will unlock a lot of learnings for us, and our team will be hungry to find those areas where we can grow and improve. So part of what comes forward in subsequent years is that piece, learning to use what we've done better, but also, we'll be looking at other projects in other parts of the facilities, and we'll be looking for other ways to monetize everything about our facilities, sponsorships, TV rights, better wagering opportunities, all the different categories that go into driving the entire pie. So it's a process of constant improvement, but the key to unlocking it is the physical facility and the energy that our guests bring to it when they interact with it.
Speaker Change: TV rights better wagering opportunities all the all the different categories that go into driving.
Speaker Change: The entire pie. So it's a process of constant improvement, but the key to unlocking it is the physical facility and the energy that our guests bring to that win when they interact with it.
Speaker Change: Great and good luck next week.
Speaker Change: Thank you.
Speaker Change: Thank you one moment please for our next question.
Speaker Change: And our next question comes from the line of Jeff <unk> with Stifel.
Jeff: Hey, great. Good morning, Bill Marshall Thanks for taking our question maybe just one quick one from us on the Kentucky, each RM business. So I think it's about five months now that you have under your belt operating Derby City downtown.
Jordan Bender: Great, and good luck next week. Thank you.
Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Jeff Stantial with Stifel.
Jeffrey Austin Stantial: Hey, great morning, Bill. Marcia, thanks for taking our question.
Jeff: To get your thoughts on how you think the ramp there is progressing anything surprising so far relative to your underwriting and operational any challenges that kind of popped up that youre still working through just any thoughts there would be great.
Jeffrey Austin Stantial: Maybe just one quick one from us on the Kentucky HRM business. I think it's about five months now that you have under your belt operating Derby City Downtown. Bill, just curious to get your thoughts on how you think the ramp there is progressing. Anything surprising so far relative to your underwriting and operations? Any challenges that kind of popped up that you're still working through? Just any thoughts there would be great.
Jeff: Derby City downtown Love the facility Love, what our team has done there.
Speaker Change: We thought it would start relatively modestly because a big component of it of its business is going to be driven by tourism and downtown traffic and opening in December and the height of the height of winter in Louisville.
Speaker Change: <unk> is not the ideal time to open so what we're seeing is pretty consistent are ramping.
William C. Carstanjen: Derby City downtown, love the facility, love what our team has done there. But we thought it would start relatively modestly because a big component of its business is going to be driven by tourism and downtown traffic. And opening in December, the height of the height of winter in Louisville, is not the ideal time to open.
Jeff: <unk>.
Jeff: And I go back to what I said in response to one of the other questions. We always underwrite the deals that are the.
Jeff: The greenfields that we build to a three year.
Jeff: A three year EBITDA model. So here. This is one where we're going to have to ramp and continuously improve and get better. So.
William C. Carstanjen: So what we're seeing is pretty consistent ramping, and I go back to what I said in response to one of the other questions. We always underwrite the deals that are the greenfields that we build to a three-year, a three-year EBITDA model.
Jeff: I'd say it started relatively modest it's not a material contributor to the Kentucky engine, the Kentucky HR engine that we've established but it's moving in the right direction and it's about where we thought it would be and let's get some of the spring and summer months under our belt and then we can we can.
William C. Carstanjen: So here, this is one where we're going to have to ramp up and continuously improve and get better. So I'd say it started relatively modest. It's not a material contributor to the Kentucky engine, the Kentucky HR engine that we've established. But it's moving in the right direction, and it's about where we thought it would be. Let's get some of these spring and summer months under our belts, and then we can really have a much better sense of what to expect in the long term.
Jeff: We have a much better sense of what to expect in the long term.
Speaker Change: Great. Thanks, very much good luck.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Please for our next question.
Speaker Change: And our next question comes from the line of Joe Stauff with Susquehanna.
Jeffrey Austin Stantial: Great. Thanks very much. Good luck, TechSafe.
Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Joe Stauff with Susquehanna.
Joseph Robert Stauff: Pardon me Joe Please check your mute button.
Joseph Robert Stauff: Yes, how about that.
Joseph Robert Stauff: Still learning.
Joseph Robert Stauff: Yes.
Joseph Robert Stauff: Yep, how about that? Still learning. Yeah. Good morning, Bill. Good morning, Marcia.
Joseph Robert Stauff: Good morning, Bill Good morning Marcia.
Speaker Change: I just wanted to follow up.
Joseph Robert Stauff: I just wanted to follow up, you know, maybe I'm just trying to understand, again, kind of like the amount of, say, tailwind in the HRM margins and wanted to ask, you know, how Turfway factored in that. It seems as though it... You know, you're gaining some momentum. And I was wondering if you could kind of provide an update on where you see Turfway relative to targeted margins.
Speaker Change: Maybe.
Speaker Change: Im just trying to understand again kind of like the.
Speaker Change: The amount of say tailwind in the HRS margins and wanted to ask.
Speaker Change: How turf way factored in that it seems as though.
Speaker Change: Youre, gaining some momentum and I was wondering if you could kind of.
Speaker Change: Providing an update on on kind of where you see turf way relative to targeted margins.
Joseph Robert Stauff: And then, just quickly, on the electronic table games that you were talking about, Bill, is that more 25 or 26, and do those electronic table games count relative to the number of machines in the various jurisdictions?
Speaker Change: And then just quickly on on the electronic table games.
Speaker Change: You were talking about bill.
Speaker Change: Is that more 25, or 26, and and do those electronic table games count relative to the limit of machines in the various jurisdictions.
William C. Carstanjen: Thanks, Joe. Thanks for those questions. I'm going to start with the last one and work backwards.
Speaker Change: <unk>.
Speaker Change: Thanks, Joe Thanks, Thanks for those questions I'm going to start with the last one and work backwards. So first when I was talking about the categories for exact.
William C. Carstanjen: First, when I was talking about the categories for Xacta, I should have mentioned electronic table games, because I think that's an important one. I mentioned it in my script, but that's one we've worked really hard on, and I do feel pretty good about that. And remember, before a product like that reaches fruition, it goes through testing, it goes through the regulatory process, and it goes through iterations. And there are also numerous products that fall under the definition of electronic table games.
Speaker Change: I Should've mentioned electronic table games I think that's an important one I mentioned it in my script, but.
Speaker Change: But that's why we've worked really hard hard on and I do I do feel pretty good about that and remember before a product like that.
Speaker Change: <unk> fruition it goes through.
Speaker Change: Testing it goes through the regulatory process. It goes through iterations so it.
Speaker Change: And there are also numerous products that fall under the definition of electronic table games. So that's one that I can just tell you that we're very engaged on.
William C. Carstanjen: So that's one that I can just tell you that we're very engaged in, we're very focused on, and it's coming along according to our plans. But I don't want to give you a time and date on when you'll see that for the first time, because that's not entirely under our control. I just want to illustrate that it's a focus of ours, and we have good expectations for the timing and the quality of what we can deliver there.
Speaker Change: We're very focused on and it's coming along.
Speaker Change: According to our our plans, but I don't want to give you a time and date on when Youll see that for the first time, because thats not entirely with our control.
Speaker Change: To illustrate that that it's a focus of ours and and we have good expectations for the timing and the quality of what we can deliver there.
William C. Carstanjen: Secondly, with respect to Turfway, Turfway is still ramping up, and it still has room to grow. It's improving every quarter. It's improving on all fronts. Certainly, one of the categories that can lend to its improved performance over time is the flexibility and additional product we get from Xacti, but it's a much bigger puzzle and equation than that. So that's one that I think our team is making consistent quarter-to-quarter progress on, and I'm satisfied with that and have high expectations for continued improvement there. But I wouldn't describe that as anywhere close to a mature property. That's one that's more consistent with what we've seen over a long period of time, a slow and steady ramp to maturity.
Speaker Change: Secondly, with respect to turf way.
Speaker Change: <unk> still ramping it's still has room to grow it's improving every quarter.
Speaker Change: It's improving on all fronts certainly.
Speaker Change: One of the categories that can lend to.
Speaker Change: Its improved performance over time is.
Speaker Change: The flexibility and additional product, we get from exactly but it is a much bigger.
Speaker Change: Puzzle and equation than that so.
Speaker Change: That's one that I think our team is making consistent quarter to quarter progress and I am satisfied with that and have high expectations for continued improvement there, but I wouldn't describe that is anywhere close to a mature property. That's one that's more consistent with what we've seen over a long period of time of.
Speaker Change: Slow and steady ramp to maturity.
William C. Carstanjen: I see. And, just to clarify, you know, the electronic table games that would be considered, I assume, it's obvious, but I just want to confirm, it's an HRM, therefore it would be subject to the cap in terms of the various machines that you have in each jurisdiction. Yeah, Kentucky doesn't have a cap.
Speaker Change: I see and just to clarify.
Speaker Change: The electronic table games.
Speaker Change: That would be considered.
Speaker Change: I assume it's obviously I just wanted to confirm it's a nature and therefore, it would be subject to the cap in terms of the various machines that you have in each jurisdiction.
Joseph Robert Stauff: Yeah, Kentucky doesn't have a cap. Virginia does. The Virginia cap is 5,000 machines under the current formulation of the law. Kentucky doesn't have the same construct. So every... Every jurisdiction has a slightly different construct; there are no two jurisdictions that are the same. Some have caps, some don't, but certainly the premise of the question that I completely agree with, an HRM electronic table game is exactly that, it's an HRM machine, and it'll be subject to any caps that are there under the law.
Speaker Change: Yes, Kentucky doesn't have a cap Virginia does the Virginia cap is 5000 machines under under the current formulation of the law.
Speaker Change: Kentucky doesn't have the same construct so every every.
Speaker Change: Every jurisdiction has a slightly different construct there are no two jurisdictions that are the same.
Speaker Change: Have cap some dealt but certainly the premise of the question completely agree with.
Speaker Change: <unk> electronic table game is exactly that its an HRA machine and it will be subject.
Speaker Change: It'll be subject to any caps that are there under the law.
Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of Dan Politzer with Wells Fargo.
Speaker Change: Yes.
Speaker Change: Thanks, a lot.
Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: Moment, please for our next question.
Daniel Politzer: Hey, good morning, everyone, and thanks for taking my question. Bill, Marcia, I wanted to ask you about the regulatory environment. I mean, there's been a lot of news flow, particularly in Virginia, as it relates to the skill-based games and, you know, some news flow on the competitive environment as far as Petersburg. So maybe, I know this is a unique forum to comment, but, you know, to the extent that you can, any way to think about broad strokes, you know, how you see this shaping up over the next kind of year or, you know, maybe even longer term into the future?
Speaker Change: And our next question comes from the line of Dan pilot, Sir with Wells Fargo.
Daniel Politzer: Hey, good morning, everyone and thanks for taking my question.
Dan: Bill Marcia I wanted to ask about the regulatory environment, I mean, theres been a lot of news flow, particularly in Virginia as it relates to the skill based games.
Daniel Politzer: Some news flow.
Daniel Politzer: On the competitive environment as far as Petersburg, So maybe I know this is an.
Speaker Change: Unique form to comment but to the extent that you can any any way to think about broad strokes.
Speaker Change: How do you see this shaping up over the next kind of year or.
Daniel Politzer: Maybe even longer term into the future.
William C. Carstanjen: We expect an additional Class three license to happen in Petersburg. We've expected that for a while, and all our plans are really, really are constructed with that in mind.
Daniel Politzer: We expect an additional class III license to happen in Petersburg.
Daniel Politzer: We've expected that.
Daniel Politzer: For a while and all our plans really.
Daniel Politzer: Really are constructed expecting that so.
William C. Carstanjen: So no issue there. That's expected, and that's part of the state's two-pronged approach with HRMs and then also traditional Class III, limited Class III gaming license. With respect to other things that can happen in a jurisdiction, including Virginia, we roll with those punches. We participate in the regulatory and legislative process. We feel really comfortable with the business we have in Virginia, and we will look at and address any regulatory or legislative opportunities that we see or any risks that we see, and certainly across the different jurisdictions that we participate in, it's fairly common to see legislation you like or don't like in any given session, and it's just part of the construct of the modern gaming company to evaluate those and participate rigorously in the legislative and political process to best shape your opportunities as a company to the extent that you best can.
Daniel Politzer: So no no issue there.
Daniel Politzer: That's expected and that's part of the state's two pronged approach with <unk> and then also traditional class III limited class III gaming license with respect to other things that can happen in a jurisdiction, including Virginia.
Daniel Politzer: We roll with those punches we participate in the regulatory and legislative process, we feel really comfortable with the business. We have in Virginia, and we will we will look at and address any.
Daniel Politzer: Regulatory or legislative opportunities that we see or any or any risks that we see.
Daniel Politzer: And certainly across the different jurisdictions that we participate in.
Daniel Politzer: It's fairly common to see legislation you like or don't like in any given session and it's just part of the part of the construct of the modern gaming company to to evaluate those and participate rigorously.
Daniel Politzer: Legislative and political process to best shape your opportunities as a company.
Daniel Politzer: To the extent that your best can.
Speaker Change: Understood. Thanks, so much.
Speaker Change: Thank you one.
Speaker Change: One moment please for our next question.
Speaker Change: And our next question comes from the line of Daniel Guglielmo with capital one Securities.
Daniel Edward Guglielmo: Hello, everyone. Thank you for taking my question.
Daniel Politzer: Understood. Thanks so much. Thank you.
Daniel Edward Guglielmo: <unk> deals Victor asking him Sandy will have been full sack program year. Now can you just talk about those relationships and how they've gone compared to your expectations and are they doing anything different for this year's derby versus last year.
Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Daniel Guglielmo with Capital One Securities.
Daniel Edward Guglielmo: Yeah, thanks, Dan. Good question that that's, um, the relationships have gone very well, you know, our are Ability of our teams to work together and make progress together has really been, very satisfying. I think it's fair to say that the marketing around recruiting players, whether it be for uh... what what what it what it's for horse racing, whether it be for a.., a product like Twin Spires that's a that's a single product, asset just focuses on horse racing, or if it, with the case to DraftKings or FanDuel, a multi-product platform, when it comes to horse racing, it's all about the derby.
Speaker Change: Yes, Thanks, Dan Good question.
Speaker Change: The relationships have gone very well.
Daniel Edward Guglielmo: Our.
Daniel Edward Guglielmo: Our.
Victor: Ability of our teams to work together and make progress together has really been.
Victor: Very satisfying.
Victor: It's fair to say that.
Victor: The marketing around recruiting players whether it be for.
Victor: When it when it's four.
Victor: Horse racing whether it be for a.
Victor: Our.
Victor: Like twin spires, that's that's a single product.
Victor: Asset just focuses on horse racing or if it was the case the draft kings or or fan dual or multi product platform. When it comes to horse racing. It's all about the Derby that that's the opportunity to really reach deep into a broader customer base to recruit customers and interest them and horse racing. So I think as we.
Daniel Edward Guglielmo: That's the opportunity to really reach deep into a broader customer base to recruit customers and interest them in horse racing. So I think as we approach 2024, we've already seen some of the activities of not just DraftKings and FanDuel but others around horse racing and around the Derby, and we encourage that. And I think a real check-in point on the progress will really come after we get a chance to reflect on the results we see from this year's derby.
Victor: <unk> 2024, we've already seen some of the activities of not just draft kings and fan dual but others.
Victor: Around horseracing and around the Derby and we encourage that and I think a real checking point on the progress really will come after we get a chance to reflect.
Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of Shaun Kelley with Bank of America.
Victor: On the results we see for this year's Derby.
Speaker Change: Great. Thank you.
Speaker Change: Thank you one moment please for our next question.
Speaker Change: Our next question comes from the line of Shaun Kelley with Bank of America.
Shaun Clisby Kelley: Hi. Good morning, everyone.
Shaun Clisby Kelley: Hi, good morning, everyone.
Shaun Clisby Kelley: Just two relatively small ones for me going back to Exacta. First, I was just hoping you could give us a little bit more of a sense of some of the optimization initiatives in Kentucky. You talked about converting roughly 10% of the gaming floors there and that that's going well. How are we seeing that change manifest itself? Is that a revenue boost? Is that a margin? Is it a little bit of both? And then, kind of, the second part, and this is a very high-level one, but Bill, in your prepared remarks, I felt like maybe just tone-wise, I might be reading way too much into it, but it sounded like maybe your experience with B2B here has been successful or could be a little bit of a proving ground for something bigger on the strategic side. So I kind of wanted to see if I was on to something there, and you could elaborate on that all there.
Speaker Change: Just.
Shaun Clisby Kelley: Two relatively small ones for me going back to exactly.
Shaun Clisby Kelley: First I was just hoping you could give us a little bit more of a sense of some of the optimization initiatives in Kentucky, you talked about converting roughly 10% of the gaming floors, there and that's going well how are we seeing that change manifests itself is that revenue boost that margin is a little bit of both.
Shaun Clisby Kelley: And then kind of the second part and this is a very high level, one but bill in your prepared remarks, I felt like maybe just tone wise that might be reading way too much into it but it sounded like maybe your experience with b to B here has been.
Speaker Change: Successful or it could be a little bit of a proving ground for something bigger on the strategic side, So kind of wanted to see if.
Speaker Change: I was onto something there and you can elaborate at all there.
Bill: Well with respect sure.
William C. Carstanjen: Well, with respect, sure. Thanks, Shaun. With respect to the first question, in Kentucky, to the extent we can modify and introduce new content, it improves our top. So...
Bill: Thanks, Sean.
Speaker Change: With respect to the first question.
Speaker Change: In Kentucky to the extent, we can modify and introduce new content.
Speaker Change: It improves our topline.
William C. Carstanjen: So that's part of our focus there. And I had made a remark in my prepared remarks about how there are a bunch of good things going on when you talk about HRMs. There are a bunch of good factors, and if you try to slice and dice those factors and say, well, everything's attributable to this factor or that factor, it really becomes somewhat artificial.
Speaker Change: So.
Speaker Change: So that's part of our focus there and I had made a remark in my.
Speaker Change: In my prepared remarks about how there's a bunch of good things going on when you talk about <unk>.
Speaker Change: There are a bunch of good factors and if you try to slice and dice those factors and say well everything is attributable to this factor of that factor it really becomes somewhat artificial so.
William C. Carstanjen: So of the things that are going on with respect to HRMs that are positive, we're learning how to optimize an exact product and competitor Ainsworth product on our floor. We're learning how to introduce more products and then optimize with respect to that product. We're also generally seeing better acceptance of and familiarity with the HRM product by our gaming customers. It's, I think, becoming increasingly accepted as a very competitive gaming product. And we're getting better at marketing it, and we're getting better at operations.
Speaker Change: Of the things that are going on with respect to <unk> that are that are positive.
Speaker Change: We're learning how to optimize exact product and competitor Ainsworth product on our floor.
Speaker Change: We're learning how to introduce more product and then optimize with respect to that product were also generally.
Speaker Change: Seeing better acceptance of familiarity with <unk>.
Speaker Change: By our gaming customers, it's I think becoming increasingly accepted as a very competitive.
Speaker Change: Gaming product and we're getting better at marketing it and we're getting better at operations. So there are a number of factors.
William C. Carstanjen: So there are a number of factors, in general, those are just to name but a few that are contributing to the general ramp up that you see. And, and while we spend a lot of time and moments in our companies trying to slice and dice and figure out why the stew tastes so good. The truth is, there are a number of good ingredients that are contributing to a very good, very good soup for us at this point. So it's more than one thing. The second question with respect to
Speaker Change: In general those are to name, but a few that are contributing to the general ramp up that that you see.
Speaker Change: <unk>.
Speaker Change: And while we spend a lot of time at moments in our companies trying to slice and dice and figure out why the stew tastes go. Good. The truth is there are a number of good ingredients that are contributing to a very good a very good soup for us at this point so it's more than one thing.
Speaker Change: The second question with respect to.
William C. Carstanjen: B2B for Xacta; it's just my experience in my career in business. When you have a company that is both a B2B company and a B2C company, those can present cultural challenges. So for us, we really focus on it with Twin Spires and Xacta, you know, providing great service to us, to Churchill Downs and the businesses that we've vertically integrated, but also meeting the expectations of third-party customers out there. And I'm thrilled with how Xacta so far has been accepted and how the team is performing.
Speaker Change: VW for exact just my experience over them over my career in business.
Speaker Change: When you have a company that has both a b to B company and a b to C company those those those can present.
Speaker Change: Our cultural challenges so for us, we really focus on it with twin spires an exact.
Speaker Change: Providing great service to us to Churchill downs in the businesses that we vertically integrated but also meeting the expectations of third party customers out there and I'm thrilled with how exact so far has been accepted.
William C. Carstanjen: And I do think that when it comes to HRMs and central determinant technologies, there are lots of opportunities that we won't always be able to participate in as a B2B operator ourselves. It's just not always; we're not always going to see the stars aligned such that we have a great B2B opportunity. Yet, we still have a great business that can help provide returns with respect to those opportunities as a technology service provider.
Speaker Change: And how the team is performing and I do think that when it comes to <unk> in the central determinant technology.
Speaker Change: There are lots of opportunities that we won't be able to always participate in as a beta be operator ourselves. It's just not always we're not always going to see the stars align such that we have a great <unk> opportunity yet we still have a great business that can that can help provide returns with respect to those opportunities as a technology.
William C. Carstanjen: So that's a great thing about the Xacta business, and it's one we want to emphasize and pursue. So I couldn't be happier with how Xacta has started as a part of our family, and I'm also excited about the different potential opportunities that we see beyond what we're currently doing. And I'm also excited about how well the team has handled building relationships with third-party customers, even in jurisdictions where we have our own brick and mortar facilities that, at some level, or at least in that same jurisdiction, so at some level,
Speaker Change: Service provider. So that's that's a great thing about the exact business and it's why we want to emphasize.
Speaker Change: And pursue so.
Speaker Change: Couldnt be happier with how exactly that has started as a part of our family.
Speaker Change: And I'm also excited about the different potential opportunities that we see beyond what we're currently doing.
Speaker Change: And I'm also excited about how well the team is is handled.
Speaker Change: Building relationships with third party customers, even in jurisdictions, where we have our own brick and mortar facilities that in some level or at least in that same jurisdiction. So at some level compete.
Operator: Thank you. One moment, please, for our next question. And our next question comes from the line of Ben Chaiken with Mizuho.
Speaker Change: Thank you very much.
Speaker Change: Thank you one moment please for our next question.
Speaker Change: Our next question comes from the line of Ben Chaiken with Mizuho.
Benjamin Nicolas Chaiken: Hey, thanks for taking my question. You have the opening of Big Rose later this year. I guess, do you look at Little Rose as a comparable when evaluating relative performance, or is the property too small to do that comparable analysis? And then, related, you mentioned five to six hundred additional machines that you could potentially add in Virginia at your discretion. I know you said the process is ongoing, but maybe more color on how you think about where and when those are added. Thanks.
Benjamin Nicolas Chaiken: Hey, Thanks for taking my question you have the opening of Big rows. Later this year I guess do you look at little rose as a comparable when evaluating relative performance or as the property too small to do that.
Benjamin Nicolas Chaiken: Comparable analysis in that analysis, and then I guess related you mentioned $5 to 600 additional machines.
Benjamin Nicolas Chaiken: That you could potentially add in Virginia.
Benjamin Nicolas Chaiken: At your discretion I know you said the process is ongoing but maybe just more color on how you think about where and when those are added.
Speaker Change: Sure Ben So first.
William C. Carstanjen: Sure, Ben. So, first... The Rose is a much larger facility with higher finish outs, better finish outs, a hotel, and it's designed to compete as a more traditional big box gaming facility with all the attributes and amenities that we're allowed and have space for. So we don't view it as the same thing as the Rosie's that we have. And we'd also point out that it's also situated in a market that is a pretty exciting opportunity, a pretty large market, the Washington, D.C., Northern Virginia MSA. So the Rose is not a Rosie's, and we haven't approached it like a Rosie's.
Speaker Change:
Benjamin Nicolas Chaiken: The Roes as a much larger facility with higher finish outs better finish out.
Speaker Change: <unk>.
Speaker Change: And it's designed to compete as a more traditional big box gaming facility with all the attributes and amenities.
Speaker Change: That we're allowed to have space for so we don't view it as the same thing as as.
Speaker Change: The <unk> that we have.
Speaker Change: And we'd also point out that.
Speaker Change: It's also being situated in a market that that's.
Speaker Change: A pretty.
Speaker Change: Exciting opportunity a pretty large market, the Washington, DC, Northern Virginia, MSA. So the Roes is not Ah rosie's.
Speaker Change: <unk>.
Speaker Change: And we haven't approached it like a rosy.
William C. Carstanjen: It's a much more significant investment with more upside. I'd point out that somewhere around 6.5 million people in the MSA, and no other gaming facilities on the Virginia side. 175,000.
Speaker Change: More significant investment with more upside.
Speaker Change: I point out.
Speaker Change: Somewhere around $6 5 million people in the in the MSA no other gaming facilities on the on the Virginia side 175000.
William C. Carstanjen: Square Foot Facility, gaming facility. So there are lots of attributes about that market that made us approach it in a different way. With respect to the other remaining 500 machines, I wish we had more; wish we had more to deploy. But with respect to the other 500 or so machines we have available to deploy somewhere in the state of Virginia, I don't want to go deeper at this point into our racking and stacking of where we think they best go.
Speaker Change: Square foot facility.
Speaker Change: Gaming facility, so lots of attributes about that market that made us approach it in a different way.
Speaker Change: With respect to the other room.
Speaker Change: <unk> 500 machines wish we had more wish we had more to deploy.
Speaker Change: But with respect to the other 500 or so machines, we have available to deploy somewhere in the state of Virginia.
Speaker Change: I don't want to go deeper at this point into our racking and stacking of where we think they best go.
William C. Carstanjen: But we have numerous opportunities, more opportunities than we have machines. And so we're completing our work on that, and we'll have more to share. But as I said in my prepared remarks, we do expect that these will be deployed in 2025, which isn't all that far away, so we'll be making our choices and taking action relatively quickly.
Speaker Change: But we have numerous opportunities more opportunities than we have machines and so we're completing our work on that and we will have more to share, but as I said in my prepared remarks, we do expect that those will be deployed.
Speaker Change: <unk>.
Speaker Change: In 2025.
Speaker Change: Which isn't isn't all that far away. So we will be making our choices and taking action relatively quickly.
Benjamin Nicolas Chaiken: Understandable. On the Big Rose comment, I was actually meaning that in a complimentary way just because the wind per day is so strong at Little Rose. That's really – so I think I might have phrased it in a tough way to follow. It was meant to perform in Little Rose on a machine. No, no, I didn't. Okay.
Speaker Change: Understood on the on the Big Rose comment I was actually meaning that in a complementary way just because of the win per day is so strong at little Roes that is really it. So I think I might have phrased it in a tough way to follow up I just meant the performance.
William C. Carstanjen: Well, no, I, um... I appreciate that. Obviously, the Roses, the Little Roses, have performed extremely well with often a limited number of machines. We often wish we could put more machines in the facilities that are Little Roses. So I took your point.
William C. Carstanjen: On a machine okay.
Speaker Change: No.
Speaker Change: I appreciate that.
Speaker Change: Obviously, the Rosie is the little Roses have performed extremely well with often.
William C. Carstanjen: A limited number of machines, we often wish we could put more machines in the <unk>.
Speaker Change: And the facilities that are little rosie's.
William C. Carstanjen: I was just making the larger point that this is a much bigger swing. This is a much bigger swing, and you should look at it as a more traditional Class III-like facility because we have that opportunity to do that in that market. But the Roses that we have actually perform at a very high level and a very high per-unit win rate, and we're very pleased with those. But this is a bigger bet. It's a $465 million project in a six-and-a-half-million-people market, and so we have approached that a little bit differently from every perspective, including finish outs and changes.
Speaker Change: So I took your point I was just making the larger point that this is a much bigger swing. This is a much bigger swing and you should look at it it is a more traditional.
Speaker Change: Class III like facility.
Speaker Change: Because we have that opportunity to do that in that market, but.
Speaker Change: The Roes that we have actually perform at a very high level at a very high per unit win rate.
Speaker Change: We're very pleased with those but this was a bigger bed, it's a $465 million project and a $6 5 million people market and so we have approached that a little bit differently from.
Speaker Change: From every perspective, including finish outs and amenities.
William C. Carstanjen: I'll now turn the call back over to CEO Bill Carstanjen for any closing remarks.
Speaker Change: Thank you.
Speaker Change: I'll now turn the call back over to CEO Bill <unk> for any closing remarks.
William C. Carstanjen: Thank you. We always appreciate the questions and the interest in this call, and we appreciate everybody's trust in us and investment in our company. We will be good stewards of your capital. Our team, now having completed this process, is 100% focused on delivering a fantastic Kentucky Derby 150. So be on the lookout not only for the day of the race; we hope you all participate in whatever way you can, but also be looking out that night for some feedback from us on how the day went, including from an economic perspective. And we'll keep doing our thing to meet your expectations and exceed them. So thanks very much, everybody. Happy Derby, and talk to you soon.
William C. Carstanjen: Yeah.
Bill: Thank you we always appreciate.
Bill: The questions and the interest.
Bill: This call and we appreciate everybody's trust in us.
Bill: And investment in our company, we will we will be good stewards of your capital our team now having completed.
William C. Carstanjen: This process is 100% focused on delivering a fantastic, Kentucky Derby $1 50, so beyond the lookout.
Bill: Sure.
Bill: Not only for the day of the race, we hope you all participate in whatever way you can but also be looking out that night for some feedback from us on how the day wins, including from an economic perspective, and we will keep doing our thing too to meet your expectations and exceed them. So thanks very much everybody happy Derby and talk to you soon.
Operator: Thank you for participating. This concludes today's program, and you may now disconnect.
Speaker Change: Thank you for participating this concludes today's program and you may now disconnect.
Bill: Okay.
Bill: [music].